SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ___________.
Commission File Number 0-25308
OVERSEAS FILMGROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3751702
----------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8800 Sunset Blvd., Third Floor, Los Angeles, CA 90069
----------------------------------------------- -----------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (310) 855-1199
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
The number of shares of Common Stock outstanding as of August 13, 1999
was 6,295,305.
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OVERSEAS FILMGROUP, INC.
INDEX
Part I - Financial Information
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 (unaudited)
and December 31, 1998.............................................3
Consolidated Statements of Operations (unaudited) for
the three and six months ended June 30, 1999 and
June 30, 1998.....................................................4
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1999 and June 30, 1998..........5
Notes to Consolidated Financial Statements (unaudited).............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........16
Part II - Other Information
Item 1. Legal Proceedings.................................................17
Item 2. Changes in Securities and Use of Proceeds.........................17
Item 3. Defaults Upon Senior Securities...................................17
Item 4. Submission of Matters to a Vote of Security Holders...............17
Item 5. Other Information.................................................17
Item 6. Exhibits and Reports on Form 8-K..................................17
Signature................................................18
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVERSEAS FILMGROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
--------- -----------
(Unaudited)
ASSETS:
Cash and cash equivalents ........................ $119,956 $537,652
Restricted cash .................................. 1,250 159,614
Accounts receivable, net of allowance
for doubtful accounts of $750,000 ............... 21,861,789 19,724,817
Related party receivable ......................... 149,000 149,000
Film costs, net of accumulated amortization ...... 29,399,706 29,003,201
Fixed assets, net of accumulated depreciation .... 270,556 293,858
Other assets ..................................... 604,002 340,546
----------- -----------
Total assets ................. $52,406,259 $50,208,688
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses ............ $1,227,083 $1,271,818
Payable to related parties ....................... 1,131,871 924,921
Accrued interest payable ......................... 209,582 470,386
Payable to producers ............................. 12,620,553 9,180,186
Note payable to shareholders ..................... 2,137,498 2,262,498
Notes payable .................................... 20,494,907 22,013,281
Deferred income taxes ............................ 2,236,299 2,332,764
Deferred revenue ................................. 675,250 132,250
----------- -----------
Total liabilities ............ 40,733,043 38,588,104
----------- -----------
Shareholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized; 0 shares outstanding
Common stock, $.001 par value, 25,000,000 shares
authorized; 5,777,778 shares issued;
5,732,778 shares outstanding ................... 5,778 5,778
Additional paid in capital .......................... 10,652,731 10,652,731
Retained earnings ................................... 1,101,441 1,048,809
Treasury stock at cost, 45,000 shares ............... (86,734) (86,734)
----------- -----------
Total shareholders' equity ...... 11,673,216 11,620,584
----------- -----------
Total liabilities and shareholders' equity $52,406,259 $50,208,688
============ ============
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
OVERSEAS FILMGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ................................ $6,540,726 $8,402,754 $13,231,090 $15,434,939
Expenses:
Film costs ........................... 5,412,347 7,017,795 10,751,083 12,634,563
Selling, general and
administrative .................... 719,412 725,045 1,464,986 1,520,110
------------ ------------ ------------ ------------
Total expenses .................... 6,131,759 7,742,840 12,216,069 14,154,673
------------ ------------ ------------ ------------
Income from operations .................. 408,967 659,914 1,015,021 1,280,266
Other income (expense):
Interest income ...................... 1,520 325 1,809 1,617
Interest expense ..................... (491,382) (357,264) (963,858) (687,862)
Other income ......................... 4,181 32,685 29,660 75,964
------------ ------------ ------------ ------------
Total other expense ............... (485,681) (324,254) (932,389) (610,281)
------------ ------------ ------------ ------------
(Loss) Income before income
taxes ................................ (76,714) 335,660 82,632 669,985
Income tax (benefit)
provision ............................ (29,000) 125,031 30,000 251,170
------------ ------------ ------------ ------------
Net (loss) income ....................... $(47,714) $210,629 $52,632 $418,815
============ ============ ============ ============
Basic earnings (loss) per
share ................................ $(0.01) $0.04 $0.01 $0.07
============ ============ ============ ============
Weighted average number of basic and
diluted common shares outstanding ..... 5,732,778 5,732,778 5,732,778 5,732,778
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
OVERSEAS FILMGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $52,632 $418,815
Adjustments to reconcile net income
to net cash provided by operating activities -
Amortization of film costs .................... 6,360,178 3,803,123
Depreciation of fixed assets .................. 67,918 73,934
Change in assets and liabilities -
Increase in accounts receivable ............... (2,136,972) (8,756,621)
Increase in other assets ...................... (263,456) (91,525)
(Decrease) increase in accounts
payable and accrued expenses ............... (98,590) 66,465
Increase in payable to producers .............. 3,440,367 8,104,890
(Decrease) increase in deferred income
taxes payable ............................... (96,465) 201,000
Increase in deferred revenue .................. 543,000 14,500
--------- ---------
Net cash provided by operating activities 7,868,612 3,834,581
--------- ---------
Cash flows from investing activities:
Additions to film costs ....................... (6,757,588) (3,566,856)
Purchase of fixed assets ...................... (43,710) (8,525)
--------- ---------
Net cash used by investing activities ... (6,801,298) (3,575,381)
--------- ---------
Cash flows from financing activities:
Net paydown under credit facilities ........... (1,518,374) (1,372,585)
Net (payment) borrowing on note payable
to shareholders .............................. (125,000) 206,538
--------- ---------
Net cash used by financing activities ... (1,643,374) (1,166,047)
--------- ---------
Net decrease in cash ................................ (576,060) (906,847)
Cash, cash equivalents and restricted cash at
beginning of period ............................... 697,266 1,351,631
--------- ---------
Cash, cash equivalents and restricted cash at
end of period ................................... $121,206 $444,784
========== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ................................. $1,298,770 $954,773
========== ========
Income taxes ............................. $7,200 $0
========== ========
Foreign withholding taxes ................ $126,465 $50,170
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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OVERSEAS FILMGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements of Overseas
Filmgroup, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have
been reflected in these consolidated financial statements. Operating
results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1999. Certain reclassifications have been made in the 1998 consolidated
financial statements to conform to the 1999 presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 (the "1998 Consolidated Financial Statements").
2. Film costs consist of the following:
June 30, 1999 December 31, 1998
------------- -----------------
Films in release $185,226,785 $178,195,727
Less: Accumulated Amortization (158,341,468) (152,026,004)
----------- -----------
Subtotal 26,885,317 26,169,723
Films not yet available for release 2,514,389 2,833,478
----------- -----------
$29,399,706 $29,003,201
=========== ===========
3. The Company has a credit facility (the "Credit Facility") with a two-bank
syndicate (the "Banks"). The Credit Facility originally provided for up to
$27,000,000 of credit. However, it was amended and extended on April 14,
1998 (the "1998 Amendment") and subsequently on April 9, 1999 (the "1999
Amendment") (collectively the "Facility Amendment"). Under the 1999
Amendment, the Operating Facility portion of the Credit Facility and all
but one of the individual Film Facilities under the Credit Facility have
been extended until April 9, 2000 (the one film facility with an
outstanding balance as of June 30, 1999 of $242,529 will mature on October
31, 1999). No additional funds will be available under the Operating
Facility or the Film Facilities. The Company maintains a $1,000,000 working
capital credit line ("Local Line") with another bank, which is guaranteed
by a letter of credit issued under the Guarantee Facility portion of the
Credit Facility. In addition to the amounts outstanding under the Company's
Credit Facility, the Company has borrowed $2,245,000 from another lender.
The proceeds of this loan are being used to acquire rights to a particular
film. The note bears interest at the prime rate of 7.75% plus 1.5% at June
30, 1999 and is collateralized by amounts due under distribution agreements
from the specific film. The note will mature on November 29, 1999.
The Company's ability to pay down the Credit Facility prior to maturity is
primarily dependent upon the timing of collections on existing sales during
the next twelve months and the amount and timing of collections
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on anticipated sales of the Company's current library and films which the
Company plans to release or make available to sub-distributors over the
next twelve months. Additionally, the Company will need to refinance or
make renewed arrangements to extend the expiration of the Credit Facility
prior to its current maturity date of April 9, 2000. Management believes
that existing capital, cash flow from operations and availability under the
Company's Local Line will be sufficient to enable the Company to fund its
planned acquisition, distribution and overhead expenditures for a
reasonable period of time. In the event that the Company's sales and
collections during the next twelve months are less than currently
anticipated, the Company will need to either alter planned acquisition and
distribution activities or seek alternate sources of financing. The Company
is actively seeking alternate sources of financing.
4. The Company has guaranteed payment by an independent motion picture
production company of a promissory note due on September 11, 2000 in the
aggregate principal amount at June 30, 1999 of $87,077.
5. On July 18, 1999, the Company and broadcast.com inc. entered into an
agreement whereby the Company received 11,302 shares of common stock of
broadcast.com in exchange for 562,527 shares of common stock of the
Company. Under this agreement, the Company is not allowed to sell,
transfer, assign, pledge or otherwise dispose of the broadcast.com shares
before July 18, 2000. Additionally, the Company and broadcast.com agreed to
an arrangement which gives broadcast.com the right to exploit on the
Internet approximately fifty titles from the Company's film library on a
revenue sharing basis.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains "forward-looking statements",
including those within the meaning of the Private Securities Litigation Reform
Act of 1995. Such statements can be identified by the use of forward-looking
terminology such as "may," "expect," "anticipate," "estimate," "intend" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward-looking statements. These risks and uncertainties include, among
other things, the highly speculative and inherently risky and competitive nature
of the motion picture industry. There can be no assurance of the economic
success of any motion picture since the revenues derived from the production and
distribution of a motion picture (which do not necessarily bear a direct
correlation to the production or distribution costs incurred) depend primarily
upon its acceptance by the public, which cannot be predicted. The commercial
success of a motion picture also depends upon the quality and acceptance of
other competing films released into the marketplace at or near the same time,
the availability of alternative forms of entertainment and leisure time
activities, general economic conditions and other tangible and intangible
factors, all of which can change and cannot be predicted with certainty.
Therefore, there is a substantial risk that some or all of the motion pictures
released, distributed, financed or produced by the Company will not be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized. The Company's results of operations for the period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected in future periods. Due to quarterly fluctuations in the number of
motion pictures in which the Company controls the distribution rights and which
become available for distribution (and thus, for which revenue can first be
recognized) and the number of motion pictures distributed by the Company, as
well as the unpredictable nature of audience and sub-distributor response to
motion pictures distributed by the Company, the Company's revenues, expenses and
earnings fluctuate significantly from quarter to quarter and from year to year.
In addition, for several reasons, including (i) the likelihood of continued
industry-wide increases in acquisition, production and marketing costs and (ii)
the Company's intent, based upon its ongoing strategy, to acquire rights to or
produce films which have greater production values (often as a result of larger
budgets), the Company's costs and expenses, and thus the capital required by the
Company in its operations and the associated risks faced by the Company may
increase in the future. Additional risks and uncertainties are discussed
elsewhere in appropriate sections of this Report and in other filings made by
the Company with the Securities and Exchange Commission including without
limitation the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1998. The risks highlighted above and elsewhere in this Report
should not be assumed to be the only things that could affect future performance
of the Company. The Company does not have a policy of updating or revising
forward-looking statements and thus it should not be assumed that silence by
management of the Company over time means that actual events are bearing out as
estimated in such forward-looking statements.
8
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General
The operations of Overseas Filmgroup, Inc. ("Overseas" or the
"Company") were established on February 11, 1980. The Company is principally
involved in the acquisition and worldwide license or sale of distribution rights
to independently produced motion pictures. Certain motion pictures are directly
distributed by the Company in the domestic theatrical market under the name
First Look Pictures ("First Look"). On July 18, 1999, the Company and
broadcast.com inc. entered into an agreement whereby the Company received 11,302
shares of common stock of broadcast.com in exchange for 562,527 shares of common
stock of the Company. Shortly after the exchange, broadcast.com was acquired by
Yahoo! resulting in approximately 9% of the Company's issued and outstanding
common stock being owned by Yahoo! and the Company owning 8,727 shares of common
stock of Yahoo! Additionally, the Company and broadcast.com agreed to an
arrangement which gives broadcast.com the right to exploit on the Internet
approximately fifty titles from the Company's film library on the revenue
sharing basis.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues decreased by $1,862,028 (22.2%) to $6,540,726 for the three
months ended June 30, 1999 from $8,402,754 for the three months ended June 30,
1998. The decrease in revenues was primarily due to decreased revenue from
films first available for release in the three months ended June 30, 1999
(approximately $3,336,000 from one film) compared to the three months ended
June 30, 1998 (approximately $6,996,500 from three films, including WALKING
NED DEVINE). Increased licensing of older titles partially offset this
decrease. Films released in years prior to 1999 generated revenue of
$2,186,407 during the three months ended June 30, 1999 whereas, by comparison,
films released prior to 1998 generated revenue of $510,720 during the three
months ended June 30, 1998.
Film costs as a percentage of revenues decreased to 82.7% for the three
months ended June 30, 1999, compared to 83.5% for the three months ended June
30, 1998. The decrease was primarily due to higher fee rates (the Company's
gross margin) on films generating the greatest amount of revenue in the three
months ended June 30, 1999 compared to the three months ended June 30, 1998. The
gross margin for a given period will vary depending upon the gross margins
earned on films generating revenue in the period. Gross margins vary from film
to film based upon many factors, including the amount of the Company's
investment in a particular film. In some cases, the Company is entitled to only
a distribution fee based upon a percentage of the film's gross revenues in a
particular territory or territories and media. In other circumstances, the
Company may have a substantial investment in the film as a result of minimum
guarantee commitments, rights acquisition costs, or print and advertising
commitments and is dependent upon the film's actual performance in order to
generate a positive gross margin. Other factors that impact gross margins
include market acceptance of a film, the budget of the film and management's
analysis of the motion picture's prospects which, under the individual film
forecast method, impacts the rate of amortization.
Selling, general and administrative expenses, net of amounts
capitalized to film costs, decreased by $5,633 (.8%) to $719,412 for the quarter
ended June 30, 1999 from $725,045 for the quarter ended June 30, 1998. This
decrease was primarily due to decreased bad debt expense (approximately
$12,656), franchise taxes (approximately $14,245), legal costs (approximately
$11,702), and compensation (approximately $12,003). The decreases were partially
offset by increases in contract labor and consulting fees (approximately
$11,560) and expenses associated with reporting as a public company
(approximately $36,045). The Company capitalizes certain overhead costs incurred
in connection with its acquisition of rights to and creation of marketing
materials for a motion picture by adding such costs to the capitalized film
costs of the motion picture.
9
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Other expense increased 49.8% to $485,681 for the three months ended
June 30, 1999 compared to $324,254 for the three months ended June 30, 1998
primarily as a result of increased interest expense of $491,382 for the quarter
ended June 30, 1999 compared to $357,264 for the quarter ended June 30, 1998.
As a result of the above, the Company reported a loss before income
taxes for the three months ended June 30, 1999 of $76,714, compared to income
before taxes of $335,660 for the three months ended June 30, 1998.
The Company reported a net loss of $47,714 for the three months ended
June 30, 1999 (reflecting an effective tax benefit of 37%) compared to net
income of $210,629 for the three months ended June 30, 1998 (reflecting an
effective tax rate of 37.2%).
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues decreased by $2,203,849 (14.3%) to $13,231,090 for the six
months ended June 30, 1999 from $15,434,939 for the six months ended June 30,
1998. The decrease in revenues was primarily due to decreased revenue from
films first available for release in the six months ended June 30, 1999
(approximately $6,842,500 from six films) compared to the six months ended
June 30, 1998 (approximately $9,165,800 from eight films, including WAKING
NED DEVINE).
Film costs as a percentage of revenues decreased to 81.3% for the six
months ended June 30, 1999, compared to 81.9% for the six months ended June 30,
1998. The decrease was primarily due to lower negotiated fee rates (the
Company's gross margin) on films generating the greatest amount of revenue in
the six months ended June 30, 1999 compared to the six months ended June 30,
1998.
Selling, general and administrative expenses, net of amounts
capitalized to film costs, decreased by $55,124 (3.6%) to $1,464,986 for the six
months ended June 30, 1999 from $1,520,110 for the six months ended June 30,
1998. This decrease was primarily due to decreased compensation costs
(approximately $113,385), decreased license and fee costs (approximately
$24,925), decreases in costs associated with reporting as a public company
(approximately $15,748), decreased directors and officers insurance premiums
(approximately $11,596), decreased leasing costs (approximately $10,277), and
decreased research and development costs (approximately $10,056). The decreases
were partially offset by increases in bad debt expense (approximately $79,440)
and contract labor and consulting fees (approximately $73,327).
Other expense increased to $932,389 for the six months ended June 30,
1999 compared to $610,281 for the six months ended June 30, 1998, primarily as a
result of increased interest expense of $963,858 for the six months ended June
30, 1999 compared to $687,862 for the six months ended June 30, 1998. The
increase in interest expense was primarily the result of less interest costs
being capitalized to film costs in the six months ended June 30, 1999 compared
to the six months ended June 30, 1998.
As a result of the above, the Company had net income before income
taxes of $82,632 for the six months ended June 30, 1999, compared to a net
income before income taxes of $669,985 for the six months ended June 30, 1998.
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The Company had net income of $52,632 for the six months ended June 30,
1999 (reflecting an effective tax rate of 37%) compared to a net income of
$418,815 for the six months ended June 30, 1998 (reflecting an effective tax
rate of 37.5%).
Liquidity and Capital Resources
The Company requires substantial capital for the acquisition of film
rights, the funding of distribution costs and expenses, the payment of ongoing
overhead costs and the repayment of debt. The principal source of funds for the
Company's operations has been cash flow from operations and, prior to the 1998
amendment to the Syndication Agreement (described below), bank borrowings,
primarily through the Company's credit facility described below.
The Company has a credit facility (the "Credit Facility") under an
agreement (the "Syndication Agreement") with Coutts & Co., as an agent and
lender, and Bank Gesellschaft, formerly Berliner Bank A.G. London Branch, as a
lender (collectively, the "Lenders"). Prior to the 1998 amendment to the
Syndication Agreement (described below), which among other things, altered
availability under the Credit Facility, the Syndication Agreement provided for
total borrowings of $27,000,000, of which up to $5,000,000 could be borrowed on
a revolving basis for the Company's working capital needs (the "Operating
Facility"), up to $1,000,000 (the "Local Facility") is available to be issued as
letters of credit to secure a local bank line of credit (the "Local Line"), and
up to $21,000,000 could be borrowed to fund the acquisition of motion pictures
or to fund distribution costs, including print and advertising costs, associated
with motion pictures acquired by the Company (the "Film Facilities"). The
interest rate payable on borrowings under the Syndication Agreement is 3% above
the London Inter-Bank Offered Rate ("LIBOR") in effect from time to time for
one, three or six months, as requested by the Company. In addition to an annual
management fee, there is a commitment fee on the daily unused portion of the
Operating Facility of 1% per annum, and fees with respect to the Local Facility
of 2% of the face amount of issued letters of credit. Fees on the Film
Facilities include 2% of the amount of cash advances or, in most circumstances,
2% of the face amount of each letter of credit issued under the Film Facilities,
as well as a percentage of gross receipts of the film acquired or financed
payable from the Company's net earnings from the film.
The Company borrowed funds under Film Facilities on a film-by-film
basis, with each Film Facility treated as a separate loan, generally maturing 12
months after the first draw down. The Syndication Agreement required Coutts and
Berliner to approve each separate Film Facility, such approval to be granted in
their sole discretion. Amounts available under the Film Facilities were also
available to be issued as letters of credit or bank guarantees. As of June 30,
1999, an aggregate of approximately $11,060,151 was outstanding under the Film
Facilities and $7,234,340 was outstanding under the Operating Facility, at an
average interest rate on all such outstanding amounts of approximately 8.1% per
annum. As of June 30, 1999, $1,000,000 in face amount of letters of credit also
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had been issued under the Local Facility to secure a line of credit that the
Company has received from City National Bank (under which no balance was
outstanding as of June 30, 1999). If the letters of credit are drawn upon, the
Company must repay the amounts advanced by the banks upon demand.
The Syndication Agreement is secured by substantially all of the assets
of the Company and its subsidiaries. This agreement contains a number of
covenants and other requirements, including that the Company maintain a
consolidated net worth of $12,000,000 (which requirement was subsequently waived
and reduced to $11,000,000 as part of the 1998 Facility Amendment described
below) and that 30% of the amount outstanding under the Film Facilities
(including issued but unexercised letters of credit) be collateralized by cash
or receivables acceptable to the banks. The agreement also contains requirements
that may substantially restrict the payment of dividends by the Company. The
Syndication Agreement also restricts the creation or incurrence of indebtedness
and the issuance of additional securities and requires aggregate key man life
insurance of $6,750,000 on Ms. Little, Mr. Little, Co-Chairs of the Board and
Co-Chief Executive Officers, and Mr. Lischak, Chief Operating Officer and Chief
Financial Officer. Events of default under the Syndication Agreement include: a
change of control of the Company; the failure, in certain circumstances, of
Ellen Dinerman Little or Robert B. Little to serve as a director or be employed
in the capacity set out in their respective employment agreements; the failure
of the Littles, together with their director nominees, to constitute a majority
of the Board of Directors of the Company; or a decrease in the Little ownership
in the Company below certain levels.
On April 14, 1998, the Company and the Lenders entered into an
agreement (the "1998 Facility Amendment") pursuant to which they amended the
Syndication Agreement to extend the date of the annual review and the expiration
of the commitment to lend under the Syndication Agreement from May 9, 1998 to
April 9, 1999, subject to continued compliance by the Company with the
Syndication Agreement and the terms of the 1998 Facility Amendment, and
establishment of the guarantee detailed below. Pursuant to the 1998 Facility
Amendment, the Company and the Lenders also agreed that the Film Facilities
would no longer be a revolving credit line and sums repaid could not be
re-borrowed. Additionally, the Company and the Lenders agreed that net receipts
from films financed under repaid Film Facilities would be used to reduce other
Film Facilities after the particular Film Facility had been repaid. As part of
the 1998 Facility Amendment, the Company also agreed to additional covenants and
requirements, including: (i) providing a series of additional monthly financial
reports to the Lenders, (ii) obtaining written approval of the Lenders prior to
entering into any new rights acquisitions or commitments and (iii) obtaining
written approval of the Lenders prior to committing to spend amounts in
connection with distribution expenses and costs for prints and advertising. As
part of the 1998 Facility Amendment, the Lenders reduced the minimum net worth
required to be maintained by the Company to $11,000,000 subject to further
review on April 14, 1999 and waived any prior non-compliance with such covenant.
As part of the 1998 Facility Amendment, Ms. Little and Mr. Little
agreed to personally guarantee for the benefit of the Lenders all amounts in
excess of $6,000,000 (up to a maximum guarantee amount of $618,000) drawn under
the Operating Facility; provided that the guarantee would be extinguished when
the amounts outstanding under the Operating Facility were permanently reduced to
less than $6,000,000.
As part of the 1998 Facility Amendment, Ms. Little and Mr. Little
agreed to continue to defer payments under the promissory note that they
received in connection with the merger of Overseas Filmgroup, Inc. into the
Company in October 1996 ("Merger Note"), which the Company began deferring in
May 1997. Payments under the Merger Note accrue but are being deferred with
interest until (i) outstanding borrowings under the Operating Facility are
reduced to at least $5,000,000, (ii) the Company and the Lenders view that such
reduction is permanent and (iii) not before May 1999 (the "Deferral Lapse
Date"); provided, however, that prior to the Deferral Lapse Date, pursuant to
the recent amendment to the Syndication Agreement described below, an amount
equal to the Littles' aggregate weekly salary can be paid to the Littles on a
weekly basis towards repayment of the Merger Note so long as the Littles defer
such weekly salary payments until the Deferral Lapse Date. The Littles' salary
is currently accruing and payments are being deferred, without interest, and
applied towards the Merger Note on such basis. The Merger Note has been extended
for the period of time payments are deferred and continue to bear interest, and
12
<PAGE>
the monthly payments will be adjusted to compensate for additional interest
accrued pursuant to such deferral. The rights of Ms. Little and Mr. Little under
the Merger Note and related security agreement are not otherwise affected. At
August 13, 1999, an aggregate of approximately $2,066,111 in principal and
interest was outstanding under the Merger Note (including an aggregate of
approximately $1,031,106 in deferred payments of principal and interest).
The Syndication Agreement requires that amounts outstanding under the
Operating Facility be repaid on the date that the commitment to lend under the
Syndication Agreement expires. The commitment to lend under the Syndication
Agreement was scheduled to expire on April 9, 1999, the date of the annual
review. However, on April 9, 1999, the Company and the Lenders entered into an
agreement (the "1999 Facility Amendment") pursuant to which they amended the
Syndication Agreement to extend the date of the annual review and the expiration
of the Credit Facility to April 9, 2000, subject to continued compliance by the
Company with the Syndication Agreement and the terms of the 1999 Facility
Amendment. Additionally, the Lenders agreed to extend the maturity dates on all
film facilities to April 9, 2000, except for one film facility which is due on
October 31, 1999 (as of August 13, 1999, $53,201 was outstanding). In addition,
the Syndication Agreement, as amended, provides that the Company can borrow an
additional $1,850,000 to pay a minimum guarantee with respect to the film
ILLUMINATA which has been co-financed by the Company and for which production
costs were funded by Coutts. Pursuant to the 1999 Facility Amendment, the
Company agreed to provide additional information to the Lenders and to engage in
additional consultation with the Lenders and their advisors. The Lenders have
indicated their desire that the Company fully repay amounts outstanding under
the existing credit facility and instead seek an alternate financing source.
Additionally, the Lenders have imposed additional fees of up to an aggregate of
$250,000 in to be paid by the Company if the credit facility is not refinanced
on or prior to April 9, 2000. Further, the Banks waived certain non-compliance
with various covenants under the Syndication Agreement including (i) the
continued waiver of the requirement to maintain a net worth of $12,000,000,
reducing such requirement to $11,000,000; (ii) any non-compliance with certain
ordinary course liabilities; (iii) the Company not having secured letters of
credit or bank guarantees for license agreements with certain sub-distributors;
(iv) the Company's non-compliance with the annual overhead budget established in
the 1998 Facility Amendment; and (v) the Company's non-compliance with the
requirement that 30% of the amount outstanding under the Film Facilities
(including issued but unexercised letters of credit) be collateralized by cash
or receivables acceptable to the banks. Additionally, the Lenders established an
agreement with respect to the Company's overhead levels for the twelve months
beginning April 9, 1999.
As of August 13, 1999, the Company had acquired rights to distribute or
act as sales agent with respect to ten films which are expected to first be
available for release in 1999 and with respect to two films which are expected
to first be available for release in 2000. The Company intends to acquire rights
to distribute or act as sales agent for approximately two to five additional
films which are expected to first be available for release in 1999 and
approximately ten to thirteen additional films which are expected to first be
available for release in 2000. As the Credit Facility does not provide available
funding for any new rights acquisition and requires the consent of the Lenders
prior to the Company entering into any new rights acquisitions or commitments to
spend amounts in connection with distribution expenses and costs for prints and
advertising, the Company's ability to achieve its goals will depend on the
Lenders' willingness to permit the Company to enter into new rights acquisitions
and commitments, as well as commitments for distribution expenses and prints and
advertising, and its ability to obtain other sources of funds for its
acquisition and operational activities, including obtaining pre-sale
13
<PAGE>
commitments, third party equity sources and accessing funds from financial
institutions providing financing to producers based upon the Company's estimate
of the value of unsold distribution rights to a motion picture ("gap
financing"). However, there can be no assurance as to the future availability of
pre-sales, equity and gap financing in amounts sufficient to meet the Company's
acquisition, financing and distribution goals. In addition, the Company
currently anticipates releasing films through First Look, in most situations,
only if outside sources of funds are available for print and advertising
expenses. As a result of the foregoing, and because the motion picture business
and the Company's operations are subject to numerous additional uncertainties,
including the specific financing requirements of various film projects, the
audience response to completed films, competition from companies within the
motion picture industry and in other entertainment media (many of which have
significantly greater financial and other resources than the Company) and the
release schedules of competing films, no assurance can be given that the
Company's acquisition, financing and distribution goals will be met or that such
goals will not be exceeded.
As of August 13, 1999, the Company currently estimates that $200,000
will be payable to the Littles under the provisions of a tax reimbursement
agreement. Additionally, as of August 13, 1999, the Company owed the following
amounts to the Littles: (i) an aggregate of $456,600 (including accrued
interest) in connection with amounts loaned to the Company for print and
advertising costs associated with the domestic theatrical release of MRS.
DALLOWAY; (ii) $279,110 as deferred salary; (iii) $123,626 as reimbursement for
expenses; and (iv) $125,000 for deferred bonuses.
The Company has guaranteed a loan from a bank to Neo Motion Pictures
due on September 11, 2000, the balance of which at August 13, 1999 was $87,077
in principal and accrued interest.
As of June 30, 1999, the Company had cash and cash equivalents of
$119,956 compared to cash and cash equivalents of $537,652 as of December 31,
1998. Additionally, at June 30, 1999, the Company had restricted cash of $1,250
held by the Company's primary lender, to be applied against various Film
Facilities.
The Company believes that its existing capital, funds from operations,
borrowings under the Credit Facility, and other available sources of capital
will be sufficient to enable the Company to fund its planned acquisition,
distribution and overhead expenditures for the next twelve months. In the event
that the motion pictures released or distributed by the Company during such
period do not meet with sufficiently positive distributor and audience response,
sales and licensing of distribution rights to films in the Company's film
library and films which the Company plans to release or make available to
sub-distributors during such period are less than anticipated or the Company is
not able to exploit various sources of capital (such as pre-sales and gap
financing) to the extent anticipated, the Company will likely need to
significantly reduce its currently planned level of acquisitions and
distribution activities and overhead and will likely need to obtain additional
sources of capital. The Company is currently exploring obtaining additional
sources of capital including equity and debt financing. There can be no
assurance, however, that such additional capital will be available or available
on terms advantageous to the Company.
IMPACT OF YEAR 2000
Introduction. The term "year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
14
<PAGE>
year 2000 is approached and reached. These problems generally arise because most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the 2000's from dates in the 1900's. Year 2000 issues
also may arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
State of Readiness. The Company has assessed its computer systems
(software, hardware, including embedded microprocessors and other technology) in
order to determine whether such systems recognize the year 2000. Based upon such
assessment the Company ascertained that all of the Company's computer systems
were year 2000 compliant except for the Company's accounting system. As a
result, the Company has upgraded its accounting system. The upgrade has both
expanded the capabilities of the system and resolved the year 2000 issues
associated with the current system. The Company does not currently anticipate
that any additional material changes will be required or that the year 2000
issue will pose significant operational problems for the Company. If any
unanticipated problems arise, the year 2000 issue may take longer for the
Company to address and could have a material adverse effect on the Company's
financial condition and results of operations.
The Company has primarily focused on its own internal systems. The
Company does not currently have a basis upon which to estimate the impact on the
Company of year 2000 non-compliance by the Company's major licensees and
sub-distributors. It is possible that non-compliance to year 2000 concerns by
the Company's major licensees and sub-distributors could have a material adverse
effect on the Company, by, for example, delaying payments by such parties. At
this time, the Company does not have plans to institute a program to review year
2000 compliance by its major licensees and sub-distributors in order to
determine exposure to year 2000 issues.
Costs to Address the Year 2000 Issue. The Company spent approximately
$10,000 to upgrade its accounting system, which was funded from the Company's
existing capital from operations. The Company does not believe that the costs of
solving the internal year 2000 issues has had or will have a material adverse
effect on its liquidity or financial condition. However, if unanticipated
problems arise, certain additional costs may be identified. There can be no
assurance that such additional costs will not have a material adverse effect on
the Company's financial condition and results of operations.
Risks of Year 2000 Issues. To date, the Company has not identified any
of its computer systems which present a material risk of not being year 2000
ready in a timely fashion or for which a suitable alternative cannot be
implemented. The failure of the Company to identify systems which require year
2000 conversion that are important to the Company's operations or the failure of
others with which the Company does business to become year 2000 ready in a
timely manner could disrupt the Company's operations and have a material adverse
effect on the Company's financial condition and results of operations. Such
disruption may include, among other things, the inability to process
transactions or information, record and access data relating to the availability
of titles in the Company's library for licensing and distribution, send invoices
or engage in similar normal business activities. There can also be no assurance
that other parties will not suffer a year 2000 business disruption that may
adversely effect the Company's financial condition and results of operations.
For example, in the event third parties experience year 2000 business
disruptions, payments to the Company may be delayed.
Contingency Plans. Because the update of the Company's accounting
system conversion has been completed prior to any potential disruption to the
15
<PAGE>
Company's business, the Company has not yet developed a comprehensive year 2000
specific contingency plan. If the Company determines that its business or a
segment thereof is at material risk of disruption due to the year 2000 issue,
the Company will work to enhance its contingency plans.
The discussion above contains certain forward-looking statements. The
estimated costs of the year 2000 issues and possible risks associated with the
year 2000 issue are based on the Company's current estimates and are subject to
various uncertainties that could cause the actual results to differ materially
from the Company's expectations. Such uncertainties include, among other things,
the success of the Company in identifying its systems that are not year 2000
compliant, the nature and amount of programming required to upgrade such
systems, consultants and other resources, and the success of the year 2000
conversion efforts of others.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates. The Company does not use derivative financial instruments. Because very
few of the Company's revenues are denominated in foreign currency, the Company
does not believe there is a significant risk imposed on the Company due to the
fluctuations in foreign currency exchange rates. The table below provides
information about the Company's debt obligations including principal cash flows
and related weighted average interest rates by expected maturity dates:
<TABLE>
<CAPTION>
Expected Maturity Date
(000's)
-----------------------------------------------------------
1999 2000 2001 2002 2003 thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Fixed Rate:
Notes payable to related parties*
Average Interest Rate 9% 9% 9% 9% 9% 9%
Variable Rate:
Notes Payable $243 $20,252 0 0 0 0
Average Interest Rate 9.13% 8.34%
</TABLE>
* Represents amounts payable to Ellen Dinerman Little and Robert Little which
are currently being deferred pursuant to an agreement with the Company's
lenders and an arrangement between the Company and the Littles.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of August 13, 1999, the Company is not a party to any litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
During the three months ended June 30, 1999, the Company did not make
any sales of unregistered securities. However, on July 19, 1999, the Company
made the following sale of unregistered securities:
<TABLE>
<CAPTION>
Consideration
Received and
Description of If Option,
Underwriting or Warrant or
Other Discounts or Convertible
to Market Exemption from Security, Terms
Title of Price Afforded Registration of Exercise or
Date of Sale Security Number Sold to Purchasers Claimed Conversion
-------------- ---------- ------------ ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
7/19/99 Common Stock 562,527 11,302 shares of 4(2) N/A
common stock of
broadcast.com
(subsequently
converted into
8,727 shares of
common stock of
Yahoo!)
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.34 Agreement, dated July 19, 1999, between broadcast.com
inc. and the Company (as indicated by asterisk,
portions of this agreement have been redacted
pursuant to a confidentiality request)
27 Financial Data Schedule (6/30/99)
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OVERSEAS FILMGROUP, INC.
August 23, 1999 By: /s/ William F. Lischak
-----------------------
William F. Lischak
Chief Financial Officer, Chief
Operating Officer and Secretary
18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------
10.34 Agreement, dated July 19, 1999, between broadcast.com inc. and the
Company (as indicated by asterisk, portions of this agreement have
been redacted pursuant to a confidentiality request)
27 Financial Data Schedule (6/30/99)
19
CONFIDENTIAL TREATMENT REQUESTED
The asterisked portions of this document have been
omitted and are filed separately with the Commission
MOVIE AND MOTION PICTURE PROGRAMMING AGREEMENT
This Agreement (this "Agreement") is entered into by and between broadcast.com
inc., a Delaware corporation ("broadcast.com") and Overseas Filmgroup, Inc. a
Delaware corportation ("Overseas"), known jointly as the Parties, this 19th day
of July, 1999 (the "Effective Date"). In consideration of the mutual covenants
and agreements of the Parties herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
1. DEFINITIONS:
(a) "Access Fee" is a fee paid by a User in order to access a
transmission, display or performance of the Movies on the System.
(b) "Access Page" is a Web page on the broadcast.com Web site that is
designed by broadcast.com in accordance with the "look and feel" of
the broadcast.com Web site (subject to Overseas' reasonable approval),
through which the Movies will be accessible, and through which
consumers will be able to access, view, and order copies of the Movies
and the Merchandise.
(c) "Broadcast Inventory" shall mean internal program breaks within the
transmission of the Movies to broadcast.com Users, similar in
character to traditional broadcast television commercial breaks or
theatrical film previews. The term shall not include framing,
messages, or any other material visible or audible during the entire
length of the Movie broadcast on any broadcast.com Web site or to any
User.
(d) "broadcast.com Licensee" is an on-line distributor or retailer of
hard copies of the Movies in videocassettes, DVDs, videodisks, or
similar format, as designated by broadcast.com.
(e) "Marks" are a party's logos, trade names, trademarks and service
marks, collectively.
(f) "Merchandise" shall include selected merchandise, other than video
cassettes, video discs, DVD, and similar hard copies of the Movies,
that relates to the Movies to be offered for sale by Overseas through
an Order Now Button on certain Access Pages as designated by
broadcast.com.
(g) "Movies" are all movies and motion pictures and other audiovisual
works embodied in videotapes, DVD and/or other video masters listed on
the attached EXHIBIT A (each individually a "Movie") as may be updated
from time to time pursuant to Paragraph 6(h) herein, (which shall be a
minimum of 50 titles upon execution of this Agreement and shall
increase to a minimum of 70 titles pursuant to Paragraph 6(h) herein),
including related materials such as EPKs, synopses, reviews and
biographies of such Movies. The Movies provided by Overseas may be
movies, motion pictures and audiovisual works owned by Overseas or
licensed from third parties.
(h) "Order Now Button" is a button or text link on the broadcast.com Web
site linked directly to a Yahoo! Store on the Yahoo! Web site or the
Web site of a broadcast.com Licensee, which button or text link
appears in close proximity to a description or other reference to the
Movies and/or Merchandise and which contains the words "Order Now,"
"Buy It" or words of similar import, and/or permits users to purchase,
or facilitates the purchase of, the applicable Movies and/or
Merchandise by clicking on such button or link.
(i) "System" is any wired network (including, without limitation, the
Internet, the Internet II, or any other online services network which
utilizes computer terminals, terminal servers, modems, cable modems,
HFC, coaxial cable, xDSL, routers, splitters, switches, multicasting
technology, power lines, or other high speed data connections and any
and all other wired networks whether now in existence or hereafter
devised) that distributes audio or video using digital algorithms, one
and/or two-way digital services, or any wireless network that provides
access to such wired network, also whether now in existence or
1
<PAGE>
hereafter devised (except traditional AM/FM radio broadcast stations
and television broadcast stations, direct broadcast satellite, pay
cable and basic cable). (j) "User" is a broadcast.com Access Page
registered user. (k) "Yahoo! Store" is the merchant service owned and
operated by Yahoo! Inc. and marketed under the name "Yahoo! Store."
2. OVERSEAS COVENANTS:
(a) Rights. Overseas hereby grants to broadcast.com the United States
exclusive right and license to encode (and modify to the extent
reasonably required to encode), store, publicly distribute, perform,
display, copy, transmit, broadcast, and market the Movies on the
System for the term of this Agreement. Such right and license will be
subject to the territory and Internet transmission dates, and third
party restrictions specified on EXHIBIT A as may be updated from time
to time. In addition, broadcast.com has the right to maintain a copy
of the Movies to be included and preserved in broadcast.com's archives
at broadcast.com's sole discretion and expense. Further Overseas
grants broadcast.com the right to use excerpts from the Movies,
including still images and likenesses, for general business purposes
and for promotion of broadcast.com subject to third party restrictions
and the reasonable approval of Overseas which shall not be
unreasonably withheld. [*]
(b) Non-Disturbance Agreement. The grant of rights and license set forth
in Paragraph 2(a) of this Agreement shall be subject to a
Non-Disturbance Agreement entered into between broadcast.com and
Coutts & Co., and Bank Gesselschaft, in substantially the form set
forth on EXHIBIT B attached hereto and incorporated herein by
reference. In the event such Non-Disturbance Agreement is not executed
within thirty (30) days following the date of execution of this
Agreement, broadcast.com shall have the right to terminate this
Agreement effective immediately upon notice to Overseas of such
termination.
(c) Promotion of broadcast.com. Overseas hereby agrees to place the
broadcast.com Marks on the Overseas Web site, solely in accordance
with broadcast.com's trademark usage guidelines, to provide a
prominent hyperlink from the Overseas Web site to the Access Page(s),
and to use the Overseas Web site, press materials and publications, in
connection with the advertising and packaging of the Movies (all
subject to Paragraph 4(b)), to promote the transmission, distribution,
performance and display of the Movies by broadcast.com. In addition,
subject to restrictions of video and/or DVD distributors, Overseas
will provide broadcast.com with promotional placement time in VHS and
DVD copies of the Movies, and will use good faith efforts to include
broadcast.com's logo and URL in connection with all promotions of the
hard and broadcast copies of the Movies, including, without
limitation, in movie posters.
(d) Overseas Materials. Within thirty (30) days of the effective date of
this Agreement, Overseas agrees to provide broadcast.com with: (i)
master copies of the Movies in a format from which broadcast.com will
have the commercially reasonable ability to encode and transmit on the
System as contemplated by this Agreement (e.g., on1/2inch, VHS, DVD,
D2 or other mutually acceptable format); (ii) written descriptions of
each Movie, including the plotline, running time and primary cast
members thereof; and (iii) the logo, product illustrations,
__________________
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
2
<PAGE>
advertisements and other promotional material of Overseas requested by
broadcast.com. Overseas will be deemed to have approved all such
materials so submitted by Overseas to broadcast.com.
(e) Overseas' Marks. Subject to any restrictions or limitations provided
by Overseas to broadcast.com in writing, Overseas hereby grants to
broadcast.com the right and license to use Overseas' Marks, and the
marks, names, and likenesses of all third parties associated with the
Movies and Merchandise, in print, audio, on-line and other advertising
for the promotion of the Movies, the relationship of the Parties, and
in other means in connection with this Agreement. Unless stated
otherwise in writing, all artwork provided by Overseas to
broadcast.com shall be deemed acceptable for broadcast.com's
promotional purposes (e.g. video boxes, one sheets).
(f) Merchandise Sales. Broadcast.com shall place Order Now Buttons on
the broadcast.com Web site, at such locations as determined by
broadcast.com, intended to link directly to a Yahoo! Store to enable
Users to purchase Merchandise. As between broadcast.com and Overseas,
Overseas shall be solely responsible for processing all orders for
Merchandise through every aspect of each transaction, including
receiving, filling, shipping and handling, collecting payment,
tracking and transaction security ("Transaction Responsibilities").
All orders for Merchandise shall be placed by customers directly with
Overseas. Overseas agrees to comply with the Yahoo! Store standard
terms and conditions located at the following URL:
http://store.yahoo.com/vw/terofser.html; provided however that the fee
structure shall be as follows: Overseas will pay broadcast.com [*]
derived from the sale of Merchandise to Users that accessed the Yahoo!
Store through an Order Now Button.
(g) Movie Sales. Broadcast.com shall place Order Now Buttons on the
broadcast.com Web site, at such locations as determined by
broadcast.com, intended to link directly to a Yahoo! Store to enable
Users to purchase hard copies of certain Movies. Overseas will be
solely responsible for processing all orders for the purchase of hard
copies of the Movies hereunder and for all related Transaction
Responsibilities. Overseas will pay broadcast.com [*] as a result
of sales of Movies to Users that accessed the Yahoo! Store through an
Order Now Button. In addition, upon the mutual agreement of the
Parties, broadcast.com may make the Movies available for sale on
videocassette, videodisc, DVD, or similar hard-copy media through a
broadcast.com Licensee. In such case, the Order Now Button on the
Access Page would then link to such broadcast.com Licensee's Web page
and broadcast.com shall pay Overseas [*] In the event Overseas does
not hold the right to sell hard copies of Movies provided by Overseas
to broadcast.com, Overseas will use its commercially reasonable
efforts to negotiate with all third parties who hold such rights for
the right to sell and distribute hard copies of such Movies as set
forth in this Paragraph 2(f), along with the right to grant all
necessary sublicenses to broadcast.com to exercise those rights.
(h) Sales Tracking. Overseas will provide a mechanism to track Users
from the broadcast.com site who purchase Movies and Merchandise from
Overseas. Overseas shall provide to broadcast.com on a quarterly basis
an accounting of all such revenue and costs, and shall pay all sums
due and owing to broadcast.com within thirty (30) days of the end of
each calendar quarter.
__________________
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
3
<PAGE>
3. BROADCAST.COM COVENANTS:
(a) Infrastructure. Broadcast.com will use commercially reasonable
efforts to: (i) provide the communications infrastructure supporting
the access, transmission, display and performance of Movies on the
System to Users; and (ii) procure and maintain the technical hardware
and software necessary to distribute the Movies over the System.
(b) Encoding. Broadcast.com will use commercially reasonable efforts to
encode the Movies provided by Overseas and make such Movies available
on the broadcast.com Web site for access and viewing by Users.
Notwithstanding the foregoing, broadcast.com will not have any
obligation to so encode or make available any Movies that
broadcast.com reasonably determines are inconsistent with
broadcast.com's general censorship standards (e.g. pornographic
material); provided, however, that broadcast.com will not make any
such determination relative to materials rated by the MPAA as "R" or
less restrictive.
(c) Reporting. Broadcast.com will provide Overseas access to a password
protected Web page that will include the statistics relating to
viewership of the Movies. Such information will be updated on a weekly
basis.
(d) Pay-Per-View. The parties may mutually agree to make the Movies
available on a pay-per-view basis over the System, in which case
broadcast.com shall collect an Access Fee from Users on behalf of
Overseas in order to access the Movies. In the event the parties agree
to make the Movies available on a pay-per-view basis over the System,
such pay-per-view broadcast rights will be exclusive to broadcast.com
over the System[*]. The parties will mutually agree upon the prices to
be charged for Access Fees for each Movie; [*].
(e) Access Pages. Broadcast.com will host the Access Page(s) on the
broadcast.com domain. The Movies will be accessible for viewing from
such locations on the System designated by broadcast.com, including,
but not limited to, the Access Page(s). At Overseas' reasonable
request, broadcast.com shall prepare separate Access Pages for each
Movie.
(f) Broadcast Inventory. Broadcast.com will have the sole, exclusive
right to sell Broadcast Inventory of the Movies. [*]
Overseas will be solely responsible for inserting the Broadcast
Inventory advertising into the Movies prior to delivery to
broadcast.com; provided, however, that Overseas will not insert any
Broadcast Inventory into any Movie which is designated as Pay-Per-View
pursuant to Section 3(d). The Parties acknowledge and agree that the
Broadcast Inventory shall comprise no more than ten (10) minutes per
hour of any Movie. (g) Advertising. Notwithstanding any other
provision of this Agreement, Overseas acknowledges that broadcast.com
shall retain the exclusive right to sell all advertising, and to all
revenue derived therefrom, including sponsorships of the Movies and
Access Pages, audio/video gateway advertising, and all other
advertising that appears on the Access Pages, and shall accept or
refuse any such advertising in its sole discretion.
(g) Advertising. Notwithstanding any other provision of this Agreement,
Overseas acknowledges that broadcast.com shall retain the exclusive
right to sell all advertising, and to all revenue derived therefrom,
including sponsorships of the Movies and Access Pages, audio/video
gateway advertising, and all other advertising that appears on the
Access Pages, and shall accept or refuse any such advertising in its
sole discretion.
__________________
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
4
<PAGE>
(h) No Representations. Overseas acknowledges that broadcast.com does not
make any representations or warranties regarding the ability or
exposure of the System, amount of revenue to be realized from the
System or associated advertising, and that there are no guarantees
regarding same. Overseas further acknowledges that there is no
assurance that the market opportunity for the Movies presently
believed to exist will continue to exist at a commercially reasonable
level. Accordingly, broadcast.com will have no obligation to market or
to continue to market the Movies, and the determination as to whether
or not to market or to continue to market the Movies, for any reason
whatsoever, shall be made by broadcast.com in its sole and absolute
discretion [*]. Overseas acknowledges that: (i) broadcast.com has made
no representation as to the possible or expected success of, or
perceived need for, the Movies; and (ii) in entering into this
Agreement Overseas is not relying upon any representation by
broadcast.com, except for representations, if any, expressly and
unambiguously set forth in this Agreement.
(i) No Modifications. Broadcast.com agrees that it will not edit or
modify the Movies except as otherwise expressly provided herein.
(j) Broadcast.com Marks. Subject to third party contractual restrictions
provided by broadcast.com and broadcast.com's trademark usage
guidelines, broadcast.com hereby grants to Overseas the right to use
broadcast.com's Marks in print, audio, on-line and other advertising
for the promotion of the Movies, the relationship of the Parties, and
in other means in connection with this Agreement, all consistent with
Overseas' covenants set forth herein.
4. CONFIDENTIALITY:
(a) Obligation. Neither party shall, without the prior written consent
of the other party, use or disclose, or permit any of its agents,
employees or professional advisors to use or disclose, any non-public
information disclosed by it to the other party. Each party shall only
transmit such confidential information to its agents, employees and
professional advisors who need to know such information and who shall
agree to be bound by the terms and conditions of this Paragraph.
Information regarded as confidential includes, but is not limited to,
the terms of this Agreement and data relating to the transmission,
distribution, performance and display of the Movies or materials
related thereto. Notwithstanding the foregoing, the provisions of this
Paragraph shall not apply to, and the term "confidential information"
shall exclude, information regarding the existence of this Agreement,
information generally available to the public, information rightfully
obtained from other sources, information previously known to the
receiving party, and information required to be disclosed pursuant to
law or court order (provided that the party subject to such law or
court order provides the other party with reasonable written notice
thereof).
(b) No Press Release. Neither Party shall issue a press release or make
a public announcement or any disclosure to any third party related to
the transactions contemplated by this Agreement without the prior
approval of such release, announcement or disclosure by the other
Party.
5. CONSIDERATION: In exchange for the strategic business relationship
described in this Agreement, and in exchange for the number and kind of
shares described in Section 5(b) below, and at broadcast.com's sole
option, broadcast.com will either (i) pay Overseas a cash fee equal to
$1,430,929, ("Payment Alternative") or (ii) issue broadcast.com shares
of stock to Overseas as described in Section 5(a) below ("Stock
Alternative").
__________________
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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(a) Stock Alternative. At the sole option of broadcast.com and subject
to the terms and conditions set forth in this Agreement, on the
Effective Date broadcast.com shall sell and issue to Overseas, and
Overseas shall purchase from broadcast.com 11,302 shares of
broadcast.com's common stock, par value $0.01 per share (the
"Broadcast.com Stock"), in exchange for the number and kind of shares
described in Section 5(b) below and the strategic business
relationship described in this Agreement. On the Effective Date,
broadcast.com will acknowledge receipt of the consideration provided
in Section 5(b) below representing the purchase price for the
Broadcast.com Stock and Overseas will acknowledge receipt of
broadcast.com's stock certificate representing the Broadcast.com
Stock.
(b) Sale and Issuance of Overseas Stock.
(i) Stock Issuance. Subject to the terms and conditions set forth
in this Agreement, on the Effective Date Overseas shall sell and
issue to broadcast.com, and broadcast.com shall purchase from
Overseas 562,527 shares of Overseas' common stock, par value
$0.01 per share (the "Overseas Stock"), in exchange for the fee
set forth above in the Payment Alternative or, at broadcast.com's
sole option, in exchange for the number and kind of shares
described in the Stock Alternative in Section 5(a) above. On the
Effective Date, Overseas will acknowledge receipt of the
consideration provided in Section 5, representing payment in full
for the Overseas Stock and the license and other rights granted
to broadcast.com under this Agreement and broadcast.com will
acknowledge receipt of Overseas' stock certificate representing
the Overseas Stock.
(ii) Issuance Adjustment. If Overseas issues, within one (1) year
after the Effective Date, any Overseas Stock for a per share
consideration that is less than the effective per share
consideration of the Overseas Stock provided to broadcast.com
pursuant to Section 5(b)(i) as determined by dividing the number
of shares of Overseas Stock already issued to broadcast.com into
the fee set forth in the Payment Alternative (the "Effective Per
Share Consideration") (such transaction being referred to as a
"New Issuance"), then Overseas shall issue to broadcast.com, on
the date of the New Issuance, such number of additional shares of
Overseas Stock as are necessary so that the Effective Per Share
Consideration, after taking into account the new shares issued to
broadcast.com pursuant to this section and any stock splits,
shall be equal to the per share consideration paid to Overseas in
the New Issuance. Notwithstanding the foregoing, the provisions
of this Paragraph 5(b)(ii) shall not apply to normal course
employee stock options and other issuances of Overseas stock, all
of less than one (1%) percent, cumulatively, of Overseas issued
and outstanding stock immediately following the Transaction.
(c) Representations and Warranties of Issuer.
(i) Representations and Warranties of Broadcast.com as Issuer under
Stock Alternative. In the event broadcast.com elects the Stock
Alternative as described in Section 5(a) above, broadcast.com
represents and warrants to Overseas in connection with the sale
and issuance of the Broadcast.com Stock as follows:
(a) Organization and Standing. Broadcast.com is a corporation
duly organized, validly existing under and by virtue of the
laws of the State of Delaware and is in good standing under
such laws.
(b) Authorization. On the Effective Date, the shares of the
Broadcast.com Stock will be duly authorized and, when
delivered, will be duly and validly issued and outstanding,
fully paid and nonassessable, and are free to the holders
thereof of any liens, encumbrances and restrictions. No
person has any right of first refusal or any preemptive
rights in connection with the issuance of the shares of the
Broadcast.com Stock.
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(c) Compliance With Other Instruments. Broadcast.com is not in
violation of any term of its Certificate of Incorporation or
Bylaws, or any material agreement, mortgage, indenture,
debenture, trust, instrument, judgment, decree, order,
statute, rule or governmental regulation to which it is
subject (the "Other Instruments") except for such failures
as individually or in the aggregate would not have a
material adverse effect on the results of operations or
financial condition (a "Material Adverse Effect") of
broadcast.com. The execution, delivery and performance of
this Agreement and the issuance and sale of the
Broadcast.com Stock, or the taking of any other action
contemplated by this Agreement will not result in any
material violation of or be in conflict with or constitute a
material default (with or without notice, lapse of time or
both) under any of the Other Instruments, except for such
violations or conflicts which would not have a Material
Adverse Effect.
(d) SEC Reports. Broadcast.com has delivered or made available
to Overseas copies of the following reports of broadcast.com
(the "SEC Reports") heretofore filed with the SEC:
Registration Statement on Form S-1 (Reg. No. 333.52877) in
the form declared effective by the SEC, Form 10-Q for the
fiscal quarters ended September 30, 1998 and June 30, 1998.
Except as disclosed therein, none of the SEC Reports as of
their respective dates of filing contained any untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made,
not misleading. The financial statements of broadcast.com
included in the SEC Reports, with the notes thereto, are in
accordance with the books and records of broadcast.com, have
been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except
as may be stated in the notes to such statements and, in the
case of unaudited statements, as permitted by Form 10-Q)
throughout the periods covered by such statements and
present fairly (subject, in the case of unaudited
statements, to normal year-end adjustments) in all material
respects the financial condition of broadcast.com and the
results of its operations and cash flows for the periods
indicated.
(e) Absence of Changes. Since March 31, 1999, there has been
no event or condition of any character specifically relating
to broadcast.com which is likely to have a Material Adverse
Effect.
(f) Litigation. Except as set forth in the SEC Reports, there
are no litigation, claims, actions, proceedings or
investigations pending or, to the knowledge of
broadcast.com, threatened against broadcast.com, which might
have a Material Adverse Effect.
(g) Offering. Subject to the accuracy of the Overseas'
representations in Section 5 d(b) and 5 e(b) of this
Agreement, the offer, issuance and sale of the Broadcast.com
Stock constitute transactions exempt from the registration
and prospectus delivery requirements of Section 5 of the
Securities Act and broadcast.com has obtained (or is exempt
from the requirement to obtain) all qualifications, permits,
and other consents required by all applicable state laws
governing the offer, sale or issuance of securities.
(h) Governmental Consents. On the Closing date, no permit,
consent, approval or authorization of, or declaration to or
filing with, any governmental authority is required on
behalf of broadcast.com in connection with the execution,
delivery or performance of this Agreement or the
consummation of any transaction contemplated hereby, except
as have been obtained or accomplished or as would not have a
Material Adverse Effect.
(i) Compliance with Laws. Broadcast.com is not in violation of
any law, regulation or requirement (including, but not
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limited to, any law, regulation or requirement governing the
quality of the environment) which might have Material
Adverse Effect, and broadcast.com has not received notice of
any such violation.
(j) Brokers. No finder, broker, agent, financial advisor or
other intermediary has acted on behalf of broadcast.com in
connection with the offering of the Broadcast.com Stock or
the negotiation or consummation of this Agreement or any of
the transactions contemplated hereby.
(ii) Representations and Warranties of Overseas as Issuer. Overseas
represents and warrants to broadcast.com in connection with the
sale and issuance of the Overseas Stock as follows:
(a) Organization and Standing. Overseas is a corporation duly
organized, validly existing under and by virtue of the laws
of the State of Delaware and is in good standing under such
laws.
(b) Authorization. On the Effective Date, the shares of the
Overseas Stock will be duly authorized and, when delivered,
will be duly and validly issued and outstanding, fully paid
and nonassessable, and are free to the holders thereof of
any liens, encumbrances and restrictions. No person has any
right of first refusal or any preemptive rights in
connection with the issuance of the shares of the Overseas
Stock.
(c) Compliance With Other Instruments. Overseas is not in
violation of any term of their respective Charter, or any
material agreement, mortgage, indenture, debenture, trust,
instrument, judgment, decree, order, statute, rule or
governmental regulation to which it is subject (the "Other
Instruments") except for such failures as individually or in
the aggregate would not have a material adverse effect on
the results of operations or financial condition (a
"Material Adverse Effect") of Overseas. The execution,
delivery and performance of this Agreement and the issuance
and sale of the Overseas Stock, or the taking of any other
action contemplated by this Agreement will not result in any
material violation of or be in conflict with or constitute a
material default (with or without notice, lapse of time or
both) under any of the Other Instruments, except for such
violations or conflicts which would not have a Material
Adverse Effect.
(d) SEC Reports. Overseas has delivered or made available to
broadcast.com copies of the following reports of
broadcast.com (the "SEC Reports") heretofore filed with the
SEC: Form 10-K for the year ended December 31, 1998, and
Form 10-Q for the fiscal quarter ending March 31, 1999.
Except as disclosed therein, none of the SEC Reports as of
their respective dates of filing contained any untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made,
not misleading. The financial statements of Overseas
included in the SEC Reports, with the notes thereto, are in
accordance with the books and records of Overseas have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be
stated in the notes to such statements and, in the case of
unaudited statements, as permitted by Form 10-Q) throughout
the periods covered by such statements and present fairly
(subject, in the case of unaudited statements, to normal
year-end adjustments) in all material respects the financial
condition of Overseas and the results of its operations and
cash flows for the periods indicated.
(e) Absence of Changes. Since December 31, 1998, there has
been no event or condition of any character specifically
relating to Overseas which is likely to have a Material
Adverse Effect.
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<PAGE>
(f) Litigation. Except as set forth in the SEC Reports, there
are no litigation, claims, actions, proceedings or
investigations pending or, to the knowledge of Overseas,
threatened against Overseas which might have a Material
Adverse Effect.
(g) Offering. Subject to the accuracy of the broadcast.com's
representations in Section 5 d(a) and 5 e(a) of this
Agreement, the offer, issuance and sale of the Overseas
Stock constitute transactions exempt from the registration
and prospectus delivery requirements of Section 5 of the
Securities Act and Overseas has obtained (or is exempt from
the requirement to obtain) all qualifications, permits, and
other consents required by all applicable state laws
governing the offer, sale or issuance of securities.
(h) Governmental Consents. On the Effective Date, no permit,
consent, approval or authorization of, or declaration to or
filing with, any governmental authority is required on
behalf of Overseas in connection with the execution,
delivery or performance of this Agreement or the
consummation of any transaction contemplated hereby, except
as have been obtained or accomplished or as would not have a
Material Adverse Effect.
(i) Compliance with Laws. Overseas is not in violation of any
law, regulation or requirement (including, but not limited
to, any law, regulation or requirement governing the quality
of the environment) which might have Material Adverse
Effect, and Overseas has not received notice of any such
violation.
(j) Brokers. Other than as specified on Exhibit B, No finder,
broker, agent, financial advisor or other intermediary has
acted on behalf of Overseas in connection with the offering
of the Overseas Stock or the negotiation or consummation of
this Agreement or any of the transactions contemplated
hereby.
(d) Representations and Warranties of Purchaser.
(i) Representations and Warranties of Broadcast.com as Purchaser.
Broadcast.com represents and warrants to Overseas in connection
with its purchase of the Overseas Stock as follows:
(a) Purchase Entirely for Own Account. This Agreement is made
with broadcast.com in reliance upon its representation to
Overseas, which by broadcast.com's execution of this
Agreement broadcast.com hereby confirms, that the Overseas
Stock to be received by it will be acquired for investment
for broadcast.com's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any
part thereof, and that broadcast.com has no present
intention of selling, granting any participation in, or
otherwise distributing the same. By executing this
Agreement, broadcast.com further represents that it does not
have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to
such person or to any third person, with respect to any of
the Overseas Stock.
(b) Disclosure of Information. Broadcast.com has received all
of the information it considers necessary or appropriate for
deciding whether to purchase the Overseas Stock.
Broadcast.com has had an opportunity to ask questions and
receive answers from Overseas regarding the terms and
conditions of the offering of the Overseas Stock. The
foregoing, however, does not limit or modify the
representations and warranties of Overseas in Section 5 d(b)
or 5 e(b) of this Agreement.
(c) Investment Experience. Broadcast.com acknowledges that it
is able to fend for itself, can bear the economic risk of
its investment and has such knowledge and experience in
financial or business matters that it is capable of
evaluating the merits and risks of the investment in the
Overseas Stock.
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(d) Restricted Securities. Broadcast.com understands that the
Overseas Stock it is purchasing is characterized as
"restricted securities" under the federal securities laws
inasmuch as they are being acquired from Overseas in a
transaction not involving a public offering and that under
such laws and applicable regulations such securities may be
resold without registration under the Securities Act, only
in certain limited circumstances. In this connection,
broadcast.com represents that it is familiar with Rule 144,
as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
(e) Accredited Investor. Broadcast.com is an accredited
investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
(ii) Representations and Warranties of Overseas as Purchaser. In the
event broadcast.com elects the Stock Alternative as described in
Section 5(a) above, Overseas represents and warrants to
broadcast.com in connection with its purchase of the
Broadcast.com Stock as follows:
(a) Purchase Entirely for Own Account. This Agreement is made
with Overseas in reliance upon its representation to
broadcast.com, which by Overseas' execution of this
Agreement Overseas hereby confirms, that the Broadcast.com
Stock to be received by it will be acquired for investment
for Picture's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part
thereof, and that Overseas has no present intention of
selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Overseas
further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to
any third person, with respect to any of the Broadcast.com
Stock.
(b) Disclosure of Information. Overseas has received all of
the information it considers necessary or appropriate for
deciding whether to purchase the Broadcast.com Stock.
Overseas has had an opportunity to ask questions and receive
answers from broadcast.com regarding the terms and
conditions of the offering of the Broadcast.com Stock. The
foregoing, however, does not limit or modify the
representations and warranties of broadcast.com in Section 5
d(a) or 5 e(a) of this Agreement.
(c) Investment Experience. Overseas acknowledges that it is
able to fend for itself, can bear the economic risk of its
investment and has such knowledge and experience in
financial or business matters that it is capable of
evaluating the merits and risks of the investment in the
Broadcast.com Stock.
(d) Restricted Securities. Overseas understands that the
Broadcast.com Stock it is purchasing is characterized as
"restricted securities" under the federal securities laws
inasmuch as they are being acquired from broadcast.com in a
transaction not involving a public offering and that under
such laws and applicable regulations such securities may be
resold without registration under the Securities Act, only
in certain limited circumstances. In this connection,
Overseas represents that it is familiar with Rule 144, as
presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act. Following the
merger of broadcast.com into Yahoo! Inc. ("Yahoo"), Overseas
will have the right to exchange its shares of broadcast.com
stock into shares of Common Stock of Yahoo! Inc. ("Yahoo
Stock"). Overseas will not sell or otherwise dispose of such
Yahoo Stock until at least one (1) year after the Effective
Date.
(e) Accredited Investor. Overseas is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
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(e) Rule 144 Compliance. At all times after the date hereof, each of
broadcast.com and Overseas agrees to take such action as may be
necessary to enable a holder of its shares to complete the public sale
of such shares in accordance with Rule 144.
(f) Delivery of Certificates. Overseas will deliver to broadcast.com
certificates representing the purchase of the stock by broadcast.com
pursuant to this paragraph by no later than thirty days after the
Effective Date. In the event broadcast.com elects the Stock
Alternative as described in Section 5(a) above, broadcast.com will
deliver to Overseas certificates representing the purchase of the
stock by Overseas pursuant to this paragraph by no later than thirty
days after the Effective Date.
(g) Legend. The parties hereto further agree that any certificate
evidencing the Broadcast.com Stock (under the Stock Alternative) or the
Overseas Stock shall bear one or more of the following legends, as
indicated:
(i) Unregistered Stock Legend. The Broadcast.com Stock and the
Overseas Stock shall have the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, HAVE
BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
SECURITIES ACT COVERING THE SALE OR OTHER TRANSFER OR AN
OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE ISSUER, THAT REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
(ii) Trading Restriction Legend. Any Yahoo Stock issued to Overseas
pursuant to Section 5(d)(ii)(d) of this Agreement shall have the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF ON OR BEFORE JULY 18, 2000.
(iii) Other Legend. Any legend required by the laws of any state or
other jurisdiction.
6. OVERSEAS REPRESENTATIONS AND WARRANTIES:
(a) Power and Authority. Overseas hereby represents and warrants to
broadcast.com that: (i) Overseas has all requisite corporate power and
authority to execute and deliver this Agreement, and to perform its
obligations hereunder and to consummate the transactions contemplated
hereby; and (ii) this Agreement has been duly authorized, executed and
delivered by Overseas, constitutes the valid and binding agreement of
Overseas, and is enforceable against Overseas in accordance with its
terms.
(b) Ownership. Overseas hereby represents and warrants to broadcast.com
that (i) the Movies are owned by or licensed to Overseas, (ii)
Overseas has all necessary rights and licenses to license, sell and
distribute the Movies as provided herein, (iii) Overseas has all
necessary rights and licenses to grant to broadcast.com the right and
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license to use Overseas' Marks, and the marks, names, and likenesses
of all third parties associated with the Movies and Merchandise
subject to third party restrictions, as provided herein; (iv) Overseas
holds all rights material to this Agreement throughout the United
States and license periods set forth on the applicable EXHIBIT A or
replacement EXHIBIT A, including the encoding, transmission,
retransmission, distribution, performance, display and broadcast of
the Movies and the Broadcast Inventory by broadcast.com, (v)
broadcast.com's copying and broadcast of the Movies as contemplated by
this Agreement, and broadcast.com's exercise of any rights granted by
Overseas herein, will not violate or infringe any right of privacy or
publicity, any patent, copyright, trademark, moral right or other
intellectual property right, or any other right of any third party,
and (vi) the Movies as provided by Overseas to broadcast.com do not
contain any libelous, defamatory, obscene, scatological or unlawful
material.
(c) Third Party Rights. Overseas hereby represents and warrants to
broadcast.com that Overseas has obtained or will obtain all third
party clearances, permissions and licenses which are necessary in
connection with the broadcast by broadcast.com of the Movies, and the
exercise by broadcast.com of its other rights under this Agreement, in
accordance with this Agreement, throughout the United States,
including, without limitation, with respect to the use of any
copyrighted and/or trademarked materials and the use of the name,
likeness and/or biographical materials, and for the payment of all
applicable guild, music licensing and/or other similar fees relating
to or arising from broadcast.com's activities under this Agreement.
(d) Internet Broadcast Rights. Overseas hereby represents and warrants
to broadcast.com that: (i) all Movies are licensed to broadcast.com
for unlimited Internet broadcast, subject only to the restrictions set
forth on EXHIBIT A; (ii) that Overseas has listed on EXHIBIT A all
applicable geographic and transmission limitations that apply to each
Movie; and (iii) Overseas will promptly provide to broadcast.com a
replacement EXHIBIT A to update the Movies and restrictions listed in
the EXHIBIT A as such information may change from time to time.
(e) Consents and Permissions. Overseas hereby represents and warrants to
broadcast.com that, to the extent required, Overseas has obtained or
will obtain all requisite consents and permissions of labor
organizations and pay any and all residuals, payments, fees or
royalties, if any, payable under any collective bargaining agreement
or otherwise, in connection with broadcast.com's exercise of the
rights granted under this Agreement. By way of example, and not
limitation or obligation, as between broadcast.com and Overseas,
Overseas would be liable to pay any residuals required to be paid
under any "Basic Agreement" of the Director's Guild of America, the
Writer's Guild of America, or the Screen Actor's Guild for
"Supplemental Market" showings of the Movies. Broadcast.com shall
provide to Overseas all information concerning the transmission and
distribution of the Movies as is reasonably necessary for Overseas to
comply with the obligations of this subparagraph.
(f) E&O Insurance. Overseas hereby represents and warrants to
broadcast.com that Overseas has obtained, and will keep in force for
the entire term of this Agreement and two (2) years thereafter,
professional errors and omissions insurance in the amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate to cover all
risks relevant to this Agreement and that broadcast.com is an
additional insured party.
(g) Territory and Period Limitations. Overseas hereby represents and
warrants to broadcast.com that all applicable territory and period
limitations will be provided by Overseas on EXHIBIT A, and that such
limitations will be no greater for any Movie than the contractual
limitations to which Overseas is bound pursuant to its third party
agreements relating to such Movie.
(h) Additional Movies. Overseas hereby represents and warrants to
broadcast.com that Overseas shall use its good faith commercially
reasonable efforts, to secure for the term of this Agreement the
United States right to broadcast and distribute additional movies,
motion pictures and/or other audiovisual works on the System in all
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manners contemplated in this Agreement for up to at least 20
additional movies, motion pictures and/or other audiovisual works of
similar or better acclaim and popularity to the Movies to be delivered
to broadcast.com between August 1, 2001 and August 1, 2002, along with
the right to grant all necessary sublicenses to broadcast.com to
exercise those rights. Broadcast.com acknowledges that such additional
Movies may include movies, motion pictures and/or other audiovisual
works that have been previously licensed to third parties.
7. BROADCAST.COM REPRESENTATIONS AND WARRANTIES:
(a) Power and Authority. Broadcast.com hereby represents and warrants to
Overseas that (i) broadcast.com has all requisite corporate power and
authority to execute and deliver this Agreement, and to perform its
obligations hereunder and to consummate the transactions contemplated
hereby; and (ii) this Agreement has been duly authorized, executed and
delivered by broadcast.com, constitutes the valid and binding
agreement of broadcast.com, and is enforceable against broadcast.com
in accordance with its terms.
(b) Period Restrictions. Broadcast.com hereby represents and warrants to
Overseas that broadcast.com will comply with the period restrictions
specified on the most recently received replacement EXHIBIT A and such
other contractual restrictions provided to broadcast.com in advance of
the broadcast and in writing by Overseas. Broadcast.com warrants that
it will also use commercially reasonable efforts to use the best
technology available to comply with the territorial restrictions
specified on such EXHIBIT A, including, but not limited to, requiring
Users to enter in their zip code and limiting access to the Movies to
such Users that do not enter in a zip code within the unrestricted
territories.
8. INDEMNIFICATION:
(a) Overseas Obligation. Overseas agrees to indemnify and hold harmless
broadcast.com and its officers, directors, employees and agents from
and against any and all losses, claims, damages, liabilities,
obligations, penalties, judgments, awards, costs, expenses and
disbursements, including without limitation, the costs, expenses and
disbursements, as and when incurred, of investigating, preparing or
defending any action, suit, proceeding or investigation, caused by,
relating to, based upon, arising out of or in connection with any
breach by Overseas of the representations, warranties or agreements
made by it under this Agreement.
(b) Broadcast.com Obligation. Broadcast.com agrees to indemnify and hold
harmless Overseas and its officers, directors, employees and agents
from and against any and all losses, claims, damages, liabilities,
obligations, penalties, judgments, awards, costs, expenses and
disbursements, including without limitation, the costs, expenses and
disbursements, as and when incurred, of investigating, preparing or
defending any action, suit, proceeding or investigation, caused by,
relating to, based upon, arising out of or in connection with any
breach by broadcast.com of the representations, warranties or
agreements made by it under this Agreement.
(c) Indemnity Procedures. A party seeking indemnity under this Agreement
will inform the other party of the claim, demand or action promptly
after having been formally advised thereof. A party entitled to
indemnity under this Agreement will have the right, at its sole
expense, to participate in the defense of the claim, demand or action
with counsel of its own choice; provided, however, that the party
providing indemnity will have the right at all times, in its sole and
absolute discretion, to have ultimate control of the conduct thereof.
Pending the determination of any claim, demand or action for which a
party is entitled to indemnity, that party will have the right, in its
sole and absolute discretion, to withhold payment of any monies
13
<PAGE>
otherwise payable to the party responsible for providing indemnity in
an amount reasonably related to such claim (including legal costs and
attorneys' fees) anticipated in connected therewith.
9. AUDIT:
The Parties shall maintain, for a minimum of two (2) years after the
completion of this Agreement, adequate books, records and supporting
documents to verify the amounts, recipients and uses of all
disbursements of funds passing in conjunction with said Agreement. All
books, records and supporting documents related to this Agreement shall
be made available to a Party for review and audit at the place where
such documents are normally retained upon thirty (30) days notice to
the other Party at such auditing Party's sole cost and expense unless
the audit reveals an underpayment of five percent (5%) by audited
Party, in which case the audited Party shall pay the auditing Party's
reasonable costs for the performance of such audit. Such audit shall
occur no more than once per year during normal business hours.
10. TERM:
(a) General. This Agreement shall be effective commencing July 19, 1999
and ending July 18, 2004.
(b) Termination for Cause. Notwithstanding the foregoing, either party
shall have the right at any time to terminate this Agreement,
effective upon written notice of termination, without prejudice to any
other legal rights to which such terminating party may be entitled,
upon the occurrence of any one or more of the other party's failure to
comply in any respect with its material obligations, representations
or warranties contained in this Agreement, and such party's failure to
cure the same within thirty (30) days of receipt of notice of such
failure.
(c) No Liability for Lawful Termination. Neither party to this Agreement
shall be liable to the other, solely by reason of the permitted
termination of this Agreement, for compensation, reimbursement or
damages on account of any loss of prospective profits on anticipated
sales or on account of expenditures, investments, leases or other
commitments relating to the business or goodwill of either party to
this Agreement, notwithstanding any law to the contrary
11. GENERAL:
(a) Entire Agreement. This Agreement shall constitute the entire
understanding between the Parties, and supersedes all prior
negotiations or understandings between the Parties concerning the
subject matter contained herein.
(b) Trademark Ownership. Each party acknowledges and agrees that: (i)
the other party's Marks are and shall remain the sole property of the
other party, (ii) nothing in this Agreement shall confer in the party
any right of ownership in the other party's Marks, and (iii) the party
shall not now or in the future contest the validity of the other
party's Marks.
(c) Survival. All provisions hereof regarding amounts payable by
Overseas to broadcast.com and by broadcast.com to Overseas (as
applicable) shall survive the expiration or earlier termination of
this Agreement until such amounts are paid in full to the payee;
further provided, Paragraphs 1, 4, 5, 6, 7, 8, 10 and 11, and all
portions of this Agreement limiting the use of any Confidential
Information, shall survive termination or expiration of this
Agreement.
(d) Governing Law and Venue. This Agreement shall be governed by the
laws of the state of Texas applicable to contracts entered into and to
be performed entirely within the State of Texas. The parties expressly
agree that any action at law or in equity arising out of or relating
to this Agreement shall be filed only in the state and federal courts
located in Dallas County, Dallas, Texas. The parties hereby consent
14
<PAGE>
and submit to jurisdiction of such courts for the purposes of
litigating any such action.
(e) Broadcast.com Website. Broadcast.com will develop and display
materials on the broadcast.com Web site to advertise the Movies, which
materials may, in the sole and absolute discretion of broadcast.com,
incorporate the materials delivered from Overseas to broadcast.com
under this Agreement. Notwithstanding anything in this Agreement to
the contrary, broadcast.com will have sole and absolute discretion to
determine all aspects of the broadcast.com Web site, including the
content, structure and sequence of all material appearing in the
broadcast.com Web site, and broadcast.com reserves the right to reject
or remove any materials from the broadcast.com Web site for any reason
at any time, regardless of any prior acceptance, display or
transmission of any such materials, and Broadcast.com reserves the
right to modify the broadcast.com Web site in its sole discretion at
any time during the term of this Agreement.
(f) Implied Warranty Disclaimer. EXCEPT AS EXPRESSLY AND UNAMBIGUOUSLY
SET FORTH IN THIS AGREEMENT, THE BROADCAST.COM WEB SITE AND ANY
SERVICE FROM BROADCAST.COM ARE PROVIDED "AS IS" AND WITHOUT WARRANTY,
EXPRESS OR IMPLIED, AND BROADCAST.COM EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES, INCLUDING ANY WARRANTY OF QUALITY, TITLE, PERFORMANCE,
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE.
(g) Liability Limits.
(i) Force Majeure. Neither party will be liable for any failure or
delay in performing under this Agreement where such failure or
delay is due to causes beyond its reasonable control, including
natural catastrophes, governmental acts or omissions, laws or
regulations, terrorism, labor strikes or difficulties,
communications systems breakdowns, hardware or software failures,
transportation stoppages or slowdowns or the inability to procure
supplies or materials. BROADCAST.COM SHALL NOT BE LIABLE FOR ANY
LOSS OF DATA, OR ANY INTERRUPTION OF SERVICE, DUE TO ANY CAUSE, DUE
TO ANY FACTORS NOT WITHIN BROADCAST.COM'S CONTROL.
(ii) No Consequential Damages. IN NO EVENT WILL BROADCAST.COM BE
LIABLE TO OVERSEAS OR ANY THIRD PARTY FOR ANY LOST PROFITS, LOST
SAVINGS OR INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF
BROADCAST.COM IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
OCCURRING.
(iii) Liability Cap. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, WITH THE EXCEPTION OF THE INDEMNIFICATION OBLIGATIONS SET
FORTH IN PARAGRAPH 8, IN THE EVENT THAT BROADCAST.COM IS LIABLE TO
OVERSEAS OR ANY THIRD PARTY FOR DAMAGES, THE TOTAL LIABILITY OF
BROADCAST.COM UNDER THIS AGREEMENT WILL BE LIMITED TO THE AMOUNT
PAID BY BROADCAST.COM TO OVERSEAS UNDER THIS AGREEMENT IN THE SIX
(6) MONTHS PRIOR TO THE EVENT GIVING RISE TO THE LIABILITY.
(h) No Partnership. The parties hereto are independent parties, and no
partnership, joint venture, enterprise or employment relationship
shall be created or inferred by the existence or performance of this
Agreement.
(i) Severability; Signature; Headings. Should any part of this Agreement
be found to be illegal or otherwise unenforceable, both Parties shall
continue to be bound under the remaining parts of this Agreement, if
the purpose and intent of the Parties can be carried out under the
remaining parts of this Agreement. A facsimile signature shall be
deemed an original for purposes of this Agreement. The headings of
this Agreement are for convenience of reference only, and do not limit
or alter the Parties' respective rights and obligations under this
Agreement.
15
<PAGE>
(j) Assignment; Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective
successors and permitted assigns. Broadcast.com may assign this
Agreement to any entity. Overseas may, upon written notice to
broadcast.com, to assign this Agreement, but only to a firm,
corporation or company which is owned and controlled by Overseas;
provided, however that: (i) Overseas has obtained the prior written
consent of broadcast.com to any such assignment of this Agreement;
(ii) Overseas has provided broadcast.com with a copy of such
assignment; (iii) such assignee assumed in writing all of the rights
and obligations of Overseas under this Agreement; (iv) such assignment
will not alter, impair or cause broadcast.com to lose any of its
rights under this Agreement; and (v) Overseas and any such assignee
will execute such documents as broadcast.com will require to preserve
the rights of broadcast.com under this Agreement.
(k) No Breach Without Notice. Broadcast.com will not be deemed to be in
breach of this Agreement, unless, within thirty (30) days after
written notice from Overseas of such alleged breach, accompanied by
documentation sufficient to support such allegations sent by certified
or registered mail, return receipt requested, broadcast.com does not
either: (i) cure such breach; or (ii) contest such claim, in whole or
in part, by written notice to Overseas. In the event that
broadcast.com contests any such claim, broadcast.com will not be in
breach of this Agreement unless such claim is reduced to a final
non-appealable judgment by a court of competent jurisdiction and
broadcast.com has failed to cure such breach within thirty (30) days
after broadcast.com has received written notice of the entry of such
final non-appealable judgment.
(l) No Third Party Beneficiaries. Nothing contained in this Agreement
will be deemed to create, or be construed as creating, any third party
beneficiary right of action upon any third party or entity whatsoever,
in any manner whatsoever.
(m) Marketing Practices. Overseas will: (i) conduct business in a manner
that reflects favorably at all times on the good name, goodwill and
reputation of broadcast.com; (ii) not employ deceptive, misleading or
unethical practices that are or might be detrimental to broadcast.com
or the public, including, without limitation disparagement of
broadcast.com; (iii) not make any false or misleading representations
with regard to broadcast.com; (iv) not publish or employ or cooperate
in the publication or employment of any misleading or deceptive
advertising material; or (v) not engage in illegal or deceptive trade
practices, or any other practices proscribed under this Section 10(m).
(n) No Custom. It is expressly understood and agreed that, there being
no expectation of the contrary between the parties, no usage of trade
or custom and practice within the industry, and no regular practice or
method of dealing between the parties, will be used to modify,
interpret, supplement or alter in any manner the express terms of this
Agreement.
(o) Notice. Any and all notices, communications and demands required
herein by either party hereto shall be in writing and shall deemed to
have been given only when: (a) served personally to the addresses
listed below; (b) served by a recognized overnight delivery service
such as Federal Express, UPS or Express Mail to the addresses listed
below; (c) served by United States Mail, certified, postage prepaid,
return receipt requested to the addresses listed below, or (d)
received by facsimile (as evidenced by the transmission report of the
facsimile machine of the transmitting party acknowledging a good
transmission) if sent by facsimile to the numbers listed below:
If to Overseas, to: If to broadcast.com, to:
------------------- ------------------------
Overseas Filmgroup, Inc. broadcast.com inc.
8800 Sunset Boulevard, Suite 302 2914 Taylor Street
Los Angeles, CA 90064 Dallas, TX 75226
Telephone: 310/855-1199 Telephone: 214/748-6660
16
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Facsimile: 310/855-0719 Facsimile: 214/748-6657
Attn: William F. Lischak Attn: Belinda Johnson,
General Counsel
IN WITNESS WHEREOF, the Parties hereto have caused the foregoing agreement to be
signed by a duly authorized agent of each party, the day and year first above
written.
OVERSEAS: BROADCAST.COM INC.:
By: ___________________________ By: ___________________________
Name: ________________________ Name: _________________________
Title: _________________________ Title: __________________________
DATE: DATE:
17
<PAGE>
EXHIBIT A
MOVIES
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__________________
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
EXHIBIT B
From: Coutts & Co. (as agent for itself and Berliner Bank A.G.) ( "The Bank")
440 Strand
London WC2R 0QS
United Kingdom
To: Broadcast.com ("Broadcast")
2914 Taylor Street
Dallas, Texas 75226
Dear Sirs,
Pursuant to an agreement ("the Agreement") dated as of May , 1999 between
Broadcast and Overseas Filmgroup, Inc. ("OFG"), Broadcast has acquired certain
rights ("the Broadcast Rights") in and to the motion pictures referred to
therein ("the Pictures") in the Territory (defined herein as in the Agreement)
and OFG has granted Broadcast a security interest ("the Broadcast Security
Interest") in and to the Broadcast Rights. Pursuant to various security
agreements and mortgages of copyright, OFG has granted to the Bank a security
interest ("the Bank's Security Interest") in and to certain collateral to secure
all amounts from time to time due, owing or payable by OFG to the Bank ("the
Indebtedness"). Such collateral includes without limitation the Broadcast
Rights. In this letter "the Bank's Broadcast Security Interest" means the Bank's
Security Interest in the Broadcast Rights only.
Subject to Broadcast not being in material breach or default of the Agreement,
the Bank agrees that the Bank's Broadcast Security Interest and the Broadcast
Security Interest shall have equal priority provided, however, that no exercise
of the Bank's Broadcast Security Interest will derogate from, diminish,
restrict, alter, modify, abate, curtail, disturb, interrupt, suspend, terminate,
rescind, abrogate, interfere with, impair, nullify or otherwise adversely affect
Broadcast's full and unencumbered exercise of the Broadcast Rights, and Bank's
rights to pursuant to the Bank's Broadcast Security Interest shall be subject
and subordinate to all rights of Broadcast (and its licensees, assignees, agents
and subdistributors) to distribute and otherwise exploit the Pictures throughout
the Territory without interference by Bank or any person, firm or corporation
deriving title to the Bank's Broadcast Security Interest through Bank. Until
such time as Bank shall have been repaid all Indebtedness, Broadcast agrees that
it shall not take any action as a secured creditor or copyright mortgagee with
respect to the Broadcast Rights in such a manner so as to derogate from,
diminish, restrict, alter, modify, abate, curtail, disturb, interrupt, suspend,
terminate, rescind, abrogate, interfere with, impair, or nullify Bank's
Broadcast Security Interest.
Very truly yours,
COUTTS & CO., AS AGENT FOR ITSELF AND BERLINER BANK
By:__________________________
Its:___________________________
Accepted and agreed to:
BROADCAST.COM
By:__________________________
Its:__________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 121,206
<SECURITIES> 0
<RECEIVABLES> 22,760,789
<ALLOWANCES> (750,000)
<INVENTORY> 23,399,706
<CURRENT-ASSETS> 52,406,259
<PP&E> 1,332,671
<DEPRECIATION> (1,062,115)
<TOTAL-ASSETS> 52,406,259
<CURRENT-LIABILITIES> 18,100,638
<BONDS> 22,632,405
<COMMON> 5,778
0
0
<OTHER-SE> 11,667,438
<TOTAL-LIABILITY-AND-EQUITY> 52,406,259
<SALES> 13,093,590
<TOTAL-REVENUES> 13,231,090
<CGS> 10,751,083
<TOTAL-COSTS> 1,464,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (963,858)
<INCOME-PRETAX> 82,632
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,632
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
