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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 14, 2000
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THE HARVEY ENTERTAINMENT COMPANY
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(Exact name of registrant as specified in charter)
California 0-23000 95-4217605
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
11835 W. Olympic Boulevard, Suite 550, Los Angeles, California 90064
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (310) 444-4100
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(Former Name or Former Address, If Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 14, 2000, the Registrant acquired, as of April 3, 2000, all
of the outstanding shares of Pepin/Merhi Entertainment Group, Inc., a California
corporation ("PM"), and all of the outstanding membership interests in Shadow
Hills Post, LLC, a California limited liability company, pursuant to a Stock
Purchase Agreement dated as of April 3, 2000 (the "PM Purchase Agreement"), by
and between the Registrant and the following individuals (the "Shareholders"):
Mr. Joseph T. Merhi, Mr. Richard J. Pepin and Mr. George Shamieh (such
transaction is referred to herein as the "PM Acquisition"). The consideration
paid by the Registrant to the Shareholders consisted of (i) approximately
$3,990,000 in cash, (ii) the issuance of 362,500 shares of common stock of the
Registrant, (iii) the issuance of promissory notes by the Registrant in the
aggregate principal amount of $2,050,000, and (iv) the repayment of all of the
liabilities of PM owed to the Shareholders, in the approximate aggregate amount
of $2,510,000. PM owns all of the outstanding capital stock of Pepin-Merhi
Entertainment Group FSC, Ltd., a Virgin Islands company ("PMFSC"). The PM
Purchase Agreement is attached hereto as Exhibit 2.
In connection with the PM Acquisition, Mr. George Shamieh entered into
an employment agreement with PM and the Registrant pursuant to which Mr. Shamieh
will act as the President of PM; Mr. Shamieh's employment agreement is attached
hereto as Exhibit 10.77. Mr. Shamieh also serves as the Vice President of PMFSC.
Prior to the PM Acquisition, PM had leased its main offices and film
production facilities, located in Sunland, California, from Pepin Merhi Shamieh,
LLC, a California limited liability company ("Landlord"). Landlord is owned by
Mr. Merhi, Mr. Pepin and Mr. Shamieh. In connection with the PM Acquisition,
PM's then-outstanding lease with Landlord was terminated and PM entered into a
new Lease Agreement dated as of April 1, 2000, by and between PM and Landlord
(the "PM Lease"); the PM Lease is attached hereto as Exhibit 10.78.
Simultaneously with the closing of the PM Acquisition, the
Registrant's wholly-owned subsidiary, Inferno Acquisition Corp., a California
corporation ("IAC"), purchased from Imperial Bank and Natexis Banque (together,
the "Banks") all of their rights and interests in and to a production loan
concerning a motion picture entitled "Inferno" pursuant to a Sale and Assignment
Agreement (the "Inferno Sale Agreement") dated as of April 3, 2000, by and among
IAC and the Banks (such transaction is referred to herein as the "Inferno
Acquisition") for a purchase price of $6.8 million, payable as follows: (i) $2
million in cash and (ii) $4.8 million by means of a promissory note issued by
IAC to the Banks pursuant to a Loan and Security Agreement dated as of April 3,
2000, by and among IAC and the Banks (the "Inferno Loan Agreement"). To secure
its performance of the Inferno Loan Agreement, IAC has granted to the Banks a
security interest in all of its assets, including its rights concerning
"Inferno." The Registrant has guaranteed IAC's performance under the Inferno
Loan Agreement pursuant to a Continuing Guaranty (the "Inferno Guaranty") dated
as of April 3, 2000, by the Registrant in favor of the Banks. PM will continue
to distribute the motion picture "Inferno" in accordance with its prior
distribution agreements for the film. The Inferno Sale Agreement is attached
hereto as Exhibit 10.79, the Inferno Loan Agreement is attached hereto as
Exhibit 10.80, and the Inferno Guaranty is attached hereto as Exhibit 10.81.
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Approximately $2 million of the funds for the cash payments made in
connection with the PM Acquisition and the Inferno Acquisition came from the
Registrant's working capital. The remainder of the funds were obtained by the
Registrant pursuant to the terms of a Credit, Security, Guaranty, and Pledge
Agreement (the "Chase Credit Facility") dated as of April 3, 2000, by and among
The Chase Manhattan Bank, as Administrative Agent and as Issuing Bank, the other
Lenders referred to therein, the Registrant, PM, and certain of the Registrant's
subsidiaries. All relevant documents related to the Chase Credit Facility will
be filed by the Registrant as exhibits to the Registrant's Form 10-QSB for the
quarterly period ended March 31, 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) All financial statements or pro forma financial
information required to be filed as a part of this report shall be filed by
amendment not later than 60 days after the date of this report.
(c) The following exhibits are filed as a part of this report:
Exhibit No. Description of Exhibit
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2 Stock Purchase Agreement dated as of April 3, 2000, by and
among The Harvey Entertainment Company, Richard J. Pepin,
Joseph T. Merhi, and George Shamieh
10.77 Employment Agreement dated as of April 1, 2000, by and
among The Harvey Entertainment Company, Pepin/Merhi
Entertainment Group, Inc., and George Shamieh
10.78 Lease Agreement dated as of April 1, 2000, by and between
Pepin/Merhi Entertainment Group, Inc. and Pepin Merhi
Shamieh, LLC
10.79 Sale and Assignment Agreement dated as of April 3, 2000,
by and among Inferno Acquisition Corp., Imperial Bank,
and Natexis Banque
10.80 Loan and Security Agreement dated as of April 3, 2000,
by and among Inferno Acquisition Corp., Imperial Bank
and Natexis Banque
10.81 Continuing Guaranty dated as of April 3, 2000, by
The Harvey Entertainment Company in favor of Imperial Bank
and Natexis Banque
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
THE HARVEY ENTERTAINMENT COMPANY
By: /s/ Ronald B. Cushey
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Ronald B. Cushey, Executive Vice President
and Chief Financial Offiver
Date: May 1, 2000
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EXHIBIT 2
STOCK PURCHASE AGREEMENT
AMONG
THE HARVEY ENTERTAINMENT COMPANY
RICHARD J. PEPIN
JOSEPH T. MERHI
AND
GEORGE SHAMIEH
Dated as of April 3, 2000
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TABLE OF CONTENTS
<TABLE>
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1. Sale of Shares and SHP Interests.................................................... 1
1.1. Agreement to Sell Shares and SHP Interests................................... 1
1.2. Purchase Price............................................................... 1
1.3. Closing Date. The........................................................... 2
1.4. Closing Date Deliveries...................................................... 2
2. Representations and Warranties of the Shareholders.................................. 3
2.1. Due Incorporation and Qualification.......................................... 3
2.2. Subsidiaries and Other Affiliates............................................ 3
2.3. Outstanding Capital Stock; SHP Interests..................................... 3
2.4. Options or Other Rights...................................................... 4
2.5. Charter Documents and Corporate Records...................................... 4
2.6. Financial Statements......................................................... 4
2.7. Authority to Execute and Perform Agreement................................... 5
2.8. Compliance with Laws......................................................... 5
2.9. Permits...................................................................... 6
2.10. No Breach.................................................................... 6
2.11. Actions and Proceedings...................................................... 6
2.12. Contracts.................................................................... 7
2.13. Real Estate.................................................................. 8
2.14. Accounts and Notes Receivable................................................ 8
2.15. Inventories.................................................................. 9
2.16. Film Assets.................................................................. 9
2.17. Tangible Property/Bank Accounts.............................................. 10
2.18. Intangible Property.......................................................... 10
2.19. Liens........................................................................ 11
2.20. Accounts Payable and Indebtedness............................................ 11
2.21. Liabilities.................................................................. 11
2.22. Suppliers and Customers...................................................... 12
2.23. Shareholder Loans............................................................ 12
2.24. Shadow Hills Assets and Liabilities.......................................... 12
2.25. Employee Benefit Plans....................................................... 13
2.26. Tax Matters.................................................................. 14
2.27. Officers, Directors and Employees............................................ 16
2.28. Interested Party Transactions................................................ 16
2.29. Change in Control Payments................................................... 16
2.30. No Broker.................................................................... 16
2.31. Insurance.................................................................... 16
2.32. Operations of the Company.................................................... 17
2.33. Potential Conflicts of Interest.............................................. 20
2.34. Employment Matters........................................................... 21
</TABLE>
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<TABLE>
<S> <C>
2.35. Environmental Protection..................................................... 21
2.36. Canadian Productions......................................................... 21
2.37. Year 2000 Compliance......................................................... 21
2.38. Operation of Shadow Hills.................................................... 22
2.39. Disclosure................................................................... 25
3. Representations and Warranties of the Purchaser..................................... 25
3.1. Organization................................................................. 25
3.2. Execution and Delivery: Validity............................................. 25
3.3. No Broker.................................................................... 25
3.4. No Breach.................................................................... 26
3.5. Investment Representation.................................................... 26
3.6. Publicly Filed Documents..................................................... 26
3.7. Absence of Certain Changes................................................... 26
4. Covenants and Agreements............................................................ 26
4.1. Books and Records............................................................ 26
4.2. Shareholder Guarantees....................................................... 27
4.3. Non-Solicitation of Employees................................................ 27
4.4. Releases of Guaranties. .................................................... 27
4.5. Shareholder Legal Fees....................................................... 28
5. Conditions Precedent to the Obligation of the Purchaser to Close.................... 28
5.1. Government Permits and Approvals and Consents................................ 28
5.2. Litigation................................................................... 28
5.3. Shamieh Deliveries........................................................... 28
5.4. Shadow Hills Deliveries...................................................... 28
5.5. Existing Lease............................................................... 28
5.6. Wentworth Lease.............................................................. 29
5.7. Shareholder Releases......................................................... 29
5.8. Film Rights Assignments. .................................................... 29
5.9. Bank Signature Cards......................................................... 29
5.10. Officer and Director Resignations............................................ 29
5.11. Subordination Agreement...................................................... 29
5.12. Merhi Delivery............................................................... 29
5.13. Pepin Delivery............................................................... 29
5.14. Legal Fee Reimbursement...................................................... 29
5.15. Legal Opinion of Engel & Engel............................................... 29
6. Conditions Precedent to the Obligation of the Shareholders to Close................. 29
6.1. Governmental Permits and Approvals........................................... 30
6.2. Litigation................................................................... 30
6.3. Shareholder Guarantees....................................................... 30
</TABLE>
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<TABLE>
<S> <C>
6.4. Deliveries to Shamieh........................................................ 30
6.5. Wentworth Lease.............................................................. 30
6.6. Harvey Pledge Agreement...................................................... 30
6.7. Legal Opinion of Sidley & Austin............................................. 30
7. General Indemnification............................................................. 30
7.1. Obligation of the Shareholders to Indemnify.................................. 30
7.2. Obligation of the Purchaser to Indemnify..................................... 31
7.3. Notice and Opportunity to Defend............................................. 31
7.4. Payment...................................................................... 32
7.5. Limitation on Indemnification................................................ 33
7.6. Indemnification Regarding Taxes.............................................. 33
7.7. Company Claims Regarding Tax Losses.......................................... 34
7.8. Release of Claims Against Shareholders Not Timely Asserted.................. 34
8. Survival of Representations and Warranties of the Shareholders After Closing........ 35
9. Miscellaneous....................................................................... 35
9.1. Certain Definitions.......................................................... 35
9.2. Construction................................................................. 45
9.3. Publicity.................................................................... 46
9.4. Notices...................................................................... 46
9.5. Governing Law................................................................ 47
9.6. Agreement to Arbitrate; Injunctive Relief.................................... 48
9.7. Further Assurances........................................................... 49
9.8. Assignment to Lender......................................................... 49
9.9. Entire Agreement............................................................. 49
9.10. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies... 49
9.11. Binding Effect; No Assignment................................................ 49
9.12. Variations in Pronouns....................................................... 49
9.13. Counterparts................................................................. 50
9.14. Exhibits and Schedules....................................................... 50
9.15. Headings..................................................................... 50
9.16. Severability of Provisions................................................... 50
</TABLE>
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EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-1 - Promissory Note - Shamieh
Exhibit A-2 - Promissory Note - Merhi
Exhibit A-3 - Promissory Note - Pepin
Exhibit B-1 - Lease Agreement
Exhibit B-2 - Purchase Agreement
Exhibit C - Form of Shareholder Release
Exhibit D - Form of Film Rights Assignment
Exhibit E - Form of Harvey Pledge Agreement
Exhibit F - Lost Certificate Agreement
Exhibit G - Cinemobile Lease
Exhibit H - Form of Legal Opinion of Engel & Engel
Exhibit I - Form of Legal Opinion of Sidley & Austin
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated as of
April 3, 2000, by and among THE HARVEY ENTERTAINMENT COMPANY, a California
corporation (the "PURCHASER"), on the one hand, and RICHARD J. PEPIN, an
individual ("PEPIN"), JOSEPH T. MERHI, an individual ("MERHI"), and GEORGE
SHAMIEH, an individual ("SHAMIEH," and collectively with Pepin and Merhi, the
"SHAREHOLDERS"), on the other hand. Each of Pepin, Merhi and Shamieh is
sometimes referred herein as a "SHAREHOLDER." Terms used herein are defined in
Section 9.1.
A. Shareholders own all of the issued and outstanding shares (the
"Shares") of the capital stock of Pepin/Merhi Entertainment Group, Inc., a
California corporation, which, along with all of its Subsidiaries is referred to
herein as the "Company."
B. Shareholders own all of the membership interests (the "SHP
INTERESTS") in Shadow Hills Post, LLC, a California limited liability company
("SHADOW HILLS").
C. Purchaser wishes to purchase from Shareholders, and
Shareholders wish to sell to Purchaser, all of the Shareholders' right, title
and interest in and to the Shares and all of the Shareholders' right, title and
interest in and to the SHP Interests upon the terms and conditions of this
Agreement.
Accordingly, the parties agree as follows:
1. Sale of Shares and SHP Interests.
1.1. Agreement to Sell Shares and SHP Interests. Subject to the
terms and conditions of this Agreement, on the Closing Date, Shareholders shall
sell to Purchaser, and Purchaser shall purchase from Shareholders (i) all of the
Shareholders' right, title and interest in and to the Shares free from any Liens
and (ii) all of the Shareholders' right, title and interest in and to the SHP
Interests free from any Liens by completing the deliveries specified in Section
1.4 (such sale of the Shares and the SHP Interests is referred to herein as the
"PM SALE").
1.2. Purchase Price. The purchase price for the Shares is
$7,440,344.20 and the purchase price for the SHP Interests is $50,000, payable
as follows: on the Closing Date, Purchaser (i) shall deliver to the Shareholders
the Notes in the aggregate principal amount of Two Million Fifty Thousand
Dollars ($2,050,000), (ii) shall pay to Shareholders, by wire transfer in
immediately available funds to the accounts specified on Schedule 1.2, Two
Million Nine Hundred Ninety Thousand Three Hundred Thirty Four and 20/100
Dollars ($2,990,334.20) (the "CASH PAYMENT"), (iii) shall deliver to Shamieh
112,500 shares of Purchaser's Common Stock pursuant to the Shamieh Purchase
Agreement, (iv) shall deliver to Merhi 125,000 shares of Purchaser's Common
Stock pursuant to the Merhi Purchase Agreement, (v) shall deliver to
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Pepin 125,000 shares of Purchaser's Common Stock pursuant to the Pepin Purchase
Agreement, and (vi) shall pay One Million Dollars ($1,000,000) directly to
Imperial (the "IMPERIAL PAYMENT") to be paid by Imperial into the Securities
Accounts (as such term is defined in the Shareholder Pledge Agreements). Such
$1,000,000 shall be pledged pursuant to the terms and conditions of the
Shareholder Pledge Agreements and the Inferno Side Letter; such funds shall only
be released to the Shareholders pursuant to the terms and conditions of such
agreements. In addition, on the Closing Date, the Purchaser shall cause the
Company to repay the Shareholder Loans by wire transfer in immediately available
funds to the accounts specified on Schedule 1.2.
1.3. Closing Date. The purchase and sale of the Shares and of the
SHP Assets (the "CLOSING") shall be consummated at the offices of Sidley &
Austin, 2049 Century Park East, 21st Floor, Los Angeles, California 90067, no
later than 1:00 p.m., Pacific Standard Time, on April 3, 2000, or at such other
time and place as shall be agreed upon in writing by the Shareholders and
Purchaser (such date and time referred to herein as the "CLOSING DATE").
1.4. Closing Date Deliveries.
(a) On the Closing Date, Shareholders shall deliver or
cause to be delivered to Purchaser:
(i) stock certificates representing all of the Shares,
together with duly executed stock powers in blank attached thereto; and
(ii) all of the documents and instruments required to be
delivered pursuant to Section 5.
(b) On the Closing Date, Purchaser shall:
(i) deliver or cause to be delivered to Shareholders the
Cash Payment and the Notes as designated by Shareholders;
(ii) deliver to Imperial the Imperial Payment;
(iii) deliver or cause to be delivered to Shareholders
all of the documents and instruments required to be delivered by
Purchaser under Section 6.
(iv) cause the Company to repay the Shareholder Loans
pursuant to Section 1.2 hereof. 2. Representations and Warranties of the
Shareholders. The Shareholders, jointly and severally, and, as
applicable, in their capacities as the sole members of Shadow Hills,
represent and warrant to the Purchaser as follows:
2.1. Due Incorporation and Qualification.
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(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
the corporate power and lawful authority to own, lease and operate its assets,
properties, rights and business and to carry on its business as now conducted.
The Company does not own or lease property in any jurisdiction other than in
California. The Company is not duly qualified as a foreign corporation to
transact business in any jurisdiction except California.
(b) The Company's wholly-owned subsidiary, PEPIN-MERHI
ENTERTAINMENT GROUP FSC, LTD. ("PM FSC") is a corporation duly organized,
validly existing and in good standing under the laws of the United States Virgin
Islands and has the corporate power and lawful authority to own, lease and
operate its assets, properties, rights and business and to carry on its business
as now conducted. PM FSC does not own or lease property in any jurisdiction
other than in the United States Virgin Islands. PM FSC is not duly qualified as
a foreign corporation to transact business in any jurisdiction except for the
United States Virgin Islands.
2.2. Subsidiaries and Other Affiliates. Except for the shares of
PM FSC, the Company does not, directly or indirectly, (i) own or have the power
to vote, or to exercise a controlling influence with respect to, shares of any
capital stock, securities or other proprietary interests of any class of any
Person, the holders of which class are entitled to vote for the election of
directors (or Persons performing similar functions) of such Person or (ii) own
any other interest in any Person, except as described on Schedule 2.2 attached
hereto.
2.3. Outstanding Capital Stock; SHP Interests. The Company is
authorized to issue 100,000 shares of common stock, without par value (the
"COMMON STOCK"), of which 1,000 shares are duly authorized and validly issued,
outstanding, fully paid and non-assessable and are owned beneficially and of
record by the Shareholders. All of the issued and outstanding shares of Common
Stock are held of record by the Shareholders in the following amounts: 425
shares by Pepin, 425 shares by Merhi, and 150 shares by Shamieh, in each case,
free and clear of any lien, pledge, mortgage, security interest, claim, lease,
charge, option, right of first refusal, easement, servitude, transfer
restriction under any shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever (collectively "LIENS") except for the
Imperial Indebtedness. Except for the shares of Common Stock listed in the
preceding sentence no equity or debt securities have been issued by the Company.
There are no obligations, contingent or otherwise, of the Company to issue,
repurchase, redeem or otherwise acquire any shares of Common Stock.
The Shareholders are the only members of Shadow Hills. The copy of
the Operating Agreement of Shadow Hills attached hereto as Schedule 2.3 (the
"SHP OPERATING AGREEMENT"), is true, complete and correct and has not been
amended or restated in any manner.
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2.4. Options or Other Rights. There is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind (collectively, "STOCK RIGHTS") to (i) purchase or
otherwise to receive from the Company or any Shareholder any of the issued and
outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of, or any proprietary interest in, the
Company or (ii) purchase or otherwise receive from Shadow Hills or any
Shareholder any debt or equity securities of or interests in Shadow Hills.
2.5. Charter Documents and Corporate Records. The Company has
heretofore made available to the Purchaser true and complete copies of the
Articles of Incorporation and By-laws of the Company as in effect on the date
hereof. The minute books of the Company, which have been made available to the
Purchaser for its inspection, contain records of all meetings at which corporate
action was taken or authorized and consents in lieu of meeting of the Board of
Directors (and any committee thereof) of the Company and its shareholders since
its date of incorporation and through and including September 1, 1999, which are
true and complete in all material respects and accurately reflect all
transactions referred to in such minutes and consents in lieu of meeting. The
Shareholders, in their capacity as the only directors of the Company, have
neither taken nor authorized any corporate action in such capacity since
September 1, 1999. The stock books of the Company, which have been made
available to the Purchaser for its inspection, are true, complete and correct.
2.6. Financial Statements.
(a) The Shareholders have previously delivered to the
Purchaser the following financial information:
(i) the unaudited statement of financial position of the
Company as of August 31, 1999 (the "INTERIM BALANCE SHEET DATE"), and the
related unaudited statements of income, shareholders' equity and cash flows for
the six-month period then ended (the "INTERIM FINANCIALS"), all of which are
attached hereto as Schedule 2.6(a)(i);
(ii) the audited statements of financial position of the
Company as of February 28, 1999, 1998 and 1997 and the related statements of
income, shareholders' equity and cash flows for each of the three years then
ended, with the notes thereto, certified by the accounting firms of
PricewaterhouseCoopers LLP (with respect to the 1999 financial statements) and
by KPMG LLP (with respect to the 1998 and 1997 financial statements) (such
financial statements are referred to collectively herein as the "AUDITED
FINANCIALS"); and
(iii) the unaudited balance sheet of Shadow Hills as of
December 31,1999, and the related unaudited statement of profits and losses for
the twelve-month period then ended (the "SHP FINANCIALS," and together with the
Interim Financials and the Audited Financials, the "FINANCIAL STATEMENTS"). The
SHP Financials are attached hereto as Schedule 2.6(a)(iii).
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(b) Except as set forth on Schedule 2.6(b)(i) hereto, the
Interim Financials and the Audited Financials: (i) are in accordance with the
books and records of the Company and (ii) fairly present the financial condition
and the results of operations of the Company, as at the dates indicated therein
and the changes in its cash flows for the periods indicated therein. Except as
set forth on Schedule 2.6(b)(ii) hereto, the Interim Financials and the Audited
Financials have been prepared in accordance with United States generally
accepted accounting principles consistently applied in accordance with prior
practice ("GAAP") except that the Interim Financials do not contain footnotes.
Schedule 2.6(b)(ii) details explicitly the manner in which and the reason why
any portion of the Interim Financials or the Audited Financials does not conform
with GAAP.
2.7. Authority to Execute and Perform Agreement. Each Shareholder
(i) has the full legal right and power and all authority and approvals required
to enter into, execute and deliver this Agreement and to perform fully the
obligations of such Shareholder hereunder; (ii) the execution, delivery and
performance by each Shareholder of this Agreement have been duly authorized by
all necessary action on the part of such Shareholder; (iii) this Agreement has
been duly executed and delivered by each Shareholder and constitutes the legal,
valid and binding obligations of each such Shareholder, enforceable in
accordance with its terms; and (iv) except as otherwise specified in this
Agreement or Schedule 2.7 hereto, no approval or consent of any other Person is
required in connection with the execution and delivery by any Shareholder of
this Agreement. The Shareholders are the record and beneficial owners of all of
the issued and outstanding capital stock of the Company. No other class of
capital stock or any equity security of the Company is authorized or issued and
outstanding other than that owned by the Shareholders. There will be no
outstanding security of any kind convertible into any such capital stock or
proprietary interest and no Stock Rights outstanding at the Closing which are
not conveyed to Purchaser pursuant to this Agreement.
2.8. Compliance with Laws. To the Shareholders' Knowledge, neither
Shadow Hills nor the Company is in violation in any material respect of any
applicable order, judgment, injunction, award, decree or writ (collectively,
"ORDERS"), or any applicable law, statute, code, ordinance, regulation or other
requirement (collectively, "LAWS"), of any government or political subdivision
thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any court,
tribunal, or arbitrator (collectively, "GOVERNMENTAL BODIES") known to it, and
neither the Company, Shadow Hills, nor any Shareholder has received notice that
any such violation is being or may be alleged or has any reason to believe that
any such violation is being or may be alleged.
2.9. Permits. Each of Shadow Hills and the Company has all
licenses, permits, orders or approvals of, and has made all required
registrations and filings with, any Governmental Body, the absence of which,
individually or in the aggregate, could have a Material Adverse Effect on Shadow
Hills or the Company, as the case may be, or the conduct of the business of the
Company or Shadow Hills as presently conducted (collectively, "PERMITS"). All of
the Permits are in full force and effect; no material violations have occurred
in respect of any Permit; and no proceeding is pending or threatened by any
Governmental Body to revoke or limit any Permit.
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2.10. No Breach. Except as set forth on Schedule 2.10, the
execution, delivery and performance of this Agreement by the Shareholders and
the consummation of the contemplated transactions will not (i) violate any
provision of the Articles of Incorporation or By-laws of the Company or the SHP
Operating Agreement, (ii) to the Shareholders' Knowledge, require any
Shareholder, Shadow Hills or the Company to obtain any consent, approval or
action of, or make any filing with or give any notice to, any Governmental Body
or any other Person, (iii) violate, conflict with or result in the breach of any
of the terms and conditions of, result in a modification of the effect of,
otherwise cause the termination of or give any other contracting party the right
to terminate, or constitute (or with notice or lapse of time or both constitute)
a default (by way of substitution, novation or otherwise) under, any Contract
required to be disclosed on Schedule 2.12 or on any other Schedule attached
hereto or any other material Contract to which the Company, Shadow Hills or any
Shareholder is a party or by or to which any of them or any of their respective
properties may be bound or subject, or result in the creation of any Lien upon
the properties of the Company or of Shadow Hills except for such violations,
conflicts, breaches, modifications, terminations or defaults which could not
have a Material Adverse Effect on the Company or Shadow Hills, as the case may
be, (iv) to the Shareholders' Knowledge, violate any Order of any Governmental
Body against, or binding upon, the Company, Shadow Hills or any Shareholder or
upon any of their respective securities, properties, rights or business, (v) to
the Shareholders' Knowledge, conflict with or result in any breach or violation
of any of the terms and conditions of any Law or Order of any Governmental Body
except as otherwise provided herein or (vi) to the Shareholders' Knowledge,
violate or result in the revocation or suspension of any Permit.
2.11. Actions and Proceedings. To the Shareholders' Knowledge,
there are no outstanding Orders of any Governmental Body against the Company or
Shadow Hills, as to which the violation thereof or failure to comply therewith
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company or Shadow Hills, as the case may be. Except as set forth on Schedule
2.11, there are no actions, suits, claims (including, without limitation, audit
claims) or legal, administrative or arbitral proceedings or investigations
(collectively, "ACTIONS") (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance) pending, or to the Knowledge of the
Shareholders threatened, against or involving or otherwise relating to the
Company, Shadow Hills or the Shareholders or any of their properties or rights
which, if adversely decided, would have a Material Adverse Effect on the
Company, Shadow Hills or the Shareholders, as the case may be. The Shareholders
have no Knowledge of any dispute with any Person under any material Contract
relating to the Company or Shadow Hills. There are no Actions pending, or to the
Knowledge of the Shareholders, threatened against the Company, Shadow Hills or
any Shareholder that would otherwise prevent or hinder the consummation of the
PM Sale.
2.12. Contracts.
(a) Schedule 2.12(a) sets forth all of the following
Contracts in effect as of the date of this Agreement to which the Company or
Shadow Hills is a party: (i) any
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Contract with any officer, director, shareholder, or Affiliate of the Company,
or any member of the immediate family of any director, officer or shareholder,
including, without limitation, any loan agreement between the Company and any of
the foregoing, (ii) any Contract with any employee, consultant, or agent,
requiring the payment after the Interim Balance Sheet Date by the Company or
Shadow Hills of $50,000 or more (except with respect to at-will employees of the
Company or Shadow Hills who are listed on Schedule 2.27), (iii) any Contract
with any labor union or association representing employees of the Company or
Shadow Hills (other than a Contract with SAG or the DGA), (iv) any Contract
calling for the payment after the Interim Balance Sheet Date by the Company or
Shadow Hills of more than $50,000 for the purchase or sale of any materials,
supplies, equipment, merchandise or services, (v) any warehousing,
distributorship, depository, representation, management, marketing, agency,
paper, printing or advertising agreement calling for the payment after the
Interim Balance Sheet Date of more than $50,000 by the Company or Shadow Hills,
(vi) any Contract under which the Company or Shadow Hills agrees to indemnify
any party in an amount in excess of $25,000, to share Tax liability of any party
or to refrain from competing with any party, (vii) any Contract relating to any
Key Film Asset which Contract (a) requires, or hereafter will require, the
Company (or any successor thereto) or Shadow Hills (or any successor thereto) to
pay after the date hereof an aggregate amount of $100,000 or more, or (b)
entitles, or hereafter (in the Shareholders' reasonable opinion) will entitle,
the Company (or any successor thereto) or Shadow Hills (or any successor
thereto) to receive after the date hereof an aggregate amount of $100,000 or
more, (viii) any Contract containing covenants of the Company or Shadow Hills
not to compete after the date hereof in any line of business or with any person
in any geographical area, and (ix) any option held by the Company or Shadow
Hills to acquire or sell securities or all or any material portion of the
assets, properties, rights or business of other Persons.
(b) All of the written Contracts set forth on Schedule
2.12(a) have been delivered or made available to Purchaser (including any and
all amendments thereto) and are valid, subsisting agreements, in full force and
effect and binding upon the parties thereto in accordance with their respective
terms, and to the Knowledge of the Shareholders, (i) the Company or Shadow
Hills, as applicable, is not in material default under any of them, (ii) no
other party to any such Contract is in material default and (iii) no condition
exists which with notice or lapse of time or both would constitute a material
breach or default thereunder.
(c) No approval or consent of any Person is needed by
reason of this Agreement in order that the Contracts set forth on Schedule
2.12(a) continue in full force and effect following the consummation of the
Agreement.
(d) Schedule 2.12(d) attached hereto lists the material
terms of all Contracts to which a Shareholder or any Affiliate of a Shareholder
is a party and which concern or involve any rights to or interests in any Film
Asset (except for Contracts concerning production or direction of a Film by a
Shareholder or Contracts regarding film credits).
2.13. Real Estate. Neither the Company nor Shadow Hills owns any
real property or any buildings, structures and other improvements
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<PAGE> 13
(except for improvements concerning the Wentworth Property owned by the
Company). Except for the Wentworth Lease, the Existing Lease, and the Cinemobile
Lease, the Company is not a party to (i) any lease, sublease or other agreement
under which the Company is the lessor, lessee, sublessor or sublessee of any
real property, (ii) any option or contractual obligations on the part of the
Company to purchase or acquire any interest in real property; or (iii) any
option granted by the Company or contractual obligations on the part of the
Company to sell or dispose of any interest in real property. Shadow Hills is not
a party to (i) any lease, sublease or other agreement under which Shadow Hills
is the lessor, lessee, sublessor or sublessee of any real property, (ii) any
option or contractual obligations on the part of Shadow Hills to purchase or
acquire any interest in real property; or (iii) any option granted by Shadow
Hills or contractual obligations on the part of Shadow Hills to sell or dispose
of any interest in real property.
2.14. Accounts and Notes Receivable.
(a) All accounts and notes receivable reflected on the
Financial Statements have arisen in the ordinary course of business, represent
valid obligations owing to the Company or Shadow Hills, as applicable, and,
subject only to consistently recorded reserves or allowances for bad debts and
returns, have been collected or, to the Knowledge of the Shareholders, are
reasonably collectible in the aggregate recorded amounts thereof in accordance
with their terms.
(b) The schedule of off balance sheet foreign accounts
receivable dated October 31, 1999 (the "FOREIGN RECEIVABLES SCHEDULE") and
delivered to Purchaser is true, correct and complete and is attached hereto as
Schedule 2.14(b). All of the transactions referred to on the Foreign Receivables
Schedule arose in bona fide transactions in the ordinary course of the Company's
business and, to the Knowledge of the Shareholders, there is no reason to
believe that the Company will not be able to perform its obligations with
respect to such transactions. Since October 31, 1999, the Company has
experienced no difficulties inconsistent with prior experience in collecting
either the accounts receivable listed on the Foreign Receivables Schedule or the
foreign accounts receivable generated after the date thereof.
2.15. Inventories. The inventories of the Company and Shadow Hills
as set forth on the Financial Statements are in substantially usable and, in the
case of finished goods, salable condition.
2.16. Film Assets. Schedule 2.16A and Schedule 2.16B together list
all of the Film Assets of the Company as of the date hereof, and, as to each
such Film Asset, indicates the title, the date of copyright registration, and
the registration number. The Company has all right, title and interest in and to
the Owned Film Assets listed on Schedule 2.16A and the Company is able to
perform such Exploitation Agreements as have been entered into by the Company
relating to such Owned Film Assets. The Company has all power and authority
necessary to enter into all Exploitation Agreements with respect to all Licensed
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<PAGE> 14
Film Assets. The Company has all right, title and interest in and to the
Licensed Film Assets listed on Schedule 2.16B as are necessary for the Company
to perform all Exploitation Agreements relating to such Licensed Film Assets and
as are necessary for the Company to receive all benefits thereunder, including
all consideration, compensation or other sums owing or payable to the Company
pursuant to such Exploitation Agreements. No third party holds any rights of
material value or Liens (other than Permitted Liens) with respect to any Owned
Film Asset except as such rights or Liens arise under an existing Exploitation
Agreement. To the Shareholders' Knowledge, neither the Film Assets nor the
Company's exploitation thereof violates or infringes, or will violate or
infringe upon any copyright, right of privacy or publicity, trademark, patent,
trade name, performing right or any literary, dramatic, musical, artistic,
personal, private, contract or copyright or any right of any other person or
contains any defamatory material in any manner. Shadow Hills does not and does
not purport to possess any ownership, distribution or exploitation rights with
respect to any Film.
(a) The Company has delivered to Purchaser documents which
accurately and completely identify as of the date hereof all Laboratories at
which the Masters relating to Film Assets are located and the specific Masters
that are located at each such Laboratory.
(b) Neither Shadow Hills nor the Company owns any interest
in any material trademarks.
(c) Schedule 2.16(c) attached hereto accurately and
completely identifies as of the date hereof each Exploitation Agreement
concerning a Key Film Asset which calls for the payment of $100,000 or more to
the Company after the Interim Balance Sheet Date.
(d) Schedule 2.16(d) attached hereto accurately and
completely identifies as of the date hereof all Contracts of the Company to
purchase, produce, exploit or develop in the future any right or interest in any
Key Film Asset not yet released as at the Closing Date and adequately summarizes
the Company's plans with respect to any of the foregoing.
(e) All of the Key Film Assets are listed on Schedule
2.16(e) attached hereto.
2.17. Tangible Property/Bank Accounts.
(a) All material (i) leases, (ii) conditional sales
contracts, (iii) franchises and (iv) licenses, pursuant to which the Company or
Shadow Hills may hold or use any interest owned or claimed by the Company or
Shadow Hills, as applicable, in or to Tangible Property have been delivered or
made available to the Purchaser and, to the Shareholders' Knowledge, are valid,
subsisting agreements, in full force and effect and binding upon the parties
thereto in accordance with their terms and, as respects the Company's or Shadow
Hills' performance, to the Knowledge of the Shareholders, there is no default or
event of default or event which with notice or lapse of time or both would
constitute a default under any of such agreements. To the Shareholders'
Knowledge, the Tangible Property of the Company and of Shadow Hills is in good
operating condition and repair and neither the Company, Shadow Hills
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<PAGE> 15
nor the Shareholders have received any notice that any Tangible Property is in
violation of any existing Law or any building, zoning, health, safety or other
ordinances, code or regulation. The Company, Shadow Hills and the Shareholders
have good and marketable title to all of their Tangible Property other than
Permitted Liens. As used herein, the term "TANGIBLE PROPERTY" means all
interests owned by the Company or Shadow Hills (including, without limitation,
options) in or to the machinery, equipment, furniture, fixtures, dies and tools,
packing and packaging materials and containers, vehicles, any related
capitalized items and other Tangible Property material to the business of the
Company or Shadow Hills and that is treated by the Company or Shadow Hills as
depreciable or amortizable or fully depreciated or fully amortized property.
(b) All items of Tangible Property with an original
acquisition cost of over $10,000 owned by the Company as of the date hereof are
listed on Schedule 2.17(b).
(c) No real, personal or other property is owned by PM FSC.
(d) All bank, deposit, checking, money market, securities
and other accounts of the Company, Shadow Hills and PM FSC (collectively, the
"BANK ACCOUNTS") and the signatories to each such Bank Account are listed on
Schedule 2.17(d).
(e) The items listed on Schedule 2.17(e) may be removed by
the Shareholders at the time of the Closing.
2.18. Intangible Property. Each of the Company and Shadow Hills,
directly or indirectly, owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
and any applications therefor, and tangible or intangible proprietary
information or material the absence of which would have a Material Adverse
Effect on the Company or Shadow Hills, as applicable (the "INTANGIBLE
PROPERTY").
The Company or Shadow Hills, as the case may be, is the sole and
exclusive owner of, or the exclusive or non-exclusive licensee of, with all
right, title and interest in and to (free and clear of any Liens or
encumbrances, except where such liens or encumbrances have not had, and could
not have, a Material Adverse Effect), the Intangible Property, and, in the case
of Intangible Property owned by the Company or Shadow Hills, has sufficient
right to the use thereof or the material covered thereby in connection with the
products in respect of which the Intangible Property are being used. Except
where the adverse resolution of the matters referred to in clauses (i), (ii) and
(iii) below would not have a Material Adverse Effect, no Actions with respect to
the Intangible Property have been asserted or, to the Knowledge of the
Shareholders, are threatened by any person (i) to the effect that the sale,
licensing, or use of any of the products of the Company or Shadow Hills as now
sold or licensed or used or proposed for use, sale or licensing by the Company
or Shadow Hills infringes on any copyright, trademark or service mark, (ii)
against the use by the Company of any trademarks, service marks, trade names,
copyrights, technology or know-how and applications used in the business of the
Company or Shadow Hills
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<PAGE> 16
as currently conducted or as proposed to be conducted, or (iii) challenging the
ownership by the Company or Shadow Hills or the validity of any of the
Intangible Property.
2.19. Liens. Each of the Company and Shadow Hills owns outright
and has good and marketable title to all of its assets and Properties, in each
case free and clear of any Lien except for (i) Liens on properties and assets
securing Taxes, assessments, governmental charges or levies, or the claims of
materialmen, carriers, landlords and like persons, which are not yet due and
payable, (ii) Liens on immaterial assets or Properties, (iii) Liens on assets
and properties disposed of, or subject to purchase or sales orders, in the
ordinary course of business since the Balance Sheet Date without violation of
any provisions of this Agreement, (iv) Liens specifically identified on the
Financial Statements, and (v) Liens held by SAG or the DGA which arose in the
ordinary course of the Company's business (the Liens described in clauses (i)
through (v) above are sometimes referred to collectively as the "PERMITTED
LIENS").
2.20. Accounts Payable and Indebtedness. Except for the Inferno
Exposure, all Indebtedness of the Company as at the Interim Balance Sheet Date
is set forth on the Interim Financials. All Indebtedness reflected on the
Interim Financials has arisen in the ordinary course of business and represents
valid Indebtedness of the Company. All Indebtedness of Shadow Hills as at the
Interim Balance Sheet Date is set forth on the SHP Financials. All Indebtedness
reflected on the SHP Financials has arisen in the ordinary course of business
and represents valid Indebtedness of Shadow Hills. As used herein, the term
"INDEBTEDNESS" means all items which, in accordance with GAAP, would be included
in determining total liabilities as shown on the liability side of a balance
sheet as at the date Indebtedness is to be determined.
2.21. Liabilities. Except for the Inferno Exposure, as at the
Balance Sheet Date and the Interim Balance Sheet Date, neither the Company, any
of its Subsidiaries nor Shadow Hills had any Liabilities that were not fully and
adequately reflected or reserved against on the Interim Financials, the Audited
Financials or the SHP Financials, as the case may be, except as otherwise
disclosed and identified in this Agreement or the schedules attached hereto. The
Company, its Subsidiaries and Shadow Hills do not have any Liabilities, other
than (i) Liabilities fully and adequately reflected or reserved against on the
Interim Financials or the SHP Financials, as the case may be, and (ii)
Liabilities incurred since the Interim Balance Sheet Date in the ordinary course
of business, except as otherwise disclosed in this Agreement or the schedules
attached hereto. No Shareholder has any Knowledge of any circumstance,
condition, event or arrangement that may hereafter give rise to any Liabilities
of the Company or Shadow Hills or any successor to its business except in the
ordinary course of business or except as set forth on the Financial Statements,
except as otherwise disclosed and identified in this Agreement or the schedules
attached hereto.
2.22. Suppliers and Customers. To the Shareholders' Knowledge, no
single supplier or customer is of such importance to the business of the Company
that the business of the Company would suffer a Material Adverse Effect because
of the loss of such single supplier or customer. To the Knowledge of the
Shareholders, the relationships of the Company with its
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<PAGE> 17
suppliers and customers are generally good commercial working relationships and,
no supplier or customer of the Company which is material to its business has
canceled, or threatened to cancel, its relationship with the Company or has
during the last 12 months decreased materially, or threatened to decrease or
limit materially, its services, supplies or materials to the Company or its
usage of the Company's services or products, as the case may be. To the
Company's Knowledge, the Company does not have any notice that any such supplier
or customer intends to cancel or otherwise modify its relationship with the
Company or to decrease materially its services, supplies or materials to the
Company or its usage of the services or products of the Company.
2.23. Shareholder Loans. The aggregate amount of the of the
Shareholder Loans (principal and accrued interest) as of November 1, 1999 was
Two Million Five Hundred Nine Thousand Six Hundred Sixty-Five and 80/100 Dollars
($2,509,665.80) payable as follows $1,223,005.65 to Merhi, $1,262,035.01 to
Pepin and $24,625.14 to Shamieh. Since November 1, 1999, there has been no
change in the aggregate amount of the Shareholder Loans or the individual amount
of any Shareholder Loan. Except for an offset of $164,500 on the Shareholder
Loan from Shamieh to the Company, since November 1, 1999, the Shareholders have
received no payments or offsets on the Shareholder Loans nor have any loans from
the Company or Shadow Hills to any Shareholder been repaid, offset or canceled.
2.24. Shadow Hills Assets and Liabilities.
(a) Since the Interim Balance Sheet Date, Shadow Hills has
not sold any assets or incurred any Liabilities except in the ordinary course of
its business, consistent with past practice.
(b) All of the Liabilities listed on the SHP Financials
were incurred in the ordinary course of Shadow Hills' business.
2.25. Employee Benefit Plans.
(a) Except for the Profit Sharing Plan and any applicable
SAG or DGA plans, neither the Company, Shadow Hills nor any ERISA Affiliate of
the Company or Shadow Hills maintains or otherwise has any liability (whether
direct or indirect, actual or contingent) in respect of any "employee pension
benefit plan" (as such term is defined in section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Except as is set
forth in the Company's January, 1996 Employee Manual, attached as Schedule 2.25
hereto (the "EMPLOYEE MANUAL"), neither the Company nor Shadow Hills maintains
any ERISA Benefit Plan (except such plans as to which the Company may be subject
due to its relationships with SAG or the DGA). No ERISA Benefit Plan is a
"multiemployer plan" (as such term is defined in section 3(37) of ERISA).
(b) Except as is set forth in the Employee Manual, neither
the Company nor Shadow Hills maintains or is it subject to any:
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(i) material severance, stock ownership, purchase or
option, bonus, incentive, vacation or holiday pay, sick pay, or other
welfare benefit or fringe benefit plan, program or arrangement; or
(ii) collective bargaining agreement or any other
material agreement or arrangement with or for the benefit of any present
or prior officer, director, employee or consultant (except such
agreements as to which the Company may be subject due to its
relationships with the SAG or the DGA),
with respect to which the Company has any liability.
(c) With respect to each ERISA Benefit Plan, the Company
has made available to the Purchaser originals or correct and complete copies,
where applicable, of (i) all plan documents, insurance contracts or policies and
any amendments thereto, (ii) the current summary plan description and (iii) the
annual reports on Form 5500, including schedules, as filed.
(d) With respect to each ERISA Benefit Plan, (i) there is
no pending, or, to the knowledge of the Shareholders, threatened material Claim
other than claims for benefits in the ordinary course of business, (ii) all
contributions and premiums due have been made on a timely basis and (iii) has
been administered substantially in accordance with the requirements of ERISA
and, where applicable, the Code. Neither the Company nor Shadow Hills has any
obligation to provide health or death benefits to its prior employees except as
required by Part 6 of Title I of ERISA.
(e) Except with respect to such plans as are set forth in
the Employee Manual and except with respect to such plans as to which the
Company may be subject due to its relationships with the SAG or the DGA, neither
the Company nor Shadow Hills has any liability of any kind whatsoever, whether
direct, indirect, contingent or otherwise, on account of (i) any violation of
the health care requirements of Part 6 of Title I of ERISA or Section 4980B of
the Code, (ii) under Section 502(i) or Section 502(l) of ERISA or Section 4975
of the Code, (iii) under Section 302 of ERISA or Section 412 of the Code or (iv)
under Title IV of ERISA.
2.26. Tax Matters.
(a) Each of the Company and Shadow Hills has paid all taxes
heretofore required to be paid by such entities and lawfully imposed by any
jurisdiction or taxing authority (including, without limitation, income,
profits, premium, estimated, excise, sales, use, occupancy, gross receipts,
stamp, environmental, windfall profits, license, alternative minimum or add-on
minimum, franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, FICA, payroll related and
Property taxes, import and customs duties, value added taxes and other
governmental charges and assessments of any kind whatsoever), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect
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<PAGE> 19
thereto, and including expenses associated with contesting any proposed
adjustment related to any of the foregoing and including the liability of the
Company or Shadow Hills for the payment of amounts with respect to payments of a
type described above as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation of the
Company or Shadow Hills under any tax indemnity arrangement or any agreement or
arrangement for the allocation or payment of Tax liabilities or payment of tax
benefits with respect to a combined, consolidated or unitary Tax Return (as
defined below) which includes the Company or Shadow Hills ("TAXES" or,
individually, a "TAX") required to be paid by it through the date hereof, and
shall timely pay any Taxes required to be paid by it on or before the Closing
Date or with respect to any period which includes the Closing Date to the extent
any accrual or payment was or is required on or prior thereto.
(b) Each of the Company and Shadow Hills has timely filed
all returns, reports or similar statements (including any attached schedules)
required to be filed with respect to any Tax including, without limitation, any
information returns, claims for refund, amended returns and declarations of
estimated Tax ("TAX RETURNS" or, individually, a "TAX RETURN") through the date
hereof and shall prepare and timely file, in a manner consistent with prior
years and applicable laws and regulations, all Tax Returns required to be filed
on or before the Closing Date. The Company has not requested an extension of the
deadline for filing any Tax Return which, without such extension would be
required to be filed on or before the Closing Date.
(c) No penalties, additions to tax, interest or other
charges are or will become due with respect to the late filing of any Tax Return
of the Company or Shadow Hills required to be filed on or before the Closing
Date.
(d) With respect to all Tax Returns of the Company and
Shadow Hills, (i) Schedule 2.26(d) sets forth a list of each type of periodic
Tax Return (by taxing jurisdiction and type of Tax) filed by the Company or
Shadow Hills during the most recent three (3) years, indicating the date of the
most recent such Tax Returns with respect to which the statute of limitations
for the assessment of Taxes has expired and (ii) except as set forth on Schedule
2.26(e), no audit, investigation or examination is in progress and no extension
of time is in force with respect to any date on which any Tax Return was or is
to be filed and no waiver or agreement is in force for the extension of time for
the assessment or payment of any Tax.
(e) Schedule 2.26 sets forth the status of all audits,
examinations, actions, suits, investigations, claims or assessments of the Tax
Returns of the Company or Shadow Hills for each fiscal year for which the
statute of limitations has not expired, including the amounts of any
deficiencies and additions to tax, interest and penalties indicated on any
notices of proposed deficiency or statutory notices of deficiency, and the
amounts of any payments made by the Company or Shadow Hills with respect
thereto.
(f) There is no unassessed tax deficiency proposed or, to
the Knowledge of the Shareholders, threatened against the Company or Shadow
Hills. All
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<PAGE> 20
deficiencies asserted or assessments made as a result of any audit, examination
or similar governmental action with respect to any Tax Return have been paid in
full. There are no Liens for Taxes upon assets of the Company or Shadow Hills
except for Liens relating to current Taxes not yet due and for which an adequate
accrual has been made in accordance with GAAP. All agreements or arrangements of
the Company or Shadow Hills for the allocation or payment of Tax liabilities or
payment of Tax benefits with respect to a consolidated, combined or unitary Tax
Return which includes the Company or Shadow Hills will terminate prior to the
Closing Date and neither the Company nor Shadow Hills will have any liability
thereunder on or after the Closing Date.
(g) All Taxes which the Company or Shadow Hills has been
required to withhold or to collect for payment through the date thereof have
been duly withheld, collected and paid.
(h) There are no Tax rulings, requests for rulings, or
closing agreements concerning the Company or Shadow Hills which could affect the
Company's or Shadow Hills', as the case may be, liability for Taxes for any
period after the Closing Date.
(i) All Taxes that may be incurred with respect to the
repatriation of any assets or funds from PM FSC have been adequately reserved on
the Interim Financials.
2.27. Officers, Directors and Employees. Schedule 2.27 sets forth
(i) a list of all Contracts which are currently in effect relating either to the
employment of any employee of the Company or Shadow Hills whose annual
compensation exceeds $50,000, or to any current or former officer or director of
the Company or Shadow Hills, indicating with respect to each such Contract, the
term thereof and the name, title and annual compensation of the party thereto,
(ii) a list of the Contracts listed in subsection (i) of this Section 2.27,
under which the Company has, or had as of August 31, 1999, any material
undischarged, contingent or inchoate obligations (including, without limitation,
any indemnification or contribution obligations), (iii) all wage or salary
increases or bonuses received since August 31, 1999 to the date hereof by any
employee, officer or director of the Company or Shadow Hills, and any accrual
for or commitment or agreement (written or oral) by the Company or Shadow Hills
to pay any such increases or bonuses and (iv) all bonus or severance
arrangements (written or oral) or policies with respect to any current or former
officer, director or employee of the Company or Shadow Hills except as set forth
in the Employee Manual. No Person employed by the Company at any time since
January 1, 1998, nor any former officer or director of the Company or Shadow
Hills has made any threat in writing, or to the Knowledge of the Shareholders
orally, as of the date hereof to the Company or Shadow Hills or to any of their
officers or directors to bring or commence any Action against the Company or
Shadow Hills or any of their employees, officers, directors or Affiliates.
2.28. Interested Party Transactions. Except with respect to the
motion picture entitled "Y2K," since the Balance Sheet Date, none of (i) the
Shareholders, (ii) the officers of the Company or (iii) any Affiliate of a
Shareholder or of an officer of the Company has engaged or entered into or
proposed to enter into any Contract or series of Contracts with the Company or
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<PAGE> 21
Shadow Hills in which the amount involved in such Contract or series of
Contracts exceeds $25,000.
2.29. Change in Control Payments. Except as set forth in this
Agreement or the schedules hereto, neither Shadow Hills nor the Company has any
plans, programs, agreements or Contracts to which it is a party, or to which it
is subject, pursuant to which payments (or acceleration of benefits) may be
required upon, or may become payable directly or indirectly as a result of, a
change of control of the Company or a transfer of a material amount of the
assets of Shadow Hills.
2.30. No Broker. No broker, finder, agent or similar intermediary
has acted for or on behalf of the Company, Shadow Hills or any Shareholder in
connection with this Agreement or the PM Sale, and no broker, finder, agent or
similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection therewith based on any agreement, arrangement or
understanding with the Company, Shadow Hills or any Shareholder or any action
taken by any of the foregoing.
2.31. Insurance. Purchaser has been provided access to all
policies or binders of fire, liability, worker's compensation, vehicular, life,
product liability, errors and omissions and other insurance held by or on behalf
of the Company or Shadow Hills, specifying the insurer, the policy number or
covering note number with respect to binders, and describing each pending claim
thereunder of more than $10,000 and setting forth the aggregate amounts Known by
the Shareholders to have been paid out under each such policy from January 1,
1994 through the date hereof and the aggregate limit, if any, of the insurer's
liability thereunder. Such policies and binders are valid and enforceable in
accordance with their terms, and are in full force and effect. Neither the
Company nor Shadow Hills has received any written notice that it is in default
with respect to any provision contained in any such policy or binder or has
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. To the Shareholders' Knowledge, there are no
outstanding unpaid claims under any such policy or binder. Neither the Company
nor Shadow Hills has received a written notice of cancellation or non-renewal of
any such policy or binder. The Shareholders believe that the insurance policies
described in the first sentence of this Section 2.31 provide adequate coverage
to the date hereof for all normal risks incident to the business of the Company
and Shadow Hills and its subsidiaries and their respective properties and
assets.
2.32. Operations of the Company. Except as set forth on Schedule
2.32, since the dates indicated, the Company has not:
(a) since the Balance Sheet Date, except as contemplated
by this Agreement, amended, or agreed to amend, its Articles of
Incorporation or Bylaws or merged with or into or consolidated with, or
agreed to merge with or into or consolidate with, any other Person, or
changed, or agreed to change, in any manner the character of its
business or the number of authorized or outstanding shares of its
capital stock;
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(b) except for the Shamieh Agreement, since the Balance
Sheet Date, hired, or agreed to hire, any Person; entered into or
amended, or agreed to enter into or amend, any employment agreement with
respect to any officer or director, or with respect to any other Person
(other than a Film actor) whose annual compensation exceeds $50,000 or
which is not terminable by the Company without liability (except for
liabilities for earned but unpaid wages or salary); entered into, or
agreed to enter into, any agreement with any labor union or association
(other than SAG or DGA) representing any employee; or entered into or
amended, or agreed to enter into or amend, any ERISA Benefit Plan;
(c) since the Interim Balance Sheet Date, incurred, or
agreed to incur, any Indebtedness (other than the Imperial Indebtedness)
for borrowed money in excess of $50,000 or assumed, guaranteed, endorsed
or otherwise become responsible for, or agreed to assume, guarantee,
endorse or otherwise become responsible for, any obligations of any
Person (other than the Company);
(d) since the Balance Sheet Date, declared, set aside or
paid, or agreed to declare, set aside or pay, any dividends or declared,
set aside or made, or agreed to declare, set aside or make, any
distributions or other payments of any kind to any Shareholder or any of
their respective Affiliates;
(e) since the Interim Balance Sheet Date, issued,
granted, sold or pledged, or agreed or proposed to issue, grant, sell or
pledge, any shares of capital stock of the Company or any Rights to
acquire such shares or any related share or stock appreciation rights;
(f) since the Interim Balance Sheet Date, reduced, or
agreed to reduce, its cash or short-term investments or their
equivalents, other than to meet cash needs arising in the ordinary
course of business, consistent with past practice;
(g) since the Balance Sheet Date, except as otherwise
disclosed in this Agreement or the schedules hereto, waived, released,
granted or transferred, or agreed to waive, release, grant or transfer,
any right of value to, or the business of, the Company except in the
ordinary course, including, without limitation, any debts owed by any
Shareholder to the Company;
(h) since the Balance Sheet Date, made, or agreed to
make, any change in its accounting methods or practices or made, or
agreed to make, any change in depreciation or amortization policies or
rates adopted by it;
(i) since the Interim Balance Sheet Date, other than in
the ordinary course of business consistent with past practice, changed
or modified, or agreed to change
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or modify, any material terms of any Contract which would be required to
be disclosed on Schedule 2.12 or any of its business policies or
practices, including, without limitation, advertising, marketing,
pricing, purchasing, personnel, sales, returns, budget or product
acquisition policies, each in any material respect;
(j) except with respect to the Shamieh Employment
Agreement and the raises disclosed on Schedule 2.27, if any, since the
Balance Sheet Date, made, or agreed to make, any annual wage or salary
increase or bonus in excess of $10,000, or increase in any other direct
or indirect compensation (including, without limitation, the grant or
transfer of any Right or interest in or to any Intangible Property or
the proceeds therefrom), for or to any of its officers, employees,
consultants, agents or other representatives, or any accrual for or
commitment or agreement to make or pay the same;
(k) since the Balance Sheet Date, made, or agreed to
make, any payment (other than payments of salary in the ordinary course
of business consistent with past practice and payments to consultants,
agents or other representatives of the Company in the ordinary course of
business consistent with past practice), or loan or advance, in each
case to any officer, director, or employee of the Company or any
Shareholder or any of their respective Affiliates (other than de minimis
advances to employees);
(l) since the Interim Balance Sheet Date, made, or
agreed to make, any payment or commitment to pay any severance or
termination payment to any of its officers, directors, employees,
consultants, agents or other representatives;
(m) since the Interim Balance Sheet Date, entered into,
or agreed to enter into, any lease (as lessor or lessee, sublessor or
sublessee) except in the ordinary course of business and except for the
Wentworth Lease; sold, transferred, abandoned or made, or agreed to
sell, transfer, abandon or make, any other disposition of any of its
assets, Film Assets, Properties, capital stock or business other than in
the ordinary course of business consistent with past practice; granted
or suffered, or agreed to grant or suffer, any Lien on the foregoing
(other than Permitted Liens);
(n) since the Interim Balance Sheet Date, except in the
ordinary course of business and in amounts less than $25,000 in each
case and in a single transaction, incurred or assumed, or agreed to
incur or assume, any Indebtedness or Liability (whether absolute or
contingent and whether or not currently due and payable) other than the
Imperial Indebtedness;
(o) except in the ordinary course of the Company's
business, since the Interim Balance Sheet Date, entered into, or agreed
to enter into, any Contract with respect to the design, development or
production of any Key Film Asset (except as otherwise set forth in this
Agreement or the schedules hereto) or sold, granted, licensed
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<PAGE> 24
or otherwise disposed or transferred, or agreed to sell, grant, license
or otherwise dispose or transfer, any ancillary rights in or to any of
the Company's Intangible Property, including, without limitation, motion
picture rights, television rights, animation rights, interactive or
other multimedia rights and merchandising Rights;
(p) since the Interim Balance Sheet Date, made any
acquisition of any Intangible Property, or any Rights therein or
thereto, (except in connection with the production or distribution of
Key Film Assets) or all or any part of the assets, properties, capital
stock or business of any other Person or made any commitments to do any
of the foregoing, in each case, with an acquisition cost of $5,000 or
more;
(q) since the Interim Balance Sheet Date, except with
respect to Film Assets, made, or agreed to make, any investment of a
capital nature either by purchase of capital stock or securities,
contributions to capital, property transfers or otherwise or by the
purchase of any Properties or assets of any Person, including, without
limitation, any acquisition or redemption of any shares of capital stock
of the Company;
(r) since the Balance Sheet Date, suffered any change,
destruction or loss, or become aware of any event or threat which could
reasonably be expected to cause any Material Adverse Change in the
Condition of the Company, whether or not covered by insurance, except
with respect to the motion picture entitled "Inferno";
(s) since the Interim Balance Sheet Date, terminated, or
agreed to terminate, or failed to renew or received any written threat
(that was not subsequently withdrawn) to terminate or fail to renew, any
Contract that would have otherwise been required to be listed on
Schedule 2.12;
(t) since the Balance Sheet Date, suffered any damage
to, destruction or loss of any asset of the Company (whether or not
covered by insurance) that constitutes a Material Adverse Effect, made
any material revaluation of any of the Company's assets, including,
without limitation, writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of
business, or made any sale or disposition of any assets of the Company
(except in the ordinary course of the Company's business) or any pledge
or encumbrance of any assets of the Company (except to SAG or the DGA or
except pursuant to the terms of the Imperial Indebtedness); or
(u) since the Balance Sheet Date, borrowed money from or
loaned money to any Shareholder, or any officer or director of the
Company or any of their Affiliates, or increased the salary or other
compensation paid to any Shareholder, or any officer or director of the
Company or any of their Affiliates, or purchased any assets from or sold
any assets to any Shareholder, or any officer or director of the Company
or any of their Affiliates.
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2.33. Potential Conflicts of Interest. Except as set forth on
Schedule 2.33, no officer, director or shareholder of the Company or, to the
Knowledge of the Shareholders, any employee of the Company or Shadow Hills, any
Shareholder or any of their respective Affiliates (i) owns, directly or
indirectly, any interest in (excepting not more than 5% stock holdings for
investment purposes in securities of publicly held and traded companies) or is
an officer, director, employee, consultant, agent or other representative of any
Person which is a competitor, lessor, lessee, customer or supplier of the
Company; (ii) owns, directly or indirectly, in whole or in part, any Film Rights
or Intangible Property (or any rights or other interests therein) which the
Company is using or the use of which is necessary for the business of the
Company; (iii) except for the Shareholder Loans, has any material claim
whatsoever against, or owes any amount to, the Company, except with respect to
claims of employees in the ordinary course of business, such as for accrued
vacation pay and similar matters and agreements existing on the date hereof, or
(iv) has any other claim against the Company or Shadow Hills except for
officers' or directors' statutory or contractual indemnification obligations.
2.34. Employment Matters. The Company and Shadow Hills together
employ approximately 37 employees. To the Shareholders' Knowledge, neither the
Company nor Shadow Hills has at any time during the last three (3) years had,
nor is there now threatened, any walkout, strike, picketing, work stoppage, work
slowdown or any other similar occurrence which adversely affects, or may
adversely affect the Company or Shadow Hills. Neither the Company nor Shadow
Hills has received written notice from any Governmental Body that it has failed
to comply, and to the Shareholders' Knowledge both the Company and Shadow Hills
have complied, in all material respects with all applicable Laws (where
noncompliance would have a Material Adverse Effect) relating to the employment
of labor including, without limitation, those relating to wages, hours,
collective bargaining, the payment and withholding taxes and the federal
Occupational Safety and Health Act of 1970, as amended, and the rules and
regulations issued thereunder, and the Company and Shadow Hills have withheld
all amounts required by Law or agreement to be withheld from the wages or
salaries of their employees and neither the Company nor Shadow Hills is liable
for any arrears of wages or other Taxes or penalties for failure to comply with
any of the foregoing. To the Knowledge of the Shareholders, there are no
material controversies pending or threatened between the Company or Shadow Hills
and any of their employees.
2.35. Environmental Protection. Neither the Company nor Shadow
Hills has obtained or applied for any Permits ("ENVIRONMENTAL PERMITS") which
are required under any Laws relating to pollution or protection of the
environment including, without limitation, Laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes. To the Shareholders' Knowledge, the Company and Shadow Hills are in
compliance in all material respects with all limitations, restrictions,
conditions, standards, prohibitions, requirements,
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<PAGE> 26
obligations, schedules and timetables contained in such Laws or in any Order,
notice or demand letter issued, entered, promulgated or approved thereunder. To
the Shareholder's Knowledge, neither the Company nor Shadow Hills has been,
during the past three (3) years, and is not currently required to have any
Environmental Permits.
2.36. Canadian Productions. The Company holds all right title and
interest in and to the Films entitled "Y2K" and "Epicenter" (formerly entitled
"Tremble"). None of the Shareholders or any of their Affiliates (except the
Company) owns any interest in the production, exploitation or distribution of
such Films.
2.37. Year 2000 Compliance. To the Shareholders' Knowledge, the
active computer systems of the Company and Shadow Hills (including without
limitation all software, hardware, workstations and related components,
automated devices, embedded chips and other date sensitive equipment) are Year
2000 Compliant. The term "YEAR 2000 COMPLIANT" as used herein means that the
computer systems (1) are capable of recognizing, processing, managing,
representing, interpreting, and manipulating correctly date related data for
dates earlier and later than January 1, 2000, including, but not limited to,
calculating, comparing, sorting, storing, tagging and sequencing, without
resulting in or causing logical or mathematical errors or inconsistencies in any
user-interface functionalities or otherwise, including data input and retrieval,
data storage, data fields, calculations, reports, processing, or any other input
or output, (2) have the ability to provide date recognition for any data element
without limitation (including, but not limited to, date related data represented
without a century designation, date related data whose year is represented by
only two digits and date fields assigned special values), (3) have the ability
to automatically function into and beyond the year 2000 without human
intervention and without any change in operations associated with the advent of
the year 2000, (4) have the ability to correctly interpret data, dates and time
into and beyond the year 2000, (5) have the ability not to produce noncompliance
in existing information, nor otherwise corrupt such data into and beyond the
year 2000, (6) have the ability to correctly process after January 1, 2000 data
containing dates before that date, and (7) have the ability to recognize all
"leap years," including February 29, 2000.
2.38. Operation of Shadow Hills. Except as set forth on Schedule
2.38 attached hereto, Shadow Hills has taken none of the following actions:
(a) since the Balance Sheet Date, amended, or agreed to
amend, its operating agreement or merged with or into or consolidated
with, or agreed to merge with or into or consolidate with, any other
Person;
(b) since the Balance Sheet Date, hired, or agreed to
hire, any Person; entered into or amended, or agreed to enter into or
amend, any employment agreement with respect to any Person whose annual
compensation exceeds $50,000 or which is not terminable by the Company
without liability (except for liabilities for earned but unpaid wages or
salary); entered into, or agreed to enter into, any agreement with any
labor
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<PAGE> 27
union or association, except SAG or DGA, representing any employee; or
entered into or amended, or agreed to enter into or amend, any ERISA
Benefit Plan;
(c) since the Interim Balance Sheet Date, reduced, or
agreed to reduce, its cash or short-term investments or their
equivalents, other than to meet cash needs arising in the ordinary
course of business, consistent with past practice;
(d) since the Balance Sheet Date, waived, released,
granted or transferred, or agreed to waive, release, grant or transfer,
any right of value to, or the business of, Shadow Hills except in the
ordinary course, including, without limitation, any debts owed by any
Shareholder to Shadow Hills;
(e) since the Balance Sheet Date, made, or agreed to
make, any change in its accounting methods or practices or made, or
agreed to make, any change in depreciation or amortization policies or
rates adopted by it;
(f) since the Interim Balance Sheet Date, other than in
the ordinary course of business consistent with past practice, changed
or modified, or agreed to change or modify, any material terms of any
Contract which would be required to be disclosed on Schedule 2.12 or any
of its business policies or practices, including, without limitation,
advertising, marketing, pricing, purchasing, personnel, sales, returns,
budget or product acquisition policies, each in any material respect;
(g) except with respect to the raises disclosed on
Schedule 2.27, if any, since the Balance Sheet Date, made, or agreed to
make, any annual wage or salary increase or bonus in excess of $10,000,
or increase in any other direct or indirect compensation (including,
without limitation, the grant or transfer of any Right or interest in or
to any Intangible Property or the proceeds therefrom), for or to any of
its officers, employees, consultants, agents or other representatives,
or any accrual for or commitment or agreement to make or pay the same;
(h) since the Interim Balance Sheet Date, incurred, or
agreed to incur, any Indebtedness for borrowed money in excess of
$50,000 or assumed, guaranteed, endorsed or otherwise became responsible
for, or agreed to assume, guarantee, endorse or otherwise become
responsible for, any obligations of any Person (other than Shadow
Hills);
(i) since the Balance Sheet Date, declared, set aside or
paid, or agreed to declare, set aside or pay, any dividends or declared,
set aside or made, or agreed to declare, set aside or make, any
distributions or other payments of any kind to any of its members;
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<PAGE> 28
(j) since the Interim Balance Sheet Date, made, or
agreed to make, any payment or commitment to pay any severance or
termination payment to any of its members, employees, consultants,
agents or other representatives;
(k) since the Interim Balance Sheet Date, entered into,
or agreed to enter into, any lease (as lessor or lessee, sublessor or
sublessee); sold, transferred, abandoned or made, or agreed to sell,
transfer, abandon or make, any other disposition of any of its assets,
Film Assets, Properties, capital stock or business other than in the
ordinary course of business consistent with past practice; granted or
suffered, or agreed to grant or suffer, any Lien on the foregoing (other
than Permitted Liens);
(l) since the Balance Sheet Date, made, or agreed to
make, any payment (other than payments of salary in the ordinary course
of business consistent with past practice and payments to consultants,
agents or other representatives of Shadow Hills in the ordinary course
of business consistent with past practice) or any loan or advance, in
each case to any employee, consultant, agent or other representative of
Shadow Hills;
(m) since the Balance Sheet Date, made, or agreed to
make, any payment or any loan or advance, in each case to any member or
any Shareholder or any of their respective Affiliates;
(n) since the Interim Balance Sheet Date, except in the
ordinary course of business and in amounts less than $25,000 in each
case and in a single transaction, incurred or assumed, or agreed to
incur or assume, any Indebtedness or Liability (whether absolute or
contingent and whether or not currently due and payable);
(o) except in the ordinary course of its business, since
the Interim Balance Sheet Date, entered into, or agreed to enter into,
any Contract with respect to the design, development or production of
any Key Film Asset (except as otherwise set forth in this Agreement or
the schedules hereto) or sold, granted, licensed or otherwise disposed
or transferred, or agreed to sell, grant, license or otherwise dispose
or transfer, any ancillary rights in or to any of its Intangible
Property, including, without limitation, motion picture rights,
television rights, animation rights, interactive or other multimedia
rights and merchandising Rights;
(p) since the Interim Balance Sheet Date, made any
acquisition of any Intangible Property, or any Rights therein or
thereto, (except in connection with the post-production of Key Film
Assets) or all or any part of the assets, properties, capital stock or
business of any other Person or made any commitments to do any of the
foregoing, in each case, with an acquisition cost of $5,000 or more;
23
<PAGE> 29
(q) since the Interim Balance Sheet Date, except with
respect to Film Assets, made, or agreed to make, any investment of a
capital nature either by purchase of capital stock or securities,
contributions to capital, property transfers or otherwise or by the
purchase of any Properties or assets of any Person;
(r) since the Balance Sheet Date, suffered any change,
destruction or loss, or become aware of any event or threat which could
reasonably be expected to cause any Material Adverse Change, whether or
not covered by insurance;
(s) since the Interim Balance Sheet Date, terminated, or
agreed to terminate, or failed to renew or received any written threat
(that was not subsequently withdrawn) to terminate or fail to renew, any
Contract that would have otherwise been required to be listed on
Schedule 2.12;
(t) since the Balance Sheet Date, suffered any damage
to, destruction or loss of any of its assets (whether or not covered by
insurance) that constitutes a Material Adverse Effect, made any material
revaluation of any of its assets, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business, or made any sale, pledge,
disposition of or encumbrance of any of its assets; or
(u) since the Balance Sheet Date, borrowed money from or
loaned money to any Shareholder or any of their Affiliates, or paid any
salary or other compensation to any Shareholder or any of their
Affiliates, or purchased any assets from or sold any assets to any
Shareholder or any of their Affiliates.
2.39. Disclosure. All documents delivered by or on behalf of any
Shareholder, Shadow Hills or the Company in connection with the transactions
contemplated hereby are, as of the date thereof, true, complete and authentic in
all material respects. No representation or warranty of any Shareholder
contained in this Agreement, and none of such documents contains, as of the date
hereof or thereof (with respect to such documents), an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in the context in which made, not
materially false or misleading.
3. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Shareholders as follows:
3.1. Organization. The Purchaser is a corporation organized and in
good standing under the laws of the State of California.
3.2. Execution and Delivery: Validity. The Purchaser has the full
legal right and power and all authority and approvals required to enter into,
execute and deliver this Agreement and to perform fully the obligations of the
Purchaser hereunder, and the execution, delivery and performance by the
Purchaser of this Agreement has been duly authorized by all
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<PAGE> 30
necessary action on the part of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and is the legal, valid and binding
obligation of the Purchaser enforceable in accordance with its terms. No
approval or consent of any Governmental Body and no approval or consent of any
other Person is required in connection with the execution and delivery by the
Purchaser of this Agreement and the consummation and performance by the
Purchaser of the PM Sale.
3.3. No Broker. No broker, finder, agent or similar intermediary
has acted for or on behalf of the Purchaser in connection with this Agreement or
the PM Sale, and no broker, finder, agent or similar intermediary is entitled to
any broker's, finder's or similar fee or other commission in connection
therewith based on any agreement, arrangement or understanding with the
Purchaser or any action taken by the Purchaser.
3.4. No Breach. The execution, delivery and performance of this
Agreement and the consummation of the PM Sale by the Purchaser will not (i)
violate the Certificate of Incorporation or Bylaws of the Purchaser, (ii)
require the Purchaser to obtain any consent, approval or action of, or make any
filing with or give any notice to, any Governmental Body or any other Person,
(iii) violate any Order of any Governmental Body against, or binding upon, the
Purchaser or upon its securities, properties or business, or (iv) conflict with
or result in any material breach or violation of any of the terms and conditions
of any Law or Order of any Governmental Body.
3.5. Investment Representation. Purchaser is a sophisticated
investor purchasing the Shares for investment only and not with a view to the
distribution, resale or other transfer thereof, and Purchaser agrees that it
will not participate, directly or indirectly, in any distribution, resale or
other transfer of the Shares, unless the distribution, resale or other transfer
of shares has been registered pursuant to the Securities Act or is exempt from
the registration requirements of the Securities Act.
3.6. Publicly Filed Documents. The Purchaser has delivered to the
Shareholders a copy of its Form 10-QSB for the quarter ending September 30,
1999. As of the date hereof, such Form 10-QSB does not contain any untrue
statement of a material fact and does not omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading, except as has been disclosed in that certain letter from Purchaser
to the Shareholders dated April 3, 2000.
3.7. Absence of Certain Changes. Since September 30, 1999, the
Purchaser has not suffered any Material Adverse Change in its financial
condition, assets, liabilities or businesses.
4. Covenants and Agreements. The parties covenant and agree as follows:
4.1. Books and Records.
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<PAGE> 31
(a) The Purchaser agrees that it shall preserve and keep
the books and records of the Company for a period of three years from the
Closing Date. During such three year period, duly authorized representatives of
the Shareholders shall, upon reasonable written notice and for reasonable
business purposes, and without unduly disrupting the business of the Purchaser,
have access to the books and records that relate to such periods during normal
business hours to examine, inspect and copy such books and records and interview
relevant persons regarding the contents thereof, and shall be provided with
assistance to facilitate such tasks.
(b) If any party hereto shall require any additional
information relating to the business of the Company in respect of any period
ending on or prior to the Closing Date which information is necessary for the
preparation of any Document required to be filed with any Governmental Body or
the financial statements of such party and such information is in the possession
of any other party hereto, such other party agrees to use its reasonable efforts
to furnish such information at the sole cost and expense of the party to whom
such information is being furnished.
4.2. Shareholder Guarantees. Purchaser shall cause the Shareholder
Guarantees to be terminated prior to the Closing. Each Shareholder shall
cooperate fully with Purchaser and Imperial in seeking to terminate the
Shareholder Guarantees. Purchaser shall use its best efforts to cause the Vendor
Guarantees listed on Schedule 4.2 to be terminated promptly after the Closing.
If, for any reason, such Vendor Guarantees are not terminated, the Shareholders
shall be entitled to indemnification by the Purchaser pursuant to Section 7.2
for any amounts that the Shareholders are required to pay to a vendor pursuant
to any such Vendor Guarantee because of Purchaser's failure to obtain the
termination thereof.
4.3. Non-Solicitation of Employees Each Shareholder agrees that
for the twelve (12) month period following the Closing Date, he will not,
whether directly or indirectly, on his own behalf or in the service of or on
behalf of others, (i) solicit or divert or attempt to solicit or divert any
person employed by the Company or by Purchaser (or by any joint venture in which
the Company or the Purchaser is involved) or (ii) solicit, divert or hire, or
attempt to solicit, divert or hire any of Vincent Ravine, Tom Sykes or Chevonne
O'Shaughnessy.
4.4. Releases of Guaranties. The Shareholders agree (i) to cause
the Company's guaranty (the "CNB GUARANTY") of PMS LLC's loan from City National
Bank ("CNB") secured by the Wentworth Property (the "CNB REAL ESTATE LOAN") to
be released in a manner reasonably satisfactory to Purchaser promptly after the
Closing and (ii) to cause CNB (or any successor lender to PMS LLC) to enter into
a nondisturbance and subordination agreement with the Company, in form and
substance reasonably satisfactory to Purchaser, promptly after the Closing
(together, such requirements are referred to herein as the "CNB CONDITION"). In
addition, the Shareholders agree (i) to cause the Company's guaranty (the "SBA
GUARANTY") of PMS LLC's loan from the Small Business Administration ("SBA")
secured by the Wentworth Property (the "SBA REAL ESTATE LOAN") to be released in
a manner reasonably satisfactory to Purchaser promptly after the Closing and
(ii) to cause the SBA (or any successor lender to PMS
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<PAGE> 32
LLC) to enter into a nondisturbance and subordination agreement with the
Company, in form and substance reasonably satisfactory to Purchaser, promptly
after the Closing (together, such requirements are referred to herein as the
"SBA CONDITION"). Each Shareholder, in his individual capacity and on behalf of
PMS LLC, irrevocably directs CNB to accept payments from Purchaser on the CNB
Real Estate Loan as set forth in the third paragraph of each Note in the manner
provided therein if either the SBA Condition or the CNB Condition has not been
satisfied prior to payment dates designated in each such third paragraph. If,
for any reason, the Company is required to make any payment to CNB pursuant to
the CNB Guaranty or to the SBA pursuant to the SBA Guaranty, the Purchaser shall
be entitled to indemnification by the Shareholders pursuant to Section 7.1 for
the full amounts of any such payments.
4.5. Shareholder Legal Fees. The Shareholders agree that if, for
any reason, the aggregate amount of all Shareholder Legal Fees, whether paid or
billed before or after the Closing minus the amount of any Legal Fee
Reimbursement, if applicable, is greater than $130,000, the Purchaser shall be
entitled to prompt indemnification by the Shareholders pursuant to Section 7.1
for the amounts of any such excess.
5. Conditions Precedent to the Obligation of the Purchaser to Close. The
obligation of the Purchaser to enter into and complete the Closing is subject,
at the option of the Purchaser, to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be waived by
Purchaser (Purchaser's execution of this Agreement shall, as applicable, be
deemed to be an acknowledgment of the satisfaction of or waiver of such
conditions):
5.1. Government Permits and Approvals and Consents. Any and all
Permits and approvals from any Governmental Body required for the lawful
consummation of the Closing and any consents required under the Company's
material contractual arrangements shall have been obtained.
5.2. Litigation. No Action shall have been instituted before any
Governmental Body or instituted or threatened by any Governmental Body to
restrain, modify or prevent the carrying out of the PM Sale or to seek damages
or a discovery order in connection with the PM Sale, or which has or may have,
in the reasonably justified opinion of the Purchaser, a Material Adverse Effect
on the Condition of the Company.
5.3. Shamieh Deliveries. Shamieh shall have delivered to Purchaser
a copy of (i) the Shamieh Employment Agreement and (ii) the Shamieh Purchase
Agreement, in each case, executed by Shamieh.
5.4. Shadow Hills Deliveries. On the Closing Date, Shareholders
shall cause Shadow Hills to deliver to Purchaser an amendment to the SHP
Operating Agreement executed by each Shareholder designating Purchaser as the
sole member of Shadow Hills and taking all such other action as is necessary or
desirable in order to designate Purchaser as the sole member of Shadow Hills.
Such amendment shall constitute an assignment by the Shareholders to Purchaser
of all of their rights and interests in Shadow Hills.
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5.5. Existing Lease. The Shareholders shall have caused the
Existing Lease to have been terminated in such a manner that the Company shall
not be required to pay any penalty or surcharge in connection therewith. In
connection with such termination, the Shareholders shall have caused PMS LLC to
completely and unconditionally release the Company from any claims in connection
with such termination.
5.6. Wentworth Lease. The Shareholders shall have caused a fully
executed copy of the Wentworth Lease to have been delivered to Purchaser.
5.7. Shareholder Releases. Each Shareholder shall have delivered
to Purchaser an executed Shareholder Release.
5.8. Film Rights Assignments. Each Shareholder shall have executed
a Film Rights Assignment in favor of the Company.
5.9. Bank Signature Cards. Shareholders shall have caused each
signatory to each Bank Account to deliver new signature cards to Purchaser which
designate such persons as Purchaser shall specify as the sole signatories to the
Bank Accounts. In connection therewith, the Shareholders shall deliver to
Purchaser evidence reasonably satisfactory to Purchaser that the financial
institutions holding each Bank Account have been properly informed that, as of
Closing, no Shareholder is an authorized signatory to any Bank Account.
5.10. Officer and Director Resignations. Shareholders shall
deliver to Purchaser written resignations of all of the officers and directors
of the Company and of PM FSC.
5.11. Subordination Agreement. The Shareholders shall have
executed the Subordination Agreement.
5.12. Merhi Delivery. Merhi shall have delivered to Purchaser a
copy of the Merhi Purchase Agreement executed by Merhi.
5.13. Pepin Delivery. Pepin shall have delivered to Purchaser a
copy of the Pepin Purchase Agreement executed by Pepin.
5.14. Legal Fee Reimbursement. If the amount of the Shareholder
Legal Fees actually paid by or billed to the Company and Shadow Hills as of the
Closing exceeds $130,000, at the Closing, the Shareholders shall tender to the
Purchaser a check or checks made out to the Company for the amount of such
excess (such check or checks are referred to herein as the "LEGAL FEE
REIMBURSEMENT").
5.15. Legal Opinion of Engel & Engel. The Shareholders shall have
delivered to Purchaser a legal opinion of Engel & Engel LLP substantially in the
form of Exhibit H attached hereto.
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<PAGE> 34
6. Conditions Precedent to the Obligation of the Shareholders to Close.
The obligation of the Shareholders to enter into and complete the Closing is
subject, at the option of the Shareholders, to the fulfillment on or prior to
the Closing Date of the following conditions, any one or more of which may be
waived by the Shareholders (the Shareholders' execution of this Agreement shall,
as applicable, be deemed to be an acknowledgment of the satisfaction of or
waiver of such conditions):
6.1. Governmental Permits and Approvals. Any and all Permits and
approvals from any Governmental Body required for the lawful consummation of the
Closing shall have been obtained.
6.2. Litigation. No Action shall have been instituted before any
Governmental Body or instituted or threatened by any Governmental Body to
restrain, modify or prevent the consummation of the PM Sale.
6.3. Shareholder Guarantees. Each of the Shareholder Guarantees
shall have been terminated.
6.4. Deliveries to Shamieh. Purchaser shall have delivered to
Shamieh a copy of the Shamieh Purchase Agreement executed by Purchaser and
Purchaser shall have caused the Company to deliver to Shamieh a copy of the
Shamieh Employment Agreement executed by the Company.
6.5. Wentworth Lease. Purchaser shall have delivered to the
Shareholders a copy of the Wentworth Lease executed by Purchaser.
6.6. Harvey Pledge Agreement. Purchaser shall have delivered to
the Shareholders a copy of the Harvey Pledge Agreement executed by Purchaser.
6.7. Legal Opinion of Sidley & Austin. Purchaser shall have
delivered to the Shareholders a legal opinion of Sidley & Austin substantially
in the form of Exhibit I attached hereto.
7. General Indemnification.
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<PAGE> 35
7.1. Obligation of the Shareholders to Indemnify. Subject to the
provisions of Sections 7.4 and 7.5, the Shareholders jointly and severally agree
to indemnify, protect, defend and hold harmless the Purchaser and its directors,
officers, employees, Affiliates and their respective successors and assigns
(collectively, the "PURCHASER INDEMNITEES") from and against all losses,
liabilities (including, without limitation, liabilities for Taxes), damages,
deficiencies, demands, claims, actions, judgments or causes of action,
assessments, costs or out-of-pocket expenses net of insurance or third party
payments (including, without limitation, interest, penalties and actual fees,
out-of-pocket expenses, disbursements and other charges of outside attorneys,
accountants, experts and consultants) ("LOSSES") based upon, arising out of, or
otherwise in respect of any Claim. As used herein, with respect to any claim
against a Shareholder, "CLAIM" means any claim based upon, arising out of, or
otherwise in respect of (i) any inaccuracy in or any breach of any
representation or warranty of any Shareholder contained in this Agreement or in
any Ancillary Document delivered pursuant to this Agreement or (ii) the breach
by any Shareholder of any covenant or agreement contained in Sections 4 or 9.7
of this Agreement or in any Ancillary Document. As used herein, with respect to
any claim against Purchaser, "CLAIM" means any claim based upon, arising out of,
or otherwise in respect of (i) any inaccuracy in or any breach of any
representation or warranty of Purchaser contained in this Agreement or in any
Ancillary Document delivered pursuant to this Agreement or (ii) the breach by
Purchaser of any covenant or agreement contained in Sections 4 or 9.7 of this
Agreement or in any Ancillary Document. Notwithstanding the foregoing, the
Shareholders shall only be liable to the Purchaser Indemnitees for that portion
of their Losses (based upon, arising out of or otherwise in respect of any
Claim) which, in the aggregate and on a cumulative basis, exceeds $200,000
(except with respect to such Losses as are caused by (i) the Shareholders'
breach of the representations and warranties contained in Sections 2.3, 2.4,
2.7, 2.23, 2.26, or 2.32(u), (ii) the Shareholders' breach of any representation
and warranty regarding Shadow Hills, including, without limitation, the
representations and warranties contained in Sections 2.21, 2.24 and 2.38, or
(iii) the Shareholders' breach of their covenants contained in Sections 4 or 9.7
of this Agreement; such $200,000 threshold shall not apply to any of the
breaches described in the foregoing clauses (i) through (iii)).
7.2. Obligation of the Purchaser to Indemnify. The Purchaser
agrees to indemnify, protect, defend and hold harmless the Shareholders and
their respective directors, officers, employees, Affiliates and their respective
successors and assigns from and against all Losses based upon, arising out of,
or otherwise in respect of, any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Purchaser contained in
this Agreement or in any Ancillary Document delivered in connection herewith.
Notwithstanding the foregoing, the Purchaser shall only be required to
indemnify, protect, defend and hold harmless the Shareholders for that portion
of their Losses (based upon, arising out of or otherwise in respect of any Claim
concerning the Purchaser's breach of the representations and warranties
contained in Sections 3.1, 3.3, 3.4, 3.6, or 3.7) which, in the aggregate and on
a cumulative basis, exceeds $200,000 (for the avoidance of doubt, the $200,000
threshold shall not apply to a claim by any Shareholder regarding non-payment of
the Notes).
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<PAGE> 36
7.3. Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. After receipt by any
party hereto (the "INDEMNITEE") of actual notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to any
Loss or any indemnification obligation of another party hereto (an "ASSERTED
LIABILITY"), the Indemnitee shall promptly and timely (but in any event within
fifteen (15) days) give written notice thereof (the "CLAIMS NOTICE") to any
other party (or parties) obligated to provide indemnification pursuant to
Section 4.2, 4.4, 4.5, 7.1 or 7.2 (the "INDEMNIFYING PARTY"), and the failure to
timely give such Claims Notice with respect to any Asserted Liability shall not
absolve any Indemnifying Parties from liability under this Section 7 with
respect to such Asserted Liability, except and only to the extent that the
rights of the Indemnifying Parties are actually prejudiced by such delay or to
the extent that the Claims Notice is not given within the time periods set forth
in Section 8. The Claims Notice shall describe the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary and to
the extent feasible) of the Loss that has been or may be suffered by the
Indemnitee.
(b) Opportunity to Defend. As applicable, the Indemnifying
Party may elect to compromise or defend, at its own expense and by its own
counsel (which shall be reasonably acceptable to the Indemnitee), any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within fifteen (15) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate reasonably, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnity under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted Liability on behalf and
for the account and at the risk of the Indemnifying Party, if the Indemnifying
Party has the responsibility to indemnify the Indemnitee with respect to such
matter under this Agreement. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnitee may settle or compromise any Asserted
Liability over the objection of the other; provided, however, that consent to
settlement or compromise shall not be unreasonably withheld; provided, further,
that if the Indemnifying Party proposes a settlement or compromise (involving
the payment of money exclusively) with respect to any Asserted Liability, which,
if consented to by the Indemnitee, would fully satisfy or otherwise fully
discharge such Asserted Liability, and the Indemnitee does not consent to such
proposed settlement or compromise, then the Indemnifying Party shall not
thereafter be liable for any Indemnifiable Losses in respect of such Asserted
Liability in excess of the amount of such proposed settlement or compromise.
Similarly, if an Indemnified Party proposes a monetary settlement which the
Indemnifying Party rejects, which if consented to by the Indemnifying Party
would fully satisfy or discharge such Claim, and the Claim is resolved at a
higher amount, the difference between the proposed settlement and amount finally
paid shall be the sole responsibility of the Indemnifying Party and shall
increase the liability of the Indemnifying Party.
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In any event, the Indemnitee and the Indemnifying Party may participate, at
their own expense, in the defense of such Asserted Liability. If the
Indemnifying Party chooses to defend any claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are reasonably necessary or appropriate for such defense.
7.4. Payment. The amounts of the obligations of the Shareholders
to reimburse the Purchaser Indemnitees for Losses under Section 7.1 (the
"INDEMNIFIABLE LOSSES") shall be satisfied first by reducing pro rata, up to an
aggregate amount of $500,000 (plus accrued interest on such amount), the amounts
due to the Shareholders, as of May 31, 2001, under the Notes, provided that the
Notes are outstanding at such time. Such reduction shall not exceed the amount
of any Indemnifiable Losses. No such reduction or setoff shall be permitted with
respect to any payment other than the final payment under the Notes. To the
extent that the Indemnifiable Losses exceed $500,000 (plus accrued interest on
such amount), the Purchaser Indemnitees shall pursue their Claims with respect
to such Indemnifiable Losses directly against the Shareholders, and may not
offset such amounts against the Notes. If the Notes have been fully repaid at
such time as the Purchaser Indemnitees are entitled to reimbursement by the
Shareholders for an Indemnifiable Loss, the Purchaser Indemnitees shall pursue
their Claims with respect to such Indemnifiable Losses directly against the
Shareholders.
7.5. Limitation on Indemnification. The aggregate obligations of
Purchaser to indemnify the Shareholders pursuant to Sections 4.2 and 7.2 hereof
and the aggregate obligations of the Shareholders to indemnify the Purchaser
Indemnitees pursuant to Section 7.1 hereof shall, in each case, be limited to an
amount equal to $1,000,000 plus any Losses of the Purchaser based upon the
Shareholders' breach of the representations and warranties contained in Sections
2.23, 2.32(u), or 2.38(u). Notwithstanding the foregoing sentence, (i) any
claims by the Purchaser Indemnitees for Indemnifiable Losses arising out of the
Shareholders' breach of the representations and warranties contained in Sections
2.3, 2.4 or 2.7, any representation and warranty regarding Shadow Hills,
including, without limitation, the representations and warranties contained in
Sections 2.21, 2.24 and 2.38, or the Shareholders' covenants contained in
Sections 4.4 or 4.5 shall not be limited in amount, (ii) any claims by the
Purchaser Indemnitees for Indemnifiable Losses arising out of the Shareholders'
fraud with respect to the representations and warranties contained in Section 2
or of their covenants contained in Section 4 hereof (other than Sections 4.4 and
4.5) shall be limited in amount to the amount of the Purchase Price and each
Shareholder's individual liability with respect to such claims shall be limited
to the amount of the Purchase Price payable to such Shareholder pursuant to the
terms of this Agreement, and (iii) any claims by the Purchaser Indemnitees for
Indemnifiable Losses arising out of the Shareholders' breach of the
representations and warranties contained in Section 2.26 shall be addressed
pursuant to the provisions of Section 7.6 hereof.
7.6. Indemnification Regarding Taxes. Any claims by the Purchaser
Indemnitees for Indemnifiable Losses arising out of the Shareholders' breach of
the representations and warranties contained in Section 2.26 ("TAX LOSS") shall
be limited in time to the time limit provided in Section 8 hereof and in amount
(after the application of the Available
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<PAGE> 38
NOL as described below) to the amount of the Purchase Price. Furthermore, in the
calculation of any Tax Loss suffered by the Purchaser Indemnitees, 100% of the
amount of the Available NOL will be deemed to have been applied to the maximum
extent allowed by law to offset any additional taxable income of the Company
which, in the absence of such offset, would have caused a Tax Loss. In
determining the amount of any Tax Loss, the amounts of any additional tax
liability of the Company for periods prior to the Closing Date which is
attributable to any change in accounting method, revaluation of assets
(including pursuant to an election under section 338(h)(10) of the Code), or
similar action taken by Purchaser after the Closing shall be ignored.
7.7. Company Claims Regarding Tax Losses. If the Shareholders are
liable to the Purchaser Indemnitees for any Tax Loss suffered by the Purchaser
Indemnitees, and if the Company has a potential claim for damages against a
third party with respect to such Tax Loss which the Company has declined to
pursue (other than a claim against a Shareholder or an Affiliate of a
Shareholder), Purchaser agrees, upon the Shareholders' written request to the
Purchaser, to cause the Company to assign such claim to the Shareholders
provided that (i) prior to the date of the Shareholders' written request, the
Shareholders shall have reimbursed the Purchaser Indemnitees for any of their
Tax Losses and (ii) the Shareholders shall have executed an indemnification
agreement, in form and substance satisfactory to the Purchaser, pursuant to
which the Shareholders shall agree to unconditionally indemnify, protect, defend
and hold harmless the Company and the Purchaser from any claims made by such
third party because of the Shareholders' assertion of such assigned claim.
7.8. Release of Claims Against Shareholders Not Timely Asserted.
Purchaser absolutely, unconditionally and irrevocably releases and discharges
the Shareholders from any and all claims, demands, liabilities, obligations,
contracts, manner of actions, causes, causes of action, suits, debts, sums of
money, accounts, reckonings, judgments and executions, of any kind, nature or
description whatsoever, other than the Excluded Claims (as defined below), that
Purchaser may have against the Shareholders, whether now existing or hereafter
arising, whether known or unknown, whether foreseen or unforeseen, whether
contingent or absolute, whether liquidated or unliquidated, whether anticipated
or unanticipated, whether suspected or unsuspected, whether arising by operation
of law or otherwise. As used herein, "Excluded Claims" shall mean: (a) any
claims of Purchaser with respect to which Purchaser has served a written Claims
Notice (as defined in Section 7.3(a)) within seventeen (17) months after the
Closing Date based upon, arising out of, or otherwise in respect of (i) any
inaccuracy in or any breach of any representation or warranty (other than the
representations and warranties contained in Sections 2.3, 2.4, 2.7, 2.25, 2.26,
and 2.35), of any Shareholder contained in this Agreement or any Ancillary
Document or (ii) the breach by any Shareholder of any covenant or agreement
contained in Section 4 of this Agreement; (b) any claims of Purchaser based
upon, arising out of, or otherwise in respect of breaches of any representations
or warranties pursuant to Sections 2.25, 2.26 or 2.35 of this Agreement with
respect to which an arbitration has been commenced prior to the expiration of
the statute of limitations applicable to breaches thereof; (c) any claims of
Purchaser based upon, arising out of, or otherwise in respect of breaches of
representations or warranties pursuant to Sections 2.3, 2.4 or 2.7, (d) any
claim under the Lost Certificate Agreement, (e) any claim for breach of the
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Wentworth Lease, (f) any claim for breach of the Wentworth Purchase Agreement,
(g) any claim for breach of the Shamieh Employment Agreement, (h) any claims for
breach of the Film Rights Assignment, (i) any claims for breach of the Shamieh
Purchase Agreement, (j) any claims for breach of the Merhi Purchase Agreement,
(k) any claims for breach of the Pepin Purchase Agreement, (l) any claims for
breach of the Harvey Pledge Agreement, (m) any claims for any breaches by the
Shareholders of the Inferno Side Letter, and (n) any claims for breaches of any
other Ancillary Document. Purchaser expressly acknowledges that this release is
intended to include in its effect, without limitation, all claims within the
express scope of this release that Purchaser does not know or suspect to exist
in Purchaser's favor at the time of execution hereof, and that this Release
contemplates the extinguishment of any such claim or claims. PURCHASER HEREBY
EXPLICITLY WAIVES ALL RIGHTS UNDER AND ANY BENEFITS OF ANY COMMON LAW OR
STATUTORY RULE OR PRINCIPLE IN ANY JURISDICTION WITH RESPECT TO THE RELEASE OF
SUCH CLAIMS, INCLUDING, WITHOUT LIMITATION, SECTION 1542 OF THE CALIFORNIA CIVIL
CODE WHICH PROVIDES AS FOLLOWS:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
PURCHASER ACKNOWLEDGES THAT IT IS FAMILIAR WITH AND HAS BEEN ADVISED BY ITS
LEGAL COUNSEL OF THE PROVISIONS OF SECTION 1542 OF THE CALIFORNIA CIVIL CODE.
PURCHASER AGREES THAT NO SUCH COMMON LAW OR STATUTORY RULE OR PRINCIPLE,
INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE, SHALL AFFECT THE VALIDITY
OR SCOPE OR ANY OTHER ASPECT OF THIS SECTION 7.8. This release shall extend to
and be binding upon the Purchaser, the Purchaser Indemnitees and their
successors and assigns and their respective successors and assigns, and shall
inure to the benefit of the Shareholders and their respective successors and
assigns.
8. Survival of Representations and Warranties of the Shareholders
After Closing. All representations, warranties, covenants and agreements of the
Shareholders shall survive the execution and delivery of this Agreement and the
Closing hereunder as provided in this Agreement. Except as otherwise
specifically provided in this Section 8, all representations and warranties of
the Shareholders contained in this Agreement or in any Ancillary Document shall
thereafter terminate and expire with respect to any Claim (as defined in Section
7.1) with respect to which a Claims Notice is not given (pursuant to Section
7.3(a)) within seventeen (17) months of the Closing Date. Notwithstanding the
second sentence of this Section 8, the representations and warranties contained
in Sections 2.25, 2.26, and 2.35 hereof shall survive for the periods of the
statute of limitations applicable to breaches thereof and representations and
warranties contained in Sections 2.3, 2.4 and 2.7 shall survive without
limitation as to time or amount. All Claims shall be subject to the provisions,
procedures and limitations set forth in Section 7 of this Agreement.
9. Miscellaneous.
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9.1. Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
"AAA" has the meaning assigned in Section 9.6 hereof.
"AAA Rules" has the meaning assigned in Section 9.6 hereof
"Actions" has the meaning assigned in Section 2.11 hereof.
"Administrative Agent" has the meaning assigned in Section
9.8 hereof.
"Affiliate" means, with respect to any specified Person,
(i) any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person; (ii) any
other Person that owns, directly or indirectly, 10% or more of such specified
person's Capital Stock or any officer or director of such specified Person or
other Person or, with respect to any natural Person, any person having a
relationship with such Person by blood, marriage or adoption not more remote
than second cousin; or (iii) any other Person 10% or more of the voting stock of
which is beneficially owned or held directly or indirectly by such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" has the meaning assigned in the Preamble
hereof.
"Ancillary Documents" means all agreements executed in
connection with the consummation of the PM Sale, including, without limitation,
the Notes, the Wentworth Lease, the Wentworth Purchase Agreement, the Shamieh
Employment Agreement, the Shamieh Purchase Agreement, the Merhi Purchase
Agreement, the Pepin Purchase Agreement, the Shareholder Releases, the Lost
Certificate Agreement, the Film Rights Assignment, the Inferno Side Letter and
the other documents contemplated by the Inferno Side Letter.
"Arbitration Notice" has the meaning assigned in Section
9.6 hereof
"Asserted Liability" has the meaning assigned in Section
7.3(a) hereof.
"Audited Financials" has the meaning assigned in Section
2.6 hereof.
"Available NOL" means the Company's net operating loss
carry-forward as of March 1, 2000 (as such carry-forward may be reduced because
of the application thereof pursuant to the Company's Tax Returns for the
Company's March 1, 1999, through February 29, 2000, fiscal year).
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"Balance Sheet Date" means February 28, 1999.
"Bank Accounts" has the meaning assigned in Section 2.17(d)
hereof.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock or other equity, partnership or limited liability company
interests, whether now outstanding or issued after the date of this Agreement.
"Cash Payment" has the meaning assigned in Section 1.2
hereof.
"Cinemobile Lease" means a sublease of a portion of the
Wentworth Property by and between the Company and Cinemobile dated May 22, 1998,
and attached hereto as Exhibit G.
"Claim" has the meaning assigned in Section 7 hereof.
"Claims Notice" has the meaning assigned in Section 7.3(a)
hereof.
"Closing" has the meaning assigned in Section 1.3 hereof.
"Closing Date" has the meaning assigned in Section 1.3
hereof.
"CNB" has the meaning assigned in Section 4.4 hereof.
"CNB Condition" has the meaning assigned in Section 4.4
hereof.
"CNB Guaranty" has the meaning assigned in Section 4.4
hereof.
"CNB Real Estate Loan" has the meaning assigned in Section
4.4 hereof.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Condition of the Company" means the properties, business,
prospects, results of operations (as presently conducted by the Company
consistent with past practice) or financial condition of the Company.
"Common Stock" has the meaning assigned in Section 2.3
hereof.
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"Company" has the meaning assigned in the Recitals hereof.
"Contracts" means and includes all written or oral
contracts, agreements, understandings, indentures, guarantees, notes, bonds,
leases, subleases, deeds of trust, conditional sales contracts, mortgages,
franchises, licenses, commitments or binding arrangements.
"DGA" means the Directors' Guild of America.
"Document" means and includes any document, Contract,
agreement, instrument, certificate, notice, consent, affidavit, letter,
telegram, telex, statement, schedule (including any schedule to this Agreement),
exhibit (including any exhibit to this Agreement) or any other paper whatsoever.
"Dollar" or "$" means the lawful currency of the United
States of America.
"Employee Manual" has the meaning assigned in Section 2.25
hereof.
"Environmental Permits" has the meaning assigned in Section
2.35 hereof.
"ERISA" has the meaning assigned in Section 2.25(a) hereof.
"ERISA Benefit Plan" means an "employee welfare benefit
plan" (as such term is defined in section 3(1) of ERISA).
"Existing Lease" means that certain Commercial Lease dated
April 22, 1997 by and between the Company and PMS LLC concerning the Wentworth
Property.
"Exploitation Agreements" means all agreements, licenses,
instruments, writings and understandings pursuant to which the Company has
granted to any Person, or any Person has acquired from the Company, rights to
exploit all or any of the Company's distribution rights in any Film Properties,
including, without limitation, any distribution, subdistribution, license or
sublicense agreements under which the Company acts as sales agent, licensor,
distributor, sublicensor or subdistributor with respect to such Film Properties.
"Film" means any and every record of moving images stored
by any means, manner, process or device now known or hereafter devised.
"Film Assets" means, collectively, the Owned Film Assets
and the Licensed Film Assets.
"Film Properties" means all rights and interests granted to
or acquired by the Company or Shadow Hills in connection with or related to the
distribution or exploitation of, or otherwise respecting, any Films, including
but not limited to any distribution rights, license rights and rights as a
subdistributor or sublicensee in all media, including without limitation,
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distribution, license, subdistribution and sublicense rights; all rights to
distribute, license, subdistribute, sublicense, copy, exhibit, transmit,
broadcast, package, edit, reformat, advertise or exploit a Film, in any and all
media, and any syndication, television or cable television rights; all
copyrights or interests in any copyright on or relating to such Films; and any
collateral, allied, subsidiary or merchandising rights appurtenant or related to
such Films.
"Film Rights Assignment" means a Film Rights Assignment
substantially in the form of Exhibit D attached hereto.
"Financial Statements" has the meaning assigned in Section
2.6 hereof.
"Foreign Receivables Schedule" has the meaning assigned in
Section 2.14(b) hereof.
"GAAP" has the meaning assigned in Section 2.6 hereof.
"Governmental Bodies" has the meaning assigned in Section
2.8 hereof.
"Guaranty Obligation" means, with respect to any Person,
any obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person: (a) to purchase such indebtedness or obligation or any property
constituting security therefor; (b) to advance or supply funds (i) for the
purchase or payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available funds
for the purchase or payment of such indebtedness or obligation; (c) to lease
properties or to purchase properties or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the ability of any
other Person to make payment of the indebtedness or obligation; or (d) otherwise
to assure the owner of such indebtedness or obligation against loss in respect
thereof.
"Harvey Pledge Agreement" means a Pledge and Assignment
Agreement by and between Purchaser and the Shareholders pursuant to which
Purchaser shall grant the Shareholders a subordinated lien on the Shares to
secure payment of the Notes, in the form of Exhibit E attached hereto.
"IAC" means Inferno Acquisition Corp, a California
corporation.
"Imperial" means Imperial Bank, a California chartered
bank.
"Imperial Indebtedness" means the Company's current
Indebtedness to Imperial.
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"Imperial Payment" has the meaning assigned in Section 1.2
hereof.
"Indebtedness" means with respect to any Person means, at
any time, without duplication, (a) its liabilities for borrowed money; (b) its
liabilities for the deferred purchase price of Property acquired by such Person
(including all liabilities created or arising under any conditional sale or
other title retention agreement with respect to any such Property); (c) all
liabilities appearing on its balance sheet in accordance with GAAP in respect of
Capital Leases; (d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities); (e) all its liabilities in
respect of letters of credit or instruments serving a similar function issued or
accepted for its account by banks and other financial institutions (whether or
not representing obligations for borrowed money); and (f) any Guaranty
Obligation of such Person with respect to liabilities of a type described in any
of clauses (a) through (e) hereof
"Indemnifiable Losses" has the meaning assigned in Section
7.4 hereof.
"Indemnifying Party" has the meaning assigned in Section
7.3(a) hereof.
"Indemnitee" has the meaning assigned in Section 7.3(a)
hereof.
"Inferno Exposure" means any liabilities or losses
connected in any way to or resulting in any way from the Company's involvement
in the production or distribution of the motion picture entitled "Inferno."
"Inferno Side Letter" means that certain letter agreement
by and among Purchaser and the Shareholders dated as of the date hereof,
concerning the film entitled "Inferno," and any agreements contemplated thereby
and entered into in connection therewith by and among any of the Shareholders,
the Company, Imperial, the Purchaser and/or the Purchaser's Affiliates.
"Intangible Property" has the meaning assigned in Section
2.18 hereof.
"Interim Balance Sheet Date" has the meaning assigned in
Section 2.6 hereof.
"Interim Financials" has the meaning assigned in Section
2.6 hereof.
"Key Film Assets" means all of the Film Assets which meet
any one or more of the following criteria: (i) originally released during the
two year period prior to the Closing Date; (ii) not yet released as at the
Closing Date; or (iii) one of the ten highest grossing Film Assets of the
Company.
"Knowledge" means and includes, with respect to the Company
or the Shareholders, the actual knowledge of Pepin, Merhi, or Shamieh and such
knowledge as would have been obtained after such reasonable inquiry by any such
person as shall be reasonable given
39
<PAGE> 45
the position of such person with the Company. For the purposes of this
definition, "reasonable inquiry" includes, without limitation, inquiries of and
requests for information from the Company's senior employees and/or principal
independent contractors who are involved in the day-to-day operations of the
Company. "KNOWS" has a correlative meaning.
"Laboratory" means a Film storage facility.
"Law" has the meaning assigned in Section 2.8 hereof.
"Legal Fee Reimbursement" has the meaning assigned in
Section 5.14 hereof.
"Letter of Intent" means that certain letter agreement by
and among Purchaser, Shamieh, Pepin and Merhi dated September 24, 1999, as
amended by that certain letter agreement by and among Purchaser, Shamieh, Pepin
and Merhi dated September 30, 1999 as further amended by that certain letter
agreement by and among Purchaser, Shamieh, Pepin and Merhi dated October 28,
1999 and as further amended by that certain letter agreement by and among
Purchaser, Shamieh, Pepin and Merhi dated December 20, 1999.
"Liabilities" means any direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility, known
or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated,
secured or unsecured, absolute, contingent or otherwise, including, without
limitation, liabilities on account of Taxes, other governmental charges or
lawsuits brought, whether or not of a kind required by GAAP to be set forth on a
financial statement, as to which the events pertaining thereto have arisen prior
to the Closing.
"Licensed Film Assets" means all Film Properties except for
the Owned Film Assets.
"Liens" has the meaning assigned in Section 2.3 hereof.
"Loan Agreement" has the meaning assigned in Section 9.8
hereof.
"Losses" has the meaning assigned in Section 7.1 hereof.
"Lost Certificate Agreement" means the Lost Securities
Representation & Indemnity Agreement dated February 29, 2000 executed by Merhi
in favor of the Company and attached hereto as Exhibit F.
"Masters" means all film negatives, masters, prints,
pre-print and/or soundtrack materials and other physical materials relating to
any Film.
"Material Adverse Change" means a change that has, has had,
or could be expected to have, a Material Adverse Effect.
40
<PAGE> 46
"Material Adverse Effect" means, with respect to any
Person, a material adverse effect on the properties, business, operations,
prospects, cash flow, assets, liabilities or financial condition of such Person
and its Subsidiaries, taken as a whole. The term "MATERIAL ADVERSE EFFECT", when
used without identification of the Person to which it refers, means Material
Adverse Effect with respect to the Company and its Subsidiaries, taken as a
whole.
"Merhi" has the meaning assigned in the Preamble hereof.
"Merhi Purchase Agreement" means that certain Stock
Purchase Agreement by and between Purchaser and Merhi dated as of the date
hereof.
"Natexis" means Natexis Banque, a French corporation.
"Notes" means three promissory notes in the form of
Exhibits A-1, A-2 and A-3 attached hereto.
"Orders" has the meaning assigned in Section 2.8 hereof.
"Owned Film Assets" means all Film Properties related to or
underlying any Film with respect to which either (i) a Form PA has been filed in
the United States Copyright Office naming the Company or Shadow Hills as
copyright claimant or author or (ii) the Company or Shadow Hills possesses an
ownership or authorship interest other than as licensor or distributor under a
license or distribution agreement with a third party.
"Parties' Disputes" has the meaning assigned in Section 9.6
hereof.
"Pepin" has the meaning assigned in the Preamble hereof.
"Pepin Purchase Agreement" means that certain Stock
Purchase Agreement by and between Purchaser and Pepin dated as of the date
hereof.
"Permits" has the meaning assigned in Section 2.9 hereof.
"Permitted Liens" has the meaning assigned in Section 2.19
hereof.
"Person" means and includes any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, limited
liability company, limited liability partnership, trust, unincorporated
organization, Governmental Body or other entity.
"PM FSC" has the meaning assigned in Section 2.1(b) hereof.
"PMS LLC" means Pepin, Merhi, Shamieh, LLC, a California
limited liability company.
"PM Sale" has the meaning assigned in Section 1.1 hereof.
41
<PAGE> 47
"Profit Sharing Plan" means the Pepin/Merhi Entertainment
Group, Inc. Profit Sharing Plan.
"Property" means and includes any real, personal or mixed
property, tangible or intangible, and any interest therein.
"Purchase Price" means an amount equal to (i) the amount of
the Cash Payment, plus (ii) the collective amounts payable under the Notes, plus
(iii) the amounts of the Shareholder Loans, plus (iv) the amount of the Imperial
Payment, plus (v) $1,450,000.
"Purchaser" has the meaning assigned in the Preamble
hereof.
"Purchaser Indemnitees" has the meaning assigned in Section
7.1 hereof.
"Right" means any right, title, interest or benefit of
whatever kind and nature.
"SAG" means the Screen Actors' Guild.
"SBA" has the meaning assigned in Section 4.4 hereof.
"SBA Condition" has the meaning assigned in Section 4.4
hereof.
"SBA Guaranty" has the meaning assigned in Section 4.4
hereof.
"SBA Real Estate Loan" has the meaning assigned in Section
4.4 hereof.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shadow Hills" has the meaning assigned in the Recitals
hereof.
"Shadow Hills Receivable" means the aggregate outstanding
indebtedness of Shadow Hills to the Company as at the date hereof.
"Shamieh" has the meaning assigned in the Preamble hereof.
"Shamieh Employment Agreement" means that certain
Employment Agreement by and between Company and Shamieh dated as of the date
hereof.
"Shamieh Purchase Agreement" means that certain Stock
Purchase Agreement by and between Purchaser and Shamieh dated as of the date
hereof.
"Shares" has the meaning assigned in the Preamble hereof.
42
<PAGE> 48
"Shareholder Guarantees" means, collectively, the following
agreements: (i) that certain Guaranty dated April 14, 1997 (with effect from
July 20, 1995) executed by Shamieh in favor of Imperial, (ii) that certain
Guaranty dated April 14, 1997 (with effect from July 20, 1995) executed by Pepin
in favor of Imperial and (iii) that certain Guaranty dated April 14, 1997 (with
effect from July 20, 1995) executed by Merhi in favor of Imperial.
"Shareholder Legal Fees" means all legal, accounting,
consulting or similar fees paid, either directly or indirectly, or incurred by
the Shareholders, the Company or Shadow Hills with respect to any attorneys,
accountants or other outside consultants who provided advice or services in
connection with the negotiation, evaluation or completion of the PM Sale, the
Wentworth Lease, the Wentworth Purchase Agreement, the Shamieh Employment
Agreement, or any matters related to the foregoing.
"Shareholder Loans" means all indebtedness of the Company
to the Shareholders.
"Shareholder Pledge Agreements" means, collectively, (i)
that certain Security Agreement - Stock Pledge dated as of the date hereof, by
and among Merhi, Natexis and Imperial, (ii) that certain Security Agreement -
Stock Pledge dated as of the date hereof, by and among Pepin, Natexis and
Imperial, (iii) that certain Security Agreement Stock Pledge dated as of the
date hereof, by and among Shamieh, Natexis and Imperial, and (iv) any agreements
entered into in connection with the foregoing agreements.
"Shareholder Release" means a release of the Company
executed by each Shareholder substantially in the form of Exhibit C attached
hereto.
"Shareholders" has the meaning assigned in the Preamble
hereof.
"SHP Financials" has the meaning assigned in Section 2.6
hereof.
"SHP Interests"has the meaning assigned in the Recitals
hereto.
"SHP Operating Agreement" has the meaning assigned in
Section 2.3 hereof.
"Stock Rights" has the meaning assigned in Section 2.4
hereof.
"Subordination Agreement" means that certain Subordination
Agreement by and between the Shareholders, Purchaser and Lender, dated as of the
date hereof, pursuant to which, among other things, the Notes are subordinated
to the Lender's rights under the Loan Agreement.
43
<PAGE> 49
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to control or elect a majority of the directors (or
Persons performing similar functions) of such entity, and any partnership,
trust, limited liability company, limited liability partnership or joint venture
if more than a 50% interest in the profits or capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries.
"Tangible Property" has the meaning assigned in Section
2.17 hereof.
"Tax" has the meaning assigned in Section 2.26(a) hereof.
"Tax Loss" has the meaning assigned in Section 7.6 hereof.
"Tax Return" has the meaning assigned in Section 2.26(b)
hereof.
"Vendor Guarantees" means the personal guarantees by the
Shareholders of the Company's contracts with third parties (other than any
guarantee in favor of Imperial or concerning the motion picture entitled
"Inferno").
"Wentworth Lease" means a Lease Agreement concerning the
Wentworth Property in the form of Exhibit B-1 attached hereto.
"Wentworth Property" means that certain real property
located at 9545 Wentworth Street, in the city of Sunland, County of Los Angeles,
California, as more particularly described in the Wentworth Lease.
"Wentworth Purchase Agreement" means a Purchase Agreement
concerning the Wentworth Property in the form of Exhibit B-2 attached hereto.
"Year 2000 Compliant" has the meaning assigned in Section
2.37 hereof.
9.2. Construction. For all purposes of this Agreement,
all defined terms include the plural as well as the singular; all accounting
terms have the meanings assigned to them in accordance with generally accepted
accounting principles in effect in the United States of America on the date
hereof; the term "including" shall mean "including without limitation"; all
references to a contract, agreement or instrument herein shall mean such
contract, agreement or instrument and all exhibits, schedules and other
attachments thereto, as any such contract, agreement or instrument may be
amended, supplemented or otherwise modified from time to time in a manner that
does not violate the provisions of this Agreement; the words "herein", "hereof",
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular article, section or other subdivision; all
references to any
44
<PAGE> 50
article, section or other subdivision refer, unless otherwise indicated, to the
corresponding article, section or other subdivision of this Agreement.
9.3. Publicity. Except as required by Law, no press release or
other announcements concerning this Agreement or the PM Sale shall be made
without the advance approval thereof by the Purchaser and the Shareholders,
which approval shall not be unreasonably withheld. Until the Closing, it shall
not be unreasonable for the Purchaser to refuse to consent to any such press
release or announcement.
9.4. Notices. Any notice or other communication required or
permitted hereunder, including, without limitation, any Claims Notice and any
arbitration notice, shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mail, as follows:
(i) if to the Purchaser, to:
The Harvey Entertainment Company
11835 West Olympic
Suite 550
Los Angeles, CA 90064
Attention: Glenn Weisberger, Esq.
with a copy to:
Sidley & Austin
555 West Fifth Street, 40th Floor
Los Angeles, CA 90013
Attention: Gary Cohen, Esq.
(ii) if to Merhi, to:
Joseph Merhi
1230 Chanruss Drive
Beverly Hills, CA 90210
with a copy to:
Engel & Engel
9200 Sunset Boulevard
Suite 505
Los Angeles, CA 90069
Attention: William Archer, Esq.
45
<PAGE> 51
(iii) if to Pepin, to:
Richard Pepin
1 Mustang Lane
Bell Canyon, CA 91307
with a copy to:
Engel & Engel
9200 Sunset Boulevard
Suite 505
Los Angeles, CA 90069
Attention: William Archer, Esq.
(iv) if to Shamieh, to:
George Shamieh
725 Forest Green Drive
La Canada, CA 91011
with a copy to:
Engel & Engel
9200 Sunset Boulevard
Suite 505
Los Angeles, CA 90069
Attention: William Archer, Esq.
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices hereunder.
9.5. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF CALIFORNIA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF CALIFORNIA.
9.6. Agreement to Arbitrate; Injunctive Relief. THE SHAREHOLDERS
AND PURCHASER AGREE THAT ANY CLAIM, DEMAND, DISPUTE, ACTION OR CAUSE OF ACTION
(A) ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, OR
(B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
SHAREHOLDERS AND THE PURCHASER WITH RESPECT TO THIS AGREEMENT, ANY ANCILLARY
AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR
46
<PAGE> 52
DELIVERED IN CONNECTION HEREWITH, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE (collectively, the "PARTIES' DISPUTES"), SHALL BE DECIDED BY
ARBITRATION PURSUANT TO THE COMPLEX COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA RULES") AS MODIFIED HEREBY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT
INCLUDING THIS SECTION WITH THE AMERICAN ARBITRATION ASSOCIATION (the "AAA") AS
WRITTEN EVIDENCE OF THE AGREEMENT OF THE SHAREHOLDERS AND PURCHASER TO SO
ARBITRATE. SHAREHOLDERS AND PURCHASER ACKNOWLEDGE THAT THEY HAVE HAD THE
OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT THEY FULLY
UNDERSTAND ITS TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND
KNOWINGLY AGREE TO THE TERMS OF THIS SECTION AND AGREE TO ARBITRATE ALL PARTIES'
DISPUTES
Any arbitration pursuant to this Agreement shall take place in Los
Angeles, California, before a panel of three commercially experienced
arbitrators appointed in accordance with the AAA Rules or, if the parties to the
arbitration agree, a single retired judge. Notice of any demand for arbitration
shall be provided in writing to the other parties pursuant to Section 9.4 hereof
and to the AAA (the "ARBITRATION NOTICE"). For the purposes of this Agreement,
an arbitration shall be deemed to have been commenced at such time as
Arbitration Notice has been delivered to all the other parties pursuant to the
provisions of Section 9.4. The parties shall be entitled to discovery in
conjunction with such arbitration (with the scope of discovery to be
co-extensive with discovery rights applicable to an arbitration pursuant to
California Code of Civil Procedure 1280 et seq.). The award of the arbitrators
or, if applicable, the retired judge, shall be made in accordance with the
applicable laws of the State of California and the arbitrators or the retired
judge shall provide only such relief as would be provided pursuant to the laws
of the State of California. Any award rendered by the arbitrators (or, if
applicable, retired judge) shall be final and may be enforced in the Superior
Court for the State of California for the County of Los Angeles. The prevailing
party in any arbitration hereunder shall be entitled to reimbursement of its
reasonable attorney's fees, costs, and other expenses.
Notwithstanding any other provision of this Section 9.6 or any
other provision of this Agreement, any party hereto may bring an action for
injunctive or other extraordinary relief pursuant to Section 1281.8 of the
California Code of Civil Procedure based upon a breach by another party hereto
of the covenants and agreements contained in Sections 4 and 9.7 hereof.
9.7. Further Assurances. Before and after the Closing, the
Shareholders shall execute such Documents and perform such further acts as may
be reasonably required or desirable to carry out the provisions hereof and the
PM Sale. The Purchaser shall execute such Documents and perform such further
acts as may be reasonably required or desirable to carry out the provisions
hereof and the PM Sale.
9.8. Assignment to Lender. As collateral security for the prompt
and punctual payment and performance of each and every present and future
obligation of Purchaser to The
47
<PAGE> 53
Chase Manhattan Bank, as agent for the Lenders and the Issuing Bank (in such
capacity, the "ADMINISTRATIVE AGENT") party to that certain Credit, Security,
Guaranty and Pledge Agreement, dated as of April 3, 2000, between Purchaser,
Administrative Agent, and certain other parties (as the same may be amended from
time to time (the "LOAN AGREEMENT")), and the loan documents related thereto,
Purchaser assigns, grants, and transfers a security interest to Administrative
Agent in any and all rights, claims, demands and causes of action that Purchaser
may have against the Shareholders whether now or hereafter arising, due or to
become due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, arising out of or in any way related to the representations and
warranties of the Shareholders contained in this Agreement, subject to all
claims, defenses and set off of the Shareholders, and the Shareholders hereby
consent to such assignment and grant.
9.9. Entire Agreement. This Agreement (including the exhibits and
schedules attached hereto) and the Ancillary Documents contain the entire
agreement among the parties with respect to the purchase of the Shares and the
SHP Assets and supersede all prior agreements, written or oral, with respect
thereto (including, without limitation, the Letter of Intent).
9.10. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by the Purchaser and the Shareholders or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power
or privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
9.11. Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and legal representatives. This Agreement is not assignable except by
the Purchaser to any of its Affiliates or to any successor to all or
substantially all of its assets, properties, rights or business.
9.12. Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
9.13. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
9.14. Exhibits and Schedules. The exhibits and schedules are a
part of this Agreement as if fully set forth herein. All references herein to
Sections, Exhibits and Schedules
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<PAGE> 54
shall be deemed references to such parts of this Agreement, unless the context
shall otherwise require.
9.15. Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
9.16. Severability of Provisions. If any provision or any portion
of any provision of this Agreement, or the application of any such provision or
any portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to Persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
* * *
49
<PAGE> 55
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
THE HARVEY ENTERTAINMENT COMPANY
By: /s/ ROGER BURLAGE
------------------------------------
Roger Burlage
Chairman of the Board and
Chief Executive Officer
/s/ GEORGE SHAMIEH
---------------------------------------
George Shamieh
/s/ JOSEPH T. MERHI
---------------------------------------
Joseph T. Merhi
/s/ RICHARD J. PEPIN
---------------------------------------
Richard J. Pepin
<PAGE> 56
Exhibits*
<TABLE>
<CAPTION>
Description Exhibit
- - ----------- -------
<S> <C>
Promissory Note - Shamieh A-1
Promissory Note - Merhi A-2
Promissory Note - Pepin A-3
Lease Agreement B-1
Purchase Agreement B-2
Form of Shareholder Release C
Form of Film Rights Assignment D
Form of Harvey Pledge Agreement E
Lost Certificate Agreement F
Cinemobile Lease G
Form of Legal Opinion of Engel & Engel H
Form of Legal Opinion of Sidley & Austin I
</TABLE>
Schedules
<TABLE>
<CAPTION>
Description* Schedule
- - ----------- --------
<S> <C>
Shareholder Payment Instructions 1.2
Subsidiaries and Other Affiliates 2.2
Shadow Hills Post LLC Operating Agreement 2.3
Interim Financial Statements 2.6(a)(i)
SHP Financials 2.6(a)(iii)
Financial Statements-Books and Records 2.6(b)(i)
Financial Statements: GAAP 2.6(b)(ii)
Authority to Execute 2.7
Cancel or Breach of Contract 2.10
Actions and Proceedings 2.11
Contracts: Officers, Affiliates, Etc. 2.12(a)(i)
Contracts-Employee, Consultant, etc. 2.12(a)(ii)
Contracts-Unions 2.12(a)(iii)
Contracts-Material, Supplies 2.12(a)(iv)
Contracts-Warehousing 2.12(a)(v)
Contracts-Tax Indemnification 2.12(a)(vi)
Contracts-Covenant not to compete 2.12(a)(viii)
Contracts-Options 2.12(a)(ix)
Film Asset-Shareholder Interest 2.12(d)
Foreign Receivables 2.14(b)
Owned Film Assets 2.16A
Licensed Film Assets 2.16B
Key Film Assets 2.16(c)
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
Key Film Assets-Unreleased Films 2.16(d)
Key Film Assets 2.16(e)
Owned Equipment 2.17(b)
Bank Accounts 2.17(d)
Inventories 2.17(e)
Employee Manual 2.25
Tax Returns 2.26
Proposed Tax Audits 2.26(e)
Employee Contracts 2.27
Operations of the Company 2.32
Potential Conflicts of Interest 2.33
Operations of Shadow Hills 2.38
List of Vendors 4.2
</TABLE>
*The Schedules and Exhibits are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule or Exhibit to the Commission upon
request.
<PAGE> 1
EXHIBIT 10.77
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of this 1st day of
April, 2000, by and among THE HARVEY ENTERTAINMENT COMPANY, a California
corporation ("Parent"), PM Entertainment, Inc., a California corporation
("Company"), and GEORGE SHAMIEH ("Employee").
Whereas, concurrent with the execution of this Agreement, Parent is
acquiring all of the issued and outstanding shares of capital stock of Company;
Whereas, Roger Burlage ("Burlage") is currently Chairman of the Board and
Chief Executive Officer of Parent and will also serve as Chairman of the Board
of Company; and
Whereas, Company and Parent desire to engage the services of Employee,
whose experience, knowledge and abilities are extremely valuable to Company and
Parent, and Employee desires to enter the employ of Company,
Now, therefore, the Parties hereto agree as follows:
1. Position and Duties: Reporting.
(a) Company and Parent hereby employ Employee, and Employee hereby
accepts employment, reporting directly to Burlage and serving as President of
Company during the Term hereof as specified in Paragraph 6 below, with powers
and duties consistent with such position, including but not limited to, the
responsibility for the operations of Company. All decisions involving major
expenditures and matters that could have a material adverse impact on Company
will be subject to the approval of Burlage. All employees and independent
contractors of Company will report to Employee. Employee will have the sole
authority to retain and terminate employees and independent contractors of
Company, subject to review and discussion with Burlage, except that all
department heads of Finance, Human Resources, MIS and Legal shall have dual
reporting lines to Employee and the appropriate executive at Parent, and any
personnel decisions involving these department heads will be subject to review
between Employee and the appropriate Parent executive. Employee shall perform
such additional, different and/or incidental duties, and accept the election or
appointment to such other offices as Burlage reasonably designates, consistent
with Employee's position as President of the Company. Employee shall perform
such duties and responsibilities incidental to his employment as may from
time-to-time be reasonably designated by Burlage, consistent with Employee's
position, stature and experience, and shall faithfully observe Company's written
policies and procedures consistent with the provisions hereof (which policies
and procedures will be those of Parent as well). The provisions of this
Paragraph 1(a) shall be subject to the terms of Paragraph 6 hereof.
<PAGE> 2
(b) Except as set forth below in Paragraph 10(b), or if for any
reason, Employee ceases to be employed by Company, Employee shall devote his
full working time to the promotion of Company's business and welfare in
accordance with this Agreement and Paragraph 1(b)(ii), below, and as such his
services in the entertainment industry shall be exclusive to Company hereunder
during the Term. Notwithstanding any contrary provisions hereof, Employee may
engage in other business activities with Company's prior written consent
provided the same shall not adversely affect the performance of Employee's
services hereunder and; provided, further, during the Term hereunder, Employee
shall not, except as allowed pursuant to Paragraph 10(b) or if for any reason
Employee ceases to be employed by the Company, directly or indirectly:
(i) Engage in any business for his own account which is
competitive with the businesses of Company or Company's subsidiaries
(collectively, "Competitive Business") so long as Company or Company's
subsidiaries (as the case may be) continue to engage in such business;
(ii) Enter the employ of, or render any services to, any person
engaged in a Competitive Business; or
(iii) Become interested in a Competitive Business in any capacity
including, without limitation, as an individual, partner, shareholder, officer,
director, principal, agent, trustee or consultant.
In addition, during the Term and the one-year period following termination of
his employment hereunder, Employee shall not, directly or indirectly (x) induce
any customer or supplier of Company or Company's subsidiaries to terminate its
relationship with Company or Company's subsidiaries (as the case may be), or (y)
solicit or induce any of Parent's or Company's or any of their subsidiaries or
employees to terminate their employment with Company. Notwithstanding anything
to the contrary (including without limitation Paragraph 2(b)(iii) or the
introduction to this paragraph), without the consent of Company, Employee may
acquire and/or retain, solely as an investment, and take customary actions to
maintain and preserve Employee's ownership of:
(A) securities of any issuer which are registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
which are publicly traded, as long as Employee is not part of any control group
of such issuer (except in a passive capacity); and
(B) any securities of a partnership, trust, corporation or
other person, the ownership of income-producing real estate or other passive
investments, so long as Employee remains a passive investor in that entity and
does not become part of any control group thereof (except in a passive capacity)
and so long as such entity is not, directly or indirectly, in competition with
Company or its subsidiaries.
-2-
<PAGE> 3
2. Compensation.
(a) Annual Guaranteed Salary. During the Term, Company shall pay to
Employee a salary, in equal installments not less frequently than monthly, at
the rate of $450,000 per year for each year of the Term.
(b) Incentive Compensation. Employee shall be eligible for
consideration to receive an annual performance bonus based on Company's
performance, which bonus (if any) shall be at the greater of an amount
determined by Parent's Board of Directors in its sole discretion or the amount
set forth under the following schedule, taking into consideration the pre-tax
earnings of Company before interest, depreciation and amortization ("EBITDA") as
determined according to generally accepted accounting principles, consistently
applied ("GAAP"), and Employee's then current annual salary:
<TABLE>
<CAPTION>
Pre-Tax EBITDA Performance Bonus
Above To and Including Percentage of Salary
-------------- ---------------- --------------------
<S> <C> <C>
0 $2,000,000 0%
$2,000,000 $3,000,000 5%
$3,000,000 $5,000,000 7%
$5,000,000 $7,000,000 9%
$7,000,000 $10,000,000 11%
$10,000,000+ 13%
</TABLE>
For example in the event, the EBITDA of Company for the first year of the Term
is $10,000,000, then Employee would be entitled to a minimum performance bonus
equal to eleven (11%) percent of his then annual salary.
(c) Additionally, Employee shall be entitled to an additional Accounts
Receivable bonus based on the collection of the $15,095,775 in Accounts
Receivable attached on Exhibit A. This additional bonus shall be equal to $6.625
for every $100 of such Accounts Receivable collected each calendar quarter, pro
rated for any smaller amounts. This bonus shall be paid within forty-five (45)
days after the end of each calendar quarter based on the amount of Accounts
Receivable collected during the preceding quarter and shall survive termination
of the Term.
3. Stock Options. Employee shall have the right to participate in all stock
option plans, stock appreciation rights plans, stock purchase plans and similar
plans from time to time made available to any other senior executive employee of
Parent and/or Company of equal or lesser level to Employee. With the exception
of the number of options, such participation shall be on terms no less favorable
than those provided to any other senior executive employee of equal or lesser
level to Employee in Company. Any such stock options, stock appreciation rights,
stock purchase rights and similar rights granted to Employee shall vest
immediately if Employee is terminated other than for Cause or resigns for Good
Reason (as defined below). The time Employee has to
-3-
<PAGE> 4
exercise his options after such termination or resignation shall be governed by
Company's 1997 Stock Option Plan. On the Effective Date Company will grant
Employee options ("Options") to purchase eighty thousand (80,000) shares of
Common Stock of Parent at a price equal to the greater of the Common Stock
closing price on the Effective Date or $6.75 per share. The vesting period of
such Options will be made in accordance with the 1997 Stock Option Plan or as
determined by the Stock Option Committee, unless accelerated under Paragraph
6(b), below.
4. Expenses. Company will reimburse or pay Employee for all usual,
reasonable and necessary expenses paid or incurred by Employee in the
performance of his duties hereunder, including without limitation business class
(or first class if no business class is offered) travel on all flights,
consistent with Company's expense reimbursement policies applicable to the most
senior executive officers and subject to receipt by Company of appropriate
documentary proof of all expenditures for which reimbursement is sought.
5. Employee Benefits. Employee shall be entitled to participate to the full
extent of the participation by any other senior executive employee of Company or
Parent of comparable level or below to Employee in all other profit-sharing,
pension, vacation, health insurance, life insurance and disability or other
plans, benefits or policies available to the senior executive employees of
comparable level or below to Employee established by Parent and/or Company (in
its sole and absolute discretion) from time to time and not duplicative of those
provided herein. Employee shall be entitled to four weeks of vacation annually.
6. Term.
(a) The period of Employee's employment by Company hereunder (the
"Term" shall commence on the Effective Date and shall terminate upon the first
to occur of the following events: (i) three (3) years from the Effective Date as
set forth in Paragraph 2(c) herein, (ii) the death of Employee, (iii) the
inability of Employee to perform his duties hereunder, by reason of physical
injury, mental incapacity or otherwise, for a period of four (4) consecutive
months or six (6) months in the aggregate, as certified by a physician selected
jointed by Employee and Company ("disability"), (iv) the discharge of Employee
for Cause or (v) the resignation of Employee for Good Reason. "Cause" shall
mean, and be limited to, (x) acts of deliberate dishonesty constituting either
the commission of a felony or the misappropriation of corporate assets for
personal benefit, (y) willful failure to observe or follow reasonable and
explicit instructions or directives of Company, (z) willful malfeasance or
willful failure to act to avoid material nonfeasance, if in either case such
malfeasance would have a material adverse effect on Company, or (aa) written
notice of a material violation of Parent's or Company's policies and procedures
which goes uncured for twenty (20) days or which, if not curable, will result in
a material adverse effect on Company.
-4-
<PAGE> 5
To terminate Employee for Cause, Company shall give Employee written notice
specifying the claimed Cause and, provided such Cause is curable, permit
Employee to correct the claimed Cause as soon as practical thereafter but no
later than seven (7) business days after receipt of the applicable notice. In no
event, however, shall Company be required to permit Employee to cure an
occurrence of Cause described in clause (x) of this Paragraph 6(a) . Upon the
termination of Employee's employment pursuant to clause (i), (ii), (iii) or (v)
of this Paragraph 6(a), Employee shall have no further liability to Company or
Parent under this Agreement except as provided in Paragraph 7 as to mitigation
and Paragraph 9 as to confidential information. Company shall have no further
liability to Employee under this Agreement, except as provided in Paragraph 6(b)
below and (1) under Section 2(b), (2) any salary or other benefits accrued or
earned by Employee to the date of termination but not paid shall be paid by
Company to Employee or his estate, (3) an Employee shall be entitled to such
benefits, if any, under Sections 4 and 5 hereof to which he has become entitled
prior to the date of his termination of employment and (4) as set forth in
Paragraph 6(b) below.
(b) If Employee resigns for Good Reason (as defined herein), Employee
shall have the right to deem such resignation as a termination of his employment
by Company without Cause with the consequences provided in this Paragraph 6(b).
"Good Reason" shall mean (1) without Good Cause, Employee's responsibilities or
duties are materially altered or decreased from those described herein, or (2)
Employee is not paid any amount to which he is entitled, or (3) Employee's
benefits are substantially and adversely altered, or (4) if for any reason,
Burlage ceases to be Chairman of the Board or Chief Executive Officer of Parent,
or ceases to be the executive to whom Employee directly reports and within one
hundred twenty (120) days thereafter, Employee gives written notice of his
intention to resign. If Employee's employment is terminated by Company without
Cause, or Employee resigns for Good Reason, subject to Paragraph 7 below,
Company shall (A) pay Employee, until the ending date of the period of
employment hereunder (determined as provided in Paragraph 6(a) hereof) such
salary and benefits to which Employee would have been entitled had Employee not
been terminated without Cause or resigned without Good Reason before the third
anniversary of the Effective Date, (B) accelerate to immediate vesting of his
options, stock appreciation rights, stock purchase rights and similar rights as
provided under Paragraph 3 or 4 above, and (C) reimburse Employee for all
otherwise reimbursable expenses incurred or committed to be incurred by Employee
as of the date of such termination.
7. Mitigation.
(a) Subject to subparagraph (b) below, Employee shall use his best
efforts to mitigate the damages he may suffer in the event of termination by
Company without Cause or resignation by Employee for Good Reason; provided,
however, in no event shall Employee be required to accept employment (1) for
significantly less compensation than Employee is entitled to be paid hereunder,
(2) for a position outside the independent film production industry, or which
carries significantly fewer duties or
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<PAGE> 6
responsibilities than serving as President of Company, or (3) outside the Los
Angeles area, or (4) for a company whose reputation is not as good as Company's
reputation in the independent film production industry. If Employee furnishes
his services for other engagements or employment after such termination without
Cause or resignation by Employee for Good Reason, the total compensation
actually earned or received by Employee together with any welfare or other
benefits earned by Employee, shall reduce the amounts and benefits which Company
would otherwise be required to pay or provide to Employee over the same period
of time. Employee shall give written notice to Company (promptly after accepting
employment or furnishing his services after such termination of his employment
with Company) of any amounts earned or received by Employee and any benefits
provided to Employee pursuant to his new employment agreement.
(b) If Company fails to achieve EBITDA, as determined in accordance
with GAAP, of at least $1,500,000 during the second or third fiscal year of the
Term, ("Minimum Performance"), and Company terminates Employee without Cause or
Employee resigns for Good Reason, Employee shall use his best efforts to
mitigate any damages he may suffer as set forth above. If during the second or
third fiscal year of the Term, Company's EBITDA (determined according to GAAP)
exceeds $1,500,000, but is less than $2,000,000 and Company terminates Employee
without Cause, or Employee resigns for Good Reason, then Employee shall mitigate
any damages he may suffer as set forth above; however, regardless of the amount
of mitigation by Employee, Company will pay Employee no less than 50% of the
compensation and provide Employee with at least 50% of the benefits he would
have received had the Term extended until the third anniversary of the Effective
Date. If during the second or third fiscal year of the Term, Company's EBITDA
(determined according to GAAP) exceeds $2,000,000 and Company terminates
Employee's employment without Cause or Employee resigns for Good Reason, then
Employee shall not be required to mitigate any damages he may suffer.
8. Nondisclosure of Confidential Information.
(a) "Confidential Information" shall include, but not be limited to,
all of Company's, Parent's or any subsidiaries' performance, sales, financial,
pricing, cost, manufacturing, contractual and marketing information, ideas,
knowledge and data, and all processes, products, formulae, designs, practices,
techniques, trade secrets, research, know-how, merchandising agreements,
licensing agreements, distribution agreements, customer lists, technical
requirements of customers and identity and purchasing terms of suppliers, other
than information (i) generally available to the public other than as a result of
Employee's breach of this Section 8; (ii) known to Employee prior to the time
Employee began working for Company (regardless of whether pursuant to any
agreement); (iii) known to Employee as result of a disclosure not in breach of
any confidentiality obligation owed directly or indirectly to Company, Parent or
any subsidiary or affiliate of either, or relating to ACI or ACI Properties.
-6-
<PAGE> 7
(b) Employee agrees to assign all rights he might otherwise possess in
any Confidential Information to Company. Except as required in the performance
of his duties hereunder, Employee shall not at any time during or after the
Term, directly or indirectly use, communicate, disclose or disseminate, lecture
upon/publish articles or otherwise put in the public domain, any Confidential
Information except as required by law or legal process.
(c) All documents, records, notebooks, notes, memoranda, computer
records and other repositories of or containing Confidential Information made or
compiled by Employee at any time or made available to Employee prior to or
during the Term including any and all copies thereof shall be the property of
Company, shall be held by Employee in trust solely for the benefit of Company,
and shall be delivered to Company by Employee on the termination of the Term or
at any other time on the request of Company.
9. Warranties/Indemnities. Employee hereby represents and warrants that:
(i) neither his entering into this Agreement nor furnishing to Company all of
the services herein set forth will constitute the breach of any other Agreement
to which he is a party; (ii) he has no reason to believe he is not in good
health or that he suffers from any disability or other condition which will or
could interfere with the full performance of his obligations hereunder.
10. Ownership of Properties.
(a) Company, as employer, shall own, and Employee hereby transfers and
assigns to Company, all rights in and to any material and/or ideas written,
suggested or submitted by Employee during the Term and all other results and
proceeds of his services for Company pursuant to this Agreement, other than the
ACI Properties (as defined below) Employee's personal diary, journal, calendar
and memoirs ("Properties"). Company and its licensees and assigns shall have the
right to adapt, change, revise, delete from, add to and/or rearrange the
Properties or any part thereof written or submitted by Employee and to combine
the same with other works to any extent, and to change or substitute the title
thereof, and in this connection Employee hereby waives any so-called "moral
rights" of authors. Employee agrees to at Company's expense execute and deliver
to Company such assignments or other instruments as Company may require from
time to time to evidence its ownership of the Properties, failing which Company
shall have the irrevocable right to do so as Employee's attorney-in-fact.
(b) (i) Employee is the sole owner of a company known as ACI, which
the Parties hereby agree and acknowledge is a Competitive Business. The parties
hereto agree that notwithstanding any other terms of this Agreement or
applicable law, Employee shall be allowed to continue to own, develop, produce,
cast, arrange financing for, film, market, distribute, license and otherwise
exploit all feature films which are currently in development by ACI as set forth
on the Schedules "A" and "B" attached hereto (collectively the "ACI
Properties"). Schedules "A" and "B" shall include the
-7-
<PAGE> 8
following information on each project: working title, description of project,
legal status including rights received or granted. Neither Company, Parent nor
any affiliate or subsidiary of either shall have any rights in or to the ACI
Properties nor the proceeds therefrom except as set forth below. In
consideration for releasing Employee from his duties to the extent necessary to
complete such films and by allowing the use of Company assets to distribute such
films, including licensing such films, delivery, distribution, billing and
collection services and other distribution functions (including release in home
video), Company shall be entitled to a fee equal to (i) one third (1/3) of net
revenues earned and received by ACI before or during the Term from ACI
Properties set forth on Schedule "B" that are owned by ACI and (ii) one third
(1/3) of gross fees less non-recouped distribution expenses earned and received
by ACI before or during the Term from ACI Properties set forth on Schedule "B"
that are distributed but not owned by ACI (collectively, "Company's ACI share").
The Company shall not be entitled to any share of the fees earned by ACI from
the ACI Properties set forth on Schedule "A". Once the ACI Properties have been
completed, Employee agrees that he shall not be involved in the production of
any films not produced by Company or Parent without the express written consent
of Burlage. Employee understands and acknowledges that Burlage may withhold such
consent for any reason. ACI will provide the Company with customary accountings
on each of the ACI Properties set forth on Schedule "B" on a quarterly basis for
the first two years after the release of each such title and then no less than
annually thereafter. Employee agrees that he will reimburse the Company for any
out-of-pocket third party costs or expenses incurred by Company on behalf of the
ACI Properties.
(ii) If the Term is terminated by the Company for any reason,
then no further fees shall be owed by ACI to the Company after the date of
termination. If the Term is terminated by the Employee for any reason allowed
under this Agreement, then ACI shall remain obligated to continue paying the
above fees to the Company on any fees earned prior to the date of termination
and received during the six (6) months immediately following such date.
(c) If during the Term or the two years immediately following the end
of the Term (unless the Term is terminated by Company without Cause or Employee
resigns with Good Reason) and Employee intends to dispose of any of his rights
in the ACI Properties, he will afford Parent a right of First Negotiation and
Last Refusal for the acquisition of such rights. The right of First Negotiation
and Last Refusal shall apply on a property-by-property basis and shall be
exercised by the following procedure: Employee shall give Parent written notice
setting forth the rights available with respect to such ACI Property
("Negotiation Notice"), which Negotiation Notice shall set forth the essential
terms pursuant to which Employee desires effect such transfer of rights
("Transfer"). Parent shall respond to such Negotiation Notice within five (5)
business days following Parent's receipt thereof ("Response Period"). If Parent
fails to respond within such Response Period, or if Parent notifies Employee
during such Response Period that Parent does not desire to negotiate with
respect to such Transfer, Employee shall be free to negotiate and conclude
agreements with third parties regarding such Transfer
-8-
<PAGE> 9
without further obligation to Parent in connection therewith. If Parent notifies
Employee during such Response Period that Parent desires to negotiate with
respect to such Transfer, then upon such notice Employee shall be obligated to
negotiate in good faith with Parent for a period of seven (7) business days
("Negotiation Period") for an agreement with respect to such Transfer. If an
agreement is not reached prior to the expiration of the Negotiation Period, then
upon said expiration, Employee shall be free to negotiate with third parties;
provided that before Employee enters into an agreement with any third party, it
must offer Parent the right to enter into a similar agreement on all of the same
material terms and conditions as the proposed third party, and Parent shall have
five (5) business days to accept or decline such terms. At all times with
respect to the exercise of Parent's rights described herein, Employee shall not
propose to Parent, and Parent shall not be obligated to accept, any terms which
cannot be met as easily by one person as by another, or which cannot be
liquidated.
(d) Employee shall indemnify and hold harmless Parent, Company, their
subsidiaries, affiliates, successors, assigns, subdistributors and licensees,
and their respective officers, directors, agents and employees, from and against
any claim, loss, damage and expense (including legal fees and expenses)
("Claim") arising out of or in connection with ACI's production or exploitation
of the ACI Properties.
11. Right to Injunction/Remedies. Employee acknowledges that Company's
remedies at law for a breach by him of the provisions of Paragraphs 1, 8 and 10
hereof may be inadequate. Accordingly, in the event of the breach or threatened
breach by Employee of any such provisions, Company shall be entitled to seek
injunctive relief in addition to any other remedy it may have. In the event of
any breach by Company of this Agreement, Employee shall be limited to his remedy
at law for damages, if any, and shall not have the right to enjoin the
production, distribution, advertising or other exploitation of any motion
pictures or other productions.
12. Assignment. No party may assign, transfer or convey this Agreement or
any interest therein. Subject to Employee's right to terminate this Agreement
under Section 6(b), this Agreement and all of Company's rights and obligations
hereunder may be assigned or transferred by it (a) in connection with a direct
or indirect change of control of Company or (b) in connection with an internal
corporate restructuring of the Company. Such permitted transfer or assignment,
must be in whole but not in part, to and shall be binding upon and inure to the
benefit of any assignee or successor of Company, but any such assignment or
transfer shall not relieve Company of any of its obligations.
13. Arbitration.
(a) Without limiting Company's right to seek injunctive relief as
described in Paragraph 11, in the event of a disagreement or dispute between
Company and Employee related to this Agreement, the matter will be finally
settled in Los Angeles, California by arbitration by a single arbitrator (unless
the parties cannot agree on such
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<PAGE> 10
arbitrator in which case each party will select an arbitrator and the two
arbitrators so selected shall select the third arbitrator) in a proceeding
conducted under the rules of the American Arbitration Association or any similar
successor body, the arbitrator also apportioning the costs of the arbitration.
The decision of the arbitrator(s) in writing shall be final and binding upon the
parties and will not be subject to appeal. If either party fails to abide by
such decision, the other party may seek the order of any federal or state court
having jurisdiction thereof which shall enter judgment on the decision of the
arbitrator(s), and the party so failing to abide shall be responsible for the
payment of the expenses of the court proceeding and all resulting enforcement
expenses, including actual attorneys' fees. The parties agree to use their best
efforts to complete any arbitration hereunder expeditiously.
(b) The prevailing party in any arbitration shall be entitled to be
reimbursed for attorneys fees and costs in connection with the pursuit of such
arbitration.
14. Indemnification. Employee shall be entitled to the benefit of
indemnification by Company to the fullest extent permitted by applicable law at
the time of assertion of any liability against Employee, and Company shall at
all times maintain the maximum reasonably priced directors and officers
liability insurance coverage.
15. Notices. All notices hereunder shall be in writing and shall be given
either by personal delivery, telegram or telecopy (toll prepaid) or by
registered or certified mail (postage prepaid) to the appropriate party at the
address listed below, and the date of such personal delivery, mailing,
telegraphing or telecopying shall be the date of the giving of such notice.
If to Company: The Harvey Entertainment Company
1999 Avenue of the Stars
Suite 2050
Los Angeles, California 90067
Attention: Chairman of the Board
Facsimile: (310) 444-4102
Confirmation: (310) 444-4100
with a copy to: The Harvey Entertainment Company
1999 Avenue of the Stars
Suite 2050
Los Angeles, California 90067
Attention: Legal Department
Facsimile: (310) 444-4103
Confirmation: (310) 444-4100
If to Employee: George Shamieh
c/o PM Entertainment
9545 Wentworth Street
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<PAGE> 11
Sunland, California 91040
Facsimile: (818) 951-4930
Confirmation: (818) 504-6332
With a copy to: Paul, Hastings, Janofsky & Walker LLP
555 S. Figueroa St., 23rd Floor
Los Angeles, California 90071
Attention: Roxanne E. Christ, Esq.
Facsimile: (213) 627-0705
Confirmation: (213) 683-6270
16. Miscellaneous.
(a) In the event there is any conflict between the provisions of this
Agreement and any statute, law or regulation, the latter shall prevail;
provided, however, that in such event the provision(s) of this Agreement so
affected shall be curtailed and limited only to the minimum extent necessary to
permit compliance with the minimum mandatory requirement(s) thereof, and no
other provision(s) of this Agreement shall be affected thereby, and all such
other provisions will continue in full force and effect.
(b) This Agreement shall be governed by the laws of the State of
California applicable to agreements executed and to be wholly performed therein
and shall not be modified except by a written document executed by the parties
hereto.
(c) This Agreement together with the Schedules hereto, expresses the
entire understanding of the parties hereto and replaces any and all former
agreements, negotiations or understandings, written or oral, relating to the
subject matter hereof.
(d) The remedies herein provided are cumulative and the exercise of
one shall not preclude the exercise of any other.
(e) No waiver by either party hereto of any failure by the other party
to keep or perform any covenant or condition of this Agreement shall be deemed a
waiver of any preceding, succeeding or continuing breach of the same, or any
other covenant or condition.
(f) Paragraph headings are for the convenience of the parties only and
shall not be used in construing meaning.
(g) This Agreement shall not be construed to create a joint venture or
partnership between the parties, and shall not be interpreted in favor of or
against either party on grounds that said party drafted this Agreement.
(h) This Agreement shall be executed in a number of identical
counterparts, each of which shall be construed as an original for all purposes,
but all of which taken together shall constitute one and the same Agreement.
17. This Employment Agreement shall become effective (the "Effective Date")
as of the start of business on the day after the close of the acquisition of PM
Entertainment Group, Incorporated by The Harvey Entertainment Company currently
expected to close during the first quarter of 2000.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYEE: THE HARVEY ENTERTAINMENT COMPANY
/s/ George Shamieh
- - ------------------------- By: /s/ Roger A. Burlage
GEORGE SHAMIEH --------------------------------
Title: Chairman of the Board
-----------------------------
PM ENTERTAINMENT, INC.
By: /s/ Roger A. Burlage
-------------------------------
Title: Chairman of the Board
----------------------------
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<PAGE> 13
Exhibits*
<TABLE>
<CAPTION>
Description Exhibit
- - ----------- -------
<S> <C>
Accounts Receivable A
</TABLE>
Schedules
<TABLE>
<CAPTION>
Description* Schedule
- - ------------ --------
<S> <C>
ACI Projects A
ACI Projects B
</TABLE>
*The Schedules and Exhibits are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule or Exhibit to the Commission upon
request.
<PAGE> 1
EXHIBIT 10.78
LEASE AGREEMENT
BY AND BETWEEN
PEPIN MERHI SHAMIEH, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY,
AS LANDLORD
AND
PEPIN/MERHI ENTERTAINMENT GROUP, INC.,
A CALIFORNIA CORPORATION,
A WHOLLY-OWNED SUBSIDIARY OF HARVEY ENTERTAINMENT COMPANY
AS TENANT
PREMISES: 9545 WENTWORTH STREET, SUNLAND, LOS ANGELES COUNTY, CA
Dated as of April 1, 2000
<PAGE> 2
This LEASE AGREEMENT ("Lease") is made as of this 1st day of
April, 2000, by and between Pepin Merhi Shamieh, LLC, a California Limited
Liability Company, with an address of 8209A Foothill Boulevard, Suite 135,
Sunland, California 91040, Attention: George Shamieh ("Landlord"), and
Pepin/Merhi Entertainment Group, Inc., a California corporation, a wholly-owned
subsidiary of Harvey Entertainment Company, with an address of 9545 Wentworth
Street, Sunland, California, Attention: Glen R. Weisberger, Esq. ("Tenant").
In consideration of the rents and provisions herein stipulated to
be paid and performed, Landlord and Tenant hereby covenant and agree as follows:
1. LEASE OF PREMISES.
Landlord hereby demises, lets and leases to Tenant, and Tenant
hereby takes and leases from Landlord, for the term and upon the provisions
hereinafter specified, the following property (hereinafter referred to as the
"Leased Premises"): (a) the real property commonly known as 9545 Wentworth
Street, Sunland, California (the "Land"), (b) the building on the real property
(the "Building"), the asphalt parking lot on the Land and all other buildings,
structures and other improvements now or hereafter constructed on the Land
(collectively, the "Improvements"), (c) the fixtures, machinery, equipment and
other property described on Exhibit A attached hereto and incorporated herein by
this reference (collectively, the "Equipment"), and (d) the Appurtenances to the
Land. (The items specified in clauses (a) through (d) are collectively referred
to as the "Property".)
2. CERTAIN DEFINITIONS.
"Additional Rent" shall mean any and all Impositions, fees,
charges, Costs, expenses, insurance obligations, late charges, assessments,
Operating Expenses and all other payments, distributions or reimbursements which
are attributable to, payable by or the responsibility of Tenant under this
Lease.
"Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, re-constructions, renewals, replacements or
removals of and all substitutions or replacements for any of the Improvements or
Equipment, both interior and exterior, structural and non-structural, and
ordinary and extraordinary.
"Appurtenances" shall mean all of Landlord's interest in the
tenements, hereditaments, easements, rights-of-way, rights, privileges in and to
the Land, including (a) easements over other lands granted by any easement
agreement and (b) any streets, ways, alleys, vaults, gores or strips of land
adjoining the Land.
"Basic Rent" shall mean Basic Rent as defined in Paragraph 6.
"Commencement Date" shall mean Commencement Date as defined in
Paragraph 5.
"Condemnation" shall mean a Taking.
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<PAGE> 3
"Costs" of a Person or associated with a specified transaction
shall mean all reasonable costs and expenses incurred by such Person or
associated with such transaction, including without limitation, attorneys' fees
and expenses, court costs, brokerage fees, escrow fees, title insurance
premiums, mortgage commitment fees, mortgage points, recording fees and transfer
taxes, as the circumstances require.
"Environmental Law" shall mean (i) whenever enacted or
promulgated, any applicable federal, state, foreign and local law, statute,
ordinance, rule, regulation, license, permit, authorization, approval, consent,
court order, judgment, decree, injunction, code, requirement or agreement with
any governmental entity, (x) relating to pollution (or the cleanup thereof), or
the protection of air, water vapor, surface water, groundwater, drinking water
supply, land (including land surface or subsurface), plant, aquatic and animal
life from injury caused by a Hazardous Substance or (y) concerning exposure to,
or the use, containment, storage, recycling, reclamation, reuse, treatment,
generation, discharge, transportation, processing, handling, labeling,
production, disposal or remediation of Hazardous Substances, Hazardous Condition
or Hazardous Activity, or (z) industrial hygiene, in each case as amended and as
now or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to or threatened as a result of the
presence of, exposure to, or ingestion of, any Hazardous Substance. The term
Environmental Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Water Pollution Control Act, the
federal Clean Air Act, the federal Clean Water Act, the federal Resources
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic
Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act,
the federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation Act,
each as amended and as now or hereafter in effect and any similar state or local
Law.
"Environmental Violation" shall mean (i) any direct or indirect
discharge, disposal, spillage, emission, escape, pumping, pouring, injection,
leaching, release, migration, seepage, filtration or transporting of any
Hazardous Substance at, upon, under, onto or within the Leased Premises, or from
the Leased Premises to the environment, in violation of any Environmental Law or
in excess of any reportable quantity established under any Environmental Law or
which could result in any liability to Landlord, Tenant or Lender, any Federal,
state or local government or any other Person for the Costs of any removal or
remedial action or natural resources damage or for bodily injury or property
damage, (ii) any deposit, storage, dumping, placement or use of any Hazardous
Substance at, upon, under or within the Leased Premises in violation of any
Environmental Law or in excess of any reportable quantity established under any
Environmental Law or which could result in any liability to any Federal, state
or local government or to any other Person for the Costs of any removal or
remedial action or natural resources damage or for bodily injury or property
damage, (iii) the abandonment or discarding of any barrels, containers or other
receptacles containing any Hazardous Substances in violation of any
Environmental Laws, (iv) any activity, occurrence or condition which could
result in any liability, cost or expense to Landlord or Lender or any other
owner or occupier of the Leased
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Premises resulting from the presence of any Hazardous Substance or (v) any
violation of or noncompliance with any Environmental Law.
"Equipment" shall mean the Equipment as defined in Paragraph 1.
"Escrow Holder" shall mean Chicago Title Insurance Company, 700
South Flower Street, Suite 900, Los Angeles, CA 90017, Attention: Escrow
Department.
"Event of Default" shall mean an Event of Default as defined in
Paragraph 24.
"Hazardous Activity" means any activity, process, procedure or
undertaking which directly or indirectly (i) procures, generates or creates any
Hazardous Substance; (ii) causes or results in (or threatens to cause or result
in) the release, seepage, spill, leak, flow, discharge or emission of any
Hazardous Substance into the environment (including the air, ground water,
watercourses or water systems); (iii) involves the containment or storage of any
Hazardous Substance; or (iv) would cause the Leased Premises or any portion
thereof to become a hazardous waste treatment, recycling, reclamation,
processing, storage or disposal facility within the meaning of any Environmental
Law.
"Hazardous Condition" means any condition, which would support any
claim or liability under any Environmental Law, including the presence of
underground storage tanks.
"Hazardous Substance" means (i) any substance, material, waste,
product, petroleum, petroleum product, derivative, compound or mixture, mineral
(including asbestos), chemical, gas, medical waste, or other pollutant, or
component thereof (whether injurious by themselves or in conjunction with other
materials), in each case whether naturally occurring, man-made or the by-product
of any process, that is now or hereafter listed, defined or regulated as a
flammable explosive, radioactive material, toxic, harmful or hazardous or
acutely hazardous to the environment or public health or safety by any federal,
state or local governing or regulatory body having jurisdiction which would
trigger any employee or community "right-to-know" requirements adopted by any
such body, or for which any such body has adopted any requirements for the
preparation or distribution of an MSDS, or (ii) any substance supporting a claim
under any Environmental Law, whether or not defined as hazardous as such under
any Environmental Law. Hazardous Substances include, without limitation, any
toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum or
petroleum-derived substances or waste, radon, radioactive materials, asbestos,
asbestos containing materials, urea formaldehyde foam insulation, lead,
polychlorinated biphenyls. Without limiting the generality of the foregoing,
Hazardous Substances shall include, but not be limited to substances defined as
"hazardous substances", "hazardous materials", or "toxic substances" in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 et seq.; the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq.; and those substances defined as "hazardous
wastes" in Section 25117 of the California Health & Safety Code or as "hazardous
substances" in Section 25316 of the California Health & Safety Code; and in the
regulations adopted and publications promulgated from time to time pursuant to
said laws.
"Improvements" shall mean the Improvements as defined in Paragraph
1.
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"Indemnified Parties" shall mean either the Landlord Indemnified
Parties or the Tenant Indemnified Parties as defined in Paragraph 18.
"Impositions" shall mean the Impositions as defined in Paragraph
11(b).
"Insurance Requirements" shall mean the requirements of all
insurance policies maintained in accordance with this Lease.
"Interest Rate" shall mean the lower of (i) the maximum interest
rate permitted by law or (ii) 5% above the rate publicly announced from time to
time by Bank of America N.T. & S.A. (or if Bank of America N.T. & S.A. ceases to
exist, then the largest bank headquartered in the State of California) ("Bank")
as its Reference Rate. If the use of the announced Reference Rate is
discontinued by the Bank, then the reference to Reference Rate shall mean the
announced rate charged by the Bank which is from time to time substituted for
such Reference Rate.
"Land" shall mean the Land as defined in Paragraph 1.
"Law" shall mean any federal, state or local law, ordinance,
constitution, statute, rule of law, code, ordinance, order, judgment, decree,
injunction, rule, regulation, policy, requirement or administrative or judicial
determination, even if unforeseen or extraordinary, of every duly constituted
governmental authority, court or agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Year" shall mean, with respect to the first Lease Year, the
period commencing on the Commencement Date and ending at midnight on the last
day of the 12th consecutive calendar month following the month in which the
Commencement Date occurred, and each succeeding 12 month period during the Term.
"Leased Premises" shall mean the Leased Premises as defined in
Paragraph 1.
"Legal Requirements" shall mean the requirements of all present
and future Laws (including but not limited to Environmental Laws) and all
covenants, restrictions and conditions now or hereafter of record which may be
applicable to Tenant or to the Leased Premises, or to the use, manner of use,
occupancy, possession, operation, maintenance, alteration, repair or restoration
of the Leased Premises, even if compliance therewith necessitates structural
changes or improvements or results in interference with the use or enjoyment of
the Leased Premises.
"Lender" shall mean any person or entity (and their respective
successors and assigns) which may, after the date hereof, make a Loan to
Landlord or is the holder of any Note.
"Loan" shall mean any loan made by one or more Lenders to
Landlord, which loan is secured by a Mortgage and evidenced by a Note.
"Mortgage" shall mean any mortgage, deed of trust or other
security interest from Landlord to a Lender which (i) encumbers the Leased
Premises and (ii) secures Landlord's obligation to repay a Loan, as the same may
be amended, supplemented or modified.
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"Note" shall mean any promissory note evidencing Landlord's
obligation to repay a Loan, as the same may be amended, supplemented or
modified.
"Person" shall mean an individual, partnership, association,
limited liability company, corporation or other entity.
"Purchase Agreement" shall mean the agreement to be used upon the
exercise of the Purchase Option as provided in Paragraph 34, which agreement
shall be in the form of Exhibit D.
"Purchase Option" shall mean the purchase option described in
Paragraph 34.
"Rent" shall mean, collectively, Basic Rent and Additional Rent.
All such Basic Rent and Additional Rent shall constitute "rent" within the
meaning of California Civil Code Section 1951(a).
"State" shall mean the State of California.
"Surviving Obligations" shall mean any obligations of Tenant under
this Lease, actual or contingent, which arise on or prior to the expiration or
prior termination of this Lease or which survive such expiration or termination
by their own terms.
"Taking" shall mean (a) any taking or damaging of all or a portion
of the Leased Premises (i) in or by condemnation or other eminent domain
proceedings pursuant to any Law, general or special, or (ii) by reason of any
agreement with any condemnor in settlement of or under threat of any such
condemnation or other eminent domain proceeding, or (iii) by any other means, or
(b) any de facto condemnation. The Taking shall be considered to have taken
place as of the later of the date actual physical possession is taken by the
condemnor, or the date on which the right to compensation and damages accrues
under the law applicable.
"Term" shall have the meaning as defined in Paragraph 5.
3. TITLE, "AS-IS" CONDITION AND UTILITIES.
(a) The Leased Premises are demised, let and leased to Tenant
subject to two Mortgages (a first deed of trust held by City National Bank
securing indebtedness of $1,961,758 and a junior deed of trust held by U.S.
Small Business Administration securing indebtedness of $932,044) and all Legal
Requirements, but excluding any violation thereof existing as of the date of
this Lease which shall be subject to correction by Landlord at its expense.
(b) Tenant acknowledges that neither Landlord nor any of
Landlord's agents has made any oral or written representations or warranties
with respect to the condition of the Lease Premises other than as set forth in
this Lease, and Tenant is leasing the Leased Premises hereunder from Landlord in
its "As-Is" condition. Tenant acknowledges that Landlord shall have no
obligation hereunder to make, install, remodel or alter any tenant improvements
for the benefit of Tenant to enter into this Lease or otherwise to make or
perform any repairs, renewals or replacements to the Leased Premises as an
inducement to Tenant to enter into this Lease, or as a condition precedent to
the effectiveness of this Lease and further that Landlord shall have no
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obligation to maintain or repair any part of the Leased Premises except as
otherwise expressly set forth in Paragraphs 15(e), 20 and 21 herein during the
Term of the Lease.
(c) Tenant shall provide or cause to be provided, in its own name,
all utilities and services necessary for Tenant's use of the Leased Premises as
permitted by this Lease. The cost of supplying all utilities and services, the
cost of operating, maintaining, repairing, renovating and managing the Building
systems, and the cost of supplies and equipment and maintenance and service
contracts in connection therewith shall be paid by Tenant as its sole cost and
expense.
4. USE OF LEASED PREMISES; QUIET ENJOYMENT; OCCUPANTS.
(a) Tenant may occupy and use the Leased Premises only for
offices, motion picture production, sound stages, animation and computer
generated graphics, storage, distribution, and with the approval of Landlord,
which approval shall not be unreasonably withheld, for such other purposes as
are permitted by Law. Tenant shall not use or occupy or permit the Leased
Premises to be used or occupied, nor do or permit anything to be done in or on
the Leased Premises, in a manner which would or might (i) violate any Law or
Legal Requirement, (ii) make void or voidable or cause any insurer to cancel any
insurance required by this Lease, or make it difficult or impossible to obtain
any such insurance at commercially reasonable rates, (iii) increase the existing
rate of, or affect, any fire or other insurance upon the Leased Premises or its
contents unless Tenant deposits the amount of such increase with Landlord, (iv)
will cause a weight load or stress on the floor or other portion of the Leased
Premises in excess of the weight load or stress which the floor or other portion
of the Leased Premises is designed to bear, or (v) cause structural injury to
any of the Improvements.
(b) Tenant, at Tenant's sole cost, shall comply with (i) all Laws
relating to the use, occupation or alteration of the Leased Premises, now or
hereafter instituted, (ii) the requirements of any Board of Fire Underwriters or
other similar body, now or hereafter instituted, and (iii) all orders,
directives and certificates of occupancy issued pursuant to any Laws, but
excluding any requirements of structural changes unless required because of
Tenant's willful misconduct or gross negligence or because of any Alterations
made by Tenant. In the event Tenant's compliance with the foregoing (except as a
result of Tenant's willful misconduct or gross negligence or because of any
Alterations made by Tenant) requires structural changes to the Leased Premises
which are of a capital nature ("Capital Structural Changes"), Landlord shall be
responsible for making such Capital Structural Changes at Landlord's cost and
expense; provided, however, Tenant shall reimburse Landlord for the amortized
cost of the Capital Structural Changes during the Lease Term, (which cost shall
be amortized over the useful life of the Capital Structural Change as determined
by Landlord), and Tenant shall further, if Tenant exercises the Purchase Option
pursuant to Paragraph 34 below, the unamortized cost of such Capital Structural
Changes shall be added to the Purchase Price of the Property. For the avoidance
of doubt, if Tenant's compliance with the provisions of the first sentence of
this Paragraph 4(b) are required because of Tenant's willful misconduct or gross
negligence or because of any Alterations made by Tenant to the Leased Premises,
Tenant shall be responsible for making such changes at Tenant's sole cost and
expense, without any contribution or reimbursement from Landlord, regardless of
whether such changes are Capital Structural Changes or not. The judgment of any
court of competent jurisdiction or the admission of Tenant
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in any action against Tenant, whether or not Landlord is a party to such action,
shall be conclusive as between Landlord and Tenant in establishing such
violation.
(c) Tenant shall comply with all recorded covenants, conditions
and restrictions now or hereafter affecting the Leased Premises. Tenant shall
not use or allow another person or entity to use any part of the Leased Premises
for the storage, use, treatment, manufacture or sale of Hazardous Substances in
violation of applicable Environmental Law.
(d) Subject to the provisions hereof, so long as no Event of
Default has occurred and is continuing, Tenant shall quietly hold, occupy and
enjoy the Leased Premises throughout the Term, without any hindrance, ejection
or molestation by Landlord with respect to matters that arise after the date
hereof, provided that Landlord or its agents may enter upon and examine the
Leased Premises at such reasonable times as Landlord may select and upon
reasonable notice to Tenant (except in the case of any emergency, in which event
no notice shall be required) for the purpose of inspecting the Leased Premises,
verifying compliance or non-compliance by Tenant with its obligations hereunder
and the existence or non-existence of an Event of Default or event which with
the passage of time and/or notice would constitute an Event of Default, showing
the Leased Premises to prospective Lenders and purchasers and taking such other
action with respect to the Leased Premises as is permitted by any provision
hereof.
(e) Tenant shall have the right to permit any person or company
which is a client or customer of Tenant or which is providing a service to
Tenant (each, an "Occupant") to occupy certain portions of the Leased Premises
for entertainment related purposes without such occupancy being deemed an
assignment or subleasing as long as (i) relationship was not created as a
subterfuge to avoid the obligations set forth in Paragraph 23, (ii) for
Occupants which occupy any portion of the Leased Premises for more than 90 days
during a 12 month period, Tenant shall provide Landlord with at least 5 business
days' notice of the identity and contact information of each such Occupant,
(iii) each Occupant shall execute an agreement with Tenant including the
language set forth in Exhibit E attached hereto and incorporated herein by this
reference, which language shall provide that Occupant shall indemnify Landlord
from all loss, cost, expense and liability, including attorneys' fees and Costs,
arising from such use and shall maintain liability insurance naming Landlord as
an additional insured in an amount reasonably acceptable to Landlord, and (iv)
no Occupant shall be granted exclusive possession of all of the Leased Premises.
Any demising walls which are constructed on or behalf of any Occupant must be
approved in accordance with the procedures for approving Alterations pursuant to
Paragraph 16 below.
5. TERM.
Subject to the provisions hereof, Tenant shall have and hold the
Leased Premises for a term ("Term") commencing on April 1, 2000 ("Commencement
Date"), which is the date Tenant acquires the assets of PM Entertainment, Inc.
and ending on the last day of the 24th calendar month next following the
Commencement Date, unless sooner terminated as provided herein. Landlord may
send Tenant notice of the occurrence of the Commencement Date in the form of the
attached Exhibit B, which notice Tenant shall acknowledge by executing a copy of
the notice and returning it to Landlord. If Tenant fails to sign and return the
notice to Landlord within 10 days of receipt of the notice from Landlord, the
notice as sent by Landlord shall be
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deemed to have correctly set forth the Commencement Date. Failure of Landlord to
send such notice shall have no effect on the Commencement Date.
6. BASIC RENT.
Tenant shall pay to Landlord, as rent ("Basic Rent") for the
Leased Premises, the sum of FIFTY THOUSAND AND NO ONE HUNDREDTHS DOLLARS
($50,000.00) per month, which amount shall be payable monthly in advance
commencing on the Commencement Date and continuing on the 1st day of each month
thereafter during the Term. Each such rental payment shall be made to Landlord
at its address set forth above. Concurrently with the execution of this Lease,
Tenant shall pay to Landlord the Basic Rent payable hereunder for the first full
calendar month of the Term after the Commencement Date.
7. LATE CHARGE.
Tenant acknowledges that the late payment of Rent will cause
Landlord to incur damages, including administrative Costs, loss of use of the
overdue funds and other Costs, the exact amount of which would be impractical
and extremely difficult to fix. Landlord and Tenant agree that if Landlord does
not receive a payment of Rent within 5 days of the notice of default as provided
in Paragraph 22, Tenant shall pay to Landlord a late charge equal to 5% of the
overdue amount and the overdue amount shall bear interest at the Interest Rate,
from the date payment of such amount was due until Landlord receives the overdue
payment. Acceptance of the late charge by Landlord shall not cure or waive
Tenant's default, nor prevent Landlord from exercising, before or after such
acceptance, any of the rights and remedies for a default provided by this Lease
or at law. Payment of the late charge is not an alternative means of performance
of Tenant's obligation to pay Rent at the times specified in this Lease. Tenant
will be liable for the late charge regardless of whether Tenant's failure to pay
the Rent when due constitutes a default under the Lease and regardless of
whether Landlord sent Tenant an invoice for such Rent and/or late charge.
Whenever interest is required to be paid under this Lease, the interest shall be
calculated from the date the payment was due or should have been due if
correctly assessed or estimated (or any overcharge paid), until the date payment
is made or the refund is paid or is credited against rent next due.
8. DISPUTES AS TO PAYMENTS OF RENT.
Tenant agrees to pay the Rent required under this Lease within the
time limits set forth in this Lease. If Tenant receives from Landlord an invoice
or statement, which invoice is sent by Landlord in good faith, and Tenant in
good faith disputes whether all or any part of such Rent is due and owing,
Tenant shall nevertheless pay to Landlord the amount of the Rent indicated on
the invoice or statement until Tenant receives a final judgment from a court of
competent jurisdiction (or when arbitration is permitted or required, receives a
final award from an arbitrator) relieving or mitigating Tenant's obligation to
pay such Rent. In such instance where Tenant disputes its obligations to pay all
or part of the Rent indicated on such invoice or statement, Tenant shall,
concurrently with the payment of such Rent, provide Landlord with a letter or
notice entitled "Payment Under Protest," specifying in detail why Tenant is not
required to pay all or part of such Rent. Tenant will be deemed to have waived
its right to contest any past payment of Rent unless it has filed a lawsuit
against Landlord (or when arbitration is
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permitted or required, filed for arbitration and has served Landlord with notice
of such filing), and has served a summons on Landlord, within 1 year of such
payment.
9. SECURITY DEPOSIT.
Concurrently with the execution of this Lease, Tenant shall
deposit with Landlord a security deposit in amount of $25,000.00. The Security
Deposit shall be held by Landlord as security for the full and faithful
performance of Tenant's covenants and obligations under this Lease. The Security
Deposit is not an advance Basic Rent deposit, an advance payment of any other
kind, or a measure of Landlord's damages in case of Tenant's default. If Tenant
fails to comply with the full and timely performance of any or all of Tenant's
covenants and obligations set forth in this Lease, then Landlord may, from time
to time, without waiving any other remedy available to Landlord, use the
Security Deposit, or any portion of it, to the extent necessary to cure or
remedy such failure or to compensate Landlord for all damages sustained by
Landlord resulting from Tenant's failure to comply fully and timely with its
obligations pursuant to this Lease. Tenant shall immediately pay to Landlord on
demand the amount so applied in order to restore the Security Deposit to its
original amount, and Tenant's failure to immediately do so shall constitute a
default under the Lease. If Tenant is in compliance with the covenants and
obligations set forth in this Lease at the time which is 60 days following the
time of both the expiration or termination of the Lease and Tenant's vacating of
the Premises as provided in California Civil Code Section 1950.7, Landlord shall
return the Security Deposit to Tenant after the expiration or termination of the
Lease and Tenant's vacating of the Premises. Landlord's obligations with respect
to the Security Deposit are those of a debtor and not a trustee. Landlord shall
not be required to maintain the Security Deposit separate and apart from
Landlord's general or other funds, and Landlord may commingle the Security
Deposit with any of Landlord's general or other funds. Tenant shall not at any
time be entitled to interest on the Security Deposit.
10. PAYMENT AND PROCEDURE FOR PAYMENT OF OPERATING EXPENSES.
(a) In addition to the payment of Basic Rent, Tenant shall also
pay 100% of all Operating Expenses as defined herein which are incurred by
Landlord and computed as set forth in Paragraph 10(b) and 10(c) below. When any
Operating Expense is incurred by Landlord in a particular month, Landlord shall
provide Tenant with a statement of the amounts Tenant shall owe for Operating
Expenses for that month, together with reasonable supporting documentation (the
"Statement"). No delay by Landlord in providing the Statement shall be deemed a
default by Landlord or a waiver of Landlord's right to require payment of
Tenant's obligations for Operating Expense. Tenant shall pay the amount of
Operating Expenses shown in the Statement within 30 days of receipt of such
Statement from Landlord.
(b) "Operating Expenses" are defined to be the sum of all Costs,
expenses, and disbursements, of every kind and nature whatsoever (except to the
extent paid directly by Tenant as an Imposition in accordance with Paragraph 11
below), which become the obligation of and are incurred by Landlord in
connection with the operation, servicing, maintenance and repair of the Leased
Premises in accordance with the terms of this Lease (but excluding repairs,
replacements, or other liabilities which are the responsibility of Landlord
pursuant to Paragraphs 15(e), 20 and 21 below) as required by this Lease
including, but not limited to, the following: (i)
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the Cost of supplying all utilities, the cost of operating, maintaining,
repairing, renovating and managing the utility systems, mechanical systems,
sanitary and storm drainage systems, and the Cost of supplies and equipment and
maintenance and service contracts in connection therewith; (ii) all of the Costs
(including, without limitation, the policy premiums and up to $10,000 of a
deductible amount for each separate claim) in connection with (A) insurance
obtained by Landlord against physical loss or damage to the Leased Premises,
Equipment and Improvements as provided under a standard "All Risk" property
policy, excluding earthquake and flood coverage, in the amount of $5,700,000
("All Risk Insurance"), (B) rental interruption insurance for at least 12 months
of Basic Rent payable by Tenant to Landlord, and (C) such other insurance on or
in connection with the Leased Premises as Landlord or Lender may reasonably
require, which at the time is usual and commonly obtained in connection with
properties similar in type of building size, use and location to the Leased
Premises; (iii) all expenses for janitorial, maintenance, alarm, security and
safety services, window cleaning, and trash removal; (iv) the Cost of licenses,
certificates, permits and inspections and the cost of contesting the validity or
applicability of any Legal Requirements which may affect Operating Expenses, (v)
the Costs incurred in connection with the implementation and operation of a
transportation system management program or similar program; (vi) the Cost of
landscaping, maintenance, relamping, and all supplies, tools, equipment and
materials used in the operation, repair and maintenance of the Building; (vii)
payments under any easement, license, operating agreement, declaration,
restrictive covenant, underlying or ground lease (excluding rent), or instrument
pertaining to the sharing of costs by the Lease Premises; (viii) the Cost of
parking area maintenance, including, but not limited to, re-striping, and
cleaning; (ix) the Cost of the repair of all plant, machinery, transformers,
duct work, cable, wires, and other equipment, facilities, and systems designed
to supply heat, ventilation, air conditioning and humidity or any other services
or utilities, or comprising or serving as any component or portion of the
electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or
fire/life safety systems or equipment, or any other mechanical, electrical,
electronic, computer or other systems or equipment which serve the Leased
Premises in whole or in part, and components thereof, and the cost of
replacement of the same to the extent caused by the willful misconduct or gross
negligence of Tenant; and (x) such other usual Costs and expenses which are
customarily reimbursed by Tenants to landlords for the purpose of providing for
the on-site operation, servicing, maintenance and repair of comparable buildings
in Southern California.
(c) Notwithstanding anything in the definition of Operating
Expenses in the Lease to the contrary, Operating Expenses shall not include the
following, except to the extent specifically permitted by a specific exception
to the following: (i) Costs incurred by Landlord for the repair of damage to the
Leased Premises, to the extent that Landlord is reimbursed by insurance proceeds
(such proceeds to be excluded from Operating Expenses in the year in which
received, except that any deductible amount under any insurance policy shall be
included within Operating Expenses); (ii) Costs incurred by Landlord due to the
violation by Landlord of the terms and conditions of the Lease; (iii)
advertising and promotional expenditures; (iv) depreciation, interest and
amortization on Mortgages, or underlying or ground lease rental payments, if
any; (v) any and all costs arising from the presence, removal, abatement or
remediation of Hazardous Substances in or about the Leased Premises, existing in
the Leased Premises as of the date of this Lease and not placed in the Leased
Premises by Tenant or any Occupant [except for any costs associated with the
normal operation and maintenance of the Leased Premises]; (vi) any management
fees, salaries, employment expenses incurred by
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Landlord including accounting fees and legal fees incurred by reason of
Landlords ownership of the Property and not arising from a breach by Tenant of
its obligations under this Lease; and (vii) all real estate taxes and
assessments including any supplemental taxes and special assessments or other
taxes imposed upon Landlord by reason of its ownership of the Property.
(d) Landlord shall keep adequate records and books of account with
respect to the Leased Premises, in accordance with generally accepted accounting
principles ("GAAP") consistently applied. Tenant shall have a period of 3 months
following receipt of the Statement, within which to dispute any Statement. If
Tenant shall not have disputed any such Statement within a period of 3 months
following receipt of the Statement, Tenant shall be deemed to have accepted as
final and determinative the amounts shown on the Statement. If Tenant disputes
the accuracy of a Statement, Tenant shall nevertheless continue to pay the
amounts as required by the provisions of this Paragraph 10; provided however,
that no later than 6 months after receipt of the Statement, Tenant must (or its
right to contest such charges shall be deemed waived) institute arbitration
proceedings against Landlord in an arbitration proceeding governed by the rules
of the American Arbitration Association to collect and recover any overpayments
made by Tenant; and provided further, that Tenant shall, within 10 days of
filing of the complaint, serve Landlord with a copy of the complaint filed in
any such proceeding. Tenant shall be precluded from contesting Operating
Expenses and Landlord's computations of the amounts payable by Landlord or
Tenant pursuant to this Paragraph 10, unless an arbitration complaint is filed
and served within such 6 month period. Should the arbitrator(s) in any such
arbitration proceeding find errors in excess of 10% of the Statement, then
Landlord shall be responsible for all reasonable fees incurred by Tenant with
respect to the arbitration proceeding. Should the arbitrator(s) find errors of
less than 4% of the Statement, then Tenant shall be responsible for all the
reasonable fees incurred by Landlord with respect to the arbitration proceeding.
Should the arbitrator(s) find errors of between 4% and 10% of the Statement,
then each party shall be responsible for all fees incurred by it with respect to
the arbitration proceeding.
(e) If Tenant institutes such arbitration procedures, then the
arbitrator(s) shall have the power to, and shall inquire into and determine, not
only whether or not Tenant was overcharged for any Operating Expenses, but
whether or not Tenant was undercharged for any Operating Expenses. At the
conclusion of the arbitration, the arbitrator(s) shall issue a ruling as to what
the Operating Expenses should have been had Landlord strictly complied with the
provisions of this Lease. If Landlord overcharged Tenant for the Operating
Expenses, the amount of the overcharge shall be returned to Tenant within 30
days following the issuance of the arbitration ruling. If the arbitrator(s)
determine(s) that Tenant was undercharged for the Operating Expenses, Tenant
shall pay the amount of such undercharge to Landlord within 30 days following
the issuance of the arbitration ruling.
11. TAXES, ASSESSMENTS AND IMPOSITIONS.
(a) Except as set forth in Paragraph 11(b) below, Landlord shall
pay all real property taxes and assessments against the Land, Building and
Improvements existing as of the date of this Lease.
(b) Except as set forth in Paragraph 11(a) above, Tenant shall,
before interest or penalties are due thereon, pay and discharge (collectively,
hereinafter, "Impositions"): (i) all
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taxes assessments, rates, duties, license fees, levies, charges on (A) the
personal property of Tenant, (B) upon Tenant's occupancy of the Leased Premises,
(C) upon any trade fixtures, furnishings, equipment or other personal property
contained in the Leased Premises, and (D) upon any Alterations constructed by or
on behalf of Tenant on the Leased Premises, (ii) all rents and charges for
water, sewer, utility and communications services relating to the Leased
Premises, and (iii) any tax measured by gross rentals received from the Leased
Premises, together with any Costs incurred by Landlord, including attorneys'
fees, in contesting any such taxes but excluding any net income, franchise,
capital stock, estate or inheritance taxes imposed by the State of California or
the United States or by their respective agencies, branches or departments;
provided that, if at any time during the Term there shall be levied, assessed or
imposed on Landlord or the Building by any governmental entity, any general or
special, ad valorem or specific excised capital levy or other taxes on the
payments received by Landlord under this Lease and/or any license fee, excise or
franchise taxes measured by or based, in whole or in part, upon such payments,
and/or transfer, transaction, or taxes based directly or indirectly upon the
transaction represented by this Lease and/or any occupancy, use, per capita or
other taxes, based directly or indirectly upon the use or occupancy of the
Leased Premises, then all such taxes shall be deemed to be included within the
definition of the term Impositions. If any Impositions may be paid in
installments without interest or penalty, Tenant shall have the option to pay
Impositions in installments; in such event, Tenant shall be liable only for
those installments which accrue or become due and payable during the Term.
Tenant shall prepare and file all tax reports required by governmental
authorities which relate to the Impositions. Tenant shall promptly deliver to
Landlord (1) copies of all settlements and notices pertaining to Impositions
which may be issued by any governmental authority, (2) receipts for payments of
all taxes required to be paid by Tenant hereunder and (3) receipts for payment
of all other Impositions.
12. NET LEASE.
(a) This is a net lease and all Rent shall be paid without notice
or demand and without set-off, counterclaim, recoupment, abatement, suspension,
deferment, diminution, deduction, reduction or defense (collectively, a
"Set-Off"), except as otherwise expressly provided herein. All payments owed by
Tenant under this Lease shall be paid to Landlord in lawful money of the United
States of America at the location specified by Landlord pursuant to Paragraph 26
of this Lease. All payments of Rent shall be paid by Tenant by check drawn on a
bank that is a member of the California Banker's Clearing House Association.
(b) The obligations of Tenant hereunder shall be separate and
independent covenants and agreements. All Rent payable by Tenant hereunder shall
constitute "rent" for all purposes (including Section 502(b)(6) of the
Bankruptcy Code).
(c) Tenant hereby waives all rights which it may have under
California Civil Code Sections 1932(2), 1933(4), California Code of Civil
Procedure Section 1265.130 and any other Law (i) to quit, terminate or surrender
this Lease or the Leased Premises, or (ii) to any Set-Off of any Rent.
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(d) If the Term begins on a day other than the first day of a
month or ends on day other than the last day of a month, then the Basic Rent for
such partial month shall be prorated on a daily basis on the basis of the actual
number of days in the applicable month.
13. COMPLIANCE WITH LAWS AND ENVIRONMENTAL MATTERS.
(a) Tenant shall, at its expense, comply with and conform to, and
cause any other Person occupying any part of the Leased Premises to comply with
and conform to, all Insurance Requirements and Legal Requirements (including all
applicable Environmental Laws). Without limiting the generality of the
foregoing, Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any Hazardous Substance upon
or about the Leased Premises, nor permit Person to engage in such activities
upon or about the Leased Premises. However, the foregoing provisions shall not
prohibit the transportation to and from, and the use, storage, maintenance and
handling within, the Leased Premises of such Hazardous Substances provided: (i)
such Hazardous Substances shall be used and maintained only in such quantities
as are reasonably necessary for the permitted use of the Leased Premises set
forth in this Lease, strictly in accordance with applicable Laws and the
manufacturers' instructions therefor, (ii) such Hazardous Substances shall not
be disposed of, released or discharged on the Leased Premises, and shall be
transported to and from the Leased Premises in compliance with all applicable
Laws, and as Landlord shall reasonably require, (iii) if any applicable Law or
Landlord's trash removal contractor requires that any such Hazardous Substances
be disposed of separately from ordinary trash, Tenant shall make arrangements at
Tenant's expense for such disposal directly with a qualified and licensed
disposal company at a lawful disposal site (subject to scheduling and approval
by Landlord), and shall ensure that disposal occurs frequently enough to prevent
unnecessary storage of such substances in the Leased Premises, and (iv) any
remaining such Hazardous Substances shall be completely, properly and lawfully
removed from the Leased Premises upon expiration or earlier termination of this
Lease. Tenant shall not at any time (1) cause, permit or suffer to occur any
Environmental Violation or (2) permit any sublessee, assignee, Occupant or other
Person occupying the Leased Premises under or through Tenant to cause, permit or
suffer to occur any Environmental Violation.
(b) Landlord shall have the right, at the following times, to
enter the Leased Premises in order to inspect same and to conduct any testing,
monitoring or analysis reasonably required in connection therewith (collectively
"Inspection"):
(i) Once in any calendar year upon reasonable notice to
Tenant;
(ii) At any time during the Term of this Lease if, in
Landlord's reasonable judgment, Tenant is violating the use restrictions of this
Lease or is not in strict compliance with the regulations, rules or procedures
of any applicable governmental entity with respect to the transport, use,
storage, maintenance, generation, manufacturing, handling, disposal, release or
discharge of Hazardous Substances at the Leased Premises, in which case Landlord
shall give notice to Tenant of the reason for the Inspection and Tenant shall
provide Landlord with access to the Leased Premises for such Inspection within 5
days of any such notice; provided, however, that in an emergency situation
Tenant will provide Landlord with immediate access to the Leased Premises.
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(iii) If Tenant is violating the use restrictions of this
Lease or is not in strict compliance with the regulations, rules or procedures
of the applicable governmental entity, then all reasonable Costs and expenses
reasonably incurred by Landlord in connection with any Inspection shall become
due and payable by Tenant as Additional Rent, within 10 days of presentation by
Landlord of an invoice therefor. If a dispute exists between Landlord and Tenant
as to whether Landlord has sufficient reason to believe that Tenant may be
violating the use restrictions of this Lease or may not be in compliance with
any other provision of this Lease or any applicable governmental entity with
respect to the transport, use, storage, maintenance, generation, manufacturing,
handling, disposal, release or discharge of Hazardous Substances at the Leased
Premises, Tenant will provide Landlord with access to the Leased Premises for an
Inspection in accordance with the provisions of the immediately preceding
paragraph; provided, however, that if there is no such violation or strict
noncompliance, Landlord shall be liable for the cost and expense incurred by
Landlord in connection with such Inspection.
(c) Tenant shall promptly notify Landlord of: (i) any enforcement,
cleanup or other regulatory action taken or threatened by any governmental or
regulatory authority with respect to the presence of any Hazardous Substance on
the Leased Premises or the migration thereof from or to other property, (ii) any
demands or claims made or threatened by any party against Tenant or the Leased
Premises relating to any loss or injury resulting from any Hazardous Substance,
(iii) any release, discharge or non-routine, improper or unlawful disposal or
transportation of any Hazardous Substance on or from the Leased Premises, and
(iv) any matters where Tenant is required by law to give a notice to any
governmental or regulatory authority respecting any Hazardous Substance on the
Leased Premises. Landlord shall have the right (but not the obligation) to join
and participate, as a party, in any legal proceedings or actions affecting the
Leased Premises initiated in connection with any Environmental Law. At such
times as Landlord may reasonably request, Tenant shall provide Landlord with a
written list identifying any Hazardous Substances then used, stored, or
maintained upon the Leased Premises, the use and approximate quantity of each
such material, a copy of any material safety data sheet ("MSDS") issued by the
manufacturer thereof, written information concerning the removal, transportation
and disposal of the same, and such other information as Landlord may reasonably
require or as may be required by applicable Law.
(d) If any Hazardous Substance is released, discharged or disposed
of by Tenant or any other Person (other than Landlord) on or about the Leased
Premises in violation of the foregoing provisions, Tenant shall immediately,
properly and in compliance with applicable Laws clean up and remove the
Hazardous Substance from the Leased Premises and any other affected property and
clean or replace any affected personal property, at Tenant's expense. Such
clean-up and removal work shall be subject to Landlord's prior written approval,
which approval shall not be unreasonably withheld (except in emergencies), and
shall include, without limitation, any testing, investigation, and the
preparation and implementation of any remedial action plan required by any
governmental body having jurisdiction or reasonably required by Landlord. If
Tenant shall fail to comply with the provisions of this Paragraph within 5 days
after written notice by Landlord, or such shorter time as may be required by
applicable Law or in order to minimize any hazard to persons or property,
Landlord may (but shall not be obligated to) arrange for such compliance
directly or as Tenant's agent through contractors or other parties selected by
Landlord, at Tenant's expense (without limiting Landlord's other remedies under
this Lease or applicable Law).
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(e) In addition to, and not in derogation of any other
indemnification contained in this Lease, Tenant agrees to indemnify, defend and
hold harmless Landlord, its successors and assigns, and its and their trustees,
beneficiaries, directors, officers, shareholders, employees, agents, and
partners from all Costs, expenses, damages, liabilities, claims, fines,
penalties, interest, judgments, and losses of any kind arising from or in any
way related to Tenant's or any other Person's (other than Landlord's) Hazardous
Activity during the Term of this Lease or failure to comply in full with this
Paragraph 13 (collectively, "Environmental Losses"), including consequential
damages, damages for personal or bodily injury, property damage, damage to
natural resources occurring on or off the Leased Premises, encumbrances, liens,
Costs and expenses of investigations, monitoring, clean up, removal or
remediation of Hazardous Substances, defense costs of any claims (whether or not
such claim is ultimately defeated), good faith settlements, attorneys' and
consultants' fees and, and losses attributable to the diminution of value, loss
or use or adverse effects on marketability or use of any portion of the Leased
Premises, whether or not such Environmental Losses are contingent or otherwise,
matured or unmatured, foreseeable or unforeseeable. This indemnity shall not
apply to losses to the extent resulting from the gross negligence or willful
misconduct of Landlord or its employees. Tenant's obligations under this
Paragraph 13 shall survive the expiration or termination of the Lease.
14. NO LIENS; MEMORANDUM OF PURCHASE OPTION.
(a) Except for (i) recordation of the Memorandum, (ii) any lien
which is the subject of a permitted contest pursuant to Paragraph 17 below and
(iii) any lien imposed upon the Leased Premises by an appropriate governmental
authority in connection with an improvement district for the benefit of the
Leased Premises, Tenant shall not create or permit to be created or to remain
and shall promptly discharge or remove any lien, levy or encumbrance on the
Leased Premises which is not created by or through Landlord. At any time Tenant
either desires or is required to make any Alterations which cost more than
$300,000, Landlord may require Tenant, at Tenant's sole cost and expense, to
obtain and provide to Landlord a completion and/or performance bond in a form
and by a surety acceptable to Landlord and in an amount not less than 1-1/2
times the estimated cost of such Alterations, or to provide a letter of credit
or other security reasonably satisfactory to Landlord, to insure Landlord
against liability from mechanics' and materialmen's liens and to insure
completion of the Work. Tenant agrees to indemnify and hold Landlord harmless
from and against any and all claims for mechanics', materialmen's or other liens
in connection with any alterations, repairs, or any work performed, materials
furnished or obligations incurred by or for Tenant, and in connection therewith,
Tenant shall provide Landlord with notice of any and all liens filed against the
Leased Premises. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR
ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO
ANYONE HOLDING OR OCCUPYING THE LEASED PREMISES THROUGH OR UNDER TENANT, AND
THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS
SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO THE LEASED
PREMISES. LANDLORD RESERVED THE RIGHT TO ENTER THE LEASED PREMISES TO POST ANY
NOTICES ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD AS MAY
BE PERMITTED BY LAW OR DESIRED BY LANDLORD.
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(b) Landlord and Tenant shall execute, deliver and record, at
Tenant's expense, a memorandum of the Lease including the Purchase Option
contained herein ("Memorandum") which shall be in the form attached hereto as
Exhibit C. The Parties shall cause the Memorandum to be recorded in the official
records of Los Angeles County, if and only if Tenant, prior to such recordation,
delivers to Escrow Holder a duly signed and acknowledged quitclaim deed, in form
and substance satisfactory to Landlord, sufficient to release any and all rights
of Tenant in and to the Leased Premises under this Lease (the "Quitclaim Deed"),
and Tenant hereby approves and irrevocably authorizes and directs Escrow Holder
to record the Quitclaim Deed in such manner and in such places as may be
required or permitted by any present or future Law immediately upon the
expiration of the Purchase Option contained in this Lease, without the
requirement for any further or additional instruction from Tenant.
15. MAINTENANCE AND REPAIR.
(a) Subject to the provisions of Paragraph 20 and 21, Tenant shall
at all times, without cost or expense to Landlord, keep and maintain the
non-structural portion of the Leased Premises (including, but not limited to,
all interior partitions, windows, fixtures, lighting facilities, fixtures,
doors, plate glass, skylights, landscaped areas, driveways, parking lots,
fences, signs, sidewalks, parkways, Building systems and Equipment) and
Alterations in substantially the same order, condition and repair and appearance
existing as of the Commencement Date, ordinary wear and tear and loss by fire or
other casualty excepted.
(b) All damage, injury or breakage to any part or portion of the
Leased Premises (including, but not limited to, the roof and the parking area)
caused by the willful or negligent act or omission of Tenant or Tenant's
employees, agents, contractors, licensees, directors, officer, partners,
trustees, visitors, invitees (collectively, "Tenant's Employees") or any of the
Occupants shall be promptly repaired or replaced by Tenant, at Tenant's sole
cost and expense, to the reasonable satisfaction of Landlord; provided, however,
that Tenant shall be entitled to receive reimbursement for such expense to the
extent that the cost of any such repair is covered by insurance obtained by
Landlord as part of Operating Expenses. Without limiting the generality of the
foregoing, Tenant shall be required to replace or re-roof the Leased Premises,
Tenant shall not be required to make structural repairs or replacements required
to bring the Improvements into compliance with Applicable Laws, unless (i) such
repairs or replacements are attributable to Alterations to the Leased Premises
which have been made by Tenant, (ii) such repairs or replacements are caused by
the willful or negligent act or omission of Tenant, Tenant's Employees or any of
the Occupants, or (iii) such Costs are triggered by a change of the use of the
Lease Premises.
(c) Upon not less than 15 days notice (except in the case of
emergency when Landlord may take immediate action), Landlord may make any
repairs which it is Tenant's obligation to make under this Lease and which are
not made by Tenant within a reasonable amount of time, and charge Tenant for the
cost of such repairs. Landlord shall use reasonable efforts not to unreasonably
interfere with Tenant's use of the Leased Properties.
(d) Tenant shall, at Tenant's sole expense, procure and maintain
contracts, with copies to Landlord, in customary form and substance for, and
with contractors specializing and experienced in the maintenance of the
following Equipment and Improvements, if any, as
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and when installed on the Leased Premises: (i) HVAC equipment, (ii) boiler and
pressure vessels, (iii) fire protection systems, (iv) landscaping and irrigation
systems, (v) roof covering and drains, and (vi) asphalt and parking lots, (vii)
clarifiers and (viii) any other equipment, if reasonably required by Landlord.
If Tenant fails to comply with the foregoing sentence, Landlord may at any time
assume the responsibility for procuring and maintaining the aforesaid contracts,
with copies to be furnished to Tenant, but Tenant shall continue to be
responsible for payment of the same within 10 days following receipt of an
invoice therefor from Landlord.
(e) So long as no event of default has occurred and except as set
forth in Paragraph 15(b) above, Landlord shall maintain and repair the
structural elements of the Leased Premises in substantially the same condition,
repair and appearance as existing as of the Commencement Date, ordinary wear and
tear excepted, and except for non-insured damage or wear and tear which is the
result of a negligent or willful act or omission of Tenant, Tenant's Employees
or any of the Occupants. Notwithstanding the foregoing, Landlord shall no
obligation to make any capital repair or replacement to the Leased Premises
unless the same is necessary in order to keep the Leased Premises in a habitable
condition. Landlord shall have no obligation to make repairs until a reasonable
time after receipt of written notice of the need for such repairs. In no event
shall any payments owed by Tenant under the Lease be abated, nor shall Landlord
have any liability for interruption or interference in Tenant's business, on
account of Landlord's failure to make repairs under this Paragraph 15(e).
Landlord and Landlord's agents, contractors, licensees, employees, directors,
officers, partners, trustees and invitees shall have the right to enter the
Leased Premises at all reasonable times for the purpose of making any
improvements, repairs or replacements to the Leased Premises as Landlord may
deem necessary or desirable, without liability to Tenant. Landlord shall use
reasonable efforts not to unreasonably interfere with Tenant's use of the Leased
Premises. Landlord shall give reasonable notice to Tenant of Landlord's intent
to enter the Leased Premises and effect improvements, repairs or replacements,
except, however, in an emergency situation, in which case no prior notice shall
be required. In the event Landlord elects to make any capital improvement,
repair or replacement to the Leased Premises, the cost of each such capital
repairs and replacements shall be amortized (including interest on the
unamortized cost) over its useful life, as Landlord shall reasonably determine,
and the unamortized cost thereof shall be added to the Purchase Price in the
event Tenant exercises the Purchase Option granted to Tenant pursuant to
Paragraph 34 below notwithstanding the fact that such capital improvement,
repair or replacement was installed or paid for by Landlord as a result of a
requirement by any new (or change in) laws, rules or regulations of any
governmental or quasi-governmental authority.
(f) If Landlord shall fail to make any repairs or replacements
which Landlord is required to make pursuant to the terms of this Lease within a
reasonable period of time after receipt of written notice from Tenant regarding
the same, Tenant shall provide Landlord with written notice of its intention to
make such repairs or replacements on behalf of Landlord ("Tenant's Repair
Notice"). If Landlord does not commence to take action to repair or replace such
required items within 60 days after receipt of Tenant's Repair Notice, Tenant
make make such repairs and submit an invoice, together with reasonable
supporting documentation to Landlord and landlord shall reimburse Tenant for the
actual Cost of such documented repairs or replacements within 30 days of receipt
of such invoice. Except as set forth above, Tenant hereby waives and releases
its right to make repairs at Landlord's expense under Sections 1941 and 1942 of
the California Civil Code or under any similar law, statute, or ordinance now or
hereafter
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in effect. Notwithstanding anything to the contrary set forth in this Lease,
Tenant hereby waives the right to deduct the Cost of any repairs or replacements
from any payment owed by Landlord under the Lease.
16. ALTERATIONS AND IMPROVEMENTS.
(a) Provided no Event of Default exists, Tenant shall have the
right, at its sole cost and expense, after having obtained the prior written
consent of Landlord and Lender, which shall not be unreasonably withheld or
delayed, to make Alterations to the Leased Premises, if such Alterations are
made in accordance with this Paragraph 16, are commercially reasonable, normal
for general office or production use, do not adversely affect the utility or
value of the Leased Premises for future tenants, do not substantially alter the
exterior appearance of the Building, do not require extensive removal expenses
and are not otherwise prohibited under the Lease, do not affect the Building
systems and do not adversely affect the Building structure. Notwithstanding the
foregoing, Tenant shall have the right to make non-structural Alterations to the
Leased Premises which meet the conditions set forth in the foregoing sentence
and in Paragraph 16(b) below, without Landlord's prior written approval,
provided such Alterations do not cost in excess of $50,000.
(b) If Tenant makes any Alterations pursuant to this Paragraph 16
or as required by Paragraph 15 (such Alterations and actions being hereinafter
collectively referred to as "Work"), then any such Alterations installed by
Tenant during the Term shall be done in strict compliance with the following:
(i) the market value of the Leased Premises shall not be
lessened by any such Work or its usefulness impaired;
(ii) all such Work shall be performed by Tenant in a
first-class workmanlike manner and in conformity with a valid building permit
and/or all other permits or licenses when and where required, copies of which
shall be furnished to Landlord before the Work is commenced, and any Work not
acceptable to any governmental authority or agency having or exercising
jurisdiction over such Work or not reasonably satisfactory to Landlord, shall be
promptly replaced and corrected at Tenant's expense. Landlord's approval or
consent to any such Work shall not impose any liability upon Landlord. No such
work shall proceed until and unless Landlord has received at least 10 days
notice that such work is to commence so that Landlord can post a notice of
nonresponsibility;
(iii) all such Work shall be expeditiously completed in
compliance with all Legal Requirements;
(iv) all such Work shall comply with the requirements of
all insurance policies required to be maintained by Tenant hereunder;
(v) Tenant shall promptly discharge or remove all liens
filed against the Leased Premises arising out of such Work;
(vi) Tenant shall procure and pay for all permits and
licenses required in connection with any such Work;
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(vii) all such Work shall be the property of Landlord and
shall be subject to this Lease, and Tenant shall execute and deliver to Landlord
any document requested by Landlord evidencing the assignment to Landlord of all
estate, right, title and interest (other than the leasehold estate created
hereby) of Tenant or any other Person thereto or therein;
(viii) Tenant shall, at Tenant's sole cost and expense,
furnish Landlord with a complete set of "as built" drawings for such
Alterations;
(ix) no such Work shall proceed without Landlord's prior
approval, which approval shall not be unreasonably withheld or delayed, of (A)
Tenant's contractor(s); (B) certificates of insurance from a company or
companies approved by Landlord, furnished to Landlord by Tenant's contractor(s)
and/or vendor(s) with the types and amounts of insurance more particularly
described above and (C) detailed plans and specifications for the Work;
(x) Tenant shall immediately reimburse Landlord for any
Costs incurred by Landlord in reviewing and approving the plans and
specifications for such work or by reason of any faulty Work done by Tenant or
Tenant's contractors, or by reason of delays caused by such Work, or by reason
of inadequate cleanup, or which is otherwise incurred by Landlord to review the
plans and specifications, and monitor and inspect the progress of such Work;
(xi) Tenant or its contractors will in no event be allowed
to make (A) any improvements to the Leased Premises which would adversely affect
any of the Building systems or (B) any structural modification to the Building
without first obtaining Landlord's consent, which Landlord can withhold in its
reasonable discretion; and
(xii) Tenant shall obtain any bonds required by Landlord
pursuant to Paragraph 14(a) of the Lease.
17. PERMITTED CONTESTS.
Notwithstanding any other provision of this Lease, Tenant shall
not be required to (a) pay any Imposition or (b) discharge or remove any lien
referred to in Paragraph 14 (such non-compliance with the terms hereof being
hereinafter referred to collectively as "Permitted Violations"), so long as at
the time of such noncompliance no Event of Default exists and so long as Tenant
shall contest, in good faith, the existence, amount or validity thereof, the
amount of the damages caused thereby, or the extent of its or Landlord's
liability therefor by appropriate proceedings which shall operate during the
pendency thereof to prevent or stay (i) the collection of, or other realization
upon, the Permitted Violation so contested, (ii) the sale, forfeiture or loss of
the Leased Premises or any Rent to satisfy or to pay any damages caused by any
Permitted Violation, (iii) any interference with the use or occupancy of the
Leased Premises, (iv) any interference with the payment of any Rent, (v) the
cancellation or increase in the rate of any insurance policy or a statement by
the carrier that coverage will be denied or (vi) the enforcement or execution of
any injunction, order or Legal Requirement with respect to the Permitted
Violation. Tenant shall provide Landlord security which is satisfactory, in
Landlord's reasonable judgment, to assure that such Permitted Violation is
corrected, including all Costs, interest and penalties that may be incurred or
become due in connection therewith. While any
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proceedings which comply with the requirements of this Paragraph 17 are pending
and the required security is held by Landlord, Landlord shall not have the right
to correct any Permitted Violation thereby being contested unless Landlord is
required by law to correct such Permitted Violation and Tenant's contest does
not prevent or stay such requirement as to Landlord (and if Landlord shall elect
to correct such violation, Tenant shall reimburse Landlord for all Costs which
it shall incur within 10 days after receipt by Tenant of Landlord's demand).
Each such contest shall be promptly and diligently prosecuted by Tenant to a
final conclusion, except that Tenant, so long as the conditions of this
Paragraph 17 are at all times complied with, has the right to attempt to settle
or compromise such contest through negotiations. Tenant shall pay any and all
losses, judgments, decrees and Costs in connection with any such contest and
shall, promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein or in connection therewith, together with all
penalties, fines, interest and Costs thereof or in connection therewith, and
perform all acts the performance of which shall be ordered or decreed as a
result thereof. No such contest shall subject Landlord to the risk of any civil
or criminal liability.
18. INDEMNIFICATION AND WAIVER.
(a) Landlord shall not be liable for and Tenant hereby waives all
claims against Landlord for damage to any property or injury, illness or death
of any person in, upon, or about the Leased Premises arising at any time and
from any cause whatsoever other than damages proximately caused by reason of the
gross negligence or willful misconduct of Landlord or its agents and employees.
Tenant shall indemnify, defend, and protect Landlord, its successors and
assigns, and its officers, directors, members, shareholders, partners and
employees (collectively the "Landlord Indemnified Parties") and hold the
Landlord Indemnified Parties harmless from any and all losses, Costs, damages,
expenses and liabilities (including without limitation court costs and
reasonable attorneys' fees) incurred in connection with or arising from any
cause in the use or occupancy of the Leased Premises during the Term of this
Lease, including, without limiting the generality of the foregoing: (a) any
default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed; (b) the use or occupancy of the Leased Premises by Tenant or any
person claiming by, through or under Tenant; (c) the condition of the Leased
Premises or any occurrence or happening on the Leased Premises from any cause
whatsoever; or (d) any acts, omissions or negligence of Tenant or any person
claiming by, through or under Tenant or Tenant's Employees or any such person,
in, on or about the Leased Premises either prior to, during, or after the
expiration of the Lease Term, including, without limitation, any acts, omissions
or negligence in the making or performance of any Alterations, provided,
however, that the foregoing indemnification shall not apply to damages
proximately caused by reason of the negligence or willful misconduct of any of
the Landlord Indemnified Parties. The provisions of this Paragraph 18(a) shall
survive any termination, expiration or rejection in bankruptcy of this Lease.
(b) Tenant shall pay, protect, indemnify, defend, save and hold
harmless each of the Landlord Indemnified Parties from and against any and all
liabilities, losses, damages (including punitive damages), penalties, Costs
(including attorneys' fees and costs), causes of action, suits, claims, demands
or judgments of any nature whatsoever, howsoever caused,
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without regard to the form of action and whether based on strict liability,
gross negligence, negligence or any other theory of recovery at law or in
equity, arising from (i) any matter pertaining to the use, occupancy, or
operation by Tenant of the Leased Premises, (ii) any violation by Tenant of any
provision of this Lease, any contract or agreement to which Tenant is a party,
or any Legal Requirement to which Tenant is subject, or (iii) any alleged,
threatened or actual Environmental Violation attributable to the activities of
Tenant or any of Tenant's Employees, including (A) liability for response costs
and for Costs of removal and remedial action incurred by the United States
Government, any state or local governmental unit or any other Person, or damages
from injury to or destruction or loss of natural resources, including the
reasonable Costs of assessing such injury, destruction or loss, incurred
pursuant to Section 107 of CERCLA, or any successor section or act or provision
of any similar state or local Law, (B) liability for Costs and expenses of
abatement, correction or clean-up, fines, damages, response Costs or penalties
which arise from the provisions of any of the other Environmental Laws and (C)
liability for personal injury or property damage arising under any statutory or
common-law tort theory, including damages assessed for the maintenance of a
public or private nuisance or for carrying on of a dangerous activity. The
foregoing indemnification contained in this Paragraph 18(b) shall not apply to
damages proximately caused by reason of the gross negligence or willful
misconduct of any of the Landlord Indemnified Parties. The provisions of this
Paragraph 18(b) shall survive any termination, expiration or rejection in
bankruptcy of this Lease.
(c) Landlord shall indemnify, defend and protect Tenant and its
officers, directors, members, shareholders, partners and employees
(collectively, "Tenant Indemnified Parties") and hold the Tenant Indemnified
Parties harmless from and against all losses, Costs, damages, expenses and
liabilities (including, without limitation, court costs and reasonable
attorneys' fees) to the extent arising from any willful misconduct or gross
negligence of Landlord in the performance of Landlord's obligations under this
Lease, provided, however, the foregoing indemnification shall not apply to
damages proximately caused by reason of the negligence or willful misconduct of
any of the Tenant Indemnified Parties. The provisions of this Paragraph 18(c)
shall survive any termination, expiration or rejection in bankruptcy of this
Lease.
(d) If Landlord is ever made a party to any action or proceeding
by reason of a matter for which Tenant is obligated to indemnify Landlord, then
Tenant, upon notice from Landlord, shall, at Landlord's option, either defend
that action or proceeding on behalf of Landlord at Tenant's expense with counsel
satisfactory to Landlord or reimburse Landlord for all defense costs Landlord
actually incurs in defending against such action or proceeding, whether or not
the action or proceeding is ultimately defeated. Any such counsel retained by
Tenant in connection with a settlement involving Landlord shall represent both
Landlord and Tenant in such matter and shall acknowledge that there is no
conflict of interest between the parties with respect to such settlement. Any
settlement entered into by Tenant with respect to an indemnification matter
involving Landlord shall be subject to the prior approval of Landlord and shall
contain a full and complete release of all claims against Landlord. If any
conflict of interest arises in connection with such joint counsel's
representation of Tenant and Landlord, such counsel shall withdraw and Landlord
shall have the right to appoint separate counsel at Tenant's sole cost and
expense to defend Landlord's interest in such matter.
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19. INSURANCE.
(a) Tenant shall maintain the following insurance on or in
connection with the Leased Premises:
(i) Insurance against physical loss or damage to Tenant's
personal property and Alterations in amounts not less than the actual
replacement cost thereof.
(ii) Commercial General Liability Insurance and Business
Automobile Liability Insurance (including Non-Owned and Hired Automobile
Liability) against claims for personal and bodily injury, death or property
damage occurring on, in or as a result of the use of the Leased Premises, in an
amount not less than $3,000,000 per occurrence/annual aggregate (or such higher
amount as may be required by the Lender) and all other coverage extensions that
are usual and customary for properties of this size and type provided, however,
that the Landlord shall have the right to require such higher limits as may be
reasonable and customary for properties of this size and type. Not more
frequently than once each year, if, in the opinion of Landlord's Lender, the
amount of public liability and property damage insurance coverage at that time
is not adequate, Tenant shall increase the insurance coverage as required by
Landlord's Lender.
(iii) Worker's compensation insurance as required by law
covering all persons employed by Tenant in connection with any work done on or
about the Leased Premises for which claims for death, disease or bodily injury
may be asserted against Landlord, Tenant or the Leased Premises or, in lieu of
such Worker's Compensation Insurance, a program of self-insurance complying with
the rules, regulations and requirements of the appropriate agency of the State
in which the Leased Premises are located. Employer's Liability insurance in an
amount not less than $1,000,000.
(iv) During any period in which substantial Alterations are
being undertaken, builder's risk insurance covering the total completed value
including any "soft costs" with respect to the Improvements being altered or
repaired (on a completed value, non-reporting basis), replacement cost of work
performed and equipment, supplies and materials furnished in connection with
such construction or repair of Improvements or Equipment, together with such
"soft cost" endorsements and such other endorsements as Landlord may reasonably
require and general liability, worker's compensation and automobile liability
insurance with respect to the Improvements being constructed, altered or
repaired.
(b) Landlord shall procure and maintain the insurance described in
Section 10(b)(ii) with the cost to be reimbursed by Tenant as an Operating
Expense as provided in Paragraph 10(b).
(c) Unless Landlord and Tenant otherwise mutually agree, the
insurance required by Paragraph 19(a) shall be written by companies which have a
Best's rating of A:VIII or above and are admitted in, and approved to write
insurance policies by, the State Insurance Department for the states in which
the Leased Premises are located. The insurance policies (i) shall be for such
terms as Landlord may reasonably approve and (ii) shall be in amounts sufficient
at all times to satisfy any coinsurance requirements thereof. The insurance
referred to
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in Paragraphs 19(a)(i), 19(a)(iv) and 19(a)(v) shall name Landlord as Owner and
Lender as loss payee and Tenant as their interest may appear. The insurance
referred to in Paragraph 19(a)(ii) shall name Landlord and Lender as additional
insureds. If said insurance or any part thereof shall expire, be withdrawn,
become void, voidable, unreliable or unsafe for any reason, including a breach
of any condition thereof by Tenant or the failure or impairment of the capital
of any insurer, or if for any other reason whatsoever said insurance shall
become reasonably unsatisfactory to Landlord, Tenant shall immediately obtain
new or additional insurance reasonably satisfactory to Landlord.
(d) Each insurance policy referred to in Paragraph 19(a) shall
contain standard non-contributory mortgagee clauses in favor of and acceptable
to Lender. Each policy required by any provision of Paragraph 19(a), except
clause (iii) thereof, shall provide that it may not be cancelled except after 30
days' prior notice to Landlord and Lender. Each such policy shall also provide
that any loss otherwise payable thereunder shall be payable notwithstanding (i)
any act or omission of Landlord or Tenant which might, absent such provision,
result in a forfeiture of all or a part of such insurance payment, (ii) the
occupation or use of the Leased Premises for purposes more hazardous than those
permitted by the provisions of such policy, (iii) any foreclosure or other
action or proceeding taken by Lender pursuant to any provision of the Mortgage,
Note or other document evidencing or securing the Loan upon the happening of an
event of default therein or (iv) any change in title to or ownership of the
Leased Premises.
(e) Tenant shall pay as they become due all premiums for the
insurance required by Paragraph 19(a), shall renew or replace each policy and
deliver to Landlord evidence of the payment of the full premium therefor or
installment then due at least 30 days prior to the expiration date of such
policy, and shall promptly deliver to Landlord all original policies or
certified copies thereof.
(f) Anything in this Paragraph 19 to the contrary notwithstanding,
any insurance which Tenant is required to obtain pursuant to Paragraph 19(a) may
be carried under a "blanket" or umbrella policy or policies covering other
properties or liabilities of Tenant, provided that such "blanket" or umbrella
policy or policies otherwise comply with the provisions of this Paragraph 19 and
provided further that Tenant shall provide to Landlord a Statement of Values
which shall be reviewed annually and amended as necessary based on Replacement
Cost Valuations. The original or a certified copy of each such "blanket" or
umbrella policy shall promptly be delivered to Landlord.
(g) Tenant shall promptly comply with and conform to (i) all
provisions of each insurance policy required by this Paragraph 19 and (ii) all
requirements of the insurers thereunder applicable to Landlord, Tenant or the
Leased Premises or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of the Leased Premises, even if such
compliance necessitates Alterations or results in interference with the use or
enjoyment of the Leased Premises, provided, however, Tenant may terminate this
Lease upon 90 days prior written notice to Landlord in the event the
requirements of any insurance carrier necessitates Alterations the cost of which
to Tenant ("Tenant's Share") exceeds $50,000 ("Termination Notice"). Landlord
may void any Termination Notice by providing Tenant with notice within 30 days
of receipt of the Termination Notice of its intention to pay the difference
between the Tenant's Share and $50,000.
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(h) Tenant shall not carry separate insurance concurrent in form
or contributing in the event of a casualty with that required in this Paragraph
19 unless (i) Landlord and Lender are included therein as named insureds, with
loss payable as provided herein, and (ii) such separate insurance complies with
the other provisions of this Paragraph 19. Tenant shall immediately notify
Landlord of such separate insurance and shall deliver to Landlord the original
policies or certified copies therefor.
(i) All policies required by this Paragraph 19 shall contain full
waivers of subrogation against the Landlord and Tenant.
(j) Except for insurance proceeds payable to Tenant, all proceeds
of any insurance required under Paragraph 19(a) shall be payable to Landlord or,
if required by the Mortgage, to Lender. Tenant shall be responsible for payment
any deductible.
(k) Landlord and Tenant each hereby release and relieve the other,
and waive their entire right of recovery against the other for loss or damage
arising out of or incident to the perils required to be insured against under
Paragraph 19, which perils occur in, on or about the Leased Premises, whether
due to the negligence of Landlord or Tenant or their agents, employees,
contractors and/or invitees. Landlord and Tenant shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
20. CASUALTY.
(a) If the Leased Premises or any portion thereof, is wholly or
partially damaged or destroyed by a casualty, Tenant shall give Landlord and
Lender immediate notice thereof. Landlord and Lender are hereby authorized to
adjust, collect and compromise, in their discretion and upon notice to Tenant,
all claims under any of the insurance policies required by Paragraph 19(a)
(except public liability insurance claims payable to Tenant or Person other than
Landlord or Lender and except for insurance claims by Tenant for loss of its
personal property or business interruption) and to execute and deliver all
necessary proofs of loss, receipts, vouchers and releases required by the
insurers. Each insurer is hereby authorized and directed to make payment under
said policies, including return of unearned premiums, directly to Landlord or,
if required by the Mortgage, to Lender instead of to Landlord and Tenant
jointly. The rights of Landlord under this Paragraph 20(a) shall be extended to
Lender if and to the extent that any Mortgage so provides.
(b) If any such casualty, the loss to Landlord from which is fully
covered by insurance, and which casualty renders the Leased Premises totally or
partially inaccessible or unusable by Tenant in the ordinary conduct of Tenant's
business then:
(i) Within 20 days of notice to Landlord of such damage or
destruction, Landlord shall provide Tenant with its determination of whether the
damage or destruction can be repaired within 120 days of such damage or
destruction without the payment of overtime or other premiums. If all repairs to
the Leased Premises can, in Landlord's reasonable judgment, be completed within
120 days following the date of notice to Landlord of such damage or destruction
without the payment of overtime or other premiums, Landlord shall,
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at Landlord's expense, promptly commence and diligently repair the same as
nearly as possible to their value, condition and character immediately prior to
such casualty and this Lease shall remain in full force and effect and a
proportionate reduction of the Basic Rent and Additional Rent shall be allowed
Tenant for such portion of the Leased Premises as shall be rendered inaccessible
or unusable to Tenant, and which is not used by Tenant, during the period of
time that such portion is unusable or inaccessible and not used by Tenant, to
the extent such rental interruption insurance is received pursuant to Paragraph
10(b)(B) of this Lease. If the Leased Premises are not restored within 120 days
following the date of notice to Landlord of such damage or destruction, then
Tenant may upon written notice to Landlord (a "Termination Notice") terminate
the Lease effective 30 days after Landlord's receipt of the Termination Notice.
If Landlord shall complete the repair or restoration within the 30 day period
between receipt of the Termination Notice and termination of the Lease, the
Termination Notice shall be null and void and this Lease shall continue as if
Tenant had not sent the Termination Notice. Landlord shall keep Tenant informed
as to the progress of any restoration or repair.
(ii) If all such repairs to the Leased Premises cannot, in
Landlord's reasonable judgment, be completed within 120 days following the date
of notice to Landlord of such damage or destruction without the payment of
overtime or other premiums, Landlord shall notify Tenant of such determination
and Landlord may, at Landlord's sole and absolute option, upon written notice to
Tenant given within 30 days after notice to Landlord of the occurrence of such
damage or destruction, elect to repair such damage or destruction at Landlord's
expense, and in such event, this Lease shall continue in full force and effect
but the Basic Rent and Additional Rent shall be proportionately reduced as
hereinabove provided in Paragraph 20(b)(i). If Landlord shall give a Termination
Notice pursuant to this Paragraph 20, Tenant may elect to exercise the Purchase
Option by written notice to Landlord, given at any time within 60 days following
the receipt of the Termination Notice and all insurance proceeds shall be
assigned to Tenant or if received by Landlord shall be deducted from the
purchase price paid at closing.
(iii) If, at any time prior to the expiration or
termination of this Lease, the Leased Premises is totally or partially damaged
or destroyed from a casualty, the loss to Landlord from which is not fully
covered by insurance maintained by Landlord, which damage renders the Leased
Premises inaccessible or unusable to Tenant in the ordinary course of its
business, Landlord, at its option, upon written notice to Tenant within 20 days
after notice to Landlord of the occurrence of such damage or destruction, may
elect to repair or restore such damage or destruction, or Landlord may elect to
terminate this Lease. If Landlord elects to repair or restore such damage or
destruction, this Lease shall continue in full force and effect but the Basic
Rent and Additional Rent shall be proportionately reduced as provided in
Paragraph 20(b)(i). If Landlord does not elect by notice to Tenant to repair
such damage, or if the damage cannot, in Landlord's reasonable judgment, be
completed within 180 days following the date of notice to Landlord of such
damage or destruction, the Lease shall terminate and Tenant may elect to
exercise the Purchase Option by written notice to Landlord, given at any time
within 60 days following termination of the Lease hereunder and all insurance
proceeds shall be assigned to Tenant or if received by Landlord shall be
deducted from the purchase price paid at closing.
(iv) Notwithstanding anything to the contrary contained in
Paragraphs 20(a) or 20(b)(i)-(iii) above, if the Leased Premises is wholly or
partially damaged or destroyed within the final 4 months of the Term of this
Lease, Landlord or Tenant may, at its option, by
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giving notice to the other party within 30 days after occurrence of such damage
or destruction, elect to terminate the Lease.
(v) In the event of any damage to or destruction of the
Leased Premises, under no circumstances shall Landlord be required to repair any
injury, or damage to, or make any repairs to or replacements of, Tenant's
personal property. However, Tenant shall deliver to Landlord the proceeds of
insurance received by Tenant from the "all risk" property policy carried by
Tenant on any Alterations, and Landlord shall, pursuant to its receipt thereof,
repair same to the extent Landlord shall receive such insurance proceeds from
Tenant (but if the amount of insurance proceeds shall not be sufficient to cause
the repair of the Alterations to be fully made by Landlord, Tenant shall pay to
Landlord, within 10 days of receipt of request therefor, the additional amount
of funds requested by Landlord in order to complete the repair of the
Alterations) and this Lease shall remain, in full force and effect. Landlord
shall have no responsibility for any contents placed or kept in or on the Leased
Premises by Tenant or any of Tenant's employees, agents, invitees, contractors,
assignees or sublessees.
(vi) This Paragraph 20 shall be Tenant's sole and exclusive
remedy in the event of damage or destruction to the Leased Premises and Tenant,
as a material inducement to Landlord entering into this Lease, irrevocably
waives and releases Tenant's rights under California Civil Code Sections 1932(2)
and 1933(4). No damages, compensation or claim shall be payable by Landlord for
any inconvenience, any interruption or cessation of Tenant's business, or any
annoyance, arising from any damage to or destruction of all or any portion of
the Leased Premises.
21. CONDEMNATION.
(a) Tenant, immediately upon receiving notice or knowledge of the
institution of or intention to institute any proceeding for Condemnation, shall
notify Landlord and Lender thereof.
(b) If the whole of the Leased Premises, or so much of the Leased
Premises as to render the balance unusable by Tenant, shall be taken under the
power of eminent domain, the Lease shall automatically terminate as of the date
of final judgment in such condemnation, or as of the date possession is taken by
the condemning authority, whichever is earlier. No award for any partial or
entire Taking shall be apportioned and Tenant hereby irrevocably assigns to
Landlord any award or payment which may be made in such Taking or Condemnation,
together with all rights of Tenant to such award, including, without limitation,
any award or compensation for the value of all or any part of the leasehold
estate; provided that nothing contained in this Paragraph 21 shall be deemed to
give Landlord any interest in or to require Tenant to assign to Landlord any
award made to Tenant for (a) the taking of Tenant's personal property, trade
fixtures, equipment or other tangible property which is not part of the
Equipment, (b) moving expenses, or (c) interruption of or damage to Tenant's
business, if available. Notwithstanding the foregoing, if Tenant exercises its
Purchase Option within 60 days after termination of the Lease hereunder, then
Landlord's award shall be assigned to Tenant, or if the award has been paid to
Landlord or Lender then upon closing the purchase price shall be reduced by the
amount of such award.
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(c) Provided that no Event of Default has occurred and is
continuing and provided further that Tenant has properly and timely exercised
the Purchase Option, Tenant shall be entitled to consult with Landlord with
respect to any Condemnation proceeding or negotiations under threat thereof or
the amount of the award therefor.
(d) In the event of a partial Taking which does not result in
termination of this Lease under Paragraph 21(a), Basic Rent and Additional Rent
shall be proportionately reduced based on the portion of the Premises rendered
unusable, to the extent to rental interruption insurance received by Landlord
pursuant to Paragraph 10(b)(B) of this Lease, as of the date of the Taking with
respect to the portion of the Leased Premises which are affected until such time
as the Leased Premises are restored and available for occupancy. Promptly after
such partial Condemnation, Landlord shall commence and diligently continue to
restore the Leased Premises as nearly as possible to their value, condition and
character immediately prior to such event to the extent of available
Condemnation proceeds. Landlord shall keep Tenant informed as to the progress of
any restoration or repair.
(e) If the Leased Premises are not restored within 6 months
following the date of Taking, then Tenant may send a Termination Notice to
terminate the Lease effective 60 days after Landlord's receipt of the
Termination Notice. If Landlord shall complete the repair or restoration within
the 60 day period between receipt of the Termination Notice and termination of
the Lease, the Termination Notice shall be null and void and this Lease shall
continue as if Tenant had not sent the Termination Notice. If Landlord shall not
complete the repair or restoration within the 60 days prior between receipt of
the Termination Notice and termination of the Lease, the Lease shall terminate.
Notwithstanding the foregoing, if Tenant exercises its Purchase Option within 60
days after termination of the Lease hereunder, then Landlord's award shall be
assigned to Tenant, or if the award has been paid to Landlord or Lender then
upon closing the purchase price shall be reduced by the amount of such award.
(f) No temporary Taking of the Leased Premises or any part of the
Leased Premises and/or of Tenant's rights to the Leased Premises or under this
Lease shall terminate this Lease or give Tenant any right to any abatement of
any payments owed to Landlord pursuant to this Lease; any award made to Tenant
by reason of such temporary Taking shall belong entirety to Tenant.
(g) This Paragraph 21 shall be Tenant's sole and exclusive remedy
in the event of a Taking or Condemnation. Tenant hereby waives the benefit of
California Code of Civil Procedure Section 1265.130.
22. LANDLORD DEFAULTS.
(a) Landlord shall not be in default hereunder unless Landlord
fails to perform the obligations required of Landlord within a reasonable time,
but in no event later than 30 days after written notice by Tenant to Landlord in
writing specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than 30 days are required for performance, then Landlord shall not be in default
if Landlord commences performance within such 30 day period and thereafter
diligently prosecutes the same to completion. Tenant shall have no rights as a
result of any default by Landlord until
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Tenant gives 30 days' notice to any person who has a recorded interest
pertaining to the Property, specifying the nature of the default. Such 30 days'
notice may be given concurrently with Tenant's delivery of written notice of
such default to Landlord.
(b) Notwithstanding anything to the contrary in the Lease,
Landlord's liability to Tenant for damages resulting from Landlord's breach of
any provision or provisions of the Lease shall not exceed the value of
Landlord's equity interest in the Property.
(c) If (i) neither Landlord nor Lender cures the default within
the time period set forth herein, and (ii) if such default continues for a
period of 60 days, if the nature of Landlord's obligation is such that it can be
cured within 30 days or, if the default is one which cannot be cured within 30
days, Landlord does not commence performance within 60 days or once having
commenced performance is not diligently prosecuting the same to completion, and
(iii) if such default relates to a default under a Mortgage which may be cured
with a monetary payment, and (iv) if the default relates to a default under a
Mortgage for which the appropriate Lender has not provided Tenant with a
subordination, non-disturbance and attornment agreement as described in
Paragraph 32 below, then Tenant may offer to cure the default by paying such
outstanding monetary amount under the Mortgage to the applicable Lender and
deduct such amount from the Basic Rent due under this Lease.
23. ASSIGNMENT AND SUBLETTING.
(a) Tenant may not assign this Lease, voluntarily or
involuntarily, whether by operation of law or otherwise, or sublet the Leased
Premises (collectively "Transfer") at any time to any other Person (a
"Transferee") without the prior written consent of Landlord, which consent shall
not be unreasonably withheld. Any such purported Transfer in the absence of
Landlord's express written consent shall be null and void, or, at Landlord's
option, shall serve to terminate this Lease.
(b) Tenant agrees that it shall be reasonable for Landlord to
withhold its consent to any proposed Transfer for any of the following reasons,
which shall not limit other reasonable grounds for withholding consent:
(i) The proposed Transferee does not have a satisfactory
financial worth and/or financial stability in view of the responsibilities
involved; or
(ii) The proposed Transferee is a governmental authority
(or subdivision or agency thereof) or quasi-governmental agency, whether local,
state, federal or foreign, including, without limitation, the office of the
consulate general or other diplomatic representative of a foreign state or
sovereignty; or
(iii) The proposed use of the Leased Premises by the
Transferee is not permitted under this Lease.
(c) Any Transfer without Landlord's consent shall, at the option
of Landlord, terminate this Lease. Tenant's request for Landlord's consent
pursuant to this Paragraph 23 shall be submitted in writing (the "Transfer
Notice") not less than 15 days prior to the date Tenant desires to secure such
consent. Such request shall be accompanied by all relevant information
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reasonably necessary for Landlord to consider such request including, without
limitation, (i) notice to Tenant's intent to assign or sublease this Lease, (ii)
the name of the proposed assignee or sublessee, and evidence reasonably
satisfactory to Landlord that such proposed assignee or sublessee is comparable
in reputation, stature and financial condition to the other tenants then leasing
comparable space in the Building, and (c) the terms of the proposed assignment
or subletting. Upon request Tenant shall reimburse Landlord for reasonable
attorneys' fees and costs incurred by Landlord in the preparation or review of
the documentation of the Transfer including the consent.
(d) In the event of a Transfer, (i) the terms and conditions of
this Lease shall in no way be deemed to have been waived or modified, (ii)
Landlord's consent to such Transfer shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord promptly after execution, an original executed copy of all
documentation pertaining to the Transfer and in the event of an assignment such
documentation shall include the Transferee's assumption of Tenant's obligations
under this Lease, and (iv) no Transfer relating to this Lease or agreement
entered into with respect thereto, whether with or without Landlord's consent,
shall relieve Tenant or any guarantor of this Lease from liability under this
Lease.
(e) Notwithstanding any permitted Transfer, Tenant shall at all
times remain directly, primarily and fully responsible and liable for all
payments owed by Tenant under the Lease and for compliance with all obligations
under the terms, provisions and covenants of the Lease.
(f) Notwithstanding the provisions of this Paragraph 23, Tenant
may assign or sublet the Leased Premises, or any portion thereof, without
Landlord's consent but with prior written notice to Landlord, to any corporation
or entity which controls, is controlled by or is under common control with
Tenant, or to any corporation or entity resulting from a merger or consolidation
with Tenant, or to any person or entity which acquires all of the assets of
Tenant as a going concern of the business, or any venture, partnership or
limited liability company so long as Tenant and its Affiliates hold not less
than a 50% interest in such entity ("Affiliate Transferee").
(g) As security for performance of its obligations under this
Lease, Tenant hereby grants, conveys and assigns to Landlord all right, title
and interest of Tenant in and to all subleases now in existence or hereafter
entered into for any or all of the Leased Premises, any and all extensions,
modifications and renewals thereof and all rents, issues and profits therefrom.
Landlord hereby grants to Tenant a license to collect and enjoy all rents and
other sums of money payable under any such sublease of the Leased Premises,
provided, however, that Landlord shall have the absolute right at any time upon
notice to Tenant and any subtenants to revoke said license and to collect such
rents and sums of money and to retain the same. Tenant shall not consent to,
cause or allow any modification or alteration of any of the terms, conditions or
covenants of any of such subleases or the termination thereof, without the prior
written approval of Landlord, which consent shall not be unreasonably withheld,
nor shall Tenant accept any rents more than 30 days in advance of the accrual
thereof.
(h) An Occupant shall not be deemed a Transferee provided such
relationship
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was not created as a subterfuge to avoid the obligations set forth in this
Paragraph 23.
24. EVENTS OF DEFAULT.
(a) The occurrence of any one or more of the following (after
expiration of any applicable cure period as provided in Paragraph 24(b)) shall,
at the sole option of Landlord, constitute an "Event of Default" under this
Lease:
(i) a failure by Tenant to make any payment of Rent or any
other charge (or any portion thereof) due hereunder within 5 days after notice
to Tenant from Landlord that it has failed to make the required payment;
(ii) a failure by Tenant duly to perform and observe, or a
violation or breach of, any other provision hereof (not otherwise specifically
mentioned in this Paragraph 24(a)) 30 days from the date on which notice is
given or, if the default cannot be cured within such 30 day period, the cure
period shall be extended for the period required to cure the default, provided
that Tenant shall commence to cure the default within the said 30 day period and
shall actively, diligently and in good faith proceed with and continue the
curing of the default until it shall be fully cured.
(iii) Tenant shall (A) voluntarily be adjudicated a
bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or
trustee for itself, (C) file a petition seeking relief under the bankruptcy or
other similar laws of the United States, any state or any jurisdiction, (D) make
a general assignment for the benefit of creditors, or (E) be unable to pay its
debts as they mature;
(iv) a court shall enter an order, judgment or decree
appointing, without the consent of Tenant, a receiver or trustee for it or
approving a petition filed against Tenant which seeks relief under the
bankruptcy or other similar laws of the United States, any state or any
jurisdiction, and such order, judgment or decree shall remain undischarged or
unstayed 60 days after it is entered; or
(v) the estate or interest of Tenant shall be levied upon
or attached in any proceeding and such estate or interest is about to be sold or
transferred or such process shall not be vacated or discharged within 60 days
after it is made;
(b) The existence or occurrence of an Environmental Violation by
Tenant shall not be considered and Event of Default hereunder so long as: (i)
Tenant timely notifies Landlord of the existence of the Environmental Violation
and furnishes Landlord with copies of all engineering reports and assessments,
environmental studies, test results and materials obtained by or for Tenant or
its counsel in connection with any Environmental Violation or suspected
violation, (ii) Tenant promptly undertakes investigation and remediation
activities which are satisfactory to Landlord and any Lender with a lien on the
Leased Premises and which are in compliance with all applicable Legal
Requirements and (iii) Tenant demonstrates to the satisfaction or Landlord and
its Lender that Tenant has the financial capacity to properly respond to and
complete the remediation of any Environmental Violation and to satisfy its
indemnification obligations under this Lease.
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25. REMEDIES UPON DEFAULT; ASSIGNMENT OF RENTS; WAIVER OF DEFAULT.
Upon the occurrence of any Event of Default by Tenant under this
Lease, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever:
(a) To terminate this Lease, in which event Tenant shall
immediately surrender the Leased Premises to Landlord, and if Tenant fails to do
so, Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in Rent, enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person who may be occupying
the Leased Premises or any part thereof, without being liable for prosecution or
any claim or damages therefor; and Landlord may recover from Tenant the damages
provided for in Section 1951.2 of the California Civil Code, as the same is in
effect as of the date hereof (without regard to any subsequent amendment,
modification or repeal thereof) including, without limitation, the worth at the
time of the award of the amount by which the unpaid Rent for the balance of the
Term after the time of the award, exceeds the amount of rental loss for the same
period that the Tenant proves could reasonably have been avoided and at
Landlord's election, such other amounts in addition to or in lieu of the damages
provided for in said Section 1951.2 as may be permitted from time to time by
applicable Law. For the purposes of this Lease, the term "Rent" as used in said
Section 1951.2 shall be deemed to be and to mean all sums of every nature
required to be paid by Tenant pursuant to the terms of this Lease, whether to
Landlord or to others. As used in subdivisions (a)(1) and (a)(2) of said Section
1951.2, the "worth at the time of award" shall be computed by allowing interest
at the lesser of (A) the Interest Rate or (B) the maximum rate permitted by
applicable Law.
(b) If Landlord does not elect to terminate this Lease on account
of any default by Tenant, Landlord may, from time to time, without terminating
this Lease, enforce all of its rights and remedies under this Lease, including
the right to recover all Rent as it becomes due. Landlord has the remedy
described in California Civil Code Section 1951.4 (Landlord may continue the
Lease in effect after Tenant's breach and abandonment and recover Rent as it
becomes due, if Tenant has the right to sublet or assign, subject only to
reasonable limitations).
(c) Landlord may at its election reenter the Leased Premises and,
without terminating this Lease, at any time and from time to time relet the
Leased Premises and Improvements or any parts of them for the account and in the
name of Tenant or Landlord or otherwise to cure any default by Tenant or to
exercise any other right or remedy of Landlord hereunder. Landlord may execute
any leases made under this provision either in Landlord's name or in Tenant's
name and shall be entitled to all Rents from the use, operation or occupancy of
the Leased Premises or Improvements or both. Tenant shall nevertheless pay to
Landlord on the due date specified in this Lease the equivalent of all sums
required of Tenant under this Lease, plus Landlord's expenses, less the proceeds
of any reletting or attornment. In addition to all other rights and remedies it
may have, Landlord shall have all of the rights and remedies of a landlord under
Section 1951.4 of the California Civil Code. Landlord may do all things
reasonably necessary for such reletting, including repairing, remodeling and
renovating of the Leased Premises or Improvements and Tenant shall reimburse
Landlord on demand for all Costs
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incurred by Landlord in connection therewith. If Landlord relets the Leased
Premises it shall apply any sums received upon such reletting in the following
order of priority: (i) to the payment of all Costs incurred by Landlord in
restoring the Leased Premises to good order and repair, or in remodeling,
renovating or otherwise preparing the Leased Premises for reletting, (ii) to the
payment of all Costs (including without limitation any brokerage commissions)
incurred by Landlord in reletting the Leased Premises, and in fulfilling
Landlord's obligations with respect to such reletting (such as, by way of
example, providing services or utilities), (iii) to the payment of Rent (and any
interest thereon) due and unpaid hereunder, and (iv) the balance, if any, to the
payment of future Rent as the same may become due hereunder, but Tenant shall
not in any event have any claim or right to receive any sums so collected by
Landlord, even if such sums exceed the Rents payable hereunder. No act by or on
behalf of Landlord under this provision shall constitute a termination of this
Lease unless Landlord gives Tenant notice of termination. Notwithstanding any
election by Landlord not to terminate this Lease Landlord may at any time
thereafter elect to terminate this Lease for any previous breach or default
hereunder by Tenant which remains uncured or for any subsequent breach or
default.
(d) Landlord shall be entitled at its election to each installment
of Rent or to any combination of installments for any period before termination,
plus interest at the Interest Rate on each such installment of Rent from the due
date of each such installment.
(e) For the purposes of this Paragraph 25, Tenant's right to
possession shall not be deemed to have been terminated by efforts of Landlord to
relet the Leased Premises, by its acts of maintenance or preservation with
respect to the Leased Premises, or by appointment of a receiver to protect
Landlord's interests hereunder. The foregoing enumeration is not exhaustive, but
merely illustrative of acts which may be performed by Landlord without
terminating Tenant's right to possession.
(f) Except for amounts payable by Occupants meeting the
requirements of this Lease, Tenant assigns to Landlord all subrents and other
sums falling due from subtenants, licensees and concessionaires (herein called
"subtenants") during any period in which Tenant is in default and Tenant shall
not have any right to such sums during that period. Landlord may at Landlord's
election reenter the Leased Premises, without terminating this Lease, and either
or both collect these sums or bring action for the recovery of the sums directly
from such obligors. Landlord shall receive and collect all subrents and proceeds
from reletting, applying them in the following order of priority: (i) to the
payment of all Costs incurred by Landlord in restoring the Leased Premises to
good order and repair, or in remodeling, renovating or otherwise preparing the
Leased Premises for reletting, (ii) to the payment of all Costs (including,
without limitation, attorneys' fees or brokers' commissions or both) incurred by
Landlord in reletting the Leased Premises, and in fulfilling Landlord's
obligations with respect to such reletting, (iii) to the payment of Rent (and
any interest thereon) due and unpaid hereunder, and (iv) the balance, if any, to
the payment of future Rent as the same may become due hereunder. Tenant shall
nevertheless pay to Landlord on the due date specified in this Lease the
equivalent of all sums required of Tenant under this Lease, plus Landlords
expenses, less proceeds of the sums assigned and actually collected under this
provision.
(g) No waiver by Landlord or Tenant of any violation or breach of
any of the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a
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waiver of any other or later violation or breach of the same or any other of the
terms, provisions, and covenants herein contained, nor shall any custom or
practice which may develop between the parties in the administration of this
Lease be construed to waive or lessen the right of Landlord or Tenant to insist
upon the performance by the other in strict accordance with all of the terms,
covenants, agreements, conditions, and provisions of this Lease. Forbearance by
Landlord in enforcement of one or more of the remedies herein provided upon an
event of default shall not be deemed or construed to constitute a waiver of such
default. The acceptance of any Rent hereunder by Landlord following the
occurrence of any default, whether or not known to Landlord, shall not be deemed
a waiver of any such default, except only a default in the payment of the Rent
so accepted.
26. NOTICES.
All notices, demands, requests, consents, approvals, offers,
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
deemed to have been given and received for all purposes when delivered in person
or by Federal Express or other reliable 24-hour delivery service or 3 business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, addressed to the other party at
its address stated in the introductory paragraph of this Lease or when delivery
is refused. For the purposes of this Paragraph, any party may substitute another
address stated above (or substituted by a previous notice) for its address by
giving 15 days' notice of the new address to the other party, in the manner
provided above.
27. ESTOPPEL CERTIFICATE.
At any time upon not less than 10 days' prior written request by
either Landlord or Tenant (the "Requesting Party") to the other party (the
"Responding Party"), the Responding Party shall deliver to the Requesting Party
a statement in writing (the "Certificate"), executed by an authorized officer of
the Responding Party, certifying (a) that, except as otherwise specified, this
Lease is unmodified and in full force and effect, (b) the dates to which Basic
Rent, Additional Rent and all other Rent has been paid, (c) that, to the best
knowledge of the signer of such Certificate and except as otherwise specified,
no default by either Landlord or Tenant exists hereunder, (d) such other matters
as the Requesting Party may reasonably request, and (e) if Tenant is the
Responding Party that, except as otherwise specified, there are no proceedings
pending or, to the knowledge of the signer, threatened, against Tenant before or
by a court or administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and operations of
Tenant. Any such statements by the Responding Party may be relied upon by the
Requesting Party, any Person whom the Requesting Party notifies the Responding
Party in its request for the Certificate is an intended recipient or beneficiary
of the Certificate, any Lender or their assignees and by any prospective
purchaser or mortgagee of the Leased Premises.
28. SURRENDER.
No act or thing done by Landlord during the Lease Term shall be
deemed to constitute an acceptance by Landlord of a surrender of the Leased
Premises unless such intent is
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specifically acknowledged in a writing signed by Landlord. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord, shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Leased Premises. Upon the expiration or earlier
termination of this Lease, Tenant shall, subject to the provisions of this
Paragraph 28, peaceably leave, quit and surrender the Leased Premises to
Landlord in as good order and condition in which the Leased Premises was on the
Commencement Date, except as repaired, rebuilt, restored, altered, replaced or
added to as permitted or required by any provision of this Lease, and except for
ordinary wear and tear or loss by fire or other casualty. Upon such surrender,
Tenant shall, without expense to Landlord, (a) remove or cause to be removed
from the Leased Premises all property which is owned by Tenant or third parties
other than Landlord and (b) repair any damage caused by such removal. Property
not so removed shall become the property of Landlord, and Landlord may
thereafter cause such property to be removed from the Leased Premises. The cost
of removing and disposing of such property and repairing any damage to the
Leased Premises caused by such removal shall be paid by Tenant to Landlord upon
demand. Landlord shall not in any manner or to any extent be obligated to
reimburse Tenant for any such property which becomes the property of Landlord
pursuant to this Paragraph 28.
29. NO MERGER OF TITLE.
There shall be no merger of the leasehold estate created by this
Lease with the fee estate in the Leased Premises by reason of the fact that the
same Person may acquire or hold or own, directly or indirectly, (a) the
leasehold estate created hereby or any part thereof or interest therein and (b)
the fee estate in the Leased Premises or any part thereof or interest therein,
unless and until all Persons having any interest in the interests described in
(a) and (b) above which are sought to be merged shall join in a written
instrument effecting such merger and shall duly record the same.
30. BROKERS.
Landlord and Tenant represent to each other that they have had no
dealings with any broker or agent in connection with this Lease and that they
know of no broker or agent who is entitled to any commission in connection with
this Lease. Each party hereto agrees to indemnify, defend and hold the other
party harmless from and against any claims, demands, losses, liabilities,
lawsuits, judgments, Costs and expenses (including without limitation attorneys'
fees) made by any broker, agent or finder for a commission or fee in connection
with this Lease.
31. FINANCING.
If Landlord desires to obtain or refinance any Loan, Tenant shall
agree, upon request of Landlord, to supply any such Lender with such notices and
information as Tenant is required to give to Landlord hereunder and to extend
the rights of Landlord hereunder to any such Lender and to consent to such
financing if such consent is requested by such Lender. Tenant shall provide any
other consent or statement and shall execute any and all other documents that
such Lender reasonably requires in connection with such financing, including any
subordination, nondisturbance and attornment agreement, so long as the same
recognizes
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Tenant's rights under the Lease including the options contained herein and do
not materially adversely affect any right, benefit or privilege of Tenant under
this Lease or materially increase Tenant's obligations under this Lease.
32. SUBORDINATION AND RELEASE OF GUARANTY.
(a) Tenant acknowledges that, as of the date of this Lease, the
Leased Premises is encumbered with a deed of trust in favor of City National
Bank and a deed of trust in favor of U.S. Small Business Administration.
Landlord shall obtain either (i) pay off the lien of such Mortgages existing as
of the date of this Lease or (ii) obtain a subordination, non-disturbance and
attornment agreement from City National Bank and U.S. Small Business
Administration, within 6 months after execution of this Lease. Landlord shall
provide Tenant with prompt written notice of any notice of default given by City
National Bank or U.S. Small Business Administration within such 6 month period.
(b) This Lease shall be subject and subordinate at all times to
the lien of any Mortgage now existing or hereafter executed in any amount.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such liens to this Lease. In the event that any
mortgage is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, have the right to
attorn to, and shall attorn to, and become Tenant of, the successor in interest
to Landlord on all of the terms and conditions contained in this Lease. Tenant
covenants and agrees to execute and deliver, within 5 days of request by
Landlord and in the form requested by Landlord, any additional instruments
evidencing the priority or subordination of this Lease with respect to the lien
of any such Mortgage. A condition precedent to the execution of any future
instrument of subordination is that Landlord shall obtain for the benefit of
Tenant a non-disturbance and attornment agreement from the lender in whose favor
the subordination is given, in content reasonably acceptable to Tenant. Tenant
shall promptly review and execute any non-disturbance agreement submitted to
Tenant by Landlord which meets with the requirements of this Paragraph 32, and
shall promptly advise Landlord if Tenant disapproves of any such proposed
agreement. Said agreement shall provide that (i) Tenant will not be named or
joined in any proceeding to enforce the Mortgage unless such is required by law
in order to perfect the proceeding, (ii) enforcement of the Mortgage will not
terminate the Lease or disturb Tenant in the possession and use of the Leased
Premises, unless Tenant is in default beyond the period provided in the Lease to
remedy the default, (iii) any party succeeding to the interest of the Landlord
as a result of the enforcement of the Mortgage shall be bound to the Tenant
under all the terms, covenants and conditions of this Lease from and after the
date of succeeding to the Landlord's interest under this Lease and for the
balance of the Term of the Lease including the right of Tenant under the Option
to acquire the Property free of any mortgage, except that in no event will such
party be liable for claims arising prior to the date of succession, or be
subject to offsets or defenses Tenant might have against a prior Landlord, or be
bound by any amendment to the Lease made without Lender's consent, or be liable
for completion of construction of any improvements, or be bound by any Rent
payments made more than one month in advance to the prior Landlord, and (iv)
Tenant is obligated to attorn to any party succeeding to the interest of the
Landlord as a result of the enforcement of a Mortgage. If Tenant fails to
execute and deliver promptly any documents or instruments required by this
Paragraph 32, such failure shall, at Landlord's option, constitute an Event of
Default under the Lease, and Tenant hereby irrevocably constitutes and
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<PAGE> 37
appoints Landlord as Tenant's special attorney-in-fact to execute and deliver
any such documents or instruments.
(c) Tenant acknowledges that, as of the date of this Lease,
Landlord has guaranteed the Mortgage in favor of City National Bank (the "City
National Guaranty"). Landlord shall cause the City National Guaranty to be
terminated within 6 months after execution of this Lease.
33. HOLDING OVER.
If Tenant holds over after the expiration of the Lease Term or the
earlier termination or cancellation of this Lease with or without the express
written consent of Landlord, Tenant shall become a tenant from month-to-month
only, terminable on 30 days' notice. All the terms, provisions and conditions of
this Lease shall apply to this month-to-month tenancy except those terms,
provisions and conditions pertaining to the Term, and except that Base Rent
shall be immediately adjusted upward upon the expiration or termination of the
Lease to 200% of the Base Rent in effect upon the date of such expiration or
earlier termination or cancellation of this Lease. Acceptance by Landlord of
Rent after such expiration or earlier termination or cancellation shall not
result in a renewal of this Lease or waiver of any default or circumstances of
termination. The provisions of this Paragraph shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein,
at law or in equity and nothing contained in this Paragraph shall be construed
as consent by Landlord to any holding over by Tenant. In the event that Tenant
fails to surrender the Leased Premises upon such termination or expiration, then
Tenant shall indemnify and hold Landlord harmless against all loss or liability
resulting from or arising out of Tenant's failure to surrender the Premises,
including, but not limited to, any amounts required to be paid to any tenant or
prospective tenant who was to have occupied the Leased Premises after said
termination or expiration and any related attorneys' fees and brokerage
commissions or any loss to Landlord arising out of a prospective sale of the
Leased Premises.
34. PURCHASE OPTION.
Provided there is no monetary Event of Default by Tenant under
this Lease at the time of exercising the option and prior to the Closing Date,
Landlord hereby grants Tenant the right during the Term to acquire the Leased
Premises including the Leased Premises (the "Purchase Option") upon the terms of
the Agreement for Purchase and Sale of Real Estate and Joint Escrow Instructions
in the form attached hereto as Exhibit D (the "Purchase Agreement"). The
Purchase Option may be exercised (a) during the Term upon 30 days written notice
from Tenant to Landlord, (b) as permitted pursuant to Paragraphs 20(b)(ii) and
20(b)(iii) above, (c) within 60 days following Landlord's termination of the
Lease pursuant to Paragraph 20(b)(iv) above, or (d) as permitted pursuant to
Paragraphs 21(b) or 21(e). Upon execution of the Purchase Agreement pursuant to
this Paragraph 34, the parties shall promptly deposit executed copies of the
Purchase Agreement with escrow holder and make all required deposits including
the $7,500,000.00 Purchase Price so that the sale may timely close as provided
in the Purchase Agreement. The Purchase Option granted herein is personal to
Tenant but may be exercised by any Affiliate Transferee or permitted Transferee
that has acquired the entire interest of Tenant in the Leased Premises by
assignment of the Lease with the consent of Landlord. Tenant
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<PAGE> 38
acknowledges that it will have been in possession of the Leased Premises at the
time it exercises the Purchase Option hereunder and, as such, Tenant shall not
have the right to any contingency period in which to review title, the physical
condition (including environmental) and financial condition of the Premises.
35. BANKRUPTCY.
If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. 101 et seq., or any
successor statute (the "Bankruptcy Code") to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant then notice of such proposed assignment, setting forth (a) the name
and address of such person, (b) all of the terms and conditions of such offer,
and (c) the adequate assurance to be provided Landlord to assure such person's
future performance under this Lease, including, without limitation, the
assurance referred to in Section 365(b)(3) of the Bankruptcy Code, shall be
given to Landlord by Tenant no later than 20 days after receipt by Tenant but in
any event no later than 10 days prior to the date that Tenant shall make
application to a court of competent jurisdiction for authority and approval to
enter into such assignment and assumption, and Landlord shall thereupon have the
prior right and option, to be exercised by notice to Tenant given at any time
prior to the effective date of such proposed assignment, to accept an assignment
of this Lease upon the same terms and conditions and for the same consideration,
if any, as the bona fide offer made by such person, less any brokerage
commissions which may be payable out of the consideration to be paid by such
person for the assignment of this Lease.
36. MISCELLANEOUS.
(a) The Paragraph headings in this Lease are used only for
convenience in finding the subject matters and are not part of this Lease or to
be used in determining the intent of the parties or otherwise interpreting this
Lease.
(b) As used in this Lease, the singular shall include the plural
and any gender shall include all genders as the context requires and the
following words and phrases shall have the following meanings: (i) "including"
shall mean "including without limitation"; (ii) "provisions" shall mean
"provisions, terms, agreements, covenants and/or conditions"; (iii) "lien" shall
mean "lien, charge, encumbrance, title retention agreement, pledge, security
interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean
"obligation, duty, agreement, liability, covenant and/or condition"; (v) " the
Leased Premises" shall mean "the Leased Premises or any part thereof or interest
therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or
interest therein"; (vii) "any of the Improvements" shall mean "the Improvements
or any part thereof or interest therein"; and (viii) "any of the Equipment"
shall mean "the Equipment or any part thereof or interest therein."
(c) Any act which Landlord is permitted to perform under this
Lease may be performed at any time and from time to time by Landlord or any
person or entity designated by Landlord. Time is of the essence with respect to
the performance of the obligations under this Lease.
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(d) This Lease constitutes the entire agreement between Landlord
and Tenant and supersedes all prior understandings and agreements, whether
written or oral, between the parties hereto relating to the Leased Premises and
the transactions provided for herein. This Lease may be modified, amended,
discharged or waived only by an agreement in writing signed by the party against
whom enforcement of any such modification, amendment, discharge or waiver is
sought.
(e) If any one or more of the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
(f) In the event of any legal proceedings, including any
arbitration proceeding, dispute resolution, or litigation of any nature,
relating to this Lease, the prevailing Party shall be entitled to reimbursement
of its Costs and reasonable attorneys' fees from the other Party not prevailing.
If any Party secures a judgment in any proceeding brought to enforce or
interpret this Lease, then any Costs or expenses (including reasonable
attorneys' fees) incurred in enforcing or in appealing from such judgment shall
be payable by the Party against whom such judgment has been rendered and shall
be recoverable separately from and in addition to any other amount included in
such judgment. This Paragraph 36(f) is intended to be severable from the other
provisions of this Lease and to survive and not be merged into any such
judgment.
(g) All exhibits attached hereto are incorporated herein as if
fully set forth.
(h) All covenants and agreements to be performed by Tenant under
the Lease shall be performed by Tenant at Tenant's sole cost and expense. If
Tenant shall fail to perform any act on its part to be performed under the
Lease, and such failure shall continue for 3 days after notice thereof to Tenant
(provided that no notice shall be required in cases of emergency), Landlord may,
but shall not be obligated to do so, without waiving or releasing Tenant from
any obligations of Tenant, perform any such act on Tenant's part to be made or
performed as provided in the Lease. All Costs incurred by Landlord with respect
to any such performance by Landlord (including reasonable attorneys' fees) shall
be immediately paid by Tenant to Landlord.
(i) This Lease shall be governed by and construed and enforced in
accordance with the Laws of the State of California.
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<PAGE> 40
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to
be duly executed under seal as of the day and year first above written.
LANDLORD:
PEPIN MERHI SHAMIEH, LLC,
a California Limited Liability Company
By: /s/ Rick Pepin
------------------------------------
Rick Pepin, Member
By: /s/ Joseph Merhi
------------------------------------
Joseph Merhi, Member
By: /s/ George Shamieh
------------------------------------
George Shamieh, Member
TENANT:
PEPIN/MERHI ENTERTAINMENT GROUP, INC., a
California Corporation, a wholly-owned
subsidiary of Harvey Entertainment
Company
By: /s/ George Shamieh
------------------------------------
Name: George Shamieh
----------------------------------
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TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Lease of Premises.................................................................. 1
2. Certain Definitions................................................................ 1
3. Title, "As-Is" Condition And Utilities............................................ 5
4. Use Of Leased Premises; Quiet Enjoyment; Occupants................................ 6
5. Term.............................................................................. 7
6. Basic Rent........................................................................ 8
7. Late Charge....................................................................... 8
8. Disputes as to Payments of Rent................................................... 8
9. Security Deposit.................................................................. 9
11. Taxes, Assessments and Impositions................................................ 11
12. Net Lease......................................................................... 12
13. Compliance with Laws and Environmental Matters.................................... 13
14. No Liens; Memorandum of Purchase Option........................................... 15
15. Maintenance and Repair............................................................ 16
16. Alterations and Improvements...................................................... 18
17. Permitted Contests................................................................ 19
18. Indemnification and Waiver........................................................ 20
19. Insurance......................................................................... 22
20. Casualty.......................................................................... 24
21. Condemnation...................................................................... 26
22. Landlord Defaults................................................................. 27
23. Assignment and Subletting......................................................... 28
24. Events of Default................................................................. 30
25. Remedies Upon Default; Assignment of Rents; Waiver of Default..................... 31
26. Notices........................................................................... 33
27. Estoppel Certificate.............................................................. 33
28. Surrender......................................................................... 33
29. No Merger of Title................................................................ 34
30. Brokers........................................................................... 34
31. Financing......................................................................... 34
32. Subordination and Release of Guaranty............................................. 35
</TABLE>
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<PAGE> 42
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C>
33. Holding Over...................................................................... 36
34. Purchase Option................................................................... 36
35. Bankruptcy........................................................................ 37
36. Miscellaneous..................................................................... 37
</TABLE>
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<PAGE> 43
Exhibits*
<TABLE>
<CAPTION>
Description Exhibit
- - ----------- -------
<S> <C>
Machinery and Equipment A
Form of Notice of Lease Commencement B
Memorandum of Lease and Purchase Option C
Form of Purchase Agreement D
Language E
</TABLE>
*The Schedules and Exhibits are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule or Exhibit to the Commission upon
request.
<PAGE> 1
EXHIBIT 10.79
SALE AND ASSIGNMENT AGREEMENT
1. Identification. This Sale and Assignment Agreement (the "Agreement"),
dated as of April 3, 2000, is entered into by and between Inferno Acquisition
Corp., a California corporation ("Assignee"), on the one hand, and Imperial
Bank, a California banking corporation ("Imperial"), and Natexis Banque, a
French corporation ("Natexis")(together sometimes hereinafter referred to as
"Assignor").
2. Recitals.
2.1 Pursuant to a Loan and Security Agreement, dated as of March 3,
1998 (as modified and amended to the date hereof, the "Lomax Loan Agreement"),
between Lomax Productions, Inc., a California corporation ("Borrower"), on the
one hand, and Imperial and Natexis, on the other hand, Imperial and Natexis as
"Lenders" thereunder made loans and other extensions of credit to Borrower
(collectively, the "Loan") in connection with a motion picture entitled Inferno.
In connection with the Lomax Loan Agreement, Imperial acted as agent for
Assignor and, in that capacity is identified in the Lomax Loan Agreement as
"Agent."
2.2 In connection with the Lomax Loan Agreement, Borrower executed and
delivered to Imperial, as Agent, on behalf of each of the Lenders thereunder two
(2) promissory notes, each in the principal amount of $9,204,500 (each, a "Note"
and together the "Notes").
2.3 In connection with the Lomax Loan Agreement, Borrower and others
executed and delivered, or caused to be executed and delivered, to Imperial, as
Agent, on behalf of each of the Lenders other agreements, documents and
instruments which, together with the Lomax Loan Agreement and the Notes, are
listed on Exhibit "A" attached hereto and are collectively referred to herein as
the "Lomax Loan Documents."
2.4 Assignee wishes to purchase from Assignor and Assignor desires to
sell to Assignee all of Assignor's right, title and interest (the "Claims") in,
to, and under the Loan and the Lomax Loan Documents upon and subject to the
terms, covenants, and conditions set forth in this Agreement.
3. Closing and Closing Date.
3.1 Effective upon the "Closing" (as hereinafter defined), and subject
to and conditioned upon the terms, covenants, limitations, and conditions
contained herein, Assignor hereby sells, transfers, and assigns to Assignee, and
Assignee hereby purchases and accepts from Assignor, in each case on and as of
the Closing Date, all of Assignors' right, title and interest, if any, in, to,
and under the Claims.
3.2 The consummation of the transfer and assignment contemplated
herein shall be effected at a closing (the "Closing") which shall occur on April
3, 2000, or such other date as Assignor and Assignee otherwise may agree in
writing (the "Closing Date"), at the offices of
<PAGE> 2
Jeffer, Mangels, Butler & Marmaro LLP, 2121 Avenue of the Stars, 10th Floor, Los
Angeles, California 90067, or such other location upon which Assignor and
Assignee may agree in writing.
4. Consideration. The consideration to be paid by Assignee to Assignor for
the Claims shall be as follows:
4.1 Two Million Dollars ($2,000,000) paid on the Closing Date to
Imperial, as Agent, in immediately available funds by wire transfer in
accordance with Imperial's instructions (the "Cash Purchase Price"). The Cash
Purchase Price shall be paid without defense, offset, counterclaim, withholding,
deduction or reduction for any reason whatsoever.
4.2 Execution and delivery to Imperial, as Agent, at the Closing on
the Closing Date, of a Loan and Security Agreement and promissory notes in favor
of Imperial and Natexis, and such other agreements, documents and instruments as
Imperial, as Agent, may require in its sole and absolute discretion
(collectively, the "New Secured Loan Documents"), to evidence new secured loans
from Assignor to Assignee in the aggregate principal amount on the Closing Date
of Four Million Eight Hundred Seven Thousand Nine Hundred Twenty Six Dollars and
Ninety Seven Cents ($4,807,926.97) (the "Secured Purchase Price"), to be
absolutely, irrevocably and unconditionally guaranteed by The Harvey
Entertainment Company, a California corporation. The Secured Purchase Price is
the amount outstanding under the Lomax Loan, as described in Exhibit "B"
attached hereto, less the amount on deposit in the "Collection Account" (as
defined in the Lomax Loan Agreement) which shall be applied by Agent to the
Lomax Loan (first to accrued but unpaid interest) prior to the Closing. As of
the date of execution hereof by Agent and Lenders, April 13, 2000, the amount on
deposit in the Collection Account is Eighty Three Thousand Nine Hundred Seventy
Three Dollars and Twenty Cents ($83,973.20).
4.3 Assignee shall assume, at the Closing, all of the obligations and
liabilities of Assignor under or in connection with the Claims or the Lomax Loan
Documents, of every kind or nature whatsoever.
4.4 The sale, transfer and assignment of the Claims and the Lomax Loan
Documents is and shall be on an "AS IS" basis, without recourse to Assignor of
any kind or nature whatsoever, or any representation or warranty by Assignor of
any kind or nature whatsoever, expressed or implied, except only such
representations and warranties of Assignor as are expressly and specifically
provided in this Agreement. Assignee acknowledges and agrees that Assignee shall
have no right to use the name or other business identification of either
Assignor.
5. Representations and Warranties of Assignor. Assignor hereby represents
and warrants to Assignee as follows, each of which is a material inducement to
Assignee to enter into and perform this Agreement and shall survive the Closing:
5.1 Each Assignor has all requisite power and authority to execute and
deliver, and to perform, all of its obligations under this Agreement and all
other agreements, documents and instruments to be executed and delivered by
Assignor in connection herewith.
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<PAGE> 3
5.2 The execution, delivery and performance of this Agreement by
Assignor has been duly authorized by all necessary corporate action and does not
and will not: (a) violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to either Assignor or any provision of such Assignor's charter or
by-laws; (b) require any authorization, consent, approval, license, exemption by
or from, or filing or registration with, any court, executive or legislative
body, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
5.3 This Agreement constitutes a legal, valid and binding obligation
of each Assignor enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, reorganization, receivership,
insolvency or similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
5.4 Except for this Agreement, Assignor has not sold, pledged,
assigned, transferred, disposed or terminated, in whole or in part, or entered
into any agreement (other than this Agreement) to sell, pledge, assign,
transfer, dispose of or terminate, in whole or in part, any of its right, title
and interest in and to the Claims or any of the Lomax Loan Documents or any of
their rights under or in connection with the Claims or any of the Lomax Loan
Documents, or agreed to do any of the foregoing.
5.5 The photocopies of the Lomax Loan Documents delivered by Assignor
to Assignee on the Closing Date, subject to the New Secured Loan Documents,
constitute accurate copies of the Lomax Loan Documents listed on Exhibit "A"
attached hereto, and such Lomax Loan Documents have not been amended, waived,
modified or supplemented other than by Lomax Loan Documents listed on Exhibit
"A" attached hereto. The Lomax Loan Documents constitute all material documents
received by Assignor in connection with the making of the Loan.
5.6 The aggregate amount of the Loan as of the date of this Agreement
is Six Million Eight Hundred Sixty Nine Thousand Eight Hundred Seventy Eight
Dollars and Seventy Five Cents ($6,869,878.75), which is comprised of principal
and interest determined as of March 31, 2000, and continuing interest, fees and
other amounts owing in respect of the Loan, set forth in Exhibit "B" attached
hereto. Assignee acknowledges and agrees that the amount of the Loan will
increase by the time of the Closing as a result of the accrual of interest, and
additional fees and other amounts becoming payable, under the Lomax Loan
Documents. Assuming that the Closing Date will be April 13, 2000, Assignor's
good faith estimate of the amounts owing in respect of the Loan on that date is
Six Million Eight Hundred Ninety One Thousand Nine Hundred Dollars and Seventeen
Cents ($6,891,900.17).
6. Representations and Warranties of Assignee. Assignee hereby represents
and warrants to, and further agrees with, Assignor as follows, each of which is
a material inducement to Assignor to enter into and perform this Agreement and
shall survive the Closing:
6.1 Assignee is a corporation duly incorporated, validly existing and
in good standing in the state of its incorporation and is duly qualified and in
good standing in each jurisdiction in which Assignee conducts business or is
otherwise required to be qualified pursuant to
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<PAGE> 4
applicable law. Assignee has all requisite power and authority to execute and
deliver, and to perform, all of its obligations under this Agreement and under
all other agreements, documents and instruments to be executed and delivered by
Assignee in connection herewith.
6.2 The execution, delivery and performance of this Agreement by
Assignee has been duly authorized by all necessary corporate action and does not
and will not: (a) require any consent or approval of Assignee's shareholders;
(b) violate any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to
Assignee or any provision of Assignee's charter, articles of incorporation or
by-laws; (c) result in a breach or constitute a default under any indenture or
loan or credit agreement or any other material agreement to which Assignee is a
party or by which it is bound; (d) require any authorization, consent, approval,
license, exemption by or from, or filing or registration with, any court,
executive or legislative body, governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
6.3 This Agreement constitutes a legal, valid and binding obligation
of Assignee enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, reorganization, receivership,
insolvency or similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
6.4 Assignee has made such examination, review and investigation of
the Lomax Loan Documents and the Claims, and of any and all facts and
circumstances necessary to evaluate the Lomax Loan Documents and the Claims it
has deemed necessary or appropriate. Except for the representations and
warranties specifically and expressly made by Assignor in paragraph 5 above: (a)
Assignee has been and will continue to be solely responsible for Assignee's own
independent investigations as to all aspects of the transactions contemplated
hereby including, but not limited to: (i) the authorization, execution,
legality, validity, effectiveness, genuineness, enforceability, collectibility
or sufficiency of the Claims and the Lomax Loan Documents; (ii) the adequacy,
condition or existence of any collateral, or the attachment, perfection or
priority of any security interest or lien held by Assignor, in connection with
the Lomax Loan Documents and the Claims; and (iii) the status, affairs,
financial condition, operations, prospects, business, property, assets and
creditworthiness of Borrower and of any guarantor of any of the obligations or
liabilities of Borrower, and any actions taken or to be taken under or in
connection with the Claims and the Lomax Loan Documents; and (b) Assignee has
not relied upon any expressed or implied, written or oral, representation,
warranty or other statement by or on behalf of Assignor concerning any of the
foregoing or otherwise with respect to the Loan, the Claims or the Lomax Loan
Documents, except for such representations and warranties of Assignor as are
specifically and expressly provided in this Agreement.
6.5 Assignee is acquiring the Claims without any view either to
participate in (other than as described in this Agreement), or to sell the
Claims in connection with, any public distribution thereof, and Assignee has no
intention of making any distribution of the Claims in a manner which would
violate applicable securities laws; provided, however, that nothing in this
Agreement shall restrict or limit in any way Assignee's ability and right to
dispose of all or part of the Claims in accordance with such laws if at some
future time Assignee deems it advisable to do
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<PAGE> 5
so; and, provided, further, that Assignee and any party acquiring all or any
portion of the Claims or any proceeds thereof from Assignee, other than Assignor
or Imperial as Agent for Assignor or any successor, must agree in writing with
Assignor to be bound (or to continue to be bound) by this Agreement; and,
provided, further, that all of Assignee's right, title and interest in, to and
under the Claims and the Lomax Loan Documents shall be subject and subordinate
to the New Secured Loan Documents until all of the obligations of Assignee under
the New Secured Loan Documents have been absolutely, indefeasibly, irrevocably
and unconditionally paid, performed and discharged in full.
6.6 If, subsequent to the Closing, Assignor receives (a) any note or
other obligation issued by Borrower in substitution or replacement of the
Claims, or (b) any cash, securities or other property distributed or paid by
Borrower in connection with the Claims, Assignor shall accept and hold the same
in trust for such limited purpose on behalf and for the benefit of Assignee, and
shall deliver the same promptly to the Assignee in the same form received, with
the endorsement (without recourse, representation or warranty) of Assignor when
necessary or appropriate; provided, however, that all such notes, obligations,
cash, securities or other property shall be subject to Assignor's rights under
or in connection with the New Secured Loan Documents.
6.7 Effective upon the Closing, Assignee agrees that, if any transfer
or payment made to Assignor by Borrower prior to the Closing Date in respect of
the obligations of Borrower under or in connection with the Lomax Loan Documents
is, in whole or in part, rescinded, void, voidable or must otherwise be returned
by Assignor in connection with any bankruptcy, reorganization, receivership,
insolvency, or other similar proceeding with respect to Borrower (each such
rescinded, voided, voidable or otherwise returned amount hereinafter is referred
to as a "Returned Payment Amount"), then, no later than thirty (30) days after
Assignee's receipt of notice in writing from Assignor, or Imperial as Agent,
specifying the applicable Returned Payment Amount and requesting Assignee to
purchase Assignor's claim against Borrower for the applicable Returned Payment
Amount, Assignee shall purchase said claim from Assignor for cash in an amount
equal to one hundred percent (100%) of the applicable Returned Payment Amount,
together with interest thereon accruing from and after the date of Assignee's
receipt of said notice from Assignor, or Imperial as Agent, and ending on the
date of such purchase, at the current rate of interest applicable to the New
Secured Loan, to be paid to Assignor, or Imperial as Agent as Imperial may
instruct Assignee in writing, in immediately available funds by wire transfer in
accordance with Imperial's instructions. Assignor shall assign such claim to
Assignee, without recourse or, except as specifically and expressly provided
herein, any representation or warranty of any kind or nature whatsoever, against
receipt of funds from Assignee as herein provided but subject to the New Secured
Loan Documents.
7. Certain Claims Subject to Pending Arbitration.
7.1 Assignee acknowledges and agrees that the Claims include, and in
the future may include, claims against one (1) or more third parties for failure
of performance, or other breach or default of their respective obligations to,
any or all of Lomax, Agent or Lenders (each, a "Third Party Claim") and that
certain Third Party Claims currently are the subject of pending litigation or
arbitration proceedings identified in Exhibit "C" attached hereto (each, a
"Pending Third Party Claim") including, but not limited to, arbitration
proceedings concerning: (a) disputed delivery
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<PAGE> 6
of the Picture to Metropolitan Film Export ("Metropolitan") in which
Metropolitan, Pepin/Mehri Entertainment Group, Inc. ("PM") and Motion Picture
Bond Company ("MPBC") are respondents, any of which may be liable to Agent and
Lenders (the "Metropolitan Arbitration"); and (b) disputed delivery of the
Picture to Spring Cinema (also known as Spring Cinema Agencies) in which Spring
Cinema, PM and MPBC are respondents, any of which may be liable to Agent and
Lenders (the "Spring Cinema Arbitration").
7.2 Except as specifically and expressly provided in this Paragraph 7
or as permitted in the New Secured Loan Documents, Assignee shall prosecute to
final collectible arbitration award or judgment each Third Party Claim that is
the subject of pending arbitration or litigation, at its sole cost, expense and
risk. To date, the Spring Cinema Arbitration has been prosecuted by Agent, on
behalf of Lenders, and it is likely that by the Closing Date Agent will have
obtained a default award against Spring Cinema (the "Spring Cinema Award"). All
costs and expenses incurred by or on behalf of Agent in connection with the
Spring Cinema Arbitration: (a) prior to the Closing Date, shall be added to the
Loan; or (b) after the Closing Date, shall be added to the loans to be made by
Assignor pursuant to the New Secured Loan Documents. If, by the Closing Date,
Agent has obtained the Spring Cinema Award, Agent shall have the right, at its
election, to enforce and collect the Spring Cinema Award on behalf of, but
without any obligation or liability to, Assignee and any proceeds of the Spring
Cinema Award shall be paid to Agent, on behalf of Lenders, pursuant to and in
accordance with the New Secured Loan Documents.
7.3 All gross proceeds payable to Lomax or Assignee arising out of, in
connection with or as a result of any Third Party Claim shall be paid
immediately to Agent, on behalf of Lenders, pursuant to and in accordance with
the New Secured Loan Documents, without defense, offset, counterclaim,
withholding, deduction or reduction for any reason whatsoever.
8. Further Assurances and Indemnity.
8.1 Effective upon the Closing, Assignor and Assignee each hereby
covenant and agree to execute and deliver all such documents and instruments,
and to take such further actions as may be reasonably necessary or appropriate,
from time to time, to carry out the intent and purpose of this Agreement and to
consummate the transactions contemplated hereby; provided, however, that all
such documents and instruments executed, and actions taken, by Assignor shall be
without recourse or, except as specifically and expressly provided in this
Agreement, representation or warranty of any kind or nature whatsoever.
8.2 Effective upon the Closing, Assignee shall defend, indemnify and
hold each Assignor harmless from and against any and all costs, losses,
expenses, liabilities and damages (including reasonable attorneys' fees and
disbursements) incurred by Assignor in connection with or arising out of: (a)
any misrepresentation by Assignee or any breach by Assignee of any warranty or
any other term, covenant or agreement set forth in this Agreement or any other
agreement, document or instrument contemplated hereby; or (b) the Claims
(including, but not limited to, Third Party Claims), the Lomax Loan Documents or
the transactions contemplated hereby or thereby.
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<PAGE> 7
8.3 Assignee shall pay on demand all costs and expenses, including
attorneys' fees and costs, incurred by Assignor: (a) in connection with the
negotiation, preparation, execution and performance of this Agreement and the
other agreements, documents and instruments contemplated hereby, whether or not
the Closing occurs; (b) the preservation and protection of the Claims or any
collateral for the Claims, or any of Assignor's rights or remedies under or in
connection with the Lomax Loan Documents, at any time prior to the Closing or,
if the Closing occurs, thereafter; and (c) after the Closing, in connection with
this Agreement and the other agreements, documents and instruments contemplated
hereby including, without limitation, any and all amendments and modifications
hereof or thereof, including, but not limited to, defense of any claim made or
threatened against Assignor arising out of, in connection with or related to the
transactions contemplated hereby or the enforcement of the rights of Assignor
hereunder or thereunder.
9. Conditions Precedent.
9.1 The obligations of Assignor under this Agreement shall be subject
to the satisfaction (or specific and express waiver by Assignor in writing) of
the following conditions precedent, on or prior to the Closing Date:
(a) Assignee shall have paid to Assignor the Cash Purchase Price
as provided herein.
(b) Assignee shall have caused the absolute, indefeasible,
irrevocable and unconditional payment, performance and discharge in full of all
indebtedness and obligations of PM to Imperial pursuant to that certain Second
Amended and Restated Revolving Credit Loan and Security Agreement, dated
December 16, 1999, between PM and Imperial, as amended.
(c) Assignee shall have executed and delivered, and caused the
execution and delivery, to Assignor of all of the New Secured Loan Documents and
all conditions precedent to the obligations of Agent and Lenders thereunder have
occurred.
(d) Assignee shall have complied with all terms, covenants and
conditions to be performed or complied with by Assignee as contemplated by this
Agreement.
(e) All of Assignee's representations and warranties shall be
true and correct as of the Closing Date and shall not be misleading in any
respect.
(f) Assignor shall have received the favorable written opinion of
Sidley & Austin, counsel for Assignee, dated as of the date thereof, addressed
to Assignor and satisfactory to counsel to Assignor.
9.2 The obligations of Assignee under this Agreement shall be subject
to the satisfaction (or specific and express waiver by Assignee in writing) of
the following conditions precedent, on or prior to the Closing Date:
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<PAGE> 8
(a) Assignor shall have delivered to Assignee photocopies of the
Lomax Loan Documents and, subject to and if, as and when provided in the New
Secured Loan Documents, shall have agreed to deliver to Assignee the Notes
endorsed as payable to the order of Assignee without recourse or, except as
specifically and expressly set forth herein, representation or warranty of any
kind or nature whatsoever.
(b) Subject to and in accordance with the New Secured Loan
Documents, Assignor shall have agreed to execute, acknowledge (where appropriate
as determined by Agent) and deliver to Assignee such assignments of Uniform
Commercial Code financing statements, assignments of mortgages, and similar
documents as Assignee shall have reasonably requested to assign, of record, to
Assignee the security interests and mortgage liens granted by Borrower to
Assignor in connection with the Lomax Loan Documents, in each case without
recourse or, except as specifically and expressly set forth herein,
representation or warranty of any kind or nature whatsoever.
(c) All of Assignor's representations and warranties shall be
true and correct as of the Closing Date and shall not be misleading in any
respect.
10. Miscellaneous.
10.1 If any provision of this Agreement, or of any other agreement,
document or instrument contemplated hereby, shall be invalid, illegal or
unenforceable in any jurisdiction then, as to such jurisdiction only, such
provision shall to the extent of such prohibition or unenforceability be deemed
severed from the remainder of such agreement, document or instrument and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
10.2 This Agreement, and the other agreements, documents and
instruments contemplated hereby, and the rights and obligations of the parties
hereto and thereto, shall be governed by and construed and enforced in
accordance with, the laws of the state of California without reference to its
conflict or choice of law principles.
10.3 Each controversy, dispute or claim ("Claim") arising out of or
relating to this Agreement or any other agreement, document or other instrument
contemplated hereby shall be resolved pursuant to the provisions for reference
and trial by referee (without jury) set forth in California Code of Civil
Procedure Section 638 et seq., or any statute containing reasonably similar
provisions which replaces such sections, except as expressly modified by the
provisions hereof.
(a) The reference herein contemplated shall be the exclusive
remedy for the resolution of any Claim (including, but not limited to, whether
or not any Claim is subject to reference hereunder). Each of the parties hereby
absolutely, irrevocably and unconditionally waives (i) its rights to initiate
any legal proceedings against the other party(ies) in any court or jurisdiction
other than the Superior Court of Los Angeles County (the "Court") and (ii) trial
by jury with respect to any Claim. The referee ("Referee") shall be a retired or
former California Superior Court or Appellate Court judge residing in Los
Angeles County, California, who is either
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<PAGE> 9
(1) agreed to by the parties within fifteen (15) days of the notice by any party
to the other of the intention to invoke this Paragraph to resolve the Claim, or
(2) failing such agreement, is appointed pursuant to California Code of Civil
Procedure Section 640 in an action filed in the Court.
(b) The parties agree that any party may (and, if necessary, the
other parties shall join in such filing) file with the Clerk of the Court,
and/or with the appropriate judge of the Court, any and all petitions, motions,
applications or other documents necessary to obtain the appointment of a Referee
immediately upon the commencement of any action or proceeding to resolve any
Claim and to conduct all necessary discovery and to proceed to trial as
expeditiously as possible. It is the parties' intention that the parties and the
Referee shall use their best efforts to be certain that: (i) discovery is
conducted for a period no longer than six (6) months (the "Discovery Period")
from the date the Referee is appointed (the "Referee Date") (whether by
stipulation or by the Court), excluding motions regarding discovery, and (ii)
trial is set on a date that is within nine (9) months of the Referee Date. All
discovery motions shall be filed with the Referee and served upon the opposing
party no later than the last day of the Discovery Period; provided, however,
that the parties agree to grant reasonable extensions of time necessary to
reflect the complexities of the issues presented for resolution. All
proceedings, including trial, before the Referee shall be conducted at a neutral
location (unless otherwise stipulated by the parties) within five (5) miles of
the Los Angeles County Superior Court located at 111 N. Hill Street, Los
Angeles, California. The parties agree that the Referee shall be a judge for all
purposes (including, without limitation, (i) ruling on any and all discovery
matters and motions and any and all pretrial or trial motions, (ii) setting a
schedule of pretrial proceedings, and (iii) subject to California Code of Civil
Procedure Section 638 et seq., making other orders or rulings a sitting judge of
the Court would be empowered to make in any action or proceeding in the Court).
Any matter before the Referee shall be governed by the substantive law of
California, its Code of Civil Procedure, Rules of Court and Evidence Code,
except as otherwise specifically agreed by the parties and approved by the
Referee. The parties intend this general reference agreement to be specifically
enforceable in accordance with the California Code of Civil Procedure. Any
appeal of the decision of the Referee and/or of the Court upon the
recommendation of the Referee shall be appealable to the same extent and in the
same manner that such decision would be appealable if rendered by a judge of the
Court. The Referee shall in his/her statement of decision set forth his/her
findings of fact and conclusions of law.
(c) During the pendency of any such action or proceeding and
before the entry of any judgment therein, each of the parties to such action or
proceeding shall bear equal shares of the fees charged and costs incurred by the
Referee in connection with performing the services provided in this Section. The
compensation of the Referee shall not exceed the prevailing rate for like
services. The prevailing party shall be entitled to reasonable court costs and
legal fees, including the customary attorney fees, expert witness fees,
paralegal fees, the fees of the Referee and other reasonable costs and
disbursements charged to the party by its counsel, in such amount as is
determined by the Referee. If a court reporter is requested by either party,
then such reporter shall be present at all proceedings, and the fee of such
reporter shall be borne by the party requesting such reporter. Such fees shall
be an item of recoverable costs.
(d) Nothing in this Section shall prejudice the right of the
Agent or any Imperial Lender to exercise its non-judicial foreclosure rights and
remedies in respect of the
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<PAGE> 10
Senior Obligations, or prejudice the right of either party to obtain provisional
relief or other equitable remedies as shall otherwise be available judicially
pending reference of a dispute to a Referee as provided in this Section.
10.4 WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL
BY JURY. ASSIGNEE FURTHER WAIVES ANY RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE
COUNTERCLAIMS (OTHER THAN THOSE RIGHTS OF SETOFF AND COUNTERCLAIMS WHICH COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION ) IN ANY LITIGATION IN ANY
COURT REFERENCE OR ARBITRATION WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF THIS AGREEMENT, OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT
CONTEMPLATED HEREBY, PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER ARISING, BETWEEN ASSIGNEE, ON THE ONE HAND, AND ASSIGNOR, ON THE OTHER
HAND.
10.5 Except as otherwise expressly provided herein, any notice,
request, demand or other communication provided for hereunder shall be in
writing and shall be delivered personally, by certified mail, return receipt
requested, postage prepaid, or by transmission by a telecommunications device,
and shall be effective (a) on the day when personally served, including delivery
by overnight mail and courier service, (b) on the third day after its deposit in
the United States mail, and (c) on the business day of confirmed transmission by
telecommunications device. The addresses of the parties hereto (until notice of
a change thereof is served as provided in this Paragraph) shall be as follows:
To Assignee:
Inferno Acquisition Corp.
11835 West Olympic Boulevard
Suite 550
Los Angeles, California 90064
Attention: Glenn Weisberger, Esq.
Fax No.: 310-444-4103
With a concurrent copy to:
Sidley & Austin
555 West Fifth Street, 4th Floor
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Fax No.: 213-896-6600
-10-
<PAGE> 11
To Imperial (as Lender and as Agent):
Imperial Bank
9777 Wilshire Boulevard
Fourth Floor
Beverly Hills, California 90212
Attention: Jennifer Huang
Fax No.: 310-281-2476
To Natexis:
Natexis Banque
Entertainment Group
660 South Figueroa Street, Suite 1400
Los Angeles, California 90017
Attention: Bennett Pozil
Fax No.: 213-627-2761
-11-
<PAGE> 12
With a concurrent copy to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Attention: Michael S. Sherman, P.C.
Fax No.: 310-203-0567
10.6 This Agreement shall be binding upon the parties hereto and their
respective successors and assigns, and shall inure to the benefit of the parties
hereto and the successors and assigns; provided, however, that so long as any
obligations under the New Secured Loan Documents have not been absolutely,
indefeasibly, irrevocably and unconditionally paid, performed and in full,
Assignee may not assign its rights or delegate its duties hereunder or any
interest herein without the prior written consent of Assignor and any such
purported assignment or delegation shall be null and void.
10.7 This Agreement and the other agreements, documents and
instruments contemplated hereby are intended by the parties to be the final,
complete and exclusive expression of the agreement between them. This Agreement
and such other agreements, documents and instruments supersede any and all prior
oral or written agreements relating to the subject matter hereof between
Assignee, on the one hand, and Assignor, on the other hand. No modification,
rescission, waiver, release, or amendment of any provision of this Agreement or
any such other agreement, document or instrument shall be made, except by a
written agreement signed by the parties hereto.
10.8 This Agreement and the other agreements, documents and
instruments contemplated hereby may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument,
respectively. Delivery of an executed counterpart of this Agreement, or any such
other agreement, document or instrument, by facsimile shall be equally effective
as delivery of a manually executed counterpart hereof and thereof. Any party
delivering an executed counterpart by facsimile shall also deliver a manually
executed counterpart, but failure to do so shall not effect the validity,
enforceability, of binding effect of this Agreement or any such other agreement,
document or instrument.
-12-
<PAGE> 13
10.9 The various headings used in this Agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date above first written.
"ASSIGNOR:"
IMPERIAL BANK, individually and as Agent
By: /s/ Jennifer Huang
--------------------------------
Jennifer Huang
Its: Commercial Loan Officer
------------------------------
NATEXIS BANQUE
By: /s/ Bennett Pozil
--------------------------------
Bennett Pozil
Its: Vice President
------------------------------
"ASSIGNEE"
INFERNO ACQUISITION CORP.
By: /s/ Glenn Weisberger
--------------------------------
Glenn Weisberger
Its: Secretary
------------------------------
-13-
<PAGE> 14
Exhibits*
<TABLE>
<CAPTION>
Description Exhibit
- - ----------- -------
<S> <C>
Lomax Loan Documents A
Lomax Loan B
Third Party Claims C
Lomax Productions, Inc. Bylaws E
</TABLE>
*The Schedules and Exhibits are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule or Exhibit to the Commission upon
request.
<PAGE> 1
EXHIBIT 10.80
LOAN AND SECURITY AGREEMENT
Among
INFERNO ACQUISITION CORP.
as Borrower
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as Lenders
and
IMPERIAL BANK
as Agent
Dated as of April 3, 2000
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Loan Agreement"), dated as of April 3,
2000, is entered into by and among Inferno Acquisition Corp., a California
corporation ("Borrower"), on the one hand, and Imperial Bank, a California
banking corporation ("Imperial"), and Natexis Banque, a French corporation
("Natexis") (Imperial and Natexis, and their respective successors and assigns,
sometimes hereinafter collectively are referred to as "Lenders" individually
referred to as "Lender"), and Imperial as agent for Lenders (in its capacity as
agent, "Agent"), on the other hand.
This Loan Agreement is made with reference to the following facts:
A. Borrower has applied to Lenders for a loan of up to $4,807,926.97 for
the purpose of acquiring from Lenders a loan made by Lenders to Lomax
Productions, Inc., a California corporation ("Lomax"), in connection with a
feature length theatrical motion picture presently entitled INFERNO.
B. Subject to the terms and conditions hereinafter set forth, Lenders are
willing to loan to Borrower Four Million Eight Hundred Seven Thousand Nine
Hundred Twenty Six Dollars and Ninety Seven Cents ($4,807,926.97) for that
purpose.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Borrower, Lenders and Agent hereby agree as follows.
ARTICLE 1
DEFINITIONS
For the purposes hereof the following terms shall have the meanings
indicated:
"Additional License Agreements" shall mean a new or replacement
License Agreement entered into after the Closing Date pursuant to the procedures
set forth in Article 10 hereof.
"Additional Licensees" shall mean Licensees under Additional License
Agreements.
"Affiliated Person" shall mean any Person, who or which directly or
indirectly controls, is controlled by or is under common control with Borrower.
For the purposes of this definition, "control" (including with corresponding
terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" means Imperial Bank, in its capacity as agent for Lenders and
shall include any successor Agent appointed pursuant to Paragraph 12.7.
"Agent Advances" has the meaning specified in Paragraph 2.1.2(b)(i).
"Agent's Liens" shall mean the Security Interests granted to Agent,
for the ratable benefit of Agent and Lenders, pursuant to this Loan Agreement
and the other Loan Documents.
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<PAGE> 3
"Arbitration Proceedings" shall mean the "Pending Third Party Claims"
identified in the Sale and Assignment Agreement.
"Arbitration Proceeds" shall mean all gross proceeds, whether by way
of arbitration award, judgment or settlement, paid or payable to or for the
benefit of Agent, Lenders or Borrower, of any Third Party Claim (including, but
not limited to, any proceeding to enforce an arbitration award or settlement
agreement).
"Assigned Receipts" shall mean all sums payable to Borrower pursuant
to the Current License Agreements and Additional License Agreements.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" shall mean Inferno Acquisition Corp., a California
corporation.
"Business Day" shall mean any day that is not a Saturday, Sunday or a
day on which banks in Los Angeles, California, are required or permitted to be
closed.
"Chase" means The Chase Manhattan Bank, a New York banking
corporation.
"Chase Loan Agreement" means that certain Credit, Security, Guaranty
and Pledge Agreement, dated as of April 3, 2000, by and among Chase, the "Credit
Partners" and the lenders referred to therein, on the one hand, and Harvey, on
the other hand, and the documents and instruments contemplated thereby.
"Closing Date" shall mean the later of the date on which this Loan
Agreement is executed or all of the conditions set forth in Article 5 have been
satisfied and confirmed as satisfied, in writing, by Agent.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall have the meaning specified in Paragraph 9.1.1
hereof.
"Collateral Security Documents" shall mean the UCC-1 Financing
Statements with respect to the Collateral, the Pledgor Security Agreements, the
IAC/Harvey Subordination Agreement, the Laboratory Pledgeholder Agreements, the
Mortgage and Assignment of Copyright, the Notice and Acceptance Agreements, the
Harvey Guarantee, and all of the agreements, documents and instruments to be
executed and delivered to Agent and/or Lenders as contemplated thereby.
"Collection Account" shall mean account number 60-002061 maintained at
Imperial.
"Commitment" shall mean Four Million Eight Hundred Seven Thousand Nine
Hundred Twenty Six Dollars and Ninety Seven Cents ($4,807,926.97).
"Completion Guarantor" shall mean The Motion Picture Bond Company.
"Completion Guaranty" shall mean the motion completion guaranty for
the Picture by Completion Guarantor in favor of Agent, dated March 3, 1998.
3
<PAGE> 4
"Current License Agreement" means the License Agreements listed in
Schedule 1 attached hereto.
"Current Licensee" shall mean a Licensee under a Current License
Agreement.
"Default" means any event, or combination of events, which with
notice, the passage of time, the happening of any other condition or event, or
any combination thereof, would constitute an Event of Default.
"DGA" shall mean the Directors Guild of America.
"DGA Lien" shall mean that certain security interest granted to the
DGA by Lomax with respect to the Picture.
"DGA Subordination Agreement(s)" shall mean: (a) the agreement between
Agent and the DGA, dated on or about June 8, 1998, pursuant to which the DGA
subordinated the DGA Lien in favor of Lenders in connection with the Lomax Loan;
and (b) an agreement between Agent and the DGA, in form and substance
satisfactory to Agent and its counsel, pursuant to which the DGA subordinates
the DGA Lien in favor of Lenders in connection with the Loan and Collateral
hereunder.
"Dollars" or "$" shall mean United States Dollars.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" shall mean any of the events set forth in Article 8
hereof.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal, for each day during such period, to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three (3) federal funds brokers of
recognized standing selected by Agent.
"GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession prevalent in the United States of America.
"Gross Receipts" shall mean all proceeds of the Collateral including,
but not limited to, all Assigned Receipts, Arbitration Proceeds and all other
considerations of any kind or nature whatsoever paid or payable to Lomax, PM or
Borrower, or any Affiliated Person of any of them, on account of or derived from
the Collateral, net of all withholdings required and paid under any applicable
License Agreement for the payment of remittance taxes or the like to any foreign
jurisdiction.
4
<PAGE> 5
"Guarantor" shall mean The Harvey Entertainment Company, a California
corporation, the owner of all issued and outstanding capital stock of Borrower.
"Harvey Guarantee" shall mean the Continuing Guaranty by Guarantor, in
a form approved by the Agent, of all of the Obligations in favor of Lenders
dated concurrently herewith.
"IAC/Harvey Subordination Agreement" shall mean the Subordination
Agreement, dated concurrently herewith, among Borrower, Guarantor, Agent and
Lenders pursuant to which Borrower and Guarantor subordinate to Agent and
Lenders any claims or rights of Borrower or Guarantor against the Pledgors with
respect to or affecting the Pledgor Collateral, in form and substance
satisfactory to Agent and Lenders.
"Indebtedness" of any Person shall mean: (a) all indebtedness of such
Person for borrowed money; (b) all obligations of such Person for the deferred
purchase price of property or services (other than current trade payables
incurred in the ordinary course of such Person's business); (c) all obligations
of such Person evidenced by promissory notes, bonds, indentures or similar
instruments; (d) all indebtedness created or arising under any conditional sale
or title retention agreement or arrangement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
said property); (e) all guarantees of any such Person of any indebtedness of any
other Person; (f) all secured obligations of such Person, whether or not such
Person has assumed or become liable for the payment of such obligations; and (g)
all other obligations of such Person, of any kind or nature whatsoever, secured
or unsecured, fixed or contingent, accrued or not accrued, including, but not
limited to, all monetary obligations of Borrower to Agent or Lenders hereunder
or under any of the other Loan Documents and in connection with the exercise of
Agent's and Lenders' rights and remedies as secured creditors; in each case
whether now existing or hereafter arising or incurred, due or to become due,
prior to or following maturity, or absolute or contingent.
"Interest Rate" shall have the meaning set forth in Paragraph 2.3.1.
"Laboratory" shall mean a laboratory, sound, post-production or other
such facility that holds original film or sound material or performs transfers,
telecine or other such services with respect to the Picture.
"Laboratory Pledgeholder Agreement" shall mean each laboratory
pledgeholder agreement approved in writing by Agent, in its sole and absolute
discretion, among a Laboratory, Lomax, Borrower, Completion Guarantor and Agent
including, but not limited to, any assignment of Borrower's right, title and
interest in, to or under any Laboratory Pledgeholder Agreement with respect to
any of the Collateral in existence prior to or at any time after the date
hereof.
"Legal Costs" shall mean the fees of counsel to Agent and Lenders as
well as any reasonable, actual, out-of-pocket expenses relating to copying,
courier, messenger, facsimiles, UCC and copyright searches, filing fees,
secretarial overtime and other reasonable overtime expenses.
"Lender" and "Lenders" shall have the meanings specified in the
introductory paragraph hereof.
"Lender's Commitment" shall mean, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on the signature pages of this Loan Agreement and the aggregate
amount of all Lender's Commitments shall equal the Commitment.
5
<PAGE> 6
"Letter of Credit" shall mean a letter of credit required by Agent, in
an amount and issued by a bank acceptable to Agent, naming Agent as beneficiary,
to secure the payment of all or part of a Minimum Guarantee under a License
Agreement.
"License Agreement" shall have the meaning set forth in the Lomax Loan
Agreement and, with respect to agreements executed after the date hereof, shall
mean a fully executed agreement, approved by Agent in writing, in Agent's sole
and absolute discretion, between Borrower (or any Affiliated Person) and a
Licensee, granting to the Licensee the right to exploit, distribute and/or
exhibit the Picture in a specified territory in consideration of a Minimum
Guarantee and other applicable consideration, in each case as any such License
Agreement may be amended or modified by a Notice and Acceptance Agreement or
License Agreement Amendment.
"License Agreement Amendment" shall have the meaning set forth in the
Lomax Loan Agreement.
"Licensee" shall have the meaning set forth in the Lomax Loan
Agreement and shall mean a Person, approved by Agent, in its sole and absolute
discretion, with whom Borrower (or any Affiliated Person on Borrower's behalf)
has entered into a License Agreement.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory, consensual or other), charge
or other security interest or any preference, priority or other security
agreement or preferential arrangement or any kind or nature whatsoever
(including, but not limited to, any conditional sale or other title retention
agreement).
"Literary Properties" shall have the meaning set forth in the Lomax
Loan Agreement.
"Loan or Loans" shall mean the extension of credit in the amount of
the Commitment as provided in Article 2 hereof or in excess thereof as may
otherwise be provided for herein.
"Loan Documents" shall mean this Loan Agreement, the Notes, the
Collateral Security Documents, the License Agreements entered into by or on
behalf of Borrower after the date hereof, and any other agreements, documents
and instruments heretofore, now or hereafter evidencing, securing, guaranteeing
or otherwise relating to the Obligations, the Collateral or any other aspect of
the transactions contemplated by this Loan Agreement, and all other agreements,
documents and instruments contemplated thereby.
"Loan Fee" shall have the meaning set forth in Paragraph 2.1.2(a)
hereof.
"Lomax Collection Account" shall mean the "Collection Account" as
defined in the Lomax Agreement, which currently is account number 60-002061
maintained at Imperial.
"Lomax Loan" shall mean the "Loan" to Lomax made by Lenders pursuant
to, and as defined in, the Lomax Loan Agreement.
"Lomax Loan Agreement" shall mean the Loan and Security Agreement,
dated as of March 3, 1998, entered into by and among Lenders, Agent and Lomax.
"Lomax Loan Collateral" shall mean the "Collateral" as defined in the
Lomax Loan Agreement.
6
<PAGE> 7
"Lomax Loan Collateral Security Documents" shall mean the "Collateral
Security Documents" as defined in the Lomax Loan Agreement.
"Lomax Loan Documents" shall mean the "Loan Documents" as defined in
the Lomax Loan Agreement.
"Lomax Loan Note(s)" shall mean the promissory note or promissory
notes executed and delivered by Lomax under and pursuant to the Lomax Loan
Agreement.
"Majority Lenders" shall mean, Lenders whose Pro Rata Shares aggregate
at least fifty-one percent (51%).
"Margin Stock" shall be as defined in Regulation U of the Board.
"Maturity Date" shall mean December 31, 2001.
"Maximum Legal Rate" shall have the meaning set forth in Paragraph
2.3.4.
"Minimum Guarantees" shall mean the Dollar amount of the minimum sums
guaranteed and payable by Licensees under License Agreements inclusive of
deposits or advances payable prior to delivery of the Picture to each applicable
Licensee.
"Mortgage and Assignment of Copyright" shall mean (a) the mortgage and
assignment of copyright from Borrower to Agent and (b) any assignment of
Borrower's right, title and interest in, to or under any Mortgage and Assignment
of Copyright with respect to, or that is part of, the Collateral in existence
prior to or at any time after the date hereof.
"Note" and "Notes" shall have the meanings assigned to those terms in
Paragraph 2.2.1, and any promissory note issued in replacement, substitution, in
addition to or in renewal thereof.
"Notice and Acceptance Agreement" shall mean the Notice of Assignment
and Distributor's Acceptance in substantially the form set forth as Exhibit "B"
attached to the Lomax Loan Agreement.
"Obligations" shall mean, collectively, each and all of the following:
(a) the obligations of Borrower, or of any Affiliated Person, or of Guarantor,
as applicable, to pay the Loans, interest thereon, and all fees, costs and
expenses payable to Agent or Lenders hereunder or under any other Loan Document,
and to pay, perform and discharge all other debts, Indebtedness, obligations,
liabilities, covenants, agreements, guarantees, warranties and representations
under, arising out of, related to or in connection with this Loan Agreement or
any other Loan Document, however created, incurred, acquired, arising or
evidenced, whether primary, secondary, direct, absolute, contingent, fixed,
secured, unsecured or otherwise; as principal or guarantor; liquidated or
unliquidated; certain or uncertain; determined or undetermined; due or to become
due; as a result of present or future advances or otherwise; joint or
individual; evidenced by a written instrument or oral; whether created directly
or otherwise; monetary or non-monetary.
"Overdue Rate" shall have the meaning specified in Paragraph 2.3.3
hereof.
7
<PAGE> 8
"Participating Lender" shall mean any Person who shall have been
granted the right by any Lender to participate in the financing provided by such
Lender under this Agreement pursuant to Paragraph 11.3, and who shall have
entered into a participation agreement in form and substance satisfactory to
such Lender.
"Permitted Encumbrances" shall mean (i) the rights of Agent and
Lenders under this Loan Agreement and the Collateral Security Documents; (ii)
the rights of Borrower pursuant to and as a result of the Sale and Assignment
Agreement, provided such rights are subordinate to Agent's Liens; (iii) the
rights of Completion Guarantor under the Completion Agreement, subject and
subordinate to Agent's Lien; (iv) the SAG Lien, provided the SAG Subordination
Agreement is in effect; (v) the DGA Lien, provided the DGA Subordination
Agreement is in effect; (vi) liens imposed by a Licensee to secure rights
licensed to any such Licensee under License Agreements provided that such
Licensee's liens are subordinate to the Agent's Liens; (vii) the interest of a
Licensee under a License Agreement and the interest of PM under the PM Sales
Agency Agreement; (viii) liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings provided that adequate
reserves with respect thereto are maintained on the books of Borrower in
conformity with GAAP; (ix) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements; and (x) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business.
"Person" shall mean any entity, corporation, company, association,
partnership, joint venture, joint stock company, unincorporated organization,
trust, individual (including personal representatives, executors and heirs of a
deceased individual), nation, state, government (including governmental
agencies, departments, bureaus, boards, divisions and instrumentalities
thereof), trustee, receiver or liquidator.
"Picture" shall mean that certain feature length theatrical motion
picture presently, but subject to title change, now referred to as INFERNO
produced by Lomax.
"Pledgor Collateral" shall mean the cash and other property pledged to
Agent, on behalf of Lenders, pursuant to the Pledgor Security Agreements.
"Pledgor(s)" shall mean, individually or collectively, Richard J.
Pepin, Joseph T. Mehri and George Shamieh, and their respective spouses and
trustees under any trust of which any such Person is trustor.
"Pledgor Security Agreement(s)" shall mean the Security Agreement -
Stock Pledge and the corresponding Control Agreement, each dated concurrently
herewith, entered into by each Pledgor in favor of Agent, on behalf of Lenders,
and the other agreements, documents and instruments contemplated thereby to be
executed and delivered by a Pledgor.
"PM" shall mean Pepin/Merhi Entertainment Group, Inc., a California
corporation, a wholly owned subsidiary of Guarantor.
"PM Sales Agency Agreement" shall mean the sales agency agreement,
dated as of September 26, 1997, by and between PM and Lomax for the exploitation
of the Picture.
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<PAGE> 9
"Post-Closing" shall mean any time after the Closing Date.
"Power of Sale" shall mean the Power of Sale in the form of Exhibit
"A" hereto.
"Prime Rate" shall mean, for any day, the variable per annum rate most
recently announced by Imperial as its "prime rate."
"Pro Rata Share" shall mean, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the sum of the amounts of
all Lender's Commitments.
"Regulation D" shall mean Regulation D of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation T" shall mean Regulation T of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulatory Change" means, with respect to any Lender, any change on
or after the date of this Loan Agreement with respect to federal, state or
foreign laws or regulations, including Regulation D, or the adoption or making
on or after such date of any interpretations, directives or requests applying to
a class of lenders, including Lenders, of or under and United States Federal or
state, or any foreign, laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Rights Agreements" shall have the meaning set forth in the Lomax Loan
Agreement.
"SAG" shall mean the Screen Actors Guild.
"SAG Lien" shall mean that certain security interest granted or to be
granted to SAG by Lomax with respect to the Picture.
"SAG Subordination Agreement(s)" shall mean: (a) that certain
agreement between Agent and SAG, dated May 6, 1998, pursuant to which SAG
subordinated the SAG Lien in favor of Lenders in connection with the Lomax Loan;
and (b) that certain agreement between Agent and SAG, in form and substance
satisfactory to Agent and its counsel, pursuant to which SAG subordinates the
SAG Lien in favor of Lenders in connection with the Loan and Collateral
hereunder.
"Sale and Assignment Agreement" means the Sale and Assignment
Agreement, dated as of April 3, 2000, among Borrower, Lenders and Agent.
"Screenplay" shall mean all screenplays written for the Picture,
including the Underlying Screenplay.
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<PAGE> 10
"Security Interest" shall have the meaning specified in Paragraph
9.1.1 hereof.
"Third Party Claim" shall have the meaning set forth in the Sale and
Assignment Agreement.
"Underlying Screenplay" shall mean original screenplay entitled The
Coming of Eddie Lomax written by Tom O'Rourke.
"UCC-1 Financing Statements" shall mean those financing statements to
be filed with respect to this Loan Agreement.
ARTICLE 2
LOAN
2.1 Loan.
2.1.1 Commitment to Lend. Subject to satisfaction of all of the terms
and conditions of this Loan Agreement including, but not limited to, the
conditions precedent described in Article 5, each of Lenders hereby agrees to
make Loans to Borrower for the purpose of acquiring the Lomax Loan from Lenders
pursuant to the Sale and Assignment Agreement.
2.1.2 Loan Procedure.
(a) Borrower hereby absolutely and irrevocably authorizes and
directs Agent, on behalf of Lenders, at any time on or after the Closing Date,
to make Loans for the account of Borrower to pay the following Persons: (a) to
pay Agent, ratably on behalf of Lenders, the Loan Fee; (b) to pay Legal Costs;
(c) to pay Agent, ratably on behalf of Lenders, the purchase price of the Lomax
Loan pursuant to the Sale and Assignment Agreement; (d) to Lenders, a fee (the
"Loan Fee") of Ten Thousand Dollars ($10,000); and (e) to counsel to Agent and
Lenders, the Legal Costs then due. Imperial shall receive $5,000 as its share of
the Loan Fee and Natexis shall receive $5,000 as its share of the Loan Fee.
(b) Subject to the limitations set forth in the provisos
contained in this paragraph, Agent is hereby authorized by Borrower and Lenders,
from time to time in Agent's sole and absolute discretion, (1) after the
occurrence of a Default or an Event of Default, or (2) at any time that any of
the other applicable conditions precedent set forth in Article 5 have not been
satisfied, to make Loans to Borrower on behalf of Lenders which Agent, in its
sole and absolute discretion, deems necessary or desirable (A) to preserve or
protect the Collateral, or any portion thereof, (B) to enhance the likelihood,
or maximize the amount, of repayment of the Loans and other Obligations, or (C)
to pay any other amount chargeable to Borrower pursuant to this Loan Agreement
or any other Loan Document (any of the advances described in this paragraph
hereinafter are referred to as "Agent Advances"); provided, however, that the
Majority Lenders at any time may revoke Agent's authorization to make Agent
Advances, any such revocation to be in writing and to become effective upon
Agent's receipt thereof.
(i) Agent Advances, shall constitute Loans and Obligations
hereunder, shall be secured by the Collateral, shall bear interest at the rate
applicable to the Loans from time to time and, upon Agent's election, in its
sole and absolute discretion, shall be repayable
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<PAGE> 11
on demand. Agent shall notify each Lender and Borrower in writing of each Agent
Advance, which notice shall include a description of the purpose of the
applicable Agent Advance.
(ii) Agent shall request settlement ("Settlement") with
Lenders on a weekly basis, or on a more frequent basis if so determined by
Agent, with respect to each Agent Advance, by notifying Lenders by telecopy,
telephone or other similar form of transmission, of each requested Settlement,
no later than 11:00 a.m. (Pacific time) on the date of each requested Settlement
(the "Settlement Date"). Each Lender shall make available to Agent the amount of
such Lender's Pro Rata Share of the outstanding principal amount of the Agent
Advances with respect to which Settlement is requested in same day funds, by
payment into such account of Agent as Agent may designate, not later than 1:00
p.m. (Pacific time), on the Settlement Date applicable thereto, regardless of
whether the applicable conditions precedent set forth in this Loan Agreement
have then been satisfied. Said amounts made available to Agent shall be applied
against the applicable Agent Advance and, together with the portion of such
Agent Advance representing Imperial's Pro Rata Share thereof, shall constitute
Loans of Lenders. If any such amount is not made available to Agent by any
Lender on the Settlement Date applicable thereto, Agent shall be entitled to
recover such amount on demand from said Lender, together with interest thereon
at the Federal Funds Rate for the first three (3) days from and after the
Settlement Date and thereafter at the Interest Rate.
(iii) Notwithstanding the foregoing, not more than one (1)
Business Day after demand is made by Agent (whether before or after the
occurrence of a Default or an Event of Default and regardless of whether Agent
has requested a Settlement with respect to an Agent Advance), each other Lender
irrevocably and unconditionally shall purchase and receive from Agent, without
recourse or warranty, an undivided interest and participation in the applicable
Agent Advance to the extent of such Lender's Pro Rata Share thereof by paying to
Agent, in same day funds, an amount equal to said Lender's Pro Rata Share
thereof. If payment is not made to Agent by any Lender, Agent shall be entitled
to recover such amount on demand from said Lender together with interest thereon
at the Federal Funds Rate for the first three (3) days from and after the date
of said demand and thereafter at the Interest Rate.
(iv) From and after the date, if any, on which any Lender
purchases an undivided interest and participation in any Agent Advance pursuant
to subparagraph (iii) above, Agent shall promptly distribute to said Lender said
Lender's Pro Rata Share of all payments of principal and interest, and all
proceeds of Collateral, received by Agent in respect of said Agent Advance.
(c) All Loans (other than Agent Advances) shall be made by
Lenders simultaneously and in accordance with their Pro Rata Shares. It is
understood that (i) no Lender shall be responsible for any failure by any other
Lender to perform its obligation to make any Loans hereunder, nor shall a
Lender's Commitment be increased or decreased as a result of any failure by any
other Lender to perform its obligation to make any Loans hereunder, and (ii) no
failure by any Lender to perform its obligation to make any Loans hereunder
shall excuse any other Lender from its obligation to make any Loans hereunder.
2.1.3 Reserve Charges, Payments as Loans.
(a) As and when interest becomes due and payable, Borrower hereby
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irrevocably authorizes Agent, for the ratable benefit of Lenders, to charge
Borrower's loan account for the purpose of paying such amounts and agrees that
all such amounts charged shall constitute Loans (each, an "Interest Loan") and
that all such Loans shall be deemed to have been requested by Borrower. Agent
will give Borrower notice of any Interest Loan; provided, however, that the
failure to do so shall not relieve Borrower of any of its Obligations. Borrower
shall pay to Agent, for the ratable benefit of Lenders, on demand, the amount of
each such Interest Loan.
(b) In addition to the Loans permitted under Paragraph 2.1.3(a),
at the option of Lenders, in their sole and absolute discretion, subject only to
the terms of this paragraph, the Loan Fee, costs, fees, reimbursement
obligations, and other sums payable hereunder, including taxes (if any), may be
paid from the proceeds of Loans made pursuant to this Loan Agreement. Borrower
hereby irrevocably authorizes Lenders to make Loans (including Agent Advances),
and charge Borrower's loan account therefore for the purpose of paying such
amounts, and agrees that all such Loans so made shall be deemed to have been
requested by Borrower as of the date of the aforementioned notice. Agent shall
request Loans on behalf of Borrower as described in the immediately preceding
sentence by notifying Lenders and Borrower of the amount and funding date of the
requested borrowing and that such borrowing is being requested on Borrower's
behalf pursuant to this paragraph. On the requested funding date, Lenders will
make the requested Loans in accordance with the procedures and subject to the
conditions specified in Paragraph 2.1.2.
2.2 Promissory Notes.
2.2.1 Notes. Borrower shall execute and deliver to Agent, on behalf of
each Lender, on the Closing Date, promissory notes, each substantially in the
form of Exhibit 2.2.1 attached hereto (collectively, the "Notes" and
individually, a "Note") in an original principal amount equal to the amount of
such Lender's Pro Rata Share of the Commitment, payable to the order of such
Lender, duly executed on behalf of Borrower and dated as of the Closing Date.
2.2.2 Notation. Agent shall record the principal amount of the Loans
owing to each Lender from time to time. The date and amount of all Loans
hereunder and the date and amount of each payment of principal and interest on
the Notes may be recorded by each Lender at the time of each such Loan or
payment, as the case may be, in its records. The balance and each entry thereon
shall be presumptive evidence that such balance exists, and that such payments
were made, in the amounts written; provided, however, that the failure to make
any such notation or any error in so recording shall not limit or otherwise
affect the Obligations of Borrower.
2.2.3 Obligations Not Impaired. The execution and delivery of the
Notes shall not limit, reduce or otherwise affect the Obligations of Borrower
under this Loan Agreement and the rights and claims of Lenders under the Notes
shall not replace or supersede Lenders' rights and claims hereunder; provided,
however, that payment of any part of the principal of the Notes, to the extent
of such payment, shall discharge the Obligations thereunder to the extent of
such repayment.
2.3 Applicable Interest Rate
2.3.1 Interest Rate. All outstanding Obligations hereunder shall bear
interest on the unpaid principal amount thereof (including, to the extent
permitted by law, on interest thereon not
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paid when due) from the date advanced until paid in full in cash at a
fluctuating per annum rate equal to the Prime Rate, but not to exceed the
Maximum Legal Rate (as applicable, the "Interest Rate"). Each change in the
Prime Rate will be reflected in the Interest Rate as of the effective date of
such change. All interest charges shall be computed on the basis of a year of
360 days and actual days elapsed. Interest accrued hereunder shall be payable
monthly, in arrears, on the last day of each month hereafter and upon payment in
full.
2.3.2 Delinquency Charge. If any interest, principal or other payment
due from Borrower is delinquent ten (10) days or more, Borrower shall pay to
Agent, for the ratable benefit of Lenders, a late charge in the amount of five
percent (5%) of the payment due and unpaid, in addition to the applicable amount
due and unpaid; provided, however, that nothing herein shall be construed as any
obligation on the part of Agent or Lenders to accept any past due payment or
less than the total unpaid principal balance, plus interest, after the Maturity
Date. The assessment and collection of each late charge shall be without
prejudice to all other rights of Agent and Lenders, other than damages to the
extent covered by such late charge.
2.3.3 Overdue Rate. Notwithstanding anything to the contrary contained
in this Loan Agreement or otherwise, upon the occurrence of an Event of Default,
the interest rate on the unpaid principal balance of all Loans and all other
Indebtedness then owing pursuant to this Loan Agreement or any other Loan
Document shall be increased to a rate (the "Overdue Rate") equal to the lesser
of (i) the Maximum Legal Rate, or (ii) a rate which is five percent (5%) per
annum in excess of the otherwise applicable Interest Rate. Interest calculated
on the outstanding principal balance of the Loans and other Indebtedness at the
Overdue Rate shall be due and owing and shall accrue and be payable from the
date of the Event of Default to and including the earlier of the date of payment
in full of all Indebtedness owing pursuant to this Loan Agreement or any other
Loan Document or the date of Borrower's cure of such Event of Default (but only
if such cure is permitted) to Agent's satisfaction. This provision, or reliance
thereon by Agent and Lenders, or the payment by Borrower and the acceptance by
Agent or Lenders of any interest at the Overdue Rate, shall not be deemed a
waiver of any Event of Default or of any of Agent's and Lenders' rights and
remedies pursuant to this Loan Agreement or any other Loan Document.
2.3.4 Maximum Legal Rate. If this Loan Agreement or any Note at any
time would require payment to Agent or Lenders of an amount of interest in
excess of the maximum amount then permitted by the law applicable to the Loans
(the "Maximum Legal Rate"), such interest payments shall be reduced to the
extent necessary so as to ensure that Agent and Lenders shall not receive
interest in excess of said maximum amount; provided, however, that if, under
applicable law, Agent and Lenders may recapture such reduced interest at a later
date, Agent and Lenders shall be entitled to do so.
2.3.5 Capital Adequacy Regulations. If any Lender determines that the
adoption or implementation of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender (or its applicable lending office) with
any directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on capital of such Lender or any
Person controlling such Lender (a "Parent") as a consequence of its obligations
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hereunder to a level below that which such Lender (or its Parent) could have
achieved but for such adoption, change or compliance (taking into consideration
its policies with respect to capital adequacy) by an amount deemed by such
Lender to be material then, from time to time, upon demand by such Lender,
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such reduction. A statement of a Lender claiming
compensation under this Paragraph and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error.
2.4 Repayment.
2.4.1 Repayment of Loans. Borrower shall repay the principal balance
of all Loans and other Obligations, together with all accrued interest thereon
and all other costs and expenses then due hereunder, on the Maturity Date.
2.4.2 Voluntary Prepayments. Borrower may, at its option, prepay the
outstanding principal amount of the Notes, in whole or in part, from time to
time without premium. All prepayments of principal under this paragraph shall be
accompanied by accrued but unpaid interest on the amount being prepaid to the
date of prepayment. Once any payment is made hereunder, the applicable amount
may not be re-borrowed.
2.4.3 Mandatory Payments. All Gross Receipts received by or on behalf
of Borrower or any Affiliated Person shall be paid directly to Agent, for the
account of Lenders, to be applied to the repayment of the Loans as more fully
set forth in Article 3 hereof. Once any payment is made hereunder, the
applicable amount may not be re-borrowed. If, for any reason, any proceeds of
the Collateral are deposited in any account of Borrower at Imperial, other than
the Collection Account, Borrower hereby authorizes Agent to sweep all funds
deposited in any such account directly into the Collection Account on a daily or
other basis as Agent shall determine in its sole and absolute discretion. On any
date upon which any funds are on deposit in the Collection Account, Agent shall
repay any outstanding Obligations by applying any then outstanding balance in
the Collection Account against such Obligations.
2.4.4 No Offsets. All payments by or on behalf of Borrower (including,
but not limited to, Assigned Receipts) under this Loan Agreement or any other
Loan Document shall be made in full without set-off, defense, withholding or
counterclaim and in such amounts as may be necessary in order that all such
payments shall not be less than the amount otherwise required to be paid to
Agent and Lenders. All such payments shall be made under all circumstances,
irrespective of any restrictions then existing in any jurisdiction and without
regard to the nationality, residence or domicile of Agent or Lenders and without
requiring any affidavit or the fulfillment of any other formality.
ARTICLE 3
REPAYMENT OF INDEBTEDNESS FROM PROCEEDS;
ADDITIONAL RIGHTS OF BANK
3.1 Payment of Gross Receipts. Until such time as: (a) all Obligations
absolutely, indefeasibly, irrevocably and unconditionally are paid, performed
and discharged in full and (b) Borrower is not entitled to or has waived in
writing any right to receive further Loans hereunder, Borrower shall require all
Persons paying Borrower, Lomax or PM, or any Affiliated Person of any
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of them, any Gross Receipts to pay all such Gross Receipts as and when received
directly to the Collection Account in immediately available funds and not to pay
such Gross Receipts to any other Person. If Gross Receipts are deposited into an
account other than the Collection Account, Borrower shall hold, and shall cause
each other Person that is a recipient thereof to hold such Gross Receipts in
trust for Agent. Borrower, at its own expense, shall promptly make collection
and take all legal action necessary to enforce collection of all Gross Receipts
and immediately shall cause all sums so collected to be remitted to the
Collection Account. Agent shall notify Borrower promptly upon the receipt of
Gross Receipts by Agent in the Collection Account, the amount and, to the extent
then known to Agent, the payor thereof.
3.2 Interest Payments. If and to the extent that, on any date for the
payment of interest hereunder, there is not on deposit in the Collection Account
sufficient funds for the payment of interest then due in accordance with Section
3.3 below, Agent shall utilize cash on deposit with Imperial as Pledgor
Collateral pursuant to the Pledgor Security Agreements, if such cash is freely
and immediately available for payment, and is paid, to Agent for application in
accordance with this Section. Nothing contained herein or otherwise shall
require Agent to exercise or exhaust any rights or remedies under or in respect
of the Pledgor Security Agreements or with respect to the Pledgor Collateral
before exercising any rights or remedies under or in connection with the Harvey
Guaranty or the Collateral.
3.3 Application of Payments. The aggregate principal and interest payments
made hereunder shall be apportioned ratably among Lenders (according to the
unpaid principal balance of the Loans held by each Lender to which such payments
relate) and payment of fees to Lenders shall be apportioned ratably between
Lenders except as otherwise specifically and expressly provided for herein. All
payments shall be remitted to Agent and all such payments, not relating to
principal or interest of Loans, or not constituting payment of specific fees,
and all proceeds of the Collateral, shall be applied ratably, subject to this
Loan Agreement, to reduce the Indebtedness in the following priority: first, to
the payment of all fees, expenses, late charges and other amounts owing to Agent
or Lenders; second, to the payment of all interest due in respect of the Loans;
third, to the payment of the principal of all Agent Advances; fourth, to the
payment of the principal of the Loans (other than Agent Advances); and fifth, to
the payment of the Obligations. Agent shall promptly distribute to each Lender,
pursuant to the applicable wire transfer instructions set forth in Paragraph
12.11, or pursuant to such other instructions as such Lender may deliver to
Agent in writing, such funds as it may be entitled to receive. Agent and Lenders
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such proceeds and payments to any portion of the Indebtedness and
Obligations.
3.3.1 Borrower hereby absolutely, irrevocably and unconditionally
waives and releases all rights, defenses and claims which Borrower at any
time has or may have under California Civil Code Section 2822 or any
similar or analogous law or judicial decision. Civil Code Section 2822(a)
provides as follows:
"(a) Acceptance, by a creditor, of anything in partial
satisfaction of an obligation, reduces the obligation of the surety
thereof, in the same manner as that of the principal, but does not
otherwise effect it. However, if the surety is liable upon only a
portion of an obligation and the principal provides partial
satisfaction of the obligation, the principal may designate the
portion of the obligation that is satisfied."
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3.3.2 Without limiting the generality of the foregoing, any Gross
Receipts, or other payments that Agent or Lenders receive from or on behalf of
Borrower, Guarantor or any other Person on account of the Obligations may be
applied by Agent and Lenders in any manner, amount, or priority and in
satisfaction of any portion thereof, as permitted in accordance with this
Paragraph 3.2, without giving any effect to any designation by Borrower,
Guarantor or any such other Person, and such application shall not exonerate or
affect the liability of Borrower, Guarantor or any other Person providing
security for or in connection with Loans hereunder.
3.4 Books and Records. Borrower shall keep, in accordance with GAAP, true,
full and complete books and records of all payments and all other matters
concerning or related to the Loans, the Lomax Loan, this Loan Agreement and the
other Loan Documents and the Collateral. Borrower shall make available to Agent,
or its designee, within three (3) business days, upon request by Agent, at
Borrower's place of business, during regular business hours and upon reasonable
notice, all such books and records (including, but not limited to, all License
Agreements and all other agreements, documents, instruments, information and
data of every kind). Agent and its designee shall have full, free and unfettered
access to, and may photocopy, all such books and records and take excerpts
therefrom without restriction or condition.
3.5 Withholding Gross Up. Agent's and Lenders' agreement to lend funds to
Borrower at the Interest Rate and on the terms specified herein is based upon
the understanding that all payments of interest will be made so that Agent and
Lenders will receive, net of any non-United States tax or withholding
obligations which may otherwise exist from and after the date hereof, at its
office in the United States the full amount of interest and fees set forth
herein. If Borrower is obligated to withhold any such sum, Borrower shall pay to
Agent and Lenders such additional sums as are necessary in order to result in
Agent and Lenders receiving the amount of fees and interest equal to that
provided for in this Loan Agreement without reduction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and Lenders as follows:
4.1 Organization, Corporate Powers.
4.1.1 Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the state of California and is qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the failure to so qualify or be in good standing could
reasonably be expected to have a material adverse effect on Borrower's property,
business, operations, prospects or condition (financial or otherwise).
4.1.2 Borrower has the power and authority to own its properties and
assets and to pay, perform and discharge all of the Obligations.
4.1.3 Borrower has the power and authority to execute and deliver the
Notes, to execute, deliver and perform this Loan Agreement and all of the other
Loan Documents, and to grant to Agent the Agent's Liens.
4.2 Authorization of Borrowing.
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4.2.1 The execution, delivery and performance by Borrower of this Loan
Agreement and all of the other Loan Documents, the borrowings hereunder and the
grant by Borrower of the Agent's Liens have been duly authorized by all
requisite corporate action and do not and will not violate any provision of law,
any order of any court or other agency of the United States or of any state
thereof, the articles of incorporation or bylaws of Borrower, or any provision
of any indenture, agreement or other instrument to which Borrower or any
Affiliated Person is a party or by which Borrower or any Affiliated Person or
any of their respective properties or assets are or may be bound, or conflict
with, result in a breach of, or constitute (with notice, lapse of time or
otherwise) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, or encumbrance of any
nature whatsoever upon any of the properties or assets of Borrower or of any
Affiliated Person.
4.2.2 All authorizations, approvals, registrations or filings from or
with any governmental or public regulatory body or authority of the United
States, or of any state thereof, required for the execution, delivery and
performance by Borrower of this Loan Agreement and all of the other Loan
Documents have been duly obtained or made, or duly applied for, and are and will
be in full force and effect, and if any such further authorizations, approvals,
registrations or filings hereafter should become necessary, Borrower shall
obtain or make all such authorizations, approvals, registrations or filings.
4.3 Validity and Binding Nature. This Loan Agreement and all of the other
Loan Documents, when executed and delivered to Agent hereunder, will constitute
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with the respective terms thereof subject, as to enforcement only,
to bankruptcy, insolvency, moratorium or similar laws, then in effect, affecting
the rights of creditors generally and to general equitable principles.
4.4 Financial Information. All financial statements, information, and other
data furnished by Borrower to Agent and Lenders in connection with Borrower's
application for credit hereunder including, without limitation, with respect to
each of Borrower, Guarantor and any Affiliated Person of Borrower or Guarantor,
in all material respects, are accurate and complete; the financial statements
have been prepared in accordance with GAAP and accurately represent the
financial condition of the Person to whom or which such statements relate; no
materially adverse change has occurred since the date of the applicable such
statement; and no liabilities, contingent or otherwise, not shown on the
financial statements, exist, except only those incurred in the ordinary course
of business which, in any event, have no materially adverse affect on such
Person. Borrower has furnished to Agent and Lenders copies of all material
agreements, indentures, and other agreements, documents and instruments pursuant
to which it has incurred or may be obligated, directly or indirectly, for
borrowed money.
4.5 Litigation. There is no action, suit or proceeding, at law or in equity
or by or before any governmental instrumentality or agency, or any investigation
of the affairs of Borrower or any Affiliated Person or any of their respective
properties or rights that, if adversely determined, would materially affect: (i)
the ability of Borrower to pay, perform and discharge all of the Obligations;
(ii) the ability of any such Affiliated Person including, but not limited to,
Guarantor, to pay, perform and discharge any of its respective obligations or
liabilities to Agent or Lenders; (iii) Agent's Liens; or (iv) any of the
Collateral except only with respect to the Current License Agreements that are
at issue in the Pending Third Party Claims currently subject to arbitration as
described in the Sale and Assignment Agreement, and only to the extent in
dispute in the applicable such arbitration.
4.6 Security Interests. This Loan Agreement and the Collateral Security
Documents to
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be delivered on and after the date hereof will create and grant to Agent, for
the ratable benefit of Lenders, a valid and perfected first priority security
interest in the Collateral, provided only that Agent makes all necessary and
proper filings under all applicable laws, and, except for certain of the
Permitted Encumbrances, no Person has or will have any right, title or interest
in or to any of the Collateral that is, or that shall be, prior, paramount,
superior or equal to the right, title and interest of Agent or Lenders therein
or thereto.
4.7 Agreements Relating to Lomax and the Picture. Other than the Current
License Agreements that are at issue in the Pending Third Party Claims currently
subject to arbitration as described in the Sale and Assignment Agreement, and
only to the extent in dispute in the applicable such arbitration, Borrower has
no notice of, nor any reason to believe that, any of the Rights Agreements, any
Current License Agreement or any other agreement, document or instrument
pursuant to which Lomax or any predecessor in interest obtained or licensed any
right, title or interest in or to the Picture or any of the Collateral related
thereto, or that any of the Lomax Loan Documents, is invalid or unenforceable in
any respect, is not in full force and effect or that any party thereto is in
breach or default or has any accrued right of termination thereunder.
4.8 Principal Place of Business. The principal place(s) of administration
and of the business of Borrower and the records relating to the Collateral are
located at the address set forth in Paragraph 13.1 hereof.
4.9 Ownership of Copyright. To the best knowledge of Borrower, after due
and diligent investigation: (a) Lomax owns, under copyright, all motion picture,
television and allied rights in and to the Literary Properties to entitle Lomax,
or PM on behalf of Lomax, or Borrower or Agent in the event of the enforcement
by Borrower or Agent of their respective rights with respect to the Lomax Loan
Collateral or the Collateral, respectively, to enter into License Agreements
with respect to the Picture sufficient to grant to the licensee thereunder the
rights purportedly granted or licensed thereunder; and (b) the Picture has been
registered for copyright in the United States Copyright Office in the name of
Lomax as copyright proprietor, subject to the Lomax Loan Collateral Security
Documents. The Collateral includes, without limitation, all of the rights and
benefits of Borrower arising out of or in connection with the representations,
warranties, covenants and agreements of Lomax under or in connection with the
Lomax Loan Documents. Borrower has no notice, or any reason to believe, that the
Picture or any component part thereof, does or will violate or infringe upon any
copyright, right of privacy, trademark, patent, trade name, performing right, or
any literary, dramatic, musical, artistic, personal, private, civil, contract,
or property right or any other right of any Person or contains any libelous or
slanderous material. Any damages resulting from any such violation or
infringement (subject to the policy deductibles permitted hereunder) are fully
insured to the extent of the coverage of the errors and omissions policy
referred to in this Loan Agreement.
4.10 Taxes. Borrower and each Affiliated Person that is not a natural
person has filed or caused to be filed all tax returns required to be filed, and
paid or caused to be paid, or made provision for, all taxes, fees, assessments
and other governmental charges, penalties and interest required to be paid by
Borrower or any such Affiliated Person, except those being contested diligently
and in good faith.
4.11 Other Agreements, Documents and Instruments. Except for this Loan
Agreement and the other Loan Documents, the Sale and Assignment Agreement and
the other agreements, documents and instruments to be executed and delivered by
Borrower as contemplated hereby or thereby, Borrower is not a party to any
agreement, document or instrument in any way relating to the Picture or the
Collateral or materially or adversely affecting its ability to perform, observe,
fulfill
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and otherwise comply with and discharge its obligations in connection with any
material agreement, document or instrument to which it is a party.
4.12 No Other Interest. Except only for certain Permitted Encumbrances,
neither Borrower nor any other Person (other than Lenders) has conveyed to any
other Person any rights in or to the Collateral or the proceeds thereof, and
neither Borrower nor any other Person (other than Lenders) has transferred,
assigned or encumbered any rights with respect to any of the Collateral, and
Borrower has not done so, and will not authorize any other Person to do so. No
rights, titles or interests exist or will be granted to any other Person which
in any way are or may be inconsistent with or would or might adversely affect
Agent's or Lenders' rights or remedies, or Agent's Liens, under this Loan
Agreement or any other Loan Document.
4.13 Solvency. No insolvency proceedings of any nature are now pending or,
to the best knowledge of Borrower, threatened by or against Borrower or any
Affiliated Person.
4.14 Single Purpose Entity Status.
4.14.1 Borrower was organized solely for the purpose of acquiring and
owning the Lomax Loan and does not, and will not, own any material asset or
property other than its interest in and to the Collateral.
4.14.2 Borrower has not engaged, and will not engage, in any business
other than the acquisition of the Lomax Loan and the ownership of the
Collateral.
4.14.3 Borrower has not entered into any contract, agreement or other
transaction with any Affiliated Person, except upon terms and conditions that
are intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties other than any such Person.
4.14.4 Borrower has not incurred, and will not incur, any
Indebtedness, secured or unsecured, direct or indirect, absolute or contingent
(including guaranteeing any obligation) except as expressly permitted under this
Agreement. No Indebtedness, other than the Obligations, may be secured by any of
the Collateral.
4.14.5 Borrower has not made any loans or advances to any other Person
(including any Affiliated Person), nor has Borrower acquired obligations or
securities of any Affiliated Person.
4.14.6 Borrower is solvent and has paid its debts and liabilities from
its own assets. Without the unanimous consent of all members of the Board of
Directors of Borrower, Borrower has not and will not: (a) file a bankruptcy,
insolvency or reorganization petition or otherwise institute insolvency
proceedings or seek any relief under laws relating to relief from debt or the
protection of debtors generally; (b) seek or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian or similar
official for Borrower or all or any portion of Borrower's assets; (c) make any
assignment for the benefit of its creditors; or (d) take any action that might
cause Borrower to become insolvent.
4.14.7 Borrower has done or caused to be done all things necessary to
observe its organizational formalities and preserve its existence, and the Board
of Directors of Borrower may not take any action requiring the vote of the Board
of Directors without the unanimous written consent of the members of the Board
of Directors.
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4.14.8 Borrower has maintained all of its books, records, financial
statements and bank accounts separate from those of its Affiliated Persons.
4.14.9 Borrower has at all times: (a) held itself out to the public as
a legal entity separate and distinct from any other entity (including any
Affiliated Person); (b) corrected any known misunderstanding regarding its
status as a separate entity; (c) conducted business in its own name; (d) not
identified itself or any Affiliated Person as a division or part of the other;
and (e) maintained and utilized a separate telephone number and separate
stationery, invoices and checks.
4.14.10 Borrower has, and has maintained, adequate capital for the
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations.
4.14.11 Neither Borrower nor any Affiliated Person has sought, or will
seek, or consent to the liquidation, dissolution, winding up, sale of assets,
consolidation or merger, in whole or in part, of Borrower, or any amendment of
Borrower's articles of incorporation.
4.14.12 Borrower has not commingled any funds or other assets of
Borrower with those of any Affiliated Person or any other Person.
4.14.13 Borrower has maintained its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliated Person or of any other Person.
4.14.14 Borrower does not hold itself out to be responsible for the
debts or obliga tions of any other Person.
4.14.15 Borrower has not permitted any Affiliated Person, or any other
Person, independent access to its bank or other accounts.
4.14.16 Borrower has paid the salaries of its own employees, if any as
of the date hereof, from its funds for services provided solely to Borrower and
maintained a sufficient number of employees in light of its contemplated
business operations.
4.14.17 Borrower has compensated each of its consultants and agents
from its funds for services provided solely to Borrower and paid from its own
assets all obligations of any kind incurred.
4.15 Federal Reserve Regulations. Neither Borrower nor Guarantor is engaged
principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. No part of
the proceeds of the Loans will be used, directly or indirectly, whether
immediately, incidentally or ultimately (i) to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or (ii) for any other purpose, in each case, violative of or
inconsistent with any of the provisions of any regulation of the Board,
including, without limitation, Regulations T, U and X thereto.
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ARTICLE 5
PRECEDENT
The obligation of Lenders to make the Loans under this Loan Agreement is
subject to the following conditions precedent:
5.1 Representations and Warranties. As of the date hereof and continuing
thereafter through and including the date that all of the Obligations
absolutely, indefeasibly, irrevocably and unconditionally are paid, performed
and discharged in full, each of the representations and warranties of Borrower
set forth herein and in the other Loan Documents shall be true and correct
(except to the extent that such representations and warranties relate to an
earlier date and except as affected by transactions expressly contemplated
hereby) with the same effect as though such representations and warranties had
been made on and as of each date during said period.
5.2 Sale and Assignment. All conditions precedent to the closing of the
transaction contemplated by the Sale and Assignment Agreement shall have been
satisfied including, but not limited to, payment by Borrower to Agent, for the
ratable benefit of Lenders, of cash in the sum of Two Million Dollars
($2,000,000) as part of the purchase price for the Lomax Loan in accordance with
the Sale and Assignment Agreement.
5.3 Opinion of Counsel for Borrower. On or prior to the date of the
Closing, Agent shall have received the favorable written opinion of Sidley &
Austin, counsel for Borrower, dated as of the date thereof, addressed to Agent
and Lenders and satisfactory to counsel to Agent and Lenders.
5.4 Primary Documents. On or prior to the date of the first Loan, Agent
shall have received one (1) fully executed copy of each of the following
documents, previously approved by Agent:
5.4.1 this Loan Agreement;
5.4.2 the Notes;
5.4.3 the Mortgage and Assignment of Copyright;
5.4.4 the Laboratory Pledgeholder Agreement side letters;
5.4.5 the Harvey Guarantee;
5.4.6 UCC-1 Financing Statements from Borrower in favor of Agent with
respect to the Collateral;
5.4.7 the Pledgor Security Agreements and all agreements, documents
and instruments contemplated thereby;
5.4.8 all Current License Agreements, other than those heretofore
delivered to Agent, all of which are identified in Schedule 5.3.8 attached
hereto;
5.4.9 the Notice and Acceptance Agreements for all Current License
Agreements or, in lieu thereof, where approved by Agent, License Agreement
Amendments, other than those heretofore delivered to Agent, all of which are
identified in Schedule 5.4.9 attached hereto;
5.4.10 Copyright Office, UCC and litigation search reports, signed by
Borrower, demonstrating that all of the Collateral is free and clear of any
liens, claims or encumbrances, except
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for the Agent's Liens and the Permitted Encumbrances, and that none of Lomax,
Borrower or Guarantor is subject to any litigation in any way affecting or
relating to the Collateral or that could or might have a material adverse effect
on Lomax, Borrower or Guarantor;
5.4.11 E&O Insurance Policy and Certificate of Insurance in favor of
Agent and Lenders;
5.4.12 Power of Sale;
5.4.13 The Chase Loan Agreement and evidence that the loan transaction
evidenced thereby has closed or is closed concurrently with this Loan Agreement,
with all conditions precedent thereto having been satisfied;
5.4.14 The IAC/Harvey Subordination Agreement;
5.4.15 The IAC/Harvey Control Agreement
5.4.16 The Sale and Assignment Agreement and all agreements, documents
and instruments contemplated thereby; and
5.4.17 The Supporting Documents described in Paragraph 5.9 hereof.
5.5 Collection Account. The Lomax Collection Account and the Collection
account hereunder shall be the same account at Imperial and no other Person
including, but not limited to, Chase, shall have asserted any right, title,
interest, claim or Lien with respect thereto, or any proceeds thereof.
5.6 Approval of Counsel by Agent. All legal matters incident to this Loan
Agreement and the loan transactions and other documentation contemplated hereby
shall be satisfactory to and approved by Agent and Agent's counsel.
5.7 Pledgor Collateral. Agent shall have received the Pledgor Collateral in
accordance with the Pledgor Security Agreements.
5.8 No Event of Default. Borrower shall be in compliance with this Loan
Agreement and all other Loan Documents, Guarantor shall be in compliance with
the Harvey Guarantee and the Pledgor shall be in compliance with the Pledgor
Security Agreements, and no Default or Event of Default shall have occurred.
5.9 Supporting Documents. Agent shall have received, on or before the date
of the Closing (except as provided in Section 5.9.3 below), all of the following
documents (collectively the "Supporting Documents"):
5.9.1 a certificate of the Secretary of Borrower certifying: (a) that
attached thereto is a true and complete copy of resolutions of the Board of
Directors and Shareholders of Borrower authorizing the execution, delivery and
performance of this Loan Agreement and the other Loan Documents, the borrowings
under this Loan Agreement and the grant of Agent's Liens; (b) the incumbency and
signature of each officer of or agent for Borrower executing this Loan Agreement
and the other Loan Documents; and (c) a certificate of good standing from the
state of incorporation of Borrower and, if other than California, a
qualification to do business in California.
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5.9.2 a certificate of the Secretary of Guarantor certifying: (a) that
attached thereto is a true and complete copy of resolutions of the Board of
Directors and Shareholders of Guarantor authorizing the execution, delivery and
performance of the Harvey Guarantee and any other agreements, documents or
instruments to be executed and delivered by Guarantor; (b) the incumbency and
signature of each officer of or agent for Guarantor executing the Harvey
Guarantee or any such other agreement, document or instrument; and (c) a
certificate of good standing from the state of incorporation of Guarantor and,
if other than California, a qualification to do business in California.
5.9.3 within thirty (30) days after the Closing Date, insurance
certificates with respect to the insurance coverages required to be obtained and
maintained pursuant to Paragraph 6.4 hereof, which certificates shall designate
Agent as loss payee and/or additional insured thereunder as required thereunder,
along with written verification stating that (i) the insurance policies are in
full force and effect; (ii) the aggregate amount of all premiums payable in
connection therewith; and (iii) the date by which such premiums must be paid (or
confirmation from the insurance company that all such premiums have been paid);
5.9.4 reports confirming that there are no filings of record which
indicate that another Person has rights or a security interest in any of the
Collateral except only Permitted Encumbrances and Current License Agreements;
5.9.5 a copy of the Articles of Incorporation of Borrower, certified
by the Secretary of State of the State of incorporation of Borrower, including
all amendments thereto, and a copy of the Bylaws of Borrower certified by
authorized officers of Borrower to be complete, true and correct;
5.9.6 a copy of the Articles of Incorporation of Guarantor, certified
by the Secretary of State of the State of incorporation of Guarantor, including
all amendments thereto, and a copy of the Bylaws of Guarantor certified by
authorized officers of Guarantor to be complete, true and correct;
5.9.7 such additional supporting documents as Agent or its counsel may
reasonably request.
ARTICLE 6
AFFIRMATIVE COVENANTS
Borrower covenants and agrees with Agent and each Lender that, from and
after the date hereof and until the absolute, indefeasible, irrevocable and
unconditional payment, performance and discharge in full of the Indebtedness and
all other Obligations, unless Agent shall otherwise consent in writing, Borrower
shall:
6.1 Existence. Do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence and comply with
all laws and regulations applicable to it.
6.2 Notice of Material Events. Promptly give notice in writing to Agent of:
(a) the occurrence of a Default or an Event of Default; (b) any action or event
of which it has knowledge that would or might materially or adversely affect the
performance by any party thereto of this Loan Agreement or any of the other Loan
Documents; (c) the change of the principal place of business of
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Borrower or Guarantor or a change in the location of the accounts and records of
Borrower or Guarantor; (d) any change in the name of Borrower or Guarantor; or
(e) any proposed material amendment to any agreement that would or might affect
the Collateral.
6.3 Notice of Litigation. Promptly give notice in writing to Agent of any
controversy, claim, suit or other proceeding affecting Borrower, Guarantor, PM,
any of the Pledgors or any of the Collateral, which would or might materially or
adversely affect the ability of Borrower, Guarantor, PM or any of the Pledgors
to pay, perform and discharge their respective obligations to Agent and Lenders,
materially or adversely affect any of the Collateral or in which injunctive or
similar relief affecting any of the Collateral is sought, and promptly furnish
to Agent all information not previously disclosed by Borrower to Agent
concerning the status of any such controversy, claim, suit or other proceeding.
6.4 Insurance. Maintain or cause to be maintained (blanket insurance
maintained by Guarantor in accordance herewith shall constitute compliance by
Borrower with this paragraph) including, without expense to Agent or Lenders,
errors and omissions insurance, fire insurance, comprehensive public liability
insurance ("Comprehensive Liability Insurance") against claims for personal
injury or death or property damage occurring upon, in, about or in connection
with the use of any properties owned, occupied or controlled by Borrower and,
until such time as Agent shall have been provided with satisfactory evidence of
the existence in two (2) separate locations of duplicate negatives or of a
negative and an inter-positive and inter-negative of the final theatrical
version of the Picture and completion of "Delivery" (as defined in the Lomax
Loan Agreement) of the requisite elements of the Picture, insurance on the
negatives and sound tracks of the Picture in an amount not less than Ten Million
Dollars ($10,000,000) or in such amounts as Agent shall reasonably request;
provided, however, that the errors and omissions insurance ("Errors and
Omissions Insurance") shall be in the minimum amount of One Million Dollars
($1,000,000) per occurrence and Three Million Dollars ($3,000,000) in the
aggregate with a deductible no greater than Ten Thousand Dollars ($10,000). All
insurance shall be written by insurance companies acceptable to Agent and the
policies or binders thereof shall be delivered to Agent with appropriate
endorsements providing for the payment of the proceeds thereof to Agent, for the
ratable benefit of Lenders, as an additional loss payee (except with regard to
errors and omissions insurance, which shall provide for Agent, for the ratable
benefit of Lenders as an additional insured) and notifying Agent, in writing,
thirty (30) days prior to any cancellation, amendment or modification of any
such policy. If Borrower fails to procure such insurance or to pay the premiums
therefor when due, Agent may do so and Borrower shall pay Agent the cost thereof
immediately upon demand or, in its sole and absolute discretion, Agent may make
additional Loans to Borrower for the cost thereof as described in this Loan
Agreement.
6.5 Copyright. If not already registered as of the date hereof, Borrower
shall cause Lomax to register the screenplay of the Picture and the Picture for
copyright in the name of Lomax as copyright proprietor, and record all documents
in the chain of title to the Literary Properties and the Picture, in the United
States Copyright Office in conformity with the laws of the United States, and
immediately shall deliver to Agent written evidence of any and all such
registrations and recordations.
6.6 Financial Statements and Reports. Furnish or cause to be furnished to
Agent from time to time, information regarding the operations, business, affairs
and financial condition of Borrower, Guarantor and the Collateral including, but
not limited to, the following:
6.6.1 As soon as available, without the necessity of any request from
Agent, for Borrower and Guarantor, as hereinafter provided:
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(a) In any event within one hundred fifteen (115) days after the
close of each fiscal year of the applicable such Person: (i) a copy of the
annual financial statement prepared for such year for each such Person including
therein a balance sheet, income statement, statement of cash activity and
reconciliation of net worth, with notes thereto, in the case of Guarantor
compiled by certified public accountants satisfactory to Agent, setting forth in
each case in comparative form the figures for each corresponding period of the
previous year, reported without a "going concern" or similar qualification or
exception, or qualification arising out of the scope of the audit.
(b) In any event within fifty (50) days after the end of each of
the first three (3) calendar quarterly periods of each fiscal year of Guarantor:
a copy of the unaudited financial statement prepared for such period, as at the
end of such period, for each such Person including therein a balance sheet,
income statement, statement of cash activity and reconciliation of net worth,
with notes thereto, compiled by certified public accountants satisfactory to
Agent, setting forth in comparative form the figures for each corresponding
period of the previous year, certified by an authorized officer of the
applicable Person as being fairly stated in all material respects (subject only
to normal year-end audit adjustments).
(c) A full and complete copy of all quarterly financial
statements and notices of default provided to any lender by Guarantor under or
pursuant to any other credit facility available to Guarantor, or to any other
Person in connection with any Indebtedness of Guarantor, at any time from and
after the date hereof, and upon written request by Agent, a full and complete
copy of any and all management reports or letters, compliance certificates, tax
returns and other information provided to any such Person.
All such financial statements shall be complete and accurate in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein.
6.6.2 Concurrently with the delivery of the financial statements
referred to in paragraphs 6.6.1(a) and 6.6.1(b) above, a certificate of an
authorized officer of each applicable Person stating that said officer has
obtained no knowledge of any Default or Event of Default, except as specified in
such certificate.
6.6.3 Not later than the fifteenth day of each month, a full and
complete report, prepared by an authorized officer of Borrower, of all Gross
Receipts paid during the immediately preceding month and the account or other
depository into which such Gross Receipts were paid, the source and the basis
for payment thereof, other than such Gross Receipts as were first paid directly
into the Collection Account.
6.6.4 No later than fifteen (15) Business Days before the effective
date thereof, a complete copy of any amendment, extension, modification,
supplement, termination or waiver of the Articles of Incorporation or By-Laws of
such Person.
6.6.6 Promptly, such additional financial and other information as
Agent may request from time to time pertaining to any such Person.
6.7 Further Assurances. Upon the written request of Agent or any Lender,
duly execute and deliver, or cause to be duly executed and delivered, at the
cost and expense of Borrower, such
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further agreements, documents and instruments as may be reasonably necessary or
proper, in the sole and absolute discretion of Agent, to carry out the
provisions and purposes of this Loan Agreement and the other Loan Documents, and
do all things necessary to preserve Agent's Liens and the Collateral or any
portion thereof.
6.8 Books and Records. Maintain or cause to be maintained at all times true
and complete books and records of the financial operations of Borrower and
provide Agent and its designees with access to such books and records during
regular business hours.
6.9 Observance of Agreements. Duly observe and perform, or cause to be duly
observed and performed, all the material terms and conditions of all agreements
with respect to the Collateral and diligently protect and enforce the rights of
Borrower under or in connection with all such agreements.
6.10 Pledgeholder of Collateral. With respect to the Collateral with, at
any time or times in the actual or constructive possession of Borrower, to act
as pledgeholder for Agent, for the ratable benefit of Lenders with the same
effect as if Agent were a pledgee in possession thereof.
6.11 Perfection and Protection of Security Interest. Borrower, at its
expense, shall perform all steps requested by Agent or any Lender at any time to
perfect, maintain, protect and enforce Agent's Lien in the Collateral including,
without limitation: (a) executing, filing, recording and refiling such financing
statements, continuation statements, copyright mortgages and copyright
assignments, and (b) taking such other steps as Agent or any Lender may deem
necessary or appropriate, and wherever required or permitted by law in order to
perfect or preserve Agent's Lien in the Collateral with first priority. Borrower
hereby authorizes Agent, as Borrower's attorney-in-fact, to file financing
statements and amendments thereto and copyright mortgages and copyright
assignments relative to all or any part of the Collateral where necessary or
desirable in Agent's judgment to perfect or to continue the first priority
Agent's Lien granted herein without the signature of Agent where permitted by
law, and agrees to do such further acts and things and to execute and deliver to
Agent such additional conveyances, assignments, agreements, documents and
instruments as Agent may require or deem advisable to carry into effect the
purposes of this Loan Agreement and any other Loan Document, or to better assure
and confirm to Agent its rights, powers and remedies hereunder.
6.12 Enforcement and Supervision of Lomax Loan Collateral. Except as
otherwise provided in paragraph 7.13 below, at any time or times, upon the
written request or with the written consent and in accordance with the
instructions of Agent, exercise any or all of its rights or remedies with
respect to the Lomax Loan Collateral. Without limiting the generality of the
foregoing, except as otherwise provided in paragraph 7.13 below, Borrower shall
exercise its rights, powers and remedies to cause Lomax to perform all of
Lomax's obligations under the Lomax Loan Agreement and the other Lomax Loan
Documents. At Borrower's sole cost and expense, Borrower shall: (a) monitor and
supervise the performance of, and payments by, PM under the PM Sales Agency
Agreement and all Licensees under License Agreements; (b) monitor and supervise
the performance of, and payments by, Lomax under the Lomax Loan Agreement and
other Lomax Loan Documents; and (c) prosecute and defend all Arbitration
Proceedings and monitor and enforce payment of all Arbitration Proceeds. Under
no circumstances, without Agent's prior written consent in each instance (given
or withheld in Agent's sole and absolute discretion), shall Borrower settle or
compromise any Arbitration Proceeding in any manner that may materially or
adversely affect Borrower's ability to pay, perform and discharge the
Obligations in full and as and when due or that may materially or adversely
affect any of the Collateral.
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6.13 Laboratory. Deliver or cause to be delivered to the Laboratory or
Laboratories, all negative and other preprint material and all sound materials
with respect to the Picture. Prior to requesting such Laboratory to deliver any
negative and other preprinted material to another laboratory, Borrower will
provide Agent with a Laboratory Pledgeholder Agreement in favor of Agent,
executed by such other laboratory and approved by Agent in writing.
6.14 Taxes. Promptly pay and discharge or cause to be paid and discharged
all taxes, fees, assessments and governmental charges or levies, including
penalties and interest, properly imposed upon and lawfully payable by Borrower
or otherwise imposed upon the Collateral.
6.15 Liens. Defend the Collateral against any and all liens, claims,
encumbrances and security interests, other than the existence of the Permitted
Encumbrances.
6.16 Notice of Agreements Pertaining to Distribution Rights. Inform Agent
in writing of any agreements (other than the Current License Agreements)
pertaining to the right to distribute or exploit the Picture, including all
Additional License Agreements..
6.17 Covenant to Pay. Borrower shall pay all Legal Costs, and such other
costs and expenses as may be incurred, in connection with the negotiation or
execution of this Loan Agreement or any of the other Loan Documents, or the
exercise or enforcement of any of the rights or remedies of Agent or Lenders
under this Loan Agreement or any of the other Loan Documents including, but not
limited to, the exercise of any right or remedy in connection with or relating
to the Collateral. Borrower shall pay to Agent and Lenders, immediately upon
demand, all such costs and expenses. All sums payable to Agent or Lender
hereunder shall be Obligations of Borrower, secured and bearing interest in the
same manner as the Loans. At Agent's and/or Lenders' election, Agent and Lenders
shall have the right (and are hereby authorized by Borrower) to make Loans in an
amount equal to all amounts payable to Agent and Lenders pursuant to this
Paragraph and to apply the Loan proceeds in payment thereof.
6.18 Credits. Borrower shall cause Lomax to perform, and cause its
licensees to perform, the obligation to Agent and Lenders to accord credit to
Agent and Lenders, and their designees, in accordance with the Lomax Loan
Agreement including, but not limited to, an end crawl "financial services"
credit in the form specified by Agent and Lenders and "special thanks" credits
to Agent and Lenders or such entities or individuals as may be designated by
Agent and Lenders.
6.19 Single Purpose Entity Affirmative Covenants.
6.19.1 Borrower shall remain solvent and shall pay its debts,
obligations and liabilities from its assets as the same shall become due.
6.19.2 Borrower shall do all things necessary to observe
organizational formalities and preserve its existence, and Borrower shall not
amend, modify or otherwise change those provisions of its Articles of
Incorporation and By-laws or other organizational documents, which govern
Borrower's: (a) ability to amend its Articles of Incorporation, By-laws or other
organizational documents; (b) organizational purpose; (c) ability to incur
Indebtedness; (d) dissolution, liquidation, consolidation, merger or sale of
assets; (e) transactions with its Affiliated Persons; or (f) transfer of
ownership, in each case without the prior written consent of Agent.
6.19.3 Borrower shall maintain and prepare all of its books, records,
financial statements and bank accounts separate from those of any Affiliated
Person or any other Person.
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Borrower shall maintain its books, records, resolutions and agreements as
officials records solely of Borrower.
6.19.4 Borrower shall be, and at all times shall hold itself out to
the public as, a legal entity separate and distinct from any other Person
(including any Affiliated Person), shall correct any misunderstanding regarding
its status as a separate entity, shall conduct business in its own name, shall
not identify itself or any Affiliated Person as a division or part of the other
and shall maintain and utilize separate invoices and checks bearing its own
name.
6.19.5 Borrower shall maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations.
6.19.6 Borrower shall maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliated Person or any other Person.
6.19.7 Borrower shall not hold itself or its credit out to be
responsible for the debts or obligations or any Affiliated Person or any other
Person.
6.19.8 Borrower shall conduct its business in a manner that is
consistent with all of the representations, warranties and covenants of Borrower
contained herein.
6.19.9 Borrower shall compensate each of its employees, consultants
and agents from its own funds for services provided solely to Borrower.
6.20 Federal Regulations. Borrower does not own any "margin security" as
such term is defined in Regulations G or U of the Board of Governors of the
Federal Reserve System, as amended from time to time. Borrower shall not use, or
permit to be used, any proceeds of the Loan, directly or indirectly: (a) for
"buying" or "carrying" any "margin security" within the meanings of those terms
under said Regulations or to reduce or retire any Indebtedness originally
incurred for any such purpose within the meaning of said Regulations; (b) for
any investment prohibited by the Comprehensive Anti-Apartheid Act of 1986; or
(c) for any other illegal purpose. If requested by Bank, Borrower will furnish
to Bank a statement to the foregoing effect including, but not limited to, a
statement in conformity with the requirements of FR Form G-1 or FR Form U-1
referred to in said Regulations, as applicable. Neither Borrower nor any
Affiliated Person is an "investment company" nor an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C.
Section 80(a)(l), et seq.). Neither Borrower nor any Affiliated Person is a
"holding company" or a "subsidiary company" of a "holding company" or an
affiliate of a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
6.21 ERISA.
6.21.1 Borrower does not maintain or contribute to nor, prior to the
absolute, indefeasible, irrevocable and unconditional payment, performance and
discharge in full of all of the Obligations, will Borrower maintain or
contribute to any plan subject to Title IV of ERISA (each, a "Plan").
6.21.2 No member of a "controlled group of corporations" (as defined
in Section
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414(b) of the Code) of which Borrower is or may become a member, nor any trades
or businesses which are under common control with Borrower (as defined in
Section 414(c) of the Code), nor any member of any affiliated service group with
Borrower (as defined in Section 414(m) of the Code)now maintains or contributes
to nor, prior to the absolute, indefeasible, irrevocable and unconditional
payment, performance and discharge in full of all of the Obligations, will any
such Person maintain or contribute to a Plan to which Borrower or an Affiliated
Person is required to contribute on behalf of its employees, nor will they have
any liability attributable to any such Plan that was maintained in the past.
6.22 SAG and DGA Obligations. Borrower hereby assumes and agrees to pay,
perform and discharge all obligations of Agent and Lenders to or for the benefit
of SAG and DGA, and any of the members thereof, in connection with the Picture
including, but not limited to, under or in connection with any intercreditor,
subordination or assumption agreement entered by Agent or Lenders.
ARTICLE 7
NEGATIVE COVENANTS
From the date hereof and until the absolute, indefeasible, irrevocable and
unconditional payment, performance and discharge in full of the Obligations
hereunder, Borrower shall not, directly or indirectly:
7.1 Limitation on Security Interests. Make any assignment of, or create,
assume, or suffer to exist any Lien of any kind upon the Collateral, except
Permitted Encumbrances.
7.2 Prohibition on Amendments, Waivers, etc.. Amend, alter, modify,
supplement, compromise, satisfy, release, terminate or discharge, or consent to,
permit or suffer any of the foregoing with respect to, the Lomax Loan Agreement,
any other Lomax Loan Document, any other agreement, document or instrument
relating to, or that is part of, the Collateral (including, but not limited to,
the PM Sales Agency Agreement, any Notice and Acceptance Agreement, License
Agreement or License Agreement Amendment), any Person obligated under any such
agreement, document or instrument or the Collateral, in any manner whatsoever or
waive or release any rights or remedies under any such agreement, document or
instrument, it being acknowledged that, as of the date hereof, events of default
have occurred under the Lomax Loan Agreement and that the written consent of
Agent is required for Borrower to exercise any right or remedy under or in
respect of the Lomax Loan Documents or the Lomax Loan Collateral.
7.3 Commencement of Actions. Commence any action to enforce any rights or
remedies in or in connection with, or to foreclose upon, any of the Lomax Loan
Collateral, except and only to the extent permitted by, and then only in
accordance with, the prior written consent of Agent.
7.4 Settlements. Except as expressly permitted in this Loan Agreement,
enter into any settlement or compromise of any claim or litigation as a result
of which Borrower: (a) shall be required to pay or forbear from receipt of, or
incur liability for, an amount or aggregate of amounts in excess of Twenty-Five
Thousand Dollars ($25,000); or (b) may, shall or shall be required to assign,
transfer, encumber or otherwise dispose of, or lose, forfeit or otherwise
terminate or have subjected to forfeiture or termination, any right, title or
interest in or to any of the Collateral.
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7.5 Fundamental Changes. Enter into any merger, consolidation or
amalgamation; acquire or agree to acquire any other Person; form any subsidiary;
wind up, liquidate or dissolve (or suffer any winding up, liquidation or
dissolution); cause, permit or suffer any change, direct or indirect, in
Borrower's capital ownership; convey, sell, lease, license, assign, transfer or
otherwise dispose of or grant an interest in all or a substantial part of its
properties, assets or revenues or any of the Collateral except for Additional
License Agreements; or change its business name or modify its business
existence. Enter into any transaction: (a) not otherwise in the ordinary and
usual course of its business; (b) to guaranty any Indebtedness of another Person
(including, but not limited to, pursuant to or in connection with the Chase Loan
Agreement); (c) to make any change in its financial structure or in any of its
business objectives, purposes or operations; (d) to incur any Indebtedness
except pursuant to this Loan Agreement (including, but not limited to, pursuant
to or in connection with the Chase Loan Agreement); make any investment in or
loan to any Person; (e) to establish any deferred compensation plan for its
employees; (f) to make any plant or fixed capital expenditure, or any commitment
therefor, or purchase or lease any real or personal property, in any fiscal year
of Borrower, in an aggregate amount in excess of Fifty Thousand Dollars
($50,000); or (g) to acquire any assets, other than the Lomax Loan Collateral,
having a value, singly or in the aggregate in excess of Fifty Thousand Dollars
($50,000).
7.6 Liens. Create, incur, assume or suffer to exist any Lien upon any of
the Collateral, except for Permitted Encumbrances.
7.7 Limitation on Distributions. Declare, grant or make any distribution or
other payment in respect of any ownership of Borrower, or any warrant, option or
similar right in respect thereof, or make any payment on account of, or set
apart assets for a sinking or analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of any such ownership (or any
warrant, option or similar right in respect thereof), whether now or hereafter
outstanding, directly or indirectly, in cash or property or obligations of
Borrower or any Affiliated Person.
7.8 Transactions With Affiliates. Enter into any transaction with any
Affiliated Person other than upon terms no less favorable to Borrower than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliated Person, create, make or incur any investment, loan or advance with or
to any Affiliated Person or pay any Indebtedness owed by any Affiliated Person
(including, but not limited to, pursuant to or in connection with the Chase Loan
Agreement) or transfer any of its assets to any Affiliated Person.
7.9 Negative Pledge Clauses. Enter into any agreement which: (a) restricts
the ability of Borrower to create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, which in any manner is or may be inconsistent with this Loan
Agreement, or to assign any of its respective rights or to delegate any of its
respective obligations; or (b) permits use of any revenues or proceeds of or to
be derived from any of the Collateral to be used to recoup, pay or repay any
Indebtedness to any other Person, whether by way of recoupment of any advance
payment or otherwise.
7.10 Restrictions on Distributions. Except as set forth in Section 7.7
hereof, enter into or suffer to exist or become effective any encumbrance or
restriction on the ability of Borrower to pay dividends or to make any other
distribution in respect of any ownership of Borrower.
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7.11 Organizational Agreements. Amend, supplement, waive, terminate or
otherwise modify, or consent to any amendment, supplement, waiver, termination
or other modification of or to, any of the terms of its Articles of
Incorporation, By-Laws or other organizational documents.
7.12 Single Purpose Entity Negative Covenants.
7.12.1 Borrower shall not own any asset or property other than the
Collateral and Borrower shall not engage in any business other than the
ownership of the Collateral.
7.12.2 Borrower shall not incur or assume any Indebtedness, secured or
unsecured, direct or indirect, absolute or contingent, except as expressly
permitted under this Loan Agreement. No Indebtedness (other than the
Obligations) may be secured by the Collateral or any part thereof.
7.12.3 Borrower shall not make any loan or advance to any other
Person, nor shall Borrower acquire any obligation or security of any Affiliated
Person.
7.12.4 Borrower shall not (a) dissolve or liquidate, in whole or in
part; (b) make an assignment for the benefit of creditors, file a petition in
bankruptcy, petition or apply to any tribunal for the appointment of a
custodian, receiver, trustee or other similar official for it, or for a
substantial part of its property, commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt or liquidation law, consent or
acquiesce in the filing of any such petition, application, proceeding or
appointment, or admit its inability to pay its debts generally as they become
due; (c) cause or permit the assets or property of Borrower to be subject to any
Lien other than the Agent's Liens; (d) make any material change in Borrower's
present method of conducting business; or (e) loan money to any Person. Neither
Borrower nor any Affiliated Person shall seek the dissolution, winding up,
liquidation, consolidation or merger, in whole or in part, of Borrower.
7.12.5 Neither Borrower nor any Affiliated Person shall commingle
funds or other assets of Borrower or any Affiliated Person, as applicable, with
those of any other Person.
7.12.6 Borrower shall not take any of the following actions without
the unanimous consent of all members of the Board of Directors of Borrower:
(a) file or consent to the filing of any bankruptcy, insolvency
or reorganization case or proceeding; institute any proceedings under any
applicable insolvency law or otherwise seek any relief under any laws relating
to the relief from debts or the protection of debtors generally;
(b) seek or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator, custodian or any similar official for Borrower
or for a substantial portion of its assets;
(c) make any assignment for the benefit of the creditors of
Borrower; or
(d) take any action in furtherance of any of the foregoing.
7.12.7 Borrower shall not permit any Affiliated Person independent
access to its bank or other accounts.
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7.13 Limitation on Exercise of Rights and Remedies. Borrower shall not
exercise any right or remedy in respect of the Lomax Loan Collateral that: (a)
would or might materially or adversely affect the Collateral, the value thereof,
Lender's Security Interest therein or rights or remedies related thereto
(including, but not limited to, the first priority of Lender's Security
Interest); or (b) would or might result in foreclosure, by private sale,
judicial process or otherwise, on any of the Lomax Loan Collateral, or the
acceptance of any of the Lomax Loan Collateral in satisfaction, in whole or
part, of the Lomax Loan, without the prior written consent of Agent, on behalf
of Lenders, in each instance, which consent may be granted or withheld in
Agent's sole and absolute discretion.
ARTICLE 8
EVENTS OF DEFAULT; REMEDIES
8.1 Events of Default. Each of the following events shall constitute a
default under this Loan Agreement ("Event of Default"):
8.1.1 Borrower's failure to make (or cause to be made) any payments to
Agent and Lenders hereunder or under the Notes when the same are due.
8.1.2 Any representation or warranty made herein or in any other Loan
Document, or any other agreement, document or instrument furnished in connection
herewith, by any of Borrower, Guarantor, PM or any Affiliated Person of any of
them shall prove to be or to have been false or misleading in any material
respect.
8.1.3 Any report, certificate, financial statement or other instrument
furnished by or on behalf of Borrower, Guarantor or any Affiliated Person of any
of them in connection with this Loan Agreement or any other Loan Document, or
other agreement, document or instrument furnished in connection herewith, shall
prove to be or to have been false or misleading in any material respect.
8.1.4 Material default shall be made with respect to any Indebtedness
(other than the Notes) of Borrower or Guarantor (in excess of $25,000 as to
Guarantor) or the performance of any other obligation incurred in connection
with any such Indebtedness if the effect of such default is to accelerate the
maturity of any Indebtedness or to permit the holder thereof to cause any
Indebtedness to become due prior to its stated maturity including, but not
limited to, any default under or in connection with the Chase Loan Agreement; or
any such Indebtedness shall not be paid when due; provided, however, that an
Event of Default (other than with respect to the Chase Loan Agreement) will not
be deemed to have occurred under this Paragraph if such event arises from the
applicable Person is contesting in good faith, by appropriate proceedings, the
amount or validity of any such Indebtedness, provided: (a) such proceedings
shall suspend the collection thereof; (b) Borrower or the applicable such Person
shall have furnished such security as may be required in the proceedings or
reasonably requested by Agent; and (c) Borrower shall promptly notify Agent of
any such proceedings.
8.1.5 Default by Borrower in the due observance or performance of any
of the covenants, conditions or agreements contained herein or in any other Loan
Document or default by Guarantor or any Pledgor in the due observance or
performance of any of the covenants, conditions or agreements contained in, or
the occurrence of any event of default under, any other Loan Document to which
any such Person is a party.
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8.1.6 Default by any Person in the due observance or performance of
any of the covenants, conditions or agreements contained in any agreement,
document or instrument relating to the Collateral which would materially or
adversely affect the value, validity, perfection or priority of Agent's Liens or
the value of the Collateral, other than events of default by Lomax under the
Lomax Loan Agreement in existence as of the date hereof known to Agent and
Lenders;
8.1.7 Borrower or Guarantor shall: (a) apply for or consent to the
appointment of a receiver, trustee or liquidator for itself and/or any of their
respective properties or assets; (b) admit in writing its inability to pay its
debts as they mature; (c) make a general assignment for the benefit of
creditors; (d) be adjudicated a bankrupt or insolvent; or (e) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or
enter into an arrangement with creditors or take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute, or file an answer admitting the material allegations of a petition
filed against such Person in any proceeding under any law or if any action shall
be taken by any such Person for the purpose of effecting any of the foregoing;
8.1.8 An order, judgment or decree shall be entered, without the
application, approval or consent of the debtor by any court of competent
jurisdiction, approving a petition seeking reorganization of Borrower or
Guarantor or appointing a receiver, trustee or liquidator of or for any such
Person, and such order, judgment, or decree shall continue unstayed and in
effect for any period of forty-five (45) consecutive days;
8.1.9 Final judgment for the payment of money shall be rendered
against Borrower, in any amount in excess of Ten Thousand Dollars ($10,000), or
against Guarantor in any amount in excess of One Hundred Thousand Dollars
($100,000), unless the applicable such Person has posted a bond in connection
therewith reasonably satisfactory to Agent which, within fourteen (14) days from
the entry of such judgment, shall not have been discharged or stayed pending
appeal or which shall not have been discharged within fourteen (14) days from
the entry of a final order of affirmance on appeal;
8.1.10 Except only if and to the limited extent contemplated elsewhere
in this Loan Agreement, any party to any License Agreement shall default in the
observance or performance of any material term, covenant, or condition thereof
on its part to be observed or performed or shall have disaffirmed its
obligations thereunder, which default would or might have a material or adverse
effect on Borrower's ability to pay, perform or discharge the Obligations in
full or on the Collateral;
8.1.11 Agent shall determine, or Borrower, Guarantor, any Pledgor or
any other Person on behalf of Borrower, Guarantor or any Pledgor shall assert,
that the Harvey Guarantee, any Pledgor Security Agreement or the PM Sales Agency
Agreement is void, voidable or otherwise not enforceable in accordance with its
terms;
8.1.12 Agent shall determine that: (a) any License Agreement is void
or voidable that has a Minimum Guarantee of Two Hundred Fifty Thousand Dollars
($250,000) or more which has not been paid to Agent, on behalf of Lenders,
indefeasibly and in full; (b) one or more Licensees shall have attempted to
revoke or otherwise cancel a License Agreement having a Minimum Guarantee of Two
Hundred Fifty Thousand Dollars ($250,000) or more which has not been paid to
Agent, on behalf of Lenders, indefeasibly and in full; or (c) that any other
material License Agreement is void or voidable, or any Licensee thereunder shall
have attempted to revoke or otherwise cancel such License Agreement, the
avoidance, revocation or cancellation of which would or might have a material or
adverse effect on Borrower's ability to pay, perform or discharge the
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Obligations in full or on the Collateral (for the purposes hereof, a "material"
License Agreement shall be a License Agreement that has a Minimum Guarantee of
Fifty Thousand Dollars ($50,000) or more which has not been paid to Agent, on
behalf of Lenders, indefeasibly and in full);
8.1.13 Any Person other than Agent and Lenders shall establish a right
in the Collateral that is equal or superior to Agent's Liens;
8.1.14 If there shall occur any change in control of Borrower or
Guarantor including, but not limited to, a change in the ability to control the
management or policies of said Person by way of sale of securities, merger,
consolidation, reorganization, sale of assets, operation of law or otherwise or
if there is a material adverse change in the financial condition of Borrower or
Guarantor, determined by Agent in the exercise of its sole and absolute
discretion including, but not limited to, the reduction or impairment of any
such Person's then currently available funds to an amount insufficient to pay
the cost of its respective operations;
8.1.15 Default by Borrower or Guarantor in the due observance or
performance of any of the covenants, conditions or agreements contained in the
Chase Loan Agreement or in any of the covenants, conditions or agreements
contained in any other agreement, document or instrument with or delivered to
Chase to which any such Person is a party, whether or not any such default is
waived or cured;
8.1.16 If there shall exist or occur any event or condition which in
Agent's good faith business judgment (exercised in Agent's sole and absolute
discretion) is an Event of Default or which could reasonably be expected to have
a material adverse effect on the ability of Borrower, Guarantor or any Pledgor
to perform its respective obligations under any Loan Document.
8.2 Effect of Event of Default. If any Event of Default shall occur
hereunder then, at any time thereafter during the continuance thereof, Agent
may, in its sole and absolute discretion, and shall, at the direction of the
Majority Lenders, by written notice to Borrower, take either or any of the
following actions, at the same or different times: (a) terminate forthwith this
Loan Agreement; and (b) declare the entire outstanding balance of the Notes and
all other Obligations to be forthwith due and payable, whereupon the Notes and
all other Obligations shall become forthwith due and payable, both as to
principal and interest, without presentment, demand, protest or other notice of
any kind, all of which are hereby specifically and expressly waived by Borrower,
anything contained herein or in the Notes to the contrary notwithstanding, and
pursue its other rights and remedies under the Loan Documents and applicable
law. Such remedies shall be in addition to any other remedy available to Agent
and Lenders pursuant to applicable law or otherwise.
ARTICLE 9
SECURITY
9.1 Security Interest.
9.1.1 As security for the absolute, indefeasible, irrevocable and
unconditional payment, performance and discharge in full of all of the
Obligations, Borrower hereby grants to Agent, for the ratable benefit of Agent
and Lenders, a continuing first priority security interest in, lien on, and
right of setoff against, all right, title and interest of Borrower in and to the
Collateral (the "Security Interest") including, without limitation, the proceeds
thereof. Borrower understands and agrees that Agent and Lenders are taking an
assignment only of the benefits of, and shall not assume
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any of the obligations and liabilities under, any agreement or other obligation
with respect to the Collateral and Borrower shall (and hereby agrees to) perform
or cause to be performed all of Borrower's obligations thereunder and Lomax's
obligations under or in connection with the Lomax Loan Collateral. Borrower
shall not be released from any such obligation by reason of this Loan Agreement,
any other Loan Document or otherwise. The term "Collateral" shall include all of
the following property of Borrower, whether now owned or existing or hereafter
acquired or arising, regardless of where located:
(a) All of Borrower's assets and properties of any kind or nature
whatsoever, including, but not limited to, all accounts, accounts receivable,
cash and cash equivalents, contract receivables, contract rights, deposit
accounts, documents, goods (including inventory and equipment), general
intangibles (including copyrights, trademarks and other intellectual property),
instruments, chattel paper, letter of credit rights, insurance policies,
commercial tort claims, software, security interests and mortgages, and any
proceeds, products, increases or income therefrom.
(b) All of Borrower's right, title, and interest in and to the
Lomax Loan, the Lomax Loan Documents and the Lomax Loan Collateral including,
but not limited to, the Picture and all related accounts, accounts receivable,
cash and cash equivalents, contract receivables, contract rights, deposit
accounts, documents, goods (including inventory and equipment), general
intangibles (including copyrights, trademarks and other intellectual property),
instruments, chattel paper, letter of credit rights, insurance policies,
commercial tort claims, software, security interests and mortgages, and any
proceeds, products, increases or income therefrom.
(c) Any and all sums, proceeds, money, products, profits, or
increases, including money profits or increases (as those terms are used in the
Uniform Commercial Code or otherwise) or other property obtained or to be
obtained from the Collateral.
(d) All amounts deposited by Borrower or Lomax, or on behalf of
Borrower or Lomax, in the Collection Account, together with all interest thereon
and proceeds thereof.
9.2 Borrower To Hold in Trust. Borrower agrees that, upon receipt by
Borrower or any Affiliated Person, of any proceeds of any of the Collateral
(including, but not limited to, all revenue, income, profits or other sums
payable pursuant to any agreement or otherwise, or any check, draft, note, trade
acceptance or other instrument evidencing an obligation of payment), to hold the
same in trust for Agent and Lenders and forthwith, without any notice or demand
whatsoever (all notices, demands, or other actions on the part of Agent and
Lenders being specifically and expressly waived by Borrower), endorse, transfer
and deliver such proceeds to Agent to be applied to the repayment of the
Obligations.
9.3 Collections. Upon the occurrence of an Event of Default, Agent may, in
its sole and absolute discretion, on behalf of Lenders, in Agent's name or in
the name of Borrower, demand, sue for, collect, or receive any money or property
at any time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable with respect to, any of the
Collateral, but shall be under no obligation to do so, or Agent may extend the
time of payment, arrange for payment in installments, or otherwise modify the
term of, or release, any of the Collateral, without thereby incurring
responsibility to discharge, or discharging, or otherwise affecting any
liability of Borrower. Agent and Lenders shall not be required to take any steps
to preserve any rights against prior parties to the Collateral. If Borrower
fails to make any payment or
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take any action required under this Loan Agreement or any other Loan Document,
or Borrower fails to take any action required herein, Agent may make such
payments and take all such actions as Agent may determine to be necessary or
appropriate to protect Agent's Liens and/or the value thereof, and Agent is
hereby authorized (without limiting the general nature of the authority herein
above conferred) to pay, purchase, contest, or compromise any encumbrances,
charges, or liens which in the judgment of Agent appear to be equal, prior or
superior to Agent's Liens and any encumbrances, charges or liens not
specifically and expressly permitted by this Loan Agreement.
9.4 Possession and Retention of Lomax Loan Collateral. Notwithstanding the
Sale and Assignment Agreement, Agent shall have the right, in its sole and
absolute discretion, to retain possession of any or all of the Lomax Loan
Collateral at any time in the possession or under the control of Agent or
Lenders including, but not limited to, the original Lomax Loan Notes and any
other Lomax Loan Collateral the possession of which is necessary or appropriate
in order for Agent to perfect the Agent's Liens therein. If, at any time prior
to the absolute, indefeasible, irrevocable and unconditional payment,
performance and discharge of the Obligations in full, Borrower or any Affiliated
Person possesses or controls any of the Lomax Loan Collateral, immediately upon
the request of Agent, Borrower shall deliver, and shall cause each Affiliated
Person to deliver, to or in accordance with the instructions to Agent all such
Lomax Loan Collateral.
9.5 Possession and Sale of Collateral. Upon the occurrence of an Event of
Default, Agent may enter upon the premises of wherever any part of the
Collateral may be, and take possession of the Collateral, and may demand and
receive such possession from any Person who has possession thereof, and Agent
may take such measures as it may deem necessary or appropriate for the care or
protection thereof, including the right to remove all or any portion of the
Collateral, and with or without taking such possession may sell or cause to be
sold, whenever Agent shall decide, at such prices as Agent may deem best, and
for cash or on credit or for future delivery, without assumption of any credit
risk, all or any portion of the Collateral, at public or private sale, without
demand for performance or notice of intention to sell or of time or place of
sale (except seven (7) days' written notice to Borrower of the time and place of
such sale or sales and such other notices as may be required by applicable
statute and cannot be waived), and Agent or any other Person may be the
purchaser of all or any portion of the Collateral so sold and thereafter hold
the same absolutely, free from any claim or right of whatever kind, including
any equity of redemption of Borrower or any other Person, any such demand,
notice, claim, right or equity being hereby specifically and expressly waived
and released. Any Laboratory which has possession of any of the Collateral is
hereby constituted and appointed by Borrower as pledgeholder for Agent pursuant
to the applicable Laboratory Pledgeholder Agreement and, upon the occurrence of
an Event of Default, each such pledgeholder is hereby authorized to sell all or
any portion of the Collateral upon the order and direction of Agent, and
Borrower hereby absolutely, irrevocably and unconditionally waives any and all
claims, for damages or otherwise, for any action taken by such pledgeholder. In
any action hereunder, Agent shall be entitled to the appointment of a receiver
without notice, to take possession of all or any portion of the Collateral and
to exercise such powers as the court shall confer upon the receiver.
Notwithstanding the foregoing, upon the occurrence of an Event of Default Agent
shall be entitled to apply, without notice to Borrower, any cash or cash items
constituting Collateral in the possession of Agent to payment of the
Obligations. Agent and Lenders shall also have all of the rights and remedies of
a secured party under the California Uniform Commercial Code.
9.6 Application of Proceeds After Event of Default. After the occurrence of
an Event of Default, all proceeds of the Collateral shall be applied (in such
order as Agent, in its sole and absolute discretion, shall determine), as
follows:
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9.6.1 To pay the cost of making delivery of the Picture to any sales
agent or other Person entitled to delivery including, but not limited to, any
sales agent that Agent may nominate) and to the respective Licensees under
License Agreements.
9.6.2 To the payment of all costs or expenses incurred by Agent and
Lenders in connection with any sale of the Collateral including, but not limited
to, all court costs and the reasonable fees and expenses of counsel for Agent
and Lenders in connection therewith, and to the repayment of all Loans made by
Agent and Lenders hereunder for the account of Borrower and the payment of all
other costs or expenses paid or incurred by Agent and Lenders in connection with
this Loan Agreement, any other Loan Document or otherwise in connection with the
Obligations or the exercise of any right or remedy hereunder or thereunder or
otherwise in connection with the Obligations.
9.6.3 To the payment of accrued but unpaid interest on the outstanding
principal amount of the Loans (including Agent Advances).
9.6.4 To the payment of the outstanding principal amount on the Loans
(including Agent Advances).
Any amounts remaining after such applications shall be promptly remitted
along with an accounting to Borrower or to such parties as a court of competent
jurisdiction may otherwise direct.
9.7 Power of Attorney. Should an Event of Default occur, Borrower hereby
absolutely, irrevocably and unconditionally designates, constitutes and appoints
Agent and its designees as its true and lawful attorney-in-fact with full powers
of substitution and delegation and with full and irrevocable powers (which
powers shall be deemed coupled with an interest), in the place and stead and in
the name of Borrower, Agent or either of them, at any time or from time to time,
in the sole and absolute discretion of Agent:
(a) to lease, license, sell or otherwise dispose of the Collateral
including, but not limited to, the Picture and/or such distribution and other
rights therein as have not been disposed of on the date of such Event of Default
(or to engage others to do so at the sole cost and expense of Borrower and
recoupable by Agent and Lenders as provided in this Loan Agreement);
(b) to negotiate and enter into such lease, license, sale or other
agreements on behalf of Borrower on such terms and conditions as Agent deems
appropriate;
(c) to negotiate or modify (as the case may be) Current License
Agreements, Additional License Agreements or such other agreements in which
Agent has a Security Interest, as Agent deems appropriate;
(d) to require, demand, collect, receive, settle, adjust, compromise
and to give acquittances and receipts for the payment of any and all Gross
Receipts;
(e) to file any claim and/or proof of claim, to commence, maintain or
discontinue any actions, suits or other proceedings deemed by Agent advisable
for the purpose of collecting or enforcing payment of any Gross Receipts;
(f) to endorse any checks, drafts or other orders or instruments
issued in respect of Gross Receipts;
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(g) to execute any and all such agreements, documents or instruments
as Agent may determine to be necessary or appropriate;
(h) to endorse any notes, checks, drafts, money orders, or other
evidences of payment relating to the Collateral that may come into the
possession of Agent or Lenders, and to do any and all other acts necessary or
proper to carry out the intent of this Loan Agreement and the other Loan
Documents;
(i) to enforce all Borrower's rights and remedies under and pursuant
to all agreements with respect to the Collateral, all for the sole benefit of
Agent and Lenders;
(j) to execute such other and further mortgages, pledges, and
assignments of the Collateral as Agent reasonably may require for the purpose of
protecting, maintaining or enforcing Agent's Liens;
(k) to apply any receipts so derived as herein provided; provided,
however, that Agent shall not be obligated to make any demand or present or file
any claim or take any action authorized by this Paragraph.
Borrower hereby ratifies and confirms all that Agent or its designees and
substitutes shall do by virtue hereof. Borrower shall gather up and deliver to
Agent all materials, books, records, documents and things of any nature
(including, without limitation, the Collateral) required by Agent in the
exercise of its rights hereunder, immediately upon Agent's request.
9.8 Power of Sale. As additional security for the absolute, indefeasible,
irrevocable and unconditional payment, performance and discharge in full of all
of the Obligations, concurrently herewith Borrower shall execute and deliver to
Agent the Power of Sale. At any time after the occurrence of an Event of
Default, in addition to such other rights as Agent and Lenders may have
hereunder or under applicable law, Agent shall be entitled to exercise all of
its rights and remedies under the Power of Sale.
9.9 Financing Statements and Payment Directions. Borrower hereby
absolutely, irrevocably and unconditionally authorizes Agent to file financing
statements and any amendments thereto or continuations thereof with regard to
the Collateral consistent with the provisions of this Loan Agreement without the
signature of Borrower.
9.10 Termination Statements. Agent agrees that upon the absolute,
indefeasible, irrevocable and unconditional payment, performance and discharge
in full of all of the Obligations, at Borrower's expense, Agent will terminate
Agent's Liens and deliver to Borrower UCC termination statements with respect to
any UCC financing statements theretofore filed against Borrower, and
terminations of any Mortgage of Copyright and Assignment recorded, with respect
to the Collateral in favor of Agent and a notice to each Laboratory terminating
the Laboratory Pledgeholder Agreement as to the Picture and Borrower.
9.11 Other Remedies and Rights. The rights, powers and remedies given to
Agent and Lenders hereunder or under any other Loan Document shall be in
addition to all rights, powers and remedies given to Agent and Lenders by virtue
of any applicable law, rule or regulation including, without limitation, the
California Uniform Commercial Code. Any forbearance, failure or delay by Agent
or Lenders in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of any such right, power or
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remedy, and any single or partial exercise of any right, power or remedy shall
not be deemed to be a waiver of any other right, power or remedy unless such
right is specifically waived by an instrument in writing executed by Agent. The
waiver of any Event of Default hereunder shall not be a waiver of any other
right, power or remedy unless specifically and expressly waived by an instrument
in writing executed by Agent. The waiver of any Event of Default shall not be a
waiver of any subsequent Event of Default. The grant of any right, power, or
remedy by this Loan Agreement or any other Loan Document shall not be
interpreted so as to impose upon Agent or Lenders any affirmative obligations
not otherwise imposed by law, and Agent and Lenders shall have no obligation to
exercise any right, power or remedy granted by law or by this Loan Agreement or
any other Loan Document.
ARTICLE 10
CONCLUSION OF ADDITIONAL LICENSE
AGREEMENTS/PROCEDURES
10.1 License Agreement Qualification Procedures. Borrower shall furnish
Agent with: (a) a fully executed original of each of the Current License
Agreements upon execution of this Loan Agreement, if and to the extent not
heretofore delivered by Lomax, PM or Borrower; and (b) fully executed originals
of each of the Additional License Agreements within five (5) business days of
the execution thereof (Borrower may furnish Agent with copies of each fully
signed Additional License Agreement by telecopy within two (2) days of execution
thereof and shall thereafter furnish Agent with the fully signed original within
five (5) business days thereafter). In furtherance of the foregoing, with
respect to any proposed Additional License Agreement, Borrower shall:
10.1.1 Send or shall cause to be sent to Agent the proposed Additional
License Agreement, or written notification containing the proposed financial
terms of such agreement and the proposed delivery requirements during normal
business hours (i.e., 9:00 AM - 5:00 PM, Pacific time). If any Additional
License Agreement is intended to be a replacement of a Current License Agreement
which provides for a Minimum Guarantee of Two Hundred Fifty Thousand Dollars
($250,000) or more, Agent shall have five (5) business days from the receipt of
such notice, plus such additional financial information applicable to the
proposed Licensee as Agent may request, to notify Borrower that Agent has
approved such agreement and that it will become an approved License Agreement;
provided, however, that if Agent does not respond within the applicable time
period, Agent shall be deemed to have approved the agreement. Except as provided
in this paragraph, Agent shall determine, in its sole and absolute discretion,
whether or not to approve any such agreement.
10.1.2 Furnish or shall cause to be furnished to Agent an original
copy of each such Additional License Agreement as soon as possible after the
full execution thereof.
10.1.3 As a condition to Borrower (or PM or any agent of Lomax)
entering into any such Additional License Agreement, and concurrently therewith,
cause each such Additional Licensee to:
(a) execute and deliver to Agent a Notice and Acceptance
Agreement consistent with the Additional License Agreement terms delivered to
and, if applicable, approved or deemed approved by Agent as hereinabove
provided; and
(b) unless Agent requires the simultaneous execution thereof,
which Agent may require in its sole and absolute discretion on a case by case
basis, subsequently enter into a long-
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form License Agreement in the form previously furnished to, and approved by
Agent and Agent's counsel (or enter into such other form of distribution
agreement as shall be approved in writing by Agent and Agent's counsel).
10.1.4 Only submit proposed Additional License Agreements on the terms
hereof with "take" or "accept" Minimum Guarantees equal to or greater than the
amounts specified in the "Final Sales Estimate" delivered to Agent pursuant to,
approved by Agent in connection with and as defined in the Lomax Loan Agreement.
10.2 No Right to Conclude. Notwithstanding anything to the contrary herein
contained, in the event of termination of any of the Current License Agreements
or Additional License Agreements , whether with or without Agent's consent,
neither Borrower nor any other Person (other than Agent as permitted hereunder),
except as specifically and expressly permitted pursuant to Section 10.1 above,
shall have the right to enter into any License Agreement on behalf of Borrower
or Lomax relating to the Picture without Agent's prior written consent in each
instance, which consent Agent may give or withhold in its sole and absolute
discretion.
10.3 Assignments of Benefits Only. Upon the assignment to Agent, for the
ratable benefit of Lenders, of all of Borrower's right, title and interest in
and to the License Agreements and all other agreements subject to Agent's Liens,
Agent shall take an assignment only of the benefits of, and shall not assume any
obligations or liabilities under, any such agreement. Borrower shall (and hereby
agrees to) perform or cause to be performed all of the obligations of Lomax or
of Borrower under each such agreement, and Borrower shall not be released from
any such obligation by making or causing such assignment.
ARTICLE 11
AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
11.1 No Implied Waivers. Failure by Agent or any Lender to exercise any
right, remedy or option under this Loan Agreement or any other Loan Document, or
any other agreement between or among Borrower and Agent and/or any Lender, or
delay by Agent or any Lender in exercising any such right, remedy or option,
will not operate as a waiver thereof. No waiver by Agent or any Lender will be
effective unless it is in writing, and then only to the extent specifically and
expressly stated. No waiver by Agent or Lenders on any occasion shall affect or
diminish Agent's or any Lender's rights thereafter to require strict performance
by Borrower of any provision of this Loan Agreement or any other Loan Document.
Agent's and each Lender's rights under this Loan Agreement and the other Loan
Documents will be cumulative and not exclusive of any other right or remedy
which Agent or any Lender may have.
11.2 Amendments and Waiver. No amendment or modification of this Loan
Agreement or any other Loan Document shall be effective without the written
agreement of the Majority Lenders, Agent and Borrower, and no termination or
waiver of any provision of this Loan Agreement or any other Loan Document, or
consent to any departure by Borrower therefrom, in any event shall be effective
without the written concurrence of the Majority Lenders and Agent, which
concurrence the Majority Lenders and Agent shall have the right to grant or
withhold in their sole and absolute discretion. Notwithstanding the immediately
preceding sentence, any amendment, modification or waiver that: (a) affects and
relates only to the relationship between Lenders or
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among Lenders and Agent; (b) effectuating the discharge of the Guarantee; or (c)
the definitions of "Majority Lenders," "Pro Rata Share," "Commitment " and the
provisions contained in this Paragraph, shall be effective if, and only if,
evidenced by a writing agreed to and signed by all Lenders without the necessity
for signature by Borrower. Agent may, but shall have no obligation to, with the
written concurrence of any Lender, execute amendments, modifications, waivers or
consents as attorney-in-fact for such Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Borrower in any case shall entitle
Borrower to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, waiver or consent effected in
accordance with this Paragraph shall be binding on Agent and each Lender, and,
if signed by Borrower, on Borrower.
11.3 Assignments; Participations
11.3.1 No Lender shall have the right, without Agent's written
consent, at any time to assign all, or portions of such Lender's Commitment, or
the Loans owing to it
11.3.2 Each Lender may, with Agent's consent, grant participations in
all or any part of its rights and obligations under this Loan Agreement
(including, without limitation, all or any part of the Loans payable to that
Lender to one (1) or more other Persons (each, a "Participating Lender");
provided, however, that (a) such Lender's obligations under this Loan Agreement
shall remain unchanged, (b) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (c) such Lender
shall remain the holder of its Note for all purposes under this Agreement, and
(d) Agent, Borrower and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Loan Agreement. It is expressly agreed that, in
connection with any participation pursuant to this Paragraph, any Lender may
provide, on a confidential basis, to any prospective Participating Lender, such
information pertaining to Borrower or any guarantor of any of the Obligations as
such Lender may deem appropriate.
11.3.4 If a Participating Lender shall at any time participate with
any Lender in the Loans, Borrower hereby grants to such Participating Lender,
and such Lender and such Participating Lender shall have and are hereby given, a
continuing Lien on and security interest in any money, securities and other
property of Borrower in the custody or possession of the Participating Lender,
including a right of setoff, to the extent of the Participating Lender's
participation in the Obligations, and such Participating Lender shall be deemed
to have the same right of setoff to the extent of Participating Lender's
participation in the Obligations as it would have if it were a direct lender.
11.3.5 Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Loan Agreement and any Note
held by such Lender, in favor of any Federal Reserve Bank, in accordance with
Regulation A of the Federal Reserve Board or U.S. Treasury Regulation 31 CFR
Section 203.14, and such Federal Reserve Bank may enforce such pledge or
security interest in any manner permitted under applicable law.
11.4 Binding Effect; Assignment. The provisions of this Loan Agreement
shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by Borrower without the prior
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written consent of Agent and Lenders. With respect to Borrower, successors and
assigns shall include, without limitation, any receiver, trustee or
debtor-in-possession of or for Borrower. The rights and benefits of any Lender
hereunder shall, if such Lender so agrees, inure to any party acquiring any
interest in the Obligations or any part thereof, subject to Paragraph 11.3
above.
ARTICLE 12
AGENT
12.1 Appointment. Each Lender hereby designates and appoints Imperial as
its Agent under this Loan Agreement and the other Loan Documents, and each
Lender hereby irrevocably authorizes Agent to take such action on its behalf
under the provisions of this Loan Agreement and the other Loan Documents and to
exercise such powers as are set forth herein or therein, together with such
other powers as are reasonably incidental thereto. Agent agrees to act as such
on the express conditions contained in this Article 12. The provisions of this
Article 12 are solely for the benefit of Agent and Lenders, and Borrower shall
not have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement, Agent shall
act solely as agent of Lenders and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for Borrower. Agent may perform any of its duties under this Agreement, or under
the other Loan Documents, by or through its agents or employees.
12.2 Nature of Duties.
12.2.1 Agent shall have no duties or responsibilities except those
specifically and expressly set forth in this Loan Agreement or in the other Loan
Documents. Except as expressly otherwise provided in this Loan Agreement, Agent
shall have and may use its sole and absolute discretion with respect to
exercising or refraining from exercising any discretionary rights or taking or
refraining from taking any actions which Agent is entitled to take or assert
under this Loan Agreement or any of the other Loan Documents including, without
limitation: (a) the making of Agent Advances; and (b) the exercise of remedies ,
and any action so taken or not taken shall be deemed consented to by Lenders.
Agent shall not have, by reason of this Loan Agreement or otherwise, a fiduciary
relationship in respect of any Lender. Nothing in this Loan Agreement or any of
the other Loan Documents, expressed or implied, is intended to or shall be
construed to impose upon Agent any obligations in respect of this Loan Agreement
or any of the other Loan Documents except as specifically and expressly set
forth herein or therein. Each Lender shall make its own independent
investigation of the financial condition and affairs of Borrower and Guarantor
in connection with the making and the continuance of the Loans hereunder, and
shall make its own ap praisal of the creditworthiness of Borrower and Guarantor,
and Agent shall have no duty or respon sibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before the date of this
Loan Agreement or at any time or times thereafter; provided, that at the request
of any Lender, Agent shall request information of Borrower and of Guarantor on
behalf of such Lender, to the extent that such Lender does not independently
have the right to make such request. If Agent seeks the consent or approval of
the Majority Lenders to the taking or refraining from taking any action
hereunder, Agent shall send notice thereof to each Lender. Agent shall promptly
notify each Lender any time that the Majority Lenders have instructed Agent to
act or refrain from acting pursuant hereto. Agent may
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employ agents, co-agents and attorneys-in-fact and shall not be responsible to
Lenders or Borrower, except as to money or securities received by it or its
authorized agents, for the gross negligence or willful misconduct of any such
agents or attorneys-in-fact selected by it with reasonable care.
12.2.2 Agent shall use reasonable efforts to:
(a) notify the Lenders of any Event of Default that the Agent
determines to be material and of which the officers of Agent responsible for the
administration of the Loan Agreement have actual knowledge and notify Lenders of
the action, if any, which Agent intends to take with respect thereto; but no
failure to give the Lenders such notice shall result in any liability of Agent
to the Lenders or relieve the Lenders of any obligation hereunder;
(b) except as otherwise required by law or by an obligation of
confidentiality to which Agent is subject, periodically provide the Lenders with
copies of all material written reports, notices and other documents that Agent
receives pursuant to the terms of the Loan Agreement, provided, that Agent shall
have no responsibility for the authenticity, validity, accuracy or completeness
of any such document;
(c) notify Lenders of each request for any modification of the
terms of the Loan Agreement that Agent desires to approve;
(d) deliver to Lenders photocopies of each effective waiver of,
and amendment to, any provision of the Loan Agreement; but no inadvertent
failure to deliver such document shall result in any liability of Agent to the
Lenders or relieve the Lenders of any obligation hereunder; and
(e) provide to the Lenders, on or before the twentieth (20th) day
of each month, a report of all funds received into the Collection Account during
the immediately preceding month, including the name and amount received for
Distributors under License Agreements.
12.3 Rights, Exculpation, Etc. Neither Agent, nor any of its officers,
directors, employees, agents or other representatives, shall be liable to any
Lender for any action taken or omitted by it or any of them under this Loan
Agreement or under any of the other Loan Documents, or in connection herewith or
therewith, except that: (a) Agent shall be obligated to Lenders on the terms set
forth herein for performance of its obligations as Agent under this Loan
Agreement; (ii) Agent shall not be entitled to exercise any of the powers
granted to it under this Loan Agreement or the other Loan Documents in any way
inconsistent with its obligations to Lenders under this Loan Agreement; and
(iii) no Person shall be relieved of any liability imposed by law for willful
misconduct, intentional tort or gross (but not mere) negligence. Agent shall not
be liable for any apportionment or distribution of payments made by it in good
faith pursuant to this Loan Agreement and if any such apportionment or
distribution is subsequently determined to have been made in error, the sole
recourse of any Lender to whom payment was due but not made shall be to recover
from Agent or other Lender any payment in excess of the amount to which it is
determined to have been entitled. Agent shall not be responsible to any Lender
for any recitals, statements, representations or warranties contained in this
Loan Agreement or for the execution, effectiveness, genuineness, validity,
enforceability, collectability, or sufficiency of this Loan Agreement or any of
the other Loan
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Documents or any of the transactions contemplated thereby, or for the financial
condition of Borrower or Guarantor or the inability to perfect Agent's Lien in
the Collateral. Agent shall not be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or any of the other Loan Documents or the financial
condition of Borrower or Guarantor, or the existence or possible existence of
any Event of Default; provided, that at the request of any Lender, Agent shall
make such inquiry of Borrower or Guarantor on behalf of such Lender, to the
extent that such Lender does not independently have the right to make such
inquiry of Borrower or Guarantor. Agent may at any time request instructions
from Lenders or Majority Lenders with respect to any actions or approvals which
by the terms of this Loan Agreement or of any of the other Loan Documents Agent
is permitted or required to take or to grant, and if such instructions are
promptly requested, Agent shall be absolutely entitled to refrain from taking
any action or to withhold any approval and shall not be under any liability
whatsoever to any Person for refraining from any action or withholding any
approval under any of the Loan Documents until it shall have received such
instructions from Lenders or Majority Lenders, as applicable. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against Agent
as a result of Agent acting or refraining from acting under this Loan Agreement
or any of the other Loan Documents in accordance with the instructions of
Lenders or Majority Lenders, as applicable.
12.4 Reliance. Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Loan Agreement or any of the other Loan Documents and its duties hereunder
or thereunder, upon advice of counsel selected by it.
12.5 Indemnification of Agent by Lenders. To the extent that Agent is not
reimbursed and indemnified by Borrower or Guarantor, Lenders shall reimburse and
indemnify Agent for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against Agent in any way relating to or arising out of this Loan
Agreement or any of the other Loan Documents or any action taken or omitted by
Agent under this Agreement or any of the other Loan Documents, in proportion to
each Lender's Pro Rata Share including, without limitation, Agent Advances;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements resulting from Agent's gross
negligence or willful misconduct. The obligations of Lenders under this
Paragraph shall survive the resignation of an Agent pursuant to Paragraph 12.7
below, the payment in full of the Loans and the termination of this Loan
Agreement.
12.6 Agent in Individual Capacity. Imperial and its Affiliated Persons may
make loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with Borrower or Guarantor,
and any of their respective Affiliated Persons, as though Imperial were not
Agent hereunder, and without notice to or the consent of the other Lenders.
Lenders acknowledge that, pursuant to such activities, Imperial or its
Affiliated Persons may receive information regarding Borrower or Guarantor, or
any of their respective Affiliated Persons (including information that may be
subject to confidentiality obligations) and acknowledge that
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Agent shall be under no obligation to provide such information to them. With
respect to its Commitment and the Loans made by it in connection with which it
has purchased a participation interest, Imperial shall have the same rights and
powers under this Loan Agreement as any other Lender and may exercise the same
as though it were not Agent.
12.7 Successor Agent.
12.7.1 Agent may resign from the performance of all of its functions
and duties under this Loan Agreement at any time by giving thirty (30) Business
Days' prior written notice to Borrower and each Lender. Such resignation shall
take effect upon the earlier of (a) the acceptance by a successor Agent of its
appointment, and (b) thirty (30) Business Days following the date of said
written notice by Agent to Borrower.
12.7.2 Upon any notice of resignation, the Majority Lenders shall
appoint from among Lenders a successor Agent. If a successor Agent shall not
have been so appointed within such thirty (30) Business Day period, the retiring
Agent shall then appoint a successor Agent who shall serve as Agent until such
time, if any, as the Majority Lenders shall appoint a successor Agent as
provided above.
12.8 Collateral Matters.
12.8.1 Lenders hereby absolutely, irrevocably and unconditionally
authorize Agent, at its option and in its reasonable business judgment, to
release any Agent's Lien upon any Collateral: (a) upon the termination of
Lenders' Commitments, payment and satisfaction of all Loans and all other
Obligations which have matured and which Agent has been notified in writing are
then due and payable; (b) constituting property in which Borrower owned no
interest at the time Agent's Liens were granted or at any time thereafter; or
(c) constituting property leased to Borrower under a lease which has expired or
been terminated in a transaction permitted under this Agreement or which will
expire imminently and which has not been, and is not intended by Borrower to be,
renewed or extended. Except as provided above, Agent will not release any of
Agent's Liens without the prior written authorization of the Majority Lenders.
Upon request by Agent or Borrower at any time, Lenders will confirm in writing
Agent's authority to release Agent's Liens upon particular types or items of
Collateral pursuant to this Paragraph.
12.8.2 So long as no Event of Default has occurred and is then
continuing, upon receipt by Agent of any authorization required pursuant to
Paragraph 12.8.1 from the Majority Lenders or Lenders, as applicable, of Agent's
authority to release any Agent's Liens upon particular types or items of
Collateral, and upon at least five (5) Business Days' prior written request by
Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to)
execute such documents as may be necessary to evidence the release of Agent's
Liens upon such Collateral; provided, however, that (a) Agent shall not be
required to execute any such document on terms which, in Agent's opinion, would
expose Agent to liability or create any obligation or entail any consequence
other than the release of such Security Interest without recourse or warranty,
and (b) such release shall not in any manner discharge, affect or impair the
Obligations or any Security Interest (other than those expressly being released)
upon (or obligations of Borrower in respect of) all interests retained by
Borrower, including (without limitation) the proceeds of any sale, all of which
shall continue to constitute part of the Collateral.
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12.8.3 Agent shall have no obligation whatsoever to any of Lenders to
assure that the Collateral exists or is owned by Borrower or is cared for,
protected or insured or has been encumbered, or that Agent's Liens have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent pursuant to this Paragraph 12.8 or pursuant to any of the
Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, Agent may act in any
manner it may deem appropriate, in its sole and absolute discretion, given
Agent's own interest in the Collateral in its capacity as one of Lenders and
that Agent shall have no duty or liability whatsoever to any Lender as to any of
the foregoing.
12.9 Restrictions on Actions by Lenders; Sharing of Payment.
12.9.1 Each Lender agrees that it shall not, without the specific and
express written consent of Agent, and that it shall, to the extent it is
lawfully entitled to do so, upon the request of Agent, set off against the
Obligations, any amounts owing by such Lender to Borrower or Guarantor or any
accounts of Borrower or Guarantor now or hereafter maintained with such Lender.
Each of Lenders further agrees that it shall not, unless specifically requested
to do so by Agent, take or cause to be taken any action including, without
limitation, the commencement of any legal or equitable pro ceedings, to
foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral, the purpose of which is, or could be, to give such Lender any
preference or priority against the other Lenders with respect to the Collateral.
12.9.2 If, at any time or times, any Lender shall receive: (a) by
payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations of Borrower to such Lender arising
under, or relating to, this Loan Agreement or the other Loan Documents, except
for any such proceeds or payments received by such Lender from Agent pursuant to
the terms of this Loan Agreement; or (b) payments from Agent in excess of such
Lender's ratable portion of all such distributions by Agent, such Lender shall
promptly: (i) turn the same over to Agent, in kind, and with such endorsements
as may be required to negotiate the same to Agent, or in same day funds, as
applicable, for the account of Agent and all of Lenders and for application to
the Obligations in accordance with the applicable provisions of this Agreement;
or (ii) purchase, without recourse or warranty, an undivided interest and
participation in the Obligations owed to the other Lenders so that such excess
payment received shall be applied ratably as among Lenders in accordance with
their Pro Rata Shares; provided, however, that if all or part of such excess
payment received by the purchasing party is thereafter recovered from it, those
purchases of participations shall be rescinded, in whole or in part, as
applicable, and the applicable portion of the purchase price paid therefor shall
be returned to such purchasing party, but without interest except to the extent
that such purchasing party is required to pay interest in connection with the
recovery of the excess payment.
12.10 Agency for Perfection. Each Lender hereby appoints Agent and each
other Lender as agent for the purpose of perfecting Lenders' security interest
in assets which, in accordance with Article 9 of the UCC can be perfected only
by possession. Should any Lender (other than Agent) obtain possession of any
such Collateral, such Lender shall notify Agent thereof, and, promptly upon
Agent's request therefor shall deliver such Collateral to Agent or in accordance
with Agent's instructions.
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12.11 Payments by Agent to Lenders. All payments to be made by Agent to
Lenders on or in respect of the Loans or otherwise under this Loan Agreement
shall be made by bank wire transfer or internal transfer of immediately
available funds to:
If to Imperial: Imperial Bank
ABA # 122201444
Account Name: "Inferno Collection Account
Account No. 60-002-061
Reference: "Inferno"
If to Natexis: Chase Manhattan Bank, New York
ABA # 021-0000-21
Account Name: NATEXIS Banque -
BFCE, New York Branch
Account No. 544-7-75330
Reference: "Inferno"
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to Agent. Concurrently with each such payment,
Agent shall identify whether such payment (or any portion thereof) represents
principal, premium or interest on the Loans or otherwise.
12.12 Concerning the Loan Documents. Each Lender authorizes and directs
Agent to enter into this Loan Agreement and the other Loan Documents for the
ratable benefit of Agent and Lenders. Each Lender agrees that any action taken
by Agent or Majority Lenders in accordance with the terms of this Loan Agreement
or the other Loan Documents, and the exercise by Agent or the Majority Lenders
of their respective powers set forth therein or herein, together with such other
powers that are reasonably incidental thereto, shall be binding upon all of
Lenders.
12.13 Withholding Tax.
12.13.1 If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Lender claims exemption from, or a
reduction of U.S. withholding tax under Section 1441 or 1442 of the Code, such
Lender agrees with and in favor of Agent, to deliver to Agent:
(a) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS Forms
1001 and W-8 before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(b) if such Lender claims that interest paid under this Agreement
is exempt from United States withholding tax because its is effectively
connected with a United States trade or business of such lender, two(2) properly
completed and executed copies of IRS form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
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(c) such other form or forms as may be required under the Code or
other laws of the United States as a condition to exemption from or reduction
of, United States withholding tax.
Such Lender agrees to promptly notify Agent of any change in circumstances which
would modify or render invalid any claimed exemption or reduction.
12.13.2 If the IRS or any other governmental authority of the United
States or other jurisdiction assets a claim that Agent did not properly withhold
tax from amount paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent of a change in circumstances which rendered the
exemption from withholding tax ineffective, or for any other reason) such Lender
shall indemnify Agent fully for all amounts paid, directly or indirectly, by
Agent as tax or otherwise, including penalties and interest, and including any
taxes imposed by any jurisdiction on the amounts payable to Agent under this
Paragraph, together with all costs and expenses (including attorney costs). The
obligation of any Lender under this subparagraph shall survive the payment of
all Obligations and the resignation or replacement of Agent.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 Notices. Any notice shall be conclusively deemed to have been received
by any party hereto and be effective on the day on which delivered to such party
at the address set forth below (or at such other address as such party shall
specify to the other party in writing) or, if sent by certified or registered
mail, on the fifth Business Day after the day on which mailed, addressed to such
party at such address:
If to Agent or to Imperial: IMPERIAL BANK
9777 Wilshire Boulevard
Fourth Floor
Beverly Hills, California 90210
Attention: Jared Underwood, Sr. Vice President
and Jennifer Huang
with a copy to: Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Attention: Michael S. Sherman, P.C.
If to Natexis: NATEXIS BANQUE
Entertainment Group
660 South Figueroa Street, Suite 1400
Los Angeles, California 90017
Attention: Bennett Pozil
If to Borrower: Inferno Acquisition Corp.
11835 West Olympic Boulevard, Suite 550
Los Angeles, California 90064
Attention: Glenn Weisberger, Esq.
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With a copy to: Sidley & Austin
555 West 5th Street, 40th Floor
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
13.2 Conflicting Terms. If any other Loan Document shall be in conflict
with this Loan Agreement, the applicable provision of this Loan Agreement shall
be controlling.
13.3 Survival of Representations and Warranties. All covenants, agreements,
representations and warranties made by Borrower herein, in any other Loan
document or in any other agreement, document, instrument, statement or
certificate delivered pursuant hereto or thereto shall survive the making of the
Loans and the execution and delivery thereof and shall continue in full force
and effect until all of the Obligations absolutely, indefeasibly, irrevocably
and unconditionally are paid, preformed and discharged in full. Whenever in this
Loan Agreement reference is made to a party hereto, such reference shall be
deemed to include the successors and assigns of that party; and all covenants,
agreements, representations and warranties of or made by or on behalf of
Borrower shall bind Borrower's successors and permitted assigns and inure to the
benefit of Agent and Lenders and their respective successors, assigns and
participants.
13.4 Indemnification of Agent and Lenders. Whether or not the transactions
contemplated by this Loan Agreement shall be consummated, Borrower shall
indemnify, defend and hold harmless Agent and Lenders, and any holder of the
Notes, and their respective officers, directors, employees, agents and other
representatives (collectively, "Indemnitees") harmless from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against such Indemnitee, in any manner
relating to or arising out of: (a) any breach of any of the representations,
warranties, agreements or covenants of Borrower herein or in any other Loan
Document; (b) any breach of any of the representations, warranties, agreements
or covenants made by Guarantor or any Affiliated Person of Borrower or Guarantor
herein or in any other Loan Document; (c) any suit or proceeding of any kind or
nature whatsoever against Agent and Lenders arising from or connected with the
transactions contemplated by this Loan Agreement or any of the agreements,
documents or instruments to be executed pursuant hereto or any of the rights and
properties assigned to Agent and Lenders hereunder, and the documents related
thereto; and/or (d) the existence or exercise of any of Agent's and Lenders'
rights with respect to the Collateral (the "Indemnified Liabilities"); provided,
however, that Borrower shall not have any obligation hereunder with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of any such Indemnitee. Borrower will appear in, contest and defend against any
action or proceeding purporting to affect title to or any other interest in
material items of Collateral, or the rights or powers of Agent and Lenders,
their successors or assigns, or the right or interest of Agent and Lenders,
legal or beneficial, in any portion of the Collateral, and will pay all costs
and expenses, including costs of evidence of title and attorneys' fees, in any
such action or proceeding. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in the preceding sentence may be unenforceable,
because it is violative of any law or public policy, Borrower agrees to
contribute the maximum portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all Indemnified Liabilities
incurred by the
49
<PAGE> 50
Indemnitees or any of them. All rights of Indemnitees to indemnification by
Borrower under this Paragraph shall survive the execution, delivery and
termination of this Loan Agreement and any other Loan Documents.
13.5 Agent Action. If Borrower shall fail to do any act or thing which it
has covenanted to do hereunder or any representation or warranty of Borrower
shall be breached and not cured or remedied as provided herein, Agent may (but
shall not be obligated to) do the same or cause it to be done or remedy any such
breach and there shall be added to the Obligations hereunder the cost or expense
incurred by Agent in so doing, and any and all amounts expended by Agent in
taking any such action shall be Agent Advances, repayable to Agent upon demand
and shall bear interest at the Overdue Rate from the date advanced until the
date of repayment.
13.6 Governing Law. This Loan Agreement shall be construed in accordance
with and be governed by the laws of the state of California without the
application of any conflicts or choice of laws principles.
13.7 Failure to Act Not a Waiver. Neither any failure nor any delay on the
part of Agent or Lenders or Borrower, as the case may be, in exercising any
right, power or privilege hereunder or under the Notes shall operate a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of any right, power or privilege.
13.8 Extension of Maturity. Should any payment or prepayment of the
principal of or interest on the Notes become due and payable on a day other than
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and, in the case of a payment or prepayment of the principal,
interest shall be payable thereon at the rate per annum herein specified during
such extension.
13.9 Modifications; Further Notice. No modification, amendment or waiver of
any provision of this Loan Agreement or any other Loan Document, or any consent
to any departure by Borrower therefrom, shall be effective unless in writing and
signed by Agent. Any such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
Borrower in any case shall entitle Borrower to any other or further notice or
demand in the same, similar or other circumstances.
13.10 Reference Provision.
13.10.1 Each controversy, dispute or claim ("Claim") arising out of or
relating to this Agreement, any other loan Document or any other agreement,
document or other instrument contemplated hereby shall be resolved pursuant to
the provisions for reference and trial by referee (without jury) set forth in
California Code of Civil Procedure Section 638 et seq., or any statute
containing reasonably similar provisions which replaces such sections, except as
expressly modified by the provisions hereof. The reference herein contemplated
shall be the exclusive remedy for the resolution of any Claim (including, but
not limited to, whether or not any Claim is subject to reference hereunder).
Each of the parties hereby absolutely, irrevocably and unconditionally waives
(i) its rights to initiate any legal proceedings against the other party(ies) in
any court or jurisdiction other than the Superior Court of Los Angeles County
(the "Court") and (ii) trial by jury with respect to any Claim. The referee
("Referee") shall be a retired or former California Superior Court or Appellate
Court judge residing in Los Angeles County, California, who is either (1) agreed
to by the parties within fifteen (15) days of the notice by any party to the
other of the intention to invoke this Paragraph to resolve the Claim, or (2)
failing such agreement, is appointed pursuant to California Code of Civil
Procedure Section 640 in an action filed in the Court.
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<PAGE> 51
13.10.2 The parties agree that any party may (and, if necessary, the
other parties shall join in such filing) file with the Clerk of the Court,
and/or with the appropriate judge of the Court, any and all petitions, motions,
applications or other documents necessary to obtain the appointment of a Referee
immediately upon the commencement of any action or proceeding to resolve any
Claim and to conduct all necessary discovery and to proceed to trial as
expeditiously as possible. It is the parties' intention that the parties and the
Referee shall use their best efforts to be certain that: (a) discovery is
conducted for a period no longer than six (6) months (the "Discovery Period")
from the date the Referee is appointed (the "Referee Date") (whether by
stipulation or by the Court), excluding motions regarding discovery, and (b)
trial is set on a date that is within nine (9) months of the Referee Date. All
discovery motions shall be filed with the Referee and served upon the opposing
party no later than the last day of the Discovery Period; provided, however,
that the parties agree to grant reasonable extensions of time necessary to
reflect the complexities of the issues presented for resolution. All
proceedings, including trial, before the Referee shall be conducted at a neutral
location (unless otherwise stipulated by the parties) within five (5) miles of
the Los Angeles County Superior Court located at 111 N. Hill Street, Los
Angeles, California. The parties agree that the Referee shall be a judge for all
purposes (including, without limitation, (i) ruling on any and all discovery
matters and motions and any and all pretrial or trial motions, (ii) setting a
schedule of pretrial proceedings, and (iii) subject to California Code of Civil
Procedure Section 638 et seq., making other orders or rulings a sitting judge of
the Court would be empowered to make in any action or proceeding in the Court).
Any matter before the Referee shall be governed by the substantive law of
California, its Code of Civil Procedure, Rules of Court and Evidence Code,
except as otherwise specifically agreed by the parties and approved by the
Referee. The parties intend this general reference agreement to be specifically
enforceable in accordance with the California Code of Civil Procedure. Any
appeal of the decision of the Referee and/or of the Court upon the
recommendation of the Referee shall be appealable to the same extent and in the
same manner that such decision would be appealable if rendered by a judge of the
Court. The Referee shall in his/her statement of decision set forth his/her
findings of fact and conclusions of law.
13.10.3 During the pendency of any such action or proceeding and
before the entry of any judgment therein, each of the parties to such action or
proceeding shall bear equal shares of the fees charged and costs incurred by the
Referee in connection with performing the services provided in this Paragraph.
The compensation of the Referee shall not exceed the prevailing rate for like
services. The prevailing party shall be entitled to reasonable court costs and
legal fees, including the customary attorney fees, expert witness fees,
paralegal fees, the fees of the Referee and other reasonable costs and
disbursements charged to the party by its counsel, in such amount as is
determined by the Referee. If a court reporter is requested by either party,
then such reporter shall be present at all proceedings, and the fee of such
reporter shall be borne by the party requesting such reporter. Such fees shall
be an item of recoverable costs.
13.10.4 Nothing in this Paragraph shall prejudice the right of Agent
or any Lender to exercise its non-judicial foreclosure rights and remedies under
any Loan Document or otherwise, or prejudice the right of either party to obtain
provisional relief or other equitable remedies as shall otherwise be available
judicially pending reference of a dispute to a Referee as provided in this
Paragraph.
13.12 Severability. In the case any one or more of the provisions contained
in this Loan Agreement or in any other Loan Document should be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
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<PAGE> 52
13.13 Attorneys' Fees. If any action at law or suit in equity is brought in
relation to this Loan Agreement or any other Loan Document, the prevailing party
shall be entitled to receive, in addition to any other sums which it is awarded,
all costs and expenses of such action or suit, including attorneys' fees and
costs incurred.
13.14 Final Agreement This Loan Agreement and the other Loan Documents are
intended by Borrower, Agent and Lenders to be the final, complete, and exclusive
expression of the agreement between them with respect to the subject matter
hereof. This Loan Agreement and the other Loan Documents supersede any and all
prior oral or written agreements relating to the subject matter hereof. No
modification, rescission, waiver, release, or amendment of any provision of this
Loan Agreement or any other Loan Document shall be made, except by a written
agreement signed by Borrower and a duly authorized officer of each of Agent and
the requisite Lenders.
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the
day and year first above written.
"BORROWER" "AGENT"
Inferno Acquisition Corp. Imperial Bank
- - ---------------------------- ---------------------------
by by Jennifer Huang,
------------------------- Commercial Loan Officer
its
------------------------- "LENDERS"
Imperial Bank
Commitment: $2,403,963.49
--------------------------
by Jennifer Huang,
Commercial Loan Officer
Natexis Banque
Commitment: $2,403,963.49
-------------------------
by Bennett Pozil,
Vice President
52
<PAGE> 53
EXHIBITS AND SCHEDULES
TO LOAN AND SECURITY AGREEMENT
EXHIBIT "2.2.1" PROMISSORY NOTE
EXHIBIT "A" POWER OF SALE
EXHIBIT "B" NOTICE OF ASSIGNMENT AND ACCEPTANCE
SCHEDULE "1" CURRENT LICENSE AGREEMENTS
53
<PAGE> 54
Exhibits*
<TABLE>
<CAPTION>
Description Exhibit
- - ----------- -------
<S> <C>
Power of Sale A
Notice of Assignment and Acceptance B
Promissory Note 2.2.1
</TABLE>
Schedules
<TABLE>
<CAPTION>
Description* Schedule
- - ------------ --------
<S> <C>
Current License Agreement 1
Current Notice and Acceptance Agreements 5.4.9
</TABLE>
*The Schedules and Exhibits are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule or Exhibit to the Commission upon
request.
<PAGE> 1
EXHIBIT 10.81
CONTINUING GUARANTY
This CONTINUING GUARANTY (this "Guaranty"), dated as of April 3, 2000, is
executed and delivered by The Harvey Entertainment Company, a California
corporation ("Guarantor").
RECITALS
This Guaranty is entered into in reference to the following facts:
(a) Inferno Acquisition Corp., a California corporation ("Borrower"), and
Imperial Bank, a California banking corporation ("Imperial"), and Natexis
Banque, a French corporation ("Natexis"), each referred to herein as "Lender,"
and Imperial as agent for Lenders ("Agent"), intend to enter into a Loan and
Security Agreement of even date herewith (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Loan Agreement") for
the purpose of financing the acquisition by Borrower of a loan by Lenders to
Lomax Productions, Inc., a California corporation ("Lomax"), in connection with
a motion picture presently entitled INFERNO, pursuant to the Sale and Assignment
Agreement, dated as of April 3, 2000, among Borrower, Lenders and Agent (the
"Sale and Assignment Agreement").
(b) The Guarantor is materially interested in the financial success of the
Borrower, agrees that the Sale and Assignment Agreement and the Loan Agreement
are in the Borrower's best interests, and acknowledges that the Lenders will not
enter into the Sale and Assignment Agreement or the Loan Agreement absent the
execution and delivery to the Agent and the Lenders of this Guaranty.
NOW, THEREFORE, in consideration of the foregoing, the Guarantor hereby
agrees, in favor of the Agent and the Lenders, as follows.
ARTICLE ONE - DEFINITIONS
1.1 Definitions. All initially capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Loan Agreement. In
addition, the following terms, as used in this Guaranty, shall have the
following meanings:
"The Bankruptcy Code" means the Bankruptcy Reform Act of 1978 (11
U.S.C. Sections 101 et seq.), as amended or supplemented from time to time, and
any successor statute, and any and all rules issued or promulgated in connection
therewith.
"Guaranteed Obligations" means any and all obligations, indebtedness,
or liabilities of any kind or character owed by the Borrower to the Agent or the
Lenders (including without limitation, all principal and interest owing under
the Loans, all fees and expenses due under the Sale and Assignment Agreement or
the Loan Agreement, and all other indebtedness evidenced by the Sale and
Assignment Agreement or the Loan Agreement and the other Loan Documents),
including all such obligations, indebtedness, or liabilities, whether for
principal,
<PAGE> 2
interest (including any interest which, but for the application of the
provisions of the Bankruptcy Code, would have accrued on such amounts), premium,
reimbursement obligations, fees, costs, expenses (including, attorneys' fees and
attorneys' fees incurred pursuant to proceedings arising under the Bankruptcy
Code), or indemnity obligations, whether heretofore, now, or hereafter made,
incurred, or created, whether voluntarily or involuntarily made, incurred, or
created, whether secured or unsecured (and if secured, regardless of the nature
or extent of the security), whether absolute or contingent, liquidated or
unliquidated, determined or indeterminate, whether the Borrower is liable
individually or jointly with others, and whether recovery is or hereafter
becomes barred by any statute of limitations or otherwise becomes unenforceable
for any reason whatsoever, including any act or failure to act by the Agent of
the Lenders.
1.2 Construction. Unless the context of this Guaranty clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, and the term "including" is not limiting. The words
"hereof," "herein," "hereby," "hereunder," and other similar terms refer to this
Guaranty as a whole and not to any particular provision of this Guaranty. Any
reference herein to the Sale and Assignment Agreement or any of the Loan
Documents includes any and all alterations, amendments, extensions,
modifications, renewals, or supplements thereto or thereof, as applicable.
Neither this Guaranty nor any uncertainty or ambiguity herein shall be construed
or resolved against the Agent, the Lenders or the Guarantor, whether under any
rule of construction or otherwise. On the contrary, this Guaranty has been
reviewed by the Guarantor, the Agent, the Lenders and their respective counsel,
and shall be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of the Agent,
the Lenders and the Guarantor.
ARTICLE TWO - GUARANTIES
2.1 Guaranteed Obligations. The Guarantor hereby absolutely, irrevocably
and unconditionally guarantees to the Bank, as and for the Guarantor's own debt,
until final, absolute, indefeasible, irrevocable and unconditional payment,
performance and discharge thereof has been made, (a) payment of the Guaranteed
Obligations, in each case when and as the same shall become due and payable,
whether at maturity, pursuant to a mandatory prepayment requirement, by
acceleration, or otherwise; it being the intent of the Guarantor that the
guaranty set forth herein shall be a guaranty of payment and not a guaranty of
collection, and (b) the punctual and faithful performance, keeping, observance,
fulfillment and discharge by the Borrower of all of the agreements, conditions,
covenants, and obligations of the Borrower contained in the Sale and Assignment
Agreement and the Loan Documents.
2.2 Continuing Guaranty. This Guaranty includes Guaranteed Obligations
arising under successive transactions continuing, compromising, extending,
increasing, modifying, releasing, or renewing the Guaranteed Obligations,
changing the interest rate, payment terms, or other terms and conditions
thereof, or creating new or additional Guaranteed Obligations after prior
Guaranteed Obligations have been satisfied in whole or in part. To the maximum
extent permitted by law, Guarantor hereby waives and agrees not to assert any
right Guarantor has under Section 2815 of the California Civil Code, or
otherwise, to revoke this Guaranty as to future indebtedness.
2
<PAGE> 3
2.3 Performance Under This Guaranty. In the event that the Borrower fails
to make any payment of any Guaranteed Obligations on or before the due date
thereof, or if the Borrower shall fail to perform, keep, observe, or fulfill any
other obligation referred to in clause "(b)" of Section 2.1 hereof in the manner
provided in the Sale and Assignment Agreement or the Loan Documents, the
Guarantor immediately shall cause such payment to be made or each of such
obligations to be performed, kept, observed, or fulfilled.
2.4 Primary Obligations. This Guaranty is a primary and original obligation
of the Guarantor, is not merely the creation of a surety relationship, and is an
absolute, irrevocable, unconditional and continuing guaranty of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to the Sale and Assignment Agreement or the Loan
Documents. The Guarantor agrees that the Guarantor is severally and not jointly
and severally liable, with any other guarantor of the Guaranteed Obligations, to
the Agent and the Lenders, that the obligations of the Guarantor hereunder are
independent of the obligations of the Borrower or any other guarantor, and that
a separate action may be brought against the Guarantor whether such action is
brought against the Borrower or any other guarantor or whether the Borrower or
any such other guarantor is joined in such action. The Guarantor agrees that the
Guarantor's liability hereunder shall be immediate and shall not be contingent
upon the exercise or enforcement by the Agent or the Lenders of whatever
remedies the Agent or the Lenders may have against the Borrower or any other
guarantor, or the enforcement of any lien or realization upon any security the
Agent or the Lenders may at any time possess. The Guarantor agrees that any
release which may be given by the Agent or the Lenders to the Borrower or any
other guarantor shall not release the Guarantor. The Guarantor consents and
agrees that neither the Agent nor either of the Lenders shall be under any
obligation to marshal any assets of the Borrower or any other guarantor in favor
of the Guarantor, or against or in payment of any or all of the Guaranteed
Obligations.
2.5 Indefeasible Payment. The Guaranteed Obligations shall not be
considered indefeasibly paid for purposes of this Guaranty unless and until all
payments to the Agent and the Lenders are no longer subject to any right on the
part of any Person, including the Borrower, the Borrower as a debtor in
possession, or any trustee (whether appointed under the Bankruptcy Code or
otherwise) of any of the Borrower's assets, to invalidate or set aside such
payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential. Upon such full and
final absolute, indefeasible, irrevocable and unconditional payment, performance
and discharge of the Guaranteed Obligations, whether by the Borrower pursuant to
the Sale and Assignment Agreement, the Loan Agreement or by any other Person,
neither the Agent nor any Lender shall have any obligation whatsoever to
transfer or assign its interests in the Sale and Assignment Agreement or the
Loan Documents to the Guarantor. In the event that, for any reason, any portion
of such payments to the Agent or the Lenders is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, then the obligation
intended to be satisfied thereby shall be revived and continued in full force
and effect as if said payment or payments had not been made, and the Guarantor
shall be liable for the full amount the Agent or any Lender is required to repay
plus any and all costs and expenses (including attorneys' fees and expenses and
attorneys' fees and expenses incurred
3
<PAGE> 4
pursuant to proceedings arising under the Bankruptcy Code) paid by the Agent or
any Lender in connection therewith.
2.6 Chase Loan Agreement. Until the absolute, indefeasible, irrevocable and
unconditional payment, performance, discharge and satisfaction in full of the
Guaranteed Obligations, the Guarantor shall not cause or permit the Borrower:
(a) to become a party to the Chase Loan Agreement, or any Agreement, document or
instrument contemplated thereby, directly or indirectly; (b) to assign, encumber
or otherwise dispose of any right, title or interest in or to any of the assets
of the Borrower, directly or indirectly, pursuant to or in connection with, or
to become subject to any restriction or limitation under or contemplated by, the
Chase Loan Agreement or any Agreement, document or instrument contemplated
thereby, directly or indirectly; or (c) to be or become a guarantor of any
obligation or liability under, in connection with or arising out of the Chase
Loan Agreement.
ARTICLE THREE -WAIVERS; RELEASES
3.1 Waivers.
(a) The Guarantor absolutely, irrevocably, unconditionally, knowingly
and expressly waives:
(i) (1) notice of acceptance hereof; (2) notice of any loans or
other financial accommodations made or extended under the Sale and Assignment
Agreement or the Loan Documents or the creation or existence of any Guaranteed
Obligations; (3) notice of the amount of the Guaranteed Obligations, subject,
however, to the Guarantor's right to make inquiry of the Agent, on behalf of
Lenders, to ascertain the amount of the Guaranteed Obligations at any reasonable
time; (4) notice of any adverse change in the financial condition of the
Borrower or of any other fact that might increase the Guarantor's risk
hereunder; (5) notice of presentment for payment, demand, protest, and notice
thereof as to any instruments among the Loan Documents or of or related to the
Sale and Assignment Agreement; (6) notice of any Default or Event of Default;
and (7) all other notices (except if such notice is specifically required to be
given to the Guarantor hereunder, under the Sale and Assignment Agreement or
under the Loan Documents) and demands to which the Guarantor might otherwise be
entitled.
(ii) its right, under Sections 2845 or 2850 of the California
Civil Code, or otherwise, to require the Agent or any Lender to institute suit
against, or to exhaust any rights and remedies which the Agent or any Lender has
or may have against, the Borrower or any third party, or against any collateral
for the Guaranteed Obligations provided by the Borrower or any third party. In
this regard, the Guarantor agrees that the Guarantor is bound to the payment of
all Guaranteed Obligations, whether now existing or hereafter accruing, as fully
as if such Guaranteed Obligations were directly owing by the Guarantor. The
Guarantor further waives any defense arising by reason of any disability or
other defense (other than the defense that the Guaranteed Obligations shall have
been fully and finally absolutely, indefeasibly, irrevocably and unconditionally
paid, performed and discharged) of the Borrower or by reason of the cessation
from any cause whatsoever of the liability of the Borrower in respect thereof.
4
<PAGE> 5
(iii) (1) any rights to assert against the Agent or any Lender
any defense (legal or equitable), set-off, counterclaim, or claim which the
Guarantor may now or at any time hereafter have against the Borrower or any
other party liable to the Agent or any Lender; (2) any defense, set-off,
counterclaim, or claim, of any kind or nature, arising directly or indirectly
from the present or future lack of perfection, sufficiency, validity, or
enforceability of the Guaranteed Obligations or any security therefor; (3) any
defense the Guarantor has to performance hereunder, and any right the Guarantor
has to be exonerated, provided by Sections 2819, 2822, or 2825 of the California
Civil Code, or otherwise, arising by reason of: the impairment or suspension of
the rights or remedies against the Borrower of the Agent or any Lender; the
alteration of the Guaranteed Obligations; any discharge of the Guaranteed
Obligations by operation of law as a result of any intervention or omission by
the Agent or any Lender; or the acceptance by the Agent or any Lender of
anything in partial satisfaction of the Guaranteed Obligations; (4) the benefit
of any statute of limitations affecting the Guarantor's liability hereunder or
the enforcement thereof, and any act which shall defer or delay the operation of
any statute of limitations applicable to the Guaranteed Obligations shall
similarly operate to defer or delay the operation of such statute of limitations
applicable to the Guarantor's liability hereunder.
(c) Guarantor absolutely, irrevocably, unconditionally, knowingly, and
expressly waives any defense arising by reason of or deriving from (i) any claim
or defense based upon an election of remedies by the Agent or any Lender
including any defense based upon an election of remedies under the provisions of
Sections 580a, 580b, 580d, and 726 of the California Code of Civil Procedure or
any similar law of California or any other jurisdiction; or (ii) any election
under the Bankruptcy Code Section 1111(b) to limit the amount of, or any
collateral securing, any claim of the Agent or any Lender against the Borrower.
3.2 Election of Remedies. Pursuant to Section 2856 of the California Civil
Code, the Guarantor waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Guarantor's rights of subrogation and reimbursement against
the Borrower by the operation of Section 580(d) of the California Code of Civil
Procedure or otherwise.
3.3 Real Property Waivers. The Guarantor waives all rights and defenses
that the Guarantor may have because the Guaranteed Obligations are secured by
real property. This means, among other things:
(a) The Agent or any Lender may collect from the Guarantor without
first foreclosing on any real or personal property collateral pledged by the
Borrower. If the Agent or any Lender forecloses on any real property collateral
pledged by the Borrower:
(i) The amount of the Guaranteed Obligations may be reduced only
by the price for which that collateral is sold at the foreclosure sale, even if
the collateral is worth more than the sale price.
5
<PAGE> 6
(ii) The Agent or the Lender may collect from the Guarantor even
if the Agent or the Lender, by foreclosing on the real property collateral, has
destroyed any right the Guarantor may have to collect from the Borrower.
(b) This is an unconditional and irrevocable waiver of any rights and
defenses the Guarantor may have because the Borrower's Obligations are secured
by real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure.
(c) If any of the Guaranteed Obligations at any time is secured by a
mortgage or deed of trust upon real property, the Agent, on behalf of Lenders,
may elect, in its sole discretion, upon a default with respect to the Guaranteed
Obligations, to foreclose such mortgage or deed of trust judicially or
non-judicially in any manner permitted by law, before or after enforcing the
Loan Documents, without diminishing or affecting the liability of the Guarantor
hereunder except to the extent the Guaranteed Obligations are repaid with the
proceeds of such foreclosure. Guarantor understands that (i) by virtue of the
operation of California's anti-deficiency law applicable to nonjudicial
foreclosures, an election by the Agent non-judicially to foreclose such a
mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
the Guarantor against the Borrower or other guarantors or sureties, and (ii)
absent the waiver given by the Guarantor, such an election would prevent the
Agent or the Lenders from enforcing the Loan Documents against Guarantor.
Understanding the foregoing, and understanding that the Guarantor is hereby
relinquishing a defense to the enforceability of the Loan Documents, the
Guarantor hereby waives any right to assert against the Agent or the Lenders any
defense to the enforcement of the Loan Documents, whether denominated "estoppel"
or otherwise, based on or arising from an election by the Agent or any Lender
non-judicially to foreclose any such mortgage or deed of trust. The Guarantor
understands that the effect of the foregoing waiver may be that the Guarantor
may have liability hereunder for amounts with respect to which the Guarantor may
be left without rights of subrogation, reimbursement, contribution, or indemnity
against the Borrower or other guarantors or sureties. The Guarantor also agrees
that the "fair market value" provisions of Section 580a of the California Code
of Civil Procedure shall have no applicability with respect to the determination
of Guarantor's liability under the Loan Documents.
3.4 Waiver of Subrogation. The Guarantor hereby absolutely,
unconditionally, irrevocably, knowingly and expressly waives: (a) any right of
subrogation the Guarantor has or may have as against the Borrower with respect
to the Guaranteed Obligations; (b) any right to proceed against the Borrower or
any other person or entity, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims, whether direct or
indirect, liquidated or contingent, whether arising under express or implied
contract or by operation of law, which the Guarantor may now have or hereafter
have as against the Borrower with respect to the Guaranteed Obligations; and (c)
any right to proceed or seek recourse against or with respect to any property or
asset of the Borrower. The foregoing waiver shall be and remain in full force
and effect until the absolute, indefeasible, irrevocable and unconditional
payment, performance and discharge of the Guaranteed Obligations.
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3.5 General Waiver. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, THE GUARANTOR HEREBY ABSOLUTELY,
KNOWINGLY, IRREVOCABLY, UNCONDITIONALLY AND EXPRESSLY WAIVES AND AGREES NOT TO
ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY
ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815,
2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE
OF CIVIL PROCEDURE SECTIONS 580A, 580B, 580C, 580D, AND 726, CALIFORNIA UNIFORM
COMMERCIAL CODE SECTIONS 3116, 3118, 3119, 3419, 3605, 9504, AND 9507, AND
CHAPTER 2 OF TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE.
3.6 Releases. The Guarantor consents and agrees that, without notice to or
by Guarantor, and without affecting or impairing the obligations of the
Guarantor hereunder, the Agent and the Lenders may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse to or otherwise not
enforce this Guaranty, the Sale and Assignment Agreement or the Loan Documents,
or any part thereof, with respect to the Borrower or any other Person;
(b) release the Borrower or any other Person or grant other
indulgences to the Borrower or any other Person in respect thereof;
(c) amend or modify in any manner and at any time (or from time to
time) the Sale and Assignment Agreement or any of the Loan Documents; or
(d) release or substitute any other guarantor, if any, of the
Guaranteed Obligations, or enforce, exchange, release, or waive any security for
the Guaranteed Obligations or any other guaranty of the Guaranteed Obligations,
or any portion thereof.
3.7 No Election of Remedies. The Agent and the Lenders shall have all of
the rights to seek recourse against the Guarantor to the fullest extent provided
for herein, and no election by the Agent or any Lender to proceed in one form of
action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of their respective right to proceed in any other form of
action or proceeding or against other parties unless the Agent and the Lenders
have expressly waived such right in writing. Specifically, but without limiting
the generality of the foregoing, no action or proceeding by the Agent or any
Lender under any document or instrument evidencing the Guaranteed Obligations
shall serve to diminish the liability of the Guarantor under this Guaranty
except to the extent that the Agent and the Lenders finally and unconditionally
shall have realized indefeasible and irrevocable payment by such action or
proceeding.
3.10 Subordination. The Guarantor hereby agrees that any and all present
and future indebtedness of the Borrower owing to the Guarantor is postponed in
favor of and subordinated
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to payment, in full, in cash, of the Guaranteed Obligations. In this regard, no
payment of any kind whatsoever shall be made with respect to such indebtedness
until the Guaranteed Obligations have been absolutely, indefeasibly, irrevocably
and unconditionally paid, performed and discharged in full.
3.11 Payments; Application. All payments to be made hereunder by the
Guarantor shall be made in lawful money of the United States of America at the
time of payment, shall be made in immediately available funds, and shall be made
without deduction (whether for taxes or otherwise) or offset. All payments made
by the Guarantor hereunder shall be applied as follows: first, to all costs and
expenses (including attorneys' fees and expenses and attorneys' fees and
expenses incurred pursuant to proceedings arising under the Bankruptcy Code)
incurred by the Agent or any Lender in enforcing this Guaranty or in collecting
the Guaranteed Obligations; second, to all accrued and unpaid interest, premium,
if any, and fees owing to the Agent or any Lender constituting Guaranteed
Obligations; and third, to the balance of the Guaranteed Obligations.
3.12 Cumulative Remedies. No remedy under this Guaranty, under the Sale and
Assignment Agreement or under any Loan Document is intended to be exclusive of
any other remedy, but each and every remedy shall be cumulative and in addition
to any and every other remedy given hereunder, under the Sale and Assignment
Agreement or under any Loan Document, and those provided by law or in equity. No
delay or omission by the Agent or any Lender to exercise any right under this
Guaranty shall impair any such right nor be construed to be a waiver thereof. No
failure on the part of the Agent or any Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right.
ARTICLE FOUR - REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties. The Guarantor hereby represents and
warrants to the Agent and each Lender that:
(a) The Guarantor is a corporation duly organized and existing under
the laws of California and has the power and authority to own its own properties
and assets, and to transact the business in which it is engaged, and is properly
licensed, qualified to do business and in good standing in every jurisdiction
where the conduct of its business requires it to be so qualified.
(b) The execution, delivery and performance of this Guaranty are
within the Guarantor's powers, are not in conflict with the terms of any
charter, bylaw, certificate or articles of incorporation or other organization
papers of the Guarantor, and do not result in a breach of or constitute a
default under any contract, obligation, indenture or other instrument to which
the Guarantor is a party or by which the Guarantor is bound or affected. There
is no law, rule or regulation, nor is there any judgment, decree or order of any
court or governmental authority binding on the Guarantor which would be
contravened by the execution, delivery, performance
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or enforcement of this Guaranty, the Sale and Assignment Agreement or the other
Loan Documents to which the Guarantor is a party.
(c) The Guarantor has taken all corporate action necessary to
authorize the execution and delivery of this Guaranty, the Sale and Assignment
Agreement and the Loan Documents to which the Guarantor is a party, and the
consummation of the transactions contemplated hereby and thereby. Upon their
execution and delivery in accordance with their respective terms, this Guaranty,
the Sale and Assignment Agreement and the other Loan Documents to which the
Guarantor is a party will constitute legal, valid and binding agreements and
obligations of the Guarantor enforceable against the Guarantor in accordance
with their respective terms, except as enforceability may be limited by the
Bankruptcy, insolvency, fraudulent conveyance, and similar laws and equitable
principles affecting the enforcement of creditors' rights generally.
(d) No approval, consent, exemption or other action by, or notice to
or filing with, any governmental authority is necessary in connection with the
execution, delivery, performance or enforcement of this Guaranty and the other
Loan Documents to which the Guarantor is a party except as may have been
obtained by the Guarantor and certified copies of which have been delivered to
the Agent on behalf of the Lenders.
(e) The Borrower is not, directly or indirectly, a party to the Chase
Loan Agreement, or any Agreement, document or instrument contemplated thereby,
nor are any of the assets of the Borrower, directly or indirectly, in any way
subject to any lien, encumbrance, restriction or limitation under or
contemplated by the Chase Loan Agreement or any Agreement, document or
instrument contemplated thereby. The Guarantor is not obligated to cause the
Borrower to become a party to the Chase Loan Agreement, or any Agreement,
document or instrument contemplated thereby, or to cause the Borrower to make
any of its assets subject to any such lien, encumbrance, restriction or
limitation except, if at all, after the absolute, indefeasible, irrevocable and
unconditional payment, performance, discharge and satisfaction in full of the
Guaranteed Obligations.
4.2 Borrower's Financial Condition. The Guarantor represents and warrants
to the Agent and the Lenders that the Guarantor is currently informed of the
financial condition of the Borrower and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of nonpayment of the
Guaranteed Obligations. The Guarantor further represents and warrants to the
Agent and the Lenders that the Guarantor has read and understands the terms and
conditions of the Sale and Assignment Agreement and the Loan Documents. The
Guarantor hereby covenants that the Guarantor will continue to keep informed of
the Borrower's financial condition, the financial condition of other guarantors,
if any, and of all other circumstances which bear upon the risk of nonpayment or
nonperformance of the Guaranteed Obligations.
ARTICLE FIVE - GENERAL PROVISIONS
5.1 Attorneys' Fees and Costs.The Guarantor agrees to pay, on demand, all
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attorneys' fees (including attorneys' fees incurred pursuant to proceedings
arising under the Bankruptcy Code) and all other costs and expenses which may be
incurred by the Agent or any Lender in the enforcement of this Guaranty or in
any way arising out of, or consequential to the protection, assertion, or
enforcement of the Guaranteed Obligations (or any security therefor), whether or
not suit is brought.
5.2 Notices. All notices, requests and other communications to any party
hereunder shall be sent in accordance with Section 13.1 of the Loan Agreement to
the following addresses:
If to Guarantor: The Harvey Entertainment Company
11835 West Olympic Boulevard, Suite 550
Los Angeles, California 90064
Attention: Glenn Weisberger, Esq.
Facsimile No: (310) 444-4103
Telephone No: (310) 444-4100
with a copy to: Sidley & Austin
555 West 5th Street, 40th Floor
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Facsimile No: (213) 896-6600
Telephone No:(213) 896-6013
If to the Agent
or any Lender: (as set forth in Section 13.1 of the
Loan Agreement)
5.3 Books and Records. The Guarantor agrees the books and records of the
Agent, on behalf of the Lenders, showing the account between the Agent and the
Lenders and the Borrower shall be admissible in any action or proceeding and
shall be binding upon the Guarantor for the purpose of establishing the items
therein set forth and shall constitute prima facie proof thereof.
5.4 Severability of Provisions. If any provision of this Guaranty for any
reason is held to be invalid, illegal or unenforceable in any respect, that
provision shall not affect the validity, legality or enforceability of any other
provision of this Guaranty.
5.5 Successors and Assigns. This Guaranty shall bind the successors and
assigns of the Guarantor, and shall inure to the benefit of the successors and
assigns of the Agent and the Lenders; provided, however, the Guarantor may not
assign this Guaranty or delegate any of its duties hereunder without the prior
written consent of the Agent and the Lenders and any such prohibited assignment
shall be absolutely null and void. The Agent and the Lenders reserve their
respective rights to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in, the rights and benefits hereunder
pursuant to and in accordance with the provisions of the Loan Documents. In
connection therewith, the Agent and the Lenders may disclose all documents and
information which the
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Agent and the Lenders now or hereafter may have relating to the Guarantor, the
Guarantor's business, or this Guaranty to any such prospective or actual
transferee.
5.6 Governing Law. This Guaranty shall be deemed to have been made in the
state of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
state of California, without regard to principles of conflicts of law.
5.7 Reference Provision.
(a) Each controversy, dispute or claim ("Claim") arising out of or
relating to this Guaranty or any other Agreement, document or other instrument
contemplated hereby shall be resolved pursuant to the provisions for reference
and trial by referee (without jury) set forth in California Code of Civil
Procedure Section 638 et seq., or any statute containing reasonably similar
provisions which replaces such sections, except as expressly modified by the
provisions hereof. The reference herein contemplated shall be the exclusive
remedy for the resolution of any Claim (including, but not limited to, whether
or not any Claim is subject to reference hereunder). Each of the parties hereby
absolutely, irrevocably and unconditionally waives (i) its rights to initiate
any legal proceedings against the other party(ies) in any court or jurisdiction
other than the Superior Court of Los Angeles County (the "Court") and (ii) trial
by jury with respect to any Claim. The referee ("Referee") shall be a retired or
former California Superior Court or Appellate Court judge residing in Los
Angeles County, California, who is either (1) agreed to by the parties within
fifteen (15) days of the notice by any party to the other of the intention to
invoke this Paragraph to resolve the Claim, or (2) failing such Agreement, is
appointed pursuant to California Code of Civil Procedure Section 640 in an
action filed in the Court.
(b) The parties agree that any party may (and, if necessary, the other
parties shall join in such filing) file with the Clerk of the Court, and/or with
the appropriate judge of the Court, any and all petitions, motions, applications
or other documents necessary to obtain the appointment of a Referee immediately
upon the commencement of any action or proceeding to resolve any Claim and to
conduct all necessary discovery and to proceed to trial as expeditiously as
possible. It is the parties' intention that the parties and the Referee shall
use their best efforts to be certain that: (a) discovery is conducted for a
period no longer than six (6) months (the "Discovery Period") from the date the
Referee is appointed (the "Referee Date") (whether by stipulation or by the
Court), excluding motions regarding discovery, and (b) trial is set on a date
that is within nine (9) months of the Referee Date. All discovery motions shall
be filed with the Referee and served upon the opposing party no later than the
last day of the Discovery Period; provided, however, that the parties agree to
grant reasonable extensions of time necessary to reflect the complexities of the
issues presented for resolution. All proceedings, including trial, before the
Referee shall be conducted at a neutral location (unless otherwise stipulated by
the parties) within five (5) miles of the Los Angeles County Superior Court
located at 111 N. Hill Street, Los Angeles, California. The parties agree that
the Referee shall be a judge for all purposes (including, without limitation,
(i) ruling on any and all discovery matters and
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motions and any and all pretrial or trial motions, (ii) setting a schedule of
pretrial proceedings, and (iii) subject to California Code of Civil Procedure
Section 638 et seq., making other orders or rulings a sitting judge of the Court
would be empowered to make in any action or proceeding in the Court). Any matter
before the Referee shall be governed by the substantive law of California, its
Code of Civil Procedure, Rules of Court and Evidence Code, except as otherwise
specifically agreed by the parties and approved by the Referee. The parties
intend this general reference Agreement to be specifically enforceable in
accordance with the California Code of Civil Procedure. Any appeal of the
decision of the Referee and/or of the Court upon the recommendation of the
Referee shall be appealable to the same extent and in the same manner that such
decision would be appealable if rendered by a judge of the Court. The Referee
shall in his/her statement of decision set forth his/her findings of fact and
conclusions of law.
(c) During the pendency of any such action or proceeding and
before the entry of any judgment therein, each of the parties to such action or
proceeding shall bear equal shares of the fees charged and costs incurred by the
Referee in connection with performing the services provided in this Paragraph.
The compensation of the Referee shall not exceed the prevailing rate for like
services. The prevailing party shall be entitled to reasonable court costs and
legal fees, including the customary attorney fees, expert witness fees,
paralegal fees, the fees of the Referee and other reasonable costs and
disbursements charged to the party by its counsel, in such amount as is
determined by the Referee. If a court reporter is requested by either party,
then such reporter shall be present at all proceedings, and the fee of such
reporter shall be borne by the party requesting such reporter. Such fees shall
be an item of recoverable costs.
(d) Nothing herein shall prejudice the right of the Agent or
any Lender to exercise its non-judicial foreclosure rights and remedies in
respect of any of the Collateral, or prejudice the right of any party to obtain
provisional relief or other equitable remedies as shall otherwise be available
judicially pending reference of a dispute to a Referee as provided herein.
(e) WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN
ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS GUARANTY OR THE SUBJECT MATTER HEREOF, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR
OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER
PARTIES HERETO THAT THE PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL
INDUCEMENT UPON WHICH THE OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL RELY.
THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH OTHER PARTY TO THE
WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
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5.8 Entire Agreement; Amendments and Waivers. This Guaranty constitutes the
entire Agreement between Guarantor and the Agent and the Lenders pertaining to
the subject matter contained herein. Any provision of this Guaranty may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the party asserted to be bound thereby, and then such amendment or
waiver shall be effective only in the specific instance and specific purpose for
which given.
IN WITNESS WHEREOF, the Guarantor has executed and delivered this Guaranty
as of the date set forth in the first paragraph hereof.
"GUARANTOR"
THE HARVEY ENTERTAINMENT COMPANY,
a California corporation
By /s/ Glenn Weisberger
---------------------------
Name: Glenn Weisberger
------------------------
Title: Senior Vice President and General Counsel
-----------------------
ACCEPTED AND AGREED:
IMPERIAL BANK,
a California banking corporation
on its own behalf and as Agent for itself
and Natexis Banque
By /s/ Jennifer Huang
---------------------------
Name: Jennifer Huang
------------------------
Title: Commercial Loan Officer
-----------------------
NATEXIS BANQUE,
a French corporation
By /s/ Bennett Pozil
---------------------------
Name: Bennett Pozil
------------------------
Title: Vice President
-----------------------
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