UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 0-18954
ODYSSEY PICTURES CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-4269048
- -------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1601 Elm Street, Dallas, Texas 75201
------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 720-1622
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ____ No __x___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of September 30, 1998 was approximately $1,879,832 (based on
the mean between the closing bid and asked prices of the Common Stock on such
date), which value, solely for the purposes of this calculation, excludes shares
held by Registrant's officers and directors. Such exclusion should not be deemed
a determination by Registrant that all such individuals are, in fact, affiliates
of the Registrant.
As of September 30, 1998 there were outstanding 5,169,285 shares of Odyssey
Pictures Corporation's common stock, par value $.01 per share (the "Common
Stock").
<PAGE>
ODYSSEY PICTURES CORPORATION
Form 10-K Report for the Fiscal Year
Ended June 30, 1997
TABLE OF CONTENTS
Page
PART I
Item 1. Business ........................................................... 1
Item 2. Properties ........................................................... 8
Item 3. Legal Proceedings .................................................. 8
Item 4. Submission of Matters to a Vote of
Security Holders ................................................... 13
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters .................................... 13
Item 6. Selected Financial Data ............................................ 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations ................... 14
Item 8. Financial Statements and Supplementary Data ........................ 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............................. 41
PART III
Item 10. Directors and Executive Officers of the Registrant ................ 41
Item 11. Executive Compensation ............................................ 43
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 47
Item 13. Certain Relationships and Related Transactions .................... 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 50
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
-------------------------------
Odyssey Pictures Corporation ("Odyssey" or the "Company"), formerly known
as Communications and Entertainment Corp., was formed in December 1989 as a
holding company. At such time, the Company had no material assets. In September
1990, Double Helix Films, Inc. ("Double Helix"), a producer of low budget films,
and Odyssey Entertainment Ltd. ("OEL"), an international film distribution
company, were merged with wholly-owned subsidiaries of the Company (the
"Mergers"). Subsequent to the Mergers, each of Double Helix and OEL became a
wholly-owned subsidiary of the Company. In June 1991, the Company sold Double
Helix and thereafter began to focus on the distribution of motion pictures in
overseas markets as its primary business.
A change in the entire Board of Directors of the Company (the "Board")
occurred on April 12, 1995 pursuant to the terms of a Settlement Agreement,
dated as of March 31, 1995 (the "Settlement Agreement"), by and among Robert
Hesse, Shane O'Neil, Lawrence I. Schneider, Henry N. Schneider, Robert E.
Miller, Jr., Russell T. Stern, Jr. (collectively, a group of shareholders
originally formed to effect a change in management control of the Company and
known as the "CECO Shareholders Committee"), the Company, OEL, Global
Intellicom, Inc., each of Jerry Silva, Robert Ferraro, N. Norman Muller, Thomas
W. Smith and David A. Mortman (constituting all the directors of the Company at
the time of the execution of the Settlement Agreement and hereinafter referred
to collectively as the "Former Directors"), and others.
As contemplated by the Settlement Agreement, on April 11, 1995, the Former
Directors increased the size of the Board from five to six directors and elected
Henry N. Schneider, a designee of the CECO Shareholders Committee, a new
director effective upon the closing of the Settlement Agreement. The closing of
the Settlement Agreement occurred on April 12, 1995 and, upon the closing, the
resignations of the Former Directors became effective. After the closing, Henry
N. Schneider, as sole remaining director of the Company, elected Lawrence I.
Schneider, Russell T. Stern, Jr., Patrick J. Haynes, III and Robert E. Miller,
Jr. as new directors of the Company. In addition to the change in the
composition of the Board, the Settlement Agreement provided for the settlement
of all outstanding litigation between the Company and the CECO Shareholders
Committee. The CECO Shareholders Committee disbanded upon the closing of the
Settlement Agreement. Effective September 8, 1995, each of Messrs. Haynes, Stern
and Henry N. Schneider resigned as directors of the Company and were replaced by
Stephen R. Greenwald and Ira N. Smith, each of whom was appointed to the Board
and, together with Lawrence Schneider, elected to executive management positions
to operate the business and affairs of the Company on a day-to-day basis.
On March 6, 1996, the Company declared a reverse one-for-six stock split of
its Common Stock (the "Reverse Split"), effective March 18, 1996. All share
amounts and per share prices reflected in this Report have been adjusted to give
effect to the Reverse Split.
Mr. Schneider resigned his executive position in September, 1997, and in
March, 1998, the Board of Directors appointed Mr. Johan Schotte as Chief
Executive Officer and Chairman of the Board of the Company. At the same time,
Mr. Pierre Koshakji was appointed to the Board and elected as President of the
Company. Mr. Johan Schotte expanded the Board to include additional independent
directors and Messrs. Greenwald and Smith agreed to terminate their existing
employment agreements in exchange for revised employment and consulting
agreements. In connection with the change in management, an affiliate of Mr.
Schotte purchased convertible deferred compensation notes from former management
and converted a portion of these notes into 667,648 shares of he Company's
common stock in April, 1998.
1
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During the early 1990s, the Company developed an excellent reputation in
overseas markets for the distribution of quality motion picture entertainment, a
reputation which the Company's management believes it continues to enjoy despite
its recent difficulties. However, due to the changes in management control and
disruptions in the continuity of the Company's business following the change in
control in 1995, the Company has been unable to sustain any substantial
activities in the international distribution of motion pictures.
Under the leadership of Mr. Schotte, the Company will seek to re-establish
its position as a significant distributor of quality motion pictures by
establishing relationships and strategic alliances with major film studios and
successful writers, directors and producers. The Company also intends to
establish a permanent presence in Europe through select joint-venture partners.
In this connection, the Company purchased the assets of Sweden-based Kimon
Mediabright KB ("Kimon") in August, 1998, consisting of a film library with
worldwide and/or Scandanavian distribution rights and Scandanavian video
distribution rights to certain Hallmark Entertainment products.
While continuing to develop and re-establish the Company's film
distribution business, new management's objective going forward is to
aggresively build a diverse, global media company independent in ownership from
the major film and music companies. Management will seek to establish a group of
domestic and international companies providing both content and distribution in
film, music, publishing, sports, merchandising and other multimedia outlets. See
"Business - Narrative Description of Business - Business Strategy."
(b) Financial Information About Industry Segments
---------------------------------------------
Since the sale of its Double Helix subsidiary in 1991, the Company has been
engaged in only one industry segment and line of business, the international
distribution of motion pictures. See "Selected Financial Data."
(c) Narrative Description of Business
---------------------------------
Foreign Sales and Distribution Operations
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General.
--------
The foreign distribution of films involves two principal activities - the
acquisition of rights from the licensor or the seller, usually the producer of
the film, and the licensing of the distribution rights to subdistributors in
foreign markets. In general, the rights obtained from the producer relate to all
media, including theatrical distribution, video and all forms of television.
However, the licensing of rights to subdistributors may exclude certain
territories and/or media.
It is unlikely that subdistributors would bypass the Company and deal
directly with the licensors of film rights. Historically, independent licensors
of film rights prefer to deal with a single sales agent/distributor rather than
deal with various subdistributors in foreign markets. Consequently, even if a
particular subdistributor attempted to perform the function of the Company, it
is unlikely that the film's licensor would be willing to deal with such
subdistributor. Furthermore, with respect to any particular film, the Company
would typically enter into an exclusive distributorship arrangement, thereby
precluding others from competing with the Company with respect to that film.
Moreover, in certain circumstances, the Company may also provide a financing
function for the production of a film which a subdistributor would generally be
unable to provide. See "Terms of Distribution Agreements."
2
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Terms of Distribution Agreements. Foreign distribution is generally handled
by a distributor such as the Company which coordinates worldwide sales in all
territories and media. Overseas film sales companies rely on local
subdistributors to physically deliver the motion picture and related marketing
materials and to collect revenues from local exhibitors and other local
distributors of the film. Typically, the territorial rights for a specific
medium such as television exhibition are sold for a "cycle" of approximately
seven years, after which the rights become available for license for additional
cycles.
The film distribution business breaks down into two broad categories:
o Sales Agency Representation. As a sales agent, the Company would
undertake to represent and license a motion picture in all markets and media on
a best-efforts basis, with no guarantees or advances, for a fee of 15-20%, and
typically for a term ranging from seven to fifteen years.
o Distribution. As a distributor, the Company may provide the producer of
the film a guarantee of a portion of the budget of the project. This guarantee
may be in the form of a bank commitment to the producer, secured by license
agreements with foreign licensees, which is used by the producer to finance the
production. Typically, a distributor would receive a distribution fee of 25-35%
over a term ranging from 15 years to perpetuity. In addition, the distributor
may acquire a profit participation in the film project.
Once the rights to a picture are obtained either as sales agent or
distributor with minimum guarantee, the Company would then seek to license its
rights to subdistributors in the territories for which it has acquired
distribution rights. In general, the grant of rights to the subdistributors
includes all media other than satellite, although satellite is included in some
subdistributors' territories. The subdistributor in each territory generally
pays for its distribution rights with a down payment at the time the contract is
executed with the balance due upon delivery of the picture to the
subdistributor. (Delivery occurs upon the Company's acceptance of the master
negative and its obtaining access to the interpositive and certain other items
necessary for the distribution of the film). In certain instances, the
subdistributors' obligations for the payment due on delivery are secured by a
letter of credit. Sales take place primarily at three film markets - Cannes,
France in May; MIFED in Milan, Italy in October; and the American Film Market
("AFM") in Los Angeles in February.
In general, after financing (if any) is repaid, the Company applies the
distribution receipts from its subdistributors first to the payment of
commissions due to the Company, then to the recovery of certain distribution
expenses advanced by the Company, and third, to the extent not recouped as part
of the repayment of the financing, to the reimbursement of the Company for its
guarantee, if any, paid to the producer. Additional distribution receipts, if
any, are shared by the Company and the producer according to the percentages
negotiated in the agreement between the Company and the producer.
Independent Film Production and Product Acquisition
- ---------------------------------------------------
Overseas film distribution companies such as the Company primarily
represent independent producers of motion pictures (rather than motion picture
studios) in all overseas markets and all media, including theatrical release,
television and home video distribution, and cable or satellite-distributed
media.
Producers seek to be independent producers of motion pictures for a variety
of reasons, including greater creative control of a project and potentially a
greater profit participation through the retention of the copyright or the
ability to sell the film directly in particular markets. Often, young, new
directors and producers have no choice but to independently produce their
projects, and the motion picture industry has a long history of "breakthrough"
films produced at very low cost by first time producers and directors which
subsequently achieve considerable revenues. The Company has generally obtained
its product from among these independently produced films rather than from major
motion picture studios which typically have their own in-house distribution
networks. Nevertheless, from time to time, the Company has entered into "split
rights" arrangements with studios to represent a film in the overseas market.
3
<PAGE>
The Company's management seeks to identify attractive projects very early
in their development, either through relationships with producers, directors and
agents or through industry announcements of new productions. In addition, the
Company's acquisitions personnel attends festivals and film markets, such as the
Sundance Film Festival and the Cannes Film Festival, in order to locate new
product.
Business Strategy
- -----------------
The Company's strategy is to capitalize on its reputation and the
experience of its management team to build a global media company independent in
ownership from the major film studios and music companies. The Company's new
Board of Directors and executive management intend to integrate the Company into
today's total entertainment and media environment. "Odyssey Media", or a name
more appropriate, will be established as the parent to a diversified group of
U.S. and international companies providing both content and distribution in
film, music, publishing, sports, merchandising and other multimedia outlets.
The value and growth of "Odyssey Media" is intended to be achieved
primarily through acquisition of, and joint ventures with, established private
and public media companies. Such companies may be attracted by the strategic
relations and access to business that the other Odyssey media companies may
provide; the international markets that Odyssey may participate in; and access
to the public markets for capital and exposure.
Such companies may be identified through the experience and the strong
international entertainment, sport, banking and private investment network
contacts that the executive management and Board of Directors possess. Targeted
companies would be acquired primarily through issuance of new equity capital,
stock swaps and other means.
The parent company will provide each company with strong corporate
governance policies, direction for its management, strategic planning guidance,
control and reporting systems, marketing assistance, cross promotion and other
promotional support, as well as with assistance with business and joint venture
development, merger and acquisition assistance, executive and management search
support, and other services. The emphasis will be to optimize each individual
company's success as well as the cross-success of the entire media company. The
proposed business strategy for each division of "Odyssey Media" is as follows:
Odyssey Pictures: The film production and distribution division will continue to
operate as Odyssey Pictures for the purpose of providing a presence in Hollywood
and New York and establishing a permanent presence in Europe through select
joint-venture partners. The foreign sales agency business unit of Odyssey will
be de-emphasized, since it would only be feasible as part of the Company's own
distribution network, which will be expanded as soon as new Odyssey properties
are ready for worldwide distribution. In order to insure a high quality regular
product flow, alliances will be sought with major film studios and successful
writers, directors and producers.
Odyssey Music: The music unit of Odyssey will be initiated from Europe through
exploitation and music publishing of the Techno/Dance music genre due to its low
investment cost versus high return, and will serve as a basis to penetrate the
U.S. market. This base will allow the launch of new acts via movie sound tacks.
A U.S. operation will be set up as soon as practicable.
Odyssey Publishing: Publishing will encompass all print and electronic media
including multi-media and Internet services as well as the traditional products
and services associated with magazines and other publications. When finally
viable, Odyssey Publishing will leverage intellectual property from the other
media properties, for example, book and multi-media products derived from motion
pictures.
4
<PAGE>
Odyssey Sports: Ownership and management of sport teams and entertainment events
will be pursued at the minor and major league levels as a means of providing
content and avenues of advertising, promotion, and access to business for the
entire media company and its clients. It will also be pursued as an opportunity
for ancillary revenues through venue management and merchandising. At present,
the Company owns a minority interest in the Albuquerque Geckos, a second
division professional soccer team in New Mexico.
Odyssey Merchandising: Manufacturing, sourcing, and distribution of merchandise
will be pursued and grown by Odyssey as a natural business complement to all
other media companies as well as a stand-alone business unit.
Strategic Objectives
- --------------------
To properly build Odyssey Media, the Company's Board and executive
management will seek to implement the following strategies:
- - Create and implement strong corporate governance policies and the most
effective corporate infrastructure;
- - Properly capitalize the Company and seek a NASDAQ listing;
- - Acquire profitable media-related operations that will contribute to the
Company's near-term and long term earnings;
- - Leverage connections between investors and projects in Europe and the United
States; identify talent and management that will augment the Company's
abilities;
- - Limit risk in the manner companies are acquired and investments are financed;
- - Maintain a cost consciousness in acquisition, financing, production and
distribution activities.
Recent Acquisitions
- -------------------
In August, 1998, the Company completed the acquisition of the assets of
Sweden-based Kimon Mediabright KB ("Kimon"), valued at $4,500,000, in exchange
for 4,500,000 shares of the Company's subordinated convertible Preferred Stock,
Series B, having a value for conversion purposes of $1.00 per share. Kimon will
have the right to convert to Odyssey common stock between June 30, 2000 and
December 31, 2000 on a dollar-for-dollar basis based on the price of the
Company's common stock at the time of conversion. Kimon assets purchased consist
of a film library with worldwide and/or Scandanavian distribution rights and
Scandanavian video distribution rights to certain Hallmark Entertainment
products.
In connection with the change of control in March, 1998, the Company
acquired an 18% equity interest in each of two corporations affiliated with Mr.
Schotte, one of which is the owner of the Albuquerque Geckos, a second division
professional soccer team in New Mexico, and the other of which is a media
production company in Luxembourg. The Company issued one-year notes in the
aggregate amount of $450,000 in consideration of the purchase of the equity
interests in these companies.
Sales of Library Films
- ----------------------
On January 2, 1996, the Company entered into an agreement with Regency
International Pictures, B.V. ("Regency"), the Company's joint venture partner,
to sell the Company's interest in the related joint ventures through which it
held approximately 50% ownership interests in four theatrical motion pictures,
entitled "Switch", "Q & A," "Guilty by Suspicion" and "This Boy's Life".
Pursuant to the agreement with Regency, the Company received $1,000,000 on
January 23, 1996 and $500,000 on February 14, 1996, in exchange for all of the
Company's interests in the joint ventures. In addition, the Company retained a
contingent interest in certain receivables, not to exceed $212,500, and a
contingent interest in future revenues from the pictures.
5
<PAGE>
On August 29, 1996, the Company entered into an agreement with Kinnevik
Media Properties, Ltd. ("Kinnevik"), pursuant to which the Company agreed to
grant to Kinnevik subdistribution rights in, and to sell to Kinnevik other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company received a total cash consideration of $1,075,000,
payable $500,000 on closing, $275,000 six months after closing, and $300,000
eighteen months after closing. In addition, the Company retained a continuing
right to receive revenues from certain of the films, valued by management at a
minimum of approximately $150,000. As part of the transaction, the Company
granted 100,000 stock options to Kinnevik, exercisable over a three year period
at the bid price of the Company's common stock in effect on August 5, 1996
($.625). The transaction with Kinnevik closed on October 7, 1996.
Recent Financings
- -----------------
In August and October of 1995, the Company concluded a private placement
pursuant to which it issued unsecured promissory notes to unaffiliated investors
in the aggregate amount of $312,500. The notes had a maturity date of one year
and accrued interest at the rate of 12% per annum. A total of 6.25 units were
sold at a purchase price of $50,000 per unit. In addition, warrants were issued
to the purchasers at the rate of 4,167 warrants for each unit sold, or a total
of 26,042 warrants (on a post Reverse Split basis). Each warrant certificate
entitled the holder thereof to purchase one share of common stock at an exercise
price of either $2.83 per share (the August warrants) or $2.37 per share (the
October warrants) over a three year period commencing one year after the closing
of the private placement. After paying expenses and commissions of $42,500, the
Company received net proceeds of $270,000 from the private placement. The notes
issued in the private placement were due to be paid by the Company upon their
respective due dates on August 28 and October 3, 1996.
The Notes and interest were not repaid as scheduled. The Company proposed
that Noteholders either defer maturity of their notes and exchange existing
warrants for shares, or cancel the notes and warrants in their entirety in
exchange for a greater number of shares. The Company offered to register any
shares issued in exchange for the notes. On August 12, 1997, the date the
registration became effective, a total of $262,500 of notes were exchanged for
595,455 shares of registered stock. The remaining notes for $50,000 (held by a
single investor) have not been paid and are in default.
In September, 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1,000,000 shares of the Company's
common stock (and an additional 1,000,000 warrants) in consideration of
$750,000. Following a dispute between the parties concerning the satisfaction of
certain conditions to closing, the parties reached a settlement in June, 1997,
pursuant to which the investor purchased 66,667 shares of common stock of the
Company for $50,000, or $.75 per share.
In September, 1996, the Company reached an agreement with Paramount
Pictures, pursuant to which Paramount would cancel the Company's contractual
guarantee of $2.7 million in full, in exchange for which the Company agreed to
(i) relinquish all further distribution rights to "Wuthering Heights"; (ii)
assign to Paramount all of its rights in any outstanding distribution agreements
for the film, and any receivables to be generated therefrom; (iii) guarantee
that Paramount would collect a total of $500,000 in sales revenue from existing
distribution agreements no later than January 15, 1997. Existing license
agreements yielded approximately $420,000 in net revenues prior to January 15,
1997 (of which the Company would have been entitled to retain approximately 20%
thereof in commissions). The Company paid $250,000 in net revenues to Paramount
and is currently in negotiations with Paramount regarding the timing of the
remaining $250,000 payment.
In January, 1997, prior counsel to the Company agreed to exchange a
promissory note in the face amount of $70,000 for 120,000 shares of the
Company's common stock.
6
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In February, 1997, the Company completed the sale of 500,000 shares of
common stock and 500,000 common stock purchase warrants to four offshore
European investors for an aggregate consideration of $375,000. The warrants are
exercisable over a three year period (expiring February 25, 2000) at an exercise
price of $1.06 per share. One of the investors was Johan Schotte, who was
subsequently elected as CEO of the Company in March, 1998.
In April, 1997, Stephen R. Greenwald, Lawrence I. Schneider and Robert
Miller, Jr., all directors of the Company, made loans to the company in the
amounts of $50,000, $25,000 and $25,000, respectively. Each loan was payable on
demand and accrued interest at the rate of 2 points over prime per annum. The
notes were secured by a collateral assignment of the Company's 300,000 note
receivable from Kinnevik. In consideration of making the loans, the lenders
received five-year warrants to purchase shares of common stock of the Company,
exercisable at $1.00 per share. Messrs. Schneider and Miller each received
25,000 warrants and Mr. Greenwald received 50,000 warrants as consideration for
making the loans to the Company. In addition, two independent unaffiliated third
parties made additional $25,000 loans to the Company in June and August, 1997 on
the same terms and conditions as the loans made by Mr. Greenwald, Schneider and
Miller. In May, 1998, the loans of Mr. Schneider and one of the unaffiliated
parties were paid from the proceeds of the Kinnevik receivable. The remaining
lenders agreed to a rollover of their loans (aggregating $100,000) against a
second Kinnevik receivable and, in consideration, will receive an additional
50,000 warrants in the aggregate, exercisable at $1.00 per share over a three
year period. In September, 1998, all but $25,000 of these loans were repaid from
the proceeds of the Kinnevik receivable. The remaining lender, Robert E. Miller,
Jr., a director of the Company, agreed to a rollover of his $25,000 loan on an
unsecured basis for an additional six month period with interest at the rate of
10% per annum.
In September, 1997, the Company and Kinnevik Media Properties, Ltd.
executed an agreement pursuant to which Kinnevik agreed to purchase 500,000
shares of convertible, redeemable preferred stock of the Company, par value
$1.00 per share, for an aggregate purchase price of $500,000. Kinnevik agreed to
purchase the first $250,000 of preferred stock at the closing, an additional
$125,000 of preferred stock 90 days after closing, and the final $125,000 of
preferred stock 270 days (subsequently extended to 360 days) after closing. The
preferred stock would bear interest at the rate of 10% per annum which would be
paid in kind semi-annually by the issuance of additional shares of preferred
stock at a par value of $1.00 per share. Kinnevik would have the right for a
five-year period to convert the preferred stock into common stock of the Company
on a share-for-share basis. The Company would have the right to redeem the
preferred stock for $1.25 per share in the event the Company's common stock
traded at a price of $2.00 per share or more for a period of 20 consecutive
trading days. The Company agreed to help secure television distribution rights
for Kinnevik from third parties, and introduce various projects to Kinnevik from
time to time which may be of interest to Kinnevik. In the event Kinnevik
acquires any rights as a result of any introductions made by the Company, the
parties agree to mutually determine the value of such services and to redeem
shares of the preferred stock at $1.00 per share based on the aggregate value of
the services so determined.
The Company received $150,000 in funding from the Augustine Fund, L.P. in
July, 1998. In exchange for the financing, the Augustine Fund received a zero
coupon $150,000 convertible note as well as up to 150,000 transferable warrants,
exercisable at $1.60 per share for a three year period. Augustine can convert
into restricted shares of the Company's common stock at a discount to the market
price of Odyssey common stock at the time of conversion (i.e., at the lower of
the market price on the closing date, or 80% of the market price prior to
conversion). Augustine and certain Augustine associated parties were also issued
a total of 45,000 shares of restricted common stock in connection with the
transaction.
7
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Competition
- -----------
The entertainment industry generally, and the film industry in particular,
are highly competitive. The Company's competition includes the smaller
independent producers as well as major motion picture studios and music
companies. Many of the Company's competitors have financial and other resources
which are significantly greater than those available to the Company.
Operations
- ----------
The Company's operations have been greatly reduced as a result of the
restructuring of the Company by new management. The Company maintains a single
office in Dallas, Texas (see "Properties") and, as of September 30, 1998, had
three full-time employees, consisting of Mr. Schotte, Mr. Koshakji, and Mr.
Greenwald, the CEO, President and Managing Director of the Company,
respectively.
Tax Loss Carryforward
- ---------------------
The Company is entitled to the benefits of certain net operating loss
carryforwards to reduce its tax liability. The utilization by the Company of
such tax loss carryforwards is limited under applicable provisions of the
Internal Revenue Code of 1986, as amended, and the applicable regulations
promulgated thereunder. As of June 30, 1997, there were approximately
$27,000,000 in net operating loss carryforwards remaining to be used to reduce
tax liability. The utilization of approximately $4.9 million of these losses in
future periods will be limited to approximately $350,000 per year.
Item 2. Properties
----------
The Company presently conducts its operations out of leased premises at
1601 Elm Street, Dallas, Texas, consisting of approximately 2,500 square feet.
The premises are presently being made available to the Company as an
accommodation by a company affiliated with Mr. Johan Schotte, the CEO of the
Company. Rent expense for each of the fiscal years ended June 30, 1997, 1996,
and 1995 was $69,002, $38,772, and $297,287, respectively.
Item 3. Legal Proceedings
-----------------
On December 20, 1990, Hibbard Brown & Company, Inc. ("Hibbard Brown") filed
a complaint entitled Hibbard Brown & Company, Inc. v. Double Helix Films, Inc.,
Odyssey Entertainment Ltd. and Communications and Entertainment Corp. in the
Supreme Court of the State of New York, County of New York. The Complaint sought
payment of $300,000 under an agreement with the Company, Odyssey, Double Helix
and Hibbard Brown dated December 21, 1989 for certain investment banking
services allegedly performed in introducing Odyssey and Double Helix and
assisting them in consummation of the Mergers by which they became wholly-owned
subsidiaries of the Company. A counterclaim seeking recovery of $50,000 paid to
Hibbard Brown upon execution of the Agreement was asserted.
Hibbard Brown's motion for summary judgment was granted in October, 1991.
On January 30, 1992, the Company moved, by order to show cause, to renew and
thereupon deny, dismiss or stay Hibbard Brown's previously granted motion for
summary judgment on the ground that Hibbard Brown had intentionally concealed
the fact that it was an unauthorized foreign corporation transacting business in
New York. By Order dated March 2, 1992, the court granted the Company's motion
in part by renewing the action and staying judgment pending Hibbard Brown's
qualification in New York. On October 29, 1992, Hibbard Brown moved for an order
vacating the stay of judgment, a declaration that it was now an authorized
foreign corporation and reinstatement of the summary judgment granted in
October, 1991 or, in the alternative, to rehear its motion for summary judgment
on the original papers and grant judgment in its favor.
8
<PAGE>
On January 29, 1993, Double Helix, Odyssey and the Company cross-moved for
an order granting reargument and/or renewal of Hibbard Brown's motion for
summary judgment and consolidating the litigation with an action that the
Company had brought against Hibbard Brown (described below), or staying the
issuance, entry and execution of judgment pending the resolution and trial of
the Company's action against Hibbard Brown.
On March 26, 1993, the court issued a Decision and Order vacating the stay
of entry of the $300,000 judgment against the Company and granting the Company's
cross-motion for a stay of execution pending the determination of the Company's
action against Hibbard Brown. The Company's cross-motions for reargument and
renewal and consolidation were denied.
By Decision and Order dated June 18, 1993, the court affirmed the stay of
execution of the judgment, but required the Company to obtain a bond to secure
the stay. The Company obtained a non-collateral bond.
On March 5, 1992, the Company instituted an action entitled Communications
and Entertainment Corp. v. Hibbard Brown & Company in the Supreme Court, New
York County, for the return of 150,000 shares of Common Stock previously issued
on the ground that Hibbard Brown failed to perform the required services.
Hibbard Brown counterclaimed for breach of contract.
In July 1993, after considerable pre-trial discovery, the Company and
Hibbard Brown moved for summary judgment. By Decision and Order dated August 11,
1993, the court denied both motions. Both parties appealed. On March 3, 1994,
the appellate court affirmed the denial of summary judgment.
On or about October 14, 1994, Hibbard Brown filed a voluntary petition for
relief under Chapter 11, Title 11 of the United States Code with the United
States Bankruptcy Court, Southern District of New York. Consequently, the
Company's action against Hibbard Brown has been automatically stayed. The
Company has filed a Proof of Claim.
On or about September 11, 1992, Joseph Duignan brought an action in the
Superior Court of New Jersey, Mercer County, entitled Joseph Duignan v. Double
Helix Films Limited Partnership No. 1, L.P., Double Helix Films, Inc., Cinecom
International Films, Film Gallery, Inc., Stan Wakefield, Jerry Silva, Arthur
Altarac and Anthony Tavone (MER-L-4262-92). Jerry Silva, the only defendant who
was served, is former Vice Chairman of the Board of Directors of the Company.
Mr. Silva has demanded that the Company indemnify him against any expenses,
judgments, and amounts paid in settlement of the action. The Company contends
that it is not required to indemnify Mr. Silva because he breached his fiduciary
duties to the Company.
Mr. Duignan claims that he invested $75,000 to acquire a partnership
interest in Double Helix Films Limited Partnership No. 1 and that Mr. Silva
forged or caused to be forged his signature on a Subscription Agreement dated
July 28, 1986. The Complaint alleges claims for rescission, unjust enrichment
(against Double Helix), conversion, fraud, breach of contract, breach of
fiduciary duty and breach of covenants of good faith and fair dealing (against
Mr. Silva and Double Helix). Mr. Duignan seeks to recover compensatory damages,
including but not limited to, his alleged $75,000 investment, punitive damages
and attorney's fees. Mr. Silva has answered the Complaint.
On or about December 30, 1994, Krishna Shah, who allegedly served as
President of Double Helix from about July 1991 until about March 1993, brought
an action in the Superior Court of California, Los Angeles County, entitled
Krishna Shah v. Norman Muller, Communications and Entertainment Corp., ATC II,
Carnegie Film Group, Inc., Jerry Minsky, Perry Scheer, Susan Bender, Larry
Myers, Robert Hesse, Double Helix Films, Inc. and Does 1-100, alleging claims
for breach of an oral agreement to pay Mr. Shah $152,000 (which he allegedly
advanced for the benefit of Double Helix) and to give him a 19.5% ownership
interest in its corporate successors. The Company has paid Mr. Shah the sum of
$15,000 in full settlement of all claims against the Company.
9
<PAGE>
In The Private Lessons Partnership v. Carnegie Film Group, Inc., Monogram
Pictures Corp., Filmways Entertainment Corp., ATC, Inc., Krishna Shah, Lonnie
Romati, Gerald Muller, Jerry Minsky and Does 1-100 (California Superior Court,
Los Angeles County, Case No. BC091840), the plaintiff asserted claims for breach
of oral contract, fraud in the inducement and fraudulent conveyance against Mr.
Shah, seeking damages in the amount of $315,000, plus further unspecified
compensatory damages and punitive damages. In August 1995, Mr. Shah filed a
cross-complaint against the Company, Double Helix Films and Norman Muller for
indemnification, apportionment of fault and declaratory relief. In addition to
compensatory damages, he seeks punitive and exemplary damages, emotional
distress damages and attorney's fees. The Company has answered the
cross-complaint.
On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and Cinecom
Entertainment Group, Inc. filed a Complaint in the Superior Court for the State
of California, County of Los Angeles, captioned Credit Lyonnais Bank Nederland
N.V. and Cinecom Entertainment Group, Inc. v. Odyssey Distributors, Ltd. and
Does 1 through 100 (No. BC 127790). They allege that Odyssey Distributors, Ltd.
(a subsidiary of the Company) collected but failed to remit to them assigned
distribution proceeds in the amount of $566,283.33 from the foreign distribution
of "Aunt Julia and the Scriptwriter" and "The Handmaid's Tale." The Complaint
alleges claims for breach of contract and breach of fiduciary duty and demands
damages in excess of $566,283, attorney's fees, an accounting, a temporary
restraining order and a preliminary injunction. In June 1995, the Court denied
plaintiffs an attachment and stayed the action pending arbitration in New York.
In September, 1996, the Court dismissed the Complaint. In December, 1996, the
Company settled the outstanding litigation with Generale Bank ("Generale")
(formerly known as Credit Lyonnais Bank Nederland N.V.) and Cinecom
Entertainment Group Inc. Pursuant to the settlement agreement, the Company
agreed to pay to Generale the sum of $275,000 in complete settlement of the
claim, payable $25,000 upon execution of the settlement agreement, $25,000 on
each of June 30 and December 31 in the years 1997, 1998 and 1999, and $100,000
on June 30, 2000. Interest on the installments (at the rate of LIBOR plus 1% per
annum) will be waived provided the Company remains in compliance with the agreed
upon payment schedule. The Company and Generale later agreed upon a new payment
schedule as follows: $25,000 on or before October 15, 1997 (payment was made);
$30,000 on each of April 15, 1998, June 30, 1998, December 31, 1998, June 30,
1999, and December 31, 1999; and $100,000 on June 30, 2000. The Company is in
receipt of a demand letter dated May 4, 1998. The letter demands that the
company Cure the non-payment of a $30,000 installment due April 15, 1998.
According to the agreement between the Company and Generale, the Company had ten
days after receipt of the letter to cure the default. The default has not yet
been cured. The consequences of not curing the default is the entry of a
confession of judgment already executed by the Company for the amount of
$275,000. This confession of Judgment is against Odyssey Distributors, Ltd., a
wholly owned but non-operating subsidiary of the Company.
In August 1995, G.P. Productions, Inc. ("GP") and Greenwich Subject Films,
Inc. ("Greenwich") commenced an action entitled G.P. Productions, Inc. and
Greenwich Studios, Inc. v. Double Helix Films, Inc., Communications and
Entertainment, Inc., Krishna Shaw, Gerald Muller and Norman Muller in the United
States District Court, Southern District of Florida (Case No. 95-1188). Mr.
Muller has demanded that the Company indemnify him against any expenses,
judgments and amounts paid in settlement of the action. The Company contends
that, by virtue of Mr. Muller's breaches of fiduciary duty and violation of his
obligations to the Company, it is not required to provide indemnification.
GP and Greenwich allege that they are the exclusive owners of the films
"The Gallery" and "South Beach". They assert claims for copyright infringement,
unfair competition, breach of contract, accounting, conversion, civil theft,
conspiracy and fraudulent conveyance. The Complaint demands a recall of the
films, an attachment, preliminary and permanent injunctive relief, an
accounting, and unspecified compensatory, punitive and treble damages. The
Company's motion to transfer venue of the action was granted in November, 1995,
and the case was transferred to the United States District Court for the
Southern District of New York. There has been no activity in this matter since
the transfer of venue in 1995.
10
<PAGE>
In September, 1995, the agent for the landlord for the premises formerly
occupied by the Company at 800 Third Avenue, New York, New York, filed a Summons
and Verified Complaint against the Company in the Supreme Court of the State of
New York, County of New York, entitled Joseph P. Day Realty Corp. v.
Communications and Entertainment Corp. The plaintiff alleged that it was due
$66,694 from the Company (plus interest) for rent allegedly owed during the
period from April through September, 1995. The Company had vacated the premises
on April 12, 1995. Summary judgment was awarded to the plaintiff on May 22, 1996
and a judgment was entered for $74,142 on May 31, 1996. In July, 1996, the
landlord commenced a second action for $121,000 for rent allegedly owed during
the period from October 1995 through July 1996. The Company reached a settlement
in these cases, pursuant to which the Company delivered 177,5000 registered
shares of the Company's common stock to each of the landlord and its agent in
full settlement of both actions.
In October, 1995, Canon Financial Services filed a Complaint in the
Superior Court of New Jersey entitled Canon Financial Services, Inc. v.
Communications and Entertainment Corp. The plaintiff is claiming that it is due
$47,499.83, plus damages, pursuant to a lease agreement. The Company has filed
an Answer in this action and plaintiff's motion for summary judgment has been
denied by the Court. No trial date has yet been set in this matter.
In December, 1995, Robert F. Ferraro, a former director of the Company,
brought an action against the Company in the Supreme Court of the State of New
York, New York County. The action was brought on a promissory note in the amount
of $25,000 and plaintiff obtained a judgment on a summary judgment motion. The
plaintiff has not yet moved to enforce the judgment and the Company is
considering whether or not it has a claim for indemnification against prior
management in connection with the issuance of the note.
In January, 1996, an action was filed against the Company in which the
plaintiff sought damages in the amount of $33,849 for legal services rendered to
the Company and its subsidiaries. In June, 1997, the parties reached a
settlement in the matter, pursuant to which the Company agreed to pay $7,000 to
plaintiff, deliver 40,000 freely tradeable shares of the Company's common stock,
and deliver an additional cash amount to the extent the aggregate market value
of the shares on the date of delivery was less than $40,000. Payment of the
additional cash amount of $13,000 was completed in December, 1997.
In March, 1996, an action was filed against the Company in Los Angeles
Municipal Court by Judy Hart, in which the plaintiff claims that she is due
$17,920 pursuant to a promissory note. The Company has filed a cross-claim
seeking offsets against the amount due and other damages. On May 21, 1998, a
default judgment was entered on behalf of plaintiff in the amount of $22,261.
Subsequently, plaintiff filed a motion to include attorneys fees and costs in
the aggregate amount of approximately $17,000. The Company is attempting to
reach a settlement with plaintiff.
In March, 1996, a class action complaint was filed against the Company
entitled Dennis Blewitt v. Norman Muller, Jerry Minsky, Dorian Industries, Inc.
and Communications and Entertainment Corp. The complaint seeks damages in
connection with the Company's treatment in its financial statements of the
disposition of its subsidiary, Double Helix Films, Inc. in June, 1991. The
complaint seeks unspecified damages on behalf of all persons who purchased
shares of the Company's common stock from and after June, 1992. A second action,
alleging substantially similar grounds, was filed in December 1996 in Federal
Court in the United States District Court for the Southern District of
California under the caption heading "Diane Pfannebecker v. Norman Muller,
Communications and Entertainment Corp., Jay Behling, Jeffrey S. Konvitz, Tom
Smith, Jerry Silva, David Mortman, Price Waterhouse & Co., Todman & Co., and
Tenato Tomacruz." Following the filing of the second action, the first action
was dismissed by stipulation in May 1997. The Company filed a motion to dismiss
the complaint in the second action and after a hearing on the motion in July,
1997, the Court dismissed the federal securities law claims as being time-barred
by the applicable statute of limitations, and dismissed the state securities law
claims for lack of subject matter jurisdiction. The lower court's dismissal of
this action was upheld on appeal by the Ninth Circuit. Messrs. Muller, Smith and
Mortman, former directors of the Company, have asserted claims for
indemnification against the Company. The Company has advised the claimants that
it will not provide such indemnification based upon their wrongful actions and
failure to comply with various obligations to the Company.
11
<PAGE>
In September, 1996, Film Bridge International, Inc. ("Film Bridge") filed a
complaint in Los Angeles County Superior Court, entitled Film Bridge
International v. Communications and Entertainment Corp., and Does 1 through 50,
Inclusive, contending that the Company had breached the terms of an alleged
joint venture agreement between the parties regarding the distribution rights to
certain films. On December 19, 1996, the Company filed a cross-claim against
Film Bridge alleging that, since the end of June, 1996, Film Bridge failed to
furnish the Company with a proper accounting of its revenues and expenses in
connection with the sale of foreign licenses of various films in which the
Company had an interest and had failed to make payment of at least $450,000 to
the Company for monies due and owing to the Company from the foreign sales of
such films. An agreement was reached between the parties in May, 1997, as a
result of which the Company received $336,000 of the monies being held by Film
Bridge, with the balance being retained by Film Bridge as sales commissions and
in full settlement of the litigation.
On November 21, 1996, the law firm of Halperin, Klein & Halperin (counsel
to Mr. Silva) commenced an action against the Company in the Civil Court of the
State of New York on a returned check in the amount of $5,000 for legal services
allegedly rendered to the Company. The check was originally issued to plaintiff
in April, 1995 in connection with the change of control of the Company at that
time. The Company has filed an Answer in the action and intends to defend the
matter on the basis of a failure of consideration.
In December, 1997, the Directors Guild of America ("DGA") obtained an
arbitration award against Down Range Productions, Inc., a wholly owned
subsidiary of Odyssey, on behalf of Kahn Brothers Pictures fso Michael Kahn,
Charles Skouras, and Scott C. Harris. Down Range was ordered to pay Kahn
Brothers Pictures the total sum of $155,041; Charles Skouras the sum of $32,360;
and Scott C. Harris the total sum of $8,868; plus interest at 18% per annum on
each of these amounts from April 1, 1997. Down Range was also ordered to pay the
DGA $2,500. Down Range was also ordered to assign to the DGA all of Down Range's
right, title and interest in the motion picture "Down Range," including the
screenplay for the motion picture, and Down Range was enjoined from licensing
the motion picture or the screenplay to any third party other than the DGA. Down
Range was also ordered to pay the arbitrator $2,250.
Kahn Brothers Pictures fso Michael Kahn also filed a claim against Down
Range Productions, Inc. and the Company with the Writers Guild of America West
(WGA) for unpaid writing services on "Down Range." That claim has been settled
for the amount of $15,000.
The Screen Actors Guild (SAG) has also asserted that there are amounts
owing to four actors (Dale Dye, John Philbin, Tegan West, and Kiljoy Productions
fso Kathleen Wilhoite), arising out of "Down Range." The company believes that
SAG has never instigated any arbitration or other proceeding to try to collect
on these claims. Additionally, there were two actors, Corbin Bernsen and Jeff
Fehey, who had pay-or-play contracts. The outcome of these contracts and the
actors' claims have not been resolved.
In April, 1998, the Company reached a settlement with Mr. Jerry Silva ( a
former director of the Company), regarding his actions against the Company in
the Civil Court and Supreme Court of the State of New York. Mr. Silva was
seeking money damages based on his claim that the Company interfered with his
right to sell his shares in the Company. Mr. Silva will discontinue the matters
and the Company will authorize the sale of Mr. Silva's shares in the Company
under Rule 144, up to a maximum of 25,000 shares per month.
In April, 1998, an action was commenced against the Company by Siegel &
Gale, a provider of brochure materials for the Company. The lawsuit seeks
payment of $48,695, plus costs, related to work done by Siegel & Gale for the
Company. The Company has not yet filed an Answer in this action and is in the
process of consulting with its counsel on the best course of resolving this
matter.
12
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
---------------------------------------------------------------------
The following table sets forth the range of high and low bid information
for the Common Stock of the Company as reported by the Nasdaq Stock Market, Inc.
("Nasdaq") on a quarterly basis for each of the two preceding fiscal years. On
May 1, 1996, Nasdaq notified the Company that its shares of Common Stock were
being deleted from Nasdaq's SmallCap Market, effective May 2, 1996, because the
Company did not maintain a combined capital and surplus of $1,000,000, as
required by Section 1(c)(3) of Schedule D of the NASD By-Laws. Since May 2,
1996, the Company's shares have traded in the over-the-counter market on the OTC
Bulletin Board. The Company's Common Stock trades under the symbol OPIX.
No dividends have been declared or paid with respect to the Common Stock.
On March 6, 1996, the Company declared a reverse one-for-six stock split
(the "Reverse Split") of its Common Stock, effective on March 18, 1996. The
share prices reflected below for all periods prior to the Reverse Split have
been adjusted upward (by a multiple of six) to give effect to the Reverse Split
for such prior periods on a pro forma basis.
The bid quotations represent inter-dealer prices and do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
Common Stock
------------
Fiscal 1996 High Low
- ----------- ---- ---
First Quarter $4.00 $2.12
Second Quarter 2.75 1.37
Third Quarter 2.37 1.50
Fourth Quarter 1.81 .40
Fiscal 1997
First Quarter $ .87 $ .50
Second Quarter 1.37 .43
Third Quarter 1.07 .62
Fourth Quarter .81 .37
As of September 30, 1998, there were 4576 record holders of the Company's
Common Stock.
13
<PAGE>
Item 6. Selected Financial Data (in thousands, except per share data).
--------------------------------------------------------------
The following table sets forth the selected financial data for the Company
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, and with Management's Discussion and Analysis of Financial
Condition and Results of Operations which appear elsewhere in this report.
<TABLE>
<CAPTION>
For the Years Ended June 30,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Income Statement Data
Revenues....................................... $ 141 $1,011 $1,521 $14,797 $31,430
Income (loss) from continuing operations....... 69 (4,960) (6,852) (7,607) (1,450)
Income (loss) from discontinued operations..... - - (458) (766) 187
Net income (loss).............................. 69 (4,960) (7,310) (8,373) (1,263)
Per Share Data (1)
Income (loss) from continuing operations....... .02 (2.17) (2.94) (3.18) (.057)
Income (loss) from discontinued operations..... - - (0.20) (0.32) 0.07
Net income (loss).............................. .02 (2.17) (3.14) (3.50) (0.50)
Cash Dividends................................. - - - - -
Weighted average shares........................ 2,294 2,284 2,332 2,392 2,551
Balance Sheet Data
Film costs..................................... 120 1,001 10,656 13,127 10,614
Total assets................................... 740 2,488 15,078 27,949 35,409
Indebtedness................................... 962 562 249 179 366
Shareholders' equity........................... (2,226) (2,749) 1,979 9,796 18,786
</TABLE>
(1) Per share data and weighted average shares for all periods have been
restated to reflect the effect of a one-for-six reverse stock split in March
1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operation.
---------------------
Results of Operations
Years Ended June 30, 1997 and 1996
Operations for the fiscal year ended June 30, 1997 ("fiscal 1997") resulted
in net income of $68,808, compared with a net loss of $4,959,716 for the fiscal
year ended June 30, 1996 ("fiscal 1996"). The net income for fiscal 1997 is
primarily due to a gain of $818,776 from the sale of certain distribution and
subdistribution rights in certain films to a third party and recognition of a
$1,245,758 gain from cancellation of a contractual obligation related to the
Company's distribution rights in a motion picture which was partially offset by
a write-off of festival costs in the amount of $249,544, litigation and
settlement costs of $148,174 and a write-down in inventory costs of $435,102
relating to one motion picture. These write-offs were partially offset by a
write-off of $449,163 in participation liabilities related to a library that was
sold. The loss for fiscal 1996 is primarily the result of a $3,262,4798 loss on
the sale of interests in joint ventures relating to four theatrical films, and
from the continued decline in film distribution revenue.
Revenues declined to $141,202 for fiscal 1997 compared to $1,010,826 for
fiscal 1996. There were no new films which became available for delivery to the
Company in either period.
14
<PAGE>
Costs related to revenues decreased to $565,610 for fiscal 1997 as compared
to $1,046,299 for fiscal 1996. The decrease is primarily related to the fact
that there were lower film revenues in the current year and from the write-offs
explained above.
Selling, general and administration expenses increased to $1,678,450 for
fiscal 1997 from $1,565,307 for fiscal 1996. The increase is primarily related
to higher salaries and professional fees during fiscal 1997.
As of June 30, 1997, the Company had a federal net operating loss
carryforward, for tax purposes, of approximately $27,000,000 expiring through
2011, available to be used to reduce future tax liability. Due to limitations
imposed by the Internal Revenue Service, the utilization of approximately
$4,900,000 of these operating losses will be limited to approximately $350,000
per year.
Years Ended June 30, 1996 and 1995
Operations for the fiscal year ended June 30, 1996 ("fiscal 1996") resulted
in a loss from continuing operations of $4,959,716, compared to a loss from
continuing operations of $6,851,458, for the fiscal year ended June 30, 1995
("fiscal 1995"). The loss for fiscal 1996 is primarily the result of a
$3,262,478 loss on the sale of interests in joint ventures relating to four
theatrical films, and from the continued decline in film distribution revenue.
The loss for fiscal 1995 is due to a substantial decline in revenues, as
compared to the previous fiscal year, and certain write-offs, including film
costs and receivables resulting from the settlement of litigation with Home Box
Office Inc. ("HBO"), costs associated with the sale or abandonment of film
development projects and unrecoverable distribution costs.
Revenues declined 34% to $1,010,826 for fiscal 1996 from $1,521,434 for
fiscal 1995. Revenues for both periods reflect the continued licensing of rights
in the Company's library of feature films. There were no new films which became
available for delivery to the Company in either period, partly due to prior
management's failure to acquire rights to new film projects.
Costs related to revenues for fiscal 1996 exceeded film distribution
revenues by $35,473, primarily due to the write-off of unrecoverable
distribution costs. For fiscal 1995, costs related to revenues exceeded revenues
by $3,223,896, primarily due to write-offs of approximately $2,518,000
associated with the settlement of litigation with HBO, and write-offs of film
development projects, film assets acquired in settlement of loans receivable and
unrecoverable distribution costs.
As of January 2, 1996, the Company entered into an agreement with its joint
venture partner to sell its related joint ventures through which it held
approximately 50% ownership interests in four theatrical motion pictures. As a
result of the sale, the assets and obligations of the joint ventures, heretofore
included in the consolidated financial statements of the Company, were
eliminated, including approximately $3,485,000 of funds held in joint venture
accounts, net film costs of approximately $6,051,000, payables due to producers
and participants of approximately $7,244,000, deferred income of $520,000 and
other net obligations of approximately $272,000.
Selling, general and administrative expenses decreased $2,140,156 (58%) to
$1,565,307 for fiscal 1996 from $3,705,463 for fiscal 1995. The reduction in
expenses is a direct result of new management's efforts to eliminate unnecessary
overhead. Expenses for fiscal 1996 reflect significant decreases in personnel
and related expenses, rent (due to the closure of the New York office and the
reduction of the Los Angeles office) and professional fees.
The decrease in interest income for fiscal 1996 is due to a reduction in
the average available cash balances, including funds held in joint venture
accounts.
Interest expense increased to $97,701 for fiscal 1996 from $19,498 for
fiscal 1995. The increased interest expense resulted primarily from the private
placement sale of an aggregate of $312,500 principal amount of 12% Senior
Unsecured Promissory Notes in August and October 1995.
15
<PAGE>
The Company did not recognize any tax benefits related to its losses from
operations for the 1996 and 1995 fiscal years due to its inability to carry-back
such losses to prior years.
As of June 30, 1996, the Company had a federal net operating loss
carryforward, for tax purposes, of approximately $27,000,000 expiring through
2011, available to be used to reduce future tax liability. Due to limitations
imposed by the Internal Revenue Service, the utilization of approximately
$4,900,000 of these operating losses will be limited to approximately $350,000
per year.
Liquidity and Capital Resources
At June 30, 1997, the Company held approximately $9,000 of cash.
New management has taken significant steps to recapitalize and fund the
Company's operations.
The company signed an agreement with Kimon on July 14, 1998 to purchase the
assets of Kimon, valued at $4,500,000, in exchange for 4,500,000 Odyssey shares
of subordinated convertible preferred stock, Series B, having a value of $1.00
per share for conversion purposes. Kimon shall be able to convert to Odyssey
common stock between June 30, 2000 and December 31, 2000 on a dollar-for-dollar
basis based on the price of the Company's common stock at the time of
conversion. Kimon assets purchased consist of a film library with worldwide
and/or Scandanavian distribution rights and Scandanavian video distribution
rights to certain Hallmark Entertainment products.
In June, 1998, the company applied for, and was accepted for, trading on
the Berlin Stock Exchange, under the symbol "ODY." The German company Berliner
Freiverkehr (Atkien) assisted the Company in the application and signed an
agreement with the Company to serve as a market maker/coordinator in exchange
for 200,000 warrants having an exercise price of $1.55 per share, exercisable
during the two-year period commencing June 23, 1998.
The Company received $150,000 in funding from the Augustine Fund L.P. in
July 1998. In exchange for the financing, the Augustine Fund received a $150,000
convertible note as well as up to 150,000 transferable warrants, exercisable at
$1.60 per share for a three year period. Augustine can convert into restricted
shares of the Company's common stock at a discount to the market price of the
common stock at the time of the conversion (i.e., at the lower of the market
price on the closing date, or 80% of the market price prior to conversion).
Augustine and certain Augustine associated parties were also issued a total of
45,000 shares of restricted common stock in connection with the transaction.
16
<PAGE>
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
ODYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants 18
Financial Statements:
Consolidated Balance Sheets
as of June 30, 1997 and 1996 19
Consolidated Statements of Operations for the
Years Ended June 30, 1997, 1996 and 1995 20
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Years Ended June 30,
1997, 1996 and 1995 21
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995 22-23
Notes to Consolidated Financial Statements 24-40
All schedules have been omitted because the requested information is not
required, or, because the information required is included in the financial
statements or notes thereto.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
VANT&ENDER C.P.A., P.C.
To the Board of Directors and Shareholders of
Odyssey Pictures Corporation
In our opinion, the accompanying consolidated balance sheet and related
consolidated statement of operations, shareholders' equity and of cash flow
present fairly, in all material respects, the financial position of odyssey
Pictures Corporation and its subsidiaries at June 30, 1997 and the results of
their operations and their cash flow for the period ended June 30, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 8 to the financial statement, the Company defaulted on
payments due August and October 1996 relating to notes payable. The Company
proposed to the noteholders to defer maturity of the notes and exchange
exisiting warrants for shares, or cancel the notes and existing warrants in
their entirety in exchange for shares. The Company offered to register any
shares issued in exchange for the notes as of August 12, 1997 the date the
registration become effective, all but one of the noteholder agreed to exchange
their notes for registered stock. The remaining notes for $50,000 (held by a
single investor) have not been paid and are default. Additionally, an unsecured
note of $179,000 is also in default. At this time, the ultimate outcome of this
matter cannot be determined.
As discussed in Note 9, the Company is a defendant in various lawsuits. The
Company has filed counteractions and preliminary hearings and discovery
proceedings on several actions are in progress. The ultimate outcome of the
litigation cannot be determined at present. Not all liabilities that may result
upon adjudication have been accrued in the accompanying financial statements.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and has insufficient working capital to meet its
current obligations and liquidity needs. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Want & Ender C.P.A., P.C.
Want & Ender C.P.A., P.C.
New York City, New York
June 23, 1998
18
<PAGE>
<TABLE>
<CAPTION>
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Balance Sheets
<S> <C> <C>
JUNE 30, JUNE 30,
1997 1996
--------------- ---------------
ASSETS:
Cash $8,790 $462,971
Funds held in joint venture accounts
Accounts receivable, net of allowances
of $0 and $53,788 292,251 996,574
Note receivable 300,000 0
Film costs, net 120,472 1,000,968
Other assets 17,998 27,945
--------------- ---------------
$739,511 $2,488,458
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Liabilities:
Accounts payable and accrued expenses $874,020 $698,985
Accrued wages 335,996 17,372
Accrued interest 64,601 46,272
Accrued rent 149,000 150,000
Due to producers and participants 560,499 3,760,142
Deferred revenues 19,800 3,000
Notes and loans payable 961,500 561,500
--------------- ---------------
2,965,416 5,237,271
--------------- ---------------
Commitments and contingencies
Shareholders' Equity (Deficit):
Preferred stock, par value $.10;
Authorized - 10,000,000 shares
Issued - none
Class A stock, par value $.01;
Authorized - 10,000,000 shares
Issued - none
Common stock, par value $.01;
Authorized - 40,000,000 shares
Issued and outstanding -
3,279,515 and 2,591,242 shares 32,796 25,913
Capital in excess of par value 26,358,583 25,911,366
Accumulated deficit (28,617,284) (28,686,092)
--------------- ---------------
Total shareholders' deficit (2,225,905) (2,748,813)
--------------- ---------------
$739,511 $2,488,458
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
<TABLE>
<CAPTION>
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Operations
<S> <C> <C> <C>
For the Years
Ended June 30,
------------------------------------------
1997 1996 1995
REVENUES: $141,202 $1,010,826 $1,521,434
------------ ------------- -------------
EXPENSES:
Costs related to revenues 565,610 1,046,299 4,745,330
Selling, general and
administrative expenses 1,678,450 1,565,307 3,705,463
------------ ------------- -------------
2,244,060 2,611,606 8,450,793
------------ ------------- -------------
Operating income (loss) (2,102,858) (1,600,780) (6,929,359)
OTHER INCOME (EXPENSES):
Other income
Interest income 1,243 97,399
Interest expense (91,435) (97,701) (19,498)
Loss on sale of joint venture interests (3,262,478)
Other Income 2,263,101
------------ ------------- -------------
Income (loss) from continuing operations
before provision for income taxes 68,808 (4,959,716) (6,851,458)
Benefit for income taxes
------------ ------------- -------------
Income (loss) from continuing operations 68,808 (4,959,716) (6,851,458)
Loss from discontinued
operations (458,193)
------------ ------------- -------------
Net income (loss) $68,808 ($4,959,716) ($7,309,651)
============ ============= =============
Income (loss) per share:
Income (loss) from continuing operations $0.02 ($2.17) ($2.94)
Loss from discontinued
operations (0.20)
------------ ------------- -------------
Net income (loss) $0.02 ($2.17) ($3.14)
============ ============= =============
Weighted average common
shares outstanding* 2,993,809 2,283,611 2,331,579
============ ============= =============
Fully diluted income (loss) per share:
Income (loss) from continuing operations $0.02 ($2.17) ($2.94)
Loss from discontinued
operations (0.20)
------------ ------------- -------------
Net income (loss) $0.02 ($2.17) ($3.14)
============ ============= =============
Weighted average common
shares outstanding* 2,993,809 2,283,611 2,331,579
============ ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Changes in Shareholders' Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Class A Stock Common Stock
--------------------- -------------------- Total
Amount Amount Capital in Treasury Shareholders'
($.01 Par ($.01 Par Excess of Accumulated Stock Equity
Shares Value) Shares Value) Par Value Deficit at Cost (Deficit)
Balances - June 30, 1993 2,554,132 $25,541 2,241,482 $22,414 $28,046,619 ($8,043,239) ($1,264,986) $18,786,349
Purchase of 402,200 shares
of treasury stock (616,815) (616,815)
Treasury shares retired
and cancelled (162,833) (1,628) (1,880,173) 1,881,801 0
Conversion of Class A stock (213,429) (2,134) 22,676 227 1,907
Net loss (8,373,486) (8,373,486)
---------- -------- ---------- -------- ------------ ----------- ------------- -----------
Balances - June 30, 1994 2,340,703 23,407 2,101,325 21,013 26,168,353 (16,416,725) -- 9,796,048
Conversion of Class A stock (254,148) (2,541) 27,002 270 2,271 0
Cancellation of
unexchanged shares (520,740) (5,207) (10,496) (105) 5,312 0
Automatic conversion of
Class A stock to Common (1,565,815) (15,659) 166,358 1,664 13,995 0
Dividend of shares of
subsidiary (507,114) (507,114)
Net loss (7,309,651) (7,309,651)
----------- -------- ---------- -------- ------------ ----------- ------------- -----------
Balances - June 30, 1995 -- -- 2,284,189 22,842 25,682,817 (23,726,376) -- 1,979,283
Issuance of shares to officers
in payment of notes 307,053 3,071 228,949 232,020
Cash payments in lieu of
fractional shares on
conversion of Class A stock (400) (400)
Net loss (4,959,716) (4,959,716)
----------- -------- ---------- -------- ------------ ----------- ------------- ------------
Balances - June 30, 1996 -- -- 2,591,242 $25,913 $25,911,366 ($28,686,092) -- ($2,748,813)
Issuance of shares to officers
in payment of notes 78,948 789 44,211 45,000
Re-issue of unexchanged shares
shares previously cancelled 65,825 659 (659) 0
Issuance of shares in consideration
for services rendered 43,500 435 33,665 34,100
Sale of shares to equity
investors 500,000 5,000 370,000 375,000
Net income 68,808 68,808
------------ -------- ---------- -------- ------------ ----------- ------------- ------------
Balances - June 30, 1997
-- -- 3,279,515 $32,796 $26,358,583 ($28,617,284) -- ($2,225,905)
============ ======== ========== ======== =========== ============= ============= ============
The accompanying notes are an integral part of these statement.
21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Cash Flows
<S> <C> <C> <C>
For the Years
Ended June 30,
-------------------------------------------
1997 1996 1995
Cash Flows from Operating Activities:
Net loss from continuing operations $68,808 ($4,959,716) ($6,851,458)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on sale of joint venture interest 3,262,478
Amortization of film costs 1,660,440 634,179 2,149,723
Additions to film costs (779,944) (185,401) (72,259)
Other depreciation and amortization 18,963 44,307 187,219
Provision for loss on investment
Equity in losses of subsidiary held for sale 64,605
Gain on sale of shares of subsidiary (5,062)
Issuance of shares of subsidiary stock
in payment of legal fees 155,905
Issuance of shares of stock in consideration
for services rendered 34,100
Issuance of shares of stock to officers
in payment of deferred compensation 45,000 232,020
Cash payments in lieu of fractional shares (400)
Decrease (increase) in assets net of sale of
joint venture interest:
Funds held in joint venture accounts 352,723 (1,799,603)
Accounts receivable, net 704,323 (406,331) 9,998,736
Note receivable (300,000)
Other (536) (5,500) 258,007
(Decrease) increase in liabilities net of
sale of joint venture interest:
Accounts payable and accrued expenses 510,988 (199,628) (576,731)
Issuance of note in payment of legal fees 70,000
Due to producers and participants (3,199,643) (115,701) (4,616,323)
Deferred revenues 16,800 3,000 38,875
-------------- -------------- --------------
Net cash used in continuing operations (1,220,701) (1,343,970) (998,366)
-------------- -------------- --------------
Discontinued operations:
Net loss (458,193)
Amortization 393,588
-------------- -------------- --------------
Total from discontinued operations -- -- (64,605)
-------------- -------------- --------------
Net cash used in operations (1,220,701) (1,343,970) (1,062,971)
-------------- -------------- --------------
Cash Flows from Investing Activities:
Collections of loans relating
to lending activities 393,588
Acquisition of fixed assets (8,480) (6,550) (10,633)
Investment in Global Intellicom, Inc. (1,049,002)
Proceeds from the sale of Global Intellicom, Inc. shares 326,440
Proceeds on sale of joint venture interest 1,500,000
Costs relating to investment
-------------- -------------- --------------
Net cash provided by (used in)
investing activities (8,480) 1,493,450 (339,607)
-------------- -------------- --------------
The accompanying notes are an integral part of these statements.
22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Cash Flows (Continued)
<S> <C> <C> <C>
For the Years
Ended June 30,
----------------------------------------------
Cash Flows from Financing Activities: 1997 1996 1995
Note payable in settlement of Generale Bank
complaint 275,000
Net proceeds from the sale of
Senior Notes 270,000
Net proceeds from private placement
sale of common stock 375,000
Net proceeds from interim financing 125,000
-------------- -------------- --------------
Net cash provided by (used in) financing activities 775,000 270,000 --
Net increase (decrease) in cash (454,181) 419,480 (1,402,578)
Cash at beginning of period 462,971 43,491 1,446,069
-------------- -------------- --------------
Cash at end of period $8,790 $462,971 $43,491
============== ============== ==============
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year for-
Interest $48,240 $10,778 $19,498
============== ============== ==============
Income taxes $0 $0 $3,200
============== ============== ==============
Non Cash Investing and
Financing Activities:
Dividend of shares of Global Intellicom,Inc. ($507,114)
==============
Receipt of film assets in settlement of
loans receivable from ATC II, Inc. $393,588
==============
The accompanying notes are an integral part of these statements.
23
</TABLE>
<PAGE>
ODYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
a) Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and majority owned
or controlled joint ventures. All significant intercompany
accounts have been eliminated.
In March 1989, the Company entered into a joint venture
pursuant to which the Company and a non-affiliated entity
co-financed and co-produced a theatrical motion picture
entitled "Q&A", in which the Company had a 50.01% ownership
interest. In March 1990, the Company entered into two 50%
joint ventures (in which the Company exercised contractual
control) with the same entity to acquire the foreign
distribution rights of and distribute two motion pictures,
"Switch" and "Guilty By Suspicion". In December 1991, the
Company entered into a 50% joint venture (in which the Company
exercised control) with the same entity to acquire the foreign
distribution rights of and to distribute the motion picture
"This Boy's Life". The assets, liabilities, revenues and
expenses of the joint ventures have been included in the
consolidated financial statements of the Company. Minority
interests in operations and in net assets in these joint
ventures have been included in film costs and due to producers
and participants in the consolidated statements of operations
and of financial condition, respectively. In January 1996, the
Company sold its interests in the joint ventures (See Note 4).
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
b) Revenue Recognition:
Revenues from foreign theatrical, home video, television and
pay television licensing contracts are recognized when the
film is available for exhibition by the licensee and when
certain other conditions are met. Revenues from domestic
theatrical distribution of films are recognized as the films
are exhibited.
Virtually all of the Company's revenues for the fiscal year
ended June 30, 1997 and 1996 and approximately 62% of the
revenues for the fiscal year ended June 30, 1995, were from
foreign distribution rights. For fiscal 1996, approximately
50.2% of revenues were derived from one picture. One picture
accounted for approximately 28.3 % of revenues for the year
ended June 30, 1995.
c) Film Costs:
Film costs include (1) cost of production, (2) investment in
distribution rights, (3) marketing and distribution expenses,
and (4) development costs. Film costs are amortized, and
estimated residual and participation costs are accrued, on an
individual film basis in the ratio that the current year's
gross film revenues bear to management's estimate of total
ultimate gross film revenues from all sources.
24
<PAGE>
Film costs are stated at the lower of cost or estimated net
realizable value on an individual film basis. Ultimate revenue
and cost forecasts for films are periodically reviewed by
management and revised when warranted by changing conditions.
When estimates of total revenues and costs indicate that a
film will result in an ultimate loss, additional amortization
is provided to fully recognize such loss.
e) Property and Equipment:
Depreciation of property and equipment is provided by the
straight-line method over their estimated useful lives of up
to eight years.
Maintenance and repairs are expensed as incurred. The cost of
renewals and betterments are capitalized. When assets are sold
or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resultant
gain or loss is included in current year operations.
f) Earnings (Loss) Per Share:
Earnings (loss) per share are computed using the weighted
average number of common shares outstanding during the
respective periods, adjusted for the dilutive effect, if any,
of outstanding stock options and warrants. On March 6, 1996,
the Board of Directors announced a one-for-six reverse stock
split (the "Reverse Stock Split") which became effective on
March 18, 1996. For comparative purposes, the number of
weighted average common shares outstanding and loss per share
reported in the accompanying consolidated statements of
operations, and share data included in the notes to the
consolidated financial statements, have been adjusted to
reflect the effect of the Reverse Stock Split for all periods
presented.
g) Use of Estimates:
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts and disclosures in financial statements. Actual
results could differ from those estimates.
h) Fair Value of Financial Instruments:
The carrying value of cash, notes receivable and notes and
loans payable approximates fair value because of the
short-term maturity of these instruments.
i) Impact of Recently Issued Accounting Standards:
In March 1995, the Financial Accounting Standards Board
released Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121"). This
Statement establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles to be
disposed of and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable
intangibles to be disposed of. FAS 121 is effective for
financial statements for fiscal years beginning after December
15, 1995. The Company will apply this Statement beginning in
fiscal 1997. The adoption of FAS 121 is not expected to have a
material effect on the financial statements of the Company.
25
<PAGE>
In October 1995, the Financial Accounting Standards Board
released Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation ("FAS 123"). This
statement establishes methods of accounting for stock-based
compensation plans. FAS 123 is effective for fiscal years
beginning after December 15, 1995. The Company expects to
continue to apply Accounting Principles Board Opinion 25 for
measurement of stock compensation and will provide the
disclosure required by FAS 123 beginning in fiscal 1997. The
adoption of FAS 123 is not expected to have a material effect
on the financial statements of the Company.
2. Change in Management Control:
In January 1995, a group of shareholders of the Company (the "CECO
Shareholders Committee") launched an effort to change the senior
management and Board of Directors of the Company.
Pursuant to a settlement agreement (the "Settlement Agreement") dated
as of March 31, 1995, among the members of the CECO Shareholders
Committee, the Company, the Company's subsidiary, Odyssey Entertainment
Ltd. ("Odyssey"), Global Intellicom, Inc. and each of the directors of
the Company at the time of signing, a change in the entire Board of
Directors occurred on April 12, 1995.
In March, 1998, the Board of Directors appointed Mr. Johan Schotte as
Chief Executive Officer and Chairman of the Board of the Company, and
Mr. Pierre Koshakji as President and Director of the Company. Former
management agreed to terminate their existing employment agreement in
exchange for revised employment and consulting agreements. An affiliate
of Mr. Schotte purchased convertible deferred compensation notes from
former management and converted a portion of those notes into 667,648
shares of the Company's common stock in April 1998.
In connection with the change in management, the Company acquired an
18% equity interest in two corporations affiliated with Mr. Schotte,
one of which is the owner of a professional soccer team in New Mexico,
and the other of which is a media production company in Luxembourg. The
Company issued one-year notes in the aggregate amount of $450,000 in
consideration of the purchase of the equity interests in these
companies.
3. Results of Operations and Management's Plans:
The Company's continued existence is dependent upon its ability to
resolve its liquidity problems. The Company must achieve and sustain a
profitable level of operations with positive cash flows and must
continue to obtain financing adequate to meet its ongoing operation
requirements.
Net income for the year ended June 30, 1997 was due primarily from
various transactions which are explained in the category of "Other
Income" below. Net loss for the year ended June 30, 1996 is primarily
due to a loss of approximately $3.3 million on the sale of the
Company's interest in joint ventures relating to four theatrical motion
pictures, and due to insufficient revenues to offset normal expenses.
Revenues for the twelve months ended June 30, 1997 decreased to
$141,202 compared to $1,010,826 for the twelve months ended June 30,
1996. No new films became available for delivery during either period.
26
<PAGE>
Costs related to revenues decreased to $565,610 for the twelve months
ended June 30, 1997 as compared to $1,046,299 for the twelve months
ended June 30, 1996. The decrease is primarily related to the fact that
there was lower film revenues in the current year. Additionally,
development and festival costs in the amount of $249,544 were written
off, litigation and settlement costs relating to the Film Bridge
settlement in the amount of $148,174 were expensed and $435,102 in
inventory costs related to the picture Downrange were written off. This
was partially offset by a write-off of $449,163 in participation
liabilities related to the Kinnevik Library which were settled
subsequent to the Kinnevik sale.
Selling,general and administrative expense increased by $113,143 (7.2%)
to $1,678,450 for the twelve month period ended June 30, 1997 from
$1,565,307 for the comparable period ending June 30, 1996. The increase
is primarily related to higher salaries and professional fees.
Other income for the twelve months ended June 30, 1997 consisted of a
$818,776 gain from the sale of certain distribution and subdistribution
rights in certain films to a third party, recognition of a $1,245,758
gain from the cancellation of a contractual obligation related to the
Company's distribution rights in "Wuthering Heights" and recognition of
a gain in the amount of $198,567 from the settlement of an outstanding
litigation with Generale Bank (formerly known as Credit Lyonnais Bank
Nederland N.V.) and Conecom Entertainment Group Inc. There was no other
income recognized in the respective twelve months ended June 30, 1996.
Since the change in management control in April 1995, new management
has embarked on a program to reverse the unfavorable results by
significantly reducing overhead, taking steps to recapitalize the
Company, and acquiring rights to existing film libraries and new
pictures in development or pre-production.
In August and October 1995, the Company received net proceeds of
$219,250 and $50,750, respectively, from the private placement of an
aggregate of $312,500 principal amount of 12% Senior Unsecured
Promissory Notes (See Note 10).
In January 1996, the Company entered into an agreement to sell its
interest in joint ventures relating to four theatrical motion pictures
pursuant to which it received net proceeds of $1,500,000 (See Note 4).
In August 1996, the Company entered into an agreement, pursuant to
which the Company agreed to grant subdistribution rights in, and to
sell other distribution rights to, certain films in the Company's film
library. In exchange for these rights, the Company will receive a total
cash consideration of $1,075,000, payable $500,000 on closing, $275,000
six months after closing, and $300,000 eighteen months after the
closing. In addition, the Company will retain a continuing right to
receive revenues from certain of the films, valued by management at a
minimum of approximately $150,000. Additionally, the purchaser will
provide the Company with a $500,000 revolving line of credit to be
secured by accounts receivable and other contractual rights acquired by
the Company. As part of the transaction, the Company will grant 100,000
stock options, exercisable over a three year period at the bid price of
the Company's common stock in effect on August 5, 1996 ($.625). The
transaction closed on October 7, 1996
In September 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1 million shares of the
Company's common stock in consideration for $750,000 cash and warrants
to purchase up to 2 million shares of common stock. Following a dispute
between the parties concerning the satisfaction of certain conditions
to closing and the investor's indication of an unwillingness to
consummate the transaction, the parties reached a settlement in June
1997, pursuant to which the investor would purchase 66,667 shares of
Common Stock of the Company for $50,000, or $ .75 per share. The
proceeds will be used the pay legal costs related to the transaction.
27
<PAGE>
In September, 1996, the Company reached an agreement with Paramount,
pursuant to which Paramount would cancel the Company's contractual
guarantee of $2.7 million in full, in exchange for which the Company
agreed to (i) relinquish all further distribution rights to "Wuthering
Heights"; (ii) assign to Paramount all of its rights in any outstanding
distribution agreements for the film, and any receivables to be
generated therefrom; and (iii) guarantee that Paramount will collect a
total of $500,000 in sales revenue from existing distribution
agreements no later than January 15, 1997. Existing license agreements
yielded approximately $420,000 in net revenues prior to January 15,
1997 (of which the Company would have been entitled to retain
approximately 20% thereof in commissions). The Company has paid over
$250,000 in net revenues and is currently in negotiations with
Paramount regarding the timing of the remaining $250,000 payment.
In December, 1996, the Company settled the outstanding litigation with
Generale Bank ("Generale") (formerly known as Credit Lyonnais Bank
Nederland N.V.) and Cinecom Entertainment Group Inc. Pursuant to the
settlement agreement with Generale, the Company agreed to pay to
Generale the sum of $275,000 in complete satisfaction of the claim,
payable $25,000 upon execution of the settlement agreement, $25,000 on
each of June 30, and December 31 in the years 1997, 1998 and 1999, and
$100,000 on June 30, 2000. Interest on the installments (at the rate of
LIBOR plus 1% per annum) will be waived provided the Company remains in
compliance with the agreed upon payment schedule. The Company has only
made one payment to Generale Bank in the amount of $25,000. In October,
1997, the Company entered into a revised payment schedule with Generale
Bank. The Company is in receipt of a demand letter dated May 4, 1998.
The letter demands that the Company cure the non-payment of a $30,000
installment due April 15, 1998. According to the agreement between the
Company and Generale Bank, the Company had ten business days after
receipt of this letter to cure this default. The consequences of not
clearing this default is the entry of a confession of judgement already
executed by the Company for an amount of $275,000. This confession of
judgement is against Odyssey Distributors Limited, a wholly owned
subsidiary of the Company. (see litigation)
In February, 1997, the Company completed a sale of 500,000 shares of
Common Stock and 500,000 Common Stock Warrants to four (4) offshore
European investors for an aggregate consideration of $375,000. The
warrants are exercisable over a three year period (expiring February
25, 2000) at an exercise price of $1.06 per share. One of the
investors, Johan Schotte, was retained by the Company as a financial
consultant for a period of one year from the date of closing at the
rate of $2,500 per month. The investors were also given the right to
designate one of the investors (or another third party), to serve as a
member of the Board of Directors of the Company.
In April, 1997, Stephen Greenwald, Lawrence I. Schneider and Robert
Miller, Jr., all directors of the Company, made loans to the Company in
the amounts of $50,000, $25,000 and $25,000, respectively. Each loan is
payable on demand and bears interest at the rate of 2 points over prime
per annum. The note is secured by a collateral assignment of the
Company's $300,000 note receivable from Kinnevik. In consideration of
making the loans, the lenders received five-year warrants to purchase
shares of Common Stock of the Company, exercisable at $1.00 per share.
Messrs. Schneider and Miller each received 25,000 warrants and Mr.
Greenwald received 50,000 warrants as additional consideration for
making the loans to the Company. In addition, an independent
unaffiliated third party made a $25,000 loan to the Company in June,
1997 on the same terms and conditions as the loans made by Mr.
Greenwald, Schneider and Miller.
In September, 1997, the Company and Kinnevik Media Properties, Ltd.
executed a letter agreement pursuant to which Kinnevik agreed, subject
to completion of due diligence and the approval of Kinnevik's Board, to
purchase 500,000 shares of convertible, redeemable preferred stock of
28
<PAGE>
the Company, par value $1.00 per share, for an aggregate purchase price
of $500,000. Kinnevik would purchase the first $250,000 of preferred
stock at the closing, an additional $125,000 of preferred stock 90 days
after closing, and the final $125,000 of preferred stock 270 days after
closing. The preferred stock would bear interest at the rate of 10% per
annum which would be paid in kind semi-annually by the issuance of
additional shares of preferred stock at a par value of $1.00 per share.
Kinnevik would have the right for a five year period to convert the
preferred stock into common stock of the Company on a share-for-share
basis. The Company would have the right to redeem the preferred stock
for $1.25 per share in the event the Company's common stock trades at a
price of $2.00 per share or more for a period of 20 consecutive trading
days. The Company agreed to help secure television distribution rights
for Kinnevik from third parties, and introduce various projects to
Kinnevik from time to time which may be of interest to Kinnevik. In the
event Kinnevik acquires any rights as a result of any introductions
made by the Company, the parties agree to mutually determine the value
of such services and to redeem shares of the preferred stock at $1.00
per share based on the aggregate value of the services so determined.
In January, 1997, prior counsel to the Company agreed to exchange a
promissory note in the face amount of $70,000 in exchange for 120,000
Shares of the Company's Common Stock.
4. Sale of Joint Venture Assets:
As of January 2, 1996, the Company entered into an agreement (the
"Agreement") with Regency International Pictures, B.V., its joint
venture partner, to sell its interest in the related joint ventures
through which it held approximately 50% ownership interests in four
theatrical motion pictures, entitled "Q&A," "Switch,"Guilty By
Suspicion" and "This Boy's Life." The joint venture is defined as the
distribution agreements related to the aforementioned four motion
pictures. Individual agreements were created to finance, produce and
distribute each picture and to share in revenues generated from the
exploitation of them. Joint venture pictures were accounted for in the
same manner as any other picture that the Company distributed. Pursuant
to the Agreement, the Company received $1,500,000 in exchange for all
of its interest in the net assets and obligations of the joint
ventures. In addition, the Company retained a contingent interest in
certain receivables, not to exceed $212,500, and a contingent interest
in future revenues from the pictures.
5. Investment in Global Intellicom, Inc.:
On December 8, 1994, the Company acquired 3,300,000 shares of Global
Intellicom, Inc. ("Global") and subsidiaries, a Nevada corporation, for
$1,000,000, representing 66% of Global's 5,000,000 outstanding shares
of common stock. Simultaneously and pursuant to a contract of sale
entered into by Tech Acquisition Corp. ("Tech") (a wholly-owned
subsidiary of Global) on October 28, 1994, Global purchased certain net
assets of AMCOM Business Centers Corp.("AMCOM") (a Pennsylvania
corporation) subject to certain liabilities and obligations. On
December 8, 1994 Tech changed its name to AMCOM Business Centers Corp.
AMCOM is a wholesale distributor of computer hardware and related
products and serves customers throughout the United States.
The total purchase price of the net assets of AMCOM was $5,280,000,
$2,224,000 of which was paid to the sellers at closing. The balance of
the purchase price of $3,056,000 is payable by Global in installments
equal to 1% of gross sales effective January 1, 1994 (as defined by
agreement) in quarterly installments through December 1995 and monthly
thereafter until the obligation is satisfied. In addition, Global
agreed to reimburse AMCOM stockholders for all income taxes incurred by
them with respect to their distributive share of AMCOM's taxable income
for the period January 1, 1994 through the closing date.
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During the quarter ended March 31, 1995, the then Board of Directors of
the Company declared a dividend to its shareholders consisting of
1,700,000 shares of the common stock of Global, and also delivered
522,641 shares of Global common stock to its former outside counsel in
payment of outstanding legal fees. Further, as of March 31, 1995 the
then Board of Directors entered into the Settlement Agreement with the
CECO Shareholder Committee which, among other things, provided for the
sale of the Company's remaining interests in Global to persons
affiliated with the prior Board. The sale closed on April 12, 1995.
6. Film costs:
Film costs are comprised of the following:
June 30,
-----------------------------
Component 1997 1996
--------- ---- ----
Films released, at cost $ 0 $ 2,750,000
Less accumulated amortization 0 1,798,290
---------- ------------
0 951,710
---------- ------------
Projects in development 120,472 49,258
---------- ------------
Total film costs $ 120,472 $ 1,000,968
========= ============
7. Income Taxes:
At June 30, 1997, the Company had a federal net operating loss carry
forward, for tax purposes, of approximately $27,000,000, expiring
through 2011. The utilization of approximately $4,900,000 of these
losses in future periods is estimated by the Company to be limited to
approximately $350,000 per year (the "annual earnout limitation").
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, which establishes accounting and reporting standards for
the effects of income taxes that result from an enterprise's activities
during the current and preceding years became effective for the Company
for its fiscal year ended June 30, 1994. The cumulative effect of
adopting SFAS 109 was immaterial and was recorded in the first quarter
of fiscal 1994.
8. Notes and Loans Payable:
Notes and loans payable as of June 30, 1997 and 1996 include $179,000
principal amount of 6% Convertible Subordinated Debentures, due July,
1997.
In April 1995, the Company issued a note in the principal amount of
$70,000 to its outside legal counsel for legal services performed. The
note was repayable in October 1995, together with interest at the rate
of 7%. In February 1996 the note holder agreed to extend the due date
to December 31, 1996. In connection with the extension, the Company
granted warrants to purchase 16,667 shares of the Company's common
stock at an exercise price of $1.88 per share, exercisable over a three
year period. The amount of the note will be reduced, as of December 31,
1996, by one-half of the amount by which the average closing price of
the stock, for the ten most recent trading days, exceeds the exercise
price of the warrants. In January, 1997, the Company agreed to exchange
the promissory note in the face amount of $70,000 in exchange for
120,000 shares of the Company's Common Stock.
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In August and October 1995, the Company received net proceeds of
$219,250 and $50,750, respectively, from the private placement of an
aggregate of $312,500 principal amount of 12% Senior Unsecured
Promissory Notes (the "Notes"). The Notes are repayable with interest
on the earlier of (a) the closing of a public offering of the Company's
equity securities from which the Company receives gross proceeds of at
least $10,000,000, or (b) one year from the issuance date. The Company
also granted to the purchasers of the Notes an aggregate of 26,042
warrants (the "Warrants"), 20,833 of which are exercisable at $2.83 per
share and 5,209 of which are exercisable at $2.37 per share. Each of
the Warrants is exercisable at any time beginning one year after the
date of issuance and expiring four years after the date of issuance.
The Notes and interest were not repaid as scheduled. The Company
proposed that Noteholders either defer maturity of their notes and
exchange existing warrants for shares, or cancel the notes and warrants
in their entirety in exchange for a greater number of shares. The
Company offered to register any shares issued in exchange for the
notes. As of August 12, 1997, the date the registration became
effective, a total of $262,500 of notes were exchanged for 595,455
shares of registered stock. The remaining notes for $50,000 (held by a
single investor) have not been paid and are in default.
On July 17, 1997, unsecured long term notes of the Company in the
aggregate amount of $179,000 matured. Such notes were not paid on the
maturity date. The Company entered into an installment payment plan
extending over a 15 month period through March, 1999, and made the
first installment payment of $17,900 in January 1998. The company did
not make the March 1998 payment of $17,900 and is presently in default
of the payment schedule.
In April, 1997, Stephen Greenwald, Lawrence I. Schneider and Robert
Miller, Jr., all directors of the Company, made loans to the Company in
the amounts of $50,000, $25,000 and $25,000, respectively. Each loan is
payable on demand and bears interest at the rate of 2 points over prime
per annum. The note is secured by a collateral assignment of the
Company's $300,000 note receivable from Kinnevik. In consideration of
making the loans, the lenders received five-year warrants to purchase
shares of Common Stock of the Company, exercisable at $1.00 per share.
Messrs. Schneider and Miller each received 25,000 warrants and Mr.
Greenwald received 50,000 warrants as additional consideration for
making the loans to the Company. In addition, two independent
unaffiliated third parties made additional $25,000 loans to the Company
in June and August, 1997 on the same terms and conditions as the loans
made by Mr. Greenwald, Schneider and Miller. In May, 1998, the loans of
Mr. Schneider and one of the unaffiliated parties were paid from the
proceeds of the Kinnevik receivable. The remaining lenders agreed to a
rollover of their loans (aggregating $100,000) against a second
Kinnevik receivable and, in consideration, received an additional
50,000 warrants in the aggregate, exercisable for the extension at
$1.00 per share over a three year period.
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9. Commitments and Contingencies:
Lease Commitments:
The Company leased office space in Los Angeles pursuant to an operating
lease which expired in May 1998, providing for monthly rental payments
of $5,301. Minimum payments under the lease aggregated $63,612 and
$58,311 for the fiscal years ending June 30, 1997 and 1998,
respectively.
The Company was party to a lease at 800 Third Avenue, New York, New
York 10022, which terminated in 1997. The Company vacated such office
space during the year ended June 30, 1995. In September 1995 the
landlord filed an action against the Company. The Company reached a
settlement with the landlord. (see Litigation). Rent expense for the
years ended June 30, 1997, 1996 and 1995 was $0, $38,772 and $297,287,
respectively.
Litigation:
On December 20, 1990, a suit was filed against the Company seeking the
payment of $300,000 for certain investment banking services allegedly
provided. In October 1991, the Court granted a judgment in favor of the
plaintiff. The judgment is stayed pending the determination of an
action brought by the Company against the plaintiff described below.
The Company has posted a non-collateralized bond pending the results of
an appeal. In a separate action, the Company filed a complaint against
the plaintiff claiming that services alleged to have been performed
were never performed and demanding the return of funds and securities
paid by the Company. In October 1994, the plaintiff filed a voluntary
bankruptcy petition under Chapter 11 of the United States Code.
Consequently, the Company's action has been automatically stayed. The
Company has filed a proof of claim.
On December 30, 1994, Krisna Shah, who allegedly served as President of
Double Helix Films from about July 1991 until about March 1993, filed
action against the Company, Norman Muller, a former Chairman and CEO of
the Company, and others in which he alleged among other things breach
of an oral agreement to pay him $152,000 (which he allegedly advanced
for the benefit of Double Helix) and to give him 19.5% ownership
interest in its corporate successors. The Company reached a settlement
with Mr. Shah in which the Company has paid $15,000 and quitclaimed any
and all rights, title, and interest it has to the film library known as
the "Double Helix Film Library.
On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and
Cinecom Entertainment Group, Inc. filed a complaint against the
Company's subsidiary, Odyssey Distributors, Ltd. They allege that
Odyssey collected but failed to remit to them assigned distribution
proceeds in the amount of $566,283.33 from the foreign distribution of
two pictures. The complaint alleges claims for breach of contract and
breach of fiduciary duty and seeks damages in excess of $566,283,
attorney's fees, an accounting, a temporary restraining order and a
preliminary injunction. In June 1995, the Court denied plaintiffs an
attachment and stayed the action pending arbitration in New York. In
September, 1996 the Court dismissed the Complaint. In December, 1996,
the Company settled the outstanding litigation with Generale Bank
("Generale") (formerly known as Credit Lyonnais Bank Nederland N.V.)
and Cinecom Entertainment Group Inc. Pursuant to the settlement
agreement with Generale, the Company agreed to pay to Generale the sum
of $275,000 in complete satisfaction of the claim, payable $25,000 upon
execution of the settlement agreement, $25,000 on each of June 30, and
December 31 in the years 1997, 1998 and 1999, and $100,000 on June 30,
2000. Interest on the installments (at the rate of LIBOR plus 1% per
annum) will be waived provided the Company remains in compliance with
the agreed upon payment schedule. The Company and General Bank later
agreed upon a new payment schedule as follows: $25,000 on or before
October 15, 1997 (payment was made); $30,000 on each of April 15, 1998,
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June 30, 1998, December 31, 1998, June 30, 1999 and December 31, 1999;
and $100,000 on June 30, 2000. The Company is in receipt of a demand
letter dated May 4, 1998. The letter demands that the Company cure the
non-payment of a $30,000 installment due April 15, 1998. According to
the agreement between the Company and Generale Bank, the Company had
ten business days after receipt of this letter to cure this default.
The consequences of not clearing this default is the entry of a
confession of judgement already executed by the Company for an amount
of $275,000. This confession of judgement is against Odyssey
Distributors Limited, a wholly owned subsidiary of the Company.
In August 1995, G.P. Productions, Inc. ("GP") and Greenwich Subject
Films, Inc.("Greenwich") commenced an action entitled G.P. Productions,
Inc., and Greenwich Studios, Inc. v. Double Helix Films, Inc.,
Communications and Entertainment, Inc., Krishna Shaw, Gerald Muller
and Norman Muller in the United States District Court, Southern
District of Florida (Case No. 95-1188). Mr. Muller has demanded that
the Company indemnify him against any expenses, judgements and amounts
paid in settlement of the action. The Company contends that, by virtue
of Mr. Muller's breaches of fiduciary duty and violation of his
obligations to the Company, it is not required to provide
indemnification.
GP and Greenwich allege that they are the exclusive owners of the films
"The Gallery" and "South Beach". They assert claims for copyright
infringement, unfair competition, breach of contract, accounting,
conversion, civil theft, conspiracy and fraudulent conveyance. The
Complaint demands a recall of the films, an attachment, preliminary and
permanent injunctive relief, an accounting, and unspecified
compensatory, punitive and treble damages. The Company's motion to
transfer venue of the action was granted in November, 1995, and the
case was transferred to the United States District Court of the
Southern District of New York. There has been no activity in this
matter since the transfer of venue in 1995.
In September 1995, the agent for the landlord for the premises in New
York City previously occupied by the Company filed a Summons and
Verified Complaint against the Company. The plaintiff alleged that it
was due $66,694 from the Company (plus interest) for rent allegedly
owed during the period from April through September, 1995. The Company
vacated the premises on April 12, 1995. Summary judgment was awarded to
the plaintiff and a judgment was entered for $74,142 in May, 1996. In
July, 1996, the landlord commenced a second action for $121,000 for
rent allegedly owed during the period from October 1995 through July
1996. The Company reached a settlement in this case, pursuant which the
Company delivered 177,500 registered shares of the Company's Common
Stock to each of the landlord and its agent in full settlement of the
actions.
In October 1995 Canon Financial Services filed a complaint, in which it
claims that it is due $47,499.83, plus damages, pursuant to a lease
agreement. The Company has filed an Answer in this action and
plaintiff's motion for summary judgement has been denied by the Court.
No trial date has yet been set in this matter.
In January 1996, a former director brought an action against the
Company on a promissory note in the amount of $25,000. The plaintiff
obtained a summary judgment. The Company is considering whether or not
it has a claim for indemnification against former management in
connection with the issuance of the note.
In January 1996, an action was filed against the Company in which the
plaintiff sought damages in the amount of $33,849.98 for legal services
rendered to the Company and its subsidiaries. In June, 1997, the
parties reached a settlement in the matter, pursuant to which the
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<PAGE>
Company agreed to pay $7,000 to plaintiff, deliver 40,000 freely
tradeable shares of the Company's Common Stock to plaintiff, and
deliver an additional cash amount to the extent that the aggregate
market value of the shares on the date of delivery was less than
$40,000. Payment of the additional cash amount of $13,000 was completed
in December, 1997.
In March 1996, an action was filed against the Company in which the
plaintiff claims that she is due $17,920.49 pursuant to a promissory
note previously issued to her. The Company has filed a cross-claim
seeking offsets against the amount due and other damages. On May 21,
1998, a default judgement was entered on behalf of plaintiff in the
amount of $22,261.23. Subsequently, plaintiff filed a motion to include
attorney fees and costs in the amount of $39,121.95. The Company is
attempting to reach a settlement with plaintiff.
On or about March 25, 1996, a class action complaint was filed against
the Company entitled "Dennis Blewitt v. Norman Muller, Jerry Minsky,
Dorian Industries, Inc. and Communications and Entertainment Corp." The
complaint seeks damages in connection with the Company's treatment in
its financial statements of the disposition of its subsidiary, Double
Helix Films, Inc., in June 1991. The complaint seeks unspecified
damages on behalf of all persons who purchased shares of the Company's
common stock from and after June 1992. A second action, alleging
substantially similar grounds, was filed in December 1996 in Federal
court in the United States District Court for the Southern District of
California under the caption heading "Diana Pfannebecker v. N. Muller,
Communications and Entertainment Corp., Jay Behling, Jeffrey S.
Konvitz, Tom Smith, Jerry Silva, David Mortman, Price Waterhouse & Co.,
Todman & Co., and Tenato Tomacruz." Following the filing of the second
action, the first action was dismissed by stipulation in May 1997. The
Company filed a motion to dismiss the complaint in the second action
and after a hearing on the motion in July, 1997, the Court dismissed
the federal securities law claims as being time-barred by the
applicable statute of limitations, and dismissed the state securities
law claims for lack of subject matter jurisdiction. The lower court's
dismissal of this action was upheld on appeal by the Ninth Circuit.
Messrs. Muller, Smith and Mortman, former directors of the Company,
have asserted claims for indemnification against the Company. The
Company has advised the claimants that it will not provide such
indemnification, based on their wrongful actions and failure to comply
with various obligations to the Company.
On September 18, 1996, Film Bridge International, Inc. ("Film Bridge")
filed a complaint in Los Angeles County Superior Court, entitled "Film
Bridge International v. Communications and Entertainment Corp., and
Does 1 through 50, Inclusive," contending that the Company had breached
the terms of an alleged joint venture agreement between the parties
regarding the distribution rights to certain films. On December 19,
1996, the Company filed a cross-complaint against Film Bridge alleging
that, since the end of June, 1996, Film Bridge had failed to furnish
the Company with a proper accounting of its revenues and expenses in
connection with the sale of foreign licensees of various films in which
the Company had an interest and had failed to make payment of at least
$450,000 to the Company for monies due and owing to the Company from
the foreign sales of such films. An agreement was reached between the
parties in May, 1997, as a result of which the Company received
$336,000 of the monies being held by Film Bridge, with the balance
being retained by Film Bridge as sales commissions and in full
settlement of the litigation.
On December 2, 1997, the Directors Guild of America ("DGA") obtained an
arbitration award against Down Range Productions, Inc., a wholly owned
subsidiary of Odyssey Pictures Corporation, on behalf of Kahn Brothers
Pictures fso Michael Kahn, Charles Skouras, and Scott C. Harris. Down
Range was ordered to pay: Kahn Brothers Pictures the total sum of
$155,041; Charles Skouras the total sum of $32,360; and Scott C. Harris
the total sum of $8,868; plus interest at 18% per annum on each of
these amounts from April 1, 1997. Down Range was also ordered to pay
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the DGA $2,500. Down Range was also ordered to assign to the DGA all of
Down Range's right, title and interest in the motion picture "Down
Range", including the screenplay for the motion picture, and Down Range
was enjoined from licensing the motion picture or the screenplay to any
third party other than the DGA. Down Range was also ordered to pay the
arbitrator $2,250.
Kahn Brothers Pictures fso Michael Kahn also filed a claim against Down
Range Productions, Inc. and the Company with the Writers Guild of
America West (WGA) for unpaid writing services on "Down Range". That
claim has now been settled for the amount of $15,000.
The Screen Actors Guild (SAG) has also asserted that there are amounts
owing to four actors (Dale Dye, John Philbin, Tegan West, and Kiljoy
Productions fso Kathleen Wilhoite), arising out of "Down Range". The
Company believes that SAG has never instigated any arbitration or other
proceeding to try to collect on these claims. Additionally, there were
two actors, Corbin Bernsen and Jeff Fehey who had pay-or-play
contracts. The outcome of these contracts and the actors claims have
not been resolved.
In April, 1998, the Company reached a settlement with Mr. Silva
regarding his action against the Company in the Supreme Court of the
State of New York. Mr. Silva will discontinue the matter and the
Company will authorize the sale of Mr. Silva's shares in the Company
under Rule 144, up to a maximum of 25,000 shares per month.
In April, 1998, an action was commenced against the Company by Siegel &
Gale, a provider of brochure material for the Company. The lawsuit
seeks payment of $48,695, plus costs, related to work done by Siegel &
Gale for the Company. The Company has not yet filed an Answer in this
action and is in the process of consulting with its counsel on the best
course of resolving this matter.
On November 21, 1996, the law form of Halperin, Klein & Halperin
(counsel to Mr. Silva) commenced an action against the Company in the
Civil Court of the State of New York on a returned check in the amount
of $5,000 for legal services allegedly rendered to the Company. The
check was originally issued to plaintiff in April, 1995 in connection
with the change of control of the Company at that time. The Company has
filed an Answer in the action and intends to defend the matter on the
basis of a failure of consideration.
10. Shareholders' Equity:
On March 6, 1996 the Board of Directors of the Company approved a
one-for-six reverse stock split of the outstanding shares of the
Company's Common Stock (the "Common Stock"). The Reverse Stock Split
was effective as of March 18, 1996 (the "Record Date"). On the Record
Date, each six shares of the Company's then outstanding Common Stock
(the "Old Common Stock") were automatically converted into one share of
the new Common Stock, par value $.01 per share (the "New Common
Stock").
No fractional shares of New Common Stock were issued. Rather, holders
of Old Common Stock who are entitled to receive fractional shares of
New Common Stock will be rounded up to the nearest whole share of New
Common Stock.
The Reverse Stock Split resulted in a net reduction of 11,408,973 in
the number on Common Shares outstanding, including 1,995 shares
issuable due to the rounding up of fractional shares.
Except for the number of shares of Common Stock outstanding after the
Reverse Stock Split, the Old Common Stock and the New Common Stock are
identical.
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On February 14, 1995, the then Board of Directors of the Company
declared a dividend payable to holders of record on February 24, 1995
("the Dividend Record Date") of the Company's common stock and Class A
stock. The dividend consisted of 1,700,000 shares of common stock, $.01
par value per share, of Global Intellicom, Inc. that were owned by the
Company. Holders of the Company's common stock and Class A stock
received .1233 and .0786 shares, respectively, of Global common stock
for each share of the Company's stock. The dividend was recorded as a
reduction of capital in excess of par value.
The shares of Global common stock were distributed to an escrow agent
on the Dividend Record Date pending registration of the shares. The
Securities and Exchange Commission declared Global's registration
statement effective as of September 1, 1995 and, accordingly, the
escrow agent was authorized to distribute the dividend shares.
Communications and Entertainment Corp. was originally formed to
consummate the mergers of Double Helix Films, Inc. ("Double Helix") and
Odyssey Entertainment Ltd. pursuant to the Agreement and Plan of Merger
dated September 22, 1989 ("the Merger Agreement"). On September 6, 1990
the shareholders of Double Helix and Odyssey approved the Merger
Agreement. Pursuant to the terms of the Merger Agreement, each share of
common stock of Odyssey was convertible into one share of Class A stock
of the Company and each share of Double Helix common stock was
convertible into one share of the Company's common stock. Prior
management's instructions to the transfer agent required that any
shares of Odyssey or Double Helix outstanding at the time of the Merger
not tendered to the Company's transfer agent for exchange by March 31,
1995 should be canceled. Accordingly, 86,790 shares of the Class A
stock and 10,496 shares of the common stock reserved for exchange were
canceled. The par value of the shares canceled, of $5,837, was
transferred to capital in excess of par. Upon further research by
counsel to the Company, the instructions of prior management were
reversed, and all cancelled shares were reinstated, with the result
that $5,837 was transferred back to stated capital.
Additionally, in accordance with the Company's charter, all outstanding
shares of the Company's Class A stock, automatically converted, on
March 31, 1995, into shares of the Company's common stock at a rate of
.6375 shares of common stock for each share of Class A stock.
11. Stock Options and Warrants:
The number of options and warrants, and exercise prices in the
following paragraphs have been restated to give effect to a 1 for 6
Reverse Stock Split in March 1996.
The Company has an Incentive Stock Option Plan (The "Option Plan") for
its key employees providing for the granting of options to acquire
common stock. The maximum number of shares of common stock subject to
the Option Plan is 75,000, plus 5% of any increase in the number of
issued shares after the effective date of the Merger, excluding any
increase due to stock awards to key employees or as result of the
conversion of Class A stock. The price for the shares covered by each
option will not be less than 100% of the fair market value at the date
of grant (110% for holders of more than 10% of the company's common
stock). Options granted expire ten years from the date of grant (five
years for holders of more than 10% of the Company's common stock).
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A summary of options under the plan is as follows:
Shares Exercise Price
Outstanding, June 30, 1993 63,250 $5.04 - $15.54
Granted 19,167 $9.00 - $13.86
Canceled (22,917) $9.00 - $15.36
--------
Outstanding, June 30, 1994 59,500 $5.04 - $15.54
Canceled (59,500) $5.04 - $15.54
--------
Outstanding, June 30, 1995 -0-
Outstanding, June 30, 1996 -0-
Outstanding, June 30, 1997 -0-
The Company issued an aggregate of 134,854 warrants to the purchasers
of common stock of the Company sold in private placements during fiscal
1992. The exercise prices range from $18.00 to $25.50 per share. 21,024
of such warrants were exercised during 1992 at $18.00 per share. During
the years ended June 30, 1995, 1994 and 1993, 58,652, 53,500 and 608
warrants, exercisable at $25.50, $18.00 and 18.00 per share,
respectively, expired, unexercised. The balance of the warrants,
exercisable at $18.00 per share, expired unexercised in July 1996.
An additional 70,833 warrants and options were granted during the year
ended June 30, 1992 to outside consultants for services in connection
with private placements. The exercise prices range from $12.00 to
$25.50 per share. 8,333 of such options were exercised in 1992 at
$12.00 per share. 4,167 options, exercisable at $16.50 per share,
expired, unexercised, during fiscal 1993. The balance expired,
unexercised, during fiscal 1995.
In fiscal 1992, the Board of Directors approved the grant of options,
to purchase 6,000 shares to the outside directors of the Company, for
their services as directors, at an exercise price of $18.96 per share.
An additional 6,000 options were granted during fiscal 1993 to the
outside directors, at an exercise price of $10.08. The options to the
directors have not yet been issued.
During the year ended June 30, 1993, 8,333 options were granted outside
of the plan, at an exercise price of $9.00, to an officer in connection
with an employment agreement. Such options expired during fiscal 1995.
Additionally, 1,667 options were granted, at an exercise price of
$9.00, to a director of the Company for services rendered. Such options
expired, unexercised, during fiscal 1997.
During fiscal 1993, warrants to purchase 12,500 shares were also
granted to outside consultants, for services rendered, at an exercise
price of $13.14 per share. Such options expired, unexercised, during
fiscal 1998. Warrants to purchase 70,833 shares were granted to outside
consultants for services rendered during fiscal 1994, at exercise
prices ranging from $7.50 to $21.00. 66,667 of such warrants,
exercisable at $9.00 to $21.00 per share, expired unexercised during
fiscal 1996. The balance of the warrants expired, unexercised, during
fiscal 1997.
In April 1995, following the change in management control, the Board of
Directors authorized the issuance of 8,333 options to each of five new
Directors and 16,667 options to the president of the Company. The Board
also authorized the issuance of a total of 10,000 options to two
outside consultants for services in connection with the proxy contest.
All such warrants are exercisable for a four year period commencing
October 13, 1995 at $3.92 per share.
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In August and October 1995, the Company issued an aggregate of 26,041
warrants to purchasers of 12% Senior Unsecured Notes sold in private
placement. The exercises prices ranged from $2.37 to $2.83 per share.
With the exception of 4,167 warrants, which are exercisable through
August 1999 at $2.83 per share, all of the warrants issued in
connection with the private placement were exchanged by the warrant
holders for registered shares of common stock of the Company. In
connection with the private placement, the Company also issued 33,333
warrants to its outside counsel in consideration for legal services
performed, exercisable during the three year period commencing one year
from the date of issuance, at a price per share of $2.83.
During the year ended June 30, 1996, 769,167 warrants were granted
outside of the Plan to officers and directors, at exercise prices
ranging from $1.50 to $2.83. All such warrants were exercisable as of
June 30, 1998.
During fiscal 1996, the Company also granted 16,667 warrants, at an
exercise price of $1.88 per share, to its outside counsel in connection
with the extension of a note. Additionally, warrants to purchase
167,500 shares were granted to consultants for services rendered during
fiscal 1996, at exercise prices ranging from $.76 to $1.88 per share.
All such warrants were exercisable as of June 30, 1998.
During the fiscal year ended June 30, 1997, a total of 1,153,333
warrants were issued to officers, directors, employees, consultants and
third parties, exercisable at prices ranging from $ .625 per share to
$1.06 per share. The warrants are exercisable for periods ranging from
three to five years. None of such warrants was exercised during fiscal
1997 or fiscal 1998.
During the fiscal year ended June 30, 1998, a total of 254,260 warrants
were issued to third parties, exercisable at prices ranging from $1.00
per share to $1.65 per share. The warrants are exercisable for periods
ranging from two to five years. None of such warrants was exercised
during fiscal 1997 and 1998.
On July 1, 1998, a third party investor in the Company was granted the
right to acquire up to 150,000 transferable warrants having an exercise
price of $1.60 per share.
12. Related Party Transactions:
The firm of Goodkind, Labaton, Rudoff & Sucharow, of which David A.
Mortman, a former Director of the Company was a member, received legal
fees from the Company of $195,000 for the fiscal year ended June 30,
1995. Additionally, it received an aggregate of 522,641 shares of
common stock of Global Intellicom, Inc., a subsidiary of the Company,
valued at $155,905, in consideration of the cancellation of outstanding
legal fees.
The firm of David A. Mortman, P.C. and its predecessor firm, of which
David A. Mortman, a Director of the Company was a member, received
legal fees from the Company of $16,585 and $387,987 during the fiscal
years ended June 30, 1995 and 1994, respectively.
Lawrence I. Schneider, a former member of the Board of Directors of the
Company and one of three former Co-Chairmen in the Office of the
Chairman of the Company during the fiscal year ended June 30, 1996, was
also a principal of Global Capital Resources, Inc. during that period,
a New York based financial consulting services firm ("Global Capital").
During the 11 month period from May, 1995 through March, 1996, Global
Capital rendered financial consulting services to the Company in
connection with the change of management control of the Company. Such
services were rendered to the Company at the agreed upon rate of
$15,000 per month. However, in order to conserve the cash resources of
the Company, Global Capital agreed to accept stock options from the
Company in lieu of a cash payment. On March 6, 1996, the Board of
38
<PAGE>
Directors of the Company (with Mr. Schneider abstaining from the
voting) authorized the issuance to Global Capital of stock options to
purchase 83,333 shares of Common Stock of the Company, exercisable over
a five-year period at the exercise price of $1.875 per share (after
adjustment for the Reverse Split).
During the fiscal years ended June 30, 1997 and 1996, the law firm of
Herbst & Greenwald, of which Mr. Greenwald, a director of the Company,
is a member, received fees for legal services rendered to the Company
in the amount of $21,564 and $9,075.
On August 1, 1996, the Board of Directors of the Company offered to
reimburse the members of the CECO Shareholders Committee in kind for
all expenses incurred by such members in connection with the change of
management control of the Company effected in April, 1995. The Board
offered to reimburse such expenses by issuing stock options to the
committee members in an amount equal to one and one-third times the
amount of such expenses. Robert Miller, a director of the Company,
agreed to accept options to purchase 40,000 shares of the Company's
Common Stock, exercisable over a five-year period at an exercise price
of $ .75 per share, representing the then current market price of the
Company's Common Stock on the date of grant. In exchange, Mr. Miller
released his claim for reimbursement of approximately $30,000 of
expenses incurred by Mr. Miller in connection with the change of
control. Lawrence I. Schneider, a former director of the Company and
also a member of the CECO Shareholders Committee, has not agreed to
accept options in lieu of his claim for reimbursement of expenses in
connection with the change in control.
The Company has entered into a "first look" agreement with Presto
Productions, a production company in which Stephen R. Greenwald, a
Director of the Company, has an interest. Mr. Greenwald's interest in
Presto varies on a film-by-film basis. The Company believes that the
terms of its arrangement with Presto are no less favorable than could
be arranged with other independent third party producers.
In April, 1997, Stephen R. Greenwald, Lawrence I. Schneider and Robert
E. Miller, Jr. made loans to the Company in the amounts of $50,000,
$25,000 and $25,000 respectively. Each loan was payable on demand
bearing interest at the rate of 9.25% per annum and was secured by a
collateral assignment of the Company's $300,000 receivable due from
Kinnevik. In consideration of making such loans, the lenders received
five-year warrants to purchase shares of Common Stock of the Company,
exercisable at $1.00 per share. Messrs. Schneider and Miller each
received 25,000 warrants in consideration of their respective $25,000
loans to the Company, and Mr. Greenwald (or his designee) received
50,000 warrants in consideration of his $50,000 loan to the Company. In
March, 1998, the loan of Mr. Schneider was repaid in full from the
proceeds of the Kinnevik receivable. However, Messrs. Greenwald and
Miller agreed to a roll-over of their loans against a second Kinnevik
receivable due in September, 1998. In consideration of the roll-over,
Messrs. Greenwald and Miller will receive an additional 25,000 warrants
and 12,500 warrants, respectively, exercisable at $1.00 per share over
a three year period.
13. Subsequent Events:
The Company signed an agreement with Kimon Mediaright KB ("Kimon") on
July 14, 1998 to purchase the assets of Kimon, valued at $4,500,000, in
exchange for 4,500,000 Odyssey shares of subordinated convertible
preferred stock, Series B, having a value of $1.00 per share for
conversion purposes. Kimon shall be able to convert to Odyssey common
stock between June 30, 2000 and December 31, 2000 on a
dollar-for-dollar basis based on the price of the Company's common
stock at the time of conversion. Kimon assets purchased consist of a
film library with worldwide and/or Scandinavian distribution rights and
Scandinavian video distribution rights to Hallmark Entertainment
products.
39
<PAGE>
In June, 1998, the Company applied for, and was accepted for, trading
on the Berlin Stock Exchange under the symbol "ODY". The German company
Berliner Freiverkehr (Aktien) assisted the Company in the application
and signed an agreement with the Company to serve as a market
maker/coordinator in exchange for 200,000 warrants having an exercise
price of $1.55 per share, exercisable during the two-year period
commencing June 23, 1998.
The Company received $150,000 in funding from the Augustine Fund L.P.
in July, 1998. In exchange for the financing, the Augustine Fund
received a $150,000 convertible note as well as up to 150,000
transferrable warrants, exercisable at $1.60 per share for a three year
period. Augustine can convert into restricted shares of the Company's
common stock at a discount to the market price of the common stock at
the time of the conversion (i.e., at the lower of the market price on
the closing date, or 80% of the market price prior to conversion).
Augustine and certain Augustine associated parties were also issued a
total of 45,000 shares of restricted common stock in connection with
the transaction.
Mr. Ira Smith, one of Odyssey's Directors on the Board, resigned as a
Director on July 2, 1998 to pursue other business interests.
40
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure.
-------------------------
Reference is made to the Company's Reports on Form 8-K, dated September 24,
1997, and February 13, 1998, with respect to a change in accountants for the
Company.
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Johan Schotte 36 Chairman of the Board
& Chief Executive Officer
Pierre Koshakji 36 President & Director
Stephen R. Greenwald 57 Managing Director & Director
Robert E. Miller, Jr. 50 Director
Yves Bayle 36 Director
Set forth below is information regarding the business experience of the
current Directors and executive officers of the Company.
Johan Schotte is co-founder and chairman of Media Trust S.A. and Entertainment
Education Enterprises Corporation. Mr. Schotte has an extensive background in
banking and management, and holds an M.B.A. degree from the University of Dallas
in Irving, Texas. Until he joined Odyssey in 1998, he served as managing
director of Rocket Pictures, an international film production and distribution
company, for whom he produced the satirical comedy "Cannes Man" in 1996.
Pierre R. Koshakji is co-founder, and was President and director of,
Entertainment Education Enterprises Corporation (E3 Corporation), an
international sports, entertainment, and investment group. E3 Corporation has
offices in Dallas, Luxembourg and Los Angeles and has a professional affiliation
with the Lamar Hunt group of companies, Unity Hunt. Prior to E3 Corporation, Mr.
Koshakji served as Director of Business Development with Unity Hunt/Hunt Sports
Enterprises where he evaluated, negotiated, and implemented targeted
acquisitions and projects. He played a development role in establishing major
league soccer (MLS) and in establishing the two Hunt MLS teams in Columbus, Ohio
and in Kansas City, Missouri, and served as Senior Vice-President of Marketing
on the Las Vegas domed Stadium project as well as marketing consultant to the
San Francisco Giants new ball park at China Basin. Other positions and titles
Mr. Koshakji has held during his professional career include Deputy Executive
Director of the 1994 World Cup, Dallas Venue, including the responsibility of
liaison with the European Broadcast Union and International Broadcast Center,
the position of Director at KMPG Management Consulting in the country of Kuwait,
and electrical engineer at Chrysler Technologies Airborne Systems. Mr. Koshakji
graduated from Vanderbilt University BSEE with honors and received his Masters
of Business Administration at Southern Methodist University.
Stephen R. Greenwald served as Chief Executive officer and Co-Chairman in the
Office of the Chairman of Odyssey from September, 1995 through March, 1998.
Since 1990, Mr. Greenwald has been a consultant to banks and other clients in
the media and film business, most recently having served as chief executive
officer of Vision International, an international film distribution company
based in Los Angeles, from February,1994 through June,1996. Mr. Greenwald has
also been involved in financing and distributing independently produced motion
pictures including, among others, "Blue Velvet," "Dune," "King of Comedy,"
"Ragtime," "Crimes of the Heart," and "Manhunter." Mr. Greenwald also
co-produced the film "Amityville II: the Possession."
41
<PAGE>
Robert E. Miller, Jr. is a private investor and principal shareholder of Word
Power Incorporated d/b/a Hollywood North Productions, a privately-held
development company for feature films and movies-of-the-week. Mr. Miller is also
Associate Director of Trade Task Group, Inc., a strategic planning consulting
firm where he has served as manager of client development since 1984. He is also
a board member emeritus of the International Standards Institute and a member of
the board of advisors of the World Film Institute, sponsors of "The Family Film
Awards."
Yves Bayle is a member of the Executive Committee of Banque Colbert (Luxembourg)
S.A., and a non-executive director of a number of investment companies and
funds. Prior to joining the bank in 1989, he spent a number of years with
several international banks located in Luxembourg. Mr. Bayle specializes in the
development of corporate services and in the structuring of collective
investment vehicles.
Meetings and Committees of the Board of Directors
For the fiscal year ended June 30, 1997, there were 12 meetings and/or
written consents in lieu of meetings of the Board of Directors. All Directors
attended or consented to each of the meetings (and consents in lieu of meetings)
of the Board of directors during said fiscal year. The Board of Directors does
not presently have any standing nominating, audit or compensation committees,
the customary functions of such committees being performed by the entire Board
of Directors. The Board of Directors intends to form such committees in the near
future.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by the Commission's regulations to furnish the Company with copies of
all section 16(a) forms they file. To the Company's knowledge, based solely on a
review of the copies of reports furnished to the company during the fiscal year
ended June 30, 1997, the Company's officers, directors and greater than 10%
stockholders complied with all filing requirements under section 16(a) except
that Mr. Miller and Mr. Greenwald each failed to timely file a Form 4 in April,
1997 with respect to the acquisition of options for common stock. Messrs. Bayle,
Schotte and Koshakji each filed a Form 3 in October, 1998 reflecting their
respective appointments to the Board of Directors in September, 1997 (Mr. Bayle)
and March 1998 (Messrs. Schotte and Koshakji). Mr. Schotte filed a Form 4 in
October, 1998 reflecting the conversion of a note into shares of common stock of
the Company, and the acquisition of shares and warrants of the Company, in each
case by an affiliate of Mr. Schotte in April, 1998.
42
<PAGE>
Item 11. Executive Compensation.
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer of the
Company and the four most highly compensated executive officers who were
executive officers as of June 30, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C>
Annual Compensation Long-term
Securitites
Name and Fiscal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
Stephen Greenwald 1997 127,500 -- -- 100,000(2) 97,500(1)(2)
Chief Executive 1996 60,000 -- -- 216,667(2) 75,000(1)(2)
Officer, Co-Chairman 1995 -- -- -- --
Ira N. Smith 1997 130,875 -- -- 100,000 94,125(1)
President; 1996 60,000 -- -- 216,667 75,000(1)
Co-Chairman 1995 -- -- -- -- --
Lawrence Schneider 1997 89,167 -- -- 100,000 135,833(1)
Co-Chairman 1996 60,000 -- -- 216,667 75,000(1)
1995 -- -- -- 8,333 --
Joshua Grode 1997 40,000 -- -- -- --
Executive 1996 24,872 -- -- 33,333 --
Vice-President 1995 -- -- -- -- --
Marvin Grossman 1997 87,524 -- -- 35,000 --
Chief Financial 1996 -- -- -- -- --
Officer 1995 -- -- -- -- --
</TABLE>
(1) Messrs. Greenwald, Smith and Schneider each deferred $75,000 of their
annual compensation during the fiscal year ended June 30, 1996 pursuant to
the terms of their respective compensation agreements with the Company.
During the fiscal year ended June 30, 1997, Messrs. Greenwald, Smith and
Schneider deferred $97,500, $94,125, and $135,833, respectively, of their
annual compensation pursuant to their compensation agreements. Pursuant to
such agreements, Messrs. Greenwald, Smith and Schneider were issued
convertible promissory notes for the amount of such deferred compensation,
payable in full within twelve months from the date of issue with interest
at 2% over prime. Such notes were converted into shares of common stock of
the Company on June 10 and June 30, 1996 at the average closing bid price
in effect for the common stock for the 10-day trading period immediately
preceding the date of each respective election. On June 10, $60,000 of
each note (plus accrued interest) was converted into 83,120 shares of
common stock at a price of $.75 per share, and on June 30, $15,000 of each
note was converted into 19,231 shares of common stock at a price of $.78
per share. On September 30, 1996, they each converted deferred
compensation notes of $15,000 for the quarter then ended into a total of
26,316 shares of common stock at a conversion price of $.57 per share. See
"Compensation Arrangements, Termination of Employment and
Change-in-Control Arrangements" for a more detailed explanation of the
terms of the compensation agreements between the Company and each of
Messrs. Greenwald, Smith and Schneider. Such compensation agreements
became effective on October 1, 1995, but were terminated in March, 1998 in
connection with a change in control of the Company.
(2) The cash compensation and stock options reflected as being paid to or
received by Mr. Greenwald in the foregoing table were actually paid to or
received by G & H Media, Ltd., a consulting firm of which Mr. Greenwald is
a principal and controlling party. The compensation to Mr. Greenwald does
not include compensation paid to a law firm of which Mr. Greenwald is a
member.
See "Certain Relationships and Related Transactions."
43
<PAGE>
(3) Mr.Grode commenced employment with the Company on April 1, 1996.
His employment with the Company terminated on February 28, 1997.
(4) Although Mr. Grossman was elected to his present position with the Company
on May 22, 1996, he did not begin to receive compensation from the Company
until the commencement of the 1997 fiscal year in July, 1996.
Mr.Grossman's employment with the Company was converted into a part-time
consulting arrangement as of January 1, 1998.
Options/Stock Appreciation Rights
The following table provides information with respect to stock options and
stock appreciation rights ("SARs") granted to the named executive officers
during the fiscal year ended June 30, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C>
Individual Grants
-----------------------------------------------
% of Total
Number of Options Potential Realized Value at
Securitites Granted to Exercise Assumed Annual Rates of
Underlying Employees Price Stock Price Appreciation
Options In Fiscal Per Expiration For Option Terms
Name Granted Year Share Date 5% 10%
- ---- ----------- ----------- -------- ---------- ---------------------------
Stephen Greenwalk 100,000(1) 28% $1.00 12/02/01 0 $14,000
Ira N. Smith 100,000 28% $1.00 12/02/01 0 $14,000
Lawrence Schneider 100,000 28% $1.00 12/02/01 0 $14,000
Joshua Grode -- -- -- -- - --
Marvin Grossman 35,000 9.8% $ .75 12/02/99 $2,100 $ 6,650
</TABLE>
(1)The stock options reflected as being issued to Stephen R. Greenwald in the
foregoing table were actually issued to G & H Media, Ltd., a consulting firm of
which Mr. Greenwald is a principal and controlling party.
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year End In-the-Money-Options
<S> <C> <C> <C> <C> <C> <C>
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------
Stephen Greenwald(1) -- -- 366,667 -- 0 --
Ira N. Smith -- -- 316,667 -- 0 --
Lawrence Schneider(1) -- -- 350,000 -- 0 --
Joshua Grode -- -- 33,333 -- 0 --
Marvin Grossman -- -- 35,000 -- 0 --
</TABLE>
(1) The chart includes 50,000 stock options for Mr. Greenwald, and 25,000
stock options for Mr.Schneider, in each case issued in connection with
short term loans made to the Company. See "Certain Relationships and
Related Transactions."
44
<PAGE>
Repricing of Options
On December 2, 1996, the Board of Directors voted to lower the exercise
price of the following warrants to $1.00 per share to create further incentives
for management of the Company and to bring the warrant exercise price into line
with warrants granted to other parties performing services for the Company: With
respect to Lawrence Schneider, 8,333 warrants granted in April, 1995 at an
exercise price of $3.91 per share; 16,667 warrants granted in October, 1995 at
an exercise price of $2.83 per share; and 200,000 warrants granted in March,
1996 at an exercise price of $1.87 per share; with respect to Robert Miller,
8,333 warrants granted in April, 1995 at an exercise price of $3.91 per share;
33,333 warrants granted in October, 1995 at an exercise price of $2.83 per
share; and 25,000 warrants granted in March, 1996 at an exercise price of $1.87
per share; with respect to each of Ira Smith and G & H Media., Ltd. (an
affiliate of Stephen R. Greenwald), 16,667 warrants granted in October, 1995 at
an exercise price of $2.83 per share; and 200,000 warrants granted in March,
1996 at an exercise price of $1.87 per share. The closing bid price of the
Company's common stock on December 2, 1996 was $.69 per share.
Director Compensation
The Company does not have any standard arrangements pursuant to which
directors of the Company are compensated for services provided as a director.
All directors are entitled to reimbursement for expenses reasonably incurred in
attending Board of Directors' meetings.
Compensation Agreements, Termination of Employment and
Change-in-Control Arrangements
On October 1, 1995, Messrs. Greenwald, Smith and Schneider executed
compensation agreements with the Company (the "Agreements"), pursuant to which
the named parties agreed to render management services to the company for a
three year period ending October 1, 1998. Pursuant to these Agreements, each of
the parties agreed to serve as a Co-Chairman in the Office of the Chairman of
the Company and, in addition, Mr.Greenwald agreed to serve as Chief Executive
Officer. (In March, 1996, Mr. Smith also agreed to serve as President of the
Company). The Agreements were superseded by agreements executed on March 6,
1996. The subsequent agreements (also defined as the "Agreements") were
substantially identical to the original Agreements in all material respects with
respect to cash compensation but modified the provisions regarding the issuance
of stock options. (In the subsequent Agreement with Mr. Greenwald, the named
party is G & H Media, Ltd., rather than Mr. Greenwald individually; G & H Media,
Ltd. is a consulting firm of which Mr. Greenwald is a principal and controlling
party).
The Agreements provided for compensation a the rate of $15,000 per month,
$20,000 per month and $25,000 per month during the first, second and third years
of the respective terms of the Agreements. In September, 1997, the terms of the
Agreements were extended for an additional two-year period.
Each of Messrs. Greenwald, Smith and Schneider agreed that with respect to
each calendar quarter during the term of his respective Agreement, the following
percentage of his compensation would be paid: (i) no payment if the current
assets of the Company as of the end of the previous calendar quarter are less
than $500,000; (ii) one-third if the current assets of the Company as of the end
of the previous calendar quarter are more than $500,000 but less than
$1,000,000; (iii) two-thirds if the current assets as of the end of the previous
calendar quarter are more than $1,000,000 but less than $1,500,000; and (iv)
full payment if the current assets as of the end of the previous calendar
quarter are more than $1,500,000. Any portion of the compensation not paid would
be deferred and would be paid in twelve months with interest pursuant to a
promissory note issued by the Company, provided that the note could be converted
into common stock of the Company at any time prior to payment in full at the
average closing bid price in effect for the common stock for the 10-day trading
period immediately preceding the date of the conversion election.
45
<PAGE>
During the quarter ended December 31, 1995, each of Messrs. Greenwald,
Smith and Schneider deferred 100% of their compensation for the quarter, or
$45,000 each. During each of the next two quarters, they deferred one-third of
their compensation, or a total of $30,000 each. On June 10 and June 30, 1996,
each of Messrs. Greenwald, Smith and Schneider converted their deferred
compensation notes of $75,000 (plus accrued interest) into a total of 102,351
shares of common stock at prices of $.75 and $.789 per share, respectively. On
September 30, 1996, they each converted deferred compensation notes of $15,000
for the quarter then ended into a total of 26,316 shares of common stock at a
conversion price of $.57 per share.
The Agreements also provided for the issuance of 200,000 stock options to
each of Messrs. Greenwald, Smith and Schneider, exercisable during the five-year
period commencing March 6, 1996 at an exercise price of $1.87 per share
(subsequently lowered to $1.00 per share by action of the Board of Directors in
December 1996). See "Options/Stock Appreciation Rights."
On December 2, 1996, the Board of directors granted 100,000 common stock
purchase warrants to each of Stephen R. Greenwald, Ira Smith and Lawrence
Schneider in consideration of services rendered to the Company. The warrants
were granted for a five-year period and are exercisable at a purchase price of
$1.00 per share.
In April, 1997, the Company granted additional common stock purchase
warrants to Stephen R. Greenwald (or his designee), Lawrence Schneider and
Robert Miller, Jr. in consideration of providing certain interim financing to
the Company. See "Certain Relationships and Related Transactions."
Lawrence Schneider resigned his executive position in September 1997. In
March, 1998, Messrs. Greenwald and Smith stepped down as CEO and President of
the Company, and Messrs. Johan Schotte and Pierre Koshakji were elected as CEO
and President in their stead.
In connection with the change of management in March, 1998, Messrs.
Greenwald and Smith terminated their existing employment agreements and entered
into new compensation arrangements with the Company. Mr. Greenwald agreed to
serve as managing director of the Company through December 31, 1999, and is
entitled to receive the sum of $130,000 during such period in varying monthly
payments. In addition, in consideration of terminating his existing employment
agreement, Mr. Greenwald is entitled to receive an additional $130,000, also
payable in varying monthly amounts during the two-year period ending December
31, 1999. The Company is currently in default under Mr. Greenwald's agreement,
entitling Mr. Greenwald to re-instate his former employment agreement.
Mr. Smith (through S.F.H. Associates, Inc.) agreed to serve in a consulting
capacity to the Company through December 31, 1999, and is entitled to receive
the sum of $160,000 during such period, payable at the rate of $8,000 per month,
commencing May, 1998. In adition, in consideration of terminating his existing
employment agreement, Mr. Smith is entitled to receive an additional $100,000,
payable in varying monthly amounts during the two-year period ending December
31, 1999. The Company is in default under the agreements with S.F.H Associates,
Inc. and Mr. Smith, as a result of which such parties have exercised their
contractual rights to double the payments due to them under such agreements.
Johan Schotte entered into a two-year employment agreement with the
Company, commencing as of January 1, 1998 and continuing through December 31,
1999. Mr. Schotte's compensation is set at $150,000 per year during such period.
Mr. Koshakji also entered into a two-year employment agreement with the Company
at the rate of $150,000 per annum. As of September 30, 1998, a substantial
portion of the compensation due to Messrs. Smith and Koshakji under their
respective agreements is past due.
In connection with the change of management, an affiliate of Mr. Schotte
purchased a total of $230,000 of deferred compensation notes from Messrs.
Greenwald and Smith, and converted approximately 75% of these notes into 667,648
shares of the Company's common stock in April, 1998.
Compensation Committee Report and Compensation Committee
Interlocks and Insider Participation
46
<PAGE>
Executive officer compensation is determined by the entire Board of
Directors. The Board has not appointed or designated a separate compensation
committee to determine or set executive compensation. The Board's executive
compensation policy is intended to attract and retain key executives, compensate
them at appropriate levels and provide them with both cash and equity incentives
to enhance the Company's value for all of its stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The following table sets forth information concerning ownership of common
stock, as of September 30, 1998, by each person known by the Company to be the
beneficial owner of more than 5% of the common stock, each director and
executive officer, and by all directors and executive officers of the Company as
a group.
Name & Address of Shares Percentage of
Beneficial Owner Status Beneficially Owned Class
- ----------------------------------------------------------------------------
Lawrence Schneider __ 480,101(1) 8.6%
116 E. 30th Street
New York, NY
Robert Miller, Jr. Director 202,333(2) 3.8%
900 4th Avenue
Seattle, WA
S.F.H. Associates Inc. __ 445,231(3) 8.1%
49 Woodland Drive
Oyster Bay, NY
Stephen R. Greenwald Managing 495,231(4) 8.9%
380 Lexington Avenue Director;
New York, NY Director
Johan Schotte CEO and 250,000(5) 4.7%
1601 Elm Street Chairman
Dallas, TX
Pierre Koshakji President & ___ ___
1601 Elm Street Director
Dallas, TX
Yves Bayle Director ___ ___
1601 Elm Street
Dallas, TX
All Executive
Officers &
Directors As
A Group (5 Persons)(6) ___ 947,564(7) 16.3%
(1) Includes presently exercisable options to purchase 350,000 shares
of common stock.
(2) Includes presently exercisable options to purchase 131,666 shares of
common stock; also includes 61,167 shares held jointly with Mr. Miller's
wife, and 9,500 shares held in an individual retirement account for Mr.
Miller's wife, as to which latter shares Mr. Miller disclaims beneficial
ownership.
(3) Includes presently exercisable options to purchase 316,667 shares of
common stock.
(4) Includes presently exercisable options to purchase 366,667 shares of
common stock.
47
<PAGE>
(5) Includes presently exercisable options to purchase 125,000 shares of
common stock; does not include $57,501 principal amount of convertible
notes held by an affiliate of Mr. Schotte, which are convertible at market
value at time of conversion (i.e., based on the closing price of $.45 on
September 30, 1998, the notes could have been converted into 127,780
shares of common stock at that time); also does not include 125,000 shares
of common stock and 125,000 presently exercisable warrants held by each of
Gold Leaf Pictures Belgium bvba and A Hero from Zero N.V., both affiliates
of Mr. Schotte; also does not include 792,648 shares of common stock and
151,600 common stock purchase warrants held by another corporate affiliate
of Mr. Schotte, Lecoutere Finance S.A. (Mr. Schotte disclaims beneficial
ownership of all shares and warrants held by affiliated entities, although
based on Mr.Schotte's close business relationship with the other principal
shareholders of these entities, there exists the possibility that these
shareholders may act in concert with Mr. Schotte with respect to the
voting of these shares in the Company.
(6) The table does not include Dominique Verhaegen who resigned as a Director
of the Company in October, 1998 - Mr. Verhaegen is not the beneficial
owner of any shares of common stock of the Company.
(7) Includes presently exercisable options to purchase 623,333 shares of
common stock.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
On August 1, 1996, the Board of Directors of the Company offered to
reimburse members of the CECO Shareholders Committee in kind for all expenses
incurred by such members in connection with the change of management control of
the Company effected in April, 1995. (See "Change of Control"). The Board
offered to reimburse such expenses by issuing stock options to the committee
members in an amount equal to one and one-third times the amount of such
expenses. Robert Miller, a director of the Company, agreed to accept options to
purchase 40,000 shares of the Company's common stock, exercisable over a
five-year period at an exercise price of $.75 per share, representing the then
current market price of the Company's common stock on the date of grant. In
exchange, Mr. Miller agreed to release his claim for reimbursement of
approximately $30,000 of expenses incurred by Mr. Miller in connection with the
change of control. Lawrence Schneider, then a director of the Company and also a
member of the CECO Shareholders Committee, did not agree to accept options in
lieu of his claim for reimbursement of expenses in connection with the change of
control.
During the fiscal years ended June 30, 1997 and 1998, the law firm of
Herbst & Greenwald, of which Mr. Greenwald, a director of the Company, is a
member, received fees for legal services rendered to the Company in the amounts
of $21,563 and $5,000, respectively.
In April, 1997, Stephen R. Greenwald, Lawrence Schneider (then a director
of the Company), and Robert E. Miller, Jr. made loans to the Company in the
amounts of $50,000, $25,000 and $25,000, respectively. Each loan was payable on
demand, accrued interest at the rate of 9.25% per annum, and was secured by a
collateral assignment of the Company's $300,000 receivable due from Kinnevik.
See "Business-Sales of Distribution Rights." In consideration of making such
loans, the lenders received five-year warrants to purchase shares of common
stock of the Company, exercisable at $1.00 per share. Messrs. Schneider and
Miller each received 25,000 warrants in consideration of their respective
$25,000 loans to the Company, and Mr. Greenwald (or his designee) received
50,000 warrants in consideration of his $50,000 loan to the Company. Mr.
Schneider's loan was repaid in April, 1998 from the Kinnevik receivable.
However, Messrs. Greenwald and Miller agreed to a rollover of their loans to be
paid from the proceeds of a second Kinnevik receivable due in September, 1998.
In consideration of the rollover, Mr. Greenwald will receive 25,000 warrants and
Mr. Miller will receive 12,500 warrants, in each case exercisable over a
five-year period at $1.00 per share. Mr. Greenwald's loan was repaid in
September, 1998; Mr. Miller's loan was rolled over for a six month period on an
unsecured basis with interest at the rate of 10% per annum.
48
<PAGE>
In March, 1998, Ira Smith and Stephen Greenwald stepped down as Co-Chairmen
in the Office of the Chairman of the Company, and Johan Schotte was appointed as
Chairman and CEO of the Company. In connection with the change in management, an
affiliate of Mr. Schotte purchased $230,000 face value of deferred compensation
notes from Messrs. Smith and Greenwald, and in April, 1998, converted
approximately 75% of those notes into 667,648 shares of the Company's common
stock. In addition, at the time of the change in management, the Company
purchased an 18% equity interest in each of two corporations affiliated with Mr.
Schotte, one of which is the owner of a second division professional soccer team
in New Mexico, and the other of which is a media production company in
Luxembourg. The Company issued one-year notes in the aggregate amount of
$450,000 in consideration of the purchase of the equity interests in these
companies.
In connection with Mr.Schotte's appointment as CEO and Chairman of the
Board, Mr. Greenwald agreed to terminate his existing employment agreement with
the Company and to enter into a new, two-year employment agreement, effective as
of January 1, 1998. Mr. Smith also agreed to terminate his existing employment
agreement. The Company entered into a new, two-year consulting agreement with
S.F.H. Associates, Inc., pursuant to which the consultant would provide the
consulting services of Mr. Smith for the two year period commencing as of
January 1, 1998. The Company also entered into a two-year contract with each of
Mr. Schotte and Mr. Koshakji, effective as of January 1, 1998, at the rate of
$150,000 per annum. (See "Executive Compensation").
49
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a)(1) The response to this portion of Item 14 is submitted under Item 8,
page 17.
(a)(2) See (a)(1) above.
(a)(3) Exhibits
3.1 Articles of Incorporation, as amended through June 30, 1995(1)
3.2 Amendments to Articles of Incorporation filed in March and June, 1996(8)
3.3 Amendment to Articles of Incorporation filed in January, 1997 (9)
3.4 By-laws(1)
4.1 Indenture between Odyssey and Continental Stock Transfer and Trust
Company ("Continental") dated as of July 15, 1987(1)
4.2 Form of Supplemental Indenture between Continental and the Company(1)
4.3 Form of Common Stock Certificate(1)
4.4 Form of options granted of officers, directors and 5% stockholders(2)
4.5 Form of Warrant issued to purchasers parties to the 1995 Private
Placement completed September 30, 1995(5)
4.6 Form of 12% Unsecured Promissory Note issued to purchasers parties to
the 1995 Private Placement completed September 30, 1995(5)
4.7 Form of Stock Option Agreement by and between the Company and officers
and directors of the Company, for stock options issued in April 1995(5)
4.8 Form of Common Stock Purchase Warrant by and between the Company and
officers, directors, employees and consultants of the Company for
warrants issued during the fiscal year ended June 30, 1996(8)
4.9 Common Stock Purchase Warrant, dated March 6, 1996, between the Company
and G & H Media, Ltd. (assignee of Stephen R. Greenwald)(7)
4.10 Common Stock Purchase Warrant, dated March 6, 1996, between the
Company and Lawrence I. Schneider(7)
4.11 Common Stock Purchase Warrant, dated March 6, 1996, between the
Company and Ira N. Smith(7)
4.12 Form of Common Stock Purchase Warrant by and between the Company and
officers, directors, employees and consultants of the Company for
warrants issued during the fiscal year ended June 30, 1997 (9)
4.13 Preferred Stock Certificate, Series A, issued to Kinnevik Media
Properties, Ltd. in September, 1997 (10)
4.14 Convertible Note issued to Augustine Fund L.P. in July, 1998 (11)
4.15 Preferred Stock Certificate, Series B, issued to Kimon, Inc. in
September, 1998 (10)
10.1 1989 Long Term Incentive Plan(1)
10.2 Agreement of Settlement and Release, dated October 2, 1995,
by and between Home Box Office, Inc. and Odyssey(5)
50
<PAGE>
10.3 Private Placement Memorandum used in connection with 1995 Private
Placement (the "1995 Private Placement Memorandum")(5)
10.4 Supplement to the 1995 Private Placement Memorandum(5)
10.5 Supplement No. 2 to the 1995 Private Placement Memorandum(5)
10.6 Supplement No. 3 to the 1995 Private Placement Memorandum(5)
10.7 Settlement Agreement, dated as of March 31, 1995, by and
between the Company, Odyssey, Global Intellicom, Inc., N.
Norman Muller, Thomas W. Smith, David Mortman, Robert Ferraro,
the CECO Shareholders Committee, Lawrence Schneider, Robert E.
Miller, Henry Schneider, Robert Hesse, Shane O'Neil, Patrick
Haynes, Russell T. Stern, Jr., Thurston Group, Inc., The
Insight Fund, L.P. and Lois Muller(3)
10.8 Memorandum of Agreement, dated as of August 24, 1995 between the
Company and Multipix Communications, Inc.(4)
10.9 Termination Agreement, dated as of January 2, 1996, between
Regency International Pictures, B.V. and Odyssey Distributors B.V.(6)
10.10 Employment Agreement dated October 1, 1995, between the Company and
Stephen R. Greenwald(6)
10.11 Employment Agreement dated October 1, 1995, between the Company
and Lawrence I. Schneider(6)
10.12 Employment Agreement dated October 1, 1995, between the Company
and Ira N. Smith (6)
10.13 Agreement, dated March 6, 1996, between Communications and
Entertainment Corp. and its wholly-owned subsidiary, Odyssey
Distributors, Ltd.(7)
10.14 Severance and Consulting Agreement, dated March 26, 1996,
between the Company and Shane O'Neil, and related
modifying agreement dated March 28, 1996(7)
10.15 Management Agreement between the Company and Stephen R. Greenwald,
dated March 6, 1996, superseding the Employment Agreement dated
October 1, 1995(8)
10.16 Management Agreement between the Company and Lawrence I. Schneider,
dated March 6, 1996, superseding the Employment
Agreement dated October 1, 1995(8)
10.17 Management Agreement between the Company and Ira N. Smith, dated
March 6, 1996, superseding the Employment Agreement dated
October 1, 1995(8)
10.18 Addendum to Management Agreements of Messrs. Schneider,
Greenwald and Smith(8)
10.19 Joint Venture Letter between the Company and Film Bridge
International, Inc., dated March 11, 1996(8)
10.20 Lease for office premises at 1875 Century Park East, Suite 2130,
Los Angeles, California, dated May 9, 1996(8)
10.21 Agreement dated August 29, 1996, between the Company and Kinnevik
Media Properties, Ltd.(8)
10.22 Agreement dated September 6, 1996 between the Company and
Mr. David Somerstein(8)
51
<PAGE>
10.23 Settlement Agreement and Release between Paramount Pictures
Corporation and Odyssey Distributors , Ltd. (a wholly owned subsidiary
of the Company), and Guarantee agreement of the Company, each dated as
of September 26, 1996 (9)
10.24 Form of Settlement Agreement with Generale bank Nederland, N.V., dated
as of December 18, 1996 (9)
10.25 Stock Purchase Agreement between the Company and Kinnevik Media
Properties, Ltd., dated September 1997 (10)
10.26 Stock Purchase Agreement between the Company and Flanders Film S.A.
relating to purchase of minority stock interest in E3 Sports
New Mexico, Inc. and Media Trust S.A., and related promissory
notes for $135,000 and $315,000, dated March 2, 1998 (10)
10.27 Termination /Employment Agreement with Stephen R. Greenwald, dated
March 2, 1998 (10)
10.28 Termination Agreement with Ira Smith dated March 2, 1998 (10)
10.29 Consulting Agreement with S.F.H. Associates, Inc. for the services
of Ira Smith, dated March 2, 1998 (10)
10.30 Employment Agreement with Johan Schotte, dated March 2, 1998 (10)
10.31 Convertible Note issued to Augustine Fund, L.P. in
July, 1998 (see Item 4.14)
10.32 Asset Purchase Agreement between the Company and Kimon Mediabright
KB, a Swedish limited partnership, dated July 14, 1998 (10)
21.1 Subsidiaries of the Registrant(3)
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-4, File No. 33-34627.
(2) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 33-43371.
(3) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed April 12, 1995, File No. 0-18954.
(4) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed August 30, 1995, File No. 0-18954.
(5) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, File No. 0-18954.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995, File No. 0-18954.
(7) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, File No. 0-18954.
(8) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended June 30, 1996, File No. 0-18954.
(9) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 333-20701.
(10)Filed herewith.
(11)To be filed by amendment.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this Report.
(c) See (a)(3) above.
(d) None.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ODYSSEY PICTURES CORPORATION
Dated: October 20, 1998 By: /s/ Stephen R. Greenwald
--------------------------
Stephen R. Greenwald,
Managing Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Johan Schotte CEO and Chairman 10/20/98
- ------------------ (Principal Executive &
Johan Schotte Financial Officer)
/s/ Pierre Koshakji President; Director 10/20/98
- -------------------
Pierre Koshakji
/s/ Stephen R. Greenwald Managing Director; 10/20/98
- ------------------------ Director
Stephen R. Greenwald
/s/ Robert E. Miller, Jr. Director 10/20/98
- ------------------------
Robert E. Miller, Jr.
Director
- --------------
Yves Bayle
53
<PAGE>
ODYSSEY PICTURES CORPORATION
PREFERRED STOCK - SERIES A
No. 1 500,000 Shares
THIS IS TO CERTIFY THAT Kinnevik Media Properties, Ltd. is the owner of
Five Hundred (500,000) Thousand Shares of Preferred Stock, Series A, of the
above Corporation, transferable only on the books of the Corporation by the
holder thereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
A statement of the relative designations, powers, preferences, rights,
qualifications, limitations and restrictions of the Corporation's Preferred
Stock, Series A, is set forth in the Statement of Designations attached hereto
and made a part hereof.
WITNESS, the seal of the Corporation and the signatures of its duly
authorized officers this day 15th of September, 1997.
- ------------------ ------------------
Secretary President
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER
THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO SUCH
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO ODYSSEY PICTURES CORPORATION (THE "COMPANY"), OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER STATE SECURITIES LAWS.
53
<PAGE>
STATEMENT OF DESIGNATIONS
The relative designations, powers, preferences, rights, qualifications,
limitations and restrictions of the Corporation's Preferred Stock, Series A (the
"Series A Stock") are as follows:
1. Dividend Rate. The Series A Stock shall be entitled to a dividend at
the rate of 10% per annum, payable semi-annually in kind on a non-compounded
basis by the issuance of additional shares of Series A Stock at the annual rate
of one additional share of Series A Stock for every ten (10) shares of Series A
Stock then outstanding.
2. Conversion. During the five-year period following the date of
issuance of the Series A Stock (the "Five-Year Period"), the registered holders
thereof (the "Registered Holders") shall have the option to convert the Series A
Stock (and any dividends-in-kind paid thereon) into shares of Common Stock of
the Corporation on a share for share basis (a "Conversion"), on the following
terms and conditions:
a) During the Five-Year Period, any Registered Holder may effect a
Conversion at any time without the consent of the Corporation provided that,
upon completion of the Conversion, the shares of Common Stock received upon the
Conversion, together with all other shares of Common Stock of the Corporation
then "beneficially owned" by such Registered Holder (as the term "beneficially
owned" is defined in the Securities Exchange Act of 1934), do not exceed 4.9% of
the total amount of shares of Common Stock of the Corporation then outstanding
at the time of the Conversion (inclusive of all shares of Common Stock deemed to
be beneficially owned by such Registered Holder);
b) In the event a Registered Holder desires to effect a Conversion
during the Five-Year Period for a number of shares of Common Stock which would
result in an aggregate beneficial ownership in the Corporation in excess of 4.9%
(as calculated in accordance with subparagraph (a) above), then the Registered
Holder shall be required to obtain the prior written consent of the Corporation
with respect to such Conversion, which consent may be granted or withheld by the
Corporation in its sole and absolute discretion, unless the closing bid price of
the Corporation's Common Stock shall be $.75 or more for 20 consecutive trading
days prior to the Registered Holder's election to effect a Conversion, in which
event the consent of the Corporation shall not be required to effect such
Conversion.
c) In the event that there shall be any change in the number of
outstanding shares of Common Stock of the Corporation by reason of the
declaration of stock dividends, or through a recapitalization resulting from
stock splits or combinations, the conversion rate set forth herein (i.e.,
share-for-share) shall be appropriately adjusted (but without regard to
fractional shares) by the Board of Directors to reflect such change.
3. Reservation of Common Stock. So long as any shares of the Series A
Stock are outstanding, the Corporation shall reserve and keep available out of
its duly authorized but unissued stock, for the purpose of effecting the
conversion of the Series A Stock as hereinabove provided, such number of its
duly authorized shares of Common Stock and other securities as shall from time
to time be sufficient to effect the conversion of all outstanding shares of
Series A Stock.
4. Redemption. If, at any time, the closing bid price of the
Corporation's Common Stock shall be $2.00 or more for 20 consecutive trading
days, then the Corporation shall have the right to call for the redemption of
all outstanding shares of the Series A Stock (including dividends-in-kind paid
thereon), in whole or in part, at a purchase price of $1.25 per share, upon
written notice to the registered holders thereof; provided, however, upon
receipt of such notice, the registered holders shall have the option, for a
period of ten (10) business days, upon written notice to the Corporation, to
elect to exercise their conversion rights pursuant to Paragraph 2 hereof.
54
<PAGE>
5. Preference on Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the registered
holders of shares of Series A Stock shall be entitled, before any distribution
or payment is made upon any Common Stock, or upon any other series of Preferred
Stock hereafter authorized, to receive all accrued dividends with respect to the
Series A Stock, and to be paid an amount equal to $1.00 per share of Series A
Stock. If upon such liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed among the
registered holders of Series A Stock shall be insufficient to permit payment to
the holders of Series A Stock of the total amount distributable as aforesaid,
then the entire assets of the Corporation to be distributed shall be distributed
ratably among the registered holders of shares of Series A Stock. Upon any such
liquidation, dissolution or winding up of the Corporation, after the registered
holders of shares of Series A Stock shall have been paid the amounts to which
they shall be entitled, the remaining assets of the Corporation may be
distributed to the holders of shares of Common stock and any other authorized
series of Preferred Stock.
6. No Voting Rights. The Series A Stock shall not carry any voting
rights in the Corporation.
7. Piggyback Registration Rights. If, at any time after the issuance of
the Series A Stock, the Corporation proposes to register any of its securities
under the Securities Act of 1933, as amended (the "Act"), except for
registrations on Form S-8 or Form S-4 or such other form as shall be prescribed
under the Act for the same purposes, it will at each such time give written
notice to the registered holders of the Series A Stock and, upon the written
request of any registered holder of Series A Stock, the Corporation will use its
best efforts to effect the registration of said securities (including any shares
of Common Stock into which the Series A Stock may be converted) by including
same in such registration statement on a "most favored nations" basis with any
other securityholders then being included in said registration statement, all to
the extent required to permit the sale or other disposition thereof in
accordance with the intended method of sale or other disposition given in each
such request. The holders of Series A Stock included in any such registration
shall bear the cost of any underwriters' discounts and commissions relating to
their securities included in the registration, but the Corporation shall bear
all other fees, costs and expenses related to such registration. In the event
the registration involves an underwritten public offering, and the managing
underwriter shall advise the Corporation that, in its opinion, the number of
securities included in the registration exceeds the largest number of securities
which can be sold without having an adverse effect on such offering, including
the price at which such securities can be sold, then the number of shares of
Series A Stock to be included in the registration shall be reduced on a pro-rata
basis among the registered holders of any securities of the Corporation then
being included in such registration in accordance with the determination of said
managing underwriter.
55
<PAGE>
ODYSSEY PICTURES CORPORATION
PREFERRED STOCK - SERIES B
No. 1 4,500,000 Shares
THIS IS TO CERTIFY THAT Kimon, Inc. is the owner of Four Million Five
Hundred (4,500,000) Thousand Shares of Preferred Stock, Series B, of the above
Corporation, transferable only on the books of the Corporation by the holder
thereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
A statement of the relative designations, powers, preferences, rights,
qualifications, limitations and restrictions of the Corporation's Preferred
Stock, Series B, is set forth in the Statement of Designations attached hereto
and made a part hereof.
WITNESS, the seal of the Corporation and the signatures of its duly
authorized officers this 14th day of September, 1998.
- ------------------------ --------------------
Chief Executive Officer President
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER
THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO SUCH
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO ODYSSEY PICTURES CORPORATION (THE "COMPANY"), OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER STATE SECURITIES LAWS.
56
<PAGE>
STATEMENT OF DESIGNATIONS
The relative designations, powers, preferences, rights, qualifications,
limitations and restrictions of the Corporation's Preferred Stock, Series B (the
"Series B Stock") are as follows:
1. Conversion. For purposes of conversion, the Series B Stock shall be
valued at the rate of $1.00 per share. During the six-month period between June
30, 2000 and December 31, 2000 (the "Conversion Period"), the registered
holder(s) of the Series B Stock (the "Registered Holder") shall have the option
to convert the Series B Stock into shares of Common Stock of the Corporation on
a dollar-for-dollar basis (a "Conversion"), at the average closing ask price of
the Corporation's Common Stock for the twenty (20) trading days immediately
preceding the date of delivery of the Conversion Notice (as hereinafter
defined); provided, however, if a Conversion takes place during the month of
December in the year 2000, the Registered Holder will be entitled to receive an
extra ten (10%) percent in the number of shares of Common Stock it receives upon
the Conversion. The Registered Holder may exercise its conversion rights in
whole or in part at any time or times during the Conversion Period.
The Registered Holder may exercise its conversion rights by delivering
written notice to the Corporation (the "Conversion Notice") by facsimile,
telegram, personal delivery, overnight mail or other transmission for which a
transmission receipt is available. The Conversion Notice shall be signed by a
duly authorized officer of the Registered Holder, and shall be deemed to be
delivered on the date of its receipt by the Corporation.
2. Reservation of Common Stock. So long as any shares of the Series B
Stock are outstanding, the Corporation shall reserve and keep available out of
its duly authorized but unissued stock, for the purpose of effecting the
Conversion of the Series B Stock as hereinabove provided, such number of its
duly authorized shares of Common Stock and other securities as shall from time
to time be sufficient to effect the Conversion of all outstanding shares of
Series B Stock.
3. Subordination/Preference on Liquidation. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the registered holders of shares of Series B Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, or upon any other series
of Preferred Stock hereafter authorized, to receive all accrued dividends (if
any) with respect to the Series B Stock, and to be paid an amount equal to $1.00
per share of Series B Stock. If upon such liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed among the registered holders of Series B Stock shall be insufficient
to permit payment to the holders of Series B Stock of the total amount
distributable as aforesaid, then the entire assets of the Corporation to be
distributed shall be distributed ratably among the Registered Holders of shares
of Series B Stock. Upon any such liquidation, dissolution or winding up of the
Corporation, after the registered holders of shares of Series B Stock shall have
been paid the amounts to which they shall be entitled, the remaining assets of
the Corporation may be distributed to the holders of shares of Common Stock and
any other subordinated series of Preferred Stock of the Corporation.
Anything to the contrary stated herein notwithstanding, upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series B Stock shall be subordinated in all respects to the
rights of the holders of Preferred Stock, Series A, of the Corporation,
provided, however, no amendment or modification to the Series A Preferred Stock
after the date hereof shall have the effect of further subordinating the Series
B Stock other than with respect to the rights of the Series A Preferred Stock as
they may exist on the date hereof.
4. No Voting Rights. The Series B Stock shall not carry any voting
rights in the Corporation.
5. No Dividend Rights. The Series B Stock shall not be entitled to any
dividends unless otherwise declared by the Board of Directors of the
Corporation, provided, however, no dividends shall be paid on the Series B Stock
until all accrued dividends are paid to the registered holders of the Series A
Preferred Stock.
57
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of September,
1997, by and between Odyssey Pictures Corporation, a Nevada corporation (the
"Company"), and Kinnevik Media Properties, Ltd., a Delaware corporation
("Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
Purchase and Sale of Stock.
Stock.
(a) Sale and Issuance of Series A Preferred
i. The Company, through its Board of Directors, shall adopt and file with
the Company's corporate records the Resolutions of the Board of Directors
authorizing Series A Preferred Stock in accordance with the Company's Articles
of Incorporation and the Statement of Designations in the form attached hereto
as Exhibit A (the "Statement of Designations").
ii. Subject to the terms and conditions of this Agreement, the Investor
agrees to purchase and the Company agrees to sell and issue to the Investor
500,000 shares of the Series A Preferred Stock in consideration of $500,000 as
follows:
(1) An aggregate of $250,000 at the Closing consisting of
$150,000 in ready funds and the application of the $100,000
Advance, pursuant to and in accordance with that certain letter
agreement between the Company and Investor dated as of July 8,
1997, as a credit towards this payment, with the accrued interest
on such Advance being applied to the final Promissory Note below;
and
(2) Investor's delivery of two (2) Promissory Notes in the
following amounts and with the following maturity dates:
1. $125,000 payable 90 days after the Closing (the 1190 Day Note,,);
and
11. $125,000 payable 270 days after the Closing (the 11270 Day
Note").
iii. Notwithstanding the foregoing, Investor agrees that it will pay the
Company an additional $100,000 (to be applied in the manner described below) on
the earlier of (x) 30 immediately prior to the Closing, of:
(i) Preferred Stock. 10,000,000 shares authorized, par value $0.10 per
share, none of which are outstanding prior to the Closing.
(ii) Common Stock. 40,000,000 shares authorized, par value $0.01 per
share, 4,456,637 of which are outstanding.
(iii) Class A Stock. 10,000,000 shares authorized, par value $0.01 per
share, none of which are outstanding.
(iv) The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Act") and any relevant state
securities laws or pursuant to valid exemptions therefrom.
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(c) Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series A Preferred
Stock being sold hereunder and the Common Stock issuable upon conversion of
the Series A Preferred Stock has been taken or will be taken prior to the
Closing, and this Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except
(x) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally and (y) as limited by laws relating to the
availability of specific enforcement, injunctive relief, or other equitable
remedies.
(d) Valid Issuance of Preferred Stock. The Series A Preferred Stock
that is being purchased by the Investor hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid
and nonassessable and will be issued in compliance with all applicable
federal and state securities laws. The Common Stock issuable upon
conversion of the Series A Preferred Stock purchased under this Agreement
has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Articles of Incorporation and the enabling
resolutions, will be duly and validly issued, fully paid and nonassessable
and will be issued in compliance with all applicable federal and state
securities laws.
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any federal, state or local governmental authority on the
part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement except to the extent required
to comply with all applicable federal and state securities laws.
(f) Compliance with Other Instruments. The Company is not in violation
or default of any provision of its Articles of Incorporation or Bylaws, or
in any material respect of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, except as set
forth in the Registration Statement (as hereinafter defined), or, to the
best of its knowledge, of any provision of any federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract or any event that results in the creation
of any material lien, charge or encumbrance upon any assets of the Company.
(g) Disclosure. The Company has fully provided the Investor with all
the information that it has requested for deciding whether to purchase the
Series A Preferred Stock. To the Company's best knowledge, neither this
Agreement, nor any other statements or certificates made or delivered in
connection herewith contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements herein or
therein not misleading.
3.Representations and Warranties of Investor.
(a) Authorization. The Investor has full power and authority to enter
into this Agreement and all corporate action on the part of Investor, its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the performance of all
obligations of Investor hereunder, has been taken or will be taken prior to
the Closing, and this Agreement constitutes the valid and legally binding
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obligation of the Investor, enforceable in accordance with its terms,
except (x) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally and (y) as limited by laws relating to the
availability of specific enforcement, injunctive relief, or other equitable
remedies.
(b) Compliance with Other Instruments. The Investor is not in
violation or default of any provision of its Articles of Incorporation or
Bylaws, or in any material respect of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to Investor. The execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract or any event that results in the creation
of any material lien, charge or encumbrance upon any assets of Investor.
(c) Investor is acquiring the securities being purchased hereunder for
its own account as principal, not as a nominee or agent, for investment
purposes only, and not with a view to the resale or distribution thereof,
and no other person has a direct or indirect interest in such securities or
any component thereof. Investor does not have any contract, undertaking,
agreement, or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any
of the securities for which Investor is subscribing.
(d) Investor acknowledges that the offering of the Series A Preferred
Stock to Investor (the "Offering") is intended to be exempt from
registration under the Act by virtue of Sections 3(b) and/or 4(2) of the
Act and the provisions of Regulation D promulgated thereunder ("Regulation
D11). In furtherance thereof, Investor represents and warrants to the
Company as follows:
(i) Investor has the financial ability to bear the economic risk of
its investment in the Company, has adequate means of providing for its
current needs and financial contingencies, and has no need for liquidity
with respect to its investment in the Company; and
(ii) Investor has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Company.
(e) Pursuant to Rule 502 of Regulation D, Investor acknowledges that
it has received the following from the Company: (i) Report on Form 10-K for
the fiscal year ended June 30, 1996, (ii) definitive Proxy Statement for
the Company relating to the Annual Meeting of Shareholders of the Company
held on November 22, 1996, (iii) Annual Report to Shareholders for the
fiscal year ended June 30, 1996, (iv) Quarterly Reports on Form 10-Q for
the quarters ended September 30, 1996, December 31, 1996, and March 31,
1997, and (v) Amendment No. 4 to Registration Statement on Form S-1, dated
August 11, 1997 (copies of all of which are incorporated herein by
reference).
(f) Investor has been provided an opportunity for a reasonable time
prior to the date hereof to obtain additional information concerning the
Offering, the Company and all other information to the extent the Company
possesses such information or can acquire it without unreasonable effort or
expense, and Investor has been given the opportunity to ask questions of
the Company and its representatives concerning the terms and conditions of
the Offering and other matters pertaining to an investment in the Company.
(g) Investor is not relying on any statements or representations made
by the Company or its affiliates with respect to economic considerations
involved in an investment in the Company. No representations or warranties
have been made to Investor except as set forth herein.
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(h) Investor fully understands and agrees that i must bear the
economic risk of its investment in the Company because, among other
reasons, the securities being purchased hereunder (including any
dividends-in-kind paid thereon and any shares of Common Stock into which
such securities shall be converted) have not been registered under the Act
and therefore cannot be resold, pledged, transferred, assigned or otherwise
disposed of unless they are subsequently registered under the Act or unless
an exemption from such registration requirements is available. Investor
understands that such securities will contain an appropriate legend
restricting transferability until such securities are registered under the
Act or an exemption therefrom is available.
4. As additional consideration for this agreement, the Company shall
endeavor to do the following during the 5 year term commencing on the date
of the Closing:
(a) Grant to Investor, on mutually acceptable terms, television
distribution rights to motion pictures owned or controlled, or to be owned
or controlled by the Company (provided however, that Investor acknowledges
that the Company is in the business of motion picture distribution and that
the Company may and shall grant to third parties television distribution
rights to the Company's pictures in conjunction with the Company's
distribution efforts, which actions by the Company shall not be deemed to
be in violation of the Company's obligations under this Agreement);
(b) The Company shall endeavor to secure television distribution
rights for Investor from third party sources; and
a) The Company shall endeavor to introduce various projects to
Investor that would be of possible interest to Investor.
As and when Investor acquires rights resulting from the Company's
efforts hereunder, the parties shall mutually determine the value of such
services and such agreed upon value shall serve to redeem shares of the
Series A Preferred Stock (including any dividends paid-in-kind thereon, and
any shares of Common Stock into which such shares of Series A Preferred
Stock shall have been converted) that have been issued to Investor at the
rate of one share for each dollar of agreed upon value.
5. APPLICABLE LAW. This Agreement and all matters collateral thereto
shall be governed by New York law applicable to contracts executed and
performed entirely within New York. Any controversy or claim arising out of
or relating to this Agreement including, without limitation, the
interpretation or the breach thereof, shall be settled by arbitration in
the City, County and State of New York in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then obtaining,
and judgment upon the award rendered by a panel of three (3) Arbitrators
may be entered in any court having jurisdiction thereof. Notwithstanding
the foregoing, this agreement to arbitrate shall not bar either party from
seeking temporary or provisional remedies in any court having jurisdiction
thereof.
6. MODIFICATION. This Agreement cannot be modified except by written
agreement signed by the party to be charged.
7. 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
(including transferees of any securities). 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.
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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 the balance of the Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.NOTICES.
(a) All notices to be sent to Investor shall be sent by fax and
registered or certified mail (with delivery deemed to be the date of
mailing) to:
Kinnevik media Properties, Ltd.
805 Third Avenue 8th Floor
New York, New York 10022
Attention: Joseph Kovacs, President
Telefax Number: (212) 755-4628
with a copy to:
Pavia & Harcourt
600 Madison Avenue
New York, New York 10022
Attention: Jordan E. Ringel, Esq.
Telef ax Number: (212) 980-3185
(b) All notices to be sent to Seller shall be sent by fax and
registered or certified mail (with delivery deemed to be the date of
mailing) to:
Mr. Ira Smith
421 West 54th Street
4th Floor
New York, New York 10019
Attention: Messrs. Stephen Greenwald and
Ira Smith
Telefax Number:(212) 489-5699
with a copy to:
Howard J. Kerker, P.C.
600 Madison Avenue
New York, New York 10022
Telefax no. 212-758-1747
10.AGREEMENT COMPLETE.
This Agreement (together with the Exhibits attached hereto) contains
the entire understanding of the parties and, without limiting the
foregoing, supersedes and replaces any and all previous understandings
and/or agreements between the parties hereto concerning the subject matter
hereof. No such prior understanding or agreement may be used by either
party hereto to establish, deny, maintain, or challenge a claim for damages
in any legal proceeding concerning a dispute hereunder except as may be
permitted by the applicable "parole evidence rule" and/or related law.
Neither of the parties hereto has made any representation, warranty,
covenant, or undertaking of any nature whatsoever, expressed or implied, in
connection with or relating to this Agreement other than as herein
expressly set forth.
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IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first written above.
KINNEVIK MEDIA PROPERTIES, LTD.
By:/s/ Joseph E. Kovacs
-----------------------
Joseph E. Kovacs
President
AGREED TO AND ACCEPTED:
ODYSSEY PICTURES CORPORATION
By:/s/ Ira N. Smith
-------------------
Ira N. Smith
President
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STATEMENT OF DESIGNATIONS
The relative designations, powers, preferences, rights,
qualifications, limitations and restrictions of the Corporation's Preferred
Stock, Series A (the "Series A Stock") are as follows:
1. Dividend Rate. The Series A Stock shall be entitled to a dividend
at the rate of 10% per annum, payable semi-annually in kind on a
non-compounded basis by the issuance of additional shares of Series A Stock
at the annual rate of one additional share of Series A Stock for every ten
(10) shares of Series A Stock then outstanding.
2. Conversion. During the five-year period following the date of
issuance of the Series A Stock (the "Five-Year Period"), the registered
holders thereof (the "Registered Holders") shall have the option to convert
the Series A Stock (and any dividends - in-kind paid thereon) into shares
of Common Stock of the Corporation on a share for share basis (a
"Conversion"), on the following terms and conditions:
a) During the Five-Year Period, any Registered Holder may effect a
Conversion at any time without the consent of the Corporation provided
that, upon completion of the Conversion, the shares of Common Stock
received upon the Conversion, together with all other shares of Common
Stock of the Corporation then "beneficially owned" by such Registered
Holder (as the term "beneficially owned" is defined in the Securities
Exchange Act of 1934), do not exceed 4.9% of the total amount of shares of
Common Stock of the Corporation then outstanding at the time of the
Conversion (inclusive of all shares of Common Stock deemed to be
beneficially owned by such Registered Holder);
b) In the event a Registered Holder desires to effect a Conversion
during the Five-Year Period for a number of shares of Common Stock which
would result in an aggregate beneficial ownership in the Corporation in
excess of 4.9% (as calculated in accordance with subparagraph (a) above) ,
then the Registered Holder shall be required to obtain the prior written
consent of the Corporation with respect to such Conversion, which consent
may be granted or withheld by the Corporation in its sole and absolute
discretion, unless the closing bid price of the Corporation's Common Stock
shall be $.75 or more for 20 consecutive trading days prior to the
Registered Holder's election to effect a Conversion, in which event the
consent of the Corporation shall not be required to effect such Conversion.
c) In the event that there shall be any change in the number of
outstanding shares of Common Stock of the Corporation by reason of the
declaration of stock dividends, or through a recapitalization resulting
from stock splits or combinations, the conversion rate set forth herein
(i.e., share-for-share) shall be appropriately adjusted (but without regard
to fractional shares) by the Board of Directors to reflect such change and
not be dilutive to the holder of Series A Stock.
3. Reservation of Common Stock. So long as any shares of the Series A
Stock are outstanding, the Corporation shall reserve and keep available out
of its duly authorized but unissued stock, for the purpose of effecting the
conversion of the Series A Stock as hereinabove provided, such number of
its duly authorized shares of Common Stock and other securities as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A Stock.
4. Redemption. If, at any time, the closing bid price of the
Corporation's Common Stock shall be $2.00 or more for 20 consecutive
trading days, then the Corporation shall have the right to call for the
redemption of all outstanding shares of the Series A Stock (including
dividends-in-kind paid thereon), in whole or in part, at a purchase price
of $1.25 per share, upon written notice to the registered holders thereof;
provided, however, upon receipt of such notice, the registered holders
shall have the option, for a period of ten (10) business days, upon written
notice to the Corporation, to elect to exercise their conversion rights
pursuant to Paragraph 2 hereof.
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5. Preference on Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
registered holders of shares of Series A Stock shall be entitled, before
any distribution or payment is made upon any Common Stock, or upon any
other series of Preferred Stock hereafter authorized, to receive all
accrued dividends with respect to the Series A Stock, and to be paid an
amount equal to $1.00 per share of Series A Stock. If upon such
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the registered
holders of Series A Stock shall be insufficient to permit payment to the
holders of Series A Stock of the total amount distributable as aforesaid,
then the entire assets of the Corporation to be distributed shall be
distributed ratably among the registered holders of shares of Series A
Stock. Upon any such liquidation, dissolution or winding up of the
Corporation, after the registered holders of shares of Series A Stock shall
have been paid the amounts to which they shall be entitled, the remaining
assets of the Corporation may be distributed to the holders of shares of
Common stock and any other authorized series of Preferred Stock.
6. No Voting Rights. The Series A Stock shall not carry any voting
rights in the Corporation.
7. Piggyback Registration Rights. If, at any time after the issuance
of the Series A Stock, the Corporation proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"), except
for registrations on Form S-8 or Form S-4 or such other form as shall be
prescribed under the Act for the same purposes, it will at each such time
give written notice to the registered holders of the Series A Stock and,
upon the written request of any registered holder of Series A Stock, the
Corporation will use its best efforts to effect the registration of said
securities (including any shares of Common Stock into which the Series A
Stock may be converted) by including same in such registration statement on
a "most favored nations" basis with any other securityholders then being
included in said registration statement, all to the extent required to
permit the sale or other disposition thereof in accordance with the
intended method of sale or other disposition given in each such request.
The holders of Series A Stock included in any such registration shall bear
the cost of any underwriters, discounts and commissions relating to their
securities included in the registration, but the Corporation shall bear all
other fees, costs and expenses related to such registration. In the event
the registration involves an underwritten public offering, and the managing
underwriter shall advise the Corporation that, in its opinion, the number
of securities included in the registration exceeds the largest number of
securities which can be sold without having an adverse effect on such
offering, including the price at which such securities can be sold, then
the number of shares of Series A Stock to be included in the registration
shall be reduced on a pro-rata basis among the registered holders of any
securities of the Corporation then being included in such registration in
accordance with the determination of said managing underwriter.
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STOCK PURCHASE AGREEMENT
Between
ODYSSEY PICTURES CORPORATION, as Purchaser
and
FLANDERS FILM S.A., as Seller
Relating to the Shares of
E3 Sports New Mexico, Inc.
and
Media Trust S.A.
Dated: March 2, 1998
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of March 2, 1998 (this "Agreement")
between ODYSSEY PICTURES CORPORATION, a Nevada corporation ("Purchaser") and
FLANDERS FILM S.A., a Luxembourg corporation ("Seller").
W I T N E S S E T H
WHEREAS, Seller is the record and beneficial owner of certain shares of
common stock of E3 Sports New Mexico, Inc. ("E3");
WHEREAS, Seller is the record and beneficial owner of certain shares of
common stock of Media Trust S.A. ("Media Trust"); and
WHEREAS, Seller wishes to sell and transfer to Purchaser, and Purchaser
wishes to acquire from Seller, (i)16,200 shares of common stock of E3
representing 18% of the total issued and outstanding capital stock of E3 (the
"E3 Shares") and (ii) 27,000 shares of common stock of Media Trust representing
18% of the total issued and outstanding capital stock of Media Trust (the "Media
Trust Shares," and together with the E3 Shares referred to collectively herein
as the "Shares").
NOW THEREFORE, in consideration of the premises and the mutual
covenants and undertakings of the parties hereto, it is hereby agreed as
follows:
1 Sale of Shares.
1.1 Seller shall sell, transfer and deliver to Purchaser at the date, time and
place indicated in Section 2, for the consideration provided in Section 3, the
Shares. Share certificates of each of E3 and Media Trust evidencing Seller's
ownership of the Shares (duly endorsed for transfer to Seller and with all
necessary transfer tax stamps affixed), shall be delivered to Purchaser free and
clear of all liens, pledges and encumbrances of every kind, character and
description whatsoever.
2 Date, TIME and Place of Closing.
2.1 The Closing shall be held at the offices of Watson, Farley & Williams, New
York, on such time and date on or prior to March 31, 1998 as may be mutually
agreed by Seller and Purchaser.
3 Purchase Price.
3.1 In consideration for Seller's transfer and sale of the Shares to Purchaser,
Purchaser shall: (a) Deliver to Seller at Closing two promissory notes, one in
the amount of Three Hundred and Fifteen Thousand United States Dollars (U.S.
$315,000)(the "Media Trust Note") and one in the amount of One Hundred and
Thirty-Five Thousand United States Dollars (U.S. $135,000)(the "E3 Note," and
collectively with the Media Trust Note, the "Notes"), which Notes shall contain
the following terms:
(i) the entire principal amount, together with any interest thereon shall
be paid twelve months after the date of issuance, and shall bear interest at a
rate of (a) 8% for the first three month period, (b) 12% for the second three
month period, (c) 16% for the third three month period and (d) 20% for the final
three month period; and
(ii) any outstanding amount of principal and interest may be prepaid, in
whole or in part, at any time without penalty.
4 Representations and Warranties of Seller.
Seller represents and warrants to Purchaser that the following is true and
correct as of the date hereof:
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4.1 Seller is the lawful owner of the Shares of common stock of each of E3 and
Media Trust described in the first and second recitals of this Agreement, free
and clear of all liens, encumbrances, restrictions and claims of every kind.
Seller has full legal right, power and authority to enter into this Agreement
and to sell, assign, transfer and convey the Shares pursuant to this Agreement
and the delivery to Purchaser of the Shares pursuant to the provisions hereof
will transfer to Purchaser good and marketable title thereto, free and clear of
all liens, encumbrances, restrictions and claims of every kind. No other person
has any agreement, right or option to acquire the Shares, and there are no
actions, suits, or proceedings pending, or to the knowledge of Seller,
threatened against or affecting Seller's ownership of the Shares.
4.2 Seller is a corporation duly organized, validly existing and in good
standing (to the extent such concept exists) under the laws of Luxembourg.
Seller has all necessary corporate power and authority to execute and deliver
this Agreement, and to carry out the transactions contemplated hereby to be
performed by it. This Agreement has been duly authorized, executed and delivered
by Seller and is the legal, valid and binding obligation of Seller, enforceable
in accordance with its terms except as the enforcement thereof may be limited by
bankruptcy and other laws of general application relating to creditors' rights
or general principles of equity.
4.3 The execution and delivery of this Agreement by Seller and the consummation
by Seller of the transactions contemplated hereby will not: (i) violate any
provision of the organizational documents of Seller, (ii) violate any statute,
ordinance, rule, regulation, order or decree of any court or governmental or
regulatory authority applicable to Seller, (iii) require any filing with, or
permit, consent or approval of, or the giving of any notice to, any governmental
or regulatory authority, or (iv) except as would not have a material adverse
affect on its ability to consummate the transactions contemplated hereby, result
in a violation or breach of, conflict with or constitute a default under, any of
the terms, conditions, or provisions of any material agreement or instrument or
other obligation to which Seller is a party.
4.4 E3 is a corporation duly organized, validly existing and in good standing
under the laws of the State of New Mexico. Media Trust is a corporation duly
organized, validly existing and in good standing under the laws of Belgium. Each
of E3 and Media Trust has the power to own its property and to carry on its
business as now being conducted. Each of E3 and Media Trust is duly qualified to
do business and is in good standing in the jurisdictions in which the character
or location of the properties owned or leased by them or the nature of the
business conducted by them makes such qualification necessary.
4.5 Neither E3 nor Media Trust has made any assignment for the benefit of
creditors nor has it filed or had filed against it, any bankruptcy,
reorganization or insolvency proceedings or other proceedings relating to the
relief of creditors.
4.6 There are no actions, suits or proceedings pending or threatened against or
affecting E3 or Media Trust at law or in equity or before or by any court or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign; and neither E3 nor Media Trust is in
default with respect to any order, writ, injunction or decree of any court or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
4.7 Each of E3 and Media Trust owns outright all the respective properties and
assets, tangible and intangible, of every nature and description used in its
business, all free and clear of all liens, claims and encumbrances of any nature
whatsoever.
4.8 Seller is not aware of any fact, condition, contingency, occurrence or any
other situation whatsoever relating to the business of E3 or Media Trust which
is reasonably likely to have a material adverse affect on either the business or
business prospects of either entity.
4.9 The sale of the Shares does not transfer control (or any indicia thereof) of
either E3 or Media Trust to Purchaser. The Shares do not represent control of
either of E3 or Media Trust. For purposes of this Section 4.9, "control" shall
have the meaning provided in Rule 405 promulgated under the Securities Act of
1933, as amended.
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5 Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller that:
5.1 Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of Nevada. Purchaser has all necessary corporate power
and authority to execute and deliver this Agreement, and to carry out the
transactions contemplated hereby to be performed by it. This Agreement has been
duly authorized, executed and delivered by Purchaser and is the legal, valid and
binding obligation of Purchaser, enforceable in accordance with its terms except
as the enforcement thereof may be limited by bankruptcy and other laws of
general application relating to creditors' rights or general principles of
equity.
5.2 The execution and delivery of this Agreement by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby will not: (i)
violate any provision of the organizational documents of Purchaser, (ii) violate
any statute, ordinance, rule, regulation, order or decree of any court or
governmental or regulatory authority applicable to Purchaser, (iii) require any
filing with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory authority, or (iv) except as would not have a
material adverse affect on its ability to consummate the transactions
contemplated hereby, result in a violation or breach of, conflict with, or
constitute a default under, any of the terms, conditions, or provisions of any
material agreement, instrument or other obligation to which Purchaser is a
party.
6 Covenants of SELLER.
6.1 Seller covenants and agrees unto Purchaser that from the date hereof up to
and including the date of Closing, Seller shall not take any action, or by
inaction permit any action to be taken or event to occur, which would cause any
representation or warranty made by Seller in or pursuant to Section 4 of this
Agreement to be untrue as of the Closing Date.
6.2 Seller shall use all reasonable efforts, and take all such actions as may be
reasonably necessary or appropriate, to cause the satisfaction of all conditions
referred to in Section 8 of this Agreement and the consummation of the
transactions contemplated by this Agreement. Seller shall cooperate in good
faith with Purchaser in Purchaser's efforts to cause the satisfaction of the
conditions referred to in Section 8 of this Agreement.
7 COVENANTS OF PURCHASER.
7.1 Purchaser covenants and agrees unto Seller that from the date hereof up to
and including the date of Closing, Purchaser shall not take any action, or by
inaction permit any action to be taken or event to occur, which would cause any
representation or warranty made by Purchaser in or pursuant to Section 5 of this
Agreement to be untrue as of the Closing Date.
7.2 Purchaser shall use all reasonable efforts, and take all such actions as may
be reasonably necessary or appropriate, to cause the satisfaction of all
conditions referred to in Section 9 of this Agreement and the consummation of
the transactions contemplated by this Agreement. Purchaser shall cooperate in
good faith with Seller in Seller's efforts to cause the satisfaction of the
conditions referred to in Section 9 of this Agreement.
8 Conditions of Closing - Seller.
8.1 The obligation of Seller to consummate the transactions contemplated by this
Agreement are subject to the following conditions precedent having been
satisfied on or prior to the Closing Date:
(a) Purchaser shall have delivered to Seller the Notes as provided under
Section 3.1(a) of this Agreement.
(b) All the terms, covenants and conditions of this Agreement required to
be complied with and satisfied by Purchaser at or prior to the Closing Date
shall have been fully satisfied in all material respects.
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(c) The representations and warranties of Purchaser set forth in Section 5
shall be true and correct on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date, and Seller shall have received a certificate from an officer of
Purchaser to such effect.
(d) Seller shall have received from Purchaser true and complete copies of
resolutions of Purchaser's Board of Directors approving this Agreement and the
transactions contemplated hereby, certified by Purchaser's Secretary.
(e) No statute, rule or regulation or order, decree or judgment of or in
any court or tribunal of competent jurisdiction shall be in effect that
prohibits Seller from consummating the transactions contemplated hereby.
(f) All consents, approvals, orders or clearances of any governmental or
regulatory authority, the granting of which is required for the consummation of
the transactions contemplated hereby, shall have been obtained and all waiting
periods specified under applicable law the expiration of which is necessary for
such consummation shall have passed.
All of the conditions precedent contained in this Section 8.1 are
for the sole benefit of Seller and Seller may waive any or all of them in its
sole discretion.
9 Conditions of Closing - Purchaser.
9.1 The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the following conditions precedent
having been satisfied at or prior to the Closing Date:
(a) Seller shall have tendered to Purchaser the Shares in the manner
provided under Section 1 of this Agreement. If requested by Purchaser, Seller
shall have done, executed, acknowledged, and delivered to Purchaser all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney and
instruments, whether from Seller or from third parties, as Purchaser in its sole
discretion may deem necessary or desirable to convey and transfer to and vest in
Purchaser all of the right, title and interest in and to the Shares.
(b) All the terms, covenants and conditions of this Agreement required to
be complied with and satisfied by Seller at or prior to the Closing Date shall
have been satisfied in all material respects.
(c) The representations and warranties of Seller with respect to itself, E3
and Media Trust set forth in Section 4 hereof shall be true and correct on and
as of the Closing Date with the same force and effect as if such representations
and warranties had been made on and as of the Closing Date and Purchaser shall
have received a certificate from an officer or managing director of Seller
certifying to such effect.
(d) Purchaser shall have received from Seller true and complete copies of
(i) resolutions of its Board of Directors or equivalent governing body,
approving this Agreement and the transactions contemplated hereby.
(e) Purchaser shall have been provided (a) a certificate from an officer of
E3, and (b) a certificate from an officer or managing director of Media Trust,
certifying that such person maintains the stock and transfer records of the
respective entity and declares that the Shares being sold to Purchaser represent
18% of the outstanding capital stock of each such entity.
(f) No statute, rule or regulation or order, decree or judgment of or in
any court or tribunal of competent jurisdiction shall be in effect that
prohibits Purchaser from consummating the transactions contemplated hereby.
(g) All consents, approvals, orders or clearances of any governmental or
regulatory authority, the granting of which is required for the consummation of
the transactions contemplated hereby, shall have been obtained and all waiting
periods specified under applicable law the expiration of which is necessary for
such consummation shall have passed.
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All of the conditions precedent contained in this Section 9.1 are for the
sole benefit of Purchaser and Purchaser may waive any or all of them in its sole
discretion.
10 Survival of Representations and warranties; Indemnities.
10.1 The respective representations and warranties of Seller and Purchaser
contained in this Agreement or in any Schedule attached hereto shall survive the
purchase and sale of the Shares pursuant to this Agreement until the first
anniversary of the Closing Date, except the warranties of title and "free and
clear" ownership, which shall continue to survive.
10.2 Seller agrees to indemnify and hold Purchaser and Purchaser's
officers, directors and agents harmless from any and all damages, losses or
expenses (including, without limitation, reasonable attorneys' fees and
expenses) in the aggregate ("Losses"), suffered or paid, directly or indirectly,
through application of E3's, Media Trust's or Purchaser's assets or otherwise,
as a result of or arising out of the failure of any representation or warranty
made by Seller in this Agreement to be true and correct in all respects as of
the date of this Agreement and as of the Closing Date; provided, however, that
the total aggregate amount indemnified under this Section 10.2 for any such
Losses shall not exceed $500,000.
10.3 Purchaser agrees to indemnify and hold Seller and Seller's officers,
directors and agents harmless from any Losses suffered or paid, directly or
indirectly, as a result of or arising out of the failure of any representation
or warranty made by Purchaser in this Agreement to be true and correct in all
respects as of the date of this Agreement and as of the Closing Date; provided,
however, that the total aggregate amount indemnified under this Section 10.3 for
any such Losses shall not exceed $500,000.
10.4 If any claim or demand is made, or any suit or proceeding (including,
without limitation, an audit by any taxing authority) is instituted, against any
person which, if valid or prosecuted successfully, would entitle any person (an
"Indemnified Party") to indemnification under this Agreement (a "Claim"), such
Indemnified Party shall promptly notify the other party (the "Indemnifying
Party") in writing thereof. The Indemnifying Party may, at its own cost and
expense, and at its sole option, assume the defense of such Claim or participate
either directly or through its counsel, which shall be reasonably acceptable to
the Indemnified Party, with the Indemnified Party in the resolution, by
litigation or otherwise, of any Claim. The Indemnified Party agrees to cooperate
with the Indemnifying Party in determining the validity of any Claim or
assertion of any Losses. The Indemnifying Party shall not consent to a
settlement of, or the entry of any judgment arising from, any such Claim or
legal proceedings, without the prior written consent of the Indemnified Party
(which consent shall not be unreasonably withheld) except for settlements solely
for the payment of money. Indemnified Party shall be entitled to participate in
(but not control) the defense of any such claim or legal proceeding, with its
own counsel and at its own expense, provided however, that if Purchaser is in
the position of Indemnified Party as a result of the failure of any
representation or warranty made by Seller in this Agreement to be true and
correct in all respects as of the date of this Agreement and as of the Closing
Date, Purchaser shall have the right to offset amounts due under the Notes from
the total amount due by Seller as Indemnifying Party pursuant to this Section
10.4.
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11 MISCELLANEOUS
11.1 Expenses. Except as otherwise specifically provided in this Agreement, the
parties hereto shall each pay all costs and expenses of their respective
performance of, and compliance with, the terms and conditions of this Agreement
and all documents contemplated hereby, including all fees of counsel. 11.2
Publicity. Except as otherwise required by law, none of the parties hereto shall
issue any press release or make any other public statement, in each case
relating to, connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the other party to the
contents and the manner of presentation and publication thereof. 11.3 Notices.
Any and all notices or communications given hereunder to any party may be sent
by registered or certified mail (postage prepaid), telefacsimile or telex to the
recipient at the address set forth below. All such communications shall be
deemed given upon dispatch.
To Seller:
Flanders Film S.A.
39 route de Remick
L-5650 Mondorf-les-Bains
Grand-Duchy of Luxembourg
011-352-677-310
fax 011-352-677-311
To Purchaser:
Odyssey Pictures Corporation
1875 Century Park East
Los Angles, California 90067
310-229-2430
fax 310-229-2434
Any party may change its address for purposes of this paragraph by
giving notice of such change to any other party in the manner provided above.
11.4 Governing Law; Jurisdiction.
(a) This Agreement shall be governed and construed in accordance with the
laws of New York.
(b) In relation to any dispute arising out of or in connection with this
Agreement, each of the parties hereto irrevocably and unconditionally submits to
the jurisdiction of New York and waives any objection to proceedings with
respect to this Agreement in such Courts on the grounds of venue or inconvenient
forum. Purchaser irrevocably and unconditionally appoints Howard Kerker, Esq.,
and Seller irrevocably and unconditionally appoints Watson, Farley & Williams,
as its respective agent for service of process in respect of proceedings before
such Courts (and each agrees that service on such agent shall be deemed due
service for the purposes of proceedings in such Courts).
11.5 Benefit. This Agreement shall be binding upon and inure to the benefit
of all the parties hereto, and their respective successors and assigns.
11.6 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, and such counterparts shall together
constitute but one and the same instrument.
11.7 Captions and Severability. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of the provisions hereof. If any provision of this Agreement or the
application thereof shall to any extent, be determined to be invalid,
unenforceable or contrary to law, the validity of the remaining provisions of
this Agreement shall in no way be affected thereby and shall be enforceable to
the fullest extent possible.
11.8 Amendment and Assignment. This Agreement, including the Exhibits and
Schedules attached hereto, constitutes the entire agreement of the parties with
respect to this transaction and may not be amended, modified or changed in any
manner except upon the written consent of the parties hereto. This Agreement may
not be assigned except upon the written consent of Purchaser and Seller.
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11.9 Termination of Agreement. If any precondition to the completion of the
transactions contemplated hereby is not fulfilled on or prior to March 31, 1998,
this Agreement shall be null and void and have no further force or effect.
11.10 Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have caused their respective
duly authorized officers or representatives to execute this Agreement as of the
date first mentioned above.
FLANDERS FILM S.A.
By: __________________________
Name: Johan Schotte
Its:
ODYSSEY PICTURES CORPORATION
By: /s/ Stephen Greenwald
-------------------------
Name: Stephen R. Greenwald
Its: Chief Executive Officer
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Odyssey Pictures Corporation
1875 Century Park East
Suite 2130
Los Angeles, CA 90067
March 2, 1998
Mr. Stephen R. Greenwald
380 Lexington Avenue
New York, New York 10168
Dear Mr. Greenwald:
Reference is made to your Agreement with Odyssey Pictures Corporation
(f/k/a Communications and Entertainment Corp.), dated March 6, 1996, as amended
by a letter agreement dated September 23, 1997, pursuant to which you agreed to
serve in the capacity of co-chairman in the Office of the Chairman of the
Company, and as Chief Executive Officer of the Company, through October 1, 2000
(the "Agreement"). All terms not otherwise defined herein shall have the
respective meanings ascribed to such terms as set forth in the Agreement. The
Agreement is hereby amended in the following respects:
(1) Section 1 of the Agreement, relating to the Term of the Agreement, is
hereby amended to provide that the Term of the Agreement shall expire on
December 31, 1999.
(2) Section 2 of the Agreement, relating to the services to be performed
under the Agreement, is hereby amended in the following respects:
(a) During the remainder of the Term of the Agreement (i.e.,
from the date hereof through December 31, 1999), you agree to serve in the
capacity of managing director of the Company, or in such other capacity as shall
reasonably be assigned to you by the Board of Directors of the Company from time
to time.
(b) You shall report directly to the Chief Executive Officer
of the Company and shall be responsible for such duties with respect to the
business, financial and legal affairs of the Company as shall be reasonably
assigned to you from time to time by the Chief Executive Officer of the Company.
You shall be required to devote such time to the performance of your duties as
may be reasonably required by the Board of Directors and Chief Executive Officer
of the Company from time to time, it being understood, however, that you will be
permitted to devote a portion of your time to other business interests and
activities.
(3) Commencing as of January 1, 1998, and continuing throughout the
remainder of the term of the Agreement (i.e., through December 31, 1999), you
shall be entitled to the following compensation and payments (in lieu of the
compensation set forth in Sections 5.1 and 5.2 of the Agreement):
(a) In consideration of serving as managing director of the
Company, you shall be entitled to compensation in the aggregate amount of
$130,000 for the period from January 1, 1998 through December 31, 1999, payable
at the rate of $2,500 per month during the four month period from January 1,
1998 through April 30, 1998, and at the rate of $6,000 per month during the
period from May 1, 1998 through December 31, 1999.
(b) In consideration of your executing this amendment to the
Agreement, thereby shortening the term of the Agreement and substantially
reducing your compensation under the Agreement, you shall be entitled to an
additional fee of $130,000, payable at the rate of $2,500 per month during the
four month period from January 1, 1998 through April 30, 1998, and at the rate
of $6,000 per month during the period from May 1, 1998 through December 31,
1999.
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(c) All installments due under subparagraphs (a) and (b) above
shall be paid on the fifteenth day of the respective month.
(d) In the event the Company defaults in the payment of any
installment due under subparagraphs (a) and (b) above (other than with respect
to the payments due during the four month period from January 1, 1998 through
April 30, 1998), and such default continues for a period of 30 days from the
date such payment was due, then (i) the provisions of Sections 5.1 and 5.2 of
the Agreement shall be reinstated retroactively to January 1, 1998, and you
shall be entitled to the compensation provided therein (together with any
conversion rights applicable thereto) as if said provisions of the Agreement
were never superseded by the provisions of this letter agreement, and (ii) the
Company shall assign to you all of its right, title and interest, both tangible
and intangible, in and to the movie project known as "King Lear", including all
rights, agreements, contracts, commitments and related undertakings in
connection therewith, and you shall grant to the Company a participation
interest therein equal to 50% of the producers' share of the net profits from
the film (net profits being equal to gross revenues of the film less all costs
of production and distribution and third party participations).
(4) Except as modified herein, the Agreement shall remain in full force
and effect in accordance with its terms.
If the foregoing is acceptable to you, please indicate your consent in
the space provided below.
Odyssey Pictures Corporation
By: /s/ Johan Schotte
--------------------------
Johan Schotte, CEO
Accepted and Agreed:
/s/ Stephen R. Greenwald
- ------------------------
Stephen R. Greenwald
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Odyssey Pictures Corporation
1875 Century Park East, Suite 2130
Los Angeles, California 90067
March 2, 1998
Mr. Ira N. Smith
49 Woodland Drive
Oyster Bay, New York 11771
Dear Mr. Smith:
Reference is made to your agreement with Odyssey Pictures Corporation,
f/k/a Communications and Entertainment Corp. (the "Company"), dated March 6,
1996, as amended by a letter agreement dated September 23, 1997 (the agreement,
as amended, being hereinafter referred to as the "Agreement").
Effective as of the date of this letter agreement (the "Termination
Date"), you agree that the Agreement shall be cancelled and of no further force
and effect. You further agree to waive any rights to compensation which may have
accrued under the Agreement during the period from January 1, 1998 through the
Termination Date, it being understood that all financial obligations of the
Company under the Agreement which accrued through December 31, 1997 shall
survive the termination of the Agreement as provided herein.
In consideration of your consenting to the cancellation of the
Agreement as of the Termination Date, and waiving certain rights which had
accrued under the Agreement during the period from January 1, 1998 through the
Termination Date, the Company hereby agrees to pay to you (or to your assignee,
S.F.H. Associates, Inc., at your election) severance salary payments at the rate
of $5,000 per month during the four month period from January 1, 1998 through
April 30, 1998, and at the rate of $4,000 per month during the twenty-month
period from May 1, 1998 through December 31, 1999, all payments to be made on
the fifteenth day of each month. In the event of a default by the Company with
respect to any payment due on or after May 15, 1998, which default continues for
a period of thirty days thereafter, then in addition to any other rights and
remedies available to you, the severance salary payable hereunder shall increase
to the sum of $8,000 per month from the date of such default and the payment
term of this agreement shall be extended for an additional twelve month period
through December 31, 2000.
If the foregoing accurately sets forth our understanding, please
indicate your approval by signing in the space provided below.
Odyssey Pictures Corporation
By:/s/ Johan Schotte
----------------------
Johan Schotte, CEO
ACCEPTED AND AGREED:
/s/ Ira N. Smith
- -------------------
Ira N. Smith
3/16/98
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CONSULTING AGREEMENT
AGREEMENT, made as of the 2nd day of March, 1998, by and
between Odyssey Pictures Corporation, a Nevada corporation having a principal
place of business at 1875 Century Park East, Los Angeles, California 90067 (the
"Company"), and S.F.H. Associates, Inc., a New York corporation having a
principal place of business at 49 Woodland Drive, Oyster Bay, New York 11771
("Consultant").
WHEREAS, Consultant has agreed to assign the services of
Ira N. Smith with respect to the services to be provided hereunder; and
WHEREAS, the Company desires to retain the services of
Consultant for a specified period of time, and Consultant desires to be so
retained, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth herein, the parties hereto agree as follows:
1. For a term commencing on the date hereof and continuing
through December 31, 1999 (the "Term"), the Company agrees to retain the
services of Consultant to provide such consulting services as shall be mutually
agreed to from time to time by Consultant and the Company with respect to the
financial, business and legal aspects of the Company's business. In particular,
Consultant shall be available to advise and consult with the Company regarding
short-term and long-term financing needs for the Company's business and the
Company's preparation of business plans and strategies in connection therewith.
Consultant shall also be available to consult with the Company regarding
existing litigation of the Company.
2. Consultant shall make its services available to the Company
for up to a maximum of 15 hours per week, and nothing contained herein shall be
deemed to relieve the Company from its obligations to make all required payments
to Consultant or to discharge its other obligations hereunder if the Company
shall fail or refuse, for any reason whatsoever, to require or avail itself of
the consulting services made available herein by Consultant. Consultant shall
not be required to render any consulting services to the Company unless
specifically requested to do so in accordance with the terms hereof, and
Consultant shall be deemed to have fully discharged its obligations hereunder
after devoting such 15 hours per week or such lesser time as shall be required
or requested by the Company if such be the case. Consultant shall not be
required to render any written reports in connection with the services to be
performed hereunder. If the Company shall conduct itself in accordance with the
advice and counsel of Consultant it shall do so at its own risk. Consultant
shall make its services available in New York City if required to meet in
person, or otherwise by telephone or other electronically transmitted means at
its reasonable convenience. In the event Consultant's services are required
outside of the New York metropolitan area, Consultant shall provide such
services as its schedule reasonably permits. All travel and related expenses
shall be advanced to Consultant.
3. The Company shall make available to Consultant all relevant
books, records, reports, information, assistance and facilities as Consultant
may request in the performance of its services hereunder, all at the expense of
the Company and at the times and places as shall be mutually agreeable to the
parties. Consultant is further authorized to incur reasonable expenses for the
discharge of Consultant's duties hereunder and the Company shall reimburse
Consultant for such expenses promptly upon presentation of an itemized account
of such expenditures. In addition, the Company shall continue to pay the lease
payments on its existing lease for a 1996 BMW automobile, Registration No.
WBAGJ8325VDM00222, at the rate of $950 per month, expiring on September 30,
1999.
4. With respect to the services to be performed by Consultant
hereunder, Consultant agrees to provide the services of Ira N. Smith, former
President and Co-Chairman in the Office of the Chairman of the Company ("Smith")
in connection with the discharge of Consultant's obligations under this
Agreement.
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5. For all services to be provided by Consultant hereunder,
the Company shall pay to Consultant the aggregate sum of $160,000, payable at
the rate of $8,000 per month, without withholding, commencing May 15, 1998 and
continuing on the fifteenth day of each of the next succeeding 19 months
thereafter. The Company shall be obligated to continue making such payments to
Consultant notwithstanding the death or disability of Smith prior to the end of
the Term hereof. In the event of a default by the Company with respect to any
payment due hereunder, which default continues for a period of thirty days
thereafter, then in addition to any other rights and remedies available to
Consultant, the consulting fees payable hereunder shall increase to the sum of
$16,000 per month from the date of such default and the term of this agreement
shall be extended for an additional twelve month period through December 31,
2000.
6. At all times during the Term of this Agreement the
relationship between Consultant and the Company shall be one of independent
contractor and not one of employer and employee. Neither Consultant nor its
employees shall have authority to bind the Company unless such authority is
specifically granted by the Chief Executive Officer or by the Board of Directors
of the Company from time to time.
7. Consultant acknowledges that the services to be rendered by
it under this Agreement are special and unique, and that by reason of such
services it will acquire confidential information and trade secrets relating to
the Company. Consultant agrees that all information relating to the business of
the Company which is of a secret or confidential nature, including the Company's
data bases, proprietary programs, contractual terms, financial information,
administrative procedures, negotiations with third parties and strategic,
financial and business plans, is and shall remain the sole property of the
Company, and that Consultant shall not, either during the Term of this Agreement
or thereafter, disclose or use for its benefit or for the benefit of third
parties, any such information so long as it is secret and non-public or
otherwise not in the public domain, without the knowledge and approval of the
Company's Board of Directors.
8. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be entirely performed in such State.
9. In the event that any term or condition of this Agreement
shall for any reason be held by a court of competent jurisdiction to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not effect any other term or condition of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable term or condition had never been contained herein.
10. Any modification or amendment to this Agreement will be
effective only if in writing and signed by the parties hereto.
If this agreement accurately sets forth our understanding,
please indicate your approval by signing in the space provided below.
Odyssey Pictures Corporation
By: /s/ Johan Schotte
-----------------------
Johan Schotte, CEO
ACCEPTED AND AGREED:
S.F.H. Associates, Inc.
By: /s/ S.F.H. Associates, Inc
- ------------------------------
Chairman
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AGREEMENT
AGREEMENT made as of the 2nd day of March, 1998, by and
between Odyssey Pictures Corporation, a Nevada corporation having a principal
place of business at 1875 Century Park East, Los Angeles, California 90067 (the
"Company"), and Johann Schotte, residing at ____________________ ("Employee").
WHEREAS, Employee has been elected to the positions of Chief
Executive Officer and Chairman of the Board of the Company at a meeting of the
Board of Directors of the Company held on February 13, 1998; and
WHEREAS, the appointment of Employee to the foregoing
positions is subject to the execution of a formal employment agreement with the
Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Term. The term of this agreement (the "Agreement") shall
commence as of the date hereof (the "Effective Date") and shall continue in
effect until December 31, 1999, unless otherwise extended or earlier terminated
in accordance with the provisions hereof (the "Term").
2. Services. During the Term, Employee agrees to serve the
Company in the capacities of Chairman of the Board and as Chief Executive
Officer of the Company ("CEO"). Employee agrees to devote his full time,
attention and energies to the performance of the following duties, and such
other duties and requirements as may be reasonably assigned to Employee by the
Board of Directors of the Company from time to time:
(a) Working to create and develop a strategic plan to define
and implement the Company's objectives and, in connection therewith, to create
viable action, business and financial plan which will provide the Company with a
sound program to achieve its objectives;
(b) Developing ancillary businesses and strategies to
complement and diversify the Company's film distribution business;
(c) With respect to the activities of the CEO, assuming the
overall organizational, business and operating responsibilities of the Company;
and
(e) Performing such other duties as may be reasonably
requested by the Board of Directors of the Company from time to time, including,
but not limited to, services on behalf of any subsidiary or affiliate of the
Company.
3. Location. Employee shall perform his duties hereunder
primarily in Luxembourg; provided, however, that Employee shall be available for
travel throughout the United States and the rest of the world at such times as
such travel shall appear in the reasonable judgment of Employee to be in the
best interests of the Company. Any such travel shall be for the benefit of the
Company and at the Company's sole cost and expense. Although Employee shall be
permitted to travel first class on all air travel required in connection with
the performance of his duties for the Company, Employee will make every
reasonable effort to fly business class whenever practical.
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4. Confidentiality. Employee acknowledges that the services to
be rendered by him under this Agreement are special and unique, and that by
reason of such services he will acquire confidential information and trade
secrets relating to the Company. Employee agrees that all information relating
to the business of the Company which is of a secret or confidential nature,
including the Company's data bases, proprietary programs, contractual terms,
financial information, administrative procedures, negotiations with third
parties and strategic, financial and business plans, is and shall remain the
sole property of the Company, and that Employee shall not, either during the
Term of this Agreement or thereafter, disclose or use for his benefit or for the
benefit of third parties, any such information so long as it is secret and
non-public or otherwise not in the public domain, without the knowledge and
approval of the Company's Board of Directors.
5. Compensation. In consideration of the services to be
rendered by Employee hereunder during the Term of this Agreement, the Company
shall pay to Employee an annual base salary at the rate of $150,000 per year
(retroactive to January 1, 1998), payable at the rate of $5,000 per month during
the period from January 1, 1998 through April 30, 1998, and at the rate of
$14,000 per month during the period from May 1, 1998 through December 31, 1999.
Payments to Employee hereunder shall be made in accordance with the regular
payroll practices of the Company.
6. Reimbursement of Expenses. Employee shall be reimbursed for
all expenses reasonably incurred by him in connection with the performance of
his duties on behalf of the Company, upon presentation to the Company of
appropriate documentation and receipts therefor. The Company may, from time to
time, advance travel and related expenses to Employee in connection with the
performance of his duties hereunder.
7. Benefits. Employee shall be entitled to participate in any
medical, dental, hospitalization, disability and/or pension and profit sharing
plans, upon the same terms and subject to the same qualifications, as those
presently made available to the Company's other senior officers.
8. Vacation. Employee shall be entitled to four weeks of paid
vacation each year during the Term of this Agreement, to be taken at such time
or times as shall be mutually agreeable to Employee and the Company.
9. Earlier Termination. Notwithstanding the provisions of
Paragraph 1 hereof, the Term may be earlier terminated by the Company "for
cause" upon the occurrence of any of the following events ("Earlier
Termination"): (a) Employee's death, (b) Employee's inability by reason of
physical or mental disability to continue to substantially perform his duties
for a period of 120 consecutive days or for an aggregate of 180 days in any
consecutive twelve month period, (c) Employee's conviction for a criminal act
involving fraud, dishonesty or moral turpitude, (d) Employee's commission of an
act of embezzlement or misappropriation of funds or property of the Company, (e)
chronic alcoholism or drug use after refusing treatment, (f) habitual
absenteeism without medical documentation, (g) engaging in conduct that is
detrimental to the business or reputation of the Company, its subsidiaries and
affiliates after having been provided written notice from the Company
instructing Employee to cease such conduct, and/or (h) in the event of a
material breach of this Agreement by Employee which is not cured within thirty
(30) days following the Company's written notice to Employee of such material
breach. In the event of Earlier Termination pursuant to subparagraph (a) or (b)
of this Paragraph 9, Employee or his estate shall be entitled to receive
continued compensation hereunder for the greater of twelve months following the
date of such Earlier Termination or the balance of the Term. In all other
instances of Earlier Termination under this Paragraph 9, Employee shall be
entitled to receive continued compensation hereunder for a period of ninety (90)
days following the date of such Earlier Termination.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be entirely performed in such State.
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11. Severability. In the event that any term or condition of
this Agreement shall for any reason be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not effect any other term or condition of
this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable term or condition had never been contained herein.
12. Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties with respect to the subject
matter hereof, and supersedes all previous agreements, arrangements and
understandings between the parties. Any modification or amendment to this
Agreement will be effective only if in writing and signed by the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by
each of the parties as of the date and year first above written.
Odyssey Pictures Corporation
By: /s/ Stephen R. Greenwald
----------------------------
Stephen R. Greenwald
By: /s/ Johan Schotte
----------------------------
Johann Schotte
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ASSET PURCHASE AGREEMENT
This Agreement is dated this 14th day of July, 1998, by and between
Odyssey Pictures Corporation, a Nevada corporation ("Odyssey" or "Purchaser")
and KimonMediaright Kommanditbolag, a Swedish limited partnership ("Kimon" or
"Seller"), and is hereinafter referred to as the "Agreement".
I
RECITALS
A. The Board of Directors of Odyssey has approved the purchase of the
film and video business run by Kimon as contained and described more fully in
Exhibit "A" hereto (incorporated herein by this reference). The transfer of the
Kimon contract with Hallmark Entertainment must be approved by Hallmark
Entertainment before this transaction will be complete and binding.
B. Seller and Purchaser have reviewed this Agreement and any documents
delivered pursuant hereto and have taken such additional steps and reviewed such
additional documents and information as deemed necessary to make an informed
decision to sell the assets/business above.
C. Each of the parties hereto desires to make certain representations,
warranties and agreements in connection herewith and also to describe certain
conditions hereto.
II
AGREEMENT
Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Purchase Price and Terms: The purchase price of this transaction is
four million five hundred thousand dollars ($4,500,000.00) payable as follows:
Seller will receive four million five hundred thousand (4,500,000)
shares of subordinated convertible preferred shares, Series B, in Purchaser,
having a par value of $.10 per share as required by Odyssey's Certificate of
Incorporation, but having a value of $1.00 per share for purposes of conversion.
Seller shall be able to convert the convertible preferred shares into common
stock in Purchaser between June 30, 2000 and December 31, 2000, on the date the
conversion notice is received by Purchaser by facsimile, telegram, personal
delivery, overnight mail or other transmission. The conversion shall take place
on a dollar-for-dollar basis at the average closing ask price for the twenty
(20) trading days prior to conversion. The conversion notice shall be signed by
a duly authorized officer of Seller. If the conversion takes place in December
of the year 2000, Kimon will receive an extra ten percent premium in the number
of common shares it receives in the conversion. Conversion maybe segmented or
all-at-once at Seller's option.
The convertible preferred shares shall be issued in the name of
KimonMediaright Kommanditbolag. All sums calculated herein are in United States
currency. All securities certificates shall be delivered on the Closing Date
herein.
2. Assets Purchased. The assets purchased hereby are contained within
Exhibit "A" to this agreement, which exhibit is incorporated herein by this
reference. Title to the assets so purchased shall be transferred from Seller to
Purchaser on the date of closing of this transaction.
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3. Private Placement of Restricted Securities: The parties hereto
understand and agree that the Odyssey securities purchased hereby are not being
offered or sold pursuant to a registration statement under applicable federal
and state securities law. There is currently no public market for the securities
being transferred hereby and there can be no guarantee from or promise of
Odyssey, except as provided in this Agreement, that any such public market will
ever develop in the stock of Odyssey. The Odyssey stock being transferred hereby
is restricted stock and cannot be re-sold without registration under applicable
securities law or pursuant to an exemption from such registration. Therefore,
Seller must bear the economic risk of an investment in Odyssey for an indefinite
period of time.
a. Until (and if) registered under applicable securities laws,
the following legend will be placed on the Odyssey shares certificate(s) issued
hereby:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF A CURRENT AND EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT WITH RESPECT TO SUCH SHARES, OR AN OPINION OF THE PURCHASER'S
COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER'S COUNSEL, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THE RIGHT OF THE HOLDER HEREOF TO EFFECT THE PUBLIC SALE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE LIMITED BY A CERTAIN
AGREEMENT DATED JUNE 30, 1998 BETWEEN THE ISSUER CORPORATION AND THE ORIGINAL
PURCHASER. SAID AGREEMENT IS AVAILABLE FOR INSPECTION IN THE OFFICES OF THE
ISSUER CORPORATION.
b. Seller represents and warrants that it is an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Act and/or is sophisticated as that term is used within Rule 506 of
Regulation D and is capable of evaluating the merits and risks of investment in
Odyssey securities. Seller is aware that Rule 144 under the Act, to the extent
relevant, permits public sale of restricted securities only upon the
satisfaction of the conditions of the availability of such rule.
c. Seller understands that Odyssey is the only entity which
may register the shares purchased hereby for public sale and that Odyssey has no
legal obligation to register such shares except as set forth in the Registration
Rights Agreements, a copy of which is attached hereto as Exhibit "B", and which
the parties hereto shall execute on the Closing Date concurrently herewith.
4. Financial Statements: Odyssey agrees to supply to Seller its 1996
Annual Report. It will further supply its 1997 10-K and its unaudited financial
statements for the calendar quarter preceding the effective date of this
Agreement as soon as they are completed.
5. Effective Date: This Agreement shall be effective immediately upon
its execution by all parties hereto.
6. Closing Date: The closing date of this Agreement shall be when the
parties have received notice from Hallmark Entertainment of the assignment of
its agreement with Kimon to Odyssey. Purchaser may cancel this Agreement if such
notice has not been received by August 15, 1998.
7. Preference. The convertible preferred shares to be issued to Seller
hereunder, designated as Preferred Stock, Series B, shall have a preference on
liquidation equal to $1.00 per share, subordinate however to the liquidation
preference of the Preferred Stock, Series A, of Odyssey (in an amount not to
exceed $500,000.00 plus accruals per the terms of the Series A Preferred Shares,
which terms shall not be modified after the date of this Agreement), but senior
to all other classes of preferred stock which may hereafter be issued by Odyssey
and senior in all cases to Odyssey's common stock.
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8. Other Provisions. Odyssey represents and warrants that pursuant to
Rule 144 of the SEC (as presently written) the common shares Seller receives if
and when it converts its preferred shares (received as the purchase price for
this transaction) shall be immediately free trading and unrestricted (subject to
Rule 144 as it would apply to affiliates as applicable), except to the extent of
any agreement with an underwriter or governmental authority that may be in
place, and as reasonably agreed to in advance by Seller (in the case of
underwriter or other non-governmental restrictions).
Odyssey represents and warrants that it will take all reasonable steps
to assist Seller in providing information or consulting services related to
encumbrance of the preferred shares owned by Seller
It is understood and agreed by the parties that this entire agreement
is contingent upon Hallmark Entertainment's reasonable and timely approval (on
or before the closing date hereof) of the transfer of the Kimon/Hallmark
agreement to Purchaser. It is also agreed that Seller will provide financial
statements of Kimon for the 12-month period ending June 30, 1998, or, to the
extent permitted by the SEC, audited financial statements for such period
relating only to the assets being purchased hereunder and the direct operating
expenses thereof. Such statements shall be available as soon as is reasonably
practical.
III.
BUSINESS PLAN
1. Management and Services Agreement: A jointly prepared Management and
Services Agreement in substantially the same form as attached hereto as Exhibit
"C" shall be executed by the parties as soon as is practical, and shall, at that
time, replace the current Exhibit "C" and is incorporated herein at that time by
this reference.
2. Rights to Kimon name: From the closing date through December 31,
1998, Purchaser shall have a royalty-free, non-exclusive license for the use of
the name "Kimon." Said license is non-transferable and cannot be encumbered in
any manner. Violation of this paragraph is ground for immediate revocation of
the license by Seller. Purchaser has the option to purchase the name "Kimon" on
or before December 31, 1998. The purchase price of the name shall be $250,000.00
(U.S.), payable on December 31, 1998 or within three business days of the date
notice of exercise of the option is received by Kimon, whichever date comes
first.
3. Publicity. The parties hereto shall jointly (and reasonably) prepare
any publicity or press release related to this Agreement.
4. Confidentiality. The provisions of this Agreement are confidential
and private and not to be disclosed to outside parties without the express,
advance consent of all parties hereto or by order of a court of competent
jurisdiction. Aggrieved parties may sue for money damages related to a breach of
this paragraph.
5. Internet Joint Venture. The parties shall continue to discuss in
good faith the possibility of a joint venture Internet business.
6. Kimon Audit. Kimon hereby discloses that the Kimon limited partners
are currently undergoing an audit related to Kimon by the Swedish Tax
Government.
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IV.
FURTHER REPRESENTATIONS AND WARRANTIES
1. Odyssey makes the following representations and warranties to
Seller:
a. Odyssey has examined and reviewed this Agreement and any
documents delivered pursuant hereto and has taken such additional steps and
reviewed such additional documents and matters as Odyssey has deemed necessary.
b. That Odyssey is a business corporation in the process of
renewing its good standing in the state of Nevada. Odyssey represents and
warrants that it will complete or diligently pursue this procedure on or before
the closing date of this agreement.
c. Odyssey is authorized to issue up to 40,000,000 shares of
common stock at a par value of $.01 per share. A total of approximately
5,169,285 common shares are presently outstanding. Odyssey is authorized to
issue up to 10,000,000 shares of Preferred Stock at a par value of $.10 per
share in one or more series as the Board of Directors of the Company may
determine. Currently, there are 500,000 shares of Preferred Stock, Series A,
outstanding (plus accruals thereunder of an additional 25,000 shares as of the
date hereof). Pursuant to this Agreement, there will be 4,500,000 shares of
Preferred Stock, Series B, outstanding on the Closing of this Agreement. There
are no other classes of Preferred Stock presently outstanding.
d. The Odyssey Board of Directors has the authority to bind
Odyssey to this Agreement and to authorize its President and Secretary to
execute same.
e. Odyssey, its Directors, Officers and Agents, are aware of
no government consent required to effectuate this Agreement and are further
aware of no conflict of this Agreement with an order of any court or other
tribunal or other agreements of Odyssey with third parties or any default in any
such orders or agreements with third parties that would conflict with this
Agreement.
f. That all information requested by Seller relative to this
Agreement has been provided in good faith by Odyssey and is complete and
accurate to the best of Odyssey's knowledge.
g. That Odyssey owns no operating subsidiaries.
h. That Odyssey has a total of 2,622,093 stock options and
warrants outstanding or issued at an exercise price ranging from $.625 to $18.96
(copies of which have all been made available to Seller as part of the due
diligence disclosure of Purchaser prior to closing), and there are no other
ownership rights or ownership encumbrances of any nature not disclosed prior to
the close of this transaction to Seller.
i. That the financial statements to be provided by Odyssey per
paragraph II 3. above will be complete and accurate to the best of Odyssey's
knowledge and will not materially deviate from a subsequent audit of the same
period.
j. From the time of the first discussions between the parties
relative to the subject matter of this Agreement up to the Closing Date, except
as specifically disclosed herein, there have not been, and shall not be, any
transactions by Odyssey other than those in the ordinary course of business
except for a convertible note financing transaction with the Augustine Fund,
L.P. in the amount of $150,000 (as more fully disclosed by Purchaser in the due
diligence process herewith, prior to closing).
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k. That up through the Closing Date hereof, there are no
undisclosed liabilities or known pending events that would have a materially
detrimental effect on the operational or financial condition of Odyssey, except
as are disclosed to Seller in the due diligence process prior to closing.
l. That the Odyssey shares being acquired by Seller herein
have not been registered under the Securities Act of 1933, as amended, or under
any other federal or state securities laws and are being offered and sold
pursuant to an exemption from such registration.
m. That Odyssey has had the opportunity to ask questions of
and receive answers from Kimon, its Directors, Officers and Agents concerning
this Agreement, Kimon's current financial and operational status and has had all
such questions asked, if any, responded to their satisfaction.
n. Odyssey understands that prior to the Closing Date hereof,
Seller will furnish them with any additional information they desire, to the
extent Kimon possesses such information or can acquire it without unreasonable
expense or effort, necessary to verify any information provided by Kimon at
Odyssey's request.
o. That all information provided by Odyssey to Seller has been
supplied in good faith and is complete and accurate to the best of Odyssey's
knowledge.
p. That Odyssey is not a party to any litigation or regulatory
action or governmental action against or involving it or any other contested
matter in any forum or jurisdiction and does not currently expect to be party to
any such litigation or regulatory action or governmental action or contested
matter against or involving it not disclosed to Seller prior to the close of
this transaction.
q. That the shares issued as consideration for this
transaction will be legal issued, fully paid and non-assessable with no personal
liability attaching thereto.
r. That Odyssey is in the process of or will file all tax
reports and returns required to be filed and will pay all taxes and other
charges due or claimed to be owed by all taxing authorities.
s. That Odyssey has good and marketable title to all its
assets, real and personal, tangible and intangible, including without limitation
all assets and properties included within its financial statements. None of
these assets and properties are subject to any mortgage, lien, pledge,
conditional sale, encumbrance or other charge whatsoever except as disclosed to
Seller and Kimon prior to the close of this transaction. No petition in
bankruptcy has been filed by or against Odyssey nor has any assignment been made
for the benefit of creditors, nor is Odyssey aware of any information that may
lead to any of the above events not disclosed to Seller prior to the close of
this transaction.
t. That Odyssey is not in or about to be in default or in or
about to be in arrears on any material Odyssey transaction or obligation except
as disclosed to Seller prior to the close of this transaction.
u. That Odyssey, its management, employees and agents have not
employed any device, scheme or artifice to defraud or engaged in any act,
practice or course of business which operates or would operate as a fraud or
deceit upon any person or entity in connection with its normal course of
business, the sale of its securities or with respect to the provisions of this
Agreement.
2. Kimon makes the following and further representations and warranties
to Odyssey herein:
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a. Kimon has examined and reviewed this Agreement and any
documents delivered hereto and have taken such additional steps and reviewed
such additional documents and matters as they have deemed necessary.
b. That Kimon is a limited partnership in good standing in
Sweden.
c. That Kimon has the authority to bind itself to this
Agreement.
d. That Kimon is aware of no governmental consent required to
effectuate this Agreement and further that there are no conflicts between this
Agreement with an order of any court or other tribunal or other agreements
between or among Kimon and/or any other third parties. Kimon is further not
aware of any default in any order or agreement between or among Kimon and/or any
third parties.
e. That Kimon owns no subsidiaries except those disclosed in
its financial reports and statements.
f. That Kimon has no partnership interest options or warrants
outstanding or issued, and there are no other ownership rights or ownership
encumbrances of any nature whatsoever pledged, outstanding or issued in or by
Kimon and/or Seller except the Kimon partnership interests owned by Seller.
g. From the time of the first discussions between the parties
relative to the subject matter of this Agreement up to the Closing Date, except
as specifically disclosed herein, there have not been, and shall not be, any
transactions by Kimon other than those in the ordinary course of business.
h. That up through the Closing Date hereof, there are no
undisclosed liabilities or known pending events that would have a materially
detrimental effect on the operational or financial condition of Kimon.
i. That Kimon has had the opportunity to ask questions of and
receive answers from Odyssey, its Directors, Officers and Agents, concerning
this Agreement, Odyssey's current financial and operational status and Odyssey's
proposed plans and operations, and have had all such questions asked, if any,
responded to their satisfaction.
j. That all information provided by Kimon to Odyssey hereunder
has been supplied in good faith and is complete and accurate to the best of
Kimon's knowledge.
k. That Kimon is not a party to any litigation or regulatory
action or governmental action against or involving it or any other contested
matter in any forum or jurisdiction and does not currently expect to be party to
any such litigation or regulatory action or governmental action or contested
matter against or involving it not disclosed to Purchaser prior to the close of
this transaction.
l. That Kimon has duly filed all tax reports and returns
required to be filed thereby and have duly paid all taxes and other charges due
or claimed to be owed by all taxing authorities.
m. That Kimon has good and marketable title to all its assets,
real and personal, tangible and intangible, including without limitation all
assets and properties included within its financial statements. None of these
assets and properties are subject to any mortgage, lien, pledge, conditional
sale, encumbrance or other charge whatsoever. No petition in bankruptcy has been
filed by or against Kimon nor has any assignment been made for the benefit of
creditors, nor is Kimon aware of any information that may lead to any of the
above events. It is understood and agreed by the parties that this entire
agreement is contingent upon Hallmark Entertainment's reasonable and timely
approval of the transfer of the Kimon/Hallmark agreement to Purchaser.
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n. That Kimon is not in or about to be in default or in or
about to be in arrears on any material Kimon transaction or obligation except as
disclosed to Purchaser prior to the close of this transaction.
o. That Kimon, its management, employees and agents have not
employed any device, scheme or artifice to defraud or engaged in any act,
practice or course of business which operates or would operate as a fraud or
deceit upon any person or entity in connection with its normal course of
business, the sale of its securities or with respect to the provisions of this
Agreement.
3. Survival of Warranties and Representations: The parties hereto agree
that all warranties and representations of the parties survive the closing of
this transaction.
V
MISCELLANEOUS PROVISIONS
1. Expenses: Each party shall bear its respective costs, fees and
expenses associated with the entering into or carrying out its obligations under
this Agreement.
2. Indemnification: Any party, when an offending party, agrees to
indemnify and hold harmless the other non-offending parties from any claim of
damage of any party or non-party arising out of any act or omission of the
offending party arising from this Agreement.
3. Notices: All notices required or permitted hereunder shall be in
writing and shall be deemed given and received when delivered in person or sent
by confirmed facsimile, or ten (10) business days after being deposited in the
United States mail, postage prepaid, return receipt requested, addressed to the
applicable party as the address as follows:
Purchaser: Odyssey Pictures Corporation, 1601 Elm Street, Suite 4000,
Dallas, Texas 75201
With a copy to: Howard J. Kerker, Esq., 600 Madison Ave., 22nd Floor,
New York, NY 10022
- --------------
Seller: KimonMediaright Kommanditbolag, Danderyd Campus, Morby Centrum,
182 31 Danderyd, Sweden
With a copy to: Peter J. Wilke, Esq., 11835 W. Olympic Blvd., Suite 1090,
Los Angeles, CA 90064
- --------------
4. Breach: In the event of a breach of this Agreement, ten (10) days
written notice (from the date of receipt of the notice) shall be given. Upon
notice so given, if the breach is not so corrected, the non-breaching party may
take appropriate legal action per the terms of this Agreement.
5. Assignment: This Agreement is assignable only with the written
permission of all concerned parties.
6. Amendment: This Agreement is the full and complete, integrated
agreement of the parties, merging and superseding all previous written and/or
oral agreements and representations between and among the parties, and is
amendable in writing upon the agreement of all concerned parties. All
attachments hereto are deemed to be a part hereof.
7. Interpretation: This Agreement shall be interpreted as if jointly
drafted by the parties. It shall be governed by the laws of the State of
California and the United States applicable to contracts made to be performed
entirely therein.
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8. Enforcement: If a lawsuit is filed to enforce or interpret the terms
of this Agreement, the United States District, Central District of California,
located in Los Angeles, California shall have jurisdiction and be the proper
place of venue. The prevailing party in any such lawsuit shall be entitled to
its reasonable attorney's fee and costs. Any judgment of said court shall be
enforceable any where in the world. If a portion of this Agreement is declared
invalid or void by competent court order, the remainder of this Agreement shall
remain in force to greatest degree practical.
9. Counterparts: This Agreement may be executed in counterparts each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement. Facsimile signatures shall be considered as valid and
binding as original signatures.
10. Board Approval: Authorizing resolutions of Odyssey and Kimon are
attached hereto as exhibits "D" and "E", respectively.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first written above.
PURCHASER:
Odyssey Pictures Corporation
---------------------------
Its President
ATTEST:
- -------------------------
Its Secretary
SELLER:
KimonMediaright Kommanditbolag
Svenska Kimon Aktiebolag, General Partner
--------------------------
__________________ of the General Partner
ATTEST:
- -------------------------
its:______________________
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Exhibit A -Purchased Assets
1 Cash and Bank SEK 17 095
2 Prepaid Expenses and Accrued Income SEK 1 005 572
3 Other Short Term Receivables SEK 291 146
4 Valuation Key SEK 2 000 000
5 Hallmark SEK 16 000 000
6 Video and TV Scandinavia SEK 2 108 550
7 Movie Rights SEK 14 764 750
Comments
Prepaid Expenses and Accrued Income
The whole amount is income from the two distributors Svenska Kimon AB and
Norska Kimon A/S.
Other Short Term Receivables
This amount is mostly a net amount on claims and debts to Kimon Inc.,
Norska Kimon A/S, Svenska Kimon AB and Stockwood AB, which all are related. The
only "outside" claim is a small VAT claim for SEK 6 438.
Copyright to Valuation Key
This is a system to access a value on film rights based upon several
variables.
Hallmark Entertainment
See enclosed contract.
Film Rights
Number six and seven are combined in the enclosed list of Kimon Mediaright
Film Library.
<PAGE>
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Agreement is dated this 14th day of July, 1998 and is by and
between Odyssey Pictures Corporation, a ___________ corporation, (the "issuer")
and KimonMediaright Kommanditbolag a Swedish limited partnership (the
"purchaser") and assigns, and is hereinafter referred to as the "Agreement."
I
RECITALS
A. Purchaser has acquired 4,500,000 shares of preferred stock of issuer
upon the terms and conditions of the Purchase and Sale Agreement to which this
Agreement is an exhibit.
B. This Agreement provides for purchaser to be granted registration
rights of the Registrable Securities on the terms and conditions as provided
below.
C. This Agreement is supported by good and valuable consideration, the
receipt and sufficiency of which is acknowledged by issuer.
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II
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meaning:
"Act" means the Securities Act of 1933, as amended.
"Affiliate" means an "affiliate" as that term is used in Rule
405 under the act.
"Holder" means the purchaser and any other owner of
Registrable Securities by transfer or assignment for purchaser or another
holder.
"Registrable Securities" means the issuer's shares and any
additional shares that the purchaser or assignee of purchaser may be entitled to
under any separate agreement with the issuer. This term does not include
securities which are freely sold to the public in the United States without
registration under the Act (including Rule 144(k) securities).
"SEC" means the Securities and Exchange Commission.
III
REGISTRATION AGREEMENT
1. Piggy-Back Registration. After conversion of the preferred shares in
Issuer by purchaser, if, at any time, and prior to sixty months thereafter,
issuer proposes to file a registration statement under the Act with respect to
any class of security (other than within a Form S-4 or S-8 or any form
substituting therefor, or any exchange offer or offer strictly to the issuer's
existing security holders, or securities issued pursuant to option plans of
officers and directors or employees of the issuer) then the issuer shall give
written notice of such proposed filing to the Holder(s) at least thirty days
before the anticipated filing date, and such notice shall offer each Holder the
opportunity to register such Registrable Securities as such Holder may request
(the "Piggy-Back Registration"). The issuer, if requested by the Holder(s) shall
use its best efforts to cause the underwriters to permit Holders to participate
therein on the same terms and conditions as any other selling holder or the
issuer, and anything less than that shall only be upon written notice and
substantial justification as supplied by the managing underwriter on a timely
basis to Holder(s).
2. Hold Back Agreements. Holder(s) agree, in the case of an
underwritten public offering of issuer, and to the extent not in violation of
any law, not to sell any Registrable Securities during the period of time five
days before until twenty days after the effective date of any such underwritten
public offering of the issuer, unless such sale is pre-approved in writing by
the issuer. The issuer similarly agrees not to sell or distribute any of its
securities in any offering other than the underwritten public offering of the
issuer as aforesaid during the same period of time (five days before to twenty
days after), except for sales under Forms S-4 and S-8. Issuer, upon a showing of
good and just cause, shall have the right to withdraw any registration initiated
by issuer under this agreement prior to the effective date of such registration
statement.
3. Equal Treatment. With respect to any registration statement filed
pursuant to this Agreement, the Holder(s) in no event shall be treated
differently than any other selling security holders in connection with any
requirement by an underwriter and/or the issuer.
4. Legend. The certificates of the Registrable Securities shall contain
a legend notifying the holder that rights to sell the security are restricted by
this Agreement and state where a copy of this Agreement may be inspected or
obtained.
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5. Registration Procedures. Upon commencement of a registration of
securities subject to this agreement, the issuer shall use its best efforts to
cause the registration to become effective as quickly as is practical. The
issuer shall furnish Holder(s) copies of all registration statements,
prospectus', amendments and exhibits as filed with the SEC, as well as with any
state jurisdiction. The issuer will use its best efforts to "Blue Sky" the
Registrable Securities in such jurisdictions as the Holder(s) reasonably
request(s) and to be approved by any other authority reasonably necessary under
the circumstances. The issuer shall immediately notify Holder(s) of the delivery
of any prospectus related to the Registrable Securities, and the happening or
omitting of any material event or fact that would make any representation in the
prospectus or any registration statement false or misleading in a material way.
The issuer covenants and agrees to immediately amend any such prospectus or
registration statement to make the statements therein comply with all applicable
law. The issuer covenants and agrees to enter into or take such actions as are
usual and accustomed in the facilitation of the disposition of the Registrable
Securities. The issuer shall make available for inspection, upon reasonable
advance notice and during regular business hours, to any Holder(s) or qualified
representative thereof, any information and material contained or alluded to
within any prospectus or registration statement regarding the Registrable
Securities. The issuer will use its best efforts to obtain opinions of counsel
and accountants normally associated with a public registration of securities of
this nature and otherwise use its best efforts to comply with applicable law and
regulations regarding the sale of securities under the Act. The issuer may
require Holder(s) to supply information as is reasonably and normally necessary
to effectuate the registration and sale of the Registrable Securities. The
Holder(s) agrees to comply with all applicable laws and regulations in the
transfer of the Registrable Securities.
6. Registration Expenses. Any and all expenses of the issuer in
complying with the terms of this Agreement shall be borne exclusively by the
issuer. All underwriting discounts, selling commissions and fees of Holder(s)'
counsel shall be borne by Holder(s).
7. Survival of Warranties and Representations: The parties hereto agree
that all warranties and representations of the parties survive the closing of
this transaction.
8. Indemnification: Any party, when an offending party, agrees to
indemnify and hold harmless the other non-offending parties from any claim of
damage of any party or non-party arising out of any act or omission of the
offending party arising from this Agreement.
9. Notices: All notices required or permitted hereunder shall be in
writing and shall be deemed given and received when delivered in person or sent
by confirmed facsimile, or ten (10) business days after being deposited in the
United States mail, postage prepaid, return receipt requested, addressed to the
applicable party as the address as follows:
Issuer: Odyssey Pictures Corporation, 1601 Elm Street, Suite 4000,
Dallas, Texas 75201
With a copy to: Howard J. Kerker, Esq., 600 Madison Ave., 22nd Floor,
New York, NY 10022
- --------------
Purchaser: KimonMediaright Kommanditbolag, Danderyd Campus, Morby Centrum,
182 31 Danderyd, Sweden
With a copy to: Peter J. Wilke, Esq., 11835 W. Olympic Blvd., Suite 1090,
Los Angeles, CA 90064
- --------------
10. Breach: In the event of a breach of this Agreement, ten (10) days
written notice (from the date of receipt of the notice) shall be given. Upon
notice so given, if the breach is not so corrected, the non-breaching party may
take appropriate legal action per the terms of this Agreement.
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11. Assignment: This Agreement is assignable by purchaser.
12. Amendment: This Agreement is the full and complete, integrated
agreement of the parties, merging and superseding all previous written and/or
oral agreements and representations between and among the parties, and is
amendable in writing upon the agreement of all concerned parties. All
attachments hereto are deemed to be a part hereof.
13. Interpretation: This Agreement shall be interpreted as if jointly
drafted by the parties. It shall be governed by the laws of the State of Nevada
and the United States applicable to contracts made to be performed entirely
therein.
14. Enforcement: If a lawsuit is filed to enforce or interpret the
terms of this Agreement, the United States District located in Los Vegas, Nevada
shall have jurisdiction and be the proper place of venue. The prevailing party
in any such lawsuit shall be entitled to its reasonable attorney's fee and
costs. Any judgment of said court shall be enforceable any where in the world.
If a portion of this Agreement is declared invalid or void by competent court
order, the remainder of this Agreement shall remain in force to greatest degree
practical.
15. Counterparts: This Agreement may be executed in counterparts each
of which shall be deemed an original and all of which together shall constitute
one and the same agreement. Facsimile signatures shall be considered as valid
and binding as original signatures.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date
first written above.
ISSUER:
Odyssey Pictures Corporation
---------------------------
Its President
ATTEST:
- -------------------------
Its Secretary
PURCHASER:
KimonMediaright Kommanditbolag
________________________, General Partner
--------------------------
__________________ of the General Partner
ATTEST:
- -------------------------
its:______________________
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Exhibit C
Management and Service Agreement
This Agreement is made the 14th day of June 1998
Between
Svenska Klmon Forsaljnings AB, a company organized and existing under the
laws of Sweden and having its registered office at Danderyd Campus, Morby
centrum, 18231 Danderyd, Sweden (hereinafter referred to as "Kimon").
And
Odyssey Pictures Corporation, a company organized and existing under the
laws of Sweden and having its registered office at 1875 Century Park East, Suite
2130, Los Angeles, California 90067 (hereinafter referred to as "Odyssey")
And
Tore Jorkjend.
Whereas:
oOdyssey has a continuing need for advice and assistance in the areas of general
and financial management.
oKimon is staffed with experienced personnel who is able to provide those
services to Odyssey by drawing on its own resources as well as on those
available from other companies in the organization or from third parties.
oKimon is willing to render to Odyssey and Odyssey desires to use such services.
PREAMBLE
Business Plan Kimon
1. Overview of the Kimon Organization.
This business plan describes the operations and development of the present
sales activities of the Kimon organization.
It is assumed that Stockholm wills b e the head office for the Nordic
operations, but also for any future development of the sales to the video- and
TV markets.
The organization of the operative office in Stockholm will be depending and
relying on the decisions made by the Group Management Team (GMT), but initially
a sales manager and a general administrative assistant will be sufficient.
Tore Jorkjend of Kimon Norge AS has a separate Agreement that concerns the
Hallmark Agreement and will be responsible to develop the Hallmark Agreement as
expressed below.
The most important issue for the newly combined post acquisition group (The
Odyssey Group) is how to conduct the management tasks and the follow up of the
operative units. The GMT will consist of people from both organizations. The GMT
should meet quarterly. The main tasks could be to:
a) set the goals for the local companies
b) Evaluate, discuss and approve the business plans of the local sales
companies
c) Identify new business, new markets and new products for the Group.
d) Support and act as speaking partner for the local management
e) Receive all reports from the operative units
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A third party as described in this Agreement will perform the actual sales
work. All sales figures are identified as royalty income for Odyssey, The costs
for achieving these sales figures will be expressed below. The charge will be
calculated separately for the Hallmark films due to the separate Agreement
concerning these films.
The net profit for Odyssey will consequently be computed as the Net Royalty
Income after the Charged Costs and the Hallmark Fee, expressed and accepted in
this Agreement.
2. Goals
Preliminary goals for the sales organization in Stockholm can be divided
between the video market, (rental, sell through and profit split), and the
TV-markets.
Initially the key markets will be the Scandinavian, but as son as this
market has been secured and established, a wider European perspective must be
discussed in the GMT for both video and TV.
Profon-na Royalty Income, in thousands of US dollars as presented by Kimon
Video Markets
Year 1999 2000 2001 2002 2003
Hallmark 810 1.100 1.100 1.100 1.100
TV/Video Scand. 100 150 250 350 500
Klmon Library 512 291 291 291 291
Total 1.422 1.541 1.641 1.741 1.891
Proforma Costs
Year 1999 2000 2001 2002 2003
Hallmark 100 140 140 140 140
Other 250 300 300 300 300
Total 350 440 440 440 440
Now therefore, in consideration of the Premises and mutual covenants
hereinafter contained, the parties mutually agrees as follows.
1. Engagement of Kimon
Odyssey hereby engages Kimon to render services in the areas specified
below throughout the term of this Agreement.
Odyssey hereby asks Kimon to perform these services on a continuing basis
without any further specific request.
11. Services
During the term of this Agreement, subject to the terms and conditions
stated herein, Kimon will provide services in the interest of Odyssey, which
specifically are compromised of
Managerial
In the Markets defined as Kimon's;
a) advice and assistance in the production of Odyssey's business plans and
ongoing support in the implementation of such plans
b) advice and assistance in the preparation of marketing concepts and the
carrying out of marketing development projects
c) advice and assistance in the conducting of market research and analysis;
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Sales
a) Tore Jorkjend shall together with the Odyssey jointly choose the minimum
yearly amount of 25 films from Hallmark
b) development of sales operations in the Markets defined as Kimon's in order
to reach the Goals defined in the Preamble hereabove.
c) recruit and be responsible for the resources necessary to reach the
volumes defined in the Business Plan
d) develop inventory, sales and reporting systems for all necessary tracking
and account of all operations and sales activity to be delivered to odyssey
on monthly basis.
Other Services
Both parties are free to negotiate to include other services appropriate
for the Kimon organization
111. Fees
In consideration of the services to be rendered by Kimon under this Agreement,
Odyssey agrees and undertakes to pay a service fee to Kimon.
The amount of service fee is determined in accordance with the provisions set
below.
The fee Kimon charges is based on the costs specified in the Preamble
hereabove.
The fee for the Hallmark sales are related to the total Royalty Income. Up
to 4 million SEK in Royalty Income per twelve months starting July 1, 1998, the
fee is 10% on the Gross Royalty Income. If the total Royalty Income for the
Hallmark films exceeds 4 million SEK per twelve month period starting July 1,
1998, the fee will be 15% of the additional Royalty Income.
The fee covering the other services will be equal to the costs incurred.
M Payment
Kimon will bill Odyssey for the services provided or performed pursuant to
this Agreement on a monthly basis, or at such other frequency as the parties may
agree on. Payments will be made within the first thirty (30) days following
receipt by Odyssey of the monthly bill.
Kimon agrees to keep and preserve accurate records of all its transactions
relating to the services rendered pursuant to this Agreement, such records to be
open to inspection at all reasonable times by Odyssey or persons authorized by
Odyssey.
In the event of any objection by Odyssey, the matters, which are subject to
objection, will be referred to the CPA of Odyssey for resolution, which
resolution will be final and binding on the parties.
V. Records and documentation of costs.
Kimon shall establish a costing system that confirms to the requirements of
an acceptable cost accounting method. In particular Kimon shall, keep true and
accurate books and records in such detail as is necessary to identify the cost
related to rendering the services specified under section IV above.
All books and records shall be audited annually by a recognized
international independent Certified Public Accountant.
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V1. Warranty
Under this Agreement, the liability of Kimon for a material breach of the
terms of this Agreement shall be limited to cases where the other party may
prove gross negligence or wrongful intent on the part of Kimon or of any of its
employees, provided, however, that in no event Kimon shall be held liable for
any consequential damages or for any loss of profits suffered by Odyssey or by
any third party, and provided further that the amount of damages claimed in
respect of all breaches of contract that may occur during one calendar year in
regard to Odyssey owes to Kimon for the year during which Odyssey owes to Kimon
for the year during which the breach of contract has occurred.
Kimon's liability for torts committed by Kimon or its employees shall be
limited to cases where Odyssey is able to prove that Kimon or one or more of its
employees have acted with wrongful intent or gross negligence. Kimon's liability
for torts committed by outside parties which have not entered into a service
Agreement with Klmon and which Kimon has engaged to help to render the services
shall be limited to that amount of damages that Kimon can recover from the
outside party.
VII Term and termination
This Agreement shall be effective as from 14th of July 1998 and will
continue in effect until Mh
of June 2002, and thereafter for successive periods of one year until
either party gives written notice to the other, not later than June of any year,
that the Agreement will not continue beyond 30th of June, next following the
giving of the notice. Except for any obligation to pay any fixed sum of money,
which may have accrued, and be due and payable under this Agreement at the time
of termination, upon the termination of this Agreement all obligations of either
party to the other will terminate.
VIII. Assignment
No right of Kimon may be assigned, and no duty of Kimon may be delegated,
to any person or entity without the prior written consent of Odyssey.
IX. Partial invalidity
ft is intended that this Agreement will not violate any valid applicable
law of any country, -whether national or local. Therefore, if any term or
provision of this Agreement, or its application to any person or circumstance,
shall be invalid or unenforceable, the remainder of this Agreement, or its
application to any person or circumstance other than those as to whom or as to
which is invalid or unenforceable, will not be affected, and each term and
provision of this Agreement shall be enforced to the fullest extent permitted by
law.
X. Notice
Any notice under this Agreement will be deemed duly given and any
instrument will be deemed duly delivered, as to Kimon, when mailed postage
prepaid, addressed to it at the following addresses:
Svenska Kimon Forsaljnings AB, Danderyd Campus, M6rby centrum, S- 182 31
Danderyd, Sweden
and, as to Odyssey, when mailed postage prepaid, addressed to it at the
following addresses:
Odyssey Pictures Corporation, 1601 Elm Street, Suite 4000. Dallas. Texas
75201, USA
or, as to either party, at such address as that party may specify from time to
time by written notice to the other party in accordance with these provisions.
These provisions will not prevent the giving of any notice or the making of any
payment in any other valid manner.
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<PAGE>
XI. Waiver
This Agreement constitutes the entire understanding existing between the
parties with respect to the subject matter dealt with in this Agreement.
No term or provision in this Agreement may be waived, modified or altered
except by an instrument in writing properly executed by the parties.
XII. Law
This Agreement will be governed by, and construed in accordance with, the laws
of California, USA.
The parties have caused this Agreement to be executed in duplicate and sealed
by their duly authorized representatives.
Odyssey Pictures Corporation Svenska Kimon Forsaljnings AB
/s/Tore Jorkjend /s/ Svenska Kimon Forsaljnings AB
- ----------------- ---------------------------------
98
<PAGE>
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<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 8,790 462,971
<SECURITIES> 0 0
<RECEIVABLES> 592,251 1,050,362
<ALLOWANCES> 0 53,788
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0 0
0 0
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 91,435 97,701
<INCOME-PRETAX> 68,808 (4,959,716)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 68,808 (4,959,716)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 68,808 (4,959,716)
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