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EXHIBIT 4.10
Dated as of July 8, 1996
Mr. Morris Wolfson
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street Plaza 29th Floor
New York NY 10004
RE: "TOTAL RECALL"
Dear Mr. Wolfson:
This will confirm the terms pursuant to which ACA Equities, D & M
Investment Corp., and Mr. Gilbert Karsenty (collectively "Lender") have agreed
to make an investment in the Company.
1. Sale of Securities.
We have agreed to sell to Lender and Lender has agreed to purchase, for
the sum of $1,200,000.00, the following:
(a) The secured promissory note in substantially the form attached
hereto as Exhibit 1 (the "Note"), which Note is secured by certain assets of the
Company (the "Collateral" as defined in the Security Agreement and Pledge of
even date herewith) pursuant to the terms of the Security Agreement and Pledge
of even date herewith, as well as the related Copyright Mortgage.
(b) 60,000 shares of the Company's common stock (the "Shares").
13,333.3 of the shares will be delivered to ACA Equities, 23,333.3 of the shares
will be delivered to D & M Investment Corp., 3,333.3 of the shares will be
delivered to Mr. Gilbert Karsenty, and 20,000 shares will be delivered to The
Moris Wolfson Family Limited Partnership or their respective assigns. The Shares
and the Note are hereinafter referred to as the "Securities". The Company shall
have these Shares registered at the IPO, with such registration to be maintained
for a minimum two (2) years from the date of the IPO.
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Mr. Morris Wolfson
As of July 8, 1996
Page 2
(c) Twelve per cent (12%) of the Net Profits from any exploitation
of the Collateral, payable 3.33% to ACA Equities, 5.83% to D & M Investment
Corp., .83% to Mr. Gilbert Karsenty, and 2% to the Morris Wolfson Family Limited
Partnership, in first position prior to any third party participants. "Net
Profits" is herein defined as gross revenue received by Company in any way
related to the Collateral, including but not limited to sale or other
disposition, less actual production costs incurred by Company, directly related
to the Collateral. This participation shall be freely assignable.
2. Representations and Warranties of the Company: Covenants. The Company
hereby represents and warrants to Lender that:
2.1 Organization, Corporate Powers.
2.1.1 Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California;
2.1.2 Company has the power and authority to own its
properties and assets; and
2.1.3 Company has the power to execute and deliver the
Note, to execute, deliver and perform this Agreement, the Note, and the
Collateral Security Documents (as defined below) and any other documents or
instruments furnished pursuant thereto and hereto, and to grant the security
interests contemplated hereby and by the Collateral Security Documents. For
purposes of this agreement, the term "Collateral Security Documents" shall mean
the UCC-1 financing statements with respect to the Collateral, the Security
Agreement, and all assignments which are being executed and delivered
concurrently herewith.
2.1.4. The Company has no outstanding preferred stock.
2.2 Authorization of Borrowing.
2.2.1 The execution, delivery and performance of this
Agreement, the Collateral Security Documents and any other documents or
instruments furnished pursuant thereto and hereto by Company, the borrowings
hereunder, the execution and delivery of the Note, and the grant by Company of
the security interests contemplated hereby and by the Collateral Security
Documents have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of the
United States, or of any state thereof, the Articles of Incorporation or Bylaws
of Company, or any provision of any indenture, agreement or other instrument to
which Company is a party or by which it or any of its properties or assets is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
other instrument, or result
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As of July 8, 1996
Page 3
in the creation or imposition of any lien, charge, or encumbrance of any nature
whatsoever upon any of the properties or assets of Company.
2.2.2 Except as set forth in Section 2.7 below, all
authorizations, approvals, registrations or filings from or with any
governmental or public regulatory body or authority of the United States, or of
any state thereof required for the execution and delivery of the Note by
Company, and for the execution, delivery and performance by Company of this
Agreement, or the Collateral Security Documents and any other documents or
instruments furnished pursuant thereto and hereto have been duly obtained or
made, or duly applied for and are in full force and effect, and if any such
further authorizations, approvals, registrations or filings should hereafter
become necessary, Company will use its best efforts to obtain or make all such
authorizations, approvals, registrations or filings.
2.3 Validity and Binding Nature. This Agreement, the Note, the
Collateral Security Documents and each other document and instrument when duly
executed by Company and delivered to Lender hereunder will constitute legal,
valid and binding obligations of Company, enforceable against Company in
accordance with their respective terms.
2.4. Security Interests. This Agreement and the Collateral Security
Documents (including a UCC-1 Financing Statement and a mortgage of copyright) to
be delivered and perfected on or about the date of the payment hereunder will
create and grant to Lender a valid and perfected first priority security
interest in the Collateral. Other than with respect to Permitted Encumbrances,
which must be junior in priority to the lien granted to Lender pursuant to the
Collateral Security Documents, no other lien shall be permitted on such
Collateral. For purposes of this agreement, "Permitted Encumbrances" shall mean
(i) SAG, DGA or other guild liens, (ii) liens, if any, imposed by any
sub-licensee of sub-distributor only to secure rights licensed to any such
distributor, and (iii) liens of any third party financier. The Company will file
all appropriate documents necessary to effectuate the creation of such security
interest granted to Lender. The Company will obtain a legal opinion that the
security interest is valid, binding and perfected.
2.5 Principal Place of Business. The principal place(s) of
administration and of the business of Company and the records relating to the
respective accounts and contract rights of Company are located at the address
set forth above.
2.6 Other Instruments. Except for this Agreement and the other
agreements contemplated hereby, Company is not a party to any agreement or
instrument materially and adversely affecting its ability to cause the
production and delivery of any of the Collateral described in the Collateral
Security Agreements, and Company is not in default in the performance,
observance or fulfillment of any material instrument or agreement to which it is
a
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Mr. Morris Wolfson
As of July 8, 1996
Page 4
party.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transaction contemplated by this Agreement except for the filing pursuant to
Section 25102(f) of the California Corporation Securities Law of 1968, as
amended and the rule thereunder, which filing will be effected within 15 days of
the date hereof.
2.8 Delivery. The Company will deliver the Shares and any
additional shares which may be issued to Lender as a result of the provisions
hereof, as soon as practicable.
2.9 Collateral The receivables constituting the Collateral are,
subject to completion and delivery of the applicable program related to each
such receivable, good and collectible in the ordinary course of business of the
Company in amounts equal to those at which such receivables were or are
reflected on Collateral Security Documents.
3. Representations and Warranties of the Investor. Lender hereby
represents and warrants that:
3.1. Authorization. This Agreement is made with Lender in reliance
upon Lender's representation to the Company that the Shares which are being (and
may be acquired in the future) pursuant to this Agreement will be acquired for
investment for Lender'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 Lender has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Lender further represents
that Lender does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation's to such person or to
any third person, with respect to any of the Securities. Lender represents that
Lender has full power and authority to enter into this Agreement.
3.2. Disclosure of Information. Lender has had an opportunity to
ask questions and receive answers from the Company regarding the its business
prospects and financial condition. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of Lender to rely thereon.
3.3. Investment Experience. Lender is an investor in securities of
companies in the development stage and acknowledges that Lender can bear the
economic risk of this investment, including the risk of the loss of the entire
investment, and has such knowledge and experience in financial or business
matters that Lender is capable of evaluating the merits and
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Mr. Morris Wolfson
As of July 8, 1996
Page 5
risks of the investment in the Securities.
3.4. Restricted Securities. Lender understands that the Securities
which are (and may in the future be) acquired hereunder will be characterized as
a "restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company 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 of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, Lender
represents that Lender is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.5. Legends. It is understood that the Shares which may be
acquired hereunder and issuable upon exercise, if ever, of Lender's option
pursuant to this Agreement may bear one or all of the following legends:
(i) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(ii) Any legend required by the laws of the State of
California.
4. Miscellaneous.
4.01 Consultation Regarding Underwriter Lender shall have the right
to approve, such approval not to be unreasonably withheld, the Company'
selection of an underwriter for its IPO. Approval will be deemed given unless
the Lender notifies the Company by the earlier of five business days from
receipt by the Company of a letter notifying the Lender of the Company's
proposed selection of an underwriter.
4.02 Entire Agreement This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings of the
parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof except as
specifically set forth herein.
4.03. Controlling Law. The parties hereby agree that this Agreement
has been executed and delivered in the State of New York and shall be construed,
enforced and governed
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Mr. Morris Wolfson
As of July 8, 1996
Page 6
by the laws thereof.
4.04 Further Acts. Each party to this Agreement agrees to perform
any further acts and execute, acknowledge and deliver any documents that may be
reasonably required to carry out the intent and provisions of this Agreement.
This Agreement shall be binding on, and shall inure to the benefit of, the
parties to it and their respective heirs, legal representatives, successor and
assigns. In the event of a dispute hereunder, the prevailing party shall be
entitled to recover its attorneys' fees and costs.
4.03 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be delivered in person with receipt acknowledged,
or telecopied and confirmed immediately in writing by a copy mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as hereafter set forth, or mailed by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(a) If to Lender, at
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street
29th Floor
New York, New York 10004
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Mr. Morris Wolfson
As of July 8, 1996
Page 7
With a copy to:
Eli Levitan, Esq.
One State Street
29th Floor
New York, New York 10004
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard
Suite 400
Los Angeles, Ca. 90025
With a copy to:
Kelly & Lytton
1900 Avenue of the Stars
Suite 1459
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or the date of the telecopy transmission, or three
(3) Business Days after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
If the foregoing accurately sets forth our agreement, please sign in
the signature blank below.
Very truly yours,
DSL ENTERTAINMENT, INC.
By: Drew S. Levin
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Mr. Morris Wolfson
As of July 8, 1996
Page 8
Its: President and Chief Executive Officer
AGREED AND ACCEPTED:
By:
-------------------------------
Morris Wolfson
By:
-------------------------------
ACA Equities
By:
-------------------------------
D & M Investment Corp.
By:
-------------------------------
Mr. Gilbert Karsenty
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November 20, 1996
Mr. Morris Wolfson
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street Plaza 29th Floor
New York NY 10004
RE: "TOTAL RECALL"
Gentlemen:
This will confirm the amendment to the terms pursuant to which ACA
Equities, D & M Investment Corp., and Mr. Gilbert Karsenty (collectively
"Holder") have advanced funds to DSL Entertainment Group, Inc. ("the Company").
1. Holder has previously entered into a Letter Agreement dated as of July 8,
1996, a Secured Promissory Note, a Copyright Mortgage and a Security Agreement
of even date therewith, (collectively "the Loan Agreements").
2. Holder hereby agrees to modify the Secured Promissory Note as follows:
(a) The maturity date as defined in section 1 (a)(i) is extended to the
sooner of March 1, 1997 or the completion of an initial public offering by the
Company.
(b) In addition to any and all required payments set forth in the Loan
Agreements, as additional events requiring the following pre-payment(s), Company
shall cause to be paid the sum of $115,000 to Holder (to be applied to the
portion of the Secured Promissory Note owed to D & M Investment Corp.) upon
receipt of $400,000 in financing pursuant to a financing agreement dated October
30, 1996, and Company shall further pay to Holder the sum of $250,000 upon the
closing of an additional $1,200,000 in bridge financing. In the event that a sum
less than $1,200,000 is received in any bridge or similar financing, the
mandatory $250,000 prepayment to holder will be reduced pro rata.
(c) These payments shall be applied first to accrued interest and
thereafter to reduction of the principal amount.
(d) Section 1(a)(iv) requiring the payment of any amounts received by
Company from the Interpublic Group of Companies in excess of actual production
costs to Holder is deleted in its
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November 20, 1996
Page 2
entirety.
3. Commencing as of March 15, 1997, in the event that any amount of interest or
principal remains unpaid, the Company will issue to Holder, as directed by
Morris Wolfson, twenty thousand (20,000) additional shares of the Company's
common stock, and an additional twenty thousand (20,000) shares on each monthly
anniversary thereafter that any such amount remains unpaid; provided that the
foregoing shall not limit any of the Holder's rights or remedies under the
Secured Promissory Note or the Loan Document. In addition, the Company hereby
irrevocably waives any and all rights and defenses it may have with respect to
the Collateral and the enforcement by Holder of its rights and remedies under
the Loan Documents in the event the Company fails to timely pay all outstanding
amounts under the Secured Promissory Note.
4. In consideration for extending the outside maturity date from September 30,
1996 to March 1, 1997, in addition to the sixty thousand (60,000) shares of the
Company's common stock issued to Holder pursuant to the July 8, 1996 letter
agreement, the Company agrees to issue to Holder:
(a) An additional fifty thousand (50,000) warrants to purchase shares of the
Company's common stock, at $1.00 per warrant, such warrants to be distributed as
follows:
20,000 D & M Investment Corp.
11,000 ACA Equities
4,000 Gilbert Karsenty
15,000 Chana Sasha Foundation
Such warrants will be on terms no less favorable than any other warrants
issued by the Company to date (including with respect to registration rights),
and shall be issued promptly, but not later than two (2) weeks from the last
execution date of this agreement; and
(b) An additional eighty five thousand (85,000) shares of the Company's common
stock (the "Shares"), which Shares will have the same rights (including
registration rights) as and be subject to the same restrictions as the shares
previously issued under the Loan Agreements. The Shares will be issued as
follows:
70,000 D & M Investment Corp.
10,000 ACA Equities
5,000 Gilbert Karsenty
Upon written notice, the Shares and/or warrants will be issued or reissued as
requested, and all rights under this agreement with respect thereto shall follow
such Shares and/or warrants.
5. As a clarification, the Net Profit participation set forth in section 1.(c)
of the Letter Agreement
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November 20, 1996
Page 3
dated as of July 8, 1996 is in perpetuity (i.e., even after the loan is repaid).
6. As an amendment, the Net Profit participation set forth in section 1.(c) of
the Letter Agreement dated as of July 8, 1996, is hereby increased by 3% from
12% to 15%, with 2% of the increase allocated to D & M Investment Corp., and 1%
of the increase allocated to ACA Equities. In no event shall Net Profits be less
than net profits as defined for DSL. DSL shall promptly pay Holder (but not less
frequently than at the end of each calendar quarter) the amount of such profit
participation received by DSL to date. The profit participation shall be freely
assignable by Holder. The Company shall execute and file any and all additional
documents requested by Holder with respect thereto.
7. All other terms and conditions of the Loan Agreements, will remain otherwise
unchanged and in full force and effect.
Please indicate agreement with and acceptance of the above by signing and
returning a copy of this letter to our office as soon as possible as we will be
proceeding and relying thereon. Thank you.
Very truly yours,
DSL ENTERTAINMENT, INC.
By: Drew S. Levin
Its: President and Chief Executive Officer
AGREED AND ACCEPTED:
By:____________________________
Morris Wolfson
By:____________________________
ACA Equities
By:____________________________
D & M Investment Corp.
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November 20, 1996
Page 4
By:____________________________
Mr. Gilbert Karsenty
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SECURITY AGREEMENT AND PLEDGE
SECURITY AGREEMENT, dated as of July 8, 1996, made by DSL
Entertainment Group, Inc. ("Company" or "Debtor"), in favor of ACA Equities,
D & M Investment Corp. and Mr. Gilbert Karsenty or their respective assign(s)
(collectively "Secured Party").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Letter Agreement, dated as of the
date hereof, between Company and Secured Party (the "Letter Agreement"), as well
as the related Secured Promissory Note (as such agreements may from time to time
be amended, modified or supplemented) (collectively the "Financing Agreement"),
Secured Party has agreed to advance to the Company the sum of $1,200,000.00 for
use by the Company as to purchase the television rights to the film "Total
Recall" (the "Asset") (collectively such sums are referred to herein as the
"Advances"); and
WHEREAS, Secured Party is willing to make the Advances but only upon
the condition, among others, that Company shall have executed and delivered to
Secured Party, for its benefit, this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Financing Agreement are used herein as therein defined, and the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
"Affiliated Person" shall mean any Person which directly or indirectly
controls, is controlled by or is under common control with Company. For the
purposes of this definition, "control" (including with corresponding meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, if the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Collateral Documents" shall mean all present and future notes
(including, without limitation, the Notes), security agreements, assignments,
pledge agreements, consents and other documents granting liens or other security
interests to the Secured Party pursuant to the Letter Agreement.
"Event of Default" shall have the meaning set forth in Section 7.
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"hereby," "herein," "hereof," "hereunder" and words of similar import
refer to this Security Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Proceeds" shall mean "proceeds," as such term is defined in section
9-306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company from time to time with respect to any of the Collateral, and (ii) any
and all payments (in any form whatsoever) made or due and payable to Company
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority)
"Secured Obligations" shall mean all of the unpaid principal, accrued
interest or other amounts owing by Company to Secured Party under the Letter
Agreement, the Secured Promissory Note or this Security Agreement, or any other
agreement.
"Security Agreement" shall mean this Security Agreement and Pledge, as
the same may from time to time be amended, modified or supplemented and shall
refer to this Security Agreement as in effect as of the date such reference
becomes operative.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Secured Party's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and to
induce Secured Party to enter into the Financing Agreement and to make the
Advances (as that term is defined in the Financing Agreement) in accordance with
the terms thereof, Company hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Secured Party, for its benefit, and hereby grants
to Secured Party, for its benefit, a security interest in, all of Company's
right, title and interest in, and to, the Asset and all related rights therein
(collectively called the "Collateral" and defined at greater length in Exhibit A
attached hereto, and incorporated herein by this reference).
3. Representations and Warranties
The Company hereby represents and warrants that:
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(a) The Company is the sole owner of each item of the Collateral in
which it purports to grant a security interest hereunder, having good and
marketable title thereto, free and clear of any and all Liens. No material
amounts payable under or in connection with any of its accounts receivable
or contracts are evidenced by Instruments which have not been delivered to
Secured Party.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any
part of the Collateral is on file or of record in any public office, except
such as may have been filed by Company in favor of Secured Party, pursuant
to this Security Agreement or such as relate to other permitted liens.
(c) Appropriate financing statements having been filed in all
jurisdictions in which the Collateral is located, this Security Agreement
is effective to create a valid and continuing first priority lien on and
first priority perfected security interest in the Collateral and is
enforceable as such as against creditors of and purchasers from Company.
All action necessary or desirable to protect and perfect such security
interest in each item of the Collateral has been duly taken.
(d) Company's principal place of business and the place where its
records concerning the Collateral are kept is located at the address of
Company set forth on the Financing Agreement, and Company will not change
such principal place of business or remove such records unless it has taken
such action as is necessary to cause the security interest of Secured Party
in the Collateral to continue to be perfected. Company will not change its
principal place of business or the place where its records concerning the
Collateral is kept without giving thirty (30) days' prior written notice
thereof to Secured Party.
4. Covenants. Company covenants and agrees with Secured Party that
from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) Financing Statements and Further Documentation. Company will
join with Secured Party in the execution and filing of any additional
financing statement or statements in the form and content reasonably
required by Secured Party. Company will pay all costs of filing any
financing, continuation or termination statements with respect to the
security interest created by this Agreement, together with costs and
expenses of any lien search required by Secured Party. At any time and
from time to time, upon the written request of Secured Party, and at
the sole expense of Company, Company will promptly and duly execute
and deliver any and all such further instruments and documents and
take such further action as Secured Party may reasonably deem
desirable to obtain the full benefits of this Security Agreement and
of the rights and powers herein granted. Company also hereby
authorizes Secured Party to file any such financing or continuation
statement without the signature of Company to the extent permitted by
applicable law. Within ten (10) business days of Secured Party's
request, Company will provide Secured Party with
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irrevocable assignments which shall require the obligors with respect
to the Collateral to pay the amounts owing with respect thereto to a
bank account to be designated by Secured Party.
(b) Maintenance of Records. Company will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and
all other dealings with the Collateral. Company will mark its books
and records pertaining to the Collateral to evidence this Security
Agreement and the security interests granted hereby. For Secured
Party's further security, Company agrees that Secured Party, shall
have a special property interest in all of Company's books and records
pertaining to the Collateral and, upon the occurrence and during the
continuation of any Default or Event of Default, Company shall deliver
and turn over any such books and records to Secured Party or to its
representatives at any time on demand of Secured Party. Prior to the
occurrence of a Default or an Event of Default and upon reasonable
notice from Secured Party, Company shall permit any representative of
Secured Party to inspect such books and records and will provide
photocopies thereof to Secured Party.
(c) Indemnification. In any suit, proceeding or action brought
by Secured Party relating to the Collateral, Company will save,
indemnify and keep Secured Party and Secured Party harmless from and
against all expense, loss or damage suffered by reason of any defense,
set off, counterclaim, recoupment or reduction of liability whatsoever
of the obligor thereunder, arising out of a breach by Company of any
obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from Company, and all such obligations of
Company shall be and remain enforceable against and only against
Company and shall not be enforceable against Secured Party.
(d) Compliance with Laws, etc. Company will comply, in all
material respects, with all acts, rules, regulations, orders, decrees
and directions of any governmental authority, applicable to the
Collateral or any part thereof or to the operation of Company's
business; provided, however, that Company may contest any act,
regulation, order, decree or direction in any reasonable manner which
shall not in the sole opinion of Secured Party, adversely affect
Secured Party's rights hereunder or adversely affect the first
priority of its security interest in the Collateral.
(e) Payment of Obligations. Company will pay promptly when due
all charges imposed upon the Collateral or in respect of its income or
profits therefrom and all claims of any kind (including, without
limitation, claims for labor, material and supplies) except as
otherwise provided in the Financing Agreement.
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(f) Continuous Perfection. Company will not change its name,
identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith
seriously misleading within the meaning of section 9-402(7) of the UCC
unless Company shall have given Secured Party at least thirty (30)
days' prior written notice thereof and shall have taken all action (or
made arrangements to take such action substantially simultaneously
with such change if it is impossible to take such action in advance)
necessary or reasonably requested by Secured Party to amend such
financing statement or continuation statement so that it remains
effective.
5. Secured Party's Appointment as Attorney-in-Fact.
(a) Upon the occurrence of an Event of Default (as defined below) Company
hereby irrevocably constitutes and appoints Secured Party and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Company and in the name of Company or in its own name, from time to
time in Secured Party's discretion, for the purpose of carrying out the terms of
this Security Agreement, to take any and all appropriate action and to execute
and deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives Secured Party the power
and right, upon the occurrence of an Event of Default, on behalf of Company,
without notice to or assent by Company to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any Collateral
and, in the name of Company or its own name or otherwise, to take
possession of and endorse and collect any checks, drafts, Financing
Agreement, acceptances or other Instruments for the payment of moneys due
under any Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Secured Party for the purpose of collecting any and all such moneys due
under any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Secured Party for the purpose of collecting any and
all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the terms of this
Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to Secured Party or as Secured Party shall direct; (B)
to receive payment of and receipt
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for any and all moneys, claims and other amounts due, and to become
due at any time, in respect of or arising out of any Collateral; (C)
to commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (D) to defend any suit, action or
proceeding brought against Company with respect to any Collateral; (E)
to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate; and (F) generally
to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes,
and to do, at Secured Party's option and Company's expense, at any
time, or from time to time, all acts and things which Secured Party
reasonably deems necessary to protect, preserve or realize upon the
Collateral and Secured Party's Lien therein, in order to effect the
intent of this Security Agreement, all as fully and effectively as
Company might do.
(b) Except as otherwise provided herein, Secured Party agrees that,
except upon the occurrence and during the continuation of a Default or an
Event of Default, it will not exercise the power of attorney or any rights
granted to Secured Party pursuant to this Section 5. Company hereby
ratifies, to the extent permitted by law, all that said attorney shall
lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 5 is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are indefeasibly paid in
full.
(c) The powers conferred on Secured Party hereunder are solely to
protect Secured Party's interests in the Collateral and shall not impose
any duty upon it to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to Company for any act or failure
to act, except for its own gross negligence or willful misconduct.
(d) Company also authorizes Secured Party, at any time and from time
to time upon the occurrence and during the continuation of any Default or
Event of Default, (i) to communicate in its own name with any party to any
contract with regard to the assignment of the right, title and interest of
Company in and under the contracts hereunder and other matters relating
thereto and (ii) to execute, in connection with the sale provided for in
Section 7 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
6. Performance by Secured Party of Company's Obligation. If Company fails
to perform or comply with any of its agreements contained herein and Secured
Party, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of Secured Party incurred in connection with
such performance or compliance, together with interest thereon at the rate then
in effect in
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19
respect of the Loans, shall be payable by Company to Secured Party on demand and
shall constitute Secured Obligations secured hereby.
7. Events of Default. The following conditions or events shall constitute
an Event of Default:
(a) the failure to pay when due any amounts due under the Letter
Agreement, the Secured Promissory Note or any other default thereunder: or
(b) The rejection, termination or disaffirmance or the attempted
rejection, termination or disaffirmance by Company (or any person or entity
acting on Company's behalf or in Company's place and stead) of the
Financing Agreement or this Agreement; or
(c) Any representation or warranty which materially adversely affects
the rights of Secured Party in connection with this Agreement or the
Financing Agreement shall be false in any material respect on the date as
of which made; or
(d) Company shall fail, breach or default in the performance of any
of the Secured Obligations which failure, breach or default materially
adversely affects Secured Party's rights therein (subject to any express
cure rights provided for in the Financing Agreement; or
(e) (i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company in an involuntary
case under any applicable bankruptcy, insolvency or any other similar
law now or hereafter in effect, which decree or order is not stayed;
or any other similar relief shall be granted under any applicable
federal or state law; or
(ii) An involuntary case shall be commenced against Company under
any applicable bankruptcy, insolvency or similar law now or hereafter
in effect; or a decree or order of any court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over Company or over all or over a substantial part of its
property, shall have been entered; or there shall have been an
involuntary appointment of an interim receiver, trustee or other
custodian of Company for all or a substantial part of its property; or
there shall have been issued a warrant of attachment, execution or
similar process against any substantial part of the property of
Company and any such event in this clause (ii) shall have continued
for thirty (30) days unless dismissed, bonded or discharged; or
(f) Company shall have an order for relief entered with respect to it
or commence a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or shall consent to the entry
of an order for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or shall consent
to the appointment of or taking possession by a receiver or other custodian
for all or a substantial part of its property; or Company shall make any
assignment for the benefit of
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20
creditors; or Company shall fail or be unable or shall admit in writing its
inability to pay its debts a such debts become due; or the Board of Directors of
Company (or any committee thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the foregoing; or
(g) Company shall be dissolved or shall file a petition for dissolution,
unless Company's successor executes and delivers to Secured Party a security
agreement substantially similar in all respects to this Agreement.
8. Remedies, Rights Upon Default.
(a) If any Default or Event of Default shall occur and be continuing,
Secured Party may exercise in addition to all other rights and remedies granted
to it in this Security Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the UCC or otherwise. Without limiting the
generality of the foregoing, Company expressly agrees that in any such event
Secured Party, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Company or any other person (all and each of
which demands, advertisements and/or notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of Secured
Party's offices or elsewhere at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. Secured
Party shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Company hereby releases. Company further
agrees, at Secured Party's request, to assemble the Collateral and make it
available to Secured Party at places which Secured Party shall reasonably
select, whether at Company's premises or elsewhere. Secured Party shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 8(d) hereof, Company remaining
liable for any deficiency remaining unpaid after such application, and only
after so paying over such net proceeds and after the payment by Secured Party of
any other amount required by any provision of law, including Section 9-504(1)(c)
of the UCC, need Secured Party account for the surplus, if any, to Company. To
the maximum extent permitted by applicable law, Company waives all claims,
damages, and demands against Secured Party arising out of the repossession,
retention or sale of the Collateral except such as arise out of the gross
negligence or wilful misconduct of Secured Party. Company agrees that Secured
Party need not give more than ten (10) days' notice (which notification shall be
deemed given when mailed or delivered on an overnight basis, postage prepaid,
addressed to Company at its address referred to in Section 12 hereof) of the
time and place of any public sale or of the
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21
time after which a private sale may take place and that such notice is
reasonable notification of such matters. Company shall remain liable for
any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Secured Party, for its benefit
and the ratable benefit of Secured Party, is entitled, Company also being
liable for the fees of any attorneys employed by Secured Party to collect
such deficiency.
(b) Company also agrees to pay all costs of Secured Party, including,
without limitation, reasonable attorneys' fees, incurred in connection with
the enforcement of any of its rights and remedies hereunder.
(c) Company hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Secured Party in
the following order of priorities:
first, to Secured Party in an amount sufficient to pay in full
the reasonable expenses of Secured Party in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Secured Party in connection
therewith, including, without limitation, reasonable attorney's fees;
second, to Secured Party in an amount equal to the accrued
interest and prepayment premiums, if any, on the Financing Agreement;
third, to repay principal; and
finally, upon payment in full of all of the obligations
outstanding under the Financing Agreement, to pay to Company, or its
representatives or as a court of competent jurisdiction may direct,
any surplus then remaining from such Proceeds.
9. Limitation on Secured Party's Duty in Respect of Collateral.
Secured Party shall use reasonable care with respect to the Collateral in its
possession or under its control. Secured Party shall not have any other duty as
to any Collateral in its possession or control or in the possession or control
of any agent or nominee of it or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto. Upon
request of Company, Secured Party shall account for any moneys received by it in
respect of any foreclosure on or disposition of the Collateral.
10. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Company for liquidation or reorganization, should Company become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Company's assets, and
9
22
shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Secured Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a "voidable preference", "fraudulent conveyance", or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.
11. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Security Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be delivered in person with receipt
acknowledged, or telecopied and confirmed immediately in writing by a copy
mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to Secured Party, at
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street
29th Floor
New York, New York 10004
With a copy to:
Eli Levitan, Esq.
One State Street
29th Floor
New York, New York 10004
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard
Suite 400
Los Angeles, Ca. 90025
With a copy to:
Kelly & Lytton
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23
1900 Avenue of the Stars
Suite 1459
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or the date of the telecopy transmission, or three
(3) Business Days after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Secured Party shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Secured Party and then only to the extent therein set forth. A waiver by Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Secured Party would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of Secured Party, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and, where applicable by Company.
14. Successor and Assigns. This Security Agreement and all
obligations of Company hereunder shall be binding upon the successors and
assigns of Company, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, and all future holders
of instruments or agreements evidencing the Secured Obligations and their
respective successors and assigns. No sales of participation, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Secured Obligations or any portion thereof or interest
therein shall in any manner affect the security interest granted to Secured
Party hereunder.
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15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. AGENT, EACH SECURED
PARTY AND COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY
OBJECTION AS TO VENUE IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF
PROCESS ON COMPANY, AGENT OR ANY SECURED PARTY IN ANY ACTION ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY
AT THE ADDRESS LISTED IN SECTION 11 HEREOF. COMPANY HEREBY IRREVOCABLY APPOINTS
CT CORPORATION SYSTEM AS COMPANY'S AGENT FOR THE PURPOSE OF ACCEPTING THE
SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW YORK. COMPANY AGREES NOTHING
HEREIN SHALL PRECLUDE AGENT, ANY SECURED PARTY OR COMPANY FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
16. Conflict of Terms. Except as otherwise explicitly provided in
this Security Agreement, a conflict or inconsistency, if any, between the terms
and provisions of this Security Agreement and the terms and provisions of the
Financing Agreement shall be controlled by the terms and provisions of the
Financing Agreement to the extent of such conflict or inconsistency.
17. Counterparts. This agreement may be executed in counterparts, and
all of the counterparts, taken as a whole shall constitute the entire agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
or agent as of the date first set forth above.
DSL ENTERTAINMENT GROUP, INC.
By:
--------------------------------------
Drew S. Levin
President and Chief Executive Officer
Accepted and acknowledged by:
"Secured Party"
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- -------------------------------
Morris Wolfson
- -------------------------------
ACA Equities
- -------------------------------
D & M Investment Corp.
- -------------------------------
Mr. Gilbert Karsenty
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SECURED PROMISSORY NOTE
THIS SECURED PROMISSORY NOTE (THE "NOTE") HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
(2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SECURED AS PROVIDED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
AS OF JULY 8, 1996
$1,200,000.00 PRINCIPAL AMOUNT LOS ANGELES, CALIFORNIA
DSL ENTERTAINMENT GROUP, INC. a California corporation (the
"Company"), for value received, hereby promises to pay according to the attached
schedule A hereto, to ACA Equities, D & M Investment Corp., and Gilbert
Karsenty, with an address of: c/o Morris Wolfson, One State Street Plaza, 29th
Floor, New York, New York 10004, or registered assigns (the "Holder"), the
principal aggregate amount of One Million Two Hundred Thousand Dollars
($1,200,000.00) on the Maturity Date (as such term is defined below), or such
earlier date as may be provided herein, together with interest on the unpaid
principal balance hereof at the rate (calculated on the basis of a 360-day year
consisting of twelve 30-day months) of 10% per annum, compounding quarterly. In
no event shall any interest to be paid hereunder exceed the maximum rate
permitted by law. In any such event, this Note shall automatically be deemed
amended to permit interest charges (including the default rate set forth in
Section 2 below) at an amount equal to, but no greater than, the maximum rate
permitted by law.
This is the Note referred to in that certain letter agreement (the
"Letter Agreement"), by and between Holder and Company dated as of July 8, 1996.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Letter Agreement.
27
SECTION 1 PAYMENTS.
(a) (i) All unpaid principal and interest shall be due and payable on
the earlier to occur of (i) an Initial Public Offering of the Company's
outstanding Common Stock, or (ii) September 30, 1996, (the "Maturity Date").
(ii) In the event that any payments are made to Company for any co-production
rights, and/or distribution rights, whether U.S. or foreign, such sums shall be
paid to Lender towards any then unpaid principal, interest and other amounts
payable under this note. (iii) Any amounts Company receives pursuant to its
current convertible bridge loan private placement memorandum, in excess of
$1,300,000.00, (estimated total is $1,800,000.00) shall be paid to Lender
towards any then unpaid principal, interest and other amounts payable under this
note. (iv) Any amounts received by Company from the Interpublic Group of
Companies towards the production of the series "Amazing Tails" in excess of
actual production costs shall be paid to Lender towards any then unpaid
principal, interest and other amounts payable under this note.
(b) Interest on this Note shall accrue from the date of issuance
hereof. Payments shall be applied first to any costs or expenses, then to
accrued interest and then to principal.
(c) If the Maturity Date falls on a day that is not a Business Day
(as defined below), the payment due on such date will be made on the next
succeeding Business Day with the same force and effect as if made on the
Maturity Date. "Business Day" means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of New York, New York.
(d) Subject to Section 5, the Company may, at its option, prepay all
or any part of the principal of this Note, without payment of any premium or
penalty, upon 10 days prior written notice to the Holder. All payments on this
Note shall be applied first to accrued and unpaid interest hereon and the
balance to the payment of principal hereof.
(e) Payments of principal of, and interest on, this Note shall be
made by check sent to the Holder's address set forth above or to such other
address as the Holder may designate for such purpose from time to time by
written notice to the Company, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
(f) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of, and without any notice, diligence, act or
omission with respect to, the collection of any amount called for hereunder.
- 2 -
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SECTION 2 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
(a) A default in the payment of the principal on the Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest accrued on the Note,
when and as the same shall become due and payable, which default shall continue
for five business days after the date fixed for the making of such interest
payment.
(c) A final judgment or judgments for the payment of money in excess
of $100,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals, or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company shall
not, within such 60-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of, or in respect of,
the Company, under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, and the continuance of any such decree or order unstayed and in effect for
a period of 60 days; or the commencement by the Company of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator, or
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company in furtherance of any such
action.
(e) A default is declared under the terms of the Letter Agreement or
Collateral Security Agreements.
(f) A sale of all or substantially all of the assets of the Company,
or a sale of common stock such that Drew S. Levin does not own in excess of 30%
of the Company's outstanding stock.
then, and in every such case, during the continuance of the Event of Default,
the Holder may, without presentment, demand or notice declare the principal of
this Note, together with all unpaid
- 3 -
29
accrued interest thereon, to be immediately due and payable, and upon any such
declaration the same shall become and be immediately due and payable, anything
in this Note to the contrary notwithstanding. The Holder, if not paid promptly
at maturity or acceleration of this Note, shall be entitled to, and the
Borrowers covenant and agree to pay to the Holder, such additional amount as
shall be sufficient to cover the cost and expenses of collection of this Note,
including, without limitation, reasonable attorneys' fees and costs. Upon an
Event of Default, the Holder may take such action as it deems desirable for the
enforcement and collection of the principal of, and unpaid accrued interest on,
this Note, as well as all additional sums to which the Holder may be entitled as
aforesaid. The Holder's rights hereunder shall be in addition to any other
rights the Holder may have at law or in equity. If an Event of Default has
occurred under the Agreement, or this Note in addition to any agreed upon
charges, the principal balance of this Note shall thereafter, at Holder's
option, bear interest at five percent (5.00%) in addition to the rate set forth
in above, calculated over a year of 360 days, however the total rate of interest
will not exceed the maximum allowable legal rate of interest.
SECTION 3 REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default, the principal amount
then outstanding of, and the accrued and unpaid interest on, this Note shall
automatically become immediately due and payable without presentment, demand,
protest, or other formalities of any kind, all of which are hereby expressly
waived by the Company.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
SECTION 4 SECURITY. This note shall be secured by the Collateral described
in those certain collateral security agreements dated as of even date hereof.
SECTION 5 MISCELLANEOUS.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex, or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025 Attention: President, (ii)
if to the Holder, at its address set forth on the first page hereof, or (iii) in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 6(a). Any notice or other
communication
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given by certified mail shall be deemed given at the time of receipt. Any notice
given by other means permitted by this Section 6(a) shall be deemed given at the
time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Note (and upon surrender of this Note
if mutilated), the Company shall execute and deliver to the Holder a new Note of
like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers, or remedies. No right, power,
or remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of New
York and shall be governed by, and construed in accordance with, the laws of the
State of New York, without giving effect to principles governing conflicts of
law.
(f) Company irrevocably consents to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of, or relating to, this
Note, any document or instrument delivered pursuant to, in connection with, or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint, or other process and agrees that service
thereof may be made in accordance with Section 4(a). Within 30 days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, the Company shall appear
or answer such summons, complaint, or other process. Should the Company fail to
appear or answer within such 30-day period or such extended period, as the case
may be, the Company shall be deemed in default and judgment may be entered
against the Company for the amount as demanded in any summons, complaint, or
other process so served.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
DSL ENTERTAINMENT GROUP, INC.
BY: ___________________________
DREW LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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SCHEDULE A
ACA Equities $400,000
D & M Investment Corp. $700,000
Mr. Gilbert Karsenty $100,000
----------
Total $1,200,000
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COPYRIGHT
MORTGAGE AND ASSIGNMENT
("Total Recall")
For good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned, DSL Entertainment Group, Inc., a California
corporation ("Grantor"), does hereby mortgage, assign, grant, convey and
transfer for security to ACA Equities, D & M Investment Corp., and Mr. Gilbert
Karsenty (collectively "Grantee"), and their successors and assigns, throughout
the world in perpetuity, all of Grantor's rights, title and interest of every
kind and nature, without limitation, in and to all copyrights and rights and
interests of every kind or nature in copyrights and works protectable by
copyright, whether now owned or hereafter created or acquired and all renewals
and extensions thereof, including without limitation all right, title and
interest in and to the television rights (as such rights are defined in the
purchase agreement dated May 1, 1996, between Grantor and Carolco Pictures,
Inc.) in and to the motion picture entitled "Total Recall" (the "Rights").
Grantor agrees that if any person, firm or corporation shall do or perform any
acts which the Grantee believes to constitute a copyright infringement of the
Rights, or constitute a plagiarism, or violate or infringe any right of the
Grantor or the Grantee therein or if any person, firm or corporation shall do or
perform any acts which the Grantee believes to constitute an unauthorized or
unlawful distribution, exhibition, or use thereof, then and in any such event,
the Grantee may and shall have the right to take such steps and institute such
suits or proceedings as the Grantee may deem advisable or necessary to prevent
such acts and conduct and to secure damages and other relief by reason thereof,
and to generally take such steps as may be advisable or reasonably necessary or
proper for the full protection of the rights of the parties. The Grantee may
take such steps or institute such suits or proceedings in its own name or in the
name of the Grantor or in the names of the parties jointly.
Grantor hereby irrevocably constitutes and appoints Grantee its lawful
attorney-in-fact to do all acts and things permitted or reasonably contemplated
by the terms hereof. Without limiting the generality of the foregoing, the
aforesaid conveyance and assignment includes all prior choses-in-action, at
law, in equity and otherwise, the right to recover all damages and other sums,
and the right to other relief allowed or awarded at law, in equity, by statute
or otherwise. ********** Grantor and Grantee have entered into a Loan and
Security Agreement dated as of February 12, 1996, as the same may hereinafter be
amended, supplemented, renewed, extended or replaced (the "Loan Agreement")
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relating to the mortgage and assignment for security in and to the aforesaid
rights and this Copyright Mortgage and Assignment is expressly made subject to
the terms and conditions contained in the Loan Agreement and related Promissory
Note.
"Grantor": Resurrection Incorporated Productions
By: _________________________
Its: ________________________
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ____________, 1996, before me, ______________________, Notary
Public, personally appeared _________________ personally known to me or proved
to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
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