UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ___)
The Todd-AO Corporation
--------------------------------------------
(Name of Issuer)
Class A Common Stock, $.01 par value
------------------------------------
(Title of Class of Securities)
888896-10-7
--------------
(CUSIP Number)
David P. Malm
Halpern, Denny & Co., 500 Boylston Street, Suite 1880 Boston, MA 02116
(617) 536-6602
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
Copies to:
Roslyn G. Daum, Esq.
Choate, Hall & Stewart
Exchange Place, 53 State Street
Boston, MA 02109
(617)248-5000
June 20, 1997
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
<PAGE>
SCHEDULE 13D
- ------------------------- ---------------------------
|CUSIP NO. 888896-10-7 | | Page 2 of 17 Pages |
| ----------- | | --- --- |
- ------------------------- ---------------------------
|--------|---------------------------------------------------------------------|
| 1 | NAME OF REPORTING PERSON |
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON |
| | |
| | HDZ Digital Limited Partnership |
|--------|---------------------------------------------------------------------|
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] |
| | (b) [X] |
|--------|---------------------------------------------------------------------|
| 3 | SEC USE ONLY |
| | |
|--------|---------------------------------------------------------------------|
| 4 | SOURCE OF FUNDS* |
| | 00 |
|--------|---------------------------------------------------------------------|
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |
| | PURSUANT TO ITEMS 2(d) OR 2(e) [ ] |
|--------|---------------------------------------------------------------------|
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION |
| | Delaware |
|--------|-----------------|--------|------------------------------------------|
| | 7 | SOLE VOTING POWER |
| | | 0 |
| NUMBER OF |--------| -----------------------------------------|
| SHARES | 8 | SHARED VOTING POWER |
| BENEFICIALLY | | 358,804 (See Item 5) |
| OWNED BY ----------------------------------------------------|
| EACH | 9 | SOLE DISPOSITIVE POWER |
| REPORTING | | 0 |
| PERSON ----------------------------------------------------|
| WITH | 10 | SHARED DISPOSITIVE POWER |
| | | 358,804 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON |
| | |
| | 358,804 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [X] |
| | SHARES* |
| | The reporting person disclaims beneficial ownership of the shares |
| | held by The Palladion Limited Partnership, Hollywood Digital, Inc., |
| | Halpern, Denny & Zook Limited Partnership II and Halpern Denny & |
| | Zook, Inc. |
|--------|---------------------------------------------------------------------|
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) |
| | 4.2% |
|--------|---------------------------------------------------------------------|
| 14 | TYPE OF REPORTING PERSON* |
| | PN |
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- ------------------------- ---------------------------
|CUSIP NO. 888896-10-7 | | Page 3 of 17 Pages |
| ----------- | | --- --- |
- ------------------------- ---------------------------
|--------|---------------------------------------------------------------------|
| 1 | NAME OF REPORTING PERSON |
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON |
| | |
| | The Palladion Limited Partnership |
|--------|---------------------------------------------------------------------|
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] |
| | (b) [X] |
|--------|---------------------------------------------------------------------|
| 3 | SEC USE ONLY |
| | |
|--------|---------------------------------------------------------------------|
| 4 | SOURCE OF FUNDS* |
| | 00 |
|--------|---------------------------------------------------------------------|
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |
| | PURSUANT TO ITEMS 2(d) OR 2(e) [ ] |
|--------|---------------------------------------------------------------------|
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION |
| | Delaware |
|--------|-----------------|--------|------------------------------------------|
| | 7 | SOLE VOTING POWER |
| | | 0 |
| NUMBER OF |--------| -----------------------------------------|
| SHARES | 8 | SHARED VOTING POWER |
| BENEFICIALLY | | 401,521 (See Item 5) |
| OWNED BY ----------------------------------------------------|
| EACH | 9 | SOLE DISPOSITIVE POWER |
| REPORTING | | 0 |
| PERSON ----------------------------------------------------|
| WITH | 10 | SHARED DISPOSITIVE POWER |
| | | 401,521 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON |
| | |
| | 401,521 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [X] |
| | SHARES* |
| | The reporting person disclaims beneficial ownership of the shares |
| | held by Hollywood Digital, Inc., HDZ Digital Limited Partnership, |
| | Halpern, Denny & Zook Limited Partnership II and Halpern Denny & |
| | Zook, Inc. |
|--------|---------------------------------------------------------------------|
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) |
| | 4.7% |
|--------|---------------------------------------------------------------------|
| 14 | TYPE OF REPORTING PERSON* |
| | PN |
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- ------------------------- ---------------------------
|CUSIP NO. 888896-10-7 | | Page 4 of 17 Pages |
| ----------- | | --- --- |
- ------------------------- ---------------------------
|--------|---------------------------------------------------------------------|
| 1 | NAME OF REPORTING PERSON |
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON |
| | |
| | Hollywood Digital, Inc. |
|--------|---------------------------------------------------------------------|
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] |
| | (b) [X] |
|--------|---------------------------------------------------------------------|
| 3 | SEC USE ONLY |
| | |
|--------|---------------------------------------------------------------------|
| 4 | SOURCE OF FUNDS* |
| | 00 |
|--------|---------------------------------------------------------------------|
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |
| | PURSUANT TO ITEMS 2(d) OR 2(e) [ ] |
|--------|---------------------------------------------------------------------|
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION |
| | Delaware |
|--------|-----------------|--------|------------------------------------------|
| | 7 | SOLE VOTING POWER |
| | | 0 |
| NUMBER OF |--------| -----------------------------------------|
| SHARES | 8 | SHARED VOTING POWER |
| BENEFICIALLY | | 9,128 |
| OWNED BY ----------------------------------------------------|
| EACH | 9 | SOLE DISPOSITIVE POWER |
| REPORTING | | 0 |
| PERSON ----------------------------------------------------|
| WITH | 10 | SHARED DISPOSITIVE POWER |
| | | 9,128 |
|--------|---------------------------------------------------------------------|
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON |
| | |
| | 9,128 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [X] |
| | SHARES* |
| | The reporting person disclaims beneficial ownership of the shares |
| | held by The Palladion Limited Partnership, HDZ Digital Limited |
| | Partnership, Halpern, Denny & Zook Limited Partnership II and |
| | Halpern Denny & Zook, Inc. |
|--------|---------------------------------------------------------------------|
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) |
| | .1% |
|--------|---------------------------------------------------------------------|
| 14 | TYPE OF REPORTING PERSON* |
| | CO |
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- ------------------------- ---------------------------
|CUSIP NO. 888896-10-7 | | Page 5 of 17 Pages |
| ----------- | | --- --- |
- ------------------------- ---------------------------
|--------|---------------------------------------------------------------------|
| 1 | NAME OF REPORTING PERSON |
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON |
| | |
| | Halpern, Denny & Zook Limited Partnership II |
|--------|---------------------------------------------------------------------|
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] |
| | (b) [X] |
|--------|---------------------------------------------------------------------|
| 3 | SEC USE ONLY |
| | |
|--------|---------------------------------------------------------------------|
| 4 | SOURCE OF FUNDS* |
| | 00 |
|--------|---------------------------------------------------------------------|
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |
| | PURSUANT TO ITEMS 2(d) OR 2(e) [ ] |
|--------|---------------------------------------------------------------------|
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION |
| | Delaware |
|--------|-----------------|--------|------------------------------------------|
| | 7 | SOLE VOTING POWER |
| | | 0 |
| NUMBER OF |--------| -----------------------------------------|
| SHARES | 8 | SHARED VOTING POWER |
| BENEFICIALLY | | 358,804 (See Item 5) |
| OWNED BY ----------------------------------------------------|
| EACH | 9 | SOLE DISPOSITIVE POWER |
| REPORTING | | 0 |
| PERSON ----------------------------------------------------|
| WITH | 10 | SHARED DISPOSITIVE POWER |
| | | 358,804 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON |
| | |
| | 358,804 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [X] |
| | SHARES* |
| | The reporting person disclaims beneficial ownership of the shares |
| | beneficially held by The Palladion Limited Partnership, Hollywood |
| | Digital, Inc. and Halpern, Denny & Zook, Inc. |
| | |
|--------|---------------------------------------------------------------------|
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) |
| | 4.2% |
|--------|---------------------------------------------------------------------|
| 14 | TYPE OF REPORTING PERSON* |
| | PN |
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
- ------------------------- ---------------------------
|CUSIP NO. 888896-10-7 | | Page 6 of 17 Pages |
| ----------- | | --- --- |
- ------------------------- ---------------------------
|--------|---------------------------------------------------------------------|
| 1 | NAME OF REPORTING PERSON |
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON |
| | |
| | Halpern, Denny & Zook, Inc. |
|--------|---------------------------------------------------------------------|
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] |
| | (b) [X] |
|--------|---------------------------------------------------------------------|
| 3 | SEC USE ONLY |
| | |
|--------|---------------------------------------------------------------------|
| 4 | SOURCE OF FUNDS* |
| | 00 |
|--------|---------------------------------------------------------------------|
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |
| | PURSUANT TO ITEMS 2(d) OR 2(e) [ ] |
|--------|---------------------------------------------------------------------|
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION |
| | Delaware |
|--------|-----------------|--------|------------------------------------------|
| | 7 | SOLE VOTING POWER |
| | | 0 |
| NUMBER OF |--------| -----------------------------------------|
| SHARES | 8 | SHARED VOTING POWER |
| BENEFICIALLY | | 760,325 (See Item 5) |
| OWNED BY ----------------------------------------------------|
| EACH | 9 | SOLE DISPOSITIVE POWER |
| REPORTING | | 0 |
| PERSON ----------------------------------------------------|
| WITH | 10 | SHARED DISPOSITIVE POWER |
| | | 760,325 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON |
| | |
| | 760,325 (See Item 5) |
|--------|---------------------------------------------------------------------|
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [X] |
| | SHARES* |
| | The reporting person disclaims beneficial ownership of the shares |
| | beneficially held by Hollywood Digital, Inc. |
| | |
| | |
|--------|---------------------------------------------------------------------|
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) |
| | 8.5% |
|--------|---------------------------------------------------------------------|
| 14 | TYPE OF REPORTING PERSON* |
| | CO |
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Schedule 13D Page 7 of 17 Pages
Item 1. Security and Issuer.
The class of equity securities to which this statement on Schedule 13D
relates is the Class A Common Stock, $.01 par value, of The Todd-AO Corporation
("Todd-AO"), a Delaware corporation with its principal executive offices located
at 900 N. Seward Street, Hollywood, California 90038.
Item 2. Identity and Background.
This Statement is being filed by HDZ Digital Limited Partnership, a
Delaware limited partnership, The Palladion Limited Partnership, a Delaware
limited partnership, Hollywood Digital, Inc., a Delaware corporation, Halpern,
Denny & Zook Limited Partnership II, a Delaware limited partnership, and
Halpern, Denny & Zook, Inc., a Delaware corporation. HDZ Digital Limited
Partnership, The Palladion Limited Partnership, Hollywood Digital, Inc. and
Halpern, Denny & Zook Limited Partnership II and Halpern, Denny & Zook, Inc. are
sometimes collectively referred to herein as the "Reporting Entities." Hollywood
Digital, Inc. is the general partner and The Palladion Limited Partnership and
HDZ Digital Limited Partnership are limited partners of Hollywood Digital
Limited Partnership ("HDLP"), a Delaware limited partnership. Halpern, Denny &
Zook Limited Partnership II is the general partner of HDZ Digital Limited
Partnership. Halpern, Denny & Zook, Inc. is the general partner of The Palladion
Limited Partnership and Halpern, Denny & Zook Limited Partnership II.
HDLP formerly was engaged in the video, audio and film post-production
business at a facility located in Hollywood, California. Pursuant to an
Agreement for the Purchase and Sale of Assets dated June 18, 1997 and which
closed on June 20, 1997 (the "Purchase Agreement"), Todd-AO acquired all or
substantially all of HDLP's assets. Each of the Reporting Entities is or will be
the recipient of shares of the Class A Common Stock of Todd-AO in connection
with the Purchase Agreement and certain Convertible Subordinated Notes of
Todd-AO issued in connection with the Purchase Agreement, as discussed more
fully in Item 3.
The principal offices of each of the Reporting Entities are located at
500 Boylston Street, Suite 1880, Boston, Massachusetts 02116.
The following table contains certain information for each entity
listed, including information regarding its executive officers, general partners
and directors. The following also contains certain information regarding each
partner who is a general partner of The Palladion Limited Partnership, HDZ
Digital Limited Partnership and Halpern, Denny & Zook Limited Partnership II,
and each person controlling such general partner. None of the Reporting
Entities, general partners referenced above or any of the persons listed below,
have, during the past 5 years, been convicted in a criminal proceeding
(excluding traffic violations or similar
<PAGE>
Schedule 13D Page 8 of 17 Pages
misdemeanors) or been a party during the last 5 years to a civil proceeding
before a judicial or administrative body of competent jurisdiction as a result
of which such person has been subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activity subject to, federal or
state security laws or finding any violation of such laws. Except as otherwise
noted, each of such persons is a United States citizen.
<TABLE>
<CAPTION>
Name and Business or Place of Organization Principal Business
Residence Address
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Hollywood Digital, Inc. Delaware General Partner of HDLP
c/o Halpern, Denny & Co., Inc.
500 Boylston Street, Suite 1880
Boston, MA 02116
- --------------------------------------------------------------------------------------------------------------------------
HDZ Digital Limited Partnership Delaware Limited Partner of HDLP
c/o Halpern, Denny & Co., Inc.
500 Boylston Street, Suite 1880
Boston, MA 02116
- --------------------------------------------------------------------------------------------------------------------------
Halpern, Denny & Zook Limited Delaware General Partner of HDZ Digital
Partnership II Limited Partnership
c/o Halpern, Denny & Co., Inc.
500 Boylston Street, Suite 1880
Boston, MA 02116
- --------------------------------------------------------------------------------------------------------------------------
The Palladion Limited Partnership Delaware Limited Partner of HDLP
c/o Halpern, Denny & Co., Inc.
500 Boylston Street, Suite 1880
Boston, MA 02116
- --------------------------------------------------------------------------------------------------------------------------
Halpern, Denny & Zook, Inc. Delaware General partner of Halpern,
c/o Halpern, Denny & Co., Inc. Denny & Zook Limited
500 Boylston Street, Suite 1880 Partnership II, general partner of
Boston, MA 02116 HDZ Digital Limited Partnership,
and general partner of The
Palladion Limited Partnership
- --------------------------------------------------------------------------------------------------------------------------
<PAGE>
Schedule 13D Page 9 of 17 Pages
Name and Business or Place of Organization Principal Business
Residence Address
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
John D. Halpern Shareholder, director and
c/o Halpern, Denny & Co., Inc. executive officer of Hollywood
500 Boylston Street, Suite 1880 Digital, Inc., general partner of
Boston, MA 02116 HDLP; shareholder, director and
executive officer of Halpern,
Denny & Zook, Inc., general
partner of Halpern, Denny & Zook
Limited Partnership II
and The Palladion Limited Partnership;
limited partner of Halpern, Denny &
Zook Limited Partnership II;
shareholder and director of Halpern,
Denny & Co., Inc.
- --------------------------------------------------------------------------------------------------------------------------
George P. Denny, III Shareholder (as trustee of The
c/o Halpern, Denny & Co., Inc. George P. Denny III Trust of
500 Boylston Street, Suite 1880 June 11, 1981 [the "Denny
Boston, MA 02116 Trust"]), director and executive
officer of Hollywood Digital, Inc.,
general partner of HDLP; shareholder (as
trustee of The Denny Trust), director
and executive officer of Halpern, Denny &
Zook, Inc., general partner of Halpern,
Denny & Zook Limited Partnership II and
The Palladion Limited Partnership;
limited partner (as Trustee of the Denny
Trust) of Halpern, Denny & Zook Limited
Partnership II; shareholder and director
of Halpern, Denny & Co., Inc.
- --------------------------------------------------------------------------------------------------------------------------
William J. LaPoint, Jr. Executive officer of Halpern,
c/o Halpern, Denny & Co., Inc. Denny & Zook, Inc.; limited
500 Boylston Street, Suite 1880 partner of Halpern, Denny & Zook Limited
Boston, MA 02116 Partnership II; shareholder and director
of Halpern, Denny & Co., Inc.
- --------------------------------------------------------------------------------------------------------------------------
<PAGE>
Schedule 13D Page 10 of 17 Pages
Name and Business or Place of Organization Principal Business
Residence Address
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
David P. Malm Executive officer of Halpern,
c/o Halpern, Denny & Co., Inc. Denny & Zook, Inc.; limited
500 Boylston Street, Suite 1880 partner of Halpern, Denny &
Boston, MA 02116 Zook Limited Partnership II;
shareholder and director of
Halpern, Denny & Co., Inc.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 3. Source and Amount of Funds or Other Consideration.
Todd-AO acquired all or substantially all of HDLP's assets through the
Purchase Agreement for the total price of thirty million four hundred thousand
dollars ($30,400,000), subject to reduction based on the Adjustment Factor
discussed below. As partial consideration for the acquisition of HDLP's assets,
Todd-AO issued (i) a Convertible Subordinated Note in the original principal
amount of $9,239,071 (the "First Note") to HDLP; and (ii) a Convertible
Subordinated Note in the maximum original principal amount of $3,400,000 (the
"Second Note") to an escrow holder. Section 2.2 of the Purchase Agreement
provides that the original principal amount of the Second Note is subject to
reduction based on an Adjustment Factor relating to Todd-AO's Operating Profit
(as defined in the Purchase Agreement) for the fiscal year ending June 30, 1997.
The actual amount of the Adjustment Factor, which shall be equal to six (6)
times the amount by which five million five hundred thousand dollars
($5,500,000) exceeds Todd-AO's Cash Flow From Operating Activities (as defined
in the Purchase Agreement), cannot be determined with certainty until Todd-AO
has received audited financial statements for the fiscal year ending June 30,
1997. At that time, the principal amount of the Second Note will be adjusted, if
necessary, and the Second Note will be released from escrow. A copy of the
Purchase Agreement is attached hereto as Exhibit A.
Solely for purposes of this statement on Schedule 13D, the Reporting
Entities have estimated, based primarily on information provided by the officers
of HDLP, that the Adjustment Factor will be $1,800,000, such that the principal
amount of the Second Note will be reduced to $1,600,000. The numbers of shares
of Class A Common Stock of Todd-AO of which each of the Reporting Entities has
been deemed to be the beneficial owner in this statement on Schedule 13D is
based in part on the estimate of the principal amount of the Second Note. In the
event that the actual Adjustment Factor is not $1,800,000, the number of shares
of Class A Common Stock in Todd-AO allocated to each of the Reporting Entities
herein may have to be adjusted.
<PAGE>
Schedule 13D Page 11 of 17 Pages
The principal amounts of the First Note and the Second Note have been
allocated to the Reporting Entities and the other partners of HDLP based on the
allocation provisions set forth in the Agreement of Limited Partnership of HDLP.
The Reporting Entities and such partners have requested that Todd-AO issue
separate convertible notes to each of HDLP's partners in exchange for the First
Note. The Reporting Entities anticipate that HDLP's partners will make a similar
request with respect to the Second Note once such note has been released from
escrow. The First Note, the Second Note and all convertible notes issued in
exchange therefor are collectively referred to herein as the "Todd Notes" and
all shares of Class A Common Stock of Todd-AO issuable upon conversion of the
Todd Notes are collectively referred to herein as the "Todd Shares."
Payment of the Todd Notes is subordinate to any Senior Indebtedness of
Todd-AO. Prior to maturity, each holder of the Todd Notes has the right to
convert the aggregate unpaid principal of such notes into fully paid and
non-assessable shares of Class A Common Stock of Todd-AO based on a conversion
price of eleven dollars and eighty-seven and one-half cents ($11.875) per share
(the "Conversion Price"). In addition, Todd-AO may require conversion of all of
the Todd Notes at the Conversion Price in the event that shares of its Class A
Common Stock obtain a price in excess of sixteen dollars ($16) per share for any
five (5) trading days within any period of fifteen (15) consecutive trading
days. Copies of the First Note and the Second Note are attached hereto as
Exhibit B and Exhibit C, respectively.
Item 4. Purpose of Transaction.
Todd-AO and HDLP each were engaged in businesses relating to video,
audio and film post-production work. Todd-AO and HDLP each deemed it advisable
and in the best interests of their respective shareholders and partners that
Todd-AO acquire HDLP's assets on the terms and conditions set forth in the
Purchase Agreement.
Pursuant to Section 9.2 of the Purchase Agreement, Todd-AO agreed that
its Board of Directors would act to elect David P. Malm as a director of Todd-AO
to serve until the next annual meeting of Todd-AO's shareholders. Todd-AO also
agreed that it would nominate Mr. Malm for re-election as a director at any
election of directors occurring before the earlier to occur of the third
anniversary of the closing of the Purchase Agreement and the date upon which the
partners of HDLP have disposed of more than 50% of the Todd Shares. As disclosed
in Item 2, Mr. Malm is an executive officer of Halpern, Denny & Zook, Inc. and a
limited partner of Halpern, Denny & Zook Limited Partnership II.
<PAGE>
Schedule 13D Page 12 of 17 Pages
The Todd Notes were issued by Todd-AO as partial consideration for the
acquisition of HDLP's assets. The shares of Class A Common Stock of Todd-AO of
which the Reporting Entities are deemed to be the beneficial owners were
acquired for investment purposes only. Except as described herein, neither the
Reporting Entities nor, to the best of their knowledge, any person listed in
Item 2, has any present plans or proposals which would result in or relate to
any of the transactions described in subparagraph (a) through (g) as Item 4 of
Schedule 13D
Item 5. Interest in Securities of the Issuer.
(a) Under Rule 13D-3(d) of the Securities Exchange Act 1934, each of
the Reporting Entities is deemed to own beneficially the shares of Class A
Common Stock of Todd-AO issuable upon conversion of the Todd Notes held by it
and an entity of which a Reporting Entity is a general partner. The aggregate
unpaid principal of the Todd Notes may be converted by the holders of such notes
at any time based on the conversion price of eleven dollars and eighty-seven and
one-half cents ($11.875) per share. In addition, as noted above, in certain
circumstances Todd-AO has the right to require conversion of all of the Todd
Notes.
Solely for purposes of this statement on Schedule 13D, the principal of
the Second Note has been estimated at $1,600,000. See Item 3, above. Assuming
full conversion of the Todd Notes using the estimated amount of the Second Note
and the actual principal amount of the First Note, the following table sets
forth the beneficial ownership of each of the Reporting Entities, each general
partner to such of the Reporting Entities that is a partnership and each person
controlling such partner, and for each of the Reporting Entities that is a
corporation, the shareholders of such corporation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Amount of Beneficial Percentage of Class A Percentage of Voting
Ownership(1) Common Stock(2) Power(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hollywood Digital, Inc. 9,128 .11% Less than .1%
- --------------------------------------------------------------------------------------------------------------------
HDZ Digital Limited 358,804 4.2% 1.3%
Partnership
- --------------------------------------------------------------------------------------------------------------------
Halpern, Denny & Zook 358,804 4.2% 1.3%
Limited Partnership II
- --------------------------------------------------------------------------------------------------------------------
<PAGE>
Schedule 13D Page 13 of 17 Pages
- --------------------------------------------------------------------------------------------------------------------
The Palladion Limited 401,521 4.7% 1.5%
Partnership
- --------------------------------------------------------------------------------------------------------------------
Halpern, Denny & Zook, Inc. 760,325 8.5% 2.9%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All shares reflected are shares of Class A Common Stock of Todd-AO. As
set forth in Todd-AO's report of Form 10-Q for the period ending
February 28, 1997, there were 8,223,654 shares of Class A Common Stock
on April 8, 1997. Halpern, Denny & Zook, Inc., as the general partner
of The Palladion Limited Partnership and as the general partner of
Halpern, Denny & Zook Limited Partnership II, the general partner of
HDZ Digital Limited Partnership, is deemed to be the beneficial owner
of the shares of Class A Common Stock beneficially owned by The
Palladion Limited Partnership and HDZ Digital Limited Partnership and
to have shared voting and investment power with respect to such shares.
(2) The stated percentage reflects the combined power of all classes of
Common Stock to vote for directors. Class A Common Stock has one vote
per share for all matters. Todd-AO's Class B Common Stock has ten votes
per share on all matters.
None of the Reporting Entities nor, to any of their knowledge, any
person listed in Item 2, beneficially owns or has the right to dispose, directly
or indirectly, any Common Stock of Todd-AO except pursuant to the conversion of
the Todd Shares, as described herein.
(b) See footnotes 1 and 2 to Item 5(a) above.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
HDZ Digital Limited Partnership and The Palladion Limited Partnership
are among the limited partners of HDLP. Halpern, Denny & Zook, Inc. serves as
both the general partner of The Palladion Limited Partnership and the general
partner of Halpern, Denny & Zook Limited Partnership II, which is the general
partner of HDZ Digital Limited Partnership.
<PAGE>
Schedule 13D Page 14 of 17 Pages
John D. Halpern and George P. Denny III are shareholders, directors and
executive officers of Hollywood Digital, Inc., the general partner of HDLP. In
addition, Mr. Halpern and Mr. Denny are shareholders, directors and executive
officers of Halpern, Denny & Zook, Inc. which, as noted above, is the general
partner of The Palladion Limited Partnership and Halpern, Denny & Zook Limited
Partnership II. William J. LaPoint, Jr. and David P. Malm are executive officers
of Halpern, Denny & Zook, Inc. Each of Messrs. Halpern, Denny, LaPoint and Malm
limited partners of Halpern, Denny & Zook Limited Partnership II.
Purchase Agreement: Pursuant to Section 13 of the Purchase Agreement,
the Todd Notes and the Todd Shares are subject to the right of first purchase of
Todd-AO. Under the right of first purchase, each time a party proposes to
transfer, assign or sell all or any part of the Todd Notes or the Todd Shares,
such party (the "Offeror") shall first offer the Todd Notes or the Todd Shares
to Todd-AO. The Offeror is required to deliver written notice to Todd-AO
stating, among other things, the Offeror's intention to transfer the notes or
shares and the purchase price for which the Offeror proposed to effect such
transfer. Within seven (7) days after receipt of such notice from the Offeror,
Todd-AO must notify the Offeror in writing of its desire to purchase all or any
portion of the notes or shares being transferred. If Todd-AO elects not to
purchase all of the Todd Notes or Todd Shares, then the Offeror may transfer the
notes or shares with respect to which Todd-AO had elected not to exercise its
right of first purchase. A copy of the Purchase Agreement is filed herewith as
Exhibit A and is incorporated herein in its entirety.
Registration Right Agreement: Neither the Todd Notes nor the shares of
Class A Common Stock of Todd-AO to be issued upon the conversion thereof are
registered securities with the meaning of the Securities Act of 1933, as amended
(the "Act"). Pursuant to Section 2.1 of the Purchase Agreement, Todd-AO has
assumed an obligation to register the Todd Shares under the Act, as set forth in
a Registration Rights Agreement, entered into on June 18 , 1997 by Todd-AO,
HDLP, Hollywood Digital, Inc., HDZ Digital Limited Partnership, The Palladion
Limited Partnership, Phemus Corporation, Rand Gladden, William Romeo, David
Cottrell and Michael Jackson (the "Registration Right Agreement"). A copy of the
Registration Rights Agreement is filed herewith as Exhibit D and is incorporated
herein in its entirety.
From and after the date which is one year after the date upon which at
least 50% of the principal amount of the Todd Notes has been converted into Todd
Shares, the holders of such shares may request that Todd-AO register all or part
of the Todd Shares under the Act. In the event that Todd-AO receives such a
request, it is
<PAGE>
Schedule 13D Page 15 of 17 Pages
to use its best efforts to effect the registration of the subject shares under
the Act.
Item 7. Material to be filed as Exhibits.
Attached to this statement and filed with this statement as exhibits
are the following documents:
Exhibit 1: Agreement for the Purchase and Sale of Assets,
---------- dated June 18, 1997 between The Todd-AO
Corporation, Todd-AO HD, Inc. and Hollywood
Digital Limited Partnership and Its Partners.
Exhibit 2: The Todd-AO Corporation Convertible
---------- Subordinated Note in the principal amount of
$9,239,071.00.
Exhibit 3: The Todd-AO Corporation Convertible
---------- Subordinated Note in the principal amount of
$3,400,000.
Exhibit 4: Registration Rights Agreement, entered into on
---------- June 18, 1997 by Todd-AO, HDLP, Hollywood
Digital, Inc., HDZ Digital Limited Partnership,
The Palladion Limited Partnership, Phemus
Corporation, Rand Gladden, William Romeo, David
Cottrell and Michael Jackson
The foregoing descriptions of these Exhibits are qualified in their
entirety by reference to the Exhibits themselves.
<PAGE>
Schedule 13D Page 16 of 17 Pages
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 30, 1997
HDZ DIGITAL LIMITED PARTNERSHIP
By: Halpern, Denny and Zook Limited
Partnership II
By: Halpern, Denny and Zook, Inc.,
Its general partner
By: /s/ John D. Halpern
--------------------------------------
Its:
--------------------------------------
THE PALLADION LIMITED PARTNERSHIP
By: Halpern, Denny and Zook, Inc., Its
general partner
By: /s/ John D. Halpern
--------------------------------------
Its:
--------------------------------------
HOLLYWOOD DIGITAL, INC.
By: /s/ John D. Halpern
--------------------------------------
Its:
--------------------------------------
<PAGE>
Schedule 13D Page 17 of 17 Pages
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 30, 1997
HALPERN, DENNY & ZOOK LIMITED
PARTNERSHIP II
By: Halpern, Denny and Zook, Inc.,
Its general partner
By: /s/ John D. Halpern
-----------------------------------
Its:
----------------------------------
HALPERN, DENNY AND ZOOK, INC.
By: /s/ John D. Halpern
-----------------------------------
Its:
----------------------------------
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
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
20. Confidentiality................................................................................. 38
21. Termination..................................................................................... 39
22. Miscellaneous................................................................................... 40
</TABLE>
i
<PAGE>
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."
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.
1
<PAGE>
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;
(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;
2
<PAGE>
(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."
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
3
<PAGE>
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");
(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
4
<PAGE>
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 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
5
<PAGE>
Closing and of the Assets determined on a stand-alone basis for the 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, 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
6
<PAGE>
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
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
7
<PAGE>
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
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
8
<PAGE>
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 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
9
<PAGE>
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, 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
10
<PAGE>
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 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
11
<PAGE>
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 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
12
<PAGE>
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.
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.
13
<PAGE>
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 (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.
14
<PAGE>
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 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,
15
<PAGE>
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.
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
16
<PAGE>
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 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
17
<PAGE>
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, 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
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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 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.
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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 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.
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<PAGE>
5.8. The Seller shall have delivered to THD assignment
agreements in the form of Exhibits "E", "F" and "G" attached hereto 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.
5.14. The Seller, the HD-Related Partners and Phemus shall
have delivered to the Purchaser its or his respective
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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 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
22
<PAGE>
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.
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.
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<PAGE>
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 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
24
<PAGE>
account of any and all claims, demands or charges with respect to the same.
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 issued to them upon
conversion of their interests in the Todd
25
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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.
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.
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<PAGE>
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, 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
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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 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,
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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:
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
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<PAGE>
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, 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.
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
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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;
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;
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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;
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
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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.
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.
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
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<PAGE>
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.
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
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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.
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
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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 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
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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 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
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<PAGE>
the Closing shall be extended during the period that a procedure to 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:
<TABLE>
<S> <C>
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
Boston, Massachusetts 02116
Attention: David P. Malm
FAX: (617) 536-8535
40
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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
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
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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
</TABLE>
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.
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.
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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.
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,
43
<PAGE>
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 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: /s/ Salah Hassanein
------------------------------
Its:
------------------------------
TODD-AO HD, INC.
By: /s/ Salah Hassanein
------------------------------
Its:
------------------------------
44
<PAGE>
"Seller"
HOLLYWOOD DIGITAL LIMITED
PARTNERSHIP
By: HOLLYWOOD DIGITAL, INC., Its
General Partner
By: /s/ David M. Malm
-------------------------
Its:
-------------------------
"Partners"
HOLLYWOOD DIGITAL, INC.
By: /s/ David M. Malm
------------------------------
Its:
------------------------------
THE PALLADION LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK, INC.,
Its general partner
By: /s/ David M. Malm
-------------------------
Its:
-------------------------
HDZ DIGITAL LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK LIMITED
PARTNERSHIP II
By: HALPERN, DENNY AND ZOOK,
INC., Its general partner
By: /s/ David M. Malm
--------------------
Its:
--------------------
PHEMUS CORPORATION
By: /s/ Michael Thonis
------------------------------
Its:
------------------------------
By: /s/ Timothy R. Palmer
------------------------------
Its:
------------------------------
45
<PAGE>
/s/ Rand Gladden
------------------------------
Rand Gladden
/s/ William Romeo
------------------------------
William Romeo
/s/ David Cottrell
------------------------------
David Cottrell
/s/ Michael Jackson
------------------------------
Michael Jackson
46
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 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
1
<PAGE>
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.
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
2
<PAGE>
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 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
3
<PAGE>
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.
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
4
<PAGE>
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 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.
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
5
<PAGE>
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.
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
6
<PAGE>
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 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
7
<PAGE>
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 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
8
<PAGE>
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.
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
9
<PAGE>
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 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 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
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<PAGE>
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 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
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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.
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
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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 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
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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 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
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appointing a receiver, liquidator, assignee, trustee, sequestrator (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
(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
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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 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
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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 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.
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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
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:
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(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 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.
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8.5 Senior Indebtedness Consent. Notwithstanding anything in this Note
to the contrary, this Note may not be modified, amended 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.
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
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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 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: June 20, 1997
THE TODD-AO CORPORATION
By: /s/ Salah R. Hassanein
---------------------------
President
By: /s/ Silas R. Cross
---------------------------
Secretary
21
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
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
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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.
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
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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 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
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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.
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
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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 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.
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
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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.
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
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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 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
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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 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
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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.
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
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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 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 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
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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 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
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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.
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
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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 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
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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 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
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appointing a receiver, liquidator, assignee, trustee, sequestrator (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
(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
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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 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
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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 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.
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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
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:
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(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 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.
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8.5 Senior Indebtedness Consent. Notwithstanding anything in this Note
to the contrary, this Note may not be modified, amended 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.
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
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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 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: June 20, 1997
THE TODD-AO CORPORATION
By: /s/ Salah Hassanein
------------------------------
President
By: /s/ Silas R. Cross
------------------------------
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 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.
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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.
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
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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 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
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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 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
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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 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 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
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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 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
7
<PAGE>
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: /s/ Salah Hassanein
------------------------------------
Its:
------------------------------------
"Partnership"
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
By: HOLLYWOOD DIGITAL, INC., Its
General Partner
By: /s/ David P. Malm
-------------------------------
Its:
-------------------------------
"Partners"
HOLLYWOOD DIGITAL, INC.
By: /s/ David P. Malm
------------------------------------
Its:
------------------------------------
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<PAGE>
THE PALLADION LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK, INC.,
Its general partner
By: /s/ David P. Malm
-------------------------------
Its:
-------------------------------
HDZ DIGITAL LIMITED PARTNERSHIP
By: HALPERN, DENNY AND ZOOK LIMITED
PARTNERSHIP II
By: HALPERN, DENNY AND ZOOK,
INC., Its general partner
By: /s/ David P. Malm
--------------------------
Its:
--------------------------
PHEMUS CORPORATION
By: /s/ Michael Thonis
-----------------------------------
Its:
-----------------------------------
By: /s/ Timothy R. Palmer
-----------------------------------
Its:
-----------------------------------
/s/ Rand Galdden
----------------------------------------
Rand Gladden
/s/ William Romeo
----------------------------------------
William Romeo
/s/ David Cottrell
----------------------------------------
David Cottrell
/s/ Michael Jackson
----------------------------------------
Michael Jackson
9
