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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event reported) June 20, 1997
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THE TODD-AO CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-1461 13-1679856
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
900 North Seward Street, Hollywood, California 90038
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 962-4000
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Not Applicable
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(Former name or former address, if changed from last report)
Exhibit index located on page 3
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THE TODD-AO CORPORATION
FORM 8-K
JUNE 20, 1997
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TABLE OF CONTENTS
Item 2. ACQUISITION OR DISPOSITION OF ASSETS. Page 2
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
a. Financial Statements of business acquired:
Item 7 (a) has been omitted due to the
impracticality of filing the required
audited financial statements at the
time of filing this report on Form 8-K.
Item 7 (a) will be filed on Form 8 within
60 days after the required filing date of
this report.
b. Pro forma condensed financial information
Item 7 (b) has been omitted due to the
impracticality of filing the required pro
forma information at the time of filing
this report on Form 8-K. Item 7 (b) will
be filed on Form 8 within 60 days after
required filing date of this report.
c. Exhibit Index Page 3
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On the closing date, June 20, 1997, an agreement dated June 18,
1997 for the purchase and sale of substantially all of the assets
and certain liabilities was entered into by and among The Todd-AO
Corporation, a Delaware corporation ("TAO") , Todd-AO HD, Inc., a
California corporation (collectively the "Purchaser") and
Hollywood Digital Limited Partnership, a Delaware limited
partnership (the "Seller"), and Hollywood Digital, Inc., a
Delaware corporation; the Palladion Limited Partnership, a
Delaware limited partnership; HDZ Digital Limited Partnership, a
Massachusetts limited partnership; Rand Gladden; William Romeo;
M. David Cottrell; and Michael Jackson (each, a "Partner" and
collectively, the "Partners") for an aggregate consideration of
$30,400,000. The purchase price is subject to reduction by an
adjustment factor if the operating profit (as defined in the
agreement) for the period July 1, 1996 to June 30, 1997 is less
than $5,500,000. The adjustment factor is six (6) times the
amount by which $5,500,000 exceeds the operating profit. The
acquisition has been accounted for as a purchase. Of the total
purchase price, cash in the amount of $17,741,429 was used to pay
down existing debt of the seller; $19,500 was used to assume
additional debt; and the remaining $12,639,071 is evidenced by
the issuance of two convertible subordinated notes of TAO, one in
the amount of $9,239,071 and one in the amount of $3,400,000.
The second note in the amount of $3,400,000, is subject to
reduction by the adjustment factor described above and will be
held in escrow until the purchase price has been finally
determined. The principal is due and payable at the end of three
years and interest is payable annually at 5%. The notes are
convertible into TAO Class A Common Stock at the conversion price
of $11.875 per share at any time before the maturity date. The
final purchase price will approximate fair market value.
Financing of the debt paid at closing was provided by the
Company's credit facility with its institutional lender.
Todd-AO provides post-production sound and video services to the
film and television industries and Hollywood Digital ("HD") is an
all digital, post-production facility providing sound and video
services to the film, television, and commercial advertising
industries.
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Item 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
c. The following exhibits are filed with this current report on
Form 8-K:
EXHIBIT NO. EXHIBIT
1 Agreement for the purchase and sale of assets
between The Todd-AO Corporation, Todd-AO HD, Inc.,
and Hollywood Digital Limited Partnership and its
Partners dated as of June 18, 1997 ("The Purchase
Agreement").
1 (a) Exhibit A to The Purchase Agreement: Todd-AO
Corporation Convertible Subordinated Note No.
1 (b) Exhibit B to The Purchase Agreement: Todd-AO
Corporation Convertible Subordinate Note No.
1 (c) The Registration Rights Agreement.
1 (d) Assignment & Assumption of Lease (6660 Sunset
Blvd.)
1 (e) Assignment & Assumption of Lease (6690 Sunset
Blvd.)
1 (f) Assignment & Assumption of Lease (1661 Lincoln
Blvd.)
1 (g) Indemnification Agreement.
1 (h) Bill of Sale.
1 (i) Hollywood Digital and HD-Related Partners
Noncompetition Agreement.
1 (j) Phemus Noncompetition Agreement.
2 Employment Agreement dated as of June 19, 1997
between The Todd-AO Corporation and Rand Gladden
including Memorandum of Understanding.
3 Fifth Amendment dated June 6, 1997 to Credit
Agreement dated as of December 2, 1994 between The
Todd-AO Corporation and Bank of America National
Trust and Savings Association.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
THE TODD-AO CORPORATION
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(Registrant)
/S/ SILAS R. CROSS
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Silas R. Cross
Vice President/Treasurer
JULY 3, 1997
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Date
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AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
between
THE TODD-AO CORPORATION,
TODD-AO HD, INC.
and
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
and
ITS PARTNERS
June 18, 1997
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AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS ("Agreement"), is made
and entered into as of this 18th day of June, 1997, by and among The Todd-AO
Corporation, a Delaware corporation ("Todd"), Todd-AO HD, Inc., a California
corporation ("THD") (Todd and THD are sometimes collectively referred to as the
"Purchaser"), and Hollywood Digital Limited Partnership, a Delaware limited
partnership (the "Seller"), and Hollywood Digital, Inc., a Delaware corporation;
The Palladion Limited Partnership, a Delaware limited partnership; HDZ Digital
Limited Partnership, a Massachusetts limited partnership; Phemus Corporation, a
Massachusetts corporation; Rand Gladden; William Romeo; David Cottrell; and
Michael Jackson (each, a "Partner" and collectively, the "Partners"), with
reference to the following facts:
A. The Seller is engaged in the video, audio and film post-production
business at a facility located at 6660 and 6690 Sunset Boulevard, Hollywood,
California 90028. Seller is developing a second facility located at 1661
Lincoln Boulevard, Santa Monica, California. The Hollywood and Santa Monica
facilities are referred to as the "Premises."
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B. The Seller wishes to sell all of its business and assets to the
Purchaser, and the Purchaser wishes to acquire all of such business and assets
from Seller on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements,
covenants and other provisions herein contained, the parties agree as follows.
1. PURCHASE OF ASSETS.
1.1. On the basis of the representations and warranties herein
contained, subject to the terms and conditions herein set forth, and for the
consideration described below, on the Closing Date (as defined in Section 10),
the Seller agrees to sell and convey to THD, and THD agrees to purchase all of
the business and assets of the Seller, tangible and intangible, of whatever
type, quality and location, as of the Closing Date (collectively, the "Assets"),
including but not limited to:
(a) all of its cash on hand, deposits and accounts receivable;
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(b) all work in process, customer orders and customer contracts;
(c) all of its operable fixed assets including, without
limitation, leasehold improvements, trade fixtures, machinery, furniture, motor
vehicles, equipment and supplies (the "Fixed Assets"), which assets are more
particularly described on Schedule 1.1(c) attached hereto;
(d) all of its records relating to the Assets, all records
relating to liabilities assumed or incurred by the Purchaser pursuant to this
Agreement, all of its vendor files, account receivable files and all of its
personnel records;
(e) pre-paid items and security deposits under real property
leases in the amounts noted in Schedule 1.1(e) attached hereto; and
(f) all of its good will, customer lists, office and warehouse
supplies, catalogs, packaging materials, telephone numbers, credit files and
forms, and all of its trade names including, without limitation, "Hollywood
Digital."
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1.2. Except as specifically provided in this Agreement, the
Purchaser is not assuming any of the liabilities or obligations of the Seller
other than liabilities set forth on Seller's March 31, 1997 balance sheet and
those subsequently incurred in the ordinary course of Seller's business.
2. PURCHASE PRICE.
2.1. As the purchase price for the Assets to be purchased under this
Agreement (the "Purchase Price"), the Purchaser agrees to pay to the Seller the
sum of Thirty Million Four Hundred Thousand Dollars ($30,400,000), reduced by
the Adjustment Factor as provided in Section 2.2, payable as follows at the
Closing:
(a) payment at the Closing of the outstanding indebtedness as of
the Closing of Seller to CIT (the "CIT Debt"), to Orix Corporation (the "Orix
Debt"), and the funded indebtedness of Seller, all as set forth on Schedule
2.1(a) hereto (the "Funded Debt");
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(b) cash in an amount equal to Seller's indebtedness to Phemus
Corporation ("Phemus") outstanding as of the Closing (the "Phemus Debt"), paid
to Phemus at the Closing; and
(c) cash in the amount of Four Hundred Sixty-Five Thousand
Dollars ($465,000), representing an investment banking fee payable by Seller to
HD Venture Capital, Inc., to be paid to HD Venture Capital, Inc. at the Closing;
and
(d) the difference between the Purchase Price and the sum of
items (a), (b) and (c) above (except that any portion of the CIT Debt used to
fund Santa Monica improvements approved by Purchaser shall be excluded from item
(a) for this purpose) by issuance of two convertible notes of Todd (the "Todd
Notes"), one in the amount of the difference between $27,000,000 and items (a),
(b) and (c) above (adjusted to exclude such Santa Monica improvements) (the
"First Note") to be delivered to Seller at the Closing, and one in the amount of
the difference between the Purchase Price and $27,000,000 (the "Second Note") to
be delivered to an escrow holder at the Closing as provided in Section 2.3. The
First Note and the Second Note shall be in substantially the form of Exhibits
"A" and "B" hereto respectively. The Todd Notes shall
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be convertible into the Class A Common Stock of Todd (the "Todd Shares").
Todd's obligation to register the Todd Shares under the Securities Act of 1933
is provided for in a Registration Rights Agreement in substantially the form of
Exhibit "C" hereto.
2.2. The Purchase Price shall be reduced by the Adjustment Factor if
and only if the Operating Profit (as defined below) is less than Five Million
Five Hundred Thousand Dollars ($5,500,000). For purposes of this Section 2.2:
(a) The Adjustment Factor shall be six (6) times the amount by
which Five Million Five Hundred Thousand Dollars ($5,500,000) exceeds the Cash
Flow From Operating Activities. For example, if the Cash Flow From Operating
Activities is $5,400,000, the Adjustment Factor shall be 6 times $100,000, or
$600,000, and accordingly, the Purchase Price shall be $29,800,000.
(b) Cash Flow From Operating Activities means the pre-tax income
or loss of Seller computed without deduction for depreciation, amortization,
interest expense and non-recurring expenses of the Seller for the period July 1,
1996 through the Closing and of the Assets determined on a stand-alone basis for
the
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period from the Closing through June 30, 1997, computed in accordance with the
principles employed in preparing the Financial Statements (as defined below).
Seller's Cash Flow From Operating Activities for the period July 1, 1996 through
March 31, 1997 is the amount set forth as "operating profit" in the summary
statement of operations which is an exhibit to Seller's audited financial
statement for such period. Cash Flow From Operating Activities for the period
April 1, 1997 through June 30, 1997 shall be determined by Seller's auditors as
soon as practicable after June 30, 1997. Seller's auditors shall provide
Purchaser and Seller with a preliminary statement of such computation. Each
party shall have the right for a period of fifteen (15) days after receipt of
such preliminary statement (the "Comment Period") to comment in writing upon
such statement, and Seller's auditors shall consider any comments of either
party in determining whether to revise its preliminary statement of Cash Flow
From Operating Activities. Failure of a party to provide such written comments
within the Comment Period shall be deemed acceptance of the preliminary
statement. In computing Cash Flow From Operating Activities, the following
items shall not be deducted: (1) any costs of developing Seller's Santa Monica
facility which are approved by Purchaser; (2) the payment of approximately
$75,000 advanced to Seller by Halpern,
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Denny & Co. ("HD") for legal fees and other fees and expenses prior to the
Closing; (3) the payment of an investment banking fee of $465,000 to HD Venture
Capital, Inc.; (4) the payment of Seller's legal fees and costs related to this
transaction; (5) repayment of the Phemus Debt; and (6) payment of any other
non-recurring fees and costs of Seller, including fees and expenses relating to
litigation settlements and management fees and expenses paid to HD. Seller's
auditors shall notify the parties of its final computation of Cash Flow From
Operating Activities after considering any comments on its preliminary statement
made by either party. Each party shall have fifteen (15) days from the date
upon which it receives the final statement of Seller's auditor to notify the
other party that it disagrees with such computation, and the grounds therefor
(the "Disagreement Notice"). If a party timely delivers to the other party a
Disagreement Notice, Purchaser and Seller shall designate a national accounting
firm other than Arthur Andersen or Deloitte Touche to determine such Cash Flow
From Operating Activities in accordance with this Section 2.2. The
determination of Cash Flow From Operating Activities of such national accounting
firm shall be final and binding on the parties. Purchaser and Seller shall each
bear one-half of the costs of such
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accounting firm in making its determination of Cash Flow From Operating
Activities.
2.3. At the Closing, Purchaser shall deliver the Second Note to
Greenberg Glusker Fields Claman & Machtinger LLP as escrow holder. For this
purpose, the Second Note shall be in the principal amount of Three Million Four
Hundred Thousand Dollars ($3,400,000). Purchaser and Seller each shall notify
the escrow holder in writing of the amount of the Purchase Price, as finally
determined pursuant to Section 2.2. Escrow holder shall hold the Second Note
until it receives notice from both Purchaser and Seller that the Purchase Price
has been finally determined to be Thirty Million Four Hundred Thousand Dollars
($30,400,000). Upon receipt of such notices, escrow holder shall then deliver
the Second Note to Seller. If the escrow holder has received notices from both
Purchaser and Seller that the Purchase Price is determined to be less than
$30,400,000 by virtue of the Adjustment Factor, Purchaser and Seller shall
deliver to escrow holder instructions to exchange the original Second Note for a
substitute Second Note in the principal amount of the difference between the
Purchase Price and $27,000,000, Todd and escrow holder shall then exchange such
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original and substitute Second Notes, and escrow holder shall then deliver the
substitute Second Note to Seller.
2.4. In addition to the foregoing, and except for the items set
forth on Schedule 2.4 hereto, THD shall assume and discharge the liabilities of
Seller outstanding on the Closing Date which were set forth on Seller's balance
sheet dated March 31, 1997 or were subsequently incurred by Seller in the
ordinary course of its business.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND PARTNERS. The Seller and
each of the Partners represent and warrant to the Purchaser as follows, such
representations and warranties being several as to the Partners in proportion to
their equity interests in Seller as set forth on Schedule 3.0 hereto, except
that (1) the representations and warranties of the HD-Related Partners (as
identified on Schedule 3.0) are joint and several as to their aggregate equity
interest in Seller; (2) except that representations and warranties in Section
3.2 relating to Phemus, Gladden, Romeo, Cottrell and Jackson are made only by
each such person separately, and (3) the representations and warranties in
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Section 3.2 relating to any of the HD-Related Partners are made jointly only by
the HD-Related Partners:
3.1. The Seller is a limited partnership duly organized, validly
existing and in good standing under the laws of Delaware and has all requisite
power and authority to own and operate its properties and to carry on its
business as now being conducted and to own, sell and dispose of the Assets in
accordance with this Agreement. The Seller has full power and authority to
execute, deliver and perform this Agreement and doing so will not violate any
provision of law or contravene any provisions of its Certificate of Limited
Partnership or its partnership agreement.
3.2. This Agreement and the transactions provided for in this
Agreement by the Seller and its Partners have been duly authorized by the
Partners of the Seller on behalf of the Seller and by each of the Partners on
behalf of itself or himself, no other authorization being necessary. This
Agreement has been duly executed on behalf of the Seller and each of the
Partners and constitutes a legal, valid and binding obligation of the Seller and
each of the Partners. Neither the execution of this Agreement nor the
transactions provided for, including the sale of the Assets,
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will violate, or result in a breach of, or constitute a default under, any law
or any agreement or any instrument, order, judgment or decree to which the
Seller or any Partner is a party or to which Seller or any Partner or any of
their respective properties are subject.
3.3. The Seller has good and marketable title to all of the Assets,
and all of the Assets are free and clear of all pledges, liens (except liens for
taxes not yet due), security interests or other burdens, charges or encumbrances
of any kind or nature whatsoever, except for the CIT Debt, the Orix Debt, the
Funded Debt, the Phemus Debt or as otherwise disclosed in Schedule 3.3 attached
hereto.
3.4. All leases pursuant to which the Seller leases to or from
others any property are listed in Schedule 3.4 attached hereto. To Seller's
Best Knowledge (as defined below), all such leases are legally valid, and there
is not under any of such leases any existing default or any event of default or
event which with notice or lapse of time or both would constitute such a default
by the Seller or by any other party thereto. The Seller is not a
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party to and is not bound by any other lease or amendment or supplement thereto.
3.5. The Seller has all material licenses necessary for the conduct
of its business, and all license taxes have been paid if due or accrued if not
yet due. All copyrights, patents, trademarks, tradenames and other licenses
used by the Seller in the conduct of its business are listed in Schedule 3.5
attached hereto. The Seller has not received any notice of conflict with the
asserted rights of others thereto and to Seller's Best Knowledge it is not
infringing such rights of others.
3.6. Except as otherwise disclosed in Schedule 3.6 attached hereto,
all tax returns of the Seller, including but not limited to, returns of sales,
social security, personal property, withholding and unemployment taxes, which
are required to have been filed by the Seller to date, have been duly prepared,
timely filed and are true and correct, and all taxes, interest and penalties
shown thereon or due in connection therewith have been paid, if due, or accrued,
if not yet due. No deficiency has been proposed and not paid with respect to
any tax return filed by the Seller as
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of the date hereof. All payroll taxes that the Seller is required by law to
withhold have been withheld and properly deposited.
3.7. Except as otherwise disclosed in Schedule 3.7(a), the Seller
does not have any bonus, deferred compensation, profit sharing, pension,
retirement or stock option plan or agreement, or any other type of employee
benefit plan or any accrued obligation thereunder, or any current or prospective
obligation for the payment of severance pay to any current or former employee.
The Seller has delivered to the Purchaser copies of all documents governing any
plan, agreement or obligation disclosed in Schedule 3.7(a) and copies of all
reports applicable thereto. All accrued vacation pay and sick pay due to the
Seller's employees is set forth in Schedule 3.7(b).
3.8. The Seller is not now nor has it ever been a party to any labor
union contract or collective bargaining agreement.
3.9. Except as disclosed in Schedule 3.9 attached hereto, the Seller
has no knowledge and has received no notice to the effect that the Seller has
failed to comply with any laws, regulations or orders applicable to its business
or properties or
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that the present uses by the Seller of its properties violate any such laws,
regulations or orders, where such failure would have a material adverse effect
on Seller's business.
3.10. Except as otherwise disclosed in Schedule 3.10 attached hereto,
the Seller is not involved in any pending or threatened litigation or any
investigation by any governmental body or any legal, administrative or
arbitration proceeding. Except as otherwise disclosed in Schedule 3.10 attached
hereto, to the Best Knowledge of the Seller, the Seller is not materially in
default under any contract, and there is no action, claim, suit, proceeding or
investigation threatened against or affecting the Seller or any of its
properties or assets. Except as otherwise disclosed in Schedule 3.10 attached
hereto, the Seller is not subject to any judgment, award, order or decree and is
not involved in any governmental action or proceeding in which relief is sought
affecting the operation of its business or its assets. Except as otherwise
disclosed in Schedule 3.10 attached hereto, no current or former partner of the
Seller has any claim against the Seller or any of its assets.
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3.11. The Seller maintains in full force and effect the insurance
policies listed in Schedule 3.11 attached hereto. There has been no default in
the payment of premiums on any such policy, and to Seller's Best Knowledge there
is no ground for cancellation or avoidance of any such policy or for reduction
of the coverage provided thereby.
3.12. Except as otherwise disclosed in Schedule 3.12 attached hereto,
to Seller's Best Knowledge, the Seller does not have any employment, service or
consulting agreement with any person or entity which cannot be terminated at any
time without liability to the Seller.
3.13. All of the Seller's open orders as of the date hereof in excess
of $25,000 are listed in Schedule 3.13 attached hereto.
3.14. The Seller has delivered to the Purchaser copies of its audited
financial statements for its fiscal years ended June 30, 1994, June 30, 1995,
June 30, 1996, its short fiscal year beginning July 1, 1996 and ending December
31, 1996, and the nine months beginning July 1, 1996 and ending March 31, 1997
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(collectively, the "Financial Statements"). Each of the Financial Statements
accurately reflects the books and records of Seller, fairly and accurately
presents the financial condition of Seller and the results of its operations for
the period covered, and has been prepared in accordance with generally accepted
accounting principles, consistently applied ("GAAP"). All accounts receivable
set forth in the Financial Statements are valid and enforceable to Seller's Best
Knowledge and provisions for uncollectible receivables were determined in good
faith and on a basis consistent with GAAP and past practice. Seller has
furnished to Purchaser for its inspection all readily available working papers,
supporting schedules and other materials with respect to Seller which were
utilized in preparing the Financial Statements. Except as set forth on the
Financial Statements or the Schedules to this Agreement, for the period covered,
to Seller's Best Knowledge, Seller did not have any liabilities of any nature,
whether accrued or contingent, including without limitation, tax liabilities.
3.15. Since March 31, 1997, except as set forth on Schedule 3.15,
(i) there have been no changes in the condition, financial or otherwise, assets,
liabilities, properties, labor relations or business of the Seller from that
shown in the Seller's
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balance sheet as of that date, other than events and conditions generally
affecting the economy, which have materially adversely affected the business,
assets, properties, condition or prospects of the Seller; (ii) there has not
been any damage, destruction or loss, whether covered by insurance or not,
materially or adversely affecting any of the properties or the business of the
Seller; (iii) there has not been any material increase in the compensation
payable by the Seller to any officer or employee, except for increases in
compensation provided for in employment agreements in force on March 31, 1997,
or any material increase in any bonus, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with any such officer or
employee; (iv) the Seller has not sold or otherwise disposed of any of its
trademarks, trade names, copyrights, other intangible assets, machinery,
equipment (including motor vehicles), leasehold improvements, furniture or
fixtures other than in the ordinary course of its business; (v) except for
expenditures related to development of the Santa Monica facility approved by
Purchaser, there has not been any expenditure or contract for the acquisition of
assets of any kind, or any obligations or liabilities incurred or any
cancellation of any debts or claims by Seller or any discharge or satisfaction
of any lien or encumbrance by Seller,
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other than in the ordinary course of its business; (vi) there has not been any
declaration or payment by Seller of any distribution of any kind to any of the
Partners or in discharge or cancellation, in whole or in part, of any
indebtedness owing to any of the Partners; (vii) there has not been any issuance
or grant of any options, warrants or other rights for the purchase of equity
interests in Seller; (viii) there has not been any mortgage, pledge, subjection
to lien, charge or encumbrance of any kind of any of the Assets, or any
amendment or termination of any contract, agreement or license to which Seller
is a party other than in the ordinary course of its business; and (ix) Seller
has not entered into any contract or commitment except for normal month-to-month
commitments for the purchase of supplies and merchandise and for the furnishing
of services to customers in the ordinary course of its business.
3.16. Except for the payment of an investment banking fee of $465,000
to HD, neither Seller nor any of the Partners, nor any of their employees or
agents have incurred any liability to any broker, finder, or agent for any
brokerage fees, finder's fees, investment banking fees or commissions with
respect to the transactions contemplated by this Agreement.
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3.17. The Todd Notes are being acquired, and upon conversion of the
Todd Notes, the Todd Shares will be acquired, for investment purposes, and not
with a view to transfer or distribution to others, except for a distribution by
Seller to the Partners.
As used in this Article 3, Seller's Best Knowledge means the actual knowledge of
any of David P. Malm, Rand Gladden, William Romeo or David Cottrell, after
reasonable inquiry.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Each of Todd and THD
represents and warrants to the Seller as follows:
4.1. It is a corporation duly organized, validly existing, and in
good standing under the laws of Delaware. It has full power and authority to
execute, deliver and perform this Agreement, and doing so will not violate any
provision of law or contravene any provision of its Certificate of Incorporation
or Bylaws.
4.2. This Agreement and the transactions provided for in this
Agreement by each Purchaser have been duly authorized by each
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Purchaser, and this Agreement constitutes a legal, valid and binding obligation
of each Purchaser.
4.3. The execution and delivery of this Agreement by each Purchaser
and the consummation and documentation of the transactions provided for herein
do not and will not constitute breach of, or default under, any commitment,
agreement, judgment or pending suit or court proceeding to which the Purchaser
is a party or to which any or its assets is subject and will not create, or
cause the acceleration of the maturity of, any debt, liability or obligation of
the Purchaser.
4.4. The Todd Shares will, when delivered to the Seller or the
Partners upon conversion of the Todd Notes, be duly issued, fully paid and
non-assessable.
4.5. No consent of any federal, state or local authority is required
in connection with the consummation of the transactions contemplated by this
Agreement by each Purchaser.
4.6. No written representation or warranty made by the Purchaser in
this Agreement, or in any written statement,
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certificate or other instrument furnished to the Seller pursuant hereto, or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
4.7. Todd's annual report (Form 10-K) for its fiscal year ended
August 31, 1996 and its quarterly report (Form 10-Q) for the period ended
February 28, 1997, as filed with the Securities and Exchange Commission are true
and correct in all material respects and contain no material omissions, and
there has been no material adverse change in Todd's financial condition since
the last date covered by such Form 10-Q.
4.8. Neither Purchaser nor any of their employees or agents has
incurred any liability to any broker, finder or agent for any brokerage fees,
finder's fees or commissions with respect to the transactions contemplated by
this Agreement.
5. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the
Purchaser under this Agreement to consummate the
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purchase of the Assets are subject to the fulfillment on or before the Closing
Date of each of the following conditions:
5.1. Except as disclosed in writing to Purchaser and not disapproved
by them, all representations and warranties of the Seller and the Partners
contained in this Agreement shall (except as affected by the transactions
contemplated by this Agreement and except to the extent made as of a specified
date) be true in all material respects on the Closing Date with the same effect
as though such representations and warranties had been made on and as of the
Closing Date, and all of the actions of Seller and each of the Partners to be
performed on or before the Closing Date pursuant to the terms hereof shall have
been duly performed in all material respects.
5.2. Purchaser shall have received certificates, dated as of the
Closing Date, of Seller and each of the Partners to the effect that the
conditions specified in Section 5.1 have been fulfilled.
5.3. Purchaser shall have received an opinion of counsel to Seller
and the HD-Related Partners, and an opinion of counsel to
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Phemus in substantially the form of Exhibits "D-1" and "D-2" hereto.
5.4. Neither the Assets nor the Premises shall have suffered
material damage by fire, flood or other casualty.
5.5. There shall be no pending or threatened litigation or any
investigation by any governmental body or any legal, administrative or
arbitration proceeding pending or threatened that may have a material adverse
effect of the operation of the Assets by THD.
5.6. No governmental inquiry, action or proceeding shall have been
asserted, threatened or initiated to enjoin the transactions contemplated by
this Agreement.
5.7. The Seller shall have delivered to THD at the Premises all of
the records referred to in Section 1.1(d) above.
5.8. The Seller shall have delivered to THD assignment agreements in
the form of Exhibits "E", "F" and "G" attached hereto
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with respect to the Premises, and the landlord's Consent in the form of Exhibit
"H" with respect to 1661 Lincoln Boulevard.
5.9. The Seller shall have executed a bill of sale and assignment in
substantially the form of Exhibit "I" transferring all of the Assets to THD.
5.10. Each of Rand Gladden, William Romeo and David Cottrell each
shall have entered into an Employment Agreement with Purchaser effective as of
the Closing Date.
5.11. The Seller and Todd shall have entered into the Registration
Rights Agreement in substantially the form of Exhibit "C".
5.12. Seller and each of the Partners shall release any security
interest any of them may have in any of the Assets.
5.13. Seller shall have satisfied the rights or options of Michael
Jackson to acquire equity interests in Seller or profit participations in
Seller's business, evidenced by a certificate executed by Michael Jackson in
form satisfactory to Purchaser.
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5.14. The Seller, the HD-Related Partners and Phemus shall have
delivered to the Purchaser its or his respective Noncompetition Agreement in
substantially the form of Exhibits "J" and "K" hereto.
5.15. The Partners shall have delivered to the Purchaser the
Indemnification Agreement in substantially the form of Exhibit "L" hereto.
5.16. As of the Closing, no event shall have occurred and no
circumstance shall exist which may materially and adversely affect or, in the
reasonable judgment of the Purchaser, threaten to affect the Seller's business,
assets, properties, condition or prospects.
6. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations of the
Seller under this Agreement are subject to the fulfillment on or before the
Closing Date of each of the following conditions:
6.1. Except as disclosed in writing to Seller and not disapproved by
it, the representations and warranties of Purchaser contained in Section 4
hereof shall (except as affected by the
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transactions contemplated by this Agreement and except to the extent that any
such representations and warranties are made as of a specified date) be true in
all material respects on the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date, and
all of the actions of Purchaser to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects.
6.2. Seller shall have received a certificate, dated as of the
Closing Date, of an officer of Todd to the effect that the conditions specified
in Section 6.1 have been fulfilled.
6.3. The Seller and the Partners shall have received an opinion of
counsel to Purchaser in substantially the form of Exhibit "M" hereto.
6.4. No governmental inquiry, action or proceeding shall have been
asserted, threatened or instituted to restrain or enjoin the transactions
contemplated by this Agreement.
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6.5. The Purchaser shall have paid to the Seller the Purchase Price
(for this purpose, delivery of the Second Note to the escrow holder as provided
in Section 2.3 shall be considered as payment).
6.6. The Purchaser shall have delivered to Seller the undertakings
of Marshall Naify and Robert Naify to vote in favor of David P. Malm as a
director of Todd, in substantially the form of Exhibits "N" and "O" hereto.
6.7. The Seller and the Partners shall have received the
Registration Rights Agreement duly executed by Todd and the Indemnification
Agreement duly executed by the Purchaser.
6.8. As of the Closing, no event shall have occurred and no
circumstance shall exist which may materially and adversely affect or, in the
reasonable judgment of the Seller, threaten to affect, the Purchaser's business,
conditions or prospects.
7. SURVIVAL OF REPRESENTATIONS. All representations, warranties and
covenants made by Purchaser or Seller and the Partners shall survive the Closing
Date, provided, however, that
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the liability of Seller and the Partners shall be limited as set forth in the
Indemnification Agreement, and the time periods for actions and claims by
Purchaser against Seller and the Partners shall be limited as set forth in the
Indemnification Agreement.
8. EFFECT OF CLOSING OVER KNOWN UNSATISFIED CONDITIONS. If any of the
parties hereto elects to proceed with the Closing knowing of any failure of any
condition or breach of any representation and warranty by any other party
hereto, the condition that is unsatisfied or the representation and warranty
which is breached at the Closing Date shall be deemed to be waived by such
party, and the party so electing to proceed shall be deemed to fully release and
forever discharge such other party hereto on account of any and all claims,
demands or charges with respect to the same.
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9. ACTIONS TO BE TAKEN SUBSEQUENT TO CLOSING.
9.1. Each of the Seller and the Purchaser agrees that it will at any
time and from time to time after the Closing Date, upon reasonable request of
the other party, do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged and delivered all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be required for
the complete assigning, transferring, granting, assuring and confirming to the
Purchaser and to its successors and assigns, and for aiding and assisting in
obtaining or collecting and reducing to possession, any or all of the Assets.
9.2. At the next meeting of the Board of Directors of Todd following
the Closing, the Board of Directors of Todd shall have elected David P. Malm
("Malm") to the Board as a Member of the Board to serve until the next annual
meeting of the shareholders of Todd and until his successor is elected and
qualified. Todd agrees that it shall nominate Malm for re-election as director
at any election of directors occurring before the earlier of (1) the third
anniversary of the Closing or (2) the date upon which the HD-Related Partners
have disposed of more than 50% of the Todd Shares
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issued to them upon conversion of their interests in the Todd Notes, provided
that Malm has consented to serve as a director and no grounds exist for his
removal for cause.
9.3. As soon as practicable following the receipt of written demand
in accordance with the Registration Rights Agreement, Todd shall, at its own
expense, register the Todd Shares with the Securities and Exchange Commission.
9.4. From the Closing through June 30, 1997, Purchaser will not
incur additional liabilities related to the Assets except in the ordinary course
of business, and except for a possible refinancing of the CIT Debt and/or the
Orix Debt.
9.5. The Seller shall pay as they become due all liabilities of the
Seller not assumed by the Purchaser pursuant to the terms of this Agreement, and
the Purchaser shall pay as they become due all liabilities of the Seller assumed
by the Purchaser pursuant to the terms of this Agreement and all liabilities and
expenses arising from the operation of the Assets following the Closing.
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9.6. In the event the transactions provided for in this Agreement
fail to close, neither Purchaser will solicit for employment Rand Gladden,
William Romeo, David Cottrell or Michael Jackson for a period of eighteen (18)
months from April 17, 1997.
9.7. Each of the Partners covenants and agrees that, for the
Retention Period (as defined below), it or he will retain, and will not dispose
of in any manner, other than a sale for full and adequate consideration, any
Todd Notes, Todd Shares, or the gross proceeds from the sale of any Todd Notes
or Todd Shares which it or he may acquire from Seller. For this purpose, the
Retention Period is the period commencing on the Closing Date and ending on the
later of (1) the second anniversary of the Closing Date (the "Claim Period") or
(2) if as of such last date one or more timely-noticed claims are outstanding,
the date on which the last such claim has been fully satisfied; provided,
however, that if at the expiration of the Claim Period, one or more
timely-noticed claims are outstanding, the maximum amount each Partner is
required to retain under this Section 9.7 is 100% of the amount of such
Partner's maximum possible liability under the Indemnification Agreement to
which it or he is a party. Phemus shall be considered to have complied with
this Section 9.7 notwithstanding that its Todd Notes,
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Todd Shares or proceeds from the sale thereof, are transferred to another entity
which meets the following requirements: (1) it is controlled by the President
and Fellows of Harvard College, (2) it is not bankrupt or insolvent and (3) it
becomes a party to and agrees to assume Phemus' liabilities under the
Indemnification Agreement.
9.8. During the term that any of the Todd Notes is outstanding, Todd
shall not incur any indebtedness which, by its terms, prohibits payment of the
Todd Notes when due (except for, with respect to any indebtedness which is
Senior Indebtedness as defined in the Todd Notes, the subordination provisions
of Article 1 of the Todd Notes).
10. THE CLOSING. The Closing hereunder shall take place at the offices of
Greenberg Glusker Fields Claman & Machtinger LLP 1900 Avenue of the Stars, Suite
2200, Los Angeles, CA 90067 at 10 a.m. on June 20, 1997, or at such other time
and place as the parties may agree (the "Closing Date").
11. RETENTION OF RECORDS. The Purchaser agrees that for a period of six
years from their respective dates, the Purchaser will
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notify the Seller before discarding any records and other data delivered by the
Seller to the Purchaser as part of the Assets and that upon request by the
Seller will make available at reasonable times to the Seller and its
representatives all such records and data. The Seller may, at its expense, make
copies of such records and data.
12. EMPLOYEES. The Purchaser will use reasonable efforts to offer
employment to the Seller's employees who are not specified in Section 5.10. Any
of the Seller's employees hired by the Purchaser following the Closing will have
continuing medical insurance benefits without any waiting period. For purposes
of determining eligibility for participation in Todd's employee benefit plans,
such employees will be given credit for any past service with the Seller.
13. RIGHT OF FIRST PURCHASE. Each time the Seller or any Partner proposes
to transfer, assign or sell all or any part of the Todd Notes or the Todd
Shares, the Seller or such Partner (an "Offeror") shall first offer such Todd
Notes of Todd Shares to Todd in accordance with the following provisions:
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13.1. The Offeror shall deliver a written notice (the "Offer Notice")
to Todd stating (i) the Offeror's bona fide intention to transfer such Todd
Notes or Todd Shares, (ii) the name and address of the proposed transferee if
known or otherwise the means of transfer, (iii) the Todd Notes or Todd Shares to
be transferred and (iv) the purchase price in terms of payment for which the
Offeror proposes to transfer such Todd Notes or Todd Shares.
13.2. Within seven (7) days after receipt of the Offer Notice, Todd
shall notify the Offeror in writing of its desire to purchase all or any portion
of the Todd Notes or Todd Shares being so transferred, and within such 7-day
period, Todd shall have the first right to purchase such Todd Notes or Todd
Shares upon the price and terms of payment designated in the Offer Notice. If
the Offer Notice provides for the payment of non-cash consideration, Todd may
elect to pay the consideration in cash equal to the present fair market value of
the non-cash consideration offered. If Todd elects to exercise its first right
to purchase, it shall deliver the purchase price to the Offeror either (1) at
the time specified in the Offer Notice or (2) within ninety (90) days after the
date of delivery of the Offer Notice,
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provided the buyer is the same party identified in the Offer Notice, whichever
is greater, except that, in the case of any Todd Shares held by Phemus, the
7-day and 90-day periods referred to above shall instead be 24-hours and 30
days, respectively.
13.3. If Todd elects not to purchase all of the Todd Notes or Todd
Shares designated in the Offer Notice, then the Offeror may transfer the Todd
Notes or Todd Shares with respect to which Todd has elected not to exercise its
right of first refusal in the manner described in the Offer Notice, providing
such transfer (i) is completed within the time period specified in Section 13.2,
and (ii) is made at the price, on the terms and to the same buyer designated in
the Offer Notice. If such Todd Notes or Todd Shares are not so transferred, the
Offeror must give notice in accordance with this Article 13 prior to any other
or subsequent transfer of such Todd Notes or Todd Shares.
13.4. The Todd Notes and Todd Shares shall each bear a legend stating
that such Todd Notes and Todd Shares are subject to the right of first refusal
provided herein.
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13.5. Nothing in this Article 13 shall prohibit transfers of Todd
Shares meeting the requirements of the last sentence of Section 9.7, which
transfers shall not be subject to this Article 13.
14. EXPENSES.
14.1. Except as specifically provided herein, Seller, the Partners
and Purchaser each shall be responsible for its own expenses incurred in
connection with this Agreement, including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants employed by the
parties hereto in connection with the preparation of this Agreement and the
consummation of the transactions contemplated by this Agreement.
14.2. All state transactional taxes due and payable upon the sale of
the Assets to the Purchaser shall be paid by the Seller. The foregoing shall
not be interpreted as a limitation of the Purchaser's rights to indemnification
under the Indemnification Agreement with respect to any other taxes, including
but not limited to, income taxes and any related penalties payable by the Seller
or the Partners.
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15. CHANGE OF NAME. The Seller and the Partners acknowledge that the
trade name "Hollywood Digital" is being sold to the Purchaser as part of the
Assets. Accordingly, the Seller and the Partners shall cease as of the Closing
Date hereof using the name "Hollywood Digital" or any substantially similar
variation thereof in any partnership, corporate or trade name or in any
advertisement for any business following the Closing Date.
16. INTERIM OPERATION OF BUSINESS. The Seller covenants and agrees that
from the date hereof to the Closing Date it shall:
16.1. Conduct its business only in the ordinary course and incur no
liabilities, direct or contingent, except in the ordinary course of business
consistent with past practices;
16.2. Use its commercially reasonable efforts to preserve its
business intact, keeping available the services of the present officers and
employees thereof and preserving the relationships thereof with suppliers,
customers and others with whom the Seller has business dealings;
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16.3. Maintain all of its properties in customary repair, order and
condition, reasonable wear and tear excepted, and maintain in full force and
effect all licenses, franchises, and other intangible assets owned by the
Seller;
16.4. Maintain in full force and effect all policies of insurance in
effect on the date hereof and renewals thereof;
16.5. Maintain its books of account and records in the usual, regular
and ordinary manner, in accordance with GAAP;
16.6. Timely file all reports required to be filed with governmental
authorities and conform in all material respects to all laws, regulations and
orders relating to its business;
16.7. Except as required under employment agreements in force on
March 31, 1997, not pay or commit to pay any salary increases, not make or
commit to make any distribution of assets, not make or commit to make any loans
or otherwise dispose of its assets except in the ordinary course of business
consistent with past practices;
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16.8. Not execute any purchase orders in excess of $25,000 without
the consent of Todd;
16.9. Promptly advise the Purchaser in writing of any material
adverse change, known or threatened, in the financial condition, business or
affairs of the Seller; and
16.10. Not make any purchases inconsistent with past practices as to
type or quantity of merchandise.
Nothing in this Agreement shall be deemed to prevent Seller from paying expenses
and incurring capital expenditures either (1) to develop the Santa Monica
facility, if such items are consented to by Todd, or (2) to purchase equipment
from March 31, 1997 to the Closing in the ordinary course of its business in the
aggregate amount not to exceed $25,000.
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17. DISPUTE RESOLUTION; ATTORNEYS' FEES.
17.1. Any controversy or claim arising out of or relating to this
Agreement, its enforcement or interpretation, or because of an alleged breach or
default or misrepresentation in connection with any of its provisions shall be
submitted to a retired judge (the "Referee") pursuant to California Code of
Civil Procedure, Section 638, ET SEQ. The Referee will serve as an all purpose
judge and his or her determinations will include, but will not be limited to,
discovery and other law and motion matters and provisional remedies, as well as
the trial itself. In all respects, including, but not limited to, the right of
appeal and review, the proceedings will be governed by the Code of Civil
Procedure, as if the Referee were a sitting judge of the Superior Court. The
Referee will be selected by the following process:
17.2. Within ten (10) days after a party has notified the other
party, in writing, that such party elects to exercise such party's rights under
this Section 17, each party will serve on the other party a list of five (5)
nominees who are retired superior court or federal judges.
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17.3. Within ten (10) days after the expiration of the 10-day period
referenced in Section 17.2 above, each party will serve on the other party a
copy of the entire list of all nominees with each nominee numbered in the order
of that party's preference, its first choice being number one, its next choice,
number two, etc.
17.4. The nominee with the lowest numerical total will then be
designated as the Referee, subject to being duly challenged by any of the
parties. Each party will have 1 peremptory challenge. A peremptory challenge
may only be exercised by filing it with the court (and serving it upon the
party's counsel of record) within five (5) business days after the parties have
designated the order of their preference. Peremptory challenges need not be in
any particular form and need only state that the challenging party peremptorily
challenges a particular nominee. If both parties exercise a peremptory
challenge against the same nominee each will be deemed to have exercised its 1
peremptory challenge. The exercise of the peremptory challenge described herein
does not affect or limit the right of any party to object to the appointment of
the Referee pursuant to Code of Civil Procedure Section 641.
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17.5. If the designated Referee is duly challenged and disqualified
or becomes unwilling or unable to serve, the nominee with the next lowest
numerical total will be designated the Referee, subject, in turn to challenge
(in the manner specified in this Section 17) or unwillingness or inability to
serve; and this procedure will be repeated until a Referee is selected. The
trial will be held as expeditiously as practicable in light of law and motion
and discovery proceedings.
17.6. The Referee shall hear, try and determine all issues in the
case, whether fact or law, and issue a statement of decision, and a judgment.
No party shall seek, and the Referee shall not be authorized to award, any
punitive damages. The parties intend this general reference agreement to be
specifically enforceable. If the parties do not agree upon the fees to be paid
to the selected or appointed Referee, the fees shall be fixed and paid, as if
the reference to such Referee were involuntary, pursuant to California Code of
Civil Procedure Sections 645.1 and 1023. Any retrial of any issue shall be
subject to the provisions of this Section 17, in the same manner as specified
hereinabove.
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17.7. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of any alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred therein, in addition to any
other relief to which it or they may be entitled. The court or Referee shall
consider, in determining the prevailing party, (i) which party obtains relief
which most nearly reflects the remedy or relief which the parties sought, and
(ii) any settlement offers made prior to commencement of the trial in the
proceeding.
18. PUBLIC DISCLOSURE.
Seller shall make no press release or public disclosure of the
transactions contemplated by this Agreement other than a joint press release
with Todd unless approved in writing by Todd. Todd may, prior to the Closing,
make public disclosure of the transactions contemplated by this Agreement, with
or without the approval of Sellers, if it believes on the advice of counsel that
such disclosure is legally required.
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19. OTHER OFFERS AND EXCLUSIVE DEALING.
From and after the date of this Agreement and until the earlier of the
termination of this Agreement or the Closing, whichever shall occur first,
Seller and the Partners shall not, and shall use their best efforts to ensure
that their officers, directors, employees, advisors and agents shall not,
directly or indirectly, (a) solicit, initiate or authorize any inquiries,
discussions, negotiations or submission of proposals or offers to or from any
person, corporation or other entity, or participate in any discussion regarding
any such inquiry or proposal relating to any merger or purchase of any equity
interest in, all or a material amount of the equity interests or the assets of
Seller or approve or undertake any such transaction, or (b) knowingly provide or
furnish to any person other than Purchaser and their agents any non-public
information about or with respect to Seller. Seller and the Partners shall
respond to all unsolicited inquiries and proposals, and to inquiries or
proposals resulting from actions of persons not controlling or controlled by
Seller or any of the Partners or subject to this Agreement, seeking information
or indications of interest regarding any merger or purchase of any equity
interest in, all or a material amount of the equity
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interests, or the assets of Seller, by clearly communicating to the inquiring or
proposing party that the Seller or the Partner, as the case may be, is unwilling
to respond to the proposal or inquiry at that time.
20. CONFIDENTIALITY.
Each party shall maintain the confidentiality of all information
furnished to it by the other party hereto concerning the business, operations
and financial condition of the party furnishing such information, and shall not
use any such information except in furtherance of the completion of the
transactions contemplated by this Agreement. If such transactions are not
completed, each party hereto shall promptly return all documents and copies
thereof received from the other parties hereto. The obligations of
confidentiality under this Section 20 shall survive any termination of this
Agreement and shall remain in effect, except to the extent that (a) the
transactions contemplated by this Agreement shall have been completed or (b) as
to any particular information if such information (i) shall have become
generally available to the other party or (ii) was available to the other
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party on a non-confidential basis prior to its disclosure by the first party.
21. TERMINATION.
Either Purchaser or Seller may terminate this Agreement on or prior to
the Closing Date without liability to the other of them if a bona fide
governmental action or proceeding shall be pending against either party on the
Closing Date wherein an unfavorable judgment, decree or order would prevent or
make unlawful the carrying out of the transaction contemplated by this
Agreement. This Agreement may be terminated by either Purchaser or Seller if
the Closing does not occur on or before 5:00 PM P.D.T. June 27, 1997. Seller
may not terminate this Agreement pursuant to the preceding sentence if the
Closing has not occurred by reason of the failure of Seller or any Partner to
have performed his or its obligations hereunder; and Purchaser may not terminate
this Agreement pursuant to the preceding sentence if the Closing does not occur
by reason of Purchaser's failure to perform its obligations hereunder; provided,
further, that the outside date for the Closing shall be extended during the
period that a procedure to
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resolve a dispute under this Agreement is pending as provided in Section 17.
22. MISCELLANEOUS.
22.1. All notices and other communications provided for hereunder
shall be in writing, unless otherwise specified, and shall be deemed to have
been duly given if delivered personally or by facsimile transmission or three
(3) days after the date mailed, postage prepaid, registered or certified mail,
to the following addresses or at such other addresses as the parties hereto may
designate from time to time in writing:
If to the Seller: Hollywood Digital Limited Partnership
c/o Halpern, Denny & Co.
500 Boylston Street
Suite 1880
Boston, Massachusetts 02116
Attention: David P. Malm
FAX: (617) 536-8535
With a copy to: Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Roslyn G. Daum, Esq.
FAX: (617) 248-4000
If to the Partners: Halpern, Denny & Co.
500 Boylston Street
Suite 1880
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Boston, Massachusetts 02116
Attention: David P. Malm
FAX: (617) 536-8535
If to Phemus: Phemus Corporation
c/o Harvard Private Capital Group, Inc.
600 Atlantic Avenue, 26th Floor
Boston, Massachusetts 02210
FAX: (617) 523-1063
with a copy to: Larry Rowe, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
If to Gladden: Rand Gladden
c/o Hollywood Digital
6660 Sunset Boulevard
Hollywood, California 90028
FAX: (213) 468-5584
with a copy to: Anthony Iler, Esq.
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071-3042
FAX: (213) 229-0516
If to Romeo: William Romeo
c/o Hollywood Digital
6660 Sunset Boulevard
Hollywood, California 90028
FAX: (213) 468-5584
If to Cottrell: David Cottrell
c/o Hollywood Digital
6660 Sunset Boulevard
Hollywood, California 90028
FAX: (213) 468-5584
If to Jackson: Michael Jackson
c/o Hollywood Digital
6660 Sunset Boulevard
Hollywood, California 90028
FAX: (213) 468-5584
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If to the Purchaser: The Todd-AO Corporation
900 North Seward Street
Hollywood, California 90038
Attention: Salah M. Hassanein,
President and Chief Executive Officer
FAX: (213) 466-2327
With a copy to: Greenberg Glusker Fields
Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2200
Los Angeles, California 90067
Attention: Gary L. Kaplan, Esq.
FAX: (310) 553-0687
22.2. This Agreement shall be governed by and construed and enforced
in accordance with the laws of California. The section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
22.3. This Agreement may be amended, modified, superseded or
cancelled only by a written instrument executed by all of the parties hereto.
The waiver by any party of any breach of any provision shall not be construed as
a waiver of any other provision by such party. Each party shall have the right
to waive fulfillment of a condition or covenant or compliance with a
representation or warranty of which it is the beneficiary, but, except as
provided in Section 8, such waiver may be made only by written instrument
executed by such party.
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22.4. All understandings and agreements of the parties are merged
into this Agreement and the instruments and agreements specifically referred to
herein. This Agreement inures to the benefit of and shall be binding on each of
the parties hereto or any of them, their respective representatives and
successors; provided, however, this Agreement and the rights and obligations
hereunder shall not be assignable by any party.
22.5. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
22.6. In the event any provision of this Agreement is deemed to be
unenforceable, the remainder of this Agreement shall not be affected thereby and
each provision hereof shall be valid and enforced to the fullest extent
permitted by law.
22.7. All schedules to this Agreement whether attached hereto or
delivered prior to the Closing are hereby incorporated into and made a part of
this Agreement.
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22.8. This Agreement, the Schedules attached hereto, and the other
agreements referred to herein constitute the entire agreement among the parties
hereto and supersede all prior agreements, representations, warranties,
statements, promises, information, arrangements and understandings, whether oral
or written, express or implied, with respect to the subject matter hereof. None
of the parties hereto shall be bound by or charged with any oral or prior
written agreements, representations, warranties, statements, promises,
information, arrangements or understandings not specifically set forth in this
Agreement and the other documents and instruments delivered concurrently
herewith or to be delivered on or before the Closing Date pursuant to this
Agreement. The parties hereto further acknowledge and agree that, in entering
into this Agreement and in delivering the schedules, documents and instruments
heretofore delivered or to be delivered on or before the Closing Date, they have
not in any way relied, and will not in any way rely, upon any oral or prior
written
52
<PAGE>
agreements, representations, warranties, statements, promises, information,
arrangements or understandings, express or implied, not specifically set forth
in this Agreement, or the other written agreements referred to herein or
delivered concurrently herewith, or in such schedules, documents or instruments.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
"Purchaser"
THE TODD-AO CORPORATION
By:
-----------------------------
Its:
-----------------------------
TODD-AO HD, INC.
By:
-----------------------------
Its:
-----------------------------
53
<PAGE>
"Seller"
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
By: HOLLYWOOD DIGITAL, INC., Its General Partner
By:
--------------------------
Its:
--------------------------
"Partners"
HOLLYWOOD DIGITAL, INC.
By:
--------------------------
Its:
-------------------------
THE PALLADION LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK, INC.,
Its general partner
By:
--------------------------
Its:
-------------------------
HDZ DIGITAL LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK LIMITED
PARTNERSHIP II
By: HALPERN, DENNY AND ZOOK,
INC., Its general partner
By:
---------------------
Its:
--------------------
54
<PAGE>
PHEMUS CORPORATION
By:
--------------------------
Its:
-------------------------
By:
--------------------------
Its:
-------------------------
------------------------------
Rand Gladden
------------------------------
William Romeo
------------------------------
David Cottrell
------------------------------
Michael Jackson
55
<PAGE>
TABLE OF CONTENTS
PAGE(S)
-------
1. Purchase of Assets . . . . . . . . . . . . . . . . . . . . . . . 2
2. Purchase Price.. . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Representations and Warranties of Seller and Partners. . . . . . 8
4. Representations and Warranties of the Purchaser. . . . . . . . . 17
5. Conditions to Obligations of the Purchaser . . . . . . . . . . . 19
6. Conditions to Obligations of the Seller. . . . . . . . . . . . . 22
7. Survival of Representations. . . . . . . . . . . . . . . . . . . 24
8. Effect of Closing Over Known Unsatisfied Conditions. . . . . . . 24
9. Actions to be Taken Subsequent to Closing. . . . . . . . . . . . 25
10. The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11. Retention of Records . . . . . . . . . . . . . . . . . . . . . . 28
12. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13. Right of First Purchase. . . . . . . . . . . . . . . . . . . . . 29
14. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. Change of Name . . . . . . . . . . . . . . . . . . . . . . . . . 31
16. Interim Operation of Business. . . . . . . . . . . . . . . . . . 32
17. Dispute Resolution; Attorneys' Fees. . . . . . . . . . . . . . . 34
18. Public Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 37
19. Other Offers and Exclusive Dealing . . . . . . . . . . . . . . . 37
i
<PAGE>
20. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 38
21. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
22. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 40
<PAGE>
NEITHER THIS NOTE NOR THE COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED BY THE HOLDER IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND REGISTRATION OR
QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER IS EXEMPT FROM
SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS.
THIS NOTE AND THE COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF ARE SUBJECT
TO THE RIGHT OF FIRST PURCHASE OF THE TODD-AO CORPORATION PROVIDED FOR IN THAT
CERTAIN AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS DATED JUNE 18, 1997.
THE TODD-AO CORPORATION
CONVERTIBLE SUBORDINATED NOTE
No. 1 $ 9,239,071.00
-----
THE TODD-AO CORPORATION, a Delaware corporation (hereinafter called the
"Company," which term includes any successor hereunder), for value received,
hereby promises to pay to HOLLYWOOD DIGITAL LIMITED PARTNERSHIP or registered
assigns (the "Holder"), the principal sum of Nine Million Two Hundred
Thirty-Nine Thousand Seventy-One Dollars ($9,239,071.00) on June 20, 2000, upon
surrender of this Note, and to pay interest thereon from the date hereof
annually on June 20 of each year, commencing initially on June 20, 1998, at the
rate of five percent (5%) per annum, until the principal hereof is paid or made
available for payment. The interest so payable on any interest payment date
will be paid to the person in whose name this Note is registered in the Note
register maintained by the Company for such purpose (the "Note Register") at the
close of business on the May 1, next preceding such interest payment date.
Payment of the principal and interest on this Note will be made at the principal
office of the Company in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
<PAGE>
debts; provided, however, that payment of interest may be made at the option of
the Company by check mailed to the address of the Holder as such address shall
appear on the Note Register.
This Note is one of a duly authorized issue of two (2) Notes of the Company
designated as its Convertible Subordinated Notes (herein called the "Notes"),
limited in aggregate principal amount to the amount set forth in that certain
Agreement for the Purchase and Sale of Assets between the Company and Hollywood
Digital Limited Partnership dated June 18, 1997 (the "Purchase Agreement"). The
Notes are issuable only in registered form without coupons.
This Note may not be transferred or assigned by Holder without the consent
of the Company; provided, however, that Holder may transfer this Note to its
partners in proportion to their respective partnership interests in Holder as
set forth on Schedule 3.0 of the Purchase Agreement. Upon receipt of a written
request of Holder and surrender to the Company of the Notes, the Company shall
deliver to each of Holder's partners a new note (each a "Replacement Note") in
principal amount equal to the aggregate principal amount of the Notes multiplied
by a decimal fraction equal to such partner's percentage equity interest in
Holder as set forth on Schedule 3.0 of the Purchase Agreement and otherwise
substantially identical to this Note, and shall register each such partner as a
Holder on the Note Register. Notwithstanding the first sentence of this
paragraph, Phemus Corporation may transfer its Notes to any transferee which has
satisfied the requirements of Section 9.7 of the Purchase Agreement.
Prior to due presentment for registration of transfer, the Company and any
agent of the Company may treat the registered Holder as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
Notwithstanding anything to the contrary in this Note, including but not
limited to Article 1, in the event the Holder is obligated to make an
indemnification payment to an Indemnified Party pursuant to that certain
Indemnification Agreement of even date herewith, at the election of either the
Holder or the Company, made by written notice, first, accrued but unpaid
interest, and thereafter, unpaid principal on this Note, shall be reduced in
satisfaction of such payment obligation.
2
<PAGE>
ARTICLE 1
SUBORDINATION OF NOTES
1.1 SUBORDINATION OF NOTES. The Company agrees, and each Holder by his,
her or its acceptance hereof agrees, that the payment of the principal of,
interest on, or any other amounts pursuant or with respect to, the Note is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all Senior
Indebtedness.
The term "Senior Indebtedness" means all Indebtedness, present or future
(other than the Notes) to banks and other financial institutions, created,
incurred, assumed or guaranteed by the Company, and any renewals, extensions or
refundings thereof; all real property leases and equipment leases; and all
Indebtedness which is nonrecourse to the Company; provided that no such
Indebtedness shall prohibit or prevent payment of this Note when due other than
under the circumstances set forth in this Article 1 and Section 6.11.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include (1) any Indebtedness of the Company to any of its
subsidiaries, affiliates, officers, directors or shareholders, or (2) any
Indebtedness of the Company that is subordinated to any other Indebtedness of
the Company.
The term "Indebtedness" means at any date any of the following: (i) all
obligations, unconditional or contingent for borrowed money including, without
limitation, principal, interest, premium, penalties and costs (whether or not
the recourse of the lender is to the whole of the assets of the Company or only
to a portion thereof, and including for this purpose all obligations incurred
under Capitalized Leases), or obligations evidenced by bonds, notes, debentures
or similar instruments (including, without limitation, obligations with respect
to letters of credit or bankers' acceptances); and (ii) all obligations to pay
the balance deferred and unpaid of the purchase price of any business, real
property, other assets, or interest therein, except any such balance that
constitutes a trade payable arising in the ordinary course of business. For
purposes hereof, (i) a "Capitalized Lease" means a lease of real or personal
property which, in accordance with generally accepted accounting principles, has
been capitalized
3
<PAGE>
by the Company; and (ii) "interest" includes, without limitation, interest which
may accrue subsequent to the filing of a petition for relief in bankruptcy or
subsequent to the Company becoming subject to any other federal or state debtor
relief statute.
1.2 DISTRIBUTION OF ASSETS. Upon any distribution of assets of the
Company in connection with any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise),
the holders of Senior Indebtedness shall first be entitled to receive payment in
full in cash on the principal of (and premium, if any) and interest (including
interest accruing subsequent to the commencement of such case or proceeding,
whether or not a claim for post-petition interest is allowable in any such case
or proceeding) on the Senior Indebtedness before the Holders of the Notes are
entitled to receive any payment upon the principal of or interest on the Notes;
and, upon any such dissolution, winding up, liquidation or reorganization, any
payment or distribution of assets of the Company of any kind to which the
Holders of the Notes would be entitled except for the provisions of this
Article 1 shall be made by the person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the holders of Senior Indebtedness or their representatives or to
the trustee under any indenture under which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of (and premium,
if any) and interest on the Senior Indebtedness held or represented by each, to
the extent necessary to pay in full in cash Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness.
If the Holders of the Notes, or any of them, shall fail to file a proper
claim in the form required in any proceeding referred to in the first paragraph
of this Section 1.2, prior to thirty (30) days before the expiration of the time
to file such claim, then the holders of Senior Indebtedness are hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Notes in the form required by any such proceeding.
4
<PAGE>
Upon any such dissolution, winding up, liquidation or reorganization, in
the event that any payment or distribution of assets of the Company of any kind
shall be received by the Holders of the Notes in payment of the Notes before all
Senior Indebtedness is paid in full in cash, such payment or distribution shall
be held in trust for the benefit of and shall be paid over to the holders of
such Senior Indebtedness or their representative or to the trustee under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably as aforesaid, for application to the payment of
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full in cash, after giving effect to any concurrent payment or
distribution to the Holders of such Senior Indebtedness.
After all Senior Indebtedness is paid in full in cash and until the Notes
are paid in full in cash, the Holders of the Notes shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness to
the extent that payments or distributions otherwise payable to Holders of the
Notes have been applied to payment of Senior Indebtedness. A payment or
distribution under this Article 1 to the holders of Senior Indebtedness which
otherwise would have been made to Holders of the Notes is not, as between the
Company and the Holders of the Notes, a payment by the Company on Senior
Indebtedness.
1.3 DEFAULTS ON OR MATURITY OF SENIOR INDEBTEDNESS. Except as provided in
the fifth paragraph of this Note, no direct or indirect payment of principal of,
or premium, if any, or interest on the Notes, whether pursuant to the terms of
the Notes or upon acceleration or otherwise, nor any exchange for, repurchase of
or offset respecting, the Notes, shall be made if, at the time of such payment,
exchange, repurchase or offset there exists a default on Senior Indebtedness, or
if there exists any condition, event or act which with the giving of notice or
the passage of time or both would constitute a default on Senior Indebtedness
("Potential Default"), or if any such default on Senior Indebtedness would exist
after giving effect to any such payment, exchange, repurchase or offset, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Senior Indebtedness.
Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or
otherwise, all principal of, or premium, if any, and interest on all such
matured
5
<PAGE>
Senior Indebtedness shall first be paid in full in cash before any payment on
account of principal or interest, if any, is made upon the Notes.
Notwithstanding the foregoing:
(a) if such default or Potential Default is a default in the payment
of all or any portion of principal of, or premium, if any, or interest on Senior
Indebtedness (whether by reason of maturity by lapse of time, acceleration or
otherwise) (a "Payment Default"), payments of principal, premium, if any, or
interest upon the Notes which have been blocked as a result of the existence of
such default or a Potential Default in accordance with the foregoing may be made
if all of the following conditions are true: (i) there does not then exist any
Payment Default, (ii) such payment upon the Notes would not itself constitute or
result in a default on any Senior Indebtedness, (iii) 180 days has elapsed from
the date of such default or Potential Default which blocked payments on the
Notes, (iv) no new default or new Potential Default then exists which would
block payments in accordance with the foregoing, (v) no proceedings have been
commenced by the holders of Senior Indebtedness to enforce the provisions of the
Senior Indebtedness and (vii) no dissolution, winding up, liquidation or
reorganization proceedings have been commenced by or against the Company
(whether in bankruptcy, insolvency or receivership proceedings, or by way of an
assignment for the benefit of creditors or otherwise); or
(b) if such default or Potential Default is not a Payment Default,
payments of principal, premium, if any, or interest upon the Notes which have
been blocked as a result of the existence of a default or Potential Default in
accordance with the foregoing may be made if all of the following are true: (i)
there does not then exist any Payment Default; (ii) 180 days have elapsed from
the date of the default or Potential Default; (iii) no proceedings have been
commenced by the holders of Senior Indebtedness to enforce the provisions of the
Senior Indebtedness and (iv) no dissolution, winding up, liquidation or
reorganization proceedings have been commenced by or against the Company
(whether in bankruptcy or receivership proceedings, or by way of an assignment
for the benefit of creditors or otherwise). The Company and the holders of the
Senior Indebtedness may invoke the provisions of clause (b) only once in any
twelve-month period.
6
<PAGE>
In the event that any payment prohibited by the provisions of this Section 1.3
shall be received by the Holders of the Notes in payment of principal of, or
premium, if any, or interest on the Notes, then such payment shall be held in
trust for the benefit of and shall be paid over to the holders of such Senior
Indebtedness or their representative or to the trustee under any indenture under
which any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably, for application to the payment of Senior Indebtedness remaining
unpaid until all such Senior Indebtedness shall have been paid in full, after
giving effect to any concurrent payment to the Holders of such Senior
Indebtedness; provided, however, that in the case of any payment of interest
only such payment shall be so held in trust only commencing on the date upon
which the Holders receive notice either from the Company or the holder of such
Senior Indebtedness that a prohibited payment has been made. Such notice shall
be deemed delivered on the date it is personally delivered or sent by facsimile
transmission, or three (3) days after the date it is mailed, first class postage
prepaid, as follows: George P. Denny, III, c/o Halpern, Denny & Co., 500
Boylston Street, Suite 1880, Boston, Massachusetts 02116, FAX: (617) 536-8535
1.4 AMENDMENT OF SENIOR INDEBTEDNESS; WAIVER. The Company and/or the
holders of Senior Indebtedness may at any time or from time to time and in their
absolute discretion change the manner, place or terms of payment, change or
extend the time of payment of, or renew or alter, any Senior Indebtedness, or
amend or supplement any instrument pursuant to which any Senior Indebtedness is
issued, or release any collateral for any Senior Indebtedness, or release any
guarantors of any Senior Indebtedness, or exercise or refrain from exercising
any other of their rights under the Senior Indebtedness including, without
limitation, the waiver of default thereunder, all without notice to or assent
from the Holders of the Notes. Without limiting the foregoing, the Holders
expressly waive any right they might otherwise have to require resort to or
marshalling of any security held by any holder of Senior Indebtedness. The
holders of Senior Indebtedness shall have no duty or obligation to disclose to
the Holders of the Notes any information or material about or regarding the
condition of the Company, financial or otherwise, which may be learned or
acquired by the holders of the Senior Indebtedness in any manner.
7
<PAGE>
1.5 LIMITATIONS ON EXERCISE OF REMEDIES. Notwithstanding any other
provision of this Note, including but not limited to the provisions of
Article 6, in the event of any default on this Note or the Notes, the Holder
shall not take any action to enforce this Note prior to the 180th day following
written notice to the Company and to the holders of Senior Indebtedness of the
existence of a default under this Note (the "Standstill Period"). The actions
prohibited during the Standstill Period include, without limitation, the
commencement of any dissolution, bankruptcy, insolvency or receivership
proceedings against the Company, the exercise of any rights or remedies at law
or in equity, with respect to this Note, or the commencement of any lawsuit to
enforce any rights against the Company under or pursuant to this Note.
Notwithstanding the generality of the foregoing, during the Standstill Period
the Holders of the Notes may accelerate the obligations under the Notes provided
that no actions prohibited by the preceding sentence are taken. Even after the
expiration of the Standstill Period, the remaining provisions of this Article 1
shall continue to apply so as to continue to prohibit payment to the Holders
under the provisions of Section 1.2 and Section 1.3 of this Article 1 and so as
to require payment over to the holders of Senior Indebtedness if the Holders
should receive payments prohibited by Section 1.2 and Section 1.3 of this
Article 1.
ARTICLE 2
CONVERSION RIGHTS
2.1 CONVERSION RIGHTS. The Holder of this Note has the right, at the
Holder's option, at any time on or after the date hereof but before maturity
(the "Conversion Date"), to convert the aggregate unpaid principal of this Note
as a whole and all but not less than all other Notes held by such Holder into
fully paid and non-assessable shares of Class A Common Stock (the "Common
Shares") of the Company based on the Conversion Price of Eleven Dollars and
Eighty-Seven and One-Half Cents ($11.875) per share, subject to adjustments as
provided below.
2.2 NOTICE OF CONVERSION. Before this Note may be converted into Common
Shares at the option of the Holder, the Holder must surrender this Note and all
but not less than all other Notes held by such Holder, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the Company or
of any
8
<PAGE>
transfer agent for the Notes. The Holder shall also give written notice to the
Company at such office that the Holder elects to convert this Note. The notice
shall also specify the name or names in which the Holder wishes the certificate
or certificates for Common Shares to be issued, which may be only Holder or a
permitted transferee of Holder under the third paragraph of this Note. If a
name specified is not that of the Holder, the notice shall also state the
address of the new Holder and any other information required by law. The
Company shall, as soon as practicable thereafter, issue and deliver to the
Holder of the Note(s) converted, or to that Holder's nominee or nominees,
certificates for the number of such Common Shares to which the Holder shall be
entitled, together with cash in lieu of any fraction of a share as provided in
Section 2.5 hereof, and cash in the amount of the accrued but unpaid interest on
such Note(s). Conversion shall be deemed to have been made as of the date of
surrender of the Note(s), and the person or persons entitled to receive the
Common Shares issuable upon conversion shall be treated for all purposes as the
record holder or holders of those Common Shares on that date.
2.3 RESTRICTIVE LEGEND. Common Shares to be issued pursuant to this
Article 2 shall bear such legends as the Company may determine are required to
assure compliance with applicable federal and state securities laws.
2.4 ADJUSTMENTS. If the Company shall subdivide the number of outstanding
Common Shares into a greater number of shares, then the Conversion Price
provided for herein and in effect at the time of such action shall be
proportionately decreased, and the number of shares at the time purchasable
pursuant to this conversion right shall be proportionately increased. If the
Company shall reduce the number of outstanding Common Shares by combining such
shares into a smaller number of shares, then in such case, the Conversion Price
in effect at the time of such action shall be proportionately increased, and the
number of shares at the time purchasable pursuant to this conversion right shall
be proportionately decreased.
If the Company shall consolidate or merge with or convey all or
substantially all of its property and assets to any other person or entity (any
such person or entity being included within the meaning of the term "successor")
or the Company shall distribute to
9
<PAGE>
the holders of Common Shares any noncash dividend, the Holder thereafter shall
have the right to receive, upon the conversion hereof, upon the basis and on the
terms and conditions and during the time specified in this Note in lieu of the
Common Shares theretofore purchasable upon the exercise of the conversion
privilege, the stock, securities or assets to which a holder of the number of
Common Shares then deliverable upon the conversion hereof would have been
entitled upon such consolidation, merger or sale, and the Company shall take
such steps in connection with such consolidation, merger or sale as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably possible, in relation to any stock, securities or assets
thereafter deliverable upon the conversion of this Note; and in any such event,
the rights of the Holder to an adjustment in the number of Common Shares into
which this Note is convertible and in the Conversion Price, as herein provided,
shall continue and be preserved in respect of any stock, securities or assets
into which the Holder becomes entitled to convert.
If the Company shall issue or sell any Common Shares, or any securities
convertible into, exercisable for or exchangeable for Common Shares, for a
consideration per share less than the lesser of the Conversion Price in effect
immediately prior to the time of such issue or sale or the Market Value of a
Common Share (as hereinafter defined) on the date of such issue or sale, then
the Conversion Price shall be decreased as if the issuance of such Common Shares
were in fact a stock dividend resulting in a subdivision of the number of
outstanding Common Shares into a greater number of shares, as provided in
Section 2.4. Common Shares issued pursuant to a stock option plan for officers
or employees of the Company, not exceeding two million (2,000,000) Common Shares
as presently constituted, shall be deemed issued for Market Value, regardless of
the actual consideration. The issuance of any rights, options, warrants or
securities convertible into or exchangeable for Common Shares shall be deemed to
be the issuance of Common Shares for the exercise, conversion or exchange price,
regardless of the ultimate exercise, conversion or exchange, but the actual
exercise, conversion or exchange shall not be deemed the issuance of Common
Shares. For purposes hereof, "Market Value" shall be the fair market value of
the Common Shares as determined by the average of the last trading price of the
Class A Common Stock of the Company for the fifteen (15) trading days preceding
such issuance.
10
<PAGE>
2.5 FRACTIONAL SHARES. No fractional Common Shares shall be issued upon
the conversion of this Note. If any fractional interest in a Common Share
would, except for the provisions of this Section 2.5, be deliverable upon the
conversion of this Note, the Company shall, in lieu of delivering the fractional
share therefor, adjust the fractional interest by payment to the Holder of the
Note, an amount equal (computed to the nearest cent) to the current Market Value
of the fractional interest.
2.6 NOTICE OF ADJUSTMENT. When any adjustment is required to be made in
the Conversion Price, the Company shall forthwith determine the new Conversion
Price; and
(a) shall promptly prepare and retain on file a statement setting
forth the Conversion Price as so adjusted and describing in reasonable detail
the facts accounting for such adjustment and the method used in arriving at the
new ratio (the "Statement"); and
(b) shall mail a copy of the Statement to the Holder, as of a date
within ten (10) days after the date when the circumstances giving rise to the
adjustment occurred.
2.7 COMMON SHARES. Whenever reference is made in these provisions to the
issue or sale of Common Shares, the term "Common Shares" shall include any stock
of any class of the Company which shall share in any residual amount available
for distribution to stockholders after payment of creditors and amounts payable
to holders of stock with a preference on dividends or a preference in the amount
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company.
2.8 REPLACEMENT NOTES. If this Note has been surrendered in exchange for
Replacement Notes, the Holder's conversion rights under this Article 2 may be
exercised by notice given by any Holder of Replacement Notes, and such exercise,
when made, shall be effective for all Replacement Notes held by such Holder.
If, following such exercise, the Holder of any Replacement Note fails to
surrender all of his, her or its Replacement Note(s) in accordance with Section
2.2, the Company shall not issue Common Shares (and cash in lieu of fractional
shares) to such Holder until such Holder surrenders all of his, her or its
Replacement Note(s) to the Company, and the Replacement Note(s) shall thereafter
cease
11
<PAGE>
to bear interest and constitute a right to receive only the Common Shares and
cash to which the Holder is entitled upon surrender of the Replacement Note(s)
under Article 2.
ARTICLE 3
CONVERSION REQUIREMENT
3.1 COMPANY RIGHT TO REQUIRE CONVERSION. Beginning on the date which is
five (5) days after the Common Shares have attained the Target Price, and,
except as provided below, at any time thereafter, the Company may require that
all, but not less than all, of the Notes be converted into Common Shares at the
Conversion Price. The Common Shares shall be deemed to have obtained the Target
Price if the average of the closing bid and asked price for the Common Shares
exceeds Sixteen Dollars ($16) per share for any five (5) consecutive trading
days, if the Common Shares are traded on a national quotation system, or if last
trading price for the Common Shares exceeds Sixteen Dollars ($16) per share for
any five (5) trading days within any period of fifteen (15) consecutive trading
days, if the Common Shares are traded on a securities exchange. The Company
shall have the right to require conversion of the Notes into Common Shares once
the Common Shares have attained the Target Price, notwithstanding that the
trading price for the Common Shares may decline below Sixteen Dollars ($16) per
share after the Common Shares have attained the Target Price.
Beginning on the date which is five (5) days after the Common Shares have
obtained the Target Price, the Holder of not less than 50% in principal amount
of the Notes outstanding may provide the Company with a notice of the Company's
right to require conversion of the Notes under this Section 3.1. If the Company
fails to give the Holders notice under Section 3.2 within thirty (30) days of
the date of receipt of such notice, the Company's rights to require conversion
under this Article 3 shall lapse.
3.2 NOTICE OF CONVERSION. Notice of conversion under Section 3.1 shall be
given by first class mail, postage prepaid, mailed at least thirty (30) days but
not more than sixty (60) days before a conversion date, to each Holder of Notes
to be converted, at his, her or its address appearing in the Notes Register.
All notices of conversion shall state: (i) the conversion date; (ii) the number
of Common Shares and cash in lieu of fractional shares into which the Note is to
be converted; (iii) that, unless the Company defaults in delivering the Common
Shares and cash, in lieu of fractional shares and which
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the Note is to be converted on the conversion date, interest thereon shall cease
to accrue on and after such date; and (iv) that the Note must be surrendered to
receive the Common Shares and cash in lieu of fractional shares into which the
Note is to be converted and the place where the Note is to be surrendered.
3.3 HOLDER'S OPTION TO DECLINE CONVERSION. The Holder shall have the
option, given in writing by first class mail, postage prepaid, mailed at least
fifteen (15) days before the Conversion Date specified by the Company under
Section 3.2, to decline to surrender his, her or its Note for conversion under
this Article 3. If Replacement Notes have been issued, this option may be
exercised separately by each Holder of Replacement Notes. If a holder exercises
his, her or its right under this Section 3.3 to decline to surrender his, her or
its Note for conversion, then, commencing on the conversion date specified by
the Company in its notice to the Holder, interest thereon shall cease to accrue
on and after such date, but the Note shall otherwise remain in full force and
effect, including the right of the Holder to convert the Note into Common Shares
pursuant to Article 2.
ARTICLE 4
CONSOLIDATION, MERGER OR SALE
4.1 CONSOLIDATION ONLY ON CERTAIN TERMS. Nothing contained in the Notes
shall prevent any consolidation or merger of the Company with or into any other
corporation or entity, or successive consolidations or mergers to which the
Company or its successor or successors shall be a part or parties, or shall
prevent the sale by the Company of its property or assets as, or substantially
as, an entirety or otherwise; provided, however, that (i) in case of any such
consolidation or merger, the corporation resulting therefrom or surviving shall
be a corporation organized under the laws of the United States or any state
thereof or the District of Columbia and shall succeed to and be substituted for
the Company with the same effect as if it had been named herein and shall become
liable and be bound for, and shall expressly assume, by supplemental agreement
in form reasonably satisfactory to the Company and the Holder executed by the
corporation resulting from such consolidation or
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merger, the due and punctual payment of the principal of and interest on all the
Notes then outstanding and the performance and observance of all of the
covenants and conditions of the Notes on the part of the Company to be performed
or observed, and (ii) as a condition of any such sale of all or substantially
all of the property or assets of the Company as, or substantially as, an
entirety, the corporation to which such property and assets shall be sold shall
be a corporation organized under the laws of the United States or any state
thereof or the District of Columbia and shall (a) expressly assume, as a part of
the purchase price thereof, the due and punctual payment of the principal of and
interest on all the Notes and the performance and observance of all the
covenants and conditions of the Notes on the part of the Company to be performed
or observed, and (b) simultaneously with the delivery to it of the conveyances
or instruments of transfer of such property or assets, execute and deliver to
the Company a supplemental agreement in form reasonably satisfactory to the
Company and the Holder, whereby such purchaser shall assume the due and punctual
payment of the principal of and interest on all the Notes then outstanding and
the performance and observance of all the covenants and conditions of the Notes
on the part of the Company to be performed or observed, to the same extent that
the Company would have been bound and liable.
4.2 SUCCESSOR CORPORATION SUBSTITUTED. The Company will not consolidate
with or merge into any other corporation or entity, or sell its property or
assets as, or substantially as, an entirety except upon the terms and conditions
set forth in this Article 4. Upon any consolidation or merger, or any sale of
all or substantially all of the property or assets of the Company as, or
substantially as, an entirety in accordance with the provisions of this
Article 4, the entity formed by such consolidation or into which the Company
shall have been merged or to which such sale shall have been made shall succeed
to and be substituted for the Company with the same effect as if it had been
named herein as a party hereto, and thereafter from time to time such entity may
exercise all rights and powers of the Company under this Note in the name of the
Company or in its own name; and any act or proceeding required or permitted to
be done by any board or officer of the Company may be done with like force and
effect by the like board, officer or authorized representative of any entity
that shall at the time be the successor of the Company hereunder.
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4.3 DELIVERY OF CERTIFICATE TO HOLDERS. Prior to the effective time of
any consolidation, merger or sale of property or assets to which this Article 4
is applicable, the Company will promptly deliver to each Holder an Officer's
Certificate of its President and Chief Financial Officer, stating that the
covenants of the Company contained in this Article 4 have been complied with.
ARTICLE 5
COVENANTS OF COMPANY AND HOLDER
5.1 NOTICE OF EVENT OF DEFAULT. Within 30 days after the Company obtains
knowledge of an event which (with the giving of notice or the lapse of time or
both) would constitute an Event of Default under Article 6 hereof, it shall give
to each of the Holders, by first-class mail, written notice describing such
event, together with a copy of the current Note Register.
5.2 RESTRICTION ON TRANSFER. The Holder, any transferee or assignee of
Holder, covenants that they will not offer for sale, sell, assign, or otherwise
transfer any interest in this Note or the Common Shares to be issued upon
conversion of this Note without the prior written consent of the Company which
consent shall require only that the interests to be transferred are subject to
an effective registration statement filed pursuant to the Securities Act of 1933
(the "Act") and have been registered or qualified pursuant to any applicable
state securities laws or that the Company has received evidence reasonably
satisfactory to it, including, at the discretion of the Company, an opinion of
counsel, that the proposed transaction is exempt from the aforementioned
requirements and would not cause the original issuance and sale of this Note or
the Common Shares to be issued upon conversion of this Note to violate any of
these requirements. Holder agrees that the Company shall not be required to
transfer this Note on the Note Register of the Company or the Common Shares to
be issued upon conversion of this Note unless there has been compliance with
this Section 5.2.
5.3 LIMITATION ON SENIOR INDEBTEDNESS. The Company covenants and agrees
that it will not incur any Senior Indebtedness which, when aggregated with the
aggregate principal amount of all other Senior Indebtedness on the date such
Senior Indebtedness is incurred, exceeds the Debt Limit. For this purpose,
Senior
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Indebtedness is considered incurred on the date the Company enters into a
binding agreement with a lender to borrow, and not on the date(s) upon which
funds are actually advanced from time to time thereafter to the Company pursuant
to such agreement, and the amount of such Senior Indebtedness is the maximum
amount the lender is committed to lend under such agreement, regardless of the
amount, if any, actually borrowed from time to time by the Company pursuant to
such commitment. For this purpose, the Debt Limit means an amount, determined
at the time any Senior Indebtedness is incurred, equal to the sum of (i) three
and one-half (3.5) times the EBITDA of the Company, and (2) the Other
Obligations of the Company. For this purpose, EBITDA of the Company means, for
the Company and its subsidiaries, for the twelve-month period ending on the last
day of the calendar month preceding the month in which such Senior Indebtedness
is incurred, an amount equal to the sum of, without duplication, (a) net income
(or net loss) PLUS (b) (i) total interest expense, whether paid or accrued less
amortization or write-off of debt discount and expense and (ii) all amounts
treated as expenses for depreciation and the amortization of intangibles of any
kind to the extent included in the determination of such net income (or loss),
PLUS (c) all tax expense on or measured by income or capital to the extent
included in the determination of such net income (or loss) MINUS (d) gains or
losses on the sale or other disposition of assets; PROVIDED, HOWEVER, that net
income (or loss) shall be computed for these purposes without giving effect to
extraordinary losses or extraordinary gains; all determined in accordance with
generally accepted accounting principles consistently applied. With respect to
any entity, business or product line acquired by the Company or any of its
subsidiaries within the twelve-month period for computing EBITDA set forth
above, the actual EBITDA of such entity, business or product line for the
portion of such twelve-month period ending prior to the date of its acquisition
shall be included in calculating EBITDA of the Company, on a pro forma basis as
if such entity, business or product line had been owned by the Company or such
subsidiary throughout such period. For this purpose, Other Obligations means
the sum of (i) aggregate amount of payments required to be made by the Company
or any of its subsidiaries during the twelve-month period commencing on the
first day of the month in which such Indebtedness is incurred on all real
property leases and all equipment leases not described in clause (ii), and,
without duplication, (ii) the unpaid principal balance on the date such Senior
Indebtedness is incurred of all
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Indebtedness of the Company which is nonrecourse to the Company and the unpaid
principal balance of any off-balance sheet leases of the Company. This
Section 5.3 shall not apply to any Senior Indebtedness which is incurred as a
renewal, extension, refunding or refinancing of any Senior Indebtedness, to the
extent thereof.
ARTICLE 6
EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT. "Events of Default" wherever used herein means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Note when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of any Note at its
maturity whether by acceleration or otherwise; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Note (other than a covenant or warranty a
default in the performance of which or the breach of which is specifically
covered in this Article 6), and continuance of such default or breach for a
period of sixty (60) days after there has been given, by registered or certified
mail, to the Company by the Holders of at least 25% in principal amount of the
outstanding Notes, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(4) the entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under federal bankruptcy laws or the entry of an order
for relief with respect to the Company in a proceeding under any such law or
statute or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator
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(or other similar official) of the Company or of any substantial part of the
property of the Company or ordering the winding up or liquidation of the affairs
of the Company and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent of the Company to the institution of
bankruptcy or insolvency proceedings against it, or the filing of a petition or
answer or consent seeking reorganization or relief under federal bankruptcy laws
or any other applicable federal or state law, or the consent of the Company to
the filing of such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or similar official) of the Company or any
substantial part of the property of the Company or the making by the Company of
an assignment for the benefit of creditors, or the admission by the Company in
writing of its inability to pay its debts generally as they become due.
6.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of
Default occurs and is continuing, the Holders of not less than 25% in principal
amount of the Notes outstanding, by a notice in writing to the Company, may
declare immediately due and payable the principal of and all accrued interest on
all of the Notes, and upon any such declaration the same shall become and shall
be immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Holders, the Holders of not less than a majority in principal amount of the
Notes outstanding, by written notice to the Company, may rescind and annul such
declaration and its consequences if:
(1) the Company has paid
(a) all overdue installments of interest on all Notes
(b) the principal of any Notes which have become due otherwise
than by such declaration of acceleration, and interest
thereon at the maximum rate permitted by law, and
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(c) interest upon overdue installments of interest at the Bank
of America prime or reference rate plus two (2) percent, and
(2) all Events of Default, other than the non-payment of the
principal of Notes which has become due solely by such acceleration, have been
cured or waived as provided in this Article.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
6.3 ACCELERATION UPON CONSOLIDATION, ETC. If the Company makes a public
announcement of its intention to engage in a transaction described in the first
sentence of Section 4.2, regardless of whether the Company is the surviving
corporation in such transaction, then commencing on the date of such
announcement and ending on the date which is thirty (30) days thereafter, the
Holders of not less than 25% in principal amount of the Notes outstanding, by a
notice in writing to the Company, may declare immediately due and payable the
principal of and all accrued interest on all of the Notes, and upon any such
declaration the same shall become and shall be due and payable on the effective
date of such transaction. If such transaction is not consummated, then such
declaration shall be null and void.
6.4 SUITS FOR ENFORCEMENT. The Company covenants that if:
(1) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of any Note at
the maturity thereof, whether by acceleration or otherwise, the Company will,
upon demand of any Holder, pay to him the whole amount then due and payable for
principal and interest, with interest upon the overdue principal or overdue
installments of interest, at the maximum rate permitted by law.
If the Company fails to pay such amounts forthwith upon such demand,
the Holder may institute a judicial proceeding for the collection of the sums so
due and unpaid, and may prosecute such proceeding to judgment or final decree,
and may enforce the same
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against the Company and collect the moneys adjudged or decreed to be payable in
the manner provided by law out of the property of the Company, wherever
situated.
If an Event of Default occurs and is continuing, any Holder may in his
discretion proceed to protect and enforce his rights by such appropriate
judicial proceedings as he shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Note or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
6.5 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST. The
Holder of any Note shall have the right, which is absolute and unconditional,
subject to the subordination provisions of Article 1, to receive payment of the
principal of and interest on such Note on the respective stated maturities
expressed in such Note (or, in the case of conversion, on the conversion date)
and to institute suit for the enforcement of any such payment, and such right
shall not be impaired without the consent of such Holder.
6.6 RESTORATION OF RIGHTS AND REMEDIES. If any Holder has instituted any
proceeding to enforce any right or remedy under this Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to such Holder, then and in every such case the Company and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Holders shall continue as though no such
proceeding has been instituted.
6.7 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or served to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
6.8 DELAY OR OMISSION NOT WAIVER. No delay or omission of any Holder of
any Note to exercise any right or remedy accruing
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upon any Event of Default shall impair any such rights or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Holders.
6.9 WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in
principal amount of the outstanding Notes may on behalf of the Holders of all
the Notes waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of or interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article 8 cannot be modified or amended without the consent of the Holder of
each outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Note; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
6.10 WAIVER OF STAY, EXTENSION OR OTHER LAWS. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner claim or take the benefit or advantage of, any stay or
extension law or any law which would prohibit or forgive the Company from paying
all or any portion of the interest on the Note as contemplated herein wherever
enacted, now or at any time hereafter in force, which may affect the covenants
of the performance of this Note; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Holders, but will permit the execution of every such
power as though no such law had been enacted.
6.11 RIGHTS AND REMEDIES SUBJECT TO SUBORDINATION. Notwithstanding the
provisions of this Article 6, including without limitation the first paragraph
of Section 6.2, Section 6.3, Section 6.4(2), the two paragraphs following
Section 6.4(2) and Section 6.5, the rights of the Holders to require payments of
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principal, premium, if any, or interest upon the Notes, and the Holder's
remedies in connection with the enforcement of the Notes, are subject to the
provisions subordinating the Notes to Senior Indebtedness, to the restrictions
upon payments provided for in connection with such subordination and to the
restrictions upon remedies provided for in connection with such subordination,
all as set forth in Article 1 of this Note.
ARTICLE 7
SATISFACTION AND DISCHARGE
Each Note shall cease to be of further effect (except as to any surviving
rights of transfer, or exchange of such Note herein expressly provided for), and
shall be discharged and canceled, when such Note has been duly paid or redeemed
by the Company and surrendered to the Company for cancellation; provided,
however, that such Note shall be reinstated to the extent the Holder is required
to disgorge any payment previously made to the Holder with respect to the Note
as a preference payment in a bankruptcy proceeding with respect to the Company
or as a violation of the subordination provisions hereof.
ARTICLE 8
SUPPLEMENTAL AGREEMENTS
8.1 SUPPLEMENTAL AGREEMENTS WITHOUT CONSENT OF HOLDERS. Without the
consent of any Holder, the Company, when authorized by a resolution of the Board
of Directors, at any time and from time to time, may enter into one or more
agreements supplemental hereto, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company,
and the assumption by any such successor of the covenants of the Company herein
contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company.
8.2 SUPPLEMENTAL AGREEMENTS WITH CONSENT OF HOLDERS. With the consent of
the Holders of not less than a majority in principal
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amount of the outstanding Notes, by written notice of said Holders delivered to
the Company, the Company, when authorized by a resolution of the Board of
Directors, may enter into an agreement supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Note or of modifying in any manner the rights of the Holders
under this Note; provided, however, that no such supplemental agreement shall,
without the consent of the Holder of each outstanding Note affected thereby,
(1) change the stated maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the rate of
interest thereon, or change the place of payment, or the coin or currency in
which any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the stated
maturity thereof (or, in the case of conversion, on or after the conversion
date), or
(2) modify any of the provisions of this Section or Section 6.9, or
(3) modify or affect in any manner adverse to the Holders of the
Notes the provisions with respect to subordination of the Notes contained in
Article 1 hereof.
8.3 EFFECT OF SUPPLEMENTAL AGREEMENTS. Upon the execution of any
supplemental agreement under this Article, the Notes shall be modified in
accordance therewith, and such supplemental agreement shall form a part of this
Note for all purposes; and every Holder of Notes shall be bound thereby.
8.4 REFERENCE IN NOTE TO SUPPLEMENTAL AGREEMENTS. Notes issued and
delivered after the execution of any supplemental agreement pursuant to this
Article may, but need not, bear a notation as to any matter provided for in such
supplemental agreement. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Board of Directors, to any such
supplemental agreement may be prepared, executed, issued and delivered by the
Company in exchange for outstanding Notes.
8.5 SENIOR INDEBTEDNESS CONSENT. Notwithstanding anything in this Note to
the contrary, this Note may not be modified, amended
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or supplemented without the prior written consent of the holders of Senior
Indebtedness. Notwithstanding the preceding sentence, the provisions of the
Note relating to conversion of the Note to Common Stock may be modified, amended
or supplemented without the prior written consent of the holders of Senior
Indebtedness unless such modification, amendment or supplement provides that
this Note is convertible into any securities of the Company other than Common
Stock.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 NOTICES TO COMPANY. Any request, demand, authorization, direction,
notice, consent or waiver of Holders or other document provided or permitted by
this Note to be made upon, given or furnished to the Company by any Holder shall
be sufficient (unless otherwise herein expressly provided) if in writing and
mailed first class postage prepaid, to the Company, addressed to it at 900 North
Seward Street, Hollywood, California 90038, Attention: Chief Financial Officer;
or at any other address previously furnished in writing to the Holders by the
Company.
9.2 NOTICE TO HOLDERS; WAIVER. Where this Note provides for notice to
Holders of any event, such notice shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first class postage
prepaid, to each Holder affected by such event, at his address as it appears in
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Note
provides for notice in any matter, such notice may be waived in writing by the
person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice.
9.3 EFFECT OF HEADINGS. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
9.4 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Note by
the Company shall bind its successors and assigns, whether so expressed or not.
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9.5 SEPARABILITY CLAUSE. In case any provision in this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.6 BENEFITS OF NOTES. Nothing in the Notes, express or implied, shall
give to any person, other than the Company, the Holders and their successors,
and the holders of any Senior Indebtedness, any benefit or legal or equitable
right, remedy or claim under this Note. Notwithstanding that the term "Holder"
refers to the original payee and his or her registered assigns, and
notwithstanding that the Company may treat the Holder, as so defined, as the
owner of this Note for all purposes, the provisions of this Note imposing
obligations or agreements upon the Holder, including but not limited to the
provisions of Article 1 providing for the subordination of this Note to Senior
Indebtedness, shall apply to successors and transferees of any Holder whether or
not such successor or transferee becomes a registered assign and therefore a
Holder.
9.7 GOVERNING LAW. Each Note shall be deemed to be a contract under the
laws of the State of California and shall be construed in accordance with and
governed by the laws of the State of California.
9.8 HOLIDAYS. In any case where any interest payment date, conversion
date or stated maturity of any Note shall not be a business day, then
(notwithstanding any other provisions of this Note) payment of interest or
principal need not be made on such date, but may be made on the next succeeding
business day with the
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same force and effect as if made on the interest payment date or conversion date
or at the stated maturity, and no interest shall accrue for the period from and
after such interest payment date, conversion date or stated maturity, as the
case may be.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
the signatures of its officers.
DATED: _____________________, 1997
THE TODD-AO CORPORATION
By:
--------------------------------
President
By:
--------------------------------
Secretary
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NEITHER THIS NOTE NOR THE COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED BY THE HOLDER IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND REGISTRATION OR
QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER IS EXEMPT FROM
SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS.
THIS NOTE AND THE COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF ARE SUBJECT
TO THE RIGHT OF FIRST PURCHASE OF THE TODD-AO CORPORATION PROVIDED FOR IN THAT
CERTAIN AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS DATED JUNE 18, 1997.
THE TODD-AO CORPORATION
CONVERTIBLE SUBORDINATED NOTE
No. 2 $ 3,400,000.00
-------
THE TODD-AO CORPORATION, a Delaware corporation (hereinafter called the
"Company," which term includes any successor hereunder), for value received,
hereby promises to pay to HOLLYWOOD DIGITAL LIMITED PARTNERSHIP or registered
assigns (the "Holder"), the principal sum of Three Million Four Hundred Thousand
Dollars ($3,400,000.00) on June 20, 2000, upon surrender of this Note, and to
pay interest thereon from the date hereof annually on June 20 of each year,
commencing initially on June 20, 1998, at the rate of five percent (5%) per
annum, until the principal hereof is paid or made available for payment. The
interest so payable on any interest payment date will be paid to the person in
whose name this Note is registered in the Note register maintained by the
Company for such purpose (the "Note Register") at the close of business on the
May 1, next preceding such interest payment date. Payment of the principal and
interest on this Note will be made at the principal office of the Company in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
<PAGE>
payment of interest may be made at the option of the Company by check mailed to
the address of the Holder as such address shall appear on the Note Register.
This Note is one of a duly authorized issue of two (2) Notes of the Company
designated as its Convertible Subordinated Notes (herein called the "Notes"),
limited in aggregate principal amount to the amount set forth in that certain
Agreement for the Purchase and Sale of Assets between the Company and Hollywood
Digital Limited Partnership dated June 18, 1997 (the "Purchase Agreement"). The
Notes are issuable only in registered form without coupons.
This Note may not be transferred or assigned by Holder without the consent
of the Company; provided, however, that Holder may transfer this Note to its
partners in proportion to their respective partnership interests in Holder as
set forth on Schedule 3.0 of the Purchase Agreement. Upon receipt of a written
request of Holder and surrender to the Company of the Notes, the Company shall
deliver to each of Holder's partners a new note (each a "Replacement Note") in
principal amount equal to the aggregate principal amount of the Notes multiplied
by a decimal fraction equal to such partner's percentage equity interest in
Holder as set forth on Schedule 3.0 of the Purchase Agreement and otherwise
substantially identical to this Note, and shall register each such partner as a
Holder on the Note Register. Notwithstanding the first sentence of this
paragraph, Phemus Corporation may transfer its Notes to any transferee which has
satisfied the requirements of Section 9.7 of the Purchase Agreement.
Prior to due presentment for registration of transfer, the Company and any
agent of the Company may treat the registered Holder as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
Notwithstanding anything to the contrary in this Note, including but not
limited to Article 1, in the event the Holder is obligated to make an
indemnification payment to an Indemnified Party pursuant to that certain
Indemnification Agreement of even date herewith, at the election of either the
Holder or the Company, made by written notice, first, accrued but unpaid
interest, and thereafter, unpaid principal on this Note, shall be reduced in
satisfaction of such payment obligation.
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ARTICLE
1
SUBORDINATION OF NOTES
1.1 SUBORDINATION OF NOTES. The Company agrees, and each Holder by his,
her or its acceptance hereof agrees, that the payment of the principal of,
interest on, or any other amounts pursuant or with respect to, the Note is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all Senior
Indebtedness.
The term "Senior Indebtedness" means all Indebtedness, present or future
(other than the Notes) to banks and other financial institutions, created,
incurred, assumed or guaranteed by the Company, and any renewals, extensions or
refundings thereof; all real property leases and equipment leases; and all
Indebtedness which is nonrecourse to the Company; provided that no such
Indebtedness shall prohibit or prevent payment of this Note when due other than
under the circumstances set forth in this Article 1 and Section 6.11.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include (1) any Indebtedness of the Company to any of its
subsidiaries, affiliates, officers, directors or shareholders, or (2) any
Indebtedness of the Company that is subordinated to any other Indebtedness of
the Company.
The term "Indebtedness" means at any date any of the following: (i) all
obligations, unconditional or contingent for borrowed money including, without
limitation, principal, interest, premium, penalties and costs (whether or not
the recourse of the lender is to the whole of the assets of the Company or only
to a portion thereof, and including for this purpose all obligations incurred
under Capitalized Leases), or obligations evidenced by bonds, notes, debentures
or similar instruments (including, without limitation, obligations with respect
to letters of credit or bankers' acceptances); and (ii) all obligations to pay
the balance deferred and unpaid of the purchase price of any business, real
property, other assets, or interest therein, except any such balance that
constitutes a trade payable arising in the ordinary course of business. For
purposes hereof, (i) a "Capitalized Lease" means a lease of real or personal
property which, in accordance with generally accepted accounting principles, has
been capitalized
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by the Company; and (ii) "interest" includes, without limitation, interest which
may accrue subsequent to the filing of a petition for relief in bankruptcy or
subsequent to the Company becoming subject to any other federal or state debtor
relief statute.
1.2 DISTRIBUTION OF ASSETS. Upon any distribution of assets of the
Company in connection with any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise),
the holders of Senior Indebtedness shall first be entitled to receive payment in
full in cash on the principal of (and premium, if any) and interest (including
interest accruing subsequent to the commencement of such case or proceeding,
whether or not a claim for post-petition interest is allowable in any such case
or proceeding) on the Senior Indebtedness before the Holders of the Notes are
entitled to receive any payment upon the principal of or interest on the Notes;
and, upon any such dissolution, winding up, liquidation or reorganization, any
payment or distribution of assets of the Company of any kind to which the
Holders of the Notes would be entitled except for the provisions of this
Article 1 shall be made by the person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the holders of Senior Indebtedness or their representatives or to
the trustee under any indenture under which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of (and premium,
if any) and interest on the Senior Indebtedness held or represented by each, to
the extent necessary to pay in full in cash Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness.
If the Holders of the Notes, or any of them, shall fail to file a proper
claim in the form required in any proceeding referred to in the first paragraph
of this Section 1.2, prior to thirty (30) days before the expiration of the time
to file such claim, then the holders of Senior Indebtedness are hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Notes in the form required by any such proceeding.
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Upon any such dissolution, winding up, liquidation or reorganization, in
the event that any payment or distribution of assets of the Company of any kind
shall be received by the Holders of the Notes in payment of the Notes before all
Senior Indebtedness is paid in full in cash, such payment or distribution shall
be held in trust for the benefit of and shall be paid over to the holders of
such Senior Indebtedness or their representative or to the trustee under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably as aforesaid, for application to the payment of
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full in cash, after giving effect to any concurrent payment or
distribution to the Holders of such Senior Indebtedness.
After all Senior Indebtedness is paid in full in cash and until the Notes
are paid in full in cash, the Holders of the Notes shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness to
the extent that payments or distributions otherwise payable to Holders of the
Notes have been applied to payment of Senior Indebtedness. A payment or
distribution under this Article 1 to the holders of Senior Indebtedness which
otherwise would have been made to Holders of the Notes is not, as between the
Company and the Holders of the Notes, a payment by the Company on Senior
Indebtedness.
1.3 DEFAULTS ON OR MATURITY OF SENIOR INDEBTEDNESS. Except as provided in
the fifth paragraph of this Note, no direct or indirect payment of principal of,
or premium, if any, or interest on the Notes, whether pursuant to the terms of
the Notes or upon acceleration or otherwise, nor any exchange for, repurchase of
or offset respecting, the Notes, shall be made if, at the time of such payment,
exchange, repurchase or offset there exists a default on Senior Indebtedness, or
if there exists any condition, event or act which with the giving of notice or
the passage of time or both would constitute a default on Senior Indebtedness
("Potential Default"), or if any such default on Senior Indebtedness would exist
after giving effect to any such payment, exchange, repurchase or offset, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Senior Indebtedness.
Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or
otherwise, all principal of, or premium, if any, and interest on all such
matured
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Senior Indebtedness shall first be paid in full in cash before any payment on
account of principal or interest, if any, is made upon the Notes.
Notwithstanding the foregoing:
(a) if such default or Potential Default is a default in the payment
of all or any portion of principal of, or premium, if any, or interest on Senior
Indebtedness (whether by reason of maturity by lapse of time, acceleration or
otherwise) (a "Payment Default"), payments of principal, premium, if any, or
interest upon the Notes which have been blocked as a result of the existence of
such default or a Potential Default in accordance with the foregoing may be made
if all of the following conditions are true: (i) there does not then exist any
Payment Default, (ii) such payment upon the Notes would not itself constitute or
result in a default on any Senior Indebtedness, (iii) 180 days has elapsed from
the date of such default or Potential Default which blocked payments on the
Notes, (iv) no new default or new Potential Default then exists which would
block payments in accordance with the foregoing, (v) no proceedings have been
commenced by the holders of Senior Indebtedness to enforce the provisions of the
Senior Indebtedness and (vii) no dissolution, winding up, liquidation or
reorganization proceedings have been commenced by or against the Company
(whether in bankruptcy, insolvency or receivership proceedings, or by way of an
assignment for the benefit of creditors or otherwise); or
(b) if such default or Potential Default is not a Payment Default,
payments of principal, premium, if any, or interest upon the Notes which have
been blocked as a result of the existence of a default or Potential Default in
accordance with the foregoing may be made if all of the following are true: (i)
there does not then exist any Payment Default; (ii) 180 days have elapsed from
the date of the default or Potential Default; (iii) no proceedings have been
commenced by the holders of Senior Indebtedness to enforce the provisions of the
Senior Indebtedness and (iv) no dissolution, winding up, liquidation or
reorganization proceedings have been commenced by or against the Company
(whether in bankruptcy or receivership proceedings, or by way of an assignment
for the benefit of creditors or otherwise). The Company and the holders of the
Senior Indebtedness may invoke the provisions of clause (b) only once in any
twelve-month period.
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In the event that any payment prohibited by the provisions of this Section 1.3
shall be received by the Holders of the Notes in payment of principal of, or
premium, if any, or interest on the Notes, then such payment shall be held in
trust for the benefit of and shall be paid over to the holders of such Senior
Indebtedness or their representative or to the trustee under any indenture under
which any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably, for application to the payment of Senior Indebtedness remaining
unpaid until all such Senior Indebtedness shall have been paid in full, after
giving effect to any concurrent payment to the Holders of such Senior
Indebtedness; provided, however, that in the case of any payment of interest
only such payment shall be so held in trust only commencing on the date upon
which the Holders receive notice either from the Company or the holder of such
Senior Indebtedness that a prohibited payment has been made. Such notice shall
be deemed delivered on the date it is personally delivered or sent by facsimile
transmission, or three (3) days after the date it is mailed, first class postage
prepaid, as follows: George P. Denny, III, c/o Halpern, Denny & Co., 500
Boylston Street, Suite 1880, Boston, Massachusetts 02116, FAX: (617) 536-8535
1.4 AMENDMENT OF SENIOR INDEBTEDNESS; WAIVER. The Company and/or the
holders of Senior Indebtedness may at any time or from time to time and in their
absolute discretion change the manner, place or terms of payment, change or
extend the time of payment of, or renew or alter, any Senior Indebtedness, or
amend or supplement any instrument pursuant to which any Senior Indebtedness is
issued, or release any collateral for any Senior Indebtedness, or release any
guarantors of any Senior Indebtedness, or exercise or refrain from exercising
any other of their rights under the Senior Indebtedness including, without
limitation, the waiver of default thereunder, all without notice to or assent
from the Holders of the Notes. Without limiting the foregoing, the Holders
expressly waive any right they might otherwise have to require resort to or
marshalling of any security held by any holder of Senior Indebtedness. The
holders of Senior Indebtedness shall have no duty or obligation to disclose to
the Holders of the Notes any information or material about or regarding the
condition of the Company, financial or otherwise, which may be learned or
acquired by the holders of the Senior Indebtedness in any manner.
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1.5 LIMITATIONS ON EXERCISE OF REMEDIES. Notwithstanding any other
provision of this Note, including but not limited to the provisions of
Article 6, in the event of any default on this Note or the Notes, the Holder
shall not take any action to enforce this Note prior to the 180th day following
written notice to the Company and to the holders of Senior Indebtedness of the
existence of a default under this Note (the "Standstill Period"). The actions
prohibited during the Standstill Period include, without limitation, the
commencement of any dissolution, bankruptcy, insolvency or receivership
proceedings against the Company, the exercise of any rights or remedies at law
or in equity, with respect to this Note, or the commencement of any lawsuit to
enforce any rights against the Company under or pursuant to this Note.
Notwithstanding the generality of the foregoing, during the Standstill Period
the Holders of the Notes may accelerate the obligations under the Notes provided
that no actions prohibited by the preceding sentence are taken. Even after the
expiration of the Standstill Period, the remaining provisions of this Article 1
shall continue to apply so as to continue to prohibit payment to the Holders
under the provisions of Section 1.2 and Section 1.3 of this Article 1 and so as
to require payment over to the holders of Senior Indebtedness if the Holders
should receive payments prohibited by Section 1.2 and Section 1.3 of this
Article 1.
ARTICLE 2
CONVERSION RIGHTS
2.1 CONVERSION RIGHTS. The Holder of this Note has the right, at the
Holder's option, at any time on or after the date hereof but before maturity
(the "Conversion Date"), to convert the aggregate unpaid principal of this Note
as a whole and all but not less than all other Notes held by such Holder into
fully paid and non-assessable shares of Class A Common Stock (the "Common
Shares") of the Company based on the Conversion Price of Eleven Dollars and
Eighty-Seven and One-Half Cents ($11.875) per share, subject to adjustments as
provided below.
2.2 NOTICE OF CONVERSION. Before this Note may be converted into Common
Shares at the option of the Holder, the Holder must surrender this Note and all
but not less than all other Notes held by such Holder, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the Company or
of any
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transfer agent for the Notes. The Holder shall also give written notice to the
Company at such office that the Holder elects to convert this Note. The notice
shall also specify the name or names in which the Holder wishes the certificate
or certificates for Common Shares to be issued, which may be only Holder or a
permitted transferee of Holder under the third paragraph of this Note. If a
name specified is not that of the Holder, the notice shall also state the
address of the new Holder and any other information required by law. The
Company shall, as soon as practicable thereafter, issue and deliver to the
Holder of the Note(s) converted, or to that Holder's nominee or nominees,
certificates for the number of such Common Shares to which the Holder shall be
entitled, together with cash in lieu of any fraction of a share as provided in
Section 2.5 hereof, and cash in the amount of the accrued but unpaid interest on
such Note(s). Conversion shall be deemed to have been made as of the date of
surrender of the Note(s), and the person or persons entitled to receive the
Common Shares issuable upon conversion shall be treated for all purposes as the
record holder or holders of those Common Shares on that date.
2.3 RESTRICTIVE LEGEND. Common Shares to be issued pursuant to this
Article 2 shall bear such legends as the Company may determine are required to
assure compliance with applicable federal and state securities laws.
2.4 ADJUSTMENTS. If the Company shall subdivide the number of outstanding
Common Shares into a greater number of shares, then the Conversion Price
provided for herein and in effect at the time of such action shall be
proportionately decreased, and the number of shares at the time purchasable
pursuant to this conversion right shall be proportionately increased. If the
Company shall reduce the number of outstanding Common Shares by combining such
shares into a smaller number of shares, then in such case, the Conversion Price
in effect at the time of such action shall be proportionately increased, and the
number of shares at the time purchasable pursuant to this conversion right shall
be proportionately decreased.
If the Company shall consolidate or merge with or convey all or
substantially all of its property and assets to any other person or entity (any
such person or entity being included within the meaning of the term "successor")
or the Company shall distribute to
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the holders of Common Shares any non-cash dividend, the Holder thereafter shall
have the right to receive, upon the conversion hereof, upon the basis and on the
terms and conditions and during the time specified in this Note in lieu of the
Common Shares theretofore purchasable upon the exercise of the conversion
privilege, the stock, securities or assets to which a holder of the number of
Common Shares then deliverable upon the conversion hereof would have been
entitled upon such consolidation, merger or sale, and the Company shall take
such steps in connection with such consolidation, merger or sale as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably possible, in relation to any stock, securities or assets
thereafter deliverable upon the conversion of this Note; and in any such event,
the rights of the Holder to an adjustment in the number of Common Shares into
which this Note is convertible and in the Conversion Price, as herein provided,
shall continue and be preserved in respect of any stock, securities or assets
into which the Holder becomes entitled to convert.
If the Company shall issue or sell any Common Shares, or any securities
convertible into, exercisable for or exchangeable for Common Shares, for a
consideration per share less than the lesser of the Conversion Price in effect
immediately prior to the time of such issue or sale or the Market Value of a
Common Share (as hereinafter defined) on the date of such issue or sale, then
the Conversion Price shall be decreased as if the issuance of such Common Shares
were in fact a stock dividend resulting in a subdivision of the number of
outstanding Common Shares into a greater number of shares, as provided in
Section 2.4. Common Shares issued pursuant to a stock option plan for officers
or employees of the Company, not exceeding two million (2,000,000) Common Shares
as presently constituted, shall be deemed issued for Market Value, regardless of
the actual consideration. The issuance of any rights, options, warrants or
securities convertible into or exchangeable for Common Shares shall be deemed to
be the issuance of Common Shares for the exercise, conversion or exchange price,
regardless of the ultimate exercise, conversion or exchange, but the actual
exercise, conversion or exchange shall not be deemed the issuance of Common
Shares. For purposes hereof, "Market Value" shall be the fair market value of
the Common Shares as determined by the average of the last trading price of the
Class A Common Stock of the Company for the fifteen (15) trading days preceding
such issuance.
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2.5 FRACTIONAL SHARES. No fractional Common Shares shall be issued upon
the conversion of this Note. If any fractional interest in a Common Share
would, except for the provisions of this Section 2.5, be deliverable upon the
conversion of this Note, the Company shall, in lieu of delivering the fractional
share therefor, adjust the fractional interest by payment to the Holder of the
Note, an amount equal (computed to the nearest cent) to the current Market Value
of the fractional interest.
2.6 NOTICE OF ADJUSTMENT. When any adjustment is required to be made in
the Conversion Price, the Company shall forthwith determine the new Conversion
Price; and
(a) shall promptly prepare and retain on file a statement setting
forth the Conversion Price as so adjusted and describing in reasonable detail
the facts accounting for such adjustment and the method used in arriving at the
new ratio (the "Statement"); and
(b) shall mail a copy of the Statement to the Holder, as of a date
within ten (10) days after the date when the circumstances giving rise to the
adjustment occurred.
2.7 COMMON SHARES. Whenever reference is made in these provisions to the
issue or sale of Common Shares, the term "Common Shares" shall include any stock
of any class of the Company which shall share in any residual amount available
for distribution to stockholders after payment of creditors and amounts payable
to holders of stock with a preference on dividends or a preference in the amount
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company.
2.8 REPLACEMENT NOTES. If this Note has been surrendered in exchange for
Replacement Notes, the Holder's conversion rights under this Article 2 may be
exercised by notice given by any Holder of Replacement Notes, and such exercise,
when made, shall be effective for all Replacement Notes held by such Holder.
If, following such exercise, the Holder of any Replacement Note fails to
surrender all of his, her or its Replacement Note(s) in accordance with Section
2.2, the Company shall not issue Common Shares (and cash in lieu of fractional
shares) to such Holder until such Holder surrenders all of his, her or its
Replacement Note(s) to the Company, and the Replacement Note(s) shall thereafter
cease
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to bear interest and constitute a right to receive only the Common Shares and
cash to which the Holder is entitled upon surrender of the Replacement Note(s)
under Article 2.
ARTICLE 3
CONVERSION REQUIREMENT
3.1 COMPANY RIGHT TO REQUIRE CONVERSION. Beginning on the date which is
five (5) days after the Common Shares have attained the Target Price, and,
except as provided below, at any time thereafter, the Company may require that
all, but not less than all, of the Notes be converted into Common Shares at the
Conversion Price. The Common Shares shall be deemed to have obtained the Target
Price if the average of the closing bid and asked price for the Common Shares
exceeds Sixteen Dollars ($16) per share for any five (5) consecutive trading
days, if the Common Shares are traded on a national quotation system, or if last
trading price for the Common Shares exceeds Sixteen Dollars ($16) per share for
any five (5) trading days within any period of fifteen (15) consecutive trading
days, if the Common Shares are traded on a securities exchange. The Company
shall have the right to require conversion of the Notes into Common Shares once
the Common Shares have attained the Target Price, notwithstanding that the
trading price for the Common Shares may decline below Sixteen Dollars ($16) per
share after the Common Shares have attained the Target Price.
Beginning on the date which is five (5) days after the Common Shares have
obtained the Target Price, the Holder of not less than 50% in principal amount
of the Notes outstanding may provide the Company with a notice of the Company's
right to require conversion of the Notes under this Section 3.1. If the Company
fails to give the Holders notice under Section 3.2 within thirty (30) days of
the date of receipt of such notice, the Company's rights to require conversion
under this Article 3 shall lapse.
3.2 NOTICE OF CONVERSION. Notice of conversion under Section 3.1 shall be
given by first class mail, postage prepaid, mailed at least thirty (30) days but
not more than sixty (60) days before a conversion date, to each Holder of Notes
to be converted, at his, her or its address appearing in the Notes Register.
All notices of conversion shall state: (i) the conversion date; (ii) the number
of Common Shares and cash in lieu of fractional shares into which
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the Note is to be converted; (iii) that, unless the Company defaults in
delivering the Common Shares and cash, in lieu of fractional shares and which
the Note is to be converted on the conversion date, interest thereon shall cease
to accrue on and after such date; and (iv) that the Note must be surrendered to
receive the Common Shares and cash in lieu of fractional shares into which the
Note is to be converted and the place where the Note is to be surrendered.
3.3 HOLDER'S OPTION TO DECLINE CONVERSION. The Holder shall have the
option, given in writing by first class mail, postage prepaid, mailed at least
fifteen (15) days before the Conversion Date specified by the Company under
Section 3.2, to decline to surrender his, her or its Note for conversion under
this Article 3. If Replacement Notes have been issued, this option may be
exercised separately by each Holder of Replacement Notes. If a holder exercises
his, her or its right under this Section 3.3 to decline to surrender his, her or
its Note for conversion, then, commencing on the conversion date specified by
the Company in its notice to the Holder, interest thereon shall cease to accrue
on and after such date, but the Note shall otherwise remain in full force and
effect, including the right of the Holder to convert the Note into Common Shares
pursuant to Article 2.
ARTICLE 4
CONSOLIDATION, MERGER OR SALE
4.1 CONSOLIDATION ONLY ON CERTAIN TERMS. Nothing contained in the Notes
shall prevent any consolidation or merger of the Company with or into any other
corporation or entity, or successive consolidations or mergers to which the
Company or its successor or successors shall be a part or parties, or shall
prevent the sale by the Company of its property or assets as, or substantially
as, an entirety or otherwise; provided, however, that (i) in case of any such
consolidation or merger, the corporation resulting therefrom or surviving shall
be a corporation organized under the laws of the United States or any state
thereof or the District of Columbia and shall succeed to and be substituted for
the Company with the same effect as if it had been named herein and shall become
liable and be bound for, and shall expressly assume, by supplemental agreement
in form reasonably satisfactory to the Company and the Holder executed by the
corporation resulting from such consolidation or
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merger, the due and punctual payment of the principal of and interest on all the
Notes then outstanding and the performance and observance of all of the
covenants and conditions of the Notes on the part of the Company to be performed
or observed, and (ii) as a condition of any such sale of all or substantially
all of the property or assets of the Company as, or substantially as, an
entirety, the corporation to which such property and assets shall be sold shall
be a corporation organized under the laws of the United States or any state
thereof or the District of Columbia and shall (a) expressly assume, as a part of
the purchase price thereof, the due and punctual payment of the principal of and
interest on all the Notes and the performance and observance of all the
covenants and conditions of the Notes on the part of the Company to be performed
or observed, and (b) simultaneously with the delivery to it of the conveyances
or instruments of transfer of such property or assets, execute and deliver to
the Company a supplemental agreement in form reasonably satisfactory to the
Company and the Holder, whereby such purchaser shall assume the due and punctual
payment of the principal of and interest on all the Notes then outstanding and
the performance and observance of all the covenants and conditions of the Notes
on the part of the Company to be performed or observed, to the same extent that
the Company would have been bound and liable.
4.2 SUCCESSOR CORPORATION SUBSTITUTED. The Company will not consolidate
with or merge into any other corporation or entity, or sell its property or
assets as, or substantially as, an entirety except upon the terms and conditions
set forth in this Article 4. Upon any consolidation or merger, or any sale of
all or substantially all of the property or assets of the Company as, or
substantially as, an entirety in accordance with the provisions of this
Article 4, the entity formed by such consolidation or into which the Company
shall have been merged or to which such sale shall have been made shall succeed
to and be substituted for the Company with the same effect as if it had been
named herein as a party hereto, and thereafter from time to time such entity may
exercise all rights and powers of the Company under this Note in the name of the
Company or in its own name; and any act or proceeding required or permitted to
be done by any board or officer of the Company may be done with like force and
effect by the like board, officer or authorized representative of any entity
that shall at the time be the successor of the Company hereunder.
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4.3 DELIVERY OF CERTIFICATE TO HOLDERS. Prior to the effective time of
any consolidation, merger or sale of property or assets to which this Article 4
is applicable, the Company will promptly deliver to each Holder an Officer's
Certificate of its President and Chief Financial Officer, stating that the
covenants of the Company contained in this Article 4 have been complied with.
ARTICLE 5
COVENANTS OF COMPANY AND HOLDER
5.1 NOTICE OF EVENT OF DEFAULT. Within 30 days after the Company obtains
knowledge of an event which (with the giving of notice or the lapse of time or
both) would constitute an Event of Default under Article 6 hereof, it shall give
to each of the Holders, by first-class mail, written notice describing such
event, together with a copy of the current Note Register.
5.2 RESTRICTION ON TRANSFER. The Holder, any transferee or assignee of
Holder, covenants that they will not offer for sale, sell, assign, or otherwise
transfer any interest in this Note or the Common Shares to be issued upon
conversion of this Note without the prior written consent of the Company which
consent shall require only that the interests to be transferred are subject to
an effective registration statement filed pursuant to the Securities Act of 1933
(the "Act") and have been registered or qualified pursuant to any applicable
state securities laws or that the Company has received evidence reasonably
satisfactory to it, including, at the discretion of the Company, an opinion of
counsel, that the proposed transaction is exempt from the aforementioned
requirements and would not cause the original issuance and sale of this Note or
the Common Shares to be issued upon conversion of this Note to violate any of
these requirements. Holder agrees that the Company shall not be required to
transfer this Note on the Note Register of the Company or the Common Shares to
be issued upon conversion of this Note unless there has been compliance with
this Section 5.2.
5.3 LIMITATION ON SENIOR INDEBTEDNESS. The Company covenants and agrees
that it will not incur any Senior Indebtedness which, when aggregated with the
aggregate principal amount of all other Senior Indebtedness on the date such
Senior Indebtedness is incurred, exceeds the Debt Limit. For this purpose,
Senior
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Indebtedness is considered incurred on the date the Company enters into a
binding agreement with a lender to borrow, and not on the date(s) upon which
funds are actually advanced from time to time thereafter to the Company pursuant
to such agreement, and the amount of such Senior Indebtedness is the maximum
amount the lender is committed to lend under such agreement, regardless of the
amount, if any, actually borrowed from time to time by the Company pursuant to
such commitment. For this purpose, the Debt Limit means an amount, determined
at the time any Senior Indebtedness is incurred, equal to the sum of (i) three
and one-half (3.5) times the EBITDA of the Company, and (2) the Other
Obligations of the Company. For this purpose, EBITDA of the Company means, for
the Company and its subsidiaries, for the twelve-month period ending on the last
day of the calendar month preceding the month in which such Senior Indebtedness
is incurred, an amount equal to the sum of, without duplication, (a) net income
(or net loss) PLUS (b) (i) total interest expense, whether paid or accrued less
amortization or write-off of debt discount and expense and (ii) all amounts
treated as expenses for depreciation and the amortization of intangibles of any
kind to the extent included in the determination of such net income (or loss),
PLUS (c) all tax expense on or measured by income or capital to the extent
included in the determination of such net income (or loss) MINUS (d) gains or
losses on the sale or other disposition of assets; PROVIDED, HOWEVER, that net
income (or loss) shall be computed for these purposes without giving effect to
extraordinary losses or extraordinary gains; all determined in accordance with
generally accepted accounting principles consistently applied. With respect to
any entity, business or product line acquired by the Company or any of its
subsidiaries within the twelve-month period for computing EBITDA set forth
above, the actual EBITDA of such entity, business or product line for the
portion of such twelve-month period ending prior to the date of its acquisition
shall be included in calculating EBITDA of the Company, on a pro forma basis as
if such entity, business or product line had been owned by the Company or such
subsidiary throughout such period. For this purpose, Other Obligations means
the sum of (i) aggregate amount of payments required to be made by the Company
or any of its subsidiaries during the twelve-month period commencing on the
first day of the month in which such Indebtedness is incurred on all real
property leases and all equipment leases not described in clause (ii), and,
without duplication, (ii) the unpaid principal balance on the date such Senior
Indebtedness is incurred of all
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Indebtedness of the Company which is nonrecourse to the Company and the unpaid
principal balance of any off-balance sheet leases of the Company. This
Section 5.3 shall not apply to any Senior Indebtedness which is incurred as a
renewal, extension, refunding or refinancing of any Senior Indebtedness, to the
extent thereof.
ARTICLE 6
EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT. "Events of Default" wherever used herein means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Note when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of any Note at its
maturity whether by acceleration or otherwise; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Note (other than a covenant or warranty a
default in the performance of which or the breach of which is specifically
covered in this Article 6), and continuance of such default or breach for a
period of sixty (60) days after there has been given, by registered or certified
mail, to the Company by the Holders of at least 25% in principal amount of the
outstanding Notes, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(4) the entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under federal bankruptcy laws or the entry of an order
for relief with respect to the Company in a proceeding under any such law or
statute or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator
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(or other similar official) of the Company or of any substantial part of the
property of the Company or ordering the winding up or liquidation of the affairs
of the Company and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent of the Company to the institution of
bankruptcy or insolvency proceedings against it, or the filing of a petition or
answer or consent seeking reorganization or relief under federal bankruptcy laws
or any other applicable federal or state law, or the consent of the Company to
the filing of such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or similar official) of the Company or any
substantial part of the property of the Company or the making by the Company of
an assignment for the benefit of creditors, or the admission by the Company in
writing of its inability to pay its debts generally as they become due.
6.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of
Default occurs and is continuing, the Holders of not less than 25% in principal
amount of the Notes outstanding, by a notice in writing to the Company, may
declare immediately due and payable the principal of and all accrued interest on
all of the Notes, and upon any such declaration the same shall become and shall
be immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Holders, the Holders of not less than a majority in principal amount of the
Notes outstanding, by written notice to the Company, may rescind and annul such
declaration and its consequences if:
(1) the Company has paid
(a) all overdue installments of interest on all Notes
(b) the principal of any Notes which have become due otherwise
than by such declaration of acceleration, and interest
thereon at the maximum rate permitted by law, and
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(c) interest upon overdue installments of interest at the Bank
of America prime or reference rate plus two (2) percent, and
(2) all Events of Default, other than the non-payment of the
principal of Notes which has become due solely by such acceleration, have been
cured or waived as provided in this Article.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
6.3 ACCELERATION UPON CONSOLIDATION, ETC. If the Company makes a public
announcement of its intention to engage in a transaction described in the first
sentence of Section 4.2, regardless of whether the Company is the surviving
corporation in such transaction, then commencing on the date of such
announcement and ending on the date which is thirty (30) days thereafter, the
Holders of not less than 25% in principal amount of the Notes outstanding, by a
notice in writing to the Company, may declare immediately due and payable the
principal of and all accrued interest on all of the Notes, and upon any such
declaration the same shall become and shall be due and payable on the effective
date of such transaction. If such transaction is not consummated, then such
declaration shall be null and void.
6.4 SUITS FOR ENFORCEMENT. The Company covenants that if:
(1) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of any Note at
the maturity thereof, whether by acceleration or otherwise, the Company will,
upon demand of any Holder, pay to him the whole amount then due and payable for
principal and interest, with interest upon the overdue principal or overdue
installments of interest, at the maximum rate permitted by law.
If the Company fails to pay such amounts forthwith upon such demand,
the Holder may institute a judicial proceeding for the collection of the sums so
due and unpaid, and may prosecute such proceeding to judgment or final decree,
and may enforce the same
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against the Company and collect the moneys adjudged or decreed to be payable in
the manner provided by law out of the property of the Company, wherever
situated.
If an Event of Default occurs and is continuing, any Holder may in his
discretion proceed to protect and enforce his rights by such appropriate
judicial proceedings as he shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Note or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
6.5 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST. The
Holder of any Note shall have the right, which is absolute and unconditional,
subject to the subordination provisions of Article 1, to receive payment of the
principal of and interest on such Note on the respective stated maturities
expressed in such Note (or, in the case of conversion, on the conversion date)
and to institute suit for the enforcement of any such payment, and such right
shall not be impaired without the consent of such Holder.
6.6 RESTORATION OF RIGHTS AND REMEDIES. If any Holder has instituted any
proceeding to enforce any right or remedy under this Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to such Holder, then and in every such case the Company and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Holders shall continue as though no such
proceeding has been instituted.
6.7 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or served to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
6.8 DELAY OR OMISSION NOT WAIVER. No delay or omission of any Holder of
any Note to exercise any right or remedy accruing
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upon any Event of Default shall impair any such rights or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Holders.
6.9 WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in
principal amount of the outstanding Notes may on behalf of the Holders of all
the Notes waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of or interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article 8 cannot be modified or amended without the consent of the Holder of
each outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Note; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
6.10 WAIVER OF STAY, EXTENSION OR OTHER LAWS. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner claim or take the benefit or advantage of, any stay or
extension law or any law which would prohibit or forgive the Company from paying
all or any portion of the interest on the Note as contemplated herein wherever
enacted, now or at any time hereafter in force, which may affect the covenants
of the performance of this Note; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Holders, but will permit the execution of every such
power as though no such law had been enacted.
6.11 RIGHTS AND REMEDIES SUBJECT TO SUBORDINATION. Notwithstanding the
provisions of this Article 6, including without limitation the first paragraph
of Section 6.2, Section 6.3, Section 6.4(2), the two paragraphs following
Section 6.4(2) and Section 6.5, the rights of the Holders to require payments of
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principal, premium, if any, or interest upon the Notes, and the Holder's
remedies in connection with the enforcement of the Notes, are subject to the
provisions subordinating the Notes to Senior Indebtedness, to the restrictions
upon payments provided for in connection with such subordination and to the
restrictions upon remedies provided for in connection with such subordination,
all as set forth in Article 1 of this Note.
ARTICLE 7
SATISFACTION AND DISCHARGE
Each Note shall cease to be of further effect (except as to any surviving
rights of transfer, or exchange of such Note herein expressly provided for), and
shall be discharged and canceled, when such Note has been duly paid or redeemed
by the Company and surrendered to the Company for cancellation; provided,
however, that such Note shall be reinstated to the extent the Holder is required
to disgorge any payment previously made to the Holder with respect to the Note
as a preference payment in a bankruptcy proceeding with respect to the Company
or as a violation of the subordination provisions hereof.
ARTICLE 8
SUPPLEMENTAL AGREEMENTS
8.1 SUPPLEMENTAL AGREEMENTS WITHOUT CONSENT OF HOLDERS. Without the
consent of any Holder, the Company, when authorized by a resolution of the Board
of Directors, at any time and from time to time, may enter into one or more
agreements supplemental hereto, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company,
and the assumption by any such successor of the covenants of the Company herein
contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company.
8.2 SUPPLEMENTAL AGREEMENTS WITH CONSENT OF HOLDERS. With the consent of
the Holders of not less than a majority in principal
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amount of the outstanding Notes, by written notice of said Holders delivered to
the Company, the Company, when authorized by a resolution of the Board of
Directors, may enter into an agreement supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Note or of modifying in any manner the rights of the Holders
under this Note; provided, however, that no such supplemental agreement shall,
without the consent of the Holder of each outstanding Note affected thereby,
(1) change the stated maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the rate of
interest thereon, or change the place of payment, or the coin or currency in
which any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the stated
maturity thereof (or, in the case of conversion, on or after the conversion
date), or
(2) modify any of the provisions of this Section or Section 6.9, or
(3) modify or affect in any manner adverse to the Holders of the
Notes the provisions with respect to subordination of the Notes contained in
Article 1 hereof.
8.3 EFFECT OF SUPPLEMENTAL AGREEMENTS. Upon the execution of any
supplemental agreement under this Article, the Notes shall be modified in
accordance therewith, and such supplemental agreement shall form a part of this
Note for all purposes; and every Holder of Notes shall be bound thereby.
8.4 REFERENCE IN NOTE TO SUPPLEMENTAL AGREEMENTS. Notes issued and
delivered after the execution of any supplemental agreement pursuant to this
Article may, but need not, bear a notation as to any matter provided for in such
supplemental agreement. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Board of Directors, to any such
supplemental agreement may be prepared, executed, issued and delivered by the
Company in exchange for outstanding Notes.
8.5 SENIOR INDEBTEDNESS CONSENT. Notwithstanding anything in this Note to
the contrary, this Note may not be modified, amended
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or supplemented without the prior written consent of the holders of Senior
Indebtedness. Notwithstanding the preceding sentence, the provisions of the
Note relating to conversion of the Note to Common Stock may be modified, amended
or supplemented without the prior written consent of the holders of Senior
Indebtedness unless such modification, amendment or supplement provides that
this Note is convertible into any securities of the Company other than Common
Stock.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 NOTICES TO COMPANY. Any request, demand, authorization, direction,
notice, consent or waiver of Holders or other document provided or permitted by
this Note to be made upon, given or furnished to the Company by any Holder shall
be sufficient (unless otherwise herein expressly provided) if in writing and
mailed first class postage prepaid, to the Company, addressed to it at 900 North
Seward Street, Hollywood, California 90038, Attention: Chief Financial Officer;
or at any other address previously furnished in writing to the Holders by the
Company.
9.2 NOTICE TO HOLDERS; WAIVER. Where this Note provides for notice to
Holders of any event, such notice shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first class postage
prepaid, to each Holder affected by such event, at his address as it appears in
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Note
provides for notice in any matter, such notice may be waived in writing by the
person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice.
9.3 EFFECT OF HEADINGS. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
9.4 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Note by
the Company shall bind its successors and assigns, whether so expressed or not.
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9.5 SEPARABILITY CLAUSE. In case any provision in this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.6 BENEFITS OF NOTES. Nothing in the Notes, express or implied, shall
give to any person, other than the Company, the Holders and their successors,
and the holders of any Senior Indebtedness, any benefit or legal or equitable
right, remedy or claim under this Note. Notwithstanding that the term "Holder"
refers to the original payee and his or her registered assigns, and
notwithstanding that the Company may treat the Holder, as so defined, as the
owner of this Note for all purposes, the provisions of this Note imposing
obligations or agreements upon the Holder, including but not limited to the
provisions of Article 1 providing for the subordination of this Note to Senior
Indebtedness, shall apply to successors and transferees of any Holder whether or
not such successor or transferee becomes a registered assign and therefore a
Holder.
9.7 GOVERNING LAW. Each Note shall be deemed to be a contract under the
laws of the State of California and shall be construed in accordance with and
governed by the laws of the State of California.
9.8 HOLIDAYS. In any case where any interest payment date, conversion
date or stated maturity of any Note shall not be a business day, then
(notwithstanding any other provisions of this Note) payment of interest or
principal need not be made on such date, but may be made on the next succeeding
business day with the
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same force and effect as if made on the interest payment date or conversion date
or at the stated maturity, and no interest shall accrue for the period from and
after such interest payment date, conversion date or stated maturity, as the
case may be.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
the signatures of its officers.
DATED: _____________________, 1997
THE TODD-AO CORPORATION
By:
---------------------------------
President
By:
---------------------------------
Secretary
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into
as of the 18th day of June, 1997, by and between The Todd-AO Corporation, a
Delaware corporation ("Company"); Hollywood Digital Limited Partnership, a
Delaware limited partnership ("Partnership"); and Hollywood Digital Inc., a
Delaware corporation; HDZ Digital Limited Partnership, a Delaware limited
partnership; The Palladion Limited Partnership, a Massachusetts limited
partnership; Phemus Corporation, a Massachusetts corporation ("Phemus"); Rand
Gladden; William Romeo; David Cottrell; and Michael Jackson (collectively, the
"Partners"), with reference to the following facts:
A. Pursuant to that certain Agreement for the Purchase and Sale of Assets
of even date herewith (the "Purchase Agreement"), Company is issuing to the
Partnership two Convertible Subordinated Notes (the "Notes"), convertible into
the Class A Common Stock of the Company (the "Common Stock").
B. The Notes may be divided and transferred by the Partnership to the
Partners as a Partnership distribution.
C. The Company has agreed to grant to the Partnership and, to the extent
they are transferees of the Notes and/or the Common Stock, the Partners, certain
registration rights as set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements,
covenants and other provisions contained herein and in the Purchase Agreement,
the parties agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following
capitalized terms shall have the following respective meanings:
1.1. CONVERSION SHARES. The Common Stock into which the Notes are
convertible.
1.2. EXCHANGE ACT. The Securities Exchange Act of 1934, as amended,
or any similar federal statute then in effect, and a
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reference to a particular section thereof shall be deemed to include a reference
to the comparable section, if any, of any such similar federal statute.
1.3. HOLDER. The Partnership or any of the Partners which is a
holder of the Notes or Registrable Securities.
1.4. PERSON. An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
1.5. REGISTRABLE SECURITIES. Any shares of Common Stock which are
issued or will be issued upon conversion of a Note. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (iii) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (iv)
they shall have ceased to be outstanding.
1.6. REGISTRATION EXPENSES. Any and all expenses incident to
performance of or compliance with this Agreement, including without limitation,
(i) all SEC and stock exchange or National Association of Securities Dealers
registration and filing fees, (ii) all fees and expenses of complying with
securities or blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, but excluding underwriting discounts and commissions and transfer
taxes, if any.
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1.7. SECURITIES ACT. The Securities Act of 1933, as amended, or any
similar federal statute then in effect, and a reference to a particular section
thereof shall be deemed to include a reference to the comparable section, if
any, of any such similar federal statute.
1.8. SEC. The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the Exchange Act.
Section 2. INCIDENTAL REGISTRATION.
2.1. RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any
time proposes to register any Common Stock on any form for the general
registration of securities under the Securities Act (other than a registration
form relating to (i) a registration of a stock option, stock purchase or
compensation or incentive plan or of stock issued or issuable pursuant to any
such plan, or a dividend investment plan, (ii) a registration of stock proposed
to be issued in exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation, or (iii) a registration of
stock proposed to be issued in exchange for other securities of the Company),
then the Company will at such time give prompt written notice to all Holders of
Notes and Registrable Securities of its intention to do so and of such Holders'
rights under this Section 2. Upon the written request of such Holders made
within twenty (20) days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder and the intended method of disposition thereof), the Company will use its
best efforts to cause the Registrable Securities which the Company has been so
requested to register by the Holders thereof to be registered under the
Securities Act; provided, that (i) if, at any time after giving written notice
of its intention to register any securities but prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may at its election, give written notice of such determination to each
Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration, and (ii) if such
registration involves an underwritten offering, all Holders requesting to be
included in such registration must sell their Registrable Securities to the
underwriters of such offering on
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the same terms and conditions as apply to the Company or the Holder for whose
account securities are to be sold, as the case may be. If a registration
requested pursuant to this Section 2.1 involves an underwritten public offering,
any Holder requesting to be included in such registration may elect in writing,
not later than three (3) days prior to the effectiveness of the registration
statement filed in connection with such registration, not to register such
securities in connection with such registration. The Company will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.
2.2. PRIORITY IN INCIDENTAL REGISTRATIONS. In connection with any
registration pursuant to this Section 2 involving an underwritten offering, if
the managing underwriter or underwriters advise the Company in writing that, in
its or their opinion, the number of securities requested to be included in such
registration would have a material adverse effect on such offering (including,
without limitation, a significant decrease in the price at which such securities
can be sold), then the amount of Registrable Securities to be offered for the
accounts of Holders shall be reduced pro rata as to all requesting Holders on
the basis of the relative number of shares of Registrable Securities each such
Holder has requested to be included in such registration, or such Registrable
Securities shall be excluded from such registration, to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter or underwriters; provided,
however, that if securities are being registered for the account of persons or
entities other than the Company, such reduction shall not represent a greater
fraction of the number of Registrable Securities intended to be offered by
Holders than the fraction of similar reductions imposed on such other persons or
entities (but not the Company) with respect to the amount of securities they
intended to offer.
Section 3. DEMAND REGISTRATION.
3.1. GENERALLY. From and after the date which is one year after the
date upon which at least 50% of the aggregate principal amount of the Notes has
been converted into Common Stock, the Holder or Holders who hold, in the
aggregate, 50% or more of the Conversion Shares may make one (1) written request
for the registration under the Securities Act of all or part of their
Registrable Securities (a "Demand Registration") and the Company
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shall use its best efforts to effect such Demand Registration, so long as such
request relates to Registrable Securities constituting 50% or more of the
Conversion Shares. Any request for a Demand Registration shall specify the
aggregate number of the Registrable Securities proposed to be sold and shall
also specify the intended method of disposition thereof. Within ten (10) days
after receipt of such request the Company will given written notice of such
registration request to all Holders, and the Company will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within twenty (20) business days
after the receipt by the applicable Holder of the Company's notice. Each such
request shall also specify the aggregate number of Registrable Securities to be
registered and the intended method of disposition thereof. Unless the Holder or
Holders requesting the Demand Registration shall give written consent, no other
party, including the Company (but excluding another Holder of a Registrable
Security), shall be permitted to offer securities under any such Demand
Registration. In any registration initiated as a Demand Registration, the
Company will pay all Registration Expenses in connection therewith.
3.2. PHEMUS. In addition to the demand registration provided by
Section 3.1, from and after the date which is one year after the date upon which
its Notes have been converted into Common Stock, Phemus may make one (1) written
request for the registration under the Securities Act of all or part of its
Registrable Securities (the "Phemus Registration"), subject to the same terms
and conditions as are provided in Section 3.1 and elsewhere in this Agreement
with respect to the Demand Registration, provided that all costs and expenses of
such Phemus Registration, including the reasonable general and administrative
costs of the Company relating thereto, are paid for solely by Phemus.
Section 4. REGISTRATION PROCEDURES. If whenever the Company is required
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
will, as expeditiously as possible:
4.1. prepare and, in any event within ninety (90) days after the end
of the period within which request for registration may be given to the Company
(provided, however, if such registration involves an underwritten offering, all
Holders requesting to be
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included in such registration must sell their Registrable Securities to the
underwriters of such offering on the same terms and conditions as apply to the
Company or the Holder for whose account the securities are to be sold, as the
case may be), file with the SEC a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective, provided, however, that the Company may
discontinue any registration of its securities which is being effected pursuant
to Section 2 herein at any time prior to the effective date of the registration
statement relating thereto. The Company will promptly notify each seller of
such Registrable Securities and confirm such advice in writing (i) when such
registration statement becomes effective, (ii) when any post-effective amendment
to such registration statement becomes effective and (iii) of any request by the
SEC for any amendment or supplement to such registration statement or any
prospectus relating thereto or for additional information;
4.2. prepare and file with the SEC such amendments and supplements
to such registration statement as may be necessary to keep such registration
statement effective for a period of not less than six (6) months and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the seller or sellers of
Registrable Securities set forth in such registration statement. If at any time
the SEC should institute or threaten to institute any proceedings for the
purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible;
4.3. furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus) in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities by such seller;
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4.4. use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such securities or blue
sky laws of any State of the United States as the managing underwriter, if any,
shall reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable each seller and underwriter, if any,
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this Section 4.4, it
would not be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any such
jurisdiction;
4.5. use its best efforts to list such Registrable Securities on any
securities exchange on which the Common Stock is then listed, if such
Registrable Securities are not already so listed and if such listing is then
permitted under the rules of such exchange, and to provide a transfer agent and
registrar for such Registrable Securities covered by such registration statement
not later than the effective date of such registration statement; and
4.6. promptly notify each seller of any such Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act within the
appropriate period mentioned in Section 4.2 of the Company becoming aware that
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and at the
request of any such seller promptly prepare and furnish to such seller a
reasonable number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing.
4.7. The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish
7
<PAGE>
the Company in writing such information and documents regarding such seller and
the distribution of such securities as may be required to be disclosed in the
registration statement in question by the rules and regulations under the
Securities Act or under any other applicable securities or blue sky laws of the
jurisdictions referred to in Section 4.4.
4.8. Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4.6, such Holder
will forthwith discontinue disposition of Registrable Securities under such
registration statement until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4.6, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 4.2 shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 4.6 to and including the date when each
seller of Registrable Securities covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by Section 4.6.
Notwithstanding anything to the contrary in this Section 4, the Company shall
not be required to prepare and file any registration statement (i) if, upon the
advice of counsel, such registration statement requires the disclosure of any
material item for which the Company has not made a public disclosure, or (ii)
requires the submission of any financial statement of the Company in addition to
the Company's annual audited and quarterly unaudited financial statements
required to be filed with the SEC pursuant to the Exchange Act.
Section 5. RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder to the extent required from
time to time to enable the Holders to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as
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<PAGE>
such rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
Section 6. MISCELLANEOUS.
6.1. HOLDBACK AGREEMENT. If any registration in which a Holder is
participating shall be in connection with an underwritten public offering, such
Holder of Registrable Securities agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the Securities Act,
of any Registrable Securities, and to use such Holder's best efforts not to
effect any such public sale or distribution of any other equity security of the
Company or of any equity security, of the Company (in each case, other than as
part of such underwritten public offering) within thirty (30) days before or the
lesser of (a) one hundred eighty (180) days after the effective date of such
registration or (b) the time period during which the directors and officers of
the Company are subject to a lock-up agreement.
6.2. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of Holders (which
must include Phemus Corporation) holding or entitled to issuance of seventy-five
percent (75%) of the Registrable Securities. All Holders shall be bound by any
consent authorized by this Section 6.2.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
THE TODD-AO CORPORATION
By: _____________________________
Its: ____________________________
9
<PAGE>
"Partnership"
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
By: HOLLYWOOD DIGITAL, INC., Its General Partner
By: __________________________
Its: _________________________
"Partners"
HOLLYWOOD DIGITAL, INC.
By: __________________________
Its: _________________________
THE PALLADION LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK, INC.,
Its general partner
By: __________________________
Its: _________________________
10
<PAGE>
HDZ DIGITAL LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK LIMITED
PARTNERSHIP II
By: HALPERN, DENNY AND ZOOK, INC.,
Its general partner
By: _____________________
Its: ____________________
PHEMUS CORPORATION
By: __________________________
Its: _________________________
By: __________________________
Its: _________________________
______________________________
Rand Gladden
______________________________
William Romeo
______________________________
David Cottrell
______________________________
Michael Jackson
11
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
(6660 Sunset)
1. PARTIES.
This Assignment and Assumption of Lease (this "Assignment"), dated as of
this ____ day of June, 1997, is executed by and between Hollywood Digital
Limited Partnership, a Delaware Limited Partnership ("Assignor") and Todd-AO HD,
Inc., a California Corporation ("Assignee").
2. RECITALS.
2.1. Assignor executed that certain Standard Industrial/Commercial
Multi-Tenant Lease dated January 31, 1997 between Sunset-Cherokee Plaza Limited
Partnership, as Landlord, and Assignor, as Tenant, for Suites J1 and J2 at 6660
Sunset Boulevard, Los Angeles, California 90028, as more particularly described
in, and upon and subject to all of the terms and conditions of, the Lease.
2.2. Assignor also executed that certain Standard Industrial/Commercial
Multi-Tenant Lease dated March 20, 1997 between Sunset-Cherokee Plaza Limited
Partnership, as Landlord, and Assignor, as Tenant, for Suite L at 6660 Sunset
Boulevard, Los
-1-
<PAGE>
Angeles, California 90028, as more particularly described in, and upon and
subject to all of the terms and conditions of, the lease. The leases described
in Section 2.1 above and this Section 2.2 are herein collectively called the
"Leases."
2.3. Concurrently with the execution and delivery of this Assignment,
Assignee is acquiring substantially all of the assets of Assignor pursuant to
that certain Agreement for the Purchase and Sale of Assets dated June 18, 1997
(the "Purchase Agreement"), between The Todd-AO Corporation, a Delaware
corporation ("Todd-AO") and Assignee, as Purchasers, and Assignor, as Seller.
2.4. Pursuant to the terms of the Purchase Agreement, Assignor desires to
assign all of its right, title and interest in, to and under the Leases to
Assignee and Assignee desires to accept said assignment and assume all of
Assignor's obligations under the Leases upon, and subject to the terms,
conditions, and provisions of this Assignment.
3. ASSIGNMENT AND ASSUMPTION.
In consideration of the mutual promises contained herein and in the
Purchase Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor hereby assigns to
Assignee all of Assignor's
-2-
<PAGE>
right, title and interest in, to and under the Leases, and Assignee hereby
accepts said assignment and hereby assumes all of Assignor's obligations under
the Leases from and after the date hereof.
4. FURTHER ASSURANCES.
Assignor and Assignee shall execute such documents and take such other
steps as may hereafter be required in order to effectuate the intent and
purposes of this Assignment.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date and year first above written.
"Assignor"
HOLLYWOOD DIGITAL LIMITED
PARTNERSHIP, a Delaware Limited
Partnership
By: HOLLYWOOD DIGITAL, INC., a
Delaware corporation, its
general partner
By:
-----------------------------
Its:
----------------------------
"Assignee"
-3-
<PAGE>
Todd-AO HD, a California corporation
By:
----------------------------------
Its:
---------------------------------
-4-
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
(6690 Sunset)
1. PARTIES.
This Assignment and Assumption of Lease (this "Assignment"), dated as of
this ____ day of June, 1997, is executed by and between Hollywood Digital
Limited Partnership, a Delaware Limited Partnership ("Assignor") and Todd-AO HD,
Inc., a California Corporation ("Assignee").
2. RECITALS.
2.1. Assignor executed that certain Standard Office Lease - Gross dated
June 14, 1996, between CA SM #1, LLC, as Landlord, and Assignor, as Tenant, for
6690 Sunset Boulevard, Santa Monica, California, as more particularly described
in, and upon and subject to all of the terms and conditions of, the lease. Said
lease was amended by a First Amendment to Lease dated November 13, 1996. Said
lease, as so amended, is herein referred to as the "Lease."
2.2. Concurrently with the execution and delivery of this Assignment,
Assignee is acquiring substantially all of the assets of Assignor pursuant to
that certain Agreement for the Purchase and
-1-
<PAGE>
Sale of Assets dated June 18, 1997 (the "Purchase Agreement"), between The
Todd-AO Corporation, a Delaware corporation ("Todd-AO") and Assignee, as
Purchasers, and Assignor, as Seller.
2.3. Pursuant to the terms of the Purchase Agreement, Assignor desires to
assign all of its right, title and interest in, to and under the Lease to
Assignee and Assignee desires to accept said assignment and assume all of
Assignor's obligations under the Lease upon, and subject to the terms,
conditions, and provisions of this Assignment.
3. ASSIGNMENT AND ASSUMPTION.
In consideration of the mutual promises contained herein and in the
Purchase Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor hereby assigns to
Assignee all of Assignor's right, title and interest in, to and under the Lease
and Assignee hereby accepts said assignment and hereby assumes all of Assignor's
obligations under the Lease from and after the date hereof.
4. FURTHER ASSURANCES.
-2-
<PAGE>
Assignor and Assignee shall execute such documents and take such other
steps as may hereafter be required in order to effectuate the intent and
purposes of this Assignment.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date and year first above written.
"Assignor"
HOLLYWOOD DIGITAL LIMITED
PARTNERSHIP, a Delaware Limited
Partnership
By: HOLLYWOOD DIGITAL, INC., a
Delaware corporation, its general
partner
By:
------------------------------
Its:
-----------------------------
"Assignee"
Todd-AO HD, a California corporation
-3-
<PAGE>
By:
-----------------------------------
Its:
----------------------------------
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<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
(1661 Lincoln)
1. PARTIES.
This Assignment and Assumption of Lease (this "Assignment"), dated as of
this ____ day of June, 1997, is executed by and between Hollywood Digital
Limited Partnership, a Delaware Limited Partnership ("Assignor") and Todd-AO HD,
Inc., a California Corporation ("Assignee").
2. RECITALS.
2.1. Assignor executed that certain Standard Office Lease - Gross dated
June 14, 1996, between CA SM #1, LLC, as Landlord, and Assignor, as Tenant, for
Suite 400 at 1661 Lincoln Boulevard, Santa Monica, California, as more
particularly described in, and upon and subject to all of the terms and
conditions of, the lease. Said lease was amended by a First Amendment to Lease
dated November 13, 1996. Said lease, as so amended, is herein referred to as
the "Lease."
2.2. Concurrently with the execution and delivery of this Assignment,
Assignee is acquiring substantially all of the assets of Assignor pursuant to
that certain Agreement for the Purchase and
-1-
<PAGE>
Sale of Assets dated June 18, 1997 (the "Purchase Agreement"), between The
Todd-AO Corporation, a Delaware corporation ("Todd-AO") and Assignee, as
Purchasers, and Assignor, as Seller.
2.3. Pursuant to the terms of the Purchase Agreement, Assignor desires to
assign all of its right, title and interest in, to and under the Lease to
Assignee and Assignee desires to accept said assignment and assume all of
Assignor's obligations under the Lease upon, and subject to the terms,
conditions, and provisions of this Assignment.
3. ASSIGNMENT AND ASSUMPTION.
In consideration of the mutual promises contained herein and in the
Purchase Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor hereby assigns to
Assignee all of Assignor's right, title and interest in, to and under the Lease
and Assignee hereby accepts said assignment and hereby assumes all of Assignor's
obligations under the Lease from and after the date hereof.
4. FURTHER ASSURANCES.
-2-
<PAGE>
Assignor and Assignee shall execute such documents and take such other
steps as may hereafter be required in order to effectuate the intent and
purposes of this Assignment.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date and year first above written.
"Assignor"
HOLLYWOOD DIGITAL LIMITED
PARTNERSHIP, a Delaware Limited
Partnership
By: HOLLYWOOD DIGITAL, INC., a
Delaware corporation, its
general partner
By:
--------------------------
Its:
-------------------------
"Assignee"
Todd-AO HD, a California corporation
-3-
<PAGE>
By:
-------------------------------
Its:
------------------------------
-4-
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into this 18th day of June,
1997 by and between the Todd-AO Corporation, a Delaware corporation, and Todd-AO
HD, Inc., a California corporation (collectively, the "Indemnified Parties");
and Hollywood Digital, Inc., a Delaware corporation, The Palladion Limited
Partnership, a Delaware limited partnership, HDZ Digital Limited Partnership, a
Massachusetts limited partnership, Phemus Corporation, a Massachusetts
corporation, Rand Gladden, William Romeo, David Cottrell, and Michael Jackson
(each, an "Indemnitor and collectively, the "Indemnitors"), with reference to
the following facts:
A. Pursuant to that certain Agreement for the Purchase and Sale of Assets
dated June 18, 1997 (the "Purchase Agreement"), the Indemnified Parties are
purchasing from Hollywood Digital Limited Partnership, a Delaware limited
partnership (the "Seller"), all of Seller's business and assets subject to
certain liabilities of Seller as set forth in the Purchase Agreement.
1
<PAGE>
B. The delivery of this Indemnification Agreement is a condition to the
obligation of the Indemnified Parties under the Purchase Agreement.
C. Capitalized terms used in this Agreement and not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants and other provisions contained in the Purchase Agreement
and herein, the parties agree as follows:
1. INDEMNIFICATION.
1.1 Subject to and in accordance with the terms and conditions of
this Agreement, each of the Indemnitors hereby severally agrees to indemnify and
hold harmless each of the Indemnified Parties, and their successors and
assignees, in respect of any damage, expense or loss (the "Losses") suffered by
the Indemnified Parties resulting from:
a. Any misrepresentation, breach of warranty or nonfulfillment
of any covenant, undertaking or agreement on the part of the
Seller or such
2
<PAGE>
Indemnitor under the Purchase Agreement or any
misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished at the Closing by such
Indemnitor to the Purchaser thereunder;
b. All liabilities and obligations of and claims against the
Assets or arising from the conduct of the business of the
Seller prior to the Closing Date including all debts,
liabilities and obligations of any nature, absolute or
contingent, foreseen or unforeseen, which are attributable or
chargeable to the ownership and operation of the business of
the Seller prior to the Closing Date and which are not assumed
or paid by the Purchaser under the Purchase Agreement; and
c. All actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including interest paid thereon
and all reasonable attorneys' fees incurred) incident to the
foregoing.
1.2 The maximum aggregate liability of the Indemnitors under this
Agreement is an amount equal to one-tenth (1/10) of the
3
<PAGE>
Purchase Price (as defined in the Purchase Agreement) (the "Cap"). The maximum
liability of each Indemnitor under this Agreement is the product of (1) the Cap
and (2) a decimal fraction equal to the percentage set forth with respect to
such Indemnitor on Schedule 3.0 to the Purchase Agreement (an Indemnitor's
"Individual Cap"), except that the maximum liability of Hollywood Digital, Inc.,
the Palladion Limited Partnership, and HDZ Limited Partnership (collectively,
the "HD-Related Partners") is joint and several up to the amount of their
aggregate Individual Caps. Except as otherwise provided in Section 1.6 hereof,
the Indemnified Parties shall have the right to assert liability against any one
or more Indemnitors for any claim or claims indemnified under this Agreement, up
to the amount of such Indemnitor's Individual Cap or, in the case of an
HD-Related Partner, the aggregate of the HD-Related Partners' Individual Caps,
without regard for any rights to indemnification or contribution which such
Indemnitor may have against the other Indemnitors.
1.3. On the second anniversary of the Closing Date, the Indemnitors'
indemnification obligations provided for herein shall terminate, except with
respect to (1) any claim of which the Indemnitors have been notified prior to
the second anniversary of the Closing Date, or (2) any claim for transactional
taxes which
4
<PAGE>
are the responsibility of Seller under Section 14.2 of the Purchase Agreement (a
"Tax Claim") for which the Indemnitors have been notified within ninety (90)
days after the expiration of the statute of limitations for assessment of such
taxes.
1.4. The Indemnified Parties agree that the Indemnitors shall not be
liable for any claim under the foregoing indemnification provisions except to
the extent that the Indemnified Parties have incurred Losses for which they
would otherwise be indemnified hereunder in the aggregate amount of $100,000 or
more (the "Threshold Amount"). Once the Threshold Amount has been attained, the
Indemnified Parties will be entitled to indemnification from the Indemnitors to
the extent that the aggregate Losses exceed the Threshold Amount, subject to the
other limitations in this Article 1. Notwithstanding the foregoing, in the
event that an individual indemnifiable claim is in excess of the Threshold
Amount, the Indemnified Parties shall be fully indemnified for Losses relating
to such claim, subject to the other limitations in this Article 1.
1.5. Without limiting the Indemnified Parties' rights to recover
their claims by action, proceeding or otherwise, the Indemnified Parties shall
have the right to recover such claims by offset against any amounts owing by
either of the Indemnified
5
<PAGE>
Parties to the Indemnitors or any of them under or pursuant to the Todd Notes or
other arrangement; provided, however, that as long as each of the Indemnitors is
in compliance with the retention requirement of Section 9.7 of the Purchase
Agreement, this right of offset shall apply only to claims represented by a
binding settlement or a final adjudication.
1.6. Notwithstanding anything to the contrary herein, the
Indemnified Parties shall be indemnified against any Losses arising from a Tax
Claim without regard to the Cap. Any Tax Claim which is indemnified by the
Indemnitors shall not be included in determining whether the Cap or any
Individual Cap has been attained. Each of the Indemnitors shall be severally
liable for that portion of any Tax Claim equal to the product of (1) the amount
of the Tax Claim and (2) a decimal fraction equal to the percentage set forth
with respect to such Indemnitor on Schedule 3.0 to the Purchase Agreement (and
subject to the joint and several liability of the HD-Related Partners as to
their aggregate proportionate interests).
1.7. The Indemnified Parties agree to indemnify and hold harmless
the Indemnitors against any damage, expense or loss suffered by the Indemnitor
with respect to (1) any liability or obligation attributable to the operation of
the Assets after the Closing Date, (2) any liabilities of Seller assumed by the
6
<PAGE>
Indemnified Parties pursuant to the Purchase Agreement, or (3) any breach by any
Indemnified Party of a representation, warranty or covenant contained in the
Purchase Agreement or this Indemnification Agreement. The liability of the
Indemnified Parties under this Section 1.7 shall be joint and several. The
maximum aggregate liability of the Indemnified Parties under clause (3) of the
first sentence of this Section 1.7 shall be equal to the Cap and the provisions
of Section 1.4 relating to the Threshold Amount shall also apply thereto. Any
claim under clause (3) of the first sentence of this Section 1.7 shall be
brought within the two-year period specified in Section 1.3.
1.8. In no event shall any Indemnitor be required to make payments
of any amounts under this Agreement, whether made to another Indemnitor pursuant
to Section 7 or directly to an Indemnified Party, which in the aggregate exceed
such Indemnitor's Individual Cap.
2. SETTLEMENT OF CLAIMS.
2.1. The Indemnified Parties shall use their best efforts to give
prompt notice to the Representative (as defined in Section 2.6) of claims for
which the Indemnitors would have been liable under Article 1 but for the
Threshold Amount of Section 1.4. The
7
<PAGE>
Indemnified Parties shall provide the Representative with a description of each
claim which they assert is counted against the Threshold Amount and the amount
paid or asserted in connection with such claim.
2.2. If any claim which is covered by Section 1 above is made
against the Indemnified Parties, they shall give written notice of such claim to
the Representative. The Representative shall have 10 days from the receipt of
such notice to give written notice to the Indemnified Parties of the
Indemnitors' intention to defend or dispute such claim, which notice will
acknowledge the obligation of the Indemnitors to indemnify the Indemnified
Parties against such claim. If such notice is given by the Representative
within the 10-day period, the Indemnitors shall have the right to compromise or
defend any such claim through counsel of their own choosing and at their own
expense, provided that each of the Indemnitors is in compliance with the
retention requirement of Section 9.7 of the Purchase Agreement and provides the
Indemnified Parties with evidence reasonably satisfactory to them of such
compliance. If any Indemnitor is not then in compliance with such retention
requirement, or at any time during the pendency of such claim ceases to be in
compliance with the retention requirement, then the right of Indemnitors to
compromise or defend such claim
8
<PAGE>
shall lapse unless each Indemnitor which is not in compliance shall post any
security reasonably required by the Indemnified Parties to protect them fully
from any loss or liability. For purposes of the foregoing, the value of any
security reasonably required will not exceed the maximum amount of the exposure
of the Indemnified Parties to liability in connection with such claims plus a
good faith estimate by the Indemnified Parties of reasonable attorneys' fees.
The attorney representing the Indemnified Parties in such matter and the
attorney representing the noncomplying Indemnitor(s) in such matter shall
determine the amount of the required security in accordance with the foregoing
standard. If they are unable to agree on the amount, they will appoint a third
attorney qualified to practice law in the jurisdiction in which such claim is
pending and the attorney so appointed will determine the amount of the required
security in accordance with the foregoing standard. The Indemnified Parties
agree to cooperate with the Indemnitors in the defense of any claim which the
Indemnitors have undertaken to defend under this Section 2.2. The Indemnified
Parties shall have the right to participate in any such defense, at their own
expense and through counsel of their own choosing.
2.3. Notwithstanding the foregoing provisions, the Indemnitors may
not control the settlement of a claim which
9
<PAGE>
involves (1) obtaining injunctive or other nonmonetary relief against any of the
Indemnified Parties; (2) a liability asserted against the Indemnified Parties in
excess of $6,000,000; or (3) any claim with respect to which the maximum
potential liability of the Indemnified Parties exceeds the maximum remaining
potential liability of the Indemnitors hereunder, the settlement of which claims
shall be controlled solely by the Indemnified Parties; provided, however, that
in the case of any claim which involves an asserted liability in excess of
$4,000,000 but less than $6,000,000 and is not described in clause (3) above,
the Indemnitors shall have the right to control the defense of such claim but
the consent of the Indemnified Parties shall be required (which consent may not
be unreasonably withheld) for any settlement which requires a contribution from
the Indemnified Parties. The Indemnitors shall have the right to participate in
the defense of any claim controlled by the Indemnified Parties under this
Section 2.3, at their own expense and through counsel of their own choosing.
Any settlement effected by the Indemnified Parties which involves the payment of
funds by the Indemnitors shall be an indemnifiable claim hereunder unless, in
effecting such settlement, the Indemnified Parties acted fraudulently or
oppressively with respect to the Indemnitors.
10
<PAGE>
2.4. If, within the 10-day period specified in Section 2.2, the
Representative fails to give written notice to the Indemnified Parties of the
Indemnitors' intention to defend such claim at their own expense and
acknowledging their obligation to indemnify the Indemnified Parties against such
claim, or if such notice is given but any Indemnitor required to do so fails to
post reasonable security as required by the Indemnified Parties in accordance
with Section 2.2 above or the Indemnitors fail to defend diligently and
continuously such claim, the Indemnified Parties shall have the right to
compromise or defend such claim through counsel of their own choosing, but for
the account and at the expense of the Indemnitors.
2.5. If a claim, indemnified under Article 1 which the Indemnitors
have not undertaken to defend under Section 2.2, is determined favorably to the
Indemnified Parties, they shall give notice to the Representative of the amount
of the expenses (including reasonable attorneys' fees) incurred with respect to
such claim, and each Indemnitor shall remit an amount equal to the product of
(1) such amount and (2) a decimal fraction equal to the percentage set forth
with respect to such Indemnitor on Schedule 3.0 to the Purchase Agreement to the
Indemnified Parties promptly.
11
<PAGE>
If such claim is finally determined adversely to the Indemnified Parties or if
the Indemnified Parties compromise such claim, they shall give notice to the
Representative of the amount of such claim as finally determined or compromised
(including the amount of the Indemnified Parties' costs and interest with
respect thereto and attorneys' fees, if applicable), and the Indemnitors shall
remit such amount to the Indemnified Parties promptly. Attorneys' fees and
costs and interest with respect thereto incurred by the Indemnified Parties
shall not be considered in determining whether the Cap or any Individual Cap has
been attained. References herein to costs and reasonable attorneys' fees shall
also include all costs and reasonable attorneys' fees incurred in appeals.
Notwithstanding the foregoing, attorneys' fees and costs incurred by the
Indemnified Parties in defending a claim described (i) in the first sentence of
Section 2.3 shall not be indemnifiable under this Agreement or (ii) which the
Indemnitors are not permitted to compromise or defend by operation of Section
2.2 hereof.
2.6. Whenever under this Section 2, notice is required to be given
to, or an action is required to be taken by, the Indemnitors, such notice or
action shall be deemed given to or taken by the Indemnitors and each of them if
given to or taken by George P. Denny, III (the "Representative"), provided,
however, that a copy of such notice shall also be given to Phemus. The
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<PAGE>
Representative shall be responsible for communicating with each of the
Indemnitors with respect to all matters which may arise under this Agreement,
and the Indemnified Parties shall not be responsible for providing notice to or
communicating with the Indemnitors other than through the Representative with
respect thereto. Any action taken or omitted to be taken by the Representative
under this Agreement shall be deemed to be an action or omission by the
Indemnitors and each of them, and the Indemnified Parties shall have no duty of
further inquiry of the other Indemnitors. Each of the Indemnitors hereby
irrevocably appoints the Representative its true and lawful attorney for it and
in its name, place and stead and for its use or benefit to take all actions and
execute all instruments and agreements which the Representative considers
necessary or advisable in acting for the Indemnitor pursuant to this Agreement,
agrees to be bound by any representations made or actions taken by the
Representative pursuant to this power of attorney, and waives any and all
defenses which may be available to contest, negate or disaffirm any action of
the Representative taken under this power of attorney. Notwithstanding any
provision of Article 2 hereof, no action or omission of the Representative shall
have the affect of (1) increasing the aggregate liability of any Indemnitor
hereunder above such Indemnitor's Individual Cap, without such Indemnitor's
13
<PAGE>
written consent or (2) causing any liability under this Agreement to be borne
other than pro rata in accordance with the percentages set forth in Exhibit 3.0
to the Purchase Agreement without such Indemnitor's written consent.
3. ATTORNEYS FEES. In the event of any litigation between any Indemnitor
and the Indemnified Parties in connection with a claim for indemnification made
by the Indemnified Parties hereunder, if the Indemnified Parties obtain a
judgment and are awarded damages in an amount equal to or greater than one-half
of the difference between (1) the amount of damages asserted by the Indemnified
Parties with respect to their claim and (2) the amount asserted by such
Indemnitor to be payable with respect to such claim (the "Difference"), such
Indemnitor shall be liable for and shall pay to the Indemnified Parties all
reasonable legal expenses incurred by the Indemnified Parties in prosecuting
their claim against such Indemnitor, and if the Indemnified Parties are awarded
damages of less than one-half of the Difference, with respect to their claim,
they shall be liable for and shall pay to such Indemnitor all reasonable legal
expenses incurred by such Indemnitor in defending against the claim of the
Indemnified Parties. Such expenses shall not be considered in determining
whether the Cap or any Individual Cap has been attained.
14
<PAGE>
4. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, its enforcement or interpretation, shall be resolved
in accordance with the dispute resolution procedure set forth in Article 17 of
the Purchase Agreement.
5. EXCLUSIVE REMEDY. Except as provided below, notwithstanding anything
to the contrary in the Purchase Agreement or any certificate, agreement or
document delivered in connection therewith, this Agreement constitutes the sole
and exclusive remedy of the Indemnified Parties with respect to any breach by
the Seller or the Partners of the representations, warranties and covenants
contained in the Purchase Agreement, including all certificates agreements and
documents referred to therein against any of the Indemnitors or the Seller,
directly or indirectly, and each Indemnified Party hereby waives and releases
each of the Indemnitors and the Seller from, and agrees not to sue any of the
Indemnitors or the Seller with respect to any and all other claims and causes of
action arising therefrom including, without limitation, claims for
contributions, except for claims for indemnification under this Agreement.
Nothing contained in this Article 5 shall limit the right of any party to seek
specific
15
<PAGE>
performance or other injunctive relief against any other party or parties where
appropriate to enforce the Purchase Agreement.
6. WARRANTY, ETC. COVERAGE. To the extent that insurance or
"pass-through" warranty coverage from a manufacturer or other recovery or
reimbursement from a third party is available to the Indemnified Parties to
cover any item for which indemnification may be sought under this Agreement, the
Indemnified Parties shall exhaust all available remedies or causes of action to
recover the amount of their Losses as may be available from any other party and
shall only seek indemnification against the Indemnitors if the Indemnified
Parties fail to obtain that coverage or reimbursement or if that coverage or
reimbursement is insufficient to satisfy the Losses (and in the latter instance
shall only seek indemnity for the amount of the deficiency). To the extent that
the Indemnitors indemnify the Indemnified Parties on any claim referred to in
the previous sentence, the Indemnified Parties shall assign to the Indemnitors,
to the fullest extent allowable, the Indemnified Parties' claim against any
insurance, warranty coverage or third-party claim, or if assignment is not
permissible, the Indemnitors shall be allowed to pursue the claim in the name of
the Indemnified Parties. The Indemnitors shall be entitled to retain all
recoveries made as a result of that action up to the amount
16
<PAGE>
previously indemnified, and shall remit any excess recovery to the Indemnified
Parties. The Indemnified Parties shall make their books and records relating to
any such claim available to the Indemnitors and make the Indemnified Parties'
employees available for interviews and similar matters to assist the Indemnitors
prosecuting any such claim.
7. CONTRIBUTION. The Indemnitors agree that payments of indemnified
claims pursuant to this Agreement are intended to be made by the Indemnitors in
proportion to their respective Individual Caps. In the event that any
Indemnitor (a Paying Indemnitor) is required with respect to any indemnified
claim to pay more than such Indemnitors' proportionate share of such
indemnifiable claim, each other Indemnitor agrees to reimburse to the Paying
Indemnitor, upon demand by the Paying Indemnitor, such amount as will result in
the payment by each of the Indemnitors of their proportionate share of the
amount of the indemnified claim, PROVIDED, HOWEVER, that no Indemnitor shall be
obligated to make any payment which would cause such Indemnitor to pay
indemnified claims which in the aggregate would exceed such Indemnitor's
Individual Cap or which would cause the total amount paid by all of the
Indemnitors to exceed the Cap (except as otherwise provided in Sections 1.6, 2.5
or Article 3 of this Agreement). Any payment
17
<PAGE>
required to be made under this Section 7 shall be made within 15 business days
after the Indemnitor obligated to make payment has received a demand therefor
from a Paying Indemnitor.
8. NOTICES. All notices and other communications provided for hereunder
shall be in writing, unless otherwise specified, and shall be deemed to have
been duly given on the date of delivery if delivered personally or by facsimile
transmission, or three (3) days after the date mailed, postage prepaid,
registered or certified mail, to the following addresses or at such other
addresses as the parties hereto may designate from time to time in writing:
If to the Representative:
George P. Denny, III
c/o Halpern, Denny & Co.
500 Boylston Street, Suite 1880
Boston, Massachusetts 02116
FAX: (617) 536-8535
With a copy to: Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Roslyn G. Daum, Esq.
FAX: (617) 248-4000
And a copy to: Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Larry Rowe, Esq.
FAX: (617) 951-7050
18
<PAGE>
If to the Indemnified Parties:
The Todd-AO Corporation
900 North Seward Street
Hollywood, CA 90038
Attention: Salah M. Hassanein,
President and Chief Executive
Officer
FAX: (213) 466-2327
With a copy to: Greenberg Glusker Fields
Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2200
Los Angeles, California 90067
Attention: Gary L. Kaplan, Esq.
FAX: (310) 553-0687
9. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made and to be performed in such jurisdiction.
10. SEVERABILITY. The invalidity or unenforceability of any provision of
the Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Indemnified Parties"
The Todd-AO Corporation
19
<PAGE>
By:
--------------------------------
Its:
-------------------------------
Todd-AO HD, Inc.
By:
--------------------------------
Its:
-------------------------------
"Indemnitors"
Hollywood Digital, Inc.
By:
--------------------------------
Its:
-------------------------------
The Palladion Limited Partnership
By:
--------------------------------
Its:
-------------------------------
HDZ Digital Limited Partnership
By:
--------------------------------
Its:
-------------------------------
Phemus Corporation
By:
--------------------------------
Its:
-------------------------------
------------------------------------
Rand Gladden
------------------------------------
William Romeo
20
<PAGE>
------------------------------------
David Cottrell
------------------------------------
Michael Jackson
21
<PAGE>
BILL OF SALE
THIS BILL OF SALE is made as of June ___, 1997, by Hollywood Digital
Limited Partnership, a Delaware limited partnership ("Seller"), in favor of
Todd-AO HD, Inc., a California corporation ("Purchaser").
WHEREAS, Seller and Purchaser entered into an Agreement for the
Purchase and Sale of Assets, dated as of June 18, 1997 (the "Purchase
Agreement"), pursuant to which Seller and Purchaser agreed that Seller would
sell and Purchaser would purchase all of the business and assets of Seller (the
"Assets"), all in accordance with and subject to the terms and conditions set
forth in the Purchase Agreement.
NOW, THEREFORE, in consideration of the payment by Purchaser of the
purchase price set forth in the Purchase Agreement and in further consideration
of the mutual covenants and agreements contained in the Purchase Agreement, the
receipt and sufficiency of which are hereby acknowledged, and pursuant to the
terms of the Purchase Agreement, Seller hereby sells, assigns, transfers and
conveys to Purchaser, free and clear of all debts, liens, security interests,
mortgages, trusts, claims, liabilities and encumbrances except as set forth in
the Purchase Agreement, all of Seller's right, title and interest in and to the
assets, real, personal and mixed, tangible and intangible (including the Assets
as a going concern), owned by Seller and relating to the conduct of the Assets
including all such property acquired by Seller between the date of the Purchase
Agreement and the date hereof, including, but not limited to, all of Seller's
right, title and interest in and to the following:
(a) the licenses, permits and other authorizations, to the extent
legally transferable, issued to Seller by any governmental authority and used in
the conduct of the Assets, together with any additions thereto (including
renewals or modifications of such licenses, permits and authorizations and
applications therefor) between the date of the Purchase Agreement and the date
hereof;
(b) all equipment, office furniture and fixtures, office materials
and supplies, inventory, spare parts and other tangible personal property of
every kind and description, owned or leased by
<PAGE>
Seller and used in the conduct of the Assets, together with any replacements
thereof and additions thereto made between the date of the Purchase Agreement
and the date hereof;
(c) the logos, trademarks, trade and service names, service marks,
fictitious business names, copyrights, including registrations and applications
for registration of any of them, formats, concepts, characters, jingles,
slogans, licenses, permits, customer lists, telephone numbers and listings,
operating procedures and privileges owned or held by Seller and used in the
conduct of the Assets, together with any additions thereto between the date of
the Purchase Agreement and the date hereof, and such right, title and interest
in and to use of the name "Hollywood Digital" as Seller may have;
(d) all files, records, books of account, computer programs and
software and logs relating exclusively to the operation of the Assets and in the
possession of Seller, including, without limitation, originals and all copies of
payable records, receivable records, invoices, statements, technical information
and engineering data, sales correspondence, credit and sales reports and
executed copies of all written contracts to be assigned under the Purchase
Agreement; and
(e) manufacturers' and vendors' warranties relating to items included
in the Assets and all similar rights against third parties relating to items
included in the Assets to the extent contractually assignable.
This Bill of Sale is intended to evidence the consummation of the
transactions contemplated by the Purchase Agreement. With respect to the
rights, title and interest, and the liabilities, obligations and commitments
assigned and assumed pursuant to this Bill of Sale, the parties shall each
indemnify, defend and hold the other harmless in the manner and to the same
extent set forth in the Purchase Agreement. This Bill of Sale is made without
representation or warranty except as provided in and by the Purchase Agreement.
This Bill of Sale is in all respects subject to the provisions of the Purchase
Agreement and is not intended in any way to amend, supersede, limit or qualify
any provision of the Purchase Agreement.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed
and delivered effective as of the date first written above.
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
By: HOLLYWOOD DIGITAL, INC.
its general partner
By: ____________________________
Its: ___________________________
<PAGE>
NONCOMPETITION AGREEMENT
(Hollywood Digital and HD-Related Partners)
THIS NONCOMPETITION AGREEMENT is made and entered into this ___ day of June,
1997 by and between the Todd-AO Corporation, a Delaware corporation, and Todd-AO
HD, Inc., a California corporation (collectively, the "Purchaser"), and
Hollywood Digital Limited Partnership, a Delaware limited partnership (the
"Seller"); Hollywood Digital, Inc., a Delaware corporation; The Palladion
Limited Partnership, a Delaware limited partnership; and HDZ Digital Limited
Partnership, a Massachusetts limited partnership (collectively, the "HD-Related
Partners"); with reference to the following facts:
A. Pursuant to that certain Agreement for the Purchase and Sale of Assets
dated June 18, 1997 (the "Purchase Agreement"), the Purchaser is purchasing from
Seller all of Seller's business and assets subject to certain liabilities of
Seller set forth in the Purchase Agreement.
B. The HD-Related Partners are among the partners of Seller. The partners of
Seller anticipate that the Seller will be wound up and liquidated promptly
following the closing of the purchase of Seller's business and assets by the
Purchaser.
C. As an inducement for Purchaser to enter into the Purchase Agreement, the
Seller and the HD-Related Partners has agreed to enter into this Noncompetition
Agreement.
D. Capitalized terms used in this Agreement and not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants and other provisions contained in the Purchase Agreement
and herein, the parties agree as follows:
1. NONCOMPETITION. The Seller and each of the HD-Related Partners agrees
that after the closing Purchaser shall be entitled to the goodwill and going
concern value of the Assets and to protect and preserve the same to the maximum
extent permitted by
1
<PAGE>
law. Accordingly, the Seller and each of the HD-Related Partners agrees that it
will not, at any time within the five (5) year period immediately following the
Closing Date, directly or indirectly engage in, or have any interest in any
person, firm, corporation, or business (whether as an employee, officer,
director, agent, security holder, creditor, consultant, or otherwise) that
engages in any activity in any of the counties of California which is attached
hereto as Exhibit A, or within the greater metropolitan areas of New York City,
Atlanta and London, which activity is the same as, similar to, or competitive
with any activity now engaged in by Seller in any of these counties or areas so
long as Purchaser (or any successor) shall engage in this activity in such
county or area. Nothing herein shall limit the right of the Seller or any
HD-Related Partners as an investor to hold and make investments in securities of
any corporation, limited partnership or limited liability company that is
registered on a national securities exchange or admitted to trading privileges
thereon or actively traded in a generally recognized over the counter market
provided that its equity interest therein does not exceed 10% of the outstanding
shares or interests in such corporation, partnership or limited liability
company.
2. REMEDIES. The Seller and each of the HD-Related Partners recognizes
and agrees that a breach by any of them of Section 1 hereof could cause
irreparable harm to Purchaser; that Purchaser's remedies at law in the event of
such breach would be inadequate, and that, accordingly, in the event of such
breach, a restraining order or injunction or both may be issued against Seller
in addition to any other rights and remedies which are available to Purchaser.
If this Section 2 is more permissive than allowed by the laws of the
jurisdiction in which Purchaser seeks enforcement hereof, this Section 2 shall
be limited to the extent required to permit enforcement under such laws.
Without limiting the generality of the foregoing, the parties intend that the
covenants contained in Section 1 shall be construed as a series of separate
covenants, one for each county specified. Except for geographical coverage,
each such separate covenant shall be deemed identical in terms. If, in any
judicial proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this Agreement, then such unenforceable covenant
shall be deemed eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
to be enforced.
2
<PAGE>
3. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, its enforcement or interpretation, shall be resolved
in accordance with the dispute resolution procedure set forth in Article 17 of
the Purchase Agreement.
4. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made and to be performed in such jurisdiction with respect to the counties of
California set forth on Exhibit A, by the laws of the State of New York with
respect to greater New York City, by the laws of the State of Georgia with
respect to greater Atlanta, and by the laws of the United Kingdom with respect
to greater London.
5. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Purchaser"
THE TODD-AO CORPORATION
By: ____________________________
Its: ___________________________
TODD-AO HD, INC.
By: ____________________________
Its: ___________________________
"Seller"
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
3
<PAGE>
By: __________________________
Its: _________________________
"HD-Related Partners"
HOLLYWOOD DIGITAL, INC.
By: __________________________
Its: _________________________
THE PALLADION LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK, INC.,
Its general partner
By: __________________________
Its: _________________________
HDZ DIGITAL LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK LIMITED PARTNERSHIP
II
By: HALPERN, DENNY AND ZOOK, INC., Its
general partner
By: _____________________
Its: ____________________
4
<PAGE>
EXHIBIT A
CALIFORNIA COUNTIES
Alameda Sacramento
Alpine San Diego
Amador San Bernardino
Butte San Benito
Calaveras San Luis Obispo
Colusa San Francisco
Contra Costa San Joaquin
Del Norte San Mateo
El Dorado Santa Cruz
Fresno Santa Barbara
Glenn Santa Clara
Humboldt Shasta
Imperial Sierra
Inyo Siskiyou
Kern Solano
Kings Sonoma
Lake Stanislaus
Lassen Sutter
Los Angeles Tehama
Madera Trinity
Marin Tulare
Mariposa Tuolumne
Mendocino Ventura
Merced Yolo
Modoc Yuba
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
<PAGE>
NONCOMPETITION AGREEMENT
(Phemus)
THIS NONCOMPETITION AGREEMENT is made and entered into this 18th day of June,
1997 by and between the Todd-AO Corporation, a Delaware corporation, and Todd-AO
HD, Inc., a California corporation (collectively, the "Purchaser"), and Phemus
Corporation, a Massachusetts corporation ("Phemus"), with reference to the
following facts:
A. Pursuant to that certain Agreement for the Purchase and Sale of Assets
dated June 18, 1997 (the "Purchase Agreement"), the Purchaser is purchasing from
Hollywood Digital Limited Partnership (the "Seller") all of Seller's business
and assets (the "Assets") subject to certain liabilities of Seller set forth in
the Purchase Agreement.
B. Phemus is a partner of Seller. The partners of Seller anticipate that the
Seller will be wound up and liquidated promptly following the closing of the
purchase of Seller's business and assets by the Purchaser.
C. As an inducement for Purchaser to enter into the Purchase Agreement, Phemus
has agreed to enter into this Noncompetition Agreement.
D. Capitalized terms used in this Agreement and not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants and other provisions contained in the Purchase Agreement
and herein, the parties agree as follows:
1. NONCOMPETITION. Phemus agrees that after the closing Purchaser shall
be entitled to the goodwill and going concern value of the Assets and to protect
and preserve the same to the maximum extent permitted by law. Accordingly,
Phemus agrees that it will not, at any time within the three (3) year period
immediately following the Closing Date, directly or indirectly engage in, or
have any interest in any person, firm, corporation, or business
1
<PAGE>
(whether as an employee, officer, director, agent, security holder, creditor,
consultant, or otherwise) that engages in any activity in any of the counties of
California which is attached hereto as Exhibit A, or within the greater
metropolitan areas of New York City, Atlanta and London which activity is the
same as, similar to, or competitive with any activity now engaged in by Seller
in any of these counties or areas so long as Purchaser (or any successor) shall
engage in this activity in such county or area. Nothing herein shall limit the
right of Phemus as an investor directly or indirectly to hold and make
investments in securities of any corporation, limited partnership, limited
liability company or other business entity provided that Phemus' equity interest
therein does not exceed, in the case of a corporation, either 50% of the total
combined voting power or 50% of the aggregate fair market value of the
outstanding shares in such corporation, and in the case of a partnership or
limited liability company, either 50% of the voting power, 50% of the capital
interests or 50% of the profits interests in such partnership, limited liability
company or other business entity.
2. REMEDIES. Phemus recognizes and agrees that a breach by Phemus of
Section 1 hereof could cause irreparable harm to Purchaser; that Purchaser's
remedies at law in the event of such breach would be inadequate, and that,
accordingly, in the event of such breach, a restraining order or injunction or
both may be issued against Seller in addition to any other rights and remedies
which are available to Purchaser. If this Section 2 is more permissive than
allowed by the laws of the jurisdiction in which Purchaser seeks enforcement
hereof, this Section 2 shall be limited to the extent required to permit
enforcement under such laws. Without limiting the generality of the foregoing,
the parties intend that the covenants contained in Section 1 shall be construed
as a series of separate covenants, one for each county specified. Except for
geographical coverage, each such separate covenant shall be deemed identical in
terms. If, in any judicial proceeding, a court shall refuse to enforce any of
the separate covenants deemed included in this Agreement, then such
unenforceable covenant shall be deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
3. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, its enforcement or
2
<PAGE>
interpretation, shall be resolved in accordance with the dispute resolution
procedure set forth in Article 17 of the Purchase Agreement.
4. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made and to be performed in such jurisdiction with respect to the counties of
California set forth on Exhibit A, by the laws of the State of New York with
respect to greater New York City, by the laws of the State of Georgia with
respect to greater Atlanta, and by the laws of the United Kingdom with respect
to greater London.
3
<PAGE>
5. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Purchaser"
The Todd-AO Corporation
By: ____________________________
Its: ___________________________
Todd-AO HD, Inc.
By: ____________________________
Its: ___________________________
"Phemus"
Phemus Corporation
By: ____________________________
Its: ___________________________
By: ____________________________
Its: ___________________________
4
<PAGE>
EXHIBIT A
CALIFORNIA COUNTIES
Alameda Sacramento
Alpine San Diego
Amador San Bernardino
Butte San Benito
Calaveras San Luis Obispo
Colusa San Francisco
Contra Costa San Joaquin
Del Norte San Mateo
El Dorado Santa Cruz
Fresno Santa Barbara
Glenn Santa Clara
Humboldt Shasta
Imperial Sierra
Inyo Siskiyou
Kern Solano
Kings Sonoma
Lake Stanislaus
Lassen Sutter
Los Angeles Tehama
Madera Trinity
Marin Tulare
Mariposa Tuolumne
Mendocino Ventura
Merced Yolo
Modoc Yuba
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
<PAGE>
June 19, 1997
EMPLOYMENT AGREEMENT
This document will constitute the Employment Agreement ("Agreement")
between The Todd-AO Corporation ("Todd-AO") and Rand Gladden ("you").
1. EMPLOYMENT AND SERVICES: The Company hereby agrees to employ you as
Vice President of The Todd-AO Corporation and President and co- CEO of
Todd-AO/Hollywood Digital, Inc. a successor in interest to Hollywood Digital
Limited, a Partnership ("the Company"), and you agree, commencing July 1, 1997
("the commencement date"), to perform your exclusive and full-time services in
this capacity for the Company upon the terms and conditions herein set forth.
As co-CEO and President, you will have full power to hire and fire all employees
of the Company, other than officers, and to manage and conduct all business of
the Company subject to policies set by the Board or its designated
representatives. You shall report directly to Salah M. Hassanein or his
successor. You and Salah Hassanein shall be co-Chief Executive Officers of the
Company.
2. TERM: The term of this Agreement shall be for a period of three and
one-half years, commencing July 1, 1997 and terminating January 1, 2001 subject
to Section 6. This Agreement will be effective the date the purchase and sale
of assets between The Todd-AO Corporation, Todd-AO HD, Inc. and Hollywood
Digital Limited Partnership and its partners is consummated.
3. COMPENSATION: As full compensation for your services rendered under
this Agreement, the Company shall pay you an annual salary as follows:
1) First 12-month period: $275,000
2) Second 12-month period: $300,000
3) Third 12-month period: $325,000
4) The last six-month period $350,000 (annualized)
The salary shall be paid on the Company's regular paydays during the Term
subject to the usual and required employee payroll deductions and withholding
for federal, state and local taxes, social security and similar payments.
4. BENEFITS: During the Term of this Agreement you shall be entitled to
such fringe benefits as are made available to all eligible employees of the
Company, including the following:
<PAGE>
Rand Gladden
June 19, 1997
Page 2
a. BUSINESS EXPENSES: The Company shall reimburse you for your
reasonable and necessary business expenses in accordance with its then
prevailing policy (which shall include appropriate itemization and
substantiation of expenses incurred); you shall submit your expenses to Sy Cross
or his successor;
b. VACATION: Vacation time shall accrue and you shall be entitled
to 4 weeks paid vacation each year which can be taken at mutually agreed upon
times;
c. GROUP INSURANCE AND PENSION: You shall be entitled to
participate in any group insurance plan the Company may provide under the same
terms and conditions as all eligible employees of the Company;
d. OTHER BENEFITS: You shall be entitled to participate in any
pension plan or other fringe benefits which the Company may provide from time to
time for all eligible employees of the Company; and
e. STOCK OPTION: A condition of this Agreement is that Gladden
shall receive the stock options as set forth below. Todd-AO will present to the
Compensation Committee of the Board of Directors of Todd-AO a request that you
be granted stock options of 10,000 shares of Todd-AO Corporation stock. You
shall be entitled to stock options of 10,000 shares, which shall vest in 2,000
options commencing September 1, 1997 and each September 1 thereafter. In the
event your contract is not renewed, you shall receive the difference between the
exercise price and the midpoint between the buy and sell price at the close of
business on the day of termination for the last segment of 2,000 options.
5. TERMINATION: The Company may terminate your services in the event of:
a. DEATH: In the event of your death;
b. DISABILITY: Your having suffered a disability, total or partial,
mental or physical, by reason of which you have not performed your obligations
hereunder for six (6) consecutive months or shorter periods aggregating more
than six (6) months in any twelve (12) month period;
c. FOR CAUSE: (1) If you engage in a willful act which constitutes
a fraud, and which results in a material injury to the Company or its
<PAGE>
Rand Gladden
June 19, 1997
Page 3
reputation; (2) If you are convicted of or plead guilty to a felony; and/or (3)
Your breach of any of the material terms or provisions of this Agreement,
provided you shall receive at least 30 days' written notice and an opportunity
to cure said breach; or
d. WITHOUT CAUSE: In the event the Company terminates this
Agreement prior to the expiration of this Agreement, other than for cause as set
forth in Section 5c, the Company shall provide you the remaining sum due under
this Agreement and benefits as set forth in Section 4(c), (d) and (e).
6. COMPENSATION UPON TERMINATION: If your employment is terminated by
the Company pursuant to Section 5(c) above, you shall be entitled to receive
compensation through the date of such termination and shall receive any incurred
but not reimbursed business expenses, and accrued and unused vacation time as of
the date of termination.
7. INTELLECTUAL PROPERTY: For purposes of this Agreement, "Included
Inventions" shall mean all patents, developments, designs, creations,
improvements, original works of authorship, copyrights, formulas, processes,
know how, techniques and/or inventions made or conceived or reduced to practice
during the Term of this Agreement or reduced to practice within 12 months after
termination of this Agreement, that relate in any way to computer graphics,
visual effects, audio and visual production and post production, film,
television, cable, CD ROM, multi-media, or any other business now or hereafter
conducted by the Company or its affiliates. Excluded from the foregoing
definitions of "Included Inventions" are any inventions developed entirely on
your own time without using the Company's equipment, supplies, facilities or
Proprietary Information (as hereafter defined).
a. DISCLOSURE AND OWNERSHIP: You agree to promptly disclose all
"Included Inventions" to the Company. All "Included Inventions" shall be the
sole and exclusive property of the Company and you hereby assign to the Company
all of your right, title and interest in such "Included Inventions."
b. FURTHER ASSURANCES: You will assist the Company in applying for
and obtaining patents, copyrights and/or other protection for the "Included
Inventions" (during the Term of this Agreement and thereafter) provided that you
will be reasonably compensated if the Company requests your assistance after
termination of this Agreement.
<PAGE>
Rand Gladden
June 19, 1997
Page 4
8. BUSINESS CODE OF CONDUCT: Attached hereto and made a part of this
Agreement is the Company's Business Code of Conduct. You confirm that you have
read, understand and will comply with the terms of such and any reasonable
amendments which you receive thereto. You will be reasonably compensated if
the Company requests your assistance after termination of this Agreement, and
such assistance is not in conflict with any new employment agreements.
9. PROPRIETARY INFORMATION: In the course of your service to the Company
you may have access to confidential specifications, know-how, strategic or
technical data, programs, computer software, processes, business documents or
information, marketing data, confidential customer lists and sources of supply
and trade secrets all of which are confidential and may be proprietary. For
purposes of this Agreement, "Proprietary Information" shall include all items
enumerated in the preceding sentence to which you have access, whether conceived
or developed by third parties, by you alone and/or with others, during normal
working hours or thereafter. Proprietary Information shall not include
information which is in the public domain unless as a consequence of
unauthorized disclosure.
a. NONDISCLOSURE: During the Term of your employment and for a
period of three (3) years thereafter, you will not use Proprietary Information
in a manner adverse to the Company's interests nor disclose Proprietary
Information, directly or indirectly, to any person other than the Company or
authorized employees thereof at the time of such disclosure, or as otherwise
specifically instructed by the Company, and in each case only to the extent
reasonably required.
b. AGREEMENTS WITH THIRD PARTIES: You will individually observe the
confidentiality provisions of any Nondisclosure or similar agreement entered
into by the Company and known to you with respect to information received by the
Company which may be proprietary to third parties.
c. RETURN OF INFORMATION: Upon termination of your employment, you
shall deliver to the Company all embodiments of Proprietary Information
(including without limitation notes, letters, documents, computer files and
other records) which are then in your possession or control and shall not retain
any copies of summaries thereof.
10. PROTECTIVE COVENANTS: You acknowledge that you are a key employee
whose specialized skills, abilities and contacts are important to the
<PAGE>
Rand Gladden
June 19, 1997
Page 5
success of the Company, and agree that you will faithfully and strictly adhere
to the following covenants:
a. NONSOLICITATION OF EMPLOYEES: In the event you voluntarily
terminate your employment during the Term, or your employment is terminated by
the Company for cause, as that term is defined in Section 6, subsection c, of
this Agreement, you covenant and agree that you shall not, within one (1) year
after the date of such termination of employment, divert, solicit or recruit, or
attempt to divert, solicit or recruit, directly or by assisting others, any
other employee of the Company or any person who is an employee of the Company,
whether or not such employee is a full-time employee or a temporary employee of
the Company and regardless of whether such employment is pursuant to written
agreement, for a determined period, or at will.
11. REMEDIES: It is specifically understood and agreed that any breach of
the provisions of Section 10 of this Agreement is likely to result in
irreparable injury to the Company and that the remedy at law alone will be an
inadequate remedy for such breach, and that in addition to any other remedy it
may have, the Company shall be entitled to enforce the specific performance of
this Agreement by you and seek both temporary and permanent injunctive relief
(to the extent permitted by law) without the necessity of proving actual
damages.
12. ARBITRATION: Any controversy or claim arising out of or relating to
this Agreement or the breach hereof, other than matters pertaining to injunctive
relief including, without limitation, temporary restraining orders, preliminary
injunctions, and permanent injunctions, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitration shall be
and may be entered in any court having jurisdiction thereof. The dispute shall
be submitted to an arbitrator agreed to by the parties to the dispute or, if
such parties cannot agree upon an arbitrator, an arbitrator selected for the
parties by the American Arbitration Association. Each party shall bear their
own costs and attorneys' fees. The arbitrator's fee shall be divided equally
between the parties. Such arbitration shall take place in Los Angeles,
California, unless otherwise agreed to in writing by the parties.
13. ATTORNEYS' FEES: Except as provided in Section 12 Arbitration, if a
party to this Agreement (or any successor in interest to either party) based on
the performance, breach or interpretation of this Agreement, each of the parties
shall pay for their own respective costs and attorneys' fees regardless of the
outcome of any litigation or proceeding.
<PAGE>
Rand Gladden
June 19, 1997
Page 6
14. NOTICES: All notices, requests, consents and other communications
required or permitted to be given hereunder shall be deemed to have been duly
given if written and delivered personally or sent by prepaid telegram, or mailed
first-class, postage prepared, as follows:
You Rand Gladden
------------------------------
------------------------------
The Company The Todd-AO Corporation
Attn: Kate Reck
900 N. Seward Street
Los Angeles, CA 90038
or at such other addresses as either party may specify by written notice to the
other.
15. GENERAL:
a. ENTIRE AGREEMENT AND MODIFICATION: This Agreement and the
attached Memorandum of Understanding sets forth the entire agreement and
understanding of the parties hereto, and effective on the commencement date
hereof supersedes all prior agreements, arrangements and understandings. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement. This Agreement may only be modified by an agreement
in writing executed by both parties hereto.
b. SUCCESSORS: This Agreement shall be binding upon, and shall
inure to the benefit of the successors and assigns of the Company.
c. GOVERNING LAW: This Agreement shall be construed under and
governed by the laws of the State of California.
d. SECTION HEADINGS: The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
<PAGE>
Rand Gladden
June 19, 1997
Page 7
e. SEVERABILITY: In the event that any provisions, or portions
thereof, of this Agreement are held to be unenforceable or invalid by any court
of competent jurisdiction, the validity and enforceability of the remaining
provisions or portions thereof shall not be affected thereby.
THE TODD-AO CORPORATION
DATED: By:
--------------------- ----------------------------
SALAH M. HASSANEIN
President and CEO
AGREED:
DATED: By:
--------------------- ----------------------------
RAND GLADDEN
<PAGE>
MEMORANDUM OF UNDERSTANDING
RAND GLADDEN (Gladden) and SALAH HASSANEIN (Hassanein), President and CEO
of The Todd-AO Corporation, have entered into an employment agreement dated June
16, 1997.
In addition to the terms set forth in the Employment Agreement, the above
parties have agreed to the following:
1. Gladden will report directly to Hassanein and not to anyone else in the
organization.
2. Gladden may attend the annual NAB Convention, along with management and
talent selected by Gladden, at company expense. The number of attendees
shall be consistent with Gladden's past practice.
3. Gladden may attend the annual I.T.S. Presidents' Retreat and
Post-Production Retreat at Company expense.
4. Gladden shall receive an automobile allowance of $5,500 per year, payable
in monthly installments.
5. Gladden shall be provided a cellular telephone by the Company. All costs
and expenses incurred in connection with the use of said phone shall be
paid for by the Company.
6. All employment agreements between Todd-AO/Hollywood Digital, Inc. and any
individual shall be subject to final approval by Salah Hassanein, or his
successor.
DATED: , 1997
--------------------- ----------------------------
SALAH M. HASSANEIN
DATED: , 1997
--------------------- ----------------------------
RAND GLADDEN
<PAGE>
FIFTH AMENDMENT
TO CREDIT AGREEMENT
This FIFTH AMENDMENT TO CREDIT AGREEMENT ("Fifth Amendment") is entered
into as of June 6, 1997 by and between THE TODD-AO CORPORATION, a Delaware
corporation, (the "Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, (the "Bank") and amends that certain Credit Agreement dated as of
December 2, 1994 between Borrower and the Bank, as amended by a First Amendment
to Credit Agreement dated as of March 13, 1995, a Second Amendment to Credit
Agreement dated as of April 5, 1996, a Third Amendment to Credit Agreement dated
as of June 14, 1996 and a Fourth Amendment to Credit Agreement dated as of
October 1, 1996 (as so amended, the "Agreement").
RECITALS
A. The Borrower has notified the Bank that it intends to acquire certain
assets and assume certain liabilities of Hollywood Digital Limited Partnership
through a wholly-owned Subsidiary of Borrower, Todd-AO HD, Inc., on terms and
conditions disclosed to Bank in (i) the Agreement for the Purchase and Sale of
Assets between Borrower, Todd-AO HD, Inc. and Hollywood Digital and (ii) the
Convertible Subordinated Notes, and Borrower desires to amend the Agreement to
facilitate such acquisition. The Hollywood Digital Acquisition is permitted by
Section 8.6(b) of the Agreement and will not count against capital expenditures
permitted under Section 8.9 of the Agreement.
B. The Borrower has also requested an increase in the Revolving Loan
Commitment for U.S. Dollar-denominated Revolving Loans and an increased
multi-currency facility providing for English Pounds Sterling, French Francs,
Deutsche Marks and U.S. Dollars. The Borrower has also requested several
amendments to a number of covenants contained in the Agreement.
C. The Borrower has also requested a $1,000,000 subfacility within the
Dollar Revolving Loan Commitment for letters of credit.
- 1 -
<PAGE>
D. The Bank is willing to so amend the Agreement on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Borrower and the Bank hereby
agree as follows:
1. TERMS. All terms used herein shall have the same meaning as in the
Agreement unless otherwise defined herein. All references to the Agreement
shall mean the Agreement as hereby amended.
2. AMENDATORY PROVISIONS TO AGREEMENT. The Borrower and the Bank hereby
agree that the Agreement is amended as follows:
2.1 Section 1.2 of the Agreement is amended by inserting the following new
definitions in proper alphabetical order:
""Active Multicurrency Revolving Loan Commitment" means that portion
of the Multicurrency Revolving Loan Commitment designated by the Borrower
pursuant to Section 2.4(b) under which Revolving Loans may be borrowed
pursuant to Section 2.1(b). The initial Active Multicurrency Revolving
Loan Commitment is $7,500,000."
""Applicable Commitment Fee Amount" means: (a) with respect to the
unused portion of the Dollar Revolving Loan Commitment and the Active
Multicurrency Revolving Loan Commitment (i) a fee at a rate of 0.375% per
annum on each day when the Leverage Ratio is less than or equal to 2 to 1,
and (ii) a fee at a rate of 0.500% per annum on each day when the Leverage
Ratio is greater than 2 to 1, and (b) with respect to the Inactive
Multicurrency Revolving Loan Commitment (but
- 2 -
<PAGE>
subject to Section 2.4(b)), a fee at a rate of 0.125% per annum, regardless
of the Leverage Ratio."
""Applicable Standby Letter of Credit Fee" means (a) a fee at a rate
of 1.5% per annum on the undrawn face amount of any standby Letter of
Credit on each day when the Leverage Ratio is less than or equal to 2 to 1,
and (b) a fee at a rate of 2% per annum on the undrawn face amount of any
standby Letter of Credit on each day when the Leverage Ratio is greater
than 2 to 1."
""CD Rate Loan" means a Dollar-denominated Revolving Loan which bears
interest at a rate based upon a CD Rate."
""Convertible Subordinated Notes" means convertible subordinated notes
in an aggregate principal amount not exceeding $12,800,000 issued by the
Borrower in connection with the Hollywood Digital Acquisition and having
terms and conditions and otherwise in form and substance satisfactory to
the Bank, and any extension, renewal, refunding and refinancing thereof in
form and substance satisfactory to the Bank; provided that after giving
effect to such extension, renewal, refunding or refinancing the principal
amount thereof is not increased."
""Dollar Equivalent" means, as of any date, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in
Dollars based upon the Spot Rate for the purchase of Dollars with such
Offshore Currency on such date."
""FX Trading Office" means the Foreign Exchange Trading Center #5752,
Los Angeles, California, of the Bank, or such other of the Bank's offices
as the Bank may designate from time to time."
""Hollywood Digital" means Hollywood Digital Limited Partnership, a
Delaware limited partnership."
- 3 -
<PAGE>
""Hollywood Digital Acquisition" means the acquisition of certain
assets and the assumption of certain liabilities of Hollywood Digital by
Todd-AO HD on terms and conditions disclosed to and previously approved by
the Bank in (a) the Agreement for the Purchase and Sale of Assets between
Borrower, Todd-AO HD and Hollywood Digital and (b) the Convertible
Subordinated Notes."
""Inactive Multicurrency Revolving Loan Commitment" means that portion
of the Multicurrency Revolving Loan Commitment which is not the Active
Multicurrency Revolving Loan Commitment."
""Letter of Credit" means any standby or commercial letter of credit
issued by Bank under the Dollar Revolving Loan Commitment."
""Letter of Credit Usage" means, as at any date of determination, the
undrawn face amount of outstanding Letters of Credit PLUS the aggregate
amount of all drawings under the Letters of Credit honored by the Bank and
not theretofore reimbursed by the Borrower or converted into Revolving
Loans."
""Multicurrency Revolving Loan Commitment" means the Bank's
undertaking to make Revolving Loans to the Borrower in Dollars and Offshore
Currencies subject to the terms and conditions hereof in an aggregate
principal amount not to exceed the Dollar Equivalent of $10,000,000, as the
same may be adjusted pursuant to the provisions of Section 2.4(a). The
Multicurrency Revolving Loan Commitment is in addition to, and not part of,
the Dollar Revolving Loan Commitment and is comprised of the Active
Multicurrency Revolving Loan Commitment and the Inactive Multicurrency
Revolving Loan Commitment."
""Offshore Currency" means English Pounds Sterling, French Francs or
Deutsche Marks."
- 4 -
<PAGE>
""Offshore Currency Revolving Loan" means any Revolving Loan
denominated in an Offshore Currency."
""Offshore Rate Loan" means a Revolving Loan which bears interest at a
rate based upon the Offshore Rate, and may be a Dollar-denominated
Revolving Loan or an Offshore Currency Revolving Loan."
""Offshore Rate Minimum Tranche" means (a) in the case of Offshore
Rate Loans denominated in Dollars, $1,000,000 or any multiple of $100,000
in excess thereof and (b) in the case of Offshore Currency Revolving Loans,
1,000 units of the Offshore Currency having a Dollar Equivalent of not less
than $100,000 and multiples of 1,000 units of such Offshore Currency in
excess of the initial 1,000 units of such Offshore Currency."
""Spot Rate" for a currency means the rate quoted by Bank of America
as the spot rate for the purchase by Bank of America of such currency with
another currency through its FX Trading Office at approximately 8:00 a.m.
(San Francisco time) on the date two Offshore Business Days prior to the
date as of which the foreign exchange computation is made."
""Todd-AO HD" means Todd-AO HD, Inc., a California corporation."
2.2 The following definitions in Section 1.2 of the Agreement are amended
and restated in their entirety as follows:
""Borrowing Date" means any date on which the Bank shall make a
Borrowing hereunder or shall issue, supplement, modify, amend, renew, or
extend any Letter of Credit."
""Business Day" means any day, other than a Saturday or Sunday, on
which the Bank is open for business in San Francisco and New York City and
on which commercial banks generally are open for business and dealing in
Dollar deposits in San Francisco and New York."
- 5 -
<PAGE>
""Dollar Revolving Loan Commitment" means the Bank's undertaking to
make Dollar-denominated Revolving Loans to the Borrower subject to the
terms and conditions hereof in an aggregate principal amount not to exceed
$25,000,000, as the same may be adjusted pursuant to the provisions of
Section 2.4(a)."
WITHIN THE DEFINITION OF "OFFSHORE RATE:"
""Offered Rate" means for each Interest Period the rate of
interest (rounded upward to nearest 1/100th of one percent) at which
deposits in Dollars or the applicable Offshore Currency for such
Interest Period would be offered by the Bank's Grand Cayman Branch,
Grand Cayman, British West Indies (or other office as may be
designated for such purpose by the Bank), to major banks in the
offshore Dollar or applicable Offshore Currency interbank markets upon
request of such banks at approximately 8:00 a.m. San Francisco time
two Business Days prior to the first day of such Interest Period."
""Offshore Rate Business Day" means a day on which dealings in Dollar
deposits are carried out by the Bank's Grand Cayman branch and which is
also a Business Day and, with respect to Offshore Currency Revolving Loans,
is also a Business Day on which dealings in such Offshore Currency deposits
are carried out by the Bank's Grand Cayman branch."
""Offshore Rate Loan" means a Revolving Loan that bears interest based
on the Offshore Rate, and may be an Offshore Rate Loan denominated in
Dollars or in an Offshore Currency."
""Reference Rate Loan" means a Dollar-denominated Revolving Loan which
bears interest at a rate based upon a Reference Rate."
- 6 -
<PAGE>
""Revolving Loan Commitment" means the Dollar Revolving Loan
Commitment or the Multicurrency Revolving Loan Commitment."
""Revolving Loan" means loans made pursuant to Section 2.1(a) or
Section 2.1(b)."
2.3 The first paragraph of the definition of "Interest Period" in Section
1.2 of the Agreement is amended and restated as follows:
""Interest Period" means, with respect to any Borrowing of an Offshore
Rate Loan or a CD Rate Loan, a period commencing on the Borrowing Date
thereof (or the date of the expiration of the then current Interest Period
with respect to any outstanding Offshore Rate Loans or CD Rate Loans) to
(i) with respect to a Borrowing of an Offshore Rate Loan, a date 1, 2, 3, 6
or 9 months thereafter (but only to the extent Dollar deposits or deposits
in the applicable Offshore Currency of such duration are generally
available in the applicable offshore interbank market), and (ii) with
respect to a Borrowing of a CD Rate Loan, a date 30, 60, 90, 180 or 270
days thereafter (or such other day as may be agreed upon by the Borrower
and the Bank), subject in all cases to the following:"
2.4 The definition of "Leverage Ratio" in Section 1.2 of the Agreement is
amended by inserting the following at the end thereof before the period:
"PROVIDED, FURTHER, that for purposes of determining the Applicable
Commitment Fee Amount, the CD Rate Margin, the Offshore Rate Margin and the
Reference Rate Margin only, the Convertible Subordinated Notes shall not be
included in Funded Indebtedness."
2.5 Section 1.2 of the Agreement is amended by deleting the following
definitions:
"Pound Sterling" and the sign "L"
"Pound Sterling Borrowing"
"Pound Sterling Revolving Loans"
- 7 -
<PAGE>
"Pound Sterling Revolving Loan Commitment"
2.6 A new Section 1.3 is inserted in the Agreement immediately following
Section 1.2:
"1.3 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this
Agreement (but not for purposes of the preparation of any financial
statements delivered pursuant hereto), the equivalent in any Offshore
Currency or other currency of an amount in Dollars, and the equivalent in
Dollars of an amount in any Offshore Currency or other currency, shall be
determined at the Spot Rate from time to time as of any date for which the
Bank determines the Dollar Equivalent of Offshore Currency Revolving Loans,
including, without limitation (i) any date on which a Borrowing of an
Offshore Currency Revolving Loan is requested and made, (ii) the last
Business Day of each month, and (iii) any other date selected by the Bank
from time to time in its sole discretion."
2.7 Section 2.1 of the Agreement is amended and restated in its entirety
as follows:
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<PAGE>
"2.1 THE COMMITMENTS.
"(a) THE DOLLAR REVOLVING LOAN COMMITMENT. Subject to the terms and
conditions hereof, the Bank agrees to make Revolving Loans and issue
Letters of Credit in Dollars pursuant to this Section 2 on a revolving
basis from time to time from the date hereof to the Maturity Date, during
which period the Borrower may borrow, prepay and reborrow in accordance
with the provisions hereof; PROVIDED that the aggregate unpaid principal
amount of all Revolving Loans and Letter of Credit Usage at any one time
outstanding under the Dollar Revolving Loan Commitment shall not exceed the
Dollar Revolving Loan Commitment; PROVIDED, FURTHER, that Letter of Credit
Usage shall not at any one time exceed $1,000,000. Revolving Loans
outstanding under the Dollar Revolving Loan Commitment may be made and
maintained, at the election of the Borrower made from time to time as
permitted herein, as Reference Rate Loans, CD Rate Loans or Offshore Rate
Loans or any combination thereof.
"(b) THE MULTICURRENCY REVOLVING LOAN COMMITMENT. Subject to the
terms and conditions hereof, the Bank agrees to make Revolving Loans in
Dollars and Offshore Currencies to the Borrower pursuant to this Section 2
on a revolving basis from time to time from the date hereof to the Maturity
Date, during which period the Borrower may borrow, prepay and reborrow in
accordance with the provisions hereof; PROVIDED that the aggregate unpaid
principal amount of all Revolving Loans of the Bank at any one time
outstanding under the Multicurrency Revolving Loan Commitment shall not
exceed the Active Multicurrency Revolving Loan Commitment. Offshore
Currency Revolving Loans may be requested only as Offshore Rate Loans.
Revolving Loans denominated in Dollars may be made and maintained, at the
election of the Borrower made from time to time as permitted herein, as
Reference Rate Loans, CD Rate Loans or Offshore Rate Loans or any
combination thereof."
- 9 -
<PAGE>
2.8 Section 2.2(a) of the Agreement is amended and restated in its
entirety as follows:
"(a) In order to borrow Revolving Loans under this Agreement, the
Borrower shall deliver to the Bank prior notice (by telex, telegram or
telecopier (and shall confirm receipt by telephone immediately after
transmission), or by telephone (confirmed in writing promptly thereafter))
of its intention to borrow under this Section 2, by delivery to the Bank at
its Payment Office of a duly completed Notice of Borrowing. Such Notice of
Borrowing shall specify: (i) the proposed Borrowing Date, which date shall
be a Business Day in the case of a Borrowing of a Reference Rate Loans or a
CD Rate Loan or an Offshore Rate Business Day in the case of a Borrowing of
an Offshore Rate Loan, (ii) the aggregate principal amount of the Borrowing
to be made on such date, (iii) whether such Revolving Loan is to be funded
as a CD Rate Loan, Offshore Rate Loan or Reference Rate Loan, (iv) in the
case of a CD Rate Loan or an Offshore Rate Loan, the initial Interest
Period therefor, (v) whether such Revolving Loan is being borrowed under
the Dollar Revolving Loan Commitment or the Multicurrency Revolving Loan
Commitment, and (vi) in the case of an Offshore Currency Revolving Loan,
the Offshore Currency thereof. Each Borrowing of a Reference Rate Loan
shall be in an aggregate principal amount at least equal to $250,000, each
Borrowing of a CD Rate Loan shall be in an aggregate principal amount of at
least $1,000,000 and each Borrowing of an Offshore Rate Loan shall be in an
aggregate principal amount of at least the Offshore Rate Minimum Tranche
for such type of Offshore Rate Loan."
2.9 Section 2.2(b)(i) of the Agreement is amended and restated in its
entirety as follows:
"(i) 10:00 a.m. (San Francisco time) not less than three Offshore Rate
Business Days prior to the proposed Borrowing Date if the Borrowing is to
be a Borrowing of an Offshore Rate Loan denominated in Dollars and
10:00 a.m. (San Francisco time) not less than four Offshore Rate Business
Days prior to the proposed
- 10 -
<PAGE>
Borrowing Date if the Borrowing is to be of an Offshore Currency Revolving
Loan,"
2.10 Section 2.3 of the Agreement is amended by inserting "and currency"
after "the date and amount."
2.11 Section 2.4 of the Agreement is amended and restated in its entirety
as follows:
"2.4 TERMINATION AND REDUCTION OF REVOLVING LOAN COMMITMENTS;
INCREASES IN ACTIVE MULTICURRENCY REVOLVING LOAN COMMITMENT (a) Upon at
least five Business Days' irrevocable prior written notice to the Bank, the
Borrower may terminate or permanently reduce all or any portion of the
unused Dollar Revolving Loan Commitment or the Multicurrency Revolving Loan
Commitment from time to time without premium or penalty. Each partial
reduction of a Revolving Loan Commitment shall be in integral multiples of
$1,000,000. Any termination of any Revolving Loan Commitment shall be
accompanied by payment of the Commitment Fee for such Revolving Loan
Commitment(s) accrued through the effective date of the termination. Any
reduction in the Multicurrency Revolving Loan Commitment may be allocated
between the Active Multicurrency Revolving Loan Commitment and the Inactive
Multicurrency Revolving Loan Commitment as directed by the Borrower at the
time of such reduction.
"(b) Upon at least five Business Days' irrevocable prior written
notice to the Bank, the Borrower may, effective as of the first day of any
fiscal quarter of Borrower, increase the Active Multicurrency Revolving
Loan Commitment to an amount not exceeding the Multicurrency Revolving Loan
Commitment. Each such increase shall be in integral multiples of
$2,500,000, and shall be accompanied by an amount equal to the difference
between the commitment fee actually paid in respect of such Inactive
Multicurrency Revolving Loan Commitment being activated and the commitment
fee that would have been payable on such Inactive Multicurrency Revolving
Loan Commitment had it been part of the Active Multicurrency Revolving Loan
Commitment
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<PAGE>
commencing on the first day of the prior fiscal quarter. Once activated,
no portion of the Active Multicurrency Revolving Loan Commitment may be
decreased except as part of an overall reduction of the Multicurrency
Revolving Loan Commitment. The Borrower may not activate any portion of
the Multicurrency Revolving Loan Commitment more than once quarterly."
2.12 Section 2.5(a) of the Agreement is amended and restated in its
entirety as follows:
"(a) On the last Offshore Rate Business Day of February, 2000, and on
the last Offshore Rate Business Day of each May, August, November, and
February thereafter through the Maturity Date (each such day, an
"Amortization Date"), (i) the Dollar Revolving Loan Commitment shall
automatically reduce by an amount equal to 5% of the original Dollar
Revolving Loan Commitment, and (ii) the Multicurrency Revolving Loan
Commitment shall automatically reduce by an amount equal to 5% of the
original Multicurrency Revolving Commitment (the "Regular Amortization
Amount"). On each such Amortization Date the Borrower shall pay to the
Bank the amount, if any, by which the principal amount of outstanding
Revolving Loans under each Revolving Commitment exceeds such Revolving Loan
Commitment, as so reduced. The Revolving Loan Commitments shall reduce to
zero on the Maturity Date on which date the principal amount of all
Revolving Loans shall be due and payable in full."
2.13 Sections 2.5(b)(ii), 2.5(b)(iv) and 4.3(a) of the Agreement are
amended by deleting "or L500,000, as applicable," and inserting "or, as
applicable, the Offshore Rate Minimum Tranche" in lieu thereof.
2.14 Section 2.5(c) of the Agreement is amended and restated in its
entirety as follows:
"(c) If, at any time (i) Letter of Credit Usage plus the outstanding
aggregate principal amount of Revolving Loans made under the Dollar
Revolving Loan Commitment exceeds the Dollar Revolving Loan
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<PAGE>
Commitment, or (ii) the outstanding aggregate principal amount of Revolving
Loans made under the Multicurrency Revolving Loan Commitment exceeds the
Multicurrency Revolving Loan Commitment, in each case whether by reason of
the termination or any reduction of a Revolving Commitment or because of a
recalculation of the Dollar Equivalent of outstanding Offshore Currency
Revolving Loans pursuant to Section 1.3, the Borrower shall immediately pay
or prepay Revolving Loans under the relevant Revolving Loan Commitment in
an aggregate principal amount equal to such excess, together with, in the
case of the prepayment of Offshore Rate Loans or CD Rate Loans, accrued
interest on the portion prepaid and any costs payable under Section 4.6."
2.15 A new Section 2.6 is inserted into the Agreement immediately after
Section 2.5 of the Agreement as follows:
"2.6 LETTERS OF CREDIT.
"(a) Subject to the terms and conditions of this Agreement, the
Bank agrees to issue Letters of Credit for the account of the Borrower.
Letters of Credit may have automatic extension or renewal provisions so
long as the Bank has the right to terminate them no less frequently than
annually within a notice period to be agreed upon at the time each such
Letter of Credit is issued.
"(b) Whenever the Borrower desires to have a Letter of Credit
issued hereunder, or to amend a previously issued Letter of Credit, it
shall deliver to the Bank, not less than three Business Days prior to the
date of issuance or amendment thereof, a duly completed application on the
Bank's standard form (or on such other form specified from time to time by
the Bank) (a "Letter of Credit Application"). Each Letter of Credit
Application shall specify, among other things: (i) the proposed date of
issuance or amendment (which shall be a Business Day); (ii) if the Letter
of Credit is not an "evergreen" Letter of Credit, the date of expiration of
the Letter of Credit (which shall be a date not later the earlier of 12
months after the
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issuance thereof and the Maturity Date; (iii) the name and address of the
beneficiary thereof; (iv) the documents to be presented by the beneficiary
of the Letter of Credit in case of any drawing thereunder; (v) the full
text of any certificate to be presented by the beneficiary in case of any
drawing thereunder; and (vi) the terms of any amendment thereto.
Notwithstanding any provision of any Letter of Credit Application to the
contrary, it is understood that in the event of any conflict between the
terms of any such Letter of Credit Application and the terms of this
Agreement, the terms of this Agreement shall control with respect to events
of default, representations and warranties, and covenants, except that such
Letter of Credit Application may provide for further warranties relating
specifically to the transaction or affairs underlying such Letter of
Credit.
"(c) If any request for drawing is made under any Letter of Credit,
the Bank will be responsible only to determine that the documents to be
delivered under the relevant Letter of Credit have been delivered and
comply on their face with the requirements of such Letter of Credit. The
Bank shall pay any drafts properly presented under any Letter of Credit.
"(d) In the event of any drawing under any Letter of Credit, the
Borrower shall reimburse the Bank on or before the day on which such
drawing is paid (the "Reimbursement Date") in an amount in same day funds
equal to the amount of the drawing (the "Disbursement Amount"). Unless
prior to 10:00 a.m. (San Francisco time) on the Reimbursement Date (i) the
Borrower shall have notified the Bank that it intends to reimburse the Bank
for the amount of such drawing with funds other than from proceeds of
Revolving Loans and/or (ii) the Borrower shall have delivered a Notice of
Borrowing requesting a Reference Rate Loan
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under the Dollar Revolving Commitment in an amount at least equal to the
amount of the Disbursement Amount (less the amount of such funds referred
to in clause (i) above), the Borrower shall be deemed to have given a
Notice of Borrowing to the Bank to make a Reference Rate Loan under the
Dollar Revolving Commitment on the Reimbursement Date in an amount equal to
the Disbursement Amount. If the conditions specified in Sections 5.1 and
5.2 are satisfied on such Reimbursement Date, the Bank shall be deemed to
have made a Reference Rate Loan under the Dollar Revolving Commitment to
the Borrower to reimburse itself for the Disbursement Amount.
"(e) If the conditions specified in Section 5.1 or 5.2 are not
satisfied on such Reimbursement Date, the Borrower shall reimburse the Bank
on demand for any such Disbursement Amount, together with interest thereon
at a rate per annum equal to the Reference Rate plus 2% per annum, accruing
from the Reimbursement Date until such Disbursement Amount is paid in full.
"(f) The Bank may, at its election and subject to the terms of a
Letter of Credit, deliver any notices of termination or other
communications to any Letter of Credit beneficiary or transferee, and take
any other action as necessary or appropriate, at any time and from time to
time, in order to cause the expiry date of such Letter of Credit to be a
date not later than the Maturity Date.
"(g) The obligations of the Borrower under this Agreement with
respect to any Letter of Credit shall be absolute, unconditional and
irrevocable and shall be performed strictly in accordance with the terms of
this Agreement and of any application for Letter of Credit, including
without limitation, the following circumstances:
"(i) any lack of validity or enforceability of the Letter of
Credit, this Agreement, any application for Letter of Credit or any
other agreement or instrument relating to any of the foregoing;
"(ii) the existence of any claim, setoff, defense or other rights
that the Borrower may have at any time against any beneficiary or
transferee
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of the Letter of Credit (or any Person for whom any such beneficiary
or any such transferee may be acting), the Bank or any other Person,
whether in connection with this Agreement or any unrelated
transaction;
"(iii) any breach of contract or other dispute between the
Borrower and any beneficiary or transferee of the Letter of Credit (or
any Person for whom any such beneficiary or any such transferee may be
acting), the Bank or any other Person;
"(iv) any demand, statement, tested telex or any other document
presented under a Letter of Credit which on its face appears to
conform with the terms and conditions of the Letter of Credit but
proves to have been invalid or insufficient for its intended business
purpose or to have been forged or fraudulent in any respect or to
contain any statement therein which is untrue or inaccurate in any
respect whatsoever; or
"(v) any delay, extension of time, renewal, waiver, compromise
or other indulgence or modification granted or agreed to by the Bank,
with or without notice to or approval by the Borrower, in respect to
any Letter of Credit.
"(h) Neither the Bank nor any of its officers or directors shall be
liable or responsible for:
"(i) the use that may be made of the Letters of Credit or for
any acts or omissions of the beneficiary or any transferee of the
Letters of Credit in connection therewith;
"(ii) the validity, sufficiency for their intended business
purpose or genuineness of documents, or of any endorsements thereon
which on their face appear to conform to the terms and conditions of
the Letter of Credit, even if such documents should prove to be in any
or all
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respects invalid, insufficient for their intended business purpose,
fraudulent or forged; or
"(iii) acceptance of documents that appear on their face to
conform to the terms and conditions of the Letter of Credit, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
"(i) On or before the Maturity Date, the Borrower shall, if any
Letter of Credit remains outstanding and partially or wholly undrawn,
immediately deliver to the Bank an irrevocable letter of credit from an
issuer acceptable to the Bank in its sole discretion, in form and substance
satisfactory to the Bank, in a stated amount not less than the Letter of
Credit Usage. The Bank shall hold such letter of credit as collateral for
the Borrower's obligations to reimburse the Bank for any drawings under
such Letter of Credit. The Bank shall return such letter of credit to the
Borrower upon all of such Letter(s) of Credit having expired, becoming void
or otherwise become unavailable for further drawing, or the face amount
thereof being reduced, or after the Maturity Date, to the extent any cash
collateral has not been applied to such drawings, and the Bank having no
further obligation thereunder, as the case may be. The commissions payable
with respect to Letters of Credit will continue to accrue during any period
that collateral is being held.
"(j) The Uniform Code of Practice for Documentary Credits, as
published in its most current version by the International Chamber of
Commerce, shall be deemed a part of this Section and shall apply to all
Letters of Credit to the extent not inconsistent with applicable law."
2.16 Section 4.13(b) is amended and restated in its entirety as follows:
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"(b) The Borrower shall pay to the Bank a fee on the average daily
undrawn face amount of each Letter of Credit as follows:
"(i) Standby Letters of Credit: the Applicable Standby Letter
of Credit Fee, with a minimum fee of $250 per annum per Letter of
Credit; and
"(ii) Commercial Letters of Credit: at Bank's then standard
schedule of rates at time of issuance.
"Such Letter of Credit fees shall be computed on the basis of a 365 or 366
day year, as applicable, for actual days elapsed on the average daily
Letter of Credit Usage for the period from the date of issuance of each
Letter of Credit and shall be due and payable quarterly in arrears on (and
inclusive of) the last Business Day of each February, May, August, and
November. The Borrower shall also pay such other fees and commissions at
the times and in the amounts that the Bank advises the Borrower from time
to time as being applicable to the Borrower's standby Letters of Credit."
2.17 Section 4.1(a) of the Agreement is amended by inserting "and in
respect of Letters of Credit" after "on the Loans" in the first sentence
thereof.
2.18 Section 4.1(a) of the Agreement is further amended by inserting the
following at the end thereof:
"Payment of principal and interest with respect to Offshore Currency
Revolving Loans shall be made in the Offshore Currency of such Revolving
Loan."
2.19 Section 4.3(b) the Agreement is amended by amending and restating the
second sentence therein as follows:
"Conversions into or continuations of Offshore Currency Revolving Loans
shall not be permitted if the Bank determines that Offshore Currency
deposits in amounts
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as may be necessary are not generally available in the applicable Offshore
Currency interbank market."
2.20 Section 4.4 the Agreement is amended by amending and restating the
second sentence therein as follows:
"Interest on Offshore Currency Revolving Loans shall be payable in the
Offshore Currency of such Revolving Loan."
2.21 Section 4.7 the Agreement is amended by (a) deleting "offshore Pound
Sterling" wherever it appears in clauses (1) and (3) thereof and inserting "the
applicable Offshore Currency" in lieu thereof and (b) amending and restating
clause (5) as follows:
"(5) Offshore Currency deposits for the relevant Offshore Currency, amount
or Interest Period of an Offshore Currency Revolving Loan are not available
to the Bank in the applicable Offshore Currency interbank market,"
2.22 Section 4.9(a) of the Agreement is amended by inserting "or to issue
Letters of Credit" after "to make Loans" wherever it appears therein.
2.23 Section 4.9(b) of the Agreement is amended by (a) inserting "or the
Letters of Credit" after "any of the Loans" and (b) inserting "or to issue
Letters of Credit" after "its obligations to make Loans."
2.24 The paragraph following Section 4.9(b) of the Agreement is amended by
(a) inserting "or Letters of Credit" after "maintaining its Loans."
2.25 Section 4.10 of the Agreement is amended by inserting "or Letters of
Credit" after "any Loans."
2.26 Section 4.11 of the Agreement is amended and restated in its entirety
as follows:
"4.11 FUNDING. The Bank shall be entitled to fund all or any portion
of its Revolving Loans in any
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manner it may determine in its reasonable discretion, including, without
limitation, in the Grand Cayman interbank market, the London interbank
market and within the United States. All calculations and transactions
hereunder shall be conducted as though the Bank actually funded (a) all
Offshore Rate Loans through the purchase in Grand Cayman of offshore Dollar
deposits or the applicable Offshore Currency, and (b) all CD Rate Loans
through the sale of certificates of deposit in the secondary market in New
York City, in each case in the amount of the relevant Revolving Loan with
maturities corresponding to the applicable Interest Period; PROVIDED that,
as of the time of the making of such election, such election does not
materially increase the amounts which would have been payable by the
Borrower to the Bank under this Agreement in the absence of such election."
2.27 Section 4.13(a) of the Agreement is amended and restated in its
entirety as follows:
"(a) The Borrower agrees to pay to the Bank a commitment fee (the
"Commitment Fee") equal to the Applicable Commitment Fee Amount on the (i)
unused portion of the Dollar Revolving Loan Commitment and the Active
Multicurrency Revolving Loan Commitment Revolving Loan Commitment and (ii)
entirety of the Inactive Multicurrency Revolving Loan Commitment. All
Commitment Fees shall be computed on the basis of a 365 or 366 day year, as
applicable, for actual days elapsed on the average daily used and unused
amount of the Revolving Loan Commitments for the period from the date of
this Agreement to and including the Maturity Date. The Commitment Fee for
the Active Multicurrency Revolving Loan Commitment shall be payable in
Dollars in an amount equal to the Dollar Equivalent of the average daily
unused amount of the Active Multicurrency Revolving Loan Commitment. The
Commitment Fee shall be payable quarterly in arrears on (and inclusive of)
the last Business Day of each February, May, August, and November, and on
the Maturity Date. If there is any change in the Active Multicurrency
Revolving Loan Commitment or the Leverage Ratio which changes the
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<PAGE>
Applicable Commitment Fee Amount for any period during any quarter, then
the Commitment Fee shall computed separately for each such period by
multiplying the average used and unused Dollar Revolving Loan Commitment
and the Active Multicurrency Revolving Loan Commitment during such period
and the entirety of the Inactive Multicurrency Revolving Loan Commitment
during such period by the Applicable Commitment Fee in effect for such
period."
2.28 Section 5.2 of the Agreement is amended by inserting "and all Letters
of Credit" after "All Loans" in the subhead thereof and (b) inserting "or to
issue, supplement, modify, amend, renew, or extend any Letter of Credit" after
"to make all Loans" in the introductory paragraph of such Section.
2.29 Section 5.2(a) of the Agreement is amended by (a) inserting "or
Letters of Credit to be issued" after "Loans to be made", (b) inserting "or
Letters of Credit being issued" after "Loans being made", and (c) inserting "or
Letters of Credit expiring" after "Loans maturing."
2.30 A new Section 5.2(d) is inserted into the Agreement immediately after
Section 5.2(c) of the Agreement as follows:
"(d) With respect to Letters of Credit, the Bank shall have received
a completed application and agreement for letter of credit on the Bank's
standard form."
2.31 The introductory paragraph of Section 6 of the Agreement is amended
by inserting "or to issue Letters of Credit" after "to make Loans."
2.32 Section 8.1 of the Agreement is amended by deleting "and" at the end
of subsection (f), deleting the period at the end of subsection (g) and
inserting "; and" in lieu thereof, and inserting a new subsection (h) as
follows:
"(h) the Convertible Subordinated Notes."
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<PAGE>
2.33 Sections 8.2(b) and (c) of the Agreement is amended and restated in
its entirety as follows:
"(b) lease financing with BankAmerica Leasing and Capital Corporation
not exceeding in the aggregate at any time outstanding $25,000,000 LESS an
amount equal to any Indebtedness secured by Liens permitted by Section
8.2(d);
"(c) liens securing Contingent Obligations and Indebtedness permitted
by Section 8.1(f); and
"(d) liens in connection with equipment leases not exceeding $250,000
in the aggregate at any time which were assumed in connection with the
Hollywood Digital Acquisition, and any extension, renewal, refunding and
refinancing thereof; provided that after giving effect to such extension,
renewal, refunding or refinancing the principal amount thereof is not
increased."
2.34 Section 8.9 of the Agreement is amended by inserting the following at
the end thereof before the period:
"; PROVIDED, FURTHER, that if the Hollywood Digital Acquisition is
completed, the Borrower and its Subsidiaries may assume and incur up to
$16,500,000 in capital expenditures in the aggregate in fiscal year 1997."
2.35 Section 8.3 of the Agreement is amended and restated in its entirety
as follows:
"8.3 LIMITATION ON DIVIDENDS AND STOCK REPURCHASES. Declare or pay
any dividends on any of its shares, or repurchase any of its stock having a
market value, which would exceed the greater of (a) 50% of its positive net
income for the immediately preceding four fiscal quarters or (b) $2,500,000
per fiscal year."
2.36 Section 8.12 of the Agreement is amended and restated in its entirety
as follows:
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<PAGE>
"8.12 MINIMUM TANGIBLE NET WORTH. Permit its Tangible Net Worth at
any time to be less than the sum of (a) (i) prior to the Hollywood Digital
Acquisition, $49,700,000, and (ii) upon completion of the Hollywood Digital
Acquisition, $25,000,000 PLUS (b) 50% of the Borrower's consolidated net
income for each fiscal quarter (without deduction for any net loss)
commencing with the fiscal quarter ending subsequent to February 28, 1997,
PLUS (c) 100% of the net proceeds received by the Borrower or any of its
Subsidiaries from the issuance of equity by the Borrower or any
Subsidiary."
2.37 Section 9.2(i) of the Agreement is amended by inserting "or to issue
or amend Letters of Credit" after "to make the Loans."
2.38 Section 9.2(ii) of the Agreement is amended by inserting the
following after "become due and payable, forthwith:"
"and the Borrower will forthwith pay to the Bank an amount in cash equal to
the Letters of Credit Usage then outstanding, to be deposited into an
interest bearing deposit account maintained with Bank as cash collateral
for the Borrower's obligations to reimburse Bank for any drawings under
such Letters of Credit as and when such drawings are made (the Borrower
hereby grants the Bank a security interest in such account) and such cash
collateral shall be returned to the Borrower to the extent all Letter of
Credit Usage is paid and/or remaining Letters of Credit expire, become void
or otherwise become unavailable for drawing,"
2.39 Section 10.4 of the Agreement is amended by inserting "or any Letter
of Credit" after "any Loan."
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Bank that:
3.1 AUTHORITY. The Borrower has all the necessary corporate power to
make, execute and deliver this Fifth Amendment, and this Fifth
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Amendment is the legal, valid and enforceable obligation of the Borrower it
purports to be.
3.2 NO LEGAL OBSTACLE TO AGREEMENT. Neither the
execution of this Fifth Amendment, the making by the Borrower of any borrowings
under the Agreement, nor the performance of the Agreement has constituted or
resulted in or will constitute or result in a breach of the provisions of any
contract to which the Borrower is a party, or the violation of any law,
judgment, decree or governmental order, rule or regulation applicable to
Borrower, or result in the creation under any agreement or instrument of any
security interest, lien, charge, or encumbrance upon any of the assets of the
Borrower other than pursuant to the Pledge Agreement. No approval or
authorization of any governmental authority is required to permit the execution,
delivery or performance by the Borrower of this Fifth Amendment, the Agreement,
or the transactions contemplated hereby or thereby, or the making of any
Borrowings by the Borrower under the Agreement.
3.3 INCORPORATION OF CERTAIN REPRESENTATIONS. The representations and
warranties set forth in Section 4 of the Agreement are true and correct in all
respects on and as of the date hereof as though made on and as of the date
hereof.
3.4 DEFAULT. No Event of Default under the Agreement has occurred and is
continuing.
4. CONDITIONS, EFFECTIVENESS. This Fifth Amendment shall become effective
as of the date first written above subject to delivery of the following to the
Bank in form and substance satisfactory to the Bank within five Business Days of
the date hereof:
4.1 RESOLUTIONS; INCUMBENCY CERTIFICATE. The signed certificate of the
President, a Senior Vice President, or a Vice President and the Secretary or an
Assistant Secretary of the Borrower, dated as of the date hereof, certifying as
to (a) a true and correct copy of resolutions adopted by the Board of Directors
of the Borrower authorizing the execution, delivery and performance by the
Borrower of this Fifth Amendment, and (b) the
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<PAGE>
incumbency and specimen signatures of officers of the Borrower executing this
Fifth Amendment.
4.2 OTHER EVIDENCE. Such other evidence with respect to the Borrower or
any other person as the Bank may reasonably request to establish the
consummation of the transactions contemplated hereby, the taking of all
corporate action in connection with this Fifth Amendment and the Agreement and
the compliance with the conditions set forth herein.
4.3 CONDITIONS SUBSEQUENT RE HOLLYWOOD DIGITAL ACQUISITION. Promptly
following completion of the Hollywood Digital Acquisition, as a condition
subsequent to the continued effectiveness of this Fifth Amendment and the
Agreement, the Borrower shall deliver the following to the Bank in form and
substance satisfactory to the Bank:
(a) A Guaranty, duly executed and delivered by Todd-AO HD, substantially
in the form of Exhibit A hereto;
(b) The signed certificate of the President, a Senior Vice President, or a
Vice President and the Secretary or an Assistant Secretary of Todd-AO HD, dated
as of such date, certifying:
(i) as to a true and correct copy of resolutions adopted by the
Board of Directors of Todd-AO HD authorizing the execution, delivery and
performance by Todd-AO HD of its Guaranty;
(ii) as to a true and correct copy of the by-laws of Todd-AO HD
as in effect on such date;
(iii) as to the incumbency and specimen signatures of officers of
Todd-AO HD executing its Guaranty;
(iv) that, after giving effect to such acquisition, (A) there is
no Default or Event of Default, and (B) the representations and warranties
contained in the Agreement are true, correct and complete in all material
respects on and as of such date to the extent as though made on and as of
such
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<PAGE>
date, except with respect to any representation or warranty which
specifically refers to an earlier date;
(v) that the Hollywood Digital Acquisition was completed on
terms and conditions disclosed to and previously approved by the Bank; and
(vi) as to compliance with the financial covenants set forth in
Sections 8.6(c), 8.9, 8.12, 8.13 and 8.14 of the Agreement, together with a
certificate setting forth calculations with respect to such compliance.
(c) The certificate or articles of incorporation of Todd-AO HD, certified
by the secretary of state of the state of state of its incorporation, dated as
of a recent date.
(d) Certificate of good standing for Todd-AO HD from the secretary of
state of the state of state of its incorporation, dated as of a recent date.
5. MISCELLANEOUS.
5.1 EFFECTIVENESS OF THE AGREEMENT. Except as provided in this Amendment,
all of the terms and conditions of the Agreement shall remain in full force and
effect.
5.2 WAIVER. This Fifth Amendment is specific in time and in intent and
does not constitute, nor should it be construed as, a waiver of any right, power
or privilege under the Agreement, or any agreement, contract, indenture,
document or instrument mentioned in the Agreement; nor does it preclude other or
further exercise of any right, power, privilege or default hereunder, under the
Agreement or under any agreement, contract, indenture, document or instrument
mentioned in the Agreement. The Bank expressly reserves its right to exercise
any remedy available to it under the Agreement, or any agreement, contract,
indenture, document or instrument mentioned in the Agreement.
5.3 COUNTERPARTS. This Fifth Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This Fifth Amendment shall not become
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effective until the Borrower and the Bank shall have signed a copy hereof,
whether the same or counterparts, and the same shall have been delivered to the
Bank.
5.4 JURISDICTION. This Fifth Amendment, and any instrument or agreement
required hereunder, shall be governed by and construed under the laws of the
State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment
as of the day and year first above written.
THE TODD-AO CORPORATION,
a Delaware corporation
By: _______________________________
W. R. Strickley
Senior Vice President
and Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: ___________________________
Matthew Koenig
Vice President
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CONSENT OF GUARANTORS AND AMENDMENT TO GUARANTIES
Each of the undersigned, as Guarantor under its Continuing Guaranty in
favor of Bank of America National Trust and Savings Association ("Guaranty")
hereby (a) consents to the foregoing Fifth Amendment to Credit Agreement dated
as of June 6, 1997 and confirms that its Guaranty remains in full force and
effect after giving effect thereto and represents and warrants that there is no
defense, counterclaim or offset of any type or nature under its Guaranty and (b)
agrees with Bank that its Guaranty is amended by (i) amending the first sentence
of its Guaranty by inserting ", subject to Paragraph 15" at the end thereof
before the period and (ii) deleting in its entirety the first sentence of
paragraph 2 of its Guaranty.
Dated as of June 6, 1997
TODD-AO PRODUCTIONS INC.
TODD-AO STUDIOS EAST INC.
TODD-AO DIGITAL IMAGES
TODD-AO VIDEO SERVICES
TODD-AO STUDIOS WEST
By: ___________________________
J. R. DeLang
Vice President
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<PAGE>
EXHIBIT A
BORROWER: THE TODD A-O CORPORATION
GUARANTOR: TODD-AO HD, INC.
CONTINUING GUARANTY
To: BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
(1) For valuable consideration, the undersigned ("Guarantor")
unconditionally guarantees and promises to pay to BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION ("Bank"), or order, on demand, in lawful money of the
United States, any and all indebtedness of The Todd A-O Corporation ("Borrower")
owing to Bank, subject to Paragraph (15). The term "indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower, heretofore, now, or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether direct or acquired by Bank by assignment or succession, whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrower may be liable individually or jointly with
others, or whether recovery upon such indebtedness may be or hereafter become
barred by any statute of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable.
(2) Bank may permit the indebtedness of Borrower to exceed Guarantor's
liability, and may apply any amounts received from any source, other than from
Guarantor, to the unguaranteed portion of Borrower's indebtedness. This is a
continuing guaranty relating to any indebtedness, including that arising under
successive transactions which shall either continue the indebtedness or from
time to time renew it after it has been satisfied. Any payment by Guarantor
shall not reduce Guarantor's maximum obligation hereunder, unless written notice
to that effect be actually received by Bank at or prior to the time of such
payment.
<PAGE>
(3) The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting Guarantor's liability hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting Guarantor's liability hereunder, from time to time, either before or
after revocation hereof, to (a) renew, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine; and (d) release or substitute any one or more of the
endorsers or guarantors.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense
arising by reason of any disability or other defense of Borrower, or the
cessation from any cause whatsoever of the liability of Borrower, or any claim
that Guarantor's obligations exceed or are more burdensome than those of
Borrower. Guarantor waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or otherwise),
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising
from the existence or performance of this Guaranty and Guarantor waives any
right to enforce any remedy which Bank now has or may hereafter have against
Borrower, and waives any benefit of and any right to participate in any security
now or hereafter held by Bank. Guarantor waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance of this Guaranty and of the existence,
creation, or incurring of new or additional indebtedness. Without limiting the
generality of the foregoing, Guarantor hereby expressly
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<PAGE>
waives any and all benefits of California Civil Code Sections 2809, 2810, 2819,
2825, 2839 and 2845 through 2850.
(6) Guarantor understands and acknowledges that if Bank forecloses, either
by judicial foreclosure or by exercise of power of sale, any deed of trust
securing the indebtedness, that foreclosure could impair or destroy any ability
that Guarantor may have to seek reimbursement, contribution or indemnification
from Borrower or others based on any right Guarantor may have of subrogation,
reimbursement, contribution or indemnification for any amounts paid by Guarantor
under this Guaranty. Guarantor further understands and acknowledges that in the
absence of this paragraph, such potential impairment or destruction of
Guarantor's rights, if any, may entitle Guarantor to assert a defense to this
Guaranty based on Section 580d of the California Code of Civil Procedure as
interpreted in UNION BANK V. GRADSKY, 265 Cal. App. 2d. 40 (1968). By executing
this Guaranty, Guarantor freely, irrevocably and unconditionally: (i) waives
and relinquishes that defense and agrees that Guarantor will be fully liable
under this Guaranty even though Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
indebtedness; (ii) agrees that Guarantor will not assert that defense in any
action or proceeding which Bank may commence to enforce this Guaranty; (iii)
acknowledges and agrees that the rights and defenses waived by Guarantor in this
Guaranty include any right or defense that Guarantor may have or be entitled to
assert based upon or arising out of any one or more of Sections 580a, 580b, 580d
or 726 of the California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledges and agrees that Bank is relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which Bank is receiving for creating the indebtedness.
(7) Guarantor acknowledges and agrees that Guarantor shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may require,
and that Bank has no duty at any time to disclose to Guarantor any information
relating to the business operations or financial conditions of Borrower.
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(8) To secure all of Guarantor's obligations hereunder, Guarantor assigns
and grants to Bank a security interest in all moneys, securities and other
property of Guarantor now or hereafter in the possession of Bank, and all
deposit accounts of Guarantor maintained with Bank, and all proceeds
thereof. Upon default or breach of any of Guarantor's obligations to Bank, Bank
may apply any deposit account to reduce the indebtedness, and may foreclose any
collateral as provided in the Uniform Commercial Code and in any security
agreements between Bank and Guarantor.
(9) Any obligations of Borrower to Guarantor, now or hereafter existing,
including but not limited to any obligations to Guarantor as subrogees of Bank
or resulting from Guarantor's performance under this Guaranty, are hereby
subordinated to the indebtedness. Such obligations of Borrower to Guarantor if
Bank so requests shall be enforced and performance received by Guarantor as
trustees for Bank and the proceeds thereof shall be paid over to Bank on account
of the indebtedness of Borrower to Bank, but without reducing or affecting in
any manner the liability of Guarantor under the other provisions of this
Guaranty.
(10) This Guaranty may be revoked at any time by Guarantor in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantor does not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantor's obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended, accelerated, or otherwise changed as to any of its terms, including
time for payment or increase or decrease of the rate of interest
thereon. Revocation by any other guarantor of Borrower's indebtedness shall not
affect any obligations of Guarantor. If this Guaranty is revoked, returned, or
canceled, and subsequently any payment or transfer of any interest in property
by Borrower to Bank is rescinded or must be returned by Bank to Borrower, this
Guaranty shall be reinstated with respect to any such payment or transfer,
regardless of any such prior revocation, return, or cancellation.
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<PAGE>
(11) Where Borrower is a corporation or partnership it is not necessary
for Bank to inquire into the powers of Borrower or of the officers, directors,
partners or agents acting or purporting to act on Borrower's behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
(12) Bank may, without notice to Guarantor and without affecting
Guarantor's obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantor, this Guaranty and any
security for this Guaranty.
(13) Guarantor agrees to pay to Bank, on demand, all out-of-pocket
expenses and attorneys' fees (including allocated costs for in-house legal
services) incurred by Bank prior to the commencement of any legal action in
connection with the enforcement of this Guaranty and any instrument or agreement
required under this Guaranty. In the event of a legal action, the prevailing
party shall be entitled to reasonable attorneys' fees (including allocated costs
for in-house legal services), costs and necessary disbursements incurred in
connection with such action or proceeding, as determined by the court.
(14) This Guaranty shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which the parties hereto
submit.
(15) Notwithstanding anything to the contrary contained herein,
Guarantor's liability pursuant to this Guaranty shall be limited to the greater
of: (a) the 'reasonably equivalent value,' received by Guarantor or any of its
subsidiaries arising out of the indebtedness (including, without limitation,
repayment of intercompany or third party debt of, investments made in, and
capital contributions, advances and loans made to, Guarantor or any of its
subsidiaries, directly or indirectly, by Borrower or any other subsidiary with,
or as a direct or indirect result of obtaining, the proceeds of any
indebtedness) in exchange for or in connection with Guarantor's guaranty of the
indebtedness, and (b) 95% of the excess of (i) a 'fair valuation' of the amount
of
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<PAGE>
the assets and other property of Guarantor and its subsidiaries taken as a whole
as of the applicable date of determination of the incurrence of Guarantor's
obligations hereunder OVER (ii) a 'fair valuation' of Guarantor's and its
subsidiaries' debts taken as a whole as of such date, but excluding liabilities
arising under this Guaranty and excluding all liabilities owing by Guarantor and
its subsidiaries taken as a whole to Borrower or any other Subsidiary or
otherwise subordinated to Guarantor's obligations hereunder, it being understood
that a portion of such indebtedness owing to Borrower shall be discharged on a
dollar-for-dollar basis in an amount equal to the amount paid by Guarantor
hereunder. The meaning of the terms 'reasonably equivalent value' and 'fair
valuation,' and the calculations of assets and other property and debts, shall
be determined in accordance with the applicable federal and California state
laws in effect on the date hereof governing the determination of the insolvency
of a debtor and to further the intent of all parties hereto to maximize the
amount payable by Guarantor without rendering it insolvent or leaving it with an
unreasonably small amount of capital in relation to its business, in either
case, at the applicable date for the determination of the incurrence of its
obligations hereunder; PROVIDED, HOWEVER, Guarantor agrees, to the maximum
extent permitted by law, that 'fair valuation' of Guarantor's and its
subsidiaries' assets and other properties means the fair market sales price as
would be obtained in an arms-length transaction between competent, informed and
willing parties under no compulsion to sell or buy or collections thereof
obtained in the ordinary course of business and 'fair valuation' of its debts
means the amount, in light of the applicable circumstances, at the time, for
which Guarantor or its subsidiaries is liable for matured known liquidated
liabilities or would reasonably be expected to become liable on contingent or
unliquidated liabilities as they mature and taking into consideration the nature
of any such contingency and the probability that liability would be imposed.
(16) Guarantor represents and warrants for and with respect to itself that:
(a) Guarantor is a corporation duly organized and existing under the
laws of the state of its incorporation, and is properly licensed and in good
standing in, and where necessary to maintain its rights and privileges have
complied with the
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<PAGE>
fictitious name statute of, every jurisdiction in which it is doing business,
except where the failure to be licensed or be in good standing or comply with
any such statute will not have a material adverse effect on the ability of
Guarantor to perform its obligations hereunder or under any instrument or
agreement required hereunder;
(b) The execution, delivery and performance of this Guaranty and any
instrument or agreement required hereunder are within the power of Guarantor,
have been duly authorized by, and are not in conflict with the terms of any
charter, by-law or other organization papers of, Guarantor;
(c) No approval, consent, exemption or other action by, or notice to
or filing with, any governmental authority is necessary in connection with the
execution, delivery, performance or enforcement of this Guaranty or any
instrument or agreement required hereunder;
(d) There is no law, rule or regulation, nor is there any judgment,
decree or order of any court or governmental authority binding on Guarantor,
which would be contravened by the execution, delivery, performance or
enforcement of this Guaranty or any instrument or agreement required hereunder;
(e) This Guaranty is a legal, valid and binding agreement of
Guarantor, enforceable against Guarantor in accordance with its terms, and any
instrument or agreement required hereunder, when executed and delivered, will be
similarly legal, valid, binding and enforceable, except where enforceability
thereof may be limited by applicable law relating to bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by the
application of general principles of equity;
(f) There is no action, suit or proceeding pending against, or to the
knowledge of Guarantor, threatened against or affecting Guarantor, before any
court or arbitrator or any governmental body, agency or official which in any
manner draws into question the validity or enforceability of this Guaranty; and
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<PAGE>
(g) The execution, delivery and performance by Guarantor of this
Guaranty does not constitute, to the best knowledge of Guarantor, a "fraudulent
conveyance," "fraudulent
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<PAGE>
obligation" or "fraudulent transfer" within the meanings of the Uniform
Fraudulent Conveyances Act or Uniform Fraudulent Transfer Act, as enacted in any
jurisdiction.
Executed this __________ day of June, 1997.
TODD-AO HD, INC.
"Guarantor"
By: ____________________________
J. R. DeLang
Vice President
Address for notices to Bank:
Bank of America National Trust
and Savings Association
555 South Flower Street, 10th Floor
Los Angeles, CA 90071
Attention: Matthew Koenig
Vice President
Credit Products #3283
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