<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
THE PRODUCERS ENTERTAINMENT GROUP LTD.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4233050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5757 WILSHIRE BOULEVARD, PENTHOUSE ONE,
LOS ANGELES, CALIFORNIA 90036 (213) 634-8634
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------
IRWIN MEYER
CHIEF EXECUTIVE OFFICER
THE PRODUCERS ENTERTAINMENT GROUP LTD.
5757 WILSHIRE BOULEVARD, PENTHOUSE ONE
LOS ANGELES, CALIFORNIA 90036
(213) 634-8634
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------
Copies to:
LINDA GIUNTA MICHAELSON, ESQ.
TROOP STEUBER PASICH REDDICK & TOBEY, LLP
2029 CENTURY PARK EAST, 24TH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 728-3316
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Proposed Maximum Proposed Maximum
Title Of Shares Amount To Be Aggregate Price Aggregate Amount Of
To Be Registered Registered Per Share(l) Offering Price(]) Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,270,000 $0.9375 $1,190,625 $351.24
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average high and low prices of
Registrant's Common Stock reported on the Nasdaq SmallCap Market on August
25, 1998.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED SEPTEMBER 1, 1998
PROSPECTUS
THE PRODUCERS ENTERTAINMENT GROUP LTD.
1,270,000 SHARES
COMMON STOCK, PAR VALUE $.001
This Prospectus relates to an aggregate of 1,270,000 shares of common
stock, par value $.001 per share (the "Common Stock") of The Producers
Entertainment Group Ltd., a Delaware corporation ( the "Company"), which may be
offered from time to time for the account of certain stockholders of the Company
named herein (the "Selling Stockholder"). Included within the 1,270,000 shares
of Common Stock to which this Prospectus relates are 1,200,000 shares of Common
Stock issuable upon the conversion of 50,000 outstanding shares of Series D
Preferred Stock, $0.001 par value per share ("Series D Preferred Stock") and
50,000 outstanding shares of Series F Preferred Stock, $0.001 par value per
share ("Series F Preferred Stock") held by the Selling Stockholders. This
Prospectus also relates to the offer and sale by certain Selling Stockholders of
up to 20,000 additional shares of Common Stock (the "Warrant Shares" and
together with the Preferred Stock, the "Shares") issuable upon the exercise of
warrants (the "Warrants"). The Series D Preferred Stock, the Series F Preferred
Stock and the Warrants were issued by the Company in July and August, 1998, in
private placement transactions to persons the Company reasonably believes to be
accredited investors pursuant to exemptions from registration under the
Securities Act of 1933, as amended (the "Securities Act"). The Series D
Preferred Stock is first convertible on the earlier of (i) the effective date of
the registration statement which relates to the Common Stock underlying the
Shares, or (ii) 120 days after the date of issuance of the Series D Preferred
Stock, at a conversion price described in "Plan of Distribution." Any Series D
Preferred Stock outstanding at June 30, 2000 may also be converted at the option
of the Company into shares of Common Stock, as described under "Plan of
Distribution." Each share of the Series F Preferred Stock is convertible
immediately into one share of Common Stock at $1.71875 per share which is equal
to 125% of the closing bid price of the Common Stock on the date of issuance of
the Series F Preferred Stock, as described under "Plan of Distribution." The
Series F Preferred Stock outstanding upon the expiration of a three year term
will be mandatorily redeemed by the Company at a price equal to the par value
per share of the Series F Preferred Stock multiplied by the number of such
shares outstanding. See "Plan of Distribution." The Warrants are immediately
exercisable at $1.4375 per share. Until July 31, 2000 the Company is entitled to
issue between 150,000 and 500,000 shares of Series E Preferred Stock, $0.001 par
value per share ("Series E Preferred Stock" and together with the Series D
Preferred Stock and the Series F Preferred Stock, the "Preferred Stock"), if the
Company meets certain objective trading and marketing criteria as set forth in
the private placement transaction documents.
For purposes of determining the number of shares to be offered by the
Selling Stockholders for this Prospectus, the number of shares of Common Stock
calculated to be issuable upon conversion of the Series D Preferred Stock is
based on a low conversion price. Such conversion price is used merely for the
purpose of setting forth a number for this Prospectus and is substantially less
than the average closing bid price over the five consecutive trading days
preceding August 28, 1998 which was $0.9563. The number of shares of Common
Stock issuable upon conversion of the Series D Preferred Stock is subject to
adjustment depending on the date of the conversion thereof and could be
materially less or more than such estimated amount depending on factors which
cannot be predicted by the Company, including, among other things, the future
market price of the Common Stock.
The Company will not receive any proceeds from this offering. The
aggregate proceeds to the Selling Stockholders from the sale of the Common Stock
will be the offering price of the Common Stock sold, less applicable agents'
commissions and underwriters' discounts, if any. The Company will pay all
expenses incident to the preparation and filing of a registration statement for
the Common Stock under the federal securities laws, as well as certain other
expenses incident to the registration and sale of the Common Stock. Each Selling
Stockholder, or its pledges, donees, transferees or other successors in interest
that receive the Common Stock, may sell the Common Stock from time to time on
terms to be determined at the time of sale, either directly or through agents,
dealers or underwriters designated from time to time. To the extent required,
the number of shares of Common Stock to be sold, the offering price thereof, the
names of each Selling Stockholder and each agent, dealer and underwriter, if
any, and any applicable commissions or discounts with respect to a particular
offering will be set forth in an accompanying Prospectus Supplement. See "Plan
of Distribution."
The Company's Common Stock is publicly traded on the Nasdaq SmallCap
Market under the symbol "TPEG" and on the Boston Stock Exchange under the symbol
"TPG." On August 28, 1998, the closing bid price for the Common Stock on the
Nasdaq SmallCap Market was $0.875.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the
2
<PAGE> 3
time the registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
THE DATE OF THIS PROSPECTUS IS ________ __, 1998
3
<PAGE> 4
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY WITH RESPECT TO (I) THE INTEGRATION OF RECENT ACQUISITIONS BY THE
COMPANY, (II) TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF
OPERATIONS, (III) THE IMPACT OF COMPETITION AND (IV) THE EXPANSION OF THE
COMPANY'S DOMESTIC AND INTERNATIONAL OPERATIONS. THE WORDS "EXPECT,"
"ESTIMATE," "ANTICIPATE," "PREDICT," "BELIEVE" AND SIMILAR EXPRESSIONS AND
VARIATIONS THEREOF ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE
INFORMATION UNDER "RISK FACTORS," IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE
SUCH DIFFERENCES.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to
such Registration Statement, and the exhibits and schedules thereto which may be
obtained from the Commission's principal offices at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, each such statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. These reports, proxy statements and other information can be
inspected and copied at the Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the Commission 1-800-SEC-0330. The Commission
also maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Common Stock is traded on the Nasdaq
SmallCap Market and the Company's reports, proxy or information statements, and
other information filed with the Nasdaq SmallCap Market may be inspected at the
offices of Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Selling
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy to any person in any jurisdiction in which such
offer or solicitation would be unlawful or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, in any circumstances, create any implication that there has been no
change in the affairs of the Company or that the information contained herein is
correct as of any time subsequent to the date hereof.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference into this Prospectus:
(1) Registrant's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997;
(2) Registrant's Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998;
(3) Registrant's Reports on Form 8-K, filed on November 3, 1997 (as
amended on December 29, 1997), May 5, 1998, June 29, 1998 and July 31, 1998; and
(4) The description of the Common Stock contained in the Registrant's
Registration Statement on Form 8-A filed on September 9, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities covered by this Prospectus shall
be deemed to be incorporated by reference
4
<PAGE> 5
herein and to be part hereof from the date of filing of such documents. Any
statement contained herein or in a document, all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the oral or written
request of any such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are expressly incorporated by reference into such documents). Written requests
for such copies should be directed to Arthur Bernstein, Executive Vice
President, The Producers Entertainment Group Ltd., 5757 Wilshire Boulevard,
Penthouse One, Los Angeles, California, 90036. Telephone inquiries may be
directed to The Producers Entertainment Group Ltd., at (213) 634-8634.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by, and should be read in conjunction with, the more detailed
information and financial data appearing elsewhere in this Prospectus. Unless
the context otherwise requires, all references herein to the "Company" refer to
The Producers Entertainment Group Ltd. and its consolidated subsidiaries.
Prospective purchasers should carefully consider the information set forth under
"Risk Factors" before purchasing such securities.
THE COMPANY
The Producers Entertainment Group Ltd. (the "Company") is engaged in the
acquisition, development, production and distribution of dramatic, comedy,
documentary and instructional television series, movies and theatrical motion
pictures ("projects"). The Company's projects are distributed in the United
States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable, video and
theatrical release.
To produce a project, the Company first acquires the rights to a story,
book or script ("property"). The Company then typically secures a financing or
production commitment for the project from third parties, such as broadcast and
cable networks, studios, distributors, and independent investors, prior to
expending substantial funds in the development process. However, the Company
does advance its own funds to meet the interim costs of development and
production, which amounts are generally repaid to the Company pursuant to the
production contracts.
The Company then "packages" the property, assembling the screenplay,
teleplay or outline of the program with the director and actors. Upon approval
of the third party that is financing or purchasing the project, the Company
commences pre-production, selecting locations, securing agreements with
performers, director and production staff, and procuring necessary sets, props
and other equipment. During the principal photography phase, the project is
produced on tape or film pursuant to a predetermined schedule and budget. The
film or tape is then transformed into a completed project during the
post-production phase, through editing, the addition of sound effects, musical
scoring and other technical processes.
Completed projects not purchased outright are distributed by independent
third parties who have the distribution rights in certain territories for a
specific period of time. The Company typically retains certain distribution
rights after such period expires. The Company may obtain advances against
domestic and international distribution revenues in order to finance development
and production. The Company intends to establish a separate international
distribution division for the distribution of its own and other producers'
projects.
On October 20, 1997, the Company acquired 100% of the outstanding
capital stock of the three entities which comprise the New York, Los Angeles and
Toronto based Grosso-Jacobson Companies. The acquired companies are: the
Grosso-Jacobson Entertainment Corporation, the Grosso-Jacobson Productions,
Inc., and Grosso-Jacobson Music Company, Inc. (the "Grosso-Jacobson Companies").
Management of the Company has combined the Grosso-Jacobson Companies' business
of producing primarily television series with the Company's business of
producing theatrical feature and television movies in order for the Company to
enlarge its operations in the entertainment industry. The Grosso-Jacobson
Companies operate as wholly owned subsidiaries of the Company and produce
television series and other entertainment products. The Grosso-Jacobson
Companies are known for their wide variety of prime time series and
made-for-television movies. The Grosso-Jacobson Companies are located in a
70,000 square foot production facility and office complex in Toronto, Canada.
Included in the Toronto facility is a wardrobe business containing approximately
37,000 costumes and an extensive prop inventory.
On July 15, 1998, the Company acquired 100% of the capital stock of MWI
Distribution, Inc., a California corporation (doing business as MediaWorks
International). MediaWorks International operates as a wholly owned subsidiary
of the Company and provides international television and video distribution,
specializing in the licensing of children's and family programming and
animation. MediaWorks International is also an active co-production and
co-financing partner in various animated and live-action programming ventures
and engages in worldwide sales of direct-to-video series and specials. The
acquisition of MediaWorks International expands the Company's distribution
business to include the international market and provides increased
opportunities for the management of the Company to expand MediaWorks
International's international co-production activities.
6
<PAGE> 7
The Company's offices are located at 5757 Wilshire Boulevard, Penthouse
One, Los Angeles, California 90036. Its telephone number is (213) 634-8634.
7
<PAGE> 8
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk. Each prospective investor should carefully consider, along
with the other matters discussed in this Prospectus, the following risk factors
inherent in, and affecting the business of, the Company before making an
investment decision.
FACTORS AFFECTING THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES
The Company's cash commitments for the forthcoming 12 months include
aggregate minimum base compensation of approximately $2,387,000 to its existing
officers and key independent contractors and minimum office rent of
approximately $379,000. The Company also incurs overhead and other costs such as
salaries, related benefits, office expenses, professional fees and similar
expenses. For the Company's fiscal year ended June 30, 1997, general and
administrative expenses, which included compensation and rent, aggregated
$4,151,252. The Company also advances considerable funds on the production and
development of projects. Dividends on the Company's outstanding Series A
Preferred Stock aggregate $425,000 annually and dividends on the Company's
outstanding Series D Preferred Stock aggregate $30,000 annually and, at the
Company's option, dividends on both series of Preferred Stock may be paid in
shares of Common Stock or in cash.
At March 31, 1998, the Company had cash and cash equivalents of
$933,555 and accounts and contracts receivable of $2,373,039 (aggregating
approximately $3,306,594). At March 31, 1998, the Company also had accounts
payable and accrued expenses aggregating approximately $674,624. As of the date
hereof, the Company has no arrangements for external sources of financing such
as bank lines of credit.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED
DEFICIT
For the fiscal years ended June 30, 1995, 1996 and 1997, the Company had
revenues of $5,290,745, $5,367,498 and $782,181, respectively, and incurred net
losses of $3,593,252, $1,447,666 and $4,642,043, respectively (without giving
effect to the payment in 1995, 1996 and 1997 of dividends of $232,600, $425,000
and $425,000, respectively with respect to the Series A Preferred Stock which
(except for $126,350 paid in cash in 1995) were paid by the Company by issuing
shares of Common Stock). However for the nine month period ending March 31, 1998
the Company had revenues of $18,276,403 and net income of $800,834. There can be
no assurance that the Company will continue to remain profitable in future
fiscal periods. As of March 31, 1998 the Company had an accumulated deficit of
$17,166,302.
TELEVISION AND FEATURE FILM INDUSTRY; INTENSE COMPETITION
The television industry is highly competitive and involves a substantial
degree of risk. The Company competes with many other television and motion
picture producers which are significantly larger and have financial resources
which are far greater than those available to the Company now or in the
foreseeable future. The television industry is subject to technological
developments, the effects of which management is unable to predict. The Company
also expects to derive revenues from the feature film industry. The feature film
industry is also highly competitive and involves a substantial degree of risk.
The Company competes with major film studios and other independent producers,
most of which are significantly larger and have financial resources which are
far greater than those available to the Company now or in the foreseeable
future. The Company's success depends upon its ability to produce programming
for television and theatrical release which will appeal to markets characterized
by changing popular tastes. There is no assurance that the Company will continue
to acquire and develop products which can be made into made-for-television
movies, television series or theatrical releases which will result in profits to
the Company in light of the competition confronting the Company.
8
<PAGE> 9
RECENT ACQUISITIONS
On October 20, 1997, the Company acquired 100% of the outstanding
capital stock of the three entities that comprise the New York, Los Angeles and
Toronto based Grosso-Jacobson Companies. The Grosso-Jacobson Companies are known
for their wide variety of prime time series and made-for-television movies. The
Grosso-Jacobson Companies operate as wholly owned subsidiaries of the Company
engaged in the business of producing television series and other entertainment
products. Management of the Company has combined the Grosso-Jacobson Companies'
business of producing primarily television series with the Company's business of
producing theatrical feature and television movies in order for the Company to
enlarge its operations in the entertainment industry.
On July 15, 1998 the Company acquired 100% of the outstanding capital
stock of MWI Distribution, Inc., a California corporation (doing business as
MediaWorks International). MediaWorks International operates as a wholly owned
subsidiary of the Company and provides international television and video
distribution, specializing in the licensing of children's and family programming
and animation. MediaWorks International is also an active co-production and
co-financing partner in various animated and live-action programming ventures
and engages in worldwide sales of direct-to-video series and specials. The
Company intends to expand upon MediaWorks International's current international
activities and provide increased international opportunities for all areas of
the Company's business.
Successful implementation of the Company's business strategy depends in
part on the efficient, effective and timely integration of the operations of
the Grosso-Jacobson Companies and MediaWorks International with those of the
Company. The combination of these businesses requires, among other things,
integration of the companies' management staffs, coordination of the companies'
sales and marketing efforts, integration and coordination of the companies'
purchasing departments and identification and elimination of redundant overhead.
Full integration of these business will require considerable effort on
the part of the Company's management. During the integration period, it is
anticipated the Company's staff will dedicate considerable time toward
integrating the financial and information systems, management staffs and
organizational cultures of the organizations. There can be no assurance that the
Company will not experience difficulties associated with the integration or the
integration will proceed efficiently or successfully. Furthermore, even if the
operations of the organizations are ultimately successfully integrated there can
be no assurance the Company will be able to operate profitably.
SEASONALITY
All of the Company's television and theatrical programming revenues are
recognized when the program is available for broadcast or other distribution.
For this reason, significant fluctuations in the Company's total revenues and
net income can occur from period to period depending upon availability dates of
programs. In the international television market, a significant portion of
revenues are recognized in connection with sales at the international sales
trade shows. Due in part to these seasonality factors, the results of any one
quarter are not necessarily indicative of results for future periods, and cash
flows may not correlate with revenue recognition.
INTERNATIONAL SALES
As part of its business strategy, facilitated by the acquisition of MWI
Distribution, Inc., the Company intends to expand its international program
production and distribution. The Company is subject to certain risks inherent in
international business activities, including (i) general, economic, social and
political conditions in each country, (ii) currency fluctuations, (iii) double
taxation, (iv) unexpected changes in applicable regulatory requirements and (v)
compliance with a variety of international laws and regulations. The operations
of the Company's international activities may be measured in part in local
currencies. As a result, the Company may record foreign exchange losses and
gains in the future. There can be no assurance the Company will be successful in
its international business activities.
LABOR RELATIONS
Many individuals associated with the Company's productions, including
actors, writers and directors, are members of guilds or unions which bargain
collectively with producers on an industry-wide basis from time to time. The
Company's operations are dependent on its compliance with the provisions of
collective bargaining agreements governing relationships with these guilds and
unions. Strikes or other work stoppages by members of these unions could delay
or disrupt the Company's activities but the extent to which the existence of
collective bargaining agreements may affect the Company in the future is not
currently determinable.
9
<PAGE> 10
RELIANCE ON KEY PERSONNEL
The Company is dependent upon the skills and efforts of its management
team, the loss of whose services could have a material adverse effect on the
Company and its operations. The Company does not maintain "key-person" life
insurance. The Company has entered into employment agreements with certain of
its executive officers and production agreements with certain of their
respective affiliates. As the Company continues to grow, it will continue to
hire, appoint or otherwise change members of senior management. There can be no
assurance that the Company will be able to retain its executive officers and key
personnel or attract additional qualified members to management in the future.
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE STOCK
As of the date of this Prospectus, approximately 23,806,666 shares of
Common Stock would be outstanding after consummation of the offering and
assuming the exercise of all outstanding options and warrants and conversion of
the Series A Preferred Stock, Series D Preferred Stock and Series F Preferred
Stock. Although some of these options and warrants and shares of convertible
stock are exercisable or convertible at prices which may exceed the currently
prevailing market prices of the Company's Common Stock, their existence could
potentially limit the scope of increases in the market value of the Company's
Common Stock which might otherwise be realized. The terms on which the Company
may obtain additional financing during the respective terms of these outstanding
stock options, warrants and convertible stock may be adversely affected by their
existence. The holders of such stock options, warrants and convertible stock may
exercise or convert such securities, as the case may be, at times when the
Company might be able to obtain additional capital through one or more new
offerings of securities or other forms of financing on terms more favorable than
those provided by such stock options, warrants and convertible stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
The Company's Certificate of Incorporation authorizes the issuance of up
to 20,000,000 shares of "blank check" Preferred Stock. The Company has 1,000,000
shares of Series A Preferred Stock issued and outstanding and an additional
300,000 shares of Series A Preferred Stock reserved for issuance. The Company
has 1,375,662 shares of Series B Preferred Stock issued and outstanding. The
Company has 50,000 shares of Series D Preferred Stock issued and outstanding.
The Company has 500,000 shares of Series E Preferred Stock reserved for
issuance. The Company has 50,000 shares of Series F Preferred Stock outstanding
and an additional 500,000 shares of Series F Preferred reserved for issuance.
The balance of 16,224,338 authorized shares of Preferred Stock are available for
issuance. The Board of Directors has the authority to issue the Preferred Stock
in one or more series and to fix the relative rights, preferences and privileges
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series of such Preferred
Stock or the designation of such series. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders of the Company. The issuance
of Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of the Common Stock, including the loss of voting
control to others.
The Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares of Common Stock and, as a consequence, they also
may inhibit fluctuations in the market price of the Company's shares that could
result from actual or rumored takeover attempts. Such provisions also may have
the effect of preventing changes in the management of the Company.
ABSENCE OF DIVIDENDS; ANNUAL CASH DIVIDENDS ON SERIES A PREFERRED STOCK AND
SERIES D PREFERRED STOCK
The Company has never paid cash dividends on its Common Stock and no
cash dividends are expected to be paid on the Common Stock in the foreseeable
future. Holders of the Company's Series A Preferred Stock are entitled to annual
dividends of 8 1/2% (aggregating $425,000 annually assuming no conversion) and
holders of the Company's Series D Preferred Stock are entitled to annual
dividends of 6% (aggregating $30,000 annually assuming no conversion), both of
which are payable quarterly in cash or, at the Company's option, in shares of
Common Stock. The Company anticipates that for the foreseeable future all of its
cash resources and earnings, if any, will be retained for the operation and
expansion of the Company's business, except to the extent required to satisfy
its obligations under the terms of the Series A Preferred Stock and Series D
Preferred Stock.
10
<PAGE> 11
LIMITATION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty of care as a director, including
breaches which constitute gross negligence, subject to certain limitations
imposed by the Delaware General Corporation Law. Thus, under certain
circumstances, neither the Company nor the stockholders will be able to recover
damages even if directors take actions which harm the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 8,117,943 shares of Common Stock of the Company to be outstanding
upon completion of the offering, approximately 5,743,476 shares of Common Stock,
including 1,250,000 shares offered hereby issuable on conversion of Preferred
Stock and 20,000 shares issuable upon exercise of Warrants, will be freely
tradeable without restriction under the Securities Act except for any shares of
Common Stock purchased by an "affiliate" of the Company (as that term is defined
under the rules and regulations of the Securities Act), which will be subject to
the resale limitations of Rule 144 under the Securities Act. Approximately
2,374,467 remaining outstanding shares of Common Stock are "restricted"
securities within the meaning of Rule 144 under the Securities Act and only may
be sold pursuant to the conditions of such rule, including satisfaction of
certain holding period requirements. The Company is unable to predict the effect
that sales made under Rule 144, or otherwise, may have on the then prevailing
market price of the Company's securities although any future sales of
substantial amounts of securities pursuant to Rule 144 could adversely affect
prevailing market prices. The holders of options and warrants to acquire
approximately 18,334,385 shares of Common Stock (including 7,625,662 shares of
Common Stock issuable upon conversion of shares of Series A Preferred Stock,
Series B Preferred Stock, Series D Preferred Stock and Series F Preferred Stock)
have certain registration rights under the Securities Act.
CHANGES IN CONTROL OF COMPANY
Prior to the consummation of the Grosso-Jacobson Mergers, effective
operational control of the Company was exercised by Messrs. Meyer and Bernstein,
who comprised 50% of the Board of Directors and were the principal executive
officers of the Company. As a result of (a) the Grosso-Jacobson Mergers and (b)
Messrs. Meyer, Bernstein, Grosso and Jacobson entering into a Stockholders
Voting Agreement, by application of the SEC rules defining "beneficial
ownership," control of the Company may now be deemed to be shared among Messrs.
Meyer, Bernstein, Grosso and Jacobson.
The Company's revenues and operating income for the nine month period
ending March 31, 1998 increased by $4,091,000 and $1,064,000 respectively,
attributable to the Grosso-Jacobson Companies, producing a net income of
$482,000. While management of the Company acknowledges that the acquisition of
the Grosso-Jacobson Companies has significantly increased its revenues and
enabled the Company to derive net income from its operations, there can be no
assurance that such positive revenue and earnings results will continue to be
achieved as a result of the Grosso-Jacobson Mergers.
CONTROL BY OFFICERS AND DIRECTORS.
The officers and directors of the Company and the entities affiliated
with them will, upon completion of the offering, in the aggregate, beneficially
own approximately 29% of the Company's outstanding Common Stock. These
stockholders, if acting together, may be able to elect a majority of the
Company's board of directors and may have the ability to control the Company
and influence its affairs and the conduct of its business. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company.
11
<PAGE> 12
SELLING STOCKHOLDERS
The following table sets forth the name of each of the Selling
Stockholders and (i) the number of shares of Series D Preferred Stock and Series
F Preferred Stock owned by such Selling Stockholder as of August 28, 1998, and
(ii) the maximum amount of Common Stock which may be offered for the account of
such Selling Stockholder under this Prospectus. None of the Selling Stockholders
has held any position or office or had any other material relationship with the
Company, its predecessors or its affiliates within the past three years.
<TABLE>
<CAPTION>
Number of Number of
Shares of Series Shares of Series Percentage of
Name of Selling D Preferred F Preferred Common Stock Outstanding
Stockholder Stock Owned Stock Owned Offered Hereby Common Stock(1)
- --------------------------- ------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
The Augustine Fund, L.P. 50,000 50,000 1,250,000(1) 15.4
c/o Augustine Capital
Management, Inc.
141 West Jackson Blvd.,
Suite 2182
Chicago, IL 60604
Ganesh Asset
Management, Ltd. -- -- 4,444(2) *
Charlotte House
Charlotte Street
P.O. Box N.9204
Nassau, Bahamas
Gregory Orlandella -- -- 6,667(2) *
24422 Santa Clara
Dana Point, CA 92629
The Hamilton Fund, LLC -- -- 2,222(2) *
2610 Dover Road
Raleigh, NC 27610
BridgeWater Capital Corporation -- -- 6,667(2) *
4675 MacArthur Court, Suite 1570
Newport Beach, CA 92660
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
*Less than 1%.
(1) Assumes conversion into Common Stock of the total number of shares of
(a) Series D Preferred Stock owned by the Augustine Fund, L.P. at a
conversion rate of 20 shares of Common Stock to every one share of
Series Series D Preferred Stock, based upon the minimum price per share
of $0.625 specified in that certain Securities Purchase Agreement
described in "Plan of Distribution" and (b) Series F Preferred Stock
owned by the Augustine Fund, L.P. at a conversion rate of one share of
Common Stock to every one share of Series F Preferred Stock. The
conversion ratio and the number of shares of Common Stock issuable upon
conversion of the Series D Preferred Stock is subject to adjustment
under certain circumstances. See "Plan of Distribution." Accordingly,
the number of shares of Common Stock issuable upon conversion of the
Series D Preferred Stock may increase or decrease from time to time.
(2) Represents the Warrant Shares.
The Selling Stockholders may, pursuant to this Prospectus, offer all or
some portion of the Common Stock that they have the right to acquire upon
conversion of the Series D Preferred Stock, Series F Preferred Stock or Warrant
Shares. Accordingly, no estimate can be given as to the amount of the Common
Stock that will be held by the Selling Stockholders upon termination of any such
sales. In addition, the Selling Stockholders may have sold, transferred or
otherwise disposed of all or a portion of their Series D Preferred Stock, Series
F Preferred Stock or Warrant Shares since the date on which they provided the
information regarding the Series D Preferred Stock, Series F Preferred Stock and
Warrant Shares in transactions exempt from the registration requirements of the
Securities Act. See "Plan of Distribution."
The Selling Stockholders may from time to time offer and sell pursuant
to this Prospectus any or all of the Common Stock issuable upon conversion of
the Series D Preferred Stock, Series F Preferred Stock or Warrant Shares. The
term Selling Stockholder includes the holders listed in any Supplement hereto
and the beneficial owners of the Series D Preferred Stock, Series F Preferred
Stock, Warrant Shares and their transferees, pledges, donees or other
successors. Any such Supplement will contain certain information with respect to
the Selling Stockholder and the respective number of shares of Common Stock
beneficially owned by each Selling Stockholder that may be offered pursuant to
this Prospectus. Such information will be obtained from the Selling
Stockholders.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock of the Company offered
by this Prospectus may not simultaneously engage in market making activities
with respect to the shares of Common Stock of the Company during the applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Stockholders will need
to comply with applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of Common Stock
by
12
<PAGE> 13
the Selling Stockholders. Regulation M contains certain limitations and
prohibitions intended to prevent issuers and selling security holders and other
participants in a distribution of securities from conditioning the market
through manipulative or deceptive devices to facilitate the distribution.
PLAN OF DISTRIBUTION
Pursuant to the terms of that certain Registration Rights Agreement
dated July 31, 1998, the Company agreed to undertake to file a registration
statement to register the Common Stock issuable upon conversion of the Series D
Preferred Stock and Series F Preferred Stock by September 14, 1998.
Pursuant to that certain Securities Purchase Agreement (the "Purchase
Agreement") dated July 31, 1998 between the Company and the Augustine Fund, L.P.
(the "Augustine Fund"), the Company completed the sale of an aggregate of 50,000
shares of Series D Preferred Stock to the Augustine Fund, and in connection with
the sale of the Series D Preferred Stock, issued an aggregate of 50,000 shares
of Series F Preferred Stock to the Augustine Fund. The Series D Preferred Stock,
the Series F Preferred Stock and the Series E Preferred Stock are hereinafter
collectively referred to as the Preferred Stock. This transaction resulted in
gross proceeds of $500,000 and net proceeds of $450,000 to the Company.
Pursuant to the Purchase Agreement, until July 31, 2000, the Augustine
Fund agrees to purchase and the Company agrees to sell a minimum of 150,000
shares of Series E Preferred Stock, $0.001 par value per share ("Series E
Preferred Stock"), in each case in a series of tranches, each of which shall be
for the purchase and sale of a minimum of 10,000 shares of Series E Preferred
Stock and a maximum of 30,000 shares of Series E Preferred Stock in any given
tranche. Prior to the closing under any tranche and as a condition to such
closing, among other conditions, the Common Stock underlying the Series E
Preferred Stock must be freely tradeable.
In connection with the transactions contemplated by the Purchase
Agreement, the Company has agreed to issue Warrants to its investment banker to
purchase the number of shares of Common Stock that is equivalent to 4% of the
total dollar value of any Preferred Stock sold pursuant to Purchase Agreement.
Accordingly, in connection with the sale of the Series D Preferred Stock, the
Company issued Warrants to purchase an aggregate of 20,000 shares of Common
Stock to the Company's investment banker and its designees. Each Warrant is
immediately and fully exercisable at $1.4375 per share.
Each share of Series D Preferred Stock has a stated value equal to
$10.00 per share. Each share of Series D Preferred Stock cumulates dividends at
the rate $.60 per year per share (as a percentage of stated value per share
equal to 6% per annum), payable quarterly in arrears in cash or shares of Common
Stock at the Company's option, at the applicable Conversion Rate (as defined
below) on the first day of April, July, October and January of each year
commencing October 1, 1998. If the Company in its discretion decides to pay the
dividends in shares of Common Stock, then all accumulated and unpaid dividends
shall be paid at the time of each conversion of the Series D Preferred Stock,
such that upon each conversion of the Series D Preferred Stock by the Augustine
Fund, the Company will pay all accumulated and unpaid dividends owed as of the
date of such conversion. The Series D Preferred Stock is convertible, at the
option of the Augustine Fund, at the earlier of (i) the date on which a
registration statement filed with the U.S. Securities and Exchange Commission
(the "Commission"), which registration statement covers the Common Stock into
which the Series D Preferred Stock is convertible, is declared effective by the
SEC, or (ii) the date which is 120 days from the date of issuance of the Series
D Preferred Stock being converted (the "Hold Period") and on or before the close
of business on the second full business day preceding the date, if any, fixed
for the redemption of such shares (the "Conversion Date"), into that number of
shares of the Company's Common Stock as equals $10.00 per share of Preferred
Stock tendered for conversion, plus accumulated and unpaid dividends thereon,
divided by the lesser of (A) 100% of the average of the closing bid prices per
share of the Company's Common Stock on the Nasdaq Stock Market, any national
securities exchange, the OTC Bulletin Board or any other market on which the
Common Stock is listed or eligible for trading (the "Closing Bid Prices") for
the five trading days preceding the date of purchase of the Series D Preferred
Stock by the Augustine Fund; or (B) 80 % of the average of the Closing Bid
Prices for the five trading days preceding the date of conversion; provided,
however, that if the Company determines to reprice the warrant to purchase
500,000 shares of Common Stock issued in June 1996 to a party unaffiliated with
the Selling Stockholders (the "Third Party Warrant") to a price below the
conversion price that otherwise would be applicable to the Series D Preferred
Stock, then the conversion price of the Series D Preferred Stock shall be
reduced to the exercise price of the Third Party Warrant (the "Applicable
Conversion Rate").
At the option of the Company, if any shares of Series D Preferred Stock
remain outstanding on June 30, 2000, then all or any part of such Series D
Preferred Stock as the Company elects will be converted in accordance with the
procedure described above as if the Augustine Fund had given a notice of
conversion effective as of that date, and the date of conversion had been fixed
as of June 30, 2000 for all purposes. The Series D Preferred Stock shall not be
redeemable at any time prior to September 30, 1999. Thereafter, the Company, on
the sole authority of its Board of Directors, may, at its option and at any time
prior to notice of conversion of the Series D Preferred Stock by the Augustine
Fund, redeem all or any part of the Series D Preferred Stock at the time
issued and outstanding for an amount in cash equal to $12.00 per share plus any
accumulated and unpaid dividends.
All shares of Series D Preferred Stock will (i) rank pari passu with the
Series E Preferred Stock of the Company to be issued pursuant to the Purchase
Agreement, (ii) rank senior to any class or series of capital stock of the
13
<PAGE> 14
Company hereafter created (unless otherwise agreed to by a majority of the
Selling Stockholders of the Series D Preferred Stock then outstanding), and
(iii) rank junior to all of the preferred stock of the Company issued and
outstanding as of the date of execution of the Purchase Agreement. Upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, resulting in any distribution of its assets to its stockholders,
the selling stockholder of the Series D Preferred Stock then issued and
outstanding shall be entitled to receive out of the assets of the Company
available for distribution to its stockholders, an amount equal to $10.00 per
share of Series D Preferred Stock plus any accumulated but unpaid dividends, and
no more, before any payment or distribution of the assets of the Company is made
to or set apart for the holders of any junior securities.
The Series F Preferred Stock is not entitled to dividends, has no stated
value and has a term of three years. The Series F Preferred Stock is immediately
convertible at the option of the Augustine Fund into one share of Common Stock
upon payment of an amount equal to 125% of the Fair Market Value of the Common
Stock, on the date of issuance of such share of Series F Preferred Stock. "Fair
Market Value" per share of Common Stock at any date will mean (i) if the Common
Stock is listed on an exchange or exchanges, or admitted for trading on any
national securities exchange, the OTC Bulletin Board or any other market, the
closing bid price of the Common Stock on the date of issuance of the shares of
Series F Preferred Stock, or (ii) if the Common Stock is not listed on an
exchange or quoted on the Nasdaq Stock Market, an amount determined in good
faith by the Board of Directors. All shares of Series F Preferred Stock that
have not been converted and are outstanding on the day after the date that is
three years from the date of issuance of such shares of Series F Preferred
Stock, will automatically be canceled and deemed redeemed back to the Company
and the holder of such shares will receive, from the Company, the total of the
par value price per share multiplied by the aggregate number of such shares.
Upon any liquidation, dissolution or winding-up of the Company, the Augustine
Fund will not be entitled to receive anything out of the assets of the Company
in respect of each share of Series F Preferred Stock.
Each share of Series E Preferred Stock has a stated value equal to
$10.00 per share. Each share of Series E Preferred Stock cumulates dividends at
the rate $.60 per year per share (as a percentage of stated value per share
equal to 6% per annum), payable quarterly in arrears in cash or shares of Common
Stock at the Company's option, at the Applicable Series E Conversion Rate (as
defined below) on the first day of April, July, October and January of each year
commencing January 1, 1999. If the Company in its discretion decides to pay said
dividends in shares of Common Stock, then all accumulated and unpaid dividends
shall be paid at the time of each conversion of the Series E Preferred Stock,
such that upon each conversion of the Series E Preferred Stock by the Augustine
Fund, the Company will pay all accumulated and unpaid dividends owed as of the
date of such conversion. The Series E Preferred Stock is convertible, at the
option of the Augustine Fund, immediately after issuance and on or before the
close of business on the second full business day preceding the date, if any,
fixed for the redemption of such shares (the "Series E Conversion Date") into
that number of shares of the Company's Common Stock as equals $10.00 per share
of Preferred Stock tendered for conversion, plus accumulated and unpaid
dividends thereon, divided by 82.5 % of the average of the closing bid prices
per share of the Company's Common Stock on the Nasdaq Stock Market, any national
securities exchange, the OTC Bulletin Board or any other market on which the
Common Stock is listed or eligible for trading for the five trading days
preceding the Series E Conversion Date; provided, however, that if the Company
determines to reprice the Third Party Warrant to a price below the conversion
price that otherwise would be applicable to the Series E Preferred Stock, then
the conversion price of the Series E Preferred Stock shall be reduced to the
exercise price of the Third Party Warrant (the "Applicable Series E Conversion
Rate").
At the option of the Company, if any shares of Series E Preferred Stock
remain outstanding on September 30, 2001, then all or any part of such Series E
Preferred Stock as the Company elects will be converted in accordance with the
procedure described above as if the Augustine Fund had given the notice of
conversion effective as of that date, and the date of conversion had been fixed
as of September 30, 2001 for all purposes. The Series E Preferred Stock shall
not be redeemable at any time prior to September 30, 2000. Thereafter, the
Company, on the sole authority of its Board of Directors, may, at its option and
at any time prior to notice of conversion of the Series E Preferred Stock by the
Augustine Fund, redeem all or any part of the Series E Preferred Stock at the
time issued and outstanding for an amount in cash equal to $11.75 per share plus
any accumulated and unpaid dividends.
Pursuant to the Purchase Agreement and the certificates of designations
for the Series D Preferred Stock and the Series E Preferred Stock, at the option
of the Company, dividends on the Preferred Stock are payable by the issuance of
freely tradeable Common Stock. If the Company decides to pay dividends on the
Preferred Stock in freely tradeable Common Stock, then all accumulated and
unpaid dividends on the Preferred Stock shall be paid at the time of each
conversion of the Preferred Stock. The Common Stock registered hereby includes
200,000 shares of Common Stock reserved for the payment of dividends on the
Preferred Stock.
The Common Stock offered hereby may be sold from time to time to
purchasers directly by the Selling Stockholders or by the pledgees, donees,
transferees or other successors in interest. Alternatively, the Selling
Stockholders may from time to time offer the shares of Common Stock to or
through underwriters, broker/dealers or agents, who may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of shares of Common Stock for whom they may act
as agents. The Selling Stockholders and any underwriters, broker/dealers or
agents that participate in the distribution of shares of Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of the shares of Common Stock
14
<PAGE> 15
by them and any discounts, commissions, concessions or other compensation
received by any such underwriter, broker/dealer or agent may be deemed to be
underwriting discounts and commissions under the Securities Act.
The shares of Common Stock offered hereby may be sold from time to time
in one or more transactions at fixed prices, at prevailing market prices at the
time of sale, any varying prices determined at the time of sale or at negotiated
prices. The sale of the shares of Common Stock may be effected in transactions
(which may involve crosses or block transactions) on any national or
international securities exchange or quotation services on which the shares of
Common Stock may be listed or quoted at the time of sale, (ii) in the
over-the-counter market, (iii) in transactions otherwise than on such exchanges
or in the over-the-counter market or (iv) through the writing of options. At the
time a particular offering of the shares of Common Stock is made, a Prospectus
Supplement, if required, will be distributed which will set forth the aggregate
amount and type of shares of Common Stock being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Stockholder and any discounts, commissions or concessions
allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the shares of Common Stock will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the shares of Common Stock may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with.
The Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the shares of Common Stock by
the Selling Stockholders. The foregoing may affect the marketability of the
shares of Common Stock.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the shares will be paid by the Company, including, without
limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Stockholders
will pay all underwriting discounts and selling commissions, if any. The Selling
Stockholders will be indemnified by the Company against certain civil
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers and any of its other officers, employees and
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification agreements with any
such persons and to purchase insurance on behalf of any person whom it is
required or permitted to indemnify.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for breach
of the directors fiduciary duty of care to the Company and its stockholders.
Such provision does not eliminate the duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. Each director
continues to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions than are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under any
other law, such as the federal securities laws or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Troop Steuber Pasich Reddick & Tobey, LLP.
15
<PAGE> 16
EXPERTS
The financial statements included the Company's Annual Report on Form
10-KSB for its fiscal year ended June 30, 1997 and incorporated by reference in
this Prospectus and the Registration Statement of which this Prospectus is a
part have been audited by Kellog & Andelson, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
and giving said reports.
16
<PAGE> 17
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
after the date hereof. This Prospectus does not relate to any securities other
than those described herein or constitute an offer to sell or a solicitation of
an offer to buy the securities offered hereby by any one in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone whom it is
unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.......................................................4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................4
PROSPECTUS SUMMARY..........................................................6
THE COMPANY.................................................................6
RISK FACTORS................................................................8
SELLING STOCKHOLDER........................................................12
PLAN OF DISTRIBUTION.......................................................13
DISCLOSURE OF COMMISSION POSITION FOR
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...........................15
LEGAL MATTERS..............................................................15
EXPERTS....................................................................16
THE
PRODUCERS ENTERTAINMENT
GROUP LTD.
PROSPECTUS
, 1998
17
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Preferred Stock being registered. All amounts are estimates
except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee ............................... $ 351.24
Nasdaq filing fee .................................. 7,500
Printing costs ..................................... 500
Legal fees and expenses............................. 10,000
Miscellaneous expenses.............................. 2,000
-------------
Total $ 20,351.24
=============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a
corporation to include in its charter documents, and in agreements between the
corporation and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VI of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VII of the Registrant's Bylaws provides for the indemnification
of officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
ITEM 16. EXHIBITS
4.1 Securities Purchase Agreement, dated July 31, 1998 between the
Company and the Augustine Fund, L.P.
4.2 Registration Rights Agreement, dated July 31, 1998 between the
Company and the Augustine Fund, L.P.
4.3 Escrow Agreement dated as of July 31, 1998 among the Augustine
Fund, L.P., the Company and H. Glenn Bagwell, Jr., as Escrow
Agent.
4.4 Restated Certificate of Incorporation, dated June 24, 1993(l)
4.5 Amendment to Certificate of Incorporation, dated April 28, 1998.
4.6 Certificate of Designations for Series D Preferred Stock,
dated July 31, 1998.
4.7 Certificate of Designations for Series E Preferred Stock,
dated July 31, 1998.
4.8 Certificate of Designations for Series F Preferred Stock,
dated July 31, 1998.
5.1 Opinion of Troop Steuber Pasich Reddick & Tobey, LLP.
23.1 Consent of Kellog & Andelson, Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
- -------
(1) Incorporated by reference to the Registrant's Report on Form 8-K dated June
18, 1996.
18
<PAGE> 19
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of the
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 28th day of August, 1998.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By /s/ IRWIN MEYER
------------------------------------
Irwin Meyer
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Irwin Meyer and Arthur Bernstein and each
of them, his attorneys-in-fact, each with the power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1993, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ IRWIN MEYER Chief Executive Officer and Director
- ------------------------------ (Principal Executive Officer) August 31, 1998
Irwin Meyer
/S/ LAWRENCE S. JACOBSON President and Director August 31, 1998
- -----------------------------
Lawrence S. Jacobson
/S/ SALVATORE GROSSO Chief Operating Officer and Director August 31, 1998
- ------------------------------
Salvatore Grosso
/S/ ARTHUR BERNSTEIN Executive Vice President and Director
- ------------------------------ (Principal Financial Officer)
Arthur Bernstein August 31, 1998
/S/ MICHAEL COLLYER Director August 31, 1998
- ------------------------------
Michael Collyer
/S/ ALFRED HAFERKAMP Principal Accounting Officer August 31, 1998
- ------------------------------
Alfred Haferkamp
</TABLE>
20
<PAGE> 1
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made as of
July 31, 1998, by and between The Producers Entertainment Group Ltd., a
corporation organized under the laws of the State of Delaware, U.S.A., with
headquarters located at 5757 Wilshire Blvd., PH1, Los Angeles, California 90036
(the "Company") and the buyer set forth on the execution page hereof (the
"Buyer").
RECITALS
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. The Buyer desires to purchase from the Company, and the Company
desires to sell to the Buyer, for the amounts and upon the terms and conditions
stated in this Agreement, in a closing or closings (each a "Closing") as herein
described, certain shares of the Company's preferred stock as listed in Recitals
B(i) and B(ii) immediately below, along with certain warrants of the Company as
listed in Recital B(iii) below.
(i) At each the first Closing (the "First Closing") and
the second Closing (the "Second Closing"), shares of
the Company's Series D Convertible Preferred Stock
(the "Series D Shares"), which may be converted into
common stock of the Company, $.001 par value per
share ("Common Stock"), upon the terms hereof and
upon the terms of the Articles of Amendment to
Certificate of Incorporation - Certificate of
Designations, Preferences, Limitations and Relative
Rights of Series D Convertible Preferred Stock of The
Producers Entertainment Group Ltd., attached hereto
as Exhibit A (the "Series D Articles"). The price per
Series D Share is US$10.00. The aggregate number of
Series D Shares to be issued and sold by the Company
is fifty thousand Series D Shares, for an aggregate
purchase price of five hundred thousand United States
dollars.
(ii) At each additional Closing (if any) (each, an
"Additional Closing") as further described in Section
4(1) below, shares of the Company's Series E
Convertible Preferred Stock (the "Series E Shares"),
which may be converted into Common Stock upon the
terms hereof and upon the terms of the Articles of
Amendment to Certificate of Incorporation -
Certificate of Designations, Preferences, Limitations
and Relative Rights of Series E Convertible Preferred
Stock of The Producers Entertainment Group Ltd.,
attached hereto as Exhibit B (the "Series E
Articles"). The price per Series E Share is
1
<PAGE> 2
US$10.00. The minimum number of Series E Shares to be
issued and sold by the Company is one hundred fifty
thousand Series E Shares, and the maximum number of
Series E Shares to be issued and sold by the Company
is five hundred thousand Series E Shares, all in
accordance with the terms hereof.
(iii) At each Closing, as additional consideration for
Buyer's purchase of the Preferred Shares (defined
below), a number of shares of the Company's Series F
Convertible Preferred Stock (herein referred to as
the "Warrants"), which may be converted into Common
Stock upon the terms hereof and upon the terms of the
Articles of Amendment to Certificate of Incorporation
- Certificate of Designations, Preferences,
Limitations and Relative Rights of Series F
Convertible Preferred Stock of The Producers
Entertainment Group Ltd., attached hereto as Exhibit
E. Each Warrant shall be immediately convertible into
one share of Common Stock at a conversion price equal
to one hundred twenty-five percent (125%) of the
closing bid price for the Common Stock on the date of
such Closing. Each Warrant must be converted into
Common Stock if at all within three (3) years after
the date of issuance. The number of Warrants to be
issued at each Closing shall be equal to the number
of Preferred Shares purchased at such Closing.
The Common Stock into which the Series D Shares and the Series E Shares
may (in accordance with the terms of the Series D Articles and the Series E
Articles, respectively) be convertible shall be collectively referred to herein
as the "Conversion Shares." The Common Stock received upon conversion of the
Warrants shall be referred to as the "Warrant Shares." Certain shares of Common
Stock may (at the Company's option as described in the Series D Articles or the
Series E Articles, as applicable) be issued to the Buyer in payment of dividends
(the "Dividend Shares"). Together the Series D Shares and the Series E Shares
may be referred to herein as the "Preferred Shares." The Preferred Shares, the
Conversion Shares, the Warrant Shares and the Dividend Shares (if any) may be
collectively referred to herein as the "Securities." Together the Series D
Articles and the Series E Articles may be referred to herein as the "Articles of
Amendment."
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the "Registration Rights Agreement") substantially in the form of Exhibit C
attached hereto pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and the Buyer hereby
agree as follows:
2
<PAGE> 3
1. PURCHASE AND SALE OF SECURITIES.
a. Purchase. The Buyer hereby agrees to purchase from the Company, and
the Company agrees to sell to the Buyer, 25,000 Series D Shares at the First
Closing, 25,000 Series D Shares at the Second Closing, and at each Additional
Closing, the number of Series E Shares described in Section 4(1) below. The
purchase price for the Preferred Shares purchased at each Closing shall be as
specified in Recitals B(i) and B(ii) above (with respect to each Closing, the
"Purchase Price").
b. The Closings. The date of the First Closing shall be July 31, 1998,
the date of the Second Closing shall be on or before August 11, 1998, and the
date of each Additional Closing (if any) shall be as specified in Section 4(l)
below, or, in each case on such earlier or later date as is mutually agreed to
in writing by the Company and the Buyer. The Purchase Price for the Securities
being purchased at each Closing shall be delivered to the Escrow Agent (as
defined in the Escrow Agreement substantially in the form of Exhibit D attached
hereto (the "Escrow Agreement")) on behalf of the Company on or before the date
specified herein for such Closing. At each Closing, the Company shall deliver
certificates representing the Preferred Shares and the Warrants being sold at
such Closing, duly issued and executed by the authorized officers on behalf of
the Company, to the Escrow Agent (as defined in the Escrow Agreement) on behalf
of the Buyer.
c. Form of Payment. The Buyer shall pay the Purchase Price for the
Preferred Shares and Warrants purchased at each Closing by wire transfer of
immediately available funds in United States Dollars, to be deposited into the
Escrow Account as defined in the Escrow Agreement, against delivery to the
Escrow Agent of duly executed Preferred Shares and Warrants being purchased by
the Buyer hereunder at such Closing. The Escrow Agent shall be responsible for
delivery of the Purchase Price to the Company and the Preferred Shares and the
Warrants to the Buyer in accordance with the terms of the Escrow Agreement and
with the instructions of the said parties.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer understands, agrees with, and represents and warrants to the
Company with respect to its purchase hereunder, that:
a. Investment Purposes; Compliance With 1933 Act. The Buyer is
purchasing the Securities for its own account for investment only and not with a
view towards, or in connection with, the public sale or distribution thereof,
except pursuant to sales registered under or exempt from the 1933 Act. The Buyer
is not purchasing the Securities for the purpose of covering short sale
positions in the Common Stock established on or prior to the date of the
relevant Closing. The Buyer agrees to offer, sell or otherwise transfer the
Securities only (i) in accordance with the terms of this Agreement and the
Articles of Amendment, as applicable, and (ii) pursuant to registration under
the 1933 Act or to an exemption from registration under the 1933 Act and any
other applicable securities laws. The Buyer does not by its representations
contained in this Section 2(a) agree to hold the
3
<PAGE> 4
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time pursuant to an effective registration
statement or in accordance with an exemption from registration under the 1933
Act, in all cases in accordance with applicable state and federal securities
laws. The Buyer understands that it shall be a condition to the issuance of the
Conversion Shares, the Warrant Shares and the Dividend Shares (if any) that the
Conversion Shares, the Warrant Shares and the Dividend Shares (if any) be and
are subject to the representations set forth in this Section 2(a).
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501 (a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic risk
of an investment made pursuant to this Agreement for an indefinite period of
time, and is able to bear such risk for an indefinite period.
c. Reliance on Exemptions. The Buyer understands the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of the applicable United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties,
acknowledgments, understandings, agreements and covenants of the Buyer set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Buyer, and specifically (but without limitation) the
Company's 1997 Form 10-KSB as filed with the SEC for the fiscal year ended June
30, 1997 (the "1997 10-K") and the Company's Forms 10-QSB for the fiscal periods
ended September 30, 1997, December 31, 1997, and March 31, 1998. The Buyer and
its advisors, if any, have been afforded the opportunity to ask all such
questions of the Company as they have in their discretion deemed advisable. The
Buyer understands that its investment in the Securities involves a high degree
of risk. The Buyer has sought such accounting, legal and tax advice as it has
considered necessary to an informed investment decision with respect to the
investment made pursuant to this Agreement.
e. No Government Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Buyer understands that: (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred
4
<PAGE> 5
unless either (a) subsequently registered thereunder or (b) the Buyer shall have
delivered to the Company an opinion of legal counsel in form, scope and
substance reasonably satisfactory to the Company, to the effect that the
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; (ii) any sale of
such securities made in reliance on Rule 144 (as hereafter defined) may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person though whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder, and (iii) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).
g. Legend. The Buyer understands that the Preferred Shares and the
Warrants, and until such time as the Conversion Shares, the Warrant Shares and
the Dividend Shares (if any) (collectively, the "Registrable Securities"), have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by the Buyer pursuant to Rule 144 (as
amended, or any applicable rule which operates to replace said Rule) promulgated
under the 1933 Act ("Rule 144"), the stock certificates representing the
Registrable Securities will bear a restrictive legend (the "Legend") in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
The Legend shall be removed and the Company will issue certificates
without the Legend to the holder of the applicable Registrable Securities upon
which the Legend is stamped, in accordance with Section 5(b).
h. Authorization; Enforcement. This Agreement, the Registration Rights
Agreement and the Escrow Agreement have been duly and validly authorized,
executed and delivered by the Buyer and are each and collectively valid and
binding agreements of the Buyer enforceable in accordance with their terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally. Buyer (and Buyer's counsel) has examined this
Agreement and is satisfied in its
5
<PAGE> 6
sole discretion that this Agreement and the accompanying Exhibits, Schedules and
the Addenda, if any, are in accordance with Regulation D and are effective to
accomplish the purposes set forth herein and therein.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company understands, agrees with, and represents and warrants to
the Buyer that:
a. Organization and Qualification: Reporting Company Status. The
Company and its subsidiaries (if any) are corporations duly organized and
existing in good standing under the laws of the respective jurisdictions in
which they are incorporated, except as would not have a Material Adverse Effect
(as defined below), and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each of the
Company and its subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect. "Material Adverse
Effect" means any material adverse effect on the operations, properties or
financial condition of the Company and its subsidiaries taken as a whole. The
Company has registered its Common Stock pursuant to Section 12(g) of the 1934
Act, and the Common Stock is listed for trading on the NASDAQ Small Cap Market.
The Company has received no notice, either written or oral, with respect to the
continued eligibility of the Common Stock for such listing, the Company has
maintained all applicable requirements for the continuation of such listing, and
the Company does not reasonably anticipate that the Common Stock will be
delisted from the NASDAQ Small Cap Market for the foreseeable future. Seller
shall use its best efforts to continue to keep its stock listed on the NASDAQ
Small Cap Market, or a comparable national securities market or exchange. The
Company has complied with all applicable requirements (if any) of the National
Association of Securities Dealers and the NASDAQ Small Cap Market with respect
to the issuance of the Securities.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Escrow Agreement, to issue and sell the
Preferred Shares, the Warrants and the Registrable Securities in accordance with
the terms hereof, and to perform its obligations under the Series D Articles and
the Series E Articles in accordance with the requirements of the same, (ii) the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Escrow Agreement by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
the Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its stockholders is required, (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement and, on the
date of the applicable Closing, the Preferred Shares and Warrants sold at such
Closing, have been duly and validly authorized, executed and delivered by the
Company, (iv) the Series D Articles and the Series E Articles have been duly
authorized by the Company's Board of Directors to be filed with the Secretary of
State for the State of Delaware, and the Series D Articles and the Series E
Articles will be filed with the Secretary of State for the State of Delaware
prior to the date of the First Closing,
6
<PAGE> 7
and (v) this Agreement, the Registration Rights Agreement and the Escrow
Agreement constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting, generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application. The Company (and its legal
counsel) has examined this Agreement and is satisfied in its sole discretion
that this Agreement and the accompanying Exhibits, Schedules and the Addenda, if
any, are in accordance with Regulation D and are effective to accomplish the
purposes set forth herein and therein.
c. Capitalization. As of June 30, 1998, the authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock of which 6,776,693
shares were issued and outstanding; as of June 30, 1998, the authorized
preferred stock of the Company consists of 10,000,000 shares, of which 6,000,000
shares of Series A, 1,375,662 shares of Series B, and 2,000,000 shares of Series
C preferred stock were issued and outstanding. All of such outstanding shares
have been validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c) attached hereto, no shares of Common Stock or
Preferred Stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances. Except as disclosed in Schedule 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
(ii) there are no outstanding debt securities, and (iii) there are no agreements
or arrangements under which the Company or any of its subsidiaries is obligated
to register the sale of any of its or their securities under the 1933 Act
(except as provided herein and in the Registration Rights Agreement) ("Outside
Registration Rights"). The Company represents and warrants that none of the
securities registrable pursuant to any Outside Registration Rights, including
without limitation those listed on Schedule 3(c), shall be included on a
registration statement filed in connection with the transactions contemplated in
this Agreement. If requested by the Buyer, the Company has furnished to the
Buyer, and the Buyer acknowledges receipt of same by its signature hereafter,
true and correct copies of the Company's Certificate of Incorporation, as
amended, as in effect on the date hereof ("Certificate of Incorporation"), and
the Company's Bylaws, as in effect on the date hereof (the "Bylaws").
d. Issuance of Securities. The Series D Shares, the Series E Shares and
the Registrable Securities are all duly authorized and reserved for issuance,
and in all cases upon issuance pursuant to the terms of the Articles of
Amendment and this Agreement shall be validly issued, fully paid and
non-assessable, free from all taxes, liens and charges with respect to the issue
thereof, and will not be subject to preemptive rights or other similar rights of
stockholders of the Company.
e. Acknowledgment Regarding Buyer's Purchase of the Securities. The
Company acknowledges and agrees that the Buyer is not acting as financial
advisor to or fiduciary of the Company (or in any similar capacity with respect
to this Agreement or the transactions contemplated
7
<PAGE> 8
hereby), that this Agreement and the transactions contemplated hereby, and the
relationship between the Buyer and the Company, are and will be considered
"arms-length" notwithstanding any other or prior agreements or nexus between the
Buyer and the Company, whether or not disclosed, and that any statement made by
the Buyer, or any of its representatives or agents, in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation, is merely incidental to the Buyer's purchase of the Securities
and has not been relied upon in any way by the Company, its officers or
directors. The Company further represents to the Buyer that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
have been based solely upon an independent evaluation by the Company, its
officers and directors.
f. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances which would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the 1933 Act and specifically in accordance with the
provisions of Regulation D. The transactions contemplated hereby are exempt from
the registration requirements of the 1933 Act, assuming the accuracy of the
representations and warranties contained herein of the Buyer.
g. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation or Bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or other
organizational documents, and neither the Company nor any of its/subsidiaries is
in default (and no event has occurred which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible defaults or rights as would not, in
the aggregate or individually, have a Material Adverse Effect. The business of
the Company and its subsidiaries is not being conducted, and shall not be
conducted so long as the Buyer owns any of the Securities, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations which neither singly or in the aggregate would have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
8
<PAGE> 9
Agreement, the Registration Rights Agreement or the Escrow Agreement in
accordance with the terms hereof and thereof, or to perform its obligations with
respect to the Preferred Shares exactly as described in the applicable Articles
of Amendment.
h. SEC Documents; Financial Statements. Except as disclosed on Schedule
3(h) hereof, since at least June 1, 1997, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Buyer as requested by the Buyer
true and complete copies of the SEC Documents, except for such exhibits,
schedules and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer (including the information referred to in Section 2(d) of this
Agreement) contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
the date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clause (i) and (ii) next above which, individually
or in the aggregate, are not material to the financial condition, business,
operations, properties, operating results or prospects of the Company. The SEC
Documents contain a complete and accurate list of all written and oral
contracts, agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is subject which
are required by the rules and regulations promulgated by the SEC to be so listed
(each a "Contract"). None of the Company, its subsidiaries or, to the best of
the Company's knowledge, any of the other parties
9
<PAGE> 10
thereto, is in breach or violation of any Contract, which breach or violation
would, or with the lapse of time, the giving of notice, or both, have a Material
Adverse Effect.
i. Absence of Certain Changes. Except as disclosed in the Company's
1997 10-K, since June 30, 1997, there has been no material adverse change and no
material adverse development in the business, properties, operation, financial
condition, results of operations or prospects of the Company. The Company has
not taken any steps, and does not currently have any reasonable expectation of
taking any steps, to seek protection pursuant to any bankruptcy law nor does the
Company have any knowledge that its creditors intend to initiate involuntary
bankruptcy proceedings. The Company shall, at least until Buyer no longer holds
any of the Securities, maintain its corporate existence in good standing and
shall pay all taxes when due except for taxes it reasonably disputes.
j. Absence of Litigation. Other than those actions identified in the
Company's filings with the SEC provided to the Buyer pursuant to Section 2(d)
hereof, there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body pending or, to the knowledge of the Company,
threatened against or affecting the Company, wherein an unfavorable decision,
ruling or finding would have a Material Adverse Effect or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein.
k. Foreign Corrupt Practices. Neither the Company nor any of its
subsidiaries, nor any officer, director or other person acting on behalf of the
Company or any subsidiary has, in the course of his actions for or on behalf of
the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity, made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
l. Acknowledgment of Dilution. The number of Conversion Shares issuable
upon conversion of the Preferred Shares may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize they have a potential dilutive effect. The board of directors of
the Company has concluded in its good faith business judgment that such issuance
is in the best interests of the Company. The Company acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares
and Warrant Shares upon exercise of the Warrants is binding upon it and
enforceable regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
m. Eligibility to File Registration Statement. The Company is currently
eligible to file a registration statement with the SEC on Form SB-1 and/or SB-2
under the 1933 Act.
10
<PAGE> 11
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Securities Laws. The Company agrees to timely file a Form D (and any
equivalent form required by applicable state law) with respect to the Securities
if and as required under Regulation D and applicable state securities laws and
to provide a copy thereof to the Buyer promptly after such filing. The Company
shall, on or before the date of the First Closing and on or before the date of
each Additional Closing, as applicable, take such action as is necessary to sell
the Securities being sold to the Buyer on each such date under applicable
securities laws of the United States, and shall if specifically so requested
provide evidence of any such action so taken to the Buyer on the First Closing
Date or each Additional Closing date, as applicable.
c. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations hereunder would permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale of
the Securities to fund the acquisition and/or option of literary properties;
with respect to productions for which there is a buyer contractually obligated
to fund such productions, to provide short term interim financing, during
production, in order to supplement production cash flow needs during the period
when the Company is required to make expenditures, and the schedule of the
buyer's payments to the Company follow thereafter prior to completion of the
production; and, for general working capital purposes.
e. Financial Information. At the request of the Buyer, until such time
as the Buyer no longer beneficially owns or is entitled to purchase at least
1,000 Preferred Shares, the Company agrees to send the following reports to the
Buyer: (i) after filing with the SEC, a copy of each of its Annual Reports on
Form 10-KSB, its quarterly Reports on Form 10-QSB, and any reports filed on Form
8-K; and (ii) as soon as practicable after release thereof, copies of all press
releases issued by the Company or any of its subsidiaries.
f. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, that number of shares of
Common Stock which the Company reasonably believes to be sufficient to provide
for the issuance of all of the Conversion Shares and the Dividend Shares (if
any). Prior to complete conversion of the Preferred Shares, the Company shall
not reduce the number of shares reserved for issuance hereunder without the
written consent of the Buyer except for a reduction proportionate to a reverse
stock split effected for a business purpose other than affecting the
requirements of this Section, which reverse stock split affects all shares of
Common Stock equally.
11
<PAGE> 12
g. Listing. Upon the First Closing and upon each Additional Closing,
the Company shall promptly secure the listing of the Registrable Securities then
underlying the Preferred Shares and the Warrants purchased by the Buyer upon the
NASDAQ Small Cap Market, and/or upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of shares of
Registrable Securities from time to time issued under the terms of this
Agreement and the Registration Rights Agreement. The Company shall at all times
comply in all respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the National Association of Securities
Dealers and NASDAQ Small Cap Market (and such other national exchange on which
the Common Stock may be listed or eligible to trade, as applicable), if any.
h. Prospectus Delivery Requirement. The Buyer understands that the 1933
Act requires delivery of a prospectus relating to the Common Stock in connection
with any sale thereof pursuant to a registration statement under the 1933 Act
covering any resale by the Buyer of the Common Stock being sold, and the Buyer
shall comply with any applicable prospectus delivery requirements of the 1933
Act in connection with any such sale. The Company shall deliver a copy of the
required prospectus to the Buyer immediately upon registration of the
Registrable Securities.
i. (Intentionally Omitted).
j. Intentional Acts or Omissions. Neither party shall intentionally
perform any act that if performed, or intentionally omit to perform any act that
if omitted to be performed, would prevent or excuse the performance of this
Agreement or any of the transactions contemplated hereby.
k. No Shorting. As a material inducement for the Company to enter into
this Agreement, the Buyer represents that it has not as of the date hereof, and
covenants on behalf of itself and its affiliates that neither Buyer nor any
affiliate of Buyer will at any time in which the Buyer or any affiliate of the
Buyer beneficially owns any of the Securities or the Warrants, engage in any
short sales of, or hedging or arbitrage transactions with respect to, the Common
Stock, or sell "put" options or similar instruments with respect to the Common
Stock.
1. Purchase of Series E Shares. Until the date which is twenty-four
(24) months from the date hereof, the Buyer agrees to purchase, and the Company
agrees to sell, in accordance with and subject to the terms of this Agreement
and the Series E Articles, a minimum of 150,000 Series E Shares and, at the
Company's option, up to a maximum of 500,000 Series E Shares, in each case in a
series of tranches, each of which tranches shall be for the purchase and sale of
a minimum of 10,000 Series E Shares and a maximum of 30,000 Series E Shares in
any given tranche.
No such tranche shall be closed before the date which is fifteen (15)
days after the date on which either (x) a registration statement as contemplated
by the Registration Rights Agreement and covering all of the Registrable
Securities is declared effective by the SEC, or (y) a Registration
12
<PAGE> 13
Statement covering the resale of all Registrable Securities underlying all
shares of Preferred Stock and Warrants previously issued, including the
Registrable Securities underlying the Series E Shares and the Warrants to be
purchased and sold in such tranche, is declared effective by the SEC, and the
Registrable Securities may thus be freely sold by Buyer without restriction, and
Buyer has been so informed in writing (and any prospectus needed to sell such
Registrable Securities has been delivered to Buyer). The Series E Shares to be
issued in each such tranche shall be issued and sold upon the terms and
conditions of this Agreement and the Series E Articles. The obligations of the
Company to sell and the Buyer to purchase Series E Shares at each Additional
Closing (each of which Additional Closings (other than the first) shall occur no
less than thirty (30) days after the date of the previous Additional Closing),
shall be contingent upon satisfaction of the following conditions:
(i) The Company shall give the Buyer and the Escrow Agent ten (10)
days prior written notice of its intent to sell Series E
Shares;
(ii) On the date of each Additional Closing:
(a) The registration statement required to be filed under
the Registration Rights Agreement has been declared
effective by the SEC and is as of such date still
effective with respect to (i) all Conversion Shares
into which the outstanding Preferred Shares,
including also the Preferred Shares to be purchased
and sold at the Additional Closing at issue, may be
convertible, (ii) all Warrant Shares receivable upon
exercise of the outstanding Warrants, including also
the Warrants to be purchased and sold at the
Additional Closing at issue, and (iii) any Dividend
Shares to be issued in payment of dividends, such
that all such Conversion Shares, Warrant Shares and
Dividend Shares may be freely traded on the NASDAQ
Small Cap Market by Buyer at any time after receipt
thereof.
(b) Each of the representations and warranties of the
Company contained in this Agreement, the Registration
Rights Agreement and the Escrow Agreement (the
"Transaction Documents") shall be true and correct in
all material respects as if made on the date of such
Additional Closing, and the Company shall have
performed all of its obligations under the
Transaction Documents required to be performed by the
Company prior to the date of such Additional Closing.
(c) The average daily dollar trading volume (defined as
the closing bid price for a given trading day
multiplied by the number of shares traded on that
day) for the Common Stock for the previous twenty
(20) trading days (the "Average Dollar Volume") must
equal or exceed $40,000. In addition, the maximum
number of Series E Shares sold shall be based upon
Average Dollar Volume in accordance with the
following chart (where the number on the left is the
13
<PAGE> 14
minimum Average Daily Volume, and the number on the
right is the corresponding maximum draw-down
available to the Company based upon such Average
Daily Volume):
<TABLE>
<S> <C> <C> <C> <C>
$40,000 -- $100,000 $80,000 -- $200,000
$50,000 -- $125,000 $90,000 -- $250,000
$60,000 -- $150,000 $100,000 -- $300,000
$70,000 -- $175,000.
</TABLE>
For example, if the Average Daily Volume for the
twenty (20) trading day period ending on November 30,
1998, is $85,000, and the Company has not sold any
Series E Shares in the previous thirty (30) days,
then the Company may offer and sell to the Buyer on
or after December 10, 1998 (having given ten (10)
days prior notice), up to 20,000 Series E Shares
based upon the stated Average Daily Volume.
(d) The average closing bid price for the Common Stock
for the ten (10) trading days prior to the date of
such Additional Closing, must equal or exceed $.625
per share (the "Minimum Price Per Share").
(e) The number of shares issuable upon conversion of the
Series E Shares then being purchased, together with
the shares of Common Stock issued prior thereto
pursuant to the Transaction Documents and the
Articles of Amendment, shall not exceed twenty
percent (20%) of the outstanding shares of the
Company's Common Stock. This condition shall be
waived by the Buyer should the Company obtain any
required shareholder or other consent to the issuance
of more than twenty percent (20%) of the outstanding
shares of the Company's Common Stock prior to such
Additional Closing. The Company covenants and agrees
that if necessary to effect the transactions
contemplated herein and to fulfill its obligation to
sell the minimum number of Series E Shares called for
herein, the Company will use its best efforts to
obtain such shareholder or other consent required.
(f) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction or
any self-regulatory organization having authority
over the matters contemplated hereby which restricts
or prohibits the consummation of any of the
transactions contemplated by the Transaction
Documents or the Articles of Amendment.
If the Company does not sell to the Buyer, within the twenty-four (24)
month period specified in this Section 4(l), at least the minimum number of
Series E Shares and the corresponding number of Warrants to have been sold
pursuant to this Section 4(l), other than as a result of (i) a
14
<PAGE> 15
breach of this Agreement by the Buyer, or (ii) the Company's inability to meet
the minimum Average Dollar Volume or the Minimum Price Per Share requirement, or
(iii) the circumstance that the issuance and sale of additional Series E Shares,
together with all previously issued Securities would exceed twenty percent (20%)
of the outstanding shares of Common Stock, so long as the Company has used its
best efforts to obtain shareholder approval for the issuance of greater than
said twenty percent (20%), but has not been successful in such efforts prior to
the date which is twenty-four (24) months from the date of the First Closing,
then unless the Buyer agrees in writing to extend the time in which the Company
may sell Series E Shares to the Buyer, the Company shall issue to the Buyer a
warrant (a "Penalty Warrant") to purchase a number of shares of Common Stock
equal to the minimum number of Series E Shares to have been sold less the number
of Series E Shares actually sold to the Buyer. The Penalty Warrant shall be
exercisable if at all within three (3) years after issuance at a price per share
of Common Stock equal to the closing bid price of the Common Stock on the date
of the First Closing. The Penalty Warrant shall contain both demand and
"piggyback" registration rights. Thus, for example, if the Buyer purchased
25,000 Series D Shares (fifty percent (50%) of the total number of Series D
Shares sold), and if the closing bid price for the Common Stock on the date of
the First Closing were US$1.00, and if the Company at the end of the period
which is twenty-four (24) months after the date of the First Closing shall have
sold the Buyer only 50,000 Series E Shares, then the Company shall issue a
Penalty Warrant with an exercise price per share of US$1.00 for 25,000 shares of
Common Stock (the minimum number of Series E Shares to have been sold to the
Buyer would have been 75,000, or fifty percent (50%) of the total minimum
150,000 Series E Shares to have been sold). Notwithstanding the above, the
Company shall not be required to issue a Penalty Warrant if by so doing it would
violate the NASD regulation against issuance of greater than twenty percent
(20%) of the outstanding shares of Common Stock, so long the Company has used
its best efforts to obtain shareholder approval for the issuance of greater than
said twenty percent (20%), but has not been successful in such efforts prior to
the date which is thirty-six (36) months from the date of the First Closing.
Conversely, if the Buyer does not purchase all of its pro-rata portion
of the Series E Shares offered for sale by the Company (other than for a breach
of this Agreement by the Company or failure of the Company to meet the
conditions stated in Section 4(l)) when such Series E Shares are so offered for
sale in accordance with the terms of this Agreement, then at such time as the
Buyer refuses to purchase such Series E Shares being offered for sale, unless
waived by the Company, all Warrants previously issued to the Buyer, to the
extent not already exercised by the Buyer, shall be null and void.
m. Restriction on Below Market Issuance of Securities. Until the date
which is twenty-four (24) months from the date hereof, the Company shall not
issue or agree to issue, other than (i) to the Buyer or other buyers pursuant to
the transactions contemplated herein, (ii) pursuant to any employee stock option
plan or employee stock purchase plan of the Company in effect on June 30, 1998,
(iii) pursuant to any existing security, option, warrant, scrip, call or
commitment or right in each case as disclosed on Schedule 3(c) hereof, (iv) with
the consent of the Buyer, not to be unreasonably withheld, delayed or
conditioned, or (v) in a transaction with respect to which the Company has
provided the Buyer at least sixty (60) days prior written notice, including in
such
15
<PAGE> 16
notice all material terms and conditions of such transaction, and the Buyer has
been granted the first right of refusal with respect to such transaction but has
not elected to participate in such transaction within twenty (20) days following
receipt of the notice regarding such transaction, any equity securities of the
Company (or any security convertible into or exercisable or exchangeable,
directly or indirectly, for equity securities of the Company) or debt securities
of the Company if such securities are issued at a price (or provide for a
conversion, exercise or exchange price) which may be less than the current
market price for the Common Stock on the date of issuance (in the case of Common
Stock) or the date of conversion, exercise or exchange (in the case of
securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock). Notwithstanding anything to the contrary
contained herein, the parties acknowledge and agree that the Company may reprice
certain currently outstanding warrants to purchase in the aggregate 500,000
shares of Common Stock from $5.50 to a price below the fair market value of the
Common Stock at the date of such repricing (the "Repricing Event"). The Company
agrees not to effect the Repricing Event within sixty (60) days after the First
Closing, the Second Closing or any Additional Closing. The Company shall not
effect the Repricing Event unless the price of the Common Stock shall be and
remain above $3.00 for a period of at least ten (10) consecutive trading days.
The Company shall give the Buyer at least sixty (60) days written notice prior
to the Repricing Event. Except as provided with respect to the transactions
contemplated herein and in subsections (i), (ii), (iii), (iv) or (v) above of
this Section 4(m), the Company shall not grant any additional so-called
"registration rights."
n. Buyer Protection Against Repricing Event. If during the
sixty (60) day period following a Repricing Event (a "60 Day Period"), Buyer
sells shares of Common Stock received upon conversion of its Series D Shares or
Series E Shares at a price which is less than the conversion rate applicable to
such shares (a "Loss Event"), then the Company shall pay to the Buyer an amount
equal to the difference between (x) the sales price received for each share of
Common Stock received upon conversion of Series D Shares or Series E Shares and
sold during the 60 Day Period and (y) the applicable conversion rate for each
Series D Share and Series E Share so converted. The Company shall pay said
amount in cash directly to the Buyer within ten (10) days after written notice
from the Buyer that a Loss Event has occurred. Such written notice from the
Buyer shall contain reasonable documentation of the Loss Event. The parties
acknowledge that the purpose for this Section 4(n) is to ensure that a Repricing
Event does not result in economic loss to the Buyer.
5. LEGEND AND TRANSFER INSTRUCTIONS.
a. Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of the Buyer or its nominee,
for the Conversion Shares, the Warrant Shares and the Dividend Shares (if any)
in accordance with the terms of the applicable Articles of Amendment and in such
amounts as specified from time to time by the Buyer to the Company, upon
conversion of the Preferred Shares and exercise of the Warrants. All such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement only to the extent required by applicable law and as specified in the
Transaction Documents. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop
16
<PAGE> 17
transfer instructions to give effect to Section 2(f) hereof in the case of the
Conversion Shares and the Dividend Shares (if any) prior to the registration of
same under the 1933 Act, will be given by the Company to its transfer agent and
that the Conversion Shares, the Warrant Shares and the Dividend Shares (if any)
shall otherwise be freely transferable on the books and records of the Company
as and to the extent permitted by applicable law and provided by this Agreement
and the Registration Rights Agreement. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Preferred Shares, the Warrants, the
Conversion Shares, the Warrant Shares and/or the Dividend Shares (if any). If
the Buyer provides the Company with an opinion of legal counsel that is
reasonably satisfactory in form, substance and scope to the Company, that
registration of the Preferred Shares, the Conversion Shares, the Warrant Shares
and/or the Dividend Shares (if any) is not required under the 1933 Act, then the
Company shall permit the said transfer, and if applicable promptly (and in all
events within two (2) trading days after receipt by the Company of each of the
original documents and things to be delivered by the Buyer to effect a
conversion of the applicable Preferred Shares) instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by the Buyer and, with respect to the denomination, as reasonably
agreed to by the Company.
b. Removal of Legends. The Legend shall be removed and the Company
shall issue a certificate without such Legend to the holder of any Security upon
which it is stamped, and a certificate for a security shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (x)
the sale of such Security is registered under the 1933 Act, or (y) such holder
provides the Company with an opinion by counsel, that is in form, substance and
scope reasonably satisfactory to the Company, to the effect that a public sale
or transfer of such Security may be made without registration under the 1933
Act. The Buyer agrees that its sale of all Securities, including those
represented by a certificate(s) from which the Legend has been removed, or which
were originally issued without the Legend, shall be made only pursuant to an
effective registration statement (and to deliver a prospectus in connection with
such sale) or in compliance with an exemption from the registration requirements
of the 1933 Act. In the event the Legend is removed from any Security or any
Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the sales of such Security is suspended or the
Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to the holder of
such Security, the Company shall be entitled to require that the Legend be
placed upon any such Security which cannot then be sold pursuant to an effective
registration statement or Rule 144 or with respect to which the opinion referred
to in clause (y) next above has not been rendered, which Legend shall be removed
when such Security may be sold pursuant to an effective registration statement
or Rule 144 (or such holder provides the opinion with respect thereto described
in clause (y) next above).
c. Conversion of Preferred Shares. The Buyer shall have the right to
convert the Preferred Shares sold hereunder by delivering via facsimile an
executed and completed Notice of Conversion (as defined in the Articles of
Amendment) to the Company and delivering within two (2) business days thereafter
the original Notice of Conversion and the certificate representing the Preferred
Shares being converted by express courier to the Company. Each date on which a
Notice
17
<PAGE> 18
of Conversion is telecopied to the Company in accordance with the provisions
hereof shall be deemed a "Conversion Date." The Company will transmit a
certificate or certificates (collectively the "Certificate") representing the
shares of Common Stock issuable upon conversion of any Preferred Shares
converted pursuant to such Notice of Conversion (along with a replacement
certificate representing the number of Preferred Shares not so converted) to the
Buyer via express courier, within five (5) business days after the relevant
Conversion Date (the fifth business day after the relevant Conversion Date shall
be referred to hereinafter as the "Deadline"). With the mutual agreement of the
Company and the Buyer, the Company or a third party may (until and unless the
Buyer in a particular instance requests otherwise) hold the Preferred Shares in
trust, such that, to effect a conversion of the Preferred Shares, the Buyer
shall deliver to the Company via courier only the original Notice of Conversion
as described in this Section and the Company and the Buyer shall keep a record
of the number of Preferred Shares so converted. If either the Company or a third
party holds the certificates representing the Preferred Shares in trust as
described in the preceding sentence, the Company will deliver the Certificates
directly to the Buyer via express courier on or before the Deadline.
d. Injunctive Relief for Breach. The Company acknowledges that the
remedy at law for a breach of its obligations under Sections 5(a), 5(b) and 5(c)
above will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transactions contemplated hereby. Accordingly the Company agrees
that the remedy at law for a breach of its obligations under such Sections would
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of such Sections, the Buyer shall be entitled, in
addition to all other remedies at law or in equity (including without limitation
those remedies specified in Section 5(e) below), to an injunction restraining
any breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being required.
e. Liquidated Damages for Non-Delivery of Certificates. In addition to
the provisions of Section 5(d) above, the Company understands and agrees that a
delay in the issuance of the Certificates beyond the Deadline could result in
economic loss and other damages to the Buyer. As compensation to the Buyer for
such loss, the Company agrees to pay liquidated damages (and which the Company
acknowledges is not a penalty) to the Buyer for issuance and delivery of the
Certificates after the Deadline, in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
ten (10) business days from the date of delivery by the Buyer to the Company of
all necessary documentation duly executed and in proper form required for
conversion of Preferred Shares as described in this Agreement and in the
Articles of Amendment, including the original Notice of Conversion and the
original certificate representing the Preferred Shares to be converted, all in
accordance with this Agreement):
<TABLE>
<CAPTION>
No. Business Days Late Liquidated Damages
---------------------- ------------------
(in US$)
<S> <C>
1 $200
2 $300
3 $400
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
4 $500
5 $600
6 $700
7 $800
8 $900
9 $1,000
10 $1,100
11+ $1,100 + $250 for
each Business Day Late
beyond 11 days
</TABLE>
The Company shall pay the Buyer any liquidated damages incurred as
called for under this Section 5(e) by certified or cashier's check upon the
earlier of (i) issuance of the Certificates to the Buyer or (ii) each monthly
anniversary of the receipt by the Company of the Buyer's Notice of Conversion.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell Preferred Shares at the
applicable Closing is subject to the satisfaction, on or before the date of the
applicable Closing as described herein, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. The Series D Articles and the Series E Articles shall have been duly
authorized and filed with the Secretary of State of the state of Delaware; the
parties shall have executed this Agreement, the Registration Rights Agreement
and the Escrow Agreement, and the parties shall have delivered the respective
documents or signature pages thereof (via facsimile or otherwise as permitted in
the Escrow Agreement) to the Escrow Agent.
b. The Buyer shall have delivered to the Escrow Agent on behalf of the
Company the Purchase Price in full for the Series D Shares purchased at the
First Closing, or the Purchase Price in full for the Series E Shares being
purchased at each Additional Closing, as applicable, by wire transfer of
immediately available funds pursuant to the wiring instructions provided by the
Escrow Agent.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date made and as of the date of the
applicable Closing as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the date of the applicable Closing.
19
<PAGE> 20
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer to purchase Preferred Shares is subject to
the satisfaction, on or before the date of the applicable Closing, of each of
the following conditions, provided that these conditions are for the sole
benefit of the Buyer and may be waived by the Buyer at any time in its sole
discretion:
a. The Series D Articles and the Series E Articles shall have been duly
authorized and filed with the Secretary of State of the state of Delaware; the
parties shall have executed this Agreement, the Registration Rights Agreement
and the Escrow Agreement, and the parties shall have delivered the respective
documents or signature pages thereof (via facsimile or otherwise as permitted in
the Escrow Agreement), to the Escrow Agent on behalf of each other.
b. The representations and warranties of the Company shall be true and
correct in all material respects as of the date made and as of the date of the
applicable Closing as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the date of the applicable
Closing. The Buyer may require a certificate, executed by the Chief Executive
Officer of the Company, dated as of the date of such Closing, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyer.
c. With respect to each Closing called for herein, the Company shall
have issued and have duly executed by the authorized officers of the Company,
and delivered to the Escrow Agent on behalf of the Buyer, the original Preferred
Shares being sold at such Closing.
d. The Common Stock shall be authorized for quotation on the NASDAQ
Small Cap Market and trading in the Common Stock on such market shall not then
be suspended by the SEC or other relevant regulatory agency.
e. The Company shall not have received, as of the date of the
applicable Closing, from the National Association of Securities Dealers or any
other relevant regulatory agency, any written or oral communication that the
Common Stock is not eligible to continue trading on the NASDAQ Small Cap Market.
f. With respect to each Additional Closing, the conditions for closing
listed in Section 4(1) above shall have been met by the Company, including
without limitation the condition that the Common Stock into which the Series E
Preferred then being sold is convertible, the Warrant Shares
20
<PAGE> 21
receivable upon exercise of the Warrants then being sold, and the Common Stock
representing any Dividend Shares to be issued in payment of dividends (if any),
have all been registered with the SEC pursuant to the registration statement
required under the Registration Rights Agreement, and such registration
statement is effective as of the date of such Additional Closing.
g. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
h. The Escrow Agent shall have received on behalf of the Buyer the
opinion of Company counsel, dated as of the date of the First Closing, in the
form attached hereto as Exhibit F; provided, however, the condition to closing
set forth in this Section 7(h) is only applicable to the First Closing.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. In the event of any litigation regarding the
interpretation or application of this Agreement, the parties irrevocably consent
to jurisdiction in any of the state or federal courts located in the State of
Delaware and waive their respective rights to object to venue in any such court,
regardless of the convenience or inconvenience thereof to any party. Service of
process in any civil action relating to or arising out of this Agreement
(including also all Exhibits or Addenda hereto) or the transaction(s)
contemplated herein may be accomplished in any manner provided by law. The
parties hereto agree that a final, non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and signature pages from such counterparts have been delivered to the
Escrow Agent on behalf of the other party. In the event any signature page is
delivered by facsimile transmission (which the parties agree is an acceptable
form of delivery), the party using such means of delivery shall cause three (3)
additional originally executed signature pages to be physically delivered to the
Escrow Agent within two (2) business days after the execution and delivery
hereof.
c. Headings; Gender, Etc. The headings of this Agreement are for
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used herein, the masculine shall refer to
the feminine and neuter, the feminine to the masculine and neuter, and the
neuter to the masculine and feminine, as the context may require. As used
herein, unless the context clearly requires otherwise, the words "herein,"
"hereunder" and "hereby," shall refer to this
21
<PAGE> 22
entire Agreement and not only to the Section or paragraph in which such word
appears. If any date specified herein falls upon a Saturday, Sunday or public or
legal holidays, the date shall be construed to mean the next business day
following such Saturday, Sunday or public or legal holiday. For purposes of this
Agreement, a "business day" is any day other than a Saturday, Sunday or public
or legal holiday.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by U. S. Mail or delivered personally or
by express courier service (i.e., Federal Express) or via facsimile (if via
facsimile, to be followed within three (3) business days by an original of the
notice document via U.S. Mail or courier) and shall be effective five (5) days
after being placed in the mail, if mailed, certified or registered, return
receipt requested, or upon receipt, if delivered personally or by courier or by
facsimile, in each case properly addressed to the party to receive the same. The
addresses for such communications shall be:
If to the Company: The Producers Entertainment Group Ltd.
5757 Wilshire Blvd, PH1
Los Angeles, California 90036
Telephone: (213) 634.8634
Facsimile: (213) 634.8635
Attention: Mr. Irwin Meyer, Chairman & CEO
If to the Buyer, at the address on the signature page of this Agreement. Each
party shall provide written notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other (which
consent shall not be unreasonably withheld, delayed or conditioned), and in any
event any assignee of the Buyer shall be an accredited investor (as defined in
Regulation D), in the written opinion of counsel which is reasonably
satisfactory to Seller and in form, substance and scope reasonably satisfactory
to the Seller. Notwithstanding the foregoing, if applicable, any of the
22
<PAGE> 23
entities constituting the Buyer (if greater than one (1) entity) may assign its
rights hereunder to any of its "affiliates," as that term is defined under the
1934 Act, without the consent of the Company; provided, however, that any such
assignment shall not release such assigning entity from its obligations
hereunder unless such obligations are assumed by such affiliate and the Company
has prior to such assignment and assumption consented in writing to the same;
and no such assignment shall be made unless it is made in accordance with any
applicable securities laws of any applicable jurisdiction. Any request for an
assignment made hereunder by the Buyer shall be accompanied by an opinion of
counsel reasonably satisfactory to the Company, that is in form, substance and
scope reasonably satisfactory to the Company, that such assignment is proper
under applicable law.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 8(1),
the representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
8 shall survive the final Closing of the purchase and sale of Securities
purchased and sold hereby for a period of twelve (12) months after such final
Closing.
j. Publicity. The Company and the Buyer shall have the right to review
before issuance by the other, any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without prior consultation with or approval of
the Buyer, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations and the rules
and regulations of the NASD.
k. Further Assurance. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the First Closing shall not have
occurred on or before ten (10) business days from the date hereof, this
Agreement shall terminate at the close of business on such date. Neither party
may unilaterally terminate this Agreement after the First Closing for any reason
other than a material breach of this Agreement by the non-terminating party.
Such termination shall not be the sole remedy for a breach of this Agreement by
the non-terminating party, and each party shall retain all of its rights
hereunder at law or in equity. Notwithstanding anything herein to the contrary,
a party whose breach of a covenant or representation and warranty or failure to
satisfy a condition prevented the First Closing or an Additional Closing shall
not be entitled to terminate this Agreement.
23
<PAGE> 24
m. Remedies. No provision of this Agreement providing for any specific
remedy to a party shall be construed to limit such party to the specific remedy
described, and any other remedy that would otherwise be available to such party
at law or in equity shall be so available. Nothing in this Agreement shall limit
any rights a party may have with any applicable federal or state securities laws
with respect to the transactions contemplated hereby.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
[SIGNATURE PAGE FOLLOWS]
Exhibits to Securities Purchase Agreement
Exhibit A Series D Articles
Exhibit B Series E Articles
Exhibit C Registration Rights Agreement
Exhibit D Escrow Agreement
Exhibit E Series F Articles
Exhibit F Opinion of Counsel for The Producers Entertainment Group Ltd.
24
<PAGE> 25
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT DATED
JULY 31, 1998]
COMPANY:
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /S/ ARTHUR BERNSTEIN
-------------------------------------
Attest: /S/ M. COLLIER MARIANO, JR.
-----------------------------
Secretary
BUYER:
THE AUGUSTINE FUND, L.P.
By: Augustine Capital Management, Inc.,
its General Partner
By: /S/ THOMAS DUSZYNSKI
----------------------------------------
(Print Name and Title)
BUYER'S ADDRESS: The Augustine Fund, L.P.
C/o Augustine Capital Management, Inc.
141 West Jackson Blvd., Suite 2182
Chicago, Illinois 60604
Telecopier Number: 312.427.5396
Attn: Mr. Tom Duszynski
25
<PAGE> 26
Schedule 3(c) (Two Pages)
Outstanding Options to Purchase Common Stock:
<TABLE>
<CAPTION>
GRANTEE NUMBER OF SHARES EXERCISE PRICE
- ------- ---------------- --------------
<S> <C> <C>
Keith Johnson 10,000 $2.25
Christina Krauss 10,000 $2.25
Lena Saben 10,000 $2.25
Lisa Parasyn 7,333 $2.25
Rhonda Bloom 2,916 $2.25
Michael Collyer 8,333 $2.25
Gilbert Spiegel 8,333 $2.25
Michael Iscove 25,000 $2.25
Kay, Col. & Boose 16,666 $2.25
Michael Levy 6,250 $3.25
Ben Lichtenberg 12,500 $3.75
Michael Dempsey 12,500 $3.75
Arthur Bernstein 83,333 $2.25
Mountaingate Prods. 166,666 $2.25
Sagax Dev. Corp. 3,333 $6.00
</TABLE>
Outstanding Warrants to Purchase Common Stock:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES EXERCISE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Various Holders 500,000 $5.50
</TABLE>
Promissory Notes Convertible Into Common Stock:
None.
Commitments to Sell and Register Common Stock:
Registration of all the Registrable Securities under the Securities Act
of 1933, as amended, requires the filing of a registration statement with the
Securities and Exchange Commission and a declaration of effectiveness of the
registration statement by the Securities and Exchange Commission.
Registration of 6,666,666 shares of Common Stock (the "Jacobson/Grosso
Shares") issued to Lawrence S. Jacobson and Salvatore Grosso (the "Holders")
pursuant to merger agreements dated
26
<PAGE> 27
September 15, 1997. Pursuant to the terms of the Registration Rights Agreement
dated between the Company and the Holders, the Company is obligated to include
the Jacobson/Grosso Shares in any registration statement filed by the Company
after June 30, 1998, other than a registration statement for a contemplated or
pending merger or acquisition of Form S-4, employee equity securities plans on
Form S-8 or other limited purpose form or any SEC successor forms thereto
pertaining to the same subject matter). Also, at any time following June 30,
1998, Messrs. Jacobson and/or Grosso may demand registration of their respective
Jacobson/Grosso Shares.
Pursuant to the terms of the Registration Rights Agreement dated July
15, 1998 between the Company and the Tom Daniels and Craig Sussman, the Company
is obligated to include the up to an aggregate of 2,688,794 shares of common
stock (the "Daniels/Sussman Shares") issued or potentially to be issued by the
Company to Messrs. Daniels and Sussman pursuant to the Merger Agreement dated
July 15, 1998 between the Company and Messrs. Daniels and Sussman in any
registration statement filed by the Company (other than a registration statement
relating solely to the sale of securities to participants in a Company stock
plan, a registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, a registration in connection
with a bona fide business acquisition of or by the Company, or a registration in
which the only Common Stock being registered is Common Stock issuable upon
conversion of debt securities which are also being registered). The Company is
required to register the Daniels/Sussman Shares in the event that a court of
competent jurisdiction determines that one or both of them was terminated
without cause in violation of their respective employment agreement with the
Company.
27
<PAGE> 28
Schedule 3(h)
The Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended March
31, 1998 was filed on February 19, 1998 and was due to be filed on February 16,
1998.
28
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July
31, 1998, by and between The Producers Entertainment Group Ltd., a corporation
organized under the laws of the State of Delaware, U.S.A., with headquarters
located at 5757 Wilshire Blvd., PH1, Los Angeles, California 90036 (the
"Company"), and the buyer set forth on the execution page hereof (the "Buyer").
RECITALS
A. In connection with the Securities Purchase Agreement by and between
the parties of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyer (i) a number of
shares of the Company's Series D Convertible Preferred Stock (the "Series D
Shares"); (ii) a number of shares of the Company's Series E Convertible
Preferred Stock (the "Series E Shares") and (iii) a number of shares of the
Company's Series F Convertible Preferred Stock (each a "Warrant" and
collectively the "Warrants") to purchase a number of shares of the Company's
common stock, $.001 par value per share ("Common Stock"). The Series D Shares
and the Series E Shares (collectively, the "Preferred Shares") are each
convertible in accordance with the terms of the Articles of Amendment (as
defined in the Securities Purchase Agreement) into Common Stock. The Common
Stock into which the Preferred Shares are convertible may be referred to herein
as the "Conversion Shares." In accordance with the terms of the Articles of
Amendment, shares of Common Stock may be issued in payment of dividends on the
Preferred Shares ("Dividend Shares").
B. The Buyer has agreed to purchase and pay for the Series D Shares,
the Series E Shares and the Warrants as provided in the Securities Purchase
Agreement. Upon each Closing (as defined in the Securities Purchase Agreement),
the Company will issue in the Buyer's name its certificate representing the
Preferred Shares, along with the Warrants, purchased at such Closing by the
Buyer.
C. To induce the Buyer to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties hereto,
the Company and the Buyer hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
<PAGE> 2
i. "Investor" or "Investors" means the Buyer and any permitted
transferee(s) or assignee(s) thereof to whom the Buyer assigns this Agreement
and who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
ii. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
iii. "Registrable Securities" means the Conversion Shares, the Warrant
Shares, the Dividend Shares (if any), shares issued pursuant to Section 2(b)
hereof (if any), and any shares of capital stock issued or issuable, from time
to time (with any adjustments) on or in exchange for or otherwise with respect
to either of the foregoing (including without limitation any shares issued
pursuant to Section 2(b) hereinafter).
iv. "Registration Statement" or "Registration Statements" means a
registration statement or statements of the Company filed under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. (i) The Company shall use its best efforts
to prepare, and, on or before the date that is thirty (30) business days after
the date of the First Closing, file with the SEC a Registration Statement or
Registration Statements (as necessary) on Form S-3 (or, if such form is
unavailable for such a registration, on such other form as is available for such
a registration of all of the Registrable Securities) (any of which may contain a
combined prospectus with other registrations by the Company), covering the
resale of all of the Registrable Securities, which Registration Statement(s), to
the extent allowable under the 1933 Act and the rules promulgated thereunder
(including without limitation Rule 416), shall state that such Registration
Statement(s) also covers such indeterminate number of additional shares (the
"Indeterminate Shares") of Common Stock as may become issuable upon conversion
of the Preferred Shares to prevent dilution resulting from stock splits, stock
dividends or similar transactions. In the event that there is no form of
Registration Statement available pursuant to which the Company may register all
of the Registrable Securities, the Company shall register all of the Registrable
Securities permitted by the SEC to be so registered pursuant to the terms and
conditions of the preceding sentence and will file a registration statement
covering the resale of the remaining Registrable Securities as soon as possible
thereafter. In any event, the Registrable Securities underlying the Preferred
Shares and Warrants issued at any Additional Closing shall be registered prior
to such Additional Closing.
(ii) To the extent the Indeterminate Shares for any reason can not be
registered under the Registration Statement(s) required under Section 2(a)(i)
above, then with respect to such Indeterminate Shares, the Company shall use its
best efforts to prepare, and, on or before the date that is fifteen (15) days
after the Indeterminate Shares become issuable, file with the SEC a Registration
Statement or Registration Statements (as necessary) on Form S-3 (or, if such
form is unavailable for such a registration, on such other form as is available
for such a registration of all
2
<PAGE> 3
of the Indeterminate Shares) (any of which may contain a combined prospectus
with other registrations by the Company), covering the resale of all of the
Indeterminate Shares.
A copy of the Registration Statement(s) (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of the Buyer, which approval
shall not be unreasonably withheld, delayed, conditioned or denied) the Buyer
and its counsel prior to its filing or other submission. If the Company has not
received comments from the Buyer with respect to the Registration Statement
within five (5) business days of Buyer's receipt thereof, the Company may
conclusively presume the Buyer has approved the form and substance of the
Registration Statement.
b. Liquidated Damages. The Company shall use its best efforts to obtain
effectiveness of the Registration Statement as soon as practicable. If (i) the
Registration Statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof is not declared effective
by the SEC within one hundred twenty (120) days after the date of the First
Closing (other than by reason of any act or failure to act in a timely manner by
the Investor or its counsel) (the "Registration Deadline") or if, after the
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to the Registration Statement (by reason of a suspension, a stop
order, the Company's failure to update the Registration Statement, or any other
reason outside the control of the Investor but not including a suspension of
trading to permit adequate dissemination of press releases), or (ii) the Common
Stock is not listed or included for quotation on either the National Association
of Securities Dealers Automated Quotation system Small Cap Market ("NASDAQ Small
Cap"), the OTC Bulletin Board Market or another United States national
securities exchange or market; then in either case (in either case, a "Delay")
the Company will make payments to the Investors, as liquidated damages and in
such amounts and at such times as shall be determined pursuant to this Section
2(b) as damages to the Investor by reason of any such delay in or reduction of
its ability to sell the Registrable Securities (which remedy shall be exclusive
of any other remedies available at law or in equity), an amount to be determined
as follows. The Company shall pay to the Investor an amount equal to the
purchase price for the Series D Shares purchased at the First Closing
(including, without limitation, any Preferred Shares that have been converted
into Conversion Shares then held by such Investors and excluding any Preferred
Shares that have been converted into Conversion Shares which have been sold or
otherwise transferred by the Investor and which the Investor does not own of
record or beneficially) (the "Aggregate Share Price") multiplied by: one and
one-half percent (1.5%) multiplied by the sum of: (i) the number of 30 day
periods beginning the day after the Registration Deadline and ending on the date
the Registration Statement is declared effective by the SEC, provided, however,
that there shall be excluded from such period any delays which are solely
attributable to changes required by the Investor in the Registration Statement
with respect to information relating to the Investor, including, without
limitation, changes to the plan of distribution; (ii) the number of 30 day
periods (prorated for partial 30 day periods) that sales cannot be made pursuant
to the Registration Statement after the Registration Statement has been declared
effective; and (iii) the number of 30 day periods (prorated for partial 30 day
periods) that the Common Stock is not listed or included for quotation on the
NASDAQ Small Cap Market, the OTC Bulletin Board Market, or another United States
national securities exchange or market after the Registration Statement has been
declared effective. Notwithstanding anything to the contrary in this Section
2(b), the failure to file a Registration Statement or any amendments or
supplements thereto when such documents otherwise would be
3
<PAGE> 4
required to be filed hereunder, or the failure to the Investor to sell its
Registrable Securities under the Registration Statement, each due to a Blackout
(as defined below), shall not constitute a default under or a breach of this
Section 2 and shall not entitle the Investor to liquidated damages.
For example, if the Registration Statement becomes effective sixty (60)
days after the end of the Registration Deadline, the Company would pay US$3,750
for each thirty (30) day period for each US$250,000 of Aggregate Share Price
until the Registration Statement becomes effective.
Such amounts shall be paid in cash or, at the Company's option such
amounts may be paid in shares of Common Stock valued at the "Conversion Price"
for the Series D Shares, as defined in the Series D Articles. Any shares of
Common Stock issued for such amounts shall be Registrable Securities. If the
Company desires to pay such amounts in shares of Common Stock it shall so notify
the Investor in writing at least two (2) business days before the date on which
such amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the mechanics set forth in the Articles of Amendment), beginning on
the last day upon which the cash amount would otherwise be due in accordance
with the following sentence. Payments of cash pursuant hereto shall be made
within five (5) days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than thirty (30)
days, interim payments shall be made for the full amount owed up to the date of
such interim payment at the end of each thirty (30) day period. At any time
after one (1) year from the date of the First Closing, upon delivery by legal
counsel for the Company to the Buyer and the Company's transfer agent a legal
opinion to the effect that the Conversion Shares may be sold without restriction
pursuant to Rule 144, and so long as the Company permits the conversion of the
Preferred Shares into Common Stock in accordance with the terms of the
Securities Purchase Agreement and the Series D Articles, liquidated damages as
called for in this paragraph shall cease and the Investor may rely upon Rule 144
for conversion of the Series D Preferred into Common Stock and subsequent sales
thereof.
c. Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans) the Company shall send to the Investor written notice of such
determination and, if within twenty (20) days after receipt of such notice, such
Investor shall so request in writing, the Company, to the extent permitted by
law, shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' reasonable good faith judgment,
marketing or other factors dictate such limitation is necessary to facilitate
public distribution, then only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
will be included in the Registration Statement; provided that no portion of the
equity securities which the Company is offering for its own account shall be
excluded; provided, further that the Company shall be entitled to exclude
Registrable Securities to the extent necessary to avoid breaching obligations
existing prior to the date hereof to other stockholders of the Company.
4
<PAGE> 5
Any exclusion of Registrable Securities shall be made pro rata among
the Investors seeking to include Registrable Securities, in proportion to the
number of Registrable Securities sought to be included by such Investors;
provided, however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such Registration
Statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, however, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights or whose registration rights existed prior
to the date hereof. No right of the Investor to registration of Registrable
Securities under this Section 2(c) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(c) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.
d. Eligibility for Form SB-2.The Company represents and warrants that
it meets the requirements for the use of Form SB-2 for registration of the sale
by the Buyer of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner. In
the event that Form SB-2 is not available for registration of the Registrable
Securities, the Company shall register the securities on another appropriate
form.
3. RELATED OBLIGATIONS. In connection with the registration of the
Registrable Securities, the Company shall have the following obligations:
a. The Company shall use its best efforts to cause such Registration
Statement(s) relating to Registrable Securities to become effective as soon as
possible after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement(s) effective pursuant to Rule 415
at all times until the earlier of (i) the date on which all of the Registrable
Securities have been sold (and no further Registrable Securities may be issued
in the future), (ii) the date as of which the Investors may immediately sell all
of the Registrable Securities without restriction pursuant to Rule 144
promulgated under the 1933 Act (or successor thereto) or otherwise, or (iii) the
date on which none of the Preferred Shares or Warrant Shares is outstanding (the
"Registration Period"), which Registration Statement(s) (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement. In the event
the number of shares available under a Registration Statement filed pursuant to
this Agreement is insufficient to cover all of the Registrable Securities issued
or issuable upon conversion of the Preferred Shares, the Company shall
5
<PAGE> 6
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover all of
the Registrable Securities, in each case, as soon as practicable, but in any
event within fifteen (15) days after the need therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement(s) promptly after the same
is prepared and filed with the SEC, (i) one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and each amendment or
supplement thereto in each case relating to such Registration Statement (other
than any portion thereof which contains information for which the Company has
sought confidential treatment); and (ii) such number of copies of a final
prospectus, and all amendments and supplements thereto and such other documents
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned (or to be owned) by such Investor.
d. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statement(s) under such
other securities or "blue sky" laws of such jurisdictions in the United States
as each Investor who holds (or has the right to hold) Registrable Securities
being offered reasonably requests, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause more than nominal expense
or burden to the Company, or (e) make any change in its charter or bylaws.
e. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company shall use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request.
f. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
g. [Intentionally omitted.]
6
<PAGE> 7
h. At the request of the Investor, but no more than three (3) times in
any one ninety (90) day period, the Company shall furnish, on the date of
effectiveness of the Registration Statement and thereafter from time to time on
such dates as the Investor may reasonably request an opinion, dated as of such
requested date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Company's transfer agent
and/or to the Investors. Such opinion shall be substantially as set forth in
Exhibit I attached hereto.
i. The Company shall make available for inspection by (i) any Investor,
(ii) any underwriter participating in any disposition pursuant to a Registration
Statement, (iii) one firm of attorneys and one firm of accountants or other
agents retained by the Investors, and (iv) one firm of attorneys retained by all
such underwriters (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector to enable each Inspector to exercise its due diligence responsibility,
and cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the release of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent jurisdiction, or
(b) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance reasonably satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3(i). Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.
j. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the release of such information is ordered pursuant to a subpoena or
other final, non-appealable order from a court or governmental body of competent
jurisdiction, or (iii) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
k. The Company shall cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration
7
<PAGE> 8
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, the Investors may reasonably request and registered in such
names as the Investors may request, all in accordance with the terms and
conditions of this Agreement. Within two (2) business days after receipt of all
documents, duly executed and in proper form, required for conversion of
Preferred Shares including the Notice of Conversion and the original certificate
representing the Preferred Shares to be converted, the Company shall deliver (at
the Company's expense) to its transfer agent instructions, accompanied by any
required opinion of counsel, that permit sales of unlegended securities in a
timely fashion that complies with then mandated securities settlement procedures
for regular way market transactions.
l. Upon the First Closing and upon each Additional Closing, the Company
shall promptly secure the listing of the Registrable Securities then underlying
the Preferred Shares and the Warrants purchased by the Buyer on the NASDAQ Small
Cap Market (or, if at such time the Common Stock trades on the OTC Bulletin
Board Market, make such Registrable Securities eligible to trade), and upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or eligible to trade (subject to official
notice of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed or eligible to trade, such listing or eligibility of
shares of Registrable Securities from time to time issued under the terms of
this Agreement and the Registration Rights Agreement. As applicable, the Company
shall at all times comply in all respects with the Company's reporting, filing
and other obligations under the by-laws or rules of the National Association of
Securities Dealers, the NASDAQ SmallCap Market or if applicable the OTC Bulletin
Board Market (and such other national securities exchange or market on which the
Common Stock may be listed or eligible to trade, as applicable).
m. The Company shall establish a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
n. The Company shall comply with all laws applicable to the filing of a
Registration Statement for the resale of the Registrable Securities, and for the
offering and sale of securities pursuant to Regulation D under the 1933 Act and
all applicable rules and regulations of governmental authorities promulgated in
connection therewith (including without limitation the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and all the rules
and regulations promulgated thereunder by the SEC).
o. The Company shall take all other reasonable actions necessary to
facilitate disposition by the Investors of Registrable Securities pursuant to a
Registration Statement.
4. OTHER OBLIGATIONS. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
a. At least fifteen (15) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor of
the information the Company requires from each such Investor if such Investor
elects to have any of such Investor's Registrable Securities included in the
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the
8
<PAGE> 9
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. Each
Investor is required to respond to the Company's written request for information
pursuant to this Section 4(a) within five (5) business days of receipt of such
written request. Failure to provide with reasonable specificity any information
reasonably requested by the Company within such five (5) business day period
shall result in a tolling of the time limits specified herein for the Company to
file the Registration Statement for a number of days equal to the number of days
beyond five (5) business days after the Investor's receipt of such written
request for information, plus ten (10) additional days.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement(s) hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority of the Registrable
Securities being registered determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor notifies the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement(s).
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement(s) covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses incurred by the Company
pursuant to Section 5 below.
f. The Investor covenants and agrees that (i) it will not offer or sell
any Registrable Securities under the Registration Statement until it has
received copies of the prospectus required to be delivered to the Investor by
the Company, as then amended or supplemented and notice from the Company that
the Registration Statement and any post-effective amendments thereto have become
effective; (ii) it will not offer or sell any Registrable Securities under the
Registration Statement upon notice by the Company of a Blackout; and (iii) the
Investor, its officers, directors and affiliates, if any, will comply with the
prospectus delivery requirements of the 1933 Act as
9
<PAGE> 10
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
g. The Investor covenants and agrees that upon written notice by the
Company (via facsimile or otherwise) to the Investor, the Investor shall, within
three (3) business days thereafter, inform the Company in writing, via facsimile
or otherwise at the Investor's option, of any change in the Investor's
beneficial ownership of Registrable Securities and shares of Common Stock of the
Company from the effective date of the Registration Statement or of the previous
request for such information, as applicable.
5. EXPENSES OF REGISTRATION. The Company agrees to pay all reasonable
expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company. If Investors who hold a majority of Registrable
Securities undertake to resell the Registrable Securities in an underwritten
public offering, the Company will reasonably cooperate as is customarily
required in an underwritten public offering. The Investors who participate in
such a public offering shall pay all expenses incurred in connection with such
registration, whether incurred by them or the Company, including without
limitation, underwriting discounts and commissions, all registration, listing
and qualification fees, printing charges, and fees and disbursements of
accountants and counsel for the Company.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend each Investor who holds such Registrable Securities, the
directors, officers and each person who controls any Investor within the meaning
of the 1933 Act or the 1934 Act, if any, and any underwriter (as defined in the
1933 Act) for the Investors, and the directors and the officers of, and each
person, if any, who controls, any such underwriter within the meaning of the
1933 Act or the 1934 Act (each, an "Indemnified Person"), against any losses,
claims, damages, liabilities or expenses (joint or several) ("Losses" and,
together with actions, proceedings or inquiries by any regulatory or self
regulatory organization, whether commenced or threatened, in respect thereof,
"Claims") to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or the omission or
alleged omission to state a material fact therein required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder each as it relates to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(d) with respect to the number of legal
counsel, the Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses
10
<PAGE> 11
are incurred and are due and payable, for any legal fees or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which reasonably results from
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to a Claim arising out of
or based upon a Violation which reasonably results from the Investor's proposed
method of distribution of the Registrable Securities that was contained in a
Registration Statement delivered to the Investor pursuant to Section 2(a) hereof
and is expressly approved by the Investor or with respect to which the Investor
did not provide a response within the time period allotted to the Investor in
Section 2(a); (iii) shall not inure to the benefit of any person if the untrue
statement or omission of the material fact contained in the prospectus was
corrected in the prospectus, as then amended or supplemented, if such corrected
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (iv) shall not be available to the extent such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the prospectus
made available by the Company or the failure of the Investor to comply with
federal or state law relating to the offering or sale of the Registrable
Securities; and (v) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld, delayed or conditioned. Such
indemnity shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner as is set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
to which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement or such Violation results from information contained in a Registration
Statement, as amended or supplemented, or any prospectus, relating to the
Investor which such Investor has not corrected within the time period allotted
to the Investor pursuant to Section 2(a) hereof, or to the extent such Claim is
based upon any violation or alleged violation by the Investor of the 1933 Act,
1934 Act or any other law; and such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld, delayed or
conditioned; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall survive the
transfer of the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect
11
<PAGE> 12
to any prospectus shall not inure to the benefit of any person if the untrue
statement or omission of material fact contained in the prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement or otherwise expressly
consented to with respect to its inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action),
such Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Party; provided, however, that an
Indemnified Party shall have the right to retain its own counsel with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Party and the indemnifying party would be
inappropriate due to an actual or potential conflict of interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates; provided, that the
Company shall have the right to approve the selection of counsel and legal fees
and expenses of such firm shall be reasonable. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any claim for indemnification by an
Indemnified Party is prohibited or is insufficient to hold such Indemnified
Party harmless for any Losses in respect to which Section 6 would apply (other
than by reason of exceptions provided in Section 6), then each indemnifying
party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party, as a result of the Losses, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and Indemnified Party in connection with the actions,
statements or omissions that resulted in the Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 7(d), any
attorney's or other fees or expenses incurred by such party in connection with
12
<PAGE> 13
any Claim to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section 7 was available to
such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7, the Investor shall not be
required to contribute, in the aggregate, any amount in excess of the proceeds
actually received by the Investor from the sale of the Registrable Securities
subject to the Claim. No person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentations.
8. REPORTS UNDER THE 1934 ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit the investors
to sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
a. if at any time the Company is not required to file reports under the
1934 Act, then the Company shall so inform the Investor in writing, and at the
request of the Investor, to make and keep public information available, as those
terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements (it being understood that nothing
herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement); and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of the 1933 Act and the 1934
Act, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested to permit the Investor to sell
such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be assignable
by the Investors to any transferee of at least 1,000 shares of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address, telephone and facsimile numbers of
such transferee or assignee, (b) the number and kind of securities with respect
to which such registration rights are being transferred or assigned, (c) the
number of shares of Common Stock of the Company owned prior to the assignment
and (d) the revisions to the current prospectus necessary to accurately reflect
all information required of the transferee or assignee; (iii) immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the 1933 Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein, (v) such transfer shall have been made in accordance with
13
<PAGE> 14
the applicable requirements of the Securities Purchase Agreement, (vi) such
transferee shall submit evidence reasonably satisfactory to the Company that the
Transferee is an "accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act; and (vii) in the event the
assignment occurs subsequent to the date of effectiveness of the Registration
Statement required to be filed pursuant to Section 2(a), the transferee agrees
to pay all reasonable expenses of amending or supplementing such Registration
Statement to reflect such assignment. Notwithstanding anything herein to the
contrary, no assignment of the rights represented by this Agreement shall be
effective unless in compliance with any applicable securities laws of any
applicable jurisdiction.
10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by registered or certified mail, return receipt
requested, or delivered personally or by courier and shall be effective five
days after being placed in the mail, if mailed, or upon receipt, if delivered
personally or by courier or facsimile, in each case properly addressed to the
party to receive such notice. The addresses for such communications shall be:
If to the Company: The Producers Entertainment Group, Ltd.
5757 Wilshire Blvd., PH1
Los Angeles, California 90036
Telephone: 213.634.8634
Facsimile: 213.634.8635
Attention: Mr. Irwin Meyer, Chairman & CEO
If to the Buyer, at the address on the signature page of the Securities
Purchase Agreement. Each party shall provide written notice to the other party
of any change in address.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in accordance
with the laws of the state of Delaware without regard to the principles of
conflict of laws. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. The Company irrevocably consents to the
jurisdiction of the state and federal courts of the state of
14
<PAGE> 15
Delaware in any suit or proceeding arising out of or based on this Agreement and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of
inconvenient forum to the maintenance of such suit or proceeding. Service of
process in any civil action relating to or arising out of this Agreement
(including also all Exhibits or Addenda hereto) or the transaction(s)
contemplated herein may be accomplished in any manner provided by law.
e. This Agreement, the Escrow Agreement, the Articles of Amendment, the
Warrants, and the Securities Purchase Agreement (including all exhibits and
addenda thereto) constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement and the other agreements previously
identified supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of the
signature page of this Agreement bearing the signature of the party so
delivering this Agreement to the Escrow Agent, with the original executed
Agreement to be delivered to the Escrow Agent via overnight delivery.
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE> 16
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT DATED
JULY 31, 1998]
COMPANY:
THE PRODUCERS ENTERTAINMENT GROUP, LTD.
By: /S/ ARTHUR BERNSTEIN
-------------------------------------
-------------------------------------
(Print Name and Title)
Attest: /S/ COLLIER MARIANO, JR.
----------------------------
Secretary
----------------------------
BUYER:
THE AUGUSTINE FUND, L.P.
By: Augustine Capital Management, Inc.,
its General Partner
By: /S/ THOMAS DUSZYNSKI
-------------------------------------
Mr. Tom Duszynski, Chief Operating
Officer
16
<PAGE> 17
EXHIBIT I TO REGISTRATION RIGHTS AGREEMENT
[DATE]
[NAME AND ADDRESS OF BUYER]
[NAME AND ADDRESS OF COMPANY'S TRANSFER AGENT]
Re: Registration of Certain Securities of The Producers
Entertainment Group, Ltd.
Ladies and Gentlemen:
We are counsel to The Producers Entertainment Group, Ltd., a Delaware
Corporation (the "Company"), whose stock is listed for trading on the NASDAQ
Small Cap Market utilizing the symbol "TPEG." We understand that [NAME OF BUYER]
(the "Holder") has purchased from the Company (a) a number of shares of the
Company's Series D Convertible Preferred Stock of The Producers Entertainment
Group, Ltd. (the "Series D Shares"), (b) a number of shares of the Company's
Series E Convertible Preferred Stock of The Producers Entertainment Group, Ltd.
(the "Series E Shares"), and (c) a number of warrants (the "Warrants") to
purchase common stock of the Company, $.001 par value per share ("Common
Stock"). The Series D Shares and the Series E Shares (collectively, the
"Preferred Shares") are each convertible in accordance with the terms of the
Articles of Amendment (as defined in the Securities Purchase Agreement, as
defined below) into Common Stock. The Warrants are exercisable into Common
Stock. The Series D Shares, Series E Shares and the Warrants were purchased
pursuant to a Securities Purchase Agreement between the Company and the Holder
dated as of July 31, 1998 (including all Exhibits and Addenda thereto, the
"Securities Purchase Agreement").
Pursuant to a Registration Rights Agreement between the Company and the
Holder dated as of July 31, 1998, the Company agreed with the Holder, among
other things, to register the Common Stock into which the Series D Shares and
the Series E Shares (and, as applicable, Common Stock issued (i) in payment of
dividends on the Preferred Shares and/or (ii) in payment of certain penalties
for late or non-registration of the said Common Stock) are convertible and the
Common Stock into which the Warrants are exercisable (collectively, the
"Registrable Securities") under the Securities Act of 1933, as amended (the
"1933 Act"), upon the terms provided in the Registration Rights Agreement. In
connection with the Company's obligations under the Registration Rights
Agreement, the Company filed a registration statement on Form S-3, No.
333-_________, on [DATE S-3 WAS FILED] (the "Registration Statement") with the
United States Securities and Exchange Commission relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder.
[OTHER INTRODUCTORY AND SCOPE OF EXAMINATION LANGUAGE TO BE INSERTED,
AS IS USUAL AND CUSTOMARY FOR SUCH OPINION LETTERS.]
Based upon the foregoing, we are of the opinion that the Registration
Statement has been declared effective by the U.S. Securities and Exchange
Commission, and that resales of the Registrable Securities has been registered
under the 1933 Act.
Very truly yours,
----------------------
17
<PAGE> 1
EXHIBIT 4.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is dated as of July 31, 1998,
by and among the undersigned Buyer (the "Buyer"), THE PRODUCERS ENTERTAINMENT
GROUP LTD., a corporation organized under the laws of the State of Delaware,
U.S.A. (the "Company"), and H. GLENN BAGWELL, JR., a duly licensed attorney who
practices law in the State of North Carolina, U.S.A., as Escrow Agent (the
"Escrow Agent").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in that Securities Purchase Agreement between the
Company and the Buyer dated of even date herewith (the "Securities Purchase
Agreement").
W I T N E S S E T H:
WHEREAS, the Buyer and the Company have entered into the Securities
Purchase Agreement, pursuant to which the Company has agreed to sell, and the
Buyer has agreed to purchase, in a closing or closings as described in the
Securities Purchase Agreement, at the First Closing, a number of Series D Shares
along with a number of Warrants (the "First Closing Securities"); at the Second
Closing, a number of Series D Shares along with a number of Warrants (the
"Second Closing Securities"); and at each Additional Closing, Series E Shares
and Warrants in amounts set forth in the Securities Purchase Agreement (the
"Additional Closing Securities," and collectively with the First Closing
Securities and the Second Closing Securities, the "Securities"); and
WHEREAS, the Buyer and the Company have agreed to effectuate the
Closings utilizing an escrow arrangement as described in this Agreement; and
WHEREAS, it is a condition of the Company's obligation to sell, and the
Buyer's obligation to purchase, the Securities, that this Agreement be executed
and delivered; and
WHEREAS, the Escrow Agent is willing to act hereunder on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth below, the parties hereto hereby agree as follows:
1. ESCROW ACCOUNT.
1.1 Deposit. On the date of the First Closing and on the date of the
Second Closing, by wire transfer of immediately available funds in United States
Dollars, Buyer shall deposit the full purchase price for the First Closing
Securities and the Second Closing Securities,
<PAGE> 2
as applicable, and on the date of each Additional Closing, by wire transfer of
immediately available funds in United States Dollars, Buyer shall deposit the
full purchase price for the Additional Closing Securities (collectively, the
"Escrow") with the Escrow Agent, to be held by the Escrow Agent in a separate
non-interest bearing account (the "Escrow Account"), established at Wachovia
Bank, N.A., in Raleigh, North Carolina U.S.A. (the "Bank"), subject to the terms
and provisions contained herein. At the request of the Company the Escrow Agent
shall provide the Company with all Bank statements, notices and other writings
which it receives from the Bank in connection with the Escrow Account.
2. DISBURSEMENT OF ESCROW/SECURITIES.
2.1 Disbursement. At each Closing, upon receipt by the Escrow Agent of
all of the moneys, documents, and things from the respective parties with
respect to such Closing as described in the Securities Purchase Agreement and as
further described in Sections 2.1(a) and 2.1(b) below, the Escrow Agent shall
deliver to each party via facsimile the documents and things (or if requested by
the parties, only the signature pages thereto) to have been delivered by the
other party in accordance with the Securities Purchase Agreement and this
Agreement. The Escrow Agent shall transfer, on the date of Closing if the
transaction is closed prior to 2:00 PM on such date, otherwise by the next
business day following each Closing, by wire transfer to the Company the full
Escrow then held, less any charges and fees agreed to be paid by the Company.
The Escrow Agent shall, upon receipt thereof, deliver (via overnight delivery
service) to the Company originals of all other documents and things listed in
Section 2.1(b) below. The Escrow Agent shall, upon receipt thereof, deliver (via
overnight delivery service) originals of all of the documents and things listed
in Section 2.1(a) below to the Buyer at the address provided in writing by the
Buyer to the Escrow Agent.
The Closings may take place via facsimile. This shall be accomplished
in the following manner. Each party shall deliver via facsimile to the Escrow
Agent, at the telecopier number provided on the signature page to this
Agreement, the first page and the fully executed signature page to each of the
documents and things to be executed by such party at the applicable Closing. If
stock certificates are to be delivered, each such certificate shall be delivered
via overnight courier to the Escrow Agent. Upon receipt by the Escrow Agent of
the Closing proceeds and the original Preferred Share certificates and Warrant
being sold at such Closing, the Escrow Agent shall wire transfer the Escrow
(less any charges and fees agreed to be paid by the Company to third parties) to
the Company. Nothing herein to the contrary notwithstanding, the Escrow Agent
shall not release the Escrow to the Company prior to taking physical possession
of the Preferred Shares and Warrants being sold at the applicable closing;
likewise, the Escrow Agent shall not release the original Preferred Shares and
Warrants being sold at such Closing prior to receipt in the Escrow Account of
the Escrow. Each party closing the transactions contemplated herein via
facsimile shall deliver via overnight courier service to the Escrow Agent
complete originals of all documents and things (as called for in Sections 2.1(a)
and 2.1(b) below) within one (1) business day after such delivery via facsimile.
Each party hereby agrees that a facsimile of each document and thing to be
delivered hereunder, once delivered to the Escrow Agent, shall be binding upon
such party in the same manner as would an original to the full extent allowed by
applicable law.
2
<PAGE> 3
(a). Items to be Delivered by the Company to the Escrow Agent.
(i) At the First Closing. On the date of the First Closing, the Company
shall deliver to the Escrow Agent, unless otherwise stated, three (3) fully
executed (by the authorized officer(s) of the Company) originals (except for the
certificates representing the Series D Shares and the Warrant) of each of the
following documents: (I) the Securities Purchase Agreement, (II) the
Registration Rights Agreement of even date herewith between the Company and the
Buyer, (III) a certificate or certificates representing the Series D Shares and
Warrants being purchased by the Buyer at the First Closing; (IV) the executed
original Legal Opinion (Exhibit F to the Securities Purchase Agreement) along
with one (1) copy thereof; and (VI) this Agreement.
(ii) At the Second Closing. On the date of the Second Closing, the
Company shall deliver to the Escrow Agent a certificate or certificates
representing the Series D Shares and Warrants being purchased by the Buyer at
the Second Closing.
(iii) At the Additional Closings. On the date of each Additional
Closing, unless otherwise instructed by the Buyer, the Company shall deliver to
the Escrow Agent on behalf of the Buyer, one (1) fully executed (by the
authorized officer(s) of the Company) original and one (1) copy of each of the
following documents: (I) the certificate(s) representing the Series E Shares and
the Warrants being purchased by the Buyer at such Additional Closing; and (II)
if specifically requested by the Buyer, a certificate executed by the officers
of the Company attesting to the continuing truth and correctness of the
Company's representations and warranties as contained in the Securities Purchase
Agreement and to the satisfaction of all conditions precedent to such Additional
Closing.
(b) Items to be Delivered by the Buyer to the Escrow Agent.
(i) At the First Closing. On or before the date of the First Closing,
the Buyer shall deliver to the Escrow Agent, unless otherwise stated, three (3)
fully executed originals of each of the following documents: (I) the Securities
Purchase Agreement, (II) the Registration Rights Agreement of even date herewith
between the Company and the Buyer, (III) this Agreement; and (IV) the full
purchase price for the Series D Preferred and the Warrant being purchased at the
First Closing, via wire transfer to the Escrow Account.
(ii) At the Second Closing and at Each Additional Closing. On the date
of the Second Closing and of each Additional Closing, the Buyer shall deliver to
the Escrow Agent (I) the full purchase price for the Securities being purchased
at the Second Closing or such Additional Closing, as applicable, and (II) if
specifically requested by the Company, a certificate executed by the Buyer
attesting to the continuing truth and correctness of the Buyer's representations
and warranties as contained in the Securities Purchase Agreement and to the
satisfaction of all conditions precedent to the Second Closing or such
Additional Closing.
2.2 Controversies. If any controversy arises between two or more of the
parties hereto, or between any of the parties hereto and any person not a party
hereto, as to whether or not or to whom the Escrow Agent shall deliver the
Escrow or any portion thereof or as to any
3
<PAGE> 4
other matter arising out of or relating to this Escrow Agreement, the Escrow
Agent shall not be required to determine the same and need not make any delivery
of the Escrow concerned or any portion thereof but may retain the same until the
rights of the parties to the dispute shall have been finally determined by
agreement or by final judgment of a court of competent jurisdiction after all
appeals have been finally determined (or the time for further appeals has
expired without an appeal having been made). The Escrow Agent shall deliver that
portion of the Escrow concerned covered by such agreement or final order within
five (5) days after the Escrow Agent receives a copy thereof. The Escrow Agent
shall assume that no such controversy has arisen unless and until it receives
written notice from the Buyer or the Company that such controversy has arisen,
which refers specifically to this Agreement and identifies the adverse claimants
to the controversy.
2.3 No Other Disbursements. No portion of the Escrow monies shall be
disbursed or otherwise transferred except in accordance with this Section 2,
Section 4 or Section 5.1(b). Without limiting the foregoing, neither Escrow
Agent nor the Buyer shall be entitled to any right of offset against the Escrow
or otherwise entitled to receive any portion of the Escrow.
3. ESCROW AGENT. The acceptance by the Escrow Agent of his duties
hereunder is subject to the following terms and conditions, which the parties to
this Agreement hereby agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Escrow Agent:
3.1 The Escrow Agent shall not be responsible or liable in any manner
whatever for the sufficiency, correctness, genuineness or validity of any cash,
investments or other amounts deposited with or held by it.
3.2 The Escrow Agent shall be protected in acting upon any written
notice, certificate, instruction, request or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
3.3 The Escrow Agent shall not be liable for any act done hereunder
except in the case of its gross negligence, willful misconduct or bad faith.
3.4 The Escrow Agent shall not be obligated or permitted to investigate
the correctness or accuracy of any document or to determine whether or not the
signatures contained in said documents are genuine or to require documentation
or evidence substantiating any such document or signature.
3.5 The Escrow Agent shall have no duties as Escrow Agent except those
which are expressly set forth herein, and in any modification or amendment
hereof; provided, however, that no such modification or amendment hereof shall
affect its duties unless it shall have given its written consent thereto. The
Escrow Agent shall not be prohibited from owning an equity interest in the
Company, the Buyer, another buyer, any of their respective subsidiaries or any
third party that is in any way affiliated with or conducts business with either
the Company, the Buyer or another buyer.
4
<PAGE> 5
3.6 The Company and the Buyer specifically acknowledge that the Escrow
Agent may have worked with the Company, the Buyer or affiliates of either of
them on other unrelated transactions, and that they and each of them has
specifically requested that the Escrow Agent draft the documents for the said
transactions and act as Escrow Agent with respect to the said transactions. Each
party represents that it has retained legal and other counsel of its choosing
with respect to the transactions contemplated herein and in the Securities
Purchase Agreement, and is satisfied in its sole discretion with the form and
content of the documentation drafted by the Escrow Agent. The Escrow Agent may
own an equity interest in the Company and/or may be an equity owner of the Buyer
or another buyer, and may increase or sell any such interest, so long as in
accordance with any and all applicable law. The said parties hereby waive any
objection to the Escrow Agent so acting based upon conflict of interest or lack
of impartiality. The Escrow Agent agrees to act impartially and in accordance
with the terms of this Agreement and with the parties' respective instructions,
so long as they are not in conflict with the terms of this Agreement.
4. TERMINATION. This Agreement shall terminate on the earlier of (a)
the date on which the Escrow and all other escrowed documents and things
described herein shall have been fully disbursed in accordance with the terms
and conditions of this Agreement, (b) any other date agreed to by the Buyer and
the Company, or (c) the date which is five (5) days after the final Additional
Closing has taken place in accordance with the terms of the Securities Purchase
Agreement, in which event the Escrow shall be disbursed in full to the Company.
5. MISCELLANEOUS.
5.1 Indemnification of Escrow Agent.
(a) The Company and the Buyer each agree, jointly and severally, to
indemnify the Escrow Agent for, and to hold him harmless against, any loss
incurred without gross negligence, willful misconduct or bad faith on the Escrow
Agent's part, arising out of or in connection with the administration of this
Agreement, including the costs and expenses of defending himself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. This indemnification shall not apply to a party with
respect to a direct claim against the Escrow Agent by such party alleging in
good faith a breach of this Agreement by the Escrow Agent, which claim results
in a final non-appealable judgment against the Escrow Agent with respect to such
claim.
(b) In the event of any dispute as to the nature of the rights or
obligations of the Buyer, the Company or the Escrow Agent hereunder, the Escrow
Agent may at any time or from time to time interplead, deposit and/or pay all or
any part of the Escrow Funds with or to a court of competent jurisdiction
sitting in Wake County, North Carolina or in any appropriate federal court, in
accordance with the procedural rules thereof. The Escrow Agent shall give notice
of such action to the Company and the Buyer. Upon such interpleader, deposit or
payment, the Escrow Agent shall immediately and automatically be relieved and
discharged from all further
5
<PAGE> 6
obligations and responsibilities hereunder, including the decision to
interplead, deposit or pay such funds.
5.2 Amendments. This Agreement may be modified or amended only by a
written instrument executed by each of the parties hereto.
5.3 Notices. All communications required or permitted to be given under
this Agreement to any party hereto shall be sent by first class mail or
facsimile to such party at the address, except in the case of the Escrow Agent,
of such party set forth in the Securities Purchase Agreement and, in the case of
the Escrow Agent, at 3005 Anderson Drive, Suite 204, Raleigh, North Carolina
U.S.A. 27609.
5.5 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Escrow Agent shall not assign its duties under this
Agreement.
5.6 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of North Carolina.
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE> 7
[SIGNATURE PAGE TO ESCROW AGREEMENT DATED JULY 31, 1998]
THE COMPANY:
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /S/ ARTHUR BERNSTEIN
-------------------------------------
Mr. Bernstein, E.V. President
---------------------------------
THE BUYER:
THE AUGUSTINE FUND, L.P.
By: Augustine Capital Management, Inc.,
a General Partner
By: /S/ THOMAS DUSZYNSKI
-------------------------------------
Mr. Tom Duszynski, Chief Operating
Officer
ESCROW AGENT:
/S/ H. GLENN BAGWELL, JR.
-----------------------------------------
H. GLENN BAGWELL, JR., ESQ.
Address: 3005 Anderson Drive, Suite 204
Raleigh, North Carolina USA 27609
Telephone 919.785.3113
Telecopier 919.785.3116
7
<PAGE> 1
EXHIBIT 4.5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
The undersigned, being the President and Secretary, respectively, of The
Producers Entertainment Group Ltd. (the "Corporation") DO HEREBY CERTIFY as
follows:
1. The name of the Corporation is The Producers Entertainment Group Ltd.
2. The Certificate of Incorporation of the Corporation is hereby amended to
effect a one (1) for three (3) reverse split of all of the Corporation's issued
common stock, par value $.001 per share (the "Common Stock"), whereby,
automatically upon the filing of this Amendment with the Secretary of State of
the State of Delaware, each three (3) issued shares of Common Stock shall be
changed into one (1) share of Common Stock, and, in that connection, to reduce
the stated capital of the Corporation.
3. In order to effectuate the amendment set forth in Paragraph 2 above:
(a) All of the Corporation's issued Common Stock, having a par value of
$.001 per share, is hereby changed into new Common Stock, having a par
value of $.001 per share, on the basis of one (1) new share of Common
Stock for each three (3) shares of Common Stock issued as of the date of
filing of the Amendment with the Secretary of State of the State of
Delaware; provided, however, that no fractional shares of Common Stock
shall be issued pursuant to such change. Each shareholder who would
otherwise be entitled to a fractional share as a result of such change
shall have only a right to receive, in lieu thereof, a cash payment
equal to the fair market value of such fractional share;
(b) The Corporation's 50,000,000 authorized shares of Common Stock,
having a par value of $.001 per share, shall not be changed;
(c) The Corporation's 20,000,000 authorized shares of preferred stock,
having a par value of $.001 per share, shall not be changed; and
(d) The Corporation's stated capital shall be reduced by an amount equal
to the aggregate par value of the shares of Common Stock issued prior to
the effectiveness of this Amendment which, as a result of the reverse
split provided for herein, are no longer issued shares of Common Stock.
4. The foregoing amendments of the Certificate of Incorporation of the
Corporation have been duly adopted by Corporation's Board of Directors and
Stockholders in accordance with the provisions of Section 242 of the Delaware
General Corporation Law.
IN WITNESS WHEREOF, the undersigned have subscribed this document on the date
set forth below.
Dated: April 28, 1998
Attest:
/S/ LAWRENCE S. JACOBSON /S/ ARTHUR BERNSTEIN
- -------------------------------- -----------------------------------------
Lawrence S. Jacobson, President Arthur Bernstein, Secretary
<PAGE> 1
EXHIBIT 4.6
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF SERIES D CONVERTIBLE PREFERRED STOCK
OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
THE PRODUCERS ENTERTAINMENT GROUP LTD., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that the following resolutions were adopted
by the Board of Directors of the Corporation (the "Board of Directors") pursuant
to authority conferred upon the Board of Directors in the Restated Certificate
of Incorporation and pursuant to the provisions of Section 151 of the Delaware
General Corporation Law:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors, in accordance with the provisions of the Certificate of
Incorporation (as amended from time to time) of the Corporation, the Board of
Directors hereby creates out of the Corporation's previously authorized
preferred stock, $.001 par value per share, of the Corporation a series of
preferred stock to consist of not more than 50,000 shares, and the Board of
Directors hereby fixes the designation and the powers, preferences and rights,
and the qualifications, limitations or restrictions of the shares of such series
as follows:
1. DESIGNATION. This resolution shall provide for a single series of
convertible preferred stock, the designation of which shall be the Series D
Convertible Preferred Stock (hereinafter the "Series D Preferred Stock") and the
number of authorized shares constituting the Series D Preferred Stock is 50,000.
The stated value of each share of Series D Preferred Stock is ten dollars
($10.00). The number of authorized shares of Series D Preferred Stock may be
reduced or increased by a further resolution duly adopted by the Board of
Directors of the Corporation and by the filing of an amendment to the
Corporation's Certificate of Incorporation pursuant to the provisions of the
General Corporation Law of the State of Delaware stating that such reduction or
increase has been so authorized.
2. VOTING. Except as expressly required by the laws of the State of
Delaware or as set forth herein, the holders of the Series D Preferred Stock
shall have no voting rights. Any corporate action that may require a vote of the
holders of the Series D Preferred Stock as a class shall be deemed to have been
approved by that class upon the affirmative vote by the holders of a majority of
the issued and outstanding Series D Preferred Stock unless a higher voting
requirement is imposed by the Delaware General Corporation Law. If any corporate
action shall require a vote of the holders of the Series D Preferred Stock other
than as a class, the Series D Preferred Stock shall vote as with the
Corporation's common stock, $.001 par value per share (the "Common Stock") as if
the Series D Preferred Stock had been fully converted three (3) business days
prior to the date of the vote.
-1-
<PAGE> 2
3. DIVIDENDS.
3.1 RATE. Holders of Series D Preferred Stock shall be
entitled to receive, out of any funds of the Corporation legally available for
that purpose, cumulative dividends from the date of issuance at the rate of $.60
per year per Preferred Share, payable quarterly (pro-rated for partial quarters)
in arrears in cash, or, at the option of the Corporation, in shares of its
Free-Trading Common Stock (as defined herein) at the applicable Conversion Rate
(as defined in Section 5.2 below), on the first day of April, July, October and
January of each year commencing October 1, 1998 (each such date being
hereinafter individually referred to as the "Dividend Payment Date" and
collectively as the "Dividend Payment Dates"). Notwithstanding the preceding
sentence, should the Corporation in its discretion determine to pay said
dividends in shares of Free Trading Common Stock, then all accumulated and
unpaid dividends shall be paid at the time of each conversion of the Series D
Preferred Stock, such that upon each conversion of the Series D Preferred Stock
by the holder thereof, the Corporation shall pay all accumulated and unpaid
dividends owed as of the date of such conversion. Each such dividend shall be
paid to the holders of record of the Series D Preferred Stock as they appear on
the books of the Corporation on the record date which shall be not less than 30
days prior to the related Dividend Payment Date. Dividends on the Series D
Preferred Stock shall be declared and paid to the extent the Corporation is
legally able to do so and shall be cumulative to the extent not declared and
paid. Holders of Series D Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
dividends as herein provided on the Series D Preferred Stock. "Free-Trading
Common Stock" shall mean shares of Common Stock that are either "restricted
securities" as defined in Rule 144 under the Securities Act of 1933 (the
"Securities Act"), but the resales of such shares have been registered under a
registration statement filed with the United States Securities and Exchange
Commission or are otherwise freely tradable without restriction.
3.2 DIVIDENDS ON COMMON STOCK. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
during any fiscal year of the Corporation unless all accumulated and unpaid
dividends and the quarterly dividend on the shares of Preferred Stock for the
then current dividend period shall have been declared and a sum sufficient for
the payment thereof set apart. No shares of Common Stock shall be purchased,
redeemed or acquired by the Corporation, and no funds shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof except (A) in transactions aggregating not more than
$100,000.00 per year, (B) in transactions resulting from a legal obligation of
the Corporation to redeem, purchase or otherwise acquire its securities arising
prior to the date hereof, or (C) pursuant to Section 5.1 herein.
4. REDEMPTION. Except as provided in Section 3.2 herein, the Series D
Preferred Stock shall not be redeemable at any time prior to September 30, 1999.
Thereafter, the Corporation, on the sole authority of its Board of Directors,
may, at its option and at any time prior to notice of conversion of the Series D
Preferred Stock by the holder thereof as hereinafter provided, redeem all or any
part of the Series D Preferred Stock at the time issued and outstanding for an
amount in cash equal to $12.00 per share plus any accumulated and unpaid
dividends. Except as provided in Section 3.2 herein, if less than all the Series
D Preferred Stock are to be redeemed, then such redemption shall be pro rata
based on the number of Series D Preferred
-2-
<PAGE> 3
Stock owned of record by each Preferred Shareholder. Written notice of
redemption stating the date and place of redemption and the amount of the
redemption price shall be mailed by the Corporation not less than 30 days nor
more than 60 days prior to the redemption date to the record holders of the
shares to be redeemed directed to their last known address as shown by the
Corporation records. If notice of redemption is given as provided above and if
on the redemption date the Corporation has set apart in trust for the purpose
sufficient funds for such redemption, then from and after the redemption date,
notwithstanding that any certificate for such shares has not been surrendered
for cancellation, the Series D Preferred Stock called for redemption shall no
longer be deemed to be outstanding and all rights with respect to such shares
shall forthwith cease and terminate, except only the right of the holders
thereof to receive the redemption price without interest upon surrender of
certificates representing the shares called for redemption. Any monies remaining
in trust after one year from the redemption date shall be returned to the
Corporation and thereafter holders of certificates for such shares shall look
only to the Corporation for the redemption price thereof. Upon conversion of any
Series D Preferred Stock called for redemption into Common Stock, then the
portion of the monies held in trust for redemption of such shares shall
forthwith be returned to the Corporation.
5. CONVERSION.
5.1 PROHIBITION AGAINST SHORT SALES. No holder of Series D
Preferred Stock shall directly or indirectly effect a short sale of the
Corporation's Common Stock for the holder's own account or for the account of a
Related Person. "Short sale" shall mean any sale of a security which the seller
does not beneficially own or any sale which is consummated by the delivery of a
security borrowed by, or for the account of, the seller, in either case whether
or not the seller is the owner of Common Stock at the time of such sale.
"Related Person" shall mean (A) any member of the holder's immediate family; (B)
any entity of which the holder is an officer, director, or holder of a position
having comparable duties or responsibilities; (C) any entity in which the holder
is the owner of an equity interest; and (D) any person which would be deemed to
be an "affiliate" of the holder as that term is defined in the Securities Act of
1933 or the rules and regulations promulgated thereunder.
5.2 CONVERSION RATE. So long as a holder of Series D Preferred
Stock is not in breach of Section 5 herein and subject to Section 5.8 herein,
such holder shall have the right, exercisable at any time after the earlier of
(i) the date on which a registration statement filed with the U.S. Securities
and Exchange Commission (the "SEC"), which registration statement covers the
Common Stock into which the Series D Preferred Stock is convertible, is declared
effective by the SEC, or (ii) the date which is 120 days from the date of
issuance of the Series D Preferred Stock being converted (the "Hold Period"),
and on or before the close of business on the second full business day preceding
the date, if any, fixed for the redemption of such shares as provided herein, to
surrender the certificate or certificates evidencing such shares and receive in
lieu and in conversion thereof, and in lieu of accumulated and unpaid dividends
thereon, that number of shares of the Corporation's Common Stock as equals
$10.00 per share of Preferred Stock tendered for conversion, plus accumulated
and unpaid dividends thereon, divided by the lesser of (A) 100% of the average
of the closing bid prices per share of the Corporation's Common Stock on the
Nasdaq Stock Market, any national securities exchange, the OTC Bulletin Board or
any other
-3-
<PAGE> 4
market on which the Common Stock is listed or eligible for trading (the "Closing
Bid Prices") for the five trading days preceding the date of purchase of the
Series D Preferred Stock by the holder; (B) 80% of the average of the Closing
Bid Prices for the five trading days preceding the date such conversion is
deemed to have been made, as subsequently defined herein; or (C) the post
adjustment exercise price per share of Common Stock purchasable pursuant to the
Repriced Warrant (defined in the next sentence). The Company issued, during the
month of June, 1996, a warrant to purchase 500,000 shares of Common Stock at a
split-adjusted exercise price equal to $5.50 per share (the "Repriced Warrant").
The Company has agreed under certain conditions to adjust the exercise price for
the Repriced Warrant, so that such exercise price may become a price below the
market price for the Common Stock at the time of such re-pricing.
5.3 MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert Series
D Preferred Stock into full shares of Common Stock, the holder thereof shall (A)
deliver or transmit by facsimile, for receipt on or prior to 5:00 p.m., New York
time (the "Conversion Notice Deadline") on the date of conversion, a copy of the
fully executed notice of conversion ("Notice of Conversion") to the Corporation
at the office of the Corporation or its designated transfer agent (the "Transfer
Agent") with a copy also delivered to the Corporation, and (B) surrender to a
common carrier for delivery to the office of the Corporation or the Transfer
Agent, the original certificates representing the Series D Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed for cancellation.
The holder of the Series D Preferred Stock shall have the right to convert fewer
than the full number of shares of Series D Preferred Stock held at any given
time.
(b) CORPORATION'S RESPONSE. Upon receipt by the
Corporation or the Transfer Agent of the Preferred Stock Certificates to be
converted pursuant to a Notice of Conversion (or an indemnification undertaking
reasonably satisfactory to the Corporation and the posting of a bond if and as
reasonably required by the Company's transfer agent with respect to such shares
in the case of their loss, theft or destruction) together with the originally
executed Notice of Conversion, the Corporation shall, within two business days
after the date of receipt (the "Deadline"), instruct the Transfer Agent to issue
and surrender to a common carrier for either overnight or (if delivery is
outside the United States) two (2) day delivery to the address as specified in
the Notice of Conversion, a certificate for the number of shares of Common Stock
to which the holder shall be entitled as aforesaid, and the Corporation shall
take all reasonable steps to ensure that the Transfer Agent has complied with
such instructions. In the case of a dispute as to the calculation of the
conversion rate, the Corporation shall promptly issue to the holder the number
of shares of Common Stock that is not disputed and shall submit the disputed
calculations to its outside accountant via facsimile within one (1) day of
receipt of such holder's Notice of Conversion. The Corporation shall cause the
accountant to perform the calculations and notify the Corporation and the holder
of the results no later than twenty-four (24) hours from the time it receives
the disputed calculations. Such accountant's calculation shall be deemed
conclusive absent manifest error. Should the Notice of Conversion specify a
smaller number of Series D Preferred Stock to be converted than are represented
by the Preferred Stock Certificate surrendered to the Corporation, then the
Corporation shall immediately issue a new Preferred
-4-
<PAGE> 5
Stock Certificate representing the number of Series D Preferred Stock not yet
converted, and deliver the same to the holder thereof along with the Common
Stock as stated above.
(c) DATE OF CONVERSION. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided (A) that the advance copy of the Notice of
Conversion is faxed to the Corporation before 5:00 p.m., New York time, on the
Date of Conversion, and (B) that the original Preferred Stock Certificates
representing the Series D Preferred Stock to be converted, together with the
originally executed Notice of Conversion, are surrendered by depositing such
certificates and Notice with a common carrier, as provided above, and received
by the Transfer Agent or the Corporation on or prior to the second (2nd)
business day following the date set forth in the Notice of Conversion. In the
event the Preferred Stock Certificates and the originally executed Notice of
Conversion are not received on or prior to the second (2nd) business day after
the date of the Notice of Conversion, the Notice of Conversion shall be deemed
null and void and no conversion of Series D Preferred Stock shall be effected
thereby. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated, as of the Date of Conversion,
for all purposes as the record holder or holders of such shares of Common Stock
on the Date of Conversion.
(d) Notwithstanding anything contained herein to the
contrary, if any action is required herein to be taken by the Corporation or the
Transfer Agent on a day which is not a business day, then such action shall be
deemed to be timely if taken on the next following business day.
5.4 OPTIONAL CONVERSION. At the option of the Corporation, if
any Series D Preferred Stock remain outstanding on June 30, 2000, then all or
any part of such Series D Preferred Stock as the Corporation elects shall be
converted in accordance with Section 5.3 as if the holders of such Series D
Preferred Stock had given the Notice of Conversion effective as of that date,
and the Date of Conversion had been fixed as of June 30, 2000 for all purposes
of Paragraph 5.3. Following notice by the Corporation to the holders, all
holders of Preferred Stock certificates shall within five (5) business days
after receipt of such notice surrender all Preferred Stock certificates, duly
endorsed for cancellation, to the Corporation or the Transfer Agent, as the
Corporation may direct. No person shall thereafter have any rights in respect of
Series D Preferred Stock, except the right to receive shares of Common Stock on
conversion thereof as provided in this Section 5.
5.5 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION.
If the Common Stock issuable upon the conversion of Series D Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a reorganization, merger, consolidation or sale of assets
provided for below), then and in each such event, the holder of each Preferred
Share shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such Series D
-5-
<PAGE> 6
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
5.6 MERGER OR OTHER TRANSACTIONS. In the event the
Corporation, at any time while any of the Series D Preferred Stock are
outstanding, shall be consolidated with or merged into any other corporation or
corporations or shall sell or lease all or substantially all of its property and
business as an entirety, then lawful provisions shall be made as part of the
terms of such consolidation, merger, sale or lease so that the holder of any
Series D Preferred Stock may thereafter receive in lieu of such Common Stock
otherwise issuable to him upon conversion of his Series D Preferred Stock, but
at the conversion rate which would otherwise be in effect at the time of
conversion, as hereinbefore provided, the same kind and amount of securities or
assets as may be issuable, distributable or payable upon such consolidation,
merger, sale or lease with respect to Common Stock of the Corporation.
5.7 FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon conversion of Series D
Preferred Stock. If more than one certificate shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. In lieu of any fractional shares
of Common Stock which would otherwise be issuable upon conversion of any shares
of Series D Preferred Stock, the number of shares of Common Stock issuable upon
conversion shall be rounded up to the nearest whole share.
5.8 RESERVATION OF COMMON SHARES. The Corporation shall at all
times reserve and keep available out of its authorized but unissued Common Stock
the number of shares of Common Stock deliverable upon conversion of all the
issued and outstanding Series D Preferred Stock and shall take such action to
obtain such permits or orders as may be necessary to enable the Corporation
lawfully to issue such Common Stock upon the conversion of the Series D
Preferred Stock.
6. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, resulting in
any distribution of its assets to its shareholders, the holders of the Series D
Preferred Stock then issued and outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to its shareholders, an
amount equal to $10.00 per Preferred Share plus any accumulated but unpaid
dividends, and no more, before any payment or distribution of the assets of the
Corporation is made to or set apart for the holders of Common Stock. If the
assets of the Corporation distributable to the holders of Series D Preferred
Stock are insufficient for the payment to them of the full preferential amount
described above, such assets shall be distributed ratably among the holders of
the Series D Preferred Stock. The holders of the Common Stock shall be entitled
to the exclusion of the holders of the Series D Preferred Stock to share in all
remaining assets of the Corporation in accordance with their respective
interests. For purposes of this paragraph, a consolidation or merger of the
Corporation with any other corporation or corporations shall not be deemed to be
a liquidation, dissolution or winding up of the Corporation. Notwithstanding
anything in these Articles of Amendment to the contrary, all shares of Series D
Preferred Stock shall (i) rank pari
-6-
<PAGE> 7
passu with the Series E Preferred Stock of the Corporation to be issued pursuant
to that certain Securities Purchase Agreement dated July __, 1998 (the "Purchase
Agreement"), (ii) shall rank senior to any class or series of capital stock of
the Corporation hereafter created (unless otherwise agreed to by a majority of
the holders of the Series D Preferred Stock then outstanding), and (iii) shall
rank junior to all of the preferred stock of the Corporation issued and
outstanding as of the date of execution of the Purchase Agreement.
7. NOTICE. Any notice required to be given to the holders of Series D
Preferred Stock or any securities issued upon conversion thereof shall be deemed
to have been given upon the earlier of personal delivery or three days after
deposit in the United States mails by registered or certified mail, return
receipt requested, with postage fully prepaid, and addressed to each holder of
record at his address as it appears on the stock transfer records of the
Corporation. Any notice to the Corporation shall be in writing and shall be
deemed to have been given only upon actual receipt thereof.
8. LEGEND. All certificates representing the Series D Preferred Stock,
all shares of Common Stock issued upon conversion thereof and any and all
securities issued in replacement thereof or in exchange therefor shall bear such
legends (or not) as shall be required by law or contract.
IN WITNESS WHEREOF, THE PRODUCERS ENTERTAINMENT GROUP LTD. has caused
this Certificate to be signed by Arthur Bernstein, its Secretary this 30th day
of July, 1998.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /S/ ARTHUR H. BERNSTEIN
-------------------------------------
Arthur H. Bernstein, Secretary
-7-
<PAGE> 1
EXHIBIT 4.7
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF SERIES E CONVERTIBLE PREFERRED STOCK
OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
THE PRODUCERS ENTERTAINMENT GROUP LTD., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that the following resolutions were adopted
by the Board of Directors of the Corporation (the "Board of Directors") pursuant
to authority conferred upon the Board of Directors in the Restated Certificate
of Incorporation and pursuant to the provisions of Section 151 of the Delaware
General Corporation Law:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors, in accordance with the provisions of the Certificate of
Incorporation (as amended from time to time) of the Corporation, the Board of
Directors hereby creates out of the Corporation's previously authorized
preferred stock, $.001 par value per share, of the Corporation a series of
preferred stock to consist of not more than 500,000 shares, and the Board of
Directors hereby fixes the designation and the powers, preferences and rights,
and the qualifications, limitations or restrictions of the shares of such series
as follows:
1. DESIGNATION. This resolution shall provide for a single series of
convertible preferred stock, the designation of which shall be the Series E
Convertible Preferred Stock (hereinafter the "Series E Preferred Stock") and the
number of authorized shares constituting the Series E Preferred Stock is
500,000. The stated value of each share of Series E Preferred Stock is ten
dollars ($10.00). The number of authorized shares of Series E Preferred Stock
may be reduced or increased by a further resolution duly adopted by the Board of
Directors of the Corporation and by the filing of an amendment to the
Corporation's Certificate of Incorporation pursuant to the provisions of the
General Corporation Law of the State of Delaware stating that such reduction or
increase has been so authorized.
2. VOTING. Except as expressly required by the laws of the State of
Delaware or as set forth herein, the holders of the Series E Preferred Stock
shall have no voting rights. Any corporate action that may require a vote of the
holders of the Series E Preferred Stock as a class shall be deemed to have been
approved by that class upon the affirmative vote by the holders of a majority of
the issued and outstanding Series E Preferred Stock unless a higher voting
requirement is imposed by the Delaware General Corporation Law. If any corporate
action shall require a vote of the holders of the Series E Preferred Stock other
than as a class, the Series E Preferred Stock shall vote as a group with the the
Corporation's Common Stock, $.001 par value per share (the "Common Stock") as if
the Series E Preferred Stock had been fully converted three (3) business days
prior to the date of the vote.
-1-
<PAGE> 2
3. DIVIDENDS.
3.1 RATE. Holders of Series E Preferred Stock shall be
entitled to receive, out of any funds of the Corporation legally available for
that purpose, cumulative dividends from the date of issuance at the rate of $.60
per year per Preferred Share, payable quarterly (pro-rated for partial quarters)
in arrears in cash, or, at the option of the Corporation, in shares of its
Free-Trading Common Stock (as defined herein) at the applicable Conversion Rate
(as defined in Section 5.2 below), on the first day of April, July, October and
January of each year commencing January 1, 1999 (each such date being
hereinafter individually referred to as the "Dividend Payment Date" and
collectively as the "Dividend Payment Dates"). Notwithstanding the preceding
sentence, should the Corporation in its discretion determine to pay said
dividends in shares of Free Trading Common Stock, then all accumulated and
unpaid dividends shall be paid at the time of each conversion of the Series E
Preferred Stock, such that upon each conversion of the Series E Preferred Stock
by the holder thereof, the Corporation shall pay all accumulated and unpaid
dividends owed as of the date of such conversion. Each such dividend shall be
paid to the holders of record of the Series E Preferred Stock as they appear on
the books of the Corporation on the record date which shall be not less than 30
days prior to the related Dividend Payment Date. Dividends on the Series E
Preferred Stock shall be declared and paid to the extent the Corporation is
legally able to do so and shall be cumulative to the extent not declared and
paid. Holders of Series E Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
dividends as herein provided on the Series E Preferred Stock. "Free-Trading
Common Stock" shall mean shares of Common Stock that are either "restricted
securities" as defined in Rule 144 under the Securities Act of 1933 (the
"Securities Act"), but the resales of such shares have been registered under a
registration statement filed with the United States Securities and Exchange
Commission or otherwise are freely tradable without restriction.
3.2 DIVIDENDS ON COMMON STOCK. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
during any fiscal year of the Corporation unless all accumulated and unpaid
dividends and the quarterly dividend on the shares of Preferred Stock for the
then current dividend period shall have been declared and a sum sufficient for
the payment thereof set apart. No shares of Common Stock shall be purchased,
redeemed or acquired by the Corporation, and no funds shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof except (A) in transactions aggregating not more than
$100,000.00 per year, (B) in transactions resulting from a legal obligation of
the Corporation to redeem, purchase or otherwise acquire its securities arising
prior to the date hereof, or (C) pursuant to Section 5.1 herein.
4. REDEMPTION. Except as provided in Section 3.2 herein, the Series E
Preferred Stock shall not be redeemable at any time prior to September 30, 2000.
Thereafter, the Corporation, on the sole authority of its Board of Directors,
may, at its option and at any time prior to notice of conversion of the Series E
Preferred Stock by the holder thereof as hereinafter provided, redeem all or any
part of the Series E Preferred Stock at the time issued and outstanding for an
amount in cash equal to $11.75 per share plus any accumulated and unpaid
dividends. Except as provided in Section 3.2 herein, if less than all the Series
E Preferred Stock are to be redeemed, then such redemption shall be pro rata
based on the number of Series E Preferred Stock
-2-
<PAGE> 3
owned of record by each Preferred Shareholder. Written notice of redemption
stating the date and place of redemption and the amount of the redemption price
shall be mailed by the Corporation not less than 30 days nor more than 60 days
prior to the redemption date to the record holders of the shares to be redeemed
directed to their last known address as shown by the Corporation records. If
notice of redemption is given as provided above and if on the redemption date
the Corporation has set apart in trust for the purpose sufficient funds for such
redemption, then from and after the redemption date, notwithstanding that any
certificate for such shares has not been surrendered for cancellation, the
Series E Preferred Stock called for redemption shall no longer be deemed to be
outstanding and all rights with respect to such shares shall forthwith cease and
terminate, except only the right of the holders thereof to receive the
redemption price without interest upon surrender of certificates representing
the shares called for redemption. Any monies remaining in trust after one year
from the redemption date shall be returned to the Corporation and thereafter
holders of certificates for such shares shall look only to the Corporation for
the redemption price thereof. Upon conversion of any Series E Preferred Stock
called for redemption into Common Stock, then the portion of the monies held in
trust for redemption of such shares shall forthwith be returned to the
Corporation.
5. CONVERSION.
5.1 PROHIBITION AGAINST SHORT SALES. No holder of Series E
Preferred Stock shall directly or indirectly effect a short sale of the
Corporation's Common Stock for the holder's own account or for the account of a
Related Person. "Short sale" shall mean any sale of a security which the seller
does not beneficially own or any sale which is consummated by the delivery of a
security borrowed by, or for the account of, the seller, in either case whether
or not the seller is the owner of Common Stock at the time of such sale.
"Related Person" shall mean (A) any member of the holder's immediate family; (B)
any entity of which the holder is an officer, director, or holder of a position
having comparable duties or responsibilities; (C) any entity in which the holder
is the owner of an equity interest; and (D) any person which would be deemed to
be an "affiliate" of the holder as that term is defined in the Securities Act of
1933 or the rules and regulations promulgated thereunder.
5.2 CONVERSION RATE. So long as a holder of Series E Preferred
Stock is not in breach of Section 5 herein and subject to Section 5.8 herein,
such holder shall have the right, exercisable at any time after issuance, and on
or before the close of business on the second full business day preceding the
date, if any, fixed for the redemption of such shares as provided herein, to
surrender the certificate or certificates evidencing such shares and receive in
lieu and in conversion thereof, and in lieu of accumulated and unpaid dividends
thereon, that number of shares of the Corporation's Common Stock as equals
$10.00 per share of Preferred Stock tendered for conversion, plus accumulated
and unpaid dividends thereon, divided by the lesser of (A) 82.5% of the average
of the closing bid prices per share of the Corporation's Common Stock on the
Nasdaq Stock Market, any national securities exchange, the OTC Bulletin Board or
any other market on which the Common Stock is listed or eligible for trading for
the five trading days preceding the date such conversion is deemed to have been
made, as subsequently defined herein; or (B) the post adjustment exercise price
per share of Common Stock purchasable pursuant to the Repriced Warrant (defined
in the next sentence). The Company issued, during the month of June,
-3-
<PAGE> 4
1996, a warrant to purchase 500,000 shares of Common Stock at a split-adjusted
exercise price equal to $5.50 per share (the "Repriced Warrant"). The Company
has agreed under certain conditions to adjust the exercise price for the
Repriced Warrant, so that such exercise price may become a price below the
market price for the Common Stock at the time of such re-pricing.
5.3 MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert Series
E Preferred Stock into full shares of Common Stock, the holder thereof shall (A)
deliver or transmit by facsimile, for receipt on or prior to 5:00 p.m., New York
time (the "Conversion Notice Deadline") on the date of conversion, a copy of the
fully executed notice of conversion ("Notice of Conversion") to the Corporation
at the office of the Corporation or its designated transfer agent (the "Transfer
Agent") with a copy delivered to the Corporation, and (B) surrender to a common
carrier for delivery to the office of the Corporation or the Transfer Agent, the
original certificates representing the Series E Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for cancellation. The holder
of the Series E Preferred Stock shall have the right to convert fewer than the
full number of shares of Series E Preferred Stock held at any given time.
(b) CORPORATION'S RESPONSE. Upon receipt by the
Corporation or the Transfer Agent of the Preferred Stock Certificates to be
converted pursuant to a Notice of Conversion (or an indemnification undertaking
reasonably satisfactory to the Corporation and the posting of a bond if and as
reasonably required by the Company's transfer agent with respect to such shares
in the case of their loss, theft or destruction) together with the originally
executed Notice of Conversion, the Corporation shall, within two business days
after the date of receipt (the "Deadline"), instruct the Transfer Agent to issue
and surrender to a common carrier for either overnight or (if delivery is
outside the United States) two (2) day delivery to the address as specified in
the Notice of Conversion, a certificate for the number of shares of Common Stock
to which the holder shall be entitled as aforesaid, and the Corporation shall
take all reasonable steps to ensure that the Transfer Agent has complied with
such instructions. In the case of a dispute as to the calculation of the
conversion rate, the Corporation shall promptly issue to the holder the number
of shares of Common Stock that is not disputed and shall submit the disputed
calculations to its outside accountant via facsimile within one (1) day of
receipt of such holder's Notice of Conversion. The Corporation shall cause the
accountant to perform the calculations and notify the Corporation and the holder
of the results no later than twenty-four (24) hours from the time it receives
the disputed calculations. Such accountant's calculation shall be deemed
conclusive absent manifest error. Should the Notice of Conversion specify a
smaller number of Series E Preferred Stock to be converted than are represented
by the Preferred Stock Certificate surrendered to the Corporation, then the
Corporation shall immediately issue a new Preferred Stock Certificate
representing the number of Series E Preferred Stock not yet converted, and
deliver the same to the holder thereof along with the Common Stock as stated
above.
(c) DATE OF CONVERSION. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided (A) that the advance copy of the Notice of
Conversion is faxed to the Corporation before 5:00 p.m., New York time, on the
Date of Conversion, and (B) that the original Preferred Stock
-4-
<PAGE> 5
Certificates representing the Series E Preferred Stock to be converted, together
with the originally executed Notice of Conversion, are surrendered by depositing
such certificates and Notice with a common carrier, as provided above, and
received by the Transfer Agent or the Corporation on or prior to the second
(2nd) business day following the date Set forth in the Notice of Conversion. In
the event the Preferred Stock Certificates and the originally executed Notice of
Conversion are not received on or prior to the second (2nd) business day after
the date of the Notice of Conversion, the Notice of Conversion shall be deemed
null and void and no conversion of Series E Preferred Stock shall be effected
thereby. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated, as of the Date of Conversion,
for all purposes as the record holder or holders of such shares of Common Stock
on the Date of Conversion.
(d) Notwithstanding anything contained herein to the
contrary, if any action is required herein to be taken by the Corporation or the
Transfer Agent on a day which is not a business day, then such action shall be
deemed to be timely if taken on the next following business day.
5.4 OPTIONAL CONVERSION. At the option of the Corporation, if
any Series E Preferred Stock remain outstanding on September 30, 2001, then all
or any part of such Series E Preferred Stock as the Corporation elects shall be
converted in accordance with Section 5.3 as if the holders of such Series E
Preferred Stock had given the Notice of Conversion effective as of that date,
and the Date of Conversion had been fixed as of September 30, 2001 for all
purposes of Paragraph 5.3. Following notice by the Corporation to the holders,
all holders of Preferred Stock certificates shall within five (5) business days
after receipt of such notice surrender all Preferred Stock certificates, duly
endorsed for cancellation, to the Corporation or the Transfer Agent, as the
Corporation may direct. No person shall thereafter have any rights in respect of
Series E Preferred Stock, except the right to receive shares of Common Stock on
conversion thereof as provided in this Section 5.
5.5 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION.
If the Common Stock issuable upon the conversion of Series E Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a reorganization, merger, consolidation or sale of assets
provided for below), then and in each such event, the holder of each Preferred
Share shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such Series E Preferred Stock might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
5.6 MERGER OR OTHER TRANSACTIONS. In the event the
Corporation, at any time while any of the Series E Preferred Stock are
outstanding, shall be consolidated with or merged into any other corporation or
corporations or shall sell or lease all or substantially all of its property and
business as an entirety, then lawful provisions shall be made as part of the
terms of such consolidation, merger, sale or lease so that the holder of any
Series E Preferred Stock may
-5-
<PAGE> 6
thereafter receive in lieu of such Common Stock otherwise issuable to him upon
conversion of his Series E Preferred Stock, but at the conversion rate which
would otherwise be in effect at the time of conversion, as hereinbefore
provided, the same kind and amount of securities or assets as may be issuable,
distributable or payable upon such consolidation, merger, sale or lease with
respect to Common Stock of the Corporation.
5.7 FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon conversion of Series E
Preferred Stock. If more than one certificate shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. In lieu of any fractional shares
of Common Stock which would otherwise be issuable upon conversion of any shares
of Series D Preferred Stock;, the number of shares issuable upon conversion
shall be rounded up to the nearest whole share.
5.8 RESERVATION OF COMMON SHARES. The Corporation shall at all
times reserve and keep available out of its authorized but unissued Common Stock
the number of shares of Common Stock deliverable upon conversion of all the
issued and outstanding Series E Preferred Stock and shall take such action to
obtain such permits or orders as may be necessary to enable the Corporation
lawfully to issue such Common Stock upon the conversion of the Series E
Preferred Stock.
6. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, resulting in
any distribution of its assets to its shareholders, the holders of the Series E
Preferred Stock then issued and outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to its shareholders, an
amount equal to $10.00 per Preferred Share plus any accumulated but unpaid
dividends, and no more, before any payment or distribution of the assets of the
Corporation is made to or set apart for the holders of Common Stock. If the
assets of the Corporation distributable to the holders of Series E Preferred
Stock are insufficient for the payment to them of the full preferential amount
described above, such assets shall be distributed ratably among the holders of
the Series E Preferred Stock. The holders of the Common Stock shall be entitled
to the exclusion of the holders of the Series E Preferred Stock to share in all
remaining assets of the Corporation in accordance with their respective
interests. For purposes of this paragraph, a consolidation or merger of the
Corporation with any other corporation or corporations shall not be deemed to be
a liquidation, dissolution or winding up of the Corporation. Notwithstanding
anything in these Articles of Amendment to the contrary, all shares of Series E
Preferred Stock shall (i) rank pari passu with the Series D Preferred Stock of
the Corporation to be issued pursuant to that certain Securities Purchase
Agreement dated July __, 1998 (the "Purchase Agreement"), (ii) shall rank senior
to any class or series of capital stock of the Corporation hereafter created
(unless otherwise agreed to by a majority of the holders of the Series E
Preferred Stock then outstanding), and (iii) shall rank junior to all of the
preferred stock of the Corporation issued and outstanding as of the date of
execution of the Purchase Agreement.
7. NOTICE. Any notice required to be given to the holders of Series E
Preferred Stock or any securities issued upon conversion thereof shall be deemed
to have been given upon the
-6-
<PAGE> 7
earlier of personal delivery or three days after deposit in the United States
mails by registered or certified mail, return receipt requested, with postage
fully prepaid, and addressed to each holder of record at his address as it
appears on the stock transfer records of the Corporation. Any notice to the
Corporation shall be in writing and shall be deemed to have been given only upon
actual receipt thereof.
8. LEGEND. All certificates representing the Series E Preferred Stock,
all shares of Common Stock issued upon conversion thereof and any and all
securities issued in replacement thereof or in exchange therefor shall bear such
legends (or not) as shall be required by law or contract.
IN WITNESS WHEREOF, THE PRODUCERS ENTERTAINMENT GROUP LTD. has caused
this Certificate to be signed by Arthur Bernstein, its Secretary this 30th day
of July, 1998.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /S/ ARTHUR H. BERNSTEIN
-------------------------------------
Arthur H. Bernstein, Secretary
-7-
<PAGE> 1
Exhibit 4.8
CERTIFICATE OF DESIGNATIONS
OF THE
SERIES F CONVERTIBLE PREFERRED STOCK
OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The Producers Entertainment Group Ltd. (the "Company"), a corporation
organized and existing under the General Corporation Law (the "GCL") of the
State of Delaware, DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors (the
"Board") in the Restated Certificate of Incorporation of the Company, and
pursuant to the provisions of Section 151 of the GCL, the Board, by unanimous
written consent dated July 27, 1998, duly adopted resolutions providing for the
designation and issuance of a series of 500,000 shares of preferred stock,
$0.001 par value per share, designated "Series F Convertible Preferred Stock"
(the "Series F Stock"). The resolutions of the Board designating the Series F
Stock read as follows:
"RESOLVED that pursuant to the authority expressly granted to
and vested in the Board of Directors of this Company in Article VII of
the Restated Certificate of Incorporation of this Company, a series of
preferred stock of the Company be and is hereby fixed and given the
distinctive designation of "Series F Convertible Preferred Stock" (the
"Series F Stock"), said Series F Stock to consist of 500,000 shares
with $0.001 par value per share, and of which the voting powers,
preferences and relative participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof,
shall be as follows:
1. DIVIDENDS.
The Series F Stock is not, and shall not be, entitled to
receive any dividends if and when declared by the Board,
whether payable in cash, property or stock.
1
<PAGE> 2
2. RIGHTS ON LIQUIDATION, DISSOLUTION AND WINDING-UP.
In the event of any liquidation, dissolution or winding up of
the Company, the holders of shares of Series F Stock shall not
be entitled to be paid anything out of the assets of the
Company available for distribution to its stockholders,
whether from capital, surplus or earnings.
3. VOTING.
The Series F Stock shall have no voting rights.
4. CONVERSION RIGHTS.
(a) OPTIONAL CONVERSION OF SERIES F STOCK.
Immediately following the issuance thereof, each share of
Series F Stock may be converted, at the option of the holder,
into one share of Common Stock of the Company upon payment of
the Conversion Price. The Conversion Price per share of Series
F Stock shall mean an amount equal to 125% of the Fair Market
Value of the common stock, $.001 par value per share, of the
Company (the "Common Stock") on the date of issuance of such
share of Series F Stock. "Fair Market Value" per share of
Common Stock at any date shall mean (i) if the Common Stock is
listed on an exchange or exchanges, or admitted for trading on
any national securities exchange, the OTC Bulletin Board or
any other market, the closing bid price of the Common Stock on
the date of issuance of the Shares of Series F Stock, or (ii)
if the Common Stock is not listed on an exchange or quoted on
the Nasdaq Stock Market, an amount determined in good faith by
the Board.
(b) TERMINATION OF RIGHTS. Upon the effective date of
the conversion of shares of Series F Stock and conditioned
upon the Company's fulfillment of its obligations set forth
below, all rights in respect of the shares being converted
(except the right to receive shares of Common Stock into which
such shares of Series F Stock are converted) shall cease and
terminate and such shares of Series F Stock shall no longer be
deemed outstanding. At any time on or after the effective date
of the conversion of shares of Series F Stock, the holder of
any shares so converted shall be entitled to receive the
number of shares of Common Stock resulting from such
conversion, upon delivery to the Company during regular
business hours, at the office of any transfer agent of the
Company for the shares being converted or at such other place
as may be designated by the Company, the certificate or
certificates for the shares of Series
2
<PAGE> 3
F Stock to be converted, duly endorsed or assigned in blank to
the Company (if required by it), accompanied by written notice
stating the name or names (with address) to be set forth on
the certificate or certificates for the shares of Common Stock
to be issued. As promptly as practicable thereafter (but in
any event within three business days), the Company shall issue
and deliver to or upon the written order of such holder, to
the place designated by such holder, a certificate or
certificates for the number of shares to which such holder is
entitled as a result of such conversion, and a certificate
representing any shares of Series F Stock which were
represented by the certificate or certificates delivered to
the Company in connection with such conversion but which were
not converted. The person or persons whose names appear on the
certificate or certificates for shares to be issued shall each
be deemed to have become a stockholder of record on the
effective date of such conversion unless the transfer books of
the Company are closed on that date, in which event each such
holder shall deemed to have become a stockholder of record on
the next succeeding date on which the transfer books are open.
(c) NOTICE OF CONVERSION. Holders of Series F Stock
electing to convert their shares shall deliver a written
notice of such election to the Company on or prior to the
effective date of such conversion. All notices of conversion
required to be given hereunder to the Company by the
stockholders shall set forth the number of shares being
converted, the effective date of such conversion, and shall be
delivered by first class, deemed to have been duly given if
sent by registered certified mail postage prepaid and return
receipt requested. Such notice shall be deemed delivered when
deposited, postage and fees prepaid, by overnight service with
a nationally recognized "next day" delivery company such as
Federal Express or United Parcel Sevice, by facsimile
transmission, or otherwise actually delivered to the Company,
provided that any Notice sent by registered or certified mail
shall be deemed to have been duly given two business days from
the date of deposit in the United States mails, unless sooner
received and any notice sent by overnight service as provided
above shall be deemed to have been duly given the next
business day from the date of deposit with the service.
(d) MANDATORY REDEMPTION. Notwithstanding any other
provision set forth herein, all shares of Series F Stock that
have not been converted and are outstanding on the day after
the date that is three years from the date of issuance of such
shares of Series F Stock (the "Unconverted Stock"), shall
automatically be canceled and deemed redeemed back to the
Company and the holder of such
3
<PAGE> 4
shares of Unconverted Stock shall receive, from the Company,
the total of the par value price per share ($0.001) MULTIPLIED
BY the aggregate number of shares of Unconverted Stock.
(e) TRANSFER TAXES. The Company shall pay all
documentary, stamp or other transactional taxes attributable
to the issuance or delivery of shares of Common Stock of the
Company upon conversion of any shares of Series F Stock;
provided, however, that the Company shall not be required to
pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for
such shares in a name other than that of the holder of the
shares of Series F Stock in respect of which such shares are
being issued.
(f) RESERVE SHARES. The Company shall reserve, free
from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting
the conversion of the shares of Series F Stock, a sufficient
number of shares of Common Stock to provide for the conversion
of all outstanding shares of Series F Stock.
(g) VALIDLY ISSUED SHARES. All shares of Common Stock
which may be issued in connection with the conversion
provisions set forth herein will, upon issuance by the
Company, be validly issued, fully paid and nonassessable, and
free from all taxes, liens or charges with respect thereto.
5. ADJUSTMENTS.
(a) STOCK SPLITS AND COMBINATIONS. If the Company at
any time or from time-to-time, fixes a record date for a
split, stock dividend or subdivision of the outstanding shares
of Common Stock, then, following such record date (or the date
of such split, stock dividend or subdivision if no record date
is fixed), the Series F Stock shall be appropriately adjusted
so that the number of shares of Common Stock issuable on
conversion of each share of Series F Stock shall be increased
in proportion to such increase in the number of outstanding
shares of Common Stock. If the number of shares of Common
Stock outstanding at any time, is decreased by a combination
of the outstanding shares of Common Stock then, following the
record date of such combination, the Series F Stock shall be
appropriately adjusted so that the number of shares of Common
Stock issuable on conversion of each share of Series F Stock
shall be decreased in proportion to such decrease in the
number of outstanding shares of Common Stock.
4
<PAGE> 5
(b) MERGER, CONSOLIDATION OR SALE. In case of any
consolidation of the Company with or any merger of the Company
with or into another corporation (other than a consolidation
or merger in which the Company is the continuing corporation)
or in case of any sale or transfer to another corporation of
the property of the Company as an entirety or substantially as
an entirety, any holder of Series F Stock may, by written
notice to the Company, elect to have each share of Series F
Stock held by such holder treated for all purposes as if it
had been converted into Common Stock on the earlier of (i) the
record date, if any, for the voting by holders of Common Stock
on such event and (ii) the date of such event.
(c) RECAPITALIZATION. If at any time or from
time-to-time, there shall be a recapitalization of the Common
Stock (other than a dividend, subdivisions, combination,
merger or a sale of assets provided for elsewhere in this
Section 5), provisions shall be made so that the holders of
Series F Stock shall thereafter be entitled to receive on
conversion of shares of Series F Stock the number of shares of
stock or other securities or property of the Company or
otherwise, to which a holder of the number of shares of Common
Stock deliverable on such conversion would have been entitled
on such recapitalization. In any such case, appropriate
adjustment shall be made in this application of the provisions
of this Section 5 with respect to the rights of the holders of
Series F Stock after the recapitalization to the end that the
provisions of this Section 5 shall be applicable after that
event as nearly equivalent as may be practicable.
(d) SUCCESSIVE CHANGES. The above provisions of this
Section 5 shall similarly apply to successive subdivisions,
combinations or recapitalization of the Common Stock and
successive mergers, consolidations or sales of the Company or
any successor thereof.
6. PREEMPTIVE RIGHTS.
The holders of Series F Stock shall not have any
preemptive right to subscribe for any additional shares of any
class of stock of the Company, now or hereafter authorized, or
for any issue of bonds, notes or other securities convertible
into any class of stock of the Company.
5
<PAGE> 6
7. LIMITATIONS.
(a) So long as any shares of Series F Stock are
outstanding, the Company shall not, without the affirmative
vote or the written consent as provided by law, of the holders
of at least a majority of the outstanding shares of such
series, voting as a class, change the rights, preferences,
privileges or restrictions with respect to such series in any
material respect prejudicial to the holders thereof.
(b) The provisions of this Section 7 shall not in any
way limit the right and power of the Company to issue bonds,
notes, mortgages, debentures and other obligations, and to
incur indebtedness to banks and to other lenders."
IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed by Arthur Bernstein, its Secretary, as of the 30th day of July 1998.
The Producers Entertainment Group Ltd.
By: /S/ ARTHUR H. BERNSTEIN
--------------------------
Arthur H. Bernstein, Secretary
<PAGE> 1
[TROOP STEUBER PASICH REDDICK & TOBEY, LLP LETTERHEAD]
August 31, 1998
The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse One
Los Angeles, California 90036
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(the Registration Statement") to which this letter is attached as Exhibit 5.1
filed by The Producers Entertainment Group Ltd., a Delaware corporation (the
"Company"), in order to register under the Securities Act of 1933, as amended
(the "Act), (i) up to 1,250,000 shares of the Common Stock, par value $0.001 per
share (the "Shares"), of certain selling stockholders (the "Selling
Stockholders") issuable pursuant to that certain securities purchase agreement
between the Company and a selling stockholder dated July 31, 1998 (the
"Securities Purchase Agreement"), and (ii) 20,000 shares of the Common Stock,
par value $0.001 per share (the "Warrant Shares"), issuable pursuant to the
exercise of certain warrants (the "Warrants").
We are of the opinion that:
1. The Shares have been duly authorized and, upon issuance and sale in
conformity with and pursuant to the Securities Purchase Agreement, will be
legally and validly issued, fully paid and non-assessable.
2. The Warrant Shares have been duly authorized and, upon issuance and
sale in conformity with and pursuant to the terms of the Warrants, will be
legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters."
Respectfully submitted,
/S/ TROOP STEUBER PASICH REDDICK & TOBEY, LLP
TROOP STEUBER PASICH
REDDICK & TOBEY, LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
The Producers Entertainment Group Ltd. on Form S-3 of our report dated
September 17, 1997 on our audits of the financial statements of The Producers
Entertainment Group Ltd. and Subsidiaries as of June 30, 1997.
/s/ KELLOGG & ANDELSON
Kellogg & Andelson
Sherman Oaks, California
August 28, 1998
