KINNEVIK MEDIA PROPERTIES, LTD.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
August __, 1996
Communications & Entertainment Corp.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
The following shall constitute the essential deal terms agreed upon by and
between Kinnevik Media Properties, Ltd. ("KMP") and Communications &
Entertainment Corp. ("Comment") concerning the acquisition by KMP of various
representation and distribution rights to various motion pictures owned or
controlled by Comment; the waiver by Comment of various representation rights in
favor of KMP and the establishment of a revolving credit facility by KMP in
favor of Comment.
KMP and Comment have agreed as follows:
1. Pictures: The pictures subject to this agreement are as follows:
▇▇. ▇▇▇▇▇
SNIPER
EARTH GIRLS ARE EASY
MONEY
PELLE THE CONQUER
FIRE, ICE AND DYNAMITE
RHAPSODY IN ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ AND ▇▇▇▇▇▇▇▇▇▇▇▇
1492 CONQUEST OF PARADISE
DISTURBED
2. Assignment of Rights:
(a) Comment hereby assigns and transfers to KMP all of Comment's
sales representation, agency and distribution rights relating to the
Pictures. In the event such assignment is challenged by a third party
or KMP determines such assignment might adversely affect its rights
hereunder, then, in the alternative, Comment shall be deemed to have
engaged KMP to act as its exclusive sub-distributor or sub-agent for
the
Pictures. Appropriate Notices of Assignment and sub-distributor or
sub-agent agreements shall be delivered to KMP on execution of a more
definitive agreement embodying the terms contained herein ("The
Definitive Agreement") and executed by the parties. Subject only to
the term limitation set forth in paragraph 3 below, KMP's fees and
term of rights shall be consistent and co-terminus with Comment's
rights to the Pictures.
(b) To the extent Comment has such rights, the rights assigned,
transferred and granted to KMP include the following:
(i) To distribute, market, sell, license and otherwise
exploit and turn to account the Pictures (and to the extent Comment
has such rights, the right to sell or license all remake and sequel
rights to the Pictures), in all media, whether now known or hereafter
developed, including but not limited to, all forms of television
(including pay, broadcast, cable, satellite, pay-per-view, and video
on demand television), home video (including all so-called new media
rights including cassettes, disks, CD-Rom interactive and computer
uses), and all ancillary markets and areas (including non-theatrical,
ships at sea, airlines, etc.) and theatrical rights in all Territories
of the world.
(ii) To manage and administer all outstanding licenses and
agreements currently outstanding for and on behalf of the Pictures.
(iii) To bill, collect and receive all monies, participations,
license fees, royalties, and other payments that are due and owing or
that may become due and owing for and on behalf of the Pictures except
with respect to accounts to be set forth on SCHEDULE C [FILM BRIDGE].
(iv) To amend, renegotiate, modify, settle any and all
outstanding licenses and agreements for and on behalf of the Pictures,
subject to the approval of each Producer/Owner if required in each
instance.
(v) To audit and litigate, in the name of KMP or Comment, as
KMP determines necessary in connection with any of the above. Any
expenses incurred in connection with such activities will be borne by
KMP unless chargeable under the underlying agreements.
(vi) KMP agrees to use its best efforts in connection with the
exercise of the rights assigned
- 2 -
hereunder to maximize the commercial value of the Pictures.
3. Term: The term of KMP's rights shall be the full term of Comment's
rights as set forth on EXHIBIT A or 25 years, whichever is less. KMP will make
no licenses or commitment without the prior reasonable approval of Comment which
will extend beyond the applicable Term for each of the Pictures.
4. Outstanding Licenses: KMP acknowledges that the Pictures are subject
to the outstanding licenses and distribution agreements specifically identified
on EXHIBIT B. As and when such outstanding licenses and agreements expire or
terminate, all such rights shall be subject to this agreement and KMP's rights
hereunder. Excepting only the accounts receivable specifically identified on
Schedule C, KMP shall have the right to receive all monies, license fees,
royalties, participations, and any and all other revenue sources in connection
with or related to such outstanding licenses and distribution agreements. KMP
shall be obligated, during the Term, to service all such licenses and agreements
set forth in EXHIBIT B (as well as any new licenses entered into after the
Closing Date) and to fulfill all of Comment's performance obligations to third
parties undertaken by KMP in writing in the Definitive Agreements, but except as
specifically provided for herein, KMP shall not be responsible for any existing
indebtedness of Comment. Any costs incurred by KMP shall be recoupable
distribution expenses to the extent so provided in each respective agreement.
KMP agrees not to enter into any licenses that will conflict with any licenses
previously entered into by Comment, unless KMP has settled such licenses in
accordance with Paragraph 6 below.
5. Territory: KMP's rights shall be consistent with the Comment
territorial rights with respect to each Picture.
6. Outstanding Third Party Shares: KMP acknowledges that various monies
are due and payable by Comment to various producers/owners of the Pictures. A
detailed listing of balances owed to producers/owners is set forth on Exhibit D.
With respect to such outstanding balances, KMP and Comment have agreed as
follows:
(a) KMP and Comment will work together in an effort to settle,
renegotiate and otherwise satisfy such obligations;
(b) KMP shall endeavor, without any obligation to do so, at is own
expense and using its own financial resources, to (i) resolve/satisfy
such obligations and (ii)extend or enhance KMP's rights to such
Pictures.
(c) In the event KMP is able to resolve/satisfy such
- 3 -
obligations and secure an extension/enhancement of its rights then,
except with respect to unrecouped Pictures, KMP may enter into
agreements directly with such producers/owners for such
extension/enhancement of rights at no cost or charge of any kind or
nature to Comment.
(d) Subject to paragraph (e) and (f) below, Comment may not, without
the prior written approval of KMP, resolve, satisfy or settle any
third party claim which would have the effect of terminating,
impairing, limiting or otherwise restricting or diminishing any KMP
rights to the Pictures.
(e) In the event KMP and/or Comment are unable to amicably settle,
resolve or satisfy such obligations to producers/owners and such
producers/owners threaten litigation, termination of rights or
commence litigation, Comment shall so notify KMP in writing, and KMP
shall be given the right in the first instance to either:(i) endeavor
to amicably resolve such matter, or (ii) undertake the defense of any
such claim at its own expense.
(f) Should KMP elect to not resolve or defend any such third party
claim, then in such event the responsibility for the resolution and/or
defense of such matter shall be the sole responsibility of Comment.
In such instance Comment shall have the right to withdraw such Picture
from this agreement and return it to the owners or licensor thereof
without reduction in the Purchase Price.
(g) Appropriate notice provisions shall apply to the foregoing.
(h) The parties acknowledge that KMP is relying on the accuracy of
the producer obligations set forth at Exhibit D. In the event such
obligations are greater than indicated on Exhibit D, then Comment
shall be solely and exclusively responsible for any underestimate of
more than 10% of such sums on a per Picture basis.
7. Unrecouped Positions: Comment has advised KMP that two Pictures,
▇▇▇▇▇▇▇▇▇▇▇ AND ▇▇▇▇▇▇▇▇▇▇▇▇ ARE DEAD and SNIPER remain in unrecouped positions
with respect to payments owed to producers/owners. The amounts of the unrecouped
positions as of the date hereof (the "Unrecouped Balance") are set forth on
Exhibit D. In connection with any licenses of the foregoing two Pictures from
and after the Closing Date, after retention by KMP of its applicable fees and
expenses, Comment shall be paid any
- 4 -
receipts to the extent of the Unrecouped Balance, provided however that if
applicable (and before Comment receives any portion of the Unrecouped Balance)
KMP and Comment shall be entitled to retain the balance of receipts generated on
such unrecouped Pictures on a pari passu basis, to the extent of their
respective payments made to Producers/Owners and costs incurred by either party
(attorney's fees; litigation), from and after the Closing Date, in connection
with the matters identified in paragraph 6. After deduction of all the
foregoing amounts in each instance, the balance of any receipts shall be paid to
the appropriate Producer/Owner.
8. Exhibit "E" Titles - Representation Rights: Comment hereby agrees to
waive in favor of KMP various representation/distribution rights it may have in
connection with the titles identified on EXHIBIT E attached hereto. Comment
shall execute the waiver of rights attached hereto as EXHIBIT F.
9. Litigation: Comment hereby represents and warrants that, except as
otherwise provided at EXHIBIT G, there is no threatened or pending litigation
with respect to any of the Pictures. Comment further represents and warrants
that, except as provided in EXHIBIT G, no claims or demands have been made by
the producers/owners of the Pictures, or any other party on their behalf,
whereby such parties are seeking termination of Comment's rights in the Pictures
or to otherwise rescind such rights or seek the return of such rights.
10. Good Standing: Each party represents and warrants to the other that it
is a corporation in good standing and that there is no litigation, pending or
threatened, that would impair their ability to continue as a going concern
except as set forth on Exhibit "G". Comment further represents and warrants
that, except as set forth on Exhibit "G", there have been no claims made by
creditors that if pursued to successful conclusion would force Comment to seek
the protection of the Bankruptcy Courts or otherwise force Comment into
involuntary bankruptcy.
11. Purchase Price: In consideration for the rights herein granted to
KMP, KMP agrees to pay to Comment the sum of $1,075,000 payable as follows:
(a) $500,000 on Closing.
(b) $275,000 six months after Closing;
(c) $300,000 eighteen months after Closing.
Any late payments herein shall be subject to interest at the rate of
20% per annum from the due date thereof.
12. Assumption of Obligations: The parties agree that KMP
- 5 -
is not assuming any obligations or indebtedness of Comment or relating to the
Pictures arising out of or relating to any transactions which occurred before
the Closing, except as specifically undertaken in this Agreement. KMP agrees to
observe each and every restriction in connection with the distribution or
exhibition of the Pictures undertaken by Comment and of which KMP has or should
have knowledge (including but not limited to credit requirements and promotional
restrictions).
13. Statements and Payments: At KMP's election, KMP either shall issue to
Comment quarter annual statements within 45 days after the expiration of each
calendar quarter year reflecting sales, costs and collections made on the
Pictures together with payments then due or KMP shall furnish Comment with all
statements to be rendered by Comment to Producers/Owners. At KMP's election,
KMP shall either issue checks as called for by such statements in the names of
the Producers/Owners and deliver them timely to Comment for further delivery to
the Producers/Owners or KMP may deliver such checks directly to the
Producers/Owners. Comment shall have standard audit and inspection rights of
the relevant books and records of KMP, its subsidiaries, affiliates and within
control of KMP as they relate to the Pictures.
14. Revolving Credit: KMP agrees to establish a $500,000 revolving credit
facility in favor of Comment. This credit facility may be drawn upon on
presentment by Comment to KMP of bona fide collateral in accordance with normal
banking transactions. For purposes of determining the validity of the
collateral and other relevant terms concerning such borrowings, including terms
for discounting, present value calculations and such like terms, unless
otherwise agreed by the parties, the terms of KMP's revolving credit facility
with Atlantic Bank of New York shall govern. The initial term of such revolving
credit facility shall be for a period of eighteen months, subject to renewal by
the parties.
15. Warrants: Comment shall grant to KMP warrants to purchase up to
100,000 shares of Comment common stock. The warrants shall be exercisable at the
"bid" price of Comment common stock on August 5, 1996. Appropriate provisions
for anti-dilution shall be contained in the warrant agreement. Comment shall
arrange for "piggyback" registration rights for such warrants, on a "most
favored nations" basis with all other present or future warrant holders,
provided that such "most favored nations" provisions respecting such piggyback
rights shall not apply to the registration of warrants and shares to be issued
thereunder in the registration presently contemplated by Comment in connection
with a private placement. The pro-rata cost of any piggyback rights shall be
KMP's unless otherwise waived by this or any other agreements.
- 6 -
16. Closing.
(a) The Closing of this transaction shall take place at 10:00 A.M. on
September 30, 1996 at the offices of KMP, or such other time and
place as agreed to by the parties. Time shall be of the essence
with respect to the Closing Date, provided Comment shall have
fulfilled its closing conditions.
(b) KMP's obligation to close this transaction (and any other
obligations to Comment) shall be subject to: (x) KMP confirming
through its due diligence investigation that the rights being
acquired by KMP hereunder (including, but not limited to the
rights controlled by Comment and the outstanding licenses
relating thereto) are not materially less than the rights
described in the documents previously furnished to KMP; and (y)
KMP having been given access to substantially all the due
diligence materials, including Schedules and Exhibits hereto,
reasonably required to evaluate the rights being acquired herein,
in a timely manner. In the event KMP believes it has not been
given access to necessary due diligence materials, it shall give
the Partnerships written notice specifying such omissions, no
later than September 20, 1996.
(c) Documents Required for Closing:
The parties acknowledge that the following documents shall be required to be
executed, prepared, identified and/or assembled on or before closing:
(i) Mutual execution and delivery of the Definitive
Agreements.
(ii) Assignment of Distribution rights for each of the
Pictures.
(iii) Security Interest (UCC-1) documents for each of the
Pictures.
(iv) Notices of Assignment of all outstanding distribution and
license agreements and the right to receive all revenues,
license fees, royalties and participations therefrom.
(v) Laboratory Access Letters to all masters and foreign
language versions.
(vi) Copies of each agreement pursuant to which
- 7 -
Comment obtained its rights or ownership.
(vii) Schedule of all outstanding license and distribution
agreements.
(viii) Schedule of physical materials to be delivered or to
which access will be granted identifying the location,
including substantially all music cue sheets.
(ix) The Schedules and Exhibits referred to herein are being
prepared by Comment and will be attached to the
Definitive Agreements. Drafts of all such Schedules and
Exhibits will be delivered to KMP on or before September
20, 1996.
The following shall be made available to KMP by Comment as soon as
possible after the closing of if they are available:
(x) Any available copyright certificates.
(xi) If available, copies of all financial statements issued
by third parties for and on behalf of the Pictures.
(xii) Copies of the most recent statements issued to the
producers/owners and summary of current accounting
status.
(xiii) Insurance Certificates. If such certificates are not
available, Comment shall cooperate with KMP should KMP
wish to obtain its own E & O insurance.
(xiv) Master tapes, advertising and promotional materials,
scripts and such like items.
17. The following events shall enable Comment to terminate KMP's rights
upon 14 days written notice:
(a) The filing in Bankruptcy of KMP (voluntary or involuntary),
insolvency, or an arrangement for the benefit of creditors.
(b) Any breach of KMP's of its obligations in paragraph 11 which is
not remedied within 30 days written notice.
Upon such termination all rights shall revert to Comment and KMP shall
have no further claim to the Pictures, the proceeds or any other benefits
therefrom or the refund of any
- 8 -
sums previously paid to or advanced on behalf of Comment.
18. No preliminary injunctive relief or rights of termination (except as
provided in Paragraph 17 above) may be sought by any party with respect to a
dispute which is remediable by money damages.
19. The parties shall execute any further documents reasonably requested
by any other party.
20. This agreement and the Definitive Agreement shall be construed in
accordance with the Laws of the State of New York applicable to agreements fully
executed and solely to be performed therein. Jurisdiction over any disputes
hereunder shall be in the Courts of the County and State of New York. This
agreement may not be assigned by KMP without the prior approval of Comment, such
approval not to be unreasonably withheld, except that KMP may assign this
agreement without any restriction to a company under common control with KMP or
which acquires substantially all of its assets; provided no such assignment
shall relieve KMP of its obligations hereunder.
Kindly sign below indicating your agreement to the terms and
conditions set forth in this letter. This letter shall constitute a binding
interim agreement until a formal Definitive Agreement is prepared and executed.
Such Definitive Agreement shall contain provisions for representations,
warranties, indemnities, choice of law and such like provisions. Such Definitive
Agreement shall not in any event be inconsistent with any of the terms hereof.
It should be understood, however, that KMP's obligation to enter into a
Definitive Agreement is subject to KMP's satisfactory completion of its due
diligence review; confirmation that the availabilities and rights to the
Pictures are consistent with the information disclosed and the contents of the
Exhibits described above. The parties agree to have such Definitive Agreement
prepared as promptly as possible following the execution hereof.
Yours truly,
KINNEVIK MEDIA PROPERTIES, LTD.
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
AGREED TO AND ACCEPTED:
COMMUNICATIONS & ENTERTAINMENT CORP.
-------------------------------------
Title:
- 9 -
EXHIBIT E
PICTURES PARTNERSHIPS
-------- ------------
AMITYVILLE II Amityville Associates
AMITYVILLE 3-▇ ▇▇▇▇▇▇▇▇ Associates
CONAN THE BARBARIAN December Associates
DEAD ZONE ▇▇▇▇▇▇▇▇ Associates
DUNE Dune Associates
HALLOWEEN II Halloween Associates
HALLOWEEN III October Associates
RAGTIME December Associates
▇▇▇▇▇ ▇▇▇ OF BORA BORA Pacific West Associates or commonly owned by
all Partnerships (to be advised)
TRICK OR TREAT Commonly owned by all Partnerships
- 10 -