UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[ X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-12193
AFFINITY ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2473403
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
15310 Amberly Drive, Suite 370, Tampa, Florida 33647
(Address of principal executive offices) (Zip Code)
(813) 975-8180
(Registrant's telephone number, including area code)
AFFINITY TELEPRODUCTIONS, INC.
15436 North Florida Avenue, Suite 103, Tampa, Florida 33613
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X . No .
--- --
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The issuer's revenues for its most recent fiscal year were $2.1 million.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 30, 1996 was $48,424,644.50.
Registrant has 8,284,217 shares of Common Stock outstanding as of December
31, 1996.
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
Form 10-KSB Annual Report
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1 DESCRIPTION OF BUSINESS.................................... 3
Item 2 DESCRIPTION OF PROPERTY.................................... 7
Item 3 LEGAL PROCEEDINGS.......................................... 7
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 8
PART II
Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS................................................... 9
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS....................... 10
Item 7 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA...................................................... 15
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 32
PART III
Item 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 32
Item 10 EXECUTIVE COMPENSATION..................................... 33
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 34
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 35
PART IV
Item 13 EXHIBITS AND REPORTS ON FORM 8-K........................... 36
<PAGE>
PART I
ITEM I. DESCRIPTION OF BUSINESS
Affinity Entertainment, Inc. (the "Company") is a Delaware corporation
which commenced its operations in the teleproduction and motion picture business
under its current management in 1994. Affinity's initial broadcast media
products were short feature television programs about destination resorts and
collectibles which were aired primarily on pay-per-view and cable television.
The Company, since its beginnings in 1994, has significantly broadened its
business operations to include the production of feature films and television
programs, the editing of movies and television products, distribution of
broadcast media properties world wide and investment in broadcast media
properties which management believes have commercial value.
Business Activities
The Company is engaged in the production and distribution of feature
films, television programming, documentaries, commercials and videos for the
home and industrial markets in the United States and internationally. The
Company performs post-production editing services for programming produced
internally by the Company and externally by outside parties through its
wholly-owned subsidiary, Broadcast Edit, Inc. The Company owns "Bounty Hunters"
and distributes this television series to the U.S. television syndication
marketplace through its Tradewinds Television, Inc. subsidiary. Additionally,
the Company currently participates in the distribution of entertainment products
to the foreign marketplace, as well as to domestic cable television and
pay-per-view, through Century, a 76% owned subsidiary. The Company also
participates in strategic partnerships in which the Company provides financing
and its expertise to projects of other companies in return for a percentage of
the revenues generated by the project.
The Company plans to intensify its efforts on the feature film portion
of its business. The Company has named William J. Macdonald as President of
Affinity Entertainment Group, Inc., a wholly-owned subsidiary formed to manage
the Company's feature film production business. Mr. Macdonald is currently
producing several outside feature films: "The Saint", starring Val Kilmer and
Elizabeth Shue at Paramount Pictures and "Lucky Strike", directed by Ridley
Scott and "Air Reno" for Hollywood Pictures, an action-adventure about flying
daredevils. He held the position of Vice President of Business Affairs for Siren
Pictures before becoming President/Partner of The Robert Evans Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
Foster, "Buster" starring Phil Collins and "The Two Jakes" starring Jack
Nicholson and Harvey Keitel. He is also credited as Co-Producer on "Sliver" and
Executive Producer on
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"Jade".
The Company has completed production of its first motion picture
entitled "Men Seeking Women," which was co-produced with MPH Entertainment,
Inc.("MPH"). Delivery of the final cut and promotional trailer is expected
January 20, 1997. The Company has paid for the picture in full and owns a 50%
interest in gross revenues with the remaining 50% owned by MPH. Pursuant to its
agreement with MPH, the Company is to recoup its investment in the film prior to
the payment of any deferred compensation or the distribution of profits.
The Company also owns the rights to several feature film screenplays
including "Lucifer in Cameo" written by Philip J. Lasker, purchased from Kazmark
Entertainment, Inc., and "Elvis and Leon" written by Dick Christie and Joe
Lerer, purchased from Paramount Pictures. The Company may finance and produce
these projects internally or elect to package them and sell its rights in these
projects to other production companies or motion picture studios depending on
the Company's financial condition and banking relationships.
The Company is also co-producing "Looking Beyond," a television series
about the paranormal, with First Television which is owned and operated by Mac
and Bradley Anderson ("Sightings," "Encounters," "The PSI Factor," and "Alien
Autopsy"). The show will be hosted by Linda Bonell. The Company is introducing
the show through its subsidiary, Tradewinds Television, Inc., at the National
Association of Television Program Executives (NAPTE) in January 1997. The show
is expected to air in domestic syndication beginning in the fall of 1997.
The Company is developing a made for television movie based in Monaco.
Jorge Zamacona, (Millennium and Homicide) has agreed to act as Executive
Producer. Funding for the development is being negotiated at the present time.
On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distribution film and television products to worldwide markets.
Under the terms of the Stock Acquisition Agreement between the parties, the
Company purchased 37,500,000 Units of Century for $0.08 per unit. Each Unit
consists of one (1) share of Century Common Stock at $.0001 par value ("Century
Common Stock") and one (1) Common Stock purchase warrant to purchase one (1)
share of Century Common Stock at $2.00 per share ( the "Warrants"). The Units
are immediately separable into their component parts. In consideration for the
transfer of the Units, the Company paid Three Million Dollars ($3,000,000) to
Century consisting of (i) the conversion to equity of Four Hundred Thousand
Dollars ($400,000) cash previously advanced by the Company to Century, (ii) Two
Hundred Thousand Dollars ($200,000) cash, and (iii) a negotiable one-year
promissory note payable by the Company to Century in the amount of Two Million
Four Hundred Thousand Dollars ($2,400,000)(the "Promissory Note") which is
secured by the Company's stock.
The Promissory Note bears interest at a rate of eight percent (8%) per
annum and is secured by two (2) shares of Series D Preferred Stock of the
Company, par value $1.00 (the "Series D Preferred Stock"). Each share of Series
D Preferred Stock shall be convertible into 750,000 shares of the Company's
Common Stock convertible only in the event of default by the Company on the
Promissory Note. The Series D Preferred Stock is not entitled to any voting or
dividend rights of any kind. Notwithstanding the foregoing, the Company shall
have the right to provide such substitute collateral as the Company and Century
may mutually agree upon in writing. The Series D Preferred Stock will be held in
escrow by Century's counsel (the "Escrow Agent") until such time as the
Promissory Note is paid in full or substitute collateral is provided by the
Company. The Company believes that the acquisition of Century will enable the
Company to implement its business plan of becoming heavily vested in the U.S.
and foreign distribution of both feature films and television programming.
On September 13, 1996, the Company and Tradewinds Television, LLC, a
California Limited Liability
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Company ("Tradewinds"), entered into an Interim Financing and Security Agreement
(the "Security Agreement") pursuant to which Tradewinds granted the Company, as
security for the repayment by Tradewinds of certain loans to be made by the
Company, a first priority lien on substantially all of Tradewinds' assets (the
"Assets"). The Assets include accounts receivable, the name and mark "Tradewinds
Television," the rights to the syndicated television series "Bounty Hunters" and
distribution rights to certain other television products. As of November 19,
1996, the Company loaned Tradewinds an aggregate of approximately $823,000 (the
"Loans") pursuant to the Security Agreement. Concurrently, with the execution of
the Security Agreement, the Company and Tradewinds engaged in negotiations
pursuant to which the Company would purchase substantially all of the Assets.
The parties entered into an Asset Purchase Agreement, dated October 3, 1996, as
amended, to provide for such acquisition. The sale of the assets was contingent
upon the satisfactory resolution by Tradewinds of various bankruptcy issues
concerning other companies affiliated with Royeric Pack, the owner of
Tradewinds.
On November 14, 1996, the Company filed a complaint in Los Angeles
Superior Court asserting that Tradewinds had defaulted under the Loans and the
Security Agreement, and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996, Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables associated therewith, in consideration of Affinity forgiving
the indebtedness evidenced by the Loans. Such indebtedness, including interest
and related costs and expenses, was approximately $1,000,000. Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing executive producing services in connection with the "Bounty Hunter"
series. Pursuant to such agreement, Mr. Pack received a $75,000 payment on
December 6, 1996 for the first production season, and is entitled in the second
production season to a fee of $3,000 per episode, payable upon airing of each
such episode.
On December 17, 1996, the Company agreed with the Trustee of Action
Media Group, Inc., a company affiliated with Mr. Pack and which is the subject
of a bankruptcy court proceeding ("AMG"), to pay $275,000 to the Trustee of AMG,
and to secure in exchange a release of certain claims by the Trustee and AMG
against Tradewinds and the Company with regard to indebtedness owed by
Tradewinds to AMG and the assignment of Assets by Tradewinds to the Company in
lieu of foreclosure, as described above. On December 18, 1996, the Court having
jurisdiction over the AMG bankruptcy proceeding approved the $275,000 payment
and release among AMG, Tradewinds and the Company.
Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.
In October 1996, the Company reached an agreement in principal with a
European entity in which the entity has agreed to lend $48.4 million to the
Company. The loan will bear interest at a rate of 9% per annum over a five year
period. The Company will pledge as collateral for the loan one hundred (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common Stock of the Company under certain
conditions of repayment of the loan, but in no instance at a price less than
$10.00 per common share. Upon conversion of the Series C Preferred Stock to
Common Stock, the holder of the Series C Preferred Stock shall also receive an
additional number of shares equal to 10% of the number of shares as calculated
above. In no event is greater than 40% of the outstanding principal of the loan
to be converted to equity in any twelve (12) month period. Any common shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold, transferred or assigned in the absence of an effective registration
statement under the Securities Act of 1933, as amended, or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the insurance company may require amendments to the terms of
the transactions prior to the issuance of the loan, but that it expects the
insurance guarantee to be issued in January 1997. However, there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
Broadcast Edit is a video production and post-production company. It
provides a full range of services
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including film editing and producing videos for such related industries located
primarily in California. The facilities of Broadcast Edit include a full-service
television production facility with two editing bays, studios and offices.
Broadcast Edit also provides directing and editing services to producers of
television programming including music videos, corporate productions,
advertising and sports programs. Clients have included: Geffen Records, Island
Records, Elecktra Records, ABC, NBC, ESPN and Disney.
The Company owns 79% of a series entitled "EdenQuest". Each one-hour
special transports the viewer to an exotic location with a marquee hostess and
six international swimsuit models, as they explore paradise. The first episode
starred Pamela Anderson of Baywatch fame. The show was shot on location in Bora
Bora in French Polynesia. The second episode was filmed at Paradise Island,
Bahamas and starred Anna Nicole Smith. The third episode was filmed in Maui,
Hawaii and starred Sandra Taylor. The Company has also produced a fourth episode
which is a compilation or "best of" episode. The Company derives "EdenQuest"
revenues from domestic syndication, pay-per-view, foreign markets, home video
and merchandising.
In March 1995, the Company entered into an agreement to form a
strategic alliance with Sid and Marty Krofft Productions, Inc. ("Krofft") for
possible development of "Land of the Lost", one of their flagship series, into a
theatrical film by Disney, a home video series and two children's series for
major television networks. The Company has contributed $500,000 towards this
limited partnership. Subsequent to signing this agreement, Disney signed an
agreement to option the rights to create a theatrical release of "Land of the
Lost", that is currently in the development stage. The Company does not expect
any revenues from the Disney movie unless or until Disney exercises the option
and proceeds to produce the film. The Company does not expect to derive any
significant revenues in fiscal year 1997. It is the Company's position that the
Company's $500,000 investment is collateralized by Krofft's children's home
video library. The Company has established a reserve of $250,000 for this
investment.
On July 26, 1995, the Company entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17, 1996, the Company
terminated the letter of intent. The Company had advanced $600,000 to Krofft in
contemplation of the merger. As of September 30, 1996, the Company has
established a reserve for the entire $600,000.
On December 9, 1996, the Company filed suit against Krofft to recover
these advances. The suit, filed in the United States District Court Central
District of California against Krofft Entertainment et al., alleged breach of
contract, fraud and money due and owing with regard to the above mentioned
transactions. The case is in its preliminary stage and no outcome can be
predicted at this time.
All of the Company's products and projects can be sold or licensed for
exhibition on domestic and international cable and broadcast television
networks. Company personnel, supplemented by commissioned agents, execute the
sales and marketing activities in the domestic market, and representation in
international markets is accomplished through the use of commissioned sales
agents.
Competition
Competition in the feature film, television production and the foreign
and domestic distribution industries for air time, talent, viewership and
product is intense. Competitors of the Company include established television
and film production companies, television syndicators and international
distributors many of which have significantly greater financial resources than
the Company. Accordingly, the Company is considered to be one of the smaller
entities in a highly competitive market. However, the profits of an enterprise
involved in the feature film and television industry are greatly dependent upon
the audience appeal of each creative product, relative to the cost of the
product's purchase, development, production and distribution. Audience appeal
depends upon factors which cannot be reliably ascertained in advance and over
which the Company and its competitors have little or no control, such as
unpredictable critical reviews and changing
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public tastes. The Company believes that the diversity of audience appeal
provides the Company with an opportunity to improve its competitive position in
the industry.
Government approval is not required for the production of the Company's
products nor the rendering of services. The Company is not dependent upon any
one or a group of customers. Approximately fifteen persons are employed by the
Company, and free lance persons are engaged as needed.
CBNI Development Company, Inc. ("CBNI"), formerly Computerized Buying
Network, Inc., was incorporated in the State of Delaware on February 4, 1983. On
February 23, 1994, CBNI acquired 100% of all the issued and outstanding common
stock of Affinity Teleproductions, Inc., a Florida corporation, in a transaction
qualifying as a tax-free reorganization and changed its name to Affinity
Teleproductions, Inc. now Affinity Entertainment, Inc. CBNI was engaged in a
shopping service business until May 28, 1992, at which time it ceased operations
with no business assets. On May 30, 1996, the Company changed its name to
Affinity Entertainment, Inc.
On August 31, 1994, the Company acquired Broadcast Edit, Inc.
("Broadcast Edit"), a California corporation organized on January 30, 1992, for
50,000 of its restricted common shares in a transaction accounted for as a
pooling of interests. Broadcast Edit is in the video production and
post-production business.
On April 4, 1995, the Company formed a new wholly-owned subsidiary,
Affinity Entertainment Group, Inc., to manage the Company's feature film
production business.
On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distributing film and television products to worldwide markets.
On December 9, 1996, the Company formed a new wholly-owned subsidiary,
Tradewinds Television, Inc., for the purposes of operating a domestic television
syndication company. The Company transferred the assets of Tradewinds
Television, LLC to this new subsidiary.
ITEM II. DESCRIPTION OF PROPERTY
The Company's corporate and administrative offices are located at 15310
Amberly Drive, Suite 370, Tampa, Florida 33647. The Company's subsidiary,
Broadcast Edit, Inc., is located at 10482 Noel Street, Suite 101, Los Alimitos,
California 90720. The Company's subsidiary, Affinity Entertainment Group, Inc.,
is located at 2828 Donald Douglas Loop North, 2nd floor, Santa Monica,
California 90405. The Company's subsidiary, Tradewinds Television, Inc., is
located at 5855 Topanga Canyon Boulevard, Suite 420, Woodland Hills, California
91367. All locations of the Company are leased.
The Company is currently considering consolidating all of its
California operations in one facility. The Company anticipates no future
problems in renewing or obtaining suitable leases for its principal properties.
ITEM III. LEGAL PROCEEDINGS
Access America, Inc.
On April 16, 1996, the Company exercised its express and absolute right
to rescind the Agreement of Sale dated May 8, 1993 (the "Agreement") between
Thoro-Cap, Inc., now Affinity Entertainment, Inc. (the "Company"), and Access
America, Inc., by reversing the previously recorded prepaid broadcast air time
for approximately $4.8 million and canceled the 100,000 shares of Convertible
Preferred Stock issued in connection with this Agreement.
Access America filed suit in Delaware Chancery Court on October 2, 1996
requesting the issuance of 100,000 shares of preferred stock and conversion of
these preferred shares into $5,000,000 worth of common stock of the Company up
to a maximum of 9% of the outstanding common stock of the Company. On January 7,
1997, the Court granted the Company's motion to dismiss the complaint of Access
America on procedural grounds. On January 8, 1997, Access America filed a notice
of appeal to the Delaware Supreme Court. Although the Company believes that it
will ultimately prevail in this matter, there can be no assurance that this will
be the case or that a material adverse effect will not result.
Lehman Brothers International
Pursuant to the Offshore Securities Subscription Agreement dated
January 24, 1996 (the "Agreement"), on February 23, 1996, the Company sold one
million (1,000,000) shares of Common Stock of the Company at $5.00 per share
(the "Shares") to Philmont A.V.V. ("Philmont"). By agreement of the parties, the
Shares are subject to a "stop transfer" order and may not be transferred for a
period of twelve months from the closing of the transaction without the express
written consent of the Company.
As a condition of the first transaction, pursuant to the Offshore
Securities Deferred Subscription Agreement dated January 24, 1996 (the "Deferred
Agreement"), on February 23, 1996, the Company sold an additional one million
(1,000,000) shares of the Common Stock of the Company at $5.00 per share to
Philmont (the "Deferred Shares"). The Deferred Shares were paid for with a
promissory note for $5 million at an interest rate of 10% per annum. Unless the
Promissory Note described above is paid in full, no rights to cash or property
distributions, dividends, interest paid by coupon or otherwise, distribution of
certificates, warrants, rights, stocks or cash representing subdivision,
combination, reclassification, merger, buy-out, acquisition,
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redemption, exchange, or any such other corporate or government action
pertaining to or involving the ownership rights of the Deferred Shares. The
Promissory Note may not be prepaid, in whole or in part, in advance. Upon the
expiration of the term of the Promissory Note, the Company shall in its sole
discretion, have the option to acquire the shares subscribed herein by Philmont
in exchange for the full cancellation of the Promissory Note. By agreement of
the parties, the Deferred Shares are subject to a "stop transfer" order and may
not be transferred for a period of twelve months from the closing of the
transaction without the express written consent of the Company.
Since June 5, 1996, Philmont is in default of its interest payments to
the Company. Despite numerous written demands, Philmont failed to cure the
default. Therefore, on June 21, 1996, the Company exercised its express right
under the Deferred Agreement and demanded return of the Deferred Shares for
retirement to treasury within 72 hours of receipt of the demand. Philmont has
failed to return the shares to the Company.
Lehman Brothers International ("Lehman") has obtained possession of the
Shares and Deferred Shares. On November 27, 1996, Lehman filed a complaint in
Delaware Chancery Court seeking to compel the Company to register the 2,000,000
shares (including the Deferred Shares) in the name of Lehman free of
restriction. The Company believes that Lehman, if entitled to the Philmont
Shares, must take such shares subject to all restrictions agreed to by Philmont.
The Company plans to vigorously contest the complaint. However, if successful,
the lawsuit could have a material adverse effect on the Company. The case is in
a preliminary stage and no outcome can be predicted at this time.
Sid and Marty Krofft Productions, Inc.
In March 1995, the Company entered into an agreement to form a
strategic alliance with Sid and Marty Krofft Productions, Inc. ("Krofft") for
possible development of "Land of the Lost", one of their flagship series, into a
theatrical film by Disney, a home video series and two children's series for
major television networks. The Company has contributed $500,000 towards this
limited partnership. Subsequent to signing this agreement, Disney signed an
agreement to option the rights to create a theatrical release of "Land of the
Lost", that is currently in the development stage. The Company does not expect
any revenues from the Disney movie unless or until Disney exercises the option
and proceeds to produce the film. The Company does not expect to derive any
significant revenues in fiscal year 1997. It is the Company's position that the
Company's $500,000 investment is collateralized by Krofft's children's home
video library. The Company has established a reserve of uncollectiblity of
$250,000 for this investment.
On July 26, 1995, the Company entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17, 1996, the Company
terminated the letter of intent. The Company had advanced $600,000 to Krofft in
contemplation of the merger. As of September 30, 1996, the Company has
established a reserve for uncollectiblity of the entire $600,000.
On December 9, 1996, the Company filed suit against Krofft to recover
these advances. The suit, filed in the United States District Court Central
District of California against Krofft Entertainment et al., alleged breach of
contract, fraud and money due and owing with regard to the above mentioned
transactions. The case is in its preliminary stage and no outcome can be
predicted at this time.
Other Proceedings
- - -----------------
In December 1996, the Company received a subpoena duces tecum for
records from the Philidelphia District Office of the Securities and Exchange
Commission in connection with a formal investigation being conducted by that
office. The investigation appears to involve the activities of four brokerage
firms which have been involved in the offer and sale of the securities of
several companies, including those of the Company. The Company is cooperating
with the Commission's staff conducting the investigation.
On February 21, 1996, Century Technologies, Inc. was informed that an
informal inquiry of Century and certain of its transactions had been initiated
by the Southeast Regional Office of the Securities and Exchange Commission.
Century has cooperated with the investigation. On September 13, 1996, the staff
of the Commission notified Century that it intended to recommend that the
Commission institute a cease and desist order against Century based on
allegations that Century had violated various provisions of the securities laws.
The Company believes that any securities law violations pertaining to Century
occurred under former management prior to the Company's acquisition of Century.
The Commission's staff indicated in a letter to Century that "no action will be
recommended against any of Century's present officers, directors or employees."
ITEM IV. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM V. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") Small Cap Market
(Symbol: AFTY). The Company's Common Stock has been traded since November 30,
1994.
Fiscal Year High Low
- - ----------- -------- -------
1995
- - ----
First Quarter........................................ $ 5.75 $ 2.875
Second Quarter....................................... 5.1875 3.00
Third Quarter........................................ 6.00 3.625
Fourth Quarter....................................... 7.25 3.875
1996
- - ----
First Quarter........................................ 6.50 4.50
Second Quarter....................................... 7.625 5.25
Third Quarter........................................ 10.00 4.875
Fourth Quarter....................................... 9.875 6.00
The bid prices reported for these periods reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not represent actual
transactions.
The closing bid price per share as of December 31, 1996 was $1.625 and
there were approximately 328 stockholders of record as of that date.
The Company has paid no cash dividends on its common stock to date.
However, on November 1, 1996, the company announced its intention to issue a
dividend to each Affinity shareholder of record at a date to be determined, of
one Century unit for each common share of Affinity, These units will be
distributed once a registration statement is effective. Payment of cash
dividends is within the discretion of the Company's Board of Directors and will
depend on, among other factors, earnings, capital requirements and the operating
and financial condition of the Company. At the present time, the Company
anticipates retaining future earnings, if any, in order to finance the
development of its business activities.
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ITEM VI. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company produces feature films, television programs, commercials,
documentaries and videos for all media worldwide.
A. RESULTS OF OPERATIONS
The following table summarizes the changes in selected items, including
absolute dollar changes, percentage changes and percent of net revenue for the
fiscal year ended September 30, 1996 compared to the fiscal year ended September
30, 1995:
<TABLE>
<CAPTION>
% of Net
Line Item Revenue
$ Change % Change ---------------
1996 1995 Fav./(Unfav.) Fav./(Unfav.) 1996 1995
---- ---- ------------- ------------- ---- ----
(In Thousands, except %)
<S> <C> <C> <C> <C> <C> <C>
Net Revenue ................ $ 2,078 $ 1,231 847 69 % 100% 100%
Cost of revenue .......... 1,046 325 (721) (222) 51 26
General and administrative 3,533 1,399 (2,134) (153) 170 114
Depreciation and
amortization ........... 1,904 307 (1,597) (520) 91 25
------- ------- ------- ----- ----
Operating loss ............. (4,405) (800) (3,605) (450) (212) (65)
Other income, net .......... 237 (86) 323 376 11 (7)
------- ------- ------- ----- ----
Net loss ................... $(4,168) $ (886) $(3,282) (370) (201) (72)
======= ======= ======= ===== ====
</TABLE>
Net Revenue
For the fiscal year ended September 30, 1996, the increase in revenues
is primarily due to the Company's television project, "EdenQuest", and all of
its ancillary sources of income, and its "The Contemporary Collectibles Show"
series. The Company has produced three original episodes, and a compilation
("best of") of its popular "EdenQuest" television series. The third and fourth
episodes have not yet been telecast on free television or basic cable, as the
Company plans to syndicate these episodes through its subsidiary, Tradewinds
Television, Inc., for airing in the summer of 1997. The Company currently
derives income for this project from five different sources: 1) domestic
syndication, 2) foreign sales, 3) pay-per-view, 4) merchandising, and 5) home
video. The Company produced and aired 14 episodes of "The Contemporary
Collectibles Show", starring Morgan Brittany. The Company does not plan to
produce any additional episodes.
Cost of Revenue
For the fiscal year ended September 30, 1996, the significant increase
in cost of revenue can be attributed to several factors. Television distributors
commissions are paid by the Company based on total cumulative sales of
"EdenQuest". As sales in "EdenQuest" increase, so do commission percentages. In
addition, the Company canceled the launch of the second season of "The
Contemporary Collectibles Show", due to a variety of factors, including the
uncertainty regarding the availability of its satellite air time. As a result,
the Company took a one time charge of approximately $125,000 to operations for
expenses incurred in connection with the Lifetime Channel.
General and Administrative
For the fiscal year ended September 30, 1996, the increase in general
and administrative expenses is primarily due to exceptionally high professional
expenses as the Company seeks to position itself to make acquisitions and expand
its operations into feature films and distribution and the uncollectiblity of
the
10
<PAGE>
Company's advances and investment in Krofft (see Item III. Legal Proceedings).
Additionally, the Company prepaid all of its equipment leases at Broadcast Edit,
Inc., its wholly-owned subsidiary, with pre-payment penalties present on many of
the leases. Further, the Company hired additional staff to better implement it
business plan and increased salaries of some key personnel to levels
commensurate to their job descriptions.
On April 17, 1996, the Company terminated its merger talk with Sid &
Marty Krofft Productions, Inc. After completing its due diligence, management
decided that it was not in the best interests of the Company's shareholders to
move forward with the merger. Management did offer the Krofft's an alternative
proposal that would have better protected the Company's shareholders. The
Krofft's declined this revised offer. Consequently, the company took a one time
charge of approximately $175,000 to operations for expenses related to the
proposed merger.
Depreciation and amortization
For the fiscal year ended September 30, 1996, the significant increase
in depreciation and amortization expense is primarily due to the Company fully
amortizing "The Contemporary Collectible Show" and "Post Time" series for
approximately $486,624 and $462,988, respectively, due to the uncertainty of
whether these shows will generate revenue in the future.
In addition, the Company accelerated the amortization of Adventure
Quest and Edenquest for approximately $175,000 and $101,817, respectively.
Other Income, net
For the fiscal year ended September 30, 1996, the increase in other
income (expense) is primarily due to the recognition of interest income.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its cash requirements for Fiscal year 1997
with funds generated from operations, the exercise of employee stock options,
sales of restricted common stock via private placements and loans. The Company
believes that those sources will be adequate to meet the Company's expected
needs for fiscal year 1997, although there can be no assurance that this will be
the case.
The Company has not formalized its plan for paying the $2,400,000
Promissory Note payable to Century Technologies, Inc. on October 31, 1997. The
Company expects that this Promissory Note will be repaid with some combination
of the assets and receivables of Tradewinds Television, Inc., the proceeds from
a loan from a European entity and private placements of the Company's
securities.
For the fiscal year ended September 30, 1996, the predominate sources
of operating funds were editing services, sale of television products and
private placements of the Company's common stock.
Other than discussed above, the Company is not aware of any known
trends or uncertainties that have or are reasonably likely to have a material
effect on the Company's liquidity or capital resources. Any other projects not
contemplated herein will be funded by joint ventures or other outside capital.
C. OTHER PROJECTS
The Company is co-producing with Forever Blue Entertainment, Inc.
"Bounty Hunters", a one hour reality show seen weekly dealing with actual crimes
and drama. "Bounty Hunters" tells the true stories of bail bondsmen crossing
state lines to apprehend bail jumpers whose offenses range from simple
misdemeanors to armed assault, drug dealing and murder. The show is currently
distributed by Tradewinds Television, Inc. and can be seen in 74% of the
country.
The Company plans to intensify its efforts on the feature film portion
of its business. The Company has named William J. Macdonald as President of
Affinity Entertainment Group, Inc., a wholly-owned subsidiary formed to manage
the Company's feature film production business. Mr. Macdonald is currently
11
<PAGE>
producing several outside feature films: "The Saint", starring Val Kilmer and
Elizabeth Shue at Paramount Pictures and "Lucky Strike", directed by Ridley
Scott and "Air Reno" for Hollywood Pictures, an action-adventure about flying
daredevils. He held the position of Vice President of Business Affairs for Siren
Pictures before becoming President/Partner of The Robert Evans Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
Foster, "Buster" starring Phil Collins and "The Two Jakes" starring Jack
Nicholson and Harvey Keitel. He is also credited as Co-Producer on "Sliver" and
Executive Producer on "Jade".
The Company has completed production of its first motion picture
entitled "Men Seeking Women," which was co-produced with MPH Entertainment,
Inc.("MPH"). Delivery of the final cut and promotional trailer is expected
January 20, 1997. The Company has paid for the picture in full and owns a 50%
interest in gross revenues with the remaining 50% owned by MPH. Pursuant to its
agreement with MPH, the Company is to recoup its investment in the film prior to
the payment of any deferred compensation or the distribution of profits.
The Company also owns the rights to several feature film screenplays
including "Lucifer in Cameo" written by Philip J. Lasker, purchased from Kazmark
Entertainment, Inc. and "Elvis and Leon" written by Dick Christie and Joe Lerer,
purchased from Paramount Pictures. The Company may finance and produce these
projects internally or elect to package them and sell its rights in these
projects to other production companies or motion picture studios depending on
the Company's financial condition and banking relationships.
The Company is also co-producing "Looking Beyond," with First
Television which is owned and operated by Mac and Bradley Anderson ("Sightings,"
"Encounters," "The PSI Factor," and "Alien Autopsy") a television series about
the paranormal. The show will be hosted by Linda Bonell. The Company is
introducing the show through its subsidiary, Tradewinds Television, Inc., at the
National Association of Television Program Executives (NAPTE) in January 1997.
The show is expected to air in domestic syndication beginning in the fall of
1997.
The Company is developing a made for television movie based in Monaco.
Jorge Zamacona, (Millennium and Homicide) has agreed to act as Executive
Producer. Funding for the development is being negotiated at the present time.
William Macdonald served as a producer on the recently completed Turner
Broadcasting television mini-series "Teddy Roosevelt and the Rough-Riders" which
is expected to air in July 1997. The Company expects to receive a production
credit when the mini-series airs.
D. OTHER SIGNIFICANT MATTERS
Authorization of Preferred Stock
On October 31, 1996, the Company authorized the creation of two shares
of Series D Preferred Stock with a par value of $1 in connection with the
acquisition of Century Technologies, Inc.
Acquisition of Century Technologies, Inc.
On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distribution film and television products to worldwide markets.
Under the terms of the Stock Acquisition Agreement between the parties, the
Company purchased 37,500,000 Units of Century for $0.08 per unit. Each Unit
consists of one (1) share of Century Common Stock at $.0001 par value ("Century
Common Stock") and one (1) Common Stock purchase warrant to purchase one (1)
share of Century Common Stock at $2.00 per share ( the "Warrants"). The Units
12
<PAGE>
are immediately separable into their component parts. In consideration for the
transfer of the Units, the Company paid Three Million Dollars ($3,000,000) to
Century consisting of (i) the conversion to equity of Four Hundred Thousand
Dollars ($400,000) cash previously advanced by the Company to Century, (ii) Two
Hundred Thousand Dollars ($200,000) cash, and (iii) a negotiable one-year
promissory note payable by the Company to Century in the amount of Two Million
Four Hundred Thousand Dollars ($2,400,000)(the "Promissory Note") which is
secured by the Company's Series D Preferred Stock.
The Promissory Note bears interest at a rate of eight percent (8%) per
annum and is secured by two (2) shares of Series D Preferred Stock of the
Company, par value $1.00 (the "Series D Preferred Stock"). Each share of Series
D Preferred Stock shall be convertible into 750,000 shares of the Company's
Common Stock only in the event of default by the Company on the Promissory Note.
The Series D Preferred Stock is not entitled to any voting or dividend rights of
any kind. Notwithstanding the foregoing, the Company shall have the right to
provide such substitute collateral as the Company and Century may mutually agree
upon in writing. The Series D Preferred Stock will be held in escrow by
Century's counsel (the "Escrow Agent") until such time as the Promissory Note is
paid in full or substitute collateral is provided by the Company. The Company
believes that the acquisition of Century will enable the Company to implement
its business plan of becoming heavily vested in the U.S. and foreign
distribution of both feature films and television programming.
Acquisition of the Assets of Tradewinds Television, LLC
On September 13, 1996, the Company and Tradewinds Television, LLC, a
California Limited Liability Company ("Tradewinds"), entered into an Interim
Financing and Security Agreement (the "Security Agreement") pursuant to which
Tradewinds granted the Company, as security for the repayment by Tradewinds of
certain loans to be made by the Company, a first priority lien on substantially
all of Tradewinds' assets (the "Assets"). The Assets include accounts
receivable, the name and mark "Tradewinds Television," the rights to the
syndicated television series "Bounty Hunters" and distribution rights to certain
other television products. As of November 19, 1996, the Company loaned
Tradewinds an aggregate of approximately $823,000 (the "Loans") pursuant to the
Security Agreement. Concurrently, with the execution of the Security Agreement,
the Company and Tradewinds engaged in negotiations pursuant to which the Company
would purchase substantially all of the Assets. The parties entered into an
Asset Purchase Agreement, dated October 3, 1996, as amended, to provide for such
acquisition.
On November 14, 1996, the Company filed a complaint in Los Angeles
Superior Court asserting that Tradewinds had defaulted under the Loans and the
Security Agreement, and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996, Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables associated therewith, in consideration of Affinity forgiving
the indebtedness evidenced by the Loans. Such indebtedness, including interest
and related costs and expenses, was approximately $1,000,000. Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing executive producing services in connection with the "Bounty Hunter"
series. Pursuant to such agreement, Mr. Pack received a $75,000 payment on
December 6, 1996 for the first production season, and is entitled in the second
production season to a fee of $3,000 per episode, payable upon airing of each
such episode.
On December 17, 1996, the Company agreed with the Trustee of Action
Media Group, Inc., a company affiliated with Mr. Pack and which is the subject
of a bankruptcy court proceeding ("AMG"), to pay $275,000 to the Trustee of AMG,
and to secure in exchange a release of certain claims by the Trustee and AMG
against Tradewinds and the Company with regard to indebtedness owed by
Tradewinds to AMG and the assignment of Assets by Tradewinds to the Company in
lieu of foreclosure, as described above. On December 18, 1996, the Court having
jurisdiction over the AMG bankruptcy proceeding approved the $275,000 payment
and release among AMG, Tradewinds and the Company
Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned
13
<PAGE>
subsidiary, Tradewinds Television, Inc.
Loan Agreement
In October 1996, the Company reached an agreement in principal with a
European entity in which the entity has agreed to lend $48.4 million to the
Company. The loan will bear interest at a rate of 9% per annum over a five year
period. The Company will pledge as collateral for the loan one hundred (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common Stock of the Company under certain
conditions of repayment of the loan, but in no instance at a price less than
$10.00 per share. Upon conversion of the Series C Preferred Stock to Common
Stock, the holder of the Series C Preferred Stock shall also receive an
additional number of shares equal to 10% of the number of shares as calculated
above. In no event is greater than 40% of the outstanding principal of the loan
to be converted to equity in any twelve (12) month period. Any common shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold, transferred or assigned in the absence of an effective registration
statement under the Securities Act of 1933, as amended, or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the insurance company may require amendments to the terms of
the transactions prior to the issuance of the loan, but that it expects the
insurance guarantee to be issued in January 1997. However, there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
14
<PAGE>
ITEM VII. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report............................................. 16
Consolidated Balance Sheets ............................................. 17
Consolidated Statements of Operations.................................... 19
Consolidated Statements of Stockholders' Equity.......................... 20
Consolidated Statements of Cash Flows.................................... 21
Notes to Consolidated Financial Statements............................... 22
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Affinity Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Affinity
Entertainment, Inc. and Subsidiaries (the "Company") as of September 30, 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Affinity
Entertainment, Inc. and Subsidiaries as of September 30, 1996, and the
consolidated results of operations and its consolidated cash flows for each of
the two years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
Weinberg, Pershes & Company, P.A.
Boca Raton, Florida
January 7, 1997
16
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................... $ 1,366
Accounts receivable, net............................................ 133
Programing costs.................................................... 990
Other current assets, net........................................... 188
-------
Total current assets.............................................. 2,677
PROPERTY AND EQUIPMENT, at cost
Edit equipment .................................................. 1,237
Other equipment .................................................. 314
-------
1,551
Less accumulated depreciation..................................... 1,072
-------
479
Construction in progress.......................................... 64
-------
Total property and equipment.................................... 543
OTHER ASSETS
Loans receivable, net............................................... 539
Due from officers and employees..................................... 68
Investment in joint venture, net.................................... 250
Other assets........................................................ 315
-------
Total other assets................................................ 1,172
-------
Total assets.................................................... $ 4,392
=======
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(In thousands)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Notes payable....................................................... $ 12
Accrued liabilities................................................. 139
-------
Total current liabilities......................................... 151
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value, $10 stated
value, 500,000 shares authorized, 48,734 shares
issued and outstanding............................................ 487
Convertible preferred stock, $.0001 par value, $50 stated
value, 100,000 shares authorized,
-0- issued and outstanding........................................ --
Common stock, $.10 par value, 25,000,000 shares
authorized, 8,284,217 shares issued and
outstanding....................................................... 829
Additional Paid-in Capital.......................................... 14,686
Additional Paid-in Capital - stock options.......................... 394
Deficit............................................................. (5,894)
-------
10,502
Less:
Stock subscriptions receivable...................................... 5,829
Unearned compensation............................................... 432
-------
Total stockholders' equity........................................ 4,241
-------
Total liabilities and stockholders' equity...................... $ 4,392
=======
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)
1996 1995
------ ------
REVENUE.................................................. $2,078 $1,231
COSTS AND EXPENSES
Cost of revenue, exclusive of amortization............... 1,046 325
General and administrative............................... 3,533 1,399
Depreciation and amortization............................ 1,904 307
------ ------
Total costs and expenses............................... 6,483 2,031
Operating loss......................................... (4,405) (800)
OTHER INCOME, net........................................ 237 (86)
------ ------
Net Loss.................................................. $(4,168) $ (886)
======= =======
Loss per common share.................................... $ (.56) $ (.19)
======== =======
Weighted average shares outstanding...................... 7,420 4,613
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Convertible Convertible Additional
Preferred Preferred Common Paid-In
Stock Stock Stock Additional Capital Stock
$50 Stated $10 Stated $.10 Par Paid-In Stock Subscription Unearned
Value Value Value Capital Options Deficit Receivable Compensation Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance on October 1,
1994 ......................... $ 5,000 $ 487 $ 402 $ 580 $ -- $ (840) $(2,781) $ -- $ 2,848
Issuance of common stock:
Stock options exercised ...... -- -- 40 277 -- -- -- -- 317
Private placement ............ -- -- 158 3,780 -- -- -- -- 3,938
Net loss for the fiscal year
ended September 30, 1995 ..... -- -- -- -- -- (886) -- -- (886)
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance on September 30,
1995 ......................... 5,000 487 600 4,637 -- (1,726) (2,781) -- 6,217
Cancellation of preferred
stock ........................ (5,000) -- -- -- -- -- -- -- (5,000)
Stock options issued ........... -- -- -- -- 540 -- -- -- 540
Issuance of common stock:
Stock options exercised ...... -- -- 29 582 (146) -- -- -- 465
Private placement ............ -- 200 9,467 -- -- (5,000) -- -- 4,667
Unearned compensation
related to grant of stock
options to executives ........ -- -- -- -- -- -- -- (540) (540)
Amortization of unearned
compensation ................. -- -- -- -- -- -- -- 108 108
Cash received on
subscriptions receivable ..... -- -- -- -- -- -- 1,952 -- 1,952
Net loss for the fiscal year
ended September 30, 1996 ..... -- -- -- -- -- (4,168) -- -- (4,168)
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance on September 30,
1996 ......................... $ -- $ 487 $ 829 $14,686 $ 394 $(5,894) $(5,829) $ (432) $ 4,241
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)
1996 1995
-------- -------
Cash Flows - Operating Activities:
Net loss ................................................. $(4,168) $ (886)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .......................... 1,904 307
Provision for losses on accounts receivable ............ 316 --
Provision for losses on inventory ...................... 40 --
Provision for losses on notes receivable ............... 600 --
Provision for losses on joint venture .................. 250 --
Other assets ........................................... (238) --
Amortization of unearned compensation related to grant
of stock options to executives ....................... 108 --
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable ........... 99 (457)
(Increase) decrease in programming costs.............. (1,085) (954)
(Increase) decrease in prepaid television time ....... 79 112
(Increase) decrease in current assets ................ (228) (56)
Increase (decrease) in accrued liabilities ........... (1,306) 535
Increase (decrease) in deferred revenue .............. (206) 69
------- -------
Net cash used in operating activities .............. (3,835) (1,330)
Cash Flows - Investing Activities:
Capital expenditures ..................................... (208) (83)
Investments in loans receivable .......................... (1,139) (487)
Investments in notes receivable .......................... 25 --
------- -------
Net cash used in investing activities .............. (1,322) (570)
Cash Flows - Financing Activities:
Proceeds from sale of common stock ....................... 7,084 1,365
Proceeds from notes payable .............................. 145 1,010
Principal payments on notes payable ...................... (853) (331)
------- -------
Net cash provided by financing activities .......... 6,376 2,044
------- -------
Increase in cash and cash equivalents .................... 1,219 144
Cash and cash equivalents at beginning of period ......... 147 3
------- -------
Cash and cash equivalents at end of period ............... $ 1,366 $ 147
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - HISTORY AND ORGANIZATION
Affinity Entertainment, Inc. (the "Company"), formerly Affinity
Teleproductions, Inc., a Delaware corporation, is engaged in producing and
selling feature films, television programs, commercials, infomercials and videos
for the home and industrial markets in the United States and internationally.
The Company entered this business following a February 1993 merger with CBNI
Development, Inc. ("CBNI"). CBNI had been engaged in a shopping service
business.
On August 31, 1994, the Company acquired Broadcast Edit, Inc.
("Broadcast Edit"), a California corporation for 50,000 shares of common stock
in a transaction accounted for a pooling of interests. Broadcast Edit is a video
production and post-production company. It provides a full range of
communication services to corporations and advertising agencies, and it also
produces, directs and edits television programs and videos for the entertainment
industry.
The Company is engaged in the production of feature films, television
programs, commercials, documentaries and videos for all media worldwide. In
addition, the Company, through its wholly-owned subsidiary, Broadcast Edit,
Inc., produces and performs post-production editing services for programming
produced internally by the Company and externally by outside parties.
The Company has formed a new wholly-owned subsidiary, Affinity
Entertainment Group, Inc., April 4, 1995, to intensify its efforts on the
feature film portion of its business.
On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc., a publicly-held Colorado corporation that is in the business
of distributing film and television products to worldwide markets.
On December 9, 1996, the Company formed a new wholly-owned subsidiary,
Tradewinds Television, Inc., for the purposes of operating a domestic television
syndication company.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements consist of the accounts of the
Company including the subsidiaries, all of which are wholly-owned. All
intercompany transactions, profits and accounts have been eliminated.
The Company's significant accounting policies are as follows:
1. Revenue Recognition
The Company adopted the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 53, "Financial Reporting by
Producers and Distributors of Motion Picture Films" ("Statement 53"). Statement
53 states that the motion picture industry consists of two principal activities:
production, involving the development, financing and production of motion
pictures; and distribution, involving the promotion and exploitation of
completed motion pictures in a variety of domestic and international media.
In accordance with Statement 53, the Company recognizes revenues for
films licensed to the theatrical box office market upon exhibition of the film;
for home video sales and merchandising when the product is shipped; for films
and programs licensed to television and other markets when the license period
begins and the
22
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
film or program is available for telecast or exploitation.
Film editing and production services to third parties revenues are
recognized when services are rendered.
2. Programing Costs
Program cost inventories are stated at the lower of cost, amortized
cost or net realizable value. Costs include acquisition costs, production,
production overhead and distribution costs. Individual programs are capitalized
then amortized over the estimated life of revenue generation. These estimates
are reviewed periodically.
Amortization expense was approximately $1,739,819 and $155,986 for the
fiscal years ended September 30, 1996 and 1995, respectively.
3. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments with original maturities of less than three
months.
4. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
for in amounts sufficient to allocate to operations over their estimated service
lives on a straight-line or allowable accelerated basis. Maintenance and repairs
that do not extend the life of the asset are charged to expense as incurred;
major renewals and betterments are capitalized. When property or equipment are
sold or retired, the related costs and accumulated depreciation are removed from
the accounts and any gain or loss is included in the results of operations.
Property and equipment consist of the following at September 30, 1996 (in
thousands):
Edit................................................ $1,237
Production.......................................... 26
Furniture and fixtures.............................. 54
Vehicles............................................ 38
Office and other.................................... 134
Leasehold improvements.............................. 62
------
1,551
Less: Accumulated Depreciation.................... 1,072
------
479
Construction in progress.......................... 64
------
Total property and equipment.................... $ 543
======
Depreciation expense was approximately $163,925 and $151,139 for the
fiscal years ended September 30, 1996 and 1995, respectively.
23
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
5. Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"). Statement 109 required a change from the deferred
method of accounting for income taxes of Accounting Principles Board Opinion No.
11 (APB Opinion No. 11") to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to difference between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
During fiscal year 1995, the Company adopted Statement 109. As of
September 30, 1996 and 1995, the Company had no material current tax liability,
deferred tax assets or liabilities except for the following:
The Company had available, for income tax purposes, net operating
carryforwards expiring as follows:
September 30, 2007 $ 24,500
September 30, 2208 $ 27,000
September 30, 2009 $ 558,000
September 30, 2010 $1,100,000
September 30, 2011 $4,100,000
Deferred income tax provisions, resulting from differences between
accounting for financial statement purposes and accounting for tax purposes were
as follows:
1996 1995
---- ----
Tax benefit from net operating losses $ 1,981,000 $ 581,000
Valuation allowance (1,981,000) (581,000)
----------- ---------
Tax effects of timing differences -- --
=========== =========
6. Loss Per Common Share
The loss per share of common stock is calculated by dividing net loss
by the weighted average shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents include shares issuable
upon conversion of the Company's convertible preferred stock and exercise of the
Company's outstanding warrants and stock options. For the fiscal years ended
September 30, 1996 and 1995, common stock equivalents were anti-dilutive and
were not included in the calculation of weighted average common shares
outstanding.
7. Reclassifications
Reclassifications to the September 30, 1995 consolidated statements of
operations and cash flows were made to conform to September 30, 1996
presentation.
24
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
8. Significant Concentration of Credit Risk
The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The maximum loss
that would have resulted from risk totaled -0- and $144,000 for fiscal years
ended September 30, 1996 and 1995, respectively, for the excess of the deposit
liabilities reported by the bank over the amounts that would have been covered
by federal insurance.
NOTE C - ACCOUNTS RECEIVABLE, NET
Accounts receivable is net of an allowance for doubtful accounts of
approximately $329,236 and $20,875 for the fiscal years ended September 30, 1996
and 1995, respectively.
NOTE D - LOANS RECEIVABLE
The Company has loans receivable as of September 30, 1996 as follows (in
thousands):
Loan receivable-Krofft Productions, Inc.,
due on demand............................................. $ 600
Loan receivable-Tradewinds Television, Inc., collateralized
due on demand............................................. 539
Officers/Employees, non-interest bearing, due
on demand................................................. 68
------
1,207
Less: Allowance for doubtful accounts 600
------
$ 607
======
Sid & Marty Krofft Productions, Inc.
On July 26, 1995, the Company entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17, 1996, the Company
terminated the letter of intent. The Company had advanced $600,000 to Krofft in
contemplation of the merger. As of September 30, 1996, the Company has
established a reserve for the entire $600,000 (See Note G - Commitments and
Contingencies).
Tradewinds Television, Inc.
On September 13, 1996, the Company and Tradewinds Television,
LLC, a California Limited Liability Company ("Tradewinds"), entered into an
Interim Financing and Security Agreement (the "Security Agreement") pursuant to
which Tradewinds granted the Company, as security for the repayment by
Tradewinds of certain loans to be made by the Company, a first priority lien on
substantially all of Tradewinds' assets (the "Assets"). The Assets include
accounts receivable, the name and mark "Tradewinds Television," the rights to
the syndicated television series "Bounty Hunters" and distribution rights to
certain other television products. As of November 19, 1996, the Company loaned
Tradewinds an aggregate of approximately $823,000 (the "Loans") pursuant to the
Security Agreement.
Concurrently, with the execution of the Security Agreement, the Company
and Tradewinds engaged in negotiations pursuant to which the Company would
purchase substantially all of the Assets. The parties entered into an Asset
Purchase Agreement, dated October 3, 1996, as amended, to provide for such
25
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
acquisition. The sale of the assets was contingent upon the resolution to which
satisfaction of the Company of various bankruptcy issues concerning other
companies affiliated with Royeric Pack, the owner of Tradewinds.
On November 14, 1996, the Company filed a complaint in Los Angeles
Superior Court asserting that Tradewinds had defaulted under the Loans and the
Security Agreement, and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996, Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables associated therewith, in consideration of Affinity forgiving
the indebtedness evidenced by the Loans. Such indebtedness, including interest
and related costs and expenses, was approximately $1,000,000. Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing executive producing services in connection with the "Bounty Hunter"
series. Pursuant to such agreement, Mr. Pack received a $75,000 payment on
December 6, 1996 for the first production season, and is entitled in the second
production season to a fee of $3,000 per episode, payable upon airing of each
such episode.
Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.
NOTE E - NOTES PAYABLE
The Company has notes payable as of September 30, 1996 as follows (in
thousands):
Notes payable, collateralized by equipment, payable in
monthly installments of approximately $1,350,
interest bearing at 6% (due in fiscal year 1997).............. $12
NOTE F - STOCKHOLDERS' EQUITY
In January 1996, the President of the Company and another executive
exercised certain of their options for common shares of a total of 250,000
common shares at per share exercise prices of $1.33.
The Company, through a private placement, issued 2,000,000 shares of
its common stock (see Note G-Litigation-Lehman Brothers International for
details).
STOCK OPTIONS ISSUED BUT UNEXERCISED
------------------------------------
Expiration Date Exercise Price
Number of Shares Fiscal Year Range
---------------- ----------- -----
(expiring monthly)
244,000 1996 $6.24-$6.75,
50,000 1996 75% market value
281,000 1997 $1.50-$7.75
377,000 1998 $1.75
523,000 1999 $2.00
500,000 2000 $2.00
26
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company leases it facilities used in connection with its operations
under various operating leases.
Operating Lease Commitments
Future minimum payments under non-cancelable leases due during the
fiscal years ended September 30, are as follows (in thousands):
1997.................................................. $160
1998.................................................. 137
1999.................................................. 113
Thereafter............................................... --
Rent and lease expenses charged to operations during fiscal years
September 30, 1996 and 1995 were as follows (in thousands):
1996.................................................. $ 81
1995.................................................. 27
Litigation
Access America, Inc.
On April 16, 1996, the Company exercised its express and absolute right
to rescind the Agreement of Sale dated May 8, 1993 (the "Agreement") between
Thoro-Cap, Inc., now Affinity Entertainment, Inc. (the "Company"), and Access
America, Inc., by reversing the previously recorded prepaid broadcast air time
for approximately $4.8 million and canceled the 100,000 shares of Convertible
Preferred Stock issued in connection with this Agreement.
Access America filed suit in Delaware Chancery Court on October 2, 1996
requesting the issuance of 100,000 shares of preferred stock and conversion of
these preferred shares into $5,000,000 worth of common stock of the Company up
to a maximum of 9% of the outstanding common stock of the Company. On January 7,
1997, the Court granted the Company's motion to dismiss the complaint of Access
America on procedural grounds. On January 8, 1997, Access America filed a notice
of appeal to the Delaware Supreme Court. Although the Company believes that it
will ultimately prevail in this matter, there can be no assurance that this will
be the case or that a material adverse effect will not result.
Lehman Brothers International
Pursuant to the Offshore Securities Subscription Agreement dated
January 24, 1996 (the "Agreement"), on February 23, 1996, the Company sold one
million (1,000,000) shares of Common Stock of the Company at $5.00 per share
(the "Shares") to Philmont A.V.V. ("Philmont"). By agreement of the parties, the
Shares are subject to a "stop transfer" order and may not be transferred for a
period of twelve months from the closing of the transaction without the express
written consent of the Company.
As a condition of the first transaction, pursuant to the Offshore
Securities Deferred Subscription Agreement dated January 24, 1996 (the "Deferred
Agreement"), on February 23, 1996, the Company sold an additional one million
(1,000,000) shares of the Common Stock of the Company at $5.00 per share to
Philmont
27
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(the "Deferred Shares"). The Deferred Shares were paid for with a promissory
note for $5 million at an interest rate of 10% per annum. Unless the Promissory
Note described above is paid in full, no rights to cash or property
distributions, dividends, interest paid by coupon or otherwise, distribution of
certificates, warrants, rights, stocks or cash representing subdivision,
combination, reclassification, merger, buy-out, acquisition, redemption,
exchange, or any such other corporate or government action pertaining to or
involving the ownership rights of the Deferred Shares. The Promissory Note may
not be prepaid, in whole or in part, in advance. Upon the expiration of the term
of the Promissory Note, the Company shall in its sole discretion, have the
option to acquire the shares subscribed herein by Philmont in exchange for the
full cancellation of the Promissory Note. By agreement of the parties, the
Deferred Shares are subject to a "stop transfer" order and may not be
transferred for a period of twelve months from the closing of the transaction
without the express written consent of the Company.
Since June 5, 1996, Philmont is in default of its interest payments to
the Company. Despite numerous written demands, Philmont failed to cure the
default. Therefore, on June 21, 1996, the Company exercised its express right
under the Deferred Agreement and demanded return of the Deferred Shares for
retirement to treasury within 72 hours of receipt of the demand. Philmont has
failed to return the shares to the Company.
Lehman Brothers International ("Lehman") has obtained possession of the
Shares and Deferred Shares. On November 27, 1996, Lehman filed a complaint in
Delaware Chancery Court seeking to compel the Company to register the 2,000,000
shares (including the Deferred Shares) in the name of Lehman free of
restriction. The Company believes that Lehman, if entitled to the Philmont
Shares, must take such shares subject to all restrictions agreed to by Philmont.
The Company plans to vigorously contest the complaint. However, if successful,
the lawsuit could have a material adverse effect on the Company. The case is in
a preliminary stage and no outcome can be predicted at this time.
Sid and Marty Krofft Productions, Inc.
In March 1995, the Company entered into an agreement to form a
strategic alliance with Sid and Marty Krofft Productions, Inc. ("Krofft") for
possible development of "Land of the Lost", one of their flagship series, into a
theatrical film by Disney, a home video series and two children's series for
major television networks. The Company has contributed $500,000 towards this
limited partnership. Subsequent to signing this agreement, Disney signed an
agreement to option the rights to create a theatrical release of "Land of the
Lost", that is currently in the development stage. The Company does not expect
any revenues from the Disney movie unless or until Disney exercises the option
and proceeds to produce the film. The Company does not expect to derive any
significant revenues in fiscal year 1997. Its the Company's position that the
Company's $500,000 investment is collateralized by Krofft's children's home
video library. The Company has established a reserve of $250,000 for this
investment.
On July 26, 1995, the Company entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17, 1996, the Company
terminated the letter of intent. The Company had advanced $600,000 to Krofft in
contemplation of the merger. As of September 30, 1996, the Company has
established a reserve for the entire $600,000.
On December 9, 1996, the Company filed suit against Krofft to recover
these advances. The suit, filed in the United States District Court Central
District of California against Krofft Entertainment et al., alleged breach of
contract, fraud and money due and owing with regard to the above mentioned
transactions. The case is in its preliminary stage and no outcome can be
predicted at this time.
28
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE H - RELATED PARTY TRANSACTIONS
The corporate headquarters of the Company has recently moved to new
office space. The old office space has been subleased to the brother of the
President of the Company until the lease expires in May 1998.
During the fiscal year 1996, the Company has paid approximately
$133,000 in legal fees to Myman, Abell, Fineman, Greenspan, & Rowan law firm of
which Thomas Rowan, a director of the Company, is a partner.
NOTE I - STATEMENT OF CASH FLOWS
Supplemental disclosure of cash flow information:
Cash paid for interest was approximately $34,216 and $74,498 for the
fiscal years ended September 30, 1996 and 1995, respectively. No cash was paid
for income taxes for fiscal years 1996 or 1995.
Supplemental information of non-cash investing and financing
activities:
During fiscal year 1996, approximately $1,950,725 of the previous
year's stock subscriptions receivable was collected. The $5,829,778 stock
subscription receivable is shown as a reduction of stockholders' equity.
NOTE J - SUBSEQUENT EVENTS
Authorization of Preferred Stock
On October 31, 1996, the Company authorized the creation of two shares
of Series D Preferred Stock with a par value of $1 in connection with the
acquisition of Century Technologies, Inc.
Acquisition of Century Technologies, Inc.
On November 14, 1996, the Company purchased a 76% interest in
Century Technologies, Inc. ("Century"), a publicly-held Colorado corporation
that is in the business of distribution film and television products to
worldwide markets. Under the terms of the Stock Acquisition Agreement between
the parties, the Company purchased 37,500,000 Units of Century for $0.08 per
unit. Each Unit consists of one (1) share of Century Common Stock at $.0001 par
value ("Century Common Stock") and one (1) Common Stock purchase warrant to
purchase one (1) share of Century Common Stock at $2.00 per share ( the
"Warrants"). The Units are immediately separable into their component parts. In
consideration for the transfer of the Units, the Company paid Three Million
Dollars ($3,000,000) to Century consisting of (i) the conversion to equity of
Four Hundred Thousand Dollars ($400,000) cash previously advanced by the Company
to Century, (ii) Two Hundred Thousand Dollars ($200,000) cash, and (iii) a
negotiable one-year promissory note payable by the Company to Century in the
amount of Two Million Four Hundred Thousand Dollars ($2,400,000)(the "Promissory
Note") which is secured by the Company's stock.
The Promissory Note bears interest at a rate of eight percent (8%) per
annum and is secured by two (2) shares of Series D Preferred Stock of the
Company, par value $1.00 (the "Series D Preferred Stock"). Each share of Series
D Preferred Stock shall be convertible into 750,000 shares of the Company's
Common Stock only in the event of default by the Company on the Promissory Note.
The Series D Preferred Stock is not entitled to any voting of dividend rights of
any kind. Notwithstanding the foregoing, the Company shall have
29
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
the right to provide such substitute collateral as the Company and Century may
mutually agree upon in writing. The Series D Preferred Stock will be held in
escrow by Century's counsel (the "Escrow Agent") until such time as the
Promissory Note is paid in full or substitute collateral is provided by the
Company. The Company believes that the acquisition of Century will enable the
Company to implement its business plan of becoming heavily vested in the U.S.
and foreign distribution of both feature films and television programming.
Acquisition of the Assets of Tradewinds Television, LLC
On September 13, 1996, the Company and Tradewinds Television, LLC, a
California Limited Liability Company ("Tradewinds"), entered into an Interim
Financing and Security Agreement (the "Security Agreement") pursuant to which
Tradewinds granted the Company, as security for the repayment by Tradewinds of
certain loans to be made by the Company, a first priority lien on substantially
all of Tradewinds' assets (the "Assets"). The Assets include accounts
receivable, the name and mark "Tradewinds Television," the rights to the
syndicated television series "Bounty Hunters" and distribution rights to certain
other television products. As of November 19, 1996, the Company loaned
Tradewinds an aggregate of approximately $823,000 (the "Loans") pursuant to the
Security Agreement.
Concurrently, with the execution of the Security Agreement, the Company
and Tradewinds engaged in negotiations pursuant to which the Company would
purchase substantially all of the Assets. The parties entered into an Asset
Purchase Agreement, dated October 3, 1996, as amended, to provide for such
acquisition. The sale of the assets was contingent upon the resolution to which
satisfaction of the Company of various bankruptcy issues concerning other
companies affiliated with Royeric Pack, the owner of Tradewinds.
On November 14, 1996, the Company filed a complaint in Los Angeles
Superior Court asserting that Tradewinds had defaulted under the Loans and the
Security Agreement, and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996, Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables associated therewith, in consideration of Affinity forgiving
the indebtedness evidenced by the Loans. Such indebtedness, including interest
and related costs and expenses, was approximately $1,000,000. Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing executive producing services in connection with the "Bounty Hunter"
series. Pursuant to such agreement, Mr. Pack received a $75,000 payment on
December 6, 1996 for the first production season, and is entitled in the second
production season to a fee of $3,000 per episode, payable upon airing of each
such episode.
Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.
Loan Agreement
In October 1996, the Company reached an agreement in principal with a
European entity in which the entity has agreed to lend $48.4 million to the
Company. The loan will bear interest at a rate of 9% per annum over a five year
period. The Company will pledge as collateral for the loan one hundred (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common Stock of the Company under certain
conditions of repayment of the loan, but in no instance at a price less than
$10.00 per share. Upon conversion of the Series C Preferred Stock to Common
Stock, the holder of the Series C Preferred Stock shall also receive an
additional number of shares equal to 10% of the number of shares as calculated
above. In no event is greater than 40% of the outstanding principal of the loan
to be converted to equity in any twelve (12) month period. Any common shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold, transferred or assigned in the absence of an effective registration
30
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
statement under the Securities Act of 1933, as amended, or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the insurance company may require amendments to the terms of
the transactions prior to the issuance of the loan, but that it expects the
insurance guarantee to be issued in January 1997. However, there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
31
<PAGE>
Item VIII. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item IX. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information Regarding Directors:
WILLIAM J. BOSSO, age 47, Director and the Chairman of the Board, President and
Secretary. Mr. Bosso has served as Vice President of OCG Technologies, Inc., a
publicly traded company, "OCGT", from January 1992 to June 1994. Mr. Bosso was
an Account Executive at Paine Webber, Inc. from September 1989 to September
1991.
JAMES E. FARRELL, age 56, Director of the Board and Vice President and
Treasurer. Mr. Farrell has over twenty years experience in the communications
business, with experience in marketing, advertising, public relations and
financial communications. Prior to joining the Company, he was a freelance
marketing consultant and served as advisor to the Company, developing its
advertising programs, and is presently an executive with Cast Art Industries,
Inc. From 1985 to 1990, he served as President of J. Robin Scott Creative
Consultants, Inc. a Florida marketing and public relations agency, Vice
President and Corporate Communications Officer for Firstmark Corporation,
Buffalo, New York, a diversified financial services company listed on the
American Stock Exchange, and eight years as a registered representative of New
York Stock Exchange member firms including Merrill Lynch and E. F. Hutton. He is
a graduate of Syracuse University.
THOMAS P. ROWAN, age 49, has served as counsel to the Company for entertainment
matters since its inception. Mr. Rowan is a partner in the Los Angeles based law
firm of Myman, Abell, Fineman, Greenspan & Rowan and has twenty-three years of
experience as an entertainment lawyer. He has expertise in most major areas of
the entertainment industry, representing talent, production companies and
institutional clients in all areas of television, theatrical motion pictures and
music. Mr. Rowan's clients include Kenny Rogers, Burt Reynolds and "The Larry
Sanders Show." He is a graduate of the University of Santa Clara and the Loyola
University Law School.
JOHN W. BENTON, age 45, is the President of Real Estate Strategies, Inc., a
consulting firm working with elected clients such as Lehman Brothers, Deutsche
Bank and other Wall Street mortgage banking and investment firms. Mr. Benton
also acts as advisor on various large commercial real estate transactions. He
has over twenty years of experience in management, organization restructure,
negotiations and strategic marketing including fifteen years of experience in
the mortgage banking industry. He is a graduate of the University of Maryland.
Information Regarding Executive Officers:
The following sets forth certain information concerning the persons who
currently serve as executive officers of the Company's subsidiaries and who do
not serve on the Board of Directors:
WILLIAM J. MACDONALD, age 41, President of Affinity Entertainment Group, Inc.,
has been with the Company since August 1996. Mr. Macdonald is currently
producing several outside productions: "The Saint", starring Val Kilmer and
Elizabeth Shue at Paramount Pictures, "Teddy Roosevelt and the Rough Riders", a
TNT mini-series starring Tom Berenger and "Lucky Strike", directed by Ridley
Scott. He held the position of Vice President of Business Affairs for Siren
Pictures before becoming President/Partner of The Roberts Evans Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
32
<PAGE>
Foster, "Buster" starring Phil Collins, and "The Two Jakes" starring Jack
Nicholson and Harvey Keitel. He is also credited as Co-Producer on "Sliver" and
Executive Producer on "Jade". He is currently producing "Air Reno" for Hollywood
Pictures, an action adventure about flying daredevils.
JAMES J. WEHRLY, age 47, President of Broadcast Edit, Inc., was one of the
original founders of the subsidiary. Mr. Wehrly has devoted his full time for
the past seven years to Broadcast Edit, Inc.
Information Regarding Significant Employees:
ELLIOT L. BELLEN, age 39, Executive Producer, has been with the Company since
its inception in 1991. As Executive Producer, Mr. Bellen oversees the production
of all television products for the Company. From 1989 to 1991, Mr. Bellen was a
television producer with Millenium Teleproductions in Boca Raton, Florida. Mr.
Bellen filed bankruptcy under Chapter 7 of the Federal Bankruptcy Act in
November 1993 and was discharged in January 1994. Mr. Bellen pled guilty to
three counts of securities fraud, including Section 15 and Rules 10b-5 and 10-b6
of the Securities Act of 1933, as amended, in U.S. vs. Elliot L. Bellen in case
#89-466-1 in the District Court of New Jersey and was sentenced in January 1992.
Mr. Bellen sits on the Board of Directors of Child Care Resource and Referral, a
non-profit organization.
TAYRA A. COX, age 31, joined the Company as Controller and Principal Accounting
Officer on May 28, 1996. From May 1993 to May 1996, Ms. Cox served as Assistant
Controller for Silver King Communications, Inc. From June 1991 to May 1993, Ms.
Cox was a Staff Accountant for William S. King, CPA. Ms. Cox is a Certified
Public Accountant and a graduate of the University of South Florida.
Section 16 Reports
William J. Bosso, President of the Company, failed to file on a timely
basis, 16 reports on Form 4 disclosing 97 transactions involving the Company's
stock. To the best of the Company's knowledge and belief, Mr. Bosso is current
in his filing obligations under Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Philmont A.V.V. has to date failed to file any reports on Form 3 or
Schedule 13D as required by the Exchange Act.
To the best of the Company's knowledge and belief, the Company's
officers and directors are now current in their filings under Section 16(a) of
the Exchange Act.
ITEM X. EXECUTIVE COMPENSATION
Summary of Executive Officer Compensation
The Following sets forth the annual and long-term compensation for
services to the Company for the fiscal years ended September 30, 1996 and 1995
of those persons who were, at September 30, 1996, (i) the Chief Executive
Officer of the Company and (ii) the other four most highly compensated employees
of the Company whose compensation exceed $100,000 for fiscal year 1995.
33
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------- ----------------------------------------
Other All
Annual Restricted Other
Compen- Stock Options/ LTIP Compen-
Salary Bonus sation Awards SAR's Payouts sation
Name and Principal Position Year $ $ $ $ (#) $ $
- - --------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Bosso 1996 150,000 -- -- -- -- -- --
President...................... 1995 52,000 -- -- -- 875,000 -- --
Elliot L. Bellen 1996 150,000 -- -- -- -- -- --
Executive Producer............. 1995 52,000 -- -- -- 875,000 -- --
</TABLE>
Option Grants
During the fiscal year 1996, the Company granted options to purchase
10,000 shares of the Company's Common Stock to the Named Executive Officers at
$8.50 per share.
ITEM XI. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1996, certain
information regarding shares of AFTY Common Stock beneficially owned by (i) each
person or a group, known to the Company, who beneficially owns more than 5% of
AFTY Common Stock, (ii) each of the Company's directors, (iii) each of the
persons who appear in the Summary Compensation Table and (iv) all officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
Number of Percent
Name and Address of Beneficial Owner Shares of Class
------------------------------------ ------------ --------
<S> <C> <C>
William J. Bosso.............................................. 279,000(1) 3.83%
c/o Affinity Entertainment, Inc.
15310 Amberly Drive, Suite 370
Tampa, Florida 33647
James E. Farrell.............................................. 201,500(2) 2.77%
c/o Affinity Entertainment, Inc.
15310 Amberly Drive, Suite 370
Tampa, Florida 33647
Philmont A.V.V................................................ 1,000,000(3) 13.73%
1108 Capilano 100 Park Royal
West Vancouver, CA V7T 1A2
Canada
Elliot L. Bellen.............................................. 106,700(4) 1.46%
c/o Affinity Entertainment, Inc.
15310 Amberly Drive, Suite 370
Tampa, Florida 33647
All Officers and Directors as a Group (2 persons)............. 480,500 6.60%
</TABLE>
(1) Does not include (i) 750,000 shares of AFTY Common Stock issuable
upon exercise of stock options at prices ranging form $1.33 to
$2.00; (ii) 10,000 shares of Common Stock issuable upon the
exercise of Directors Stock Options at $8.50 per share and (iii)
the conversion of 7,800 shares
34
<PAGE>
of Series B Preferred Stock of the Company into approximately
9,750 shares of Common Stock of the Company. The stock options
vest at various times from October 1, 1996 through October 1, 1999
and expire five years from the date of vesting. Does not include
approximately 67,900 shares of AFTY Common Stock owned by Mr.
Bosso's mother, brothers, nieces and nephews. Mr. Bosso disclaims
beneficial ownership of these shares.
(2) Does not include (i) 10,000 shares of Common Stock issuable upon
exercise of Directors Stock Options at $8.50 per share and (ii)
the conversion of 3,900 shares of Series B Preferred Stock of the
Company into approximately 4,875 shares of Common Stock of the
Company.
(3) Does not include 1,000,000 shares paid for with a promissory notes
for $5 million at a rate of 10% per annum. Unless the Promissory
Note described about is paid in full, no rights to cash or
property distributions, dividends, interest paid by coupon or
otherwise, distribution of certificates, warrants, rights, stocks
or cash representing subdivision, combination, reclassification,
merger, buy-out, acquisition, redemption, exchange, or any such
other corporate or government action pertaining to or involving
the ownership rights of the Stock transferred hereunder. The
Promissory Note may not be prepaid, in whole or in part, in
advance. Upon the expiration of the term of the Promissory Note,
the Company shall in its sole discretion, have the option to
acquire the shares in exchange for the full cancellation of the
Promissory Note. The Company presently intends to exercise its
option to reacquire such shares. By agreement of the parties, the
Shares are subject to a "stop transfer" order and may not be
transferred for a period of twelve months from the closing of the
transaction without the express written consent of the Company.
Philmont A.V.V. is currently in default on the promissory note.
The Company had demanded return of stock certificates representing
the shares and full payment of all interest accrued to date as is
its express right under the subscription agreement between the
parties.
(4) Does not include (i) 750,000 shares of AFTY Common Stock issuable
upon exercise of stock options at prices ranging from $1.33 to
2.00 and (ii) 10,000 shares of Common Stock issuable upon the
exercise of Stock Options at $8.50 per share. The stock options
vest at various times from October 1, 1996 through October 1, 1999
and expire five years from the date of vesting. Does not include
10,000 shares of AFTY Common Stock owned by Mr. Bellen's wife.
Under the rules of the Securities Exchange Commission, a person is
deemed to be a "beneficial owner" of a security if that person has or shares
"voting power", which includes the power to vote or to direct the voting of such
security, or "investment power", which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be the
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed to be a beneficial owner of the same securities and a person may be
deemed to be a beneficial owner of securities as to which that person has no
beneficial interest.
ITEM XII. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The corporate headquarters of the Company has recently moved to new
office space. The old office space has been subleased to the brother of the
President of the Company until the lease expires in May 1998.
During the fiscal year 1996, the Company has paid approximately
$133,000 in legal fees to Myman, Abell, Fineman, Greenspan, & Rowan law firm of
which Thomas Rowan, a director of the Company, is a partner.
35
<PAGE>
PART IV
ITEM XIII. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Page No. Description of Exhibit
-------- ----------------------
<S> <C>
3.01 Amendment of Certificate of Incorporation.
3.02 Certificate of Designation of Series D Preferred Stock.
10.01 Lease Agreement between the Company and Tampa I Associates, LTD. dated July 22, 1996.
10.02 Certificate of Designation of Series D Preferred Stock.
10.03 Agreement between the Company, Baron Banker Limited, Barry Kaplan, Esq. And Pendragon
Resources, L.L.C. dated October 21, 1996(1).
10.04 Offshore Securities Subscription Agreement between the Company and Philmont A.V.V. dated
January 24, 1996.
10.05 Offshore Securities Deferred Subscription Agreement between the Company and Philmont A.V.V.
dated January 24, 1996.
10.06 Interim Financing and Security Agreement, dated as of September 13, 1996, between the Company
and Tradewinds Television, LLC (2).
10.07 Asset Purchase Agreement, dated October 3, 1996, between the Company, Tradewinds Television,
LLC and Royeric Pack (2).
10.08 Amendment No. 1 to the Asset Purchase Agreement, dated as of November 19, 1996, between the
Company, Tradewinds Television, LLC and Royeric Pack (2).
10.09 $600,000 Secured Promissory Note by Tradewinds Television, LLC to the Company.
10.10 Acknowledgment regarding $600,000 Note (2).
10.11 $22,997.18 Secured Promissory Note by Tradewinds Television, LLC to the Company.
10.12 Acknowledgment regarding $122,997.18 Note (2).
10.13 $100,000 Secured Promissory Note by Tradewinds Television, LLC to the Company.
10.14 Acknowledgment regarding $100,000 Note (2).
10.15 Assignment of Collateral in Lieu of Foreclosure, Dated December 6, 1996 (2).
10.16 Stock Acquisition Agreement dated October 31, 1996 between the Company and Century
Technologies, Inc. (1).
10.17 Escrow Agreement dated October 31, 1996 between the Company, Century Technologies, Inc. and
Wilson, Elser, Moskowitz, Edelman & Dicker (1).
10.18 Promissory Note dated October 31, 1996 by the Company payable to Century Technologies, Inc. (1).
10.19 Escrow Agreement dated June 26, 1996 between the Company, BBL and BK, Esq.
10.20 Promissory Note dated June 25, 1996 by Baron Banker Limited payable to the
Company.
24.01 Consent of Weinberg, Pershes & Co., P.A.
27.01 Financial Date Schedule.
(1) Incorporated by reference to Current Report on Form 8-K dated November 14, 1996.
(2) Incorporated by reference to Current Report on Form 8-K dated December 24, 1996.
</TABLE>
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated November 14, 1996 regarding the
acquisition of Century Technologies, Inc., the termination of the
Offshore Securities Subscription Agreement with Baron
36
<PAGE>
Banker Limited, and the Access America Lawsuit.
2. Current Report on Form 8-K dated December 24, 1996 regarding the
acquisition of all assets of Tradewinds Television, LLC.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on January 10, 1997.
By: /s/WILLIAM J. BOSSO
---------------------
William J. Bosso
Chairman, President, Secretary, Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on January 10, 1997.
/s/ WILLIAM J. BOSSO Chairman, President, Secretary, Director
- - -----------------------------------
William J. Bosso
/s/ JAMES E. FARRELL Vice President, Treasurer, Director
- - -----------------------------------
James E. Farrell
/s/ JOHN W. BENTON Director
- - -----------------------------------
John W. Benton
/s/ THOMAS P. ROWAN Director
- - -----------------------------------
Thomas P. Rowan
/s/ TAYRA AN COX Controller (Principal Accounting Officer)
- - -----------------------------------
Tayra An Cox
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "AFFINITY TELEPRODUCTIONS, INC.", CHANGING ITS NAME FROM "AFFINITY
TELEPRODUCTIONS, INC." TO "AFFINITY ENTERTAINMENT, INC.", FILED IN THIS OFFICE
ON THE THIRD DAY OF JULY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AFFINITY TELEPRODUCTIONS, INC.
We, the undersigned, being all of the Officers of Affinity
Teleproductions, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DO HEREBY CERTIFY:
Affinity Teleproductions, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the first paragraph of the First Article of the Certificate
of Incorporation is hereby amended to read as follows:
"The name of the corporation shall be changed to Affinity
Entertainment, Inc."
SECOND: That the Fourth Article of the Certificate of Incorporation is
hereby amended to read as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is twenty-five million five hundred thousand
(25,500,000) shares of which twenty-five million shares of the par value One
Cent ($.01), amounting in the aggregate to Two Hundred Fifty Thousand Dollars
($250,000.00), shall be Common Stock and of which five hundred thousand
(500,000) shares of the par value of One Dollar ($1.00), amounting in the
aggregate to Five Hundred Thousand Dollars ($500,000.00), shall be Preferred
Stock."
<PAGE>
THIRD: That the amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, we have signed this Certificate this 30th day of
June, 1996.
/s/ William J. Bosso
______________________________
William J. Bosso
President
/s/ James E. Farrell
______________________________
James E. Farrell
Vice-President and Treasurer
I, the undersigned, being the President hereinbefore named, do make
this certificate, hereby declaring and certifying that this is my act and deed
and the facts herein stated are true, and accordingly have hereunto set my hand
this 30th day of June, 1996.
/s/ William J. Bosso
______________________________
William J. Bosso
Corporation Secretary
CERTIFICATE OF DESIGNATION
OF
AFFINITY ENTERTAINMENT, INC.
Affinity Entertainment, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The Board of Directors of Affinity Entertainment, Inc. (the
"Company") is expressly authorized to fix by resolution the designations and
powers, preferences and rights, and the qualifications, limitations or
restrictions, granted to or imposed upon preferred stock. Accordingly, there is
hereby established as a series of shares of the authorized preferred stock of
this Corporation designated "Series D Convertible Preferred Stock", par value
$1.00; that the number of shares constituting such series shall be two (2)
shares; and that the Series D Preferred Stock shall not be entitled to any
preferences, dividend rights, or voting rights; and that the Series D
Convertible Preferred Stock may be converted to common stock of the Company at
any time, at the sole option of the holder, at a rate of one (1) share of Series
D Convertible Preferred Stock to Seven Hundred Fifty Thousand (750,000) shares
of common stock of the Company (the "Common Stock"), provided that conversion
rights shall attach to the owner of the shares of Series D Preferred Stock or
its assignees and not to any party holding the Series D Preferred Stock as
collateral for any debt or obligation. The Company agrees that, while the Series
D Preferred Stock is outstanding, it will reserve from its authorized and
unissued common stock a sufficient number of shares to provide for delivery of
the common stock pursuant to the conversion of the Series D Preferred Stock.
If at any time while the Series D Preferred Stock is outstanding the
Company shall consolidate with or merge into another corporation, the number of
Common Shares into which the Series D Preferred Stock is convertible shall be
adjusted so that each holder of each share of Series D Preferred Stock shall be
entitled to, without any change in or additional payment, the securities or
property to which a holder of 750,000 shares of Common Stock on the date
immediately prior to the date upon which such merger or consolidation shall
become effective, would have been entitled upon such consolidation or merger.
Moreover, the Company shall take such steps in connection with such
consolidation or merger as may be necessary to assure that all of the rights of
Series D Preferred Stock shall thereafter be applicable, as nearly as reasonably
may be, in relation to any securities or property thereafter deliverable upon
the conversion of the Series D Preferred Stock. The Company shall not effect any
such consolidation or merger unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting therefrom shall
assume by written instrument executed and mailed to the registered holder hereof
at the address of such holder shown on the books of the Company, the obligation
to deliver such holder such securities or property as in accordance with the
foregoing provisions such holder shall be entitled to convert. A sale of all or
substantially all of the assets of the Company for a consideration
<PAGE>
(apart from the assumption of obligations) consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
In case any voluntary or involuntary dissolution, liquidation, or
winding up of the Company shall at any time be proposed, the Company shall give
at least 20 days' prior written notice thereof to the registered holder of the
Series D Preferred Stock stating the date on which such event is to take place
and the date (which shall be at least 20 days after the giving of such notice)
as of which the holders of Common Shares of record shall be entitled to exchange
their Common Shares for securities or other property deliverable upon such
dissolution, liquidation or winding up, and afford such registered holder the
opportunity to convert such Series D Preferred Stock to Common Stock. Notices
pursuant to this paragraph shall be given by first class mail, postage prepaid,
addressed to the registered holder of the Series D Preferred Stock at the
address of such holder appearing in the records of the Company.
SECOND: That the designation was duly adopted in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, we have signed this Certificate this day of
December, 1996.
AFFINITY ENTERTAINMENT, INC.
William J. Bosso
President
ATTEST:
William J. Bosso
Corporation Secretary
- 2 -
ADDENDUM TO LEASE AGREEMENT
This Addendum to Lease Agreement is made this 23rd day of September, 1996, to
that certain Agreement of Lease, dated the 22nd day of July, 1996, by and
between Tampa 1 Associates, Ltd., a Florida corporation, (the "Landlord") and
Affinity Entertainment, Inc., a Florida corporation, (the "Tenant") for office
space commonly known as Palm Lake Phase I (the "Lease").
WHEREAS, Tenant wished to extend the commencement date of the Lease from
September 1, 1996 to October 1, 1996;
WHEREAS, Landlord is willing to extend the commencement of the Lease to October
1, 1996; and
WHEREAS, the parties wish to reduce their agreement concerning the Lease to
writing.
NOW THEREFORE, in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, the parties hereby agree as follows:
1. The above and foregoing recitals are true and correct and are
incorporated herein by reference.
2. The commencement date under the Lease is hereby extended to begin
October 1, 1996.
3. The Lease shall remain in full force and effect, except as otherwise
modified in this Addendum. In the event of any
conflict between this Addendum and the Lease, the provisions of this Addendum
shall control.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
execution date shown below their respective signature.
WITNESSES: LANDLORD:
TAMPA 1 ASSOCIATES, LTD.
By: SONGY PARTNERS LIMITED
-------------------------------
Its: General Partner
By: SPL FLORIDA, INC.
-------------------------------
Its: General Partner
/s/ Sondra J. Sobal By: /s/ David B. Songy
- - --------------------------- -------------------------------
Its: President
- - --------------------------- ------------------------------
Executed by Landlord on the 27 day of September, 199___.
WITNESSES: TENANT:
AFFINITY ENTERTAINMENT, INC.
/s/ C. Sue McCammon By: /s/ William J. Busso
- - --------------------------- -------------------------------
Its: President
- - --------------------------- ------------------------------
Executed by Landlord on the 23rd day of September, 199___.
<PAGE>
LEASE AGREEMENT
THIS LEASE made this 22 day of July , 1996 , by and between TAMPA I
ASSOCIATES,LTD., a Florida limited partnership ("Landlord" and AFFINITY
ENTERTAINMENT, INC., a Delaware corporation (Tenant ).
WITNESSETH:
ARTICLE I
Demise and Use
--------------
l.1 Upon the terms and conditions hereinafter set forth, Landlord does
hereby demise and lease to Tenant, and Tenant does hereby hire and take from
Landlord, the premises as described in Exhibit A attached hereto and made a part
hereof, consisting of approximately 5,674 rentable square feet on the 3rd Floor,
Suite 370, in the Building (hereinafter defined) erected on land (hereinafter
referred to as the "Land") located in the City of Tampa and County of
Hillsborough, State of Florida, the Land being more particularly described in
Exhibit B attached hereto and made a part hereof. No easement for light or air
is included in the Demised Premises.
1.2 Except as otherwise expressly provided in this Lease, all the
outside walls of the Demised Premises (as hereinafter defined) are expressly
reserved to Landlord, and access to any space in the Demised Premises used for
shafts, stacks, pipes, conduits, ducts, electricity or other utilities, sinks or
other building facilities, and the use thereof as well as access thereto through
the Demised Premises for the purpose of operation, maintenance, decoration and
repair, shall be made available to Landlord in a manner consistent with Article
XIX, below.
1.3 Tenant may use the Demised Premises for its offices and for the
conduct of general business activities, which uses shall be consistent and
compatible with the general occupancy and character of the Building, and for no
other purpose.
1.4 Nothing in this Lease shall be deemed to constitute Tenant as a
partner or an associate in business with Landlord, or responsible in any way for
the business of Landlord. Tenant shall have no control over or responsibility
for employees of Landlord.
ARTICLE II
Definitions
-----------
2.1 The following terms shall, for all purposes of this Lease, have the
meanings herein specified unless the context otherwise requires. This Article
shall not be construed to limit the general applicability of terms elsewhere
defined in this Lease.
2.2 "Additional Rents" shall mean those amounts, other than Annual Base
Rental as set forth in Section 5.1 of this Lease, payable by Tenant to Landlord
in connection with this Lease, including but not limited to Operating Expense
Differential pursuant to Section 6. 1, cost of alterations pursuant to Section
8. 10, cost of electricity pursuant to Article XVIII, cost of extraordinary
services pursuant to Article XXII, and any other amounts payable by Tenant to
Landlord pursuant to the terms hereof.
2.3 "Building" shall mean the office building consisting of not less
than three (3) stories including ground floor, parking garage, and all other
improvements erected by Landlord at Landlord's expense, and located on the Land.
2.4 "Commencement Date" shall mean SEPTEMBER 1, 1996.
2.5 "Demised Premises" shall mean the space described in Exhibit A and
referred to in Section 1.1 of this Lease.
2.6 "Security Deposit" means the sum of SEVEN THOUSAND EIGHT HUNDRED
ONE and 75/100 DOLLARS ($7,801.75) to be deposited with Landlord at the time of
execution hereof.
<PAGE>
2
2.7 "Holidays" shall mean those days celebrated each calendar year as
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, or other national legal holidays.
2.8 "Lease" shall mean this instrument.
2.9 "Normal Business Hours" shall mean from 8:00 a.m. to 6:00 p.m.
weekdays and 8:00 a.m. to 1:00 p.m. Saturdays (Sundays and Holidays excepted).
2.10 "Rentable Area of Tenant" shall mean the total number of square
feet of rentable area of the Demised Premises, which Demised Premises are as set
forth in Exhibit A hereto.
2.11 "Rentable Area of Building" shall mean the total number of square
feet of rentable area on all floors of the Building measured.
2.12 "Land" shall mean that area described in Exhibit B and referred to
in Section 1. 1 of this Lease.
2.13 "Term" shall mean the period described in Section 3. 1.
ARTICLE III
Term
----
3.1 The Term of this Lease shall be THREE (3) years commencing on the
Commencement Date and ending, unless sooner terminated, at Midnight on the last
day of the last full calendar month thereafter, Promptly after the Commencement
Date, Landlord and Tenant will execute an agreement in recordable form
(hereinafter referred to as the "Commencement Date Agreement") stating, among
other things, the commencement and expiration dates of this Lease and the Annual
Base Rent.
ARTICLE IV
INTENTIONALLY OMITTED
---------------------
ARTICLE V
Annual Base Rent
----------------
5.1 Tenant agrees to pay to Landlord for the use of the Demised
Premises, from and after the Commencement Date, in lawful money of the United
States, a base annual rental (hereinafter "Annual Base Rent") in the sum of
NINETY-THREE THOUSAND SIX HUNDRED TWENTY-ONE And 00/100 DOLLARS ($93,621.00) for
the first Lease year. Thereafter the Annual Base Rent shall increase to
NINETY-SIX THOUSAND, FOUR HUNDRED FIFTY EIGHT And 00/100 DOLLARS ($96,458.00)
for the second Lease Year and to NINETY-NINE THOUSAND TWO HUNDRED NINETY-FIVE
And 00/100 DOLLARS ($99,295.00) for the third Lease Year. Such Annual Base Rent
shall be payable in equal monthly installments in advance on the first day of
each calendar month throughout each such respective twelve (12) month period.
Payments of Annual Base Rent and Additional Rent shall be delinquent if not paid
to Landlord by the fifth (5th) day of any calendar month ("Delinquent
Payments"). Delinquent Payments shall be subject to a late charge of five
percent (5%) of such Delinquent Payment. Tenant acknowledges that the late
charge is liquidated damages and to defray Landlord's administrative cost's. All
payments shall be made at the office of the Landlord or at such other place as
may, from time to time, be designated by the Landlord in accordance with the
provisions of Article XXIX and shall be made without any set off or counterclaim
whatsoever.
5.2 If the Commencement Date is not on the first day of the month, or
the Lease termination date is not the last day of the month, a prorated
installment of Annual Base Rent and any Additional Rent herein provided for
shall be paid to Landlord at the then current rate for the fractional month
during which the Commencement Date and/or termination date occurs.
<PAGE>
3
5.3 Tenant agrees to pay or cause to be paid, before delinquency, any
and all sales, privilege or rental taxes (now or hereafter), required by any
governmental body on all Base Rent and Additional Rent hereunder.
ARTICLE VI
Adjustment of Rent
------------------
6.1 If, in any calendar year or partial calendar year during the Term
hereof, the Operating Expenses, as hereinafter defined, of the Building should
exceed SIX AND ONE-HALF Dollars ($6.50) per rentable square foot of Rentable
Area of Building (such excess being hereinafter referred to as the "Operating
Expense Differential"), then, as Additional Rent for that year or partial
calendar year, Tenant shall pay for each square foot of Rentable Area of Tenant
an amount equal to the Operating Expense Differential, all in accordance with
the terms herein.
6.2 At the commencement of this Lease and at or prior to the
commencement of any calendar year during the Term hereof, Landlord may deliver
to Tenant a written estimate of any such Operating Expense Differential (such
estimate being hereinafter referred to as "Estimated Operating Expense
Differential") which may be due hereunder during the year in which this Lease
commences and for any such succeeding year as the case may be, whereupon the
monthly rental for such full or partial calendar year shall be increased by 1/12
of the amount of the Estimated Operating Expense Differential of such year.
6.3 Statements showing the actual Operating Expenses of the Building
and Tenant's share thereof (hereinafter referred to as "Statement of Actual
Adjustment") shall be delivered by landlord to Tenant within a reasonable period
of time after the end of any calendar year in which Estimated Operating Expense
Differential was paid by Tenant or due to Landlord under the provisions hereof.
Within thirty (30) days after the delivery by Landlord to Tenant of such
Statement of Actual Adjustment, Tenant shall pay to Landlord the amount by which
the actual adjustment exceeds the amount paid by Tenant as Estimated Operating
Expense Differential during said previous calendar year, or Landlord shall
credit to Tenant the amount by which the Estimated Operating Expense
Differential exceeded the Statement of Actual Adjustment.
6.4 The computations set forth in this Article shall be made on a
calendar year basis, except if this Lease commences on a day other than the
first day of a calendar year or terminates on a day other than the last day of a
calendar year, in which event the computations shall be made on the basis of the
proportion that the number of days that this Lease was in effect for such
calendar year bears to 365.
6.5 For the purpose of this Lease, Operating Expenses shall mean any
and all costs paid or incurred in a calendar year in connection with the
operation, servicing, maintenance and repair of the Building determined in
accordance with generally accepted accounting principles consistently applied
(on an accrual basis) which shall include, but not be limited to, the following:
(a) All real estate taxes, assessments, governmental levies, county
taxes or any other governmental charge ordinary or extraordinary, unforeseen as
well as foreseen, of any kind or nature whatsoever which are or may be assessed
or imposed upon the Building or Land under the laws of the United States, the
State of Florida, the County of Hillsborough, the City of Tampa or any other
political subdivision of any of the same as a substitute in whole or in part for
taxes payable or hereinafter imposed on the Land or Building or resulting from
or due to any change in method of taxation, or reappraisal or revaluation due to
or resulting from any sale or refinancing of the Building or any interest
therein, but excluding any income, franchise excise, corporation, estate,
inheritance, succession, capital stock or transfer tax levied on Landlord to the
extent that it is not a substitute in whole or in part for real estate taxes.
(b) Compensation provided in the form of wages, salaries and such other
compensation and benefits (including insurance, welfare, retirement, vacation,
holiday, sick pay and other fringe benefits), as well as any adjustment thereto,
for the following classes of employees, employees of agents, or agents of
Landlord performing services rendered in connection with the management,
operation and maintenance of the building:
(i) property manager of the Building;
<PAGE>
4
(ii) clerical and accounting staff;
(iii) window cleaners, porters, janitors, cleaners, dusters, sidewalk
shovelers, and miscellaneous handymen;
(iv) watchmen, gardeners, caretakers, and persons engaged in
patrolling and protecting the Building;
(v) engineers, firemen, mechanics, electricians, plumbers and persons
engaged in the operating and maintenance of the heating, air
conditioning, ventilating, plumbing, electrical and elevator
systems of the.Building; and
(vi) carpenters, plasterers, painters, and other persons engaged in
connection with the management, operation and maintenance of the
Building.
(c) The uniforms of employees specified in subdivision (b) above and
the cleaning, pressing and replacement thereof.
(d) Payroll taxes, including federal and state employment taxes and
social security taxes and any other such taxes that may exist or be created,
payable in connection with the employment of any of the employees specified in
subdivision (b) above.
(e) Premiums and other charges incurred by Landlord with respect to the
following insurance on employees specified in subdivision (b) above, and on the
Building and if Landlord elects to self-insure some or all of the risks as would
normally be covered by a reasonably prudent operator, an amount deemed to be
equal to the amount which would have been incurred if insurance had been
purchased;
(i) fire, extended coverage, and special extended coverage, including
windstorm, hail, explosion, riot, rioting attending a strike,
civil commotion, aircraft, vehicle and smoke, and all risk;
(ii) landslide, subsidence or other earth movement, flood, surface
water, waves, tidal water or tidal waves, and overflow of streams
or other bodies of water or spray from any of the foregoing, all
whether driven by wind or not, or whether caused by or
attributable to earthquake, landslide, subsidence or other earth
movement;
(iii) public liability;
(iv) elevators;
(v) boiler damage, sprinkler leakage, water damage, legal liability,
and pilferage on Building equipment and materials;
(vi) worker's compensation for the employees specified in subdivision
(b) above;
(vii) health, accident, disability and group life on employees
enumerated in subdivision (b)above as therein qualified; and
(viii)other insurance which a reasonably prudent operator of a
first-class office building would carry or which the holder of
any mortgage affecting the Building or the Building and Land
might require to be carried under the terms of such mortgage.
(f) Costs, premiums, or penalties incurred for electricity, steam, gas,
water or other utilities or fuels required in connection with the operation and
maintenance of the Building, including electricity furnished by Landlord to
tenants of the Building pursuant to Section 18.1
(g) Water and sewer charges.
(h) Repairs or maintenance of the Building and the Land and the cost of
supplies, tools, material and equipment used in connection therewith.
(i) Replacements of tools and equipment.
(j) Charges of any independent contractor incurred in connection with
operating, maintaining or repairing the Building and it appurtenances, including
but not limited to inspection and servicing of elevator, electrical, plumbing
and mechanical equipment; and the furnishing of cleaning and janitorial services
and cost of materials, tools, supplies and equipment used in connection
therewith.
(k) Sales, use and excise taxes on goods and services purchased or
provided by
<PAGE>
5
Landlord or an agent thereof to properly manage, operate and maintain the
Building.
(l) Taxes levied against and paid by Landlord on rents collected,
excepting taxes levied and paid under the provisions of (a) above or taxes
otherwise an obligation of and to be paid by Tenant pursuant to Section 5.4
hereof.
(m) Taxes levied against and paid by Landlord on Tenant's Work or
personal property of Tenant located in the Demised Premises to the extent
landlord has not otherwise paid for the same under the provisions of (a) above
or Tenant has not directly paid for the same pursuant to Section 8.14.
(n) Vault or tunnel taxes, permits or rentals.
(o) License, permit and inspection fees.
(p) Auditor's fees for public accounting.
(q) Legal fees of outside or special counsel retained by Landlord in
connection with proceedings for the reduction of real estate taxes, labor
relations, or other matters to the extend that the same shall be of general
benefit to all tenants in the Building.
(r) Cost of telephone, telegraph, postage, stationery supplies and
other materials required for routine operation of the property manager's office.
(s) Cost of visitor parking spaces made available by Landlord to
customers, visitors, invitees, etc. of building tenants at a rate per parking
space so made available equal to that monthly rental rate then being quoted to
Building tenants for parking spaces therein.
(t) Association dues and subscriptions.
(u) Any and all management and other fees relating to the operation and
continued occupancy of the Building.
(v) Rest room keys, security passes, directory strips, control cards.
(w) Amortization of capital improvements which will improve Building
operating efficiencies or which may be required by governmental authorities,
with interest at the rate of one percent (1%) per annum in addition to the then
prime interest rate as charged and defined by Chemical Bank of New York on the
unamortized amount.
(x) Such other expenses and costs of any nature whatsoever, whether or
not herein mentioned, which would be construed as an operating expense by a
reasonably prudent operator and in accordance with sound real estate management
practices.
6.6 Notwithstanding anything contained in this Article, no expense
incurred for the following shall be included in Operating Expenses:
(a) Any repairs to the Building including the Demised Premises where
the occurrence causing the damage or loss necessitating repair is reimbursed by
insurance carried by Landlord, or would be reimbursed by insurance as would have
normally been carried by a reasonably prudent operator and for which a charge is
includable under the provisions specified in item (e) above.
(b) Renovating space for new tenants or in renovating space vacated by
any tenant.
(c) Income, capital stock, estate or inheritance taxes payable by
Landlord provided the same shall no have been levied as a substituted for or
supplement to real property taxes.
(d) Cost of utilities charged to and payable by tenants, including
excess electricity pursuant to Section 18.2, and any portion of Landlord's
payroll, material and contract costs of the other services charged to tenants.
(e) Costs incurred by Landlord for tenant's alterations.
<PAGE>
6
(f) Cost of painting and decorating the premises of other tenants.
(g) Depreciation of the Building.
(h) Cost of capital improvements (except as set forth in Section 6.5(w)
above).
(i) Interest on debt or amortization payments on any mortgage or
mortgages (except as set forth in Section 6.5(w) above).
(j) Ad Valorem or other Taxes on Tenant's Work and personal property of
Tenant within the Demised Premises, to the extent the same has not
been paid by Landlord pursuant to Section 6.5(a), or Tenant has not
directly paid for the same pursuant to Section 8.14.
(k) Any cost of expense of any nature whatsoever which Landlord shall
incur in connection with the operation of the Building which is
specifically reimbursed to the Landlord from any source, charged
directly to the tenant on whose behalf it is incurred (whether or
not the same shall finally be paid), or for which Landlord is
otherwise compensated or recoups such expense by way of set off,
reduction of recovery allowed, or otherwise.
6.7 If at any time during the term of this Lease the occupancy of the
Building is less than one hundred percent (100%) of its capacity, then for the
purposes of this Article, the Operating Expenses per rentable square foot of
Rentable Area of the Building shall nevertheless be computed as if the Building
were one hundred percent (100%) occupied.
6.8 The obligations of Landlord and Tenant under this Article shall
survive the expiration or other termination of this Lease.
6.9 All costs and expenses which Tenant assumes or agrees to pay to
Landlord pursuant to this Lease, including Estimated Operating Expense
Differential pending computation of the Statement of Actual Adjustment
applicable thereto, shall be deemed Additional Rent, and, in the event of
nonpayment, Landlord shall have all rights and remedies herein provided for in
case of nonpayment of rent.
6.10 In no event will the Annual Base Rent be reduced below the amount
in Article V as a result of any adjustments pursuant to this Article.
6.11 Notwithstanding anything contained in this Article VI, any
increase in Operating Expenses resulting from a change in policy or practice in
operation of the Building shall be included in Operating Expenses only if such
change in policy or practice is one which would have been made by a reasonably
prudent operator of a comparable first-class office building.
6.12 Notwithstanding anything contained in this Article VI, Tenant
shall not be responsible for any cumulative increase in "Controllable Operating
Expenses" (as hereinafter defined) in excess of ten percent (10%) each Lease
year as compared to the same Controllable Operating Expenses for the prior Lease
year. As used herein the Controllable Operating Expenses shall be limited to the
following only: cleaning, electrical repairs/maintenance, HVAC repairs, plumbing
repairs/maintenance, general building repairs, grounds maintenance, security and
life safety and administrative (exclusive of property manager).
ARTICLE VII
Assignment, Mortgaging and Subletting
-------------------------------------
7.1 Other than as set forth in Section 7.2, Tenant will not, without
prior written consent of Landlord first obtained in each case, which consent may
be arbitrarily withheld, sell, assign, mortgage, deed in trust or transfer this
Lease or sublet all or part of the Demised Premises. Tenant may, however,
without securing Landlord's consent, transfer this Lease or sublet the Demised
Premises in whole or in any part to any successor by consolidation, merger,
purchase of assets or other corporate action, provided that such successor shall
have a net worth as determined in accordance with generally accepted accounting
principles at least equal to the net worth similarly determined for Tenant
immediately prior to such consolidation, merger or the other corporate action.
Each such assignee or transferee shall assume and be
<PAGE>
7
deemed to have assumed this Lease and shall be and remain liable jointly and
severally with Tenant for the payment of the Annual Base Rental and Additional
Rent and for the total performance of all of the terms, covenants, conditions
and agreements herein contained on Tenant's part to be performed for the Term of
this Lease. No assignment, subletting or other transfer of this Lease shall in
any way relieve Tenant from its obligations under this Lease. No assignment
shall be binding on Landlord unless such assignee shall deliver to Landlord a
counterpart of such assignment and an instrument in recordable form which
contains a covenant of such assumption of obligation by the assignee; but the
failure or refusal of the assignee to execute such instrument of assumption
shall not release or discharge the assignee from its liability as set forth
above. The consent of Landlord to an assignment shall not include the right of
further assignment.
7.2 Other than for subletting permitted pursuant to Section 7. 1, in
the event that at any time or from time to time during the Term of this Lease,
Tenant desires to sublet all or part of the Demised Premises, Tenant shall
notify the Landlord in writing (hereinafter referred to as "Sublet Notice") of
the terms of the proposed subletting and the area so proposed to be sublet and
shall give the Landlord the option to (i) sublet from Tenant such space
(hereinafter referred to as "Sublet Space") at a rental not to exceed the Annual
Base Rent and Additional Rent which Tenant is required to pay to Landlord under
this Lease for the same space or (ii) in the event such proposed subletting is
for the balance of the Term hereof, terminate this Lease as to that area of the
Demised Premises so proposed for subletting, Tenant expressly agreeing to
execute an amendment to this Lease so reducing the Demised Premises. Nothing
herein shall be deemed to create a termination of this Lease in its entirety
unless the proposed sublet space for which Landlord exercises this option to
terminate comprises the entire Demised Premises. Landlord's exercise of either
such option shall be in writing within a period thirty (30) days after receipt
of the Sublet Notice.
In the event Landlord exercises the option to sublet from Tenant, the
term of the subletting from the Tenant to the Landlord for the Sublet Space
leased by Landlord shall be the term set forth in the Sublet Notice, the sublet
rentals shall be the lower of that stated in the Sublet Notice or as set forth
in the preceding paragraph and such subletting shall be on such other terms and
conditions as are contained in this Lease, to the extent applicable; provided,
however, that Landlord shall be permitted the free right of assignment and
sublease for said Sublet Space notwithstanding the provisions of this Article
VII.
If Landlord fails to exercise either such option, and Tenant fails to
complete the sublease set forth in the Sublet Notice within sixty (60) days
after receipt of such Sublet Notice by Landlord, Tenant shall again comply with
all the conditions of this Article VII as if the notice and option hereinabove
referred to had not been given and received,
If Landlord fails to exercise such option and Tenant completes a
sublease with the party set forth in the Sublet Notice within such sixty (60)
day period, the sublease shall be subject to and made upon the following terms:
(a) Any such sublease shall be subject to the terms of this Lease and
no term thereof may extend beyond the expiration of this Lease;
(b) The use to be made of the Sublet Space shall be a legal use and in
keeping with the character and tenant mix of the Building;
(c) The subletting shall not violate any negative covenant as to use
contained in any mortgage, deed of trust or similar instrument of security
affecting the Building;
(d) No sublease shall be valid and no subtenant shall take possession
of the premises subleased until an executed counterpart of such sublease has
been delivered to the Landlord and approved thereby as being in accordance with
the terms hereof; and
(e) No sublessee shall have a right to further sublet or assign.
ARTICLE VIII
Landlord's Work Tenant's Work;
------------------------------
Tenant Allowance, Alterations
------------------------------
8.1 Within the Demised Premises, Landlord shall provide, for the
Tenant, the items of construction, facilities, and equipment shown or described
in Exhibit C, attached hereto, excluding, however, alterations, deletions or
other changes to the same resulting from Tenant Plans and included within
Tenant's Work as set forth hereinafter (hereinafter referred to as "Landlord's
Work"). Landlord agrees to
<PAGE>
8
pay for the Landlord's Work up to the amount of the "Tenant Allowance"
(hereinafter defined). Any cost or expense in excess of the Tenant Allowance
shall be paid for by Tenant, immediately upon demand by Landlord. Landlord's
obligation to perform the Landlord's Work shall be subject to and contingent
upon timely payment by Tenant of any cost or expense in excess of the Tenant
Allowance.
8.2 Tenant, at its expense, will cause to be prepared by its architects
and engineers, which architects and engineers shall be subject to the prior
prompt reasonable approval of Landlord, and shall submit to Landlord, complete
working drawings for tenant improvements within the Demised Premises
(hereinafter referred to as "Tenant Plans"). Tenant Plans shall be in such form,
detail and quantity as may be required for the use of Landlord and the
contractor designated for use of Tenant by Landlord pursuant hereto for
construction purposes and permits. Tenant Plans shall be subject to Landlord's
approval, which approval Landlord (i) will not unreasonably withhold and (ii)
shall be either granted or not granted within ten (10) working days of their
submission to Landlord. If such Tenant Plans are not so approved, Landlord shall
provide Tenant a specific list of objections to said Tenant Plans at the time of
disapproval. Failure of Tenant to submit Tenant Plans to Landlord in time for
Tenant to commence construction of Tenant's Work upon notice of availability of
the Demised Premises for such pursuant to Section 2.4 hereof shall not be a
cause for the extension of the Commencement Date.
8.3 Tenant agrees to reimburse Landlord for Landlord's actual cost of
coordinating Tenant Plans to show any additions to or revisions of the
Landlord's Work.
8.4 In the event that Tenant wishes to substitute its own requirements
for materials or installations different from those specified in Exhibit C,
Landlord will credit to the Tenant's account the actual cost to Landlord of
Landlord's Work not installed, in stock or ordered.
8.5 In order to preserve architectural unity and quality as well as
overall supervision of all tenant improvements within the Building, Landlord
shall promptly upon receipt of Tenant Plans, designate a contractor(s) of
Landlord's choosing for the actual implementation of the work represented by the
Tenant Plans (herein referred to as "Tenant's Work") and Tenant shall contract
with such contractor(s) for Tenant's Work, the expense of which shall be a
direct cost of Tenant in accordance with the terms of said contract. Tenant
hereby agrees that contractor(s) chosen by Landlord are expressly permitted to
be affiliates or otherwise related parties or entities to Landlord; provided
that the cost to Tenant resulting from the use of such affiliates or related
parties shall not exceed such as would be expected to be charged by parties not
so affiliated or related. The cost and expenses of the contractor chosen by
Landlord shall be offset against the Tenant Allowance.
8.6 Landlord and Tenant shall cooperate in the scheduling and
construction of Tenant's Work, and Tenant will not do anything nor fail to do
anything that will cause a delay in the completion of the Building or that will
increase Landlord's cost of construction.
8.7 It shall be the responsibility of Tenant to place firm orders for
communications equipment and its installation with the telephone company and/or
others so as to ensure the completion of Tenant's telephones and other
communications facilities concurrent with Tenant's Work. Failure to have the
Tenant's communications facilities completed shall not be cause for extension of
the Commencement Date.
8.8 Landlord shall provide to Tenant upon Tenant's execution of the
Commencement Date Agreement as set forth in Article III hereof, an allowance up
to the amount of SEVEN DOLLARS $7.00 per rentable square foot of the Demised
Premises. Such allowance shall be hereinafter known as the "Tenant Allowance"
and shall be applied directly by Landlord as a credit against its contract for
Landlord's Work in the Demised Premises. Any direct or indirect cost or expense
in excess of Tenant's allowance incurred in connection with the completion of
Landlord's Work shall pay for by Tenant immediately upon demand by Landlord.
Landlord's obligation to complete Landlord's obligation to complete Landlord's
Work shall be subject to Tenant's timely payment of such excess amounts.
Landlord's obligation to pay Tenant Allowance hereunder shall not be
deemed an obligation to pay Tenant's contractor or any other expenses Tenant may
incur in construction of its Tenant's Work. In addition, Landlord's payment or
failure to pay Tenant Allowance shall not be a cause for the extension of the
Commencement Date.
8.9 In addition to the Tenant's Work set forth hereinabove, Tenant may,
from time to time during the Term of this Lease, upon obtaining Landlord's prior
written consent, which shall not be unreasonably withheld, make such
alterations, additions, substitutions and improvements to the Demised
<PAGE>
9
Premises as Tenant may reasonably deem necessary or desirable to adapt the
Demised Premises or any part thereof for its purposes, provided such changes are
not structural in nature, do not adversely affect the electrical equipment or
installations or the outside appearance or strength of the Building and do not
subject other tenants to interference by noise or vibrations or affect the
delivery of electricity or other utility services. Tenant agrees to submit plans
to Landlord for said alterations, additions, substitutions and improvements for
Landlord's approval which landlord will not unreasonably withhold. Landlord
shall arrange and contract for all of such alterations, additions, substitutions
and improvements to be made, and bill Tenant periodically for work completed,
such bills to be payable by Tenant to Landlord with five (5) days of being
billed therefor.
8.10 All goods, effects, personal property, business and trade
fixtures, machinery and equipment owned by Tenant or installed at Tenant's
expense, exclusive of Tenant's Work and alterations, additions, substitutions
and improvements pursuant to Section 8.9, in the Demised Premises shall remain
the personal property of Tenant and may be removed by Tenant at any time, and
from time to time, during the term of this Lease provided that any damage caused
by such removal can be totally repaired and Tenant, in removing any of such
property, does in fact repair all damage to the Demised Premises and the
Building caused by such removal.
8.11 Tenant's Work and all alterations, additions, substitutions and
improvements made and installed for Tenant pursuant to Section 8.9, whether at
Tenant's or Landlord's cost, shall be and remain Landlord's property, except
Tenant's furniture, furnishings and trade fixtures. Tenant shall be responsible
for the maintenance of Tenant's Work and all such alterations, additions,
substitutions and improvements pursuant to Section 8.9, and Tenant shall not
remove such without the written consent of Landlord, except that Tenant's
furniture, furnishings and trade fixtures may be removed without such consent.
8.12 All Tenant Plans for original Tenant's Work and for later
alterations, additions, substitutions and improvements shall meet all
governmental codes, regulations, and ordinances applicable to the same.
8.13 At its own expense, Tenant shall cause to be discharged, within
ten (10) days of the filing thereof, any mechanic's lien filed against the
Demised Premises or the Building for work claimed to have been done for, or
material claimed to have been furnished to Tenant. Failure to comply with this
paragraph shall give Landlord the right to pay and discharge such lien by any
means, at Landlord's discretion, and apply all costs in dong so to Tenant as
Additional Rent.
8.14 Tenant agrees to pay or cause to be paid, before delinquency, any
and all taxes levied or assessed and which become payable during the Term upon
Tenant's Work or personal property of Tenant located in the Demised Premises, to
the extent Landlord has not otherwise paid for the same within real estate or
similar taxes on the Building pursuant to Section 6.5(a) or directly pursuant to
Section 6.5(m).
ARTICLE IX
Ordinary Repairs
----------------
9.1 Tenant shall keep the Demised Premises and the Tenant's Work
therein in good order and condition and at its sole cost and expense make all
repairs thereto caused by its negligence, misfeasance or malfeasance or by its
use of the Demised Premises, or any part thereof, in a manner not customary for
general office purposes, or which are not Landlord's obligation pursuant to any
provisions of this Lease, and commit no waste in the Demised Premises or the
Building.
9.2 Landlord shall, at its expense, make all repairs and replacements,
structural and otherwise, necessary or desirable in order to keep in good order
and repair the Landlord's Work in the Building (including the public halls and
stairways, the plumbing and other fixtures and the fixtures in the Demised
Premises, excepting Tenant's trade fixtures, and all plumbing, hardware, wiring
and other equipment for the general supply of water, heat, air conditioning, gas
and electricity, all to the extent included within Landlord's Work) except
repairs hereinabove provided to be made by Tenant and repairs to, or made
necessary by reason of, Tenant's Work or other alterations, additions,
substitutions or improvements made by Tenant. All repairs, restorations or
replacements by either party shall be of a first-class quality and done in a
good workmanlike manner.
9.3 Except as expressly provided otherwise in this Lease, there shall
be no allowance to Tenant or diminution of rent and no liability on the part of
Landlord by reason of inconvenience, annoyance or injury to business arising
from the making of any repairs, alterations, additions, substitutions or
improvements in or to any portion of the Building or the Demised Premises or in
or to the fixtures,
<PAGE>
10
appurtenances and equipment thereof provided that in each case such repairs,
alterations, additions, substitutions or improvements are effected in a manner
least likely to result in inconvenience to the Tenant and provided further that
in each case all work done in connection with such repairs, alterations,
additions, substitutions or improvements is done promptly and in a good
workmanlike manner. This provision shall not be construed as to require the
Landlord to do work at overtime rates. If Tenant requests that such work be done
in such a manner or on a schedule requiring overtime payment, Tenant will pay
the excess of the overtime cost over ordinary rates. Landlord agrees to use its
best efforts to do any work done by it in such a manner as not materially to
interfere with or impair Tenant's use of the Demised Premises.
ARTICLE X
Floor Load; Office Equipment; Moving Heavy Equipment
----------------------------------------------------
10.1 Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the floor load per square foot which such floor was
designed to carry. Floor load is stipulated to be seventy (70)pounds per square
foot.
10.2 Business machines and mechanical equipment used by Tenant which
cause noise and/or vibration that may be transmitted to the structure of the
Building or to any rentable space therein to such a degree as to be
objectionable to Landlord or to any tenants in the Building shall be placed and
maintained by the Tenant, at Tenant's expense, in settings of cork, rubber or
spring type noise and/or vibration isolators sufficient to eliminate any such
vibration and/or noise.
10.3 Should Tenant desire to move any heavy or bulky equipment, the
movement of which is regulated by any statute, ordinance, or rule or regulations
of any public authority having jurisdiction, or which require special
arrangements to be made by the Landlord to accommodate such movement, Tenant
shall submit to Landlord notice of the terms and manner in which it proposes to
move such equipment and Landlord shall, with reasonable dispatch, make
appropriate arrangements to accommodate Tenant's intentions and facilitate
such movement of equipment. All such activities will be carried out in full
compliance with the applicable codes, regulations and ordinances of the City of
Tampa and County of Hillsborough and in harmony with the structural design of
the Building.
ARTICLE XI
Laws, Ordinances, and Requirements of Public Authorities
--------------------------------------------------------
11.1 Tenant, at its expense, shall comply with all laws, rules,
regulations, ordinances or orders of Federal, State, County and Municipal
authorities having jurisdiction, and with any lawful direction of any public
officer or officers, which shall impose any duty upon Landlord or Tenant with
respect to the Demised Premises, or the use or occupation thereof, provided such
duty arises from or results from Tenant's failure to comply with Tenant's
covenants in this Lease or from Tenant's negligence or from the use of the
Demised Premises in a manner contrary to the purposes for which the same are
leased to Tenant. Landlord represents and warrants that at the Commencement Date
of this Lease, the Demised Premises, excluding the effect of Tenant Plans, will
be in compliance with all applicable laws, rules, regulations, ordinances,
orders and directions.
11.2 If either Landlord or Tenant should desire to contest the validity
of any such law, rule, regulation, ordinance, order or direction with which
either is obligated to comply, it may, at its expense, carry on such contest;
and noncompliance during such contest shall not constitute a breach of this
Lease provided that the parties so contesting shall indemnify and hold the other
harmless a against the cost of compliance and against all liability for any
loss, damages and expenses (including reasonable attorney's fees) which might
result from or be incurred in connection with such contest or noncompliance;
except that noncompliance shall not continue so as to subject either party to a
reasonable likelihood of prosecution for a crime.
11.3 If either party receives written notice of any violation of any
law, ordinance, rule, order or regulation applicable to the Demised Premises, or
the Building, it shall give prompt notice thereof to the other.
ARTICLE XII
Compliance with Insurance Requirements and
------------------------------------------
Certificate of Occupancy
------------------------
12.1 Neither Landlord nor Tenant shall do or permit to be done any act
or thing about,
<PAGE>
11
in or upon the Building or the Demised Premises which will invalidate or be in
conflict with the Certificate of Occupancy issued by a public authority for the
Building or of the terms of the State of Florida standard form of fire insurance
policies covering the Building and the fixtures and property therein excluding
fixtures and property in the Demised Premises. Both parties shall, at their own
expense, comply with all rules, orders, regulations or requirements of the
National Fire Protection Association or any other similar body having
jurisdiction, and neither shall knowingly do or permit to be done about, in or
upon the Building or the Demised Premises or bring or keep anything therein or
use the same in a manner which increases the rate of fire insurance upon the
Building or on any property or equipment located therein, including property or
equipment located in the Demised Premises. Notwithstanding the foregoing
requirements of this Section 12. 1, if the adverse consequences to Landlord of
noncompliance by Tenant with such requirements are limited to an increase in the
rate of fire and extended coverage insurance carried by landlord in compliance
herewith, such noncompliance by Tenant shall not constitute a breach of this
Lease, but Section 12.2 below will apply.
12.2 If any installation in or use of the Demised Premises by Tenant
increases the rate for fire insurance (with extended coverage) on the Building
or on the property and equipment of Landlord, Tenant shall reimburse Landlord
for that part of the fire insurance premiums thereafter paid by Landlord which
shall have been charged because of such installation or use by Tenant and Tenant
shall make said reimbursement as Additional Rent on the first day of the month
following receipt of notice given by Landlord that it has been required to pay
and has paid such higher rate.
ARTICLE XIII
Observance of Rules and Regulations and Covenant
------------------------------------------------
of Quiet Enjoyment
------------------
13.1 Tenant, its servants, employees, agents, visitors, and licensees
shall observe faithfully and comply strictly with the rules and regulations set
forth in Exhibit D attached hereto (the "Rules and Regulations") and made a part
hereof, provided however, that Landlord shall enforce the same in a uniform and
nondiscriminatory manner as to all tenants in the Building to which such Rules
and Regulations shall be applicable. Landlord shall have the right to make
reasonable changes in and additions to the Rules and Regulations thus set forth
provided such changes and additions do not unreasonably affect the conduct of
Tenant's business.
13.2 Any prior failure by Landlord to enforce any Rules and Regulations
now or hereafter in effect, either against Tenant or any other tenant in the
Building, shall not constitute a waiver of Landlord's right to enforce uniformly
any such Rules and Regulations at a future time.
13.3 Landlord covenants that upon Temnt's paying the Annual Base Rent
and Additional Rent and observing and performing all the terms, covenants and
conditions of this Lease on its part to be observed and performed, Tenant may
peaceably and quietly enjoy the Demised Premises, subject, nevertheless, to the
terms and conditions of this Lease.
ARTICLE XIV
Liability Insurance: Exculpation
--------------------------------
of Landlord and Tenant
----------------------
14.1 Landlord shall not be liable for any personal injuries occurring
in the Demised Premises or for damage or injury to personal property of Tenant,
or of any other person, done or occasioned by or from electric wiring, plumbing,
dampness, water, gas, steam or other pipes or sewage, or the failure of the air
conditioning or refrigeration system, or the breaking of any electric wire, the
bursting, leaking or running water from any tank, washstand, water closet, or
waste pipe, sprinkler system, radiator or any other pipe in, above, upon or
about the Building or Demised Premises, or which may at any time hereafter be
placed therein; or for any such personal injury or property damage occasioned by
fire, explosion, falling plaster, electricity, smoke, or water, snow, or ice
being upon or coming through from the street, roof, subsurface, skylights trap
door, windows or from any other cause whatsoever; or for any damages or injuries
to persons or property arising from acts or neglect of any tenant or occupant of
the Building, or of any owners or occupants of adjacent or contiguous property;
or for the loss or theft of any property of Tenant however occurring, including
loss of property entrusted to employees of Landlord provided, however, that
Landlord shall be liable for such of all or any of the foregoing as may be due
to its neglect or negligence; provided, further, that in the event that Tenant
shall suffer any loss or be subjected to any liability as a result of any of the
foregoing, and the same shall hive been caused by or is alleged to have resulted
from the
<PAGE>
12
negligence of any architect, engineer, contractor or other third party against
whom Landlord shall have right of recovery if it shall suffer similar loss,
Landlord shall be liable to Tenant for Tenant's losses so suffered, but only to
(he extent that Landlord shall be successful in recovering such losses from such
third party or parties (or its or their liability insurer) by way of claim or
suit instituted at Tenant's request.
14.2 Section 14.1 shall not be construed to impose upon Landlord any
liability as to which rights of subrogation have been waived under Section 15.6
of this Lease.
14.3 Tenant shall secure and maintain comprehensive general liability,
fire extended coverage, and all risk perils, insurance in form, reasonable
amount, and with companies acceptable to the Landlord and Landlord shall have
the right to review, from time to time, that insurance coverage so maintained by
the Tenant. Tenant shall insure Landlord from and against any and all loss,
costs (including statutory liability and liability under workmen's compensation
laws) in connection with claims for damages as a result of injuries or death of
any person or injury to property sustained by Tenant and all other persons which
arise from or in any manner grow out of any acts or neglect on or about the
Demised Premises by Tenant, Tenant's partners, agents, employees, customers,
invitees, contractors and subcontractors. Landlord shall indemnify and save
harmless Tenant from and against any and all loss and cost (including statutory
liability and liability under worker's compensation laws) in connection with
claims for damages as the result of injury or death of any person or injury to
property sustained by Landlord and all other persons which arise from or in any
manner grow out of any act or neglect in or about the Building by Landlord,
Landlord's partners, agents, employees, customers, invitees, contractors and
subcontractors.
ARTICLE XV
Damage by Fire or Other Casualty
--------------------------------
15.1 Anything in this Lease to the contrary notwithstanding, if the
Demised Premises or the Building should be partially or totally damaged or
destroyed by Fire or other casualty insurable under ,a standard form policy of
fire and/or extended coverage insurance (including vandalism and malicious
mischief if such coverage is carried by Landlord) then, if this Lease shall not
have been canceled in accordance with the provisions hereinafter made in this
Article XV, landlord will with reasonable dispatch after notice to it of the
damage or destruction, repair the damage, and replace, restore, and rebuild the
Demised Premises and the Building to the extent that insurance Proceeds are
available. Should Landlord determine that the amount of insurance proceeds will
not be sufficient to accomplish the estimated cost of the required repair,
replacement, restoration or rebuilding, then upon ninety (90) days written
notice to Tenant, from the date of the casualty, Landlord may, at its option,
cancel this Lease or proceed to repair, replace, restore or rebuild the Demised
Premises and the Building at its sole cost and expense. Landlord will commence
such repair, replacement, restoration or rebuilding as soon as practicable after
receiving notice from Tenant co do so, but under no circumstances later than one
(1) year after receipt of such notice. Landlord shall no, be required by this
Section to repair, replace, restore, or rebuild any property which Tenant shall,
under the provisions of Article VIII above, be entitled to remove from the
Demised Premises, it being agreed that Tenant shall bear the entire risk of
loss, damage, or destruction of such property while it is on the Demised
Premises.
15.2 If the Demised Premises shall be partially damaged or partially
destroyed, the applicable proportion of Annual Base Rent and Additional Rent
payable under this Lease shall, to the extent that the Demised Premises shall
have been rendered unfit for use for Tenant's business purposes, be abated for
the period from the date of such damage or destruction to the date that such
damage or destruction shall be repaired or restored. If the Demised Premises or
a major portion thereof shall be totally or substantially damaged or destroyed
or rendered completely or substantially unfit for use for Tenant's business
purposes because of Fire or other casualty as provided in Section 15. 1, the
entire such rent shall, as of the date of the damage or destruction, abate until
Landlord shall repair, restore, replace or rebuild the Building and the Demised
Premises, provided, however, that should Tenant reoccupy a portion of the
Demised Premises while the restoration work is taking place and prior to the
date that the entire Demised Premises are again made fit for use for Tenant's
business purposes, such rent shall be apportioned and become payable by Tenant
in proportion to the part of the Demised Premises occupied by it for the purpose
of conducting its business, effective on the date that the Tenant shall again
begin conducting its ordinary business from the Demised Premises or portion
thereof.
15.3 In the event that the Demised Premises, or a major part thereof,
shall be totally or substantially damaged or destroyed, or rendered completely
or substantially untenantable as set forth in Section 15.1 above, Tenant may, at
its option, exercisable within ninety (90) days of the date of casualty, cancel
this Lease by written notice to Landlord; provided, however, that it appears
from an estimate agreed
<PAGE>
13
upon by Landlord and Tenant that the required repairs, replacement, restoration
and rebuilding cannot be accomplished within twelve (12) months from the date of
commencement thereof, or that it appears improbable to Tenant that, because of
causes beyond Landlord's reasonable control, Landlord will commence such
activities within twelve (12) months from the date of the casualty. Anything in
this Lease to the contrary notwithstanding, if Landlord has riot completed
within two (2) years from the date of casualty all repairs, replacements,
restoration and rebuilding required of Landlord under Section 15.1 above, Tenant
may, at its option, cancel this Lease by written notice to Landlord; provided,
however, that said two (2) year period shall be extended by the number of days
(not to exceed 365 days) lost in actual rebuilding as the result of labor
strikes, acts of God, or other causes beyond the reasonable control of Landlord.
15.4 In the event that the damage to the Building shall render
untenantable in excess of 50% of the Rentable Area of Building, Landlord may,
within ninety (90) days of the casualty, by notice given to Tenant, elect not to
repair or rebuild the Building and this Lease shall thereupon terminate
effective ,is of the date of casualty. After receipt of such notice, Tenant
shall vacate the Demised Premises as quickly as it is reasonably possible,
provided, however, that Tenant shall be entitled to occupy the Demised Premises
or any part hereof without liability to Landlord for as long as it is reasonably
necessary to salvage or remove therefrom its personal property as provided in
Article VIII above.
15.5 No damages, compensation, or claims shall be payable by Landlord
for inconvenience, loss of business, or annoyance arising from any repair or
restoration of any portion of the Demised Premises or the Building required to
be made by Landlord under the provisions of this Article XV, but this Section
shall not be construed to limit the abatement of Tenant's rent in accordance
with Section 15.2 above. Landlord covenants with Tenant that it shall use its
best efforts to effect all such repairs promptly and in such manner as not
unreasonably to interfere with Tenant's occupancy if Tenant shall not have
vacated the Demised Premises or the portion thereof to be repaired because the
same shall have become untenantable.
15.6 Landlord and Tenant hereby waive on behalf of themselves and their
respective insurers, any claims that either may have against the other for loss
or damage resulting from perils covered by the standard form of fire and
extended coverage insurance, including vandalism and malicious mischief, to the
extent of such policies which shall be in effect from time to time in the State
of Florida, it being expressly understood that this waiver is intended to extend
to all such loss or damage whether or not the same is caused by the fault or
neglect of either Landlord or Tenant. Each party shall secure from its casualty
insurer a waiver of subrogation endorsement to its policy and, upon request,
deliver a copy of such of, endorsement to the other party to this Lease.
ARTICLE XVI
Bankruptcy, Remedies
--------------------
If at any time prior to the Commencement Date or during the Term of
this Lease, Tenant, files in any court pursuant to any statute either of the
United States or of any state a Petition in Bankruptcy or Insolvency for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's properly, or Tenant makes an assignment for the benefit of
creditors, or Tenant petitions for or enters into an arrangement with creditors,
this Lease shall ipso facto be canceled and terminated and in such event neither
Tenant nor any person claiming through or under Tenant by virtue of any statute
or any order of any court shall be entitled to possession of the Demised
Premises and Landlord, in addition to any other rights and remedies given by
Section 16.3 and by virtue of any other provision in this Lease or by virtue of
,any statue or rule of law, may retain as liquidated damages any security
deposit, rent, or monies received by Landlord from Tenant or others on behalf of
Tenant prior to Tenant's action described above.
16.2 In the event that at any time mentioned in Section 16.1 above, an
involuntary insolvency, bankruptcy, or reorganization proceeding shall be
instituted against Tenant, Tenant shall have ninety (90) day's in which to cause
said proceeding to be vacated or dismissed after it receives notice thereof. In
the event Tenant fails to cause such proceeding to be vacated or dismissed
within such period of time, this Lease, at the option of Landlord exercised
within a reasonable time after expiration of said 90-days period, may be
terminated by Landlord in which event neither Tenant nor any person claiming
through or under Tenant by virtue of any statute or any order of any court shall
be entitled to possession or to remain in possession of the Demised Premises,
but shall forthwith quit and surrender the Demised Premises and Landlord, in
addition to the other rights and remedies given by Section 16.3 and by virtue of
any other provision in this Lease or by virtue of any statute or rule of law,
may retain as liquidated damages any rent, security deposit, or monies received
by Landlord from Tenant or others on behalf of Tenant prior to Tenant's action
described above.
<PAGE>
14
16.3 It is stipulated and agreed that in the event of the termination
of this Lease pursuant to Section 16.1 or 16.2 hereof, Landlord shall,
notwithstanding any other provisions of this Lease to the contrary, forthwith be
entitled to recover from Tenant as and for liquidated damages an amount equal to
the difference between the rent reserved hereunder for the unexpired portion of
the Term of this Lease and the rental value of the Demised Premises at the time
of termination (if lower than the rent reserved) for the unexpired portion of
the term of this Lease, both discounted at the rate of five percent (5%) per
annum to present worth. Nothing herein contained shall limit or prejudice the
right of Landlord to prove or obtain to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings in which,
such damages are to be proved, whether or not such amount be greater, equal to,
or less than the amount of the difference referred to above.
ARTICLE XVII
Condemnation
------------
17.1 In the event of a total condemnation of the Building, this Lease
and the term and estate hereby granted shall forthwith cease and terminate as of
the date of taking of possession for such use or purpose.
17.2 In the event that less than the whole or substantially the whole
of the Building is condemned or taken as set forth in Section 17.1 above, then
this Lease shall remain in force and in effect; provided, however, that if the
taking shall so substantially interfere with the use of the Demised Premises as
to render the continued operation thereof economically unfeasible as reasonably
determined by Landlord, then Landlord (whether or not the Demised Premises be
directly affected) may, at its option, terminate this Lease and the term and
estate hereby granted as of the date of the taking of possession for such use
and purposes by notifying Tenant in writing of such termination.
17.3 In the event that less than the whole or substantially the whole
of the Building shall be so condemned or taken, if the space so taken is such
that the area of the Demised Premises remaining after the condemnation is such
as to render continued operation of the Demised Premises economically unfeasible
as reasonably determined by Tenant, then Tenant may at its option terminate the
Lease and the term and estate hereby granted as of the day of the taking of
possession for such use or purposes by notifying Landlord in writing of such
termination.
17.4 Upon any such taking or condemnation and the continuing in force
of this Lease as to any part of the Demised Premises, all rental shall be
diminished by an amount representing the part of the said rent properly
allocable to the portion of the Demised Premises which may be so condemned or
taken and Landlord shall, at its expense, proceed with reasonable diligence to
repair, alter and restore the remaining part of the Building and the Demised
Premises to substantially their former condition, due allowance being made for
the impact of such taking or condemnation.
17.5 Landlord shall be entitled to receive entire award in any
condemnation proceeding, including any award for the value of any unexpired term
of this Lease, and Tenant shall have no claim against Landlord or against the
proceeds of the condemnation. Nothing in this Lease shall be deemed or construed
to prevent Tenant from making a claim against the condemning authority for
relocation costs and for the value of or damages to any of Tenant's property as
described in Article VIII above, and for such business damages and/or
consequential damages as may be allowed Tenant by law at the time of the
condemnation, provided the same does not have the effect of decreasing
Landlord's award.
17.6 Anything in this Article XVII to the contrary notwithstanding, if
the temporary use or occupancy of all or any part of the Demised Premises shall
be condemned or taken for any public or quasi-public use during the Term of this
Lease, this Lease shall be and remain unaffected by such condemnation or taking
and Tenant shall continue to pay in full the Annual Base Rent and Additional
Rent and Tenant shall have the right to appear, claim, prove and receive so much
of the award actually paid to Landlord for such taking as represents
compensation for use and occupancy of the Demised Premises up to and including
the date of expiration of the Term of this Lease or the date of termination of
the temporary taking, whichever is earlier, and Landlord shall be entitled to
appear, claim, prove and receive the entire balance of the award. Each party
shall cooperate fully with the other in efforts to obtain any such award, and
each claimant shall indemnify and hold harmless the other party to the extent of
expenses incurred as a result of such cooperation.
<PAGE>
15
ARTICLE XVIII
Electricity
-----------
18.1 Landlord shall furnish to the Demised Premises electricity during
Normal Business Hours sufficient for electrical outlets (120 volt single phase),
in an amount not exceeding one (1) watt, and for ceiling lighting, in an amount
not exceeding two (2) watts, per square foot of Rentable Area of Tenant. The
cost of any electrical service at (i) other than Normal Business Hours and (ii)
during Normal Business Hours but exceeding the above-stated amounts of wattage,
whether determined by survey or separate metering as set forth hereinafter, (the
Excess Electricity) shall be paid pursuant to Section 18.2 hereof. Nothing
herein shall be deemed to create any obligation of Landlord to provide
electrical equipment in excess of that provided pursuant to Landlord's Work or
as expressly set forth in this Article XVIII.
18.2 At any time and from time to time, Landlord may conduct electrical
survey(s) within the Demised Premises to determine Tenant's consumption of
Excess Electricity, if any. If such survey(s) shall reveal usage by Tenant of
Excess Electricity, Tenant shall pay Landlord for such Excess Electricity, at
Landlord's average cost for the same per K.W.H. (determined by dividing
Landlord's total monthly cost of electricity by the total number of K.W.H.
consumed in the Building during the corresponding month) upon monthly invoice
for the same from Landlord. Said invoices shall be deemed to be and be paid as
Additional Rent. In the event that the bills are not paid within ten (10) days
after the same are rendered, Landlord may, without further notice, discontinue
electric service to the Demised Premises without incurring liability to Tenant
for such discontinuance or without releasing Tenant from its rental or other
obligations under this Lease.
18.3 Should Tenant not agree with Landlord's electrical survey(s) of
Excess Electricity, Landlord shall, at Tenant's request, install appropriate
electrical meters to measure Tenant's consumption of the same. The cost of
installation and maintenance during the term hereof of said meters shall be
borne by Tenant and upon installation such meters shall become fixtures of the
Building and property of Landlord.
18.4 Landlord shall furnish electrical current, fixtures, bulbs and
equipment for the lighting of the Building lobbies, public corridors, public
rest rooms, public elevator lobbies and other public portions of the Building
and shall furnish electric current for the Building air conditioning machinery,
elevators, escalators, and other Building equipment.
18.5 At the option of Landlord, Tenant agrees to purchase from Landlord
all replacement lamps, bulbs, starters and ballasts used in the Demised Premises
and to pay Landlord for the installation thereof.
18.6 Landlord shall not be liable or responsible to Tenant for any loss
or damage or expense which Tenant may sustain or incur if either the quantity or
character of electric service available to the Building is changed, temporarily
suspended, reduced, or is no longer available or is no longer suitable for
Tenant's requirements.
18.7 Tenant covenants and agrees that at all times its use of electric
current shall never exceed Tenant's proportionate share of the capacity of
existing feeders to the Building or the risers or wiring installation. Any riser
or risers or wiring to meet Tenant's electrical requirements, upon written
request of Tenant, will be installed by Landlord (at the sole cost and expense
of Tenant) if, in Landlord's sole judgment, the same are necessary and will not
cause permanent damage or injury to the Building or Demised Premises or cause or
create a dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expenses or interfere with or disturb other tenants or
occupants.
18.8 Tenant shall make no alteration or additions to the electric
equipment or installations without the prior written consent of Landlord in each
instance, and work shall be done by Landlord at Tenant's expense in accordance
with plans and specifications of Tenant to be submitted and approved by Landlord
pursuant to Article VIII hereof.
18.9 At any time when Landlord is furnishing electric current to the
Demised Premises pursuant to this Article XVIII, Landlord may, if it becomes
illegal for Landlord to do so, upon not less than thirty (30) days prior written
notice to Tenant, discontinue the furnishing of such electric current. If
Landlord gives any such notice of discontinuance, Landlord shall make all the
necessary arrangements with the public utility for the supplying of such
electric current to the Demised Premises.
18.10 It is expressly agreed by and between the parties hereto that
should any local, state
<PAGE>
16
or federal government body, agency or public utility restrict or reduce the
amount of fuel or energy which may be utilized to provide the utilities and
services as specified, then such reduction or restriction and the reduction in
utilities and services which may result therefrom shall in no way create or
constitute a default or the part of the Landlord under this Lease and there
shall be no reduction in rent for the period services are reduced. Any costs or
expenses incurred by Landlord in obtaining alternate or substitute forms of fuel
or energy shall be considered Operating Expenses under Article VI of this Lease.
ARTICLE XIX
Entry
-----
19.1 Tenant shall permit Landlord to erect, use, and maintain plumbing
and electrical pipes, conduits, and wires, and heating, ventilating, and air
conditioning ducts as required in and through the Demised Premises provided that
the same are installed and concealed behind the walls or ceilings of the Demised
Premises, that installation is accomplished at such times and by such methods as
will not unreasonably interfere with the Tenant's use of the Demised Premises or
damage the appearance thereof.
19.2 Landlord or its agents or designees shall have the right to enter
the Demised Premises upon reasonable notice to Tenant and presentation of
adequate identification for the purposes of making such repairs or alterations
to such pipes, conduits, wires, or ducts as may be required for the proper
maintenance or operation of the Building, provided that in each case such entry
is made in a manner and at a time that will result in the least interference
with Tenant's use of the Demised Premises and cause the least amount of damage
to the appearance thereof, and provided further that any such entry shall be
subject to any requirements that Tenant deems it necessary to impose in order to
protect the security of any controlled access area of the Demised Premises. The
foregoing shall not be construed to require Landlord to perform work on any
pipes, conduits, wires, or ducts in the Demised Premises at overtime rates
unless Landlord's work within the Demised Premises would unreasonably interfere
with Tenant's day to day conduct of its business therein.
19.3 Subject to Tenant's right to limit for security purposes the
quantity or identity of any material brought into or upon the Demised Premises,
Landlord shall be allowed to take all material into and upon the Demised
Premises that may be required for the repairs or alterations described in
Section 19.2 without the same constituting an eviction of Tenant in whole or in
part, and while said repairs and alterations are being made the rent reserved
shall not (except as otherwise provided in this Lease) abate by reason of loss
of or interruption of the business of Tenant or because of the prosecution of
any such work; provided, however, that in making any such repairs or
alterations, Landlord diligently proceeds in such manner as to cause the least
interference with Tenant's use and enjoyment of the Demised Premises.
19.4 Subject to reasonable notice to Tenant and to such additional
security precautions as Tenant may deem necessary to impose, Landlord shall have
the right to enter the Demised Premises for the purpose of inspecting the same
for general condition and state of repair or exhibiting the same to prospective
purchasers or lessees of the Land or Building or to prospective mortgagees of
the Land or Building of which the Demised Premises are a part, or to prospective
assignees of any such mortgagees. The holder of any mortgage of the Landlord's
interest in the property, its agents or designees shall have the same right of
entry for inspection as Landlord.
19.5 During the three (3) months prior to the expiration of the Term of
this Lease, Landlord may exhibit the Demised Premises to prospective tenants.
Tenant may impose reasonable restrictions of this right for the purpose of
maintaining the security of any controlled- access areas in the Demise Premises.
19.6 Notwithstanding the preceding, Landlord may enter the Demised
Premises without prior notice in the event of a circumstance it may in good
faith consider an emergency under which said entry may be reasonably necessary.
ARTICLE XX
Right to Change Public Portions of the Building
-----------------------------------------------
20.1 At any time after the completion of the Building, Landlord shall
have the right to change the arrangement or location of such of the following as
are not contained within the Demised Premises or any part thereof; entrances,
signs, passageways, doors and doorways, corridors, stairs, toilets and other
like public service portions of the Building; provided, however, that in no
event shall Landlord
<PAGE>
17
change the arrangement or location of the elevators serving the Demised
Premises, make any change will shall diminish the area of the Demised Premises,
make any change which shall interfere with the access to the Demised Premises
from and through the Building, or change the character of the Building from that
of a First-class office building.
ARTICLE XXI
Landlord's Right to Perform
---------------------------
21.1 If Tenant shall default in the observance or performance of any
term or covenant on its part to be observed or performed under or by virtue of
any of the terms or provisions in any Article of this Lease, Landlord, without
being under any obligation to do so and without thereby waiving such default,
may remedy such default for the account and at the expense of Tenant,
immediately and without notice in case of emergency, or in any other case only
provided that Tenant shall fail to remedy such default with all reasonable
dispatch after Landlord shall have notified Tenant in writing of such default.
If Landlord makes any expenditures or incurs any obligations for the payment of
money in connection therewith including, but riot limited to, attorney's fees in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred, with interest and costs, shall be paid to it by Tenant
upon demand.
ARTICLE XXII
Services, Facilities and Equipment
----------------------------------
22.1 Landlord agrees that it shall: (a) Furnish heating, ventilating
and air conditioning daily from 8:00 a.m. to 6:00 p.m., Saturdays from 8:00 a.m.
to 1:00 p.m., Sundays and Holidays excepted. (b) Provide passenger elevator
service (which may be operatorless at Landlord's option) in common with others
daily from 8:00 a.m. to 6:00 p.m., Saturdays 8:00 a.m. to 1:00 p.m., Sundays and
Holidays excepted, and have an elevator subject to call at all times when normal
passenger service is not furnished. Provide freight elevator service in common
with others daily from 8:00 a.m. to 6:00 p.m., Saturdays, Sundays and Holidays
excepted.
22.2 Landlord shall, with respect to the entire Demised Premises:
(a) Whenever heat generating machines or equipment are used in the
Demised Premises which affect the temperature otherwise maintained by the air
conditioning systems, have the right, at its option, either to require Tenant to
discontinue use of such heat generating machines or equipment or to install
supplementary air conditioning equipment in the Demised Premises, and the cost
of such installation shall be paid by Tenant to Landlord promptly on being
billed therefor, and the cost of operation and maintenance of said supplementary
equipment shall be paid by Tenant to Landlord on the monthly rent payment dates
at such rates as may be agreed upon, but in no event at a rate less than
Landlord's actual cost therefor of labor, all utilities and other inherent
costs.
(b) Provide hot water at standard building temperatures and cold water
for drinking, lavatory and toilet purposes, drawn through fixtures installed by
Landlord. If Tenant requires, uses or consumes water for any other purpose,
Tenant agrees to Landlord's installing a meter or meters and to pay for the
installation and maintenance of said meter equipment. Tenant shall reimburse
Landlord for the cost of all excess water consumed, as measured by said meter or
meters.
(c) Keep the Building and adjoining plazas, sidewalks, curbs, driveways
and entrances and public areas clean and in good condition, free of accumulation
of dirt and rubbish and, as necessary, remove snow and ice therefrom.
(d) Provide janitor and cleaning services on business days in and about
the Demised Premises, and in all public portions of the Building, which
services, without limitation, shall be at least equal to those then being
rendered in other comparable noninstitutional first-class office buildings
located in Tampa, Florida.
(e) Should Tenant require special cleaning service, heating,
ventilating or air conditioning services, Landlord shall, (upon reasonable
advance notice by Tenant and to the extent, where applicable, such services are
available without overloading facilities in the Building providing such
services) furnish such additional services, and Tenant agrees to pay to Landlord
with the next installment of rent after being billed therefor as Additional
Rent, Landlord's cost of labor, materials, utilities, depreciation of equipment
and other inherent costs. It is agreed that such costs shall not be included in
the definition of Operating Expenses.
<PAGE>
18
22.3 Landlord does not warrant that any of the services referred to
above or any other services which Landlord may supply will be free from
interruption. Tenant acknowledges that any one or more of such services may be
suspended by reason of causes beyond the reasonable control of Landlord and any
such interruption of service shall never be deemed an eviction or disturbance of
Tenant's use and possession of the Demised Premises or any part thereof or
render Landlord liable to Tenant for damages by abatement of rent or otherwise
or relieve Tenant from performance of Tenant's obligations under this Lease.
Landlord agrees to use reasonable care and exercise due diligence with respect
to avoiding interruption of the services above provided for and, if interrupted,
agrees that it will be for as short a period as possible, and all repairs will
be promptly and diligently made at such times as will not unduly interfere with
the occupancy and use of the Demised Premises by Tenant.
22.4 Tenant shall reimburse Landlord for the Landlord's cost of removal
from the Demised Premises and the Building of so much of any refuse and rubbish
of Tenant as shall exceed that ordinarily accumulated in the routine of Tenant's
permitted use of the Demised Premises. Should Tenant create wet trash, Tenant
shall reimburse Landlord for Landlord's cost of removal.
22.5 Notwithstanding any other provision of this Lease, or of any rule
or regulation, Tenant shall provide such locks for entrances to the Demised
Premises as Tenant shall deem necessary and shall supply to Landlord such keys
as may be necessary in order for Landlord to render the services called for by
this Lease, which keys shall not be duplicated by Landlord or its employees.
ARTICLE XXIII
Signs and Glass
---------------
23.1 Tenant shall not install any sign or advertising or publicity
device in any public ,area, on any roof, on any window or on any outside portion
of the Building. Tenant may install an identification sign within or adjacent to
the entrance of the Demised Premises providing such sign has the prior approval
of Landlord and conforms to the graphic standards of the Building.
23.2 Tenant shall replace, at its expense, any and all broken interior
glass, including, plate glass partitions and doors, in and about the Demised
Premises.
23.3 Landlord shall maintain in the lobby of the Building, a directory
board which shall include the names of the Tenant and any other names reasonably
requested by Tenant in proportion to the number of listings given to other
tenants of the Building.
ARTICLE XXIV
Right of Holder of Leasehold Mortgage; Subordination
----------------------------------------------------
24.1 This Lease and all rights of Tenant hereunder are subject and
subordinate to any mortgage or mortgages, blanket or otherwise, which do now or
may hereafter affect the real property of which the Demised Premises form a part
and to all renewals, modifications, consolidations, replacements and extensions
thereof. It is the intention of the parties that this provision be
self-operative and that no further instrument shall be required to effect such
subordination of this Lease. Tenant shall, however, upon demand at any time or
times execute, acknowledge and deliver to Landlord and/or any holder of such
mortgage without expense to either of such, any and all instruments that may be
necessary or proper to subordinate this Lease and all rights of Tenant hereunder
to any such mortgage or mortgages or to confirm or evidence said subordination.
Tenant covenants and agrees, in the event any proceedings are brought for the
foreclosure of any such mortgage, to attorn to the purchaser upon any such
foreclosure sale, if so requested to do by such purchaser at any time, and to
recognize such purchaser as the lessor under this Lease. Tenant agrees to
execute and deliver at any time and from time to time, upon the request of
Landlord or of any holder of such mortgage or for such purchaser, any instrument
which, in the sole judgment of such requesting party, may be necessary or
appropriate to evidence such attornment. Tenant hereby appoints Landlord and the
holder of such mortgage, or either of them, the attorney-in-fact, irrevocably,
of Tenant to execute and deliver for and on behalf of Tenant any such
instrument. Tenant further waives the provisions of any, statute or rule of law
or hereafter in effect, which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligation of Tenant hereunder in the event any such proceeding is brought,
prosecuted or completed.
24.2 In the event of any default by act or omission by Landlord which
would give Tenant the right to terminate this Lease or to claim a partial or
total eviction, Tenant shall not exercise any such
<PAGE>
19
right until it has notified in writing the holder of any mortgage which at the
time shall be a first mortgage lien on the Landlord or Building (if the name and
address of such holder shall previously have been furnished by written notice to
Tenant) of such default, and until a reasonable period for during such default
shall have elapsed following the giving of such notice, during which period the
holder shall have failed to commence and continue to cure such default or to
cause the same to be remedied or cured. During the period between the giving of
such notice and the curing of such default, the Annual Base Rent reserved under
Article V, and as the same may be adjusted pursuant to Article VI, shall be
abated and apportioned to the extent that any part of the Demised Premises shall
be untenantable.
24.3 In the event that a mortgage lender furnishing financing on the
Building shall require the same, both parties agree to execute and deliver an
amendment modifying the terms and provision of this Lease in form reasonably
requested on the condition that the amendment (a) does not affect the Annual
Base Rent, Additional Rent, space or use thereof as herein provided, (b) does
not materially affect the rights or benefits which accrue, nor the liabilities
or obligations owing to either party pursuant to the terms hereof, and (c) is
reasonably necessary to adequately protect the rights of such lender providing
financing in connection with the development of the Building.
ARTICLE XXV
Surrender of Demised Premises
-----------------------------
25.1 Tenant shall, upon the termination of this Lease in any manner
whatsoever, remove Tenant's goods and effects and those of any other person
claiming under Tenant, and quit and deliver up the Demised Premises to Landlord
peaceably and quietly in as good order and condition as the same are now or
hereafter may be improved by Landlord or Tenant, reasonable use and wear thereof
and repairs which are Landlord's obligation excepted. Goods and effects not
removed by Tenant at the expiration of this Lease or its termination by Tenant
(or within ten(10) business days after termination by Landlord) shall be
considered abandoned and Landlord may dispose of the same as it deems expedient,
but Tenant shall promptly upon demand reimburse Landlord for any expenses
incurred by Landlord in connection with such disposal.
25.2 Upon termination or expiration of this Lease, Tenant shall be
entitled to remove from the Demised Premises any and all property which it would
have been entitled to remove from time to time under the provisions of Article
VIII, provided that Tenant shall, upon removing any such property, repair all
damage to the Demised Premises or the Building caused by such removal. If Tenant
shall elect not to remove any of such property and the same shall remain upon
the Demised Premises or within the Building at the time of surrender, the same
shall from that time forward, at Landlord's option, become and remain the
Landlord's property.
25.3 Tenant's obligation to observe or perform the covenants of this
Article shall survive the expiration or other termination of the Term of this
Lease.
ARTICLE XXVI
Effect of Conveyance or Assignment by Landlord
----------------------------------------------
26.1 If Landlord shall convey, assign or transfer its interest in this
Lease, Tenant shall look to the purchaser, assignee or transferee of Landlord's
interest in this Lease for the performance of Landlord's obligations hereunder,
and Landlord shall from and after such conveyance, assignment or transfer be
relieved and discharged from any and all liabilities and obligations under this
Lease. Tenant agrees to attorn to any purchaser, assignee or transferee and to
execute any written attornment agreement reasonably requested by such purchaser,
assignee or transferee.
ARTICLE XXVII
Waivers
-------
27.1 Tenant for itself, and on behalf of any and all persons claiming
through or under it, including creditors of all kinds, does hereby waive and
surrender all right and privilege which they or any of them might have under or
by reason of any present or future law to redeem the Demised Premises or to have
a continuance of this Lease for the term hereby demised after having been
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as herein
<PAGE>
20
provided.
27.2 Tenant waives the right to trial by jury in any summary proceeding
that may hereafter be instituted against it or in any action that may be brought
to recover rent hereunder.
ARTICLE XXVIII
Defaults
--------
28.1 In the event of the failure by Tenant to pay any Annual Base Rent
or Additional Rent due under this Lease within five (5) days after the same
becomes due, or in the event of any other breach of this Lease by Tenant and if
such other breach shall continue for a period of thirty (30) days from ,and
after written notice from Landlord to Tenant, then Landlord may elect either to
terminate Tenant's right to possession or not to terminate Tenant's right to
Possession whether or not Tenant has abandoned the Property. Neither acts of
maintenance or preservation nor efforts by Landlord to relet the property nor
the appointment of a receiver upon the initiative of Landlord to protect
Landlord's interest under this Lease shall constitute a termination of Tenant's
right to possession. Such right may be terminated only by written notice given
by Landlord to Tenant as aforesaid.
In the event that Landlord does not terminate tenant's right to
possession in case of any such breach, this Lease shall continue in effect for
so long as Landlord does not terminate Tenant's right to possession and Landlord
may enforce all its rights and remedies under this Lease, including the right to
recover the Annual Base Rent and Additional Rent as it becomes due under this
Lease.
In the event that Landlord terminates Tenant's right to possession
because of a breach of this Lease, this Lease shall thereupon terminate and upon
such termination, Landlord may recover from Tenant:
(a) The worth at the time of award of the unpaid Annual Base Rent and
Additional Rent which has been earned at the time of termination;
(b) The worth at the time of award of the amount by which the unpaid
Annual Base Rent and Additional Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided;
(c) The worth at the time of award of the amount by which the unpaid
Annual Base Rent and Additional Rent for the balance of the Term after the time
of award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom.
The "worth at the time of award" of the amounts referred to in
subparagraphs (a) and (b) hereof shall include interest at the maximum legal
rate. The worth at the time of award" of the amount referred to in subparagraph
(c) hereof shall be computed by discounting such amount at the discount rate of
(tie Federal Reserve Bank, of Cleveland at the time of award plus one percent
(1%). Nothing herein mentioned shall affect the right of Landlord to equitable
relief where such relief is appropriate. Efforts by Landlord to mitigate the
damages caused by Tenant's breach of the Lease shall not constitute a waiver of
Landlord's right to recover damages hereunder. Nothing in this paragraph shall
affect the right of Landlord to indemnification for liability arising prior to
the termination of the Lease for personal injuries or property damage.
ARTICLE XXIX
Notices
-------
29.1 All bills, statements, notices, demands and requests (referred to
in this Lease as "notices") hereunder by either party to the other shall be in
writing and shall be deemed given (if orderly delivery of the mail is not then
disrupted or threatened) when deposited, registered or certified, postage
prepaid, in the United States mail, addressed to the representative parties at
its address set forth below, or at such different address as it shall have
theretofore advised the other party in writing:
<PAGE>
21
To Landlord: TAMPA I ASSOCIATES, LTD.
C/O SONGY PARTNERS LIMITED
95 South Federal Highway, Suite 200
Boca Raton, FL 33432
With a copy to: Florida Office Corp.
c/o Fortis Real Estate
One Chase Manhattan Plaza
New York, New York 10005
Attention: Senior Vice President, Real Estate Equity
AND
Kelley, Drye & Warren LLP
5 Sylvan Way
Parsippany, New Jersey 07054
Attention: Jay R. Kolmar, Esq.
To Tenant: AFFINITY ENTERTAINMENT, INC.
15310 Amberly Drive Suite 370
Tampa, FL 33647
Tenant shall furnish a copy of all notices given by Landlord to any
holder of any mortgage upon the Building or any interest therein upon written
request from such holder giving the address to which such copies are to be sent.
Landlord and each such holder shall also each have the right to have an
additional copy of notices sent to such persons and addresses as either such
party may designate by written notice to Tenant.
ARTICLE XXX
Estoppel Certificate
--------------------
30.1 Tenant shall, at any time and from time to time, upon not less
than fifteen (15) days prior notice from Landlord, execute and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), and the dates
to which the Annual Base Rent and Additional Rent have been paid, and stating
whether or not to the best knowledge of the signer of such certificate Landlord
is in default in the performance of any covenant, agreement, term, provision or
condition contained in this Lease, and, if so, specifying each such default of
which the signer may have knowledge, it being intended that any such statement
delivered pursuant hereto may be relied upon by any prospective purchaser or
lessee of the Building hereunder, the Land or by any mortgagee or prospective
mortgagee thereof, or by any prospective assignee of any mortgagee thereof.
Tenant shall also execute and deliver from time to time such other similar
certificates as may be required by a lender having an interest in this Lease.
ARTICLE XXXI
Plurals and Pronouns, Successors and Assigns
--------------------------------------------
31.1 The word "Tenant", wherever used in this Lease, shall be construed
to mean tenants it' there shall be more than one tenant hereunder, and the
necessary grammatical changes required to make all provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed.
31.2 Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of Landlord and Tenant and their
respective heirs, legal representatives, successors and assigns, provided that
this Lease shall not inure to the benefit of any assignee, heir, legal
representative, transferee or successor of Tenant except as provided in Article
VII of this Lease.
<PAGE>
22
ARTICLE XXXII
Entire Agreement; Captions; Severability
----------------------------------------
32.1 This Lease shall be governed by the laws of the State of Florida.
This Lease contains the entire agreement between the parties, and any executory
agreement simultaneously or hereafter made shall be ineffective to amend,
modify, or terminate it in whole or in part unless such executory agreement is
in writing and signed by the party against whom enforcement of the amendment,
modification, or termination is sought.
32.2 The captions in this Lease are inserted only as a matter of
convenience and for reference and in no way define limit or describe the scope
of this Lease nor the intent of any provision thereof.
32.3 Each and every covenant of this Lease is distinct and severable
and if any provision of this Lease is held invalid by a court of competent
jurisdiction or any governmental authority the same shall be stricken herefrom
without affecting the validity of this Lease.
ARTICLE XXXIII
Exculpation
-----------
33.1 Tenant agrees that it shall look solely to Landlord's interest in
the Land and Building for recovery in the event of any default in the
performance or observance of any of the terms or conditions of this Lease and
nothing in this Lease shall impose any personal liability upon Landlord, or any
entity or person who at any time may in whole or in part comprise Landlord or
any successor thereto, or any other person having or acquiring any rights, title
or interest in the Land and/or Building, and, in the event of default upon this
Lease, no deficiency or any other money judgment shall be rendered or entered
against Landlord personally or any such other entity or person.
ARTICLE XXXIV
Memorandum for Recording
------------------------
34.1 The parties hereto shall, upon the written request of either one
to the other, execute a Memorandum of this Lease, for recording in the office of
the Recorder of Hillsborough County, Florida in accordance which the law of the
State of Florida, now or hereafter in force. When the commencement date shall
have been determined, an additional such Memorandum may be similarly requested
identifying the Commencement Date and the termination of the Term hereof.
ARTICLE XXXV
Continuance of Occupancy
------------------------
35.1 It is further agreed by Landlord and Tenant that Tenant shall
physically occupy the Demised Premises during the entire Term inasmuch as
tenant's continued occupancy of the Demised Premises and the regular conduct of
its business therein are of the utmost importance to the Landlord in the renewal
of other leases in the Building, in the renting of vacant space to other tenants
and in the maintenance of the character and quality of the Building. Thus,
should Tenant move out of the Demised Premises prior to its lease expiration
without the consent of Landlord, the Tenant shall have breached its lease
obligation herein and in such case all future rents shall become immediately due
and payable.
ARTICLE XXXVI
Brokerage
---------
36.1 Tenant covenants and represents that it has negotiated this Lease
directly solely with Landlord's agent, CB Commercial Real Estate Group, Inc. and
has not acted by implication or otherwise to Authorize nor has it authorized any
other real estate broker or salesman to act for it in these negotiations and
agrees to defend, indemnify and hold harmless Landlord from any and all claims
by any such real estate broker or salesman for a commission or finder's fee as a
result of Tenant's entering into this Lease.
<PAGE>
23
ARTICLE XXXVII
Holdover
--------
38.1 If, with Landlord's consent, Tenant holds possession of the
Demised Premises after the term of this Lease, Tenant shall become a tenant from
month to month upon the terms herein specified but at a monthly rental
equivalent to One Hundred Seventy-Five Percent (175%) of the then prevailing
rental paid by Tenant at the expiration of the term of this Lease pursuant to
all the provisions hereof, payable in advance on or before the first day of each
month, and Tenant shall continue in possession until such tenancy shall be
terminated by Landlord or until Tenant shall have given to Landlord thirty (30)
days written notice in advance of its intention to terminate such tenancy.
ARTICLE XXXVIII
Relocation
----------
38.1 Landlord, upon Tenant's reasonable consent shall have the right to
relocate the Demised Premises to another part of the Building in accordance with
the following:
(a) The new Demised Premises shall be substantially the same in size,
dimensions, configuration, decor and nature as are the Demised Premises
described in this Lease, and shall be placed in that condition by Landlord at
its cost;
(b) The physical relocation of the Demised Premises shall be
accomplished by Landlord at its cost;
(c) Landlord shall give Tenant at least thirty (30) days written notice
of Landlord's intention to relocate the Demised Premises;
(d) The physical relocation of the Demised Premises shall take place on
a weekend and shall be completely accomplished before the Monday following the
weekend in which the relocation takes place. If the physical relocation has not
been completed in that time, rent shall abate in full from the time the physical
relocation commences to the time it is completed:
(e) All reasonable costs incurred by Tenant as a result of the
relocation, including, without limitation, costs incurred in changing addresses
on stationery, business cards, directories, advertising, and other reasonable
items, shall be paid by Landlord;
(f) Landlord shall not have the right to relocate the Demised Premises
more than one time during the term;
(g) If the relocated Demised Premises are smaller than the Demised
Premises as they existed before relocation, Annual Base Rent shall be reduced
pro rata; and
(h) The parties hereto shall immediately execute an amendment to this
Lease stating the relocation of the Demised Premises and the reduction of Annual
Base Rent, if any.
<PAGE>
24
ARTICLE XXXIX
Miscellaneous
-------------
39.1 The submission of this Lease for examination by Tenant does not
constitute a reservation of or option for the Demised Premises, and this Lease
shall become effective only upon execution and delivery thereof by Landlord and
Tenant. If any term of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other application of such
term shall not be affected thereby. This Lease may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against whom such enforcement of such change, waiver, discharge or termination
is sought. Subject to Article VII, this Lease shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto. All covenants and agreements of Tenant and Landlord
hereunder shall be deemed to be and shall be construed as a separate and
independent covenant of the party bound by or making the same and shall not be
dependent on any other provision of this Lease except as specifically provided
for herein.
Article XLI
Telecommunications
------------------
40.1 Tenant and tenant's telecommunication companies, including but not
limited to local exchange telecommunications companies and alternative access
vendor services companies ("Telecommunications Companies") shall have no right
of access to and within the lands or buildings comprising landlord's real
property, for the installation and operation of telecommunications systems
including but not limited to voice, video, data, and any other
telecommunications services provided over wire, fiber optic, microwave,
wireless, and any other transmission systems, for part or all of tenant's
telecommunications within the building and from the building to any other
location (hereinafter collectively referred to as "Telecommunications Systems"),
without landlord's prior written consent, which except as otherwise provided in
section 41.3 below, landlord may withhold in its sole and absolute discretion.
Provided however, landlord hereby licenses tenant and through tenant, its
Telecommunications Companies approved in advance in writing by landlord prior to
the commencement of any work, the right to install, repair arid maintain
tenant's Telecommunications Systems at tenant's sole cost and expense, to the
extent the same are depicted on the attached schedule of plans, schematics, and
specifications marked as Exhibit C.
40.2 If at any time hereafter, tenant's Telecommunications Companies or
appropriate governmental authorities relocate the point of demarcation from the
location of tenant's telecommunications equipment in the tenant's telephone
equipment room on tenant's floor ("Rate Demarcation Point" or "RDP"), to some
other point, or in any other manner transfer any obligations of liabilities for
telecommunications to the landlord or tenant, whether by operation of law or
otherwise, upon landlord's election, tenant shall, at tenant's sole expense and
cost: (1) within thirty (30) days after notice is first given to tenant of
landlord's election, cause to be completed by an appropriate telecommunications
engineering entity approved in advance in writing by landlord, all details of
the Telecommunications Systems serving tenant in the building which details
shall include all appropriate plans, schematics, and specifications; and (2)
immediately undertake the operation, repair and maintenance of the
Telecommunications Systems serving tenant in the building; and (3) effect the
complete removal of all or any portion or portions of the Telecommunications
Systems serving tenant in the building, upon the termination of the lease for
any reason, or upon expiration of the lease.
Prior to the commencement of any alterations, additions, or
modifications to the Telecommunications Systems serving tenant in the building,
except for minor changes, tenant shall first obtain landlord's prior written
consent by written request accompanied by detailed plans, schematics, and
<PAGE>
25
specifications showing all alterations, additions and modifications to be
performed, with a time schedule for completion of the work, and the identity of
the entity which will perform the work, for which, except as otherwise provided
in section 41.03 below, landlord may withhold consent in its sole and absolute
discretion.
40.3 Without limiting landlord's right to reasonably withhold its
consent to a proposed request for access, or addition, alteration, or
modification of the Telecommunications System serving tenant in the building,
the withholding of such consent will be deemed reasonable if:
(i) In the reasonable judgement of landlord, the proposed actions of
the tenant and its Telecommunication Company causes new obligations to be
imposed on landlord, causes any exposure of landlord to any liability of any
nature or description, causes landlord's insurance premiums for the building to
increase, causes landlord's insurance coverage to be imperiled, or causes
liabilities for which landlord is unable to obtain insurance protection;
(ii) In the reasonable judgment of landlord, the tenant's
Telecommunications Company is unwilling to pay reasonable monetary compensation
for the use and occupation of the building for the Telecommunications System:
(iii) In the reasonable judgment of landlord, the tenant and its
Telecommunications Company would cause any work to be performed that would
adversely affect the land and building or any space in the building in any
manner;
(iv) Tenant encumbers or mortgages its interest in any
telecommunications wiring of cabling, whether copper, fiber, or through any
other type connectivity; or
(v) Tenant is in default under this Lease.
40.4 Tenant will indemnify and hold harmless landlord and its
employees, agents, officers, and directors from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs, or expenses of any
kind or nature, known or unknown, contingent or otherwise, arising out of or in
any way related to the acts and omissions of tenant, tenant's officers,
directors, employees, agents, contractors, subcontractors, subtenants, and
invitees with respect to (1) any Telecommunications Systems serving the tenant
in the building which are on, from, or affecting the land and building; (2) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to any Telecommunications Systems serving the tenant
in the building which are on, from, or affecting the building; (3) any lawsuit
brought or threatened, settlement reached, or governmental order relating to
such Telecommunications Systems; (4) any violations of laws, orders,
regulations, requirements, or demands of governmental authorities, or any
reasonable policies or requirements of landlord, which are based upon or in any
way related to such Telecommunications Systems, including, without limitation,
attorney and consultant fees, court costs, and litigation expenses. This
indemnification and hold harmless agreement will survive this lease. Under no
circumstances shall the landlord be required to maintain, repair or replace any
building systems or any portions thereof, when such maintenance, repair or
replacement is caused in whole or in part by the failure of any such system or
any portions thereof, and/or the requirements of any governmental authorities.
Under no circumstances shall the landlord be liable for interruption in
telecommunications services to the tenant or any other entity affected, for
electrical spikes or surges, or for any other cause whatsoever, whether by Act
of God or otherwise, even if the same is caused by the ordinary negligence of
landlord, the landlord's contractors, subcontractors, or agents of other
tenants, subtenants, or their contractors, subcontractors, or agents.
ARTICLE XLII
Right of First Refusal
----------------------
Tenant shall have a right of first refusal ("Right of First Refusal')
to lease the space in the Building that is adjacent to any portion of the
Demised Premises (the 'Adjacent Space"). Landlord shall notify Tenant in writing
if any such Adjacent Space is available for lease and provide Tenant with ten
(10) business days notice of Tenant's right to lease any such Adjacent Space. In
connection therewith, if Tenant elects to lease said Adjacent Space, then Tenant
shall provide Landlord with written notice of such election within such ten (10)
day period and this Lease shall be modified to include such Adjacent Space, as
part of Demised Premises, and the Annual Base Rent and Additional Rent payment
obligations of Tenant shall be appropriately increased to reflect the additional
leased space based upon the same Annual Base Rent per square foot then
currently, being charged Tenant. Landlord's obligations to provide a
construction allowance
<PAGE>
26
shall likewise apply to the lease of such Adjacent Space except that the amount
of Tenant's Allowance (i.e. Seven Dollars ($7.00)) shall be reduced by Twenty
cents ($.20) per rentable square foot for each month (or portion thereof which
has expired since the Commencement Date and Tenant shall be obligated to pay the
difference, if any (e.g. if the Right of First Refusal is exercised in the 15th
month following the Commencement Date the amount of Tenant's Allowance available
on a per square foot basis shall be reduced from $7.00 to $4.00), and the
Commencement Date to pay for Rent for such Adjacent Space shall be thirty (30)
days following Landlord's receipt of Tenant's election notice. The term of the
lease of such Adjacent Space shall run concurrent with the Term of this Lease.
Failure of Tenant to exercise its first Right of First Refusal to lease shall be
deemed a waiver with respect to any future offers received by Landlord. Tenant's
Right of First Refusal as set forth in this Article shall in all events
terminate and expire upon the expiration of the second (2nd) Lease year of the
initial term of the Lease.
Article XLIII
Right of Termination
--------------------
At any time during the twelfth (12th) month of this Lease, Tenant shall
have a one-time right to terminate this Lease ("Right of Termination"),
effective upon the expiration of the fifteenth (15th) month of this Lease,
provided however that during such twelfth (12th) month Tenant has delivered
written request to Landlord to provide expansion space to Tenant ("Tenant's
Expansion Notice") up to an additional fifteen thousand (15,000) rentable square
feet ("Expansion Space") and states therein Tenant's election to terminate if
Landlord is unable to fulfill Tenant's request for Expansion Space anywhere
within the Building within ninety (90) days of such request (provided ninety
(90) day period shall exclude Landlord's obligation to complete Tenant
improvements). The amount of Expansion Space requested by Tenant within Tenant's
Expansion Notice shall be reduced by the amount of rentable square feet of
Adjacent Space taken by Tenant and in no event shall the Expansion Space and the
Adjacent Space collectively exceed fifteen thousand (15,000) rentable square
feet. Tenant shall not be entitled to terminate the Lease pursuant to this
subsection if Tenant has failed to exercise a Right of Termination offered by
Landlord prior to the expiration of the twelfth (12th) month; Tenant is in
default under any term or condition set forth in this Lease; Landlord offers the
Expansion Space to Tenant anywhere within the Building by written notice to
Tenant within thirty (30) days of receipt of Tenant's Expansion Notice and/or
Tenant Expansion Notice of termination is not accompanied by a cash payment
(which shall be a termination fee) in an amount equal to two (2) months of
Annual Base Rent for the initial space and any Adjacent Space, Thirty six
thousand seven hundred eighty six Dollars ($36,786) representing unamortized
commission and Tenant Allowance related to the initial space and unamortized
commission and Tenant Allowance related to any Adjacent Space, as determined by
Landlord. The Tenant Allowance shall be amortized over a three (3) year period
for purposes of this paragraph. In the event Tenant shall fail to exercise this
Right of Termination or satisfy the conditions precedent to such Right of
Termination as herein stated, Tenant shall be deemed to have waived its right (o
terminate pursuant to this paragraph and this Lease shall remain in full force
and effect. Tenant acknowledges that Landlord may offer the Expansion Space
anywhere within the Building. In the event Landlord provide Expansion Space to
Tenant, then this Lease shall automatically be modified to include such
Expansion Space, as part of the Demised Premises, the Annual Base Rent and
Additional Rent payment obligations of Tenant shall be appropriately increased
to reflect the additional leased space based upon the same Annual Base Rent per
square foot then currently being charged Tenant and Landlord shall return the
termination fee to Tenant. Landlord's obligations to provide a construction
allowance in the amount of Seven Dollars ($7.00) per rentable square foot shall
likewise apply to the lease of such Expansion Space, and the Commencement Date
to pay for Rent for such Adjacent Space shall be thirty (30) days following
Landlord's notice to tenant of the existence of the Expansion Space. In such
event the Term of the lease for the initial Demised Premises and such Expansion
Space shall be extended for an additional three (3) years upon the same terms
and conditions set forth in this Lease, however the Annual Base Rent shall be
"Market Rent" (as hereinafter defined and calculated), however in no event shall
the Market Rent be less than the Base Annual Rent for the preceding Lease Year.
Article XLIV
Rent Abatement
--------------
Provided Tenant is not in default under any term or condition of this
Lease and further provided that Tenant has not exercised its Right of
Termination as set forth in Article XLIII above, Tenant shall be entitled to two
(2) months abatement of Annual Base Rent (for the initial 5,674 rentable square
feet leased and specifically excluding any Annual Base Rent attributed to the
Expansion Space or the Adjacent Space) in month thirty (30) and month thirty-six
(36) of the Lease Term.
<PAGE>
27
ARTICLE XLV
Option to Renew
---------------
Provided Tenant is not in default under any term or condition of this
Lease and further provided that Tenant has not exercised its Right of
Termination as set forth in Article XLIII above, Tenant shall have the option of
extending this Lease for one (1) additional term (hereinafter referred to as the
"Extension Term") for two (2) years on the same terms and conditions as provided
herein except that the Annual Base Rent shall be at "Market Rent". Notice of the
exercise of such option shall be delivered by Tenant to Landlord, in writing,
not later than one hundred and eighty (180) days prior to the expiration of the
initial Term of the Lease. The term "Market Rent" shall mean the Base Annual
Rent for the Demised Premises at the time in question which Landlord sets forth
in a notice (hereinafter referred to as the "Market Rent Notice") to Tenant
within thirty (30) days from receipt of Tenant's notice of the exercise of its
option to renew. In the event that Tenant shall, in good faith, disagree with
the Market Rent set forth in the Market Pent Notice established by Landlord for
the Demised Premises, Tenant shall, within five (5) days after receipt of the
Market Rent Notice, furnish Landlord with a written explanation in reasonable
detail of the basis for Tenant's good faith disagreement, the amount which, in
Tenant's good faith opinion, is the Market Rent for Extension Term ("Tenant's
Notice"). If Tenant's Notice is not received by Landlord within said five (5)
day period, the Market Rent shall be the Market Rent set forth in the Market
Rent Notice to Tenant. If Tenant's Notice is received by Landlord with said five
(5) day period, then the Market Rent for the Demised Premises shall be
established by an M.A.I. appraiser mutually selected by Landlord and Tenant. If
Landlord and Tenant can not agree on an appraiser , Landlord and Tenant shall
promptly apply to the local office of the American Arbitration Association for
the appointment of an appraiser whose decision shall be binding on Landlord and
Tenant. All fees, costs and expenses incurred in connection with obtaining the
appraiser and the resulting Market Rent shall be Tenant's expense, however,
Landlord and Tenant shall each bear their own attorneys' fees incurred with
respect to this procedure. Notwithstanding the foregoing, in no event shall the
Market Rent be less than the Base Annual Rent for the preceding Lease Year.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
/s/ Sondra J. Sobal LANDLORD:
- - -------------------------------
TAMPA I ASSOCIATES, LTD.,
- - ------------------------------- a Florida Limited Partnership
BY: SONGY PARTNERS LIMITED,
a Florida Limited Partnership
Its General Partner
BY: SPL FLORIDA, INC.,
a Florida Corporation
Its General Partner
BY: /s/ David B. Songy
Its: President David B. Songy
/s/ Sue McCammon TENANT:
- - -------------------------------
/s/ Tayra Ann Cox AFFINITY ENTERTAINMENT, INC, a
- - ------------------------------- Delaware corporation
BY: /s/ William J. Busso
-----------------------------------
ITS: President
-----------------------------------
(CORPORATE SEAL)
<PAGE>
28
Landlord
STATE OF FLORIDA
COUNTY OF PALM BEACH, SS:
The foregoing instrument was acknowledged before me this 25th day of
July, 1996, by David B. Songy, as President, on behalf of said Tampa I
Associates. He/She is: (x) personally known to me; or ( ) has produced
______________________________ as identification.
My Commission expires: _____________________________________________
Notary Public, State of Florida
/s/ Catherina T. Engles
[OFFICIAL NOTARY SEAL
CATHERINA T ENGLES
NOTARY PUBLIC STATE OF FLORIDA
COMMISSION NO. CC259089
MY COMMISSION EXP. FEB. 11, 1997]
_____________________________________________
Printed Name
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH, SS:
The foregoing instrument was acknowledged before me this 19th day of
July, 1996, by W. Busso, as President, on behalf of said Affinity Ent., Inc.
He/She is : (x) personally known to me; or ( ) has produced
____________________________________________ as identification.
My Commission expires: _____________________________________________
Notary Public, State of Florida
/s/ Carolyn Sue McCammon
[OFFICIAL NOTARY SEAL
CAROLYN SUE MCCAMMON
MY COMMISSION # CC 440005
EXPIRES: April 18, 1999
Bonded Thru Public Underwritters
_____________________________________________
Printed Name
<PAGE>
29
EXHIBITS
--------
A. Demised Premises
B. Legal Description
C. Landlord's Work
D. Annual Base Rent
E. Rules and Regulations
F. Disclosure Statement
<PAGE>
30
EXHIBIT A
DEMISED PREMISES
[schematic plan appears on this page]
<PAGE>
31
EXHIBIT B
LEGAL DESCRIPTION
PalmLake, Phase I
-----------------
Tract "MI3" and the northwesterly 145.28 feet of Tract "MI4" of Tampa Palms Unit
IB, according, to the replat recorded in Plat Book 60, Page 28 of the Public
Records of Hillsborough County, Florida.
Less and except future bank sites:
Begin at the westerly-most corner of said Tract "MI3" being the point
of intersection of the northeasterly right-of-way line of Amberly Drive (a
100.00 foot wide right-of-way) and the northwesterly line of said Tract "M13";
thence N41 decrees 43'50" E, along said northwesterly line of Tract "M13", for
162.46 feet; thence S18 degrees 16'10" E, along a line being parallel to said
northeasterly right-of-way line of Amberly Drive, for 326.31 feet to the point
of curvature of a tangent curve concave to the West; thence southerly along the
arc of said curve having for its elements a radius of 30.00 feet, a central
angle of 98 degrees 28' 07", an arc length of 51.56 feet and a chord bearing and
distance of 506 degrees 57' 54" W, 45.44 feet to the point of tangency; thence
S50 degrees 11'57" W for 131.26 feet to a point on the arc of a non-tangent
curve concave to the Southwest (a radial line bears S43 degrees 38' 16" W), said
point being on the aforedescribed northeasterly right-of-way line of Amberly
Drive, and along said right-of-way line the following two (2) courses: (1)
thence northwesterly along the arc of said curve having for its elements a
radius of 3,230.68 feet, a central angle of 01 degrees 54' 26", an arc length of
107.54 feet and a chord bearing and distance of N47 degrees 18' 57" W, 107.54
feet to the point of tangency; (2) thence N 18 degrees 16' 10" W of 229.13 feet
to the POINT OF BEGINNING.
PALMLAKE PHASE ONE containing 5.87 acres, more or less.
<PAGE>
32
EXHIBIT C
Landlord's Work
---------------
<PAGE>
33
EXHIBIT D
Annual Base Rent
----------------
Security Deposit: $ 7712.38
Base Rent: $ 16.50 per s.f. as described in Paragraph No. 1,
Expense Stop: A $6.50 allowance shall be included in the Base Rent
for operating expenses, taxes, maintenance costs, and
all other cost pass through to LESSEE. In the event
operating expenses, taxes, maintenance costs, or
other cost pass through exceed $6.50 they will be
passed on to LESSEE for his proportionate share as
defined herein.
Monthly Rent: $ 7712.38
Sales Tax: Six and one-half (6-1/2%) Percent
Initial Monthly Rent with Sales Tax: $8213.69
Adjustments: 17.00 per rentable square foot for the second (2nd)
Lease year
17.50 per rentable square foot for the third (3rd)
Lease year
Market Rent for any Extension Term provided for in
Articles XLIII or XLV
<PAGE>
34
EXHIBIT E
Rules and Regulations
---------------------
1. Landlord shall have the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally, and so as not to unreasonably interfere
with the business of tenants. No tenant shall invite to the premises or permit
the visit of, persons in such numbers or under such conditions as to interfere
with the use and enjoyment of the entrances, corridors, elevators and facilities
of the Building by other tenants.
2. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by Tenant or not property identified, and may require all persons
admitted to or leaving the Building outside of ordinary business hours to
register. Landlord assumes no responsibility and shall not be liable for any
damage resulting from any intentional or negligent errors or omissions of
Tenants or either agents or assigns in regards to any such pass or
identification, or from the admission of any unauthorized person to the
Building.
3. Tenant shall not be permitted to install vending machines or similar
types of electric appliances such as coffee makers, hot plates or space heaters
and no tenant shall obtain or accept for use in the premises, ice, coffee
service, catering, drinking water, barbering, and boot blacking from any person
not authorized by Landlord in writing to furnish such service, provided always,
that the charges for such services by persons authorized by Landlord are not
excessive.
4. No awnings or other projections over or around the windows or
entrances of the premises shall be installed by any tenant.
5. Freight, furniture, business equipment, merchandise and bulky matter
of any description ordinarily shall be delivered to and removed from the
premises only in the freight elevator and through the service entrance and
corridors, but special arrangements will be made for moving large quantities of
furniture and equipment into or out of the Building. No tenant shall
unreasonably obstruct entries, corridors, stairways or elevators. Food shall be
transported in the elevators only in properly wrapped and sealed containers.
6. All entrance doors in the premises shall be left locked when the
premises are not in use.
7. Canvassing, soliciting or peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
8. Tenant shall not advertise the business, profession or activities of
Tenant in any manner which violates the letter or spirit of any code of ethics
adopted by any recognized association or organization pertaining thereto or use
the name of the Building for any purpose other than that of the business address
of Tenant.
9. Except is may be approved in writing by Landlord, Tenant shall not
attach or permit to be attached additional locks or similar devices to any door,
transom or window or the premises-, change existing locks or the mechanism
thereof; or make or permit to be made any Keys for any door thereof other than
those provided by Landlord. (If more than two keys for one lock are desired,
Landlord will provide them upon payment therefor by Tenant.)
10. Tenant agrees that it shall not willfully do or omit to do any act
or thing which shall discriminate or segregate upon the basis of race, color,
sex, creed or national origin in the use and occupancy or in any subleasing or
subletting of the Demised Premises.
11. Landlord reserves the right by written notice to Tenant, to
rescind, alter or waive any rule or regulation at any time prescribed for the
Building when, in Landlord's reasonable judgment, it is necessary, desirable or
proper for the best interest of the Building and its Tenants.
12. Tenant shall not carry on or permit to be carried on upon said
premises or any part thereof any immoral or illegal business, gambling, the
selling of pools, lotteries or any business that is prohibited by law.
<PAGE>
35
13. Landlord shall provide Tenant a reasonable number of directory
information strips identifying Tenant in the Building directory located on the
ground floor of the Building.
14. No signs, placards, etc. shall be attached to windows or displayed
through windows on any floor other than the ground floor. Ground floor signs
must be approved by Landlord and will be of a poster and stand type placed not
closer than twelve inches from the outside glass.
15. Building Standard window coverings must be used, additional window
covering if desired must be installed on the inside of Building Standard window
coverings.
16. The drinking fountains, lavatories, water closets and urinals shall
not be used for any purpose other than those for which they were installed.
17. Tenant shall not allow occupancy of the Demised Premises to exceed
an average of five (5) persons per one thousand (1000) square feet of rentable
area.
<PAGE>
36
EXHIBIT F
Disclosure
----------
1. AGENCY DISCLOSURE
CB COMMERCIAL REAL ESTATE GROUP, INC. is by this document giving notice
to Name of Licensee and License Status ________________________________________
that he/she/it is the agent of the TAMPA I ASSOCIATES, LTD.
2. RADON GAS - Notice to Prospective Purchaser/Tenant
Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county health unit.
Pursuant to 404.056 (8), Florida Statutes.
3. COMPENSATION
If applicable, the undersigned acknowledges that CB Commercial Real
Estate Group, Inc. is being paid by the owner. Pursuant to Rule 2.13.003 (2),
Florida Administrative Code.
4. The undersigned(s) acknowledges that this written notice was received
before the undersigned(s) signed a contractual offer or lease agreement, in
compliance with 475.25 (1) (q), Florida Statutes, and Rule 21V-10.033, Florida
Administrative Code.
/s/ William J. Busso 7/19/96
-------------------------------- ----------
Signature of Tenant Date
-------------------------------- ----------
Signature of Agent Date
<PAGE>
38
NEW TENANT DIRECTORY SIGNAGE INFORMATION
PALMLAKE OFFICE BUILDING
------------------------
15310 Amberly Drive
Tampa, FL 33647
Directory Signage information:
Please indicate below how you want your company listed on the lobby directory,
then sign and return to the management office as soon as possible:
CB Commercial Real Estate
153 10 Amberly Drive, Suite 250
Tampa, FL 33647
(813) 979-1655 Fax (813) 975-0116
DIRECTORY SIGNAGE-Lobby: Company Name: AFFINITY ENTERTAINMENT, INC. (No Charge)
(Limited to 2 lines) _________________________________
Office/Suite # 370
_____________________________________
SIGNAGE OUTSIDE DOOR: (Includes Office Number and the Name of Your Company).
Company Name: AFFINITY ENTERTAINMENT, INC.
__________________________________________________
__________________________________________________
Office/Suite # 370
_______________________________
APPROVED:
- - ---------
BY: _______________________________________________
DATE: _______________________________________________
Please allow four weeks for delivery and installation. Tenant will be billed
after installation.
<PAGE>
39
TO: PALMLAKE TENANTS
FROM: CB COMMERCIAL REAL ESTATE GROUP, INC.
RE: SECURITY CARDS
Please list the names of any employee that will require access to this building
in the evening or on weekends. If the card becomes lost, misplaced or destroyed
in any way, there is a $10.00 fee charged to recode the system to remove that
security card number.
Any additional cards required will be $10.00 each.
Thank you for your help and cooperation.
Susan Gries
Regional Property Manager
979-1655
______________________________________________________________________
NAME OF COMPANY: AFFINITY ENTERTAINMENT, INC.
PERSONS AUTHORIZED FOR SECURITY CARDS: (Please Print)
I wish the following employees to have 24 hour access to the building:
NAMES SOCIAL SECURITY NUMBERS
William J. Busso
- - --------------------------------------------------------------------------------
Elliot Bellen
- - --------------------------------------------------------------------------------
Sue McCammon
- - --------------------------------------------------------------------------------
Tayra Cox
- - --------------------------------------------------------------------------------
/s/ William J. Busso President
- - ------------------------------ -------------------------------------
Authorized Signature Title
7/19/96
- - ------------------------------
Date
OFFSHORE SECURITIES DEFERRED SUBSCRIPTION AGREEMENT
This Offshore Securities Deferred Subscription Agreement is executed in
reliance upon the transaction exemption afforded by Regulation S ("Regulation
S") as promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended ("1933 Act").
This Offshore Securities Deferred Subscription Agreement has been
executed by the undersigned in connection with the private placement of shares
of Common Stock (hereinafter referred to as the "Shares") of
AFFINITY ENTERTAINMENT, INC.
15436 North Florida Avenue
Suite 103
Tampa, FL 33913
National Association of Securities Dealers Automated Quotation System Symbol
("AFTY") a corporation organized under the laws of Delaware, United States of
American (hereinafter referred to as the "ISSUER").
1. Subscription. The undersigned:
NAME: BARON BANKER LIMITED
ADDRESS: 1020 Matheson Blvd East
Unit 12
Mississauga, Ontario L4W4J9
Canada
an entity organized under the laws of Ontario, a non-USA Jurisdiction
(hereinafter referred to as the "PURCHASER"), hereby represents and warrants to,
and agrees with ISSUER as follows:
a. the PURCHASER hereby subscribes for Four Million
(4,000,000) shares (the "Stock" or the "Shares") of the
Company's Common Stock at a subscription price equal to $10.00
per share (discounted at four percent (4.0%) upon completion
of the offering), payable in United States Dollars for a total
consideration of Forty Million Dollars (40,000,000) subject to
a discount of One Million Six Hundred Thousand Dollars
($1,600,000) if fully paid. The Stock shall be common stock,
approved by the Board of Directors of the ISSUER, and
<PAGE>
will be entitled to all rights to cash or property
distributions, dividends, interest paid by coupon or
otherwise, distribution of certificates, warrants, rights,
stocks or cash representing subdivision, combination,
reclassification, merger, buy-out, acquisition, redemption,
exchange, or any such other corporate or government action
pertaining to or involving the ownership rights of the Stock
transferred hereunder. The PURCHASER, hereby agrees, until the
Promissory Note as set forth in paragraph 1 (b) (i) is paid in
full, to appoint the management of the Company as its proxy to
exercise any voting or consensual rights pertaining to or
arising from the ownership of the Stock.
b. Form of payment. PURCHASER shall pay the total
consideration as follows:
(i) PURCHASER shall pay Two Million (2,000,000)
dollars of the total consideration by delivering good
funds by wire transfer in United States Dollars to
the ISSUER immediately when the margin funds become
available to:
Nationsbank of Florida
15150 North Florida Avenue
Tampa, FL 33613
Account No.: 3603136640
ABA Routing No.: 063100277
Account Name: Affinity Entertainment, Inc.
Affinity, in its sole discretion, may change wiring
instructions immediately upon written notice of such
a change.
(ii) PURCHASER shall pay Thirty Eight Million dollars
in the form of a Promissory Note, not bearing
interest, payable as follows:
One Million Dollars payable August 1, 1996,
and seventeen consecutive monthly
installments in the amount of Two Million
Dollars each with a final payment of Three
Million Dollars that is subject to a One
<PAGE>
Million Six Hundred Thousand Dollar discount
for complete satisfaction of this agreement.
Payments shall be due by wire transfer as
set forth here and below, on the first day
of each and every month.
(iii) For a period of ninety days after the ISSUER
receives the final payment as required by Appendix A
of this agreement, the ISSUER or its designees shall,
at the sole discretion of the ISSUER, have the option
to acquire the shares subscribed to herein by the
PURCHASER in exchange for an amount equal Twelve
Dollars per Share ($12.00), or fifty percent (50%) of
the average bid price offered for the ten (10) days
prior to the exercise of the Option, whichever is
greater.
(iv) In the event any installment as set forth in
this paragraph 1 (b) is more than five (5) days late,
default shall be deemed to have occurred. The ISSUER
shall make written demand for payment to both the
Escrow Agent and Baron Banker of the late
installment, and should payment not be made by the
undersigned within ten (10) banking days of the
tendering of such written demand, the ISSUER may
direct the Escrow Agent, under the terms of the
Escrow Agreement between the ISSUER, the PURCHASER,
and the ESCROW AGENT, to call or sell any guarantees,
or instruments, settle the margin account, redeem the
share certificates from the margin house, and return
the share certificates back to the ISSUER
unencumbered. In such event, the ISSUER shall retain
all payments received from the PURCHASER as
liquidated damages and hold Baron Banker harmless for
any further claims.
2. Subscriber Representations; Access to information; independent
investigation.
a. Offshore Transaction. PURCHASER represents and warrants to
ISSUER as follows:
(i) neither the PURCHASER nor any person or entity
for whom the PURCHASER is acting as fiduciary is a
U.S. person. A U.S. person means
<PAGE>
any one of the following:
(1) any natural person resident in the
United States of America;
(2) any partnership or corporation organized
or incorporated under the laws of the United
States of America;
(3) any estate of which any executor or
administrator is a U.S. person;
(4) any trust of which any trustee is a U.S.
person;
(5) any agency or branch of a foreign entity
located in the United States of American;
(6) any non-discretionary account or similar
account (other than an estate or trust)held
by a dealer or other fiduciary for the
benefit or account of a U.S. person;
(7) any discretionary account or similar
account (other than an estate or trust) held
by a dealer or other fiduciary organized,
incorporated or (if an individual) resident
in the United States of America; and
(8) any partnership or corporation if:
(A) organized or incorporated under
the laws of any foreign
jurisdiction; and (B) formed by a
U.S. person principally for the
purpose of investing in securities
not registered under the 1933 Act,
(whenever such term is used herein,
it shall have the meaning given in
Regulation S);
(ii) At the time the buy order was originated,
PURCHASER was outside the United States of America
and is outside of the United States of America as of
the date of the execution and delivery of this
Offshore Securities Deferred Subscription
<PAGE>
Agreement. No offer to purchase the Shares was made
in the United States of America.
(iii) PURCHASER is purchasing the Shares for
PURCHASER's own account or for the account of
beneficiaries for whom the PURCHASER has full
investment discretion with respect to the Shares and
whom the PURCHASER has full authority to bind so that
each such beneficiary is bound hereby as if such
beneficiary were a direct PURCHASER hereunder and all
representations, warranties and agreements herein
were made directly by such beneficiary.
(iv) Each distributor participating in the offering
of the Shares, if any, has agreed in writing that all
offers and sales of the Shares prior to the
expiration of a period commencing on the date of the
closing of the offering of Shares and ending 40 days
thereafter (the "Restricted Period") shall only be
made in compliance with the safe harbor contained in
Regulation S, pursuant to registration of Shares
under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act.
(v) PURCHASER REPRESENTS AND WARRANTS AND HEREBY
AGREES THAT ALL OFFERS AND SALES OF THE SHARES PRIOR
TO THE EXPIRATION OF THE RESTRICTED PERIOD SHALL ONLY
BE MADE IN COMPLIANCE WITH THE SAFE HARBOR CONTAINED
IN REGULATION S, PURSUANT TO REGISTRATION OF
SECURITIES UNDER THE 1933 ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT, AND
ALL OFFERS AND SALES AFTER THE RESTRICTED PERIOD
SHALL BE MADE ONLY PURSUANT TO SUCH A REGISTRATION OR
TO SUCH EXEMPTION FROM REGISTRATION.
(vi) ALL OFFERING DOCUMENTS RECEIVED BY PURCHASER
INCLUDE STATEMENTS TO THE EFFECT THAT THE SHARES HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON (OTHER THAN DISTRIBUTORS AS DEFINED IN
REGULATION S) DURING THE RESTRICTED PERIOD UNLESS
<PAGE>
THE SHARES ARE REGISTERED UNDER THE 1933 ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS IS
AVAILABLE.
(vii) PURCHASER acknowledges that the purchase of the
Shares involves a high degree or risk and further
acknowledges that PURCHASER can bear the economic
risk of the purchase of the Shares, including the
total loss of PURCHASER's investment. acknowledges
that PURCHASER has obtained the advice of competent
legal counsel in PURCHASER's domicile jurisdiction
that PURCHASER is qualified under the laws of it
domicile to purchaser the Shares offered hereunder
and that the offer and sale of the Shares will not
violate the laws of their domicile jurisdiction.
(viii) PURCHASER understands that the Shares are
being offered and sold to him or it in reliance on
specific exemption from the registration requirements
of federal and state securities laws and the ISSUER
is relying upon the trust and accuracy of the
representations, warranties, agreements,
acknowledgments and understandings of PURCHASER set
forth herein in order to determine the applicability
of such exceptions and the suitability of PURCHASER
to acquire the Shares.
(ix) PURCHASER is sufficiently experienced in
financial and business matters to be capable of
evaluating the merits and risks of PURCHASER's
investments, and to make an informed decision
relating thereto.
(x) In evaluating PURCHASER's investment, PURCHASER
has consulted PURCHASER's own investment and/or legal
and/or tax advisors.
(xi) PURCHASER UNDERSTANDS THAT, IN THE VIEW OF THE
SEC, THE STATUTORY BASIS FOR THE EXEMPTION CLAIMED
FOR THIS TRANSACTION WOULD NOT BE PRESENT IF THE
OFFERING OF SHARES, ALTHOUGH IN TECHNICAL COMPLIANCE
WITH REGULATION S, IS PART OF A PLAN OR SCHEME TO
EVADE THE REGISTRATION PROVISIONS OF THE
<PAGE>
1933 ACT. PURCHASER IS ACQUIRING THE SHARES FOR
INVESTMENT PURPOSES AND HAS NO PRESENT INTENTION TO
SELL THE SHARES IN THE UNITED STATES OF AMERICAN TO A
U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON. PURCHASER HEREBY CONFIRMS THAT THE PURPOSE OF
INCLUDING THE PURCHASER REPRESENTATION LETTER
(Appendix B) AS PROVIDED IN PARAGRAPH 7, IS TO ENABLE
PURCHASER TO COMPLY WITH THE REQUIREMENTS OF CERTAIN
OFFSHORE PORTFOLIO MANAGEMENT REGULATIONS AND THE
SECURITY REQUIREMENTS OF OFFSHORE LENDERS FOR MARGIN
LOANS.
(xii) PURCHASER IS NOT AN UNDERWRITER OF, OR DEALER
IN, THE SHARES; AND PURCHASER IS NOT PARTICIPATING,
PURSUANT TO A CONTRACTUAL AGREEMENT, IN THE
DISTRIBUTION OF THE SHARES.
(xiii) PURCHASER represents and warranties that
neither PURCHASER nor any of PURCHASER's affiliates
will directly or indirectly maintain any short
position in Shares of the ISSUER during the Forty
(40) Day Transaction Restriction Period. If PURCHASER
is purchasing the Shares subscribed for hereby in
representative or fiduciary capacity, the
representations and warranties in this Offshore
Securities Deferred Subscription Agreement shall be
deemed to have been made on behalf of the person or
persons for whom PURCHASER is so purchasing.
The foregoing representations and warranties
are true and accurate as of the date hereof, shall be
true and accurate as of the date of the acceptance by
the ISSUER of PURCHASER's subscription, and shall
survive thereafter. If PURCHASER has knowledge, prior
to the acceptance of this Offshore Securities
Deferred Subscription Agreement by the ISSUER, that
any such representations and warranties shall not be
true and accurate in any respect, the PURCHASER,
prior to such acceptance, will give written notice of
such fact to the ISSUER specifying which
representations and warranties are not true and
accurate and the reasons therefor.
<PAGE>
b. Current Public Information. PURCHASER acknowledges that
PURCHASER has been furnished with or has acquired copies of
the ISSUER's most recent Annual Report on Form 10-K and the
most recent Form 10-Q filed thereafter (collectively the "SEC
filings"), and other publicly available documents (together
with the SEC filings, the "Offer Documents").
<PAGE>
c. Independent Investigation; Access. PURCHASER acknowledges
that PURCHASER in making the decision to purchase the Shares
subscribed for, has relied upon independent investigations
made by PURCHASER and PURCHASER's purchaser representatives,
if any, and PURCHASER and such representatives, if any, have,
prior to any sale to him or it, been given access and the
opportunity to examine all material books and records of the
ISSUER, all material contracts and documents relating to this
offering and an opportunity to ask questions of, and to
receive answers from ISSUER or any person acting on its behalf
concerning the terms and conditions of this offering.
PURCHASER and Purchaser's advisors, if any, have been
furnished with access to all publicly available materials
relating to the business, finances and operation of the ISSUER
and materials relating to the offer and sale of the Shares
which have been requested. PURCHASER and PURCHASER's advisors,
if any, have received complete and satisfactory answers to any
such inquiries.
d. No Government Recommendation or Approval. PURCHASER
understands that no federal or state agency has made or will
make any finding or determination relating to the fairness for
public investment in the Shares, or has passed on or made, or
will pass on or make, any recommendation or endorsement of the
Shares.
e. Entity Purchases. If PURCHASER is a partnership,
corporation or trust, the person executing this Offshore
Securities Deferred Subscription Agreement on PURCHASER's
behalf represents and warrants that:
(i) he or she has made due inquiry to determine the
truthfulness of the representations and warranties
made pursuant to this Offshore Securities Deferred
Subscription Agreement; and
(ii) he or she is duly authorized (if the undersigned
is a trust, by the trust agreement) to make this
investment and to enter into and execute this
Offshore Securities Deferred Subscription Agreement
on behalf of such entity.
f. Covenants. PURCHASER and ISSUER hereby represent
<PAGE>
and warrant that:
(i) Unauthorized Sale. Notwithstanding the 40 day
rule of Regulation S, no part of the Stock may be
sold, transferred, re-registered, conveyed or
otherwise disposed by PURCHASER in any form or manner
without the ISSUER's written consent from final
payment of the note plus three (3) months.
(ii) Insolvency. In the event that the PURCHASER
becomes insolvent, or declares bankruptcy, then all
Stock shall be released to the ISSUER within 72 hours
of written demand by ISSUER of the herein described
event, without liability of any kind to the ISSUER,
including amounts previously paid.
(iii) Use of Assets. PURCHASER shall have the right
to use the Stock during the term hereof, for its
business purposes, provided that all such uses do not
break any of the United States Securities Laws and
Regulations, and Corporate law and Regulations of the
jurisdiction in which the PURCHASER is domiciled, and
the PURCHASER shall comply with generally accepted
accounting principles in dealing with the Stock.
However, PURCHASER's use of the stock shall at all
times comply with the provisions of the Escrow
Agreement between Parties.
g. 1934 Act Compliance. PURCHASER agrees to make all filings
required pursuant to the Securities and Exchange Act of 1934.
3. Issuer Representations.
ISSUER represents and warrants to the PURCHASER as follows:
a. Reporting Company Status. ISSUER is a reporting issuer as
defined by Rule 902 of Regulation S.
b. Offshore Transaction. ISSUER has not offered these
securities to any person in the United States of America or to
any U.S. person or for the account or benefit of any U.S.
person.
<PAGE>
c. No Directed Selling Efforts. In regard to this transaction,
ISSUER has not conducted any "directed selling efforts" as
that term is defined in Rule 902 of Regulation S and the
ISSUER has not conducted any general solicitation relating to
the offer and sale of the Shares to U.S. persons resident
within the United States of America or elsewhere.
d. Shares. The Shares when issued and delivered will be duly
and validly authorized and issued and, subject to receipt of
the full consideration as provided herein, fully paid and
non-assessable. The issuance of the shares herein is in full
compliance with all state and federal securities laws and
regulations, subject to the representations and warranties of
PURCHASER set forth in paragraph 2 (a).
e. Offshore Securities Deferred Subscription Agreement. This
Offshore Securities Deferred Subscription Agreement, when
acknowledged by the signature of an officer of the ISSUER, has
been duly authorized, validly executed and delivered on behalf
of the ISSUER and is a valid and binding agreement in
accordance with its terms.
f. Non-contravention. The execution and delivery of the
Offshore Securities Deferred Subscription Agreement and the
consummation of the issuance of the Shares and the
transactions contemplated by this Offshore Securities Deferred
Subscription Agreement do not and will not conflict with or
result in a breach by the ISSUER of any of the terms or
provisions, of, or constitute a default under, the certificate
of incorporation or by-laws of the ISSUER, or any indenture,
mortgage, deed of trust, or other material agreement or
instrument to which the ISSUER is a party or by which it or
any of its properties or assets are bound, or any existing
applicable law, rule or regulation, or any applicable decrees,
judgment or order of any court, federal or state regulatory
body, administrative agency or other governmental body having
jurisdictions over the ISSUER or any of its properties or
assets.
<PAGE>
g. Prior Share Issues Under Regulation S. Except as previously
disclosed to the PURCHASER, ISSUER has not issued any shares
of its Common Stock under Regulation S subsequent to its
current SEC Filings except for any shares which may be issued
in connection with ISSUER's current financing activities and
shares issued as an adjustment to prior sales under Regulation
S.
h. Filings. ISSUER undertakes and agrees pursuant to the sale
of its securities under Regulations S to make all necessary
filings in connection with the sale of its securities as
required by the laws and regulations of all appropriate
jurisdictions.
4. Indemnification.
a. Indemnification by Issuer. ISSUER shall indemnify and hold
harmless PURCHASER from and against any and all loss, damage,
expense (including court costs and reasonable attorneys'
fees), suit, action, claim, liability or obligation related to
or caused by ISSUER or arising from any misrepresentation,
breach of warranty or failure to fulfill any covenant or
agreement contained herein.
b. Indemnification by Purchaser. PURCHASER shall indemnify and
hold harmless ISSUER from and against any and all loss,
damage, expense (including court costs and reasonable
attorneys' fees), suit, action, claim, liability or obligation
related to, caused by or arising from any misrepresentation,
breach of warranty or failure to fulfill any covenant or
agreement contained herein by PURCHASER.
c. Defense of Claims. If any lawsuit or enforcement action is
filed against any party entitled to benefit of indemnity
hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable; provided that
the failure of any indemnified party to give timely notice
shall not affect rights to demonstrates actual damages caused
by such failure. After such notice, if the indemnifying party
shall, within 10 days after receiving the indemnified party's
notice, acknowledge in writing to such indemnified party that
such indemnifying party
<PAGE>
shall be obligated under the terms of its indemnity hereunder
in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, to take
control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys satisfactory to the
indemnified party to handle and defend the same, at the
indemnifying party's cost, risk and expense, provided,
however, that the indemnified party may, at its own cost,
employ its own counsel and participate in such investigation,
trial and defense of such lawsuit or action and any appeal
arising therefrom. The indemnifying party shall not, without
the indemnified party's indemnification liability to the
indemnified party hereunder with respect to such lawsuit or
action shall not exceed the amount contemplated by such
proposed settlement or compromise.
5. Expiration of Restricted Period. The transaction restriction in
connection with this offshore offer and sale restricts the PURCHASER
from offering and selling to U.S. persons or for the account or benefit
of a U.S. person for a forty (40) day period. Rule 903 (c)(2) governs
the forty (40) day transaction restriction. In the event that multiple
subscriptions are accepted by the ISSUER, each separate subscription
agreement shall be deemed to be a separate offering under Regulation S
and the forty (40) day restriction period shall begin for each
transaction separately on the date full payment is made to the ISSUER
for that specific transaction. Title to the Shares may be transferred
by PURCHASER to other non U.S. persons or entities in accordance with
Regulation S, subject to the restrictions imposed in Section 2 (f)(i)
of this Agreement.
6. Exemption: Reliance on Representations. PURCHASER understands that
the offer and sale of the Shares is not being registered under the 1933
Act. ISSUER is relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S. Rules 901 through
903 of Regulation S govern this transaction.
7. Transfer Agent Instructions. ISSUER shall inform its Transfer Agent
of the restrictions imposed pursuant to Regulation S as set forth in
paragraph 2. The Shares shall be freely transferable on the books and
records of the
<PAGE>
ISSUER only upon subsequent compliance with applicable securities laws.
These shares shall be legend free.
8. Closing Date. The date of issuance of the Shares, June 4, 1996, and
the "Closing Date" shall be no later than June , 1996. Closing shall be
effectuated through delivery of funds to the accounts designed in
Section 1 (b) hereof, provided, however, that the Shares are delivered
in accordance with Section 10, herein.
9. Conditions to the Issuer's Obligation to Sell. ISSUER reserves the
right in its complete discretion to reject this Offshore Securities
Deferred Subscription Agreement PURCHASER understands that ISSUER's
obligation to sell the Shares is conditioned upon:
a. The receipt and acceptance by ISSUER of this offshore
Securities Deferred Subscription Agreement for all of the
Shares is evidenced by execution of this Offshore Securities
Deferred Subscription Agreement by the President or any Vice
President or any Director of the ISSUER.
b. Delivery to ISSUER of goods funds as set forth in paragraph
1 (b) as payment in full for the purchase of the Shares, and
all fees and commissions.
10. Conditions to Purchaser's Obligations to Purchase. ISSUER
understands that PURCHASER's obligation to purchase the Shares, and
deliver the consideration described herein, is conditioned upon
delivery of the certificates representing the Shares according to the
delivery instructions in Section 14, hereinbelow. Prior to the delivery
of the shares PURCHASER shall provide to ISSUER satisfactory evidence
of the availability of funds with the agents set forth in Section 14 of
this Agreement. This Subscription is subject to the marginability of
the entire taking value of the Shares and being not less than thirteen
(13) million dollars.
11. Governing Law. This Offshore Securities Deferred Subscription
Agreement shall be governed by and construed under the laws of the
State of Delaware (without regard to its choice of law principles).
<PAGE>
12. Entire Agreement. This Offshore Securities Deferred Subscription
Agreement, when read in conjunction with the Escrow Agreement between
the Parties, constitutes the entire agreement among the parties hereof
with respect to the subject matter hereof and supersedes any and all
prior or contemporaneous representations, warranties, agreement and
understandings in connection therewith. This Offshore Securities
Deferred Subscription Agreement may be amended only by a writing
executed by all parties hereto.
13. Full Name and Address of Purchaser for Registration Purposes.
NAME: BARON BANKER LIMITED
ADDRESS: 1020 Matheson Blvd East
Unit 12
Mississauga, Ontario L4W4J9
Canada
TEL NO.: (905) 728-6521
FAX NO.: (905) 728-0235
CONTACT: J.P. BARON, Chairman
FRED PITTMAN, President
PETER VERBEEK, Legal Counsel
(905) 602-6000
(905) 602-5000
<PAGE>
14. Issuer's acceptance based upon Purchasers Representations. ISSUER
IS ACCEPTING THIS OFFSHORE SECURITIES SUBSCRIPTION BASED UPON AND IN
RELIANCE UPON THE REPRESENTATIONS AND WARRANTIES OF PURCHASER CONTAINED
HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE CONTAINED IN SECTION 2 OF
THIS AGREEMENT, AND THIS OFFSHORE SECURITIES DEFERRED SUBSCRIPTION
AGREEMENT WOULD NOT BE ACCEPTED BY ISSUER IN THE ABSENCE OF SUCH
REPRESENTATIONS AND WARRANTIES.
IN WITNESS WHEREOF, this Offshore Securities Deferred Subscription
Agreement was duly executed on the date first written below.
Dated this day of the month of June, 1996.
Company Name: AFFINITY ENTERTAINMENT, INC.
By: ----------------------------------
William J. Bosso
President
Country of Execution: United States
Accepted this day of the month of June, 1996.
Company Name: BARON BANKER LIMITED
By: ----------------------------------
J.P. Baron, Chairman
<PAGE>
APPENDIX "A"
PURCHASER REPRESENTATION LETTER
Dear Sirs:
The undersigned, BARON BANKER LIMITED, has purchased on June , 1996,
Four Million (4,000,000) Shares of Common Stock (the "Shares") of AFFINITY
ENTERTAINMENT, INC. (the "Company") and, in connection with such purchase, has
executed and delivered a subscription form ("Subscription Form") of your design.
BARON acknowledges the Regulation S restriction, and the restriction against
transfer imposed during the entire period that the note has not been satisfied
plus the three (3) months of restriction after the note is satisfied.
The undersigned represents and warrants as follows:
(1) The offer to purchase the Shares was made to it outside of
the United States, and the undersigned was, at the time the
subscription form was executed and delivered, and is not
outside the United States.
(2) The undersigned is not a U.S. person (as such term is
defined in Section 902 (a) of Regulation S ("Regulation S")
promulgated under the United States Securities Act of 1933
(the "Securities Act"), and the undersigned has purchased the
Shares for the undersigned's own account and not for the
account or benefit of any U.S. person.
(3) All offers and sales by the undersigned of the shares
acquired pursuant to the Subscription Form shall be made
pursuant to an effective registration statement under the
Securities Act or pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption
form, or in a transaction not subject to the registration
requirements of the Securities Act.
(4) He or it is familiar with and understands the terms and
conditions, and requirements contained in Regulation S and
definitions of U.S. persons contained in Regulation S.
<PAGE>
(5) The undersigned has not engaged in any "directed selling
efforts" (as such term is defined in Regulation S) with
respect to the Shares; and
(6) The undersigned purchased the undersigned's Shares with
investment intent and presently has no interest to sell,
dispose of or otherwise transfer the Shares. The purpose for
this request is to facilitate the management of the
undersigned's investment accounts.
Dated this day of the month of June, 1996.
By: ________________________________
Official Signature of Purchaser
Title: _____________________________
Country of Execution:
<PAGE>
APPENDIX "B"
PROMISSORY NOTE
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement is executed in reliance
upon the transaction exemption afforded by Regulation S ("Regulation S") as
promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended ("1933 Act").
This Offshore Securities Subscription Agreement has been executed by
the undersigned in connection with the private placement of shares of Common
Stock (hereinafter referred to as the "Shares") of:
AFFINITY TELEPRODUCTIONS, INC.
15436 North Florida Ave., Suite 103
Tampa, Florida 33613
National Association of Securities Dealers Automated Quotation System Symbol
("AFTY"), a corporation organized under the laws of Delaware, United States of
America (hereinafter referred to as the "ISSUER").
1. Subscription The undersigned:
NAME: PHILMONT A.V.V.
ADDRESS: Sun Plaza
306-160 Lloyd Gaston Smith Boulevard
Aruba
A Corporation organized under the laws of ARUBA, a non-USA
Jurisdiction (hereinafter referred to as the "PURCHASER"), hereby represents and
warrants to, and agrees with ISSUER as follows:
a. The PURCHASER hereby subscribes for One Million (1,000,000)
shares (the "Stock" or the "Shares") of the Company's Common
Stock at a subscription price equal to $5.00 per share
(calculated by applying a 20% discount of the trading value of
$6.25 per share) payable in United States Dollars for a total
consideration of Five Million Dollars ($5,000,000). The total
consideration is based upon the trading bid price of the stock
on the day prior to the close hereof. Any fluctuations in the
trading price shall be reflected as an adjustment of the
consideration calculated as set forth in this Section 1(a).
b. Form of payment. PURCHASER shall pay the total
consideration by delivering good funds by wire transfer in
United States Dollars on or before January 26, 1996, in the
amount of $5,000,000 to:
<PAGE>
Nations Bank of Florida
15150 N. Florida Ave.
Tampa, FL 33613
Account No.: 3603136640
ABA Routing No.: 063100277
Account Name: Affinity Teleproductions, Inc.
2. Subscriber Representations: Access to information; independent
investigation.
a. Offshore Transaction. PURCHASER represents and warrants to
ISSUER as follows:
(i) Neither the PURCHASER nor any person or entity
from whom the PURCHASER is acting as fiduciary is a
U.S. person. A U.S. person means any one of the
following:
(1) any natural person resident in the
United States of America;
(2) any partnership or corporation organized
or incorporated under the laws of the United
States of America;
(3) any estate of which any executor or
administrator is a U.S. person;
(4) any trust of which any trustee is a U.S.
person;
(5) any agency or branch of a foreign entity
located in the United States of America.
(6) any non-discretionary account or similar
account (other than an estate or trust) held
by a dealer or other fiduciary for the
benefit or account of a U.S. person;
(7) any discretionary account or similar
account (other than an estate or trust) held
by a dealer or other fiduciary organized
incorporated or (if an individual) resident
in the United States of America; and
(8) any partnership or corporation if:
(A) organized or incorporated under
the laws of any foreign
jurisdiction; and
-2-
<PAGE>
(B) formed by a U.S. person
principally for the purpose of
investing in securities not
registered under the 1933 Act,
(whenever such term is used herein,
it shall have the meaning given in
Regulation S);
(ii) At the time the buy order was originated,
PURCHASER was outside the United States of America
and is outside of the United States of America as of
the date of the execution and delivery of this
Offshore Securities Subscription Agreement. No offer
to purchase the Shares was made in the United States
of America.
(iii) PURCHASER is purchasing the Shares for
PURCHASER's own account or for the account of
beneficiaries from whom the PURCHASER has full
investment discretion with respect to the Shares and
whom the PURCHASER has full authority to bind so that
each such beneficiary is bound hereby as if such
beneficiary were a direct PURCHASER hereunder and all
representations, warranties and agreements herein
were made directly by such beneficiary.
(iv) Each distributor participating in the offering
of the Shares, if any, has agreed in writing that all
offers and sales of the Shares prior to the
expiration of a period commencing on the date of the
closing of the offering of Shares and ending 40 days
thereafter (the "Restricted Period") shall only be
made in compliance with the safe harbor contained in
Regulation S, pursuant to registration of Shares
under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act.
(v) PURCHASER REPRESENTS AND WARRANTS AND HEREBY
AGREES THAT ALL OFFERS AND SALES OF THE SHARES PRIOR
TO THE EXPIRATION OF THE RESTRICTED PERIOD SHALL ONLY
BE MADE IN COMPLIANCE WITH THE SAFE HARBOR CONTAINED
IN REGULATION S, PURSUANT TO REGISTRATION OF
SECURITIES UNDER THE 1933 ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT, AND
ALL OFFERS AND SALES AFTER THE RESTRICTED PERIOD
SHALL BE MADE ONLY PURSUANT TO SUCH A REGISTRATION OR
TO SUCH EXEMPTION FROM REGISTRATION.
(vi) ALL OFFERING DOCUMENTS RECEIVED BY PURCHASER
INCLUDE STATEMENTS TO THE EFFECT THAT THE SHARES HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON (OTHER THAN
-3-
<PAGE>
DISTRIBUTORS AS DEFINED IN REGULATION S) DURING THE
RESTRICTED PERIOD UNLESS THE SHARES ARE REGISTERED
UNDER THE 1933 ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS IS AVAILABLE.
(vii) PURCHASER acknowledges that the purchase of the
Shares involves a high degree of risk and further
acknowledges that PURCHASER can bear the economic
risk of the purchase of the Shares, including the
total loss of PURCHASER's investment. PURCHASER
acknowledges that PURCHASER has obtained the advice
of competent legal counsel in PURCHASER's domicile
jurisdiction that PURCHASER is qualified under the
laws of its domicile to purchase the Shares offered
hereunder and that the offer and sale of the Shares
will not violate the laws of their domicile
jurisdiction.
(viii) PURCHASER understands that the Shares are
being offered and sold to him or it in reliance on
specific exemption from the registration requirements
of federal and state securities laws and that the
ISSUER is relying upon the truth and accuracy of the
representations, warranties, agreements,
acknowledgments and understandings of PURCHASER set
forth herein in order to determine the applicability
of such exemptions and the suitability of PURCHASER
to acquire the Shares.
(ix) PURCHASER is sufficiently experienced in
financial and business matters to be capable of
evaluating the merits and risks of PURCHASER's
investments, and to make an informed decision
relating thereto.
(x) In evaluating PURCHASER's investment, PURCHASER
has consulted PURCHASER's own investment and/or legal
and/or tax advisors.
(xi) PURCHASER UNDERSTANDS THAT, IN THE VIEW OF THE
SEC, THE STATUTORY BASIS FOR THE EXEMPTION CLAIMED
FOR THIS TRANSACTION WOULD NOT BE PRESENT IF THE
OFFERING OF SHARES, ALTHOUGH IN TECHNICAL COMPLIANCE
WITH REGULATION S, IS PART OF A PLAN OR SCHEME TO
EVADE THE REGISTRATION PROVISIONS OF THE 1933 ACT.
PURCHASER IS ACQUIRING THE SHARES FOR INVESTMENT
PURPOSES AND HAS NO PRESENT INTENTION TO SELL THE
SHARES IN THE UNITED STATES OF AMERICA TO A U.S.
PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON. PURCHASER HEREBY CONFIRMS THAT THE PURPOSE OF
INCLUDING THE PURCHASER REPRESENTATION LETTER
(SCHEDULE A) AS PROVIDED IN PARAGRAPH 7, IN ORDER TO
FACILITATE THE TRANSFER OF THE CERTIFICATES
REPRESENTING THE
-4-
<PAGE>
SHARES INTO STREET NAME, IS TO ENABLE PURCHASER TO
COMPLY WITH THE REQUIREMENTS OF CERTAIN OFFSHORE
PORTFOLIO MANAGEMENT REGULATIONS AND THE SECURITY
REQUIREMENTS OF OFFSHORE LENDERS FOR MARGIN LOANS.
(xii) PURCHASER IS NOT AN UNDERWRITER OF, OR DEALER
IN, THE SHARES; AND PURCHASER IS NOT PARTICIPATING,
PURSUANT TO A CONTRACTUAL AGREEMENT, IN THE
DISTRIBUTION OF THE SHARES.
(xiii) PURCHASER represents and warranties that
neither PURCHASER nor any of PURCHASER's affiliates
will directly or indirectly maintain any short
position in Shares of the ISSUER during the Forty Day
(40) Transaction Restriction Period.
(xiv) PURCHASER represents that it may not transfer
the shares for a period of one (1) year from the date
of the Close hereof.
If PURCHASER is purchasing the Shares
subscribed for hereby in representative or fiduciary
capacity, the representations and warranties in this
Offshore Securities Subscription Agreement shall be
deemed to have been made on behalf of the person or
persons for whom PURCHASER is so purchasing.
The foregoing representations and warranties
are true and accurate as of the date hereof, shall be
true and accurate as of the date of the acceptance by
the ISSUER of PURCHASER's subscription, and shall
survive thereafter. If PURCHASER has knowledge, prior
to the acceptance of this Offshore Securities
Subscription Agreement by the ISSUER, that any such
representations and warranties shall not be true and
accurate in any respect, the PURCHASER, prior to such
acceptance, will give written notice of such fact to
the ISSUER specifying which representations and
warranties are not true and accurate and the reasons
therefor.
b. Current Public Information. PURCHASER acknowledges that
PURCHASER has been furnished with or has acquired copies of
the ISSUER's most recent Annual Report on Form 10-K and the
most recent Form 10-Q filed thereafter (collectively the "SEC
Filings"), and other publicly available documents (together
with the SEC Filings, the "Offering Documents").
c. Independent Investigation; Access. PURCHASER acknowledges
that PURCHASER in making the decision to purchase the Shares
subscribed for, has relied upon independent investigations
made by PURCHASER and
-5-
<PAGE>
PURCHASER's purchaser representatives, if any, and PURCHASER
and such representatives, if any, have, prior to any sale to
him or it, been given access and the opportunity to examine
all material books and records of the ISSUER, all material
contracts and documents relating to this offering and an
opportunity to ask questions of, and to receive answers from
ISSUER or any person acting on its behalf concerning the terms
and conditions of this offering. PURCHASER and Purchaser's
advisors, if any, have been furnished with access to all
publicly available materials relating to the business,
finances and operation of the ISSUER and materials relating to
the offer and sale of the Shares which have been requested.
PURCHASER and PURCHASER's advisors, if any, have received
complete and satisfactory answers to any such inquiries.
d. No Government Recommendation or Approval. PURCHASER
understands that no federal or state agency has made or will
make any finding or determination relating to the fairness for
public investment in the Shares, or has passed on or made, or
will pass on or make, any recommendation or endorsement of the
Shares.
e. Entity Purchases. If PURCHASER is a partnership corporation
or trust, the person executing this Offshore Securities
Subscription Agreement on PURCHASER'S BEHALF represents and
warrants that:
(i) he or she has made due inquiry to determine the
truthfulness of the representations and warranties
made pursuant to this Offshore Securities
Subscription Agreement; and
(ii) he or she is duly authorized (if the undersigned
is a trust, by the trust agreement) to make this
investment and to enter into and execute this
Offshore Securities Subscription Agreement on behalf
of such entity.
f. 1934 Act Compliance. PURCHASER agrees to make all filings
required pursuant to the Securities and Exchange Act of 1934.
3. Issuer Representations.
ISSUER represents and warrants to the PURCHASER as follows:
a. Reporting Company Status. ISSUER is a reporting issuer as
defined by Rule 902 of Regulation S.
b. Offshore Transaction. ISSUER has not offered these
securities to any person in the United States of America or to
any U.S. person or for the account or benefit of any U.S.
person.
c. No Direct Selling Efforts. In regard to this transaction,
ISSUER has not conducted any "directed selling efforts" as
that term is defined in Rule 902 of
-6-
<PAGE>
the offer and sale of the Shares to U.S. persons resident
within the United States of America or elsewhere.
d. Shares. The Shares when issued and delivered will be duly
and validly authorized and issued and, subject to receipt of
the full consideration as provided herein, fully paid and
non-assessable and will not subject the holders thereof to any
liability by reason of being such holders. The Shares are
subject to a stop transfer order as described herein below.
The issuance of the shares herein is in full compliance with
all state and federal securities laws and regulations, subject
to the representations and warranties of PURCHASER set forth
in paragraph 2(a).
e. Offshore Securities Subscription Agreement. This Offshore
Securities Subscription Agreement, when acknowledged by the
signature of an officer of the ISSUER, has been duly
authorized, validly executed and delivered on behalf of the
ISSUER and is a valid and binding agreement in accordance with
its terms.
f. Non-contravention. The execution and delivery of the
Offshore Securities Subscription Agreement and the
consummation of the issuance of the Shares and the
transactions contemplated by this Offshore Securities
Subscription Agreement do not and will not conflict with or
result in a breach by the ISSUER of any of the terms or
provisions, of, or constitute a default under, the certificate
of incorporation or by-laws of the ISSUER, or any indenture,
mortgage, deed of trust, or other material agreement or
instrument to which the ISSUER is a party or by which it or
any of its properties or assets are bound, or any existing
applicable law, rule or regulation, or any applicable decrees,
judgment or order of any court, federal or state regulatory
body, administrative agency or other governmental body having
jurisdictions over the ISSUER or any of its properties or
assets.
g. Prior Share Issues Under Regulation S. Except as previously
disclosed to the PURCHASER, ISSUER has not issued any shares
of its Common Stock under Regulation S subsequent to its
current SEC Filings except for any shares which may be issued
in connection with ISSUER's current financing activities and
shares issued as an adjustment to prior sales under Regulation
S.
h. Filings. ISSUER undertakes and agrees pursuant to the sale
of its securities under Regulation S to make all necessary
filings in connection with the sale of its securities as
required by the laws and regulations of all appropriate
jurisdictions.
i. Margin. ISSUER shall use its best effort to become a member
of NASDAQ, National Market System, and be listed on the
Federal Margin List by March 1, 1996.
-7-
<PAGE>
4. Indemnification.
a. Indemnification by Issuer. ISSUER shall indemnify and hold
harmless PURCHASER from and against any and all loss, damage,
expense (including court costs and reasonable attorney's
fees), suit, action, claim, liability or obligation related to
or caused by ISSUER or arising from any misrepresentation,
breach of warranty or failure to fulfill any covenant or
agreement contained herein.
b. Indemnification by Purchaser. PURCHASER shall indemnify and
hold harmless ISSUER from and against any and all loss,
damage, expense (including court costs and reasonable
attorney's fees), suit, action, claim, liability or obligation
related to, caused by or arising from any misrepresentation,
breach of warranty or failure to fulfill any covenant or
agreement contained herein by PURCHASER.
c. Defense of Claims. If any lawsuit or enforcement action is
filed against any party entitled to be benefit of indemnity
hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable; provided that
the failure of any indemnified party to give timely notice
shall not affect rights to indemnification hereunder, except
to the extent that the indemnifying party demonstrates actual
damages caused by such failure. After such notice, if the
indemnifying party shall, within 10 days after receiving the
indemnified party's notice, acknowledge in writing to such
indemnified party that such indemnifying party shall be
obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the indemnifying
party shall be entitled, if it so elects, to take control of
the defense and investigation of such lawsuit or action and to
employ and engage attorneys satisfactory to the indemnified
party to handle and defend the same, at the indemnifying
party's cost, risk and expense, provided, however, that the
indemnified party may, at its own cost, employ its own counsel
and participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. The
indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any such lawsuit
or action; provided, however, that in the event the
indemnified party does not consent to such settlement or
compromise, the indemnifying party's indemnification liability
to the indemnified party hereunder with respect to such
lawsuit or action shall not exceed the amount contemplated by
such proposed settlement or compromise.
5. Expiration of Restricted Period. The transaction restriction in
connection with this offshore offer and sale restricts the PURCHASER
from offering and selling to U.S. persons or for the account or benefit
of a U.S. person for a forty (40) day period. Rule 903 (c)(2) governs
the forty (40) day transaction restriction. In the event that multiple
subscriptions are accepted by the ISSUER, each separate subscription
agreement shall be deemed to be a separate offering under Regulation S
and the forty (40) day restriction period shall begin for each
transaction separately on the date full payment is made to the ISSUER
for that specific transaction. Title to the Shares may be transferred
by PURCHASER to other non U.S. persons or entities in accordance with
Regulation S, subject to the restriction imposed by Section 2(a)(xiv)
of this Agreement.
-8-
<PAGE>
6. Exemption; Reliance on Representations. PURCHASER understands that
the offer and sale of the Shares is not being registered under the 1933
Act. ISSUER is relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S. Rules 901 through
903 of Regulation S govern this transaction.
7. Transfer Agent Instructions. ISSUER shall inform its Transfer Agent
of the restrictions imposed pursuant to Regulation S as set forth in
paragraph 2 (a) and the restriction on transfer of 12 months as imposed
in Section 2 (a)(xiv). These shares shall be legend free.
8. Closing Date. The date of issuance of the Shares and the sale of the
Shares (the "Closing Date") shall be no later than January 26, 1996.
Closing shall be effectuated through delivery of funds to the account
designated in Section 1 (b) hereof; provided, however, that the shares
are delivered in accordance with Section 10 hereinbelow.
9. Conditions to the Issuer's Obligation to Sell. ISSUER reserves the
right in its complete discretion to reject this Offshore Securities
Subscription Agreement. PURCHASER understands that ISSUER's obligation
to sell the Shares is conditioned upon:
a. The receipt and acceptance by ISSUER of this Offshore
Securities Subscription Agreement for all of the Shares is
evidenced by execution of this Offshore Securities
Subscription Agreement by the President or any Vice President
or any Director of the ISSUER.
b. Delivery to the ISSUER of good funds as set forth in
paragraph 1 (b) as payment in full for the purchase of the
Shares, and all fees and commissions.
10. Conditions to Purchaser's Obligation to Purchase. ISSUER
understands that PURCHASER's obligation to purchase the Shares, and
deliver the consideration described herein, is conditioned upon prior
delivery of the certificates representing the Shares according to the
delivery instructions in Section 14, hereinbelow. Prior to the delivery
of the shares, PURCHASER shall provide to ISSUER satisfactory evidence
of the availability of funds with the agents set forth in Section 14 of
this Agreement.
11. Governing law. This Offshore Securities Subscription Agreement
shall be governed by and construed under the laws of the State of
Delaware (without regard to its choice of law principles).
12. Entire Agreement. This Offshore Securities Subscription Agreement
constitutes the entire agreement among the parties hereof with respect
to the subject matter hereof and supersedes any and all prior or
contemporaneous representations, warranties,
-9-
<PAGE>
agreement and understandings in connection therewith. This Offshore
Securities Subscription Agreement may be amended only by a writing
executed by all parties hereto.
13. Full Name and Address of Purchaser for Registration Purposes.
NAME: PHILMONT A.V.V.
ADDRESS: 1108 Capilano 100,
100 Park Royal
West Vancouver, B.C. Canada
V7T 1A2
TEL. NO.: (604) 922-5344
FAX NO.: (604) 922-0374
CONTACT
NAME: ALEXANDER ANDERSON
14. Delivery instructions: (if different from Registration Name):
NAME: Citibank N.A. (London)
ADDRESS: 41 Berkeley Square
London W1X 6NA
FAX NO.: 0171 409 5944
NAME: PHILMONT A.V.V.
SPECIAL
INSTRUCTIONS: Account Number: To be provided.
NUMBER OF SHARES: 500,000
NAME: Lehman Brothers
ADDRESS: 14th Floor
1221 Brickell Ave.
Miami, FL 33131
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<PAGE>
TEL NO.: (305) 789-8743
FAX NO.: (305) 579-0209
CONTACT: Sergio Granados
NAME: PHILMONT A.V.V. or ASSIGNEE
SPECIAL
INSTRUCTIONS: To be provided.
NUMBER OF SHARES: 500,000
15. Issuer's Acceptance based upon Purchaser Representations. ISSUER IS
ACCEPTING THIS OFFSHORE SECURITIES SUBSCRIPTION BASED UPON AND IN
RELIANCE UPON THE REPRESENTATIONS AND WARRANTIES OF PURCHASER CONTAINED
HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE CONTAINED IN SECTIONS 2 OF
THIS AGREEMENT, AND THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
WOULD NOT BE ACCEPTED BY ISSUER IN THE ABSENCE OF SUCH REPRESENTATIONS
AND WARRANTIES.
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was
duly executed on the date first written below.
Dated this 24th day of the month of January, 1996.
Company Name: AFFINITY TELEPRODUCTIONS, INC.
By: /s/ William J. Bosso
______________________________
Official Signature of Issuer
Name (Printed): William J. Bosso
Title: President
Country of Execution: USA
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<PAGE>
Accepted this 24th day of the month of January, 1996.
PHILMONT A.V.V.
By: /s/ Alexander Anderson
_______________________________
Official Signature of Purchaser
Name (Printed): Alexander Anderson
_______________________________
Title: Manager
_______________________________
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<PAGE>
APPENDIX "A"
PURCHASER REPRESENTATIONS LETTER
Dear Sirs:
The undersigned, PHILMONT A.V.V., has purchased on January 26, 1996,
One Million (1,000,000) Shares of Common Stock (the "Shares") of AFFINITY
TELEPRODUCTIONS, INC. (the "Company") and, in connection with such purchase, has
executed and delivered a subscription form ("Subscription Form") of your design.
Purchaser acknowledges the Regulation S restriction and the 12 month restriction
against transfer imposed.
The undersigned represents and warrants as follows:
(1) The offer to purchase the Shares was made to it outside of the
United States, and the undersigned was, at the time the
subscription form was executed and delivered, and is now
outside the United States;
(2) The undersigned is not a U.S. person (as such term is defined
in Section 902 (a) of Regulation S ("Regulation S")
promulgated under the United States Securities Act of 1933
(the "Securities Act"); and the undersigned has purchased the
Shares for the undersigned's own account and not for the
account or benefit of any U.S. person.
(3) All offers and sales by the undersigned of the shares acquired
pursuant to the Subscription Form shall be made pursuant to an
effective registration statement under the Securities Act or
pursuant to an exemption form, or in a transaction not subject
to the registration requirements of the Securities Act.
(4) He or it is familiar with and understands the terms and
conditions, and requirements contained in Regulation S and
definitions of U.S. persons contained in Regulation S.
(5) The undersigned has not engaged in any "directed selling
efforts" (as such term is defined in Regulation S) with
respect to the Shares; and
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<PAGE>
(6) The undersigned purchased the undersigned's Shares with
investment intent and presently has no interest to sell,
dispose of or otherwise transfer the Shares. The purpose for
this request is to facilitate the management of the
undersigned's investment accounts.
Dated this 26th day of the month of January, 1996.
By: /s/ Alexander Anderson
__________________________________
Official Signature of Purchaser
Title: Manager
____________________________________
Country of Execution: Canada
_______________________
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OFFSHORE SECURITIES DEFERRED SUBSCRIPTION AGREEMENT
This Offshore Securities Deferred Subscription Agreement is executed in
reliance upon the transaction exemption afforded by Regulation S ("Regulation
S") as promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended ("1933 Act").
This Offshore Securities Deferred Subscription Agreement has been
executed by the undersigned in connection with the private placement of shares
of Common Stock (hereinafter referred to as the "Shares") of:
AFFINITY TELEPRODUCTIONS, INC.
15436 North Florida Ave., Suite 103
Tampa, Florida 33613
National Association of Securities Dealers Automated Quotation System Symbol
("AFTY") a corporation organized under the laws of Delaware, United States of
American (hereinafter referred to as the "ISSUER").
1. Subscription. The undersigned:
NAME: PHILMONT A.V.V.
ADDRESS: Sun Plaza
306-160 Lloyd Gaston Smith Blvd.
Aruba
A Corporation organized under the laws of ARUBA, a non-USA Jurisdiction
(hereinafter referred to as the "PURCHASER"), hereby represents and warrants to,
and agrees with ISSUER as follows:
a. The PURCHASER hereby subscribes for One Million (1,000,000)
shares (the "Stock" or the "Shares") of the Company's Common
Stock at a subscription price equal to $5.00 per share
(calculated by applying a 20% discount of the trading value of
$6.25 per share) payable in United States Dollars for a total
consideration of Five Million Dollars ($5,000,000). The total
consideration is based upon the trading bid price of the stock
on the day prior to the close hereof. Any fluctuation in the
trading price shall be reflected as an adjustment of the
consideration calculated as set for in this Section 1 (a). The
Stock shall be common stock, approved by the Board of
Directors of the ISSUER, and will be entitled, unless the
Promissory Note as set forth in paragraph 1 (b) (i) is paid in
full, no rights to cash or property distributions, dividends,
interest paid by coupon or otherwise, distribution of
certificates, warrants, rights, stocks or cash representing
subdivision, combination, reclassification, merger, buy-out,
<PAGE>
acquisition, redemption, exchange, or any such other corporate
or government action pertaining to or involving the ownership
rights of the Stock transferred hereunder. The PURCHASER,
unless the Promissory Note as set forth in paragraph 1 (b) (i)
is paid in full, shall not be entitled to exercise any voting
or consensual rights pertaining to or arising from the
ownership of the Stock. In the event the bid price of the
Stock should decline to less than $5.00 per share, the
PURCHASER shall notify the ISSUER, and the ISSUER shall within
5 days after receipt of said notice, cause to deliver
additional stock in conformance with this paragraph 1 in
quantify sufficient to restore the valuation of all the Stock
issued to the PURCHASER to the original calculated amount as
set forth in Section 1 (b) (i). Any additional stock shall be
issued in 25,000 share increments. The Promissory Note may not
be prepaid, in whole or in part, in advance.
b. Form of payment. PURCHASER shall pay the total
consideration as follows:
(i) In the form of a Promissory Note in the amount of
$5,000,000, (representing a 20% discount from the
fair market value of the Stock of $6,250,000),
bearing interest at the rate of Ten (10%) percent per
annum, payable monthly, interest only, in advance in
the approximate amount of Forty One Thousand Six
Hundred Sixty-Seven Dollars ($41,667) per month, all
principal and interest due in twelve (12) months (the
"Termination Date"). The initial interest calculation
is based upon the value of the Stock transferred.
Subsequent monthly interest shall be calculated on
the first day of each month by applying the interest
rate of 80% of the then fair market value of the
Stock computed as the average of the price for the
previous 20 trading days as determined five (5) days
prior to the payment due date. Payment shall be due
by wire transfer, as set forth hereinbelow, on the
10th of each and every month.
(ii) Upon the expiration of the term of the
Promissory Note, the ISSUER shall in its sole
discretion, have the option to acquire the shares
subscribed herein by the PURCHASER in exchange for
the full cancellation of the Promissory Note. The
ISSUER shall notify the PURCHASER in writing of its
intent to acquire the shares before the due date of
the Promissory Note. The transaction contemplated in
this Section 1 (b) (ii) shall be accomplished by the
PURCHASER tendering its shares to the ISSUER within
15 days of the expiration of the term of the
Promissory Note. Within 5 days of the receipt of the
shares, the ISSUER shall return the Promissory Note
to the PURCHASER marked "Paid in Full."
(iii) To the extent ISSUER does not exercise its
option in Section 1 (b) (ii), upon the expiration of
the term of the Promissory Note, the PURCHASER shall,
in its sole discretion, have the option to transfer
("put") the Stock
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<PAGE>
subscribed herein to the ISSUER in exchange for the
full cancellation of the Promissory Note. The
PURCHASER shall notify the ISSUER in writing of the
intent to "put" the Stock to the ISSUER on or before
the due date of the Promissory Note. The transaction
contemplated in this Section 1 (b) (iii) shall be
accomplished by the undersigned tendering the Stock
to the ISSUER within 15 days of the expiration of the
term of the Promissory Note. Within 5 days of the
receipt of the Stock, the ISSUER shall return the
Promissory Note to the PURCHASER marked "PAID IN
FULL."
(iv) The principal amount of the Promissory Note
shall be adjusted on the due date by multiplying
(0.8) times the fair market value of the Stock on the
due date as determined in paragraph 1 (b) (i),
herein.
(v) The sum of Eighty-Three Thousand Three Hundred
Thirty-Three Dollars ($83,333), representing the
first and last months interest shall be tendered in
good funds by wire transfer to the account as set
forth below.
(vi) In the event any installment as set forth in
this paragraph 1 (b) is more than 5 days late,
default shall be deemed to have occurred. The ISSUER
shall make written demand for payment of the late
installment, and should payment not be made by the
undersigned within 5 days of the tendering of such
written demand, the ISSUER shall be entitled to
declare the entirety of the Promissory Note due, and
the undersigned shall return the Stock to the ISSUER
within 72 hours of the ISSUER's demand. The
undersigned shall continue to be liable for any
unpaid interest pro-rated through the date of the
return of the Stock to the ISSUER.
Any money shall be delivered in good funds by wire transfer in
United States Dollars, subject to any further instructions, as
follows:
Nations Bank of Florida
15150 N. Florida Ave.
Tampa, FL 33613
Account No.: 3603136640
ABA Routing No.: 063100277
Account Name: Affinity Teleproductions, Inc.
2. Subscriber Representations; Access to information; independent
investigation.
a. Offshore Transaction. PURCHASER represents and warrants to
ISSUER as follows:
(i) Neither the PURCHASER nor any person or entity
for whom the PURCHASER is acting as fiduciary is a
U.S. person. A U.S. person means any one of the
following:
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<PAGE>
(1) any natural person resident in the
United States of America;
(2) any partnership or corporation organized
or incorporated under the laws of the United
States of America;
(3) any estate of which any executor or
administrator is a U.S. person;
(4) any trust of which any trustee is a U.S.
person;
(5) any agency or branch of a foreign entity
located in the United States of American;
(6) any non-discretionary account or similar
account (other than an estate or trust)held
by a dealer or other fiduciary for the
benefit or account of a U.S. person;
(7) any discretionary account or similar
account (other than an estate or trust) held
by a dealer or other fiduciary organized,
incorporated or (if an individual) resident
in the United States of America; and
(8) any partnership or corporation if:
(A) organized or incorporated under
the laws of any foreign
jurisdiction; and
(B) formed by a U.S. person
principally for the purpose of
investing in securities not
registered under the 1933 Act,
(whenever such term is used herein,
it shall have the meaning given in
Regulation S);
(ii) At the time the buy order was originated,
PURCHASER was outside the United States of America
and is outside of the United States of America as of
the date of the execution and delivery of this
Offshore Securities Deferred Subscription Agreement.
No offer to purchase the Shares was made in the
United States of America.
(iii) PURCHASER is purchasing the Shares for
PURCHASER's own account or for the account of
beneficiaries for whom the PURCHASER has full
investment discretion with respect to the Shares and
whom the PURCHASER has full authority to bind so that
each such beneficiary is bound hereby as if such
beneficiary were a direct PURCHASER hereunder and all
representations, warranties and agreements herein
were made directly by such beneficiary.
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<PAGE>
(iv) Each distributor participating in the offering
of the Shares, if any, has agreed in writing that all
offers and sales of the Shares prior to the
expiration of a period commencing on the date of the
closing of the offering of Shares and ending 40 days
thereafter (the "Restricted Period") shall only be
made in compliance with the safe harbor contained in
Regulation S, pursuant to registration of Shares
under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act.
(v) PURCHASER REPRESENTS AND WARRANTS AND HEREBY
AGREES THAT ALL OFFERS AND SALES OF THE SHARES PRIOR
TO THE EXPIRATION OF THE RESTRICTED PERIOD SHALL ONLY
BE MADE IN COMPLIANCE WITH THE SAFE HARBOR CONTAINED
IN REGULATION S, PURSUANT TO REGISTRATION OF
SECURITIES UNDER THE 1933 ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT, AND
ALL OFFERS AND SALES AFTER THE RESTRICTED PERIOD
SHALL BE MADE ONLY PURSUANT TO SUCH A REGISTRATION OR
TO SUCH EXEMPTION FROM REGISTRATION.
(vi) ALL OFFERING DOCUMENTS RECEIVED BY PURCHASER
INCLUDE STATEMENTS TO THE EFFECT THAT THE SHARES HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON (OTHER THAN DISTRIBUTORS AS DEFINED IN
REGULATION S) DURING THE RESTRICTED PERIOD UNLESS THE
SHARES ARE REGISTERED UNDER THE 1933 ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS IS
AVAILABLE.
(vii) PURCHASER acknowledges that the purchase of the
Shares involves a high degree or risk and further
acknowledges that PURCHASER can bear the economic
risk of the purchase of the Shares, including the
total los of PURCHASER's investment. PURCHASER
acknowledges that PURCHASER has obtained the advice
of competent legal counsel in PURCHASER's domicile
jurisdiction that PURCHASER is qualified under the
laws of it domicile to purchase the Shares offered
hereunder and that the offer and sale of the Shares
will not violate the laws of their domicile
jurisdiction.
(viii) PURCHASER understands that the Shares are
being offered and sold to him or it in reliance on
specific exemption from the registration requirements
of federal and state securities laws and the ISSUER
is
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<PAGE>
relying upon the trust and accuracy of the
representations, warranties, agreements,
acknowledgments and understandings of PURCHASER set
forth herein in order to determine the applicability
of such exceptions and the suitability of PURCHASER
to acquire the Shares.
(ix) PURCHASER is sufficiently experienced in
financial and business matters to be capable of
evaluating the merits and risks of PURCHASER's
investments, and to make an informed decision
relating thereto.
(x) In evaluating PURCHASER's investment, PURCHASER
has consulted PURCHASER's own investment and/or legal
and/or tax advisors.
(xi) PURCHASER UNDERSTANDS THAT, IN THE VIEW OF THE
SEC, THE STATUTORY BASIS FOR THE EXEMPTION CLAIMED
FOR THIS TRANSACTION WOULD NOT BE PRESENT IF THE
OFFERING OF SHARES, ALTHOUGH IN TECHNICAL COMPLIANCE
WITH REGULATION S, IS PART OF A PLAN OR SCHEME TO
EVADE THE REGISTRATION PROVISIONS OF THE 1933 ACT.
PURCHASER IS ACQUIRING THE SHARES FOR INVESTMENT
PURPOSES AND HAS NO PRESENT INTENTION TO SELL THE
SHARES IN THE UNITED STATES OF AMERICAN TO A U.S.
PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON. PURCHASER HEREBY CONFIRMS THAT THE PURPOSE OF
INCLUDING THE PURCHASER REPRESENTATION LETTER
(SCHEDULE A) AS PROVIDED IN PARAGRAPH 7, IN ORDER TO
FACILITATE THE TRANSFER OF THE CERTIFICATES
REPRESENTING THE SHARES INTO STREET NAME, IS TO
ENABLE PURCHASER TO COMPLY WITH THE REQUIREMENTS OF
CERTAIN OFFSHORE PORTFOLIO MANAGEMENT REGULATIONS AND
THE SECURITY REQUIREMENTS OF OFFSHORE LENDERS FOR
MARGIN LOANS.
(xii) PURCHASER IS NOT AN UNDERWRITER OF, OR DEALER
IN, THE SHARES; AND PURCHASER IS NOT PARTICIPATING,
PURSUANT TO A CONTRACTUAL AGREEMENT, IN THE
DISTRIBUTION OF THE SHARES.
(xiii) PURCHASER represents and warranties that
neither PURCHASER nor any of PURCHASER's affiliates
will directly or indirectly maintain any short
position in Shares of the ISSUER during the Forty Day
(40) Transaction Restriction Period. If PURCHASER is
purchasing the Shares subscribed for hereby in
representative or fiduciary capacity, the
representations and warranties in this Offshore
Securities
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<PAGE>
Deferred Subscription Agreement shall be deemed to
have been made on behalf of the person or persons for
whom PURCHASER is so purchasing.
The foregoing representations and warranties
are true and accurate as of the date hereof, shall be
true and accurate as of the date of the acceptance by
the ISSUER of PURCHASER's subscription, and shall
survive thereafter. If PURCHASER has knowledge, prior
to the acceptance of this Offshore Securities
Deferred Subscription Agreement by the ISSUER, that
any such representations and warranties shall not be
true and accurate in any respect, the PURCHASER,
prior to such acceptance, will give written notice of
such fact to the ISSUER specifying which
representations and warranties are not true and
accurate and the reasons therefor.
b. Current Public Information. PURCHASER acknowledges that
PURCHASER has been furnished with or has acquired copies of
the ISSUER's most recent Annual Report on Form 10-K and the
most recent Form 10-Q filed thereafter (collectively the "SEC
filings"), and other publicly available documents (together
with the SEC filings, the "Offer Documents").
c. Independent Investigation; Access. PURCHASER acknowledges
that PURCHASER in making the decision to purchase the Shares
subscribed for, has relied upon independent investigations
made by PURCHASER and PURCHASER's purchaser representatives,
if any, and PURCHASER and such representatives, if any, have,
prior to any sale to him or it, been given access and the
opportunity to examine all material books and records of the
ISSUER, all material contracts and documents relating to this
offering and an opportunity to ask questions of, and to
receive answers from ISSUER or any person acting on its behalf
concerning the terms and conditions of this offering.
PURCHASER and Purchaser's advisors, if any, have been
furnished with access to all publicly available materials
relating to the business, finances and operation of the ISSUER
and materials relating to the offer and sale of the Shares
which have been requested. PURCHASER and PURCHASER's advisors,
if any, have received complete and satisfactory answers to any
such inquiries.
d. No Government Recommendation or Approval. PURCHASER
understands that no federal or state agency has made or will
make any finding or determination relating to the fairness for
public investment in the Shares, or has passed on or made, or
will pass on or make, any recommendation or endorsement of the
Shares.
e. Entity Purchases. If PURCHASER is a partnership,
corporation or trust, the person executing this Offshore
Securities Deferred Subscription Agreement on PURCHASER's
behalf represents and warrants that:
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<PAGE>
(i) he or she has made due inquiry to determine the
truthfulness of the representations and warranties
made pursuant to this Offshore Securities Deferred
Subscription Agreement; and
(ii) he or she is duly authorized (if the undersigned
is a trust, by the trust agreement) to make this
investment and to enter into and execute this
Offshore Securities Deferred Subscription Agreement
on behalf of such entity.
f. Covenants. PURCHASER and ISSUER hereby represent and
warrant that:
(i) Unauthorized Sale. Notwithstanding the 40 day
rule of Regulation S, no part of the Stock may be
sold, transferred, re- registered, conveyed or
otherwise disposed by PURCHASER in any form or manner
without the ISSUER's written consent for a period of
12 months. ISSUER may notify the appropriate
Corporate Transfer Agent for the Stock of the
restrictions imposed in this subparagraph.
(ii) Insolvency. In the event that the PURCHASER
becomes insolvent, or declares bankruptcy, then all
Stock shall be released to the ISSUER within 72 hours
of written demand by ISSUER of the herein described
event, without liability of any kind to the ISSUER.
(iii) Use of Assets. PURCHASER shall have the right
to use the Stock during the term hereof, for its
business purposes, provided that all such uses do not
break any of the United States Securities Laws and
Regulations, and Corporate law and Regulations of the
jurisdiction in which the PURCHASER is domiciled, and
the PURCHASER shall comply with generally accepted
accounting principles in dealing with the Stock.
(iv) Substitution of ISSUER. In the event ISSUER
desires to redeem, exchange or otherwise convert the
Stock held by PURCHASER during the term of the
Promissory Note, ISSUER shall deliver in exchange,
either:
(a) the cash proceeds from the sale of the
Stock;
(b) substitute stock;
(c) similar securities acceptable to
PURCHASER, in its sole discretion, with a
fair market value equal to the Stock
transferred.
g. 1934 Act Compliance. PURCHASER agrees to make all filings
required pursuant to the Securities and Exchange Act of 1934.
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<PAGE>
3. Issuer Representations.
ISSUER represents and warrants to the PURCHASER as follows:
a. Reporting Company Status. ISSUER is a reporting issuer as
defined by Rule 902 of Regulation S.
b. Offshore Transaction. ISSUER has not offered these
securities to any person in the United States of America or to
any U.S. person or for the account or benefit of any U.S.
person.
c. No Directed Selling Efforts. In regard to this transaction,
ISSUER has not conducted any "directed selling efforts" as
that term is defined in Rule 902 of Regulation S and the
ISSUER has not conducted any general solicitation relating to
the offer and sale of the Shares to U.S. persons resident
within the United States of America or elsewhere.
d. Shares. The Shares when issued and delivered will be duly
and validly authorized and issued and, subject to receipt of
the full consideration as provided herein, fully paid and
non-assessable and will not subject to a stop transfer order
as described herein below. The issuance of the shares herein
is in full compliance with all state and federal securities
laws and regulations, subject to the representations and
warranties of PURCHASER set forth in paragraph 2 (a).
e. Offshore Securities Deferred Subscription Agreement. This
Offshore Securities Deferred Subscription Agreement, when
acknowledged by the signature of an officer of the ISSUER, has
been duly authorized, validly executed and delivered on behalf
of the ISSUER and is a valid and binding agreement in
accordance with its terms.
f. Non-contravention. The execution and delivery of the
Offshore Securities Deferred Subscription Agreement and the
consummation of the issuance of the Shares and the
transactions contemplated by this Offshore Securities Deferred
Subscription Agreement do not and will not conflict with or
result in a breach by the ISSUER of any of the terms or
provisions, of, or constitute a default under, the certificate
of incorporation or by-laws of the ISSUER, or any indenture,
mortgage, deed of trust, or other material agreement or
instrument to which the ISSUER is a party or by which it or
any of its properties or assets are bound, or any existing
applicable law, rule or regulation, or any applicable decrees,
judgment or order of any court, federal or state regulatory
body, administrative agency or other governmental body having
jurisdictions over the ISSUER or any of its properties or
assets.
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<PAGE>
g. Prior Share Issues Under Regulation S. Except as previously
disclosed to the PURCHASER, ISSUER has not issued any shares
of its Common Stock under Regulation S subsequent to its
current SEC Filings except for any shares which may be issued
in connection with ISSUER's current financing activities and
shares issued as an adjustment to prior sales under Regulation
S.
h. Filings. ISSUER undertakes and agrees pursuant to the sale
of its securities under Regulations S to make all necessary
filings in connection with the sale of its securities as
required by the laws and regulations of all appropriate
jurisdictions.
i. Margin. ISSUER shall use its best efforts to become a
member of NASDAQ, National Market System, and be listed on the
Federal Margin List by March 1, 1996.
4. Indemnification.
a. Indemnification by Issuer. ISSUER shall indemnify and hold
harmless PURCHASER from and against any and all loss, damage,
expense (including court costs and reasonable attorneys'
fees), suit, action, claim, liability or obligation related to
or caused by ISSUER or arising from any misrepresentation,
breach of warranty or failure to fulfill any covenant or
agreement contained herein.
b. Indemnification by Purchaser. PURCHASER shall indemnify and
hold harmless ISSUER from and against any and all loss,
damage, expense (including court costs and reasonable
attorneys' fees), suit, action, claim, liability or obligation
related to, caused by or arising from any misrepresentation,
breach of warranty or failure to fulfill any covenant or
agreement contained herein by PURCHASER.
c. Defense of Claims. If any lawsuit or enforcement action is
filed against any party entitled to benefit of indemnity
hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable; provided that
the failure of any indemnified party to give timely notice
shall not affect rights to demonstrates actual damages caused
by such failure. After such notice, if the indemnifying party
shall, within 10 days after receiving the indemnified party's
notice, acknowledge in writing to such indemnified party that
such indemnifying party shall be obligated under the terms of
its indemnity hereunder in connection with such lawsuit or
action, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of
such lawsuit or action and to employ and engage attorneys
satisfactory to the indemnified party to handle and defend the
same, at the indemnifying party's cost, risk and expense,
provided, however, that the indemnified party may, at its own
cost, employ its own counsel and participate in such
investigation, trial and defense of such lawsuit or action and
any appeal arising therefrom. The indemnifying party shall
not, without the indemnified party's written consent, settle
or compromise any such lawsuit or
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<PAGE>
action; provided, however, that in the event the indemnified
party does not consent to such settlement or compromise, the
indemnifying party's indemnification liability to the
indemnified party hereunder with respect to such lawsuit or
action shall not exceed the amount contemplated by such
proposed settlement or compromise.
5. Expiration of Restricted Period. The transaction restriction in
connection with this offshore offer and sale restricts the PURCHASER
from offering and selling to U.S. persons or for the account or benefit
of a U.S. person for a forty (40) day period. Rule 903 (c)(2) governs
the forty (40) day transaction restriction. In the event that multiple
subscriptions are accepted by the ISSUER, each separate subscription
agreement shall be deemed to be a separate offering under Regulation S
and the forty (40) day restriction period shall begin for each
transaction separately on the date full payment is made to the ISSUER
for that specific transaction. Title to the Shares may be transferred
by PURCHASER to other non U.S. persons or entities in accordance with
Regulation S, subject to the restrictions imposed in Section 2 (f)(i)
of this Agreement.
6. Exemption: Reliance on Representations. PURCHASER understands that
the offer and sale of the Shares is not being registered under the 1933
Act. ISSUER is relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S. Rules 901 through
903 of Regulation S govern this transaction.
7. Transfer Agent Instructions. ISSUER shall inform its Transfer Agent
of the restrictions imposed pursuant to Regulation S as set forth in
paragraph 2 (a) and of the instruction on transfer for 12 months as set
forth in Section 2 (f)(i). The Transfer Agent shall be given stop
transfer instructions accordingly and the Shares shall be freely
transferable on the books and records of the ISSUER only upon
subsequent compliance with applicable securities laws. These shares
shall be legend free.
8. Closing Date. The date of issuance of the Shares and the sale of the
Shares (the "Closing Date") shall be no later than January 26, 1996.
Closing shall be effectuated through delivery of funds to the accounts
designed in Section 1 (b) hereof, provided, however, that the Shares
are delivered in accordance with Section 10, herein.
9. Conditions to the Issuer's Obligation to Sell. ISSUER reserves the
right in its complete discretion to reject this Offshore Securities
Deferred Subscription Agreement PURCHASER understands that ISSUER's
obligation to sell the Shares is conditioned upon:
a. The receipt and acceptance by ISSUER of this Offshore
Securities Deferred Subscription Agreement for all of the
Shares is evidenced by execution of this Offshore Securities
Deferred Subscription Agreement by the President or any Vice
President or any Director of the ISSUER.
b. Delivery to ISSUER of goods funds as set forth in paragraph
1 (b) as payment in full for the purchase of the Shares, and
all fees and commissions.
-11-
<PAGE>
10. Conditions to Purchaser's Obligations to Purchase. ISSUER
understands that PURCHASER's obligation to purchase the Shares, and
deliver the consideration described herein, is conditioned upon
delivery of the certificates representing the Shares according to the
delivery instructions in Section 14, hereinbelow. Prior to the delivery
of the shares PURCHASER shall provide to ISSUER satisfactory evidence
of the availability of funds with the agents set forth in Section 14 of
this Agreement.
11. Governing Law. This Offshore Securities Deferred Subscription
Agreement shall be governed by and construed under the laws of the
State of Delaware (without regard to its choice of law principles).
12. Entire Agreement. This Offshore Securities Deferred Subscription
Agreement constitutes the entire agreement among the parties hereof
with respect to the subject matter hereof and supersedes any and all
prior or contemporaneous representations, warranties, agreement and
understandings in connection therewith. This Offshore Securities
Deferred Subscription Agreement may be amended only by a writing
executed by all parties hereto.
13. Full Name and Address of Purchaser for Registration Purposes.
NAME: PHILMONT A.V.V.
ADDRESS: Sun Plaza
306-160 Lloyd Gaston Smith Blvd.
Aruba
TEL NO.: (604) 922-5344
FAX NO.: (604) 922-0374
CONTACT
NAME: ALEXANDER ANDERSON
14. Delivery instructions: (if different from Registration Name):
NAME: Citibank N.A. (London)
ADDRESS: 41 Berkeley Square
London W1X 6NA
FAX NO.: 0171 409 5944
NAME: PHILMONT A.V.V.
-12-
<PAGE>
SPECIAL
INSTRUCTIONS: Account Number: To be provided.
NUMBER
OF SHARES: 500,000
NAME: Lehman Brothers
ADDRESS: 14th Floor
1221 Brickell Ave.
Miami, FL 33131
TEL NO.: (305) 789-8743
FAX NO.: (305) 579-0209
CONTACT: Sergio Granados
NAME: PHILMONT A.V.V. or ASSIGNEE
SPECIAL
INSTRUCTIONS: To be provided.
NUMBER OF SHARES: 500,000
15. Issuer's acceptance based upon Purchasers Representations. ISSUER
IS ACCEPTING THIS OFFSHORE SECURITIES SUBSCRIPTION BASED UPON AND IN
RELIANCE UPON THE REPRESENTATIONS AND WARRANTIES OF PURCHASER CONTAINED
HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE CONTAINED IN SECTION 2 OF
THIS AGREEMENT, AND THIS OFFSHORE SECURITIES DEFERRED SUBSCRIPTION
AGREEMENT WOULD NOT BE ACCEPTED BY ISSUER IN THE ABSENCE OF SUCH
REPRESENTATIONS AND WARRANTIES.
-13-
<PAGE>
IN WITNESS WHEREOF, this Offshore Securities Deferred Subscription
Agreement was duly executed on the date first written below.
Dated this 24th day of the month of January, 1996.
Company Name: AFFINITY TELEPRODUCTIONS, INC.
By: /s/ William J. Bosso
______________________________
Official Signature of Issuer
Name (Printed): William J. Bosso
______________________________
Title: President
Country of Execution: USA
______________________________
Accepted this 24th day of the month of January, 1996.
PHILMONT A.V.V.
By: /s/ Alexander Anderson
_______________________________
Official Signature of Purchaser
Name (Printed): Alexander Anderson
Title: Manager
-14-
<PAGE>
APPENDIX "A"
PURCHASER REPRESENTATION LETTER
Dear Sirs:
The undersigned, PHILMONT A.V.V., has purchased on January , 1996, One
Million Shares of Common Stock (the "Shares") of AFFINITY TELEPRODUCTIONS, INC.
(the "Company") and, in connection with such purchase, has executed and
delivered a subscription form ("Subscription Form") of your design. P
acknowledges the Regulation S restriction and 12 month restriction against
transfer imposed.
The undersigned represents and warrants as follows:
(1) The offer to purchase the Shares was made to it outside of
the United States, and the undersigned was, at the time the
subscription form was executed and delivered, and is not
outside the United States.
(2) The undersigned is not a U.S. person (as such term is
defined in Section 902 (a) of Regulation S ("Regulation S")
promulgated under the United States Securities Act of 1933
(the "Securities Act"), and the undersigned has purchased the
Shares for the undersigned's own account and not for the
account or benefit of any U.S. person.
(3) All offers and sales by the undersigned of the shares
acquired pursuant to the Subscription Form shall be made
pursuant to an effective registration statement under the
Securities Act or pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption
form, or in a transaction not subject to the registration
requirements of the Securities Act.
(4) He or it is familiar with and understands the terms and
conditions, and requirements contained in Regulation S and
definitions of U.S. persons contained in Regulation S.
(5) The undersigned has not engaged in any "directed selling
efforts" (as such term is defined in Regulation S) with
respect to the Shares; and
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<PAGE>
(6) The undersigned purchased the undersigned's Shares with
investment intent and presently has no interest to sell,
dispose of or otherwise transfer the Shares. The purpose for
this request is to facilitate the management of the
undersigned's investment accounts.
Dated this 24th day of the month of January, 1996.
By: /s/ Alexander Anderson
_______________________________
Official Signature of Purchaser
Title: Manager
______________________________
Country of Execution: Canada
_______________
-16-
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") has been made and entered into
as of the day of June, 1996, by and among Affinity Entertainment, Inc. (the
"Seller" or "Affinity"), Baron Banker, Limited (the "Buyer" or "Baron Banker"),
each a "Party" and together the "Parties," and (the "ESCROW
AGENT").
WITNESSETH:
WHEREAS, pursuant to a Offshore Securities Deferred Subscription
Agreement dated June , 1996 (the "Subscription Agreement"), Seller has agreed to
sell to the Buyer four million (4,000,000) shares of the Common Stock of Seller
and (the "Shares") at ten dollars ($10.00) per share discounted at four percent
(4.0%) upon completion of the offering, payable in United States dollars for a
total consideration of forty million dollars ($40,000,000) subject to a $1.6
million discount if fully paid. The consideration is to be paid as set forth in
section 1 of the Subscription Agreement; and
WHEREAS, the Parties herein desire the Escrow Agent to hold and the
Escrow Agent is willing to hold such Shares until the Shares disbursed in
accordance with the terms of this Agreement and the Parties herein desire the
Escrow Agent to hold limited power of attorney over and the Escrow Agent is
willing to hold limited power of attorney over the Bank Account and the Margin
Accounts in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties, intending to be legally bound, agree as follows:
1. Preliminary Duties of the Parties.
a. Duties of Buyer. Upon receipt of the Memorandum of
Agreement from Affinity, Baron Banker shall do the following:
1. Establish a bank account, specifically for
this transaction, at Citibank, FSB in the
name of Baron Banker Limited and with the
Escrow Agent's Limited Power of Attorney,
for the following purposes:
i. to receive proceeds from margining
Affinity stock;
ii. to deposit funds from Baron Banker
Limited;
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<PAGE>
iii. to distribute monthly payments to
Affinity;
iv. to receive senior bank instruments;
letters of credits; and standby
letters of credits to be converted
to cash; and
v. to make payments against expenses
incurred by this transaction (i.e.,
legal, accounting, interest, etc.).
The Bank Account shall require the signature of both
the Escrow Agent and Baron Banker before any
withdrawal or other transaction involving the Bank
Account may be made subject to the Limited Power of
Attorney (Exhibit B).
Upon establishment of the Bank Account, Baron Banker
will execute and deliver to the Escrow Agent a
limited power of attorney (Exhibit B) over the Bank
Account and shall deliver an executed and notarized
copy of such limited power of attorney to the Escrow
Agent. The Limited Power of Attorney shall not be
enforceable until, in the opinion of the Escrow
Agent, Baron Banker has defaulted under the terms of
this Agreement as outlined in Section 6 herein.
2. Establish margin accounts, specifically for
this transaction, at an acceptable brokerage
firm or bank, (the "Margin Accounts"), in
the name of Baron Banker Limited for the
following purposes:
i. to receive Shares to be held in
escrow pending the outcome of the
transaction;
ii. to borrow against the market value
of the stock;
iii. to hold margined funds on account;
iv. to receive other securities; and
v. to disburse payments.
The Margin Accounts shall require the signature of
both the Escrow Agent and Baron Banker before any
transaction involving the Margin Accounts may be made
subject to the Limited Power of Attorney (Exhibit C).
2
<PAGE>
Upon establishment of the Margin Accounts, Baron
Banker will execute and deliver to the Escrow Agent a
limited power of attorney (Exhibit C) over the Margin
Accounts and shall deliver an executed and notarized
copy of such limited power of attorney to the Escrow
Agent and the brokerage firm or margin house, if
requested. The Limited Power of Attorney shall not be
enforceable until, after giving notice to Baron
Banker and an opportunity to cure, in the opinion of
the Escrow Agent, Baron Banker has defaulted under
the terms of this Agreement as outlined in paragraph
6.
b. Duties of Seller. Upon receipt of the documents
required by Section 2 from the Escrow Agent, Affinity shall do the
following:
1. cause the stock to be issued and deposited
to Baron Banker account at an acceptable
brokerage firm or bank in such number of
shares and certificates as requested by
Baron, provided that the stock shall at all
times remain in certificate form;
2. promptly advise Baron Banker and Escrow
Agent that the deposit has been made.
2. Receipt of Documents by Escrow Agent.
a. Before the Shares are deposited with the Escrow Agent as
provided below, the following documents (the "Documents") will be deposited with
the Escrow Agent:
1. Escrow Agreement executed and notarized by each Party;
2. Limited Power of Attorney over brokerage and bank accounts
related to this transaction executed by Baron Banker and duly
notarized;
3. Offshore Securities Deferred Subscription Agreement executed
and duly notarized by each Party;
4. Proxy, and, or assignment of voting rights to the senior
management of Affinity by Baron Banker; and,
5. an executed and notarized Promissory Note in favor of Affinity
by Baron Banker.
6. Written confirmation from the Bank and Margin House(s) that
Baron Banker has established the Margin Accounts and Bank
Account as provided below, and that the signature of
3
<PAGE>
the Escrow Agent will be required to make transactions in
such accounts.
Upon receipt by the Escrow Agent of the Documents, the Escrow Agent will deliver
copies of the Documents to the Parties as set forth in Section 1(a)(2) of this
Agreement. Upon receipt of the Documents, Affinity will cause the Shares to be
issued and deposited in accordance with Section 1(b) above.
3. Administration of the Margin and Bank Accounts. Baron shall
administer the Bank Account and Margin Accounts established pursuant to this
Agreement in the following manner:
a. Upon receipt of notification that the Shares have been deposited in
the appropriate Margin Accounts in accordance with Section 1(b) above, Baron
shall direct the margin houses to margin the Shares. Baron shall disburse the
proceeds as follows:
1. $2,000,000 to Affinity as downpayment on the Stock
Purchase;
2. $120,000.00 to an acceptable brokerage firm or bank
for prepaid interest on margin accounts, except that
such amounts will not be paid if such payment will
place Baron in default as defined by Section 6(e) of
this Agreement;
3. $10,000.00 to Escrow Agent for legal and
auditing/accounting costs, except that such amounts
will not be paid if such payment will place Baron in
default as defined by Section 6(e) of this Agreement;
and,
4. $10,205,000.00 (the "Funds") deposited to the
transaction account at Citibank, FBA (the "Bank
Account");
a. Baron Banker shall ensure that the Bank
Account maintain a balance of at least
$10,205,000 at all times. Accordingly, the
Funds deposited to the transaction account
may be disbursed only upon deposit into the
Bank Account of a one year senior bank
instrument(s), maturing at $10,205,000 or
more, from a "blue-chip" bank acceptable to
the bank purchasing such instrument for cash
(the "Purchasing Bank").
b. Upon deposit of the bank debenture
instrument(s), and provided that the balance
of Funds in the Bank Account shall equal or
4
<PAGE>
exceed $10,205,000, Baron Banker may
disburse operating expenses capital , but in
no event shall the amount of such operating
expenses capital exceed $205,000.; and
5. the remaining balance of the Margin Accounts (the
"Reserve Funds") will remain on reserve at the
brokerage account(s) and/or on deposit in the Bank
Account and can only be disbursed in exchange for a
bank instrument of equal or greater value in
subsequent months. The Escrow Agent shall have the
right to seize the Reserve Funds upon default by
Baron Banker.
b. Baron Banker will make monthly disbursements from the
transaction account(s) on every monthly anniversary date as
follows:
1. $1,000,000 to Affinity on August 1, 1996 seventeen
consecutive monthly payments of $2,000,000 each
beginning on September 1, 1996, with a final payment
of Three Million Dollars ($3,000,000) subject to a
One Million Six Hundred Dollar ($1,600,000) discount
for complete satisfaction.
2. $10,000.00 to Escrow Agent for legal and
auditing/accounting costs, except that such amounts
will not be paid if such payment will place Baron in
default as defined by Section 6(e) of this Agreement;
and
3. $120,000.00 to the acceptable brokerage firm or bank
for prepaid interest on margin accounts, except that
such amounts will not be paid if such payment will
place Baron in default as defined by Section 6(e) of
this Agreement.
c. Upon deposit of an acceptable "bank instrument" into the Bank
Account, the Escrow Agent is authorized to disburse cash in
the amount of such bank to Baron Banker (the "Cash
Disbursement") provided that the Escrow Agent will ensure
that, at any time, there will be an instrument valued at
$10,205,000.00 or a minimum cash amount of $10,000,000.00
maintained on deposit at the Bank Account. The determination
of the acceptability of the instrument described above shall
be made by the Purchasing Bank.
4. Restrictions on Transfer.
a. The Parties agree that the Shares may not be
transferred by Baron Banker for a period of twenty-
three months from the date of this Agreement
5
<PAGE>
without the express written consent of Affinity.
b. In accordance with the above restriction, Baron
Banker shall not be permitted to transfer the Shares
into street name in order to facilitate the margining
of the Shares.
5. Termination of the Agreement.
The stock shall be returned to Affinity and the transaction
and agreement terminated in the event that the stock cannot be
margined for whatever reason.
6. Default. Baron Banker shall be deemed to have defaulted
in the event of any of the following:
a. Failure to meet its monthly obligation in this transaction after:
(i) being given proper notice by the Escrow Agent to
remedy the situation in 10 banking days; and
(ii) failing to do so;
b. Failure of Baron Banker to meet a margin call within three
business days notice of such margin call;
c. Failure to meet the margin requirements of Regulation T of the
Securities Exchange Act of 1934, as amended; or
d. Breach of the terms of the Offshore Securities Deferred
Subscription Agreement between the Baron and Affinity.
e. At any time when the sum of the cash paid to Affinity plus the
balance of cash or Bank Instrument in the Bank Account plus the
cash balance of the margin account is equal to or less than the
amount for which the Shares were margined.
f. Bankruptcy, insolvency, voluntary or otherwise by the Buyer or on
behalf of the Buyer (Baron Banker, Ltd.)
In the event of a default on the part of Baron Banker the Escrow Agent
shall, at the direction of Affinity, take the following action:
a. seize the Bank Account and all funds or instrument
contained therein related to this transaction and
disburse such amounts to Affinity; the obligator
shall pay to payee ("AFTY") all bank accounts, margin
accounts and fees and return the stock of
6
<PAGE>
Affinity as provided in the "Escrow Agreement" and
the "Unsecured Promissory Note."
b. seize the Margin Accounts and:
i. call or sell any guarantees, instruments or
securities (except Affinity Stock) in the
Margin Accounts and disburse the proceeds
7
<PAGE>
thereof to Affinity;
ii. use any funds remaining in the transaction
bank account, and/or brokerage account(s) and
proceeds from the sale of the above mentioned
instruments to:
a. settle the margin account(s);
b. redeem the Affinity Share
Certificates from the "margin
house;" and,
iii. return the shares, unencumbered to Affinity.
7. Final Payment and Cancellation. Upon disbursement of the
final payment to Affinity from the Bank Account, the Escrow Agent will request
delivery of the following:
copy of a letter addressed to the Escrow Agent canceling the escrow
agreement and all powers of attorney delivered in accordance therewith.
Upon receipt of notice of cancellation, the Escrow Agreement will be
cancelled and the Escrow Agent relieved of his duties herein.
8. Concerning the Escrow Agent.
a. Fees and Expenses. The Escrow Agent shall be entitled to
charge the agreed upon fees for its services hereunder. Escrow fees shall be
paid by the Buyer as provided herein.
b. Performance. The duties and responsibilities of the Escrow
Agent are limited to those specifically set forth herein. The Escrow Agent shall
not be liable for any mistake of fact or error of judgment made in good faith or
for any acts or omissions by it of any kind resulting from other than willful
misconduct or gross negligence. The Escrow Agent shall be entitled to rely, and
shall be protected in doing so, upon (i) any written notice, instrument or
signature believed by the Escrow Agent to be genuine and to have been signed or
presented by the proper Party or Parties duly authorized to do so, and (ii) the
advice of counsel (which may be of the Escrow Agent's own choosing). The Escrow
agent shall have no responsibility for the contents of any writing submitted to
8
<PAGE>
them hereunder and shall be entitled in good faith to rely without any liability
upon the contents thereof.
c. Indemnification of Escrow Agent Seller and Buyer jointly
and severally will indemnify and hold harmless the Escrow Agent against any
losses, claims, damages, liabilities and expenses, including reasonable costs of
investigation and counsel fees and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with its acceptance of
appointment of the performance of its duties under this Agreement, including any
litigation arising from this Agreement or involving the subject matter hereof,
unless any such loss, claim, damage, liability or expense shall be the result of
Escrow Agent's gross negligence, willful default or breach of trust subject to
the bonding of the Escrow Agent in the amount of .
d. Change in the Escrow Agent. If, at any time for any reason
whatsoever, the Escrow Agent becomes unable or unavailable to perform his duties
under the Agreement, the Parties may agree to appoint a mutually acceptable
Escrow Agent to replace the original Escrow Agent.
8. MISCELLANEOUS.
a. Assignment. No party to this Escrow Agreement may assign
its rights and obligations hereunder without the prior written consent of the
other parties hereto.
b. Entire Agreement, Amendments. This Escrow Agreement
contains the entire understanding of the parties with respect to the subject
matter hereof, and may be amended only by a written instrument duly executed by
all the Parties hereto.
c. Notices. All notices, requests, demands and other
communication required or permitted under this Escrow Agreement shall be in
writing and shall be deemed to have been duly given when delivered (which shall
include delivery by Federal Express or facsimile) to the party from whom such
communication is intended, or ten (10) business days after the date mailed by
certified mail, return receipt requested, postage prepaid, addressed to the
party to whom such communication is intended.
9
<PAGE>
d. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Escrow Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
AFFINITY ENTERTAINMENT, INC. BARON BANKER LIMITED
(SELLER) (BUYER)
By: _________________________________ By: __________________________
Title: _______________________________ Title: _________________________
Date: ________________________________ Date: _________________________
(ESCROW AGENT)
By: _________________________________
Title: ______________________________
Date: _______________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE NOTE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION,
UNLESS THE TRANSACTION IS IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SAID ACT
OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE SUBSCRIPTION DOCUMENTS COVERING
THE PURCHASE OF THE NOTE AND RESTRICTING ITS TRANSFER MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF AFFINITY ENTERTAINMENT, INC. AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE COMPANY.
UNSECURED PROMISSORY NOTE
$38,000,000 June , 1996
-----
Thirty Eight Million Dollars
Baron Banker Limited, an organization chartered under the laws of
Ontario ("Obligor"), for value received, hereby promises to pay to Affinity
Entertainment, Inc., a Delaware corporation ("Payee"), thirty eight million
($38,000,000) dollars, bearing no interest. This Note is subject to a One
Million Six Hundred Thousand Dollar ($1,600,000) discount if the Note is fully
paid.
The principal balance of this Note shall be paid in one monthly
installment of One Million Dollars ($1,000,000) on August 1, 1996 and seventeen
consecutive monthly installments in the amount of Two Million Dollars
($2,000,000) each, beginning on September 1, 1996. With a final payment due
February 1, 1998 of Three Million ($3,000,000) which final payment is subject to
a One Million Six Hundred Thousand Dollar ($1,600,000) discount for complete
satisfaction Payment shall be due by wire transfer on the 1st day of each and
every month. In the event of (i) the filing by the Obligor of a petition, answer
or consent seeking reorganization or relief under any applicable federal or
state bankruptcy, insolvency, reorganization or similar law of the obligor's
country of residence, or (ii) the entry of a decree or order for relief in
respect of an involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or similar law of the obligor's
country of residence and the continuance of such decree or order unstated and in
effect with respect to Obligor for a period of 30 consecutive days, the
remaining principal balance of the note shall be cancelled and all Affinity
stock shall be returned to Affinity. The obligator shall pay to payee ("AFTY")
all bank accounts, margin accounts and fees and return the stock of Affinity as
provided in the "Escrow Agreement" and the "Offshore
1
<PAGE>
Securities Deferred Subscription Agreement."
All payments in respect to this Note shall be made in lawful money of
the United States of America ("Good Funds") by delivering the funds by wire
transfer to the account of the Payee specified below or such other place as
Payee may hereinafter designate in writing for such purpose.
Nationsbank of Florida
15150 North Florida Avenue
Tampa, FL 33613
Account No.: 3603136640
ABA Routing No.: 063100277
Account Name: Affinity Entertainment, Inc.
If payment of principal on this Note shall come due on Saturday, Sunday
or a public holiday under the laws of the State of Florida, such payment shall
be made on the next succeeding business day.
Obligor waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest and notice of dishonor. No delay on
the part of the Payee in exercising any right hereunder shall operate as a
waiver of such right under this Note. This Note is being delivered in and shall
be construed in accordance with the laws of the State of Delaware.
In accordance with the Section 7 of the Subscription Agreement, the
Shares may not be transferred for three (3) months from satisfaction of the
note.
The Stock shall be common stock, approved by the Board of Directors of
the ISSUER, and will be entitled to all rights to cash or property
distributions, dividends, interest paid by coupon or otherwise, distribution of
certificates, warrants, rights, stocks or cash representing subdivision,
combination, reclassification, merger, buy-out, acquisition, redemption,
exchange, or any such
2
<PAGE>
other corporate or government action pertaining to or involving the ownership
rights of the Stock transferred hereunder. The PURCHASER has agreed to appoint
the management of the Company as its proxy to exercise any voting or consensual
rights pertaining to or arising from the ownership of the Stock from final
payment of the note plus three (3) months.
3
<PAGE>
IN WITNESS WHEREOF, Obligor has caused this Note to be executed and
delivered by its duly authorized officer as of the day and year first written
above.
BARON BANKER LIMITED
By: _________________________________
(Signature)
__________________________________
(Printed Name and Title)
__________________________________
(Date)
__________________________________
__________________________________
__________________________________
(Address)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Form 10-KSB Annual Report of Affinity
Entertainment, Inc. and Subsidiaries for the year ended September 30, 1996, our
report dated January 7, 1997, relating to the consolidated financial statements
of Affinity Entertainment, Inc. and Subsidiaries which appear in such Form
10-KSB.
WEINBERG, PERSHES & COMPANY, P.A.
Certified Public Accountants
Boca Raton, Florida
January 13, 1997
