<PAGE>
As filed with the Securities and Exchange Commission on March 31,, 2000.
Registration No. 333-30722
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT No. 1 to
FORM S-1
REGISTRATION STATEMENT
under
the Securities Act of 1933
--------------
ARTISAN ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7822 04-3380164
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------
2700 Colorado Avenue, 2nd Floor
Santa Monica, California 90404
Telephone: (310) 449-9200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Copies to:
<TABLE>
<S> <C> <C>
Ken Schapiro Eva Herbst Davis Jonathan A. Schaffzin
Artisan Entertainment Inc. Kirkland & Ellis Cahill Gordon & Reindel
2700 Colorado Avenue, 2nd Floor 777 South Figueroa Street 80 Pine Street
Santa Monica, California 90404 Los Angeles, California 90017 New York, New York 10005
Telephone: (310) 449-9200 Telephone: (213) 680-8400 Telephone: (212) 701-3000
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is a statement of estimated expenses, to be paid solely by
Artisan, of the issuance and distribution of the securities being registered
hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ *
NASD filing fee.................................................. 14,500
Nasdaq National Market listing fee............................... *
Blue Sky fees and expenses (including attorneys' fees and
expenses)....................................................... *
Printing expenses................................................ *
Accounting fees and expenses..................................... *
Transfer agent's fees and expenses............................... *
Legal fees and expenses.......................................... *
Miscellaneous expenses........................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
General Corporation Law
We are incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, with respect
to any criminal action or proceeding, had no reasonable cause to believe that
his conduct was illegal. A Delaware corporation may indemnify any persons who
are, were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reasons of
the fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable
to the corporation. Where an officer, director, employee or agent is successful
on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
II-1
<PAGE>
Amended and Restated Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation and bylaws provides
for the indemnification of officers and directors to the fullest extent
permitted by the Delaware General Corporation Law.
Item 15. Recent Sales of Unregistered Securities.
During the last three years, Artisan has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") (the following information does not reflect the stock split
and reclassification described in the registration statement):
(1) Artisan was acquired through a leveraged buyout by private investors
on July 9, 1997. In connection with the acquisition, Artisan issued:
(a) an aggregate of (i) 5,040,000 shares of class A common stock; and
(ii) 559,999.98 shares of class L common stock to a private
investor group, whose shares were subsequently transferred to
Audax Entertainment, L.P., for an aggregate of $10.0 million.
(b) an aggregate of (i) 2,520,000 shares of class A common stock; and
(ii) 280,000 shares of class L common stock to Alan D. Gordon for
an aggregate of $5.0 million.
(c) an aggregate of (i) 1,440,000 shares of class A common stock; and
(ii) 160,000 shares of class L common stock to CanPartners
Investments IV, LLC for an aggregate of $2.86 million.
(2) To finance a portion of the leveraged buyout, Artisan sold an
aggregate of $15.0 million aggregate principal amount of 13.5%
Senior Subordinated Notes due 2004 to CanPartners Investment IV, LLC
pursuant to a Note and Stock Purchase Agreement dated July 9, 1997.
The Company received cash of $12.1 million.
(3) During the year ended December 31, 1999, we sold an aggregate of (i)
201,542 shares of class A common stock; and (ii) 49,754 shares of
class L common stock pursuant to various Employment Agreements. In
accordance with the terms of those agreements, employees purchased
their shares for $0.9 million in cash.
(4) Artisan's board of directors adopted a Stock Option Plan in 1997.
Pursuant to that plan, Artisan has issued the following stock
options which vest over time and have exercise prices ranging from
$0.001 to $10.12:
(a) in 1997, options for an aggregate of 2,046,902 shares of common
stock.
(b) in 1998, options for an aggregate of 773,523 shares of common
stock.
(c) in 1999, options for an aggregate of 141,363 shares of common
stock.
(5) Artisan has also issued to following stock options:
(a) in 1998, options for an aggregate of 50,854 shares of common
stock to Wachsberger at a weighted average exercise price of
$3.86 per share.
(b) in 1998, options for an aggregate of 30,516 shares of common
stock to Hayward at a weighted average exercise price of $3.86
per share.
(c) in 1998, options for an aggregate of 20,344 shares of common
stock to Garrett at a weighted average exercise price of $3.86
per share.
(d) in 1998, options for an aggregate of 25,000 shares of common
stock to John J. Josephson pursuant to a consulting agreement
entered into in February 1998, at an exercise price of $0.001 per
share.
(e) in 1998, options for an aggregate of 500,000 shares to Allen &
Co. at an weighted average exercise price of $4.13 per share.
The sales and issuances listed above in paragraphs (1)(a), (1)(b), (1)(c)
and (2) were deemed exempt from registration under the Securities Act by virtue
of Section 4(2) thereof, as transactions not involving a
II-2
<PAGE>
public offering. The issuances of securities listed in paragraph (3) and (4)
above were deemed exempt from registration under the Securities Act by virtue
of Rule 701. The issuances of securities listed in paragraph (5) above were
deemed exempt from registration under the Securities Act by virtue of Section
4(2), as transactions not involving a public offering. Certain defined terms
used therein not otherwise defined have the meanings ascribed to them in the
prospectus, which forms a part of this registration statement.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of Artisan
Entertainment Inc.
*3.2 Amended and Restated Bylaws of Artisan Entertainment Inc.
*4.1 Specimen of Common Stock.
*4.2 Amended and Restated Stockholders Agreement, dated as of
, 2000, by and among Film Holdings Co., Audax
Entertainment, Alan D. Gordon, CanPartners Investments IV, LLC and
other stockholders.
*4.3 Option Certificate and Agreement granted by Film Holdings Co. to
Mark A. Curcio, dated as of July 10, 1997.
*4.4 Option Certificate and Agreement granted by Film Holdings Co. to
Amir J. Malin, dated as of July 10, 1997.
*4.5 Option Certificate and Agreement granted by Film Holdings Co. to
William H. Block, dated as of July 10, 1997.
*4.6 Promissory Note and Stock Pledge Agreement, dated as of July 10,
1997, by and between Film Holdings Co. and Mark A. Curcio.
*4.7 Promissory Note and Stock Pledge Agreement, dated as of July 10,
1997, by and between Film Holdings Co. and Amir J. Malin.
*4.8 Promissory Note and Stock Pledge Agreement, dated as of July 10,
1997, by and between Film Holdings Co. and William H. Block.
*4.9 Note and Stock Purchase Agreement, dated as of July 9, 1997, by
and between LIVE Film and Mediaworks Inc., Film Holdings Co. and
CanPartners Investments IV, LLC.
*4.10 Amendment Number One to the Note and Stock Purchase Agreement,
dated as of July 9, 1997, amended as of August 10, 1998, by and
among LIVE Film and Mediaworks Inc., Film Holdings Co. and
CanPartners Investments IV, LLC.
*4.11 Amended and Restated Amendment Number Two to the Note and Stock
Purchase Agreement, dated as of July 9, 1997, amended as of April
28, 1999, by and among LIVE Film and Mediaworks Inc., Film
Holdings Co. and CanPartners Investments IV, LLC.
*4.12 Amendment Number Three to the Note and Stock Purchase Agreement,
dated as of July 9, 1997, amended as of September 29, 1999, by and
among LIVE Film and Mediaworks Inc., Film Holdings Co. and
CanPartners Investments IV, LLC.
*5.1 Form of Opinion of Kirkland & Ellis.
*10.1 Employment Agreement, dated as of July 10, 1997, by and between
Film Holdings Co. and Mark A. Curcio.
*10.2 Employment Agreement, dated as of July 10, 1997, by and between
Film Holdings Co. and Amir J. Malin.
*10.3 Employment Agreement, dated as of July 10, 1997, by and between
Film Holdings Co. and William H. Block.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
*10.4 Employment Agreement, dated as of January 1, 1998, by and between
LIVE Film and Mediaworks Inc. and Steve Beeks.
*10.5 Employment Agreement, dated as of September 8, 1998, by and
between Artisan Entertainment Inc. and Glenn Ross.
*10.6 Employment Agreement, dated as of March 23, 1998, by and between
Artisan Entertainment Inc. and Nicolas van Dyk.
*10.7 Addendum to Employment Agreement, dated as of April 8, 1999, by
and between Artisan Entertainment Inc. and Nicolas van Dyk.
*10.8 Addendum to Employment Agreement, dated as of June 14, 1999, by
and between Artisan Entertainment Inc. and Nicolas van Dyk.
*10.9 Employment Agreement, dated as of September 8, 1998, by and
between Artisan Entertainment Inc. and James A. Keegan.
*10.10 Employment Agreement, dated as of April 1, 1998, by and between
LIVE Film and Mediaworks Inc. and Robert L. Denton.
*10.11 Amended and Restated Employment Agreement, dated as of February 1,
1999, by and between Artisan Entertainment Inc. and Ken Schapiro.
*10.12 Employment Agreement, dated as of August 1, 1997, by and between
LIVE Film and Mediaworks Inc. and Jeffrey Fink.
*10.13 Film Holdings Co. 1997 Stock Option Plan.
*10.14 Artisan Entertainment Inc. 2000 Stock Option Plan
*10.15 Lease, dated as of November 18, 1997, by and between 2700 Colorado
Partners, L.P. and LIVE Entertainment, Inc.
*10.16 Lease, dated as of December 1, 1999, by and between Hudson-
Chambers Company and Artisan Properties Inc.
10.17(1) Distribution Services Agreement Term Sheet by and between Artisan
Home Entertainment, Inc. and Twentieth Century Fox Home
Entertainment, Inc.
10.18 Amended and Restated Mutual Confidentiality and Non-Disclosure
Agreement, dated as of March 1, 1998, by and between Artisan Home
Entertainment, Inc. and Twentieth Century Fox Home Entertainment,
Inc.
10.19 First Amendment to Distribution Services Agreement Term Sheet,
dated as of August 1, 1998, by and between Artisan Home
Entertainment, Inc. and Twentieth Century Fox Home Entertainment,
Inc.
10.20(1) Omnibus Agreement, dated as of March 31, 1998, by and among
Patrick Wachsberger, Robert Hayward, David Garrett, The
Franco/Kiwi Alliance, Inc., Summit Entertainment, L.P., Artisan
Entertainment Inc. and Film Holdings Co.
10.21(1) Purchase Agreement, dated as of February 4, 2000, by and among The
Baby Einstein Company, LLC, Julie Aigner-Clark, William Clark and
Artisan Entertainment Inc.
10.22 Loan and Security Agreement, dated as of October 20, 1998, by and
between Artisan Pictures Inc. and Finova Capital Corporation.
10.23 Loan and Security Agreement, dated as of December 21, 1999 by and
between Artisan Pictures Inc. and Finova Capital Corporation.
10.24 Amended and Restated Credit Guaranty Agreement, dated as of July
9, 1997, as amended and restated as of August 10, 1998, by and
among Artisan Pictures Inc. and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.25 Amendment Number One dated as of April 2, 1999 to the Amended and
Restated Credit Guaranty Agreement, dated as of July 9, 1997, as
amended and restated as of August 10, 1998, by and among Artisan
Pictures Inc., the guarantors named therein, the lenders named
therein and The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank.
10.26 Amendment Number Two dated as of April 2, 1999 to the Amended and
Restated Credit Guaranty Agreement, dated as of July 9, 1997,
amended and restated as of August 10, 1998, by and among Artisan
Pictures Inc., the guarantors named therein, the lenders named
therein and The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank.
10.27 Amendment Number Three dated as of August 18, 1999 to the Amended
and Restated Credit Guaranty Agreement, dated as of July 9, 1997,
as amended and restated as of August 10, 1998, by and among
Artisan Pictures Inc., the guarantors named therein, the lenders
named therein and The Chase Manhattan Bank, as Administrative
Agent and Fronting Bank.
10.28 Amendment Number Four dated as of September 30, 1999 to the
Amended and Restated Credit Guaranty Agreement, dated as of July
9, 1997, as amended and restated as of August 10, 1998, by and
among Artisan Pictures Inc., the guarantors named therein, the
lenders named therein and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank.
10.29 Amendment Number Five dated as of December 17, 1999 to the Amended
and Restated Credit Guaranty Agreement, dated as of July 9, 1997,
as amended and restated as of August 10, 1998, by and among
Artisan Pictures Inc., the guarantors named therein, the lenders
named therein and The Chase Manhattan Bank, as Administrative
Agent and Fronting Bank.
10.30 Credit and Security Agreement dated as of October 13, 1999 among
Artisan Film Investors Trust as borrower and the lenders named
therein with The Chase Manhattan Bank as Administrative Agent and
Fronting Bank, and Fleet Bank as Waiver Agent.
**21.1 Subsidiaries of Artisan Entertainment Inc.
**23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
**23.3 Consent of Kevin Magid.
**23.4 Consent of Joseph O'Donnell.
**23.5 Consent of John H. Josephson.
23.6 Consent of Amir Malin.
23.7 Consent of Paul Kagan Associates, Inc.
**27.1 Financial Data Schedule.
**27.2 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(1) Confidential treatment has been requested for certain portions of these
exhibits.
(b) Financial Statement Schedule.
<TABLE>
<CAPTION>
Index
-----
<S> <C>
Report of Independent Accountants on Financial Statement Schedule.. S-1
Report of Independent Accountants on Financial Statement Schedule.. S-2
Schedule II--Valuation and Qualifying Accounts..................... S-3
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore has
been omitted.
II-5
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act
of 1933 (the "Securities Act"), the information omitted from the
form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed
by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Film Holdings
Co. (to be renamed Artisan Entertainment Inc.) has duly caused this
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica, State of
California, on March 31, 2000.
Film Holdings Co.
(to be renamed ARTISAN ENTERTAINMENT
INC.)
By: /s/ Mark A. Curcio
----------------------------------
Mark A. Curcio
Chief Executive Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and March 31, 2000
____________________________________ Director
Geoffrey S. Rehnert
* Vice Chairman of the Board March 31, 2000
____________________________________ and Director
Alan D. Gordon
* Director March 31, 2000
____________________________________
Marc B. Wolpow
/s/ Mark A. Curcio Chief Executive Officer and March 31, 2000
____________________________________ Director (Principal
Mark A. Curcio Executive Officer)
* Director March 31, 2000
____________________________________
William S. Kirsch, P.C.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 31, 2000
____________________________________
Jeremy Hogue
* Director March 31, 2000
____________________________________
Mitchell R. Julis
/s/ JAMES E. KEEGAN Executive Vice President and March 31, 2000
____________________________________ Chief Financial Officer
James E. Keegan (Principal Financial
Officer)
/s/ ROBERT L. DENTON Senior Vice President of March 31, 2000
____________________________________ Finance and Chief
Robert L. Denton Accounting Officer
(Principal Accounting
Officer)
* The undersigned, by signing his name hereto, does hereby sign and execute
this Amendment No. 1 to Registration Statement on Form S-1 on behalf of the
above named officer and/or director.
*By: /s/ MARK A. CURCIO March 31, 2000
---------------------------------
Mark A. Curcio
Attorney-In-Fact
</TABLE>
II-8
<PAGE>
EXHIBIT 10.17
- -----------------------------------------------------
Portions denoted with an asterisk have been omitted
and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential
treatment.
- -----------------------------------------------------
DISTRIBUTION SERVICES AGREEMENT
TERM SHEET
1. PARTIES:
-------
(a) Twentieth Century Fox Home Entertainment, Inc. "Fox"); and
(b) Artisan Home Entertainment, Inc. ("Artisan").
2. DISTRIBUTION TERRITORY: The U.S., its territories and possessions (i.e.,
-----------------------
including Puerto Rico) ("Distribution Territory").
3. PICTURES: This Agreement covers all Motion Pictures for which Artisan has
--------
or acquires the right of Home Video Distribution during the Term, including
Artisan's existing catalog, new productions and new acquisitions ("Pictures").
4. TERM: The period commencing August 1, 1998 and ending *
----
("Term").*
5. DISTRIBUTION SERVICES: For each Picture for which Artisan engages in Home
---------------------
Video Distribution during the Term, except as provided in Paragraph 6., Fox
shall have the exclusive right and obligation to provide Artisan with:
(a) for VHS format Video Devices only, duplication services *; and
(b) for all formats of Video Devices (including DVD), the following
services (collectively, "Distribution Services"):
(i) physical distribution services (including pick, pack and ship
and returns processing services);
(ii) retail merchandising and inventory management services;
(iii) credit evaluation, billing and collection services;
(iv) co-op and other advertising credit administration services; and
(v) customer service services for VMI Customers.
<PAGE>
6. EXCEPTIONS TO EXCLUSIVITY: *
-------------------------
7. FOX'S DISTRIBUTION SERVICES FEE:
---------------------------------
*
8. GROSS RECEIPTS: *
--------------
9. NET RECEIPTS: *
------------
10. RESERVES:
--------
*
11. PAYMENT: *
-------
12. CROSS-COLLATERALIZATION / SHORTFALLS: *
------------------------------------
13. ARTISAN'S OBLIGATIONS: For each Picture for which Artisan engages in Home
---------------------
Video Distribution during the Term:
(a) Duplication (VHS): For VHS format Video Devices of such Picture,
-----------------
Artisan shall cooperate with Fox in arranging for timely duplication of
such Video Devices by Fox's duplicator(s), including by making reproduction
masters and packaging artwork and materials timely available to Fox's
duplicator(s) and by providing, subject to Fox's reasonable approval, order
entry, management and tracking services and component inventory management
services for Video Devices of such Picture. Fox and Artisan shall cooperate
in good faith at all times to minimize scheduling conflicts between
Artisan's duplication and Fox's duplication and Fox shall use commercially
reasonable efforts to accommodate Artisan's duplication (taking into
account Artisan's commercial needs as well as Fox's); *, Fox shall use
commercially reasonable efforts to assist Artisan in resolving such
dispute, it being agreed that Fox shall have the right to pay all invoices
for duplication of Video Devices of Pictures in its reasonable discretion
and to deduct all such amounts paid as Distribution Services Costs
hereunder. At all times, Artisan shall be the sole owner of all materials
with respect to Pictures, including reproduction masters, packaging
materials, and Video Devices.
(b) Delivery of Finished Goods (DVD): For DVD format Video Devices of
--------------------------------
Pictures, Artisan shall timely deliver finished goods to Fox or Fox's
distributor.
(c) Sales and Marketing Activities: Artisan shall engage in sales and
------------------------------
marketing activities in types and amounts that are customary in the home
video industry as practiced by Artisan as of the date hereof for similar
product, and Artisan shall timely provide Fox with all sales information
(including all order entry and returns authorization information on a per-
customer basis) reasonably required to permit Fox to provide Distribution
Services to Artisan. Artisan's sales activities shall be subject to the
following restrictions:
<PAGE>
(i) All sales to customers of Artisan for whom Fox provides vendor-
managed inventory services ("VMI Customers") shall be made on the same
terms and conditions as then in-effect for sales of similar Fox
product to such VMI Customers, except that the following terms and
conditions may vary: pricing (including performance rebates and
discounts); and slotting, display, co-op and other advertising
allowances, payments, rebates and credits;
(ii) In connection with all sales to customers of Artisan for whom
Fox does not provide vendor-managed inventory services ("Non-VMI
Customers"), Artisan shall be responsible for all customer service
services;
(iii) Fox shall not be obligated to provide direct-to-store
distribution to any customer of Artisan that Fox is not then providing
with direct-to-store distribution of similar Fox product; and
(iv) Fox shall not be obligated to provide vendor-managed inventory
services to any customer of Artisan that Fox is not then providing
with vendor-managed inventory services for similar Fox product.
(d) Sales and Marketing Costs: Artisan shall be directly responsible for
-------------------------
all costs in connection with the selling, advertising and promotion of
Video Devices of the Pictures, including design, production and manufacture
of marketing and advertising materials, press kits, trailers, screening
Video Devices, media purchases, mailers, promotions, fulfillment, design,
production and shipment of display and point-of-purchase advertising (if
not shipped with Video Devices), advertising agency and public relations
fees, consultant fees, sales incentive programs, trade show and
entertainment costs, commercial tie-ins and sales commissions
(collectively. "Sales and Marketing Costs"). Fox shall have no
responsibility for Sales and Marketing Costs.
(e) Taxes: Artisan shall be directly responsible for all amounts (however
-----
denominated) required to be remitted to taxing authorities as sales, use,
excise, VAT, commodity, remittance, withholding and comparable or similar
taxes with respect to Cassettes of the Pictures (collectively, "Taxes").
Fox shall have no responsibility for Taxes.
(f) Payments to Third Parties: Except as expressly provided herein, Fox
-------------------------
shall have no obligation to make any payment of any kind to any third
Parties with respect to Video Devices of the Pictures for any reason
whatsoever, including residuals or royalties, as such payments, if any, are
the responsibility and obligation of Artisan.
14. *
15. CHANGE OF CONTROL: In the event a third Party which has a substantial home
-----------------
video distribution system in the Distribution Territory enters into a joint
venture with, merges with, or is consolidated with or acquires control of or
comes under common control with Artisan, Artisan shall have the right to
terminate the Agreement on six months prior written notice to Fox.
<PAGE>
16. EXPIRATION/TERMINATION PROCEDURES: Fox and Artisan shall agree on mutually
---------------------------------
acceptable expiration/termination procedures, including procedures for
estimating amounts of retail inventory in the field, and goods in transit.
17. OWNERSHIP OF DATA: As between Artisan and Fox, Artisan shall be the sole
-----------------
owner of all data generated by Fox or its vendors with respect to Video Devices
of the Pictures, including without limitation all point-of-sale data from VMI
Customers with respect to such data. Fox shall treat all such data as
Confidential Information of Artisan pursuant to the Amended and Restated Mutual
Confidentiality and Non-Disclosure Agreement dated as of March 1, 1998 between
Fox and Artisan. Notwithstanding anything in the foregoing two sentences to the
contrary, Fox and its employees, agents and vendors shall have an irrevocable
license for the Term to use such data solely for the purpose of providing
Distribution Services to Artisan hereunder.
18. OTHER TERMS AND CONDITIONS: All other Terms and Conditions shall be subject
--------------------------
to good faith negotiation to be mutually agreed. Unless and until a long-form
distribution services agreement is signed, this Term Sheet shall constitute a
binding agreement between Fox and Artisan. Any modification of the above terms
shall be in writing and signed by Fox and Artisan.
By signing in the spaces provided below, Fox and Artisan accept and agree to all
of the terms and conditions of this Term Sheet.
TWENTIETH CENTURY FOX HOME ARTISAN HOME ENTERTAINMENT. INC.
ENTERTAINMENT, INC. ("Artisan")
("Fox")
/s/ Laura Cook /s/ Amir Malin
By: _______________________ By: ___________________________
Its: SVP Its: CEO
Legal & Business
<PAGE>
Exhibit A1 - Pricing Schedule
*
Exhibit A2 - Pricing Schedule
*
Exhibit A3 - Pop-up Slipcase Pricing
*
Exhibit A4 - Rigid Slipcase Pricing
*
<PAGE>
Exhibit 10.18
AMENDED AND RESTATED
MUTUAL CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
This Amended and Restated Mutual Confidentiality and Non-Disclosure Agreement
("Agreement") is entered into as of March 1, 1998 between TWENTIETH CENTRUTY FOX
HOME ENTERTAINMENT, INC. ("Company") (collectively, "Parties"). This Agreement
amends and restates in its entirety the Mutual Confidentiality and Non-
Disclosure Agreement previously entered into by the Parties. The Parties will
provide each other with Confidential Information as defined below in connection
with one or more possible or actual transactions between the Parties (each a
"Transaction"). As a condition of one of the Parties or its agents or its
representatives furnishing Confidential Information ("Furnishing Party") to the
other of the Parties or its agents or its representatives receiving Confidential
Information ("Receiving Party"), the Receiving Party shall treat the
Confidential Information confidentially as set forth below.
1. "Confidential Information" shall mean all non-public proprietary
information provided by the Furnishing Party to the Receiving Party, whether or
not marked or otherwise specifically designated as confidential. The term
"Confidential Information" does not include information which (i) becomes
generally available to the public other than as a result of a disclosure by the
Receiving Party, (ii) was available to the Receiving Party on a non-confidential
basis prior the Furnishing Party's disclosure to the Receiving Party, or (iii)
becomes available to the Receiving Party on a non-confidential basis from a
source other than the Furnishing Party, provided that such source is, to the
best of the Receiving Party's knowledge, not bound by a confidentiality
agreement with the Furnishing Party or otherwise prohibited from transmitting
the information to the Furnishing Party by a contractual, legal or fiduciary
obligation.
2. It is understood that the Receiving Party may disclose any of the
Confidential Information to the Receiving Party's (and its subsidiaries' and
affiliates') directors, officers, employees, agents, representatives (including
attorneys and financial advisors), and prospective bank or institutional
lenders, (collectively, "Representatives") who require such material in
connection with a possible or actual Transaction (provided that such
Representatives shall be informed by the Receiving Party of the confidential
nature of the Confidential Information and shall agree to act in accordance with
the terms hereof). The Receiving Party agrees that the Confidential Information
of the Furnishing Party will be kept confidential by the Receiving Party and its
Representatives and, except with the specific prior written consent of the
Furnishing Party, or as expressly otherwise permitted by the terms hereof, will
not be disclosed by the Receiving Party or its Representatives. The Parties
further agree that the Receiving Party and its Representatives will not use any
of the Confidential Information for any reason or purpose other than in
connection with a possible or actual Transaction.
3. Company acknowledges and agrees that certain Confidential Information is
extremely competitively sensitive for Fox ("Highly Confidential Information")
and shall therefore be subject to restrictions on disclosure additional to those
applicable to other Confidential Information. Highly Confidential Information
shall include the identity of Fox's actual and potential customers and vendors;
Fox's release schedules and sales trends; the prices and pricing policies of
Fox, its vendors and customers; all customer shipment, point-of-sale and returns
information; Fox's strategic planning information regarding system
implementation (including geographic implementation) and process improvement;
all distribution software used by and software development performed for Fox;
Fox's replenishment schedules and processes, inventory management schedules and
processes; and any other competitively sensitive Confidential Information
designated by Fox from time to time as "Highly Confidential Information".
Company shall limit disclosure of Highly Confidential Information to Company
employees. Company shall be responsible for any breach of this Agreement by any
such
-1-
<PAGE>
employee. Company shall not disclose Highly Confidential Information to any of
its consultants, or other vendors, or agents.
4. In the event that the Receiving Party or any of its Representatives are
requested or required by applicable Federal or State law of the United States to
disclose any of the Confidential Information, it is agreed that the Receiving
Party or its Representative, as the case may be, will provide the Furnishing
Party with prompt notice of such request(s) so that it may seek an appropriate
protective order or other appropriate remedy and/or waive compliance by the
Receiving Party or its Representative with the provisions of the Agreement. In
the event that such protective order or other remedy is not obtained, or that
the Furnishing Party grants a waiver hereunder, the Receiving Party or such
Representative of the Receiving Party may furnish that portion (and only that
portion) of the Confidential Information which it is legally compelled to
disclose and will exercise its best efforts to obtain reliable assurance that
confidential treatment will be accorded any Confidential Information so
furnished.
5. Without the prior written consent of Company, (i) neither Fox nor those of
its Representatives who are aware of the Confidential Information of Company
will initiate or cause to be initiated any communications with any employee of
Company concerning the Confidential Information, and (ii) none of Fox's
directors, officers or employees who are aware of the Confidential Information
will, for the two-year period from the date of the Agreement, solicit or cause
to be solicited for employment any employee of Company who is aware of the
Confidential Information of Company.
6. Without the prior written consent of Fox, (i) neither Company nor those of
its Representatives who are aware of the Confidential Information of Fox will
initiate or cause to be initiated any communications with any employee of Fox
concerning the Confidential Information, and (ii) none of Company's directors,
officers or employees who are aware of the Confidential Information will, for
the two-year period from the date of the Agreement, solicit or cause to be
solicited for employment any employee of Fox who is aware of the Confidential
Information of Fox.
7. Upon providing the Receiving Party with a specific list of the Confidential
Information to be returned to the Furnishing Party, the Receiving Party will
promptly deliver to the Furnishing Party or its Representatives, the
Confidential Information listed, together with all copies thereof, in the
possession of the Receiving Party or its Representatives, which was actually
furnished by the Furnishing Party to the Receiving Party.
8. Although the Receiving Party understands that the Furnishing Party has
endeavored to include in the Confidential Information information known to it
which it believes to be relevant to a possible or actual Transaction, the
Receiving Party further understands that neither the Furnishing Party nor its
Representatives make any representation or warranty as to the accuracy or
completeness of the Confidential Information. The Receiving Party agrees that
neither the Furnishing Party nor its Representatives shall have any liability to
Receiving Party or its Representatives resulting from the use of the
Confidential Information by the Receiving Party or its Representatives.
9. The provisions set forth in this Agreement may be modified or waived only
by a separate writing signed by the Parties expressly so modifying or waiving
such provisions.
10. The Receiving Party hereby agrees to indemnify and hold harmless the
Furnishing Party from any damage, loss, cost or liability (including legal fees
and the cost of enforcing this indemnity) arising out of, or resulting from, any
unauthorized use or disclosure by the Receiving Party or its Representatives of
the Confidential Information. The Receiving Party also acknowledges that money
damages would be both incalculable and an insufficient remedy for any breach of
this Agreement by it or its Representatives and that any such breach would cause
the Furnishing Party irreparable harm. Accordingly, the Receiving Party also
-2-
<PAGE>
agrees that in the event of any breach of this Agreement, the Furnishing Party,
in addition to any other remedies at law or in equity it may have, shall be
entitled to equitable relief, including injunctive relief and specific
performance.
11. It is understood and agreed that no failure or delay by either party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
12. The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity of enforceability of any other provisions of this
Agreement, which shall remain in full force and effect. The parties hereby
acknowledge and agree that this Agreement and the rights and benefits thereof
shall be assigned by the party to any purchaser of a controlling share of equity
in that party.
13. This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
14. The Parties hereby represent and warrant that the undersigned officer is
authorized to execute this Agreement on its behalf.
By signing in the spaces provided below, Fox and Company have agreed to all of
the terms and conditions of this Agreement.
TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC.
By: /s/ Laura Cook
-------------------------
Its: Senior Vice President
Legal and Business Affairs
Twentieth Century Fox Home Entertainment, Inc.
ARTISAN HOME ENTERTAINMENT, INC.
By: /s/ Mark Curcio
-------------------------
Its: CEO
-3-
<PAGE>
EXHIBIT 10.19
FIRST AMENDMENT TO
DISTRIBUTION SERVICES AGREEMENT
TERM SHEET
This amendment ("First Amendment") to the Distribution Services Agreement Term
Sheet dated as of August 1, 1998 ("Term Sheet") between Twentieth Century Fox
Home Entertainment, Inc. ("Fox") and Artisan Home Entertainment, Inc.
("Artisan") is made and entered into as of September ___, 1999. All terms
initially capitalized and not defined herein shall have the meaning given to
them in the Term Sheet.
Whereas, Fox and Artisan desire to amend the Term Sheet to expressly acknowledge
the parties' respective warranty and indemnity rights and obligations;
For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Fox and Artisan hereby agree to amend the Term Sheet as
follows:
1. WARRANTIES: The following new Paragraph 18. is added to the Term Sheet,
----------
with the remaining Paragraphs renumbered accordingly:
"18. WARRANTIES: For each Picture for which Fox has the right and
----------
obligation to provide Distribution Services pursuant to the Term Sheet,
Artisan warrants that Artisan has full right, power and authority to
exercise the right of Home Video Distribution with respect to such Picture
and that Fox's provision of Distribution Services to Artisan in connection
with the exercise of such right shall not violate the rights of any third
party."
2. INDEMNITIES: The following new Paragraph 19. is added to the Term Sheet,
-----------
with the remaining Paragraphs renumbered accordingly:
"19. INDEMNITIES:
-----------
(a) By Artisan: Artisan shall indemnify and hold harmless Fox, its
----------
parents, subsidiary and affiliated entities, successors, officers,
directors, shareholders, employees and agents, from and against any
and all demands, actions, claims, or proceedings and from any and all
damages, liabilities, costs, losses and expenses (including reasonable
attorneys' fees and expenses) (collectively, "Claims") relating to or
arising out of (i) any violation of any of the warranties,
representations or agreements made by Artisan; (ii) the content of or
any error or omission in any Picture, or in any material or
information furnished by Artisan; (iii) any Claim by a third party,
claiming through Artisan, the copyright owner (if different) or their
respective predecessors or grantors, to participate in the proceeds of
any Picture derived from exploitation of the right of Home Video
Distribution in the Distribution Territory; (iv) any Claim by a third
Party with respect to payments required, including employer fringe
benefits and taxes payable with respect thereto, under applicable
collective bargaining agreements by reason of or as a condition to any
exhibition of the
-1-
<PAGE>
Picture, or any part thereof, or any use or reuse thereof for any
purpose or in any media whatsoever; or (v) any Claim arising from a
violation of law by Artisan or the copyright owner (if different).
(b) By Fox: Fox shall indemnify and hold harmless Artisan, its parents,
------
subsidiary and affiliated entities, officers, directors, shareholders,
employees and agents, from any and all Claims relating to or arising
out of any violation or alleged violation of any of the warranties,
representations or agreements made by Fox.
(c) Party to be Indemnified: The party to be indemnified shall give
-----------------------
the indemnifying party prompt written notice of all Claims, and an
opportunity to defend the same through counsel of the indemnifying
party acceptable to the indemnified party acting reasonably. The
indemnified party shall also have a right to its own counsel (at its
own cost) if it deems such to be appropriate. The party to be
indemnified shall give the indemnifying party all information in its
possession or under its control with reference to such claims, and all
reasonable assistance and cooperation."
3. RATIFICATION OF TERMS AND CONDITIONS: This First Amendment represents the
------------------------------------
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior written and/or oral agreements with respect to such subject
matter. Except as herein amended, the terms and conditions of the Term Sheet
shall remain in full force and effect.
By signing in the spaces provided below, Fox and Artisan have agreed to all of
the terms and conditions of this First Amendment.
ARTISAN HOME ENTERTAINMENT, INC. TWENTIETH CENTURY FOX HOME
("Artisan") ENTERTAINMENT, INC.
("Fox")
BY /s/ Ken Schapiro By /s/ Laura Cook
------------------------------ ------------------------------
Its EVP Its EVP
Legal & Business
-2-
<PAGE>
Exhibit 10.20
Portions denoted with an asterisk have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.
LIVE/SUMMIT OMNIBUS AGREEMENT
-----------------------------
Table of Contents
-----------------
<TABLE>
<S> <C>
1. Definitions................................................... 3
2. Contribution of Stock of Summit N.V........................... 5
3. Sale of * Interest in Summit.................................. 6
4. Representations and Warranties................................ 6
a. Organization and Qualification; Affiliates.............. 6
b. Authority Relative to this Agreement.................... 6
c. No Conflict; Required Filings and Consents.............. 7
d. Financial Statements.................................... 7
e. Absence of Certain Changes or Events.................... 7
f. No Undisclosed Liabilities.............................. 7
g. Absence of Litigation................................... 8
h. Taxes................................................... 8
i. Intellectual Property................................... 8
j. Interested Party Transactions........................... 8
k. Brokers................................................. 8
l. Disclosure.............................................. 9
5. Starting Equity............................................... 9
6. Service Options............................................... 9
7. Closing....................................................... 9
8. Domestic Distribution Rights.................................. 10
9. Conduct Prior to the Call Closing Date........................ 10
10. Call.......................................................... 12
a. Exercise................................................ 12
b. Call Closing Date....................................... 12
c. Payment of Call Purchase Price.......................... 12
d. Disputes as to Call Purchase Price...................... 12
e. Single Picture Designation.............................. 13
f. Executive Covenant...................................... 14
g. Employment Contracts.................................... 14
h. Post-Closing Audit...................................... 14
i. Assignment.............................................. 14
j. Transfers of Interests.................................. 14
11. Summit Call Option............................................ 15
12. Accounting Principles......................................... 15
13. Press Releases................................................ 15
14. Expenses...................................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
15. Arbitration................................................... 16
16. Notice and Cure............................................... 16
17. Representations and Warranties................................ 16
18. Integrated Agreement.......................................... 16
19. Governing Law................................................. 16
20. Good Faith.................................................... 16
21. Execution in Counterparts..................................... 17
22. Super-Special "If, If, If, If" Provisions..................... 17
</TABLE>
EXHIBITS
"A" Agency Agreement
"B" Partnership Agreement
"C" Service Options
"D" Accounting Principles
"E" Executive Covenant
"F" Summit Share Transfer Agreements
<PAGE>
1. Definitions. All capitalized words used herein shall have the
-----------
meanings as set forth below:
a. "Affiliates" means all entities owned or owning, directly or
indirectly, 50% or more by a Party. For Summit, Affiliates includes Summit N.V.,
Proscenium Pictures Ltd., and Summit Entertainment Development Services, Inc. An
Affiliate of an individual includes members of their family and persons
controlling, controlled by or under common control with the person or their
family.
b. "Agency Agreement" means the Film Sales Agency Agreement between
LIVE and Summit, attached hereto as Exhibit "A".
c. "Agreement" means this LIVE/Summit Omnibus Agreement.
d. "Base Compensation" means * compensation payable to the
Individuals in any twelve-month period following the Closing Date, payable * to
Wachsberger, * to Hayward, and * to Garrett.
e. "Call" has the meaning set forth in Paragraph 10(a).
f. "Call Formula" means *.
g. "Call Closing Date" means the date of closing of the Call.
h. "Call Lapse Date" means the earliest to occur of:
i. The * anniversary of the Closing Date.
ii. The date that LIVE exercises its put right under Paragraph
9(g)(II).
iii. The date that LIVE or Holdings files a voluntary petition
in bankruptcy, or an involuntary petition in bankruptcy is filed against either
of them that is not discharged within sixty days.
iv. The date of termination of the Agency Agreement at any
time by LIVE for any reason or by Summit pursuant to Paragraph 13(g) of the
Agency Agreement.
v. The date of any transfer of LIVE's interest in Summit
except (i) to an Affiliate of LIVE or (ii) to a buyer of all or substantially
all of the assets of LIVE if such sale includes the Agency Agreement and the
foreign rights to LIVE's films.
vi. The date of rejection by Sellers of a Call applying New
GAAP pursuant to Paragraph 22.
i. "Call Notice" means LIVE's written notice of exercise of the
Call.
1
<PAGE>
j. "Call Notice Date" means the date that LIVE delivers to Sellers
the Call Notice.
k. "Call Purchase Price" means a price based on the Call Formula
multiplied by the Percentage Interest in Summit being sold. If the Call Purchase
Price is being calculated with respect to any sale by Sellers of their interests
in Summit, the Call Purchase Price shall be increased by 100% of the unpaid
Priority Distribution.
l. "Cash Floor" means cash held by Summit and its Affiliates of at
least *, at least * of which is held by Summit in the United States.
m. "Ceiling Compensation" means an amount equal to the Base
Compensation plus, at the beginning of each twelve-month period commencing on
the first anniversary of the Closing Date, an increase from the prior year equal
to the greater of five percent or the increase in the Los Angeles region "All
Urban Consumers" Consumer Price Index from the prior year.
n. "Closing" means the closing of certain transactions as described
herein, which shall occur at a time and place mutually agreed to by the Parties.
o. "Closing Date" means the date of Closing.
p. "Franco/Kiwi" means The Franco-Kiwi Alliance, Inc., a California
corporation.
q. "GAAP" means generally accepted principles consistently applied,
except as provided in Exhibit "D".
r. "Garrett" means David Garrett.
s. "Guarantee Income" means any advance, minimum guarantee or fixed
sum license fee that is payable under a license agreement.
t. "Hayward" means Bob Hayward.
u. "Holdings" means Film Holdings Incorporated, a Delaware
corporation.
v. "Individuals" means Wachsberger, Hayward, and Garrett,
collectively.
w. "LIVE" means LIVE Entertainment Inc., a Delaware corporation.
x. "Material Adverse Effect" means a material adverse effect on the
business or operations of Summit and its Affiliates taken as a whole.
y. "New GAAP" has the meaning set forth in Paragraph 22.
2
<PAGE>
z. "Old GAAP" has the meaning set forth in Paragraph 22.
aa. "Parties" means LIVE, Holdings, Summit, Franco/Kiwi, and the
Individuals.
bb. "Partnership Agreement" means the Amended and Restated Agreement
of Limited Partnership of Summit, attached hereto as Exhibit "B".
cc. "Percentage Interest" means the percentage ownership of Summit
held by each of its owners from time to time.
dd. "Priority Distribution" means the amount, if any, by which
Starting Equity exceeds $6 million.
ee. "Sellers" means Franco/Kiwi and Garrett.
ff. "Service Options" means the options granted to the Individuals to
acquire stock of LIVE pursuant to Paragraph 6.
gg. "Starting Equity" means Summit Equity on the Closing Date.
hh. "Summit" means Summit Entertainment L.P., a California limited
partnership.
ii. "Summit Equity" means Summit's net equity, including, without
limitation, initial capitalization, subsequent capital contributions, and
retained earnings, calculated by consolidating Summit and its Affiliates and
applying GAAP except as provided in Paragraph 12.
jj. "Summit N.V." means Summit Entertainment N.V., a Netherlands
Antilles corporation.
kk. "Taxes" and "Tax Returns" have the meaning set forth in Paragraph
4(h).
ll. "Termination Notice" means written notice by Wachsberger to LIVE
of his intention to terminate his employment with Summit ninety days after such
notice. The Termination Notice may not be given on prior to ninety days prior to
twenty-four months after the Closing or anytime after the Call Notice Date.
mm. "Wachsberger" means Patrick Wachsberger.
2. Contribution of Stock of Summit N.V. Wachsberger and Hayward do
------------------------------------
hereby contribute all of the stock they own in Summit N.V. (representing,
collectively, * of the issued and outstanding stock of Summit N.V.) to
Franco/Kiwi as a capital contribution, and Franco/Kiwi, in turn, hereby
contributes such stock to Summit as a capital contribution. Likewise, Garrett
does hereby contribute the stock he owns in Summit N.V. (representing * of the
issued and outstanding stock of Summit N.V.) to Summit as a capital
contribution. The Individuals and Franco/Kiwi do hereby separately (i.e., and
not jointly and severally) represent and warrant to LIVE
3
<PAGE>
that the stock contributed by them and by Franco/Kiwi (a) is free and clear of
all liens, encumbrances, and claims of any kind, (b) represents * of the
stock of Summit N.V., and (c) has not previously been subject to an actual or
purported assignment to any other person.
3. Sale of * Interest in Summit. Subject to the conditions
----------------------------------------
precedent of receipt of the * purchase price as set forth below on the Closing
Date, Sellers do hereby sell, transfer, and convey to LIVE a collective *
Percentage Interest in the equity and future profits of Summit, of which a *
Percentage Interest shall be sold by Franco/Kiwi and a * Percentage Interest
shall be sold by Garrett. In consideration for this sale, LIVE shall pay Sellers
*, of which * shall be paid to Franco/Kiwi and * shall be paid to Garrett.
4. Representations and Warranties. The Individuals, Summit and
------------------------------
Franco/Kiwi hereby represent and warrant to LIVE and Holdings as follows:
a. Organization and Qualification; Affiliates. Each of Summit and
-------------------------------------------
each of its Affiliates is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation and has the
requisite power and authority and is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, approvals
and orders ("Approvals") necessary to own, lease and operate the properties it
---------
purports to own, operate or lease and to carry on its business as it is now
being conducted except where the failure to possess the Approvals has not had,
and would not have, a Material Adverse Effect. Each of Summit and each of its
Affiliates is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary except where the failure to be so qualified
or licensed has not had, and would not have, a Material Adverse Effect.
Substantially all of the business and operations of Summit and its Affiliates
are conducted through, and substantially all of the properties and assets of
Summit and its Affiliates are owned by, Summit and its Affiliates.
b. Authority Relative to this Agreement. Summit, Franco/Kiwi and the
------------------------------------
Individuals have all necessary power and authority to execute and deliver this
Agreement and to perform their obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Summit and Franco/Kiwi and the consummation by Summit and Franco/Kiwi of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action, and no other proceedings on the part of Summit and Franco/Kiwi
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Summit, Franco/Kiwi and the Individuals and, assuming the due authorization,
execution and delivery by LIVE and Holdings, as applicable, constitutes a legal,
valid and binding obligation of Summit, Franco/Kiwi and the Individuals
enforceable against them in accordance with its terms.
c. No Conflict; Required Filings and Consents
------------------------------------------
i. Neither Summit nor any of its Affiliates has breached, is
in default under, or has received written notice of any material breach of or
default under, any material agreements to which they are a party, and (ii) each
such material agreement is in full force and effect,
4
<PAGE>
except with respect to breaches, defaults or failures to be in full force and
effect that have not had, and would not have, a Material Adverse Effect.
ii. The execution and delivery of this Agreement by Summit
does not, and the performance of this Agreement by Summit and the consummation
of the transactions contemplated hereby will not, (i) conflict with or violate
the organizational documents of Summit, (ii) conflict with or violate any
federal, foreign, state or provincial law, rule, regulation, order, judgment or
decree (collectively, "Laws") applicable to Summit or any of its Affiliates or
----
their properties, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or impair Summit's or any of its Affiliates' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, pursuant to any
material agreement or other instrument or obligation to which Summit or any of
its Affiliates is a party or by which Summit or any of its Affiliates or its or
any of their respective properties is bound or affected, except in the case of
clauses (ii) and (iii) for any such conflicts, violations, breaches, defaults or
other occurrences that do not constitute a Material Adverse Effect.
iii. The execution and delivery of this Agreement by Summit
does not, and the performance of this Agreement by Summit will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any domestic or foreign governmental or regulatory authority except where
the failure to obtain such consents, approvals, authorizations or permits, and
to make such filings or notifications, would not constitute a Material Adverse
Effect.
d. Financial Statements. Each of the financial statements delivered
--------------------
by Summit to LIVE fairly presents in all material respects the financial
position of Summit and its Affiliates as at the respective dates thereof, except
that the interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount, and each (except for periods ending on or before December 31, 1997)
was prepared in accordance with GAAP throughout the periods involved (except as
may be indicated in the notes thereto or as otherwise provided in Exhibit "D").
e. Absence of Certain Changes or Events. Since December 31, 1997,
------------------------------------
Summit has conducted its business in the ordinary course and there has not
occurred any Material Adverse Effect.
f. No Undisclosed Liabilities. Neither Summit nor any of its
--------------------------
Affiliates has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately reserved or provided for in
Summit's balance sheet (including any related notes thereto) for the fiscal year
ended December 31, 1997, or (b) incurred since such date in the ordinary course
of business consistent with past practice.
g. Absence of Litigation. There are no claims, actions, suits,
---------------------
proceedings or investigations pending or, to the knowledge of Summit, threatened
against Summit or any of its Affiliates, or any properties or rights of Summit
or any of its Affiliates, before any court, arbitrator
5
<PAGE>
or administrative, governmental or regulatory authority or body, domestic or
foreign, the adverse resolution of which would have a Material Adverse Effect.
h. Taxes.
-----
i. For purposes of this Agreement, "Tax" or "Taxes" shall mean
--- -----
taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, local or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, net
worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and (ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto; and "Tax Returns" shall mean returns, reports, and
-----------
information statements with respect to Taxes required to be filed with the IRS
or any other federal, foreign, state or provincial taxing authority, domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns.
ii. Other than where the failure to do so has not had, and would
not have, a Material Adverse Effect, (i) Summit and its Affiliates have filed
all United States federal income Tax Returns and all other Tax Returns required
to be filed by them, (ii) Summit and its Affiliates have paid and discharged all
Taxes due in connection with or with respect to the periods or transactions
covered by such Tax Returns and have paid all other Taxes as are due, except
such as are being contested in good faith by appropriate proceedings (to the
extent that any such proceedings are required) and with respect to which Summit
is maintaining adequate reserves, and (iii) there are no other Taxes that would
be due if asserted by a taxing authority, except with respect to which Summit is
maintaining reserves to the extent currently required.
i. Intellectual Property. Summit, directly or indirectly, owns, or
---------------------
is licensed or otherwise possesses legally enforceable rights to use, all
copyrights, trademarks, trade names, service marks, and any applications
therefor, technology, know-how and tangible or intangible proprietary
information or material that are material to the business of Summit and its
Affiliates as currently conducted by Summit or its Affiliates.
j. Interested Party Transactions. There are no arrangements between
-----------------------------
Summit and any Individual or person related to them that would be required to be
reported if Summit were publicly traded as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC
except as has been disclosed to LIVE in writing.
k. Brokers. No broker, finder or investment banker or other party
-------
is entitled to any brokerage, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Summit or its Affiliates.
6
<PAGE>
l. Disclosure. None of the representations or warranties of the
----------
Individuals, Summit and Franco/Kiwi contained herein and none of the other
information or documents furnished to LIVE or any of its representatives by the
Individuals, Summit and Franco/Kiwi or its representatives pursuant to this
Agreement is false or misleading in any material respect or omits to state a
fact herein or therein necessary to make the statements herein or therein not
misleading in any material respect. There is no fact which adversely affects or
in the future is likely to adversely affect Summit in any material respect which
has not been disclosed to LIVE.
5. Starting Equity. Prior to the Closing Date, Sellers may withdraw cash
---------------
from Summit to reduce Starting Equity to * and Starting Cash to the Cash Floor,
or they shall contribute such funds as may be necessary to increase Starting
Equity to * and Summit Cash to the Cash Floor.
6. Service Options. In consideration for services rendered, on the
---------------
Closing Date, the Individuals shall receive Service Options in the form attached
hereto as Exhibit "C". These options shall be allocated * to Wachsberger, * to
Hayward, and * to Garrett. Any shares acquired pursuant to the Service Options
shall be treated as "Management Shares" for purposes of Holdings Stockholders
Agreement dated as of July 9, 1997.
7. Closing. At the Closing, the following actions shall occur:
-------
a. The Individuals and Franco/Kiwi shall deliver to Summit Share
Transfer Agreements (in the form of Exhibit "F" attached hereto) transferring
100% of the issued and outstanding stock of Summit N.V. to Summit. Immediately
following the Closing, Summit shall be reflected as the new owner of such stock
on the register of shareholders for Summit N.V.
b. LIVE shall deliver to Sellers two cashier's checks (or shall pay
by wire transfer, in which case receipt of such payment shall be a condition
precedent to the effectiveness of this Agreement) in immediately available
federal funds for the purchase of the * Interest in Summit, payable
* to Franco/Kiwi and * to Garrett. If payment is by wire transfer, the bank
acount information is as follows:
FRANCO/KIWI ALLIANCE
*
DCPJ & MS GARRETT (David Garrett)
*
7
<PAGE>
c. LIVE and Sellers shall execute the Partnership Agreement.
d. LIVE and Summit shall execute the Agency Agreement.
e. Holdings will deliver the executed Service Options to the
individuals.
8. *
9. Conduct Prior to the Call Closing Date. Prior to the earlier of the
--------------------------------------
Call Lapse Date or the Call Closing Date, the following provisions shall apply
to Summit and Sellers:
a. No profit participation or equity interest in Summit that would
continue after the Call Closing Date shall be granted to any person except (i)
existing profit interests to certain employees (or subsequent replacements) of
Summit as disclosed to LIVE prior to the Closing Date and (ii) participations
and interests in particular films.
b. Sellers shall not sell, assign, or encumber any of their
interests in Summit and Summit shall not sell or assign any of its interest in
Summit N.V. or a material portion of its assets without LIVE's consent, except
in accordance with the terms of this Agreement.
c. Summit shall not pay the Individuals or their Affiliates
compensation in excess of the Ceiling Compensation.
d. Franco/Kiwi may elect, on behalf of the Individuals, to waive all
or part of any increase in the Base Compensation for one or more years, in which
case it may subsequently elect to increase the Base Compensation (in whole or in
part, and including retroactively to the first anniversary of the Closing Date)
up to the Ceiling Compensation. If Franco/Kiwi has elected to waive all or part
of any increase to the Base Compensation, and has not subsequently elected to
catch-up with such increase, then any portion of the waived increase shall not
be paid and shall not be a charge to earnings for purposes of calculating the
Call Purchase Price (i.e., only the Base Compensation plus actual increases
shall be a charge to earnings). In addition, each of the Individuals may elect
to defer all or part of their compensation, but to the extent this deferred
compensation has not been paid in full by the Call Closing Date, the Individuals
shall withdraw the unpaid amounts, and all such deferred compensation shall be a
charge to earnings for purposes of calculating the Call Purchase Price.
e. Summit and Sellers shall not agree to any alternative
acquisition, disposition, debt, or equity financing proposals that would
materially adversely affect LIVE's ability to secure the benefits of the Call
except as permitted by the terms of this Agreement.
f. Wachsberger agrees that he shall not compete with the activities
of Summit including, but not limited to, production, acquisition, and
distribution of motion pictures, acquisition
8
<PAGE>
and distribution of film licenses, and related matters, directly or through its
agents, for a period ending on the later of (i) * after the
Closing Date or (ii) * after Wachsberger gives LIVE the Termination
Notice. As a party hereto, LIVE shall be third-party beneficiary of such
agreement, and such agreement may not be amended without LIVE's consent. If
Wachsberger breaches this covenant not to compete, then Summit and LIVE shall be
entitled to injunctive relief and damages from Wachsberger as may be proven.
g. If Wachsberger either terminates his full-time exclusive
relationship with Summit (other than minor outside activities, including acting
as executive producer on outside films) for any reason (other than due to death
or disability) or gives the Termination Notice or if Summit materially breaches
the Agency Agreement or if Summit or an Individual materially breaches this
Agreement (subject in both cases to a fifteen-day notice and cure period), then
the following provisions shall apply:
I. LIVE shall have a thirty-day right to elect to cancel the
Agency Agreement.
II. LIVE shall have a thirty-day right to put to Summit LIVE's
entire interest in Summit in consideration for an immediate cash payment equal
to * plus interest thereon from the Closing Date at *, compounded quarterly,
less any distributions received through that date by LIVE from Summit, and LIVE
shall have the right to offset such amount against any fees owed to Summit under
the Agency Agreement.
III. The Call shall lapse.
h. Summit agrees that if LIVE so requests and at LIVE's expense, it
will cause the results of its operations to be audited by LIVE's firm of
independent accounts to facilitate a public offering of LIVE's or Holdings'
securities in which such financial statements may have to be included.
i. In consideration of the Agreements of LIVE and Holdings herein,
each Individual acknowledges that his relationship with LIVE during the period
prior to the Call Notice or the Call Lapse Date will bring Individual into close
contact with many confidential affairs of LIVE and its Affiliates, including
information about film acquisitions, costs, distribution strategies and other
business affairs and methods and other information not readily available to the
pubic. Individual agrees that he will keep secret all material confidential
matters of LIVE and its Affiliates which are not otherwise in the public domain
and will not intentionally disclose them to anyone outside of LIVE or its
Affiliates or Summit, either during or after the term hereof, except with LIVE's
written consent.
10. Call
----
a. Exercise. LIVE shall have a call (the "Call") to purchase the
--------
entire remaining interest in Summit held by Sellers by delivering the Call
Notice to Sellers at the following times prior to the Call Lapse Date:
9
<PAGE>
i. At any time between the * and * anniversary of
the Closing Date.
ii. Prior to the second anniversary of the Closing Date, at any
time on or within four months after either (a) a public offering of equity
securities of LIVE or Holdings raising gross equity proceeds of $20 million or
more or (b) a sale of 80% or more of all of the stock or assets of LIVE or
Holdings.
b. Call Closing Date. The Call Notice shall specify the Call
-----------------
Closing Date, which shall be scheduled for a date no later than ninety days
after the Call Notice Date. After the Call Notice Date, LIVE's obligation to
close the acquisition shall be subject to customary conditions, including, but
not limited to (a) satisfactory completion of LIVE's due diligence, including
financial, tax, and audit review, (b) negotiation of definitive transaction
documentation (including customary representations and warranties) acceptable to
LIVE and Sellers in their reasonable good faith discretion, (c) receipt of
customary closing opinions and certificates, and (d) no material adverse changes
to Summit from the Call Notice Date through the Call Closing Date. LIVE and
Sellers shall use their best efforts to close the acquisition within ninety days
of the Call Notice Date, and the Call shall lapse if the Call Closing Date has
not occurred within 120 days of the Call Notice Date unless due to a default by
the Individuals or their Affiliates. On or prior to the Call Closing Date,
Sellers shall be entitled to withdraw from Summit the amount of any remaining
Priority Distribution pursuant to Paragraph 5.2(a) of the Partnership Agreement.
c. Payment of Call Purchase Price. If LIVE timely exercises the
------------------------------
Call, the Call Purchase Price shall be paid to Sellers on the Call Closing Date
by two cashier's checks or wire transfers payable in immediately available
federal funds. The Call Purchase Price shall be payable * to Franco/Kiwi and *
to Garrett.
d. Disputes as to Call Purchase Price. In the event of any dispute
----------------------------------
between LIVE and Franco/Kiwi concerning the calculation or amount of the Call
Purchase Price, then on the Call Closing Date LIVE shall pay the Sellers the
greater of (i) 85% of Franco/Kiwi's good faith determination of the Call
Purchase Price based upon the financial information previously delivered by
Summit to LIVE or (ii) 100% of LIVE' good faith determination of the Call
Purchase Price, and the difference between the amount paid and 100% of
Franco/Kiwi's good faith determination of the Call Purchase Price shall be
placed in an interest-bearing escrow account (with interest to be paid in
proportion to the ultimate entitlement to the escrowed funds) with a third-party
escrow holder pending final determination of the Call Purchase Price pursuant to
arbitration in the manner set forth in Paragraph 15 hereof. Any claims relating
to the calculation of the Call Purchase Price must be submitted in writing
within six months after the Call Closing Date.
e. *
f. Executive Covenant. On the Call Closing Date, each of the
------------------
Individuals shall execute the Executive Covenant in the form attached hereto as
Exhibit "E."
10
<PAGE>
g. Employment Contracts. If LIVE exercises the Call, Summit and
--------------------
each of the Individuals, if they are then actively employed by Summit, shall
enter into employment contracts with LIVE or Summit, which shall include
customary and standard provisions for similar employment contracts of the senior
executives of LIVE (except that the confidentiality and non-compete provisions
shall conform to the Executive Covenant attached as Exhibit "E"), with a term
ending on the earlier of (i) * from the Call Closing Date or (ii) * from the
Closing Date, and the Individuals' salaries shall be as follows:
Post-Call Salaries
Individual As of March 31, 1998
---------- --------------------
Patrick Wachsberger *
Robert Hayward *
David Garrett *
The starting and continuing post-Call salaries shall be increased at the
beginning of each twelve-month period commencing on the first anniversary of the
Closing Date by the greater of five percent or the increase in the Los Angeles
region "All Urban Consumers" Consumer Price Index from the prior year. Upon the
Call Closing Date, the Individuals shall become eligible to participate in
LIVE's and Holdings' customary option, bonus, and benefit plans available to
their senior executives.
h. Post-Closing Audit. After the Call Closing Date, LIVE may cause
------------------
there to be made a post-closing audit by an international accounting firm
mutually agreed to by LIVE and Franco/Kiwi to determine if, as of the Call
Closing Date, Summit Equity was less than the amount that the Call Purchase
Price was based on or if Summit Cash was less than the Cash Floor. If so, each
of Sellers agree that they shall return to LIVE their proportionate share (based
on their Percentage Interests in Summit that were sold) of the shortfall unless
Franco/Kiwi disagrees with the findings of the audit, in which case the
arbitration procedures set forth in Paragraph 15 shall apply. The cost of any
post-closing audit shall be borne equally by Sellers and LIVE.
i. Assignment. The Call shall not be assignable by LIVE to any
----------
third party other than LIVE or other Affiliates of LIVE.
j. Transfers of Interests. Sellers may transfer their interests in
----------------------
Summit among themselves or their heirs provided that prior to the Call Lapse
Date (a) Wachsberger shall at all times own, directly or indirectly, more than
* of Summit and (b) the Call shall continue to apply to the interest
transferred and the transferee shall execute an acknowledgment in favor of LIVE
to such effect. Prior to the * anniversary of the Closing Date, the Call
shall continue to apply with respect to any interest in Summit that is
transferred as permitted herein. *.
11. Summit Call Option. If LIVE does not give the Call Notice by the Call
------------------
Lapse Date or if Sellers reject a Call applying New GAAP pursuant to Paragraph
22, then within eighteen
11
<PAGE>
months after the Call Lapse Date, Summit shall have an option to elect to
purchase all of LIVE's entire interest in Summit for the Call Purchase Price. In
addition, at all times (except after the Call Closing Date if the Call is
exercised) Summit shall have a thirty-day preemptive right of first refusal to
purchase all of LIVE's interest in Summit for the Call Purchase Price if LIVE
receives an offer that it wishes to accept to purchase any portion of its
interest in Summit from a third party, except if such purchase is for all or
substantially all of the assets of LIVE if such purchase includes the Agency
Agreement and the foreign rights to LIVE's films or if such purchase is by an
Affiliate of LIVE.
12. Accounting Principles. For purposes of calculating Summit Equity and
---------------------
Summit's earnings under the Call Formula, the Parties agree that the accounting
principles set forth on Exhibit "D" shall apply, even if such principles vary
from generally accepted accounting principles.
13. Press Releases. All press releases relating to the transactions
--------------
covered by this Agreement must be mutually approved by LIVE and Summit.
14. Expenses. The Parties shall bear their own expenses in connection
--------
with entering into this Agreement, with Summit paying the expenses relating to
the portion involving Sellers and the Individuals (such payment shall be
deducted in calculating Starting Equity).
15. Arbitration. Any and all disputes relating to this Agreement
-----------
(including all aspects of the Call Formula and the Call Purchase Price or the
application or determination of new GAAP) or any of the transactions
contemplated hereby, including the Agency Agreement and Partnership Agreement
(but excluding actions for injunctive relief) shall be subject to binding
arbitration before one arbitrator pursuant to the Commercial Rules of the
American Arbitration Association, with such arbitration to be held in Los
Angeles, California. The prevailing party (which shall be, in the event of a
dispute relating to the Call Purchase Price if funds have been escrowed, the
party entitled to the majority of the escrowed funds) in any such arbitration
such be entitled to recovery of reasonable attorney fees incurred in connection
with such dispute. If such dispute involves the calculation of Summit Equity,
Summit Cash, the Call Formula, the Call Purchase Price, or the single-picture
net profits payment under Paragraph 10(e), then the arbitrator shall
independently make the calculation based on the formulas, definitions, and
accounting principles set forth herein, but the arbitrator shall not be
constrained by management's or an auditor's initial calculation of such amount
even if such initial calculation falls within the range of reasonable
discretion. The decision of the arbitrator shall be final.
16. Notice and Cure. All alleged breaches hereof by any party shall be
---------------
subject to a thirty-day written notice and cure period before being treated as
an actual breach.
17. Representations and Warranties. LIVE and Holdings hereby represent
------------------------------
and warrant to the other Parties as follows:
a. LIVE is 100% owned by Holdings, and there are no outstanding
options to acquire any LIVE shares by any person.
12
<PAGE>
b. The exercise price for Service Options is the same price as for
all the top executives of LIVE.
18. Integrated Agreement. This Agreement, together with all other
--------------------
agreements referenced in or attached hereto or referenced herein, shall
constitute the entire agreement among the Parties relating to the subject matter
hereof and supersedes any and all prior term sheets, negotiations, or
agreements. This Agreement may only be amended by a writing executed by all the
Parties. In the event of any conflict between this Agreement and any other
agreements referenced in or attached hereto, the provisions of this Agreement
shall control.
19. Governing Law. This Agreement shall be governed by the internal laws
-------------
of California (i.e. without regard to its conflict of law principles).
20. Good Faith. The parties shall interpret and perform the terms of this
----------
Agreement in the spirit of good faith and fair dealing.
21. Execution in Counterparts. This Agreement may be executed in
-------------------------
counterparts and transmitted by facsimile copy, each of which shall constitute
an original thereof.
22. Super-Special "If, If, If, If" Provisions. If the current GAAP
-----------------------------------------
provisions relating to the film industry ("Old GAAP") are modified by revised
rules ("New GAAP"), then at the time that New GAAP becomes mandatory to apply in
the preparation of financial statements, the provisions of this paragraph shall
apply.
a. At that time, Summit shall begin issuing two sets of financial
information pursuant to Paragraph 3.2 of the Partnership Agreement, one applying
Old GAAP and one applying New GAAP.
b. If LIVE exercises of the Call, LIVE shall elect to have the Call
Formula applied using either Old GAAP or New GAAP. If LIVE elects to use old
GAAP, then the provisions of this Paragraph 22(b) shall not apply. If LIVE
elects to use New GAAP, then, contemporaneous with the Call Notice, LIVE shall
submit a statement setting forth (a) the exact wording changes that it believes
are necessary to Exhibit "D" in order to conform it to New GAAP and (b)
confirmation that LIVE is calculating and reporting its own earnings and balance
sheet (including a restatement, if required by New GAAP) in accordance with the
language of the revised Exhibit "D" submitted by LIVE. If LIVE elects to
exercise the Call applying New GAAP, then Franco/Kiwi, on behalf of Sellers,
shall elect within 30 days to either accept or reject the Call. If Franco/Kiwi
elects to reject the Call, then either (x) LIVE shall have a ten business day
right to elect to use Old GAAP or (y) (a) the Call shall lapse, with the date of
rejection being the Call Lapse Date and (b) LIVE shall have 30 days to elect to
treat the rejection as though it were a Termination Notice for all purposes of
this Agreement, the Agency Agreement, and the Service Options.
13
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement effective as
of the__ day of __________, 1998.
/s/ Patrick Wachsberger
_______________________________
PATRICK WACHSBERGER
/s/ Robert Hayward
_______________________________
ROBERT HAYWARD
/s/ David Garret
_______________________________
DAVID GARRETT
THE FRANCO/KIWI ALLIANCE, INC.
/s/ Patrick Wachsberger
By: __________________________________
Patrick Wachsberger, President
SUMMIT ENTERTAINMENT, LP.
By: The Franco/Kiwi Alliance, Inc.,
General Partner
/s/ Patrick Wachsberger
By: _________________________
Patrick Wachsberger, President
LIVE ENTERTAINMENT INC.
/s/ Mark Curcio
By: ____________________________
CEO
Title: ____________________________
FILM HOLDINGS INCORPORATED
/s/ Mark Curcio
By: __________________________
Title: VP
__________________________
14
<PAGE>
EXHIBIT D
Accounting Principles
---------------------
*
1
<PAGE>
example, if Summit receives a 10% commission on a picture, of which 5% is
deferred until after the production loan is repaid, and the Guarantee
Income for that Picture is sufficient for Summit to eventually realize 50%
of such deferred fees, then Summit will recognize its agency fee at a 7.5%
rate from first Dollar. If Summit is entitled to other deferments, (e.g. an
executive producer fee that is payable upon United States box office
performance) then such deferment will be recognized as income when the
payment obligation to Summit is triggered.
Income Recognition - Market Fees:
--------------------------------
For agency agreements where Summit is entitled to a fixed amount per
picture as compensation for costs of attending film markets, such fixed
amount will be recognized as income (or as an offset to costs) in the month
in which the applicable picture is first presented at a film market.
Actual costs of attending a film market will be allocated to agency
pictures which have no fixed charge in lieu of such costs and to any
pictures produced or acquired by Summit: (i) 50% in proportion to the total
number of theatrical pictures that are first presented at such film market
(including all agency pictures); and (ii) 50% in proportion to the budgets
of all such theatrical pictures.
Amortization:
------------
Amortization of film rights shall be made using the income forecast method
based on reasonable estimates of income to be received by Summit during the
first five years from the date of the first release of each film.
Residuals:
---------
Residuals shall be accrued and deducted at the time of recognition of the
income triggering the obligation to pay residuals. In the case of Guarantee
Income that is not specifically allocated to particular media, residuals
shall be calculated based on allocating: (i) 50% of such Guarantee Income
to theatrical revenues, 20% to video revenues, and 30% to television for
agreements which include all three rights; (ii) 75% of such Guarantee
Income to theatrical revenues and 25% to video revenues for agreements
which include theatrical and video rights but exclude television rights;
(iii) 75% of such Guarantee Income to theatrical revenues and 25% to
television revenues for agreements which include theatrical and television
rights but exclude video rights; and (iv) 40% of such Guarantee Income to
video revenues and 60% to television revenues for agreements which include
theatrical and television rights but exclude theatrical rights. For
purposes of the foregoing, video-on-demand shall be treated as a television
right.
Participations:
--------------
Participations shall be calculated based on the estimates of income used
for income forecast amortization and reasonable estimates of corresponding
expenses and shall be deducted based on the proportion of such estimated
income recognized each year.
2
<PAGE>
Interest:
--------
Interest on film loans shall be capitalized as part of film costs until the
date the answer print for that film is produced (?Pre Delivery Interest?),
at which point any additional interest shall be deducted as an expense.
However, if Live changes its accounting practices such that Pre Delivery
Interest is a deductible expense on its financial statements (i.e., not
capitalized in film cost inventory), then Summit may treat Pre Delivery
Interest in the same manner for purposes of this Agreement. Whenever
interest is not capitalized and is treated as a deductible expense, it will
be added back in the calculation of earnings before interest and taxes for
purposes of the Call Formula.
3
<PAGE>
EXHIBIT E
Executive Covenant
------------------
This Executive Covenant is given by ____________ in connection with the
acquisition by LIVE Entertainment Inc. ("LIVE") of an interest in Summit
Entertainment L.P., a California limited partnership which, together with its
subsidiaries and affiliates, conducts a film development, production and
distribution business throughout the world. In consideration of the
acquisition, the undersigned ("Executive") agrees that for the earlier of (i)
five (5) years after the Call Closing Date or (ii) eight years after the
Closing Date (the "Restricted Period"), the Executive shall be bound by the
terms set forth herein. (Capitalized terms used herein, and not defined herein,
shall be defined in the LIVE/Summit Omnibus Agreement.)
1. Executive acknowledges that the business of Summit and its Affiliates
are international in scope, that their products and services are marketed
throughout the world, that Summit and its Affiliates compete in nearly all of
their business activities with other organizations which are or could be located
in nearly all of their business activities with other organizations which are or
could be located in nearly any part of the world and that the nature of
Executive's services, position and expertise are such that he is capable of
competing with Summit and its Affiliates from nearly any location in the world.
2. During the Restricted Period, Executive shall not, directly or
indirectly, (i) engage in any business for its own account which is competitive
with the Businesses of Summit or Summit's Affiliates (collectively, "Competitive
Business"); (ii) enter the employ of, or render any services to, any person
engaged in a Competitive Business; (iii) become interested in a Competitive
Business in any capacity, including, without limitation, as an individual,
partner, shareholder, officer, director, principal, agent, trustee or
consultant; or (iv) induce any employee, customer or supplier of Summit or
Summit's Affiliates to terminate its relationship with Summit or Summit's
Affiliates (as the case may be). Notwithstanding anything to the contrary, (a)
Executive may acquire and/or retain, solely as an investment, and take customary
actions to maintain and preserve Executive's ownership of securities of any
corporation that are publicly traded, as long as Executive is not part of any
control group of such corporation and (b) the restrictions in this paragraph
shall lapse if Executive's employment with LIVE or Summit is terminated
(including constructive termination) without cause.
3. Executive acknowledges that his services to Summit will, throughout
his employment with Summit, bring Executive into close contact with many
confidential affairs of Summit and its Affiliates, including information about
film acquisitions, costs, distribution strategies and other business affairs and
methods and other information not readily available to the public, and plans for
future development. In recognition of the foregoing, Executive Covenants and
agrees:
a. That (without limiting LIVE's or Summit's rights under state law)
during the Restricted Period Executive will keep secret all material
confidential matters of Summit and its
1
<PAGE>
Affiliates which are not otherwise in the public domain and will not
intentionally use or disclose them to anyone outside of Summit or its Affiliates
except with Summit's written consent and except for such disclosure as is
necessary in the performance of Executive's duties during his employment with
Summit; and
b. That Executive will deliver promptly to Summit on termination of
his employment with Summit or at any other time Summit may so request, at
Summit's expense, all confidential memoranda, notes, records, reports and other
documents (and all copies thereof) relating to Summit's and Affiliates'
business, which Executive obtained while employed by, or otherwise serving or
acting on behalf of, Summit, or which Executive may then possess or have under
his control (excluding Executive's rolodex).
4. Executive acknowledges that Executive's abilities are of a special,
unique, unusual, extraordinary and intellectual character which gives them
peculiar value, the loss of which cannot be reasonably or adequately compensated
in an action at law for damages and that a breach by Executive of the terms
hereof will cause Summit and LIVE irreparable injury. Executive agrees that
Summit and LIVE are entitled to seek injunctive and other equitable relief to
prevent a breach or threatened breach of this Agreement, which shall be in
addition to any other rights or remedies to which Summit and LIVE may be
entitled.
LIVE ENTERTAINMENT INC.
By: ______________________
Title: ______________________
SUMMIT ENTERTAINMENT, L.P.
By: ________________________
Title: ________________________
EXECUTIVE:
______________________________
2
<PAGE>
SALES AGENCY AGREEMENT
between
SUMMIT ENTERTAINMENT N.V.,
SUMMIT ENTERTAINMENT L.P.
and
LIVE ENTERTAINMENT INC.
as of
March 31, 1998
LIBRARY AND NEW TITLES
<PAGE>
SALES AGENCY AGREEMENT
Table of Contents
<TABLE>
<S> <C>
1. PARTIES............................................................. 1
2. PURPOSE............................................................. 1
3. RELATED DOCUMENTS AND CONTROL....................................... 1
a. Schedules...................................................... 1
b. Master Agreement............................................... 1
c. Inter-Party Agreements......................................... 1
d. Resolution of Conflicting Terms................................ 1
4. EFFECTIVE DATE AND TERM............................................. 1
5. DEFINITIONS......................................................... 2
6. ENGAGEMENT OF SUMMIT................................................ 6
7. DELIVERY............................................................ 7
a. Prior Licenses................................................. 7
b. Name/Likeness/Editing.......................................... 7
c. Picture Materials.............................................. 7
(i) Library Materials...................................... 7
(ii) New Pictures........................................... 7
d. Lab Rates...................................................... 7
8. AGENCY SERVICES..................................................... 7
a. General Obligation............................................. 8
b. Maximization of Gross Receipts................................. 8
c. Representation of Other Film Makers............................ 8
d. Display of LIVE Logo........................................... 8
(i) Press Releases......................................... 8
(ii) Film Markets........................................... 8
(iii) Trade Ads.............................................. 8
(iv) Offices................................................ 9
(v) Prospective Cure....................................... 9
e. No Authority to Bind........................................... 9
f. Approval of License Terms...................................... 9
g. Exploitation Restrictions...................................... 9
(i) Holdbacks.............................................. 9
(ii) Name/Likeness/Editing.................................. 10
(iii) Access to Materials.................................... 10
h. Collections.................................................... 10
i. Accounting Statements.......................................... 10
</TABLE>
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<TABLE>
<S> <C>
j. Registration of Royalties...................................... 10
k. Residuals and Deferments....................................... 11
9. AGENCY FEE AND EXPENSES............................................. 11
a. Payment of Fees................................................ 11
b. Payment Of Minimum Fees........................................ 11
c. Disputed Fees and/or Expenses.................................. 11
10. FIRST NEGOTIATION/FIRST REFUSAL OF NEW LIBRARIES.................... 12
11. SUSPENSION OF SERVICES.............................................. 12
12. TERMINATION......................................................... 12
a. Upon Notice by LIVE............................................ 12
b. Upon Departure of Key Man...................................... 12
13. GENERAL PROVISIONS.................................................. 13
a. Amendment/Waiver............................................... 13
b. Approval....................................................... 13
c. Arbitration.................................................... 13
d. Audit.......................................................... 13
e. Confidentiality................................................ 13
f. Counterpart Signatures......................................... 14
g. Default........................................................ 14
h. Errors and Omissions........................................... 14
i. Financing Documents............................................ 14
j. Indemnities.................................................... 15
(i) By LIVE................................................ 15
(ii) By Summit.............................................. 15
k. Integration.................................................... 15
l. Interpretation................................................. 15
m. No Partnership................................................. 15
n. Notices........................................................ 15
o. Reliance....................................................... 16
p. Reps/Warranties/Indemnities.................................... 16
(i) By LIVE............................................... 16
(ii) By Summit............................................. 16
q. Schedules...................................................... 16
r. Severability................................................... 17
</TABLE>
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Schedule A: Minimum Accepting Prices for Minor Territories
Schedule B: Delivery Schedule
Schedule C: Rights Definitions
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SALES AGENCY AGREEMENT
----------------------
1a PARTIES: The parties to this agreement, which are subsequently
referred to collectively as "Parties", are:
. Summit Entertainment N.V., a corporation organized and existing under
the laws of the Netherlands Antilles, which is subsequently referred to
as "SENV";
. Summit Entertainment L.P., a limited partnership organized and existing
under the laws of the State of California, which is subsequently
referred to as "SELP"; and
. Live Entertainment Inc., a corporation organized and operating under
the laws of Delaware, which is subsequently referred to as "LIVE".
2a PURPOSE: As a description only, and without limiting or expanding upon
the terms of this instrument and the schedules attached hereto (if any), which
is subsequently referred to as "Agency Agreement" or "Agreement", the purpose of
this instrument is to set forth the terms and conditions of an agreement between
SENV and SELP, collectively referred to as "Summit", on the one hand, and LIVE,
on the other, in which LIVE engages Summit, subject to the terms and conditions
of this agreement as its exclusive agent to represent LIVE in connection with
the transfer to third parties of certain rights to LIVE's film library and
certain other motion pictures defined below.
3a RELATED DOCUMENTS AND CONTROL: This Agreement is one of several
documents that comprise the agreement between the Parties.
ai Schedules. As set forth in paragraph 13.q, this Agreement
incorporates certain schedules and exhibits (subsequently referred to as
"Schedules").
bi Master Agreement. The Parties to this Agreement are also among
the parties to that certain Omnibus Agreement dated as of _________, 1998
(subsequently referred to as "Master Agreement").
ci Inter-Party Agreements. The Parties to this Agreement and certain
other third parties may, from time-to-time, enter various inter-party agreements
which concern certain motion pictures developed and produced subsequent to the
date of this Agreement (subsequently referred to as "Inter-Party Agreement(s)").
di Resolution of Conflicting Terms. This Agreement will control in
the event of any conflict in terms between this Agreement and the schedules
attached hereto. The Master Agreement and any relevant Inter-Party Agreement
will control in the event of any conflict in terms between such agreements and
this Agreement.
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4a EFFECTIVE DATE AND TERM: The effective date of this Agreement is March
31, 1998, which is subsequently referred to as the "Effective Date". The term
of this Agreement commences as of Effective Date and expires upon the expiration
of the audit rights set forth in paragraph 13.d below. Such period of time
subsequently is referred to as "Term". Within the period of the Term are the
Agency Term (defined in paragraph 5.zz) and the Distribution Term (defined in
paragraph 5.k). The Agency Term is the period of time during which Summit is
authorized to, and shall act as the exclusive agent of LIVE on the terms and
subject to the conditions of this Agreement. The Distribution Term is the
period during which Summit will service each License Agreement and be paid its
Agency Fee on Gross Receipts arising therefrom.
5a DEFINITIONS: As used in this Agreement defined terms have the meanings
set forth below, in the paragraphs referenced below, or on Schedule C.
ai "Accounting Statements" is defined in paragraph 8.i.
bi "Advances" means the minimum guarantees (which may be designated
"Advances" in the Summit Agreements) payable pursuant to the License Agreements
in consideration for the rights to Exploit any Licensed Rights which are paid in
cash, credit or kind (in all currency) and which are properly credited to the
Collection Account(s) or properly received by or properly credited to LIVE or
paid with the consent or at the direction of LIVE to any third party during the
Distribution Term of the respective License Agreement.
ci "Agency Fee" means *.
di "Agency Period" means each twelve-month period beginning April 1
and ending March 31. The first Agency Period begins April 1, 1998 and the last
Agency Period ends coincident with the Agency Term, March 31, 2003.
ei "Agency Term" means the period of time from the Effective Date and
continuing for five (5) years thereafter.
fi "Approval" means prior Notice of approval of, or assent to, a
particular matter or element, or permission to engage in a particular action or
course of action, which approval, assent, or permission LIVE may withhold in its
sole discretion, and which approval must be sought and given (if at all) in
accord with paragraph 13.b.
gi "Collection Account(s)" means that account (or those accounts,
including escrow accounts) designated by LIVE to which all Gross Receipts are
payable.
hi "Collection Fee" means *.
i. "Dispute Notice" is defined in paragraph 9.c.
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j. "Distribution Expenses" means one (1) Market Charge and all of
Summit's customary out-of-pocket distribution expenses net of discounts and
rebates including without limitation, the reasonable and proper costs of
materials delivered to Licensees (e.g., costs of manufacture, storage, vaulting,
freight, delivery and courier costs), advertising, publicity (including
publicity events such as press conferences and the costs associated with the
attendance of key talent or director), publicist fees associated with a special
promotion (excluding Summit employees), outside legal expenses (to enforce any
subdistribution or third-party agreements), messenger and courier costs,
reasonable travel and entertaining costs (to the extent that such costs directly
relate to the Pictures) and miscellaneous expenses. For avoidance of doubt,
Distribution Expenses specifically include outside audit fees charged to Summit
(as opposed to LIVE) for audits of distributors (net of any recovery of audit
costs) which LIVE specifically requests Summit to conduct and specifically
exclude: (i) the cost of attendance by Summit at film markets but include the
costs of advertising, screenings, and the creation of promotional materials that
may be used at such markets; and (ii) amounts which are paid directly or
otherwise credited to Summit from third-parties for materials, audit expenses,
shipping, and the like.
k. "Distribution Term" means: (i) for LIVE agreements, from the
Effective Date to the date which is the earlier of the expiration of the
respective license agreement or the expiration of the Agency Term; and (ii) for
Summit Agreements from the effective date of such Summit Agreement until
expiration of such Summit Agreement.
l. "Dollars" means United States dollars.
m. "Effective Date" is defined in paragraph 4.
n. "Existing Library" means those Motion Pictures presently owned by
LIVE or represented by LIVE as Agent which have heretofore been released,
exhibited, or otherwise commercially Exploited by LIVE.
o. "Excluded Territory" means the territory presently within the
boundaries of the United States, Canada, and Bermuda and their respective
territories (including, without limitation, Puerto Rico), possessions, and, for
the exploitation of non-theatrical rights only, armed forces installations,
embassies, oil rigs, and other similar venues wherever located throughout the
world, and all ships, oil rigs and aircraft wherever located throughout the
world that fly the flag of such countries.
p. "Exploit" or "Exploitation" means the manufacture, exhibition,
broadcast, transmission, dissemination, reproduction, distribution, sale,
performance, publication, display, license, use, or exploitation by the means,
and in the manners and media authorized by this Agreement.
q. "Format Restrictions" is defined in paragraph 7.b.
r. "Gross Receipts" means an amount equal to the sum of (i) the
Advances; (ii) the Overages; and (iii) subject to case-by-case, good-faith
negotiation between Summit and
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LIVE taking into account the extent of involvement of Summit in generating the
following source of revenue, amounts received by LIVE from co-producers for
production subsidies that arise from, or are attributable to, the License
Agreements, but only in the event that Summit renders services which are
reasonably requested by LIVE in connection therewith. Gross Receipts exclude:
(i) all sums not received or properly credited to the Picture to which the Gross
Receipts are attributable; (ii0 all sums paid by any third party for delivery
materials, (iii) all bank charges and withholding taxes; (iv) the amount, if
any, of the recovery from sublicensees or other parties as a result of an audit
or collection action (e.g., arbitration) (which is conducted by LIVE or, at
LIVE's request, Summit), unless and to the extent such amounts exceed the costs
of such audit or collection action, (v) all funds paid from the Collection
Account(s) (or escrow account, if any), (vi) amounts received from financiers
and/or investors as a loan to or an investment in LIVE and/or any Picture; and
(vii) revenues received or credited to Summit from third parties for costs
(e.g., for materials) charged to and paid for by (or on behalf of) such third
parties.
s. "Inter-Party Agreement" is defined in paragraph 3.c.
t. "Language" means (i) the original language version of the
Pictures; and (ii) the original language version of the Pictures dubbed or
subtitled (or otherwise alternatively communicated (e.g., simulcast)) in all
languages, spoken or unspoken, now know or hereafter discovered or devised.
u. "Library" means the Existing Library and, subject to paragraph 10,
any New Library.
v. "Library Fee" means *.
w. "License" means lease, license, sale, grant, transfer, and all
other means and manners of transfer of intellectual property consistent with the
United States Copyright Act of 1976 as amended.
x. "Licensee" means the person or legal entity to whom any Licensed
Rights are Licensed pursuant to a License Agreement.
y. "License Agreements" means all Summit Agreements and all LIVE
Agreements.
z. "Licensed Rights" means, to the extent that LIVE or its controlled
affiliates owns or controls rights to a Picture in the Territory, the (i)
exclusive Theatrical, Non-Theatrical, Public Video, Commercial Video, Home
Video, Pay TV, Free TV, Video-on-Demand and Pay-Per-View Rights as the same may
be exploited by any and all delivery systems and formats now known or hereafter
devised; (ii) exclusive Souvenir Program Rights for the territory of Japan, if
applicable; (iii) to the extent that LIVE agrees in any of the License
Agreements, Incidental rights directly related to the exploitation of the
foregoing (e.g. advertising, promotion, dubbing and subtitling); and (iv) to the
extent that LIVE agrees in any of the License Agreements, the non-exclusive
right to exploit excerpts (clips) of not more than three (3) minutes of the
Pictures
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for educational, informational, and promotional purposes, including, without
limitation, the right to make such advertising materials available over the
internet and other interactive mediums but limited to exploitation in a linear,
continuous, and sequential manner. The Home Video Rights include Exploitation of
the Pictures by video disc, CD-ROM, DVD, DIVX, and all other formats and
delivery media now known or hereafter devised for purposes of viewing a motion
picture in a linear manner consistent with home video exploitation but not for
exploitation of ancillary rights such as video games or interactive media. The
Licensed Rights exclude the Reserved Rights.
aa. "LIVE Agreement" means an agreement confirmed in writing (i.e.,
exchange of correspondence, deal memo, or long-form agreement) which includes
all of the material terms set forth in the AFMA form international distribution
deal memo and in which any or all of the Licensed Rights to the Pictures are
Licensed for Exploitation within the Territory and which was concluded by LIVE
and the relevant distributor prior to the Effective Date of this Agreement.
bb. "Major Territories" means those territories so indicated on
Schedule A hereto.
cc. "Market Charge" means *.
dd. "Media" means the manners, means, and media of Exploitation that
comprise the relevant Rights.
ee. "Minimum Fees" means *.
ff. "Minor Territories" means those territories so indicated on
Schedule A hereto.
gg. "Motion Picture" means any feature-length theatrical motion
pictures, feature-length made-for-television motion pictures, and/or feature-
length made-for-video motion pictures but specifically excludes any television
series, documentary, or specialty programming (e.g, specialty formats such as
IMAX, but not digital Theatrical projection, to the extent the same or similar
projection methods and/or technologies may be considered a distinct format).
hh. "Motion Picture Copy" means the embodiment of a Motion Picture in
any physical form, including film, tape, cassette or disc. Where a specific
medium is limited to exploitation by a specific physical form, for example, the
exploitation of Videograms, then Motion Picture Copy with respect to such medium
is limited to such physical form.
ii. "New Deal Fee" means *.
jj. "New Library" is defined in paragraph 10.
kk. "New Library Fee" is *.
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ll. "New Pictures" means Motion Pictures other than the Library to
which LIVE or its controlled affiliates owns or controls any of the Licensed
Rights for any of the Territory. For avoidance of doubt, New Pictures includes
The Ninth Gate (excluding Spain) as well as any Motion Pictures where LIVE is
agent for third parties.
mm. "New Picture Fee" means *.
nn. "Notice" means a communication in writing sent in accord with
paragraph 13.n.
oo. "Output Advance Fees" means *.
pp. "Output Overage Fees" means *.
qq. "Overages" means all other sums payable pursuant to a License
Agreement in addition to (or in lieu of) any Advance in consideration for the
right to Exploit any of the Licensed Rights (including "Overages" as defined and
designated in the Summit Agreements and any television or box office escalators
regardless of whether characterized in any License Agreement as an additional
Advance) which are paid in cash, credit or kind (in all currency) and which are
properly credited to the Collection Account(s) or received by or properly
credited to LIVE or paid with the consent or at the direction of LIVE to any
third party during the Distribution Term of the respective License Agreement.
rr. "Pictures" means the Library and the New Pictures.
ss. "Parties" is defined in paragraph 1 of this Agreement.
tt. "Recoupable Distribution Expenses" means, unless otherwise
Approved by LIVE, (i) all Distribution Expenses arising out of orders by Summit
from laboratories relating to the Picture in service of the License Agreements,
and (ii) all Distribution Expenses not included in clause (i) of this
paragraph *.
uu. "Reserved Rights" means all rights other than the Licensed Rights,
including, without limitation: (i) the underlying intangible property relating
to the Licensed Rights and the Picture, including all trademarks and copyrights;
and (ii) the right to Exploit the Picture: (a) in the Media, Language, and
Territory upon expiration of the Distribution Term; and (b) in all media,
languages, and territories not included within the Licensed Rights, including,
without limitation, Airline and Ship (unless LIVE agrees to license such Rights
in a particular License Agreement) Merchandising, Soundtrack Recording,
Novelization, Print Publishing, Music Publishing, Video Game, theme park, and
Remake and Sequel Rights.
vv. "Rights" means the right to Exploit the Picture and all rights
Incidental to such Exploitation. When preceded by a defined term denoting a
particular means, manner, or
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medium of exploitation, (i.e., Free TV Rights), Rights is limited in meaning the
right to exploit the Picture in the means, manner, and medium comprising the
defined term.
ww. "Summit" means SENV and SELP.
xx. "Summit Agreement" means a written agreement negotiated by Summit
and confirmed in writing (i.e., exchange of correspondence, deal memo, or long-
form agreement) which includes all of the material terms set forth in the AFMA
form international distribution deal memo during the Agency Term, which is
executed by LIVE (or its assignee/designee such as a licensing intermediary)
after the Effective Date and during the Agency Term or the period four (4)
months thereafter, and in which any or all of the Licensed Rights to the
Pictures are Licensed for Exploitation in the Language within the Territory.
For avoidance of doubt, the term Summit Agreement excludes the LIVE Agreements.
yy. "Secondary Territories" means those territories so indicated on
Schedule A hereto.
zz. "SELP" is defined in paragraph 1.
aaa. "SENV" is defined in paragraph 1.
bbb. "Territory" means the Universe less the Excluded Territory.
ccc. "The Ninth Gate" means the theatrical motion picture presently
entitled "The Ninth Gate".
ddd. "Videogram" means any type of videocassette or video disc which
permits viewing a Motion Picture in a linear, continuous, and sequential manner
only.
6. ENGAGEMENT OF SUMMIT AS EXCLUSIVE AGENT: In consideration of the
mutual covenants contained herein and for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, LIVE engages Summit, and
Summit hereby accepts the engagement as the sole and exclusive agent of LIVE for
the purpose of negotiating the License Agreements during the Agency Term and
administering, servicing, and monitoring during the Distribution Term License
Agreements entered into during the Agency Term. Summit hereby acknowledges and
agrees that (i) Summit owns no right, title, or interest in the copyright to any
Picture or in the distribution rights to any Picture and (ii) LIVE reserves the
right to negotiate and conclude on its own behalf any deals for the License of
the Licensed Rights to the Pictures in the Territory and Language during the
Agency Term in its sole discretion, provided that LIVE shall not conclude any
deals without prior consultation with Patrick Wachsberger to avoid confusion in
the marketplace and/or inadvertent representations as to the status of the
Licensed Rights and provided further that LIVE shall pay Summit the Agency Fee
attributable to such deals as if they were Summit Agreements. Any inadvertent
and non-recurring failure by LIVE to consult with Patrick Wachsberger pursuant
to the foregoing sentence is not a material
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breach of this Agreement and Summit's sole remedy for such failure shall be
LIVE's prospective cure.
7. DELIVERY:
a. Prior Licenses: Promptly upon execution of this Agreement, LIVE
shall provide Summit with details of (i) all prior sales still in effect and
LIVE Agreements, including rights and territories licensed and expiration dates
of all agreements therefor; and (ii) any limitations of the Licensed Rights to
the Pictures.
b. Name/Likeness/Editing: LIVE shall notify Summit of all credit
obligations, restrictions on use of name/likeness, and editing restrictions to
which the Pictures are subject, or will be subject, during the Distribution Term
("Format Restrictions").
c. Picture Materials:
(i) Library Materials: As soon as practicable after execution of
this Agreement by all Parties, LIVE shall deliver to, and provide access to
Summit all customary film and television materials necessary to service the
License Agreements. If any items do not conform to requirements set forth in the
License Agreements, or if LIVE fails to deliver any such materials or documents,
LIVE shall indemnify and hold Summit harmless (consistent with the indemnity
provisions set forth in paragraph 13.j) against all claims and damages arising
therefrom, except for any claims and damages arising out of Summit's loss of any
Agency Fees. Notwithstanding anything to the contrary in paragraph 5.tt, costs
incurred by Summit in correcting deficient delivery items or in creating
delivery items not delivered by LIVE are Recoupable Distribution Expenses
hereunder.
(ii) New Pictures: For each New Picture, as soon as practicable,
LIVE shall deliver to Summit (at LIVE's sole cost and expense) all documents and
materials set forth on Schedule B. If any items which LIVE is required to
deliver hereunder do not conform to requirements set forth on Schedule B, or if
LIVE fails to deliver any such materials or documents, LIVE shall indemnify and
hold Summit harmless (consistent with the indemnity provisions set forth in
paragraph 13.j) against all claims and damages arising therefrom except for any
claims and damages arising out of Summit's loss of any Agency Fees.
Notwithstanding anything to the contrary in paragraph 5.tt, costs incurred by
Summit in correcting deficient delivery items or in creating delivery items not
delivered by LIVE are Recoupable Distribution Expenses hereunder. All publicity
items set forth on Schedule B which are delivered by LIVE to Summit are for the
purpose of servicing the relevant License Agreements. Summit shall not create
any additional publicity materials without LIVE's Approval.
d. Lab Rates: Summit acknowledges and agrees that LIVE controls the
rates with all laboratories used to service the New Pictures and the Library;
however, if Summit is able to secure prices for materials at the same or other
laboratories of equal or better commercial reputation which are more than *
lower than those which LIVE is able to obtain, LIVE shall consult with Summit in
good faith to service such Pictures from such laboratory, provided that
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any rebates from such laboratory are paid to LIVE. For avoidance of doubt, in
the event that Summit and LIVE disagree as to which laboratory will service such
Picture, LIVE's decision, in its sole discretion, controls.
8. AGENCY SERVICES:
a. General Obligation: Summit shall render all services which are
customarily rendered by sales agents of similar quality and distinction in
connection with the licensing of international distribution rights for Motion
Pictures, including, without limitation, (i) identifying and negotiating with
prospective Licensees; (ii) provided LIVE complies with its delivery
requirements set forth in paragraph 7, assuming responsibility for and
coordinating the delivery to the Licensees of all required delivery materials
under the License Agreements; (iii) as set forth in paragraph 8.h, monitoring
and assisting in the collection of payments owing to LIVE under the License
Agreements; (iv) as set forth in paragraph 8.i, coordinating with, and providing
current reports and information to, LIVE's internal personnel to assist such
personnel in maintaining accurate information regarding the status of the
Licensed Rights for each Picture; (v) monitoring the compliance of Licensees
with LIVE's approval rights as may be set forth in and customarily enforced
under the License Agreements, including, without limitation, obtaining on LIVE's
behalf, any items, materials, or information from Licensees over which LIVE has
approval rights and thereafter providing the same (or causing the same to be
provided) to LIVE; and (vi) investigating reports of non-compliance by Licensees
of their obligations under the License Agreements.
b. Maximization of Gross Receipts: As agent of LIVE, during the
Agency Term, Summit shall act in good faith in its reasonable business judgment
to negotiate agreements for the License of any of the Licensed Rights to the
Picture with a view to maximizing the share of Gross Receipts available to LIVE
and that are commensurate with the terms for the license of such Rights then
being concluded by Summit for motion pictures of similar budgets and commercial
quality.
c. Representation of Other Film Makers: LIVE acknowledges that it has
been advised by Summit that Summit will act as the sales agent for third parties
and/or for Summit's own films. Summit shall not discriminate against the
Pictures in favor of Summit's own film or any third party's films, and shall not
use or attempt to use the Pictures in order to obtain better terms and
conditions for Summit's own films or any third party's films.
d. *
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e. No Authority to Bind: Notwithstanding anything herein to the
contrary, Summit is not authorized to, and shall not execute any short or long-
form License Agreement on behalf of LIVE or to otherwise bind LIVE to any
License Agreement. No License Agreement is binding upon LIVE unless and until
the same has been executed by LIVE.
f. Approval of License Terms: LIVE retains the right to approve (in
accord with paragraphs 5.f and 13.b) the terms of all short and long-form
License Agreements negotiated by Summit. To facilitate Summit's performance of
its duties hereunder at film
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markets, LIVE shall (i) designate by Notice an executive with the authority to
Approve License Agreements (with Amir Malin and Ken Schapiro hereby so
designated until further Notice and each, acting alone, with the power to so
Approve) and (ii) advise Summit by Notice prior to the beginning of such film
markets of the acceptable parameters for the License of Licensed Rights to the
New Pictures, including, without limitation, with respect to each Major and
Secondary Territory, a minimum guaranty, a proposed distribution term, and a
range of acceptable backend terms (as between LIVE and the prospective
Licensee). Notwithstanding the foregoing sentence, LIVE retains the right to
approve the terms of all short-form and long-form License Agreements negotiated
by Summit at the film markets and to execute such agreements. For avoidance of
doubt, LIVE's execution of any short or long-form License Agreement is
conclusively deemed Approval by LIVE of the form and substance of such License
Agreement.
g. Exploitation Restrictions: In negotiating and concluding License
Agreements, Summit shall impose the following contractual restrictions on
Licensees.
(i) Holdbacks: For each License Agreement, Summit shall
incorporate any "holdbacks" of which it has been advised by Notice by LIVE. LIVE
hereby notifies Summit of the following, standing "holdbacks".
(1a US Theatrical Release: For each New Picture which LIVE
intends to Theatrically release in the United States, Summit shall not
contractually authorize any Licensee to Theatrically release such Picture in the
Territory prior to its first United States release.
(2a HBO Release: For each Picture which LIVE advises Summit
is to have its worldwide premiere on the United States Pay TV service known as
"HBO", Summit shall not contractually authorize any Licensee to exhibit such
Picture in the Territory until the expiration of the forty-five (45) day period
immediately following the date of the initial exhibition of such Picture on
"HBO".
(3a Border Protection: For each Picture which Summit
intends to license for Free TV in Mexico, Summit shall incorporate into the
applicable License Agreement such "border protection" provisions of which LIVE
may have theretofore advised Summit.
(ii) Name/Likeness/Editing: Provided that LIVE has notified
Summit of all Format Restrictions to which a Picture is subject, or will be
subject, during the Distribution Term, Summit shall notify each Licensee of the
same and shall contractually require that such Licensees comply with such
restrictions. Summit acknowledges and agrees that it shall contractually
prohibit editing of the Pictures except for dubbing, subtitling, television
broadcast and airline conformity (if applicable), censorship or other
governmental requirements (in each case, however, subject to any applicable
Format Restrictions).
(iii) Access to Materials: Unless otherwise Approved by Live,
Summit shall ensure that License Agreements permitting the exploitation of the
Picture in the German, French, Italian, and Castillian Spanish languages provide
for access to the dubs of the all
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versions of the Picture in such languages for LIVE's exploitation thereof. LIVE
acknowledges and agrees that certain territories (e.g., Germany) typically
require as a condition of entering into a license agreement that the licensor
agree to prohibit the Exploitation of the Motion Picture in the language of such
territory outside such territory and LIVE shall not unreasonably withhold its
Approval of any License Agreement if the Licensee imposes such restriction as a
condition of such License Agreement and refuses to grant such access during the
license term of such License Agreement as a further condition thereof.
h. Collections: During the Distribution Term, Summit shall act
reasonably and diligently to collect all sums due under the License Agreements.
Summit shall, consistent with its custom and practice, obtain copies of, and
review the information contained in, the accounting statements (and other
performance based reports, such as theatrical box office and rentals figures,
video shipment and revenue figures, and television sales information) required
to be provided by the applicable Licensee under each License Agreement, and
shall provide a copy of such statement/report to LIVE. Summit may also make
recommendations to LIVE of the need to conduct audits and notify LIVE whether
termination and relicense and/or litigation or arbitration is advisable under
any given circumstances and shall cooperate with LIVE in connection therewith.
(For avoidance of doubt, LIVE retains the right to audit the books and records
of all Licensees directly and to pursue any legal action against any Licensee in
connection with any failure to make payments under the License Agreements or
otherwise.) LIVE shall advise Summit on a daily basis of all Gross Receipts
received the previous business day. Summit shall contractually require that all
Gross Receipts are paid into the Collection Account(s) (except as may be
required by licensing intermediaries) and shall promptly pay into the Collection
Account(s) any Gross Receipts which it receives directly from Licensees. With
the sole exception of amounts payable by third parties to Summit for materials
or other costs charged to Licensees or other third parties with LIVE's approval,
any sums to be paid to Summit hereunder will be invoiced to and paid by LIVE,
and Summit shall not offset any sums or cause any Licensee to account or to pay
such sums directly to Summit for any reason. Summit shall not claim any tax
credits in connection with the Pictures, all of which tax credits are the sole
property of LIVE.
i. Accounting Statements: Not more frequently than monthly and not
less frequently than quarterly, Summit shall provide LIVE detailed statements in
a form mutually agreeable to LIVE, including a summary of all distribution
agreements including minimum guarantees, the amount of the minimum guarantees
paid to the date of the statement and the amounts of the minimum guarantees
outstanding, Gross Receipts during the period, all Distribution Expenses
incurred during the reporting period, and all Agency Fees accrued, and claimed
during the period of the statement, together with invoices, itemized
accountings, and other customary detailed documentation as LIVE may reasonably
require ("Accounting Statements").
j. Registration of Royalties: For the avoidance of doubt, LIVE is
solely entitled to register the Picture with the appropriate collection agencies
for cable retransmission royalties, mechanical royalties, blank tape levies and
other similar royalties available in the Territory with it being expressly
understood that (i) such revenues, royalties, and levies are
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excluded from "Gross Receipts" under this Agreement, and (ii) Summit does not
have (and will not have) any interest in such revenues, levies, and royalties.
For avoidance of doubt, Summit has no obligation hereunder to service the
collection of such revenues, levies, and/or royalties.
k. Residuals and Deferments: For avoidance of doubt, LIVE is solely
responsible for any deferments, profit participations, or residuals payable to
any individual or entity for services in connection with the Picture.
9. AGENCY FEE AND EXPENSES: In compensation for its services hereunder,
LIVE shall pay Summit the Agency Fee. The Agency Fee is the minimum payable to
Summit for its services in connection with the Picture and the Licensed Rights
thereto. Except as provided at law or by court order, LIVE shall neither
deduct, retain nor withhold from the Agency Fee any sums for withholding taxes
or other charges, fees, costs, or expenses.
a. Payment of Fees and Expenses: Subject to paragraph 9.b, LIVE shall
pay Summit the aggregate of the Library Fee and New Picture Fee and all
Recoupable Distribution Expenses within thirty (30) days of receipt of each
Accounting Statement. *
b. *
c. Disputed Fees and/or Expenses: In the event that LIVE (in its
sole discretion) disputes the amount of any Agency Fee and/or Recoupable
Distribution Expenses which are claimed by Summit on any Accounting Statement,
within thirty (30) days (subject to notice and cure as set forth in paragraph
13.g) of its receipt of Summit's Accounting Statement on which such disputed
fees and expenses are claimed, LIVE shall by Notice to Summit set forth: (i)
that it disputes such claim, (ii) the amount of such claim disputed, and (iii) a
detailed explanation of the reason(s) LIVE disputes such claim ("Dispute
Notice"). Failure by LIVE to provide such Notice is deemed Approval of such
Accounting Statement and the claimed Agency Fee and Recoupable Distribution
Expenses; provided that such failure does not prejudice LIVE's rights to audit
Summit as set forth in paragraph 13.d and to dispute any sums previously paid as
a result thereof. Upon receipt of any Dispute Notice, Summit may initiate
arbitration proceedings against LIVE (and any other proper party). If Summit
elects to proceed to arbitration, such arbitration must be conducted in accord
with paragraph 13.c of this Agreement, and both LIVE and Summit hereby waive any
"waiting" or "cooling off" period and agree that if they cannot agree on a
single arbitrator within ten (10) business days of the date Summit files and
serves it initial pleading in such arbitration, AFMA may appoint an arbitrator
and both Parties hereby waive any objection to such appointment.
10. FIRST NEGOTIATION/FIRST REFUSAL OF NEW LIBRARIES: If during the Agency
Term LIVE acquires any third-party library product, LIVE shall negotiate in good
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faith with Summit for thirty (30) days prior to negotiating with any other party
for agency services in the representation of such library product. During such
period, Summit shall conduct due diligence of such library product, and LIVE
shall use its commercially reasonable best efforts to provide Summit with all
documents reasonably necessary for Summit to determine whether to represent such
library product. *.
11. SUSPENSION OF SERVICES: If, during the Agency Term, after using
commercially reasonable best efforts, LIVE is unable to secure financing for a
New Picture from at least two (2) independent financial institutions which do
not have any interest in any other sales agent on the sole grounds that Summit
is the sales agent for LIVE or that Summit refuses to accede to commercially
reasonable terms in any inter-party agreement (see paragraph 13.i), LIVE shall
present Summit with letters signed by representatives of both such financial
institutions attesting to such facts. Thereafter, Summit has three (3) business
days in which to give Notice to LIVE that it will attempt to arrange production
financing, and unless Summit is able to present to LIVE within ten (10) business
days thereafter a customary term sheet signed by a duly authorized
representative of a financial institution on terms comparable to those LIVE
would have been able to obtain from either of the two (2) financial institutions
which rejected Summit (which term sheet may include Summit providing any portion
of the financing or gap financing on customary terms), LIVE may proceed to
finance the New Picture with either or both such financial institutions and both
Summit and LIVE will be relieved of their respective rights and obligations to
each other for such New Picture. *.
12. TERMINATION:
a. *
b. *
13. GENERAL PROVISIONS:
a. Amendment/Waiver: This Agreement may not be modified orally and
no waiver, amendment or modification shall be binding or effective unless in
writing and signed by both Parties.
b. Approvals: The "Party" (meaning either Summit or LIVE as the
circumstances and provisions hereof may dictate) seeking approval must provide
the Party from which Approval is sought a Notice containing a clear statement of
the request of Approval reasonably in advance of the event or the initiation of
the action or course of action for which approval is sought to permit a
meaningful response, but (except as provided below) not less than five (5) days.
The Party from which approval is sought, if it approves the request, must do so
by Notice to the Party seeking approval. Unless otherwise provided for in this
Agreement, any request for Approval which is not granted by Notice within seven
(7) business days from receipt of the Notice requesting Approval is deemed
disapproved. The Parties acknowledge and understand that time is of the essence
for any Notice by Summit requesting Approval of a proposed License, especially
at major film markets. Accordingly, LIVE shall use best efforts to
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respond within seventy-two (72) hours of receipt of requests for Approval of
License Agreements and as promptly as the circumstances require for Approval of
short-form License Agreements at film markets (but not more than twenty-four
(24) hours).
c. Arbitration: This agreement is subject to binding AFMA
arbitration in English in Santa Monica, California, and is to be construed,
interpreted, and enforced in accord with the laws of the State of California,
excluding California's choice of law provisions. Accordingly, LIVE and Summit,
each as to and for the benefit of the other hereby irrevocably submit to the
jurisdiction of courts of the State of California and the United States for the
purpose of any action, suit or proceeding arising out of or related to the
subject matter of, or transactions contemplated by, this Agreement. The
prevailing party in any action related to or arising out of this agreement is
entitled to recover all attorney's fees and costs (including expert costs) in
bringing or defending such action. For avoidance of doubt, in the event the
Parties arbitrate any dispute involving the nonpayment of funds by LIVE to
Summit, and if Summit is the prevailing party in such arbitration, the
arbitrator shall award interest on any sums awarded to Summit at the statutory
rate from the date such sums became due to Summit under this Agreement.
d. Audit: Upon thirty (30) days advance Notice, LIVE may audit
Summit's books and records for the Picture during normal business hours at the
offices where such books and records are kept in order to verify all data
reported by Summit to LIVE. Summit shall make such books and records available
at its regular place of business in the United States, if any. LIVE's right to
audit each accounting period terminates if such audit is not commenced within
three (3) years from the close of such period. Summit's books and records may
be audited no more than once annually. If Summit is found as a result of such
audit to have overcharged any Library Fee, New Picture Fee, or Recoupable
Distribution Expenses withheld any sums due to LIVE hereunder for any reason,
save as provided for in this Agreement, Summit shall forthwith pay the same to
LIVE. If such audit reveals an error to the detriment of LIVE in excess of one
hundred thousand Dollars (US$100,000) in respect of the period under audit for
all Pictures under audit, excluding any errors in allocation between Pictures,
Summit shall pay the amount of the resulting underpayment to LIVE and pay all
reasonable audit costs incurred by LIVE.
e. Confidentiality: The terms of this Agreement are confidential.
Neither party shall disclose the terms of this Agreement to any third party
other than (i) as may be required by applicable law or legal process, (ii) to
its respective officers, directors, employees and advisors on a need-to-know
basis, and (iii) to profit participants on the Pictures and/or LIVE's financiers
and investors. Neither Party shall issue any form of press release regarding
this Agreement without the written consent of the other Party and after any
initial press release neither party shall communicate to any non-party
statements other than to the effect that Summit is the exclusive sales agent of
LIVE for the Pictures. Each Party agrees to indemnify and hold the other
(including its officers, directors, partners, shareholders, employees and
agents) harmless from all claims and expenses (including reasonable outside
attorneys' fees) arising out of breach by it of this provision.
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f. Counterpart Signatures: This letter agreement may be executed in
one or more counterparts and transmitted by facsimile, each transmission of
which is deemed an original, and all of which, when taken together, constitute
one and the same instrument.
g. Default: No breach by either Party of any term or condition
herein shall be deemed material until the other Party has given Notice to the
breaching Party and such Party fails or refuses to substantially cure or correct
the applicable breach after such Notice is served within: twenty (20) days for
monetary breaches and for LIVE's failure to issue a Dispute Notice and thirty
(30) days for non-monetary breaches. Moreover, if the Party in breach fails to
cure either a monetary or a non-monetary breach within such prescribed time
period, such Party is thereafter deemed in default of this Agreement, and the
Party not in breach, at such Party's election, may terminate this Agreement by
Notice to the other Party. *
h. Errors and Omissions: LIVE shall maintain in full force and
effect during the first three (3) years after delivery of each New Picture (and
thereafter if LIVE or any assignee of LIVE continues such coverage) standard
form producer's liability insurance (error and omissions insurance) with limits
of not less than one million Dollars (US$1,000,000) per occurrence and three
million Dollars (US$3,000,000) total and with a deductible not greater than ten
thousand Dollars (US$10,000) for acquired New Pictures, thirty thousand Dollars
(US$30,000) for New Pictures produced by LIVE, and fifty thousand Dollars
(US$50,000) for Library Pictures, naming SENV, SELP, and Proscenium Pictures,
Ltd. and their officers, employees, representatives, attorneys, successors, and
assigns as additional insureds. Such insurance coverage shall extend to all
customary uses of the film(s) by Summit hereunder as are covered by customary
E&O policies. LIVE shall ensure that the errors and omissions may not be
terminated without thirty (30) days prior written notice to the above-mentioned
additional insured parties and the certificates issued naming such parties as
additional insured entities shall include statements to this effect.
i. Financing Documents: In the event that LIVE elects to "gap
finance" any Pictures, at LIVE's request, Summit shall negotiate in good faith
and execute all documents reasonably required to permit LIVE to conclude the
production financing of each Picture, including without limitation a customary
inter-party agreement and any document reasonably and customarily required by a
completion guarantor.
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j. Indemnities:
(i) By LIVE: LIVE shall indemnify Summit, its affiliates,
officers, directors, partners, employees, exhibitors, licensees, and assignees,
against any and all claims, liability, damages, costs and expenses, including
attorney's fees, in connection with any third party claim or action arising out
of or relating to: (i) any breach by LIVE of any representation or warranty
herein; and (ii) the License Agreements and any financing arrangements for the
Picture, provided that Summit has not engaged in gross negligence or intentional
conduct directly giving rise to such action, (e.g., Summit Licensing any of the
Licensed Rights exclusively to two (2) or more Licensees for any overlapping
territory or territories, distribution term, and language(s), Summit executing
any License Agreement without LIVE's Approval and signature, or Summit failing
to include in any agreement the holdbacks set forth in paragraph 8.g.(i)) and to
the extent not resulting from a material breach by Summit of its obligations
under this Agreement.
(ii) By Summit: Summit shall indemnify LIVE, its affiliates,
officers, directors, partners, employees, exhibitors, licensees, and assignees,
against any and all claims, liability, damages, costs and expenses, including
reasonable attorney's fees, in connection with any third party claim or action
arising out of or relating to any material breach by Summit of its obligations
under this Agreement, or any gross negligence or intentional conduct by Summit,
directly giving rise to such action.
k. Integration: This Agreement, the Master Agreement, the Schedules,
and any Inter-Party Agreement(s) contains the entire agreement and understanding
between the Parties hereto with respect to the subject matter hereof and the
transactions contemplated hereby and supersede any and all prior or
contemporaneous oral and written agreements, promises, statements,
representations and information given by either Party. Accordingly, by their
signature below, each Party expressly waives in favor of the other any right to
rely on any such negotiations, understandings or representations, if any, and
this document is the sole embodiment of the agreement between the Parties.
l. Interpretation: This Agreement has been negotiated at arms-length
between persons knowledgeable in the matters dealt with herein. In addition,
each party has been represented by experienced and knowledgeable legal counsel
or has otherwise waived such right. Accordingly, any rule of law, including
without limitation section 1654 of the California Civil Code, or any legal
decision that would require interpretation of any ambiguities in this Agreement
against the Party that has drafted it, is of no application and is hereby
expressly waived.
m. No Partnership: Nothing herein contained constitutes the
formation of any partnership or joint venture between the parties hereto or
establish any agency relationship between them. This Agreement is not for the
benefit of any third party and should not be deemed to give any right or remedy
to any such party whether referred to herein or not.
n. Notices: All Notices required hereunder must be in writing and
transmitted either by facsimile or express courier. All Notices to Summit shall
be sent to:
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Summit Entertainment N.V.
Castorweg 22-24
Curacao, Netherlands Antilles
Telephone: 5999.618.985
Facsimile: 5999.616.279
Attn: Lourdes Penzo
with a copy to:
Summit Entertainment, L.P.
2308 Broadway
Santa Monica, CA 90404
Telephone: 310.315.6041
Facsimile: 310.828.4132
Attn: Bob Hayward and Andrew Matosich
All Notices to LIVE shall be sent to:
LIVE Entertainment Companies
15400 Sherman way, Suite 500
Van Nuys, California 91406
Telephone: (818) 988 5060
Facsimile: (818) 788 3153
Attn: Amir Malin and Ken Schapiro
Any Notice is deemed to have been duly served if correctly addressed and sent by
facsimile or courier to the relevant party at that Party's designated office
above (as may be changed from time to time by Notice to the other Party). Any
Notice so given is deemed served: (i) if sent by facsimile, by the later of
twenty four (24) hours from its transmission or the commencement of normal
business hours at its destination (if such Notice is sent outside of normal
business hours at such destination); and (ii) if sent by courier, within three
(3) business days of the date that such courier package is sent.
o. Reliance: No person, whether or not an officer, agent, employee,
or representative of any party, has made or has any authority to make for or on
behalf of that Party any agreement, representation, warranty, statement,
promise, arrangement or understanding ("Representations") not expressly set
forth in this Agreement. Accordingly, the Parties acknowledge that in entering
into this Agreement, they have not relied upon any Representations that are not
expressly set forth herein.
p. Reps/Warranties/Indemnities:
(i) By LIVE: LIVE hereby represents and warrants to Summit that:
(i) it has full and complete authority to enter into this Agreement; (ii) it has
the right and authority to grant the Licensed Rights in the Territory and
Language during the Term free and clear of any
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claims, liens, charges or encumbrances which will frustrate Summit's performance
of its obligations under this Agreement; (iii) subject to the restrictions
described in paragraph 7.b above, there are no rights of approval or control
held by third parties which will frustrate Summit's performance of its
obligations under this Agreement; and (iv) to the best of its knowledge there is
no litigation or threatened litigation involving the Pictures or the Rights
which will frustrate Summit's performance of its obligations under this
Agreement. The individual signing on behalf of LIVE below hereby represents and
warrants that he or she is duly authorized to sign on behalf of LIVE and that
LIVE has complied with all corporate formalities predicate to the license of the
Rights and the execution of this Agreement.
(ii) By Summit: Summit hereby represents and warrants that it has
full and complete authority to enter into this Agreement and that the individual
signing on behalf of Summit below is duly authorized to sign on behalf of Summit
and that Summit has complied with all corporate formalities predicate to the
execution of this Agreement.
q. Schedules: This Agreement includes and incorporates the following
Schedules that are attached hereto and incorporated herein by this reference:
Schedule A: Major, Secondary And Minor Territories
Schedule B: Delivery Schedule
Schedule C: Rights Definitions
r. Severability: If any of the provisions of this Agreement become
invalid, illegal or unenforceable in any respect under any law, for any reason,
such provision is deemed automatically adjusted to the minimum extent necessary
to conform to the requirements for validity as declared at such time and, as so
adjusted, is deemed a provision of this Agreement as though originally included
herein. In the event that the provision invalidated is of such a nature that it
cannot be so adjusted, the provision is deemed deleted from this Agreement as
though such provision had never been included herein, and the validity, legality
and enforceability of the remaining provisions hereof are not in any way
affected or impaired. In either instance, the parties shall negotiate in good
faith a substitute provision which they reasonably believe to be valid and
enforceable and which puts each party in a comparable position to that in which
it would have been but for the find of illegality, invalidity, or
unenforceability.
IN WITNESS WHEREOF, Summit and LIVE entered into this Agreement as of the
Effective Date.
Summit Entertainment N.V. Summit Entertainment L.P.
/s/ Lourdes Gingori-Perzo /s/ Bob Hayward
By: Lourdes Gingori-Perzo By: Bob Hayward
Its: Managing Director Its: COO
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Live Entertainment Inc.
By: /s/ Mark Curcio
Its: CEO
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SCHEDULE A
to Sales Agency Agreement
LIVE/ SUMMIT
dated as of March 31, 1998
*
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SCHEDULE B
to Sales Agency Agreement
LIVE
dated as of March 31, 1998
DELIVERY SCHEDULE
-------- --------
Delivery of each Picture shall consist of LIVE making physical delivery of, or
providing irrevocable access to, the Primary Delivery Items as set forth below.
All Primary Delivery Items shall be delivered to Summit at LIVE's cost: (i)
without the logos of third parties that are not for use in the Territory such as
any applicable logos of the Picture's distributor in North America other than
LIVE; (ii) without the United States censorship rating tag; and, (iii) with the
correct credit block and copyright notice to be used in the Territory. The
elements contained in Paragraphs 1.a to 1.d shall conform to the final version
of the Picture and the trailer. All elements, including without limitation all
photography required under Paragraph 1.e, must be approved by LIVE and any other
individual or entity (e.g., talent) with approval thereover prior to delivery.
The Additional Delivery Items sets forth those additional items which Summit
shall be entitled to receive, upon request, for delivery to subdistributors to
the extent such materials and documents are available and necessary under the
respective distribution agreement.
All of the materials and documents set forth herein shall be delivered to Summit
Entertainment L.P., 2308 Broadway, Santa Monica, California 90404 for the
attention of Kaye Cooper-Mead.
Where the following provides for Summit to have laboratory access or access or
be given an access letter, such access shall be given by LIVE to Summit at no
charge via a laboratory access letter that is substantially in the form of the
model laboratory access letter in Exhibit 1 attached hereto.
1. PRIMARY DELIVERY ITEMS:
a. FEATURE 35MM PRINT ELEMENTS:
i. Interpositive: Access to one (1) 35mm interpositive of the Picture
feature, fully color-timed and conformed, to be manufactured in
first generation from the original Picture negative after the
final answerprint has been approved.
ii. Internegative: Access to one (1) 35mm internegative of the Picture
feature produced from a first generation 35mm interpositive of the
Picture referred to in Paragraph 1.a.i above, fully color-timed
and conformed to the final version of the Picture.
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iii. Checkprint: Access to one (1) complete final sample 35mm composite
positive checkprint from the internegative of the Picture referred
to in Paragraph 1.a.ii above.
iv. Textless Backgrounds: Access to color background textless sections
(i.e. without any superimposed lettering) interpositive,
internegative and checkprint of the main and end titles and all
descriptive titles, including the backgrounds for inserts, if any,
in the Picture feature and of any other parts of the Picture
feature which contain superimposed lettering.
b. FEATURE SOUND ELEMENTS:
i. Optical Sound Negative: Access to, one (1) 35mm Dolby stereo
(SR/SR-D) original optical soundtrack negative of the Picture
feature, in good physical condition, fully cut, edited, scored and
assembled and conformed in all respects to the approved final
version of the Picture.
ii. 3 or 4 Track Mono Magnetic Sound Master: Irrevocable access to the
35mm 3 or 4 track monaural full coat magnetic sound master,
containing separate dialogue, music and sound effects tracks fully
conformed to the final version of the Picture.
iii. Stereo Print Master: Access to, one (1) 35mm Dolby stereo 2-track
full coat magnetic sound master fully conformed to the final
version of the Picture. If the picture is prepared in Dolby SR-D,
access to the 35mm six track printmaster.
iv. Magneto Optical Disc: If the Picture is prepared in Dolby SR-D,
access to one (1) magneto optical disc conformed to the final
version of the Picture and with the correct logo music to be used
in the Territory.
v. Music and Effects Tracks: If the Picture is prepared in Dolby SR-
D, delivery of and access to, a six track discrete Dolby SR-D
music and effects master of the Picture. In addition, delivery of
and access to, a six track Dolby SR music and effects master of
the Picture, containing a stereo configuration of
left/center/right/ surround, optional material on track 5 and a
complete discrete dialogue stem on track 6. If the aforesaid six
track Dolby music and effects master does not exist, then delivery
of and access to a 35mm 4 track Dolby stereo combined music and
effects master fully conformed to the final version of the Picture
with a stereo configuration of left/right/center/surround and a
separate 35mm single stripe monaural dialogue guide track.
c. TRAILER ELEMENTS:
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All items below shall conform to the final version of the trailer that is to
be used for the theatrical release of the Picture as well as any so-called
"teaser trailers".
i. Interpositives: Access to one (1) 35mm interpositive of the
trailer produced from the original 35mm negative of the trailer
and, if applicable, one (1) set of textless background
interpositive section(s) for any parts thereof where titles,
credits or inserts are over action (and not over black).
ii. Internegative: Access to one (1) 35mm internegative of the trailer
and, if applicable, textless background sections for any parts
thereof where titles, credits or inserts are over action (and not
over black).
iii. Optical Soundtrack: Access to one (1) 35mm Dolby stereo optical
soundtrack negative of the trailer in good physical condition,
fully cut, edited, scored and assembled and conformed in all
respects to the approved final version of the trailer.
iv. Checkprint: Access to one (1) 35mm composite checkprint of the
trailer produced from the internegative and optical soundtrack
referred to in Paragraphs 1.c.ii and 1.c.iii above, respectively,
fully cut, edited and assembled, main and end titled, conforming
in all respects to the final approved version of the trailer.
v. Music and Effects Master: One 35mm Dolby stereo music and effects
master of the trailer of the Picture conformed in all respects to
the final approved version of the trailer.
vi. Mono Magnetic Master: One 35mm 4-track mono magnetic master of the
trailer of the Picture with separated music, effects, dialogue and
narration.
vii. Two Stripe Print Master: One 35mm Dolby stereo 2-track full coat
sound master of the trailer of the Picture conformed in all
respects to the final approved version of the trailer.
viii. Laboratory Access: Laboratory access to: (i) the original 35mm
trailer negative; (ii) the 35mm optical soundtrack negative of the
trailer; (iii) the 35mm 4 track full coat magnetic master of the
mix for the trailer with separated dialogue, music, effects and
narration tracks; and, (iv) the music and effects master of the
trailer of the Picture.
d. VIDEO MASTERS: Must be direct film to tape transfers (conversions not
acceptable).
i. Digital PAL Masters: Access to D-1 PAL videotape masters of the
Picture in the fully panned and scanned and letterbox formats,
with stereo composite mix on channels 1 and 2 and stereo music and
effects tracks only on
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channels 3 and 4 and the textless background sections (if
applicable) included after the Picture.
ii. Digital NTSC Masters: Access to D-1 NTSC videotape masters of the
Picture in the fully panned and scanned and letterbox formats,
with stereo composite mix on channels 1 and 2 and stereo music and
effects tracks only on channels 3 and 4 and the textless
background sections (if applicable) included after the Picture.
d. PUBLICITY ITEMS:
i. Press Kit: One (1) press kit containing: (i) production notes
relating to the production of the Picture; (ii) a list of the cast
and crew used in the production of the Picture; (iii) biographies
of the major cast members in the Picture, director, writer,
producer and the director of photography; (iv) available feature
stories and interviews, whether written or tape recorded; and (iv)
copies of available reviews of the Picture.
ii. Black & White Photography: Irrevocable access to all original
approved black and white negatives and delivery to Summit of one
set of 75 approved 8 x10 inch dupe negatives and two 8 x 10 inch
prints of each of the 75 approved stills. All of said stills shall
be of reproductive quality and suitable for advertising and
publicity purposes. Each such photograph shall bear notations
identifying the persons and subject matter.
iii. Color Photography: Irrevocable access to a set of all original
approved color transparencies, color prints and negatives for such
prints and/or color contact sheets taken or photographed in
connections with the Picture and delivery of a set of not less
than 125 dupe color transparencies produced therefrom depicting
various aspects of the production and location of the Picture.
Each dupe color transparency shall have annexed to it notations
which identify the personnel and subject matter appearing therein,
and shall be suitable for reproduction for advertising and
publicity purposes.
iv. Advertising Materials: Irrevocable access to the original
materials relating to the key artwork and poster and delivery to
Summit of a textless chrome of the advertising art, textless 8 x
10 inch black and white still, 8 x 10 inch negative of the artwork
and stat of the credit block and all printed matter for the one
sheet poster and print advertisements used for the Picture and for
making color separations for the one-sheet poster.
f. DOCUMENTS:
i. Continuity Script and Spotting List - Feature: Delivery of a
clearly legible typewritten copy of the detailed, final language
dialogue and action
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continuity of the Picture with spotting list ("Dialogue/Continuity
List"). The Dialogue/Continuity List shall contain all the
dialogue, narration, song vocals, main and end title credits, as
well as a cut-by-cut description of the Picture action, conforming
exactly to the photographic action and soundtrack of the final
version of the Picture in such form as to be suitable for
transmittal to censorship authorities and for use in connection
with dubbing and subtitling the Picture. The Dialogue/Continuity
List shall include a statement as to the "action to action" length
of each reel of the Picture.
ii. Combined Dialogue/Continuity & Spotting List - Trailer: Delivery
of a clearly legible typewritten copy of the detailed, final
combined dialogue/continuity with spotting list of the trailer of
the Picture.
iii. Copyright Certificates: When available, and if necessary to meet
delivery requirements under a License Agreement, delivery of
copies of the copyright certificates for the Picture and
screenplay thereof in the United States, to be delivered promptly
after the issuance of the initial certificates by the United
States Copyright Office provided, however, that if said
certificates are not available to LIVE at the time of Delivery, a
copy of the copyright applications (Forms PA), accompanied by
proof of payment of the copyright application fees, will be
delivered to Summit at the time of Delivery with a copy of the
original copyright certificates being delivered to Summit when
available.
iv. Copyright Notice: Delivery of a statement in English indicating
the correct copyright notice for the Picture.
v. Final Credits: Delivery of complete statements of the final
credits to be accorded on the screen in the main and end titles in
connection with the Picture in the Territory. Such statements
shall be rendered in customary form for foreign distribution and
shall include the names of all persons who are given a credit and
shall contain excerpts from any such agreements defining or
describing the form and nature of such required screen credits.
vi. Statement of Dubbing Restrictions: Delivery of a statement
confirming any restrictions as to the dubbing of the voice of any
actor or actress into foreign languages.
vii. Statement of Distribution Restrictions and Obligations: Delivery
of a statement detailing any restrictions and/or obligations set
forth in the agreements with the director and actors in the
Picture or any other third parties which will effect Summit's
exploitation of the Picture in the Territory.
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viii. E & O Insurance: Delivery of errors and omissions insurance
certificates from a qualified insurance company with liability
limits of not less than One Million Dollars (US$1,000,000) per
occurrence and Three Million Dollars (US$3,000,000) in the
aggregate with a deductible not greater than ten thousand Dollars
(US$10,000) for acquired New Pictures, thirty thousand Dollars
(US$30,000) for New Pictures produced by LIVE, and fifty thousand
Dollars (US$50,000) for Library Pictures, naming Summit
Entertainment N.V., Summit Entertainment L.P., and Proscenium
Pictures, Ltd. and their officers, employees, representatives,
attorneys, successors, and assigns as additional insureds to be in
place for a minimum of three (3) years from the date of Delivery
to Summit. LIVE shall, upon request, from time to time, furnish
Summit with certificates of insurance, naming relevant
subdistributors as separate additional insured parties on such
policy. The errors and omissions policy shall not be able to be
terminated without thirty (30) days prior written notice to the
above-mentioned additional insured parties and the certificates
issued naming such parties as additional insured entities shall
include statements to this effect.
ix. Paid Advertising Credits: Delivery of a complete statement of
final credits to be accorded in paid advertising in connection
with the Picture. Such statement shall be rendered in a customary
form for foreign distribution and shall include the names of all
persons who are contractually required to receive a credit in any
paid advertising, publicity or exploitation of the Picture and
shall contain excerpts from any such agreements defining or
describing the form and nature of such required paid advertising
credits.
x. Music Cue Sheet: Delivery of one (1) copy of the music cue sheet
of the Picture and any other materials delivered to Summit which
contain music, including without limitation, trailer and
promotional reels, setting forth, (i) the titles of the musical
compositions and sound recording, if applicable; (ii) the name(s)
of the composer(s) and their performing rights society
affiliation; (iii) names of recording artists; (iv) the nature,
extent and exact timing of the uses made of each musical
composition in the Picture; (v) the name and address of the
producer of the copyright of each musical composition and sound
recording; and, (vi) the name and address of the publisher and
company which controls the sound recording.
xi. Music Licenses: If required by delivery schedules with
subdistributors and requested by Summit, copies of: (i) all
synchronization and performance licenses issued in connection with
all music embodied in the Picture and the trailer of the Picture;
and (ii) all master-use licenses issued in connection with the
pre-existing master recordings embodied in the Picture.
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<PAGE>
xii. Key Talent Agreements: If necessary to meet delivery requirements
under a License Agreement, copies of the agreements with the
director, lead actor, lead actress, producer and composer of the
Picture.
xiii. Chain of Title: If necessary to meet delivery requirements under a
License Agreement, one (1) set of documents showing the chain of
title to the literary property and screenplay on which the Picture
is based and one original signed and notarized affidavit
summarizing the chain of title.
2. ADDITIONAL DELIVERY ITEMS:
a. Rating Certificate: If necessary to meet delivery requirements under a
License Agreement, when available and if requested by Summit, a copy of the
MPAA Rating Certificate issued by the Motion Picture Association of America
with respect to the Picture.
b. Coverage: If necessary to meet delivery requirements under a License
Agreement and if requested by Summit, laboratory access to the original
negative, answerprint, work print, magnetic soundtracks, filled music and
effects tracks and the original sound recordings, of all alternative takes,
cover shots, looped dialogue lines and other materials (hereinafter
collectively referred to as "coverage") for the purpose of conforming to
rating requirements, broadcast standards and practices in the Territory and
censorship.
c. Television Version: If created, laboratory access to the interpositive,
internegative, work print, magnetic sound transfer, music and effects,
continuity script and spotting list, editor's lined cutting script, and
music cue sheets and digital masters with respect to any television version
of the Picture, suitable for exhibition on free television during prime
time.
d. Access to the United States Distributor's Materials: To the extent LIVE has
such access, and if requested by Summit and if distributed in the United
States by an entity other than LIVE, free access to any other alternative
versions (e.g. airline version) or publicity materials created by the United
States distributor of the Picture including teaser trailers, trailers, key
art, EPK's, TV spots, radio spots, standees and banners.
e. Final Screenplay: If requested by Summit, delivery of a copy of the final
screenplay used in connection with photography of the Picture.
f. Certificates of Origin: Delivery of thirty (30) notarized original
certificates of origin executed by LIVE, in reasonable format(s) to be
agreed between Summit and LIVE prior to Delivery.
g. Certificates of Authorship: If necessary to meet delivery requirements
under a License Agreement, delivery of three (3) notarized original
certificates of authorship for each
-7-
<PAGE>
writer who receives screen credit (either screenplay or story) in a format
to be agreed between Summit and LIVE prior to Delivery.
h. Title Report and Opinion: If necessary to meet delivery requirements under
a License Agreement, a title report and an MPAA title report, both
confirming the availability of the title(s) of the Picture.
i. Additional Documents: Any additional and available documents that may be
reasonably requested by Summit to service the sublicense agreements.
-8-
<PAGE>
EXHIBIT 1 TO SCHEDULE B
LABORATORY ACCESS LETTER
(ON LIVE'S LETTERHEAD)
Date:
(Laboratory Address)
RE: (Film Title (all versions if more than one title))
Gentlemen:
LIVE Entertainment Inc. ("LIVE") has entered into a sales agency agreement (the
"Agreement") with Summit Entertainment N.V. and Summit Entertainment L.P.
(collectively "Summit") under which agreement Summit has been granted certain
distribution rights in and to the film entitled ______________________ (the
"Picture").
For good and valuable consideration, receipt of which is hereby acknowledged, it
is hereby agreed, for the express benefit of Summit, as follows:
1. You and LIVE represent to Summit that we have now entered into arrangements
whereby you hold in your possession and your control at your offices located in
___________________________all of the materials listed on the attached
"Schedule" relating to the Picture (the "Materials").
2. From such time as this letter shall be delivered to you, Summit and its
designees shall at all times have complete and free access to said Materials.
3. You will at all times perform all laboratory services requested by Summit or
its designees relating to the Picture which laboratory services will be
performed by you at Summit's sole expense.
4. Neither Summit nor LIVE shall have any liability for any indebtedness to you
incurred by the other.
5. You presently have no claim or lien against the Picture or the Materials nor
insofar as Summit is concerned will you assert any claim or lien against the
Picture or the Materials except for your charges for services rendered for and
documents furnished to Summit. Similarly, insofar as LIVE
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<PAGE>
is concerned, you will not assert any claim or lien against the Picture or the
Materials for your charges for services rendered and documents furnished to
Summit.
Please signify your agreement to the foregoing by signing where indicated below.
Very truly yours,
LIVE ENTERTAINMENT INC.
By: ________________________________
Its: ________________________________
AGREED TO:
(Laboratory)
By: ___________________________________
Its: ___________________________________
AGREED TO:
SUMMIT ENTERTAINMENT N.V. SUMMIT ENTERTAINMENT L.P.
By: ___________________________ By: _____________________________
Its: ___________________________ Its: _____________________________
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<PAGE>
SCHEDULE TO EXHIBIT 1 TO SCHEDULE B
(PICTURE)
The Materials
(Listing of all materials held by laboratory on the Picture)
-11-
<PAGE>
SCHEDULE C
to Sales Agency Agreement
LIVE
dated as of March 31, 1998
Definitions - Rights
Cinematic Rights:
"Cinematic" means all forms of Theatrical, Non Theatrical, Public Video and
Commercial Video Exploitation of a Motion Picture Copy.
"Theatrical" means exploitation of a Motion Picture Copy by direct
exhibition in conventional or drive-in theaters that are open to the general
public on a regularly scheduled basis and charge an admission fee to view a
Motion Picture.
"Non-Theatrical" means exploitation of a Motion Picture Copy by direct
exhibition before an audience at facilities or organizations not primarily
engaged in the business of exhibiting Motion Pictures including, but not limited
to, educational organizations, churches, restaurants, bars, clubs, trains,
buses, libraries, prisons, industrial installations, Red Cross facilities, oil
rigs, embassies, military bases, military vessels or any other governmental
facilities flying the flag of countries within the Territory. Non-Theatrical
does not include Public Video, Commercial Video, Airline, Ship and Hotel/Motel.
"Public Video" means exploitation of a Motion Picture Copy embodied in a
Videogram by direct exhibition before an audience in a "mini-theater", an "MTV
theater" or like establishment which charges an admission to use the viewing
facility or to view the Videogram and which is not licensed as a theater for the
purposes of exhibiting Motion Pictures in a Theatrical manner.
"Commercial Video" means exploitation of a Motion Picture Copy embodied in a
Videogram by direct exhibition before an audience at facilities or organizations
not primarily engaged in the business of exhibiting Motion Pictures including,
but not limited to, educational organizations, churches, restaurants, bars,
clubs, trains, buses, libraries, prisons, industrial installations, Red Cross
facilities, oil rigs, embassies, military bases and military vessels. Commercial
Video does not include Non-Theatrical, Public Video, Airline, Ship and
Hotel/Motel.
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<PAGE>
Home Video Rights:
"Video" or "Home Video" means the manufacture, distribution, rental, lease
or sale of Videograms (restricted to the Videogram type(s) and format(s)
authorized in the Deal Terms), which enable a Motion Picture to be perceived
visually on a television screen when displayed through or as part of an
electronic apparatus (such as a television-type playback system) for private
non-commercial use. Home Video is restricted solely to the Videogram type(s) and
format(s) that are leased to Lessee in the Deal Terms. Home Video does not
include any form of Video-On-Demand.
"Home Video Rental" means Video and Home Video other than Home Video Sell
Through.
"Home Video Sell Through" means the manufacture and distribution of
Videograms (restricted to the Videogram type(s) and format(s) authorized in the
Deal Terms) for purposes of sale to the public for private non-commercial use
where: (i) ownership of such Videograms transfers to such ultimate purchasing
members of the public who use the Videograms for private non-commercial use; and
(ii) if a Maximum Net Sell Through Price is specified in the Deal Terms, the
price per Videogram unit that is derived by Lessee or its subdistributors and
Affiliates, net of discounts and rebates, is less than such any Maximum Net Sell
Through Price defined in the Deal Terms.
Ancillary Rights:
"Ancillary" means all forms of Airline, Ship and Hotel/Motel Exploitation of
a Motion Picture Copy.
"Airline" means exploitation by direct exhibition of a Motion Picture Copy
in airplanes, wherever located, which are operated by companies flying the flag
of any country within the Territory, but excluding airplanes which are
customarily licensed from a location outside of the Territory, or which are only
serviced in but do not fly the flag of any country in the Territory.
"Ship" means exploitation by direct exhibition of a Motion Picture Copy in
ocean going vessels, wherever located, which fly the flag of any country in the
Territory and are serviced from a country in the Territory, but excluding ships
serviced from a location outside of the Territory.
"Hotel/Motel" means the exploitation by direct exhibition of a Motion
Picture Copy in temporary or permanent living accommodations such as hotels,
motels, apartment complexes, co-operatives or condominium projects where the
exhibition is by means of closed-circuit television systems which originate
within or in the immediate vicinity of such living accommodations. Hotel/Motel
does not include Pay-Per-View or Video-On-Demand.
Television Rights:
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<PAGE>
"Television" means all forms of Free TV and Pay TV exploitation of a Motion
Picture Copy.
"Free TV" means all forms of Terrestrial Free TV, Cable Free TV and
Satellite Free TV exploitation of a Motion Picture.
"Terrestrial Free TV" means only standard over-the-air broadcast by means of
Hertzian waves of a Motion Picture Copy which is intended for reception on
television receivers in private living accommodations without a charge being
made to the viewer for the privilege of viewing a Motion Picture. For purposes
of this definition, neither governmental television receiver assessments nor
taxes are a charge to the viewer.
"Cable Free TV" means only the transmission by means of coaxial or fiber-
optic cable of a Motion Picture Copy for reception on television receivers in
private living accommodations without a charge being made to the viewer for the
privilege of viewing a Motion Picture. For purposes of this definition, neither
governmental television receiver assessments or taxes, nor regular periodic
basic cable service charges (other than subscriptions paid for the right to
receive specific programming channel(s) or amounts paid for the right to receive
specific programs on a fee-per-exhibition basis) paid by a subscriber to a cable
television system are a charge to the viewer.
"Satellite Free TV" means only the up-link transmission of a Motion Picture
Copy to a satellite and its down-link transmission to a terrestrial satellite
reception dish for the purpose of viewing of a Motion Picture on television
receivers in private living accommodations without a charge being made to the
viewer for the privilege of viewing a Motion Picture. For purposes of this
definition, neither governmental television receiver assessments or taxes, nor
regular periodic basic satellite service charges (other than subscriptions paid
for the right to receive specific programming channel(s) or amounts paid for the
right to receive specific programs on a fee-per-exhibition basis) are a charge
to the viewer.
"Pay TV" means all forms of Terrestrial Pay TV, Cable Pay TV, and Satellite
Pay TV exploitation of a Motion Picture Copy. Pay TV Rights do not include any
form of Hotel/Motel, Pay-Per-View or Video-On-Demand Rights.
"Terrestrial Pay TV" means only over-the-air broadcast of a Motion Picture
Copy by means of encoded Hertzian waves for reception on a television receiver
in private living accommodations by means of a decoding device where a charge is
made: (i) to the viewer for the right to use the decoding device for viewing any
special channel which transmits a Motion Picture along with other programming on
an ongoing basis; or (ii) to the operator of a hotel, motel, apartment complex,
co-operative, condominium project or similar place located distant from the
place where such broadcast signal originated for the right to use the decoding
device to receive and retransmit the programming on such channel throughout such
place.
"Cable Pay TV" means transmission or retransmission of a Motion Picture Copy
by means of an encoded signal over coaxial or fiber-optic cable for reception on
television receivers
-3-
<PAGE>
in private living accommodations by means of a decoding device where charge is
made: (i) to the viewer for the right to use the decoding device for viewing any
special channel which transmits a Motion Picture along with other programming on
an ongoing basis; or (ii) to the operator of a hotel, motel, apartment complex,
co-operative, condominium project, or similar place located distant from the
place where such broadcast signal originated for the right to use the decoding
device to receive and retransmit the programming on such channel throughout such
place.
"Satellite Pay TV" means the up-link transmission of a Motion Picture Copy
by means of an encoded signal to a satellite and its down-link transmission to a
terrestrial satellite reception dish and a decoding device for the purposes of
viewing a Motion Picture on television receivers in private living
accommodations where a charge is made: (i) to the viewer for the right to use
the decoding device for viewing any special channel which transmits a Motion
Picture along with other programming on an ongoing basis; or (ii) to the
operator of a hotel, motel, apartment complex, co-operative, condominium
project, or similar place located distant from the place where such broadcast
signal originated for the right to use the decoding device to receive and
retransmit the programming on such channel throughout such place.
Other Rights:
"Incidental" means, subject to restrictions contained in the Agreement: (i)
dubbing or subtitling the Picture and trailers thereof; (ii) the application for
censorship and edit of the Picture; (iii) advertising and publicizing the
Picture; (iv) the application for copyright protection.
"Merchandising" means the manufacture and distribution for profit of items
of merchandise, other than books and records, featuring or embodying the title
of the Picture, or any logos identifiable with the Picture, or the name or
likeness of any characters, animals or objects identifiable with a Motion
Picture.
"Music Publishing" means the administration of the copyright(s) in musical
compositions appearing in the Picture's soundtrack, to the extent the same are
owned/or controlled by LIVE.
"Novelization" means the authorization of, or act of, writing (by
translation or otherwise) and exploitation of the Picture or screenplay thereof
as a book, novel, or other printed (electronic or otherwise) or published medium
(electronic or otherwise).
"Pay-Per-View" means the broadcast of a Motion Picture Copy by means of an
encrypted signal for reception on television receivers in homes or non-
residential institutions, including hotels, motels and hospitals, where a charge
is made to the viewer for the right to use a decoding device to view the
broadcast of a Motion Picture at a time designated by the broadcaster for each
viewing. Pay-Per-View Rights do not include any form of Hotel/Motel, Pay TV or
Video-On-Demand Rights.
"Souvenir Program" means the preparation and exploitation of souvenir
booklets or programs, not to exceed thirty (30) pages in length, featuring
photographs and explanatory text relating to the Picture.
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<PAGE>
"Soundtrack Record" means the manufacture and exploitation of recordings in
any form embodying all or any part of the soundtrack of the Picture or any re-
recording of all or any part of the soundtrack of the Picture (packaged and
labelled in such a way as to be identifiable with the Picture) in lieu of the
actual soundtrack thereof.
"Video Game" means the manufacture, distribution, and sale, lease, or rental
of video game(s) for platforms such as Sega Genesis, Nintendo SNES, 3DO
multiplayer system or any similar or new platform formats where the user is
given interactive control over "virtual" actors and surroundings and/or engages
in contests of dexterity and that: (i) are developed from the Picture or its
Underlying Material (whether or not such video game(s) use footage from the
Picture); and/or (ii) are packaged and labelled in such a way as to be
identifiable with the Picture.
"Video-On-Demand" means the broadcast of a Motion Picture Copy by means of
an encrypted signal for reception by decoding and storage devices for viewing on
television receivers in homes or non-residential institutions, including hotels,
motels and hospitals, where a charge is made to the viewer on a fee-per-
exhibition basis for the right to use such decoding and storage device to view
the broadcast of a Motion Picture at a time selected by the viewer for each
viewing. Video-On-Demand does not include any form of Hotel/Motel, Pay TV or
Pay-Per-View.
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<PAGE>
EXHIBIT "B"
THE PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND CALL OPTIONS TO PURCHASE SUCH INTERESTS AS
SET FORTH IN A LIVE/SUMMIT OMNIBUS AGREEMENT.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
SUMMIT ENTERTAINMENT L.P.
A California Limited Partnership
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS...................................................... 1
ARTICLE II FORMATION....................................................... 2
2.1 Formation of Limited Partnership..................................... 2
2.2 Character of the Business............................................ 2
2.3 Principal Place of Business.......................................... 2
2.4 Address of General Partner........................................... 2
ARTICLE III RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER.................. 2
3.1 Management........................................................... 2
3.2 Financial Information................................................ 2
3.3 Tax Returns.......................................................... 2
ARTICLE IV RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.................. 2
4.1 Rights of Limited Partners........................................... 2
4.2 Withdrawal and Dissolution........................................... 2
ARTICLE V ALLOCATION OF INCOME, EXPENSE, PROFIT, AND LOSS.................. 3
5.1 Tax Year............................................................. 3
5.2 Distributions........................................................ 3
5.3 Profits and Losses................................................... 3
5.4 Tax Withholding...................................................... 3
ARTICLE VI DISSOLUTION AND LIQUIDATION..................................... 3
6.1 General Partner...................................................... 3
6.2 Garrett.............................................................. 4
6.3 Termination and Dissolution.......................................... 4
ARTICLE VII MISCELLANEOUS PROVISIONS....................................... 4
7.1 Entire Contract...................................................... 4
7.2 Arbitration.......................................................... 4
7.3 Fiduciary Status..................................................... 4
7.4 Certain Transfers.................................................... 4
7.5 Indemnity............................................................ 4
</TABLE>
i
<PAGE>
This Amended and Restated Agreement of Limited Partnership is made and
entered into by and between The Franco/Kiwi Alliance, Inc., a California
corporation, as the General Partner, and David Garrett and Film LIVE
Incorporated as the Limited Partners.
ARTICLE I DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 Cash Floor: The same meaning as set forth in the Omnibus
----------
Agreement.
1.2 Agreement: This Amended and Restated Agreement of Limited
---------
Partnership.
1.3 Closing Date: The same meaning as set forth in the Omnibus
------------
Agreement.
1.4 Garrett: David Garrett.
-------
1.5 General Partner: The Franco/Kiwi Alliance, Inc.
---------------
1.6 Limited Partners: Garrett and LIVE.
----------------
1.7 LIVE: LIVE Entertainment Inc.
----
1.8 Omnibus Agreement: The LIVE/Summit Omnibus Agreement.
-----------------
1.9 Partners: All Partners, both General and Limited.
--------
1.10 Partnership: The Limited Partnership formed hereby, which
-----------
shall be named Summit Entertainment L.P.
1.11 Percentage Interests: * for the General Partner, *
--------------------
for Garrett, and * for LIVE.
1.12 Priority Distribution: The same meaning as set forth in the
---------------------
Omnibus Agreement.
1.13 RLPA: The California Revised Limited Partnership Act.
----
1.14 Summit Cash: The same meaning as set forth in the Omnibus
-----------
Agreement.
1.15 Summit Equity: The same meaning as set forth in the Omnibus
-------------
Agreement.
1
<PAGE>
ARTICLE II FORMATION
2.1 Formation of Limited Partnership: The Partnership was formed
--------------------------------
pursuant to the RLPA.
2.2 Character of the Business: The purpose of the Partnership is to
-------------------------
engage in any activity permitted by the Act.
2.3 Principal Place of Business: The principal office of the
---------------------------
Partnership is 2308 Broadway, Santa Monica, California 90404. The General
Partner may, in its sole discretion, change the principal office of the
Partnership or designate other places and cities to be used as additional
Partnership offices for the purpose of carrying on the business of the
Partnership.
2.4 Address of General Partner: The address of the General Partner
--------------------------
is the same as the address of the Partnership.
ARTICLE III RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER
3.1 Management: The General Partner shall have the sole authority
----------
to manage, control, vote on, and approve all of the affairs of the Partnership,
except as provided in Paragraph 4.1.
3.2 Financial Information: The General Partner shall deliver within
---------------------
75 days of the end of each fiscal year to the Limited Partners quarterly and
annual financial statements of the Partnership and its affiliated companies
including statements of income, changes in financial position, and balance
sheets and accompanying notes, and the Limited Partners shall have access to
Partnership records as provided in California Corporations Code sections 15634
and 15615.
3.3 Tax Returns: The General Partner shall cause the preparation
-----------
and filing of all Partnership tax returns and shall make such tax elections as
the General Partner, in its sole discretion, deems appropriate. Partnership tax
returns will be delivered within 75 days of the end of each fiscal year.
ARTICLE IV RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
4.1 Rights of Limited Partners: The Limited Partner expressly waive
--------------------------
their right to vote on or approve any matters that they would otherwise be
entitled to vote on or approve pursuant to the RLPA, except amendments to this
Agreement which may only be made with the unanimous consent of all Partners.
Any matters upon which the Limited Partners may vote may only be approved by the
unanimous vote of all the Partners.
4.2 Withdrawal and Dissolution: The Limited Partners shall not have
--------------------------
the right to withdraw from the Partnership prior to termination, except in
accordance with the provisions hereof, and the Limited Partners shall not have
the right to seek a judicial dissolution of the Partnership.
2
<PAGE>
ARTICLE V ALLOCATION OF INCOME, EXPENSE, PROFIT, AND LOSS
5.1 Tax Year: The Partnership shall adopt the calendar year as its
--------
taxable year.
5.2 Distributions: Cash funds which, in the sole discretion of the
-------------
General Partner, are not required to meet the needs of the business of the
Partnership (which needs shall include, without limitation, reasonable reserves
for future expenses and accounts payable) shall be distributed to the Partners
in the following order:
(a) The General Partner and Garrett shall be entitled, when
and as determined by the General Partner, to priority distributions at any time
after the Closing Date in an amount aggregating the Priority Distribution if (i)
making such distributions results in no adverse tax consequences to Summit or
LIVE and (ii) Summit Cash equals or exceeds the Cash Floor after the
distribution. Any distributions under this Paragraph 5.2(a) shall be made to the
General Partner and Garrett pro rata in the ratio of their Percentage Interests.
(b) Next, distributions shall be made to the Partners equal
to the taxes payable (assuming a tax rate equal to the highest effective
marginal federal and state tax rate applicable to any of the Partners) on the
cumulative taxable income allocable to them by the Partnership after the Closing
Date. Such distributions shall be made to the Partners pro rata in the ratio of
their Percentage Interests.
(c) Next, to the Partners pro rata in the ratio of their
Percentage Interests. However, no distributions may be made under this Paragraph
5.2(c) if the result would reduce Summit Equity below * or Summit Cash
below the Cash Floor.
5.3 Profits and Losses: The taxable profits and losses of the
------------------
Partnership shall be allocated to the Partners pro rata in accordance with their
Percentage Interests.
5.4 Tax Withholding: In the event that the Partnership is required
---------------
to pay or withhold any federal or state tax attributable to distributions or
allocations to any Partner, such withholding may be offset against any
distributions to such Partner (but shall be treated as an actual distribution to
such Partner). If the required withholding exceeds such distributions, such
Partner shall be obligated to contribute to the Partnership cash in an amount
equal to such excess plus interest at 10% until paid.
ARTICLE VI DISSOLUTION AND LIQUIDATION
6.1 General Partner: The Partnership shall be dissolved and shall
---------------
terminate and wind up its affairs upon the election of the General Partner, but
not prior to the termination of the Agency Agreement (not due to a breach by
Summit) without LIVE's express prior written consent.
3
<PAGE>
6.2 Garrett: Upon the termination of the employment of Garrett by
-------
the Partnership or its affiliates for any reason, the Partnership shall not
terminate but shall have the option to purchase his interest in the Partnership
for an amount equal to his Percentage Interest of the book value (calculated
applying generally accepted accounting principles) of the net assets of the
Partnership at that time.
6.3 Termination and Dissolution: If the Partnership shall be
---------------------------
dissolved for any reason, no further business shall be conducted, except for the
taking of such action as shall be necessary for the winding up of the affairs of
the Partnership and the distribution of its assets in the following order:
(a) First, toward payment of all Partnership debts and
expenses and valid and existing claims of third persons, or adequate provisions
shall be made therefor;
(b) Second, to the Partners in accordance with Paragraph 5.2
(excluding the last sentence of Paragraph 5.2(c)).
ARTICLE VII MISCELLANEOUS PROVISIONS
7.1 Entire Contract: This Agreement and the Omnibus Agreement
---------------
constitutes the entire agreement among the Partners relating to the Partnership,
and supersedes all prior agreements relating thereto. This Agreement may only
be amended by a writing signed by all the Partners.
7.2 Arbitration: Any and all disputes relating to this Agreement or
-----------
any of the transactions contemplated hereby shall be subject to binding
arbitration before one arbitrator pursuant to the Commercial Rules of the
American Arbitration Association, with such arbitration to be held in Los
Angeles, California. The prevailing party in any such arbitration shall be
entitled to recovery of reasonable attorney fees incurred in connection with
such dispute.
7.3 Fiduciary Status: The Partners acknowledge that they are
----------------
fiduciaries as to each other.
7.4 Certain Transfers: If the General Partner sells any of its
-----------------
Percentage Interest in the Partnership to any party, Garrett shall have a tag-
along right to sell a proportionate share of his Percentage Interest in the
Partnership on the same terms and conditions as the interest being sold, and the
General Partner shall have a drag-along right to require Garrett to sell a
proportionate share of his Percentage Interest in the Partnership on such terms
and conditions.
7.5 Indemnity: If any Partners (or their officers or owners) incur
---------
legal fees in connection with claims made against them for actions or inactions
relating to their capacity as direct or indirect owners of the Partnership, the
Partnership shall advance such legal fees during the course of the dispute. If
the person prevails in the dispute, such advance shall be nonrefundable. If the
person does not prevail in the dispute, such advance shall be promptly refunded.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the Closing Date.
GENERAL PARTNER:
THE FRANCO/KIWI ALLIANCE, INC.
a General Corporation
By:
Patrick Wachsberger, President
LIMITED PARTNERS:
DAVID GARRETT
LIVE ENTERTAINMENT INC.
By:
Title:
S-1
<PAGE>
EXHIBIT C
Execution Copy
--------------
THE SECURITIES EVIDENCED HEREBY (OR ISSUABLE UPON EXERCISE HEREOF) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
--------------
OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE
UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
PROVIDED BY REGULATION D AND RULE 701, PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION. THE SECURITIES EVIDENCED HEREBY (AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF) ARE OR WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER AND
RESALE UNDER A STOCKHOLDER AGREEMENT AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND OTHER APPLICABLE LAWS PURSUANT
TO REGISTRATION OR EXEMPTION FROM REGISTRATION REQUIREMENTS THEREUNDER.
FILM HOLDINGS CO.
1997 STOCK OPTION
FOR SUMMIT EMPLOYEES
Option Certificate and Agreement
--------------------------------
This stock option is granted by Film Holdings Co., a Delaware corporation
(the "Company"), to Patrick Wachsberger (the "Optionee"), pursuant to the
Company's 1997 Stock Option Plan (the "Plan"). All initially capitalized terms
not otherwise defined herein shall have the meaning provided in the Plan.
30. Grant of Opinion
----------------
This certificate evidences the grant by the Company on April __, 1998 (the
"Grant Date") to the Optionee of an option to purchase, in whole or in part, on
the terms provided herein and in the Plan, a total of 50,859 shares of Class A
Common Stock, par value $0.001 per share, of the Company (the "Shares") at the
following exercise prices per Share:
Number of Options Exercise Price
----------------- --------------
22,799 $ 0.01
7,014 $ 2.98
10,523 $ 6.55
10,523 $10.12
The latest date on which this option may be exercised (the "Expiration
Date") is the earliest of (a) April __, 2008, or (b) the termination hereof in
accordance with this Agreement, the Stockholder Agreement or the Plan.
The option evidenced by this certificate is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code").
S-2
<PAGE>
Execution Copy
--------------
THE SECURITIES EVIDENCED HEREBY (OR ISSUABLE UPON EXERCISE HEREOF) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
--------------
OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE
UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
PROVIDED BY REGULATION D AND RULE 701, PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION. THE SECURITIES EVIDENCED HEREBY (AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF) ARE OR WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER AND
RESALE UNDER A STOCKHOLDER AGREEMENT AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND OTHER APPLICABLE LAWS PURSUANT
TO REGISTRATION OR EXEMPTION FROM REGISTRATION REQUIREMENTS THEREUNDER.
FILM HOLDINGS CO.
1997 STOCK OPTION
FOR SUMMIT EMPLOYEES
Option Certificate and Agreement
--------------------------------
This stock option is granted by Film Holdings Co., a Delaware corporation
(the "Company"), to Robert Hayward (the "Optionee"), pursuant to the Company's
1997 Stock Option Plan (the "Plan"). All initially capitalized terms not
otherwise defined herein shall have the meaning provided in the Plan.
31. Grant of Opinion
----------------
This certificate evidences the grant by the Company on April __, 1998 (the
"Grant Date") to the Optionee of an option to purchase, in whole or in part, on
the terms provided herein and in the Plan, a total of 30,516 shares of Class A
Common Stock, par value $0.001 per share, of the Company (the "Shares") at the
following exercise prices per Share:
Number of Options Exercise Price
----------------- --------------
13,679 $ 0.01
4,209 $ 2.98
6,314 $ 6.55
6,314 $10.12
The latest date on which this option may be exercised (the "Expiration
Date") is the earliest of (a) April __, 2008, or (b) the termination hereof in
accordance with this Agreement, the Stockholder Agreement or the Plan.
The option evidenced by this certificate is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code").
S-1
<PAGE>
Execution Copy
--------------
THE SECURITIES EVIDENCED HEREBY (OR ISSUABLE UPON EXERCISE HEREOF) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
--------------
OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE
UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
PROVIDED BY REGULATION D AND RULE 701, PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION. THE SECURITIES EVIDENCED HEREBY (AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF) ARE OR WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER AND
RESALE UNDER A STOCKHOLDER AGREEMENT AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND OTHER APPLICABLE LAWS PURSUANT
TO REGISTRATION OR EXEMPTION FROM REGISTRATION REQUIREMENTS THEREUNDER.
FILM HOLDINGS CO.
1997 STOCK OPTION
FOR SUMMIT EMPLOYEES
Option Certificate and Agreement
--------------------------------
This stock option is granted by Film Holdings Co., a Delaware corporation
(the "Company"), to David Garrett (the "Optionee"), pursuant to the Company's
1997 Stock Option Plan (the "Plan"). All initially capitalized terms not
otherwise defined herein shall have the meaning provided in the Plan.
32. Grant of Opinion
----------------
This certificate evidences the grant by the Company on April __, 1998 (the
"Grant Date") to the Optionee of an option to purchase, in whole or in part, on
the terms provided herein and in the Plan, a total of 20,344 shares of Class A
Common Stock, par value $0.001 per share, of the Company (the "Shares") at the
following exercise prices per Share:
Number of Options Exercise Price
----------------- --------------
9,120 $ 0.01
2,806 $ 2.98
4,209 $ 6.55
4,209 $10.12
The latest date on which this option may be exercised (the "Expiration
Date") is the earliest of (a) April __, 2008, or (b) the termination hereof in
accordance with this Agreement, the Stockholder Agreement or the Plan.
The option evidenced by this certificate is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code").
This option shall become exercisable in annual installments over five (5)
years (i.e., it shall become exercisable as to twenty percent (20%) of the total
---
number of Shares on each anniversary of the Grant Date), a pro rata portion of
each installment becoming exercisable at
S-1
<PAGE>
each exercise price each year except as accelerated by the Board pursuant to the
Plan. In the event of an Acquisition Event (as defined in the Plan) all
outstanding options which have not theretofore been exercised shall terminate,
provided that at least 10 days prior to the effective date of such Acquisition
Event the Company shall notify the Optionee of such pending Event and all
outstanding options shall vest and become exercisable immediately prior to
consummation of such Acquisition Event.
33. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his or her executor or administrator or by the person or persons
to whom this option is transferred by will or the applicable laws of descent and
distribution (the "Legal Representative"), and received by the Company at its
principal office, accompanied by payment in full of the applicable exercise
price and by such additional documentation evidencing the right to exercise (or,
in the case of a Legal Representative, of the authority of such person) as the
Company may require. The exercise price may be paid (i) in cash or by personal
check, bank check or money order payable to the order of the Company, (ii)
through the delivery of shares of unrestricted Stock that have been outstanding
for at least six months and that have a fair market value on the last business
day preceding the date of exercise equal to the exercise price, (iii) by
delivery of an unconditional and irrevocable undertaking by a broker to deliver
to the Company promptly sufficient funds to pay the exercise price, or (iv) by
any combination of the permissible forms of payment; provided, that so much of
the exercise price as equals to the par value of the Shares being purchased
shall be paid other than by personal check.
34. Stockholders Agreement
----------------------
Any shares received upon the exercise of this option shall be subject to
the Stockholders Agreement dated as of July 9, 1997 among the Company and
certain other parties thereto as amended and in effect from time to time (the
"Stockholders Agreement"), and no Shares shall be issued upon the exercise of
this option unless and until the Optionee shall have executed the Stockholders
Agreement or a Joinder to Stockholders Agreement satisfactory to the Company.
The Shares received upon exercise of this option shall be subject to the rights,
restrictions and obligations applicable to "Management Shares" as provided from
time to time in such Stockholders Agreement, and (if applicable) Joinder to
Stockholders Agreement. Without limiting the generality of the foregoing
provisions, in the event any Shares are issuable and issued upon exercise of
this option after termination of employment (or upon Executive Breach as defined
below) as contemplated by Section 6 below, then such shares shall be subject to
the provisions of the Stockholders Agreement (including but not limited to the
call provisions of Section 6 of the Stockholders Agreement) to the same extent
as if such Shares were issued prior to such event.
35. Restrictions on Transfer
------------------------
In addition to the provisions of Section 3 above, if at the time this
option is exercised the Company is a party to any other agreement restricting
the transfer of any outstanding shares of its Common Stock, this option may be
exercised only if the Shares so acquired are made subject to
S-2
<PAGE>
the transfer restrictions set forth in that agreement (or if more than one such
agreement is then in effect, the agreement or agreements specified by the
Board); provided that such Shares may be appropriately legended to reflect the
--------
forgoing restrictions or any other restrictions to which such Shares may be
subject.
36. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have remitted to the
Company an amount sufficient to satisfy any federal, state or local withholding
tax requirements, or shall have made other arrangements satisfactory to the
Company with respect to such taxes.
37. Acquisition by LIVE: Status Change
----------------------------------
Upon the acquisition (the "LIVE Acquisition") of a majority interest in
Summit Entertainment L.P., a California limited partnership ("Summit") by either
the Company or by LIVE, all outstanding options shall vest and become
immediately exercisable.
Upon the termination of the Optionee's full-time employment by Summit
without cause but with the prior agreement of LIVE (or if Optionee is then an
employee of LIVE, upon termination of Optionee's full-time employment by LIVE
without cause), all outstanding options shall thereupon become immediately
exercisable and shall remain exercisable for a period of 90 days following such
date of termination, but in no event beyond the Expiration Date; provided,
--------
however, that in the event that the Company's common stock is not publicly
- -------
traded on the date of such termination, the Company agrees to either (i) extend
the exercise period by not less than one year, or (ii) pay to the Optionee, upon
surrender of the option during the 90-day exercise period, the difference
between the Fair Market Value of the Shares subject to such option and the
exercise price thereof. "Fair Market Value" shall mean the Board's good faith
determination of the fair value of one Share as of the date of termination. In
the event the Optionee disagrees with the Board's determination of Fair Market
Value, the Optionee may give written notice to the Company of a demand for a
third-party appraisal of the value of the Shares. Within 30 days after the
receipt of such notice, such Optionee and the Company shall agree upon the
selection of an independent investment banking firm to perform the appraisal.
If the parties are unable to agree upon the selection of an independent
investment banking firm, each shall make a selection, and the two firms so
chosen shall nominate the independent investment banking firm. Within sixty
(60) days of the date of selection of the independent investment banking firm,
such firm shall prepare a written report detailing its determination as to the
fair value of a Share (without giving effect to minority discounts or the terms
of any other agreements). Absent manifest error, the fair value as so
determined shall be the price used in lieu of Fair Market Value for purposes of
this Section 6.
The fees and expenses of the investment banking firm shall be borne one-half by
the Company and one-half by the Optionee.
Upon (i) termination of Optionee's full-time employment with Summit by
Optionee for any reason other than death or disability prior to the date of the
LIVE Acquisition, or (ii) if after the date of the LIVE Acquisition upon the
termination of Optionee's full-time employment by
S-3
<PAGE>
either Summit or LIVE for cause, or by Optionee without cause, or (iii) if
before the date of the LIVE Acquisition upon the termination of that certain
Agency Agreement between Summit and LIVE for cause due to material breach by
Summit, or (iv) if Patrick Wachsberger gives the Termination Notice (as defined
in the Omnibus Agreement dated April __, 1998) and LIVE terminates the Agency
Agreement, upon such termination (any of (i) through (iv) an "Executive
Breach"), this option shall immediately terminate as to all Shares subject
hereto, whether or not vested immediately prior to such termination, and any
Shares purchased prior to such date upon exercise of the option shall be subject
to purchase by the Company pursuant to the terms of Section 6.1.1.2 of the
Stockholders Agreement as if Optionee were terminated for Cause therein.
Upon the termination of the Optionee's employment with Summit or LIVE for
death or disability or for any other reason, this option shall terminate as to
any Shares not vested immediately prior to termination. The vested portion of
this option shall thereafter remain exercisable for 120 days.
After the LIVE Acquisition, should Summit or LIVE and Optionee enter into
an employment agreement, the terms of this Section 6 may be amended at LIVE's
request consistent with the provisions of such Section 6 of the Optionee
Agreements for other senior executive employees who are then parties to
employment agreements with LIVE.
38. Effect on Employment
--------------------
Neither the grant of this option, nor the issuance of Shares upon exercise
of this option, shall give the Optionee any right to be retained in the employ
of the Company or Summit, affect the right of the Company or Summit to discharge
or discipline such Optionee at any time, or affect any rights of such Optionee
to terminate his or her employment at any time.
39. Provisions of the Plan
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option. In this regard, in
interpreting the Plan, employment by Summit shall be deemed to be employment by
the Company.
40. Notice of Disposition of Shares
-------------------------------
If the Optionee disposes of Shares issued upon exercise of this option, the
Optionee will notify the Company of such disposition (including the name of the
transferee and the date of transfer) within 30 days of such disposition.
S-4
<PAGE>
In WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
FILM HOLDINGS CO.
By: /s/ Joeseph Pretlow
-------------------
Name: Joeseph Pretlow
Title: Principal
Dated: 4/12/98
Accepted and Agreed as of this
15th day of April, 1998:
/s/ David Garrett
- -----------------------------
David Garrett
S-5
<PAGE>
EXHIBIT 10.21
- -----------------------------------------------------
Portions denoted with an asterisk have been omitted
and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential
treatment.
- -----------------------------------------------------
================================================================================
PURCHASE AGREEMENT
BY AND AMONG
THE BABY EINSTEIN COMPANY, LLC,
JULIE AIGNER-CLARK,
WILLIAM CLARK
AND
ARTISAN ENTERTAINMENT INC.
DATED AS OF FEBRUARY 4, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS................................................................... 1
1.1 Definitions............................................................ 1
ARTICLE II PURCHASE AND SALE OF MEMBERSHIP INTEREST...................................... 8
2.1 Membership Interest Purchase........................................... 8
2.2 Closing; Closing Transactions; Conditions Precedent to Closing......... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY......................... 10
3.1 Organization and Limited Liability Company Power......................... 10
3.2 Authorization of Transactions.......................................... 10
3.3 Capital Structure of the Company....................................... 10
3.4 Subsidiaries, Investments and Notes.................................... 10
3.5 Absence of Conflicts................................................... 11
3.6 Financial Statements................................................... 11
3.7 Absence of Undisclosed Liabilities..................................... 11
3.8 Absence of Certain Developments........................................ 12
3.9 Title to Properties.................................................... 13
3.10 Accounts Receivable.................................................... 13
3.11 Taxes.................................................................. 13
3.12 Contracts and Commitments.............................................. 14
3.13 Proprietary Rights..................................................... 16
3.14 Litigation; Proceedings................................................ 17
3.15 Brokerage.............................................................. 17
3.16 Governmental Licenses and Permits...................................... 17
3.17 Employee Benefit Plans................................................. 18
3.18 Insurance.............................................................. 19
3.19 Officers and Managing Members; Bank Accounts........................... 19
3.20 Compliance with Laws................................................... 19
3.21 Powers of Attorney; Guarantees......................................... 20
3.22 No Further Representations or Warranties............................... 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SELLERS........................ 20
4.1 Authorization of Transactions.......................................... 20
4.2 Absence of Conflicts................................................... 20
4.3 Brokerage.............................................................. 20
4.4 Membership Interests................................................... 21
4.5 Litigation............................................................. 21
4.6 No Further Representations or Warranties............................... 21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER....................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.1 Organization and Corporate Power........................................ 21
5.2 Authorization of Transactions........................................... 21
5.3 No Violation............................................................ 22
5.4 Governmental Authorities and Consents................................... 22
5.5 Litigation.............................................................. 22
5.6 Brokerage............................................................... 22
5.7 No Further Representations or Warranties................................ 22
ARTICLE VI INDEMNIFICATION AND RELATED MATTERS............................................ 22
6.1 Survival................................................................ 22
6.2 Indemnification......................................................... 23
ARTICLE VII ADDITIONAL AGREEMENTS.......................................................... 25
7.1 The Purchase Option..................................................... 25
7.2 Payment of the Purchase Option Exercise Price........................... 25
7.3 Closing Distribution.................................................... 26
7.4 Purchase Option Closing Date............................................ 26
7.5 Conduct Prior to the Lapse of the Purchase Option....................... 26
7.6 Payment of the Purchase Option Exercise Price........................... 27
7.7 Disputes as to Purchase Option Exercise Price or the Purchase
Option Closing Distribution............................................. 27
7.8 Company Call Option..................................................... 27
7.9 Payment of the Call Option Exercise Price............................... 27
7.10 Call Option Closing Date................................................ 28
7.11 Disputes as to Call Option Exercise Price............................... 28
7.12 Third Party Transaction................................................. 28
7.14 Press Releases and Announcements........................................ 29
7.15 Further Transfers....................................................... 29
7.16 Specific Performance.................................................... 29
7.17 Expenses................................................................ 29
7.18 Assignment of Proprietary Rights........................................ 29
7.19 Certificates............................................................ 29
7.20 Remedies................................................................ 30
7.21 Duration and Scope of Covenants......................................... 30
7.22 Insurance............................................................... 30
7.23 Confidentiality Agreement............................................... 30
7.24 Post Closing Purchase Option EBIT Adjustment............................ 30
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII MISCELLANEOUS................................................................. 31
8.1 Amendment and Waiver.................................................... 31
8.2 Notices................................................................. 31
8.3 Binding Agreement; Assignment........................................... 31
8.4 Severability............................................................ 32
8.5 Construction............................................................ 32
8.6 Captions................................................................ 32
8.7 Entire Agreement........................................................ 32
8.8 Counterparts............................................................ 32
8.9 Governing Law........................................................... 32
8.10 Parties in Interest..................................................... 33
8.11 Consent to Jurisdiction................................................. 33
8.12 Arbitration............................................................. 33
8.13 Delivery by Facsimile................................................... 34
</TABLE>
iii
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit A Distribution Agreement
Exhibit B Confidentiality and Non-Compete Agreements
Exhibit C Amended & Restated Operating Agreement
Exhibit D Form of Opinion of the Company's Counsel
Exhibit E Confidentiality Agreement
INDEX OF SCHEDULES
------------------
Schedule 1 Purchase Option EBIT Adjustments
Schedule 2.1 Membership Interests Ownership
Schedule 2.2(b)(ii) Minority Purchase Price Calculation
Schedule 2.2(b)(iv) Closing Distribution Calculation
Schedule 3.1 Organization and Limited Liability Company Power
Schedule 3.4 Subsidiaries, Investments and Notes
Schedule 3.5 Absence of Conflicts
Schedule 3.6 Financial Statements
Schedule 3.7 Absence of Undisclosed Liabilities
Schedule 3.8 Absence of Certain Developments
Schedule 3.10 Accounts Receivable
Schedule 3.11 Taxes
Schedule 3.12(a) Contracts and Commitments
Schedule 3.13(a) Proprietary Rights
Schedules 3.13(b) Proprietary Rights
Schedule 3.14 Litigation; Proceedings
Schedule 3.15 Brokerage (Company)
Schedule 3.16 Governmental Licenses and Permits
Schedule 3.17 Employee Benefit Plans
Schedule 3.18 Insurance
Schedule 3.19 Officers and Managing members; Bank Accounts
Schedule 3.21 Powers of Attorney; Guarantees
Schedule 4.3 Brokerage (Sellers)
Schedule 7.1 Certain Assets
iv
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT (the "Agreement"), is made as of February 4, 2000, by
---------
and among The Baby Einstein Company, LLC, a limited liability company (the
"Company"), Julie Aigner-Clark and William E. Clark (collectively, the "Sellers"
------- -------
and individually, the "Seller"), and Artisan Entertainment Inc., a Delaware
------
corporation (the "Buyer"). The Company, Sellers and Buyer are collectively
-----
referred to herein as the "Parties" and individually as a "Party."
------- -----
RECITALS
--------
The Sellers own beneficially and of record 100% and hold in equal
shares, as detailed on Schedule 2.1 (under Pre-Closing), all of the Membership
------------
Interests (the "Membership Interests") in the Company.
--------------------
Buyer desires to acquire from Sellers, and Sellers desire to sell to
Buyer, 20% of the outstanding Membership Interests.
Buyer desires to acquire from Sellers, and Sellers desire to sell to
Buyer, an option to acquire 100% of the remaining Membership Interests.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings set forth below:
"AAA" shall have the meaning set forth in Section 8.12 hereof.
---
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities or otherwise. An affiliate of an individual includes members
of their immediate family and persons controlling, controlled by or under common
control with the individuals or their immediate family.
"Agreement" shall have the meaning set forth in the introductory
---------
paragraph for this Agreement.
"Applicable Limitation Date" shall have the meaning set forth in
--------------------------
Section 6.1(a) hereof.
"Arbitrable Dispute" shall have the meaning set forth in Section 8.12
------------------
hereof.
1
<PAGE>
"Arbitration Expenses" shall have the meaning set forth in Section
--------------------
8.12(c) hereof.
"Arbitrators" shall have the meaning set forth in Section 8.12(b)
-----------
hereof.
"Basket" shall have the meaning set forth in Section 6.2(c)(ii)
------
hereof.
"Buyer" shall have the meaning set forth in the introductory paragraph
-----
to this Agreement.
"Buyer Parties" shall have the meaning set forth in Section 6.2(a)
-------------
hereof.
"Call Option" shall have the meaning set forth in Section 7.8 hereof.
-----------
"Call Option Closing Date" shall have the meaning set forth in Section
------------------------
7.10 hereof.
"Call Option Exercise Period" shall have the meaning set forth in
---------------------------
Section 7.8 hereof.
"Call Option Exercise Price" shall be equal to *.
--------------------------
"Call Option Notice" shall have the meaning set forth in Section 7.8
------------------
hereof.
"Cap" shall have the meaning set forth in Section 6.2(c)(iv) hereof.
---
"Certificates" shall have the meaning set forth in Section 7.19
------------
hereof.
"Closing" shall have the meaning set forth in Section 2.2(a) hereof.
-------
"Closing Date" shall have the meaning set forth in Section 2.2(a)
------------
hereof.
"Closing Distribution" means *.
--------------------
"Closing Transactions" shall have the meaning set forth in Section
--------------------
2.2(b) hereof.
"COBRA" means Sections 601 et. seq. of ERISA.
----- -- ---
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Company" shall have the meaning set forth in the introductory
-------
paragraph for this Agreement.
"Confidential Information" means all confidential or proprietary
------------------------
records, data, trade secrets or any other confidential or proprietary
information whatever relating to the Company or its Affiliates or to the Buyer's
business and the business of its Affiliates, including, without limitation,
information with respect to customer lists, customer needs, price and
performance information, processes, specifications, hardware, software,
firmware, programs, devices, supply sources and characteristics, business
opportunities or plans, marketing, promotional, pricing and financing techniques
or strategies, specialized employee training, and other information.
2
<PAGE>
"Confidentiality and Non-Compete Agreement" shall mean the agreement
-----------------------------------------
attached hereto as Exhibit B.
---------
"Contract" shall mean any contract, license, sublicense, franchise,
--------
permit, mortgage, purchase orders, indenture, loan agreement, lease, sublease,
agreement, obligation, instrument or other arrangement or any commitment to
enter into any of the foregoing (in each case, whether written or oral) to which
the Company is a party or by which any of its assets are bound.
"Cost and Fees" shall have the meaning set forth in Section 8.12(c)
-------------
hereof.
"Distribution Agreement" shall mean the distribution agreement entered
----------------------
into by the Parties concurrently with this Agreement and attached hereto as
Exhibit A.
- ---------
"EBIT" shall be earnings before interest and taxes, determined on a
----
consolidated basis in accordance with generally accepted accounting principals
consistently applied.
"EBIT Adjustments" shall include *.
----------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Financial Statements" shall have the meaning set forth in Section 3.6
--------------------
hereof.
"GAAP" means United States generally accepted accounting principles.
----
"Indebtedness" means (i) any indebtedness for borrowed money or issued
------------
in substitution for or exchange of indebtedness for borrowed money, (ii) any
indebtedness evidenced by any note, bond, debenture or other debt security,
(iii) any indebtedness for the deferred purchase price of property or services
with respect to which a Person is liable, contingently or otherwise, as obligor
or otherwise (other than trade payables and other current liabilities incurred
in the ordinary course of business which are not more than six months past due),
(iv) any commitment by which a Person assures a creditor against loss
(including, without limitation, contingent reimbursement obligations with
respect to letters of credit), (v) any indebtedness guaranteed in any manner by
a Person (including, without limitation, guarantees in the form of an agreement
to repurchase or reimburse), (vi) any obligations under capitalized leases with
respect to which a Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations a Person assures a
creditor against loss, (vii) any indebtedness secured by a Lien on a Person's
assets, (viii) any unsatisfied obligation for "withdrawal liability" to a
"multiemployer plan" as such terms are defined under ERISA and (ix) any amounts
owed to any Person under any noncompetition or consulting arrangements.
Notwithstanding the foregoing, the Parties agree that any timing differences
between obligations and benefit received created in the ordinary course of
business before the date Buyer exercises its Purchase Option will be discussed
and reasonably resolved by them to the extent such timing differences may affect
the Purchase Option Exercise Price.
"Indemnified Party" shall have the meaning set forth in Section 6.2(d)
-----------------
hereof.
"Indemnifying Party" shall have the meaning set forth in Section
------------------
6.2(d) hereof.
3
<PAGE>
"Knowledge" as used in the phrases "to the Knowledge of Sellers," "to
---------
Sellers' Knowledge" or phrases of similar import means the actual knowledge or
awareness of the Sellers, and as used in the phrases "the Knowledge of Buyers,"
"to Buyer's Knowledge" or phrases of similar import means the actual knowledge
or awareness of the Buyer.
"Liens" shall have the meaning of any mortgage, security interests,
-----
pledge, hypothecation, assignment, deposit arrangement, incumbrance, lien
(statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws) or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing in the filing of any financial statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Loss" or "Losses" shall have the meaning set forth in Section 6.2(a)
---- ------
hereof.
"Material Adverse Effect" means any matter that has resulted in or
-----------------------
would reasonably be expected to result in costs, liabilities, expenses, damages,
or claims to or against the Company involving $25,000 or more.
"Member" shall mean a member of the Company as the term is used in the
------
Operating Agreement.
"Membership Interests" shall have the meaning set forth in the
--------------------
Recitals hereof.
"Minority Interest" shall have the meaning set forth in Section 2.1
-----------------
hereof.
"Minority Interest Purchase Price" shall be equal to *.
--------------------------------
"Operating Documents" shall have the meaning set forth in Section
-------------------
2.2(b) hereof.
"Organizational Documents" shall mean complete and correct copies of
------------------------
the Articles of Organization and the Operating Agreement of the Company.
"Parties" or "Party" shall have the meaning set forth in the
------- -----
introductory paragraph to this Agreement.
"Permitted Lien" means any Lien which (i) is reflected in the
--------------
Financial Statements, (ii) is not material in amount, (iii) constitutes a
statutory lien arising in the ordinary course of business, or (iv) does not
materially detract from the value of the property or materially detract from or
interfere with the use of the property in the ordinary course of business as
presently conducted.
"Person" means an individual, a partnership, a limited liability
------
company a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
4
<PAGE>
"Phantom Equity Interest" shall mean non-equity employee compensation
-----------------------
interests arising under a duly adopted employee benefit plan in which benefits
are determined by reference to the performance of the Company.
"Post Closing Purchase Option EBIT Adjustment" shall have the meaning
--------------------------------------------
set forth in Section 7.24 hereof.
"Proprietary Rights" means all of the following items owned or used by
------------------
the Company along with all income, royalties, damages and payments due or
payable prior to or at the Closing or thereafter (including, without limitation,
damages and payments for past, present or future infringements or
misappropriations thereof, the right to sue and recover for past infringements
or misappropriations thereof and any and all corresponding rights that, now or
hereafter, may be secured throughout the world): (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice) and any reissue, continuation, continuation-
in-part, division, revision, extension or reexamination thereof; (ii)
trademarks, service marks, trade dress, logos, trade names, corporate names,
domain names and URL addresses, together with all goodwill associated therewith;
registered and unregistered copyrights, copyrightable works, works of authorship
and mask works; (iii) all registrations, applications for registration
extensions and renewals for any of the foregoing; (iv) trade secrets and
Confidential Information (including, without limitation, ideas, formulae,
compositions, know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, financial plans, business plans and marketing plans,
and customer and supplier lists, subscriber lists and related information); (v)
computer software, software systems and internet websites (including, without
limitation, data, databases and related documentation); (vi) other proprietary
rights; (vii) licenses or other agreements to or from third parties regarding
the foregoing; and (viii) all copies and tangible embodiments of the foregoing
(in whatever form or medium), in each case including, without limitation, the
items set forth on Schedule 5.14.
-------------
"Purchase Option" shall have the meaning set forth in Section 7.1
---------------
hereof.
"Purchase Option Closing Date" shall have the meaning set forth in
----------------------------
Section 7.4 hereof.
"Purchase Option Closing Distribution" means *.
------------------------------------
"Purchase Option EBIT Adjustments," shall mean *.
--------------------------------
"Purchase Option Exercise Period," shall be from January 1, 2001
-------------------------------
through the Purchase Option Lapse Date.
"Purchase Option Exercise Price" shall be equal to *. The Purchase
------------------------------
Option Exercise Price is based on the assumption that the Company will be free
of debt and cash at close. For purposes of the foregoing sentence, "free of debt
and cash" means that the Company will net cash, accounts receivable, accounts
payable, inventory and current interest-bearing liabilities and distribute the
net amount immediately prior to the Purchase Option Closing Date.
5
<PAGE>
"Purchase Option Lapse Date" shall mean the later of March 31, 2001,
--------------------------
or 30 days following delivery of audited financial statements for the Company's
fiscal year ending December 31, 2000.
"Purchase Option Notice Date" shall mean the date Buyer delivers the
---------------------------
Purchase Option Notice to Seller.
"Sale" shall mean the sale of all or substantially all of the assets
----
or a controlling interest in the outstanding Membership Interests of the
Company, including such sale accomplished by merger or consolidation.
"Sale Notice" shall have the meaning set forth in Section 7.12 hereof.
-----------
"Seller" or "Sellers" shall have the meaning set forth in the
------ -------
introductory paragraph to this Agreement.
"Seller Parties" shall have the meaning set forth in Section 6.2(b)
--------------
hereof.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of managing
members, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, association or other
business entity gains or losses or shall be or control the managing member or
general partner of such partnership, association or other business entity.
"Tax" or "Taxes" means any federal, state, local or foreign income,
--- -----
gross receipts, franchise, alternative or add-on minimum, estimated, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing.
"Tax Returns" means returns, declarations, reports, claims for refund,
-----------
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"Transaction Documents" means this Agreement, the Distribution
---------------------
Agreement and the Confidentiality and Non-Compete Agreements.
6
<PAGE>
ARTICLE II
PURCHASE AND SALE OF MEMBERSHIP INTEREST
----------------------------------------
2.1 Membership Interest Purchase. On and subject to the terms and
----------------------------
conditions set forth in this Agreement, on the Closing Date, (a) Buyer shall
purchase from each Seller, and each Seller shall sell and transfer to Buyer, 20%
of the outstanding Membership Interests owned by such Seller as such ownership
is set forth on Schedule 2.1 (the "Minority Interest"), free and clear of any
------------ -----------------
Liens, restrictions on transfer, options, warrants, rights, calls, commitments,
proxies or other contract rights, other than those contained in the
Organizational Documents or the Transaction Documents, and (b) in consideration
of the sale of the Minority Interest and the covenants and agreements of the
Sellers contained in Article 7, Buyer shall deliver to the Sellers the
consideration specified in Section 2.2.
2.2 Closing; Closing Transactions; Conditions Precedent to Closing.
--------------------------------------------------------------
(a) Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis,
-------
777 South Figueroa Street, Suite 3700, Los Angeles, California 90017, on
February 4, 2000, providing that all conditions to Closing shall have been
satisfied or waived, or at such other place or on such other date as may be
mutually agreeable to Buyer and Sellers. The date and time of the Closing are
herein referred to as the "Closing Date."
------------
(b) Closing Transactions. Subject to the conditions set forth in this
---------------------
Agreement, the Parties shall consummate the following "Closing Transactions," as
--------------------
conditions precedent to the Closing, on the Closing Date:
(i) Buyer shall deliver to Sellers, by wire transfer of
immediately available funds to an account or accounts designated by
Sellers, an aggregate amount equal to $2,275,981, the Minority Interest
Purchase Price, as calculated on Schedule 2.2(b)(ii) attached hereto.
-------------------
(ii) Execution by the Parties within one (1) business day of
the Closing, the Distribution Agreement in the form of Exhibit A attached
---------
hereto.
(iii) Execution by each of the Sellers as of the Closing,
confidentiality and non-compete agreements with the Buyer in the form of
Exhibit B hereto (the "Confidentiality and Non-Compete Agreements").
--------- ------------------------------------------
(iv) The Company shall have distributed to the Sellers,
immediately prior to the Closing, the Closing Distribution, calculated as
of January 1, 2000, as calculated on Schedule 2.2(b)(iv) attached hereto,
-------------------
in the form of $575,000 in cash and $1,222,142 as note payables to Sellers
accruing interest at the Prime Rate (as defined in the Company's Amended
and Restated Operating Agreement).
(v) Sellers shall properly amend the Operating Agreement of
The Baby Einstein Company, LLC and any other organizational or other
documents as necessary (the "Operating Documents"), in the form attached
-------------------
hereto as Exhibit C, which will, among other
7
<PAGE>
things, add Buyer as a Member, adjust the Sharing Ratios as defined in the
Operating Agreement and as set forth on Schedule 2.1, and take all other
------------
necessary action to reflect Buyer's acquisition of the Minority Interest
and such terms of this Agreement.
(vi) The Company, Sellers and Buyer shall deliver the following
opinions, certificates and other documents and instruments:
(A) Sellers shall have obtained and delivered evidence
satisfactory to Buyer of releases on terms satisfactory to Buyer of
any and all Liens held by third parties except for any Permitted
Liens, as reasonably requested by Buyer;
(B) Buyer shall have received an opinion, dated as of the
Closing Date, of Holme Roberts & Owen LLP, counsel to the Company and
Sellers, in the form of Exhibit D hereto; and
---------
(C) In addition to the above, Sellers shall deliver to
Buyer:
(1) copies of all third party and governmental
consents, approvals, filings, releases, terminations, payoff
letters, etc. required in connection with the consummation of the
transactions contemplated herein;
(2) certificates of the secretary of state of the state
in which the Company is organized and each state where it is
qualified to do business (including, without limitation, the
states listed on Schedule 3.1) stating that the Company is in
------------
good standing;
(3) copies of settlement agreements relating to all
outstanding or, to the Knowledge of Sellers, threatened
litigation against the Company;
(4) assignments of entire right, title and interest of
Julie Clark (including Julie Aigner Clark and/or Julie Aigner-
Clark whether doing business under "I Think I Can Productions" or
as an individual) in any Proprietary Rights used by the Company
prior to the Closing;
(5) such other documents or instruments as Buyer may
reasonably request to effect the transactions contemplated
hereby.
8
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
----------------------
As a material inducement to Buyer to enter into this Agreement, the
Company and each Seller jointly and severally hereby represents and warrants
that:
3.1 Organization and Limited Liability Company Power. The Company
------------------------------------------------
is a limited liability company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and is duly
authorized and qualified to do business in every jurisdiction, except where the
failure to so qualify has not had or would not to have a Material Adverse
Effect. All such jurisdictions in which the Company is authorized and qualified
are set forth on Schedule 3.1. The Company has all requisite power and
------------
authority and all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its business as now conducted and
presently proposed to be conducted. The copies of the Company's Organizational
Documents which have been furnished to Buyer reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
The Company is not in default under or in violation of any provision of its
Organizational Documents.
3.2 Authorization of Transactions. The Company has all requisite
-----------------------------
power and authority to enter into and perform the obligations pursuant to the
terms of this Agreement. The Company has the full legal right, power and
authority to enter into this Agreement and the transactions contemplated hereby.
This Agreement is a legal, valid and binding obligation of the Company and each
Member, enforceable in accordance with its terms.
3.3 Capital Structure of the Company. The capital structure of the
--------------------------------
Company consists of the Membership Interests in the percentages set forth in
Schedule 2.1. All of the Membership Interests are owned of record and
- ------------
beneficially by the persons in the percentages set forth in Schedule 2.1 (under
------------
Pre-Closing), free and clear of all Liens other than those contained in the
Organizational Documents or the Transaction Documents, duly authorized and
validly issued and not subject to requirements to make any capital contributions
that have not previously been made. None of the Members shall be required to
make any capital contributions to the Company as a result of the transactions
contemplated hereby. All of the issued and outstanding Membership Interests were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and federal laws concerning the issuance of securities.
Further, none of such Membership Interests were issued in violation of any
preemptive rights. There are no voting agreements or voting trusts with respect
to any of the outstanding Membership Interests. The Company is not subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any Membership Interests.
3.4 Subsidiaries, Investments and Notes. The Company does not own
-----------------------------------
or hold any shares of stock or any other security or interest in any other
Person or any rights to acquire any such stock or other security or interest,
and the Company has never owned any Subsidiary. There are no promissory notes
that have been issued to, or are held by, the Company except for those
contemplated by the Organizational Documents or the Transaction Documents.
9
<PAGE>
3.5 Absence of Conflicts. Except as set forth in Schedule 3.5, the
-------------------- ------------
execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby by the Company and/or each Seller do not and shall not (a) conflict with
or result in any breach of any of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in a violation of, (d) give any third
party the right to modify, terminate or accelerate any obligation under, (e)
result in the creation of any Lien, other than those contained in the
Organizational Documents or the Transaction Documents, upon the Minority
Interest or the assets of the Company, or (f) require any authorization,
consent, approval, exemption or other action by or notice or declaration to, or
filing with, any court or administrative or other governmental body or agency,
other than those required under the Hart-Scott-Rodino Act, under the provisions
of the Organizational Documents of the Company or any indenture, mortgage,
lease, loan agreement or other agreement or instrument to which the Company is
bound or affected, or any law, statute, rule or regulation to which the Company
is subject or any judgment, order or decree to which the Company is subject.
3.6 Financial Statements. Schedule 3.6 includes or will include
-------------------- ------------
true, complete and correct copies of the Company's audited balance sheet as of
December 31, 1999 (the end of its most recent completed fiscal year) and income
statement for the period May 1, 1999 through December 31, 1999 (collectively,
"Financial Statements"). To the Sellers' Knowledge, each of the Financial
--------------------
Statements present fairly in all material respects the Company's financial
condition and results of operations as of the times and for the periods referred
to therein, and has been prepared in accordance with GAAP, consistently applied,
except as disclosed in the notes to the Financial Statements. Sellers, to their
Knowledge, have provided complete and accurate books, records and relevant
information as requested by the Company's auditors for preparation of the
Financial Statements.
3.7 Absence of Undisclosed Liabilities. Except as set forth in
----------------------------------
Schedule 3.7 or as contemplated by the Organizational Documents or the
- ------------
Transaction Documents, to the Knowledge of the Sellers, the Company does not
have any obligations or liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the Closing,
or any action or inaction at or prior to the Closing, or any state of facts
existing at or prior to the Closing, including Taxes with respect to or based
upon transactions or events occurring on or before the Closing, or to Sellers
(whether in each of their capacities as Seller hereunder, as a Member, officer
or Manager of the Company), except (a) obligations under Contracts or
commitments described in Schedule 3.12 or under Contracts and commitments which
-------------
are not required to be disclosed thereon (but not liabilities for breaches
thereof), (b) liabilities reflected on the liabilities side of the Financial
Statements, (c) liabilities which have arisen after the date of the Financial
Statements in the ordinary course of business or otherwise in accordance with
the terms and conditions of this Agreement (none of which is a liability for
breach of contract, breach of warranty, tort or infringement or a claim or
lawsuit or an environmental liability), (d) liabilities disclosed on Schedule
--------
3.7, and (e) obligations or liabilities that would not have a Material Adverse
- ---
Effect.
3.8 Absence of Certain Developments. Except as set forth in
-------------------------------
Schedule 3.8 and except as expressly contemplated by this Agreement, since the
- ------------
date of the Financial Statements the Company has not:
10
<PAGE>
(a) suffered a Material Adverse Effect or suffered any theft, damage,
destruction or casualty loss adversely affecting the properties or business of
the Company, whether or not covered by insurance or suffered any substantial
destruction of the Company's books and records;
(b) other than as contemplated by the Organizational Documents or the
Transaction Documents, made any change in the capital structure of the Company
or in its outstanding Membership Interests, or any grant of any options,
warrants, calls, conversion rights or commitments;
(c) made any declaration or payment of any distribution in respect of
the Membership Interests (other than the Closing Distribution), or any direct or
indirect redemption, purchase or other acquisition of any of the Membership
Interests of the Company;
(d) other than as contemplated by the Organizational Documents or the
Transaction Documents, borrowed any amount or incurred or become subject to any
Indebtedness or other liabilities, except liabilities incurred in the ordinary
course of business;
(e) discharged or satisfied any Lien other than a Permitted Lien or
paid any obligation or liability, other than liabilities paid in the ordinary
course of business, or prepaid any amount of Indebtedness for borrowed money;
(f) subjected any portion of its properties or assets to any Lien
other than a Permitted Lien;
(g) sold, leased, assigned or transferred (including, without
limitation, transfers to Sellers) a portion of its tangible or intangible assets
(including Proprietary Rights), except for sales of inventory in the ordinary
course of business, or canceled without fair consideration any material debts or
claims owing to or held by it, or disclosed any confidential information (other
than pursuant to agreements requiring the disclosure to maintain the
confidentiality of and preserving all rights of the Company in such confidential
information);
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business;
(i) entered into, amended or terminated any material Contract other
than in the ordinary course of business;
(j) entered into any other material transaction, whether or not in
the ordinary course of business, or materially changed any business practice;
(k) made or granted any bonus or any wage, salary or compensation
increase per year to any managing member, officer, employee or sales
representative, group of employees or consultant or made or granted any increase
in any employee benefit plan or arrangement, or amended or terminated any
existing employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement;
(l) made any other change in employment terms for any of its managing
Members, officers, and employees outside the ordinary course of business, or
except as specifically
11
<PAGE>
contemplated by this Agreement, entered into any Contract, agreement or
transaction, other than in the ordinary course of business and at arm's length,
with Persons who are Affiliates;
(m) incurred intercompany charges or conducted its cash management
customs and practices other than in the ordinary course of business (including,
without limitation, with respect to maintenance of working capital balances,
collection of accounts receivable and payment of accounts payable, other than
the Closing Distribution);
(n) made any capital expenditures that aggregate in excess of
$10,000;
(o) made any loans or advances to, or guarantees for the benefit of,
any Persons;
(p) made any charitable contributions, pledges, association fees or
dues in excess of $10,000;
(q) changed or authorized any change in its Organizational Documents;
or
(r) committed or agreed to any of the foregoing.
3.9 Title to Properties. The Company does not own or lease any
-------------------
real property.
3.10 Accounts Receivable. Except as set forth on Schedule 3.10,
------------------- -------------
all of the notes and accounts receivable of the Company reflected in its
Financial Statements are good and valid receivables (subject to no counterclaims
or offset) and shall be collected (net of the allowance for doubtful accounts
recorded on the Financial Statements) within 90 days after the Closing Date at
the aggregate amount recorded therefor on the applicable Financial Statements.
There are no individual accounts receivable which are over $5,000 and 90 days
past due, except as set forth on Schedule 3.10. As of the Closing Date, no
-------------
Person shall have any Lien other than a Permitted Lien on such receivables or
any part thereof, and no agreement for deduction, free services, discount or
other deferred price or quantity adjustment shall have been made with respect to
any such receivables.
3.11 Taxes.
-----
(a) The Company has timely filed or shall timely file all Tax Returns
which are required to be filed on or before the Closing Date, all such Tax
Returns are true, complete and accurate, and all Taxes due and payable by the
Company, whether or not shown on a Tax Return, have been paid by the Company or
Sellers or are shown in the Financial Statements and no Taxes are delinquent.
The unpaid Taxes of the Company did not, as of December 31, 1999, exceed the
reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
in the Financial Statements, and do not exceed that reserve adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.
(b) Except as set forth on Schedule 3.11, (i) no deficiency for any
-------------
amount of Tax has been asserted or assessed by a taxing authority against the
Company and neither the Company nor any Seller reasonably expects that any such
assertion or assessment of Tax liability will be made, (ii) the Company has not
consented to extend the time in which any Tax may be assessed or collected
12
<PAGE>
by any taxing authority, (iii) the Company has been treated as a partnership for
federal, state and local income tax purposes since April 29, 1999, the date
formed as an LLC, (iv) no claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to Taxes assessed by such jurisdiction, (v) the Company is not
party to or bound by any Tax allocation or Tax sharing agreement with any other
Person and has no liability for Taxes of any other Person as a transferee, by
contract, or otherwise, (vi) the Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, member or other third party,
(vii) since December 31, 1999, the Company has not incurred any liability for
Taxes other than in the ordinary course of business; and (viii) the Company will
not be required (A) as a result of a change in method of accounting for a
taxable period ending on or prior to the Closing Date, to include any adjustment
in taxable income for any taxable period (or any portion thereof) ending after
the Closing Date or (B) as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local or
foreign income Tax law), to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date. Schedule 3.11 contains a list of states,
-------------
territories and jurisdictions (whether foreign or domestic) in which the Company
is required to file Tax Returns.
3.12 Contracts and Commitments.
-------------------------
(a) Except as specifically contemplated by this Agreement or except
as set forth in Schedule 3.12(a), the Company is not a party to or bound by,
----------------
whether written or oral, any:
(i) collective bargaining agreement or Contract with any
labor union or any bonus, pension, profit sharing, retirement or any other
form of deferred compensation plan or any membership interest purchase,
equity option, hospitalization insurance or similar plan or practice,
whether formal or informal ;
(ii) Contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis or any
severance agreements;
(iii) agreement or indenture relating to the borrowing of money
or to mortgaging, pledging or otherwise placing a Lien other than a
Permitted Lien on any of its assets;
(iv) agreements with respect to the lending or investing of
funds;
(v) license or royalty agreements;
(vi) guaranty of any obligation, other than endorsements made
for collection;
(vii) lease or agreement under which it is lessee of, or holds
or operates, any personal property owned by any other party calling for
payments in excess of $50,000 annually or under which it is lessor of or
permits any third party to hold or operate any property, real or personal,
owned or controlled by it;
13
<PAGE>
(viii) Contract or group of related Contracts with the same
party or group of related parties for the purchase or sale of supplies,
products or other personal property or for the furnishing or receipt of
services which either calls for performance over a period of more than one
year (except if such Contracts do not involve a sum in excess of $7,500
annually) or involves a sum in excess of $7,500;
(ix) Contract or group of related Contracts with the same
party or group of related parties continuing over a period of more than six
months from the date or dates thereof, not terminable by it on 30 days or
less notice without penalties or involving more than $7,500;
(x) Contract which prohibits it from freely engaging in
business anywhere in the world;
(xi) Contract relating to the distribution, marketing or
sales of its products;
(xii) agreements, Contracts or understandings pursuant to
which the Company subcontracts work to third parties; or
(xiii) other agreement material to it, whether or not entered
into in the ordinary course of business.
(b) Except as disclosed in Schedule 3.12(b), (i) to the Knowledge
----------------
of the Sellers, no Contract or commitment required to be disclosed on Schedule
--------
3.12(a) has been breached materially or canceled by the other party, and the
- -------
Sellers have no Knowledge of any anticipated material breach by any other party
to any Contract set forth on Schedule 3.12(a), (ii) since December 31, 1999 no
----------------
customer or supplier has indicated in writing or orally to the Company or any
Seller that it shall stop or decrease the rate of business done with the Company
or that it desires to renegotiate its Contract with the Company, (iii) the
Company has performed all the material obligations required to be performed by
it in connection with the Contracts or commitments required to be disclosed on
Schedule 3.12(a) and is not in default under or in breach of any Contract or
- ----------------
commitment required to be disclosed on the Schedule 3.12(a) that would result in
----------------
a Material Adverse Effect, and no event has occurred which with the passage of
time or the giving of notice or both would result in a default or breach
thereunder that would result in a Material Adverse Effect, (iv) the Company does
not have a present expectation or intention of not fully performing any material
obligation pursuant to any Contract set forth on Schedule 3.12(a), (vi) each
----------------
agreement is legal, valid, binding, enforceable and in full force and effect and
will continue as such following the consummation of the transactions
contemplated hereby, and (vii) to the Knowledge of Sellers, no unfilled customer
order or commitment obligating the Company to process, manufacture or deliver
products or perform services shall result in a loss to the Company upon
completion of performance.
(c) Sellers have provided Buyer with a true and correct copy of all
written Contracts which are required to be disclosed on Schedule 3.12(a), in
----------------
each case together with all amendments, waivers or other changes thereto (all of
which are disclosed on Schedule 3.12(a)). Schedule 3.12(a) contains an accurate
---------------- ----------------
and complete description of all material terms of all oral Contracts referred to
therein.
14
<PAGE>
3.13 Proprietary Rights.
------------------
(a) Schedule 3.13(a) sets forth a complete and correct list of:
----------------
(i) all patented or registered Proprietary Rights and all
pending patent applications or other applications for registration of
Proprietary Rights owned, filed or used by the Company;
(ii) all trade names, unregistered trademarks, and domain
names owned or used by the Company;
(iii) all material unregistered copyrights, copyrightable
works, works of authorship, mask works and computer software owned or used
by the Company; and
(iv) all licenses or similar agreements or arrangements to
which the Company is a party, either as licensee or licensor, for the
Proprietary Rights, in each case identifying the subject Proprietary
Rights.
(b) Except as set forth in Schedule 3.13(b), (i) the Company owns
and possesses all right, title and interest in and to, or has a valid and
enforceable right to use, each of the Proprietary Rights, free and clear of all
Liens other than Permitted Liens, and no claim by any third party contesting the
validity, enforceability, use or ownership of any of the Proprietary Rights has
been made, is currently outstanding or, to the Knowledge of the Sellers, is
threatened, and to the Knowledge of the Sellers, there are no grounds for same,
(ii) the Proprietary Rights comprise all proprietary rights necessary for the
operation of the Company's business as currently conducted, and as currently
proposed to be conducted, (iii) the Company has not received any notices of, nor
is the Company aware of any facts which indicate a likelihood of, any
infringement or misappropriation by, or conflict with, any third party with
respect to any potential Proprietary Right used or owned by, or issued or
licensed to, the Company (including, without limitation, any demand or request
that the Company license rights from a third party), (iv) to the Sellers'
Knowledge, the Company has not infringed, misappropriated or otherwise
conflicted with any rights of any third parties and the Company is not aware of
any infringement, misappropriation or conflict which shall occur as a result of
the continued operation of the Company's business as currently conducted or as
currently proposed to be conducted, and (v) to the Sellers' Knowledge, the
Proprietary Rights used or owned by, or issued or licensed to the Company have
not been infringed, misappropriated or conflicted by any third party.
(c) The transactions contemplated by this Agreement shall have no
adverse effect on the Company's right, title and interest in and to any of the
Proprietary Rights. The Company has not disclosed any of its Confidential
Information to any third party other than pursuant to a written confidentiality
agreement or other binding obligation of confidentiality. The Company has taken
all other reasonable actions to maintain and protect its Proprietary Rights so
as to not adversely affect the validity or enforcement of such Proprietary
Rights. To the Sellers' Knowledge, the owners of any Proprietary Rights licensed
to the Company have taken all necessary and desirable actions to maintain and
protect the Proprietary Rights which are subject to such licenses.
3.14 Litigation; Proceedings. Except as set forth in Schedule
----------------------- --------
3.14, there are no actions, suits, proceedings, orders, judgments, decrees or
- ----
investigations pending or, to the Sellers'
15
<PAGE>
Knowledge, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
to the Sellers' Knowledge there is no basis known for any of the foregoing.
Except as set forth on Schedule 3.14, the Company has not received any opinion
-------------
or legal advice in writing to the effect that the Company is exposed from a
legal standpoint to any liability or disadvantage which may be material to the
Company's business as previously or presently conducted or business prospects.
The Company is not subject to any outstanding order, judgement or decree issued
by any court or quasi-judicial or administrative agency of any federal, state,
local or foreign jurisdiction or any arbitrator.
3.15 Brokerage. Except as set forth in Schedule 3.15, there are no
--------- -------------
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company.
3.16 Governmental Licenses and Permits. Schedule 3.16 contains a
--------------------------------- -------------
complete listing and summary description of all permits, licenses, franchises,
certificates, approvals and other authorizations of foreign, federal, state and
local governments or other similar rights (collectively, the "Licenses") owned
--------
or possessed by the Company or used by the Company in the conduct of its
business. Except as indicated on Schedule 3.16, the Company owns or possesses
-------------
all right, title and interest in and to all Licenses which are necessary to
conduct its business as presently conducted and as proposed to be conducted and
shall use its reasonable efforts to maintain all such Licenses. No loss or
expiration of any License is pending or, to the Sellers' Knowledge, threatened
or reasonably foreseeable (including, without limitation, as a result of the
transactions contemplated hereby) other than expiration in accordance with the
terms thereof.
3.17 Employee Benefit Plans.
----------------------
(a) Except as set forth on Schedule 3.17, with respect to current or
-------------
former employees of the Company, the Company does not maintain or contribute to
any (i) deferred compensation or bonus or retirement plans or arrangements, (ii)
qualified or nonqualified defined contribution or defined benefit plans or
arrangements which are employee pension benefit plans (as defined in Section
3(2) of ERISA), or (iii) employee welfare benefit plans, (as defined in Section
3(1) of ERISA), equity option or equity purchase plans, or material fringe
benefit plans or programs whether in writing or oral and whether or not
terminated. The Company has never contributed to any multiemployer pension plan
(as defined in Section 3(37) of ERISA), and the Company has never maintained or
contributed to any defined benefit plan (as defined in Section 3(35) of ERISA).
The Company does not maintain or contribute to any employee welfare benefit plan
which provides health, accident or life insurance benefits to former employees,
their spouses or dependents, other than in accordance with Section 4980B of the
Code.
(b) The employee pension benefit plans and employee welfare benefit
plans (and related trusts and insurance contracts) comply in form and in
operation in all material respects with the requirements of applicable laws and
regulations, including ERISA and the Code and the nondiscrimination rules
thereof; and the employee pension benefit plans which are intended to be
"qualified plans" qualify under Section 401(a) of the Code, and each such
employee pension benefit plan, and each trust (if any) forming a part thereof,
has received a favorable determination letter from the Internal Revenue Service
as to the qualification under the Code of such plan and the tax-exempt
16
<PAGE>
status of such related trust and Sellers have no Knowledge of any event that has
occurred since the date of such determination letter that could adversely affect
the qualification of such plan or the tax exempt status of such related trust.
(c) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions) with
respect to the employee pension benefit plans and employee welfare benefit plans
have been properly and timely filed with the appropriate government agency and
distributed to participants as required except for any failure that would not
result in a Material Adverse Effect. The Company has complied in all material
respects with the requirements of COBRA.
(d) With respect to each employee pension benefit plan, all material
contributions which are due (including all employer contributions and employee
salary reduction contributions) have been paid to such employee pension benefit
plan, all material contributions for prior plan years which are not yet due and
with respect to the current plan year for the period ending on the Closing Date
have been made or accrued in accordance with GAAP, and, with respect to the
employee welfare benefit plans, all material premiums or other payments which
are due have been paid.
(e) The Company has not incurred any liability to the Pension
Benefit Guarantee Corporation, the Internal Revenue Service, any multiemployer
plan or otherwise with respect to any employee pension benefit plan currently or
previously maintained by members of the controlled group of companies (as
defined in Sections 414(b) and (c) of the Code) that includes or included the
Company (the "Controlled Group") that has not been satisfied in full, and to the
----------------
Knowledge of Sellers, no condition exists that presents a material risk to the
Company or any member of the Controlled Group of incurring such a liability.
(f) With respect to each employee pension benefit plan and each
employee welfare benefit plan, (i) there have been no prohibited transactions as
defined in Section 406 of ERISA or Section 4975 of the Code that would result in
a Material Adverse Effect, (ii) no fiduciary (as defined in Section 3(21) of
ERISA) has any material liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of such plans, and (iii) no actions, investigations, suits or claims
with respect to the assets thereof (other than routine claims for benefits) are
pending or threatened, and the Company has no Knowledge of any facts which would
give rise to or could reasonably be expected to give rise to any such actions,
suits or claims.
(g) With respect to each of the plans listed on Schedule 3.18,
-------------
Sellers have furnished to Buyer true and complete copies of (i) the plan
documents, summary plan descriptions and summaries of material modifications and
other material employee communications, (ii) the most recent determination
letter received from the Internal Revenue Service, (iii) the Form 5500 Annual
Report (including all schedules and other attachments for the most recent three
years), (iv) all related trust agreements, insurance contracts or other funding
agreements which implement such plans and (v) all contracts relating to each
such plan, including, without limitation, service provider agreements, insurance
contracts, investment management agreements and recordkeeping agreements.
3.18 Insurance. Schedule 3.18 lists and briefly describes each
--------- -------------
insurance policy maintained by or on behalf of the Company with respect to its
properties, assets and business, together with a claims history for the past
five years. All of such insurance policies are in full force
17
<PAGE>
and effect, and the Company is not and has never been in default with respect to
its obligations under any such insurance policies and the Company has never been
denied insurance coverage. Except as set forth on Schedule 3.18, the Company
-------------
does not have any self-insurance or co-insurance programs, and the reserves set
forth in the Financial Statements are adequate to cover all anticipated
liabilities with respect to any such self-insurance or coinsurance programs.
3.19 Officers and Managing Members; Bank Accounts. Schedule 3.19
-------------------------------------------- -------------
lists all officers and managing members of the Company, and all bank accounts,
safety deposit boxes and lock boxes (designating each authorized signatory with
respect thereto) for the Company.
3.20 Compliance with Laws. The Company and its officers, managing
--------------------
members, agents and employees have complied with all applicable laws,
regulations and ordinances of foreign, federal, state and local governments and
all agencies thereof which are applicable to the business, business practices
(including, but not limited to, the Company's production, marketing, sales and
distribution of its products and services) or any owned or leased properties of
the Company and to which the Company may be subject, except for violations that
would not have a Material Adverse Effect, and no claims have been filed against
the Company alleging a violation of any such laws or regulations, and the
Company has not received notice of any such violations.
3.21 Powers of Attorney; Guarantees. Except as set forth on Schedule
------------------------------ --------
3.21, there are no outstanding powers of attorney executed on behalf of the
- ----
Company. The Company is not a guarantor or otherwise liable for any Indebtedness
of any other person, firm or corporation other than endorsements for collection
in the ordinary course of business.
3.22 No Further Representations or Warranties. Except as expressly
----------------------------------------
set forth in this Article III and Article IV, neither the Company nor any Seller
is making or shall be deemed to have made any representation or warranty of any
kind, either express or implied.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SELLERS
------------------------------------------------------
As a material inducement to Buyer to enter into this Agreement, each
Seller represents and warrants jointly and severally to Buyer that:
4.1 Authorization of Transactions. Such Seller has full power,
-----------------------------
authority and legal capacity to enter into this Agreement and the other
documents contemplated hereby to which such Seller is a party and to perform his
obligations hereunder and thereunder. This Agreement and the other documents
contemplated hereby to which such Seller is a party have been duly executed and
delivered by such Seller and constitute the valid and binding agreements of such
Seller, enforceable in accordance with their respective terms.
4.2 Absence of Conflicts. Neither the execution and the delivery of
--------------------
this Agreement and the other documents contemplated hereby to which such Seller
is a party, nor the consummation of the transactions contemplated hereby and
thereby, shall (a) conflict with, result in a breach of any of the provisions
of, (b) constitute a default under, (c) result in the violation of, (d) give any
third party the right to terminate or to accelerate any obligation under, (e)
result in the
18
<PAGE>
creation of any Lien upon the Minority Interest owned by such Seller, or (f)
require any authorization, consent, approval, execution or other action by or
notice to any court or other governmental body, under the provisions of any
indenture, mortgage, lease, loan agreement or other agreement or instrument to
which such Seller is bound or affected, or any statute, regulation, rule,
judgment, order, decree or other restriction of any government, governmental
agency or court to which such Seller is subject, except for such conflicts,
defaults, violations or rights that would not have a Material Adverse Effect. No
notice to, filing with or authorization, consent or approval of any government
or governmental agency, other than those required under the Hart-Scott-Rodino
Act, by such Seller is necessary for the consummation of the transactions
contemplated by this Agreement and the other documents contemplated hereby to
which such Seller is a party.
4.3 Brokerage. Except as set forth on Schedule 4.3, there are no
--------- ------------
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of such Seller.
4.4 Membership Interests. Such Seller holds of record and owns
--------------------
beneficially the Membership Interests set forth opposite its name on Schedule
--------
2.1 (under Pre-Closing), and at the Closing such Seller will transfer to Buyer
- ---
good and marketable title to the Minority Interest, in each case free and clear
of any Liens, restrictions on transfer (other than any restrictions under the
Securities Act of 1933, as amended, and applicable state securities laws),
options, warrants, rights, calls, commitments, proxies or other contract rights
other than those contained in the Organizational Documents of the Transaction
Documents. Such Seller is not a party to any option, warrant, right, Contract,
call, put or other agreement or commitment providing for the disposition or
acquisition of any interest in the Company (other than those contained in the
Organizational Documents of the Transaction Documents). Such Seller is not a
party to any voting trust, proxy or other agreement or understanding with
respect to the voting of any interest of the Company other than those contained
in the Organizational Documents of the Transaction Documents.
4.5 Litigation. There are no actions, suits, proceedings or orders
----------
pending or, to Sellers' Knowledge, threatened against or affecting Sellers at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would adversely affect Sellers' performance under
this Agreement and the other agreements contemplated hereby to which Sellers are
a party or the consummation of the transactions contemplated hereby or thereby.
4.6 No Further Representations or Warranties. Except as expressly
----------------------------------------
set forth in this Article III and Article IV, neither the Company nor any Seller
is making or shall be deemed to have made any representation or warranty of any
kind, either express or implied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As a material inducement to Sellers to enter into this Agreement,
Buyer hereby represents and warrants to Sellers that:
19
<PAGE>
5.1 Organization and Corporate Power. Buyer is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to enter into this Agreement
and the other agreements contemplated hereby to which Buyer is a party and
perform its obligations hereunder and thereunder.
5.2 Authorization of Transactions. The execution, delivery and
-----------------------------
performance of this Agreement and the other agreements contemplated hereby to
which Buyer is a party have been duly and validly authorized by all requisite
corporate action on the part of Buyer, and no other corporate proceedings on its
part are necessary to authorize the execution, delivery or performance of this
Agreement. This Agreement constitutes, and each of the other agreements
contemplated hereby to which Buyer is a party shall when executed constitute, a
valid and binding obligation of Buyer, enforceable in accordance with their
terms.
5.3 No Violation. Buyer is not subject to or obligated under its
------------
certificate of incorporation, its by-laws, any applicable law, or rule or
regulation of any governmental authority, or any agreement or instrument, or any
license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement and the other agreements contemplated hereby to
which Buyer is a party.
5.4 Governmental Authorities and Consents. Buyer is not required to
-------------------------------------
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement and the other
agreements contemplated hereby to which Buyer is a party or the consummation of
the transactions contemplated hereby or thereby. No consent, approval or
authorization of any governmental or regulatory authority or any other party or
person is required to be obtained by Buyer in connection with its execution,
delivery and performance of this Agreement and the other agreements contemplated
hereby to which Buyer is a party or the transactions contemplated hereby or
thereby, other than those required under the Hart-Scott-Rodino Act.
5.5 Litigation. There are no actions, suits, proceedings or orders
----------
pending or, to Buyer's knowledge, threatened against or affecting Buyer at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would adversely affect Buyer's performance under this
Agreement and the other agreements contemplated hereby to which Buyer is a party
or the consummation of the transactions contemplated hereby or thereby.
5.6 Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.
5.7 No Further Representations or Warranties. Except as expressly
----------------------------------------
set forth in this Article V, the Buyer is not making or shall be deemed to have
made any representation or warranty of any kind, either express or implied.
20
<PAGE>
ARTICLE VI
INDEMNIFICATION AND RELATED MATTERS
-----------------------------------
6.1 Survival.
--------
(a) Survival of Representations and Warranties. All representations
------------------------------------------
and warranties set forth in this Agreement, the Transaction Documents or in any
writing or certificate delivered in connection with this Agreement shall survive
the Closing Date and continue in full force and effect until the "Applicable
----------
Limitation Date," which shall be the later of (i) April 30, 2002, or (ii)
- ---------------
completion of the financial statements for the fiscal year ended December 31,
2001 by the Company's auditors, provided, however, that the indemnification
obligations with respect to any claim for which a person has given written
notice under Section 6.2(d) hereof prior to such date will survive until the
final resolution of such claim, and further provided that the indemnification
obligations with respect to the representations and warranties contained in
Sections 3.1 (Organization and Limited Liability Company Power), 3.2
(Authorization of Transactions), 3.3 (Capital Structure of the Company) and 3.4
(Subsidiaries, Investments and Notes) shall survive indefinitely. No party
shall be entitled to recover for any Loss pursuant to Section 6.2(a) or Section
6.2(b) unless written notice of a claim thereof is delivered to the other Party
prior to the Applicable Limitation Date.
(b) Risk Allocation. The representations, warranties, covenants and
---------------
agreements made herein, together with the indemnification provisions herein, are
intended among other things to allocate the economic cost and the risks
inherent in the transactions contemplated hereby between the Parties and,
accordingly, a Party shall be entitled to the indemnification or other remedies
provided in this Agreement by reason of any breach of any such representation,
warranty, covenant or agreement by another Party notwithstanding whether any
employee, representative or agent of the Party seeking to enforce a remedy knew
or had reason to know of such breach. To the Buyer's Knowledge, at the date of
this Agreement, there are no such breaches.
6.2 Indemnification.
---------------
(a) Sellers' Indemnification. Sellers shall jointly and severally
------------------------
indemnify Buyer and its officers, employees, agents, representatives,
affiliates, successors and permitted assigns (collectively, the "Buyer Parties")
-------------
and hold each of them harmless from and against and pay on behalf of or
reimburse such Buyer Parties in respect of any loss (including diminution in
value), liability, demand, claim, action, cause of action, cost, damage,
deficiency, tax, penalty, fine or expense, whether or not arising out of third
party claims (including, without limitation, interest, penalties, reasonably
attorneys' fees and expenses, court costs and all amounts paid in investigation,
defense or settlement of any of the foregoing) (collectively, "Losses" and
------
individually, a "Loss") which any such Buyer Party may suffer, sustain or become
----
subject to, as a result of, in connection with, relating or incidental to or by
virtue of:
(i) the breach of any representation or warranty made by the
Company or any Seller contained in this Agreement, the other Transaction
Documents, any Exhibit or Schedule hereto or any certificate delivered by
the Company or any Seller to Buyer with respect hereto or thereto in
connection with the Closing;
21
<PAGE>
(ii) the breach of any covenant or agreement made by the Company
or any Seller contained in this Agreement, the other Transaction Documents,
any Exhibit or Schedule hereto or any certificate delivered by the Company
or any Seller to Buyer with respect hereto or thereto in connection with
the Closing;
(b) Buyer Indemnification. Buyer shall indemnify Sellers and its
---------------------
employees, agents, representatives, affiliates, successors and permitted assigns
(collectively, the "Seller Parties") and hold Sellers harmless from and against
--------------
and pay on behalf of or reimburse Sellers in respect of any Loss which Sellers
may suffer, sustain or become subject to, as the result of, in connection with,
relating to or incidental to or by virtue of the breach by Buyer of any
representation, warranty or covenant made by Buyer contained in this Agreement,
any other Transaction Document or any certificate delivered by Buyer to Sellers
with respect thereto in connection with the Closing.
(c) Limitations on Indemnity. The indemnification provided for in
------------------------
subsections (a) and (b) above is subject to the following limitations:
- --------------- ---
(i) No Party will be liable hereunder with respect to claims
referred to in subsection (a) or subsection (b) above unless the other
Party gives written notice thereof within the Applicable Limitation Date.
Notwithstanding any implication to the contrary contained in this
Agreement, so long as a Party delivers written notice of a claim no later
than the Applicable Limitation Date, the other Party shall be required to
indemnify hereunder for all Losses which such parties may incur (subject to
the Basket and the Cap) in respect of the matters which are the subject of
such claim, regardless of when incurred.
(ii) Sellers shall not be liable to Buyer Parties, and Buyer
shall not be liable to Sellers, for any Loss arising under subsection (a)
or subsection (b), above, unless the aggregate amount of all such Losses
exceeds $25,000 in the aggregate (the "Basket"), in which case such
------
Party(ies) shall be liable for all such Losses in excess of $25,000 up to
the Cap; provided that the foregoing limitations (i.e., the Basket and the
Cap) shall not apply with respect to any Loss arising from or related to a
breach of any covenant of Sellers or Buyer, or with respect to the
representations and warranties contained in Sections 3.1 (Organization and
Limited Liability Company Power), 3.2 (Authorization of Transactions), 3.3
(Capital Structure of the Company) and 3.4 (Subsidiaries, Investments and
Notes).
(iii) Notwithstanding anything to the contrary contained herein,
for purposes of determining whether there has been a breach and the amount
of any Losses that are the subject matter of a claim for indemnification
hereunder, the Basket amount shall be the materiality standard for all
purposes hereunder and, therefore, each representation, warranty and other
provision contained in this Agreement and each certificate delivered
pursuant hereto shall be read without regard and without giving effect to
any materiality, or Material Adverse Effect standard or qualification
contained in such representation or warranty (as if such standard or
qualification were deleted from such representation and warranty).
(iv) The aggregate amount of the Sellers' liability to the Buyer
and the aggregate amount of the Buyer's liability to the Seller and to the
Company under this Article VI shall not exceed 50% of the Minority Interest
Purchase Price, and upon Buyer's exercise of the Purchase Option, the
aggregate amount of the Sellers' liability to the Buyer and the
22
<PAGE>
aggregate amount of the Buyer's liability to the Seller and the Company
under this Article VI shall not exceed 50% of the Purchase Option Exercise
Price (the "Cap"), provided that the indemnification obligations with
---
respect to the representations and warranties contained in Sections 3.1
(Organization and Limited Liability Company Power), 3.2 (Authorization of
Transactions), 3.3 (Capital Structure of the Company) and 3.4
(Subsidiaries, Investments and Notes) shall not be subject to the
limitations contained in this Section 6.2(c)(iv).
(d) Procedure. If a party hereto seeks indemnification under this
---------
Article VI, such party (the "Indemnified Party") shall give written notice to
- ---------- -----------------
the other party(ies) (the "Indemnifying Party") after receiving written notice
------------------
of any action, lawsuit, proceeding, investigation or other claim against it (if
by a third party) or discovering the liability, obligation or facts giving rise
to such claim for indemnification, describing the claim, the amount thereof (if
known and quantifiable), and the basis thereof; provided that the failure to so
notify the Indemnifying Party shall not relieve the Indemnifying Party of its or
his obligations hereunder except to the extent such failure shall have harmed
the Indemnifying Party. In that regard, if any action, lawsuit, proceeding,
investigation or other claim shall be brought or asserted by any third party
which, if adversely determined, would entitle the Indemnified Party to indemnity
pursuant to this Article VI, the Indemnified Party shall promptly notify the
----------
Indemnifying Party of the same in writing, specifying in detail the basis of
such claim and the facts pertaining thereto and the Indemnifying Party shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to the Indemnified Party's claim for
indemnification at its expense.
(e) Waiver, Release and Discharge. Effective upon the Closing, each
-----------------------------
Seller hereby irrevocably waives, releases and discharges the Company from any
and all liabilities and obligations to such Seller of any kind or nature
whatsoever, whether in his capacity as Seller hereunder, as a member, officer or
managing member of the Company or otherwise (including, without limitation, in
respect of rights of contribution or indemnification), in each case whether
absolute or contingent, liquidated or unliquidated, known or unknown, and
whether arising hereunder or under any other agreement or understanding or
otherwise at law or equity, and each Seller shall not seek to recover any
amounts in connection therewith or thereunder from the Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
7.1 The Purchase Option. Buyer shall have an option (the "Purchase
------------------- --------
Option") to purchase all of the remaining outstanding Membership Interests in
- ------
the Company as held by Sellers, by delivering written notice (the "Purchase
--------
Option Notice") to Sellers during the Purchase Option Exercise Period. The
- -------------
Parties shall execute a Purchase Agreement which shall be substantially
identical in form to this Agreement. Seller may, at any time on or after the
Purchase Option Closing Date acquire the Company's Avid equipment, as detailed
in the Company's Wells Fargo Equipment Finance Master Lease No. 51696 dated
September 28, 1999, by assuming all obligations under such Lease. Buyer shall
also negotiate in good faith with Sellers the sale by the Company to Sellers of
the other property listed on Schedule 7.1 hereof.
------------
23
<PAGE>
7.2 Payment of the Purchase Option Exercise Price. Buyer shall pay
---------------------------------------------
to the Sellers the Purchase Option Exercise Price in cash on the Purchase Option
Closing Date.
7.3 Purchase Option Closing Distribution. The Company shall have
------------------------------------
distributed to the Members (determined immediately prior to the Purchase Option
Closing Date), immediately prior to the Purchase Option Closing Date, the
Purchase Option Closing Distribution, calculated by the Company's accountants,
as selected in accordance with Section 7.5, as of the last day of the month
immediately preceding the Purchase Option Closing Date.
7.4 Purchase Option Closing Date. The Purchase Option notice shall
----------------------------
specify the "Purchase Option Closing Date," which shall be scheduled for a date
----------------------------
no later than 90 days after the end of the calendar quarter during which Buyer
delivers the Purchase Option Notice to Sellers. Buyer and Sellers shall use
their best efforts to close the acquisition on the Purchase Option Closing Date,
and the Purchase Option shall lapse if the acquisition has not been closed on or
before the Purchase Option Closing Date unless due to a default by Sellers or
their Affiliates, or unless otherwise extended by mutual written agreement of
the Parties.
7.5 Conduct Prior to the Lapse of the Purchase Option. Prior to the
-------------------------------------------------
Purchase Option Lapse Date, the Sellers will conduct the Company's business, and
the Company will conduct its business, only in the ordinary course, consistent
with past practice, and will use their best efforts to maintain the value of the
Company's business as a going concern, and will comply with the following:
(a) Buyer will not require formal management meetings regarding the
operation of the Company's business, but the Parties will hold formal business
review meetings at the end of each quarter of the fiscal year, during which the
Parties will discuss the Company's operations, activities, and performance,
including items such as sales performance, marketing expenses and operating
expenses versus budget for the trailing quarter, current quarter and year-end.
Buyer shall approve independent auditors to conduct audit for the Company's
fiscal year ending December 31, 2000, and will pay for such audit fees. Buyer
will also make all of such auditor's work papers available for review by Sellers
and to other accountants or auditors retained by Sellers at Sellers' expense.
(b) The Company and Sellers will not, without the prior written
consent of Buyer:
(i) enter into or perform any transaction for the acquisition,
selection, clearance, maintenance, enforcement, assignment and licensing of
any or all intellectual property developed, owned or used by the Company;
(ii) enter into or perform any transactions with Affiliates, or
enter into any transactions which are not on an arms length basis; or
(iii) increase any compensation or benefit arrangement for any
employee, officer, or Member (it being understood that up to * per annum
may be paid to Members); or
(iv) pay any distributions or re-purchase any Membership
Interests in whole or in part; or
24
<PAGE>
(v) grant profit participations or equity interests in the
Company or any properties of the Company or encumber any of the assets of
the Company in any way, except that the Sellers may grant (i) equity
interests to their children, and (ii) Phantom Equity Interests to employees
or independent contractors, so long as such grants do not dilute Buyer's
interest or in any way affect its rights under this Agreement, and provided
that any interests granted hereunder will be subject to the tag along/drag
along rights provided under Section 7.10 of this Agreement, which will be
paid from the proceeds in the event that Buyer exercises the Purchase
Option; or
(vi) make or change any election, change an annual accounting
period, adopt or change any accounting method, file any amended Tax Return,
enter into any closing agreement, settle any Tax claim or assessment
relating to the Company, surrender any right to claim a refund of Taxes,
consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment relating to the Company, or take any other
similar action, or omit to take any action relating to the filing of any
Tax Return or the payment of any Tax, if such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action or
omission would have the effect of increasing the present or future Tax
liability or decreasing any present or future Tax asset of the Company,
Buyer or any Affiliate Buyer.
7.6 Payment of the Purchase Option Exercise Price. Buyer shall pay
---------------------------------------------
to the Sellers the Purchase Option Exercise Price in cash on the Purchase Option
Closing Date.
7.7 Disputes as to Purchase Option Exercise Price or the Purchase
-------------------------------------------------------------
Option Closing Distribution. In the event of any dispute between the Sellers,
- ---------------------------
the Company and Buyer concerning the calculation of amount of the Purchase
Option Exercise Price, then on the Purchase Option Closing Date, Buyer shall pay
the Sellers the greater of (i) 85% of Sellers' good faith determination of the
Purchase Option Exercise Price based upon the financial information previously
delivered by Sellers to Buyer, or (ii) 100% of Buyer's good faith determination
of the Purchase Option Exercise Price, and the difference between the amount
paid and 100% of Sellers' good faith determination of the Purchase Option
Exercise Price shall be placed in an interest-bearing escrow account (with
interest to be paid in proportion to the ultimate entitlement to the escrowed
funds) with a third-party escrow holder pending final determination of the
Purchase Option Exercise Price pursuant to arbitration in the manner set forth
in Section 8.12 hereof. Any claims relating to the calculation of the Purchase
Option Exercise Price must be submitted in writing within six months after the
Purchase Option Closing Date. The Parties agree to follow a similar method to
resolve any dispute over the Purchase Option Closing Distribution.
7.8 Company Call Option. In the event that Buyer does not exercise
-------------------
its Purchase Option before the Purchase Option Lapse Date or the Purchase Option
otherwise lapses, the Company shall have a "Call Option" entitling the Company
-----------
to acquire all (but not less than all) of the Minority Interest by delivering
written notice (the "Call Option Notice") to Buyer between April 1, 2001 through
------------------
March 31, 2002 (the "Call Option Exercise Period").
---------------------------
7.9 Payment of the Call Option Exercise Price. The Sellers shall pay
-----------------------------------------
to Buyer the Call Option Exercise Price in cash on the Call Option Closing
Date.
25
<PAGE>
7.10 Call Option Closing Date. The Call Option Notice shall specify
------------------------
the "Call Option Closing Date," which shall be scheduled for a date no later
------------------------
than 90 days after the end of the calendar quarter during which the Company
delivers the Call Option Notice to Buyer. Sellers and Buyer shall use their best
efforts to close the acquisition on the Call Option Closing Date, and the Call
Option shall lapse if the acquisition has not been closed unless due to a
default by the Buyer or its Affiliates, or unless otherwise extended by mutual
written agreement of the Parties.
7.11 Disputes as to Call Option Exercise Price. In the event of any
-----------------------------------------
dispute between the Sellers, the Company and Buyer concerning the calculation of
amount of the Call Option Exercise price, then on the Call Option Closing Date,
Sellers shall pay the Buyer the greater of (i) 85% of Buyer's good faith
determination of the Call Option Exercise Price based upon the financial
information previously delivered by Sellers to Buyer, or (ii) 100% of Sellers'
good faith determination of the Call Option Exercise Price, and the difference
between the amount paid and 100% of Buyer's good faith determination of the Call
Option Exercise Price shall be placed in an interest-bearing escrow account
(with interest to be paid in proportion to the ultimate entitlement to the
escrowed funds) with a third-party escrow holder pending final determination of
the Call Option Exercise Price pursuant to arbitration in the manner set forth
in Section 8.12 hereof. Any claims relating to the calculation of the Call
Option Exercise price must be submitted in writing within six months after the
Call Option Closing Date.
7.12 Third Party Transaction. In the event that Buyer does not
-----------------------
exercise its Purchase Option, and the Company does not exercise its Call Option,
Sellers may enter into a Sale with a third party. In the event of any such
Sale, the Sellers must deliver to Buyer at least 30 days prior to the Sale, a
written notice (the "Sale Notice"), specifying in reasonable detail the identity
-----------
of the prospective buyer(s), the percentage of Membership Interests to be sold,
and the terms of and conditions of the Sale. Additionally:
(a) Buyer shall have tag along rights which permit Buyer to
participate in the Sale at the same pro rata price and at the same terms by
delivering written notice of Buyer's intention to participate in the Sale to the
Sellers within 30 days after delivery of the Sale Notice; and
(b) Seller shall have drag along rights which require Buyer to
participate in any such Sale for which it received timely and adequate Sale
Notice, on the same terms and at the same pro rata price as the Seller, provided
that Buyer, under this Section 7.9, shall only be required to sell its Minority
Interest for an amount no less than the greater of (i) the Minority Interest
Purchase Price, or (ii) Buyer's pro rata share of the total amount of the
proceeds from such Sale.
7.13 Tax Matters.
-----------
(a) If requested by the Buyer, the Company shall make an election on
its United States federal income tax return to adjust the basis of its assets
under Section 754 of the Code.
(b) As set forth in the Amended and Restated Operating Agreement of
the Baby Einstein Company, LLC attached hereto is Exhibit C, to the extent of
Cash Flow (as defined in the Amended and Restated Operating Agreement), the
Company shall make annual cash distributions to each Member for each fiscal year
equal to the product of (i) the highest marginal rate of federal income tax
applicable to individuals for the fiscal year plus 5%, times (ii) the taxable
income allocated to the Member by the Company for such fiscal year.
26
<PAGE>
7.14 Press Releases and Announcements. At and prior to the Closing
--------------------------------
Date, no press releases related to this Agreement and the transactions
contemplated herein, or other announcements to the employees, customers or
suppliers of the Company shall be issued without the mutual approval of all
Parties, except for any public disclosure which is required by law or regulation
(in which case the disclosure shall be prepared jointly by the Company and
Buyer). After the Closing Date, no press releases related to this Agreement and
the transactions contemplated herein, or other announcements to the employees,
customers or suppliers of the Company, shall be issued without Sellers' and
Buyer's prior written consent.
7.15 Further Transfers. Each Seller shall execute and deliver such
-----------------
further instruments of conveyance and transfer and take such additional action
as Buyer may reasonably request to effect, consummate, confirm or evidence the
transfer to Buyer of the Minority Interests and any other transactions
contemplated hereby.
7.16 Specific Performance. Each Seller acknowledges that the
--------------------
Company's business is unique and recognizes and affirms that in the event of a
breach of this Agreement by such Seller, money damages may be inadequate and
Buyer may have no adequate remedy at law. Accordingly, each Seller agrees that
Buyer shall have the right, in addition to any other rights and remedies
existing in its favor, to enforce its rights and such Seller's obligations
hereunder not only by an action or actions for damages but also by an action or
actions for specific performance, injunctive and/or other equitable relief.
7.17 Expenses. Except as otherwise provided herein, each of the
--------
Company and Buyer shall pay all of its own fees, costs and expenses (including,
without limitation, fees, costs and expenses of legal counsel, investment
bankers, brokers or other representatives and consultants and appraisal fees,
costs and expenses) incurred in connection with the negotiation of this
Agreement, the performance of its obligations hereunder, and the consummation of
the transactions contemplated hereby; it being understood that the Company shall
pay the fees, costs and expenses of the Sellers.
7.18 Assignment of Proprietary Rights. Julie Clark (including Julie
--------------------------------
Aigner Clark and/or Julie Aigner-Clark whether doing business under "I Think I
Can Productions" or as an individual) covenants and agrees to assign to the
Company her entire right, title and interest in any Proprietary Rights, and
agrees to fully cooperate in the Company's perfection of title in any such
Proprietary Right, including, without limitation, the Company's recordation of
any assignment from Julie Clark that has not already been assigned or perfected
at the date of the Closing.
7.19 Certificates. Sellers shall deliver to Buyer any and all
------------
documents, instruments or other evidence (the "Certificates") necessary to
------------
transfer the Minority Interest owned by such Sellers as soon as possible after
the Closing.
7.20 Remedies. Sellers acknowledge and agree that any breach by him,
--------
her or it of any of the covenants of this Article 7 would result in irreparable
---------
injury and damage for which money damages would not provide an adequate remedy.
Therefore, if any of the Sellers breaches, or threatens to commit a breach of,
any of the covenants of this Article 7, the Buyer, shall have in addition to,
---------
and not in lieu of, any other rights and remedies available to them under law or
in equity (including, without limitation, the recovery of damages) the right to
have such covenants specifically enforced by any court having equity
jurisdiction, including, without limitation, the right to an entry
27
<PAGE>
against the Sellers of restraining orders and injunctions against violations,
threatened or actual, and whether or not then continuing, of such covenants.
7.21 Duration and Scope of Covenants. If any court or other
-------------------------------
decision-maker of competent jurisdiction determines that any of the covenants
contained in this Article 7, or any part thereof, is unenforceable because of
---------
the duration or geographical scope of such provision, then the duration or scope
of such provision, as the case may be, shall be reduced so that such provision
becomes enforceable and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
7.22 Insurance. Sellers covenant and agree that prior to the Purchase
---------
Option Closing Date, they will secure insurance to be maintained by or on behalf
of the Company for coverage types and amounts that are customary for the size
and line of business of the Company, and will name Buyer as a beneficiary of
such insurance policies.
7.23 Confidentiality Agreement. The Parties covenant and agree that
-------------------------
nothing in this Agreement does or shall be construed to supersede the
Confidentiality Agreement entered into by the Parties on December 3, 1999, which
is attached as Exhibit E hereto, and that, as such, that Confidentially
---------
Agreement continues in full force and affect.
7.24 Post Closing Purchase Option Adjustments. The Parties covenant
----------------------------------------
and agree that if Buyer exercises its Purchase Option, by October 31, 2001, the
Parties will recalculate and restate the Purchase Option Exercise Price and the
Purchase Option Closing Distribution as of September 30, 2001 as follows:
(a) the Parties agree that the "Post Closing Purchase Option
----------------------------
Adjustment" shall be equal to the difference between *;
- ----------
(b) the Parties agree to recalculate the Purchase Option Exercise
Price as of September 30, 2001 for the sole purpose of taking into account the
Post Closing Purchase Option Adjustment in Section 7.24(a) as an additional
Purchase Option EBIT Adjustment. In the event of an increase in the Purchase
Option Exercise Price, Buyer shall pay to Sellers by November 15, 2001 the
difference between the revised Purchase Option Exercise Price and the amount
previously paid to Sellers in respect thereof. In the event of a decrease in
the Purchase Option Exercise Price, Sellers shall pay to Buyer by November 15,
2001 the difference between the revised Purchase Option Exercise Price and the
amount previously paid to Sellers in respect thereof; and
(c) the Parties further agree to recalculate the Purchase Option
Closing Distribution by October 31, 2001 as of September 30, 2001 to reflect the
amount of the Post Closing Purchase Option Adjustment calculated in Section
7.24(a) above. In the event of an increase in the Purchase Option Closing
Distribution, Buyer shall pay to Members (determined immediately prior to the
Purchase Option Closing Date) by November 15, 2001 the difference between the
revised Purchase Option Closing Distribution and the amount previously paid to
Members (determined immediately prior to the Purchase Option Closing Date) in
respect thereof. In the event of a decrease in the Purchase Option Closing
Distribution, Members (determined immediately prior to the Purchase Option
Closing Date) shall pay to Buyer by November 15, 2001 the difference between
28
<PAGE>
the revised Purchase Option Closing Distribution and the amount previously paid
to Members (determined immediately prior to the Purchase Option Closing Date) in
respect thereof.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Amendment and Waiver. This Agreement may be amended and any
--------------------
provision of this Agreement may be waived, provided that any such amendment or
waiver shall be binding upon a Party only if such amendment or waiver is set
forth in a writing executed by Buyer and Sellers. No course of dealing between
or among any persons having any interest in this Agreement shall be deemed
effective to modify, amend or discharge any part of this Agreement or any rights
or obligations of any Party under or by reason of this Agreement.
8.2 Notices. All notices, demands and other communications given or
-------
delivered under this Agreement shall be in writing and shall be deemed to have
been given when personally delivered, mailed by first class mail, return receipt
requested, or delivered by express courier service or telecopied (with hard copy
to follow). Notices, demands and communications to Sellers, the Company and
Buyer shall, unless another address is specified in writing, be sent to the
address or telecopy number indicated below:
Notices to Sellers: with copies to:
- ------------------ --------------
The Baby Einstein Company, LLC O'Melveny & Myers LLP
10840 South Bobcat Terrace 1999 Avenue of the Stars, Suite 700
Littleton, CO 80124 Los Angeles, CA 90067
Attn: Julie A. Clark Attn: Robert Haymer
Telecopy: (303) 706-9864 Telecopy: (310) 246-6779
Notices to Buyer: with copies to:
- ---------------- --------------
Artisan Entertainment Inc. Kirkland & Ellis
2700 Colorado Avenue 777 South Figueroa Street, Suite 3700
Santa Monica, CA 90404 Los Angeles, CA 90017
Attn: Ken Schapiro Attention: Eva Davis
Telecopy: (310) 255-3840 Telecopy: (213) 680-8500
8.3 Binding Agreement; Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the Parties
and their respective successors and permitted assigns; provided that neither
this Agreement nor any of the rights, interests or obligations hereunder may be
assigned by any Seller or Buyer without the prior written consent of Buyer or
Sellers, respectively. Notwithstanding the foregoing, without the prior written
consent of Sellers, Buyer may at any time, in its sole discretion, assign, in
whole or in part, (a) its rights and obligations pursuant to this Agreement to
one or more of its Affiliates; (b) its rights under this
29
<PAGE>
Agreement for collateral security purposes to any lender providing financing to
Buyer, the Company or any of their Affiliates and any such lender may exercise
all of the rights and remedies of Buyer hereunder; and (c) its rights under this
Agreement, in whole or in part, to any subsequent purchaser of the Company or
any of its divisions or any material portion of its assets (whether such sale is
structured as a sale of equity, sale of assets, merger, recapitalization or
otherwise).
8.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
8.5 Construction. The language used in this Agreement shall be
------------
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any person. The
Parties intend that each representation, warranty, and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
8.6 Captions. The captions used in this Agreement are for convenience
--------
of reference only and do not constitute a part of this Agreement and shall not
be deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
8.7 Entire Agreement. The schedules identified in this Agreement are
----------------
incorporated herein by reference. This Agreement and the documents referred to
herein contain the entire agreement between the Parties and supersede any prior
understandings, agreements or representations by or between the Parties, written
or oral, which may have related to the subject matter hereof in any way,
including, without limitation, the Letter of Intent dated November 8, 1999 and
signed by the Company, the Sellers and the Buyer, except for the Confidentiality
Agreement referenced in Section 7.23 herein which the Parties have agreed is not
superseded by this Agreement and continues in full force and effect.
8.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
8.9 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement shall be governed by and construed
in accordance with the domestic laws of the State of California, without giving
effect to any choice of law or conflict of law provision (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
8.10 Parties in Interest. Nothing in this Agreement, express or
-------------------
implied, is intended to confer on any person other than the Parties and their
respective successors and assigns any rights or remedies under or by virtue of
this Agreement.
30
<PAGE>
8.11 CONSENT TO JURISDICTION. THE PARTIES AGREE THAT JURISDICTION
-----------------------
AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY PURSUANT TO THIS AGREEMENT SHALL
PROPERLY (BUT NOT EXCLUSIVELY) LIE IN ANY FEDERAL OR STATE COURT LOCATED IN LOS
ANGELES, CALIFORNIA. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT
VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH
COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION.
THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL
CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY
FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
8.12 Arbitration.
-----------
Except for disputes, controversies, or claims seeking injunctive
relief, and except as expressly provided elsewhere in this Agreement or the
other Transaction Documents, any dispute, controversy, or claim arising under or
relating to the Transaction Documents or any breach of threatened breach thereof
("Arbitrable Dispute") shall be resolved by final and binding arbitration
------------------
administered by the American Arbitration Association ("AAA") under its
---
Commercial Arbitration Rules, subject to the following:
(a) Any Party may demand that any Arbitrable Dispute be submitted to
binding arbitration. The demand for arbitration shall be in writing, shall be
served on the other Party in the manner prescribed herein for the giving of
notices, and shall set forth a short statement of the factual basis for the
claim, specifying the matter or matters to be arbitrated.
(b) The arbitration shall be conducted by a panel of three
arbitrators, one selected by Buyer, one selected by Sellers and the third to be
selected jointly by the arbitrators selected by Buyer and Sellers (collectively,
the "Arbitrators") who shall conduct such evidentiary or other hearings as they
-----------
deem necessary or appropriate and thereafter shall make their determination as
soon as practicable. Notwithstanding the foregoing, no Arbitrator may serve
who, during the three-year period preceding the date the arbitration demand is
served, has had a material personal or financial relationship with any Party to
the dispute or any Affiliate of any such Party. Any arbitration pursuant hereto
shall be conducted by the Arbitrators under the guidance of the Federal Rules of
Civil Procedure and the Federal Rules of Evidence, but the Arbitrators shall not
be required to comply strictly with such Rules in conducting any such
arbitration. All such arbitration proceedings shall take place in Los Angeles,
California.
(c) Except as provided herein:
(i) each Party shall bear its own "Costs and Fees," which are
--------------
defined as all reasonable pre-award expenses of the arbitration, including
travel expenses, out-of-pocket expenses (including, but not limited to,
copying and telephone) witness fees, and reasonable attorney's fees and
expenses;
31
<PAGE>
(ii) the fees and expenses of the Arbitrators and all other
costs and expenses incurred in connection with the arbitration
("Arbitration Expenses") shall be borne equally by the Parties; and
--------------------
(iii) notwithstanding the foregoing, the Arbitrators shall be
empowered to require any one or more of the Parties to bear all or any
portion of such Costs and Fees and/or the fees and expenses of the
Arbitrators in the event that the Arbitrators determine such Party has
acted unreasonably or in bad faith.
(d) Arbitrators are not empowered to award damages in excess of
compensatory damages, and each Party hereby waives any damages in excess of
compensatory damages. The Arbitrators shall render their decision and award
upon the concurrence of at least two (2) of their number. Such decision and
award shall be in writing and counterpart copies thereof shall be delivered to
each Party. The decision and award of the Arbitrators shall be binding on all
Parties. In rendering such decision and award, the Arbitrators shall not add
to, subtract from or otherwise modify the provisions of the Transaction
Documents. Any Party to the arbitration may seek to have judgment upon the
award rendered by the Arbitrators entered in any court having jurisdiction
thereof.
(e) Each Party agrees that it will not file any suit, motion,
petition or otherwise commence any legal action or proceeding for any matter
which is required to be submitted to arbitration as contemplated herein except
in connection with the enforcement of an award rendered by the Arbitrators. Upon
the entry of an order dismissing or staying any action or proceeding filed
contrary to the preceding sentence, the Party which filed such action or
proceeding shall promptly pay to the other Party the reasonable attorney's fees,
costs and expenses incurred by such other Party prior to the entry of such
order.
8.13 Delivery by Facsimile. This Agreement and any Transaction
---------------------
Document, and any amendments hereto or thereto, to the extent signed and
delivered by means of a facsimile machine, shall be treated in all manner and
respects as an original Contract and shall be considered to have the same
binding legal effects as if it were the original signed version thereof
delivered in person. At the request of any party hereto or to any such
Contract, each other party hereto or thereto shall re-execute original forms
thereof and deliver them to all other parties. No party hereto or to any such
Contract shall raise the use of a facsimile machine to deliver a signature or
the fact that any signature or Contract was transmitted or communicated through
the use of facsimile machine as a defense to the formation of a Contract and
each such party forever waives any such defense.
* * * *
32
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above.
THE BABY EINSTEIN COMPANY, LLC
By: /s/ Julie Aigner-Clark
----------------------
Its: Manager
---------------------
JULIE AIGNER-CLARK
/s/ Julie Aigner-Clark
--------------------------
WILLIAM CLARK
/s/ William Clark
--------------------------
ARTISAN ENTERTAINMENT INC.
By: /s/ Ken Schapiro
--------------------------
Its: EVP
S-1
<PAGE>
(DISCLOSURE SCHEDULES)
PRODUCT DEVELOPMENT CAP CALCULATION
*
ADJUSTED EBIT CALCULATION
*
CLOSING DISTRIBUTION CALCULATION
*
SCHEDULE 3.1
Organization and Limited Liability Company Power
- ------------------------------------------------
Colorado
SCHEDULE 3.4
Subsidiaries, Investment and Notes
- ----------------------------------
*
SCHEDULE 3.5
Absence of Conflicts
- --------------------
None
SCHEDULE 3.6
Financial Statements
- --------------------
Compilation Financial Statements dated April 30, 1999 and Audited Financial
Statements dated December 31, 1999 have been previously provided to Buyer and
are attached.
*
1
<PAGE>
SCHEDULE 3.7
Absence of Undisclosed Liabilities
- ----------------------------------
*
SCHEDULE 3.8
Absence of Certain Developments
- -------------------------------
*
SCHEDULE 3.10
Accounts Receivable
- -------------------
*
SCHEDULE 3.11
Taxes
- -----
Colorado, United States of America
SCHEDULE 3.12(a)
Contracts and Commitments
- -------------------------
*
SCHEDULE 3.13(a)
Proprietary Rights
- ------------------
Patent Application, previously provided to Buyer
- ------------------------------------------------
Interactive Flash Cards provisional patent application
Registered Trademarks, previously provided to Buyer
- ---------------------------------------------------
Video Board Book
Baby Mozart
Intent to Use or Commercial Use Trademark Applications, previously provided to
- ------------------------------------------------------------------------------
Buyer
- -----
babyeinstein.com
Great minds start little
2
<PAGE>
Intent to Use or Commercial Use Trademark Applications, previously provided to
- ------------------------------------------------------------------------------
Buyer
- -----
Baby Mozart, Class 15
Baby Mozart, Class 16
Baby Mozart, Class 25
Baby Mozart, Class 28
Baby Einstein, Class 9
Baby Einstein, Class 16
Baby Einstein, Class 28
Baby Bach, Class 9
Baby Bach, Class 16
Baby Beethoven, Class 9
Baby Beethoven, Class 16
Baby Shakespeare, Class 9
Baby Shakespeare, Class 16
Baby Van Gogh, Class 2
Baby Van Gogh, Class 9
Baby Van Gogh, Class 16
Baby Webster, Class 9
Baby Webster, Class 16
Baby Webster, Class 28
Baby Edison, Class 9
Baby Edison, Class 16
Baby Edison, Class 28
Baby Newton, Class 9
Baby Newton, Class 16
Baby Newton, Class 28
Baby daVinci, Class 9
Baby daVinci, Class 16
Baby daVinci, Class 28
Little Bach, Class 9
Little Mozart, Class 9
Little Mozart, Class 16
Little Beethoven, Class 9
Little Shakespeare, Class 9
Little Shakespeare, Class 16
Little Van Gogh, Class 9
Little Van Gogh, Class 16
Little Webster, Class 9
Little Webster, Class 16
Little Webster, Class 28
Little Galileo, Class 9
Little Galileo, Class 16
Little Galileo, Class 28
Little Columbus, Class 9
Little Columbus, Class 16
Little Columbus, Class 28
Little Edison, Class 9
Little Edison, Class 16
3
<PAGE>
Little Edison, Class 28
Little Newton, Class 9
Little Newton, Class 16
Little Newton, Class 28
Little daVinci, Class 9
Little daVinci, Class 16
Little daVinci, Class 28
Baby Einstein International Trademark Applications in Classes 9, 16, 25, 28,
- ----------------------------------------------------------------------------
previously provided to Buyer
- ----------------------------
Israel
South Korea
Mexico
New Zealand
Taiwan
South Africa
Australia
Canada
Switzerland
European Union
Ireland
Turkey
Japan, filed by Comtec Co. Ltd., to be assigned to The Baby Einstein Company
Domain name registrations, previously provided to Buyer
- -------------------------------------------------------
www.babyeinstein.com
- --------------------
www.babyeinstein.net
- --------------------
www.babymozart.com
- ------------------
www.babybach.com
- ----------------
www.babywebster.com
- -------------------
www.babyvangogh.com
- -------------------
www.babyrembrandt.com
- ---------------------
www.babynewton.com
- ------------------
www.babyedison.com
- ------------------
www.babydavinci.com
- -------------------
Copyright Certificates and Applications, previously provided to Buyer
- ---------------------------------------------------------------------
Baby Einstein copyright certificate
Baby Mozart video copyright certificate
Baby Mozart CD and audiocassette copyright application
Baby Bach video copyright certificate
Baby Bach CD and audiocassette copyright application
Baby Beethoven CD and audiocassette copyright application
Baby Shakespeare video copyright application
Baby Shakespeare book copyright application
4
<PAGE>
Baby Webster flash cards copyright application
Licenses and Similar Agreements, previously provided to Buyer
- -------------------------------------------------------------
*
Licenses and Similar Agreements (See Schedule 3.8)
- --------------------------------------------------
*
SCHEDULE 3.13(b)
Proprietary Rights
- ------------------
*
SCHEDULE 3.14
Litigation Proceedings
- ----------------------
*
SCHEDULE 3.15
Brokerage (Company)
- -------------------
None
SCHEDULE 3.16
Government Licenses and Permits
- -------------------------------
Federal Employer Identification No., previously provided to Buyer.
Federal Pension Plan Identification No., previously provided to Buyer.
Colorado Business Registration, previously provided to Buyer.
Colorado Wage Withholding License, previously provided to Buyer.
Colorado Notice of Employer Liability and Unemployment Insurance Tax Number,
previously provided to Buyer.
5
<PAGE>
Colorado Sales Tax License, 1999 license previously provided to Buyer, 2000
license previously provided to Buyer.
SCHEDULE 3.17
Employee Benefit Plans
- ----------------------
Employment Term Sheet
The Company provides employees with an Employment Term Sheet. These term sheets
outline title and responsibilities, compensation, health benefits (if
applicable), 401(k) and 401(k) matching, bonus (if applicable), severance (if
applicable), holiday schedule, and vacation and paid time-off allowances. Such
Employment Term Sheet(s) have been previously provided to Buyer.
Group Medical Insurance
Group medical coverage is offered to every employee. The Company provided 100
percent coverage of the employee. At the employee's election, the coverage can
be extended to cover the employee's family. The additional cost of such
coverage is paid by the employee through salary deductions. The Company's group
medical policy has been previously provided to Buyer. See Schedule 3.18 for
additional information.
Pension Plan
In 1998 while still a sole proprietorship, the Company established a pension
plan through Benetech consisting of a Money Purchase Plan and a Profit-Sharing
Plan. When the Company incorporated as a Limited Liability Company (LLC) on
April 30, 1999, Benetech made the required revisions to the pension plan.
Effective May 1, 1999 the Profit-Sharing Plan was converted into a 401(k) Plan.
On January 1, 2000, the Money Purchase Plan was merged with the 401(k) Plan.
Copies of the Company's Money Purchase Plan and 401(k) Plan have been previously
provided to Buyer. A copy of the most recent IRS determination letter is
attached in Schedule 3.16. The year-end statement for the pension plan
brokerage account, dated December 31, 1999, has been previously provided to
Buyer.
SCHEDULE 3.18
Insurance
- ---------
Workers' Compensation
The Company maintains Workers' Compensation policy no. 4020361 with Pinnacol
Assurance. A Policy Information Page is attached. A copy of the policy has
been previously provided to Buyer.
Group Medical
The Company maintains group medical insurance under contract Holder No. 125308
with Aetna U.S. Healthcare, Inc. A copy of the policy has been previously
provided to Buyer. See Schedule 3.17 for additional information.
Business Property
6
<PAGE>
The Company maintains Commercial Policy no. BFW (00) 52 61 14 38 with The Ohio
Casualty Group. A copy of the policy has been previously provided to Buyer.
Homeowners Insurance
The Sellers maintain and the Company pays for Homeowners policy no. 91442-92-77
with Farmers Insurance Group. A copy of the policy has been previously provided
to Buyer.
E&O Insurance
On February 1, 2000, the Company received Professional Media Liability Insurance
from Royal Surplus Lines. A certificate naming Artisan Entertainment, Inc. as
an additional insured was delivered to Buyer on February 2, 2000.
General Business Liability (pending)
As of January 29, 2000, the Company is shopping for general business liability
insurance.
SCHEDULE 3.19
Officers and Managing Members; Bank Accounts
- --------------------------------------------
Officers
Julie Aigner-Clark Managing Member, President and Chief Executive Officer
William Clark Member and Chief Financial Officer
Jeffrey Mettais Executive Vice President
Pamela Peccolo Vice President
Bank accounts
*
Pension plan brokerage account
*
SCHEDULE 3.21
Powers of Attorney
- ------------------
Power of attorney have been granted to Holme Roberts & Owens, "as its attorneys
to prosecute this application to registration, to transact all business in the
United States Patent and Trademark Office connected therewith, and to receive
the Certificate of Registration." A copy of this power of attorney has been
previously provided to Buyer.
SCHEDULE 4.3
Brokerage (Sellers)
- -------------------
7
<PAGE>
None
SCHEDULE 7.1
Property
- --------
Production equipment being leased from Wells Fargo Equipment Finance, Inc.,
including a Sony PVW-D30WSL Camera Package, Avid Express System and Sonic
Solutions DVD5001 SYSTEM.
(4) Apple G3 Power PC computers
(2) Apple G3 PowerBook computers
(2) Apple G4 Power PC computers
(1) HP 8100 printer
(1) Tektronix 740 printer
(1) Xerox Workcentre 1000
(2) HP 300 fax machines
(1) Tekline shelving system
(3) Tekline desks
(1) Tekline conference table
(10) Herman Miller chairs
8
<PAGE>
Exhibit A
Distribution Agreement
----------------------
ARTISAN HOME ENTERTAINMENT INC.
2700 Colorado Ave., 2nd Floor
Santa Monica, CA 90404
As of January 20, 2000
The Baby Einstein Company LLC
10840 South Bobcat Terrace
Littleton, CO 80124
Attn: Julie Aigner-Clark
Re: Sales and Marketing Services Agreement
Ladies and Gentlemen:
This letter agreement (this "Agreement") will confirm the principal terms of the
agreement under which The Baby Einstein Company, LLC ("EINSTEIN") has agreed to
engage ARTISAN HOME ENTERTAINMENT INC. ("ARTISAN") and ARTISAN has agreed to
furnish certain marketing, promotion and distribution services (the "Services")
in connection with the marketing and sale of certain Programs (as defined below)
produced by EINSTEIN.
The principal terms of the Agreement are as follows:
1. Purpose: The intent of the parties in entering into this Agreement is to
-------
provide for ARTISAN furnishing the Services during the Term (as defined below)
to permit EINSTEIN to:
(a) further develop the Baby Einstein brand;
(b) expand the infant and toddler market for media products;
(c) exploit the Home Video Rights (as defined below) in the Domestic
Territory (as defined below) in the Programs, and if EINSTEIN elects, the
Theatrical, Television Rights, Ancillary Rights and Home Video Rights in the
International Territory (as defined below) in the existing Programs and any
additional Programs developed by EINSTEIN which EINSTEIN elects to sell in the
domestic Home Video market; and
(d) optimize operations of EINSTEIN in anticipation of a sale of the
company in 2001.
2. Term: The term of this Agreement shall be three (3) years beginning on the
----
date hereof, unless earlier terminated or extended pursuant to the terms in
Paragraph 19(d) below.
3. Obligations of the Parties:
--------------------------
1
<PAGE>
(a) ARTISAN agrees that it will furnish the following Services in
connection with the marketing, promotion and sale of Videograms (as defined
below) of the Programs in the Domestic Territory, and if requested by EINSTEIN,
in the International Territory.
(i) Develop a strategic publicity plan to build brand awareness
and create new demand for EINSTEIN's Programs;
(ii) Review and redefine, if necessary, the promotional insert and
trailer materials in consultation with EINSTEIN;
(iii) Service EINSTEIN's existing distributor, specialty, catalog
and internet accounts in coordination with EINSTEIN's sales
representative;
(iv) Explore the development of new specialty accounts in
coordination with EINSTEIN's sales representative;
(v) Review marketing programs for EINSTEIN's specialty, catalog
and internet accounts in coordination with EINSTEIN;
(vi) Develop channel entry and account development plans for the
rental, gift, supermarket and mass channels and implement such
plans as may be approved by EINSTEIN in accordance with the
terms of Paragraph 11(a) below;
(vii) Develop a DVD distribution strategy in collaboration with
EINSTEIN;
(viii) At EINSTEIN's request, create a merchandise licensing program
in collaboration with EINSTEIN and if requested by EINSTEIN
coordinate any licensing efforts which EINSTEIN elects to
pursue ("Merchandise Licensing");
(ix) Assume the customer billing and accounts receivable management
functions; and
(x) Assume distribution, inventory management, customer service
and, subject to Paragraph 11(c), Videogram manufacturing
functions.
(b) EINSTEIN agrees that it will meet the following obligations:
(i) Provide the reasonable availability of Julie Clark for
publicity purposes subject to her personal and professional
obligations;
(ii) Provide the full-time availability of a sales representative
specifically to manage the specialty channel and also to
advise and coordinate joint sales efforts;
(iii) Provide the full-time availability of a marketing and
communications representative specifically to coordinate joint
marketing and public
2
<PAGE>
relations efforts;
(iv) Introduce ARTISAN's sales personnel to the buyers of all
existing accounts and key vendors; and
(v) Train ARTISAN staff (e.g., sales, marketing, customer service
and inventory management), as requested by ARTISAN.
4. Fee:
---
(a) In consideration for performance of the Services under this Agreement,
from one hundred percent (100%) of Gross Receipts, as defined in Schedule 1,
derived by ARTISAN from sales of the Programs, ARTISAN shall be entitled to
deduct and retain the following service fee:
(i) *
(ii) *
(iii) *
(b) After ARTISAN's Service Fee, ARTISAN shall deduct any approved
Distribution Expenses advanced by ARTISAN, as defined in Schedule 2.
(c) All Gross Receipts after deduction of ARTISAN's Service Fee and
approved Distribution Expenses shall be the property of and shall be paid to
EINSTEIN. ARTISAN has not made any express or implied representation, warranty,
guarantee or agreement as to the amount of proceeds which will be derived from
the distribution of the Programs, nor has ARTISAN made any express or implied
representation, warranty, guarantee or agreement that there will be any sums
payable to EINSTEIN hereunder, or that the Programs will be favorably received
by the public. In no event shall ARTISAN incur any liability based upon any
claim that ARTISAN has failed to realize receipts or revenue which should or
could have been realized.
(d) Certain Defined Terms:
---------------------
(i) "Contract Year" means a twelve-month period commencing on the
date of this Agreement and ending on the date 12 months later.
Each succeeding twelve-month period during the Term shall
likewise be a Contract Year.
(ii) "Domestic Territory" means the United States and Canada and
their respective territories and possessions.
(iii) "International Territory" means the world excluding the
Domestic Territory.
5. Programs:
--------
3
<PAGE>
(a) "Programs" refers individually and collectively to the audio-visual
programs listed in Schedule 3 annexed hereto and incorporated by its reference
herein, as well as any additional titles in the "Baby Einstein" series of audio-
visual programs hereafter acquired, produced and/or licensed by EINSTEIN.
(b) All Programs distributed hereunder shall be released on the Artisan
Family Home Entertainment label (or another label owned or controlled by
ARTISAN, subject to the prior written approval of EINSTEIN). During the Term
and within the Domestic Territory, EINSTEIN agrees to add the Artisan Family
Home Entertainment logo to its video masters and packaging after the existing
inventory has been exhausted.
(c) In the event ARTISAN assumes the inventory management function, all
materials delivered or made available to ARTISAN are and will be of a quality
suitable for the manufacture therefrom of commercially acceptable copies
comparable to the quality of the Videograms previously manufactured by EINSTEIN.
6. Program Changes: EINSTEIN will have the sole and absolute right to make
---------------
any program changes as EINSTEIN in its sole and absolute discretion may elect
and EINSTEIN will be solely responsible for producing any such changes. ARTISAN
shall not make or authorize any person to make any changes whatsoever to the
Programs.
7. New Program Development: The parties will discuss and agree to the content
-----------------------
and release schedule of any new Programs which EINSTEIN, in the exercise of
EINSTEIN's sole and absolute discretion, may elect to produce or acquire, to
insure their smooth integration into marketing and sales activities; provided,
however, in the event the parties do not agree, EINSTEIN's decisions in all such
matters shall be final.
8. Distribution:
------------
(a) Billing: By March 1, 2000, all sales of Videograms incorporating the
-------
Programs in the Domestic Territory, other than mail order purchases handled by
EINSTEIN as described in Paragraph 9 below, will be billed by ARTISAN.
(b) Existing Specialty Retail Accounts: EINSTEIN will continue to perform
----------------------------------
sales functions for all of EINSTEIN's specialty retail accounts existing as of
the date of this Agreement. ARTISAN will furnish all billing, collection,
manufacturing [subject to Paragraph 11(c)], shipping (from Fox or any successor
thereto) and distribution services in connection with such sales.
(c) New Channels and Accounts: ARTISAN will introduce the Programs to
-------------------------
ARTISAN's new channels of distribution and accounts in the Domestic Territory.
In connection therewith, ARTISAN will prepare a marketing and entry plan that
shall be subject to EINSTEIN's prior written approval, which shall not be
unreasonably withheld. Notwithstanding the foregoing, it is understood and
agreed that (i) ARTISAN shall have final determination concerning *. EINSTEIN's
approval shall not be deemed granted unless ARTISAN shall have received
EINSTEIN's written approval or ARTISAN shall have spoken directly with one of
4
<PAGE>
EINSTEIN's Designated Representatives either in person or by telephone and such
person shall have approved ARTISAN's proposal.
9. Mail Order Distribution: Notwithstanding anything to the contrary
-----------------------
contained herein, EINSTEIN shall retain and reserve the right to continue to
operate its mail order business, it being understood that such mail order rights
shall be on a non-exclusive basis with ARTISAN (i.e., ARTISAN may sell copies of
the Programs in the Domestic Territory to mail order companies). EINSTEIN
assumes all responsibility for all such EINSTEIN mail order sales, including
manufacturing, returns, collections and bad debt. EINSTEIN agrees to consult
with ARTISAN on a regular and periodic basis in order to prevent any material
conflicts between EINSTEIN's mail order activities and distributor or retail
accounts serviced by ARTISAN.
10. Exclusive Services: ARTISAN shall have the exclusive right and obligation
------------------
to furnish the Services in connection with EINSTEIN's exploitation of Home Video
Rights to the Programs in the Domestic Territory during the Term.
"Home Video Rights" shall mean the sole and exclusive (except with respect
to the home video rights reserved by EINSTEIN hereunder) right to manufacture,
advertise, promote and distribute on a sale or rental basis on its own or
through licensees, videocassettes, cartridges, DVD's, tape, video discs, laser
discs, 8mm recordings (in whatever form), or any other visual or optical
recording devices (including, but not limited to, CD-I, CD ROM, DVD) and all
other optically read devices now known or hereafter discovered, containing any
and all language versions of the Programs for use by consumers in their homes
(collectively, "Videograms") throughout the Domestic Territory during the Term
(defined below).
All rights in the Programs are reserved by EINSTEIN. Without limiting the
generality of the foregoing, EINSTEIN shall retain sole and exclusive right to
exploit the Programs in the following media (the "Einstein Reserved Rights");
provided, however, that EINSTEIN agrees that during the Term it will not
exercise the Einstein Reserved Rights during the Term in the Domestic Territory
unless EINSTEIN engages ARTISAN under this Agreement to furnish the Services (or
comparable Services) in connection with such exploitation in the Domestic
Territory.
(a) Non-theatrical Rights: The sole and exclusive right to exploit the
---------------------
Programs in non-theatrical markets, i.e., schools, libraries, hospitals, hotels,
airlines, military or armed services installations, ships at sea and aircraft
and other institutions that typically license recorded entertainment materials
from programming suppliers during the Term (collectively, "Non-Theatrical");
(b) Video-on-Demand Rights: "Video-On-Demand" shall mean the right to
----------------------
transmit or authorize the transmission of a selected Program from a central
video library via a television, cable or related electronic system where
reception of said Program at a viewing time selected by the viewer is available
only upon payment of a charge therefor, which charge is in addition to any
charge for reception of the television service and/or programming channel;
(c) Theatrical Rights: The sole and exclusive right to rent, lease,
-----------------
license, exhibit, distribute and otherwise deal in and with the Programs on any
and all sizes and gauges of film
5
<PAGE>
and in any and all languages or versions in the theatrical field for viewing by
the public, including, without limitation, to make rentals, leases and licenses
respecting all theaters or other places of public viewing, during the Term
(collectively, "Theatrical");
(d) Television Rights: The sole and exclusive right to exploit the
-----------------
Programs through all television media now known or hereafter developed,
including, but not limited to, "Cable" or "Pay Television" (which shall mean
exhibition over a service for which subscribers pay a premium for the
programming transmitted), "Pay-Per-View" (which shall mean exhibition over a
service for which subscribers pay a premium on a per-picture basis for each
picture which they choose to receive), and "Free Television" (which shall mean
exhibition over television broadcast stations, whether network stations or
independent stations, where no charge is made to the viewer and/or exhibition by
means of satellite or cable television for which subscribing members of the
public may pay for the transmission service provided by the satellite or cable
system, but do not otherwise pay a premium for the programming transmitted by
the satellite or cable system and/or any other delivery system now known or
hereafter devised) during the Term (collectively, "Television"); and
(e) International Distribution Rights: The parties agree to jointly
---------------------------------
consider international distribution or licensing of EINSTEIN Products. EINSTEIN
shall retain the right, in its sole discretion, to authorize ARTISAN to solicit
proposals for the sale of Videograms of the Programs in the International
Territory. ARTISAN acknowledges that EINSTEIN has existing licenses and
relationships in place in several international markets and that ARTISAN shall
not have the right or be obligated to furnish any Services with respect to any
such existing international licensees and Gross Receipts shall not include any
amounts received by EINSTEIN from such existing international licensees.
(f) Non-licensed Merchandising: EINSTEIN shall have the right to
--------------------------
manufacture and sell any and all merchandise (e.g., puzzles, games, books,
clothing, toys, music albums, etc.) based on or derived from the Programs
without any obligation to ARTISAN. However, if during the Term within the
Domestic Territory EINSTEIN elects to license to a third party the right to
manufacture and sell Baby Einstein merchandise on a royalty basis, EINSTEIN
shall engage ARTISAN and ARTISAN shall furnish all services required by EINSTEIN
to enter into and administer any such merchandise licensing agreement and
ARTISAN shall be entitled to receive the fee described in 4(a)(iii) above with
respect to all net sums actually received by EINSTEIN pursuant to such license
agreement during the Term.
(g) Derivative Audio-Visual Television Productions: If during the Term
----------------------------------------------
EINSTEIN elects to produce any television productions based upon the Baby
Einstein Programs, ARTISAN will be entitled to furnish the Services described in
this Agreement with respect to the sale of any Videograms containing such
televisions productions within the Domestic Territory during the Term.
11. Exploitation Decisions:
----------------------
(a) Approvals: EINSTEIN shall have the right of prior written approval
---------
over all marketing, including, without limitation, marketing plans and
associated budgets for the Programs, and any advertising or promotional
materials produced by or for ARTISAN, such
6
<PAGE>
approval shall not be unreasonably withheld. EINSTEIN's approval shall be deemed
to include the approval of any required third parties. All of such materials, as
delivered by EINSTEIN to ARTISAN hereunder for any of the Programs shall be
deemed to be preapproved by EINSTEIN; provided, however, if ARTISAN desires to
make any changes whatsoever to such items, such revised materials will be
submitted to EINSTEIN for EINSTEIN's prior written approval. Once a particular
item is approved by EINSTEIN, subsequent approval shall not be required for any
other use of such item hereunder. EINSTEIN's approval shall not be deemed
granted unless ARTISAN shall have received EINSTEIN's written approval or
ARTISAN shall have spoken directly with one of EINSTEIN's Designated
Representatives either in person or by telephone and such person shall have
approved ARTISAN's proposal. For purposes of the approvals in this subparagraph,
EINSTEIN hereby designates Julie Aigner-Clark or William Clark as EINSTEIN's
authorized representative for such approvals (the "Einstein Designated
Representatives"). All current uses are deemed approved.
(b) Logos: During the Term, ARTISAN shall have the right to use all of
-----
EINSTEIN'S logos in connection with the Services rendered hereunder, including,
without limitation, on all advertising, marketing and promotional materials
relating to the Programs, subject to the approval requirement in Paragraph 11(a)
above and subject further to all of EINSTEIN's reserved rights hereunder.
(c) Manufacturing: EINSTEIN will be responsible for the manufacturing and
-------------
distribution of Products required for all sales made by EINSTEIN pursuant to its
reserved rights. ARTISAN will be responsible for the manufacturing through
ARTISAN's suppliers and distribution through Fox (or any successor thereto) for
all Videograms that are either sold by ARTISAN or sold by EINSTEIN and fulfilled
by ARTISAN (e.g., for any sales of Videograms that are either billed, collected,
manufactured, shipped or distributed by ARTISAN).
(d) Marketing and Advertising: EINSTEIN shall have the right of prior
-------------------------
written approval of the marketing and advertising budget for the Programs which
such approval shall not be unreasonably withheld ("Approved Budget"). ARTISAN
shall have the reasonable right to reallocate the subcategories contained in the
Approved Budget for the Programs and shall have the right to spend up to * above
the Approved Budget without EINSTEIN's prior approval. EINSTEIN agrees to
engage and pay, at EINSTEIN's expense, third-party marketing and advertising
costs, such as public relations agencies, design firms, etc., consistent with
the Approved Budget, provided that EINSTEIN will use and pay for ARTISAN in-
house staff when in EINSTEIN's good faith opinion such services are of
comparable quality and cost to those of external sources. In the event the
parties agree in writing that ARTISAN rather than EINSTEIN engage any third-
party, consistent with the Approved Budget, the costs associated with such
engagement can be deducted from Gross Receipts as approved Distribution
Expenses.
12. Third Party Payments: All participations in any of the Products, whether
--------------------
cast, director, writer, producer or otherwise, payable to any third party,
including, without limitation, any guild or other collective bargaining
agreement shall be the sole responsibility of EINSTEIN and EINSTEIN shall pay
the same.
13. Accounting and Audit Rights: Statements shall be issued for each calendar
---------------------------
quarter from and including the quarter in which Videograms of any of the
Programs are first sold. ARTISAN
7
<PAGE>
agrees to deliver all such statements to EINSTEIN within sixty (60) days after
the end of the period for which it is rendered. *. Each advance paid shall be
recouped from EINSTEIN's share of Gross Receipts hereunder commencing with the
quarterly accounting statement to be issued following payment of such advance
(e.g., applied to and in reduction of the actual amount due to EINSTEIN pursuant
to such accounting statement). The Programs shall be accounted for on a fully
cross-collateralized basis. Each statement must be accompanied by payment of all
monies then due EINSTEIN. If ARTISAN shall extend credit to any account with
respect to any Program, and if such credit has been included in Gross Receipts,
and if, in the opinion of ARTISAN, any such indebtedness shall be uncollectible,
the uncollected amount may be deducted in any subsequent earning statement.
Should ARTISAN make any overpayment to EINSTEIN hereunder for any reason,
ARTISAN shall have the right to deduct and retain for its own account an amount
equal to any such overpayment from any sums that may thereafter become due or
payable by ARTISAN to EINSTEIN or for EINSTEIN's account, or may demand
repayment from EINSTEIN, in which event EINSTEIN shall repay the same when such
demand is made. Continuing until two (2) years from the date of each statement
received by EINSTEIN, EINSTEIN, on twenty (20) business days prior notice, may
examine, on its own or through its auditors, ARTISAN's financial records
regarding the Programs.
14. Representations and Warranties: EINSTEIN represents and warrants that
------------------------------
EINSTEIN has full authority to execute this Agreement, to carry out the terms
hereof; that no encumbrances on the Programs affecting ARTISAN's Services
hereunder do now or will at any time hereafter exist; that upon delivery to
ARTISAN of each Program, such Programs shall be entitled to full copyright
protection throughout the Domestic Territory for the Term; that nothing in any
Program infringes any right (trademark, copyright, etc.) of any third party; and
that all materials delivered hereunder will be of a first-class technical
quality suitable for the manufacture of Videograms necessary for ARTISAN to
furnish the Services provided hereunder. Should any claim be made which, if
proven true, would constitute a breach by EINSTEIN of any of the above
warranties and representations, then ARTISAN, in addition to any other rights or
remedies it may have in such event, will have the right to withhold and off-set
such amounts as are necessary, in ARTISAN's reasonable judgment, to defend or
satisfy such claim against any sums due EINSTEIN hereunder.
15. Indemnification: Each party ("Indemnifying Party") hereby indemnifies,
---------------
defends and holds harmless the other party and its successors, licensees,
assigns, and employees, officers and directors (collectively for the purposes of
this Paragraph, "an Indemnified Party") from and against any and all liability,
loss, damage, cost and expense, including, without limitation, reasonable
attorney's fees (but excluding lost profits or consequential damages) arising
out of any breach or alleged breach, or claim by a third party with respect to
any warranty or representation made by the Indemnifying Party herein. The
Indemnified Party shall promptly notify the Indemnifying Party in writing of any
claim to which the foregoing indemnification applies and the Indemnifying Party
shall undertake, at its own cost and expense, the defense thereof. The
Indemnified Party may, at its option and expense, engage its own counsel. If
the Indemnifying Party fails to promptly appoint competent and experienced
counsel, the Indemnified Party may engage its own counsel and the reasonable
charges in connection therewith shall promptly be paid by the Indemnifying
Party. If the Indemnified Party settles or compromises any such suit, claim or
proceeding, the amount thereof shall be charged to the
8
<PAGE>
Indemnifying Party, provided that the Indemnifying Party's reasonable prior
approval has been secured.
16. Confidentiality: The parties shall mutually approve a press release to be
---------------
issued announcing this Agreement following the execution hereof. Neither
EINSTEIN nor ARTISAN shall disclose to any third party (other than its
respective employees, directors; and officers, in their capacity as such on a
need-to-know basis), any information with respect to the financial terms and
provisions of this Agreement except: (i) to the extent necessary to comply with
the law or the valid order of a court of competent jurisdiction, in which
event(s) the party making such disclosure shall so notify the other as promptly
as practicable, prior to making such disclosure and shall seek confidential
treatment of such information, (ii) to the extent necessary to comply with SEC
or similar disclosure requirements, (iii) to its parent and affiliated
companies, their banks (and their respective advisors and attorneys),
prospective financiers and investors (and such persons' investment bankers,
agents, attorneys, accountants and necessary experts), auditors, investment
bankers, attorneys and similar professionals, provided that such companies,
banks, advisors, financiers, investors, investment bankers, experts, auditors,
accountants, attorneys and similar professionals agree to be bound by the
provisions of this subparagraph, and (iv) in order to enforce its rights
pursuant to this Agreement.
17. Insurance: As a condition precedent to ARTISAN's release of each Product
---------
hereunder, EINSTEIN shall procure and maintain in full force and effect during
the Term standard producer's liability (errors and omissions) insurance with
limits of $1,000,000 per occurrence and $3,000,000 in the aggregate issued by a
nationally recognized insurance carrier covering such Product and deliver to
ARTISAN certificates of insurance evidencing such coverage in a form and
substance satisfactory to ARTISAN. Upon request, ARTISAN will assist EINSTEIN
in securing such insurance.
18. Notice: Any notice or communications provided for hereunder must be in
------
writing and delivered either personally, by telecopy, telex or by registered
mail, postage prepaid to the following addresses (or to such other address as
specified by like notice):
(a) for EINSTEIN:
The Baby Einstein Company LLC
10840 South Bobcat Terrace
Littleton, CO 80124
Attn: Julie Aigner-Clark
(b) for ARTISAN:
Artisan Home Entertainment Inc.
2700 E. Colorado Avenue, 2nd Floor
Santa Monica, CA 90404
Attn: Ken Schapiro and Amir Malin
19. Miscellaneous:
-------------
(a) Nothing contained herein shall be deemed to create a relationship of
partnership, joint venture, agency, fiduciary or employment between the parties.
This Agreement sets forth
9
<PAGE>
the entire understanding of the parties regarding the subject matter hereof and
supersedes all prior oral or written agreements between them. No waiver of any
default or breach of this Agreement by either party shall be deemed a continuing
waiver or a waiver of any other breach or default, no matter how similar. This
Agreement may not be changed, modified, amended or supplemented, except in a
writing signed by both parties. Neither party shall assign their rights or
delegate their duties or obligations under this Agreement without first securing
the other party's prior written consent. Nothing herein contained shall be
binding upon the parties until a copy of this Agreement has been executed by an
officer of each party and has been delivered to the other party. Paragraph
headings are inserted herein for convenience only and do not constitute a part
of this Agreement.
(b) This Agreement and all matters or issues related hereto or arising
hereunder shall be governed by the laws of the State of California, without
regard to the application of principles of conflicts of laws. Except for
matters subject to arbitration hereunder, the parties hereto agree to venue and
personal jurisdiction in the United States District Court for the Central
District of California, unless for any reason the Federal court should lack
jurisdiction over the action, in which case the parties agree that venue and
jurisdiction shall be in any state court sitting in Los Angeles, California, and
the parties hereby submit to the jurisdiction of such courts.
In the event of the commencement of any proceeding of any kind or of any
type arising from or based upon this Agreement brought by either party against
the other, the prevailing party shall be entitled to recover from the other its
reasonable attorneys' fees and costs in addition to any relief to which it may
be entitled.
(c) The parties agree that any controversy or claim arising out of or
relating to this Agreement or any alleged breach or default thereof shall be
settled by arbitration in Los Angeles, California, pursuant to the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"), except that:
(1) the parties shall have the right to take discovery within the time limits
set forth below; (2) the parties shall have the right to appeal the arbitrator's
decision to a panel of three arbitrators mutually selected by the parties; (3)
the arbitrator(s) shall follow California substantive law in deciding the
matter; and (4) the arbitrator(s) shall follow the federal rules of evidence.
The arbitrator(s) shall be selected by mutual agreement of the parties but shall
be a person (and, in the case of appeals panel, persons) with substantial
experience in the entertainment industry. The foregoing shall not prevent
either party, however, from seeking injunctive relief and other forms of non-
monetary relief in the state and federal courts of Los Angeles County. Judgment
upon any award rendered by the arbitrator (or, if there is an appeal, by the
Appeals Panel) shall be final and may be entered in any court having
jurisdiction. Each party agrees to submit to such arbitration. Notice of any
demand for arbitration shall be filed in writing with the other parties and with
the AAA. In no event shall the demand for arbitration be made after the date
when institution of legal or equitable proceedings based on such claim, dispute
or other matter in question would be barred by the applicable statute of
limitations. The agreement to arbitrate shall be specifically enforceable under
the prevailing arbitration law. The party desiring arbitration shall serve
notice upon the other party, together with designation of the first party's
arbitrator. If the person designated by the first party as arbitrator is
acceptable to the other party, the other party shall so notify the first party
within ten (10) days; if not acceptable, the other party shall designate its own
arbitrator in a notice to the first party within the same ten (10) day period.
The two arbitrators so named, if such is the case, shall within ten (10) days
10
<PAGE>
thereafter appoint a third arbitrator, and such third arbitrator shall proceed
within five (5) days to hear and determine the matter. Any controversy or claim
submitted to arbitration as provided herein shall be settled by the arbitrator
within ten (10) days after such arbitrator begins its determination of the
matter.
(d) Neither party shall have the right to terminate this Agreement without
the written consent of the other party. *.
(e) ARTISAN and its successors and assigns are hereby empowered to bring,
prosecute, defend and appear in suits, actions and proceedings of any nature
under or concerning any third party furnishing any Services in violation of the
engagement of ARTISAN to furnish exclusive Services under this Agreement.
EINSTEIN may participate in any suit, action or proceeding using counsel of its
choice at its own expense. If EINSTEIN elects not to participate, any such sums
in connection therewith shall be deemed Gross Receipts.
(f) EINSTEIN and ARTISAN shall execute, acknowledge and deliver any and all
further documents consistent with this Agreement that are necessary, expedient
or proper to implement, administer and effectuate the purpose and intent of this
Agreement.
(g) Notwithstanding anything to the contrary contained in Schedule 1
(Definition of Gross Receipts) or Schedule 2 (Definition of Distribution
Expenses) attached hereto, as of the date of this Agreement, ARTISAN is being
engaged to furnish the Services solely in connection with the Home Video market
in the Domestic Territory. Accordingly, any provisions in Schedule 1 and 2
relating to any media, market or geographic area other than the Domestic Home
Video market shall not be applicable and shall be of no force or effect until
such time, if ever, as EINSTEIN shall engage ARTISAN to furnish Services in
connection with such other media, market or geographic area.
11
<PAGE>
Please confirm your agreement with the foregoing by signing below, and
return both copies to the undersigned, after which we will return a fully
executed copy to you.
ACCEPTED AND AGREED:
THE BABY EINSTEIN COMPANY LLC
By: /s/ Julie Aigner-Clark
-------------------------
Its: Manager
------------------------
ARTISAN HOME ENTERTAINMENT INC.
By: /s/ Ken Schapiro
------------------------
Its: EVP
-----------------------
S-1
<PAGE>
SCHEDULE 1
Definition of Gross Receipts
1. Definition of Distributor: "Distributor" means _________________
-------------------------
and its subdivisions and affiliates to the extent such subdivisions and
affiliates are engaged in the business of distributing theatrical motion
pictures, but shall not include any other persons, firms or corporations
licensed by Distributor to distribute motion pictures in any part of the world.
Nor shall such term include: exhibitors or others who may actually exhibit a
Picture to the public; radio or television broadcasters; cable services or
operators; manufacturers, wholesalers or retailers of video discs, cassettes or
similar devices; book or music publishers; phonograph record producers or
distributors; manufacturers, distributors, wholesalers, retailers or operators
of any types of merchandise, goods, services or theme park or other attractions,
whether or not any of the foregoing are subdivisions or affiliates of
Distributor. As used in this paragraph, "affiliate" as applied to Distributor
shall mean any entity controlling, controlled by or under common control with
Distributor, and the word "control" (including "controlled by" and
"controlling") shall be deemed to mean possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such entity through the ownership of more than fifty percent (50%) of such
entity's voting securities.
2. Definition of Gross Receipts. "Gross Receipts" with respect to a
----------------------------
Picture means all monies and other things of value actually received or used by,
or credited to the account of Distributor arising from or attributable to the
Picture including, without limitation, the following:
(a) All Film Rentals (as defined below) (whether money or other items
of value) actually received by or used or credited to the account of Distributor
from parties exhibiting such Picture in theaters and on television where
Distributor distributes directly to such parties (hereinafter referred to as
"exhibitors").
(b) *
1
<PAGE>
(c) All monies and other things of value actually received or used by,
or credited to the account of Distributor from the following: (i) trailers; (ii)
licenses of theatrical distribution rights for a flat sum; (iii) exhibition or
distribution or other exploitation rights in and to such Picture other than
those referred to in (a), (b), and (c) (ii) of this Section 2, specifically
including licenses to cable operators (specifically including all forms of pay,
subscription and other types of non-free television), and including all net
revenues received by Distributor from the sale of commercial air time in
connection with the exhibition of such Picture on television, after deducting
any advertising agency commissions charges; (iv) the lease of positive prints
(as distinguished from the licensing thereof for a Film Rental) and the sale or
licensing of advertising accessories, souvenir programs and booklets; and (v)
recoveries by Distributor for infringement, unfair competition, violations of
Section 43(a) of the Lanham Act, trademark, patent infringement, defamation and
piracy actions with respect to such Picture.
(d) All monies actually received by Distributor on account of direct
subsidies, aide or prizes relating specifically to such Picture.
(e) All sums received by Distributor from copyright tribunal, cable
retransmission, rental rights and other forms of government administered or
mandated reuse payments relating specifically to the Picture.
(f) All sums derived by Distributor from distribution of the Picture
on a four-wall basis (as such term is commonly understood in the motion picture
industry).
(g) The sums to be included in Gross Receipts under Exhibits 1, 2 and
3 to this Schedule 1.
Notwithstanding anything to the contrary contained herein, no sums
received by Distributor from any of its affiliates with respect to a Picture
shall be included in Gross Receipts hereunder if such affiliate's revenues with
respect to such Picture have already been included in Gross Receipts hereunder.
Gross Receipts shall not include all sums paid or accrued on account
of withholding, sales, use, receipts, income, excise and other taxes (however
denominated other than remittance taxes) to any governmental authority assessed
upon the negatives, duplicate negatives, prints or sound records of Pictures, or
upon the use or distribution of the Picture, or upon the revenues derived
therefrom (other than foreign remittance and withholding taxes), or any part
thereof, any and all sums paid or accrued on account of duties, customs and
imposts, costs of acquiring permits, "Kontingents," or and any similar authority
to secure the entry, licensing, exhibition, performance, use or televising of
the Picture in any country or part thereof, regardless of whether such payments
or accruals are assessed against the Picture or the proceeds thereof or against
a group of motion pictures in which the Picture may be included or the proceeds
thereof. In no event shall the deductible amount of any such tax (however
denominated) imposed upon Distributor, be decreased (nor the Gross Receipts
increased)
2
<PAGE>
because of the manner in which such taxes are elected to be treated by
Distributor in filing net income, corporate franchise, excess profits or similar
tax returns. Subject to the foregoing: Distributor's own United States federal
and state income taxes and franchise taxes based on Distributor's net income
shall not be deducted hereunder.
3. Film Rentals: As used herein, "Film Rentals" shall be determined
------------
after all rebates, refunds, credits, discounts, allowances and adjustments
granted to exhibitors, broadcasters and other licensees, whether occasioned by
condemnation by boards of censorship, settlement of disputes or otherwise.
Advance payments and security deposits shall be included in Film Rentals upon
their receipt by Distributor, provided that if they are returnable, then in the
event they are so returned Distributor shall correspondingly reduce gross
receipts for the accounting period involved. No cost (regardless of how
incurred, paid or allowed) of Distributor's share of cooperative and/or theater
advertising shall be deducted in determining Film Rentals. Where allowances are
granted and paid on account of Distributor's share of cooperative theater or
joint advertising, such payments shall not be deducted in determining Film
Rental, and where Distributor's share of cooperative theater or joint
advertising is deducted by the exhibitor, Distributor's share of cooperative
theater or joint advertising shall be added back into the Film Rentals received
from such exhibitor, and all such costs (i.e., allowances paid or granted on
----
account of cooperative theater or joint advertising) payments, discounts and
allowances shall be treated as Distribution Expenses.
4. Allocations. Wherever Distributor (i) receives from any license
-----------
either a flat sum or a percentage of the receipts, or both, for any right to a
group of motion pictures (including any Picture) under any agreement (whether or
not the same shall provide for the exhibition, lease or delivery of positive
prints of any of said motion pictures) which does not specify what portion of
the license payments apply to the respective motion pictures in the group (or to
such prints or other material, if any, as may be supplied), or (ii) receives
foreign currency under Section 5 hereof relating to a group of motion pictures
(including any Picture) without specification of what portion of such payment
applies to the respective motion pictures in the group then in any and all such
situations Distributor shall include in, or deduct from, Gross Receipts, as the
case may be, such sums, determined in good faith, as may be reasonable and
consistent with Distributor's usual practice in such matters.
5. Foreign Receipts: Sums received by Distributor which relate to a
----------------
Picture shall not be included in Gross Receipts hereunder unless and until such
sums: (i) have been received by Distributor in U.S. dollars in the United
States; or (ii) are freely remittable to the United States; or (iii) are used by
Distributor for any purpose in the territory involved. In the event, the U.S.
dollar equivalent of the currency utilized in a territory shall be included in
Gross Receipts hereunder for the accounting period during which such Gross
Receipts became freely transmittable or were so utilized (as applicable), such
U.S. dollar equivalent to be computed at the then-prevailing official or
unofficial rate of exchange, as Distributor may elect to use consistent with the
rates used for Distributor's own motion pictures at the applicable time.
Distributor will, promptly after receipt of a written request (but not more
frequently than semi-annually), advise Participant in writing as to foreign
revenues not included in Gross Receipts, as aforesaid, and Distributor shall,
upon written request of Participant (subject to any and all limitations,
restrictions, laws, rules and regulations affecting such transactions), deposit
into an account with a bank designated by Participant, such part thereof as
would have been
<PAGE>
payable to Participant hereunder. Such deposits or payments to or for
Participant shall constitute due remittance to Participant, and Distributor
shall have no further interest therein or responsibility therefor. At
Participant's written request, Distributor will use its best efforts to convert
such deposits or payments into U.S. dollars to the same extent and in the same
proportion that Distributor is able to convert is own blocked currencies in the
country or countries involved at the relevant times. Distributor makes no
representations or warranties that any part of any such foreign currencies may
be converted into U.S. dollars or transferred to the account of Participant in
any foreign country.
4
<PAGE>
Exhibit 1
to
Schedule 1
MUSIC PUBLISHING INCOME
There shall also be included in Gross Receipts with respect to a
Picture, in each case to the extent received and retainable by Distributor for
its own account.
A sum equal to one-hundred percent (100%) of Distributor's share of
the "publisher's share" of mechanical reproduction, synchronization license and
performing fees received in U.S. currency by Distributor's subsidiary or
affiliated publisher with respect to music and lyrics written specifically for
and synchronized in the Picture as released. The "publisher's share" of
mechanical reproduction and synchronization license fees shall be the full
amount paid by the licensee, less the share of such fees payable to any
composer, author, arranger, adapter, translator or other party having an
interest in the copyright thereof, and less the costs and charges of the
publisher or any agent, trustee or administrator acting for the publisher for
the collection of such fees, not to exceed five percent (5%) thereof.
The "publisher's share" of performing fees shall be the net amount
actually received by the publisher from any performing rights society in respect
of the music and lyrics involved; or, if Distributor or the publisher shall
administer the collection of all or any part of performance fees, the full
amount of all performance fees collected by Distributor or the publisher, less
the shares of such fees payable to any composer, author, arranger, adapter,
translator or other party having an interest in the copyright hereof and all
reasonable costs and expenses in administering the collection of such fees. If
Distributor or its subsidiary or affiliated publisher is not entitled to one-
hundred percent (100%) of the publisher's share of mechanical reproduction,
synchronization license and performing fees by reason of a "split" publishing
agreement with the composer or lyricist of the music and lyrics involved, or any
corporation furnishing the services of such composer or lyricist, then only the
pro-rata share of Distributor or its subsidiary or affiliated publisher shall be
included for the purpose of the foregoing computations.
5
<PAGE>
Exhibit 2
to
Schedule 1
SOUNDTRACK RECORD INCOME
There shall also be included in Gross Receipts with respect to a
Picture royalties on soundtrack records, as herein defined, in each case to the
extent received and retainable by Distributor for its own account.
A sum equal to one-hundred percent (100%) of the net royalty actually
received and retainable by Distributor for its own account from the record
company with respect to the sale of soundtrack records relating to the Picture,
as such royalty may be reduced, calculated, computed and paid in the same manner
as the soundtrack record royalty paid to Distributor under the applicable
agreement with the record company is reduced, calculated, accounted for and paid
(including without limitation deductions representing the pro rata share of re-
use fees and costs of recording and manufacturing masters advanced by
Distributor or the record company); provided that if any soundtrack record
contains selections from other sources, the applicable gross royalty received
and retainable by Distributor with respect to such records shall be prorated on
the basis of the total number of minutes of selections from the soundtrack of
the Picture compared to the total number of minutes on such records.
As used herein, the term "soundtrack records" means and refers to
phonograph records, tapes, or other sound recordings which contain either (i)
portions of the soundtrack transferred directly to phonograph record masters
from sound records which form a part of the soundtrack of the Picture; or (ii)
sound recordings recorded separately but utilizing substantially the same
musical score, parts and instrumentation, and essentially the same artists,
music and/or dialogue and/or sound effects as is contained in the soundtrack of
the Picture; or (iii) a combination of (i) and (ii). Soundtrack records do not,
however, include any recordings produced solely for the purpose of advertising
and exploiting the Picture and copies of which are not distributed to the
public.
6
<PAGE>
Exhibit 3
to
Schedule 1
MERCHANDISING INCOME
There shall be included in Gross Receipts with respect to a Picture,
in each case to the extent received and retainable by Distributor for its own
account:
(i) A sum equal to one-hundred percent (100%) of all license fees (in
excess of all royalties and participations) received by Distributor directly as
a result of the exercise by Distributor itself of merchandising license rights.
If, however, Distributor shall sublicense or sub-contract any of such
merchandising license rights to a non-affiliated entity, Distributor shall
include in Gross Receipts hereunder a sum equal to one-hundred percent (100%) of
the net sums (in excess of all royalties and sublicensee's fees) received from
such sublicensee.
(ii) All net sums received by Distributor from non-affiliated or non-
subsidiary publishers from the publication of such underlying literary material
and of novelizations of the screenplay of the Picture, and (ii) the net receipts
of Distributor's subsidiary or affiliated publishers from the publication of
such material and novelizations, less, in either case, royalties paid out of (i)
or (ii) to the writers of such material and novelizations.
7
<PAGE>
RIDER TO SCHEDULE 1
DEFINITION OF GROSS RECEIPTS
The following are modifications to Schedule 1 to the Agreement dated as of
January 20, 2000 between Artisan Home Entertainment Inc. ("Artisan" or
"Distributor") and The Baby Einstein Company LLC ("EINSTEIN").
Schedule 1 is subject to the terms and conditions in the Agreement to which the
Schedule is attached. If and to the extent there are any conflicts between the
terms of the Agreement and the terms in Schedule 1, the terms in the Agreement
shall govern.
*
<PAGE>
SCHEDULE 2
Definition of Distribution Expenses
1. Distribution Expenses. With respect to each Picture,
---------------------
Distributor's "Distribution Expenses" in connection with such Picture shall
include all direct costs, charges and expenses incurred and paid in connection
with the distribution, advertising, exploitation and turning to account of the
Picture of whatever kind or nature, or which are customarily treated as
distribution expenses under customary accounting procedures in the motion
picture industry incurred in connection with the exploitation of the Picture.
Without limiting the generality of the foregoing, the following particular items
shall be included in Distribution Expenses hereunder with respect to the
exploitation of each Picture.
(a) The costs and expense of all duped and dubbed negatives (prepared
for exploitation in the United States), sound tracks, prints, release
prints, tapes, cassettes, duplicating material and facilities and all other
material manufactured for use in connection with the Picture, including the
cost of inspecting, repairing, checking and renovating film, reels,
containers, cassettes, packing, storing and shipping and all other expenses
connected therewith and inspecting and checking exhibitors' projection and
sound equipment and facilities. Distributor may manufacture or cause to be
manufactured as many or as few duped negatives, positive prints and other
material for use in connection with the Picture as Distributor, in its sole
discretion, may consider advisable or desirable.
(b) All direct costs and charges for advertisements, press books,
artwork, advertising accessories and trailers, advertising, publicizing and
exploiting the Picture by such means and to such extent as Distributor may,
in its uncontrolled discretion, deem desirable, including, without
limitation, pre-release advertising and publicity, so-called cooperative
and/or theater advertising, and/or other advertising engaged in with or for
exhibitors, to the extent Distributor pays, shares in, or is charged with
all or a portion of such costs and all other exploitation costs relating to
such theater exhibition.
(c) All direct costs of preparing and delivering the Picture for
distribution, including, without limitation, any and all costs and expenses
in connection with changing the title of the Picture, recutting, re-editing
or shortening or lengthening the Picture, or in order to conform to the
requirements of censorship authorities.
(d) All shipping and delivery charges, including the cost of
containers, packing, handling, "pick, pack and ship", transportation,
storage and insurance and all duties and customs imposed in connection with
such shipments and including, without limitation, fees payable to any
parties rendering services on behalf of Distributor.
2
<PAGE>
(e) Expenses of transmitting to the United States any funds accruing
to Distributor from the Picture in foreign countries, such as cable
expenses, and any discounts from such funds taken to convert such funds
directly or indirectly into U.S. dollars including remittance taxes and
other withholding taxes incurred for a Picture.
(f) *
(h) All discounts, rebates, credits and other similar benefits
(whether based on volume or otherwise) accorded to Distributor in whole or
in part in connection with Distributor's distribution of the Pictures shall
be allocated to and credited against the Distribution Expenses on a fair
and reasonable basis as between the Pictures and other motion pictures.
(i) If Distributor makes any expenditure or incurs any liability in
respect of a group of motion pictures including any Picture or any rights
therein that does not specify which applicable expenditure or liability
applies to the respective motion pictures in such group (or to such prints
or other material, if any, as may be supplied), then in any and all
situations Distributor shall include in Distribution Expenses, or deduct
from Gross Receipts, as the case may be, such sums, determined in good
faith, as may be allocable to such Pictures and reasonable and consistent
with Distributor's usual practice in such matters.
3
<PAGE>
(j) In the event any person shall make a claim relating to the
Picture against Distributor or any of its licensees, which claim in
Distributor's judgment is of sufficient merit to constitute a reasonable
probability of ultimate loss, cost, damage or expense, Distributor may
deduct under such amount as Distributor may deem necessary to cover any
potential loss, cost, damage or expense which may be suffered as a result
thereof. After the settlement of any such claim, or after the final
judicial determination thereof, the amount previously deducted hereunder
shall be adjusted accordingly with the next accounting statement rendered
hereunder. Nothing herein contained shall be construed as a waiver of any
of Participant's warranties contained in this agreement, or a waiver of any
right or remedy at law or otherwise which may exist in favor of
Distributor, including, but not limited to, the right to require
Participant to reimburse Distributor on demand for any liability, cost,
damage or expense arising out of, or resulting from, any breach by
Participant of any warranty, undertaking or obligation by Participant, or
any right on the part of Distributor to recoup or recover any such cost or
expense out of Participant's share of any monies payable hereunder, rather
than treating such costs or expenses as Distribution Expenses.
4
<PAGE>
RIDER TO SCHEDULE 2
DEFINITION OF GROSS RECEIPTS
The following are modifications to Schedule 2 to the Agreement dated as of
January 20, 2000 between Artisan Home Entertainment Inc. ("Artisan" or
"Distributor") and The Baby Einstein Company LLC ("Einstein").
Schedule 2 is subject to the terms and conditions in the Agreement to which the
Schedule is attached. If and to the extent there are any conflicts between the
terms of the Agreement and the terms in Schedule 2, the terms in the Agreement
shall govern.
*
<PAGE>
SCHEDULE 3
LISTING OF PROGRAMS
1. "Baby Bach"
2. "Baby Einstein"
3. "Baby Mozart"
4. "Baby Shakespeare"
<PAGE>
Exhibit B
Confidentiality and Non-Compete Agreement
-----------------------------------------
This Confidentiality and Non-Compete Agreement is given by the undersigned
(the "Member"), in connection with the acquisition by Artisan Entertainment Inc.
------
(the "Buyer") of an equity interest in The Baby Einstein Company, LLC, a
-----
Colorado limited liability company (the "Company"), which produces and
-------
distributes video product geared towards infants and young children. This
Confidentiality and Non-Compete Agreement, which is dated as of February 4,
2000, shall be effective upon the Purchase Option Closing Date. In
consideration of the acquisition, Member agrees that for * years after the
Purchase Option Closing Date (the "Restricted Period"), the Member shall be
-----------------
bound by the terms set forth herein. (Capitalized terms used herein, and not
defined herein, shall be defined in the Purchase Agreement between The Baby
Einstein Company, LLC, Julie A. Clark, William E. Clark and Buyer (the "Purchase
--------
Agreement.")
- ---------
1. Confidential Information. Member acknowledges that the
------------------------
information, observations and data relating to the business of the Company which
Member has obtained as an employee, officer, and Member of the Company or shall
obtain during the course of his association with the Company and his performance
under this Agreement are the property of the Company. Member agrees that he
shall not use for his own or any other's purposes or disclose to any third party
any of such information, observations or data without the prior written consent
of the Company and the Buyer unless and to the extent that the aforementioned
matters (i) were in Member's possession prior to the date of disclosure, (ii)
are in the public domain or publicly known or available from public sources
prior to the date of disclosure, (iii) become part of the public domain or
publicly known or available other than as a result of a disclosure by Buyer or
Buyer's Representatives, (iv) become available to Member on a nonconfidential
basis from a source (other than Buyer or known to Member to be Buyer's
representatives) which is not prohibited from disclosing such information to
Member by a legal, contractual or fiduciary obligation to Buyer, or (v) are or
become independently developed or acquired by Member. Member shall deliver to
the Company at the termination of his association with the Company or at any
other time as Buyer may so reasonably request, all memoranda, notes, plans,
records, reports, computer tapes, printouts and software and other documentation
(and copies thereof) relating to the business of the Company and its
subsidiaries which Members may then possess or have under his control.
2. Work Product. Member acknowledges that all Proprietary Rights
------------
and Confidential Information which relate to the actual or anticipated business,
research and development or existing or anticipated future products or services
of the Company and which are conceived, developed or made by him during the
Restricted Period ("Work Product") belong to the Company. Member shall promptly
------------
disclose such Work Product to the Company and shall perform all actions
reasonably requested by the Company to establish and confirm such ownership
(including, without limitation, assignments, powers of attorney and other
instruments).
1
<PAGE>
3. Non-Competition.
---------------
(a) During the Restricted Period, Member shall not, directly or
indirectly, either for himself or for any other person, partnership, corporation
or company, permit his name to be used by or engage or participate in any
business or enterprise identical to or similar to any such business which is
engaged in by the Company as of the date of this Agreement (collectively
"Competitive Business"). For purposes of this Agreement, the term "participate"
--------------------
includes any direct or indirect interest in any enterprise, whether as an
officer, managing member, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor, franchisee,
creditor, owner or otherwise; provided that the term "participate" shall not
include ownership of less than 2% of the stock of a publicly-held corporation
whose stock is traded on a national securities exchange or in the over-the-
counter market. Member agrees that this covenant is reasonable with respect to
its duration, geographical area and scope.
(b) During the Restricted Period, Member shall not (i) induce or
attempt to induce any employee of the Company or any of its subsidiaries to
leave their employ or in any way interfere with the relationship between the
Company and any of its employees, (ii) hire any person who was an employee of
the Company at any time during the Restricted Period, or (iii) induce or attempt
to induce any supplier, licensee, licensor, franchisee or other business
relation of the Company to cease doing business with them or in any way
interfere with the relationship between the Company and any such person or
business relation.
(c) The Parties hereto agree that the Company or Buyer would suffer
irreparable harm from a breach by Member of any of the covenants or agreements
contained herein. In the event of an alleged or threatened breach by the Member
of any of the provisions of this Agreement, the Company or its successors or
assigns or Buyer may, in addition to all other rights and remedies existing in
its favor, apply to any court of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (including the extension of the Restricted Period by a
period equal to the length of the violation of this Agreement). In the event of
an alleged breach or violation by Consultant of any of the provisions of this
Agreement, the Restricted Period described above shall be tolled until such
alleged breach or violation has been duly cured. Member agrees that these
restrictions are reasonable.
(d) If, at the time of enforcement of any of the provisions of this
Agreement, a court holds that the restrictions stated therein are unreasonable
under the circumstances then existing, the Parties hereto agree that the maximum
period, scope or geographical are reasonable under such circumstances shall be
substituted for the stated period, scope or area.
(e) Member agrees that the covenants made in this Agreement including
paragraph 3 hereof shall be construed as an agreement independent of any other
provision of this Agreement and shall survive any order of a court of competent
2
<PAGE>
jurisdiction terminating any other provision of this Agreement.
(e) Member and Company acknowledge and agree that Buyer will suffer
harm from a breach by Member of any of the covenants or agreements contained
herein and shall have the right to enforce this Agreement directly against
Member in the event of such breach.
4. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Company and Buyer and its or their affiliates,
successors and assigns and shall be binding upon and inure to the benefit of
Member and his legal representatives and assigns. The Company or Buyer may
assign or transfer its or their rights hereunder to any of its affiliates or to
a successor corporation in the event of merger, consolidation or transfer or
sale of all or substantially all of the assets of the Company.
5. Modification of Waiver. No amendment, modification or waiver of
----------------------
this Agreement shall be binding or effective for any purpose unless it is made
in a writing signed by the Party against who enforcement of such amendment,
modification or waiver is sought. No course of dealing between the Parties to
this Agreement shall be deemed to affect or to modify, amend or discharge any
provision or term of this Agreement. No delay on the part of the Company or
Member in the exercise of any of their respective rights or remedies shall
operate as a waiver thereof, and no single or partial exercise by the Company or
Member of any such right or remedy shall preclude other or further exercises
thereof. A waiver of right or remedy on any one occasion shall not be construed
as a bar to or waiver of any such right or remedy on any other occasion.
6. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of California
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
7. Severability. Whenever possible each provision and term of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then such provision or
term shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement;
provided that if a court having competent jurisdiction shall find that the
covenant contained in paragraph 2(a) hereof is not reasonable, such court shall
have the power to reduce the duration and/or geographic area and/or scope of
such covenant, and the covenant shall be enforceable in this reduced form.
8. No Strict Construction. The language used in this Agreement
----------------------
shall
3
<PAGE>
be deemed to be the language chosen by the Parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
Party.
9. Member's Representations. Member represents and warrants to the
------------------------
Company that (i) his execution, deliver and performance of this Agreement does
not and shall not conflict with, or result in the breach of or violation of, any
other agreement, instrument, order, judgment or decree to which he is a party or
by which he is bound, (ii) he is not a party to or bound by any employment
agreement, non-compete agreement or confidentiality agreement and delivery of
this Agreement by the Company, this Agreement shall be valid and binding
obligation of his, enforceable in accordance with its terms.
10. Notice. 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 mail, postage prepaid, addressed
to the other Party hereto at his or its address shown below:
If to the Company:
-----------------
Artisan Entertainment Inc.
2700 Colorado Blvd., 2/nd/ Floor
Santa Monica, California 90404
Attn: Ken Schapiro
with a copy to:
--------------
Kirkland & Ellis
777 South Figueroa Street, Suite 3700
Los Angeles, California 90017
Attn: Eva Herbst Davis
and
If to the Member:
----------------
The Baby Einstein Company, LLC
10840 South Bobcat Terrace
Littleton, Colorado 80124
Attn: Julie A. Clark
with a copy to:
--------------
O'Melveny & Myers LLP
1999 Avenue of the Stars, Suite 700
Los Angeles, CA 90067
Attn: Robert Haymer
4
<PAGE>
Telecopy: (310) 246-6779
or at such other address as such Party may designate by ten days advance written
notice to the other Party.
11. Captions. The captions used in this Agreement are for
--------
convenience of reference only and do not constitute a part of this Agreement and
shall not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement shall be enforced and
construed as if no caption had been used in this Agreement.
12. Counterparts. This Agreement may be executed in counterparts,
------------
any of which need not contain the signatures of more than one party, but all
such counterparts taken together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ARTISAN ENTERTAINMENT INC.
By: /s/ Ken Schapiro
------------------------
Its: EVP
-----------------------
MEMBER
/s/ William Clark
----------------------------
Member's Name: William Clark
-------------
THE BABY EINSTEIN COMPANY LLC
By: /s/ Julie Aigner-Clark
-------------------------
Its: Manager
------------------------
6
<PAGE>
Confidentiality and Non-Compete Agreement
-----------------------------------------
This Confidentiality and Non-Compete Agreement is given by the undersigned
(the "Member"), in connection with the acquisition by Artisan Entertainment Inc.
------
(the "Buyer") of an equity interest in The Baby Einstein Company, LLC, a
-----
Colorado limited liability company (the "Company"), which produces and
-------
distributes video product geared towards infants and young children. This
Confidentiality and Non-Compete Agreement, which is dated as of February 4,
2000, shall be effective upon the Purchase Option Closing Date. In
consideration of the acquisition, Member agrees that for * years after the
Purchase Option Closing Date (the "Restricted Period"), the Member shall be
-----------------
bound by the terms set forth herein. (Capitalized terms used herein, and not
defined herein, shall be defined in the Purchase Agreement between The Baby
Einstein Company, LLC, Julie A. Clark, William E. Clark and Buyer (the "Purchase
--------
Agreement.")
- ---------
1. Confidential Information. Member acknowledges that the
------------------------
information, observations and data relating to the business of the Company which
Member has obtained as an employee, officer, and Member of the Company or shall
obtain during the course of his association with the Company and his performance
under this Agreement are the property of the Company. Member agrees that he
shall not use for his own or any other's purposes or disclose to any third party
any of such information, observations or data without the prior written consent
of the Company and the Buyer unless and to the extent that the aforementioned
matters (i) were in Member's possession prior to the date of disclosure, (ii)
are in the public domain or publicly known or available from public sources
prior to the date of disclosure, (iii) become part of the public domain or
publicly known or available other than as a result of a disclosure by Buyer or
Buyer's Representatives, (iv) become available to Member on a nonconfidential
basis from a source (other than Buyer or known to Member to be Buyer's
representatives) which is not prohibited from disclosing such information to
Member by a legal, contractual or fiduciary obligation to Buyer, or (v) are or
become independently developed or acquired by Member. Member shall deliver to
the Company at the termination of his association with the Company or at any
other time as Buyer may so reasonably request, all memoranda, notes, plans,
records, reports, computer tapes, printouts and software and other documentation
(and copies thereof) relating to the business of the Company and its
subsidiaries which Members may then possess or have under his control.
2. Work Product. Member acknowledges that all Proprietary Rights
------------
and Confidential Information which relate to the actual or anticipated business,
research and development or existing or anticipated future products or services
of the Company and which are conceived, developed or made by him during the
Restricted Period ("Work Product") belong to the Company. Member shall promptly
------------
disclose such Work Product to the Company and shall perform all actions
reasonably requested by the Company to establish and confirm such ownership
(including, without limitation, assignments, powers of attorney and other
instruments).
7
<PAGE>
3. Non-Competition.
---------------
(a) During the Restricted Period, Member shall not, directly or
indirectly, either for himself or for any other person, partnership, corporation
or company, permit his name to be used by or engage or participate in any
business or enterprise identical to or similar to any such business which is
engaged in by the Company as of the date of this Agreement (collectively
"Competitive Business"). For purposes of this Agreement, the term "participate"
--------------------
includes any direct or indirect interest in any enterprise, whether as an
officer, managing member, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor, franchisee,
creditor, owner or otherwise; provided that the term "participate" shall not
include ownership of less than 2% of the stock of a publicly-held corporation
whose stock is traded on a national securities exchange or in the over-the-
counter market. Member agrees that this covenant is reasonable with respect to
its duration, geographical area and scope.
(b) During the Restricted Period, Member shall not (i) induce or
attempt to induce any employee of the Company or any of its subsidiaries to
leave their employ or in any way interfere with the relationship between the
Company and any of its employees, (ii) hire any person who was an employee of
the Company at any time during the Restricted Period, or (iii) induce or attempt
to induce any supplier, licensee, licensor, franchisee or other business
relation of the Company to cease doing business with them or in any way
interfere with the relationship between the Company and any such person or
business relation.
(c) The Parties hereto agree that the Company or Buyer would suffer
irreparable harm from a breach by Member of any of the covenants or agreements
contained herein. In the event of an alleged or threatened breach by the Member
of any of the provisions of this Agreement, the Company or its successors or
assigns or Buyer may, in addition to all other rights and remedies existing in
its favor, apply to any court of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (including the extension of the Restricted Period by a
period equal to the length of the violation of this Agreement). In the event of
an alleged breach or violation by Consultant of any of the provisions of this
Agreement, the Restricted Period described above shall be tolled until such
alleged breach or violation has been duly cured. Member agrees that these
restrictions are reasonable.
(d) If, at the time of enforcement of any of the provisions of this
Agreement, a court holds that the restrictions stated therein are unreasonable
under the circumstances then existing, the Parties hereto agree that the maximum
period, scope or geographical are reasonable under such circumstances shall be
substituted for the stated period, scope or area.
(e) Member agrees that the covenants made in this Agreement including
paragraph 3 hereof shall be construed as an agreement independent of any other
provision of this Agreement and shall survive any order of a court of competent
jurisdiction terminating any other provision of this Agreement.
(f) Member and Company acknowledge and agree that Buyer will suffer
harm from a breach by Member of any of the covenants or agreements contained
herein and
8
<PAGE>
shall have the right to enforce this Agreement directly against Member in the
event of such breach.
4. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Company and Buyer and its or their affiliates,
successors and assigns and shall be binding upon and inure to the benefit of
Member and his legal representatives and assigns. The Company or Buyer may
assign or transfer its or their rights hereunder to any of its affiliates or to
a successor corporation in the event of merger, consolidation or transfer or
sale of all or substantially all of the assets of the Company.
5. Modification of Waiver. No amendment, modification or waiver of
----------------------
this Agreement shall be binding or effective for any purpose unless it is made
in a writing signed by the Party against who enforcement of such amendment,
modification or waiver is sought. No course of dealing between the Parties to
this Agreement shall be deemed to affect or to modify, amend or discharge any
provision or term of this Agreement. No delay on the part of the Company or
Member in the exercise of any of their respective rights or remedies shall
operate as a waiver thereof, and no single or partial exercise by the Company or
Member of any such right or remedy shall preclude other or further exercises
thereof. A waiver of right or remedy on any one occasion shall not be construed
as a bar to or waiver of any such right or remedy on any other occasion.
6. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of California
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
7. Severability. Whenever possible each provision and term of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then such provision or
term shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement;
provided that if a court having competent jurisdiction shall find that the
covenant contained in paragraph 2(a) hereof is not reasonable, such court shall
have the power to reduce the duration and/or geographic area and/or scope of
such covenant, and the covenant shall be enforceable in this reduced form.
8. No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the Parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
Party.
9. Member's Representations. Member represents and warrants to the
------------------------
Company that (i) his execution, deliver and performance of this Agreement does
not and shall not conflict with, or result in the breach of or violation of, any
other agreement, instrument,
9
<PAGE>
order, judgment or decree to which he is a party or by which he is bound, (ii)
he is not a party to or bound by any employment agreement, non-compete agreement
or confidentiality agreement and delivery of this Agreement by the Company, this
Agreement shall be valid and binding obligation of his, enforceable in
accordance with its terms.
10. Notice. 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 mail, postage prepaid, addressed
to the other Party hereto at his or its address shown below:
If to the Company:
-----------------
Artisan Entertainment Inc.
2700 Colorado Blvd., 2/nd/ Floor
Santa Monica, California 90404
Attn: Ken Schapiro
with a copy to:
--------------
Kirkland & Ellis
777 South Figueroa Street, Suite 3700
Los Angeles, California 90017
Attn: Eva Herbst Davis
and
If to the Member:
----------------
The Baby Einstein Company, LLC
10840 South Bobcat Terrace
Littleton, Colorado 80124
Attn: Julie A. Clark
with a copy to:
--------------
O'Melveny & Myers LLP
1999 Avenue of the Stars, Suite 700
Los Angeles, CA 90067
Attn: Robert Haymer
Telecopy: (310) 246-6779
or at such other address as such Party may designate by ten days advance written
notice to the other Party.
11. Captions. The captions used in this Agreement are for
--------
convenience
10
<PAGE>
of reference only and do not constitute a part of this Agreement and shall not
be deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
12. Counterparts. This Agreement may be executed in counterparts,
------------
any of which need not contain the signatures of more than one party, but all
such counterparts taken together shall constitute one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ARTISAN ENTERTAINMENT INC.
By: /s/ Ken Schapiro
------------------------
Its: EVP
-----------------------
MEMBER
/s/ William Clark
----------------------------
Member's Name: William Clark
-------------
THE BABY EINSTEIN COMPANY LLC
By: /s/ Julie Aigner-Clark
------------------------
Its: Manager
-----------------------
12
<PAGE>
Exhibit C
Amended & Restated Operating Agreement
1
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
THE BABY EINSTEIN COMPANY, LLC
2
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
THE BABY EINSTEIN COMPANY, LLC
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
ARTICLE 1 - THE LIMITED LIABILITY COMPANY..................................... 1
1.1 Formation......................................................... 1
---------
1.2 Articles of Organization.......................................... 2
------------------------
1.3 Business Purpose.................................................. 2
----------------
1.4 Registered Office; Agent.......................................... 2
------------------------
1.5 Removal of Members; Additional Members............................ 2
--------------------------------------
ARTICLE 2 - DEFINITIONS....................................................... 2
2.1 Cash Flow......................................................... 2
---------
2.2 Code.............................................................. 2
----
2.3 Distribution Agreement............................................ 3
----------------------
2.4 Manager........................................................... 3
-------
2.5 Non-Voting Member................................................. 3
-----------------
2.6 Prime Rate........................................................ 3
----------
2.7 Profit or Loss.................................................... 3
--------------
2.8 Sale Transaction Note............................................. 3
---------------------
2.9 Sharing Ratio..................................................... 3
-------------
2.10 Treasury Regulations.............................................. 3
--------------------
2.11 Voting Interest................................................... 4
---------------
2.12 Voting Member..................................................... 4
-------------
ARTICLE 3 - CAPITAL CONTRIBUTIONS; MEMBER LOANS............................... 4
3.1 Capital Accounts.................................................. 4
----------------
3.2 Additional Capital Contributions.................................. 4
--------------------------------
3.3 Default; Remedies................................................. 5
-----------------
3.4 Return of Capital Contributions................................... 6
-------------------------------
ARTICLE 4 - DISTRIBUTIONS..................................................... 6
4.1 Nonliquidating Distributions...................................... 6
----------------------------
4.2 Liquidating Distributions......................................... 6
-------------------------
ARTICLE 5 - ALLOCATION OF PROFIT AND LOSS..................................... 7
5.1 Determination of Profit and Loss.................................. 7
--------------------------------
5.2 Loss Allocation................................................... 7
---------------
5.3 Profit Allocation................................................. 7
-----------------
5.4 Regulatory Allocations and Curative Provisions.................... 7
----------------------------------------------
ARTICLE 6 - ALLOCATION OF TAXABLE INCOME AND LOSS............................. 8
6.1 In General........................................................ 8
----------
6.2 Allocation of Section 704(c) Items................................ 9
----------------------------------
6.3 Integration With Section 754 Election............................. 9
-------------------------------------
ARTICLE 7 - MANAGER........................................................... 9
7.1 Management Authority.............................................. 9
--------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.2 Duties............................................................ 10
------
7.3 Time Devoted to Business.......................................... 11
------------------------
7.4 Number............................................................ 11
------
7.5 Tenure............................................................ 11
------
7.6 Reliance by Third Parties......................................... 11
-------------------------
7.7 Transactions Between Company and Manager.......................... 11
----------------------------------------
7.8 Management Fees and Reimbursements................................ 11
----------------------------------
7.9 Other Activities.................................................. 11
----------------
7.10 Insurance......................................................... 12
---------
7.11 Exculpation....................................................... 12
-----------
7.12 Tax Matters Partner............................................... 12
-------------------
ARTICLE 8 - MEMBERS........................................................... 12
8.1 Participation in Management....................................... 12
---------------------------
8.2 Quorum............................................................ 12
------
8.3 Informal Action................................................... 12
---------------
8.4 Meetings.......................................................... 12
--------
8.5 Place of Meeting.................................................. 13
----------------
8.6 Notice of Meeting................................................. 13
-----------------
8.7 Proxies........................................................... 13
-------
8.8 Conduct of Meeting................................................ 13
------------------
8.9 Other Activities.................................................. 13
----------------
ARTICLE 9 - ACCOUNTING AND REPORTING.......................................... 13
9.1 Books............................................................. 13
-----
9.2 Capital Accounts.................................................. 13
----------------
9.3 Transfers During Year............................................. 14
---------------------
9.4 Reports........................................................... 14
-------
9.5 Section 754 Election.............................................. 14
--------------------
9.6 Partnership Classification........................................ 14
--------------------------
ARTICLE 10 - TRANSFERS; RIGHT OF FIRST REFUSAL................................ 14
10.1 Restrictions...................................................... 14
------------
10.2 Offer to Company.................................................. 15
----------------
10.3 Acceptance of Offer............................................... 15
-------------------
10.4 Failure to Accept Offer........................................... 15
-----------------------
10.5 Cash Equivalents.................................................. 15
----------------
10.6 Direct and Indirect Transfers..................................... 15
-----------------------------
10.7 Substitution of a Member.......................................... 15
------------------------
10.8 Conditions to Substitution........................................ 16
--------------------------
10.9 Waiver as to Certain Transfers.................................... 16
------------------------------
10.10 Artisan Purchase Option........................................... 17
-----------------------
10.11 Company Call Option............................................... 18
-------------------
10.12 Tag-Along/Drag-Along Rights....................................... 18
---------------------------
ARTICLE 11 - TERM............................................................. 19
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 12 - DISSOLUTION AND TERMINATION...................................... 19
12.1 Final Accounting.................................................. 19
----------------
12.2 Liquidation....................................................... 19
-----------
12.3 Distribution in Kind.............................................. 20
--------------------
12.4 Waiver of Right to Court Decree of Dissolution.................... 20
----------------------------------------------
12.5 Articles of Dissolution........................................... 20
-----------------------
ARTICLE 13 - NOTICES.......................................................... 20
13.1 Method of Notices................................................. 20
-----------------
13.2 Computation of Time............................................... 20
-------------------
ARTICLE 14 - GENERAL PROVISIONS............................................... 21
14.1 Entire Agreement.................................................. 21
----------------
14.2 Amendment......................................................... 21
---------
14.3 Applicable Law.................................................... 21
--------------
14.4 Pronouns.......................................................... 21
--------
14.5 Counterparts...................................................... 21
------------
</TABLE>
iii
<PAGE>
EXHIBIT A
Non-Compete Agreement
<PAGE>
EXHIBIT B
I.R.C. (S) 754 Election:
Basis Allocation
Capital Assets/I.R.C. (S) 1231(b) Property
And
Other Property
<PAGE>
THIS OPERATING AGREEMENT (this "Agreement") is entered into this 4th day of
---------
February, 2000, among Julie A. Clark ("J. A. Clark"), William E. Clark ("W. E.
Clark"), and Artisan Entertainment Inc., a Delaware corporation ("Artisan"), all
of whom are referred to collectively in this Agreement as the "Members" and
-------
individually as a "Member."
------
RECITALS
- --------
A. The Baby Einstein Company, LLC (the "Company") was organized as a
-------
Colorado limited liability company on April 29, 1999.
B. J. A. Clark and W. E. Clark, as the original members of the Company
(collectively, the "Original Members"), have adopted an Operating Agreement of
----------------
The Baby Einstein Company, LLC, dated October 8, 1999 (the "Operating
---------
Agreement"), for the purpose of governing the operations of the Company.
- ---------
C. Pursuant to that certain Purchase Agreement, dated as of February 4,
2000 (the "Purchase Agreement"), by and among the Company, J. A. Clark, W. E.
------------------
Clark, and Artisan, the Original Members have agreed to sell a 20% membership
interest in the Company to Artisan (the "Sale Transaction").
----------------
D. In connection with the Sale Transaction and Artisan's admission as a
substituted Member of the Company, the parties desire to amend and restate the
Operating Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein
the Members agree as follows:
ARTICLE 1
---------
THE LIMITED LIABILITY COMPANY
1.1 Formation. The Members hereby continue the Company as a limited
---------
liability company pursuant to the Colorado Limited Liability Company Act (the
"Act"), subject to the terms and conditions provided in this Agreement. The
- ----
name of the limited liability company shall continue to be THE BABY EINSTEIN
COMPANY, LLC (the "Company").
-------
1.2 Articles of Organization. The Manager has caused articles of
------------------------
organization that comply with the requirements of the Act to be filed with the
Secretary of State for the State of Colorado. In the future, the Manager shall
execute such further documents (including amendments to the articles of
organization) and take such further action as shall be appropriate or necessary
to comply with the requirements of law for the formation and operation of a
limited liability company in all jurisdictions where the Company elects to carry
on its business.
1.3 Business Purpose. The purpose of the Company shall be to engage in
----------------
such
<PAGE>
lawful activities as the Manager may from time to time deem desirable. The
Company may sell, exchange, or otherwise dispose of all or substantially all of
its assets as contemplated in this Agreement and any such transaction shall be
considered to be within the scope of the Company's purpose.
1.4 Registered Office; Agent. The registered office of the Company shall
------------------------
be located at 10840 South Bobcat Terrace, Littleton, Colorado 80124 and the
Company's registered agent at such address shall be J. A. Clark. The registered
office of the Company, its registered agent at such address, or both may be
changed from time to time by the Manager.
1.5 Removal of Members; Additional Members. (a) The Manager may not
--------------------------------------
remove any Member of the Company. Except as provided in Section 7.1(b), the
Manager may admit additional Members to the Company and such Members shall have
such rights and interests in the Company as determined and set forth in writing
by the Manager. The Sharing Ratios of all Members shall be adjusted to account
for any interest acquired by an additional Member. Upon the admission of an
additional Member, the Members' capital accounts shall be adjusted in the manner
provided in Treasury Regulation section 1.704-1(b)(2)(iv)(f) to reflect a
revaluation of the Company's assets. Additional Members shall not be admitted
to the Company without the prior written consent of the Manager.
(b) The Manager hereby acknowledges that Artisan is admitted as a
substituted Member in the Company, to the extent of its Sharing Ratio, with all
the rights and obligations of a Member as provided in this Agreement and the
Act.
ARTICLE 2
---------
DEFINITIONS
2.1 Cash Flow. "Cash Flow" shall mean all cash receipts of the Company
---------
reduced by: (i) payments on any indebtedness owed by the Company to any Member
(including, without limitation, principal and interest payments on the Sale
Transaction Notes and any other loans made by a Member to the Company) or third
party; (ii) cash disbursements to pay expenses of the Company; and (iii)
reserves deemed reasonably necessary by the Manager to meet the business needs
of the Company.
2.2 Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended, or any successor statute.
2.3 Distribution Agreement. "Distribution Agreement" shall mean the
----------------------
letter agreement, dated as of February 4, 2000, between the Artisan and the
Company, under which the Company has engaged Artisan and Artisan has agreed to
furnish certain marketing, promotion, and distribution services in connection
with the marketing and sale of certain products produced by the Company.
2.4 Manager. "Manager" shall mean Julie A. Clark or any successor elected
-------
or appointed pursuant to Section 7.5 then serving in a representative capacity
-----------
to manage the
<PAGE>
business and affairs of the Company.
2.5 Non-Voting Member. "Non-Voting Member" shall mean the non-voting
-----------------
interest of a Member that has no right to participate in the management and
affairs of the Company.
2.6 Prime Rate. "Prime Rate" for any Member loan shall mean the prime
----------
rate of interest charged by Norwest Bank Colorado N.A., or its successor, as of
the date of the loan.
2.7 Profit or Loss. "Profit" or "Loss" shall mean the profit or loss of
--------------
the Company as determined under the capital accounting rules of Treasury
Regulations section 1.704-1(b)(2)(iv) for purposes of adjusting the capital
accounts of the Members including, without limitation, the provisions of
paragraphs (b), (f), and (g) of those regulations relating to the computation of
items of income, gain, deduction, and loss.
2.8 Sale Transaction Notes. "Sale Transaction Notes" shall mean the
----------------------
promissory notes, each in the principal amount of *, issued by the Company to J.
A. Clark and W. E. Clark immediately prior to closing of the Sale Transaction.
The Sale Transaction Notes shall bear interest at * and contain such other terms
as mutually agreed between the parties to the Purchase Agreement.
2.9 Sharing Ratio. The "Sharing Ratio" of each Member shall be as
-------------
follows:
Member Type of Interest Sharing Ratio
------ ---------------- -------------
J. A. Clark Voting Member 0.8%
W. E. Clark Voting Member 0.8%
Artisan Voting Member 0.4%
J. A. Clark Non-Voting Member 39.2%
W. E. Clark Non-Voting Member 39.2%
Artisan Non-Voting Member 19.6%
The Sharing Ratios of the Members shall be adjusted from time to time
to account for transfers of interests in the Company and other transactions
authorized under this Agreement.
2.10 Treasury Regulations. "Treasury Regulations" shall mean regulations
--------------------
issued by the Department of Treasury under the Code. Any reference to a
specific section or sections of the Treasury Regulations shall be deemed to
include a reference to any corresponding provision of future regulations under
the Code.
2.11 Voting Interest. "Voting Interest" shall mean a number of votes equal
---------------
to a Voting Member's Sharing Ratio multiplied by 100.
2.12 Voting Member. "Voting Member" shall mean the voting interest of a
-------------
Member
<PAGE>
that has all of the rights of a Member to participate in the management and
affairs of the Company as provided in the Act and this Agreement. J. A. Clark,
W. E. Clark, and Artisan shall constitute the sole Voting Members unless
additional Members are admitted and expressly given the right to vote by the
Manager pursuant to Section 1.5.
-----------
ARTICLE 3
---------
CAPITAL CONTRIBUTIONS; MEMBER LOANS
3.1 Capital Accounts. The Members acknowledge that, as of the date of
----------------
this Agreement, the Members' capital accounts shall be determined in accordance
with Treasury Regulation section 1.704-1(b)(2)(iv) including, without
limitation, the provisions of paragraphs (l) and (m) of those regulations
relating to transfers of interests in the Company.
3.2 Additional Capital Contributions. (a) If from time to time in the
--------------------------------
reasonable judgment of the Manager the Company requires additional funds for the
operation of its business, the Manager may, in her discretion, borrow the funds
from a third party or assess the Members for such additional funds required by
the Company. The Manager shall assess the Members for additional funds under
this Section 3.2(a) by sending the Members a written notice that specifies the
--------------
additional funds that the Member is required to contribute to the Company. The
Members obligated to contribute additional funds to the Company shall deliver to
the Company cash in an amount equal to the additional funds specified in the
written notice no later than 30 days following the date such notice is given.
If the Manager assesses the Members for the additional funds required by the
Company, the Members shall contribute funds to the Company in the following
order and priority:
(i) First, J. A. Clark and W. E. Clark shall loan funds to the
Company in an amount up to, but not in excess of, the principal amount of the
Sale Transaction Notes. J. A. Clark and W. E. Clark shall advance funds under
this Section 3.2(a)(i) in such relatives amounts as they may agree and, in the
-----------------
absence of agreement, in accordance with the relative principal amount of the
Sale Transaction Note issued to each of the them. Any loan made by J. A. Clark
and W. E. Clark under this Section 3.2(a)(i) shall bear interest at the Prime
-----------------
Rate and contain such other terms as mutually agreed between the Company and the
Member making the loan.
(ii) Second, Artisan shall loan funds to the Company as provided
in paragraph 13 of the Distribution Agreement.
(iii) Third, the Members shall make capital contributions to the
Company in an amount up to, but not in excess of, $500,000 in any calendar year.
Additional capital contributions under this Section 3.2(a)(iii) shall be shared
-------------------
among the Members in proportion to their Sharing Ratios.
(b) Except as provided in Section 3.2(a), no Member shall be obligated
--------------
to contribute any additional capital or to make a loan to the Company. If the
Company requires additional funds to meet its obligations, the Company may
accept additional capital contributions from one or more Members, or the Company
may borrow such additional funds
<PAGE>
from any source, including any Member. Upon the acceptance of additional capital
contributions from a Member pursuant to this Section 3.2(b), the Manager shall
--------------
adjust the Sharing Ratios of the Members as the Members then agree. Any loan
made by a Member to the Company under this Section 3.2(b) shall be represented
--------------
by a promissory note, bearing interest at a rate equal to the Prime Rate, and
shall be payable out of first available funds, including proceeds from the sale
of all or any portion of the assets of the Company.
3.3 Default; Remedies. (a) Upon the failure of a Member to make payment
-----------------
when due of any funds under Section 3.2(a), the defaulting Member's interest as
--------------
a Voting Member shall be automatically converted into a Non-Voting Member
interest in the Company and any non-defaulting Member may notify the defaulting
Member, in writing, of its default and make demand upon it for prompt payment
thereof. The failure of the defaulting Member to pay the amount due within 30
days after receipt of such notice shall constitute a default and shall entitle
the Company, and any non-defaulting Member on behalf of the Company, to pursue
any of the rights and remedies set forth in this Section 3.3, which rights and
-----------
remedies shall be cumulative and in addition to any other rights and remedies
available hereunder or under applicable law.
(b) If a defaulting Member has not cured its default as provided in
Section 3.3(a), any non-defaulting Member may make a capital contribution to the
- --------------
Company in an amount equal to the unpaid advance or contribution of the
defaulting Member, and such capital contribution shall be credited to the
capital account of the non-defaulting Member making the contribution. In the
event a capital contribution is made pursuant to this Section 3.3(b), the
Sharing Ratio of the defaulting Member shall be reduced by an amount equal to
the following:
Unpaid Contribution of Defaulting Member
----------------------------------------
Total Capital Contributions By All Members
The Sharing Ratio of the non-defaulting Member that makes the contribution shall
be increased by an amount equal to the reduction in the Sharing Ratio of the
defaulting Member and the Members' capital accounts shall be adjusted in the
manner provided in Treasury Regulation section 1.704-1(b)(2)(iv)(f). If more
than one non-defaulting Member elects to make a capital contribution under this
Section 3.3(b), such non-defaulting Members shall contribute the defaulting
- --------------
Member's unpaid contribution and their Sharing Ratios shall be increased in the
manner in which they all agree and, in the absence of agreement, in accordance
with their relative Sharing Ratios.
(c) If a defaulting Member has not cured its default as provided in
Section 3.3(a), any non-defaulting Member may make such advance or contribution
- --------------
on behalf of the defaulting Member and elect to treat the payment as a loan to
the defaulting Member and a capital contribution of that sum to the Company by
the defaulting Member. The defaulting Member shall pay such non-defaulting
Member, within 1 year of the date of such advance, the amount of such advance
plus interest from the date of the advance at a rate equal to the Prime Rate.
If such advance and interest thereon are not paid when due, the non-defaulting
Member that advanced the funds shall be entitled to: (i) pursue any remedies at
law to collect the debt
<PAGE>
and recover the costs of collection, and (ii) receive one hundred percent (100%)
of all amounts that would otherwise be distributed by the Company to the
defaulting Member until such debt and interest plus the costs of collection
(including reasonable attorneys fees) are paid in full. If more than one non-
defaulting Member elects to make an advance under this Section 3.3(c), such non-
--------------
defaulting Members shall make the advance in the manner in which they all agree
and, in the absence of agreement, in accordance with their relative Sharing
Ratios.
(d) If a defaulting Member has not cured its default as provided in
Section 3.3(a), the Company may: (i) sell the entire interest of the defaulting
- --------------
Member to a third party and hold the defaulting Member personally liable for the
amount by which the unpaid advance or contribution, plus interest from the date
of the default at a rate equal to the Prime Rate, plus the costs of collection,
exceeds the amount realized by the Company as a result of such sale; and (ii)
withhold payment of distributions under Article 4 against the unpaid amount.
3.4 Return of Capital Contributions. Capital contributions shall be
-------------------------------
expended in furtherance of the business of the Company. All costs and expenses
of the Company shall be paid from its funds. No interest shall be paid on
capital contributions. No Manager shall have any personal liability for the
repayment of any capital contribution or loan made to the Company.
ARTICLE 4
---------
DISTRIBUTIONS
4.1 Nonliquidating Distributions. Except as provided in Section 4.2, the
---------------------------- -----------
Company shall make distributions of Cash Flow among the Members in the following
order and priority:
(a) First, the Company shall distribute Cash Flow to each Member at
least annually in an amount equal to the Profit allocated to such Member
pursuant to Section 5.3 multiplied by the sum of the highest federal income tax
-----------
rate payable by an individual plus 5%.
(b) Except as provided in Section 7.1(b), the Company shall make
--------------
additional distributions of Cash Flow at such times and in such amounts as the
Manager shall determine. Except as provided in Section 4.2, all distributions
-----------
under this Section 4.1(b) shall be made to the Members in accordance with their
--------------
respective Sharing Ratios.
4.2 Liquidating Distributions. All distributions made in connection with
-------------------------
the sale, exchange, or other disposition of all or substantially all of the
Company assets and all distributions made in connection with the liquidation of
the Company shall be made to the Members in accordance with their relative
positive capital account balances at the time of distribution, after giving
effect to the allocation of any Profit or Loss under Article 5.
---------
<PAGE>
ARTICLE 5
---------
ALLOCATION OF PROFIT AND LOSS
5.1 Determination of Profit and Loss. Profit or Loss shall be determined
--------------------------------
on an annual basis and for such other periods as may be required.
5.2 Loss Allocation. Except as provided in Section 5.4, all Loss shall be
--------------- -----------
allocated to the Members in accordance with their relative Sharing Ratios.
5.3 Profit Allocation.
-----------------
(a) Except as provided in Section 5.3(b) or Section 5.4, Profit shall
-------------- -----------
be allocated to the Members in accordance with their relative Sharing Ratios.
(b) Any Profit with respect to the sale, exchange, or other
disposition of all or substantially all of the Company assets or with respect to
the liquidation of the Company shall be allocated in the following order of
priority:
(i) first, to the Members until they have been allocated an
amount of Profit that will cause the balances of their respective capital
accounts to be zero (on a pro rata basis in accordance with the relative amounts
necessary to bring such balances to zero); and
(ii) the balance, to the Members in accordance with their
relative Sharing Ratios.
(c) For purposes of Section 5.3(b), the capital accounts of the
--------------
Members shall be determined (i) before giving effect to distributions under
Section 4.2, (ii) after allocating all other items of Profit and Loss for such
- -----------
period, and (iii) after making all distributions under Section 4.1.
-----------
(d) If Profit with respect to the sale or other taxable disposition
of all or substantially all of the Company's assets is reported on the
installment sale method for federal income tax purposes, the portion of the
Profit allocated to each Member under the provisions of Section 5.3(b) for each
--------------
year shall be determined by the Company's accountants under such reasonable
standards, consistently applied, as will result in an allocation of the total
Profit from the sale among the Members in accordance with the provisions of
Section 5.3(b).
- --------------
5.4 Regulatory Allocations and Curative Provisions.
----------------------------------------------
(a) The "qualified income offset" provisions of Treasury Regulations
section 1.704-1(b)(2)(ii)(d) are incorporated herein by reference and shall
apply to adjust the allocation of Profit and Loss otherwise provided for under
Sections 5.2 and 5.3 to the extent provided in that regulation.
- --------------------
<PAGE>
(b) The "minimum gain" provisions of Treasury Regulations section
1.704-2 are incorporated herein by reference and shall apply to adjust the
allocation of Profit and Loss otherwise provided for under Sections 5.2 and 5.3
--------------------
to the extent provided in that regulation.
(c) Notwithstanding the provisions of Section 5.2, if during any
-----------
fiscal year of the Company the allocation of any loss or deduction, net of any
income or gain, to a Member would cause or increase a negative balance in a
Member's capital account as of the end of that fiscal year, only the amount of
such loss or deduction that reduces the balance to zero shall be allocated to
the Member and the remaining amount shall be allocated to the other Members. For
the purpose of the preceding sentence, a capital account shall be reduced by the
adjustments, allocations, and distributions described in Treasury Regulations
sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6), and increased by the amount if
any, of the negative balance in the Member's capital account that the Member is
obligated to restore within the meaning of Treasury Regulations section 1.704-
1(b)(2)(ii)(c) as of that time or is deemed obligated to restore under Treasury
Regulations section 1.704-2(g)(1) or section 1.704-2(i)(5).
(d) All allocations pursuant to the foregoing provisions of this
Section 5.4 (the "Regulatory Allocations") shall be taken into account in
- ----------- ----------------------
computing allocations of other items under Sections 5.2 and 5.3, including, if
--------------------
necessary, allocations in subsequent fiscal years, so that the net amounts
reflected in the Members' capital accounts and the character for income tax
purposes of the taxable income recognized (e.g., as capital or ordinary) will,
to the extent possible, be the same as if no Regulatory Allocations had been
given effect.
ARTICLE 6
---------
ALLOCATION OF TAXABLE INCOME AND LOSS
6.1 In General.
----------
(a) Except as provided in Sections 6.1(b) and 6.2, each item of
-----------------------
income, gain, loss, and deduction of the Company for federal income tax purposes
shall be allocated among the Members in the same manner as such item is
allocated for capital account purposes under Article 5.
---------
(b) To the extent of any recapture income (as defined below)
resulting from the sale or other taxable disposition of a Company asset, the
amount of any gain from such disposition allocated to (or recognized by) a
Member (or its successor in interest) for federal income tax purposes shall be
deemed to consist of recapture income to the extent such Member (or such
Member's predecessor in interest) has been allocated or has claimed any
deduction directly or indirectly giving rise to the treatment of such gain as
recapture income. For this purpose "recapture income" shall mean any gain
recognized by the Company (but computed without regard to any adjustment
required by sections 734 and 743 of the Code) upon the disposition of any
property or asset of the Company that does not constitute capital gain for
federal income tax purposes because such gain represents the recapture of
deductions previously taken with respect to such property or assets.
<PAGE>
6.2 Allocation of Section 704(c) Items. The Members recognize that with
----------------------------------
respect to property contributed to the Company by a Member and with respect to
property revalued in accordance with Treasury Regulations section 1.704-
1(b)(2)(iv)(f), there will be a difference between the agreed values or
"carrying values" of such property at the time of contribution or revaluation
and the adjusted tax basis of such property at that time. All items of tax
depreciation, cost recovery, amortization, amount realized, and gain or loss
with respect to such assets shall be allocated among the Members to take into
account the book-tax disparities in accordance with the provisions of sections
704(b) and 704(c) of the Code and the Treasury Regulations under those sections.
6.3 Integration With Section 754 Election. All items of income, gain,
-------------------------------------
loss, deduction, and credit recognized by the Company for federal income tax
purposes and allocated to the Members in accordance with the provisions hereof
and all basis allocations to the Members shall be determined without regard to
any election under section 754 of the Code that may be made by the Company;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account the adjustments permitted by
sections 734 and 743 of the Code.
ARTICLE 7
---------
MANAGER
7.1 Management Authority.
--------------------
(a) Management of the Company shall be vested in the Manager. Except
as provided in Section 7.1(b): (i) the Manager shall have the power and
authority to conduct the business of the Company; (ii) the Manager is hereby
expressly authorized on behalf of the Company to make all decisions with respect
to the Company's business and to take all actions necessary to carry out such
decisions; and (iii) consistent with Section 1.3, the Manager, without the
-----------
consent or approval of the Members, may sell, exchange, or otherwise dispose of
all or substantially all of the Company's assets, and any such transaction shall
be considered within the scope of the Manager's authority.
(b) Notwithstanding anything to the Contrary in this Section 7.1,
-----------
prior to expiration of the Artisan Purchase Option under Section 10.10, the
-------------
Manager shall use her best efforts to maintain the value of the Company's
business as a going concern and the Manager shall not take the following actions
without the written consent of Artisan: (i) take any action that is not in the
ordinary course of business and consistent with past practices; (ii) enter into
or perform any transaction for the acquisition, selection, clearance,
maintenance, enforcement, assignment, and licensing of any or all intellectual
property developed, owned, or used by the Company; (iii) cause the Company to
enter into or perform any transactions with any Manager, Member or their
affiliates or to enter into or perform any transactions with terms that are not
comparable to and competitive with those available to the Company from others
dealing at arm's length; (iv) except for compensation payable under Section 7.8,
-----------
increase any compensation payable to or benefit arrangement for any employee or
officer of the Company; (v) except for compensation payable under Section 7.8,
-----------
tax distributions under Section 4.1(a), or repayment of the Sale Transaction
--------------
Notes or other loans made by the Members to the
<PAGE>
Company, make any distribution to the Members or cause the Company to purchase
the interest of any Member; (vi) except as provided under Section 10.9, cause
------------
the Company to issue or consent to the transfer of any interest in the equity of
the Company or any of the Company's assets; (vii) mortgage, pledge or encumber
any asset of the Company; or (viii) admit additional Members to the Company.
(c) The Manager may from time to time delegate all or a portion of
her power and authority to individuals designated as officers of the Company,
which officers shall have only the power and authority granted to them in
writing by the Manager. The Manager may also remove any such officer or officers
from time to time or alter their power or authority. No delegation of power or
authority by the Manager under this Section 7.1(c) shall relieve the Manager of
--------------
liability for her duties or responsibilities.
(d) Subject to the powers granted to the Manager under Section
-------
7.1(c), J. A. Clark shall serve as the president and W. E. Clark shall serve as
- ------
the vice-president and chief financial officer of the Company. As president, J.
A. Clark shall (i) be the chief executive officer of the Company and have
general and active control of its affairs and business and general supervision
of its officers, agents and employees; and (ii) perform all other duties
normally incident to the office of president of a corporation. As vice-president
and chief financial officer, W. E. Clark shall have the primary responsibility
for product development and for management of the financial affairs of the
Company and shall assist the president and perform such other duties as may be
assigned to him by the president from time to time.
(e) Except for matters that require the approval of Artisan under
Section 7.1(b), all documents executed on behalf of the Company need only be
- --------------
signed by the Manager, by an officer designated in Section 7.1(d) or by an
--------------
officer appointed pursuant to Section 7.1(c); provided, however, that an officer
--------------
other than the president, vice-president or chief financial officer of the
Company may only execute a document if (i) the execution of such document is
expressly authorized by a written instrument executed by the Manager or (ii) the
execution of the document would come within the apparent authority of an officer
of similar title and position in a Colorado corporation. All documents that
relate to matters that require the approval of Artisan under Section 7.1(b)
--------------
shall be signed by the Manager and an officer of Artisan; provided, however,
that the Manager may act as the sole signatory on any documents that relate to
matters that require the approval of Artisan under Section 7.1(b) if the consent
--------------
from Artisan approving the action authorizes the Manager to sign all documents
required to carry out such action.
7.2 Duties. A Manager shall carry out his or her duties in good faith, in
------
a manner that the Manager believes to be in the best interests of the Company,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances. A Manager who so performs his or her duties shall
not have any liability by reason of being or having been a Manager.
7.3 Time Devoted to Business. A Manager shall devote such time to the
------------------------
business
<PAGE>
of the Company as the Manager, in his or her discretion, deems necessary for the
efficient carrying on of the Company's business.
7.4 Number. Initially, there shall be one Manager. A majority of the
------
Voting Interests may increase or decrease the number of Managers from time to
time.
7.5 Tenure. The initial Manager shall be J. A. Clark. The Manager shall
------
hold office until she resigns, dies, becomes bankrupt or incompetent, or is
removed by a majority of the Voting Interests. If the Manager ceases for any
reason to act, W. E. Clark or, if he is unavailable or unwilling to act, a
successor Manager designated in writing by the Manager who acted most recently
shall act as Manager. If no Manager is appointed and acting pursuant to the
foregoing provisions of this Section 7.5, a majority of the Voting Interests
-----------
may elect a successor to fill such vacancy and serve as Manager.
7.6 Reliance by Third Parties. No third party dealing with the Company
-------------------------
shall be required to ascertain whether a Manager is acting in accordance with
the provisions of this Agreement. All third parties may rely on a document
executed by the Manager as binding the Company. A Manager acting without
authority shall be liable to the Members for any damages arising out of its
unauthorized actions.
7.7 Transactions Between Company and Manager. Except as provided in
----------------------------------------
Section 7.1(b), the Manager, on behalf of the Company, may contract and deal
- --------------
with a Manager, or cause any person or entity affiliated with a Manager to
contract or deal with the Company; provided that such contracts and dealings are
on terms comparable to and competitive with those available to the Company from
others dealing at arm's length or are approved in writing by all of the Voting
Members.
7.8 Management Fees and Reimbursements. The Manager and any officer of
----------------------------------
the Company shall be entitled to a reasonable management fee or salary for
managing the operations of the Company. The determination of a reasonable fee or
salary shall be made by a majority of the Voting Interests; provided, however,
prior to expiration of the Artisan Purchase Option under Section 10.10, the
-------------
management fee or salary payable to all Managers and officers who are Members of
the Company shall not exceed $250,000 per year without the written consent of
Artisan. Any fee paid under this Section 7.8 to a Manager or officer who is also
-----------
a Member shall be treated as a guaranteed payment under section 707(c) of the
Code. Further, the Manager and any officer of the Company shall be reimbursed by
the Company for any reasonable out-of-pocket costs incurred on behalf of the
Company.
7.9 Other Activities. Except as permitted under the terms of the
----------------
Confidentiality and Non-Compete Agreement, a copy of which is attached as
Exhibit A, the Manager may not engage for his or her own account in any business
that competes directly with the business of the Company.
7.10 Insurance. The Company shall maintain for the protection of the
---------
Company and all of its Members such insurance as the Manager, in his or her sole
discretion, deems necessary for the operations being conducted.
<PAGE>
7.11 Exculpation. The Company shall indemnify and hold harmless the
-----------
Manager, its officers, agents and employees against and from any personal loss,
liability, or damage incurred as a result of any act or omission, or any error
of judgment, unless such loss, liability, or damage results from such person's
willful misconduct, gross negligence, or knowing violation of law. Any such
indemnification shall be paid only from the assets of the Company, and no
Member, Manager, or third party shall have recourse against the personal assets
of any Member for such indemnification.
7.12 Tax Matters Partner. Pursuant to section 6231(a) of the Code, W. E.
-------------------
Clark shall be designated as the tax matters partner for the Company, if the
Manager determines that such designation is necessary or appropriate, and he is
hereby authorized to perform, on behalf of the Company or any Member, any act
that may be necessary to make this designation effective.
ARTICLE 8
---------
MEMBERS
8.1 Participation in Management. Except as provided in Section 7.1(b), a
--------------------------- --------------
Member, in its capacity as a Member, shall take no part in the control,
management, direction, or operation of the business or affairs of the Company
and shall have no power to bind the Company.
8.2 Quorum. A majority of the Voting Interests, represented in person or
------
by proxy, shall be necessary to constitute a quorum at meetings of the Members.
Each of the Members hereby consents and agrees that one or more Members may
participate in a meeting of the Members by means of conference telephone or
similar communication equipment by which all persons participating in the
meeting can hear each other at the same time, and such participation shall
constitute presence in person at the meeting. If a quorum is present, the
affirmative vote of a majority of the Voting Interests entitled to vote on the
subject matter shall be the act of the Members, unless a greater number is
required by the Act or this Agreement. In the absence of a quorum, those present
may adjourn the meeting for any period, but in no event shall such period exceed
sixty days.
8.3 Informal Action. Any action required or permitted to be taken at a
---------------
meeting of the Members may be taken without a meeting if the action is evidenced
by a written consent describing the action taken, signed by each Voting Member
entitled to vote. Action taken under this Section 8.3 is effective when all
-----------
Voting Members entitled to vote have signed the consent, unless the consent
specifies a different effective date.
8.4 Meetings. The Members shall hold a formal business review meeting
--------
("Business Review Meeting") on the 15th day following the last day of each
calendar quarter. At each Business Review Meeting the Members shall review and
discuss: (i) sales performance, (ii) marketing expenses as compared to the
Company's budget, (iii) operating expenses as compared to the Company's budget,
and (iv) such other matters as the Members deem appropriate. If the date of any
Business Review Meeting falls on a Saturday, Sunday, or legal holiday, the date
of such meeting shall be deferred until the next day which is not a
<PAGE>
Saturday, Sunday, or legal holiday. Other meetings of the Members for any
purpose or purposes may be called by the Manager or by holders of not less than
ten percent (10%) of all outstanding Voting Interests.
8.5 Place of Meeting. All meetings of the Members shall be held at the
----------------
registered office of the Company or such other place either within or without
Colorado as all of the Voting Members may determine.
8.6 Notice of Meeting. Written notice stating the place, day and hour of
-----------------
the meeting and the purpose or purposes for which the meeting is called, shall
be delivered either personally or by mail, by or at the direction of the Manager
or other person(s) calling the meeting, to each Member.
8.7 Proxies. At all meetings of Members, a Voting Member may vote in
-------
person or by proxy executed in writing by the Voting Member or by its duly
authorized attorney-in-fact. Such proxy shall be filed with the Manager of the
Company 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.
8.8 Conduct of Meeting. At each meeting of the Members, a Manager shall
------------------
serve as Chairman of the meeting. The Chairman shall preside over and conduct
the meeting and shall appoint someone in attendance to make accurate minutes of
the meeting. Following each meeting, the minutes of the meeting shall be sent to
each Manager and Member.
8.9 Other Activities. Except as permitted under the terms of the
----------------
Confidentiality and Non-Compete Agreement, a copy of which is attached as
Exhibit A, the Members may not engage for their own account in any business that
competes directly with the business of the Company.
ARTICLE 9
---------
ACCOUNTING AND REPORTING
9.1 Books. The Company shall maintain complete and accurate books of
-----
account. The Company shall use reasonable efforts to provide any Member with any
information requested relating to the business of the Company. During ordinary
business hours, any Member or its authorized representative shall have access to
all books, records, and materials regarding the Company and its activities.
9.2 Capital Accounts. The Company shall maintain a separate capital
----------------
account for each Member in accordance with the Treasury Regulations under
section 704(b) of the Code and such other accounts as may be necessary or
desirable to comply with the requirements of applicable law and regulations.
9.3 Transfers During Year. In order to avoid an interim closing of the
---------------------
Company's books, the share of profits and losses under Article 5 of a Member who
---------
transfers part or all of its interest in the Company during the Company's
accounting year may be determined by
<PAGE>
taking its pro rata share of the amount of such profits and losses for the year.
The proration shall be based on the portion of the Company's accounting year
which has elapsed prior to the transfer or may be determined under any other
reasonable method as determined by the Manager; provided, however, that any gain
or loss from the sale of Company assets shall be allocated to the owner of the
Company interest at the time of such sale. The balance of the profits and losses
attributable to the Company interest transferred shall be allocated to the
transferee of such interest.
9.4 Reports. The books of account shall be closed promptly after the end
-------
of each fiscal year. As soon as practicable thereafter, the Company shall
deliver a written report to each Member which shall include a statement of
receipts, expenditures, profits, and losses for the year, a statement of each
Member's capital account and such additional statements with respect to the
status of the Company's assets and the distribution of Company funds as are
necessary to advise the Members properly about their investment in the Company.
Prior to March 1st of each year, the Members shall also be provided with a copy
of the Company federal income tax return (Form 1065) to be filed for the
preceding year.
9.5 Section 754 Election. In connection with the interest in the Company
--------------------
acquired by Artisan in the Sale Transaction, the Members agree that the Company
shall make the election provided for under section 754 of the Code. The Members
agree the increase in basis resulting from the election under section 754 of the
Code shall be allocated among the Company's capital assets and property
described in section 1231(b) of the Code, on the one hand, and other property of
the Company, on the other, in the manner provided on the attached Exhibit B. Any
cost attributable to making such election shall be borne solely by the
requesting Member.
9.6 Partnership Classification. The Manager on behalf of the Company
--------------------------
shall endeavor to make (or refrain from making, as applicable) all reasonable
and appropriate filings, applications or elections and take (or refrain from
taking, as applicable) all other reasonable and appropriate actions to the
extent required to ensure that the Company is classified as a "partnership" for
federal income tax purposes as of the date of its formation, and shall
thereafter endeavor to take (or refrain from taking, as applicable) all
reasonable additional actions required to ensure that the Company retains its
classification as a "partnership" for federal income tax purposes for so long as
Artisan holds a Sharing Ratio of at least 20%.
ARTICLE 10
----------
TRANSFERS; RIGHT OF FIRST REFUSAL
10.1 Restrictions. Except as provided in Section 10.12, a Member shall not
------------ -------------
sell, assign, pledge or otherwise transfer all or any portion of its interest in
the Company without the written consent of all of the Voting Members (which
consent may be withheld in the absolute discretion of each Voting Member). Any
transfer or attempted transfer in violation of this restriction shall be void.
10.2 Offer to Company. Except as provided in Section 10.12, if at any time
---------------- -------------
any
<PAGE>
Member ("the Offeror") receives a bona fide written offer from an unrelated
-------
third-party, pursuant to which the Offeror proposes to sell, assign, or
otherwise dispose of all or any part of its interest in the Company (the
"Offered Interest"), the Offeror shall make a written offer (the "Offer") to
---------------- -----
sell the Offered Interest to the Company on the same terms and conditions set
forth in the written offer received from the proposed transferee. The Offer
shall state the name of the proposed transferee and all of the terms and
conditions of the proposed transfer, including the price and form of
consideration to the proposed transferee, and a copy of the written offer
received from the proposed transferee shall be attached.
10.3 Acceptance of Offer. The Company shall have the right for a period of
-------------------
30 days after delivery of the Offer, or such longer period as may be required
under Section 10.5, to elect to purchase all of the Offered Interest. To
------------
exercise its rights of purchase, the Company shall deliver written notice to the
Offeror.
10.4 Failure to Accept Offer. If the Company does not elect to purchase
-----------------------
all of the Offered Interest within the applicable time period set forth in
Section 10.3, the Offeror may transfer the Offered Interest to the proposed
- ------------
transferee named in the Offer. However, if that transfer is not closed within
90 days after the end of the applicable time period set forth in Section 10.3, a
------------
new Offer shall be made to the Company and the provisions of this Article 10
----------
shall again apply.
10.5 Cash Equivalents. If the written offer received from the proposed
----------------
offeree described in Section 10.2 is for consideration other than cash or cash
------------
plus deferred payments of cash, the Company may pay the cash equivalent of such
other consideration. The Offeror and the Company shall attempt to agree upon a
cash equivalent of such other consideration. If they cannot agree within 20
days after the beginning of the 30-day period under Section 10.3, the Company or
------------
the Offeror may, by five days' written notice to the other, initiate arbitration
proceedings for determination of the cash equivalent consideration (without
regard to the income tax consequences to the Offeror as a result of receiving
cash rather than the other consideration). The Company may elect to purchase
the Offered Interest at the determined cash equivalent amount by delivering
notice of such election to the Offeror within ten days after the arbitrator's
final decision.
10.6 Direct and Indirect Transfers. For purposes of this Agreement,
-----------------------------
restrictions upon the transfer of a Member's interest in the Company shall
extend to any direct or indirect transfer including, without limitation, an
involuntary transfer such as a transfer pursuant to a foreclosure sale or a
transfer resulting by operation of law.
10.7 Substitution of a Member.
------------------------
(a) Except as provided in Section 10.12, no assignee, legatee, or
-------------
transferee (by conveyance, operation of law, or otherwise) of the whole or any
portion of a Member's interest in the Company shall have the right to become a
substituted Member without the written consent of all of the Voting Members
(which consent may be withheld in the absolute discretion of each Voting
Member). A substituted Member shall succeed to all the rights and interest of
its assignor in the Company. An assignee of a Member who is not admitted as a
<PAGE>
Member shall be entitled only to the distributions to which its assignor would
otherwise be entitled.
(b) Except as otherwise provided in this Section 10.7(b), if a Non-
---------------
Voting Member shall die, the Non-Voting Member's executor, administrator, or
trustee, or if a Non-Voting Member shall be adjudicated insane or incompetent,
the Non-Voting Member's committee, conservator, or representative, or if a Non-
Voting Member shall be dissolved, merged, or consolidated, the Non-Voting
Member's successor in interest shall have the same rights and obligations that
such Non-Voting Member would have had if the Non-Voting Member had not died,
been adjudicated insane or incompetent, or dissolved, merged or consolidated,
except that the executor, administrator, trustee, committee, conservator,
representative, or successor shall not become a substituted Non-Voting Member
without the written consent of the Voting Members (which consent may be withheld
in the absolute discretion of each Voting Member). If a Voting Member shall die,
the Voting Member's executor, administrator, or trustee, or if a Voting Member
shall be adjudicated insane or incompetent, the Voting Member's committee,
conservator, or representative, or if a Voting Member shall be dissolved,
merged, consolidated, or experience a change in control, the Voting Member's
successor in interest shall have the same rights and obligations that such
Voting Member would have had if the Voting Member had not died, been adjudicated
insane or incompetent, or dissolved, merged, consolidated, or experienced a
change in control, and such Voting Member's executor, administrator, trustee,
committee, conservator, representative, or representative shall constitute a
substituted Voting Member for purposes of this Agreement.
(c) No transfer of any interest in the Company otherwise permitted
under this Agreement shall be effective for any purpose whatsoever until the
transferee shall have assumed the transferor's obligations to the extent of the
interest transferred and shall have agreed to be bound by all the terms and
conditions hereof, by written instrument, duly acknowledged, in form and
substance reasonably satisfactory to the Manager.
10.8 Conditions to Substitution. As conditions to admission as a Member
--------------------------
(i) any assignee, legatee, transferee, or successor of a Member shall execute
and deliver such instruments, in form and substance satisfactory to all of the
Voting Members, as the Voting Members shall deem necessary and (ii) such
assignee, legatee, transferee, or successor shall pay all reasonable expenses in
connection with its admission as a substituted Member.
10.9 Waiver as to Certain Transfers. Notwithstanding the foregoing
------------------------------
provisions of this Article 10, the restrictions on transfer of this Article 10
---------- ----------
shall not apply to: (a) a distribution of an interest in the Company to the
beneficial owners of a Member which is a trust; (b) a transfer by gift during
lifetime or at death of all or any portion of a Member's interest to any other
Member or the descendants of any Member, whether outright or in trust or custody
for the benefit of any other Member or descendants of such Member; (c) the grant
of "phantom equity interests" to employees or independent contractors; provided
that the grant does not dilute Artisan's equity interest or affect Artisan's
rights under this Agreement; further provided that such "phantom equity
interests" shall be non-transferable and subject to Section 10.10 of this
-------------
Agreement; or (d) a transfer by Artisan to a parent corporation or wholly-owned
subsidiary of a parent of Artisan. Notwithstanding anything to the contrary in
this Section
-------
<PAGE>
10.9, the provisions of Section 10.7 and Section 10.8 shall apply to any
- ----- ------------
distribution, transfer, or grant permitted under this Section 10.9.
------------
10.10 Artisan Purchase Option.
-----------------------
(a) Commencing on January 1, 2001, and ending on the later of March
31, 2001 or 30 days following delivery of audited financial statements for the
Company's fiscal year ending on December 31, 2000 (the "Artisan Option Period"),
---------------------
Artisan shall have an option (the "Artisan Purchase Option") to elect to
-----------------------
purchase all other Members' interests in the Company and any employees' or
independent contractors' phantom equity interests at the Artisan Purchase Price
(as defined in Section 10.10(b)). To exercise the Artisan Purchase Option,
----------------
Artisan shall give written notice to the Manager prior to expiration of the
Artisan Option Period.
(b) The "Artisan Purchase Price" shall be equal to *.
(c) If Artisan elects to exercise the Artisan Purchase Option, the
sale shall be closed within 90 days following the last day of the Artisan Option
Period at a time and place to be mutually agreed upon by the parties, and, in
the absence of agreement, the closing shall be held at the Company's registered
office at 10:00 a.m. on the 90th day following the last day of the Artisan
Option Period. Immediately prior to closing, the Company shall make a "Purchase
Option Closing Distribution" (as defined in the Purchase Agreement) in order
that the Company is free of debt and cash as of the closing. The Purchase Option
Closing Distribution shall be subject to adjustment as described in section 7.24
of the Purchase Agreement. At the closing: (i) the Members other than Artisan
and any employees and independent contractors holding phantom equity interests
shall execute such documents as necessary to effectively transfer their
interests in the Company to Artisan; and (ii) Artisan shall pay the Artisan
Purchase Price and any adjustment thereto in immediately available funds.
(d) If Artisan elects to exercise the Artisan Purchase Option,
Artisan shall have the right, in its sole discretion, to terminate the Company's
employment relationship with any Member who is employed as a Manager or officer
of the Company or to continue any such employment relationship upon terms to be
mutually agreed upon between the parties. If Artisan elects to terminate the
Company's employment relationship with any Member employed as a Manager or
officer of the Company, at closing of the Artisan Purchase Option such Member
shall enter into a non-compete agreement containing such terms as outlined in
the closing documents for the Sale Transaction. If Artisan elects to continue
the Company's employment relationship with any Member employed as a Manager or
officer of the Company, the parties shall negotiate an employment agreement in
good faith that includes such cash and other compensation as commensurate with
the Member's duties and responsibilities and which is agreeable to the parties.
10.11 Company Call Option.
-------------------
(a) In the event that Artisan does not elect to exercise the
Artisan Purchase Option, the Company shall have an option (the "Company Call
------------
Option"), for a period of one
- -------
<PAGE>
year commencing on the day following expiration of the Artisan Option Period
(the "Company Option Period"),to elect to purchase all Artisan's interest in the
---------------------
Company at the Company Purchase Price (as defined in Section 10.11(b)). To
----------------
exercise the Company Call Option, the Company shall give written notice to
Artisan prior to expiration of the Company Option Period.
(b) The "Company Purchase Price" shall be equal to *.
(c) If the Company elects to exercise the Company Call Option, the
sale shall be closed within 90 days following the last day of the calendar
quarter in which the Company gives written notice of its election to exercise
the Company Call Option at a time and place to be mutually agreed upon by the
parties, and, in the absence of agreement, the closing shall be held at the
Company's registered office at 10:00 a.m. on the 90th day following the last day
of the calendar quarter in which the Company gives written notice of its
election to exercise the Company Call Option. At the closing: (i) Artisan shall
execute such documents as necessary to effectively transfer its membership
interest to the Company; and (ii) the Company shall pay the Company Purchase
Price in immediately available funds.
10.12 Tag-Along/Drag-Along Rights.
---------------------------
(a) Notwithstanding anything to the contrary in this Article 10, if
----------
the Company does not elect to exercise the Company Call Option, upon expiration
of the Company Option Period J. A. Clark and W. E. Clark shall be free to enter
into a "Sale" (as defined in the Purchase Agreement) with a third party (the
"Buyer") at a price and upon such terms as they may negotiate. Upon entering
-----
into an agreement for a Sale of their interests in the Company to the Buyer, J.
A. Clark and W. E. Clark shall give Artisan written notice (the "Sale Notice")
-----------
of the name of the Buyer and all of the terms and conditions of the proposed
Sale, including the price and form of consideration to the Buyer, and a copy of
any written offer received from the Buyer.
(b) Artisan shall have the right for a period of 30 days (the "Tag-
---
Along Option Period") after delivery of the Sale Notice to elect to sell (the
- -------------------
"Tag-Along Right") a proportionate share of its interest in the Company (the
- ----------------
"Artisan Percentage") at the Sale Price (as defined in Section 10.12(d)) to the
- ------------------- ----------------
Buyer identified in the Sale Notice. The Artisan Percentage shall be the
product of Artisan's Sharing Ratio multiplied by a fraction, the numerator of
which is the Sharing Ratio being sold to the Buyer and the denominator of which
is the Sharing Ratios of those Members participating in the sale (the "Selling
-------
Members"). To exercise the Tag-Along Right, Artisan shall give written notice
- -------
to the Selling Members prior to expiration of the Tag-Along Option Period. If
Artisan elects to exercise the Tag-Along Right, unless the Selling Members have
agreed otherwise with the Buyer, the Sharing Ratio being sold by the Selling
Members shall be reduced by an amount equal to the Artisan Percentage and the
sale to the Buyer shall be closed according to the terms set forth in the Sale
Notice.
(c) In the event that Artisan does not elect to exercise the Tag-
Along Right, the Selling Members shall have the right for a period of 30 days
(the "Drag-Along Option Period") after expiration of the Tag-Along Option Period
------------------------
to elect to have Artisan participate
<PAGE>
and sell (the "Drag-Along Right") the Artisan Percentage at the Sale Price (as
----------------
defined in Section 10.12(d)) to the Buyer identified in the Sale Notice. To
----------------
exercise the Drag-Along Right, the Selling Members shall give written notice to
Artisan prior to expiration of the Drag-Along Option Period. If Selling Members
elect to exercise the Drag-Along Right, unless the Selling Members have agreed
otherwise with the Buyer, the Sharing Ratio being sold by the Selling Members
shall be reduced by an amount equal to the Artisan Percentage and the sale to
the Buyer shall be closed according to the terms set forth in the Sale Notice.
(d) For purposes of this Section 10.12, the "Sale Price" shall mean
-------------
an amount equal to the greater of: (i) the Artisan Percentage times the purchase
price paid by Artisan in the Sale Transaction; or (ii) the Artisan Percentage
times the price to the Buyer as set forth in the Sale Notice.
ARTICLE 11
----------
TERM
Notwithstanding any provision of the Act, the Company shall have indefinite
duration and shall continue until dissolved by the unanimous written consent of
all of the Voting Members.
ARTICLE 12
----------
DISSOLUTION AND TERMINATION
12.1 Final Accounting. In the event of the dissolution of the Company, a
----------------
proper accounting shall be made as provided in Section 9.4 from the date of the
-----------
last previous accounting to the date of dissolution.
12.2 Liquidation. Upon the dissolution of the Company, the Manager or, if
-----------
the Manager is unable to act, some person selected by the Voting Members whose
Sharing Ratios comprise more than 50 percent of the combined Sharing Ratios of
the Voting Members, shall act as liquidator to wind up the Company. The
liquidator shall have full power and authority to sell, assign, and encumber any
or all of the Company's assets and to wind up and liquidate the affairs of the
Company in an orderly and businesslike manner. All proceeds from liquidation
shall be distributed in the following order of priority: (i) to the payment of
debts and liabilities of the Company and the expenses of liquidation; (ii) to
the setting up of such reserves as the liquidator may reasonably deem necessary
for any contingent liabilities of the Company; and (iii) to the Members in
accordance with Section 4.2.
-----------
12.3 Distribution in Kind. If the liquidator shall determine that a
--------------------
Company asset should be distributed in kind, the liquidator shall obtain an
independent appraisal of the fair market value of the asset as of a date
reasonably close to the date of liquidation. Any unrealized appreciation or
depreciation with respect to such asset shall be allocated among the Members (in
accordance with the provisions of Article 5 assuming that the asset were sold
---------
for the appraised value) and taken into consideration in determining the balance
in the Members' capital accounts as of the date of liquidation. Distribution of
any such asset in kind to a Member shall be considered a distribution of an
amount equal to the asset's fair market value
<PAGE>
for purposes of Section 12.2. The liquidator, in its sole discretion, may
------------
distribute any percentage of any asset in kind to a Member even if such
percentage exceeds the percentage in which the Member shares in distributions;
provided that the sum of the cash and fair market value of all the assets
distributed to each Member equals the amount of the distribution to which each
Member is entitled.
12.4 Waiver of Right to Court Decree of Dissolution. The Members agree
----------------------------------------------
that irreparable damage would be done to the Company if any Member brought an
action in court to dissolve the Company or partition its assets. Accordingly,
each of the Members accepts the provisions of this Agreement as its sole
entitlement during the term of and upon the termination of its membership in the
Company. Each Member hereby waives and renounces its right to seek a court
decree of dissolution, to seek the appointment by a court of a liquidator for
the Company, or to seek a partition of Company assets.
12.5 Articles of Dissolution. Upon the completion of the distribution of
-----------------------
Company assets as provided in this Article 12, the Company shall be terminated
----------
and the person acting as liquidator shall file articles of dissolution and shall
take such other actions as may be necessary to terminate the Company.
ARTICLE 13
----------
NOTICES
13.1 Method of Notices. All notices required or permitted by this
-----------------
Agreement shall be in writing and shall be hand delivered, sent by registered or
certified mail (postage prepaid), or by facsimile or electronic mail (the
receipt of which is acknowledged in writing, including by facsimile of
electronic mail), and shall be effective when received or, if mailed, on the
earlier of (i) the date set forth on the receipt of registered or certified mail
or (ii) the fifth day after mailing.
13.2 Computation of Time. In computing any period of time under this
-------------------
Agreement, the day of the act, event, or default from which the designated
period of time begins to run shall not be included. The last day of the period
so computed shall be included, unless it is a Saturday, Sunday, or legal
holiday, in which event the period shall run until the end of the next day which
is not a Saturday, Sunday, or legal holiday.
ARTICLE 14
----------
GENERAL PROVISIONS
14.1 Entire Agreement. This Agreement embodies the entire understanding
----------------
and agreement among the parties concerning the Company and supersedes any and
all prior negotiations, understandings, or agreements in regard thereto.
14.2 Amendment. This Agreement may only be amended with the unanimous
---------
written consent of the Voting Members. No rights hereunder may be waived except
by an instrument in writing signed by the party sought to be charged with such
or waiver.
<PAGE>
14.3 Applicable Law. This Agreement shall be construed in accordance with
--------------
and governed by the laws of the State of Colorado.
14.4 Pronouns. References to a Member or to a Manager, including by use of
--------
a pronoun, shall be deemed to include the masculine or feminine, the singular or
plural, and individuals or entities where applicable.
14.5 Counterparts. This instrument may be executed in any number of
------------
counterparts, each of which shall be considered an original.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement to be effective
as of the date first above written.
MEMBERS:
-------
/s/ Julie A. Clark
----------------------------- Date: February 4, 2000
Julie A. Clark ----------------
/s/ William E. Clark
----------------------------- Date: February 4, 2000
William E. Clark -----------------
ARTISAN ENTERTAINMENT INC.,
a Delaware corporation
By: /s/ Ken Schapiro Date: February 4, 2000
------------------------- ----------------
Name:
-----------------------
Title: EVP
----------------------
MANAGER:
-------
/s/ Julie A. Clark Date: Februray 4, 2000
---------------------------- ----------------
Julie A. Clark
<PAGE>
EXHIBIT B
I.R.C. (S) 754 Election:
Basis Allocation
Capital Assets/I.R.C. (S) 1231(b) Property
------------------------------------------
*
<PAGE>
EXHIBIT D
February 4, 2000
Artisan Entertainment, Inc.
2700 Colorado Avenue
Santa Monica, CA 90404
Attention: Mr. Ken Schapiro
Re: Purchase Agreement, dated as of February 4, 2000, by and among
The Baby Einstein Company, LLC, Julie Aigner-Clark, William Clark
and Artisan Entertainment, Inc. (the "Purchase Agreement")
Ladies and Gentlemen:
We have acted as counsel to The Baby Einstein Company, LLC, a Colorado limited
liability company (the "Company"), and the Sellers in connection with the
-------
transaction (the "Transaction") provided for by the Purchase Agreement. This
-----------
opinion is being delivered to you pursuant to Section 2.2(b)(v)(C) of the
Purchase Agreement. Capitalized terms used but not defined herein have the
meanings ascribed thereto in the Purchase Agreement.
MATERIAL EXAMINED
-----------------
In connection with this opinion, we have examined the following documents:
i. The Purchase Agreement;
ii. The amendment to the Operating Documents, as set forth in Section
2.2(b)(iv) of the Purchase Agreement;
iii. The Distribution Agreement;
iv. Photocopies of the articles of organization and operating agreement of the
Company and applicable member resolutions of the Company pertaining to the
transactions provided for by the Purchase Agreement, certified as being
complete, true and correct by the Manager of the Company; and
v. Certificate issued by the Colorado Secretary of State, dated as of January
14, 2000, relating to the good standing of the Company in the State of
Colorado (a copy of which is attached hereto).
The documents listed in paragraphs i through iii are referred to herein
individually as a "Transaction Document" and collectively as the "Transaction
-------------------- -----------
Documents."
- ---------
We have also examined originals or photocopies of such other corporate documents
and
<PAGE>
records of the Company, certificates of public officials relating to the
Company and certificates of the Manager of the Company as we have deemed
necessary as a basis for the opinions expressed herein. As to all factual
matters material to the opinions expressed herein, we have (with your permission
and without any investigation or independent verification) relied upon, and
assumed the accuracy and completeness of, such certificates and corporate
records and the representations and warranties contained in the Transaction
Documents.
ASSUMPTIONS
-----------
In connection with this opinion, we have, with your consent and without
investigation or independent verification, assumed the following:
a. With respect to all parties who are parties to the Transaction
Documents other than the Company:
(1) The Transaction Documents have been duly authorized, executed and
delivered by such parties, and all such documents and instruments
constitute legal, valid and binding obligations of such parties
enforceable against such parties in accordance with their
respective terms;
(2) Neither the execution, the delivery nor the performance of the
Transaction Documents by any such party will result in any
violation of or be in conflict with or constitute a default under
the charter, bylaws or other governing documents of such party,
or any other document or instrument to which such party is a
party the consequences of which would affect the validity,
binding effect or enforceability of the Transaction Documents or
the performance by such party of its obligations thereunder;
(3) No such party is in violation of any order, judgment or decree of
any court, arbiter or arbitration panel or governmental
authority, the consequences of which would affect the validity,
binding effect or enforceability of the Transaction Documents or
the performance by such party of its obligations thereunder;
(4) Such parties are not subject to any special laws, regulations or
other restrictions that are not generally applicable to parties
participating in transactions of the type provided for by the
Transaction Documents and that would affect the validity, binding
effect or enforceability of the Transaction Documents or the
performance by such parties of their obligations thereunder; and
(5) Such parties are, to the extent necessary, duly formed entities
and are duly qualified to transact business in Colorado.
<PAGE>
b. All signatures (except signatures on behalf of the Company) are
genuine, all documents and instruments submitted to us as
originals are authentic and all documents and instruments
submitted to us as photocopies, telecopies or facsimiles conform
to the original documents and instruments.
c. To the extent the Transaction Documents are governed by laws
other than the State of Colorado, the Transaction Documents are
legal, valid and binding and are enforceable in accordance with
their respective terms .
OPINION
-------
Based solely upon the foregoing and subject to the comments, qualifications and
other matters set forth herein, we are of the opinion that:
1. The Company is a limited liability company validly existing, in good
standing and duly qualified to transact business under the laws of the
State of Colorado.
2. The Company has the requisite limited liability company power and
authority to conduct its business as presently being conducted, to
enter into the Transaction Documents to which it is a party and to
perform its obligations thereunder.
3. The Transaction Documents to which the Company is a party have been
duly authorized by all requisite limited liability company action on
the part of the Company, have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms.
4. The execution and delivery by the Company of the Transaction Documents
to which it is a party do not, and performance by the Company of its
obligations thereunder will not, violate, breach or result in a default
under (a) its articles of organization or its operating agreement, (b)
the provisions of any United States federal or State of Colorado law,
rule or regulation known to us to be applicable to the Company, (c) any
judgment or order of any United States federal or State of Colorado
governmental authority known to us and binding upon the Company, or (d)
any contract or agreement listed on Schedule I hereto.
5. Schedule II attached to this opinion correctly sets forth the
Membership Interests in the Company, and all of the outstanding
Membership Interests in the Company have been duly authorized.
6. To our knowledge, there are no outstanding options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise)
of, or any commitments or claims of any character relating to, any of
the Company's Membership Interests or any obligations (contingent or
otherwise) of the Company to repurchase, exchange or otherwise acquire
or retire any
<PAGE>
Membership Interests.
COMMENTS AND QUALIFICATIONS
---------------------------
The foregoing opinions are limited by, subject to and based upon the following
comments and qualifications:
A. Factual Matters. With respect to certain factual matters relating to
---------------
the opinions expressed herein we have relied, without independent
investigation, upon the certificates of the Manager of the Company
attached hereto. In particular, please note that our opinions set forth
in clauses "(c)" and "(d)" of paragraph 4 and paragraph 6 are based on
such certificates. Without limiting the generality of the foregoing, we
note that we do not generally represent the Company with respect to
litigation matters and, accordingly, our opinions set forth in
paragraph 4(c) above are based solely on a certificate of the Manager
of the Company attached hereto.
B. Existence, Good Standing and Due Qualification to Transact Business.
-------------------------------------------------------------------
The opinions expressed herein with respect to the Company's existence,
good standing and due qualification to transact business are based
solely upon the good standing certificate reviewed by us and described
in the Material Examined.
C. Tax, Anti-Trust and Securities Laws. In rendering the opinions
-----------------------------------
expressed herein we have made no examination of and express no opinion
with respect to the characterization of the Transaction under federal,
state or local tax laws and regulations or the tax liabilities of the
parties with respect thereto, as to matters of any federal or state
anti-trust laws, or as to matters of federal or state securities laws.
D. Equitable Principles and Remedies. The Transaction Documents are
---------------------------------
subject to general principles of equity (whether considered in a
proceeding in equity or at law), including without limitation, concepts
of materiality, reasonableness, good faith and fair dealing and to the
discretion of the court before which any proceeding therefor may be
brought, and public policy considerations. Certain remedies, waivers
and other provisions of the Transaction Documents may be limited,
affected or rendered unenforceable by applicable law and judicial
decisions; however such laws and decisions should not render the
Transaction Documents invalid as a whole. Without limiting the
generality of the foregoing, no opinion is expressed herein with
respect to (i) provisions in the Transaction Documents that provide for
arbitration, provide for penalties or liquidated damages or appoint one
party as attorney-in-fact for an adverse party, or (ii) any
indemnification provision that relieves or would purport to relieve any
party from its obligation to mitigate damages or indemnifies or
purports to indemnify a party from its own negligence, willful or
intentional misconduct, intentional torts or criminal or other unlawful
acts, or with respect to criminal
<PAGE>
penalties or exemplary or punitive damages.
E. Bankruptcy, etc. The Transaction Documents may be limited, affected
----------------
or rendered unenforceable by federal or state bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other statutes or
rules of law affecting creditors' rights generally.
F. Performance. To the extent that operation of the Company's business
-----------
constitutes "performance" by the Company of its agreements in the
Transaction Documents, various notices, filings, registrations,
consents, authorizations, approvals and other acts may be required with
various governmental authorities or regulatory bodies or third parties.
We express no opinion as to whether such notices, filings,
registrations, consents, authorizations, approvals or other acts have
been made, obtained or done or will be made, obtained or done. We
express no opinion as to compliance by the Company with any requirement
of laws, rules, regulations, orders, judgments, writs, injunctions or
decrees in the operation of its business or with any contract or
agreement to which the Borrower may be a party or which affects or
binds its properties.
G. Additional Documents and Instruments. The Transaction Documents make
------------------------------------
reference to documents and instruments not examined by us in connection
with this opinion. The opinions expressed herein are subject to the
matters that would be revealed by an examination of such documents and
instruments.
H. Knowledge. In connection with the opinions expressed herein as being
---------
limited to "our knowledge," "known to us" or words of similar import,
our examination has been limited to discussions with representatives of
the Company in the course of the Transaction, review of the
certificates of the Manager of the Company attached hereto, and the
actual knowledge of those lawyers in this firm with active involvement
in negotiating the Transaction and in preparing or commenting on any of
the Transaction Documents or in preparing this opinion, but without any
other investigation or inquiry or any review of court or other public
records.
I. Choice of Law and Forum. We express no opinion as to the
-----------------------
enforceability of any choice of law or choice of forum or venue
provision or consent to jurisdiction contained in any of the
Transaction Documents. We note that the Transaction Documents generally
provide that they are governed by the laws of the State of California.
For the purpose of this opinion and with your consent, we have assumed
that, notwithstanding such provisions, the substantive laws of the
State of Colorado will govern the Transaction Documents and the
validity, binding effect and enforceability thereof.
J. Law Limitation. The opinions expressed herein are limited to the laws
--------------
of the State of Colorado and the federal laws of the United States of
America.
<PAGE>
The opinions expressed herein are rendered as of the date hereof. We do
not undertake to advise you of matters that may come to our attention
subsequent to the date hereof and that may affect the opinions
expressed herein, including without limitation, future changes in
applicable law. This letter is our opinion as to certain legal
conclusions as specifically set forth herein and is not and shall not
be deemed to be a representation or opinion as to any factual matters.
The opinions expressed herein may be relied upon only by the addressee
hereof and its counsel in connection with the Transaction. Without our
prior written consent, this opinion may not be quoted in whole or in
part or otherwise used or referred to in connection with any other
transactions and may not be furnished to or filed with any governmental
agency or other person or entity without the prior written consent of
this firm.
Very truly yours,
HOLME ROBERTS & OWEN LLP
By: /s/ Charles A. Ramunno
-------------------------------
Charles A. Ramunno, Partner
cc: William Clark
Julie Aigner-Clark
<PAGE>
Schedule I
----------
Contracts and Agreements
------------------------
(Reproduced from Schedule 3.12(a) of the Purchase Agreement)
Employment Term Sheets with Jeffrey Mettais, Pamela Peccolo, Kathy Burr and
Terry Blank (start date 2/2/00), including salary, medical benefits, if any,
401(k) program and company matching, and holiday schedule. The Mettais, Burr,
Peccolo and Blank agreements have been previously provided to Buyer. The
Company's Employment Term Sheet and employment practices are further described
in Schedule 3.17 of the Purchase Agreement.
Group medical coverage is offered to every employee.
In 1998 while still a sole proprietorship, the Company established a pension
plan through Benetech consisting of a Money Purchase Plan and a Profit-Sharing
Plan. The contribution calculation statements dated February 25, 1999, has been
previously provided to Buyer. When the Company incorporated as a Limited
Liability Company (LLC) on April 30, 1999, Benetech made the required revisions
to the pension plan. Effective May 1, 1999 the Profit-Sharing Plan was
converted into a 401(k) Plan. On January 1, 2000, the Money Purchase Plan was
merged with the 401(k) Plan. Copies of the Company's Money Purchase Plan and
401(k) Plan have been previously provided to Buyer. A copy of the most recent
IRS determination letter and the year-end statement for the pension plan
brokerage account, dated December 31, 1999, is attached in Schedule 3.17 of the
Purchase Agreement.
License with The Hebrew University of Jerusalem for use of certain rights in the
name and mark "Einstein," a copy of has been previously provided to Buyer. See
Schedule 3.8 of the Purchase Agreement for additional information.
Baby Mozart and Baby Bach Music Development and Royalty agreements with William
Weisbach, previously provided to Buyer. Form of and drafts of revised Music
Development and Royalty Agreement and associated Purchase Option Agreement,
previously provided to Buyer directly to Artisan for comment.
Equipment lease with Wells Fargo Equipment Leasing for video production
equipment, previously provided to Buyer. The lease is personally guaranteed by
Julie and William Clark.
Videotape duplication pricing agreements with Reel Picture and WRS, previously
provided to Buyer.
Distribution agreements with Penton Overseas and Fast Forward Marketing, Inc.,
previously provided to Buyer.
Verbal agreement with Mark Burr to retain Burr at a rate of $5,000 per month as
an
<PAGE>
independent contractor providing video production services. This amount was
included in budget prepared by the Company for 2000 and previously provided to
Buyer in the Company's FY 00 Business Plan.
In 1999, the Company sold Penton Overseas approximately $843,800 in product. In
August 1999, Valley Media, a Penton account, became a direct account of the
Company. In January 2000, Learningsmith, another Penton account, declared
bankruptcy. 62 Learningsmith stores have been sold to The Store of Knowledge and
The Discovery Stores, both direct accounts of the Company. Also see Schedules
.3.7, 3.8 and 3.10 of the Purchase Agreement for related information.
Usage agreement with J. D. Marsden for Baby Shakespeare photos, previously
provided to Buyer.
Usage agreement with University Press of New England for use of James Wright's
poem, "Lying in a Hammock at William Duffy's Farm in Pine Island, Minnesota,"
used in Baby Shakespeare, previously provided to Buyer.
Usage agreement with Casarotto Ramsay & Associates Limited for use of Tennessee
William's, "Heavenly Grass," used in Baby Shakespeare, previously provided to
Buyer.
Usage agreement with Simon & Schuster, Inc. for use of W. B. Yeat's poem, "The
Cat and the Moon," used in Baby Shakespeare, previously provided to Buyer.
Usage agreement with Holy Cow! Press. for use of Ray A. Young Bear's poem,
"Wadasa Nakamoon," used in Baby Shakespeare, previously provided to Buyer.
Usage agreement with Pearson Education for use of Rowena Bennett's poem, "A
Modern Dragon," used in Baby Shakespeare, previously provided to Buyer.
Usage agreement with Steve Crow for use of his poem, "Revival," used in Baby
Shakespeare, previously provided to Buyer.
Usage agreement with Henry Holt and Company for use of Robert Frost's poem,
"Nothing Gold Can Stay," used in Baby Shakespeare, previously provided to Buyer.
Usage agreement with Random House, Inc. for use of Langston Hughes' poem, "My
Loves," used in Baby Shakespeare, previously provided to Buyer.
Usage agreement with Houghton Mifflin for use of Galway Kinnel's poem, "The
Apple Tree," used in Baby Shakespeare, previously provided to Buyer.
Settlement Agreement with Deborah Lynn Friedman and Sounds Write Productions for
the unauthorized publication of a composition, previously provided to Buyer.
Various permission forms for children appearing in Baby Einstein, Baby Mozart,
Baby Bach
<PAGE>
and Baby Shakespeare, previously provided to Buyer.
Distribution License with Comtec Co. Ltd, Japan, previously provided to Buyer.
Distribution License with Ex-Over, Israel, previously provided to Buyer.
Distribution License with Tinman Consulting Ltd, New Zealand, previously
provided to Buyer.
Distribution License with Sidney Rose/Associates, South Africa, previously
provided to Buyer.
Distribution License with A. I. Limited, Turkey, previously provided to Buyer.
Distribution License with Essential Minds, Inc, Spain, previously provided to
Buyer.
Distribution License with Cubic Enterprises, Inc., previously provided to Buyer.
The Company has started the process of terminating Cubic for cause (non-payment
of advances on royalties, lack of reporting, copyright infringement,
unauthorized sublicensing). See memo attached to Purchase Agreement to Jennifer
Rabin of Holme Roberts & Owens outlining Cubic breaches.
<PAGE>
Schedule II
-----------
Membership Interests
--------------------
<TABLE>
<CAPTION>
Pre-Closing:
- -----------
Member Type of Interest Sharing Ratio
------ ---------------- -------------
<S> <C> <C>
Julie A. Clark Voting Member 1%
William E. Clark Voting Member 1%
Julie A. Clark Non-voting Member 49%
William E. Clark Non-voting Member 49%
<CAPTION>
Post-Closing:
- ------------
Member Type of Interest Sharing Ratio
------ ---------------- -------------
<S> <C> <C>
Julie A. Clark Voting Member 0.8%
Julie A. Clark Non-voting Member 39.2%
William E. Clark Voting Member 0.8%
William E. Clark Non-voting Member 39.2%
Artisan Entertainment Inc. Voting Member 0.4%
Artisan Entertainment Inc. Non-voting Member 19.6%
</TABLE>
<PAGE>
Exhibit E
Confidentiality Agreement
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement ("Agreement") is made as of December 3,
1999, by and between The Baby Einstein Company LLC (the "Company") and Artisan
Entertainment Inc. ("Artisan").
In the course of dealings between the Company and Artisan, Artisan,
its affiliates, or their Representatives (as defined below) have learned or
received or may learn or receive from the Company "Information" (as defined
below). The Company and Artisan desire to establish and set forth certain
obligations with respect to the Company's Information. In consideration of the
foregoing, the Company and Artisan agree as follows:
1. The term "Information" shall mean any and all information, data,
reports, and other records which Artisan, its affiliates, or their
Representatives learn or receive from the Company, except that which: (1) was,
on or prior to its being furnished to Artisan by or on behalf of the Company,
generally known to the public; or (2) became generally known to the public after
its being furnished to Artisan by or on behalf of the Company, other than as a
result of the act or omission of Artisan, its affiliates, or any of their
directors, officers, partners, employees, agents, representatives or contractors
(collectively "Representatives"); or (3) was known to Artisan, its affiliates,
or their Representatives prior to Artisan's learning or receiving same from the
Company; or (4) was disclosed by the Company to third parties generally without
restriction on use and dislcosure; or (5) was lawfully received by Artisan, its
affiliates, or their Representatives from a third party without knowledge of the
third party's breach of agreement or obligation of trust.
2. The Company considers all Information to be proprietary to the
Company. All Information shall at all times, and throughout the world, remain
the property of the Company, exclusively, and all applicable rights in patents,
copyrights and trade secrets shall remain in the Company, exclusively.
3. None of Artisan, its affiliates, or their Representatives shall
directly or indirectly use any of the Information for any purpose, except to the
extent reasonable to perform their review of potential transactions with the
Company and, if a further contractual relationship between the Company and
Artisan or an affiliate of Artisan is created, any obligations of Artisan or its
affiliates under said Agreement.
4. Neither Artisan nor its affiliates shall disclose, or permit
access to, any portion of the Information to any person except if: (1) such
person is a Representative of Artisan or its affiliates and has a reasonable
need to know the Information for said person to evaluate potential transactions
with the Company; and (2) such person agrees to comply with the provisions of
this Agreement.
<PAGE>
5. Artisan shall indemnify the Company against all reasonable losses
and expenses incurred by the Company (including but not limited to reasonable
counsel fees), which result from the breach of any portion of this Agreement by
Artisan, its affiliates, or their Representatives.
6. This Agreement is the complete and exclusive statement of the
agreement between the parties, and supersedes all prior written and oral
communications and agreements relating to the subject matter hereof. No
modification, termination, extension, renewal or waiver of any provision of this
Agreement shall be effective unless in writing and signed by an authorized
representative of each party. This Agreement is governed by the laws of the
State of California.
This Agreement is duly executed as of the first date set forth above.
ARTISAN ENTERTAINMENT INC.
By: /s/ Ken Schapiro
----------------------------------
(signature)
Name: Ken Schapiro
--------------------------------
(print)
Title: EVP
-------------------------------
(print)
THE BABY EINSTEIN COMPANY LLC
By: /s/ Julie A. Clark
----------------------------------
(signature)
Name: Julie A. Clark
--------------------------------
(print)
Title: Manager
-------------------------------
(print)
<PAGE>
Exhibit 10.22
LOAN AND SECURITY AGREEMENT
Dated October 20, 1998
by and between
ARTISAN PICTURES INC.
--------------------------
as Borrower
95-4178252
-------------------------------
(Federal Tax ID No. of Borrower)
and
FINOVA CAPITAL CORPORATION
as Lender
$4,082,899.24
-----------------
Amount of Loan
========================
COMMERCIAL EQUIPMENT FINANCE
========================
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
AGREEMENT, dated as of October 20, 1998, by and between Artisan Pictures
Inc., a California corporation ("Borrower"), having its principal place of
business at 2700 Colorado Avenue, Santa Monica, California 90404; and FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), having a place of
business at 115 West Century Road, Paramus, New Jersey 07652.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower has requested Lender to make a loan to Borrower and
Lender is willing to make such loan to Borrower upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
ARTICLE 1. DEFINITIONS; CONSTRUCTION
1.1 Definitions.
-----------
In addition to other words and terms defined elsewhere in this Agreement
(including the Schedule), as used herein the following words and terms have the
following meanings, respectively, unless the context hereof otherwise clearly
requires:
"Agreement" means this Loan and Security Agreement as amended, modified or
supplemented from time to time.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banking institutions are authorized or obligated to close in New Jersey,
New York or Arizona.
"Closing Date" means the date on which the parties enter into this
Agreement.
"Collateral" means all assets of Borrower in which Borrower has granted or
will grant a Lien to Lender, pursuant to this Agreement or otherwise, including
those assets described in Section 3.1 hereof.
"Constituent Documents" means the certificate of incorporation, agreement
of partnership or limited partnership, organizational agreement, operating
agreement, by-laws, or such other similar document pursuant to which Borrower
was organized or its affairs are governed.
"Default" means an event which with notice or lapse of time, or both, would
constitute an Event of Default.
"Disbursement Date" means the date on which all conditions to the Loan are
satisfied by Borrower (which shall not be later than the Outside Date) and the
Loan proceeds are disbursed to Borrower or to other Persons at Borrower's
direction.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the Events of Default described in Section
7.1 hereof.
"Executive Officer" means the President, the Chief Executive Officer, or
the Chief Financial Officer of Borrower elected from time to time.
"GAAP" means generally accepted accounting principles in the United States
of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which Borrower's
independent certified public accountants concur), applied both to classification
of items and amounts.
"Interest Rate" means the "Interest Rate" defined on the Schedule.
<PAGE>
"Law" means any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
government or governmental agency.
"Legal Requirements" means any and all present and future judicial, and
administrative rulings or decisions, and any and all present and future federal,
state, and local laws, ordinances, rules, regulations, permits and certificates,
in each case, in any way applicable to Borrower (or the ownership or use of the
Collateral or its other assets), or this transaction.
"Lien" means any mortgage, pledge, lien, security interest (including
without limitation any conditional sale or other title retention agreement),
grant of a leasehold, charge or other encumbrance of any nature whatsoever, and
also means the filing of or the agreement to give any financing statement or
analogous document under the UCC or analogous law of any jurisdiction.
"Loan" has the meaning given to such term in Section 2.1 hereof.
"Loan Documents" means this Agreement, the Note, the Insurance Letter and
any other agreements, instruments and documents required to be, or which are,
executed by Borrower in connection with this Agreement or the Loan (as the same
may from time to time be amended, modified or supplemented).
"Maturity Date" means the "Maturity Date" defined on the Schedule.
"Note" means the promissory note of Borrower executed and delivered by
Borrower under this Agreement, in substantially the form annexed hereto as
Exhibit A with the blanks appropriately filled in.
"Obligations" means all of the indebtedness, liabilities and obligations of
every kind and nature of Borrower to Lender, whether now existing or hereafter
arising, whether or not currently contemplated, howsoever arising, including,
without limitation, all indebtedness, liabilities and obligations arising under,
in connection with or evidenced by this Agreement, the Note, the other Loan
Documents, or otherwise.
"Office", when used in connection with Lender, means its office located at
115 West Century Road, Paramus, New Jersey 07652, or such other office of Lender
as may be designated in writing from time to time by Lender to Borrower.
"Outside Date" means the "Outside Date" defined on the Schedule.
"Person" means an individual, corporation, national banking association,
partnership, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), governmental authority
or agency, or any other entity.
"Plan" means any employee benefit plan which is covered by ERISA and which
is maintained by Borrower or, in the case of a plan to which more than one
employer contributes, to which Borrower made contributions at any time within
the five plan years preceding the date of termination.
"Premises" means the "Premises" defined on the Schedule.
"Schedule" means the Schedule annexed to this Agreement and made a part
hereof. The Schedule is an integral part of this Agreement. All references to
"herein", "herewith", "hereunder" and "hereof" and words of similar import shall
for all purposes be deemed to include the Schedule.
"Term" means the period beginning on the first payment date following the
Disbursement Date and ending on the Maturity Date.
"UCC" means the Uniform Commercial Code as adopted in the State of New
York.
1.2 General Interpretive Principles.
-------------------------------
For purposes of this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires:
-2-
<PAGE>
(i) any pronoun used shall be deemed to cover both gender
forms as well as the neuter form;
(ii) all references to the plural shall include the singular,
the singular the plural and the part the whole;
(iii) the word "or" has the inclusive meaning frequently
identified by the phrase "and/or";
(iv) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(v) the words "herein", "herewith", "hereunder" and "hereof"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement;
(vi) references herein to "Articles", "Sections",
"Subsections", "Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;
(vii) a reference to a Subsection without further reference to
a Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(viii) the term "include" or "including" shall mean, without
limitation, by reason of enumeration; and
(ix) the term "satisfactory to Lender" or "satisfaction of
Lender" or "satisfactory to counsel" or "satisfaction of counsel" or other
similar terms means satisfactory to Lender or its counsel in its sole and
absolute discretion.
ARTICLE 2. THE LOAN
2.1 The Loan.
--------
Subject to the terms and conditions and relying upon the representations
and warranties herein set forth, including, without limitation, the fulfillment
of each and every condition of lending, Lender agrees to make a Loan to Borrower
in the principal amount set forth on the Schedule (the "Loan").
2.2 Use of Proceeds.
---------------
The proceeds of the Loan shall be used by Borrower solely for the purposes
set forth on the Schedule.
2.3 The Note.
--------
The obligation of Borrower to repay the Loan and to pay interest thereon
shall be evidenced by the Note. The Note shall be dated the Closing Date and
shall be executed by Borrower delivered to Lender on the Closing Date.
2.4 Disbursement.
------------
Subject to the conditions set forth herein, Lender shall, on the
Disbursement Date, credit, by wire transfer, the amount of the Loan to the
account of Borrower or the Person or Persons specified in writing by Borrower.
2.5 Loan Account.
------------
Lender shall maintain a loan account on its books in the name of Borrower
for the Loan in which will be recorded all payments of principal thereof and all
accruals and payments of interest thereon. The entries in the loan account (in
the absence of manifest error in the making thereof) shall be conclusive
evidence of the outstanding principal thereof and accrued interest thereon from
time to time. Lender shall provide Borrower with statements of said account
from time to time on request.
-3-
<PAGE>
2.6 Interest Rates.
--------------
2.6.1 Interest Prior to Maturity. Prior to maturity (whether by
--------------------------
acceleration or otherwise) the unpaid principal amount of the Loan shall bear
interest at the Interest Rate.
2.6.2 Interest After Maturity. Commencing with the day after the
-----------------------
principal amount of any part of the Loan shall have become due and payable (by
acceleration or otherwise), such part of the Loan or the entire Loan (as the
case may be) shall bear interest at the daily rate of one percent (1%) per annum
above the Interest Rate (the "Default Rate").
2.6.3 Maximum Rate. Lender and Borrower intend the Loan Documents to
------------
comply in all respects with all provisions of Law and not to violate, in any
way, any legal limitations on interest charges. Accordingly, if, for any reason,
Borrower is required to pay, or has paid, interest at a rate in excess of the
highest rate of interest which may be charged by Lender or which Borrower may
legally contract to pay under applicable law (the "Maximum Rate"), then the
Interest Rate shall be deemed to be reduced, automatically and immediately, to
the Maximum Rate, and interest payable hereunder shall be computed and paid at
the Maximum Rate and the portion of all prior payments of interest in excess of
the Maximum Rate shall be deemed to have been prepayments of the outstanding
principal of the Loan and applied to the installments in the inverse order of
their maturities.
2.7 Payments.
--------
2.7.1 Time; Place; Manner. All payments to be made in respect of
-------------------
principal, interest, or other amounts due from Borrower hereunder or under the
Note shall become due at 12:00 o'clock noon, New Jersey time, on the day when
due without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. Such payments shall be made to Lender in lawful money
of the United States of America in immediately available funds.
2.7.2 Payments of Principal and Interest. The Loan, together with
----------------------------------
interest thereon shall be repaid by Borrower to Lender in the amounts and on the
dates and as otherwise set forth on the Schedule.
2.7.3 Application of Payments. Each payment under this Agreement and
-----------------------
the other Loan Documents shall be applied, first to fees, costs, expenses and
charges, if any, owing to Lender, then to interest as may be due hereunder, and
the balance of such payment shall be applied to the principal balance of the
Loan.
2.7.4 Net Payments. All payments hereunder and under the Note shall
------------
be made by Borrower to Lender without defense, set-off, claim or counterclaim
and without deduction for any present or future income, stamp or other taxes,
levies, imposts, deductions, charges or withholdings whatsoever imposed,
assessed, levied or collected by or for the benefit of any jurisdiction or
taxing authority. In addition, Borrower shall pay any and all taxes (stamp or
otherwise) payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Note and the other Loan Documents and on all
payments to be made by Borrower hereunder and under the Note and the other Loan
Documents (other than Lender's income taxes) and all taxes payable in connection
with or related to the Collateral.
2.8 Prepayments.
-----------
The Loan may be prepaid only as set forth on the Schedule.
2.9 Administrative Costs.
--------------------
If Borrower shall fail to make any payment of principal or interest within
ten (10) days after the same is due, Borrower shall pay a late charge of two and
one-half percent (2.5%) of the unpaid amounts, but in no event greater than the
maximum rate permitted by law, and such amount shall be payable upon demand.
Such payment is not interest for the use of money, but is solely to cover
Lender's administrative costs occasioned by such delay.
-4-
<PAGE>
ARTICLE 3. SECURITY
3.1 Security.
--------
As security for the full and timely payment and performance of all of the
Obligations of Borrower to Lender, Borrower hereby assigns, pledges, transfers
and sets over to Lender, and hereby agrees that Lender shall have, and hereby
grants to and creates in favor of Lender, a first security interest under the
UCC subject to no other Liens, in and to the following, in each case, whether
now existing or hereafter arising, now owned or hereafter acquired, wherever
located:
3.1.1 All equipment, machinery, furniture, fixtures and other assets
listed on Schedule A annexed hereto; and
3.1.2 All accessions and additions thereto, substitutions for, and
all replacements of, any and all of the foregoing, and all proceeds of the
foregoing, cash and non-cash, including insurance proceeds.
3.2 Lender Has Rights and Remedies of a Secured Party.
-------------------------------------------------
In addition to all rights and remedies given to Lender by this Agreement,
Lender shall have all the rights and remedies of a secured party under the UCC.
3.3 Additional Provisions Applicable to the Collateral.
--------------------------------------------------
The parties agree that, at all times during the term of this Agreement, the
following provisions shall be applicable to the Collateral:
3.3.1 Borrower covenants and agrees that it will keep accurate and
complete books and records concerning the Collateral owned or acquired by it in
accordance with GAAP.
3.3.2 Lender shall have the right to review the books and records of
Borrower pertaining to the Collateral and to copy the same and to make excerpts
therefrom, all at such reasonable times upon reasonable notice and as often as
Lender may reasonably request.
3.3.3 Borrower shall maintain and keep its principal place of
business and its chief executive office at the address set forth at the
beginning of this Agreement, and at no other location without giving Lender at
least thirty (30) days prior written notice of any move. Borrower shall
maintain and keep its records concerning the Collateral at such address and at
no other location without giving Lender at least thirty (30) days prior written
notice of any move. Borrower shall keep all Collateral only at the Premises.
Borrower may not move the Collateral without the prior written consent of
Lender.
3.3.4 Except for Liens granted to Lender, Borrower shall not sell,
lease, transfer or otherwise dispose of or encumber any of the Collateral,
provided that so long as there is no Default, Borrower may, in the ordinary
course of its business, (a) replace obsolete and worn-out equipment with
substantially identical equipment having a fair market value of not less than
the replaced equipment, provided further that (i) Lender shall be granted a
first and only perfected Lien covering such equipment, and (ii) if requested,
Borrower shall execute and deliver to Lender such financing statements as Lender
shall reasonably require in order to perfect Lender's first and only Lien
covering such equipment.
3.3.5 Borrower shall cause the Collateral to be maintained and
preserved in the same condition, repair and working order as when new, ordinary
wear and tear excepted, and shall promptly make or cause to be made all repairs,
replacements and other improvements in connection therewith which are necessary
or desirable to that end.
3.3.6 Borrower shall not affix or permit the Collateral to become
affixed to real estate or to any other goods, and such Collateral shall remain
personal property, whether or not so affixed.
3.4 Certain Covenants.
-----------------
Borrower covenants and agrees with Lender for the benefit of Lender that:
3.4.1 Borrower has and will have good and merchantable title to all
of its assets,
-5-
<PAGE>
including the Collateral, in each case as from time to time owned or acquired by
it, and shall keep the Collateral free and clear of all Liens, other than those
granted to Lender. Borrower will defend such title against the claims and
demands of all Persons whomsoever.
3.4.2 Borrower will faithfully preserve and protect Lender's Liens in
the Collateral and will, at its own cost and expense, cause said Liens to be
perfected and continued perfected, and for such purpose Borrower will from time
to time at the request of Lender and at the expense of Borrower, make, execute,
acknowledge and deliver, and file or record, or cause to be filed or recorded,
in the proper filing places, all such instruments, documents and notices,
including without limitation financing statements and continuation statements,
as Lender may deem necessary or advisable from time to time in order to perfect
and continue perfected said security interest. Borrower will do all such other
acts and things and make, execute, acknowledge and deliver all such other
instruments and documents, including without limitation further security
agreements, pledges, endorsements, assignments and notices, as Lender may deem
necessary or advisable from time to time in order to perfect and preserve the
priority of said Liens as a first and only Lien on and security interest in the
Collateral prior to the rights of all other Persons therein or thereto.
3.4.3 Borrower will not, without the prior written consent of Lender,
(i) borrow or permit any Person to borrow against the Collateral other than the
Loan to Borrower from Lender pursuant to this Agreement; (ii) create, incur,
assume or suffer to exist any Lien with respect to any of the Collateral; (iii)
permit any levy or attachment to be made against any of the Collateral except
any levy or attachment relating to this Agreement; or (iv) permit any financing
statement to be on file with respect to any of the Collateral, except financing
statements in favor of Lender and those relating to subordinate Liens held by
the Subordinated Creditor permitted hereunder.
3.4.4 Risk of loss of, damage to or destruction of the Collateral is
and shall remain upon Borrower. Borrower will insure the Collateral as provided
in Section 6.3 of this Agreement. If Borrower fails to effect and keep in full
force and effect such insurance or fails to pay the premiums thereon when due,
Lender may do so for the account of Borrower and add the cost thereof to the
Obligations and the same shall be payable to Lender on demand. Borrower hereby
assigns and sets over unto Lender for the benefit of Lender all moneys which may
become payable on account of such insurance, including without limitation any
return of unearned premiums which may be due upon cancellation of any such
insurance and directs the insurers to pay Lender any amount so due. Lender, its
officers, employees and authorized agents and its successors and assigns, are
hereby appointed attorneys-in-fact of Borrower, for the purpose of endorsing any
draft or check which may be payable to Borrower in order to collect the proceeds
of such insurance or any return of unearned premiums. Such appointment is
irrevocable and coupled with an interest. The proceeds of insurance shall be
applied to reduction of the Obligations in any order Lender may choose or, in
Lender's sole discretion, to the repair or replacement of the Collateral, or any
part thereof, in which case Lender may impose such conditions on the
disbursement of the proceeds as Lender in its sole discretion deems appropriate.
3.4.5 Upon the occurrence and during the continuation or existence of
any Event of Default, Borrower shall promptly upon demand by Lender assemble the
Collateral and make it available to Lender at the place or places to be
designated by Lender. The right of Lender to have the Collateral assembled and
made available to it is of the essence of this Agreement and Lender may, at its
election, enforce such right in equity for specific performance.
3.4.6 Lender shall have no duty as to the collection or protection of
the Collateral or any part thereof or any income thereon, or as to the
preservation of any rights pertaining thereto, beyond exercising reasonable care
in the custody of any Collateral actually in the possession of Lender. Lender
shall be deemed to have exercised reasonable care in the custody and
preservation of such of the Collateral as may be in its possession if it takes
such action for that purpose as Borrower shall request in writing, provided that
such requested action shall not, in the judgment of Lender, impair Lender's
security interest in the Collateral or its rights in, or
-6-
<PAGE>
the value of, the Collateral, and provided further that such written request is
received by Lender in sufficient time to permit it to take the requested action.
ARTICLE 4. CONDITIONS OF CLOSING
The obligation of Lender to make the Loan hereunder is subject to the
accuracy, as of the date hereof and the Disbursement Date, of the
representations and warranties herein contained, to the performance by Borrower
of its obligations to be performed hereunder on or before such Disbursement Date
and to the fulfillment (to the satisfaction of Lender and its counsel) of the
following further conditions. If all conditions contained herein are not so
satisfied by the Outside Date, Lender shall have no obligation whatsoever to
make the Loan and shall have no liability for its refusal to do so.
4.1 Representations and Warranties.
------------------------------
The representations and warranties contained in Article 5 hereof shall be
true on the Closing Date and on and as of the Disbursement Date with the same
effect as if made on and as of such date.
4.2 Corporate Action.
----------------
On the Closing Date, Borrower shall deliver to Lender a certificate in form
and substance satisfactory to Lender, dated the Closing Date, signed by a duly
authorized officer of Borrower, certifying as to (a) true copies of the
Constituent Documents of Borrower, all as in effect on such date, (b) true
copies of all action taken by Borrower relative to this Agreement, the Note and
the other Loan Documents, and (c) the names, true signatures and incumbency of
the officer or officers of Borrower authorized to execute and deliver this
Agreement, the Note and the other Loan Documents on behalf of Borrower (and
Lender may conclusively rely on such certificate unless and until a later
certificate revising the prior certificate has been furnished to Lender).
Borrower shall also deliver to Lender good standing certificates for Borrower
issued by the Secretary of State of its State of incorporation and each state in
which it is required by Law to be qualified.
4.3 Opinion of Counsel.
------------------
On the Closing Date, Lender shall have received a favorable written opinion
of counsel for Borrower, dated the Closing Date and in form and substance
satisfactory to Lender and its counsel, Winick & Rich, P.C.
4.4 No Change of Law or Facts.
-------------------------
No change shall have occurred after the date of execution and delivery of
this Agreement in applicable Law or regulations thereunder or interpretations
thereof by appropriate regulatory authorities which, in the opinion of Lender or
its counsel, would make it illegal for Lender to acquire the Note, make the
Loan, or otherwise to participate in the Loan, nor shall any facts come to the
attention of Lender, concerning Borrower, its business or financial condition
which, in the opinion of Lender would increase the risk to Lender of repayment
of the Loan by Borrower.
4.5 Documents.
---------
The following documents shall have been duly authorized, executed and
delivered by the respective party or parties thereto, shall be in form and
substance satisfactory to Lender and its counsel and shall be in full force and
effect on the Closing Date and on the Disbursement Date, and an executed
counterpart of each thereof shall have been delivered to Lender and its counsel:
4.5.1 this Agreement;
4.5.2 the Note;
4.5.3 insurance certificates or policies of insurance evidencing the
coverages required by Section 6.3 hereof;
4.5.4 the Schedule, whose terms and conditions are incorporated in
this Agreement as if fully stated in this Agreement; and
4.5.5 other Loan Documents, if any.
-7-
<PAGE>
4.6 Collateral.
----------
Borrower shall provide to Lender a complete description of the Collateral,
together with evidence, in form and substance satisfactory to Lender in its sole
discretion, that Borrower owns legal title to the Collateral, free and clear of
all Liens, except for Liens granted to Lender.
4.7 Financing Statements.
--------------------
On the Closing Date, UCC financing statements covering the security
interest created by this Agreement in the Collateral shall have been duly filed
in the office of the Secretary of State of the State where the Collateral is
located and in all other places as, in the opinion of Lender, or its counsel,
are necessary or desirable to perfect such Liens, and Lender shall have been
granted a perfected first and only Lien covering the Collateral.
4.8 Licenses and Permits.
--------------------
All appropriate action shall have been taken prior to the Closing Date in
order to permit consummation of the transactions contemplated herein and hereby
and enforcement of all of the terms hereof and thereof, and all licenses,
permits, waivers, exemptions, authorizations and approvals required (or, in the
opinion of Lender or its counsel, advisable) to be in effect on the Closing Date
shall have been issued and shall be in full force and effect on such date, and
copies thereof shall have been delivered to Lender.
4.9 Additional Conditions.
---------------------
4.9.1 Lender shall have received all other agreements, instruments,
financing statements, certificates, waivers, searches, releases, terminations,
corporate or other action, agreements with suppliers of Collateral, ownership of
the Collateral and other documents as Lender or its counsel shall have requested
(each in form and substance satisfactory to Lender and its counsel).
4.9.2 After giving effect to the Loan, there shall be no Default or
Event of Default hereunder or under the other Loan Documents.
4.9.3 All legal matters incident to the Loan shall be satisfactory to
Lender and its counsel.
4.9.4 All additional conditions set forth on the Schedule shall have
been satisfied, true and in full force and effect.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
5.1 Organization and Qualification.
------------------------------
Borrower is duly organized, validly existing and in good standing as a
corporation under the Laws of the State set forth on the Schedule with full
power and authority to own its properties and to transact its business as now
transacted and as contemplated to be transacted. Borrower is qualified and in
good standing to transact business in each jurisdiction set forth on the
Schedule, which are all of the jurisdictions where the ownership of its
properties or the transaction of its business requires such qualification.
5.2 Authority and Authorization.
---------------------------
Borrower has full power and authority to execute, deliver and carry out the
provisions of this Agreement, the Note and the other Loan Documents to which it
is a party, to borrow hereunder and under the other Loan Documents and to create
the Liens provided for herein, and to perform its obligations hereunder and
thereunder, and all such action has been duly and validly authorized by all
necessary proceedings on its part.
5.3 Execution and Binding Effect.
----------------------------
This Agreement, the Note and the other Loan Documents to which Borrower is
a party have been duly and validly executed and delivered by Borrower and
constitute the legal, valid and binding obligation of Borrower enforceable in
accordance with their respective terms.
-8-
<PAGE>
5.4 Authorizations and Filings.
--------------------------
Except for the filing of UCC financing statements, no authorization,
consent, approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any governmental
authority is or will be necessary or advisable in connection with the execution
and delivery of this Agreement, the Note and the other Loan Documents or the
consummation by Borrower of the transactions herein and therein contemplated, or
performance by Borrower of or compliance by Borrower with, the terms and
conditions hereof or thereof.
5.5 Absence of Conflicts.
--------------------
Neither the execution and delivery of this Agreement, the Note or the other
Loan Documents, nor consummation of the transactions herein or therein
contemplated nor performance of, or compliance with the terms and conditions
hereof or thereof will (a) result in any violation or breach of (i) the
provisions of Borrower's Constituent Documents, or (ii) any Law, or the order,
rule or regulation of any court or governmental agency or body having
jurisdiction over Borrower or any of its properties, or (iii) any agreement,
bond, note, instrument or indenture to which Borrower is a party or pursuant to
which any of its properties are affected, or (b) result in the creation or
imposition of any Lien upon any property (now owned or hereafter acquired) of
Borrower, except for the Lien created by this Agreement.
5.6 Financial Statements.
--------------------
Borrower has heretofore furnished to Lender certain financial statements
and related financial information ("Financial Statements"). Such Financial
Statements (including the notes thereto) present fairly the financial condition
of Borrower as of the dates of the balance sheets contained therein, and the
results of its operations for the periods then ended, all in conformity with
GAAP on a basis consistent with that of Financial Statements for corresponding
prior periods. Except as disclosed therein, Borrower has no material contingent
liabilities (including liabilities for taxes), unusual forward or long-term
commitments or unrealized or anticipated losses from unfavorable commitments.
5.7 No Defaults.
-----------
There is no Default under the Loan Documents.
5.8 Litigation.
----------
There is no pending or threatened claim or proceeding by or before any
court or governmental agency against or affecting Borrower which, if adversely
decided would have a material adverse effect on the business, operations or
financial condition of Borrower or on the ability of Borrower to perform its
obligations under this Agreement, the Note or the other Loan Documents or on the
Collateral.
5.9 Title to Collateral.
-------------------
Borrower has good title to all of the Collateral, free and clear of all
Liens covering the Collateral, other than the Liens granted hereunder to Lender
covering the Collateral, which are and will at all times be perfected first
Liens covering the Collateral.
5.10 Taxes.
-----
All tax returns required to be filed by Borrower have been properly
prepared, executed and filed. All taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its properties, incomes, sales
or franchises which are due and payable have been paid.
5.11 Financial Accounting Practices.
------------------------------
Borrower makes and keeps books, records and accounts which, in reasonable
detail, accurately and fairly reflect Borrower's transactions and dispositions
of its assets.
5.12 Power To Carry On Business.
--------------------------
Borrower has all requisite power and authority to own and operate its
properties and to carry on its business as now conducted and as presently
planned to be conducted.
-9-
<PAGE>
5.13 No Material Adverse Change.
--------------------------
Since the date of the Financial Statements referred to in Section 5.6,
there has been no material adverse change in the business, operations or
financial condition of Borrower.
5.14 Compliance with Laws.
--------------------
Borrower is not in violation of any Law, except for violations which in the
aggregate do not have a material adverse effect on the business, operations or
financial condition of Borrower or on the Collateral.
5.15 Compliance with Agreements.
--------------------------
Borrower is not in default under any agreement, bond, note, indenture or
contract, except for defaults which in the aggregate do not have a material
adverse effect on the business, operation or financial condition of Borrower or
on the Collateral.
5.16 Bankruptcy.
----------
Borrower has not made or contemplated an assignment for the benefit of
creditors. No application or petition has been filed for the appointment of a
custodian, trustee, receiver or agent to take possession of the Collateral, or
to take possession of any of the other properties or assets of Borrower.
Borrower is generally paying its debts as such debts become due. Borrower is
not "insolvent" as that term is defined in Section 101(26) of the "Bankruptcy
Code" (Title 11 of the United States Code, 11 U.S.C. Section 101, et seq.) or
would be insolvent after giving effect to the Loan and the transactions
contemplated by the Loan Documents. Borrower has not filed a petition with the
Bankruptcy Court under the Bankruptcy Code, or commenced any proceeding relating
to Borrower under any bankruptcy or reorganization statute or under any
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction. No petition or application of the type described above has
been filed or commenced against Borrower, in which (i) Borrower, by any act, has
indicated or intends to indicate its approval thereof, consent thereto, or
acquiescence therein; (ii) an order has been or is expected to be entered
appointing any such custodian, trustee, receiver or agent, adjudicating Borrower
bankrupt or insolvent, or approving such petition or application in any such
proceeding; (iii) the Bankruptcy Court has ordered or is expected to order
relief against Borrower under the Bankruptcy Code; or (iv) such petition or
application was not dismissed within ninety (90) days of such filing or
commencement.
5.17 Accurate and Complete Disclosure.
--------------------------------
No representation or warranty made by Borrower in this Agreement and no
statement made by Borrower in the Financial Statements furnished pursuant to
Section 5.6 hereof or otherwise, or any certificate, report, exhibit or document
furnished by Borrower to Lender pursuant to or in connection with this Agreement
or the Loan is false or misleading in any material respect (including by
omission of material information necessary to make such representation, warranty
or statement not misleading).
5.18 Regulations G and U.
-------------------
Borrower is not engaged in the business of extending credit for the purpose
of purchasing or carrying "margin stock", as such term is used in Regulations G
or U promulgated by the Board of Governors of the Federal Reserve System as
amended from time to time. No part of the proceeds of the Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any "margin stock". Borrower does not own any "margin
stock".
5.19 Perfection.
----------
Except for the filings under Article 9 of the UCC specified in Section 4.7
hereof (and continuation statements at periodic intervals), no further filing or
recording is necessary under the UCC or under any other Laws of any
jurisdiction, in order to perfect in all applicable jurisdictions the Liens of
Lender in the Collateral. Upon such filings, Lender will be granted a perfected
first Lien covering the Collateral. There are no other Liens covering the
Collateral.
-10-
<PAGE>
5.20 Place of Business.
-----------------
Both the place of business (or chief executive office if there is more than
one place of business) of Borrower and the place where it keeps its corporate
records concerning the Collateral and all of its interest in, to and under this
Agreement are located at the address set forth at the beginning of this
Agreement.
5.21 Location of Collateral.
----------------------
For all purposes, including, without limitation, perfection of security
interests therein under Article 9 of the UCC, the Collateral is deemed located
and at all times shall be located at the Premises.
5.22 Name Changes, Mergers, Acquisitions.
-----------------------------------
Except as set forth in Borrower's 10K for 1996, in its 10Q for its fiscal
quarter ended March 1997 and except for the change of name from Live Film and
Media Works Inc. to Artisan Pictures Inc., Borrower has not within the six-year
period immediately preceding the Closing Date, changed its name, been the
surviving entity of a merger or consolidation, acquired all or substantially all
of the assets of any Person, acquired any asset from any Person not in the
business of selling such asset, or assumed any obligations of any other Person.
ARTICLE 6. COVENANTS
Borrower covenants that from and after the date hereof and until payment in
full of the Note and interest thereon and all other amounts due from Borrower
hereunder or under the Note or the other Loan Documents, unless Lender shall
otherwise consent in writing:
6.1 Reporting and Information Requirements.
--------------------------------------
6.1.1 Annual Financial Statements. As soon as practicable, and in
---------------------------
any event within ninety (90) days after the close of each fiscal year of
Borrower, Borrower shall furnish to Lender its annual audit reports for such
year for Borrower, including audited statements of income, retained earnings and
changes in financial position of Borrower for such fiscal year and audited
balance sheets of Borrower as of the close of such fiscal year, and notes to
each, all in reasonable detail, setting forth in comparative form the
corresponding figures for the preceding fiscal year where such presentation is
appropriate under GAAP, certified without qualification by independent certified
public accountants of recognized standing selected by Borrower and satisfactory
to Lender, together with (or included in such certification) a written statement
of such accountants substantially to the effect that (i) such accountants
examined such financial statements in accordance with generally accepted
auditing standards and accordingly made such tests of accounting records and
such other auditing procedures as they considered necessary in the circumstances
and (ii) in the opinion of such accountants such financial statements present
fairly the financial position of Borrower as of the end of such fiscal year and
the results of its operations and the changes in its financial position for the
fiscal year then ended, in conformity with GAAP applied on a basis consistent
with that of the preceding fiscal year (except for changes in application in
which such accountants concur).
6.1.2 Quarterly Financial Statements. Within forty-five (45) days
------------------------------
after the end of each of the first three fiscal quarters of each fiscal year,
Borrower shall furnish to Lender a copy of its interim financial statements of
the type described in Section 6.1.1 above, certified by an Executive Officer of
Borrower.
6.1.3 Notice of Event of Default. Promptly upon becoming aware of
--------------------------
any Default or Event of Default, Borrower shall give Lender notice thereof,
together with a written statement of a Chief Executive Officer of Borrower
setting forth the details thereof and any action with respect thereto taken or
contemplated to be taken by Borrower.
6.1.4 Notice of Material Proceedings. Promptly upon becoming aware
------------------------------
thereof Borrower shall give Lender written notice of the commencement, existence
or threat of any proceeding by or before any court or administrative agency
against or affecting Borrower or the Collateral which, if adversely decided,
would have a
-11-
<PAGE>
material adverse effect on the business, operations or financial condition of
Borrower or on the ability of Borrower to perform its obligations under this
Agreement, the Note, the other Loan Documents or on the Collateral.
6.1.5 Visitation. Borrower shall permit such persons as Lender may
----------
designate to visit and inspect the Collateral and to examine the books and
records of Borrower, at such reasonable times and as often as Lender may
reasonably request.
6.1.6 Other Deliveries. Promptly upon their becoming available,
----------------
Borrower shall furnish to Lender, copies of all registration statements and any
amendments and supplements thereto and any regular and periodic reports filed by
Borrower with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any or all of the
functions of said commissions.
6.2 Preservation of Existence and Franchises.
----------------------------------------
6.2.1 Borrower shall not enter into any merger, reorganization or
consolidation, or wind up, liquidate or dissolve, nor agree to do any of the
foregoing.
6.2.2 Borrower will qualify to do business and will remain in good
standing under the laws of each jurisdiction in which it is required to be
qualified by reason of the location of the properties owned or leased by it or
the conduct of its business.
6.2.3 Borrower shall do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence
and all permits, licenses, rights and privileges necessary or appropriate for
the conducting of its business as now and hereafter conducted. Borrower shall
not change its name. Borrower shall continue to engage in the same kind of
business and shall not make any material change in its business or in the nature
of its operations or engage in any unrelated line of business.
6.2.4 Borrower will comply with all Laws relative to the conduct of
its business or the location of the properties owned or leased by it, the non-
compliance with which could have a material adverse effect on the business,
operations, assets or financial or other condition of Borrower, as contemplated
hereby, or the ability of Borrower to perform its Obligations under this
Agreement, the Note or the other Loan Documents and will obtain or cause to be
obtained as promptly as possible any permit, license, consent, privilege or
approval of any governmental authority and make any filing or registration
therewith which at the time shall be required with respect to the performance of
its Obligations under this Agreement, the Note or the other Loan Documents or
for the operation of its business as presently conducted or as contemplated by
it.
6.2.5 Borrower shall not, except as otherwise permitted in this
Agreement, (a) convey, assign, sell, mortgage, encumber, pledge, hypothecate,
grant a security interest in, grant options with respect to, lease or otherwise
dispose of all or any part of any legal or beneficial interest in any part or
all of the Collateral or any interest therein; or (b) convey, assign, transfer
or otherwise dispose of all or substantially all of its assets (other than the
Collateral, the prohibition on transfer of which is governed by subparagraph (a)
above).
6.3 Insurance.
---------
Borrower shall, at its own expense, maintain and deliver evidence to Lender
of such insurance required by Lender, written by insurers and in amounts
satisfactory to Lender.
6.4 Maintenance of Properties.
-------------------------
Borrower shall maintain or cause to be maintained in good repair, working
order and condition the Collateral, and shall make or cause to be made all
needful and proper repairs, renewals, replacements and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
6.5 Payment of Taxes and Other Potential Charges.
--------------------------------------------
Borrower shall pay or discharge
-12-
<PAGE>
6.5.1 all taxes, assessments and other governmental charges or levies
imposed upon it or any of its properties, including the Collateral, or income
(including such as may arise under ERISA or any similar provision of law), on or
prior to the date on which penalties attach thereto; and
6.5.2 all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might result in
the creation of a Lien upon any such property, on or prior to the date when due;
provided, that unless and until foreclosure, distraint, levy, sale or similar
- --------
proceedings shall have been commenced, Borrower need not pay or discharge any
such tax, assessment, charge, levy, claim or current liability so long as (i)
the validity thereof is contested in good faith and by appropriate proceedings
diligently pursued, (ii) in Lender's sole judgment there is no reasonably
foreseeable risk of forfeiture of the Collateral, and (iii) such reserves or
other appropriate provisions as may be required by GAAP shall have been made
therefor, and so long as such failure to pay or discharge does not have a
material adverse effect on the business, operations or financial condition of
Borrower or the Collateral.
6.6 Financial Accounting Practices.
------------------------------
Borrower shall make and keep books, records and accounts which, in
reasonable detail, accurately and fairly reflect its business, including all
transactions and dispositions of its assets, all prepared in accordance with
GAAP.
6.7 Compliance with Laws.
--------------------
Borrower shall comply with all applicable Laws in all respects, provided,
--------
that Borrower shall not be deemed to be in violation of this Section 6.7 as a
result of any failures to comply which would not result in fines, penalties,
injunctive relief or other civil or criminal liabilities which, in the
aggregate, would not materially affect the business or operations of Borrower or
the ability of Borrower to perform its obligations under this Agreement, the
Note or the other Loan Documents or the Collateral.
6.8 Material Obligations.
--------------------
Borrower shall pay and satisfy, when due, all material liabilities and
obligations, including, without limitation, all obligations under all leases
(real or personal property) to which it is a party.
6.9 Maintenance of Collateral.
-------------------------
Borrower will maintain and preserve the Collateral in good condition,
repair and working order, promptly repairing, replacing or rebuilding any part
of the Collateral which may be destroyed by any casualty, or become damaged,
worn or dilapidated.
6.10 Maintenance of Principal Place of Business.
------------------------------------------
Borrower shall maintain and keep its principal place of business and chief
executive office at the address set forth at the beginning of this Agreement,
and at no other location without giving Lender written notice of any move.
Borrower shall maintain and keep its records at such address and at no other
location without giving Lender written notice of any move.
6.11 Names.
-----
Borrower shall not use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of Incorporation on
the date hereof or as set forth on the Schedule;
6.12 Margin Security.
---------------
Borrower shall not own, purchase or acquire (or enter into any contract to
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in
effect.
6.13 Satisfaction of Certain Obligations.
-----------------------------------
In the event Borrower fails to make any payment or do any act as herein
provided (including, but not limited to, maintaining any insurance required to
be maintained under the Loan Documents or paying all taxes in accordance with
the terms hereof) or there shall be a claim or Lien
-13-
<PAGE>
asserted or filed against the Collateral, Lender may, but shall not be obligated
to (and without releasing Borrower from any obligation hereunder), make all such
payments and perform all such acts or otherwise satisfy such obligations. All
sums paid by Lender in respect thereof and all costs, fees and expenses,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, which are incurred by Lender on account thereof, shall bear
interest at the Default Rate, shall be payable on demand by Borrower to Lender,
and shall be additional Obligations hereunder secured by the Collateral.
6.14 Transactions With Affiliates.
----------------------------
Borrower shall not, and shall not permit any of its subsidiaries, to,
directly or indirectly, enter into any purchase, sale, lease or other
transaction with any affiliate, except in the ordinary course of business on
terms that are no less favorable than those which might be obtained at the time
in a comparable arm's length transaction with any Person who is not an
affiliate.
6.15 Year 2000.
---------
Borrower shall take all action necessary to assure that there will be no
material adverse change to Borrower's business by reason of the advent of the
year 2000, including, without limitation, that all computer-based systems,
embedded microchips and other processing capabilities effectively recognize and
process dates after April 1, 1999. At Lender's request, Borrower shall provide
to Lender assurance reasonably acceptable to Lender that Borrower's computer-
based systems, embedded microchips and other processing capabilities are year
2000 compatible.
6.16 Further Assurances.
------------------
Borrower shall cause to be done, executed, acknowledged and delivered all
and every such further act, conveyance and assurance as Lender shall require for
accomplishing the purposes of this Agreement, the Note and the other Loan
Documents. Borrower will defend and protect its title with respect to the
Collateral and will indemnify Lender with respect thereto. Any payment in
respect of such indemnity shall be made directly to Lender on demand in
immediately available funds. Forthwith after notice from Lender, Borrower shall
promptly, without further consideration, execute, acknowledge and deliver such
further instruments and documents and will take such other actions as Lender may
deem necessary or advisable from time to time to ensure the enforceability or
priority of the Liens granted hereby, or otherwise to confirm and carry out the
intent and purpose of this Agreement.
ARTICLE 7. DEFAULTS AND REMEDIES
7.1 Events of Default.
-----------------
The occurrence of one or more of the following described events is an Event
of Default:
7.1.1 Borrower fails to make any payment of principal of or interest
on the Note, within ten (10) days after the date upon which the same shall be
due; or
7.1.2 Borrower fails to perform or observe any of its covenants or
agreements contained herein or in any other Loan Documents which cannot be
cured; or
7.1.3 Borrower fails to perform or observe any other covenant or
agreement to be performed or observed by it hereunder or under the other Loan
Documents and such failure continues unremedied for a period of thirty (30)
consecutive days after Borrower obtains knowledge of such occurrence; or
7.1.4 Borrower voluntarily creates, suffers to exist, incurs or
assumes any Lien, security interest, charge or encumbrance on, or with respect
to, any part of or all the Collateral, and such Lien shall not be removed within
thirty (30) days of its creation, or the Liens held by Lender in and to the
Collateral shall cease to be the first perfected Lien in and to the Collateral;
or
7.1.5 Except as otherwise permitted in this Agreement, Borrower
sells, assigns, leases, or otherwise disposes of or relinquishes possession of,
any Collateral; or
-14-
<PAGE>
7.1.6 any representation or warranty made by Borrower herein or in
any other Loan Document or in any document or certificate furnished by Borrower
to Lender in connection herewith or therewith at any time proves to have been
incorrect in any material respect when made; or
7.1.7 this Agreement or any Loan Document at any time for any reason
ceases to be in full force and effect or is declared by a court or governmental
agency of competent jurisdiction to be null and void; or
7.1.8 Borrower breaches or defaults (after giving effect to any
applicable grace or cure periods) under the terms of any agreement, instrument
or document with or for the benefit of Lender which is not a Loan Document or
under any other loan, credit facility or other financial accommodation made by
Lender to Borrower, including, without limitation, all promissory notes,
guaranties, equipment leases, security agreements, mortgages and deeds of trust;
or
7.1.9 there is a material adverse change in the business,
operations or financial condition of Borrower or in the Collateral; or
7.1.10 a proceeding is instituted seeking a decree or order for
relief in respect of Borrower in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect or for
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Borrower, or for any substantial
part of its properties or for the dissolution, winding-up or liquidation of its
affairs or any substantial part of any of its properties and such proceeding
remains undismissed or unstayed for a period of sixty (60) consecutive days or
such court enters a decree or order granting the relief sought in such
proceeding; or
7.1.11 Borrower voluntarily suspends transaction of its business,
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, consents to the entry of an order for
relief in an involuntary case under any such law or consents to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Borrower for any substantial part of
any of its properties, or makes a general assignment for the benefit of
creditors, or takes any action in furtherance of any of the foregoing; or
7.1.12 final judgment(s) for the payment of money in excess of
$500,000 shall be rendered against Borrower which within thirty (30) days from
the entry of such judgment(s) shall not have been discharged or stayed pending
appeal or which shall not have been discharged or bonded in full within thirty
(30) days from the entry of a final order of affirmance on appeal; or
7.1.13 Borrower fails to perform or observe any of its covenants or
agreements contained in Section 6.3 hereof or in the letter regarding insurance
requirements delivered by Borrower in connection with the Loan or the Loan
Documents (the "Insurance Letter") or any such insurance shall at any time cease
to be in full force and effect; or
7.1.14 there shall be a default under or breach of any term or
condition contained in any of the Chase Loan Documents (or any loan or credit
documents executed in connection with any loan facility which replaces, is in
substitution for or whose proceeds are used to repay all or a portion of the
indebtedness covered or evidenced by the Chase Loan Documents or subsequent loan
documents) and all or a portion of such indebtedness shall have been declared
due and payable or otherwise accelerated prior to the date on which such
indebtedness would otherwise be due and payable; or
7.1.15 the Letter of Credit shall at any time cease to be in full
force and effect; or
7.1.16 Borrower ceases to operate its business at either of the
Premises.
7.2 Consequences of Event of Default.
--------------------------------
7.2.1 If an Event of Default occurs, Lender may, by notice to
Borrower, declare the unpaid principal amount of the Note and interest accrued
thereon and all other Obligations and
-15-
<PAGE>
liabilities of Borrower hereunder or under the Note or the Loan Documents to be
immediately due and payable and the same shall thereupon become and be
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, and an action therefor
shall immediately accrue.
7.2.2 In addition, if an Event of Default occurs, Lender shall have
all rights and remedies granted herein and in the other Loan Documents and all
rights or remedies available at law (including, without limitation, the UCC) or
equity, whether as a secured party or otherwise (including specifically those
granted by the Uniform Commercial Code as in effect in the jurisdiction or
jurisdictions where the Collateral is located) and, except as limited by Law,
all remedies of Lender (i) shall be cumulative and concurrent; (ii) may be
pursued separately, successively or concurrently against Borrower or against all
or any portion of the Collateral, at the sole discretion of Lender; (iii) may be
exercised as often as occasion therefor shall arise, it being agreed by Borrower
that the exercise or failure to exercise any rights or remedies shall in no
event be construed as a waiver or release thereof or of any other right, remedy
or recourse; and (iv) are intended to be, and shall be, nonexclusive. To the
fullest extent permitted by applicable Law, Lender may resort to the rights,
remedies and recourses set forth herein and any other security therefor in such
order and manner as Lender may elect.
7.2.3 Without limiting any of the foregoing, Borrower agrees that (i)
Lender may, with or without notice and without legal process, enter upon any
property owned, leased or otherwise under the real or apparent control of
Borrower or any agent thereof or any other location where the Collateral may be
located and disassemble, disconnect, render unusable or repossess all or any
item of the Collateral; (ii) written notice mailed to Borrower, as provided in
this Agreement for the giving of notice, shall be reasonable if given ten (10)
days prior to (a) any public sale or (b) the date after which a private sale may
be made; (iii) a sale of the Collateral may be made as a unit or in parcels and
for cash and upon terms; (iv) Lender may buy the Collateral at any public sale
and at any private sale as permitted by the UCC; and (v) such public or private
sale or sales may be held or adjourned from time to time, and Lender shall have
the right to conduct such sale or sales on Borrower's premises (including,
without limitation, the Premises) or elsewhere where the Collateral is located,
and shall have the right to use Borrower's premises without charge for such sale
or sales for such time or times as Lender may determine.
ARTICLE 8. EXPENSES AND INDEMNITIES
8.1 Expenses.
--------
Borrower shall promptly reimburse Lender for all costs, fees and expenses
incurred by Lender in connection with the negotiation, preparation, execution,
delivery, administration, operation and enforcement of each of the Loan
Documents, including, but not limited to, the attorneys' and paralegals' fees of
in-house and outside counsel, expert witness fees, lien, title search and
insurance fees, appraisal fees, all charges and expenses incurred in connection
with any and all environmental reports and environmental remediation activities,
and all other costs, expenses, taxes and filing or recording fees payable in
connection with the transactions contemplated by this Agreement, including,
without limitation, all such costs, fees and expenses as Lender shall incur or
for which Lender shall become obligated in connection with (i) any inspection or
verification of the Collateral, (ii) any proceeding relating to the Loan
Documents or the Collateral, (iii) actions taken with respect to the Collateral
and Lender's security interest therein, including, without limitation, the
defense or prosecution of any action involving Lender and Borrower or any third
party, (iv) enforcement of any of Lender's rights and remedies with respect to
the Obligations or Collateral, (v) consultation with Lender's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving Borrower or any affiliate of Borrower, whether or not suit is filed,
and (vi) any other matters relating to or arising out of the Loan and/or the
Loan Documents. Notwithstanding anything to the contrary contained herein,
Borrower's obligation for the payment or reimbursement of the fees, costs and
expenses of Lender's outside counsel incurred in connection with the
negotiation, preparation, execution, delivery and
-16-
<PAGE>
closing of the Loan Documents and the transactions contemplated thereby shall
not exceed $6,000.
ARTICLE 9. MISCELLANEOUS
9.1 Further Assurances.
------------------
Borrower shall at any time and from time to time upon the written request
of Lender, execute and deliver such further agreements, instruments and
documents and do such further acts and things as Lender may reasonably request
in order to effect the purposes of this Agreement.
9.2 General Indemnity.
-----------------
Borrower shall indemnify, defend and hold harmless Lender from and
against, and, upon demand, reimburse Lender for, all claims, demands,
liabilities, losses, damages, judgments, penalties, costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
which may be imposed upon, asserted against or incurred or paid by Lender, on
account of any act performed or omitted to be performed under this Agreement,
the Note or the other Loan Documents or on account of any transaction arising
out of or in any way connected with the Collateral or this Agreement, the Note
or the other Loan Documents (including, without limitation, any litigation
matter involving claims or alleged claims by or disputes with third parties),
except as a result of the willful misconduct or gross negligence of Lender.
9.3 No Implied Waiver; Cumulative Remedies.
--------------------------------------
No course of dealing and no delay or failure of Lender in exercising any
right, power or privilege under this Agreement, the Note or any of the other
Loan Documents shall affect such right, power or privilege except as and to the
extent that the assertion of any such right, power or privilege shall be barred
by an applicable statute of limitations; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or privilege preclude any further exercise thereof or of any other
right, power or privilege. The rights and remedies of Lender under this
Agreement, the Note or the other Loan Documents are cumulative and not exclusive
of any rights or remedies which Lender would otherwise have.
9.4 Taxes.
-----
Borrower agrees to pay or reimburse Lender for any and all stamp, document,
transfer, recording or filing taxes or fees and all similar impositions payable
or hereafter determined by Lender to be payable in connection with this
Agreement, the Note or the other Loan Documents (including but not limited to
those necessary or advisable to record or to ensure the enforceability or
priority of this Agreement, the Note or the other Loan Documents), as determined
by Lender in its sole discretion from time to time, and any other documents,
instruments or transactions pursuant to or in connection herewith, and Borrower
agrees to save Lender harmless from and against any and all present or future
claims or liabilities with respect to or resulting from any delay in paying or
omission to pay any such taxes, fees or similar impositions.
9.5 Time of Essence.
---------------
Time is of the essence for the performance by Borrower of the Obligations
set forth in this Agreement and the other Loan Documents.
9.6 Modifications, Amendments or Waivers.
------------------------------------
Lender and Borrower may from time to time enter into written agreements
amending, modifying or supplementing this Agreement, the Note or the other Loan
Documents or changing the rights of Lender or Borrower hereunder or thereunder,
and Lender may from time to time grant waivers or consents to a departure from
the due performance of the obligations of Borrower thereunder. Any such
agreement, waiver or consent must be in writing and shall be effective only to
the extent set forth in such writing. In the case of any such waiver or
consent, any Event of Default so waived or consented to shall be deemed to be
cured and not continuing, but no such waiver or consent shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
-17-
<PAGE>
9.7 Holidays.
--------
Except as otherwise provided herein, whenever any payment or action to be
made or taken hereunder or the Note or any other Loan Document shall be stated
to be due on a day which is not a Business Day, such payment or action shall be
made or taken on the next following Business Day (and such day shall be included
in the calculation of interest due), unless such next succeeding Business Day
falls in a different calendar month, in which case payment or action shall be
made or taken on the next preceding Business Day.
9.8 Notices.
-------
9.8.1 Except as otherwise provided herein, all notices and other
communications required under the terms and provisions of this Agreement, the
Note or the other Loan Documents shall be in writing and shall become effective
when delivered by hand or received by overnight courier, telex, facsimile,
telegram or registered first class mail, postage prepaid, addressed as follows:
If to Lender, at:
FINOVA Capital Corporation
115 West Century Road
Paramus, New Jersey 07652
Facsimile No. 201-634-3325
Attention: Pamela Marchant
Vice President
with a copy to:
Winick & Rich, P.C.
919 Third Avenue
New York, New York 10022
Facsimile No. 212-308-5945
Attention: Michael A. Karpen, Esq.
If to Borrower, at the address set forth on the Schedule or at such other
address as either party may, from time to time, designate in writing to the
other party hereto.
9.8.2 If any notice is given by telex, facsimile transmission, or
telegram, the party giving such notice shall confirm such notice by a writing
delivered by hand or overnight courier; provided, however, that for all purposes
-------- -------
hereunder, notice shall be deemed effective at the time given by telex,
telecopier or telegram.
9.9 Governing Law.
-------------
THIS AGREEMENT, THE NOTE, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
9.10 Personal Jurisdiction and Service of Process.
---------------------------------------------
BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
BORROWER UNDER, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS AGREEMENT, THE
NOTE OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE COURT OF THE STATE
OF NEW YORK LOCATED IN NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK. BORROWER, BY ITS EXECUTION AND DELIVERY
OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE
PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING.
BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING BORROWER MAY BRING,
ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS, SHALL ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK. BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE
OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH
-18-
<PAGE>
ACTION OR PROCEEDING BY DELIVERY THEREOF TO BORROWER IN THE MANNER PROVIDED FOR
NOTICES IN THIS AGREEMENT. BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY
CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR
----- --- ----------
BASIS. BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT
ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF
NEW YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE
OF NEW YORK. NOTHING HEREIN SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY
EXTENT THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST BORROWER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW.
9.11 Waiver of Jury Trial.
--------------------
BORROWER AND LENDER HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY AGREEMENT, INSTRUMENT
OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR THEREWITH,
INCLUDING THE LOAN DOCUMENTS.
9.12 Severability.
------------
The provisions of this Agreement, the Note and any other Loan Document are
intended to be severable. If any such provision is held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
9.13 Prior Understandings.
--------------------
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the transactions provided for herein or therein.
9.14 Survival.
--------
All representations and warranties of Borrower contained in this Agreement
or any other Loan Document or made in writing in connection herewith or
therewith shall survive the execution and delivery of this Agreement, the Note
and the other Loan Documents, any investigation or inspection by Lender, the
making of the Loan hereunder, the payment of the Note or the expiration of this
Agreement. All covenants and agreements of Borrower contained herein shall
continue in full force until payment in full of the Obligations. Borrower's
obligation to pay the principal of and interest on the Note and all such other
amounts shall be absolute and unconditional under any and all circumstances.
9.15 Successors and Assigns.
----------------------
This Agreement shall be binding upon and shall inure to the benefit of
Lender and Borrower and their respective successors and permitted assigns,
except that Borrower may not assign, delegate or transfer any of its rights or
obligations hereunder or any interest herein without the written consent of
Lender which Lender may withhold in its absolute discretion. Any actual or
attempted assignment by Borrower without Lender's consent shall be null, void
and of no effect whatsoever. Lender may assign or otherwise transfer any or all
of its rights, title, interests and obligations hereunder and under the Note and
the other Loan Documents in whole or in part. If Lender makes such an
assignment, the assignee shall have all of the rights of the Lender and Borrower
shall not assert against the assignee any defense, counterclaims or setoff which
Borrower may have against Lender. Except to the extent otherwise required by
its context, the word "Lender" where used in this Agreement shall mean and
include the holder of the Note originally issued to Lender, and the holder of
such Note shall be bound by and have the benefits of this Agreement
-19-
<PAGE>
to the same extent as if such holder had been a signatory hereto, except that no
assignee shall be deemed to assume any obligation or duty imposed upon Lender
hereunder or the other Loan Documents and Borrower shall look only to Lender for
performance thereof. As used in this Section 9.16, "assign" shall be deemed to
include a pledge, sale of, or grant of a mortgage on, or a security interest in,
any of the Collateral or this Agreement or the other Loan Documents by Lender
and the term "assignee" shall be deemed to refer to the recipient of such
pledge, sale, mortgage or security interest.
9.16 Counterparts.
------------
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed and delivered by the parties, constituting an original but all such
counterparts together constituting but one and the same instrument.
9.17 Publicity.
---------
Lender is hereby authorized to issue appropriate press releases and to
cause a tombstone to be published announcing the consummation of the
transactions contemplated in this Agreement, including the aggregate amount of
the Loan. All such press releases and tombstones shall be subject to the prior
approval of Borrower.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Agreement effective as of the day
and year first above written.
ARTISAN PICTURES INC.
By: /s/ Mark Curcio
________________________________
Name: MARK CURCIO
_____________________________
Title: CEO
_____________________________
By: /s/ Robert L Denton
________________________________
Name: ROBERT L DENTON
_____________________________
Title: SR VP
_____________________________
FINOVA CAPITAL CORPORATION
By: /s/ A. Holland
_______________________________
Name: A. HOLLAND
_____________________________
Title: Director, Cont. Admin.
_____________________________
-20-
<PAGE>
EXHIBIT A
---------
Note
----
See attached.
<PAGE>
SECURED PROMISSORY NOTE
$4,082,899.24 October 20, 1998
New York, New York
FOR VALUE RECEIVED, the undersigned, ARTISAN PICTURES INC., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of FINOVA CAPITAL
CORPORATION ("Lender"), the principal sum of Four Million Eighty-Two Thousand
Eight Hundred Ninety-Nine and 24/100 Dollars ($4,082,899.24), together with
interest on the unpaid principal balance hereof from time to time outstanding at
the rate per annum and on the dates and all as otherwise provided in that
certain Loan and Security Agreement of even date herewith (the "Loan Agreement")
by and between Lender and Borrower.
This Note is the Note referred to in the Loan Agreement, is secured as set
forth in the Loan Agreement, may not be prepaid except as provided in the Loan
Agreement and is entitled to the benefits of the Loan Agreement. All
capitalized terms used in this Note which are not otherwise defined herein shall
have the respective meanings ascribed to them in the Loan Agreement.
All payments of principal and interest on this Note are to be made in
lawful money of the United States of America in immediately available funds,
without setoff, counterclaim or deduction of any nature, at the office of Lender
at 115 West Century Road, Paramus, New Jersey 07652 (or such other place as the
holder hereof shall designate to Borrower in writing), prior to 12:00 Noon,
local time, on the day when due.
If any payment of principal or interest becomes due on a day which is not a
Business Day, that payment shall be made on the next Business Day unless such
next Business Day falls in another calendar month in which event that payment
shall be made on the next preceding Business Day.
Lender and Borrower intend this Note to comply in all respects with all
provisions of law and not to violate, in any way, any legal limitations on
interest charges. Accordingly, if, for any reason, Borrower is required to pay,
or has paid, interest at a rate in excess of the highest rate of interest which
may be charged by Lender or which Borrower may legally contract to pay under
applicable law (the "Maximum Rate"), then the interest rate shall be deemed to
be reduced, automatically and immediately, to the Maximum Rate, and interest
payable hereunder shall be computed and paid at the Maximum Rate and the portion
of all prior payments of interest in excess of the Maximum Rate shall be deemed
to have been prepayments of the outstanding principal of this Note and applied
to the installments in the inverse order of their maturities.
If Borrower fails to make any payment of principal or interest within ten
(10) days after the payment is due, Borrower shall pay a late charge of two and
one-half percent (2.5%) of the unpaid amount, but in no event more than the
maximum amount permitted by applicable law, and such amount shall be payable
upon demand. Such payment is not interest for the use of money, but is intended
to cover Lender's administrative costs occasioned by such delay.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies contained in the Loan Agreement, including, without
limitation, the right, at its option, to declare all indebtedness under this
Note to be immediately due and payable.
Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of non-payment,
and all lack of diligence or delays in collection or enforcement of this Note or
the Loan Agreement.
<PAGE>
Lender may extend the time of payment of this Note, postpone the
enforcement hereof, release any Collateral, or grant any other indulgences
whatsoever, without affecting or diminishing Lender's right of recourse against
Borrower, as provided herein and in the Loan Agreement and in the other Loan
Documents, which right is hereby expressly reserved. The failure to assert any
right by Lender shall not be deemed a waiver thereof.
Borrower agrees to pay all costs, fees and expenses of collection,
including, without limitation, Lender's reasonable attorneys' fees and
disbursements, in the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note or if an Event of Default occurs.
THIS NOTE IS DEEMED TO HAVE BEEN MADE IN, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK. BORROWER IRREVOCABLY
CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER UNDER, ARISING OUT
OF, OR IN ANY MANNER RELATING TO THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN ANY STATE COURT OF THE STATE OF NEW YORK LOCATED IN
NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK. BORROWER, BY ITS EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY
AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH
COURTS IN ANY SUCH ACTION OR PROCEEDING. BORROWER FURTHER AGREES THAT ANY LEGAL
ACTION OR PROCEEDING BORROWER MAY BRING, ARISING OUT OF OR IN ANY MANNER
RELATING TO THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS, SHALL
ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF NEW YORK LOCATED IN NEW YORK
COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK. BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT,
SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY
DELIVERY THEREOF TO BORROWER IN THE MANNER PROVIDED FOR NOTICES IN THE LOAN
AGREEMENT. BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS.
----- --- ----------
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW
YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
NEW YORK. NOTHING HEREIN SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT
THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
BORROWER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW.
IN WITNESS WHEREOF, Borrower has duly executed this Note on the date first
above written.
ARTISAN PICTURES INC.
By: /s/ Mark Curcio
--------------------------------
Name: Mark Curcio
------------------------------
Title: CEO
-----------------------------
By: /s/ Robert L. Denton
--------------------------------
Name: Robert L. Denton
-----------------------------
Title: SVP
-----------------------------
Federal Tax Identification No 95-4178252
-2-
<PAGE>
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: Artisan Pictures Inc.
Address: 2700 Colorado Avenue
Santa Monica, California 90404
Date: October 20, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule (as each of the same may be amended,
modified or supplemented from time to time.)
================================================================================
Additional Definitions (Section 1.1):
"Chase Loan Documents" means the Amended and Restated Credit and Guaranty
Agreement dated as of July 9, 1998 by and among Borrower, the Guarantors named
therein, the Lenders named therein and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank, and all agreements, instruments and
documents executed in connection therewith.
"Interest Rate" means twelve and fifty-three hundredths (12.53%) percent,
provided that if the yield, as published in The Wall Street Journal, on the
--- ---- ------ -------
first (1st) Business Day preceding the Disbursement Date, for Treasury Notes
having a maturity date on or closest to the Maturity Date is greater than four
and sixty-eight (4.68%) percent, the Interest Rate shall be increased by the
amount of such excess. Interest shall be calculated on the basis of a year of
360 days and twelve months of thirty (30) days each and charged on a daily
basis.
"Maturity Date" means the date upon which the forty-eighth (48th)
consecutive monthly payment of principal and interest is scheduled to be due.
"Outside Date" means October 30, 1998.
"Premises" means 2700 Colorado Avenue, Santa Monica, California 90404 and
157 Chambers Street, New York, New York 10007.
================================================================================
The Loan (Section 2.1):
"Principal Amount of the Loan: $4,082,899.24
<PAGE>
================================================================================
Use of Proceeds (Section 2.2):
The proceeds of the Loan shall be used by Borrower solely to pay to
suppliers thereof the purchase price of equipment located at the Premises
and which is Collateral hereunder or to reimburse Borrower for its payment
to such supplier, the purchase price of such equipment:
================================================================================
Payments of Principal and Interest (Section 2.7.2):
The Loan, together with interest thereon at the Interest Rate, shall be
repaid in forty-eight (48) equal consecutive monthly payments of principal
and interest each in an amount which will fully amortize the Loan at the
Interest Rate over the Term. If the Disbursement Date is the thirtieth
(30th) day of a month, the first such monthly payment of principal and
interest shall be due and payable on the Disbursement Date. If the
Disbursement Date is not the thirtieth (30th) day of a month, the first
such monthly payment of principal and interest shall be due and payable on
the thirtieth (30th) day of the month in which the Disbursement Date
occurs, provided that in such event, Borrower shall also pay on such
thirtieth (30th) day, interest on the outstanding principal of the Loan, at
the Interest Rate, from the Disbursement Date to the thirtieth (30th) day
of the month in which the Disbursement Date occurs. Payments of principal
and interest shall continue to be due and payable on the thirtieth (30th)
day of each and every month thereafter through and including the Maturity
Date, when the entire unpaid principal balance which was not payable
earlier, whether due to regularly scheduled payments, acceleration or
otherwise, together with any unpaid interest, fees, costs and charges shall
be due and payable. Lender shall compute the amount of each payment and
advise Borrower of such amount. After the maturity of all or any part of
the Loan (by acceleration or otherwise), interest on the Loan or such part
thereof shall be due and payable at the Default Rate on demand.
Contemporaneously herewith, Lender will deliver to Borrower an amortization
schedule.
================================================================================
Prepayments (Section 2.8):
Borrower may not prepay the Loan, in whole or in part, prior to the
first regularly scheduled payment date occurring after the first
anniversary of the Disbursement Date. Borrower shall have the right,
upon not less than ten (10) days prior written notice to Lender, on
any regularly scheduled payment date occurring after the first
anniversary of the Disbursement Date, to prepay the outstanding
principal balance of the Loan in whole, but not in part, provided that
Borrower shall pay to Lender, together with the principal balance of
the Loan, (i) all accrued and unpaid interest on the amount prepaid
through the date of prepayment, (ii) all outstanding fees, charges and
other amounts then due under the Loan Documents, and (iii) a
prepayment fee in an amount equal to the product of (A) the
outstanding principal balance of the Loan at the time of prepayment,
times (B) the applicable percentage set forth opposite the year of the
Term in which the prepayment is made, as set forth below:
-2-
<PAGE>
Year of Term of Loan in
Which Prepayment is Made Percentage
----------------------- ----------
1 No prepayment permitted
2 4.25%
3 3.0%
4 1.5%
Once given, the notice of prepayment shall be irrevocable. Any acceleration
of the Loan as a consequence of the occurrence of an Event of Default shall
be presumed to be a mechanism to avoid the requirements of this provision
and shall be deemed a prepayment and subject to the appropriate prepayment
premium set forth above, in addition to all damages and other amounts
otherwise due under this Agreement and the other Loan Documents. If the
Loan is accelerated prior to the date upon which prepayment is permitted to
be made hereunder, the applicable percentage shall be 5.5%.
================================================================================
Additional Conditions (Section 4.11):
The obligation of Lender to make the Loan hereunder is subject to the
fulfillment, to the satisfaction of Lender and its counsel, of each of the
following conditions, in addition to the other conditions set forth in
Article 4 above:
(a) There shall have been no material adverse change in the business,
operations or financial condition of Borrower or in the Collateral
since ________________.
(b) Additional conditions:
(i) Borrower shall have delivered to Lender a Letter of Credit in the
face amount of $1,000,000 issued by a bank and otherwise in form
and substance satisfactory to Lender in its sole and absolute
discretion (the "Letter of Credit").
================================================================================
Organization and Qualification (Section 5.1):
Borrower:
State of Organization, etc.: Delaware
States of Qualification, etc.: California, New York
-3-
<PAGE>
================================================================================
Names (Section 6.12): None
================================================================================
Notices (Section 9.9.1)
Address of Notices to Borrower:
Artisan Pictures Inc.
2700 Colorado Avenue
Santa Monica, California 90404
Facsimile No.: 310-255-3840
Attention: Kenneth Schapiro
================================================================================
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Schedule effective as of the day
and year first above written.
ARTISAN PICTURES INC.
By: /s/ Mark Curcio
-----------------------------------
Name: Mark Curcio
---------------------------------
Title: CEO
--------------------------------
By: /s/ Robert L. Denton
-----------------------------------
Name: Robert L. Denton
---------------------------------
Title: SR -VP
--------------------------------
Federal Tax Identification No. 95-4178252
FINOVA CAPITAL CORPORATION
By: /s/ A. Holland
-----------------------------------
Name: A. Holland
---------------------------------
Title: Director, Cont. Admin.
--------------------------------
<PAGE>
Exhibit 10.23
LOAN AND SECURITY AGREEMENT
Dated December 21, 1999
by and between
ARTISAN PICTURES INC.
--------------------------
as Borrower
95-4178252
-------------------------------
(Federal Tax ID No. of Borrower)
and
FINOVA CAPITAL CORPORATION
as Lender
$1,200,000
------------------
Amount of Loan
=========================
COMMERCIAL EQUIPMENT FINANCE
=========================
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
AGREEMENT, dated as of December 21, 1999, by and between Artisan Pictures
Inc., a California corporation ("Borrower"), having its principal place of
business at 2700 Colorado Avenue, Santa Monica, California 90404; and FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), having a place of
business at 115 West Century Road, Paramus, New Jersey 07652.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower has requested Lender to make a loan to Borrower and
Lender is willing to make such loan to Borrower upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
ARTICLE 1. DEFINITIONS; CONSTRUCTION
1.1 Definitions.
-----------
In addition to other words and terms defined elsewhere in this Agreement
(including the Schedule), as used herein the following words and terms have the
following meanings, respectively, unless the context hereof otherwise clearly
requires:
"Agreement" means this Loan and Security Agreement as amended, modified or
supplemented from time to time.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banking institutions are authorized or obligated to close in New Jersey,
New York or Arizona.
"Closing Date" means the date on which the parties enter into this
Agreement.
"Collateral" means all assets of Borrower in which Borrower has granted or
will grant a Lien to Lender, pursuant to this Agreement or otherwise, including
those assets described in Section 3.1 hereof.
"Constituent Documents" means the certificate of incorporation, agreement
of partnership or limited partnership, organizational agreement, operating
agreement, by-laws, or such other similar document pursuant to which Borrower
was organized or its affairs are governed.
"Default" means an event which with notice or lapse of time, or both, would
constitute an Event of Default.
"Disbursement Date" means the date on which all conditions to the Loan are
satisfied by Borrower (which shall not be later than the Outside Date) and the
Loan proceeds are disbursed to Borrower or to other Persons at Borrower's
direction.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the Events of Default described in Section
7.1 hereof.
"Executive Officer" means the President, the Chief Executive Officer, or
the Chief Financial Officer of Borrower elected from time to time.
"GAAP" means generally accepted accounting principles in the United States
of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which Borrower's
independent certified public accountants concur), applied both to classification
of items and amounts.
"Holdings" means Film Holdings Co., a Delaware corporation, and the owner
of 100% of the outstanding stock of Borrower.
<PAGE>
"Interest Rate" means the "Interest Rate" defined on the Schedule.
"Law" means any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
government or governmental agency, including, without limitation, environmental
laws, rules and regulations.
"Legal Requirements" means any and all present and future judicial, and
administrative rulings or decisions, and any and all present and future federal,
state, and local laws, ordinances, rules, regulations, permits and certificates,
in each case, in any way applicable to Borrower (or the ownership or use of the
Collateral or its other assets), or this transaction.
"Lien" means any mortgage, pledge, lien, security interest (including
without limitation any conditional sale or other title retention agreement),
grant of a leasehold, charge or other encumbrance of any nature whatsoever, and
also means the filing of or the agreement to give any financing statement or
analogous document under the UCC or analogous law of any jurisdiction.
"Loan" has the meaning given to such term in Section 2.1 hereof.
"Loan Documents" means this Agreement, the Note, the Insurance Letter and
any other agreements, instruments and documents required to be, or which are,
executed by Borrower in connection with this Agreement or the Loan (as the same
may from time to time be amended, modified or supplemented).
"Maturity Date" means the "Maturity Date" defined on the Schedule.
"Note" means the promissory note of Borrower executed and delivered by
Borrower under this Agreement, in substantially the form annexed hereto as
Exhibit A with the blanks appropriately filled in.
"Obligations" means all of the indebtedness, liabilities and obligations of
every kind and nature of Borrower to Lender, whether now existing or hereafter
arising, whether or not currently contemplated, howsoever arising, including,
without limitation, all indebtedness, liabilities and obligations arising under,
in connection with or evidenced by this Agreement, the Note, the other Loan
Documents, the October 1998 Loan, the October 1998 Loan Agreement, the other
October 1998 Loan Documents, or otherwise.
"October 1998 Loan" means the loan in the original principal sum of
$4,082,899.24 made by Lender to Borrower, pursuant to the October 1998 Loan
Agreement and the other October 1998 Loan Documents.
"October 1998 Loan Documents" means the Loan and Security Agreement dated
as of October 20, 1998 (the "October 1998 Loan Agreement") by and between Lender
and Borrower, and all agreements, instruments and documents executed and
delivered or to be executed and delivered by Borrower and/or Lender in
connection with the October 1998 Loan, as any and all of the same have been or
may from time to time be amended, modified or supplemented.
"Office", when used in connection with Lender, means its office located at
115 West Century Road, Paramus, New Jersey 07652, or such other office of Lender
as may be designated in writing from time to time by Lender to Borrower.
"Outside Date" means the "Outside Date" defined on the Schedule.
"Person" means an individual, corporation, national banking association,
partnership, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), governmental authority
or agency, or any other entity.
"Plan" means any employee benefit plan which is covered by ERISA and which
is maintained by Borrower or, in the case of a plan to which more than one
employer contributes, to which Borrower made contributions at any time within
the five plan years preceding the date of termination.
"Premises" means the "Premises" defined on the Schedule.
-2-
<PAGE>
"Schedule" means the Schedule annexed to this Agreement and made a part
hereof. The Schedule is an integral part of this Agreement. All references to
"herein", "herewith", "hereunder" and "hereof" and words of similar import shall
for all purposes be deemed to include the Schedule.
"Term" means the period beginning on the first payment date following the
Disbursement Date and ending on the Maturity Date.
"UCC" means the Uniform Commercial Code as adopted in the State of New
York.
1.2 General Interpretive Principles.
-------------------------------
For purposes of this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires:
(i) any pronoun used shall be deemed to cover both gender
forms as well as the neuter form;
(ii) all references to the plural shall include the singular,
the singular the plural and the part the whole;
(iii) the word "or" has the inclusive meaning frequently
identified by the phrase "and/or";
(iv) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(v) the words "herein", "herewith", "hereunder" and "hereof"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement;
(vi) references herein to "Articles", "Sections",
"Subsections", "Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;
(vii) a reference to a Subsection without further reference to
a Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(viii) the term "include" or "including" shall mean, without
limitation, by reason of enumeration; and
(ix) the term "satisfactory to Lender" or "satisfaction of
Lender" or "satisfactory to counsel" or "satisfaction of counsel" or other
similar terms means satisfactory to Lender or its counsel in its sole and
absolute discretion.
ARTICLE 2. THE LOAN
2.1 The Loan.
--------
Subject to the terms and conditions and relying upon the representations
and warranties herein set forth, including, without limitation, the fulfillment
of each and every condition of lending, Lender agrees to make a Loan to Borrower
in the principal amount set forth on the Schedule (the "Loan").
2.2 Use of Proceeds.
---------------
The proceeds of the Loan shall be used by Borrower solely for the purposes
set forth on the Schedule.
2.3 The Note.
--------
The obligation of Borrower to repay the Loan and to pay interest thereon
shall be evidenced by the Note. The Note shall be dated the Closing Date and
shall be executed by Borrower delivered to Lender on the Closing Date.
2.4 Disbursement.
------------
Subject to the conditions set forth herein, Lender shall, on the
Disbursement Date, credit, by wire transfer, the amount of the Loan to the
account of Borrower or the Person or Persons specified in writing by Borrower.
-3-
<PAGE>
2.5 Loan Account.
------------
Lender shall maintain a loan account on its books in the name of Borrower
for the Loan in which will be recorded all payments of principal thereof and all
accruals and payments of interest thereon. The entries in the loan account (in
the absence of manifest error in the making thereof) shall be conclusive
evidence of the outstanding principal thereof and accrued interest thereon from
time to time. Lender shall provide Borrower with statements of said account
from time to time on request.
2.6 Interest Rates.
--------------
2.6.1 Interest Prior to Maturity. Prior to maturity (whether by
--------------------------
acceleration or otherwise) the unpaid principal amount of the Loan shall bear
interest at the Interest Rate.
2.6.2 Interest After Maturity. Commencing with the day after the
-----------------------
principal amount of any part of the Loan shall have become due and payable (by
acceleration or otherwise), such part of the Loan or the entire Loan (as the
case may be) shall bear interest at the daily rate of one percent (1%) per annum
above the Interest Rate (the "Default Rate").
2.6.3 Maximum Rate. Lender and Borrower intend the Loan Documents to
------------
comply in all respects with all provisions of Law and not to violate, in any
way, any legal limitations on interest charges. Accordingly, if, for any reason,
Borrower is required to pay, or has paid, interest at a rate in excess of the
highest rate of interest which may be charged by Lender or which Borrower may
legally contract to pay under applicable law (the "Maximum Rate"), then the
Interest Rate shall be deemed to be reduced, automatically and immediately, to
the Maximum Rate, and interest payable hereunder shall be computed and paid at
the Maximum Rate and the portion of all prior payments of interest in excess of
the Maximum Rate shall be deemed to have been prepayments of the outstanding
principal of the Loan and applied to the installments in the inverse order of
their maturities.
2.7 Payments.
--------
2.7.1 Time; Place; Manner. All payments to be made in respect of
-------------------
principal, interest, or other amounts due from Borrower hereunder or under the
Note shall become due at 12:00 o'clock noon, New Jersey time, on the day when
due without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. Such payments shall be made to Lender in lawful money
of the United States of America in immediately available funds.
2.7.2 Payments of Principal and Interest. The Loan, together with
----------------------------------
interest thereon shall be repaid by Borrower to Lender in the amounts and on the
dates and as otherwise set forth on the Schedule.
2.7.3 Application of Payments. Each payment under this Agreement and
-----------------------
the other Loan Documents shall be applied, first to fees, costs, expenses and
charges, if any, owing to Lender, then to interest as may be due hereunder, and
the balance of such payment shall be applied to the principal balance of the
Loan.
2.7.4 Net Payments. All payments hereunder and under the Note shall
------------
be made by Borrower to Lender without defense, set-off, claim or counterclaim
and without deduction for any present or future income, stamp or other taxes,
levies, imposts, deductions, charges or withholdings whatsoever imposed,
assessed, levied or collected by or for the benefit of any jurisdiction or
taxing authority. In addition, Borrower shall pay any and all taxes (stamp or
otherwise) payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Note and the other Loan Documents and on all
payments to be made by Borrower hereunder and under the Note and the other Loan
Documents (other than Lender's income taxes) and all taxes payable in connection
with or related to the Collateral.
2.8 Prepayments.
-----------
The Loan may be prepaid only as set forth on the Schedule.
-4-
<PAGE>
2.9 Administrative Costs.
--------------------
If Borrower shall fail to make any payment of principal or interest within
ten (10) days after the same is due, Borrower shall pay a late charge of two and
one-half percent (2.5%) of the unpaid amounts, but in no event greater than the
maximum rate permitted by law, and such amount shall be payable upon demand.
Such payment is not interest for the use of money, but is solely to cover
Lender's administrative costs occasioned by such delay.
ARTICLE 3. SECURITY
3.1 Security.
--------
As security for the full and timely payment and performance of all of the
Obligations of Borrower to Lender, Borrower hereby assigns, pledges, transfers
and sets over to Lender, and hereby agrees that Lender shall have, and hereby
grants to and creates in favor of Lender, a first security interest under the
UCC subject to no other Liens, in and to the following, in each case, whether
now existing or hereafter arising, now owned or hereafter acquired, wherever
located:
3.1.1 All equipment, machinery, furniture, fixtures and other assets
listed on Schedule A annexed hereto; and
3.1.2 All accessions and additions thereto, substitutions for, and
all replacements of, any and all of the foregoing, and all proceeds of the
foregoing, cash and non-cash, including insurance proceeds.
3.2 Lender Has Rights and Remedies of a Secured Party.
-------------------------------------------------
In addition to all rights and remedies given to Lender by this Agreement,
Lender shall have all the rights and remedies of a secured party under the UCC.
3.3 Additional Provisions Applicable to the Collateral.
--------------------------------------------------
The parties agree that, at all times during the term of this Agreement, the
following provisions shall be applicable to the Collateral:
3.3.1 Borrower covenants and agrees that it will keep accurate and
complete books and records concerning the Collateral owned or acquired by it in
accordance with GAAP.
3.3.2 Lender shall have the right to review the books and records of
Borrower pertaining to the Collateral and to copy the same and to make excerpts
therefrom, all at such reasonable times upon reasonable notice and as often as
Lender may reasonably request.
3.3.3 Borrower shall maintain and keep its principal place of
business and its chief executive office at the address set forth at the
beginning of this Agreement, and at no other location without giving Lender at
least thirty (30) days prior written notice of any move. Borrower shall
maintain and keep its records concerning the Collateral at such address and at
no other location without giving Lender at least thirty (30) days prior written
notice of any move. Borrower shall keep all Collateral only at the Premises.
Borrower may not move the Collateral without the prior written consent of
Lender.
3.3.4 Except for Liens granted to Lender, Borrower shall not sell,
lease, transfer or otherwise dispose of or encumber any of the Collateral,
provided that so long as there is no Default, Borrower may, in the ordinary
course of its business, (a) replace obsolete and worn-out equipment with
substantially identical equipment having a fair market value of not less than
the replaced equipment, provided further that (i) Lender shall be granted a
first and only perfected Lien covering such equipment, and (ii) if requested,
Borrower shall execute and deliver to Lender such financing statements as Lender
shall reasonably require in order to perfect Lender's first and only Lien
covering such equipment .
3.3.5 Borrower shall cause the Collateral to be maintained and
preserved in the same condition, repair and working order as when
-5-
<PAGE>
new, ordinary wear and tear excepted, and shall promptly make or cause to be
made all repairs, replacements and other improvements in connection therewith
which are necessary or desirable to that end.
3.3.6 Borrower shall not affix or permit the Collateral to become
affixed to real estate or to any other goods, and such Collateral shall remain
personal property, whether or not so affixed.
3.4 Certain Covenants.
-----------------
Borrower covenants and agrees with Lender for the benefit of Lender that:
3.4.1 Borrower has and will have good and merchantable title to all
of its assets, including the Collateral, in each case as from time to time owned
or acquired by it, and shall keep the Collateral free and clear of all Liens,
other than those granted to Lender. Borrower will defend such title against the
claims and demands of all Persons whomsoever.
3.4.2 Borrower will faithfully preserve and protect Lender's Liens in
the Collateral and will, at its own cost and expense, cause said Liens to be
perfected and continued perfected, and for such purpose Borrower will from time
to time at the request of Lender and at the expense of Borrower, make, execute,
acknowledge and deliver, and file or record, or cause to be filed or recorded,
in the proper filing places, all such instruments, documents and notices,
including without limitation financing statements and continuation statements,
as Lender may deem necessary or advisable from time to time in order to perfect
and continue perfected said security interest. Borrower will do all such other
acts and things and make, execute, acknowledge and deliver all such other
instruments and documents, including without limitation further security
agreements, pledges, endorsements, assignments and notices, as Lender may deem
necessary or advisable from time to time in order to perfect and preserve the
priority of said Liens as a first and only Lien on and security interest in the
Collateral prior to the rights of all other Persons therein or thereto.
3.4.3 Borrower will not, without the prior written consent of Lender,
(i) borrow or permit any Person to borrow against the Collateral other than the
Loan to Borrower from Lender pursuant to this Agreement; (ii) create, incur,
assume or suffer to exist any Lien with respect to any of the Collateral; (iii)
permit any levy or attachment to be made against any of the Collateral except
any levy or attachment relating to this Agreement; or (iv) permit any financing
statement to be on file with respect to any of the Collateral, except financing
statements in favor of Lender and those relating to subordinate Liens held by
the Subordinated Creditor permitted hereunder.
3.4.4 Risk of loss of, damage to or destruction of the Collateral is
and shall remain upon Borrower. Borrower will insure the Collateral as provided
in Section 6.3 of this Agreement. If Borrower fails to effect and keep in full
force and effect such insurance or fails to pay the premiums thereon when due,
Lender may do so for the account of Borrower and add the cost thereof to the
Obligations and the same shall be payable to Lender on demand. Borrower hereby
assigns and sets over unto Lender for the benefit of Lender all moneys which may
become payable on account of such insurance, including without limitation any
return of unearned premiums which may be due upon cancellation of any such
insurance and directs the insurers to pay Lender any amount so due. Lender, its
officers, employees and authorized agents and its successors and assigns, are
hereby appointed attorneys-in-fact of Borrower, for the purpose of endorsing any
draft or check which may be payable to Borrower in order to collect the proceeds
of such insurance or any return of unearned premiums. Such appointment is
irrevocable and coupled with an interest. The proceeds of insurance shall be
applied to reduction of the Obligations in any order Lender may choose or, in
Lender's sole discretion, to the repair or replacement of the Collateral, or any
part thereof, in which case Lender may impose such conditions on the
disbursement of the proceeds as Lender in its sole discretion deems appropriate.
3.4.5 Upon the occurrence and during the continuation or existence of
any Event of Default, Borrower shall promptly upon demand by Lender assemble the
Collateral and make it available to Lender at the place or places to be
designated by Lender. The right of Lender to have
-6-
<PAGE>
the Collateral assembled and made available to it is of the essence of this
Agreement and Lender may, at its election, enforce such right in equity for
specific performance.
3.4.6 Lender shall have no duty as to the collection or protection of
the Collateral or any part thereof or any income thereon, or as to the
preservation of any rights pertaining thereto, beyond exercising reasonable care
in the custody of any Collateral actually in the possession of Lender. Lender
shall be deemed to have exercised reasonable care in the custody and
preservation of such of the Collateral as may be in its possession if it takes
such action for that purpose as Borrower shall request in writing, provided that
such requested action shall not, in the judgment of Lender, impair Lender's
security interest in the Collateral or its rights in, or the value of, the
Collateral, and provided further that such written request is received by Lender
in sufficient time to permit it to take the requested action.
3.4.7 Cross Collateralization.
-----------------------
Borrower acknowledges and agrees that (a) all Obligations,
whether arising under or out of the Loan Documents, the October 1998 Loan
Documents, or otherwise, shall be secured by all Collateral granted by Borrower
to Lender under the Loan Documents and all collateral granted by Borrower to
Lender under the October 1998 Loan Documents, and (b) its grant of a Lien on and
security interest in and to all Collateral under the Loan Documents and all
collateral under the October 1998 Loan Documents secure all of the Obligations,
whether arising under or out of the Loan Documents, the October 1998 Loan
Documents, or otherwise.
ARTICLE 4. CONDITIONS OF CLOSING
The obligation of Lender to make the Loan hereunder is subject to the
accuracy, as of the date hereof and the Disbursement Date, of the
representations and warranties herein contained, to the performance by Borrower
of its obligations to be performed hereunder on or before such Disbursement Date
and to the fulfillment (to the satisfaction of Lender and its counsel) of the
following further conditions. If all conditions contained herein are not so
satisfied by the Outside Date, Lender shall have no obligation whatsoever to
make the Loan and shall have no liability for its refusal to do so.
4.1 Representations and Warranties.
------------------------------
The representations and warranties contained in Article 5 hereof shall be
true on the Closing Date and on and as of the Disbursement Date with the same
effect as if made on and as of such date.
4.2 Corporate Action.
----------------
On the Closing Date, Borrower shall deliver to Lender a certificate in form
and substance satisfactory to Lender, dated the Closing Date, signed by a duly
authorized officer of Borrower, certifying as to (a) true copies of the
Constituent Documents of Borrower, all as in effect on such date, (b) true
copies of all action taken by Borrower relative to this Agreement, the Note and
the other Loan Documents, and (c) the names, true signatures and incumbency of
the officer or officers of Borrower authorized to execute and deliver this
Agreement, the Note and the other Loan Documents on behalf of Borrower (and
Lender may conclusively rely on such certificate unless and until a later
certificate revising the prior certificate has been furnished to Lender).
Borrower shall also deliver to Lender good standing certificates for Borrower
issued by the Secretary of State of its State of incorporation and each state in
which it is required by Law to be qualified.
4.3 [INTENTIONALLY DELETED]
4.4 No Change of Law or Facts.
-------------------------
No change shall have occurred after the date of execution and delivery of
this Agreement in applicable Law or regulations thereunder or interpretations
thereof by appropriate regulatory authorities which, in the opinion of Lender or
its counsel, would make it illegal for Lender to acquire the Note, make the
Loan, or otherwise to participate in the Loan, nor shall any facts come to the
attention of Lender, concerning Borrower, its business or financial condition
which, in the opinion of Lender would increase the risk to Lender of repayment
of the Loan by Borrower.
-7-
<PAGE>
4.5 Documents.
---------
The following documents shall have been duly authorized, executed and
delivered by the respective party or parties thereto, shall be in form and
substance satisfactory to Lender and its counsel and shall be in full force and
effect on the Closing Date and on the Disbursement Date, and an executed
counterpart of each thereof shall have been delivered to Lender and its counsel:
4.5.1 this Agreement;
4.5.2 the Note;
4.5.3 insurance certificates or policies of insurance evidencing the
coverages required by Section 6.3 hereof;
4.5.4 the Schedule, whose terms and conditions are incorporated in
this Agreement as if fully stated in this Agreement; and
4.5.5 other Loan Documents, if any.
4.6 Collateral.
----------
Borrower shall provide to Lender a complete description of the Collateral,
together with evidence, in form and substance satisfactory to Lender in its sole
discretion, that Borrower owns legal title to the Collateral, free and clear of
all Liens, except for Liens granted to Lender.
4.7 Financing Statements.
--------------------
On the Closing Date, UCC financing statements covering the security
interest created by this Agreement in the Collateral shall have been duly filed
in the office of the Secretary of State of the State where the Collateral is
located and in all other places as, in the opinion of Lender, or its counsel,
are necessary or desirable to perfect such Liens, and Lender shall have been
granted a perfected first and only Lien covering the Collateral.
4.8 Licenses and Permits.
--------------------
All appropriate action shall have been taken prior to the Closing Date in
order to permit consummation of the transactions contemplated herein and hereby
and enforcement of all of the terms hereof and thereof, and all licenses,
permits, waivers, exemptions, authorizations and approvals required (or, in the
opinion of Lender or its counsel, advisable) to be in effect on the Closing Date
shall have been issued and shall be in full force and effect on such date, and
copies thereof shall have been delivered to Lender.
4.9 Additional Conditions.
---------------------
4.9.1 Lender shall have received all other agreements, instruments,
financing statements, certificates, waivers, searches, releases, terminations,
corporate or other action, agreements with suppliers of Collateral, ownership of
the Collateral and other documents as Lender or its counsel shall have requested
(each in form and substance satisfactory to Lender and its counsel).
4.9.2 After giving effect to the Loan, there shall be no Default or
Event of Default hereunder or under the other Loan Documents.
4.9.3 All legal matters incident to the Loan shall be satisfactory to
Lender and its counsel.
4.9.4 All additional conditions set forth on the Schedule shall have
been satisfied, true and in full force and effect.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
5.1 Organization and Qualification.
------------------------------
Borrower is duly organized, validly existing and in good standing as a
corporation under the Laws of the State set forth on the Schedule with full
power and authority to own its properties and to transact its business as now
transacted and as contemplated to be transacted. Borrower is
-8-
<PAGE>
qualified and in good standing to transact business in each jurisdiction set
forth on the Schedule, which are all of the jurisdictions where the ownership of
its properties or the transaction of its business requires such qualification.
5.2 Authority and Authorization.
---------------------------
Borrower has full power and authority to execute, deliver and carry out the
provisions of this Agreement, the Note and the other Loan Documents to which it
is a party, to borrow hereunder and under the other Loan Documents and to create
the Liens provided for herein, and to perform its obligations hereunder and
thereunder, and all such action has been duly and validly authorized by all
necessary proceedings on its part.
5.3 Execution and Binding Effect.
----------------------------
This Agreement, the Note and the other Loan Documents to which Borrower is
a party have been duly and validly executed and delivered by Borrower and
constitute the legal, valid and binding obligation of Borrower enforceable in
accordance with their respective terms.
5.4 Authorizations and Filings.
--------------------------
Except for the filing of UCC financing statements, no authorization,
consent, approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any governmental
authority is or will be necessary or advisable in connection with the execution
and delivery of this Agreement, the Note and the other Loan Documents or the
consummation by Borrower of the transactions herein and therein contemplated, or
performance by Borrower of or compliance by Borrower with, the terms and
conditions hereof or thereof.
5.5 Absence of Conflicts.
--------------------
Neither the execution and delivery of this Agreement, the Note or the other
Loan Documents, nor consummation of the transactions herein or therein
contemplated nor performance of, or compliance with the terms and conditions
hereof or thereof will (a) result in any violation or breach of (i) the
provisions of Borrower's Constituent Documents, or (ii) any Law, or the order,
rule or regulation of any court or governmental agency or body having
jurisdiction over Borrower or any of its properties, or (iii) any agreement,
bond, note, instrument or indenture to which Borrower is a party or pursuant to
which any of its properties are affected, or (b) result in the creation or
imposition of any Lien upon any property (now owned or hereafter acquired) of
Borrower, except for the Lien created by this Agreement.
5.6 Financial Statements.
--------------------
Borrower has heretofore furnished to Lender certain financial statements
and related financial information ("Financial Statements"). Such Financial
Statements (including the notes thereto) present fairly the consolidated
financial condition of Holdings (which consolidated financial condition includes
Borrower) as of the dates of the balance sheets contained therein, and the
results of its operations for the periods then ended, all in conformity with
GAAP on a basis consistent with that of Financial Statements for corresponding
prior periods. Except as disclosed therein, Borrower has no material contingent
liabilities (including liabilities for taxes), unusual forward or long-term
commitments or unrealized or anticipated losses from unfavorable commitments.
5.7 No Defaults.
-----------
There is no Default under the Loan Documents.
5.8 Litigation.
----------
There is no pending or threatened claim or proceeding by or before any
court or governmental agency against or affecting Borrower which, if adversely
decided would have a material adverse effect on the business, operations or
financial condition of Borrower or on the ability of Borrower to perform its
obligations under this Agreement, the Note or the other Loan Documents or on the
Collateral.
5.9 Title to Collateral.
-------------------
Borrower has good title to all of the Collateral, free and clear of all
Liens covering the Collateral, other than the Liens granted hereunder to Lender
covering the Collateral, which are and
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<PAGE>
will at all times be perfected first Liens covering the Collateral.
5.10 Taxes.
-----
All tax returns required to be filed by Borrower have been properly
prepared, executed and filed. All taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its properties, incomes, sales
or franchises which are due and payable have been paid.
5.11 Financial Accounting Practices.
------------------------------
Borrower makes and keeps books, records and accounts which, in reasonable
detail, accurately and fairly reflect Borrower's transactions and dispositions
of its assets.
5.12 Power To Carry On Business.
--------------------------
Borrower has all requisite power and authority to own and operate its
properties and to carry on its business as now conducted and as presently
planned to be conducted.
5.13 No Material Adverse Change.
--------------------------
Since the date of the Financial Statements referred to in Section 5.6,
there has been no material adverse change in the business, operations or
financial condition of Borrower.
5.14 Compliance with Laws.
--------------------
Borrower is not in violation of any Law, except for violations which in the
aggregate do not have a material adverse effect on the business, operations or
financial condition of Borrower or on the Collateral.
5.15 Compliance with Agreements.
--------------------------
Borrower is not in default under any agreement, bond, note, indenture or
contract, except for defaults which in the aggregate do not have a material
adverse effect on the business, operation or financial condition of Borrower or
on the Collateral.
5.16 Bankruptcy.
----------
Borrower has not made or contemplated an assignment for the benefit of
creditors. No application or petition has been filed for the appointment of a
custodian, trustee, receiver or agent to take possession of the Collateral, or
to take possession of any of the other properties or assets of Borrower.
Borrower is generally paying its debts as such debts become due. Borrower is
not "insolvent" as that term is defined in Section 101(26) of the "Bankruptcy
Code" (Title 11 of the United States Code, 11 U.S.C. Section 101, et seq.) or
would be insolvent after giving effect to the Loan and the transactions
contemplated by the Loan Documents. Borrower has not filed a petition with the
Bankruptcy Court under the Bankruptcy Code, or commenced any proceeding relating
to Borrower under any bankruptcy or reorganization statute or under any
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction. No petition or application of the type described above has
been filed or commenced against Borrower, in which (i) Borrower, by any act, has
indicated or intends to indicate its approval thereof, consent thereto, or
acquiescence therein; (ii) an order has been or is expected to be entered
appointing any such custodian, trustee, receiver or agent, adjudicating Borrower
bankrupt or insolvent, or approving such petition or application in any such
proceeding; (iii) the Bankruptcy Court has ordered or is expected to order
relief against Borrower under the Bankruptcy Code; or (iv) such petition or
application was not dismissed within ninety (90) days of such filing or
commencement.
5.17 Accurate and Complete Disclosure.
--------------------------------
No representation or warranty made by Borrower in this Agreement and no
statement made by Borrower in the Financial Statements furnished pursuant to
Section 5.6 hereof or otherwise, or any certificate, report, exhibit or document
furnished by Borrower to Lender pursuant to or in connection with this Agreement
or the Loan is false or misleading in any material respect (including by
omission of material information necessary to make such representation, warranty
or statement not misleading).
-10-
<PAGE>
5.18 Regulations G and U.
-------------------
Borrower is not engaged in the business of extending credit for the purpose
of purchasing or carrying "margin stock", as such term is used in Regulations G
or U promulgated by the Board of Governors of the Federal Reserve System as
amended from time to time. No part of the proceeds of the Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any "margin stock". Borrower does not own any "margin
stock".
5.19 Perfection.
----------
Except for the filings under Article 9 of the UCC specified in Section 4.7
hereof (and continuation statements at periodic intervals), no further filing or
recording is necessary under the UCC or under any other Laws of any
jurisdiction, in order to perfect in all applicable jurisdictions the Liens of
Lender in the Collateral. Upon such filings, Lender will be granted a perfected
first Lien covering the Collateral. There are no other Liens covering the
Collateral.
5.20 Place of Business.
-----------------
Both the place of business (or chief executive office if there is more than
one place of business) of Borrower and the place where it keeps its corporate
records concerning the Collateral and all of its interest in, to and under this
Agreement are located at the address set forth at the beginning of this
Agreement.
5.21 Location of Collateral.
----------------------
For all purposes, including, without limitation, perfection of security
interests therein under Article 9 of the UCC, the Collateral is deemed located
and at all times shall be located at the Premises.
5.22 Name Changes, Mergers, Acquisitions.
-----------------------------------
Except as set forth in Borrower's 10K for 1996, in its 10Q for its fiscal
quarter ended March 1997 and except for the change of name from Live Film and
Media Works Inc. to Artisan Pictures Inc., Borrower has not within the six-year
period immediately preceding the Closing Date, changed its name, been the
surviving entity of a merger or consolidation, acquired all or substantially all
of the assets of any Person, acquired any asset from any Person not in the
business of selling such asset, or assumed any obligations of any other Person.
ARTICLE 6. COVENANTS
Borrower covenants that from and after the date hereof and until payment in
full of the Note and interest thereon and all other amounts due from Borrower
hereunder or under the Note or the other Loan Documents, unless Lender shall
otherwise consent in writing:
6.1 Reporting and Information Requirements.
--------------------------------------
6.1.1 Annual Financial Statements. As soon as practicable, and in
---------------------------
any event within ninety (90) days after the close of each fiscal year of
Borrower, Borrower shall furnish to Lender the annual audit reports for such
year for Holdings (which shall include Borrower), including audited consolidated
statements of income, retained earnings and changes in financial position of
Holdings (which shall include Borrower) for such fiscal year and audited
consolidated balance sheets of Holdings (which shall include Borrower) as of the
close of such fiscal year, and notes to each, all in reasonable detail, setting
forth in comparative form the corresponding figures for the preceding fiscal
year where such presentation is appropriate under GAAP, certified without
qualification by independent certified public accountants of recognized standing
selected by Holdings and satisfactory to Lender, together with (or included in
such certification) a written statement of such accountants substantially to the
effect that (i) such accountants examined such financial statements in
accordance with generally accepted auditing standards and accordingly made such
tests of accounting records and such other auditing procedures as they
considered necessary in the circumstances and (ii) in the opinion of such
accountants such financial statements present fairly the consolidated financial
position of Holdings (which shall include Borrower) as of the end of such fiscal
year and the results of its operations and
-11-
<PAGE>
the changes in its financial position for the fiscal year then ended, in
conformity with GAAP applied on a basis consistent with that of the preceding
fiscal year (except for changes in application in which such accountants
concur).
6.1.2 Quarterly Financial Statements. Within forty-five (45) days
------------------------------
after the end of each of the first three fiscal quarters of each fiscal year,
Borrower shall furnish to Lender a copy of Holdings interim consolidated
financial statements (which shall include Borrower) of the type described in
Section 6.1.1 above, certified by an Executive Officer of Borrower.
6.1.3 Notice of Event of Default. Promptly upon becoming aware of
--------------------------
any Default or Event of Default, Borrower shall give Lender notice thereof,
together with a written statement of a Chief Executive Officer of Borrower
setting forth the details thereof and any action with respect thereto taken or
contemplated to be taken by Borrower.
6.1.4 Notice of Material Proceedings. Promptly upon becoming aware
------------------------------
thereof Borrower shall give Lender written notice of the commencement, existence
or threat of any proceeding by or before any court or administrative agency
against or affecting Borrower or the Collateral which, if adversely decided,
would have a material adverse effect on the business, operations or financial
condition of Borrower or on the ability of Borrower to perform its obligations
under this Agreement, the Note, the other Loan Documents or on the Collateral.
6.1.5 Visitation. Borrower shall permit such persons as Lender may
----------
designate to visit and inspect the Collateral and to examine the books and
records of Borrower, at such reasonable times and as often as Lender may
reasonably request.
6.1.6 Other Deliveries. Promptly upon their becoming available,
----------------
Borrower shall furnish to Lender, copies of all registration statements and any
amendments and supplements thereto and any regular and periodic reports filed by
Borrower with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any or all of the
functions of said commissions.
6.2 Preservation of Existence and Franchises.
----------------------------------------
6.2.1 Borrower shall not enter into any merger, reorganization or
consolidation, or wind up, liquidate or dissolve, nor agree to do any of the
foregoing.
6.2.2 Borrower will qualify to do business and will remain in good
standing under the laws of each jurisdiction in which it is required to be
qualified by reason of the location of the properties owned or leased by it or
the conduct of its business.
6.2.3 Borrower shall do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence
and all permits, licenses, rights and privileges necessary or appropriate for
the conducting of its business as now and hereafter conducted. Borrower shall
not change its name. Borrower shall continue to engage in the same kind of
business and shall not make any material change in its business or in the nature
of its operations or engage in any unrelated line of business.
6.2.4 Borrower will comply with all Laws relative to the conduct of
its business or the location of the properties owned or leased by it, the non-
compliance with which could have a material adverse effect on the business,
operations, assets or financial or other condition of Borrower, as contemplated
hereby, or the ability of Borrower to perform its Obligations under this
Agreement, the Note or the other Loan Documents and will obtain or cause to be
obtained as promptly as possible any permit, license, consent, privilege or
approval of any governmental authority and make any filing or registration
therewith which at the time shall be required with respect to the performance of
its Obligations under this Agreement, the Note or the other Loan Documents or
for the operation of its business as presently conducted or as contemplated by
it.
6.2.5 Borrower shall not, except as otherwise permitted in this
Agreement, (a) convey, assign, sell, mortgage, encumber, pledge, hypothecate,
grant a security interest in, grant options with respect to, lease or otherwise
dispose of all or any part of any legal or beneficial interest
-12-
<PAGE>
in any part or all of the Collateral or any interest therein; or (b) convey,
assign, transfer or otherwise dispose of all or substantially all of its assets
(other than the Collateral, the prohibition on transfer of which is governed by
subparagraph (a) above).
6.3 Insurance.
---------
Borrower shall, at its own expense, maintain and deliver evidence to Lender
of such insurance required by Lender, written by insurers and in amounts
satisfactory to Lender.
6.4 Maintenance of Properties.
-------------------------
Borrower shall maintain or cause to be maintained in good repair, working
order and condition the Collateral, and shall make or cause to be made all
needful and proper repairs, renewals, replacements and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
6.5 Payment of Taxes and Other Potential Charges.
--------------------------------------------
Borrower shall pay or discharge
6.5.1 all taxes, assessments and other governmental charges or levies
imposed upon it or any of its properties, including the Collateral, or income
(including such as may arise under ERISA or any similar provision of law), on or
prior to the date on which penalties attach thereto; and
6.5.2 all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might result in
the creation of a Lien upon any such property, on or prior to the date when due;
provided, that unless and until foreclosure, distraint, levy, sale or similar
- --------
proceedings shall have been commenced, Borrower need not pay or discharge any
such tax, assessment, charge, levy, claim or current liability so long as (i)
the validity thereof is contested in good faith and by appropriate proceedings
diligently pursued, (ii) in Lender's sole judgment there is no reasonably
foreseeable risk of forfeiture of the Collateral, and (iii) such reserves or
other appropriate provisions as may be required by GAAP shall have been made
therefor, and so long as such failure to pay or discharge does not have a
material adverse effect on the business, operations or financial condition of
Borrower or the Collateral.
6.6 Financial Accounting Practices.
------------------------------
Borrower shall make and keep books, records and accounts which, in
reasonable detail, accurately and fairly reflect its business, including all
transactions and dispositions of its assets, all prepared in accordance with
GAAP.
6.7 Compliance with Laws.
--------------------
Borrower shall comply with all applicable Laws in all respects, provided,
--------
that Borrower shall not be deemed to be in violation of this Section 6.7 as a
result of any failures to comply which would not result in fines, penalties,
injunctive relief or other civil or criminal liabilities which, in the
aggregate, would not materially affect the business or operations of Borrower or
the ability of Borrower to perform its obligations under this Agreement, the
Note or the other Loan Documents or the Collateral.
6.8 Material Obligations.
--------------------
Borrower shall pay and satisfy, when due, all material liabilities and
obligations, including, without limitation, all obligations under all leases
(real or personal property) to which it is a party.
6.9 Maintenance of Collateral.
-------------------------
Borrower will maintain and preserve the Collateral in good condition,
repair and working order, promptly repairing, replacing or rebuilding any part
of the Collateral which may be destroyed by any casualty, or become damaged,
worn or dilapidated.
6.10 Maintenance of Principal Place of Business.
------------------------------------------
Borrower shall maintain and keep its principal place of business and chief
executive office at the address set forth at the beginning of this Agreement,
and at no other location without giving Lender written notice of any move.
Borrower shall maintain and keep its records at
-13-
<PAGE>
such address and at no other location without giving Lender written notice of
any move.
6.11 Names.
-----
Borrower shall not use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of Incorporation on
the date hereof or as set forth on the Schedule;
6.12 Margin Security.
---------------
Borrower shall not own, purchase or acquire (or enter into any contract to
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in
effect.
6.13 Satisfaction of Certain Obligations.
-----------------------------------
In the event Borrower fails to make any payment or do any act as herein
provided (including, but not limited to, maintaining any insurance required to
be maintained under the Loan Documents or paying all taxes in accordance with
the terms hereof) or there shall be a claim or Lien asserted or filed against
the Collateral, Lender may, but shall not be obligated to (and without releasing
Borrower from any obligation hereunder), make all such payments and perform all
such acts or otherwise satisfy such obligations. All sums paid by Lender in
respect thereof and all costs, fees and expenses, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto, which
are incurred by Lender on account thereof, shall bear interest at the Default
Rate, shall be payable on demand by Borrower to Lender, and shall be additional
Obligations hereunder secured by the Collateral.
6.14 Transactions With Affiliates.
----------------------------
Borrower shall not, and shall not permit any of its subsidiaries, to,
directly or indirectly, enter into any purchase, sale, lease or other
transaction with any affiliate, except in the ordinary course of business on
terms that are no less favorable than those which might be obtained at the time
in a comparable arm's length transaction with any Person who is not an
affiliate.
6.15 Year 2000.
---------
Borrower shall take all action necessary to assure that there will be no
material adverse change to Borrower's business by reason of the advent of the
year 2000, including, without limitation, that all computer-based systems,
embedded microchips and other processing capabilities effectively recognize and
process dates after April 1, 1999. At Lender's request, Borrower shall provide
to Lender assurance reasonably acceptable to Lender that Borrower's computer-
based systems, embedded microchips and other processing capabilities are year
2000 compatible.
6.16 Further Assurances.
------------------
Borrower shall cause to be done, executed, acknowledged and delivered all
and every such further act, conveyance and assurance as Lender shall require for
accomplishing the purposes of this Agreement, the Note and the other Loan
Documents. Borrower will defend and protect its title with respect to the
Collateral and will indemnify Lender with respect thereto. Any payment in
respect of such indemnity shall be made directly to Lender on demand in
immediately available funds. Forthwith after notice from Lender, Borrower shall
promptly, without further consideration, execute, acknowledge and deliver such
further instruments and documents and will take such other actions as Lender may
deem necessary or advisable from time to time to ensure the enforceability or
priority of the Liens granted hereby, or otherwise to confirm and carry out the
intent and purpose of this Agreement.
ARTICLE 7. DEFAULTS AND REMEDIES
7.1 Events of Default.
-----------------
The occurrence of one or more of the following described events is an Event
of Default:
7.1.1 Borrower fails to make any payment of principal of or interest
on the Note, within ten (10) days after the date upon which the same shall be
due; or
7.1.2 Borrower fails to perform or observe any of its covenants or
agreements
-14-
<PAGE>
contained herein or in any other Loan Documents which cannot be cured; or
7.1.3 Borrower fails to perform or observe any other covenant or
agreement to be performed or observed by it hereunder or under the other Loan
Documents and such failure continues unremedied for a period of thirty (30)
consecutive days after Borrower obtains knowledge of such occurrence; or
7.1.4 Borrower voluntarily creates, suffers to exist, incurs or
assumes any Lien, security interest, charge or encumbrance on, or with respect
to, any part of or all the Collateral, and such Lien shall not be removed within
thirty (30) days of its creation, or the Liens held by Lender in and to the
Collateral shall cease to be the first perfected Lien in and to the Collateral;
or
7.1.5 Except as otherwise permitted in this Agreement, Borrower
sells, assigns, leases, or otherwise disposes of or relinquishes possession of,
any Collateral; or
7.1.6 any representation or warranty made by Borrower herein or in
any other Loan Document or in any document or certificate furnished by Borrower
to Lender in connection herewith or therewith at any time proves to have been
incorrect in any material respect when made; or
7.1.7 this Agreement or any Loan Document at any time for any reason
ceases to be in full force and effect or is declared by a court or governmental
agency of competent jurisdiction to be null and void; or
7.1.8 Borrower breaches or defaults (after giving effect to any
applicable grace or cure periods) under the terms of any agreement, instrument
or document with or for the benefit of Lender which is not a Loan Document or
under any other loan, credit facility or other financial accommodation made by
Lender to Borrower, including, without limitation, the October 1998 Loan
Agreement and the other October 1998 Loan Documents, or other promissory notes,
guaranties, equipment leases, security agreements, mortgages and deeds of trust;
or
7.1.9 there is a material adverse change in the business,
operations or financial condition of Borrower or in the Collateral; or
7.1.10 a proceeding is instituted seeking a decree or order for
relief in respect of Borrower in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect or for
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Borrower, or for any substantial
part of its properties or for the dissolution, winding-up or liquidation of its
affairs or any substantial part of any of its properties and such proceeding
remains undismissed or unstayed for a period of sixty (60) consecutive days or
such court enters a decree or order granting the relief sought in such
proceeding; or
7.1.11 Borrower voluntarily suspends transaction of its business,
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, consents to the entry of an order for
relief in an involuntary case under any such law or consents to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Borrower for any substantial part of
any of its properties, or makes a general assignment for the benefit of
creditors, or takes any action in furtherance of any of the foregoing; or
7.1.12 final judgment(s) for the payment of money in excess of
$500,000 shall be rendered against Borrower which within thirty (30) days from
the entry of such judgment(s) shall not have been discharged or stayed pending
appeal or which shall not have been discharged or bonded in full within thirty
(30) days from the entry of a final order of affirmance on appeal; or
7.1.13 Borrower fails to perform or observe any of its covenants or
agreements contained in Section 6.3 hereof or in the letter regarding insurance
requirements delivered by Borrower in connection with the Loan or the Loan
Documents (the "Insurance Letter") or any such insurance shall at any time cease
to be in full force and effect; or
-15-
<PAGE>
7.1.14 there shall be a default under or breach of any term or
condition contained in any of the Chase Loan Documents (or any loan or credit
documents executed in connection with any loan facility which replaces, is in
substitution for or whose proceeds are used to repay all or a portion of the
indebtedness covered or evidenced by the Chase Loan Documents or subsequent loan
documents) and all or a portion of such indebtedness shall have been declared
due and payable or otherwise accelerated prior to the date on which such
indebtedness would otherwise be due and payable; or
7.1.15 the Letter of Credit shall at any time cease to be in full
force and effect; or
7.1.16 Borrower ceases to operate its business at either of the
Premises.
7.2 Consequences of Event of Default.
--------------------------------
7.2.1 If an Event of Default occurs, Lender may, by notice to
Borrower, declare the unpaid principal amount of the Note and interest accrued
thereon and all other Obligations and liabilities of Borrower hereunder or under
the Note or the Loan Documents to be immediately due and payable and the same
shall thereupon become and be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and an action therefor shall immediately accrue.
7.2.2 In addition, if an Event of Default occurs, Lender shall have
all rights and remedies granted herein and in the other Loan Documents and all
rights or remedies available at law (including, without limitation, the UCC) or
equity, whether as a secured party or otherwise (including specifically those
granted by the Uniform Commercial Code as in effect in the jurisdiction or
jurisdictions where the Collateral is located) and, except as limited by Law,
all remedies of Lender (i) shall be cumulative and concurrent; (ii) may be
pursued separately, successively or concurrently against Borrower or against all
or any portion of the Collateral, at the sole discretion of Lender; (iii) may be
exercised as often as occasion therefor shall arise, it being agreed by Borrower
that the exercise or failure to exercise any rights or remedies shall in no
event be construed as a waiver or release thereof or of any other right, remedy
or recourse; and (iv) are intended to be, and shall be, nonexclusive. To the
fullest extent permitted by applicable Law, Lender may resort to the rights,
remedies and recourses set forth herein and any other security therefor in such
order and manner as Lender may elect. In addition, if an Event of Default
occurs, Lender may draw upon the Letter of Credit for any or all of the amounts
thereunder.
7.2.3 Without limiting any of the foregoing, Borrower agrees that (i)
Lender may, with or without notice and without legal process, enter upon any
property owned, leased or otherwise under the real or apparent control of
Borrower or any agent thereof or any other location where the Collateral may be
located and disassemble, disconnect, render unusable or repossess all or any
item of the Collateral; (ii) written notice mailed to Borrower, as provided in
this Agreement for the giving of notice, shall be reasonable if given ten (10)
days prior to (a) any public sale or (b) the date after which a private sale may
be made; (iii) a sale of the Collateral may be made as a unit or in parcels and
for cash and upon terms; (iv) Lender may buy the Collateral at any public sale
and at any private sale as permitted by the UCC; and (v) such public or private
sale or sales may be held or adjourned from time to time, and Lender shall have
the right to conduct such sale or sales on Borrower's premises (including,
without limitation, the Premises) or elsewhere where the Collateral is located,
and shall have the right to use Borrower's premises without charge for such sale
or sales for such time or times as Lender may determine.
ARTICLE 8. EXPENSES AND INDEMNITIES
8.1 Expenses.
--------
Borrower shall promptly reimburse Lender for all costs, fees and expenses
incurred by Lender in connection with the negotiation, preparation, execution,
delivery, administration, operation and enforcement of each of the Loan
Documents, including, but not limited to, the attorneys' and paralegals' fees of
in-house and outside counsel, expert witness fees, lien, title search and
insurance fees, appraisal fees, all charges and expenses incurred in connection
with any and all environmental reports and environmental
-16-
<PAGE>
remediation activities, and all other costs, expenses, taxes and filing or
recording fees payable in connection with the transactions contemplated by this
Agreement, including, without limitation, all such costs, fees and expenses as
Lender shall incur or for which Lender shall become obligated in connection with
(i) any inspection or verification of the Collateral, (ii) any proceeding
relating to the Loan Documents or the Collateral, (iii) actions taken with
respect to the Collateral and Lender's security interest therein, including,
without limitation, the defense or prosecution of any action involving Lender
and Borrower or any third party, (iv) enforcement of any of Lender's rights and
remedies with respect to the Obligations or Collateral, (v) consultation with
Lender's attorneys and participation in any workout, bankruptcy or other
insolvency or other proceeding involving Borrower or any affiliate of Borrower,
whether or not suit is filed, and (vi) any other matters relating to or arising
out of the Loan and/or the Loan Documents. Notwithstanding anything to the
contrary contained herein, Borrower's obligation for the payment or
reimbursement of the fees, costs and expenses of Lender's outside counsel
incurred in connection with the negotiation, preparation, execution, delivery
and closing of the Loan Documents and the transactions contemplated thereby
shall not exceed $6,000.
ARTICLE 9. MISCELLANEOUS
9.1 Further Assurances.
------------------
Borrower shall at any time and from time to time upon the written request
of Lender, execute and deliver such further agreements, instruments and
documents and do such further acts and things as Lender may reasonably request
in order to effect the purposes of this Agreement.
9.2 General Indemnity.
-----------------
Borrower shall indemnify, defend and hold harmless Lender from and
against, and, upon demand, reimburse Lender for, all claims, demands,
liabilities, losses, damages, judgments, penalties, costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
which may be imposed upon, asserted against or incurred or paid by Lender, on
account of any act performed or omitted to be performed under this Agreement,
the Note or the other Loan Documents or on account of any transaction arising
out of or in any way connected with the Collateral or this Agreement, the Note
or the other Loan Documents (including, without limitation, any litigation
matter involving claims or alleged claims by or disputes with third parties,
said indemnity expressly including, without limitation, any claim, damage or
loss arising out of a breach by Borrower of any environmental law, rule or
regulation), except as a result of the willful misconduct or gross negligence of
Lender.
9.3 No Implied Waiver; Cumulative Remedies.
--------------------------------------
No course of dealing and no delay or failure of Lender in exercising any
right, power or privilege under this Agreement, the Note or any of the other
Loan Documents shall affect such right, power or privilege except as and to the
extent that the assertion of any such right, power or privilege shall be barred
by an applicable statute of limitations; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or privilege preclude any further exercise thereof or of any other
right, power or privilege. The rights and remedies of Lender under this
Agreement, the Note or the other Loan Documents are cumulative and not exclusive
of any rights or remedies which Lender would otherwise have.
9.4 Taxes.
-----
Borrower agrees to pay or reimburse Lender for any and all stamp, document,
transfer, recording or filing taxes or fees and all similar impositions payable
or hereafter determined by Lender to be payable in connection with this
Agreement, the Note or the other Loan Documents (including but not limited to
those necessary or advisable to record or to ensure the enforceability or
priority of this Agreement, the Note or the other Loan Documents), as determined
by Lender in its sole discretion from time to time, and any other documents,
instruments or transactions pursuant to or in connection herewith, and Borrower
agrees to save Lender harmless from and against any and all present or future
claims or liabilities with respect to
-17-
<PAGE>
or resulting from any delay in paying or omission to pay any such taxes, fees or
similar impositions.
9.5 Time of Essence.
---------------
Time is of the essence for the performance by Borrower of the Obligations
set forth in this Agreement and the other Loan Documents.
9.6 Modifications, Amendments or Waivers.
------------------------------------
Lender and Borrower may from time to time enter into written agreements
amending, modifying or supplementing this Agreement, the Note or the other Loan
Documents or changing the rights of Lender or Borrower hereunder or thereunder,
and Lender may from time to time grant waivers or consents to a departure from
the due performance of the obligations of Borrower thereunder. Any such
agreement, waiver or consent must be in writing and shall be effective only to
the extent set forth in such writing. In the case of any such waiver or
consent, any Event of Default so waived or consented to shall be deemed to be
cured and not continuing, but no such waiver or consent shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
9.7 Holidays.
--------
Except as otherwise provided herein, whenever any payment or action to be
made or taken hereunder or the Note or any other Loan Document shall be stated
to be due on a day which is not a Business Day, such payment or action shall be
made or taken on the next following Business Day (and such day shall be included
in the calculation of interest due), unless such next succeeding Business Day
falls in a different calendar month, in which case payment or action shall be
made or taken on the next preceding Business Day.
9.8 Notices.
-------
9.8.1 Except as otherwise provided herein, all notices and other
communications required under the terms and provisions of this Agreement, the
Note or the other Loan Documents shall be in writing and shall become effective
when delivered by hand or received by overnight courier, telex, facsimile,
telegram or registered first class mail, postage prepaid, addressed as follows:
If to Lender, at:
FINOVA Capital Corporation
115 West Century Road
Paramus, New Jersey 07652
Facsimile No. 201-634-3325
Attention: Pamela Marchant
Vice President
with a copy to:
FINOVA Capital Corporation
1850 North Central Avenue
Phoenix, Arizona 85004
Facsimile No. 602-207-5036
Attention: Vice President
Law Department
and
Winick & Rich, P.C.
919 Third Avenue
New York, New York 10022
Facsimile No. 212-308-5945
Attention: Michael A. Karpen, Esq.
If to Borrower, at the address set forth on the Schedule.
or at such other address as either party may, from time to time, designate in
writing to the other party hereto.
9.8.2 If any notice is given by telex, facsimile transmission, or
telegram, the party giving such notice shall confirm such notice by a writing
delivered by hand or overnight courier; provided, however, that for all purposes
-------- -------
hereunder, notice shall be deemed effective at the time given by telex,
telecopier or telegram.
9.9 Governing Law.
-------------
THIS AGREEMENT, THE NOTE, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE
-18-
<PAGE>
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
9.10 Personal Jurisdiction and Service of Process.
---------------------------------------------
BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
BORROWER UNDER, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS AGREEMENT, THE
NOTE OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE COURT OF THE STATE
OF NEW YORK LOCATED IN NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK. BORROWER, BY ITS EXECUTION AND DELIVERY
OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE
PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING.
BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING BORROWER MAY BRING,
ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS, SHALL ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK. BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE
OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR
PROCEEDING BY DELIVERY THEREOF TO BORROWER IN THE MANNER PROVIDED FOR NOTICES IN
THIS AGREEMENT. BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS.
----- --- ----------
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW
YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
NEW YORK. NOTHING HEREIN SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT
THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
BORROWER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW.
9.11 Waiver of Jury Trial.
--------------------
BORROWER AND LENDER HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY AGREEMENT, INSTRUMENT
OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR THEREWITH,
INCLUDING THE LOAN DOCUMENTS.
9.12 Severability.
------------
The provisions of this Agreement, the Note and any other Loan Document are
intended to be severable. If any such provision is held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
9.13 Prior Understandings.
--------------------
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the transactions provided for herein or therein.
9.14 Survival.
--------
All representations and warranties of Borrower contained in this Agreement
or any other Loan Document or made in writing in connection herewith or
therewith shall survive the execution and delivery of this Agreement, the Note
and the
-19-
<PAGE>
other Loan Documents, any investigation or inspection by Lender, the making of
the Loan hereunder, the payment of the Note or the expiration of this Agreement.
All covenants and agreements of Borrower contained herein shall continue in full
force until payment in full of the Obligations. Borrower's obligation to pay the
principal of and interest on the Note and all such other amounts shall be
absolute and unconditional under any and all circumstances.
9.15 Successors and Assigns.
----------------------
This Agreement shall be binding upon and shall inure to the benefit of
Lender and Borrower and their respective successors and permitted assigns,
except that Borrower may not assign, delegate or transfer any of its rights or
obligations hereunder or any interest herein without the written consent of
Lender which Lender may withhold in its absolute discretion. Any actual or
attempted assignment by Borrower without Lender's consent shall be null, void
and of no effect whatsoever. Lender may assign or otherwise transfer any or all
of its rights, title, interests and obligations hereunder and under the Note and
the other Loan Documents in whole or in part. If Lender makes such an
assignment, the assignee shall have all of the rights of the Lender and Borrower
shall not assert against the assignee any defense, counterclaims or setoff which
Borrower may have against Lender. Except to the extent otherwise required by
its context, the word "Lender" where used in this Agreement shall mean and
include the holder of the Note originally issued to Lender, and the holder of
such Note shall be bound by and have the benefits of this Agreement to the same
extent as if such holder had been a signatory hereto, except that no assignee
shall be deemed to assume any obligation or duty imposed upon Lender hereunder
or the other Loan Documents and Borrower shall look only to Lender for
performance thereof. As used in this Section 9.16, "assign" shall be deemed to
include a pledge, sale of, or grant of a mortgage on, or a security interest in,
any of the Collateral or this Agreement or the other Loan Documents by Lender
and the term "assignee" shall be deemed to refer to the recipient of such
pledge, sale, mortgage or security interest.
9.16 Counterparts.
------------
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed and delivered by the parties, constituting an original but all such
counterparts together constituting but one and the same instrument.
9.17 Publicity.
---------
Lender is hereby authorized to issue appropriate press releases and to
cause a tombstone to be published announcing the consummation of the
transactions contemplated in this Agreement, including the aggregate amount of
the Loan. All such press releases and tombstones shall be subject to the prior
approval of Borrower.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement effective as of the
day and year first above written.
ARTISAN PICTURES INC.
By: /s/ Mark Curcio
-------------------------------
Name: Mark Curcio
-----------------------------
Title: Chief Executive Officer
----------------------------
By: /s/ Mark Curcio
-------------------------------
Name: Mark Curcio
-----------------------------
Title: Chief Executive Officer
____________________________
FINOVA CAPITAL CORPORATION
By: /s/ A. Holland
-------------------------------
Name: A. Holland
-----------------------------
Title: Director, Cont. Admin.
----------------------------
-20-
<PAGE>
EXHIBIT A
---------
Note
----
See attached.
<PAGE>
SECURED PROMISSORY NOTE
$1,200,000
December __, 1999
New York, New York
FOR VALUE RECEIVED, the undersigned, ARTISAN PICTURES INC., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of FINOVA CAPITAL
CORPORATION ("Lender"), the principal sum of One Million Two Hundred Thousand
Dollars ($1,200,000), together with interest on the unpaid principal balance
hereof from time to time outstanding at the rate per annum and on the dates and
all as otherwise provided in that certain Loan and Security Agreement of even
date herewith (the "Loan Agreement") by and between Lender and Borrower.
This Note is the Note referred to in the Loan Agreement, is secured as set
forth in the Loan Agreement, may not be prepaid except as provided in the Loan
Agreement and is entitled to the benefits of the Loan Agreement. All
capitalized terms used in this Note which are not otherwise defined herein shall
have the respective meanings ascribed to them in the Loan Agreement.
All payments of principal and interest on this Note are to be made in
lawful money of the United States of America in immediately available funds,
without setoff, counterclaim or deduction of any nature, at the office of Lender
at 115 West Century Road, Paramus, New Jersey 07652 (or such other place as the
holder hereof shall designate to Borrower in writing), prior to 12:00 Noon,
local time, on the day when due.
If any payment of principal or interest becomes due on a day which is not a
Business Day, that payment shall be made on the next Business Day unless such
next Business Day falls in another calendar month in which event that payment
shall be made on the next preceding Business Day.
Lender and Borrower intend this Note to comply in all respects with all
provisions of law and not to violate, in any way, any legal limitations on
interest charges. Accordingly, if, for any reason, Borrower is required to pay,
or has paid, interest at a rate in excess of the highest rate of interest which
may be charged by Lender or which Borrower may legally contract to pay under
applicable law (the "Maximum Rate"), then the interest rate shall be deemed to
be reduced, automatically and immediately, to the Maximum Rate, and interest
payable hereunder shall be computed and paid at the Maximum Rate and the portion
of all prior payments of interest in excess of the Maximum Rate shall be deemed
to have been prepayments of the outstanding principal of this Note and applied
to the installments in the inverse order of their maturities.
If Borrower fails to make any payment of principal or interest within ten
(10) days after the payment is due, Borrower shall pay a late charge of two and
one-half percent (2.5%) of the unpaid amount, but in no event more than the
maximum amount permitted by applicable law, and such amount shall be payable
upon demand. Such payment is not interest for the use of money, but is intended
to cover Lender's administrative costs occasioned by such delay.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies contained in the Loan Agreement, including, without
limitation, the right, at its option, to declare all indebtedness under this
Note to be immediately due and payable.
Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of non-payment,
and all lack of diligence or delays in collection or enforcement of this Note or
the Loan Agreement.
Lender may extend the time of payment of this Note, postpone the
enforcement hereof, release any Collateral, or grant any other indulgences
whatsoever, without affecting or diminishing Lender's right of
<PAGE>
recourse against Borrower, as provided herein and in the Loan Agreement and in
the other Loan Documents, which right is hereby expressly reserved. The failure
to assert any right by Lender shall not be deemed a waiver thereof.
Borrower agrees to pay all costs, fees and expenses of collection,
including, without limitation, Lender's reasonable attorneys' fees and
disbursements, in the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note or if an Event of Default occurs.
THIS NOTE IS DEEMED TO HAVE BEEN MADE IN, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK. BORROWER IRREVOCABLY
CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER UNDER, ARISING OUT
OF, OR IN ANY MANNER RELATING TO THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN ANY STATE COURT OF THE STATE OF NEW YORK LOCATED IN
NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK. BORROWER, BY ITS EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY
AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH
COURTS IN ANY SUCH ACTION OR PROCEEDING. BORROWER FURTHER AGREES THAT ANY LEGAL
ACTION OR PROCEEDING BORROWER MAY BRING, ARISING OUT OF OR IN ANY MANNER
RELATING TO THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS, SHALL
ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF NEW YORK LOCATED IN NEW YORK
COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK. BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT,
SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY
DELIVERY THEREOF TO BORROWER IN THE MANNER PROVIDED FOR NOTICES IN THE LOAN
AGREEMENT. BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS.
----- --- ----------
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW
YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
NEW YORK. NOTHING HEREIN SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT
THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
BORROWER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW.
IN WITNESS WHEREOF, Borrower has duly executed this Note on the date first
above written.
ARTISAN PICTURES INC.
By: /s/ Mark Curcio
-----------------------------
Name: Mark Curcio
-----------------------------
Title: CEO
-----------------------------
By: /s/ Robert L.Denton
-----------------------------
Name: Robert L. Denton
-----------------------------
Title: SVP
-----------------------------
Federal Tax Identification No 95-4178252
-2-
<PAGE>
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: Artisan Pictures Inc.
Address: 2700 Colorado Avenue
Santa Monica, California 90404
Date: December 21, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule (as each of the same may be amended,
modified or supplemented from time to time.)
================================================================================
Additional Definitions (Section 1.1):
"Chase Loan Documents" means the Amended and Restated Credit and Guaranty
Agreement dated as of July 9, 1998 by and among Borrower, the Guarantors named
therein, the Lenders named therein and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank, and all agreements, instruments and
documents executed in connection therewith (as all of the same has heretofore
been amended, modified or supplemented).
"Interest Rate" means the Index Rate plus six and seventy-four hundredths
(6.74%) percent. The "Index Rate" shall be the highest yield, as published in
The Wall Street Journal, on the first (1st) Business Day preceding the
Disbursement Date, for Treasury Notes having a maturity date on or closest to
the Maturity Date. Interest shall be calculated on the basis of a year of 360
days and twelve months of thirty (30) days each and charged on a daily basis.
"Maturity Date" means the date upon which the forty-second (42nd)
consecutive monthly payment of principal and interest is scheduled to be due.
"Outside Date" means November 30, 1999.
"Premises" means 2700 Colorado Avenue, Santa Monica, California 90404 and
157 Chambers Street, New York, New York 10007.
================================================================================
The Loan (Section 2.1):
"Principal Amount of the Loan: $1,200,000
<PAGE>
================================================================================
Use of Proceeds (Section 2.2):
The proceeds of the Loan shall be used by Borrower solely to pay to
suppliers thereof the purchase price of equipment located at the Premises
and which is Collateral hereunder or to reimburse Borrower for its payment
to such supplier, the purchase price of such equipment:
================================================================================
Payments of Principal and Interest (Section 2.7.2):
The Loan, together with interest thereon at the Interest Rate, shall be
repaid in forty-two (42) equal consecutive monthly payments of principal
and interest each in an amount which will fully amortize the Loan at the
Interest Rate over the Term. If the Disbursement Date is the thirtieth
(30th) day of a month, the first such monthly payment of principal and
interest shall be due and payable on the Disbursement Date. If the
Disbursement Date is not the thirtieth (30th) day of a month, the first
such monthly payment of principal and interest shall be due and payable on
the thirtieth (30th) day of the month in which the Disbursement Date
occurs, provided that in such event, Borrower shall also pay on such
thirtieth (30th) day, interest on the outstanding principal of the Loan, at
the Interest Rate, from the Disbursement Date to the thirtieth (30th) day
of the month in which the Disbursement Date occurs. Payments of principal
and interest shall continue to be due and payable on the thirtieth (30th)
day of each and every month thereafter through and including the Maturity
Date, when the entire unpaid principal balance which was not payable
earlier, whether due to regularly scheduled payments, acceleration or
otherwise, together with any unpaid interest, fees, costs and charges shall
be due and payable. Lender shall compute the amount of each payment and
advise Borrower of such amount. After the maturity of all or any part of
the Loan (by acceleration or otherwise), interest on the Loan or such part
thereof shall be due and payable at the Default Rate on demand.
Contemporaneously herewith, Lender will deliver to Borrower an amortization
schedule.
================================================================================
Prepayments (Section 2.8):
Borrower may not prepay the Loan, in whole or in part, prior to the
first regularly scheduled payment date occurring after the first
anniversary of the Disbursement Date. Borrower shall have the right,
upon not less than ten (10) days prior written notice to Lender, on
any regularly scheduled payment date occurring after the first
anniversary of the Disbursement Date, to prepay the outstanding
principal balance of the Loan in whole, but not in part, provided that
Borrower shall pay to Lender, together with the principal balance of
the Loan, (i) all accrued and unpaid interest on the amount prepaid
through the date of prepayment, (ii) all outstanding fees, charges and
other amounts then due under the Loan Documents, and (iii) a
prepayment fee in an amount equal to the product of (A) the
outstanding principal balance of the Loan at the time of prepayment,
times (B) the applicable percentage set forth opposite the year of the
Term in which the prepayment is made, as set forth below:
-2-
<PAGE>
Year of Term of Loan in
Which Prepayment is Made Percentage
------------------------ ----------
1 No prepayment permitted
2 5%
3 4%
4 2%
Once given, the notice of prepayment shall be irrevocable. Any
acceleration of the Loan as a consequence of the occurrence of an Event of
Default shall be presumed to be a mechanism to avoid the requirements of
this provision and shall be deemed a prepayment and subject to the
appropriate prepayment premium set forth above, in addition to all damages
and other amounts otherwise due under this Agreement and the other Loan
Documents. If the Loan is accelerated prior to the date upon which
prepayment is permitted to be made hereunder, the applicable percentage
shall be 5.5%.
If Borrower shall prepay its Obligations under this Agreement and the other
Loan Documents, simultaneously therewith, Borrower must also prepay all of
its Obligations under the October 1998 Loan and the October 1998 Loan
Documents (including, without limitation, all prepayment premiums). If
Borrower shall prepay its Obligations under the October 1998 Loan and the
October 1998 Loan Documents, simultaneously therewith, it must also prepay
all of its Obligations under this Agreement and the other Loan Documents
(including, without limitation, all prepayment premiums).
================================================================================
Additional Conditions (Section 4.11):
The obligation of Lender to make the Loan hereunder is subject to the
fulfillment, to the satisfaction of Lender and its counsel, of each of the
following conditions, in addition to the other conditions set forth in
Article 4 above:
(a) There shall have been no material adverse change in the business,
operations or financial condition of Borrower or in the Collateral
since the date of the October 1998 Loan Agreement.
(b) Additional conditions:
(i) Borrower irrevocably acknowledges and confirms that Letter of
Credit No. 5-381686 in the face amount of $1,000,000 issued by
Chase Manhattan Bank in favor of Lender (the "Letter of Credit")
in connection with the October 1998 Loan Agreement, secures all
Obligations of Borrower to Lender under the Loan Documents and
the October 1998 Loan Documents, and that if there is an Event of
Default under either this Agreement or the October 1998 Loan
Agreement, or both, Lender may draw upon the Letter of Credit for
all sums due. Notwithstanding the foregoing, the term of the
Letter of Credit may expire when all of the Obligations under the
October 1998 Loan Documents are paid and satisfied in full.
================================================================================
Organization and Qualification (Section 5.1):
Borrower:
State of Organization, etc.: Delaware
States of Qualification, etc.: California, New York
================================================================================
-3-
<PAGE>
Names (Section 6.12): None
================================================================================
Notices (Section 9.9.1)
Address of Notices to Borrower:
Artisan Pictures Inc.
2700 Colorado Avenue
Santa Monica, California 90404
Facsimile No.: 310-255-3840
Attention: Kenneth Schapiro
================================================================================
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Schedule effective as of the day
and year first above written.
ARTISAN PICTURES INC.
By: /s/ Mark Curcio
--------------------------------------
Name: Mark Curcio
------------------------------------
Title: Chief Executive Officer
-----------------------------------
By: /s/ Mark Curcio
--------------------------------------
Name: Mark Curcio
------------------------------------
Title:___________________________________
Federal Tax Identification No. 95-4178252
FINOVA CAPITAL CORPORATION
By: /s/ A. Holland
--------------------------------------
Name: A. Holland
------------------------------------
Title: Director, Cont. Admin.
-----------------------------------
-4-
<PAGE>
SCHEDULE A
----------
See Attached.
<PAGE>
EXHIBIT 10.24
Composite Conformed Copy
================================================================================
AMENDED AND RESTATED
CREDIT AND GUARANTY AGREEMENT
Dated as of July 9, 1997
As amended and restated as of August 10, 1998
among
ARTISAN PICTURES INC.
as Borrower,
THE GUARANTORS NAMED HEREIN
and
THE LENDERS NAMED HEREIN
with
THE CHASE MANHATTAN BANK, as Administrative Agent
and
THE CHASE MANHATTAN BANK, as Fronting Bank
================================================================================
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
<PAGE>
TABLE ON CONTENTS
-----------------
<TABLE>
<S> <C>
INTRODUCTORY STATEMENT......................................................................................... 1
PARTIES........................................................................................................ 1
1. DEFINITIONS................................................................................................ 2
2. THE LOANS.................................................................................................. 34
SECTION 2.1. Revolving Credit Loans...................................................................... 34
SECTION 2.2. Term Loans.................................................................................. 35
SECTION 2.3. Making of Loans............................................................................. 35
SECTION 2.4. Notes....................................................................................... 37
SECTION 2.5. Interest on Notes........................................................................... 38
SECTION 2.6. Commitment Fees and Other Fees.............................................................. 38
SECTION 2.7. Optional and Mandatory Termination or Reduction of Revolving Credit Commitments............ 39
SECTION 2.8. Default Interest; Alternate Rate of Interest................................................ 39
SECTION 2.9. Continuation and Conversion of Loans........................................................ 40
SECTION 2.10. Prepayment of Loans; Reimbursement of Lenders.............................................. 41
SECTION 2.11. Change in Circumstances.................................................................... 43
SECTION 2.12. Change in Legality......................................................................... 46
SECTION 2.13. Manner of Payments......................................................................... 46
SECTION 2.14. United States Withholding.................................................................. 46
SECTION 2.15. Interest Adjustments....................................................................... 48
SECTION 2.16. Letters of Credit.......................................................................... 49
SECTION 2.17. Provisions Relating to the Borrowing Base.................................................. 54
3. REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES........................................................... 55
SECTION 3.1. Corporate Existence and Power............................................................... 55
SECTION 3.2. Corporate Authority and No Violation........................................................ 55
SECTION 3.3. Governmental Approval....................................................................... 56
SECTION 3.4. Binding Agreements.......................................................................... 56
SECTION 3.5. Financial Statements........................................................................ 56
SECTION 3.6. No Material Adverse Change.................................................................. 57
SECTION 3.7. Ownership of Pledged Securities, Inactive Subsidiaries, etc................................. 57
SECTION 3.8. Copyrights, Trademarks and Other Rights..................................................... 58
SECTION 3.9. Fictitious Names............................................................................ 58
SECTION 3.10. Title to Properties........................................................................ 59
SECTION 3.11. Places of Business......................................................................... 59
SECTION 3.12. Litigation................................................................................. 59
SECTION 3.13. Federal Reserve Regulations................................................................ 59
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SECTION 3.14. Investment Company Act...................................................................... 59
SECTION 3.15. Taxes....................................................................................... 60
SECTION 3.16. Compliance with ERISA....................................................................... 60
SECTION 3.17. Agreements.................................................................................. 60
SECTION 3.18. Security Interest; Other Security........................................................... 61
SECTION 3.19. Disclosure.................................................................................. 61
SECTION 3.20. Distribution Rights......................................................................... 61
SECTION 3.21. Environmental Liabilities................................................................... 62
SECTION 3.22. Pledged Securities.......................................................................... 62
SECTION 3.23. Compliance with Laws........................................................................ 63
SECTION 3.24. Projected Financial Information............................................................. 63
SECTION 3.25. Year 2000 Compliance........................................................................ 63
4. CONDITIONS OF LENDING...................................................................................... 63
SECTION 4.1. Conditions Precedent to Effectiveness of this Amendment and Restatement..................... 63
SECTION 4.2. Conditions Precedent to Each Loan and Letter of Credit...................................... 67
SECTION 4.3. Conditions Precedent to Loans and/or Letters of Credit under the Special Production Tranche. 68
5. AFFIRMATIVE COVENANTS...................................................................................... 69
SECTION 5.1. Financial Statements and Reports............................................................ 69
SECTION 5.2. Corporate Existence......................................................................... 71
SECTION 5.3. Maintenance of Properties................................................................... 72
SECTION 5.4. Notice of Material Events................................................................... 72
SECTION 5.5. Insurance................................................................................... 73
SECTION 5.6. Production.................................................................................. 74
SECTION 5.7. Music....................................................................................... 74
SECTION 5.8. Copyright................................................................................... 74
SECTION 5.9. Books and Records........................................................................... 75
SECTION 5.10. Third Party Audit Rights.................................................................... 75
SECTION 5.11. Observance of Agreements.................................................................... 76
SECTION 5.12. Laboratories; No Removal.................................................................... 76
SECTION 5.13. Taxes and Charges; Indebtedness in Ordinary Course of Business.............................. 76
SECTION 5.14. Liens....................................................................................... 77
SECTION 5.15. Further Assurances; Security Interests...................................................... 77
SECTION 5.16. Receivables Audit........................................................................... 78
SECTION 5.17. ERISA Compliance and Reports................................................................ 78
SECTION 5.18. Environmental Laws.......................................................................... 78
SECTION 5.19. Use of Proceeds............................................................................. 79
SECTION 5.20. Security Agreements with the Guilds......................................................... 79
SECTION 5.21. Uncompleted Products........................................................................ 80
SECTION 5.22. Negative Cost Statements.................................................................... 80
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SECTION 5.23. Subsidiaries............................................................................... 80
6. NEGATIVE COVENANTS......................................................................................... 81
SECTION 6.1. Limitations on Indebtedness................................................................. 81
SECTION 6.2. Limitations on Liens........................................................................ 82
SECTION 6.3. Limitation on Guarantees.................................................................... 84
SECTION 6.4. Limitations on Investments.................................................................. 84
SECTION 6.5. Restricted Payments......................................................................... 85
SECTION 6.6. Limitations on Leases....................................................................... 85
SECTION 6.7. Consolidation, Merger, Sale or Purchase of Assets, etc...................................... 85
SECTION 6.8. Receivables................................................................................. 86
SECTION 6.9. Sale and Leaseback.......................................................................... 86
SECTION 6.10. Places of Business; Change of Name......................................................... 86
SECTION 6.11. Limitations on Capital Expenditures........................................................ 86
SECTION 6.12. Transactions with Affiliates. ............................................................ 86
SECTION 6.13. Prohibition of Amendments or Waivers....................................................... 87
SECTION 6.14. Unrecouped Print and Advertising Expenses.................................................. 87
SECTION 6.15. Development Costs.......................................................................... 87
SECTION 6.16. Overhead Expense........................................................................... 87
SECTION 6.17. Consolidated Capital Base.................................................................. 87
SECTION 6.18. EBIT Ratio................................................................................. 87
SECTION 6.19. Leverage Ratio............................................................................. 88
SECTION 6.20. Liquidity Ratio........................................................................... 88
SECTION 6.21. No Change in Business...................................................................... 88
SECTION 6.22. ERISA Compliance........................................................................... 88
SECTION 6.23. Additional Limitations on Production and Acquisition of Product............................ 89
SECTION 6.24. Subsidiaries............................................................................... 89
SECTION 6.25. Bank Accounts.............................................................................. 89
SECTION 6.26. Hazardous Materials........................................................................ 90
SECTION 6.27. Use of Proceeds of Loans and Requests for Letters of Credit................................ 90
SECTION 6.28. Special Production Tranche................................................................. 90
SECTION 6.29. Interest Rate Protection Agreements, etc................................................... 90
SECTION 6.30. Amortization Method........................................................................ 90
SECTION 6.31. Special Purpose Distributors............................................................... 90
SECTION 6.32. Limitation on Business..................................................................... 91
SECTION 6.33. Limitations Regarding Stock................................................................ 91
SECTION 6.34. Limitation on Modification of Organizational Documents..................................... 91
7. EVENTS OF DEFAULT.......................................................................................... 91
8. GUARANTY................................................................................................... 94
SECTION 8.1. Guaranty.................................................................................... 94
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SECTION 8.2. No Impairment of Guaranty, etc.............................................................. 95
SECTION 8.3. Continuation and Reinstatement, etc......................................................... 95
SECTION 8.4. Limitation on Guaranteed Amount etc......................................................... 96
9. CASH COLLATERAL ACCOUNT.................................................................................... 97
SECTION 9.1. Cash Collateral Accounts.................................................................... 97
SECTION 9.2. Investment of Funds......................................................................... 97
SECTION 9.3. Grant of Security Interest.................................................................. 97
SECTION 9.4. Remedies.................................................................................... 98
10. THE ADMINISTRATIVE AGENT AND THE FRONTING BANK............................................................ 98
SECTION 10.1. Administration by Administrative Agent..................................................... 98
SECTION 10.2. Payments................................................................................... 100
SECTION 10.3. Sharing of Setoffs and Cash Collateral..................................................... 100
SECTION 10.4. Notice to the Lenders...................................................................... 101
SECTION 10.5. Liability of Administrative Agent.......................................................... 101
SECTION 10.6. Reimbursement and Indemnification.......................................................... 102
SECTION 10.7. Rights of Administrative Agent............................................................. 102
SECTION 10.8. Independent Investigation by Lenders....................................................... 102
SECTION 10.9. Execution by Collateral Agent of Security Documentation on behalf of the Lenders........... 103
SECTION 10.10. Agreement of Required Lenders............................................................. 103
SECTION 10.11. Notice of Transfer........................................................................ 103
SECTION 10.12. Successor Administrative Agent............................................................ 103
11. MISCELLANEOUS............................................................................................. 104
SECTION 11.1. Notices.................................................................................... 104
SECTION 11.2. Survival of Agreement, Representations and Warranties, etc................................. 104
SECTION 11.3. Successors and Assigns; Syndications; Loan Sales; Participations........................... 104
SECTION 11.4. Expenses; Documentary Taxes................................................................ 107
SECTION 11.5. Indemnification of the Administrative Agent, the Fronting Bank and the Lenders............. 108
SECTION 11.6. CHOICE OF LAW.............................................................................. 109
SECTION 11.7. WAIVER OF JURY TRIAL....................................................................... 110
SECTION 11.8. No Waiver.................................................................................. 110
SECTION 11.9. Extension of Payment Date.................................................................. 110
SECTION 11.10. Amendments, etc........................................................................... 110
SECTION 11.11. Severability.............................................................................. 111
SECTION 11.12. SERVICE OF PROCESS........................................................................ 111
SECTION 11.13. Headings.................................................................................. 112
SECTION 11.14. Execution in Counterparts................................................................. 112
SECTION 11.15. Subordination of Intercompany Advances.................................................... 112
SECTION 11.16. Confidentiality........................................................................... 113
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SECTION 11.17. Entire Agreement.......................................................................... 113
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Schedules
1 Schedule of Commitments
2.1 Acceptable Obligors/Allowable Amounts
2.2 Home Video Model
2.3 Pay TV Formula
3.7(a) Credit Parties/Pledged Securities
3.7(b) Beneficial Interests
3.7(c) Inactive Subsidiaries
3.8(a)(i) All Items of Product
3.8(a)(ii) Items of Product: Copyrights
3.8(b) Trademarks
3.9 Fictitious Names
3.11 Principal Executive Office/Location of Collateral/Filing Offices
3.12 Litigation
3.15 Taxes
3.17 Existing Indebtedness/Material Agreements
3.22 Outstanding Rights Re Pledged Securities
6.2 Existing Liens
6.3 Guarantees
6.4 Scheduled Investments
6.25 Bank Accounts
Exhibits
A-1 Form of Revolving Note
A-2 Form of Term Note
B-1 Opinion of Ropes & Gray, special counsel to Holdings
B-2 Opinion of Sidley & Austin, special counsel to the Credit Parties
B-3 Opinion of Kenneth D. Schapiro, general counsel to the Credit
Parties
C Form of Borrowing Base Certificate
D-1 Form of Pledgeholder Agreement (Uncompleted Product)
D-2 Form of Pledgeholder Agreement (Completed Product)
E-1 Form of Amended and Restated Copyright Security Agreement
E-2 Form of Copyright Security Agreement Supplement
F Form of Amended and Restated Trademark Security Agreement
G Form of Laboratory Access Letter
H Form of Amended and Restated Contribution Agreement
I Form of Notice of Assignment and Irrevocable Instructions
J Form of Borrowing Certificate
K Form of Assignment and Acceptance
L Form of Instrument of Assumption and Joinder
M Form of Amended and Restated Security Agreement
<PAGE>
N-1 Form of Amended and Restated Pledge Agreement
N-2 Form of Pledge Agreement Supplement
O Form of Intercreditor and Collateral Agency Agreement
P Form of Special Purpose Producer Credit Agreement
Q Form of Collection Account Letter
<PAGE>
AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT,
dated as of July 9, 1997, as amended and restated as
of August 10, 1998 (as it may be further amended,
supplemented or otherwise modified, renewed or
replaced from time to time, the "Credit Agreement"),
among ARTISAN PICTURES INC., a Delaware corporation
(the "Borrower"), ARTISAN ENTERTAINMENT INC., a
Delaware corporation (the "Parent"), the other
Guarantors named herein, the Lenders referred to
herein, THE CHASE MANHATTAN BANK, a New York banking
corporation, as Agent (the "Administrative Agent")
for the Lenders and THE CHASE MANHATTAN BANK as
Fronting Bank (the "Fronting Bank").
INTRODUCTORY STATEMENT
----------------------
All terms not otherwise defined above or in this Introductory
Statement are as defined in Article 1 hereof, or as defined elsewhere herein.
On July 9, 1997 the Borrower, certain of the Guarantors, the
Administrative Agent and certain lenders entered into a Credit and Guaranty
Agreement providing for a $135,000,000 secured credit facility (the "Existing
Credit Agreement").
The Borrower has requested that the Lenders amend and restate the
Existing Credit Agreement in order to, among other things, make available a
$175,000,000 four-year secured credit facility consisting of a term loan of
$25,263,150 and a revolving credit facility of $149,736,850 which have been or
will be used (i) to refinance existing senior and subordinated debt of the
Parent and redeem common and preferred stock, options and warrants which were
outstanding at the time of the closing under the Existing Credit Agreement; (ii)
to finance the development, production, distribution or acquisition of
intellectual properties, including feature films, television and video product
and/or rights therein or thereto; (iii) to acquire rights to television product
for exploitation in other media; and (iv) for other general corporate purposes.
At the time of the closing of the Existing Credit Agreement, the Borrower also
issued to Canpartners Investments IV, LLC ("Canyon") $15,000,000 initial
aggregate principal amount of 13 1/2% senior subordinated secured notes
("Secured Subordinated Notes"), which are guaranteed by the Guarantors hereunder
on a subordinated basis.
To provide assurance for the repayment of (i) the Loans and other
Obligations of the Borrower and the Guarantors hereunder and (ii) the Secured
Subordinated Notes, the Borrower and the Guarantors will provide, have provided
or will cause to be provided to The Chase Manhattan Bank, as Collateral Agent
(the "Collateral Agent"), for the benefit of the Administrative Agent, the
Fronting Bank, the Lenders and Canyon and subsequent holders of the Secured
Subordinated Notes (the "Noteholders"), a security interest in the Collateral
pursuant to
<PAGE>
the Security Agreement and a pledge of the Pledged Securities pursuant to the
Pledge Agreement. The Collateral Agent, Canyon and the Administrative Agent (on
behalf of the Administrative Agent, the Fronting Bank and the Lenders) have
entered into the Collateral Agency Agreement in order to clarify the relative
priorities between them.
In addition, to provide assurance for the repayment of the Loans and
other Obligations of the Borrower hereunder, the Borrower and the Guarantors
will provide, have provided or will cause to be provided to the Administrative
Agent for the benefit of the Administrative Agent, the Fronting Bank and the
Lenders, a guaranty of the Obligations pursuant to Article 8 hereof.
Subject to the terms and conditions set forth herein, the
Administrative Agent is willing to act as agent for the Lenders and each Lender
is willing to make Loans to the Borrower and participate in the Letters of
Credit in amounts in the aggregate at any one time outstanding not in excess of
its Commitment hereunder, all as set forth on the Schedule of Commitments.
Accordingly, the parties hereto hereby agree that, effective on the
Closing Date, the Existing Credit Agreement is amended and restated in its
entirety to read as follows:
1. DEFINITIONS
For the purposes hereof unless the context otherwise requires, all
Section references herein shall be deemed to correspond with Sections herein,
the following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the UCC and not otherwise defined herein
shall have the respective meanings accorded to them therein. Unless the context
otherwise requires, any of the following terms may be used in the singular or
the plural, depending on the reference:
"Acceptable Domestic Account Debtor" shall mean any Person listed as
----------------------------------
such on Schedule 2.1 hereto (as modified from time to time in accordance with
Section 2.17).
"Acceptable Foreign Account Debtor" shall mean any Person listed as
---------------------------------
such on Schedule 2.1 hereto (as modified from time to time in accordance with
Section 2.17).
"Acceptable Major Account Debtor" shall mean any Person listed as such
-------------------------------
on Schedule 2.1 hereto (as modified from time to time in accordance with Section
2.17).
"Acceptable L/C" shall mean an irrevocable letter of credit which (i)
--------------
is in form and on terms acceptable to the Administrative Agent, (ii) is payable
in Dollars at an office of the issuing or confirming bank in New York City or
Los Angeles (or another city acceptable to the Administrative Agent in its sole
discretion), (iii) is issued or confirmed by (a) any Lender; (b)
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<PAGE>
any commercial bank (or domestic branch of a foreign bank) that has (or which is
the principal operating subsidiary of a holding company which has) as of the
time such letter of credit is issued, public debt outstanding with a rating of
at least "A" (or the equivalent of an "A") from one of the nationally recognized
debt rating agencies or capital and surplus in excess of $250,000,000; or (c) by
any other bank which the Administrative Agent may in its sole discretion
determine to be of acceptable credit quality and (iv) in the case of an item of
Product which has not been Completed and for which a Completion Guarantee is
required pursuant to Section 5.21, has an expiration date no earlier than one
(1) month after the "Outside Delivery Date" for an item of Product (as set forth
in the Completion Guarantee for such item of Product) to which the letter of
credit relates.
"Acceptable Obligors" shall mean the Acceptable Domestic Account
-------------------
Debtors, the Acceptable Foreign Account Debtors and the Acceptable Major Account
Debtors.
"Acquisition Co." shall mean Film Acquisition Co., a Delaware
---------------
corporation and wholly-owned subsidiary of Holdings.
"Administrative Agent" shall mean The Chase Manhattan Bank, in its
--------------------
capacity as Administrative Agent for the Lenders hereunder, or such successor
Administrative Agent as may be appointed pursuant to Section 10.12 of this
Credit Agreement.
"Affiliate" shall mean any Person which, directly or indirectly, is in
---------
control of, is controlled by or is under common control with, another Person.
For purposes of this definition, a Person shall be deemed to be "controlled by"
another Person if such latter Person possesses, directly or indirectly, power
either to direct or cause the direction of the management and policies of such
controlled Person whether by contract or otherwise.
"Affiliated Group" shall mean a group of Persons, each of which is an
----------------
Affiliate (other than by reason of having common directors or officers) of some
other Person in the group.
"Allowable Amount" shall mean, with respect to any Person or
----------------
Affiliated Group, such amount as may be specified on Schedule 2.1 hereto as the
maximum aggregate exposure.
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect for such day plus
1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per
----------
annum publicly announced from time to time by the Administrative Agent as its
prime rate in effect at its principal office in New York City. "Base CD Rate"
------------
shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate
and (ii) Statutory Reserves and (b) the Assessment Rate. "Three-Month Secondary
---------------------
CD Rate" shall mean, for any day, the secondary market rate for three-month
- -------
certificates of deposit reported as being in effect on such day (or, if such day
is not a Business Day, the next preceding Business Day) by the
-3-
<PAGE>
Board through the public information telephone line of the Federal Reserve Bank
of New York (which rate will, under current practices of the Board, be published
in Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. "Statutory Reserves" shall mean a
------------------
fraction (expressed as a decimal), the numerator of which is the number one and
the denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board and any other banking
authority to which the Administrative Agent is subject for new negotiable
nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage. "Federal Funds Effective Rate" shall mean, for any day, the weighted
----------------------------
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it. If for any reason the Administrative Agent shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both
for any reason, including the inability or failure of the Administrative Agent
to obtain sufficient quotations in accordance with the terms hereof, the
Alternate Base Rate shall be determined without regard to clause (b) or (c), or
both, of the first sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary
CD Rate or the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"Alternate Base Rate Loan" shall mean a Loan based on the Alternate
------------------------
Base Rate in accordance with the provisions of Article 2 hereof.
"Applicable Law" shall mean all provisions of statutes, rules,
--------------
regulations and orders of the United States or foreign governmental bodies or
regulatory agencies applicable to the Person in question, and all orders and
decrees of all courts and arbitrators in proceedings or actions in which the
Person in question is a party.
"Applicable Margin" shall mean in the case of Alternate Base Rate
-----------------
Loans, 1.5% per annum, or in the case of Eurodollar Loans, 2.5% per annum.
-4-
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"Approved Completion Guarantor" shall mean a financially sound and
-----------------------------
reputable completion guarantor approved by the Required Lenders. The Required
Lenders hereby pre-approve as a completion guarantor (i) The Motion Picture Bond
Company Inc. (to the extent a completion guarantee is accompanied by a London
Guarantee Insurance Company "cut-through" or "loss payee endorsement") but only
if the aggregate Production Exposure for all items of Product covered by
Completion Guarantees issued by The Motion Picture Bond Company, Inc. which have
not yet been completed does not exceed $5,000,000, (ii) Fireman's Fund Insurance
Company, acting through its agent, International Film Guarantors L.P. (the
general partner of which is International Film Guarantors, Inc.), (iii) Cinema
Completions International Inc./Continental Casualty Company and (iv) Film
Finances, Inc. and its Affiliates (including Film Finances Canada 1984 Limited)
that are insured under the same Lloyds of London insurance policies as Film
Finances, Inc. (only to the extent the completion guarantee is accompanied by a
Lloyd's of London "cut-through"); provided, however, that any such pre-approval
-------- -------
may be revoked by the Administrative Agent if deemed appropriate in its sole
discretion or if so instructed by the Required Lenders, at any time upon 15 days
prior written notice to the Borrower; but further, provided, that such pre-
------- --------
approval may not be revoked with regard to an item of Product if a Completion
Guarantee or a commitment for the provision thereof has already been issued for
such item of Product which, in the case of a commitment, such commitment was
issued no more than thirty (30) days before the commencement of principal
photography.
"Assessment Rate" shall mean, for any day, the net annual assessment
---------------
rate (rounded upwards, if necessary, to the next higher 1/100 of 1%) as most
recently estimated by the Administrative Agent for determining the then current
annual assessment payable by the Administrative Agent to the Federal Deposit
Insurance Corporation (or any successor) for insurance by such Corporation (or
such successor) of time deposits made in Dollars at the Administrative Agent's
domestic offices.
"Assignment and Acceptance" shall mean an agreement in the form of
-------------------------
Exhibit K hereto, executed by the assignor, assignee and other parties as
contemplated thereby.
"Authorized Officer" shall mean, with respect to any Credit Party,
------------------
such Credit Party's Chief Executive Officer, President, Chief Financial Officer
or Chief Operating Officer.
"Bain Capital" shall mean Bain Capital, Inc., a Delaware corporation.
------------
"Bain Related Party" shall mean (i) Bain Capital, (ii) any Affiliate
------------------
of Bain Capital and (iii) any trust, corporation, partnership or other entity of
whom at least 80% of the Voting Stock or all of the general partnership
interests or other controlling interests are held, directly or indirectly,
solely by persons referred to in the preceding clauses of this definition.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as
---------------
heretofore and hereafter amended, as codified at 11 U.S.C. (S) 101 et seq.
-- ---
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"Board" shall mean the Board of Governors of the Federal Reserve
-----
System of the United States of America.
"Borrowing" shall mean a group of Loans of a single interest rate type
---------
and as to which a single Interest Period is in effect on a single day.
"Borrowing Base" shall mean, at any date for which the amount thereof
--------------
is to be determined, an amount equal to the aggregate (without double counting)
of the following:
(i) One Hundred percent (100%) of Eligible Receivables from
Acceptable Major Account Debtors; plus
----
(ii) One Hundred percent (100%) of Eligible L/C Receivables;
plus
----
(iii) Ninety percent (90%) of Eligible Receivables from
Acceptable Domestic Account Debtors and Other Domestic
Receivables; plus
----
(iv) Eighty-five percent (85%) of Eligible Receivables from
Acceptable Foreign Account Debtors and Other Foreign
Receivables; plus
----
(v) Fifty percent (50%) of the Eligible Library Amount; plus
----
(vi) One Hundred percent (100%) of any amounts held in the
Cash Collateral Account(s) pursuant to Section 2.10(g)
hereof; plus
----
(vii) in the case of an item of Product which is intended for
domestic theatrical release, the Home Video Credit plus
the Pay Television Credit plus the Free Television
Credit; provided, however, that if any such item of
Product has not had a general theatrical release in the
United States within twelve months of its Completion,
the Borrower shall no longer be entitled to include the
foregoing credits in respect of such Product in the
Borrowing Base; plus
----
(viii) in the case of an item of Product intended as a direct
to video release, the Direct To Video Credit; provided,
--------
however, that if such item of Product is not released in
-------
the domestic home video market within 12 months of its
Completion, no such Direct To Video credit shall remain
available; plus
(ix) in the case of an item of Product which is intended for
foreign exploitation, the Foreign Rights Credit;
provided, however, that if any such item of Product has
-------- -------
not been released in a foreign territory within twelve
months of its completion, the Borrower
-6-
<PAGE>
shall no longer be entitled to include the Foreign
Rights Credit in respect of such Product in the
Borrowing Base; plus
----
(x) the lesser of fifty percent (50%) of the book value of
physical videocassette inventory or $6,000,000; provided
that in calculation of the amount to be included herein
the physical videocassette inventory included shall meet
the criteria set forth in clauses (x) and (xi) of the
definition of Eligible Receivables; minus
-----
(xi) to the extent not otherwise deducted in the definition
of Eligible Receivables or in computing the Borrowing
Base, all amounts payable to parties other than Credit
Parties from or with regard to the amounts otherwise
included in the Borrowing Base pursuant to (i), (ii),
(iii), and (iv) above (computed on an item by item or an
aggregate basis as the Borrower may elect, but never
more than the corresponding amounts included in the
Borrowing Base), including without limitation remaining
related acquisition payments (which, if not paid, could
reasonably be expected to expose a Credit Party to the
loss of the underlying rights), set offs, profit
participations, deferments, commissions and royalties;
minus
-----
(xii) to the extent not otherwise deducted in computing the
Borrowing Base, the aggregate amount of all accrued but
unpaid residuals owed to any trade guild with respect to
any item of Product, to the extent that the obligation
of any Credit Party to pay such residuals is secured by
a security interest in such item of Product or rights
therein or proceeds thereof, which security interest is
not subordinated to the security interests of the
Lenders (but the amount deducted with respect to any
such item of Product shall not exceed the amount
included in the Borrowing Base attributable to such item
of Product);
provided, however, that (i) credit in the Borrowing Base attributable to any
- -------- -------
Acceptable Obligor (other than WEA or Fox) or, if such an Acceptable Obligor
(other than WEA or Fox) is part of an Affiliated Group, to any such Affiliated
Group, may not exceed 15% of the total Borrowing Base and (ii) the Borrowing
Base shall not include any component owned, or attributable to rights held, by
any Controlled Foreign Corporation or other Person which is not a Credit Party;
and provided, further that the amount included in the Borrowing Base at any time
-------- -------
for Other Domestic Receivables and Other Foreign Receivables shall not exceed
$7,500,000 in the aggregate for all such receivables or $250,000 for any
obligor.
"Borrowing Base Certificate" shall have the meaning given such term in
--------------------------
Section 5.1(e) hereof.
-7-
<PAGE>
"Borrowing Certificate" shall mean a borrowing certificate,
---------------------
substantially in the form of Exhibit J hereto, to be delivered by the Borrower
to the Administrative Agent in connection with each Borrowing.
"Budgeted Negative Cost" shall mean, with respect to any item of
----------------------
Product, the amount of the cash budget (stated in Dollars) for such item of
Product including all costs customarily included in connection with the
acquisition of all underlying literary and musical rights with respect to such
item of Product and in connection with the preparation, production and
completion of such item of Product, including costs of materials, equipment,
physical properties, personnel and services utilized in connection with such
item of Product, both "above-the-line" and "below-the-line", any Completion
Guarantee fee, and all other items customarily included in negative costs,
including finance charges and interest expense, but excluding production fees,
overhead charges or other fees, charges or costs payable to a Credit Party,
except to the extent such payments to a Credit Party are reimbursements for
production or development costs advanced by a Credit Party to a Person that is
not a Credit Party.
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which banks are required or permitted to close in the State of New
York, State of California or in Amsterdam, The Netherlands; provided, however,
-------- -------
that when used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in Dollar
deposits on the London Interbank Market.
"Canyon" shall have the meaning given such term in the introductory
------
statement hereto.
"Capital Expenditures" shall mean, with respect to any Person for any
--------------------
period, the sum of (i) the aggregate of all expenditures (whether paid in cash
or accrued as a liability) by such Person during that period which, in
accordance with GAAP, are or should be included in "additions to property, plant
or equipment" included in cash flows (including Capital Leases) and (ii) to the
extent not covered by clause (i) hereof, the aggregate of all expenditures
properly capitalized in accordance with GAAP by such Person to acquire, by
purchase or otherwise, the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, in part or in whole, of any other
Person (other than the portion of such expenditures allocable in accordance with
GAAP to Product or other current assets).
"Capital Lease" shall mean any lease of any property (whether real,
-------------
personal or mixed) by that Person as lessee which, in accordance with GAAP, is
or should be accounted for as a capital lease on the balance sheet of that
Person.
"Cash Collateral Accounts" shall have the meaning given such term in
------------------------
Section 9.1 hereof.
-8-
<PAGE>
"Cash Equivalents" shall mean (i) marketable securities issued or
----------------
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than twelve months from the date of acquisition, (ii) time deposits,
demand deposits, certificates of deposit, acceptances or prime commercial paper
or repurchase obligations for underlying securities of the types described in
clause (i) entered into with any Lender or any commercial bank having a short-
term deposit rating of at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or at least P-2 or the equivalent thereof by Moody's
Investors Service, Inc., (iii) commercial paper with a rating of A-1 or A-2 or
the equivalent thereof by Standard & Poor's Corporation or P-1 or P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within twelve months after the date of acquisition or (iv) any mutual fund or
other pooled investment vehicle which invests principally in the foregoing
obligations.
"Chain of Title" shall have the meaning given such term in Section
--------------
5.21 hereof.
"Change in Control" shall mean either (i) the failure for any reason
-----------------
of Bain Related Parties to own at least 75% of Holdings' Voting Stock owned by
them on the closing under the Existing Credit Agreement, (ii) any Person or
group (such term being used as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) acquires ownership or control of
voting stock of Holdings having voting power greater than the voting power at
the time controlled by the Bain Related Parties, (iii) if at any time,
individuals who at the closing under the Existing Credit Agreement constituted
the Board of Directors of Holdings (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Parent was approved by a vote of the majority of the
directors then still in office who were either directors at the closing under
the Existing Credit Agreement or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of Holdings then in office or (iv) the failure at any time of
Parent to own 100% of the capital stock of Borrower or of Holdings to own 100%
of the capital stock of Parent.
"Chase Clearing Account" shall mean the account of the Administrative
----------------------
Agent (for the benefit of the Lenders) maintained at the office of the
Administrative Agent at The Chase Manhattan Bank, Loan and Agency Services
Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
designated as the "Artisan Administrative Agent Bank Clearing Account", Account
No. 323-513263.
"Closing Date" shall mean the earliest date on which all conditions
------------
precedent set forth in Section 4.1 have been satisfied or waived.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
----
regulations issued thereunder, as heretofore amended, as codified at 26 U.S.C.
(S)1 et seq or any successor provision thereto.
-- ---
-9-
<PAGE>
"Collateral" shall mean with respect to each Credit Party, all of such
----------
Credit Party's right, title and interest in personal property, tangible and
intangible, wherever located or situated and whether now owned or hereafter
acquired or created, including but not limited to goods, accounts, intercompany
obligations, partnership and joint venture interests, contract rights,
documents, chattel paper, general intangibles, goodwill, equipment, inventory,
investment property, instruments, copyrights, trademarks, trade names, insurance
proceeds, cash and deposit accounts and any proceeds thereon, products thereof
or income therefrom, further including but not limited to all of such Credit
Party's right, title and interest in and to each and every type and item of
Product, the scenario, screenplay or script upon which an item of Product is
based, all of the properties thereof, tangible and intangible, and all domestic
and foreign copyrights and all other rights therein and thereto, of every kind
and character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of such Credit Party, including with respect to
each and every item of Product and without limiting the foregoing language, each
and all of the following particular rights and properties (to the extent they
are owned or hereafter created or acquired by such Credit Party):
(i) all scenarios, screenplays and/or scripts at every stage
thereof;
(ii) all common law and/or statutory copyright and other
rights in all literary and other properties (hereinafter called "said
literary properties") which form the basis of each item of Product and/or
which are and/or will be incorporated into each item of Product, all
component parts of each item of Product consisting of said literary
properties, all motion picture rights in and to the story, all treatments
of said story and said literary properties, together with all preliminary
and final screenplays used and to be used in connection with the item of
Product, and all other literary material upon which the item of Product is
based or from which it is adapted;
(iii) all rights in and to all music and musical compositions
used and to be used in each item of Product, including, each without
limitation, all rights to record, rerecord, produce, reproduce or
synchronize all of said music and musical compositions in and in connection
with motion pictures;
(iv) all tangible personal property relating to each item of
Product, including, without limitation, all exposed film, developed film,
positives, negatives, prints, positive prints, answer prints, special
effects, preparing materials (including interpositives, duplicate
negatives, internegatives, color reversals, intermediates, lavenders, fine
grain master prints and matrices, and all other forms of pre-print
elements), sound tracks, cutouts, trims and any and all other physical
properties of every kind and nature relating to such item of Product,
whether in completed form or in some state of completion, and all masters,
duplicates, drafts, versions, variations and copies of each thereof, in all
formats whether on film, videotape, disk or otherwise and all music sheets
and promotional materials relating to such item of Product (collectively,
the "Physical Materials");
------------------
-10-
<PAGE>
(v) all collateral, allied, subsidiary and merchandising
rights appurtenant or related to each item of Product including, without
limitation, the following rights: all rights to produce remakes or sequels
or prequels to each item of Product based upon each item of Product, said
literary properties or the theme of each item of Product and/or the text or
any part of said literary properties; all rights throughout the world to
broadcast, transmit and/or reproduce by means of television (including
commercially sponsored, sustaining and subscription or "pay" television) or
by any process analogous thereto, now known or hereafter devised, each item
of Product or any remake or sequel or prequel to the item of Product; all
rights to produce primarily for television or similar use a motion picture
or series of motion pictures, by use of film or any other recording device
or medium now known or hereafter devised, based upon each item of Product,
said literary properties or any part thereof, including, without
limitation, based upon any script, scenario or the like used in each item
of Product; all merchandising rights including, without limitation, all
rights to use, exploit and license others to use and exploit any and all
commercial tie-ups of any kind arising out of or connected with said
literary properties, each item of Product, the title or titles of each item
of Product, the characters of each item of Product or said literary
properties and/or the names or characteristics of said characters and
including further, without limitation, any and all commercial exploitation
in connection with or related to each item of Product, any remake or sequel
thereof and/or said literary properties;
(vi) all statutory copyrights, domestic and foreign, obtained
or to be obtained on each item of Product, together with any and all
copyrights obtained or to be obtained in connection with each item of
Product or any underlying or component elements of each item of Product,
including, in each case without limitation, all copyrights on the property
described in subparagraphs (i) through (v) inclusive of this paragraph,
together with the right to copyright (and all rights to renew or extend
such copyrights) and the right to sue in the name of any of the Credit
Parties for past, present and future infringements of copyright;
(vii) all insurance policies and completion bonds connected
with each item of Product and all proceeds which may be derived therefrom;
(viii) all rights to distribute, sell, rent, license the
exhibition of and otherwise exploit and turn to account each item of
Product, the Physical Materials and motion picture rights in and to said
story, other literary material upon which each item of Product is based or
from which it is adapted, and said music and musical compositions used or
to be used in each item of Product;
(ix) any and all sums, proceeds, money, products, profits or
increases, including money profits or increases (as those terms are used in
the UCC or otherwise) or other property obtained or to be obtained from the
distribution, exhibition, sale or other uses or dispositions of each item
of Product or any part of each item of Product,
-11-
<PAGE>
including, without limitation, all proceeds, profits, products and
increases, whether in money or otherwise, from the sale, rental or
licensing of each item of Product and/or any of the elements of each item
of Product including from collateral, allied, subsidiary and merchandising
rights;
(x) the dramatic, nondramatic, stage, television, radio and
publishing rights, title and interest in and to each item of Product, and
the right to obtain copyrights and renewals of copyrights therein;
(xi) the name or title of each item of Product and all rights
of such Credit Party to the use thereof, including, without limitation,
rights protected pursuant to trademark, service mark, unfair competition
and/or the rules and principles of law and of any other applicable
statutes, common law, or other rule or principle of law;
(xii) any and all contract rights and/or chattel paper which
may arise in connection with each item of Product;
(xiii) all accounts and/or other rights to payment which such
Credit Party presently owns or which may arise in favor of such Credit
Party in the future, including, without limitation, any refund under a
completion guaranty, all accounts and/or rights to payment due from
exhibitors in connection with the distribution of each item of Product, and
from exploitation of any and all of the collateral, allied, subsidiary,
merchandising and other rights in connection with each item of Product;
(xiv) any and all "general intangibles" (as that term is
defined in the UCC) not elsewhere included in this definition, including,
without limitation, any and all general intangibles consisting of any right
to payment which may arise in the distribution or exploitation of any of
the rights set out herein, and any and all general intangible rights in
favor of such Credit Party for services or other performances by any third
parties, including actors, writers, directors, individual producers and/or
any and all other performing or nonperforming artists in any way connected
with each item of Product, any and all general intangible rights in favor
of such Credit Party relating to licenses of sound or other equipment,
licenses for any photograph or photographic process, and all general
intangibles related to the distribution or exploitation of each item of
Product including general intangibles related to or which grow out of the
exhibition of each item of Product and the exploitation of any and all
other rights in each item of Product set out in this definition;
(xv) any and all goods including inventory (as that term is
defined in the UCC) which may arise in connection with the creation,
production or delivery of each item of Product and which goods pursuant to
any production or distribution agreement or otherwise are owned by such
Credit Party;
-12-
<PAGE>
(xvi) all and each of the rights, regardless of denomination,
which arise in connection with the creation, production, completion of
production, delivery, distribution, or other exploitation of each item of
Product, including, without limitation, any and all rights in favor of such
Credit Party, the ownership or control of which are or may become necessary
or desirable, in the opinion of the Administrative Agent, in order to
complete production of each item of Product in the event that the
Administrative Agent and/or the Collateral Agent exercises any rights it
may have to take over and complete production of each item of Product;
(xvii) any and all documents issued by any pledgeholder or
bailee with respect to the item of Product or any Physical Materials
(whether or not in completed form) with respect thereto;
(xviii) any and all production accounts or other bank accounts
established by such Credit Party with respect to such item of Product;
(xix) any and all rights of such Credit Party under contracts
relating to the production or acquisition of such item of Product; and
(xx) any and all rights of such Credit Party under
Distribution Agreements relating to each item of Product;
provided that, Collateral shall not include property which, pursuant to its
- -------- ----
terms or under Applicable Law may not be pledged or assigned to the extent such
prohibition on pledge or assignment is enforceable.
"Collateral Agency Agreement" shall mean the Intercreditor and
---------------------------
Collateral Agency Agreement executed by the Credit Parties, the Collateral
Agent, Canyon and the Administrative Agent (on behalf of the Administrative
Agent, the Fronting Bank and the Lenders) substantially in the form of Exhibit O
hereto.
"Collateral Agent" shall have the meaning given such term in the
----------------
introductory statement hereto.
"Collection Account" shall have the meaning given such term in the
------------------
Security Agreement.
"Collection Account Letter" shall mean a collection account letter in
-------------------------
the form of Exhibit Q hereto or such other collection account letter in form and
substance satisfactory to the Administrative Agent, which letter shall be
executed with respect to a Collection Account by a Credit Party or a Special
Purpose Distributor in order to effectuate the provisions of Section 6 of the
Security Agreement.
-13-
<PAGE>
"Commitment" shall mean the Term Loan Commitment and the Revolving
----------
Credit Commitment of each Lender to make Loans to the Borrower and participate
in Letters of Credit from the Initial Date applicable to such Lender through the
Commitment Termination Date up to an aggregate amount, at any one time, not in
excess of the amount set forth (i) opposite its name under the column entitled
"Total Commitment" in the Schedule of Commitments appearing in Schedule 1
hereto, or (ii) in any applicable Assignment and Acceptance(s) to which it may
be a party, as the case may be, as such amount may be reduced from time to time
in accordance with the terms of this Credit Agreement.
"Commitment Fee" shall have the meaning given such term in Section 2.6
--------------
hereof.
"Commitment Termination Date" shall mean the earlier to occur of (i)
---------------------------
July 9, 2002 or (ii) such earlier date on which the Commitments shall terminate
in accordance with Section 2.7 or Article 7 hereof.
"Completed" or "Completion" shall mean with respect to any item of
--------- ----------
Product, that (A) either (i) sufficient elements have been delivered by the
Borrower to, and accepted by, a Person (other than the Borrower or Affiliates
thereof) to permit such Person to exhibit the item of Product in the theatrical
or other medium for which the item of Product is intended for initial
exploitation in the United States or (ii) the Borrower has certified to the
Administrative Agent that an independent laboratory has in its possession a
complete final 35 mm or 70 mm (or other size which has become standard in the
industry) composite positive print, video master or other equivalent master copy
of the item of Product as finally cut, main and end titled, edited, scored and
assembled with sound track printed thereon in perfect synchronization with the
photographic action and fit and ready for exhibition and distribution in the
theatrical or other medium for which the item of Product is intended for initial
exploitation, provided that, if such certification shall not be verified to the
Administrative Agent, if requested by the Administrative Agent, by such
independent laboratory within 20 Business Days thereafter, such item of Product
shall revert to being uncompleted until the Administrative Agent receives such
verification, and (B) if such item of Product was acquired from a third party,
the entire acquisition price or minimum advance shall have been paid to the
extent then due and there is no condition or event (other than the payment of
money not yet due) the occurrence of which might result in the Borrower or
Credit Party holding such rights losing any of its rights in such item of
Product.
"Completion Guarantee" shall mean a completion guarantee, in the
--------------------
customary form accepted by the Administrative Agent or otherwise in form and
substance satisfactory to the Administrative Agent, issued by an Approved
Completion Guarantor which names the Administrative Agent for the benefit of
Lenders as a beneficiary thereof to the extent of the Borrower's financial
interest in an item of Product.
"Consolidated" shall mean financial information of the Parent and its
------------
Subsidiaries consolidated in accordance with GAAP.
-14-
<PAGE>
"Consolidated Capital Base" shall mean the sum of the principal amount
-------------------------
of Subordinated Debt outstanding plus the amount of total stockholders' equity
(including capital stock and retained earnings and deficits) of the Parent and
its consolidated subsidiaries, all determined in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period for which such
-----------------------
amount is being determined, the net income (or loss) of the Parent and its
Consolidated Subsidiaries during such period, for such period taken as a single
accounting period in accordance with GAAP, provided that there shall be excluded
--------
(i) income (or loss) of any Person (other than a Consolidated Subsidiary) in
which the Parent or any of its Consolidated Subsidiaries has an equity
investment or comparable interest, except to the extent of the amount of
dividends or other distributions actually paid to the Parent or any of its
Consolidated Subsidiaries by such Person during such period, (ii) the income (or
loss) of any Person (other than the Parent or any Person which is a Consolidated
Subsidiary of the Parent on the Closing Date) accrued prior to the date it
becomes a Consolidated Subsidiary of the Parent or is merged into or
Consolidated with the Parent or any of its Consolidated Subsidiaries or the
Person's assets are acquired by the Parent or any of its Consolidated
Subsidiaries and (iii) the income of any Consolidated Subsidiary (other than the
Borrower) to the extent that the declaration or payment of dividends or similar
distributions by that Consolidated Subsidiary of its income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Consolidated Subsidiary.
"Consolidated Senior Debt" shall mean all Loans under this Credit
------------------------
Agreement.
"Consolidated Subsidiaries" shall mean all Subsidiaries of a Person
-------------------------
which are required or permitted to be Consolidated with such Person for
financial reporting purposes in accordance with GAAP.
"Contribution Agreement" shall mean the Amended and Restated
----------------------
Contribution Agreement executed by the Credit Parties substantially in the form
of Exhibit H hereto, as the same may be amended, supplemented or otherwise
modified from time to time.
"Controlled Foreign Corporation" shall mean a Subsidiary that is a
------------------------------
"controlled foreign corporation" as defined in Section 957(a) of the Code or any
successor provision thereto.
"Controlled Group" shall mean all members of a controlled group of
----------------
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any Credit Party, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code.
"Copyright Security Agreement" shall mean the Amended and Restated
----------------------------
Copyright Security Agreement, substantially in the form of Exhibit E-1 hereto as
the same may
-15-
<PAGE>
be amended or supplemented from time to time by delivery of a Copyright Security
Agreement Supplement or otherwise.
"Copyright Security Agreement Supplement" shall mean a Supplement to
---------------------------------------
the Copyright Security Agreement substantially in the form of Exhibit E-2
hereto.
"Credit Exposure" shall mean, without duplication, with respect to any
---------------
Lender, the sum of such Lender's (i) aggregate outstanding Loans hereunder and
under Special Purpose Producer Credit Agreements, (ii) Pro Rata Share of the
then current L/C Exposure, and (iii) the amount, if any, by which the sum of
such Lender's Revolving Credit Commitment exceeds the sum of its outstanding
Revolving Credit Loans plus its Pro Rata Share of the then current L/C Exposure.
"Credit Party" shall mean the Borrower or any of the Guarantors.
------------
"Currency Agreement" shall mean any foreign exchange contract,
------------------
currency swap agreement, futures contract, option contract or other similar
agreement designed to protect any Credit Party against fluctuations in currency
values.
"Default" shall mean any event, act or condition which with notice or
-------
lapse of time, or both, would constitute an Event of Default.
"Designated Picture" shall mean any project for the production of a
------------------
motion picture, film or video tape to be produced for theatrical, non-theatrical
or television release, or for a release in any other media, which meets the
following criteria: (a) is not yet Completed; (b) for which a Credit Party will
be the initial copyright owner or will be acquiring the copyright upon
Completion, except to the extent otherwise approved by the Administrative Agent
pursuant to Section 4.3(e); (c) is being produced by a Credit Party or a Special
Purpose Producer; (d) has a Budgeted Negative Cost which would not result in a
violation of the covenants herein if produced by a Credit Party; (e) will be
produced under the terms of a Completion Guarantee issued by an Approved
Completion Guarantor; (f) over which a Credit Party has meaningful direct or
indirect budgetary or artistic control; and (g) has been declared to the
Administrative Agent as a "Designated Picture" and has satisfied the conditions
precedent for Loans under the Special Production Tranche set forth in Section
4.3 hereof.
"Direct To Video Credit" shall mean with respect to each item of
----------------------
Product that is intended for direct-to-video release, an amount equal to 40% of
the Credit Parties' Production Exposure therefor, or such lesser amount as the
Borrower determines will be received by it from both the video distribution and
television distribution of such item of Product in the United States and Canada;
provided however, that no Direct To Video Credit will be included in the
Borrowing Base with respect to any item of Product prior to its Completion
except (i) for items of Product being funded under the Special Production
Tranche, (ii) for items of Product for which a Letter of Credit is issued in
order to support the Borrower's minimum payment
-16-
<PAGE>
obligation to acquire distribution rights in such item of Product and (iii) for
purposes of computing the Leverage Ratio; provided further that such credit
shall be reduced dollar-for-dollar by the amount of any advance or other payment
paid, or contractually committed to be paid, to any Credit Party with respect to
both the video and television distribution of such item of Product; provided
further that such credit shall be eliminated with respect to an item of Product
upon twenty-four (24) months after Completion.
"Distribution Agreements" shall mean (i) any and all agreements
-----------------------
entered into by a Credit Party or a Special Purpose Distributor pursuant to
which such Credit Party or such Special Purpose Distributor has sold, leased,
licensed or assigned distribution rights or other exploitation rights to any
item of Product to an un-Affiliated Person and (ii) any agreement hereafter
entered into by a Credit Party or a Special Purpose Distributor pursuant to
which such Credit Party or such Special Purpose Distributor sells, leases,
licenses or assigns distribution rights or other exploitation rights to an item
of Product to an un-Affiliated Person.
"Distributor Security Documents" shall mean individually or together,
------------------------------
as the context so requires, any and all assignment agreement(s), security
agreement(s), pledge agreement(s), film lease agreement(s) or other
documentation pursuant to which a Person who is hereafter approved by the
Administrative Agent to be a Special Purpose Distributor grants a security
interest in, or grants any right(s) relating to, an item of Product to a Credit
Party, another Special Purpose Distributor or the Collateral Agent (for the
benefit of the Lenders and the Noteholders) and/or pursuant to which any such
security interest or other right(s) is assigned to a Credit Party or the
Collateral Agent for the benefit of the Lenders and the Noteholders, provided,
--------
that any and all such agreement(s) and document(s) are in form and substance
reasonably satisfactory to the Administrative Agent.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"EBIT" shall mean, for any period, for the Parent and its Subsidiaries
----
on a Consolidated basis, the sum for such period of (i) Consolidated Net Income,
(ii) Total Interest, and (iii) provision for income taxes during such period,
all as determined for such period in conformity with GAAP excluding non-cash
extraordinary, unusual or non-recurring gains and losses, recognizing that for
purposes of this definition and write-downs and amortization of capitalized film
costs are not considered to be extraordinary, unusual or non-recurring.
"EBIT Ratio" shall have the meaning given such term in Section 6.18
----------
hereof.
"Eligible Assignee" shall mean (i) a commercial bank organized under
-----------------
the laws of the United States, or any State thereof, and having total assets in
excess of $1,000,000,000; (ii) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and having
a net worth of at least $100,000,000, calculated in accordance with GAAP; (iii)
a commercial bank organized under the laws of any other country which is a
member of the Organization for Economic Cooperation and Development ("OECD"), or
a
-17-
<PAGE>
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch, subsidiary
or agency located in the country in which it is organized or another country
which is also a member of the OECD; or (iv) the central bank of any country
which is a member of the OECD.
"Eligible L/C Receivable" shall have the same definition as an
-----------------------
Eligible Receivable except that (i) an Acceptable L/C shall have been delivered
to the Administrative Agent for the full amount of the receivable and (ii) such
receivable need not be with an Acceptable Obligor.
"Eligible Library Amount" shall upon closing of this Amended and
-----------------------
Restated Credit Agreement be equal to $160,000,000 and shall be redetermined on
an annual basis by Richard L. Medress or an independent consultant selected by
the Administrative Agent in its reasonable discretion exercised in good faith
using methodology consistent with the initial valuation without double counting
for items of Product that are receiving the Home Video Credit, Pay Television
Credit, Free Television Credit, Direct To Video Credit and Foreign Rights Credit
in the Borrowing Base; provided, however, that (i) in no event will the Eligible
-------- -------
Library Amount be an amount less than the amount thereof as of the previous
annual valuation (or the initial valuation, as the case may be) reduced by the
aggregate amount of subsequent sales, nor will it ever be more than
$160,000,000, and (ii) there will be interim reductions to the Eligible Library
Amount to reflect decreases, if any, in the remaining value of unsold library
rights resulting from major library deals during such interim period (e.g., any
- -
single agreement or series of related agreements pertaining to the licensing,
distribution or sale of library product providing for aggregate payments
(including reasonably estimated contingent payments) to the Parent or a
Subsidiary of Parent in excess of $10,000,000); provided, further, that, after
-------- ------- ----
receipt of each annual valuation (the "Initial Valuation") at the Borrower's
request the Administrative Agent and the Borrower shall mutually select another
independent consultant to redetermine the Eligible Library Amount using
methodology consistent with the initial valuation and (i) to the extent such
valuation (the "Second Valuation") is less than 20% greater than the Initial
Valuation, the Eligible Library Amount for such annual period shall be the
amount set forth on the Initial Valuation, (ii) to the extent the Second
Valuation is more than 20% greater than the Initial Valuation, the Eligible
Library Amount for such annual period shall be the amount set forth on the
Initial Valuation plus 50% of the difference between the Initial Valuation and
----
the Second Valuation; provided that in either case such amount will never be
more than $160,000,000.
"Eligible Receivables" shall mean, at any date at which the amount
--------------------
thereof is to be determined, an amount equal to the sum of the payment
(discounted to present value as of the date of determination, in the case of
amounts which are not due and payable within 12 months following the date of
determination, on a quarterly basis by a rate of interest equal to the interest
rate in effect on the Notes on the date of computation) of (a) all net amounts
(whether or not appearing on the balance sheet of the Credit Party), which
pursuant to a binding agreement are contractually required to be paid to any
Credit Party (either directly or through a Special Purpose Distributor) either
unconditionally or subject only to normal delivery requirements, and which
-18-
<PAGE>
are reasonably expected by the Borrower to be payable and collected from
Acceptable Obligors (including, without limitation, amounts which a distributor
has reported to a Credit Party in writing will be paid to such Credit Party
following receipt by the distributor of sums contractually required to be paid
to the distributor from third parties) minus (b) the sum, without double
counting and computed on a receivable by receivable basis and never in excess of
the amount of the corresponding receivable, of (i) the following items (based on
the Borrower's then best estimates): third party profit participations,
residuals, appropriate reserves for returns, foreign withholding, remittance and
similar taxes chargeable in respect of such accounts receivable of such Credit
Party arising in connection with such amounts and (ii) the outstanding amount of
unrecouped advances made by a distributor to the extent subject to repayment by
a Credit Party or adjustment pursuant to approved Distribution Agreements, but
Eligible Receivables shall not include amounts:
(i) in the aggregate due from a single Acceptable Obligor to the
extent such amounts are in excess of the Allowable Amount with
respect to such Acceptable Obligor;
(ii) except as otherwise provided in clause (xiv) as to completion
only, which in the reasonable discretion of the Administrative
Agent, are subject to material conditions precedent to payment
(including a material performance obligation or a material
executory aspect on the part of the Credit Parties or any other
party or obligations contingent upon future events not within a
Credit Party's direct control); provided that, otherwise
-------- ----
Eligible Receivables which are attributable to items of Product
acquired from a third party shall not be excluded pursuant to
this clause (ii) if the entire acquisition price or minimum
advance shall have been paid to the extent then due and there
is no material condition or event (other than the payment of
the remaining purchase price) the occurrence of which would
likely result in any Credit Party losing its rights in such
item of Product;
(iii) to the extent such receivables (other than theatrical
receivables) are more than 120 days past due;
(iv) which are theatrical receivables due from any obligor in
connection with the theatrical exhibition, distribution or
exploitation of an item of Product that are still outstanding
nine months after their creation;
(v) in excess of $3,000,000 in the aggregate if they are to be paid
in a currency other than Dollars unless hedged in a manner
satisfactory to the Administrative Agent;
(vi) to the extent included in the Borrower's estimated bad debts;
-19-
<PAGE>
(vii) any receivable amount (other than theatrical receivables) from
any Acceptable Obligor which has 20% or more of the total
receivable amount from such Acceptable Obligor 120 or more days
past due (other than the amounts that are being disputed or
contested in good faith);
(viii) any portion of any theatrical receivable from any Acceptable
Obligor which has 20% or more of the total receivable amount
from such Acceptable Obligor nine months after their creation
(other than amounts that are being disputed or contested in
good faith);
(ix) which are subject to a bona fide request for a material credit,
adjustment, compromise, offset, counterclaim or dispute;
provided, however, that only the amount in question shall be
-------- -------
excluded from such receivable;
(x) which are attributable to an item of Product in which a Credit
Party cannot warrant to the licensee or distributor thereof
sufficient title to the underlying rights to justify such
receivable;
(xi) which are not subject to a first perfected security interest
(subordinated only to guild liens contemplated by clause (xii)
of the definition of Borrowing Base in favor of the Collateral
Agent (for the benefit of the Administrative Agent, the
Fronting Bank, the Lenders and the Noteholders);
(xii) except as otherwise provided in clause (xiv), which relate to
items of Product as to which the Collateral Agent has not
received a fully executed Laboratory Access Letter or
Pledgeholder Agreement for each laboratory holding Physical
Materials sufficient to fully exploit the rights held by the
Borrower in such item of Product;
(xiii) which will be subject to reduction or repayment to the extent
not earned by performance (other than performance consisting of
delivery), but only to the extent of the maximum potential
reduction or repayment;
(xiv) which are attributable to items of Product which have not been
Completed (except that (1) if a Letter of Credit is issued in
order to support the Borrower's minimum payment obligation to
acquire distribution rights in such item of Product, amounts
attributable to such rights may be treated as Eligible
Receivables (even though the item of Product has not yet been
Completed), provided that (A) a certificate, averment or other
-------------
proof of Completion of such item of Product must be presented
in order to draw under the Letter of Credit, (B) the portion of
the Borrowing Base attributable to such Eligible Receivables
plus the Home Video Credit plus
-20-
<PAGE>
the Pay Television Credit plus the Free Television Credit plus
the Direct To Video Credit plus the Foreign Rights Credit for
such item of Product does not exceed the amount of such Letter
of Credit for such item of Product, and (C) such amounts
otherwise meet all of the applicable criteria for inclusion as
Eligible Receivables except clauses (ii) and (xii); or (2) if a
Completion Guarantee has been issued for such item of Product
and the Borrower is otherwise in compliance with Section 5.21,
amounts attributable to such item of Product may be treated as
Eligible Receivables (even though the item of Product has not
yet been Completed), provided that (A) the portion of the
-------------
Borrowing Base attributable to such Eligible Receivables plus
the Home Video Credit plus the Pay Television Credit plus the
Free Television Credit plus the Direct To Video Credit plus the
Foreign Rights Credit for such item of Product shall not exceed
the amounts attributable to such Completion Guarantee for such
item of Product and (B) such amounts otherwise meet all of the
applicable criteria for inclusion as Eligible Receivables
except clauses (ii) and (xii); or (3) if a Completion Guarantee
is not required for an item of Product being produced by a
Credit Party, amounts attributable to such item of Product may
be treated as Eligible Receivables (even though the item of
Product has not yet been Completed) provided that (A) such
amounts otherwise meet all of the applicable criteria for
inclusion as Eligible Receivables except clauses (ii) and (xii)
and (B) the portion of the Borrowing Base attributable to such
Eligible Receivables for such item of Product shall not exceed
the aggregate amount expended by the Credit Parties with
respect to such item of Product; or
(xv) will not become due and payable until one year or more after
the scheduled final maturity of the Credit Agreement.
"Environmental Laws" shall mean any and all federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Material or
environmental protection or health and safety, as now or may at any time
hereafter be in effect, including without limitation, the Clean Water Act also
known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. (S) 1251
et seq., the Clean Air Act ("CAA"), 42 U.S.C. (S)(S) 7401 et seq., the Federal
- -- --- -- ---
Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. (S)(S) 136 et
--
seq., the Surface Mining Control and Reclamation Act ("SMCRA"), 30 U.S.C. (S)(S)
- ---
1201 et seq., the Comprehensive Environmental Response, Compensation and
-- ---
Liability Act ("CERCLA"), 42 U.S.C. (S)9601 et seq., the Superfund Amendments
-- ---
and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. 1613, the
Emergency Planning and Community Right to Know Act ("ECPCRKA"), 42 U.S.C.
(S)11001 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
-- ---
(S) 6901 et seq., the Occupational Safety and Health Act as amended ("OSHA"), 29
-- ---
U.S.C. (S) 655
-21-
<PAGE>
and (S) 657, together, in each case, with any amendment thereto, and the
regulations adopted pursuant thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as heretofore and hereafter amended, as codified at 29 U.S.C. (S) 1001 et
--
seq. and the regulations promulgated thereunder.
- ---
"Eurodollar Loan" shall mean a Loan based on the LIBO Rate in
---------------
accordance with the provisions of Article 2 hereof.
"Event of Default" shall have the meaning given such term in Article 7
----------------
hereof.
"Existing Credit Agreement" shall have the meaning given such term in
-------------------------
the Introductory Statement hereof.
"Fee Letter" shall mean that certain letter agreement dated as of June
----------
26, 1998 between the Borrower and the Administrative Agent relating to the
payment of certain fees by the Borrower.
"Foreign Rights Credit" shall mean with respect to each item of
---------------------
Product for which a Credit Party holds foreign distribution rights, an amount
equal to 15% of the Credit Parties' Production Exposure for such item of
Product, or such lesser amount as the Borrower projects will be received by it
on a net present value basis from foreign distribution of such item of Product
(computed in a manner acceptable to Administrative Agent); reduced in either
case dollar-for-dollar by the amount of any advance or other payment paid, or
committed to be paid, (including, without limitation, any Eligible Receivables)
to any Credit Party with respect to the exhibition or other exploitation of such
item of product in any media outside the United States and Canada; provided
however, that no Foreign Rights Credit will be included in the Borrowing Base
with respect to any item of Product prior to its Completion except (i) for items
of Product being funded under the Special Production Tranche, (ii) for items of
Product for which a Letter of Credit is issued in order to support the
Borrower's minimum payment obligation to acquire distribution rights in such
item of Product and (iii) for purposes of computing the Leverage Ratio.
"Fox" shall mean Twentieth Century Fox Home Entertainment, Inc.
---
"Free Television Credit" shall mean with respect to each item of
----------------------
Product that is intended for domestic theatrical release and for which the
Borrower holds domestic free television rights, an amount equal to 5% of the
Borrower's Production Exposure for such item of Product until the earlier of (A)
exhibition of such product on free television and (B) the three-year anniversary
of the theatrical release of such item of Product; provided however that no Free
Television Credit will be included in the Borrowing Base with respect to any
item of Product prior to its Completion except (i) for items of Product being
funded under the Special Production
-22-
<PAGE>
Tranche, (ii) for items of Product for which a Letter of Credit is issued in
order to support the Borrower's minimum payment obligation to acquire
distribution rights in such item of Product and (iii) for purposes of computing
the Leverage Ratio; provided further that such credit shall be eliminated with
respect to an item of Product upon entering into a distribution agreement for
exploitation of such Product on free television.
"Fronting Bank" shall have the meaning given such term in the initial
-------------
paragraph hereof.
"Fundamental Documents" shall mean this Credit Agreement, the Notes,
---------------------
the Pledgeholder Agreements, the Laboratory Access Letters, the Copyright
Security Agreement, the Copyright Security Agreement Supplements, the Trademark
Security Agreement, the Instruments of Assumption and Joinder, the Notices of
Assignment and Irrevocable Instruction, the Security Agreement, the Pledge
Agreement, the Collateral Agency Agreement, UCC financing statements, the
Special Purpose Producer Credit Agreement and each of the agreements delivered
pursuant thereto, and any other ancillary documentation which is required to be
or is otherwise executed by any of the Credit Parties and delivered to the
Administrative Agent in connection with this Credit Agreement or any other
Fundamental Document.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America consistently applied (except for accounting changes in
response to FASB releases, or other authoritative pronouncements); provided
--------
that, all computations determining compliance with Article 6 hereof, including
- ----
definitions used therein, shall utilize accounting principles and policies in
effect at the time of the preparation of, and in conformity with those used to
prepare, the December 31, 1996 financial statements previously delivered to the
Lenders as described in Section 3.5.
"Governmental Authority" shall mean any federal, state, municipal or
----------------------
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or a
foreign jurisdiction.
"Guarantors" shall mean Holdings, the Parent and all of their direct
----------
and indirect Subsidiaries (other than the Borrower and the Inactive
Subsidiaries) now existing or hereafter acquired or created, but excluding any
Controlled Foreign Corporations.
"Guaranty" shall mean, as to any Person, any direct or indirect
--------
obligation of such Person guaranteeing or intended to guaranty any Indebtedness,
Capital Lease, dividend or other monetary obligation ("primary obligation") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation or
(b) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary
-23-
<PAGE>
obligor, or (iii) to purchase property, securities or services, in each case,
primarily for the purpose of assuring the performance of the obligor of any such
primary obligation; provided, however, that the term Guaranty shall not include
-------- -------
endorsements for collection or collections for deposit, in either case in the
ordinary course of business. The amount of any Guaranty shall be deemed to be
an amount equal to the lesser of (x) the maximum liability under the terms of
such Guaranty or (y) the stated or determinable amount of the primary obligation
in respect of which such Guaranty is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder).
"Hazardous Materials" shall mean any flammable materials, explosives,
-------------------
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, or similar materials defined in any Environmental Law.
"Holdings" shall mean Film Holdings Co., a Delaware corporation.
--------
"Home Video Credit" shall mean with respect to each item of Product
-----------------
that is intended for domestic theatrical release and for which the Borrower
holds domestic home video rights, an amount equal to (A) for the period prior
to theatrical release of such item of Product, 25% of the Borrower's Production
Exposure therefor and (B) thereafter, shall mean, at any date at which the
amount thereof is to be determined, for each item of Product for which the
Borrower has not yet received from WEA (or WEA's successor acceptable to the
Administrative Agent) a royalty statement reporting actual home video sales, an
amount equal to the product of the unit sales forecast initially determined in
accordance with Schedule 2.2 hereto no earlier than 15 days after theatrical
release multiplied by $6.00 per unit for each "sell-through" item of Product or
$39 per unit for each other item of Product; provided however that no Home Video
Credit will be included in the Borrowing Base with respect to any item of
Product prior to its Completion except (i) for items of Product being funded
under the Special Production Tranche, (ii) for items of Product for which a
Letter of Credit is issued in order to support the Borrower's minimum payment
obligation to acquire distribution rights in such item of Product and (iii) for
purposes of computing the Leverage Ratio.
"Inactive Subsidiary" shall mean each Subsidiary of the Borrower
-------------------
listed on Schedule 3.7(c).
"Indebtedness" shall mean (without double counting), at any time and
------------
with respect to any Person, (i) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables (payable within 120 days or such longer terms as may
be customary in the industry) arising in the ordinary course of business); (ii)
obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person; (iii) obligations
of such Person under Capital Leases; (iv) deferred payment obligations of such
Person resulting from the adjudication or settlement of any litigation to the
extent not
-24-
<PAGE>
already reflected as a current liability on the balance sheet of such Person;
and (v) Indebtedness of others of the type described in clauses (i), (ii), (iii)
and (iv) hereof which such Person has (a) directly or indirectly assumed or
guaranteed in connection with a Guaranty or (b) secured by a Lien on the assets
of such Person, whether or not such Person has assumed such indebtedness.
Indebtedness shall not include non-refundable advances made by a third-party
distributor to "cash-flow" the production of an item of Product. For the
avoidance of doubt, negative pick-up arrangements which are non-recourse to any
Credit Party except to the extent of a payment obligation upon delivery of such
item of Product to the Credit Party are not Indebtedness.
"Initial Date" shall mean (i) in the case of the Administrative Agent,
------------
the date hereof, (ii) in the case of each Lender which is an original party to
this Credit Agreement, the date hereof and (iii) in the case of any other
Lender, the effective date of the Assignment and Acceptance pursuant to which it
became a Lender.
"Instruments of Assumption and Joinder" shall mean the Instruments of
-------------------------------------
Assumption and Joinder substantially in the form of Exhibit L pursuant to which
Subsidiaries of the Borrower become parties to this Credit Agreement as
contemplated by Section 6.24.
"Interest Deficit" shall have the meaning given such term in Section
----------------
2.15.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan
---------------------
having an Interest Period of one, two or three months, the last day of such
Interest Period, (ii) as to any Eurodollar Loan having an Interest Period of
more than three months, the last day of such Interest Period and, in addition,
each date during such Interest Period that would be the last day of an Interest
Period commencing on the same day as the first day of such Interest Period but
having a duration of three months or any integral multiple thereof and (iii)
with respect to Alternate Base Rate Loans, the last Business Day of each March,
June, September and December.
"Interest Period" shall mean as to any Eurodollar Loan, the period
---------------
commencing on the date of such Loan or the last day of the preceding Interest
Period and ending on the numerically corresponding day (or if there is no
corresponding day, the last day) in the calendar month that is one, two, three,
six, nine or twelve months thereafter as the Borrower may elect; provided,
--------
however, that (i) if any Interest Period would end on a day which shall not be a
- -------
Business Day, such Interest Period shall be extended to the next succeeding
Business Day, unless such next succeeding Business Day would fall in the next
calendar month, in which case, such Interest Period shall end on the next
preceding Business Day, (ii) no Interest Period may be selected which would end
later than the Commitment Termination Date, (iii) no Interest Period of nine or
twelve months may be selected unless available and consented to by all Lenders
in their sole discretion and (iv) no Interest Period with respect to any portion
of the Term Loans may be selected which would result in the aggregate amount of
Eurodollar Loans having Interest Periods ending after any date on which an
installment of principal of the Term Loans is
-25-
<PAGE>
scheduled to mature being in excess of the aggregate principal installments
scheduled to mature after such date.
"Interest Rate Protection Agreement" shall mean any interest rate swap
----------------------------------
agreement, interest rate cap agreement, synthetic caps, collars and floors or
other financial agreement or arrangement designed to protect any Credit Party
against fluctuations in interest rates.
"Investment" shall mean any stock, evidence of indebtedness or other
----------
securities of any Person, any loan, advance, contribution of capital, extension
of credit or commitment therefor, including without limitation the guarantee of
loans made to others (except for current trade and customer accounts receivable
arising in the ordinary course of business), and any purchase of (i) any
securities of another Person or (ii) any business or undertaking of any Person
or any commitment or option to make any such purchase.
"L/C Exposure" shall mean, at any time, the amount expressed in
------------
Dollars of the aggregate face amount of all drafts which may then or thereafter
be presented by beneficiaries under all Letters of Credit then outstanding plus
(without duplication) the face amount of all drafts which have been presented or
accepted under all Letters of Credit but have not yet been paid or have been
paid but not reimbursed.
"Laboratory" shall mean any laboratory reasonably acceptable to the
----------
Administrative Agent, which is located in Canada, the United Kingdom, or the
United States or such other location reasonably acceptable to the Administrative
Agent and is a party to a Pledgeholder Agreement or a Laboratory Access Letter.
"Laboratory Access Letter" shall mean a letter agreement among (i) a
------------------------
Laboratory holding any elements of any item of Product to which a Credit Party
has the right of access, (ii) such Credit Party and (iii) the Collateral Agent,
substantially in the form of Exhibit G hereto or a form otherwise acceptable to
the Administrative Agent.
"Lender" and "Lenders" shall mean the financial institutions whose
------ -------
names appear at the foot hereof and any assignee of a Lender pursuant to Section
11.3(b).
"Lending Office" shall mean, with respect to any of the Lenders, the
--------------
branch or branches (or affiliate or affiliates) from which any such Lender's
Eurodollar Loans or Alternate Base Rate Loans, as the case may be, are made or
maintained and for the account of which all payments of principal of, and
interest on, such Lender's Eurodollar Loans or Alternate Base Rate Loans are
made, as notified to the Administrative Agent from time to time.
"Letter of Credit" shall mean a letter of credit issued by the
----------------
Fronting Bank pursuant to Section 2.16.
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<PAGE>
"Leverage Ratio" shall have the meaning given such term in Section
--------------
6.19 hereof.
"LIBO Rate" shall mean, with respect to the Interest Period for a
---------
Eurodollar Loan, an interest rate per annum equal to the quotient (rounded
upwards to the next 1/100 of 1%) of (A) the average of the rates at which Dollar
deposits approximately equal in principal amount to the Administrative Agent's
portion of such Eurodollar Loan and for a maturity equal to the applicable
Interest Period are offered to the Lending Office of the Administrative Agent in
immediately available funds in the London Interbank Market for Eurodollars at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period divided by (B) one minus the applicable
statutory reserve requirements of the Administrative Agent, expressed as a
decimal (including without duplication or limitation, basic, supplemental,
marginal and emergency reserves), from time to time in effect under Regulation D
or similar regulations of the Board. It is agreed that for purposes of this
definition, Eurodollar Loans made hereunder shall be deemed to constitute
Eurocurrency Liabilities as defined in Regulation D and to be subject to the
reserve requirements of Regulation D.
"Lien" shall mean any mortgage, copyright mortgage, pledge, security
----
interest, encumbrance, lien or charge of any kind whatsoever (including any
conditional sale or other title retention agreement, any lease in the nature
thereof or the agreement to grant a security interest at a future date).
"Liquidity Ratio" shall have the meaning given such term in Section
---------------
6.20.
"Loans" shall mean the Term Loans and the Revolving Credit Loans.
-----
"MIS Expenditures" shall mean Capital Expenditures for management
----------------
information systems plus other expenditures for such systems which may be
capitalized in accordance with GAAP.
"Merger" shall mean the merger contemplated by the Merger Agreement.
------
"Merger Agreement" shall mean the Agreement and Plan of Merger by and
----------------
among Parent, Holdings and Acquisition Co., dated as of April 17, 1997.
"Margin Stock" shall be as defined in Regulation U of the Board.
------------
"Multiemployer Plan" shall mean a plan described in Section 4001(a)(3)
------------------
of ERISA.
"Noteholders" shall have the meaning given such term in the
-----------
introductory statement hereof.
-27-
<PAGE>
"Notice of Assignment and Irrevocable Instructions" shall mean the
-------------------------------------------------
Notice of Assignment and Irrevocable Instructions substantially in the form of
Exhibit I or in such other form as shall be acceptable to the Administrative
Agent, including without limitation the inclusion of such notice and
instructions in a Distribution Agreement.
"Obligations" shall mean the obligation of the Borrower to make due
-----------
and punctual payment of principal of and interest on the Loans, the Commitment
Fee, reimbursement obligations in respect of Letters of Credit, monetary
obligations of any Credit Party pursuant to interparty agreements delivered in
connection with Special Purpose Producer Credit Agreements and all other
monetary obligations of the Borrower owed to the Administrative Agent, the
Fronting Bank or any Lender under this Credit Agreement, the Notes or any other
Fundamental Document or the Fee Letter and all amounts payable by the Borrower
to any Lender under any Interest Rate Protection Agreement or Currency
Agreement, provided that the Administrative Agent shall have received written
notice within 10 Business Days after execution of each such Interest Rate
Protection Agreement or Currency Agreement.
"Off-Balance Sheet Commitments" shall mean all binding, irrevocable
-----------------------------
commitments of the Credit Parties for the acquisition of items of Product,
including cash flow commitments, negative pick-up obligations and print and
advertising commitments which are not, pursuant to GAAP, reflected on the
Consolidated balance sheet of the Parent; provided, however, that such
obligations for print and advertising commitments shall not be included in Off-
Balance Sheet Commitments until principal photography has commenced for the item
of Product to which such commitment relates.
"Off-Balance Sheet Receivables" shall mean all amounts contractually
-----------------------------
required to be paid to any Credit Party under Distribution Agreements for any
item of Product, which amounts are not, pursuant to GAAP, reflected on the
Consolidated balance sheet of the Parent.
"Other Domestic Receivables" shall mean those receivables that meet
--------------------------
all of the requirements of an "Eligible Receivable" other than that the obligor
is not an Acceptable Obligor and such Obligor has its principal place of
business and jurisdiction of incorporation or formation located within the
United States.
"Other Foreign Receivables" shall mean those receivables that meet all
-------------------------
of the requirements of an "Eligible Receivable" other than that the obligor is
not an Acceptable Obligor and such obligor has its principal place of business
and jurisdiction of incorporation or formation located outside the United
States.
"Parent" shall have the meaning given such term in the initial
------
paragraph hereof.
"Pay Television Credit" shall mean with respect to each item of
---------------------
Product that is intended for domestic theatrical release and for which the
Borrower holds domestic pay television rights, an amount equal to (A) until 30
days after the theatrical release of such item of
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<PAGE>
Product, 5% of the Borrower's Production Exposure therefor and (B) thereafter,
the amount determined 30 days after theatrical release of each item of Product
based upon the pay television formula set forth on Schedule 2.3 hereto; provided
however that no Pay Television Credit will be included in the Borrowing Base
with respect to any item of Product prior to its Completion except (i) for items
of Product being funded under the Special Production Tranche, (ii) for items of
Product for which a Letter of Credit is issued in order to support the
Borrower's minimum payment obligation to acquire distribution rights in such
item of Product and (iii) for purposes of computing the Leverage Ratio; provided
further that such credit shall be eliminated with respect to an item of Product
upon the earlier of: (i) the entering into a distribution agreement for
exploitation of such Product on pay television and (ii) twenty-four (24) months
after the theatrical release of such item of Product.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
successor thereto.
"Percentage" shall mean, with respect to any Lender, its ratable share
----------
expressed as a percentage equal to the ratio obtained by (A) dividing the
applicable Commitment of such Lender by the Total Commitments, or (B) if the
Total Commitments shall have been terminated pursuant to the terms of this
Credit Agreement, dividing the sum of the aggregate principal amount of all
Loans of such Lender and such Lender's pro rata share of the L/C Exposure by the
sum of the aggregate principal amount of all Loans of all Lenders and the L/C
Exposure, which Loans and L/C Exposure shall be outstanding immediately prior to
the termination of the Total Commitments.
"Permitted Encumbrances" shall mean Liens permitted under Section 6.2
----------------------
hereof.
"Person" shall mean any natural person, corporation, partnership,
------
trust, joint venture, association, company, estate, unincorporated organization
or government or any agency or political subdivision thereof.
"Physical Materials" shall have the meaning given such term in the
------------------
definition of "Collateral" herein.
"Plan" shall mean an employee benefit plan within the meaning of
----
Section 3(2) of ERISA, other than a Multiemployer Plan, maintained by the
Borrower or any member of the Controlled Group, or to which the Borrower or any
member of the Controlled Group contributes or is required to contribute or any
other plan covered by Title IV of ERISA that cover any employees of the Borrower
or any member of the Controlled Group.
"Pledge Agreement" shall mean the Amended and Restated Pledge
----------------
Agreement executed by the Credit Parties and the Collateral Agent substantially
in the form of Exhibit N-1 hereto.
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<PAGE>
"Pledge Agreement Supplement" shall mean a Supplement to the Pledge
---------------------------
Agreement substantially in the form of Exhibit N-2 hereto.
"Pledged Securities" shall mean (i) 100% of the issued and outstanding
------------------
voting capital stock of the Borrower and (ii) 100% of the issued and outstanding
capital stock of the Guarantors (other then Holdings).
"Pledgeholder Agreement" shall mean a Laboratory Pledgeholder
----------------------
Agreement among a Credit Party, the Collateral Agent, a third party completion
guarantor (if there is one), and one or more Laboratories, substantially in the
form of Exhibit D-1 or Exhibit D-2 hereto, or in such other form as shall be
acceptable to the Administrative Agent.
"Pledgors" shall mean those Credit Parties identified as such on
--------
Schedule 3.7(a).
"Print and Advertising Expenditures" shall mean the actual out-of-
----------------------------------
pocket print and advertising expenditures associated with the domestic
theatrical release of an item of Product which the Borrower is contractually
obligated to pay or has paid.
"Product" shall mean any motion picture, film, video tape or other
-------
work produced for theatrical, non-theatrical or television release or for
release in any other medium, in each case whether recorded on film, videotape,
cassette, cartridge, disc or on or by any other means, method, process or device
whether now known or hereafter developed, with respect to which a Credit Party
(i) is the initial copyright owner, (ii) acquires an equity interest or (iii)
acquires any distribution rights. The term "item of Product" shall include,
without limitation, the scenario, screenplay or script upon which such Product
is based, all of the properties thereof, tangible and intangible, and whether
now in existence or hereafter to be made or produced, whether or not in
possession of the Credit Parties, and all rights therein and thereto, of every
kind and character.
"Production Account(s)" shall mean individually or collectively, as
---------------------
the context so requires, each demand deposit account(s) established by a Credit
Party or Special Purpose Producer at a commercial bank located in the United
States or otherwise acceptable to the Administrative Agent, for the sole purpose
of paying the production costs of a particular item of Product or Designated
Picture, as the case may be, and as to which the Approved Completion Guarantor
for such item of Product or Designated Picture, as the case may be, has agreed
in writing that amounts deposited in such account shall be deemed available for
production of such item of Product or Designated Picture, as the case may be,
for purposes of the Completion Guarantee for such item of Product or Designated
Picture, as the case may be.
"Production Exposure" for an item of Product shall mean the Budgeted
-------------------
Negative Cost or acquisition price paid or to be paid by a Credit Party (net of
amounts being cash-flowed as and when needed by a third party unrelated to a
Credit Party pursuant to contractual arrangements reasonably acceptable to the
Administrative Agent).
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"Pro Rata Share" shall mean, with respect to any Obligation or other
--------------
amount, each Lender's pro rata share of such Obligation or other amount
determined in accordance with such Lender's Percentage.
"Quiet Enjoyment" shall have the meaning given such term in Section 11
---------------
of the Security Agreement.
"Reportable Event" shall mean any reportable event as defined in
----------------
Section 4043(c) of ERISA, other than a reportable event as to which provision
for 30-day notice to the PBGC would be waived under applicable regulations had
the regulations in effect on the Closing Date been in effect on the date of
occurrence of such reportable event.
"Required Consolidated Capital Base" shall mean, for any quarter for
----------------------------------
which it is being determined, the sum of (i) $22,500,000 plus (ii) 100% of all
----
net new equity invested in the Parent after the closing under the Existing
Credit Agreement plus (iii) 50% of positive net income, if any, for each fiscal
----
year ending on or after December 31, 1998 and prior to the date at which
compliance is being determined.
"Required Lenders" shall mean the Lenders holding 51% or more of the
----------------
aggregate Credit Exposure of all Lenders.
"Restricted Payment" shall mean (i) any distribution, dividend or
------------------
other direct or indirect payment on account of shares of any class of stock of,
partnership interest in, or any other equity interest of, a Credit Party, other
than a dividend, distribution or other payment payable solely in additional
shares of common stock, (ii) any redemption or other acquisition, re-acquisition
or retirement by a Credit Party of any class of its own stock or other equity
interest of a Credit Party or an Affiliate, now or hereafter outstanding, (iii)
any payment made to retire, or obtain the surrender of any outstanding warrants,
puts or options or other rights to purchase or acquire shares of any class of
stock of, or any equity interest in, a Credit Party, now or hereafter
outstanding and (iv) any payment by a Credit Party of principal of, premium, if
any, or interest on, or any redemption, purchase, retirement, defeasance,
sinking fund or similar payment with respect to, any Subordinated Debt now or
hereafter outstanding.
"Revolving Credit Commitment" shall mean the commitment of each Lender
---------------------------
to make Revolving Credit Loans to the Borrower and to participate in Letters of
Credit from the Initial Date applicable to such Lender through the Commitment
Termination Date up to an aggregate amount, at any one time, not in excess of
the amount set forth (i) opposite its name under the column entitled "Revolving
Credit Commitment" in the Schedule of Commitments appearing in Schedule 1, or
(ii) in any applicable Assignment and Acceptance(s) to which it may be a party,
as the case may be, as such amount may be reduced from time to time in
accordance with the terms of this Credit Agreement.
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<PAGE>
"Revolving Credit Loans" shall mean the loans made hereunder in
----------------------
accordance with the provisions of Section 2.1(a) or 2.1(b), whether made as a
Eurodollar Loan or an Alternate Base Rate Loan, as permitted hereby.
"Revolving Credit Notes" shall have the meaning given such term in
----------------------
Section 2.4(a) hereof.
"Schedule of Commitments" shall mean the schedule of the Commitments
-----------------------
of the Lenders set forth in Schedule 1 hereto.
"Secured Subordinated Notes" shall have the meaning given such term in
--------------------------
the introductory statement hereto.
"Security Agreement" shall mean the Amended and Restated Security
------------------
Agreement executed by the Credit Parties and the Collateral Agent substantially
in the form of Exhibit M hereto.
"Special Production Tranche" shall mean, with respect to each
--------------------------
Designated Picture, a portion of the Total Commitments equal to the sum of the
Strike Price for such Designated Picture, plus the amount of any enhancements
committed to be funded by a Credit Party or Special Purpose Producer for such
Designated Picture, plus to the extent not already included in one of the
foregoing items, an interest reserve for the period through the projected date
of Completion of such Designated Picture.
"Special Purpose Distributor" shall mean any Person that pursuant to
---------------------------
Section 6.31 hereof, is hereafter approved by the Administrative Agent to be a
Special Purpose Distributor.
"Special Purpose Producer" shall mean a special purpose corporation or
------------------------
limited liability company formed solely for the purpose of producing a
particular motion picture which motion picture will be purchased by the Borrower
pursuant to a negative pick-up agreement.
"Special Purpose Producer Credit Agreement" shall mean a credit,
-----------------------------------------
security and pledge agreement between a Special Purpose Producer and the
Administrative Agent, substantially in the form of Exhibit P hereto.
"Stockholders' Equity" shall mean the Consolidated capital, surplus
--------------------
and retained earnings and deficits of the Parent and its Subsidiaries, subject
to intercompany eliminations, all as determined in accordance with GAAP.
"Strike Price" shall mean, with respect to any item of Product, the
------------
amount of funds required to be provided for the production of such item of
Product under the relevant Completion Guarantee.
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"Subordinated Debt" shall mean the Secured Subordinated Notes and all
-----------------
other Indebtedness of any of the Credit Parties that is subordinated to the
Obligations pursuant to written agreements, containing interest rates, payment
terms, maturities, amortization schedules, covenants, defaults, remedies,
subordination provisions and other material terms in form and substance
satisfactory to the Required Lenders.
"Subsidiary" shall mean with respect to any Person, any corporation,
----------
association, joint venture, partnership or other business entity (whether now
existing or hereafter organized) of which at least a majority of the Voting
Stock or other ownership interests having ordinary voting power for the election
of directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such Person or one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person.
"Term Loan Commitment" shall mean the commitment of each Lender to
--------------------
make a Term Loan to the Borrower up to an aggregate amount not in excess of the
amount set forth (i) opposite its name under the column entitled "Term Loan
Commitment" in the Schedule of Commitments appearing in Schedule 1, or (ii) in
any applicable Assignment and Acceptance(s) to which it may be a party, as the
case may be, as such amount may be reduced from time to time in accordance with
the terms of this Credit Agreement.
"Term Loans" shall mean the loans made hereunder in accordance with
----------
the provisions of Section 2.2(a).
"Term Notes" shall have the meaning given such term in Section 2.4(b)
----------
hereof.
"Total Commitments" shall mean the aggregate amount of the Commitments
-----------------
then in effect of all of the Lenders as such amount may be reduced from time to
time in accordance with the terms of this Credit Agreement.
"Total Interest" shall mean the sum of (i) all interest expenses (net
--------------
of interest income) of the Credit Parties computed in accordance with GAAP
(whether indicated on the consolidated statement of earnings under the caption
"Interest Expense" or netted out under the amount appearing under the caption
"Interest and Investment Income") plus (ii) any interest expense that has been
capitalized other than as part of film costs during the relevant period.
"Trademark Security Agreement" shall mean the Amended and Restated
----------------------------
Trademark Security Agreement executed by the Credit Parties substantially in the
form of Exhibit F hereto, as the same may be amended, supplemented or otherwise
modified from time to time.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
---
of New York on the date of execution of this Credit Agreement.
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<PAGE>
"Unrecouped Print and Advertising Expenses" shall mean with respect to
-----------------------------------------
an item of Product produced for domestic theatrical release, the amount, if any,
by which (a) Print and Advertising Expenditures exceeds (b) the sum of (i) total
billed receivables for domestic theatrical distribution plus (ii) total receipts
from domestic theatrical distribution plus (iii) estimated additional
receivables from domestic theatrical distribution (estimated no sooner than the
end of the first week after U.S. theatrical release) computed on the basis of
40% of reported box office receipts for engagements which have not yet been
billed or collected plus (iv) that portion of film costs written off
attributable to Print and Advertising Expenditures (such portion to be
determined based upon the proportion of Print and Advertising Expenditures for
such item of Product to total film costs for such item of Product) plus (v)
receipts from media and markets other than domestic theatrical distribution
after recoupment of negative cost.
"Voting Stock" shall mean the capital stock of an entity having
------------
ordinary voting power under ordinary circumstances to vote in the election of
directors of such entity.
"WEA" shall mean Warner-Elektra-Atlantic Corporation, a New York
---
corporation.
"WEA Distribution Agreement" shall mean the distribution agreement
--------------------------
between the Borrower and WEA dated as of May 11, 1992, as amended as of June 8,
1992, as of June 23, 1994, as of September 1, 1994, as of May 27, 1995, as of
May 7, 1996 and as of November 30, 1996 as hereafter amended, extended or
renewed in accordance with Section 6.13.
2. THE LOANS
SECTION 2.1. Revolving Credit Loans. (a) Each Lender, severally and
----------------------
not jointly, agrees, upon the terms and subject to the conditions hereof, to
make loans to the Borrower, on any Business Day and from time to time from the
Closing Date to but excluding the Commitment Termination Date, each in an
aggregate principal amount which when added to the aggregate principal amount of
all Revolving Credit Loans then outstanding to the Borrower from such Lender,
plus such Lender's Pro Rata Share of the then current L/C Exposure and the
- ----
unused portion of the Special Production Tranche for all Designated Pictures
which have not yet been Completed, does not exceed such Lender's Revolving
Credit Commitment (after giving effect to all Revolving Credit Loans repaid and
all reimbursements of Letters of Credit made concurrently with the making of any
Revolving Credit Loans).
(b) In addition to the Loans contemplated pursuant to Section 2.1(a)
above, with regard to each Designated Picture, each Lender, severally and not
jointly, agrees upon the terms and subject to the conditions hereof, to make
Loans pursuant to the Special Production Tranche, to the Borrower or to a
Special Purpose Producer, on any Business Day from time to time from the Closing
Date to but excluding the Commitment Termination Date or such earlier time as
that Designated Picture is Completed, each in an aggregate principal amount
which when
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<PAGE>
added to the aggregate principal amount of all Loans then outstanding with
regard to that Designated Picture under the Special Production Tranche, does not
exceed the product of such Lender's Percentage and the amount of the aggregate
Revolving Credit Commitments then reserved as part of the Special Production
Tranche for such Designated Picture.
(c) Subject to Section 2.3, the Loans shall be made at such times as
the Borrower shall request.
(d) Subject to the terms and conditions of this Credit Agreement, the
Borrower may borrow, repay and re-borrow amounts constituting the Revolving
Credit Commitments.
(e) Notwithstanding anything to the contrary above, a Lender shall
not be obligated to make Loans (other than the Revolving Credit Loan
contemplated by Section 2.3(b)(ii)) or to incur any incremental L/C Exposure if,
as a result thereof, the aggregate principal amount of all Loans then
outstanding plus the then current L/C Exposure exceeds the lesser of the
----
Borrowing Base or the Total Commitments.
SECTION 2.2. Term Loans. (a) Each Lender, severally and not
----------
jointly, agrees, upon the terms and subject to the conditions hereof, to make
loans (the "Term Loans") to the Borrower on the Closing Date in a total
principal amount not exceeding the amount of such Lender's Term Loan Commitment.
The aggregate amount of the Term Loans outstanding at any time shall not exceed
the lesser of (i) the Borrowing Base then in effect and (ii) the aggregate
amount of the Term Loan Commitment then in effect.
(b) Once repaid, amounts constituting the Term Loan Commitment may
not be reborrowed.
SECTION 2.3. Making of Loans. (a) Each Loan shall be an Alternate
---------------
Base Rate Loan or a Eurodollar Loan, as the Borrower may request, subject to and
in accordance with this Section 2.3.
(b) The Borrower hereby requests that subject to the satisfaction of
all applicable conditions hereof, the Lenders make the Term Loan and the
Revolving Credit Loans on the Closing Date in the principal amount set forth on
the initial Borrowing Certificate.
(c) The Borrower shall give the Administrative Agent at least three
Business Days' prior written, facsimile or telephonic (promptly confirmed in
writing) notice of each Borrowing which is to consist of Eurodollar Loans, and
at least one Business Day's prior written, facsimile or telephonic (promptly
confirmed in writing) notice of each Borrowing which is to consist of Alternate
Base Rate Loans. Each such notice in order to be effective must be received by
the Administrative Agent not later than 2:00 p.m., New York City time, on the
day required and shall specify the date (which shall be a Business Day) on which
such Loan is to be made, the
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<PAGE>
aggregate principal amount of the requested Loan, and, if applicable, the
portion of the Loan being made under a Special Production Tranche. Each such
notice shall be irrevocable and shall specify whether the Borrowing then being
requested is to consist of Alternate Base Rate Loans or Eurodollar Loans and in
the case of Eurodollar Loans, the Interest Period or Interest Periods with
respect thereto. If no election of an Interest Period is specified in such
notice in the case of a Borrowing consisting of Eurodollar Loans, such notice
shall be deemed to be a request for an Interest Period of one month. If no
election is made as to the type of Loan, such notice shall be deemed a request
for a Borrowing consisting of Alternate Base Rate Loans. No Borrowing shall
consist of Eurodollar Loans if after giving effect thereto an aggregate of more
than 12 separate Eurodollar Loans would be outstanding hereunder with respect to
each Lender (determined in accordance with Section 2.9(c) hereof).
(d) The Administrative Agent shall promptly notify each Lender of its
proportionate share of each Borrowing under this Section 2.3, the date of such
Borrowing, the type of Loans being requested and the Interest Period or Interest
Periods applicable thereto. On the borrowing date specified in such notice,
each Lender shall make its share of the Borrowing available at the offices of
The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan
Plaza, 8th Floor, New York, NY 10081, Attention: Ganesh Persaud, for credit to
the Chase Clearing Account no later than 1:00 p.m. New York City time in Federal
or other immediately available funds. Upon receipt of the funds to be made
available by the Lenders to fund any Borrowing hereunder, the Administrative
Agent shall disburse such funds by depositing the requested amounts into an
account maintained with the Administrative Agent by the Borrower provided,
--------
however, that if the Borrowing Certificate for any particular Borrowing
- -------
indicates that it is to be used to fund the production of a Designated Picture,
then the Administrative Agent shall deposit the proceeds of such Loan directly
into the Production Account for such Designated Picture.
(e) Each Lender may at its option fulfill its obligation to make
Eurodollar Loans by causing a foreign branch or affiliate to fund such
Eurodollar Loans, provided that any exercise of such option shall not affect the
obligation of the Borrower to repay Loans in accordance with the terms hereof.
Subject to the other provisions of this Section 2.3, Loans of more than one
interest rate type may be outstanding at the same time.
(f) Each Loan requested hereunder on any date shall be made by each
Lender in accordance with its respective Percentage.
(g) On the date requested by the Borrower for the funding of each
Loan, the Administrative Agent shall be authorized (but not obligated) to
advance, for the account of each of the Lenders, the amount of the Loan to be
made by it in accordance with its Percentage hereunder. Each of the Lenders
hereby authorizes and requests the Administrative Agent to advance for its
account, pursuant to the terms hereof, the amount of the Loan to be made by it,
and each of the Lenders agrees forthwith to reimburse the Administrative Agent
in immediately available funds for the amount so advanced on its behalf by the
Administrative Agent. If any
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<PAGE>
such reimbursement is not made in immediately available funds on the same day on
which the Administrative Agent shall have made any such amount available on
behalf of any Lender, such Lender shall pay interest to the Administrative Agent
equal to the Administrative Agent's cost of obtaining overnight funds in the New
York Federal Funds Market for the three Business Days following the time when
the Lender fails to make the required reimbursement, and thereafter at a rate
per annum equal to the Alternate Base Rate plus the Applicable Margin for
Alternate Base Rate Loans. If and to the extent that any such reimbursement
shall not have been made to the Administrative Agent, the Borrower agrees to
repay to the Administrative Agent forthwith on demand a corresponding amount
with interest thereon for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative Agent
at the Alternate Base Rate plus the effective rate for the applicable Loan.
(h) The amount of any Borrowing of new funds shall be in an aggregate
principal amount of $500,000 (or such lesser amount as shall equal the available
but unused portion of the Commitments) or such greater amount which is an
integral multiple of $100,000.
(i) Notwithstanding the provisions of clause (c) above and/or the
absence of a request from the Borrower that the Lenders make a Loan, the
Required Lenders may direct the Lenders to make Loans and apply the proceeds
thereof as follows:
(i) if the Approved Completion Guarantor for any item of Product
being produced by the Borrower or for which receivables are
included in the Borrowing Base shall take over production of
such item of Product pursuant to the Completion Guarantee
with respect to such item of Product, to make Loans up to
the Strike Price with respect to the production of such item
of Product and pay the proceeds thereof directly to the
Approved Completion Guarantor to be used to finance the
production and delivery of such item of Product pursuant to
the terms of the Completion Guarantee; and
(ii) if an Event of Default shall have occurred and be
continuing, to make Loans with respect to any item of
Product being produced by the Borrower or for which
receivables are included in the Borrowing Base and pay the
proceeds thereof directly to Persons providing services in
connection with the production, delivery and distribution of
such Product so as to ensure Completion of such item of
Product and/or the collection of Eligible Receivables.
SECTION 2.4. Notes. (a) The Revolving Credit Loans made by each
-----
Lender hereunder shall be evidenced by a single Revolving Credit promissory note
substantially in the form of Exhibit A-1 hereto (each a "Revolving Credit Note"
---------------------
and collectively the "Revolving
---------
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<PAGE>
Credit Notes") in the face amount of each such Lender's Commitment, payable to
- ------------
the order of each such Lender, duly executed by the Borrower and dated the
Closing Date.
(b) The Term Loans made by each Lender hereunder shall be evidenced
by a promissory note substantially in the form of Exhibit A-2 (each a "Term
----
Note") in the face amount of such Lender's Term Loan Commitment, payable to the
order of such Lender, duly executed on behalf of the Borrower and dated the date
hereof. The principal amount of the Term Loans as evidenced by the Term Notes
shall be payable in quarterly installments of $1,578,950 payable on the last
Business Day of each March, June, September and December commencing on the last
Business Day of September 1998 with the balance of the Term Loans payable in
full on July 9, 2002.
(c) Each of the Notes shall bear interest on the outstanding
principal balance thereof as set forth in Section 2.5 hereof. Each Lender and
the Administrative Agent on its behalf is hereby authorized by the Borrower, but
not obligated, to enter the amount of each Loan and the amount of each payment
or prepayment of principal or interest thereon in the appropriate spaces on the
reverse of or on an attachment to the Notes; provided, however, that the failure
-------- -------
of any Lender or the Administrative Agent to set forth such Loans, principal
payments or other information shall not in any manner affect the obligations of
the Borrower to repay such Loans.
SECTION 2.5. Interest on Notes. (a) In the case of a Eurodollar
-----------------
Loan, interest shall be payable at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days) equal to the LIBO
Rate plus the Applicable Margin. Interest shall be payable on each Eurodollar
Loan on each applicable Interest Payment Date, at maturity and on the date of a
conversion of such Eurodollar Loan to an Alternate Base Rate Loan. The
Administrative Agent shall determine the applicable LIBO Rate for each Interest
Period as soon as practicable on the date when such determination is to be made
in respect of such Interest Period and shall notify the Borrower and the Lenders
of the applicable interest rate so determined. Such determination shall be
conclusive absent manifest error.
(b) In the case of an Alternate Base Rate Loan, interest shall be
payable at a rate per annum (computed on the basis of the actual number of days
elapsed over a year of 365/366 days, as the case may be, during such times as
the Alternate Base Rate is based upon the Prime Rate, and over a year of 360
days at all other times) equal to the Alternate Base Rate plus the Applicable
Margin. Interest shall be payable in arrears on each Alternate Base Rate Loan
on each applicable Interest Payment Date and at maturity.
(c) Anything in this Credit Agreement or the Notes to the contrary
notwithstanding, the interest rate on the Loans shall in no event be in excess
of the maximum permitted by Applicable Law.
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<PAGE>
SECTION 2.6. Commitment Fees and Other Fees. (a) The Borrower
------------------------------
agrees to pay to the Administrative Agent for the account of each Lender on the
last Business Day of each March, June, September and December in each year
(commencing on the last Business Day of September 1998) prior to the Commitment
Termination Date and on the Commitment Termination Date, an aggregate fee (the
"Commitment Fees") of .5 of 1% per annum, computed on the basis of the actual
---------------
number of days elapsed during the preceding period or quarter over a year of
365/366 days, as the case may be, on the average daily amount by which such
Lender's Revolving Credit Commitment, as such Revolving Credit Commitment may be
reduced in accordance with the provisions of this Credit Agreement, exceeds the
sum of the principal balance of such Lender's outstanding Revolving Credit Loans
plus its Percentage of L/C Exposure during the preceding period or quarter.
(b) The Commitment Fees shall commence to accrue from the Closing
Date.
(c) The Borrower agrees to pay to the Administrative Agent on the
Closing Date any and all other fees that are then due and payable pursuant to
the Fee Letter.
(d) In addition, the Borrower agrees to pay to the Administrative
Agent for the account of each Lender on the Closing Date any and all other fees
that are then due and payable as described in the Term Sheet included in the
Confidential Information Memorandum dated June 1998.
SECTION 2.7. Optional and Mandatory Termination or Reduction of
--------------------------------------------------
Revolving Credit Commitments. (a) Upon at least three Business Days' prior
- ----------------------------
written, facsimile or telephonic notice (provided that such telephonic notice is
immediately followed by written confirmation) to the Administrative Agent, the
Borrower may at any time in whole permanently terminate, or from time to time in
part permanently reduce, the aggregate Revolving Credit Commitments. In the
case of a partial reduction, each such reduction of the aggregate Revolving
Credit Commitments shall be in a minimum aggregate principal amount of $500,000
or an integral multiple thereof; provided, however, that the Revolving Credit
-------- -------
Commitments may not be reduced by more than the amount of the then unused
Revolving Credit Commitments and may not be reduced to an amount less than the
aggregate principal amount of the Revolving Credit Loans outstanding, plus the
----
then current L/C Exposure. Any partial reduction of the Revolving Credit
Commitments shall be made among the Lenders in accordance with their respective
Percentages.
(b) Simultaneously with each such termination or reduction of the
Revolving Credit Commitments, the Borrower shall pay to the Administrative Agent
for the benefit of each Lender all accrued and unpaid Commitment Fees on the
amount of the Revolving Credit Commitments so terminated or reduced through the
date of such termination or reduction.
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<PAGE>
SECTION 2.8. Default Interest; Alternate Rate of Interest. (a) If
--------------------------------------------
the Borrower shall default in the payment of the principal of, or interest on
any Loan becoming due hereunder, whether at stated maturity, by acceleration or
otherwise, or the payment of any other amount becoming due hereunder after
written notification from the Administrative Agent to the Borrower of such
amount, the Borrower shall on demand in writing from time to time pay interest,
to the extent permitted by law, on all Loans and overdue amounts outstanding up
to the date of actual payment of such defaulted amount (after as well as before
judgment) (i) for the remainder of the then current Interest Period for each
Eurodollar Loan, at 2% in excess of the rate then in effect for each such
Eurodollar Loan and (ii) for all periods subsequent to the then current Interest
Period for each Eurodollar Loan, for all Alternate Base Rate Loans and for all
other overdue amounts hereunder, at 2% in excess of the rate then in effect for
Alternate Base Rate Loans.
(b) In the event, and on each occasion, that on the day two Business
Days prior to the commencement of any Interest Period for a Eurodollar Loan, (i)
the Administrative Agent shall have received notice from any Lender of such
Lender's determination (which determination, absent manifest error, shall be
conclusive) that Dollar deposits in the amount of the principal amount of such
Eurodollar Loan are not generally available in the London Interbank Market or
that the rate at which such Dollar deposits are being offered will not
adequately and fairly reflect the cost to such Lender of making or maintaining
the principal amount of such Eurodollar Loan during such Interest Period or (ii)
the Administrative Agent shall have determined that reasonable means do not
exist for ascertaining the applicable LIBO Rate, the Administrative Agent shall,
as soon as practicable thereafter, give written or facsimile notice of such
determination to the Borrower and the Lenders, and any request by the Borrower
for a Eurodollar Loan (or conversion to or continuation as a Eurodollar Loan
pursuant to Section 2.9 hereof), made after receipt of such notice, shall be
deemed to be a request for an Alternate Base Rate Loan; provided, however, that
-------- -------
in the circumstances described in clause (i) above such deemed request shall
only apply to the affected Lender's portion thereof. After such notice shall
have been given and until the circumstances giving rise to such notice no longer
exist, each request (or portion thereof, as the case may be) for a Eurodollar
Loan, to the extent such request relates to such affected Lender's portion shall
be deemed to be a request for an Alternate Base Rate Loan.
SECTION 2.9. Continuation and Conversion of Loans. The Borrower
------------------------------------
shall have the right, at any time, (i) to convert any Eurodollar Loan or portion
thereof to an Alternate Base Rate Loan or to continue such Eurodollar Loan or a
portion thereof for a successive Interest Period, or (ii) to convert any
Alternate Base Rate Loan or a portion thereof to a Eurodollar Loan, subject to
the following:
(a) the Borrower shall give the Administrative Agent prior written,
facsimile or telephonic (promptly confirmed in writing) notice of each
continuation or conversion hereunder of at least three Business Days for
continuation as or conversion to a Eurodollar Loan;
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<PAGE>
such notice shall be irrevocable and to be effective, must be received by the
Administrative Agent on the day required not later than 2:00 p.m., New York City
time;
(b) unless the Required Lenders otherwise consent, no Event of
Default or Default shall have occurred and be continuing at the time of any
conversion to a Eurodollar Loan or continuation of any such Eurodollar Loan into
a subsequent Interest Period;
(c) no Alternate Base Rate Loan may be converted to a Eurodollar Loan
and no Eurodollar Loan may be continued as a Eurodollar Loan if, after such
conversion or continuance, and after giving effect to any concurrent prepayment
of Loans, an aggregate of more than twelve separate Eurodollar Loans would be
outstanding hereunder with respect to each Lender (for purposes of determining
the number of such Loans outstanding, Loans with different Interest Periods
shall be counted as different Loans even if made on the same date);
(d) if fewer than all Loans at the time outstanding shall be
continued or converted, such continuation or conversion shall be made pro rata
among the Lenders in accordance with the respective Percentage of the principal
amount of such Loans held by the Lenders immediately prior to such continuation
or conversion;
(e) the aggregate principal amount of Loans continued as or converted
to Eurodollar Loans as part of the same Borrowing shall be $500,000 or such
greater amount which is an integral multiple of $100,000;
(f) accrued interest on the Eurodollar Loans (or portion thereof)
being continued shall be paid by the Borrower at the time of continuation;
(g) the Interest Period with respect to a new Eurodollar Loan
effected by a continuation or conversion shall commence on the date of such
continuation or conversion;
(h) if a Eurodollar Loan is converted to another type of Loan prior
to the last day of the Interest Period with respect thereto, the amounts
required by Section 2.10(b) shall be paid upon such conversion; and
(i) each request for a continuation as or conversion to a Eurodollar
Loan which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one month.
In the event that the Borrower shall not give notice to continue or convert any
Eurodollar Loan as provided above, such Loan (unless repaid) shall automatically
be converted to an Alternate Base Rate Loan at the expiration of the then
current Interest Period. The Administrative Agent shall, after it receives
notice from the Borrower, promptly give the Lenders notice of any continuation
or conversion.
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SECTION 2.10. Prepayment of Loans; Reimbursement of Lenders. (a)
---------------------------------------------
Subject to the terms of paragraph (b) of this Section 2.10, the Borrower shall
have the right at its option at any time and from time to time to prepay (i) any
Alternate Base Rate Loan, in whole or in part, upon at least one Business Day's
prior written, telephonic (promptly confirmed in writing) or facsimile notice to
the Administrative Agent, in the principal amount of $500,000 or such greater
amount which is an integral multiple of $100,000 if prepaid in part, or the
remaining balance of such Loan if prepaid in full and (ii) any Eurodollar Loan,
in whole or in part, upon at least three Business Days' prior written,
telephonic (promptly confirmed in writing) or facsimile notice, in the principal
amount of $500,000 or such greater amount which is an integral multiple of
$100,000 if prepaid in part, or the remaining balance of such Loan if prepaid in
full. Each notice of prepayment shall specify the prepayment date, each Loan to
be prepaid and the principal amount thereof, shall be irrevocable and shall
commit the Borrower to prepay such Loan in the amount and on the date stated
therein. All prepayments under this Section 2.10(a) shall be accompanied by
accrued but unpaid interest on the principal amount being prepaid to (but not
including) the date of prepayment.
(b) The Borrower shall reimburse each Lender on demand for any loss
incurred or to be incurred by any such Lender in the reemployment of the funds
released (i) by any prepayment (for any reason) of any Eurodollar Loan if such
Loan is repaid prior to the last day of the Interest Period for such Loan or
(ii) in the event that after the Borrower delivers a notice of borrowing under
Section 2.3(c) or Section 2.9(a) in respect of Eurodollar Loans, such Loan is
not made, converted to or continued as a Eurodollar Loan on the first day of the
Interest Period specified in such notice of borrowing for any reason other than
(A) a suspension or limitation under Section 2.8(b) of the right of the Borrower
to select a Eurodollar Loan, (B) a breach by any such Lender of its obligation
to fund such borrowing when it is otherwise required to do so hereunder or (c) a
repayment resulting from a conversion required by a Lender pursuant to Section
2.12(a). Such loss shall be the amount as reasonably determined by such Lender
as the excess, if any, of (I) the amount of interest which would have accrued to
such Lender on the amount so paid or not borrowed, continued or converted at a
rate of interest equal to the interest rate applicable to such Loan pursuant to
Section 2.5, for the period from the date of such payment or failure to borrow,
continue or convert to the last day (x) in the case of a payment prior to the
last day of the Interest Period for such Loan, of the then current Interest
Period for such Loan or (y) in the case of such failure to borrow, continue or
convert, of the Interest Period for such Loan which would have commenced on the
date of such failure to borrow, continue or convert, over (II) the amount
realized or to be realized by such Lender in reemploying the funds not advanced
or the funds received in prepayment or realized from the Loan not so continued
or converted during the period referred to above. Each Lender shall deliver to
the Borrower from time to time one or more certificates setting forth the amount
of such loss (and in reasonable detail the manner of computation thereof) as
determined by such Lender, which certificates shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amounts shown on such
certificate within ten days of the Borrower's receipt of such certificate.
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(c) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.10(a), the
Borrower shall pay to the Administrative Agent for the account of the applicable
Lender any amounts required to compensate such Lender for any actual loss
incurred by such Lender as a result of such failure to prepay, including,
without limitation, any loss, cost or expenses incurred by reason of the
acquisition of deposits or other funds by such Lender to fulfill deposit
obligations incurred in anticipation of such prepayment. Each Lender shall
deliver to the Borrower and the Administrative Agent from time to time one or
more certificates setting forth the amount of such loss (and in reasonable
detail the manner of computation thereof) as determined by such Lender, which
certificates shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amounts shown on such certificate within ten days of the
Borrower's receipt of such certificate.
(d) If at any time the sum of the Loans outstanding plus the L/C
----
Exposure exceeds the Borrowing Base as set forth on the most recent Borrowing
Base Certificate, the Borrower shall pay down the Loans outstanding or otherwise
eliminate such excess within ten days after the due date of such Borrowing Base
Certificate.
(e) Simultaneously with each termination and/or mandatory or optional
reduction of the Revolving Credit Commitments pursuant to Section 2.7, the
Borrower shall pay to the Administrative Agent for the benefit of the Lenders an
amount equal to the excess of the sum of aggregate outstanding principal amount
of the Revolving Credit Loans plus the L/C Exposure over the reduced Revolving
----
Credit Commitments.
(f) To the extent that any excess calculated pursuant to subsection
2.10(d) or (e) exceeds the amount of the Loans, the portion in excess of the
Loans shall be provided as cash Collateral.
(g) Unless otherwise designated in writing by the Borrower, all
prepayments shall be applied to the applicable principal payment set forth in
this Section 2.10, first to that amount of such applicable principal payment
then maintained as Alternate Base Rate Loans by the Borrower, and then, to that
amount of such applicable principal payment maintained as Eurodollar Loans by
the Borrower in order of the scheduled expiry of Interest Periods with respect
thereto.
(h) All prepayments shall be accompanied by accrued but unpaid
interest on the principal amount being prepaid to but not including the date of
prepayment.
SECTION 2.11. Change in Circumstances. (a) In the event that after
-----------------------
the Initial Date any change in Applicable Law or in the official interpretation
or administration thereof (including, without limitation, any request, guideline
or policy not having the force of law) by any authority charged with the
administration or interpretation thereof or, with respect to clause (ii), (iii)
or (iv) below any change in conditions, shall occur which shall:
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(i) subject any Lender to, or increase the net tax, levy,
impost, duty, charge, fee, deduction or withholding with respect to
any Eurodollar Loan (other than withholding tax imposed by the United
States of America or any political subdivision or taxing authority
thereof or any other tax, levy, impost, duty, charge, fee, deduction
or withholding (A) that is measured with respect to the overall net
income of such Lender or of a Lending Office of such Lender, and that
is imposed by the United States of America, or by the jurisdiction in
which such Lender or Lending Office is incorporated, in which such
Lending Office is located, managed or controlled or in which such
Lender has its principal office (or any political subdivision or
taxing authority thereof or therein), or (B) that is imposed solely by
reason of any Lender failing to make a declaration of, or otherwise to
establish, non-residence, or to make any other claim for exemption, or
otherwise to comply with any certification, identification,
information, documentation or reporting requirements prescribed under
the laws of the relevant jurisdiction, in those cases where a Lender
may properly make such declaration or claim or so establish non-
residence or otherwise comply); or
(ii) change the basis of taxation of any payment to any Lender
of principal or any interest on any Eurodollar Loan or other fees and
amounts payable to any Lender hereunder, or any combination of the
foregoing; other than withholding tax imposed by the United States of
America or any political subdivision or taxing authority thereof or
any other tax, levy, impost, duty, charge, fee, deduction or
withholding that is measured with respect to the overall net income of
such Lender or of a Lending Office of such Lender, and that is imposed
by the United States of America, or by the jurisdiction in which such
Lender or Lending Office is incorporated, in which such Lending Office
is located, managed or controlled or in which such Lender has its
principal office (or any political subdivision or taxing authority
thereof or therein); or
(iii) impose, modify or deem applicable any reserve, deposit or
similar requirement against any assets held by, deposits with or for
the account of or loans or commitments by an office of such Lender
with respect to any Eurodollar Loan; or
(iv) impose upon such Lender or the London Interbank Market any
other condition with respect to the Eurodollar Loans or this Credit
Agreement;
and the result of any of the foregoing shall be to increase the actual cost to
such Lender of making or maintaining any Eurodollar Loan hereunder or to reduce
the amount of any payment (whether of principal, interest or otherwise) received
or receivable by such Lender in connection with any Eurodollar Loan hereunder,
or to require such Lender to make any payment in connection with any Eurodollar
Loan hereunder, in each case by or in an amount which such Lender in its sole
judgment shall deem material, then and in each case the Borrower shall pay to
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the Administrative Agent for the account of such Lender, as provided in
paragraph (c) below, such amounts as shall be necessary to compensate such
Lender for such cost, reduction or payment.
(b) If at any time and from time to time after the Initial Date any
Lender shall have determined that the applicability of any law, rule, regulation
or guideline adopted after the Initial Date of any law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
Lending Office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of this Credit
Agreement or the Loans made or Letters of Credit issued or participated in by
such Lender pursuant hereto to a level below that which such Lender or such
Lender's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration such Lender's policies
and the policies of such Lender's holding company with respect to capital
adequacy) by an amount deemed by such Lender to be material, then from time to
time the Borrower shall pay to such Lender such additional amount or amounts as
will compensate such Lender or such Lender's holding company for any such
reduction suffered with respect to Loans made by such Lender hereunder.
(c) Each Lender shall deliver to the Borrower and the
Administrative Agent from time to time, one or more certificates setting forth
the amounts due to such Lender under paragraphs (a) and (b) above, the changes
as a result of which such amounts are due, the manner of computing such amounts
and the manner of computing the amounts allocable to Loans hereunder pursuant to
paragraphs (a) and (b) above. Each such certificate shall be conclusive in the
absence of manifest error. The Borrower shall pay to the Administrative Agent
for the account of each such Lender the amounts shown as due on any such
certificate within ten Business Days after its receipt of the same. No failure
on the part of any Lender to demand compensation under paragraph (a) or (b)
above on any one occasion shall constitute a waiver of its rights to demand
compensation on any other occasion. The protection of this Section 2.11(c)
shall be available to each Lender regardless of any possible contention of the
invalidity or inapplicability of any law, regulation or other condition which
shall give rise to any demand by such Lender for compensation thereunder.
(d) Each Lender agrees that after it becomes aware of the
occurrence of an event or the existence of a condition that (i) would cause it
to incur any increased cost hereunder or render it unable to perform its
agreements hereunder for the reasons specifically set forth in Section 2.8(b) or
this Section 2.11 or Section 2.14 or Section 2.16(g) or (ii) would require the
Borrower to pay an increased amount under Section 2.8(b) or this Section 2.11 or
Section 2.14 or Section 2.16(g), it will use reasonable efforts to notify the
Borrower of such event or condition
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and, to the extent not inconsistent with such Lender's internal policies, will
use its reasonable efforts to make, fund or maintain the affected Loans of such
Lender, or, if applicable, to participate in Letters of Credit as required under
Section 2.16, through another Lending Office of such Lender if as a result
thereof the additional monies which would otherwise be required to be paid or
the reduction of amounts receivable by such Lender thereunder in respect of such
Loans would be materially reduced, or such inability to perform would cease to
exist, or the increased costs which would otherwise be required to be paid in
respect of such Loans pursuant to Section 2.8(b) or this Section 2.11 or Section
2.14 or Section 2.16(g) would be materially reduced or the taxes or other
amounts otherwise payable under Section 2.8(b) or this Section 2.11 or Section
2.14 or Section 2.16(g) would be materially reduced, and if, as determined by
such Lender, in its discretion, the making, funding or maintaining of such Loans
through such other Lending Office would not otherwise materially adversely
affect such Loans or such Lender.
SECTION 2.12. Change in Legality. (a) Notwithstanding anything to
------------------
the contrary contained elsewhere in this Credit Agreement, if any change after
the date hereof in Applicable Law, guideline or order, or in the interpretation
thereof by any Governmental Authority charged with the administration thereof,
shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or
to give effect to its obligations as contemplated hereby with respect to a
Eurodollar Loan, then, by written notice to the Borrower and the Administrative
Agent, such Lender may (i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder and/or (ii) require that, subject to Section
2.10(b), all outstanding Eurodollar Loans made by it be converted to Alternate
Base Rate Loans, whereupon all of such Eurodollar Loans shall automatically be
converted to Alternate Base Rate Loans, as of the effective date of such notice
as provided in paragraph (b) below. Such Lender's pro rata portion of any
subsequent Eurodollar Loan shall, instead, be an Alternate Base Rate Loan unless
such declaration is subsequently withdrawn.
(b) A notice to the Borrower by any Lender pursuant to paragraph
(a) above shall be effective for purposes of clause (ii) thereof, if lawful, on
the last day of the current Interest Period for each outstanding Eurodollar
Loan; and in all other cases, on the date of receipt of such notice by the
Borrower.
SECTION 2.13. Manner of Payments. All payments of principal and
------------------
interest by the Borrower in respect of any Loans to it shall be pro rata among
the Lenders holding such Loans in accordance with the then outstanding principal
amounts of such Loans held by them and all Borrowings of any Loans by the
Borrower hereunder shall be made pro rata among the Lenders in accordance with
their Commitments. All payments by the Borrower hereunder and under the Notes
shall be made in Dollars in Federal or other immediately available funds at the
office of The Chase Manhattan Bank, Loan and Agency Services Group, One Chase
Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Ganesh Persaud, for
credit to the Chase Clearing Account no later than 2:00 p.m., New York City
time, on the date on which such payment shall be due. Interest in respect of
any Loan hereunder shall accrue from and including
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the date of such Loan to but excluding the date on which such Loan is paid or
converted to a Loan of a different type.
SECTION 2.14. United States Withholding. (a) Prior to the date of
-------------------------
the initial Loans hereunder, and prior to the effective date set forth in the
Assignment and Acceptance with respect to any Lender becoming a Lender after the
date hereof, and from time to time thereafter if requested by the Borrower or
the Administrative Agent or required because, as a result of a change in law or
a change in circumstances or otherwise, a previously delivered form or statement
becomes incomplete or incorrect in any material respect, each Lender organized
under the laws of a jurisdiction outside the United States shall provide, if
applicable, the Administrative Agent and the Borrower with complete, accurate
and duly executed forms or other statements prescribed by the Internal Revenue
Service of the United States certifying such Lender's exemption from, or
entitlement to a reduced rate of, United States withholding taxes (including
backup withholding taxes) with respect to all payments to be made to such Lender
hereunder and under the Notes.
(b) The Borrower and the Administrative Agent shall be entitled to
deduct and withhold any and all present or future taxes or withholdings, and all
liabilities with respect thereto, from payments hereunder or under the Notes, if
and to the extent that the Borrower or the Administrative Agent in good faith
determines that such deduction or withholding is required by the law of the
United States, including, without limitation, any applicable treaty of the
United States. In the event that the Borrower or the Administrative Agent shall
so determine that deduction or withholding of taxes is required, it shall advise
the affected Lender as to the basis of such determination prior to actually
deducting and withholding such taxes. In the event the Borrower or the
Administrative Agent shall so deduct or withhold taxes from amounts payable
hereunder, it (i) shall pay to or deposit with the appropriate taxing authority
in a timely manner the full amount of taxes it has deducted or withheld; (ii)
shall provide evidence of payment of such taxes to, or the deposit thereof with,
the appropriate taxing authority and a statement setting forth the amount of
taxes deducted or withheld, the applicable rate, and any other information or
documentation reasonably requested by the Lenders from whom the taxes were
deducted or withheld; and (iii) shall forward to such Lenders any official tax
receipts or other documentation with respect to the payment or deposit of the
deducted or withheld taxes as may be issued from time to time by the appropriate
taxing authority. Unless the Borrower and the Administrative Agent have
received forms or other documents satisfactory to them indicating that payments
hereunder or under the Notes are not subject to United States withholding tax or
are subject to such tax at a rate reduced by an applicable tax treaty, the
Borrower or the Administrative Agent may withhold taxes from such payments at
the applicable statutory rate in the case of payments to or for any Lender
organized under the laws of a jurisdiction outside the United States.
(c) Each Lender agrees (i) that as between it and the Borrower or
the Administrative Agent, such Lender shall be the Person to deduct and withhold
taxes, and to the extent required by law it shall deduct and withhold taxes, on
amounts that such Lender may remit to any other Person(s) by reason of any
undisclosed transfer or assignment of an interest in this
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Credit Agreement to such other Person(s) pursuant to Section 11.3 and (ii) to
indemnify the Borrower and the Administrative Agent and any officers, directors,
agents, or employees of the Borrower or the Administrative Agent against and to
hold them harmless from any tax, interest, additions to tax, penalties,
reasonable counsel and accountants' fees, disbursements or payments arising from
the assertion by any appropriate taxing authority of any claim against them
relating to a failure to withhold taxes as required by law with respect to
amounts described in clause (i) of this paragraph (c) or arising from the
reliance by the Borrower or the Administrative Agent on any form or other
document furnished by such Lender and purporting to establish a basis for not
withholding, or for withholding at a reduced rate, taxes with respect to
payments hereunder.
(d) Each assignee of a Lender's interest in this Credit Agreement
in conformity with Section 11.3 shall be bound by this Section 2.14, so that
such assignee will have all of the obligations and provide all of the forms and
statements and all indemnities, representations and warranties required to be
given under this Section 2.14.
(e) Notwithstanding the foregoing, in the event that any additional
withholding taxes shall become payable solely as a result of any change in any
statute, treaty, ruling, determination or regulation occurring after the Initial
Date in respect of any sum payable hereunder or under any other Fundamental
Document to any Lender or the Administrative Agent (i) the sum payable by the
Borrower shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.14) such Lender or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
withholding deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with Applicable Law and (iv) the
Borrower shall forward to such Lender or the Administrative Agent (as the case
may be) the official tax receipts or other documentation pursuant to Section
2.14(b). In addition, the Borrower shall indemnify each Lender and the
Administrative Agent for any additional withholding taxes paid by such Lender or
the Administrative Agent, as the case may be, or any liability (including
penalties and interest) arising therefrom or with respect thereto, whether or
not such additional withholding taxes were correctly or legally asserted.
(f) In the event that a Lender receives a refund of or credit for
taxes withheld or paid pursuant to clause (e) of this Section 2.14, which credit
or refund is identifiable by such Lender as being a result of taxes withheld in
connection with sums payable hereunder or under any other Fundamental Document,
such Lender shall promptly notify the Administrative Agent and the Borrower and
shall remit to the Borrower the amount of such refund or credit allocable to
payments made hereunder or under the other Fundamental Documents.
(g) Each Lender agrees that after it becomes aware of the occurrence
of an event that would cause the Borrower to pay any amount pursuant to clause
(e) of this Section 2.14, it will use reasonable efforts to notify the Borrower
of such event and, to the extent not inconsistent with such Lender's internal
policies, will use its reasonable efforts to make, fund or
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maintain the affected Loans of such Lender through another Lending Office of
such Lender if as a result thereof the additional monies which would otherwise
be required to be paid by reason of Section 2.14(e) in respect of such Loans
would be materially reduced, and if, as determined by such Lender, in its
discretion, the making, funding or maintaining of such Loans through such other
Lending Office would not otherwise materially adversely affect such Loans or
such Lender.
SECTION 2.15. Interest Adjustments. If the provisions of this Credit
--------------------
Agreement or any Note would at any time require payment by the Borrower to a
Lender of any amount of interest in excess of the maximum amount then permitted
by the law applicable to any Loan, the interest payments to that Lender shall be
reduced to the extent necessary so that such Lender shall not receive interest
in excess of such maximum amount. If, as a result of the foregoing, a Lender
shall receive interest payments hereunder or under a Note in an amount less than
the amount otherwise provided hereunder, such deficit (hereinafter called the
"Interest Deficit") will, to the fullest extent permitted by Applicable Law,
----------------
cumulate and will be carried forward (without interest) until the termination of
this Credit Agreement. Interest otherwise payable to a Lender hereunder and
under a Note for any subsequent period shall be increased by the maximum amount
of the Interest Deficit that may be so added without causing such Lender to
receive interest in excess of the maximum amount then permitted by the law
applicable to the Loans.
The amount of any Interest Deficit relating to a particular Loan and
Note shall be treated as a prepayment penalty and shall, to the fullest extent
permitted by Applicable Law, be paid in full at the time of any optional
prepayment by the Borrower to the Lenders of all the Loans at that time
outstanding pursuant to Section 2.10(a) hereof. The amount of any Interest
Deficit relating to a particular Loan and Note at the time of any complete
payment of the Loans at that time outstanding (other than an optional prepayment
thereof pursuant to Section 2.10(a) hereof) shall be canceled and not paid.
SECTION 2.16. Letters of Credit. (a) (i) Subject to the terms and
-----------------
conditions hereof and of Applicable Law, the Fronting Bank agrees to issue
Letters of Credit payable in Dollars from time to time after the Closing Date
and prior to the Commitment Termination Date upon the request of the Borrower,
provided, however, that (A) the Borrower shall not request that any Letter of
- -------- -------
Credit be issued if, after giving effect thereto, the sum of the then current
L/C Exposure, plus the aggregate Loans then outstanding would exceed the lesser
----
of the then current amount of the Borrowing Base or the Total Commitments and
(B) in no event shall the Fronting Bank issue any Letter of Credit having an
expiration date after the Commitment Termination Date.
(ii) Immediately upon the issuance of each Letter of Credit, each
Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from
the Fronting Bank a participation in such Letter of Credit in accordance with
such Lender's Percentage.
(iii) Each Letter of Credit may, at the option of the Fronting Bank,
provide that the Fronting Bank may (but shall not be required to) pay all or any
part of the
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maximum amount which may at any time be available for drawing thereunder to the
beneficiary thereof upon the occurrence and continuation of an Event of Default
and the acceleration of the maturity of the Loans, provided that, if payment is
not then due to the beneficiary, the Fronting Bank may deposit the funds in
question in a segregated account with the Fronting Bank to secure payment to the
beneficiary and any funds so deposited shall be paid to the beneficiary of the
Letter of Credit if conditions to such payment are satisfied or returned to the
Fronting Bank for distribution to the Lenders (or, if all Obligations shall have
been paid in full in cash, to the Borrower) if no payment to the beneficiary has
been made and the final date available for drawings under the Letter of Credit
has passed. Each payment or deposit of funds by the Fronting Bank as provided in
this paragraph shall be treated for all purposes of this Credit Agreement as a
drawing duly honored by the Fronting Bank under the related Letter of Credit.
(b) Whenever the Borrower desires the issuance of a Letter of
Credit, it shall deliver to the Fronting Bank a written notice no later than
2:00 p.m., New York City time, at least three Business Days prior to the
proposed date of issuance. Such notice shall specify (i) the proposed date of
issuance (which shall be a Business Day), (ii) the face amount of the Letter of
Credit, (iii) the expiration date of the Letter of Credit and (iv) the name and
address of the beneficiary. Such notice shall be accompanied by a brief
description of the underlying transaction and upon request of the Fronting Bank,
the Borrower shall provide additional details regarding the underlying
transaction. Concurrently with the giving of written notice of a request for
the issuance of a Letter of Credit, the Borrower shall specify a precise
description of the documents and the verbatim text of any certificate to be
presented by the beneficiary of such Letter of Credit which, if presented by
such beneficiary prior to the expiration date of the Letter of Credit, would
require the Fronting Bank to make payment under the Letter of Credit; provided,
--------
however, that the Fronting Bank, in its reasonable discretion, may require
- -------
customary changes in any such documents and certificates. Promptly after
receipt of such notice, the Administrative Agent shall notify each Lender of the
issuance and the amount of each such Lender's respective participation therein.
At Borrower's request, the Fronting Bank shall provide Borrower with a copy of
the form of Letter of Credit to be issued for Borrower's review and approval
prior to issuance.
(c) The payment of drafts under any Letter of Credit shall be made
in accordance with the terms of such Letter of Credit and the Uniform Customs
and Practice for documentary Credits of the International Chamber of Commerce
No. 500, as adopted or amended from time to time. The Fronting Bank shall be
entitled to honor any drafts and accept any documents presented to it by the
beneficiary of such Letter of Credit in accordance with the terms of such Letter
of Credit and believed by the Fronting Bank in good faith to be genuine. The
Fronting Bank shall not have any duty to inquire as to the accuracy or
authenticity of any draft or other drawing documents which may be presented to
it, but shall be responsible only to determine in accordance with customary
commercial practices that the documents which are required to be presented
before payment or acceptance of a draft under any Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit.
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(d) If the Fronting Bank shall make payment on any draft presented
under a Letter of Credit (regardless of whether a Default or Event of Default or
acceleration has occurred), the Fronting Bank shall give notice of such payment
to the Lenders and each Lender hereby authorizes and requests the Fronting Bank
to advance for its account pursuant to the terms hereof its share of such
payment based upon its participation in the Letter of Credit and agrees promptly
to reimburse the Fronting Bank in immediately available funds for the Dollar
equivalent of the amount so advanced on its behalf. If such reimbursement is not
made by any Lender in immediately available funds on the same day on which the
Fronting Bank shall have made payment on any such draft, such Lender shall pay
interest thereof to the Fronting Bank at a rate per annum equal to the Fronting
Bank's cost of obtaining overnight funds in the New York Federal Funds Market.
In the case of any draft presented under a Letter of Credit which is required to
be paid at any time on or before the Commitment Termination Date, such payment
of the unreimbursed draft shall constitute an Alternate Base Rate Loan hereunder
and interest shall accrue from the date the Fronting Bank makes payment of a
draft under the Letter of Credit.
(e) Subject to provisions of Section 2.16(c), the Borrower is
absolutely, unconditionally and irrevocably obligated to reimburse all amounts
drawn under each Letter of Credit. If any draft is presented under a Letter of
Credit, payment of which is required to be made after the Commitment Termination
Date (it being understood that no Letter of Credit shall be issued which would
expire after July 9, 2002), then the Borrower will, upon demand by the Fronting
Bank, pay to the Fronting Bank, in immediately available funds, the full amount
of such draft. If such payment is not made by the Borrower and the Fronting Bank
shall make payment on any draft presented under a Letter of Credit, the Fronting
Bank shall give notice of such payment to the Lenders and each Lender hereby
authorizes and requests the Fronting Bank to advance for its account pursuant to
the terms thereof its share of such payment based upon its participation in the
Letter of Credit and agrees promptly to reimburse the Fronting Bank in
immediately available funds for the Dollar equivalent of the amount so advanced
on its behalf. If such reimbursement is not made by any Lender in immediately
available funds on the same day on which the Fronting Bank shall have made
payment on any such draft, such Lender shall pay interest thereon to the
Fronting Bank at a rate per annum equal to the Fronting Bank's cost of obtaining
overnight funds in the New York Federal Funds Market. Such payment shall
constitute an Alternate Base Rate Loan hereunder and interest shall accrue from
the date the Fronting Bank makes payment of a draft under the Letter of Credit
at the rate specified in Section 2.8.
(f) (i) The Borrower agrees to pay the following amount to the
Fronting Bank with respect to Letters of Credit issued by it hereunder:
(A) with respect to the issuance, amendment, transfer or any
other transaction related to each Letter of Credit and each drawing
made thereunder, documentary and processing charges in accordance with
the Fronting Bank's standard schedule for such charges in effect at
the time of such issuance, amendment, transfer or drawing, as the case
may be; and
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(B) a fronting fee payable to the Fronting Bank for the period
from and including the Closing Date to but excluding the Commitment
Termination Date, computed at a rate equal to 1/4 of 1% per annum of
the daily average L/C Exposure, such fee to be due and payable in
arrears on and through the last Business Day of each fiscal quarter of
the Borrower, prior to the Commitment Termination Date, on the
Commitment Termination Date and on the expiration of the last
outstanding Letter of Credit.
(ii) The Borrower agrees to pay to the Administrative Agent for
distribution to each Lender in respect of its L/C Exposure, such Lender's Pro
Rata Share of a commission calculated at a rate per annum equal to the
Applicable Margin for Eurodollar Loans (calculated in the same manner as
interest) of the daily average L/C Exposure. Such commission shall be payable
in arrears on and through the last Business Day of each fiscal quarter prior to
the Commitment Termination Date and on the Commitment Termination Date.
(iii) Promptly upon receipt by the Fronting Bank of any amount
described in clause (ii) of this Section 2.16(f), or any amount described in
Section 2.16(e) previously reimbursed to the Fronting Bank by the Lenders, the
Fronting Bank shall distribute to each Lender its Pro Rata Share of such amount.
Amounts payable under clauses (i)(A) and (i)(B) of this Section 2.16(f) shall be
paid directly to the Fronting Bank and shall be for its exclusive use.
(g) If by reason of (i) any change in Applicable Law after the
Initial Date, or in the interpretation or administration thereof (including,
without limitation, any request, guideline or policy not having the force of
law) by any Governmental Authority charged with the administration or
interpretation thereof, or (ii) compliance by the Fronting Bank or any Lender
with any direction, request or requirement (whether or not having the force of
law) issued after the Initial Date by any Governmental Authority or monetary
authority (including any change whether or not proposed or published prior to
the Initial Date), including, without limitation, any modifications to
Regulation D occurring after the Initial Date:
(A) the Fronting Bank or any Lender shall be subject to any tax,
levy, duty, fee, charge, deduction or withholding with respect to any
Letter of Credit (other than withholding tax imposed by the United
States of America or any other tax, levy, impost, duty, charge, fee,
deduction or withholding (I) that is measured with respect to the
overall net income of the Fronting Bank or such Lender or of a Lending
Office of the Fronting Bank or such Lender, and that is imposed by the
United States of America, or by the jurisdiction in which the Fronting
Bank or such Lender is incorporated, or in which such Lending Office
is located, managed or controlled or in which the Fronting Bank or
such Lender has its principal office (or any political subdivision or
taxing authority thereof or therein) or (II) that is imposed solely by
reason of the Fronting Bank or such Lender failing to make a
declaration of, or otherwise to establish, non-residence or to make
any other claim for exemption, or otherwise to comply with any
certification, identification,
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information, documentation or reporting requirements prescribed under
the laws of the relevant jurisdiction, in those cases where the
Fronting Bank or such Lender may properly make such declaration or
claim or so establish non-residence or otherwise comply);
(B) the basis of taxation of any fee or amount payable hereunder
with respect to any Letter of Credit shall be changed (except as
described in clause (A) above);
(C) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letter of Credit
issued by the Fronting Bank or participations therein purchased by any
Lender; or
(D) there shall be imposed on the Fronting Bank or any Lender
any other condition regarding this Section 2.16, any Letter of Credit
or any participation therein;
and the result of the foregoing is to increase from the conditions that exist on
the Initial Date the actual cost to the Fronting Bank or any Lender of issuing,
making or maintaining any Letter of Credit or of purchasing or maintaining any
participation therein, or to reduce the amount receivable in respect thereof by
the Fronting Bank or any Lender, in each case by or in an amount which the
Fronting Bank or any Lender shall reasonably deem material, then and in any such
case the Fronting Bank or such Lender may, at any time, notify the Borrower, and
the Borrower shall pay on demand such amounts as the Fronting Bank or such
Lender may specify to be necessary to compensate the Fronting Bank or such
Lender for such additional cost or reduced receipt. Section 2.11(b), (c), (d)
and Section 2.12 shall in all instances apply to the Fronting Bank and any
Lender with respect to Letters of Credit issued hereunder. The determination by
the Fronting Bank or any Lender, as the case may be, of any amount due pursuant
to this Section 2.16 as set forth in a certificate setting forth the calculation
thereof in reasonable detail shall, in the absence of manifest error, be final,
conclusive and binding on all of the parties hereto.
(h) If at any time when an Event of Default shall have occurred and
be continuing, any Letters of Credit shall remain outstanding, then the Required
Lenders or the Fronting Bank may, at their or its option, require the Borrower
to deliver to the Fronting Bank cash or Cash Equivalents in an amount equal to
the full amount of the L/C Exposure or to furnish other security acceptable to
the Required Lenders. Any amounts so delivered pursuant to the preceding
sentence shall be applied to reimburse the Fronting Bank for the amount of any
drawings honored under Letters of Credit; provided, however, that if prior to
-------- -------
the Commitment Termination Date, no Default or Event of Default is then
continuing, the Fronting Bank shall return all of such collateral relating to
such deposit to the Borrower upon request.
(i) If at any time that any Letter of Credit is outstanding, the L/C
Exposure, plus Loans outstanding exceeds the Borrowing Base, then the Required
----
Lenders or the Fronting
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Bank may, at their option, require (x) a prepayment of the Loans in accordance
with Section 2.10(d) or (y) the Borrower to deliver cash or Cash Equivalents to
the Fronting Bank in an amount sufficient to eliminate such excess or to furnish
other security for such excess acceptable to the Required Lenders. Any amounts
so delivered pursuant to the preceding sentence shall be applied to reimburse
the Fronting Bank for the amount of any drawings honored under Letters of
Credit; provided, however, that if subsequent to any such deposit such excess is
-------- -------
reduced to an amount less than the amount of such deposited amounts and no
Default or Event of Default is then continuing, the Borrower shall be entitled
to receive such excess collateral if requested by it.
(j) Notwithstanding the termination of the Commitments and the
payment of the Loans, the obligations of the Borrower under this Section 2.16
shall remain in full force and effect until the Fronting Bank and the Lenders
shall have been irrevocably released from their obligations with regard to any
and all Letters of Credit.
(k) This Section 2.16 shall not be amended without the written
consent of the Fronting Bank and the Administrative Agent.
SECTION 2.17. Provisions Relating to the Borrowing Base. (a) The
-----------------------------------------
Administrative Agent may or the Required Lenders may from time to time by
written notice to the Borrower (which notice shall be prospective only, i.e., to
the extent that giving effect to such notice would otherwise result in a
mandatory prepayment by the Borrower under Section 2.10, such notice shall not
be given effect for purposes of such mandatory prepayment, but shall
nevertheless be effective for all other purposes under this Credit Agreement
immediately upon the Borrower's receipt of such notice) (i) delete any Person
from the schedule of Acceptable Obligors, determine that any amounts due under
any Distribution Agreement are unacceptable and shall no longer constitute an
Eligible Receivable or decrease the Allowable Amount for any Acceptable Obligor,
as the Administrative Agent or the Required Lenders, as the case may be, acting
in good faith, may in its or their discretion deem appropriate, or (ii) the
Required Lenders may, by written notice to the Borrower, add a Person to the
list of Acceptable Obligors or increase the Allowable Amount for any Acceptable
Obligor, as they may in their discretion deem appropriate.
(b) In the event the Administrative Agent notifies the Borrower that
a Person or Affiliated Group is to be deleted as an Acceptable Obligor in
accordance with Section 2.17(a), no additional Eligible Receivables from such
Person or Affiliated Group may be included in the Borrowing Base subsequent to
such notice unless the Required Lenders thereafter notify the Borrower that such
Person or Affiliated Group is reinstated as an Acceptable Obligor in accordance
with Section 2.17(a). In the event the Administrative Agent or the Required
Lenders, as the case may be, notify the Borrower that the Allowable Amount with
respect to an Acceptable Obligor is to be reduced in accordance with Section
2.17(a), no additional Eligible Receivables from such Acceptable Obligor may be
included in the Borrowing Base subsequent to such notice if such inclusion would
result in the aggregate amount of Eligible Receivables from such Acceptable
Obligor being in excess of the Allowable Amount for such Acceptable
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Obligor after giving effect to such reduction unless the Required Lenders
thereafter notify the Borrower that the Allowable Amount for such Acceptable
Obligor is increased in accordance with Section 2.17(a).
(c) With respect to such items of Product as described in Section
5.21, no Eligible Receivables arising from such items of Product may be included
in the Borrowing Base unless the Borrower is in compliance with Section 5.21.
(d) The rights of the Administrative Agent described in this Section
2.17 may only be exercised by The Chase Manhattan Bank in its capacity as the
Administrative Agent and not by any successor to The Chase Manhattan Bank in
such capacity.
3. REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES
In order to induce the Administrative Agent, the Fronting Bank and the
Lenders to enter into this Credit Agreement and to make the Loans and issue
Letters of Credit and/or credit participations, purchase participations in the
Letters of Credit provided for herein, the Credit Parties, jointly and
severally, make the following representations and warranties to, and agreements
with, the Administrative Agent, the Fronting Bank and the Lenders, all of which
shall survive the execution and delivery of this Credit Agreement, the issuance
of the Notes, the making of the Loans and the issuance of the Letters of Credit.
SECTION 3.1. Corporate Existence and Power. Each of the Credit
-----------------------------
Parties is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and is in good standing as a
foreign corporation in all jurisdictions where both (i) the nature of its
properties or business so requires and (ii) the failure to be in good standing
as a foreign corporation would render Eligible Receivables which are included in
the Borrowing Base unenforceable or would give rise to a material liability of
the Credit Parties, taken as a whole. Each of the Credit Parties has the
corporate power and authority to own its respective properties and carry on its
respective businesses as now being conducted, to execute, deliver and perform,
as applicable, its obligations under this Credit Agreement, the Notes and the
other Fundamental Documents and other documents contemplated hereby to which it
is or will be a party as provided herein and to grant to the Collateral Agent,
for the benefit of the Administrative Agent, the Fronting Bank, the Lenders and
the Noteholders, a security interest in the Collateral as contemplated by the
Security Agreement and in the Pledged Securities as contemplated by the Pledge
Agreement and to guaranty the Obligations as contemplated by Article 8 hereof.
SECTION 3.2. Corporate Authority and No Violation. (a) The
------------------------------------
consummation of the Merger, the issuance of the Secured Subordinated Notes and
the execution, delivery and performance of this Credit Agreement and the other
Fundamental Documents to which it is a party, by each Credit Party and, in the
case of the Borrower, the Borrowings hereunder and the execution and delivery of
the Notes and, in the case of each Credit Party, the grant to the
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Collateral Agent for the benefit of the Administrative Agent, the Fronting Bank,
the Lenders and the Noteholders of the security interest in the Collateral as
contemplated by the Security Agreement and in the other Fundamental Documents
and in the Pledged Securities as contemplated by the Pledge Agreement and, in
the case of each Guarantor, the guaranty of the Obligations as contemplated in
Article 8 hereof (i) have been duly authorized by all necessary corporate action
on the part of each such Credit Party, (ii) will not constitute a violation by
such Credit Party of any provision of Applicable Law or any order of any court
or other agency of the United States or any state thereof applicable to such
Credit Party or any of its properties or assets which violation would have a
material adverse effect upon the financial condition or the business of the
Credit Parties taken as a whole, (iii) will not violate any provision of the
Certificate of Incorporation or By-Laws of such Credit Party, or any provision
of any Distribution Agreement, indenture, agreement, bond, note or other similar
instrument to which such Credit Party is a party or by which such Credit Party
or its properties or assets are bound which violation would have a material
adverse effect upon the financial condition or the business of the Credit
Parties taken as a whole, (iv) will not be in conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under or
create any right to terminate any such Distribution Agreement, indenture,
agreement, bond, note or other instrument which violation could have a material
adverse effect upon the financial condition or the business of the Credit
Parties taken as a whole, and (v) will not result in the creation or imposition
of any Lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of any of the Credit Parties other than pursuant to the
Secured Subordinated Notes and the documents related thereto and this Credit
Agreement or the other Fundamental Documents.
(b) There are no restrictions on the transfer of any of the Pledged
Securities other than as a result of this Credit Agreement or applicable
securities laws and the regulations promulgated thereunder.
SECTION 3.3. Governmental Approval. All authorizations, approvals,
---------------------
registrations or filings with any governmental or public regulatory body or
authority of the United States or any state thereof (other than UCC financing
statements, the Copyright Security Agreement, and the Trademark Security
Agreement which will be delivered to the Administrative Agent prior to the
making of the initial Loan hereunder, in form suitable for recording or filing
with the appropriate filing office) required for the consummation of the Merger,
the issuance of the Secured Subordinated Notes and the execution, delivery and
performance by any Credit Party of this Credit Agreement and the other
Fundamental Documents to which it is a party, and the execution and delivery by
the Borrower of the Notes, have been duly obtained or made, or duly applied for
and are in full force and effect, and if any such further authorizations,
approvals, registrations or filings should hereafter become necessary, the
Credit Parties shall obtain or make all such authorizations, approvals,
registrations or filings.
SECTION 3.4. Binding Agreements. This Credit Agreement and the other
------------------
Fundamental Documents when executed will constitute the legal, valid and binding
obligations of the respective Credit Parties, enforceable in accordance with
their respective terms, subject, as
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to the enforcement of remedies, to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights and general principles of equity.
SECTION 3.5. Financial Statements. The audited Consolidated balance
--------------------
sheets of the Parent and its Consolidated Subsidiaries at December 31, 1997 and
the unaudited Consolidated balance sheet of the Parent and its Consolidated
Subsidiaries at March 31, 1998, together with the related statements of cash
flows and Stockholders' Equity and the related notes and supplemental
information for the audited statements, in the forms which have previously been
provided to the Lenders, have been prepared in accordance with GAAP, except as
otherwise indicated in the notes to such financial statements. All of such
financial statements fairly present in all material respects the Consolidated
financial condition or the results of operations of the Parent and its
Consolidated Subsidiaries at the dates or for the periods indicated, subject (in
the case of unaudited statements) to changes resulting from normal year-end and
audit adjustments, and (in the case of balance sheets) reflect (including the
notes thereto) all known liabilities, contingent or otherwise, as of such dates
required in accordance with GAAP to be shown or reserved against, or disclosed
in the notes to the financial statements.
SECTION 3.6. No Material Adverse Change. (a) There has been no
--------------------------
material adverse change with respect to the business, operations, performance,
assets, properties or condition (financial or otherwise) of the Credit Parties
taken as a whole from March 31, 1998, except for changes due to seasonality that
are consistent with the corresponding periods in prior years.
(b) No Credit Party has entered or is entering into the arrangements
contemplated hereby and by the other Fundamental Documents, or intends to make
any transfer or incur any obligations hereunder or thereunder, with actual
intent to hinder, delay or defraud either present or future creditors. On and
as of the Closing Date, on a pro forma basis after giving effect to all
Indebtedness (including the Loans) (i) each Credit Party expects the cash
available to such Credit Party, after taking into account all other anticipated
uses of the cash of such Credit Party (including the payments on or in respect
of debt referred to in clause (iii) of this Section 3.6(b)), will be sufficient
to satisfy all final judgments for money damages which have been docketed
against such Credit Party or which may be rendered against such Credit Party in
any action in which such Credit Party is a defendant (taking into account the
reasonably anticipated maximum amount of any such judgment and the earliest time
at which such judgment might be entered); (ii) the sum of the present fair
saleable value of the assets of each Credit Party will exceed the probable
liability of such Credit Party on its debts (including its Guaranties); (iii) no
Credit Party will have incurred or intends to, or believes that it will, incur
debts beyond its ability to pay such debts as such debts mature (taking into
account the timing and amounts of cash to be received by such Credit Party from
any source, and of amounts to be payable on or in respect of debts of such
Credit Party and the amounts referred to in clause (ii)); and (iv) each Credit
Party believes it will have sufficient capital with which to conduct its present
and proposed business and the property of such Credit Party does not constitute
unreasonably small capital with which to conduct its present or proposed
business. For purposes of this Section 3.6,
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"debt" means any liability or a claim, and "claim" means (y) right to payment
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured, or (z) right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured.
SECTION 3.7. Ownership of Pledged Securities, Inactive Subsidiaries,
-------------------------------------------------------
etc. (a) Annexed hereto as Schedule 3.7(a) is a correct and complete list as
- ---
of the date hereof, of each Credit Party showing, as to each, its name, the
jurisdiction of incorporation, its authorized capitalization, the number of
shares of its capital stock outstanding and the ownership of the capital stock
of each such Credit Party;
(b) Except as noted on Schedule 3.7(b), no Credit Party owns any
Voting Stock or beneficial interest, directly or indirectly, in any entity other
than in the Parent, the Borrower or Subsidiaries of the Parent and Borrower; and
(c) Annexed hereto as Schedule 3.7(c) is a correct and complete list
of each Inactive Subsidiary. No Inactive Subsidiary owns any assets (other than
beneficial interests in another Inactive Subsidiary) or engages in any business
activities of any nature.
SECTION 3.8. Copyrights, Trademarks and Other Rights. (a) On the
---------------------------------------
date hereof, the items of Product listed on Schedule 3.8(a)(i) comprise all of
the Product in which any Credit Party has any right, title or interest (either
directly or through a joint venture or partnership). The copyright registration
number and the character of the interests held by the Credit Party for the items
of Product listed on Schedule 3.8(a)(ii) are set forth across from the
description of such item of Product and as to each item listed on Schedule
3.8(a)(ii) hereto the Credit Party holding such interests has duly recorded its
interests in the United States Copyright Office and has delivered copies of all
such recordation to the Administrative Agent. Schedule 3.8(a)(ii) shall
identify the location of the best available Physical Materials related to each
item of Product owned by the Credit Parties. To the best of each Credit Party's
knowledge, all items of Product owned by such Credit Party do not violate or
infringe upon any copyright, right of privacy, trademark, patent, trade name,
performing right or any literary, dramatic, musical, artistic, personal,
private, several, care, contract or copyright right or any other right of any
Person or contain any libelous or slanderous material other than to an extent
which is either not material or for which coverage is provided in existing
insurance policies. Except as set forth on Schedule 3.12, there is no claim,
suit, action or proceeding pending or, to the best of each Credit Party's
knowledge, threatened against any Credit Party that involves a claim of
infringement of any copyright with respect to any item of Product listed on
Schedule 3.8(a)(i) and no Credit Party has knowledge of any existing
infringement by any other Person of any copyright held by any Credit Party with
respect to any item of Product listed on Schedule 3.8(a)(i).
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(b) Schedule 3.8(b) hereto (i) lists substantially all of the
trademarks registered by any Credit Party on the date hereof and identifies the
Credit Party which registered each such trademark and (ii) specifies as to each,
the jurisdictions in which such trademark has been issued or registered (or, if
applicable, in which an application for such issuance or registration has been
filed), including the respective registration or application numbers and
applicable dates of registration or application. Each trademark set forth on
Schedule 3.8(b) shall be included on Schedule A to the Trademark Security
Agreement delivered to the Administrative Agent pursuant to Section 4.1(h).
SECTION 3.9. Fictitious Names. Except as disclosed on Schedule 3.9,
----------------
none of the Credit Parties are doing business or intend to do business other
than under its full corporate name, including, without limitation, under any
trade name or other doing business name.
SECTION 3.10. Title to Properties. As of the Closing Date, the
-------------------
Credit Parties have good title to each of the properties and assets reflected on
the latest balance sheets referred to in Section 3.5 (other than such properties
or assets disposed of in the ordinary course of business since the date of such
balance sheets) and, to the best of each Credit Party's knowledge, all such
properties and assets are free and clear of Liens, except Permitted
Encumbrances.
SECTION 3.11. Places of Business. The chief executive office of each
------------------
Credit Party is, on the Closing Date, as set forth on Schedule 3.11 hereto. All
of the places where each Credit Party keeps the records concerning the
Collateral on the date hereof or regularly keeps any goods included in the
Collateral on the date hereof are also listed on Schedule 3.11 hereto.
SECTION 3.12. Litigation. Except as set forth on Schedule 3.12
----------
hereto, there are no actions, suits or other proceedings at law or in equity by
or before any arbitrator or arbitration panel, or any Governmental Authority
(including, but not limited to, matters relating to environmental liability) or,
to the knowledge of any Credit Party, any investigation by any Governmental
Authority of the affairs of, or threatened action, suit or other proceedings
against or affecting, any Credit Party or of any of their respective properties
or rights which either (A) would have a significant likelihood of materially and
adversely affecting (i) the ability of any Credit Party to perform its
obligations under the Fundamental Documents to which it is a party, (ii) the
ability of any Credit Party to carry on its business, (iii) the security
interests granted to the Collateral Agent for the benefit of the Administrative
Agent, Fronting Bank, Lenders and the Noteholders under the Fundamental
Documents, (iv) the financial condition or business of the Credit Parties taken
as a whole or (v) the Collateral taken as a whole, or (B) involve the Merger,
the Secured Subordinated Notes or this Credit Agreement or any of the
transactions contemplated hereby. No Credit Party is in default with respect to
any order, writ, injunction, decree, rule or regulation of any Governmental
Authority binding upon such Person, which default would have a material adverse
effect upon the financial condition or the business of the Credit Parties taken
as a whole.
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SECTION 3.13. Federal Reserve Regulations. No Credit Party is
---------------------------
engaged principally or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock. No
part of the proceeds of the Loans will be used, directly or indirectly, whether
immediately, incidentally or ultimately (i) to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or (ii) for any other purpose, in each case, violative of or
inconsistent with any of the provisions of any regulation of the Board,
including, without limitation, Regulations T, U and X thereto.
SECTION 3.14. Investment Company Act. No Credit Party is, or will
----------------------
during the term of this Credit Agreement be, (i) an "investment company", within
the meaning of the Investment Company Act of 1940, as amended, or (ii) subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act or any foreign, federal or local statute or any other Applicable Law
of the United States of America or any other jurisdiction, in each case limiting
its ability to incur indebtedness for money borrowed as contemplated hereby or
by any other Fundamental Document.
SECTION 3.15. Taxes. Except as disclosed in Schedule 3.15, each
-----
Credit Party has filed or caused to be filed all federal, state and material
local and foreign tax returns which are required to be filed with any
Governmental Authority after giving effect to applicable extensions, and has
paid or has caused to be paid all taxes as shown on said returns or on any
assessment received by them in writing, to the extent that such taxes have
become due, except as permitted by Section 5.13 hereof. Except as disclosed in
Schedule 3.15, no Credit Party knows of any material additional assessments or
any basis therefor. The Credit Parties reasonably believe that the charges,
accrual and reserves on its books in respect of taxes or other governmental
charges are adequate.
SECTION 3.16. Compliance with ERISA. Each Credit Party is in
---------------------
compliance in all material respects with the provisions of ERISA and the Code
applicable to Plans, and the regulations and published interpretations
thereunder, if any, which are applicable to it. As of the date hereof, no
Credit Party has, with respect to any Plan established or maintained by it,
engaged in a prohibited transaction which would subject it to a material tax or
penalty on prohibited transactions imposed by ERISA or Section 4975 of the Code.
No material liability to the PBGC has been or is expected to be incurred with
respect to the Plans (other than for premiums not yet due) and there has been no
Reportable Event and no other event or condition that presents a material risk
of termination of a Plan by the PBGC. No Credit Party has engaged in a
transaction which would result in the incurrence by such Credit Party of any
liability under Section 4069 of ERISA. No Credit Party has taken any action and
no event has occurred with respect to any Multiemployer Plan which would subject
any Credit Party to material liability under either Section 4201 or 4204 of
ERISA.
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SECTION 3.17. Agreements. (a) No Credit Party is (or after giving
----------
effect to the Merger, will be) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument (including the Distribution Agreements) to which it is a
party which would reasonably be expected to result in any material adverse
change in the business, properties, assets or operations (financial or
otherwise) of the Credit Parties taken as a whole.
(b) Schedule 3.17 is a true and complete listing as of the date on
which this Credit Agreement is executed by the Borrower of (i) all credit
agreements, indentures, and other agreements related to any Indebtedness for
borrowed money of the Credit Parties, other than the Fundamental Documents and
agreements entered into in connection with the Secured Subordinated Notes, (ii)
all material joint venture agreements to which the Credit Parties are a party,
(iii) all material Distribution Agreements and (iv) all other contractual
arrangements which are material to any Credit Party, including but not limited
to, guarantees and employment agreements. The Credit Parties have delivered or
made available to the Administrative Agent a true and complete copy of each
agreement described on Schedule 3.17, including all exhibits and schedules. For
purposes of this Section 3.17, a Distribution Agreement or other contract or
agreement shall be deemed "material" if the Credit Parties reasonably expect
that any Credit Party would, pursuant to the terms thereof, (A) recognize future
revenues in excess of $5,000,000, (B) incur liabilities or obligations in excess
of $5,000,000 or (C) likely suffer damages or losses in excess of $5,000,000 by
reason of the breach or termination thereof.
SECTION 3.18. Security Interest; Other Security. This Credit
---------------------------------
Agreement and the other Fundamental Documents, when executed and delivered and,
upon the making of the initial Loan hereunder, will create and grant to the
Collateral Agent for the benefit of the Administrative Agent, Fronting Bank,
Lenders and the Noteholders (upon (i) the timely filing of the appropriate UCC-1
financing statements with filing offices listed on Schedule 3.11, (ii) the
timely filing of the Copyright Security Agreement with the U.S. Copyright
Office, (iii) the timely filing of the Trademark Security Agreement with the
U.S. Patent and Trademark Office and (iv) delivery of the Pledged Securities
with appropriate stock powers to the Collateral Agent) valid and first priority
perfected security interests in the Collateral and the Pledged Securities in
existence on the Closing Date as to which security interests may be perfected by
such filings or delivery, subject only to Permitted Encumbrances.
SECTION 3.19. Disclosure. Neither this Credit Agreement nor any
----------
other Fundamental Document nor any agreement, document, certificate or statement
furnished to the Administrative Agent for the benefit of the Lenders by any
Credit Party in connection with the transactions contemplated hereby, at the
time it was furnished or delivered contained any untrue statement of a material
fact regarding the Credit Parties or, when taken together with such other
agreements, documents, certificates and statements omitted to state a material
fact necessary under the circumstances under which it was made in order to make
the statements contained herein or therein not misleading. There is no fact
known to any Credit Party not constituting general industry conditions or not
disclosed in such agreements, documents, certificates and
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statements which materially and adversely affects, or would reasonably be
expected in the future to materially and adversely affect, the business, assets
or condition, financial or otherwise of the Credit Parties taken as a whole.
SECTION 3.20. Distribution Rights. Each Credit Party has sufficient
-------------------
right, title and interest in each item of Product to enable it (i) to enter into
and perform all of the Distribution Agreements to which it is a party and other
agreements generating Eligible Receivables and accounts receivable reflected on
the most recent balance sheet and the most recent Borrowing Base Certificate
delivered to the Lenders pursuant hereto, and (ii) to charge, earn, realize and
retain all fees and profits to which such Credit Party is entitled thereunder,
and is not in breach of any of its obligations under such agreements, nor does
any Credit Party have any knowledge of any breach or anticipated breach by any
other parties thereto, which breach in either case either individually or when
aggregated with all other such breaches would have a material adverse effect on
the Credit Parties taken as a whole.
SECTION 3.21. Environmental Liabilities. (a) No Credit Party has
-------------------------
used, stored, treated, transported, manufactured, refined, handled, produced or
disposed of any Hazardous Materials on, under, at or from any of its properties
or assets owned or leased by a Credit Party, in any manner which at the time of
the action in question materially violated any Environmental Law governing the
use, storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials and to the best of the Credit
Parties' knowledge, no prior owner of such property or asset or any tenant,
subtenant, prior tenant or prior subtenant thereof has used Hazardous Materials
on or affecting such property or asset, or otherwise, in any manner which at the
time of the action in question materially violated any Environmental Law
governing the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials.
(b) To the best of each Credit Party's knowledge (i) no Credit Party
has any obligations or liabilities, known or unknown, matured or not matured,
absolute or contingent, assessed or unassessed, which would reasonably be
expected to have a materially adverse effect on the business or condition
(financial or otherwise) of the Credit Parties taken as a whole and (ii) no
claims have been made against any of the Credit Parties during the past five
years and no presently outstanding citations or notices have been issued against
any of the Credit Parties, which could reasonably be expected to have a
materially adverse effect on the business or condition (financial or otherwise)
of the Credit Parties taken as a whole which in either case have been or are
imposed by reason of or based upon any provision of any Environmental Law,
including, without limitation, any such obligations or liabilities relating to
or arising out of or attributable, in whole or in part, to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation or
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handling of any Hazardous Materials by any Credit Party, or any of its
employees, agents, representatives or predecessors in interest in connection
with or in any way arising from or relating to any of the Credit Parties or any
of their respective owned or leased properties, or relating to or arising from
or attributable, in whole or in part, to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation or handling of
any such substance, by any other Person at or on or under any of the real
properties owned or used by any of the Credit Parties or any other location
where such could have a materially adverse effect on the business or condition
(financial or otherwise) of the Credit Parties taken as a whole.
SECTION 3.22. Pledged Securities. All of the Pledged Securities are
------------------
duly authorized, validly issued, fully paid and non-assessable, and are owned
and held by the Pledgors, free and clear of any liens, encumbrances, or security
interests whatsoever other than those created pursuant to this Credit Agreement
or Permitted Encumbrances and there are no restrictions on the transfer of the
Pledged Securities other than as a result of this Credit Agreement or applicable
securities laws. Except as set forth on Schedule 3.22, there are no outstanding
rights, warrants, options, or agreements to purchase or otherwise acquire any
shares of the stock or securities or obligations of any kind convertible into
any shares of capital stock, of the issuers of the Pledged Securities. The
Pledged Securities are owned by the Persons specified on Schedule 3.7(a).
SECTION 3.23. Compliance with Laws. No Credit Party is in violation
--------------------
of any Applicable Law except for such violations in the aggregate which would
not have a material adverse effect on the business or condition (financial or
otherwise) of the Credit Parties taken as a whole. The Borrowings hereunder,
the Merger, the issuance of the Secured Subordinated Notes and the intended use
of the proceeds of the Loans as described in the preamble hereto and as
contemplated by Section 5.19 will not violate any Applicable Law.
SECTION 3.24. Projected Financial Information. Holdings has
-------------------------------
delivered to the Administrative Agent certain projections (copies of which were
included in the information memorandum dated July, 1997 previously circulated to
the Lenders) relating to the Parent and its Consolidated Subsidiaries consisting
of balance sheets and statements of income, cash flows and Stockholders' Equity,
together with appropriate supporting details and a statement of the underlying
assumptions. Such projected statements cover a period commencing on July 1,
1997 and ending on December 31, 2001 and are based on good faith estimates and
assumptions believed to be reasonable at the time made, it being recognized by
the Lenders that such projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by any such
other projections may differ from the projected results.
SECTION 3.25. Year 2000 Compliance. Any reprogramming required to
--------------------
permit the proper functioning, in and following the year 2000, of (i) the
Borrower's computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which Borrower's
systems interface) and the testing of all such systems and equipment, as so
reprogrammed, will be completed by March 31, 1999. The cost to the Borrower of
such reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to the Borrower (including, without limitation, reprogramming errors
and the failure of others' systems or equipment) will not result in a Default or
an Event of Default hereunder, or
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have a materially adverse effect upon the financial condition, the Collateral or
the business of the Credit Parties taken as a whole.
4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to Effectiveness of this Amendment
-------------------------------------------------------
and Restatement. The effectiveness of this amendment and restatement of the
- ---------------
Existing Credit Agreement and the making of the Term Loan are subject to the
following conditions precedent:
(a) Corporate Documents. On or prior to the Closing Date, the
-------------------
Administrative Agent shall have received, with copies for each of the Lenders:
(i) a copy of the articles or certificate of incorporation or
joint venture agreement of each Credit Party, certified as of a recent
date by the Secretary of State of such Credit Party's jurisdiction of
incorporation or organization, as the case may be;
(ii) a certificate of such Secretary of State and of the
franchise tax entity of such jurisdiction of incorporation, if
available, dated as of a recent date as to the good standing of and
payment of taxes by each Credit Party which lists the charter
documents on file in the office of such Secretary of State;
(iii) a certificate dated as of a recent date as to the good
standing of each Credit Party issued by the Secretary of State of each
jurisdiction in which each Credit Party is qualified as a foreign
corporation;
(iv) a certificate of the Secretary of each Credit Party dated
the date of the initial Loans and certifying (A) that attached thereto
is a true and complete copy of the by-laws of such party as in effect
on the date of such certification, (B) that attached thereto is a true
and complete copy of resolutions adopted by the Board of Directors of
such party authorizing (to the extent applicable) the Borrowings
hereunder, the execution, delivery and performance in accordance with
its respective terms of this Credit Agreement, the Notes (if any) to
be executed by it, and any other documents required or contemplated
hereunder or thereunder and that such resolutions have not been
amended, rescinded or supplemented and are currently in effect, (C)
that the certificate of incorporation of such party has not been
amended since the date of the last amendment thereto indicated on the
certificate of the Secretary of State furnished pursuant to clause (i)
above except to the extent specified in such Secretary's certificate
and (D) as to the incumbency and specimen signature of each officer of
such party executing (as applicable) this Credit Agreement, the Notes
or any other document delivered by it in connection herewith or
therewith (such certificate to contain a certification
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by another officer of such party as to the incumbency and signature of
the officer signing the certificate referred to in this clause (iv));
and
(v) such additional supporting documents as the Administrative
Agent or its counsel or any Lender may reasonably request.
(b) Credit Agreement; Notes. On or before the Closing Date the
-----------------------
Administrative Agent shall have received the Credit Agreement executed by the
Credit Parties and the Notes executed by the Borrower.
(c) Opinions of Counsel. The Administrative Agent shall have
-------------------
received the written opinions of Ropes & Gray, Sidley & Austin and Kenneth D.
Schapiro, General Counsel to the Credit Parties dated the date hereof and
addressed to the Administrative Agent and the Lenders substantially in the forms
attached hereto as Exhibits B-1, B-2 and B-3 in form and substance satisfactory
to Morgan, Lewis & Bockius LLP.
(d) Projected Financial Information. The Credit Parties shall have
-------------------------------
delivered to the Administrative Agent forecasted financial statements consisting
of balance sheets, cash flow statements, income statements and borrowing base
projections together with appropriate supporting details and a statement of the
underlying assumptions. Such projected statements shall cover a period
commencing on the Closing Date and ending at fiscal year end 1999 and shall have
been prepared on a basis consistent with the Borrower's past practices. All of
the foregoing shall have been prepared in good faith and shall represent the
good faith opinion of the senior management of the Borrower of the most probable
course of its business as of the date of delivery of such projections to the
Administrative Agent.
(e) No Material Adverse Change. No material adverse change shall
--------------------------
have occurred with respect to the business, operations, performance, assets,
properties, condition (financial or otherwise) or prospects of the Credit
Parties taken as a whole from March 31, 1998.
(f) Insurance. The Borrower shall have furnished the Administrative
---------
Agent with (i) a summary of all existing insurance coverage, (ii) evidence
acceptable to the Administrative Agent that the insurance policies required by
Section 5.5 have been obtained and are in full force and effect and (iii)
Certificates of Insurance with respect to all existing insurance coverage which
certificates shall name The Chase Manhattan Bank, as Collateral Agent, as the
Certificate holder and shall evidence the Borrower's compliance with Section
5.5(f) with respect to all insurance coverage existing as of the Closing Date.
(g) Borrowing Base Certificate. The Administrative Agent shall have
--------------------------
received an initial Borrowing Base Certificate substantially in the form of
Exhibit C hereto, signed by the Chief Financial Officer of each Borrower.
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(h) Security and Other Documentation. On or prior to the Closing
--------------------------------
Date, the Administrative Agent shall have received fully executed copies of (i)
Pledgeholder Agreements for each item of Product from each principal Laboratory
(identified as such on Schedule 3.11), for which a Credit Party has control over
any physical elements thereof as listed on Schedule 3.8(a) hereto; (ii) a
Copyright Security Agreement listing each item of Product in which any Credit
Party has a copyrightable interest (as listed on Schedule 3.8(a) hereto)
executed by such Credit Parties; (iii) a Trademark Security Agreement for each
trademark in which a Credit Party has any interest (as listed on Schedule 3.8(b)
hereto) executed by such Credit Party; (iv) Laboratory Access Letters from each
principal Laboratory (identified as such on Schedule 3.11) where a Credit Party
has access rights to any physical elements of Product; (v) appropriate UCC-1
financing statements relating to the Collateral; (vi) Pledge Agreements,
together with the Pledged Securities with appropriate undated stock powers
executed in blank; and (vii) each Collection Account Letter relating to the
Collection Accounts.
(i) Security Interests in Copyrights and other Collateral. On or
-----------------------------------------------------
prior to the Closing Date, the Administrative Agent shall have received evidence
reasonably satisfactory to it that each Credit Party has sufficient right, title
and interest in and to the Collateral and other assets which it purports to own
(including appropriate licenses under copyright), as set forth in its financial
statements and in the other documents presented to the Lenders to enable each
such Credit Party to perform the Distribution Agreements to which each such
Credit Party is a party and as to each Credit Party to grant to the Collateral
Agent for the benefit of the Administrative Agent, the Fronting Bank, the
Lenders and the Noteholders the security interests contemplated by the
Fundamental Documents, and that all financing statements, copyright filings and
other filings under Applicable Law necessary to provide the Collateral Agent for
the benefit of the Administrative Agent, Fronting Bank, Lenders and the
Noteholders with a first priority perfected security interest in the Pledged
Securities and Collateral (subject, as to Pledged Securities and the Collateral,
to Permitted Encumbrances) have been filed or delivered to the Collateral Agent
in satisfactory form for filing.
(j) Payment of Fees. All fees and expenses then due and payable by
---------------
any Credit Party to the Administrative Agent and the Lenders in connection with
the transactions contemplated hereby or by the Fee Letter shall have been paid.
(k) Certificate from the Borrower. The Administrative Agent shall
-----------------------------
have received a certificate, signed by an Authorized Officer on behalf of
Borrower, confirming that the Borrower has determined that the projected
availability of the Loans as determined by the Borrowing Base, together with
funds from internally generated sources and other available sources that are
acceptable to the Administrative Agent, is sufficient to finance the Borrower in
a manner compatible with the forecasted financial statements previously
delivered to the Lenders.
(l) Litigation. Except as disclosed on Schedule 3.12 hereof, no
----------
litigation, inquiry, injunction or restraining order shall be pending, entered
or threatened which in the Administrative Agent's good faith judgment could
reasonably be expected to materially and
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adversely affect (i) the assets, operations, business or condition (financial or
otherwise) of the Parent and its Subsidiaries taken as a whole, (ii) the ability
of the Parent and its Subsidiaries to perform their respective Obligations
hereunder or (iii) the rights and remedies of the Lenders.
(m) UCC Searches. The Administrative Agent shall have received UCC
------------
searches satisfactory to it indicating that no other filings (other than in
connection with Permitted Encumbrances) with regard to the Collateral are of
record in any jurisdiction in which it shall be necessary or desirable for the
Collateral Agent to make a UCC filing in order to provide the Collateral Agent
with a perfected security interest in the Collateral.
(n) Financial Statements. The Administrative Agent and the Lenders
--------------------
shall have received and be satisfied with the true and complete copies of all of
the financial statements referred to in Section 3.5.
(o) ERISA. The Administrative Agent shall have received copies of
-----
all Plans of the Credit Parties that are in existence on the Closing Date, and
descriptions of those that are committed to on the Closing Date.
(p) Delivery of Agreements. The Administrative Agent shall have
----------------------
received and be satisfied with the terms and provisions of (i) the Borrower's
standard form of Distribution Agreement and all significant existing
Distribution Agreements listed on Schedule 3.17 which are not on such standard
form, (ii) all joint venture or partnership agreements to which any Credit Party
is a party and (iii) all other agreements listed on Schedule 3.17 to the extent
requested by the Administrative Agent.
(q) Contribution Agreement. The Administrative Agent shall have
----------------------
received a fully executed Contribution Agreement duly executed by all parties
thereto.
(r) Compliance with Laws. The Administrative Agent shall be
--------------------
satisfied that the transactions contemplated hereby will not violate any
provision of Applicable Law.
(s) Required Consents and Approvals. The Administrative Agent
--------------------------------
shall be satisfied that all required consents and approvals have been obtained
with respect to the transactions contemplated hereby from all Governmental
Authorities with jurisdiction over the business and activities of Acquisition
Co., Holdings, the Parent and its Subsidiaries, and from any other entity,
foreign or domestic, whose consent or approval the Administrative Agent in its
reasonable discretion deems necessary to effect the transactions contemplated
hereby.
(t) Approval of Counsel to the Administrative Agent. All legal
-----------------------------------------------
matters incident to this Credit Agreement and the transactions contemplated
hereby shall be reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel
to the Administrative Agent.
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(u) Other Documents. The Administrative Agent shall have received
---------------
such other documentation as the Administrative Agent may reasonably request.
SECTION 4.2. Conditions Precedent to Each Loan and Letter of Credit.
------------------------------------------------------
The obligation of the Fronting Bank to issue each Letter of Credit and of the
Lenders to make each Loan and to issue and participate in each Letter of Credit
(including the initial Loans and Letter of Credit) are subject to the following
conditions precedent:
(a) Notice. The Administrative Agent shall have received a notice
------
with respect to such Borrowing or the Fronting Bank shall have received a notice
with respect to such Letter of Credit as required by Article 2 hereof.
(b) Borrowing Certificate. The Administrative Agent shall have
---------------------
received a Borrowing Certificate with respect to such Borrowing, duly executed
by an Authorized Officer of the Borrower.
(c) Representations and Warranties. The representations and
------------------------------
warranties set forth in Article 3 hereof and in the other Fundamental Documents
shall be true and correct in all material respects on and as of the date of each
Borrowing and issuance of a Letter of Credit hereunder (except to the extent
that such representations and warranties expressly relate to an earlier date)
with the same effect as if made on and as of such date.
(d) No Event of Default. On the date of each Borrowing or the
-------------------
issuance of each Letter of Credit hereunder, each Credit Party shall be in
compliance with all of the terms and provisions set forth herein to be observed
or performed and no Event of Default or Default shall have occurred and be
continuing.
(e) Additional Condition. The Administrative Agent shall have
--------------------
received evidence satisfactory to it that after giving effect to each Borrowing
the Obligations shall not exceed the amount set forth in Section 8.14(b)(a)(1)
of the Note and Stock Purchase Agreement governing the Secured Subordinated
Notes.
(f) Additional Documents. The Lenders shall have received from the
--------------------
Borrower on the date of each Borrowing and issuance of each Letter of Credit
such documents and information as they may reasonably request relating to the
satisfaction of the conditions in this Section 4.2.
Each request for a Borrowing or for issuance of a Letter of Credit shall be
deemed to be a representation and warranty by the Borrower on the date of such
Borrowing or issuance of such Letter of Credit as to the matters specified in
paragraphs (c) and (d) of this Section.
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SECTION 4.3. Conditions Precedent to Loans and/or Letters of Credit
------------------------------------------------------
under the Special Production Tranche. The obligations of the Fronting Bank to
- ------------------------------------
issue Letters of Credit as part of the Special Production Tranche and of each
Lender to make Revolving Credit Loans as part of the Special Production Tranche
and/or participate in such Letters of Credit is subject to the following
conditions precedent (in addition to those conditions precedent set forth in
Section 4.2):
(a) Declaration. The Administrative Agent shall have received from
-----------
the Borrower a written notice containing the details of the Designated Picture
involved, whether the producer of the Designated Picture is a Credit Party or a
Special Purpose Producer and declaring an appropriate portion of the Revolving
Credit Commitments as being reserved as part of the Special Production Tranche
for such Designated Picture and specifying whether the Revolving Credit Loans to
finance the production of such Designated Picture are to be made to the
Borrower, another Credit Party or directly to a Special Purpose Producer.
(b) Special Purpose Producer Credit Agreement. If the Designated
-----------------------------------------
Picture is being produced by a Special Purpose Producer, the Administrative
Agent shall have received a fully executed Special Purpose Producer Credit
Agreement and all other conditions precedent thereunder shall have been
satisfied.
(c) Supporting Documentation. The Administrative Agent shall have
------------------------
received such additional supporting documentation as it normally requires in
connection with single picture financing relating to the Designated Picture
(including, but not limited to, Chain of Title, budget, cash flows, the negative
pickup or other payment obligation from Borrower or a guarantee from Borrower)
in form and substance reasonably satisfactory to the Administrative Agent.
(d) Completion Guarantee. The Administrative Agent shall have received
--------------------
a Completion Guarantee from an Approved Completion Guarantor.
(e) Co-Productions, etc. If any portion of the Designated Picture is
--------------------
to be financed by a third party or if a third party is to have any ownership
interest in such Designated Picture or its copyright, then such third party
shall have been approved by the Administrative Agent shall have received and be
satisfied with the co-financing agreement, an intercreditor agreement and such
other documentation as it shall deem appropriate.
(f) Security Documentation. If the Designated Picture is being
----------------------
produced by a Credit Party, the Administrative Agent shall have received all
appropriate security documentation and proof of filings, required by it, in
connection with the creation of a first perfected lien in favor of the
Collateral Agent for the benefit of the Administrative Agent, the Fronting Bank,
the Lenders and the Noteholders.
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5. AFFIRMATIVE COVENANTS
From the date hereof and for so long as the Commitments shall be in
effect or any amount remains outstanding under the Notes or any Letter of Credit
shall remain outstanding or any Obligations remain unpaid or unsatisfied, each
Credit Party agrees that, unless the Required Lenders shall otherwise consent in
writing, each of them will:
SECTION 5.1. Financial Statements and Reports. Furnish or cause to
--------------------------------
be furnished to the Administrative Agent in sufficient numbers for distribution
to the Fronting Bank and the Lenders:
(a) Within 120 days after the end of each fiscal year of the Parent
the audited consolidated balance sheet of the Parent and its Consolidated
Subsidiaries as at the end of, and the related statements of income,
Stockholders' Equity and cash flows for, such year, and the corresponding
figures as at the end of, and for, the preceding fiscal year, accompanied by an
unqualified opinion of Price Waterhouse LLP or such other independent public
accountants of recognized standing as shall be retained by the Parent and be
reasonably satisfactory to the Lenders, which report and opinion shall be
prepared in accordance with generally accepted auditing standards relating to
reporting and which report and opinion shall contain no material exceptions or
qualifications except for qualifications relating to accounting changes (with
which such independent public accountants concur) in response to FASB releases
or other authoritative pronouncements;
(b) Within 50 days after the end of each of the first three fiscal
quarters of each of its fiscal years the unaudited consolidated balance sheets
of the Parent and its Consolidated Subsidiaries as at the end of, and the
related unaudited consolidated statements of income and cash flow for, such
quarter, and for the portion of the fiscal year through the end of such quarter,
and the corresponding figures as at the end of such quarter, and for, the
corresponding period in the preceding fiscal year, together with a certificate
signed by an Authorized Officer of the Parent, on behalf of the Parent, to the
effect that such financial statements, while not examined by independent public
accountants, reflect, in the opinion of the Parent, all adjustments necessary to
present fairly in all material respects the financial position of the Parent and
its Consolidated Subsidiaries as at the end of the fiscal quarter and the
results of its operations for the quarter then ended in conformity with GAAP,
subject to normal year-end audit adjustments and the absence of footnotes;
(c) Simultaneously with the delivery of the statements referred to
in paragraphs (a) and (b) of this Section 5.1, a certificate of an Authorized
Officer of the Parent, on behalf of the Parent, in form and substance reasonably
satisfactory to the Administrative Agent (i) stating whether or not such
Authorized Officer has knowledge, after due inquiry, of any condition or event
which would constitute an Event of Default or Default has occurred and, if so,
specifying each such condition or event and the nature thereof, (ii)
demonstrating in reasonable
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detail compliance with the provisions of Sections 6.14 through 6.20 and 6.23
hereof and (iii) certifying that all filings required under Section 5.8 hereof
have been made and listing each such filing that has been made since the date of
the last certificate delivered in accordance with this Section 5.1(c);
(d) Furnish to the Lenders, together with each set of audited
financial statements required by paragraph (a) above, a certificate from the
independent public accountants rendering the report thereon (i) stating whether,
in connection with their audit examination, any condition or event, at any time
during or at the end of the accounting period covered by such financial
statements, which constitutes an Event of Default under covenants relating to
accounting matters has come to their attention, and if such a condition or event
has come to their attention, specifying the nature and period, if known, of
existence thereof and (ii) stating that, insofar as they relate to accounting
matters, the matters set forth in the compliance certificate delivered therewith
pursuant to clause (ii) of paragraph (c) above at the end of the fiscal year are
stated in accordance with the terms of this Credit Agreement;
(e) On or prior to the twentieth day of each month, a certificate
("Borrowing Base Certificate") in the form of Exhibit C hereto, setting forth
- ----------------------------
the amount of each component included in the Borrowing Base as of the last
Business Day of the preceding month, attached to which shall be detailed
information including the calculation of each such component (the Borrower, at
its option, may furnish additional Borrowing Base Certificates setting forth
such information as of such other dates as it may deem appropriate);
(f) Promptly upon their becoming available, copies of all audits
(except royalty audits, participation audits and similar audits) prepared for or
submitted to any of the Credit Parties by any outside professional firm or
service, including, without limitation, the comment letter submitted by the
Credit Parties' accountants to management in connection with their annual audit;
(g) Promptly upon their becoming available, copies of (i) all
registration statements, proxy statements, and all reports which the Borrower or
any other Credit Party shall file with the Securities and Exchange Commission or
any successor agency and (ii) all reports, financial statements, press releases
and other information which the Borrower or any other Credit Party shall
release, send or make available to its common stockholders generally;
(h) Notice of (i) approval by any Credit Party's Board of Directors
of a firm proposal for the issuance of any additional debt or equity securities
other than the issuance of securities to employees in connection with the
exercise of options and (ii) the date on which such Credit Party expects to
receive the net cash proceeds from the issuance of such additional debt or
equity securities;
(i) Simultaneously with the delivery of the statements referred to
in paragraph (a) of this Section 5.1, the calculation of the Eligible Library
Amount computed as of the last
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Business Day of the prior fiscal year as contemplated by the definition of
"Eligible Library Amount;"
(j) Within 120 days after the end of each fiscal year of the
Borrower (commencing with the fiscal year ending December 31, 1997) forecasted
financial statements consisting of balance sheets of the Parent and its
Subsidiaries, cash flow statements and income statements together with
appropriate supporting details and a statement of underlying assumptions
comparable to the projections delivered to the Lenders pursuant to Section
4.1(d) hereof which cover the succeeding two fiscal years, and which shall have
been prepared in accordance with GAAP; and
(k) From time to time such additional information regarding the
financial condition or business of the Credit Parties or otherwise regarding the
Collateral, as any Lender may reasonably request for the purpose of assuring
itself as to compliance by the Credit Parties with the terms hereof including,
without limitation, copies of all management projections, studies or evaluations
prepared by consultants for or presented to any Credit Party's Board of
Directors
SECTION 5.2. Corporate Existence. Do or cause to be done all things
-------------------
necessary to preserve, renew and keep in full force and effect its corporate
existence, rights, material licenses, material permits and material franchises,
and comply with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, any Governmental Authority, except as
otherwise permitted under Section 6.7 and except that any Subsidiary of the
Parent (other than Borrower) may be liquidated or dissolved if in the reasonable
judgment of the Board of Directors of the Borrower such Subsidiary is no longer
necessary for the proper conduct of the business of the Borrower.
SECTION 5.3. Maintenance of Properties. Keep its tangible properties
-------------------------
which are material to its business in good repair, working order and condition
(ordinary wear and tear excepted) and, from time to time (i) make all necessary
and proper repairs, renewals, replacements, additions and improvements thereto
and (ii) comply at all times with the provisions of all material leases and
other material agreements to which it is a party so as to prevent any loss or
forfeiture thereof or thereunder unless compliance therewith is being currently
contested in good faith by appropriate proceedings; provided, however, that
-------- -------
nothing in this Section 5.3 shall prevent any Credit Party from discontinuing
the use, operation or maintenance of such properties or disposing of them if
such discontinuance or disposal is, in the judgment of its Board of Directors,
desirable in the conduct of the business.
SECTION 5.4. Notice of Material Events. (a) Promptly upon any
-------------------------
executive officer of any Credit Party obtaining knowledge of (i) any Default or
Event of Default, (ii) any material adverse change in the condition or
operations of the Borrower and its Subsidiaries taken as a whole, financial or
otherwise, (other than changes due to seasonality that are consistent with the
corresponding periods in prior years), (iii) any action or event which could
reasonably be expected to materially and adversely affect the performance of the
Credit Parties' obligations
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under this Credit Agreement, the repayment of the Notes, or the security
interests granted to the Collateral Agent for the benefit of the Administrative
Agent, Fronting Bank, the Lenders under this Credit Agreement and the
Noteholders or any other Fundamental Document, (iv) the opening of any office of
any Credit Party or the change of the executive office or the principal place of
business of any Credit Party or of the location of any Credit Party's books and
records with respect to the Collateral, (v) any change in the name of any Credit
Party, (vi) any other event which could reasonably be expected to materially and
adversely impact upon the amount or collectibility of accounts receivable of the
Credit Parties or otherwise materially decrease the value of the Collateral or
(vii) any Person giving any notice to any Credit Party or taking any other
action to enforce remedies with respect to a claimed default or event or
condition of the type referred to in paragraph (d) of Article 7, such Credit
Party shall promptly give written notice thereof to the Administrative Agent and
Collateral Agent specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken and the
nature of such claimed Event of Default or condition and what action such Credit
Party has taken, is taking and proposes to take with respect thereto.
(b) Promptly upon any executive officer of any Credit Party
obtaining knowledge of (i) the institution of, or threat of, any action, suit,
proceeding, investigation or arbitration by any Governmental Authority or other
Person against or affecting any Credit Party or any of its assets, or (ii) any
material development in any such action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders), which, in the
case of (i) or (ii), could reasonably be expected to materially and adversely
affect the Borrower and its Subsidiaries taken as a whole, such Credit Party
shall promptly give notice thereof to the Administrative Agent and provide such
other information as may be available to it to enable the Lenders to evaluate
such matters; and, in addition to the requirements set forth in clauses (i) and
(ii) of this subsection (b), such Credit Party upon request shall promptly give
notice of the status of any action, suit, proceeding, investigation or
arbitration covered by a report delivered to the Lenders pursuant to clause (i)
and (ii) above to the Lenders and provide such other information as may be
reasonably available to it to enable the Lenders to evaluate such matters.
SECTION 5.5. Insurance. (a) Keep its assets which are of an
---------
insurable character insured (to the extent and for the time periods consistent
with normal industry practices) by financially sound and reputable insurers
against loss or damage by fire, explosion, theft or other hazards which are
included under extended coverage in amounts not less than the insurable value of
the property insured or such lesser amounts, and with such self-insured
retention or deductible levels, as are consistent with normal industry
practices.
(b) Maintain with financially sound and reputable insurers,
insurance against other hazards and risks and liability to Persons and property
to the extent and in the manner customary for companies in similar businesses.
(c) Maintain, or cause to be maintained, in effect during the period
from the commencement of principal photography of each item of Product produced
by any Credit Party,
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through the third anniversary of the date on which such item of Product is
Completed and/or as otherwise required by applicable contracts, a so-called
"Errors and Omissions" policy with respect to all items of Product for which
principal photography has commenced, and cause such Errors and Omissions policy
to provide coverage to the extent and in such manner as is customary for items
of Product of like type but, at minimum, to the extent and in such manner as is
required under all applicable contracts relating thereto.
(d) Maintain, or cause to be maintained, in effect during the period
from the commencement of principal photography of each item of Product produced
by any Credit Party, or from the date of acquisition of each item of Product
acquired by any Credit Party (i) until such time as the Administrative Agent
shall have been provided with satisfactory evidence of the existence of one
negative or master tape in one location and an interpositive or internegative or
duplicate master tape in another location of the final version of the Completed
Product, insurance on the negatives and sound tracks or master tapes of such
item of Product in an amount not less than the cost of re-shooting the principal
photography of the item of Product, and (ii) until principal photography of such
item of Product has been concluded, a cast insurance policy with respect to such
item of Product, which provides coverage to the extent and in such manner as is
customary for a like type of Product, but at minimum, to the extent required
under all applicable contracts relating thereto.
(e) Maintain, or cause to be maintained, in effect distributor's
"Errors and Omissions" insurance to the extent and in amounts customary for
companies in similar businesses.
(f) Cause all such above-described insurance (excluding worker's
compensation insurance) to (i) provide for the benefit of the Lenders that 30
days' prior written notice of cancellation, termination, non-renewal or lapse or
material change of coverage shall be given to the Administrative Agent; (ii)
name the Collateral Agent for the benefit of the Administrative Agent, the
Fronting Bank, the Lenders and the Noteholders as a loss payee (except for
"Errors and Omissions" insurance and other third party liability insurance),
provided, however, that production insurance recoveries received prior to
- -------- -------
Completion or abandonment of an item of Product may be utilized to finance the
production of such item of Product and property insurance proceeds may be used
to repair damage in respect of which such proceeds were received; and (iii) to
the extent that none of the Collateral Agent, the Administrative Agent, the
Fronting Bank or the Lenders shall be liable for premiums or calls, name both
the Collateral Agent and the Administrative Agent (for the benefit of itself,
the Fronting Bank and the Lenders) as additional insureds including, without
limitation, under any "Errors and Omissions" policy.
(g) Upon the request of the Administrative Agent, the Borrower will
render to the Administrative Agent a statement in such detail as the
Administrative Agent may request as to all such insurance coverage.
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SECTION 5.6. Production. Cause each item of Product being produced
----------
by any Credit Party to be produced in all material respects in accordance with
the standards set forth in, and within the time period established in, all
agreements with respect to such item of Product to which such Credit Party is a
party, subject to the terms and conditions of such agreements.
SECTION 5.7. Music. When an item of Product has been scored, if
-----
requested by the Administrative Agent, deliver to the Administrative Agent
within a reasonable period of time after such request (a) written evidence of
the music synchronization rights, if any, obtained from the composer or the
licensor of the music and (b) copies of all music cue sheets with respect to
such item of Product.
SECTION 5.8. Copyright. (a) Within 90 days after the later of (x)
---------
the initial release or broadcast of each item of Product or (y) the acquisition
of rights in each such item of Product by a Credit Party, to the extent any
Credit Party is or becomes the copyright proprietor thereof, or any Credit Party
otherwise acquires a copyrightable interest, take any and all actions necessary
to register the copyright for such item in the name of such Credit Party
(subject to a Lien in favor of the Collateral Agent for the benefit of the
Administrative Agent, Fronting Bank, the Lenders and the Noteholders pursuant to
the Copyright Security Agreement) in conformity with the laws of the United
States and such other jurisdictions as the Administrative Agent or Collateral
Agent may reasonably specify, and, if such interest may be registered with the
United States Copyright Office or such other jurisdictions, immediately deliver
to the Collateral Agent, with copies to the Administrative Agent (i) written
evidence of the registration of any and all such copyrights for inclusion in the
Collateral under this Credit Agreement and (ii) a Copyright Security Agreement
Supplement relating to such item executed by such Credit Party.
(b) Obtain instruments of transfer or other documents evidencing a
vested non-contingent interest of any Credit Party with respect to the copyright
relating to items of Product in which such Credit Party is not entitled to be
the initial copyright proprietor, and promptly record, if such interest may be
registered with the United States Copyright Office or such other jurisdictions,
such instruments of transfer on the United States Copyright Register and in such
other jurisdictions as the Administrative Agent or the Collateral Agent may
reasonably specify.
SECTION 5.9. Books and Records. (a) Maintain or cause to be
-----------------
maintained at all times true and complete books and records of its financial
operations and provide the Administrative Agent and its representatives access
to such books and records and to any of its properties or assets upon reasonable
notice and during regular business hours in order that the Administrative Agent
may make such audits and examinations and make abstracts from such books,
accounts, records and other papers pertaining to the Collateral (including, but
not limited to, Eligible Receivables included in the Borrowing Base) and upon
notification to the Borrower may discuss the affairs, finances and accounts
with, and be advised as to the same by, officers and independent accountants,
all as the Administrative Agent may deem appropriate for the purpose of
verifying the accuracy of the Borrowing Base Certificate and the various other
reports
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delivered by any Credit Party to the Administrative Agent, the Fronting Bank
and/or the Lenders pursuant to this Credit Agreement or for otherwise
ascertaining compliance with this Credit Agreement or any other Fundamental
Document.
(b) If, prior to an Event of Default, the Administrative Agent wishes
to confirm with account debtors and other payors the amounts and terms of any or
all Eligible Receivables included in the Borrowing Base, the Administrative
Agent will so notify the Borrower. The Administrative Agent agrees to have such
confirmation made through the Credit Parties' auditors. If for any reason such
auditors fail to proceed with the confirmations, the Administrative Agent may
proceed to make such confirmations directly with account debtors and other
payors. Each of the Credit Parties hereby agrees that, upon the occurrence and
during the continuance of an Event of Default, the Administrative Agent and/or
the Collateral Agent shall be entitled to confirm directly with account debtors
the amounts and terms of all accounts receivable. Any confirmation conducted
prior to an Event of Default shall be at the expense of the Lenders.
SECTION 5.10. Third Party Audit Rights. Promptly notify the
------------------------
Administrative Agent of, and allow the Administrative Agent access to the
results of, all audits conducted by any Credit Party of any third party
licensee, partnership and joint venture under any agreement with respect to any
item of Product included in the Collateral. The Credit Parties will exercise
their audit rights with respect to any third party licensees, partnerships and
joint ventures under any agreement with respect to an item of Product included
in the Collateral upon the reasonable request of the Administrative Agent.
After an Event of Default has occurred and is continuing, the Administrative
Agent and/or the Collateral Agent shall have the right to exercise through any
Credit Party such Credit Party's right to audit any obligor under an agreement
with respect to any item of Product included in the Collateral.
SECTION 5.11. Observance of Agreements. Duly observe and perform all
------------------------
material terms and conditions of all material agreements with respect to the
exploitation of items of Product and diligently protect and enforce the rights
of the Credit Parties under all such agreements in a manner consistent with
prudent business judgment and subject to the terms and conditions of such
agreements.
SECTION 5.12. Laboratories; No Removal. (a) To the extent any
------------------------
Credit Party has control over or rights to receive any of the Physical Materials
relating to any item of Product, deliver or cause to be delivered to a
Laboratory or Laboratories all negative and preprint material, master tapes and
all sound track materials with respect to each such item of Product and deliver
to the Administrative Agent a fully executed Pledgeholder Agreement with respect
to such materials. To the extent that any Credit Party has only rights of
access to preprint material or master tapes and has not created duplicate
materials sufficient to exploit its rights and has not stored such materials at
a Laboratory that has delivered a Laboratory Access Letter to the Administrative
Agent, then the Credit Parties will deliver to the Administrative Agent a fully
executed Laboratory Access Letter covering such materials. Prior to requesting
any such
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Laboratory to deliver such negative or other preprint or sound track material or
master tapes to another laboratory, any such Credit Party shall provide the
Administrative Agent with a Pledgeholder Agreement or Laboratory Access Letter,
as appropriate, executed by such other laboratory and all other parties to such
Pledgeholder Agreement (including the Collateral Agent). Each Credit Party
hereby agrees not to remove or cause the removal of the original negative and
film or sound materials with respect to any item of Product owned by such Credit
Party or in which such Credit Party has an interest (i) to a location outside
the United States, Canada, the United Kingdom or such other location reasonably
approved by the Administrative Agent or (ii) to any state or jurisdiction where
UCC-1 financing statements (or in the case of jurisdictions outside the United
States, documentation similar in purpose and effect satisfactory to the
Administrative Agent) have not been filed against such Credit Party holding any
rights to such item of Product.
(b) During production of any item of Product produced by any Credit
Party, such Credit Party shall promptly deliver the daily rushes for such item
of Product to the appropriate Laboratory as soon as practicable and will use its
best efforts to deliver the daily rushes on a weekly basis.
(c) With respect to items of Product completed after July 9, 1997
together with the financial statements delivered pursuant to Section 5.1(b),
deliver to the Administrative Agent, the Collateral Agent and the Laboratories
which are signatories to Pledgeholder Agreements a revised schedule of Product
on deposit with such Laboratories.
SECTION 5.13. Taxes and Charges; Indebtedness in Ordinary Course of
-----------------------------------------------------
Business. Duly pay and discharge, or cause to be paid and discharged, before
- --------
the same shall become in arrears (after giving effect to applicable extensions),
all taxes, assessments, levies and other governmental charges, imposed upon any
Credit Party or its properties, sales and activities, or any part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials, or supplies which if unpaid might by law become a Lien upon any
property of any Credit Party; provided, however, that any such tax, assessment,
-------- --------
charge, levy or claim need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if such
Credit Party shall have set aside on its books reserves (the presentation of
which is segregated to the extent required by GAAP) adequate with respect
thereto if reserves shall be deemed necessary; and provided, further, that such
-------- -------
Credit Party will pay all such taxes, assessments, levies or other governmental
charges forthwith upon the commencement of proceedings to foreclose any Lien
which may have attached as security therefor. The Credit Parties will promptly
pay when due, or in conformance with customary trade terms, all other
indebtedness incident to its operations.
SECTION 5.14. Liens. Defend the Collateral against any and all Liens
-----
howsoever arising, other than Permitted Encumbrances, and in any event defend
against any attempted foreclosure.
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SECTION 5.15. Further Assurances; Security Interests. (a) Upon the
--------------------------------------
request of the Administrative Agent, duly execute and deliver, or cause to be
duly executed and delivered, at the cost and expense of the Credit Parties, such
further instruments as may be necessary in the reasonable judgment of the
Administrative Agent to carry out the provisions and purposes of this Credit
Agreement and the other Fundamental Documents.
(b) Upon the request of the Administrative Agent, promptly execute
and deliver or cause to be executed and delivered, at the cost and expense of
the Credit Parties, such further instruments as may be appropriate in the
reasonable judgment of the Administrative Agent, to provide the Collateral Agent
(for the benefit of the Administrative Agent, the Fronting Bank, the Lenders and
the Noteholders) a first perfected Lien in the Collateral and any and all
documents (including, without limitation, the execution, amendment or
supplementation of any financing statement and continuation statement or other
statement) for filing under the provisions of the UCC and the rules and
regulations thereunder, or any other statute, rule or regulation of any
applicable foreign, federal, state or local jurisdiction, and perform or cause
to be performed such other ministerial acts which are necessary, from time to
time, in order to grant and maintain in favor of the Collateral Agent (for the
benefit of the Administrative Agent, the Fronting Bank, the Lenders and the
Noteholders) the security interest in the Collateral contemplated hereunder and
under the other Fundamental Documents, subject only to Permitted Encumbrances.
(c) Promptly undertake to deliver or cause to be delivered to the
Collateral Agent, the Administrative Agent, the Fronting Bank and the Lenders
from time to time such other documentation, consents, authorizations and
approvals in form and substance reasonably satisfactory to the Administrative
Agent, as the Administrative Agent shall deem reasonably necessary or advisable
to perfect or maintain the Liens of the Collateral Agent for the benefit of the
Administrative Agent, the Fronting Bank, the Lenders and the Noteholders.
SECTION 5.16. Receivables Audit. In connection with the annual audit
-----------------
of the financial statements of the Parent and its Consolidated Subsidiaries by
Price Waterhouse LLP (or any successor auditor), if so requested by the
Administrative Agent, arrange for account debtors to confirm accounts
receivables (both on and off balance sheet) which confirmations shall be
delivered by Price Waterhouse LLP (or such successor auditor) to the
Administrative Agent.
SECTION 5.17. ERISA Compliance and Reports. Furnish to the
----------------------------
Administrative Agent (a) as soon as possible, and in any event within 30 days
after any Credit Party knows that (i) any Reportable Event with respect to any
Plan has occurred, a statement of an executive officer of the Credit Party,
setting forth on behalf of such Credit Party details as to such Reportable Event
and the action which it proposes to take with respect thereto, together with a
copy of the notice, if any, required to be filed by the applicable Credit Party
of such Reportable Event given to the PBGC or (ii) an accumulated funding
deficiency has been incurred or an application has been made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard or an
extension of any amortization period under Section 412 of the Code with respect
to a Plan, a Plan or Multiemployer Plan has been or is proposed to be
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terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA, proceedings have been instituted to terminate a Plan, a proceeding has
been instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Multiemployer Plan, or the Borrower or such Credit Party will
incur any liability (including any contingent or secondary liability) to or on
account of the termination of or withdrawal from a Plan or Multiemployer Plan
under Sections 4062, 4063, 4201 or 4204 of ERISA, if the occurrence of any of
the foregoing events would result in a liability which is materially adverse to
the financial condition of the Parent and its Subsidiaries taken as a whole or
would materially and adversely affect the ability of the Borrower to perform its
obligations under this Credit Agreement or the Notes, a statement of an
executive officer of the Borrower, setting forth details as to such event and
the action the applicable Credit Party proposes to take with respect thereto,
(b) promptly upon reasonable request of the Administrative Agent, copies of each
annual and other report with respect to each Plan and (c) promptly after receipt
thereof, a copy of any notice any Credit Party may receive from the PBGC
relating to the PBGC's intention to terminate any Plan or to appoint a trustee
to administer any Plan.
SECTION 5.18. Environmental Laws. (a) Promptly notify the
------------------
Administrative Agent upon any Credit Party becoming aware of any violation or
potential violation or non-compliance with, or liability or potential liability
under any Environmental Laws which, when taken together with all other pending
violations would reasonably be expected to have a materially adverse effect on
the Parent and its Subsidiaries taken as a whole, and promptly furnish to the
Administrative Agent all notices of any nature which any Credit Party may
receive from any Governmental Authority or other Person with respect to any
violation, or potential violation or non-compliance with, or liability or
potential liability under any Environmental Laws which, in any case or when
taken together with all such other notices, could reasonably be expected to have
a materially adverse effect on the Parent and its Subsidiaries taken as a whole.
(b) Comply with and use reasonable efforts to ensure compliance by all
tenants and subtenants with all Environmental Laws, and obtain and comply in all
material respects with and maintain and use best efforts to ensure that all
tenants and subtenants obtain and comply in all material respects with and
maintain any and all licenses, approvals, registrations or permits required by
Environmental Laws, except where failure to do so would not have a materially
adverse effect on the Parent and its Subsidiaries taken as a whole.
(c) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under all
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities, except where failure to
do so would not have a materially adverse effect on the Parent and its
Subsidiaries taken as a whole. Any order or directive whose lawfulness is being
contested in good faith by appropriate proceedings shall be considered a lawful
order or directive when such proceedings, including any judicial review of such
proceedings, have been finally concluded by the issuance of a final non-
appealable order; provided, however, that the appropriate Credit Party shall
have set aside on its books reserves (the presentation of which is
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segregated to the extent required by GAAP) adequate with respect thereto if
reserves shall be deemed necessary.
(d) Defend, indemnify and hold harmless the Administrative Agent,
the Fronting Bank and the Lenders, and their respective employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of, or in any way
related to the violation of or non-compliance by any Credit Party with any
Environmental Laws, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable attorney
and consultant fees, investigation and laboratory fees, court costs and
litigation expenses, but excluding therefrom all claims, demands, penalties,
fines, liabilities, settlements, damages, costs and expenses arising out of or
resulting from (i) the gross negligence or willful misconduct of any indemnified
party or (ii) any acts or omissions of any indemnified party occurring after any
indemnified party is in possession of, or controls the operation of, any
property or asset.
SECTION 5.19. Use of Proceeds. Use the proceeds of the Loans solely
---------------
for Borrower (i) to refinance existing senior and subordinated debt of the
Parent and redeem existing common and preferred stock, options and warrants
pursuant to the Merger Agreement; (ii) to finance the production, distribution
or acquisition of feature films and video product; (iii) to acquire rights to
television product for exploitation in other media; and (iv) for other general
corporate purposes.
SECTION 5.20. Security Agreements with the Guilds. Furnish to the
-----------------------------------
Administrative Agent duly executed copies of (i) each security agreement
relating to an item of Product entered into by a Credit Party with any guild and
(ii) an intercreditor agreement (in form and substance satisfactory to the
Administrative Agent) from the applicable guild with respect to the security
interest and other rights granted to it pursuant to each such security agreement
delivered to the Administrative Agent pursuant to clause (i) above.
SECTION 5.21. Uncompleted Products. With respect to each item of
--------------------
Product for which any Credit Party has Production Exposure in the amount of
$5,000,000 or more and for each Designated Picture, deliver to the
Administrative Agent, not later than (A) five (5) days prior to the commencement
of principal photography of such item of Product and (B) five (5) days prior to
payment of the acquisition cost for a negative pick-up, each of the following to
the extent applicable (it being understood that for purposes of clause (B): (x)
clauses (i) and (viii) below shall not be applicable and (y) Pledgeholder
Agreements pursuant to clause (vii) shall be delivered if not already covered by
a Pledgeholder Agreement, within five (5) days after payment of the acquisition
cost), (i) the budget and cash flow schedule for such item of Product, (ii) a
schedule identifying all agreements executed by a Credit Party in connection
with such item of Product which provide for deferments existing of compensation
or a gross profit participation payable by any Credit Party or from its share of
revenues, (iii) copies of such of the foregoing agreements as the Lenders may
reasonably request, (iv) certificates or binders of insurance with
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respect to such item of Product (and policies of insurance if requested by the
Administrative Agent), including all forms of insurance coverage required by
Section 5.5 hereof, (v) copies of all instruments of transfer or other
instruments (in recordable form) ("Chain of Title" documents) necessary to
establish, to the reasonable satisfaction of the Administrative Agent, in the
appropriate Credit Party ownership of sufficient copyright rights in the
literary properties upon which such item of Product is to be based to enable
such Credit Party to produce and/or distribute such item of Product and to grant
the Collateral Agent the security interests therein which are contemplated by
this Credit Agreement which documents shall evidence to the Administrative
Agent's satisfaction the Credit Party's rights in, and with respect to, such
item of Product, (vi) an executed Copyright Security Agreement Supplement with
respect to such item of Product, (vii) to the extent not already covered by an
existing Pledgeholder Agreement executed Pledgeholder Agreements with respect to
such item of Product, and (viii) a Completion Guarantee with respect to such
item of Product in form and substance satisfactory to the Administrative Agent
naming the Administrative Agent, for the benefit of the Lenders, as a
beneficiary thereof.
SECTION 5.22. Negative Cost Statements. Deliver to the
------------------------
Administrative Agent, within 30 days after each item of Product produced by a
Credit Party is Completed, a tentative negative cost statement, and within 120
days after each such item of Product is Completed, a final negative cost
statement.
SECTION 5.23. Subsidiaries. Cause each Inactive Subsidiary which
------------
becomes active after the date hereof to deliver to the Collateral Agent as
promptly as practicable an Instrument of Assumption and Joinder duly executed by
such Subsidiary, appropriate UCC-1 financing statements executed by such
Subsidiary and to the extent the stock of such Subsidiary has not previously
been pledged to the Collateral Agent, a Pledge Agreement Supplement duly
executed by the appropriate Credit Party accompanied by the stock certificates
of such Subsidiary together with undated stock powers executed in blank.
6. NEGATIVE COVENANTS
From the date hereof and for so long as the Commitments shall be in
effect or any amount remains outstanding under the Notes or any Letter of Credit
shall remain outstanding or any Obligations remain unpaid or unsatisfied, each
Credit Party agrees that, unless the Required Lenders shall otherwise consent in
writing, it will not and will not allow any of its Subsidiaries to:
SECTION 6.1. Limitations on Indebtedness. Incur, create, assume or
---------------------------
suffer to exist any preferred stock or Indebtedness or permit any partnership or
joint venture in which any Credit Party is a general partner to incur create,
assume or suffer to exist any Indebtedness other than:
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(a) the Indebtedness represented by the Notes and the other
Obligations;
(b) Indebtedness in respect of secured purchase money financing,
including Capital Leases, to the extent permitted by Section 6.2(b) and not
to exceed $1,000,000 in the aggregate at any one time outstanding;
(c) unsecured liabilities for acquisitions of rights or Product
incurred in the ordinary course of business and not otherwise prohibited
hereunder;
(d) Indebtedness relating to net or gross profit participations,
deferments and guild residuals with respect to the production or
acquisition of items of Product;
(e) existing Indebtedness listed on Schedule 3.17 hereto but no
increases, extensions or renewals thereof unless otherwise noted on
Schedule 3.17;
(f) Indebtedness incurred by a Credit Party that is a Special Purpose
Producer which is non-recourse to any other Credit Party except to the
extent of a negative pick-up arrangement or short-fall guarantee; provided,
--------
however, that the Borrower may only seek such off-balance sheet financing
-------
if the Lenders have first been offered, for a period of not less than 15
days, the opportunity to provide such financing and all of the Lenders
shall have declined;
(g) in the case of the Guarantors, the guarantees of the Obligations
pursuant to Article 8 hereof;
(h) Indebtedness incurred in connection with inter-company advances
permitted under Section 6.4(v) hereof;
(i) the Secured Subordinated Notes and any refinancing thereof,
including associated fees and expenses; provided such refinancing is
substantially on the same terms and conditions as the Secured Subordinated
Notes;
(j) Subordinated Debt that does not require any cash payments at any
time prior to July 9, 2005;
(k) preferred stock issued by Holdings that does not require any cash
payments at any time prior to January 9, 2004 and that has no provision for
mandatory redemption;
(l) Indebtedness in respect of MIS Expenditures as permitted by
Section 6.11;
(m) Guarantees permitted pursuant to Section 6.3; and
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(n) other Indebtedness not to exceed $1,000,000 in the aggregate
outstanding at any time.
SECTION 6.2. Limitations on Liens. Incur, create, assume or suffer to
--------------------
exist any Lien on its revenue stream, property or assets, whether now owned or
hereafter acquired, except:
(a) Liens pursuant to written security agreements (in form and
substance acceptable to the Administrative Agent) in favor of guilds or
unions required by the guilds or unions if required pursuant to terms of
collective bargaining agreements; provided that such guilds have entered
-------- ----
into an intercreditor agreement with the Collateral Agent reasonably
satisfactory in all respects to the Collateral Agent;
(b) Liens granted to the Person financing the acquisition of property,
plant or equipment or other property acquired by a Credit Party, including
Liens related to Capital Leases if (i) limited to the particular assets
acquired; (ii) the debt secured by the Lien does not exceed the acquisition
cost of a particular asset for which the Lien is granted; (iii) such
transaction does not otherwise violate this Credit Agreement and (iv) the
aggregate amount of all Indebtedness secured by Liens permitted under this
paragraph does not exceed $1,000,000 at any one time outstanding;
(c) Liens related to MIS Expenditures permitted under Section 6.11
hereof if (i) limited to the particular assets acquired, and (ii) the
aggregate amount of all Indebtedness secured by Liens permitted under this
paragraph does not exceed $3,000,000 at any one time outstanding;
(d) Liens to secure distribution, exhibition and/or exploitation
rights of licensees pursuant to Distribution Agreements on terms reasonably
satisfactory to the Administrative Agent;
(e) deposits under worker's compensation, unemployment insurance, old-
age pensions and other Social Security laws or to secure statutory
obligations or surety or appeal bonds or performance or other similar bonds
incurred in the ordinary course of business (other than Completion
Guarantees);
(f) Liens for taxes, assessments or other governmental charges or
levies due and payable, the validity or amount of which is currently being
contested in good faith by appropriate proceedings pursuant to the terms of
Section 5.13 hereof;
(g) Liens incurred in the ordinary course of business with regard to
goods provided or services rendered by laboratories and post-production
houses, record warehouses, common carriers, landlords, warehousemen,
mechanics, and suppliers of materials and equipment which secure
outstanding trade payables in amounts not exceeding $5,000,000 in the
aggregate;
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(h) Liens arising out of attachments, judgments or awards as to which
an appeal or other appropriate proceedings for contest or review are timely
commenced (and as to which foreclosure and other enforcement proceedings
shall not have been commenced (unless fully bonded or otherwise effectively
stayed)) and as to which appropriate reserves have been established in
accordance with GAAP;
(i) Liens granted by a Credit Party that is a Special Purpose Producer
pursuant to a Special Purpose Producer Credit Agreement and/or otherwise
permitted which are non-recourse to any other Credit Party except to the
extent of a negative pick-up arrangement or short-fall guarantee permitted
under Section 6.1(f) hereof; provided that the collateral encumbered by
such liens is limited to the negative pick-up agreement or the short-fall
guarantee, as the case may be;
(j) Liens granted to the Collateral Agent by a Credit Party pursuant
to an interparty agreement as contemplated by a Special Purpose Producer
Credit Agreement;
(k) the Liens of the Collateral Agent for the benefit of the
Administrative Agent, the Fronting Bank, the Lenders and the Noteholders
under this Credit Agreement, the other Fundamental Documents and other
documents contemplated hereby;
(l) existing Liens set forth on Schedule 6.2 hereto;
(m) customary Liens in favor of Approved Completion Guarantors in
connection with Completion Guarantees;
(n) possessory Liens (other than those of Laboratories and production
houses) which (i) occur in the ordinary course of business, (ii) secure
normal trade debt which is not yet due and payable and (iii) do not secure
Indebtedness for borrowed money;
(o) Liens arising by virtue of any statutory or common law provision
relating to banker's liens, rights of setoff or similar rights with respect
to deposit accounts of the Credit Parties;
(p) the Lien securing the Secured Subordinated Notes subject to the
Collateral Agency Agreement;
(q) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar encumbrances on real property
which do not materially detract from the value of the property subject
therefor or interfere with the ordinary conduct of business of the Credit
Parties; and
(r) other Liens securing other Indebtedness not to exceed $1,000,000.
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SECTION 6.3. Limitation on Guarantees. Provide any Guaranty, either
------------------------
directly or indirectly, except (i) negative pickup agreements and minimum
guarantees to acquire items of Product in the ordinary course of business to the
extent otherwise permitted under Section 6.23 and the other provisions hereof,
(ii) guarantees of the obligations of Special Purpose Producers under talent
agreements for the provision of services related to the production of items of
Product, provided that such obligations are included within the Credit Party's
Production Exposure for each such item of Product, (iii) guarantees to the
Administrative Agent, the Fronting Bank and the Lenders in accordance with
Article 8 hereof, (iv) existing Guarantees listed on Schedule 6.3 hereto, (v)
Guarantees of the Senior Subordinated Notes and any refinancing thereof
permitted under Section 6.1(j), (vi) guarantees of one Credit Party of the
obligations of another to the extent otherwise permitted hereunder and (vii)
other Guarantees not to exceed $1,000,000 in the aggregate outstanding at any
time.
SECTION 6.4. Limitations on Investments. Create, make or incur any
--------------------------
Investment other than (i) as part of the Special Production Tranche, (ii) to
acquire Product in the ordinary course of business to the extent otherwise
permitted under Section 6.23 and the other provisions hereof, (iii) nominal
investments in Special Purpose Producers, (iv) purchase of Cash Equivalents, (v)
inter-company advances among Credit Parties (other than advances to the Parent
or Holdings by the Borrower or any other Subsidiary of the Parent), (vi)
Investments as of the Closing Date set forth on Schedule 6.4, (vii) guarantees
permitted pursuant to Section 6.3, (viii) Investments of any Credit Party in its
existing Subsidiaries that are Credit Parties and the acquisition or creation of
new Subsidiaries in accordance with Section 6.24 hereof, (ix) Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers, customers or other debtors or in settlement of
delinquent obligations arising in the ordinary course of business, (x) loans or
advances to employees in the ordinary course of business (such as travel
advances), (xi) promissory notes or other debt obligations received in
connection with asset dispositions permitted hereunder, (xii) other loans to
management employees of Credit Parties, provided that, the aggregate principal
-------- ----
balance of all such loans does not exceed $1,500,000 at any time, (xiii)
intercompany advances to Parent and/or Holdings, the proceeds of which were used
to repurchase, redeem or otherwise retire the Parent's Increasing Rate Notes and
its common and preferred stock, options and warrants existing on July 9, 1997
and to pay out-of-pocket expenses, fees and other costs of Parent, Holdings or
any Bain Related Party, any Lender or Canyon associated with the transactions
contemplated by the Merger Agreement in an aggregate amount not to exceed
$125,000,000 or for management loans to employees permitted hereunder, (xiv)
Investments in joint ventures not to exceed $2,000,000 at any time, (xv)
Investments in connection with co-production otherwise permissible hereunder,
(xvi) advances in connection with the acquisition or distribution of Product and
(xvii) other Investments not to exceed $1,000,000 in the aggregate outstanding
at any time.
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SECTION 6.5. Restricted Payments. Declare, make or incur any
-------------------
liability to make any Restricted Payments other than (i) cash payments made to
repurchase, redeem or otherwise retire all of the Parent's Increasing Rate
Senior Subordinated Notes due 1999 and its common and preferred stock, options
and warrants existing on July 9, 1997 and to pay out-of-pocket expenses, fees
and other costs of Parent, Holdings or any Bain Related Party or Canyon
associated with the transactions contemplated by the Merger Agreement in an
aggregate amount not to exceed $125,000,000, (ii) required payments (but not
prepayments) of interest on the Secured Subordinated Notes or other Subordinated
Debt permitted hereunder so long as such payment would not violate the
subordination provisions applicable to such Subordinated Debt, so long as no
Event of Default of the type specified in Section 7(b) is then continuing, the
payment to a Bain Related Party and/or Canyon of a $1,190,476 per year
management fee provided that at any time that such management fee cannot be paid
hereunder, such management fee shall accrue and may be paid at such time that
the Event of Default has been cured or waived, (iii) cash dividends in order to
pay consolidated state and federal taxes of Holdings and its Subsidiaries, (iv)
payments to the Borrower from any other Credit Party, (v) advances to Parent and
Holdings, the proceeds of which are used for management loans to employees
permitted hereunder and (vi) advances to Parent and Holdings to redeem
management owned stock up to $1,000,000 in the aggregate only if such employment
arrangement has been terminated whether by death, disability or otherwise plus
----
the amount of any proceeds to Holdings or its Subsidiaries from (x) sales of
stock of Holdings to bona fide full time employees of any Credit Party after
July 9, 1997 and (y) any "keyman" life insurance policies which are used to make
such redemptions or repurchases.
SECTION 6.6. Limitations on Leases. Create, incur or assume combined
---------------------
lease expense (but specifically excluding amounts included in the Budgeted
Negative Cost of an item of Product) for any twelve consecutive calendar months
in excess of $2,000,000.
SECTION 6.7. Consolidation, Merger, Sale or Purchase of Assets, etc.
-------------------------------------------------------
Whether in one transaction or a series of transactions, wind up, liquidate or
dissolve its affairs, or enter into any transaction of merger or consolidation,
or sell or otherwise dispose of all or substantially all of its property, stock
or assets or agree to do or suffer any of the foregoing, except that any
Subsidiary of the Parent may merge with and into, or transfer assets to, another
Subsidiary of the Parent or with and into, or transfer assets to, the Parent;
provided that (i) if any such transaction involves the Borrower, then the
Borrower must be the surviving entity in each such transaction, (ii) if any such
transaction involves a Credit Party that is a Subsidiary of the Borrower but
does not involve the Borrower, then such Credit Party must be the surviving
entity in any such transaction and (iii) if any such transaction involves a
Credit Party, but involves neither the Borrower nor any Subsidiary of the
Borrower, then such Credit Party must be the surviving entity in such
transaction.
SECTION 6.8. Receivables. Sell, discount or otherwise dispose of
-----------
notes, accounts receivable or other obligations owing to any Credit Party except
for the purpose of collection in the ordinary course of business.
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SECTION 6.9. Sale and Leaseback. Enter into any arrangement with any
------------------
Person or Persons, whereby in contemporaneous transactions any Credit Party
sells essentially all of its right, title and interest in an item of Product and
acquires or licenses the right to distribute or exploit such item of Product in
media and markets accounting for substantially all the value of such item of
Product, unless such arrangement does not impair the collateral position of the
Lenders and is evidenced by documentation acceptable to the Required Lenders.
SECTION 6.10. Places of Business; Change of Name. Change the
----------------------------------
location of its chief executive office or principal place of business or any of
the locations where it keeps any material portion of the Collateral or its books
and records with respect to the Collateral or change its name without in each
case (i) giving the Administrative Agent and Collateral Agent written notice
within 30 days following such change and (ii) filing any additional Uniform
Commercial Code financing statements, and such other documents requested by the
Collateral Agent to maintain perfection of the security interest of the
Collateral Agent for the benefit of the Administrative Agent, Fronting Bank,
the Lenders and the Noteholders in the Collateral.
SECTION 6.11. Limitations on Capital Expenditures. Make or incur on
-----------------------------------
a Consolidated basis any obligation to make (i) Capital Expenditures (other than
amounts included in the Budgeted Negative Cost of an item of Product or amounts
expended in connection with MIS Expenditures) for any fiscal year in excess of
$1,000,000 which to the extent unused may be carried over to subsequent fiscal
years plus an additional $1,500,000 in the aggregate during the period ending
December 31, 1998 and (ii) MIS Expenditures for any fiscal year in excess of
$3,000,000.
SECTION 6.12. Transactions with Affiliates. Except for transactions
----------------------------
permitted under Section 6.5 hereof, effect any transaction with an Affiliate
other than a Credit Party on a basis less favorable to such Credit Party than
would have been the case if such transaction had been effected on an arms-length
basis (and if involving more than $100,000, without a resolution approving each
such transaction from the Board of Directors of each Credit Party involved).
SECTION 6.13. Prohibition of Amendments or Waivers. (a) Amend,
------------------------------------
alter, modify, terminate or waive, or consent to any amendment, alteration,
modification or waiver of (x) the WEA Distribution Agreement or other material
agreement to which any Credit Party is a party, including, without limitation,
all agreements identified on Schedule 3.17 hereto, or the terms thereof in any
manner which would change, alter or waive any material term thereof and which
could reasonably be expected to (i) materially and adversely affect the
collectibility of accounts receivable that form part of the Borrowing Base, (ii)
materially and adversely affect the financial condition of the Credit Parties,
taken as a whole, (iii) materially and adversely affect the rights of the
Lenders under this Credit Agreement, the other Fundamental Documents and any
other agreements contemplated hereby, (iv) materially decrease the value of the
Collateral, or (v) decrease the amount of the Borrowing Base to less than the
then outstanding principal amount of
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the Loans, or (y) any indenture or note purchase agreement governing the Secured
Subordinated Notes or any other Subordinated Debt in any manner whatsoever.
(b) Notwithstanding Section 6.13(a)(x), increase or agree to
increase the "Advances" (as such term is defined in the WEA Distribution
Agreement) unless such "Advances" are non-refundable or the obligation to repay
such "Advances" is subordinated on terms and conditions satisfactory to the
Administrative Agent in its sole discretion.
SECTION 6.14. Unrecouped Print and Advertising Expenses. Permit
-----------------------------------------
Unrecouped Print and Advertising Expenses to at any time exceed $10,000,000 for
any individual item of Product or permit the sum of Unrecouped Print and
Advertising Expenses, computed for each individual item of Product, to exceed
$20,000,000 in the aggregate at any time.
SECTION 6.15. Development Costs. Permit development costs (which
-----------------
have not been sold, written off or allocated to an item of Product for which
active preproduction has commenced) to exceed $5,000,000 in the aggregate or
$750,000 for any item of Product.
SECTION 6.16. Overhead Expense. Permit aggregate allocated and
----------------
unallocated overhead expenses to exceed $18,000,000 in fiscal year 1997 (on a
pro forma basis) or to exceed in any subsequent fiscal year 110% of the maximum
amount permitted for the immediately preceding fiscal year.
SECTION 6.17. Consolidated Capital Base Permit Consolidated Capital
-------------------------
Base at the end of any quarter to be less than the Required Consolidated Capital
Base for such quarter.
SECTION 6.18. EBIT Ratio. Commencing with the quarter ending
----------
September 30, 1998, permit the ratio (the "EBIT Ratio") of (x) the sum of EBIT,
----------
plus amortization of goodwill and capitalized financing costs, plus management
fees paid to Bain Capital for the trailing four quarters ending on each quarter
to (y) the sum of Total Interest (excluding non-cash interest expense) as
determined as of each quarter end to be less than (i) 1.00:1.00 for the period
from September 30, 1998 through December 31, 1998, (ii) 1.10:1.00 for the period
from January 1, 1999 through June 30, 1999, (iii) 1.25:1.00 for the period from
July 1, 1999 through December 31, 1999 and (iv) 1.50:1.00 thereafter.
SECTION 6.19. Leverage Ratio. Permit the ratio (the "Leverage
-------------- --------
Ratio") of (i) the sum of Consolidated Senior Debt plus Off-Balance Sheet
Commitments less all Off-Balance Sheet Receivables and Borrowing Base credits
that relate to items of Product that are the subject of such Off-Balance Sheet
Commitments (but not more with respect to any particular items of Product than
the related amount of Off-Balance Sheet Commitments) to (ii) Consolidated
Capital Base to be greater than 5:1 at any time.
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SECTION 6.20. Liquidity Ratio. Permit the ratio (the "Liquidity
--------------- ---------
Ratio") of (i) all projected known cash sources (including cash on hand,
- -----
borrowing under the revolving credit facility (taking into account projected
Borrowing Base availability), cash receipts from operations and overhead
reimbursements) to (ii) all projected known cash uses (including debt service,
amounts to be spent to acquire film inventory, print and advertising expenses,
overhead, and all other cash expenditures), all as determined as of each quarter
end and as projected in good faith for the ensuing 24 months, to be less than
1.1:1.
SECTION 6.21. No Change in Business. Engage in any business
---------------------
activities other than (i) development, production, distribution and acquisition
of theatrical motion pictures, video product and television movies and other
specialized entertainment products and the exploitation of theatrical motion
pictures and videos and other specialized entertainment products and rights
therein (including music publishing, soundtrack album, merchandising, print
publishing, and other exploitation of ancillary rights) as well as the
production and exploitation of images, and sounds akin to motion picture images
and sounds but employing electronic or light media, now existing or hereafter
created and (ii) other entertainment and media-related business activities that
involve aggregate expenditures of no more than $2,500,000 during the period
commencing with July 9, 1997 and ending with the termination of this Credit
Agreement.
SECTION 6.22. ERISA Compliance. Engage in a "prohibited
----------------
transaction", as defined in Section 406 of ERISA or Section 4975 of the Code,
with respect to any Plan or Multiemployer Plan or knowingly consent to any other
"party in interest" or any "disqualified person", as such terms are defined in
Section 3(14) or ERISA and Section 4975(e)(2) of the Code, respectively,
engaging in any "prohibited transaction", with respect to any Plan or
Multiemployer Plan maintained or contributed to by any Credit Party; or permit
any Plan maintained by any Credit Party to incur any "accumulated funding
deficiency", as defined in Section 302 of ERISA or Section 412 of the Code,
unless such incurrence shall have been waived in advance by the Internal Revenue
Service; or terminate any Plan in a manner which could result in the imposition
of a Lien on any property of any Credit Party pursuant to Section 4068 of ERISA;
or breach or knowingly permit any employee or officer or any trustee or
administrator of any Plan maintained by any Credit Party to breach any fiduciary
responsibility imposed under Title I of ERISA with respect to any Plan; engage
in any transaction which would result in the incurrence of a liability under
Section 4069 of ERISA; or fail to make contributions to a Plan or Multiemployer
Plan which results in the imposition of a Lien on any property of any Credit
Party pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if the
occurrence of any of the foregoing events (alone or in the aggregate) would
result in a liability which is materially adverse to the financial condition of
the Credit Parties taken as a whole or would materially and adversely affect the
ability of the Borrower to perform its obligations under this Credit Agreement
or the Notes.
SECTION 6.23. Additional Limitations on Production and Acquisition of
-------------------------------------------------------
Product. (a) Begin production on any item of Product for which the Credit
- -------
Parties have a current financial exposure (as opposed to a negative pick-up
arrangement) or are otherwise
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subject to an economic risk of Completion if Production Exposure exceeds
$5,000,000 per item of Product or $10,000,000 in the aggregate, unless a
Completion Guarantee with respect to such item of Product is obtained from an
Approved Completion Guarantor.
(b) Produce or acquire any item of Product with a Production Exposure
in excess of $15,000,000 without the approval of the Administrative Agent.
(c) Acquire rights in an item of Product which is not in its first
cycle of exploitation with the exception of library acquisitions not to exceed
$5,000,000 per year.
(d) Permit the number of Completed, but not yet released, items of
Product having Production Exposure exceeding $10,000,000 to exceed three.
SECTION 6.24. Subsidiaries. Acquire or create any new direct or
------------
indirect Subsidiary; provided, however, that a Credit Party may incorporate
-------- ------- ----
additional Subsidiaries if (i) each such Subsidiary that is not a Controlled
Foreign Corporation executes an Instrument of Assumption and Joinder in the form
attached hereto as Exhibit L whereby such Subsidiary becomes a Credit Party
hereunder and the certificates representing 100% of the shares of capital stock
of such Subsidiary that is not a Controlled Foreign Corporation or 66% of the
shares of capital stock of such Subsidiary that is a Controlled Foreign
Corporation held by such Credit Party become part of the Pledged Securities
hereunder and are delivered to the Collateral Agent together with stock powers
for each such certificate executed in blank, and/or (ii) such Credit Party takes
such other action in connection with the stock of such Subsidiary as is deemed
appropriate by the Administrative Agent to protect the Lenders' security
interest therein.
SECTION 6.25. Bank Accounts. After the date hereof, open or maintain
-------------
any bank account other than (a) at the office of the Administrative Agent as
contemplated by Section 6 of the Security Agreement, (b) those accounts approved
by the Administrative Agent and listed on Schedule 6.25, or (c) a Production
Account, as to which the Administrative Agent shall have received notice.
SECTION 6.26. Hazardous Materials. Cause or permit any of its
-------------------
properties or assets to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose, transfer, produce or process Hazardous Materials,
except in compliance in all material respects with all applicable Environmental
Laws, nor release, discharge, dispose or of permit or suffer any release or
disposal as a result of any intentional act or omission on its part of Hazardous
Materials onto any such property or asset in material violation of any
Environmental Law.
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SECTION 6.27. Use of Proceeds of Loans and Requests for Letters of
----------------------------------------------------
Credit. Use the proceeds of Loans or request any Letter of Credit hereunder
- ------
other than for the purposes set forth in, and as required by, Section 5.19 or
6.28 hereof.
SECTION 6.28. Special Production Tranche. Use the proceeds of Loans
--------------------------
made under a Special Production Tranche for purposes other than to fund
production of the relevant Designated Picture.
SECTION 6.29. Interest Rate Protection Agreements, etc. Enter into
----------------------------------------
any Interest Rate Protection Agreement or Currency Agreement for other than bona
fide hedging purposes.
SECTION 6.30. Amortization Method. Change the method of amortization
-------------------
used by any of the Credit Parties after giving effect to the Merger, unless
required to do so under GAAP.
SECTION 6.31. Special Purpose Distributors. Enter into any
----------------------------
transaction with any Person where such Person(s) effectively acts as a
distributor or intermediary for the exploitation of Product in one or more
territories in an arrangement whereby payments under Distribution Agreements
entered into by such Person with third parties are included in the Borrowing
Base (provided such payments constitute Eligible Receivables) unless such
transaction as well as the proposed Person who will effectively act as a
distributor or intermediary, have been approved in writing by the Administrative
Agent. Each Credit Party agrees that it will enter into, and require each
Special Purpose Distributor to enter into, such Distributor Security Documents
as the Administrative Agent or the Collateral Agent may reasonably request,
which shall among other things assign to the Collateral Agent (for the benefit
of the Lenders and the Noteholders) the security interest and other rights that
it receives from each Special Purpose Distributor pursuant to a film lease
agreement, a security agreement or otherwise.
6(A). COVENANTS OF HOLDINGS
In addition to the covenants made otherwise in this Credit Agreement,
from the date hereof and for so long as the Commitments shall be in effect or
any amount remains outstanding under the Notes or any Letter of Credit shall
remain outstanding or any Obligations remain unpaid or unsatisfied, Holdings
agrees that, unless the Required Lenders shall otherwise consent in writing, it
will not:
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SECTION 6.32. Limitation on Business. Engage directly in any
----------------------
business other than the ownership of Acquisition Co., and, after the Merger, the
Parent.
SECTION 6.33. Limitations Regarding Stock. Except for the pledge
---------------------------
contemplated by the Collateral Agency Agreement and except as contemplated by
the Fundamental Documents, pledge, assign, transfer, set over, hypothecate or in
any manner encumber any shares of Parent, whether now owned or hereafter
acquired, or sell, transfer or otherwise dispose of Parent.
SECTION 6.34. Limitation on Modification of Organizational Documents.
------------------------------------------------------
Except as contemplated by the Fundamental Documents, amend, modify or change any
of the organizational documents required to be delivered to the Lenders pursuant
to Section 4.1(a) hereof or enter into any new agreements governing the terms
and relative rights of the capital stock of any such entity unless (i) any such
amendment, modification or change would not have a material adverse effect upon
the business, assets, properties, operations or financial condition of Holdings
and its Subsidiaries and (ii) the Administrative Agent shall promptly be
notified of such occurrence.
7. EVENTS OF DEFAULT
In the case of the happening and during the continuance of any of the
following events (herein called "Events of Default"):
-----------------
(a) any representation or warranty made by any Credit Party in this
Credit Agreement or any other Fundamental Document or in connection with this
Credit Agreement or with the execution and delivery of the Notes or the
Borrowings hereunder, or any statement or representation made in any report,
financial statement, certificate or other document furnished by or on behalf of
any Credit Party to the Administrative Agent, the Fronting Bank or any Lender
under or in connection with this Credit Agreement or any Fundamental Document
shall prove to have been false or misleading in any material respect when made,
deemed to be made or delivered;
(b) default shall be made in the payment of any principal of or
interest on the Notes or of any fees or other amounts payable by the Borrower
hereunder, when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise and, in the case of payments of any amounts other than
principal, such default shall continue unremedied for three (3) Business Days
after receipt by the Borrower of an invoice therefor;
(c) default shall be made by any Credit Party in the due observance
or performance of any covenant, condition or agreement contained in Section 5.4
or Article 6 (other than Section 6.10) of this Credit Agreement;
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(d) default shall be made with respect to any payment of any
Indebtedness of any Credit Party in excess of $2,500,000 when due or the
performance of any other obligation incurred in connection with any such
Indebtedness, if the effect of such default is to accelerate the maturity of
such Indebtedness or to permit the holder thereof to cause such Indebtedness to
become due prior to its stated maturity and such default shall not be remedied,
cured, waived or consented to by the holder of such Indebtedness within the
period of grace with respect thereto;
(e) any Credit Party shall generally not pay its debts as they
become due or shall admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors; or any Credit Party
shall commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property or shall file an answer or
other pleading in any such case, proceeding or other action admitting the
material allegations of any petition, complaint or similar pleading filed
against it or consenting to the relief sought therein; or any Credit Party shall
take any action to authorize any of the foregoing;
(f) any involuntary case, proceeding or other action against any
Credit Party shall be commenced seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or other action (i)
results in the entry of any order for relief against it or (ii) shall remain
undismissed for a period of sixty (60) days;
(g) final judgment(s) for the payment of money in excess of $500,000
shall be rendered against any Credit Party which within thirty (30) days from
the entry of such judgment shall not have been discharged or stayed pending
appeal or which shall not have been discharged or bonded in full within thirty
(30) days from the entry of a final order of affirmance on appeal;
(h) failure to deliver a Borrowing Base Certificate to the
Administrative Agent within 10 Business Days of the date such Certificate was
due pursuant to Section 5.1(e) hereof, provided, however, that any failure to
-------- -------
deliver a Borrowing Base Certificate shall not give rise to an Event of Default
under this clause (h) in the event there are no outstanding Loans;
(i) a Change in Control shall occur;
(j) default shall be made by any Credit Party in the due observance
or performance of any other covenant, condition or agreement to be observed or
performed pursuant to the terms of this Credit Agreement, or any other
Fundamental Document, and such default
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shall continue unremedied for thirty (30) consecutive days after any Credit
Party obtains knowledge of such occurrence;
(k) a Reportable Event relating to a failure to meet minimum funding
standards or an inability to pay benefits when due shall have occurred with
respect to any Plan under the control of any Credit Party and shall not have
been remedied within thirty (30) days after the occurrence of such Reportable
Event; or a trustee shall be appointed by a United States District Court to
administer such Plan, or the PBGC shall institute proceedings to terminate such
Plan, and the Administrative Agent shall have notified the Borrower that the
Required Lenders have made a determination that on the basis of such Reportable
Event, appointment of trustee or commencement of proceedings, there are
reasonable grounds to believe that such occurrence would have a material adverse
effect to the financial condition of the Credit Parties taken as a whole or
would materially and adversely affect the ability of the Borrower to perform its
obligations under this Credit Agreement or the Notes; or
(l) any Fundamental Document shall, for any reason, not be or shall
cease to be in full force and effect except as provided herein or therein or
shall be declared null and void or any of the Fundamental Documents shall not
give or shall cease to give the Collateral Agent the Liens, rights, powers and
privileges with respect to the Collateral purported to be created thereby in
favor of the Collateral Agent for the benefit of the Administrative Agent, the
Fronting Bank, the Lenders or the Noteholders, superior to and prior to the
rights of all third Persons (except to the extent expressly permitted herein or
therein) and subject to no other Liens (except to the extent expressly permitted
herein or therein) other than by actions of the Collateral Agent, the
Administrative Agent, the Fronting Bank or any Lender, provided that no such
--------
defect in the Fundamental Documents shall give rise to an Event of Default under
this clause (l) unless such defect or such failure shall affect Collateral that
is or should be subject to a Lien in favor of the Collateral Agent having an
aggregate value in excess of $500,000 and, if such defect or failure can be
remedied by any Credit Party, such defect or failure is not promptly remedied
after notice by the Administrative Agent to such Credit Party;
then, in every such event and at any time thereafter during the continuance of
such event, the Administrative Agent may, or if directed by the Required Lenders
shall, take either or both of the following actions, at the same or different
times: terminate forthwith the Commitments and/or declare the principal of and
the interest on the Loans and the Notes and all other amounts payable hereunder
or thereunder to be forthwith due and payable, whereupon the same shall become
and be forthwith due and payable, without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived, anything in this
Credit Agreement or in the Notes to the contrary notwithstanding; provided,
---------
however, that despite the occurrence of any such event (i) no Loans outstanding
- -------
under a Special Production Tranche shall be declared to be due and payable prior
to Completion of the related Designated Picture by reason of the occurrence of
such Event of Default and (ii) the Commitments of the Lenders to make Loans
under the Special Production Tranche relating to each Designated Picture, if
any, as to which all of the conditions precedent set forth in Section 4.3 have
already been initially satisfied prior to the occurrence of
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such Event of Default shall remain in full force and effect, if and for so long
as (A) the Borrowing Base continues to exceed the sum of all Loans outstanding
plus the L/C Exposure, (B) no Event of Default of a type specified in paragraphs
(e) or (f) above has occurred, (C) no Event of Default has occurred that is the
result of an intentional and knowing act on the part of any Credit Party and (D)
no Event of Default has occurred which relates to the particular Designated
Picture being financed (including, but not limited, to a challenge by any Credit
Party, the Special Purpose Producer producing such item of Product, or any of
their Affiliates to the ranking, perfection or validity of the Collateral
Agent's Lien in such item of Product). If an Event of Default specified in
paragraphs (e) or (f) above shall have occurred with respect to the Borrower,
the Commitments shall automatically terminate and the Loans and the Notes shall
automatically become due and payable, both as to interest and principal, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived, anything in this Credit Agreement or the Notes to the
contrary notwithstanding. Such remedies shall be in addition to any other remedy
available to the Administrative Agent, the Fronting Bank and the Lenders
pursuant to Applicable Law or otherwise.
8. GUARANTY
SECTION 8.1. Guaranty. (a) Each Guarantor unconditionally and
--------
irrevocably guarantees to the Administrative Agent, Fronting Bank and the
Lenders the due and punctual payment by, and performance of, the Obligations
(including interest accruing on and after the filing of any petition in
bankruptcy or of reorganization of the obligor whether or not post filing
interest is allowed in such proceeding). Each Guarantor further agrees that the
Obligations may be extended or renewed, in whole or in part, without notice or
further assent from it (except as may be otherwise required herein), and it will
remain bound upon this guaranty notwithstanding any extension or renewal of any
Obligation.
(b) Each Guarantor waives presentation to, demand for payment from
and protest to, as the case may be, the Credit Parties or any other Guarantor of
any of the Obligations, and also waives notice of protest for nonpayment. The
obligations of each Guarantor hereunder shall not be affected by (i) the failure
of the Administrative Agent, the Fronting Bank or the Lenders to assert any
claim or demand or to enforce any right or remedy against the Borrower or any
Guarantor or any other guarantor under the provisions of this Credit Agreement
or any other agreement or otherwise; (ii) any extension or renewal of any
provision hereof or thereof; (iii) the failure of the Administrative Agent, the
Fronting Bank or the Lenders to obtain the consent of the Guarantor with respect
to any rescission, waiver, compromise, acceleration, amendment or modification
of any of the terms or provisions of this Credit Agreement, the Notes or of any
other agreement; (iv) the release, exchange, waiver or foreclosure of any
security held by the Collateral Agent for the Obligations or any of them; (v)
the failure of the Collateral Agent, the Administrative Agent, the Fronting Bank
or the Lenders to exercise any right or remedy against any other Guarantor or
any other guarantor of the Obligations; or (vi) the release or substitution of
any Guarantor or guarantor. Without limiting the generality of the foregoing or
any other provision hereof, to the extent permitted by applicable law, each
Guarantor hereby expressly
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waives any and all benefits which might otherwise be available to it under
California Civil Code Sections 2799, 2809, 2810, 2815, 2819, 2820, 2821, 2822,
2838, 2839, 2845, 2848, 2849, 2850, 2899 and 3433.
(c) Each Guarantor further agrees that this Guaranty constitutes a
guaranty of performance and of payment when due and not just of collection, and
waives any right to require that any resort be had by the Collateral Agent, the
Administrative Agent, the Fronting Bank or the Lenders to any security held for
payment of the Obligations or to any balance of any deposit, account or credit
on the books of the Collateral Agent, the Administrative Agent, the Fronting
Bank or the Lenders in favor of the Borrower, any other Guarantor or to any
other Person.
(d) Each Guarantor hereby expressly assumes all responsibilities to
remain informed of the financial condition of the Borrower, the Guarantors and
any other guarantors and any circumstances affecting the ability of the Borrower
to perform under this Credit Agreement.
(e) Each Guarantor's obligations under the guaranty shall not be
affected by the genuineness, validity, regularity or enforceability of the
Obligations, the Notes or any other instrument evidencing any Obligations, or by
the existence, validity, enforceability, perfection, or extent of any collateral
therefor or by any other circumstance relating to the Obligations which might
otherwise constitute a defense to this Guaranty. The Administrative Agent, the
Fronting Bank and the Lenders make no representation or warranty with respect to
any such circumstances and have no duty or responsibility whatsoever to each
Guarantor in respect to the management and maintenance of the Obligations or any
collateral security for the Obligations.
SECTION 8.2. No Impairment of Guaranty, etc. The obligations of each
-------------------------------
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (except payment of the Obligations),
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the
Collateral Agent, the Administrative Agent, the Fronting Bank or the Lenders to
assert any claim or demand or to enforce any remedy under this Credit Agreement
or any other agreement, by any waiver or modification of any provision thereof,
by any default, failure or delay, willful or otherwise, in the performance of
the Obligations, or by any other act or thing or omission or delay to do any
other act or thing which may or might in any manner or to any extent vary the
risk of such Guarantor or would otherwise operate as a discharge of such
Guarantor as a matter of law, unless and until the Obligations are paid in full,
the Commitments have terminated and each outstanding Letter of Credit has
expired or otherwise been terminated.
SECTION 8.3. Continuation and Reinstatement, etc. (a) Each Guarantor
------------------------------------
further agrees that its guaranty hereunder shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any Obligation is rescinded or must
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otherwise be restored by the Administrative Agent, the Fronting Bank or the
Lenders upon the bankruptcy or reorganization of Borrower or a Guarantor, or
otherwise. In furtherance of the provisions of this Article 8, and not in
limitation of any other right which the Administrative Agent, the Fronting Bank
or the Lenders may have at law or in equity against the Borrower or a Guarantor
by virtue hereof, upon failure of the Borrower to pay any Obligation when and as
the same shall become due, whether at maturity, by acceleration, after notice or
otherwise, each Guarantor hereby promises to and will, upon receipt of written
demand by the Administrative Agent on behalf of the Lenders, forthwith pay or
cause to be paid to the Administrative Agent for the benefit of the Lenders in
cash an amount equal to the unpaid amount of all the Obligations with interest
thereon at a rate of interest equal to the rate specified in Section 2.8(a)
hereof, and thereupon the Administrative Agent shall to the extent permitted by
the Collateral Agency Agreement, direct the Collateral Agent to assign such
Obligation, together with all security interests, if any, then held by the
Collateral Agent on behalf of the Administrative Agent in respect of such
Obligation, to the Guarantors making such payment; such assignment to be
subordinate and junior to the rights of the Administrative Agent on behalf of
the Lenders with regard to amounts payable by the Borrower in connection with
the remaining unpaid Obligations and to be pro tanto to the extent to which the
Obligation in question was discharged by the Guarantor or Guarantors making such
payments.
(b) All rights of the Guarantors against the Borrower, arising as a
result of the payment by any Guarantor of any sums to the Administrative Agent
for the benefit of the Lenders or directly to the Lenders hereunder by way of
right of subrogation or otherwise shall in all respects be subordinated and
junior in right of payment to, and shall not be exercised by such Guarantor
until and unless, the prior final and indefeasible payment in full of all the
Obligations. If any amount shall be paid to such Guarantor for the account of
the Borrower, such amount shall be held in trust for the benefit of the
Administrative Agent, segregated from such Guarantor's own assets, and shall
forthwith be paid to the Administrative Agent on behalf of the Lenders to be
credited and applied to the Obligations, whether matured or unmatured.
SECTION 8.4. Limitation on Guaranteed Amount etc. Notwithstanding
------------------------------------
any other provision of this Article 8, the amount guaranteed by each Guarantor
hereunder shall be limited to the extent, if any, required so that its
obligations under this Article 8 shall not be subject to avoidance under Section
548 of the Bankruptcy Code or to being set aside or annulled under any
applicable state law relating to fraud on creditors. In determining the
limitations, if any, on the amount of any Guarantor's obligations hereunder
pursuant to the preceding sentence, it is the intention of the parties hereto
that any rights of subrogation or contribution which such Guarantor may have
under this Article 8 (or as a result of the operation of the Security Agreement
with regard to assets of other Credit Parties) or any other agreement or under
Applicable Law shall be taken into account.
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9. CASH COLLATERAL ACCOUNT
SECTION 9.1. Cash Collateral Accounts. On or prior to the Closing
------------------------
Date, there shall be established with the Administrative Agent a collateral
account in the name of the Administrative Agent (the "Cash Collateral Account"),
-----------------------
into which the appropriate Credit Parties shall from time to time deposit
amounts pursuant to the express provisions of this Credit Agreement requiring or
permitting such deposits. Except to the extent otherwise provided in this
Article 9, the Cash Collateral Account shall be under the sole dominion and
control of the Administrative Agent.
SECTION 9.2. Investment of Funds. (a) The Administrative Agent is
-------------------
hereby authorized and directed to invest and reinvest the funds from time to
time deposited in the Cash Collateral Account, so long as no Event of Default
has occurred and is continuing, on the instructions of the Borrower (provided
that such notice may be given verbally to be confirmed promptly in writing) or,
if the Borrower shall fail to give such instruction upon delivery of any such
funds, in the sole discretion of the Administrative Agent, provided that in no
--------
event may the Borrower give instructions to the Administrative Agent to, or may
the Administrative Agent in its discretion, invest or reinvest funds in the Cash
Collateral Account in other than Cash Equivalents described in clause (i) of the
definition of Cash Equivalents, or described in clauses (ii) and (iii) of the
definition of Cash Equivalents to the extent issued by The Chase Manhattan Bank.
(b) Any net income or gain on the investment of funds from time to
time held in the Cash Collateral Account, shall be promptly reinvested by the
Administrative Agent as a part of the Cash Collateral Account and any net loss
on any such investment shall be charged against the Cash Collateral Account.
(c) None of the Administrative Agent, the Fronting Bank or the
Lenders shall be a trustee for the Credit Parties, or shall have any obligations
or responsibilities, or shall be liable for anything done or not done, in
connection with the Cash Collateral Account, except as expressly provided herein
and except that the Administrative Agent shall have the obligations of a secured
party under the UCC. The Administrative Agent, the Fronting Bank and the
Lenders shall not have any obligation or responsibilities and shall not be
liable in any way for any investment decision made pursuant to this Section 9.2
or for any decrease in the value of the investments held in the Cash Collateral
Account.
SECTION 9.3. Grant of Security Interest. For value received and to
--------------------------
induce the Fronting Bank to issue Letters of Credit and the Lenders to make
Loans from time to time to the Borrower and to acquire participations in Letters
of Credit as provided for in this Credit Agreement, as security for the payment
of all of the Obligations, the Credit Parties hereby assign to the Collateral
Agent (for the benefit of the Administrative Agent, the Fronting Bank, the
Lenders and the Noteholders), and grant to the Collateral Agent (for the benefit
of the Administrative Agent, the Fronting Bank, the Lenders and the
Noteholders), a first and prior
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Lien upon all the Credit Parties' rights in and to the Cash Collateral Account,
all cash, documents, instruments and securities from time to time held therein,
and all rights pertaining to investments of funds in the Cash Collateral Account
and all products and proceeds of any of the foregoing. All cash, documents,
instruments and securities from time to time on deposit in the Cash Collateral
Account, and all rights pertaining to investments of funds in the Cash
Collateral Accounts shall immediately and without any need for any further
action on the part of any of the Credit Parties, the Fronting Bank, any Lender,
the Noteholders, the Collateral Agent or the Administrative Agent, become
subject to the Lien set forth in this Section 9.3, be deemed Collateral for all
purposes hereof and be subject to the provisions of this Credit Agreement.
SECTION 9.4. Remedies. At any time during the continuation of an
--------
Event of Default, the Collateral Agent may sell any documents, instruments and
securities held in the Cash Collateral Account and may immediately apply the
proceeds thereof and any other cash held in the Cash Collateral Account in
accordance with Section 8 of the Collateral Agency Agreement.
10. THE ADMINISTRATIVE AGENT AND THE FRONTING BANK
SECTION 10.1. Administration by Administrative Agent. (a) The
--------------------------------------
general administration of the Fundamental Documents and any other documents
contemplated by this Credit Agreement shall be by the Administrative Agent or
its designees. Except as otherwise expressly provided herein each of the
Lenders hereby irrevocably authorizes the Administrative Agent, at its
discretion, to take or refrain from taking such actions as Administrative Agent
on its behalf and to exercise or refrain from exercising such powers under the
Fundamental Documents, the Notes and any other documents contemplated by this
Credit Agreement as are expressly delegated by the terms hereof or thereof, as
appropriate, together with all powers reasonably incidental thereto. The
Administrative Agent shall have no duties or responsibilities except as set
forth in the Fundamental Documents.
(b) The Lenders hereby authorize and direct the Administrative Agent
on behalf of the Lenders to execute and deliver a Special Purpose Producer
Credit Agreement (and a related interparty agreement and other ancillary
documentation as contemplated by such Special Purpose Producer Credit Agreement)
with respect to each Designated Picture being produced by a Special Purpose
Producer.
(c) The Lenders hereby authorize the Administrative Agent (in its
sole discretion) to direct the Collateral Agent:
(i) in connection with the sale or other disposition of any asset
included in the Collateral or all of the capital stock of any Guarantor, to
the extent undertaken in accordance with the terms of this Credit Agreement,
to release a Lien granted to it (for the benefit of the Administrative
Agent, the Fronting Bank, the Lenders and the Noteholders) on such asset
and/or release such Guarantor from its obligations hereunder;
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(ii) to determine that the cost to the Borrower or another Credit
Party is disproportionate to the benefit to be realized by the
Administrative Agent, the Fronting Bank and the Lenders by perfecting a
Lien in a given asset or group of assets included in the Collateral (other
than any item which is to be included in the Borrowing Base) and that the
Borrower or other Credit Party should not be required to perfect such Lien
in favor of the Collateral Agent (for the benefit of the Administrative
Agent, the Fronting Bank, the Lenders and the Noteholders);
(iii) to appoint subagents to be the holder of record of a Lien to be
granted to the Collateral Agent (for the benefit of the Administrative
Agent, the Fronting Bank, the Lenders and the Noteholders) or to hold on
behalf of the Collateral Agent such collateral or instruments relating
thereto;
(iv) to grant in writing the right of Quiet Enjoyment to licensees
pursuant to the terms of Section 11 of the Security Agreement;
(v) in connection with an item of Product being produced by a Credit
Party, the principal photography of which is being done outside the United
States to approve arrangements with such Credit Party as shall be
satisfactory to the Administrative Agent with respect to the temporary
storage of the original negative film, the original sound track materials
or other Physical Materials of such item of Product in a production
laboratory located outside the United States;
(vi) to enter into and perform its obligations under the Collateral
Agency Agreement substantially in the form of Exhibit O hereto;
(vii) to enter into intercreditor and/or guild subordination
agreements on terms acceptable to the Administrative Agent with the unions
and/or the guilds with respect to the security interests in favor of such
unions and/or guilds required pursuant to the terms of the collective
bargaining agreements;
(viii) to enter into Distributor Security Documents and Special Purpose
Producer Credit Agreements, and related documents, on terms acceptable to
the Administrative Agent;
(ix) to enter into subordination agreements (in such form as the
Administrative Agent may deem appropriate) in connection with transactions
permitted under Section 6.1(f) whereby the claims of the Lenders against
the Special Purpose Producer which is the borrower in such transaction
and/or Liens in favor of the Collateral Agent (for the benefit of the
Administrative Bank, the Fronting Bank, the Lenders and the Noteholders) in
their respective assets may be subordinated to the claims and/or Liens of
third party lenders; and
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(x) to enter into subordination agreements and intercreditor agreements
in connection with existing Liens set forth on Schedule 6.2 hereof in
substantially the same form as previously executed by the Administrative
Agent.
SECTION 10.2. Payments. Any amounts received by the Administrative
--------
Agent in connection with this Credit Agreement or the Notes the application of
which is not otherwise provided for, shall be applied, in accordance with each
of the Lenders' Percentages, first, to pay accrued but unpaid Commitment Fees,
second, to pay accrued but unpaid interest on the Term Notes in accordance with
the amount of outstanding Term Loans owed to each Lender, third, to pay the
principal balance outstanding on the Term Notes (with amounts payable on the
principal balance outstanding on the Term Notes in accordance with each Lender's
Percentage), fourth, to pay accrued but unpaid interest on the Revolving Credit
Notes in accordance with the amount of Revolving Credit Loans owed to each
Lender, fifth, to pay the principal balance outstanding on the Revolving Credit
Notes (with amounts outstanding on the Revolving Credit Notes in accordance with
each Lender's Percentage), sixth to satisfy or provide Cash Collateral for all
Obligations relating to the Letters of Credit, seventh to pay amounts
outstanding under Currency Agreements and Interest Rate Protection Agreements
and eighth, to pay other amounts payable to the Administrative Agent. All
amounts to be paid to any of the Lenders by the Administrative Agent shall be
credited to the Lenders, after collection by the Administrative Agent, in
immediately available funds either by wire transfer or deposit in such Lender's
correspondent account with the Administrative Agent, or as such Lender and the
Administrative Agent shall from time to time agree.
SECTION 10.3. Sharing of Setoffs and Cash Collateral. Each of the
--------------------------------------
Lenders agrees that if it shall, through the exercise of a right of banker's
lien, setoff or counterclaim against any Credit Party, including, but not
limited to, a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim and received by such Lender under any applicable bankruptcy, insolvency or
other similar law, or otherwise, obtain payment in respect of its Loans as a
result of which the unpaid portion of its Loans and L/C Exposure is
proportionately less than the unpaid portion of any of the other Lenders (a) it
shall promptly purchase at par (and shall be deemed to have thereupon purchased)
from such other Lenders a participation in the Loans or Letters of Credit of
such other Lenders, so that the aggregate unpaid principal amount of each of the
Lenders' Loans and its participation in Loans and Letters of Credit of the other
Lenders shall be in the same proportion to the aggregate unpaid principal amount
of all Loans then outstanding and L/C Exposure as the principal amount of its
Loans and L/C Exposure prior to the obtaining of such payment was to the
principal amount of all Loans outstanding and L/C Exposure prior to the
obtaining of such payment and (b) such other adjustments shall be made from time
to time as shall be equitable to ensure that the Lenders share such payment pro
rata. If all or any portion of such excess payment is thereafter recovered from
the Lender which originally received such excess payment, such purchase (or
portion thereof) shall be canceled and the purchase price restored to the extent
of such recovery. The Credit Parties expressly consent to the foregoing
arrangements and agree that any Lender or Lenders holding (or deemed to be
holding) a participation in a Note or Letters of
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Credit may exercise any and all rights of banker's lien, setoff or counterclaim
with respect to any and all moneys owing by the Borrower to such Lender or
Lenders as fully as if such Lender or Lenders held a Note and was the original
obligee thereon or was the issuer of the Letter of Credit, in the amount of such
participation.
SECTION 10.4. Notice to the Lenders. Upon receipt by the
---------------------
Administrative Agent or the Fronting Bank from any of the Credit Parties of any
communication calling for an action on the part of the Lenders, or upon notice
to the Administrative Agent of any Event of Default, the Administrative Agent or
the Fronting Bank will in turn immediately inform the other Lenders in writing
(which shall include facsimile communications) of the nature of such
communication or of the Event of Default, as the case may be.
SECTION 10.5. Liability of Administrative Agent. (a) The
---------------------------------
Administrative Agent or the Fronting Bank, when acting on behalf of the Lenders,
may execute any of its duties under this Credit Agreement or the other
Fundamental Documents by or through its officers, agents, or employees and
neither the Administrative Agent, the Fronting Bank nor their respective
officers, Administrative Agents or employees shall be liable to the Lenders or
any of them for any action taken or omitted to be taken in good faith, nor be
responsible to the Lenders or to any of them for the consequences of any
oversight or error of judgment, or for any loss, unless the same shall happen
through its gross negligence or willful misconduct. The Administrative Agent,
the Fronting Bank and their respective directors, officers, Administrative
Agents, and employees shall in no event be liable to the Lenders or to any of
them for any action taken or omitted to be taken by it pursuant to instructions
received by it from the Required Lenders or in reliance upon the advice of
counsel selected by it with reasonable care. Without limiting the foregoing,
neither the Administrative Agent, the Fronting Bank nor any of their respective
directors, officers, employees, or agents shall be responsible to any of the
Lenders for the due execution, validity, genuineness, effectiveness,
sufficiency, or enforceability of, or for any statement, warranty, or
representation in, or for the perfection of any security interest contemplated
by, this Credit Agreement or any related agreement, document or order, or shall
be required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower or any Credit Party of the terms, conditions,
covenants, or agreements of this Credit Agreement or any related agreement or
document.
(b) The Administrative Agent, the Fronting Bank, as Administrative
Agent for the Lenders hereunder, any Lender or any of their respective
directors, officers, employees, or agents shall have no responsibility to the
Borrower or any other Credit Party on account of the failure or delay in
performance or breach by any other Lender of any of such Lender's obligations
under this Credit Agreement or the Notes or any related agreement or document or
in connection herewith or therewith.
(c) The Administrative Agent, as Administrative Agent for the Lenders
hereunder, shall be entitled to rely on any communication, instrument, or
document reasonably believed by it to be genuine or correct and to have been
signed or sent by a Person or Persons
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believed by it to be the proper Person or Persons, and it shall be entitled to
rely on advice of legal counsel, independent public accountants, and other
professional advisers and experts selected by it.
SECTION 10.6. Reimbursement and Indemnification. Each of the Lenders
---------------------------------
agrees (i) to reimburse the Administrative Agent in accordance with such
Lender's Percentage, for any expenses and fees incurred for the benefit of the
Lenders under the Fundamental Documents, including, without limitation, counsel
fees and compensation of Administrative Agents and employees paid for services
rendered on behalf of the Lenders, and any other expense incurred in connection
with the operations or enforcement thereof not reimbursed by the Borrower, (ii)
to indemnify and hold harmless the Administrative Agent and any of its
directors, officers, employees, or Administrative Agents, on demand, in
accordance with each Lender's Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against it or any of them in any way
relating to or arising out of the Fundamental Documents or any action taken or
omitted by it or any of them under the Fundamental Documents to the extent not
reimbursed by the Borrower or any other Credit Party (except such as shall
result from its gross negligence or willful misconduct) and (iii) to indemnify
and hold harmless the Fronting Bank and any of its directors, officers,
employees, or Administrative Agents, on demand, in the amount of its Percentage,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against it or any of them in any way relating to or arising out of the issuance
of any Letters of Credit or the failure to issue Letters of Credit if such
failure or issuance was at the direction of the Required Lenders (except as
shall result from the gross negligence or willful misconduct of the Person to be
reimbursed, indemnified or held harmless, as applicable). To the extent
indemnification payments made by the Lenders pursuant to this Section 10.6 are
subsequently recovered by the Administrative Agent or the Fronting Bank from a
Credit Party, the Administrative Agent will promptly refund such previously paid
indemnity payments to the Lenders.
SECTION 10.7. Rights of Administrative Agent. It is understood and
------------------------------
agreed that the Administrative Agent shall have the same rights and powers as a
Lender hereunder (including the right to give such instructions) as the other
Lenders and may exercise such rights and powers, as well as its rights and
powers under other agreements and instruments to which it is or may be party,
and engage in other transactions with any Credit Party, as though it were not
the Administrative Agent of the Lenders or the Fronting Bank under this Credit
Agreement.
SECTION 10.8. Independent Investigation by Lenders. Each of the
------------------------------------
Lenders acknowledges that it has decided to enter into this Credit Agreement and
to make the Loans and participate in the Letters of Credit hereunder based on
its own analysis of the transactions contemplated hereby and of the
creditworthiness of the Credit Parties and agrees that the Administrative Agent
and the Fronting Bank shall bear no responsibility therefor.
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SECTION 10.9. Execution by Collateral Agent of Security Documentation
-------------------------------------------------------
on behalf of the Lenders. The Administrative Agent hereby agrees to require the
- ------------------------
Collateral Agent to expressly indicate in all the security documentation
(including the UCC-1 Financing Statements, Copyright Security Agreement,
Trademark Security Agreement, Pledgeholder Agreements) that it obtains or
executes that it is doing such on behalf of the Administrative Agent, the
Fronting Bank, the Lenders and the Noteholders.
SECTION 10.10. Agreement of Required Lenders. Upon any occasion
-----------------------------
requiring or permitting an approval, consent, waiver, election or other action
on the part of the Required Lenders, action shall be taken by the Administrative
Agent for and on behalf or for the benefit of all Lenders upon the direction of
the Required Lenders and any such action shall be binding on all Lenders. No
amendment, modification, consent or waiver shall be effective except in
accordance with the provisions of Section 11.10 hereof.
SECTION 10.11. Notice of Transfer. The Administrative Agent may deem
------------------
and treat any Lender which is a party to this Credit Agreement as the owner of
such Lender's respective portions of the Loans and participations in Letters of
Credit for all purposes, unless and until a written notice of the assignment or
transfer thereof executed by any such Lender shall have been received by the
Administrative Agent and become effective in accordance with Section 11.3
hereof.
SECTION 10.12. Successor Administrative Agent The Administrative
------------------------------
Agent may resign at any time by giving ten (10) days prior written notice
thereof to the Lenders and the Borrower, but such resignation shall not become
effective until acceptance by a successor Administrative Agent of its
appointment pursuant hereto. Upon any such resignation, the retiring
Administrative Agent shall consult with the Borrower and promptly appoint a
successor Administrative Agent from among the Lenders which is experienced and
sophisticated in entertainment industry lending, provided that such replacement
is reasonably acceptable (as evidenced in writing) to the Required Lenders. If
no successor Administrative Agent shall have been so appointed by the retiring
Administrative Agent and shall have accepted such appointment, within 30 days
after the retiring Administrative Agent's giving of notice of resignation, the
Borrower may appoint a successor Administrative Agent (which successor may be
replaced by the Required Lenders; provided that such replacement is experienced
and is sophisticated in entertainment industry lending and reasonably acceptable
to the Borrower), which shall be either a Lender or a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $250,000,000 and which is
experienced and sophisticated in entertainment industry lending. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations under this Credit Agreement,
the other Fundamental Documents and any other credit documentation. After any
retiring Administrative Agent's resignation hereunder as
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Administrative Agent, the provisions of this Article 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Credit Agreement.
11. MISCELLANEOUS
SECTION 11.1. Notices. Notices and other communications provided for
-------
herein shall be in writing and shall be delivered or mailed (or if by telegram,
delivered to the telegraph company and, if by telex, graphic scanning or other
telegraphic or facsimile communications equipment of the sending party hereto,
delivered by such equipment) addressed, if to the Administrative Agent, the
Fronting Bank or The Chase Manhattan Bank, to it at 270 Park Avenue, 37th Floor,
New York, New York 10017, Attn: John J. Huber III, facsimile no.: (212) 270-
4584, with a copy to Chase Securities Inc., 1800 Century Park East, Suite 400,
Los Angeles, California 90067, Attn: Kenneth R. Wilson, facsimile no.: (310)
788-5627 or if to any Credit Party at 2700 Colorado Avenue, Santa Monica,
California 90404-3521, Attn: General Counsel, facsimile no.: (310) 255-3840, or
if to a Lender, to it at its address set forth on the signature page, or such
other address as such party may from time to time designate by giving written
notice to the other parties hereunder. Any failure of the Administrative Agent
or a Lender giving notice pursuant to this Section 11.1, to provide a courtesy
copy to a party as provided herein, shall not affect the validity of such
notice. All notices and other communications given to any party hereto in
accordance with the provisions of this Credit Agreement shall be deemed to have
been given on the fifth Business Day after the date when sent by registered or
certified mail, postage prepaid, return receipt requested, if by mail, or when
delivered to the telegraph company, charges prepaid, if by telegram, or upon
receipt by such party, if by any telegraphic or facsimile communications
equipment, in each case addressed to such party as provided in this Section 11.1
or in accordance with the latest unrevoked written direction from such party.
SECTION 11.2. Survival of Agreement, Representations and Warranties,
------------------------------------------------------
etc. All warranties, representations and covenants made by any of the Credit
- ----
Parties herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Credit Agreement shall be considered to have
been relied upon by the Administrative Agent and the Lenders and, except for any
terminations, amendments, modifications or waivers thereof in accordance with
the terms hereof, shall survive the making of the Loans and issuance of the
Letters of Credit herein contemplated and the execution and delivery to the
Administrative Agent of the Notes regardless of any investigation made by the
Administrative Agent or the Lenders or on their behalf and shall continue in
full force and effect so long as any amount due or to become due hereunder is
outstanding and unpaid and so long as any Letter of Credit remains outstanding
and so long as the Commitments have not been terminated. All statements in any
such certificate or other instrument shall constitute representations and
warranties by the Credit Parties hereunder.
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SECTION 11.3. Successors and Assigns; Syndications; Loan Sales;
-------------------------------------------------
Participations. (a) Whenever in this Credit Agreement any of the parties
- --------------
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party (provided, however, that neither the Borrower nor any
-------- -------
other Credit Party may assign its rights hereunder without the prior written
consent of the Administrative Agent, the Fronting Bank and all of the Lenders),
and all covenants, promises and agreements by or on behalf of any of the Credit
Parties which are contained in this Credit Agreement shall inure to the benefit
of the successors and assigns of the Administrative Agent, the Fronting Bank and
the Lenders.
(b) Each of the Lenders may (but only with the prior written consent
of the Administrative Agent and the Fronting Bank, which consent shall not be
unreasonably withheld) assign to an Eligible Assignee all or a portion of its
interests, rights and obligations under this Credit Agreement (including,
without limitation, all or a portion of its Commitment and the same portion of
all Loans at the time owing to it and the Notes held by it and its obligations
and rights with regard to any Letter of Credit and under each Special Purpose
Producer Credit Agreement); provided, however, that (i) each assignment shall be
-------- -------
of a constant, and not a varying, percentage of the assigning Lender's rights
and obligations under this Credit Agreement and (ii) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with any Note or Notes subject to such assignment and a
processing and recordation fee of $3,500 to be paid to the Administrative Agent
by the assigning Lender or the Eligible Assignee. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be not earlier
than five Business Days after the date of acceptance and recording by the
Administrative Agent, (x) the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (y) the assigning Lender thereunder shall,
to the extent provided in such Assignment and Acceptance, be released from its
obligations under this Credit Agreement except that notwithstanding such
assignment any rights and remedies available to the Borrower for any breaches by
such assigning Lender of its obligations hereunder while a Lender shall be
preserved after such assignment and such Lender shall not be relieved of any
liability to the Borrower due to any such breach (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of the assigning
Lender's rights and obligations under this Credit Agreement, such assigning
Lender shall cease to be a party hereto).
(c) Notwithstanding the other provisions of this Section 11.3, each
Lender may at any time make an assignment of its interests, rights and
obligations under this Credit Agreement to (i) any Affiliate of such Lender or
(ii) any other Lender hereunder.
(d) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal
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and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim, the assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Fundamental Documents or any other instrument or document furnished
pursuant hereto or thereto; (ii) such assignor Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Credit Parties or the performance or observance by the Credit Parties of
any of their obligations under the Fundamental Documents; (iii) such assignee
confirms that it has received a copy of this Credit Agreement and each Special
Purpose Producer Credit Agreement, together with copies of the most recent
financial statements delivered pursuant to Sections 5.1(a) and 5.1(b) (or if
none of such financial statements shall have then been delivered, then copies of
the financial statements referred to in Section 3.5 hereof) and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the assigning Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Credit Agreement; (v) such assignee appoints and authorizes the
Administrative Agent and the Fronting Bank to take such action as the
Administrative Agent or the Fronting Bank on its behalf and to exercise such
powers under this Credit Agreement as are delegated to the Administrative Agent
or the Fronting Bank by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will be
bound by the provisions of this Credit Agreement and will perform in accordance
with its terms all of the obligations which by the terms of this Credit
Agreement are required to be performed by it as a Lender.
(e) The Administrative Agent shall maintain at its address at which
notices are to be given to it pursuant to Section 11.1 a copy of each Assignment
and Acceptance and a register for the recordation of the names and addresses of
the Lenders and the Commitments of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive, in the absence of manifest error, and the Credit Parties,
the Administrative Agent, the Fronting Bank and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of the Fundamental Documents. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(f) Subject to the foregoing, upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an assignee together with any
Notes subject to such assignment, and the processing and recordation fees the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in the form of Exhibit K hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt written notice thereof to the Borrower. Within five (5)
Business Days after receipt of the notice, the Borrower, at its own expense,
shall execute and deliver to the Lender, in exchange for the surrendered Notes,
new Notes to the order of such assignee in an amount equal
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to the Commitments assumed by it pursuant to such Assignment and Acceptance and
new Notes to the order of the assigning Lender in an amount equal to the
Commitments retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such retained
Commitment, shall be dated the date of the surrendered Notes and shall otherwise
be in substantially the forms of Exhibits A-1 and A-2 hereto. In addition the
Credit Parties will promptly, at their own expense, execute such amendments to
the Fundamental Documents to which each is a party and such additional
documents, and take such other actions as the Administrative Agent or the
assignee Lender may reasonably request in order to give such assignee Lender the
full benefit of the Liens contemplated by the Fundamental Documents.
(g) Each of the Lenders may without the consent of the Credit Parties
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Credit Agreement (including, without
limitation, all or a portion of its Commitment and the Loans owing to it and the
Note or Notes held by it and its participation in Letters of Credit); provided,
--------
however, that (i) any such Lender's obligations under this Credit Agreement
- -------
shall remain unchanged, (ii) such participant shall not be granted any voting
rights under this Credit Agreement, except with respect to proposed changes to
interest rates, amount of Commitments, final maturity of Loans, releases of all
or substantially all the Collateral and fees (as applicable to such
participant), (iii) any such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iv) the participating
banks or other entities shall be entitled to the cost protection provisions
contained in Sections 2.10(b), 2.11 and 2.14(e) hereof but a participant shall
not be entitled to receive pursuant to such provisions an amount larger than its
share of the amount to which the Lender granting such participation would have
been entitled and (v) the Credit Parties, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Credit
Agreement.
(h) The Lenders may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.3, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Credit Parties furnished to the
Administrative Agent by or on behalf of the Credit Parties; provided that prior
to any such disclosure, each such assignee or participant or proposed assignee
or participant shall agree, by executing a confidentiality letter in form and
substance equivalent to the confidentiality letter executed by the Lenders in
connection with information received by such Lenders relating to this
transaction to preserve the confidentiality of any confidential information
relating to the Borrower received from such Lender.
(i) Any assignment pursuant to paragraph (a) or (b) of this Section
11.3 shall constitute an amendment of the Schedule of Commitments as of the
effective date of such assignment.
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(j) The Borrower consents that any Lender may at any time and from
time to time pledge or otherwise grant a security interest in any Loan or in any
of the Notes evidencing such Loans (or any part thereof) to any Federal Reserve
Bank.
SECTION 11.4. Expenses; Documentary Taxes. Whether or not the
---------------------------
transactions hereby contemplated shall be consummated, the Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by the Administrative Agent,
the Fronting Bank or Chase Securities Inc. in connection with performance of due
diligence by the Administrative Agent in connection with the transactions hereby
contemplated and the syndication, preparation, execution, delivery, waiver or
modification and administration of this Credit Agreement and any other
documentation contemplated hereby, the Notes and the making of the Loans and the
Letters of Credit, including but not limited to any internally allocated audit
costs, the reasonable fees and disbursements of Morgan, Lewis & Bockius LLP,
counsel for the Administrative Agent and the Fronting Bank, and any other
counsel that the Administrative Agent or the Fronting Bank shall retain, and the
reasonable fees and expenses of technical or other consultants engaged by the
Administrative Agent. Such payments shall be made on the date of execution of
this Credit Agreement and thereafter on demand. In addition, the Borrower
agrees to pay all reasonable out-of-pocket expenses incurred by the Lenders in
the enforcement or protection of the rights of the Lenders in connection with
this Credit Agreement, the Notes or the Letters of Credit, and with respect to
any action which may be instituted by any Person other than the Credit Parties
or any Lender against the Administrative Agent, the Fronting Bank or any Lender
in respect of the foregoing, or as a result of any transaction, action or non-
action arising from the foregoing, including but not limited to the reasonable
fees and disbursements of any counsel for the Lenders (it being understood,
however, that the Borrower shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees or expenses of more than one separate firm of attorneys for all
such Lenders). Such payments shall be made on demand after the date of
execution of this Credit Agreement. The Borrower agrees that it shall indemnify
the Administrative Agent, the Fronting Bank and the Lenders from and hold them
harmless against any documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Credit
Agreement, the Notes or the issuance of Letters of Credit. The obligations of
the Borrower under this Section 11.4 shall survive the termination of this
Credit Agreement and/or the payment of the Loans and/or the expiration of the
Letters of Credit.
SECTION 11.5. Indemnification of the Administrative Agent, the
------------------------------------------------
Fronting Bank and the Lenders. The Borrower agrees (a) to indemnify and hold
- -----------------------------
harmless the Administrative Agent, the Fronting Bank and the Lenders and their
respective directors, officers, employees, trustees and agents (to the full
extent permitted by law) from and against any and all claims, demands, losses,
judgments and liabilities (including liabilities for penalties) of whatsoever
nature, and (b) to pay to the Administrative Agent and the Fronting Bank an
amount equal to the amount of all costs and expenses, including reasonable legal
fees and disbursements, and with regard to both (a) and (b) growing out of or
resulting from any litigation, investigation or other
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proceedings relating to the Collateral, this Credit Agreement, the Copyright
Security Agreements, the Trademark Security Agreement, the Pledgeholder
Agreements and the Letters of Credit, the making of the Loans, any attempt to
audit, inspect, protect or sell the Collateral, or the administration and
enforcement or exercise of any right or remedy granted to the Administrative
Agent, the Fronting Bank or Lenders hereunder or thereunder but excluding
therefrom all claims, demands, losses, judgments, liabilities, costs and
expenses arising out of or resulting from (i) the gross negligence or willful
misconduct of the Lenders, the Fronting Bank or the Administrative Agent
claiming indemnification hereunder, (ii) litigation between the Borrower and the
Administrative Agent, the Fronting Bank or the Lenders in connection with the
Fundamental Documents or in any way relating to the transactions contemplated
hereby if, after final non-appealable judgment, the Administrative Agent, the
Fronting Bank or the Lenders are not the prevailing party or parties in such
litigation and (iii) litigation among the Lenders or between the Administrative
Agent and/or the Fronting Bank and the Lenders in connection with the
Fundamental Documents or in any way relating to the transactions contemplated
hereby. The foregoing indemnity agreement includes any reasonable costs incurred
by the Administrative Agent, the Fronting Bank or the Lenders in connection with
any action or proceeding which may be instituted in respect of the foregoing by
the Administrative Agent or the Fronting Bank, or by any other Person either
against the Lenders or in connection with which any officer, director, agent or
employee of the Administrative Agent, the Fronting Bank or the Lenders is called
as a witness or deponent, including, but not limited to, the reasonable fees and
disbursements of Morgan, Lewis & Bockius LLP, counsel to the Administrative
Agent and the Fronting Bank, and any out-of-pocket costs incurred by the
Administrative Agent, the Fronting Bank or the Lenders in appearing as a witness
or in otherwise complying with legal process served upon them. Except as
otherwise required by Applicable Law which may not be waived, the Lenders shall
not be liable to the Borrower for any matter or thing in connection with this
Credit Agreement other than their express obligations hereunder, including
obligations to make Loans and account for moneys actually received by them in
accordance with the terms hereof.
Whenever the provisions of this Credit Agreement or any other
Fundamental Document provide that, if any Credit Party shall fail to do any act
or thing which it has covenanted to do hereunder, the Administrative Agent may
(but shall not be obligated to) do the same or cause it to be done or remedy any
such breach and if the Administrative Agent does the same or causes it to be
done, there shall be added to the Obligations hereunder the cost or expense
incurred by the Administrative Agent in so doing, and any and all amounts
expended by the Administrative Agent in taking any such action shall be
repayable to it upon its demand therefor and shall bear interest at 4% in excess
of the Alternate Base Rate from time to time in effect from the date advanced to
the date of repayment.
All indemnities contained in this Section 11.5 shall survive the
expiration or earlier termination of this Credit Agreement and shall inure to
the benefit of any Person who was a Lender notwithstanding such Person's
assignment of all its Loans and Commitments.
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SECTION 11.6. CHOICE OF LAW. THIS CREDIT AGREEMENT AND THE NOTES
-------------
SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS
OF THE STATE OF NEW YORK WHICH ARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO
INTEREST RATES, ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. EACH LETTER
OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY
THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.7. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
--------------------
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH CREDIT PARTY HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
CREDIT AGREEMENT OR THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR
TORT OR OTHERWISE. EACH CREDIT PARTY ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY
THE LENDERS THAT THE PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT
UPON WHICH THE LENDERS HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO
THIS CREDIT AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. THE ADMINISTRATIVE
AGENT, THE FRONTING BANK OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION 11.7 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE BORROWER TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
SECTION 11.8. No Waiver. No failure on the part of the Collateral
---------
Agent, the Administrative Agent or any Lender or the Fronting Bank to exercise,
and no delay in exercising, any right, power or remedy hereunder, under the
Notes or any other Fundamental Document or with regards to Letters of Credit
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 11.9. Extension of Payment Date. Should any payment of
-------------------------
principal of or interest on the Notes or any other amount due hereunder become
due and payable on a day other than a Business Day, the due date of such payment
thereof shall be extended to the next
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succeeding Business Day and, in the case of principal, interest shall be payable
thereon at the rate herein specified during such extension.
SECTION 11.10. Amendments, etc. No modification, amendment or waiver
----------------
of any provision of this Credit Agreement, and no consent to any departure by
the Credit Parties herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Required Lenders and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given; provided, however, that no such modification, waiver, consent or
-------- -------
amendment shall, without the written consent of all of the Lenders, (i) change
the Commitment of any Lender, (ii) amend or modify any provision of this Credit
Agreement which provides for the unanimous consent or approval of the Lenders,
(iii) release any Collateral or any of the Pledged Securities (except as
contemplated herein) or release any Guarantor from its obligations hereunder,
(iv) alter the fixed scheduled maturity or principal amount of any Loan, or the
rate or time of payment of any interest payable thereon, or the rate at which
the Commitment Fees accrue or the fixed scheduled maturity or amount of any
other payment required to be made under this Credit Agreement, (v) subordinate
the Obligations hereunder to other Indebtedness or subordinate the security
interests of the Collateral Agent in the Collateral except as permitted by
Section 10.1, (vi) amend the definition of "Required Lenders," (vii) amend the
definition of "Borrowing Base" or any of the defined terms used therein, (viii)
amend the definition of "Applicable Margin," (ix) amend the definition of
"Collateral," or (x) amend or modify Sections 2.1(e), 2.10(d), 2.16(a)(i),
2.16(i), or this Section 11.10. No such amendment or modification may adversely
affect the rights and obligations of the Administrative Agent hereunder without
its prior written consent or the rights and obligations of the Fronting Bank
without its prior written consent. No notice to or demand on any of the Credit
Parties shall entitle such Credit Party to any other or further notice or demand
in the same, similar or other circumstances. Each holder of a Note shall be
bound by any amendment, modification, waiver or consent authorized as provided
herein, whether or not a Note shall have been marked to indicate such amendment,
modification, waiver or consent and any consent by any holder of a Note shall
bind any Person subsequently acquiring a Note, whether or not a Note is so
marked.
SECTION 11.11. Severability. Any provision of this Credit Agreement
------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 11.12. SERVICE OF PROCESS. EACH CREDIT PARTY (EACH A
------------------
"SUBMITTING PARTY") HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE
COURTS OF THE STATE OF NEW YORK AND TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY
SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS CREDIT
AGREEMENT (INCLUDING, BUT NOT LIMITED TO THE LETTERS OF CREDIT) OR THE SUBJECT
MATTER HEREOF
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BROUGHT BY THE ADMINISTRATIVE AGENT, THE FRONTING BANK OR A LENDER OR ANY OF
THEIR SUCCESSORS OR ASSIGNS IN EITHER OF THE ABOVE-REFERENCED FORUMS AT THE SOLE
OPTION OF THE AGENT OR A LENDER. EACH SUBMITTING PARTY TO THE EXTENT PERMITTED
BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION,
AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF
THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR
EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS
CREDIT AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH
COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING
INSTITUTED BY THE AGENT OR A LENDER IN STATE COURT TO FEDERAL COURT, AND (C)
HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY
OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE
ARISE FROM THE SAME SUBJECT MATTER. THE SUBMITTING PARTY HEREBY CONSENTS TO
SERVICE OF PROCESS BY MAIL AT ITS ADDRESS TO WHICH NOTICES ARE TO BE GIVEN
PURSUANT TO SECTION 11.1 HEREOF. THE SUBMITTING PARTY AGREES THAT ITS SUBMISSION
TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE
EXPRESS BENEFIT OF THE ADMINISTRATIVE AGENT, THE FRONTING BANK AND THE LENDERS.
FINAL JUDGMENT AGAINST THE SUBMITTING PARTY IN ANY SUCH ACTION, SUIT OR
PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION
(A) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF
WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF INDEBTEDNESS OR
LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED OR (B) IN ANY OTHER MANNER
PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION, PROVIDED,
--------
HOWEVER, THAT THE ADMINISTRATIVE AGENT, THE FRONTING BANK OR A LENDER MAY AT ITS
- -------
OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST THE
SUBMITTING PARTY OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE
UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE SUBMITTING PARTY OR SUCH
ASSETS MAY BE FOUND.
SECTION 11.13. Headings. Section headings used herein and the Table
--------
of Contents are for convenience only and are not to affect the construction of
or be taken into consideration in interpreting this Credit Agreement.
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SECTION 11.14. Execution in Counterparts. This Credit Agreement may
-------------------------
be executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
SECTION 11.15. Subordination of Intercompany Advances. (a) Each
--------------------------------------
Credit Party hereby agrees that any intercompany Indebtedness or other
intercompany receivables or intercompany advances of any other Credit Party,
directly or indirectly, in favor of such Credit Party of whatever nature at any
time outstanding shall be completely subordinate in right of payment to the
prior payment in full of the Obligations, and that no payment on any such
Indebtedness shall be made (i) except intercompany receivables and intercompany
advances permitted pursuant to the terms hereof may be repaid and intercompany
Indebtedness permitted to be repaid pursuant to the terms hereof in the ordinary
course of business so long as no Default or Event of Default, shall have
occurred and be continuing and (ii) except as specifically consented to by all
the Lenders in writing, until the prior payment in full all Obligations and
termination of the Commitments.
(b) In the event that any payment on any such Indebtedness shall be
received by such Credit Party other than as permitted by Section 11.15(a) before
payment in full of all Obligations and termination of the Commitments, such
Credit Party shall receive such payments and hold the same in trust for,
segregate the same from its own assets and shall immediately pay over to, the
Administrative Agent on behalf of itself, the Fronting Bank and the Lenders all
such sums to the extent necessary so that the Administrative Agent, the Fronting
Bank and the Lenders shall have been paid all Obligations owed or which may
become owing.
SECTION 11.16. Confidentiality. Each of the Lenders understands that
---------------
certain information furnished to it pursuant to this Credit Agreement will be
received by it prior to the time that such information shall have been made
public, and each of the Lenders hereby agrees that it will keep, and will direct
its officers and employees to keep, all the information provided to it pursuant
to this Credit Agreement confidential prior to its becoming public except that
Lenders shall be permitted to disclose such information (i) to officers,
directors, employees, representatives, agents, auditors, accountants,
consultants, advisors, lawyers and affiliates of such Lender, in the ordinary
course of business who have been made aware of the confidential nature of the
information; (ii) to prospective assignees or participants and their respective
officers, directors, employees, agents and representatives in accordance with
Section 11.3(h) herein; (iii) as required by Applicable Law, or pursuant to
subpoenas or other legal process, or as requested by governmental agencies and
examiners; (iv) in proceedings to enforce the Lenders' rights and remedies
hereunder or under any other Fundamental Document or in any proceeding against
the Lenders in connection with this Credit Agreement or under any other
Fundamental Document or the transactions contemplated hereunder; (v) to the
extent such information (A) becomes publicly available other than as a result of
a breach of this Credit Agreement or (B) becomes available to a Lender or a
participant on a non-confidential basis, not in breach of any agreement or other
obligation to Borrower, from a source other than Borrower; or (vi) to the extent
Borrower shall have consented to such disclosure in writing.
-114-
<PAGE>
SECTION 11.17. Entire Agreement. This Credit Agreement including the
----------------
Exhibits and Schedules hereto represents the entire agreement of the parties
with regard to the subject matter hereof, and the terms of any letters and other
documentation entered into between any of the parties hereto (other than the Fee
Letter) prior to the execution of this Credit Agreement which relate to Loans to
be made hereunder shall be replaced by the terms of this Credit Agreement.
-115-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the day and the year first written.
BORROWER:
ARTISAN PICTURES INC.
By /s/ Mark Curico
--------------------------------
Name: Mark Curico
Title: CEO
GUARANTORS:
ARTISAN ENTERTAINMENT INC.
AFICIONADO PRODUCTIONS, INC.
ARTISAN RELEASING INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
CACOPHONY PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
LIVE VENTURES INC.
LIVENET INC.
MELTDOWN PRODUCTIONS, INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By /s/ Mark Curico
--------------------------------
Name: Mark Curico
Title: Authorized Signatory for each of the
foregoing
-116-
<PAGE>
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By /s/ Cherryl Walker
---------------------------------------
Name: Cherryl Walker
Title: Chief Financial Officer
FILM HOLDINGS CO.
By /s/ Joe Pretlow
---------------------------------------
Name: Joe Pretlow
Title: Vice President
LENDERS:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By /s/ Mitchell J. Gervis
---------------------------------------
Name: Mitchell J. Gervis
Title: Vice President
Address: 270 Park Avenue,
37th Floor
New York, NY 10017
Attn: John J. Huber III
Facsimile: (212) 270-4584
SOCIETE GENERALE
By /s/ Maureen E. Kelly
--------------------------------------
Name: Maureen E. Kelly
Title: Director
-117-
<PAGE>
UNION BANK OF CALIFORNIA
By /s/ Thomas P. Garry. Jr.
--------------------------------------
Name: Thomas P. Garry, Jr.
Title: Assistant Vice President
COMERICA BANK -- CALIFORNIA
By /s/ D. Jeffrey Andrick
--------------------------------------
Name: D. Jeffrey Andrick
Title: Vice President
FLEET BANK, N.A.
By /s/ Michael A. Cerullo
-------------------------------------
Name: Michael A. Cerullo
Title: Vice President
CALIFORNIA UNITED BANK
By /s/ Gwen T. Miller
-------------------------------------
Name: Gwen T. Miller
Title: Senior Vice President/Manager
-118-
<PAGE>
BANQUE INTERNATIONALE A
LUXEMBOURG
By /s/ M. Weaver
----------------------------------------
Name: M. Weaver
Title: Assistant Director
By /s/ Brian Walker
----------------------------------------
Name: Brian Walker
Title: Senior Manager
NATEXIS BANQUE BFCE
By /s/ Daniel Touffu
----------------------------------------
Name: Daniel Touffu
Title: First VP and Regional Manager
By /s/ Bennett C. Pozil
----------------------------------------
Name: Bennett C. Pozil
Title: Vice President Entertainment Finance
CITY NATIONAL BANK
By /s/ Norman Starr
----------------------------------------
Name: Norman Starr
Title: Vice President
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<PAGE>
DE NATIONALE INVESTERINGSBANK N.V.
By /s/ N.C.J. Renkens
--------------------------------------
Name: N.C.J. Renkens
Title: Legal Counsel
By /s/ Eric H. Snaterse
--------------------------------------
Name: Eric H. Snaterse
Title: Senior Vice President
BANQUE NATIONALE DE PARIS
By /s/ Clive Bettles
--------------------------------------
Name: Clive Bettles
Title: SVP & Manager
By /s/ Janice S.H. Ho
--------------------------------------
Name: Janice S.H. Ho
Title: Vice President
THE FUJI BANK, LTD.
By /s/ Hideo Nakajima
--------------------------------------
Name: Hideo Nakajima
Title: General Manager
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<PAGE>
PARIBAS
By /s/ Douglas E. Hansen
--------------------------------------
Name: Douglas E. Hansen
Title: Director
By /s/ Stanley P. Berkman
--------------------------------------
Name: Stanley P. Berkman
Title: Managing Director Western Regional
<PAGE>
EXHIBIT 10.25
AMENDMENT NO. 1 dated as of April 2, 1999 to the Amended and
Restated Credit and Guaranty Agreement dated as of July 9,
1997, as amended and restated as of August 10, 1998, among
ARTISAN PICTURES INC. ("Pictures"), the Guarantors named
therein, the Lenders referred to therein and THE CHASE
MANHATTAN BANK, as Administrative Agent and as Fronting Bank
for the Lenders (the "Agent") (as the same may be amended,
supplemented or otherwise modified, the "Credit Agreement").
INTRODUCTORY STATEMENT
----------------------
The Lenders have made available to Pictures a credit facility
pursuant to the terms of the Credit Agreement.
Pictures and the Guarantors have informed the Agent that they are
entering into Amendment No. 2 to the note purchase agreement governing the
Secured Subordinated Notes ("Amendment No. 2") and have requested the Lenders
and the Agent consent to such Amendment No. 2.
In addition, Pictures and the Guarantors have requested certain other
modifications to the Credit Agreement and the Lenders and the Agent have agreed
to make revisions to the Credit Agreement, all on the terms and subject to the
conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and not
-------------
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
----------------------------------
satisfaction of the conditions precedent set forth in Section 3 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
(A) The description of the Credit Agreement appearing in the opening
paragraph preceding the Introductory Statement is hereby amended by deleting the
words "ARTISAN PICTURES INC., a Delaware corporation (the "Borrower")" and
inserting the following in lieu thereof:
-1-
<PAGE>
"ARTISAN PICTURES INC., a Delaware corporation ("Pictures") and ARTISAN
HOME ENTERTAINMENT INC., a Delaware corporation ("Home Entertainment";
together with Pictures, the "Borrower")"
(B) The second sentence of the third paragraph of the Introductory
Statement of the Credit Agreement is hereby amended by deleting the words "the
Borrower" and inserting in lieu thereof the word "Pictures".
(C) The definition of "Eligible Library Amount" appearing in Article 1 of
the Credit Agreement is hereby amended by deleting each reference to the amount
"$160,000,000" and inserting in lieu thereof the amount "$180,000,000".
(D) The definition of "Change in Control" appearing in Article 1 of the
Credit Agreement is hereby amended by deleting the word "Borrower" appearing in
the last sentence of such definition and inserting in lieu thereof the word
"Pictures".
(E) The definition of "Consolidated Net Income" appearing in Article 1 of
the Credit Agreement is hereby amended by deleting the words "the Borrower"
appearing in the last sentence of such definition and inserting in lieu thereof
the word "Pictures".
(F) The definition of "Fee Letter" appearing in Article 1 of the Credit
Agreement is hereby amended by deleting the words "the Borrower" in each
instance it appears in such definition and inserting in lieu thereof the word
"Pictures".
(G) The definition of "Term Loan Commitment" appearing in Article 1 of the
Credit Agreement is hereby amended by deleting the words "the Borrower"
appearing therein and inserting in lieu thereof the word "Pictures".
(H) The definition of "WEA Distribution Agreement" appearing in Article 1
of the Credit Agreement is hereby amended by deleting the words "the Borrower"
appearing therein and inserting in lieu thereof the word "Pictures".
(I) Section 2.2(a) of the Credit Agreement is hereby amended by deleting
the words "the Borrower" appearing therein and inserting in lieu thereof the
word "Pictures".
(J) Section 2.4(b) of the Credit Agreement is hereby amended by deleting
the words "the Borrower" appearing therein and inserting in lieu thereof the
word "Pictures".
(K) Section 6.2 (Limitations on Liens) of the Credit Agreement is hereby
amended by adding the following clause (s) at the end thereof:
-2-
<PAGE>
"(s) Liens granted to the Noteholders in securities in an aggregate
amount not to exceed $500,000 in connection with Amendment No. 2 to the
note purchase agreement governing the Senior Subordinated Notes, on the
terms and conditions set forth therein."
Section 3. Consent. The Borrower has requested that the Agent and
-------
the Lenders consent to a waiver of compliance by the Debtors with Section 6.13
of the Credit Agreement which prohibits the Credit Parties from modifying any
indenture or note purchase agreement governing the Secured Subordinated Notes.
At the request of the Borrower, each Lender by its signature hereto hereby
consents to the Credit Parties entering into Amendment No. 2 to the Note & Stock
Purchase Agreement dated as of July 9, 1997 between Canyon and the Credit
Parties, in the form attached hereto as Exhibit A.
The waiver contained in this Section 3 is limited to the specific
provision provided above and shall not in any way be construed as entitling the
Borrower to any waiver of any matters other than as specifically provided above
or to any future waivers regarding similar matters or otherwise.
Section 4. Conditions to Effectiveness. The effectiveness of this
---------------------------
Amendment is subject to the satisfaction in full of each of the conditions
precedent set forth in this Section 4 (the date on which all such conditions
have been satisfied being herein called the "Effective Date"):
(A) the Agent shall have received counterparts of this Amendment which,
when taken together, bear the signatures of the Borrower, each Guarantor, the
Agent and such of the Lenders as are required by the Credit Agreement; and
(B) the Agent shall received a new Revolving Credit Note executed by
Pictures and Home Entertainment for each Lender in the face amount of such
Lender's Revolving Credit Commitment;
(C) the Agent shall received a certificate of the Secretary of Home
Entertainment, dated the Effective Date and certifying (a) that attached thereto
is a true and complete copy of resolutions adopted by the Board of Directors of
such party authorizing the Borrowings under the Credit Agreement, the execution,
delivery and performance in accordance with its respective terms of the Credit
Agreement (as amended by Amendment No. 1 thereto), the Revolving Credit Notes to
be executed by it, and any other documents required or contemplated under the
Credit Agreement and that such resolutions have not been amended, rescinded or
supplemented and are currently in effect; and
(D) all legal matters incident to this Amendment shall be satisfactory to
Morgan, Lewis & Bockius LLP, counsel for the Agent.
-3-
<PAGE>
Section 5. Representations and Warranties. Each Credit Party
------------------------------
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date);
and
(B) after giving effect to this Amendment, no Event of Default or Default
will have occurred and be continuing on and as of the date hereof.
SECTION 6. Further Assurances. At any time and from time to time, upon
------------------
the Agent's request and at the sole expense of the Credit Parties, each Credit
Party will promptly and duly execute and deliver any and all further instruments
and documents and take such further action as the Agent reasonably deems
necessary to effect the purposes of this Amendment.
Section 7. Fundamental Documents. This Amendment is designated a
---------------------
Fundamental Document by the Agent.
Section 8. Full Force and Effect. Except as expressly amended hereby, the
---------------------
Credit Agreement and the other Fundamental Documents shall continue in full
force and effect in accordance with the provisions thereof on the date hereof.
As used in the Credit Agreement, the terms "Agreement", "this Agreement",
"herein", "hereafter", "hereto", "hereof", and words of similar import, shall,
unless the context otherwise requires, mean the Credit Agreement as amended by
this Amendment.
Section 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
Section 11. Expenses. The Borrower agrees to pay all out-of-pocket
--------
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, but not limited to, the reasonable fees
and disbursements of counsel for the Agent.
Section 12. Headings. The headings of this Amendment are for the purposes
--------
of reference only and shall not affect the construction of or be taken into
consideration in interpreting this Amendment
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to be
duly executed as of the date first written above.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
AFICIONADO PRODUCTIONS, INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
CACOPHONY PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
LIVE VENTURES INC.
LIVENET INC.
MELTDOWN PRODUCTIONS, INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By /s/ Mark Curcio
Name:
Title: CEO: Authorized Signatory for
each of the foregoing
FILM HOLDINGS CO.
By /s/ Joe Pretlow
Name:
Title: PRINCIPAL
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By /s/ Ken Schapiro
Name:
Title:EVP
-5-
<PAGE>
LENDERS:
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent
By /s/ William E. Rottino
Name:
Title:VP
SOCIETE GENERALE
By /s/ Maureen E. Kelly
Name:
Title:DIRECTOR
UNION BANK OF CALIFORNIA
By /s/ Janice Zeitinger
Name:
Title:VP
COMERICA BANK -- CALIFORNIA
By /s/ D. Jeffrey Andrick
Name:
Title:VP
FLEET BANK, N.A.
By /s/ Eric S. Meyer
Name:
Title:VP
-6-
<PAGE>
PACIFIC CENTURY BANK, N.A.
By /s/ Jan Van Houdt
Name:
Title:VP
BANQUE INTERNATIONALE A
LUXEMBOURG
By /s/ E. Rolin
Name:
Title:MANAGER
By /s/ P. Venables
Name:
Title:DIRECTOR
NATEXIS BANQUE BFCE
By /s/ Daniel Touffu
Name:
Title:SENIOR VP AND REGIONAL MANAGER
By /s/ Ian A. Whyte
Name:
Title: VICE PRESIDENT
CITY NATIONAL BANK
By /s/ Norman Starr
Name:
Title: VICE PRESIDENT
-7-
<PAGE>
DE NATIONALE INVESTERINGSBANK N.V.
By /s/ Eric H. Snaterse
Name:
Title:SR VP
By
Name:
Title:
BANQUE NATIONALE DE PARIS
By /s/ Clive Bettles
Name:
Title:SVP & MANAGER
By /s/ Janice S. H. Ho
Name:
Title:VP
THE FUJI BANK, LTD.
By /s/ Masahito Fukuda
Name:
Title:JOINT GENERAL MANAGER
PARIBAS
By /s/ Douglas F. Hansen
Name:
Title: DIRECTOR
-8-
<PAGE>
Exhibit 10.26
AMENDMENT NO. 2 dated as of April 2, 1999 to the Amended and
Restated Credit and Guaranty Agreement dated as of July 9,
1997, as amended and restated as of August 10, 1998, among
ARTISAN PICTURES INC. ("Pictures"), the Guarantors named
therein, the Lenders referred to therein and THE CHASE
MANHATTAN BANK, as Administrative Agent and as Fronting Bank
for the Lenders (the "Agent") (as the same may be amended,
supplemented or otherwise modified, the "Credit Agreement").
INTRODUCTORY STATEMENT
----------------------
The Lenders have made available to Pictures a credit facility pursuant
to the terms of the Credit Agreement.
Pictures, the Guarantors, the Lenders and the Agent have agreed to
make revisions to the Credit Agreement, all on the terms and subject to the
conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and not
-------------
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
----------------------------------
satisfaction of the conditions precedent set forth in Section 3 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
(A) Section 6.1 of the Credit Agreement is hereby amended by adding the
following clause (o) at the end thereof:
"Indebtedness in respect of Capital Expenditures permitted by Section
6.11(iii)."
(B) Section 6.2 of the Credit Agreement is hereby amended by adding the
following clause (s) at the end thereof:
"(s) Liens related to the Capital Expenditures permitted under Section
6.11(iii) hereof if (i) limited to the particular assets acquired, (ii) the
aggregate amount of all Indebtedness secured by Liens permitted under this
paragraph does not exceed $3,000,000 at any one time outstanding and (iii)
on terms and conditions acceptable to the Agent."
-1-
<PAGE>
(C) Section 6.2 of the Credit Agreement is hereby amended by adding the
following clause (t) at the end thereof:
"(t) Liens granted in connection with the Borrower's acquisition of items
of Product or pursuant to co-financing arrangements of items of Product, in
each case on terms and conditions satisfactory to the Administrative Agent;
provided, that the secured party of such Lien shall have entered into an
intercreditor agreement with the Administrative Agent and Collateral Agent
substantially in the form of Exhibit R hereto or in form and substance
satisfactory to the Administrative Agent."
(D) Section 6.11 of the Credit Agreement is hereby amended by (i) deleting
the "and" before "(ii)", inserting a comma in lieu thereof and (ii) adding the
following clause (iii) at the end thereof:
"and (iii) Capital Expenditures (other than amounts included in the
Budgeted Negative Cost of an item of Product or amounts expended in
connection with MIS Expenditures) for fiscal year 1999 in excess of
$3,000,000; provided that such financing is provided on terms and
conditions acceptable to the Administrative Agent."
(E) Section 6.16 of the Credit Agreement is hereby amended by (i) deleting
the phrase "$18,000,000 in fiscal year 1997" and (ii) inserting the phrase
"$23,300,000 in fiscal year 1999" in lieu thereof.
(F) Section 6.19 of the Credit Agreement is hereby amended by (i) deleting
the ratio "5:1" and (ii) inserting the ratio "6.5:1" through the quarter ended
September 30, 1999, 6.0:1 through the quarter ending June 30, 2000 and
thereafter 5.5:1 in lieu thereof.
(G) Section 10.1(c) of the Credit Agreement is hereby amended by adding
the following clause (xi) at the end thereof:
"(xi) to enter into intercreditor agreements (in such forms as the
Administrative Agent may deem appropriate) in connection with Liens granted
pursuant to Section 6.2(s) hereof."
Section 3. Conditions to Effectiveness. The effectiveness of this
---------------------------
Amendment is subject to the satisfaction in full of each of the conditions
precedent set forth in this Section 3 (the date on which all such conditions
have been satisfied being herein called the "Effective Date"):
(A) the Agent shall have received counterparts of this Amendment which,
when taken together, bear the signatures of the Borrower, each Guarantor, the
Agent and such of the Lenders as are required by the Credit Agreement;
-2-
<PAGE>
(B) the Agent shall have received the written consent of the holders of
the Senior Subordinated Notes to the provisions of Section 6.2(t) as amended by
this Amendment No. 2; and
(C) all legal matters incident to this Amendment shall be satisfactory to
Morgan, Lewis & Bockius LLP, counsel for the Agent.
Section 4. Representations and Warranties. Each Credit Party
------------------------------
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date);
and
(B) after giving effect to this Amendment, no Event of Default or Default
will have occurred and be continuing on and as of the date hereof.
SECTION 5. Further Assurances. At any time and from time to time, upon
------------------
the Agent's request and at the sole expense of the Credit Parties, each Credit
Party will promptly and duly execute and deliver any and all further instruments
and documents and take such further action as the Agent reasonably deems
necessary to effect the purposes of this Amendment.
Section 6. Fundamental Documents. This Amendment is designated a
---------------------
Fundamental Document by the Agent.
Section 7. Full Force and Effect. Except as expressly amended hereby, the
---------------------
Credit Agreement and the other Fundamental Documents shall continue in full
force and effect in accordance with the provisions thereof on the date hereof.
As used in the Credit Agreement, the terms "Agreement", "this Agreement",
"herein", "hereafter", "hereto", "hereof", and words of similar import, shall,
unless the context otherwise requires, mean the Credit Agreement as amended by
this Amendment.
Section 8. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 9. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
-3-
<PAGE>
Section 10. Expenses. The Borrower agrees to pay all out-of-pocket
--------
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, but not limited to, the reasonable fees
and disbursements of counsel for the Agent.
Section 11. Headings. The headings of this Amendment are for the purposes
--------
of reference only and shall not affect the construction of or be taken into
consideration in interpreting this Amendment
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to be
duly executed as of the date first written above.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
AFICIONADO PRODUCTIONS, INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
CACOPHONY PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
LIVE VENTURES INC.
LIVENET INC.
MELTDOWN PRODUCTIONS, INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By /s/ Mark Curcio
Name:
Title: CEO
Authorized Signatory for each of the
foregoing
-4-
<PAGE>
FILM HOLDINGS CO.
By /s/ Joe Pretlow
Name:
Title:Principal
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By /s/ Ken Schapiro
Name:
Title:EVP
LENDERS:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By /s/ William E. Rottino
Name: William E. Rottino
Title:VP
SOCIETE GENERALE
By /s/ Maureen Kelly
Name: Maureen E. Kelly
Title:Director
UNION BANK OF CALIFORNIA
By /s/ Janice Zeitinger
Name:
Title:VP
-5-
<PAGE>
COMERICA BANK -- CALIFORNIA
By /s/ D. Jeffrey Andrick
Name:
Title:VP
FLEET BANK, N.A.
By /s/ Eric S. Meyer
Name:
Title:VP
PACIFIC CENTURY BANK, N.A.
By /s/ Jan Van Houdt
Name:
Title:VP
BANQUE INTERNATIONALE A LUXEMBOURG
By /s/ E. Rolin
Name:
Title:Senior Manager
By /s/ N. Weaver
Name:
Title: Assistant Director
-6-
<PAGE>
NATEXIS BANQUE BFCE
By /s/ Daniel Touffu
Name:Daniel Touffu
Title:Sr. VP & Regional Manager
By /s/ Ian A. Whyte
Name:
Title:VP
CITY NATIONAL BANK
By /s/ Norman Starr
Name:
Title:VP
DE NATIONALE INVESTERINGSBANK N.V.
By /s/ Eric H. Snaterse
Name:
Title:SR VP
By /s/ N.C.J. Renkeals
Name:
Title:Legal Counsel
BANQUE NATIONALE DE PARIS
By /s/ Clive Bettles
Name:
Title:SVP & Manager
By /s/ Janice S.H. Ho
Name:
Title:VP
-7-
<PAGE>
THE FUJI BANK, LTD.
By /s/ Hideo Nakajima
Name:
Title:General Manager
PARIBAS
By /s/ Douglas E. Hansen
Name:
Title:Director
-8-
<PAGE>
EXHIBIT R
(to Credit Agreement)
Form of Intercreditor Agreement
-9-
<PAGE>
Exhibit 10.27
AMENDMENT NO. 3 dated as of August 18, 1999 to the Amended
and Restated Credit and Guaranty Agreement dated as of July
9, 1997, as amended and restated as of August 10, 1998,
among ARTISAN PICTURES INC. ("Pictures"), ARTISAN HOME
ENTERTAINMENT INC. ("Home Entertainment"; and together with
Pictures, collectively, the "Borrower"), the Guarantors
named therein, the Lenders referred to therein and THE CHASE
MANHATTAN BANK, as Administrative Agent and as Fronting Bank
for the Lenders (the "Agent") (as the same may be amended,
supplemented or otherwise modified, the "Credit Agreement").
INTRODUCTORY STATEMENT
----------------------
The Lenders have made available to the Borrower a credit facility
pursuant to the terms of the Credit Agreement.
Artisan Entertainment Inc. or one of its subsidiaries, together with
other unaffiliated investors, will arrange for the formation of Artisan Film
Investors ("AFI"), an unaffiliated Delaware business trust to be formed solely
for the purpose of acquiring completed theatrical feature films to be
distributed by Pictures, all as described in the Term Sheet attached hereto as
Exhibit A (the "AFI Transaction").
The Borrower, the Guarantors, the Lenders and the Agent have agreed to
amend the Credit Agreement in order to permit Pictures to enter into, and
perform its obligations in connection with, the AFI Transaction, all on the
terms and subject to the conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and not
-------------
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
----------------------------------
satisfaction of the conditions precedent set forth in Section 4 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
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<PAGE>
(A) Article 1 of the Credit Agreement is hereby amended by adding the
following definition in the appropriate alphabetical sequence:
"AFI" shall mean Artisan Film Investors, a Delaware business trust to
be formed in connection with the AFI Transaction.
"AFI Transaction" shall mean the transaction described in the Term
Sheet attached as Exhibit A to Amendment No. 3 to the Credit
Agreement.
(B) The definitions of "Affiliate" and "Subsidiary" appearing in Article 1
of the Credit Agreement are each hereby amended by adding the following sentence
at the end of each definition:
"For the avoidance of doubt, AFI shall not be deemed to be an
'Affiliate' or a 'Subsidiary' of a Credit Party unless and until such
time that a Credit Party acquires an equity or membership interest in
AFI."
(C) The definition of "Borrowing Base" appearing in Article 1 of the
Credit Agreement is hereby amended to add the following clause at the end of the
existing text:
"(iii) the Borrowing Base shall not include any distribution fees
earned with respect to, or any other component attributable to, any
Picture owned by AFI."
(D) The definition of "Indebtedness" appearing in Article 1 of the Credit
Agreement is hereby amended by adding the following sentence at the end thereof:
"For the avoidance of doubt, the Indebtedness incurred by AFI in
connection with the AFI Transaction shall not be deemed to be
'Indebtedness' of a Credit Party under this Credit Agreement."
(E) The definition of "Off-Balance Sheet Commitments" appearing in Article
1 of the Credit Agreement is hereby amended by adding the following proviso at
the end thereof:
"; provided, further, that with respect to an item of Product for
which Pictures has committed to provide a portion of the production
costs in connection with an item of Product subject to the AFI
Transaction, Off-Balance Sheet Commitments in respect of Pictures'
commitment for such item of Product shall be reduced (but not below
zero) by any amounts in the approved budget of such Product (e.g.
overhead costs and producers' fees) which are payable to Pictures for
its own account.
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<PAGE>
(F) Section 6.1 of the Credit Agreement is hereby amended by adding the
following clause (p) at the end thereof:
"(p) Indebtedness incurred by a Credit Party arising from (i) the
theatrical exhibition of "Blair Witch Project" in the United States
and Canada and (ii) prior to the earlier to occur of December 31, 1999
and the closing of the AFI Transaction, the theatrical exhibition of
Pictures other than "Blair Witch Project" in the United States and
Canada; provided that such Indebtedness is non-recourse to any Credit
Party except for customary representations and warranties in form and
substance acceptable to the Administrative Agent and security
interests in the receivables from the exhibition of such Pictures
granted in connection with the incurrence of such Indebtedness."
(G) Section 6.2 of the Credit Agreement is hereby amended by adding the
following clauses (v) and (w) at the end thereof:
"(v) Liens securing the obligations of Pictures and the other Credit
Parties in connection with the AFI Transaction; provided that the
secured party of such Lien shall have entered into an intercreditor
agreement with the Collateral Agent in form and substance satisfactory
to the Administrative Agent; and
"(w) Liens on certain theatrical receivables as contemplated by
Section 6.1(p)."
(H) Section 6.3 of the Credit Agreement is hereby amended by (1) adding
the words ", (vii) Guarantees of the obligations of Pictures under the
AFI Transaction, and" after the word "hereunder" appearing in clause
(vi) therein and (2) changing the reference to the existing clause
(vii) from "(vii") to "(viii)".
(I) Section 6.8 of the Credit Agreement is hereby amended in its entirety
to read as follows:
"SECTION 6.8. Receivables. Sell, discount or otherwise dispose of
-----------
notes, accounts receivable or other obligations owing to any Credit
Party except (i) for the purpose of collection in the ordinary course,
(ii) the factoring on a fully non-recourse basis (except for customary
representations and warranties in form and substance acceptable to the
Administrative Agent) of receivables arising from the theatrical
exhibition of "Blair Witch Project" in the United States and Canada
and (iii) prior to the earlier to occur of December 31, 1999 and the
closing of the AFI Transaction, the factoring on a fully non-recourse
basis (except for customary representations and warranties in form and
substance acceptable to the Administrative Agent) of receivables
arising from the theatrical exhibition of Pictures other than "Blair
Witch Project" in the United States and Canada."
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<PAGE>
(J) Section 6.9 of the Credit Agreement is hereby amended by adding the
phrase "Except pursuant to the AFI Transaction," at the beginning of
the existing text.
(K) Section 6.13(a) of the Credit Agreement is hereby amended by adding
the following clause (z) at the end thereof:
"or (z) any term or provision of the AFI Transaction in a manner which
would change or alter any material term of the transaction set forth
on the Term Sheet attached as Exhibit A to Amendment No. 3 to the
Credit Agreement, and which change or alteration could reasonably be
expected to (i) materially and adversely affect the financial
condition of Pictures, (ii) materially and adversely affect the rights
of the Lenders under this Credit Agreement, the other Fundamental
Documents and any other agreements contemplated hereby, or (iii)
materially decrease the value of the Collateral."
(L) Section 6.19 (Leverage Ratio) of the Credit Agreement is hereby
amended in its entirety to read as follows:
"SECTION 6.19. Leverage Ratio. Permit the ratio (the "Leverage
-------------- --------
Ratio") of (i) the sum of Consolidated Senior Debt plus Off-Balance
-----
Sheet Commitments (excluding, in the case of each transaction in which
the applicable Credit Party has provided no monetary commitment other
than a print and advertising commitment, the first $3,000,000 of the
amount of such print and advertising commitment) less all Off-Balance
Sheet Receivables and Borrowing Base credits that relate to items of
Product that are the subject of such Off-Balance Sheet Commitments
(but not more with respect to any particular items of Product than the
related amount of Off-Balance Sheet Commitments (without taking into
account the $3,000,000 deduction permitted above)) to (ii)
Consolidated Capital Base, all as determined as of each quarter end,
to be greater than (x) 5.5:1 for the quarter ending September 30,
1999, (y) 5.0:1 for the quarters ending December 31, 1999, March 31,
2000, and June 30, 2000, and (z) 4.0:1 for the quarter ending
September 30, 2000 and each quarter thereafter.
(M) Section 10.1(c) of the Credit Agreement is hereby amended by adding
the following clause (xii) at the end thereof:
"(xii) to enter into an intercreditor agreement (in such form as the
Administrative Agent may deem appropriate) to implement the
allocations of gross receipts and the security interest granted by
Pictures and certain of its affiliates, each in connection with the
AFI Transaction (as described in the Term Sheet attached to Amendment
No. 3 to the Credit Agreement)."
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<PAGE>
(N) The Schedule of Commitments appearing in Schedule 1 to the Credit
Agreement is hereby replaced in its entirety by Schedule 1 (Revised)
attached to this Amendment No. 3.
Section 3. Consent. The Borrower has requested that the Lenders
-------
consent to a waiver of compliance by the Credit Parties with respect to (i)
Section 2.7 of the Credit Agreement which requires any partial reduction of the
Revolving Credit Commitments to be made among the Lenders in accordance with
their respective Percentages and (ii) Section 10.2 of the Credit Agreement which
requires that any payment of interest and repayment of principal in respect of
any Loans be made pro rata among the Lenders in accordance with their respective
Percentages. At the request of the Borrower, each Lender by its signature
hereto hereby (i) consents to the reduction of the Revolving Credit Commitment
of City National Bank by $2,500,000 and (ii) waives the requirements of Section
2.7 in connection with such reduction in the Revolving Credit Commitments. In
connection with such reduction, each Lender hereby authorizes and directs the
Administrative Agent to allocate subsequent repayments and/or prepayments by the
Borrower of Revolving Credit Loans such that after giving effect to such
repayment or prepayment, the outstanding Revolving Credit Loans attributable to
each Lender shall be in proportion to such Lender's Percentage of the Revolving
Credit Commitments of all the Lenders after giving effect to this Amendment.
The waiver contained in this Section 3 is limited to the specific
provision provided above and shall not in any way be construed as entitling the
Credit Parties to any waiver of any matters other than as specifically provided
above or to any future waivers regarding similar matters or otherwise.
Section 4. Conditions to Effectiveness. The effectiveness of this
---------------------------
Amendment is subject to the satisfaction in full of each of the conditions
precedent set forth in this Section 4 (the date on which all such conditions
have been satisfied being herein called the "Effective Date"):
(A) the Agent shall have received counterparts of this Amendment
which, when taken together, bear the signatures of the Borrower, each Guarantor,
the Agent and such of the Lenders as are required by the Credit Agreement;
(B) the Agent shall have received the written consent of the holders
of the Secured Subordinated Notes; and
(C) all legal matters incident to this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Agent.
Section 5. Fees. In consideration for the Lenders and the Agent
----
entering into this Amendment, on the Effective Date, the Borrower agrees to pay
the Agent for the account of each
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<PAGE>
of the Lenders an aggregate fee equal to 0.125% of the aggregate Commitment of
each Lender under the Credit Agreement after giving effect to the provisions of
this Amendment.
Section 6. Representations and Warranties. Each Credit Party
------------------------------
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date);
and
(B) after giving effect to this Amendment, no Event of Default or
Default will have occurred and be continuing on and as of the date hereof.
Section 7. Further Assurances. At any time and from time to time,
------------------
upon the Agent's request and at the sole expense of the Credit Parties, each
Credit Party will promptly and duly execute and deliver any and all further
instruments and documents and take such further action as the Agent reasonably
deems necessary to effect the purposes of this Amendment.
Section 8. Fundamental Documents. This Amendment is designated a
---------------------
Fundamental Document by the Agent.
Section 9. Full Force and Effect. Except as expressly amended
---------------------
hereby, the Credit Agreement and the other Fundamental Documents shall continue
in full force and effect in accordance with the provisions thereof on the date
hereof. As used in the Credit Agreement, the terms "Agreement", "this
Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar
import, shall, unless the context otherwise requires, mean the Credit Agreement
as amended by this Amendment.
Section 10. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 11. Counterparts. This Amendment may be executed in two or
------------
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
Section 12. Expenses. The Borrower agrees to pay all out-of-pocket
--------
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, but not limited to, the reasonable fees
and disbursements of counsel for the Agent.
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<PAGE>
Section 13. Headings. The headings of this Amendment are for the
--------
purposes of reference only and shall not affect the construction of or be taken
into consideration in interpreting this Amendment
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to
be duly executed as of the date first written above.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
LIVE VENTURES INC.
LIVENET INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By /s/ Mark Curcio
-------------------------------------
Name:
Title: Authorized Signatory for each of the
foregoing
FILM HOLDINGS CO.
By /s/ Geoff Rehnert
-------------------------------------
Name:
Title: Principal
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<PAGE>
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By /s/ Ken Schapiro
-------------------------------------
Name:
Title:
LENDERS:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By /s/ Constance M. Coleman
-------------------------------------
Name: Constance M. Coleman
Title: Vice President
SOCIETE GENERALE
By /s/ Maureen E. Kelly
-------------------------------------
Name: Maureen E. Kelly
Title: Director
UNION BANK OF CALIFORNIA
By /s/ Thomas P. Garry, Jr.
-------------------------------------
Name: Thomas P. Garry, Jr.
Title: Vice President
COMERICA BANK -- CALIFORNIA
By /s/ Carmen Carpenter
-------------------------------------
Name: Carmen Carpenter
Title: AVP
-8-
<PAGE>
FLEET BANK, N.A.
By /s/ Eric S. Meyer
-------------------------------------
Name: Eric S. Meyer
Title: Vice President
PACIFIC CENTURY BANK, N.A.
By /s/ David K. Henry
-------------------------------------
Name: David K. Henry
Title: Vice President
BANQUE INTERNATIONALE A LUXEMBOURG
By /s/ E. Rolin
-------------------------------------
Name: E. Rolin
Title: General Manager
By /s/ N. Weaver
-------------------------------------
Name: N. Weaver
Title: Asst. Director
NATEXIS BANQUE BFCE
By /s/ Bennett C. Pozil
-------------------------------------
Name: Bennett C. Pozil
Title: Vice President and Group Manager
Entertainment Finance
By /s/ Mark A. Harrington
-------------------------------------
Name: Mark A. Harrington
Title: Senior Vice President
and Regional Manager
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<PAGE>
CITY NATIONAL BANK
By /s/ Norman B. Starr
-------------------------------------
Name: Norman B. Starr
Title: Vice President
DE NATIONALE INVESTERINGSBANK N.V.
By /s/ C. Mulder
-------------------------------------
Name: C. Mulder
Title: Legal Counsel
By /s/ P.N.S. Luttjehuizen
-------------------------------------
Name: P.N.S. Luttjehuizen
Title: Senior Executive Vice President
BANQUE NATIONALE DE PARIS
By /s/ Janice Ho
-------------------------------------
Name: Janice Ho
Title: Vice President
By /s/ Mitch Ozawa
-------------------------------------
Name: Mitch Ozawa
Title: Vice President
THE FUJI BANK, LTD.
By /s/ Hiromitsu Ugawa
-------------------------------------
Name: Hiromitsu Ugawa
Title: Senior Vice President
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<PAGE>
PARIBAS
By /s/ David J. Pastre / /s/ Thomas G. Brandt
-----------------------/ --------------------
Name: David J. Pastre / Thomas G. Brandt
Title: Vice President / Director
-11-
<PAGE>
Schedule 1
(Revised as of August 18, 1999)
Schedule of Commitments
<TABLE>
<CAPTION>
Revolving Revolving Term Term
Total Credit Credit Loan Loan
Banks Commitment Commitment Percentage Commitment Percentage
<S> <C> <C> <C> <C> <C>
1. Chase $ 20,242,104.00 $ 17,968,422.00 12.203753% $ 2,273,682.00 12.000000%
2. Societe Generale 17,350,374.86 15,401,504.57 10.460360% 1,948,870.29 10.285714%
3. Union Bank of California 17,350,374.86 15,401,504.57 10.460360% 1,948,870.29 10.285714%
4. Fleet Bank 17,350,374.86 15,401,504.57 10.460360% 1,948,870.29 10.285714%
5. Comeria Bank-California 14,458,645.71 12,834,587.14 8.716967% 1,624,058.57 8.571429%
6. California United Bank 14,458,645.71 12,834,587.14 8.716967% 1,624,058.57 8.571429%
7. Natexis Banque 9,639,097.14 8,556,391.43 5.811311% 1,082,705.71 5.714286%
8. BIL 9,639,097.14 8,556,391.43 5.811311% 1,082,705.71 5.714286%
9. De National Investeringsbank 9,639,097.14 8,556,391.43 5.811311% 1,082,705.71 5.714286%
10. Banque National de Paris 9,639,097.14 8,556,391.43 5.811311% 1,082,705.71 5.714286%
11. The Fuji Bank, Ltd. 9,639,097.14 8,556,391.43 5.811311% 1,082,705.71 5.714286%
12. Banque Paribas 9,639,097.14 8,556,391.43 5.811311% 1,082,705.71 5.714286%
13. City National Bank 7,139,097.14 6,056,391.43 4.113367% 1,082,705.71 5.714286%
TOTAL $166,184,199.98 $147,236,850.00 100% $18,947,349.98 100%
</TABLE>
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<PAGE>
EXHIBIT 10.28
AMENDMENT NO. 4 dated as of September 30, 1999 to the
Amended and Restated Credit and Guaranty Agreement dated as
of July 9, 1997, as amended and restated as of August 10,
1998, among ARTISAN PICTURES INC. ("Pictures"), ARTISAN HOME
ENTERTAINMENT INC. ("Home Entertainment"; and together with
Pictures, collectively, the "Borrower"), the Guarantors
named therein, the Lenders referred to therein and THE CHASE
MANHATTAN BANK, as Administrative Agent and as Fronting Bank
for the Lenders (the "Agent") (as the same may be amended,
supplemented or otherwise modified, the "Credit Agreement").
INTRODUCTORY STATEMENT
----------------------
The Lenders have made available to the Borrower a credit facility
pursuant to the terms of the Credit Agreement.
The Borrower and Guarantors have requested certain modifications to
the Credit Agreement to, among other things, temporarily increase the
Commitments under the Credit Agreement to $191,350,000 in order to allow the
Borrower to have up to $185,000,000 in Loans outstanding at any given time. As
a result of the increase in the Commitments, as the amount outstanding under the
Term Loan Commitments is reduced by scheduled installment payments, the Borrower
will be able to access additional loans under the Revolving Credit Commitments,
subject to the $185,000,000 limit on the aggregate amount of Loans outstanding.
In addition, the Borrower and Guarantors have requested that the Agent
and the Lenders consent to the Credit Parties entering into Amendment No. 3 to
the note purchase agreement governing the Secured Subordinated Notes ("Amendment
No. 3") to facilitate the requested increase in the Commitments.
The Lenders and the Agent have agreed to increase the Commitments
under the Credit Agreement and to make certain other revisions to the Credit
Agreement, all on the terms and subject to the conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
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<PAGE>
Section 1. Defined Terms. Capitalized terms used herein and not
-------------
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
----------------------------------
satisfaction of the conditions precedent set forth in Section 5 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
(A) Article 1 of the Credit Agreement is hereby amended by adding the
following definitions in the appropriate alphabetical sequence:
"Change in Management" shall mean (i) both Kenneth Schapiro and Mark
--------------------
Curcio shall cease for any reason, including, without limitation,
termination of employment, death or disability, to perform the
functions and services currently being performed by such Person and
(ii) the Borrower shall have failed to appoint a replacement for
Kenneth Schapiro or Mark Curcio, as the case may be, who is reasonably
acceptable to the Required Lenders within 180 days of such
discontinuance. For purposes hereof, a replacement shall be deemed to
be acceptable to the Required Lenders in the event the Administrative
Agent or Required Lenders do not object to a proposed replacement
within 30 days after the Administrative Agent and Lenders receive
written notice (which notice makes explicit reference to this
definition) from the Borrower informing them of such proposed
replacement.
"Major Studio" shall mean Universal Pictures, a division of Universal
------------
City Studios, Inc., Warner Bros., a division of Time Warner
Entertainment Company, L.P., Twentieth Century Fox Film Corporation,
Sony Pictures Entertainment, Paramount Pictures Corporation, and The
Walt Disney Company.
(B) The definitions of "Bain Related Party" and "Change in Control"
appearing in Article 1 of the Credit Agreement are each hereby amended and
restated in its entirety to read as follows:
"Bain Related Party" or "Bain Related Parties" shall mean individually
------------------ --------------------
or collectively, as the context may require, (i) Bain Capital, (ii)
any Affiliate of Bain Capital, (iii) Geoffrey Rehnert, Geoffrey
Rehnert and Marc Wolpow, or a corporation, partnership or other entity
of whom at least 50% of the voting stock or similar equity interests
are collectively held by Geoffrey Rehnert and Marc Wolpow, and (iv)
any trust, corporation, partnership or other entity of whom at least
80% of the voting stock or all of the general partnership interests or
other controlling interests are held, directly or indirectly, solely
by persons referred to in the preceding clauses of this definition.
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<PAGE>
"Change in Control" shall mean (i) the failure for any reason of the
-----------------
Bain Related Parties to own at least 75% of Holdings' voting stock
owned by them as of September 16, 1999, (ii) any Person or group (such
term being used as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) acquires ownership or
control of voting stock of Holdings having voting power greater than
the voting power at the time controlled by the Bain Related Parties,
(iii) if at any time, individuals who at September 16, 1999,
constituted the Board of Directors of Holdings (together with any new
directors whose election by such Board of Directors or whose
nomination for election by the shareholders of Parent was approved by
a vote of the majority of the directors then still in office who were
either directors at September 16, 1999 or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Holdings then in
office, (iv) prior to the consummation of an initial public offering
by Parent, the sale or other disposition of any of the voting stock of
Parent to anyone other than a Bain Related Party; provided, however,
-------- -------
that the sale of 100% of the stock of Parent to either (x) a Major
Studio or (y) a public company with an investment grade rating from
Standard & Poor's or Moody's and total market equity value of at least
$1,000,000,000 shall not constitute a Change of Control hereunder, (v)
after any initial public offering by Parent, that any person or group
(such term being used as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) acquires ownership or
control of voting stock of Parent having voting power greater than the
voting power of Holdings and its Affiliates, as a group, or (vi) the
failure of Parent to be the sole direct or indirect shareholder of the
Borrower and the other Credit Parties.
(C) Section 2.1 (e) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(e) Notwithstanding anything to the contrary above, a Lender shall
not be obligated to make any additional Loans or incur any incremental
L/C Exposure if, as a result thereof, the aggregate principal amount
of all Loans then outstanding plus the then current L/C Exposure plus
---- ----
the unused portion of the Special Production Tranche for each
Designated Picture, exceeds the lesser of (x) the Borrowing Base or
(y) the lesser of the Total Commitments then in effect or
$185,000,000."
(D) Section 2.7 of the Credit Agreement is hereby amended by inserting the
following clause (c) at the end thereof:
"(c) The Revolving Credit Commitments shall be automatically and
permanently reduced on the earlier to occur of:
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<PAGE>
(x) the consummation of the AFI Transaction, in which case the
Revolving Credit Commitments shall be reduced by (i)
reducing the Revolving Credit Commitment of City National
Bank by $7,500,000 ($2,500,000 of which constitutes the
reduction referenced in Section 3 of Amendment No. 3 to this
Credit Agreement), (ii) reducing the Revolving Credit
Commitment of DeNationale Investeringsbank N.V. by
$5,000,000, (iii) reducing the Revolving Credit Commitment
of The Chase Manhattan Bank by $12,665,800.02, and (iv)
reducing the Revolving Credit Commitments of all Lenders in
accordance with their respective Percentages (after giving
effect to the reductions set forth in clauses (i), (ii) and
(iii) above) by an amount such that the Total Commitments
equal $165,000,000 after giving effect to such reduction;
(y) July 1, 2000, in which case the Revolving Credit Commitments
shall be reduced by (i) reducing the Revolving Credit
Commitment of The Chase Manhattan Bank by $12,665,800.02,
and (ii) reducing the Revolving Credit Commitments of all
Lenders in accordance with their respective Percentages
(with such Percentages determined after giving effect to the
reduction set forth in clause (i) above) by an amount such
that the Total Commitments equal $160,000,000 after giving
effect to such reduction.
Simultaneously with such reduction of the Revolving Credit
Commitments, the Borrower shall pay to the Administrative Agent, for
the benefit of each Lender whose Revolving Credit Commitment is
reduced in accordance with the preceding sentence, all accrued an
unpaid Commitment Fees on the amount of the Revolving Credit
Commitment of each such Lender so reduced through the date of such
reduction."
(E) Clause (i) of Section 7 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"(i) a Change on Control or a Change in Management shall occur;"
(F) The Schedule of Commitments appearing in Schedule 1 to the Credit
Agreement is hereby replaced in its entirety by Schedule 1 (Revised) attached to
this Amendment No. 4.
(G) Schedule 2.1 (Acceptable Obligors/Allowable Amounts) to the Credit
Agreement is hereby amended by adding the following Approved Account Debtors and
their respective Amounts:
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<PAGE>
<TABLE>
<CAPTION>
Name of Approved
Debtor Category Account Debtor Allowable Amount
--------------- -------------- ----------------
<S> <C> <C>
Foreign Account Debtor Egmont (Scandinavia) $1,000,000
Foreign Account Debtor Asmilk Corporation (Japan) $2,000,000
Foreign Account Debtor Highlight Video (Germany) $5,000,000
Foreign Account Debtor Laurenfilm S.A. (Spain) $1,000,000
Acceptable Domestic Account Pearson Television (Basic cable) $2,000,000
Debtor (Basic Cable)
</TABLE>
(H) Schedule 2.1 (Acceptable Obligors/Allowable Amounts) to the Credit
Agreement is hereby further amended by increasing the Allowable Amount for the
following account debtors to the amounts set forth opposite such account
debtor's name below:
<TABLE>
<CAPTION>
Name of Approved
Debtor Category Account Debtor Allowable Amount
--------------- -------------- ----------------
<S> <C> <C>
Acceptable Major Account Debtor 20th Century Fox Film Corporation $60,000,000 (but only
until 6/30/2000, at
which time the
Allowable Amount for
20th Century Fox
shall automatically
and permanently be
reduced to
$40,000,000)
Acceptable Domestic Account USA Networks/SciFi Channel $10,000,000
Debtor (Basic Cable)
Acceptable Domestic Account Comedy Central $ 1,000,000
Debtor (Basic Cable)
Acceptable Domestic Account Discovery Network $ 1,000,000
Debtor (Basic Cable)
Acceptable Domestic Account FX $25,000,000
Debtor (Basic Cable)
Acceptable Domestic Account Lifetime $ 1,000,000
Debtor (Basic Cable)
Acceptable Domestic Account Romance Classics $ 1,000,000
Debtor (Basic Cable)
</TABLE>
-5-
<PAGE>
(I) Schedule 2.2 (Home Video Model) to the Credit Agreement is hereby
replaced in its entirety by Schedule 2.2 (Revised) attached to this Amendment
No. 4.
Section 3. Consent. The Borrower has requested that the Agent and
-------
the Lenders consent to a waiver of compliance by the Debtors with Section 6.13
of the Credit Agreement which prohibits the Credit Parties from modifying any
indenture or note purchase agreement governing the Secured Subordinated Notes.
At the request of the Borrower, each Lender by its signature hereto hereby
consents to the Credit Parties entering into Amendment No. 3 to the Note & Stock
Purchase Agreement dated as of July 9, 1997 between Canyon and the Credit
Parties, in the form attached hereto as Exhibit A.
The waiver contained in this Section 3 is limited to the specific
provision provided above and shall not in any way be construed as entitling the
Borrower to any waiver of any matters other than as specifically provided above
or to any future waivers regarding similar matters or otherwise.
Section 4. Increase in Commitments.
-----------------------
(a) As of the Effective Date, the Total Commitments shall be
increased by $22,665,800.02, by (x) the addition of Far East National Bank ("Far
East"), as a party to this Credit Agreement, with a Total Commitment of
$10,000,000, and (y) a $12,665,800.02 increase in the Revolving Credit
Commitment of The Chase Manhattan Bank ("Chase"; and together with Far East, the
"Assuming Banks"). On or prior to the Effective Date, Far East shall execute
and deliver to the Agent, for its acceptance and recording in the Register, an
Assumption Agreement in the form of Exhibit B attached hereto. Upon such
execution, delivery, acceptance and recording, from and after the Effective
Date, Far East shall be a party to the Credit Agreement and shall have all of
the rights and obligations of a Lender thereunder.
(b) On the Effective Date, Far East shall purchase from Chase a
portion of its outstanding Term Loans such that after giving effect thereto Far
East and Chase will hold Term Loans in the amounts set forth on Schedule 1
(Revised) to this Amendment No. 4. Each Assuming Bank shall be deemed to have
irrevocably and unconditionally purchased and received from each of the other
Lenders (including, in the case of Far East, Chase) a participation in each
outstanding Letter of Credit such that after giving effect thereto, each of the
Lenders holds a participation in all outstanding Letters of Credit in proportion
with the Revolving Credit Commitments as set forth of Schedule 1 (Revised) to
this Amendment No. 4.
(c) For purposes of Section 2.10(b) of the Credit Agreement, the
reallocation of the Commitments set forth in clause (b) above shall be treated
as prepayments of the Loans and the Borrower shall be subject to reimbursement
obligations set forth in Section 2.10(b) for losses incurred by the Lenders in
the reemployment of any Eurodollar Loans affected by such reallocation.
-6-
<PAGE>
Section 5. Conditions to Effectiveness. The effectiveness of this
---------------------------
Amendment is subject to the satisfaction in full of each of the conditions
precedent set forth in this Section 5 (the date on which all such conditions
have been satisfied being herein called the "Effective Date"):
(A) the Agent shall have received counterparts of this Amendment
which, when taken together, bear the signatures of the Borrower, each Guarantor,
the Agent and such of the Lenders as are required by the Credit Agreement;
(B) the Agent shall have received an Assumption Agreement (in form of
Exhibit B hereto), duly executed by Far East National Bank;
(C) the Agent shall have received a new Revolving Credit Note
executed by the Borrower for each of The Chase Manhattan Bank and Far East
National Bank in the face amount of such Lender's Revolving Credit Commitment
and a Term Note executed by Pictures for Far East National Bank in the face
amount of such Lender's Term Loan Commitment, in each case after giving effect
to this Amendment No. 4;
(D) all fees contemplated by the Fee Letter dated of even date
herewith between the Borrower and the Agent shall have been paid; and
(E) all legal matters incident to this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Agent.
Section 6. Representations and Warranties. Each Credit Party
------------------------------
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date);
and
(B) after giving effect to this Amendment, no Event of Default or
Default will have occurred and be continuing on and as of the date hereof.
Section 7. Further Assurances. At any time and from time to time,
------------------
upon the Agent's request and at the sole expense of the Credit Parties, each
Credit Party will promptly and duly execute and deliver any and all further
instruments and documents and take such further action as the Agent reasonably
deems necessary to effect the purposes of this Amendment.
Section 8. Fundamental Documents. This Amendment is designated a
---------------------
Fundamental Document by the Agent.
-7-
<PAGE>
Section 9. Full Force and Effect. Except as expressly amended
---------------------
hereby, the Credit Agreement and the other Fundamental Documents shall continue
in full force and effect in accordance with the provisions thereof on the date
hereof. As used in the Credit Agreement, the terms "Agreement", "this
Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar
import, shall, unless the context otherwise requires, mean the Credit Agreement
as amended by this Amendment.
Section 10. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 11. Counterparts. This Amendment may be executed in two or
------------
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
Section 12. Expenses. The Borrower agrees to pay all out-of-pocket
--------
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, but not limited to, the reasonable fees
and disbursements of counsel for the Agent.
Section 13. Headings. The headings of this Amendment are for the
--------
purposes of reference only and shall not affect the construction of or be taken
into consideration in interpreting this Amendment
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to
be duly executed as of the date first written above.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
LIVE VENTURES INC.
LIVENET INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By /s/ Ken Schapiro
---------------------------------
Name: Ken Schapiro
Title: Authorized Signatory for
each of the foregoing
FILM HOLDINGS CO.
By /s/ Geoff Rehnert
---------------------------------
Name: Geoff Rehnert
Title: Principal
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By /s/ Ken Schapiro
--------------------------------
Name: Ken Schapiro
Title: EVP
-9-
<PAGE>
LENDERS:
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent
By /s/ William E. Rottino
-----------------------------------
Name: William E. Rottino
Title: Vice President
SOCIETE GENERALE
By /s/ Brian McDonald
-----------------------------------
Name: Brian McDonald
Title: Vice President
UNION BANK OF CALIFORNIA
By /s/ Thomas P. Garry, Jr.
-----------------------------------
Name: Thomas P. Garry, Jr.
Title: Vice President
COMERICA BANK -- CALIFORNIA
By /s/ Carmen Carpenter
-----------------------------------
Name: Carmen Carpenter
Title: VP
FLEET BANK, N.A.
By /s/ Eric S. Meyer
-----------------------------------
Name: Eric S. Meyer
Title: Vice President
-10-
<PAGE>
PACIFIC CENTURY BANK, N.A.
By /s/ David K. Henry
----------------------------------
Name: David K. Henry
Title: Vice President
BANQUE INTERNATIONALE A
LUXEMBOURG
By /s/ E. Rolin
----------------------------------
Name: E. Rolin
Title: Senior Manager
By /s/ N. Weaver
----------------------------------
Name: N. Weaver
Title: Assistant Director
NATEXIS BANQUE BFCE
By /s/ Bennett C. Pozil
----------------------------------
Name: Bennett C. Pozil
Title: Vice President and Group Manager
Entertainment Finance
By /s/ Mark A. Harrington
----------------------------------
Name: Mark A. Harrington
Title: Senior Vice President and
Regional Manager
CITY NATIONAL BANK
By /s/ Norman B. Starr
---------------------------------
Name: Norman B. Starr
Title: Vice President
-11-
<PAGE>
DE NATIONALE INVESTERINGSBANK N.V.
By /s/ Eric H. Snaterse
------------------------------------
Name: Eric H. Snaterse
Title: Senior Vice President
By /s/ Joseph L. Piek
------------------------------------
Name: Joseph L. Piek
Title: V.P.
BANQUE NATIONALE DE PARIS
By /s/ Clive Bettles
------------------------------------
Name: Clive Bettles
Title: SVP and Manager
By /s/ Janice S.H. Ho
------------------------------------
Name: Janice S.H. Ho
Title: Vice President
THE FUJI BANK, LTD.
By /s/ Masahito Fukuda
------------------------------------
Name: Masahito Fukuda
Title: Senior Vice President
PARIBAS
By /s/ Thomas G. Brandt
------------------------------------
Name: Thomas G. Brandt
Title: Managing Director
By /s/ Ching Linn
------------------------------------
Name: Ching Lim
Title: Vice President
-12-
<PAGE>
FAR EAST NATIONAL BANK
By /s/ CHC
-----------------------------------
Name:
Title: R.V.P.
-13-
<PAGE>
Schedule 1
(Revised as of September 30, 1999)
Schedule of Commitments
<TABLE>
<CAPTION>
Revolving Revolving Term Term
Total Credit Credit Loan Loan
Banks Commitment Commitment Percentage Commitment Percentage
<S> <C> <C> <C> <C> <C>
1. Chase $ 32,907,904.02 $ 31,757,465.91 18.420521% $ 1,150,438.11 6.071763%
2. Societe Generale 17,350,374.86 15,401,504.57 8.933450% 1,948,870.29 10.285714%
3. Union Bank of California 17,350,374.86 15,401,504.57 8.933450% 1,948,870.29 10.285714%
4. Fleet Bank 17,350,374.86 15,401,504.57 8.933450% 1,948,870.29 10.285714%
5. Comerica Bank-California 14,458,645.71 12,834,587.14 7.444542% 1,624,058.57 8.571429%
6. Pacific Century Bank 14,458,645.71 12,834,587.14 7.444542% 1,624,058.57 8.571429%
7. Far East National Bank 10,000,000.00 8,876,756.09 5.148851% 1,123,243.91 5.928238%
8. Natexis Banque 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
9. BIL 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
10. De National Investeringsbank 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
11. Banque National de Paris 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
12. The Fuji Bank, Ltd. 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
13. Banque Paribas 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
14. City National Bank 9,639,097.14 8,556,391.43 4.963028% 1,082,705.71 5.714286%
TOTAL $191,350,000.00 $172,402,650.00 100% $18,947,350.00 100%
</TABLE>
-14-
<PAGE>
Schedule 2.2
(Revised as of September 30, 1999)
Home Video Model
Box Office Gross Video Units Sell-Through Units
$0-3,000,000 50,000 0
3,000,001 - 5,000,000 75,000 0
5,000,001 - 10,000,000 100,000 900,000
10,000,001 - 15,000,000 125,000 1,300,000
15,000,001 - 20,000,000 150,000 1,300,000
20,000,001 - 25,000,000 175,000 1,700,000
25,000,001 - 30,000,000 200,000 1,700,000
30,000,001 - 40,000,000 225,000 1,700,000
40,000,001 - 50,000,000 250,000 2,100,000
50,000,001 - 70,000,000 300,000 2,800,000
70,000,001 - 100,000,000 350,000 2,800,000
*100,000,000 400,000 3,000,000
* = greater than
-15-
<PAGE>
EXHIBIT A
to Amendment No. 4
[Attach Amendment No. 3 to Canyon Note & Stock Purchase Agreement]
-16-
<PAGE>
EXHIBIT 10.29
AMENDMENT NO. 5 dated as of December 17, 1999 to the
Amended and Restated Credit and Guaranty Agreement dated as
of July 9, 1997, as amended and restated as of August 10,
1998, among ARTISAN PICTURES INC. ("Pictures"), ARTISAN HOME
ENTERTAINMENT INC. ("Home Entertainment"; and together with
Pictures, collectively, the "Borrower"), the Guarantors
named therein, the Lenders referred to therein and THE CHASE
MANHATTAN BANK, as Administrative Agent and as Fronting Bank
for the Lenders (the "Agent") (as the same may be amended,
supplemented or otherwise modified, the "Credit Agreement").
INTRODUCTORY STATEMENT
----------------------
The Lenders have made available to the Borrower a credit facility
pursuant to the terms of the Credit Agreement.
The Borrower and Guarantors have requested certain modifications to
the Credit Agreement to allow the making of loans to their officers and
employees to purchase stock in Film Holdings Co. and to permit Artisan
Entertainment Inc. to acquire an equity interest in The Baby Einstein Company
LLC.
The Lenders and the Agent have agreed to make revisions to amend the
Credit Agreement, all on the terms and subject to the conditions hereinafter set
forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and not
-------------
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
----------------------------------
satisfaction of the conditions precedent set forth in Section 3 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
(A) Section 6.4 of the Credit Agreement is hereby amended by (1)
inserting the words ", (xvii) loans or advances to officers or employees of the
Credit Parties (in addition to loans permitted under clause (xii) hereof) for
the purpose of purchasing stock in Holdings and/or paying tax obligations
incurred by such officers or employees in respect thereof in an amount not
-1-
<PAGE>
to exceed $2,000,000 in the aggregate, (xviii) Investments in connection with
the acquisition by Parent of an equity interest in The Baby Einstein Company LLC
on the terms set forth in the letter agreement dated November 8, 1999 between
Parent and The Baby Einstein Company LLC" after the word "Product" appearing in
clause (xvi), (2) changing the reference to the existing clause (xvii) from
"(xvii)" to "(xix)" and (3) changing the number "$1,000,000" appearing in the
existing clause (xvii) to "$5,000,000".
(B) Section 5.1 of the Credit Agreement is hereby amended by (1)
deleting the words "Simultaneously with the delivery of the statements referred
to in paragraph (a) of this Section 5.1" appearing in clause (i) thereof and (2)
inserting the words "No later than June 30, 2000 and June 30 of each year
thereafter" at the beginning of clause (i).
Section 3. Conditions to Effectiveness. The effectiveness of this
---------------------------
Amendment is subject to the satisfaction in full of each of the conditions
precedent set forth in this Section 3 (the date on which all such conditions
have been satisfied being herein called the "Effective Date"):
(A) the Agent shall have received counterparts of this Amendment
which, when taken together, bear the signatures of the Borrower, each Guarantor,
the Agent and such of the Lenders as are required by the Credit Agreement; and
(B) all legal matters incident to this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Agent.
Section 4. Representations and Warranties. Each Credit Party
------------------------------
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date);
and
(B) after giving effect to this Amendment, no Event of Default or
Default will have occurred and be continuing on and as of the date hereof.
(C) the Eligible Library Amount if determined as of the date hereof
would remain $180,000,000.
Section 5. Further Assurances. At any time and from time to time,
------------------
upon the Agent's request and at the sole expense of the Credit Parties, each
Credit Party will promptly and duly execute and deliver any and all further
instruments and documents and take such further action as the Agent reasonably
deems necessary to effect the purposes of this Amendment.
-2-
<PAGE>
Section 6. Fundamental Documents. This Amendment is designated a
---------------------
Fundamental Document by the Agent.
Section 7. Full Force and Effect. Except as expressly amended
---------------------
hereby, the Credit Agreement and the other Fundamental Documents shall continue
in full force and effect in accordance with the provisions thereof on the date
hereof. As used in the Credit Agreement, the terms "Agreement", "this
Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar
import, shall, unless the context otherwise requires, mean the Credit Agreement
as amended by this Amendment.
Section 8. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 9. Counterparts. This Amendment may be executed in two or
------------
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
Section 10. Expenses. The Borrower agrees to pay all out-of-pocket
--------
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, but not limited to, the reasonable fees
and disbursements of counsel for the Agent.
Section 11. Headings. The headings of this Amendment are for the
--------
purposes of reference only and shall not affect the construction of or be taken
into consideration in interpreting this Amendment
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to
be duly executed as of the date first written above.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
CACAPHONY PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By /s/ Mark Curcio
------------------------------------------------------
Name: Mark Curcio
Title: Authorized Signatory for each of the foregoing
FILM HOLDINGS CO.
By /s/ Joe Pretlow
------------------------------------------------------
Name: Joe Pretlow
Title: Principal
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By /s/ Mark Curcio
-----------------------------------------------------
Name: Mark Curcio
Title: CEO
-4-
<PAGE>
LENDERS:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By /s/ Edmund DeForest
-------------------------------------
Name: Edmund DeForest
Title: VP
SOCIETE GENERALE
By /s/ Brian McDonald
------------------------------------
Name: Brian McDonald
Title: VP
UNION BANK OF CALIFORNIA
By /s/ Thomas P. Garry, Jr.
------------------------------------
Name: Thomas P. Garry, Jr.
Title: VP
COMERICA BANK -- CALIFORNIA
By /s/ Carmen Carpenter
------------------------------------
Name: Carmen Carpenter
Title: VP
FLEET BANK, N.A.
By /s/ Eric S. Meyer
------------------------------------
Name: Eric S. Meyer
Title: VP
-5-
<PAGE>
PACIFIC CENTURY BANK, N.A.
By /s/ David K. Henry
---------------------------------------
Name: David K. Henry
Title: VP
BANQUE INTERNATIONALE A LUXEMBOURG
By /s/ E. Rolin
---------------------------------------
Name: E. Rolin
Title: Senior Manager
By /s/ N. Weaver
---------------------------------------
Name: N. Weaver
Title: Assistant Director
NATEXIS BANQUE BFCE
By Bennett C. Pozil
---------------------------------------
Name: Bennett C. Pozil
Title: VP and Group Manager
By /s/ Mark A. Harrington
---------------------------------------
Name: Mark A. Harrington
Title: Sr. VP & Regional Manager
CITY NATIONAL BANK
By /s/ Norman Starr
------------------------------------------
Name: Norman B. Starr
Title: VP
-6-
<PAGE>
DE NATIONALE INVESTERINGSBANK N.V.
By /s/ J.B. Spanjersberg
------------------------------------------
Name: J.B. Spanjersberg
Title: General Manager
By /s/ J.H. Naglegoal
------------------------------------------
Name: J.H. Naglegoal
Title: Vice President
BANQUE NATIONALE DE PARIS
By /s/ Janice Ho
------------------------------------------
Name: Janice Ho
Title: Vice President
By /s/ Tjalling Terpstra
------------------------------------------
Name: Tjalling Terpstra
Title: Vice President
THE FUJI BANK, LTD.
By /s/ Hiromitsu Ugawa
------------------------------------------
Name: Hiromitsu Ugawa
Title: Senior Vice President
PARIBAS
By /s/ Ching Lim
------------------------------------------
Name: Ching Lim
Title: Vice President
By /s/ Thomas G. Brandt
------------------------------------------
Name: Thomas G. Brandt
Title: Managing Director
-7-
<PAGE>
FAR EAST NATIONAL BANK
By /s/ CHC
---------------------------
Name: CHC
Title: Vice President
-8-
<PAGE>
EXHIBIT 10.30
- --------------------------------------------------------------------------------
CREDIT AND SECURITY AGREEMENT
Dated as of October 13, 1999
among
ARTISAN FILM INVESTORS TRUST
as Borrower
and
THE LENDERS NAMED HEREIN
with
THE CHASE MANHATTAN BANK, as Administrative Agent
and
THE CHASE MANHATTAN BANK, as Fronting Bank
and
FLEET BANK, as Waiver Agent
- --------------------------------------------------------------------------------
Morgan, Lewis & Bockius, LLP
101 Park Avenue
New York, New York 10178
<PAGE>
Schedules
1 Schedule of Commitments
3.7 Copyrights/Trademarks
3.8 Fictitious Names
3.10 Principal Executive Office/Location of Collateral/Filing
Offices
3.11 Litigation
3.14 Taxes
Exhibits
A-1 Form of Senior Tranche Note
A-2 Form of Junior Tranche Note
B-1 Opinion of Rosenfeld, Meyer & Sussman, LLP, special counsel to
the Borrower
B-2 Opinion of Morris, James, Hitches & Williams, LLP, Delaware
Counsel to the Borrower
C Form of Amendment to Pledgeholder Agreement
D-1 Form of Copyright Security Agreement
D-2 Form of Copyright Security Agreement Supplement
E Form of Trademark Security Agreement
F Form of Borrowing Certificate
G Form of Assignment and Acceptance
H Notice of Assignment and Irrevocable Instructions
I Form of Sponsor Agreement
Exhibit A Intercreditor Agreement
J Form of Distribution Agreement
K Master Film Purchase Agreement
L Trust Agreement
M Cash Flow Insurance
N Qualifying Picture Declaration
O Form of Equity Subordination Agreement
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS.............................................................. -2-
2. THE LOANS................................................................ -23-
SECTION 2.1. Loans................................................... -23-
SECTION 2.2. Making of Loans......................................... -25-
SECTION 2.3. Notes................................................... -27-
SECTION 2.4. Interest on Notes....................................... -28-
SECTION 2.5. Commitment Fees and Other Fees.......................... -28-
SECTION 2.6. Optional Termination or Reduction of Commitments........ -29-
SECTION 2.7. Default Interest; Alternate Rate of Interest............ -29-
SECTION 2.8. Continuation and Conversion of Loans.................... -30-
SECTION 2.9. Prepayment of Loans; Reimbursement of Lenders........... -31-
SECTION 2.10. Change in Circumstances................................. -33-
SECTION 2.11. Change in Legality...................................... -36-
SECTION 2.12. Manner of Payments...................................... -36-
SECTION 2.13. United States Withholding............................... -36-
SECTION 2.14. Interest Adjustments.................................... -39-
SECTION 2.15. Letters of Credit....................................... -39-
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER........................... -44-
SECTION 3.1. Corporate Existence and Power........................... -45-
SECTION 3.2. Authority and No Violation.............................. -45-
SECTION 3.3. Governmental Approval................................... -45-
SECTION 3.4. Binding Agreements...................................... -46-
SECTION 3.5. Special Purpose Nature of the Borrower.................. -46-
SECTION 3.6. Solvency................................................ -46-
SECTION 3.7. Copyrights, Trademarks and Other Rights................. -47-
SECTION 3.8. Fictitious Names........................................ -47-
SECTION 3.9. Title to Properties..................................... -47-
SECTION 3.10. Places of Business...................................... -47-
SECTION 3.11. Litigation.............................................. -48-
SECTION 3.12. Federal Reserve Regulations............................. -48-
SECTION 3.13. Investment Company Act.................................. -48-
SECTION 3.14. Taxes................................................... -48-
SECTION 3.15. Compliance with ERISA................................... -48-
SECTION 3.16. Agreements.............................................. -49-
SECTION 3.17. Security Interest; Other Security....................... -49-
SECTION 3.18. Disclosure.............................................. -49-
SECTION 3.19. Rights.................................................. -49-
SECTION 3.20. Environmental Liabilities............................... -49-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 3.21. Compliance with Laws.................................... -50-
SECTION 3.22. Year 2000 Compliance.................................... -50-
4. CONDITIONS OF LENDING.................................................... -50-
SECTION 4.1. Conditions Precedent to the Closing Date................ -50-
SECTION 4.2. Conditions Precedent to Initial Loans or Letters
of Credit with respect to each Declared Qualifying
Picture................................................. -54-
SECTION 4.3. Conditions Precedent to Each Loan and Letter
of Credit............................................... -56-
5. AFFIRMATIVE COVENANTS.................................................... -57-
SECTION 5.1. Financial Statements and Reports........................ -58-
SECTION 5.2. Existence............................................... -59-
SECTION 5.3. Maintenance of Properties............................... -59-
SECTION 5.4. Notice of Material Events............................... -59-
SECTION 5.5. Insurance............................................... -60-
SECTION 5.6. Copyright............................................... -61-
SECTION 5.7. Books and Records....................................... -62-
SECTION 5.8. Third Party Audit Rights................................ -62-
SECTION 5.9. Observance of Agreements................................ -62-
SECTION 5.10. Laboratories; No Removal................................ -62-
SECTION 5.11. Taxes and Charges; Indebtedness in Ordinary Course
of Business............................................. -63-
SECTION 5.12. Liens................................................... -63-
SECTION 5.13. Further Assurances; Security Interests.................. -63-
SECTION 5.14. ERISA Compliance and Reports............................ -64-
SECTION 5.15. Environmental Laws...................................... -64-
SECTION 5.16. Use of Proceeds......................................... -65-
SECTION 5.17. Security Agreements with the Guilds..................... -66-
SECTION 5.18. Total Negative Cost Statements.......................... -66-
SECTION 5.19. Cash Flow Insurance..................................... -66-
SECTION 5.20. Reservation of Commitment............................... -66-
6. NEGATIVE COVENANTS....................................................... -67-
SECTION 6.1. Limitations on Indebtedness............................. -67-
SECTION 6.2. Limitations on Liens.................................... -67-
SECTION 6.3. Limitation on Guarantees................................ -68-
SECTION 6.4. Limitations on Investments.............................. -68-
SECTION 6.5. Restricted Payments..................................... -68-
SECTION 6.6. Limitations on Leases................................... -68-
SECTION 6.7. Consolidation, Merger, Sale or Purchase of
Assets, etc............................................. -69-
SECTION 6.8. Sale and Leaseback...................................... -69-
SECTION 6.9. Places of Business; Change of Name...................... -69-
SECTION 6.10. Limitations on Capital Expenditures..................... -69-
SECTION 6.11. Transactions with Affiliates. ......................... -69-
SECTION 6.12. Prohibition of Amendments or Waivers.................... -69-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 6.13. Expenses................................................ -69-
SECTION 6.14. No Change in Business................................... -69-
SECTION 6.15. ERISA................................................... -70-
SECTION 6.16. Subsidiaries............................................ -70-
SECTION 6.17. Hazardous Materials..................................... -70-
SECTION 6.18. Use of Proceeds of Loans and Requests for Letters
of Credit............................................... -70-
7. EVENTS OF DEFAULT........................................................ -70-
SECTION 7.1. Events of Default. .................................... -70-
SECTION 7.2. Sponsor Defaults. ..................................... -73-
SECTION 7.3. Suspension Events. .................................... -74-
8. GRANT OF SECURITY INTEREST; REMEDIES..................................... -74-
SECTION 8.1. Security Interests...................................... -75-
SECTION 8.2. Use of Collateral....................................... -75-
SECTION 8.3. Collection Accounts..................................... -75-
SECTION 8.4. Borrower to Hold in Trust............................... -76-
SECTION 8.5. Collections, etc........................................ -76-
SECTION 8.6. Possession, Sale of Collateral, etc..................... -76-
SECTION 8.7. Application of Proceeds on Default...................... -78-
SECTION 8.8. Power of Attorney. ..................................... -78-
SECTION 8.9. Financing Statements, Direct Payments. ................ -79-
SECTION 8.10. Further Assurances. ................................... -79-
SECTION 8.11. Termination. .......................................... -79-
SECTION 8.12. Remedies Not Exclusive. ............................... -80-
SECTION 8.13. Quiet Enjoyment......................................... -80-
SECTION 8.14. Continuation and Reinstatement.......................... -80-
SECTION 8.15. Release of Collateral................................... -80-
9. CASH COLLATERAL ACCOUNT.................................................. -80-
SECTION 9.1. Cash Collateral Accounts................................ -80-
SECTION 9.2. Investment of Funds..................................... -80-
SECTION 9.3. Grant of Security Interest.............................. -81-
SECTION 9.4. Remedies................................................ -81-
10. THE ADMINISTRATIVE AGENT AND THE FRONTING BANK........................... -82-
SECTION 10.1. Administration by Administrative Agent.................. -82-
SECTION 10.2. Payments................................................ -83-
SECTION 10.3. Sharing of Setoffs and Cash Collateral.................. -83-
SECTION 10.4. Notice to the Lenders................................... -84-
SECTION 10.5. Liability of Administrative Agent; Waiver Agent;
Fronting Bank........................................... -84-
SECTION 10.6. Reimbursement and Indemnification....................... -85-
SECTION 10.7. Rights of Administrative Agent; Waiver Agent............ -86-
SECTION 10.8. Independent Investigation by Lenders.................... -86-
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 10.9. Duties of Waiver Agent; Agreement of Required Lenders... -86-
SECTION 10.10. Notice of Transfer...................................... -86-
SECTION 10.11. Successor Administrative Agent.......................... -86-
SECTION 10.12. Successor Waiver Agent.................................. -87-
SECTION 10.13. Successor Fronting Bank................................. -88-
11. MISCELLANEOUS............................................................ -88-
SECTION 11.1. Notices................................................. -88-
SECTION 11.2. Survival of Agreement, Representations and
Warranties, etc......................................... -89-
SECTION 11.3. Successors and Assigns; Syndications; Loan Sales;
Participations.......................................... -89-
SECTION 11.4. Expenses; Documentary Taxes............................. -92-
SECTION 11.5. Indemnification of the Administrative Agent,
the Waiver Agent, the Fronting Bank and the Lender...... -93-
SECTION 11.6. CHOICE OF LAW........................................... -94-
SECTION 11.7. WAIVER OF JURY TRIAL.................................... -94-
SECTION 11.8. No Waiver............................................... -95-
SECTION 11.9. Extension of Payment Date............................... -95-
SECTION 11.10. Amendments, etc......................................... -95-
SECTION 11.11. Severability............................................ -96-
SECTION 11.12. SERVICE OF PROCESS...................................... -96-
SECTION 11.13. Headings................................................ -97-
SECTION 11.14. Execution in Counterparts............................... -97-
SECTION 11.15. Entire Agreement........................................ -97-
</TABLE>
-iv-
<PAGE>
CREDIT AND SECURITY AGREEMENT, dated as of October 13, 1999
(as it may be amended, supplemented or otherwise modified,
renewed or replaced from time to time, the "Credit
Agreement"), among ARTISAN FILM INVESTORS TRUST, a business
trust organized under the laws of Delaware (the "Borrower"),
the Lenders referred to herein, THE CHASE MANHATTAN BANK, a
New York banking corporation, as Agent (the "Administrative
Agent") for the Lenders, THE CHASE MANHATTAN BANK as Fronting
Bank (the "Fronting Bank") and FLEET BANK, as Waiver Agent
(the "Waiver Agent").
INTRODUCTORY STATEMENT
----------------------
All terms not otherwise defined above or in this Introductory Statement are
as defined in Article 1 hereof, or as defined elsewhere herein.
The Borrower has requested that the Lenders make available a $200,000,000
three-year revolving credit facility (of which only $162,500,000 has been
committed as of the date hereof) converting into a three-year term loan
facility. The facility is divided into a Senior Tranche of $160,000,000 (of
which $122,500,000 is committed as of the date hereof) and a Junior Tranche of
$40,000,000. The Senior Tranche will be used to finance (i) not more than 80% of
the Total Negative Cost incurred in connection with the acquisition of at least
eight feature-length motion pictures which meet all of the criteria of a
"Qualifying Picture" as defined herein and which will satisfy the United States
Theatrical Release Requirement, (ii) 50% of "Domestic Distribution Expenses" (as
defined herein) but not more than 50% of "Formula Amount of Domestic
Distribution Expenses" (as defined herein) for such Qualifying Pictures;
provided that the remaining 50% is provided under the Junior Tranche, and (iii)
subject to availability, interest on the Loans contemplated by clauses (i) and
(ii) and interest due and payable during the term loan period hereunder. The
Junior Tranche will be used (i) to finance 50% of the first $80,000,000 of
Domestic Distribution Expenses for all Declared Qualifying Pictures in the
aggregate but not more than 50% of the Formula Amount of Domestic Distribution
Expenses for each Declared Qualifying Picture; provided that after $40,000,000
in the aggregate of Domestic Distribution Loans have been made under the Junior
Tranche, for each additional Domestic Distribution Loan made thereunder, an
amount equal to such Loan shall be reserved under the Junior Tranche to fund the
contingency described in the following clause (ii), and (ii) at the Maturity
Date, or such earlier date upon which the Facility is terminated and the
Domestic Distribution Loans outstanding under the Senior Tranche become due and
payable, to fund the repayment of such Domestic Distribution Loans under the
Senior Tranche. A condition of each Domestic Distribution Loan under the Junior
Tranche is that the balance of the required Domestic Distribution Expenses are
simultaneously funded under the Senior Tranche or under a combination of the
Senior Tranche and advances from the Sponsor.
<PAGE>
The 50% of the Formula Amount of Domestic Distribution Expenses
in excess of $80,000,000 which may not be financed under the Facility will be
provided by the Sponsor on a pro rata basis with each advance under the
Facility.
With regard to the portion of the Senior Tranche which is not
committed as of the date hereof, the Administrative Agent is being given
authority to accept commitments from additional Lenders in accordance with the
procedures set forth below.
To provide assurance for the repayment of the Loans and other
Obligations of the Borrower, the Borrower will provide, has provided or will
cause to be provided to the Administrative Agent for the benefit of itself, the
Fronting Bank and the Lenders, a security interest in the Collateral pursuant to
Article 8 hereof, an assignment for security under worldwide copyright of all of
the Borrower's motion pictures (including, without limitation, each Declared
Qualifying Picture) and other rights to the literary properties upon which each
Qualifying Picture is based, the Sponsor Agreement, the Intercreditor Agreement
and the Cash Flow Insurance.
Subject to the terms and conditions set forth herein, the
Administrative Agent is willing to act as agent for the Lenders and each Lender
is willing to make Loans to the Borrower and participate in the Letters of
Credit in amounts in the aggregate at any one time outstanding not in excess of
its Commitment hereunder, all as set forth on the Schedule of Commitments.
Accordingly, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes hereof unless the context otherwise requires,
all Section references herein shall be deemed to correspond with Sections
herein, the following terms shall have the meanings indicated, all accounting
terms not otherwise defined herein shall have the respective meanings accorded
to them under GAAP and all terms defined in the UCC and not otherwise defined
herein shall have the respective meanings accorded to them therein. Unless the
context otherwise requires, any of the following terms may be used in the
singular or the plural, depending on the reference:
"Actual Negative Cost" shall mean, with respect to each Declared
--------------------
Qualifying Picture, the sum of the premium for the Cash Flow Insurance for the
Negative Cost Loans for that film and all costs and expenses paid or incurred
for goods and services provided or rendered in connection with the acquisition
of rights, development, preparation, preproduction, publicity, production
(including production legal fees), post production, completion and delivery of
an answer print of such Declared Qualifying Picture, costs of delivery for
foreign territories, outside legal fees paid or incurred in connection with
legal services rendered in the acquisition of such Declared Qualifying Picture
by the Borrower, all interest (through Completion) and financing charges of
whatsoever kind (including interest during development) agency and packaging
fees, (but excluding (1) the Structuring Fee, Up-Front Fee and Unused Commitment
Fee (as such
- 2-
<PAGE>
terms are defined in the Fee Letter), (2) all overhead of the Sponsor, the
Borrower, or their Affiliates, (3) unused contingency amounts, (4) refunded or
unpaid completion bond fees, (5) costs charged to such Declared Qualifying
Picture that are compensated by net insurance recoveries, (6) all obligations
contingent on the level of the financial performance of such Declared Qualifying
Picture, residuals, security deposits to guilds or others, profit participations
and distribution expenses (other than the cost of unusual negative pick-up
delivery items)) and less (i) salvage recoveries actually received from unused
goods, costumes, sets, etc., (ii) proceeds received from any tax transactions or
any tax refunds and (iii) any amounts refunded to the Borrower or the Sponsor
for the portion of cooperative advertising expenses paid by the Borrower or the
Sponsor in connection with such Declared Qualifying Picture.
"Administrative Agent" shall mean The Chase Manhattan Bank, in
--------------------
its capacity as Administrative Agent for the Lenders hereunder, or such
successor Administrative Agent as may be appointed pursuant to Section 10.11 of
this Credit Agreement.
"AEI" shall mean Artisan Entertainment, Inc.
---
"AFI Collection Account" shall have the meaning given such term
----------------------
in Section 8.3 hereof.
"Affiliate" shall mean any Person which, directly or indirectly,
---------
is in control of, is controlled by or is under common control with, another
Person. For purposes of this definition, a Person shall be deemed to be
"controlled by" another Person if such latter Person possesses, directly or
indirectly, power either to direct or cause the direction of the management and
policies of such controlled Person whether by contract or otherwise.
"Affiliated Group" shall mean a group of Persons, each of which
----------------
is an Affiliate (other than by reason of having common directors or officers) of
some other Person in the group.
"Allocation Certificate" shall be as defined in the Intercreditor
----------------------
Agreement.
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect for such day plus
1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per
----------
annum publicly announced from time to time by the Administrative Agent as its
prime rate in effect at its principal office in New York City. "Base CD Rate"
------------
shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate
and (ii) Statutory Reserves and (b) the Assessment Rate. "Three-Month Secondary
---------------------
CD Rate" shall mean, for any day, the secondary market rate for three-month
- -------
certificates of deposit reported as being in effect on such day (or, if such day
is not a Business Day, the next preceding Business Day) by the Board through the
public information telephone line of the Federal Reserve Bank of New York (which
rate will, under current practices of the Board, be published in Federal Reserve
Statistical
-3-
<PAGE>
Release H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00 a.m.,
New York City time, on such day (or, if such day shall not be a Business Day, on
the next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the
------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage. "Federal Funds Effective Rate"
----------------------------
shall mean, for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability or failure of the Administrative Agent to obtain sufficient quotations
in accordance with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Alternate Base Rate Loan" shall mean a Loan based on the
------------------------
Alternate Base Rate in accordance with the provisions of Article 2 hereof.
"Applicable Law" shall mean all provisions of statutes, rules,
--------------
regulations and orders of the United States or foreign governmental bodies or
regulatory agencies applicable to the Person in question, and all orders and
decrees of all courts and arbitrators in proceedings or actions in which the
Person in question is a party.
"Applicable Margin" shall mean in the case of Alternate Base Rate
-----------------
Loans, 1.75% per annum, or in the case of Eurodollar Loans, 2.75% per annum.
-4-
<PAGE>
"Artisan Agreements" shall mean the various distribution, license
------------------
and/or exploitation agreements, if any, among any of the Artisan Entities
relating to the exploitation of Declared Qualifying Pictures.
"Artisan Entities" shall have the meaning given such term in the
----------------
Sponsor Agreement.
"Artisan Film" shall have the meaning given such term in the
------------
Sponsor Agreement.
"Assessment Rate" shall mean, for any day, the net annual
---------------
assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%)
as most recently estimated by the Administrative Agent for determining the then
current annual assessment payable by the Administrative Agent to the Federal
Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in Dollars at the
Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an agreement in the form
-------------------------
of Exhibit G hereto, executed by the assignor, assignee and other parties as
contemplated thereby.
"Authorized Officer" shall mean the Trustee of the Borrower and
------------------
the Designee under the Trust Agreement.
"Bain Capital" shall mean Bain Capital, Inc., a Delaware
------------
corporation.
"Bain Related Parties" shall mean (i) Bain Capital, (ii) any
--------------------
Affiliate of Bain Capital which shall include, without limitation, any managing
director or partner at any time of any of the foregoing, and any Affiliate
thereof and (iii) any trust, corporation, partnership or other entity of whom at
least 80% of the voting stock or all of the general partnership interests or
other controlling interests are held, directly or indirectly, solely by persons
referred to in the preceding clauses of this definition.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978,
---------------
as heretofore and hereafter amended, as codified at 11 U.S.C. (S) 101 et seq.
-- ---
"Basic Agreements" shall be as defined in the Trust Agreement.
----------------
"Board" shall mean the Board of Governors of the Federal Reserve
-----
System of the United States of America.
"Borrowing" shall mean a group of Loans of a single interest rate
---------
type and as to which a single Interest Period is in effect on a single day.
-5-
<PAGE>
"Borrowing Certificate" shall mean a borrowing certificate,
---------------------
substantially in the form of Exhibit F hereto, to be delivered by the Borrower
to the Administrative Agent in connection with each Borrowing.
"Budget" shall mean, with respect to each Declared Qualifying
------
Picture, the final budget (approved by the relevant completion guarantor) and
related cost to complete statement or the negative cost statement for such
Declared Qualifying Picture submitted by the Sponsor as agent for the Borrower
to the Administrative Agent, which shall be prepared consistent with the
definition of Actual Negative Cost.
"Budgeted Negative Cost" shall mean, with respect to each
----------------------
Declared Qualifying Picture, the amount of the Budget (stated in Dollars) for
each Declared Qualifying Picture including all costs customarily included in
connection with the acquisition of all underlying literary and musical rights
with respect to such Declared Qualifying Picture and in connection with the
preparation, production and completion of such Declared Qualifying Picture
including costs of materials, equipment, physical properties, personnel and
services utilized in connection with such Declared Qualifying Picture, both
"above-the-line" and "below-the-line" and all other items customarily included
in negative costs, including finance charges and interest expense and other
costs of the type contemplated by Actual Negative Cost, but excluding any item
of cost that may not be properly included in Actual Negative Cost.
"Business Day" shall mean any day other than a Saturday, Sunday
------------
or other day on which banks are required or permitted to close in the State of
New York, State of California; provided, however, that when used in connection
-------- -------
with a Eurodollar Loan, the term "Business Day" shall also exclude any day on
which banks are not open for dealings in Dollar deposits on the London Interbank
Market.
"Canyon" shall mean Canpartners Investments IV, LLC.
------
"Capital Expenditures" shall mean, with respect to any Person for
--------------------
any period, the sum of (i) the aggregate of all expenditures (whether paid in
cash or accrued as a liability) by such Person during that period which, in
accordance with GAAP, are or should be included in "additions to property, plant
or equipment" included in cash flows (including Capital Leases) and (ii) to the
extent not covered by clause (i) hereof, the aggregate of all expenditures
properly capitalized in accordance with GAAP by such Person to acquire, by
purchase or otherwise, the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, in part or in whole, of any other
Person (other than the portion of such expenditures allocable in accordance with
GAAP to Pictures or other current assets).
"Capital Lease" shall mean any lease of any property (whether
-------------
real, personal or mixed) by that Person as lessee which, in accordance with
GAAP, is or should be accounted for as a capital lease on the balance sheet of
that Person.
-6-
<PAGE>
"Cash Collateral Accounts" shall have the meaning given such
------------------------
term in Section 9.1 hereof.
"Cash Equivalents" shall mean (i) marketable securities issued or
----------------
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than twelve months from the date of acquisition, (ii) time deposits,
demand deposits, certificates of deposit, acceptances or prime commercial paper
or repurchase obligations for underlying securities of the types described in
clause (i) entered into with any Lender or any commercial bank having a
short-term deposit rating of at least A-2 or the equivalent thereof by Standard
& Poor's Corporation or at least P-2 or the equivalent thereof by Moody's
Investors Service, Inc., (iii) commercial paper with a rating of A-1 or A-2 or
the equivalent thereof by Standard & Poor's Corporation or P-1 or P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within twelve months after the date of acquisition or (iv) any mutual fund or
other pooled investment vehicle which invests principally in the foregoing
obligations.
"Cash Flow Insurance" shall mean the insurance policy naming the
-------------------
Administrative Agent (for the benefit of the Senior Tranche Lenders) as insured
from the Insurers insuring a specified dollar amount of the Obligations other
than Domestic Distribution Loans in the form of Exhibit M hereto.
"Certificate Holders" shall mean the certificate holders party to
-------------------
the Trust Agreement and their successors or assigns.
"Chain of Title" shall have the meaning given such term in
--------------
Section 4.2 hereof.
"Change in Control" shall mean (i) the failure for any reason of
-----------------
Bain Related Parties to own at least 75% of Holdings' voting stock owned by them
as of July 9, 1997, (ii) any Person or group (such term being used as defined in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
acquires ownership or control of voting stock of Holdings having voting power
greater than the voting power at the time controlled by the Bain Related
Parties, (iii) if at any time, individuals who at July 9, 1997, constituted the
Board of Directors of Holdings (together with any new directors whose election
by such Board of Directors or whose nomination for election by the shareholders
of AEI was approved by a vote of the majority of the directors then still in
office who were either directors at July 9, 1997 or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of Holdings then in office, (iv) prior to the
consummation of an initial public offering by AEI, the sale of any of the voting
stock of AEI to anyone other than a Bain Related Party; provided, however, that
-------- -------
the sale of 100% of the stock of AEI to either (x) a Major Studio or (y) a
public company with an investment grade rating from Standard & Poor's or Moody's
and total market equity value of at least $1,000,000,000 shall not constitute a
Change of Control hereunder, (v) after any initial public offering by AEI, that
(x) any person or group
-7-
<PAGE>
(such term being used as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) acquires ownership or control of voting stock
of AEI having voting power greater than the voting power of Holdings and its
Affiliates, as a group, (y) Holdings owns less than 50% of the shares of AEI (as
adjusted by splits, etc.) currently owned by it or (z) Holdings own less than
30% of the voting stock of AEI or (vi) the failure of AEI to be the sole direct
or indirect shareholder of the Sponsor and the other Artisan Entities.
"Change in Management" shall mean (i) both Kenneth Schapiro and
--------------------
Mark Curcio shall cease for any reason, including, without limitation,
termination of employment, death or disability, to perform the functions and
services currently being performed by such Person and (ii) the Borrower shall
have failed to propose a replacement for Kenneth Schapiro or Mark Curcio, as the
case may be, acceptable to the Administrative Agent in its sole discretion.
"Chase Clearing Account" shall mean the account of the
----------------------
Administrative Agent (for the benefit of the Lenders) maintained at the office
of the Administrative Agent at The Chase Manhattan Bank, Loan and Agency
Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
designated as the "Artisan Film Investors Administrative Agent Bank Clearing
Account", Account No. 323139655.
"Closing Date" shall mean the earliest date on which all
------------
conditions precedent set forth in Section 4.1 have been satisfied or waived.
"Code" shall mean the Internal Revenue Code of 1986 and the rules
----
and regulations issued thereunder, as heretofore amended, as codified at 26
U.S.C. (S)1 et seq or any successor provision thereto.
-- ---
"Collateral" shall mean all of the Borrower's right, title and
----------
interest in personal property, tangible and intangible, wherever located or
situated and whether now owned or hereafter acquired or created, including but
not limited to goods, accounts, intercompany obligations, contract rights,
documents, chattel paper, general intangibles, goodwill, equipment, inventory,
investment property, instruments, copyrights, trademarks, trade names, insurance
proceeds, cash and deposit accounts and any proceeds thereon, products thereof
or income therefrom, further including but not limited to all of the Borrower's
right, title and interest in and to each of the Declared Qualifying Pictures,
all of the properties thereof, tangible and intangible, and all domestic and
foreign copyrights and all other rights therein and thereto, of every kind and
character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of the Borrower, including but not limited to all
rights of the Borrower under the Master Film Purchase Agreement and each Film
Purchase Agreement, the Distribution Agreement and the Sponsor Agreement and the
proceeds of any thereof.
-8-
<PAGE>
"Collection Agent" shall have the meaning given such term in the
----------------
Intercreditor Agreement.
"Commitment or Commitments" shall mean the Senior Tranche
---------- -----------
Commitment and/or the Junior Tranche Commitment, as applicable.
"Completed" or "Completion" shall mean with respect to a Declared
--------- ----------
Qualifying Picture the satisfaction of the conditions necessary to cause
"Complete Delivery" of each such Picture pursuant to Section 7 of the
Distribution Agreement and each Film Purchase Agreement.
"Controlled Group" shall mean all members of a controlled group
----------------
of corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code.
"Copyright Security Agreement" shall mean the Copyright Security
----------------------------
Agreement, substantially in the form of Exhibit D-1 hereto as the same may be
amended or supplemented from time to time by delivery of a Copyright Security
Agreement Supplement or otherwise.
"Copyright Security Agreement Supplement" shall mean a
---------------------------------------
Supplement to the Copyright Security Agreement substantially in the form of
Exhibit D-2 hereto.
"Credit Exposure" shall mean the Senior Tranche Credit Exposure
---------------
and/or the Junior Tranche Credit Exposure, as applicable.
"Credit Rating" shall mean the Best's Rating as indicated in the
-------------
most recent edition of Best's Insurance Reports or interim update thereof or, in
the case of GIO General Limited, the most recent rating issued by Standard &
Poor's.
"Currency Agreement" shall mean any foreign exchange contract,
------------------
currency swap agreement, futures contract, option contract or other similar
agreement designed to protect the Borrower against fluctuations in currency
values.
"Declared Qualifying Picture" shall mean a theatrical feature
---------------------------
film declared to the Administrative Agent pursuant to a Qualifying Picture
Declaration in accordance with Section 4.2(a) hereof as a Qualifying Picture
subject to the terms hereof or any other Artisan Film accepted by the Required
Lenders pursuant to a Qualifying Declaration; provided, however, that a Declared
-------- -------
Qualifying Picture (x) purchased or otherwise replaced by the Sponsor pursuant
to the Sponsor Agreement or (y) which has been rejected as such as a result of
the conditions precedent in Section 4.2 not being met shall, in each case, cease
to be a Declared Qualifying Picture.
"Default" shall mean any event, act or condition which with
-------
notice or lapse of time, or both, would constitute an Event of Default.
-9-
<PAGE>
"Designee" shall mean the Sponsor in its capacity as Designee
--------
under the Trust Agreement.
"Distribution Agreement" shall mean with respect to the Sponsor,
----------------------
the Distribution Agreement dated as of October 13, 1999, between the Sponsor and
the Borrower in the form of Exhibit J hereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Domestic Distribution Expenses" shall be as defined in
------------------------------
Schedule 2 to the Sponsor Agreement.
"Domestic Distribution Loans" shall mean the loans made
---------------------------
hereunder in accordance with Section 2.1(b).
"Domestic Distribution Reserve" shall mean the amount reserved by
-----------------------------
the Borrower from the Commitments upon the initial extension of credit for a
Declared Qualifying Picture and periodically thereafter in accordance with
Section 5.20 equal to the amount (not in excess of the Formula Amount of
Domestic Distribution Expenses for such Qualifying Picture) the Borrower
anticipates will be needed to fund Domestic Distribution Loans, which amount
shall be decreased by the amount of Domestic Distribution Loans borrowed
hereunder simultaneously with such Borrowings.
"Domestic Gross Receipts" shall mean Gross Receipts realized from
-----------------------
the United States and its territories and possessions.
"Eligible Assignee" shall mean (i) a commercial bank organized
-----------------
under the laws of the United States, or any State thereof, and having total
assets in excess of $1,000,000,000; (ii) a savings and loan association or
savings bank organized under the laws of the United States, or any State
thereof, and having a net worth of at least $100,000,000, calculated in
accordance with GAAP; (iii) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development ("OECD"), or a political subdivision of any such country, and having
total assets in excess of $1,000,000,000, provided that such bank is acting
through a branch, subsidiary or agency located in the country in which it is
organized or another country which is also a member of the OECD; or (iv) the
central bank of any country which is a member of the OECD; or (v) with regard to
the Junior Tranche only, financial institution or insurance company or Affiliate
thereof with a net worth in excess of $250,000,000.
"Environmental Laws" shall mean any and all federal, state,
------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct
-10-
<PAGE>
concerning any Hazardous Material or environmental protection or health and
safety, as now or may at any time hereafter be in effect, including without
limitation, the Clean Water Act also known as the Federal Water Pollution
Control Act ("FWPCA"), 33 U.S.C. (S) 1251 et seq., the Clean Air Act ("CAA"), 42
-- ---
U.S.C. (S)(S) 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide
-- ---
Act ("FIFRA"), 7 U.S.C. (S)(S) 136 et seq., the Surface Mining Control and
-- ---
Reclamation Act ("SMCRA"), 30 U.S.C. (S)(S) 1201 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act ("CERCLA"), 42
U.S.C. (S)9601 et seq., the Superfund Amendments and Reauthorization Act of 1986
-- ---
("SARA"), Public Law 99-499, 100 Stat. 1613, the Emergency Planning and
Community Right to Know Act ("ECPCRKA"), 42 U.S.C. (S)11001 et seq., the
-- ---
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S)6901 et seq., the
-- ---
Occupational Safety and Health Act as amended ("OSHA"), 29 U.S.C. (S)655 and
(S)657, together, in each case, with any amendment thereto, and the regulations
adopted pursuant thereto.
"Equity Subordination Agreement" shall mean the Subordination
------------------------------
Agreement among the Borrower, Christiana Bank & Trust Company and the
Administrative Agent, substantially in the form attached as Exhibit O hereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as heretofore and hereafter amended, as codified at 29 U.S.C. (S)1001 et
--
seq. and the regulations promulgated thereunder.
- ---
"Eurodollar Loan" shall mean a Loan based on the LIBO Rate in
---------------
accordance with the provisions of Article 2 hereof.
"Event of Default" shall have the meaning given such term in
----------------
Section 7.1 hereof.
"Fee Letter" shall mean that certain letter agreement dated as of
----------
April 6, 1999 between the Borrower and the Administrative Agent relating to the
payment of certain fees by the Borrower and the amendments thereto dated as of
July 28, 1999 and August 15, 1999.
"Film Purchase Agreement" shall mean the purchase agreement
-----------------------
between the Borrower and the production entity with respect to a particular
Declared Qualifying Picture, in substantially the form attached as an exhibit to
the Master Film Purchase Agreement, with such changes as are satisfactory to the
Administrative Agent.
"Foreign Gross Receipts" shall mean Gross Receipts realized from
----------------------
territories other than the United States or its territories and possessions.
"Formula Amount of Domestic Distribution Expenses" shall mean the
------------------------------------------------
maximum amount of Domestic Distribution Expenses for each Declared Qualifying
Picture which the Borrower is entitled to borrow hereunder, which amount shall
be equal to $8 million for initial Domestic Distribution Expenses plus an
----
additional $1 million for every 100 screens included in
-11-
<PAGE>
the domestic theatrical distribution pattern in excess of 800 screens, up to a
maximum of 1,500 screens in the aggregate.
"Fronting Bank" shall have the meaning given such term in the
-------------
initial paragraph hereof.
"Fundamental Documents" shall mean this Credit Agreement, the
---------------------
Notes, the Pledgeholder Agreements, the Copyright Security Agreement, the
Copyright Security Agreement Supplements, the Trademark Security Agreement, the
Sponsor Agreement, the Intercreditor Agreement, the Qualifying Picture
Declaration, each of the Artisan Agreements, the Distribution Agreement, the
Master Film Purchase Agreement, each Film Purchase Agreement, the Equity
Subordination Agreement, UCC financing statements, and any other ancillary
documentation which is required to be or is otherwise executed by the Borrower
and delivered to the Administrative Agent in connection with this Credit
Agreement or any other Fundamental Document.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America consistently applied (except for accounting changes in
response to FASB releases, or other authoritative pronouncements).
"Governmental Authority" shall mean any federal, state,
----------------------
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or a
foreign jurisdiction.
"Gross Receipts" shall have the meaning given such term in
--------------
Schedule 1 to the Sponsor Agreement.
"Guaranty" shall mean, as to any Person, any direct or indirect
--------
obligation of such Person guaranteeing or intended to guaranty any Indebtedness,
Capital Lease, dividend or other monetary obligation ("primary obligation") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation or
(b) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (iii)
to purchase property, securities or services, in each case, primarily for the
purpose of assuring the performance of the obligor of any such primary
obligation; provided, however, that the term Guaranty shall not include
-------- -------
endorsements for collection or collections for deposit, in either case in the
ordinary course of business. The amount of any Guaranty shall be deemed to be an
amount equal to the lesser of (x) the maximum liability under the terms of such
Guaranty or (y) the stated or determinable amount of the primary obligation in
respect of which such Guaranty is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder).
-12-
<PAGE>
"Hazardous Materials" shall mean any flammable materials,
-------------------
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or similar materials defined in any Environmental
Law.
"Holdings" shall mean Film Holdings Co., a Delaware corporation.
--------
"Indebtedness" shall mean (without double counting), at any time
------------
and with respect to any Person, (i) indebtedness of such Person for borrowed
money (whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables (payable within 120 days or such longer terms as may
be customary in the industry) arising in the ordinary course of business); (ii)
obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person; (iii) obligations
of such Person under Capital Leases; (iv) deferred payment obligations of such
Person resulting from the adjudication or settlement of any litigation to the
extent not already reflected as a current liability on the balance sheet of such
Person; and (v) Indebtedness of others of the type described in clauses (i),
(ii), (iii) and (iv) hereof which such Person has (a) directly or indirectly
assumed or guaranteed in connection with a Guaranty or (b) secured by a Lien on
the assets of such Person, whether or not such Person has assumed such
indebtedness.
"Initial Date" shall mean (i) in the case of the Administrative
------------
Agent, the date hereof, (ii) in the case of each Lender which is an original
party to this Credit Agreement, the date hereof and (iii) in the case of any
other Lender, the effective date of the Assignment and Acceptance pursuant to
which it became a Lender.
"Initial Funding Date" shall mean with respect to a Declared
--------------------
Qualifying Picture the earliest date on which all conditions precedent to the
making of the initial Loans or the issuance of the initial Letter of Credit as
set forth in Section 4.2 have been satisfied or waived.
"Insurers" shall mean the insurers under the Cash Flow
--------
Insurance as listed on Exhibit M hereto or any replacements therefore or
additional insurers approved by the Required Lenders.
"Intercreditor Agreement" shall have the meaning given such
-----------------------
term in the Sponsor Agreement and shall be in the form attached to the Sponsor
Agreement as Exhibit A thereto.
"Interest Deficit" shall have the meaning given such term in
----------------
Section 2.14.
"Interest Loan" shall have the meaning given such term in
-------------
Section 2.1(c).
"Interest Loan Commitment Termination Date" shall mean with
-----------------------------------------
regard to the Interest Loans the earlier to occur of (x) the day before the
Maturity Date or (y) such earlier date on which the Commitment shall terminate
in accordance with Section 2.6 or Article 7 hereof.
-13-
<PAGE>
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan
---------------------
having an Interest Period of one, two or three months, the last day of such
Interest Period, (ii) as to any Eurodollar Loan having an Interest Period of
more than three months, the last day of such Interest Period and, in addition,
each date during such Interest Period that would be the last day of an Interest
Period commencing on the same day as the first day of such Interest Period but
having a duration of three months or any integral multiple thereof and (iii)
with respect to Alternate Base Rate Loans, the last Business Day of each March,
June, September and December.
"Interest Period" shall mean as to any Eurodollar Loan, the
---------------
period commencing on the date of such Loan or the last day of the preceding
Interest Period and ending on the numerically corresponding day (or if there is
no corresponding day, the last day) in the calendar month that is one, two,
three, six, nine or twelve months thereafter as the Borrower may elect;
provided, however, that (i) if any Interest Period would end on a day which
- -------- -------
shall not be a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless such next succeeding Business Day would fall in
the next calendar month, in which case, such Interest Period shall end on the
next preceding Business Day, (ii) no Interest Period may be selected which would
end later than the Interest Loan Commitment Termination Date, (iii) no Interest
Period of nine or twelve months may be selected unless available and consented
to by all Lenders in their sole discretion and (iv) no Interest Period with
respect to any portion of the Term Loans may be selected which would result in
the aggregate amount of Eurodollar Loans having Interest Periods ending after
any date on which an installment of principal of the Term Loans is scheduled to
mature being in excess of the aggregate principal installments scheduled to
mature after such date.
"Interest Rate Protection Agreement" shall mean any interest rate
----------------------------------
swap agreement, interest rate cap agreement, synthetic caps, collars and floors
or other financial agreement or arrangement designed to protect the Borrower
against fluctuations in interest rates.
"Investment" shall mean any stock, evidence of indebtedness or
----------
other securities of any Person, any loan, advance, contribution of capital,
extension of credit or commitment therefor, including without limitation the
guarantee of loans made to others (except for current trade and customer
accounts receivable arising in the ordinary course of business), and any
purchase of (i) any securities of another Person or (ii) any business or
undertaking of any Person or any commitment or option to make any such purchase.
"Junior Tranche" shall mean an amount equal to $40,000,000 which
--------------
shall be used to fund (i) 50% of each Domestic Distribution Loan and (ii) at the
Maturity Date or such earlier date as the Domestic Distribution Loans under the
Senior Tranche become due and payable an additional Borrowing to repay any
Domestic Distribution Loans then outstanding under the Senior Tranche in an
amount not to exceed the least of (x) the aggregate amount theretofore used
-14-
<PAGE>
to repay Loans under the Junior Tranche, (y) the aggregate amount of Domestic
Distribution Loans then outstanding under the Senior Tranche and (z) the amount
by which $40,000,000 exceeds the Loans then outstanding under the Junior
Tranche.
"Junior Tranche Commitment" shall mean the commitment of each
-------------------------
Junior Tranche Lender to make Domestic Distribution Loans to the Borrower from
the Initial Date applicable to such Lender through the Revolving Credit
Commitment Termination Date up to an aggregate amount, at any one time, not in
excess of the amount set forth (i) opposite its name under the column entitled "
Junior Tranche Commitment" in the Schedule of Commitments appearing in Schedule
1 hereto, or (ii) in any applicable Assignment and Acceptance(s) to which it may
be a party, as the case may be, as such amount may be reduced from time to time
in accordance with the terms of this Credit Agreement.
"Junior Tranche Credit Exposure" shall mean without duplication,
------------------------------
the sum of (i) the aggregate outstanding Loans under the Junior Tranche, (ii)
50% of the Domestic Distribution Reserve, and (iii) amounts reserved under the
Junior Tranche to repay Domestic Distribution Loans made under the Senior
Tranche asset forth in Section 2.1(b) hereof.
"Junior Tranche Lender" or "Junior Tranche Lenders" shall mean
--------------------- ----------------------
(i) the financial institutions whose names appear at the foot hereof and who are
designated as such on Schedule 1 attached hereto and (ii) any assignee of a
Junior Tranche Lender pursuant to Section 11.3(b).
"Junior Tranche Notes" shall have the meaning given such term in
--------------------
Section 2.3(b) hereof.
"Junior Tranche Percentage" shall mean, with respect to any
-------------------------
Junior Tranche Lender, its ratable share expressed as a percentage equal to the
ratio obtained by (A) dividing the Junior Tranche Commitment of such Lender by
the Total Junior Tranche Commitment, or (B) if the Total Junior Tranche
Commitment shall have been terminated pursuant to the terms of this Credit
Agreement, dividing the sum of the aggregate principal amount of all Loans of
such Lender by the sum of the aggregate principal amount of all Loans of all
Junior Tranche Lenders, which Loans shall be outstanding immediately prior to
the termination of the Total Junior Tranche Commitment.
"L/C Exposure" shall mean, at any time, the amount expressed in
------------
Dollars of the aggregate face amount of all drafts which may then or thereafter
be presented by beneficiaries under all Letters of Credit then outstanding plus
(without duplication) the face amount of all drafts which have been presented or
accepted under all Letters of Credit but have not yet been paid or have been
paid but not reimbursed.
"Laboratory" shall mean any laboratory reasonably acceptable to
----------
the Administrative Agent, which is located in the United States and is a party
to a Pledgeholder Agreement.
-15-
<PAGE>
"Lender" and "Lenders" shall mean the Senior Tranche Lenders
------ -------
and/or the Junior Tranche Lenders, as applicable.
"Lending Office" shall mean, with respect to any of the Lenders,
--------------
the branch or branches (or affiliate or affiliates) from which any such Lender's
Eurodollar Loans or Alternate Base Rate Loans, as the case may be, are made or
maintained and for the account of which all payments of principal of, and
interest on, such Lender's Eurodollar Loans or Alternate Base Rate Loans are
made, as notified to the Administrative Agent from time to time.
"Letter of Credit" shall mean a letter of credit issued by the
----------------
Fronting Bank pursuant to Section 2.15.
"LIBO Rate" shall mean, with respect to the Interest Period for a
---------
Eurodollar Loan, an interest rate per annum equal to the quotient (rounded
upwards to the next 1/100 of 1%) of (A) the average of the rates at which Dollar
deposits approximately equal in principal amount to the Administrative Agent's
portion of such Eurodollar Loan and for a maturity equal to the applicable
Interest Period are offered to the Lending Office of the Administrative Agent in
immediately available funds in the London Interbank Market for Eurodollars at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period divided by (B) one minus the applicable
statutory reserve requirements of the Administrative Agent, expressed as a
decimal (including without duplication or limitation, basic, supplemental,
marginal and emergency reserves), from time to time in effect under Regulation D
or similar regulations of the Board. It is agreed that for purposes of this
definition, Eurodollar Loans made hereunder shall be deemed to constitute
Eurocurrency Liabilities as defined in Regulation D and to be subject to the
reserve requirements of Regulation D.
"Lien" shall mean any mortgage, copyright mortgage, pledge,
----
security interest, encumbrance, lien or charge of any kind whatsoever (including
any conditional sale or other title retention agreement, any lease in the nature
thereof or the agreement to grant a security interest at a future date).
"Loans" shall mean the Negative Cost Loans, the Domestic
-----
Distribution Loans and the Interest Loans.
"Major Studio" shall mean Universal Pictures, a division of
------------
Universal City Studios, Inc., Warner Bros., a division of Time Warner
Entertainment Company, L.P., Twentieth Century Fox Film Corporation, Sony
Pictures Entertainment, Paramount Pictures Corporation, The Walt Disney Company
and Metro-Goldwyn-Mayer Inc.
"Master Collection Account" shall have the meaning given such
-------------------------
term in the Intercreditor Agreement.
"Margin Stock" shall be as defined in Regulation U of the Board.
------------
-16-
<PAGE>
"Master Film Purchase Agreement" shall mean the master film
------------------------------
purchase agreement dated as of October 13, 1999 between the Sponsor and the
Borrower with respect to all Declared Qualifying Pictures, substantially in the
form of Exhibit K hereto, or in such other form as shall be acceptable to the
Administrative Agent.
"Material Adverse Effect" shall mean any change or effect that
-----------------------
(a) has a materially adverse effect on the business, assets, properties,
operations, condition (financial or otherwise) or prospects of the Borrower, (b)
materially impairs the ability of the Borrower to perform its obligations under
the Fundamental Documents to which it is a party, (c) materially impairs the
validity or enforceability of, or materially impairs the security interests,
rights, remedies or benefits available to the Agent or the Lenders under any of
the Fundamental Documents, or (d) has a material adverse effect on the
Collateral.
"Maturity Date" shall mean October 13, 2005.
-------------
"Minimum Number of Qualifying Pictures Requirement" shall mean
-------------------------------------------------
that the Borrower shall have acquired and financed hereunder (i) by October 13,
2002, a minimum of eight (8) Pictures which (x) meet all the requirements for a
Qualifying Picture other than its release and (y) for which the Borrower has
worldwide rights and (ii) a minimum of eight (8) Qualifying Pictures for which
the Borrower has worldwide rights.
"Multiemployer Plan" shall mean a plan described in Section
------------------
4001(a)(3) of ERISA.
"Negative Cost Loan Value" shall mean the lesser of (x) 80% of
------------------------
the Total Negative Cost of a Declared Qualifying Picture and (y) the sum of 40%
of the Total Negative Cost plus the Sum Insured under the Cash Flow Insurance
for that Declared Qualifying Picture.
"Negative Cost Loans" shall mean the loans made hereunder in
-------------------
accordance with Section 2.1(a).
"Notes" shall mean the Junior Tranche Notes and the Senior
-----
Tranche Notes.
"Notice of Assignment and Irrevocable Instructions" shall mean
-------------------------------------------------
the Notice of Assignment and Irrevocable Instructions substantially in the form
of Exhibit H or in such other form as shall be acceptable to the Administrative
Agent, including without limitation the inclusion of such notice and
instructions in a Distribution Agreement.
"Obligations" shall mean the obligation of the Borrower to make
-----------
due and punctual payment of principal of and interest on the Loans, the Unused
Commitment Fee, reimbursement and/or cash collateral obligations in respect of
Letters of Credit, all other monetary obligations of the Borrower owed to the
Administrative Agent, Waiver Agent, the Fronting Bank, any Lender under this
Credit Agreement or the Collection Agent, the Notes any
-17-
<PAGE>
other Fundamental Document and any monetary obligations owed to the Collection
Agent under the Intercreditor Agreement and all monetary obligations of the
Sponsor pursuant to the Fee Letter and all amounts payable by the Borrower to
any Lender under any Interest Rate Protection Agreement or Currency Agreement,
provided that the Administrative Agent shall have received written notice within
10 Business Days after execution of each such Interest Rate Protection Agreement
or Currency Agreement.
"Other Intercreditor Agreements" shall have the meaning given
------------------------------
such term in the Intercreditor Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
successor thereto.
"Percentage" shall mean either the Senior Tranche Percentage
----------
and/or the Junior Tranche Percentage, as applicable.
"Permitted Encumbrances" shall mean Liens permitted under Section
----------------------
6.2 hereof.
"Person" shall mean any natural person, corporation, partnership,
------
trust, joint venture, association, company, estate, unincorporated organization
or government or any agency or political subdivision thereof.
"Picture" shall mean any feature length motion picture produced
-------
for initial release in the theatrical market in the United States.
"Plan" shall mean an employee benefit plan within the meaning of
----
Section 3(2) of ERISA, other than a Multiemployer Plan, maintained by the
Borrower or any member of the Controlled Group, or to which the Borrower or any
member of the Controlled Group contributes or is required to contribute or any
other plan covered by Title IV of ERISA that cover any employees of the Borrower
or any member of the Controlled Group.
"Pledgeholder Agreement" shall mean a Pledgeholder Agreement as
----------------------
defined in the Sponsor Credit Agreement as amended by an amendment substantially
in the form of Exhibit C hereto, or in such other form as shall be acceptable to
the Administrative Agent.
"Print and Advertising Costs" shall mean the print and
---------------------------
advertising expenses incurred and paid in connection with theatrical
distribution of Qualifying Pictures in the United States.
"Pro Rata Share" shall mean, with respect to any Obligation or
--------------
other amount, each Lender's pro rata share of such Obligation or other amount
determined in accordance with such Lender's Percentage.
-18-
<PAGE>
"Qualifying Picture" shall mean any Picture which meets the
------------------
following criteria: (a) has a maximum Total Negative Cost of $40 million and a
minimum Total Negative Cost of $8 million; provided, however, that the minimum
-------- -------
Total Negative Cost may be less than $8 million if the sum of such Picture's
Total Negative Cost plus its Print and Advertising Costs is at least $13 million
and, provided, further, that a signed commitment from the Sponsor in its
-------- -------
capacity as distributor stating that it has in place sufficient print and
advertising commitments to meet this test is submitted along with the Qualifying
Picture Declaration; (b) is subject to the Distribution Agreement; (c) was
produced for theatrical release; (d) is released theatrically in the United
States at least 30 months before the Maturity Date; (e) for which the Borrower
is the initial United States copyright owner; (f) has been produced by the
Sponsor or on behalf of the Sponsor, has not yet been released at the time of
its acquisition by the Borrower and for which the Borrower will own
substantially all worldwide distribution rights for not less than twenty years;
(g) is a live action theatrical feature film filmed primarily in English; (h)
filmed primarily in color; (i) rated by the MPAA (or any equivalent rating
system if the MPAA rating system is generally abandoned), but is not rated "X",
"NC-17" or any equivalent or more restrictive rating (or if the MPAA rating
system is modified or abandoned would have been so rated by the MPAA); (j) has
not been exhibited in any medium anywhere in the United States prior to its
United States theatrical release, except for limited test marketings, previews,
free, charities or academy award screenings or exhibitions; (k) is not an
animated film, a depiction of a concert of any sort, a depiction of a
performance of a play or musical performed on stage, or a documentary; (l) is
available for and is scheduled for initial United States theatrical distribution
in 35mm or 70mm film or is otherwise suitable for first class theatrical
distribution and has a running time of at least 80 minutes, but no more than 150
minutes. Notwithstanding the foregoing, each of "Stir of Echoes" and "The Ninth
Gate" shall be considered a Qualifying Picture notwithstanding the fact that
with regard to "Stir of Echoes", the criteria set forth in (f) above are not met
and with regard to "The Ninth Gate", the criteria set forth in (e) and (f) above
are not met.
"Qualifying Picture Declaration" shall have a declaration
------------------------------
substantially in the form of Exhibit N hereto to be delivered by the Borrower to
the Administrative Agent under Section 4.2(a) hereof.
"Quarterly Payment Amount" shall mean the quarterly payment
------------------------
amount payable to the Certificate Holders as set forth in the Trust Agreement,
but no more than 5% of the Gross Receipts paid (plus deductions taken at the
source which are included in the definition of "Gross Receipts") into the Master
Collection Account during the preceding calendar quarter.
"Questionnaire" shall have the meaning given such term in the
-------------
Cash Flow Insurance policy.
"Quiet Enjoyment" shall have the meaning given such term in
---------------
Section 8.13 hereof.
-19-
<PAGE>
"Reportable Event" shall mean any reportable event as defined in
----------------
Section 4043(c) of ERISA, other than a reportable event as to which provision
for 30-day notice to the PBGC would be waived under applicable regulations had
the regulations in effect on the Closing Date been in effect on the date of
occurrence of such reportable event.
"Required Lenders" shall mean (a) until the termination of the
----------------
Senior Tranche Commitment and the payment of the Obligations to the Senior
Tranche Lenders, (i) prior to the incurrence of Senior Tranche Credit Exposure,
the Lenders holding at least 51% of the Senior Tranche Commitment and (ii)
subsequent to the incurrence of the Senior Tranche Credit Exposure, the Lenders
holding at least 51% of the Senior Tranche Credit Exposure; provided, however,
-------- -------
that any amendment or modification to the terms hereof affecting (u) the
allocation of Collateral (or proceeds thereof) between the Senior Tranche and
the Junior Tranche, (v) the conditions precedent to, timing of or portion of
Gross Receipts that will be available to repay the Junior Tranche, (w) the
conditions precedent to, or terms pursuant to which Loans are to be made under
the Junior Tranche or (x) the rate of interest payable on the Loans under the
Junior Tranche or fees payable to the Lenders with Junior Tranche Commitments or
the release of Collateral held for the benefit of the Junior Tranche other than
as part of a liquidation thereof for the benefit of the Lenders, shall, in each
case, require the consent of Lenders holding 100% of the Senior Tranche Credit
Exposure and 66-2/3% of the Junior Tranche Credit Exposure and (b) subsequent to
the termination of the Senior Tranche Commitments and the payment of the
Obligations to the Senior Tranche Lenders, (i) prior to the incurrence of Junior
Tranche Credit Exposure, the Lenders holding 51% of the Junior Tranche
Commitment and (ii) subsequent to the incurrence of Junior Tranche Credit
Exposure, the Lenders holding at least 51% of the Junior Tranche Credit
Exposure.
"Restricted Payment" shall mean (i) any distribution or other
------------------
direct or indirect payment on account of any equity interest of the Borrower,
(ii) any acquisition, re-acquisition or retirement by the Borrower of any equity
interest of the Borrower or an Affiliate, now or hereafter outstanding, (iii)
any payment made to retire, or obtain the surrender of any rights to purchase or
acquire any equity interest in the Borrower, now or hereafter outstanding and
(iv) any payment by the Borrower of principal of, premium, if any, or interest
on, or any redemption, purchase, retirement, defeasance, sinking fund or similar
payment with respect to, any subordinated Indebtedness now or hereafter
outstanding.
"Revolving Credit Commitment Termination Date" shall mean the
--------------------------------------------
earlier to occur of (x) October 13, 2002 or (y) such earlier date on which the
Commitments shall terminate in accordance with Section 2.6 or Article 7 hereof.
"Schedule of Commitments" shall mean the schedule of the
-----------------------
Commitments of the Lenders set forth in Schedule 1 hereto.
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<PAGE>
"Senior Tranche" shall mean an amount equal to not less than
--------------
$110,000,000 or more than $160,000,000 which shall be used to fund all Loans
other than those made pursuant to the Junior Tranche.
"Senior Tranche Commitment" shall mean the Commitment of each
-------------------------
Senior Tranche Lender to make Negative Cost Loans and Domestic Distribution
Loans to the Borrower from the Initial Date applicable to such Lender through
the Revolving Credit Commitment Termination Date, and to make the Interest Loans
to the Borrower from the Initial Date applicable to such Lender through the
Interest Commitment Termination Date, as applicable, up to an aggregate amount,
at any one time, not in excess of the amount set forth (i) opposite its name
under the column entitled "Senior Tranche Commitment" in the Schedule of
Commitments appearing in Schedule 1 hereto, or (ii) in any applicable Assignment
and Acceptance(s) to which it may be a party, as the case may be, as such amount
may be reduced from time to time in accordance with the terms of this Credit
Agreement.
"Senior Tranche Credit Exposure" shall mean without duplication,
------------------------------
the sum of (i) the aggregate outstanding Loans under the Senior Tranche, (ii)
the existing L/C Exposure and (iii) 50% of the Domestic Distribution Reserve.
"Senior Tranche Lender" or "Senior Tranche Lenders" shall mean
--------------------- ----------------------
(i) the financial institutions whose names appear at the foot hereof and who are
designated as such on Schedule 1 hereto and (ii) any assignee of a Senior
Tranche Lender pursuant to Section 11.3(b).
"Senior Tranche Notes" shall have the meaning given such term in
--------------------
Section 2.3(a) hereof.
"Senior Tranche Percentage" shall mean, with respect to any
-------------------------
Senior Tranche Lender, its ratable share expressed as a percentage equal to the
ratio obtained by (A) dividing the Senior Tranche Commitment of such Lender by
the Total Senior Tranche Commitment or (B) if the Total Senior Tranche
Commitment shall have been terminated pursuant to the terms of this Credit
Agreement, dividing the sum of the aggregate principal amount of all Loans of
such Lender and such Lender's pro rata share of the L/C Exposure by the sum of
the aggregate principal amount of all Loans of all Senior Tranche Lenders and
the L/C Exposure, which Loans and L/C Exposure shall be outstanding immediately
prior to the termination of the Total Senior Tranche Commitment.
"Sponsor" shall mean Artisan Pictures, Inc.
-------
"Sponsor Agreement" shall mean the Sponsor Agreement
-----------------
substantially in the form of Exhibit I hereto.
"Sponsor Bank Group" shall mean the lenders party to the Sponsor
------------------
Credit Agreement.
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<PAGE>
"Sponsor Credit Agreement" shall mean the Amended and Restated
------------------------
Credit and Guaranty Agreement dated as of July 9, 1997, as amended and restated
as of August 10, 1998 among the Sponsor, the guarantors named therein, the
lenders named therein and The Chase Manhattan Bank as Administrative Agent and
Fronting Bank as the same may be further amended, supplemented or otherwise
modified renewed or replaced from time to time.
"Sponsor Default" shall have the meaning given such term in
---------------
Section 7.2 hereof.
"Subsidiary" shall mean with respect to any Person, any
----------
corporation, association, joint venture, partnership or other business entity
(whether now existing or hereafter organized) of which at least a majority of
the voting stock or other ownership interests having ordinary voting power for
the election of directors (or the equivalent) is, at the time as of which any
determination is being made, owned or controlled by such Person or one or more
subsidiaries of such Person or by such Person and one or more subsidiaries of
such Person.
"Sum Insured" shall be as defined in the Cash Flow Insurance.
-----------
"Suspension Events" shall have the meaning given such term in
-----------------
Section 7.3 hereof.
"Total Commitment" shall mean Total Senior Tranche Commitment
----------------
and/or the Total Junior Tranche Commitment, as applicable.
"Total Junior Tranche Commitment" shall mean the aggregate
-------------------------------
amount of the Junior Tranche Commitments then in effect of all of the Junior
Tranche Lenders as such amount may be reduced from time to time in accordance
with the terms of this Credit Agreement.
"Total Negative Cost" shall mean, with respect to each Declared
-------------------
Qualifying Picture, the sum of (a) prior to Completion the Budgeted Negative
Cost and after Completion the Actual Negative Cost but no more than the Budgeted
Negative Cost plus (b) an amount equal to no more than 5% of the Budgeted
Negative Cost or the Actual Negative Cost, as the case may be, to cover all
overhead fees, etc. of the Sponsor and its Affiliates; it being understood that
such 5% may be payable to the Sponsor pursuant to the Distribution Agreement for
Declared Qualifying Pictures from a producer which is not an Artisan Entity.
"Total Senior Tranche Commitment" shall mean the aggregate
-------------------------------
amount of the Senior Tranche Commitments then in effect of all of the Senior
Tranche Lenders as such amount may be reduced from time to time in accordance
with the terms of this Credit Agreement.
"Trademark Security Agreement" shall mean the Trademark Security
----------------------------
Agreement executed by the Borrower substantially in the form of Exhibit E
hereto, as the same may be amended, supplemented or otherwise modified from time
to time.
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<PAGE>
"Trust Agreement" shall mean the trust agreement of the Borrower
---------------
dated as of August 25, 1999 executed by Christiana Bank & Trust Company, a
Delaware banking corporation (the "Trustee") amended by Amendment Number One
dated as of October 12, 1999 as the same has been amended and restated as of
October 13, 1999 among the Trustee, Bear, Stearns & Co., Inc., a Delaware
corporation and the Sponsor in the form of Exhibit L hereto.
"UCC" shall mean the Uniform Commercial Code as in effect in the
---
State of New York on the date of execution of this Credit Agreement.
"United States Theatrical Release Requirement" will be as
--------------------------------------------
defined in the Sponsor Agreement.
"Unused Commitment Fee" shall have the meaning given with
---------------------
regard to such term in Section 2.5 hereof.
"Waiver Agent" shall mean Fleet Bank or such other Senior Tranche
------------
Lender appointed by vote of the Senior Tranche Lenders holding at least 51% of
the Senior Tranche Credit Exposure, to act as the waiver agent as set forth in
Section 10.9 hereof.
20 THE LOANS
SECTION 2.1. Loans. (a) Each Senior Tranche Lender, severally and
-----
not jointly, agrees, upon the terms and subject to the conditions hereof, to
make its Pro Rata Share of Loans to the Borrower for use in paying items of
Total Negative Cost in accordance with Section 5.16 hereof ("Negative Cost
Loans"), upon the request of the Borrower, which Negative Cost Loans shall not
be made prior to the Completion and acquisition of the relevant Declared
Qualifying Picture pursuant to a Film Purchase Agreement, from time to time from
the Closing Date up to but excluding the Revolving Credit Commitment Termination
Date, each in an aggregate principal amount which when added to such Lender's
Pro Rata Share of the outstanding Senior Tranche Credit Exposure, does not
exceed such Lender's Senior Tranche Commitment. The aggregate amount of Negative
Cost Loans for a Qualifying Picture shall not exceed the Negative Cost Loan
Value.
(b) Each (i) Senior Tranche Lender, severally and not jointly,
agrees, upon the terms and subject to the conditions hereof, to make its Pro
Rata Share of Loans to the Borrower for use in paying 50% of the Domestic
Distribution Expenses but no more than 50% of the Formula Amount of Domestic
Distribution Expenses with respect to a particular Declared Qualifying Picture,
in accordance with Section 5.16 hereof ("Domestic Distribution Loans"); provided
that the remaining 50% is provided under the Junior Tranche and (ii) Junior
Tranche Lender, severally and not jointly, agrees, upon the terms and subject to
the conditions hereof, to make its Pro Rata Share of Domestic Distribution Loans
to the Borrower for use in paying 50% of the Domestic Distribution Expenses but
no more than 50% of the Formula Amount of Domestic Distribution Expenses with
respect to a particular Declared Qualifying Picture. The
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<PAGE>
Domestic Distribution Loans shall be made upon the request of the Borrower and
shall not be made prior to the Completion and acquisition of the relevant
Declared Qualifying Picture pursuant to a Film Purchase Agreement, from time to
time from the Closing Date up to but excluding the Revolving Credit Commitment
Termination Date, each in an aggregate principal amount which when added to such
Lender's Pro Rata Share of the outstanding Senior Tranche Credit Exposure or
Junior Tranche Credit Exposure, as applicable, does not exceed such Lender's
Senior Tranche Commitment or Junior Tranche Commitment, as applicable.
Furthermore, it is understood that, after $40,000,000 in the aggregate of
Domestic Distribution Loans have been made under the Junior Tranche, only half
of the then-available Junior Tranche Commitment shall be available for Domestic
Distribution Loans, and for each additional Domestic Distribution Loan made
thereafter under the Junior Tranche an amount equal to such Loan shall then be
reserved under the Junior Tranche Commitment in accordance with Section 5.20 in
order to fund the repayment of Domestic Distribution Loans under the Senior
Tranche.
(c) In addition, to the extent there is available Total Senior
Tranche Commitment which has not been reserved to fund Negative Cost Loans
and/or Domestic Distribution Loans, each Senior Tranche Lender, severally and
not jointly, agrees, upon the terms and subject to the conditions hereinafter
set forth, to make its Pro Rata Share of Loans to the Borrower to fund interest
hereunder and expenses of the Administrative Agent payable hereunder (the
"Interest Loans") upon the request of the Borrower, from time to time from the
Closing Date up to but excluding the Interest Loan Commitment Termination Date,
each in an aggregate principal amount (x) not to exceed the interest payable
from time to time hereunder and expenses of the Administrative Agent payable
hereunder and (y) which when added to such Lender's Pro Rata Share of the
outstanding Senior Tranche Credit Exposure, does not exceed such Lender's Senior
Tranche Commitment; provided, however, that the maximum amount that each Senior
-------- -------
Tranche Lender shall be obligated to lend subsequent to the Revolving Credit
Termination Date is the amount by which its Senior Tranche Commitment exceeds
its Pro Rata Share of the Total Senior Tranche Credit Exposure and that
commitment shall be a revolving credit commitment.
(d) At the Maturity Date or such earlier date on which the
Domestic Distribution Loans under the Senior Tranche become due and payable,
each Junior Tranche Lender shall pay (based on its Pro Rata Share) to the Senior
Tranche Lenders an amount not to exceed in the aggregate the least of (x) the
aggregate amount theretofore used to repay Domestic Distribution Loans under the
Junior Tranche, (y) the aggregate amount of Domestic Distribution Loans then
outstanding under the Senior Tranche and (z) the amount by which $40,000,000
exceeds the Domestic Distribution Loans then outstanding under the Junior
Tranche; provided, however, that to the extent there is an automatic stay or
-------- -------
other proceeding which prohibits the Junior Tranche Lenders from advancing such
amounts, the Junior Tranche Lenders agree to purchase from the Senior Tranche
Lenders participations in the Senior Tranche Commitment pursuant to Assignment
and Acceptance Agreements in an amount equal to such amounts owing to the Senior
Tranche Lenders. The obligation of the Junior Tranche Lenders to pay the Senior
Tranche Lenders set forth in this Section 2.1(d) is absolute and unconditional
and is not subject
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<PAGE>
to the conditions precedent set forth in Sections 4.2 and 4.3 hereof and such
amounts shall be treated as Loans hereunder.
(e) Subject to Section 2.2, the Loans shall be made at such
times as the Borrower shall request.
(f) No Loan shall be made which would result in the Junior
Tranche Credit Exposure or the Senior Tranche Credit Exposure exceeding the
Total Junior Tranche Commitment or the Senior Tranche Commitment, as applicable.
(g) Prior to the making of the first extension of credit with
regard to each Declared Qualifying Picture, and provided that the Borrower is in
compliance with Section 5.20 hereof, (x) the Senior Tranche Lenders shall
reserve from the Senior Tranche Commitments for the purpose of making Domestic
Distribution Loans with respect to such Declared Qualifying Picture, an amount
equal to 50% of the Domestic Distribution Expenses but no more than 50% of the
Formula Amount of Domestic Distribution Expenses with respect to such Declared
Qualifying Picture (subject to the remaining 50% being provided under the Junior
Tranche) and (y) the Junior Tranche Lenders shall reserve from the Junior
Tranche Commitment for the purpose of making Domestic Distribution Loans with
respect to such Declared Qualifying Picture an amount equal to 50% of the
Domestic Distribution Expenses but no more than 50% of the Formula Amount of
Domestic Distribution Expenses with respect to such Declared Qualifying Picture
provided that after $40,000,000 in the aggregate of Domestic Distribution Loans
have been made under the Junior Tranche, only half of the then-available Junior
Tranche Commitment shall be available for Domestic Distribution Loans, and an
amount equal to the amount of each such Domestic Distribution Loan shall be
reserved under the Junior Tranche Commitment to fund repayment of Domestic
Distribution Loans under the Senior Tranche at the Maturity Date (or such
certain date upon which the Senior Tranche Commitments are terminated and the
Domestic Distribution Loans under the Senior Tranche become due and payable).
SECTION 2.2. Making of Loans. (a) Each Loan shall be an Alternate
---------------
Base Rate Loan or a Eurodollar Loan, as the Borrower may request, subject to and
in accordance with this Section 2.3.
(b) The Borrower shall give the Administrative Agent at least
three Business Days' prior written, facsimile or telephonic (promptly confirmed
in writing) notice of each Borrowing which is to consist of Eurodollar Loans,
and at least one Business Day's prior written, facsimile or telephonic (promptly
confirmed in writing) notice of each Borrowing which is to consist of Alternate
Base Rate Loans. Each such notice in order to be effective must be received by
the Administrative Agent not later than 2:00 p.m., New York City time, on the
day required and shall specify the date (which shall be a Business Day) on which
such Loan is to be made, the aggregate principal amount of the requested
Borrowing, the Qualifying Picture with respect to which such Borrowing is to be
made. Each such notice shall be irrevocable and shall specify whether the
Borrowing then being requested is to consist of Alternate Base Rate Loans or
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<PAGE>
Eurodollar Loans and in the case of Eurodollar Loans, the Interest Period or
Interest Periods with respect thereto. If no election of an Interest Period is
specified in such notice in the case of a Borrowing consisting of Eurodollar
Loans, such notice shall be deemed to be a request for an Interest Period of one
month. If no election is made as to the type of Loan, such notice shall be
deemed a request for a Borrowing consisting of Alternate Base Rate Loans. No
Borrowing shall consist of Eurodollar Loans if after giving effect thereto an
aggregate of more than ten separate Eurodollar Loans would be outstanding
hereunder with respect to each Lender (determined in accordance with Section
2.8(c) hereof).
(c) The Administrative Agent shall promptly notify each Lender of
its proportionate share of each Borrowing under this Section 2.2, the date of
such Borrowing, the type of Loans being requested and the Interest Period or
Interest Periods applicable thereto. On the borrowing date specified in such
notice, each Lender shall make its share of the Borrowing available at the
offices of The Chase Manhattan Bank, Loan and Agency Services Group, One Chase
Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Ganush Persaud, for
credit to the Chase Clearing Account no later than 1:00 p.m. New York City time
in Federal or other immediately available funds; provided, however, that there
-------- -------
shall be no such requirement with respect to that portion of any Loan made by a
Lender which is borrowed for the purpose of paying interest owing to such Lender
hereunder, in which case each such Lender upon notice from the Administrative
Agent shall directly credit the amount of such Loan against the amount of such
interest obligation. Upon receipt of the funds to be made available by the
Lenders to fund (i) any Borrowing in relation to Negative Cost Loans hereunder,
the Administrative Agent shall disburse such funds by depositing the requested
amounts into the account of the Borrower specified in the Borrowing Certificate
and/or in the account of the person from whom the Borrower is then acquiring the
relevant Declared Qualifying Picture and (ii) in the case of funds made
available by the Lenders to fund any Borrowing in relation to Domestic
Distribution Loans, the Administrative Agent shall disburse such funds by
depositing the requested amounts into the account of the Sponsor.
(d) Each Lender may at its option fulfill its obligation to make
Eurodollar Loans by causing a foreign branch or affiliate to fund such
Eurodollar Loans, provided that any exercise of such option shall not affect the
obligation of the Borrower to repay Loans in accordance with the terms hereof.
Subject to the other provisions of this Section 2.2, Loans of more than one
interest rate type may be outstanding at the same time.
(e) Each Loan requested hereunder on any date shall be made by
each Lender in accordance with its respective Percentage.
(f) On the date requested by the Borrower for the funding of each
Loan, the Administrative Agent shall be authorized (but not obligated) to
advance, for the account of each of the Lenders, the amount of the Loan to be
made by it in accordance with its Percentage hereunder. Each of the Lenders
hereby authorizes and requests the Administrative Agent to advance for its
account, pursuant to the terms hereof, the amount of the Loan to be made by it,
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<PAGE>
and each of the Lenders agrees forthwith to reimburse the Administrative Agent
in immediately available funds for the amount so advanced on its behalf by the
Administrative Agent. If any such reimbursement is not made in immediately
available funds on the same day on which the Administrative Agent shall have
made any such amount available on behalf of any Lender, such Lender shall pay
interest to the Administrative Agent equal to the Administrative Agent's cost of
obtaining overnight funds in the New York Federal Funds Market for the three
Business Days following the time when the Lender fails to make the required
reimbursement, and thereafter at a rate per annum equal to the Alternate Base
Rate plus the Applicable Margin for Alternate Base Rate Loans. If and to the
extent that any such reimbursement shall not have been made to the
Administrative Agent, the Borrower agrees to repay to the Administrative Agent
forthwith on demand a corresponding amount with interest thereon for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent at the Alternate Base Rate plus the
effective rate for the applicable Loan.
(g) The amount of any Borrowing of new funds shall be in an
aggregate principal amount of $500,000 (or such lesser amount as shall equal (i)
the available but unused portion of the Commitments, (ii) the amount of any Loan
made to pay interest and fees hereunder or (iii) remaining amount that may be
borrowed as a Negative Cost Loan or a Domestic Distribution Loan for a
Qualifying Picture) or such greater amount which is an integral multiple of
$100,000.
SECTION 2.3. Notes. (a) The Senior Tranche Loans made by each
-----
Senior Tranche Lender hereunder shall be evidenced by a single promissory note
substantially in the form of Exhibit A-1 hereto (each a "Senior Tranche Note"
-------------------
and collectively the "Senior Tranche Notes") in the face amount of each such
--------------------
Lender's Senior Tranche Commitment, payable to the order of each such Lender,
duly executed by the Borrower and dated the Closing Date.
(b) The Junior Tranche Loans made by each Junior Tranche Lender
hereunder shall be evidenced by a single promissory note substantially in the
form of Exhibit A-2 hereto (each a "Junior Tranche Note" and collectively the
-------------------
"Junior Tranche Notes") in the face amount of each such Lender's Junior Tranche
--------------------
Commitment, payable to the order of each such Lender, duly executed by the
Borrower and dated the Closing Date.
(c) Each of the Notes shall bear interest on the outstanding
principal balance thereof as set forth in Section 2.4 hereof. Each Lender and
the Administrative Agent on its behalf is hereby authorized by the Borrower, but
not obligated, to enter the amount of each Loan and the amount of each payment
or prepayment of principal or interest thereon in the appropriate spaces on the
reverse of or on an attachment to the Notes; provided, however, that the failure
-------- -------
of any Lender or the Administrative Agent to set forth such Loans, principal
payments or other information shall not in any manner affect the obligations of
the Borrower to repay such Loans.
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<PAGE>
SECTION 2.4. Interest on Notes. (a) In the case of a Eurodollar
-----------------
Loan, interest shall be payable at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days) equal to the LIBO
Rate plus the Applicable Margin. Interest shall be payable on each Eurodollar
Loan on each applicable Interest Payment Date, at maturity and on the date of a
conversion of such Eurodollar Loan to an Alternate Base Rate Loan. The
Administrative Agent shall determine the applicable LIBO Rate for each Interest
Period as soon as practicable on the date when such determination is to be made
in respect of such Interest Period and shall notify the Borrower and the Lenders
of the applicable interest rate so determined. Such determination shall be
conclusive absent manifest error.
(b) In the case of an Alternate Base Rate Loan, interest shall be
payable at a rate per annum (computed on the basis of the actual number of days
elapsed over a year of 365/366 days, as the case may be, during such times as
the Alternate Base Rate is based upon the Prime Rate, and over a year of 360
days at all other times) equal to the Alternate Base Rate plus the Applicable
Margin. Interest shall be payable in arrears on each Alternate Base Rate Loan on
each applicable Interest Payment Date and at maturity.
(c) Anything in this Credit Agreement or the Notes to the
contrary notwithstanding, the interest rate on the Loans shall in no event be in
excess of the maximum permitted by Applicable Law.
SECTION 2.5. Commitment Fees and Other Fees. (a) The Borrower
------------------------------
agrees to pay to the Administrative Agent for the account of each Lender on the
last Business Day of each March, June, September and December in each year
(commencing on the last Business Day of December 1999) prior to the later of the
Revolving Credit Commitment Termination Date and the Interest Loan Commitment
Termination Date and on the later thereof, an aggregate fee (the "Unused
------
Commitment Fee") of 1/2 of 1% per annum, computed on the basis of the actual
- --------------
number of days elapsed during the preceding period or quarter over a year of
365/366 days, as the case may be, on the average daily amount by which such
Lender's Commitment, as such Commitment may be reduced in accordance with the
provisions of this Credit Agreement, exceeds the sum of the principal balance of
such Lender's outstanding Loans plus its Percentage of L/C Exposure during the
preceding period or quarter. Subsequent to the Revolving Credit Termination
Date, the Unused Commitment Fee shall be calculated on the basis of the
available but unused revolving credit commitment calculated pursuant to the
proviso in Section 2.1(c).
(b) The Unused Commitment Fee shall commence to accrue from the
Closing Date.
(c) The Borrower agrees to pay to the Administrative Agent on the
Closing Date any and all other fees that are then due and payable pursuant to
the Fee Letter.
(d) In addition, the Borrower agrees to pay to the Administrative
Agent for the account of each Lender on the Closing Date any and all other fees
that are then due and payable
-28-
<PAGE>
as described in the Term Sheet included in the Confidential Information
Memorandum dated April 1999.
SECTION 2.6. Optional Termination or Reduction of Commitments.
------------------------------------------------
(a) Upon at least three Business Days' prior written, facsimile or telephonic
notice (provided that such telephonic notice is immediately followed by written
confirmation) to the Administrative Agent, the Borrower may at any time in whole
permanently terminate, or from time to time in part permanently reduce either or
both of the Total Senior Tranche Commitment or the Total Junior Tranche
Commitment. In the case of a partial reduction, each such reduction of either or
both of the Total Senior Tranche Commitment or the Total Junior Tranche
Commitment shall be in a minimum aggregate principal amount of $500,000 or an
integral multiple thereof; provided, however, that neither Total Commitment may
-------- -------
be reduced by more than the amount of the then unused and unreserved applicable
Total Commitment and may not be reduced to an amount less than the applicable
Credit Exposure. Any partial reduction of the Total Senior Tranche Commitment or
the Junior Tranche Commitment shall be made among the Lenders in accordance with
their respective Percentages. Notwithstanding the foregoing, the Junior Tranche
Commitment may not be reduced without the consent of 100% of the Senior Tranche
Lenders.
(b) Simultaneously with each such termination or reduction of the
Total Senior Tranche Commitment or the Total Junior Tranche Commitment, the
Borrower shall pay to the Administrative Agent for the benefit of each affected
Lender all accrued and unpaid Commitment Fees on the amount of the applicable
Total Commitment so terminated or reduced through the date of such termination
or reduction.
SECTION 2.7. Default Interest; Alternate Rate of Interest. (a) If
--------------------------------------------
the Borrower shall default in the payment of the principal of, or interest on
any Loan becoming due hereunder, whether at stated maturity, by acceleration or
otherwise, or the payment of any other amount becoming due hereunder after
written notification from the Administrative Agent to the Borrower of such
amount, the Borrower shall on demand in writing from time to time pay interest,
to the extent permitted by law, on all Loans and overdue amounts outstanding up
to the date of actual payment of such defaulted amount (after as well as before
judgment) (i) for the remainder of the then current Interest Period for each
Eurodollar Loan, at 2% in excess of the rate then in effect for each such
Eurodollar Loan and (ii) for all periods subsequent to the then current Interest
Period for each Eurodollar Loan, for all Alternate Base Rate Loans and for all
other overdue amounts hereunder, at 2% in excess of the rate then in effect for
Alternate Base Rate Loans.
(b) In the event, and on each occasion, that on the day two
Business Days prior to the commencement of any Interest Period for a Eurodollar
Loan, (i) the Administrative Agent shall have received notice from any Lender of
such Lender's determination (which determination, absent manifest error, shall
be conclusive) that Dollar deposits in the amount of the principal amount of
such Eurodollar Loan are not generally available in the London Interbank Market
or that the rate at which such Dollar deposits are being offered will not
adequately and
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<PAGE>
fairly reflect the cost to such Lender of making or maintaining the principal
amount of such Eurodollar Loan during such Interest Period or (ii) the
Administrative Agent shall have determined that reasonable means do not exist
for ascertaining the applicable LIBO Rate, the Administrative Agent shall, as
soon as practicable thereafter, give written or facsimile notice of such
determination to the Borrower and the Lenders, and any request by the Borrower
for a Eurodollar Loan (or conversion to or continuation as a Eurodollar Loan
pursuant to Section 2.9 hereof), made after receipt of such notice, shall be
deemed to be a request for an Alternate Base Rate Loan; provided, however, that
-------- -------
in the circumstances described in clause (i) above such deemed request shall
only apply to the affected Lender's portion thereof. After such notice shall
have been given and until the circumstances giving rise to such notice no longer
exist, each request (or portion thereof, as the case may be) for a Eurodollar
Loan, to the extent such request relates to such affected Lender's portion shall
be deemed to be a request for an Alternate Base Rate Loan.
SECTION 2.8. Continuation and Conversion of Loans. The Borrower
------------------------------------
shall have the right, at any time, (i) to convert any Eurodollar Loan or portion
thereof to an Alternate Base Rate Loan or to continue such Eurodollar Loan or a
portion thereof for a successive Interest Period, or (ii) to convert any
Alternate Base Rate Loan or a portion thereof to a Eurodollar Loan, subject to
the following:
(a) the Borrower shall give the Administrative Agent prior
written, facsimile or telephonic (promptly confirmed in writing) notice of each
continuation or conversion hereunder of at least three Business Days for
continuation as or conversion to a Eurodollar Loan; such notice shall be
irrevocable and to be effective, must be received by the Administrative Agent on
the day required not later than 2:00 p.m., New York City time;
(b) unless the Required Lenders otherwise consent, no Event of
Default or Default shall have occurred and be continuing at the time of any
conversion to a Eurodollar Loan or continuation of any such Eurodollar Loan into
a subsequent Interest Period;
(c) no Alternate Base Rate Loan may be converted to a Eurodollar
Loan and no Eurodollar Loan may be continued as a Eurodollar Loan if, after such
conversion or continuance, and after giving effect to any concurrent prepayment
of Loans, an aggregate of more than ten separate Eurodollar Loans would be
outstanding hereunder with respect to each Lender (for purposes of determining
the number of such Loans outstanding, Loans with different Interest Periods
shall be counted as different Loans even if made on the same date);
(d) if fewer than all Loans at the time outstanding shall be
continued or converted, such continuation or conversion shall be made pro rata
among the Lenders in accordance with the respective Percentage of the principal
amount of such Loans held by the Lenders immediately prior to such continuation
or conversion;
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<PAGE>
(e) the aggregate principal amount of Loans continued as or
converted to Eurodollar Loans as part of the same Borrowing shall be $500,000 or
such greater amount which is an integral multiple of $100,000;
(f) accrued interest on the Eurodollar Loans (or portion thereof)
being continued shall be paid by the Borrower at the time of continuation;
(g) the Interest Period with respect to a new Eurodollar Loan
effected by a continuation or conversion shall commence on the date of such
continuation or conversion;
(h) if a Eurodollar Loan is converted to another type of Loan
prior to the last day of the Interest Period with respect thereto, the amounts
required by Section 2.9(c) shall be paid upon such conversion; and
(i) each request for a continuation as or conversion to a
Eurodollar Loan which fails to state an applicable Interest Period shall be
deemed to be a request for an Interest Period of one month.
In the event that the Borrower shall not give notice to continue or convert any
Eurodollar Loan as provided above, such Loan (unless repaid) shall automatically
be converted to an Alternate Base Rate Loan at the expiration of the then
current Interest Period. The Administrative Agent shall, after it receives
notice from the Borrower, promptly give the Lenders notice of any continuation
or conversion.
SECTION 2.9. Prepayment of Loans; Reimbursement of Lenders. (a)
---------------------------------------------
Subject to the terms of paragraph (c) of this Section 2.9, the Borrower shall
have the right at its option at any time and from time to time to prepay (i) any
Alternate Base Rate Loan, in whole or in part, upon at least one Business Day's
prior written, telephonic (promptly confirmed in writing) or facsimile notice to
the Administrative Agent, in the principal amount of $500,000 or such greater
amount which is an integral multiple of $100,000 if prepaid in part, or the
remaining balance of such Loan if prepaid in full and (ii) any Eurodollar Loan,
in whole or in part, upon at least three Business Days' prior written,
telephonic (promptly confirmed in writing) or facsimile notice, in the principal
amount of $500,000 or such greater amount which is an integral multiple of
$100,000 if prepaid in part, or the remaining balance of such Loan if prepaid in
full. Each notice of prepayment shall specify the prepayment date, each Loan to
be prepaid and the principal amount thereof, shall be irrevocable and shall
commit the Borrower to prepay such Loan in the amount and on the date stated
therein. All prepayments under this Section 2.9(a) shall be accompanied by
accrued but unpaid interest on the principal amount being prepaid to (but not
including) the date of prepayment.
(b) The Obligations shall be repaid from the following sources in
the following priorities:
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(i) from Gross Receipts in the priorities set forth in
Section 7 of the Sponsor Agreement; and
(ii) from amounts otherwise payable by the Sponsor under
the Sponsor Agreement to the types of Loans for the
Declared Qualifying Pictures to which such payments
relate.
Any optional payments made by the Borrower or the Sponsor shall be applied to
repaying the Obligations in such priorities as shall be indicated in a written
notice given by the payer to the Administrative Agent at the time of such
payment; provided, however, no such payments shall be applied to pay any Loans
-------- -------
made under the Junior Tranche until such time as all Domestic Distribution Loans
made under the Senior Tranche have been paid in full.
(c) The Borrower shall reimburse each Lender on demand for any
loss incurred or to be incurred by any such Lender in the reemployment of the
funds released (i) by any prepayment (for any reason) of any Eurodollar Loan if
such Loan is repaid prior to the last day of the Interest Period for such Loan
or (ii) in the event that after the Borrower delivers a notice of borrowing
under Section 2.2(b) or Section 2.8(a) in respect of Eurodollar Loans, such Loan
is not made, converted to or continued as a Eurodollar Loan on the first day of
the Interest Period specified in such notice of borrowing for any reason other
than (A) a suspension or limitation under Section 2.7(b) of the right of the
Borrower to select a Eurodollar Loan, (B) a breach by any such Lender of its
obligation to fund such borrowing when it is otherwise required to do so
hereunder or (C) a repayment resulting from a conversion required by a Lender
pursuant to Section 2.11(a). Such loss shall be the amount as reasonably
determined by such Lender as the excess, if any, of (I) the amount of interest
which would have accrued to such Lender on the amount so paid or not borrowed,
continued or converted at a rate of interest equal to the interest rate
applicable to such Loan pursuant to Section 2.4, for the period from the date of
such payment or failure to borrow, continue or convert to the last day (x) in
the case of a payment prior to the last day of the Interest Period for such
Loan, of the then current Interest Period for such Loan or (y) in the case of
such failure to borrow, continue or convert, of the Interest Period for such
Loan which would have commenced on the date of such failure to borrow, continue
or convert, over (II) the amount realized or to be realized by such Lender in
reemploying the funds not advanced or the funds received in prepayment or
realized from the Loan not so continued or converted during the period referred
to above. Each Lender shall deliver to the Borrower from time to time one or
more certificates setting forth the amount of such loss (and in reasonable
detail the manner of computation thereof) as determined by such Lender, which
certificates shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amounts shown on such certificate within ten days of the
Borrower's receipt of such certificate.
(d) In the event the Borrower fails to prepay any Loan on the
date specified in any prepayment notice delivered pursuant to Section 2.9(a),
the Borrower shall pay to the Administrative Agent for the account of the
applicable Lender any amounts required to compensate such Lender for any actual
loss incurred by such Lender as a result of such failure to
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prepay, including, without limitation, any loss, cost or expenses incurred by
reason of the acquisition of deposits or other funds by such Lender to fulfill
deposit obligations incurred in anticipation of such prepayment. Each Lender
shall deliver to the Borrower and the Administrative Agent from time to time one
or more certificates setting forth the amount of such loss (and in reasonable
detail the manner of computation thereof) as determined by such Lender, which
certificates shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amounts shown on such certificate within ten days of the
Borrower's receipt of such certificate.
(e) Simultaneously with each termination and/or optional
reduction of the Total Senior Tranche Commitment or the Total Junior Tranche
Commitment pursuant to Section 2.6, the Borrower shall pay to the Administrative
Agent for the benefit of the Lenders an amount equal to the amount by which the
Junior Tranche Credit Exposure or the Senior Tranche Credit Exposure, as
applicable, exceeds the Total Senior Tranche Commitment or the Total Junior
Tranche Commitment, as applicable, after such termination or reduction.
(f) In the event any prepayment hereunder would result in the
incurrence by any Lender of a loss described in Section 2.9(b), such proceeds
shall be deposited into the Cash Collateral Account until such time as such
prepayment would no longer result in the incurrence of any such loss, at which
time the proceeds shall be applied to prepay outstanding Loans; provided no
--------
Event of Default has occurred or is then continuing.
(g) Unless otherwise designated in writing by the Borrower, all
prepayments shall be applied to the applicable principal payment set forth in
this Section 2.9, first to that amount of such applicable principal payment then
maintained as Alternate Base Rate Loans by the Borrower, and then, to that
amount of such applicable principal payment maintained as Eurodollar Loans by
the Borrower in order of the scheduled expiry of Interest Periods with respect
thereto.
(h) All prepayments shall be accompanied by accrued but unpaid
interest on the principal amount being prepaid to but not including the date of
prepayment.
SECTION 2.10. Change in Circumstances. (a) In the event that
-----------------------
after the Initial Date any change in Applicable Law or in the official
interpretation or administration thereof (including, without limitation, any
request, guideline or policy not having the force of law) by any authority
charged with the administration or interpretation thereof or, with respect to
clause (ii), (iii) or (iv) below any change in conditions, shall occur which
shall:
(i) subject any Lender to, or increase the net tax,
levy, impost, duty, charge, fee, deduction or withholding with
respect to any Eurodollar Loan (other than withholding tax
imposed by the United States of America or any political
subdivision or taxing authority thereof or any other tax, levy,
impost, duty, charge, fee, deduction or withholding (A) that is
measured with respect to the
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overall net income of such Lender or of a Lending Office of such
Lender, and that is imposed by the United States of America, or
by the jurisdiction in which such Lender or Lending Office is
incorporated, in which such Lending Office is located, managed or
controlled or in which such Lender has its principal office (or
any political subdivision or taxing authority thereof or
therein), or (B) that is imposed solely by reason of any Lender
failing to make a declaration of, or otherwise to establish, non-
residence, or to make any other claim for exemption, or otherwise
to comply with any certification, identification, information,
documentation or reporting requirements prescribed under the laws
of the relevant jurisdiction, in those cases where a Lender may
properly make such declaration or claim or so establish non-
residence or otherwise comply); or
(ii) change the basis of taxation of any payment to any
Lender of principal or any interest on any Eurodollar Loan or
other fees and amounts payable to any Lender hereunder, or any
combination of the foregoing; other than withholding tax imposed
by the United States of America or any political subdivision or
taxing authority thereof or any other tax, levy, impost, duty,
charge, fee, deduction or withholding that is measured with
respect to the overall net income of such Lender or of a Lending
Office of such Lender, and that is imposed by the United States
of America, or by the jurisdiction in which such Lender or
Lending Office is incorporated, in which such Lending Office is
located, managed or controlled or in which such Lender has its
principal office (or any political subdivision or taxing
authority thereof or therein); or
(iii) impose, modify or deem applicable any reserve,
deposit or similar requirement against any assets held by,
deposits with or for the account of or loans or commitments by an
office of such Lender with respect to any Eurodollar Loan; or
(iv) impose upon such Lender or the London Interbank
Market any other condition with respect to the Eurodollar Loans
or this Credit Agreement;
and the result of any of the foregoing shall be to increase the actual cost to
such Lender of making or maintaining any Eurodollar Loan hereunder or to reduce
the amount of any payment (whether of principal, interest or otherwise) received
or receivable by such Lender in connection with any Eurodollar Loan hereunder,
or to require such Lender to make any payment in connection with any Eurodollar
Loan hereunder, then and in each case the Borrower shall pay to the
Administrative Agent for the account of such Lender, as provided in paragraph
(c) below, such amounts as shall be necessary to compensate such Lender for such
cost, reduction or payment.
(b) If at any time and from time to time after the Initial Date
any Lender shall have determined that the applicability of any law, rule,
regulation or guideline adopted after the
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Initial Date of any law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any Lending Office of such Lender) or
any Lender's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or on the capital of such Lender's holding
company, if any, as a consequence of this Credit Agreement or the Loans made or
Letters of Credit issued or participated in by such Lender pursuant hereto to a
level below that which such Lender or such Lender's holding company could have
achieved but for such applicability, adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such Lender's
holding company for any such reduction suffered with respect to Loans made by
such Lender hereunder.
(c) Each Lender shall deliver to the Borrower and the
Administrative Agent from time to time, one or more certificates setting forth
the amounts due to such Lender under paragraphs (a) and (b) above, the changes
as a result of which such amounts are due, the manner of computing such amounts
and the manner of computing the amounts allocable to Loans hereunder pursuant to
paragraphs (a) and (b) above. Each such certificate shall be conclusive in the
absence of manifest error. The Borrower shall pay to the Administrative Agent
for the account of each such Lender the amounts shown as due on any such
certificate within ten Business Days after its receipt of the same. No failure
on the part of any Lender to demand compensation under paragraph (a) or (b)
above on any one occasion shall constitute a waiver of its rights to demand
compensation on any other occasion. The protection of this Section 2.10(c) shall
be available to each Lender regardless of any possible contention of the
invalidity or inapplicability of any law, regulation or other condition which
shall give rise to any demand by such Lender for compensation thereunder.
(d) Each Lender agrees that after it becomes aware of the
occurrence of an event or the existence of a condition that (i) would cause it
to incur any increased cost hereunder or render it unable to perform its
agreements hereunder for the reasons specifically set forth in Section 2.7(b) or
this Section 2.10 or Section 2.13 or Section 2.15(g) or (ii) would require the
Borrower to pay an increased amount under Section 2.7(b) or this Section 2.10 or
Section 2.13 or Section 2.15(g), it will use reasonable efforts to notify the
Borrower of such event or condition and, to the extent not inconsistent with
such Lender's internal policies, will use its reasonable efforts to make, fund
or maintain the affected Loans of such Lender, or, if applicable, to participate
in Letters of Credit as required under Section 2.15, through another Lending
Office of such Lender if as a result thereof the additional monies which would
otherwise be required to be paid or the reduction of amounts receivable by such
Lender thereunder in respect of such Loans would be materially reduced, or such
inability to perform would cease to exist, or the increased
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costs which would otherwise be required to be paid in respect of such Loans
pursuant to Section 2.7(b) or this Section 2.10 or Section 2.13 or Section
2.15(g) would be materially reduced or the taxes or other amounts otherwise
payable under Section 2.7(b) or this Section 2.10 or Section 2.13 or Section
2.15(g) would be materially reduced, and if, as determined by such Lender, in
its discretion, the making, funding or maintaining of such Loans through such
other Lending Office would not otherwise materially adversely affect such Loans
or such Lender.
SECTION 2.11. Change in Legality. (a) Notwithstanding anything to
------------------
the contrary contained elsewhere in this Credit Agreement, if any change after
the date hereof in Applicable Law, guideline or order, or in the interpretation
thereof by any Governmental Authority charged with the administration thereof,
shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or
to give effect to its obligations as contemplated hereby with respect to a
Eurodollar Loan, then, by written notice to the Borrower and the Administrative
Agent, such Lender may (i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder and/or (ii) require that, subject to Section
2.9(b), all outstanding Eurodollar Loans made by it be converted to Alternate
Base Rate Loans, whereupon all of such Eurodollar Loans shall automatically be
converted to Alternate Base Rate Loans, as of the effective date of such notice
as provided in paragraph (b) below. Such Lender's pro rata portion of any
subsequent Eurodollar Loan shall, instead, be an Alternate Base Rate Loan unless
such declaration is subsequently withdrawn.
(b) A notice to the Borrower by any Lender pursuant to
paragraph (a) above shall be effective for purposes of clause (ii) thereof, if
lawful, on the last day of the current Interest Period for each outstanding
Eurodollar Loan; and in all other cases, on the date of receipt of such notice
by the Borrower.
SECTION 2.12. Manner of Payments. All payments of principal and
------------------
interest by the Borrower in respect of any Loans to it shall be pro rata among
the Lenders holding such Loans in accordance with the then outstanding principal
amounts of such Loans held by them and all Borrowings of any Loans by the
Borrower hereunder shall be made pro rata among the Lenders in accordance with
their Commitments. All payments by the Borrower hereunder and under the Notes
shall be made in Dollars in Federal or other immediately available funds at the
office of The Chase Manhattan Bank, Loan and Agency Services Group, One Chase
Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Ganush Persaud, for
credit to the Chase Clearing Account no later than 2:00 p.m., New York City
time, on the date on which such payment shall be due. Interest in respect of any
Loan hereunder shall accrue from and including the date of such Loan to but
excluding the date on which such Loan is paid or converted to a Loan of a
different type.
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SECTION 2.13. United States Withholding. (a) Prior to the date of
-------------------------
the initial Loans hereunder, and prior to the effective date set forth in the
Assignment and Acceptance with respect to any Lender becoming a Lender after the
date hereof, and from time to time thereafter if requested by the Borrower or
the Administrative Agent or required because, as a result of a change in law or
a change in circumstances or otherwise, a previously delivered form or statement
becomes incomplete or incorrect in any material respect, each Lender organized
under the laws of a jurisdiction outside the United States shall provide, if
applicable, the Administrative Agent and the Borrower with complete, accurate
and duly executed forms or other statements prescribed by the Internal Revenue
Service of the United States certifying such Lender's exemption from, or
entitlement to a reduced rate of, United States withholding taxes (including
backup withholding taxes) with respect to all payments to be made to such Lender
hereunder and under the Notes.
(b) The Borrower and the Administrative Agent shall be entitled
to deduct and withhold any and all present or future taxes or withholdings, and
all liabilities with respect thereto, from payments hereunder or under the
Notes, if and to the extent that the Borrower or the Administrative Agent in
good faith determines that such deduction or withholding is required by the law
of the United States, including, without limitation, any applicable treaty of
the United States. In the event that the Borrower or the Administrative Agent
shall so determine that deduction or withholding of taxes is required, it shall
advise the affected Lender as to the basis of such determination prior to
actually deducting and withholding such taxes. In the event the Borrower or the
Administrative Agent shall so deduct or withhold taxes from amounts payable
hereunder, it (i) shall pay to or deposit with the appropriate taxing authority
in a timely manner the full amount of taxes it has deducted or withheld; (ii)
shall provide evidence of payment of such taxes to, or the deposit thereof with,
the appropriate taxing authority and a statement setting forth the amount of
taxes deducted or withheld, the applicable rate, and any other information or
documentation reasonably requested by the Lenders from whom the taxes were
deducted or withheld; and (iii) shall forward to such Lenders any official tax
receipts or other documentation with respect to the payment or deposit of the
deducted or withheld taxes as may be issued from time to time by the appropriate
taxing authority. Unless the Borrower and the Administrative Agent have received
forms or other documents satisfactory to them indicating that payments hereunder
or under the Notes are not subject to United States withholding tax or are
subject to such tax at a rate reduced by an applicable tax treaty, the Borrower
or the Administrative Agent may withhold taxes from such payments at the
applicable statutory rate in the case of payments to or for any Lender organized
under the laws of a jurisdiction outside the United States.
(c) Each Lender agrees (i) that as between it and the Borrower or
the Administrative Agent, such Lender shall be the Person to deduct and withhold
taxes, and to the extent required by law it shall deduct and withhold taxes, on
amounts that such Lender may remit to any other Person(s) by reason of any
undisclosed transfer or assignment of an interest in this Credit Agreement to
such other Person(s) pursuant to Section 11.3 and (ii) to indemnify the Borrower
and the Administrative Agent and any officers, directors, agents, or employees
of the Borrower or the Administrative Agent against and to hold them harmless
from any tax, interest,
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additions to tax, penalties, reasonable counsel and accountants' fees,
disbursements or payments arising from the assertion by any appropriate taxing
authority of any claim against them relating to a failure to withhold taxes as
required by law with respect to amounts described in clause (i) of this
paragraph (c) or arising from the reliance by the Borrower or the Administrative
Agent on any form or other document furnished by such Lender and purporting to
establish a basis for not withholding, or for withholding at a reduced rate,
taxes with respect to payments hereunder.
(d) Each assignee of a Lender's interest in this Credit
Agreement in conformity with Section 11.3 shall be bound by this Section 2.13,
so that such assignee will have all of the obligations and provide all of the
forms and statements and all indemnities, representations and warranties
required to be given under this Section 2.13.
(e) Notwithstanding the foregoing, in the event that any
additional withholding taxes shall become payable solely as a result of any
change in any statute, treaty, ruling, determination or regulation occurring
after the Initial Date in respect of any sum payable hereunder or under any
other Fundamental Document to any Lender or the Administrative Agent (i) the sum
payable by the Borrower shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.13) such Lender or the Administrative Agent
(as the case may be) receives an amount equal to the sum it would have received
had no such withholding deductions been made, (ii) the Borrower shall make such
deductions, (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with Applicable Law
and (iv) the Borrower shall forward to such Lender or the Administrative Agent
(as the case may be) the official tax receipts or other documentation pursuant
to Section 2.13(b). In addition, the Borrower shall indemnify each Lender and
the Administrative Agent for any additional withholding taxes paid by such
Lender or the Administrative Agent, as the case may be, or any liability
(including penalties and interest) arising therefrom or with respect thereto,
whether or not such additional withholding taxes were correctly or legally
asserted.
(f) In the event that a Lender receives a refund of or credit for
taxes withheld or paid pursuant to clause (e) of this Section 2.13, which credit
or refund is identifiable by such Lender as being a result of taxes withheld in
connection with sums payable hereunder or under any other Fundamental Document,
such Lender shall promptly notify the Administrative Agent and the Borrower and
shall remit to the Borrower the amount of such refund or credit allocable to
payments made hereunder or under the other Fundamental Documents.
(g) Each Lender agrees that after it becomes aware of the
occurrence of an event that would cause the Borrower to pay any amount pursuant
to clause (e) of this Section 2.13, it will use reasonable efforts to notify the
Borrower of such event and, to the extent not inconsistent with such Lender's
internal policies, will use its reasonable efforts to make, fund or maintain the
affected Loans of such Lender through another Lending Office of such Lender if
as a result thereof the additional monies which would otherwise be required to
be paid by reason of Section 2.13(e) in respect of such Loans would be
materially reduced, and if, as determined by
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such Lender, in its discretion, the making, funding or maintaining of such Loans
through such other Lending Office would not otherwise materially adversely
affect such Loans or such Lender.
SECTION 2.14. Interest Adjustments. If the provisions of this
--------------------
Credit Agreement or any Note would at any time require payment by the Borrower
to a Lender of any amount of interest in excess of the maximum amount then
permitted by the law applicable to any Loan, the interest payments to that
Lender shall be reduced to the extent necessary so that such Lender shall not
receive interest in excess of such maximum amount. If, as a result of the
foregoing, a Lender shall receive interest payments hereunder or under a Note in
an amount less than the amount otherwise provided hereunder, such deficit
(hereinafter called the "Interest Deficit") will, to the fullest extent
----------------
permitted by Applicable Law, cumulate and will be carried forward (without
interest) until the termination of this Credit Agreement. Interest otherwise
payable to a Lender hereunder and under a Note for any subsequent period shall
be increased by the maximum amount of the Interest Deficit that may be so added
without causing such Lender to receive interest in excess of the maximum amount
then permitted by the law applicable to the Loans.
The amount of any Interest Deficit relating to a particular Loan
and Note shall be treated as a prepayment penalty and shall, to the fullest
extent permitted by Applicable Law, be paid in full at the time of any optional
prepayment by the Borrower to the Lenders of all the Loans at that time
outstanding pursuant to Section 2.9(a) hereof. The amount of any Interest
Deficit relating to a particular Loan and Note at the time of any complete
payment of the Loans at that time outstanding (other than an optional prepayment
thereof pursuant to Section 2.10(a) hereof) shall be canceled and not paid.
SECTION 2.15. Letters of Credit. (a) (i) Subject to the terms and
-----------------
conditions hereof and of Applicable Law, the Fronting Bank agrees to issue
Letters of Credit payable in Dollars from time to time after the Closing Date
and prior to the Revolving Credit Commitment Termination Date upon the request
of the Borrower to secure its obligation to pay for the acquisition of a
Declared Qualifying Picture, provided, however, that (A) the Borrower shall not
-------- -------
request that any Letter of Credit be issued if, after giving effect thereto, the
Senior Tranche Credit Exposure would exceed the Total Senior Tranche Commitment,
(B) in no event shall the Fronting Bank issue any Letter of Credit having an
expiration date after the Revolving Credit Commitment Termination Date and (C)
each Letter of Credit issued shall not account for more than the Negative Cost
Loan Value of the applicable Qualifying Picture and shall not entitle the
beneficiary to draw thereunder unless the Borrower has satisfied all the
conditions set forth in Section 4.2 hereof.
(ii) Immediately upon the issuance of each Letter of
Credit, each Senior Tranche Lender shall be deemed to, and hereby agrees to,
have irrevocably purchased from the Fronting Bank a participation in such Letter
of Credit in accordance with such Lender's Percentage.
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(iii) Each Letter of Credit may, at the option of the Fronting
Bank, provide that the Fronting Bank may (but shall not be required to) pay all
or any part of the maximum amount which may at any time be available for drawing
thereunder to the beneficiary thereof upon the occurrence and continuation of an
Event of Default and the acceleration of the maturity of the Loans, provided
that, if payment is not then due to the beneficiary, the Fronting Bank may
deposit the funds in question in a segregated account with the Fronting Bank to
secure payment to the beneficiary and any funds so deposited shall be paid to
the beneficiary of the Letter of Credit if conditions to such payment are
satisfied or returned to the Fronting Bank for distribution to the Lenders (or,
if all Obligations shall have been paid in full in cash, to the Borrower) if no
payment to the beneficiary has been made and the final date available for
drawings under the Letter of Credit has passed. Each payment or deposit of funds
by the Fronting Bank as provided in this paragraph shall be treated for all
purposes of this Credit Agreement as a drawing duly honored by the Fronting Bank
under the related Letter of Credit.
(b) Whenever the Borrower desires the issuance of a Letter of Credit,
it shall deliver to the Fronting Bank a written notice no later than 2:00 p.m.,
New York City time, at least five Business Days prior to the proposed date of
issuance. Such notice shall specify (i) the proposed date of issuance (which
shall be a Business Day), (ii) the face amount of the Letter of Credit, (iii)
the expiration date of the Letter of Credit and (iv) the name and address of the
beneficiary. Such notice shall be accompanied by a brief description of the
underlying transaction and upon request of the Fronting Bank, the Borrower shall
provide additional details regarding the underlying transaction. Concurrently
with the giving of written notice of a request for the issuance of a Letter of
Credit, the Borrower shall specify a precise description of the documents and
the verbatim text of any certificate to be presented by the beneficiary of such
Letter of Credit which, if presented by such beneficiary prior to the expiration
date of the Letter of Credit, would require the Fronting Bank to make payment
under the Letter of Credit; provided, however, that the documents the
-------- -------
beneficiary is required to present must establish to the satisfaction of the
Fronting Bank that all the conditions set forth in Section 4.2 hereof (which
have not been satisfied as a condition to the issuance of the Letter of Credit)
have been satisfied and, provided, further, that the Fronting Bank, in its
-------- -------
reasonable discretion, may require changes in any such documents and
certificates to conform to its customary practices and to the structure of the
facility provided hereby (including but not limited to the satisfaction at the
drawing of the conditions in Section 4.2 with regard to the relevant Qualifying
Picture). Promptly after receipt of such notice, the Administrative Agent shall
notify each Lender of the issuance and the amount of each such Lender's
respective participation therein. At Borrower's request, the Fronting Bank shall
provide Borrower with a copy of the form of Letter of Credit to be issued for
Borrower's review and approval prior to issuance.
(c) The payment of drafts under any Letter of Credit shall be made in
accordance with the terms of such Letter of Credit and the Uniform Customs and
Practice for documentary Credits of the International Chamber of Commerce No.
500, as adopted or amended from time to time. The Fronting Bank shall be
entitled to honor any drafts and accept any documents presented to it by the
beneficiary of such Letter of Credit in accordance with the
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terms of such Letter of Credit and believed by the Fronting Bank in good faith
to be genuine. The Fronting Bank shall not have any duty to inquire as to the
accuracy or authenticity of any draft or other drawing documents which may be
presented to it, but shall be responsible only to determine in accordance with
customary commercial practices that the documents which are required to be
presented before payment or acceptance of a draft under any Letter of Credit
have been delivered and that they comply on their face with the requirements of
that Letter of Credit.
(d) If the Fronting Bank shall make payment on any draft
presented under a Letter of Credit (regardless of whether a Default or Event of
Default or acceleration has occurred), the Fronting Bank shall give notice of
such payment to the Senior Tranche Lenders and each Senior Tranche Lender hereby
authorizes and requests the Fronting Bank to advance for its account pursuant to
the terms hereof its share of such payment based upon its participation in the
Letter of Credit and agrees promptly to reimburse the Fronting Bank in
immediately available funds for the Dollar equivalent of the amount so advanced
on its behalf. If such reimbursement is not made by any Senior Tranche Lender in
immediately available funds on the same day on which the Fronting Bank shall
have made payment on any such draft, such Lender shall pay interest thereof to
the Fronting Bank at a rate per annum equal to the Fronting Bank's cost of
obtaining overnight funds in the New York Federal Funds Market for the three
Business Days following the time the Lender fails to make the reimbursement and
thereafter at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin. In the case of any draft presented under a Letter of Credit
which is required to be paid at any time on or before the Revolving Credit
Commitment Termination Date, such payment of the unreimbursed draft shall
constitute an Alternate Base Rate Loan hereunder and interest shall accrue from
the date the Fronting Bank makes payment of a draft under the Letter of Credit.
(e) Subject to provisions of Section 2.15(c), the Borrower is
absolutely, unconditionally and irrevocably obligated to reimburse all amounts
drawn under each Letter of Credit. If any draft is presented under a Letter of
Credit, payment of which is required to be made after the Revolving Credit
Commitment Termination Date (it being understood that no Letter of Credit shall
be issued which would expire after October 13, 2002), then the Borrower will,
upon demand by the Fronting Bank, pay to the Fronting Bank, in immediately
available funds, the full amount of such draft. If such payment is not made by
the Borrower and the Fronting Bank shall make payment on any draft presented
under a Letter of Credit, the Fronting Bank shall give notice of such payment to
the Senior Tranche Lenders and each Senior Tranche Lender hereby authorizes and
requests the Fronting Bank to advance for its account pursuant to the terms
thereof its share of such payment based upon its participation in the Letter of
Credit and agrees promptly to reimburse the Fronting Bank in immediately
available funds for the Dollar equivalent of the amount so advanced on its
behalf. If such reimbursement is not made by any Senior Tranche Lender in
immediately available funds on the same day on which the Fronting Bank shall
have made payment on any such draft, such Lender shall pay interest thereon to
the Fronting Bank at a rate per annum equal to the Fronting Bank's cost of
obtaining overnight funds in the New York Federal Funds Market for the three
Business Days following the time the Lender fails to make the reimbursement and
thereafter at a rate per annum equal to the Alternate
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Bast Rate plus the Applicable Margin. Such payment shall constitute an Alternate
Base Rate Loan hereunder and interest shall accrue from the date the Fronting
Bank makes payment of a draft under the Letter of Credit at the rate specified
in Section 2.8.
(f) (i) The Borrower agrees to pay the following amount to the
Fronting Bank with respect to Letters of Credit issued by it hereunder:
(A) with respect to the issuance, amendment, transfer or
any other transaction related to each Letter of Credit and each
drawing made thereunder, documentary and processing charges in
accordance with the Fronting Bank's standard schedule for such
charges in effect at the time of such issuance, amendment,
transfer or drawing, as the case may be; and
(B) a fronting fee payable to the Fronting Bank for the
period from and including the Closing Date to but excluding the
Revolving Credit Commitment Termination Date, computed at a rate
equal to 1/4 of 1% per annum of the daily average L/C Exposure,
such fee to be due and payable in arrears on and through the last
Business Day of each fiscal quarter of the Borrower, prior to the
Revolving Credit Commitment Termination Date, on the Revolving
Credit Commitment Termination Date and on the expiration of the
last outstanding Letter of Credit.
(ii) The Borrower agrees to pay to the Administrative Agent
for distribution to each Senior Tranche Lender in respect of its L/C Exposure,
such Lender's Pro Rata Share of a commission calculated at a rate per annum
equal to 2.75% per annum (calculated in the same manner as interest) of the
daily average L/C Exposure. Such commission shall be payable in arrears on and
through the last Business Day of each fiscal quarter prior to the Revolving
Credit Commitment Termination Date and on the Revolving Credit Commitment
Termination Date.
(iii) Promptly upon receipt by the Fronting Bank of any
amount described in clause (ii) of this Section 2.15(f), or any amount described
in Section 2.15(e) previously reimbursed to the Fronting Bank by the Senior
Tranche Lenders, the Fronting Bank shall distribute to each Senior Tranche
Lender its Pro Rata Share of such amount. Amounts payable under clauses (i)(A)
and (i)(B) of this Section 2.15(f) shall be paid directly to the Fronting Bank
and shall be for its exclusive use.
(g) If by reason of (i) any change in Applicable Law after the
Initial Date, or in the interpretation or administration thereof (including,
without limitation, any request, guideline or policy not having the force of
law) by any Governmental Authority charged with the administration or
interpretation thereof, or (ii) compliance by the Fronting Bank or any Senior
Tranche Lender with any direction, request or requirement (whether or not having
the force of law) issued after the Initial Date by any Governmental Authority or
monetary authority
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(including any change whether or not proposed or published prior to the Initial
Date), including, without limitation, any modifications to Regulation D
occurring after the Initial Date:
(A) the Fronting Bank or any Senior Tranche Lender shall
be subject to any tax, levy, duty, fee, charge, deduction or
withholding with respect to any Letter of Credit (other than
withholding tax imposed by the United States of America or any
other tax, levy, impost, duty, charge, fee, deduction or
withholding (I) that is measured with respect to the overall net
income of the Fronting Bank or such Lender or of a Lending Office
of the Fronting Bank or such Lender, and that is imposed by the
United States of America, or by the jurisdiction in which the
Fronting Bank or such Lender is incorporated, or in which such
Lending Office is located, managed or controlled or in which the
Fronting Bank or such Lender has its principal office (or any
political subdivision or taxing authority thereof or therein) or
(II) that is imposed solely by reason of the Fronting Bank or
such Lender failing to make a declaration of, or otherwise to
establish, non-residence or to make any other claim for
exemption, or otherwise to comply with any certification,
identification, information, documentation or reporting
requirements prescribed under the laws of the relevant
jurisdiction, in those cases where the Fronting Bank or such
Lender may properly make such declaration or claim or so
establish non-residence or otherwise comply);
(B) the basis of taxation of any fee or amount payable
hereunder with respect to any Letter of Credit shall be changed
(except as described in clause (A) above);
(C) any reserve, deposit or similar requirement is or
shall be applicable, imposed or modified in respect of any Letter
of Credit issued by the Fronting Bank or participations therein
purchased by any Senior Tranche Lender; or
(D) there shall be imposed on the Fronting Bank or any
Senior Tranche Lender any other condition regarding this Section
2.15, any Letter of Credit or any participation therein;
and the result of the foregoing is to increase from the conditions that exist on
the Initial Date the actual cost to the Fronting Bank or any Lender of issuing,
making or maintaining any Letter of Credit or of purchasing or maintaining any
participation therein, or to reduce the amount receivable in respect thereof by
the Fronting Bank or any Senior Tranche Lender, in each case by or in an amount
which the Fronting Bank or any Senior Tranche Lender shall reasonably deem
material, then and in any such case the Fronting Bank or such Lender may, at any
time, notify the Borrower, and the Borrower shall pay on demand such amounts as
the Fronting Bank or such Lender may specify to be necessary to compensate the
Fronting Bank or such Lender for such additional cost or reduced receipt.
Section 2.10(b), (c), (d) and Section 2.11 shall in all instances apply to the
Fronting Bank and any Lender with respect to Letters of Credit issued hereunder.
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The determination by the Fronting Bank or any Senior Tranche Lender, as the case
may be, of any amount due pursuant to this Section 2.15 as set forth in a
certificate setting forth the calculation thereof in reasonable detail shall, in
the absence of manifest error, be final, conclusive and binding on all of the
parties hereto.
(h) If at any time when an Event of Default shall have occurred
and be continuing, any Letters of Credit shall remain outstanding, then the
Required Lenders or the Fronting Bank may, at their or its option, require the
Borrower to deliver to the Fronting Bank cash or Cash Equivalents in an amount
equal to the full amount of the L/C Exposure or to furnish other security
acceptable to the Required Lenders. Any amounts so delivered pursuant to the
preceding sentence shall be applied to reimburse the Fronting Bank for the
amount of any drawings honored under Letters of Credit; provided, however, that
-------- -------
if prior to the Revolving Credit Commitment Termination Date, no Default or
Event of Default is then continuing, the Fronting Bank shall return all of such
collateral relating to such deposit to the Borrower upon request.
(i) If at any time that any Letter of Credit is outstanding, the
Senior Tranche Credit Exposure exceeds the Total Senior Tranche Commitment, then
the Required Lenders or the Fronting Bank may, at their option, require (x) a
prepayment of the Senior Tranche Loans in accordance with Section 2.9 or (y) the
Borrower to deliver cash or Cash Equivalents to the Fronting Bank in an amount
sufficient to eliminate such excess or to furnish other security for such excess
acceptable to the Required Lenders. Any amounts so delivered pursuant to the
preceding sentence shall be applied to reimburse the Fronting Bank for the
amount of any drawings honored under Letters of Credit; provided, however, that
-------- -------
if subsequent to any such deposit such excess is reduced to an amount less than
the amount of such deposited amounts and no Default or Event of Default is then
continuing, the Borrower shall be entitled to receive such excess collateral if
requested by it.
(j) Notwithstanding the termination of the Commitments and the
payment of the Loans, the obligations of the Borrower under this Section 2.15
shall remain in full force and effect until the Fronting Bank and the Senior
Tranche Lenders shall have been irrevocably released from their obligations with
regard to any and all Letters of Credit.
(k) This Section 2.15 shall not be amended without the written
consent of the Fronting Bank and the Administrative Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
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In order to induce the Administrative Agent, the Fronting Bank
and the Lenders to enter into this Credit Agreement and to make the Loans and
issue Letters of Credit and/or purchase participations in the Letters of Credit
provided for herein, the Borrower makes the following representations and
warranties to, and agreements with, the Administrative Agent, the Fronting Bank
and the Lenders, all of which shall survive the execution and delivery of this
Credit Agreement, the issuance of the Notes, the making of the Loans and the
issuance of the Letters of Credit:
SECTION 3.1. Corporate Existence and Power. The Borrower is a
-----------------------------
Delaware business trust, validly existing and in good standing under the laws of
the state of Delaware and is in good standing as a foreign business trust in all
jurisdictions where the nature of its properties or business so requires. The
Borrower has the power and authority to own its properties and carry on its
businesses as now being conducted, to execute, deliver and perform, as
applicable, its obligations under this Credit Agreement, the Notes and the other
Fundamental Documents and other documents contemplated hereby to which it is or
will be a party as provided herein and to grant to the Administrative Agent for
the benefit of itself, the Fronting Bank and the Lenders, a security interest in
the Collateral as contemplated by Article 8 hereof.
SECTION 3.2. Authority and No Violation. (a) The execution,
--------------------------
delivery and performance of this Credit Agreement and the other Fundamental
Documents to which it is a party and the Borrowings hereunder and the execution
and delivery of the Notes and the grant to the Administrative Agent for the
benefit of itself, the Fronting Bank and the Lenders and the Collateral as
contemplated by Article 8 hereof and in the other Fundamental Documents (i) have
been duly authorized by all necessary action on the part of the Borrower and/or
its Certificate Holders, (ii) will not constitute a violation by the Borrower of
any provision of Applicable Law or any order of any court or other agency of the
United States or any state thereof applicable to the Borrower or any of its
properties or assets, (iii) will not violate any provision of the Trust
Agreement or the Certificate of Trust of the Borrower, or any provision of the
Distribution Agreement or any indenture, agreement, bond, note or other similar
instrument to which the Borrower is a party or by which the Borrower or its
properties or assets are bound, (iv) will not be in conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under or create any right to terminate the Distribution Agreement or any such
indenture, agreement, bond, note or other instrument and (v) will not result in
the creation or imposition of any Lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Borrower other than
pursuant to the documents related to this Credit Agreement or the other
Fundamental Documents.
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<PAGE>
SECTION 3.3. Governmental Approval. All authorizations,
---------------------
approvals, registrations or filings with any governmental or public regulatory
body or authority of the United States or any state thereof (other than UCC
financing statements, the Copyright Security Agreement, and the Trademark
Security Agreement which will be delivered to the Administrative Agent prior to
the various Initial Funding Dates, in form suitable for recording or filing with
the appropriate filing office) required for the execution, delivery and
performance by the Borrower of this Credit Agreement and the other Fundamental
Documents to which it is a party, and the execution and delivery by the Borrower
of the Notes, have been duly obtained or made, or duly applied for and are in
full force and effect, and if any such further authorizations, approvals,
registrations or filings should hereafter become necessary, the Borrower shall
obtain or make all such authorizations, approvals, registrations or filings.
SECTION 3.4. Binding Agreements. This Credit Agreement and the
------------------
other Fundamental Documents when executed will constitute the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms, subject, as to the enforcement of remedies, to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and general
principles of equity.
SECTION 3.5. Special Purpose Nature of the Borrower. (a) The
--------------------------------------
Borrower was formed on August 25, 1999 and as of the Closing Date has not
engaged in any activities or incurred any liabilities, contingent or otherwise,
other than those related to the negotiation and closing of this Credit
Agreement, the other Fundamental Documents, the Basic Agreements and the
issuance of the trust certificates under the Trust Agreement. As of the Closing
Date, the Borrower does not have any Subsidiaries, and does not own, directly or
indirectly, any voting stock or other beneficial interest in any Person.
(b) As of the Closing Date, the Certificate Holders of the
Borrower are the entities listed on the certificate register maintained pursuant
to the Trust Agreement and the trustee of the Borrower is Christiana Bank &
Trust, a Delaware banking corporation.
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<PAGE>
SECTION 3.6. Solvency. The Borrower has not entered and is not
--------
entering into the arrangements contemplated hereby and by the other Fundamental
Documents, and does not intends to make any transfer or incur any obligations
hereunder or thereunder, with actual intent to hinder, delay or defraud either
present or future creditors. On and as of the Closing Date, on a pro forma basis
after giving effect to all Indebtedness (including the Loans) (i) the Borrower
expects the cash available to it, after taking into account all other
anticipated uses of the cash (including the payments on or in respect of debt
referred to in clause (iii) of this Section 3.6), will be sufficient to satisfy
all final judgments for money damages which have been docketed against the
Borrower or which may be rendered against the Borrower in any action in which
the Borrower is a defendant (taking into account the reasonably anticipated
maximum amount of any such judgment and the earliest time at which such judgment
might be entered); (ii) the sum of the present fair saleable value of the assets
of the Borrower will exceed the probable liability of the Borrower on its debts
(including its Guaranties); (iii) the Borrower will not have incurred nor does
it intend to, or believe that it will, incur debts beyond its ability to pay
such debts as such debts mature (taking into account the timing and amounts of
cash to be received by the Borrower from any source, and of amounts to be
payable on or in respect of debts of the Borrower and the amounts referred to in
clause (ii)); and (iv) the Borrower believes it will have sufficient capital
with which to conduct its present and proposed business and the property of the
Borrower does not constitute unreasonably small capital with which to conduct
its present or proposed business. For purposes of this Section 3.6, "debt" means
any liability or a claim, and "claim" means (y) right to payment whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, or (z) right to an equitable remedy for breach of performance if such
breach gives rise to a payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured.
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SECTION 3.7. Copyrights, Trademarks and Other Rights. (a) On the
---------------------------------------
date hereof, the Pictures listed on Schedule 3.7(a) comprise all of the Pictures
in which the Borrower has any right, title or interest. The copyright
registration number and the character of the interests held by the Borrower for
the Pictures listed on Schedule 3.7(a) are set forth across from the description
of such Picture and as to each item listed on Schedule 3.7(a) hereto the
Borrower holding such interests has duly recorded its interests in the United
States Copyright Office and has delivered copies of all such recordation to the
Administrative Agent. Schedule 3.7(a) shall identify the location of the best
available physical materials related to each Picture owned by the Borrower. To
the best of the Borrower's knowledge, all Pictures owned by the Borrower do not
violate or infringe upon any copyright, right of privacy, trademark, patent,
trade name, performing right or any literary, dramatic, musical, artistic,
personal, private, several, contract or copyright right or any other right of
any Person or contain any libelous or slanderous material other than to an
extent which is either not material or for which coverage is provided in
existing insurance policies. Except as set forth on Schedule 3.11, there is no
claim, suit, action or proceeding pending or, to the best of the Borrower's
knowledge, threatened against the Borrower that involves a claim of infringement
of any copyright with respect to any Picture listed on Schedule 3.7(a) and the
Borrower has no knowledge of any existing infringement by any other Person of
any copyright held by the Borrower with respect to any Picture listed on
Schedule 3.7(a).
(b) Schedule 3.7(b) hereto (i) lists substantially all of the
trademarks registered by the Borrower on the date hereof and identifies the
Borrower which registered each such trademark and (ii) specifies as to each, the
jurisdictions in which such trademark has been issued or registered (or, if
applicable, in which an application for such issuance or registration has been
filed), including the respective registration or application numbers and
applicable dates of registration or application. Each trademark set forth on
Schedule 3.7(b) shall be included on Schedule A to the Trademark Security
Agreement delivered to the Administrative Agent pursuant to Section 4.1(e).
SECTION 3.8. Fictitious Names. Except as disclosed on
----------------
Schedule 3.8, the Borrower is not doing business or intend to do business other
than under its full company name, including, without limitation, under any trade
name or other doing business name.
SECTION 3.9. Title to Properties. The Borrower has good title to
-------------------
each of its properties and assets and, to the best of the Borrower's knowledge,
all such properties and assets are free and clear of Liens, except Permitted
Encumbrances.
SECTION 3.10. Places of Business. The chief executive office of
------------------
the Borrower is, on the Closing Date, as set forth on Schedule 3.10 hereto. All
of the places where the Borrower keeps the records concerning the Collateral on
the date hereof or regularly keeps any goods included in the Collateral on the
date hereof are also listed on Schedule 3.10 hereto.
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SECTION 3.11. Litigation. Except as set forth on Schedule 3.11
----------
hereto, there are no actions, suits or other proceedings at law or in equity by
or before any arbitrator or arbitration panel, or any Governmental Authority
(including, but not limited to, matters relating to environmental liability) or,
to the knowledge of the Borrower, any investigation by any Governmental
Authority of the affairs of, or threatened action, suit or other proceedings
against or affecting, the Borrower or of any of its respective properties or
rights. The Borrower is not in default with respect to any order, writ,
injunction, decree, rule or regulation of any Governmental Authority binding
upon such Person.
SECTION 3.12. Federal Reserve Regulations. The Borrower is not
---------------------------
engaged in the business of extending credit for the purpose of purchasing or
carrying any Margin Stock. No part of the proceeds of the Loans will be used,
directly or indirectly, whether immediately, incidentally or ultimately (i) to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock, or (ii) for any other purpose, in
each case, violative of or inconsistent with any of the provisions of any
regulation of the Board, including, without limitation, Regulations T, U and X
thereto.
SECTION 3.13. Investment Company Act. The Borrower is not, and
----------------------
will not during the term of this Credit Agreement be, (i) an "investment
company", within the meaning of the Investment Company Act of 1940, as amended,
or (ii) subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act or any foreign, federal or local statute or any
other Applicable Law of the United States of America or any other jurisdiction,
in each case limiting its ability to incur indebtedness for money borrowed as
contemplated hereby or by any other Fundamental Document.
SECTION 3.14. Taxes. Except as disclosed in Schedule 3.14, the
-----
Borrower has filed or caused to be filed all federal, state and material local
and foreign tax returns which are required to be filed with any Governmental
Authority after giving effect to applicable extensions, and has paid or has
caused to be paid all taxes as shown on said returns or on any assessment
received by them in writing, to the extent that such taxes have become due,
except as permitted by Section 5.11 hereof. Except as disclosed in Schedule
3.14, the Borrower does not know of any material additional assessments or any
basis therefor. The Borrower reasonably believes that the charges, accrual and
reserves on its books in respect of taxes or other governmental charges are
adequate.
SECTION 3.15. Compliance with ERISA. The Borrower is in
---------------------
compliance in all material respects with the provisions of ERISA and the Code
applicable to Plans, and the regulations and published interpretations
thereunder, if any, which are applicable to it. The Borrower has not established
and does not maintain any Plan. The Borrower has not engaged in a transaction
which would result in the incurrence by the Borrowers of any liability under
Section 4069 of ERISA. The Borrower has not taken any action and no event has
occurred with respect to any Multiemployer Plan which would subject the Borrower
to material liability under either Section 4201 or 4204 of ERISA.
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SECTION 3.16. Agreements. The Borrower is not in default in the
----------
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument (including the Distribution
Agreement) to which it is a party which would reasonably be expected to result
in any Material Adverse Effect.
SECTION 3.17. Security Interest; Other Security. This Credit
---------------------------------
Agreement and the other Fundamental Documents, when executed and delivered and,
upon the making of the initial Loan hereunder, will create and grant to the
Administrative Agent for the benefit of itself, Fronting Bank and Lenders (upon
(i) the filing of the appropriate UCC-1 financing statements with filing offices
listed on Schedule 3.10, (ii) the filing of the Copyright Security Agreement
with the U.S. Copyright Office and (iii) the filing of the Trademark Security
Agreement with the U.S. Patent and Trademark Office) valid and first priority
perfected security interests in the Collateral as to which security interests
may be perfected by such filings or delivery, subject only to Permitted
Encumbrances.
SECTION 3.18. Disclosure. Neither this Credit Agreement nor any
----------
other Fundamental Document nor any agreement, document, certificate or statement
furnished to the Administrative Agent for the benefit of the Lenders by the
Borrower in connection with the transactions contemplated hereby, at the time it
was furnished or delivered contained any untrue statement of a material fact
regarding the Borrower or, when taken together with such other agreements,
documents, certificates and statements omitted to state a material fact
necessary under the circumstances under which it was made in order to make the
statements contained herein or therein not misleading. There is no fact known to
the Borrower not constituting general industry conditions or not disclosed in
such agreements, documents, certificates and statements which materially and
adversely affects, or would reasonably be expected in the future to have a
Material Adverse Effect.
SECTION 3.19. Rights. At each Initial Funding Date, the Borrower
------
will have sufficient right, title and interest in the relevant Declared
Qualifying Picture to enable it to enter into and perform the Distribution
Agreement with regard to such Picture, and retain all fees and profits to which
the Borrower is entitled thereunder, and will not be in breach of any of its
obligations under such agreement, nor will the Borrower have any knowledge of
any breach or anticipated breach by any other parties thereto, which breach in
either case either individually or when aggregated with all other such breaches
would have a Material Adverse Effect.
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SECTION 3.20. Environmental Liabilities. (a) The Borrower has
-------------------------
used, stored, treated, transported, manufactured, refined, handled, produced or
disposed of any Hazardous Materials on, under, at or from any of its properties
or assets owned or leased by the Borrower, in any manner which at the time of
the action in question materially violated any Environmental Law governing the
use, storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials and to the best of the Borrower's
knowledge, no prior owner of such property or asset or any tenant, subtenant,
prior tenant or prior subtenant thereof has used Hazardous Materials on or
affecting such property or asset, or otherwise, in any manner which at the time
of the action in question materially violated any Environmental Law governing
the use, storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials.
(b) To the best of the Borrower's knowledge (i) the Borrower
has no obligations or liabilities, known or unknown, matured or not matured,
absolute or contingent, assessed or unassessed, which would reasonably be
expected to have a Materially Adverse Effect (ii) no claims have been made
against the Borrower during the past five years and no presently outstanding
citations or notices have been issued against the Borrower, which could
reasonably be expected to have a Materially Adverse Effect which in either case
have been or are imposed by reason of or based upon any provision of any
Environmental Law, including, without limitation, any such obligations or
liabilities relating to or arising out of or attributable, in whole or in part,
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of any Hazardous Materials by the Borrower, or any of
its employees, agents, representatives or predecessors in interest in connection
with or in any way arising from or relating to the Borrower or any of its
respective owned or leased properties, or relating to or arising from or
attributable, in whole or in part, to the manufacture, processing, distribution,
use, treatment, storage, disposal, transportation or handling of any such
substance, by any other Person at or on or under any of the real properties
owned or used by the Borrower or any other location where such could have a
Materially Adverse Effect.
SECTION 3.21. Compliance with Laws. The Borrower is not in
--------------------
violation of any Applicable Law. The Borrowings hereunder and the intended use
of the proceeds of the Loans as described in the preamble hereto and as
contemplated by Section 5.16 will not violate any Applicable Law.
SECTION 3.22. Year 2000 Compliance. Any reprogramming required to
--------------------
permit the proper functioning, in and following the year 2000, of (i) the
Borrower's computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which Borrower's
systems interface) and the testing of all such systems and equipment, as so
reprogrammed, have been completed by September 1, 1999. The cost to the Borrower
of such reprogramming and testing and of the reasonably foreseeable consequences
of year 2000 to the Borrower (including, without limitation, reprogramming
errors and the failure of others' systems or equipment) will not result in a
Default or an Event of Default hereunder, or have a Materially Adverse Effect.
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4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to the Closing Date. The
----------------------------------------
obligation of the Fronting Bank to make the initial extension of credit
hereunder is subject to the satisfaction in full of the following conditions
precedent:
(a) Organizational Documents. The Administrative Agent shall have
------------------------
received, with copies for each of the Lenders:
(i) a copy of (1) the Certificate of Trust of the
Borrower, certified as of a recent date by the Secretary of State
of Delaware, and (2) the Certificate of Incorporation of the
Sponsor, certified as of a recent date by the Secretary of State
of Delaware;
(ii) a certificate of the Secretary of State of
Delaware and of the franchise tax entity of such State, if
available, dated as of a recent date as to the good standing of
and payment of taxes by each of the Borrower and the Sponsor and,
with regard to the Sponsor, which lists the charter documents on
file in the office of such Secretary of State;
(iii) a certificate dated as of a recent date as to the
good standing and/or authority to do business of the Borrower,
issued by the Secretary of State of each jurisdiction in which it
is qualified to do business.
(iv) a certificate of the Secretary, Assistant Secretary
or other appropriate officer acceptable to the Administrative
Agent of the Sponsor and a certificate of the Trustee of the
Borrower, each dated the Closing Date and certifying (A) that
attached thereto is a true and complete copy of (1) as to the
Borrower, the Trust Agreement as in effect on the date of such
certification, (2) as to the Sponsor, the by-laws as in effect on
the date of such certification, (B) that attached thereto is a
true and complete copy of resolutions adopted by the Board of
Directors of the Sponsor authorizing the execution, delivery and
performance in accordance with the terms of the Fundamental
Documents to which it is a party, and any other documents
required or contemplated hereunder or thereunder to which it is a
party, and that such resolutions have not been amended, rescinded
or supplemented and are currently in effect, (C) that the
respective organizational documents have not been amended since
the date of the last amendment thereto indicated on the
certificate of the Secretary of State furnished pursuant to
clause (i) above except to the extent specified in such
certificate and (D) as to the incumbency and specimen signature
of each officer or representative of the Borrower and the Sponsor
executing (as applicable) this Credit Agreement, the
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Notes, any other Fundamental Document or any other document
delivered by it in connection herewith or therewith (such
certificate to contain a certification by another officer of such
party as to the incumbency and signature of the officer signing
the certificate referred to in this clause (iv)); and
(v) such additional supporting documents as the
Administrative Agent or its counsel may reasonably request.
(b) Credit Agreement. On or before the Closing Date, the
----------------
Administrative Agent shall have received the Credit Agreement executed by the
Borrower and each of the Lenders.
(c) Opinions of Counsel. The Administrative Agent shall have
-------------------
received (x) the written opinion of Rosenfeld, Meyer, Sussman, LLP, Special
Counsel to the Borrower and (y) the written opinion of Morris, James, Hitchens &
Williams, LLP, Delaware Counsel to the Borrower, dated the Closing Date and
addressed to the Administrative Agent and the Lenders substantially in the form
attached hereto as Exhibits B-1 and B-2.
(d) No Material Adverse Change. No material adverse change (other
--------------------------
than as a result of general economic or general motion picture industry
conditions) shall have occurred with respect to the business, operations,
performance, assets, properties, condition (financial or otherwise) or prospects
of the Borrower from September 1, 1999.
(e) Security and Other Documentation. The Administrative Agent
--------------------------------
shall have received fully executed copies of, to the extent applicable, (i) a
Copyright Security Agreement listing each Picture in which the Borrower then has
a copyrightable interest (as listed on Schedule 3.8 hereto) executed by the
Borrower; (ii) appropriate UCC-1 financing statements relating to the
Collateral; and (iii) the Trademark Security Agreement.
(f) Bank Accounts. All bank accounts of the Borrower shall be
-------------
maintained at the offices of the Administrative Agent.
(g) Payment of Fees. All fees and expenses then due and payable
---------------
by the Borrower and/or the Sponsor to the Administrative Agent and the Lenders
in connection with the transactions contemplated hereby or by the Fee Letter
shall have been paid.
(h) Litigation. No litigation, inquiry, injunction or restraining
----------
order shall be pending, entered or threatened which in the Administrative
Agent's good faith judgment could reasonably be expected to have against the
Borrower, the Sponsor or any other Artisan Entity a Material Adverse Effect.
(i) UCC Searches. The Administrative Agent shall have received
------------
UCC, copyright office and other searches satisfactory to it indicating that no
other filings (other than in
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connection with Permitted Encumbrances) with regard to the Collateral are of
record in any jurisdiction in which it shall be necessary or desirable for the
Administrative Agent (for the benefit of the Lenders) to make a filing in order
to provide the Administrative Agent with a perfected security interest in the
Collateral pursuant to the applicable laws of the United States or any state
thereof.
(j) Balance Sheet. The Administrative Agent and the Lenders shall
-------------
have received a balance sheet of the Borrower, certified by the Borrower, dated
a date no more than 30 days prior to the Closing Date, demonstrating to the
satisfaction of the Administrative Agent that the Borrower has a positive net
worth.
(k) Compliance with Laws. The Administrative Agent shall be
--------------------
satisfied that the transactions contemplated hereby and by the other Fundamental
Documents will not violate any provision of Applicable Law.
(l) Notes. The Administrative Agent shall have received the
-----
Notes in respect of the Commitment, one note for each of the Lenders, dated the
date hereof, in the amount of such Lenders' Pro Rata Share of the Total
Commitment.
(m) Intercreditor Agreement and Equity Subordination Agreement.
----------------------------------------------------------
The Administrative Agent shall have received the Intercreditor Agreement and
Equity Subordination Agreement duly executed by the parties thereto.
(n) Sponsor Agreement. The Administrative Agent shall have
-----------------
received the Sponsor Agreement (and any related security documentation required
from the Artisan Entities thereunder) duly executed by the parties thereto.
(o) Master Film Purchase Agreement. The Administrative Agent
------------------------------
shall have received the Master Film Purchase Agreement duly executed by the
parties thereto.
(p) Distribution Agreement. The Administrative Agent shall have
----------------------
received the Distribution Agreement duly executed by the parties thereto.
(q) Artisan Agreements. The Administrative Agent shall have
------------------
received the Artisan Agreements, in the form previously delivered to the
Administrative Agent (subject to such changes as shall be reasonably acceptable
to the Administrative Agent, which acceptance shall not be unreasonably withheld
or delayed), duly executed by the parties thereto.
(r) Required Consents. The Administrative Agent shall have
-----------------
received the consent of the Sponsor Bank Group and of Canyon and any other
consents as required by the Sponsor.
(s) Cash Flow Insurance. The Administrative Agent shall have
-------------------
received evidence satisfactory to it that no Insurer (other than GIO General
Limited and Monegasque de
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Reassurance s.a.m. and Royal & Sunalliance Insurance) has a Credit Rating of
less than AA and that GIO General Limited has a Credit Rating of no less than
A+, Monegasque de Reassurance has a Credit Rating of no less than A- and Royal &
Sunalliance Insurance has a Credit Rating of no less than AA-.
(t) Other Documents. The Administrative Agent shall have received
---------------
such other documentation as the Administrative Agent may reasonably request.
SECTION 4.2. Conditions Precedent to Initial Loans or Letters of
---------------------------------------------------
Credit with Respect to each Declared Qualifying Picture. The obligation of the
- -------------------------------------------------------
Fronting Bank to issue the initial Letter of Credit and of each Lender to make
the initial Loan or to participate in the initial Letter of Credit, whichever
shall first occur, in respect of each Declared Qualifying Picture is subject to
the following conditions precedent having been satisfied with respect to such
Declared Qualifying Picture:
(a) Qualifying Picture Declaration. The Administrative Agent
------------------------------
shall have received from the Borrower a fully executed complete Qualifying
Picture Declaration containing the details of the Declared Qualifying Picture
involved and declaring an appropriate portion of the Commitments as being
reserved for such Declared Qualifying Picture, and such other information all as
set forth in Exhibit N hereto.
(b) Sources of Negative Cost/Domestic Distribution Expenses. The
-------------------------------------------------------
Certificate Holders or the Sponsor shall have funded, or shall have provided
cash collateral on terms acceptable to the Administrative Agent for, the portion
of the Total Negative Cost and Domestic Distribution Expenses of the applicable
Declared Qualifying Picture not being funded hereunder.
(c) Purchase Agreement. The Administrative Agent shall have
------------------
received the Film Purchase Agreement (in form and substance satisfactory to the
Administrative Agent) duly executed by the parties thereto.
(d) Insurance. (i) The Borrower shall have furnished the
---------
Administrative Agent with (A) a summary of all existing insurance coverage for
that Declared Qualifying Picture, (B) evidence acceptable to the Administrative
Agent that the insurance policies required by Section 5.5 have been obtained and
are in full force and effect for that Declared Qualifying Picture and (C)
certificates of insurance with respect to all existing insurance coverage which
certificates shall name The Chase Manhattan Bank, as Administrative Agent, as
the certificate holder and shall evidence the Borrower's compliance with Section
5.5(d) with respect to all insurance coverage existing as of the Initial Funding
Date.
(ii) The Administrative Agent shall have received evidence
satisfactory to it that the Cash Flow Insurance for that Declared Qualifying
Picture is in full force and effect, including without limitation, delivery of
the completed Questionnaires, and evidence that the premium, the
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federal excise tax and the New York self-procured insurance tax with respect
thereto have been fully paid or is being paid contemporaneous by with any
extension of credit.
(iii) The Administrative Agent shall have received evidence
satisfactory to it that the Cash Flow Insurance already issued for other
Declared Qualifying Pictures is (x) in full force and effect, (y) has not been
declared null and void and (z) is not the subject of any reservation of rights.
(e) Chain of Title. The Administrative Agent shall have received
--------------
copies of all agreements, instruments of transfer or other instruments
(including, without limitation, the rights agreements) demonstrating (i) if the
Borrower is requesting the Lenders to make the initial Loan for a Declared
Qualifying Picture, that the Borrower has established to the Administrative
Agent's reasonable satisfaction the Borrower's ownership of sufficient copyright
rights in the literary properties upon which each such Declared Qualifying
Picture is to be based to enable the Borrower to license the right to exploit
that Declared Qualifying Picture to the Sponsor under the Distribution Agreement
and to grant to the Administrative Agent for the benefit of the Lenders the
security interests which are contemplated by this Credit Agreement or (ii) if
the Borrower is requesting the Lenders to issue a Letter of Credit for a
Declared Qualifying Picture, that the Administrative Agent has a reasonable
expectation that the Borrower will establish by the time of acquisition of such
Declared Qualifying Picture, the ownership of such copyright rights in the
Declared Qualifying Picture.
(f) Security and Other Documentation. The Administrative Agent
--------------------------------
shall have received (i) if the Borrower is requesting the Lenders to make the
initial Loan for a Declared Qualifying Picture, fully executed copies of (x)
Pledgeholder Agreements for the applicable Declared Qualifying Picture from each
Laboratory; (y) a Copyright Security Agreement Supplement; and (z) UCC-1
financing statements relating to the Collateral and (ii) if the Borrower is
requesting the Lenders to issue a Letter of Credit for a Declared Qualifying
Picture, the Administrative Agent's receipt of the documents set forth in clause
(i) shall be a condition to the beneficiary's right to payment under such Letter
of Credit.
(g) Security Interests in Copyrights and Other Collateral. The
-----------------------------------------------------
Administrative Agent shall have received evidence reasonably satisfactory to it
(i) if the Borrower is requesting the Lenders to make the initial Loan for a
Declared Qualifying Picture, that the Borrower has sufficient right, title and
interest in and to the Declared Qualifying Picture and related Collateral, (ii)
if the Borrower is requesting the Lenders to issue a Letter of Credit for a
Declared Qualifying Picture, that the Borrower will have at the time of the
acquisition of such Declared Qualifying Picture, sufficient right, title and
interest in and to such Declared Qualifying Picture, in either case as set forth
in the documents presented to the Lenders to enable the Borrower to perform the
Distribution Agreement and to grant to the Administrative Agent for the benefit
of the Lenders the security interests contemplated by the Fundamental Documents,
and that all financing statements, copyright filings and other filings under
Applicable Law necessary to provide the Administrative Agent for the benefit of
the Lenders with a first priority perfected security interest
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in the Declared Qualifying Picture and related Collateral have been filed or
delivered to the Administrative Agent in satisfactory form for filing.
(h) UCC Searches. The Administrative Agent shall have received
------------
UCC, copyright office and other searches reasonably requested by it and
reasonably satisfactory to it indicating that no other filings (other than in
connection with Permitted Encumbrances) which impair the Collateral are of
record in any jurisdiction in which it shall be necessary or desirable for the
Administrative Agent to make a filing in order to provide the Administrative
Agent with a perfected security interest in the Collateral.
(i) Account Debtors. The Administrative Agent shall have received
---------------
evidence satisfactory to it that the Artisan Entities have acceptable account
debtors acceptable to the Administrative Agent in place for foreign distribution
(which may include the Sponsor for the entire amount of required presales for
each Declared Qualifying Picture but not more than $25 million in the aggregate
for all outstanding presale obligations) providing for aggregate minimum
guarantee payments (after adjustment for remittance taxes or any other
deductions to be taken before remittance to the Master Collection Account a
present value discount) no later than twelve months after United States
theatrical release of an amount equal to at least 30% of the Total Negative
Cost.
(j) Credit Ratings. The Administrative Agent shall have received
--------------
evidence satisfactory to it that the Credit Rating of each of the Insurers on
the basis of whose sum insured a Loan is being made is at least an A, unless
such Insurer is credit enhanced in a manner satisfactory to the Administrative
Agent to at least an A rating or replaced by an Insurer with a rating of no less
than A except with regard to Monegasque de Reassurances s.a.m. which must have a
Credit Rating or be credit enhanced in a manner satisfactory to the
Administrative Agent with a rating of no less than A-.
(k) Distribution System. The Administrative Agent shall have
-------------------
received evidence satisfactory to it that the Sponsor and the Artisan Entities
have a domestic theatrical distribution system for the distribution of the
Declared Qualifying Pictures that are at least the equivalent of the
distribution system that was in place on October 13, 1999 and that the existing
video deal with Twentieth Century Fox Home Entertainment, Inc. remains in full
force and effect or that there is a comparable replacement acceptable to the
Administrative Agent.
(l) Approval of Counsel to the Administrative Agent. All legal
-----------------------------------------------
matters incident to the chain-of-title and perfection of the Lien of the
Administrative Agent (for the benefit of itself, the Lenders and the Fronting
Bank) shall, at the request of the Administrative Agent, be satisfactory to
counsel to the Administrative Agent.
(m) Other Documents. The Administrative Agent shall have received
---------------
such other documentation as the Administrative Agent may reasonably request.
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SECTION 4.3. Conditions Precedent to Each Loan and Letter of
-----------------------------------------------
Credit. The obligation of the Fronting Bank to issue each Letter of Credit and
- ------
of the Lenders to make each Loan and to issue and participate in each Letter of
Credit (including the initial Loans and Letters of Credit) in respect of each
Declared Qualifying Picture are subject to the following conditions precedent
having been satisfied with respect to such Declared Qualifying Picture:
(a) Notice. The Administrative Agent shall have received a notice
------
with respect to such Borrowing (which notice may be included in the Borrowing
Certificate) or the Fronting Bank shall have received a notice with respect to
such Letter of Credit as required by Article 2 hereof.
(b) Borrowing Certificate. The Administrative Agent shall have
---------------------
received a notice in the form of a Borrowing Certificate with respect to such
Borrowing, duly executed by an Authorized Officer of the Borrower.
(c) Representations and Warranties. The representations and
------------------------------
warranties of the Borrower set forth in Article 3 hereof with respect to such
Declared Qualifying Picture shall be true and correct in all material respects
on and as of the date of each Borrowing or the issuance of such Letter of Credit
hereunder (except to the extent that such representations and warranties
expressly relate to an earlier date) with the same effect as if made on and as
of such date.
(d) No Default or Event of Default. On the date of each
------------------------------
Borrowing or the issuance of such Letter of Credit, no Default or Event of
Default shall have occurred and be continuing.
(e) Domestic Distribution Receipts. If the Borrower is
------------------------------
requesting a Domestic Distribution Loan for a Declared Qualifying Picture,
the Administrative Agent shall have received receipts or invoices and other
documentation establishing to its satisfaction the accuracy of the Formula
Amount of Domestic Distribution Expenses for such Declared Qualifying Picture.
(f) Fees. With regard to Domestic Distribution Loans, the Junior
----
Tranche shall have received payment of the fees required by the Fee Letter.
(g) Additional Documents. The Administrative Agent shall have
--------------------
received such other documentation and information as it may reasonably request.
Each request for a Borrowing shall be deemed to be a representation and warranty
by the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (c) and (d) of this Section.
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5. AFFIRMATIVE COVENANTS
From the date hereof and for so long as the Commitments shall be
in effect or any amount remains outstanding under the Notes or any L/C Exposure
shall remain outstanding or any other Obligations remain unpaid or unsatisfied,
the Borrower agrees that, unless the Required Lenders shall otherwise consent in
writing, it will:
SECTION 5.1. Financial Statements and Reports. Furnish or cause
--------------------------------
to be furnished to the Administrative Agent in sufficient numbers for
distribution to the Fronting Bank and the Lenders:
(a) Within 120 days after the end of each fiscal year of the
Borrower the audited balance sheet of the Borrower as at the end of, and the
related statements of income, Certificate Holders' interest and cash flows for,
such year, and the corresponding figures as at the end of, and for, the
preceding fiscal year, accompanied by an unqualified opinion of
PricewaterhouseCoopers LLP or such other independent public accountants of
recognized standing as shall be retained by the Borrower and be reasonably
satisfactory to the Lenders, which report and opinion shall be prepared in
accordance with generally accepted auditing standards relating to reporting and
which report and opinion shall contain no material exceptions or qualifications
except for qualifications relating to accounting changes (with which such
independent public accountants concur) in response to FASB releases or other
authoritative pronouncements;
(b) Within 50 days after the end of each of the first three
fiscal quarters of each of its fiscal years the unaudited balance sheets of the
Borrower as at the end of, and the related unaudited statements of income and
cash flow for, such quarter, and for the portion of the fiscal year through the
end of such quarter, and the corresponding figures as at the end of such
quarter, and for, the corresponding period in the preceding fiscal year,
together with a certificate signed by an Authorized Officer of the Borrower, on
behalf of the Borrower, to the effect that such financial statements, while not
examined by independent public accountants, reflect, in the opinion of the
Borrower, all adjustments necessary to present fairly in all material respects
the financial position of the Borrower as at the end of the fiscal quarter and
the results of its operations for the quarter then ended in conformity with
GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(c) Simultaneously with the delivery of the statements referred
to in paragraphs (a) and (b) of this Section 5.1, a certificate of an Authorized
Officer of the Borrower, on behalf of the Borrower, in form and substance
reasonably satisfactory to the Administrative Agent (i) stating whether or not
such Authorized Officer has knowledge, after due inquiry, of any condition or
event which would constitute an Event of Default or Default has occurred and, if
so, specifying each such condition or event and the nature thereof, (ii)
certifying that all filings required under Section 5.6 hereof have been made and
listing each such filing that has been made since the date of the last
certificate delivered in accordance with this Section 5.1(c);
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(d) Furnish to the Lenders, together with each set of audited
financial statements required by paragraph (a) above, a certificate from the
independent public accountants rendering the report thereon (i) stating whether,
in connection with their audit examination, any condition or event, at any time
during or at the end of the accounting period covered by such financial
statements, which constitutes an Event of Default under covenants relating to
accounting matters has come to their attention, and if such a condition or event
has come to their attention, specifying the nature and period, if known, of
existence thereof and (ii) stating that, insofar as they relate to accounting
matters, the matters set forth in the compliance certificate delivered therewith
pursuant to clause (ii) of paragraph (c) above at the end of the fiscal year are
stated in accordance with the terms of this Credit Agreement;
(e) Promptly upon their becoming available, copies of all audits
(except royalty audits, participation audits and similar audits) prepared for or
submitted to the Borrower by any outside professional firm or service,
including, without limitation, the comment letter submitted by the Borrower's
accountants to management in connection with their annual audit;
(f) Promptly upon their becoming available, copies of all audits
of the Borrower provided to the Sponsor, copies of the reports and tax returns
provided to the Certificate Holders, and press releases which the Borrower shall
release to the public;
(g) From time to time such additional information regarding the
financial condition or business of the Borrower or otherwise regarding the
Collateral, as any Lender acting through the Administrative Agent may reasonably
request including, without limitation, copies of all management projections of
the Borrower.
(h) Within 15 Business Days after the end of each fiscal quarter,
Schedules to this Agreement revised to reflect any change, additions or deletion
therefrom.
SECTION 5.2. Existence. Do or cause to be done all things
---------
necessary to preserve, renew and keep in full force and effect its existence as
a Delaware business trust, rights, material licenses, material permits and
material franchises, and comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, any Governmental
Authority.
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SECTION 5.3. Maintenance of Properties. Keep its tangible
-------------------------
properties which are material to its business in good repair, working order and
condition (ordinary wear and tear excepted) and, from time to time (i) make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto and (ii) comply at all times with the provisions of all material leases
and other material agreements to which it is a party so as to prevent any loss
or forfeiture thereof or thereunder unless compliance therewith is being
currently contested in good faith by appropriate proceedings; provided, however,
-------- -------
that nothing in this Section 5.3 shall prevent the Borrower from discontinuing
the use, operation or maintenance of such properties or disposing of them if
such discontinuance or disposal is, in the judgment of its members, desirable in
the conduct of the business.
SECTION 5.4. Notice of Material Events. (a) Promptly upon any
-------------------------
executive officer of the Designee obtaining knowledge of (i) any Default or
Event of Default, (ii) any material adverse change in the condition or
operations of the Borrower taken as a whole, financial or otherwise, (iii) any
action or event which could reasonably be expected to materially and adversely
affect the performance of the Borrower's obligations under this Credit
Agreement, the repayment of the Notes, or the security interests granted to the
Administrative Agent for the benefit of itself, Fronting Bank, the Lenders under
this Credit Agreement and the Noteholders or any other Fundamental Document,
(iv) the opening of any office of the Borrower or the change of the executive
office or the principal place of business of the Borrower or of the location of
the Borrower's books and records with respect to the Collateral, (v) any change
in the name of the Borrower, (vi) any change in the identity or relative
ownership interests of the members of the Borrower, (vii) any other event which
could reasonably be expected to materially and adversely impact upon the amount
or collectibility of accounts receivable of the Borrower or otherwise materially
decrease the value of the Collateral or (viii) any Person giving the Borrower or
taking any other action to enforce remedies with respect to a claimed default or
event or condition of the type referred to in paragraph (d) of Article 7, the
Borrowers shall promptly give written notice thereof to the Administrative Agent
specifying the nature and period of existence of any such condition or event, or
specifying the notice given or action taken and the nature of such claimed Event
of Default or condition and what action the Borrower has taken, is taking and
proposes to take with respect thereto.
(b) Promptly upon any executive officer of the Designee obtaining
knowledge of (i) the institution of, or threat of, any action, suit, proceeding,
investigation or arbitration by any Governmental Authority or other Person
against or affecting the Borrower or any of its assets, or (ii) any material
development in any such action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lenders), which, in the case of (i)
or (ii), could reasonably be expected to materially and adversely affect the
Borrower, the Borrower shall promptly give notice thereof to the Administrative
Agent and provide such other information as may be available to it to enable the
Lenders to evaluate such matters; and, in addition to the requirements set forth
in clauses (i) and (ii) of this subsection (b), the Borrower upon request shall
promptly give notice of the status of any action, suit, proceeding,
investigation or arbitration covered by a report delivered to the Lenders
pursuant to clause (i) and (ii) above to the
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Lenders and provide such other information as may be reasonably available to it
to enable the Lenders to evaluate such matters.
SECTION 5.5. Insurance. (a) Keep its assets which are of an
---------
insurable character insured (to the extent and for the time periods consistent
with normal industry practices) by financially sound and reputable insurers
against loss or damage by fire, explosion, theft or other hazards which are
included under extended coverage in amounts not less than the insurable value of
the property insured or such lesser amounts, and with such self-insured
retention or deductible levels, as are consistent with normal industry
practices.
(b) Maintain with financially sound and reputable insurers,
insurance against other hazards and risks and liability to Persons and property
to the extent and in the manner customary for companies in similar businesses.
(c) Maintain, or cause to be maintained, in effect during the
period from the acquisition of each Declared Qualifying Picture, through the
third anniversary of the date on which such Declared Qualifying Picture is
acquired and/or as otherwise required by applicable contracts, a so-called
"Errors and Omissions" policy with respect to all Declared Qualifying Pictures
owned by it, and cause such Errors and Omissions policy to provide coverage to
the extent and in such manner as is customary for Declared Qualifying Pictures
of like type but, at minimum, to the extent and in such manner as is required
under all applicable contracts relating thereto.
(d) Cause all such above-described insurance (excluding worker's
compensation insurance) to (i) provide for the benefit of the Lenders that 30
days' prior written notice of cancellation, termination, non-renewal or lapse or
material change of coverage shall be given to the Administrative Agent; (ii)
name the Administrative Agent for the benefit of itself, the Fronting Bank and
the Lenders as a loss payee (except for "Errors and Omissions" insurance and
other third party liability insurance); and (iii) to the extent that none of the
Administrative Agent, the Fronting Bank or the Lenders shall be liable for
premiums or calls, name the Administrative Agent (for the benefit of itself, the
Fronting Bank and the Lenders) as additional insureds including, without
limitation, under any "Errors and Omissions" policy.
(e) Require, as a condition to the Borrower making its
acquisition payment for a Declared Qualifying Picture under the Film Purchase
Agreement relating thereto, that the seller provide it with two first generation
internegatives or interpositives which the Borrower shall maintain in two
separate locations.
(f) Upon the request of the Administrative Agent, the Borrower
will render to the Administrative Agent a statement in such detail as the
Administrative Agent may request as to all such insurance coverage.
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SECTION 5.6. Copyright. (a) Within 30 days after the later of
---------
(x) the initial release or broadcast of each Declared Qualifying Picture or (y)
the acquisition of rights in each such Declared Qualifying Picture by the
Borrower, to the extent the Borrower has not delivered to the Administrative
Agent copyright filings and all financing statements under Section 4.2, take any
and all actions necessary to register the copyright for such additional items in
the name of the Borrower (subject to a Lien in favor of the Administrative Agent
for the benefit of itself, the Fronting Bank and the Lenders pursuant to the
Copyright Security Agreement) in conformity with the laws of the United States
and such other jurisdictions as the Administrative Agent may reasonably specify,
and, if such interest may be registered with the United States Copyright Office
or such other jurisdictions, immediately deliver to the Administrative Agent (i)
written evidence of the registration of any and all such copyrights for
inclusion in the Collateral under this Credit Agreement and (ii) a Copyright
Security Agreement Supplement relating to such Declared Qualifying Picture
executed by the Borrower.
SECTION 5.7. Books and Records. Maintain or cause to be
-----------------
maintained at all times true and complete books and records of its financial
operations and provide the Administrative Agent and its representatives access
to such books and records and to any of its properties or assets upon reasonable
notice and during regular business hours in order that the Administrative Agent
may make such audits and examinations and make abstracts from such books,
accounts, records and other papers pertaining to the Collateral and upon
notification to the Borrower may discuss the affairs, finances and accounts
with, and be advised as to the same by, officers and independent accountants,
all as the Administrative Agent may deem appropriate for the purpose of
verifying the accuracy of the various other reports delivered by the Borrower to
the Administrative Agent, the Fronting Bank and/or the Lenders pursuant to this
Credit Agreement or for otherwise ascertaining compliance with this Credit
Agreement or any other Fundamental Document.
SECTION 5.8. Third Party Audit Rights. Promptly notify the
------------------------
Administrative Agent of, and allow the Administrative Agent access to the
results of, all audits conducted by the Borrower of any third party licensee,
partnership and joint venture under any agreement with respect to any Declared
Qualifying Picture included in the Collateral. The Borrower will exercise its
audit rights with respect to any third party licensees, partnerships and joint
ventures under any agreement with respect to the Declared Qualifying Picture
included in the Collateral upon the reasonable request of the Administrative
Agent. If the Administrative Agent shall have the right to exercise, through the
Borrower, the Borrower's right to audit any obligor under an agreement with
respect to any Picture included in the Collateral.
SECTION 5.9. Observance of Agreements. Duly observe and perform
------------------------
all material terms and conditions of all material agreements with respect to the
Declared Qualifying Pictures, including but not limited to the Distribution
Agreement, the Master Purchase Agreement and each Film Purchase Agreement, and
diligently protect and enforce the rights of the Borrower under all such
agreements in a manner consistent with prudent business judgment and subject to
the terms and conditions of such agreements.
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SECTION 5.10. Laboratories; No Removal. (a) Deliver or cause to
------------------------
be delivered to a Laboratory or Laboratories all negative and preprint material,
master tapes and all sound track materials with respect to each Declared
Qualifying Picture owned by it or to which it has access and deliver to the
Administrative Agent a fully executed Pledgeholder Agreement with respect to
such materials. Prior to requesting any such Laboratory to deliver such negative
or other preprint or sound track material or master tapes to another laboratory,
the Borrower shall provide the Administrative Agent with a Pledgeholder
Agreement, executed by such other laboratory and all other parties to such
Pledgeholder Agreement. The Borrower hereby agrees not to remove or cause the
removal of the original negative and film or sound materials with respect to any
Declared Qualifying Picture owned by the Borrower or in which the Borrower has
an interest (i) to a location outside the United States or (ii) to any state or
jurisdiction where UCC-1 financing statements (or in the case of jurisdictions
outside the United States, documentation similar in purpose and effect
satisfactory to the Administrative Agent) have not been filed against the
Borrower.
SECTION 5.11. Taxes and Charges; Indebtedness in Ordinary Course
--------------------------------------------------
of Business. Duly pay and discharge, or cause to be paid and discharged, before
- -----------
the same shall become in arrears (after giving effect to applicable extensions),
all taxes, assessments, levies and other governmental charges, imposed upon the
Borrower or its properties, sales and activities, or any part thereof, or upon
the income or profits therefrom, as well as all claims for labor, materials, or
supplies which if unpaid might by law become a Lien upon any property of the
Borrower; provided, however, that any such tax, assessment, charge, levy or
-------- -------
claim need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if the Borrower shall
have set aside on its books reserves (the presentation of which is segregated to
the extent required by GAAP) adequate with respect thereto if reserves shall be
deemed necessary; and provided, further, that the Borrower will pay all such
-------- -------
taxes, assessments, levies or other governmental charges forthwith upon the
commencement of proceedings to foreclose any Lien which may have attached as
security therefor. The Borrower will promptly pay when due, or in conformance
with customary trade terms, all other Indebtedness or other liabilities incident
to its operations.
SECTION 5.12. Liens. Defend the Collateral against any and all
-----
Liens howsoever arising, other than Permitted Encumbrances, and in any event
defend against any attempted foreclosure.
SECTION 5.13. Further Assurances; Security Interests. (a) Upon
--------------------------------------
the request of the Administrative Agent, duly execute and deliver, or cause to
be duly executed and delivered, at the cost and expense of the Borrower, such
further instruments as may be necessary in the reasonable judgment of the
Administrative Agent to carry out the provisions and purposes of this Credit
Agreement and the other Fundamental Documents.
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(b) Upon the request of the Administrative Agent, promptly
execute and deliver or cause to be executed and delivered, at the cost and
expense of the Borrower, such further instruments as may be appropriate in the
reasonable judgment of the Administrative Agent, to provide the Administrative
Agent (for the benefit of itself, the Fronting Bank, the Lenders) a first
perfected Lien in the Collateral and any and all documents (including, without
limitation, the execution, amendment or supplementation of any financing
statement and continuation statement or other statement) for filing under the
provisions of the UCC and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable foreign, federal, state or local
jurisdiction, and perform or cause to be performed such other ministerial acts
which are necessary, from time to time, in order to grant and maintain in favor
of the Administrative Agent (for the benefit of itself, the Fronting Bank and
the Lenders) the security interest in the Collateral contemplated hereunder and
under the other Fundamental Documents, subject only to Permitted Encumbrances.
(c) Promptly undertake to deliver or cause to be delivered to the
Administrative Agent, the Fronting Bank and the Lenders from time to time such
other documentation, consents, authorizations and approvals in form and
substance reasonably satisfactory to the Administrative Agent, as the
Administrative Agent shall deem reasonably necessary or advisable to perfect or
maintain the Liens of the Administrative Agent for the benefit of itself, the
Fronting Bank and the Lenders.
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SECTION 5.14. ERISA Compliance and Reports. Furnish to the
----------------------------
Administrative Agent (a) as soon as possible, and in any event within 30 days
after the Borrower knows that (i) any Reportable Event with respect to any Plan
has occurred, a statement of an executive officer of the Borrower, setting forth
on behalf of the Borrower details as to such Reportable Event and the action
which it proposes to take with respect thereto, together with a copy of the
notice, if any, required to be filed by the Borrower of such Reportable Event
given to the PBGC or (ii) an accumulated funding deficiency has been incurred or
an application has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard or an extension of any amortization
period under Section 412 of the Code with respect to a Plan, a Plan or
Multiemployer Plan has been or is proposed to be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA, proceedings have been
instituted to terminate a Plan, a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Multiemployer
Plan, or the Borrower will incur any liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan or Multiemployer Plan under Sections 4062, 4063, 4201 or 4204 of ERISA, if
the occurrence of any of the foregoing events would result in a liability which
is materially adverse to the financial condition of the Parent and its
Subsidiaries taken as a whole or would materially and adversely affect the
ability of the Borrower to perform its obligations under this Credit Agreement
or the Notes, a statement of an executive officer of the Borrower, setting forth
details as to such event and the action the Borrower proposes to take with
respect thereto, (b) promptly upon reasonable request of the Administrative
Agent, copies of each annual and other report with respect to each Plan and (c)
promptly after receipt thereof, a copy of any notice the Borrower may receive
from the PBGC relating to the PBGC's intention to terminate any Plan or to
appoint a trustee to administer any Plan.
SECTION 5.15. Environmental Laws. (a) Promptly notify the
------------------
Administrative Agent upon the Borrower becoming aware of any violation or
potential violation or non-compliance with, or liability or potential liability
under any Environmental Laws which, when taken together with all other pending
violations would reasonably be expected to have a Materially Adverse Effect, and
promptly furnish to the Administrative Agent all notices of any nature which the
Borrower may receive from any Governmental Authority or other Person with
respect to any violation, or potential violation or non-compliance with, or
liability or potential liability under any Environmental Laws which, in any case
or when taken together with all such other notices, could reasonably be expected
to have a Materially Adverse Effect.
(b) Comply with and use reasonable efforts to ensure compliance
by all tenants and subtenants with all Environmental Laws, and obtain and comply
in all material respects with and maintain and use best efforts to ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain any and all licenses, approvals, registrations or permits required by
Environmental Laws, except where failure to do so would not have a Materially
Adverse Effect.
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(c) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under all
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities, except where failure to
do so would not have a Materially Adverse Effect. Any order or directive whose
lawfulness is being contested in good faith by appropriate proceedings shall be
considered a lawful order or directive when such proceedings, including any
judicial review of such proceedings, have been finally concluded by the issuance
of a final non-appealable order; provided, however, that the Borrower shall have
set aside on its books reserves (the presentation of which is segregated to the
extent required by GAAP) adequate with respect thereto if reserves shall be
deemed necessary.
(d) Defend, indemnify and hold harmless the Administrative Agent,
the Fronting Bank and the Lenders, and their respective employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of, or in any way
related to the violation of or non-compliance by the Borrower with any
Environmental Laws, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable attorney
and consultant fees, investigation and laboratory fees, court costs and
litigation expenses, but excluding therefrom all claims, demands, penalties,
fines, liabilities, settlements, damages, costs and expenses arising out of or
resulting from (i) the gross negligence or willful misconduct of any indemnified
party or (ii) any acts or omissions of any indemnified party occurring after any
indemnified party is in possession of, or controls the operation of, any
property or asset.
SECTION 5.16. Use of Proceeds. (a) With respect to the Senior
---------------
Tranche, use the proceeds of (i) Negative Cost Loans solely to finance not more
than the Negative Cost Loan Value for each Declared Qualifying Picture in
connection with the acquisition of at least eight Declared Qualifying Pictures
for which the Borrower has worldwide rights which amount shall be funded
directly to the seller of such Declared Qualifying Picture, (ii) the Domestic
Distribution Loans solely to finance 50% of the Domestic Distribution Expenses,
but not more than 50% of the Formula Amount of Domestic Distribution Expenses
for such Declared Qualifying Pictures, (iii) subject to availability, the
Interest Loans solely to pay expenses of the Administrative Agent and the Waiver
Agent and to finance interest on the Loans contemplated by clauses (i) and (ii),
the Loans contemplated by clause b below and (b) with respect to the Junior
Tranche, the proceeds of the Domestic Distribution Loans solely to finance 50%
of the Domestic Distribution Expenses, but not more than 50% of the Formula
Amount of Domestic Distribution Expenses (subject to the limitations set forth
in Section 2.1(b)).
SECTION 5.17. Security Agreements with the Guilds. Furnish to the
-----------------------------------
Administrative Agent duly executed copies of (i) each security agreement
relating to a Picture entered into by the Borrower with any Guild and (ii) an
intercreditor agreement (in form and substance satisfactory to the
Administrative Agent) from the applicable guild with respect to the
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security interest and other rights granted to it pursuant to each such security
agreement delivered to the Administrative Agent pursuant to clause (i) above.
SECTION 5.18. Total Negative Cost Statements. (a) Deliver to the
------------------------------
Administrative Agent and the Sponsor, (A) within 30 days after the Completion
but no later than the acquisition of a Declared Qualifying Picture, a tentative
statement of Total Negative Cost for such Declared Qualifying Picture updating
of the information provided to the Administrative Agent in the Qualifying
Picture Declaration, and (B) promptly upon availability but no later than 90
days after the Completion of a Declared Qualifying Picture, a certified final
statement of Total Negative Cost for each Declared Qualifying Picture.
(b) To the extent the final statement of Total Negative Cost
Statement for a Declared Qualifying picture reflects an amount less than the
statement of Total Negative Cost attached to the Qualifying Picture Declaration
for such Declared Qualifying Picture, refund to the Administrative Agent an
amount equal to the difference between the two Total Negative Cost Statements.
SECTION 5.19. Cash Flow Insurance. Provide true and correct
-------------------
information in response to Section 1 of the Questionnaire delivered in
connection with the Cash Flow Insurance and cooperate with the Insurers to the
extent and in the manner requested by the Administrative Agent or the Insurers.
SECTION 5.20. Reservation of Commitment. In each Qualifying
-------------------------
Picture Declaration the Borrower shall reserve (x) from the Total Senior Tranche
Commitment an amount it anticipates will be needed to fund up to the Negative
Cost Loan Value Cost plus 50% of the Domestic Distribution Expenses but not more
----
than 50% of the Formula Amount of Domestic Distribution Expenses for that
Declared Qualifying Picture which amount may be reserved or decreased by the
Borrower as necessary and (y) from the Total Junior Tranche Commitment an amount
it anticipates will be needed to fund 50% of the Domestic Distribution Expenses
but not more than 50% of the Formula Amount of Domestic Distribution Expenses;
provided, however, that after $40,000,000 in the aggregate of Domestic
- -------- -------
Distribution Loans have been made under the Junior Tranche, only half of the
then-available Junior Tranche Commitment shall be available for Domestic
Distribution Loans, and an amount equal to the amount of such Domestic
Distribution Loan shall be reserved under the Junior Tranche Commitment to fund
the repayment of Domestic Distribution Loans under the Senior Tranche at
Maturity (or at such earlier date that the Facility is terminated and such Loans
become due and payable). From time to time thereafter, upon a determination by
the Borrower that the amount actually needed to fund the Negative Cost Loan
Value and/or the Domestic Distribution Expenses for such Declared Qualifying
Picture is less than the amount initially reserved in the Qualifying Picture
Declaration, the Borrower shall give notice thereof to the Administrative Agent.
To the extent such notice indicates that either the amount originally requested
to fund the Negative Cost Loan Value exceeds the amount actually needed to fund
such portion of the Total Negative Cost or that the Domestic Distribution
Reserve exceeds the Domestic Distribution Expenses for that Declared
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Qualifying Picture and such film has been Completed, the Administrative Agent
shall decrease the amount reserved to fund such portion of the Total Negative
Cost or the L/C Exposure and/or the Domestic Distribution Reserve for that
Declared Qualifying Picture by an amount equal to such excess.
6. NEGATIVE COVENANTS
From the date hereof and for so long as the Commitments shall
be in effect or any amount remains outstanding under the Notes or any Letter of
Credit shall remain outstanding or any Obligations remain unpaid or unsatisfied,
the Borrower agrees that, unless the Required Lenders shall otherwise consent in
writing, it will not:
SECTION 6.1. Limitations on Indebtedness. Incur, create, assume
---------------------------
or suffer to exist any preferred stock or Indebtedness or permit any partnership
or joint venture in which the Borrower is a general partner to incur create,
assume or suffer to exist any Indebtedness other than:
(a) the Indebtedness represented by the Notes and the other
Obligations;
(b) liabilities for the acquisition of a Declared Qualifying
Picture incurred in the ordinary course of business and not otherwise prohibited
hereunder; and
(c) Guarantees permitted pursuant to Section 6.3; and
(d) Obligations to Certificate Holders under the Trust Agreement.
SECTION 6.2. Limitations on Liens. Incur, create, assume or
--------------------
suffer to exist any Lien on its revenue stream, property or assets, whether now
owned or hereafter acquired, except:
(a) Liens pursuant to written security agreements (in form and
substance acceptable to the Administrative Agent) in favor of guilds or
unions if required pursuant to terms of collective bargaining agreements;
provided that such guilds have entered into an intercreditor agreement
-------------
with the Administrative Agent reasonably satisfactory in all respects to
the Administrative Agent;
(b) deposits under worker's compensation, unemployment insurance,
old-age pensions and other Social Security laws or to secure statutory
obligations or surety or appeal bonds or performance or other similar
bonds incurred in the ordinary course of business (other than Completion
Guarantees);
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(c) Liens for taxes, assessments or other governmental charges or
levies due and payable, the validity or amount of which is currently being
contested in good faith by appropriate proceedings pursuant to the terms
of Section 5.12 hereof;
(d) Liens arising out of attachments, judgments or awards as to
which an appeal or other appropriate proceedings for contest or review are
timely commenced (and as to which foreclosure and other enforcement
proceedings shall not have been commenced (unless fully bonded or
otherwise effectively stayed)) and as to which appropriate reserves have
been established in accordance with GAAP;
(e) the Liens of the Administrative Agent for the benefit of
itself, the Fronting Bank, the Lenders under this Credit Agreement, the other
Fundamental Documents and other documents contemplated hereby and thereby;
(f) Liens arising by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights with
respect to deposit accounts of the Borrower; and
(g) A silent second Lien in favor of the Certificate Holders,
subordinated to the Obligations pursuant to the Equity Subordination Agreement.
SECTION 6.3. Limitation on Guarantees. Provide any Guaranty,
------------------------
either directly or indirectly, except guaranties to the Administrative Agent,
the Fronting Bank and the Lenders.
SECTION 6.4. Limitations on Investments. Create, make or incur
--------------------------
any Investment, other than (i) the Declared Qualifying Pictures, (ii) the
purchase of Cash Equivalents, and (iii) other Investments consented to by the
Administrative Agent.
SECTION 6.5. Restricted Payments. Declare, make or incur any
-------------------
liability to make any Restricted Payments other than the Quarterly Payment
Amount to the Certificate Holders.
SECTION 6.6. Limitations on Leases. Create, incur or assume
---------------------
combined lease expense.
SECTION 6.7. Consolidation, Merger, Sale or Purchase of Assets,
-------------------------------------------------
Etc. Whether in one transaction or a series of transactions, wind up,
- ---
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation, or sell or otherwise dispose of any item of Collateral or agree
to do or suffer any of the foregoing except as provided in Section 5(g) of the
Sponsor Agreement or as otherwise contemplated by the Fundamental Documents.
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SECTION 6.8. Sale and Leaseback. Enter into any arrangement with any
------------------
Person or Persons, whereby in contemporaneous transactions the Borrower sells
essentially all of its right, title and interest in any Picture and acquires or
licenses the right to distribute or exploit such Picture in media and markets
accounting for substantially all the value of such Picture, unless such
arrangement does not impair the security interest of the Administrative Agent
for the benefit of itself, the Fronting Bank and the Lenders and is evidenced by
documentation acceptable to the Required Lenders.
SECTION 6.9. Places of Business; Change of Name. Change the location
----------------------------------
of its chief executive office or principal place of business or any of the
locations where it keeps any material portion of the Collateral or its books and
records with respect to the Collateral or change its name without in each case
(i) giving the Administrative Agent written notice within 30 days following such
change and (ii) filing any additional Uniform Commercial Code financing
statements, and such other documents requested by the Administrative Agent to
maintain perfection of the security interest of the Administrative Agent for the
benefit of itself, the Fronting Bank and the Lenders in the Collateral.
SECTION 6.10. Limitations on Capital Expenditures. Make or incur on
-----------------------------------
any obligation to make Capital Expenditures.
SECTION 6.11. Transactions with Affiliates. Effect any transaction
----------------------------
with the Sponsor or its Affiliates (other than pursuant to the Fundamental
Documents) on a basis less favorable to the Borrower than would have been the
case if such transaction had been effected on an arms-length basis.
SECTION 6.12. Prohibition of Amendments or Waivers. (a) Amend,
------------------------------------
alter, modify, terminate or waive, or consent to any amendment, alteration,
modification or waiver of the Sponsor Agreement, Distribution Agreement, the
Artisan Agreements, the Master Film Purchase Agreement and any other Fundamental
Document.
SECTION 6.13. Expenses. Incur any expense other than the cost to
--------
acquire a Declared Qualifying Picture and other obligations under Fundamental
Documents and the Trust Agreement and items which the Sponsor is obligated to
pay.
SECTION 6.14. No Change in Business. Engage in any business
---------------------
activities other than financing, acquisition and distribution (through the
Sponsor or such other distributor with whom the Administrative Agent has entered
into a distribution agreement pursuant to Section 7.3) of Declared Qualifying
Pictures.
SECTION 6.15. ERISA. The Borrower shall not sponsor, maintain or
-----
contribute to, and at no time will have an obligation or duty to sponsor,
maintain or contribute to, any Plan, whether or not set forth in writing,
whether or not insured, and whether covering one or more
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Persons, and will not incur any liability to any Person, including without
limitation, under ERISA, the Code or any other Applicable Law, with respect to
or in connection with any Plan.
SECTION 6.16. Subsidiaries. Create any direct or indirect
------------
Subsidiary.
SECTION 6.17. Hazardous Materials. Cause or permit any of its
-------------------
properties or assets to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose, transfer, produce or process Hazardous Materials,
except in compliance in all material respects with all applicable Environmental
Laws, nor release, discharge, dispose or of permit or suffer any release or
disposal as a result of any intentional act or omission on its part of Hazardous
Materials onto any such property or asset in material violation of any
Environmental Law.
SECTION 6.18. Use of Proceeds of Loans and Requests for Letters of
----------------------------------------------------
Credit. Use the proceeds of Loans or request any Letter of Credit hereunder
- ------
other than for the purposes set forth in, and as required by, Section 5.16
hereof.
7. EVENTS OF DEFAULT
SECTION 7.1. Events of Default. In the case of the happening and
-----------------
during the continuance of any of the following events (herein called "Events of
---------
Default"):
- -------
(a) any representation or warranty made by the Borrower in this
Credit Agreement or any other Fundamental Document or in connection with this
Credit Agreement or with the execution and delivery of the Notes or the
Borrowings hereunder, or any statement or representation made in any report,
financial statement, certificate or other document furnished by or on behalf of
the Borrower to the Administrative Agent, the Fronting Bank or any Lender under
or in connection with this Credit Agreement or any Fundamental Document shall
prove to have been false or misleading in any material respect when made, deemed
to be made or delivered;
(b) default shall be made in the payment of any principal of or
interest on the Notes or of any fees or other amounts payable by the Borrower
hereunder, when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise and, in the case of payments of any amounts other than
principal, such default shall continue unremedied for three (3) Business Days
after receipt by the Borrower of an invoice therefor;
(c) default shall be made by the Borrower in the due observance or
performance of any covenant, condition or agreement contained in Section 5.4 or
Article 6 of this Credit Agreement;
(d) default shall be made with respect to any payment of any
Indebtedness of the Borrower when due or the performance of any other obligation
incurred in connection with
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any such Indebtedness, if the effect of such default is to accelerate the
maturity of such Indebtedness or to permit the holder thereof to cause such
Indebtedness to become due prior to its stated maturity and such default shall
not be remedied, cured, waived or consented to by the holder of such
Indebtedness within the period of grace with respect thereto;
(e) the Borrower or the Sponsor shall generally not pay its debts as
they become due or shall admit in writing its inability to pay its debts, or
shall make a general assignment for the benefit of creditors; or the Borrower or
the Sponsor shall commence any case, proceeding or other action seeking to have
an order for relief entered on its behalf as debtor or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property or shall file an
answer or other pleading in any such case, proceeding or other action admitting
the material allegations of any petition, complaint or similar pleading filed
against it or consenting to the relief sought therein; or the Borrower or the
Sponsor shall take any action to authorize any of the foregoing;
(f) any involuntary case, proceeding or other action against the
Borrower or the Sponsor shall be commenced seeking to have an order for relief
entered against it as debtor or to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or other action (i)
results in the entry of any order for relief against it or (ii) shall remain
undismissed for a period of thirty (30) days;
(g) final judgment(s) for the payment of money shall be rendered
against the Borrower which within thirty (30) days from the entry of such
judgment shall not have been discharged or stayed pending appeal or which shall
not have been discharged or bonded in full within thirty (30) days from the
entry of a final order of affirmance on appeal;
(h) a Sponsor Default shall occur;
(i) default shall be made by the Borrower in the due observance or
performance of any other covenant, condition or agreement to be observed or
performed pursuant to the terms of this Credit Agreement, or any other
Fundamental Document, and such default shall continue unremedied for thirty (30)
consecutive days after the Borrower obtains knowledge of such occurrence;
(j) a Reportable Event relating to a failure to meet minimum funding
standards or an inability to pay benefits when due shall have occurred with
respect to any Plan under the control of the Borrower and shall not have been
remedied within thirty (30) days after
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the occurrence of such Reportable Event; or a trustee shall be appointed by a
United States District Court to administer such Plan, or the PBGC shall
institute proceedings to terminate such Plan, and the Administrative Agent shall
have notified the Borrower that the Required Lenders have made a determination
that on the basis of such Reportable Event, appointment of trustee or
commencement of proceedings, there are reasonable grounds to believe that such
occurrence would have a Material Adverse Effect or would materially and
adversely affect the ability of the Borrower to perform its obligations under
this Credit Agreement or the Notes; or
(k) any Fundamental Document shall, for any reason, not be or shall
cease to be in full force and effect except as provided herein or therein or
shall be declared null and void or any of the Fundamental Documents shall not
give or shall cease to give the Administrative Agent the Liens, rights, powers
and privileges with respect to the Collateral purported to be created thereby in
favor of the Administrative Agent for the benefit of itself, the Fronting Bank,
and the Lenders, superior to and prior to the rights of all third Persons
(except to the extent expressly permitted herein or therein) and subject to no
other Liens (except to the extent expressly permitted herein or therein) other
than by actions of the Administrative Agent, the Fronting Bank or any Lender,
provided that no such defect in the Fundamental Documents shall give rise to an
- --------
Event of Default under this clause (k) unless such defect or such failure shall
affect Collateral that is or should be subject to a Lien in favor of the
Administrative Agent having an aggregate value in excess of $500,000 and, if
such defect or failure can be remedied by the Borrower, such defect or failure
is not promptly remedied after notice by the Administrative Agent to the
Borrower; or
(l) the failure of the Borrower to satisfy the Minimum Number of
Qualifying Pictures Requirement and the United States Theatrical Release
Requirement, and such failure shall not be cured pursuant to, and in accordance
with, the Sponsor Agreement;
then, in every such event and at any time thereafter during the continuance of
such event, the Administrative Agent may, or if directed by the Required Lenders
shall, take either or both of the following actions, at the same or different
times: terminate forthwith the Commitments and/or declare the principal of and
the interest on the Loans and the Notes and all other amounts payable hereunder
or thereunder to be forthwith due and payable, whereupon the same shall become
and be forthwith due and payable, without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived, anything in this
Credit Agreement or in the Notes to the contrary notwithstanding. If an Event of
Default specified in paragraphs (e) or (f) above shall have occurred with
respect to the Borrower, the Commitments shall automatically terminate and the
Loans and the Notes shall automatically become due and payable, both as to
interest and principal, without presentment, demand, protest, or other notice of
any kind, all of which are hereby expressly waived, anything in this Credit
Agreement or the Notes to the contrary notwithstanding. Notwithstanding anything
set forth herein, the Administrative Agent may unless objected to by the
Required Lenders, in its sole discretion, elect to treat any Event of Default
hereunder as a suspension event in which case, instead of exercising the
remedies set forth above, the Administrative Agent may suspend any further
Borrowings hereunder until such
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time as such suspension event has been cured or ceased to be; PROVIDED, HOWEVER,
that the exercise of a suspension remedy shall not prevent the Administrative
Agent from exercising the other remedies contemplated above. Such remedies shall
be in addition to any other remedy available to the Administrative Agent, the
Fronting Bank and the Lenders pursuant to the Sponsor Agreement or Applicable
Law or otherwise.
Notwithstanding anything contained herein, if an Event of Default shall have
occurred and be continuing, or at any other time that any Obligations are
outstanding, the Sponsor may at its election and sole discretion (but without
any obligation to do so) purchase all outstanding Obligations from the Lenders
for a purchase price equal to the outstanding principal of the Loans, plus
accrued interest thereon and accrued and unpaid fees and, with regard to
outstanding Letters of Credit, shall provide cash collateral, and any other
amounts payable hereunder to the Lenders, the Administrative Agent, the Waiver
Agent or the Fronting Bank, and upon such purchase each Lender and the
Administrative Agent hereby agrees to assign to the Sponsor all of its right,
title and interest herein and under the Notes and to execute an Assignment and
Acceptance, all at the expense of the Sponsor.
SECTION 7.2. Sponsor Defaults. In the case of the happening and
----------------
during the continuance of any of the following events (herein called "Sponsor
Defaults):
(a) the failure of the Sponsor to have satisfied any of its
obligations under the Sponsor Agreement or the Intercreditor Agreement in any
material respect including, but not limited to, the failure of the Sponsor to
purchase the Declared Qualifying Pictures if the Sponsor fails to meet the
Minimum Number of Qualifying Pictures Requirement as set forth in the Sponsor
Agreement, or to pay liquidated damages for failing to fulfill the United States
Theatrical Release Requirement and such default shall not have been cured
pursuant to, and in accordance with, the terms of the Sponsor Agreement or the
Intercreditor Agreement, as applicable;
(b) the failure of the Sponsor to have satisfied any of its
obligations under the Distribution Agreement in any material respect and such
default shall not have been cured pursuant to, and in accordance with, the terms
of the Distribution Agreement including, but not limited to, the failure of the
Sponsor in its capacity as distributor under the Distribution Agreement to make
payment of the portion of the Gross Receipts which is to be paid to the
Administrative Agent for the benefit of the Lenders in accordance with the terms
of the Sponsor Agreement to satisfy the Obligations; or
(c) a Change in Control or Change in Management;
then, in addition to the rights and remedies set forth in Section 7.1, in every
such event and at any time thereafter during the continuance of such event, the
Administrative Agent may, or if directed by the Required Lenders shall, (i)
terminate forthwith the Commitments as to any amounts not currently outstanding
hereunder at the time of such termination, (ii) as provided in
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the Sponsor Agreement, may terminate the Distribution Agreement and (iii) be
entitled to funds in the Master Collection Account as set forth in Section 4 of
the Intercreditor Agreement.
SECTION 7.3. Suspension Events. In the case of the happening and
-----------------
during the continuance of any of the following events (herein called "Suspension
Events"):
(a) any representation or warranty in any Fundamental Document or
otherwise in connection with this Credit Agreement, or any statement or
representation made in any report, financial statement, certificate or other
document furnished by the Sponsor or on behalf of itself or the Borrower to the
Administrative Agent, the Fronting Bank or any Lender under or in connection
with any Fundamental Document shall prove to have been false or misleading in
any material respect when made, deemed to be made or delivered;
(b) the holder of any Indebtedness of the Sponsor shall have
accelerated the maturity of such Indebtedness; or
(c) final judgment(s) for the payment of money shall be rendered
against the Sponsor in an amount in excess of $500,000 which within thirty (30)
days from the entry of such judgment shall not have been discharged or stayed
pending appeal or which shall not have been discharged or bonded in full within
thirty (30) days from the entry of a final order of affirmance on appeal;
then, in every such event and at any time thereafter during the continuance of
such event, the Administrative Agent may, or if directed by the Required Lenders
shall (i) suspend the Commitments in whole or the portion thereof not related to
films theretofore delivered to the Borrower, (ii) to the extent that Letters of
Credit have been issued with regard to Declared Qualifying Pictures that have
not yet been delivered to the Borrower, accept delivery thereof on the
satisfaction of the drawing requirements specified in the appropriate Letters of
Credit and enter into distribution agreements with other persons to distribute
such additional films and for films theretofore delivered and apply all the
proceeds thereof not retained by the relevant distributor to the repayment of
the Obligations in a manner consistent with Section 7 of the Sponsor Agreement
and (iii) eliminate any allocations to the Sponsor under Section 7 of the
Sponsor Agreement with respect to films theretofore delivered other than as set
forth in Sections 7(a)(ii), 7(a)(iii), 7(a)(iv), 7(b)(ii) and 7(b)(iii) thereof.
8. GRANT OF SECURITY INTEREST; REMEDIES
SECTION 8.1. Security Interests. The Borrower, as security for the
------------------
due and punctual payment of the Obligations, hereby mortgages, pledges, assigns,
transfers, sets over, conveys and delivers to the Administrative Agent (for the
benefit of itself, the Lenders and the Fronting Bank) and grants to the
Administrative Agent (for the benefit of itself, the Lenders and the Fronting
Bank) a security interest in the Collateral.
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SECTION 8.2. Use of Collateral. So long as no Event of Default shall
-----------------
have occurred and be continuing and subject to the various provisions of this
Credit Agreement and the other Fundamental Documents, the Borrower may use the
Collateral in any lawful manner except as otherwise provided hereunder and in
the other Fundamental Documents.
SECTION 8.3. Collection Accounts. (a) On or before the Initial
-------------------
Funding Date, the Borrower will establish a collection account (the "AFI
Collection Account") which shall be in the name of the Administrative Agent (for
the benefit of the Lenders) and under the sole dominion and control of the
Administrative Agent and into which all proceeds attributable to all Declared
Qualifying Pictures as set forth in the Allocation Certificates shall be
transferred from the Master Collection Account. Upon agreement between the
Administrative Agent and the Borrower the AFI Collection Account may also serve
as the Cash Collateral Account.
(b) The Borrower shall cause the Sponsor and the other Artisan
Entities to direct by Notice of Assignment and Irrevocable Instructions the
Sponsor or any other successors or other Persons who become licenses, buyers or
account debtors of the Sponsor or other Artisan Entities with respect to any
items included in the Collateral to make payments to the Artisan Entities in
connection with Declared Qualifying Pictures to the Master Collection Account.
(c) The Borrower will execute such documentation as may be
reasonably required by the Administrative Agent in order to effectuate the
provisions of this Section 8.3.
(d) In the event the Borrower receives payment of any portion of the
Gross Receipts or any other proceeds of the Collateral, the Borrower shall
promptly remit such payment or proceeds to the Master Collection Account to be
applied in accordance with the terms of the Intercreditor Agreement and the
Sponsor Agreement.
(e) The AFI Collection Account shall be maintained with the
Administrative Agent.
(f) The balance in the Master Collection Account which represents
proceeds of Gross Receipts shall be transferred to the Collection Account in
accordance with the Intercreditor Agreement and shall then be applied in
accordance with Section 7 of the Sponsor Agreement and Section 4 of the
Intercreditor Agreement; provided, however, that, if the application pursuant to
-------- -------
Section 7 of the Sponsor Agreement would result in the prepayment of a
Eurodollar Loan and a loss described in Section 2.9(c) hereof, then the
provisions of Section 2.9(f) hereof shall apply (unless the Borrower otherwise
instructs with respect to Section 2.9).
SECTION 8.4. Borrower to Hold in Trust. Upon the occurrence and
-------------------------
during the continuance of an Event of Default, the Borrower will, upon receipt
by it of any revenue, income, profits or other sums in which a security interest
is granted by this Article 8, payable pursuant to any agreement or otherwise, or
of any check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the sum in trust for the Administrative
Agent, segregate such sum from their own assets and forthwith, without any
notice or demand
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whatsoever (all notices, demands, or other actions on the part of the
Administrative Agent being expressly waived), endorse, transfer and deliver any
such sums or instruments or both, to the Administrative Agent to be applied to
the repayment of the Obligations in accordance with the provisions of Section
8.7 hereof.
SECTION 8.5. Collections, etc. Upon the occurrence and during the
----------------
continuance of an Event of Default, the Administrative Agent may, or if directed
by the Required Lenders shall, in its sole discretion, in its name or in the
name of the Borrower or otherwise, demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in exchange for,
or make any compromise or settlement deemed desirable with respect to, any of
the Collateral, but shall be under no obligation so to do, or the Administrative
Agent may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any of the Collateral, without
thereby incurring responsibility to, or discharging or otherwise affecting any
liability of, the Borrower. The Administrative Agent will not be required to
take any steps to preserve any rights against prior parties to the Collateral.
If the Borrower fails to make any payment or take any action required under this
Article 8, the Administrative Agent may make such payments and take all such
actions as the Administrative Agent reasonably deems necessary to protect the
Lenders' security interests in the Collateral and/or the value thereof, and the
Administrative Agent is hereby authorized (without limiting the general nature
of the authority herein above conferred) to pay, purchase, contest or compromise
any Liens that in the reasonable judgment of the Administrative Agent appear to
be equal to, prior to or superior to the security interests of the Lenders in
the Collateral and any Liens not expressly permitted by this Credit Agreement.
SECTION 8.6. Possession, Sale of Collateral, etc. Upon the
-----------------------------------
occurrence and during the continuance of an Event of Default, the Administrative
Agent (on behalf of itself and the Lenders) may, or if directed by the Required
Lenders shall, enter upon the premises of the Borrower or wherever the
Collateral may be, and take possession of the Collateral, and may demand and
receive such possession from any Person who has possession thereof, and the
Administrative Agent (on behalf of itself and the Lenders) may take such
measures as they deem necessary or proper for the care or protection thereof,
including the right to remove all or any portion of the Collateral, and with or
without taking such possession may sell or cause to be sold, whenever the
Administrative Agent (on behalf of itself and the Lenders) shall decide, in one
or more sales or parcels, at such prices as the Administrative Agent (on behalf
of itself and the Lenders) may deem appropriate, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or any portion
of the Collateral, at any broker's board or at public or private sale, without
demand of performance or notice of intention to sell or of time or place of sale
(except 10 days' written notice to the Borrower of the time and place of any
such public sale or sales and such other notices as may be required by
Applicable Law and cannot be waived), and neither the Administrative Agent nor
the Lenders shall have any liability should the proceeds resulting from a
private sale be less than the proceeds realizable from a public sale, and the
Administrative Agent, the Lenders or any other Person may be the purchaser of
all or any
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portion of the Collateral so sold and thereafter hold the same absolutely, free
(to the fullest extent permitted by Applicable Law) from any claim or right of
whatever kind, including any equity of redemption, of the Borrower, any such
demand, notice, claim, right or equity being hereby expressly waived and
released. At any sale or sales made pursuant to this Article 8, the
Administrative Agent and the Lenders may bid for or purchase, free (to the
fullest extent permitted by Applicable Law) from any claim or right of whatever
kind, including any equity of redemption, of the Borrower, any such demand,
notice, claim, right or equity being hereby expressly waived and released, any
part of or all of the Collateral offered for sale, and may make any payment on
account thereof by using any claim for moneys then due and payable to the
Administrative Agent and the Lenders by the Borrower hereunder as a credit
against the purchase price. The Administrative Agent and the Lenders shall in
any such sale make no representations or warranties with respect to the
Collateral or any part thereof, and neither the Administrative Agent nor any
Lender shall be chargeable with any of the obligations or liabilities of the
Borrower. The Borrower hereby agrees (i) that it will indemnify and hold the
Administrative Agent and the Lenders harmless from and against any and all
claims with respect to the Collateral asserted before the taking of actual
possession or control of the relevant Collateral by the Administrative Agent (on
behalf of itself and the Lenders) pursuant to this Article 8, or arising out of
any act of, or omission to act on the part of, any party (other than the
Administrative Agent or Lenders) prior to such taking of actual possession or
control by the Administrative Agent (on behalf of itself and the Lenders)
(whether asserted before or after such taking of possession or control), or
arising out of any act on the part of the Borrower, or its agents before or
after the commencement of such actual possession or control by the
Administrative Agent (on behalf of itself and the Lenders), but excluding
therefrom all claims with respect to the Collateral resulting from the gross
negligence or willful misconduct of any of the Administrative Agent, the
Fronting Bank or the Lenders; and (ii) neither the Administrative Agent nor any
Lender shall have liability or obligation to the Borrower arising out of any
such claim except for acts of willful misconduct or gross negligence. Subject
only to the lawful rights of third parties, any Laboratory which has possession
of any of the Collateral is hereby constituted and appointed by the Borrower as
pledgeholder for the Administrative Agent and the Lenders and, upon the
occurrence of an Event of Default, each such pledgeholder is hereby authorized
(to the fullest extent permitted by Applicable Law) to sell all or any portion
of the Collateral upon the order and direction of the Administrative Agent, and
the Borrower hereby waives any and all claims, for damages or otherwise, for any
action taken by such pledgeholder in accordance with the terms of the UCC not
otherwise waived hereunder. In any action hereunder, the Administrative Agent
(on behalf of itself and the Lenders) shall be entitled if permitted by
Applicable Law to the appointment of a receiver without notice, to take
possession of all or any portion of the Collateral and to exercise such powers
as the court shall confer upon the receiver. Notwithstanding the foregoing, upon
the occurrence of an Event of Default, and during the continuation of such Event
of Default, the Administrative Agent (on behalf of itself and the Lenders) shall
be entitled to apply, without prior notice to the Borrower, any cash or cash
items constituting Collateral in the possession of the Administrative Agent (on
behalf of itself and the Lenders) to payment of the Obligations in accordance
with Section 7 of the Sponsor Agreement.
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SECTION 8.7. Application of Proceeds on Default. During the
----------------------------------
continuance of an Event of Default, subject to the provisions of Section 7(c) of
the Sponsor Agreement, the balances in the Chase Clearing Account, Collection
Account, Cash Collateral Account(s), or in any account of the Borrower with the
Administrative Agent or any Lender which constitutes part of the Collateral, all
other income on the Collateral, and all proceeds from any sale of the Collateral
by the Administrative Agent pursuant hereto shall be applied first toward
payment of the reasonable out-of-pocket costs and expenses paid or incurred by
the Administrative Agent in enforcing this Credit Agreement, in realizing on or
protecting any Collateral and in enforcing or collecting any Obligations or any
Guaranty thereof, including, without limitation, court costs and the reasonable
attorney's fees and expenses incurred by the Administrative Agent and then to
the payment in full of the Obligations in such order and with regard to each
source allocated in the manner set forth under Section 7 of the Sponsor
Agreement; provided, however, that, the Administrative Agent may in its
-------- -------
discretion apply funds comprising the Collateral to pay the cost of making
delivery to the distributors of a Declared Qualifying Picture. Any amounts
remaining after such payment in full shall be remitted to the Borrower or as a
court of competent jurisdiction may otherwise direct; and provided, further,
-------- -------
that both the Senior Tranche Lenders and the Junior Tranche Lenders hereby agree
that to the extent either group receives proceeds or income on the Collateral to
which it is not entitled hereunder it shall deliver such proceeds or income to
the party so entitled as herein set forth.
SECTION 8.8. Power of Attorney. Upon the occurrence and during the
-----------------
continuance of an Event of Default which is not waived in writing by the
Required Lenders, (a) the Borrower does hereby irrevocably make, constitute and
appoint the Administrative Agent or any of its officers or designees its true
and lawful attorney-in-fact with full power in the name of the Administrative
Agent or such other Person to receive, open and dispose of all mail addressed to
the Borrower, and to endorse any notes, checks, drafts, money orders or other
evidences of payment relating to the Collateral that may come into the
possession of the Administrative Agent with full power and right to cause the
mail of such Persons to be transferred to the Administrative Agent's own offices
or otherwise, and to do any and all other acts necessary or proper to carry out
the intent of this Credit Agreement and the grant of the security interests
hereunder and under the Fundamental Documents, and the Borrower hereby ratifies
and confirms all that the Administrative Agent or its substitutes shall properly
do by virtue hereof; (b) the Borrower does hereby further irrevocably make,
constitute and appoint the Administrative Agent or any of its officers or
designees its true and lawful attorney-in-fact in the name of the Administrative
Agent or the Borrower (i) to enforce all of the Borrower's rights under and
pursuant to all agreements with respect to the Collateral, all for the sole
benefit of the Administrative Agent (for the benefit of itself, the Fronting
Bank and the Lenders) and to enter into such other agreements (as may be lawful
and without breach of contract) as may be necessary or appropriate in the
reasonable judgment of the Administrative Agent to complete the distribution or
exploitation of any Declared Qualifying Picture, (ii) to execute such other and
further mortgages, pledges and assignments of the Collateral, and related
instruments or agreements, as the Administrative Agent may reasonably require
for the purpose of perfecting,
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protecting, maintaining or enforcing the security interests granted to the
Administrative Agent on behalf of the Lenders hereunder, and (iii) to do any and
all other things necessary or proper to carry out the intention of this Credit
Agreement and the grant of the security interests hereunder and under the other
Fundamental Documents. The Borrower hereby ratifies and confirms in advance all
that the Administrative Agent as such attorney-in-fact or its substitutes shall
properly do by virtue of this power of attorney.
SECTION 8.9. Financing Statements, Direct Payments. The Borrower
-------------------------------------
hereby authorizes the Administrative Agent to file UCC financing statements and
any amendments thereto (provided, that so long as an Event of Default shall not
have occurred and be continuing, the Administrative Agent shall first request
the Borrower to take such action before taking such action on its own) or
continuations thereof, any Copyright Security Agreement, any Copyright Security
Agreement Supplement and any other appropriate security documents or instruments
and to give any notices necessary or desirable to perfect the Lien of the
Administrative Agent on behalf of itself and the Lenders on the Collateral, in
all cases without the signatures of the Borrower or to execute such items as
attorney-in-fact for the Borrower; provided, that the Administrative Agent shall
provide copies of any such documents or instruments to the Borrower. The
Borrower further authorizes the Administrative Agent upon the occurrence of an
Event of Default, and during the continuation of such Event of Default, to
notify any account debtors that all sums payable to the Borrower relating to the
Collateral shall be paid directly to the Administrative Agent.
SECTION 8.10. Further Assurances. Upon the request of the
------------------
Administrative Agent, the Borrower hereby agrees to duly and promptly execute
and deliver, or cause the Sponsors or their Affiliates to duly execute and
deliver, at the cost and expense of the Borrower, such further instruments as
may be necessary or proper, in the reasonable judgment of the Administrative
Agent, to carry out the provisions and purposes of this Article 8, necessary, in
the reasonable judgment of the Administrative Agent, to perfect and preserve the
Liens of the Administrative Agent for the benefit of itself, the Fronting Bank
and the Lenders hereunder and under the Fundamental Documents, and in the
Collateral or any portion thereof.
SECTION 8.11. Termination. The security interests granted under this
-----------
Article 8 shall terminate when all Obligations have been fully paid and
performed and the Commitments shall have terminated and all outstanding Letters
of Credit have expired or been terminated or canceled. Upon request by the
Borrower (and at the sole expense of the Borrower) after such termination, the
Administrative Agent will take all reasonable action and do all things
reasonably necessary, including executing UCC termination statements,
Pledgeholder Agreement terminations, termination letters to account debtors and
copyright reassignments, to release the security interest granted to it
hereunder.
SECTION 8.12. Remedies Not Exclusive. The remedies conferred upon or
----------------------
reserved to the Administrative Agent in this Article 8 are intended to be in
addition to, and not in limitation of, any other remedy or remedies available to
the Administrative Agent. Without
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limiting the generality of the foregoing, the Administrative Agent and the
Lenders shall have all rights and remedies of a secured creditor under Article 9
of the UCC.
SECTION 8.13. Quiet Enjoyment. The Administrative Agent, the
---------------
Fronting Bank and the Lenders acknowledge that their security interest hereunder
is subject to the rights of Quiet Enjoyment of the Sponsor under the
Distribution Agreement and the licensees of the Artisan Entities to the extent
set forth in Section 19 of the Intercreditor Agreement.
SECTION 8.14. Continuation and Reinstatement. The Borrower further
------------------------------
agrees that the security interest granted hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment or any
part thereof of any Obligation is rescinded or must otherwise be restored by the
Administrative Agent or the Lenders upon the bankruptcy or reorganization of the
Borrower or otherwise.
SECTION 8.15. Release of Collateral. So long as no Event of Default
---------------------
has occurred and is continuing, upon the purchase from the Borrower of a
Declared Qualifying Picture by the Sponsor under the Sponsor Agreement, sale or
other disposition in accordance with this Agreement of any property or assets
constituting Collateral, the security interests granted under this Agreement and
under any other Fundamental Document in such property shall terminate and be
released. In connection with any such release, and at the Borrowers' expense,
the Administrative Agent will take all reasonable action and do all things
reasonably necessary, including executing UCC termination statements,
Pledgeholder Agreement terminations, termination letters to account debtors and
copyright reassignments, to effectuate any such release.
9. CASH COLLATERAL ACCOUNT
SECTION 9.1. Cash Collateral Accounts. On or prior to the Closing
------------------------
Date, there shall be established with the Administrative Agent a collateral
account in the name of the Administrative Agent (the "Cash Collateral Account"),
-----------------------
into which the Borrower shall from time to time deposit amounts pursuant to the
express provisions of this Credit Agreement requiring or permitting such
deposits. Except to the extent otherwise provided in this Article 9, the Cash
Collateral Account shall be under the sole dominion and control of the
Administrative Agent.
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SECTION 9.2. Investment of Funds. (a) The Administrative Agent is
-------------------
hereby authorized and directed to invest and reinvest the funds from time to
time deposited in the Cash Collateral Account, so long as no Event of Default
has occurred and is continuing, on the instructions of the Borrower (provided
that such notice may be given verbally to be confirmed promptly in writing) or,
if the Borrower shall fail to give such instruction upon delivery of any such
funds, in the sole discretion of the Administrative Agent, provided that in no
--------
event may the Borrower give instructions to the Administrative Agent to, or may
the Administrative Agent in its discretion, invest or reinvest funds in the Cash
Collateral Account in other than Cash Equivalents described in clause (i) of the
definition of Cash Equivalents, or described in clauses (ii) and (iii) of the
definition of Cash Equivalents to the extent issued by The Chase Manhattan Bank.
(b) Any net income or gain on the investment of funds from time to
time held in the Cash Collateral Account, shall be retained by the
Administrative Agent as a part of the Cash Collateral Account and any net loss
on any such investment shall be charged against the Cash Collateral Account.
(c) None of the Administrative Agent, the Fronting Bank or the
Lenders shall be a trustee for the Borrower, or shall have any obligations or
responsibilities, or shall be liable for anything done or not done, in
connection with the Cash Collateral Account, except as expressly provided herein
and except that the Administrative Agent shall have the obligations of a secured
party under the UCC. The Administrative Agent, the Fronting Bank and the Lenders
shall not have any obligation or responsibilities and shall not be liable in any
way for any investment decision made pursuant to this Section 9.2 or for any
decrease in the value of the investments held in the Cash Collateral Account.
SECTION 9.3. Grant of Security Interest. For value received and to
--------------------------
induce the Fronting Bank to issue Letters of Credit and the Lenders to make
Loans from time to time to the Borrower and to acquire participations in Letters
of Credit as provided for in this Credit Agreement, as security for the payment
of all of the Obligations, the Borrower hereby assigns to the Administrative
Agent (for the benefit of itself, the Fronting Bank and the Lenders), and grants
to the Administrative Agent (for the benefit of itself, the Fronting Bank and
the Lenders), a first and prior Lien upon the Borrower's rights in and to the
Cash Collateral Account, all cash, documents, instruments and securities from
time to time held therein, and all rights pertaining to investments of funds in
the Cash Collateral Account and all products and proceeds of any of the
foregoing. All cash, documents, instruments and securities from time to time on
deposit in the Cash Collateral Account, and all rights pertaining to investments
of funds in the Cash Collateral Accounts shall immediately and without any need
for any further action on the part of the Borrower, the Fronting Bank and any
Lender or the Administrative Agent, become subject to the Lien set forth in this
Section 9.3, be deemed Collateral for all purposes hereof and be subject to the
provisions of this Credit Agreement.
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SECTION 9.4. Remedies. At any time during the continuation of an
--------
Event of Default, the Administrative Agent may sell any documents, instruments
and securities held in the Cash Collateral Account and may immediately apply the
proceeds thereof and any other cash held in the Cash Collateral Account in
accordance with Section 9.2.
10. THE ADMINISTRATIVE AGENT AND THE FRONTING BANK
SECTION 10.1. Administration by Administrative Agent. (a) The
--------------------------------------
general administration of the Fundamental Documents and any other documents
contemplated by this Credit Agreement shall be by the Administrative Agent or
its designees except as specifically set forth in Section 10.9 hereof. Except as
otherwise expressly provided herein each of the Lenders hereby irrevocably
authorizes the Administrative Agent, at its discretion, to take or refrain from
taking such actions as Administrative Agent on its behalf and to exercise or
refrain from exercising such powers under the Fundamental Documents, the Notes
and any other documents contemplated by this Credit Agreement as are expressly
delegated by the terms hereof or thereof, as appropriate, together with all
powers reasonably incidental thereto. The Administrative Agent shall have no
duties or responsibilities except as set forth in the Fundamental Documents.
(b) The Lenders and the Fronting Bank hereby authorize and direct
the Administrative Agent on behalf of the Lenders and the Fronting Bank to
accept each Qualifying Picture Declaration (and related ancillary documentation
as contemplated by such Qualifying Picture Declaration) with respect to each
Qualifying Picture.
(c) The Lenders and the Fronting Bank hereby authorize the
Administrative Agent (in its sole discretion):
(i) in connection with the sale or other disposition of any
asset included in the Collateral, including a Declared Qualifying Picture
that is ultimately determined not to be a Qualifying Picture and as to
which the Sponsor has repaid all Loans and other Obligations in connection
with such Declared Qualifying Picture undertaken in accordance with the
terms of this Credit Agreement to release a Lien granted to it (for the
benefit of the Administrative Agent, the Fronting Bank and the Lenders) on
such asset and/or release the Borrower from its Obligations hereunder
relating thereto;
(ii) to determine that the cost to the Borrower is disproportionate
to the benefit to be realized by the Administrative Agent, the Fronting Bank
and the Lenders by perfecting a Lien in a given asset or group of assets
included in the Collateral and that the Borrower should not be required to
perfect such Lien in favor of the Administrative Agent for the benefit of
itself, the Fronting Bank and the Lenders;
(iii) to appoint subagents to be the holder of record of a
Lien to be granted to the Administrative Agent for the benefit of itself,
the Fronting Bank and the Lenders;
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(iv) to confirm in writing the right of Quiet Enjoyment of
licensees pursuant to the terms of Section 8.13 and Section 11 of the
Intercreditor Agreement;
(v) to enter into intercreditor and/or guild subordination
agreements on terms acceptable to the Administrative Agent with the unions
and/or the guilds with respect to the security interests in favor of such
unions and/or guilds required pursuant to the terms of the collective
bargaining agreements; and
(vi) to accept commitments from Persons which satisfy the
definition "Eligible Assignee" for the remaining $37,500,000 of Senior
Tranche Commitment not committed to as of the date hereof.
(vii) The Lenders and the Fronting Bank hereby authorize the
Administrative Agent on behalf of the Lenders and the Fronting Bank to
enter into any Other Intercreditor Agreements on terms acceptable to the
Administrative Agent.
(viii) The Lenders and the Fronting Bank hereby authorize the
Administrative Agent on behalf of the Lenders and the Fronting Bank to
accept "The Limey" as a Declared Qualifying Picture in writing on or
before December 15, 1999.
SECTION 10.2. Payments. All payments received out of Gross Receipts
--------
shall be applied to repay the Obligations in accordance with Section 7 of the
Sponsor Agreement. All payments from funds other than Gross Receipts the
application of which is provided for in either the Intercreditor Agreement or
the Sponsor Agreement shall be applied to repay the Obligations in accordance
with the terms thereof. All payments received from the Cash Flow Insurance shall
be applied to repay Obligations under the Senior Tranche. Any other amounts
received by the Administrative Agent in connection with this Credit Agreement or
the Notes the application of which is not otherwise provided for, shall be
applied, in accordance with each of the Lenders' Percentages, first, to pay
accrued but unpaid Unused Commitment Fees, second, to pay accrued but unpaid
interest on the Notes in accordance with the amount of outstanding Loans owed,
first to each Senior Tranche Lender and then to each Junior Tranche Lender,
third, to pay the principal balance outstanding on the Notes (with amounts
payable on the principal balance outstanding on the Notes in accordance with
each Lender's Percentage) first to each Senior Tranche Lender, and then to each
Junior Tranche Lender, fourth to satisfy or provide Cash Collateral for all
Obligations relating to the Letters of Credit, and fifth, to pay other amounts
payable to the Administrative Agent. All amounts to be paid to any of the
Lenders by the Administrative Agent shall be credited to the Lenders, after
collection by the Administrative Agent, in immediately available funds either by
wire transfer or deposit in such Lender's correspondent account with the
Administrative Agent, or as such Lender and the Administrative Agent shall from
time to time agree.
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SECTION 10.3. Sharing of Setoffs and Cash Collateral. Each of the
--------------------------------------
Lenders agrees that if it shall, through the exercise of a right of banker's
lien, setoff or counterclaim against the Borrower, including, but not limited
to, a secured claim under Section 506 of Title 11 of the United States Code or
other security or interest arising from, or in lieu of, such secured claim and
received by such Lender under any applicable bankruptcy, insolvency or other
similar law, or otherwise, obtain payment in respect of its Loans as a result of
which the unpaid portion of its Loans and L/C Exposure is proportionately less
than the unpaid portion of any of the other Lenders (a) it shall promptly
purchase at par (and shall be deemed to have thereupon purchased) from such
other Lenders a participation in the Loans or Letters of Credit of such other
Lenders, so that the aggregate unpaid principal amount of each of the Lenders'
Loans and its participation in Loans and Letters of Credit of the other Lenders
shall be in the same proportion to the aggregate unpaid principal amount of all
Loans then outstanding and L/C Exposure as the principal amount of its Loans and
L/C Exposure prior to the obtaining of such payment was to the principal amount
of all Loans outstanding and L/C Exposure prior to the obtaining of such payment
and (b) such other adjustments shall be made from time to time as shall be
equitable to ensure that the Lenders share such payment pro rata. If all or any
portion of such excess payment is thereafter recovered from the Lender which
originally received such excess payment, such purchase (or portion thereof)
shall be canceled and the purchase price restored to the extent of such
recovery. The Borrower expressly consents to the foregoing arrangements and
agree that any Lender or Lenders holding (or deemed to be holding) a
participation in a Note or Letters of Credit may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Lender or Lenders as fully as if such Lender or Lenders
held a Note and was the original obligee thereon or was the issuer of the Letter
of Credit, in the amount of such participation. None of the foregoing shall
require any of the Senior Tranche Lenders to purchase any participation in the
Junior Tranche Commitment.
SECTION 10.4. Notice to the Lenders. Upon receipt by the
---------------------
Administrative Agent or the Fronting Bank from the Borrower of any communication
calling for an action on the part of the Lenders, or upon notice to the
Administrative Agent of any Event of Default, the Administrative Agent or the
Fronting Bank will in turn immediately inform the other Lenders in writing
(which shall include facsimile communications) of the nature of such
communication or of the Event of Default, as the case may be.
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SECTION 10.5. Liability of Administrative Agent; Waiver Agent;
------------------------------------------------
Fronting Bank. (a) The Administrative Agent, the Waiver Agent or the Fronting
- -------------
Bank, when acting on behalf of the Lenders, may execute any of its duties under
this Credit Agreement or the other Fundamental Documents by or through its
officers, agents, or employees and neither the Administrative Agent, the Waiver
Agent, the Fronting Bank nor their respective officers, Administrative Agents or
employees shall be liable to the Lenders or any of them for any action taken or
omitted to be taken in good faith, nor be responsible to the Lenders or to any
of them for the consequences of any oversight or error of judgment, or for any
loss, unless the same shall happen through its gross negligence or willful
misconduct. The Administrative Agent, the Waiver Agent, the Fronting Bank and
their respective directors, officers, Administrative Agents, and employees shall
in no event be liable to the Lenders or to any of them for any action taken or
omitted to be taken by it pursuant to instructions received by it from the
Required Lenders or in reliance upon the advice of counsel selected by it with
reasonable care. Without limiting the foregoing, neither the Administrative
Agent, the Waiver Agent, the Fronting Bank nor any of their respective
directors, officers, employees, or agents shall be responsible to any of the
Lenders for the due execution, validity, genuineness, effectiveness,
sufficiency, or enforceability of, or for any statement, warranty, or
representation in, or for the perfection of any security interest contemplated
by, this Credit Agreement or any related agreement, document or order, or shall
be required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower or the Borrower of the terms, conditions, covenants,
or agreements of this Credit Agreement or any related agreement or document.
(b) The Administrative Agent, as Administrative Agent for the
Lenders hereunder, the Waiver Agent, the Fronting Bank, any Lender or any of
their respective directors, officers, employees, or agents shall have no
responsibility to the Borrower on account of the failure or delay in performance
or breach by any other of such parties of its obligations under this Credit
Agreement or the Notes or any related agreement or document or in connection
herewith or therewith.
(c) The Administrative Agent, as Administrative Agent for the
Lenders hereunder, and the Waiver Agent as Waiver Agent for the Lenders shall be
entitled to rely on any communication, instrument, or document reasonably
believed by it to be genuine or correct and to have been signed or sent by a
Person or Persons believed by it to be the proper Person or Persons, and it
shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by it.
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SECTION 10.6. Reimbursement and Indemnification. Each of the Lenders
---------------------------------
agrees (i) to reimburse each of the Administrative Agent and the Waiver Agent in
accordance with such Lender's Pro Rata Share of the Total Commitment, for any
expenses and fees incurred for the benefit of the Lenders under the Fundamental
Documents, including, without limitation, counsel fees and compensation of
Administrative Agents and employees paid for services rendered on behalf of the
Lenders, and any other expense incurred in connection with the operations or
enforcement thereof not reimbursed by the Borrower, (ii) to indemnify and hold
harmless each of the Administrative Agent and the Waiver Agent and any of its
directors, officers, employees, or Administrative Agents, on demand, in
accordance with each Lender's Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against it or any of them in any way
relating to or arising out of the Fundamental Documents or any action taken or
omitted by it or any of them under the Fundamental Documents to the extent not
reimbursed by the Borrower (except such as shall result from its gross
negligence or willful misconduct) and (iii) to indemnify and hold harmless the
Fronting Bank and any of its directors, officers, employees, or Administrative
Agents, on demand, in the amount of its Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against it or any of them in any way
relating to or arising out of the issuance of any Letters of Credit or the
failure to issue Letters of Credit if such failure or issuance was at the
direction of the Required Lenders (except as shall result from the gross
negligence or willful misconduct of the Person to be reimbursed, indemnified or
held harmless, as applicable). To the extent indemnification payments made by
the Lenders pursuant to this Section 10.6 are subsequently recovered by the
Administrative Agent, Waiver Agent or the Fronting Bank from the Borrower, the
Administrative Agent, the Waiver Agent, or the Fronting Bank, as the case may
be, will promptly refund such previously paid indemnity payments to the Lenders.
SECTION 10.7. Rights of Administrative Agent; Waiver Agent. It is
--------------------------------------------
understood and agreed that each of the Administrative Agent and the Waiver Agent
shall have the same rights and powers as a Lender hereunder (including the right
to give such instructions) as the other Lenders and may exercise such rights and
powers, as well as its rights and powers under other agreements and instruments
to which it is or may be party, and engage in other transactions with the
Borrower, as though it were not the Administrative Agent or the Waiver Agent, as
applicable, of the Lenders or the Fronting Bank under this Credit Agreement.
SECTION 10.8. Independent Investigation by Lenders. Each of the
------------------------------------
Lenders acknowledges that it has decided to enter into this Credit Agreement and
to make the Loans and participate in the Letters of Credit hereunder based on
its own analysis of the transactions contemplated hereby and of the
creditworthiness of the Borrower and agrees that the Administrative Agent,
Waiver Agent and the Fronting Bank shall bear no responsibility therefor.
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SECTION 10.9. Duties of Waiver Agent; Agreement of Required Lenders.
-----------------------------------------------------
Upon any occasion requiring or permitting an approval, consent, waiver, election
or other action on the part of the Required Lenders, action shall be taken by
the Waiver Agent for and on behalf or for the benefit of all Lenders upon the
direction of the Required Lenders and any such action shall be binding on all
Lenders. No amendment, modification, consent or waiver shall be effective except
in accordance with the provisions of Section 11.10 hereof.
SECTION 10.10. Notice of Transfer. The Administrative Agent and the
------------------
Waiver Agent may deem and treat any Lender which is a party to this Credit
Agreement as the owner of such Lender's respective portions of the Loans and
participations in Letters of Credit for all purposes, unless and until a written
notice of the assignment or transfer thereof executed by any such Lender shall
have been received by the Administrative Agent and the Administrative Agent
shall have given notice thereof to the Waiver Agent and become effective in
accordance with Section 11.3 hereof.
SECTION 10.11. Successor Administrative Agent The Administrative
------------------------------
Agent may resign at any time by giving ten (10) days prior written notice
thereof to the Lenders and the Borrower, but such resignation shall not become
effective until acceptance by a successor Administrative Agent of its
appointment pursuant hereto; provided, however, that the Administrative Agent
-------- -------
may resign whether or not a successor Administrative Agent has been appointed if
the Sponsor has purchased all of the outstanding Obligations hereunder in
accordance with the terms of the Sponsor Agreement. Upon any such resignation,
the retiring Administrative Agent shall consult with the Borrower and promptly
appoint a successor Administrative Agent from among the Lenders which is
experienced and sophisticated in entertainment industry lending, provided that
such replacement is reasonably acceptable (as evidenced in writing) to the
Required Lenders. If no successor Administrative Agent shall have been so
appointed by the retiring Administrative Agent and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving of
notice of resignation, the Borrower may appoint a successor Administrative Agent
(which successor may be replaced by the Required Lenders; provided that such
replacement is experienced and is sophisticated in entertainment industry
lending and reasonably acceptable to the Borrower), which shall be either a
Lender or a commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $250,000,000 and which is experienced and sophisticated in entertainment
industry lending. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
this Credit Agreement, the other Fundamental Documents and any other credit
documentation. After any retiring Administrative Agent's resignation hereunder
as Administrative Agent, the provisions of this Article 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Credit Agreement.
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SECTION 10.12. Successor Waiver Agent The Waiver Agent may resign at
----------------------
any time by giving ten (10) days prior written notice thereof to the Lenders and
the Borrower, but such resignation shall not become effective until acceptance
by a successor Waiver Agent of its appointment pursuant hereto. Upon any such
resignation, the retiring Waiver Agent shall consult with the Borrower and
promptly appoint a successor Waiver Agent from among the Lenders which is
experienced and sophisticated in entertainment industry lending, provided that
such replacement is reasonably acceptable (as evidenced in writing) to the
Required Lenders. If no successor Waiver Agent shall have been so appointed by
the retiring Waiver Agent and shall have accepted such appointment, within 30
days after the retiring Waiver Agent's giving of notice of resignation, the
Borrower may appoint a successor Waiver Agent (which successor may be replaced
by the Required Lenders; provided that such replacement is experienced and is
sophisticated in entertainment industry lending and reasonably acceptable to the
Borrower), which shall be either a Lender or a commercial bank organized under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $250,000,000 and which is experienced
and sophisticated in entertainment industry lending. Upon the acceptance of any
appointment as Waiver Agent hereunder by a successor Waiver Agent, such
successor Waiver Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Waiver Agent, and the
retiring Waiver Agent shall be discharged from its duties and obligations under
this Credit Agreement, the other Fundamental Documents and any other credit
documentation. After any retiring Waiver Agent's resignation hereunder as Waiver
Agent, the provisions of this Article 10 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Waiver Agent under this
Credit Agreement.
SECTION 10.13. Successor Fronting Bank. The Fronting Bank may resign
-----------------------
at any time by giving ten (10) days' prior written notice thereof to the Lenders
and the Borrower, but such resignation shall not become effective until
acceptance by a successor Fronting Bank of its appointment pursuant hereto. Upon
any such resignation, the retiring Fronting Bank shall consult with the Borrower
and promptly appoint a successor Fronting Bank from among the Lenders, provided
that such replacement is reasonably acceptable (as evidenced in writing) to the
Required Lenders and the Borrower and has a credit rating at least as high as
that of the Fronting Bank. If no successor Fronting Bank shall have been so
appointed by the retiring Fronting Bank and shall have accepted such
appointment, within 30 days after the retiring Fronting Bank's giving of notice
of resignation, the Borrower may appoint a successor Fronting Bank (which
successor may be replaced by the Required Lenders; provided that such
replacement is experienced and is sophisticated in entertainment industry
lending and reasonably acceptable to the Borrower and has a credit rating at
least as high as that of the Fronting Bank), which shall be either a Lender or a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$250,000,000 and which is experienced and sophisticated in entertainment
industry lending. Upon the acceptance of any appointment as Fronting Bank
hereunder by a successor Fronting Bank, such successor Fronting Bank shall
thereupon succeed to and become vested with all the rights, powers,
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privileges and duties of the retiring Fronting Bank, and the retiring Fronting
Bank shall be discharged from its duties and obligations under this Credit
Agreement, the other Fundamental Documents and any other credit documentation,
except with respect to Letters of Credit which are outstanding at the time of
the resignation unless the successor Fronting Bank replaces the retiring
Fronting Bank as the issuing bank on such Letters of Credit. The Borrower and
each Lender hereby agrees that each will use its commercially reasonable efforts
to replace any such outstanding Letters of Credit issued by the retiring
Fronting Bank. After any retiring Fronting Bank's resignation hereunder as
Fronting Bank, the provisions of this Article 10 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Fronting Bank
under this Credit Agreement.
11. MISCELLANEOUS
SECTION 11.1. Notices. Notices and other communications provided for
-------
herein shall be in writing and shall be delivered or mailed (or if by telegram,
delivered to the telegraph company and, if by telex, graphic scanning or other
telegraphic or facsimile communications equipment of the sending party hereto,
delivered by such equipment) addressed, if to the Administrative Agent, the
Fronting Bank or The Chase Manhattan Bank, to it at 270 Park Avenue, 37th Floor,
New York, New York 10017, Attn: Joan Fitzgibbon, facsimile no.: (212) 270-4164,
with a copy to Chase Securities Inc., 1800 Century Park East, Suite 400, Los
Angeles, California 90067, Attn: Christa Thomas, facsimile no.: (310) 788-5627
or if to the Borrower c/o the Sponsor at 2700 Colorado Avenue, Santa Monica,
California 90404-3521, Attn: General Counsel, facsimile no.: (310) 255-3840, if
to the Waiver Agent to it at 1185 Avenue of the Americas, 16th Floor, New York,
NY 10036, Attn: Eric Meyer facsimile no.: (212) 819-6202 or if to a Lender, to
it at its address set forth on the signature page, or such other address as such
party may from time to time designate by giving written notice to the other
parties hereunder. Any failure of the Administrative Agent or a Lender giving
notice pursuant to this Section 11.1, to provide a courtesy copy to a party as
provided herein, shall not affect the validity of such notice. All notices and
other communications given to any party hereto in accordance with the provisions
of this Credit Agreement shall be deemed to have been given on the fifth
Business Day after the date when sent by registered or certified mail, postage
prepaid, return receipt requested, if by mail, or when delivered to the
telegraph company, charges prepaid, if by telegram, or upon receipt by such
party, if by any telegraphic or facsimile communications equipment, in each case
addressed to such party as provided in this Section 11.1 or in accordance with
the latest unrevoked written direction from such party.
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SECTION 11.2. Survival of Agreement, Representations and Warranties,
------------------------------------------------------
etc. All warranties, representations and covenants made by the Borrower herein
- ---
or in any certificate or other instrument delivered by it or on its behalf in
connection with this Credit Agreement shall be considered to have been relied
upon by the Administrative Agent and the Lenders and, except for any
terminations, amendments, modifications or waivers thereof in accordance with
the terms hereof, shall survive the making of the Loans and issuance of the
Letters of Credit herein contemplated and the execution and delivery to the
Administrative Agent of the Notes regardless of any investigation made by the
Administrative Agent or the Lenders or on their behalf and shall continue in
full force and effect so long as any amount due or to become due hereunder is
outstanding and unpaid and so long as any Letter of Credit remains outstanding
and so long as the Commitments have not been terminated. All statements in any
such certificate or other instrument shall constitute representations and
warranties by the Borrower hereunder.
SECTION 11.3. Successors and Assigns; Syndications; Loan Sales;
-------------------------------------------------
Participations. (a) Whenever in this Credit Agreement any of the parties hereto
- --------------
is referred to, such reference shall be deemed to include the successors and
assigns of such party (provided, however, that the Borrower may not assign its
-------- -------
rights hereunder without the prior written consent of the Administrative Agent,
the Fronting Bank and all of the Lenders), and all covenants, promises and
agreements by or on behalf of the Borrower which are contained in this Credit
Agreement shall inure to the benefit of the successors and assigns of the
Administrative Agent, the Fronting Bank and the Lenders.
(b) Each of (i) the Senior Tranche Lenders may (but only with the
prior written consent of the Administrative Agent and the Fronting Bank, which
consent shall not be unreasonably withheld) and (ii) the Junior Tranche Lenders
with the consent of the Required Lenders (which for this purpose does not
include any of the Junior Tranche Lenders) which consent shall not be
unreasonably withheld, assign to an Eligible Assignee all or a portion of its
interests, rights and obligations under this Credit Agreement (including,
without limitation, all or a portion of its Commitment and with regard to each
tranche the same portion of all Loans at the time owing to it and the Notes held
by it and its obligations and rights with regard to any Letter of Credit);
provided, however, that (i) each assignment shall be of a constant, and not a
- -------- -------
varying, percentage of the assigning Lender's rights and obligations under each
tranche of this Credit Agreement, (ii) each assignment shall be in a minimum
Commitment amount (or at any time after the Commitment Termination Date, minimum
Loan amount) equal to $5,000,000 before giving effect to any optional decreases
in Total Senior Tranche Commitment and (iii) the parties to each such assignment
shall execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register (as defined below), an Assignment and Acceptance,
together with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,500 to be paid to the Administrative Agent by the
assigning Lender or the Eligible Assignee. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be not earlier than five
Business Days after the date of acceptance and recording by the Administrative
Agent, (x) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and
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Acceptance, have the rights and obligations of a Lender hereunder and (y) the
assigning Lender thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Credit Agreement except
that notwithstanding such assignment any rights and remedies available to the
Borrower for any breaches by such assigning Lender of its obligations hereunder
while a Lender shall be preserved after such assignment and such Lender shall
not be relieved of any liability to the Borrower due to any such breach (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of the assigning Lender's rights and obligations under this Credit Agreement,
such assigning Lender shall cease to be a party hereto). Notwithstanding the
provisions of the first sentence of this Section 11.3(b), the consent of the
Required Lenders to an assignment by the Junior Tranche Lenders shall not be
required once the Junior Lenders have made the Loans contemplated by Section
2.1(d).
(c) Notwithstanding the other provisions of this Section 11.3, each
Lender may at any time make an assignment of its interests, rights and
obligations under this Credit Agreement to (i) any Affiliate of such Lender or
(ii) any other Lender hereunder.
(d) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Fundamental
Documents or any other instrument or document furnished pursuant hereto or
thereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Fundamental Documents; (iii) such assignee confirms that
it has received a copy of this Credit Agreement, together with copies of the
most recent financial statements delivered pursuant to Sections 5.1(a) and
5.1(b) and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance upon the
assigning Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Credit Agreement; (v) such assignee appoints and
authorizes the Administrative Agent and the Fronting Bank to take such action as
the Administrative Agent or the Fronting Bank on its behalf and to exercise such
powers under this Credit Agreement as are delegated to the Administrative Agent
or the Fronting Bank by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will be
bound by the provisions of this Credit Agreement and will perform in accordance
with its terms all of the obligations which by the terms of this Credit
Agreement are required to be performed by it as a Lender.
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(e) The Administrative Agent shall maintain at its address at which
notices are to be given to it pursuant to Section 11.1 a copy of each Assignment
and Acceptance and a register for the recordation of the names and addresses of
the Lenders and the Commitments of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent, Waiver Agent, the Fronting Bank and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of the Fundamental Documents. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(f) Subject to the foregoing, upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an assignee together with any
Notes subject to such assignment, and the processing and recordation fees the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in the form of Exhibit G hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt written notice thereof to the Borrower. Within five (5)
Business Days after receipt of the notice, the Borrower, at its own expense,
shall execute and deliver to the Lender, in exchange for the surrendered Notes,
new Notes to the order of such assignee in an amount equal to the Commitments
assumed by it pursuant to such Assignment and Acceptance and new Notes to the
order of the assigning Lender in an amount equal to the Commitments retained by
it hereunder. Such new Notes shall be in an aggregate principal amount equal to
the aggregate principal amount of such retained Commitment, shall be dated the
date of the surrendered Notes and shall otherwise be in substantially the forms
of Exhibits A-1 and A-2 hereto. In addition the Borrower will promptly, at its
own expense, execute such amendments to the Fundamental Documents to which each
is a party and such additional documents, and take such other actions as the
Administrative Agent or the assignee Lender may reasonably request in order to
give such assignee Lender the full benefit of the Liens contemplated by the
Fundamental Documents.
(g) Each of the (i) Lenders may without the consent of the Borrower
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Credit Agreement (including, without
limitation, all or a portion of its Commitment and the Loans owing to it and the
Note or Notes held by it and its participation in Letters of Credit) and (ii)
Senior Tranche Lenders shall without the consent of the Borrower sell (based on
their Pro Rata Share of the outstanding Senior Tranche Exposure) participations
to each of the Insurers who have prepaid any claim for a Declared Qualifying
Picture as set forth under the Cash Flow Insurance in an amount equal to each
such Insurers' prepayment of such claim; provided, however, that (i) any such
-------- -------
Lender's obligations under this Credit Agreement shall remain unchanged, (ii)
such participant shall not be granted any voting rights under this Credit
Agreement, except with respect to proposed decreases to interest rates and
changes in amounts of Commitments, extension of final maturity of Loans,
releases of all or substantially all the Collateral and decreases in fees (as
applicable to such participant), (iii) any such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iv) the participating banks or other entities shall be entitled to the cost
protection provisions
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contained in Sections 2.9(b), 2.10 and 2.13(e) hereof but a participant shall
not be entitled to receive pursuant to such provisions an amount larger than its
share of the amount to which the Lender granting such participation would have
been entitled and (v) the Borrower, the Administrative Agent, the Waiver Agent,
the Fronting Bank and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Credit Agreement.
(h) The Lenders may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.3, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to the
Administrative Agent by or on behalf of the Borrower; provided that prior to any
such disclosure, each such assignee or participant or proposed assignee or
participant shall agree, by executing a confidentiality letter in form and
substance equivalent to the confidentiality letter executed by the Lenders in
connection with information received by such Lenders relating to this
transaction to preserve the confidentiality of any confidential information
relating to the Borrower received from such Lender.
(i) Any assignment pursuant to paragraph (a) or (b) of this Section
11.3 shall constitute an amendment of the Schedule of Commitments as of the
effective date of such assignment.
(j) Any Lender may at any time and, without the consent of the
Borrower, from time to time pledge or otherwise grant a security interest in any
Loan or in any of the Notes evidencing such Loans (or any part thereof) to any
Federal Reserve Bank.
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SECTION 11.4. Expenses; Documentary Taxes. Whether or not the
---------------------------
transactions hereby contemplated shall be consummated, the Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by the Administrative Agent,
the Fronting Bank, Chase Securities Inc. or the Waiver Agent in connection with
performance of due diligence by the Administrative Agent or the Waiver Agent in
connection with the transactions hereby contemplated and the syndication,
preparation, execution, delivery, waiver or modification and administration of
this Credit Agreement and any other documentation contemplated hereby, the Notes
and the making of the Loans and the Letters of Credit, including but not limited
to any internally allocated audit costs, the reasonable fees and disbursements
of Morgan, Lewis & Bockius LLP, counsel for the Administrative Agent and the
Fronting Bank, and any other counsel that the Administrative Agent, the Waiver
Agent or the Fronting Bank shall retain, and the reasonable fees and expenses of
technical or other consultants engaged by the Administrative Agent. Such
payments shall be made on the date of execution of this Credit Agreement and
thereafter on demand. In addition, the Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Lenders in the enforcement or protection
of the rights of the Lenders in connection with this Credit Agreement, the Notes
or the Letters of Credit, and with respect to any action which may be instituted
by any Person other than the Borrower or any Lender against the Administrative
Agent, the Waiver Agent, the Fronting Bank or any Lender in respect of the
foregoing, or as a result of any transaction, action or non-action arising from
the foregoing, including but not limited to the reasonable fees and
disbursements of any counsel for the Lenders. Such payments shall be made on
demand after the date of execution of this Credit Agreement. The Borrower agrees
that it shall indemnify the Administrative Agent, the Waiver Agent, the Fronting
Bank and the Lenders from and hold them harmless against any documentary taxes,
assessments or charges made by any Governmental Authority by reason of the
execution and delivery of this Credit Agreement, the Notes or the issuance of
Letters of Credit. The obligations of the Borrower under this Section 11.4 shall
survive the termination of this Credit Agreement and/or the payment of the Loans
and/or the expiration of the Letters of Credit.
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SECTION 11.5. Indemnification of the Administrative Agent, the
------------------------------------------------
Waiver Agent, the Fronting Bank and the Lenders. The Borrower agrees (a) to
- -----------------------------------------------
indemnify and hold harmless the Administrative Agent, the Waiver Agent, the
Fronting Bank and the Lenders and their respective directors, officers,
employees, trustees and agents (to the full extent permitted by law) from and
against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever nature, and (b) to pay to
the Administrative Agent, the Waiver Agent and the Fronting Bank an amount equal
to the amount of all costs and expenses, including reasonable legal fees and
disbursements, and with regard to both (a) and (b) growing out of or resulting
from any litigation, investigation or other proceedings relating to the
Collateral, this Credit Agreement, the Copyright Security Agreements, the
Trademark Security Agreement, and the Letters of Credit, the making of the
Loans, any attempt to audit, inspect, protect or sell the Collateral, or the
administration and enforcement or exercise of any right or remedy granted to the
Administrative Agent, the Waiver Agent, the Fronting Bank or Lenders hereunder
or thereunder but excluding therefrom all claims, demands, losses, judgments,
liabilities, costs and expenses arising out of or resulting from the gross
negligence or willful misconduct of the Lenders, the Fronting Bank, the Waiver
Agent or the Administrative Agent claiming indemnification hereunder. The
foregoing indemnity agreement includes any reasonable costs incurred by the
Administrative Agent, the Waiver Agent, the Fronting Bank or the Lenders in
connection with any action or proceeding which may be instituted in respect of
the foregoing by the Administrative Agent, the Waiver Agent or the Fronting
Bank, or by any other Person either against the Lenders or in connection with
which any officer, director, agent or employee of the Administrative Agent, the
Waiver Agent, the Fronting Bank or the Lenders is called as a witness or
deponent, including, but not limited to, the reasonable fees and disbursements
of Morgan, Lewis & Bockius LLP, counsel to the Administrative Agent and the
Fronting Bank, and any out-of-pocket costs incurred by the Administrative Agent,
the Fronting Bank or the Lenders in appearing as a witness or in otherwise
complying with legal process served upon them. Except as otherwise required by
Applicable Law which may not be waived, the Lenders shall not be liable to the
Borrower for any matter or thing in connection with this Credit Agreement other
than their express obligations hereunder, including obligations to make Loans
and account for moneys actually received by them in accordance with the terms
hereof.
Whenever the provisions of this Credit Agreement or any other
Fundamental Document provide that, if the Borrower shall fail to do any act or
thing which it has covenanted to do hereunder, the Administrative Agent may (but
shall not be obligated to) do the same or cause it to be done or remedy any such
breach and if the Administrative Agent does the same or causes it to be done,
there shall be added to the Obligations hereunder the cost or expense incurred
by the Administrative Agent in so doing, and any and all amounts expended by the
Administrative Agent in taking any such action shall be repayable to it upon its
demand therefor and shall bear interest at 4% in excess of the Alternate Base
Rate from time to time in effect from the date advanced to the date of
repayment.
-97-
<PAGE>
All indemnities contained in this Section 11.5 shall survive the
expiration or earlier termination of this Credit Agreement and shall inure to
the benefit of any Person who was a Lender notwithstanding such Person's
assignment of all its Loans and Commitments.
SECTION 11.6. CHOICE OF LAW. THIS CREDIT AGREEMENT AND THE NOTES
-------------
SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS
OF THE STATE OF NEW YORK WHICH ARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO
INTEREST RATES, ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. EACH LETTER
OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY
THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.7. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
--------------------
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE BORROWER HEREBY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS CREDIT AGREEMENT OR
THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE
BORROWER ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE LENDERS THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE
LENDERS HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS CREDIT
AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. THE ADMINISTRATIVE AGENT, THE
WAIVER AGENT, THE FRONTING BANK OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS SECTION 11.7 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF THE BORROWER TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
SECTION 11.8. No Waiver. No failure on the part of the
---------
Administrative Agent, the Waiver Agent or any Lender or the Fronting Bank to
exercise, and no delay in exercising, any right, power or remedy hereunder,
under the Notes or any other Fundamental Document or with regards to Letters of
Credit shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any other remedies
provided by law.
-98-
<PAGE>
SECTION 11.9. Extension of Payment Date. Should any payment of
-------------------------
principal of or interest on the Notes or any other amount due hereunder become
due and payable on a day other than a Business Day, the due date of such payment
thereof shall be extended to the next succeeding Business Day and, in the case
of principal, interest shall be payable thereon at the rate herein specified
during such extension.
SECTION 11.10. Amendments, etc. No modification, amendment or waiver
---------------
of any provision of this Credit Agreement or any other Fundamental Document, and
no consent to any departure by the Borrower herefrom or therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Required Lenders and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given; provided, however, that
-------- -------
no such modification, waiver, consent or amendment shall, without the written
consent of (a) each affected Lender, (i) change the Commitment of such Lender,
(ii) reduce the interest payable on such Lender's Loans, (iii) reduce the rate
at which the Unused Commitment Fees are payable to such Lender or (iv) reduce
the fees payable with respect to Letters of Credit issued hereunder as set forth
in Sections 2.15(f)(i) and (ii) and (b) all Lenders, (i) amend or modify any
provision of this Credit Agreement, if any, which expressly provides for the
unanimous consent or approval of the Lenders, (ii) release a substantial portion
of the Collateral (except as contemplated herein), (iii) extend the Maturity
Date, (iv) amend the definition of "Required Lenders," (v) amend the definition
of "Collateral" (and defined terms used in the definition of Collateral), or
(vi) amend or modify Section 2.1(f), 2.9(d), 2.15(a)(i), 2.15(i) or this Section
11.10. No such amendment or modification may adversely affect the rights and
obligations of the Administrative Agent hereunder without its prior written
consent or the rights and obligations of the Fronting Bank without its prior
written consent. No notice to or demand on the Borrower shall entitle the
Borrower to any other or further notice or demand in the same, similar or other
circumstances. Each holder of a Note shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not
such Note shall have been marked to indicate such amendment, modification,
waiver or consent and any consent by any holder of a Note shall bind any Person
subsequently acquiring such Note, whether or not such Note is so marked.
SECTION 11.11. Severability. Any provision of this Credit Agreement
------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
-99-
<PAGE>
SECTION 11.12. SERVICE OF PROCESS. THE BORROWER (THE "SUBMITTING
------------------
PARTY") HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF
THE STATE OF NEW YORK AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS CREDIT AGREEMENT
(INCLUDING, BUT NOT LIMITED TO THE LETTERS OF CREDIT) OR THE SUBJECT MATTER
HEREOF BROUGHT BY THE ADMINISTRATIVE AGENT, THE WAIVER AGENT, THE FRONTING BANK
OR A LENDER OR ANY OF THEIR SUCCESSORS OR ASSIGNS IN EITHER OF THE
ABOVE-REFERENCED FORUMS AT THE SOLE OPTION OF THE AGENT OR A LENDER. THE
SUBMITTING PARTY TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES,
AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER OR THAT THIS CREDIT AGREEMENT OR THE SUBJECT
MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY WAIVES THE
RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE
ADMINISTRATIVE AGENT, THE WAIVER AGENT, THE FRONTING BANK OR A LENDER IN STATE
COURT TO FEDERAL COURT, AND (C) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH
ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS
THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. THE
SUBMITTING PARTY HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT ITS ADDRESS TO
WHICH NOTICES ARE TO BE GIVEN PURSUANT TO SECTION 11.1 HEREOF. THE SUBMITTING
PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE ADMINISTRATIVE AGENT, THE
FRONTING BANK AND THE LENDERS. FINAL JUDGMENT AGAINST THE SUBMITTING PARTY IN
ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN
ANY OTHER JURISDICTION (A) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A
CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE
AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED OR
(B) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION, PROVIDED, HOWEVER, THAT THE ADMINISTRATIVE AGENT, THE WAIVER
-------- -------
AGENT, THE FRONTING BANK OR A LENDER MAY AT ITS OPTION BRING SUIT, OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE SUBMITTING PARTY OR ANY OF ITS ASSETS IN
ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE
THE SUBMITTING PARTY OR SUCH ASSETS MAY BE FOUND.
-100-
<PAGE>
SECTION 11.13. Headings. Section headings used herein and the Table
--------
of Contents are for convenience only and are not to affect the construction of
or be taken into consideration in interpreting this Credit Agreement.
SECTION 11.14. Execution in Counterparts. This Credit Agreement may
-------------------------
be executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
SECTION 11.15. Entire Agreement. This Credit Agreement including the
----------------
Exhibits and Schedules hereto represents the entire agreement of the parties
with regard to the subject matter hereof, and the terms of any letters and other
documentation entered into between any of the parties hereto (other than the Fee
Letter) prior to the execution of this Credit Agreement which relate to Loans to
be made hereunder shall be replaced by the terms of this Credit Agreement.
-101-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the day and the year first written.
BORROWER:
ARTISAN FILM INVESTORS TRUST
By Artisan Pictures Inc., as Designee
By: /s/ Mark Curcio
------------------------------------------
Name: Mark Curcio
Title: CEO
Address: c/o Artisan Pictures, Inc. at
2700 Colorado Avenue
Santa Monica, CA 90404-3521
LENDERS:
THE CHASE MANHATTAN BANK,
By: /s/ Constance M. Coleman
------------------------------------------
Name: Constance M. Coleman
Title: Vice President
Address: 270 Park Avenue,
37th Floor
New York, NY 10017
Attn: John J. Huber III
Facsimile: (212) 270-4584
FLEET BANK, N.A.
individually and as Waiver Agent
By: /s/ Eric S. Meyer
------------------------------------------
Name: Eric S. Meyer
Title: Vice President
Address: 1185 Avenue of the Americas
16th Floor
New York, NY 10036
Attn:
Facsimile: (212) 819-6202
-102-
<PAGE>
SOCIETE GENERALE
By: /s/ Brian McDonald
------------------------------------------
Name: Brian McDonald
Title: Vice President
By: /s/ Maureen Kelly
------------------------------------------
Name: Maureen Kelly
Title:
Address: 2029 Century Park East
Suite 2900
Los Angeles, CA 90067
Attn:
Facsimile: (310) 551-1537
BANQUE NATIONALE DE PARIS
By: /s/ Clive Bettles
------------------------------------------
Name: Clive Bettles
Title: Senior Vice President and Manager
By: /s/ Janice Ho
------------------------------------------
Name: Janice Ho
Title: Vice President
Address: 725 S. Figueroa Street
Suite 2090
Los Angeles, CA 90017
Attn: Janice Ho
Facsimile: (213) 488-9602
-103-
<PAGE>
NATEXIS BANQUE, BFCE
By: /s/ Bennet C. Pozil
------------------------------------------
Name:
Title: Vice President and Group Manager, Entertainment Finance
By: /s/ Mark A. Harrington
------------------------------------------
Name:
Title: Senior Vice President and Regional Manager
Address: 660 South Figueroa Street
Suite 1400
Los Angeles, CA 90017
Attn: Bennett Pozil
Facsimile: (213) 627-2761
DE NATIONALE INVESTERINGSBANK N.V.
By: /s/ C. Mulder
------------------------------------------
Name:
Title: Legal Counsel
By: Eric H. Skatease
------------------------------------------
Name:
Title: Senior Vice President
Address: 4 Carnegieplein
2501 BH The Hague, 2517KG
The Netherlands
Attn: Bert Habets
Facsimile: 011-3170--365-1071
-104-
<PAGE>
UNION BANK OF CALIFORNIA
By: /s/ Thomas P. Garry, Jr.
------------------------------------------
Name:
Title: Vice President
Address: 1901 Avenue of the Stars
Suite 120
Los Angeles, CA 90067
Attn: Thomas P. Garry
Facsimile: (310) 551-8952
IMPERIAL BANK
By: /s/ Patrick Jack Lee
------------------------------------------
Name:
Title: Vice President
Address: 9777 Wilshire Boulevard
4th Floor
Beverly Hills, CA 90212
Attn: Patrick Lee
Facsimile: (310) 281-2476
CITY NATIONAL BANK
By: /e/ Gwen T. Miller
------------------------------------------
Name:
Title: Senior Vice Pesident
Address: 400 North Roxbury Drive
4th Floor
Beverly Hills, CA 90210
Attn: Norman Starr
Facsimile: (310) 888-6159
-105-
<PAGE>
WELLS FARGO BANK
By: /s/ Patricia A. Dorsey
------------------------------------------
Name:
Title: Vice President
Address: 9600 Santa Monica Boulevard
Beverly Hills, CA 90210
Attn: Patricia Dorsey
Facsimile: (310) 285-5829
-106-
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Senior Tranche
Senior Tranche Lenders Commitment Percentage
- -----------------------------------------------------------
<S> <C> <C>
The Chase Manhattan Bank $ 20,000,000 16.32%
- -----------------------------------------------------------
Fleet Bank $ 20,000,000 16.32%
- -----------------------------------------------------------
Societe Generale $ 15,000,000 12.22%
- -----------------------------------------------------------
Banque Nationale de Paris $ 15,000,000 12.22%
- -----------------------------------------------------------
Natexis Banque $ 10,000,000 8.16%
- -----------------------------------------------------------
De Nationale $ 10,000,000 8.16%
Investeringsbank N.V.
- -----------------------------------------------------------
Union Bank of California $ 10,000,000 8.16%
- -----------------------------------------------------------
Imperial Bank $ 7,500,000 6.12%
- -----------------------------------------------------------
City National Bank $ 7,500,000 6.12%
- -----------------------------------------------------------
Wells Fargo Bank $ 7,500,000 6.12%
- -----------------------------------------------------------
Total Commitment $122,500,000 100%
- -----------------------------------------------------------
Junior Tranche
Junior Tranche Lenders Commitment Percentage
- -----------------------------------------------------------
The Chase Manhattan Bank 40,000,000 100%
- -----------------------------------------------------------
Total Commitment 40,000,000 100%
</TABLE>
- -----------------------------------------------------------
-107-
<PAGE>
Schedule 3.7(a)
ITEMS OF PRODUCT; COPYRIGHTS
----------------------------
NONE
-108-
<PAGE>
Schedule 3.7(b)
TRADEMARKS
----------
NONE
-109-
<PAGE>
Schedule 3.8
FICTITIOUS NAMES
----------------
NONE
-110-
<PAGE>
Schedule 3.10
PRINCIPAL EXECUTIVE OFFICE/LOCATION OF COLLATERAL
-------------------------------------------------
CHRISTIANA BANK AND TRUST COMPANY
3801 Kennett Pike
Greenville, New Castle County
Delaware 19807
Attn: Corporate Trust Group
Facsimile number: 302-421-5815
-111-
<PAGE>
Schedule 3.11
LITIGATION
----------
NONE
-112-
<PAGE>
Schedule 3.14
TAXES
-----
NONE
-113-
<PAGE>
Exhibit I
FORM OF SPONSOR AGREEMENT
-------------------------
SPONSOR AGREEMENT (as amended, supplemented or otherwise modified,
renewed or replaced from time to time, the "Agreement") made as of October 13,
1999 by and among (i) Artisan Pictures Inc., a Delaware corporation (the
"Sponsor"), (ii) Artisan Film Investors Trust, a Delaware business trust (the
"Borrower"), (iii) Artisan Entertainment Inc., Artisan Music Inc., Artisan Home
Entertainment Inc., Artisan Releasing Inc., Be Mine Productions, Inc., Beach
Dance Productions, Inc., Detention Productions, Inc., Heatwave Productions,
Inc., Live America Inc., Milk Mission Productions Inc., Sweet Time Productions,
Inc., Vestron Inc., Wish Again Productions, Inc., Silent Development Corp.,
Tongue-Tied Inc., Film Holdings Co. together with the Sponsor, and any
additional affiliates of the Sponsor who became guarantors under the Sponsor
Credit Agreement (as hereinafter defined) the "Artisan Entities"), and (iv) The
Chase Manhattan Bank, as Administrative Agent under the Credit Agreement defined
below (the "Administrative Agent").
Pursuant to that certain Credit and Security Agreement dated as of
October 13, 1999 among the Borrower, the lenders referred to therein (the
"Lenders"), The Chase Manhattan Bank, as Administrative Agent and Fronting Bank
and Fleet Bank, as Waiver Agent (as such agreement may be amended, supplemented
or otherwise modified, renewed or replaced from time to time, the "Credit
Agreement"), the Lenders have agreed, on the terms and conditions set forth in
the Credit Agreement, to make Loans to the Borrower and The Chase Manhattan
Bank, as Fronting Bank, has agreed to issue Letters of Credit in order to
finance (i) not more than eighty percent (80%) of the Total Negative Cost of
each Declared Qualifying Picture and (ii) the lesser of Domestic Distribution
Expenses and the Formula Amount of Domestic Distribution Expenses (as such terms
are defined in the Credit Agreement), all on the terms, and subject to the
conditions, set forth therein.
As a condition to entering into the Credit Agreement, the Lenders
are requiring that the Sponsor provide the Lenders with certain agreements in
connection with, among other things, (i) the advancing of certain financing fees
and charges payable in connection with the Credit Agreement, (ii) the advancing
of interest that accrues under the Credit Agreement through Final Maturity to
the extent not financed by Loans under the Credit Agreement or paid out of the
Gross Receipts (as that term is defined in Schedule 1 hereto), (iii) the funding
of the portion of Domestic Distribution Expenses not financed by Loans under the
Credit Agreement, (iv) the payment of the Distribution Fee Clawback (as that
term is defined below), (v) the computation and accuracy of Total Negative Cost
for each Qualifying Picture and the payment of the portion thereof not financed
under the Credit Agreement, (vi) the satisfaction of the Minimum Number of
Qualifying Pictures Commitment (as that term is defined in the Credit Agreement)
and the United States Theatrical Release Requirement (as that term is defined
below), (vii) the Most
<PAGE>
Favored Nations Distribution Commitment (as that term is defined below), (viii)
the No Adverse Selection Commitment (as that term is defined below), (ix) the
application of Gross Receipts, (x) the exercise of audit rights, (xi) the
performance by the Sponsor in its capacity as a distributor of its obligations
under the Distribution Agreement, and (xii) Administrative Expense Commitment
(as that term is defined below).
Accordingly, in consideration of the premises and of the mutual
agreements herein contained and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein
-----------
shall have the respective meanings set forth in the Credit Agreement. When used
in this Agreement:
"Administrative Expense Commitment" shall mean the obligation of the
---------------------------------
Sponsor (through Final Maturity) to pay or advance funds to the Borrower so that
it can pay (unless already paid from some other source of funds) (i) all amounts
payable to the State of Delaware necessary to maintain the Borrower's existence
as a Delaware business trust, (ii) all amounts payable so the Borrower may
qualify as a foreign business trust and maintain its good standing in
jurisdictions (other than the State of Delaware) in which its activities require
it to so qualify and (iii) all fees and expenses of Christiana Bank & Trust
Company or its successor, as trustee of the Borrower, necessary to maintain the
continued existence of the Borrower as a Delaware business trust and all Trustee
Expenses as defined in the Trust Agreement to the extent not paid from Gross
Receipts as set forth in Section 7(a)(ii) hereof.
"AFI Collateral" shall mean with respect to each Artisan Entity all
--------------
of such Artisan Entity's right, title and interest to the Declared Qualifying
Pictures , including but not limited to goods, accounts, intercompany
obligations, contract rights, documents, chattel paper, general intangibles,
goodwill, equipment, inventory, investment property, instruments, copyrights,
trademarks, trade names, insurance proceeds, cash and deposit accounts and any
proceeds thereon, products thereof or income therefrom, and all domestic and
foreign copyrights and all other rights therein and thereto, of every kind and
character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of the applicable Artisan Entity.
"Artisan Entities Security Documents" shall mean any and all
-----------------------------------
security documents and UCC Financing Statements which any of the Artisan
Entities deliver to the Administrative Agent pursuant to Section 8 hereof to
secure the Administrative Agent's interest in the Secured Obligations
Collateral.
"Artisan Film" shall mean any theatrical feature film controlled by
------------
the Sponsor or any of its Affiliates (whether or not meeting the criteria of a
Qualifying Picture) but excluding (x) any films in which the Sponsor and its
Affiliates have no economic risk for the negative cost and have given neither a
minimum guarantee nor an advance commitment and (y) specialty films
2
<PAGE>
(including direct to video, documentary or films that will have less than a 300
screen domestic theatrical release); provided, however, that notwithstanding the
-------- -------
foregoing and its prior release, "The Limey" is an Artisan Film.
"Canyon" shall mean CanPartners Investment IV, LLC.
------
"Collection Agent" shall mean The Chase Manhattan Capital Fiduciary
----------------
Services Group or its successor as Collection Agent under the Intercreditor
Agreement.
"Declared Qualified Picture" shall have the meaning given such term
--------------------------
in the Credit Agreement.
"Designee" shall mean the Sponsor in its capacity as Designee under
--------
the Trust Agreement.
"Distribution Agreement" shall mean the Distribution Agreement dated
----------------------
as of the date hereof between the Borrower and the Sponsor in the form of
Exhibit J to the Credit Agreement.
"Distribution Fee Clawback" shall mean an amount equal to the lesser
-------------------------
of (i) 70% of the aggregate amount of distribution fees paid and/or retained by
the Sponsor under the Distribution Agreement with regard to Declared Qualifying
Pictures (but limited to 66 2/3% with regard to territories (other than the
United States, its territories and possessions) for which a sales agent's fee is
payable to Summit Entertainment N.V. and/or Summit Entertainment LP), and (ii)
the amount necessary to repay in full the outstanding Obligation under the
Credit Agreement (including but not limited to providing cash collateral for L/C
Exposure); provided, however, that any portion of the distribution fees paid to
-------- -------
the Trustee or the Certificate Holders under 7(a)(ii), 7(a)(iii) or 7(b)(ii)
hereof shall be deemed to be retained by the Sponsor for purposes of this
definition, it being understood that the Administrative Agent's claim to the
Sponsor Collateral to satisfy such payments is subject to the rights of the
Sponsor Bank Group, Canyon and various other present and future secured
creditors, as set forth in the Intercreditor Agreement. The amount of the
Distribution Clawback shall be computed separately with regard to the Domestic
Gross Receipts and the Foreign Gross Receipts.
"Domestic Distribution Expenses" shall be as defined in Schedule 2
------------------------------
hereto.
"Domestic Gross Receipts" shall mean the Gross Receipts derived from
-----------------------
distribution within the United States and its territories and possessions.
"Foreign Gross Receipts" shall mean the Gross Receipts derived from
----------------------
distribution outside the United States and its territories and possessions.
3
<PAGE>
"Formula Amount of Domestic Distribution Expenses" shall be as
------------------------------------------------
defined in the Credit Agreement.
"Gross Receipts" shall be as defined in Schedule 1 hereto.
--------------
"Intercreditor Agreement" shall mean the Intercreditor Agreement
-----------------------
dated as of October 13, 1999. among the Collection Agent, the Borrower, the
Sponsor, the other Artisan Entities, the Administrative Agent and the Sponsor
Agent in the form attached as Exhibit A hereto.
"Minimum Number of Qualifying Pictures Requirement" shall be as
-------------------------------------------------
defined in the Credit Agreement.
"Most Favored Nations Distribution Commitment" shall mean the
--------------------------------------------
obligations of the Sponsor pursuant to Section 5(e) hereof.
"No Adverse Selection Commitment" shall mean the obligations of the
-------------------------------
Sponsor pursuant to Section 4 hereof.
"Non-Waterfall Amounts" shall have the meaning given such term in
---------------------
Section 7(d) hereof.
"Quarterly Payment Amount" shall have the meaning given such term in
------------------------
the Trust Agreement.
"Quarterly Payment Date" shall have the meaning given such term in
----------------------
the Trust Agreement.
"Secured Obligations" shall be as defined in Section 8(a) hereof.
-------------------
"Secured Obligations Collateral" shall mean the Sponsor Collateral
------------------------------
and the AFI Collateral.
"Sponsor Agent" shall mean The Chase Manhattan Bank as collateral
-------------
agent for the Sponsor Bank Group and Canyon.
"Sponsor Bank Group" shall mean the lenders party to the Sponsor
------------------
Credit Agreement.
"Sponsor Collateral" shall mean all of the Collateral as such term
------------------
is defined in the Sponsor Credit Agreement other than AFI Collateral.
4
<PAGE>
"Sponsor Credit Agreement" shall have the meaning given such term in
------------------------
the Credit Agreement.
"Subordinated Obligations" shall mean the right of the Sponsor or
------------------------
any other Artisan Entity to receive any indemnification payments or any other
amounts because of breach of a representation, warranty, covenant or indemnity
agreement from the Borrower under the Distribution Agreements or the Master Film
Purchase Agreement.
"Supported Obligations" shall be as defined in Section 3(a).
---------------------
"Trust Account" shall have the meaning given such term in the Trust
-------------
Agreement.
"Trust Agreement" shall mean the trust agreement of the Borrower
---------------
dated as of October 13, 1999, in the form attached to the Credit Agreement as
Exhibit L.
"Trustee Expenses" shall have the meaning given such term in the
----------------
Trust Agreement.
"United States Theatrical Release Requirement" shall mean that each
--------------------------------------------
Declared Qualifying Picture shall have had a United States theatrical release at
least 30 months before the Maturity Date and that at some point during the
initial theatrical release period for such Declared Qualifying Picture, it shall
have had 500 play weeks in at least 500 separate venues. A "play week" shall
mean that the film was shown before paying audiences in a commercial theater,
open to the public for at least seven consecutive days. Multiple credit will not
be given for multiple screens at the same venue.
"Video Expenses" shall be as defined in Schedule 3 hereto.
--------------
2. Statement of Intent. The intent of the Fundamental Documents is
-------------------
to provide for a transaction in which:
(a) The Loans under the Credit Agreement will finance no more than
80% of Total Negative Cost of each Declared Qualifying Picture or such lesser
amount as shall equal the Negative Cost Loan Value, and any portion thereof not
financed by the Loans, by cash available from Gross Receipts as provided in
Section 7 hereof or by the Borrower from its equity will be financed by funds
provided by the Sponsor on a current cash flow basis as each Declared Qualifying
Picture is acquired.
(b) Total Negative Cost, subject to the limitations in the
definition thereof, is to be the net cost of each Declared Qualifying Picture
after deduction for all discounts, recoveries, subsidies, rebates and net
proceeds of tax benefit transactions, and any obligations contingent on market
performance, which cost shall not include any load factors other than the
premiums payable in connection with the Cash Flow Insurance, interest and the 5%
addition
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provided for in that definition in the Credit Agreement for overhead and other
costs; it being understood that (i) such premium may be paid directly to the
broker for the Cash Flow Insurance or the Insurers and (ii) such 5% may be paid
to the Sponsor pursuant to the Distribution Agreement for Declared Qualifying
Pictures purchased from a producer which is not an Artisan Entity.
(c) All value or other consideration received by the Borrower or the
Sponsor and its Affiliates including the other Artisan Entities (including in
their capacity as distributor or licensees of the distributor) from the
exploitation of the Declared Qualifying Pictures (including coop advertising
contributions, taxes withheld at the source and/or proceeds of subsidies) is to
be included in Gross Receipts and Gross Receipts is to be applied as provided in
Section 7 hereof.
(d) With regard to the AFI Collateral, the Lien granted to the
Administrative Agent (for the benefit of itself, the Fronting Bank and the
Lenders) is to be senior to any Lien granted to the Sponsor or any other Artisan
Entity, subject to the right of "Quiet Enjoyment" of the Sponsor as distributor
under Section 8.13 of the Credit Agreement and Section 19 of the Intercreditor
Agreement so long as neither a Sponsor Default nor a Suspension Event has
occurred.
(e) The Sponsor has committed that the Minimum Qualifying Pictures
Commitment, the No Adverse Selection Commitment and the Most Favored Nations
Commitment will be satisfied.
(f) To the extent that there is an inconsistency between the terms
of any Fundamental Document and the terms of this Agreement, the terms hereof
are to govern; provided, however, that this Section 2(f) is for the benefit of
-------- -------
the Administrative Agent, the Fronting Bank and the Lenders (and in case they
pay a claim under the Cash Flow Insurance, the Insurers under their right of
subrogation), and is not intended to change any rights among the Sponsor, the
other Artisan Entities and the Borrower or to be in derogation of the rights of
any other persons which are parties to the Intercreditor Agreement.
(g) No provision of this agreement or any other Fundamental Document
is intended to require the Lenders to make Loans or to issue Letters of Credit
if Loans are not otherwise required to be made or Letters of Credit required to
be issued under the Credit Agreement.
(h) All of the parties hereto are aware of the terms of the Cash
Flow Insurance. The Sponsor and the other Artisan Entities agree not to take any
action inconsistent with the obligations of the Administrative Agent under the
Cash Flow Insurance or which could result in the Insurers having a defense to
their obligation to make payment of claims under the Cash Flow Insurance or
which would otherwise entitle them to reject or void the Cash Flow Insurance and
each of the Sponsor and the Artisan Entities understands that in making
determinations under the Fundamental Documents, the Administrative Agent may be
required to
6
<PAGE>
consult with, or obtain the consent of, the Insurers in order to protect its
rights under the Cash Flow Insurance.
(i) Notwithstanding anything to the contrary stated in the Trust
Agreement or in the Fundamental Documents regarding the tax treatment of the
Borrower and the Sponsor, it is the intention of the parties hereto that for
purposes of creditors' rights issues and general accounting principles (a) the
sale of a Declared Qualifying Picture from the producer thereof or the Sponsor
to the Borrower pursuant to a Film Purchase Agreement be a true sale, (b) the
Borrower be the owner of the Declared Qualifying Picture upon such sale and (c)
the relationship between the Borrower and the Sponsor under the Distribution
Agreement be one of licensor and licensee and the parties hereto agree to take
such actions as are consistent with such treatment.
3. Obligation of Sponsor to Pay Certain Amounts.
--------------------------------------------
(a) Subject to the terms and conditions set forth herein, the
Sponsor hereby agrees that after receipt of a written notice and request for
funds from the Borrower or if the Borrower does not give such notice, from the
Administrative Agent (in accordance with Section 3(c) below) or in the absence
of such notice upon its having knowledge of the facts that would entitle the
Borrower or the Administrative Agent to give such notice, it shall fund or
advance to the Borrower subject to its rights of recoupment and/or repayment
solely as set forth in Section 7 hereof (except with respect to (iv) and (v)
below which amounts shall be funded directly to the Administrative Agent), the
following:
(i) when due in connection with each Declared Qualifying
Picture: (A) financing fees and charges, and interest under the
Credit Agreement (to the extent in each case not paid from the Gross
Receipts of the Declared Qualifying Picture or other funds available
to the Borrower and, as to interest, to the extent financing is not
available under the Credit Agreement, in each case accrued through
(but not after) the Maturity Date and (B) Domestic Distribution
Expenses in excess of amounts financed by Loans under the Credit
Agreement and other distribution expenses for Declared Qualifying
Pictures, including, without limitation, residuals and
participations regardless of whether or not such expenses are
recoupable or recouped under Section 7 below.
(ii) subject to clause (iii) of this Section 3(a),
contemporaneously with the making of Loans or the issuance of
Letters of Credit in connection with the acquisition of a Declared
Qualifying Picture (which Loans and Letters of Credit, in the
aggregate, shall not exceed 80% of the Total Negative Cost for each
Declared Qualifying Picture) or such lesser amount as shall equal
the Negative Cost Loan Value, an amount equal to the portion of the
Total Negative Cost for the applicable Declared Qualifying Picture
which is not being financed by such Loans or Letters of Credit, or
otherwise paid by the Borrower;
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(iii) within five Business Days of receiving written
notice from the Administrative Agent or the Borrower that, based on
a statement of Total Negative Cost (or the results of an audit
thereof) of a Declared Qualifying Picture, more than the Negative
Cost Loan Value of that Declared Qualifying Picture was funded by
Loans and/or Letters of Credit under the Credit Agreement, a
sufficient amount to repay such Loans and/or cash collateralize the
L/C Exposure so that after such repayment the total amount of Loans
made and/or the original L/C Exposure incurred with regard to items
of Total Negative Cost for the applicable Declared Qualifying
Picture does not exceed the Negative Cost Loan Value of such
Declared Qualifying Picture;
(iv) on the Maturity Date (or such earlier date that the
Loans become due and payable under the Credit Agreement) and
periodically thereafter, the "Distribution Fee Clawback" up to and
including an amount necessary to repay in full all outstanding
Obligations under the Credit Agreement (including providing cash
collateral for L/C Exposure) which amounts shall be paid to the
Administrative Agent, on behalf of itself, the Lenders and the
Fronting Bank; the domestic amount being used first to repay
Domestic Distribution Loans under the Senior Tranche and then
Domestic Distribution Loans under the Junior Tranche before being
used to repay other Obligations and foreign amount being used first
to repay Obligations other than the Domestic Distribution Loans and
L/C Exposure before being used to repay Domestic Distribution Loans;
(v) to the extent not otherwise paid by the Borrower out
of its equity, to make payment of the amounts and at the times
contemplated, the Structuring Fee, the Upfront Fee and the annual
Agent's fee in the amounts set forth in the Fee Letter and, to the
extent not otherwise paid by the Borrower, the Unused Commitment Fee
and amounts payable pursuant to the Commitment Letter dated as of
April 6, 1999 between the Borrower and the Administrative Agent and
the amendments thereto dated as of July 28, 1999 and October 5, 1999
and the Credit Agreement to the Administrative Agent in
reimbursement of its expenses, including but not limited to, the
amounts payable to its counsel for fees and disbursements not
otherwise paid by the Borrower or from the allocation of Gross
Receipts; and
(vi) amounts necessary to satisfy the Administrative
Expense Commitment.
Each of the items referred to in clauses (i) through (vi), inclusive, of this
Section 3(a) being hereinafter referred to as "Supported Obligations".
(b) The failure of the Administrative Agent to give a notice shall
not constitute a waiver of its rights hereunder or under the Credit Agreement
and absent such notice
8
<PAGE>
to or knowledge by the Sponsor, an inadvertent failure to make payment shall not
be a breach hereof by the Sponsor.
(c) If the Borrower does not deliver a request for funds to the
Sponsor in a timely manner to satisfy a Supported Obligation, the Administrative
Agent shall have the right to give a notice and request for funds hereunder to
the Sponsor.
(d) If the Sponsor receives a notice and request for funds under
this Section 3 from either the Borrower or the Administrative Agent or the
Sponsor otherwise has knowledge of such need, the Sponsor will fund all amounts
in cash requested or required to fulfill its obligations hereunder on or prior
to the date the applicable Supported Obligation is due and payable, or if it
does not have knowledge and the notice is given subsequent to the due date,
within three (3) business days of receiving the notice.
(e) The Sponsor represents and warrants that any proceeds of
Domestic Distribution Loans received by it will be used solely for paying the
Domestic Distribution Expenses of the relative Declared Qualifying Picture, and
that as soon as the Sponsor determines that any portion thereof shall not be so
used, it will pay such portion to the Administrative Agent to be used to repay
the Domestic Distribution Loans made for that Declared Qualifying Picture.
4. No Adverse Selection, etc. In order to protect the Lenders from
--------------------------
the risk of adverse selection with respect to Artisan Films, the Sponsor (on
behalf of the Artisan Entities) and the Borrower, jointly and severally, hereby
commit to the Administrative Agent for the benefit of itself, the Fronting Bank
and the Lenders as follows:
(a) Prior to the Revolving Credit Commitment Termination Date, so
long as (i) there is availability under the Credit Agreement to finance the
Negative Cost Loan Value of an Artisan Film, (ii) the Required Lenders agree to
extend credit for the Negative Cost Loan Value in connection with such film
under the Credit Agreement and (iii) such Artisan Film would meet the criteria
(to the extent the same can be determined prior to release) of a Qualifying
Picture, such Artisan Film will be submitted to the Administrative Agent and the
Lenders as a Declared Qualifying Picture.
(b) Prior to the Revolving Credit Commitment Termination Date,
whether or not there is any availability under the Credit Agreement, the Sponsor
and the Borrower will offer the Waiver Agent and the Required Lenders the
opportunity (i) to waive the criteria of a Qualifying Picture with respect to an
Artisan Film and/or (ii) increase the amount of the Total Commitment under the
Credit Agreement so that there will be sufficient availability to finance the
Negative Cost Loan Value of any additional Artisan Film, provided that failure
to either waive the criteria of a Qualifying Picture or increase the Total
Commitment within 15 days after receiving notice from the Borrower shall be
deemed a rejection of such Artisan Film. Such offer shall be in writing and
shall specify the anticipated Total Negative Cost, the proposed essential
9
<PAGE>
cast members and proposed director, if known, and a short description of the
story line, and, if applicable, a list of which Qualifying Picture criteria are
expected not to be satisfied.
(c) Prior to the satisfaction of the Minimum Number of Qualifying
Pictures Requirement and the United States Theatrical Release Requirement with
regard to Declared Qualifying Pictures whether or not there is sufficient
availability under the Credit Agreement to finance the Negative Cost Loan Value
of a particular Artisan Film, all Artisan Films which meet the criteria of a
Qualifying Picture (to the extent the same can be determined prior to release)
will be delivered to the Borrower as a Declared Qualifying Picture and will be
sold to the Borrower with the Sponsor funding the portion of the Total Negative
Cost beyond that which may be borrowed under the Credit Agreement.
(d) With respect to an Artisan Film which the Sponsor and the
Borrower are obligated to offer to the Administrative Agent and the Lenders
pursuant to Section 4(a), Section 4(b), or which is required to be sold to the
Borrower pursuant to Section 4(c), the Sponsor will cause the Borrower (within a
reasonable time after the Sponsor becomes aware thereof) to deliver a Qualifying
Picture Declaration to the Administrative Agent and a request for a waiver
and/or increase in Total Commitment, if necessary, in accordance with Section
4(b). In addition, with respect to an Artisan Film which is required to be a
Declared Qualifying Picture pursuant to the provisions of Section 4(a) or
Section 4(c), and after the Required Lenders grant the waiver and/or the Lenders
agree to increase the Total Commitment with regard to an Artisan Film covered by
Section 4(b), the Sponsor will cause the Borrower (within a reasonable time
after the Sponsor becomes aware thereof) to deliver to the Administrative Agent
chain-of-title documents, UCC financing statements and copyright filings of the
nature contemplated by Section 4.2 of the Credit Agreement with respect to such
Declared Qualifying Picture so as to enable the Administrative Agent to perfect
its security interest in such Declared Qualifying Picture for the benefit of
itself, the Fronting Bank and the Lenders.
(e) With regard to "The Limey", the Sponsor hereby offers such film
to the Borrower as a Qualifying Picture and such film shall become a Declared
Qualifying if so accepted as such by the Administrative Agent in writing on or
before December 15, 1999.
5. Commitments of the Sponsor.
--------------------------
10
<PAGE>
(a) In addition to any other agreement, commitment or undertaking of
the Sponsor set forth herein (including but not limited to those set forth in
Section 3), the Sponsor hereby commits and undertakes to the Administrative
Agent and to the Lenders that (i) no later than the Revolving Credit Commitment
Termination Date the Minimum Number of Qualifying Pictures Commitment will be
satisfied and (ii) no later than 30 months before the Maturity Date the United
States Theatrical Release Requirement will be satisfied (except to the extent
such requirement is waived by the Required Lenders in writing), subject to the
terms and conditions hereof. The parties hereto agree to provide the
Administrative Agent with sufficient data to determine if the Minimum Number of
Qualifying Pictures Commitment and the United States Theatrical Release
Requirement have been satisfied by the Revolving Credit Commitment Termination
Date.
(b) At any point in time that the Sponsor or an Authorized Officer
of the Borrower determines that a Declared Qualifying Picture is not or will not
be a Qualifying Picture, such party shall give notice as soon as practicable of
such event to the Administrative Agent and the Waiver Agent. Such notice shall
include sufficient detail as to the reason for such Declared Qualifying Picture
not being a Qualifying Picture, and such other information as the Administrative
Agent or the Waiver Agent shall reasonably request so as to enable the
Administrative Agent and the Waiver Agent to compute the purchase price of such
film and for the Waiver Agent to determine, with the consent of the Required
Lenders, whether to waive the criteria of a Qualifying Picture with respect to
such film. The Waiver Agent shall have ten days from the receipt of such notice
to notify the Sponsor as to whether it and the Required Lenders have granted
such waiver. If the Waiver Agent does not grant such waiver, the Sponsor shall,
within 3 Business Days of receipt of the notice thereof, purchase that film
without representation and warranty or recourse other than that the
Administrative Agent has not created liens on such film other than those created
by the Fundamental Documents, for an amount not less than the sum of (i) the sum
of (w) the Negative Cost Loan Value for that Declared Qualifying Picture less
that portion of Gross Receipts received from that Declared Qualifying Picture
which were applied to repay the principal amount of the Negative Cost Loans made
to finance a portion of the Total Negative Cost for that Declared Qualifying
Picture plus (x) the aggregate amount of the Domestic Distribution Loans made
for that Declared Qualifying Picture less the portion of Gross Receipts received
from such Declared Qualifying Picture which were applied to repay the Domestic
Distribution Loans plus (y) the amount of the Interest Loans made with regard to
the Loans referred to in (w) and (x) less the portion of Gross Receipts received
from that Declared Qualified Picture which were applied to repay such Interest
Loans plus (z) all accrued but unpaid interest on the Loans referred to in
clauses (w), (x), (y) and (z) above and (ii) the amount required under the
Master Film Acquisition Agreement, all proceeds being used first to repay the
Obligations relating to that film and then other Obligations. All amounts
received under this Section 5(b) will be disbursed as received to repay the
applicable Obligations under the Credit Agreement with regard to that Declared
Qualifying Picture. If no Loans have been made but a Letter of Credit has been
issued for such Declared Qualifying Picture, such Letter of Credit shall be
returned for cancellation and the amount of fees paid thereunder, if any, shall
be repaid.
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<PAGE>
(c) The Sponsor agrees that until the Obligations have been "repaid
in full" (as that term is defined in the Intercreditor Agreement) and the Total
Commitment terminates, it will (A) not consent to any amendment to or
termination of the Distribution Agreement, the Master Film Purchase Agreement or
any Film Purchase Agreement theretofore executed, without the prior written
consent of the Administrative Agent and the Required Lenders (which consent
shall not be unreasonably withheld or delayed) or any amendment to any other
Artisan Agreement without the consent of the Administrative Agent (which consent
shall not be unreasonably withheld or delayed) if any such amendment to any such
documents, (v) imposes new conditions to, delays the time of payment of, or
decreases the amount of Revenue and Available Crossing Amounts (as such terms
are defined in the Cash Flow Insurance), which pursuant to the terms of the Cash
Flow Insurance policy, the Credit Agreement, this Agreement and the
Intercreditor Agreement (as modified by the terms of the definition "Ascertained
Net Loss" in the Cash Flow Insurance) are to be applied in computing the amount
of the Ascertained Net Loss or to reimburse the Insurers for any claim payments
made under the Cash Flow Insurance policy, (w) diminishes or impairs the
security enjoyed by the Insurers and to which the Insurers will become
subrogated by the provisions of the Cash Flow Insurance policy in the event of a
claim payment, (x) changes the Administrative Agent's audit rights or (y)
materially and adversely changes or alters any material term thereof and would
be expected to (i) materially and adversely affect the financial condition of
the Borrower or the likelihood of repayment of the Obligations by the Maturity
Date, (ii) materially and adversely affect the rights of the Lenders under this
Agreement, the other Fundamental Documents and any other agreements contemplated
hereby or (iii) decrease the value of the Collateral and (B) provide or cause
the Administrative Agent to be provided with copies of any amendment to the
other Artisan Agreements within a reasonable period of time after the execution
of any such amendment.
(d) If the United States Theatrical Release Requirement is not
satisfied with regard to a Declared Qualifying Picture other than "The Limey" at
least thirty months prior to the Maturity Date and such failure has not been
waived by the Waiver Agent and the Required Lenders, the Sponsor shall buy that
Declared Qualifying Picture from the Borrower, without representation and
warranty or recourse other than that the Administrative Agent has not created
liens on such Declared Qualifying Picture other than those created by the
Fundamental Documents, for cash in an amount equal to the sum of the greater of
(i) the sum of (w) the Negative Cost Loan Value for that Declared Qualifying
Picture less the portion of Gross Receipts received from that Declared
Qualifying Picture which were applied to repay the principal amount of Loans
made to fund the Negative Cost Loan Value for that Declared Qualifying Picture,
PLUS (x) the aggregate amount of Domestic Distribution Loans made for that
Declared Qualifying Picture less the portion of Gross Receipts received from
such Declared Qualifying Picture which were applied to repay that Domestic
Distribution Loans PLUS (y) the amount of the Interest Loans made with regard to
the Loans referred to in clauses (w) and (x) LESS the portion of Gross Receipts
received from such Declared Qualifying Picture which were applied to repay such
Interest Loans PLUS (z) any accrued but unpaid interest on the Loans referred to
in clauses (w), (x) and (y) above. All amounts received under this Section 5(d)
will be applied as received to repay the applicable Obligations under the Credit
Agreement for the film being purchased.
12
<PAGE>
(e) The Sponsor hereby (A) commits that it shall distribute all
Declared Qualifying Pictures in the same manner as it distributes its own top
line films (B) represents and warrants (i) that the party from whom the Borrower
acquires a Declared Qualifying Picture will have sufficient right, title and
interest in each Declared Qualifying Picture to enable the Borrower to obtain
worldwide rights in such Picture (except that with respect to "Ninth Gate" such
rights shall not include (x) distribution rights in all media in France and
Spain, (y) pay television rights in French-speaking Belgium for the first cycle
and (z) video and television rights for the French-dubbed version of such film
in Switzerland, (ii) the absence of any adverse claims with respect to each
Declared Qualifying Picture and (iii) the validity of the Borrower's title in
and to each Declared Qualifying Picture and the Administrative Agent's lien on
behalf of the Lenders, in and to each Declared Qualifying Picture, (C) agrees to
defend and stand behind any representations and warranties made by any
transferors pursuant to all Film Purchase Agreements and (D) represents and
warrants that it will maintain Errors and Omissions insurance as set forth in
Section 5.5 of the Credit Agreement and as required by the Cash Flow Insurance
for each Declared Qualifying Picture through the Maturity Date.
(f) If either the Sponsor or the Administrative Agent believes that
the Minimum Number of Qualifying Pictures Commitment will not be, or has not
been, satisfied by such date as is two months prior to the Revolving Credit
Commitment Termination Date, then the Sponsor or the Administrative Agent, as
the case may be, shall promptly notify the other in writing thereof and the
parties hereto will consult with each other as to whether such commitment has
been satisfied and, if they conclude it has not, how the Sponsor will remedy
such non-performance by the Revolving Credit Commitment Termination Date it
being understood that any such remedy shall be subject to the approval of the
Administrative Agent and the Required Lenders.
(g) If the Minimum Number of Qualifying Pictures Commitment has not
been satisfied by such date as is two months prior to the Revolving Credit
Commitment Termination Date, the Sponsor may elect to take the following action:
(i) contribute or sell (against payment to the Sponsor from sources other than
the Collateral) to the Borrower and add to the Collateral a Completed, but not
yet released, theatrical feature or features which satisfy the criteria for a
Qualifying Picture or (ii) purchase all of the rights of the Administrative
Agent and the Lenders under the Credit Agreement and the other Fundamental
Documents on the terms set forth in the last paragraph of Section 7.1 of the
Credit Agreement.
(h) If (i) at the Revolving Credit Commitment Termination Date the
Minimum Number of Qualifying Pictures Commitment has not been satisfied or (ii)
six months subsequent to the Revolving Credit Termination Date the United States
Theatrical Release Requirement has not been satisfied, the Sponsor shall be
liable to the Lenders for liquidated damages in an amount equal to the then
outstanding Obligations and shall upon such payment in full become subrogated to
the rights of the Administrative Agent, the Fronting Bank and the Lenders
against the Borrower and the Collateral under the Fundamental Documents, and the
13
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Administrative Agent and the Lenders shall assign all of their respective rights
and interests with respect to the Loans and Letters of Credit and the Collateral
(other than cash collateral retained to secure the reimbursement obligations for
outstanding Letters of Credit) but not the Cash Flow Insurance to the Sponsor as
if the Sponsor had exercised its rights under the last paragraph of Section 7.1
of the Credit Agreement to purchase all of the outstanding Obligations. The
Sponsor agrees that the Lenders' actual damages would be difficult or impossible
to ascertain in such event and that such liquidated damages constitute a fair
and reasonable amount of damages in the circumstances.
(i) The Sponsor in its capacity as a distributor, commits to the
Administrative Agent and the Lenders to perform its obligations in all material
respects under the Distribution Agreements.
(j) The Sponsor hereby represents and warrants to the Agent that the
information set forth in the Qualifying Picture Declaration and Section I of the
Insurance Questionnaires (a copy of which is attached as Schedule 2 to the form
of Cash Flow Insurance) delivered in connection with the Insurance is at the
date of each such Questionnaire true and correct in all material respects and if
it is not true and correct, the Sponsor will indemnify the Lenders for any loss
they suffer because the Insurance raise such matters as a defense to their
obligations under Cash Flow Insurance.
(k) The Sponsor agrees that it will pay all residuals participations,
royalties and deferrals in connection with all Declared Qualifying Pictures when
due and will indemnify the Borrower from any loss, liability or cost resulting
from the nonpayment thereof.
(l) The Sponsor agrees that beginning on the date hereof and until
the Obligations are repaid in full and the Total Commitment terminates, it will
(i) keep the Administrative Agent fully informed in its capacity as a
distributor as to the actual and reasonably expected performance of each of the
Declared Qualifying Pictures and (ii) provide the Administrative Agent on a
quarterly basis (commencing with the period ended December 31, 1999), within
sixty days after the end of each period, for each Declared Qualifying Picture
current data conforming to the format and categories in Section 7 hereof of
amounts received, amounts spent (distinguishing between cash payments and
incurred but unpaid amounts) and remaining ultimates.
(m) The Sponsor agrees that until the Obligations are paid in full
and the Total Commitment terminates (A) it will not take any action to terminate
the existence of the Borrower, bring a lawsuit against the Borrower or institute
a voluntary or involuntary proceeding under the Bankruptcy Code with regard to
the Borrower and (B) in its capacity as distributor, it (or where appropriate,
another Artisan Entity) will instruct the account debtors of the Artisan
Entities to pay all Gross Receipts directly into the Master Collection Account
or if it or the Artisan Entities receive Gross Receipts will pay or cause the
Artisan Entities to pay such
14
<PAGE>
amounts into the Master Collection Account, as soon as practicable but no later
than three (3) Business Days following receipt, as follows:
Artisan Master Collection Account
The Chase Manhattan Bank, Agent Bank Services
One Chase Manhattan Plaza, 8th Floor
Attn: Ganush Persaud (facsimile no. 212-270-5700)
Account Nos.: 323514405, 323514413, 32352214
ABA No.: 021000021.
(n) The Sponsor hereby represents and warrants to the Agent that the
Artisan Entities whose signatures appear at the foot hereof are all of the
guarantors under the Sponsor Credit Agreement as of the date hereof and the
Sponsor further covenants that it shall cause all additional affiliates of the
Sponsor who become guarantors under the Sponsor Credit Agreement in accordance
with Section 6.24 thereof to assume the Obligations of the Artisan Entities as
set forth herein.
(o) The Sponsor shall perform the obligations with respect to earning
statements, accounting records and audits contained in Schedule 4 hereto and
agrees that, the Administrative Agent for the benefit of the Lenders may
exercise the audit rights contemplated by Schedule 4 hereto on behalf of the
Lenders, the cost of such audit being a charge for which the Administrative
Agent shall be entitled to reimbursement pursuant to the terms of Section 11.4
of the Credit Agreement and Section 3(a)(v) hereof.
6. Obligations Absolute.
--------------------
(a) The obligations of the Sponsor and the other Artisan Entities under
this Agreement are direct, absolute and unconditional and shall not be affected
or impaired in any way by reason of (i) the lack of (or the extent of) prior
enforcement by the Administrative Agent or the Lenders or any other Person or
(ii) any modification, limitation or discharge of any obligation arising out of
or by virtue of any bankruptcy, arrangement, reorganization or similar
proceeding for relief of debtors under federal or state law hereinafter
initiated by or against the Borrower. The obligations of the Sponsor hereunder
are in addition to any liability they may have under the Intercreditor
Agreement, the Distribution Agreement, the Master Film Purchase Agreement and
each Film Purchase Agreement.
(b) The obligations of the Sponsor and the other Artisan Entities
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason (other than payment or satisfaction), including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense (other than payment or
satisfaction, or a defense based on the statute of limitations) or set-off,
counterclaim, recoupment or termination whatsoever, by reason of the invalidity,
illegality or unenforceability of any of the Secured Obligations or otherwise.
Without limiting the generality of the foregoing,
15
<PAGE>
the obligations of the Sponsor and the other Artisan Entities hereunder shall
not be discharged or impaired or otherwise affected by the failure of the
Borrower or the Administrative Agent to assert any claim or demand or to enforce
any remedy hereunder or under the Credit Agreement, any Fundamental Document or
any other agreement, by any waiver or delay, willful or otherwise, in the
performance of the Obligations, or by any other act or thing or omission or
delay to do any other act or thing which may or might in any manner or to any
extent vary the risk of the Sponsor and the other Artisan Entities or would
otherwise operate as a discharge of the Sponsor and the other Artisan Entities
as a matter of law.
(c) The Sponsor and the other Artisan Entities further agree that any of
the Secured Obligations may be extended or renewed, in whole or in part, without
notice or further assent from it, and each will remain bound hereunder
notwithstanding any extension or renewal of any Secured Obligation.
(d) The obligations of the Sponsor and the other Artisan Entities
hereunder shall not be affected by (i) any extension or renewal of any provision
hereof or of any Fundamental Document or any other agreement; (ii) any
rescission, waiver, compromise, acceleration, amendment or modification of any
of the terms or provisions of the Credit Agreement, any Fundamental Document or
any other agreement; or (iii) the release, exchange, waiver or foreclosure of
any security held by the Administrative Agent or any Lender for the Obligations
or any of them. Without limiting the generality of the foregoing or any other
provision hereof, to the extent permitted by applicable law, the Sponsor and the
other Artisan Entities hereby expressly waive any and all benefits which might
otherwise be available to it under California Civil Code Sections 2799, 2809,
2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2848, 2849, 2850, 2899 and
3433. The parties hereto acknowledge that the inclusion of the immediately
preceding sentence in this Agreement is not intended to have an effect on, and
shall have no effect on, the choice of law set forth in Section 20, and is being
inserted to protect the Administrative Agent and the Lenders if a court of
competent jurisdiction determines that such provisions of the California Civil
Code are applicable.
(e) The obligations of the Sponsor and the other Artisan Entities
hereunder shall not be affected by any lack of due execution, validity or
enforceability of the Obligations, the Credit Agreement, any Fundamental
Document or any instrument or document evidencing any of the Obligations, or by
the existence, validity, enforceability, perfection, or extent of any collateral
therefor or by any other circumstance relating to any of the Obligations (other
than payment or satisfaction) which might otherwise constitute a defense to the
Sponsor's obligations hereunder. Neither the Administrative Agent nor any Lender
makes any representation or warranty in respect to any such circumstances or has
any duty or responsibility whatsoever to the Sponsor and the other Artisan
Entities in respect to the management and maintenance of the Obligations or any
collateral securing any of the Obligations.
(f) The Sponsor and the other Artisan Entities further agree that
their respective obligations hereunder shall continue to be effective or be
reinstated, as the case may
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be, if at any time payment, or any part thereof, of any Obligation is rescinded
or must otherwise be restored by the Administrative Agent or any Lender upon the
bankruptcy or other reorganization of the Borrower, the Sponsor or any of the
other person or entity.
7. Gross Receipts and Non-Waterfall Amounts.
-----------------------------------------
(a) Subject to Section 7(c) and so long as (i) no Event of Default,
Sponsor Default or Suspension Event has occurred and is continuing and (ii) the
Obligations have not been repaid in full, the Sponsor and the Borrower hereby
agree that the Domestic Gross Receipts shall be applied on each date that funds
are disbursed pursuant to Section 4(d) of the Intercreditor Agreement (a
"Picture Waterfall Distribution Date") in the following order without any double
counting for items included in Total Negative Cost (unless the Required Lenders
otherwise agree on the request of the Borrower and the Sponsor):
(i) first, to reimburse the Borrower, Sponsor, their affiliates
-----
or third parties for amounts advanced to fund priorities (x) and (xi) below
for that Declared Qualifying Picture provided that amounts funded pursuant to
the Distribution Fee Clawback shall not be reimbursed;
(ii) second, an amount equal to the lesser of (a) the amount
------
specified by the Designee to the Collection Agent pursuant to Section 4(b)
of the Intercreditor Agreement of accrued Trustee Expenses and (b) an
amount equal to 15% of all Domestic Gross Receipts with respect to each
Declared Qualifying Picture shall be distributed to the Trustee for
deposit in the Trust Account; provided, however, if the Designee has not
-------- -------
specified the amount of Trustee Expenses by such date, then the amount to
be deposited in the Trust Account on the Picture Waterfall Distribution
Date shall be zero;
(iii) third, an amount equal to the lesser of (a) 5% of all
-----
Domestic Gross Receipts with respect to each Declared Qualifying Picture
and (b) an amount equal to (x) 15% of all Domestic Gross Receipts with
respect to each Declared Qualifying Picture minus (y) the amount allocated
to the Trustee for Trustee Expenses pursuant to Section 7(a)(ii) shall be
allocated to the Trustee for deposit in the Trust Account.
(iv) fourth, an amount equal to the excess of (a) 15% of all
------
Domestic Gross Receipts with respect to each Declared Qualifying Picture
over (b) the sum of the amounts allocated to the Trustee pursuant to
Sections 7(a)(ii) and 7(a)(iii) shall be paid to the Sponsor as a
distribution fee;
(v) fifth, to reimburse the Sponsor for standard off-the-top
-----
checking and collection costs and trade association dues actually incurred not
in excess of the lesser of 1% of all amounts received in the Collection
Account for each Declared Qualifying Picture and $200,000 per Declared
Qualifying Picture;
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(vi) sixth, to offset for any amounts deducted from Domestic Gross
-----
Receipts by the licensee to pay for the Sponsor's or the Borrower's share of
cooperative advertising expenses for that Declared Qualifying Picture;
provided, however, that any such cooperative advertising expenses will be
-------- -------
deducted also from the Formula Amount of Domestic Distribution Expenses;
(vii) seventh, to pay Video Expenses actually incurred not in
-------
excess of (a) for video devices sold to the rental market, the lesser of $13
for each video and 30% of rental video gross receipts (25% for Declared
Qualifying Pictures for which at least 100,000 rental units are sold in the
United States) and (b) for video devices sold through sell-through, the lesser
of $6 for each video manufactured and 50% of self-through video gross
receipts;
(viii) eighth, to reimburse the Sponsor for residuals for the United
------
States territory actually paid;
(ix) ninth, to reimburse the Artisan Entities, from United States
-----
television revenues, the lesser of actual television distribution expenses
incurred by an Artisan Entity and 5% of domestic television revenue included
in Gross Receipts received in the Master Collection Account for each Declared
Qualifying Picture;
(x) tenth, to the payment of 50% of the Unused Commitment Fee
-----
paid under the Credit Agreement and 100% of the interest on the Domestic
Distribution Loans (i.e., to repay the Interest Loans made to make such
interest payments and/or to pay accrued but unpaid interest thereon) and 50%
of other amounts (other than principal and interest) payable under the Credit
Agreement;
(xi) eleventh, in an amount equal to the sum of the Domestic
--------
Distribution Loans theretofore made for that Qualifying Picture, to be applied
to repayment of Obligations under the Credit Agreement in the following order:
first, the repayment of the Domestic Distribution Loans made under the Senior
-----
Tranche for that Qualifying Picture; second, the repayment of Domestic
------
Distribution Loans made under the Senior Tranche for other Qualifying Pictures
up to the amount of the Domestic Distribution Loans made under the Junior
Tranche for that Qualifying Picture; third, to the repayment of the Domestic
-----
Distribution Loans made under the Junior Tranche for that Qualifying Picture;
fourth, to the repayment of the Domestic Distribution Loans made under the
------
Junior Tranche for other Qualifying Pictures; fifth, to the repayment of other
-----
Obligations (including the cash collateralization of any outstanding Letters
of Credit) under the Credit Agreement; sixth, if the Total Commitment has not
-----
yet terminated, to fund the Cash Collateral Account provided for in the Credit
Agreement to be used to fund the amounts that would otherwise have been funded
as Domestic Distribution Loans under the Credit Agreement;
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<PAGE>
(xii) twelfth, to the Sponsor in repayment of advances made by it
-------
or another Artisan Entity for Domestic Distribution Expenses for that
Qualifying Picture in excess of the aggregate amount of Domestic Distribution
Loans made under the Credit Agreement; provided, however, that the maximum
-------- -------
amount payable under this priority for any Qualifying Picture shall be equal
to the sum of (i) the amount by which the Formula Amount of Domestic
Distribution Expenses for that Qualifying Picture exceeds the aggregate amount
of Domestic Distribution Loans made for that Qualifying Picture plus (ii) the
product of (a) one-third and (b) the aggregate amount of domestic theatrical
film rentals realized by the Sponsors for that Qualifying Picture subsequent
to the end of the opening weekend of the initial domestic theatrical release
plus the guaranteed Showtime pay television receivables for that Qualifying
Picture;
(xiii) thirteenth, the repayment of any other outstanding
----------
Domestic Distribution Loans for any Qualifying Picture (first, those made
-----
under the Senior Tranche in the order of their domestic theatrical release
dates, and second, those made under the Junior Tranche in the order of
------
their domestic theatrical release dates);
(xiv) fourteenth, to pay for reserves for deferments and
----------
worldwide participations for that Qualifying Picture (without double counting
for amounts paid pursuant to Section 7(b)(x), but inclusive of any amount paid
under Section 7(b)(vii)) not in excess of the sum of (a) the lesser of $1
million and 10% of the Total Negative Cost of that Qualifying Picture payable
from Gross Receipts in the excess of the sum of Total Negative Cost plus all
distribution expenses incurred (whether or not reimbursable hereunder) plus
interest thereon until recoupment computed at the average loan rate under the
Credit Agreement plus (b) deferments and participations in the aggregate not
in excess of 50% of the amount by which Gross Receipts exceeds the sum of
Total Negative Cost of that Qualifying Picture plus any deferment paid
pursuant to clause (a) above or Section 7(b)(vii) plus a 15% distribution fee
plus all distribution expenses incurred (whether or not reimbursable
hereunder) plus interest thereon until recouped at the average interest rate
under the Credit Agreement. Notwithstanding the foregoing, the maximum sum of
participations payable in connection with "The Ninth Gate" shall be increased,
if necessary, to ensure that all participations payable to Johnny Depp in
connection with "The Ninth Gate" which have been heretofore approved by the
Administrative Agent are paid from Domestic Gross Receipts from such film;
(xv) fifteenth, to repay any other Obligations under the
---------
Credit Agreement (other than principal of Negative Cost Loans);
(xvi) sixteenth, to repay principal of Negative Cost Loans for
---------
all Declared Qualifying Pictures ( including the cash collateralization of
any outstanding Letters of Credit);
19
<PAGE>
(xvii) seventeenth, if the Total Commitment under the Credit
-----------
Agreement has not yet terminated, the balance shall be placed in the Cash
Collateral Account provided for in the Credit Agreement and prior to the
termination of the Total Commitment, shall only be used to fund the amount of
Domestic Distribution Expenses which could otherwise be borrowed under the
Credit Agreement unless an Event of Default occurs; and
(xviii) eighteenth, if the Total Commitment under the Credit
----------
Agreement has terminated, the balance shall be deposited in the Trust Account
established pursuant to the Trust Agreement.
(b) Subject to Section 7(c) and so long as (i) the Total Commitment has
not terminated, (ii) no Event of Default, Sponsor Default or Suspension Event
has occurred and is continuing and (iii) Obligations have not been repaid in
full, the Sponsor and the Borrower hereby agree that the Foreign Gross Receipts
shall be applied in the following order without any double counting for items
included in Total Negative Cost (unless the Required Lenders otherwise agree at
the request of the Borrower and the Sponsor):
(i) first, to reimburse the Borrower, Sponsor, their affiliates
-----
or third parties for amounts advanced to fund priorities (viii) and (ix) for
that Declared Qualifying Picture below provided that amounts funded pursuant
to the Distribution Fee Clawback shall not be reimbursed;
(ii) second, an amount equal to 5% of all Foreign Gross Receipts
------
with respect to each Declared Qualifying Picture shall be allocated to the
Trustee for deposit in the Trust Account;
(iii) third, an amount to 10% of all Foreign Gross Receipts with
-----
respect to each Declared Qualifying Picture shall be paid to the Sponsor as a
distribution fee;
(iv) fourth, to offset for remittance and other withholding taxes
------
actually incurred for that Declared Qualifying Picture, it being understood
that in most cases this will be an accounting adjustment since these taxes
will ordinarily have been deducted at the source;
(v) fifth, to pay foreign sales costs actually incurred for that
-----
Declared Qualifying Picture not in excess of $400,000 in the aggregate per
Declared Qualifying Picture but not for foreign sales agent commissions;
(vi) sixth, to reimburse the Artisan Entities for residuals for
-----
the foreign territory actually paid;
(vii) seventh, to pay for reserves for deferments not in excess of
-------
the lesser of $1 million and 10% of the Total Negative Cost of that Qualifying
Picture
20
<PAGE>
payable from Gross Receipts in excess of the sum of Total Negative Cost plus
all distribution expenses incurred (whether or not reimbursable hereunder),
plus interest thereon computed at the average interest rate under the Credit
Agreement (without double counting for amounts paid pursuant to Section
7(b)(x), but inclusive of any amount paid pursuant to Section 7(a)(xiv));
(viii) eighth, payment of 50% of the Unused Commitment Fee payable
------
under the Credit Agreement and 100% of interest on the Negative Cost Loans
made under the Credit Agreement (I.E., accrued but unpaid interest plus
Interest Loans made for that purpose) and 50% of other amounts (other than
principal and interest) payable under the Credit Agreement;
(ix) ninth, to pay the principal of Negative Cost Loans for that
-----
Declared Qualifying Picture (including the cash collateralization of any
outstanding Letters of Credit);
(x) tenth, to pay for reserves (without double counting for
-----
amounts paid pursuant to Sections 7(a)(xiv) or 7(b)(vii)) for deferments and
participations in the aggregate not in excess of 50% of the amount by which
Gross Receipts exceeds the sum of Total Negative Cost of that Qualifying
Picture plus any deferment paid pursuant to Section 7(a)(xiv) or 7(b)(vii)
plus a 15% distribution fee plus all distribution expenses incurred (whether
or not reimbursable hereunder) plus interest thereon until recouped at the
average interest rate under the Credit Agreement. Notwithstanding the
foregoing, the maximum sum of participations payable in connection with "The
Ninth Gate" shall be increased, if necessary, to ensure that all
participations payable to Johnny Depp in connection with "The Ninth Gate"
which have been heretofore approved by the Administrative Agent are paid from
Domestic Gross Receipts from such film;
(xi) eleventh, to pay the principal of Negative Cost Loans under
--------
the Credit Agreement for all Declared Qualifying Pictures (including the cash
collateralization of any outstanding Letters of Credit);
(xii) twelfth, to pay any other Obligations under the Credit
-------
Agreement (other than principal of Domestic Distribution Loans);
(xiii) thirteenth, to pay the principal of Domestic Distribution
----------
Loans under the Credit Agreement for all Declared Qualifying Pictures (first,
-----
those under the Senior Tranche in the order of their domestic theatrical
release dates and second, those under the Junior Tranche in the order of their
------
domestic theatical release dates);
(xiv) fourteenth, if the Total Commitment under the Credit
----------
Agreement has not yet terminated, the balance shall be placed in a Cash
Collateral Account provided for in the Credit Agreement and prior to the
termination of the Total Commitment, shall
21
<PAGE>
only be used to fund the portion of the Total Negative Cost which could
otherwise be borrowed under the Credit Agreement unless an Event of Default
occurs;
(xv) fifteenth, if the Total Commitment under the Credit
---------
Agreement has terminated, the balance shall be deposited in the Trust Account
established pursuant to the Trust Agreement.
(c) Notwithstanding Sections 7(a) and 7(b) above, upon the earlier of (i)
the occurrence and during the continuance of an Event of Default and (ii) the
Maturity Date, in each case, if requested by the Required Lenders, Gross
Receipts shall be applied (A) with regard to Domestic Gross Receipts:
(I) so long as the Sponsor is still acting as the distributor under the
Distribution Agreement, first, in accordance with Section 7(a)(ii),
-----
second, in accordance with Section 7(a)(iii), third, in accordance
------ -----
with 7(a)(iv), fourth, in accordance with Section 7(a)(x), fifth, in
------ -----
accordance with Section 7(a)(xi), sixth, in accordance with Section
-----
7(a)(xiii), seventh, in accordance with Section 7(a)(xv), eighth, in
------- ------
accordance with Section 7(a)(xvi) and ninth, to repay other
-----
outstanding Obligations, and any Domestic Gross Receipts remaining
after application as aforesaid shall be deposited to the Trust Account
under the Trust Agreement, and
(II) in the event the Sponsor is no longer acting as the distributor under
the Distribution Agreement, first, to pay the fees and expenses of the
-----
new distributor or distributors, second in accordance with Section
------
7(a)(x), third, in accordance with Section 7(a)(xi), fourth, in
----- ------
accordance with Section 7(a)(xiii), fifth, in accordance with Section
-----
7(a)(xv), sixth, in accordance with Section 7(a)(xvi) and seventh, to
----- -------
repay other outstanding Obligations and any Domestic Gross Receipts
remaining after application as aforesaid shall be deposited to the
Trust Account under the Trust Agreement,
and (B) with regard to Foreign Gross Receipts:
(I) so long as the Sponsor is still acting as the distributor under the
Distribution Agreement, first, in accordance with Section 7(b)(ii),
-----
second, in accordance with Section 7(b)(iii) third, in accordance with
------ -----
Section 7(b)(viii), fourth, in accordance with Section 7(b)(ix),
------
fifth, in accordance with Section 7(b)(xi), sixth, in accordance with
----- -----
Section 7(b)(xii), seventh in accordance with Section 7(b)(xiii) and
seventh, to repay other outstanding Obligations and any Foreign Gross
-------
Receipts remaining after application as aforesaid shall be deposited
to the Trust Account under the Trust Agreement; and
22
<PAGE>
(II) in the event the Sponsor is no longer acting as the distributor under
the Distribution Agreement, first, to pay the fees and expenses of the
-----
new distributor or distributors, second in accordance with Section
------
7(b)(viii), third, in accordance with Section 7(b)(ix), fourth, in
----- ------
accordance with Section 7(b)(xi), fifth, in accordance with Section
-----
7(b)(xii), sixth, in accordance with Section 7(b)(xiii) and seventh,
----- -------
to repay other outstanding Obligations and any Foreign Gross Receipts
remaining after application as aforesaid shall be deposited to the
Trust Account under the Trust Agreement.
(d) Any Non-Waterfall Amounts received with regard to a Declared
Qualifying Picture shall be applied as follows: (i) to the extent such Non-
Waterfall Amounts represent items which are not required to be applied to reduce
the Total Negative Cost of a Declared Qualifying Picture, such amounts shall, so
long as the Sponsor is still entitled to receive its distribution fee pursuant
to Section 7(c), be released to the Sponsor and (ii) to the extent such amounts
received with regard to a Declared Qualifying Picture are required to be applied
to reduce Total Negative Cost, 80% thereof shall be applied to the repayment of
the Negative Cost Loans for such Declared Qualifying Picture and the balance
shall, so long as the Sponsor is still entitled to receive its distribution fee
pursuant to Section 7(c), be released to the Sponsor.
For purposes hereof "Non-Waterfall Amounts" shall mean any amounts received with
regard to a Declared Qualifying Picture which are not included within the term
"Gross Receipts."
8 Granting of Security Interest.
-----------------------------
(a) As security for (i) the due and punctual payment of the Supported
Obligations, (ii) all the obligations of the Sponsor hereunder and under the
Distribution Agreement, the Intercreditor Agreement, the Master Film Purchase
Agreement and each Film Purchase Agreement (iii) to the extent that it is
determined by a court of competent jurisdiction that the Sponsor, rather than
the Borrower, is the owner of a Declared Qualifying Picture, the Obligations of
the Borrower under the Credit Agreement (provided, however, that with regard to
the obligations contemplated by this clause (iii), the lien granted hereby shall
be limited to the AFI Collateral) and (iv) the guaranty of each of the Artisan
Entities hereunder ((ii) and (iii) together with the Supported Obligations shall
be referred to herein as the "Secured Obligations"), each of the Artisan
Entities hereby mortgages, pledges, assigns, transfers, sets over, conveys and
delivers to the Borrower a security interest in all of the Secured Obligations
Collateral. It is the intention of the parties hereto that notwithstanding any
tax treatment agreed to between the Borrower and its Certificateholders in the
Trust Agreement, (a) for purposes of creditors' rights issues and generally
accepted accounting principles, the sale of a Declared Qualifying Picture from
the producer thereof to the Borrower be a true sale; (b) the Borrower be the
owner of such Declared Qualifying Picture; and (c) the relationship between the
Borrower and the Sponsor, as Distributor under the Distribution Agreement, be
one of licensor and licensee, and the parties
23
<PAGE>
hereto agree to take such actions as are consistent with such treatment. To the
extent that it is determined by a court of competent jurisdiction that
notwithstanding the foregoing, the Sponsor is the owner of a Declared Qualifying
Picture, it is the intention of the parties that the Secured Obligations (to the
extent of the AFI Collateral), include the Obligations of the Borrower under the
Credit Agreement and the right of the Administrative Agent to receive the share
of Gross Receipts as set forth herein which is to be used to pay the Obligations
under the Credit Agreement.
(b) The protective security interest in the AFI Collateral under Section
8(a)(iii) hereof is being granted both to the Borrower and directly to the
Administrative Agent and the Sponsor will execute all appropriate UCC-1's and
copyright filings in favor of the Administrative Agent.
(c) The Borrower hereby acknowledges that pursuant to the Credit Agreement
it has assigned all of its rights, title and interest in and to the Secured
Obligations Collateral to the Administrative Agent for the benefit of the
Lenders and hereby appoints the Administrative Agent as its attorney-in-fact to
enforce all of its rights in and to the Secured Obligations Collateral as set
forth below and the Borrower hereby ratifies and confirms in advance all that
the Administrative Agent as such attorney-in-fact shall do by virtue of this
power of attorney.
(d) So long as no Sponsor Default shall have occurred and be continuing,
and subject to the various provisions of this Agreement, any of the Artisan
Entities may use the Secured Obligations Collateral in any lawful manner except
as otherwise provided hereunder and in the Intercreditor Agreement and the
Distribution Agreement.
(e) Upon the occurrence and during the continuance of a default of a
Secured Obligation, each of the Artisan Entities will, upon receipt by it of any
revenue, income, profits or other sums in which a security interest is granted
under this Section 8, payable pursuant to any agreement or otherwise, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the sum or instrument in trust for the
Administrative Agent, segregate such sum or instrument from their own assets and
forthwith, without any notice, demand or other action whatsoever (all notices,
demands, or other actions on the part of the Administrative Agent, the Issuing
Bank or the Lenders being expressly waived), endorse, transfer and deliver any
such sums or instruments or both, to the Administrative Agent to be applied to
the repayment of the Secured Obligations in accordance with the provisions of
Section 8(h) hereof.
(f) Upon the occurrence and during the continuance of a default of a
Secured Obligation, the Administrative Agent may, in its sole discretion, in its
name (on behalf of the Administrative Agent, the Issuing Bank and the Lenders)
or in the name of the Borrower or any of the Artisan Entities or otherwise,
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for, or make any compromise or
settlement deemed desirable with respect to, any of the Secured Obligations
Collateral, but shall
24
<PAGE>
be under no obligation so to do, or the Administrative Agent may extend the time
of payment, arrange for payment in installments, or otherwise modify the terms
of, or release, any of the Secured Obligations Collateral, without thereby
incurring responsibility to, or discharging or otherwise affecting any liability
of, any of the Artisan Entities. The Administrative Agent will not be required
to take any steps to preserve any rights against prior parties to the Secured
Obligations Collateral. If any of the Artisan Entities fails to make any payment
or take any action required hereunder, the Administrative Agent may make such
payments and take all such actions as the Administrative Agent reasonably deems
necessary to protect the Administrative Agent's security interest in the
Borrower's security interest in the Secured Obligations Collateral and/or the
value thereof, and the Administrative Agent is hereby authorized (without
limiting the general nature of the authority herein above conferred) to pay,
purchase, contest or compromise any Liens that in the judgment of the
Administrative Agent appear to be equal to, prior to or superior to the security
interests of the Borrower in the Secured Obligations Collateral.
(g) Upon the occurrence and during the continuance of a default of a
Secured Obligation, the Administrative Agent may enter upon the premises of any
of the Artisan Entities or wherever the Secured Obligations Collateral may be,
and take possession of the Secured Obligations Collateral, and may demand and
receive such possession from any Person who has possession thereof, and the
Administrative Agent may take such measures as it deems necessary or proper for
the care or protection thereof, including the right to remove all or any portion
of the Secured Obligations Collateral, and with or without taking such
possession may sell or cause to be sold, whenever the Administrative Agent shall
decide, in one or more sales or parcels, at such prices as the Administrative
Agent may deem appropriate, and for cash or on credit or for future delivery,
without assumption of any credit risk, all or any portion of the Secured
Obligations Collateral, at any broker's board or at public or private sale, with
10 days' written notice to the Borrower and the Artisan Entities of the time and
place of any such public sale or sales (which notice the Borrower and the
Artisan Entities hereby agree is reasonable) and with such other notices as may
be required by Applicable Law and cannot be waived, and neither the
Administrative Agent, the Issuing Bank nor the Lenders shall have any liability
should the proceeds resulting from a private sale be less than the proceeds
realizable from a public sale, and the Administrative Agent, the Issuing Bank,
the Lenders or any other Person may be the purchaser of all or any portion of
the Secured Obligations Collateral so sold and thereafter hold the same
absolutely, free (to the fullest extent permitted by Applicable Law) from any
claim or right of whatever kind, including any equity of redemption, of any of
the Borrower and the Artisan Entities, any such demand, notice, claim, right or
equity being hereby expressly waived and released. At any sale or sales made
pursuant to this Section 8, the Administrative Agent, the Issuing Bank and the
Lenders may bid for or purchase, free (to the fullest extent permitted by
Applicable Law) from any claim or right of whatever kind, including any equity
of redemption, of any of the Borrower and the Artisan Entities, any such demand,
notice, claim, right or equity being hereby expressly waived and released, any
part of or all of the Secured Obligations Collateral offered for sale, and may
make any payment on account thereof by using any claim for moneys then due and
payable to the Borrower or the Administrative Agent, the Issuing Bank and the
Lenders by any of the Borrower Artisan Entities hereunder as a credit against
the purchase
25
<PAGE>
price. The Administrative Agent, the Issuing Bank and the Lenders shall in any
such sale make no representations or warranties with respect to the Secured
Obligations Collateral or any part thereof, and neither the Administrative
Agent, the Issuing Bank nor any Lender shall be chargeable with any of the
obligations or liabilities of the Borrower or any of the Artisan Entities. In
addition, at any sales or sales made pursuant to this Section 8, the
Administrative Agent shall use commercially reasonable efforts to obtain from
any purchaser an acknowledgment and agreement that such purchaser's rights are
subject to the rights of Quiet Enjoyment of licensees (other than Artisan
Entities) under the Distribution Agreement to the extent contemplated by Section
8.13 of the Credit Agreement and Section 19 of the Intercreditor Agreement;
provided, however, that the failure of the Administrative Agent to obtain any
- -------- -------
such acknowledgment and agreement shall not prevent or otherwise hinder any sale
pursuant to this Section 8 or result in any liability on the part of the
Administrative Agent, the Issuing Bank or the Lenders to the Borrower or any of
the Artisan Entities. Each of the Artisan Entities hereby agrees (i) that it
will indemnify and hold the Borrower and the Administrative Agent, the Issuing
Bank and the Lenders harmless from and against any and all claims with respect
to the Secured Obligations Collateral asserted before the taking of actual
possession or control of the relevant Secured Obligations Collateral by the
Administrative Agent, the Issuing Bank and the Lenders pursuant to this Section
8, or arising out of any act of, or omission to act on the part of, any Person
(other than the Administrative Agent, the Issuing Bank or Lenders) prior to such
taking of actual possession or control by the Administrative Agent (whether
asserted before or after such taking of possession or control), or arising out
of any act on the part of any of the Artisan Entities or any of their Affiliates
or agents before or after the commencement of such actual possession or control
by the Administrative Agent; and (ii) neither the Administrative Agent, the
Issuing Bank nor any Lender shall have liability or obligation to any of the
Artisan Entities arising out of any such claim except for acts of willful
misconduct or gross negligence. Subject only to the lawful rights of third
parties, any laboratory which has possession of any of the Secured Obligations
Collateral is hereby constituted and appointed by the Artisan Entities as
pledgeholder for the Borrower and the Administrative Agent and, upon the
occurrence of an Event of Default, each such pledgeholder is hereby authorized
(to the fullest extent permitted by Applicable Law) to sell all or any portion
of the Secured Obligations Collateral upon the order and direction of the
Administrative Agent, and the Borrower and each of the Artisan Entities hereby
waives any and all claims, for damages or otherwise, for any action taken by
such pledgeholder in accordance with the terms of the UCC not otherwise waived
hereunder. In any action hereunder, the Administrative Agent shall be entitled
if permitted by Applicable Law to the appointment of a receiver without notice,
to take possession of all or any portion of the Secured Obligations Collateral
and to exercise such powers as the court shall confer upon the receiver.
Notwithstanding the foregoing, during the continuation of a default of a
Supported Obligation, the Administrative Agent shall be entitled to apply,
without prior notice to any of the Borrower and the Artisan Entities, any cash
or cash items constituting Secured Obligations Collateral in the possession of
the Administrative Agent and the Lenders to payment of the Obligations.
(g) During the continuance of a default in the performance of the
Secured Obligations, the balances in the Master Collection Account or in any
other account of any of the
26
<PAGE>
Artisan Entities with a Lender, all other income on the Secured Obligations
Collateral, and all proceeds from any sale of the Secured Obligations Collateral
pursuant hereto shall be applied first toward payment of the reasonable out-of-
pocket costs and expenses paid or incurred by the Administrative Agent in
enforcing this Sponsor Agreement, in realizing on or protecting any Secured
Obligations Collateral and in enforcing or collecting any Secured Obligations or
any Guaranty thereof, including, without limitation, court costs and the
reasonable attorney's fees and expenses incurred by the Administrative Agent and
then to the indefeasible payment in full of the Secured Obligations (to be
allocated among the Secured Obligations in the same priority with regard to each
source as is provided in Section 7(c) hereof); provided, however, that, the
-------- -------
Administrative Agent may in its discretion (subject to the consent of the
Required Lenders) apply funds comprising the Secured Obligations Collateral to
pay the cost of making delivery to licensees of the Artisan Entities. Any
amounts remaining after such indefeasible payment in full shall be remitted to
the Borrower or the appropriate Artisan Entity, as the case may be, or as a
court of competent jurisdiction may otherwise direct.
(h) During the continuance of a default in the performance of the Secured
Obligations (a) each of the Borrower and the Artisan Entities does hereby
irrevocably make, constitute and appoint the Administrative Agent or any of its
officers or designees its true and lawful attorney-in-fact with full power in
the name of the Administrative Agent, such other Person or such Artisan Entity
to receive, open and dispose of all mail addressed to any of the Artisan
Entities, and to endorse any notes, checks, drafts, money orders or other
evidences of payment relating to the Secured Obligations Collateral that may
come into the possession of the Administrative Agent with full power and right
to cause the mail of such Persons to be transferred to the Administrative
Agent's own offices or otherwise, and to do any and all other acts necessary or
proper to carry out the intent of this Sponsor Agreement and the grant of the
security interests hereunder and under the Artisan Entities Security Documents,
and each of the Borrower and the Artisan Entities hereby ratifies and confirms
all that the Administrative Agent or its substitutes shall properly do by virtue
hereof; (b) each of the Borrower and the Artisan Entities does hereby further
irrevocably make, constitute and appoint the Administrative Agent or any of its
officers or designees its true and lawful attorney-in-fact in the name of the
Administrative Agent, the Borrower or any of the Artisan Entities (i) to enforce
all of such Artisan Entity's rights under and pursuant to all agreements with
respect to the Secured Obligations Collateral and to enter into such other
agreements as may be necessary or appropriate in the judgment of the
Administrative Agent to complete the production, distribution or exploitation of
any Picture which is included in the Secured Obligations Collateral, (ii) to
enter into and perform such agreements as may be necessary in order to carry out
the terms, covenants and conditions hereunder and under the Artisan Entities
Security Documents that are required to be observed or performed by any of the
Artisan Entities, (iii) to execute such other and further mortgages, pledges and
assignments of the Secured Obligations Collateral, and related instruments or
agreements, as the Administrative Agent may reasonably require for the purpose
of perfecting, protecting, maintaining or enforcing the security interests
granted to the Borrower and assigned to the Administrative Agent and under the
Artisan Entities Security Documents, and (iv) to do any and all other things
necessary or proper to carry out the intention
27
<PAGE>
of this Sponsor Agreement and the grant of the security interests hereunder and
the Artisan Entities Security Documents. Each of the Borrower and the Artisan
Entities hereby ratifies and confirms in advance all that the Administrative
Agent as such attorney-in-fact or its substitutes shall properly do by virtue of
this power of attorney.
(i) Each of the Artisan Entities hereby authorizes the Administrative
Agent to file UCC financing statements and any amendments thereto or
continuations thereof, any copyright security agreement, any copyright security
agreement supplement, any trademark security agreement and any other appropriate
security documents or instruments and to give any notices necessary or desirable
to perfect the Lien of the Borrower, in all cases without the signature of any
of the Artisan Entities or to execute such items as attorney-in-fact for any of
the Artisan Entities; provided, that the Administrative Agent shall provide
--------
copies of any such documents or instruments to the Sponsor and the Borrower.
Each of the Artisan Entities further authorizes the Administrative Agent to
notify any account debtors that all sums payable to any of the Artisan Entities
relating to the Secured Obligations Collateral shall be paid directly to the
Administrative Agent.
(j) Upon the request of the Administrative Agent, each of the Artisan
Entities hereby agrees to duly and promptly execute and deliver, or cause to be
duly executed and delivered, at the cost and expense of the Artisan Entities,
such further instruments as may be necessary or proper, in the reasonable
judgment of the Administrative Agent, to carry out the provisions and purposes
of this Section 8 or to perfect and preserve the Liens of the Borrower under the
Artisan Entities Security Documents, in the Secured Obligations Collateral or
any portion thereof.
(k) The security interests granted under this Section 8 shall terminate
when all the Secured Obligations have been indefeasibly fully paid and
performed. Upon request by the Artisan Entities (and at the sole expense of and
the Artisan Entities) after such termination, the Borrower and the
Administrative Agent will take all reasonable action and do all things
reasonably necessary, including executing UCC termination statements,
Pledgeholder Agreement terminations, termination letters to account debtors and
copyright releases, to terminate the security interest granted to the Borrower.
(l) The remedies conferred upon or reserved to the Administrative Agent in
this Section 8 are intended to be in addition to, and not in limitation of, any
other remedy or remedies available to the Administrative Agent. Without limiting
the generality of the foregoing, the Administrative Agent, shall as a result of
the assignment of the Borrower's rights have all rights and remedies of a
secured creditor under Article 9 of the UCC and under any other Applicable Law.
(m) All of the provisions of this Article 8 relating to the Sponsor
Collateral are limited by the terms of the Intercreditor Agreement.
28
<PAGE>
9 Sponsor Default and Suspension Events.
-------------------------------------
(a) Upon the occurrence of and during the continuance of a Suspension
Event under the Credit Agreement, the Administrative Agent (as the assignee for
security of the Borrower) shall have the right but not the obligation to (A)
terminate all rights of the Sponsor as a distributor under the Distribution
Agreement with regard to Declared Qualifying Pictures for which Letters of
Credit have been issued but which have not yet been delivered to the Borrower,
(B) enter into a distribution agreement with another person for the distribution
of any Declared Qualifying Pictures for which Letters of Credit have been issued
under the Credit Agreement but which have not yet been delivered to the Borrower
or which have been acquired by the Borrower but not yet released by the Sponsor
and (C) with regard to films theretofore delivered, eliminate any allocations
under Section 7 hereof with regard to the Sponsor other than as set forth under
Sections 7(a)(ii), 7(a)(iii), 7(a)(iv), 7(b)(ii) and 7(b)(iii) hereof.
(b) Upon the occurrence of and during the continuance of a Sponsor Default
under the Credit Agreement, the Administrative Agent shall have the right but
not the obligation to declare the Sponsor in its capacity as distributor in
default of the Distribution Agreement and to terminate the Distribution
Agreement without foregoing the Borrower's rights to recover damages deriving
from the Sponsor's default. In case of a Sponsor Default, Gross Receipts will be
distributed as provided in Section 7(c) hereof.
10 Guaranty of the Artisan Entities.
--------------------------------
(a) Each of the Artisan Entities unconditionally and irrevocably
guarantees to the Administrative Agent and the Lenders the due and punctual
payment by, and performance of, the obligations of the Sponsor under this
Sponsor Agreement under the Distribution Agreement, the Master Film Purchase
Agreement and each Film Purchase Agreement (the "Guaranteed Obligations"
(including interest accruing on and after the filing of any petition in
bankruptcy or of reorganization of the obligor whether or not post filing
interest is allowed in such proceeding). Each of the Artisan Entities further
agrees that the Guaranteed Obligations may be increased, extended or renewed, in
whole or in part, without notice or further assent from it, and it will remain
bound upon its guaranty notwithstanding any extension or renewal of any
Guaranteed Obligation.
(b) Each of the Artisan Entities waives presentation to, demand for
payment from and protest to, the Sponsor or any other guarantor of any of the
Guaranteed Obligations, and also waives notice of protest for nonpayment, notice
of acceleration and notice of intent to accelerate. The obligations of the
Artisan Entities hereunder shall not be affected by (i) the failure of the
Administrative Agent or the Lenders to assert any claim or demand or to enforce
any right or remedy against the Sponsor or any other guarantor under the
provisions of this Sponsor Agreement or any other agreement or otherwise; (ii)
any extension or renewal of any provision hereof or thereof; (iii) the failure
of the Administrative Agent or the Lenders to obtain the consent of the Sponsor
with respect to any rescission, waiver, compromise, acceleration,
29
<PAGE>
amendment or modification of any of the terms hereunder or of any other
agreement; (iv) the release, exchange, waiver or foreclosure of any security
held by the Administrative Agent for the Guaranteed Obligations or any of them;
(v) the failure of the Administrative Agent or the Lenders to exercise any right
or remedy against any other guarantor of the Guaranteed Obligations; or (vi) the
release or substitution of any guarantor. Without limiting the generality of the
foregoing or any other provision hereof, to the extent permitted by applicable
law, each of the Artisan Entities hereby expressly waives any and all benefits
which might otherwise be available to it under California Civil Code Sections
2799, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2848, 2849,
2850, 2899 and 3433.
(c) Each of the Artisan Entities further agrees that its guaranty
constitutes a guaranty of performance and of payment when due and not just of
collection, and waives any right to require that any resort be had by the
Administrative Agent or any Lender to any security held for payment of the
Obligations or to any balance of any deposit, account or credit on the books of
the Administrative Agent or any Lender in favor of the Sponsor, or to any other
Person.
(d) Each of the Artisan Entities hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Sponsor
and any other guarantors and any circumstances affecting the ability of the
Sponsor to perform the Guaranteed Obligations.
(e) The Artisan Entities' obligations hereunder shall not be affected by
the genuineness, validity, regularity or enforceability of the Guaranteed
Obligations, or any instrument evidencing any Guaranteed Obligation, or by the
existence, validity, enforceability, perfection, or extent of any collateral
therefor or by any other circumstance relating to the Guaranteed Obligations
which might otherwise constitute a defense to its guaranty. The Administrative
Agent, and the Lenders make no representation or warranty with respect to any
such circumstances and have no duty or responsibility whatsoever to the Artisan
Entities in respect to the management and maintenance of the Guaranteed
Obligations or any collateral security for the Guaranteed Obligations.
(f) The obligations of the Artisan Entities hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason (except
payment and performance in full of the Guaranteed Obligations), including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or set-off, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of the Artisan Entities
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Administrative Agent or any Lender to assert any claim or demand
or to enforce any remedy with regard to the Guaranteed Obligations, by any
waiver or modification of any provision hereof or thereof, by any default,
failure or delay, willful or otherwise, in the performance of the Guaranteed
Obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
the Artisan Entities or would otherwise operate as a
30
<PAGE>
discharge of the Artisan Entities as a matter of law, unless and until the
Guaranteed Obligations are paid in full.
(g) Each of the Artisan Entities further agrees that its guaranty
hereunder shall continue to be effective or be reinstated, as the case may be,
if at any time payment, or any part thereof, of any Guaranteed Obligation is
rescinded or must otherwise be restored by the Administrative Agent or the
Lenders upon the bankruptcy or reorganization of the Obligor, or otherwise. In
furtherance of the provisions of this paragraph, and not in limitation of any
other right which the Administrative Agent or the Lenders may have at law or in
equity against the Sponsor or any other Person by virtue hereof, upon failure of
the Sponsor to pay any Guaranteed Obligation when and as the same shall become
due, whether at maturity, by acceleration, after notice or otherwise, each of
the Artisan Entities hereby promises to and will, upon receipt of written demand
by the Administrative Agent on behalf of itself and/or the Lenders, forthwith
pay or cause to be paid to the Administrative Agent for the benefit of itself,
and/or the Lenders (as applicable) in cash an amount equal to the unpaid amount
of the Guaranteed Obligations with interest thereon at a rate of interest equal
to the rate specified in the Credit Agreement, and thereupon the Administrative
Agent shall assign such Guaranteed Obligation, together with all security
interests, if any, then held by the Agent in respect of such Guaranteed
Obligation, to the Artisan Entities; such assignment to be subordinate and
junior to the rights of the Administrative Agent on behalf of itself and the
Lenders with regard to amounts payable by the Sponsor in connection with the
remaining unpaid Guaranteed Obligations and to be pro tanto to the extent to
which the Guaranteed Obligation in question was discharged by the Artisan
Entities making such payments.
(h) All rights of the Artisan Entities against the Sponsor, arising as a
result of the payment by any of the Artisan Entities of any sums to the
Administrative Agent for the benefit of the Administrative Agent and/or the
Lenders or directly to the Lenders hereunder by way of right of subrogation or
otherwise, shall in all respects be subordinated and junior in right of payment
to, and shall not be exercised by any of the Artisan Entities until and unless,
the prior final and indefeasible payment in full of all the Obligations and the
termination of the Total Commitment. If any amount shall be paid to any of the
Artisan Entities for the account of the applicable Artisan Entity, such amount
shall be held in trust for the benefit of the Administrative Agent, segregated
from the applicable Artisan Entity's own assets, and shall forthwith be paid to
the Agent on behalf of the Administrative Agent and/or the Lenders to be
credited and applied to the Guaranteed Obligations, whether matured or
unmatured.
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11 Assignment to the Administrative Agent.
--------------------------------------
(a) The Borrower hereby confirms that for good and valuable consideration
it has assigned, transferred, conveyed and set over to the Administrative Agent
as security for the Obligations, various items of collateral including, but not
limited to, all of the Borrower's rights under this Agreement, the Distribution
Agreement, the Master Film Purchase Agreement and each Film Purchase Agreement,
which include, without limitation, all of the Borrower's right, title and
interest in and to any payment due or to become due from the Sponsor under this
Agreement.
(b) Each of the Artisan Entities hereby agrees that it will execute, or
cause to be executed, such additional documentation (including, without
limitation, assignment agreements or other consents) as may now or hereafter be
reasonably required by the Administrative Agent in order to otherwise effectuate
their consent to the provisions of the assignment pursuant to this Section 11.
(c) The Administrative Agent shall not have any obligation or liability
under this Agreement or any other Fundamental Document by reason of this
assignment, and the Administrative Agent shall not be obligated to perform any
of the obligations or duties of the Borrower under any of the foregoing
agreements or to take any action to collect or enforce any claim for payment
assigned hereunder.
(d) The Sponsor hereby agrees that the proceeds of any funds advanced by
it to the Borrower pursuant to clause (i), (iii) and (iv) of Section 3(a) shall
be deposited in cash directly into the Collection Account, and the Borrower
hereby specifically authorizes and directs the Sponsor to deposit such proceeds
of such funds to the Borrower under this Agreement into the Collection Account
and irrevocably authorizes and empowers the Administrative Agent to ask,
command, receive or give a discharge for any and all such amounts.
12 Term. This Agreement shall remain in full force and effect until, and
----
shall terminate when, all of the monetary Obligations shall have been "paid in
full" (as that term is defined in Section 19 hereof) by the Borrower and the
Total Commitment shall have terminated.
13 Notices. Notices and other communications provided for herein shall be
-------
in writing and shall be delivered or mailed (or if by telegram, delivered to the
telegraph company and, if by telecopier, delivered by such equipment) to the
parties at the following respective addresses:
(1) If to the Administrative Agent:
The Chase Manhattan Bank
270 Park Avenue, 37th Floor
New York, New York 10017
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Attn: Joan Fitzgibbon
Facsimile No.: (212) 270-4164
with copies to each of:
Chase Securities Inc.
1800 Century Park East, Suite 400
Los Angeles, CA 90067
Attn: Christa Thomas
Facsimile No.: (310) 788-5628
Royal & Sunalliance Insurance PLC
Leadenhall Court
I Leadenhall Street
London EC3V 1 PP
Attention: Richard Wilson
Facsimile no.: 171-588-2345
Heath Insurance Broking Limited
133 Houndsditch
London EC3A 7AH
Attention: Roger Bassett
Facsimile no: 171-234-4144
ICE Media Limited
31 Dover Street
London W1X 3RA
Attention: Graham Bradstreet
Facsimile no.: 171-434-2043
(2) If to any Artisan Entity, to it at:
2700 Colorado Avenue
Santa Monica, CA 90404-3521
Attn: General Counsel
Facsimile No.: (310) 255-3840
(3) If to the Borrower:
Artisan Film Investors Trust
c/o Artisan Pictures Inc.
2700 Colorado Avenue
Santa Monica, CA 90404-3521
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<PAGE>
Attn: General Counsel
Facsimile No.: (310) 255-3840
or such other address as such party may from time to time designate by giving
written notice to the other parties hereunder. All notices and other
communications given to any party hereto in accordance with the provisions
hereof shall be deemed to have been given on the fifth Business Day after the
date when sent by registered or certified mail, postage prepaid, return receipt
requested, if by mail, or when delivered to the telegraph company, charges
prepaid, if by telegram, or when receipt is acknowledged if by telecopier, in
each case addressed to such party as provided in this Section 13 or in
accordance with the latest unrevoked written direction from such party.
14 Successors and Assigns. All references herein to any of the
----------------------
parties to this Agreement shall be deemed to include the successors and assigns
of such party; provided, however, that neither the Sponsor nor the Artisan
-------- -------
Entities may assign any of their rights or obligations hereunder without the
prior written consent of the Administrative Agent and all of the Lenders, and
all covenants, promises and agreements by or on behalf of the Sponsor which are
contained herein shall inure to the benefit of the successors and assigns of the
Administrative Agent and any of the Lenders (including the Insurers under their
rights of subrogation); provided, further, that this Agreement may be enforced
-------- -------
only by the Administrative Agent or its successors and assigns as agent for the
Fronting Bank and the Lenders (or by the Insurers under their rights of
subrogation).
15 Amendment; Waiver; Consent. This Agreement may be amended,
--------------------------
modified or supplemented, and the terms hereof may be waived, in each case only
by a written instrument executed by all the parties to this Agreement. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent or other breach,
whether or not similar.
16 Severability. Any provision hereof which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by Applicable Law, the parties
hereby waive any provision of law which may render any provision hereof
prohibited or unenforceable in any respect.
17 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same agreement, and all signatures need not appear on any one
counterpart.
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<PAGE>
18. Headings. The headings and captions in this Agreement are for
--------
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
19. Subordination.
-------------
(a) General. Each of the Artisan Entities agrees that the
-------
Subordinated Obligations are and shall be subordinate and subject in right of
payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full of the Obligations. The expressions "paid in full" "prior
payment in full," "payment in full," or any other similar term(s) shall mean the
payment in full, in cash, of all the Obligations.
(b) Restrictions on Payment of Subordinated Obligations, etc. The
--------------------------------------------------------
Artisan Entities will not ask, demand, sue for, take or receive, directly or
indirectly, from the Borrower or the Gross Receipts of the Declared Qualifying
Pictures, in cash or other property, by setoff, or otherwise, or by executions,
garnishments, levies, attachments or by any other action relating to the
Subordinated Obligations, or in any other manner, payment of, or security for,
all or any part of the Subordinated Obligations unless and until the Obligations
shall have been paid in full. Each of the Artisan Entities expressly agrees
that, unless and until such time as the Obligations shall be paid in full, any
payment with respect to the Subordinated Obligations which is not made in a
timely manner by reason of the operation of this Agreement shall be deemed to be
deferred and the Borrower shall not be in default to an Artisan Entity by reason
of such non-payment. Each of the Artisan Entities further acknowledges and
agrees that it will not take any collateral of the Borrower (except as provided
in the Fundamental Documents) unless and until the Obligations have been paid in
full.
(c) Additional Provisions Concerning Subordination. Each of the
----------------------------------------------
Artisan Entities agrees as follows:
(i) In the event of (x) any dissolution, winding up, liquidation or
reorganization of the Borrower (whether voluntary or involuntary and
whether in bankruptcy, insolvency or receivership proceedings, or upon
an assignment for the benefit of creditors or proceedings for
voluntary or involuntary liquidation, dissolution or other winding up
of the Borrower, whether or not involving insolvency or bankruptcy, or
any other marshaling of the assets and liabilities of the Borrower or
otherwise); or (y) any Event of Default or an event which with notice
and/or passage of time would constitute an Event of Default, or any
default regarding the Subordinated Obligations:
(A) all Obligations shall first be paid to the Administrative Agent
(for the benefit of itself and the Lenders) in full before any
payment or distribution is made upon the principal of or interest
on or any fees, costs, charges or expenses in connection with the
Subordinated
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Obligations, and before any other action described in Section
19(a) is taken by an Artisan Entity; and
(B) any payment or distribution of assets of the Borrower, whether in
cash, property or securities to which an Artisan Entity would be
entitled except for the provisions hereof, shall be paid or
delivered by the Borrower, or any receiver, trustee in
bankruptcy, liquidation trustee, disbursing agent, agent or other
person making such payment or distribution, directly to the
Administrative Agent, to the extent necessary to pay in full all
Obligations remaining unpaid, after giving effect to any
concurrent payment or distribution to the Administrative Agent
before any payment or distribution is made to an Artisan Entity;
(ii) In any proceeding referred to or resulting from any event referred to
in subsection (i) of this Section 9(c) commenced by or against the
Borrower:
(A) The Administrative Agent may, and is hereby irrevocably
authorized and empowered (in its own name or in the name of the
Sponsor, another Artisan Entity or otherwise), but shall have no
obligation to, (x) demand, sue for, collect and receive every
payment or distribution referred to in Section 9(c)(i) and give
acquittance therefor, (y) file claims and proofs of claim in
respect of the Subordinated Obligations and (z) take such other
action as the Administrative Agent may deem necessary or
advisable for the exercise or enforcement of the rights or
interest of the Administrative Agent (on its own behalf and on
behalf of the Lenders) hereunder; and
(B) Each Artisan Entity will duly and promptly take such action as
the Administrative Agent may reasonably request to file
appropriate claims or proofs of claim with respect to the
Subordinated Obligations, to execute and deliver to the
Administrative Agent such powers of attorney, assignments or
other instruments as the Administrative Agent may request in
order to enable it to enforce any and all claims with respect to
the Subordinated Obligations, and to collect and receive any and
all payments or distributions which may be payable or deliverable
upon or with respect to the Subordinated Obligations;
(iii) All payments or distributions upon or with respect to the Subordinated
Obligations which are received by an Artisan Entity contrary to the
provisions of this Agreement shall be deemed to be the property of the
Administrative Agent (on behalf of itself and the Lenders), shall be
received in trust for the benefit of the Administrative Agent (on
behalf of itself and the Lenders), shall be segregated from other
funds and property held by the Artisan Entity and shall be forthwith
paid over to the Administrative Agent
36
<PAGE>
in the same form as so received (with any necessary endorsement) to be
applied to the payment or prepayment of the Obligations until the
Obligations shall have been paid in full;
(iv) Each Artisan Entity hereby waives any requirements for marshalling of
assets by the Administrative Agent in connection with any foreclosure
of any lien of the Administrative Agent (on behalf of itself and the
Lenders);
(v) Each Artisan Entity shall not take any action to impair or otherwise
adversely affect the foreclosure of, or other realization of the
rights of the Administrative Agent (on behalf of itself and the
Lenders) under the Fundamental Documents; and
(vi) The Administrative Agent is hereby authorized to demand specific
performance of this Agreement at any time when each Artisan Entity
shall have failed to comply with any of the provisions of this
Agreement, and each Artisan Entity hereby irrevocably waives any
defense based on the adequacy of a remedy at law which might be
asserted as a bar to such remedy of specific performance.
(d) Subrogation. Each Artisan Entity agrees that no payment or
-----------
distribution to the Administrative Agent pursuant to the provisions of this
Agreement shall entitle an Artisan Entity to exercise any rights of subrogation
in respect thereof until the Obligations shall have been paid in full.
20. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ANY CHOICE OF LAW RULES THEREOF WHICH MIGHT APPLY THE LAWS OF ANY OTHER
JURISDICTION.
21. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
--------------------
WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES, AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER
HEREOF OR ANY FUNDAMENTAL DOCUMENT (AS THAT TERM IS DEFINED IN THE CREDIT
AGREEMENT), IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS
BEEN INFORMED BY THE OTHER PARTIES THAT THE PROVISIONS OF THIS SECTION
CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH OTHER PARTIES AND THE LENDERS HAVE
RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER
FUNDAMENTAL
37
<PAGE>
DOCUMENT. A PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 21
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER
OF ITS RIGHTS TO TRIAL BY JURY.
22. Remedies; No Waiver. No failure on the part of the Administrative
-------------------
Agent to exercise, and no delay in exercising, any right, power, privilege or
remedy hereunder or under any other Fundamental Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power, privilege or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. All remedies hereunder
are cumulative and are not exclusive of any other remedies provided by law.
23. Submission to Jurisdiction; Service of Process. EACH ARTISAN
----------------------------------------------
ENTITY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE
STATE OF NEW YORK AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR
OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER
HEREOF OR ANY FUNDAMENTAL DOCUMENT BROUGHT BY THE ADMINISTRATIVE AGENT OR ANY OF
ITS SUCCESSORS OR ASSIGNS IN EITHER OF THE ABOVE-REFERENCED FORUMS AT THE SOLE
OPTION OF THE ADMINISTRATIVE AGENT. EACH ARTISAN ENTITY (A) HEREBY WAIVES, AND
AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT SUCH SUIT,
ACTION OR PROCEEDING IN THE ABOVE-REFERENCED COURTS IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THIS AGREEMENT, THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL
DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO
REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE ADMINISTRATIVE
AGENT IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY WAIVES THE RIGHT TO ASSERT
IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT
COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT
MATTER. EACH ARTISAN ENTITY HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT ITS
ADDRESS TO WHICH NOTICES ARE TO BE GIVEN PURSUANT TO SECTION 13 HEREOF. EACH
ARTISAN ENTITY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE
OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE ADMINISTRATIVE
38
<PAGE>
AGENT AND THE LENDERS. FINAL JUDGMENT AGAINST SPONSOR AND/OR AN ARTISAN ENTITY
IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED
IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A
CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE
AMOUNT OF INDEBTEDNESS, LIABILITY OR OTHER OBLIGATION OF THE ARTISAN ENTITY
THEREIN DESCRIBED OR (Y) IN ANY OTHER MANNER PROVIDED BY, OR PURSUANT TO, THE
LAWS OF SUCH OTHER JURISDICTION, PROVIDED, HOWEVER, THAT THE ADMINISTRATIVE
-------- -------
AGENT OR ANY OF ITS SUCCESSORS OR ASSIGNS MAY AT ITS OPTION BRING SUIT, OR
INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST AN ARTISAN ENTITY OR ANY OF ITS
ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR
PLACE WHERE THE SPONSOR OR SUCH ARTISAN ENTITY OR SUCH ASSETS MAY BE FOUND.
24. Quiet Enjoyment. The Administrative Agent acknowledges that its
---------------
security interest hereunder is subject to the rights of Quiet Enjoyment (as that
term is defined in Section 8.13 of the Credit Agreement and Section 19 of the
Intercreditor Agreement) of the Sponsor under the Distribution Agreement, as
provided in and in accordance with Section 8.13 of the Credit Agreement.
25. Entire Agreement. This Agreement represents the entire agreement
----------------
of the parties with regard to the subject matter hereof, and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the day and year first above written.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN MUSIC INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN RELEASING INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By: /s/ Mark Curcio
-------------------------------
Name:
Title: Authorized Signatory for
each of the foregoing
SILENT DEVELOPMENT CORP.
By: /s/ Ken Schapiro
-------------------------------
Name:
Title: EVP
40
<PAGE>
TONGUE-TIED INC.
By: /s/ Ken Schapiro
-----------------------------
Name:
Title:
FILM HOLDINGS CO.
By: /s/ Joe Pretlin
-----------------------------
Name:
Title:
ARTISAN FILM INVESTORS TRUST
By: Artisan Pictures Inc., as Designee
By: /s/ Ken Schapiro
-----------------------------
Name:
Title:
Address: c/o Artisan Pictures, Inc. at
2700 Colorado Avenue
Santa Monica, CA 90404-3521
THE CHASE MANHATTAN BANK,
as Administrative Agent
By: /s/ Joan M. Fitzgibbon
-----------------------------
Name:
Title: Managing Director
41
<PAGE>
SCHEDULE 1
Definition of Gross Receipts
1. Definition of Distributor: As used in this Schedule 1 and in
-------------------------
Schedule 3, "Distributor" means the Artisan Entities and their subdivisions and
affiliates to the extent such subdivisions and affiliates are engaged in the
business of distributing theatrical motion pictures, but shall not include any
other persons, firms or corporations licensed by Distributor to distribute
motion pictures in any part of the world. Nor shall such term include:
exhibitors or others who may actually exhibit a Declared Qualifying Picture to
the public; radio or television broadcasters; cable services or operators;
manufacturers, wholesalers or retailers of video discs, cassettes or similar
devices; book or music publishers; phonograph record producers or distributors;
manufacturers, distributors, wholesalers, retailers or operators of any types of
merchandise, goods, services or theme park or other attractions, whether or not
any of the foregoing are subdivisions or affiliates of Distributor. As used in
this paragraph, "affiliate" as applied to Distributor shall mean any entity
controlling, controlled by or under common control with Distributor, and the
word "control" (including "controlled by" and "controlling") shall be deemed to
mean possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such entity through the ownership of
more than fifty percent (50%) of such entity's voting securities.
2. Definition of Gross Receipts. "Gross Receipts" with respect to a
----------------------------
Declared Qualifying Picture means all monies and other things of value actually
received or used by, or credited to the account of Distribution arising from or
attributable to the Declared Qualifying Picture (other than items which are to
be used to reduce Total Negative Cost) including without limitation the
following:
(a) All Film Rentals (as defined below) (whether money or other
items of value) actually received by or used or credited to the account of
Distributor from parties exhibiting such Declared Qualifying Picture in theaters
and on television where Distributor distributes directly to such parties
(hereinafter referred to as "exhibitors").
(b) An amount equal to one-hundred percent (100%) of all sums
actually received by Distributor from the exploitation of Video Rights provided
that:
(i) Gross Receipts shall be deemed to exclude sums received by
Distributor which represent sales taxes, value added taxes, excise taxes
and similar taxes (exclusive of remittance taxes) which are collected by
Distributor as required by any requisite taxing authorities of any
government;
(ii) Gross Receipts shall at all times be subject to retroactive
adjustments for returns, refunds, credits, settlements, rebates and
discounts;
1
<PAGE>
(iii) Distributor shall be entitled to establish reserves against
Gross Receipts for future returns. Said reserves shall be maintained at
reasonable levels for a reasonable amount of time consistent with
Distributor's policies for its own product. It is understood between the
parties that 100% of such reserves shall be liquidated no later than one
(1) year following the accounting period (as hereinafter defined) for
which such reserves were set up; provided, however, that if Distributor
-------- -------
estimates that future returns will exceed reserves as established at the
end of any accounting period then Distributor shall have the right to
establish sufficient reserves to cover such estimated future returns.
(c) All monies and other things of value actually received or used
by, or credited to the account of Distributor from the following: (i) trailers;
(ii) licenses of theatrical distribution rights for a flat sum; (iii) exhibition
or distribution or other exploitation rights in and to such Declared Qualifying
Picture other than those referred to in (a), (b), and (c) (ii) of this Section
2, specifically including licenses to cable operators (specifically including
all forms of pay, subscription and other types of non-free television), and
including all net revenues received by Distributor from the sale of commercial
air time in connection with the exhibition of such Declared Qualifying Picture
on television, after deducting any advertising agency commissions charges; (iv)
the lease of positive prints (as distinguished from the licensing thereof for a
Film Rental) and the sale or licensing of advertising accessories, souvenir
programs and booklets; and (v) recoveries by Distributor for infringement,
unfair competition, violations of Section 43(a) of the Lanham Act, trademark,
patent infringement, defamation and piracy actions with respect to such Declared
Qualifying Picture.
(d) All monies actually received by Distributor on account of direct
subsidies, aide or prizes relating specifically to such Declared Qualifying
Picture.
(e) All sums received by Distributor from copyright tribunal, cable
retransmission, rental rights and other forms of government administered or
mandated reuse payments relating specifically to the Declared Qualifying
Picture.
(f) All sums derived by Distributor from distribution of the
Declared Qualifying Picture on a four-wall basis (as such term is commonly
understood in the motion picture industry).
(g) The sums to be included in Gross Receipts under Exhibits 1, 2
and 3 to this Schedule 1.
Notwithstanding anything to the contrary contained herein, no sums
received by Distributor from any of its affiliates with respect to a Declared
Qualifying Picture shall be included in Gross Receipts hereunder if such
affiliate's revenues with respect to such Declared Qualifying Picture have
already been included in Gross Receipts hereunder.
-2-
<PAGE>
Gross Receipts shall not include:
(i) All sums paid or accrued on account of withholding, sales, use,
receipts, income, excise and other taxes (however denominated other than
remittance taxes) to any governmental authority assessed upon the
negatives, duplicate negatives, prints or sound records of Declared
Qualifying Pictures, or upon the use or distribution of the Declared
Qualifying Picture, or upon the revenues derived therefrom (other than the
remittance taxes contemplated by Section 7(b)(iv) of the Sponsor
Agreement), or any part thereof, any and all sums paid or accrued on
account of duties, customs and imposts, costs of acquiring permits,
"Kontingents," or and any similar authority to secure the entry,
licensing, exhibition, performance, use or televising of the Declared
Qualifying Picture in any country or part thereof, regardless of whether
such payments or accruals are assessed against the Declared Qualifying
Picture or the proceeds thereof or against a group of motion pictures in
which the Declared Qualifying Picture may be included or the proceeds
thereof. In no event shall the deductible amount of any such tax (however
denominated) imposed upon Distributor, be decreased (nor the Gross
Receipts increased) because of the manner in which such taxes are elected
to be treated by Distributor in filing net income, corporate franchise,
excess profits or similar tax returns. Subject to the foregoing:
Distributor's own United States federal and state income taxes and
franchise taxes based on Distributor's net income shall not be deducted
hereunder.
(ii) Expenses of transmitting to the United States any funds
accruing to Distributor from the Declared Qualifying Picture in foreign
countries, such as cable expenses and any discounts from such funds taken
to convert such funds directly or indirectly into U.S. Dollars.
(iii) The cost of reducing or minimizing the matters referred to in
(i) or (ii) above, which costs shall be fairly apportioned to the Declared
Qualifying Picture if done on an industry basis or with respect to motion
pictures distributed by Distributor generally.
3. Film Rentals: As used herein, "Film Rentals" shall be determined
------------
after all rebates, refunds, credits, discounts, allowances and adjustments
granted to exhibitors, broadcasters and other licensees, whether occasioned by
condemnation by boards of censorship, settlement of disputes or otherwise.
Advance payments and security deposits shall be included in Film Rentals upon
their receipt by Distributor, provided that if they are returnable, then in the
event they are so returned Distributor shall correspondingly reduce gross
receipts for the accounting period involved. No cost (regardless of how
incurred, paid or allowed) of Distributor's share of cooperative and/or theater
advertising shall be deducted in determining Film Rentals. Where allowances are
granted and paid on account of Distributor's share of cooperative theater or
joint advertising, such payments shall not be deducted in determining Film
Rental, and where Distributor's share of cooperative theater or joint
advertising is deducted by the exhibitor, Distributor's share of cooperative
theater or joint advertising shall be added back
-3-
<PAGE>
into the Film Rentals received from such exhibitor, and all such costs (I.E.,
allowances paid or granted on account of cooperative theater or joint
advertising) payments, discounts and allowances shall be treated as Distribution
Expenses and shall be a charge against the Formula Amount of Domestic
Distribution Expenses to the extent provided for in the Credit Agreement.
4. Allocations. Wherever Distributor (i) receives from any license
-----------
either a flat sum or a percentage of the receipts, or both, for any right to a
group of motion pictures (including any Declared Qualifying Picture) under any
agreement (whether or not the same shall provide for the exhibition, lease or
delivery of positive prints of any of said motion pictures) which does not
specify what portion of the license payments apply to the respective motion
pictures in the group (or to such prints or other material, if any, as may be
supplied), or (ii) receives foreign currency under Section 5 hereof relating to
a group of motion pictures (including any Declared Qualifying Picture) without
specification of what portion of such payment applies to the respective motion
pictures in the group then in any and all such situations Distributor shall
include in, or deduct from, Gross Receipts, as the case may be, such sums,
determined in good faith, as may be reasonable and consistent with Distributor's
usual practice in such matters.
5. Foreign Receipts: Sums received by Distributor which relate to a
----------------
Declared Qualifying Picture shall not be included in Gross Receipts hereunder
unless and until such sums: (i) have been received by Distributor in U.S.
dollars in the United States; or (ii) are freely remittable to the United
States; or (iii) are used by Distributor for any purpose in the territory
involved. In the event, the U.S. dollar equivalent of the currency utilized in a
territory shall be included in Gross Receipts hereunder for the accounting
period during which such Gross Receipts became freely transmittable or were so
utilized (as applicable), such U.S. dollar equivalent to be computed at the
then-prevailing official or unofficial rate of exchange, as Distributor may
elect to use consistent with the rates used for Distributor's own motion
pictures at the applicable time. Distributor will, promptly after receipt of a
written request from the Borrower or the Administrative Agent (but not more
frequently than semi-annually), advise the Borrower and the Administrative Agent
in writing as to foreign revenues not included in Gross Receipts, as aforesaid,
and Distributor shall, at the written request of the Borrower or the
Administrative Agent (subject to any and all limitations, restrictions, laws,
rules and regulations affecting such transactions), deposit into an account with
a bank designated by the Administrative Agent, such part thereof as would have
been payable to the Borrower hereunder. Such deposits or payments to or for the
Borrower shall constitute due remittance to the Borrower, and Distributor shall
have no further interest therein or responsibility therefor. At the
Administrative Agent's written request, Distributor will uses its best efforts
to convert such deposits or payments into US. dollars to the same extent and in
the same proportion that Distributor is able to convert is own blocked
currencies in the country or countries involved at the relevant times.
Distributor makes no representations or warranties that any part of any such
foreign currencies may be converted into U.S. dollars or transferred to the
account of the Administrative Agent in any foreign country.
-4-
<PAGE>
6. "The Ninth Gate"/ "Stir of Echoes": For the avoidance of doubt,
---------------------------------
Gross Receipts for "The Ninth Gate" and "Stir of Echoes" shall include any
amounts paid directly to an Artisan Entity or as off-set against obligations of
an Artisan Entity prior to October 13, 1999.
-5-
<PAGE>
Exhibit 1 to Schedule 1
MUSIC PUBLISHING INCOME
There shall also be included in Gross Receipts with respect to a
Declared Qualifying Picture, in each case to the extent received and retainable
by Distributor for its own account.
A sum equal to one-hundred percent (100%) of Distributor's share of
the "publisher's share" of mechanical reproduction, synchronization license and
performing fees received in U.S. currency by Distributor's subsidiary or
affiliated publisher with respect to music and lyrics written specifically for
and synchronized in the Declared Qualifying Picture as released. The
"publisher's share" of mechanical reproduction and synchronization license fees
shall be the full amount paid by the licensee, less the share of such fees
payable to any composer, author, arranger, adapter, translator or other party
having an interest in the copyright thereof, and less the costs and charges of
the publisher or any agent, trustee or administrator acting for the publisher
for the collection of such fees, not to exceed five percent (5%) thereof.
The "publisher's share" of performing fees shall be the net amount
actually received by the publisher from any performing rights society in respect
of the music and lyrics involved; or, if Distributor or the publisher shall
administer the collection of all or any part of performance fees, the full
amount of all performance fees collected by Distributor or the publisher, less
the shares of such fees payable to any composer, author, arranger, adapter,
translator or other party having an interest in the copyright hereof and all
reasonable costs and expenses in administering the collection of such fees. If
Distributor or its subsidiary or affiliated publisher is not entitled to
one-hundred percent (100%) of the publisher's share of mechanical reproduction,
synchronization license and performing fees by reason of a "split" publishing
agreement with the composer or lyricist of the music and lyrics involved, or any
corporation furnishing the services of such composer or lyricist, then only the
pro-rata share of Distributor or its subsidiary or affiliated publisher shall be
included for the purpose of the foregoing computations.
<PAGE>
Exhibit 2 to Schedule 1
SOUNDTRACK RECORD INCOME
There shall also be included in Gross Receipts with respect to a
Declared Qualifying Picture royalties on soundtrack records, as herein defined,
in each case to the extent received and retainable by Distributor for its own
account.
A sum equal to one-hundred percent (100%) of the net royalty
actually received and retainable by Distributor for its own account from the
record company with respect to the sale of soundtrack records relating to the
Declared Qualifying Picture, as such royalty may be reduced, calculated,
computed and paid in the same manner as the soundtrack record royalty paid to
Distributor under the applicable agreement with the record company is reduced,
calculated, accounted for and paid (including without limitation deductions
representing the pro rata share of re-use fees and costs of recording and
manufacturing masters advanced by Distributor or the record company); provided
that if any soundtrack record contains selections from other sources, the
applicable gross royalty received and retainable by Distributor with respect to
such records shall be prorated on the basis of the total number of minutes of
selections from the soundtrack of the Declared Qualifying Picture compared to
the total number of minutes on such records.
As used herein, the term "soundtrack records" means and refers to
phonograph records, tapes, or other sound recordings which contain either (i)
portions of the soundtrack transferred directly to phonograph record masters
from sound records which form a part of the soundtrack of the Declared
Qualifying Picture; or (ii) sound recordings recorded separately but utilizing
substantially the same musical score, parts and instrumentation, and essentially
the same artists, music and/or dialogue and/or sound effects as is contained in
the soundtrack of the Declared Qualifying Picture; or (iii) a combination of (i)
and (ii). Soundtrack records do not, however, include any recordings produced
solely for the purpose of advertising and exploiting the Declared Qualifying
Picture and copies of which are not distributed to the public.
<PAGE>
Exhibit 3 to Schedule 1
MERCHANDISING INCOME
There shall be included in Gross Receipts with respect to a Declared
Qualifying Picture, in each case to the extent received and retainable by
Distributor for its own account:
(i) A sum equal to one-hundred percent (100%) of all license fees
(in excess of all royalties and participations) received by Distributor directly
as a result of the exercise by Distributor itself of merchandising license
rights. If, however, Distributor shall sublicense or sub-contract any of such
merchandising license rights to a non-affiliated entity, Distributor shall
include in Gross Receipts hereunder a sum equal to one-hundred percent (100%) of
the net sums (in excess of all royalties and sublicensee's fees) received from
such sub-licensee.
(ii) All net sums received by Distributor from non-affiliated or
non-subsidiary publishers from the publication of such underlying literary
material and of novelizations of the screenplay of the Declared Qualifying
Picture, and (ii) the net receipts of Distributor's subsidiary or affiliated
publishers from the publication of such material and novelizations, less, in
either case, royalties paid out of (i) or (ii) to the writers of such material
and novelizations.
<PAGE>
SCHEDULE 2
Definition of Domestic Distribution Expenses
1. Domestic Distribution Expenses. With respect to each Declared
------------------------------
Qualifying Picture, Distributor's "Domestic Distribution Expenses" in connection
with such Declared Qualifying Picture shall include all direct costs, charges
and expenses incurred and paid in connection with the distribution, advertising,
exploitation and turning to account of the Declared Qualifying Picture of
whatever kind or nature, or which are customarily treated as distribution
expenses under customary accounting procedures in the motion picture industry
incurred in connection with the theatrical exploitation in the United States but
shall exclude all Video Costs. Without limiting the generality of the foregoing,
the following particular items shall be included in Domestic Distribution
Expenses hereunder with respect to the U.S. theatrical exploitation of each
Declared Qualifying Picture.
(a) The costs and expense of all duped and dubbed negatives
(prepared for exploitation in the United States), sound tracks, prints,
release prints, tapes, cassettes, duplicating material and facilities and
all other material manufactured for use in connection with the Declared
Qualifying Picture, including the cost of inspecting, repairing, checking
and renovating film, reels, containers, cassettes, packing, storing and
shipping and all other expenses connected therewith and inspecting and
checking exhibitors' projection and sound equipment and facilities.
Distributor may manufacture or cause to be manufactured as many or as few
duped negatives, positive prints and other material for use in connection
with the Declared Qualifying Picture as Distributor, in its sole
discretion, may consider advisable or desirable.
(b) All direct costs and charges for advertisements, press books,
artwork, advertising accessories and trailers (other than the trailer
production costs which are included in the Total Negative Costs of the
Declared Qualifying Picture), advertising, publicizing and exploiting the
Declared Qualifying Picture by such means and to such extent as
Distributor may, in its uncontrolled discretion, deem desirable,
including, without limitation, pre-release advertising and publicity,
so-called cooperative and/or theater advertising, and/or other advertising
engaged in with or for exhibitors, to the extent Distributor pays, shares
in, or is charged with all or a portion of such costs and all other
exploitation costs relating to such theater exhibition.
(c) To the extent not included in Total Negative Cost, all direct
costs of preparing and delivering the Declared Qualifying Picture for
distribution, including, without limitation, any and all costs and
expenses in connection with changing the title of the Declared Qualifying
Picture, recutting, re-editing or shortening or lengthening the Declared
Qualifying Picture for theatrical release in the United States, or in
order to conform to the requirements of censorship authorities.
<PAGE>
(d) All costs and expenses, including reasonable attorneys' fees,
loss, damage or liability, suffered or incurred by Distributor in
connection with: any action taken by Distributor (whether by litigation or
otherwise) in copyrighting, protecting and enforcing the copyright of, and
other rights and sources of revenue to be derived from the theatrical
distribution of the Declared Qualifying Picture; the collection of Film
Rentals and other sums due Distributor from exhibitors, and others in
respect of the theatrical distribution of the Declared Qualifying Picture
or to recover monies due pursuant to any agreement relating to the
exhibition of the Declared Qualifying Picture; checking attendance and
exhibitors' receipts; preventing and/or recovering damages for
unauthorized exhibition of the Declared Qualifying Picture, or any
impairment of, encumbrance on or infringement upon the rights of
Distributor in and to the Declared Qualifying Picture; and auditing of
books and records of any exhibitor; provided that the foregoing costs and
expenses shall not include the salaries of Distributor's regularly
employed in-house legal or accounting staff; provided further that the
portion of checking and collection costs described in this subsection (d)
-------------
allocable to the Declared Qualifying Picture shall be limited to one
percent (1%) of Gross Receipts derived by Distributor with respect to such
Declared Qualifying Picture from theatrical distribution in the United
States.
(e) All discounts, rebates, credits and other similar benefits
(whether based on volume or otherwise) accorded to Distributor in whole or
in part in connection with Distributor's distribution of the Declared
Qualifying Pictures shall be allocated to and credited against the
Domestic Distribution Expenses on a fair and reasonable basis as between
the Declared Qualifying Pictures and other motion pictures.
(f) If Distributor makes any expenditure or incurs any liability in
respect of a group of motion pictures including any Declared Qualifying
Picture or any rights therein that does not specify which applicable
expenditure or liability applies to the respective motion pictures in such
group (or to such prints or other material, if any, as may be supplied),
then in any and all situations Distributor shall include in Domestic
Distribution Expenses, or deduct from Gross Receipts, as the case may be,
such sums, determined in good faith, as may be allocable to such Declared
Qualifying Pictures and reasonable and consistent with Distributor's usual
practice in such matters.
-2-
<PAGE>
SCHEDULE 3
Definition of Video Expenses
1. General Definitions: As used in this Schedule 3, the following
-------------------
terms shall have the following meanings:
"Devices" shall mean, with respect to a Declared Qualifying Picture,
any cassette, cartridge, phonogram, videodisc, laser or capacitance disc, tape
or other similar device now known or hereafter devised and designed for use in
conjunction with a reproduction apparatus which causes the Declared Qualifying
Picture to be visible on the screen of a television receiver or comparable
device now known or hereafter devised, primarily for use in private dwellings,
it being understood that audiovisual devices may be used for other purposes and
for other media.
"Home Video Rights" means the right to exploit a Declared Qualifying
Picture embodied in a Device which is rented or sold to the viewer only for
viewing the embodied Declared Qualifying Picture in private where no admission
fee is charged with respect to such viewing. As used herein, such rights do not
include the public performance, diffusion, exhibition or broadcast of a Device.
"Unrelated Third Parties" shall mean any and all entities other than
Distributor.
2. Video Expenses: "Video Expenses" means the sum of the following,
--------------
without duplication, after giving effect to all rebates and discounts and
exclusive of any costs incurred in connection with the theatrical distribution
of the relevant Declared Qualifying Picture in each case relating to the
manufacture and distribution of Devices relating to a Declared Qualifying
Picture:
a. Print and Manufacturing Costs: All actual, out-of-pocket
-----------------------------
costs and expenses paid or advanced by Distributor in connection with the
manufacture and/or production of the Devices, including but not limited to
the costs of mastering, duplicating, re-editing, making foreign versions
(including dubbing or subtitling of the Declared Qualifying Picture),
changing the title of the Declared Qualifying Picture, anti-piracy and
anti-counterfeiting devices, packaging and raw materials.
b. Expenses: All actual, out-of-pocket costs and expenses paid,
--------
advanced or incurred by Distributor in connection with the distribution,
advertising, exploitation and turning to account of the Devices of
whatever kind or nature, or which are customarily treated as video
distribution expenses under customary accounting procedures in the motion
picture industry. Without limiting the generality of the foregoing, the
following particular items shall be included in Video Expenses hereunder:
(i) all shipping and delivery charges, including the cost of containers,
packing, handling, "pick, pack and ship", transportation, storage and
insurance and all duties and customs
<PAGE>
imposed in connection with such shipments; (ii) all costs in connection
with the selling, promotion and advertising of the Devices, including
publicity, promotional trailers, marketing presswork, artwork,
fulfillment, co-op advertising, mass merchant advertising, mailers and
sales commissions; (iii) the following costs, but only to the extent
fairly allocable to the distribution of the Devices: (A) costs to protect
the copyright of the Declared Qualifying Picture, dues and assessments
paid to fund its anti-piracy program and costs incurred by reason of
claims asserted by third parties (including reasonable attorneys' fees),
and (B) costs in connection with the collection of monies; and (iv) the
cost and expense of duped and dubbed negatives, soundtracks, prints,
release prints, tapes, cassettes, duplicating material and facilities and
all other material manufactured for use in connection with the
exploitation of the Devices;
c. Prototype Costs: All actual, out-of-pocket costs and
---------------
expenses incurred by Distributor (including but not limited to costs of
development, facilities, materials, services, use of equipment, foreign
version dubbing, editing, sub-titling and closed captioning) in connection
with all steps in the process leading to and including the production of
the masters which are made to serve as prototypes for the duplication of
the Declared Qualifying Picture in the form of Devices, and the
development and production of domestic and foreign prototype packaging and
advertising for Devices;
d. Other Costs: All other reasonable actual, out-of-pocket
-----------
costs for which distributors of home videos are customarily reimbursed;
<PAGE>
SCHEDULE 4
Earning Statements Accounting Records and Audits
------------------------------------------------
1. Earnings Statements: The Sponsor shall render to the Borrower,
-------------------
the Administrative Agent and the Lead Insurer under the Cash Flow Insurance and
its risk manager monthly statements within 20 days after the end of each monthly
period showing, in summary form, the appropriate calculations under the Sponsor
Agreement with regard to amounts received and disbursed with regard to Declared
Qualifying Pictures. Each such monthly period, as the case may be, is herein
referred to as an "accounting period". No statements need be rendered for any
accounting period during which no receipts are received. Statements rendered by
the Sponsor may be changed from time to time to give effect to year-end
adjustments made by the Sponsor's Accounting Department or Public Accountants,
or to items overlooked, to correct errors and for similar purposes. Should the
Sponsor make any overpayment to the Administrative Agent for the benefit of the
Borrower under the Sponsor Agreement for any reason, the Sponsor shall have the
right to deduct and retain for its own account an amount equal to any such
overpayment from any sums that may thereafter become due or payable by the
Sponsor to the Borrower or for the Borrower's account or may demand repayment
from the Borrower, in which event the Borrower shall repay the same when such
demand is made. Any U.S. dollars due and payable to the Borrower by the Sponsor
pursuant to any such statement shall be paid to the Collection Agent as set
forth in the Intercreditor Agreement simultaneously with the rendering of such
statement, provided, however, that all amounts payable to the Collection Agent
hereunder shall be subject to all laws and regulations now or hereafter in
existence requiring deduction or withholdings for income or other taxes payable
by or assessable against the Collection Agent. The Sponsor shall have the right
to make such deductions and withholdings and the payment thereof to the
governmental agency concerned in accordance with its interpretation in good
faith of such laws and regulations, and shall not be liable to the Borrower or
the Administrative Agent for the making of such deductions or withholdings or
the payment thereof to the governmental agency concerned. In any such event, the
Borrower shall make and prosecute any and all claims which it may have with
respect to the same directly with the governmental agency having jurisdiction in
the premises.
2. Accounting Records; Audit Records: The Sponsor shall keep books
---------------------------------
of account relating to the distribution of all Declared Qualifying Pictures,
together with vouchers, exhibition contracts and similar records supporting the
same (all of which are hereinafter referred to as "records"), which shall be
kept on the same basis and in the same manner and for the same periods as such
records are customarily kept by the Sponsor. The Administrative Agent may audit
the applicable records at the place where the Sponsor maintains the same in
order to verify earnings statements rendered hereunder. Any such audit shall be
conducted only by a reputable public accountant during reasonable business hours
in such manner as not to interfere with the Sponsor's normal business
activities. In no event shall an audit with respect to any earnings statement
commence later than 24 months from the rendition of the earnings statement
involved; provided, however, that Administrative Agent may in the first audit
-------- -------
review all prior statements;
<PAGE>
nor shall any audit continue for longer than 30 consecutive business days; nor
shall audits be made hereunder more frequently than once annually; nor shall the
records supporting any earnings statement be audited more than once. All
earnings statements rendered hereunder shall be binding upon the Borrower and
not subject to objection for any reason unless such objection is made in
writing, stating the basis thereof in specific detail and delivered to the
Sponsor prior to the later of 24 months from rendition of the earnings statement
and September 1, 2005, or if an audit is commenced prior thereto, within 30 days
from the completion of the relative audit.
2
<PAGE>
EXHIBIT A
INTERCREDITOR AGREEMENT, dated as of October 13,
1999, among (i) THE CHASE MANHATTAN BANK'S CAPITAL
MARKET FIDUCIARY SERVICES GROUP, as Collection Agent
(the "Collection Agent"), (ii) THE CHASE MANHATTAN
BANK, as Collateral Agent for the Sponsor Lenders
and Canyon (as such terms are hereinafter defined)
(the "Sponsor Agent") and as Administrative Agent
for the Sponsor Lenders, (iii) THE CHASE MANHATTAN
BANK, as Administrative Agent for the AFI Lenders
(as hereinafter defined) (the "AFI Agent"), (iv)
ARTISAN FILM INVESTORS TRUST ("AFI"), (v) ARTISAN
PICTURES, INC. (the "Sponsor") and (vi) the
Affiliates of the Sponsor listed on Exhibit D hereto
("Sponsor Affiliates", and together with the
Sponsor, the "Artisan Entities") (as the same may be
amended, modified or otherwise supplemented from
time to time, the "Intercreditor Agreement").
INTRODUCTORY STATEMENT
----------------------
WHEREAS, Sponsor and the other Artisan Entities have entered into an
Amended and Restated Credit and Guaranty Agreement, dated as of July 9, 1997 as
amended and restated as of August 10, 1998 (as the same may be amended,
supplemented or otherwise modified, the "Sponsor Credit Agreement"), among
Sponsor and Artisan Home Entertainment Inc., as Borrowers, the Guarantors named
therein, the Lenders named therein (the "Sponsor Lenders"), and The Chase
Manhattan Bank as Administrative Agent (the "Sponsor Administrative Agent") and
as Fronting Bank; and
WHEREAS, Sponsor and the other Artisan Entities have entered into a
Note and Stock Purchase Agreement dated as of July 9, 1997 (as the same may be
amended, supplemented or otherwise modified, the "Note Purchase Agreement"),
among Sponsor, Film Holdings Co. ("Holdings"), the Guarantors named therein and
Canpartners Investments IV, LLC ("Canyon") as the initial purchaser, pursuant to
which Sponsor has issued $15,000,000 of 13.5% Senior Subordinated Secured Notes
due 2004; and
WHEREAS, the obligations of Sponsor under the Sponsor Credit
Agreement and the Note Purchase Agreement are secured by the Secured Obligations
Collateral (as hereinafter defined) pursuant to the Security Documents (as
hereinafter defined); and
<PAGE>
WHEREAS, Sponsor and the other Artisan Entities have entered into an
Intercreditor and Collateral Agency Agreement dated as of July 9, 1997 among the
Collateral Agent, the Sponsor Administrative Agent, Canyon, Holdings, Sponsor
and the Artisan Entities named therein (as the same may be amended, supplemented
or otherwise modified, the "Collateral Agency Agreement") pursuant to which,
among other things, the Sponsor Administrative Agent and Canyon have appointed
the Sponsor Agent as their agent for the purpose of enforcing their respective
rights in respect of the Secured Obligations Collateral and administering the
Secured Obligations Collateral in accordance with the terms of the Collateral
Agency Agreement; and
WHEREAS, AFI has entered into a Credit and Security Agreement dated
as of October 13, 1999 (as the same may be amended, supplemented or otherwise
modified, the "AFI Credit Agreement") among AFI as Borrower, the Lenders named
therein (such Lenders being referred to herein as the "AFI Lenders") and the AFI
Agent as Administrative Agent and as Fronting Bank pursuant to which the AFI
Lenders have agreed to make loans and issue letters of Credit to the Borrower
and as security therefor the Borrower has granted the AFI Agent for the benefit
of the AFI Lenders a security interest in and to the AFI Priority Collateral;
and
WHEREAS, AFI, the Sponsor, the other Artisan Entities and the AFI
Agent have entered into a Sponsor Agreement dated as of October 13, 1999 (as the
same may be amended, supplemented or otherwise modified, the "Sponsor
Agreement") pursuant to which among other things, the Sponsor has agreed to
advance certain sums to AFI Lenders and provide certain commitments to the AFI
Lenders in connection with the AFI Credit Agreement and, as security for the
Sponsor's obligations thereunder, the Artisan Entities have granted AFI a
security interest in and to their rights in the Secured Obligations Collateral;
and
WHEREAS, the Sponsor and AFI have entered into a Distribution
Agreement with respect to the Declared Qualifying Pictures, dated as of October
13, 1999 (the "Distribution Agreement"); and
WHEREAS, the execution of this Intercreditor Agreement is required
by the terms of the AFI Credit Agreement, the Sponsor Credit Agreement and the
Collateral Agency Agreement; and
WHEREAS, the parties hereto desire to enter into this Intercreditor
Agreement with respect to the exercise of certain rights, remedies and options
by the respective parties under the aforementioned documents.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. The following terms as used herein shall have
-----------
the following meanings:
<PAGE>
"Affiliate" shall mean any Person which, directly or indirectly, is in
---------
control of, is controlled by, or is under common control with, another Person.
For purposes of this definition, a Person shall be deemed to be "controlled by"
another Person if such latter Person possesses, directly or indirectly, power
either to direct or cause the direction of the management and policies of such
controlled Person whether by contract or otherwise.
"AFI" shall have the meaning given such term in the preamble to the
---
Introductory Statement.
"AFI Agent" shall have the meaning given such term in the preamble to the
---------
Introductory Statement.
"AFI Collection Account" shall mean the Collection Account (Account Number
----------------------
323341462) established under the AFI Credit Agreement.
"AFI Credit Agreement" shall have the meaning given such term in the
--------------------
Introductory Statement.
"AFI Creditors" shall mean the AFI Agent as Administrative Agent and as
-------------
Fronting Bank under the AFI Credit Agreement, the Waiver Agent, and the AFI
Lenders and any of their assignees.
"AFI Lenders" shall have the meaning given such term in the Introductory
-----------
Statement.
"AFI Obligations" shall mean at any time, all Obligations (as such term is
---------------
defined in the AFI Credit Agreement) payable to the AFI Creditors and any
renewals or extensions of the foregoing.
"AFI Priority Collateral" shall mean with respect to each Artisan Entity
-----------------------
all of such Artisan Entity's rights, title and interest in and to the Declared
Qualifying Pictures (to the extent not released as a result of a purchase by the
Sponsor in accordance with the terms of the Sponsor Agreement) and related
receivables, contract rights, general intangibles, goodwill, equipment,
inventory, investment property, instruments, copyrights, trademarks, trade
names, insurance proceeds, cash and deposit accounts and any proceeds thereon,
products thereof or income therefrom, and all domestic and foreign copyrights
and all other rights therein and thereto, of every kind and character, whether
now in existence or hereafter to be made or produced, and whether or not in
possession of the applicable Artisan Entity.
-3-
<PAGE>
"Allocation Certificate" shall mean the Preliminary Allocation Certificate
----------------------
and the Final Allocation Certificate in substantially the form of Exhibit B
hereto.
"Applicable Liquidation Preference" shall have the meaning given such term
---------------------------------
in the Trust Agreement.
"Approved Accounting Firm" shall mean any one of the Accounting Firms
------------------------
listed on Schedule 1 hereto or such other accounting firms as shall be approved
by the Sponsor, the Sponsor Agent and the AFI Agent from time to time.
"Artisan Obligations" shall mean the obligations of the Sponsor and the
-------------------
other Artisan Entities under the Sponsor Agreement, the Distribution Agreement,
this Intercreditor Agreement, the Master Film Purchase Agreement and each Film
Purchase Agreement which are secured by the Secured Obligations Collateral as
provided in the Sponsor Agreement.
"Authorized Officer" shall mean with respect to AFI, its trustee or the
------------------
Designee and with respect to any other Person, its Chief Executive Officer,
Chief Operating Officer or Chief Financial Officer.
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which banks are permitted to close in the State of New York.
"Canyon" shall have the meaning given such term in the Introductory
------
Statement.
"Certificate Holders" shall have the meaning given such term in the AFI
-------------------
Credit Agreement.
"Certificateholder Collateral Agent" shall have the meaning given such term
----------------------------------
in the Trust Agreement.
"Collateral Agency Agreement" shall have the meaning given such term in the
---------------------------
Introductory Statement.
"Collateral Agent" shall have the meaning given such term in the preamble
----------------
to the Introductory Statement.
"Declared Qualifying Picture" shall have the meaning given such term in the
---------------------------
AFI Credit Agreement.
"Designee" shall mean the Sponsor in its capacity as Designee under the
--------
Trust Agreement.
-4-
<PAGE>
"Determination Date" shall mean the last Business Day of each week that any
------------------
Obligation or commitment remains outstanding.
"Distribution Agreement" shall have the meaning given such term in the
----------------------
Introductory Statement.
"Domestic Gross Receipts" shall mean the Gross Receipts derived from
-----------------------
distribution in the United States and its territories and possessions.
"Final Allocation Certificate" shall mean the final allocation certificate
----------------------------
to be delivered by the Sponsor to the Collection Agent pursuant to Section 3
hereof, certified by an Authorized Officer thereof.
"Foreign Gross Receipts" shall mean the Gross Receipts derived from
----------------------
distribution outside the United States or its territories and possessions.
"Gross Receipts" shall have the meaning given such term in Schedule 1 to
--------------
the Sponsor Agreement.
"Lien" shall mean any pledge, mortgage, security interest, lien, copyright
----
mortgage, or charge of any kind whatsoever (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and the filing
of or agreement to give any financing statement under the Uniform Commercial
Code of any jurisdiction).
"Master Collection Account" shall mean all of the three Artisan Collection
-------------------------
Accounts established under the Sponsor Credit Agreement and maintained at The
Chase Manhattan Bank (Account Number 323514405, Account Number 323514413 and
Account Number 32352214).
"Master Film Purchase Agreement" shall have the meaning given such term in
------------------------------
the Credit Agreement.
"Non-Waterfall Receipts" shall be as defined in Section 7(d) of the Sponsor
----------------------
Agreement.
"Notice of Sponsor Default" shall mean a written notice delivered to the
-------------------------
Collection Agent by the AFI Agent or the Waiver Agent stating that a Sponsor
Default has occurred and setting forth, in reasonable detail, the underlying
facts in respect of such Sponsor Default.
"Obligations" shall mean (i) the Artisan Obligations and (ii) the Sponsor
-----------
Group Obligations.
-5-
<PAGE>
"Operative Documents" shall mean, collectively, the Sponsor Credit
-------------------
Agreement, the Note Purchase Agreement and the Sponsor Agreement.
"Other Sponsor Creditors" shall mean those Persons other than the Sponsor
-----------------------
Creditors or the Artisan Entities that are party to an Other Intercreditor
Agreement.
"Other Intercreditor Agreements" shall mean the intercreditor agreements
------------------------------
substantially in the form of Exhibit A hereto or in form and substance
satisfactory to the Administrative Agent, entered into or to be entered into the
future by the Sponsor Administrative Agent in connection with the acquisition of
motion pictures acquired, produced or distributed by an Artisan Entity.
"Person" shall mean any natural person, corporation, partnership, trust,
------
joint venture, association, company, estate, business entity, unincorporated
organization or government or any agency or political subdivision thereof.
"Picture Waterfall Statement" shall mean a Picture Waterfall Statement as
---------------------------
defined in Section 4(b) of this Agreement in substantially the form of Exhibit C
hereto.
"Preliminary Allocation Certificate" shall mean the preliminary allocation
----------------------------------
certificate to be delivered by the Sponsor to the Collection Agent pursuant to
Section 3 hereof, certified by an Authorized Officer thereof.
"Quaterly Payment Amount" shall have the meaning given such term in the
------------------------
Trust Agreement.
"Quaterly Payment Date" shall mean each March 15, June 15, September 15
----------------------
and December 15 beginning December 15, 1999 and ending on March 15, 2006 .
"Secured Obligations Collateral" shall mean the AFI Priority Collateral and
------------------------------
the Sponsor Group Priority Collateral and which includes all items of collateral
encumbered to the Sponsor Agent.
"Secured Parties" shall mean at any time the holders or obligees of the
---------------
Obligations, including the AFI Agent as the assignee for security of the rights
of AFI.
"Security Documents" shall have the meaning given such term in the
------------------
Collateral Agency Agreement.
"Settlement Date" shall mean the second Business Day of each week.
---------------
"Sponsor" shall have the meaning given such term in the Introductory
-------
Statement.
-6-
<PAGE>
"Sponsor Administrative Agent" shall have the meaning given such term in
----------------------------
the Introductory Statement.
"Sponsor Agent" shall have the meaning given such term in the Introductory
-------------
Statement.
"Sponsor Agreement" shall have the meaning given such term in the AFI
-----------------
Credit Agreement.
"Sponsor Credit Agreement" shall have the meaning given such term in the
------------------------
Introductory Statement.
"Sponsor Creditors" shall mean Canyon, the Sponsor Agent, the Sponsor
-----------------
Administrative Agent and the Sponsor Lenders and any of their assignees or any
obligees of the Artisan Entities pursuant to a refinancing of the Sponsor Credit
Agreement or the Note Purchase Agreement, to the extent permitted hereby.
"Sponsor Default" shall have the meaning given such term in the AFI Credit
---------------
Agreement.
"Sponsor Group Obligations" shall mean at any time all Secured Obligations
-------------------------
(as such term is defined in the Collateral Agency Agreement) payable to the
Sponsor Creditors and any renewals, extensions or replacements of the foregoing.
"Sponsor Group Priority Collateral" shall mean all of the Collateral as
---------------------------------
such term is defined in the Sponsor Credit Agreement other than AFI Priority
Collateral.
"Subordinate Security Agreement" shall have the meaning given such term in
------------------------------
the Trust Agreement.
"Trust Account" shall have the meaning given such term in the Trust
-------------
Agreement.
"Trust Agreement" shall mean the trust agreement of AFI dated as of August
---------------
25, 1999 executed by Christiana Bank & Trust Company, a Delaware banking
corporation (the "Trustee") amended by Amendment Number One dated as of October
12, 1999 as the same has been amended and restated as of October 13, 1999 among
the Trustee, Bear, Stearns & Co., Inc., a Delaware corporation, and the Sponsor
in the form attached to the AFI Credit Agreement as Exhibit L.
"Waiver Agent" shall mean Fleet Bank or its successors or assigns as Waiver
------------
Agent under the AFI Credit Agreement.
-7-
<PAGE>
"Weekly Picture Statement" shall have the meaning given such term in
------------------------
Section 4(a) hereof.
The words "hereof", "herein" and "hereunder" and words of similar import
when used in this Intercreditor Agreement shall refer to this Intercreditor
Agreement as a whole and not to any particular provision of this Intercreditor
Agreement, and section and subsection references are to this Intercreditor
Agreement unless otherwise specified.
The expressions "prior payment in full", "payment in full", "paid in full"
or any other similar term(s) or phrase(s) when used herein with respect to any
Obligation shall mean the payment in full, in cash, of all such Obligations.
SECTION 2. Appointment as Collection Agent; Master Collection Account. (a)
----------------------------------------------------------
The AFI Agent on behalf of the AFI Creditors, AFI, the Sponsor and each of the
Artisan Entities hereby appoint and authorize the Sponsor Agent to act as their
agent in collecting, maintaining, administering and disbursing the Master
Collection Account in accordance with the terms and provisions of this
Agreement. The AFI Agent on behalf of the AFI Creditors and AFI, appoints the
Collection Agent as its agent in maintaining, administering and disbursing the
AFI Collection Account in accordance with the terms of this agreement.
(b) On or prior to the date hereof, the Artisan Entities will inform all
of their current account debtors (and after the date hereof the Artisan Entities
will inform any additional account debtors thereafter coming into existence) to
make payments on all accounts receivable directly into the Master Collection
Account and the Artisan Entities will execute such documentation as may be
reasonably required by the Sponsor Agent in order to provide for the deposit of
all such payments in the Master Collection Account, and to otherwise effectuate
the provision of this Section
(c) The Master Collection Account shall be under the sole dominion and
control of the Sponsor Agent for the benefit of the Sponsor Creditors, the AFI
Creditors, the Other Sponsor Creditors and AFI to the extent of their respective
rights and interests in amounts from time to time on deposit therein.
(d) The Sponsor Agent is hereby authorized and directed to invest and
reinvest funds from time to time on deposit in the Master Collection Account in
accordance with the Collateral Agency Agreement. Any net income or gain on the
investment of funds from time to time held in the Master Collection Account
shall be promptly reinvested by the Sponsor Agent as a part of the Master
Collection Account and any net loss on any such investment shall be charged
against the Master Collection Account. All such income, gain or loss shall be
reported by the Sponsor Agent under the Sponsor's federal taxpayer
identification number.
(e) Neither the Sponsor Agent nor the Collection Agent shall be trustee
for AFI, any Artisan Entity or any Other Sponsor Creditor, nor shall it have any
obligations or
-8-
<PAGE>
responsibilities, nor shall it be liable for any thing done or not done in
connection with the Master Collection Account except as expressly provided
herein or, except with regard to the Sponsor Agent, in the Collateral Agency
Agreement or any Other Intercreditor Agreements. Neither the Sponsor Agent nor
the Collection Agent shall have any obligation or responsibilities nor shall
they be liable in any way for any investment decision made pursuant to this
Intercreditor Agreement or for any decrease in the value of the investments held
in the Master Collection Account or the AFI Collection Account.
(f) If any Artisan Entity or AFI receives any funds which should have
been paid into the Master Collection Account, such Artisan Entity or AFI will
remit such funds to the Master Collection Account as soon as possible.
SECTION 3. Disbursements of Funds in Master Collection Account. (a) Until
--------------------------------------------------
such time as the Sponsor has delivered a Preliminary Allocation Certificate to
the Sponsor Agent and the Collection Agent as set forth in Section 3(c) below,
the funds in the Master Collection Account which have not been apportioned
pursuant to a Preliminary Allocation Certificate may not be transferred or
withdrawn by any Person. Any interest earned thereon will be allocated by the
Sponsor Agent to the Sponsor.
(b) The Sponsor Agent will send to the Sponsor on each Determination Date a
written statement informing the Sponsor of the balance in the Master Collection
Account and provide the Sponsor with copies of the receipts, invoices and other
correspondence accompanying payments which are deposited in the Master
Collection Account.
(c) On each Settlement Date, Sponsor shall deliver to the Sponsor Agent and
the Collection Agent a Preliminary Allocation Certificate which shall set forth
in reasonable detail the receipts attributable to Sponsor Group Priority
Collateral and the receipts attributable to the AFI Priority Collateral (with a
further break down for Non-Waterfall Amounts, Foreign Gross Receipts and
Domestic Gross Receipts on a picture by picture basis) for the period from but
not including the second preceding Determination Date prior to such Settlement
Date (or in the case of the first Settlement Date to occur after the Closing
Date (as defined in the AFI Credit Agreement) from and including the Closing
Date) to and including the immediately preceding Determination Date prior to
such Settlement Date (but in the case of the first Settlement Date to occur in
each of March, June, September and December, to and including the last day of
the immediately preceding month), together with documentation which sufficiently
supports the calculations set forth in the Preliminary Allocation Certificate.
With regard to the period ending on each Determination Date, the Sponsor may
deliver multiple Preliminary Allocation Certificates for different amounts
received in the Master Collection Account. Subject to Section 3(d) below, the
Collection Agent shall be entitled to rely on the Preliminary Allocation
Certificates as delivered and on the next business day after the Settlement Date
the amounts set forth in such Preliminary Allocation Certificates attributable
to the AFI Priority Collateral (other than Non-Waterfall Amounts) shall be
transferred by the Sponsor Agent in accordance with instructions given by the
Collection Agent based solely on the information contained in the
-9-
<PAGE>
Preliminary Allocation Certificates without any duty to investigate, from the
Master Collection Account to the AFI Collection Account and the amount set forth
in such Preliminary Allocation Certificate attributable to Sponsor Group
Priority Collateral or Non-Waterfall Amounts shall remain in the Master
Collection Account to be disbursed by the Sponsor Administrative Agent for
application in such manner as may be agreed from time to time between the
Sponsor Administrative Agent and the Sponsor, subject always to the requirements
of the Sponsor Credit Agreement and the Collateral Agency Agreement. Neither the
Collection Agent nor the Sponsor Agent shall have any liability to any party
hereto for disbursing the funds contained in the Master Collection Account in
accordance with the Preliminary Allocation Certificates. To the extent (x)
excess funds or (y) insufficient funds are transferred to the AFI Collection
Account pursuant to the Preliminary Allocation Statement, an amount equal to in
the case of (x) the amount of such overpayment shall be withheld from the next
disbursement to the AFI Collection Account or, in the case of (y) an amount
equal to such deficiency will be added to the next disbursement to the AFI
Collection Account, in either case as reflected in the next Preliminary
Allocation Statement.
(d) If there are any disputes regarding disbursement of funds among any
of the parties, the AFI Agent shall appoint an Approved Accounting Firm which
shall provide an accounting certificate to the Collection Agent indicating how
the funds in the Master Collection Account are to be allocated and such
determination shall be final.
(e) No later than 20 days after the first of every month, the Sponsor
shall deliver to the Sponsor Agent and the Collection Agent a Final Allocation
Certificate setting forth the final amounts attributable to Sponsor Group
Priority Collateral and AFI Priority Collateral for the prior month (with a
further breakdown for Non-Waterfall Amounts, Foreign Gross Receipts and Domestic
Gross Receipts on a picture by picture basis) together with documentation which
sufficiently supports the calculations set forth in the Final Allocation
Certificate, except that such Final Allocation Certificate for February shall be
delivered no later than March 10, for May no later than June 10, for August no
later than September 10, and for November no later than December 10. The Sponsor
Agent shall be entitled to rely on the Final Allocation Certificate and shall,
no later than one Business Day after receipt of the Final Allocation
Certificate, in accordance with instructions given by the Collection Agent based
solely on the information contained in the Final Allocation Certificate without
any duty to investigate, disburse funds from the Master Collection Account to
the AFI Collection Account as set forth in the following sentence. To the extent
the Final Allocation Certificate provides that the Preliminary Allocation
Certificates for the prior month either (x) failed to fully account for all
Gross Receipts attributable to the AFI Priority Collateral and that additional
funds are owed to the AFI Agent, or (y) failed to fully account for all amounts
attributable to the Sponsor Group Priority Collateral or Non-Waterfall Amounts
and that additional funds are owed to the Sponsor Agent, such amounts shall in
the case of (x) be transferred by the Sponsor Agent from the Master Collection
Account to the AFI Collection Account and in the case of (y) be retained in the
Master Collection Account in either case to be disbursed as set forth in Section
3(c) above. If there are any disputes among any of the parties regarding the
disbursement of funds, the AFI Agent shall appoint an Approved Accounting Firm
which shall provide an accounting certificate
-10-
<PAGE>
to the Sponsor Agent and the Collection Agent indicating how the funds in the
Master Collection Account are to be allocated and such determination shall be
final. To the extent (x) excess funds or (y) insufficient funds are transferred
by the Sponsor Agent from the Master Collection Account to the AFI Collection
Account pursuant to the Final Allocation Certificate, an amount equal to the
amount of such overpayment shall in the case of (x) be withheld from the next
disbursement or in the case of (y) an amount equal to the deficiency will be
added to the next disbursement to the AFI Collection Account in either case as
reflected in the Preliminary Allocation Statement.
SECTION 4. Disbursement of Funds in AFI Collection Account. (a) The Sponsor
-----------------------------------------------
may deliver to the Collection Agent on each Settlement Date a statement (a
"Weekly Picture Statement") setting forth what it anticipates will be in the
Picture Waterfall Statement with regard to amounts payable to the Sponsor under
Sections 7(a)(v), 7(a)(vii), 7(a)(viii), 7(a)(ix), 7(a)(xii), 7(a)(xiv),
7(b)(v), 7(b)(vi), 7(b)(vii) and 7(b)(x) of the Sponsor Agreement and at the
same time it delivers a Weekly Picture Statement to the Collection Agent, it
shall also deliver to the AFI Agent documentation in sufficient detail to
support the amounts set forth in such statement. The Collection Agent shall
disburse such funds as set forth in the Weekly Picture Statement payable to the
Sponsor on the next business day after the Settlement Date (provided that there
are sufficient funds in the AFI Collection Account) to the Sponsor and the
Sponsor agrees to repay any excess amounts on each Settlement Date released to
it as determined in the Picture Waterfall Statement ultimately prepared for that
month; provided, however, that such excess amounts paid to the Sponsor may be
-------- -------
netted out of amounts owned to the Sponsor under the next Weekly Picture
Statement or Picture Waterfall Statement. Notwithstanding the foregoing, at
least 15% of the amount received in the AFI Collection Account for each period
shall be retained in the AFI Collection Account until the next monthly
disbursement of funds pursuant to Section 4(d) hereof.
(b) The Sponsor shall deliver to the Collection Agent no later than 20
days after the end of each month a statement for each Declared Qualifying
Picture for the prior month, except that such statement for February shall be
delivered no later than March 10, for May no later than June 10, for August no
later than September 10, and for November no later than December 10, setting
forth separately, with respect to both Domestic Gross Receipts and Foreign Gross
Receipts in accordance with Section 7 of the Sponsor Agreement, all amounts
collected by the Sponsor, expended by the Sponsor and recouped (to the extent
permitted by the Sponsor Agreement) by the Sponsor with respect to each Declared
Qualifying Picture during the immediately preceding calendar month. The Designee
shall deliver a notice (the "Designee Notice") to the Collection Agent at the
same time as the statements required by the preceding sentence specifying the
amount to be allocated to the Trustee with respect to Trustee Expenses. The
Collection Agent shall use this information to prepare for each Declared
Qualifying Picture a statement (a "Picture Waterfall Statement") setting forth
how the revenue collected with respect to each Declared Qualifying Picture shall
be allocated in accordance with Section 7 of the Sponsor Agreement. The
Collection Agent shall distribute the Picture Waterfall Statement as soon as
practicable each month but no later than 7 days after receipt of the statement
referred to
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<PAGE>
herein and the Designee Notice to each of the Sponsor, the AFI Agent and the
Sponsor Agent except that the Picture Waterfall Statement for Gross Receipts
collected in February shall be delivered no later than March 14, for Gross
Receipts collected in May shall be delivered no later than June 14, for Gross
Receipts collected in August shall be delivered no later than September 14, and
for Gross Receipts collected in November shall be delivered no later than
December 14.
(c) If any of the parties hereto gives notice to the Collection Agent
that it objects to the allocation of funds as set forth in a Picture Waterfall
Statement, the AFI Agent shall appoint an Approved Accounting Firm which shall
determine how the funds in the AFI Collection Account shall be allocated in
accordance with Section 7 of the Sponsor Agreement and such determination shall
be final.
(d) If no notice is given to the Collection Agent as to any such
objections within three (3) days (or on the same day in the case of the Picture
Waterfall Statements delivered in March, June, September and December) of
delivery of a Picture Waterfall Statement, the Collection Agent shall disburse
the funds in the AFI Collection Account as per such Picture Waterfall Statement
on the thirtieth day of each month (or, if such day is not a business day, the
next business day thereafter) except for March, June, September and December as
to which such disbursements shall be made by the 14th of each such month (or, if
such day is not a business day, the next business day thereafter). The
Collection Agent shall, in accordance with such Picture Waterfall Statement,
disburse (x) all amounts payable to the Sponsor directly to the Sponsor in
accordance with instructions from the Sponsor Administrative Agent for
application in such manner as may be agreed from time to time between the
Sponsor Administrative Agent and the Sponsor, subject always to the requirements
of the Sponsor Credit Agreement and the Collateral Agency Agreement, (y) all
amounts payable to the Trustee for its Trustee Expenses directly to the Trustee
for deposit in the Trust Account as specified in the Designee Notice and (z) all
amounts payable to the Certificateholders directly to the Trustee for deposit in
the Trust Account.
(e) If the Sponsor Administrative Agent or the Sponsor Agent gives the
Collection Agent notice of a default under the Sponsor Credit Agreement, the
Collection Agent shall pay directly to the Sponsor Agent from the AFI Collection
Account any amounts allocated to the Sponsor pursuant to a Picture Waterfall
Statement.
(f) To the extent there is any balance remaining in the AFI Collection
Account after the disbursement of funds pursuant to a Picture Waterfall
Statement, such balance shall be invested as directed by the Collection Agent in
its Trust Cash Escrow product or in its money market account.
(g) After such time as the Commitments under the AFI Credit Agreement
have terminated and the AFI Obligations have been paid in full (after giving
effect to all rights of the AFI Agent with regard to preferences and avoided
payments, if any), no amounts shall be
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<PAGE>
payable to the AFI Agent pursuant to any Weekly Picture Statement or Picture
Waterfall Statement.
SECTION 5. Application of Proceeds Upon Foreclosure. (a) In the event that
----------------------------------------
either the AFI Agent or, to the extent permitted by Section 6(b) hereof, the
Sponsor Agent exercises its rights under the Sponsor Credit Agreement, the
Security Documents or otherwise to foreclose or otherwise realize upon the AFI
Priority Collateral, the proceeds therefrom shall be applied by the foreclosing
party subject to the right of third party creditors, if any, as follows:
First: to the Collection Agent for any unpaid fees; provided, however, that
----- -------- -------
nothing herein is intended to relieve the Sponsor of its obligations to pay such
costs, fees, expenses or liabilities from funds other than funds deposited into
the Master Collection Account or funds representing proceeds of AFI Priority
Collateral;
Second: to the AFI Agent or the Sponsor Agent, as applicable, an amount
------
equal to all costs, expenses and disbursements of the AFI Agent or the Sponsor
Agent, as applicable;
Third: to the AFI Collection Account, in an amount equal to the unpaid
-----
amount of AFI Obligations then outstanding until paid in full;
Fourth: to the Trust Account an aggregate amount equal to the sum of the
------
accrued but unpaid Trustee Expenses plus an amount equal to the amount of the
Applicable Liquidation Preference.
Fifth: to the Sponsor Agent for application in accordance with the
-----
Collateral Agency Agreement and the Other Intercreditor Agreements, in an amount
equal to the unpaid amount of the Sponsor Group Obligations then outstanding
plus amounts owing to Other Sponsor Creditors until paid in full; and
Sixth: any surplus then remaining shall be paid to the Sponsor or its
-----
successors or assigns or to whomsoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
(b) In the event that either the AFI Agent or, to the extent permitted
by Section 6 (b) hereof, the Sponsor Agent, exercises its rights under the
Sponsor Credit Agreement, the Security Documents or otherwise to foreclose or
otherwise realize upon the Sponsor Group Priority Collateral, the proceeds
therefrom shall be applied by the foreclosing party, subject to the rights of
third party creditors, if any, as follows:
First: to the Collection Agent for any unpaid fees; provided, however, that
----- -------- -------
nothing herein is intended to relieve the Sponsor of its obligations to pay such
costs, fees, expenses or liabilities from funds other than funds deposited into
the Collection Account or funds representing proceeds of the Sponsor Group
Priority Collateral;
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<PAGE>
Second: to the Sponsor Agent or the AFI Agent, as applicable, an amount
------
equal to all costs, expenses and disbursements of the Sponsor Agent or the AFI
Agent, as applicable;
Third: to the Sponsor Agent, for application in accordance with the
-----
Collateral Agency Agreement and Other Intercreditor Agreements, in an amount
equal to the unpaid amount of Sponsor Group Obligations then outstanding;
Fourth: to the AFI Collection Account, in an amount equal to any unpaid
------
amount of AFI Obligations then outstanding subject to the rights of third party
creditors; and
Fifth: any surplus then remaining shall be paid to the Sponsor or its
-----
successors or assigns or to whomsoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
SECTION 6. Relative Priorities of Security Interests. (a) Notwithstanding
-----------------------------------------
(i) any contrary provision of the Operative Documents, the Security Documents or
any other security agreement or (ii) any priority in time of creation,
attachment or perfection of a security interest in, pledge of, or mortgage, lien
or other encumbrance on the Sponsor Group Priority Collateral by either the
Sponsor Agent or the AFI Agent, or (iii) any provision of, or filing or
recording under, the Uniform Commercial Code of any state, Title 15 or Title 17
of the United States Code or any other applicable statute, rule or regulation of
the United States, the states thereof, their counties, municipalities or other
subdivision, but subject to the terms and conditions set forth in this
Intercreditor Agreement, the AFI Agent hereby agrees that any security interest,
pledge, mortgage, lien or other encumbrance granted to the AFI Agent, whether
now existing or hereafter created, in all or any part of the Sponsor Group
Priority Collateral in order to secure the Artisan Obligations is and shall be
subject and subordinate in right of claim and payment to any security interest,
pledge, mortgage, lien or other encumbrance granted to the Sponsor Agent,
whether now existing or hereafter created, in any of the Sponsor Group Priority
Collateral. The AFI Agent will not exercise any remedies which it may have as a
secured party relating to the Sponsor Group Priority Collateral if within 90
(ninety) days following receipt by it of a Notice of Default the Sponsor Agent
has commenced exercising rights or remedies with respect thereto and continues
to do so. The AFI Agent agrees that subject to the preceding sentence the
Sponsor Agent shall control and direct all actions relating to any enforcement
proceedings in respect of the Sponsor Group Priority Collateral including,
without limitation, any foreclosure sales.
(b) Notwithstanding (i) any contrary provision of the Operative
Documents, the Security Documents or any security agreements or (ii) any
priority in time of creation, attachment or perfection of a security interest
in, pledge of, or mortgage, lien or other encumbrance on the AFI Priority
Collateral by either the Sponsor Agent or the AFI Agent, or (iii) any provision
of, or filing or recording under, the Uniform Commercial Code of any state,
Title 15 or Title 17 of the United States Code or any other applicable statute,
rule or regulation of
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<PAGE>
the United States, the states thereof, their counties, municipalities or other
subdivision, but subject to the terms and conditions set forth in this
Intercreditor Agreement, the Sponsor Agent hereby agrees that any security
interest, pledge, mortgage, lien, charge or other encumbrance granted to the
Sponsor Agent, in all or any part of the AFI Priority Collateral in order to
secure the Sponsor Group Obligations is and shall be subject and subordinate in
right of claim and payment to any security interests, pledges, mortgages, liens,
charges or other encumbrances granted to the AFI Agent and the Certificate
Holders (up to the amount of the Applicable Liquidation Preference), whether now
existing or hereafter created, in any of the AFI Priority Collateral. The
Sponsor Agent shall not commence foreclosure proceeding or conduct sales with
respect to any AFI Priority Collateral or upon any portion of any Artisan
Entities interest in the AFI Priority Collateral; provided, however, that
-------- -------
nothing herein shall prevent the Sponsor Agent from attempting to realize on the
Sponsor's right to receive the Sponsor's distribution fee and the Sponsor's
right to receive other amounts allocable to the Sponsor as provided in Section 7
of the Sponsor Agreement. The Sponsor Agent agrees that the AFI Agent shall
control and direct all actions relating to any enforcement proceedings in
respect of the AFI Priority Collateral including, without limitation, any
foreclosure sales.
(c) Notwithstanding the foregoing provisions of this Section 6, each of
the Sponsor Agent and the AFI Agent specifically reserves the right to make any
filings and/or give any notices and take any action which shall be necessary or
desirable to perfect their respective liens and/or to preserve the priority and
perfection of their respective liens in the Sponsor Group Priority Collateral
and the AFI Priority Collateral.
(d) The agreements in this Section 6 are being given upon the assumption
that the respective liens of the Sponsor Agent and the AFI Agent in the Sponsor
Group Priority Collateral and the AFI Priority Collateral are valid, enforceable
and non-avoidable and perfected and are senior to any creditors other than such
whose liens are senior to both the Sponsor Agent and the AFI Agent. The
agreements in this Section 6 do not require either the Sponsor Agent or the AFI
Agent to refrain from taking action in any situation in which a third party
which is not a party to this agreement is asserting a prior lien.
(e) The Sponsor Agent acknowledges that the AFI Priority Collateral does
not include, and that it has no security interest in, the collateral granted by
AFI to the AFI Agent for the benefit of the AFI Lenders under the AFI Credit
Agreement.
(f) Until the AFI Obligations have been paid in full and the commitments
under the AFI Credit Agreement have terminated, neither an Artisan Entity, the
Sponsor Agent nor the Sponsor Administrative Agent shall take any action to
institute or approve or to support the filing of a voluntary or involuntary
proceeding against AFI under the Bankruptcy Code or otherwise to terminate the
existence of AFI or to wind up the affairs of AFI, or to challenge the validity,
perfection or priority of the lien held by the AFI Agent in the Secured
Obligations Collateral.
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<PAGE>
(g) It is the intention of the parties hereto that the provisions of
this Agreement are for the benefit of not only the existing creditors under the
Sponsor Creditor Agreement, the Note Purchase Agreement and the Collateral
Agency Agreement, but also for any creditors which refinance or replace or
augment such indebtedness; provided, however, that the aggregate amount
outstanding under the Sponsor Creditor Agreement, the Note Purchase Agreement
and the Collateral Agency Agreement and any such agreements do not exceed $250
million in the aggregate, and that creditors or agents for the creditors under
such refinancings execute this agreement and agree to be bound hereby on the
same terms as are applicable hereunder to the Sponsor Administrative Agent and
the Sponsor Agent.
(h) Each of the parties to this Agreement agrees that it will not make
any legal, equitable or other challenge to the creation, nonavoidability or
perfection of any security interest in the AFI Priority Collateral and the
Sponsor Group Priority Collateral granted to any party hereto or to the
Certificateholder Collateral Agent on behalf of the Certificate Holders pursuant
to the Subordinate Security Agreement; nor will any party hereto commence or
maintain any action or proceeding in that regard.
(i) If AFI and any of the Artisan Entities are substantively
consolidated in any bankruptcy proceeding, each of the parties hereto agrees not
to challenge any of the provisions set forth in Sections 5 or 6 hereof.
SECTION 7. Disclaimers, Etc. (a) The Collection Agent and the Sponsor Agent
-----------------
shall have no duties or responsibilities except those expressly set forth in
this Intercreditor Agreement, and the Collection Agent and the Sponsor Agent
shall not by reason of this Intercreditor Agreement be a trustee for or have any
fiduciary duty to any other party hereto. The Collection Agent and the Sponsor
Agent shall not be responsible to any other party hereto for any recitals,
statements, representations or warranties contained in this Intercreditor
Agreement or in any certificate or other document referred to or provided for
in, or received by any of them under, this Intercreditor Agreement or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Intercreditor Agreement. Each of the Collection Agent and the Sponsor Agent
agrees to use reasonable care with regard to any cash, investments or other
property it receives which are subject to this Intercreditor Agreement. The
Collection Agent and the Sponsor Agent may employ agents and attorneys-in-fact
and shall not be responsible, except as to money or securities received by it or
its authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither the Collection
Agent, the Sponsor Agent nor any of their directors, officers, employees or
agents shall be liable or responsible for any action taken or omitted to be
taken by it or them hereunder or in connection herewith, except for its or their
own gross negligence or willful misconduct.
(b) The Collection Agent and the Sponsor Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telex, telecopy, telegram or cable) reasonably believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper person or
persons, and upon advice and statements of legal
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<PAGE>
counsel, independent accountants and other experts selected by the Collection
Agent or the Sponsor Agent.
SECTION 8. Disputes. (a) At any time that the Sponsor fails to
--------
deliver a Preliminary Allocation Certificate or a Final Allocation Certificate
in accordance with the provisions of Section 3 hereof, the AFI Agent shall
select an Approved Accounting Firm to provide the Collection Agent and the
Sponsor Agent with either a Preliminary Allocation Certificate or Final
Allocation Certificate, as applicable and the Sponsor agrees that it shall make
all of its books and records available to such accounting firm to allow such
accounting firm to perform the calculations necessary to prepare such Allocation
Certificates. The allocation of funds set forth in any such Allocation
Certificate prepared by an Approved Accounting Firm shall be final and not
subject to dispute by AFI or the Artisan Entities.
(b) Any fees payable to any Approved Accounting Firm selected under
this Section 8 or Sections 3(d), 3(e) or 4(c) hereof shall be paid from receipts
in the Master Collection Account before the disbursement of any other funds in
the Master Collection Account as set forth hereunder.
SECTION 9. Compensation; Expenses; Indemnification. (a) The Sponsor
---------------------------------------
agrees (i) to indemnify and hold harmless the Collection Agent (to the full
extent permitted by law) from and against any and all claims, demands, losses,
judgments and liabilities (including liabilities for penalties) of whatsoever
nature, and (ii) to pay to the Collection Agent an amount equal to the amount of
all reasonable costs and expenses, including reasonable legal fees and
disbursements and any fees of an Approved Accounting Firm appointed by the
Sponsor Agent pursuant hereto, and with regard to both (i) and (ii) growing out
of or resulting from this Intercreditor Agreement (including the preparation of
this Intercreditor Agreement and all related documents whether or not the
transactions contemplated hereby are consummated), or the administration and
enforcement or exercise of any right or remedy granted to the Collection Agent
hereunder or thereunder but excluding therefrom all costs arising out of or
resulting from the gross negligence or willful misconduct of the Collection
Agent. The foregoing indemnity agreement includes any reasonable costs incurred
by the Collection Agent in connection with any action or proceeding which may be
instituted in respect of the foregoing by the Collection Agent, or by any other
person either against the Collection Agent or in connection with which any
officer or employee of the Collection Agent is called as a witness or deponent,
including, but not limited to, the reasonable fees and disbursements of counsel
to the Collection Agent and any out-of-pocket costs incurred by the Collection
Agent in appearing as a witness or in otherwise complying with legal process
served upon them.
(b) All indemnities contained in this Section 9 shall survive the
expiration or earlier termination of this Intercreditor Agreement.
(c) The AFI Agent agrees to pay from its Agent's Fee (as defined in
the Fee Letter) to the Collection Agent, from time to time upon demand,
reasonable compensation
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<PAGE>
(which shall not be limited by any provision of law in regard to compensation of
fiduciaries or of a trustee of an express trust) for its services hereunder;
provided, however, that the Sponsor shall be liable for all compensation of the
Collection Agent to the extent (x) the AFI Agent has not received in full its
annual installment of the Agent's Fee and (y) the AFI Obligations have been paid
in full.
SECTION 10. Payments to AFI Agent. The Sponsor hereby agrees that to
---------------------
the extent the AFI Agent has failed to recover such amounts owed to the AFI
Agent as set forth in the Allocation Certificate within 30 days after the
receipt of such Allocation Certificate, the Sponsor shall be liable to the AFI
Agent in an amount equal to such deficiency. In such event, within 3 days of
receipt from the AFI Agent of a request for such funds which request shall be
accompanied by a certified statement from the Collection Agent verifying the
amount due the AFI Agent, the Sponsor shall deposit into the AFI Collection
Account such amounts as requested therein together with interest accrued thereon
at the rate set forth under the AFI Credit Agreement.
SECTION 11. Representations and Warranties. Each of the parties to
------------------------------
this Intercreditor Agreement represents and warrants that it has duly
authorized, executed and delivered this Agreement and that it is enforceable
against such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
the rights and remedies of creditors generally and to general principles of
equity, whether enforcement is considered in a proceeding in equity or at law,
and the discretion of the court before which any proceeding thereof may be
brought.
SECTION 12. Amendments; Other Intercreditor Agreements; Operative
-----------------------------------------------------
Documents. (a) The Sponsor agrees that, without the prior written consent of the
- ---------
AFI Agent and the Sponsor Administrative Agent, it will not permit any
modification or amendment to any of the Operative Documents which could
reasonably be expected to increase the amounts payable to the Sponsor or another
Artisan Entity thereunder, accelerate the time when any such payments are to be
made to the Sponsor or another Artisan Entity, or otherwise materially adversely
affect the value of the Secured Obligations Collateral or the rights or interest
of the AFI Agent or the Sponsor Administrative Agent under any Operative
Document.
(b) Notwithstanding anything herein to the contrary, each of the
Artisan Entities, the Sponsor Agent, the Sponsor Administrative Agent agrees
that they will not amend, modify or supplement any of the other agreements to
which they are parties if the effect of such amendment, modification, supplement
or refinancing is to increase the aggregate principal payable to the Sponsor
Creditors to an amount in excess of $250,000,000. Nothing herein is intended to
prevent any increases in amounts payable to Other Sponsor Creditors under any
Other Intercreditor Agreements.
(c) The AFI Agent agrees for itself and the AFI Lenders that the
Sponsor Agent and the Sponsor may from time to time without any prior notice to
the AFI Agent enter
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<PAGE>
into Other Intercreditor Agreements. However, the Sponsor shall, to the extent
practicable, provide the AFI Agent prior to execution a draft of any additional
Other Intercreditor Agreement which it hereafter proposes to conclude and will
as soon as reasonably practicable after the execution of such other
Intercreditor Agreement provide the AFI Agent with a copy of the final executed
version thereof.
(d) Each of the AFI Agent, the Sponsor Agent and the Sponsor
Administrative Agent acknowledges that it has received copies of the Operative
Documents to which it is not a party.
SECTION 13. Audit Rights of the Collection Agent. Each of the
------------------------------------
Artisan Entities will permit the Collection Agent, or any agent designated by
it, at any time and from time to time during normal business hours, to inspect,
audit, check and make abstracts from the Artisan Entities' books, records and
other papers as is reasonably requested by the Collection Agent.
SECTION 14. Resignation and Removal of the Collection Agent. (a) The
-----------------------------------------------
Collection Agent may at any time, by giving written notice to the AFI Agent and
the Sponsor Agent resign and be discharged of the responsibilities hereby
created, such resignation to become effective upon (i) the appointment of a
successor Collection Agent by the AFI Agent and the Sponsor Agent, and (ii) the
acceptance of such appointment by such successor Collection Agent. If no
successor Collection Agent shall be appointed and shall have accepted such
appointment within 90 (ninety) days after the date the Collection Agent gives
the aforesaid notice of resignation, the Collection Agent may apply to any court
of competent jurisdiction to appoint a successor Collection Agent to act until
such time, if any, as a successor Collection Agent shall have been appointed as
provided in this Section 14. Any successor so appointed by such court shall
immediately and without further act be superseded by any successor Collection
Agent appointed by the AFI Agent and the Sponsor Agent. The AFI Agent and the
Sponsor Agent may, at any time remove the Collection Agent and appoint a
successor Collection Agent, such removal to be effective upon the acceptance of
such appointment by the successor Collection Agent. Any resigning or removed
Collection Agent shall be entitled to the fees and indemnities set forth under
Section 9 to the extent incurred or arising, or relating to events occurring,
before such resignation or removal.
(b) If at any time the Collection Agent shall resign or be removed
or otherwise become incapable of acting, or if at any time a vacancy shall occur
in the office of the Collection Agent for any other cause, a successor
Collection Agent may be appointed by the AFI Agent and the Sponsor Agent, and
the powers, duties, authority and title, of the predecessor Collection Agent
shall be terminated and canceled without procuring the resignation of such
predecessor and without any formality (except as may be required by applicable
law) other than appointment and designation of a successor by the AFI Agent and
the Sponsor Agent in writing duly acknowledged and delivered to the predecessor.
Such appointment and designation shall be full evidence of the right and
authority to make the same and of all the facts therein recited, and this
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<PAGE>
Intercreditor Agreement shall vest in such successor, without any further act,
deed or conveyance, all the estates, properties, rights, powers, trusts, duties,
authority and title of its predecessor; but such predecessor shall,
nevertheless, on the written request of the AFI Agent and the Sponsor Agent or
the successor Collection Agent execute and deliver an instrument transferring to
such successor all the estates, properties, rights, powers, trusts, duties,
authority and title of such predecessor hereunder to such successor Collection
Agent. Should any deed, conveyance or other instrument in writing from the AFI
Agent and the Sponsor Agent be required by any successor Collection Agent for
more fully and certainly vesting in such successor the estates, properties,
rights, powers, trusts, duties, authority and title vested or intended to be
vested in the predecessor Collection Agent, any and all such deeds, conveyances
and other instruments in writing shall, on request of such successor, be
executed, acknowledged and delivered by the AFI Agent and the Sponsor Agent. If
the AFI Agent and the Sponsor Agent shall not have executed and delivered any
such deed, conveyance or other instrument within 10 days after it received a
written request from the successor Collection Agent to do so, the predecessor
Collection Agent may execute the same on behalf of the AFI Agent and the Sponsor
Agent. The AFI Agent and the Sponsor Agent hereby appoint any predecessor
Collection Agent as their agent and attorney to act for them as provided in the
preceding sentence.
SECTION 15. Status of Successor Collection Agent. Every successor
------------------------------------
Collection Agent appointed pursuant to Section 14 shall be either one of the
Approved Accounting Firms or a bank or trust company in good standing and having
power to act as Collection Agent hereunder, and in the case of a bank or trust
company shall be incorporated under the laws of the United States of America or
any State thereof or the District of Columbia and having its principal corporate
office within the 48 contiguous States and in the case of a bank or trust
company shall also have capital, surplus and undivided profits of not less than
$100,000,000, if there be such an institution with such capital, surplus and
undivided profits willing, qualified and able to accept the duties hereunder
upon reasonable or customary terms.
SECTION 16. Exculpatory Provisions. (a) The Collection Agent shall
----------------------
not be responsible in any manner whatsoever for the correctness of any recitals,
statements, representations or warranties herein or in the Operative Documents,
all of which are made solely by the parties thereto. The Collection Agent makes
no representations as to the value or condition of the Secured Obligations
Collateral or any part thereof, or as to the title of the Artisan Entities or
AFI thereto or as to the security afforded by this Intercreditor Agreement or
any security agreements, or as to the validity, execution (except its own
execution), enforceability, legality or sufficiency of this Intercreditor
Agreement, and the Collection Agent shall incur no liability or responsibility
in respect of any such matters. The Collection Agent shall not be responsible
for insuring the Secured Obligations Collateral or for the payment of taxes,
charges or assessments or discharging of liens upon the Secured Obligations
Collateral or otherwise as to the maintenance of the Secured Obligations
Collateral, except that if the Collection Agent takes possession of any Secured
Obligations Collateral, the Collection Agent shall use reasonable care in the
preservation of the Secured Obligations Collateral in its possession. In no
event shall the Collection Agent be liable for special, indirect or
consequential loss or damage of any kind
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<PAGE>
whatsoever (including but not limited to lost profits), even if the Collection
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.
(b) The Collection Agent may rely and shall be fully protected in
acting upon any information provided in the Preliminary Allocation Certificates,
the Final Allocation Certificates and all other statements, certificates or
other paper or document delivered to it by the Sponsor, the Sponsor Agent or the
AFI Agent in the administration of this agreement hereunder and the disbursement
of funds as set forth herein including all statements and certificates used by
the Collection Agent in preparing the Picture Waterfall Statements.
(c) The Collection Agent shall not be required to ascertain or
inquire as to the performance by the Artisan Entities or AFI of any of the
covenants or agreements contained herein, in any security agreement or in any
Operative Document. Whenever it is necessary, or in the reasonable opinion of
the Collection Agent advisable, for the Collection Agent to ascertain the amount
of Obligations then held by the AFI Creditors or the Sponsor Creditors, the
Collection Agent may rely on a certificate of the AFI Agent in the case of the
AFI Obligations, or a certificate of the Sponsor Agent in the case of Sponsor
Obligations, and if the AFI Agent or the Sponsor Agent shall not give such
information to the Collection Agent, it shall not be entitled to receive
distributions hereunder.
(d) The Collection Agent shall be under no obligation or duty to
take any action under this Intercreditor Agreement if taking such action (i)
would subject the Collection Agent to a tax in any jurisdiction where it is not
then subject to a tax, or would require the Collection Agent to qualify to do
business in any jurisdiction where it is not then so qualified, unless the
Collection Agent receives security or indemnity satisfactory to it against such
tax (or equivalent liability), or any liability resulting from such
qualification, in each case which results from the taking of such action under
this Intercreditor Agreement or (ii) would subject the Collection Agent to in
--
personam jurisdiction in any location where it is not then so subject.
- --------
(e) Notwithstanding any other provision of this Agreement, the
Collection Agent shall not be personally liable for any action taken or omitted
to be taken by it in accordance with this Intercreditor Agreement except for its
own gross negligence, bad faith or willful misconduct.
SECTION 17. Notices. Notices and other communications provided for
-------
herein shall be in writing and shall be delivered or mailed (or if by telegram,
delivered to the telegraph company and, if by telecopier, delivered by such
equipment) to the parties at the following respective addresses:
(1) If to the Collection Agent:
The Chase Manhattan Bank's Capital Market Fiduciary Services Group
450 W 33rd Street - 10th Floor
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<PAGE>
New York, NY 10001
Attn: Pledged Asset Control Services
Facsimile No.: (212) 946-3638
(2) If to the AFI Agent:
The Chase Manhattan Bank
270 Park Avenue, 37th Floor
New York, NY 10017
Attn: Joan Fitzgibbon
Facsimile No.: (212) 270-4164
with copies to each of:
Chase Securities Inc.
1800 Century Park East, Suite 400
Los Angeles, CA 90067
Attn: Christa Thomas
Facsimile No.: (310) 788-5628
Royal & Sunalliance Insurance PLC
Leadenhall Court
I Leadenhall Street
London EC3V 1 PP
Attn: Richard Wilson
Facsimile No.: 171-588-2345
Heath Insurance Broking Limited
133 Houndsditch
London EC3A 7AH
Attn: Roger Bassett
Facsimile No: 171-234-4144
ICE Media Limited
16 Golden Square
London W1R 3AG
Attn: Graham Bradstreet
Facsimile No.: 171-434-2043
(3) If to the Sponsor Agent or the Sponsor Administrative Agent:
The Chase Manhattan Bank
270 Park Avenue, 37th Floor
-22-
<PAGE>
New York, NY 10017
Attn: Joan Fitzgibbon
Facsimile No.: (212) 270-4164
with a copy to:
Chase Securities Inc.
1800 Century Park East, Suite 400
Los Angeles, CA 90067
Attn: Kenneth R. Wilson
Facsimile No.: (310) 788-5628
(4) If to the Sponsor or any other Artisan Entity:
Artisan Pictures Inc.
2700 Colorado Avenue
Santa Monica, CA 90404-3521
Attn: General Counsel
Facsimile No.: (310) 255-3840
or such other address as such party may from time to time designate by giving
written notice to the other parties hereunder. All notices and other
communications given to any party hereto in accordance with the provisions
hereof shall be deemed to have been given on the fifth Business Day after the
date when sent by registered or certified mail, postage prepaid, return receipt
requested, if by mail, or when delivered to the telegraph company, charges
prepaid, if by telegram, or when receipt is acknowledged if by telecopier, in
each case addressed to such party as provided in this Section 17 in accordance
with the latest unrevoked written direction from such party.
SECTION 18. Assignment to AFI Agent. AFI hereby confirms that for
-----------------------
good and valuable consideration it has assigned, transferred, conveyed and set
over to the AFI Agent for the benefit of the AFI Lenders all of its rights,
title and interest in and to the Secured Obligations Collateral granted to it by
the Artisan Entities under the Sponsor Agreement.
SECTION 19. Quiet Enjoyment. The AFI Agent acknowledges that its
---------------
security interest in the Secured Obligations Collateral is subject to the rights
of Quiet Enjoyment of the Artisan Entities under any license agreement;
provided, however, that upon the happening of any of the events described in
- -------- -------
Section 9 of the Sponsor Agreement the AFI Agent shall have the right under
Section 9(b) to terminate the Distribution Agreement with respect to all
Declared Qualifying Pictures or under Section 9(a) to limit such remedy to a
suspension or termination of the Distribution Agreement with regard to Declared
Qualifying Pictures not yet delivered to the Sponsor. For the purpose hereof,
"Quiet Enjoyment" shall mean in connection with the rights of
---------------
-23-
<PAGE>
the Artisan Entities under license agreements, the AFI Agent's agreement that
its security interest in the Artisan Priority Collateral for the benefit of the
AFI Lenders is subject to the rights of the Sponsor to distribute, exhibit
and/or to exploit the Declared Qualifying Picture licensed to it, and to receive
Gross Receipts (subject to its obligations to make payments with regard thereto
in accordance with the Sponsor Agreement), prints or tapes or have access to
preprint material or master tapes and other items to which it is entitled in
connection therewith and that even if the AFI Lenders shall become the owner of
the Artisan Priority Collateral or any part thereof in case of an Event of
Default, the AFI Lenders' ownership rights shall be subject to the rights of the
Artisan Entities, provided, however, that such Artisan Entity shall not have
-------- -------
committed any breach which would entitle AFI (or the AFI Agent) under the
Distribution Agreement or the Sponsor Agreement to terminate the Distribution
Agreement pursuant to the terms thereof or pursuant to applicable law, and,
provided, further that the AFI Lenders shall not be responsible for any
- -------- -------
liability or obligation of AFI under the Distribution Agreement. If the AFI
Agent exercises its rights under Section 9(b) of the Sponsor Agreement to
terminate the Distribution Agreement with respect to all Declared Qualifying
Pictures, the AFI Agent shall, to the extent commercially feasible, allow the
licensees of the Artisan Entities, with regard to any Declared Qualifying
Pictures theretofore delivered to such licensees, to attorn to the AFI Agent or
its successors and assigns with regard to such licensees' rights and shall grant
such licensees a right of quiet enjoyment in such Declared Qualifying Pictures
subject to the terms of their existing agreements with the relevant Artisan
Entity which is their licensor.
SECTION 20. Successors and Assigns. All references herein to any of
----------------------
the parties to this Intercreditor Agreement shall be deemed to include the
successors and assigns of such party; provided, however, that neither the
-------- -------
Sponsor Agent nor the AFI Agent may assign any of its rights or obligations
hereunder without the prior written consent of the other.
SECTION 21. Amendment; Waiver; Consent. This Intercreditor Agreement
--------------------------
may be amended, modified or supplemented, and the terms hereof may be waived, in
each case only by a written instrument executed by all the parties to this
Intercreditor Agreement. The waiver by any party hereto of a breach of any
provision of this Intercreditor Agreement shall not operate or be construed as a
waiver of any subsequent or other breach, whether or not similar. Any such
amendment or waiver to Section 4, 5 or 6 shall not be effective unless signed by
AFI by Christiana Bank & Trust Company or its successor as trustee under the
Trust Agreement.
SECTION 22. Severability. Any provision hereof which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereby waive any provision of law which may
render any provision hereof prohibited or unenforceable in any respect.
-24-
<PAGE>
SECTION 23. Counterparts. This Intercreditor Agreement may be
------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same agreement, and all signatures need not
appear on any one counterpart.
SECTION 24. Headings. The headings and captions in this
--------
Intercreditor Agreement are for convenience of reference only and shall not
define, limit or otherwise affect any of the terms or provisions hereof.
SECTION 25. Governing Law. THIS INTERCREDITOR AGREEMENT SHALL BE
-------------
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO ANY CHOICE OF LAW RULES THEREOF WHICH MIGHT
APPLY THE LAWS OF ANY OTHER JURISDICTION.
SECTION 26. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY
--------------------
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
INTERCREDITOR AGREEMENT, THE SUBJECT MATTER HEREOF OR ANY LOAN DOCUMENT OR
OPERATIVE AGREEMENT, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT
HAS BEEN INFORMED BY THE OTHER PARTIES THAT THE PROVISIONS OF THIS SECTION
CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH OTHER PARTIES HAVE RELIED, ARE
RELYING AND WILL RELY IN ENTERING INTO THIS INTERCREDITOR AGREEMENT AND ANY
OTHER FUNDAMENTAL DOCUMENT OR OPERATIVE INTERCREDITOR AGREEMENT. A PARTY MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 26 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF ITS RIGHTS TO
TRIAL BY JURY.
SECTION 27. Submission to Jurisdiction; Service of Process. AFI AND
----------------------------------------------
EACH ARTISAN ENTITY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE
COURTS OF THE STATE OF NEW YORK AND TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY
SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS INTERCREDITOR
AGREEMENT, THE SUBJECT MATTER HEREOF BROUGHT BY THE COLLECTION AGENT, THE AFI
AGENT, THE SPONSOR AGENT, OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IN
EITHER OF THE ABOVE-
-25-
<PAGE>
REFERENCED FORUMS AT THE SOLE OPTION OF THE COLLECTION AGENT, THE AFI AGENT, OR
THE SPONSOR AGENT. AFI AND EACH ARTISAN ENTITY (A) HEREBY WAIVES, AND AGREES NOT
TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS
EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT SUCH SUIT, ACTION OR
PROCEEDING IN THE ABOVE-REFERENCED COURTS IS BROUGHT IN AN INCONVENIENT FORUM,
THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS
INTERCREDITOR AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR
BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR
PROCEEDING INSTITUTED BY THE COLLECTION AGENT, THE AFI AGENT OR THE SPONSOR
AGENT IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY WAIVES THE RIGHT TO ASSERT
IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT
COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT
MATTER. AFI AND EACH ARTISAN ENTITY HEREBY CONSENTS TO SERVICE OF PROCESS BY
MAIL AT ITS ADDRESS TO WHICH NOTICES ARE TO BE GIVEN PURSUANT TO SECTION 17
HEREOF. AFI AND EACH ARTISAN ENTITY AGREES THAT ITS SUBMISSION TO JURISDICTION
AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE
COLLECTION AGENT, AFI AGENT AND THE SPONSOR AGENT. FINAL JUDGMENT AGAINST AFI
AND/OR AN ARTISAN ENTITY IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF INDEBTEDNESS, LIABILITY OR
OTHER OBLIGATION OF AFI OR SUCH ARTISAN ENTITY THEREIN DESCRIBED OR (Y) IN ANY
OTHER MANNER PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION,
PROVIDED, HOWEVER, THAT THE COLLECTION AGENT, THE AFI AGENT AND THE SPONSOR
- -------- -------
AGENT OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS MAY AT ITS OPTION BRING
SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST AFI OR SUCH ARTISAN ENTITY
OR ANY OF THEIR ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF
ANY COUNTRY OR PLACE WHERE AFI OR SUCH ARTISAN ENTITY OR SUCH ASSETS MAY BE
FOUND.
SECTION 28. Termination. This Intercreditor Agreement shall terminate upon
-----------
the later to occur of the payment in full of the (i) AFI Obligations and (ii)
the Sponsor Group Obligations.
-26-
<PAGE>
SECTION 29. Entire Agreement. This Intercreditor Agreement represents the
----------------
entire agreement of the parties with regard to the subject matter hereof, and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Intercreditor Agreement to be executed and delivered by their respective
officers thereunto duly authorized as of the day and year first above written.
ARTISAN PICTURES INC.
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
By: /s/ Mark Curcio
---------------------------------
Name:
Title: Authorized Signatory for
each of the foregoing
FILM HOLDINGS CO.
By: /s/ Joe Pretlow
---------------------------------
Name:
Title:
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
By: /s/ Ken Schapiro
---------------------------------
Name:
Title:
-28-
<PAGE>
ARTISAN FILM INVESTORS TRUST
By Artisan Pictures Inc., as Designee
By: /s/ Ken Schapiro
---------------------------------------
Name:
Title:
Address: c/o Artisan Pictures, Inc. at
2700 Colorado Avenue
Santa Monica, CA 90404-3521
THE CHASE MANHATTAN BANK'S CAPITAL MARKET
FIDUCIARY SERVICES GROUP,
as Collection Agent
By: /s/ Joseph Centi
---------------------------------------
Name:
Title: VP
THE CHASE MANHATTAN BANK,
as AFI Agent
By: /s/ John J. Huber III
---------------------------------------
Name:
Title: Managing Director
THE CHASE MANHATTAN BANK,
as Sponsor Agent
By: /s/ John J. Huber III
---------------------------------------
Name:
Title:
-29-
<PAGE>
THE CHASE MANHATTAN BANK,
as Sponsor Administrative Agent
By: /s/ John Huber III
---------------------------------------
Name:
Title:
-30-
<PAGE>
Schedule 1
Approved Accounting Firms
-------------------------
PriceWaterhouseCoopers
KPMG Peat Marwick
Ernst & Young
Deloitte & Touche
<PAGE>
Exhibit A
Form of Other Intercreditor Agreements
--------------------------------------
<PAGE>
Exhibit B
Form of Allocation Certificate
------------------------------
<PAGE>
Exhibit C
Form of Picture Waterfall Statement
-----------------------------------
<PAGE>
Exhibit D
Sponsor Affiliates
ARTISAN ENTERTAINMENT INC.
ARTISAN HOME ENTERTAINMENT INC.
ARTISAN RELEASING INC.
ARTISAN MUSIC INC.
BE MINE PRODUCTIONS, INC.
BEACH DANCE PRODUCTIONS, INC.
DETENTION PRODUCTIONS, INC.
HEATWAVE PRODUCTIONS, INC.
LIVE AMERICA INC.
MILK MISSION PRODUCTIONS INC.
SWEET TIME PRODUCTIONS, INC.
VESTRON INC.
WISH AGAIN PRODUCTIONS, INC.
FILM HOLDINGS CO.
SILENT DEVELOPMENT CORP.
TONGUE-TIED INC.
<PAGE>
Exhibit J
DISTRIBUTION AGREEMENT
Distribution Agreement dated as of October 13, 1999 ("Agreement") between
Artisan Film Investors Trust ("Investors"), a Delaware business trust, and
Artisan Pictures, Inc. ("Distributor"), a Delaware corporation.
1. DEFINITIONS: All initially capitalized terms, which are used herein are
-----------
specifically defined terms and shall be defined as herein set forth. The term
"business day(s)" shall mean any day(s) of the week, other than a Saturday,
Sunday or other day on which banks are required or permitted to close in the
State of New York or State of California.
2. PICTURES:
--------
The term "Pictures" or "Picture" means any and all Declared Qualifying
Pictures, as such term is defined in the Credit Agreement as hereinafter
defined (including films which the lenders under the Credit Agreement
accept for financing and which do not meet the criteria for a Qualifying
Picture, as that term is defined in the Credit Agreement) and any other
film accepted by the Distributor as the Agent of Investors under the
Master Film Purchase Agreement or any Film Purchase Agreement (as such
terms are defined in the Credit Agreement) until such time as this
Distribution Agreement is terminated in accordance with the Sponsor
Agreement (the "Sponsor Agreement") dated as of October 13, 1999 by and
among Distributor, Investors, the other Artisan Entities (as defined
therein), Artisan Entertainment, Artisan Music, Inc., Artisan Home
Entertainment, Inc., all accommodation debtors under the Amended and
Restated Credit and Guaranty Agreement dated as of July 9, 1997 as amended
and restated as of August 10, 1998 among Distributor and Artisan Home
Entertainment as borrowers, the Guarantors named therein, The Chase
Manhattan Bank as Administrative Agent and as Fronting Bank and The Chase
Manhattan Bank, as Agent under said Credit Agreement.
3. ENGAGEMENT:
----------
(a) Agency Services: Investors hereby engages Distributor to perform the
---------------
following services collectively referred to as the "Agency Services", for
the Term specified below:
(i) Qualifying Pictures: Distributor shall identify for Investors
-------------------
potential Pictures for Investors to acquire which meet Investors'
criteria as such criteria are made known to Distributor from time to
time.
1
<PAGE>
(ii) Documentation: Distributor shall prepare (or review if
-------------
prepared by others) all documents necessary for Investors to acquire
each Picture to be acquired by Investors including a Film Purchase
Agreement with respect to each Picture (collectively the "ACQUISITION
DOCUMENTS") and arrange for the execution of the Acquisition
Documents by Investors and all other parties thereto.
(iii) Delivery: As Investors' agent, Distributor shall arrange for
--------
and accept, from the producer thereof, after customary review, all
delivery material relating to each Picture required pursuant to this
Distribution Agreement. Delivery of a Picture to Distributor in its
capacity as Investors' agent shall constitute delivery of such
Picture pursuant to this Distribution Agreement.
(b) Distribution Rights: Investors hereby licenses to Distributor,
-------------------
to the extent Investors has such rights, the following rights for the Term
and Licensed Territory specified below (the "Distribution Rights"):
(i) General Rights: The exclusive right of theatrical distribution,
--------------
non-theatrical distribution, free television distribution, pay
television distribution, and home video distribution with respect to
the Pictures and trailers thereof and excerpts and clips therefrom,
in any and all languages and versions, including dubbed, subtitled
and narrated versions, and all exploitation rights in any and all
media now known or hereafter created using any form of the Pictures.
(A) Marketing, Distribution and Exploitation Rights: The
-----------------------------------------------
following rights in connection with the marketing, distribution
and exploitation of the Pictures:
(1) Title: To use and to authorize others to use the
-----
title of the Pictures or to change such title;
(2) Musical Material: To use and perform and to authorize
----------------
others to use and perform any musical material contained
in the Pictures;
(3) Cut, Edit, Dub and Subtitle: To cut, edit, dub,
---------------------------
subtitle and alter the Pictures or any parts thereof as
Distributor may deem necessary for the effective
marketing, distribution and exploitation of the Pictures
and/or to conform to censorship, import permit and other
legal requirements and/or to conform to time segment or
exhibition standards of licensees
2
<PAGE>
and exhibitors and/or to create foreign language versions;
and
(4) Trademark: To use Distributor's name and trademark
---------
and/or or the name and trademark of any of Distributor's
subsidiaries, affiliates, subdistributors and licensees in
such manner, position and form as Distributor or any of
its subsidiaries, affiliates, subdistributors or their
licensees may elect.
(B) Advertising and Publicity Rights: For purposes of
--------------------------------
advertising and publicizing the Pictures in connection with the
marketing, distribution and exploitation of the Pictures, the
following rights:
(1) Publishing: To publish and license and authorize
----------
others to publish in any language, in any media and in
such form as Distributor deems advisable, synopses,
summaries, adaptations, resumes and stories of and
excerpts from the Pictures and from any literary, dramatic
or musical material in the Pictures or upon which the
Pictures are based;
(2) Name and Likeness: To use and authorize others to
-----------------
use the name, voice and likeness (and any simulation or
reproduction thereof) of any person appearing in or
rendering services in connection with the Pictures;
(3) Excerpts and Clips: To exhibit and authorize others
------------------
to exhibit in any language by any media, including radio
from any literary, dramatic or musical material in the
Pictures or upon which the Pictures are based; and
(4) Publicity Items: To use and authorize the manufacture
---------------
and distribution of T-shirts, sweatshirts, posters and
postcards for publicity purposes, and not for sale.
(ii) Copyright Revenues: The exclusive right to collect all
------------------
royalties, fees and other revenues which Investors, or the registered
copyright owner, is otherwise entitled to collect by reason of any
statute, governmental regulation, operation of law or in any other
manner, for, based upon or in connection with, in whole or in part,
or directly or
3
<PAGE>
indirectly, any use of the Pictures pursuant to any exercise
of the distribution rights granted hereunder ("Copyright Revenues"),
including the recording and/or retransmission of the signals
embodying the Pictures. In connection therewith, Investors agrees
that Distributor shall have the exclusive right to collect or to
arrange for the collection of Copyright Revenues resulting from the
secondary transmission or retransmission of the Pictures, by any
means now known or hereafter devised, in the Licensed Territory.
Distributor shall make or cause to be made all necessary claims,
filings and collect or arrange for the collection of all Copyright
Revenues for inclusion in Gross Receipts of the Pictures. Distributor
shall determine the amount of Copyright Revenues allocable to the
Pictures and other programming consistent with the empirical data
available to Distributor. Investors shall make no separate claim to
collect such Copyright Revenues.
(iii) Other Rights: To exercise exclusively all other rights in
------------
addition to the Distribution Rights with respect to Pictures
including, to the extent Investors has such rights, (i) commercial
tie-in rights; (ii) legitimate stage rights; (iii) literary
publishing rights; (iv) live television rights; (v) merchandising
rights; (vi) music publishing rights; (vii) radio rights; (viii)
remake rights; (ix) sequel motion picture rights; (x) television
rights; and (xi) soundtrack recording rights (collectively "OTHER
RIGHTS") with respect to the Pictures, and any literary material or
musical material upon which the Pictures are based.
(iv) Assignment of Certain Rights:
----------------------------
(A) Assignment of Certain Rights: In addition to the rights granted
to Distributor under Section 3(b) hereof, Investors licenses to
Distributor for the Term and Licensed Territory upon delivery of each
Picture, such of Investors' rights, title and interest in and to the
foregoing rights to the Pictures and all elements thereof, including
all of the rights previously licensed hereunder, the rights acquired
by Investors pursuant to Acquisition Documents and the underlying
dramatic and musical materials and any trailers thereof as may be
necessary for Distributor to exercise the Distribution Rights
hereunder. Moreover, effective upon delivery of each of the Pictures
by Investors (or by third parties at Investors' direction) to
Distributor in accordance with all of the provisions of this
Distribution Agreement, Investors does hereby license to Distributor
for the Licensed Territory and Term, such distribution rights with
respect to the Pictures not previously licensed or assigned to
Distributor as provided in the previous sentence to the
4
<PAGE>
extent necessary to enable Distributor to exercise the Distribution
Rights hereunder: such of Investors' rights under all agreements with
parties providing services in connection with the production of the
Pictures and each and such of Investors' rights and copyrights in and
to the literary works upon which the Pictures are based, the Pictures
and trailers thereof, and the music contained therein as to which
Investors holds or will hold the copyright (or any interest therein)
as may be necessary to effectuate the purposes of this Distribution
Agreement.
(B) Executory Obligations/Third Party Participations: Effective
------------------------------------------------
upon Delivery of each Picture (as hereinafter defined), Distributor
shall assume directly from the producer thereof the following
executory obligations to the extent not retained by such producer
pursuant to the relevant Acquisition Documents or otherwise
(collectively "Approved Executory Obligations"): credit obligations
arising before and after delivery as provided in Paragraph 9(a); all
profit participations, gross participations, deferments, all other
contingent payments, music synchronization, performance and other
mechanical fees, any other license fees (including, without
limitation, all literary artistic, musical, technological and/or
intellectual property rights fees) and guild and union residual
obligations to the extent not "bought out" or assumed by third party
subdistributors in connection with the exploitation of each Picture
(collectively "Contingent Payments").
4. TERM: The period during which the Distribution Rights and Other Rights may
----
be exercised ("Term") shall commence on the date of this Distribution Agreement
and continue thereafter for 24 years unless Investors' rights in a Picture do
not extend until the end of such Term, in which event the Term as to such
Picture shall be co-terminus with Investors' rights. The parties acknowledge
that Distributor may, under certain provisions of the Sponsor Agreement (as
hereinafter defined) be required to purchase one or more of the Pictures, in
which event the Distribution Agreement shall no longer apply to the Pictures so
purchased. Distributor acknowledges that in the event of a Sponsor Default (as
defined in the Credit Agreement), the Agent (as defined below) as assignee for
security of Investors has the right to terminate this Distribution Agreement.
Distributor further acknowledges that in such event, or in the event that a
Suspension Event as defined in the Credit Agreement occurs, the failure of
Investors following such event to provide financing for acquisition costs or
print and advertising costs shall not constitute an event of default hereunder.
5. LICENSED TERRITORy: The "Licensed Territory" shall consist of the
------------------
Universe.
5
<PAGE>
6. FINANCING: Distributor acknowledges that Investors has entered into a
---------
Credit and Security Agreement (as the same may be amended or modified from time
to time, the "Credit Agreement"), dated as of October 13, 1999, with various
lenders and The Chase Manhattan Bank, as agent ("Agent") for itself and other
lenders ("Lenders") pursuant to which the Lenders have agreed, subject to the
terms and conditions set forth therein, to loan Investors up to the lesser of
(i) 80% of the sum of all amounts necessary to acquire a Picture plus up to a 5%
overhead factor for the Distributor and its affiliates plus the premium for the
applicable Cash Flow Insurance policy (as that term is defined in the Credit
Agreement) and (ii) the sum of the amount of the aggregate sum insured for that
Picture under the relevant Cash Flow Insurance policy plus 40% of the amount set
forth in clause (i), and up to $8,000,000 for print and advertising expenses for
each Picture (to be released on at least 500 screens unless the condition is
waived by the Lenders) which amount Investors agrees to cause Agent to advance
with respect to each Picture as and when required whether prior to or after the
theatrical release of such Picture unless Distributor determines that a lesser
amount is required. In the event a Picture is released on more than 800 screens,
subject to availability of funds under the Credit Agreement, Investors will
increase the aforesaid amount for print and advertising expenses (and will cause
Lenders to advance, subject to the requirements of the Credit Agreement) an
additional $1,000,000 for each 100 screens in excess of 800 but not in excess of
1,500 screens, on which the Picture involved is released. Distributor
acknowledges that the aforesaid obligation to fund is subject to the Picture in
question having been Delivered and acquired by Investors. Notwithstanding the
foregoing, however, funds advanced by Investors (or Agent on Investors' behalf)
pursuant hereto may not be used to pay the following costs:
(a) standard off-the-top collection costs;
(b) video manufacturing and distribution expenses actually incurred;
(c) ContingentPayments;
(d) actual television distribution expenses.
Distributor agrees to (x)expend any amounts advanced by Agent pursuant to
Domestic Distribution Loans (as defined in the Credit Agreement) to fund only
print and advertising expenses for a Picture and (y) repay to Agent any funds
advanced by Agent for print and advertising expenses for a Picture in excess of
the amount actually expended for prints and advertising for such Picture, which
repayment will pay down the relevant loan under the Credit Agreement. Any
subsidies or tax benefits received with respect to a Picture will be utilized to
reduce the negative cost thereof.
Investors shall, pursuant to the Acquisition Documents, pay to Distributor as
part of the consideration for each Picture, an amount for Distributor's overhead
equal to five
6
<PAGE>
percent (5%) of the consideration payable to Distributor under the Acquisition
Documents with respect to such Picture.
7. DELIVERY:
--------
(a) Delivery Items: "Delivery" shall consist of delivery to Distributor in
--------------
its capacity as Investors' agent (which shall also constitute delivery to
Distributor hereunder) to the place or places designated by Distributor in
Los Angeles, California, at Producer's cost or Investors' cost (as to 80%
or such lesser percentage as may be borrowed as a Negative Loan (as that
term is defined in the Credit Agreement)) and Distributor's cost (as to the
balance thereof), of the following: (i) the Pictures in accordance with the
requirements of Paragraph 2. hereof; (ii) all the items ("Delivery Items")
specified in Exhibit "B" attached hereto with respect to each of the
Pictures in a form acceptable to the reasonable satisfaction of
Distributor's appropriate personnel; and (iii) written statement affirming
that the title of each of the Pictures (A) is free for use by Investors and
Distributor and has been registered in accordance with the Operating Rules
and Regulations and the Memorandum of the Title Committee of the Motion
Picture Association of America; and (B) has been cleared for use by an
outside attorney competent to render an opinion as to such clearance (a
copy of a Title Report shall be delivered to Distributor). For purposes of
this Distribution Agreement the Distributor is estopped from claiming that
Delivery of a Picture has not occurred if Distributor has accepted Delivery
of said Picture under the applicable Film Purchase Agreement.
(b) Incomplete Delivery: Distributor, as Investors' agent, shall notify
-------------------
Investors and the Agent in writing as to the date of completion of Delivery
("Complete Delivery Notice") with respect to each of the Pictures. The
Acquisition Documents shall provide that not later than 30 days after
receipt of delivery items, Distributor shall notify the producer thereof to
the extent that any such materials or items are incomplete or fail to meet
specified requirements for Delivery ("Objection Notice"). Distributor shall
then give the affected producer 7 days from receipt of the Objection Notice
("Cure Period") to correct all such deficiencies by making delivery to
Distributor of all the required materials and items specified in the
Objection Notice that comprise Delivery ("Complete Delivery"). Under no
circumstances shall any producer be relieved of the obligation to deliver
all required materials or items, nor shall Investors or Distributor as
Investors' agent be deemed to have waived any of said delivery
requirements, unless Distributor shall so notify the affected producer and
Investors in writing designating the particular material or item which need
not be delivered by the affected producer. The cost of any material or item
of Delivery which is omitted by such producer and is supplied by
Distributor or its designee by reason of such failure to deliver the
material or item will be added to
7
<PAGE>
the Total Negative Cost (as defined in the Credit Agreement) of the
affected Picture for the purpose of computing the amount to be provided
pursuant to the Credit Agreement.
(c) Screening Prints: Distributor, as Investors' agent shall, in the
----------------
Acquisition Documents, require delivery to Distributor of 1 screening print
of each Picture consistent with first-class Motion Picture standards in the
Motion Picture industry (which shall be no less than a 35mm color composite
print with a complete voice track and scratch or temp music track)
("Screening Print") for exhibition purposes no later than 4 weeks prior to
the delivery date for such Picture.
8. DISTRIBUTION AND EXPLOITATION: Except as otherwise specifically set forth
-----------------------------
in this Distribution Agreement, the Sponsor Agreement and the relevant Film
Purchase Agreement, Distributor shall have complete, exclusive and unqualified
discretion and control as to the time, manner and terms of distribution,
exhibition and exploitation of each of the Pictures, separately or in connection
with other motion pictures, in accordance with such policies, terms and
conditions and through such parties as Distributor in its sole business judgment
may determine proper or expedient and the decision of Distributor in all such
matters shall be binding and conclusive upon Investors. Subject to the Sponsor
Agreement and to the provisions hereinafter set forth, Distributor makes no
express or implied warranty or representation as to the manner or extent of any
distribution or exploitation of the Pictures nor the amount of money to be
derived from the distribution, exhibition and exploitation of the Pictures nor
as to the maximum or minimum amount of monies to be expended in connection
therewith. Distributor does not guarantee the performance by any unaffiliated
subdistributor, licensee or exhibitor of any contract regarding the distribution
and exploitation of the Pictures.
9. CREDITS AND OTHER CONTRACTUAL RESTRICTIONS:
------------------------------------------
(a) Contractual Obligations: Distributor shall comply with the Acquisition
-----------------------
Documents with respect to (i) any contractual restrictions on the
Distribution Rights and Other Rights which pursuant to Paragraph 3. may be
subject to contractual restrictions; and (ii) contractual restrictions or
contractual credit obligations relative to paid advertising issued by
Distributor or under Distributor's control; provided all of the following
conditions have been satisfied: (A) the Acquisition Documents contain
written instructions as to such contractual restrictions and contractual
credit obligations and Distributor has received these no later than
completion of principal photography of the relevant
8
<PAGE>
Picture; (B) such contractual restrictions and credit obligations are
within Distributor's normal parameters; and (C) the contractual credit
obligations relative to paid advertising conform to Distributor's standard
credit provisions for comparable talent including Distributor's standard
exclusions, standard art work title provisions, standard provisions as to
position and size of type, and billing block provisions.
(b) No Liability Re: Advertising, Publicity and Credits: The casual or
---------------------------------------------------
inadvertent failure by Distributor or any failure by a third party to
comply with contractual restrictions or credit obligations related to any
of the Pictures or to advertising and publicity of the Pictures shall not
constitute a breach of this Distribution Agreement by Distributor. Within a
reasonable period following receipt of written notice from Investors or
third parties specifying the details of any failure by Distributor to
comply with contractual restrictions or credit obligations, Distributor
shall take such steps as are reasonably practicable to cure such failure
prospectively with respect to copies of the affected Picture not yet made
or advertisements for the affected Picture not yet placed, as applicable,
which are distributed or issued by Distributor or under the control of
Distributor.
10. PAYMENTS TO INVESTORS, DISTRIBUTION FEE: (a) Prior to the later of (i) the
---------------------------------------
Credit Release Date (as defined in the Trust Agreement hereinafter referred to)
and (ii) the date on which all Sponsor Group Obligations (as defined in the
Intercreditor Agreement dated as of October 13, 1999 (the "Intercreditor
Agreement") by and among Distributor, Investors, The Chase Manhattan Bank's
Capital Market Fiduciary Services Group, as Collection Agent, The Chase
Manhattan Bank as Collateral Agent and Administrative Agent and Canpartners
Investments IV, LLC and certain affiliates of Distributor) under the Sponsor
Credit Agreement (as defined in the Intercreditor Agreement) have been repaid in
full and the commitments under the Sponsor Credit Agreement have been terminated
(the "Direct Deposit Commencement Date") Investors' share of the proceeds
derived from the exploitation of the Pictures shall be determined, accounted for
and paid pursuant to the Intercreditor Agreement and the Sponsor Agreement.
Remake, sequel and televisions series rights to Pictures will rest in the
Distributor and the proceeds thereof will not be included in Gross Receipts.
Following the Direct Deposit Commencement Date, Gross Receipts of the Declared
Qualifying Pictures will be deposited by the Distributor into the Trust Account
within two (2) business days after receipt thereof and will thereafter be
distributed in accordance with the terms of the Trust Agreement.
(b) In the event that payments to Investors under the Intercreditor
Agreement and the Sponsor Agreement are insufficient on or before any
Quarterly Payment Date to pay the applicable Quarterly Payment Amount (as
such terms are
9
<PAGE>
defined in the Amended and Restated Trust Agreement dated as of October 13,
1999 (the "Trust Agreement") among Bear, Sterns & Co., Inc., Christiana
Bank & Trust Company and Distributor) Distributor may, but shall not be
obligated to, make voluntary advances to the Trust Account in an amount
which when added to sums previously deposited in the Trust Account, will
enable the applicable Quarterly Payment Amount to be paid on the Quarterly
Payment Date.
(c) For its services hereunder, Distributor shall be entitled to a
distribution fee (the "Distribution Fee") equal to the amount set forth in,
and payable in accordance with the Sponsor Agreement and the Trust
Agreement.
11. WARRANTIES:
----------
(a) Investors' Warranties:
---------------------
(i) Rights/Payments/Quality: Investors acknowledges and agrees that
-----------------------
Distributor, Lenders and Certificate Holders (as defined in the Trust
Agreement) are third party beneficiaries of all representations and
warranties obtained by Investors pursuant to the Acquisition
Documents including, but not limited to, representations and
warranties given by the other party or parties to the Acquisition
Documents (the "Warranting Party") to the effect that: (A) such party
has, exclusively, all rights necessary to enter into the Acquisition
Documents, and that all rights licensed, granted or assigned or to be
assigned by such party thereunder shall be free and clear of any and
all restrictions, claims, liens, encumbrances, impairments or defects
of any nature which would impair or interfere with the exercise of
the Distribution Rights or Other Rights during the Term other than
customary production liens granted to guilds and unions which enter
into non-disturbance agreements with Distributor as Investors' agent
in form and substance acceptable to Distributor within Distributor's
parameters. (B) that it has not and will not commit, nor omit to
perform, any act by which any of the Distribution Rights or Other
Rights could or would be encumbered, diminished or impaired in any
manner which would impair or interfere with the exercise by
Distributor as Investors' agent of the Distribution Rights or Other
Rights during the Term; (C) that all personnel engaged in connection
with the production of the relevant Picture shall, if required, be
members in good standing of applicable unions or guilds; (D) that
neither the execution of the Acquisition Documents nor anything
contained in the relevant Picture nor the reliance by Distributor as
Investors' agent on the statement of credits furnished by the
Warranting Party for the Picture nor the exercise of any of the
Distribution Rights or Other Rights will violate or infringe upon any
rights of any kind of any party nor require Distributor as Investors'
agent,
10
<PAGE>
its subsidiaries, affiliates, subdistributors or any of their
licensees or agents to make any payment of any kind to any party for
any reason (other than Guild Payments in accordance with Paragraph
14), such payments, if any, being the responsibility and obligation
of the Warranting Party, including payments to any party which may be
entitled to share in any and all income derived from the exploitation
of any Picture; (E) upon Delivery, the Pictures will be in all
respects ready and of a quality, both artistic and technical,
adequate for general theatrical exhibition and commercial public
exhibition, and that Distributor as Investors' agent, its
subsidiaries, affiliates, subdistributors and their licensees and
agents will peacefully enjoy and possess each and all of the rights
and licenses granted or purported to be granted hereunder throughout
the Term without impairment and without hindrance on the part of any
third party, and that the Warranting Party shall not facilitate the
occurrence of an event of Force Majeure; (F) the provision to
Distributor, as Investors' agent, of talent or other agreements
relating to the Picture prior to or subsequent to the signature
thereof by all parties thereto shall in no manner excuse the
Warranting Party from its obligations under the Acquisition
Documents, including pursuant to Paragraph 12(a) hereof, and that
Distributor as Investors' agent shall be specifically deemed not to
have knowledge of, or have liability as to or be bound by any
restrictions or limitations therein, unless obligations in said
agreements satisfy all of the provisions of Paragraph 9 or
Distributor specifically agrees in writing thereto. Distributor's
sole recourse in the event of any breach of the aforesaid
representations and warranties shall be against the Warranting Party
based upon the rights assigned pursuant hereto.
(ii) Place of Business. Investors is a business trust organized
-----------------
under the laws of the State of Delaware and maintains its principal
office at [c/o Artisan Pictures, Inc., 2700 Colorado Avenue, Santa
Monica, California 90404.]
(iii) Financial Condition. Investors is not presently involved in
-------------------
financial difficulties as evidenced by it not having admitted its
inability to pay its debts generally as they become due or otherwise
not having acknowledged its insolvency or by it not having been
involved in or filed or consented to a petition in bankruptcy or for
reorganization or modification or alteration of the rights of
creditors nor does Investors presently contemplate any such
proceeding or have any reason to believe that any such proceeding
will be brought against it or its assets.
11
<PAGE>
(iv) Financial Commitments Relating to the Pictures: Investors shall
----------------------------------------------
not commit to the payment of any sums to third parties generated from
or in connection with the Pictures which (A) exceed the amount
Investors is entitled to receive from Distributor pursuant to
Paragraph 10, or (B) would be paid to a third party on a date earlier
than the date which such sums may be earned by and be payable to
Investors.
(b) No Waiver: Investors agrees and acknowledges that any review and/or
---------
approval by Distributor of any documents, advertising materials or other
items in connection with the Pictures or the distribution thereof will not
serve to diminish or otherwise adversely affect the right of Distributor to
rely upon the representations, warranties and agreements made by the
Warranting Party in the Acquisition Documents and assigned to Distributor
pursuant hereto.
(c) Distributor's Warranties: Distributor represents and warrants that it
------------------------
has all corporate power and authority necessary to enter into this
Distribution Agreement and that it will perform its obligations in
accordance with the provisions of this Distribution Agreement. Distributor
further represents and warrants that it will not subdistribute any of the
Pictures theatrically in the United States.
12. INDEMNITY:
---------
(a) Investors' Indemnity: Investors agrees to indemnify and hold
--------------------
Distributor, its parent, subsidiary and affiliated entities,
subdistributing entities, and their respective officers, agents, directors,
employees and licensees harmless from any and all claims, actions or
proceedings of any kind and from any and all damages, liabilities, costs
and expenses (including reasonable attorneys' fees, whether or not
litigation is commenced) ("Claims") relating to or arising out of any claim
by a third party of any violation or alleged violation of any of the
warranties, representations or agreements made by Investors hereunder (as
opposed to those made by Warranting Parties and assigned to Distributor
hereunder) or any material error or omission in any of the material or
information furnished by Investors in accordance with this Distribution
Agreement or any failure of Investors to timely furnish such material or
information. Distributor shall have the right to litigate, compromise or
settle any Claim upon such terms as Distributor deems necessary or
desirable for the disposition of the matters at issue, provided, however,
that Distributor will not settle or pay any Claim which will require
Investors to indemnify Distributor without first obtaining Investors'
consent, which consent shall not be unreasonably withheld. In such event,
Investors shall reimburse Distributor on demand for all amounts paid or
incurred by Distributor (including reasonable attorneys' fees) solely as
they relate to Investors' representations and warranties as opposed to
representations and
12
<PAGE>
warranties obtained from others and assigned to Distributor hereunder.
Pending determination of any such Claim, Distributor may withhold from any
amount due Investors hereunder an amount equal to the maximum exposure of
such Claim as reasonably determined by Distributor; provided, however, that
Distributor shall not so withhold such amounts if Investors posts a bond or
letter of credit in such form in an amount and by a surety or financial
institution reasonably satisfactory in all respects to Distributor.
Distributor acknowledges that Investors' indemnity hereunder is subordinate
to the repayment in full of (i) all of Investors' Obligations as such term
is defined in to the Credit Agreement and (ii) the Trustee's Expenses,
Quarterly Payment Amounts and Applicable Liquidation Preference (as such
terms are defined in the Trust Agreement).
(b) By Distributor: Distributor agrees to defend and indemnify and hold
--------------
Investors, and its parent, subsidiary and affiliated entities and their
respective officers, agents, directors and employees harmless from any and
all Claims relating to or arising out of any Claim by a third party (i) of
any material violation or alleged material violation of any of the
warranties, representations or agreements made by Distributor hereunder;
(ii) by reason of the exercise by Distributor of the Distribution and Other
Rights except with respect to matters which Investors has agreed to
indemnify Distributor pursuant to Paragraph 12(a); or (iii) arising from
the failure or alleged failure of Distributor to pay any Contingent
Payments for which it is responsible pursuant to Section 3(b)(iv)(B)
hereof.
13. COPYRIGHT AND PERMITS.
---------------------
(a) The Pictures when delivered to Distributor shall contain a copyright
notice in Investors' name (or in the name of a third party producer) in
compliance with the Universal Copyright Convention and the Copyright Law of
the United States. Distributor shall, in Investors' name, with respect to
the Licensed Territory, secure, register, renew and extend all copyrights
in the Pictures and all related properties and protect such copyrights and
other related properties (including the characters contained in the
Pictures) upon eligibility for copyright registration, renewal and
extension or other protection. Investors hereby irrevocably designates
Distributor as its attorney-in-fact to do so, and also irrevocably
designates Distributor as its attorney-in-fact to take reasonable steps to
defend said copyrights and related rights against any and all infringements
thereof. Investors agrees that the foregoing designations constitute powers
coupled with an interest, are irrevocable throughout the Term, and may be
exercised at Distributor's sole discretion. Distributor shall not be liable
to Investors for any action or failure to act on behalf of Investors within
the scope of authority conferred on Distributor under this Paragraph 13.
13
<PAGE>
(b) Distributor shall cause the Warranting Party with respect to each
Picture to represent and warrant that the copyright in the Picture, the
Literary Material and in any other dramatic and musical material upon which
the Picture is based or which is contained therein will be valid and
subsisting during the Term in each country of the Licensed Territory where
such protection is available under Law, and no part of the Picture, the
Literary Material or of any such dramatic or musical material is or will be
in the public domain in countries protecting copyright.
(c) Distributor, as Investors' agent, shall use its best efforts to
require the Warranting Party to secure for Distributor as Investors' agent
such licenses and permits as may be necessary or desirable for the
importation and distribution of the relevant Picture in any geographic area
of the Licensed Territory. As between Investors and Distributor,
Distributor shall bear the risk of not obtaining such licenses and permits.
14. CONTINGENT PAYMENTS: Distributor agrees to pay all Contingent Payments
-------------------
with respect to the Pictures.
15. CENSORSHIP: Distributor shall not be obligated to distribute any Picture
----------
in any country or area of the Licensed Territory if Distributor is
prohibited from so distributing such Picture because of censorship, any MPAA
regulation or directive, or event of Force Majeure; provided, however, that
Distributor shall exercise commercially reasonable efforts to distribute or
cause the distribution of each Picture throughout the Licensed Territory.
16. SECURITY INTEREST. As security for all rights granted to Distributor
-----------------
hereunder and Distributor's right to purchase Pictures pursuant to the Master
Film Purchase Agreement, Investors hereby assigns to Distributor all of
Investors' right, title and interest in and to each of the Pictures, as the same
are created or acquired and the proceeds derived with respect thereto, and in
each case shall be subordinate and subject in right of payment, to the full
extent permitted by law to the prior payment in full of (i) the Obligations (as
such term is defined in the Credit Agreement) and (ii) the applicable
Liquidation Preference. The security interest granted herein is and shall be
subordinate, to the fullest extent permitted by law and as hereinafter set
forth, to any guarantees, security interests and mortgages and other liens
securing payment of the Obligations and the Applicable Liquidation Preference,
notwithstanding the perfection, order of perfection or failure to perfect, any
such security interest or other lien, or the filing or recording, order of
filing or recording, or failure to file or record this Distribution Agreement or
any instrument or other document in any filing or recording office in any
jurisdiction. For purposes hereunder, the Obligations and the Applicable
Liquidation Preference shall include all obligations of Investors under the
Credit Agreement and the Trust Agreement, as applicable, including, without
limitation,
14
<PAGE>
whether outstanding at the date hereof or hereafter incurred or created, to pay,
and that any guarantees, security interests, mortgages and other liens hereunder
are and shall be subordinate, to the fullest extent permitted by law and as
hereinafter set forth, to any guarantees, security interests and mortgages and
other liens securing payment of the Obligations and the Applicable Liquidation
Preference, notwithstanding the perfection, order of perfection or failure to
perfect, any such security interest or other lien, or the filing or recording,
order of filing or recording, or failure to file or record this Distribution
Agreement or any instrument or other document in any filing or recording office
in any jurisdiction. Investors shall execute customary UCC financing statements
for New York State and County, California and Delaware and such other
jurisdictions as Distributor may deem appropriate and a mortgage of copyright
with respect to each of the Pictures.
17. INVESTOR'S DEFAULT: In the event of any default or breach of this
------------------
Distribution Agreement by Investors and the failure of Investors to cure such
default or breach within 15 business days after the date of service of written
notice from Distributor, Distributor shall have the right, subject to the prior
consent of Agent, to terminate this Distribution Agreement. If this Distribution
Agreement is terminated as a result of Investors' default or breach, Investors
shall immediately refund to Distributor any sums expended by Distributor
hereunder in connection with the exercise of the Distribution Rights and Other
Rights without limiting any other right or remedy that Distributor may otherwise
have.
18. WAIVER/REMEDIES: No express or implied waiver by either Distributor or
---------------
Investors of any provision of this Distribution Agreement or of any breach or
default of the other shall constitute a continuing waiver, and no waiver shall
be effective unless in writing. All remedies contained in this Distribution
Agreement shall be cumulative and none of them shall be in limitation of any
other remedy or right.
19. FURTHER ASSURANCES: Investors hereby agrees to duly execute, acknowledge,
------------------
procure and deliver to Distributor such documents as may be requested by
Distributor in order to vest in Distributor the Distribution Rights and Other
Rights and such additional rights granted to Distributor pursuant to this
Distribution Agreement. If Investors shall fail to so execute and deliver or to
cause the execution and delivery of any such documents within 7 days after
Distributor's request therefor and Distributor has not received a written
objection thereto specifying with particularity Investors' objection during such
7-day period, Distributor is hereby irrevocably granted throughout the Term the
power coupled with an interest with rights of substitution and delegation to
execute such documents in the name and on behalf of Investors as Investors'
attorney-in-fact.
15
<PAGE>
20. CHOICE OF LAW: This Distribution Agreement will be interpreted in
-------------
accordance with the laws of the State of New York, United States of America,
applicable to contracts made therein, but without regard to any principles of
conflict of laws.
21. LEGAL ACTION/SERVICE OF PROCESS: Investors and Distributor agree that all
-------------------------------
actions, proceedings or litigation relating to this Distribution Agreement shall
be instituted and prosecuted solely within New York County, the State of New
York, and Investors and Distributor hereby consent to the jurisdiction of the
state courts of New York and the federal courts located in the Southern District
of New York with respect to any matter arising out of or relating to this
Distribution Agreement. Investors and Distributor hereby appoint
__________________, whose address in New York City is __________________ , to
accept service of process with respect to any actions hereunder by U.S. mail at
their respective addresses hereinafter set forth.
22. NOTICES:
-------
(a) To Distributor: All notices from Investors to Distributor shall be
--------------
given in writing by mail (postage prepaid), messenger or telecopier (and
if sent by telecopier, such notice shall be concurrently sent by mail)
addressed as indicated below. The earlier of: (i) actual receipt; (ii) 3
business days after the date of mailing; or (iii) the date of telecopying
shall be deemed to be the date of service.
2700 Colorado Avenue,
2nd Floor
Santa Monica, California 90404
Attention: Ken Schapiro, Esq.
Telecopier: (310) 255-3840
(b) To Investors: All notices from Distributor to Investors may be given
------------
in writing by mail (postage prepaid) or messenger or telecopier addressed
as indicated below. The earlier of (i) actual receipt; (ii) 3 business
days after the date of mailing; or (iii) the date of telecopying shall be
deemed to be the date of services.
[c/o Artisan Pictures, Inc.
2700 Colorado Avenue, 2nd Floor
Santa Monica, California 90404
Attention: Ken Schapiro, Esq.
Telecopier: (310) 255-3840]
16
<PAGE>
with copies to Chase (until the commitment of Chase and the lending banks
pursuant to the Credit Agreement is terminated and all of Investors'
obligations thereunder are repaid in full) at:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017-2070
Attention: Joan M. Fitzgibbon
Telecopier: (212) 270-4164
and
Chase Securities, Inc.
1800 Century Park East
Suite 400
Los Angeles, California 90067
Attention: Christa Thomas
Telecopier: (310) 788-5628
23. RELATIONSHIP OF PARTIES: Except as provided herein, neither Distributor
-----------------------
nor Investors is an agent or representative of the other, and neither shall be
liable for or bound by any representation, act or omission whatsoever of the
other. This Distribution Agreement shall in no way create a joint venture or
partnership or be for the benefit of any third party. Neither Investors nor
Distributor shall have the authority to bind the other or the other's
representatives in any way.
24. ASSIGNMENT: This Distribution Agreement is non-assignable by Investors or
----------
by Distributor. However, this Distribution Agreement may be assigned by
Distributor to any Party acquiring all or substantially all of the business or
assets of Distributor provided that, prior to the Direct Deposit Commencement
Date, Agent, as agent for itself and other lenders approves such assignment and
such party assumes and agrees in writing to perform all of Distributor's
executory obligations hereunder, and such assignment shall be deemed a novation
forever releasing and discharging Distributor from any further liability or
obligation to Investors.
25. ENTIRE AGREEMENT: This document entitled "Distribution Agreement" together
----------------
with: Exhibit "A", (the Theatrical Motion Picture Delivery Requirements) embody
the entire agreement ("Distribution Agreement") between Distributor and
Investors as to the subject matter hereof, and expressly and unequivocally
supersede all previous agreements, warranties or representations, oral or
written, which may have been made between Distributor and Investors as to the
subject matter hereof. This Distribution Agreement may only be amended by a
written instrument duly signed by Investors and Distributor.
17
<PAGE>
By signing in the spaces provided below, Investors and Distributor accept and
agree to all of the terms and conditions of this Distribution Agreement as of
the day and year first above written.
ARTISAN FILM INVESTORS TRUST ARTISAN PICTURES, INC.
("Investors") ("Distributor")
By Artisan Pictures, Inc., as designee
By: /s/ Ken Schapiro By: /s/ Ken Schapiro
--------------------------- ---------------------
Its: Its: EVP
--------------------------- -----------------
18
<PAGE>
Exhibit K
MASTER FILM PURCHASE AGREEMENT
THIS MASTER FILM PURCHASE AGREEMENT, dated as of October 13, 1999, is
between ARTISAN FILM INVESTORS TRUST, a Delaware business trust ("AFI"), and
ARTISAN PICTURES, INC., a Delaware corporation ("API"), and is made with
reference to the following facts:
A. Pursuant to a Credit and Security Agreement dated as of October 13,
1999 (the "Credit Agreement") among AFI, as borrower, the lenders referred to
therein (the "Lenders"), and The Chase Manhattan Bank, as administrative agent
and fronting bank (the "Agent"), the Lenders have agreed to make available to
AFI a credit facility to finance (i) not more than eighty percent (80%) of the
Total Negative Cost of Declared Qualifying Pictures and (ii) a portion of the
Domestic Distribution Expenses with respect thereto. Such Declared Qualifying
Pictures and any other Pictures which constitute Acquired Films have been or
will be produced by separate corporations, partnerships, limited liability
companies or other entities that are unaffiliated with AFI (each, a "Production
Company"). API will enter into a Film Purchase Agreement with (i) in the case of
all Pictures other than "Stir of Echoes" and "The Ninth Gate", the applicable
Production Company substantially in the form of Exhibit A hereto, (ii) in the
case of "Stir of Echoes", API substantially in the form of Exhibit B hereto and
(iii) in the case of "The Ninth Gate", API substantially in the form of Exhibit
C hereto (each, a "Film Purchase Agreement"), pursuant to which AFI will
purchase such Acquired Films.
B. Pursuant to a Distribution Agreement dated as of October 13, 1999
(the "Distribution Agreement") between API and AFI, AFI will grant to API the
exclusive right to exploit the Acquired Films. Gross Receipts of the Acquired
Films will be used, among other things, to repay the Lenders under the Credit
Agreement and make payments to the holders of Trust Certificates and the
payee(s) of the Subordinated Participation Interest and the Advisory Fee.
NOW, THEREFORE, in consideration of the mutual rights and obligations
set forth in this Agreement, as well as other benefits which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the following
terms have the following meanings:
"Acquired Films" means those films purchased by AFI from Production
Companies or API pursuant to Section 2 of this Agreement.
"Advisory Fee" has the meaning set forth in Section 10.
"Agent" has the meaning set forth in Paragraph A.
"Agreement" means this Agreement, as it may be amended or modified in
accordance with Section 12(b).
<PAGE>
"Aggregate Quarterly Gross Receipts" as of any Quarterly Payment Date means
the aggregate amount of the Gross Receipts of all Acquired Films theretofore
purchased by AFI, which Gross Receipts are received during the Applicable
Quarterly Period.
"Applicable Liquidation Preference" has the meaning set forth in Exhibit A
to the Trust Agreement.
"Applicable Quarterly Period" has the meaning set forth in Exhibit A to the
Trust Agreement.
"Applicable Law" has the meaning set forth in Section 1 of the Credit
Agreement.
"Basic Agreements" has the meaning set forth in Exhibit A to the Trust
Agreement.
"Borrowing" has the meaning set forth in Section 1 of the Credit
Agreement.
"Certificateholder" has the meaning set forth in Exhibit A to the Trust
Agreement.
"Collateral" has the meaning set forth in Section 1 of the Credit
Agreement.
"Completion" with respect to an Acquired Film means satisfaction of the
conditions necessary to cause "Complete Delivery" of such motion picture
pursuant to Section 7 of the Distribution Agreement (as evidenced by a
certificate of acceptance of Delivery issued by API to AFI).
"Credit Agreement" has the meaning set forth in Paragraph A.
"Credit Release Date" has the meaning set forth in Exhibit A to the Trust
Agreement.
"Declared Qualifying Picture" has the meaning set forth in Section 1 of
the Credit Agreement.
"Delivery" has the meaning set forth in Section 7 of the Distribution
Agreement.
"Designee" has the meaning set forth in Exhibit A to the Trust Agreement.
"Discount Rate" as of any date means the per annum yield which is
equivalent to (i) if the Credit Agreement is still in effect as of such date,
the interest rate then in effect with respect to the Loans (and if more than one
interest rate then applies to Loans under the Credit Agreement, the weighted
average of such interest rates) and (ii) if the Credit Agreement is not in
effect as of such date, the lower of (a) the LIBO Rate (assuming a one-month
Interest Period) and (b) the Alternate Base Rate which would be applicable if
the Credit Agreement were in effect. For purposes of this definition, "Loans,"
LIBO Rate," "Interest Period" and "Alternate Base Rate" shall each have the
meaning set forth in Section 1 of the Credit Agreement.
"Distribution Fee" has the meaning set forth in Section 1 of the
Distribution Agreement.
2
<PAGE>
"Distribution Agreement" has the meaning set forth in Paragraph B.
"Distributor" means the party identified as such from time to time under
the Distribution Agreement.
"Domestic Distribution Expenses" has the meaning set forth in Section 1 of
the Credit Agreement.
"Eligible Film" means (i) a Qualifying Picture or (ii) any other Picture
provided that (a) not less than $8,000,000 is spent by AFI on Domestic
Distribution Expenses with respect to such Picture and (b) the Lenders agree to
accept such Picture for financing under the Credit Agreement, and which in the
case of either (i) or (ii) has been approved by API. A Picture that meets all of
the requirements of an Eligible Film except that API only has distribution
rights in the United States (except for any foreign pre-sale requirement) shall
count as one-half of one film with respect to the Minimum Delivery Requirement.
"Fair Market Value" of the Acquired Films as of any date means the excess,
if any, of (i) the aggregate anticipated gross revenues (as determined by API in
accordance with United States generally accepted accounting principles) that
will be earned by all of the Acquired Films then owned by AFI after the end of
the most recently completed fiscal quarter of AFI over (ii) the aggregate
anticipated costs of generating such gross revenues (as determined by API in
accordance with United States generally accepted accounting principles),
discounted to a net present value using the Discount Rate.
"Film Purchase Agreement" has the meaning set forth in Paragraph A.
"Final Redemption Date" has the meaning set forth in Exhibit A to the
Trust Agreement.
"Gross Receipts" has the meaning set forth in Schedule 1 to the Sponsor
Agreement.
"Insurer" has the meaning set forth in Section 1 of the Credit Agreement.
"Intercreditor Agreement" has the meaning set forth in Exhibit A to the
Trust Agreement.
"Lenders" has the meaning set forth in Paragraph A.
"Liquidation Payment Date" has the meaning set forth in Exhibit A to the
Trust Agreement.
"Loans" has the meaning set forth in Section 1 of the Credit Agreement.
"Minimum Delivery Requirement" means the sale to and purchase by AFI of
at least eight Eligible Films prior to the end of the Revolving Period.
"Net Liquidation Film Proceeds" has the meaning set forth in Exhibit A
to the Trust Agreement.
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"Net Liquidation Non-Film Proceeds" has the meaning set forth in Exhibit A
to the Trust Agreement.
"Notes" has the meaning set forth in Section 1 of the Credit Agreement.
"Obligaitons" has the meaning set forth in Section 1 of the Credit
Agreement, and shall include, to the extent any such Obligations have been paid
by the Insurer, any subrogation rights of the Insurer.
"Other Sponsor Creditors" has the meaning set forth in the Intercreditor
Agreement.
"Person" has the meaning set forth in Exhibit A to the Trust Agreement.
"Picture" has the meaning set forth in Section 1 of the Credit Agreement.
"Production Company" has the meaning set forth in Paragraph A.
"Qualifying Picture" has the meaning set forth in Section 1 of the Credit
Agreement.
"Quarterly Payment Amount" has the meaning set forth in Exhibit A to the
Trust Agreement.
"Quarterly Payment Date" has the meaning set forth in Exhibit A to the
Trust Agreement.
"Revolving Period" means the period from the closing date under the Credit
Agreement through and including October 13, 2002.
"Sponsor Agreement" has the meaning set forth in Section 1 of the Credit
Agreement.
"Sponsor Group Obligations" has the meaning set forth in the Intercreditor
Agreement.
"Subordinated Participation Interest" means the right of API to receive (i)
on each Quarterly Payment Date (other than a Liquidation Payment Date) occurring
on and after the Credit Release Date, all Aggregate Quarterly Gross Receipts
remaining after payment of (a) all Obligations (in the case of any Quarterly
Payment Date which occurs on the Credit Release Date), (b) Trustee Expenses, (c)
the Quarterly Payment Amount payable to the Certificateholders on such Quarterly
Payment Date, and (d) the Distribution Fee payable to the Distributor on such
Quarterly Payment Date, and (ii) on the Liquidation Payment Date, subject to the
prior payment in full of the unpaid amount of Sponsor Group Obligations and all
amounts owing to Other Sponsor Group Creditors, all Net Liquidation Film
Proceeds remaining after payment of (a) all Obligations, (b) Trustee Expenses,
(c) the Applicable Liquidation Preference, (d) any accrued but unpaid
Distribution Fees payable to the Distributor and (e) any unpaid Sponsor Group
Obligations and amounts owing to Other Sponsor Creditors.
"Total Negative Cost" has the meaning set forth in Section 1 of the Credit
Agreement.
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"Trust Agreement" means the Amended and Restated Trust Agreement, dated as
of October 13, 1999, among Bear, Stearns & Co. Inc., Christiana Bank & Trust
Company, as Trustee, and API, as Designee.
"Trust Certificate" has the meaning set forth in Exhibit A to the Trust
Agreement.
"Trustee" has the meaning set forth in Exhibit A to the Trust Agreement.
"Trustee Expenses" has the meaning set forth in Exhibit A to the Trust
Agreement.
Section 2. Purchase and Delivery of Acquired Films. API may from time to
time until the end of the Revolving Period cause theatrical feature films
(excluding specialty films (including direct to video, documentary or films that
will have less than a 300 screen domestic theatrical release)) to be produced by
Production Companies and sold upon Completion directly to AFI or, if any such
film has been purchased by API upon Completion, to be sold by API to AFI,
pursuant to Film Purchase Agreements, provided that the Lenders under the Credit
Agreement and/or API fund 100% of the Total Negative Cost of each such film. All
Acquired Films that are sold upon Completion directly to AFI shall be Delivered
directly to API, so long as API is acting as the Distributor under the
Distribution Agreement.
Section 3. Purchase Price for Acquired Films.
(a) The purchase price paid by AFI to a Production Company or API
for an Acquired Film shall be equal to (i) 100 percent of the Total Negative
Cost thereof minus (ii) any amount paid to API and its affiliates to cover
overhead fees, etc.
(b) In consideration of the payment by API to AFI as set forth in
clause (ii) of the next sentence, API will receive the Subordinated
Participation Interest. On the date any Acquired Film is acquired by AFI from a
Production Company or API, (i) AFI shall make a Borrowing under the Credit
Agreement equal to 80 percent (or such lesser amount as set forth in Section 4
of the Sponsor Agreement) of the Total Negative Cost thereof, and (ii) API shall
pay AFI an amount equal to 20 percent (or such greater amount as set forth in
Section 4 of the Sponsor Agreement) of the Total Negative Cost thereof. AFI
shall use the proceeds of such Borrowing and such amount paid by API to purchase
the Acquired Film being purchased on such date.
Section 4. Print and Advertising Costs. After Delivery of an Acquired Film
to API, API may from time to time deliver one or more notices to AFI to the
effect that API requires funds to pay for Domestic Distribution Expenses with
respect to such Acquired Film. Upon receipt of such a notice, AFI shall submit
all documents necessary to make a Borrowing under the Credit Agreement with
respect to such amounts, and to cause the proceeds of such Borrowing to be paid
directly to API. AFI shall not be in default of this Section 4 in the event that
the Lenders do not allow AFI to make such a Borrowing.
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Section 5. Purchase Option. API will have the option, exercisable at any
time, to purchase from AFI all of the Acquired Films theretofore acquired by AFI
for a cash purchase price equal to the greater of (i) the aggregate Fair Market
Value of such Acquired Films and (ii) the sum of (x) all unpaid Obligations plus
(y) the Applicable Liquidation Preference as of the purchase date. AFI will use
the cash purchase price received from API to repay all unpaid Obligations and
make the distributions set forth in Sections 6.7(c) and (d) of the Trust
Agreement.
Section 6. Required Purchases. (a) In the event that the Minimum Delivery
Requirement is not satisfied, then upon the expiration of the Revolving Period,
API shall purchase from AFI all Acquired Films theretofore acquired by AFI for a
cash purchase price equal to the greater of (i) the aggregate Fair Market Value
of such Acquired Films and (ii) the sum of (x) all unpaid Obligations plus (y)
the Applicable Liquidation Preference as of the purchase date. AFI will use the
cash purchase price received from API to repay all unpaid Obligations and make
the distributions set forth in Sections 6.7(c) and (d) of the Trust Agreement.
(b) In the event that API is required to purchase a Declared Qualifying
Picture from AFI pursuant to Section 5(b) or (d) of the Sponsor Agreement, AFI
will sell without representation or warranty to API and API will purchase from
AFI such Declared Qualifying Picture and AFI will apply the proceeds thereof,
all in accordance with the terms of Section 5(b) or (d) of the Sponsor
Agreement, as the case may be.
Section 7. Representations and Warranties of AFI.
(a) AFI is a business trust duly organized, validly existing and in
good standing under the laws of Delaware. AFI has the power and authority to own
its properties and carry on its business as now being conducted, and to execute,
deliver and perform, as applicable, its obligations under this Agreement, the
respective Film Purchase Agreements, the Distribution Agreement and the Credit
Agreement.
(b) The execution, delivery and performance of this Agreement, the Film
Purchase Agreements, the Distribution Agreement and the Credit Agreement (i)
have been duly authorized by all necessary actions on behalf of AFI, the
Designee or the Trustee, (ii) will not constitute a violation by AFI of any
provisions of Applicable Law or any order of any court or other agency of the
United States or any state thereof applicable to AFI or any of its properties or
assets, (iii) will not violate any provision of the Trust Agreement or any
indenture, agreement, bond, note or other similar instrument to which AFI is a
party or by which AFI or its properties or assets are bound, and (iv) will not
be in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under or create any right to terminate any such
indenture, agreement, bond, note or other instrument.
(c) All authorizations, approvals, registrations and filings with any
governmental or public regulatory body or authority of the United States or any
state thereof required for the execution, delivery and performance by AFI of
this Agreement, the Film Purchase Agreements, the Distribution Agreement and the
Credit Agreement have been duly obtained or made or duly applied for and are in
full force and effect, and if any such further authorizations, approvals,
registrations or
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filings should hereafter become necessary, AFI shall obtain or make all such
authorizations, approvals, registrations or filings.
(d) This Agreement, the Distribution Agreement and the Credit Agreement
constitute, and each Film Purchase Agreement when executed will constitute, the
legal, valid and binding obligation of AFI, enforceable in accordance with its
terms, subject, as to the enforcement of remedies, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights and to general
principles of equity.
Section 8. Representations and Warranties of API.
(a) API is a corporation organized, validly existing and in good
standing under the laws of Delaware. API has the power and authority to own its
properties and carry on its business as now being conducted, and to execute,
deliver and perform, as applicable, its obligations under this Agreement and the
Distribution Agreement.
(b) The execution, delivery and performance of this Agreement and the
Distribution Agreement (i) have been duly authorized by all necessary actions on
behalf of API, (ii) will not constitute a violation by API of any provisions of
Applicable Law or any order of any court or other agency of the United States or
any state thereof applicable to API or any of its properties or assets, (iii)
will not violate any provision of any indenture, agreement, bond, note or other
similar instrument to which API is a party or by which API or its properties or
assets are bound, and (iv) will not be in conflict with, result in a breach of,
or constitute (with due notice or lapse of time or both) a default under or
create any right to terminate any such indenture, agreement, bond, note or other
instrument.
(c) All authorizations, approvals, registrations and filings with any
governmental or public regulatory body or authority of the United States or any
state thereof required for the execution, delivery and performance by API of
this Agreement and the Distribution Agreement have been duly obtained or made or
duly applied for and are in full force and effect, and if any such further
authorizations, approvals, registrations or filings should hereafter become
necessary, API shall obtain or make all such authorizations, approvals,
registrations or filings.
(d) This Agreement and the Distribution Agreement constitute the legal,
valid and binding obligation of API, enforceable in accordance with its terms,
subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights and to general principles of
equity.
Section 9. Subordinated Participation Interest. On each Quarterly Payment
Date and on the Liquidation Payment Date, AFI shall make all required payments
under the Trust Agreement with respect to the Subordinated Participation
Interest to the then holder thereof.
Section 10. Advisory Fee. For services rendered by API to AFI in connection
with the transactions contemplated by this Agreement, subject to any priority of
the Certificateholders under
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Section 6.7(d) of the Trust Agreement, AFI shall pay API an advisory fee (the
"Advisory Fee") on the Liquidation Payment Date equal to all Net Liquidation
Non-Film Proceeds.
Section 11. Tax Treatment. It is the intention of API and AFI that, for
United States federal, state and local income and franchise tax purposes, (a)
AFI will constitute a collateral account or other security arrangement and will
be disregarded and not treated as a separate entity from API and (b) the Trust
Certificates and the Notes will constitute debt obligations of API, and each
such party hereby agrees to take positions consistent with such treatment on all
their respective tax returns, tax filings and documents related to such tax
filings and tax returns.
In the event there is a final determination that for tax purposes the
Trust Certificates constitute equity interests in AFI and that AFI's assets
include the Acquired Films, it is the intention of API and AFI that, for United
States federal, state and local income and franchise tax purposes, (i) AFI would
constitute a partnership among the Certificateholders and API, (ii) the Notes
would constitute debt obligations of AFI, (iii) profits of AFI (as a
partnership) would be allocated to the Certificateholders only in an amount of,
and at the time at which, any payments are made to the Certificateholders of
their return on the Trust Certificates, and (iv) the Notes and other debt
obligations of AFI would, to the extent governed by applicable Treasury
Regulations, be allocated to API, as a partner in AFI (based on the fact that
API is entitled to all of AFI's income and assets after payments are made with
respect to the Trust Certificates), and in the event of such a final
determination each such party hereby agrees to take positions consistent with
such treatment on all their respective tax returns, tax filings and related
documents.
In the event that there is a final determination that the Trust
Certificates constitute equity interests in AFI and that AFI is a partnership
solely among the Certificateholders, it is the intention of API and AFI that,
for United States federal, state and local income and franchise tax purposes,
(i) the sole asset of AFI would be a note from API secured by the Collateral as
provided in the Basic Agreements and (ii) the Notes would constitute debt
obligations of AFI, and in the event of such a final determination each such
party hereby agrees to take positions consistent with such treatment on all
their respective tax returns, tax filings and related documents.
Notwithstanding anything to the contrary stated herein or in the other
Basic Agreements regarding the tax treatment of AFI and API, it is the intention
of the parties hereto that for purposes of creditors' rights issues and
generally accepted accounting principles (a) the sale of Acquired Films from the
Production Companies or API to AFI as set forth hereunder be a true sale, (b)
AFI be the owner of the Acquired Films upon such sale and (c) the relationship
between AFI and API under the Distribution Agreement be one of licensor and
licensee and the parties hereto agree to take such actions as are consistent
with such treatment.
Section 12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with, and the rights of the parties shall be governed by, the internal laws of
the State of New York (without giving effect to the conflicts of law rules
thereof).
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(b) This Agreement and each provision hereof may be amended, changed,
waived, discharged or terminated only by an instrument in writing signed and
duly executed by the parties hereto.
(c) Except as provided herein, all notices, requests, demands or other
communications to or upon the respective parties hereto shall be deemed to have
been given or made when deposited in the mails, postage prepaid, or by facsimile
transmission, when sent, addressed:
If to API to:
Artisan Pictures, Inc.
2700 Colorado Avenue
Second Floor
Santa Monica, California 90404
Attention: Kenneth D. Schapiro
Facsimile: (310) 255-3840
With a copy to:
The Chase Manhattan Bank
270 Park Avenue
37th Floor
New York, New York 10017
Attention: Joan Fitzgibbon
Facsimile: (212) 270-4164
And, if to AFI, to:
Artisan Pictures, Inc., as Designee
2700 Colorado Avenue
Second Floor
Santa Monica, California 90404
Attention: Kenneth D. Schapiro
Facsimile: (310) 255-3840
(d) No failure or delay on the part of the parties hereto in exercising
any right, power or privilege under this Agreement and no course of dealing
between AFI and API shall operate as a waiver hereof or thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege.
(e) The descriptive headings of the various sections of this Agreement
are inserted for convenience only and shall not be deemed to affect the meaning
or the construction of the provisions hereof.
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(f) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto; provided that, except for the Subordinated Participation Interest and
the Advisory Fee, neither party may transfer any or all of its rights or
obligations hereunder without the prior written consent of the other party.
Neither the Subordinated Participation Interest nor the Advisory Fee nor any
interest therein shall be transferred to the extent such transfer would (i)
result in there being more than 75 holders of the Trust Certificates, the
Subordinated Participation Interest and the Advisory Fee in the aggregate for
purposes of the "publically traded partnership" provisions of Section 7704 of
the Internal Revenue Code of 1986, Treasury Regulation Section 1.7704-1(h) or
any relevant successor provisions or (ii) result in the then outstanding
securities issued by the Trust (including without limitation the Trust
Certificates, the Subordinated Participation Interest, the Advisory Fee and the
Notes) being held by more than 100 "persons" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), or
otherwise cause the Trust to be treated as an "investment company" under the
Investment Company Act.
(g) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
(h) Any provision of this Agreement that is prohibited, unenforceable
or not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of any such prohibition, unenforceability or non-
authorization without invalidating the remaining provisions hereof or affecting
the validity, enforceability or legality of such provision in any other
jurisdiction.
(i) In this Agreement, the singular includes the plural and the plural
the singular; words importing gender include the other genders; references to
statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications to such instruments, but only to
the extent such amendments and other modifications are not prohibited by the
terms of this Agreement; use of words such as "HEREIN," "HEREBY," and "HEREOF"
and other equivalents words refer to this Agreement as an entirety and not
solely to the particular portion thereof in which any such word is used;
references to Sections and Exhibits are to sections and exhibits of this
Agreement unless specified otherwise; the word "OR" includes the conjunctive
sense; and references to Persons includes their respective permitted successors
and assigns.
(j) To the extent that any provisions herein are inconsistent or
conflict with any provisions of the Sponsor Agreement, the parties hereto agree
that the Sponsor Agreement shall govern.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
ARTISAN FILM INVESTORS TRUST
By: Artisan Pictures, Inc., as Designee
By: /s/ Ken Schapiro
-------------------------------------
Name:
Title:
ARTISAN PICTURES, INC.
By: /s/ Ken Schapiro
-------------------------------------
Name:
Title:
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Exhibit A
FORM OF
FILM PURCHASE AGREEMENT
THIS FILM PURCHASE AGREEMENT, dated as of ___________, 19/20__, is between
__________________________, a _____________ (the "Producer"), and ARTISAN FILM
INVESTORS TRUST, a Delaware business trust (the "Purchaser"), and is made with
reference to the following facts:
A. The Purchaser wishes for the Producer to produce a Picture (as defined
below), which the Purchaser will purchase upon delivery thereof by the Producer.
B. The Producer wishes to produce the Picture and sell it to the
Purchaser and the Purchaser wishes to purchase the Picture from Producer.
NOW, THEREFORE, in consideration of the mutual rights and obligations set
forth in this Agreement, as well as other benefits which are hereby
acknowledged, the parties hereto agree as follows:
1. Condition Precedent: Purchaser shall have no obligation to Producer
-------------------
hereunder unless and until (i) Purchaser and Artisan Pictures, Inc. ("API," as
distributor under the Distribution Agreement, dated as of October 13, 1999,
between API and the Purchaser, as the same may from time to time be amended)
each approve, in their sole discretion, the chain of title of the Picture and
the rights granted to Purchaser herein, approve all agreements with respect
thereto and receive all assignments and releases which they require in
connection therewith, (ii) the lenders under the Credit and Security Agreement,
dated as of October 13, 1999 among the Purchaser, the lenders named therein and
The Chase Manhattan Bank, as the same may from time to time be amended,
supplemented or restated (the "Credit Agreement"), have made a loan to the
Purchaser to finance in part the Purchaser's acquisition of the Picture in such
amount as is required or permitted under the Credit Agreement and the Sponsor
Agreement, dated as of October 13, 1999, among the parties to the Credit
Agreement and certain affiliates of API, as the same may from time to time be
amended, supplemented or restated (the "Sponsor Agreement") and (iii) API has
paid to the Purchaser to finance in part the Purchaser's acquisition of the
Picture all amounts necessary to purchase the Picture that are not being funded
under the Credit Agreement.
2. Picture: A feature-length motion picture tentatively entitled
-------
"________________," with a running time of not less than 80 minutes, but no more
than 150 minutes including main titles and end credits (the "Picture"). The
Picture shall be rated by the MPAA no more restrictive than "R."
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3. Rights: Producer acknowledges that all the results and proceeds of its
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services in connection with the Picture will be created by Producer as a "work-
made-for-hire" specially ordered or commissioned by Purchaser with Purchaser
being deemed the sole author of all such results and proceeds. Producer hereby
sells and transfers to Purchaser, and Purchaser hereby purchases, all rights,
title and interest in and to the Picture and the copyright thereof and all
rights in the Picture in any and all media, languages and versions, throughout
the universe, including but not limited to the following (collectively,
"Rights"):
a. Video Rights: The sole and exclusive right to manufacture, advertise,
------------
promote and distribute on a sale or rental basis on its own or through
licensees, videocassettes, cartridges, DVD's, phonograms, tape, video discs,
laser discs, 8mm recordings (in whatever form), or any other visual or optical
recording devices (including, but not limited to, CD-I, CD ROM, DVD) and all
other optically read devices now known or hereafter discovered, containing any
and all language versions of the Picture for use by consumers and the right to
exploit the Picture by means of "Video-On-Demand" (collectively, "Videograms").
"Video-On-Demand" shall mean the transmission of a selected video Picture from a
central video library via a television, cable or related electronic system where
reception of said video Picture at a viewing time selected by the viewer is
available only upon payment of a charge therefor, which charge is in addition to
any charge for reception of the television service and/or programming channel.
b. Non-Theatrical Rights: The sole and exclusive right to exploit the
---------------------
Picture in non-theatrical markets, i.e., schools, libraries, hospitals, hotels,
airlines, military or armed services installations, ships at sea and aircraft
and other institutions that typically license recorded entertainment materials
from programming suppliers.
c. Theatrical Rights: The sole and exclusive right to rent, lease,
-----------------
license, exhibit, distribute and otherwise deal in and with the Picture on any
and all sizes and gauges of film and in any and all languages or versions in the
theatrical field for viewing by the public, including, without limitation, to
make rentals, leases and licenses respecting all theaters or other places of
public viewing (collectively, "Theatrical").
d. Television Rights: The sole and exclusive right to exploit the Picture
-----------------
through all television media now known or hereafter developed, including, but
not limited to, "Cable" or "Pay Television" (which shall mean exhibition over a
service for which subscribers pay a premium for the programming transmitted),
"Pay-Per-View" (which shall mean exhibition over a service for which subscribers
pay a premium on a per-picture basis for each picture which they choose to
receive), and "Free Television" (which shall mean exhibition over television
broadcast stations, whether network stations or independent stations, where no
charge is made to the viewer and/or exhibition by means of satellite or cable
television for which subscribing members of the public may pay for the
transmission service provided by the satellite or cable system, but do not
otherwise pay a premium for the programming transmitted by the satellite or
cable system) (collectively, "Television").
e. Ancillary Rights: The right to exploit by any means in its sole
----------------
discretion all so-called "ancillary rights" in and to the Picture, including,
without limitation, merchandising and commercial
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tie-in rights, novelization rights, the right to make promotional films, the
right to produce soundtrack albums based upon the Picture, all music publishing
rights in the music for the Picture and all right to make remakes, sequels and
derivative productions for the Picture.
4. Holdbacks: Producer shall not preview or otherwise publicly exhibit the
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Picture without Purchaser's prior written approval. Producer shall not exhibit
the Picture at a film festival without Purchaser's prior written approval.
Producer agrees that it will not exploit the Picture in any medium (e.g.,
theatrical, video, television, etc.) without Purchaser's prior written approval.
In addition, Producer agrees to observe all reasonable border protection
requirements which Purchaser notifies Producer of.
5. Purchase Price: Upon Delivery (as defined below), Purchaser shall pay to
--------------
Producer a purchase price equal to the Total Negative Cost of the Picture, but
no more than $___________ (the "Purchase Price").
6. Credits:
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a. Purchaser shall have approval over all third party credit obligations.
Purchaser agrees to comply with all third party credit obligations
that are properly approved by Purchaser and are not in violation of
any union or guild.
b. At Purchaser's election, Purchaser (or such other person or entity as
is chosen by Purchaser) shall be accorded the sole presentation credit
for the Picture on-screen and in paid advertisements, the size and
placement of which shall be in Purchaser's (or such other person's or
entity's) sole discretion.
7. Delivery:
--------
a. "Delivery" shall mean Purchaser's (or at the direction of Purchaser,
API's) receipt of the items listed in Exhibit "B" attached hereto, and
Purchaser's (or if Delivery is made to API, API's) Approval (as defined below)
of such items according to the procedures set forth below. All such items must
comply with the Picture Specifications set forth in Exhibit "A", attached
hereto. At Producer's sole cost and expense, Producer shall deliver the items
listed on Exhibit "B" not later than _______________. If Producer shall fail to
deliver the required items by the aforesaid time (subject to force majeure),
Purchaser or API shall have the right to (a) itself supply the items at
Producer's cost, deducting the amount thereof from the outstanding balance of
the Purchase Price, or to require Producer promptly to supply such items, or (b)
terminate this Agreement upon written notice to Producer, and upon such
termination, (i) Purchaser shall be relieved of all obligations to Producer
hereunder, and (ii) Producer shall reimburse Purchaser and API for all out-of-
pocket costs theretofore incurred under this Agreement.
b. If any of the Delivery items are incomplete or technically
unacceptable, Purchaser or API shall notify Producer in writing specifying the
defects for the non-physical delivery items, or shall present a defect notice by
the laboratory for the physical delivery items ("Defect Notice"). Such Defect
Notices shall be delivered within thirty (30) days of receipt of the delivery
items. If
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Producer fails to cure the specified defects within seven (7) days of receipt of
the Defect Notice, Purchaser or API may secure acceptable replacements, and
deduct such costs from the Purchase Price, or, if Purchaser or API is unable to
secure acceptable replacements, or if Purchaser or API determines that it is
economically unfeasible to secure acceptable replacements, then Purchaser or API
may, at its option, terminate this Agreement upon written notice to Producer,
and upon such termination, (A) Purchaser shall be relieved of its obligations
hereunder, and (B) Producer shall reimburse Purchaser and API for all out-of-
pocket costs theretofore incurred under this Agreement. If Purchaser or API has
not sent a Defect Notice within thirty (30) days of receipt of a delivery item,
then such delivery item shall be deemed approved ("Approval"). In addition, all
delivery documents shall be delivered to Purchaser or API in English.
8. Materials:
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a. Picture Elements: Producer shall provide to Purchaser (without payment
----------------
of any permission or similar fees by Purchaser to Producer or to any third
party) physical delivery of all of the elements of the English language version
of the Picture at an address specified by Purchaser, all at Producer's sole cost
and expense.
b. Editing/Script Changes: Purchaser shall have the right to make any
----------------------
changes and modifications to the Picture (including its title) that Purchaser
deems necessary for purposes of censorship, registration (i.e., ratings), or
other similar requirements of governmental or other authorities or for any other
reason in Purchaser's sole discretion.
c. Foreign Language Versions: If Producer has prepared versions of the
-------------------------
Picture in any language in addition to English, Purchaser shall have
unrestricted access to any such dubbed or subtitled tracks of the Picture
without payment of a permission, use or performance fee (including residuals or
any mechanical fees) by Purchaser to Producer or any third party (although
Purchaser shall advance the cost of any orders for prints placed with the
laboratory with respect to such dubbed or subtitled tracks).
d. Advertising and Publicity: Producer shall deliver to Purchaser at an
-------------------------
address designated by Purchaser (without payment of any manufacturing,
duplicating, delivery, permission or other fee by Purchaser) all materials
listed in Exhibit "B" as well as sample artwork and advertising and publicity
materials for all advertising campaigns for the Picture.
9. Contingent Payments/Third Party Payments: Provided that at the time of
----------------------------------------
Delivery API shall assume payment of all profit participations, gross
participations, deferments, all other contingent payments, music
synchronization, performance and other mechanical fees, and any other license
fees (including, without limitation, all literary, artistic, musical,
technological and/or intellectual property rights fees) in connection with the
exploitation of the Picture (collectively, "Contingent Payments"), Purchaser
shall have no responsibility or liability with respect to such Contingent
Payments and failure of API to make such Contingent Payments will not give
Producer any right to terminate this Agreement. Producer shall deliver the
Picture and Rights free and clear of any claims, liens or encumbrances, other
than liens in favor of guilds, labor unions or completion guarantors
(collectively, "Permitted Liens").
A-4
<PAGE>
10. Representations and Warranties:
------------------------------
a. Producer represents and warrants that:
(i) it is a corporation duly formed and validly existing in good
standing under the laws of the country or state in which it was incorporated and
has the full right, power, legal capacity and authority to enter into and carry
out the terms of this Agreement, and this Agreement constitutes the legal, valid
and binding obligation of the Producer, enforceable against the Producer in
accordance with its terms;
(ii) it has no agreement with or obligations to any third party with
respect to the Picture which might conflict or interfere with any of the
provisions of this Agreement or the use or enjoyment by Purchaser of any of the
Rights;
(iii) it has secured and will maintain all rights necessary for
Purchaser to use and enjoy the Rights without Purchaser being required to make
any payments except as specifically provided herein;
(iv) Purchaser has acquired the valid and exclusive rights to
exhibit, distribute and exploit the Picture and the Rights in all media
throughout the universe as provided in Paragraph 3, above;
(v) All of the following have been fully paid or discharged:
(a) except as to customary residual payments and payments due
to performing rights societies, all claims and rights of owners of copyright in
literary, dramatic or musical rights and other property or rights in or to all
stories, plays, scripts, scenarios, themes, incidents, plots, characters,
dialogue, music, words and other material of any nature whatsoever appearing,
used or recorded in the Picture;
(b) all claims and rights with respect to the use,
distribution, performances, exhibition and exploitation of the Picture, and any
music contained therein; and
(c) all costs of producing and completing the Picture, except
for profit participations not yet due which Producer represents and warrants are
solely the responsibility of Producer.
(vi) Except for Permitted Liens, there are no liens, claims, charges,
encumbrances, restrictions, agreements, commitments or other arrangements
whatsoever with any person, firm or corporation, or any obligation (past,
present or future), or any defaults under, or breaches of, any contract, license
or agreement which can, or will, in any way interfere with, impair, abrogate, or
adversely or otherwise affect any of the Rights sold to Purchaser under this
Agreement, and there are not and will not be any payments of any kind required
to be made by Purchaser in respect, or as a result, of any use of the Picture;
A-5
<PAGE>
(vii) Neither the Picture nor the Rights nor any part thereof, nor
any materials contained therein or synchronized therewith, nor the title
thereof, nor the exercise of any right or privilege herein sold, violates or
will violate, or infringes or will infringe, any trademark, trade name,
servicemark, contract, agreement, copyright (whether common law or statutory),
patent, literary, artistic, dramatic, personal, private, civil or property
right, right of privacy, right of publicity or "moral rights of authors" or any
other rights whatsoever, or unfairly competes with, or slanders or libels (or
constitutes a trade disparagement of), any person, firm, corporation or
association whatsoever.
(viii) Producer has not sold, assigned, transferred or conveyed, and
will not sell, assign, transfer or convey, to any party any right, title or
interest in and to the Picture or the Rights or any part thereof, or in and to
the dramatic or literary material upon which it is based, adverse to or in
derogation of the Rights sold to Purchaser.
(ix) Producer owns and controls, without any limitations or
restrictions whatsoever, all motion picture performance, synchronization,
mechanical license and all other rights sold hereunder and all subsidiary rights
embodied therein and has obtained all necessary licenses required for the
exhibition, performance, duplication, distribution, marketing and exploitation
of the Picture (including the music contained therein), for any and all purposes
and by every means, method and device now or hereafter known or required for the
full, complete and unlimited exercise and enjoyment by Purchaser of each and all
of the Rights. The performing rights to all musical compositions in the Picture
are controlled by Producer or their affiliates or are in the public domain or
are controlled by the Society of European State Authors and Composers, Inc.,
American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music,
Inc. (BMI), or their affiliates to the extent required for the purpose of this
Agreement.
(x) There are no restrictions which would or could prevent
Purchaser from distributing the Picture by any media or means and, subject to
the assumption of the Contingent Payments by API as contemplated by Section 9
hereof, there are not and will not be any payments (out of any part of any
revenues from the distribution or exploitation of the Picture or otherwise)
which must be made by Purchaser to any actors, musicians, directors, writers or
to other persons who participated in the Picture, or to any union, guild or
other labor organization for any right to exhibit the Picture or as compensation
in connection with such exhibition or for any other use of the Picture or any of
the rights therein and thereto granted hereunder, and Purchaser does not hereby
become obligated to any guild, organization or other third party.
(xi) The Picture has been duly and properly registered for copyright
in the Purchaser's name in the United States or can be so registered (and if
appropriate, renewed), and the copyrights in the Picture and the literary,
dramatic and musical materials upon which the Picture is based, or which are
contained in the Picture, are and will be valid and subsisting in perpetuity,
and no part is or will ever be in the public domain.
(xii) There is not now outstanding any litigation or threatened
arbitration or litigation or arbitration, or any claims, demands, investigations
or threats of claims, with respect to
A-6
<PAGE>
the Picture, the literary, dramatic or musical material upon which the Picture
is based or which is used therein, or the physical properties thereof.
(xiii) The Picture complies with the Picture Specifications set forth
on Exhibit A hereto, and has a running time of at least 80 minutes, but not more
than 150 minutes including main titles and end credits in both its Theatrical
and Television versions and in both such versions is fully synchronized with
sound and dialogue in the English language. The original negative of the Picture
is free of cracks, tears, scratches and abrasions, and may be used for the
purpose of making pre-print material of acceptable fidelity (image, sound and
color), to enable the manufacture of 35mm and 70mm prints and Videograms. All
negatives, internegatives, interpositives and other pre-print materials of the
Picture to be delivered or made available to Purchaser are and will be of a
quality suitable for the manufacture therefrom of commercially acceptable
positive release prints and Videograms of the Picture and the trailer thereof.
The Television version of the Picture to be delivered hereunder will conform to
censorship requirements and broadcasting standards and practices for
broadcasting and exhibition in all of the media and all pre-print materials to
be delivered hereunder are and will remain, forever, free and clear of all
liens, claims, debts and charges.
(xiv) The main and end titles of the negative and pre-print materials
of the Picture contain all necessary and proper credits for the actors,
directors, writers and all other persons appearing in or connected with the
production of the Picture who are entitled to receive the same.
(xv) The Picture contains a copyright notice in the name of the
copyright proprietor, which conforms to and complies with the requirements of
the Universal Copyright Convention. The Picture has been created by Producer as
a "work-for-hire" specially ordered or commissioned by Purchaser with Purchaser
being deemed the sole author of all such results and proceeds.
(xvi) The Picture has received a rating no more restrictive than "R"
from the Code and Rating Administration of the Motion Picture Association of
America for U.S. theatrical release.
b Purchaser warrants and represents that it is a Delaware business trust
with full right, power, legal capacity and authority to enter into and carry out
the terms of this Agreement.
11 Indemnification: Producer ("Indemnifying Party") hereby indemnifies,
---------------
defends and holds harmless Purchaser, API, any parent, subsidiaries, related
companies, licensees and affiliates and their successors and assigns, and their
respective officers, directors, agents, attorneys and employees (collectively
for the purposes of this Paragraph, "an Indemnified Party") from and against any
and all liability, loss, damage, cost and expense, including, without
limitation, reasonable attorney's fees (but excluding lost profits or
consequential damages) arising out of any breach or alleged breach of, or claim
by a third party with respect to, any warranty, representation or agreement made
by the Indemnifying Party herein. The Indemnified Party shall promptly notify
the Indemnifying Party of any claim to which the foregoing indemnification
applies and the Indemnifying Party shall undertake, at its own cost and expense,
the defense thereof. The Indemnified Party may, at its option and expense,
engage its own counsel. If the Indemnifying Party fails to promptly appoint
competent
A-7
<PAGE>
and experienced counsel,the Indemnified Party may engage its own counsel and the
reasonable charges in connection therewith shall promptly be paid by the
Indemnifying Party. If the Indemnified Party settles or compromises any such
suit, claim or proceeding, the amount thereof shall be charged to the
Indemnifying Party, provided that the Indemnifying Party's reasonable prior
approval has been secured.
12 Insurance: Producer shall procure and maintain in full force and effect for
---------
a period of not less than three (3) years from the date hereof (the "term")
standard producer's liability (errors and omissions) insurance issued by a
nationally recognized insurance carrier covering the Picture with minimum limits
of at least _______ million dollars ($_________) for any claim arising out of a
single occurrence and _______ million dollars ($_________) for all claims in the
aggregate. Such insurance:
a shall be written on either (i) an occurrence basis, in which event it
shall remain in full force and effect until the end of the term thereof and may
not be permitted to lapse, or (ii) a claims-made basis, in which event it shall
remain in full force and effect until the end of the term thereof, shall cover
any claims made at any time during the term thereof and shall include an
extended reporting period of no less than one year after the expiration of the
term and may not be permitted to lapse; and
b may not be canceled without thirty (30) days prior written notice to
Purchaser; and
c shall not carry a deductible larger than __________ thousand dollars
($_______); and
d shall name Purchaser, API, any parent, subsidiaries, related
companies, licensees and affiliates and their successors and assigns, and their
respective officers, directors, agents, attorneys and employees, as additional
insureds; and
e shall provide coverage for the Picture, and advertising and promotion
materials with respect thereto, and shall be primary and not contributing to or
in excess of any such insurance maintained by Purchaser with regard to all of
the Rights.
13 Remedies: Except as otherwise specifically provided for herein, if either
--------
party is in default or in breach of any of the material provisions of this
Agreement, including, but not limited to, the representations and warranties
made by it herein, or in the case of Purchaser, the failure to make any payment
provided for herein at the time and in the manner herein required, and such
party shall fail to cure such default or breach within thirty (30) days after
written notice from the other party, or one party becomes insolvent, executes an
assignment for the benefit of creditors, or takes advantage of any applicable
insolvency or any other like statute, or a petition under any bankruptcy or
liquidation act is filed by or against it, or a receiver is appointed for the
assets of such party then the non-defaulting party may bring, and shall be
limited to, bringing an action at law to recover damages. In no event shall
Producer or any party transferring rights or rendering services in connection
with the Picture be entitled by reason of any breach of this Agreement
whatsoever, to terminate or rescind this Agreement or to enjoin or restrain or
otherwise interfere with the
A-8
<PAGE>
production, distribution, or exhibition of the Picture or any part or element
thereof or the use, publication or dissemination of any advertising issued in
connection with the Picture.
14 Notice: Any notice or communications provided for hereunder must be in
------
writing and delivered either personally, by telecopy, telex or by registered
mail, postage prepaid to the following addresses (or to such other address as
specified by like notice):
a for Producer:
b for Purchaser:
Artisan Film Investors Trust
c/o Artisan Pictures, Inc.
2700 Colorado Blvd., 2nd Floor
Santa Monica, CA 90404
Attn: Kenneth D. Schapiro
Facsimile: (310) 255-3840
With a copy to:
The Chase Manhattan Bank
270 Park Avenue
37th Floor
New York, New York 10017
Attention: Joan Fitzgibbon
Facsimile: (212) 270-4164
15 Books and Records; Audit Rights: Producer shall keep and maintain (or cause
-------------------------------
to be maintained) complete and accurate records with respect to costs and
expenditures incurred in connection with the production of the Picture.
Purchaser and its designees shall have access to such books and records for
reasonable and customary audit and inspection. Producer agrees that at any time
following an Event of Default (as defined in the Credit Agreement) or otherwise
upon reasonable request, the Administrative Agent (as defined in the Credit
Agreement) shall have access to such books and records of Producer (at the
Producer or any other location where such books and records are kept or
maintained) which are relevant to the recordation and calculation of Total
Negative Cost (as defined in the Credit Agreement) for the Picture for purposes
of audit and inspection. The Agent shall be a third party beneficiary of this
Section 16.
16 Miscellaneous:
-------------
a Nothing contained herein shall be deemed to create a relationship of
partnership, joint venture, agency, fiduciary or employment between the parties.
A-9
<PAGE>
b This Agreement sets forth the entire understanding of the parties
regarding the subject matter hereof and supersedes all prior oral or written
agreements between them.
c No waiver of any default or breach of this Agreement by either party
shall be deemed a continuing waiver or a waiver of any other breach or default,
no matter how similar.
d The substantive laws (as distinguished from the choice of law rules)
of the State of New York and The United States of America applicable to
contracts made and performed entirely in New York shall govern (i) the validity
and interpretation of this Agreement, (ii) the performance by the parties of
their respective obligations hereunder, and (iii) all other causes of action
(whether sounding in contract or in tort) arising out of or relating to this
Agreement, or the termination of this Agreement.
e Any judicial proceedings brought against Producer with respect to
this Agreement may be brought in any state or federal court of competent
jurisdiction in the State of California, and by the execution and delivery of
this Agreement, Producer accepts the nonexclusive jurisdiction of the aforesaid
courts. Service of process may be made by any means authorized by federal law or
the law of the State of California. A copy of any such process so served shall
be mailed by registered mail to Producer at its address set forth in Section 15
above or at such other address as may be designated by Producer in accordance
with such section. Producer waives any objection based on forum non conveniens
--------------------
and waives any objection to venue of any action instituted hereunder. To the
extent that Producer has or hereafter may acquire any immunity from jurisdiction
of any court or from any legal process with respect to itself or its property,
Producer hereby waives such immunity in respect of its obligations hereunder.
Nothing herein shall limit the right of Purchaser to bring proceedings against
Producer in the courts of any other jurisdiction.
f Producer and Purchaser hereby knowingly, voluntarily and
intentionally waive any rights they may have to a trial by jury in respect of
any litigation based hereon, or arising out of, under or in connection with,
this Agreement or any other document, or any course of conduct, course of
dealing, statements (whether verbal or written) or actions of Producer or
Purchaser.
g This Agreement may not be changed, modified, amended or supplemented,
except in a writing signed by both parties.
h Nothing herein contained shall be binding upon the parties until a
copy of this Agreement has been executed by an officer of each party and has
been delivered to the other party.
i Paragraph headings are inserted herein for convenience only and do
not constitute a part of this Agreement.
j Producer and Purchaser shall execute, acknowledge and deliver any and
all further documents that are necessary, expedient or proper to implement,
administer and effectuate the purpose and intent of this Agreement. If Producer
fails to deliver such additional documents within thirty (30) days after
Purchaser's request therefor, Producer irrevocably appoints Purchaser to execute
such additional documents as Producer's attorney-in-fact, coupled with an
interest.
A-10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE PRODUCER: ---------------------------------------
By:
-----------------------------------
Name:
Title:
THE PURCHASER: ARTISAN FILM INVESTORS TRUST
By: Artisan Pictures, Inc., as Designee
By:
-----------------------------------
Name:
Title:
A-11
<PAGE>
EXHIBIT "A"
Picture Specifications
----------------------
Title: "___________________," unless Purchaser selects a different title before
- -----
Delivery, in which event Producer agrees to Deliver the Picture with such new
title. The foregoing shall not be construed as to limit or restrict Purchaser's
right to change the title of the Picture following its Delivery.
Length: Not less than eighty (80) and not more than one hundred fifty (150)
- ------
minutes including main titles and end credits.
Essential Elements:
- ------------------
Screenplay By:
- -------------
MPAA Rating: The Picture will have been submitted to the Code and Rating
- -----------
Administration of the Motion Picture Association of America for a rating, and a
rating of "R" or less restrictive will have been obtained. In no event shall a
rating of NC-17 be permitted.
Live Action: The Picture will include only photography of live action (except
- -----------
for photography required by the screenplay to be animated) although the title or
title sequences may be wholly or partially animated.
Photographic Process, Film Dimension and Sound Quality: The Picture will have
- ------------------------------------------------------
been produced in full color using a photographic process, dimension of film and
sound quality approved by Purchaser in writing. Purchaser hereby approves the
Picture being photographed using [35mm Eastman Kodak raw stock negative, with an
aspect ratio of 1:1.85 (protecting for television purposes an aspect ratio of
1:1.66), standard Academy aperture and recorded in Dolby stereo.]
Final Screenplay: The Picture will conform to the final version of the
- ----------------
screenplay, as approved by Purchaser, excepting only minor non-material
deviations caused by production requirements and customary non-material changes
on the set.
Stock Material: The Picture will be new and original and will not contain more
- --------------
than [500] feet of stock shots or stock material.
Completely Finished: The Picture will have been produced in color in compliance
- -------------------
with Purchaser's and API's usual first-class production and exhibition
requirements and technical standards and will have been completely finished and
assembled, fully edited, titled, and fully synchronized with sound, music,
English language dialogue not post-synched or dubbed (except for incidental
dialogue required by the screenplay to be in a language other than English), and
recorded with recording equipment pursuant to valid licenses therefor and, in
all respects, ready for general release and public exhibition.
A-12
<PAGE>
[Note: This list is subject to negotiation by API as the circumstances of
individual films may warrant.]
Exhibit B
Delivery Schedule
-----------------
All Delivery Materials set forth below shall be of the highest technical
quality, free from defects and shall conform to the final edited version of the
Picture and shall, except as may be specifically provided below, be in the same
ratio of camera picture images in which the Picture was photographed. All
Delivery Materials set forth below will be delivered either by Producer (a)
making physical delivery of the following materials at Producer's sole expense,
or (b) making access to such materials by a fully executed Irrevocable
Laboratory Access Letter. Unless indicated otherwise in the Film Purchase
Agreement, Purchaser shall have thirty (30) days following Producer's complete
delivery of each and every one of the Delivery Materials hereunder in which to
inspect and evaluate all the Delivery Materials to determine whether Delivery
has been effected in accordance with the terms of this Agreement.
A. FILM ELEMENTS: Each of the following must be new, fully color-corrected
-------------
and of the highest technical quality and condition. All picture and sound
negatives must be free of physical damage and all splices must be sound,
secure and transparent. The Picture must be filmed in the standard 1.85:1
aspect ratio with a full frame at all times. Hard mattes are not
acceptable.
1 Original Negative. One (1) 35mm original color picture negative that
-----------------
is cut, main and end titled, assembled and conformed in all aspects to
the final version of the Picture.
2 Answer Print. One (1) complete 35mm color composite answer print made
------------
from the Original Negative and fully mixed Dolby SR-D soundtrack
negative in perfect synchronization with the picture action.
3 Interpositive. One (1) uncut 35mm color interpositive made from the
-------------
Original Negative capable of producing 1-LITE Internegatives.
4 Internegative. One (1) uncut 35mm Estar Internegative of the Picture
-------------
made from the first generation Interpositive manufactured from the
Original Picture Negative.
5 Check Print. One (1) complete 35mm composite checkprint of the Picture
-----------
made from the Internegative, fully color-corrected, fully-cut, main
and end titled, scored and assembled and conformed in all respects to
the Answer Print.
6 Textless Backgrounds & Overlays: Titles and Texted Scenes. One (1) set
---------------------------------------------------------
of first class completely edited color 35mm Interpositives made from
the Original Picture Negative of the following:
. All main and end title textless backgrounds without
lettering.
. Textless backgrounds without lettering of any forewords
and/or other scenes carrying superimposed titles.
7 Trims, Outtakes and ADR. All unused takes and trims and other film
-----------------------
picture and soundtrack material produced for or used in the process of
preparing the Picture, whether or not actually used in the Picture.
B-1
<PAGE>
8 Soundtrack Negative. One (1) complete, original English version 35mm
-------------------
optical soundtrack negative prepared in perfect synchronization with
the Original Negative. The Soundtrack Negative must contain both the
Dolby SR (2-track) and Dolby SR-D (6-track digital format)
soundtracks. The Soundtrack Negative must be ready in all respects for
use in the manufacture of release prints.
9 2-Track Printmaster. One (1) 35mm magnetic 2-track magnetic Dolby SR
-------------------
Printmaster, made directly form the Mix "Stem" Masters.
10 6-Track Printmaster. One (1) 35mm magnetic 6-track Dolby SR-D
-------------------
Printmaster made directly format the Mix "Stem" Masters.
11 Magneto Optical Disc. One (1) magneto optical disc conformed to the
--------------------
final version of the Picture.
12 D,M&E. One (1) 35mm mono mix master with separate dialogue track,
-----
music track and effects track.
13 DA-88. One (1) DA-88 with the following configuration: Channel 1 -
-----
Stereo Printmaster Left, Channel 2 - Stereo Printmaster Right; Channel
3 - Mono Dialogue, Channel 4 - Mono Effects; Channel 5 - Stereo M&E
Left; Channel 6 - Stereo M&E Right; Channel 7- Stereo Music Left;
Channel 8 - Stereo Music Right.
14 NTSC Video Masters - The following video tape masters with audio
------------------
Channels 1 and 2 containing a stereo left and right mix of the
original sound and Channels 3 and 4 containing a stereo left and right
mix of the music and effects tracks.
. one D1 NTSC 4x3 (1.33.1 aspect ratio) Full Frame and;
. one D1 NTSC 4x3 (1.33.1 aspect ratio) Letterbox and;
. one16x9 NTSC (1.85:1 aspect ratio) Full Frame
15 PAL Video Masters - The following video tape masters with audio
-----------------
Channels 1 and 2 containing a stereo left and right mix of the
original sound and Channels 3 and 4 containing a stereo left and right
mix of the music and effects tracks.
. one D1 PAL 4x3 (1.33.1 aspect ratio) Full Frame and;
. one D1 PAL 4x3 (1.33.1 aspect ratio) Letterbox and;
. one 16x9 PAL (1.85:1 aspect ratio) Full Frame
B. PROTECTION ELEMENTS
-------------------
1 Picture Elements. The original cut negative and all pre-print and
protection materials related to the Picture.
2 Sound Elements. The original production recorded tapes, wild lines,
looped lines, original music recorded masters, the individual dialogue,
sound effects music units, all resultant pre-dubs and dubbed masters of
original language tracks of the Picture.
3 Audio Recordings, Tracks and Masters. The original music recorded
tapes, the individual dialogue, sound effects, music units, all
resultant pre-lay recording and sweetened masters of original language
tracks of the Picture.
4 Work Materials. The action work print, camera and recording logs, the
title, optical, laboratory printing and sound transfer records.
B-2
<PAGE>
Exhibit B
[Film Purchase Agreement
re: "Stir of Echoes"]
B-1
<PAGE>
Exhibit C
[Film Purchase Agreement
re: "The Ninth Gate"]
C-1
<PAGE>
Exhibit L
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT (this "Agreement"), dated as of
October 13, 1999, among Bear, Stearns & Co., Inc., a Delaware corporation (the
"Initial Certificateholder"), Christiana Bank & Trust Company, a Delaware
banking corporation (as Trust Company or as Trustee, as applicable) and Artisan
Pictures, Inc., a Delaware corporation ("API"), solely in its capacity as
Designee and not in its individual capacity.
WHEREAS, the Trustee has previously executed a trust agreement,
dated August 25, 1999, as amended by Amendment No. 1, dated as of October 12,
1999, (the "Initial Trust Agreement") to create Artisan Film Investors Trust, a
Delaware business trust (the "Trust"); and
WHEREAS, the Initial Certificateholder, the Trustee and the Designee
desire to amend and restate the Initial Trust Agreement as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, other good and
valuable consideration and the mutual terms and covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION I.1 Definitions. Unless otherwise defined herein,
-----------
capitalized terms shall have the meanings set forth in Exhibit A hereto.
SECTION I.2 Other Definitional Provisions. (1) All terms defined
-----------------------------
in this Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein.
(2) The words "hereof," "herein," "hereunder," and words of
similar import used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" shall mean "including without limitation."
(3) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
<PAGE>
ARTICLE II
Organization
------------
SECTION II.1 Name. The Trust shall be known as Artisan Film
----
Investors Trust in which name the Trustee or Designee, as applicable, may take
any action as provided herein.
SECTION II.2 Office. The office of the Trust shall be in care of
------
the Trustee at the address set forth in Section 10.3 or at such other address in
Delaware as the Trustee may designate by written notice to the
Certificateholders.
SECTION II.3 Purposes and Powers. The purpose of the Trust is, and
-------------------
the Trust shall have power and authority and is hereby authorized and empowered,
without the need for further action on the part of the Trust, and the Trustee or
Designee, as applicable, shall have power and authority and are hereby
authorized and empowered in the name and on behalf of the Trust, to do or cause
to be done all acts and things necessary, appropriate, or convenient to cause
the Trust to engage in the following activities:
(1) execute, deliver and perform its obligations under the Master
Film Purchase Agreement;
(2) execute, deliver and perform its obligations under the Film
Agreements;
(3) execute, deliver and perform its obligations under the
Distribution Agreement;
(4) execute, deliver (and issue, in the case of the Notes) and
perform its obligations under the Credit Agreement and the other Fundamental
Documents;
(5) receive Gross Receipts in respect of the Acquired Films
acquired by the Trust under the Master Film Purchase Agreement;
(6) execute, deliver and perform its obligations under the Trust
Certificate Purchase Agreement and issue, execute, deliver and sell the Trust
Certificates;
(7) execute, deliver and perform its obligations under the
Subordinate Security Agreements;
(8) sell the Acquired Films to API pursuant to Sections 5 and 6 of
the Master Film Purchase Agreement;
(9) engage in only those activities, including entering into
agreements and opening and maintaining deposit accounts, that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto
or connected therewith; and
2
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(10) subject to compliance with the Basic Agreements, engage in
such other activities as may be required in connection with the protection and
conservation of the Trust Estate and the making of distributions to the
Certificateholders and the payee(s) of the Subordinated Participation Interest
and the Advisory Fee.
The Trust shall not engage in any activity other than in connection
with the foregoing or other than as required or authorized by the terms of this
Agreement or the other Basic Agreements. Without limiting the generality of the
foregoing, the Trust shall not (i) take any action that shall result in the
transfer, sale, assignment, license, encumbrance or pledge of any asset of the
Trust, the release of any Lien or security interest for the benefit of the Trust
or the incurrence of indebtedness by the Trust, except in each case as provided
in the Basic Agreements or (ii) incur any indebtedness other than as
contemplated by the Credit Agreement or issue any interests in the Trust other
than the Trust Certificates or incur any other distribution obligation other
than the Subordinated Participation Interest and the Advisory Fee.
SECTION II.4 Appointment of Trustee. The Initial Certificateholder
----------------------
hereby confirms the appointment of the Trust Company as Trustee of the Trust
effective as of August 25, 1999, to have all of the rights, powers and duties
set forth herein.
SECTION II.5 Capital Contributions to Trust Estate. The Initial
-------------------------------------
Certificateholder herewith deposits with the Trustee, as of the Issue Date, the
Capital Contribution. The Trustee hereby acknowledges receipt in trust from the
Initial Certificateholder, as of the Issue Date, of the Capital Contribution.
Simultaneously with the receipt of the Capital Contribution, the Trustee shall
deposit the Capital Contribution into the Clearing Account.
SECTION II.6 Declaration of Trust. (1) The Trustee hereby declares
--------------------
that it will hold the Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Certificateholders and the
payee(s) of the Subordinated Participation Interest and the Advisory Fee,
subject to the obligations of the Trust under this Agreement and the other Basic
Agreements.
(2) It is the intention of the parties hereto that the Trust
constitute a Delaware business trust under the Delaware Business Trust Act, 12
Del. Code (S) 3801 et seq. (as amended, "Business Trust Statute") and that
- --------- -- ---
this Agreement constitute the governing instrument of such business trust. On
August 25, 1999, the Trustee executed and filed the Certificate of Trust in the
form attached hereto as Exhibit B with the Secretary of State of the State of
Delaware. Effective as of the Issue Date the Trustee shall have all rights,
powers and authority set forth herein and in the laws of the State of Delaware
with respect to accomplishing the purposes of the Trust.
SECTION II.7 Liabilities of Certificateholders. No
---------------------------------
Certificateholder shall have any personal liability, including to the other
Certificateholders, for any debt, contract liability or other obligation of the
Trust or for any losses of the Trust and all Persons who shall have any claim or
claims by reason of the transactions contemplated by this Agreement or the other
Basic Agreements shall look only to the Trust Estate for payment or satisfaction
thereof.
3
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SECTION II.8 Situs of Trust. The Trust shall be located and
--------------
administered in the State of Delaware. All bank accounts maintained by the
Trustee on behalf of the Trust shall be located in the State of Delaware, the
State of California or the State of New York. The Trust shall not have any
employees and shall not have any real or personal property located in any state
other than in the State of Delaware, the State of California or the State of New
York and payments shall be received by the Trust only in the State of Delaware,
the State of California or the State of New York and payments shall be made by
the Trust only from the State of Delaware, the State of California or the State
of New York. The Trust's only office shall be at the office of the Trustee in
Delaware as set forth in Section 10.3.
SECTION II.9 Title to Trust Estate. Legal title to all of the Trust
---------------------
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Trust Estate to be vested in a trustee or trustees, in which case title
shall be deemed to be vested in the Trustee, a co-trustee and/or a separate
trustee, as the case may be.
SECTION II.10 Appointment of API as designee. (1) Pursuant to
------------------------------
Section 3806(b)(7) of the Business Trust Statute, API is hereby appointed, and
API hereby accepts such appointment, to manage the business and affairs of the
Trust under the title Designee, and to exercise all of the rights, powers and
duties of the Trustee as provided in this Agreement, except the rights, powers
and duties specifically reserved to the Trustee in Section 2.10(b) and any other
rights, powers and duties of the Trustee hereunder to the extent necessary to
properly carry out and exercise those rights, powers, duties and obligations
reserved under Section 2.10(b). In such capacity, the Designee shall have the
power and authority to take actions and execute documents and instruments on
behalf of the Trust, as herein provided, and shall have the responsibility to
monitor the Trust's compliance with its obligations under any documents and
instruments entered into by the Trust in connection with the transactions
contemplated hereby, and with all applicable laws pertaining thereto, and shall,
in a timely fashion, take such actions on behalf of the Trust, and provide or
cause to be provided to the Trustee and/or the Certificateholders, all
documents, certifications, opinions, forms and instructions as may be necessary
or appropriate for the Trust to comply with such obligations. The Designee shall
reasonably keep the Trustee and the Certificateholders informed of any action
taken by the Designee (in such capacity) with respect to the Trust that may
materially adversely affect their interests herein. Notwithstanding anything
herein to the contrary, the Trustee (i) has neither chosen the Designee, nor
will have any obligation to choose any successor thereto, (ii) shall have no
obligation to supervise the Designee, and shall have no liability for the
actions or inactions of the Designee and (iii) shall have no duty or obligation
with respect to any right, power or duty of the Trustee set forth herein, except
the rights, powers and duties reserved to the Trustee pursuant to the first
sentence of this Section 2.10(a). The Certificateholders hereby acknowledge and
agree to the exercise of the rights, powers and duties of the Trustee by the
Designee (except the rights, powers and duties specifically reserved to the
Trustee pursuant to Section 2.10(b)) and agree that they shall look only to the
Designee with respect to the performance or exercise of all such rights, powers
or duties. Notwithstanding anything herein to the contrary, the Trustee shall
continue to retain the benefit of any provision expressly directed to it
including the provisions of Article VII.
4
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(2) The Trustee shall have sole responsibility for performing
those duties and obligations of the Trustee set forth in Sections 2.5, 2.9, 3.1,
3.3, 3.5, 3.6, 3.7, 4.1(a)(ii), 4.1(b), 4.1(c), 4.1(d), 4.2, 6.6, 6.7, 6.8, 8.1,
8.4 and 10.1; any duty or obligation under Section 4.1(a)(i) to the extent the
taking of such action by the Designee would result in an impermissible or
inappropriate conflict of interest; any duty or obligation under Sections
2.3(j), 2.6 and 2.8 to the extent relating to the other duties and obligations
reserved to the Trustee under this Section 2.10(b); and any other duty or
obligation hereunder which the Trustee and Designee shall reasonably agree
should be performed by the Trustee in accordance with the intent of the
transactions contemplated by this Agreement and the other Basic Agreements. For
the avoidance of doubt, the Trustee shall have no obligation with respect to,
and no duty to take or refrain from taking, any action to be taken on behalf of
the Trust under the Subordination Agreement, and the Designee shall be solely
responsible for taking any and all actions on behalf of the Trust under the
Subordination Agreement.
(3) The Required Certificateholders shall, by written notice
delivered to the Trustee and API, have the power and authority, exercisable at
any time and for any or no reason, to revoke the appointment of API (or any
successor) as the Designee; provided, however, that any such revocation shall
--------
have no effect on any act of API (or such successor) as Designee prior to the
effective time of such revocation, and provided, further, that any such
-------- -------
revocation shall be subject to and effective only upon the written notice of
Required Certificateholders appointing a successor Designee and the written
acceptance of such appointment by the successor Designee and its written
agreement to be bound by the terms of this Agreement.
(4) Notwithstanding anything herein to the contrary, API shall
have the right to resign as Designee at any time and for any reason by providing
10 days written notice to the Trustee. The Required Certificateholders shall, by
written notice delivered to the Trustee, prior to the effective date of any such
resignation by API, appoint a successor Designee.
SECTION II.11 Representations, Warranties and Covenants of the
------------------------------------------------
Initial Certificateholder. The Initial Certificateholder hereby represents,
- -------------------------
warrants and covenants to the Trustee (as such and in its individual capacity)
and to the Designee (as such and in its individual capacity) that:
(1) It is a duly organized and validly existing corporation, is in
good standing under the laws of the state of New York, and has the power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted.
(2) It has the power and authority to execute and deliver this
Agreement and to carry out its terms and to make the Capital Contribution to
the Trust; the execution, delivery and performance of this Agreement has been
duly authorized by the Initial Certificateholder by all necessary corporate
action; and this Agreement constitutes the legal, valid and binding obligation
of the Initial Certificateholder, enforceable against the Initial
Certificateholder in accordance with its terms.
5
<PAGE>
(3) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not and will not
conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under,
(i) the constituent documents of the Initial Certificateholder, or (ii)
any agreement or other instrument to which the Initial Certificateholder
is a party or by which it is bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of
any agreement or other instrument (other than pursuant to the Basic
Agreements); nor violate any law or, to the best of the Initial
Certificateholder's knowledge, any order, rule or regulation applicable to
the Initial Certificateholder of any court or of any Federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Initial Certificateholder or
its properties.
(4) The Initial Certificateholder is not a partnership (including
any entity taxable as a partnership for U.S. federal income tax purposes),
grantor trust or "S corporation" (within the meaning of Section 1361 of
the Code).
(5) The Initial Certificateholder is not a Plan Investor and no
part of the assets to be used by the Initial Certificateholder to acquire or
hold the Trust Certificates or any interest therein constitutes the assets of
any Plan Investor.
ARTICLE III
Trust Certificates and Transfer of Trust Certificates
-----------------------------------------------------
SECTION III.1 Issuance of Initial Trust Certificate. Upon the making
-------------------------------------
of the Capital Contribution to the Trust pursuant to Section 2.5, the Trust
shall have power and authority and is hereby authorized and empowered, without
the need for further action on the part of the Trust, and the Trustee shall have
power and authority and is hereby authorized and empowered in the name and on
behalf of the Trust, to execute, issue and deliver to the Initial
Certificateholder one or more Trust Certificates substantially in the form of
Exhibit C hereto, in the name of the Initial Certificateholder and in a Stated
Amount equal to the amount of the Capital Contribution, evidencing the Initial
Certificateholder's beneficial interest in the Trust. Upon the execution and
delivery of one or more Trust Certificates in accordance with this Agreement,
such Trust Certificates shall be duly authorized, validly issued and
outstanding, fully paid and nonassessable, and entitled to the benefits of this
Agreement.
SECTION III.2 Disposition by Certificateholder. Subject to Sections
--------------------------------
3.3 and 3.4, a Certificateholder may Transfer all or any portion of its interest
in the Trust to such Person or Persons and on such terms as the
Certificateholder shall determine, provided that the Stated Amount of each Trust
Certificate shall not be less than $100,000. The Transferring Certificateholder
shall make such Transfer and the Trustee shall register a Transfer and issue a
Trust Certificate reflecting such Transfer only in accordance with Sections 3.3
and 3.4.
6
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SECTION III.3 Registration of Transfer and Exchange of Trust
----------------------------------------------
Certificates. The Trustee shall maintain at its office referred to in Section
- ------------
10.3, or at the office of any agent appointed by it and approved in writing by
the Required Certificateholders at the time of such appointment, a certificate
register for the registration and registration of Transfer of Trust
Certificates, subject to such reasonable regulations as the Trustee may
prescribe. Subject to the provisions of Sections 3.2 and 3.4 and the last
sentence of this Section 3.3, the registered Certificateholder of any Trust
Certificate may Transfer all or any portion of the interest evidenced by such
Trust Certificate upon surrender thereof, duly endorsed or accompanied by
appropriate instruments of transfer, at such office accompanied by the
instrument required by Section 3.4(a) and any Opinion of Counsel reasonably
requested pursuant to Section 3.4(b). The Trust shall have power and authority
and is hereby authorized to issue, and subject to Section 3.7, promptly upon the
receipt of such documents, the Trustee shall execute and deliver, in the name of
the designated Transferee(s) (and the Transferor in the event that less than the
entire Stated Amount represented by such Trust Certificate is Transferred), one
or more new Trust Certificates representing a Stated Amount equal in the
aggregate to the Stated Amount of the surrendered Trust Certificate and dated
the date of such Transfer. Any Trust Certificate surrendered for Transfer shall
be canceled by the Trustee. The Trustee and the Designee may treat the Person in
whose name any Trust Certificate is registered as the sole owner of the interest
evidenced by such Trust Certificate. As a condition precedent to any
registration of Transfer, the Trustee may require the payment of a sum
sufficient to cover the payment of any tax or other governmental charge required
to be paid in connection with such Transfer, but no service charge shall be made
for any registration of Transfer or exchange of a Trust Certificate.
SECTION III.4 Limitations on Transfer of Trust Certificates. (1) No
---------------------------------------------
Transfer of a Trust Certificate or other interest in the Trust shall be made to
any Person unless such Person delivers to the Trustee an instrument
substantially in the form attached hereto as Exhibit D.
(2) No Transfer of a Trust Certificate or other interest in the
Trust shall be made unless such Transfer is exempt from the registration
requirements of the Securities Act of 1933, as amended, and any applicable state
securities laws. In the event of a Transfer, (i) if the Transferee is not a QIB,
the Trustee or the Designee may request that it receive a written Opinion of
Counsel from the Transferor in form and substance reasonably satisfactory to the
Trustee or Designee, as applicable, stating that such Transfer is exempt from
the Securities Act of 1933 and any applicable state securities laws, which
Opinion of Counsel shall not be an expense of the Trustee or Designee, and (ii)
the Transferor (other than the Initial Certificateholder) shall, and does hereby
agree to, indemnify the Trustee, the Designee, the Trust Company, and the Trust
against any liability that may result if the Transfer is not so exempt or is not
made in accordance with such Federal and state laws.
(3) No Transfer of a Trust Certificate or other interest in or
distribution right in respect of the Trust shall be made if such Transfer would
result in the then outstanding securities issued by the Trust (including without
limitation the Trust Certificates, the Subordinated Participation Interest, the
Advisory Fee and the Notes) being held by more than 100 "persons" within the
meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), or that would otherwise cause the Trust to be treated as an
7
<PAGE>
"investment company" under the Investment Company Act or that would result in
the Trust Certificates or any interest therein being held by more than 55 such
"persons."
(4) No Transfer of a Trust Certificate or other interest in the
Trust shall be made if such Transfer would result in the ownership thereof by
(i) a competitor of API or any Affiliate thereof as of the proposed date of
Transfer or (ii) a Major Studio or any other studio that self-distributes
domestically.
(5) No Transfer of any Trust Certificate, the Subordinated
Participation Interest, the Advisory Fee or any interest therein shall be
permitted to the extent such Transfer would result in there being more than 75
holders thereof in the aggregate for purposes of the "publicly traded
partnership" provisions of Section 7704 of the Internal Revenue Code of 1986,
Treasury Regulation Section 1.7704-1(h) or any relevant successor provisions.
SECTION III.5 Execution of Trust Certificates. The Trust
-------------------------------
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an Authorized Officer of the Designee or the Trustee, as
applicable. Trust Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Trust Certificates or did not hold such offices at the date of such
Trust Certificates.
SECTION III.6 Lost, Stolen, Mutilated or Destroyed Trust
------------------------------------------
Certificates. If (a) any mutilated Trust Certificate is surrendered to the
- ------------
Trustee, or (b) the Trustee receives evidence to its satisfaction that any Trust
Certificate has been destroyed, lost or stolen and such evidence is delivered to
the Trustee together with such security or indemnity as reasonably required by
the Trustee to save it harmless, and if the Trustee has no actual knowledge and
has not received written notice that such Trust Certificate has been acquired by
a protected purchaser, then the Trust shall have power and authority and is
hereby authorized to issue, and the Trustee shall execute and deliver, a new
Trust Certificate for the same Stated Amount as the Trust Certificate so
mutilated, destroyed, lost or stolen, of like tenor and bearing a different
issue number, with such notations, if any, as the Trustee shall deem
appropriate. In connection with the issuance of any new Trust Certificate under
this Section 3.6, the Trustee may require the payment by the holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith. Any duplicate Trust Certificate issued pursuant to
this Section 3.6 shall constitute complete and indefeasible evidence of
investment in a beneficial interest in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Trust Certificate shall be found at
any time.
SECTION III.7 Trustee and Designee Responsibility Regarding
---------------------------------------------
Transfers. Notwithstanding any other provision herein or elsewhere: neither the
- ---------
Trustee nor the Designee shall have any obligation to determine whether or not
any Transfer or exchange or proposed or purported Transfer or exchange of a
Trust Certificate is permitted under or in accordance with
8
<PAGE>
this Agreement, provided, that in connection with any such Transfer the Trustee
--------
shall have the obligation to require delivery of the instrument described in
Section 3.4(a) and confirm that such instrument complies on its face with the
requirements of Section 3.4(a); neither the Trustee, the Designee nor the Trust
Company shall have any personal liability to any Person in connection with any
Transfer or exchange or proposed or purported Transfer or exchange (and/or
registration thereof) that is not permitted under or in accordance with this
Agreement, except the Trustee to the extent the Trustee fails to carry out its
obligations under the proviso to the immediately preceding clause; and the
Trustee and the Designee shall be entitled to rely (and shall be fully justified
and protected (as such and in its individual capacity) in so relying) on the
certificate register as to the identity of the Certificateholders and as to the
Trust Certificates. For the avoidance of doubt, so long as the Trustee shall
have required delivery of the instrument described in Section 3.4(a) and
confirmed that such instrument complies on its face with the requirements of
Section 3.4(a), the Trustee shall not have any obligation to request any Opinion
of Counsel from the Transferor under Section 3.4(b), make any determination as
to whether any proposed Transfer is exempt from the registration requirements of
the Securities Act of 1933, as amended, or any other laws or take any other
action with respect to the matters referenced in Section 3.4(b), (c), (d) or
(e); provided, however, that within five (5) business days following receipt by
-------- -------
the Trustee of the instrument described in Section 3.4(a) in connection with any
request to Transfer a Trust Certificate, (i) the Trustee shall provide the
Designee with copies of the instrument described in Section 3.4(a) and all
correspondence received by the Trustee in connection with such proposed
Transfer, (ii) the Trustee shall not register such Transfer or execute and issue
any Trust Certificate in connection with such Transfer until the Designee shall
have determined and provided notice to the Trustee whether or not the Designee
shall request that the Transferor provide an Opinion of Counsel to the Designee
pursuant to Section 3.4(b), and (iii) if the Designee requests that the
Transferor provide such Opinion of Counsel, the Trustee shall not register such
Transfer or execute and issue any Trust Certificate in connection with such
Transfer unless and until (x) such Opinion of Counsel has been provided to the
Designee, (y) the Designee advises the Trustee in writing of the receipt of such
Opinion of Counsel and (z) the Designee directs the Trustee in writing to
register such proposed Transfer and to execute and issue the related Trust
Certificate(s).
SECTION III.8 Subordination Agreement. The Subordinated Obligations
-----------------------
shall be subject to the Subordination Agreement, and by its acceptance of a
Trust Certificate or interest therein, each Certificateholder shall agree to be
bound by the terms of the Subordination Agreement.
ARTICLE IV
Actions by Trustee or Designee
------------------------------
SECTION IV.1 Prior Notice to Certificateholders With Respect to
--------------------------------------------------
Certain Matters. (1) Subject to Section 4.1(b), the Trustee shall not take
- ---------------
action with respect to the following matters unless the Trustee (or the Designee
with respect to Section 4.1(a)(i)) shall have received the prior written consent
to the taking of, or direction to take, such action from the Required
Certificateholders:
9
<PAGE>
(1) the initiation of any claim, action or lawsuit by the Trust
and the compromise of any action, claim or lawsuit brought by or against the
Trust; and
(2) the filing of any amendment to the Certificate of Trust, or
any restatement thereof or any certificate of cancellation or other
certificate to be filed with the Office of the Secretary of State of the State
of Delaware pursuant to any provision of the Business Trust Statute (other
than a certificate of amendment required to be filed under Section 3810(b)(2)
of the Business Trust Statute).
(2) The Trustee shall not, without the prior written consent of
the Required Certificateholders, agree to any amendment of any of the Basic
Agreements that would materially adversely affect the rights of any
Certificateholder or the value of any Certificate.
(3) The Trustee shall not, without the prior written consent of
the payee(s) of the Subordinated Participation Interest or Advisory Fee, agree
to any amendment of any of the Basic Agreements that would materially
adversely affect the rights of such holder or the value of the Subordinated
Participation Interest or Advisory Fee.
(4) Notwithstanding anything to the contrary herein, the Trustee
shall not, without the prior written consent of each Certificateholder, agree
to any amendment of Section 7(a), 7(b) or 7(c) of the Sponsor Agreement,
Section 6.7 of this Agreement, Section 10 of the Distribution Agreement or
Sections 4, 5 or 6 of the Intercreditor Agreement.
SECTION IV.2 Action by Certificateholders With Respect to Certain
----------------------------------------------------
Matters. Only the Trustee shall have power and authority in the name and on
- -------
behalf of the Trust to commence a voluntary proceeding in bankruptcy relating to
the Trust, provided, however, that the Trustee shall not have such power and
-----------------
authority and shall not be authorized to, and shall not, commence a voluntary
proceeding in bankruptcy relating to the Trust without the unanimous prior
approval of and direction by all of the Certificateholders and the delivery to
the Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that the Trust is insolvent. For purposes
of this Section 4.2, a Certificateholder may reasonably believe that the Trust
is insolvent if (i) the total liabilities of the Trust and the amount required
to pay such liabilities as they become due in the ordinary course of business
exceeds the aggregate anticipated future Gross Receipts from Acquired Films or
from Qualifying Pictures or other Artisan Films to be acquired by the Trust;
(ii) the Trust is unable to pay its debts and liabilities as they become due in
the ordinary course of business; or (iii) the Trust has an unreasonably small
amount of capital with which to conduct its business.
SECTION IV.3 Restrictions on Certificateholders' Power. The
-----------------------------------------
Certificateholders shall not direct the Trustee or Designee, as applicable, to
take or refrain from taking any action if such action or inaction would be
contrary to any obligation of the Trust under any Basic Agreement or would be
contrary to Section 2.3, nor shall the Trustee or Designee be obligated to
follow any such direction, if given.
10
<PAGE>
SECTION IV.4 Action by Certificateholders. Except as expressly
----------------------------
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken only by the Required Certificateholders. Any written
notice of the Certificateholders delivered pursuant to this Agreement shall be
effective only if signed by the Required Certificateholders.
ARTICLE V
Authority and Duties of Trustee and Designee
--------------------------------------------
SECTION V.1 General Authority. The Designee shall have power and
-----------------
authority and is hereby authorized and empowered in the name and on behalf of
the Trust to execute and deliver the Basic Agreements to which the Trust is to
be a party and (except where the Trustee is authorized to execute and deliver
Trust Certificates as provided in Article III) each Trust Certificate or other
document attached as an exhibit to or contemplated by such Basic Agreements. In
addition to the foregoing, the Designee and the Trustee (but solely to the
extent, if any, within the scope of the Trustee's duties under Section 2.10(a)
and (b)) are authorized to take all actions required of the Trust pursuant to
the Basic Agreements.
SECTION V.2 General Duties. It shall be the duty of the Trustee
--------------
(subject to Section 2.10(a) and (b)) and the Designee to discharge (or cause to
be discharged) all its responsibilities pursuant to the terms of this Agreement
in accordance with the provisions of this Agreement and subject to the other
Basic Agreements.
SECTION V.3 Action Upon Instructions. (1) The Certificateholders
------------------------
may direct the Trustee and the Designee in the management of the Trust so long
as such instructions are not inconsistent with the express terms set forth in
this Agreement. Such direction may be exercised at any time by written
instruction of the Required Certificateholders in accordance with Article IV.
(2) The Trustee and the Designee, as applicable, shall not be
required to take any action hereunder if the Trustee or Designee shall have
reasonably determined, or shall have been advised by counsel, that such action
is likely to result in liability on the part of the Trustee (as such or in its
individual capacity) or the Designee (as such or in its individual capacity) or
is contrary to the terms hereof or of any other Basic Agreement or is otherwise
contrary to law.
(3) Whenever the Trustee or the Designee, as applicable, is unable
to decide among different courses of action permitted or required by the terms
of this Agreement, the Trustee or Designee shall promptly give notice (in such
form as shall be appropriate under the circumstances ) to each Certificateholder
requesting instructions as to the course of action to be adopted, and to the
extent the Trustee or Designee acts or refrains from acting in good faith in
accordance with the instructions received from the Required Certificateholders,
the Trustee or Designee shall not be personally liable on account of such action
or inaction to any Person. If the Trustee or Designee shall not have received
appropriate instructions within 20 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
11
<PAGE>
from taking such action, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
(4) In the event that the Trustee or Designee, as applicable, is
unsure as to the application of any provision of this Agreement or any other
Basic Agreement or any such provision is ambiguous as to its application, or is,
or appears to be, in conflict with any other applicable provision, or in the
event that this Agreement permits any determination by the Trustee or Designee
or is silent or is incomplete as to the course of action that the Trustee or
Designee is permitted or required to take with respect to a particular set of
facts, the Trustee or Designee may give notice (in such form as shall be
appropriate under the circumstances) to each Certificateholder requesting
instructions and, to the extent that the Trustee or Designee acts or refrains
from acting in good faith in accordance with instructions received from the
Required Certificateholders, the Trustee or Designee shall not be personally
liable, on account of such action or inaction, to any Person. If the Trustee or
Designee shall not have received appropriate instructions within 20 days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action, as it shall deem to
be in the best interests of the Certificateholders, and shall have no liability
to any Person for such action or inaction.
SECTION V.4 No Duties Except as Specified in This Agreement or in
-----------------------------------------------------
Instructions. The Trustee or Designee, as applicable, shall not have any duty or
- ------------
obligation to manage, make any payment with respect to, register, record, sell,
dispose of, or otherwise deal with the Trust Estate, or to otherwise take or
refrain from taking any action under, or in connection with, this Agreement or
any document contemplated hereby, except as expressly provided by the terms of
this Agreement or the Basic Agreements or in any written instruction received by
the Trustee or Designee pursuant to Section 5.3; and no implied duties or
obligations shall be read into this Agreement or any other document against the
Trustee or Designee. The Trust Company nevertheless agrees that it will, at its
own cost and expense, promptly take all action as may be necessary to discharge
any Liens on any part of the Trust Estate that result from actions by or claims
against the Trust Company that are not related to the ownership or the
administration of the Trust Estate, this Agreement, or the Trust Company's
service or status as Trustee.
SECTION V.5 No Action Except Under Specified Documents or
---------------------------------------------
Instructions. The Trustee or Designee, as applicable, shall not manage, control,
- ------------
use, sell, dispose of, or otherwise deal with any part of the Trust Estate
except (a) in accordance with the powers granted to and the authority conferred
upon the Trustee or Designee pursuant to this Agreement and (b) in accordance
with any instruction delivered to the Trustee or Designee pursuant to Section
5.3.
SECTION V.6 Restrictions. The Trustee and Designee, as applicable,
------------
shall not take any action (a) that is inconsistent with the purposes of the
Trust set forth in Section 2.3 or (b) that, to the actual knowledge of the
Trustee or Designee, would result in the Trust being treated as an association
taxable as a corporation for Federal income tax purpose. The Certificateholders
shall not direct the Trustee or Designee to take any action that would violate
the provisions of this Section.
12
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ARTICLE VI
Concerning the Trustee and Designee
-----------------------------------
SECTION VI.1 Acceptance of Trust and Duties. The Trustee accepts the
------------------------------
trust hereby created and each of the Trustee and Designee agrees to perform its
applicable duties hereunder with respect to such trust but only upon the terms
of this Agreement. The Trustee agrees to disburse or cause to be disbursed all
monies actually received by it or on its behalf constituting part of the Trust
Estate upon the terms of this Agreement and the other Basic Agreements. Neither
the Trust Company nor API, as the case may be, shall be answerable or
accountable under any circumstances, except to the Trust, the Certificateholders
and the payee(s) of the Subordinated Participation Interest and the Advisory
Fee: (a) for its own wilful misconduct or gross negligence; (b) in the case of
the inaccuracy of any representation or warranty contained in Section 6.3
expressly made by the Trust Company; (c) for liabilities arising from the
failure by the Trust Company to perform obligations expressly undertaken by it
in the last sentence of Section 5.4; or (d) for taxes, fees, or other charges
that are imposed on, based on, or measured by any fees, commissions,
compensation or income received by the Trust Company in connection with any of
the transactions contemplated by this Agreement. In particular, but not by way
of limitation (and subject to the exceptions set forth in the preceding
sentence):
(1) the Trust Company shall not be liable for any good faith error
of judgment made by the Trustee, and API shall not be liable for any good
faith error of judgment made by the Designee;
(2) the Trust Company and API, as applicable, shall not be liable
with respect to any action taken or omitted to be taken by it in accordance
with the instructions of the Required Certificateholders given in
accordance herewith;
(3) no provision of this Agreement shall require the Trust Company
or API, as applicable, to expend or risk funds or otherwise incur any
financial liability in the performance of any of the Trust's or the
Trustee's or the Designee's rights or powers hereunder, if the Trust
Company or API shall in its sole discretion determine that repayment of
such funds or adequate indemnity against such risk or liability is not
assured or provided to it;
(4) under no circumstances shall the Trust Company or API be liable
for indebtedness evidenced by any of the Obligations or under any of the
Basic Agreements;
(5) the Trust Company and API shall not be responsible for or in
respect of the validity or sufficiency of this Agreement, or for the due
execution hereof by the Initial Certificateholder or for the form,
character, genuineness, sufficiency, value, or validity of any of the Trust
Estate or for or in respect of the validity or sufficiency of the Basic
Agreements, and the Trust Company and API shall in no event assume or incur
any
13
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liability, duty, or obligation to any Certificateholder, other than as
expressly provided for herein; and
(6) the Trust Company shall not be liable for the default or
misconduct of the Distributor or any sublicensee or other Person and,
except to the extent otherwise provided herein, the Trust Company shall
have no obligation or liability to perform the obligations of the Trust
hereunder or under the Basic Agreements or that are required to be
performed by the Distributor under the Distribution Agreement.
SECTION VI.2 Furnishing of Documents. The Trustee shall furnish to
-----------------------
the Certificateholders promptly upon receipt of a request therefor, duplicates
or copies of all reports, notices, requests, demands, certificates, financial
statements, and any other instruments furnished to the Trustee under the Basic
Agreements, it being understood that certain documents may have been redacted
prior to their delivery to the Trustee in order to preserve the confidentiality
of certain provisions affecting Persons not party to the Basic Agreements.
SECTION VI.3 Representations and Warranties of the Trustee. The Trust
---------------------------------------------
Company hereby represents and warrants to the Initial Certificateholder and to
the Designee (as such and in its individual capacity) that:
(1) Corporate Organization. It is a banking corporation duly
----------------------
organized and validly existing in good standing under the laws of the State
of Delaware. It has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement.
(2) Authorization. It has taken all corporate action necessary to
-------------
authorize the execution and delivery by it of this Agreement, and this
Agreement will be executed and delivered by one of its officers who is duly
authorized to execute and deliver such Agreement on its behalf.
(3) Binding Obligation. This Agreement constitutes a legal, valid
------------------
and binding obligation of the Trustee enforceable in accordance with its
terms, subject to bankruptcy, insolvency, and similar laws relating to or
affecting creditors generally and general principles of equity.
(4) No Conflicts. Neither the execution nor the delivery by it of
------------
this Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any Federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Trustee or any judgment or
order binding on it, or constitute any default under its charter documents
or by-laws or any indenture, mortgage, contract, agreement or instrument to
which it is a party or by which any of its properties may be bound.
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<PAGE>
(5) No Public Offering. Neither the Trustee nor anyone authorized to
------------------
act on its behalf has directly or indirectly offered any interest in and to
the Trust Estate or any similar interest for sale to, or solicited any
offer to acquire any of the same from, anyone.
SECTION VI.4 Reliance; Advice of Counsel. (1) The Trustee and
---------------------------
Designee shall incur no personal liability to any Person in acting upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond, or other document or paper believed by it in good faith
to be genuine and believed by it in good faith to be signed by an appropriate
Person or Persons. The Trustee or Designee, as applicable, may accept a
certified copy of a resolution of the board of directors or other governing body
of any Person as conclusive evidence that such resolution has been duly adopted
by such body and that the same is in full force and effect. As to any fact or
matter the method of determination of which is not specifically prescribed
herein, the Trustee or Designee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other Authorized Officer of the relevant Person, as to such fact or matter,
and such certificate shall constitute full protection to the Trustee and
Designee (as such and in its individual capacity) for any action taken or
omitted to be taken by it in good faith in reliance thereon.
(2) In the exercise or administration of the trust hereunder and in
the performance of its duties and obligations under this Agreement or the other
Basic Agreements, the Trustee or Designee, as applicable, (i) may act directly
or, at the expense of the Trust Estate, through its agents or attorneys pursuant
to agreements entered into with any of them, and the Trustee and Designee shall
not be personally liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Trustee or
Designee with reasonable care; and (ii) may, at the expense of the Trust Estate,
consult with counsel, accountants, and other skilled persons to be selected with
reasonable care and employed by it. The Trustee and Designee shall not be
personally liable for anything done, suffered or omitted in good faith by it in
accordance with the written opinion of any such counsel, accountants, or other
such persons and not contrary to this Agreement. The Trustee shall have no duty
to monitor or supervise the Designee, any other trustee, the Certificateholders,
the Administrative Agent, any agent, independent contractor, officer, employee,
or manager of the Trust, any delegate of any trustee, or any other Person.
SECTION VI.5 Not Acting in Individual Capacity. Except as provided in
---------------------------------
this Article VI, in accepting the trust hereby created, Christiana Bank & Trust
Company acts solely as Trustee hereunder and not in its individual capacity, API
acts solely as Designee hereunder and not in its individual capacity and all
Persons having any claim against the Trustee or Designee by reason of the
transactions contemplated by this Agreement or the other Basic Agreements shall
look only to the Trust Estate for payment or satisfaction thereof.
SECTION VI.6 Establishment of Trust Account. The Trustee, for the
------------------------------
benefit of the Certificateholders and the payee(s) of the Subordinated
Participation Interest and the Advisory Fee, shall establish and maintain in the
name of the Trust with Christiana Bank & Trust Company a segregated deposit
account (the "Trust Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the Certificateholders and
15
<PAGE>
the payee(s) of the Subordinated Participation Interest and the Advisory Fee, as
applicable. All funds (i) received by the Trust as distributions for the benefit
of the Certificateholders pursuant to Sections 7(a), 7(b) or 7(c) of the Sponsor
Agreement, (ii) received by the Trust pursuant to the Distribution Agreement
after the Direct Deposit Commencement Date, or (iii) which constitute Net
Liquidation Proceeds shall be deposited in the Trust Account. The Trustee shall
possess (for the benefit of the Certificateholders and the payee(s) of the
Subordinated Participation Interest and the Advisory Fee) all right, title and
interest in all funds on deposit from time to time in the Trust Account and in
all proceeds thereof.
SECTION VI.7 Application of Trust Funds.
--------------------------
(1) On each Quarterly Payment Date which occurs prior to the Credit
Release Date, amounts deposited in the Trust Account shall be distributed by the
Trustee, in accordance with directions received from the Designee, as follows:
First, to reimburse the Distributor for amounts advanced to fund
-----
Trustee Expenses and the Quarterly Payment Amount on prior Quarterly Payment
Dates;
Second, to the Trustee in an amount equal to the amount of Trustee
------
Expenses for the Applicable Quarterly Period;
Third, to the Certificateholders, according to their Pro Rata Amounts,
-----
in an aggregate amount equal to the Quarterly Payment Amount due with respect to
such Quarterly Payment Date; and
Fourth, to the Distributor in payment of the Distribution Fee, all
------
remaining such amounts held in the Trust Account as of such Quarterly Payment
Date.
(2) (1) On each Quarterly Payment Date (other than the Liquidation
Payment Date) which occurs on or after the Credit Release Date but prior to the
Direct Deposit Commencement Date, amounts deposited in the Trust Account shall
be distributed by the Trustee (without double-counting), in accordance with
directions received from the Designee, as follows:
First, to reimburse the Distributor for amounts advanced to fund
-----
Trustee Expenses and the Quarterly Payment Amount on prior Quarterly Payment
Dates;
Second, to the Trustee in an amount equal to the amount of Trustee
------
Expenses for the Applicable Quarterly Period;
Third, to the Certificateholders, according to their Pro Rata Amounts,
-----
in an aggregate amount equal to the Quarterly Payment Amount due with respect to
such Quarterly Payment Date; and
Fourth, to API in payment of amounts owing with respect to the
------
Subordinated Participation Interest, all remaining such amounts held in the
Trust Account as of such Quarterly Payment Date.
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<PAGE>
(2) On each Quarterly Payment Date (other than the Liquidation
Payment Date) which occurs on or after the Direct Deposit Commencement Date,
amounts deposited in the Trust Account shall be distributed by the Trustee
(without double-counting), in accordance with directions received from the
Designee, as follows:
First, to reimburse the Distributor for amounts advanced to fund
-----
Trustee Expenses and the Quarterly Payment Amount on prior Quarterly Payment
Dates,
Second, to the Trustee in an amount equal to the Trustee Expenses for
------
the Applicable Quarterly Period;
Third, to the Certificateholders, Pro Rata, in an aggregate amount
-----
equal to the Quarterly Payment Amount due with respect to such Quarterly Payment
Date;
Fourth, to the Distributor in payment of the Distribution Fee; and
------
Fifth, to API in payment of amounts owing with respect to the
-----
Subordinated Participation Interest, all remaining such amounts held in the
Trust Account as of such Quarterly Payment Date.
(3) On the Liquidation Payment Date, amounts on deposit in the Trust
Account which represent Net Liquidation Film Proceeds shall be distributed by
the Trustee, in accordance with directions received from the Designee, as
follows:
First, to reimburse the Distributor for amounts advanced to fund
-----
Trustee Expenses and the Quarterly Payment Amount on prior Quarterly Payment
Dates;
Second, to the Trustee in an amount equal to any unpaid Trustee
------
Expenses as of the Liquidation Payment Date;
Third, to the Certificateholders, according to their Pro Rata Amounts,
-----
in the aggregate amount of the Applicable Liquidation Preference as of such
Liquidation Payment Date;
Fourth, to the Distributor in payment of the unpaid Distribution Fees;
------
and
Fifth, to API in payment of amounts owing with respect to the
-----
Subordinated Participation Interest, all remaining such amounts held in the
Trust Account as of such Liquidation Payment Date.
(4) On the Liquidation Payment Date, amounts on deposit in the Trust
Account which represent Net Liquidation Non-Film Proceeds shall be distributed
by the Trustee, in accordance with directions received from the Designee, as
follows:
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<PAGE>
First, to the Distributor, to the extent of any shortfalls in the
-----
amount to be paid to the Distributor pursuant to the First priority in Section
6.7(c);
Second, to the Trustee, to the extent of any shortfall in the amount
------
to be paid to the Trustee pursuant to Section 6.7(c);
Third, to the Certificateholders, to the extent of any shortfall in
-----
the amounts to be paid to the Certificateholders pursuant to Section 6.7(c);
Fourth, to the Distributor, to the extent of any shortfall in the
------
amount of any unpaid Distribution Fees to be paid to the Distributor out of Net
Liquidation Film Proceeds; and
Fifth, to API in payment of the Advisory Fee, all remaining such
-----
amounts held in the Trust Account as of such Liquidation Payment Date.
(5) Any cash held in the Trust Account on any date that is not
required to be distributed on such date shall be invested by the Trustee in
Permitted Investments chosen by the Designee pending distribution.
(6) It shall be solely the responsibility of the Designee to
determine whether any of the payments contemplated under Section 6.7 comply with
the terms of the Intercreditor Agreement and the Subordination Agreement, and
the Trustee shall have no responsibility with regard to such determination and
shall be fully protected in following any direction received from the Designee
in making such payments.
SECTION VI.8 Method of Payment. Payments required to be made to
-----------------
Certificateholders and the payee(s) of the Subordinated Participation Interest
and the Advisory Fee shall be made by the Trustee, by wire transfer, in
immediately available funds, to such accounts as designated by the
Certificateholders and the payee(s) of the Subordinated Participation Interest
and the Advisory Fee in a writing delivered to the Trustee, at a bank or other
entity having appropriate facilities therefor.
SECTION VI.9 No Interest. The Trustee shall not be personally liable
-----------
for any interest on moneys received by the Trustee hereunder and held in the
Trust Account.
SECTION VI.10 Accounting and Reports to the Certificateholders, the
-----------------------------------------------------
Internal Revenue Service and Others. The Designee shall, on behalf of the
- -----------------------------------
Trustee and at the expense of the Trust (a) maintain (or cause to be maintained)
the books of the Trust on a calendar year basis on the accrual method of
accounting, (b) prepare (or cause to be prepared) annual financial statements in
accordance with GAAP, (c) deliver to each Certificateholder, as may be required
by the Code and applicable treasury regulations, such information as may be
required to enable such Certificateholder to prepare its Federal and state
income tax returns, (d) prepare (or cause to be prepared) in the manner required
by law and file any tax returns determined to be necessary relating to the Trust
consistent with the characterization of the Trust for income and franchise tax
purposes as set forth in Section 10.7 or as otherwise required by law, (e) cause
such tax returns to
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<PAGE>
be signed in the manner required by law and (f) collect any withholding tax
required to be withheld by the Trust with respect to any payments made to
holders of Trust Certificates. In addition, the Designee shall prepare and
distribute to each Certificateholder, (i) on each Quarterly Payment Date and on
the Liquidation Payment Date, a statement specifying the amount of Gross
Receipts received in respect of each Acquired Film and (ii) annually, tax
reporting documentation with respect to distributions on the Trust Certificates.
Payments on the Trust Certificates shall be allocated by the Designee annually
between principal and interest to provide (to the extent possible) a constant
yield to maturity, based on all past payments and all future projected payments
as of the date of the allocation.
ARTICLE VII
Indemnification
---------------
SECTION VII.1 Indemnification. The Trust Company, the Designee and
---------------
their respective successors, assigns, agents, and servants (each an
"Indemnitee") shall be entitled to indemnification from the Trust Estate (and
not from the Certificateholders) from and against, any and all liabilities,
obligations, losses, damages, taxes, claims, actions, suits, costs, expenses and
disbursements (including legal fees and expenses) of any kind and nature
whatsoever (collectively, "Expenses") that may at any time be imposed on,
incurred by, or asserted against an Indemnitee in any way relating to or arising
out of this Agreement, the other Basic Agreements, the Trust Estate, the
administration of the Trust Estate, or the action or inaction of the Trustee
hereunder, except that the Trust shall not be liable for or be required to
indemnify an Indemnitee from and against Expenses arising or resulting from any
of the matters described in the third sentence of Section 6.1. The indemnities
contained in this Section 7.1 shall survive the termination of this Agreement.
ARTICLE VIII
Liquidation of Trust Estate and Termination of Trust Agreement
--------------------------------------------------------------
SECTION VIII.1 Liquidation of Trust Estate. (1) Subject to the terms
---------------------------
of the Fundamental Documents, promptly following the earlier of (i) the Final
Redemption Date, (ii) the purchase of the Acquired Films by API pursuant to
Section 5 or 6(a) of the Master Film Purchase Agreement and (iii) any sale of
Trust Estate assets by the Lenders pursuant to the terms of the Senior Security
Agreements, the Trustee shall liquidate the Trust Estate and distribute the
proceeds thereof in accordance with Sections 6.7 (c) and (d). In order to effect
such liquidation, subject to Section 8.1(b) below, the Trustee will sell any
remaining assets in the Trust Estate to such purchaser(s) and on such terms as
are directed by the Required Certificateholders. Notwithstanding the foregoing,
the Trustee shall not be required to take any action under this Section 8.1
until the Trustee receives written notice from the Designee of the occurrence of
any of the events specified in Sections 8.1(a)(i), (ii) or (iii), which notice
shall include a confirmation by the Designee that the terms of the Fundamental
Documents have been complied with or shall specify, and direct the Trustee with
respect to, any actions that are required to provide for such compliance.
19
<PAGE>
(2) The Trustee shall give API written notice in full detail
(including without limitation the name of the offeror) of each and every offer
received by the Trustee from a third party with respect to a sale of any of the
Trust assets that the Required Certificateholders are willing to accept, and API
shall have a period of ten (10) Business Days from receipt of such notice within
which to provide notice to the Trustee that it intends to meet the material
terms of such offer (other than the closing date), in which event the Trustee
and API shall promptly execute written agreements relating to API's acquisition
of such assets upon the terms and conditions of such offer; and provided,
--------
further, that if API does not acquire all of the Trust assets in accordance with
- -------
the foregoing provisions, then the Trustee shall have the right to sell any such
assets not so acquired, but only to the offeror and upon the terms and
conditions specified in the notice to API pursuant to this Section 8.1(b).
SECTION VIII.2 Dissolution of Trust. The Trust created hereby shall
--------------------
dissolve and this Agreement shall be of no further force or effect, upon the
sale or other final disposition by the Trustee of the Trust Estate in accordance
with Section 8.1 and the final distribution by the Trustee of all moneys or
other property or proceeds of the Trust Estate in accordance with Sections 6.7
and 8.1.
SECTION VIII.3 No Termination by Certificateholders. No
------------------------------------
Certificateholder shall be entitled to terminate or revoke the Trust established
hereunder.
SECTION VIII.4 Winding Up. Upon the completion of the winding up of
----------
the Trust, the Trustee shall have power and authority and is hereby authorized
and empowered in the name and on behalf of the Trust to cause the Certificate of
Trust to be canceled by executing and filing a certificate of cancellation with
the Secretary of State in accordance with the provisions of the laws of the
State of Delaware. Thereupon, this Agreement shall terminate.
ARTICLE IX
Successor Trustees
------------------
and Additional Trustees
-----------------------
SECTION IX.1 Resignation of Trustee; Appointment of Successor.
------------------------------------------------
(1) The Trustee may resign at any time without cause by giving at
least 60 days prior written notice to the Certificateholders, such resignation
to be effective on the acceptance of appointment by a successor Trustee under
paragraph (b) below. In addition, the Required Certificateholders may at any
time remove the Trustee with or without cause by an instrument in writing
delivered to the Trustee, such removal to be effective upon the acceptance of
appointment by a successor Trustee under paragraph (b) below. In case of the
resignation or removal of the Trustee, the Certificateholders may appoint a
successor Trustee by an instrument signed by the Required Certificateholders.
The Certificateholders shall use their best efforts to promptly appoint a
successor Trustee. If a successor Trustee shall not have been appointed within
30 days after the giving of written notice of such resignation or the delivery
of the written instrument with respect to such removal, the Trustee or the
Certificateholders at the expense of the Trust may apply to any court of
competent jurisdiction to appoint a successor Trustee. Such court may thereupon,
after such notice, if any, as it may prescribe, appoint a successor Trustee to
20
<PAGE>
act until such time, if any, as a successor shall have been appointed by the
Certificateholders as above provided. Such successor Trustee shall meet the
qualifications of paragraph (c) below. Any successor Trustee appointed by a
court shall immediately and without further act be superseded by any successor
Trustee appointed by the Certificateholders within one year from the date of the
appointment by such court.
(2) Any successor Trustee, however appointed, shall execute,
acknowledge and deliver to the predecessor Trustee and all of the
Certificateholders an instrument accepting such appointment under this Agreement
and thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor Trustee, without any further act, shall become
vested with all the estates, properties, rights, powers, duties, and trusts, of
the predecessor Trustee in the trust hereunder with like effect as if originally
named the Trustee herein. Notwithstanding the foregoing, upon the written
request of such successor Trustee and upon payment of all amounts payable to the
Trustee hereunder, such predecessor Trustee shall execute and deliver an
instrument transferring to such successor Trustee, upon the trust herein
expressed, all the estates, properties, rights, powers, duties and trusts of
such predecessor Trustee, and such predecessor Trustee shall duly assign,
transfer, deliver and pay over to such successor Trustee all moneys or other
property then held or subsequently received by such predecessor Trustee upon the
trust herein expressed and do such other things as may reasonably be required
for fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations.
(3) Any successor Trustee, however appointed, shall be a bank or
trust company incorporated and doing business within the United States of
America and having a combined capital and surplus of at least $50,000,000, if
there be such an institution willing, able and legally qualified to perform the
duties of the Trustee hereunder on reasonable and customary terms.
SECTION IX.2 Merger or Consolidation of Trustee. Any Person into
----------------------------------
which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion, or
consolidation to which the Trustee shall be a party, or any Person to which
substantially all the corporate trust business of the Trustee may be transferred
shall, subject to the terms of Section 9.1(c), be the Trustee under this
Agreement without further act.
SECTION IX.3 Appointment of Additional Trustees. At any time or times
----------------------------------
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate may at the time be located, the Trustee, by an
instrument in writing, may appoint one or more Persons to act as a co-trustee or
co-trustees or separate trustee or separate trustees of all or any part of the
Trust Estate to the full extent that a local law makes it necessary or advisable
for such co-trustee or co-trustees or separate trustee or separate trustees to
act alone or together with the Trustee.
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ARTICLE X
Miscellaneous
-------------
SECTION X.1 Amendment. No amendment of this Agreement shall be
---------
effective unless in writing and executed and delivered by the Trust Company, the
Trustee and the Required Certificateholders (and, to the extent such amendment
relates to the Designee, unless executed and delivered, in addition, by the
Designee); provided, however, that each Certificateholder must consent in
-------- -------
writing to any amendment of (a) this Section 10.1; (b) Sections 2.3, 2.10, 4.1,
4.2, 6.7, 8.1 or 8.2; (c) the definition of "Required Certificateholder"; and
(d) any provision of this Agreement requiring the consent of each
Certificateholder to any act; and provided, further, that API must consent in
-------- -------
writing to any amendment of this Agreement that will or could reasonably be
expected to adversely affect API.
SECTION X.2 No Legal Title to Trust Estate in Certificateholders.
----------------------------------------------------
The Certificateholders shall not have legal title to any part of the Trust
Estate and shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Sections 6.7 and
8.1. No Transfer, by operation of law or otherwise, of any right, title and
interest of the Certificateholders to and in their undivided ownership interest
in the Trust Estate shall operate to terminate this Agreement or the trust
hereunder or entitle any Transferee to an accounting or to the transfer to it of
legal title to any part of the Trust Estate.
SECTION X.3 Notices. All demands, notices and communications upon or
-------
to the Trustee or the Certificateholders under this Agreement shall be in
writing, personally delivered, delivered by courier or by facsimile or mailed by
certified mail, return-receipt requested, and shall be deemed to have been duly
given upon receipt (a) in the case of the Trustee, to Christiana Bank & Trust
Company, 3801 Kennett Pike, Greenville, New Castle County, Delaware 19807,
Attention of Corporate Trust Group, facsimile no.: (302) 421-5815, with copies
to Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167,
Attention of Asset Backed Securities Department (facsimile: (212) 272-7294), (b)
in the case of a Certificateholder, addressed to it at the address set forth for
such Certificateholder in the register maintained by the Trustee, (c) in the
case of API, to Artisan Pictures, Inc., 2700 Colorado Avenue, Second Floor,
Santa Monica, California 90404, Attention of Kenneth D. Schapiro and (d) until
the Direct Deposit Commencement Date, to The Chase Manhattan Bank at 270 Park
Avenue, 37th Floor, New York, New York 10017, Attn: Joan Fitzgibbon, facsimile
no.: (212) 270-4164, with a copy to Chase Securities Inc., 1800 Century Park
East, Suite 400, Los Angeles, California 90067, Attn: Christa Thomas, facsimile
no.: (310) 788-5627. Whenever any notice in writing is required to be given by
the Trustee hereunder, such notice shall be deemed given and such requirement
satisfied if such notice is mailed by certified mail, postage prepaid, or
otherwise given as provided above, in each case addressed as provided above.
SECTION X.4 Successors and Assigns. All covenants and agreements
----------------------
contained herein shall be binding upon, and inure to the benefit of, the Trust
Company, the Trustee and its successors, the Designee and its successors and the
Initial Certificateholder and its successors and permitted assigns (including
without limitation each subsequent Certificateholder), all as herein provided.
Any request, notice, direction, consent, waiver, or other instrument or action
by a Certificateholder shall bind the successors and assigns of such
Certificateholder.
22
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SECTION X.5 Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by the Trust Company, the Trustee, the Designee
and the Initial Certificateholder and thereafter shall be binding upon and inure
to the benefit of the Trust Company, the Trustee, the Designee, the Initial
Certificateholder and their respective successors and assigns. This Agreement
shall be binding upon each Certificateholder in addition to the Initial
Certificateholder, whether or not such Person executes a counterpart of this
Agreement, when such a Person complies with the conditions for becoming a
Certificateholder hereunder.
SECTION X.6 Limitations on Rights of Others. The provisions of this
-------------------------------
Agreement are solely for the benefit of the Trust Company, the Trustee, the
Designee, API, the Indemnitees, the Certificateholders and the payee(s) of the
Subordinated Participation Interest and the Advisory Fee, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
SECTION X.7 Tax Treatment. It is the intention of the Trust and
-------------
each Certificateholder, and each Certificateholder will be required to agree in
writing, that, for United States federal, state and local income and franchise
tax purposes, (i) the Trust will constitute a collateral account or other
security arrangement and will be disregarded and not treated as a separate
entity from API and (ii) the Trust Certificates and the Notes will constitute
debt obligations of API, and each such party hereby agrees (or, in the case of
Certificateholders subsequent to the Initial Certificateholder, by virtue of
executing a Transferee Letter substantially in the form of Exhibit D, will
agree) to take positions consistent with such treatment on all their respective
tax returns, tax filings and documents related to such tax filings and tax
returns.
In the event there is a final determination that for tax purposes the
Trust Certificates constitute equity interests in the Trust and that the Trust's
assets include the Acquired Films, it is the intention of the Trust and the
Initial Certificateholder, and each Certificateholder will be required to agree
in writing, that, for United States federal, state and local income and
franchise tax purposes, (i) the Trust would constitute a partnership among the
Certificateholders and API, (ii) the Notes would constitute debt obligations of
the Trust, (iii) profits of the Trust (as a partnership) would be allocated to
the Certificateholders only in an amount of, and at the time at which, any
payments are made to the Certificateholders of their return on the Trust
Certificates, and (iv) the Notes and other debt obligations of the Trust would,
to the extent governed by applicable Treasury Regulations, be allocated to API,
as a partner in the Trust (based on the fact that API is entitled to all of the
Trust's income and assets after payments are made with respect to the Trust
Certificates), and in the event of such a final determination each such party
hereby agrees (or, in the case of Certificateholders subsequent to the Initial
Certificateholder, by virtue of executing a Transferee Letter substantially in
the form of Exhibit D, will agree) to take positions consistent with such
treatment on all their respective tax returns, tax filings and related
documents.
23
<PAGE>
In the event that there is a final determination that the Trust
Certificates constitute equity interests in the Trust and that the Trust is a
partnership solely among the Certificateholders, it is the intention of the
Trust and the Initial Certificateholder, and each Certificateholder will be
required to agree in writing, that, for United States federal, state and local
income and franchise tax purposes, (i) the sole asset of the Trust would be a
note from API secured by the Collateral as provided in the Basic Agreements and
(ii) the Notes would constitute debt obligations of the Trust, and in the event
of such a final determination each such party hereby agrees (or, in the case of
Certificateholders subsequent to the Initial Certificateholder, by virtue of
executing a Transferee Letter substantially in the form of Exhibit D, will
agree) to take positions consistent with such treatment on all their respective
tax returns, tax filings and related documents.
Notwithstanding anything to the contrary stated herein or in the other
Basic Agreements regarding the tax treatment of the Trust and API, it is the
intention of the parties hereto that for purposes of creditors' rights issues
and generally accepted accounting principles (a) the sale of Acquired Films from
a Producer or API to the Trust pursuant to a Film Purchase Agreement be a true
sale, (b) the Trust be the owner of the Acquired Films upon such sale and (c)
the relationship between the Trust and API under the Distribution Agreement be
one of licensor and licensee and the parties hereto agree to take such actions
as are consistent with such treatment.
SECTION X.8 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Delaware,
without reference to its conflict of law provisions, and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
SECTION X.9 Entire Agreement. This Agreement constitutes the entire
----------------
contract between the parties relative to the subject matter hereof. Any previous
agreement among the parties with respect to the subject matter hereof, including
without limitation the Initial Trust Agreement, is superseded by this Agreement.
SECTION X.10 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES,
--------------------
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER BASIC
AGREEMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER BASIC AGREEMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 10.10.
24
<PAGE>
SECTION X.11 Severability. In the event any one or more of the
------------
provisions contained in this Agreement or in any other Basic Agreement should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION X.12 Separate Counterparts. This Agreement may be executed by
---------------------
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all of which when taken together shall
constitute but one contract. Delivery of an executed counterpart of this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION X.13 Headings. Article and Section headings and the Table of
--------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to effect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION X.14 Jurisdiction; Consent to Service of Process.
-------------------------------------------
(1) Each of the Trustee, the Designee and the Initial
Certificateholder hereby (and each subsequent Certificateholder upon becoming
such thereby) irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any Delaware State court or
Federal court of the United States of America sitting in the State of Delaware,
and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such Delaware State Court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
(2) Each of the Trustee, the Designee and the Initial
Certificateholder hereby (and each subsequent Certificateholder upon becoming
such thereby) irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any Delaware State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(3) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.3. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
25
<PAGE>
SECTION X.15 Confidentiality. Each of the Trustee and the Initial
---------------
Certificateholder (and each subsequent Certificateholder upon becoming such
thereby) agrees to keep confidential and (a) to cause its respective officers,
directors and employees to keep confidential and (b) to use its best efforts to
cause its respective agents and representatives to keep confidential the
Information and all copies thereof, extracts therefrom and analyses or other
materials based thereon, except that the parties hereto shall be permitted to
disclose Information to the extent required by applicable laws and regulations
or by any subpoena or similar legal process or to any prospective Transferee.
For the purposes of this Section 10.15, the term "Information" shall mean all
financial statements, certificates, reports, agreements and information
(including all analyses, compilations and studies based on any of the foregoing)
that relate to the Trust, other than any of the foregoing that are publicly
available. The provisions of this Section 10.15 shall remain operative and in
full force and effect regardless of the termination of the Trust.
SECTION X.16 Duties and Liabilities. To the extent that, at law or in
----------------------
equity, the Trustee, the Designee or any other Indemnitee has duties (including
fiduciary duties) and liabilities relating to the Trust or to any
Certificateholder, (a) the Trustee, the Designee or any other Indemnitee acting
under this Agreement shall not be liable to the Trust or to any
Certificateholder for such Person's good faith reliance on the provisions of
this Agreement; and (b) the provisions of this Agreement, to the extent that
they restrict the duties and liabilities of the Trustee, the Designee or any
other Indemnitee otherwise existing at law or in equity, are agreed by the
Initial Certificateholder, each other party hereto and their respective
successors and assigns to replace such other duties and liabilities of the
Trustee, the Designee or such other Indemnitee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
BEAR, STEARNS & CO. INC.
By:
-----------------------------------
Title:
----------------------------
CHRISTIANA BANK & TRUST COMPANY,
solely in its individual capacity
By:
-----------------------------------
Title:
----------------------------
26
<PAGE>
CHRISTIANA BANK & TRUST COMPANY,
solely in its capacity as Trustee and not
in its individual capacity
By:
-----------------------------------
Title:
----------------------------
ARTISAN PICTURES, INC., solely in its
capacity as Designee and not in its
individual capacity
By:
-----------------------------------
Title:
----------------------------
27
<PAGE>
EXHIBIT A
Definitions
-----------
Definitions. The capitalized terms set forth below shall have the
-----------
following meanings when used in the Agreement.
"Acquired Films" has the meaning set forth in Section 1 of the
--------------
Master Film Purchase Agreement.
"Administrative Agent" means The Chase Manhattan Bank, as
--------------------
Administrative Agent under the Credit Agreement.
"Advisory Fee" means the advisory fee payable to API under
------------
Section 10 of the Master Film Purchase Agreement.
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly controlling, controlled by or under common control with
such Person, including as contemplated by Rule 405 promulgated under the
Securities Act of 1933, as amended.
"AFI Collection Account" has the meaning set forth in Section 8.3
----------------------
of the Credit Agreement.
"Agreement" means this Amended and Restated Trust Agreement, as
---------
the same may be amended, restated or supplemented from time to time in
accordance with its terms.
"API" means Artisan Pictures, Inc., a Delaware corporation.
---
"Applicable Liquidation Preference" means:
---------------------------------
(1) In the event API elects, pursuant to Section 5 of the Master
Film Purchase Agreement, to purchase the Acquired Films at any time following
the end of the Revolving Period after satisfaction of the Minimum Delivery
Requirement, an amount equal to the excess, if any, of (i) the sum of (x)
$10,000,000 plus (y) an amount determined in good faith by the Designee that
would provide the Certificateholders with an internal rate of return equal to 8%
per year on $10,000,000 for the period from the Issue Date until the Liquidation
Payment Date plus (z) the Excess Revenue Amount, over (ii) the aggregate
Quarterly Payment Amounts theretofore distributed to the Certificateholders (the
excess of (i) over (ii) referred to hereinafter as the "Alternate Preference
Amount");
(2) In the event API elects, pursuant to Section 5 of the Master
Film Purchase Agreement, to purchase the Acquired Films (x) at any time prior to
the expiration of the Revolving Period, whether or not the Minimum Delivery
Requirement has been satisfied, or (y) at any time after the expiration of the
Revolving Period, if the Minimum Delivery Requirement has not been satisfied, an
amount equal to the greater of (i) the excess, if any, of (x) $10,000,000
A-1
<PAGE>
plus an amount determined in good faith by the Designee that would provide the
Certificateholders with an internal rate of return equal to 15% per year on
$10,000,000 for the period from the Issue Date until the Liquidation Payment
Date over (y) the aggregate Quarterly Payment Amounts theretofore distributed to
the Certificateholders, and (ii) the Alternate Preference Amount;
(3) In the event API is required, pursuant to Section 6 of the
Master Film Purchase Agreement, to purchase the Acquired Films upon the
expiration of the Revolving Period due to failure of the Minimum Delivery
Requirement to be satisfied, an amount equal to the greater of (i) the excess,
if any, of (x) $10,000,000 plus an amount determined in good faith by the
Designee that would provide the Certificateholders with an internal rate of
return equal to 15% per year on $10,000,000 for the period from the Issue Date
until the Liquidation Payment Date over (y) the aggregate Quarterly Payment
Amounts theretofore distributed to the Certificateholders, and (ii) the
Alternate Preference Amount;
(4) In the event of a sale of the Trust Estate by the Lenders
pursuant to the Senior Security Agreements, an amount equal to the greater of
(i) the excess, if any, of (x) $10,000,000 plus an amount determined in good
faith by the Designee that would provide the Certificateholders with an internal
rate of return equal to 15% per year on $10,000,000 for the period from the
Issue Date until the Liquidation Payment Date over (y) the aggregate Quarterly
Payment Amounts theretofore distributed to the Certificateholders, and (ii) the
Alternate Preference Amount; and
(5) In the event of a sale of the Trust Estate following the
Final Redemption Date, an amount equal to the greater of (i) the excess, if any,
of (x) $10,000,000 plus an amount determined in good faith by the Designee that
would provide the Certificateholders with an internal rate of return equal to 8%
per year on $10,000,000 from the Issue Date until the Liquidation Payment Date
over (y) the aggregate Quarterly Payment Amounts theretofore distributed to the
Certificateholders; provided, that if a Distributor Termination Event has
--------
occurred prior to the Liquidation Payment Date, the internal rate of return will
be 15% per year instead of 8% per year for the period from the date of such
Distributor Termination Event until the Liquidation Payment Date, and (ii) the
Alternate Preference Amount.
"Applicable Quarterly Period" means (i) with respect to any March
---------------------------
15 Quarterly Payment Date, the period from and including the immediately
preceding December 1 through and including the immediately preceding February 28
or 29, as applicable, (ii) with respect to any June 15 Quarterly Payment Date,
the period from and including the immediately preceding March 1 through and
including the immediately preceding May 31, (iii) with respect to any September
15 Quarterly Payment Date, the period from and including the immediately
preceding June 1 through and including the immediately preceding August 31, and
(iv) with respect to any December 15 Quarterly Payment Date, the period from and
including the immediately preceding September 1 through and including the
immediately preceding November 30; provided, that with respect to the December
15, 1999 Quarterly Payment Date, the Applicable Quarterly Period shall mean the
period from the date hereof through and including November 30, 1999.
A-2
<PAGE>
"Artisan Film" has the meaning set forth in Section 1 of the
------------
Sponsor Agreement.
"Authorized Officer" means the chief executive officer, president
------------------
or any vice president of any Person and, in the case of the Trustee, any
secretary, assistant secretary, treasurer, assistant treasurer or financial
services officer.
"Basic Agreements" means this Agreement, the Master Film Purchase
----------------
Agreement, each Film Purchase Agreement, the Distribution Agreement, the
Fundamental Documents, the Subordinate Security Agreements and the
Certificateholder Collateral Agency Agreement.
"Business Day" means a day on which the Trustee and banks located
------------
in the State of Delaware are open for the purpose of conducting commercial
business.
"Business Trust Statute" has the meaning assigned thereto in
----------------------
Section 2.6(b).
"Capital Contribution" means the sum of $10,000,000.
--------------------
"Certificateholder" means any registered holder of a Trust
-----------------
Certificate as reflected in the certificate register.
"Certificateholder Collateral Agency Agreement" means that
---------------------------------------------
certain agreement, dated as of the date hereof, between the Initial
Certificateholder and the Certificateholder Collateral Agent, as the same may be
amended, restated or supplemented from time to time in accordance with its
terms.
"Certificateholder Collateral Agent" means Christiana Bank &
----------------------------------
Trust Company, a Delaware banking corporation, acting not in its individual
capacity but solely in its capacity as Certificateholder Collateral Agent under
the Certificateholder Collateral Agency Agreement, and any other Person that
shall be appointed and serve in such capacity, not acting in its individual
capacity but solely in its capacity as Certificateholder Collateral Agent.
"Clearing Account" has the meaning given such term in Section 1
----------------
of the Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and
----
any successor thereto, and applicable Treasury regulations promulgated
thereunder.
"Credit Agreement" means that certain Credit and Security
----------------
Agreement, dated as of the date hereof, among the Trust (as borrower), the
Administrative Agent and the lenders named therein, the Fronting Bank (as
defined therein), and the Waiver Agent (as defined therein), as the same may be
amended, restated or supplemented from time to time in accordance with its
terms.
A-3
<PAGE>
"Credit Release Date" means the date on which all of the
-------------------
Obligations under the Credit Agreement have been paid in full, the Total
Commitment has been terminated and all claims by the Insurers against the Trust
have been satisfied.
"Cumulative Gross Receipts" means, as of any date, the cumulative
-------------------------
amount of Gross Receipts from the date of this Agreement through and including
such date; provided, however, that (i) in the event API or any Affiliate thereof
-------- -------
has on or prior to such date purchased the Acquired Films from the Trust
pursuant to Section 5 or 6(a) of the Master Film Purchase Agreement, such amount
shall be increased by an amount equal to the aggregate Fair Market Value of the
Acquired Films as of the purchase date, and (ii) in the event any party other
than API or an Affiliate thereof has on or prior to such date purchased the
Acquired Films from the Trust, such amount shall be increased by the amount paid
by such party to purchase the Acquired Films, in either case (i) or (ii) reduced
by any and all costs, expenses and taxes incurred by the Trust in connection
with such sale.
"Cumulative Prior Shortfalls" means, as of any date, the
---------------------------
cumulative amount of any Minimum Scheduled Payments and Excess Revenue Payments
not distributed to Certificateholders on prior Quarterly Payment Dates that
remains unpaid as of such date, with interest thereon at a rate of 8% per annum
from the applicable Quarterly Payment Date through and including such date.
"Designee" shall have the meaning set forth in Section 2.10.
--------
"Direct Deposit Commencement Date" means the later of (i) the
--------------------------------
Credit Release Date and (ii) the date on which all of the Sponsor Group
Obligations (as defined in the Intercreditor Agreement) have been paid in full
and the commitments of the Sponsor Lenders (as defined in the Intercreditor
Agreement) have terminated.
"Distribution Agreement" means that certain Distribution
----------------------
Agreement, dated as of the date hereof, between the Trust and the Distributor,
as the same may be amended, restated or supplemented from time to time in
accordance with its terms.
"Distribution Fee" means the distribution fee payable by the
----------------
Trust to the Distributor pursuant to the Distribution Agreement.
"Distributor" means the party identified as such from time to
-----------
time in the Distribution Agreement.
"Distributor Termination Event" means the removal of API as the
-----------------------------
Distributor under the Distribution Agreement.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended, and any successor thereto, and applicable regulations
promulgated thereunder.
A-4
<PAGE>
"Excess Revenue Amount" means, with respect to any date, (A)(i) if
---------------------
Cumulative Gross Receipts as of such date exceed $325,000,000 but are less than
or equal to $425,000,000, 2.75% of the amount by which such Cumulative Gross
Receipts exceed $325,000,000; (ii) if Cumulative Gross Receipts as of such date
exceed $425,000,000 but are less than or equal to $525,000,000, the sum of
$2,750,000 plus 1.75% of the amount by which such Cumulative Gross Receipts
exceed $425,000,000; and (iii) if Cumulative Gross Receipts as of such date
exceed $525,000,000, the sum of $4,500,000 plus 0.75% of the amount by which
such Cumulative Gross Receipts exceed $525,000,000.
"Excess Revenue Payment" means, with respect to any Quarterly Payment Date,
----------------------
the excess of (i) the Excess Revenue Amount as of the close of business on the
last day of the Applicable Quarterly Period over (ii) the cumulative amount of
all Excess Revenue Payments theretofore distributed, or which would have been
distributed but for the effect of the Quarterly Payment Cap, on all prior
Quarterly Payment Dates.
"Fair Market Value" has the meaning set forth in Section 1 of the Master
-----------------
Film Purchase Agreement.
"Film Purchase Agreement" means an agreement between the Trust and a
-----------------------
Producer and/or API, substantially in the form set forth in Exhibit A to the
Master Film Purchase Agreement, whereby the Trust acquires an Acquired Film. For
the avoidance of doubt, and without limiting the generality of the foregoing,
each of the Film Purchase Agreement, among the Trust, API and Cacophony
Productions, Inc., relating to the film entitled "Stir of Echoes," and the Film
Purchase Agreement, between the Trust and API relating to the film entitled "The
Ninth Gate," is a Film Purchase Agreement as defined herein.
"Final Redemption Date" means March 15, 2006.
---------------------
"Fundamental Documents" has the meaning given such term in the Credit
---------------------
Agreement. For the avoidance of doubt, and without limiting the generality of
the foregoing, "Fundamental Documents" includes, without limitation, (a) the
Amendment to Pledgeholder Agreement substantially in the form of the Form of
Amendment to Pledgeholder Agreement, dated as of October 13, 1999, by and among
a Laboratory party thereto, the Trust, API and the affiliates of API listed on
the signature pages thereto, The Chase Manhattan Bank ("Chase") as Collateral
Agent for the Beneficiaries (as defined therein) referred to therein and as
Administrative Agent for the AFI Lenders (as defined therein) referred to
therein (the "Pledgeholder Agreement Amendment"), and (b) the Pledgeholder
Agreement, dated as of July 9, 1997, by and among a Laboratory party thereto,
API and the affiliates of API listed on the signature pages thereto, and Chase
as Collateral Agent (as defined therein) for the Beneficiaries (as defined
therein) referred to therein, as the same may be amended by the Pledgeholder
Agreement Amendment.
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
A-5
<PAGE>
"Gross Receipts" has the meaning specified in Schedule 1 to the Sponsor
--------------
Agreement.
"Initial Certificateholder" means Bear, Stearns & Co., Inc.
-------------------------
"Initial Trust Agreement" has the meaning set forth in the recitals to this
-----------------------
Agreement.
"Insurer" has the meaning set forth in Section 1 of the Credit Agreement.
-------
"Intercreditor Agreement" means the Intercreditor Agreement, dated as of
-----------------------
the date hereof, among The Chase Manhattan Capital Fiduciary Services Group, as
Collection Agent, The Chase Manhattan Bank, as Collateral Agent for the Sponsor
Lenders and Canyon (as such terms are defined therein), as Administrative Agent
for the Sponsor Lenders, and as Administrative Agent for the AFI Lenders (as
such term is defined therein), the Trust, API and the Affiliates of API listed
on the signature pages thereto, as the same may be amended, restated or
supplemented from time to time in accordance with its terms.
"Issue Date" has the meaning set forth in the Trust Certificate Purchase
----------
Agreement.
"Lien" means any lien, mortgage, security interest, pledge, charge or claim
----
of others or encumbrance of any kind.
"Liquidation Payment Date" means the date, no later than three Business
------------------------
Days following the liquidation of the Trust Estate by the Trustee in accordance
with Section 8.1, set forth in a notice delivered by the Trustee to the
Certificateholders that a final distribution is to be made to the
Certificateholders in accordance with Sections 6.7 (c) and (d).
"Major Studio" has the meaning set forth in Section 1 of the Credit
------------
Agreement.
"Master Film Purchase Agreement" means that certain Master Film Purchase
------------------------------
Agreement, dated as of the date hereof, between the Trust and API, as the same
may be amended, restated or supplemented from time to time in accordance with
its terms.
"Minimum Delivery Requirement" has the meaning set forth in Section 1 of
----------------------------
the Master Film Purchase Agreement.
"Minimum Scheduled Payment" means, with respect to a Quarterly Payment
-------------------------
Date, the applicable amount set forth opposite such Quarterly Payment Date in
Schedule A hereto.
"Net Liquidation Film Proceeds" means the net proceeds of any sale of Trust
-----------------------------
Estate assets pursuant to Section 8.1 to the extent consisting of Acquired
Films, after payment of the Obligations, the termination of the Total Commitment
and the satisfaction of all claims by the Insurers against the Trust and the
payment of any expenses of such sale.
A-6
<PAGE>
"Net Liquidation Non-Film Proceeds" means the sum of (a) the net proceeds
---------------------------------
of any sale of Trust Estate assets pursuant to Section 8.1 to the extent
consisting of assets other than Acquired Films, plus (b) any remaining portion
of the Capital Contribution held under the Trust plus (c) any investment
earnings on any and all amounts held from time to time in the Trust Account, in
each case (i) after payment of the Obligations, the termination of the Total
Commitment and the satisfaction of all claims by the Insurers against the Trust
and the payment of any expenses of such sale, and (ii) to the extent such
amounts have not previously been used to make distributions or pay expenses of
the Trust.
"Net Liquidation Proceeds" means Net Liquidation Film Proceeds and Net
------------------------
Liquidation Non-Film Proceeds, collectively.
"Notes" has the meaning set forth in the Credit Agreement.
-----
"Obligations" has the meaning set forth in the Credit Agreement.
-----------
"Opinion of Counsel" means a written opinion of counsel, reasonably
------------------
acceptable to API, who may be counsel for the Transferor.
"Permitted Investments" means (a) marketable direct obligations issued or
---------------------
unconditionally guaranteed by the United States of America or issued by any
agency thereof and backed by the full faith and credit of the United States of
America, in each case maturing on or before the date on which the next
distribution is to be made under Section 6.7, (b) marketable general obligations
issued by any state of the United States of America or any political subdivision
of any such state or any public instrumentality thereof maturing on or before
the date on which the next distribution is to be made under Section 6.7, having
one of the two highest ratings generally obtainable from either Standard &
Poor's Corporation or Moody's Investors Service, Inc., (c) commercial paper
maturing on or before the date on which the next distribution is to be made
under Section 6.7 and, at the time of acquisition, having a rating of A-1 (or
the equivalent) or higher from Standard & Poor's Corporation and P-1 (or the
equivalent) or higher from Moody's Investors Service, Inc. or (d) demand
deposits of any bank or trust company incorporated under the laws of the United
States of America or any state thereof or the District of Columbia, provided
that the short-term debt obligations of such bank or trust company (or, in the
case of the principal depository institution in a depository institution holding
company, the short-term unsecured debt obligations of the depository institution
holding company) have been rated by Standard & Poor's Corporation and Moody's
Investors Service, Inc. in their highest short-term rating category.
"Person" means any individual, corporation, limited liability company,
------
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
A-7
<PAGE>
"Plan Investor" means any (i) "employee benefit plan" (as defined in
-------------
Section 3(3) of ERISA) that is subject to the provisions of Title I of ERISA,
(ii) "plan" (as defined in Section 4975(e)(1) of the Code) that is subject to
the provisions of Section 4975 of the Code or (iii) entity whose underlying
assets are deemed to include "plan assets" (within the meaning of 29 C.F.R.
Section 2510.3-101 or otherwise under ERISA) of any such employee benefit plan
or plan, including without limitation, as applicable, an insurance company
general account.
"Producer" means the producer and seller of a film pursuant to a Film
--------
Purchase Agreement.
"Pro Rata Amounts" means with regard to any distribution to be made in
----------------
respect of a Trust Certificate, the product of (x) the aggregate Quarterly
Payment Amount or Applicable Liquidation Preference, as applicable, and (y) a
fraction, the numerator of which is the Stated Amount of such Trust Certificate,
and the denominator of which is $10,000,000.
"QIB" means "qualified institutional buyer" as defined in Rule 144A under
---
the Securities Act of 1933, as amended.
"Qualifying Picture" has the meaning set forth in Section 1 of the Credit
------------------
Agreement.
"Quarterly Payment Amount" means, with respect to a Quarterly Payment Date,
------------------------
an amount equal to the lesser of (i) the Quarterly Payment Cap and (ii) the sum
of (x) the Minimum Scheduled Payment, (y) the Excess Revenue Payment and (z) any
Cumulative Prior Shortfalls.
"Quarterly Payment Cap" means, with respect to a Quarterly Payment Date, an
---------------------
amount equal to 5% of the aggregate amount of Gross Receipts during the
Applicable Quarterly Period.
"Quarterly Payment Date" means each March 15, June 15, September 15 and
----------------------
December 15 beginning December 15, 1999 and ending on the Final Redemption Date.
"Required Certificateholders" means Certificateholders holding Trust
---------------------------
Certificates with an aggregate Stated Amount exceeding 50% of the aggregate
Stated Amount of all then outstanding Trust Certificates.
"Revolving Period" means the period beginning on the closing date of the
----------------
Credit Agreement and ending on October 13, 2002.
"Senior Security Agreements" means the Pledgeholder Agreement, Copyright
--------------------------
Security Agreement, Copyright Security Agreement Supplements and Trademark
Security Agreement, as such terms are defined in the Credit Agreement.
A-8
<PAGE>
"Sponsor Agreement" means the Sponsor Agreement, dated as of the date
-----------------
hereof among API, the Trust and the Administrative Agent, as the same may be
amended, restated or supplemented from time to time in accordance with its
terms.
"Stated Amount" means the stated amount set forth on a Trust Certificate.
-------------
"Subordinate Security Agreement" means the Subordinate Security Agreement
------------------------------
dated as of the date hereof, between the Trust and the Certificateholder
Collateral Agent, as the same may be amended, restated or supplemented from time
to time in accordance with its terms.
"Subordinate Security Agreements" means the Subordinate Security Agreement,
-------------------------------
the Pledgeholder Agreement, Subordinate Copyright Security Agreement and
Subordinate Trademark Security Agreement, all dated as of the date hereof, and
the Subordinate Copyright Security Agreement Supplements, each between the Trust
and the Certificateholder Collateral Agent, as the same may be amended, restated
or supplemented from time to time in accordance with its terms.
"Subordination Agreement" means the Subordination Agreement, dated as of
-----------------------
the date hereof, among the Trust, the Certificateholder Collateral Agent and the
Administrative Agent, as the same may be amended, restated or supplemented from
time to time in accordance with its terms.
"Subordinated Obligations" has the meaning set forth in the Subordination
------------------------
Agreement.
"Subordinated Participation Interest" has the meaning given such term in
-----------------------------------
Section 1 of the Master Film Purchase Agreement.
"Total Commitement" has the meaning set forth in Section 1 of the Credit
----------------
Agreement.
"Transfer" means any transfer, sale, pledge, hypothecation or other form of
--------
assignment of any interest in a Trust Certificate.
"Transferee" means any Person who is acquiring by Transfer any interest in
----------
a Trust Certificate.
"Transferor" means any Person who is disposing by Transfer any interest in
----------
a Trust Certificate.
"Trust" means the Delaware business trust governed by this Agreement,
-----
designated as Artisan Film Investors Trust.
A-9
<PAGE>
"Trust Account" means an account, established by the Trustee, into which
-------------
all payments received in respect of the Trust Estate shall be deposited and from
which all distributions in respect of the Trust Certificates shall be paid.
"Trust Certificate" means a certificate, substantially in the form of
-----------------
Exhibit C hereto, representing a beneficial ownership interest in the Trust and
the right to receive certain distributions from the Trust as set forth in
Section 6.7.
"Trust Certificate Purchase Agreement" means the Trust Certificate Purchase
------------------------------------
Agreement, dated as of the Issue Date, among the Trust, API, Artisan
Entertainment, Inc. and the Initial Certificateholder.
"Trust Company" means Christiana Bank & Trust Company (and any successor
-------------
thereto or assign thereof), in its individual capacity, and any other Person who
shall act as Trustee hereunder, in its individual capacity.
"Trust Estate" means all money, instruments and other property deposited
------------
with and held by the Trust pursuant hereto, including all proceeds thereof.
"Trustee" means Christiana Bank & Trust Company, a Delaware banking
-------
corporation, acting not in its individual capacity but solely in its capacity as
the trustee under this Agreement, which satisfies the requirements of Section
3807(a) of the Business Trust Statute, and any other Person that shall be
appointed and serve in such capacity who satisfies the requirements of Section
3807(a) of the Business Trust Statute, not acting in its individual capacity but
solely in its capacity as trustee under this Agreement.
"Trustee Expenses" means, with respect to any Applicable Quarterly Period,
----------------
fees due to the Trustee during such Applicable Quarterly Period plus reasonable
additional out-of-pocket expenses of the Trustee incurred in connection with the
administration of the Trust Estate during such Applicable Quarterly Period, all
in an aggregate amount not to exceed $3,500 per quarter.
A-10
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST
OF
ARTISAN FILM INVESTORS TRUST
THIS CERTIFICATE OF TRUST of ARTISAN FILM INVESTORS TRUST (the "Trust") is
being duly executed and filed by the undersigned, as trustee, to form a business
trust under the Delaware Business Trust Act, 12 Del. Code, (S)(S) 3801 et seq.
------
(the "Business Trust Statute").
1. NAME. The name of the business trust formed hereby is Artisan Film
----
Investors Trust.
2. TRUSTEE. The name and business address of the trustee of the Trust
-------
in the State of Delaware are Christiana Bank & Trust Company, 3801 Kennett Pike,
Greenville, New Castle County, Delaware 19807.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Trust in accordance with the provisions of the
Business Trust Statute.
CHRISTIANA BANK & TRUST COMPANY,
Solely as trustee and not in its individual capacity
By: /s/
------------------------------------
Name:
Title:
B-1
<PAGE>
EXHIBIT C
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, OR OFFERED FOR SALE, UNLESS REGISTERED PURSUANT
TO SUCH ACT OR UNLESS AN EXEMPTION UNDER SUCH ACT IS AVAILABLE.
TRUST CERTIFICATE
UNDER AMENDED AND RESTATED TRUST AGREEMENT DATED AS OF
October 13, 1999
Certificate No. ____________ Stated Amount: $___________
This is to certify that _______________ (the "Certificateholder") is the
owner of an undivided beneficial interest in the Trust Estate provided for and
created by the Amended and Restated Trust Agreement (the "Trust Agreement"),
dated as of October 13, 1999, among Bear, Stearns & Co., Inc, a Delaware
corporation, Christiana Bank & Trust Company, a Delaware banking corporation, as
Trustee, and Artisan Pictures, Inc., a Delaware corporation, as Designee. This
Trust Certificate is issued pursuant to and is entitled to the benefits of the
Trust Agreement, and each Certificateholder by acceptance hereof shall be bound
by the terms of the Trust Agreement. Reference is hereby made to the Trust
Agreement for a statement of the rights and obligations of the Certificateholder
herein. The Trustee or Designee may treat the person shown on the register
maintained by the Trustee pursuant to Section 3.3 of the Trust Agreement as the
absolute owner hereof for all purposes.
Capitalized terms used herein without definition have the meanings
ascribed to them in or by reference in the Trust Agreement.
Transfer of this Trust Certificate is subject to certain restrictions and
limitations set forth in the Trust Agreement. Subject to the terms and
conditions set forth in, and as limited by, the Trust Agreement, this Trust
Certificate may be Transferred upon the books of the Trust by the registered
Certificateholder in person or by his attorney duly authorized in writing upon
surrender of this Trust Certificate to the Trustee accompanied by a written
instrument of the Transferee or Transferees in the form required by the Trust
Agreement and with such signature, guarantees, and evidence of authority of the
persons signing such instrument as the Trustee may reasonably require,
whereupon, if any Opinion of Counsel required pursuant to the Trust Agreement
has been delivered, the Trust shall issue in the name of the Transferee or
Transferees a Trust Certificate or Trust Certificates evidencing the amount and
extent of interest of the Transferee or Transferees (and any remaining interest
of the Transferring Certificateholder).
The Certificateholder herein, by its acceptance of this Trust Certificate,
warrants and represents to the Trustee and to the other holders of Certificates
issued under the Trust
C-1
<PAGE>
Agreement that (a) it is investing in thisTrust Certificate and the interest and
participation in the Trust evidenced hereby for investment and not with a view
to distribution or resale, but subject nevertheless to any requirement of law
that disposition of its property shall at all times be within its control, (b)
it has full right, power and authority to perform its obligations as a
Certificateholder under the Trust Agreement, (c) the Trust Agreement does not,
nor will the performance of the Certificateholder's obligations thereunder,
violate the provisions of any indenture or other agreement to which it is a
party or by which it may be bound, and (d) the Certificateholder agrees to be
bound in all respects by the provisions of the Trust Agreement. The
Certificateholder herein shall not Transfer this Trust Certificate except in
accordance with the Trust Agreement.
It is the intention of the Trust and the Certificateholder herein that, for
United States federal, state and local income and franchise tax purposes, (a)
the Trust will constitute a collateral account or other security arrangement and
will be disregarded and not treated as a separate entity from API and (b) the
Trust Certificates and the Notes will constitute debt obligations of API, and
the Certificateholder herein agrees to take positions consistent with such
treatment on all its tax returns, tax filings and documents related to such tax
filings and tax returns. In the event there is a final determination that the
Trust Certificates constitute equity interests in the Trust, then the
Certificateholder herein agrees for Federal, state and local income and
franchise tax purposes to take positions consistent with those otherwise set
forth in Section 10.7 of the Trust Agreement.
Notwithstanding anything to the contrary stated in the Trust Agreement or
any of the other Basic Agreements regarding the tax treatment of the Trust and
API, it is the intention of the Certificateholder herein that for purposes of
creditors' rights issues and generally accepted accounting principles (a) the
sale of Acquired Films from a Producer or API to the Trust pursuant to a Film
Purchase Agreement be a true sale, (b) the Trust be the owner of the Acquired
Films upon such sale and (c) the relationship between the Trust and API under
the Distribution Agreement be one of licensor and licensee and the
Certificateholder herein agrees to take such actions as are consistent with such
treatment.
C-2
<PAGE>
IN WITNESS WHEREOF, the Trust, pursuant to the Trust Agreement, has caused
this Trust Certificate to be issued as of the date hereof:
Dated: _________________
ARTISAN FILM INVESTORS TRUST
By: CHRISTIANA BANK & TRUST COMPANY
not in its individual capacity
but solely as Trustee
By /s/
-----------------------------------
Name:
Title:
C-3
<PAGE>
Exhibit D
FORM OF TRANSFEREE LETTER
October 22, 1999
Christiana Bank & Trust Company
not in its individual
capacity but solely
as Trustee
Attention: Corporate Trust Group
3801 Kennett Pike
Greenville, Delaware, 19807
Ladies and Gentlemen:
We refer to the Amended and Restated Trust Agreement, dated as of October
13, 1999 (the "Trust Agreement"), among Bear, Stearns & Co., Inc., a Delaware
corporation, Christiana Bank & Trust Company, a New York banking corporation, as
Trustee and Artisan Pictures, Inc., a Delaware corporation, as Designee. We
propose to purchase Trust Certificates (the "Trust Certificates") representing a
beneficial interest in Artisan Film Investors Trust, a Delaware business trust
(the "Trust") in existence under the Trust Agreement. Capitalized terms used
herein without definition have the meanings given them in the Trust Agreement.
1. We hereby confirm that (a) we are an entity engaged in an enterprise
other than the investment in the Trust Certificates and, after the investment in
the Trust Certificates contemplated in this letter, will continue to be engaged
in such business or any other business in addition to ownership of the Trust
Certificates, (b) we are not a Plan Investor and no part of the assets to be
used by us to acquire or hold the Trust Certificates or any interest therein
constitutes the assets of any Plan Investor, (c) either (i) we are not a
partnership (or any other entity taxable as a partnership for U.S. federal
income tax purposes), grantor trust, or "S corporation" (within the meaning of
Section 1361 of the Internal Revenue Code of 1986, as amended) (a "flow-through
entity") or (ii) we are a flow-through entity and our interest in the Trust will
at all times constitute less than 50% of the value of our assets, (d) we are a
corporation, partnership or other entity created or organized in or under the
laws of the United States or one of the States thereof or a United States
Person, (e) we are either [x] a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act of 1933, as amended (the "Act") or [ ] an
"accredited investor" as defined in Rule 501(a)(1), (2), (3), (5), (6) or (7)
promulgated under the Act and (f) we are "one person" within the meaning of
Section 3(c)(1) of the Investment Company Act of 1940, as amended.
D-1
<PAGE>
2. We hereby confirm that we have read and agree to be bound by the
terms and provisions of the Trust Certificates, and we agree that we shall be
bound by the terms of the Trust Agreement.
3. We understand that the Trust Certificates have not been registered
under the Act, nor have the Trust Certificates been registered under any
applicable state securities or "Blue Sky" laws, and the Trust Certificates are
being sold or pledged or have been pledged to us in a transaction that is exempt
from the registration requirements of the Act and such state laws.
4. We are, and we understand and agree that each investor in Trust
Certificates is required to be, "one person" within the meaning of Section
3(c)(1) of the Investment Company Act. We understand that the Trust Certificates
may not be acquired by any investor, if as a result thereof, (i) the outstanding
securities of the Trust (other than short-term paper) would be beneficially
owned by more than 100 persons or (ii) the Trust Certificates would be held by
more than 55 persons. Under Section 3(c)(1)(A) of the Investment Company Act,
beneficial ownership of securities by an entity is deemed to be beneficial
ownership by "one person" unless (i) the entity owns 10% or more of the voting
securities of the issuer and (ii) the entity is itself an "investment company"
within the meaning of the Investment Company Act or is exempt from treatment as
an investment company by reason of Section 3(c)(1) or Section 3(c)(7) of the
Investment Company Act.
5. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Trust Certificates, we are able to bear the substantial economic risk of
investment in the Trust Certificates, and we can afford a complete loss of such
investment.
6. We are acquiring the Trust Certificates (a) solely for investment
purposes for our own account (or for accounts as to which we exercise sole
investment discretion) and not with a view to any resale or distribution of the
Trust Certificates, in whole or in part (subject, nevertheless, to the
understanding that disposition of our property shall at all times be and remain
within our control) or (b) as security for indebtedness only, and we will not
attempt to sell, transfer, or otherwise dispose of all or any portion of our
interest in the Trust Certificates except in accordance with the provisions of
the Trust Agreement. Upon acquisition of the Trust Certificates, we will be the
sole beneficial owner of such Trust Certificates and we will not have granted
any participations in such Trust Certificates to any other Person.
7. We agree that the Trust Certificates may not be offered for sale,
sold, pledged, or in any other manner transferred, assigned or otherwise
disposed of by us unless (a) the Trust Certificates are registered under the Act
and any applicable state securities or "Blue Sky" laws or an exemption from the
registration requirements of the Act and such state laws is available, (b) the
other conditions to Transfer set forth in Section 3.4 of the Trust Agreement are
met, (c) immediately following any such transfer there would be no more than 75
holders, in the aggregate, of interests in the Trust Certificates, the
Subordinated Participation Interest and the Advisory Fee, for purposes of the
publicly traded partnership provisions of Section 7704 of the Code and Treasury
Regulation Section 1.7704-1(h), or any relevant successor provision and (d)
D-2
<PAGE>
immediately following any such transfer there would be no more than 65 "persons"
(within the meaning of the Investment Company Act of 1940, as amended) holding
Trust Certificates or any interest therein. We understand that you have no
obligation to register the Trust Certificates, or perfect an exemption for the
Trust Certificates, under the Act or any applicable state securities or "Blue
Sky" law, or to assist in registering or perfecting an exemption for the Trust
Certificates thereunder.
8. We understand that there is no public market, nor is there any
assurance that a market will develop, for the Trust Certificates.
9. We understand that our rights with respect to the Trust Estate
are specifically limited to the rights and interests created by the Trust
Agreement and are expressly subordinate to the interests of the holders of the
Notes issued by the Trust.
10. We are authorized to invest in the Trust Certificates proposed to be
purchased.
11.
(a) Except as provided below, we acknowledge that, for United States
federal, state and local income and franchise tax purposes, (i) the Trust will
constitute a collateral account or other security arrangement and will be
disregarded and not treated as a separate entity from API and (ii) the Trust
Certificates and the Notes will constitute debt obligations of API, and we agree
to take positions consistent with such treatment on all our tax returns, tax
filings and documents related to such tax filings and tax returns.
(b) In the event there is a final determination that for tax purposes the
Trust Certificates constitute equity interests in the Trust and that the Trust's
assets include the Acquired Films, we acknowledge that, for United States
federal, state and local income and franchise tax purposes, (i) the Trust would
constitute a partnership among the Certificateholders and API, (ii) the Notes
would constitute debt obligations of the Trust, (iii) profits of the Trust (as a
partnership) would be allocated to the Certificateholders only in an amount of,
and at the time at which, any payments are made to the Certificateholders of
their return on the Trust Certificates, and (iv) the Notes and other debt
obligations of the Trust would, to the extent governed by applicable Treasury
Regulations, be allocated to API as a partner in the Trust (based on the fact
that API is entitled to all of the Trust's income and assets after payments are
made with respect to the Trust Certificates), and in the event of such a final
determination we agree to take positions consistent with such treatment on all
our tax returns, tax filings and related documents.
(c) In the event that there is a final determination that the Trust
Certificates constitute equity interests in the Trust and that the Trust is a
partnership solely among the Certificateholders, we acknowledge that, for United
States federal, state and local income and franchise tax purposes, (i) the sole
asset of the Trust would be a note from API secured by the Collateral as
provided in the Basic Agreements and (ii) the Notes would constitute debt
D-3
<PAGE>
obligations of the Trust, and in the event of such a final determination we
agree to take positions consistent with such treatment on all our tax returns,
tax filings and related documents.
(d) Notwithstanding anything to the contrary stated in the Trust
Agreement or any of the other Basic Agreements regarding the tax treatment of
the Trust and API, it is our intention that for purposes of creditors' rights
issues and generally accepted accounting principles (a) the sale of Acquired
Films from a Producer or API to the Trust pursuant to a Film Purchase Agreement
be a true sale, (b) the Trust be the owner of the Acquired Films upon such sale
and (c) the relationship between the Trust and API under the Distribution
Agreement be one of licensor and licensee and we agree to take such actions as
are consistent with such treatment.
12. We understand that the Trust Certificates are subject to a
Subordination Agreement among the Trust, the Trustee and the Agent, and by our
acceptance of a Trust Certificate, we agree to be bound by the terms of such
Subordination Agreement.
Very truly yours,
[Name of Purchaser]
TCW Leveraged Income Trust, L.P.
By /s/ Melissa V. Weller
---------------------------------
Name:
Title: Managing Director
TCW Advisors (Bermuda), Ltd.
as general partner
By /s/ Mark D. Sencpiel
Senior Vice President
D-4
<PAGE>
SCHEDULE A
- -------------------------------------------------------------------------------
MINIMUM SCHEDULED PAYMENTS
- -------------------------------------------------------------------------------
Quarterly Payment Date Amount ($)
- -------------------------------------------------------------------------------
12/15/99 993,912
- -------------------------------------------------------------------------------
3/15/99 1,385,884
- -------------------------------------------------------------------------------
6/15/99 818,809
- -------------------------------------------------------------------------------
9/15/00 896,232
- -------------------------------------------------------------------------------
12/15/00 1,388,594
- -------------------------------------------------------------------------------
3/15/01 1,225,817
- -------------------------------------------------------------------------------
6/15/01 1,579,636
- -------------------------------------------------------------------------------
9/15/01 1,081,302
- -------------------------------------------------------------------------------
12/15/01 689,880
- -------------------------------------------------------------------------------
3/15/02 442,302
- -------------------------------------------------------------------------------
6/15/02 159,544
- -------------------------------------------------------------------------------
9/15/02 121,958
- -------------------------------------------------------------------------------
12/15/02 33,632
- -------------------------------------------------------------------------------
3/15/03 35,422
- -------------------------------------------------------------------------------
6/15/03 48,764
- -------------------------------------------------------------------------------
9/15/03 58,193
- -------------------------------------------------------------------------------
12/15/03 63,895
- -------------------------------------------------------------------------------
3/15/04 67,417
- -------------------------------------------------------------------------------
6/15/04 56,976
- -------------------------------------------------------------------------------
9/15/04 40,691
- -------------------------------------------------------------------------------
12/15/04 30,943
- -------------------------------------------------------------------------------
3/15/05 36,922
- -------------------------------------------------------------------------------
6/15/05 22,348
- -------------------------------------------------------------------------------
9/15/05 11,687
- -------------------------------------------------------------------------------
12/15/05 4,754
- -------------------------------------------------------------------------------
3/15/06 1,000
- -------------------------------------------------------------------------------
<PAGE>
COLLATERAL AGENCY AGREEMENT
This COLLATERAL AGENCY AGREEMENT, dated as of October 13, 1999, is between
BEAR, STEARNS & CO., INC., as Initial Purchaser under the Trust Agreement
referred to below (the "Initial Purchaser"), and CHRISTIANA BANK & TRUST
COMPANY, a Delaware banking corporation, as collateral agent (the "Collateral
Agent") for the benefit of the holders from time to time of the Trust
Certificates referred to below (the "Certificateholders"). Unless otherwise
defined herein, terms used herein and defined in the Trust Agreement shall be
used herein as so defined. This Agreement is entered into with reference to the
following facts:
a) The Initial Purchaser, Artisan Pictures, Inc., a Delaware corporation,
as designee, and Christiana Bank & Trust Company, a Delaware corporation, as
trustee, are parties to an Amended and Restated Trust Agreement dated as of
October 13, 1999 (the "Trust Agreement"). Pursuant to the Trust Agreement,
certain trust certificates (the "Trust Certificates") will be issued to the
Initial Purchaser. On the date hereof, the Initial Purchaser will transfer all
of such Trust Certificates to certain other Certificateholders pursuant to the
provisions of the Trust Agreement.
b) Pursuant to a Subordinate Security Agreement dated as of October 13,
1999 between the trust that is the subject of the Trust Agreement (the "Trust")
and the Collateral Agent (the "Subordinate Security Agreement"), the Trust will
grant to the Collateral Agent, for the benefit of the Certificateholders, a
security interest in certain collateral described therein to secure certain
obligations described therein. The security interest created pursuant to the
Subordinate Security Agreement will be perfected by the filing and recording of
the Security Documents referred to in the Subordinate Security Agreement (the
"Security Documents"), including the Subordinate Copyright Security Agreement,
the Subordinate Trademark Security Agreement and the Subordinate Pledgeholder
Agreements referred to therein.
c) The Initial Purchaser and the Collateral Agent desire to enter into
this Agreement to provide for the Collateral Agent to act as secured party under
the Subordinate Security Agreement and the Security Documents, on the terms and
provisions provided for in this Agreement.
NOW, THEREFORE, in consideration of the benefits to the Initial Purchaser,
the receipt and sufficiency of which are hereby acknowledged, the Initial
Purchaser on behalf of itself and the holders from time to time of the
Certificates hereby agrees with the Collateral Agent as follows:
Section 1. Appointment of Collateral Agent. The Initial Purchaser hereby
designates Christiana Bank & Trust Company as Collateral Agent to act as herein
specified. The Initial Purchaser hereby irrevocably authorizes, and each
Certificateholder, by the acceptance of a Certificate, shall be deemed
irrevocably to authorize, the Collateral Agent to act as Collateral Agent under
the Subordinate Security Agreement and the Security Documents and the
Subordination Agreement among the Trust, the Collateral Agent and The Chase
Manhattan Bank as agent for the Lenders referred to in the Credit Agreement (the
"Subordination Agreement") and to take such action on behalf of the
Certificateholders under the provisions of the Subordinate Security Agreement
and the Security Documents and the Subordination Agreement and any other
instruments
<PAGE>
and agreements referred to therein and to exercise such powers and to perform
such duties thereunder as are specifically delegated to or required of the
Collateral Agent by the terms hereof or thereof and such other powers as are
reasonably incidental thereto. The Collateral Agent may perform any of its
duties hereunder by or through its agents or employees.
Section 2. Nature of Duties of Collateral Agent. The Collateral Agent
shall have no duties or responsibilities under this Agreement, the Subordinate
Security Agreement, the Security Documents or any other instrument or agreement
except those expressly set forth in this Agreement. Without limiting the
generality of the foregoing, the Collateral Agent shall not be liable for the
acts or omissions of the Trust, nor shall the Collateral Agent be liable for
supervising or monitoring the performance of the duties and obligations of the
Trust or any administrator of the Trust under any of the Basic Agreements.
Neither the Collateral Agent nor any of its officers, directors, employees or
agents shall be liable for any action taken or omitted by it as such hereunder
or in connection herewith, unless caused by its or their gross negligence or
willful misconduct. The Collateral Agent shall not be required to take any
action hereunder except upon the instructions of the Required
Certificateholders. The duties of the Collateral Agent shall be mechanical and
administrative in nature; the Collateral Agent shall not have by reason of this
Agreement a fiduciary relationship in respect of any Certificateholder; and
nothing in this Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon the Collateral Agent any obligations in respect of
this Agreement except as expressly set forth herein. Without limiting the
generality of the foregoing, the Collateral Agent shall not be required to
exercise any discretion or judgment hereunder or under the Subordinate Security
Agreement or any Security Document or any other instrument or agreement and any
reference in this Agreement, the Subordinate Security Agreement, any Security
Document or any other instrument or agreement to such terms as "the satisfaction
of the Collateral Agent," the "reasonable satisfaction of the Collateral Agent,"
the "judgment of the Collateral Agent," the "reasonable judgment of the
Collateral Agent," "as may be determined or directed by the Collateral Agent,"
"as may reasonably be determined or directed by the Collateral Agent," as the
"Collateral Agent believes," as the "Collateral Agent may determine advisable or
necessary," as the "the Collateral Agent may reasonably believe" or any similar
or comparable term or phrase shall mean only that the Collateral Agent has or
will take (i) prior to the Credit Release Date, such action with respect to the
subject matter as the Required Certificateholders may direct it to take from
time to time, or in absence of such direction the same action with respect to
the subject matter as the Administrative Agent under the Credit Agreement takes
(provided always in each such case that the Collateral Agent receives specific
written notice of any such action taken by the Administrative Agent under the
Credit Agreement which notice specifically references this Section 2 of this
Agreement) and (ii) after the Credit Release Date, such action with respect to
the subject matter as the Required Certificateholders may direct it to take from
time to time. Each Certificateholder, by the purchase of the Certificates, shall
be deemed to have confirmed the Initial Purchaser's designation of the
Collateral Agent to act hereunder and to have confirmed the authorization to the
Collateral Agent by the Initial Purchaser hereunder.
Section 3. Lack of Reliance on the Collateral Agent.
(a) Independently and without reliance upon the Collateral Agent,
the Initial Purchaser and the holders from time to time of the Certificates, to
the extent they deem appropriate,
2
<PAGE>
have made and shall continue to make (i) their own independent investigation of
the financial condition and affairs of the Trust in connection with the taking
or not taking of any action in connection herewith, and (ii) their own appraisal
of the creditworthiness of the Trust, and, except as expressly provided in this
Agreement, the Collateral Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Certificateholder with any
credit or other information with respect thereto.
(b) The Collateral Agent shall not be responsible to any
Certificateholder for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, priority, or sufficiency of the Basic Documents
or the Certificates or the financial condition of the Trust or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of the Basic Documents or the Certificates, or
the financial condition of the Trust, or the existence or possible existence of
any Event of Default (as defined in the Subordinate Security Agreement) or any
event that, with the giving of notice or the passage of time, would constitute
an Event of Default.
Section 4. Certain Rights of the Collateral Agent. If the Collateral
Agent shall request instructions from the Required Certificateholders with
respect to any act or action (including the failure to act) in connection with
this Agreement, the Collateral Agent shall be entitled to refrain from such act
or taking such action unless and until the Collateral Agent shall have received
instructions from the Required Certificateholders; and the Collateral Agent
shall not incur liability to any Person by reason of so refraining. Without
limiting the foregoing, no Certificateholder shall have any right of action
whatsoever against the Collateral Agent as a result of the Collateral Agent
acting or refraining from acting hereunder in accordance with the instructions
of the Required Certificateholders. No provision of this Agreement shall require
the Collateral Agent to expend or risk its personal funds or otherwise incur any
financial liability in the performance of its rights or powers hereunder, if the
Collateral Agent in its sole discretion shall believe that repayment of such
funds or adequate indemnity against such risk or liability is not assured or
provided to it.
Section 5. Reliance by Collateral Agent. The Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, statement, certificate or telecopier message, order
or other documentary, teletransmission or telephone message believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person.
The Collateral Agent may consult with legal counsel (including counsel for the
Trust), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
Section 6. Indemnification of Collateral Agent. To the extent the
Collateral Agent is not reimbursed and indemnified by the Trust, the Trust
Estate (and not any Certificateholder individually) will reimburse and indemnify
the Collateral Agent for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements), or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Collateral Agent in performing its
3
<PAGE>
duties hereunder, in any way relating to or arising out of this Agreement;
provided that the Trust Estate shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, action, judgments, suits,
costs, expenses, or disbursements resulting from the Collateral Agent's gross
negligence or willful misconduct. The liability of the Trust Estate under this
Section 6 shall survive the termination of this Agreement and the resignation or
removal of the Collateral Agent.
Section 7. Successor Collateral Agent.
(a) The Collateral Agent may resign at any time by giving written
notice thereof to the Certificateholders and the Trust and may be removed at any
time with or without cause by the Required Certificateholders. Except as
provided below, no such resignation or removal shall be effective until the
successor Collateral Agent has been appointed and has accepted such appointment.
Upon any such resignation or removal, the Required Certificateholders shall have
the right, upon five days' notice to the Trust to appoint a successor Collateral
Agent. If no successor Collateral Agent shall have been so appointed by the
Required Certificateholders, and shall have accepted such appointment, within 30
days after the retiring Collateral Agent's giving of notice of resignation or
the Required Certificateholders' removal of the retiring Collateral Agent, then
the resignation or removal, as applicable, of the Collateral Agent shall be
effective immediately at the end of such thirty day period.
(b) Upon the acceptance of any appointment as Collateral Agent
hereunder by a successor Collateral Agent, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Collateral Agent, and the retiring Collateral Agent
shall be discharged from its duties and obligations under this Agreement.
Similarly, upon the effectiveness of the resignation or removal of any
Collateral Agent upon the expiration of the thirty day period referenced in
Clause (a) of this Section 7, the retiring Collateral Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Collateral Agent's resignation or removal hereunder as Collateral Agent, the
provisions of this Agreement shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Collateral Agent under this Agreement.
SECTION 8. Notices. All demands, notice and communications upon or to the
Collateral Agent, Bear, Stearns & Co. Inc. or any Certificateholders under this
Agreement shall be in writing, personally delivered, delivered by courier or by
facsimile or mailed by certified mail, return-receipt requested, and shall be
deemed to have been duly given upon receipt (a) in the case of the Collateral
Agent, to Christiana Bank & Trust Company, 3801 Kennett Pike, Greenville, New
Castle County, Delaware 19807, Attention of Corporate Trust Group, facsimile
no.: (302) 421-5815, (b) in the case of Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167, Attention of Asset Backed Securities
Department, facsimile no.: (212) 272-7294, (c) in the case of any
Certificateholder, addressed to it at the address set forth for such
Certificateholder in the register maintained by the Trust. Whenever any notice
in writing is required to be given by the Collateral Agent hereunder, such
notice shall be deemed given and such requirement satisfied if such notice is
mailed by certified mail, postage prepaid, or otherwise given as provided above,
in each case addressed as provided above.
4
<PAGE>
Section 9. Amendments, etc. No amendment or waiver of any provision of
this Agreement, the Subordinate Security Agreement, any Security Document or the
Certificates, nor consent to any departure by the Trust therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Required Certificateholders, and then such waiver or consent shall be effective
only in the specific instance and for the specified purpose for which given;
provided that no amendment, waiver or consent shall, unless in writing and
signed by the Collateral Agent in addition to the Certificateholders required
herein above to take such action, affect the rights or duties of the Collateral
Agent under this Agreement or any Certificate.
Section 10. Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, including all persons who from time to time
become Certificateholders.
Section 11. Governing Law; Submission to Jurisdiction. This Agreement and
the rights and obligations of the parties hereunder shall be construed in
accordance with and be governed by the law (without giving effect to the
conflict of law principles thereof) of the State of New York.
Section 12. WAIVER OF JURY TRIAL. THE COLLATERAL AGENT AND EACH
CERTIFICATEHOLDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE CERTIFICATES OR
ANY OTHER SECURITY DOCUMENTS AND FROM ANY COUNTERCLAIM THEREIN.
Section 13. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
Section 14. Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first written
above.
BEAR, STEARNS & CO., INC.
By:
-----------------------------------
Name:
Title:
CHRISTIANA BANK & TRUST COMPANY,
as Collateral Agent
By:
-----------------------------------
Name:
Title:
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<PAGE>
DO NOT MAKE ANY MORE NEW VERSIONS. THIS VERSION WAS CREATED ON
THURSDAY AFTERNOON 12:30 P.M. NEW YORK TIME OCTOBER 21, 1999
THIS VERSION IS THE ONE THAT IS ACTUALLY BEING CIRCULATED FOR
SIGNATURE BY THE INSURERS
EXHIBIT M
FORM OF MASTER POLICY OF CASH FLOW INSURANCE
INSURED The Chase Manhattan Bank, a New York banking
corporation, individually and as Agent for the Lenders
under the Senior Tranche under the Loan Agreement, and
its successors and assigns as Agent to the extent notice
thereof is given to the Broker and the Lead Insurer.
INSURING CLAUSE This Master Policy is to indemnify the Lenders under the
Senior Tranche under the Loan Agreement for any
Ascertained Net Loss in respect of the Film Projects, up
to but not exceeding the Aggregate Sum Insured for all
Film Projects.
DEFINITIONS The terms as used in this Policy shall bear the meanings
set out below. Any other capitalized terms shall bear
the meanings attributed to them in the Credit Agreement
or the Sponsor Agreement.
Aggregate Sum Insured As defined under "Sum Insured".
Artisan Entities Artisan Pictures Inc., Artisan Entertainment, Inc.,
Artisan Music Inc., Artisan Home Entertainment Inc.
Aficionado Productions, Inc., Artisan Releasing Inc., Be
Mine Productions, Inc., Beach Dance Productions, Inc.,
Detention Productions, Inc., Heatwave Productions, Inc.,
Live America Inc., Milk Mission Productions Inc., Sweet
Time Productions, Inc., Vestron Inc., Wish Again
Productions, Inc., Silent Development Corp., Tongue-Tied
Inc., and Film Holdings Co.
Ascertained Ascertained Net Loss shall mean all amounts of Insured
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Net Loss Expenses for Film Projects outstanding and unpaid on
each Claim Determination Date after application of (i)
Revenue (after first being used to pay all out-of-pocket
costs incurred under "General Conditions - Due
Diligence" and "Claims Procedure" which, to the extent
such costs exceed $50,000 in the aggregate per Film
Project, shall be subject to the approval of the Lead
Insurer, such approval not to be unreasonably withheld
or delayed) and (ii) Available Crossing Amounts,
provided, however, that (x) the aggregate Ascertained
Net Loss for all Film Projects may not exceed the
Aggregate Sum Insured for all Film Projects and (y) the
Ascertained Net Loss for any individual Film Project may
not exceed $12,000,000 or such lesser amount as is equal
to the Sum Insured for that Film Project pursuant to the
relevant Declaration. Notwithstanding any provisions to
the contrary in the Sponsor Agreement which appears as
Exhibit I to Schedule 1 hereto, it is understood that in
computing the Ascertained Net Loss for each Film
Project, the amounts available under priorities eleventh
and sixteenth of Section 7(a) of the Sponsor Agreement
and priorities ninth and eleventh of Section 7(b) of the
Sponsor Agreement will be applied as follows for
purposes of computing Ascertained Net Loss rather than
being applied in the manner specified in the Sponsor
Agreement.
Section 7(a) priority eleventh, in an amount equal to
------------------------------
the Domestic Distribution Cost Loans theretofore made
for that Qualifying Picture to be applied to repayment
of Obligations under the Credit Agreement in the
following order: first, in the manner set forth in
-----
subpriorities first through fourth of priority eleventh
in the Sponsor Agreement; then to the repayment of
Obligations (other than Negative Cost Loans) under the
Credit Agreement, second, to the repayment of Negative
------
Cost Loans for each of the Film Projects (in the order
of their domestic theatrical release dates) with regard
to the portion of Negative Cost Loans in excess of the
sum insured for that Film Project, third, to the
-----
repayment of Negative Cost Loans up to the amount of the
sum insured for each Film Project to be applied in the
order of their domestic theatrical release dates,
fourth, as provided in subpriority sixth of priority
------
eleventh of Section 7(a) of the Sponsor Agreement.
Section 7(a) priority sixteenth, to repay the principal
-------------------------------
of the Negative Cost Loans for each of the Film Project
(in the order of their domestic theatrical release
dates) with regard to the portion of the Negative Cost
Loans for each Film Project in excess of the sum
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insured for that Film Project, then to the repayment of
the Negative Cost Loans up to the amount of the sum
insured for each Film Project to be applied in the order
of their domestic theatrical release dates.
Section 7(b), priorities ninth and eleventh will be
---------------------------------------------------
combined into a single priority, to repay the principal
-------------------------------
of the Negative Cost Loans for each Film Project (in the
order of their domestic theatrical release dates) with
regard to the portion of the Negative Cost Loans for
each Film Project in excess of the sum insured for that
Film Project, then to the repayment of the Negative Cost
Loans up to the amount of the sum insured for each Film
Project to be applied in the order of their domestic
theatrical release dates.
Available Crossing
Amounts For the Film Projects, all amounts received by the
Insured before the relevant Claim Determination Date
from the Domestic Gross Receipts of the Film Projects
which pursuant to the terms of the Sponsor Agreement, as
modified hereby, are to be applied to the repayment of
Insured Expenses.
Broker Heath Risk Services, a division of Heath Insurance
Broking Limited.
Business Day Any day other than a Saturday, Sunday or other day on
which banks in the states of California or New York or
in the United Kingdom are authorized or required by law
to be closed.
Claim Determination
Date (1) The last Business Day of the 18th month following
the month in which each Film Project is initially
released theatrically in the United States (but no
later than July 13, 2005). On each Claim
Determination Date, the Ascertained Net Loss will
be computed or recomputed separately for each Film
Project for which such 18 month period has
theretofore elapsed. Therefore, if there are eight
(8) Film Projects, there will be eight (8) Claim
Determination Dates for the first Film Project,
seven for the second, etc. On each Claim
Determination Date, the Ascertained Net Loss will
be recomputed for each of the Film Projects for
which such 18 month period has elapsed since its
initial theatrical release and a payment shall be
made for each Film Project in the amount by which
the Ascertained Net Loss with regard to that Film
Project computed as of that Claim
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<PAGE>
Determination Date exceeds the aggregate amount of
payments of Ascertained Net Loss theretofore made
with regard to that Film Project on all prior Claim
Determination Dates.
(2) Notwithstanding the foregoing, if on a Claim
Determination Date or any extension thereof as
contemplated below an Adverse Event has not
occurred and is not continuing, upon the written
request of the Lead Insurer, the Insured shall
consent in writing to a three (3) month extension
of such Claim Determination Date (or of any
extended Claim Determination Date) provided that in
no event shall the Claim Determination Date be
extended beyond July 13, 2005.
(3) For purposes hereof, an "Adverse Event" shall mean
(i) the occurrence of an "Event of Default", a
"Suspension Default", or a "Sponsor Default", as
those terms are defined in the Loan Agreement or
(ii) any insurer under the Policy being rated by
Best's at a credit rating of less than "A" (or less
than "A-" with regard to Monegasque de Reassurances
s.a.m.) or no longer being rated by Best's, or with
regard to GIO General Ltd. being rated less than
"A" by Standard & Poor's or no longer being rated
by Standard & Poor's and such insurer's obligations
under Policy not being credit enhanced to the
satisfaction of the Insured within 120 days of the
delivery of a written notice from the Insured to
the Lead Insurer demanding such credit enhancement.
(4) During the continuation of an Adverse Event
contemplated by clause (ii) of the preceding
paragraph 3, the insurer with regard to which such
event has occurred, but has not yet been remedied
by credit enhancement or otherwise will not be
accepted as an insurer, for any Film Project
thereafter accepted for insurance under this
Policy.
(5) Notwithstanding the foregoing, the Insured (on
behalf of the Lenders under the Senior Tranche)
will at any time after it has received ultimates
from the Distributor with regard to a Film Project
accept a prepayment from the insurers of a possible
claim, such prepayment to be paid directly to the
Lenders under the Senior Tranche under the Loan
Agreement and to be at the face amount of the
Negative
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<PAGE>
Cost Loans for such Film Project being prepaid.
Insurers understand that because of the application
of funds provisions in the Sponsor Agreement, as
modified hereby, the amount of Available Crossing
Amounts and/or the amount of a claim on any Film
Project may not be determinable prior to the Claim
Determination Date for the last Film Project. The
form of such prepayment will be a blind
participation in the Negative Cost Loans with
respect to the Applicable Negative Cost Loans made
by the Lenders under the Senior Tranche under the
Loan Agreement which will have no voting rights
other than those normally given a blind participant
and will represent the right to receive payment of
the last dollars payable under the Senior Tranche
but which will bear interest at the rates
applicable to such loans under the Loan Agreement.
The documentation for such blind participation will
be subject to good faith negotiations by the
parties.
Collection Account The separate bank account administered by the Insured
into which all Revenue and Available Crossing Amounts
with respect to a Film Project is to be deposited as
provided in the Loan Agreement and the Lender
Intercreditor Agreement.
Company Artisan Film Investors Trust.
Declaration For each Film Project the completed and executed
declaration of insurance in the form of Schedule 2
hereto which is completed and executed no later than
August 1, 2005.
Domestic Distribution
Loans As defined in the Loan Agreement.
Film Project A theatrical feature film which is a Declared Qualifying
Picture under the Loan Agreement (including films as to
which criteria are waived (i) as provided in the Sponsor
Agreement and (ii) by the Lead Insurer) and which
becomes the subject of the Policy as a result of the
acceptance of a Declaration.
ICE Media Limited An English corporation which is the risk manager for the
insurers for this Policy.
Insured Expenses All Obligations under the Loan Agreement other than the
Domestic Distribution Loans.
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<PAGE>
Lead Insurer Royal & SunAlliance Insurance PLC.
Lender Intercreditor
Agreement The Intercreditor Agreement among The Chase Manhattan
Capital Fiduciary Services Group, as Collection Agent,
The Chase Manhattan Bank, as Collateral Agent for the
Sponsor's Bank Group and another creditor, The Chase
Manhattan Bank, as Administrative Agent for the Lenders
under the Loan Agreement, the Company, the Sponsor and
the other Artisan Entities, in the form of Exhibit A to
the Sponsor Agreement.
Loan Agreement The Credit and Security Agreement dated as of October
__, 1999 among the Company, the lenders referred to
therein and the Insured as agent for the lenders
referred to therein, a copy of which is attached hereto
as Schedule 1, as amended or modified subject to the
consent of the Lead Insurer to the extent provided
herein.
Loss Payee The sole beneficiary to any claim payment hereunder
shall be the Insured as agent for the lenders under the
Senior Tranche under the Loan Agreement; provided,
--------
however, that such status of the Insured may be
-------
transferred to any assignee which purchases, otherwise
acquires or refinances the position of the lenders under
the Loan Agreement; provided written notice thereof is
--------
given to the Lead Insurer or its designated
representatives.
Policy The contract of insurance created by this master policy,
the Schedule and the Declarations accepted pursuant
hereto.
Premium The amount set forth in the relevant Declaration, equal
to 12 1/2% of the Sum Insured for the relevant Film
Project.
Questionnaire A questionnaire for a Film Project in the form attached
as Schedule 3 hereto.
Revenue The portion of Foreign Gross Receipts of the Film
Projects (as defined in and determined under the terms
of the Sponsor Agreement) received by the Insured which,
pursuant and subject to the terms of the Sponsor
Agreement, as amended by the terms of the definition of
"Ascertained Net Loss" herein, is to be applied to repay
the Insured Expenses for the Film Projects.
Sponsor Artisan Pictures Inc.
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<PAGE>
Sponsor Agreement The Sponsor Agreement dated as of October 13, 1999 among
Artisan Pictures Inc., the Company, the Artisan
Entities, and the Insured, substantially in the form of
Exhibit H to the Loan Agreement, which is attached
hereto as Schedule 1, as amended or modified subject to
the consent of he Lead Insurer to the extent provided
herein.
Sum Insured The amount for each Film Project so identified in the
relevant Declaration, but not in excess of U.S.
$12,000,000 for any Film Project (subject to decrease
with regard to subsequently declared Film Projects as a
result of an insurer no longer being acceptable to the
Insured because it has been the subject of an Adverse
Event) and further provided, that the aggregate of all
Sums Insured under the Policy shall not exceed US$96
million in the aggregate (the "Aggregate Sum Insured").
Total Negative Cost As defined in the Loan Agreement.
CONDITION It is a condition precedent to the relevant Declaration
PRECEDENT that:
Premium Payment The Premium for that Declaration has been paid to the
Broker, subject to the deductions for U.S. federal
excise tax in the amount contemplated by the relevant
Declaration. Payment to the Broker shall as far as the
Insured and the insurers are concerned, constitute
payment to the insurers.
GENERAL
CONDITIONS
Truth of
Statement Any reference in a Declaration to other agreements or
documents is qualified by reference to such agreements
or documents, copies of which have been made available
to the Lead Insurer. In completing a Declaration, the
Company and/or the Insured may rely on certificates of
third parties to the extent such reliance is disclosed
on the Declaration.
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<PAGE>
Provided that the Company (or the Sponsor in its
capacity as distributor and as the Company's agent)
completes Section I of the Questionnaire and delivers
the same to the Lead Insurer or its representative, and
provided that the Insured (without making any inquiry)
corrects any manifest error of which the Insured is
aware upon perusing such Section I (except with respect
to Item 13 in Section I, of which the Insured need not
be aware or make any such correction), then any
misstatement in any part of the Declaration or the
Questionnaire by any party (other than the Insured)
providing information for the purpose of completing the
Questionnaire shall not be the responsibility of the
Insured or constitute a defense to the insurers'
obligations under a Policy or a ground for avoidance of
the insurers' obligations under or cancellation of the
Policy. In addition, the failure of any party to update
information in the Declaration or the Questionnaire
shall not be the responsibility of the Insured or
constitute a defense to the insurers' obligations under
the Policy or a ground for avoidance of the insurers'
obligations under, or the cancellation of, the Policy.
Notwithstanding the obligations of the Insured under the
clause "General Conditions - Due Diligence" (which
obligations are not a condition precedent), the Insured
(i) will not have any duty or obligation to make any
representation, warranty or disclosure of any nature,
express or implied, (such duty and obligation being
expressly waived by the insurers) and (ii) shall have no
liability of any nature to the insurers for any
information provided by any other parties. Any such
information provided, or nondisclosure of such
information, by other parties, including but not limited
to the Broker, Ice Media Limited or any of their
employees, directors, agents or Affiliates, shall not be
a ground for avoidance of the insurers' obligations
under, or the cancellation of, any Policy created under
this Master Policy.
Modification, Etc. Notwithstanding any other provision of this Policy,
without the prior written consent of the Lead Insurer,
the Insured will not consent to any modification of, or
amendment or supplement to, the Loan Agreement, the
Sponsor Agreement or the Lender Intercreditor Agreement
which (i) imposes new conditions to, delays the time of
payment of, or decreases the amount of Revenue and
Available Crossing Amounts which pursuant to the terms
of the Policy, the Loan Agreement, the Sponsor Agreement
and the Lender Intercreditor Agreement (as modified by
the terms of the definition "Ascertained Net Loss") are
to be applied in computing the amount of the Ascertained
Net Loss or to reimburse the
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<PAGE>
insurers for any claims payments made under the Policy
or (ii) diminishes or impairs the security enjoyed by
the insurers and to which the insurers will become
subrogated by the provisions of the Policy in the event
of a claim payment.
Audit Rights Notwithstanding any other provision of the Policy:
(a) The insurers will not have control of the Insured's
audit rights, if any, with respect to the Film Project
until the Obligations to the Lenders under the Loan
Agreement are fully paid. If requested in writing by the
Lead Insurer, however, the Insured will (at the expense
of the insurers) exercise its rights under the Loan
Agreement, the Sponsor Agreement and/or the Lender
Intercreditor Agreement, to the extent it is so entitled
under the Loan Agreement, the Sponsor Agreement and/or
the Lender Intercreditor Agreement, to cause the Company
or an Artisan Entity to audit or to audit directly the
Sponsor as the Distributor (or the licensees of the
Distributor) (subject always to the terms of the
applicable distribution or license agreement) and will
provide the Lead Insurer with copies of the results
thereof provided to the Insured by the Company or the
independent accountant which conducts the audit on
behalf of the Insured, as the case may be.
(b) The Sponsor Agreement or the Lender Intercreditor
Agreement will require the Distributor to provide the
Lead Insurer with copies of all documents, instruments,
notices, statements and other written items provided to
the Insured (as the Agent under the Loan Agreement) by
the Distributor, including but not limited to all
periodic accountings; provided, however, that failure of
-------- -------
the Distributor and/or the inadvertent failure of the
Insured to provide such written items (which in the case
of the Insured does not materially affect the rights of
the insurers) shall not constitute a defense to the
insurers' obligations under the Policy created hereunder
or a grounds for avoidance of the insurers' obligations
under or cancellation of the Policy.
The foregoing agreements are subject to the
understanding that the costs and expenses incurred in
performing under "Audit Rights" may be paid by the
Insured from the Revenue and/or the Available Crossing
Amounts and that the insurers shall, with regard to
material provided to them, be bound by the
confidentiality provisions contained in the Loan
Agreement and/or the Lender Intercreditor Agreement,
subject only to the right of the Lead
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<PAGE>
Insurer to provide copies thereof to the other insurers
and to agents for the insurers and to all of their
respective reinsurers, subject in all cases to the
confidentiality provision contained in the Loan
Agreement and/or the Lender Intercreditor Agreement and
in any underlying agreements of the Company or an
Artisan Entity relating to such material.
Due Diligence The Insured shall at all times do and concur in doing
all things reasonably necessary after the date hereof to
avoid or diminish a loss to the insurers under the
Policy. The insurers confirm that the due diligence
obligation of the Insured means only that the Insured
shall at all times act reasonably and do and concur in
good faith in doing all things reasonably necessary to
avoid or diminish a loss to the insurers under the
Policy; provided that the Insured need take no action
--------
that might involve its incurring an expense or a
liability to a third party that would (i) not be
includable in its Ascertained Net Loss, (ii) cause the
amount of its Ascertained Net Loss to exceed the Sum
Insured, (iii) require it to advance funds or incur
expenses beyond the commitment to make Loans on the
terms and conditions provided in the Loan Agreement or
(iv) require it to commence litigation or an arbitration
against any party. In all events, the Insured shall be
entitled to take any action and/or incur such requested
expense consented to in writing by the Lead Insurer or
its designated representatives. In addition, to the
extent that the Insured requests in writing such consent
from the Lead Insurer or its designated representatives
and does not receive in writing either an approval or a
disapproval within two business days after receipt of
such request, the Insured shall be entitled to take such
action and the insurers shall be deemed to have
consented thereto and to the cost thereof. To the extent
that the Lead Insurer or its designated representatives
object to any such course of action or the cost thereof,
the approval of which is requested by the Insured, the
Insured need take no action and shall be entitled if it
so desires to tender the continuing due diligence
obligation relative to that objection to the Lead
Insurer or its designated representatives. If the
Insured takes action that is objected to by the Lead
Insurer that action shall not in and of itself
constitute a defense to any claim hereunder by the
Insured but shall merely constitute a reservation of
rights by the Lead Insurer with regard to that action.
Definitions This Master Policy, the Schedules hereto and the
Declarations shall be read together as a single contract
of insurance. Any word or expression to which a specific
meaning has been attached in any
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<PAGE>
part of this Master Policy or in the Schedules hereto or
in the relevant Declaration shall bear such meaning
wherever it may appear.
Other Insurance It is understood and agreed that no other insurance
shall be effected by the Insured to protect the interest
of the Insured hereunder with regard to Senior Tranche
Loans unless prior advice is given to Insurers hereon,
provided, however, that nothing herein shall prevent the
-------- -------
Insured from obtaining any form of insurance, guaranty
or other credit enhancement with respect to the Domestic
Distribution Loans. However, it is a condition hereof
that errors and omissions insurance be maintained on
customary industry terms, approved by the Sponsor.
Compliance with
Terms The Insured shall observe and fulfill the terms and
conditions contained herein or incorporated herein.
Jurisdiction and Choice
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<PAGE>
of Law EACH OF THE INSURERS HEREBY IRREVOCABLY SUBMITS ITSELF
TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK (OR IN THE EVENT
THE DISTRICT COURT DOES NOT HAVE JURISDICTION OR DOES
NOT EXERCISE JURISDICTION FOR ANY REASON WHATSOEVER, TO
THE STATE COURTS OF THE STATE OF NEW YORK), FOR THE
PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING
OUT OF OR BASED UPON THIS POLICY OR THE SUBJECT MATTER
HEREOF BROUGHT BY THE INSURED OR ANY OF ITS SUCCESSORS
OR ASSIGNS IN EITHER OF THE ABOVE-REFERENCED FORUMS.
EACH OF THE INSURERS, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, (A) HEREBY WAIVES, AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR
IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING
IS IMPROPER OR THAT THIS POLICY OR THE SUBJECT MATTER
HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT AND (B)
HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION,
SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS NOT
ARISING UNDER THIS POLICY OR ONE OF THE DECLARATIONS
ACCEPTED HEREUNDER. EACH OF THE INSURERS HEREBY CONSENTS
TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH
NOTICES ARE TO BE GIVEN. EACH OF THE INSURERS AGREES
THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO
SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS
BENEFIT OF THE INSURED AND FINAL JUDGMENT AGAINST THE
INSURERS IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (A) BY SUIT, ACTION OR PROCEEDING ON THE
JUDGMENT, A CERTIFIED OR
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<PAGE>
TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE
FACT AND OF THE AMOUNT OF THE CLAIM OR LIABILITY OF THE
INSURERS THEREIN DESCRIBED OR (B) IN ANY OTHER MANNER
PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION, PROVIDED, HOWEVER, THAT THE INSURED MAY AT
-------- -------
ITS OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL
PROCEEDINGS AGAINST THE INSURERS OR ANY OF THEIR
RESPECTIVE ASSETS IN ANY STATE OR FEDERAL COURT OF THE
UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE SUCH
INSURER OR SUCH ASSETS MAY BE FOUND.
EACH OF THE INSURERS HEREBY APPOINTS ROYAL AND
SUNALLIANCE, 1 CHASE MANHATTAN PLAZA, 38TH FLOOR, NEW
YORK, NEW YORK 10005 AS ITS AGENT FOR SERVICE FOR
PROCESS HEREUNDER AND REPRESENTS THAT SUCH PERSON HAS
AGREED TO RECEIVE SERVICE PROCESS ON ITS BEHALF
HEREUNDER.
THIS POLICY HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF SUCH STATE APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW RULES
OF SUCH STATE).
No Return of The Premium on each Declaration is fully earned at the
Premium payment thereof.
Maintenance of
Records Consistent with its normal banking practices and
standard record retention policies as a commercial bank,
the Insured shall maintain adequate records in
connection with the Loan Agreement and the transactions
contemplated thereby.
Subrogation It is agreed that upon payment of any loss under a
Policy created hereunder, the insurers shall become
subrogated to all the rights and remedies of the Insured
in respect of such loss (subject to the terms of the
Loan Agreement and of the Lender Intercreditor
-13-
<PAGE>
Agreement) but shall not have any right to vote as a
Lender under the Loan Agreement or to Revenue and
Available Crossing Amounts until the commitments under
the Loan Agreement have terminated and all Obligations
thereunder (other than the Domestic Distribution Loans)
have been repaid to the Insured and the other Lenders
and that any subrogation rights shall be subject to the
continuing rights of the Lenders with regard to Domestic
Distribution Loans.
Security Interest Following payment of a claim under the Policy, the
Insured (subject to the provisions under "Reimbursement"
and the payment of all Obligations to the Lenders under
the Loan Agreement) shall assign without representation,
warranty or recourse (save that, except as otherwise
contemplated by the Loan Agreement, the Insured has not
encumbered such security interest or collateral without
the Lead Insurer's consent) to the Lead Insurer for the
benefit of the insurers any security interest in the
collateral with respect to the Film Projects held by the
Insured under the provisions of the Loan Agreement and
any other security documentation entered into in
pursuance thereof; provided, however, that if any
-------- -------
insurer shall fail to pay its share of any such loss,
the Insured shall retain such insurer's pro rata share
of the collateral and the future Revenue and Available
Crossing Amounts based upon such defaulting insurer's
share of the risk.
Reimbursement If a claim has been paid for the Film Projects, it is
agreed that following the termination of the commitment
of the Lenders under the Senior Tranche under the Loan
Agreement and the payment in full of all Insured
Expenses, the insurers shall be entitled to
reimbursement from future Revenue and Available Crossing
Amounts which would have been applied to reduce Insured
Expenses had they been received prior to the Claim
Determination Date in accordance with the provisions of
the Credit Agreement and the Sponsor Agreement, as
modified hereby, until such claim payment (plus interest
at the rates applicable to the Negative Cost Loans under
the Loan Agreement) has been fully recovered by the
insurers. The insurers right to such Revenue and
Available Crossing Amounts shall not be in derogation of
the rights of the Lenders under the Junior Tranche or
the Lenders under the Senior Tranche with regard to
Obligations which are not repaid from such claim payment
to receive their respective portions of the Revenue
and/or Available Crossing Amounts. It is agreed and
understood that the Insured will retain the portion of
the Revenue and/or Available Crossing Amounts applicable
to any insurer which
-14-
<PAGE>
does not pay its respective share of any claim under the
Policy and that such retention shall be in addition to
all of the Insured's other rights and remedies against
the defaulting insurer. The foregoing is not a
representation and warranty by the Insured that there
will be any additional receipts received in the
Collection Account or that the Insurers shall be
entitled to such amount because of claims of third
parties such as other creditors of the Sponsor and/or
the Company.
Recoupment In the event that sufficient Revenue and/or Available
Crossing Amounts are received by the Insured in respect
of the Film Projects to enable the Lenders to recoup all
Insured Expenses prior to the Claim Determination Date,
no claim shall be payable hereunder.
GENERAL The Policy will not indemnify the incurring of Insured
EXCLUSIONS Expenses directly or indirectly arising out of,
contributed to by or resulting from:
Fraud Any fraud, misrepresentation, or concealment against the
insurers by the Insured or any employee of the Insured.
This exclusion shall not however limit, impair or affect
the disclaimers set forth in "Conditions Precedent -
Truth of Statements" and "Revenue Analysis" herein, the
terms of which are intended to supersede this exclusion
to the extent set forth in those clauses.
War Actual or threatened war, invasion, act of foreign
enemies, hostilities (whether war be declared or not),
civil war, rebellion, revolution, insurrection, military
or usurped power, confiscation, nationalization,
requisition or destruction of or damage to property by
or under the order of any government or public or local
authority.
Civil Commotion Civil commotion assuming the proportions of or amounting
to a popular uprising and/or riot and/or where a state
of emergency or martial law or such like measure is
imposed and/or taken by any lawfully constituted
authority.
Radioactive (a) Ionizing radiations or contamination by
Contamination radioactivity from any nuclear fuel.
(b) The radioactive toxic, explosive or other hazardous
properties of any explosive nuclear assembly or nuclear
component thereof.
-15-
<PAGE>
Financial Causes (a) With regard to the Insured, failure to pay,
financial failure or default, insolvency, bankruptcy,
liquidation, winding up, administration or arrangement
with creditors.
(b) With regard to the Company, any failure, refusal or
neglect to pay over, or to procure the payment over to
the Collection Account of any monies erroneously paid to
it or any Artisan Entity by a third party licensee
relating to a Film Project which pursuant to the Sponsor
Agreement (as modified by the Policy) should have been
applied to reducing Insured Expenses.
It is understood that with regard to the exclusions
above, nonperformance by any Artisan Entity or by
licensees of the Artisan Entities will not constitute an
exclusion under this Policy. In addition, none of the
above exclusions cover any loss resulting from
censorship or quota restrictions. Further, the
occurrence of an event under "War", "Civil Commotion",
or "Radioactive Contamination" shall not constitute an
exclusion if (x) such event does not affect territories
included within the territories granted to the Artisan
Entities which affected territories at the time of such
event represent remaining ultimates which in the
aggregate are 40% or more of the total estimated
ultimates of the Artisan Entities for the relevant Film
Project and (y) in the case of "War" or "Civil
Commotion" there are not actual acts of aggression on
the ground or in the air space of such territories.
CLAIMS PROCEDURE In the event the Insured receives written notice from
the Company, or the Sponsor of any happening or
circumstance which is likely to give rise to a claim
under the Policy the Insured shall:
1. Give notice as soon as reasonably possible to the
Lead Insurer or its designated representatives.
2. Take all reasonable steps to provide the Lead Insurer
or its designated representatives with all the
information in its possession (being only information
known to the officers of the Insured responsible for
servicing the Loan Agreement) that the Insured is not
prohibited from disclosing under applicable law or bank
regulations that Lead Insurer or its designated
representative may require and shall cooperate with the
Lead Insurer or its designated representatives to
mitigate any loss or potential loss which the insurers
may suffer, subject in all cases to the limitations
contained under "General Conditions - Due Diligence".
-16-
<PAGE>
3. At the request of the Lead Insurer, provide the Lead
Insurer and/or its designated representatives:
(A) all necessary assistance in a timely manner;
and
(B) all documentation and records necessary to
establish and assess indemnity.
4. Forward promptly to the Lead Insurer and/or its
designated representatives any letter, writ, or other
document received in connection with any claim made
under the Policy created hereunder.
5. Notwithstanding the foregoing, the Insured shall not
be obligated to take any action which might expose it to
liability to third parties or costs which would not be
includable in its claim under the Policy (without
resulting in the claim exceeding the Sum Insured or
Aggregate Sum Insured, whichever is appropriate) or
which would be in derogation of, or in any way
prejudicial to, its rights or inconsistent with its
obligations under the Loan Agreement, the Sponsor
Agreement or the Lender Intercreditor Agreement or its
rights in or to or in any way relating to any other Film
Project for which a claim has not been paid or
acknowledged.
6. To the extent a claim is not paid on the relevant
Claim Determination Date, the amount thereof shall bear
interest from the Claim Determination Date through the
date of payment at the rate of interest specified in the
Loan Agreement before giving effect to any penalty
interest provisions, it being understood that any
payment of interest under this paragraph shall be a
separate obligation of the insurers and shall not be
limited by the Sum Insured and/or the Aggregate Sum
Insured. The insurers shall be liable for all collection
costs (including attorneys fees and disbursements)
incurred by the Insured as a result of a claim not
having been paid on the relevant Claim Determination
Date.
7. (a) The Insured may submit a claim notice to the Lead
Insurer at any time no earlier than ninety days prior to
the Claim Determination Date and no later than the Claim
Determination Date. The claim notice shall set forth the
Insured's estimated Ascertained Net Loss as of the Claim
Determination Date and provide a calculation of such
Ascertained Net Loss in reasonable detail. If a claim
notice timely submitted by the Insured shall be
deficient in any respect, the Lead
-17-
<PAGE>
Insurer shall provide the Insured with written notice of
the nature of such deficiency within ten Business Days
from receipt of the claim notice. The Insured shall then
have ten additional Business Days from receipt of such a
deficiency notice to re-submit its claim notice which
shall rectify such deficiency. The existence of any
immaterial deficiency in the claim notice or any such
re-submitted claim notice which immaterial deficiency
does not negatively prejudice the rights and interests
of the insurers shall not relieve the insurers of their
obligations under this Policy.
(b) Within ten Business Days from receipt by the Lead
Insurer of a claim notice or a resubmitted claim notice
(whichever is later), the Lead Insurer shall notify the
Insured in writing that either (i) the insurers agree to
pay to the Insured the entire amount of the Ascertained
Net Loss as set forth in such claim notice or (ii) the
insurers object to the Insured's calculation of the
Ascertained Net Loss as set forth in such claim notice.
In the event the Lead Insurer submits a notice described
in clause (i) above, the insurers shall pay such amount
to the Insured no later than the later of fifteen
Business Days from submission of such notice and the
Claim Determination Date. In the event the Lead Insurer
submits a notice described in clause (ii) above, such
written notice shall expressly set forth the nature of
the insurers' objection and shall be accompanied by an
accounting in reasonable detail, setting forth the
insurers' calculation of the Ascertained Net Loss. If
the insurers object to the Insured's calculation of its
Ascertained Net Loss, the insurers shall pay to the
Insured within fifteen Business Days after submission of
such objection or on the Claim Determination Date,
whichever is later, that portion of the Ascertained Net
Loss claimed by the Insured which is not in dispute. The
Lead Insurer and the Insured shall then negotiate in
good faith for a period of ten (10) days from receipt by
the Lead Insurer of the relevant claim notice (or the
resubmitted claim notice) in an attempt to resolve the
dispute.
(c) In the event that the Lead Insurer or its risk
manager does not respond further in writing to the
Insured within ten Business Days from receiving a claim
notice or a resubmitted claim notice, the insurers shall
be deemed to have accepted the Insured's calculation of
its Ascertained Net Loss and shall pay such amount to
the Insured no later than ten Business Days from receipt
of the relevant claim notice or on the Claim
Determination Date, whichever is later.
DECISIONS All decisions regarding Declarations, limits, periods,
rates,
-18-
<PAGE>
CLAUSE proposal forms and questionnaires, wordings, policy
amendments and endorsements, underlying documentation,
appointment of professional advisers, claims handling
procedures, claims determination and settlement and
claims payment procedures agreed to by the Lead Insurer
shall be binding in all respects on all other insurers
participating in the Policy and the Insured shall be
entitled to rely on all decisions made by the Lead
Insurer as binding on all other insurers in every
instance.
The Lead Insurer hereby agrees (with the consent of the
other insurers) that upon receipt by the Lead Insurer of
a satisfactory risk management report including a
completed Questionnaire and a completed Declaration
fully signed by the other parties thereto indicating
that the Film Production complies as a Film Project
within the terms of this Policy and has been approved by
ICE Media Limited, the Lead Insurer will accept, execute
and return the Declaration under the terms and
conditions of this Policy.
REVENUE The insurers acknowledge that the Insured has not
ANALYSIS presented to the insurers any material other than the
documents attached hereto or to the relevant Declaration
or listed in the relevant Declaration as having been so
delivered. In addition, the insurers acknowledge that
they have received no projections from the Company or
the Artisan Entities or any of their respective agents
and that such parties did not participate in the
preparation or compiling of information of, or review or
approve any material presented to the insurers other
than the responses to Section 1 of the Questionnaire and
questions 1, 2 and 3 of the relevant Declaration. Any
revenue analysis or financial projections for the Film
Project upon which insurers are relying were prepared
for them by their agents or independent contractors and
not by the Insured, the Company or the Artisan Entities
or their respective agents, and each of the same shall
have no liability whatsoever with respect to any such
revenue analysis or financial projections. The insurers
acknowledge that they and their risk manager have made
an independent investigation in assessing the risks of
underwriting the Policy, including but not limited to
the cash flow risks resulting from any crossing
provisions contained in any of the agreements with the
Artisan Entities.
PREMIUM TAXES Except as stated in the relevant Declaration, each
insurer as to itself represents and warrants to the
Insured that the premium payable to it under the Policy
created under this Master Policy is not subject to the
United States federal excise tax on insurance premiums.
If it should
-19-
<PAGE>
be determined by the Insured or otherwise that such
United States federal excise tax is payable, each
insurer as to itself agrees to indemnify the Insured
against any loss, expense or cost (including, but not
limited to, the amount of such tax, the cost of
preparing returns or contesting the payment of such tax
and any penalties or interest payable because of the
late filing of returns and/or payment of such excise
tax) incurred by the Insured.
TERRITORIAL Worldwide.
SCOPE
SEVERAL
LIABILITY
NOTICE The insurers' obligations under the Policy are several
and not joint and are limited solely to the extent of
their individual subscriptions. Each insurer is not
responsible for the subscription of any other insurer
which for any reason does not satisfy all or part of its
obligations. Initially such several liability will be
computed on the percentages set forth in the form of the
Declaration attached hereto. Subsequent to the
elimination of an insurer with regard to additional Film
Projects under the circumstances described in clause
(ii) of Paragraph 3 under the caption "Claim
Determination Date", each continuing insurer's liability
shall be its pro rata share of the Sum Insured for the
subsequent Film Projects. For example, if there are
initially ten insurers each with a 10% commitment and
one insurer is eliminated, the Sum Insured for each
subsequently declared Film Project could not exceed
$10,800,000 and each of the nine continuing insurers
would be liable for one-ninth thereof.
MISCELLANEOUS The insurers understand and agree that no dereliction of
duty by the Lead Insurer or its designated
representatives (including but not limited to their risk
manager) or breach of their obligations by the Lead
Insurer or its designated representatives (including but
not limited to their risk manager) at any time under the
Policy shall affect the rights of the Insured under the
Policy.
The insurers understand that the Artisan Entities may
appoint or replace at its own discretion any third party
licensees of the Film Projects.
All claims under the Policy will be computed in and paid
in United States dollars.
-20-
<PAGE>
The rule that a contract is to be construed against the
party drafting the contract is hereby waived, and shall
have no applicability in construing the Policy or the
terms hereof.
The insurers confirm that the absence of Revenue and/or
any Available Crossing Amounts in circumstances which
would not otherwise entitle the insurers to reject any
claim will not give the insurers grounds to avoid the
Policy or to reject any claims thereunder.
The insurers acknowledge that ICE Media Limited, Peter
Hoffman, Graham Bradstreet, the Company and the Artisan
Entities are not agents or representatives of the
Insured with respect to the Policy or otherwise and that
ICE Media Limited, Peter Hoffman and Graham Bradstreet
are not agents or representatives of the Company or the
Artisan Entities with respect to the Policy or
otherwise. The insurers acknowledge that ICE Media
Limited is their risk manager and agent for purposes of
the Policy and that Richard Fletcher has acted as the
solicitor for ICE Media Limited.
The Policy supersedes all previous discussions and
understandings between the Insured and the insurers
relating to the subject matter hereof and the Policy
together with the Schedules attached hereto and the
Declarations constitute the entire understanding of the
Insured and the insurers with regard to the Policy.
It is understood and agreed that only one claim may be
made under the Policy for each Film Project.
The Insured is a large financial institution and, for
purposes of the Policy, matters known to the Insured
shall only refer to matters known or delivered to those
officers of the Insured responsible for servicing the
Loan Agreement.
Any reference in the Policy or in any Declaration to
other agreements or documents is qualified by reference
to such agreements or documents, copies of which have
been provided to the insurers.
Notices to the Insured shall be given to it in writing
at The Chase Manhattan Bank, 270 Park Avenue, 37th
Floor, New York, New York 10017, Attention: Joan
Fitzgibbon (telephone no.: 212-270-1786; facsimile no.:
212-270-4164) with copies to (i) Chase Securities Inc.,
1800 Century Park East, Los Angeles, California 90067,
Attention:
-21-
<PAGE>
Christa L. Thomas (telephone no.: 310-788-5612;
facsimile no.: 310-788-5628) and (ii) Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178,
Attention: Michael A. Chapnick (telephone no.: 212-309-
6855; facsimile no.: 212-309-6273).
Courtesy copies of notice to the Insured or to the Lead
Insurer shall be given in writing to the Company and its
counsel at (i) Artisan Film Investors Trust, c/o Artisan
Pictures Inc., 2700 Colorado Avenue, Santa Monica, CA
90404-3521, Attention: General Counsel (telephone no.:
310-255-3840; facsimile no.: 310-255-3840) and (ii)
Rosenfeld, Meyer & Susman, LLP, 9601 Wilshire Boulevard,
4th Floor, Beverly Hills, CA 90210, Attention: Steven
Fayne, Esq. (telephone no.: 310-858-7700; facsimile no.:
310-271-6430.
Notices to the Lead Insurer shall be given to it in
writing at Royal & SunAlliance Insurance PLC, Leadenhall
Court, I Leadenhall Street, London EC3V 1 PP Attention:
Richard Wilson (telephone no.: 171-220-6558; facsimile
no.: 171-588-2345); and with a courtesy copy to each of
Heath Insurance Broking Limited, 133 Houndsditch, London
EC3A 7AH Attention: Roger Bassett (telephone no.: 171-
234-4000; facsimile no: 171-234-4144) and ICE Media
Limited, 31 Dover Street, London W1X 3RA ENGLAND,
Attention: Graham Bradstreet (telephone no.: 171-434-
2044; facsimile no.: 171-434-2043). All notices shall be
effective on receipt.
ROYAL & SUNALLIANCE INSURANCE PLC
By:
----------------------------------
Name:
Title:
INTERNATIONAL INSURANCE COMPANY OF HANOVER
By:
----------------------------------
Name:
Title:
-22-
<PAGE>
MONAGASQUE DE REASSURANCES SAM
By:
----------------------------------
Name:
Title:
ST. PAUL INTERNATIONAL INSURANCE COMPANY
LIMITED
By:
----------------------------------
Name:
Title:
NRMA INSURANCE LTD.
By:
----------------------------------
Name:
Title:
GIO GENERAL LTD
By:
----------------------------------
Name:
Title:
-23-
<PAGE>
LIST OF SCHEDULES:
1. Loan Agreement
2. Form of Declaration.
4. Form of Questionnaire.
-24-
<PAGE>
SCHEDULE 1
[Form of Loan Agreement]
<PAGE>
SCHEDULE 2
FORM OF DECLARATION OF INSURANCE UNDER CASH FLOW
INSURANCE MASTER POLICY NO.___ WITH THE FOLLOWING
INSURERS IN THE FOLLOWING PERCENTAGES:
NAME OF INSURER PERCENTAGE OF RISK
--------------- ------------------
[It is contemplated that the identity of
the insurers and their relative
percentages will be the same for all
Declarations]
Royal & SunAlliance Insurance
Plc [i.e. $9MM of maximum
$12MM per pix] 75%
International Insurance Company
of Hanover [i.e. $.5MM of maximum
$12MM per pix] 4.1_%
Monagasque de Reassurances s.a.m. 4.1_%
[i.e. $.5MM of maximum $12MM
per pix]
St. Paul International Insurance Company
Limited [i.e. $.5MM of maximum
$12MM per pix] 4.1_%
NRMA Insurance Ltd. 4.1_%
[i.e. $.5MM of maximum $12 MM per pix]
GIO General Ltd. 8.3_%
----
[i.e. $1MM of maximum $12MM per pix]
100%/*//
==== -
- ----------------------
*/ Subject to a decrease with regard to subsequently declared Film Projects as
- - a result of an insurer no longer being acceptable to the Insured because it
has been the subject of an Adverse Event.
<PAGE>
1. Name of Film Project as of the date hereof:
2. For identification purposes only and not as an essential element or as any
representation or warranty the following are the elements as of the date
hereof:
(a) Director:
(b) Major above-the line talent:
3. Details of acquisition of the Film Project by the Company Completion
Guaranty (a copy of which is attached):
(a) Estimated Date of Acquisition:
(b) Maximum Amount of Total Negative Cost:
4. Premium per information provided by Heath Broking Limited:
------------------------------------------------------------------
Gross Premium**/ US $_______
--
------------------------------------------------------------------
Deduction for U.S. Federal US $_______
Excise Tax on Premium payable to_____________
------------------------------------------------------------------
Brokerage Commission***/ US $_______
---
------------------------------------------------------------------
Net Premium US $_______
------------------------------------------------------------------
Risk Manager's Fee****/ US $_______
----
------------------------------------------------------------------
Net Amount to be paid to the US $_______
Broker in full satisfaction of
insurer's right to receive
premium under
------------------------------------------------------------------
- ----------------------------
**/ __% of the Sum Insured
- --
***/ __% of the Sum Insured
- ---
****/ __% of the Sum Insured
- ----
-2-
<PAGE>
------------------------------------------------------------------
Declaration:
------------------------------------------------------------------
5. Sum Insured (not in excess of $*****/ million): U.S. $________.
-----
6. Details of the Collection Account (as set forth in the Lender Intercreditor
Agreement):
7. The responses to items 1, 2 and 3 above were provided by [Artisan Pictures,
Inc.].
9. Date of this Declaration:
10. List of Film Project specific documents presented to Lead Insurer and
attached hereto:
ROYAL & SUNALLIANCE
INSURANCE PLC,
as Lead Insurer
By:
-----------------------------
Name:
Title:
ICE MEDIA LIMITED
as Risk Manager for insurers
By:
-----------------------------
Name:
Title:
- ---------------------------
*****/ Initially 12,000,000, subject to decrease with regard to subsequently
- ----- declared Film Projects as a result of an insurer no longer being
acceptable to the Insured because it has been the subject of an Adverse
Event.
-3-
<PAGE>
THE CHASE MANHATTAN BANK,
as Insured
By:
-----------------------------
Name:
Title:
Artisan Pictures Inc., as Agent for
Artisan Film Investors Trust acknowledges
that it has provided the information under
items 1, 2 and 3 of this Declaration:
ARTISAN PICTURES INC.
By:
--------------------------------
Name:
Title:
-4-
<PAGE>
Schedule 3
QUESTIONNAIRE
As referred to in the Cash Flow Insurance Policy dated
(the "Policy")
Terms defined in the Policy have the same meaning
in this Questionnaire
SECTION 1 - GENERAL
1. (Production Company)
Name of Company:
Address: Telephone: Fax:
2. WORKING TITLE OF FILM PROJECT
3. NAME(s) OF INDIVIDUAL PRODUCER(s)
4. NAME(s) OF EXECUTIVE PRODUCER(s)
5. NAME OF DIRECTOR
6. NAMES OF PRINCIPAL CAST
7. FILM PROJECT DETAILS REQUIRED
Full Script: Is Script attached?
Detailed Budget: Is complete Budget attached?
-5-
<PAGE>
Amount of total budgeted cost:
Date Film Project was or is to be completed:
Is Film Project a film intended for
World-wide exploitation in all media? Estimated length of film:
If No to any of the above, please explain
Estimated Principal Dates
Commencement of pre-production:
Commencement of principal photography: Completion of principal
photography
Delivery:
Outside Delivery Date/Force Majeure
Changes to the above details in this Question 7 require notification within 10
business days on the following basis:-
- -changes to the script, Budget and Production Schedule need only to be notified
up to the commencement of principal photography.
- -changes to the Budget after the commencement of principal photography need only
be notified if additional cost exceed the contingency.
- -changes to the Production Schedule after the commencement of principal
photography need only be notified if additional shooting days become required in
excess of 10% contingency in days.
- -changes to the estimated length do not need to be notified
The only change in the Estimated Principal Date which must be notified if any
change to a delivery date later than required under the completion guaranty
Changes not required to be notified as above may be requested as Additional
Information.
8. DISTRIBUTOR
Name of Company: Artisan Pictures Inc.
Address:
Telephone:
Fax:
-6-
<PAGE>
9. COMPLETION GUARANTY:
Guarantor: Film is or will be bonded by:
10. F.P.I. COVER
Insurer:
Details of cover:
11. ERRORS & OMISSIONS INSURANCE
Is E&O cover is effect? Sums insured per claim?
Note: It is a condition of the Cash Flow Insurance that an E&O policy be in
force before any claim is paid.
If No to any of the above, please explain status
12. DETAILS OF REVENUE ENTITLEMENTS
Are revenue entitlements of Insured and
Underwriters for recouping amount of the
Bank Loan secured under the Policy as per
Sponsor Agreement except as modified by the Policy?
13. HAS THE PRODUCER (i.e THE INDIVIDUAL PRODUCER) OR THE PRODUCTION COMPANY,
OR THE PERSON SIGNING THIS FORM:
Ever been bankrupt? Ever found it necessary to come to an
arrangement with his/her/its creditors?
SIGNED as to Section 1 by:
ARTISAN FILM INVESTORS TRUST
By: ARTISAN PICTURES INC.
By:
-------------------------------
Name:
Title:
Date:
SECTION II - CASH FLOW INSURANCE
-7-
<PAGE>
The information set forth in Section II of this Questionnaire is provided
without representation or warranty of any kind. All persons to which this
information is provided acknowledge and agree that estimates and projections are
inherently uncertain and that the undersigned shall have no liability of any
nature for the accuracy of the estimates, projections and other information
provided in Section II of this Questionnaire. The revenue estimates set forth in
this Section II are based on the assumption that the Film Project is capable of
performing at a level that will generate these revenues. The Insurers
acknowledge that the estimates set forth in this Section II are purely
informational, that they are not relying on these estimates in issuing the
Policy and/or accepting a Declaration, and the Insurers have relied upon their
own analysis of revenue estimates. The Insurers under the Policy acknowledge and
agree that they will be and remain obligated to pay any claim under the Policy
with respect to the Film Project and will not be excused from paying any claim
if for any reason the actual revenues are less than the estimates set forth in
this Section II. Insured shall not make or be deemed to make any representation
or warranty, express or implied, to the Insurers (or their risk manager or the
broker) that any amount or particular amount of revenues will be derived from
exploitation of the film described above.
Figures relate to Insured Amounts only, see Exposure Summary balance of
Financing.
14. CASH FLOW INSURANCE COVER REQUIRED
Proposed Negative Cost Loan Date to commence:
Portion of Loan not covered by receivables
Amount of Sum Insured:
15. REVENUE ESTIMATES
Revenue estimates from agreed media or territory:
16. COVER FROM REVENUE ESTIMATES
See attached Exposure Summary
dated
SECTION III - LOAN FACILITY
17. LENDER DETAILS
Name:
Address:
18. TOTAL LOAN
Made up as follows:
-8-
<PAGE>
Total Negative Cost Loan:
Premium (including brokerage, FET and the risk management fee): Lender
interest reserve for Negative Cost Loans:
Total Budgeted cost:
Re Section II:
SIGNED BY:
For and on behalf of
ICE Media Limited
(Print full name)
Date:
Re Section III:
SIGNED BY:
For and on behalf of
ARTISAN FILM INVESTORS TRUST (Print full name)
by Artisan Pictures Inc.
Date:
Re Sections I, II, III:
We, ICE Media Limited hereby confirm that we have analyzed the budget of the
above production and in our opinion the proposed Bank Loan is appropriate to be
insured under this policy.
SIGNED BY:
For and on behalf of
ICE Media Limited
(Print full name)
Date:
-9-
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Exhibit O
SUBORDINATE SECURITY AGREEMENT
This SUBORDINATE SECURITY AGREEMENT, dated as of October 13, 1999, is
between ARTISAN FILM INVESTORS TRUST, a Delaware business trust (the "Debtor"),
and CHRISTIANA BANK & TRUST COMPANY, a Delaware banking corporation, as
collateral agent for the holders of the Certificates referred to herein
(together with its successors and assigns, the "Collateral Agent"). This
Agreement is entered into with reference to the following facts:
A. The Collateral Agent, the Initial Purchaser referred to below, and
Artisan Pictures, Inc., as designee, have entered into an Amended and Restated
Trust Agreement dated as of October 13, 1999 (the "Trust Agreement"), pursuant
to which the Debtor will issue its Trust Certificates (the "Certificates") to
certain persons.
B. In order to induce the holders of the Certificates to purchase the
Trust Certificates pursuant to the Trust Agreement, the Debtor and the
Collateral Agent desire to enter into this Agreement.
C. Pursuant to a Collateral Agency Agreement dated as of October 13, 1999
(the "Collateral Agency Agreement") between the Collateral Agent, as collateral
agent, and Bear, Stearns & Co. Inc., as the initial Certificateholder (the
"Initial Purchaser"), the Collateral Agent has agreed to act as collateral agent
for the holders from time to time of the Certificates (the
"Certificateholders").
NOW, THEREFORE, in consideration of the benefits to the Debtor, the receipt
and sufficiency of which are hereby acknowledged, the Debtor hereby makes the
following representations and warranties to the Collateral Agent and hereby
covenants and agrees with the Collateral Agent as follows:
1. Definitions.
(a) Capitalized terms not otherwise defined herein have the meanings set
forth in the Trust Agreement.
(b) The following terms shall have the meanings herein specified unless
the context otherwise requires.
"Agreement" or "Security Agreement" means this Subordinate Security
Agreement, as modified, supplemented or amended from time to time in
accordance with the terms hereof.
"Certificates" has the meaning set forth in paragraph A of this
Agreement.
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"Certificateholders" has the meaning set forth in paragraph C of
this Agreement.
"Collateral" means all of the Debtor's right, title and interest in
personal property, tangible and intangible, wherever located or situated and
whether now owned or hereafter acquired or created, including but not limited
to goods, accounts, intercompany obligations, contract rights, documents,
chattel paper, general intangibles, goodwill, equipment, inventory, investment
property, instruments, copyrights, trademarks, trade names, insurance
proceeds, cash and deposit accounts and any proceeds thereon, products thereof
or income therefrom, further including but not limited to all of the Debtor's
right, title and interest in and to each of the Declared Qualifying Pictures,
all of the properties thereof, tangible and intangible, and all domestic and
foreign copyrights and all other rights therein and thereto, of every kind and
character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of the Debtor, including but not limited to all
rights of the Debtor under the Purchase Agreement, the Distribution Agreement
and the Sponsor Agreement and the proceeds of any thereof; provided that
"Collateral" shall not include property which, pursuant to its terms or under
Applicable Law, may not be pledged or assigned, to the extent such prohibition
on pledge or assignment is enforceable.
"Collateral Agency Agreement" has the meaning set forth in paragraph C
of this Agreement.
"Collateral Agent" has the meaning set forth in the introductory
paragraph of this Agreement.
"Credit Agreement" means the Credit and Security Agreement, dated as
of October 13, 1999, among Debtor, the lenders named therein, and The Chase
Manhattan Bank, as administrative agent and fronting bank, and Fleet Bank, as
waiver agent.
"Debtor" has the meaning set forth in the introductory paragraph of
this Agreement.
"Declared Qualifying Picture" has the meaning set forth in the Credit
Agreement.
"Initial Purchaser" has the meaning set forth in paragraph C of this
Agreement.
"Net Liquidation Film Proceeds" has the meaning set forth in the Trust
Agreement.
"Net Liquidation Non-Film Proceeds" has the meaning set forth in the
Trust Agreement.
"Obligations" means: (a) the obligation under Section 6.7 (c) and (d)
of the Trust Agreement of the Debtor to the holders of the Certificates to
make payments of the Applicable Liquidation Preference; (b) any and all sums
advanced by the Collateral Agent in order to preserve the Collateral or
preserve its security interest in the Collateral; and (c) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities of the Debtor referred to in clause (a), the reasonable
expenses of re-taking, holding, preparing for sale or lease, selling, or
otherwise disposing or realizing on
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the Collateral, or of any exercise by the Collateral Agent of its rights
hereunder, together with reasonable attorneys' fees and court costs.
"Purchase Agreement" means the Trust Certificate Purchase Agreement
dated October __, 1999 among the Debtor, the Initial Purchaser and Artisan
Pictures, Inc.
"Security Documents" means this Agreement, the Subordinate Copyright
Security Agreement, each Subordinate Copyright Security Agreement
Supplement, the Subordinate Trademark Security Agreement, each Pledgeholder
Agreement and any financing statements or any other instruments or
documents relating to the creation or perfection of the Secured Party's
security interest in any of the Collateral.
"Subordinate Copyright Security Agreement" means a Subordinate
Copyright Security Agreement in the form of Exhibit A to this Agreement.
"Subordinate Copyright Security Agreement Supplement" means a
Subordinate Copyright Security Agreement Supplement in the form of Exhibit
B to this Agreement.
"Pledgeholder Agreement" means the Pledgeholder Agreement in the form
of Exhibit C to this Agreement.
"Subordinate Trademark Security Agreement" means a Subordinate
Trademark Security Agreement in the form of Exhibit D to this Agreement.
"Trust Agreement" has the meaning provided in paragraph A of this
Agreement.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in all relevant jurisdictions.
2. Security Interests. The Debtor, as security for the due and punctual
payment of the Obligations, hereby mortgages, pledges, assigns, transfers, sets
over, conveys and delivers to the Collateral Agent (for the benefit of the
Certificateholders) and grants to the Collateral Agent (for the benefit of the
Certificateholders) a security interest in the Collateral. Simultaneously with
the execution of this Agreement, the Debtor shall execute and deliver to the
Collateral Agent (i) a Subordinate Copyright Security Agreement listing each
Picture in which the Debtor then has a copyrightable interest (as listed in
Schedule 3.8 to the Credit Agreement) and (ii) a Subordinate Trademark Security
Agreement listing all trademarks, trade names, service names, tradedress, logos
and other similar property of the Debtor. Upon the occurrence of the Direct
Deposit Commencement Date, the Debtor shall execute and deliver, and shall cause
any Laboratory then holding negative and preprint materials, master tapes or
sound track materials with respect to a Declared Qualifying Picture owned by it
to execute and deliver, a Pledgeholder Agreement to the Collateral Agent.
3. Use of Collateral. So long as no Event of Default shall have
occurred and be continuing and subject to the various provisions of this
Agreement and the other Security
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Documents, the Debtor may use the Collateral in any lawful manner, except as
otherwise provided hereunder.
4. Representations and Warranties. The Debtor hereby represents and
warrants to the Collateral Agent as follows:
(a) On the date hereof, the Pictures listed on Schedule 3.7(a) to the
Credit Agreement comprise all of the Pictures in which the Debtor has any right,
title or interest. The copyright registration number and the character of the
interests held by the Debtor for the Pictures listed on Schedule 3.7(a) to the
Credit Agreement are set forth across from the description of such Picture and
as to each item listed on Schedule 3.8(a) to the Credit Agreement the Debtor has
duly recorded its interests in the United States Copyright Office and has
delivered copies of all such recordation to the Collateral Agent. Schedule
3.7(a) shall identify the location of the best available physical materials
related to each Picture owned by the Debtor. To the best of the Debtor's
knowledge, all Pictures owned by the Debtor do not violate or infringe upon any
copyright, right of privacy, trademark, patent, trade name, performing right or
any literary, dramatic, musical, artistic, personal, private, several, contract
or copyright right or any other right of any Person or contain any libelous or
slanderous material other than to an extent which is either not material or for
which coverage is provided in existing insurance policies. Except as set forth
on Schedule 3.11 to the Credit Agreement, there is no claim, suit, action or
proceeding pending or, to the best of the Debtor's knowledge, threatened against
the Debtor that involves a claim of infringement of any copyright with respect
to any Picture listed on Schedule 3.7(a) to the Credit Agreement and the Debtor
has no knowledge of any existing infringement by any other Person of any
copyright held by the Debtor with respect to any Picture listed on Schedule
3.7(a).
(b) Schedule 3.7(b) to the Credit Agreement (i) lists substantially all
of the trademarks registered by the Debtor on the date hereof and identifies the
entity that registered each such trademark and (ii) specifies as to each, the
jurisdictions in which such trademark has been issued or registered (or, if
applicable, in which an application for such issuance or registration has been
filed), including the respective registration or application numbers and
applicable dates of registration or application. Each trademark set forth on
Schedule 3.7(b) to the Credit Agreement shall be included on Schedule A to the
Subordinate Trademark Security Agreement delivered to the Collateral Agent
pursuant to Section 2.
(c) This Agreement and the other Security Documents, when executed and
delivered, will create and grant to the Collateral Agent for the benefit of the
Certificateholders (upon (i) the filing of the appropriate UCC-1 financing
statements with filing offices listed on Schedule 3.10 to the Credit Agreement,
(ii) the filing of the Subordinate Copyright Security Agreement with the U.S.
Copyright Office and (iii) the filing of the Subordinate Trademark Security
Agreement with the U.S. Patent and Trademark Office) valid and perfected
security interests in the Collateral as to which security interests may be
perfected by such filings or delivery, subject only to (i) Permitted
Encumbrances and (ii) the Liens of the Fundamental Documents.
5. Covenants. As long as any of the Obligations are outstanding, the
Debtor agrees that it will:
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(a) Within 30 days after the later of (x) the initial release or
broadcast of each Declared Qualifying Picture or (y) the acquisition of rights
in each such Declared Qualifying Picture by the Debtor, to the extent the Debtor
has not delivered to the Collateral Agent copyright filings and all financing
statements under Section 2, take any and all actions necessary to register the
copyright for such additional items in the name of the Debtor (subject to a Lien
in favor of the Collateral Agent for the benefit of Certificateholders pursuant
to the Subordinate Copyright Security Agreement) in conformity with the laws of
the United States and such other jurisdictions as the Collateral Agent may
determine advisable or necessary, and, if such interest may be registered with
the United States Copyright Office or such other jurisdictions, immediately
deliver to the Collateral Agent (i) written evidence of the registration of any
and all such copyrights for inclusion in the Collateral under this Agreement and
(ii) a Subordinate Copyright Security Agreement Supplement relating to such
Declared Qualifying Picture executed by the Debtor.
(b) Deliver or cause to be delivered to a Laboratory or Laboratories all
negative and preprint material, master tapes and all sound track materials with
respect to each Declared Qualifying Picture owned by it or to which it has
access and, if the Direct Deposit Commencement Date has occurred, deliver to the
Collateral Agent a fully executed Pledgeholder Agreement with respect to such
materials. If the Direct Deposit Commencement Date has occurred, then prior to
requesting any such Laboratory to deliver such negative or other preprint or
sound track material or master tapes to another laboratory, the Debtor shall
provide the Collateral Agent with a Pledgeholder Agreement, executed by such
other laboratory and all other parties to such Pledgeholder Agreement. The
Debtor hereby agrees not to remove or cause the removal of the original negative
and film or sound materials with respect to any Declared Qualifying Picture
owned by the Debtor or in which the Debtor has an interest (i) to a location
outside the United States or (ii) to any state or jurisdiction where UCC-1
financing statements (or in the case of jurisdictions outside the United States,
documentation similar in purpose and effect satisfactory to the Collateral
Agent) have not been filed against the Debtor.
(c) Upon the request of the Collateral Agent, duly execute and deliver,
or cause to be duly executed and delivered, at the cost and expense of the
Debtor, such further instruments as may be necessary in the reasonable judgment
of the Collateral Agent to carry out the provisions and purposes of this
Agreement and the other Security Documents.
(i) Upon the request of the Collateral Agent, promptly execute
and deliver or cause to be executed and delivered, at the cost and expense
of the Debtor, such further instruments as may be appropriate in the
reasonable judgment of the Collateral Agent, to provide the Collateral
Agent a perfected Lien in the Collateral and any and all documents
(including, without limitation, the execution, amendment or supplementation
of any financing statement and continuation statement or other statement)
for filing under the provisions of the UCC and the rules and regulations
thereunder, or any other statute, rule or regulation of any applicable
foreign, federal, state or local jurisdiction, and perform or cause to be
performed such other ministerial acts which are necessary, from time to
time, in order to grant and maintain in favor of the Collateral Agent the
security interest in the Collateral
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contemplated hereunder and under the other Security Documents, subject only
to Permitted Encumbrances and the Liens of the Fundamental Documents.
(ii) Promptly undertake to deliver or cause to be delivered to the
Collateral Agent from time to time such other documentation, consents,
authorizations and approvals in form and substance reasonably satisfactory
to the Collateral Agent, as the Collateral Agent shall deem reasonably
necessary or advisable to perfect or maintain the Liens of the Collateral
Agent.
(d) In the event the Debtor receives payment of any portion of the Gross
Receipts or any other proceeds of the Collateral prior to the Direct Deposit
Commencement Date, the Debtor shall promptly remit such payment or proceeds to
the Master Collection Account to be applied in accordance with the terms of the
Intercreditor Agreement and the Sponsor Agreement. In the event the Debtor
receives payment of any portion of the Gross Receipts or any other portion of
the proceeds of the Collateral after the Direct Deposit Commencement Date, the
Debtor shall promptly remit such payment or proceeds to the Trust Account to be
applied in accordance with the Trust Agreement.
6. Events of Default. If the Debtor shall default in the payment or
performance of any Obligation for three Business Days after receipt by the
Debtor of notice thereof, such occurrence shall constitute an "Event of Default"
hereunder.
7. Debtor to Hold in Trust. Upon the occurrence and during the
continuance of an Event of Default, the Debtor will, upon receipt by it of any
revenue, income, profits or other sums in which a security interest is granted
by this Agreement, payable pursuant to any agreement or otherwise, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the sum in trust for the Collateral Agent,
segregate such sum from its own assets and forthwith, without any notice or
demand whatsoever (all notices, demands, or other actions on the part of the
Collateral Agent being expressly waived), endorse, transfer and deliver any such
sums or instruments or both, to the Collateral Agent to be applied to the
repayment of the Obligations, as directed by the Required Certificateholders;
provided, however, that as long as the Lien of the Fundamental Documents is in
effect, such amounts shall be paid by the Debtor into the Master Collection
Account in accordance with the Sponsor Agreement.
8. Collections, etc. Upon the occurrence and during the continuance of
an Event of Default, the Collateral Agent may (but only if so directed by the
Required Certificateholders), in its name or in the name of the Debtor or
otherwise, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for, or make any compromise
or settlement deemed desirable with respect to, any of the Collateral, but shall
be under no obligation so to do, or the Collateral Agent may (but only if so
directed by the Required Certificateholders) extend the time of payment, arrange
for payment in installments, or otherwise modify the terms of, or release, any
of the Collateral, without thereby incurring responsibility to, or discharging
or otherwise affecting any liability of, the Debtor. The Collateral Agent will
not be required to take any steps to preserve any rights against prior parties
to the Collateral or otherwise hereunder except as directed by the Required
Certificateholders. If the Debtor fails to make any
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payment or take any action required under this Agreement, the Collateral Agent
may make such payments and take all such actions as the Required
Certificateholders may direct to protect the Collateral Agent's security
interests in the Collateral or the value thereof, and the Collateral Agent is
hereby authorized, upon direction of the Required Certificateholders (without
limiting the general nature of the authority herein above conferred) to pay,
purchase, contest or compromise any Liens that in the reasonable judgment of the
Required Certificateholders appear to be equal to, prior to or superior to the
security interests of the Collateral Agent in the Collateral and any Liens not
expressly permitted by this Agreement.
9. Possession, Sale of Collateral, etc. Upon the occurrence and during
the continuance of an Event of Default, the Collateral Agent, upon direction of
the Required Certificateholders, may enter upon the premises of the Debtor or
wherever the Collateral may be, and take possession of the Collateral, and may
demand and receive such possession from any Person who has possession thereof,
and the Collateral Agent may upon direction of the Required Certificateholders
take such measures as the Required Certificateholders deem necessary or proper
for the care or protection thereof, including the right to remove all or any
portion of the Collateral, and with or without taking such possession may sell
or cause to be sold, whenever the Required Certificateholders shall direct, in
one or more sales or parcels, at such prices as the Required Certificateholders
may deem appropriate, and for cash or on credit or for future delivery, without
assumption of any credit risk, all or any portion of the Collateral, at any
broker's board or at public or private sale, without demand of performance or
notice of intention to sell or of time or place of sale (except 10 days' written
notice to the Debtor of the time and place of any such public sale or sales and
such other notices as may be required by Applicable Law and cannot be waived),
and neither the Collateral Agent nor any Certificateholders shall have any
liability should the proceeds resulting from a private sale be less than the
proceeds realizable from a public sale, and the Collateral Agent, the
Certificateholder or any other Person may be the purchaser of all or any portion
of the Collateral so sold and thereafter hold the same absolutely, free (to the
fullest extent permitted by Applicable Law) from any claim or right of whatever
kind, including any equity of redemption, of the Debtor, any such demand,
notice, claim, right or equity being hereby expressly waived and released. At
any sale or sales made pursuant to this Agreement, the Collateral Agent and the
Certificateholders may bid for or purchase, free (to the fullest extent
permitted by Applicable Law) from any claim or right of whatever kind, including
any equity of redemption, of the Debtor, any such demand, notice, claim, right
or equity being hereby expressly waived and released, any part of or all of the
Collateral offered for sale, and may make any payment on account thereof by
using any claim for moneys then due and payable to the Collateral Agent and the
Certificateholders by the Debtor hereunder as a credit against the purchase
price. The Collateral Agent shall in any such sale make no representations or
warranties with respect to the Collateral or any part thereof, and neither the
Collateral Agent nor any Certificateholder shall be chargeable with any of the
obligations or liabilities of the Debtor. The Debtor hereby agrees (i) that it
will indemnify and hold the Collateral Agent and the Certificateholders harmless
from and against any and all claims with respect to the Collateral asserted
before the taking of actual possession or control of the relevant Collateral by
the Collateral Agent pursuant to this Agreement, or arising out of any act of,
or omission to act on the part of, any party (other than the Collateral Agent or
Certificateholders) prior to such taking of actual possession or control by the
Collateral Agent (whether asserted before or after such taking of possession or
control), or arising out of any act on the part of the Debtor, or its agents
before or after the commencement of such actual possession or
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control by the Collateral Agent, but excluding therefrom all claims with respect
to the Collateral resulting from the gross negligence or willful misconduct of
the Collateral Agent or the Certificateholders; and (ii) neither the Collateral
Agent nor any Certificateholder shall have liability or obligation to the Debtor
arising out of any such claim except for acts of willful misconduct or gross
negligence. Subject only to the lawful rights of third parties, any Laboratory
which has possession of any of the Collateral is hereby constituted and
appointed by the Debtor as pledgeholder for the Collateral Agent and the
Certificateholders and, upon the occurrence of an Event of Default, each such
pledgeholder is hereby authorized (to the fullest extent permitted by Applicable
Law) to sell all or any portion of the Collateral upon the order and direction
of the Collateral Agent, upon the direction of the Required Certificateholders,
and the Debtor hereby waives any and all claims, for damages or otherwise, for
any action taken by such pledgeholder in accordance with the terms of the UCC
not otherwise waived hereunder. In any action hereunder, the Collateral Agent,
upon the direction of the Required Certificateholders, shall be entitled if
permitted by Applicable Law to the appointment of a receiver without notice, to
take possession of all or any portion of the Collateral and to exercise such
powers as the court shall confer upon the receiver. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, and during the
continuation of such Event of Default, the Collateral Agent shall be entitled to
apply, without prior notice to the Debtor, upon the direction of the Required
Certificateholders, any cash or cash items constituting Collateral in the
possession of the Collateral Agent to payment of the Obligations.
10. Application of Proceeds on Default. During the continuance of an
Event of Default, subject to the provisions of the Intercreditor Agreement, the
balances in any account of the Debtor with the Collateral Agent which
constitutes part of the Collateral, all other income on the Collateral, and all
proceeds from any sale of the Collateral by the Collateral Agent pursuant
hereto, after application as required pursuant to the Fundamental Documents,
shall be applied first toward payment of the reasonable out-of-pocket costs and
expenses paid or incurred by the Collateral Agent in enforcing this Agreement,
in realizing on or protecting any Collateral and in enforcing or collecting any
Obligations, including, without limitation, court costs and the reasonable
attorney's fees and expenses incurred by the Collateral Agent and then to the
payment in full of the Obligations, as set forth in Section 6.7(c) and (d) of
the Trust Agreement, in such order as determined by the Required
Certificateholders; provided, however, that, the Collateral Agent may upon the
direction of the Required Certificateholders in its discretion apply funds
comprising the Collateral to pay the cost of making delivery to the distributors
of a Declared Qualifying Picture. Any amounts remaining after such payment in
full shall be remitted to the Debtor or as a court of competent jurisdiction may
otherwise direct.
11. Power of Attorney. Upon the occurrence and during the continuance of
an Event of Default which is not waived in writing by the Required
Certificateholders, (a) the Debtor does hereby irrevocably make, constitute and
appoint the Collateral Agent or any of its officers or designees its true and
lawful attorney-in-fact with full power in the name of the Collateral Agent or
such other Person to receive, open and dispose of all mail addressed to the
Debtor, and upon the direction of the Required Certificateholders to endorse any
notes, checks, drafts, money orders or other evidences of payment relating to
the Collateral that may come into the possession of the Collateral Agent with
full power and right upon the direction of the Required Certificateholders to
cause the mail of such Persons to be transferred to the Collateral Agent's own
offices or otherwise,
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and upon the direction of the Required Certificateholders to do any and all
other acts that the Required Certificateholders deem necessary or proper to
carry out the intent of this Agreement and the grant of the security interests
hereunder and under the Security Documents, and the Debtor hereby ratifies and
confirms all that the Collateral Agent or its substitutes shall properly do by
virtue hereof; (b) the Debtor does hereby further irrevocably make, constitute
and appoint the Collateral Agent or any of its officers or designees its true
and lawful attorney-in-fact in the name of the Collateral Agent or the Debtor
upon the direction of the Required Certificateholders (i) to enforce all of the
Debtor's rights under and pursuant to all agreements with respect to the
Collateral, all for the sole benefit of the Collateral Agent and to enter into
such other agreements (as may be lawful and without breach of contract) as may
be necessary or appropriate in the reasonable judgment of the Collateral Agent
to complete the distribution or exploitation of any Declared Qualifying Picture,
(ii) to execute such other and further mortgages, pledges and assignments of the
Collateral, and related instruments or agreements, as the Collateral Agent may
reasonably require for the purpose of perfecting, protecting, maintaining or
enforcing the security interests granted to the Collateral Agent, and (iii) to
do any and all other things that the Required Certificateholders deem necessary
or proper to carry out the intention of this Agreement and the grant of the
security interests hereunder and under the other Security Documents. The Debtor
hereby ratifies and confirms in advance all that the Collateral Agent as such
attorney-in-fact or its substitutes shall properly do by virtue of this power of
attorney.
12. Financing Statements, Direct Payments. The Debtor hereby authorizes
the Collateral Agent to file, register and record, as the Collateral Agent may
determine advisable or necessary, (i) UCC financing statements and any
amendments thereto (provided, that so long as an Event of Default shall not have
occurred and be continuing, the Collateral Agent shall first request the Debtor
to take such action before taking such action on its own) or continuations
thereof, (ii) the Subordinate Copyright Security Agreement, (iii) any
Subordinate Copyright Security Agreement Supplements, (iv) the Subordinate
Trademark Security Agreement and (v) any other appropriate security documents or
instruments and to give any notices that the Collateral Agent deems necessary or
desirable to perfect the Lien of the Collateral Agent, in all cases without the
signatures of the Debtor or to execute such items as attorney-in-fact for the
Debtor; provided, that the Collateral Agent shall provide copies of any such
documents or instruments to the Debtor. The Debtor further authorizes the
Collateral Agent upon the occurrence of an Event of Default, and during the
continuation of such Event of Default, but only upon the direction of the
Required Certificateholders, to notify any account debtors that all sums payable
to the Debtor relating to the Collateral shall be paid directly to the
Collateral Agent.
13. Further Assurances. Upon the request of the Collateral Agent, the
Debtor hereby agrees to duly and promptly execute and deliver, or cause the
Sponsor or its Affiliates to duly execute and deliver, at the cost and expense
of the Debtor, such further instruments as may be necessary or proper, in the
reasonable judgment of the Collateral Agent, to carry out the provisions and
purposes of this Agreement, necessary, in the reasonable judgment of the
Collateral Agent, to perfect and preserve the Liens of the Collateral Agent, and
in the Collateral or any portion thereof.
14. Termination. The security interests granted under this Agreement
shall terminate when all Obligations have been fully paid and performed. Upon
request by the Debtor (and at the
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sole expense of the Debtor) after such termination, the Collateral Agent will
take all reasonable action and do all things reasonably necessary, including
executing UCC termination statements, Pledgeholder Agreement terminations,
termination letters to account debtors and copyright and trademark
reassignments, to release the security interest granted to it hereunder.
15. Remedies Not Exclusive. The remedies conferred upon or reserved to
the Collateral Agent in this Agreement are intended to be in addition to, and
not in limitation of, any other remedy or remedies available to the Collateral
Agent. Without limiting the generality of the foregoing, the Collateral Agent
and the Certificateholders shall have all rights and remedies of a secured
creditor under Article 9 of the UCC.
16. Quiet Enjoyment. The Collateral Agent and the Certificateholders
acknowledge that their security interest hereunder is subject to the rights of
Quiet Enjoyment of the Sponsor under the Distribution Agreement and the
licensees of the Artisan Entities to the extent set forth in the Intercreditor
Agreement.
17. Continuation and Reinstatement. The Debtor further agrees that the
security interest granted hereunder shall continue to be effective or be
reinstated, as the case may be, if at any time payment or any part thereof of
any Obligation is rescinded or must otherwise be restored by the Collateral
Agent or the Certificateholders upon the bankruptcy or reorganization of the
Debtor or otherwise.
18. Release of Collateral. So long as no Event of Default has occurred
and is continuing, upon the purchase by the Debtor of an Eligible Film pursuant
to Sections 5 or 6 of the Master Film Purchase Agreement, or the sale or other
disposition in accordance with this Agreement of any property or assets
constituting the Collateral, the security interests granted under this Agreement
and under any other Security Document in such property shall terminate and be
released. In connection with any such release, and at the Debtors' expense, the
Collateral Agent will take all reasonable action and do all things that the
Collateral Agent deems reasonably necessary, including executing UCC termination
statements, Pledgeholder Agreement terminations, termination letters to account
debtors and copyright and trademark reassignments, to effectuate any such
release.
19. Subordination to Lenders' Security Interest. The Collateral Agent
acknowledges and agrees that the Debtor has granted a prior security interest in
the Collateral to the Lenders under the Fundamental Documents, and to that
effect, has filed UCC-1 financing statements, copyright security agreements and
trademark security agreements, the Liens of which have priority over the Liens
of the Security Documents pursuant to the terms of the Subordination Agreement.
20. Notices. All notices and other communications provided for hereunder
shall be in writing and mailed, telecopied, sent by overnight courier or
hand-delivered to the Debtor or the Collateral Agent, as applicable, at the
address set forth on the signature pages of this Agreement. Either the Debtor or
the Collateral Agent may change their address for notice by designating a new
address in a notice sent to the other party pursuant to this Section 20. All
such notices and communications, shall, when mailed, telecopied, sent by
overnight courier or hand-delivered, be effective when deposited in the mails,
communicated by telecopier, or delivered to the overnight
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courier or to the recipient, as the case may be, except that notices and
communications to the Collateral Agent shall not be effective until received by
the Collateral Agent.
21. Waiver; Amendment. This Agreement may be changed, waived,
discharged, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
22. Obligations Absolute. The obligations of the Debtor under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated, or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (a) any renewal, extension, amendment, or
modification of, or addition or supplement to or deletion from, any of the
Security Documents or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof; (b) any waiver, consent, extension,
indulgence, or other action or inaction under or in respect of any such
instrument or agreement or this Agreement or any exercise or non-exercise of any
right, remedy, power or privilege under or in respect of this Agreement or any
other Security Document; (c) any furnishing of any additional security to the
Collateral Agent or any acceptance thereof or any sale, exchange, release,
surrender, or realization of or upon any security by the Collateral Agent; or
(d) any invalidity, irregularity, or unenforceability of all or part of the
Obligations or of any security therefor.
23. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Debtor may not assign
or transfer any of its rights or obligations hereunder without the prior written
consent of the Collateral Agent. All agreements, statements, representations and
warranties made by the Debtor herein or in any certificate or other instrument
delivered by the Debtor or on its behalf under this Agreement shall be
considered to have been relied upon by the Collateral Agent and shall survive
the execution and delivery of this Agreement and the other Security Documents
regardless of any investigation made by the Collateral Agent or on its behalf.
24. Headings Descriptive, etc. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
25. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by the
law of the State of New York.
26. Debtor's Duties. It is expressly agreed, anything herein contained
to the contrary notwithstanding, that the Debtor shall remain liable to perform
all of the obligations, if any, assumed by it with respect to the Collateral and
the Collateral Agent shall not have any obligations or liabilities with respect
to any Collateral by reason of or arising out of this Agreement, nor shall the
Collateral Agent be required or obligated in any manner to perform or fulfill
any of the obligations of the Debtor under or with respect to any Collateral.
11
<PAGE>
27. Collateral Agent's Obligations Subject to Collateral Agency
Agreement. It is expressly agreed, anything herein contained to the contrary
notwithstanding, that all of the duties of the Collateral Agent hereunder or
under any Security Document are subject to the terms and conditions of the
Collateral Agency Agreement.
28. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
written above.
THE DEBTOR: ARTISAN FILM INVESTORS TRUST,
By: Artisan Pictures, Inc., as "Designee"
-------------------------------------
-------------------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
The Collateral Agent: CHRISTIANA BANK & TRUST
COMPANY, as Collateral Agent
for the holders of the Certificates
By:
--------------------------------
Title:
Address:
-----------------------------
-----------------------------
-----------------------------
12
<PAGE>
EXHIBIT A
SUBORDINATE COPYRIGHT SECURITY AGREEMENT
WHEREAS, ARTISAN FILM INVESTORS TRUST, a Delaware business trust
("Grantor"), now owns or holds and may hereafter acquire or hold certain
copyrights and rights under copyright with respect to certain motion pictures
produced for theatrical release and whether now owned or hereafter developed,
including, without limitation, those United States copyright registrations
listed on Schedule 1 hereto (the "Product"), as such Schedule may be amended
from time to time by the addition of copyrights subsequently arising or
acquired;
WHEREAS, pursuant to that certain Subordinate Security Agreement,
dated as of October 13, 1999 (as the same may be amended, modified or otherwise
supplemented from time to time, the "Security Agreement"), among the Grantor,
and Christiana Bank & Trust Company as Collateral Agent for the
Certificateholders referred to therein (the "Collateral Agent"), the Grantor
granted a security interest in certain collateral to the Collateral Agent to
secure the obligations referred to therein (the "Obligations");
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Grantor does, as security for
the Obligations, hereby grant to the Collateral Agent a continuing security
interest in all the Grantor's right, title and interest in and to each and every
item of Product, all of the properties thereof, tangible and intangible and all
domestic and foreign copyrights and all other rights therein and thereto, of
every kind and character, whether now in existence or hereafter to be made or
produced, and whether or not in possession of the Grantor, including but not
limited to all rights of the Grantor under the Film Purchase Agreements, the
Distribution Agreement and the Sponsor Agreement (as each such term is defined
in the Security Agreement) and the proceeds of any thereof; provided that,
-------- ----
Collateral shall not include property which, pursuant to its terms or under
Applicable Law may not be pledged or assigned to the extent such prohibition on
pledge or assignment is enforceable. (All of the foregoing items or types of
property, whether presently existing or hereafter arising or acquired, shall be
referred to herein collectively as the "Collateral").
The Grantor agrees that if any person, firm, corporation or other
entity shall do or perform any acts which the Collateral Agent believes
constitute a copyright infringement of the photoplay or of any of the literary,
dramatic or musical material contained in the Product, or constitute a
plagiarism, or violate or infringe any right of the Grantor, the
Certificateholders or the Collateral Agent therein or if any person, firm,
corporation or other entity shall do or perform any acts which the Collateral
Agent believes constitute an unauthorized or unlawful distribution, exhibition,
or use thereof, then and in any such event, upon 30 days' prior written notice
to the Grantor, while an Event of Default under the Security Agreement is
continuing, the Collateral Agent may and shall have the right to take such steps
and institute such suits or proceedings as the Collateral Agent may deem
advisable or necessary to prevent such acts and conduct and to secure damages
and other relief by reason thereof, and to generally take such steps as may be
advisable or necessary or proper for the full protection of the rights of the
parties. The Collateral Agent may take such steps or institute such suits or
proceedings in its own name or in the name of the Grantor or in
A-1
<PAGE>
the names of the parties jointly. The Collateral Agent hereby agrees to give the
Grantor notice of any steps taken, or any suits or proceedings instituted, by
the Collateral Agent pursuant to this paragraph.
This security interest is granted in conjunction with the security
interests granted to the Collateral Agent pursuant to the Security Agreement.
The Grantor does hereby further acknowledge and affirm that the rights and
remedies of the Collateral Agent with respect to the security interest in the
Collateral made and granted hereby are subject to, and more fully set forth in,
the Security Agreement, the terms and provisions of which are incorporated by
reference herein as if fully set forth herein.
This Subordinate Copyright Security Agreement is made for collateral
purposes only. At such time as all of the Obligations shall have been
indefeasibly repaid or performed in full, the Collateral Agent shall execute and
deliver to the Grantor, at the Grantor's expense, without representation,
warranty or recourse, all releases and reassignments, termination statements and
other instruments as may be necessary or proper to terminate the security
interest of the Collateral Agent in the Collateral, subject to any disposition
thereof which may have been made by the Collateral Agent pursuant to the terms
hereof or of the Security Agreement.
The Collateral Agent agrees that there will be no assignment of the
Collateral, other than the security interest described herein, unless and until
there shall occur an Event of Default under the Security Agreement and the
Collateral Agent gives written notice to the Grantor of its intention to enforce
its rights against any of the Collateral.
So long as no Event of Default under the Security Agreement shall have
occurred and be continuing, and subject to the various provisions of the
Security Agreement, the other Security Documents to which it is a party, the
Grantor may use, license and exploit the Collateral in any lawful manner.
A-2
<PAGE>
THIS SUBORDINATE COPYRIGHT SECURITY AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Subordinate Security Agreement.
IN WITNESS WHEREOF, the Grantor has caused this Subordinate Copyright
Security Agreement to be duly executed by its officer thereunto duly authorized
as of October 13, 1999.
ARTISAN FILM INVESTORS TRUST
By: Artisan Pictures, Inc., as Designee
By
------------------------------------
Name:
Title:
Accepted:
CHRISTIANA BANK & TRUST COMPANY,
as Collateral Agent
By
--------------------------------------
Name:
Title:
A-3
<PAGE>
STATE OF _________________)
) ss:
COUNTY OF ________________)
On the ____ day of __________, in the year 1999, before me personally came
_____________________, to me known, who, being by me sworn, did say that s/he is
an ____________ of Artisan Pictures, Inc. which Delaware corporation is
described in, and which Delaware corporation executed the above instrument, and
that s/he signed his/her name by order of the trustees of said Delaware business
trust.
-----------------------------------
Notary Public
A-4
<PAGE>
SCHEDULE 1
to Subordinate Copyright Security Agreement
Title Registration No. Date of Registration
- ----- ---------------- --------------------
A-5
<PAGE>
EXHIBIT B
SUPPLEMENT NO. __ TO SUBORDINATE COPYRIGHT SECURITY
AGREEMENT DATED AS OF OCTOBER 13, 1999
WHEREAS, pursuant to that certain Subordinate Security Agreement, dated as
of October 13, 1999 (as the same may be amended, modified or otherwise
supplemented from time to time, the "Security Agreement"), among ARTISAN FILM
INVESTORS TRUST (the "Grantor"), and Christiana Bank & Trust Company, as
Collateral Agent for the Certificateholders referred to therein (the "Collateral
Agent"), the grantor granted a security interest in certain collateral to the
Collateral Agent to secure the obligations referred to therein (the
"Obligations");
WHEREAS, pursuant to the terms of the Security Agreement, the Grantor has
granted to the Collateral Agent a security interest in all right, title and
interest of the Grantor in and to all personal property, whether now owned,
presently existing or hereafter acquired or created, including, without
limitation, all right, title and interest of the Grantor in, to and under any
item of Product (such term being used herein as defined in the Subordinate
Copyright Security Agreement referred to below) and any copyright or copyright
license, whether now existing or hereafter arising, acquired or created, and all
proceeds thereof or income therefrom, to secure the payment and performance of
the Obligations (such term being used herein as defined in the Security
Agreement) pursuant to the Security Agreement;
WHEREAS, the Grantor is a party to a Subordinate Copyright Security
Agreement, dated as of October 13, 1999 (as the same may be amended or
supplemented from time to time, the "Subordinate Copyright Security Agreement"),
pursuant to which the Grantor has granted to the Collateral Agent, as security
for the Obligations, a continuing security interest in all of the Grantor's
right, title and interest in and to each and every item of Product, the
scenario, screenplay or script upon which an item of Product is based, all of
the properties thereof, tangible and intangible, and all domestic and foreign
copyrights and all other rights therein and thereto, of every kind and
character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of the Grantor, all as more fully set forth in the
Subordinate Copyright Security Agreement;
WHEREAS, the Grantor has acquired or created additional items of Product
since the date of execution of the Subordinate Copyright Security Agreement and
the most recent Supplement thereto and holds certain additional copyrights and
rights under copyright with respect to items of Product;
WHEREAS, Schedule 1 to the Subordinate Copyright Security Agreement does
not reflect (i) item(s) of Product acquired or created by the Grantor since the
date of execution of the Subordinate Copyright Security Agreement and the most
recent Supplement thereto or (ii) all the copyrights and rights under copyright
held by the Grantor;
THEREFORE,
B-1
<PAGE>
A. The Grantor does hereby grant to the Collateral Agent, as
security, a continuing security interest in and to all of the Grantor's right,
title and interest in and to each and every item of Product being added to
Schedule 1 to the Subordinate Copyright Security Agreement pursuant to
paragraph (B) below, all of the properties thereof, tangible and intangible,
and all domestic and foreign copyrights and all other rights therein and
thereto, of every kind and character, whether now in existence or hereafter to
be made or produced, and whether or not in possession of the Grantor, all as
contemplated by, and as more fully set forth in, the Subordinate Copyright
Security Agreement.
B. Schedule 1 to the Subordinate Copyright Security Agreement is
hereby supplemented, effective as of the date hereof, so as to reflect all
of the copyrights and rights under copyright with respect to the item(s)
of Product in and to which the Grantor has granted a continuing security
interest to the Collateral Agent pursuant to the terms of the Subordinate
Copyright Security Agreement and the Security Agreement. The following
item(s) of Product and copyright information are hereby added to Schedule
1 to the Subordinate Copyright Security Agreement:
Date of
Title Registration No. Registration
----- ---------------- ------------
Except as expressly supplemented hereby, the Subordinate Copyright
Security Agreement shall continue in full force and effect in accordance with
the provisions thereof on the date hereof. As used in the Subordinate Copyright
Security Agreement, the terms "Agreement", "this Agreement", "this Subordinate
Copyright Security Agreement", "herein", "hereafter", "hereto", "hereof" and
words of similar import, shall, unless the context otherwise requires, mean the
Subordinate Copyright Security Agreement as supplemented by this Supplement.
Except as expressly supplemented hereby, the Subordinate Copyright
Security Agreement, all documents contemplated thereby and any previously
executed Supplements thereto, are each hereby confirmed and ratified by the
Grantor.
The execution and filing of this Supplement, and the addition of the
item(s) of Product set forth herein to Schedule 1 to the Subordinate Copyright
Security Agreement are not intended by the parties to derogate from, or
extinguish, any of the Secured Party's rights or remedies under (i) the
Subordinate Copyright Security Agreement and/or any agreement, amendment or
B-2
<PAGE>
supplement thereto or any other instrument executed by the Grantor and
heretofore recorded or submitted for recording in the U.S. Copyright Office or
(ii) any financing statement, continuation statement, deed or charge or other
instrument executed by the Grantor and heretofore filed in any state or country
in the United States of America or elsewhere.
IN WITNESS WHEREOF, the Grantor has caused this Supplement No. ___ to
the Subordinate Copyright Security Agreement to be duly executed by its duly
authorized officer as of [insert date of execution].
ARTISAN FILM INVESTORS TRUST
By: Artisan Pictures, Inc., as Designee
By:
---------------------------------
Name:
Title:
B-3
<PAGE>
STATE OF _________________)
) ss:
COUNTY OF ________________)
On this the _______ day of __________, ____, before me,
________________________________, the undersigned Notary Public, personally
appeared _________________________________________,
[ ] personally known to me,
[ ] proved to me on the basis of satisfactory evidence, to be the
_________________________ of the Delaware corporation known as Artisan Pictures,
Inc. who executed the foregoing instrument on behalf of the Delaware
corporation, and acknowledged that such Delaware corporation executed it by
order of the trustees of the Delaware corporation.
WITNESS my hand and official seal.
------------------------------
Notary Public
B-4
<PAGE>
EXHIBIT C
FORM OF PLEDGEHOLDER AGREEMENT (COMPLETED PRODUCT)
AGREEMENT dated as of __________ (the
"Agreement") among (i) [insert name of laboratory]
(the "Laboratory") (ii) Artisan Film Investors
Trust ("AFI") and (iii) Christiana Bank & Trust
Company, as Collateral Agent for the
Certificateholders referred to below (the
"Collateral Agent").
Pursuant to the Collateral Agency Agreement, dated as of October 13,
1999, between Bear, Stearns & Co., Inc. and the Collateral Agent, the Collateral
Agent is acting as the collateral agent for the benefit of the holders (the
"Certificateholders") from time to time of the Trust Certificates referred to
therein.
AFI has granted to the Collateral Agent for the benefit of the
Certificateholders a security interest in, among other things, all of its right,
title and interest in and to any motion picture, film or videotape produced for
theatrical, non-theatrical, television or video release or in any other medium,
with respect to which AFI (i) is the copyright owner or (ii) has acquired or has
contracted to acquire an equity interest or distribution rights (hereinafter
called the "Product") as security for various obligations of AFI to the
Certificateholders. Such security interest covers, among other things, all
physical properties of every kind or nature of, or relating to, the Product and
all versions thereof, including, without limitation, exposed film, developed
film, positives, negatives, prints, positive prints, answer prints, special
effects, preparing materials (including interpositives, duplicate negatives,
internegatives, color reversals, intermediates, lavenders, fine grain master
prints and matrices, and all other forms of pre-print elements), sound tracks,
cutouts, trims and any and all other physical properties of every kind and
nature of, or relating to, the Product, whether in completed form or in some
state of completion, and all masters, duplicates, drafts, versions, variations
and copies of each thereof, in all formats whether on film, videotape, disk or
otherwise and all music sheets and promotional materials relating to the Product
(all of the foregoing items being hereinafter collectively called the
"Collateral").
From time to time, the Laboratory will have in its possession
certain items of the Collateral.
Accordingly, the parties hereto hereby agree as follows:
(i) Each of AFI and the Collateral Agent hereby appoints the Laboratory
as the pledgeholder of all items of Collateral that may from time to time come
into the possession or control of the Laboratory. The Laboratory agrees to hold
all such items of Collateral as pledgeholder
C-1
<PAGE>
for the Collateral Agent (for the benefit of the Certificateholders) subject to
the following terms and conditions:
(1) Except as permitted by Section 1(b) below, the Laboratory
will keep all items of Collateral at the laboratories or storage
facilities listed on Schedule 1 hereto, and will not deliver such
property to anyone.
(2) Subject to the provisions of Sections 1(c) below, the
Laboratory will permit AFI:
1 to have access to the negatives and other pre-print
material of the Product on the Laboratory's premises listed on
Schedule 1 hereto for purposes of inspecting, cutting, scoring
or similar purposes;
2 to obtain a reasonable number of positive prints
including without limitation, dailies, for the purposes of
editing and previewing the Product;
3 to direct the making of pre-print material and
positive prints of the Product and trailers thereof and the
delivery thereof to AFI or distributors, licensees or other
parties as AFI may direct;
4 to remove reasonable amounts of material for
processing by optical and/or sound houses which agree in
writing to be bound by the terms hereof or enter into a
separate laboratory pledgeholder agreement substantially in
the form hereof, and to return such materials when processed
to the Laboratory;
5 with the prior written consent of the Collateral
Agent (which consent shall not be unreasonably withheld), to
forward any item of Collateral to another laboratory. The
Collateral Agent hereby consents to the Laboratory's
forwarding original material or elements constituting
Collateral, if requested to do so by AFI to any of the
laboratories listed in Schedule 2 hereto. The Collateral Agent
may, in its reasonable and good faith judgment and after
consultation with AFI, revoke the consent contained in this
clause (v) at any time by written notice to the Laboratory and
AFI. In addition, such consent shall be deemed to be revoked
at any time upon receipt by the Laboratory of written notice
from the Collateral Agent that AFI has failed to pay the
Applicable Liquidation Preference on the Liquidation Payment
Date (as such terms are defined in the Amended and Restated
Trust Agreement, dated as of October 13, 1999 (the "Trust
Agreement"), among Bear, Stearns & Co. Inc., the Collateral
Agent and Artisan Pictures, Inc.);
C-2
<PAGE>
6 to forward any of the above-mentioned property to
another laboratory, approved by the Collateral Agent, if the
Collateral Agent has previously received a Pledgeholder Agreement
executed by such laboratory;
7 to have access to the Collateral, including the right
to remove an item of Collateral from the Laboratory's possession,
provided that (A) the Laboratory has no actual knowledge that such
item of Collateral is being removed other than in the ordinary
course of business, and (B) in the event such item of Collateral
is not returned to the Laboratory within thirty (30) days, written
notice thereof shall be immediately delivered to the Collateral
Agent by AFI. In any event, the Laboratory shall have no liability
to the Collateral Agent for Producer's failure to timely return
such item of Collateral. AFI shall provide written notice to the
Collateral Agent in the event an item of Collateral is to be
removed for a period greater than thirty (30) days, as to which
notice the Laboratory shall have no concerns or liability;
8 to have the Laboratory destroy or degauss any of the
Collateral, or ship it to AFI or to any third party as AFI may
from time to time direct, at the request of AFI; and
9 to have the Laboratory deliver in accordance with
AFI's instructions any part of the Collateral constituting
inventory held for sale or lease or raw materials, work in
process, finished goods, video cassettes and packing and shipping
materials.
(3) If and when the Laboratory shall receive written notice
from the Collateral Agent that AFI has failed to pay the Applicable
Liquidation Preference on the Liquidation Payment Date, the
Laboratory shall take no further orders from AFI and will hold all
items of Collateral within its possession or under its control as
pledgeholder hereunder, subject only (i) to the order and
instruction of the Collateral Agent; and (ii) to the rights of the
Collateral Agent to have access to and/or delivery of items referred
to in Section 5 below.
(ii) The Laboratory shall keep the original negatives of the
Product in film vaults separate from and at a reasonable distance from
protective duplicating materials (whether protective masters, fine grains,
duplicate negatives or otherwise) to afford protection against any loss or
damage, whether by fire or other disaster or otherwise. The Laboratory shall
keep the Collateral Agent advised in writing of the actual location of the film
vaults where all items of the Collateral are kept, including information as to
the separate film vaults utilized for the original negatives and protective
materials as aforesaid.
(iii) The Laboratory agrees that in its capacity as pledgeholder it
is holding and has possession of the Collateral and the physical properties
thereof constructively for the Collateral Agent (for the benefit of the
Certificateholders). The Laboratory agrees that upon written notice
C-3
<PAGE>
from the Collateral Agent indicating that AFI has failed to pay the Applicable
Liquidation Preference on the Liquidation Payment Date, the Laboratory in its
capacity as pledgeholder will hold a sale or sales of the Collateral or any part
thereof in accordance with the direction and instruction of the Collateral
Agent, at the expense of the Collateral Agent, or in the alternative will cause
to be delivered or made available to the Collateral Agent or its nominee (in all
cases, pursuant to written instructions from the Collateral Agent) the
Collateral and all physical properties thereof in the possession of the
Laboratory or under its control for the purpose of enabling the Collateral Agent
to deal with the same pursuant to the Trust Agreement. Nothing herein contained
shall be construed to waive any rights of the Laboratory as specified under
Section vii hereof.
(iv) AFI hereby waives any claim for damages or otherwise which it
may have against the Laboratory for any acts which the Laboratory may take as
pledgeholder, pursuant to the written direction of the Collateral Agent made in
accordance with the terms of this Agreement, except arising from the
Laboratory's gross negligence or willful misconduct.
(v) Subject to Section vii hereof, the Laboratory agrees that,
despite the existence of any other claim which the Laboratory may have against
AFI and/or any third-party distributor of the Product, the Laboratory shall
accept and fulfill orders for laboratory work and any other material which may
be required by the Collateral Agent or any other third-party distributor of the
Product, subject to satisfactory credit arrangements being made with the
Laboratory with respect to any charges incurred on behalf of the Collateral
Agent or any such third-party distributor, and the Laboratory will not assert
any claim or lien, statutory or otherwise, against the Collateral Agent or
against the Product (except as set forth in Section vii hereof) with respect to
any charges for laboratory services or materials ordered by AFI, the designees
of AFI or any third-party distributor of the Product.
(vi) The parties hereto agree that the Collateral Agent and its
respective designees, successors and assigns shall each be entitled to
unilaterally remove from the Laboratory materials made pursuant to an order
contemplated by Section v hereof, which materials shall not be subject to this
Agreement.
(vii) The Laboratory shall hold and/or process the Collateral under
its standard terms of business as set forth in Schedule 3 hereto, except that
any liens arising in favor of the Laboratory shall be limited to an aggregate
amount of $50,000 at any one time outstanding for processing and/or storing the
Collateral and/or materials delivered therefrom for AFI and/or any of their
designees. Except as provided in the prior sentence, the rights of the
Laboratory in the Collateral shall be subordinate and junior to the rights of
the Collateral Agent in respect of the Collateral.
(viii) The Collateral Agent shall promptly give written notice to the
Laboratory when the Collateral Agent's (on behalf of the Certificateholders)
security interests in the Collateral has terminated. Upon receipt of such
written notice, the Laboratory's obligations hereunder as pledgeholder for the
Collateral Agent shall terminate.
C-4
<PAGE>
(ix) This Agreement shall be binding on and inure to the benefit of
the parties hereto and the successors and assigns of each of the parties.
(x) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
(xi) No amendment to this Agreement shall be effective unless in
writing and signed by AFI, the Collateral Agent and the Laboratory. This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which when taken together, shall constitute
but one instrument, and shall become effective on the date on which the
Collateral Agent shall have received a fully-executed copy of this Agreement.
Promptly thereafter, AFI shall deliver or mail counterparts of this Agreement
bearing the signature of each of the parties hereto to each party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first written above.
[LABORATORY]
By
------------------------------
Name:
Title:
Address:
Attn:
ARTISAN FILM INVESTORS TRUST
By Artisan Pictures Inc., as Designee
By
---------------------------------
Name:
Title:
Address: 2700 Colorado Avenue
2nd Fl.
Santa Monica, CA 90404
Attn:
C-5
<PAGE>
CHRISTIANA BANK & TRUST COMPANY, as
Collateral Agent
By
-------------------------------------
Name:
Title:
Address: 3801 Kennett Pike Greenville
New Castle County, De 19807
Attn: Corporate Trust Group
C-6
<PAGE>
Schedule 1
List of Laboratory and Storage Facilities
C-7
<PAGE>
Schedule 2
List of Other Laboratories
C-8
<PAGE>
Schedule 3
[Attach Laboratory's Standard Terms of Business]
C-9
<PAGE>
EXHIBIT D
SUBORDINATE TRADEMARK SECURITY AGREEMENT
(TRADEMARKS, TRADEMARK REGISTRATIONS,
TRADEMARK APPLICATIONS AND TRADEMARK LICENSES)
WHEREAS, ARTISAN FILM INVESTORS TRUST, a Delaware business trust
(the "Pledgor") now owns or holds and may hereafter acquire or hold Trademarks
(defined as all of the following: all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
dress, logos, other source of business identifiers and general intangibles of
like nature, now existing or hereafter adopted or acquired, all registrations
and recordings thereof or similar property rights, and all applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state thereof or any other
country or any political subdivision thereof, and all reissues, extensions or
renewals thereof) including, without limitation, the Trademarks listed on
Schedule A annexed hereto, as such Schedule may be amended from time to time by
the addition of Trademarks subsequently registered or otherwise adopted or
acquired;
WHEREAS, pursuant to that certain Subordinate Security Agreement,
dated as of October 13, 1999 (as the same may be amended, modified or otherwise
supplemented from time to time, the "Subordinate Security Agreement"), among the
Pledgor and Christiana Bank & Trust Company, as Collateral Agent for the
Certificateholders referred to therein (the "Collateral Agent"), the Pledgor
granted a security interest in certain collateral to the Collateral Agent to
secure the obligations referred to therein (the "Obligations");
WHEREAS, pursuant to the terms of the Subordinate Security
Agreement, the Pledgor has granted to the Collateral Agent a security interest
in all personal property of such Pledgor including, without limitation, all
right, title and interest of the Pledgor in, to and under all of the Pledgor's
Trademarks and Trademark licenses (including, without limitation, those
Trademark licenses listed on Schedule B hereto), whether presently existing or
hereafter arising, adopted or acquired, together with the goodwill of the
business connected with, and symbolized by, the Trademarks and all products and
proceeds thereof and all income therefrom, including, without limitation, any
and all causes of action which exist now or may exist in the future by reason of
infringement or dilution thereof or injury to the associated goodwill, to secure
the payment of the Obligations;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor does, as security for
the Obligations, hereby grant to the Collateral Agent a continuing security
interest in all of the Pledgor's right, title and interest in, to and under the
following (all of the following items or types of property being collectively
referred to herein as the "Trademark Collateral"), whether presently existing or
hereafter arising or acquired:
D-1
<PAGE>
a. each Trademark and all of the goodwill of the business
connected with the use of, and symbolized by, each Trademark, including,
without limitation, each Trademark referred to in Schedule A annexed
hereto;
b. each Trademark license, including, without limitation, each
Trademark license referred to in Schedule B annexed hereto, to the extent
such Trademark license does not prohibit the licensee from assigning or
granting a security interest in its rights thereunder; and
c. all products and proceeds of, and income from, any of the
foregoing, including, without limitation, any claim by the Pledgor against
third parties for the past, present or future infringement or dilution of
any Trademark or any Trademark licensed under any Trademark license, or
for injury to the goodwill associated with any Trademark.
The Pledgor agrees to deliver updated copies of Schedule A and
Schedule B to the Collateral Agent at the end of any quarter in which the
Pledgor registers or otherwise adopts or acquires any Trademark not listed on
Schedule A hereto or enters into any Trademark license not listed on Schedule B
hereto, and to duly and promptly execute and deliver, or have duly and promptly
executed and delivered, at the cost and expense of the Pledgor, such further
instruments or documents (in form and substance satisfactory to the Collateral
Agent), and promptly perform, or cause to be promptly performed, any and all
acts, in all cases, as may be necessary, proper or advisable from time to time,
in the reasonable judgment of the Collateral Agent, to carry out the provisions
and purposes of the Subordinate Security Agreement and this Subordinate
Trademark Security Agreement, and to provide, perfect and preserve the liens of
the Collateral Agent under the Subordinate Security Agreement and this
Subordinate Trademark Security Agreement, in the Trademark Collateral or any
portion thereof.
The Pledgor agrees that if any person, firm, corporation or other
entity shall do or perform any acts which the Collateral Agent believes
constitute an infringement of any Trademark, or violate or infringe any right of
Pledgor or the Certificateholders or Collateral Agent therein or if any person,
firm, corporation or other entity shall do or perform any acts which the
Collateral Agent believes constitute an unauthorized or unlawful use thereof,
then and in any such event, upon 30 days' prior written notice to the Pledgor
while an Event of Default (as defined in the Security Agreement) is continuing,
the Collateral Agent may and shall have the right to take such steps and
institute such suits or proceedings as the Collateral Agent may deem advisable
or necessary to prevent such acts and conduct and to secure damages and other
relief by reason thereof, and to generally take such steps as may be advisable
or necessary or proper for the full protection of the rights of the parties. The
Collateral Agent may take such steps or institute such suits or proceedings in
its own name or in the name of the Pledgor or in the names of the parties
jointly. The Collateral Agent hereby agrees to give the Pledgor notice of any
steps taken, or any suits or proceedings instituted, by the Collateral Agent
pursuant to this paragraph.
This security interest is granted in conjunction with the security
interests granted to the Collateral Agent pursuant to the Subordinate Security
Agreement. Pledgor does hereby further
D-2
<PAGE>
acknowledge and affirm that the rights and remedies of the Collateral Agent with
respect to the security interest in the Trademark Collateral made and granted
hereby are subject to, and more fully set forth in, the Subordinate Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
This Subordinate Trademark Security Agreement is made for collateral
purposes only. At such time as all of the Obligations have been indefeasibly
repaid or performed in full, the Collateral Agent shall execute and deliver to
the Pledgor, at the Pledgor's expense, without representation, warranty or
recourse, all releases and reassignments, termination statements and other
instruments as may be necessary or proper to terminate the security interest of
the Collateral Agent in the Trademark Collateral, subject to any disposition
thereof which may have been made by the Collateral Agent pursuant to the terms
hereof or of the Subordinate Security Agreement.
The Collateral Agent agrees that there will be no assignment of the
Trademark Collateral, other than the security interest described herein, unless
and until there shall occur an Event of Default (such term being used herein as
defined in the Security Agreement) and the Collateral Agent gives written notice
to the Pledgor of its intention to enforce its rights against any of the
Trademark Collateral.
So long as no Event of Default shall have occurred and be
continuing, and subject to the various provisions of the Subordinate Security
Agreement and the other Security Documents to which it is a party, the Pledgor
may use, license and exploit the Trademark Collateral in any lawful manner.
D-3
<PAGE>
THIS TRADEMARK SECURITY AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Subordinate Security Agreement.
IN WITNESS WHEREOF, the Pledgor has caused this Subordinate
Trademark Security Agreement to be duly executed as of October 13, 1999 by its
officers thereunto duly authorized.
ARTISAN FILM INVESTORS TRUST
By: Artisan Pictures, Inc., as Designee
By:
-------------------------------------
Name :
Title:
Accepted:
CHRISTIANA BANK & TRUST COMPANY,
as Collateral Agent
By:
-------------------------------------
Name:
Title:
<PAGE>
Schedule A to Subordinate
Trademark Security Agreement
----------------------------
TRADEMARKS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Application Registration Registration
Country Owner No. No. Date Trademark Description of Goods
- ------- ----- ----------- ------------ ------------ --------- --------------------
</TABLE>
<PAGE>
Schedule B to Subordinate
Trademark Security Agreement
----------------------------
TRADEMARK LICENSES
<PAGE>
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES )
On the ____ day of __________, in the year 1999, before me personally came
_____________________, to me known, who, being by me sworn, did say that s/he is
an ____________ of Artisan Pictures, Inc. which Delaware corporation is
described in, and which Delaware corporation executed the above instrument, and
that s/he signed his/her name by order of the trustees of said Delaware business
trust.
-----------------------------------
Notary Public
<PAGE>
EXHIBIT 23.6
DIRECTOR'S CONSENT
I hereby consent to the use of my name in the Registration Statement on
Form S-1 of Artisan Entertainment Inc. under the headings "Management" and
"Principal and Selling Stockholders."
/s/ Amir Malin
Amir Malin
Dated: March 21, 2000
<PAGE>
Exhibit 23.7
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
777 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA 90017
(213) 680-8400
Facsimile:
213-680-8500
March 14, 2000
VIA FACSIMILE
Dwight Beach
Paul Kagan Associates
Re: Paul Kagan Associates' Consent to Use of Name and Data
On behalf of Artisan Entertainment Inc., a client currently involved in a
securities offering, we hereby request consent for the use of Paul Kagan
Associates' name and the data contained in the attached excerpts in a
registration statement on Form S-1, amendments thereto, and other related
filings with the Securities and Exchange Commission.
Please indicate your consent in the space provided below.
Please do not hesitate to contact me at (213) 680-8602 with any questions
or comments.
Sincerely yours,
/s/ JoLee M. Adamich
JoLee M. Adamich
The above is hereby consented to and approved.
PAUL KAGAN ASSOCIATES
By: /s/ Dwight W. Beach
Name: Dwight W. Beach
Title: Vice President of Operations
