<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 16, 1998
THE PRODUCERS ENTERTAINMENT GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-18410 95-4233050
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
5757 WILSHIRE BOULEVARD
PENTHOUSE ONE
LOS ANGELES, CALIFORNIA 90036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(213) 634-8634
(REGISTRANT'S TELEPHONE NUMBER)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the terms of an Agreement of Merger (the "Agreement")
dated as of July 15, 1998, The Producers Entertainment Group Ltd., a Delaware
corporation ("Registrant" or the "Company") has acquired all of the issued and
outstanding stock of MWI Distribution, Inc., a California corporation ("MWI"),
from Tom Daniels and Craig Sussman (collectively, the "Stockholders"), the sole
stockholders of MWI. MWI merged with and into TPEG Merger Company, a California
corporation ("MergerCo"), a wholly owned subsidiary of the Company. MWI will be
dissolved and MergerCo will continue as the surviving corporation. The
consideration paid at closing to the Stockholders by the Company was 763,889
shares of the Company's Common Stock, $.001 par value per share (the "Common
Stock"). The Company may have to pay additional consideration, in the form of
Common Stock, to the Stockholders, which payments are contingent upon the
performance of MergerCo for the fiscal years ended June 30, 1999, June 30, 2000,
June 30, 2001 and June 30, 2002, respectively. The Stockholders also shall
receive up to an additional 109,428 shares of Common Stock if the Common Stock
Average Price, as defined in the Agreement, does not equal or exceed $3.80 per
share between July 15, 1998 and June 30, 1999.
The Agreement was negotiated at arms' length between the Registrant and the
Stockholders. The merger consideration reflected, among other things, the value
which the Registrant placed upon MWI in light of the value of MWI's various
distribution contracts, as well as the likely synergies which management of the
Registrant and MWI believed could be achieved by the combination of business
accomplished by the merger.
In accordance with the Agreement, Messrs. Daniels and Sussman have entered
into substantially identical employment agreements with MergerCo for a period of
five years (the "Employment Agreements"), which are filed herewith.
Reference is also made to the press release of the Registrant, issued on
July 16, 1998, which contains information regarding the acquisition and which
is incorporated herein by this reference. A copy of the press release is
attached to this Form 8-K as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
To be included by amendment to this Form 8-K are audited financial
statements of MWI for its fiscal year ended December 31, 1997.
(b) PRO FORMA FINANCIAL INFORMATION
To be included by amendment to this Form 8-K are a pro forma condensed
balance sheet and statement of operations of the Registrant for the fiscal year
ended June 30, 1998.
<PAGE>
(c) EXHIBITS
Included as part of this Form 8-K are the exhibits listed on the Exhibit
Index appearing on page 5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
July 31, 1998 THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /s/ ARTHUR BERNSTEIN
------------------------------
Arthur Bernstein
Secretary
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
2.1 Agreement of Merger dated as of July 15, 1998, by and among The
Producers Entertainment Group Ltd., TPEG Merger Company, MWI
Distribution, Inc. and Tom Daniels and Craig Sussman.
10.1 Employment Agreement dated as of July 15, 1998, by and among TPEG Merger
Company and Thomas Daniels.
10.2 Employment Agreement dated as of July 15, 1998, by and among TPEG Merger
Company and Craig Sussman.
10.3 Escrow Instructions dated as of July 15, 1998, by and among The Producers
Entertainment Group Ltd., Tom Daniels, Craig Sussman, and OTR, Inc.
10.4 Registration Rights Agreement dated as of July 15, 1998, by and among
The Producers Entertainment Group Ltd., Tom Daniels, and Craig Sussman.
99.1 Press Release dated July 16, 1998.
</TABLE>
<PAGE>
Exhibit 2.1
AGREEMENT OF MERGER
This Agreement of Merger (the "AGREEMENT") is made and entered into as of
July 15, 1998, by and among The Producers Entertainment Group Ltd., a Delaware
corporation ("PARENT"), TPEG Merger Company, a California corporation
("MERGERCO"), MWI Distribution, Inc., a California corporation doing business as
MediaWorks International (the "COMPANY") and Tom Daniels and Craig Sussman (each
individually, a "STOCKHOLDER" and collectively, the "STOCKHOLDERS").
R E C I T A L S
A. Parent owns of record and beneficially all of the issued and outstanding
shares of capital stock of Merger Co and the Stockholders own of record and
beneficially all of the issued and outstanding capital stock of the Company.
B. The Company and Parent jointly desire that Parent acquire all of the
issued and outstanding stock of the Company. The parties have determined that
the most expeditious manner of accomplishing such acquisition would be the
merger of the Company with and into MergerCo (the "MERGER").
C. It is the intent of the Company and the Stockholders that this Merger
qualify as a tax-free reorganization under the provisions of the Internal
Revenue Code section 368(a)(2)(D).
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing premises, and mutual
covenants and agreements hereinafter set forth, the parties to this Agreement
hereby agree as follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, terms defined in the preamble and recitals
hereto shall have the respective meanings specified therein and the following
terms shall have the meanings set forth below:
1.1 "AFFILIATE" means, when used with reference to a specified Person,
any Person that directly or indirectly through one or more intermediaries
controls or is controlled by, or is under common control with, the specified
Person. For purposes of the preceding sentence, the term "CONTROL" means the
power, direct and indirect, to direct or cause the direction of the management
and policies of a Person through voting securities, contract or otherwise.
1
<PAGE>
1.2 "AGREEMENT" means this Agreement of Merger including all Exhibits
and Schedules hereto.
1.3 "ANCILLARY AGREEMENTS" means the Agreement of Merger, the Escrow
Instructions, the Tax Certificate, the Guaranty and the Employment Agreements.
1.4 "CLOSING STOCK" shall mean that number of shares, up to a maximum
of 1,203,704, of Parent Common Stock which is comprised of the maximum number of
shares of Net Worth Stock and the maximum number of shares of Escrow Stock.
1.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "COMPANY" shall have the meaning set forth in the preamble hereto.
1.7 "COMPANY STOCK" shall mean the common stock, no par value, of the
Company.
1.8 "CONTINGENT CONVERSION PRICE" shall mean, for any particular
determination of the number of Contingent Shares constituting any particular
Contingent Payment, the greater of: (i) the Parent Common Stock Average Price
immediately prior to the end of the fiscal year relating to the particular
Contingent Payment, or (ii) the Minimum Contingent Share Price.
1.9 "CONTINGENT PAYMENTS" shall mean Contingent Payment No.1,
Contingent Payment No. 2, Contingent Payment No. 3 and Contingent Payment No. 4,
collectively.
1.10 [INTENTIONALLY DELETED]
1.11 "CONTINGENT SHARES" shall mean up to an aggregate of 1,375,662
shares of Series B Preferred Stock and Parent Common Stock the actual number of
which shall be determined by dividing $3,250,000 by the Contingent Conversion
Price.
1.12 "DATE OF DETERMINATION" means any date on which the Stockholders
become entitled to receive an Escrow Stock Payment.
1.13 "ESCROW AGENT" shall mean that agent as designated in the Escrow
Instructions.
1.14 "ESCROW STOCK" shall mean a number of shares of Parent Common
Stock as shall be determined by dividing (A) the product of (i) Net Distribution
Fees Receivable multiplied by (ii) 2.75, by (B) the Minimum Share Price, up to a
maximum of 439,815 shares of Parent Common Stock.
1.15 "ESCROW STOCK PAYMENT" shall means any payment of shares of Escrow
Stock pursuant to this Agreement and the Escrow Instructions.
2
<PAGE>
1.16 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1.17 "GAAP" shall mean generally accepted accounting principles.
1.18 "GCL" shall mean the General Corporation Law of the State of
California.
1.19 "LEGEND" shall mean any stock legends required by sections 417 and
418 of the GCL and the restrictive stock legend in substantially the following
form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
1.20 "MATERIAL ADVERSE EFFECT" means with respect to any Person and its
Subsidiaries, an effect which is materially adverse to the business, properties,
assets, revenues, operations, financial condition or results of operations of
such Person and its Subsidiaries, taken as a whole.
1.21 "MINIMUM CONTINGENT SHARE PRICE" shall mean $2.3625 per share.
1.22 "MINIMUM SHARE PRICE" shall mean $2.70 per share.
1.23 "NET DISTRIBUTION FEES RECEIVABLE" shall mean the aggregate dollar
amount as determined on the Closing Date of: (A) the sum of all of the
commissions and distribution fees due to the Company by third parties for
broadcast, video, co-production and other sales and services, pursuant to an
enforceable written agreement identified on SCHEDULE 1.23 hereto, and (B) the
Pending Projects Value.
1.24 "NET WORTH STOCK" shall mean 763,889 shares of Parent Common
Stock.
1.25 "PARENT COMMON STOCK" shall mean the common stock, par value
$0.001 per share, of Parent.
1.26 "PARENT COMMON STOCK AVERAGE PRICE" shall mean the average of the
closing bid and asked prices of Parent Common Stock on the Nasdaq SmallCap
Market during a particular thirty (30) consecutive trading days period.
3
<PAGE>
1.27 "PENDING PROJECTS" shall mean all projects which the Company has
identified in SCHEDULE 1.27 attached hereto so long as each such project is
evidenced by an enforceable fully executed and delivered written agreement no
later than September 30, 1998.
1.28 "PENDING PROJECTS VALUE" shall mean the aggregate dollar amount,
as determined on the Closing Date and set forth on SCHEDULE 1.28, of all of the
commissions and distribution fees due to the Company by third parties for the
Pending Projects.
1.29 "PERSON" includes an individual, partnership, limited liability
company, limited liability partnership, trust, estate, corporation, joint
venture, unincorporated association, group (as defined in Sections 13(d)(3) or
14(d)(2)of the Exchange Act) government bureau or agency or other entity of
whatsoever kind or nature.
1.30 "PRE-TAX NET INCOME" shall be equal, subject to the provisions set
forth on SCHEDULE 1.30, to: (i) pre-tax net income calculated according to GAAP;
PLUS (ii) the dollar amount of bonuses to the Stockholders for such period which
shall be added back in; MINUS (iii) the aggregate dollar amount of Escrow Stock
received for such period (which aggregate dollar amount shall be equal to the
product of the number of shares of Escrow Stock received by the Stockholders in
such period MULTIPLIED by $0.9818). Pre-Tax Net Income shall be determined in
the sole and absolute discretion of the Parent's independent auditors. Nothing
herein shall affect the Stockholders' ability to challenge the independent
auditor's determination. The Stockholders, in accordance with ordinary business
practices, shall in their capacity as officers and directors of the Surviving
Corporation, participate in, and be actively involved with assisting the
auditors and the audit process.
1.31 "SECURITIES ACT" means the Securities Act of 1933, as amended.
1.32 "SEC" means the Securities and Exchange Commission.
1.33 "SERIES B PREFERRED STOCK" shall mean up to a maximum of 1,375,662
shares of the preferred stock of Parent, par value $0.001 per share, designated
"Series B Convertible Preferred Stock" which number is equal to $3,250,000
divided by the Minimum Contingent Share Price. However, the number of shares of
Series B Convertible Preferred Stock shall be reduced and replaced with shares
of Parent Common Stock so that in accordance with Section 2.5.4 below, the
Stockholders receive up to 19.99% of all shares of Parent Common Stock issued
and outstanding as of the Effective Time. Such Series B Preferred Stock shall
have such rights, powers, privileges and preferences as set forth in the
Certificate of Designations of the Series B Convertible Preferred Stock, a copy
of which is attached hereto as EXHIBIT 1.33 and incorporated herein by this
reference.
4
<PAGE>
1.34 "SUBSIDIARY" of any Person means any other Person, 10% or more of
the equity securities of which are, at the time as of which such determination
is being made, owned by the particular Person either directly or indirectly
through one or more other Subsidiaries.
1.35 [INTENTIONALLY DELETED]
1.36 The following terms are defined in the following sections of this
Agreement:
<TABLE>
<CAPTION>
DEFINED TERM WHERE FOUND
------------- ------------
<S> <C>
Acquisition Proposal Section 6.7
Additional Parent Common Stock Section 2.5.5
Agreement of Merger Section 2.3
Applicable Conversion Price Section 9.1.5
Arbitrator Article 11
Audited Financial Statements Section 9.10
Benefit Plans Section 4.12.1
Business Plan Section 9.3
California Filings Section 2.3
California Secretary of State Section 2.3
CERCLA Section 4.23
Certificates Section 2.8
Change in Control Exhibit 2.5.4(f)
Claims Section 4A.2
Closing Article 3
Closing Date Article 3
Company Preamble
Company Organizational Documents Section 4.1
Constituent Corporations Section 2.1
Damages Section 9.1.1
Disclosure Schedule Article 4
Effective Time Section 2.3
Environmental Laws Section 4.23
ERISA, ERISA Affiliate Section 4.12.1
Escrow Section 7.7
Escrow Instructions Section 7.7
Excess Variance Section 9.10
Executive Management Committee Section 9.2
Hazardous Substances, Hazardous
Wastes, Hazardous Materials,
Pollutants, Solid Wastes,
Contaminants and Toxic Substances Section 4.23
Indemnified Liabilities Section 9.1.5
Indemnified Party Section 9.1.1
Indemnifying Party Section 9.1.1
JAMS Article 11
5
<PAGE>
<S> <C>
Investment Letter Section 7.8
Liabilities Section 4.7
Material Contracts Section 4.11
Maximum Consideration Section 2.5
Merger Section 2.1
MergerCo Preamble
National Geographic Arbitration Section 2.5.6.3
National Geographic Proceeds Section 2.5.6.3
Notices Section 12.1
Order Section 7.5
Parent Preamble
Parent Stock Section 9.1.5
Permits Section 4.23
Permitted Variance Section 9.10
Plan Section 4.12.1
Properties Section 4.11
Related Party Section 4.15.1
Significant Employee Section 4.13.9
Stockholder(s) Preamble
Surviving Corporation Section 2.1
Taxes, Tax Returns Section 4.14.1
Tax Certificate Section 2.3
Third Party Claim Section 9.1.1
Unaudited Financial Statements Section 4.6
</TABLE>
ARTICLE 2.
THE MERGER
2.1 THE MERGER. On the terms and subject to the conditions set forth
in this Agreement, at the Effective Time, in accordance with this Agreement and
the GCL, the Company shall merge with and into MergerCo, the separate existence
of the Company shall cease and MergerCo shall continue as the surviving
corporation. MergerCo, in its capacity as the entity surviving the Merger, is
sometimes referred to herein as the "SURVIVING CORPORATION" and MergerCo and the
Company are sometimes referred to collectively herein as the "CONSTITUENT
CORPORATIONS."
2.2 EFFECT OF THE MERGER. At the Effective Time, the identity and
separate existence of the Company shall cease and the Surviving Corporation
shall succeed, without other transfer, to all of the rights, privileges,
immunities, powers, franchises and authority, whether of a public or private
nature, and be subject to all restrictions, disabilities and duties, of each of
the Constituent Corporations, and all the rights, privileges, immunities,
powers, franchises and authority of each of the Constituent Corporations, and
all assets and properties of every
6
<PAGE>
description, real, personal and mixed, and every interest therein, wherever
located, and all debts, liabilities and other obligations belonging or due to
either of the Constituent Corporations on whatever account, as well as stock
subscriptions and all other things in action belonging or due to each of the
Constituent Corporations, shall be vested in the Surviving Corporation, and
all property rights, privileges, immunities, powers, franchises and
authority, and all and every other interest, shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate or interest
therein vested in either Constituent Corporation shall not revert or be in
any way impaired by reason of the Merger but all rights of creditors and all
liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and the Surviving Corporation shall be liable for the
debts, liabilities and other obligations of each of the Constituent
Corporations, and any claims existing or action or proceeding pending, by or
against either of the Constituent Corporations may be prosecuted to judgment
with right of appeal, as if the Merger had not taken place. Additionally, if
and when the Closing occurs, at the Effective Time, the joint venture between
the Parent and the Company shall terminate without any further action
required by any of the parties thereto.
2.3 FILINGS. On the Closing Date, MergerCo and the Company shall
cause the Merger to be consummated by executing, delivering and filing with the
Secretary of State of the State of California (the "CALIFORNIA SECRETARY OF
STATE") the agreement of merger, substantially in the form attached hereto as
EXHIBIT 2.3 (the "AGREEMENT OF MERGER") and an appropriate tax clearance
certificate of the California Franchise Tax Board (the "TAX CERTIFICATE") (the
Agreement of Merger and the Tax Certificate are collectively referred to as the
"CALIFORNIA FILINGS"). The Parties shall on the Closing Date file such other
documents with the California Secretary of State as may be required by the
provisions of the GCL and as are necessary to cause the Merger to become
effective. The Merger shall become effective when the California Filings are so
filed and approved by the California Secretary of State. The time at which the
Merger becomes effective is herein referred to as the "EFFECTIVE TIME."
2.4 CHARTER DOCUMENTS, BY-LAWS AND DIRECTORS.
2.4.1 From and after the Effective Time, the Articles of
Incorporation in the form attached hereto as EXHIBIT 2.4.1 shall be the Articles
of Incorporation of the Surviving Corporation, and shall thereafter continue in
effect until amended as provided therein and in accordance with the GCL.
2.4.2 From and after the Effective Time, the By-Laws in the form
attached hereto as EXHIBIT 2.4.2 shall be the By-Laws of the Surviving
Corporation, and shall thereafter continue in effect until amended as provided
therein and in accordance with the GCL.
2.4.3 At the Effective Time, each of the members of the Board of
Directors of the Company and its Subsidiaries shall resign and, concurrently
with such resignation, persons designated by the Parent, as the sole shareholder
of the Surviving Corporation, shall be appointed
7
<PAGE>
the directors and officers of the Surviving Corporation, and the Surviving
Corporation's Subsidiaries, to serve in accordance with the by-laws of the
Surviving Corporation, in the case of each such director or officer, until
his successor is duly elected or appointed and qualified or until his earlier
death, resignation or removal in accordance with the by-laws of the Surviving
Corporation. Parent shall, at the Effective Time, appoint each of the
Stockholders as a director of the Surviving Corporation. Parent shall use
its best efforts to ensure that each Stockholder is elected as a director of
the Surviving Corporation so long as he is employed by the Surviving
Corporation.
2.5 CONSIDERATION FOR MERGER. The maximum aggregate consideration to
be paid by the Parent to the Stockholders for all of the outstanding shares of
Company Stock shall not exceed the sum of (a) the maximum number of shares of
Closing Stock PLUS (b) the maximum number of shares of Contingent Shares (the
"MAXIMUM CONSIDERATION"), issuable as follows:
2.5.1 NET WORTH STOCK AT CLOSING. At the Closing the Parent
shall cause its transfer agent to issue and deliver to the Stockholders the Net
Worth Stock.
2.5.2 [INTENTIONALLY DELETED]
2.5.3 ESCROW STOCK AT CLOSING. At the Closing, the Parent shall
cause its transfer agent to issue in the name of the Stockholders and deliver to
the Escrow Agent, pursuant to the terms of the Escrow Instructions, all 439,815
shares of the Escrow Stock. The Escrow Agent shall deliver the Escrow Stock in
accordance with the terms of the Escrow Instructions.
2.5.4 CONTINGENT STOCK PAYMENTS.
(a) In addition to the payments described above, the Parent
shall pay the Stockholders the Contingent Shares payable as follows:
2.5.4.1 A number of Contingent Shares determined by
dividing Eight Hundred and Fifty Thousand Dollars ($850,000) by the Contingent
Conversion Price ("CONTINGENT PAYMENT NO. 1") if the Surviving Corporation earns
Pre-Tax Net Income of Seven Hundred and Fifty Thousand Dollars ($750,000) for
the fiscal year ended June 30, 1999; and
2.5.4.2 A number of Contingent Shares determined by
dividing One Million One Hundred and Fifty Thousand Dollars ($1,150,000) by the
Contingent Conversion Price ("CONTINGENT PAYMENT NO. 2") if the Surviving
Corporation earns Pre-Tax Net Income of Nine Hundred Thousand Dollars ($900,000)
for the fiscal year ended June 30, 2000; and
2.5.4.3 The balance of the Contingent Shares
("CONTINGENT PAYMENT NO. 3") if the Surviving Corporation earns Pre-Tax Net
Income of One Million One Hundred Thousand Dollars ($1,100,000) for the fiscal
year ended June 30, 2001; and
8
<PAGE>
2.5.4.4 Notwithstanding SECTION 2.5.4(c), any
Contingent Shares that have not been delivered pursuant to SECTIONS 2.5.4.1,
2.5.4.2 and 2.5.4.3 ("CONTINGENT PAYMENT NO. 4") if the Surviving Corporation
(i) achieves an average Pre-Tax Net Income of Five Hundred Thousand Dollars
($500,000) for the fiscal years ended June 30, 1999, 2000 and 2001 and (ii)
earns Pre-Tax Net Income of One Million Three Hundred and Twenty Five Thousand
Dollars ($1,325,000) for the fiscal year ended June 30, 2002.
(b) Notwithstanding anything to the contrary contained in
this SECTION 2.5.4, the Stockholders shall receive their PRO RATA portion of
the respective Contingent Shares in the applicable period so long as the
actual Pre-Tax Net Income for such period is within seventy five percent
(75%) of the projected amount. For example, if the Surviving Corporation
achieves Pre-Tax Net Income of Seven Hundred and Twenty Thousand Dollars
($720,000) for the fiscal year ended June 30, 2000, the Stockholders will
receive Contingent Shares equal to eighty percent (80%) of Contingent Payment
No. 2. Furthermore, if the Surviving Corporation achieves Pre-Tax Net Income
in excess of the agreed upon Pre-Tax Net Income, the Stockholders shall
receive additional Contingent Shares equal to the percentage that actual
Pre-Tax Net Income exceeds the agreed upon minimum amount; PROVIDED, HOWEVER,
that the increase cannot exceed fifty percent (50%) of the specified maximum
number of Contingent Shares for such contingent payment. Again, using
Contingent Payment No. 2 as an example, if the actual Pre-Tax Net Income for
the period is One Million and Eighty Thousand Dollars ($1,080,000), the
Stockholders will receive Contingent Shares equal to one hundred and twenty
percent (120%) of Contingent Payment No.2. For the periods of payment for
Contingent Payment Nos. 2 and 3, the calculation of any excess payments shall
be based upon a running average of the Pre-Tax Net Income amount. In
addition, if for the period beginning July 1, 1998, through the end of
fiscal year 2001 (the "Contingent Period"), the Surviving Corporation has
achieved total Pre-Tax Net Income for the Contingent Period of not less than
fifty percent (50%) of the aggregate targets for the fiscal years ended 1999,
2000 and 2000 combined (the "50% Target"), then the Stockholders shall
receive a number of Contingent Shares equal to (i) the total maximum number
of Contingent Shares MULTIPLIED BY (ii) the actual percentage of the 50%
Target achieved during the Contingent Period. For example, if Pre-Tax Net
Income during the Contingent Period equals 75% of the 50% Target, then the
Stockholders shall receive 75% of the Contingent Shares not yet delivered.
(c) If the Surviving Corporation fails to achieve the minimum
projected Pre-Tax Net Income during any period, the portion of the respective
Contingent Payment not used shall be added to the amount contingently payable in
the next year.
(d) All Contingent Payments provided for pursuant to this
SECTION 2.5.4 shall be made by the Parent in Parent Common Stock until the
issuance of one additional share of Parent Common Stock would require the
authorization of a majority of the outstanding shares of Parent Common Stock as
a result of Nasdaq Rule 4310(c)(25), and then in Series B Preferred Stock. As
soon as, and in the event that, the holders of a majority of the outstanding
shares of Parent Common Stock authorize the Merger and issuance of shares of
Parent Common Stock in place of
9
<PAGE>
Series B Preferred Stock, all shares of Parent stock delivered under this
Agreement shall be Parent Common Stock, and all Series B Preferred Stock
delivered shall be convertible into Parent Common Stock.
(e) All Contingent Payments made hereunder shall be payable by
the Parent within one hundred and twenty (120) days of the Parent's Fiscal year
end.
(f) Notwithstanding anything to the contrary contained in this
SECTION 2.5.4, upon the occurrence of a "Change in Control" as defined in
EXHIBIT 2.5.4(f) attached hereto, any Contingent Shares that have not been
delivered to the Stockholders shall immediately vest and be issued to the
Stockholders.
2.5.5 ADDITIONAL PARENT COMMON STOCK. Notwithstanding the
Maximum Consideration, the Stockholders shall receive up to an additional One
Hundred Nine Thousand Four Hundred and Twenty Eight (109,428) shares of Parent
Common Stock (the "ADDITIONAL PARENT COMMON STOCK") if the Parent Common Stock
Average Price never equals or exceeds Three Dollars and Eighty Cents ($3.80) per
share between Closing and June 30, 1999. The number of shares of Additional
Parent Common Stock to be issued shall be equal to 0.0908 MULTIPLIED BY the
total number of shares Closing Stock.
2.5.6 NATIONAL GEOGRAPHIC PROCEEDS.
2.5.6.1 As soon as any National Geographic Proceeds (as
defined below) are received they shall immediately be delivered or applied as
follows, in the following order of priority: (1) to Parent for all legal
fees, expenses and costs incurred or paid by Parent which are associated with
the National Geographic Arbitration (defined below); (2) to the Stockholders,
an amount equal to 50% of the legal fees, expenses and costs associated with
the National Geographic Arbitration (defined below)which were actually paid
by the Company prior to the Closing; (3) to the Stockholders, $200,000 of
National Geographic Proceeds (one-half of such amount to each Stockholder);
(4) if all the Escrow Stock has not been delivered to the Stockholders,
National Geographic Proceeds shall, pursuant to the Escrow Instructions, then
be converted into Escrow Stock; and (5) any remaining National Geographic
Proceeds ("REMAINING NATIONAL GEOGRAPHIC PROCEEDS") shall be converted into a
number of Contingent Shares determined by dividing (i) the product of 1.18
and such Remaining National Geographic Proceeds, BY (ii) $2.3625. Such
Contingent Shares shall promptly be delivered to the Stockholders in all
events and regardless of Pre-Tax Net Income, SECTION 2.5.4(c)
notwithstanding. Any delivery of Contingent Shares made pursuant to clause
(5) of this paragraph shall reduce the total number of Contingent Shares that
are deliverable pursuant to SECTION 2.5.4, and any National Geographic
Proceeds converted into Contingent Shares pursuant to clause (5) of this
paragraph shall reduce the Pre-Tax Net Income levels required under SECTION
2.5.4(a), pro rata over the then remaining years identified in SECTION 2.5.4.
10
<PAGE>
2.5.6.2 Notwithstanding anything to the contrary in this
Agreement or in the Escrow Instructions, if National Geographic Proceeds are
converted into Escrow Stock and later there are Net Distribution Fees that, but
for the conversion of the National Geographic Proceeds into Escrow Stock, would
have been converted into Escrow Stock, the amount of such Net Distribution Fees
shall be treated as National Geographic Proceeds and applied as contemplated by
SECTION 2.5.6.1. Any such Net Distribution Fees shall not, however, be
converted into Contingent Stock pursuant to SECTION 2.5.4.
2.5.6.3 As used in this Agreement, "NATIONAL GEOGRAPHIC
PROCEEDS" means any award or other amount, net of contingent payments to third
parties, received by any of the parties to this Agreement in connection with the
National Geographic Arbitration; and "NATIONAL GEOGRAPHIC ARBITRATION" means the
arbitration currently pending in Washington, D.C., between the Company and
National Geographic.
2.5.6.4 All shares of Parent Stock (as hereinafter defined)
required to be delivered pursuant to this SECTION 2.5.6 shall be delivered to
the Stockholders as soon as practicable after the National Geographic Proceeds
attributable to such shares are received by any of the
parties to this Agreement.
2.6 CONVERSION OF COMPANY STOCK. At the Effective Time, by virtue of
the Merger and without any further action on the part of the Company, the
Stockholders, MergerCo, or Parent, each issued and outstanding share of Company
Stock shall be canceled and converted into the right to receive the pro rata
share of the Closing Stock, the Contingent Payments and the Additional Parent
Common Stock.
2.7 MERGERCO COMMON STOCK. The outstanding shares of MergerCo shall
remain outstanding and are not affected by the Merger.
2.8 DELIVERY OF CERTIFICATES. At the Closing the Stockholders shall
be entitled to receive, upon surrender to the Parent or its representatives, of
any and all certificates evidencing the Company Stock (the "CERTIFICATES") for
cancellation, the aggregate Closing Stock in accordance with this Agreement and
later, any Contingent Shares and/or any Additional Parent Common Stock that
becomes payable in accordance to SECTIONS 2.5.4 or 2.5.5 above, which shall have
the Legend, into which such Company Stock shall have been converted in the
Merger. Upon the delivery and surrender of each Certificate by the Stockholders
such Certificates shall forthwith be canceled. Until so surrendered, each
Certificate shall be deemed for all corporate purposes to evidence only the
right to receive upon such surrender the aggregate number of Closing Stock into
which the Company Stock represented thereby is convertible.
2.9 CLOSING OF TRANSFER BOOKS. At and after the Effective Time,
transfers of the shares of Company Common Stock outstanding immediately prior to
the Effective Time shall not be made on the stock transfer books of the Company.
11
<PAGE>
2.10 ADJUSTMENT FOR STOCK SPLIT, ETC. If at any time after the Closing
the outstanding shares of Parent Common Stock or Series B Preferred Stock are
changed into a different number of shares or a different class by reason of a
stock split, reclassification, recapitalization, combination, exchange of shares
or readjustment, or a stock dividend thereon is declared with a record date
after the Closing, the number of shares of stock then or thereafter required to
be delivered to the Stockholders pursuant to this Agreement shall be
correspondingly and appropriately adjusted.
ARTICLE 3.
THE CLOSING
The Closing of the Merger (the "CLOSING") shall, unless another date or
place is agreed to in writing by the parties, take place at the offices of Troop
Meisinger Steuber & Pasich, LLP, 10940 Wilshire Boulevard, Los Angeles,
California 90024 (except for the filing of the Agreement of Merger, which shall
take place in the office of the California Secretary of State) on the second
business day following the satisfaction or waiver of all conditions precedent to
the Merger or such other time as shall be mutually agreed to by the Company and
Parent. The date of the Closing is referred to in this Agreement as the
"CLOSING DATE."
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company represents and warrants, subject to those matters identified
in the disclosure schedule attached hereto as SCHEDULE 4 (the "DISCLOSURE
SCHEDULE"), to the Parent and MergerCo, which representations and warranties
are, as of the Effective Date, true and correct, as set forth below. For
purposes of this ARTICLE 4, the phrase "knowledge of the Company" or words of
similar import shall mean the knowledge of the Stockholders after due inquiry.
4.1 ORGANIZATION AND STANDING; CHARTER DOCUMENTS AND BY-LAWS. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state of California. The Company is qualified, licensed
or domesticated as a foreign corporation and is in good standing in all
jurisdictions where the character of its properties owned or held under lease or
the nature of the business conducted by it make such qualification necessary
except where the failure to be so qualified would not have a Material Adverse
Effect. The Company has the requisite corporate power and corporate authority to
own, lease and operate its properties and assets and to carry on its business in
the manner and in the locations as presently conducted. The state of
incorporation of the Company and each foreign jurisdiction in which it is
qualified are set forth in SECTION 4.1 of the Disclosure Schedule. True and
correct copies of the charter documents, by-laws and stock ledger of the Company
(the "COMPANY ORGANIZATIONAL DOCUMENTS") have been delivered to Parent.
12
<PAGE>
4.2 AUTHORIZATION. The Company has the corporate power and authority
to enter into this Agreement and each of the Ancillary Agreements and to carry
out its obligations hereunder and thereunder. The execution and delivery of this
Agreement and each of the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Company's Board of Directors and the Company's stockholders;
no other corporate proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance by the Company of this
Agreement and each of the Ancillary Agreements. The execution, delivery and
performance of this Agreement and each of the Ancillary Agreements by the
Company will not conflict with or constitute a breach, violation or default
under the Company's organizational documents, any statute, law or administrative
regulation, or under any judgment, decree, order, writ, governmental permit or
license, any Material Contract or any other agreement, lease, indenture or
instrument to which the Company is a party or by which the Company is bound,
which breach, violation or default would have a Material Adverse Effect on the
Company. This Agreement and each of the Ancillary Agreements have been duly and
validly executed and delivered by the Company and constitute the legal, valid
and binding obligations of the Company enforceable in accordance with their
terms except as enforcement may be limited by applicable bankruptcy, insolvency
or similar laws affecting enforcement of creditors' rights generally.
4.3 CAPITAL STOCK. The authorized capital stock of the Company
consists of 50,000 shares of Common Stock, no par value, of which 20,000 shares
are issued and outstanding and no shares are issued and held in the treasury of
the Company. All of the Common Stock of the Company is owned by Tom Daniels
(10,000 shares) and Craig Sussman (10,000 shares). As of the date hereof, the
Company has no authorized class of capital stock other than the Company Stock.
All of the issued and outstanding shares of Company Stock are duly authorized,
validly issued, fully paid and are non-assessable and were not issued in
violation of any preemptive rights or any Federal or state securities laws and
all such outstanding shares of Company Stock are held of record and beneficially
solely by the Stockholders. As of the date hereof, the Company has reserved no
shares of Company Stock for issuance pursuant to any option, warrant,
subscription or other similar agreement or commitment. As of the date hereof,
the Company neither has nor is a party to any outstanding written or oral
offers, subscriptions, options, warrants, rights or other agreements,
obligations or commitments obligating the Company to issue or sell, or cause to
be issued or sold, any shares of any class of capital stock of the Company
(including Company Stock) or any securities or obligations convertible into or
exchangeable for or giving any Person any right to acquire any shares of such
capital stock, or obligating the Company to enter into any such agreement or
commitment and no obligation or commitment to authorize for issuance any shares
of any other class of capital stock.
4.4 SUBSIDIARIES AND AFFILIATES AND OTHER NAMES. The Company does not
have any Subsidiaries or own any equity interest or other securities or
ownership interest in any entity. The Company (including any entity merged into
or consolidated with the Company or a predecessor to the Company's business) has
not been known as or used any name for itself or any of its
operations other
13
<PAGE>
than the names MWI Distribution, Inc., MediaWorks, LLC and MediaWorks
International, LLC.
4.5 NO CONSENTS. To the knowledge of the Company, no consent,
authorization, order or approval of, or filing with or registration with, any
governmental authority, commission, board or other regulatory body of the United
States or any state or political subdivision thereof, or any other Person, other
than the California Filings, is required to be made or obtained by the Company
for or in connection with the execution and delivery by the Company and the
Stockholders of this Agreement and the Ancillary Agreements and the consummation
by the Company and the Stockholders of the transactions contemplated hereby and
thereby, the absence of which would have a Material Adverse Effect on the
Company.
4.6 FINANCIAL STATEMENTS. The books, accounts and records of the
Company are, and have been, maintained in the Company's usual, regular and
ordinary manner, in accordance with GAAP consistently applied. The financial
information provided by the Company (the "UNAUDITED FINANCIAL STATEMENTS") and
attached to this Agreement as EXHIBIT 4.6 is true and correct in all material
respects. The Unaudited Financial Statements include a consolidated balance
sheet, statements of earnings, stockholders' equity and cash flows for the
period November 16, 1997 to March 31, 1998, consolidated balance sheets,
accounts receivable aging, consolidated statements of earnings, stockholders'
equity and cash flows for each year of the Company's existence, together with
appended notes which are an integral part thereof. All of the Unaudited
Financial Statements, including any appended notes which are an integral part of
such statements, are prepared in conformity with GAAP applied on a consistent
basis throughout the periods covered thereby, each balance sheet therein
presenting fairly the consolidated financial position of the Company as at its
respective date and each statement of earnings, stockholders' equity and cash
flows presents fairly the consolidated results of operations, stockholders'
equity and cash flows, respectively, of the Company for the period covered
thereby.
4.7 LIABILITIES. The Company, to its knowledge, does not have any
obligations or liabilities (direct or indirect, matured or unmatured, absolute,
accrued, contingent or otherwise) whether or not required by GAAP to be
reflected or reserved against on a balance sheet ("LIABILITIES") other than
Liabilities provided for or reserved against in the Unaudited Financial
Statements or as disclosed in SECTION 4.7 of the Disclosure Schedule. None of
the Liabilities described above relates to or has arisen out of a breach of
contract, breach of warranty, tort or infringement by or against the Company or
any claim or lawsuit involving the Company.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the period ended
March 31, 1998, the Company has conducted its business only in the ordinary and
usual course consistent with past practice or as required for the consummation
of the transactions contemplated by this Agreement, and since that date there
has not been:
4.8.1 any Material Adverse Effect on the Company;
14
<PAGE>
4.8.2 any change in accounting methods, principles and practices
employed by the Company (other than the change from cash basis accounting to
accrual basis);
4.8.3 any casualty, damage, destruction or loss, or interruption
of use of any asset or property (whether covered by insurance or not) in excess
of $25,000 individually or in the aggregate;
4.8.4 any declaration, payment or setting aside for payment of
any dividends or other distribution on the Company Stock or purchase, exchange
or redemption of any of the Company Stock;
4.8.5 any grant to any officer or director of any increase in
compensation in an amount in excess of $10,000 individually or $50,000 in the
aggregate, excluding the Cash Bonus called for herein;
4.8.6 any sale, assignment, lease, exchange, transfer or other
disposition of any of its assets, contracts, licenses, or rights thereunder, or
property, except for sales of inventory and cash applied in the payment of the
Company's Liabilities, in each case in the usual and ordinary course of business
in accordance with the Company's past practices;
4.8.7 any write off of any material asset as unusable or obsolete
or for any other reason;
4.8.8 any material change in the conduct or nature of any aspect
of the business of the Company;
4.8.9 any capital expenditures in an amount which exceeds $20,000
in the aggregate;
4.8.10 any discharge of any Liability except in the usual and
ordinary course of business in accordance with past practices, or prepayment of
any Liability which, in the aggregate, exceeds $50,000;
4.8.11 any borrowing of any money other than in the ordinary
course of business consistent with past custom and practice or issuance or sale
of any bonds, debentures, notes or other corporate securities of any class,
including without limitation, those evidencing borrowed money, or prepayment or
acceleration of any payments under any of the foregoing, or otherwise making of
any payments in respect thereof other than in accordance with regularly
scheduled payments;
4.8.12 any hiring or termination of any employee who has an annual
salary in excess of $30,000;
15
<PAGE>
4.8.13 any payments or distributions to employees, officers or
directors of the Company except such amounts as constitute currently effective
compensation for services rendered, or reimbursement for reasonable, ordinary
and necessary out-of-pocket business expenses;
4.8.14 any payment or incurrence of any management or consulting
fees, or engagement of any consultants;
4.8.15 any issuance or sale of any securities of any class; or
4.8.16 without limitation by the enumeration of any of the
foregoing, the entry into any material transactions other than in the usual and
ordinary course of business in accordance with past practices (the foregoing
representation and warranty shall not be deemed to be breached by virtue of the
entry by the Company or the Stockholders into this Agreement or their
consummation of the transactions contemplated hereby).
4.9 REAL PROPERTY. The Company does not own any real property. All
real property which the Company holds under any lease is identified in SECTION
4.9 of the Disclosure Schedule. Such leases are in full force and effect; none
of the leases has been modified or amended; no waiver, indulgence or
postponement of the obligations of the Company thereunder has been granted by
any lessor and there exists no violation thereof or event of default thereunder
or event, occurrence, condition or act by the Company, or to the knowledge of
the Company by any lessor, which, with the giving of notice or the lapse of
time, would become a default under the terms and provisions of such leases. The
Company has not subleased or agreed to sublease to anyone any real property
owned or leased by it and has not assigned or agreed to assign to anyone other
than Parent any such lease.
4.10 TANGIBLE PERSONAL PROPERTY. The Company has good and marketable
title to or a valid right to use all of its tangible personal property, free and
clear of any and all Claims other than any Claim or Claims which alone or in the
aggregate would not have a Material Adverse Effect on the Company. To the
Company's knowledge, no unreleased mortgage, trust deed, chattel mortgage,
security agreement, financing statement or other instrument encumbering any of
the Company assets has been recorded, filed, executed or delivered.
4.11 CONTRACTS. SCHEDULE 4.11 contains a true and complete list of all
Material Contracts to which the Company is a party, by which it is bound, or
with respect to which it is the issuer, beneficiary or recipient. To the
Company's knowledge, all such Material Contracts are in full force and binding
on the parties thereto and no default has occurred thereunder by the Company and
no default has occurred thereunder by any other contracting party in each case
which has given, or with the lapse of time or giving of notice, or both, would
give any party the right to terminate such agreement or would result in the
acceleration of any liability or monetary obligation or the imposition of any
penalty, fine or forfeiture thereunder. All Material Contracts
16
<PAGE>
originally made in the name of either of MediaWorks; MediaWorks
International; MediaWorks International, LLC; MediaWorks, LLC; MWI
Distribution; MediaSat International; Craig Sussman; ShanLe Entertainment; or
Tom Daniels, whether individually or any combination of the aforementioned,
have been transferred to the Company and there are no such contracts
remaining in the name of any of MediaWorks; MediaWorks International;
MediaWorks International, LLC; MediaWorks, LLC; MWI Distribution; MediaSat
International; Craig Sussman; ShanLe Entertainment; or Tom Daniels, other
than those contracts specifically identified in a separate section of
SCHEDULE 4.11 as having not been transferred to the Company. No event,
occurrence or condition exists which, with the lapse of time, the giving of
notice, or both, would become a default by the Company under any Material
Contract or, to the knowledge of the Company, any other contracting party.
For purposes of this Agreement, "MATERIAL CONTRACTS" shall mean any oral or
written: (a) employment, management, consulting and other contracts or
agreements with any current or former officer, director, employee or
consultant or with any entity in which any of the foregoing is an owner,
officer, director, employee or consultant, except for any such agreements
which are terminable at will, (b) contracts, agreements, understandings or
commitments for the purchase or sale of any materials, products, services or
supplies (i) calling for a purchase price or payment by the Company in any
one year of more than $25,000 (or $50,000 in the aggregate, in the case of
any related series of contracts or other commitments) or (ii) which are not
one-time purchase orders and cannot be canceled or terminated by the Company
without liability, premium or penalty on one month's or less notice, (c)
leases, conditional sales contracts, licenses and other agreements under
which the Company uses any tangible personal property (including without
limitation all computer and peripheral and other related equipment and
devices) to which there are remaining payment obligations which exceed
$10,000 in the aggregate, (d) contracts or arrangements with customers or
suppliers for the sharing of fees, the rebating of charges or other similar
arrangements, (e) contracts, commitments or options relating to either (i)
the acquisition by the Company of any operating business or substantially all
of the assets of a third party or (ii) the purchase or disposition of any
tangible or intangible assets of the Company other than in the ordinary and
usual course of business, (f) contracts containing covenants or restrictions
limiting in any way the freedom of the Company to compete in any line of
business or with any person or entity in any geographical area or for any
period of time, (g) contracts or arrangements requiring the payment to any
person of an override, commission, royalty or fee, (h) guarantees,
performance bid or completion bonds, or other contracts of suretyship or
indemnification, (i) trade secret, confidentiality or similar agreements, (j)
joint venture, operating, shareholder and partnership agreements, (k) loan
agreements, (l) notes, (m) security agreements, mortgages, debentures,
indentures, factoring agreements or letters of credit, (n) sales
representative, distribution, production, franchise, advertising and similar
agreements, (o) license agreements, (p) service agreements affecting the
Company's assets where the service charge is in excess of $50,000 in the
aggregate or is not terminable on 30 days or less notice with a payment of no
more than $5,000, and (q) contracts, agreements, understandings or
commitments for, or in connection with, any and all television (series or
movies), feature film, video or other entertainment related projects, either
now existing, in production or in development, which are owned by, controlled
by, under option to, or entitle the Company or either of the Stockholders,
17
<PAGE>
to any profit participation, equity interest, activity, credit, compensation
or otherwise (the "PROPERTIES"), including, but not limited to, all film,
television or video distribution rights of any kind and nature in and to the
Properties.
4.12 EMPLOYEE BENEFITS. The following representations, warranties and
agreements relate to employee benefits and are made to the Company's knowledge:
4.12.1 Neither the Company nor any affiliate of the Company as
determined under Section 414(b), (c), (m) or (o) of the Code ("ERISA AFFILIATE")
maintains, administers or contributes to, or has maintained, administered or
contributed to, nor do the employees of the Company or any ERISA Affiliate
receive or expect to receive as a condition of employment, benefits pursuant to
any: employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) ("PLAN"); or
bonus, deferred compensation, stock purchase, stock option, stock appreciation,
severance plan, salary continuation, vacation, holiday, sick leave, fringe
benefit, personnel policy, tool allowance, safety equipment allowance,
incentive, insurance, welfare or similar plan, program, policy or arrangement
("BENEFIT PLAN") which could result in the MergerCo or the Company having any
liabilities, whether direct or indirect, other than those Plans and Benefit
Plans described in the Disclosure Schedule.
4.12.2 All Plans and Benefit Plans comply with and are and have
been operated in material compliance with each applicable provision of ERISA,
the Code (other federal statutes, state law (including, without limitation,
state insurance law) and the regulations and rules promulgated pursuant thereto
or in connection therewith. Each Plan which is a group health plan (within the
meaning of Section 5000(b)(1) of the Code) complies with and has been maintained
and operated in accordance with each of the requirements of section 162(k) of
the Code as in effect for years beginning prior to 1989, Section 4980B of the
Code for years beginning after December 31, 1988 and Part 6 of Subtitle B of
Title I of ERISA.
4.12.3 Neither the Company nor any ERISA Affiliate has failed to
make any contributions or to pay any amounts due and owing as required by the
terms of any Plan, Benefit Plan, or ERISA or any other law applicable to any
Plan or Benefit Plan.
4.12.4 True and complete copies of each Plan and Benefit Plan, all
written communications to employees regarding any Plan and Benefit Plan and each
plan, agreement, instrument and commitment referred to herein and any related
contracts, insurance policies or other agreements or documentation necessary or
appropriate for the customary operation, amendment, modification or termination
of any Plan or Benefit Plan, have been made available to the Parent and
MergerCo, including a description of the material terms of any unwritten Plan or
Benefit Plan. All of the foregoing are legally valid, binding, in full force
and effect, and there are no defaults thereunder. With respect to each Plan and
Benefit Plan, SECTION 4.12.4 of the
18
<PAGE>
Disclosure Schedule sets forth the name and address of the administrator and
the policy number and insurer under all insurance policies.
4.12.5 Neither the Company nor any ERISA Affiliate maintains,
administers or contributes to or has maintained, administered or contributed to
within the six (6) preceding full calendar years any Plan subject to Title IV of
ERISA or Section 412 of the Code or Part 3 of Title I(B) of ERISA.
4.12.6 All contributions, payments and premiums, reimbursements,
expenses and accruals with respect to all Plans and Benefit Plans for all
periods prior to or as of the Closing Date have been funded in a funding vehicle
separate from the assets of the Company or accrued on the Unaudited Financial
Statements.
4.12.7 Except as required by Section 4980B of the Code, neither
the Company nor any ERISA Affiliate has promised any former employee or other
individual not employed by the Company or any ERISA Affiliate, medical or other
benefit coverage, and neither the Company nor any ERISA Affiliate maintains or
contributes to any plan or arrangement providing medical benefits, life
insurance or other welfare benefits to former employees, their spouses or
dependents or any other individual not employed by the Company or any ERISA
Affiliate except to the extent required by applicable law.
4.13 COMPANY AND ITS SUBSIDIARY EMPLOYEES. With respect to employees
of the Company:
4.13.1 the Company is and has been in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination, occupational safety and health,
immigration status, and unfair labor practices; to the Company's knowledge,
there are no pending or threatened unfair labor practice charges or employee
grievance charges;
4.13.2 there is no request for union representation, labor strike,
dispute, slowdown or stoppage pending or threatened against or directly
affecting the Company;
4.13.3 no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and no claims therefor exist
before any governmental agency;
4.13.4 to the Company's knowledge, the employment of the Company's
employees is terminable at will without cost to the Company except for payments
required under the Plans and the Benefit Plans and payment of accrued salaries
or wages and vacation pay;
19
<PAGE>
4.13.5 there is no collective bargaining agreement which is
binding on the Company or other written or oral agreement with respect to
collective bargaining with any union or group of employees;
4.13.6 the Company has not experienced any work stoppage since
November, 1997;
4.13.7 the Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to the Closing Date or amounts
required to be reimbursed to such employees;
4.13.8 no employee or former employee has any right to be rehired
by the Company prior to the Company's hiring a Person not previously employed by
the Company;
4.13.9 SECTION 4.13.9 of the Disclosure Schedule contains a true
and complete list of all employees who are employed by the Company as of April
30, 1998, and such list correctly reflects their salaries, wages, other
compensation (other than benefits under the Plans and the Benefit Plans), dates
of employment and positions. The Company has not taken any actions which were
calculated to dissuade any present employees, representatives or agents of the
Company from commencing an association with the Parent or MergerCo after the
Closing Date. The Company has no knowledge of any intention of a "Significant
Employee" (as herein defined) or that such Significant Employee has terminated
or intends to terminate his or her employment with the Company. As used herein
"SIGNIFICANT EMPLOYEE" means the Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, President, any Vice President, or any Manager
of the Company.
4.14 TAX AUDITS AND PAYMENT OF TAXES. The following representations,
warranties and agreements are made with respect to tax matters:
4.14.1 As used in this Agreement, the following terms shall have
the following meanings: (A) "TAXES" shall mean all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, estimated, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees, assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto;
and (B) "TAX RETURN(s)" shall mean all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes,
including Returns for estimated Taxes. All citations to the Code, or to the
Treasury Regulations promulgated thereunder, shall include any amendments or any
substitute or successor provisions thereto.
20
<PAGE>
4.14.2 Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have been
paid. The Company currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no security
interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
4.14.3 The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
4.14.4 No Stockholder or director or officer (or employee
responsible for Tax matters) of the Company expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any tax liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Stockholders and the directors and officers (and employees responsible for Tax
matters) of the Company has knowledge based upon personal contact with any agent
of such authority. SECTION 4.14 of the Disclosure Schedule lists all federal,
state, local, and foreign income Tax Returns filed with respect to the Company
for taxable periods ended on or after December 31, 1996, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit. The Stockholders have delivered to the Parent correct
and complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1996.
4.14.5 The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
4.14.6 The Company has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G. The Company is
not and has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period specified in
Code Section 897(c)(1)(A)(ii). The Company has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Section 6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return or (B) has any Liability for the Taxes of any Person
(other than any of the Company) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
21
<PAGE>
4.14.7 SECTION 4.14 of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most recent
practicable date (as well as on an estimated pro forma basis as of the Closing
giving effect to the consummation of the transactions contemplated hereby): (A)
the basis of the Company in its assets; and (B) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign tax,
or excess charitable contribution allocable to the Company.
4.14.8 The unpaid Taxes of the Company: (A) did not, as of the
most recent fiscal month end, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent balance sheet
(rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company in filing its Tax Returns.
4.15 PAYMENTS TO COMPANY EMPLOYEES. SECTION 4.15 of the Disclosure
Schedule describes each:
4.15.1 business relationship (excluding employee compensation paid
in the ordinary course of business consistent with past practices and other
ordinary incidents of employment existing on the date of this Agreement) between
(i) the Company and (ii) any present or former officer, director, stockholder or
Affiliate of the Company, any present or former known spouse, sibling, ancestor
or descendant of any of the aforementioned persons or any trust or other similar
entity for the benefit of any of the forgoing persons (all such persons and
trusts encompassed by this clause (ii) being sometimes referred to collectively
herein as the "RELATED PARTIES" and individually as a "RELATED PARTY");
4.15.2 transaction (excluding employee compensation paid in the
ordinary course of business consistent with past practices and other ordinary
incidents of employment) occurring between the Company and any Related Party;
and
4.15.3 amount owing by or to any of the Related Parties,
respectively, to or from the Company as of the date of this Agreement. To the
Company's knowledge, no property or interest in any property which relates to
and is or will be necessary or useful in the present or currently contemplated
future operation or the business of the Company is presently owned by or leased
or licensed by or to any Related Party. On or prior to the Closing Date, all
amounts due and owing to the Company by any of the Related Parties shall be paid
in full. To the Company's knowledge, no Related Party has any interest,
directly or indirectly, in any business, corporate or otherwise, which is in
competition with the business of the Company.
4.16 LITIGATION. Other than the National Geographic Arbitration as
described more fully in SECTION 4.16 of the Disclosure Schedule, there is no
litigation or proceeding pending before any court or administrative agency or,
to the knowledge of the Company, threatened, in law or in
22
<PAGE>
equity, and there are no proceedings or governmental investigations pending
or, to the knowledge of the Company, threatened against the Company, or any
of their respective officers or directors, with respect to or affecting the
properties, assets or operations of the Company, or related to the
consummation of the transactions contemplated hereby. To the knowledge of
the Company, there are no facts which, if known by a potential claimant or
governmental authority, would be likely to give rise to a claim or
proceedings which, if asserted or conducted with results unfavorable to the
Company, would have a Material Adverse Effect on the Company or on the
consummation of the transactions contemplated hereby. The Company is not a
party to, or bound by, any decree, order or arbitration award (or agreement
entered into in any administrative, judicial or arbitration proceeding with
any governmental authority) with respect to or affecting its properties,
assets or operations.
4.17 INSURANCE. SECTION 4.17 of the Disclosure Schedule sets forth a
true and correct list of all policies of insurance, including the types and
coverage amounts thereof, owned by the Company or in which the Company is named
as an insured party or beneficiary. True and correct copies of all such
policies have been delivered to the Parent. All such policies are in full force
and effect and the Company has not received any notice of cancellation of any
such insurance policies. The Company has never been refused any insurance, nor
has its coverage been limited, by any insurance carrier to which it has applied
for insurance or with which it has carried insurance. The Company has not
borrowed any money or otherwise received any loans against any such policies.
The Company has never (i) made any accident, loss or other claims in excess of
$5,000 under any of the insurance policies or (ii) been notified of any material
premium increase with respect to any of the insurance policies.
4.18 ACCOUNTS RECEIVABLE. The accounts receivable reflected in the
Unaudited Financial Statements, and all accounts receivable arising since
November 15, 1997, represent bona fide claims of the Company against debtors for
sales, services performed or other charges arising on or before the date hereof
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. To the knowledge of the Company, accounts
receivable are subject to no defenses, counterclaims or rights of set-off.
4.19 LOANS AND ADVANCES. There are no outstanding loans or advances by
the Company to any employees, former employees, officers, directors, security
holders, consultants or agents of the Company, nor are there any outstanding
loans or advances by any such persons to or for the benefit of the Company.
4.20 SEVERANCE AND EMPLOYMENT AGREEMENTS. The Company is not a party to
any agreement, and has no policy providing for severance or termination payments
to, any officer, director, consultant or employee.
23
<PAGE>
4.21 COMPLIANCE WITH APPLICABLE LAW. To the Company's knowledge, its
businesses are not being conducted in violation of any applicable law,
ordinance, regulation, decree or order of any governmental entity, except for
violations which either singly or in the aggregate do not and are not expected
to have a Material Adverse Effect on the Company. The Company is not a party to
or subject to any judgment, decree, or order entered in any suit or proceeding
brought by any governmental agency or by any other Person, enjoining the Company
with respect to any business practice, the acquisition of any property, or the
conduct of business in any area.
4.22 PERMITS. A true and correct copy of every material license,
permit, registration and governmental approval, agreement and consent applied
for, pending by, issued or given to the Company, and every agreement with
governmental authorities (federal, state or local) entered into by the Company,
which is in effect or has been applied for or is pending, exclusive of
Environmental Permits (the "PERMITS"), has previously been furnished to the
Parent or MergerCo. To the Company's knowledge, such Permits constitute all
licenses, permits, registrations, approvals and agreements and consents which
are required in order for the Company to conduct its business as presently
conducted other than any license, permit, registration, approval agreement or
consent which the failure to obtain would not have a Material Adverse Effect on
the Company.
4.23 ENVIRONMENTAL COMPLIANCE MATTERS. The business of the Company as
conducted in the past did not and as currently being conducted is not in
material violation of any applicable law, ordinance, rule, prohibition or
regulation relating to air, water or noise pollution, or the production,
storage, labeling or disposition of wastes or hazardous or toxic substances, or
the health, safety or environmental conditions on, beneath or about any of the
properties owned, used or leased by the Company or relating to the business of
the Company (such laws, ordinances, rules, prohibitions and regulations being
herein referred to as "ENVIRONMENTAL LAWS"). The Company has timely filed all
material reports, obtained all material approvals and permits and generated and
maintained all material data, documentation and records required under any
applicable Environmental Laws. Neither the Company nor, to the knowledge of the
Company, any other Person has placed, stored, buried, spilled or released, used,
generated, manufactured, refined, processed, treated, dumped or disposed of any
materials produced by, or resulting from, any business, commercial or industrial
activities, operations or processes, including without limitation any materials
which are "HAZARDOUS WASTES", "HAZARDOUS SUBSTANCES", "HAZARDOUS MATERIALS",
"POLLUTANTS", "TOXIC SUBSTANCES", "SOLID WASTES" or "CONTAMINANTS" (as such
terms are defined in any applicable Environmental Law, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as-amended ("CERCLA"), the Hazardous Materials Transportation Act,
the Resource Conservation and Recovery Act and the Toxic Substances Control
Act), on, beneath or about, or transported any such materials to or from, any of
the properties owned, used or leased by the Company in each case other than in
material compliance with applicable Environmental Laws and in the ordinary
course of the Company's business. The Company has not received any notice from
any governmental agency or private or public entity advising it that it is or
may be responsible, or potentially responsible, for costs with respect to a
release, a threatened release or clean up of
24
<PAGE>
materials located in any property owned by the Company or produced by, or
resulting from, any business, commercial or industrial activities, operations
or processes of the Company, including without limitation, materials which
are Hazardous Wastes, Hazardous Substances, Hazardous Materials, Pollutants,
Toxic Substances, Solid Wastes or Contaminants.
4.24 NO CHANGE OF CONTROL PROVISION. The Company is not a party or
subject to any agreement, contract or other obligation which would require the
making of any payment, other than payments as contemplated by this Agreement, to
any employee of the Company or to any other Person as a result of the
consummation of the transactions contemplated herein.
4.25 BROKERS. Neither the Company nor any of the Stockholders dealt
with any Person who is or may be entitled to a broker's commission, finder's
fee, investment banker's fee or similar payment for arranging the transactions
contemplated hereby or introducing the parties to each other.
4.26 CONVERSION TERMS. The allocation of Closing Stock, the Contingent
Payments and the Additional Parent Common Stock among the Stockholders, as
determined pursuant to the provisions contained in ARTICLE 2 hereof and as set
forth in SCHEDULE 4.26 attached hereto, is in accordance with this Agreement,
the Company's organizational documents and all plans, agreements and other
instruments and documents relating to the Company Stock or rights thereto.
4.27 INFORMATION. All written information provided to the Parent or
its agents by or on behalf of the Company or any respective representatives
(including, without limitation, each representation and warranty of the Company
set forth in this Agreement) is, and the Company covenants that any such
information provided as of the Effective Date shall be, true and correct in all
material respects and does not, or shall not, omit any material fact required to
be included therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 4A.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, jointly and severally, represents and warrants to the
Parent and MergerCo, which representations and warranties are, as of the
Effective Date, true and correct, as set forth below.
4A.1 Each Stockholder has the power and authority to enter into this
Agreement and to carry out their respective obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and each
of the Stockholder Ancillary Agreements by such Stockholder will not conflict
with or constitute a breach, violation or default under any statute, law or
administrative regulation, or under any judgment, decree, order, writ,
governmental permit or
25
<PAGE>
license, any Material Contract or any other agreement, lease, indenture or
instrument to which such Stockholder is a party or by which such Stockholder
is bound, which breach, violation or default would have a Material Adverse
Effect on the Company.
4A.2 All Company Stock owned by each Stockholder is owned by such
Stockholder free and clear of any lien, option, security interest, pledge or
other encumbrance, proxy, voting trust, voting agreement, judgment, charge,
escrow, right of first refusal or first offer, indenture, claim or transfer
restriction, whether arising by agreement or operation of law ("CLAIMS").
4A.3 Each Stockholder does not own, directly or indirectly, any equity
interest or other securities or ownership interest in any entity involved in a
business related to or competitive in any way with the businesses of the
Company, MergerCo or the Parent. Notwithstanding the preceding sentence, the
foregoing shall not apply to a Stockholder's ownership of up to 10% of any
entity related to or competitive in any way with the businesses of the Surviving
Corporation or the Parent so long as such business has securities registered
under the Securities Act which are listed on a national securities exchange or
market.
4A.4 Each Stockholder has not taken any actions which were calculated
to dissuade any present employees, representatives or agents of the Company from
commencing an association with the Parent or MergerCo after the Closing Date.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGERCO
The Parent and MergerCo, represent and warrant to the Company and the
Stockholders, which representations and warranties are, as of the Effective
Date, true and correct, as follows:
5.1 ORGANIZATION AND STANDING Each of the Parent and MergerCo is a
corporation duly incorporated and in good standing under the laws of the state
of its incorporation. Each of the Parent and the MergerCo is qualified,
licensed or domesticated as a foreign corporation and is in good standing in all
jurisdictions where the character of its properties owned or held under lease or
the nature of the business conducted by it make such qualification necessary
except where the failure to be so qualified would not have a Material Adverse
Effect. Each of the Parent and the MergerCo has the requisite corporate power
and corporate authority to own, lease and operate its properties and assets and
to carry on its business in the manner and in the locations as presently
conducted.
5.2 AUTHORIZATION. The Parent and MergerCo have the requisite
corporate power and authority to enter into and carry out the terms and
conditions of this Agreement and the Ancillary Agreements to which they are a
party and to carry out their obligations hereunder and thereunder. The
execution and delivery of this Agreement and each of the Ancillary Agreements
and the
26
<PAGE>
consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by the Parent's and MergerCo's Board of Directors
and no other corporate proceedings on the part of the Parent or MergerCo are
necessary to authorize this Agreement and each of the Ancillary Agreements.
This Agreement and each of the Ancillary Agreements have been duly executed
and delivered by the Parent and MergerCo and constitute the legal, valid and
binding obligations of the Parent and MergerCo, enforceable against the
Parent and MergerCo in accordance with their respective terms, subject to the
laws of bankruptcy, insolvency, or creditor rights and equitable remedies.
The execution, delivery and performance of this Agreement and each of the
Ancillary Agreements by Parent and MergerCo will not conflict with or
constitute a breach, violation or default under Parent's or MergerCo's
organizational documents, any statute, law or administrative regulation, or
under any judgment, decree, order, writ, governmental permit or license, any
material contract or any other agreement, lease, indenture or instrument to
which Parent or MergerCo is a party or by which either of them is bound,
which breach, violation or default would have a Material Adverse Effect on
either Parent or MergerCo.
5.3 VALIDITY OF MERGER SHARES. Upon delivery of the certificates for
the Merger Shares pursuant to the terms of this Agreement, due countersignature
of the certificates by Parent's transfer agent and delivery to the Stockholders
receiving Merger Shares pursuant to this Agreement, the Merger Shares to be
issued by the Company represented thereby will be duly authorized and validly
issued, fully paid and nonassessable.
5.4 SEC REPORTS. The Parent has heretofore furnished or made
available to the Company its Annual Reports on Form 10-K for each fiscal year
and all Quarterly Reports on Form 10-Q for each of the fiscal quarters, as
filed with the SEC and any other reports or registration statements filed by the
Parent with the SEC since September 1996. As of their respective dates, such
reports and statements did 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 under which they were
made, not misleading.
5.5 NO CONSENTS. No consent, authorization, order or approval of, or
filing with or registration with, any governmental authority, commission, board
or other regulatory body of the United States or any state or political
subdivision thereof, or any other Person, is required to be made or obtained by
Parent or MergerCo for or the execution and delivery by Parent and MergerCo, of
this Agreement, the Ancillary Agreements and the Stockholder Ancillary
Agreements and the consummation by Parent and MergerCo of the transactions
contemplated hereby and thereby other than filings under the Securities Act, the
Exchange Act, state blue sky laws and the filing of the California Filings.
5.6 COMPLIANCE WITH APPLICABLE LAW. The businesses of Parent, its
Subsidiaries and MergerCo are not being conducted in violation of any applicable
law, ordinance, regulation, decree or order of any governmental entity, except
for violations which either singly or in the aggregate do not and are not
expected to have a Material Adverse Effect on Parent, its Subsidiaries or
MergerCo. Neither Parent, its Subsidiaries nor MergerCo is a party to or
subject to any judgment, decree, or order entered in any suit or proceeding
brought by any governmental agency or by any other Person, enjoining Parent, its
Subsidiaries
27
<PAGE>
or MergerCo with respect to any business practice, the acquisition of any
property, or the conduct of business in any area.
5.7 NO BROKERS. Neither the Parent nor MergerCo dealt with any Person
who is or may be entitled to a broker's commission, finder's fee, investment
banker's fee or similar payment for arranging the transactions contemplated
hereby or introducing the parties to each other.
5.8 INFORMATION. All written information provided to the Company or
its agents by or on behalf of the Parent or any of its representatives
(including, without limitation, each representation and warranty of the Parent
set forth in this Agreement) is, and the Parent covenants that any such
information provided hereafter shall be, true and correct in all material
respects and does not, or shall not, omit any material fact required to be
included therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that no representation or warranty is made by the Parent as to any financial
forecasts or projections previously furnished to the Company by the Parent,
except that such financial forecast or projection has been prepared in good
faith based on assumptions that are believed by the Parent to have been
reasonable at the time or times made.
ARTICLE 6.
PRE-MERGER COVENANTS OF THE PARENT, THE COMPANY,
THE PRINCIPAL STOCKHOLDERS AND MERGERCO
Each of the Parent, the Company, the Principal Stockholders and MergerCo
covenants and agrees with the others that:
6.1 CONDUCT OF BUSINESS OF THE COMPANY. Prior to the Effective Time,
except as contemplated by this Agreement, unless the other party has consented
in writing thereto, the Company (i) shall conduct its operations according to
its ordinary and usual course of business, (ii) shall use its reasonable efforts
to preserve intact its respective business organizations and goodwill, keep
available the services of its respective officers and employees and maintain
satisfactory relationships with those persons having business relationships with
it, (iii) shall not propose, adopt, or authorize any amendment to the Company's
organizational documents except as provided for in this Agreement, (iv) shall
promptly notify the Parent of any emergency or other material change in the
Company's business, properties, assets or liabilities or in the operation of its
properties and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or the breach in
any material respect of any representation or warranty contained herein, (v)
shall not (A) authorize, issue, sell, pledge, encumber or agree to authorize,
issue, sell, pledge or encumber any additional shares of its capital stock of
any class or any other securities in respect of, in lieu of or in substitution
of common stock outstanding as of the date hereof, (B) effect any stock split,
combination, recapitalization or
28
<PAGE>
otherwise change its capitalization as it existed on the date hereof, (C)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock of
any class or any other securities in respect of, in lieu of or in
substitution of common stock outstanding as of the date hereof, (D) redeem or
otherwise acquire any of its outstanding equity securities or any outstanding
options or rights to purchase any such equity securities or make any
commitment to take such action, or, (E) declare, set aside or pay any
dividend or distribution payable in cash, stock or property with respect to
shares of its common stock or other securities, (vi) shall not knowingly
authorize, recommend, or propose, or announce an intention to propose, any
transaction, or enter into any agreement or arrangement with any other party,
that could have a Material Adverse Effect on it, (vii) shall not (A) acquire
any assets, other than in the ordinary course of business consistent with
past practice, (B) dispose of or encumber any assets other than in the
ordinary course of business consistent with past practice or relinquish,
forfeit or waive any right under any agreement, license, lease, deed or other
instrument that is material to its business or operations as presently
conducted or proposed to be conducted, or (C) incur any indebtedness for
borrowed money, or assume, guarantee or otherwise as an accommodation become
responsible for, the obligations of any other Person, or enter into any other
transaction other than in the ordinary course of business consistent with
past practice, (viii) shall not adopt, or amend to increase materially
compensation or benefits payable under, any collective bargaining, bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or consulting or other plan, agreement, trust, fund
or arrangement for the benefit of employees except for normal increases
consistent with past practice and the payment of cash bonuses to officers
pursuant to and consistent with existing plans or programs, (ix) shall not
enter into any transaction involving an obligation in excess of $25,000,
except for obligations in connection with this Agreement and transactions
disclosed in the Disclosure Schedule, and (x) shall not enter into any
agreement, document or instrument which would constitute a Material Contract
hereunder, except for obligations in connection with this Agreement and
transactions disclosed in the Disclosure Schedule.
6.2 INSPECTION OF RECORDS. From the date hereof to the Effective
Time, the Company shall allow the duly authorized and appropriate officers,
attorneys, accountants and other representatives of Parent access at all
reasonable times and upon reasonable notice to the records and files,
correspondence, audits and properties, as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise pertaining
to, the business and affairs of the Company.
6.3 STOCKHOLDER APPROVAL. Each Stockholder covenants and agrees (i)
to vote at the meeting of Company Stockholders or by written consent, as the
case may be, to approve this Agreement, the Merger and the transactions
contemplated hereby, (ii) that such Stockholder will not exercise, and hereby
waives, his dissenter's rights under GCL with respect to any of his Company
Stock, and (iii) such Stockholder will execute the Investment Letter referred to
in SECTION 7.8 hereof.
29
<PAGE>
6.4 [INTENTIONALLY DELETED]
6.5 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Parent, the Company and MergerCo shall: (a) use all reasonable
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of the Parent and the Stockholders
shall take all such necessary action.
6.6 PUBLICITY. Upon consummation of the Closing, Parent, the Company
and MergerCo shall, subject to the Parent's legal obligations applicable to
public companies, issue the press release attached hereto as EXHIBIT 6.6, which
press release has been mutually agreed to by Parent, the Company and MergerCo.
6.7 ACQUISITION PROPOSALS. Prior to the Effective Time, the Company
agrees and each of the Stockholders jointly and severally agree (a) that neither
the Company nor any of the Stockholders shall, and it shall direct and use its
best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Company (any such proposal or offer being
hereinafter referred to as a "ACQUISITION PROPOSAL") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in this SECTION 6.7; and (c) that it will notify the Parent and
MergerCo immediately if any such inquiries or proposals are received by, any
such information is received from, or any such negotiations or discussions are
sought to be initiated or continued with, it.
30
<PAGE>
6.8 DISCLOSURE SCHEDULE. The Disclosure Schedule attached to this
Agreement contains the only conditions or exceptions to the representations and
warranties, as set forth above, of the Company and the Stockholders.
6.9 NO TRANSFER OF COMPANY STOCK. The Stockholders agree that, prior
to the consummation of the Merger, they will not transfer in any way any of the
Company Stock held by them or any interest therein.
6.10 MERGER TAX MATTERS. The parties hereto agree that neither Parent,
MergerCo, nor any of their respective subsidiaries, nor their officers,
directors, agents, or representatives have made any representation or warranty
with respect to the tax consequences of the Merger for the Company or the
Stockholders.
6.11 SELECTION OF ESCROW AGENT. The Escrow Agent (as defined in the
Escrow Instructions) under the Escrow Instructions shall be such person as is
selected by the Parent and approved by the Stockholders, which approval shall
not be unreasonably withheld.
ARTICLE 7.
CONDITIONS PRECEDENT TO MERGER OBLIGATION OF
THE COMPANY AND EACH OF THE STOCKHOLDERS.
The obligation of the Company and the Stockholders to consummate the
Merger and to execute and deliver the Ancillary Documents is subject to
satisfaction and fulfillment of the following conditions:
7.1 COMPLIANCE BY THE PARENT; REPRESENTATIONS AND WARRANTIES CORRECT.
All of the terms and conditions of this Agreement and the Ancillary Agreements
to be complied with and performed by the Parent and MergerCo at or before the
Effective Time shall have been complied with and performed in all material
respects, and the representations and warranties made by the Parent and MergerCo
in this Agreement, the Ancillary Agreements shall be correct in all material
respects at and as of the Effective Time with the same force and effect as
though such representations and warranties had been made at and as of the
Effective Time, except for changes contemplated or permitted in this Agreement
and the Ancillary Agreements and changes in the ordinary and usual course of the
Parent's business. The Parent and MergerCo shall have delivered to the Company
a certificate, dated the Closing Date and signed on behalf of the Parent and
MergerCo by each of its chief executive officer and its chief financial officer,
certifying to the satisfaction and fulfillment of these conditions.
7.2 GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be
made prior to the Effective Time by Parent, MergerCo or the Company with, and
all consents, approvals, orders, registrations and authorizations required to be
obtained prior to the Effective Time by Parent, MergerCo or the Company from
governmental and regulatory authorities in connection
31
<PAGE>
with the execution and delivery of this Agreement by Parent, MergerCo or the
Company and the consummation of the transactions contemplated hereby by
Parent, MergerCo and the Company shall have been made or obtained (as the
case may be), except where the failure to have obtained or made such consent,
filing, authorization, order, approval or registration would not have a
Material Adverse Effect on Parent, MergerCo or the Company.
7.3 CONSENTS. The Parent and MergerCo shall have obtained all
consents, permits and approvals required as a condition to the lawful
consummation of the Merger and of the transactions contemplated in this
Agreement, or as necessary to avoid a breach of or default under any material
agreement to which the Company, MergerCo, any of the Stockholders or the Parent
is a party.
7.4 BLUE SKY REQUIREMENTS. All permits, licenses, consents and
approvals necessary under any state securities laws for the issuance of the
Merger Shares shall have been issued or given, and no such permit, license,
consent or approval shall have been revoked, canceled, terminated, suspended or
made the subject of any "stop order" or proceeding therefor.
7.5 LITIGATION. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) (collectively, an "ORDER")
which is in effect and makes illegal or prohibits consummation of the
transactions contemplated by this Agreement; provided that the Company shall
have used reasonable efforts to obtain the removal of any Order.
7.6 NO MATERIAL ADVERSE CHANGES. There does not exist any
circumstance and has not occurred any event which has had or could have a
Material Adverse Effect on the Parent and its Subsidiaries.
7.7 ESCROW OF MERGER CONSIDERATION. At or prior to the Effective
Time, Parent shall have executed and delivered escrow instructions (the "ESCROW
INSTRUCTIONS") in substantially the form attached as EXHIBIT 7.7 and shall have
taken such other action as is necessary so that the Escrow Stock is or may be
placed in an escrow (the "ESCROW") pursuant to the Escrow Instructions. The
Escrow Stock placed in Escrow, subject to any claims asserted by the Parent
under the Escrow Instructions, shall be released from Escrow pursuant to the
terms of the Escrow Instructions.
7.8 INVESTMENT LETTER. Prior to the Closing Date, Parent and the
Company shall have received an investment letter (the "INVESTMENT LETTER") from
each of the Stockholders receiving Merger Shares pursuant to this Agreement in
the form attached hereto as EXHIBIT 7.8.
7.9 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have
executed and delivered the Employment Agreements with each of Tom Daniels and
Craig Sussman in the forms attached hereto as EXHIBIT 7.9.
32
<PAGE>
7.10 DUE DILIGENCE. The Company shall have completed and approved to
its sole satisfaction customary business and legal due diligence with respect to
the Parent and its business.
7.11 SURVIVING CORPORATION ORGANIZATION. The by-laws of the Surviving
Corporation shall provide for a two person Compensation Committee and a two
person Audit Committee, each of which shall be comprised of directors appointed
by the Parent. The Stockholders shall each be elected to the Surviving
Corporation's board of directors
ARTICLE 8.
CONDITIONS PRECEDENT TO MERGER OBLIGATION
OF THE PARENT AND MERGERCO
The obligation of the Parent and MergerCo to consummate the Merger and to
execute and deliver the Ancillary Documents is subject to satisfaction and
fulfillment of the following conditions:
8.1 OPINION OF COUNSEL FOR THE COMPANY. The Parent shall have
received an opinion of Wolf, Rifkin & Shapiro, counsel for the Company, dated
the Effective Date, in form and substance reasonably satisfactory to the Parent
and its counsel containing the opinions set forth in EXHIBIT 8.1, which opinion
shall be accompanied with an Officer's Certificate executed by both Stockholders
on behalf of the Company.
8.2 COMPLIANCE BY THE COMPANY AND THE STOCKHOLDERS; REPRESENTATIONS
AND WARRANTIES CORRECT. All of the terms and conditions of this Agreement and
the Ancillary Agreements to be complied with and performed by the Company and
each of the Stockholders at or before the Effective Time shall have been
complied with and performed in all material respects, and the representations
and warranties made by the Company and each of the Stockholders in this
Agreement and the Ancillary Agreements shall be correct in all material respects
at and as of the Effective Time with the same force and effect as though such
representations and warranties had been made at and as of the Effective Time,
except for changes contemplated or permitted in this Agreement and the Ancillary
Agreements and changes in the ordinary and usual course of the Company's and its
Subsidiaries' businesses. The Company and each Stockholder shall have delivered
to the Parent and MergerCo a certificate, dated the Closing Date and signed on
behalf of the Company by its chief executive officer and its chief financial
officer, certifying to the satisfaction and fulfillment of these conditions.
8.3 [INTENTIONALLY DELETED BASED UPON THE COMPANY'S REPRESENTATION
THAT IT IS NOT A PARTY TO ANY WRITTEN LEASE FOR ANY REAL PROPERTY]
33
<PAGE>
8.4 DUE DILIGENCE. The Company has provided the Parent with all
requested due diligence materials and Parent shall have completed and approved
to its sole satisfaction customary business and legal due diligence with respect
to the Company and its business.
8.5 CONSENTS. The Company, MergerCo, the Stockholders and the Parent
shall have obtained all consents, permits and approvals required, in the
reasonable opinion of counsel for the Parent, as a condition to the lawful
consummation of the Merger and of the transactions contemplated in this
Agreement, or as necessary to avoid a breach of or default under any material
agreement to which the Company, MergerCo, or the Parent is a party.
8.6 BLUE SKY REQUIREMENTS. All permits, licenses, consents and
approvals necessary under any state securities laws for the issuance of the
Merger Shares shall have been issued or given, and no such permit, license,
consent or approval shall have been revoked, canceled, terminated, suspended or
made the subject of any "stop order" or proceeding therefor.
8.7 ESCROW OF MERGER CONSIDERATION. At or prior to the Effective
Time, the Company shall have executed and delivered the Escrow Instructions on
behalf of the Stockholders in the form attached as EXHIBIT 7.7 and shall have
taken such other action as is necessary so that the Escrow Stock is or may be
placed in Escrow pursuant to the Escrow Instructions.
8.8 STOCKHOLDERS OF THE COMPANY APPROVAL. Prior to the Effective
Time, the Stockholders shall have approved the Merger in accordance with the
California Law. Additionally, no Stockholders shall have validly exercised
their appraisal rights under the GCL.
8.9 PARENT BOARD OF DIRECTOR APPROVAL. Prior to the Effective Time,
Parent's Board of Directors shall have approved the Merger in accordance with
Delaware Law.
8.10 RESIGNATION OF COMPANY OFFICERS AND DIRECTORS. Prior to the
Effective Time, each of the members of the Board of Directors of the Company and
each of the officers of the Company, other than Daniels and Sussman, shall have
executed letters of resignation.
8.11 COMPANY AFFILIATE'S LETTERS. All of the Company Affiliates (any
Stockholders who are Company Affiliates hereby agreeing to do so) shall have
executed and delivered to the Parent the Company Affiliate's Letter in the form
as attached hereto as EXHIBIT 8.11.
8.12 INVESTMENT LETTER. Prior to the Closing Date, Parent and the
Company shall have received Investment Letters from all Stockholders.
8.13 NO ADVERSE CHANGES. As of the Closing, there does not exist any
circumstance and has not occurred any event which has had a Material Adverse
Effect on the Company.
34
<PAGE>
8.14 CONTRACTS. The Company shall have executed agreements and or
written memorandums of understanding with each of Sony, BMG and National
Geographic, the terms and conditions of which are acceptable to Parent. In
addition, the Company shall have in place, as of the Closing Date, enforceable
written agreements for revenues, including distribution fees and commissions, to
be earned within two years from the Closing Date of not less than $2,000,000
from available projects and/or product, as determined in accordance with GAAP.
Goodwill and amortization shall be subject to the approval of Parent's financial
advisors.
ARTICLE 9.
POST-CLOSING COVENANTS
9.1 INDEMNIFICATION.
9.1.1 GENERAL. From and after the Effective Time, the parties
shall indemnify each other as provided in this SECTION 9.1. As used in this
Agreement, (a) the term "DAMAGES" shall mean all liabilities, demands, claims,
actions or causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages, costs
and expenses, including without limitation reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation of any claim; (b) the term
"INDEMNIFIED PARTY" shall mean a party who is entitled to indemnification from a
party hereto pursuant to this SECTION 9.1; (c) the term "INDEMNIFYING PARTY"
shall mean a party hereto who is required to provide indemnification under this
ARTICLE 9 to another party; and (d) the term "THIRD PARTY CLAIM" shall mean any
claim, action, suit, proceeding, investigation or like matter which is asserted
or threatened by a party other than the parties hereto, their successors and
permitted assigns, against any Indemnified Party or to which any Indemnified
Party is subject.
9.1.2 THE COMPANY INDEMNIFICATION OBLIGATIONS. The Company shall
indemnify, save and keep the Parent, MergerCo, its officers, directors,
employees, partners and stockholders (each a "PARENT INDEMNITEE" and
collectively, the "PARENT INDEMNITEES") harmless against and from all Damages
sustained or incurred by any Parent Indemnitee, as a result of or arising out of
or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by the Company to the Parent or MergerCo herein or in any of the
Ancillary Agreements delivered to the Parent or MergerCo in connection herewith;
and
(b) the breach by the Company of, or failure of the Company to
comply with, any of the covenants or obligations under this Agreement or any of
the Ancillary Agreements to be performed by the Company (including, without
limitation, their obligations under this SECTION 9.1).
35
<PAGE>
9.1.3 EACH STOCKHOLDER'S INDEMNIFICATION OBLIGATIONS. Each
Stockholder shall indemnify, individually but not jointly, and save and keep the
Parent Indemnitees harmless against and from all Damages sustained or incurred
by any Parent Indemnitee, as a result of or arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by such Stockholder to the Parent or MergerCo in this Agreement;
and
(b) the breach by such Stockholder of, or failure of such
Stockholder to comply with, any of the covenants or obligations under this
Agreement.
9.1.4 THE PARENT INDEMNIFICATION OBLIGATIONS TO THE
STOCKHOLDERS. The Parent shall indemnify, save and keep the Stockholders and
their spouses, heirs, successors and permitted assigns (individually a
"COMPANY INDEMNITEE" and collectively, the "COMPANY INDEMNITEES") harmless
against and from all Damages sustained or incurred by any Company Indemnitee
as a result of or arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by the Parent or MergerCo to the Stockholders herein or in any
Ancillary Agreements or Stockholder Ancillary Agreements delivered to the
Stockholders in connection herewith;
(b) any breach by the Parent or MergerCo of, or failure by the
Parent or MergerCo to comply with, any of the covenants or obligations under
this Agreement or any of the Ancillary Agreements to be performed by the Parent
or MergerCo (including without limitation its obligations under this SECTION
9.1); or
(c) the operation of the business of the Company or any of its
Subsidiaries from and after the Effective Time but only to the extent such
Damages are not proximately caused by any of the events described in SECTIONS
9.1.2(a) or (b) or SECTIONS 9.1.3(a) or (b).
9.1.5 LIMITATION ON INDEMNIFICATION OBLIGATIONS.
(a) The Company's, each Stockholder's and the Parent's
obligations pursuant to SECTIONS 9.1.2, 9.1.3 and 9.1.4, respectively, are
subject to the following limitations. No Indemnified Party shall be entitled to
recover under this SECTION 9.1 other than with respect to the Special Provisions
unless the Indemnified Party has asserted a claim by written notice, setting
forth the basis for such claim (a "NOTICE OF LOSS"), delivered to the
Indemnifying Party on or prior to the date (the "APPLICABLE DATE") as is the
earlier to occur of (i) the date of issuance of the first independent audit
report of Parent which includes any period ending after the Effective Time or
(ii) the first anniversary of the Closing Date. The Special Provisions shall
mean the provisions of SECTIONS 4.1, 4.2, 4A.1, 4A.2, 5.1, 5.2, 9.1.5(b) and
9.2.
36
<PAGE>
(b) In addition to the limitations set forth in SECTION
9.1.5(a), the Company and each of the Stockholder's obligations pursuant to
Sections 9.1.2 and 9.1.3 are subject to the following limitations:
(i) Notwithstanding anything to the contrary in this
Agreement, all Damages for which the Company or either or both of the
Stockholders is or are responsible pursuant to SECTION 9.1.2 or SECTION 9.1.3
(collectively "INDEMNIFIED LIABILITIES") shall be deemed to have been satisfied
in full, and the Company and the Stockholders shall be forever discharged and
forever released from any obligation any of them may have with regard to such
Indemnified Liabilities, if one or both of the Stockholders tenders or tender
shares of Parent Common Stock or Series B Preferred Stock (collectively referred
to as "PARENT STOCK") in the manner provided in this paragraph. The
Stockholders may so satisfy their obligations with regard to Indemnified
Liabilities by tendering Parent Stock to the Indemnified Party equal in value to
the Indemnified Liabilities. For purposes of this paragraph only, each share of
the Parent Stock so tendered shall be valued at the higher of (A) the Applicable
Conversion Price (as defined below) and (B) the average bid and asked prices of
Parent Common Stock on the date the Company's and the Stockholders'
responsibility for the particular Indemnified Liabilities is determined.
(ii) As used in this Agreement, "APPLICABLE CONVERSION
PRICE" means (A) with respect to each share of Closing Stock and Additional
Parent Common Stock, the Minimum Share Price, and (B) with respect to each
Contingent Share, the Contingent Conversion Price that was applied to such share
under SECTION 2.5.4 in determining the number of Contingent Shares required to
be delivered to the Stockholders pursuant to that section; PROVIDED, HOWEVER,
that the Applicable Conversion Price shall in all events be adjusted for any
stock split or other event contemplated by SECTION 2.10.
(c) Notwithstanding anything to the contrary herein contained,
the limitations contained in SECTION 9.1.5(a) and (b) shall not apply to any
claim for Damages to the extent it arises out of fraud or intentional
misrepresentation or omission, provided that nothing herein shall be deemed to
extend the applicable statute of limitations.
9.1.6 THIRD PARTY CLAIMS OTHER THAN TAXES. Forthwith following
the receipt of notice of a Third Party Claim (other than a Third Party Claim
with respect to Taxes), the party receiving the notice of the Third Party Claim
shall (i) notify the other party of its existence setting forth with reasonable
specificity the facts and circumstances of which such party has received notice
and (ii) if the party giving such notice is an Indemnified Party, specifying the
basis hereunder upon which the Indemnified Party's claim for indemnification is
asserted. The Indemnified Party shall, upon reasonable notice, tender the
defense of a Third Party Claim to the Indemnifying Party. If:
37
<PAGE>
(a) the defense of a Third Party Claim so tendered is accepted
without qualification (or reservation of rights) by the Indemnifying Party
within thirty (30) days after such tender; or
(b) within thirty (30) days after the date on which written
notice of a Third Party Claim has been given pursuant to this SECTION 9.1.6, the
Indemnifying Party shall acknowledge in writing to the Indemnified Party and
without qualification (or reservation of rights) its indemnification obligations
as provided in this SECTION 9.1.6; or
(c) the defense of a Third Party Claim is accepted by the
Indemnifying Parties pursuant to SECTION 9.1.6(a) or (b) above, then, except as
hereinafter provided, the Indemnified Party shall not, and the Indemnifying
Party shall, have the right to contest, defend, litigate or settle such Third
Party Claim. The Indemnified Party shall have the right to be represented by
counsel at its own expense in any such contest, defense, litigation or
settlement conducted by the Indemnifying Party; provided that the Indemnified
Party shall be entitled to reimbursement therefor if the Indemnifying Party
shall lose its right to contest, defend, litigate and settle the Third Party
Claim as herein provided. The Indemnifying Party shall lose its right to defend
and settle the Third Party Claim if it shall fail to diligently contest the
Third Party Claim. So long as the Indemnifying Party has not lost its right
and/or obligation to contest, defend, litigate and settle as herein provided,
the Indemnifying Party shall have the exclusive right to contest, defend and
litigate the Third Party Claim and shall have the exclusive right, in its
discretion exercised in good faith, and upon the advice of counsel, to settle
any such matter, either before or after the initiation of litigation, at such
time and upon such terms as it deems fair and reasonable, provided that at least
ten (10) days prior to any such settlement, written notice of its intention to
settle shall be given to the Indemnified Party. All expenses (including without
limitation attorneys' fees) incurred by the Indemnifying Party in connection
with the foregoing shall be paid by the Indemnifying Party. Notwithstanding the
foregoing, in connection with any settlement negotiated by an Indemnifying
Party, no Indemnified Party shall be required by an Indemnifying Party to (x)
enter into any settlement that does not include as an unconditional term thereof
the delivery by the claimant or plaintiff to the Indemnified Party of a release
from all liability in respect of such claim or litigation, (y) enter into any
settlement that attributes by its terms liability to the Indemnified Party or
(z) consent to the entry of any judgment that does not include as a term thereof
a full dismissal of the litigation or proceeding with prejudice. No failure by
an Indemnifying Party to acknowledge in writing its indemnification obligations
under this SECTION 9.1.6 shall relieve it of such obligations to the extent they
exist. If an Indemnified Party is entitled to indemnification against a Third
Party Claim, and the Indemnifying Party fails to accept a tender of, or assume,
the defense of a Third Party Claim pursuant to this SECTION 9.1.6 or if, in
accordance with the foregoing, the Indemnifying Party shall lose its right to
contest, defend, litigate and settle such a Third Party Claim, the Indemnified
Party shall have the right, without prejudice to its right of indemnification
hereunder, in its discretion exercised in good faith and upon the advice of
counsel to contest, defend and litigate such Third Party Claim, and may settle
such Third Party Claim, either before or after the initiation of litigation, at
such time and
38
<PAGE>
upon such terms as the Indemnified Party deems fair and reasonable, provided
that at least ten (10) days prior to any such settlement, written notice of
its intention to settle is given to the Indemnifying Party. If, pursuant to
this SECTION 9.1.6, the Indemnified Party so contests, defends, litigates or
settles a Third Party Claim, for which it is entitled to indemnification
hereunder as hereinabove provided, the Indemnified Party shall be reimbursed
by the Indemnifying Party for the reasonable attorneys' fees and other
expenses of defending, contesting, litigating and/or settling the Third Party
Claim which are incurred from time to time, forthwith following the
presentation to the Indemnifying Party of itemized bills for said attorneys'
fees and other expenses.
9.1.7 CLAIMS INVOLVING TAXES. In the case of any proposed or
actual assessment of Tax liabilities for which a Parent Indemnitee is entitled
to indemnification from the Company as provided herein, Parent shall give notice
to the Stockholders, and shall contest such proposed or actual assessment in the
manner reasonably directed by the Stockholders (in consultation with the Parent)
through the administrative review or appeal procedures available under the
relevant Tax laws and regulations. The Stockholders shall bear all costs and
expenses relating to any action requested by the Stockholders to be taken by
Parent under this SECTION 9.1.7. If the pursuit of such administrative remedies
by the Parent is unsuccessful, Parent shall be entitled to indemnification for
the Tax (and any penalties and interest) pursuant to SECTION 9.1 hereof;
PROVIDED HOWEVER, that if within ten (10) days of receipt from the Parent of
notice of its intention to do so, the Stockholders shall notify the Parent of
their desire to contest the proposed or assessed Tax deficiency in the courts,
they shall be entitled to do so at their expense provided the Stockholders pay
the deficiency and any penalties and interest if required in order to seek
judicial relief. The Parent shall cooperate with the Company for such purposes
but shall be entitled to reimbursement for any out-of-pocket expenses incurred
by the Parent in doing so. For purposes of this SECTION 9.1.7, the Stockholders
shall select a representative to act on their behalf who shall serve as a
liaison between Parent and the Stockholders with respect to all matters arising
under or related to this SECTION 9.1.7.
9.1.8 COOPERATION. Subject to the provisions of SECTION 9.1.7,
the Indemnified Party shall have the right, at its own expense, to participate
in the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim.
9.1.9 SUBROGATION. The Indemnifying Party shall not be entitled
to require that any action be brought against any other Person before action is
brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
settled or defended against the Third Party Claim for which indemnification is
sought.
9.1.10 INDEMNIFICATION NET OF BENEFITS. The amount of any
recovery by an Indemnified Party pursuant to this SECTION 9.1 shall be net of
any insurance benefits actually received by such Indemnified Party (but not to
the extent such benefits are repaid through retrospective premium adjustments or
otherwise) or any foreign federal, state and/or local tax
39
<PAGE>
benefits actually received by such Indemnified Party as a result of the state
of facts which entitled the Indemnified Party to recover from the
Indemnifying Party pursuant to this SECTION 9.1. Notwithstanding the
foregoing, any increase or decrease in the basis of any assets or stock of
the Parent or any of its Subsidiaries shall not be considered to give rise to
a tax benefit for purposes of this SECTION 9.1.10.
9.1.11 PAYMENT OF INDEMNIFICATION. Except for Damages arising out
of fraud or intentional misrepresentation, all other Damages that are covered
under this SECTION 9.1 may be satisfied by delivering to the Indemnified Party
that number of shares of Parent Common Stock equal to the quotient of the dollar
amount of the Damages divided by the Parent Common Stock Average Price as of the
determination of the amount of Damages.
9.1.12 LIMITS ON INDEMNIFICATION. Except for Damages arising out
of fraud or intentional misrepresentation, the total dollar amount of
indemnification available hereunder shall be limited to the aggregate value of
the Parent Common Stock paid hereunder, which value shall be equal to the sum of
the dollar valuation of the Parent Common Stock on the such dates as it becomes
payable to the Stockholders hereunder based upon the Parent Common Stock Average
Price as of such dates.
9.2 PARENT BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT COMMITTEE. The
Parent covenants to use its best efforts to ensure that one position on Parent's
Board of Directors is filled by a Stockholder no later than July 15, 1998. The
Parent further covenants to create an "EXECUTIVE MANAGEMENT COMMITTEE" comprised
of five members, at least one of which shall be a Stockholder. This Executive
Management Committee shall have the power and authority to review the business
of the Parent and its subsidiaries and to present recommendations to the Board
of Directors of the Parent.
9.3 BUSINESS PLAN. No later than sixty (60) days after the Closing
Date, Stockholders, with the assistance of Parent's representatives, shall
prepare, finalize and approve a business plan (the "BUSINESS PLAN") for the
Surviving Corporation which Business Plan shall be presented to the Board of
Directors of Parent for the Board's comments and subject to the Board's ultimate
final approval. The Business Plan shall charge Daniels and Sussman with the
responsibility with meeting the goals set forth therein. Additionally, Daniels
and Sussman shall be empowered, pursuant to the Business Plan, with the decision
making authority and control over the day to day operations of the Surviving
Company. The Business Plan shall include an identification of costs and
corporate administrative charges for which the Surviving Corporation shall be
responsible. Among other things, the Business Plan shall address the Surviving
Corporation's working capital needs. Upon completion and approval, the Business
Plan shall be attached hereto as EXHIBIT 9.3. Parent shall act in good faith in
connection with the goals set forth in the Business Plan; Parent shall permit
the Stockholders to act in accordance with the terms and goals of the Business
Plan in their pursuit of accomplishing the Pre-Tax Net Income targets of the
Surviving Corporation.
40
<PAGE>
9.4 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Parent and Stockholders for certain tax
matters following the Closing Date:
9.4.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Parent
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. Parent shall permit Company to review
and comment on each such Tax Return described in the preceding sentence prior to
filing. Stockholders shall reimburse Parent for Taxes of the Company with
respect to such periods within fifteen (15) days after payment by Parent or the
Company of such Taxes.
9.4.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Parent shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing Date. Stockholders shall pay to Parent
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this SECTION 9.4.2, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending on the Closing Date shall (x) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
9.4.3 COOPERATION ON TAX MATTERS.
(a) Parent, the Company and Stockholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this SECTION 9.4 and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide
41
<PAGE>
additional information and explanation of any material provided hereunder.
The Company and Stockholders agree (A) to retain all books and records with
respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the Closing Date until the expiration of the statute
of limitations (and, to the extent notified by Parent or Stockholders, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B)
to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party
so requests, the Company or Stockholders, as the case may be, shall allow the
other party to take possession of such books and records.
(b) Parent and Stockholders further agree, upon request,
to use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(c) Parent and Stockholders further agree, upon request,
to provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
9.4.4 TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
9.4.5 CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by
Stockholders when due, and Stockholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Parent will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
Notwithstanding the immediately preceding sentence, Parent shall be responsible
for the transfer agent fees and similar fees, if any, but excluding any
applicable Taxes, if any, which fees are specifically related to the issuance of
Parent Stock to the Stockholders.
9.5 BOARD OF SURVIVING CORPORATION. In the event Parent files a
petition in bankruptcy, or is adjudicated a bankrupt, or if a petition in
bankruptcy is filed against Parent, or if Parent becomes insolvent, or Parent
makes an assignment of substantially all of its assets for the benefit of its
creditors or an arrangement pursuant to any bankruptcy law, Parent shall cause
its director designees, excluding the Stockholders, to resign from the board of
directors of the Surviving Corporation.
42
<PAGE>
9.6 [INTENTIONALLY DELETED]
9.7 REGISTRATION RIGHTS. The Parent shall enter into a mutually
acceptable Registration Rights Agreement, a form of which is attached hereto as
EXHIBIT 9.7 which shall, among other things, grant the Stockholders, "piggyback"
registration rights with respect to the Parent Common Stock issuable hereunder,
for a period of 24 months after the Closing Date. Except as provided in the
Registration Rights Agreement, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to the Stockholders.
9.8 LIMITATIONS OF LIABILITY. Notwithstanding anything to the
contrary in this Agreement, in no event shall either Stockholder's aggregate
liability pursuant to or in connection with this Agreement (whether for Damages
or otherwise) exceed the aggregate value of the Parent Stock that such
Stockholder actually received pursuant to this Agreement. For purposes of this
paragraph only, each such share of Parent Stock shall be valued at the
Applicable Conversion Price. Notwithstanding either the immediately preceding
sentence or anything to the contrary contained in this Agreement, there shall be
no limitation of either of the Stockholder's liabilities to the extent it arises
out of fraud, intentional material omission or intentional misrepresentation by
either or both Stockholders.
9.9 SOLICITATION OF STOCKHOLDER APPROVAL. As soon as practicable
after the Closing, Parent shall prepare and file a proxy statement in
connection with an annual meeting of Parent's stockholders to be held on or
before December 31, 1998 requesting approval of the Merger whereby the Series
B Preferred Stock shall be convertible into Parent Common Stock.
9.10 AUDITED FINANCIAL STATEMENTS. Within 60 days of the Closing, the
Stockholders shall deliver to the Parent, copies of audited consolidated
financial statements of the Company for the period November 16, 1997 to June 30,
1998 (the "AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements
shall include a consolidated balance sheet, accounts receivable aging,
statements of earnings, stockholders' equity and cash flows for the period,
together with appended notes which are an integral part thereof, all of which
have been audited and certified by Singer, Lewak, Greenbaum and Goldstein,
certified public accountants. Parent shall be responsible for all auditors'
fees and expenses for the audit required by this paragraph. All of the Audited
Financial Statements, including any appended notes which are an integral part of
such statements, will be prepared in conformity with GAAP applied on a
consistent basis throughout the periods covered thereby, each balance sheet
therein presenting fairly the consolidated financial position of the Company as
at its respective date and each statement of earnings, stockholders' equity and
cash flows presents fairly the consolidated results of operations, stockholders'
equity and cash flows, respectively, of the Company for the period covered
thereby. Notwithstanding anything to the contrary in this Agreement, if the
Audited Financial Statements show that the Unaudited Financial Statements
overstate any earnings, income, cash, accounts receivable or other similar items
by fifteen percent (15%) or less (the "PERMITTED VARIANCE"), Parent and MergerCo
hereby waive and forever release and discharge (without any further action on
the part of any party), yet
43
<PAGE>
subject to a limitation in the event of fraud or intentional
misrepresentation, any and all claims they may have against the Stockholders
arising as a result of the Permitted Variance. If the difference between the
Audited Financial Statements and the Unaudited Financial Statements exceeds
the Permitted Variance (an "EXCESS VARIANCE"), Parent and MergerCo must
commence, pursuant to SECTION 11 of this Agreement, any action against the
Stockholders and/or the Company no later than six months after the date on
which Parent received the Audited Financial Statements or the claims they may
have had against the Stockholders and/or the Company arising directly from
the Excess Variance are hereby waived and forever released and discharged
without any further action necessary on the part of the Stockholders and/or
the Company.
9.11 DISSOLUTION OF MEDIAWORKS, LLC, A DELAWARE LIMITED LIABILITY
COMPANY. Within 15 days of the Closing, the Stockholders shall file with the
Secretary of State for the State of Delaware an amendment to the Certificate of
Formation of MediaWorks, LLC changing its name to a name chosen by Parent;
within 15 days of the filing of the name change, Stockholders shall file all
necessary documentation to wind-up and dissolve the entity previously known as
MediaWorks, LLC.
ARTICLE 10.
TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time:
10.1 MATERIAL BREACH. By a non-breaching party, in the event of a
material breach of any representation, warranty, condition or agreement
contained in this Agreement that is not cured within 10 days of the time that
written notice of such breach is received by such other party from the party
giving notice.
10.2 CONSUMMATION OF MERGER. If the Merger shall not have been
consummated on or before June 30, 1998; provided, in the case of a termination
pursuant to this SECTION 10.2, the terminating party shall not have materially
breached its obligations hereunder in any manner that shall have contributed to
the failure to consummate the Merger by such date.
10.3 DUE DILIGENCE. In the event that the Parent's due diligence
investigation of the Company and its Subsidiaries conducted between the date
hereof and the Closing Date, related to all aspects of the business of the
Company and its Subsidiaries, is not completed to the satisfaction of Parent in
its sole discretion, the Parent may elect to the terminate this Agreement by
giving written notice of termination to the Company within seven (7) days of the
conclusion of such due diligence investigation.
10.4 MUTUAL CONSENT. By mutual written consent of the Parent and the
Company authorized by their respective Boards of Directors.
44
<PAGE>
10.5 EFFECT OF TERMINATION. In the event of termination of this
Agreement and abandonment of the Merger pursuant to this ARTICLE 10, no party
hereto (or any of its Affiliates) shall have any liability or further obligation
to any other party to this Agreement, except that if termination of this
Agreement shall be judicially determined to have been caused by willful breach
of this Agreement, then, in addition to other remedies at law or equity for
breach of this Agreement, the party so found to have willfully breached this
Agreement shall indemnify the other parties for their respective costs, fees and
expenses of their counsel, accountants and other experts and advisors as well as
fees and expenses incident to negotiation, preparation and execution of this
Agreement and related documentation and their stockholders' meetings and
consents.
ARTICLE 11.
CHOICE OF LAW; ARBITRATION
The internal laws of the State of California, United States of America,
applicable to contracts entered into and wholly to be performed in California by
California residents, without reference to any principles concerning conflicts
of law, shall govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties hereunder;
PROVIDED, HOWEVER, that this Section and the parties' rights under this Section
shall be governed by and construed in accordance with the Federal Arbitration
Act, 9 U.S.C. Section 1 et. sec. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by the
following procedures: Either party may send the other written notice
identifying the matter in dispute and involving the procedures of this Section.
Within fourteen (14) days after such written notice is given, one or more
principals of each party shall meet at a mutually agreeable location in Los
Angeles, California, for the purpose of determining whether they can resolve the
dispute themselves by written agreement, and, if not, whether they can agree
upon a third-party impartial arbitrator (the "ARBITRATOR") to whom to submit the
matter in dispute for final and binding arbitration. If the parties fail to
resolve the dispute by written agreement or to agree on the Arbitrator within a
twenty-one (21) day period, either party may make written application to the
Judicial Arbitration and Mediation Services ("JAMS"), Los Angeles, California
for the appointment of a single Arbitrator to resolve the dispute by arbitration
and at the request of JAMS, the parties shall meet with JAMS at its offices or
confer with JAMS by telephone within ten (10) calendar days of such request to
discuss the dispute and the qualifications and experience which each party
respectively believes the Arbitrator should have; provided, however, the
selection of the Arbitrator shall be the exclusive decision of JAMS and shall be
made within thirty (30) days of the written application to JAMS. Within 30 days
of the selection of the Arbitrator, the parties shall meet in Los Angeles,
California with such Arbitrator at a place and time designated by the Arbitrator
after consultation with the parties and present their respective positions on
the dispute. Each party shall have no longer than one day to present its
position, the entire proceeding before the Arbitrator shall be on no more than
three consecutive days, and the award shall be made in writing no more than 30
days following the end of the proceeding. Such award shall be a final and
binding determination of the dispute and shall be fully
45
<PAGE>
enforceable as an arbitration award in any court having jurisdiction and
venue over the parties. The prevailing party (as determined by the
Arbitrator) shall in addition be awarded by the Arbitrator such party's own
attorneys' fees and expenses in connection with such proceeding. The
non-prevailing party (as determined by the Arbitrator,) shall pay the
Arbitrator's fees and expenses.
ARTICLE 12.
MISCELLANEOUS PROVISIONS
12.1 NOTICES. All notices, demands or other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
in person, on the date actually given, (ii) by United States mail, certified or
registered, with return receipt requested, on the date which is two business
days after the date of mailing, or (iii) if sent by telex or facsimile
transmission, with a copy mailed on the same day in the manner provided in (i)
above, on the date transmitted provided receipt is confirmed:
12.1.1 if to the Parent or MergerCo to:
The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse
Los Angeles, California 90036
Attention: Irwin Meyer
Telecopy No.: (213) 634-8635
With copies to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: C. N. Franklin Reddick III, Esq.
Telecopy No.: (310) 443-8512
12.1.2 if to the Company or the Stockholders to:
MWI Distribution, Inc.
1219 Morningside Drive
Los Angeles, California 90266
Attention: Chief Executive Officer
Telecopy No.: (310) 546-9337
46
<PAGE>
With copies to:
Michael Wolf
Wolf, Rifkin & Shapiro
11400 West Olympic Boulevard, 9th Floor
Los Angeles, CA 90004
Telecopy No.: (310) 479-1422
12.2 SEVERABILITY. Should any Section or any part of a Section within
this Agreement be rendered void, invalid or unenforceable by any court of law
for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
12.3 EXHIBITS AND SCHEDULES. Each Exhibit and Schedule delivered
pursuant to the terms of this Agreement, each document, instrument and
certificate delivered by the parties in connection with the transactions
contemplated hereby and each Ancillary Agreement constitutes an integral part of
this Agreement.
12.4 HEADINGS. Section headings and subheadings used in this Agreement
are for convenience only and shall not affect the meaning or construction of
this Agreement.
12.5 NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement, any other document delivered
at the Closing or any provisions hereof or thereof.
12.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.7 COSTS AND ATTORNEYS' FEES. In the event that any action, suit, or
other proceeding is instituted concerning or arising out of this Agreement or
any of the Ancillary Agreements the prevailing party shall recover all of such
party's costs, and reasonable attorneys' fees incurred in each and every such
action, suit, or other proceeding, including any and all appeals or petitions
therefrom.
12.8 SUCCESSORS AND ASSIGNS. All rights, covenants and agreements of
the parties contained in this Agreement shall, except as otherwise provided
herein, be binding upon and inure to the benefit of their respective successors
and assigns.
12.9 AMENDMENT. This Agreement may be amended at any time by the
mutual written agreement of the Parent, the Company and MergerCo, but no
amendment shall be made which
47
<PAGE>
materially changes the rights, obligations or liabilities of any Stockholder
hereunder without his written agreement thereto.
12.10 WAIVER. At any time prior to the Effective Time, the Parent, the
Company and MergerCo may:
12.10.1 Extend the time for the performance of any of the
obligations or other acts of the parties hereto.
12.10.2 Waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto.
12.10.3 Waive compliance with any of the agreements or
conditions contained herein.
Any agreement on the part of the Parent, the Company or MergerCo to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party, and no such agreement which materially
changes the rights, obligations or liabilities of any Principal Stockholder
hereunder shall be binding upon him without his written agreement thereto.
12.11 ENTIRE AGREEMENT. This Agreement, the attached Exhibits and
Schedules, the other schedules referred to in this Agreement, and the Ancillary
Agreements contain the entire understanding of the parties and there are no
further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof unless expressly
referred to herein. Nothing in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto any rights or remedies
under or by way of this Agreement; PROVIDED, HOWEVER, that the Indemnified
Parties shall be entitled to the benefits of ARTICLE 9.
12.12 DISCLOSURE SCHEDULE. Matters reflected on the Disclosure Schedule
are not necessarily limited to matters required by this Agreement to be
reflected on the Disclosure Schedule. Such additional matters are set forth for
informational purposes only and do not necessarily include other matters of a
similar nature provided that the representations and warranties of the party or
parties making a particular disclosure shall in all respects be subject to such
disclosure. Matters disclosed by the Company and the Stockholders pursuant to
any particular section of or schedule to this Agreement (or any section of the
Disclosure Schedule) shall be deemed to be disclosed with respect to all
sections of this Agreement (and all sections of the Disclosure Schedule) to the
extent this Agreement requires such disclosure. Capitalized terms used in the
Disclosure Schedule not otherwise defined therein shall have the respective
meanings assigned to such terms in this Agreement.
12.13 OBLIGATIONS OF THE PARENT. Whenever this Agreement requires
MergerCo to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to cause MergerCo to take such action.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
A DELAWARE CORPORATION
By: /s/ IRWIN MEYER
------------------------------------
Name: Irwin Meyer
Title: Chief Executive Officer
TPEG MERGER COMPANY,
A CALIFORNIA CORPORATION
By: /s/ IRWIN MEYER
------------------------------------
Name: Irwin Meyer
Title: President
By: /s/ ARTHUR BERNSTEIN
------------------------------------
Name: Arthur Bernstein
Title: Secretary
<PAGE>
MWI DISTRIBUTION, INC.
A CALIFORNIA CORPORATION
By: /s/ CRAIG SUSSMAN
------------------------------------
Name: Craig Sussman
Title: President
By: /s/ TOM DANIELS
------------------------------------
Name: Tom Daniels
Title: Chief Financial Officer
TOM DANIELS ("STOCKHOLDER")
By: /s/ TOM DANIELS
------------------------------------
CRAIG SUSSMAN ("STOCKHOLDER")
By: /s/ CRAIG SUSSMAN
------------------------------------
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
NO. EXHIBIT/SCHEDULE NAME
- --- ----------------------
<S> <C>
1.23 Company's Net Distribution Fees Receivable Contracts
1.27 Company's Pending Projects
1.28 Pending Projects Value
1.30 Pre-Tax Net Income
1.33 Certificate of Designations of the Series B Convertible Preferred Stock
2.3 Agreement of Merger
2.4.1 MergerCo Articles of Incorporation
2.4.2 MergerCo Bylaws
4 Company's Disclosure Schedule (with related sections)
4.6 Unaudited Financial Statements
4.7 Liabilities
4.11 Company's Material Contracts
4.26 Allocation Among Stockholders
6.6 Press Release
7.7 Escrow Instructions
7.8 Investment Letter
7.9 Employment Agreements
8.1 Opinion of Wolf, Rifkin & Shapiro and related Officers' Certificate
8.11 Company's Affiliate's Letter
9.3 Business Plan
9.7 Form of Registration Rights Agreement
</TABLE>
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and among TPEG MERGER COMPANY, a California corporation
(the "COMPANY"), and THOMAS DANIELS ("EXECUTIVE"), a California resident, dated
as of the 15th day of July, 1998.
W I T N E S S E T H
WHEREAS, the Company wishes to employ the Executive for the period
provided in this Agreement, and the Executive is willing to serve in the employ
of the Company on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue his employment with
the Company, on the terms and subject to the conditions set forth herein.
2. TERM OF EMPLOYMENT. The term of the Executive's employment under this
Agreement shall commence as of July 15, 1998 and shall end on the earlier of (i)
the five (5) year anniversary thereof (the "EMPLOYMENT PERIOD") or (ii) the date
of termination in accordance with SECTION 5 hereof (the "TERM").
3. TITLES AND RESPONSIBILITIES.
a. TITLES. During the Employment Period, the Executive shall serve
as the President of the Company. For purposes of definitions under this
Agreement, the other "Executive Officers" of The Producers Entertainment Group
Ltd. ("TPEG") are defined as the TPEG individuals required to file Forms 3, 4,
and 5 with the Securities and Exchange Commission, due to their officer
positions.
b. RESPONSIBILITIES. Company hereby engages Executive to provide
his exclusive services to supervise the exploitation and sale of such motion
pictures and television programs to financiers, distributors, television
networks, syndicator, cable systems, motion picture studios, video companies,
video distributors and other buyers or licensees of such product throughout the
world.
Executive shall be the Company's second most senior executive and
shall be responsible for supervising and overseeing the Company's day to day
operations. Executive shall have control, to the extent appropriate, over
decisions and policies relating to business and financial affairs, strategic
planning, program acquisitions, sales, financial planning and control, relations
with third party suppliers, employee hiring and termination, and general
administrative matters, within
1
<PAGE>
the annual business plan once approved by the Board of Directors of TPEG each
year, pursuant to the Merger Agreement.
Pursuant to the terms and conditions hereof, Executive hereby accepts
such engagement. The Executive shall report and be responsible to the Board of
Directors of TPEG and must receive board approval from the Company's Board of
Directors on such matters as required by the California General Corporation Law.
In the event that Craig Sussman does not serve as Chief Executive
Officer of the Company for the entire Employment Period as defined herein, then
Tom Daniels shall be elevated from his position of President of the Company to
Chief Executive Officer of the Company and shall assume the responsibilities of
Chief Executive Officer of the Company for the remainder of the Employment
Period.
c. PLACE OF PERFORMANCE. During the Employment Period, the
Executive's office shall be located at the offices of the Company (subject to
travel), which shall be in Los Angeles metropolitan areas, except for required
business travel consistent with the Executive's position. The Company shall
provide the Executive with an office reasonably acceptable to him, and other
support reasonably appropriate to his duties.
d. BUSINESS TIME. During the Employment Period, the Executive
agrees to devote his full business time during normal business hours to the
business and affairs of the Company and to use his best efforts to perform
faithfully, diligently and competently the responsibilities assigned to him
hereunder, to the extent necessary to discharge such responsibilities, except
for (i) time spent serving on corporate, civic or charitable boards or
committees only if and to the extent not substantially interfering with the
performance of such responsibilities, (ii) periods of vacation, disability and
sick leave to which he is entitled, and (iii) reasonable activities having a
charitable, educational or other public interest purpose.
4. COMPENSATION.
a. BASE SALARY; BONUSES. During the Employment Period, the
Executive shall receive an annual base salary ("BASE SALARY") equal to THREE
HUNDRED THOUSAND DOLLARS ($300,000.00), payable in accordance with the customary
payroll procedures as in effect from time to time for senior executives of the
Company. In the event that the Company achieves the profit levels set forth on
EXHIBIT A hereto, for such year, or achieves the profit levels set forth in the
annual business plan approved by the Board of Directors of TPEG, then for each
such year Executive shall be entitled to an annual increase equal to fifteen
percent (15%) of the then applicable Base Salary. Notwithstanding the foregoing
sentence, in no event shall the Base Salary exceed the total sum of Five Hundred
Thousand Dollars ($500,000.00). Additionally, for any year where the Company
achieves the profit levels as defined in the Merger Agreement and as set forth
in EXHIBIT A hereto, for such year, or achieves the profit levels set forth in
the annual business plan approved by the Board of Directors of TPEG, the
compensation committee of the Board of Directors of TPEG shall
2
<PAGE>
authorize the payment of a bonus, in cash or in kind, in an amount
representing the equivalent of a minimum of ten percent (10%) of Executive's
Base Salary for the preceding year. This bonus shall be calculated based
solely on annual earnings figures and earnings figures shall not be
cumulative with earnings figures from other years.
b. VACATION. During the Employment Period, the Executive shall be
entitled to four (4) weeks paid vacation per year, to be accrued and taken in
accordance with the Company's vacation policy.
c. EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable and required
business-related expenses incurred by the Executive in accordance with the
policies and procedures of TPEG, as applicable to the Executive Officers of
TPEG.
d. AUTOMOBILE REIMBURSEMENT. During the Term, Executive shall be
entitled to receive a monthly automobile reimbursement in the total amount of
One Thousand Dollars ($1,000.00) (the "AUTOMOBILE REIMBURSEMENT"), payable
monthly on the first day of each month commencing on the first day of the month
following the effective date of the Merger (as such term is defined in the
Merger Agreement) (the "REIMBURSEMENT DATE"); PROVIDED, HOWEVER, that the
Automobile Reimbursement shall include the PRO RATA amount dated from the
effective date of the Merger, for the first month only. The Automobile
Reimbursement shall be increased to One Thousand Two Hundred Dollars ($1,200) on
the one year anniversary of the Reimbursement Date.
e. OTHER EXECUTIVE BENEFITS. Without limiting the foregoing
provisions of this SECTION 4, during the Employment Period the Executive shall
be entitled to participate in or be covered under all compensation, bonus,
pension, retirement and welfare and fringe benefit plans, programs and policies
of the Company applicable to the Executive Officers of TPEG. Attached hereto as
EXHIBIT B is a true and correct copy of the Company's Employee Handbook.
Additionally, the Company agrees to purchase disability insurance if available
from an insurance carrier for a price not to exceed Six Thousand Dollars
($6,000) in annual premiums. If Executive wishes to obtain disability insurance
requiring a higher annual premium, he shall be permitted to pay the extra
annual premium amount above the annual premium amount paid by the Company.
5. TERMINATION.
a. DEATH OR DISABILITY. The Executive's employment pursuant to this
Agreement shall terminate automatically upon the Executive's death. The Company
may terminate the Executive's employment for Disability by giving to the
Executive notice of its intention in accordance with SECTION 5(e) unless
Executive returns to the performance of the essential functions of his
employment within thirty (30) days after receipt of such notice. For purposes
of this Agreement, "DISABILITY" means any physical or mental condition that
renders the Executive unable to perform the essential functions of his
employment for 90 consecutive days or for a total of 180 days in any period of
360 consecutive days.
3
<PAGE>
b. VOLUNTARY TERMINATION AFTER CHANGE IN CONTROL. Notwithstanding
anything in this Agreement to the contrary, the Executive may voluntarily
terminate his employment at any time, after a Change in Control (as defined
below), (i) for any reason upon six months' written notice to the Company, or
(ii) if termination is for Good Reason or on account of the Executive's serious
illness, upon written notice pursuant to SECTION 5(e) but without any notice
period. In the event of any termination pursuant to this SECTION 5(b), the
Executive shall have no further obligation to the Company under this Agreement,
except as provided in SECTION 8.
c. CAUSE. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "CAUSE" means:
Executive's engaging in gross misconduct materially and demonstrably
injurious to the Company; material failure to perform the services
required hereunder after written notice and an opportunity to cure, if
curable; or conviction by final judgment of a felony constituting
fraud, theft, embezzlement or homicide.
d. GOOD REASON. The Executive may terminate his employment for
Good Reason at any time in accordance with SECTION 5(e). For purposes of
this Agreement, "GOOD REASON" means (i) a material reduction in the nature or
scope of the Executive's position, title, status, authority, duties, powers
or functions on the date of this Agreement; (ii) the assignment to the
Executive of any material duties which are not commensurate with or at least
as prestigious as the Executive's duties and responsibilities as contemplated
by this Agreement; (iii) a material breach by the Company of any of the
provisions of this Agreement; (iv) the failure of TPEG to deliver any of the
Contingent Consideration or any of the Escrow Stock (as such terms are
defined in the Agreement of Merger by and among MWI Distribution, Inc., TPEG
and the Company dated July 15, 1998 (the "MERGER AGREEMENT")) as required
pursuant to the terms of the Merger Agreement; or (v) the failure by the
Company to obtain an agreement, reasonably satisfactory to the Executive,
from any successor to assume and agree to perform this Agreement, as
contemplated by SECTION 12(b); or (vi) after a "Change in Control," as
contemplated by SECTION 6(d).
e. NOTICE OF TERMINATION. Any termination by the Company for Cause
or Disability or by the Executive for Good Reason shall be communicated by a
written notice (a "NOTICE OF TERMINATION") to the other party hereto given in
accordance with SECTION 12(d). A "NOTICE OF TERMINATION" shall set forth in
reasonable detail the events giving rise to such termination. The Company may
deliver the Notice of Termination relating to a Disability on any day following
the 89th consecutive day of such Disability or the day following the 179th day
of disability during a period of 360 consecutive days.
f. DATE OF TERMINATION. For purposes of this Agreement, the term
"DATE OF TERMINATION" means (i) in the case of termination for Disability,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time performance of his duties
during such 30-day period); (ii) in the case of termination for Cause, a date
specified in the Notice of Termination (which shall not be less than 30 days nor
more than 60 days
4
<PAGE>
from the date such Notice of Termination is given); (iii) in the case of any
other termination for which a Notice of Termination is required, the date of
receipt of such Notice of Termination or, if later, the date specified
therein, as the case may be; and (iv) in all other cases, the actual date on
which the Executive's employment terminates during the Employment Period.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. DEATH, DISABILITY, CAUSE AND VOLUNTARY TERMINATION. If at any
time before or after a Change in Control the Executive's employment is
terminated by the Company during the Employment Period by reason of the
Executive's death, Disability or for Cause, or is voluntarily terminated by the
Executive (other than for Good Reason), the Company shall have no further
obligation to the Executive or the Executive's legal representatives other than
(i) those obligations earned for Base Salary and payments under any Company
bonus plan which may have accrued at the Date of Termination (the "ACCRUED
OBLIGATIONS"), (ii) those obligations expressly provided under any of the plans
referred to in SECTION 4(e) (the "BENEFIT RIGHTS") and (iii) upon a termination
of the Executive's employment by reason of his death, the payment provided in
SECTION 6(a)(i), if applicable, shall be paid to the Executive's estate in a
lump sum in cash within 15 days of the Date of Termination.
b. Prior to Change in Control, Termination by the Company other
than for Cause or Disability and Termination by the
Executive for Good Reason.
__________________________________________________________
i. LUMP SUM PAYMENTS. If during the Employment Period and
prior to a Change in Control (as defined below), the Company terminates the
Executive's employment other than for Cause or Disability, or the Executive
terminates his employment for Good Reason, the Company shall provide the Benefit
Rights and shall pay to the Executive in a lump sum in cash within fifteen (15)
days of the Date of Termination the sum of the following amounts: (A) the
Accrued Obligations; plus (B) an amount equal to the product of (1) one-twelfth
times (2) the sum of the Executive's Base Salary plus the Executive's average
annual bonus which was received for the three years ended before the Date of
Termination, times (3) the number of full or partial of months remaining in the
unexpired term of the Employment Period, but in no event less than twelve (12)
months (such period being the "SEVERANCE PERIOD").
ii. WELFARE BENEFITS. The Company shall provide or cause to be
provided to the Executive and his family for the Severance Period continued
life, medical, dental and disability insurance benefits at least equal to those
which the Executive was receiving or entitled to receive immediately prior to
the termination of employment described in SECTION 6(b)(i).
iii. OFFICE. For the Severance Period, the Company shall provide
the Executive with an office reasonably acceptable to him.
5
<PAGE>
iv. STOCK. If during the Employment Period and prior to a
Change in Control (as defined below), the Company terminates the Executive's
Employment other than for Cause or Disability, or the Executive terminates his
employment for Good Reason, Executive shall receive stock with a value at the
Date of Termination of $1.0 million if such termination occurs during the first
year of this Agreement; or Executive shall receive stock with a value of
$750,000 if such termination occurs within the second year of this Agreement; or
Executive shall receive stock with a value of $500,000 if such termination
occurs within the third year of this Agreement.
v. SAVINGS CLAUSE. Notwithstanding anything contained herein
to the contrary, any payment required to be made hereunder shall be reduced to
the maximum amount possible so that no excise tax is imposed on the Executive by
virtue of the receipt of such payment pursuant to the "golden parachute"
provisions of Section 4999 of the Internal Revenue Code of 1986, as amended, or
similar state statutes.
vi. DISCHARGE OF THE COMPANY'S OBLIGATIONS. The Company shall
have no further obligations to the Executive in respect of any termination other
than as described in this SECTION 6.
vii. GUARANTEE. TPEG irrevocably guarantees the payment and
performance of all covenants of and sums payable by the Company that arise under
this Agreement (the "GUARANTEED OBLIGATIONS"). The Guaranteed Obligations
include, without limitation, Base Salary, bonus and all amounts payable upon
termination of Executive's employment hereunder. TPEG is hereby providing a
guaranty of payment and performance of the Guaranteed Obligations and not to
collectibility. TPEG's guaranty hereunder is a continuing guaranty for all
present and future amounts. TPEG's guaranty shall not be affected by, and shall
cover, any amendment or modification to this Agreement, so long as TPEG or the
Company's Board of Directors approves such amendment or modification. TPEG's
liability hereunder shall continue until all the Guaranteed Obligations have
been paid and satisfied in full. TPEG hereby waives: (i) any right to require
Executive to pursue a remedy before proceeding against TPEG (provided that, with
respect to any of the Guaranteed Obligations that do not relate to the payment
or provision of money or benefits, Executive shall first seek recourse against
the Company, and with respect to all other Guaranteed Obligations, Executive
shall first provide the Company with 30 days written notice and a reasonable
opportunity to cure); (ii) subject to the preceding clause (i), demand,
diligence, presentment, and notices of protest, dishonor and nonpayment; (iii)
rights of subrogation or reimbursement; and (iv) defenses arising because of
Executive's election of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code. TPEG agrees that Executive may pursue available remedies
against the Company without impairing TPEG's obligations under this Agreement.
TPEG's guarantee shall remain in full force and effect should any of the
Company's authorized payments to Executive be avoided, set aside or recovered as
a preference, fraudulent transfer or fraudulent conveyance, even if TPEG has
given notice of revocation prior thereto or if the Company had paid and
performed in full the Guaranteed Obligations. TPEG's obligations under this
Agreement shall not be altered,
6
<PAGE>
limited or affected by any bankruptcy, insolvency, receivership or
liquidation proceeding regarding the Company.
c. Following Change in Control, Termination by the Company
other than for Cause or Disability and Termination by the
Executive for Good Reason.
________________________________________________________
i. LUMP SUM PAYMENTS. If during the Employment Period and
following a Change in Control, the Company terminates the Executive's employment
other than for Cause or Disability, or the Executive terminates his employment
for Good Reason, the Company shall provide the Benefits Rights and shall pay to
the Executive in a lump sum in cash within 15 days of the Date of Termination
the sum of the following amounts: (A) the Accrued Obligations; plus (B) an
amount equal to the product of (1) the greater of (i) 2.99 or (ii) one twelfth
multiplied by the number of full or partial of months remaining in the unexpired
term of the Employment Period, multiplied by (2) the sum of the Executive's Base
Salary plus the Executive's average annual bonus which was received for the
three years ended before the Date of Termination.
ii. WELFARE BENEFITS. The Company shall provide or cause to be
provided to the Executive and his family for a period of 36 months following
such termination continued life, medical and dental and disability insurance
benefits at least equal to those which the Executive was receiving or entitled
to receive immediately prior to the termination of employment described in
SECTION 6(c)(i).
iii. OFFICE. For a period of 36 months following such
termination, the Company shall provide the Executive with an office and an
executive secretary reasonably acceptable to him and other support services
reasonably appropriate to an executive of a public corporation.
iv. DISCHARGE OF THE COMPANY'S OBLIGATIONS. The Company shall
have no further obligations to the Executive in respect of any termination other
than as described in this SECTION 6.
d. CHANGE IN CONTROL. A Change in Control shall be deemed to have
occurred:
i. Following any merger, consolidation or recapitalization of
the Company (or, if the capital stock (the "STOCK") of the
Company is affected, any subsidiary of the Company) or any
sale, lease, or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party
as a single plan) of all or substantially all of the assets
of the Company (each of the foregoing being an "ACQUISITION
7
<PAGE>
TRANSACTION") where (x) the shareholders of the Company
immediately prior to such Acquisition Transaction would not
immediately after such Acquisition Transaction beneficially
own, directly or indirectly, shares representing in the
aggregate more than 65% of (A) the then outstanding common
stock of the corporation surviving or resulting from such
merger, consolidation or recapitalization or acquiring such
assets of the Company, as the case may be (the "SURVIVING
CORPORATION") (or of its ultimate parent corporation, if
any) and (B) the Combined Voting Power (as defined below) of
the then outstanding Voting Securities (as defined below) of
the Surviving Corporation (or of its ultimate parent
corporation, if any) or (y) the Incumbent Directors at the
time of the initial approval of such Acquisition Transaction
would not immediately after such Acquisition Transaction
constitute a majority of the Board of Directors of the
Surviving Corporation (or of its ultimate parent
corporation, if any); or
ii. any Person (as defined below) shall become the beneficial
owner (as defined in Rule 13d-3 and 13-d-5 under the
Exchange Act), directly or indirectly, of securities of the
Company representing in the aggregate 50% or more of either
(i) the then outstanding shares of Stock, or (ii) the
Combined Voting Power of all then outstanding Voting
Securities of the Company; PROVIDED; HOWEVER, that
notwithstanding the foregoing, a Change in Control of the
Company shall not be deemed to have occurred for purposes of
this SUBSECTION (2) solely as the result of an acquisition
of Stock by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding,
increases (i) the proportionate number of shares of Stock
beneficially owned by any Person to 20% or more of the
shares of Stock then outstanding or (ii) the proportionate
voting power represented by the Voting Securities
beneficially owned by any Person to 20% or more of the
Combined Voting Power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any Person referred
to in this clause (2) shall thereafter become the beneficial
owner of any additional shares of Stock or other Voting
Securities of the Company (other than pursuant to a stock
split, stock dividend or similar transaction or an
acquisition exempt under such SUBSECTION (ii), then a Change
in Control shall be deemed to have occurred for purposes of
this clause (ii).
iii. For purposes of this Agreement:
8
<PAGE>
(1) "PERSON" shall mean any individual,
entity (including, without limitation,
any corporation, partnership, trust,
joint venture, association or
governmental body and any successor to
any such entity) or group (as defined in
Sections 13(d)(3) or 14(d)(2) of the
Exchange Act and the rules and
regulations thereunder); PROVIDED,
HOWEVER, that Person shall not include
Executive, the Company, any of its
majority-owned subsidiaries, any
executive benefit plan of the Company or
any of its majority-owned subsidiaries
or any entity organized, appointed or
established by Executive, the Company or
any of its majority-owned subsidiaries
for or pursuant to the terms of any such
plan, or any of their affiliates;
(2) "VOTING SECURITIES" shall mean all
securities of a corporation having the
right under ordinary circumstances to
vote in an election of the board of
directors of such corporation;
(3) "COMBINED VOTING POWER" shall mean the
aggregate votes entitled to be cast
generally in the election of directors
of a corporation by holders of then
outstanding Voting Securities of such
corporation; and
(4) "COMPANY" shall mean the Company or
TPEG.
7. NO MITIGATION: NO OFFSET. In no event shall the Executive be
obligated to seek other employment by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Any amounts
that may be earned by the Executive other than from the Company after the Date
of Termination shall not reduce the Company's obligation to make any
9
<PAGE>
payments hereunder. The amounts payable by the Company hereunder shall not
be subject to any right of set-off that the Company may assert against the
Executive.
8. NONCOMPETITION.
a. SCOPE. In the case of the Executive's termination of employment,
including due to the expiration of the Employment Period, the Executive shall
not, during the Employment Period and for one year following the Date of
Termination (collectively, "EXECUTIVE RESTRICTED PERIOD"), (a) divert to any
competitor of the Company in the business conducted by the Company (the
"DESIGNATED INDUSTRY") any project of the Company that the Company has an option
to acquire or otherwise has control over; or (b) solicit or encourage any
officer, employee or consultant of the Company to leave their employ for
employment by or with any competitor of the Company in the Designated Industry.
If at any time the provisions of this SECTION 8 shall be determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this SECTION 8 shall be considered divisible and
shall become and be immediately amended to apply only to such area, duration and
scope of activity as shall be determined to be reasonable and enforceable by the
court or other body having jurisdiction over the matter; Employee agrees that
this SECTION 8 as so amended shall be valid and binding as though any invalid or
unenforceable provision had not been included herein. Nothing in this SECTION 8
shall prevent or restrict Employee from engaging in any business or industry in
the Designated Industry in any capacity.
b. IRREPARABLE HARM. The Executive agrees that the remedy at law
for any breach of this SECTION 8 shall be inadequate and that the Company shall
be entitled to injunctive relief.
c. COVENANT REGARDING CONFIDENTIALITY. All information about
the business and affairs of the Company which is not generally available to
the public or disclosed by the Company, and any information about the Company
which becomes generally available to the public as a result of a breach by
any person of any confidentiality obligation to the Company (including,
without limitation, its secrets and information about its business, financial
condition and performance, prospects, products, technology, know-how,
merchandising and advertising programs and plans, and the names of its
suppliers, customers and lenders and the nature of its dealings with them)
constitute "CONFIDENTIAL INFORMATION." Executive acknowledges that he will
have access to, and knowledge of, Confidential Information, and that improper
use or revelation of same by Executive, whether during or after the
termination of his employment by the Company, could cause serious injury to
the business of the Company. Accordingly, Executive agrees that, except as
required to perform his duties under this Agreement, or as required by law,
rule, or regulation, he will forever keep secret and inviolate, and will not
at any time, reveal, divulge or make known, any Confidential Information,
whether or not such Confidential Information was developed, devised or
otherwise created in whole or in party by the efforts of Executive.
Executive further agrees that he will provide the Company with ten (10) days
written notice prior to any disclosure of Confidential Information in order
to afford the Company sufficient time to seek injunctive relief to enjoin the
disclosure of the Confidential Information. The notice shall include the
date of the intended disclosure, a detailed
10
<PAGE>
description of the Confidential Information to be disclosed, the reason for
the Disclosure, and the party seeking disclosure of the Confidential
Information. Executive also agrees that he will not use any Confidential
Information for his own benefit or directly or indirectly for the benefit or
any person or organization other than the Company or its affiliates.
If Executive is compelled by subpoena or other formal judicial process
to disclose Confidential Information, he shall promptly give notice to the
Company. Upon receiving such notice, the Company shall provide legal counsel to
respond to the subpoena or other formal judicial process on behalf of Executive
at Company expense. Such legal counsel provided at the expense of the Company
shall make the determination as to the appropriate response to such subpoena or
formal judicial process on behalf of Executive.
9. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Executive, his heirs and personal representatives to the fullest extent
permitted by applicable law, as now or hereafter in effect, with respect to any
acts, omissions or events that occurred while the Executive is or was an
employee of the Company or serves or served the Company or any other corporation
or other enterprise of any kind in any capacity at the request of the Company
(an "Enterprise"). Without limiting the generality of the foregoing, the
Company shall promptly pay, or reimburse the Executive for, or advance to the
Executive amounts for the payment of (a) all of the Executive's reasonable
expenses, including attorneys' fees and court costs, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding,
including any suit seeking recovery under any Company director's and officer's
liability policy, or in connection with any appeal thereof, to which the
Executive may be a party by reason of any action taken or failure to act under
or in connection with his service for the Company or an Enterprise; and (b) all
amounts required to be paid in settlement of or in satisfaction of a judgment in
connection with any such action, suit or proceeding; provided, however, that the
Company shall not be required to indemnify or hold harmless the Executive, his
heirs or personal representatives in any manner whatsoever in the event and to
the extent there is a final and nonappealable judgment by a court of competent
jurisdiction that the liability incurred by the Executive resulted from his
gross negligence, fraud or willful malfeasance.
10. ARBITRATION. If a dispute arises between Executive and/or the Company
and/or TPEG and/or any of the parties or beneficiaries to this Agreement,
respecting the terms of this Agreement or Executive's employment, including,
without limitation, any dispute with respect to the validity of this Agreement
or this arbitration clause, such dispute shall be finally resolved by binding
arbitration as follows. Any party may require that the dispute be submitted to
binding arbitration, and in such event the dispute shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. If a matter is submitted to arbitration, each of the
parties shall choose one arbitrator. The arbitrators selected by the two
parties shall choose a third arbitrator who shall act as chairman and shall be
an attorney and a member of the panel of the American Arbitration Association.
Each party shall agree to a speedy hearing upon the matter in dispute and the
judgment upon the award rendered by the arbitrators may be entered in any
11
<PAGE>
court having jurisdiction thereof. The place of arbitration shall be Los
Angeles, California. Notwithstanding anything to the contrary contained
herein, no discovery shall be permitted in the arbitration proceeding.
11. SUCCESSORS.
a. This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than to a trust created for the benefit of the Executive or his
ancestors, descendants or spouse or by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company shall require any successor to all
or substantially all of the business and/or assets of the Company, whether
direct or indirect, by an agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement.
12. MISCELLANEOUS.
a. EXECUTIVE'S ADDITIONAL TERMINATION RIGHTS. Executive may
terminate this Employment Agreement if (i) TPEG fails to timely file a proxy
statement in connection with an Annual Meeting of TPEG Stockholders to be held
on or before December 31, 1998 requesting approval that the Company be
authorized to issue Parent Common Stock in lieu of Series B Preferred Stock
currently required under the Merger Agreement (as such terms are defined in the
Merger Agreement) (the "Annual Meeting:) or (ii) the TPEG stockholders fail to
approve the matters discussed in (i) above at the Annual Meeting.
Notwithstanding anything contained in this Agreement or in the Merger Agreement,
in the event that the Executive elects to terminate this Agreement pursuant to
this Section 12(a), then the Executive shall not be entitled to receive any
further benefits hereunder and shall forfeit the right to receive the Contingent
Payments (as such term is defined in the Merger Agreement).
b. WITHHOLDING. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
c. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of California, applied without reference
to principles of conflict of laws.
d. AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
12
<PAGE>
e. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered or mailed
to the other party by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Thomas Daniels
c/o The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse 1
Los Angeles, CA 90036
with a copy to:
Michael Wolf, Esq.
Wolf, Rifkin & Shapiro, LLP
11400 West Olympic Boulevard, Ninth Floor
Los Angeles, CA 90064
If to the Company:
The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse 1
Los Angeles, CA 90036
or to such other address as either party shall have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only when actually received by the addressee.
f. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
g. WAIVER. Waiver by any party hereto of any breach or default by
any other party of any of the terms of this Agreement shall not operate as a
waiver of any other breach or default, whether similar to or different from the
breach or default waived.
h. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters referred to
herein, and no other agreement, verbal or otherwise, shall be binding as between
the parties unless it is in writing and signed by the party against whom
enforcement is sought. All prior and contemporaneous agreements and
understandings between the parties with respect to the subject matter of this
Agreement are
13
<PAGE>
superseded by this Agreement.
i. SURVIVAL. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
j. CAPTIONS AND REFERENCES. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. References in
this Agreement to a section number are references to sections of the Agreement
unless otherwise specified.
k. CONSENT TO JURISDICTION. Subject to the right to arbitrate, each
of the parties to this Agreement hereby submits to the exclusive jurisdiction of
the courts of the State of California and the Federal courts of the United
States of America located in such state solely in respect of the interpretation
and enforcement of the provisions of this Agreement, and hereby waives, and
agrees not to assert, as a defense in any action, suit or proceeding for the
interpretation and enforcement of this Agreement, that it is not subject
thereto; that such action, suit or proceeding may not be brought or is not
maintainable in said courts; that this Agreement may not be enforced in or by
said courts; that its property is exempt or immune from execution; that the
suit, action or proceeding is brought in an inconvenient forum; or that the
venue of the suit, action or proceeding is improper. Each of the parties agrees
that service of process in any such action, suit or proceeding shall be deemed
in every respect effective service of process upon it if given in the manner set
forth in Section 12(d).
14
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf all
as of the day and year first above written.
TPEG MERGER COMPANY THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /s/ IRWIN MEYER By:/s/ IRWIN MEYER
---------------------- --------------------------
Its: President Its: Chief Executive Officer
By: /s/ ARTHUR BERNSTEIN By: /s/ ARTHUR BERNSTEIN
---------------------- --------------------------
Its: Secretary Its: Secretary
Dated: July 15, 1998 Dated: July 15, 1998
------------------- ------------------------
THOMAS DANIELS
/s/ THOMAS DANIELS Dated: July 15, 1998
- ---------------------- -----------------------
15
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, PRE-TAX NET INCOME(1)
- -------------------------- ---------------------
<S> <C>
1999 $ 750,000.00
2000 $ 900,000.00
2001 $ 1,100,000.00
2002 $ 1,325,000.00
2003 $ 1,500,000.00
</TABLE>
- ---------------------------------------------------------------------------
(1) Pre-Tax Net Income means Pre-Tax Net Income as defined in the
Merger Agreement.
16
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and among TPEG MERGER COMPANY, A CALIFORNIA CORPORATION
(the "COMPANY"), and CRAIG SUSSMAN ("EXECUTIVE"), a California resident, dated
as of the15th day of July, 1998.
W I T N E S S E T H
WHEREAS, the Company wishes to employ the Executive for the period
provided in this Agreement, and the Executive is willing to serve in the employ
of the Company on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue his employment with
the Company, on the terms and subject to the conditions set forth herein.
2. TERM OF EMPLOYMENT. The term of the Executive's employment under this
Agreement shall commence as of July 15, 1998 and shall end on the earlier of (i)
the five (5) year anniversary thereof (the "EMPLOYMENT PERIOD") or (ii) the date
of termination in accordance with SECTION 5 hereof (the "TERM").
3. TITLES AND RESPONSIBILITIES.
a. TITLES. During the Employment Period, the Executive shall serve
as the Chief Executive Officer of the Company. For purposes of definitions
under this Agreement, the other "Executive Officers" of The Producers
Entertainment Group Ltd. ("TPEG") are defined as the TPEG individuals required
to file Forms 3, 4, and 5 with the Securities and Exchange Commission, due to
their officer positions.
b. RESPONSIBILITIES. Company hereby engages Executive to provide
his exclusive services to supervise the exploitation and sale of such motion
pictures and television programs to financiers, distributors, television
networks, syndicator, cable systems, motion picture studios, video companies,
video distributors and other buyers or licensees of such product throughout the
world.
Executive shall be the Company's most senior executive and shall be
responsible for supervising and overseeing the Company's day to day operations.
Executive shall have control, to the extent appropriate, over decisions and
policies relating to business and financial affairs, strategic planning, program
acquisitions, sales, financial planning and control, relations with third party
suppliers, employee hiring and termination, and general administrative matters,
within the annual
1
<PAGE>
business plan once approved by the Board of Directors of TPEG each year,
pursuant to the Merger Agreement.
Pursuant to the terms and conditions hereof, Executive hereby accepts
such engagement. The Executive shall report and be responsible to the Board of
Directors of TPEG and must receive board approval from the Company's Board of
Directors on such matters as required by the California General Corporation Law.
In the event that Craig Sussman does not serve as Chief Executive
Officer of the Company for the entire Employment Period as defined herein, then
Tom Daniels shall be elevated from his position of President of the Company to
Chief Executive Officer of the Company and shall assume the responsibilities of
Chief Executive Officer of the Company for the remainder of the Employment
Period.
c. PLACE OF PERFORMANCE. During the Employment Period, the
Executive's office shall be located at the offices of the Company (subject to
travel), which shall be in Los Angeles metropolitan areas, except for required
business travel consistent with the Executive's position. The Company shall
provide the Executive with an office reasonably acceptable to him, and other
support reasonably appropriate to his duties.
d. BUSINESS TIME. During the Employment Period, the Executive
agrees to devote his full business time during normal business hours to the
business and affairs of the Company and to use his best efforts to perform
faithfully, diligently and competently the responsibilities assigned to him
hereunder, to the extent necessary to discharge such responsibilities, except
for (i) time spent serving on corporate, civic or charitable boards or
committees only if and to the extent not substantially interfering with the
performance of such responsibilities, (ii) periods of vacation, disability and
sick leave to which he is entitled, and (iii) reasonable activities having a
charitable, educational or other public interest purpose.
4. COMPENSATION.
a. BASE SALARY; BONUSES. During the Employment Period, the
Executive shall receive an annual base salary ("BASE SALARY") equal to THREE
HUNDRED THOUSAND DOLLARS ($300,000.00), payable in accordance with the customary
payroll procedures as in effect from time to time for senior executives of the
Company. In the event that the Company achieves the profit levels set forth
on EXHIBIT A hereto, for such year, or achieves the profit levels set forth in
the annual business plan approved by the Board of Directors of TPEG, then for
each such year Executive shall be entitled to an annual increase equal to
fifteen percent (15%) of the then applicable Base Salary. Notwithstanding the
foregoing sentence, in no event shall the Base Salary exceed the total sum of
Five Hundred Thousand Dollars ($500,000.00). Additionally, for any year where
the Company achieves the profit levels as defined in the Merger Agreement and as
set forth in EXHIBIT A hereto, for such year, or achieves the profit levels set
forth in the annual business plan approved by the Board of Directors of TPEG,
the compensation committee of the Board of Directors of TPEG shall
2
<PAGE>
authorize the payment of a bonus, in cash or in kind, in an amount
representing the equivalent of a minimum of ten percent (10%) of Executive's
Base Salary for the preceding year. This bonus shall be calculated based
solely on annual earnings figures and earnings figures shall not be
cumulative with earnings figures from other years.
b. VACATION. During the Employment Period, the Executive shall be
entitled to four (4) weeks paid vacation per year, to be accrued and taken in
accordance with the Company's vacation policy.
c. EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable and required
business-related expenses incurred by the Executive in accordance with the
policies and procedures of TPEG, as applicable to the Executive Officers of
TPEG.
d. AUTOMOBILE REIMBURSEMENT. During the Term, Executive shall be
entitled to receive a monthly automobile reimbursement in the total amount of
One Thousand Dollars ($1,000.00) (the "AUTOMOBILE REIMBURSEMENT"), payable
monthly on the first day of each month commencing on the first day of the month
following the effective date of the Merger (as such term is defined in the
Merger Agreement) (the "REIMBURSEMENT DATE"); PROVIDED, HOWEVER, that the
Automobile Reimbursement shall include the PRO RATA amount dated from the
effective date of the Merger, for the first month only. The Automobile
Reimbursement shall be increased to One Thousand Two Hundred Dollars ($1,200) on
the one year anniversary of the Reimbursement Date.
e. OTHER EXECUTIVE BENEFITS. Without limiting the foregoing
provisions of this SECTION 4, during the Employment Period the Executive shall
be entitled to participate in or be covered under all compensation, bonus,
pension, retirement and welfare and fringe benefit plans, programs and policies
of the Company applicable to the Executive Officers of TPEG. Attached hereto as
EXHIBIT B is a true and correct copy of the Company's Employee Handbook.
Additionally, the Company agrees to purchase disability insurance if available
from an insurance carrier for a price not to exceed Six Thousand Dollars
($6,000) in annual premiums. If Executive wishes to obtain disability insurance
requiring a higher annual premium, he shall be permitted to pay the extra
annual premium amount above the annual premium amount paid by the Company.
5. TERMINATION.
a. DEATH OR DISABILITY. The Executive's employment pursuant to this
Agreement shall terminate automatically upon the Executive's death. The Company
may terminate the Executive's employment for Disability by giving to the
Executive notice of its intention in accordance with SECTION 5(e) unless
Executive returns to the performance of the essential functions of his
employment within thirty (30) days after receipt of such notice. For purposes
of this Agreement, "DISABILITY" means any physical or mental condition that
renders the Executive unable to perform the essential functions of his
employment for 90 consecutive days or for a total of 180 days in any period of
360 consecutive days.
3
<PAGE>
b. VOLUNTARY TERMINATION AFTER CHANGE IN CONTROL. Notwithstanding
anything in this Agreement to the contrary, the Executive may voluntarily
terminate his employment at any time, after a Change in Control (as defined
below), (i) for any reason upon six months' written notice to the Company, or
(ii) if termination is for Good Reason or on account of the Executive's serious
illness, upon written notice pursuant to SECTION 5(e) but without any notice
period. In the event of any termination pursuant to this SECTION 5(b), the
Executive shall have no further obligation to the Company under this Agreement,
except as provided in SECTION 8.
c. CAUSE. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "CAUSE" means:
Executive's engaging in gross misconduct materially and demonstrably
injurious to the Company; material failure to perform the services
required hereunder after written notice and an opportunity to cure, if
curable; or conviction by final judgment of a felony constituting
fraud, theft, embezzlement or homicide.
d. GOOD REASON. The Executive may terminate his employment for
Good Reason at any time in accordance with SECTION 5(e). For purposes of
this Agreement, "GOOD REASON" means (i) a material reduction in the nature or
scope of the Executive's position, title, status, authority, duties, powers
or functions on the date of this Agreement; (ii) the assignment to the
Executive of any material duties which are not commensurate with or at least
as prestigious as the Executive's duties and responsibilities as contemplated
by this Agreement; (iii) a material breach by the Company of any of the
provisions of this Agreement; (iv) the failure of TPEG to deliver any of the
Contingent Consideration or any of the Escrow Stock (as such terms are
defined in the Agreement of Merger by and among MWI Distribution, Inc., TPEG
and the Company dated July 15, 1998 (the "MERGER AGREEMENT")) as required
pursuant to the terms of the Merger Agreement; or (v) the failure by the
Company to obtain an agreement, reasonably satisfactory to the Executive,
from any successor to assume and agree to perform this Agreement, as
contemplated by SECTION 12(b); or (vi) after a "Change in Control," as
contemplated by SECTION 6(d).
e. NOTICE OF TERMINATION. Any termination by the Company for Cause
or Disability or by the Executive for Good Reason shall be communicated by a
written notice (a "NOTICE OF TERMINATION") to the other party hereto given in
accordance with SECTION 12(d). A "NOTICE OF TERMINATION" shall set forth in
reasonable detail the events giving rise to such termination. The Company may
deliver the Notice of Termination relating to a Disability on any day following
the 89th consecutive day of such Disability or the day following the 179th day
of disability during a period of 360 consecutive days.
f. DATE OF TERMINATION. For purposes of this Agreement, the term
"DATE OF TERMINATION" means (i) in the case of termination for Disability,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time performance of his duties
during such 30-day period); (ii) in the case of termination for Cause, a date
specified in the Notice of Termination (which shall not be less than 30 days nor
more than 60 days
4
<PAGE>
from the date such Notice of Termination is given); (iii) in the case of any
other termination for which a Notice of Termination is required, the date of
receipt of such Notice of Termination or, if later, the date specified
therein, as the case may be; and (iv) in all other cases, the actual date on
which the Executive's employment terminates during the Employment Period.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. DEATH, DISABILITY, CAUSE AND VOLUNTARY TERMINATION. If at any
time before or after a Change in Control the Executive's employment is
terminated by the Company during the Employment Period by reason of the
Executive's death, Disability or for Cause, or is voluntarily terminated by the
Executive (other than for Good Reason), the Company shall have no further
obligation to the Executive or the Executive's legal representatives other than
(i) those obligations earned for Base Salary and payments under any Company
bonus plan which may have accrued at the Date of Termination (the "ACCRUED
OBLIGATIONS"), (ii) those obligations expressly provided under any of the plans
referred to in SECTION 4(e) (the "BENEFIT RIGHTS") and (iii) upon a termination
of the Executive's employment by reason of his death, the payment provided in
SECTION 6(a)(i), if applicable, shall be paid to the Executive's estate in a
lump sum in cash within 15 days of the Date of Termination.
b. Prior to Change in Control, Termination by the Company other
than for Cause or Disability and Termination by the
Executive for Good Reason.
__________________________________________________________
i. LUMP SUM PAYMENTS. If during the Employment Period and
prior to a Change in Control (as defined below), the Company terminates the
Executive's employment other than for Cause or Disability, or the Executive
terminates his employment for Good Reason, the Company shall provide the Benefit
Rights and shall pay to the Executive in a lump sum in cash within fifteen (15)
days of the Date of Termination the sum of the following amounts: (A) the
Accrued Obligations; plus (B) an amount equal to the product of (1) one-twelfth
times (2) the sum of the Executive's Base Salary plus the Executive's average
annual bonus which was received for the three years ended before the Date of
Termination, times (3) the number of full or partial of months remaining in the
unexpired term of the Employment Period, but in no event less than twelve (12)
months (such period being the "SEVERANCE PERIOD").
ii. WELFARE BENEFITS. The Company shall provide or cause to be
provided to the Executive and his family for the Severance Period continued
life, medical, dental and disability insurance benefits at least equal to those
which the Executive was receiving or entitled to receive immediately prior to
the termination of employment described in SECTION 6(b)(i).
iii. OFFICE. For the Severance Period, the Company shall provide
the Executive with an office reasonably acceptable to him.
5
<PAGE>
iv. STOCK. If during the Employment Period and prior to a
Change in Control (as defined below), the Company terminates the Executive's
Employment other than for Cause or Disability, or the Executive terminates his
employment for Good Reason, Executive shall receive stock with a value at the
Date of Termination of $1.0 million if such termination occurs during the first
year of this Agreement; or Executive shall receive stock with a value of
$750,000 if such termination occurs within the second year of this Agreement; or
Executive shall receive stock with a value of $500,000 if such termination
occurs within the third year of this Agreement.
v. SAVINGS CLAUSE. Notwithstanding anything contained herein
to the contrary, any payment required to be made hereunder shall be reduced to
the maximum amount possible so that no excise tax is imposed on the Executive by
virtue of the receipt of such payment pursuant to the "golden parachute"
provisions of Section 4999 of the Internal Revenue Code of 1986, as amended, or
similar state statutes.
vi. DISCHARGE OF THE COMPANY'S OBLIGATIONS. The Company shall
have no further obligations to the Executive in respect of any termination other
than as described in this SECTION 6.
vii. GUARANTEE. TPEG irrevocably guarantees the payment and
performance of all covenants of and sums payable by the Company that arise under
this Agreement (the "GUARANTEED OBLIGATIONS"). The Guaranteed Obligations
include, without limitation, Base Salary, bonus and all amounts payable upon
termination of Executive's employment hereunder. TPEG is hereby providing a
guaranty of payment and performance of the Guaranteed Obligations and not to
collectibility. TPEG's guaranty hereunder is a continuing guaranty for all
present and future amounts. TPEG's guaranty shall not be affected by, and shall
cover, any amendment or modification to this Agreement, so long as TPEG or the
Company's Board of Directors approves such amendment or modification. TPEG's
liability hereunder shall continue until all the Guaranteed Obligations have
been paid and satisfied in full. TPEG hereby waives: (i) any right to require
Executive to pursue a remedy before proceeding against TPEG (provided that, with
respect to any of the Guaranteed Obligations that do not relate to the payment
or provision of money or benefits, Executive shall first seek recourse against
the Company, and with respect to all other Guaranteed Obligations, Executive
shall first provide the Company with 30 days written notice and a reasonable
opportunity to cure); (ii) subject to the preceding clause (i), demand,
diligence, presentment, and notices of protest, dishonor and nonpayment; (iii)
rights of subrogation or reimbursement; and (iv) defenses arising because of
Executive's election of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code. TPEG agrees that Executive may pursue available remedies
against the Company without impairing TPEG's obligations under this Agreement.
TPEG's guarantee shall remain in full force and effect should any of the
Company's authorized payments to Executive be avoided, set aside or recovered as
a preference, fraudulent transfer or fraudulent conveyance, even if TPEG has
given notice of revocation prior thereto or if the Company had paid and
performed in full the Guaranteed Obligations. TPEG's obligations under this
Agreement shall not be altered,
6
<PAGE>
limited or affected by any bankruptcy, insolvency, receivership or
liquidation proceeding regarding the Company.
c. Following Change in Control, Termination by the Company
other than for Cause or Disability and Termination by the
Executive for Good Reason.
________________________________________________________
i. LUMP SUM PAYMENTS. If during the Employment Period and
following a Change in Control, the Company terminates the Executive's employment
other than for Cause or Disability, or the Executive terminates his employment
for Good Reason, the Company shall provide the Benefits Rights and shall pay to
the Executive in a lump sum in cash within 15 days of the Date of Termination
the sum of the following amounts: (A) the Accrued Obligations; plus (B) an
amount equal to the product of (1) the greater of (i) 2.99 or (ii) one twelfth
multiplied by the number of full or partial of months remaining in the unexpired
term of the Employment Period, multiplied by (2) the sum of the Executive's Base
Salary plus the Executive's average annual bonus which was received for the
three years ended before the Date of Termination.
ii. WELFARE BENEFITS. The Company shall provide or cause to be
provided to the Executive and his family for a period of 36 months following
such termination continued life, medical and dental and disability insurance
benefits at least equal to those which the Executive was receiving or entitled
to receive immediately prior to the termination of employment described in
SECTION 6(c)(i).
iii. OFFICE. For a period of 36 months following such
termination, the Company shall provide the Executive with an office and an
executive secretary reasonably acceptable to him and other support services
reasonably appropriate to an executive of a public corporation.
iv. DISCHARGE OF THE COMPANY'S OBLIGATIONS. The Company shall
have no further obligations to the Executive in respect of any termination other
than as described in this SECTION 6.
d. CHANGE IN CONTROL. A Change in Control shall be deemed to have
occurred:
i. Following any merger, consolidation or recapitalization of
the Company (or, if the capital stock (the "STOCK") of the
Company is affected, any subsidiary of the Company) or any
sale, lease, or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party
as a single plan) of all or substantially all of the assets
of the Company (each of the foregoing being an "ACQUISITION
7
<PAGE>
TRANSACTION") where (x) the shareholders of the Company
immediately prior to such Acquisition Transaction would not
immediately after such Acquisition Transaction beneficially
own, directly or indirectly, shares representing in the
aggregate more than 65% of (A) the then outstanding common
stock of the corporation surviving or resulting from such
merger, consolidation or recapitalization or acquiring such
assets of the Company, as the case may be (the "SURVIVING
CORPORATION") (or of its ultimate parent corporation, if
any) and (B) the Combined Voting Power (as defined below) of
the then outstanding Voting Securities (as defined below) of
the Surviving Corporation (or of its ultimate parent
corporation, if any) or (y) the Incumbent Directors at the
time of the initial approval of such Acquisition Transaction
would not immediately after such Acquisition Transaction
constitute a majority of the Board of Directors of the
Surviving Corporation (or of its ultimate parent
corporation, if any); or
ii. any Person (as defined below) shall become the beneficial
owner (as defined in Rule 13d-3 and 13-d-5 under the
Exchange Act), directly or indirectly, of securities of the
Company representing in the aggregate 50% or more of either
(i) the then outstanding shares of Stock, or (ii) the
Combined Voting Power of all then outstanding Voting
Securities of the Company; PROVIDED; HOWEVER, that
notwithstanding the foregoing, a Change in Control of the
Company shall not be deemed to have occurred for purposes of
this SUBSECTION (2) solely as the result of an acquisition
of Stock by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding,
increases (i) the proportionate number of shares of Stock
beneficially owned by any Person to 20% or more of the
shares of Stock then outstanding or (ii) the proportionate
voting power represented by the Voting Securities
beneficially owned by any Person to 20% or more of the
Combined Voting Power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any Person referred
to in this clause (2) shall thereafter become the beneficial
owner of any additional shares of Stock or other Voting
Securities of the Company (other than pursuant to a stock
split, stock dividend or similar transaction or an
acquisition exempt under such SUBSECTION (ii), then a Change
in Control shall be deemed to have occurred for purposes of
this clause (ii).
iii. For purposes of this Agreement:
8
<PAGE>
(1) "PERSON" shall mean any individual,
entity (including, without limitation,
any corporation, partnership, trust,
joint venture, association or
governmental body and any successor to
any such entity) or group (as defined in
Sections 13(d)(3) or 14(d)(2) of the
Exchange Act and the rules and
regulations thereunder); PROVIDED,
HOWEVER, that Person shall not include
Executive, the Company, any of its
majority-owned subsidiaries, any
executive benefit plan of the Company or
any of its majority-owned subsidiaries
or any entity organized, appointed or
established by Executive, the Company or
any of its majority-owned subsidiaries
for or pursuant to the terms of any such
plan, or any of their affiliates;
(2) "VOTING SECURITIES" shall mean all
securities of a corporation having the
right under ordinary circumstances to
vote in an election of the board of
directors of such corporation;
(3) "COMBINED VOTING POWER" shall mean the
aggregate votes entitled to be cast
generally in the election of directors
of a corporation by holders of then
outstanding Voting Securities of such
corporation; and
(4) "COMPANY" shall mean the Company or
TPEG.
7. NO MITIGATION: NO OFFSET. In no event shall the Executive be
obligated to seek other employment by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Any amounts
that may be earned by the Executive other than from the Company after the Date
of Termination shall not reduce the Company's obligation to make any
9
<PAGE>
payments hereunder. The amounts payable by the Company hereunder shall not
be subject to any right of set-off that the Company may assert against the
Executive.
8. NONCOMPETITION.
a. SCOPE. In the case of the Executive's termination of employment,
including due to the expiration of the Employment Period, the Executive shall
not, during the Employment Period and for one year following the Date of
Termination (collectively, "EXECUTIVE RESTRICTED PERIOD"), (a) divert to any
competitor of the Company in the business conducted by the Company (the
"DESIGNATED INDUSTRY") any project of the Company that the Company has an option
to acquire or otherwise has control over; or (b) solicit or encourage any
officer, employee or consultant of the Company to leave their employ for
employment by or with any competitor of the Company in the Designated Industry.
If at any time the provisions of this SECTION 8 shall be determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this SECTION 8 shall be considered divisible and
shall become and be immediately amended to apply only to such area, duration and
scope of activity as shall be determined to be reasonable and enforceable by the
court or other body having jurisdiction over the matter; Employee agrees that
this SECTION 8 as so amended shall be valid and binding as though any invalid or
unenforceable provision had not been included herein. Nothing in this SECTION 8
shall prevent or restrict Employee from engaging in any business or industry in
the Designated Industry in any capacity.
b. IRREPARABLE HARM. The Executive agrees that the remedy at law
for any breach of this SECTION 8 shall be inadequate and that the Company shall
be entitled to injunctive relief.
c. COVENANT REGARDING CONFIDENTIALITY. All information about
the business and affairs of the Company which is not generally available to
the public or disclosed by the Company, and any information about the Company
which becomes generally available to the public as a result of a breach by
any person of any confidentiality obligation to the Company (including,
without limitation, its secrets and information about its business, financial
condition and performance, prospects, products, technology, know-how,
merchandising and advertising programs and plans, and the names of its
suppliers, customers and lenders and the nature of its dealings with them)
constitute "CONFIDENTIAL INFORMATION." Executive acknowledges that he will
have access to, and knowledge of, Confidential Information, and that improper
use or revelation of same by Executive, whether during or after the
termination of his employment by the Company, could cause serious injury to
the business of the Company. Accordingly, Executive agrees that, except as
required to perform his duties under this Agreement, or as required by law,
rule, or regulation, he will forever keep secret and inviolate, and will not
at any time, reveal, divulge or make known, any Confidential Information,
whether or not such Confidential Information was developed, devised or
otherwise created in whole or in party by the efforts of Executive.
Executive further agrees that he will provide the Company with ten (10) days
written notice prior to any disclosure of Confidential Information in order
to afford the Company sufficient time to seek injunctive relief to enjoin the
disclosure of the Confidential Information. The notice shall include the
date of the intended disclosure, a detailed
10
<PAGE>
description of the Confidential Information to be disclosed, the reason for
the Disclosure, and the party seeking disclosure of the Confidential
Information. Executive also agrees that he will not use any Confidential
Information for his own benefit or directly or indirectly for the benefit or
any person or organization other than the Company or its affiliates.
If Executive is compelled by subpoena or other formal judicial process
to disclose Confidential Information, he shall promptly give notice to the
Company. Upon receiving such notice, the Company shall provide legal counsel to
respond to the subpoena or other formal judicial process on behalf of Executive
at Company expense. Such legal counsel provided at the expense of the Company
shall make the determination as to the appropriate response to such subpoena or
formal judicial process on behalf of Executive.
9. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Executive, his heirs and personal representatives to the fullest extent
permitted by applicable law, as now or hereafter in effect, with respect to any
acts, omissions or events that occurred while the Executive is or was an
employee of the Company or serves or served the Company or any other corporation
or other enterprise of any kind in any capacity at the request of the Company
(an "Enterprise"). Without limiting the generality of the foregoing, the
Company shall promptly pay, or reimburse the Executive for, or advance to the
Executive amounts for the payment of (a) all of the Executive's reasonable
expenses, including attorneys' fees and court costs, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding,
including any suit seeking recovery under any Company director's and officer's
liability policy, or in connection with any appeal thereof, to which the
Executive may be a party by reason of any action taken or failure to act under
or in connection with his service for the Company or an Enterprise; and (b) all
amounts required to be paid in settlement of or in satisfaction of a judgment in
connection with any such action, suit or proceeding; provided, however, that the
Company shall not be required to indemnify or hold harmless the Executive, his
heirs or personal representatives in any manner whatsoever in the event and to
the extent there is a final and nonappealable judgment by a court of competent
jurisdiction that the liability incurred by the Executive resulted from his
gross negligence, fraud or willful malfeasance.
10. ARBITRATION. If a dispute arises between Executive and/or the Company
and/or TPEG and/or any of the parties or beneficiaries to this Agreement,
respecting the terms of this Agreement or Executive's employment, including,
without limitation, any dispute with respect to the validity of this Agreement
or this arbitration clause, such dispute shall be finally resolved by binding
arbitration as follows. Any party may require that the dispute be submitted to
binding arbitration, and in such event the dispute shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. If a matter is submitted to arbitration, each of the
parties shall choose one arbitrator. The arbitrators selected by the two
parties shall choose a third arbitrator who shall act as chairman and shall be
an attorney and a member of the panel of the American Arbitration Association.
Each party shall agree to a speedy hearing upon the matter in dispute and the
judgment upon the award rendered by the arbitrators may be entered in any
11
<PAGE>
court having jurisdiction thereof. The place of arbitration shall be Los
Angeles, California. Notwithstanding anything to the contrary contained
herein, no discovery shall be permitted in the arbitration proceeding.
11. SUCCESSORS.
a. This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than to a trust created for the benefit of the Executive or his
ancestors, descendants or spouse or by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company shall require any successor to all
or substantially all of the business and/or assets of the Company, whether
direct or indirect, by an agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement.
12. MISCELLANEOUS.
a. EXECUTIVE'S ADDITIONAL TERMINATION RIGHTS. Executive may
terminate this Employment Agreement if (i) TPEG fails to timely file a proxy
statement in connection with an Annual Meeting of TPEG Stockholders to be held
on or before December 31, 1998 requesting approval that the Company be
authorized to issue Parent Common Stock in lieu of Series B Preferred Stock
currently required under the Merger Agreement (as such terms are defined in the
Merger Agreement) (the "Annual Meeting:) or (ii) the TPEG stockholders fail to
approve the matters discussed in (i) above at the Annual Meeting.
Notwithstanding anything contained in this Agreement or in the Merger Agreement,
in the event that the Executive elects to terminate this Agreement pursuant to
this Section 12(a), then the Executive shall not be entitled to receive any
further benefits hereunder and shall forfeit the right to receive the Contingent
Payments (as such term is defined in the Merger Agreement).
b. WITHHOLDING. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
c. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of California, applied without reference
to principles of conflict of laws.
12
<PAGE>
d. AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
e. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered or mailed
to the other party by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Craig Sussman
c/o The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse 1
Los Angeles, CA 90036
with a copy to:
Michael Wolf, Esq.
Wolf, Rifkin & Shapiro, LLP
11400 West Olympic Boulevard, Ninth Floor
Los Angeles, CA 90064
If to the Company:
The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse 1
Los Angeles, CA 90036
or to such other address as either party shall have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only when actually received by the addressee.
f. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
g. WAIVER. Waiver by any party hereto of any breach or default by
any other party of any of the terms of this Agreement shall not operate as a
waiver of any other breach or default, whether similar to or different from the
breach or default waived.
h. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters referred to
herein, and no other agreement, verbal or
13
<PAGE>
otherwise, shall be binding as between the parties unless it is in writing
and signed by the party against whom enforcement is sought. All prior and
contemporaneous agreements and understandings between the parties with
respect to the subject matter of this Agreement are superseded by this
Agreement.
i. SURVIVAL. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
j. CAPTIONS AND REFERENCES. The captions of this Agreement are not
part of the
provisions hereof and shall have no force or effect. References in this
Agreement to a section number are references to sections of the Agreement unless
otherwise specified.
k. CONSENT TO JURISDICTION. Subject to the right to arbitrate, each
of the parties to this Agreement hereby submits to the exclusive jurisdiction of
the courts of the State of California and the Federal courts of the United
States of America located in such state solely in respect of the interpretation
and enforcement of the provisions of this Agreement, and hereby waives, and
agrees not to assert, as a defense in any action, suit or proceeding for the
interpretation and enforcement of this Agreement, that it is not subject
thereto; that such action, suit or proceeding may not be brought or is not
maintainable in said courts; that this Agreement may not be enforced in or by
said courts; that its property is exempt or immune from execution; that the
suit, action or proceeding is brought in an inconvenient forum; or that the
venue of the suit, action or proceeding is improper. Each of the parties agrees
that service of process in any such action, suit or proceeding shall be deemed
in every respect effective service of process upon it if given in the manner set
forth in SECTION 12(d).
14
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf all
as of the day and year first above written.
TPEG MERGER COMPANY THE PRODUCERS ENTERTAINMENT GROUP LTD.
By: /s/ IRWIN MEYER By:/s/ IRWIN MEYER
---------------------- -------------------------
Its: President Its: Chief Executive Officer
By: /s/ ARTHUR BERNSTEIN By: /s/ ARTHUR BERNSTEIN
---------------------- -------------------------
Its: Secretary Its: Secretary
Dated: July 15, 1998 Dated: July 15, 1998
------------------- ---------------------
CRAIG SUSSMAN
/s/ CRAIG SUSSMAN Dated: July 15, 1998
---------------------- ---------------------
15
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, PRE-TAX NET INCOME(1)
-------------------------- ----------------------
<S> <C>
1999 $ 750,000.00
2000 $ 900,000.00
2001 $ 1,100,000.00
2002 $ 1,325,000.00
2003 $ 1,500,000.00
</TABLE>
- ---------------------------------------------------------------------------
(1)PRE-TAX NET INCOME MEANS PRE-TAX NET INCOME AS DEFINED IN THE
MERGER AGREEMENT.
16
<PAGE>
EXHIBIT 10.3
ESCROW INSTRUCTIONS
THESE ESCROW INSTRUCTIONS (the "ESCROW INSTRUCTIONS") are entered into as
of July 15, 1998, by and among The Producers Entertainment Group Ltd., a
Delaware corporation ("PARENT"), Tom Daniels and Craig Sussman (each
individually a "STOCKHOLDER" and collectively, the "STOCKHOLDERS"), and OTR,
Inc., doing business as Oxford Transfer and Registrar, as the escrow agent
hereunder ("ESCROW AGENT"), and made with reference to the following facts:
A. Parent, the Stockholders, TPEG Merger Company, a California
corporation, and MWI Distribution, Inc., a California corporation ("MWI"), have
entered into that certain Agreement of Merger dated as of July 15, 1998 (the
"MERGER AGREEMENT").
B. Pursuant to the Merger Agreement, Parent is required, upon the
satisfaction of certain conditions, to deliver to the Stockholders through the
escrow created by these Escrow Instructions up to, but in no event more than,
439,815 shares of Parent's common stock (the "ESCROW STOCK").
C. The parties are entering into these Escrow instructions pursuant to
the Merger Agreement in order to provide for the delivery of the Escrow Stock to
the Stockholders.
Accordingly, the parties to these Escrow Instructions agree as follows:
. 1. DELIVERY OF ESCROW STOCK TO ESCROW AGENT. Parent agrees that the
Escrow Stock shall be represented by 24 separate certificates, 22 certificates
each representing 18,325 shares of the Escrow Stock, and two certificates each
representing 18,332.5 shares of the Escrow Stock (the certificates so delivered
to Escrow Agent are referred to collectively as the "STOCK CERTIFICATES"). At
the Closing (as defined in the Merger Agreement), and as a condition precedent
to the Stockholders' obligations to perform at the Closing, Parent shall deliver
to the Escrow Agent the Stock Certificates, each duly endorsed in blank. These
Escrow Instructions shall be effective as of the time Escrow Agent receives the
Stock Certificates. Upon Escrow Agent's receipt of the Stock Certificates,
Escrow Agent shall hold the Stock Certificates in trust for the benefit of
Parent and the Stockholders, as applicable, to be distributed pursuant to the
terms of these Escrow Instructions.
2. INSTRUCTIONS TO ESCROW AGENT. If at any time Escrow Agent receives
a notice signed jointly by Parent and the Stockholders setting forth
instructions to the Escrow Agent regarding the disposition of any or all of
the Stock Certificates, Escrow Agent shall comply with such instructions.
Similarly, if at any time Escrow Agent receives a notice signed jointly by
Parent and the Stockholders that these Escrow Instructions have been
terminated, Escrow
<PAGE>
Agent shall deliver any Stock Certificates held by Escrow Agent in accordance
with the instructions set forth in such notice. Upon such delivery, these
Escrow Instructions shall be deemed terminated and Escrow Agent shall be
released and discharged from all further obligations under these Escrow
Instructions.
3. PARTIAL DELIVERIES. If Escrow Agent is unable to deliver Escrow Stock
in accordance with these Escrow Instructions solely because Escrow Agent does
not hold Stock Certificates in the appropriate share increments, Escrow Agent
shall deliver as many shares of Escrow Stock as possible. Escrow Agent, in its
capacity as stock transfer agent for Parent, shall also promptly issue new stock
certificates representing the shares that were not delivered, and shall deliver
those certificates to the Stockholders. Parent agrees to cause Escrow Agent, as
Parent's stock transfer agent, promptly to issue and deliver such certificates
to the Stockholders. In no event, however, shall Escrow Agent deliver to the
Stockholders more than 439,815 shares of Escrow Stock.
4. DISPOSITION OF ESCROW STOCK.
4.1 With regard to delivery of the Escrow Stock, Parent and the
Stockholders shall instruct Escrow Agent in accordance with the provisions of
this paragraph. Promptly after the time Parent or any of its subsidiaries or
affiliates, including MWI and MergerCo (as defined in the Merger Agreement),
either earns Net Distribution Fees Receivable (as defined in the Merger
Agreement) so that Parent (or any such subsidiary or affiliate) would be
required to account for such Net Distribution Fees Receivable in accordance with
GAAP (as defined in the Merger Agreement), or receives any National Geographic
Proceeds (as defined in the Merger Agreement), Parent and the Stockholders shall
determine the number of shares of Escrow Stock that are required to be delivered
to the Stockholders and shall instruct Escrow Agent to deliver to the
Stockholders Stock Certificates representing those shares. The number of shares
of Escrow Stock so required to be delivered to the Stockholders shall equal (a)
the product of (i) the amount of such Net Distribution Fees or such National
Geographic Proceeds and (ii) 2.75, DIVIDED BY (b) 2.70.
4.2 All Escrow Stock that Escrow Agent is required to be delivered to
the Stockholders pursuant to these Escrow Instructions shall be delivered 1/2 to
Craig Sussman and 1/2 to Tom Daniels.
4.2 After the time Parent and its subsidiaries or affiliates have
received all Total Proceeds that can be received by Parent and its subsidiaries
or affiliates, Escrow Agent shall deliver to Parent any remaining shares of
Escrow Stock that he or she holds pursuant to these Escrow Instructions.
2
<PAGE>
5. DISPUTES. If Escrow Agent receives any notice from Parent or either
or both of the Stockholders that a bona fide dispute (a "DISPUTE") exists in any
way concerning shares of Escrow Stock, Escrow Agent may, in his or her sole and
absolute discretion, and without impairing his or her rights, deposit any or all
of the Stock Certificates with the clerk, or acting clerk, of the Superior Court
of Los Angeles County, California, in the City of Los Angeles,
interplead the parties hereto, and file his or her complaint in interpleader.
Upon taking such actions, Escrow Agent shall be relieved of all liability under
the terms of these Escrow Instructions as to the Escrow Stock so delivered.
Parent and the Stockholders agree to submit to the jurisdiction of such court,
and hereby appoint the clerk, or acting clerk, of such court as their agent for
service of all process in connection with such proceedings, provided that Escrow
Agent shall promptly mail to the parties copies of all such process. Should
Escrow Agent elect not to interplead Escrow Stock with respect to any Dispute,
then Escrow Agent shall retain custody of the Stock Certificates until either of
the following occurs:
5.1 Escrow Agent receives a notice signed jointly by Parent and the
Stockholders that the Dispute has been resolved, provided that such notice shall
contain joint instructions to Escrow Agent regarding delivery or retention of
the Escrow Stock; or
5.2 Escrow Agent receives any statement prepared by Parent's
independent auditors showing that Parent or its subsidiaries or affiliates
received Total Proceeds that, by applying the formula set forth in SECTION 4.1
above, would require Escrow Stock to be delivered to the Stockholders, in which
event Escrow Agent shall deliver to the Stockholders the Stock Certificates
representing such Escrow Stock.
6. ESCROW AGENT'S STANDARD OF CARE. Escrow Agent's duties under these
Escrow Instructions are solely ministerial. Escrow Agent shall not be liable for
any error of judgment, fact or law, or any act done or omitted to be done,
unless such act or omission was due to Escrow Agent's own gross negligence or
willful misconduct. Escrow Agent's determination as to any event, act or
condition shall not subject Escrow Agent to any claim, liability, or obligation
whatsoever, unless it is determined that Escrow Agent's acts or omissions
constituted gross negligence or willful misconduct. Escrow Agent shall not be
responsible for making any determination regarding the genuineness or validity
of any document or item deposited with him or her, or any signature appearing
thereon. Each of Parent and the Stockholders represents and warrants to Escrow
Agent that he or it has duly and validly authorized, executed and delivered
these Escrow Instructions, and that these Escrow Instructions constitutes his or
its valid and binding obligation, enforceable against he or it in accordance
with the terms of these Escrow Instructions.
7. CONFLICTING INSTRUCTIONS. If at any time Escrow Agent receives
conflicting notices, claims, demands or instructions, or if for any other reason
Escrow Agent is unable in good faith to make a determination with regard to the
Escrow Stock, Escrow Agent may refuse to take any action and retain the Escrow
Stock in his or her possession until Escrow Agent has received applicable
written instructions that Parent and the Stockholders have jointly signed.
3
<PAGE>
Upon receiving such written instructions, Escrow Agent shall act in
accordance with those instructions.
8. ESCROW AGENT'S RESIGNATION. Escrow Agent may resign from its duties
under these Escrow Instructions upon delivering to Parent and the Stockholders
ten days prior written notice to that effect. Upon such resignation, Parent and
the Stockholders shall mutually select a successor to act as the escrow agent
under these Escrow Instructions. Notwithstanding the foregoing provisions of
this paragraph, Escrow Agent's resignation shall in no event be effective until
a successor agrees to act as escrow agent under these Escrow Instructions,
provided that if no successor is appointed and acting within ten days after the
effectiveness of Escrow Agent's resignation, Escrow Agent may, in its sole and
absolute discretion, deliver the Stock Certificates into the court identified in
SECTION 5 above.
9. ADJUSTMENT FOR STOCK SPLITS, ETC.; DIVIDENDS, ETC. Parent and the
Stockholders agree that the Escrow Stock is subject to adjustment for stock
splits and other adjustments, as provided in SECTION 2 of the Merger Agreement.
For all purposes, including the payment of dividends and voting, ownership of
any Escrow Stock required to be delivered to the Stockholders pursuant to these
Escrow Instructions shall transfer to the Stockholders as of the time the
applicable Total Proceeds are payable to Parent or its subsidiaries or
affiliates.
10. NOTICES. All notices, statements and other documents that any party
is required or desires to give to any other party hereunder shall be given in
writing and shall be served in person by express mail, by certified mail, by
overnight delivery, or by facsimile at the respective addresses of the parties
as set below, or at such other addresses as may be designated in writing by such
party in accordance with the terms of this paragraph.
If to either Stockholder:
Craig Sussman
Tom Daniels
5757 Wilshire Boulevard, Penthouse
Los Angeles, California 90036
Facsimile: 323.634.6596
With a copy to:
Michael Wolf, Esq.
Wolf, Rifkin & Shapiro, LLP
11400 W. Olympic Boulevard, Ninth Floor
Los Angeles, California 90064-1565
Facsimile: 310.479.1422
4
<PAGE>
If to Parent:
Irwin Meyer
The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse
Los Angeles, California 90036
Facsimile: 213.634.8635
With a copy to:
C. N. Franklin Reddick III, Esq.
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024-3902
Facsimile: 310.443.8512
If to Escrow Agent:
Oxford Transfer and Registrar
317 S.W. Adler, Suite 1120
Portland, Oregon 97204
Attn: Lori Livingston
Facsimile: 503.273.9168
Delivery shall be deemed conclusively made (i) at the time of
service, if personally served, (ii) when deposited in the United States mail,
properly addressed and postage prepaid, if delivered by express mail or
certified mail, (iii) upon deposit with the private overnight deliverer, if
served by overnight delivery, and (iv) at the time of electronic transmission
(as confirmed in writing), provided a copy is mailed within twenty-four (24)
hours after such transmission. The time to respond to any notice shall run
from the time the notice is actually delivered to the person to whom the
notice is addressed.
11. MISCELLANEOUS.
11.1 GOVERNING LAW. California law, without regard to conflict or
choice of law principles, shall govern the construction and interpretation of
these Escrow Instructions.
11.2 CONSTRUCTION. As used in these Escrow Instructions, "include"
and "including" mean include and including, without limitation.
11.3 PRONOUNS. All pronouns used in these Escrow Instructions shall
be deemed to refer to the masculine, feminine or neuter gender, as the context
requires.
5
<PAGE>
11.4 CAPTIONS. The section headings contained in these Escrow
Instructions are for reference purposes only and shall not in any way affect the
meaning or interpretation of these Escrow Instructions.
11.5 ENTIRE AGREEMENT. These Escrow Instructions set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties.
11.6 AMENDMENTS; WAIVERS. These Escrow Instructions may be amended,
modified, superseded, canceled, renewed or extended and the terms or covenants
hereof may be waived, only by a written instrument executed by all the parties
hereto, or in the case of a waiver, by the party waiving compliance. The failure
of any party, at any time or times to require performance of any provision
hereof shall in no manner affect such party's right at a later time to enforce
the same. No waiver by any party of the breach of any term or covenant contained
in these Escrow Instructions, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in these Escrow Instructions.
11.7 COUNTERPARTS. These Escrow Instructions may be executed in one or
more counterparts, each of which shall be deemed an original, but together which
shall constitute one and the same document.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused the Escrow Instructions
to be duly executed as of the date first written above
"PARENT"
The Producers Entertainment Group Ltd.,
a Delaware corporation
By: /s/ IRWIN MEYER
---------------------------------------
Irwin Meyer
Its: Chief Executive Officer
"STOCKHOLDERS"
/s/ CRAIG SUSSMAN
------------------------------------------
Craig Sussman
/s/ TOM DANIELS
------------------------------------------
Tom Daniels
"ESCROW AGENT"
OTR, Inc.,
doing business as
Oxford Transfer and Registrar Company
By:/s/ LORI LIVINGSTON
---------------------------------------
Its: President
7
<PAGE>
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made as of this
15th day of July 1998, by and among The Producers Entertainment Group Ltd., a
Delaware corporation (the "COMPANY"), and Tom Daniels and Craig Sussman (each of
whom is herein referred to as a "STOCKHOLDER" and collectively as the
"STOCKHOLDERS").
RECITALS
WHEREAS, the Company and each of the Stockholders are parties to an
Agreement of Merger dated July 15th, 1998 (the "MERGER AGREEMENT"), whereby such
Stockholders received from the Company shares of the Company's Common Stock;
WHEREAS, SECTION 9.7 of the Merger Agreement provides that the Stockholders
have certain rights to include shares of the Company's Common Stock held by them
in a registered public offering of the Company's Common Stock (as defined in
SECTION 1(c)); and
NOW, THEREFORE, the parties hereby agree as follows:
I. REGISTRATION RIGHTS
Section 1.1 DEFINITIONS. For purposes of this SECTION 1:
(a) The term "ACT" means the Securities Act of 1933, as amended.
(b) The term "AFFILIATE" means a person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity.
(c) The term "COMMON STOCK" means the Company's Common Stock authorized
for issuance under its Articles of Incorporation.
(d) The term "1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(e) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "REGISTRABLE SECURITIES" means shares of Common Stock issued
and delivered, or required to be delivered, to the Stockholders pursuant to the
Merger Agreement.
(g) The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
<PAGE>
(h) The term "SEC" shall mean the Securities and Exchange Commission.
Section 1.2 DEMAND REGISTRATION. If a court of competent jurisdiction shall
determine that one or both of the Stockholders was terminated without cause and
in violation of such Stockholder's employment agreement with TPEG Merger
Company, then following receipt of a certified copy of any such judgment (and
following the expiration of any period of appeal, if any appeal is available)
the Company shall file as soon as practicable, and in any event within sixty
(60) days of the receipt of such notice, the registration under the Act of all
Registrable Securities which the Stockholders then own or that are required to
be delivered to the Stockholders.
Section 1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Stockholders) any of its
Common Stock under the Act in connection with the public offering of such
securities solely for cash (other than a registration 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) or if any shareholder other than the
Stockholders causes the Company to register any of its Common Stock under the
Act, the Company shall, at such time, promptly give each Stockholder written
notice of such registration. Upon the written request of each Stockholder given
within twenty (20) days after mailing of such notice by the Company in
accordance with SECTION 3.5, the Company shall, subject to the provisions of
SECTION 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Stockholder has requested to be registered.
Section 1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this SECTION
1 to register any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Stockholders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Stockholders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
2
<PAGE>
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders; PROVIDED
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Stockholder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Stockholder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
(i) Furnish, at the request of any Stockholder requesting registration of
Registrable Securities pursuant to this SECTION 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this SECTION 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Stockholders
requesting registration of Registrable Securities and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Stockholders requesting registration of
Registrable Securities.
Section 1.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this SECTION 1 with
respect to the Registrable Securities of any selling Stockholder that such
Stockholder shall furnish to the Company such information regarding himself, the
Registrable Securities held by him, and the intended method of disposition of
such securities as the Company may reasonably request in writing and as shall be
required to effect the registration of such Stockholder's Registrable
Securities.
3
<PAGE>
Section 1.6 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to registrations pursuant
to SECTIONS 1.2 and 1.3 for each Stockholder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportion able thereto, but excluding any underwriting discounts and
commissions relating to Registrable Securities.
Section 1.7 DELAY OF REGISTRATION. No Stockholder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this SECTION 1 filed with and declared
effective by the SEC.
Section 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under SECTION 1.3 to include any of the Stockholders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering.
Section 1.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this SECTION 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Stockholder, any underwriter (as defined in the Act) for such
Stockholder and each person, if any, who controls such Stockholder or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, or the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Stockholder, underwriter
or controlling person, any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this SECTION 1.9(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the
4
<PAGE>
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by such Stockholder, underwriter or controlling person. Notwithstanding the
foregoing, the Company shall not be required to indemnify any Stockholder
pursuant to this SECTION 1.9(a) against any loss, claim, damage, liability,
or action arising from any untrue or misleading statement or omission
contained in any preliminary prospectus, if such deficiency is corrected in
the final prospectus and the Company made timely delivery of the final
prospectus to all purchasers of shares of the Company's capital stock
pursuant to the public offering of such shares.
(b) To the extent permitted by law, each selling Stockholder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Stockholder selling securities in such registration statement and any
controlling person of any such underwriter or other Stockholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are 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 by such
Stockholder expressly for use in connection with such registration; and each
such Stockholder will pay, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this SECTION 1.9(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this SECTION 1.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Stockholder (which consent shall not be unreasonably
withheld); provided, that, in no event shall any indemnity under this
SECTION 1.9(b) exceed the gross proceeds from the offering received by such
Stockholder. Notwithstanding the foregoing, no Stockholder shall be required to
indemnify the Company, its directors, its officers or any controlling person
pursuant to this SECTION 1.9(b) against any loss, claim, damage, or liability
arising from any untrue or misleading statement or omission contained in any
preliminary prospectus if such deficiency is corrected in the final prospectus
and the Company made timely delivery of the final prospectus to all purchasers
of shares of the Company's capital stock pursuant to the public offering of such
shares.
(c) Promptly after receipt by an indemnified party under this SECTION 1.9
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this SECTION 1.9, 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
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party if the indemnified party, acting reasonably, determines that
5
<PAGE>
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this SECTION 1.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this SECTION
1.9.
(d) If the indemnification provided for in this SECTION 1.9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement, which
shall be customary for registration of the type then proposed, shall control.
(f) The obligations of the Company and Stockholders under this SECTION 1.9
shall survive the completion of any offering of Registrable Securities in a
registration statement under this SECTION 1, and otherwise.
Section 1.10 TERMINATION OF REGISTRATION RIGHTS. No Stockholder shall be
entitled to exercise any right provided for in this SECTION 1 after eighty four
(84) months following the date of this Agreement.
Section 1.11 ADDITIONAL COVENANTS OF THE COMPANY. During the twenty-four
(24)-month period following the date of this Agreement, the Company shall (i)
comply with the public information requirements of Rule 144 of the Act in order
to afford the Stockholders the benefits therefor in connection with the resale
of the Registrable Securities, (ii) comply with the reporting requirements under
the 1934 Act and with listing requirements of the NASDAQ National Market, (iii)
timely file all reports required under the 1934 Act and the rules of NASDAQ
SmallCap Market and (iv) keep any registration statement covering Registrable
Securities, and any state securities law filings and registrations relating
thereto, effective for the period of distribution of such Registrable
Securities.
6
<PAGE>
Section 1.12 ADDITIONAL LIMITATIONS ON DISPOSITION OF THE REGISTRABLE
SECURITIES. Notwithstanding any provision herein to the contrary: (a) from the
date of this Agreement through June 30, 1999, neither of the Stockholders may
sell, assign, transfer, exchange, pledge, encumber or otherwise dispose of
(hereinafter solely referred to as "Sell") any of the Registrable Securities;
(b) for the period commencing July 1, 1999 and ending on June 30, 2000, the
Stockholders may Sell not more than one-third (1/3) of the aggregate number of
Registrable Securities issued to the Stockholders, as a group; (c) for the
period commencing July 1, 2000 and ending on June 30, 2001, the Stockholders may
Sell not more than an additional one-third (1/3) of the aggregate number of
Registrable Securities issued to the Stockholders, as a group; and (d)
subsequent to June 30, 2001, the Stockholders may Sell any then unsold
Registrable Securities issued to either of them.
II. COVENANTS OF STOCKHOLDERS
Section 2.1 COVENANTS OF STOCKHOLDERS. The Stockholders, and their duly
appointed representatives, shall obtain and provide to the Company, promptly
upon request, any and all information reasonably required by the Company to
comply with state and federal securities laws and other requirements, including
but not limited to, beneficial ownership information and all shall cooperate
with any state or federal licensing agency in any investigation by such
agencies.
III. MISCELLANEOUS
Section 3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
Section 3.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
Section 3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 3.5 NOTICES. All notices, requests, demands and other communications
which a party is required to or may desire to give any other party in connection
with this Agreement shall be in writing, and shall be personally delivered,
delivered by facsimile transmission, or delivered by United States registered or
certified mail, postage prepaid with return receipt requested, addressed as
follows:
7
<PAGE>
If to the Company: The Producers Entertainment Group Ltd.
5757 Wilshire Boulevard, Penthouse 1
Los Angeles, CA 90036
Attention: Mr. Irwin Meyer
Fax No. 213/634-8635
With a copy to: Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, 8th Floor
Los Angeles, CA 90024
Attention: C. N. Frank Reddick III
Fax No. 310/443-7599
If to the Stockholders: At the addresses on the signature pages of
this Agreement
With a copy to: Wolf, Rifkin & Shapiro
11400 West Olympic Boulevard, 9th Floor
Los Angeles, CA 90004
Attention: Michael Wolf
Fax No. 310/479-1422
If notice is given by personal delivery in accordance with the provisions of
this SECTION 3.5, said notice shall conclusively be deemed given at the time of
delivery. If notice is given by confirmed facsimile transmission in accordance
with the provisions of this SECTION 3.5, said notice shall conclusively be
deemed given at the time of the transmission. If notice is given by mail in
accordance with the provisions of this section, said notice shall conclusively
be deemed given 48 hours after deposit thereof in the United States mail. The
addressees or addresses set forth above may be changed from time to time by a
notice sent to the other parties.
Section 3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
Section 3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
Stockholder of any Registrable Securities then outstanding, each future
Stockholder of all such Registrable Securities, and the Company.
Section 3.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and
8
<PAGE>
the balance of the Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
Section 3.9 AGGREGATION OF STOCK. All shares of Registrable Securities held
or acquired by a Stockholder's Affiliate shall be aggregated together for the
purpose of determining the availability of such Stockholder's rights under this
Agreement.
Section 3.10 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
This Agreement supersedes any registration rights granted to the Stockholders
including, without limitation, any registration rights granted under any of the
Purchase Agreements. Each party to this Agreement acknowledges and represents
that no representations, warranties, covenants, conditions, inducements,
promises or agreements, oral or otherwise, other than as set forth herein, have
been made by any party hereto, or anyone acting on behalf of any party.
Section 3.11 FACSIMILE SIGNATURES. This Agreement may be executed manually or
by facsimile signatures, all of which signatures shall have the same force and
effect. Any party executing this Agreement by facsimile shall as soon as
practicable thereafter deliver to counsel for the other parties a manually
signed copy of this Agreement.
[Signature Page for Registration Rights Agreement Follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
THE COMPANY: THE PRODUCERS ENTERTAINMENT GROUP LTD.,
a Delaware corporation
/s/ IRWIN MEYER
------------------------------------------
By: Irwin Meyer
Its: Chief Executive Officer
STOCKHOLDERS: TOM DANIELS
/s/ TOM DANIELS
------------------------------------------
CRAIG SUSSMAN
/s/ CRAIG SUSSMAN
------------------------------------------
10
<PAGE>
Exhibit 99.1
THE PRODUCERS ENTERTAINMENT GROUP COMPLETES
ACQUISITION OF MEDIAWORKS INTERNATIONAL
Los Angeles, July 16, 1998 - The Producers Entertainment Group
("TPEG"), a Los Angeles based television production and distribution company
(NASDAQ:TPEG, BSE:TPG), has announced the consummation of the acquisition of
100% of the stock of MWI Distribution, Inc. (dba MediaWorks International)
for consideration consisting of shares of common stock of TPEG, up to a
maximum value of $6.5 million.
MediaWorks, also based in Los Angeles, is an international television
and video distribution company specializing in the licensing of children's
and family programming and animation.
According to Irwin Meyer, CEO of TPEG, "MediaWorks puts us firmly into
the international distribution business opening the door for us to expand our
overall business in some of the fastest growing television markets in the
world. By expanding its basic business into reality and dramatic programming,
we believe that MediaWorks will contribute significantly to TPEG's overall
long term business plan. We are also very excited about the addition of Craig
Sussman and Tom Daniels to TPEG. As highly experienced executives in the
international television distribution business they will unquestionably add
significant depth to our management team".
Craig Sussman and Tom Daniels, Co-Managing Directors, of MediaWorks,
commented, "During this first year our business has grown at a rate greater
than we anticipated. We are hopeful that this trend will continue in the
coming year. By joining forces with TPEG, a publicly held company, we believe
our opportunities for long term growth will be greatly enhanced."
Meyer further stated, "It is also our intention to have MediaWorks
become more actively involved in international co-production, increasing
their ownership position in their growing library."
<PAGE>
Sussman will become the CEO and Daniels will become President of
MediaWorks, which as a result of the acquisition will become a wholly owned
subsidiary of TPEG. Daniels will also join TPEG's Board of Directors.
MediaWorks is currently distributing numerous television series in the
international market including Sony Wonder's "Enchanted Tales", "Rainbow
Fish", "Wondrous Myths and Legends" and "Beginners Bible"; BMG's "Cabbage
Patch Kids", "Felix the Cat" and "Reebok"; and, Landmark Entertainment's
"Captain Power" and "Skeleton Warriors."
TPEG recently reported record sales and earnings for the nine months
ended March 31, 1998, of $18,276,403 and $482,084 respectively, which
includes the results of Grosso-Jacobson Production, which was acquired last
year.
TPEG/Grosso-Jacobson currently have two series in development at
Lifetime ("Arresting Women," "The Lottery Winner"), one at USA Network
("Knights of the Millennium"), one at ABC, as a co-production with Columbia
Tri-Star ("Beneath The Robes"), and Rod Serling's "Stops Along The Way" at
Tribune Entertainment.
"Legion of Fire; Killer Ants," TPEG's recently broadcast (June 24)
m.o.w. won the night for Fox Broadcasting. They recently completed "Floating
Away" starring Rosanna Arquette, Paul Hogan and Judge Reinhold and directed by
John Badham for Showtime and "The Passion of Ayn Rand" starring Helen Mirren,
Peter Fonda, Eric Stoltz and Julie Delpy also for Showtime.
TPEG/Grosso-Jacobson's current m.o.w. development slate includes three
m.o.w.'s at USA Network based on books by Mary Higgins Clark, "The Wade
Burnett Story" at ABC and "White Slave" at CBS.
TPEG/Grosso-Jacobson maintains offices in Los Angeles, New York City and
Toronto, Canada.
With the exception of the historical information, the matters discussed
above include forward-looking statements that involve risks and
uncertainties. A number of factors could cause actual results to differ from
those indicated, including the ability of TPEG to integrate the acquisition
of MediaWorks successfully. Further, the results of operations of any
particular period are not guarantees of future performance."
Irwin Meyer (213)634-8634
3
