-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QahTMjTsu8XQ4aH5CDuBNX2Z2cEDQXEXIsBA21aq0U1YxuodK1Fvg3zzIs98rm8+ ZNwHaX2ORnGFITHmDlNDCA== 0001019687-00-000260.txt : 20000320 0001019687-00-000260.hdr.sgml : 20000320 ACCESSION NUMBER: 0001019687-00-000260 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 29 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MSH ENTERTAINMENT CORP / CENTRAL INDEX KEY: 0001038591 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-29985 FILM NUMBER: 572592 BUSINESS ADDRESS: STREET 1: 244 W 54TH STREET STREET 2: 12TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129779300 MAIL ADDRESS: STREET 1: 244 W 54TH STREET STREET 2: 12TH LFOOR CITY: NEW YORK STATE: NY ZIP: 10019 10SB12G 1 MSH ENTERTAINMENT CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 MSH ENTERTAINMENT CORPORATION ----------------------------- (Name of Small Business Issuer in its charter) UTAH 94-3248713 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 244 WEST 54TH STREET, 12TH FLOOR, NEW YORK, NY 10019 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 977-9300 -------------- (Registrant's telephone number, including area code) Securities to be registered under Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share PART I ITEM 1. DESCRIPTION OF BUSINESS. BUSINESS BACKGROUND MSH Entertainment Corporation ("MSH") is a diversified multi-media technology/Internet entertainment content company that intends to create properties for all media in all formats. To date its principal business has been the production of animated programming for television. Through its acquisitions and strategic alliances, MSH brings together an award-winning team of professionals from the entertainment, Internet and high-technology worlds. MSH's business plan is focused toward utilizing its in-house technology to further enhance the creation, development, production and exploitation of both live action and animated TV series and specials, toys, Internet related tie-ins, movies, home video and in-house developed technology. MSH also intends to participate in revenue generated from the ancillary merchandising of associated products as well as proprietary computer software programs and music publishing related to MSH's created works. Its relationships with a consortium of affiliate companies, consultants, software programmers, motion picture and television producers, toy manufacturers, artists, agents, directors and creative staff, strengthen its position in the entertainment industry. MSH is a Utah corporation formed in 1983. Its principal offices are located at 244 West 54th Street, 12th Floor, New York, NY 10019, and its telephone number is (212) 977-9300. INDUSTRY BACKGROUND-ANIMATION Animation, once a cottage industry labeled as nothing more than the stepchild of live-action, has enjoyed a resurgence of activity in the past several years. The success of "The Simpsons" in prime time in the late 1980's opened the doors for animation series to successfully compete with major network situation comedies. In 1990, the Warner Brothers/Steven Spielberg hit "Steven Spielberg's Tiny Toon Adventures" pushed animated product to new heights in television. The success of "Rugrats," airing on Nickelodeon, is another example of the continuing success of animated programming. But the real credit for bringing animation back to the television screen was the success of Disney movies and videos. The huge success of such films as "The Little Mermaid", "Beauty and the Beast", "The Lion King", "Toy Story", "Toy Story 2" and "Tarzan" did more for television animation than any series up to this time. These films caused audiences to develop a taste for quality animated product. Like popular music, animation programming travels well, accounting for its worldwide acceptance. MSH'S BUSINESS STRATEGY The continued advances in the computer and communications industries, and the integration of these two industries with the entertainment industry, are creating significant opportunities for growth. Based upon the pursuit of this 2 growth opportunity, MSH has proceeded with acquiring capabilities to create, develop, produce, license, distribute and merchandise television programs, television series and original Internet created programming for both children and family audiences and for the mature prime-time television and cable markets. MSH also plans to pursue opportunities in children's toys and merchandising as it relates to its own programming. MSH has an ongoing commitment to create and produce quality Internet and television programming for a wide variety of media. Its primary strategy is to produce product for the television, toy and merchandising markets in the United States, Europe and Asia, as well as sound track recordings, home videos, Internet tie-ins and technology for those markets. MSH plans to retain an ownership interest in the copyright of all its productions for the purpose of building a potentially highly profitable library for future exploitation in all media worldwide. In order to implement these goals, MSH plans to enter into the arena of children's and family television production, licensing and merchandising through its majority owned subsidiary, KidsAndFamily Network, Inc.; has established a music publishing company and record label; has acquired a minority interest in and entered into various co-production agreements with Abrams/Gentile Entertainment ("AGE"), a well-respected independent toy development and merchandising company; has entered into a strategic alliance with one of the industry's premier producers of animated television product, Film Roman; and has acquired a minority interest in Aston Entertainment Group, which operates a state-of-the-art 3D computer animation/post-production facility. MSH's strategy for growth emphasizes the development of new products as well as selected acquisitions and participation in strategic alliances, recognizing the advantages of owning creative product which it can control and distribute in all media and across all platforms. DEVELOPMENT JOINT VENTURES AND STRATEGIC ALLIANCES MSH views acquisitions and strategic alliance agreements as key vehicles to the entry into new markets and the leveraging of its existing infrastructure. MSH actively seeks strategic joint ventures to acquire rights, develop, package and/or co-produce projects. By joining with a domestic or international partner, MSH can allocate overheads as well as assign projects to the joint venture from which it would derive revenues from the sale of the project and as well as equity participation based on the success of each project. RELATIONSHIP WITH ABRAMS-GENTILE ENTERTAINMENT, INC. MSH has agreed to purchase 20% of Abrams-Gentile Entertainment, Inc., a New York-based toy development and merchandising company ("AGE"), and has produced and continues to develop programming in conjunction with AGE. In addition, two of the three principals of AGE, John and Anthony Gentile, serve as Creative Directors for MSH and serve on MSH's Board of Directors. Over the years AGE has developed and merchandised a number of successful toys, including "Skydancer," which became the number one selling girl's action toy and displaced "Barbie" for a period of time as the favorite toy among young girls. The toy was marketed worldwide by Galoob, marketer of AGE's other toy lines, "Happy Ness" and "Dragon Flyz." Additional AGE toy products include: Power Glove, Teen Talk Barbie, and Popcorn Pretties 3 for Mattel Toys; Nitro-Bat for Wham-O Toys; Baby Sweet Surprise, Bucky O'Hare, Fazz and Visionaries for Hasbro/Kenner Toys; Creepy Crawlers, Incredible Edibles, Everglo and Photo Doh for Toymax; Rambo for Coleco Toys; Drastic Elastic, Comic Campus, Spiral Shop and Boomer Tube for Just Toys; the personality dolls Marilyn Monroe, James Dean, Cher and Farrah Fawcett; and licensed properties including Star Trek, Planet Of The Apes, Baywatch and Marvel Super Heroes. For television, AGE has produced over fifty hours of Saturday morning animation, created and produced by John and Anthony Gentile, including "Van-pires" (co-produced with MSH),"Visionaries" and "Bucky O'Hare". During the 1997/98 season, the "Van-pires" animation series was consistently ranked in the top 5 syndicated animated series. In the theme park arena, AGE is a creative and technical consultant to the proposed SCI-COM-CITY theme park in Osaka, Japan. AGE is also the owner of certain technology known as BLINK (Beeper-Linked Integrated Network),developed by John and Anthony Gentile, to incorporate a low-cost paging system in conjunction with a custom data receiver module known as Economic Data Receiver ("EDR"), which employs a proprietary pager board to receive mass broadcasts digital data over established paging systems. Such data, when received, may be synthesized into speech, displayed on a liquid crystal display screen, or be utilized in any output manner required. Through the use of acquired capcodes licensed to AGE by Skytel, the EDR is also capable of transmitting and receiving two-way individualized data within the same system, through subscriptions purchased by end users. AGE plans to develop a "BLINKY" toy for Christmas 2000. No two will be alike. Each will have a 5 channel select option built into a BLINK chip that allows for customized BLINK options, allowing each toy to have its own personality based on channel select. The personality can be playful, happy, mischievous, sad, shy, etc. Blinky will be able to also change the channels on a TV set, stereo and other IR devices. Each toy can be age graded so that the content package is specific to an age group. Totally devoted to its "owner" based on initial customization with a one time download included (child's name, birthdate, favorite color or any specific personalizations which will be kept in fresh memory). With a special two-way, a child can officially register BLINKY for specific bouncebacks, adoptions, etc. Additionally, the child can update in dedicated memory bank, special dates and achievements as they occur. New content can be added or changed as kids play, based on trigger of specific input devices designed into BLINKY. BLINKY can be designed with a special "Blink-link" so that a unique channel broadcast can only be accessed when two BLINKYs are linked together allowing for access to the secret broadcast channel (the 5th channel). Like Furby, BLINKY can be designed as a totally self-contained character and notification to the child of new data can be prompted through mechanical activation (ears move, eyes blink), light activation (blinking LED prompt), vibration activation (pager prompt) and audio activation (melody prompt). 4 The BLINKY toy can also be designed as a character designed with a dual personality. The first personality utilizes digital bank a bank of non-synthesized speech and sound effects. The second personality receives and processes synthesized speech and signals to the child that "double-talk" now has new secrets to share with the child. In addition, by using a strategically placed sensor on the BLINKY doll, an interactive game pattern can be created for several games modes through a two switch A/B input. Apart from its ownership of 20% of AGE, in 1998 MSH entered into an agreement with Marty Abrams, the owner of 50.1% of AGE, to acquire his interest in AGE. The agreement originally called for a purchase price of $5,000,000, consisting of cash and stock. The Agreement has been amended several times. To date, MSH has paid Mr. Abrams approximately $2,400,000 in cash and has issued him 3,500,000 shares, valued at approximately $1,200,000, for a total of $3,600,000. MSH is in negotiations with Mr. Abrams toward the resolution of these issues. PC POWER GLOVE. MSH owns a 9.375% interest in Freedom Multimedia, LLC, the developer of a patented virtual reality (VR) technology known as "PC Power Glove." The original Power Glove was a revolutionary video game control device developed by AGE and licensed to Mattel Toys, which marketed it for use with the Nintendo Entertainment System in 1989. The original Power Glove was one of the first VR products to be produced for the consumer market, and achieved worldwide gross sales in excess of $80 million. Freedom Multimedia, LLC was organized by AGE, MSH and others to sponsor development of a next-generation Power Glove, with an interface device specifically designed for the PC market. The newly designed Power Glove's "I-Touch" web-imbedded software, is designed to permit "mouseless" Internet navigation, with the ability to touch, rotate and navigate through 3D rooms and environments and eventually "feel" items on the web. In addition, a range of PC peripherals will be developed that both compliment and expand upon the unique hand recognition action of the Power Glove, while exploiting the high level of brand recognition associated with the Power Glove name. These features are to allow the PC Power Glove to exploit opportunities in the PC marketplace. The PC Power Glove is being designed and marketed for a number of markets, including PC games, stand-alone video gaming systems, scientific visualization, performance animation, CAD applications, virtual reality applications, and industrial, training and education applications. Additionally, the PC Power Glove is designed to utilize tracking technology, and will utilize ultrasonics and patented conductive "flex sensors" to allow the unit to measure six degrees of tracking. 5 The Flex Sensor is a patented "soft switch" technology for use in all phases of industries from toys to apparel to robotics to medical uses. Worldwide cost effective applications allow as many as three hundred plus individual "switches" to a single sensor. The "flex sensor" tracking will be accomplished utilizing AGE's patented bend sensors located through the plastic housing mounted on the top of the wrist and extending through the spandex glove on the top of the hand. The conductive ink wrist sensor will have two byte (16 bit) resolution and be responsible for one of the six degrees of tracking (pitch). The special feedback sensors will give the user a taste of more state-of-the-art glove sensor technologies. MSH believes that the Power Glove could become a cornerstone of gaming and industrial VR applications in the personal computer industry. MAJORITY INTEREST IN KIDSANDFAMILY NETWORK, INC. In 1999 MSH created and founded KidsAndFamily Network, Inc. as a majority-owned subsidiary. KidsAndFamily Network is designed to be a business-to-business Internet advertising and direct marketing services group designed to enable both advertisers and Web publishers to capitalize on the many opportunities presented by Internet advertising, direct marketing and electronic commerce. The KidsAndFamily.net Network will be comprised of local and national Web sites. It is designed to offer comprehensive advertising sales solutions for both emerging and mature Web publishers and provide advertisers and direct marketers with targeted ad delivery across the network. The mission of KidsAndFamily.net is to deliver highly targeted, measurable and cost-effective Internet advertising for advertisers and ad agencies, and to increase ad sales and improve ad space inventory management for Web publishers. KidsAndFamily.net will offer Web publishers a complete, turn-key advertising revenue solution-from sales representation through performance reporting. The network is to represent the most comprehensive opportunity available to Web publishers operating in the "Family with Children" market. KidsAndFamily.net will generate revenue by selling advertising placement and promotions for its affiliated Web sites in an environment poised for growth. FIRST-LOOK AGREEMENT WITH FILM ROMAN, INC. MSH has entered into a "first-look" agreement with Film Roman, Inc., a Los Angeles-based animation production company (producers of "The Simpsons" and "King of the Hill") for the co-production of new children's animated series, specials, movies and the creation of original toys and merchandising related to those programs. Under the terms of the agreement, both companies will own a portion of the adjusted gross profits from the television broadcast, toy and merchandising licensing rights of each other's selected animated and live action properties produced under the agreement. In addition, MSH will engage Film Roman for co-development funding and deficit financing of some of the properties. In June of 1999 MSH and Film Roman entered into an agreement with actress Jane Seymour and her husband, film director James Keach, to produce an animated program, "This One `N That One" Based on a popular series of Penguin/Putnam children's books written by Seymour and Keach, "This One `N That One" is inspired by the antic adventures of their three year-old twin boys, and follows the adventures of a family of cats and the twin kittens of the litter named "This One" and "That One". 6 MINORITY INTEREST IN ASTON ENTERTAINMENT GROUP, INC. In October of 1999 MSH purchased 20% of the outstanding stock of Aston Entertainment Group, a Sarasota, Florida-based animation production company ("Aston"), for cash and shares of MSH. In January 2000, MSH entered into an agreement to purchase an additional 15% of the outstanding stock of Aston, to bring its ownership of Aston to 35%. Aston is a state-of-the-art 3D computer generated animation facility with an advanced technology post-production facility and fully staffed storyboard department. Ownership of a portion of Aston will permit MSH to produce its animation projects at a reduced cost, with greater control over the production and post-production phases. The alliance also calls for MSH and Aston to develop and create animated television projects and establish a marketing and promotion plan for Aston's existing products and intellectual properties. STRATEGIC ALLIANCE WITH E-MARKETING PARTNERS. In 1999, MSH entered into a strategic alliance with e-Marketing Partners, which serves as the agency of record for the KidsAndFamily Network. E-Marketing Partners ("EMP") is an online marketing consulting company specializing in developing Internet strategies, increasing website traffic and usage, maximizing e-commerce opportunities, and incubating Internet ventures. EMP was co-founded by interactive marketing professionals from USWeb and by KidsAndFamily president, Bob Heyman, co-founder of Cybernautics, a leading online marketing and web design firm that pioneered the fields of Internet Audience Development, Online Direct Marketing and Online PR. STRATEGIC ALLIANCE WITH ETC GROUP, INC: In December, 1998, MSH entered into an agreement with etc... group, inc., for corporate video and television production. Established in 1993, etc...group, inc. offers clients a full spectrum of marketing services including corporate positioning, corporate identity, message platform, award winning design, print and broadcast advertising, direct mail, trade shows and event management and video and film productions. etc...group, inc. has been creating marketing Internet and intranet communications for high-tech and multimedia clients since 1993. The etc...group has an experienced team of professionals specializing in web-based communications who are experts in leveraging a company's website, customer database and electronic communications programs to build brand awareness, product consideration and generate sales leads. Among its customers, etc..group, inc. lists Lucent Technologies, Ascend Communications, Amdahl, Fujitsu, Sony, Sprint, Cisco and Adaptec. CONSULTING ARRANGEMENT WITH KING/FROMKIN PRODUCTIONS, INC. In November 1999 MSH entered into a "packaging/consulting" arrangement with King/Fromkin Productions, Inc., a New York based talent agency/entertainment packaging company specializing in motion pictures, television, literary and talent development and packaging. Under the terms of the agreement, King/Fromkin is to make its existing projects available to MSH for television and/or motion picture production. King/Fromkin will also seek out and acquire entertainment properties to package with talent and screenplays for possible productions for MSH. The first project being readied under the agreement is "Lady Day At The Emerson Bar and Grill", an off-Broadway play about the last 100 hours in the life of Billie Holiday, will be co-produced by MSH as a theatrical feature film with a built in sound track of 20 Billie Holiday recordings. 7 STRATEGIC ALLIANCE WITH PETER PAN INDUSTRIES. In December of 1999, MSH entered into a strategic alliance agreement with Peter Pan Industries ("PPI"), the second largest distributor of children's home video product, next to Disney, in North America. The strategic alliance with PPI will provide MSH its own arms-length distribution division as a major component of MSH's corporate structure. PPI will be used to distribute selected MSH produced products and its animation children's library. PPI has close relationships and access to a large base of buyers voicing specific programming needs that should translate into a communications pipeline for MSH. PPI has access to all outlets available for product today including Best Buy, Costco, Wal-Mart and Target, to maximize MSH's distribution revenue potential in all markets around the world. SOUND TRACK, RECORD AND MUSIC PUBLISHING MSH has formed a separate music division, the MSH Music Group, which consists of two publishing companies (one ASCAP, one BMI). MSH has also formed its own record label, MSH Records and has entered into an agreement with Navarre Corporation, the largest independent record distributor in North America, for a total of 30 albums over a three year period. The MSH Music Group has several albums completed, but plans to change its focus to concentrate on publishing. MSH owns all or a portion of several albums including the soundtrack from the "Van-Pires" TV series. The music was written and performed by John Entwitsle, a founding member, the bassist and arranger for the rock group "The Who". MSH has also acquired 106 original master recordings of the Ike and Tina Turner music library, including nearly all their hit songs, has recorded and co-owns an album by a new country artist and owns Sheena Easton's latest album, to be released in 2000. LICENSING AND MERCHANDISING In addition to utilizing television to advertise products to children, the creation of children's programming itself provides broad licensing and merchandising opportunities. Characters developed in a popular children's series, and often the series themselves, achieve a high level of recognition and popularity among children, making them valuable assets for the licensing and merchandising market, where they can provide attractive "branding" opportunities. Merchandising of character-related products is conducted principally through the grant of licenses to independent third parties who manufacture products incorporating MSH's characters and distribute these products through normal distribution channels. These licenses provide payment of royalties to MSH based on specified percentages of the sale of licensed products. The children's market is one of the fastest growing segments in licensed merchandising sales, with over 70% of the $6 billion spent annually in the United States on entertainment and character-related properties relating to 8 children oriented products. There are currently an estimated 40 million children in the United States between the ages of 2 and 11, with approximately 4.5 million children entering the marketplace annually, and the average annual amount spent on toy purchases for a child up to ten years of age is generally estimated at between $240 and $300. Royalty payments in the merchandising industry typically range between 5% to 15% of gross sales. The marketing and sales duration of a popular merchandising item is typically 18 months to 27 months. MSH intends to capitalize on its created characters and properties by entering into licensing agreements with manufactures and retailers of children's products. TRADEMARK AND COPYRIGHT Rights to scripts, television and movie productions, musical works, sound recordings art work, photography, animated characters, toy designs and creations, original merchandising, technology, software, computer programs and other intellectual properties are granted legal protection under the trademark and copyright laws of the United States and foreign countries. These laws provide civil and criminal sanctions for unauthorized duplication, exhibition or commercial exploitation of the property. All of MSH 's properties have secured and maintain protection to the rights to all of its properties under the laws of applicable jurisdictions including the United States Copyright Act of 1976. MARKETING STRATEGY MSH's primary strategy is to create, develop and produce products for the television and Internet markets in the United States, Europe and Asia, as well as home videos, toys and merchandising for those markets, as well as in-house created entertainment based technology which will enhance the capability to exploit MSH's internal properties. MSH will retain all or a substantial portion of the copyright ownership of all its products for the purpose of building a profitable library for exploration in all media worldwide. With the growth of interest in various ancillary elements of a property, MSH plans to incorporate these elements into each created property. The integration of these ancillary elements into the project are referred to as "synergistic" packaging. Synergistic packaging encompasses the arcs of video rights; multiple productions for the establishment of "library" packages for ultimate syndication sales; television series, live action and animation television specials for networks, cable networks, syndication and the Internet; character and product licensing; merchandising and promotional tie-ins and considerations; corporate identity and sponsorship programs via product placement; music soundtrack publishing; replay rights; music videos; literary and educational publishing rights; and, in rare cases, the creation of theme park rides and attractions based upon the subject and characters of a particular project. 9 TECHNOLOGY JETHRO ANIMATION CONTROL SYSTEM. The increasing popularity of animated programming has produced a significant challenge in producing quality shows in a timely and cost efficient manner. Most domestic production entities today contract with offshore animation production facilities to gain access to more affordable animation. This often entails delays and limited creative control, which equates to increased costs and missed delivery deadlines. MSH has developed the Jethro Animation Control System ("Jethro"), a system designed to alleviate the foregoing problems and deliver episodic television programming of high quality at competitive prices using the INTEL MP platform. Jethro enables the animation house to meet the broadcasters' delivery demands by being able to monitor all resources, compare individual animators' daily delivery against projected delivery quotas and alert the art director when additional resources are needed to bring the ongoing work flow back on schedule. Until now no piece of software existed that could run this kind of operation. Jethro has been created as an episodic television delivery management system for high-end animation projects. Jethro takes storyboards and breaks them down into component parts and then assigns code sequences to each visual element. Those code sequences are what the individual animators enter when they are working on a scene that contains those characters at elements. Jethro monitors not just the actual creation of elements but also the rendering of each element and scene, and compares what is going on the schedule on a minute to minute basis. The competitive advantage that Jethro gives is that if additional resources need to be utilized, Jethro lets the art director know exactly where to use them to ensure on-time delivery. COMPETITION The businesses in which MSH engages are highly competitive. Each of MSH's primary business segments are subject to competition from companies which, in most instances, have much greater production, distribution and capital resources than those of MSH. CONVENTIONAL PROGRAMMING. MSH competes with a wide variety of companies that provide programming to television and other media, including major studios such as Warner Bros. and The Walt Disney Company, broadcast and cable networks that produce original programming such as Fox Family Worldwide, Inc. and Nickelodeon, and animation production companies such as Hanna Barbera, Saban Entertainment, Inc. and Klasky Cuspo. 10 PERSONNEL. MSH competes on the basis of relationships and pricing for access to a limited supply of creative personnel to produce its programs. MSH competes with virtually all producers of entertainment content for such resources, with particular competition from specialized animation companies such as Hanna Barbera, Film Roman and Klasky Cuspo, for the services of writers, producers, animators, actors and other creative personnel. INTERNET. As KidsAndFamily Network, Inc. establishes its websites and internet business, it will compete with companies with substantially greater internet presence, financial, technical, marketing and other services, including Yahoo, America Online, and other "portals", as well as websites designed for children and families, such as those maintained by Disney and Fox. More generally, MSH competes with various other leisure-time activities such as home videos, movie theaters, personal computers and other alternative sources of entertainment and information. GOVERNMENT REGULATION MSH's customers and potential customers who utilize domestic broadcast television as a distribution source are subject to the provisions of the Children's Television Act of 1990 and the rules issued by the FCC. These rules require television broadcast station licensees to address the educational and informational needs of children through programming specifically designed to serve such needs, as well as through their overall programming. The FCC has strongly encouraged broadcasters (through the license renewal process) to air at least three hours per week of regularly-scheduled programs that have as a significant purpose serving the educational and informational needs of children aged 16 and under. Such programming must be specifically identified as educational or informational programming. While MSH is not subject to the direct jurisdiction of the FCC, these FCC requirements may influence the content of its programming in order for it to place programs on FCC-licensed stations. In addition, MSH may be subject to local content and quota requirements in the international markets, which effectively prohibit or limit access to particular markets. The Children's Online Privacy Protection Act ("COPPA") prohibits web sites from collecting personally identifiable information from children under age 13 without prior parental consent. The Federal Trade Commission is expected to adopt final rules implementing COPPA by late 1999. Websites provided by KidsAndFamily Network may be subject to COPPA requirements. Congress may also consider online privacy legislation that would apply to personal information collected from teenagers and adults. 11 EMPLOYEES As of October 31, 1999, MSH had ten full time employees. MSH's employees have never been covered by a collective bargaining agreement. MSH has never experienced any work stoppages, slowdowns, or other serious labor problems and considers its relations with its employees to be excellent. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. GENERAL. MSH has formulated its business plans and strategies based on certain assumptions of its management regarding the size of the market for the products and services which MSH will be able to offer, MSH's anticipated share of the market, and the estimated acceptance of MSH's products and programming. MSH continues to believe its business plans and the assumptions upon which they are based are valid. Although these plans and assumptions are based on the best estimates of management, there can be no assurance that these assessments will prove to be correct. No independent marketing studies have been conducted on behalf of or otherwise obtained by MSH, nor are any such studies planned. Any future success that MSH might enjoy will depend upon many factors, including factors which may be beyond the control of MSH or which cannot be predicted at this time. These factors may include technological changes, changing consumer tastes, obsolescence, increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs including cost of supplies, personnel and equipment, reduced margins caused by competitive pressures and other factors, and changes in governmental regulation imposed under federal, state or local laws. MSH's operating results may vary significantly due to a variety of factors including changing customers profiles, the availability and cost of programming and talent, the introduction of new programming and products by competitors, the timing of MSH's advertising and promotional campaigns, pricing pressures, general economic and industry conditions that affect customer demand, and other factors. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997. Net sales for the year ended December 31, 1998 were $151,696, representing a decrease of $21,553 compared with net sales for the year ended December 31, 1997. This decrease was due primarily to deteriorating revenues from East End Productions, which MSH had acquired during the 1996 fiscal year Production costs increased by $350,203, principally as a result of costs associated with the production of the "Van-Pires" series during 1998. Net loss improved from $(3,649,706) in 1997 to a net loss of $(3,209,954) in 1998, due primarily to a non-recurring loss in the 1997 year relating to an acquired business. TEN MONTHS ENDED OCTOBER 31, 1999 COMPARED TO TEN MONTHS ENDED OCTOBER 31, 1998. Net sales for the 1999 period were zero, represents a decrease of $96,924 from the 1998 period. The decrease is principally due to the receipt of revenues from the "Van-Pires" series in 1998, which revenues were not present in 1999. Product costs decreased by $786,818, also due to the "Van-Pires" series. General and administrative expenses increased by $772,533, due to MSH's efforts in establishing creative alliances, its negotiations concerning the acquisition of interests in Abrams/Gentile Entertainment, Inc., Aston Entertainment Group, Inc. and Freedom Multimedia, Inc., and the costs associated with the establishment of KidsAndFamily Network, Inc. 12 LIQUIDITY AND CAPITAL RESOURCES At October 31, 1999, MSH had cash and cash equivalents of $31, 970 . The principal source of liquidity has been sales of securities. Management anticipates that additional capital will be required to finance MSH's operations. MSH believes that expected cash flow plus the anticipated proceeds from sales of securities will be sufficient to finance MSH's operations at currently anticipated levels for a period of at least twelve months. However, there can be no assurance that MSH will not encounter unforeseen difficulties that may deplete its capital resources more rapidly than anticipated. ITEM 3. DESCRIPTION OF PROPERTY. MSH's headquarters are located in midtown Manhattan at 244 West 54th Street, 12th Floor, New York, New York 10019. The space consists of approximately 6,000 square feet, and is leased until September 30, 2006, at a current rate of $10,000 per month, with annual increases and a contribution to common area expenses. Approximately 50% of the space is subleased to complementary entertainment companies, and the rent under these subleases exceeds the rent payable by MSH. MSH's Internet subsidiary, KidsAndFamily, Inc. is located in the San Francisco Bay area at 85 Liberty Ship Way, Suite 105, Sausalito, California 94965, pursuant to a month-to-month sublease calling for monthly rent of $750. As a result of its strategic alliance with Film Roman, MSH's Los Angeles offices are located in the Film Roman building at 12020 Chandler Boulevard, Suite 300, North Hollywood, California 91607. MSH and Film Roman have a cooperative rental agreement whereby MSH and Film Roman each provide office space to the other at no cost. MSH's New York headquarters, along with maintaining a presence in Los Angeles, and its Internet company in northern California, will provide adequate space for offices and production facilities through this calendar year with suitable additional space available to accommodate MSH's planned expansion in year 2000 and beyond. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information as of October 31, 1999 with respect to the beneficial ownership of MSH's Common Stock, which constitutes MSH's only outstanding class of voting securities, by (i) each person who, to the knowledge of MSH, beneficially owned more than 5% of the Common Stock, (ii) each director of MSH, (iii) the Named Executive Officers (as defined in Item 6 below) and (iv) all executive officers and directors of MSH as a group: 13 AMOUNT OF PERCENT NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OF CLASS(2) - --------------------------- ------------------------------------- Robert P. Maerz 10,100,000(1) 8.5% 244 West 54th Street 12th Floor, New York, NY 10019 Jonathan Stathakis 8,200,000(2) 6.9% 244 West 54th Street 12th Floor, New York, NY 10019 Andrew Steiner 5,000,000(3) 4.2% 244 West 54th Street 12th Floor, New York, NY 10019 Michael L. Welsh 1,440,000 1.2% 244 West 54th Street 12th Floor, New York, NY 10019 Bruce Ungerleider 16,728,541(4) 14.1% 511 66th Street North St. Petersburg, FL 33710 John Gentile 4,485,715 3.8% 244 West 54th Street 9th Floor, New York, NY 10019 14 Anthony Gentile 4,485,715 3.8% 244 West 54th Street 9th Floor, New York, NY 10019 David Pritchard 1,068,000 * 244 West 54th Street 9th Floor, New York, NY 10019 Al Morgan 200,000 * 244 West 54th Street 12th Floor, New York, NY 10019 Dennis Olle 200,000 * Suite 1600, 2601 South Bayshore Drive Miami, Florida 33133 Chuck Walker 1,137,500 * 808 Gladstell, # 613 Conroe, Texas 77304 Sam Cable 1,282,450 1.1% 808 Gladstell, # 613 Conroe, Texas 77304 All directors and executive officers 37,599,380 31.7% as a group - ------------------------------ (1) Includes 1,100,000 shares issuable upon exercise of currently exercisable options. (2) Includes 1,000,000 shares issuable upon exercise of currently exercisable options. (3) Includes 500,000 shares issuable upon exercise of currently exercisable options. (4) Consists of approximately 1,968,541 Shares of Common Stock and currently exercisable warrants to acquire approximately 14,760,000 Shares, not all of which have been issued. * Less than 1% 15 ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. - ---------------------------------------------------------------------- The following is a list of MSH's directors and executive officers, their ages, and their positions and offices with MSH, and with its subsidiary, KidsAndFamily Network, Inc.:
NAME AGE POSITIONS Robert P. Maerz 49 Chief Executive Officer, Chairman of the Board and Co-Chairman of KidsAndFamily Network, Inc. Jonathan G. Stathakis 53 President, Chief Operating Officer and a Director Michael L. Welsh 49 Chief Financial Officer, Secretary/Treasurer and a Director Andrew Steiner 36 President of KidsAndFamily Network, Inc. John Gentile 40 Creative Director and a Director Anthony Gentile 40 Creative Director and a Director Ronald Tanet 59 Vice President Business Affairs Fred E. Aurelio 75 Vice President-Controller Robert Heyman 46 Director of KidsAndFamily Network, Inc. David Pritchard 52 Co-Chairman of KidsAndFamily Network, Inc. and a Director 16 Al Morgan 78 Director Dennis Olle 45 Director Chuck Walker 43 Director Sam Cable 56 Director
Mr. Maerz has been the Chairman of the Board and the CEO of MSH since August 1994, and has been involved with the film and television industry since 1990. Between1985 and 1988 Mr. Maerz was a registered representative for Harris Financial Company; and Legg, Mason, Wood, Walker, Inc., both New York Stock Exchange member firms He started his own investment company in 1988 and has been instrumental in organizing and seeking financing for small companies. >From 1980 to 1984, Mr. Maerz was a principal in Talent Management Inc, a corporation that represented musicians and athletes in contract negotiations with sports franchises and record companies. Mr. Maerz served as the Executive Producer of three motion pictures and was the Executive Producer of "Van-Pires," a 3D computer graphic/live-action Saturday morning children's television series, which appeared on UPN, WB and Fox Networks. Mr. Maerz received a certificate of merit from the U.S. International Film and Video Festival for "Van-Pires." He is a graduate of the University of North Florida and has a law degree from Woodrow Wilson College of Law (Atlanta, Georgia). Jonathan Stathakis has been President of MSH since 1996. With over 21 years in the entertainment industry, Mr. Stathakis began has career in the television and film industries as a writer by writing episodes, story treatments and scripts for numerous television specials, series and low budget feature films. He has produced scores of television movies, TV specials and television series. In Boston, Mr. Stathakis was nominated for an EMMY Award for his work as the producer and co-writer of the series "Park Street Under" which served as the basis for the series "Cheers", for WCVB-TV (ABC affiliate). He went on to create, produce and write a number of TV series, specials and films, receiving 5 ACE Award nominations, winning 2 ACE Awards, plus winning a VIRA Award for Best Children's Home Video of the Year, receiving 2 Honorable Mention at the Chicago Children's Film Festival and a Certificate for Creative Excellence from the U.S. International Film and Video Festival. Prior to joining MSH, Mr. Stathakis was Vice-President of Acquisitions and Sales for Inter-American Productions, Inc.; Executive Vice-President In Charge Of Production for Inter-Communications, Ltd., Executive Vice-President In Charge Of Operations and Production for Television Theatre Company (TTC), Director of Movie Development for the CBN Producers Group; Director of West Coast Operations for NorthStar Entertainment Group, the in-house production arm and wholly owned subsidiary of The Family Channel; President of Greenwich Films, Inc.; and Head of Acquisitions and Creative 17 Director of Featureline Films (Vancouver). Mr. Stathakis was also a professional photographer, shooting high profile concerts like Woodstock and worked for major recording artists including Jimi Hendrix and The Grateful Dead. Mr. Stathakis' credits as a producer include five made-for-pay-cable children's television movies for MCA/Universal; 13 MTV concert specials; "Exit", a feature film for IRS Media and Republic Pictures; "Yahoo BugaBoos," a pilot for a children's series which was optioned by Sony's Columbia/TriStar Television; the children's series "Jelly Bean Jungle" which aired Saturday morning on ABC and Fox network stations; the animated series "Van-Pires," a syndicated series that aired on Fox, UPN and WB Network ; plus a prime time drama series, "Vallas & Son," which he created and wrote, optioned by Columbia Pictures Television. Mr. Stathakis is a member of the National Academy of Television Arts & Sciences; the Association of Independent Video & Filmmakers; the National Academy of Cable Programmers; the Independent Feature Projects/West (IFP/West); the National Academy of Program Television Executives; the Writers Guild of America, and the Producers Guild of America. Mr. Welsh is a Certified Public Accountant who served MSH as a consultant prior to his being appointed its Chief Financial Officer, Secretary/Treasurer and a director in 1999. Mr. Welsh is a graduate of LaSalle University in Philadelphia, where he earned both his undergraduate (B.S.) and graduate (M.B.A.) degrees. During his career as a Certified Public Accountant, he has served as the chief financial officer and a member of the board of directors for several corporations. Mr. Welsh has also been an assistant professor and an instructor on the college level, teaching Advanced Accounting, Auditing, Intermediate Accounting and Federal Individual and Corporate Taxation. Mr. Welsh is on the Executive Committee of the World Boxing Association ("WBA"), located in Turmero, Venezuela, and serves as its Corporate Auditor and Vice-Chairman of Finance & Administration. He is a member of the American Institute of Certified Public Accountants ("AICPA"); the Association of Certified Fraud Examiners; Pennsylvania Area Chapter Association of Certified Fraud Examiners; Division of CPA Firms-Private Companies Practice Section; Tax Division of the AICPA, Management Advisory Services Division of the AICPA; and the Federal Key Person Program of AICPA. Mr. Steiner has been Co-President of KidsAndFamily Network, Inc. since 1999. Between 1997 and 1999 he was Executive Vice President of MSH. Prior to that time he served as the Executive Vice-President of the entertainment division at General Media International, where he was in charge of all distribution and marketing for feature films, television programming, sell-through home video and interactive gaming. Prior to joining General Media, Mr. Steiner served as the vice-president of International Sales and Marketing at Intercontinental Releasing Corporation, an independent motion picture distribution company, where he was responsible for supervising the day-to-day sales and distribution in the international marketplace. John Gentile and Anthony Gentile have been Creative Directors and members of the Board of Directors of MSH since 1999. They are founders and principals of Abrams/Gentile Entertainment ("AGE"). At AGE they created and 18 developed such innovative technological consumer base products as the Power Glove, a virtual reality product for the home; The Flex Sensor, a patented low cost "soft switch" with over 2000 degrees of angular displacement; and their newest technological advance, BLINK (Beeper Linked Integrated Network), a new communication system developed in conjunction with a leading pager manufacturer and satellite carrier for the toy and entertainment industry. Together, they have created, directed and produced over 175 half-hours of children's programming, including the award-winning animated children's series "Happy Ness, Secret Of The Loch," for the Family Channel; the animated series, "Sky-Dancers," based on the popular toy developed by them; the 3D computer animated/live-action series "Van-Pires;" and the forthcoming "Micronauts" TV series. They also developed and produced the prime time television sitcom, "DiResta" for UPN, based on their off-Broadway hit play, "BEAT, A Subway Cop's Comedy." As writers for television, they have scripted over a hundred episodes for several of their animated series. As directors, their work includes over 75 half hours of animation and live-action episodes and over 30 national commercials for a range of toy products and companies such as Mattel, Hasbro, Galoob, Toymax and Just Toys. Motion picture screenwriting credits include "G.I. JOE - The Movie," an adaptation of Mark Helprin's Pulitzer Prize winning novel; "Winter's Tale" for Warner Brothers; "Titan Rising" for Dino DeLaurentis; "Blowdown" for Blue Mountain Productions; "Fatal Mission," released by Media Home Entertainment; and the pilot for "Mighty Merlin" for KMG Entertainment. As authors, their novels include The Judas Seed, published by Dell Books; the fantasy thriller, The Dead Season; and their children's book, Family Tree. In the motion picture industry, they have participated in motion picture design for such films as "Star Wars," "Saturday Night Fever," "Grease," "Carrie," "The Bad News Bears," "Escape From Alcatraz," "Psycho II," "Moscow On The Hudson," "Rambo-First Blood," "Babes In Toyland," "Hoosiers," "Peggy Sue Got Married," "Robo Cop," "Mississippi Burning," "Colors," "No Way Out" and "New York, New York" among others. In addition, they have produced motion picture trailers and promotional teasers for such films as "Star Wars: The Empire Strikes Back,""And Justice For All," "Private Benjamin," " Barbarosa," "Silver Streak" and "The Border." Television design credits include such productions as "Battlestar Galactica" for ABC; the EMMY Award winning NBC mini series "Holocaust," "Shogun" and "Marco Polo;" and the epic mini-series "ROOTS: The Next Generation." Mr. Tanet is an attorney who has actively practiced law since 1967. Since 1974 he has represented media companies throughout the United States, and has been involved in handling labor problems for the Teamsters, Screen Actors Guild (SAG) and AFTRA, as well as and procurement and negotiations for a number of independent television companies. Mr. Tanet has also been an executive with various real estate development firms, including Ladd Corporation and Dallas Development Corporation, and was Chief Legal Counsel for Central American Exploration Corporation. Mr. Tanet served as Executive Producer for "Fire On The Bayou: The Neville Brothers" for A&M ; for a series of children's television movies for MCA/Universal including "The Marvelous Land of Oz" (VERA Award for Best Children's Home Video); "Puss N' Boots" (ACE Award winner); "The Red Shoes" (ACE Award winner); "The Wind in The Willows" (ACE Award nomination). He was also the Executive Producer of "Scrambled Feet" for Showtime; "Chicago Blues" for RKO/Nederlander, "Alice In Wonderland" for MCA/Universal; and "O.Henry" for 19 Pan American Films. Mr. Tanet developed and was Executive Producer for the miniseries "Double-Crossed" for HBO, which won an ACE Award for Best Mini-Series and was also nominated for an EMMY Award. He was also the Co-Executive Producer of "Murder Among Friends", a movie-of-the-week for NBC, for which he was nominated for an EMMY award. Mr. Tanet received a Bachelor of Science degree from Louisiana State University in 1963, and a Doctor of Jurisprudence from Loyola Law School in 1967. Mr. Aurelio has served as Vice President and Controller of MSH since 1996. Prior to that time he was General Manager of East End Communications, which was acquired by MSH in 1996. He is also the founding partner of Sierra Resource Group, a San Francisco-based consulting firm. Mr. Aurelio was Vice President of Corporate Development for Pan American World Airways in New York City; President of Simi Winery in Sonoma County, California; and Senior Vice-President and Chief Financial Officer of Sky Chefs, Inc. (a subsidiary of American Airlines, Inc.).He attended Villanova University and is a graduate of Ohio State University with a degree in Accounting. Mr. Heyman has been a director of KidsAndFamily Network, Inc. since its organization in 1999, and served as its first President. Mr. Heyman was the founder of Cybernetics, a leading internet design and marketing firm that merged with U. S. Web, one of the world's largest internet web site builders. Mr. Heyman is co-author of the best selling web-marketing book "Net Results - Web Marketing That Works," published in 1998 by MacMillan & Co. As a partner in U. S. Web, Mr. Heyman was instrumental in the creation of the fields of online audience development, media buying and planning. Among the firm's clients were AOL, Avon, Time-Warner, Paramount, Bristol-Myers, Universal Studios, U.S. West and Macromedia. Prior to his involvement in the Internet, Mr. Heyman practiced entertainment law, representing such performers as Maria Muldaur, Ray Manzarek of The Doors, John Stewart, the New Riders Of The Purple Sage, The Jefferson Airplane and Jefferson Starship. Mr. Heyman is also the co-author, along with Marty Balin, lead singer of the Jefferson Starship, of the rock opera "Rock Justice." Mr. Heyman is a Cum Laude graduate of Boston University. He received his law degree from the University of California's Hastings College of Law, and he earned his Masters in Education from Harvard University. Mr. Pritchard has been a Director of MSH and Co-Chairman of its subsidiary, KidsAndFamily Network, Inc. since 1999. Between 1997 and 1999 he was President and Chief Executive Officer of Film Roman, Inc., one of the leading independent animation studios in North America. In 1996, Mr. Pritchard founded Little Fish Inc., where he developed and produced programming for Columbia TriStar, TNT and HBO until joining Film Roman. In 1990, Mr. Pritchard founded Popular Arts Entertainment which produced and developed numerous projects for A&E, HBO, Comedy Central, as well as providing entertainment news coverage for many different network shows. Prior to Mr. Pritchard's founding of Popular Arts, he served as a Vice President of Corporate Affairs at HBO in New York. 20 Mr. Morgan has been a director of MSH since 1995. He is a Professor of Finance at South Connecticut State University. At one time Mr. Morgan was also a consultant and a teacher at Hofstra University, School of Business before becoming President of Peachtree Ventures, Inc. Mr. Morgan has been a Corporate and Securities Analyst/Portfolio Manager for Lehman Brothers and Lehman Corporation; Director of Development for Fairbanks Whitney Corp., now known as Colt Industries; Manager of Research and New Business for Hill, Darling, Grimm (NYSE); and a Partner and Manager of Research for Federman, Stonehill (NYSE). Mr. Morgan has also served as a director of the following publicly traded companies: In-Flight Movies, Inc., Magic Marker Pens, Inc., Resource America Oil, and he was a director and principal shareholder of Transmedia Network, Inc. Mr. Walker has been a director of MSH since 1994. He also served as creative director of several of MSH's early feature films. Mr. Walker is a professional dancer and choreographer, who has appeared in or directed numerous stage and television dance productions, and has appeared as an actor in several feature films. Mr. Cable has been a director of MSH since 1994. He also served as executive producer for several of MSH's early feature films. Mr. Cable has been involved in the motion picture production and distribution business since 1990. Prior to that time he produced live boxing events and television coverage of boxing. ITEM 6. EXECUTIVE COMPENSATION. - ------------------------------- The following table sets forth certain compensation paid by MSH and its subsidiary, KidsAndFamily Network, Inc., during the years ended December 31, 1998, 1997 and 1996 to its Chief Executive Officer and each of the other most highly compensated executive officers whose compensation exceeded $100,000 (the "Named Executive Officers"). 21
SHARES SECURITIES OTHER ANNUAL RESTRICTED STOCK UNDERLYING LTIP OTHER NAME YEAR SALARY BONUS COMPENSATION STOCK % OPTIONS PAYOUTS COMPENSATION - ----------------------------------------------------------------------------------------------------------------------------- Robert P. Maerz 1996 76,000 54,000 250 50,000 none none Chief Executive Officer 1997 85,000 21,250 30,000 250,000 30.49% 198,000 none none 1998 125,000 31,250 30,000 -0- none none Jonathan G. Stathakis 1996 36,000 27,824 35,000 50,000 none none President/Chief Operating Officer 1997 85,000 56,250 30,000 50,000 6.10% 142,000 none none 1998 125,000 31,250 30,000 -0- none none
Mr. Maerz is employed pursuant to an Employment Agreement expiring on December 31, 2001. The Employment Agreement provides for annual compensation at the rate of $175,000, plus $50,000 in living expenses. Mr. Stathakis is employed pursuant to an Employment Agreement expiring on December 31, 2001. The Agreement provides for annual compensation at the rate of $175,000 plus $60,000 in living expenses. Michael L. Welsh is employed pursuant to an Employment Agreement expiring on January 1, 2002. The Agreement provides for annual compensation at the rate of $175,000. Andrew Steiner is employed pursuant to an Employment Agreement with KidsAndFamily Network, Inc. expiring on December 16, 2002, with an option to extend for two years. The Agreement provides for annual compensation at the rate of $150,000. 22 Fred Aurelio is employed pursuant to an Employment Agreement expiring on December 31, 2001. The Agreement provides for annual compensation at the rate of $125,000. Mr. Pritchard is employed by KidsAndFamily Network, Inc., pursuant to an Employment Agreement expiring on December 16, 2001. The Employment Agreement provides for a base salary of $350,000 per year. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------- During the fiscal year ended December 31, 1997, MSH paid Penn & Cobb Productions, an affiliate of Jonathan Stathakis, $12,500 for script development services. During the fiscal year ended December 31, 1997, Robert P. Maerz transferred 180,000 shares of Common Stock in satisfaction of certain obligations of MSH During the fiscal year ended December 31, 1998, MSH issued 250,000 shares of Common Stock to Penn & Cobb Productions for Consulting Services. During the fiscal year ended December 31, 1998 Mr. Maerz, Jonathan Stathakis, Chief Executive Officer of MSH, Andrew Steiner, a Vice President of MSH, and Chuck Walker and Sam Cable, directors of MSH, transferred a n aggregate of 1,909, 200 shares of Common Stock in satisfaction of approximately $500,000 in debt owed by MSH to third parties. In exchange for this transfer, MSH issued 3,892,000 shares of restricted stock to these individuals. During the fiscal year ended December 31, 1998, Mr. Maerz, Mr. Walker, Mr. Cable, and Al Morgan, a director of MSH, transferred 660,000 shares of Common Stock to Marty Abrams in satisfaction of a portion of MSH's obligations in connection with the pending purchase of shares of Abrams/Gentile Entertainment, Inc. In exchange for this transfer of shares, MSH issued 1,350,000 shares of restricted stock to these individuals. During the fiscal year ended December 31, 1998, MSH issued 250,000 shares of Common Stock to Barbara Lawrence, wife of Mr. Stathakis, for consulting services. During the period of ten months ended October 31, 1999, MSH issued stock bonuses to the following officers and directors: Name Position No. of Shares ---- -------- ------------- Robert P. Maerz Chief Executive Officer 3,700,000 Jonathan Stathakis President and Chief Operating 3,810,000 Officer Andrew Steiner President, KidsandFamily Network, 1,627,500 Inc. Fred E. Aurelio Vice-President/Controller 1,650,000 Michael Welsh Chief Financial Officer, 457,500 Secretary/Treasurer ITEM 8. DESCRIPTION OF SECURITIES. - ----------------------------------- MSH has only one class of stock outstanding, designated as "Common Stock." The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders, including the election of directors. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. Upon a liquidation, dissolution or winding-up of MSH, the holders of Common Stock will be entitled to share ratably in the net assets of MSH legally available for distribution to stockholders after the payment of all debts and other liabilities of MSH, subject to the prior rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and nonassessable. 23 PART II ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER - ------------------------------------------------------------------------------- SHAREHOLDER MATTERS. - ------------------- As of February 7, 2000, there were approximately 635 holders of MSH's Common Stock. Until February 9, 2000 MSH's Common Stock was traded on the OTC Bulletin Board under the symbol "MSHE". It is currently traded in the "pink sheets". The following table sets forth the high and low bid prices for the Common Stock as reported by the National Quotation Bureau. Bid quotations represent high and low prices quoted between dealers, do not include commissions, mark-ups, or mark-downs, and may not represent actual transactions. BID QUOTATIONS -------------- HIGH LOW ---- --- 1997 First Quarter $ 2.38 $ .63 Second Quarter .63 .25 Third Quarter 2.59 .23 Fourth Quarter 1.78 .38 1998 First Quarter 1.06 .38 Second Quarter .91 .29 Third Quarter .79 .33 Fourth Quarter .83 .30 1999 First Quarter .69 .32 Second Quarter 1.30 .31 Third Quarter .51 .26 Fourth Quarter .44 .19 MSH has never declared or paid a cash dividend on its Common Stock and does not expect to pay any cash dividends in the foreseeable future. 24 ITEM 2. LEGAL PROCEEDINGS. - -------------------------- MSH is a defendant in an action filed by Robert Pozner in the U.S. District Court for the Southern District of New York. The action alleges breach of contract, money had and received, and a claim for attorneys fees. The action seeks to recover $200,000 and the value of 500,000 shares of MSH Common Stock as of July 1997. The action is in a very preliminary stage, and MSH has not yet filed a responsive pleading. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. - ------------------------------------------------------ None. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES. - ------------------------------------------------ In February 1997, the Company issued (i) 8,000 shares to four employees for services rendered, (ii) 502,000 shares to fifteen independent contractors for services rendered, including animation services, web design services, public relations services, and professional and consulting services, and (iii) 435,000 shares to twelve persons for cash. In March 1997 the Company issued 220,538 shares to broker-dealers for cash, and 6,000 shares to an individual for cash. In April 1997 the Company issued 60,000 shares to two individuals for cash, and 200,000 shares to a broker-dealer for cash. In May 1997 the Company issued (i) 604,000 shares to approximately twenty individuals for cash, and 800,000 shares to broker-dealers for cash. In June 1997 the Company issued 100,000 shares to a broker-dealer for cash. In July 1997 the Company issued (i) 923,300 shares to fifteen individuals for cash, (ii) 207,667 shares to independent contractors for various services rendered, principally financial advisory services, and (iii) 448,000 shares to a broker-dealer for cash. In August 1997 the Company issued (i)10,000 shares to two employees for services rendered, (ii) 8,000 shares to an individual for cash, (iii) 48,000 shares to a broker-dealer for cash, (iv) 210,000 shares to two officers or related persons for services, (v) 768,000 shares to thirteen independent contractors for services rendered, including public relations services and other consulting services,and (vi) 1,470,072 shares to ten lenders in satisfaction of outstanding loans. In September 1997 the Company issued (i) 1,500 shares to a related person for services, (ii) 50,000 shares to a single lender in satisfaction of a loan, (iii) 3,500 shares to three employees for services rendered, (v) 80,600 shares to twenty-five independent contractors for animation services, and (vi) 500,000 shares to an individual for cash. In December 1997 the Company issued (i) 5,000 shares to one employee for services rendered, (ii)18,233 shares to four individuals for cash, (iii) 901,333 shares to seventeen persons for services, including animation services, web design services, public relations services, and professional and consulting services, (iv)10,000 shares to a single lender in satisfaction of debt, During the calendar year 1998, the Company issued 5,792,000 shares to nine officers and directors, as stock bonuses, in cancellation of debt and in lieu of salary. In February 1998 the Company issued 250,000 shares to an individual for cash, and 1,353,000 shares to fifty-one individuals, including officers, in satisfaction of outstanding debt. Also, the Company issued 380,000 shares to nine persons for services rendered. 25 In April 1998, the Company issued (i) 260,000 shares to four individuals for cash, (ii) 1, 304,000 shares to seventeen individuals in cancellation of debt owed by the Company, and (iii) 510,000 shares to officers to compensate them for shares transferred to others in satisfaction of obligations of the Company. Also, the Company issued 200,000 shares to an officer as a stock bonus, 300,000 shares to two persons related to officers for services, and 230,600 shares to eight persons for services. In May 1998 the Company issued 2,932,000 shares to seventy-two individuals, including officers, in satisfaction of outstanding debt, and 55,000 shares to one individual for services. In June 1998 the Company issued 557,000 shares to nineteen individuals in satisfaction of outstanding debt. In July 1998 the Company issued (i) 557,000 shares to nineteen individuals in satisfaction of outstanding debt, (ii) 310,000 shares to four individuals for cash, (iii) 25,000 shares to a related party for services, and (iii) 150,000 shares for legal services. In August 1998 the Company issued (i) 1,128,000 shares to twenty-three individuals in satisfaction of outstanding debt, (ii) 375,000 shares to a broker-dealer for cash, (iii) 65,000 shares to two individuals for cash, and 195,000 shares to five individuals for services. In September 1998 the Company issued (i) 660,000 shares to officers to compensate them for shares transferred by them in connection with an acquisition by the Company, (ii) 2,389,000 shares to eight individuals (including officers of the Company) in satisfaction of outstanding debt, and (iii) 775,000 shares to two individuals for professional services. In October 1998 the Company issued 1,350,000 shares to a broker-dealer for cash, 282,000 shares to seven individuals in satisfaction of outstanding debt, and 200,000 shares to an individual for services rendered.. In November 1998 the Company issued (i) 3,019,154 shares to forty individuals in satisfaction of debt, (ii) 330,985 shares to individuals for cash, (iii) 200,000 shares to a broker-dealer for cash, and (iv) 153,200 shares to two individuals for services. In December 1998 the Company issued 1,408,000 shares to fifteen individuals, including officers, in satisfaction of outstanding debt, and 200,000 shares to three individuals for services. During 1998 the Company issued 198,467 shares to seven individuals in payment of interest due on outstanding debt. MSH relied on the exemptions provided by Regulation D and Section 4(2) under the Securities Act of 1933 for all of the foregoing offerings During 1999 the Company issued 11,770,700 shares to officers and directors as stock bonuses and in repayment of loans. In February 1999, the Company issued 40,000 shares to an individual for cash. In April 1999 the Company issued 300,000 shares to an individual in settlement of a claim. In May 1999 the Company issued (i) 10,799,630 shares to twelve individuals for services rendered and (ii) 6,943,400 shares to approximately seventy-eight individuals for cash and cancellation of debt. In July 1999 the Company issued 993,750 shares to sixteen individuals for cash. In August 1999 the Company issued (i) 262,500 shares to two independent contractors for various services rendered, and (ii) 13,476,674 shares to approximately 56 individuals for cash. In December 1999 the Company issued (i) 571,748 shares to one company in connection with an acquisition and (ii) 17,205,325 shares to forty-four individuals for cash. 26 ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS. - -------------------------------------------------- MSH's Articles of Incorporation eliminate the personal liability of its directors for monetary damages to the fullest extent permitted by Utah law. The Articles of Incorporation also authorize MSH to indemnify its agents (including officers and directors) to the fullest extent permitted under Utah law. This indemnification is intended to protect officers and directors from liability except for (i) liability for acts or omissions that involve intentional misconduct or knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interest of MSH or its shareholders or that involve the absence of good faith on the part of the director, (iii) any transaction from which a director derived an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director's duty to MSH or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, or a risk of serious injury to MSH or its shareholders, (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to MSH or its shareholders, (vi) with respect to certain contracts in which a director has a material financial interest and (vii) approval of certain improper distributions to shareholders or certain loans or guarantees. This provision does not limit or eliminate the rights of MSH or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, MSH's Bylaws require MSH to indemnify its officers and directors to the full extent permitted by law, including those circumstances in which indemnification would otherwise be discretionary. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling MSH pursuant to the Articles of Incorporation or the Bylaws, MSH has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. PART F/S The Financial Statements listed below are filed as a part of this Registration Statement on Form 10-SB. Independent Auditor's Report Consolidated Balance Sheets as of December 31, 1997 and 1998 Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 Notes to Consolidated Financial Statements Unaudited Consolidated Balance Sheet as of October 31, 1999 Unaudited Consolidated Statements of Operations for the period of ten months ended October 31, 1999 Unaudited Consolidated Statements of Cash Flows for the periods of nine months ended October 31, 1999. Notes to Unaudited Consolidated Financial Statements 27 PART III ITEM 1. INDEX TO EXHIBITS. - -------------------------- See Item 2, below. ITEM 2. DESCRIPTION OF EXHIBITS - -------------------------------- 2.1 Restated Articles of Incorporation of MSH 2.2 Bylaws of MSH 6.1 Employment Agreement dated January 1, 1999 between MSH and Robert P. Maerz 6.2 Employment Agreement dated January 1, 1999 between MSH and Jonathan Stathakis 6.3 Employment Agreement dated January 1, 1999 between MSH and Michael L. Welsh 6.4 Employment Agreement dated January 1, 1999 between MSH and Fred Aurelio 6.5 Employment Agreement dated June 1, 1999 between KidsAndFamily Network, Inc. and Andrew Steiner. 6.6 Employment Agreement dated December 17, 1999 between KidsAndFamily Network, Inc. and David Pritchard 6.7 Letter Agreement dated December 8, 1998 among MSH, Film Roman, Inc., Jane Seymour, James Keach and JJK Publishing 6.8 Letter of Agreement dated November 19, 1998 between MSH and etc...group, inc. 6.9 Master License Agreement dated July 1, 1997, between MSH and Cannon Records 6.10 Van-Pires Master Toy License Agreement, dated September 21, 1998, between Abrams/Gentile Entertainment, Inc., MSH and DeWilde Groups, Inc. 6.11 Consulting Agreement dated November 17, 1999 between MSH and King/Fromkin Productions, Inc. 6.12 Agreement dated November 1, 1996 between Abrams/Gentile Entertainment, Inc. and MSH 6.13 National Distribution and Warehousing Agreement, dated October 1, 1997 between Navarre Corporation and MSH 28 6.14 Agreement, dated December 15, 1999 between John and Anthony Gentile, Marty Abrams, Freedom Multimedia, LLC and Lenox Capital Group, LLC 6.15 Strategic Alliance Agreement dated December 30, 1999 between MSH and Peter Pan , Inc. 6.16 Stock Purchase Agreement, dated as of August 27, 1998, between MSH and Martin Abrams 6.17 Letter Agreements, dated September 4, 1998, between MSH and Martin Abrams 6.18 Letter Agreement, dated September 24, 1998, between MSH and Martin Abrams 6.19 Letter Agreement, dated October 1, 1998, between MSH and Martin Abrams 6.20 Letter Agreement, dated January 21, 1999, between MSH and Martin Abrams 6.21 Letter Agreement, dated January 28, 1999, between MSH and Martin Abrams 6.22 Letter Agreement, dated February 12, 1999, between MSH and Martin Abrams 6.23 Letter Agreement, dated October 8, 1999, between MSH and Aston Entertainment Group, Inc. 6.24 Letter Agreement, dated January 24, 2000 between MSH, Anthony Asfur and Dale J. Sexton 6.25 Stock Option Agreement, dated January 24, 2000 between MSH, Anthony Asfur and Dale J. Sexton 29 SIGNATURES In accordance with Section 12 of the Securities Act of 1934, the Registrant has caused this Registration Statement on Form 10-KSB to be signed on its behalf by the undersigned thereunto duly authorized, this 17th day of March, 2000. MSH Entertainment Corporation By: /s/ Robert P. Maerz ----------------------------------------- Robert P. Maerz, Chief Executive Officer 30 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NEW YORK, NEW YORK DECEMBER 31, 1998 AND 1997 AND FOR THE YEARS THEN ENDED (TOGETHER WITH INDEPENDENT AUDITORS' REPORT) CONTENTS -------- INDEPENDENT AUDITORS' REPORT 2 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 3 - 4 CONSOLIDATED STATEMENTS OF OPERATIONS 5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) 6 CONSOLIDATED STATEMENTS OF CASH FLOWS 7 - 8 NOTES TO FINANCIAL STATEMENTS 9 - 26 F-1 Independent Auditors' Report To the Board of Directors of MSH Entertainment Corporation New York, New York We have audited the accompanying consolidated balance sheets of MSH Entertainment Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. BRIMMER, BUREK & KEELAN LLP /S/ Brimmer, Burek & Keelan LLP Certified Public Accountants December 6, 1999 F-2 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS December 31, -------------------------------- 1998 1997 -------------- -------------- Current assets: Cash $ 849 $ 6,159 Accounts receivable - 1,744 Investment in Van-Pires 1,944,009 1,600,867 -------------- -------------- Total current assets 1,944,858 1,608,770 Property, plant and equipment - net 259,580 345,255 Other assets: Film inventory and project costs - 36,500 Prepaid expenses - 400 Investment in AGE 830,500 - Deposits 8,469 17,516 -------------- -------------- Total other assets 838,969 54,416 -------------- -------------- Total assets $ 3,043,407 $ 2,008,441 ============== ==============
F-3 LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, -------------------------------- 1998 1997 -------------- -------------- Current liabilities: Accounts payable $ 816,888 $ 439,226 Due to stockholders 609,598 543,472 Convertible notes payable 907,750 840,000 Notes payable 721,149 928,500 Accrued expenses 77,120 20,831 Due to related parties - 591,600 -------------- -------------- Total current liabilities 3,132,505 3,363,629 Commitments and contingencies - Note 18 Stockholders' equity (deficit): Preferred stock - par value $.05 per share 25,000,000 shares authorized, none issued and outstanding - - Common stock - $.001 par value, 50,000,000 shares authorized, 41,807,290 in 1998 and 19,003,484 in 1997 shares issued and outstanding 41,810 19,004 Additional paid-in capital 8,348,261 4,091,633 Accumulated deficit (8,434,169) (5,465,825) -------------- -------------- (44,098) (1,355,188) Less note receivable for stock issued (45,000) - -------------- -------------- Total stockholders' equity (deficit) (89,098) (1,355,188) -------------- -------------- Total liabilities and stockholders' equity $ 3,043,407 $ 2,008,441 ============== ==============
See accompanying notes to consolidated financial statements. F-4 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, ------------------------------ 1998 1997 -------------- -------------- Net sales $ 151,696 $ 173,249 Costs and expenses: Production costs 883,526 541,373 General and administrative expenses 2,044,859 2,409,679 Depreciation and amortization 93,448 73,639 Loss from acquired business - 708,941 -------------- -------------- Total costs and expenses 3,021,833 3,733,632 -------------- -------------- Loss from operations (2,870,137) (3,560,383) Other income (expense): Interest income - 3,185 Interest expense (98,207) (92,508) -------------- -------------- Net loss $ (2,968,344) $ (3,649,706) ============== ============== Net loss per share $ (.10) $ (.26) ============== ============== Weighted average number of shares outstanding 29,839,653 14,010,768 ============== ==============
See accompanying notes to consolidated financial statements. F-5 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Total ----------------- Additional Receivable Stockholders' Preferred Number of Paid in Accumulated for Stock Equity Stock Shares Amount Capital Deficit Issued (Deficit) --------- ------------ ---------- ------------ ------------- ------------ -------------- Balance at December 31, 1996 - 9,892,941 $ 9,893 $ 1,962,951 $ (1,816,119) $ (110,000) $ 46,725 Payment for receivable - - - - - 110,000 110,000 Sale of common stock - 4,372,071 4,373 1,229,730 - - 1,234,103 Common stock issued for services - 3,208,400 3,208 318,682 - - 321,890 Common stock issued for debt cancellation - 1,530,072 1,530 580,270 - - 581,800 Net loss for 1997 - - - - (3,649,706) - (3,649,706) --------- ------------ ---------- ------------ ------------- ------------ -------------- Balance at December 31, 1997 - 19,003,484 19,004 4,091,633 (5,465,825) - (1,355,188) Receivable from sale of 241,667 shares of common stock - - - - (45,000) (45,000) Sale of common stock - 3,140,985 3,142 431,816 - - 434,958 Common stock issued for services - 2,938,800 2,939 290,941 - - 293,880 Common stock issued for debt cancellation - 15,355,554 15,357 2,692,793 - 2,708,150 Stock issued to settle payable - 510,000 510 591,090 - - 591,600 Interest paid in stock - 198,467 198 19,648 - - 19,846 Stock issued as deposit for AGE transaction - 660,000 660 230,340 - - 231,000 Net loss for 1998 - - - - (2,968,344) - (2,968,344) --------- ------------ ---------- ------------ ------------- ------------ -------------- Balance at December 31, 1998 - 41,807,790 $ 41,810 $ 8,348,261 $ (8,434,169) $ (45,000) $ (89,098) ========= ============ ========== ============ ============= ============ ==============
See accompanying notes to consolidated financial statements. F-6 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, ------------------------------ 1998 1997 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,968,344) $ (3,649,706) Adjustments to reconcile net loss to net cash used by operating activities: Loss from acquired business - 708,941 Gain on sale of equipment (3,760) (797) Depreciation and amortization 93,448 73,639 Write-off film inventory and project costs 36,500 - Common stock issued for services 293,880 321,890 Common stock issued for interest 19,846 - (Increase) decrease in: Accounts receivable 1,744 (1,744) Prepaid expenses 400 5,244 Interest receivable - 5,100 Deposits 9,047 11,532 Note receivable - 110,000 Increase (decrease) in: Accounts payable 371,062 198,270 Accrued interest 77,120 - Accrued expenses (22,086) (20,578) Accounts payable to stockholder 371,376 670,823 -------------- -------------- Net cash used in operations (1,719,767) (1,567,386) CASH FLOWS FROM INVESTING ACTIVITIES: Cash payment for the purchase of property and equipment and goodwill (4,013) (202,820) Proceeds from sale of equipment - 8,000 Investment in Van-Pires (343,140) (1,369,413) Purchase of movie rights - (15,500) Investment in AGE (599,500) - -------------- -------------- Net cash used in investing activities (946,653) (1,579,733) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable 82,000 223,500 Principal payment on note payable (228,351) (249,999) Proceeds from issuance of common stock 380.213 1,864,090 Proceeds from issuance of convertible notes payable 2,745,900 1,579,250 Repayment of convertible debt (20,000) (208,000) Advances from stockholder loans - 207,233 Payments on shareholder loans (298,652) (274,830) -------------- -------------- Net cash provided by financing activities 2,661,110 3,141,244 -------------- -------------- Net increase (decrease) in cash (5,310) (5,875) Cash at beginning of year 6,159 12,034 -------------- -------------- Cash at end of year $ 849 $ 6,159 ============== ==============
F-7 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, ------------------------------ 1998 1997 -------------- -------------- NON CASH TRANSACTIONS: Common stock issued for services rendered $ 293,880 $ 321,890 ============== ============== Common stock issued for interest $ 19,846 $ - ============== ============== Common stock issued for receivable $ 45,000 $ - ============== ============== Common stock exchanged for convertible notes payable $ 2,647,150 $ 553,500 ============== ============== Receivable canceled for services $ - $ 115,100 ============== ============== Expenses paid by shareholders $ 54,200 $ 51,794 ============== ============== Shareholder salaries accrued $ 419,000 $ 384,375 ============== ============== Common stock issued for AGE investment $ 231,000 $ - ============== ============== Common stock issued to satisfy payable $ 591,600 $ - ============== ============== Common stock issued to satisfy note payable $ 61,000 $ - ============== ==============
See accompanying notes to financial statements. F-8 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS MSH Entertainment Corporation (the "Company") is in the business of film and television production, music and music publishing, software development, and distribution. Its business operations include creating, developing, producing, licensing, distribution and merchandising entertainment media products. In addition to animated and live-action family and children's TV productions, the Company's products include prime time drama series, music specials, record albums, music publishing and related services. The Company is also pursuing opportunities in children's toys and merchandising in joint venture with Abrams/Gentile Entertainment, Inc. (AGE) as it is related to Company produced programming. Prior to the acquisition discussed below, the Company's primary business activity was the creation, development and production of home video motion picture tapes primarily for sale internationally. The Company did not benefit from widespread market acceptance of its home video motion pictures. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the consolidated financial statements, the Company has incurred net losses of $2,968,344 and $3,649,706 for the years ended December 31, 1998 and 1997, respectively. At December 31, 1998 and 1997, the Company has a net working capital deficit of $1,187,647 and $1,754,859, respectively, and a stockholders' (deficit) of ($89,098) and ($1,355,188), respectively which raises substantial doubt about the Company's ability to continue as a going concern. Management has developed plans intended to remedy these conditions. These plans include seeking other sources of financing, acquisition of an existing operating company, actively marketing existing projects, reducing operating costs and seeking a joint venture partner. No assurances can be given as to the success of these plans. The consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern. ACQUISITION On June 21, 1996 the Company acquired substantially all of the assets of East End Communications, Inc., East End Productions, Inc. and J.B. Dubbs, Inc. (collectively referred to as "East End") in a transaction accounted for as a purchase. The primary business activity of East End was computer animation programming and production (See Note 2). F-9 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies followed in preparing the accompanying consolidated financial statements is set forth below. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of MSH Entertainment Corporation and its wholly owned subsidiary MSH Productions Inc., and Happy Zone Entertainment Corporation. Happy Zone Entertainment Corporation is a 60% owned subsidiary which has been inactive since its inception in 1996. MSH Productions, Inc. is also inactive. All significant intercompany accounts and transactions have been eliminated in consolidation. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. HOME VIDEO AND MOTION PICTURE PROJECT COSTS The Company follows the provisions of Statement of Financial Accounting Standards No. 53 ("SFAS 53") with respect to motion pictures, television and video project costs. Costs incurred in connection with motion picture, television, music and video projects are capitalized. Such costs are charged to production overhead if the project has been held for a three-year period and has not been set for production or if it is abandoned. Production overhead is allocated to the cost of projects currently set for, or in production. Although certain projects are reported at zero value, they may still be actively marketed by management after the three-year period. Project costs are stated at the lower of cost or realizable value. Cost and related amortization of released projects allocated to primary markets would be classified as current assets. Van-Pires, an animated TV cartoon show was released to primary markets in the fall of 1997 for thirteen episodes and costs allocated to it are classified as a current asset. All other capitalized costs are classified as noncurrent assets. F-10 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) HOME VIDEO AND MOTION PICTURE PROJECT COSTS (CONTINUED) Under FASB 53, project costs, which include accrued related participations and residuals, would be amortized based on the ratio of revenue earned for the year to management's estimate of total gross revenue to be earned. Each picture or project in production is valued taking into account management's current estimates of the ultimate revenue to be received from all sources, including theatrical distribution, cable, pay, network and syndicated television licensing and video and audio cassette and video and audio disc licensing. Such estimates, which are based on such factors as the nature and popularity of the subject matter and the expected rate structure in the various markets during the periods the revenue from the project is estimated to be earned, are revised periodically and estimated losses, if any are provided for in full. REVENUE RECOGNITION Revenues with respect to television and computer animation programming and production are recognized when the film is accepted by a licensee and collectibility of the license fee is reasonably assured. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the balance sheet carrying amounts of existing assets and liabilities measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. F-11 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LOSS PER SHARE Loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. At December 31, 1998 and 1997 all common stock equivalents were antidilutive. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. When items of property or equipment are sold or retired, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is included in the results of operations. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets. CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all short-term debt securities with a maturity of three months or less to be cash equivalents. NOTE 2 - EAST END PURCHASE On June 21, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of East End in a transaction accounted for as a purchase. The purchase price was $1,305,903 and consisted of a cash payment of $215,000 plus expenses and a note payable for $865,000. As a result of the purchase, $1,150,836 in goodwill was recorded by the Company, which reflects the adjustments necessary to allocate the purchase price to the fair value of assets purchased and liabilities assumed. The Company subsequently determined the goodwill was not recoverable and charged off net goodwill of $1,123,875 as adjusted for related debt forgiveness during the year ended December 31, 1997 as loss from acquired businesses. The Company entered into a three-year employment agreement with the President of East End. The employment agreement provides for an annual salary of $150,000. In addition, the former President of East End received 400,000 shares of common stock valued at $40,000 for services rendered in 1996. F-12 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 2 - EAST END PURCHASE (CONTINUED) At December 31, 1996, the Company was in default with respect to the $865,000 note payable to the former President of East End which was payable in full on December 1, 1996. On January 14, 1998 the Company entered into a settlement agreement whereby the Company agreed to pay a total of $500,000, representing accrued wages and interest and the remaining balance due on the $865,000 note payable. In addition, as part of the settlement the employment agreement with the former president of East End was terminated effective September 30, 1997. The $500,000 payments were to be made at various intervals and at December 31, 1998 the balance was $375,000. The Company is currently negotiating to further reduce the balance to $217,000 in exchange for assuming debts to two individuals totaling approximately $158,000. NOTE 3 - SIGNIFICANT PROJECTS In 1996, the Company purchased the distribution rights to a script entitled Vallas & Sons for $21,000 which the Company is attempting to market. In 1997, an additional $15,500 was paid to retain the distribution right. Since the project has not been released to primary markets, all related costs have been expensed. In 1996, the Company began a joint venture with Abrams/Gentile Entertainment, Inc. to co-produce the first thirteen episodes of an animated children's TV cartoon entitled Van-Pires (See Note 10). The Company's share of costs of Van-Pires is capitalized as investment in Van-Pires. Film inventory costs consists of the following: At December 31, ----------------------------------- 1998 1997 ------------- -------------- Story rights $ - $ 36,500 ============= ============== Van-Pires $ 1,944,009 $ 1,484,829 ============= ============== F-13 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 4 - INCOME TAXES The tax effect of temporary differences that give rise to significant portions of the deferred tax assets are presented below: At December 31, ------------------------------- 1998 1997 -------------- -------------- Net operating loss carryforwards $ 1,895,111 $ 1,286,600 Capital loss carryforward 13,171 13,171 -------------- -------------- Total gross deferred tax assets 1,908,282 1,299,771 Less valuation allowance 1,908,282 1,299,771 -------------- -------------- Net deferred tax assets $ - $ - ============== ============== The net increase in the total valuation allowance for the years ended December 31, 1998 and 1997 was $608,511 and $717,661, respectively. The Company has available at December 31, 1997, unused net operating loss carryforwards that may provide future tax benefits and that expire as follows: Unused Net Year of Expiration Operating Loss ------------------ -------------- 1999 $ 24,107 2008 200,541 2009 71,348 2010 221,516 2011 1,247,332 2012 3,649,706 2013 3,117,368 ------------- $ 8,531,918 ============= The Company had capital loss carryovers at December 31, 1998 of $35,000 which will expire on December 31, 1999. F-14 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 5 - CONVERTIBLE NOTES PAYABLE The Company received $2,745,900 from the sale of the convertible notes during 1998. The notes were convertible into the Company's common stock based upon one share of stock for each dollar of debt. The debt holders were given various multiples of that conversion, which ranged from 1-1 to 4-1, based upon the amount and timing of their investment. Some of the larger debt holders were given the option to use a lesser multiple than the one granted for the stock and to also receive their original debt back in cash. The number of shares to be issued to debt holders still outstanding at December 31, 1998 is 3,683,000. The convertible notes payable are uncollateralized and are noninterest bearing. Convertible notes payable consist of the following: At December 31, ----------------------------- 1998 1997 ------------- ------------- $ 907,750 $ 840,000 ============= ============= NOTE 6 - NOTES PAYABLE Notes payable consist of the following:
At December 31, ------------------------------- 1998 1997 ------------ ------------ Non-interest bearing note payable to individual, no maturity date stated. $ 146,149 $ 178,500 Demand note payable to individual bearing interest at 9%. 200,000 200,000 Note payable to individual, matures January 8, 1998. Senior to all existing debt and collateralized by all of the Company's assets. - 45,000 Demand note payable to individual bearing interest at 10%. Collateralized by certain Intellectual property rights from the purchase of East End and related entities and assets. 375,000 505,000 ------------ ------------ $ 721,149 $ 928,500 ============ ============
F-15 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 7 - STOCK OPTION PLANS AND WARRANTS The Company has stock option plans under which certain individuals may be granted options to purchase shares of Company common stock at the fair market value at the time of the grant. Options generally vest immediately and expire ten years from the date of the grant. A summary of information relative to the Company's stock option plans follows: Number Option Price of Shares Per Share Outstanding at December 31, 1997 3,900,000 .10 Granted - - Exercised (100,000) .10 Canceled - - ------------ -------- Outstanding at December 31, 1998 3,800,000 .10 ============ ======== The Company accounts for stock options in accordance with the provisions of Statement No. 123, "Accounting for Stock-Based Compensation." As permitted by the Statement, the Company has chosen to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans. Had the fair value method of accounting been applied to the Company's stock option plans, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments, net loss would have been unchanged in 1998 and 1997. The stock options granted in 1997 and 1996 under the minimum value method of accounting had no fair value due to the financial condition of the Company. The weighted-average remaining contractual life of options outstanding at December 31, 1998 is 99 months and the weighted-average exercise price is $.25. In addition, on November 4, 1996 the Company issued Intel Corporation a warrant to purchase 1,000,000 shares of common stock at the lower of $1.75 or 75% of the fair market value of common stock on the date of exercise. The warrant expired on November 4, 1998. Intel Corporation paid the Company a nonrefundable payment of $150,000 for this warrant. The payment has been reflected as additional paid-in capital in the accompanying consolidated statements of stockholders' deficit. The Company issued AGE a warrant to purchase 1,000,000 shares of common stock at the lower of $1.75 or 75% of the fair market value of the offering price to underwriters (net of underwriting discounts) of the common stock pursuant to the first underwritten public offering by the Company. The warrant expires on October 8, 2000. F-16 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 7 - STOCK OPTION PLANS AND WARRANTS (CONTINUED) UNGERLEIDER WARRANT In April 1998 the Company borrowed $167,000 from Dr. Bruce Ungerleider which was converted into 835,000 shares of MSH common stock. In June 1998, the Company borrowed $500,000 from Dr. Bruce Ungerleider in exchange for a convertible note and two warrants to purchase stock in the Company. The note bears interest at the annual rate of 20% and is convertible into MSH stock at a stock price of $.25 per share for one year from the date of issue. In addition, the note is secured by 20% of any gross revenue earned by the Company from its computer animation software generally referred to as "Jethro". In addition, as an inducement to make the loan, Dr. Ungerleider is to receive 1,000,000 shares of restricted stock in MSH, and 10% of the stock in Happy Zone Entertainment (a subsidiary of MSH). Dr. Ungerleider also received an additional warrant to purchase 1,300,000 shares of common stock exercisable on the same terms as the Intel warrant which expired in November 1998. Due to the expiration of the Intel warrant in November 1999, the warrant to Dr. Ungerleider was reissued for 1,000,000 shares for a period of seven years from the issuance at the price of $1.75 per share. The agreement provides for payment of the stock at the time of exercise to be in cash or a combination of cash and cancellation of any remaining balance of the debt. An alternative to the payment terms is to exercise the warrant for a reduced amount of shares of common stock for no payment based upon a formula. The formula takes the fair market value of stock at the time of exercise less the exercise price divided by the fair market value of the stock at the time of exercise multiplied times the 1,000,000 share warrant. The debt and warrant agreement also includes an antidilutive provision. If the Company's issued and outstanding shares of common stock exceed 30,000,000 shares, Dr. Ungerleider has the right to receive warrants to purchase additional shares to maintain his percentage of ownership in the company at a price of 15% less than the selling price for all shares sold by the Company after the time the total outstanding shares exceed 30,000,000. The percentage of ownership is to be determined by adding all shares owned and shares represented by warrants and convertible shares of Dr. Ungerlieder at the date of exercise divided by the total outstanding shares as of the date of the loan.. The percentage is anticipated to range from 10.5 % to 21.87%. The Company's number of common stock shares issued and outstanding reached the 30,000,000 threshold approximately in July 1998. At December 31, 1998, the amount of additional shares available under the antidilutive feature to the agreement is approximately 2,481,512. To date, no warrant has been issued for the antidilutive shares. F-17 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 8 - RELATED PARTY During 1997, several shareholders agreed to exchange free trading shares for restricted shares. Per the agreement, the free trading shares were valued at $591,600 which included the market value of the shares, plus the related capital gains tax. The free trading shares were used to satisfy debt obligations of the Company. Replacement shares were not issued until 1998, so the value of the transaction is included as due to related parties in the December 1997 financial statements. During 1998, the Company engaged in several similar transactions. A total of $2,059,000 free trading shares were acquired in exchange transactions and 5,242,000 restricted shares were issued as replacements. Due to stockholders consist of unsecured noninterest bearing demand promissory notes. NOTE 9 - INTEL AGREEMENT In November, 1996, the Company executed an agreement with Intel Corporation to cooperate in the development and distribution of a new animation management technology (JETHRO) that will be used in the management of production of episodic television shows. The system would update on a daily basis, workloads, actual versus budget, and track the project. It would combine the software technology developed by the Company with the microprocessor capability of Intel. No activity has occurred to date on this joint venture. NOTE 10 - VAN-PIRES/AGE AGREEMENT In November, 1996, the Company entered into a strategic product development agreement with Abrams/Gentile Entertainment, Inc. (AGE). Under the agreement, the Company acquired the rights to produce a children's TV series entitled Van-Pires and potential revenue from related toys and merchandising. AGE received a warrant to purchase 1,000,000 shares of the Company's stock. The agreement provided for AGE and the Company to initially commit $1,300,000 and $650,000, respectively for the production of thirteen episodes of Van-Pires. After AGE recouped its initial investment from the revenues received by AGE from the broadcast of the series, video licenses and sales the Company will recoup its costs and then share revenue from the licensing activities related to the series as follows: - 5% of net advertising revenue - 1% of domestic net toy revenue - 2% of international net toy revenue - 2% of net merchandising revenue F-18 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 10 - VAN-PIRES/AGE AGREEMENT (CONTINUED) The first 13 episodes were aired during 1998 in primary markets in the United States. As of December 1999, the Company has not received any revenue as a result of this agreement, however, AGE has received approximately $2,000,000 which has been offset against the AGE share of expenditures under the agreement. In addition, the Company has received an advance of approximately $100,000 in 1999 toward the production of toys using the Van-Pires characters as a theme (See Note 17). NOTE 11 - EMPLOYMENT AGREEMENTS During 1996, the Company entered into employment agreements with three officers of the Company and the former president of East End. The employment agreements were revised effective January 1, 1999 and include all four officers of the Company. The employment agreements also provide for certain incentive compensation fringe benefits and expense reimbursements. NOTE 12 - BITSA AGREEMENT On March 3, 1997, the Company entered into an agreement with BITSA Talent, Inc. ("BITSA") to provide musical compositions and lyrics for thirteen episodes of the television series entitled "Van-Pires." Significant provisions of this agreement are as follows: - Payment of $100,000 to BITSA. - Royalty payments of 16% of the soundtrack album suggested retail list price of all copies sold. - Royalty payments of 50% of music video net revenues. - Royalty payments of 60% of home video net revenues. - Royalty payments of 60% of the Company's receipts of license fees, if any, from third parties. To date no revenues have been received under the BITSA contract. NOTE 13 - INVESTMENT IN AGE AND FREEDOM MULTI MEDIA, INC. The Company is in the process of negotiating an agreement with Anthony and John Gentile whereby they will sell an amount (approximately 20%) of their ownership in Abrams/Gentile Entertainment Inc. (AGE) and become members of the Board of Directors of MSH and also become creative directors of MSH in exchange for 8,971,430 shares of MSH restricted stock. The allocation of the shares is approximately 75% for their shares in AGE, 12.5% for becoming a Director and 12.5% for becoming a creative director in MSH. The shares of MSH with a value of approximately $3,000,000 were issued in May 1999 to the Gentile's pending finalization of the agreement. F-19 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 13 - INVESTMENT IN AGE AND FREEDOM MULTI MEDIA, INC. (CONTINUED) The Company would like to negotiate an agreement with Marty Abrams regarding acquisition of his majority ownership in AGE. However, the Company and Mr. Abrams have been unable to reach an agreement concerning the assets to be included as part of the purchase agreement. As of December 31, 1999, the Company has paid approximately $1,600,000 in cash toward this agreement. In addition, through 1999, the Company has issued approximately 3,500,000 shares of MSH stock valued at approximately $1,200,000. As of December 31, 1999, the stock and payments total approximately $3,100,000. As of December 31, 1998, the Company's investment was valued at $830,500. In addition, the Company has agreed to purchase approximately 18% of Freedom Multimedia, LLC (Freedom) for approximately $750,000. The balance of Freedom is owned by AGE shareholders and will produce and manufacture the patented "Flex-sensor" used in the Power Glove Virtual Reality (VR) Technology. The Company currently has a joint venture agreement with AGE for the production of the animated TV show entitled Van-Pires (See Note 10). Freedom is in the process of negotiating with a third party to invest approximately $5,000,000 for 50% of Freedom's stock. The proposed transaction would reduce the ownership interest of MSH to approximately 9.375%. The invested funds would be used to further develop and exploit the Power Glove. AGE is a well-respected independent toy development and merchandising company. MSH and AGE have co-produced the Van-Pires animated television series and are working together on other creative projects in various joint venture arrangements. NOTE 14 - MUSIC DIVISION In 1998, the Company created a music division that signed various contracts with artists and agents to develop several single records and albums such as Van-Pires (sound track), Cowboy Attitude (album), T. G. Sheppard Live (album) Nothing on But The Radio (album), and Freedom (album). The Company does not currently have a definite source of revenue for its music properties. All costs associated with the music division have been expensed. The Company has expended approximately $680,000 and $360,000 in 1998 and 1997, respectively on the music division. F-20 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 15 - AGREEMENT WITH ETC...GROUP The Company entered into a strategic alliance with "etc...group" (etc) dated November 19, 1998 whereby etc will provide video production services for jointly developed projects. The revenue from such jointly developed projects are to be split 60% for etc. and 40% for MSH with other arrangements for cost sharing depending on the particular project. NOTE 16 - CANNON RECORDS MASTER LICENSE AGREEMENT The Company signed a master license agreement on July 1, 1997 with Cannon Records whereby the Company obtained all rights to a list of approximately 106 Ike and Tina Turner recordings made prior to that date. The agreement called for a payment $37,500 plus a 6% royalty and is for a term of ten years. NOTE 17 - VAN-PIRES MASTER TOY LICENSE The Company and AGE have signed a licensing agreement with DeWilde Groups, Inc. (DeWilde) giving the rights to DeWilde to produce toys based upon the characters in the TV animated series Van-Pires. The agreement is effective as of September 21, 1998 and provides for an advance royalty of $825,000 payable in four payments starting in September, 1998 through April, 1999 plus an ongoing royalty of 8 - 8.5 % based upon airing of the TV episodes. The Company received the first advance of $100,000 in 1999. The project was subsequently delayed. NOTE 18 - CONTINGENCY NAVARRE-AGREEMENT The Company signed a distribution agreement on October 1, 1997 with Navarre Corporation (Navarre) whereby Navarre acts as the distributor for various music albums that MSH has developed. Navarre produces records, disks, tapes and other forms of recording media and is the distributor of such items to retail outlets, etc. Navarre is compensated based upon a sliding scale ranging from 42% to 50% of retail plus an incentive percentage of from 0 to 7%. The Company received income of $35,883 and $-0- in 1998 and 1997, respectively. All activity and sales under the agreement ceased by the end of 1998. The Company is contingently liable for sales by Navarre to retail outlets that are returned unsold. The amount of the contingent liability at December 31, 1998 is estimated to be immaterial. F-21 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 19 - LAWSUITS AND LEGAL PROCEEDINGS GOLD In June 1998 a judgment was filed in the amount of $26,754 in favor of Stuart Gold for services provided to the Company with regard to the animated TV series Van-Pires. The full amount of this liability has been recorded as of December 31,1998. ZELLERMAIER In July 1998, the Company settled a claim for breach of contract with Irwin Zellermaier for a payment in the amount of $10,000. SHEENA EASTON In December 1998, the Company settled a claim by Sheena Easton/Skye Heart regarding a recording contract for the amount of $100,000. The payment was made by December 31, 1998. FREDERICK GAULT In April 1999, the Company settled a claim by Frederick Gault regarding services pertaining to the development of Jethro for the amount of $30,000. The full amount of this settlement has been recorded as of December 31, 1998. WORLD-WIDE TELEVISION NEWS CORP In April 1999, the Company settled a claim by Worldwide Television New Corp. for the amount of $3,635 for services provided in connection with East End and related entities. OUTWEST ENTERTAINMENT In 1998 the Company settled a claim by Outwest Entertainment (Outwest) in the amount of $225,000 for services in connection with the development of various music albums. The settlement calls for monthly payments of approximately $45,000 plus interest at the rate of 10% over six months. In addition to the agreement to pay $225,000 the Company has transferred its rights in the albums produced by T.G Sheppard to Outwest. F-22 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 19 - LAWSUITS AND LEGAL PROCEEDINGS (CONTINUED) POZNER The Company is a defendant in an action filed by Robert Pozner alleging breach of contract seeking to recover $200,000 and the value of 500,000 shares of MSH common stock as valued at July 1997. The company has recorded a liability for $200,000 due to Mr. Pozner and the Company's legal counsel has determined that any additional amount potentially due is not quantifiable or probable at the current time. The Company's legal counsel is in the process of filing responses to the pleading and a counterclaim. NOTE 20 - INCREASE IN AUTHORIZED COMMON SHARES In February 1999, the Company increased the number of authorized common shares from 50,000,000 to 150,000,000. NOTE 21 - FINANCING The Company has utilized various private placements, 504 offerings and convertible debt issues for financing. The Company has relied on exemptions provided by Regulation D and Section 4(2) under the Securities Act of 1933 for its offerings. NOTE 22 - INVESTMENT BANKING AGREEMENTS LBC CAPITAL RESOURCES In January 1998 the Company entered into an agreement with LBC Capital Resources (LBC) for investment-banking services. An advance payment of $5,000 was made to LBC to seek additional financing for the various acquisitions and projects that the Company has planned. As of December 31, 1998 there has been no definite financing arranged for the company through LBC and the agreement has terminated. WALLSTREET M&A The Company signed a two-year investment banking agreement with Wallstreet M&A (Wallstreet) in June 1999 whereby Wallstreet is to obtain financing for various acquisitions including AGE and to assist the Company in being listed on the American Stock Exchange. The agreement provides for a monthly retainer of $5,000 and an initial payment of 100,000 shares of MSH restricted stock. In addition, Wallstreet will receive an additional 120,000 shares of stock if they are successful in achieving the listing on the American Exchange. To date, no financing has been obtained by Wallstreet for MSH. F-23 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 22 - INVESTMENT BANKING AGREEMENTS (CONTINUED) FINOVA CAPITAL The Company contracted with Finova Capital (Finova) in 1998 for financing the purchase of a controlling interest in AGE. A retainer payment of $15,000 was made to Finova. The efforts of Finova were unsuccessful and the agreement terminated at the end of 1998. NOTE 23 - ION AGREEMENT In May 1998, the Company entered into a joint venture with AGE and ION Entertainment Inc. for the production, development and marketing of a TV series and related merchandise and toy line entitled "Warrior Woman". The revenues from the project are to be shared pari passu by the parties with a projected budget of $122,000 by ION and $133,000 by AGE/MSH. After the initial recoupment and revenue sharing, the future revenues are to be split between ION and AGE/MSH on the basis of 60% to ION and 40% to AGE/MSH for toys, merchandising and home video and 70% for ION and 30% for AGE/MSH for television. The funds for the project are to be deposited into a joint venture bank account maintained by MSH. As of December 31, 1998, no material activity has occurred regarding this project and the project is dormant. As of December 1999 ION has ceased operations and the rights to the project revert to the Company. NOTE 24 - THIS ONE N' THAT ONE The Company has a joint venture agreement with AGE and Film Roman Inc. (FRI) to develop, produce and distribute various TV, music, toy and merchandise projects based upon a concept and books created by JJK Publishing (JJK) entitled This One n' That One. The arrangement is to share in the costs and revenues of financing and developing animated TV episodes, merchandise and toys. The project has had early development activity with minimal cost expenditure as of December 1999. The future date for airing this show has not currently been set. F-24 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 25 - SUBSEQUENT EVENTS FILMS In 1999, the Company entered into negotiations with Film Roman regarding various joint ventures for the production of several animated television series for children. OFFICES During 1999, the Company signed a lease on approximately 6,000 square feet of office space in New York City for approximately $10,300 per month which it has remodeled and occupies approximately 2,000 square feet. The balance of the space is being rented to other companies in the entertainment business. The Company has moved its California operations from San Francisco to Sausalito, California, where it is renting approximately 400 square feet from a related company, Kids and Family, Inc. (KIDS) for $750 per month. KIDS is a company formed in 1999 to be an online entertainment network for kids via the Internet and is a majority owned subsidiary of MSH. PRITCHARD CONSULTING AGREEMENT The Company's subsidiary, KIDS has agreed to a consulting agreement with David Pritchard commencing on December 12, 1999 for a period of one year renewable at the discretion of the parties. The compensation is to be at the annual rate of $350,000 plus an initial payment of one million shares of restricted MSH common stock. Mr. Pritchard has also agreed to serve on the Board of Directors of MSH and as a consultant for MSH. KING/FROMKIN AGREEMENT The Company has signed an agreement with King/Fromkin (King) as of November 17, 1999 whereby King will provide talent-packaging services to MSH. King is to receive 100,000 shares of restricted MSH stock for these services initially and an additional 100,000 shares one-year from the date of the agreement based upon performance as determined by MSH. King may also act as co-producer or co-executive producer for which he would receive additional compensation to be determined on a project by project basis. ASTON ACQUISITION In October 1999, the Company agreed to purchase 20% of the common stock of Aston Entertainment for $430,000 in cash and 1,535,714 shares of MSH common stock. In addition, Aston has been granted an option to purchase 6,142,857 shares of MSH Common stock for $.14 per share. The payments are to begin on October 22, 1999 and conclude in March 2000. In addition, certain principals in the Aston Company have agreed to provide funding services directly to MSH and KIDS on a commission basis. The Company is currently negotiating to increase its ownership in Aston by an additional 15%. F-25 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE 26 - PROPERTY AND EQUIPMENT The major components of property and equipment consist of the following as of December 31: 1998 1997 ------------ ------------ Office equipment $ 11,443 $ 14,995 Computer equipment 412,741 407,013 Production equipment - 3,210 Leasehold improvements 10,021 4,974 ------------ ------------ 434,205 430,192 Less: Accumulated depreciation (174,625) (84,937) ------------ ------------ $ 259,580 $ 345,255 ============ ============ Depreciation expense charged to operations during 1998 and 1997 was $93,448 and $73,639, respectively. NOTE 27 - LEASE COMMITMENTS The Company leases office space for its headquarters in San Francisco, California. The lease commenced on June 27, 1997 and expired on June 27, 1998. The lease required monthly payments of $8,468. The Company also leases production facilities in Santa Monica, California for $2,185 per month. The lease commenced on January 15, 1997, expires on January 14, 1999 and requires payments of $550 per month. The Company also leased production space at two additional locations in San Francisco, California. One lease was for the 6 months ended June 30, 1997 and required monthly payments of $3,000. The other lease was for the year ended December 31, 1997 and required monthly payments of $5,861. In addition, the Company leased various production equipment under a master lease agreement. This agreement terminates January 15, 1999. The monthly lease payment is $2,419 and is capitalized as part of the Van-Pires project. Rent expense for the years ended December 1998 and 1997 was $143,867 and $170,487, respectively. F-26 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS October 31, 1999 October 31, 1998 ---------------- ---------------- Current assets: Cash $ 31,970 $ 955 Accounts receivable 15,985 - Investment in Van-Pires 1,944,007 1,944,007 ---------------- ---------------- Total current assets 1,991,962 1,944,962 Property, plant and equipment - net 465,763 271,105 Other assets: Investment in Aston 52,500 - Due from Stockholder 452,763 - Investment in AGE 6,823,250 597,300 Deposits 8,469 8,469 ---------------- ---------------- Total other assets 7,336,982 605,769 ---------------- ---------------- Total assets $ 9,794,707 $ 2,821,836 ================ ================ F-27 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY October 31, 1999 October 31, 1998 ---------------- ---------------- Current liabilities: Accounts payable $ 1,155,121 $ 894,165 Due to stockholders 1,252,264 570,159 Convertible notes payable 622,250 967,150 Notes payable 865,449 646,649 Accrued expenses 84,421 73,226 ---------------- ---------------- Total current liabilities 3,979,505 3,151,349 Stockholders' equity (deficit): Preferred stock - par value $.05 per share 25,000,000 shares authorized, none issued and outstanding - - Common stock - $.001 par value, 150,000,000 shares authorized, 90,167,744 and 36,609,226 shares issued and outstanding 90,170 36,609 Additional paid-in capital 16,772,795 7,683,987 Accumulated deficit (11,022,763) (8,005,109) ---------------- ---------------- 5,840,202 (284,513) Minority interest Common stock 1,700 - Accumulated deficit (1,700) - ---------------- ---------------- - - ---------------- ---------------- 5,840,202 (284,513) Less note receivable for stock issued (25,000) (45,000) ---------------- ---------------- Total stockholders' equity (deficit) 5,815,202 (329,513) ---------------- ---------------- Total liabilities and stockholders' equity $ 9,794,707 $ 2,821,836 ================ ================ See accompanying notes to consolidated financial statements. F-28 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the Ten Months Ended ---------------- ---------------- October 31, 1999 October 31, 1998 ---------------- ---------------- Net sales $ - $ 96,924 Costs and expenses: Production costs 66,053 852,871 General and administrative expenses 2,446,076 1,673,543 Depreciation and amortization 87,755 77,873 ---------------- ---------------- Total costs and expenses 2,599,884 2,604,287 ---------------- ---------------- Loss from operations (2,599,884) (2,507,363) Other income (expense): Interest income 33 - Interest expense (26,778) (73,192) Rent income 36,333 41,279 ---------------- ---------------- Net loss before minority interest (2,590,296) (2,539,276) Minority interest in net loss of KIDS 1,700 - ---------------- ---------------- Net loss $ (2,588,596) $ (2,539,276) ================ ================ Net loss per share $ (.04) $ (.09) ================ ================ Weighted average number of shares outstanding 65,987,517 27,806,355 ================ ================ See accompanying notes to consolidated financial statements. F-29 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIT) FOR THE TEN MONTH PERIODS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
Common Stock Total --------------------------- Additional Receivable Stockholders' Preferred Number of Paid in Accumulated for Stock Equity Stock Shares Amount Capital Deficit Issued (Deficit) ----- ------------- --------- ------------- ------------- --------- ------------- Balance at December 31, 1997 - 19,003,484 $ 19,004 $ 4,091,633 $ (5,465,825) $ - $ (1,355,188) Receivable from sale of 241,667 shares of common stock - - - - (45,000) (45,000) Common stock issued for convertible debt cancellation - 7,899,400 7,899 2,151,861 - - 2,159,760 Sale of common stock - 2,748,275 2,748 423,807 - - 426,555 Common stock issued for services - 2,560,600 2,561 253,499 - - 256,060 Common stock issued for debt cancellation - 4,198,500 4,199 743,539 - - 747,738 Interest paid in common stock - 198,467 198 19,648 - - 19,846 Loss for the ten months ended October 31, 1998 - - - - (2,539,284) - (2,539,284) ----- ------------- --------- ------------- ------------- --------- ------------- Balance at October 31, 1998 (Unaudited) - 36,608,726 36,609 7,683,987 (8,005,109) (45,000) (329,513) Sale of common stock - 392,710 394 8,009 - - 8,403 Common stock issued for services - 378,200 378 37,442 - - 37,820 Common stock issued for debt cancellation - 3,767,654 3,769 388,483 - - 392,252 Stock issued as deposit for AGE transaction - 660,000 660 230,340 - - 231,000 Loss for the two months ended December 31, 1998 - - - - (429,060) - (429,060) ----- ------------- --------- ------------- ------------- --------- -------------
F-30 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) FOR THE TEN MONTH PERIODS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
Common Stock Total --------------------------- Additional Receivable Stockholders' Preferred Number of Paid in Accumulated for Stock Equity Stock Shares Amount Capital Deficit Issued (Deficit) ----- ------------- --------- ------------- ------------- --------- ------------- Balance at December 31, 1998 - 41,807,290 $ 41,810 $ 8,348,261 $ (8,434,169) $ (45,000) $ (89,098) Payment for receivable - - - - - 20,000 20,000 Sale of common stock - 21,023,324 21,023 3,566,670 - - 3,587,693 Common stock issued for debt cancellation - 1,122,000 1,123 284,378 - - 285,501 Stock issued as deposit for AGE transaction - 12,436,430 12,436 4,200,314 - - 4,212,750 Common stock issued for services - 13,778,700 13,778 373,172 - - 386,950 Net loss for the ten months ended October 31, 1999 - - - - (2,588,596) - (2,588,596) ----- ------------- --------- ------------- ------------- --------- ------------- Balance at October 31, 1999 (Unaudited) - 90,167,744 $ 90,170 $ 16,772,795 $ (11,022,765) $ (25,000) $ 5,815,200 ===== ============= ========= ============= ============= ========= =============
See accompanying notes to consolidated financial statements. F-31 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Ten Months Ended ---------------------------------- October 31, 1999 October 31, 1998 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,588,596) $ (2,539,286) Adjustments to reconcile net loss to net cash used by operating activities: Write-off - film inventory and project costs - 36,500 Gain (loss) on sale of equipment 12,475 (3,760) Depreciation and amortization 87,755 77,873 Common stock issued for services 386,950 256,060 Common stock issued for interest - 19,846 (Increase) decrease in: Prepaid expenses - 400 Interest receivable - - Film inventory and project costs - - Accounts receivable (15,985) 1,744 Deposits - 9,047 Note receivable - - Increase (decrease) in: Accounts payable 338,233 448,341 Accrued interest 18,000 77,120 Accrued expenses 655,967 (25,980) Accounts payable to stockholder (24,000) 331,937 ---------------- ---------------- Net cash used in operations (1,129,201) (1,310,158) CASH FLOWS FROM INVESTING ACTIVITIES: Cash payment for the purchase of property (306,414) 37 Proceeds from sale of equipment - - Investment in Van-Pires - (343,140) Purchase of movie rights - - Investment in Aston (52,500) - Investment in AGE (1,780,000) (597,300) Collection on note receivable 20,000 - ---------------- ---------------- Net cash used in investing activities (2,118,914) (940,403) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable 273,000 2,000 Principal payment on note payable (128,700) (222,851) Proceeds from issuance of common stock 3,587,699 466,960 Proceeds from issuance of convertible notes payable - 2,317,900 Repayment of convertible debt - (20,000) Advances from stockholder loans - - Payments on shareholder loans (452,763) (298,652) ---------------- ---------------- Net cash provided by financing activities 3,279,236 2,245,357 ---------------- ---------------- Net increase (decrease) in cash 31,121 (5,204) Cash at beginning of period 849 6,159 ---------------- ---------------- Cash at end of period $ 31,970 $ 955 ================ ================
F-32 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NON CASH TRANSACTIONS: For the Ten Months Ended ---------------------------------- October 31, 1999 October 31, 1998 ---------------- ---------------- Common stock issued for services rendered $ 386,950 $ - ================ ================ Common stock exchanged for convertible notes payable $ 285,500 $ 2,220,750 ================ ================ Shareholder salaries accrued $ 604,165 $ - ================ ================ Stock issued for AGE transaction $ 4,212,750 $ - ================ ================ Receivable for stock $ - $ 45,000 ================ ================
See accompanying notes to financial statements. F-33 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS MSH Entertainment Corporation (the "Company") is in the business of film and television production, music and music publishing, software development, and distribution. Its business operations include creating, developing, producing, licensing, distribution and merchandising entertainment media products. In addition to animated and live-action family and children's TV productions, the Company's products include prime time drama series, music specials, record albums, music publishing and related services. The Company is also pursuing opportunities in children's toys and merchandising in joint venture with Abrams/Gentile Entertainment, Inc. (AGE) as it is related to Company produced programming. Prior to the acquisition discussed below, the Company's primary business activity was the creation, development and production of home video motion picture tapes primarily for sale internationally. The Company did not benefit from widespread market acceptance of its home video motion pictures. BASIS OF PRESENTATION The accompanying consolidated financial statement has been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the consolidated financial statement, the Company has incurred a net loss of $2,588,596 and $2,539,276 for the ten months ended October 31, 1999 and October 31, 1998, respectively. At October 31, 1999, the Company has a net working capital deficit of $1,937,543 which raises substantial doubt about the Company's ability to continue as a going concern. Management has developed plans intended to remedy these conditions. These plans include seeking other sources of financing, completing the acquisition of existing operating companies, actively marketing existing projects, reducing operating costs and seeking a joint venture partner. No assurances can be given as to the success of these plans. The consolidated financial statement does not include any adjustments that might result should the Company be unable to continue as a going concern. ACQUISITION On June 21, 1996 the Company acquired substantially all of the assets of East End Communications, Inc., East End Productions, Inc. and J.B. Dubbs, Inc. (collectively referred to as "East End") in a transaction accounted for as a purchase. The primary business activity of East End was computer animation programming and production (See Note 2). F-34 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies followed in preparing the accompanying consolidated financial statements is set forth below. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of MSH Entertainment Corporation and its wholly owned subsidiary MSH Productions Inc., Kids and Family Network, Inc. (KIDS) and Happy Zone Entertainment Corporation. KIDS is owned 83% by MSH and 17% by officers and directors of MSH. Happy Zone Entertainment Corporation is a 60% owned subsidiary which has been inactive since its inception in 1996. MSH Productions, Inc. is also inactive. All significant intercompany accounts and transactions have been eliminated in consolidation. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. HOME VIDEO AND MOTION PICTURE PROJECT COSTS The Company follows the provisions of Statement of Financial Accounting Standards No. 53 ("SFAS 53") with respect to motion pictures, television and video project costs. Costs incurred in connection with motion picture, television, music and video projects are capitalized. Such costs are charged to production overhead if the project has been held for a three-year period and has not been set for production or if it is abandoned. Production overhead is allocated to the cost of projects currently set for, or in production. Although certain projects are reported at zero value, they may still be actively marketed by management after the three-year period. Project costs are stated at the lower of cost or realizable value. Cost and related amortization of released projects allocated to primary markets would be classified as current assets. Van-Pires, an animated TV cartoon show was released to primary markets in the fall of 1997 for thirteen episodes and costs allocated to it are classified as a current asset. All other capitalized costs are classified as noncurrent assets. F-35 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) HOME VIDEO AND MOTION PICTURE PROJECT COSTS (CONTINUED) Under FASB 53, project costs, which include accrued related participations and residuals, would be amortized based on the ratio of revenue earned for the year to management's estimate of total gross revenue to be earned. Each picture or project in production is valued taking into account management's current estimates of the ultimate revenue to be received from all sources, including theatrical distribution, cable, pay, network and syndicated television licensing and video and audio cassette and video and audio disc licensing. Such estimates, which are based on such factors as the nature and popularity of the subject matter and the expected rate structure in the various markets during the periods the revenue from the project is estimated to be earned, are revised periodically and estimated losses, if any are provided for in full. REVENUE RECOGNITION Revenues with respect to television and computer animation programming and production are recognized when the film is accepted by a licensee and collectibility of the license fee is reasonably assured. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the balance sheet carrying amounts of existing assets and liabilities measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. F-36 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LOSS PER SHARE Loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. At October 31, 1999, all common stock equivalents were antidilutive. NOTE 2 - EAST END PURCHASE On June 21, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of East End in a transaction accounted for as a purchase. The purchase price was $1,305,903 and consisted of a cash payment of $215,000 plus expenses and a note payable for $865,000. As a result of the purchase, $1,150,836 in goodwill was recorded by the Company, which reflects the adjustments necessary to allocate the purchase price to the fair value of assets purchased and liabilities assumed. The Company subsequently determined the goodwill was not recoverable and charged off net goodwill of $1,123,875 as adjusted for related debt forgiveness during the year ended December 31, 1997 as loss from acquired businesses. The Company entered into a three-year employment agreement with the President of East End. The employment agreement provides for an annual salary of $150,000. In addition, the former President of East End received 400,000 shares of common stock valued at $40,000 for services rendered in 1996. At December 31, 1996, the Company was in default with respect to the $865,000 note payable to the former President of East End which was payable in full on December 1, 1996. On January 14, 1998 the Company entered into a settlement agreement whereby the Company agreed to pay a total of $500,000, representing accrued wages and interest and the remaining balance due on the $865,000 note payable. In addition, as part of the settlement the employment agreement with the former president of East End was terminated effective September 30, 1997. The $500,000 payments were to be made at various intervals. NOTE 3 - SIGNIFICANT PROJECTS In 1996, the Company purchased the distribution rights to a script entitled Vallas & Sons for $21,000 which the Company is attempting to market. In 1997, an additional $15,500 was paid to retain the distribution right. Since the project has not been released to primary markets, all related costs have been expensed. In 1996, the Company began a joint venture with Abrams/Gentile Entertainment, Inc. to co-produce the first thirteen episodes of an animated children's TV cartoon entitled Van-Pires (See Note 10). The Company's share of costs of Van-Pires is capitalized as investment in Van-Pires. F-37 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 3 - SIGNIFICANT PROJECTS (CONTINUED) Film inventory costs consists of the following: 1999 1998 ---------------- ---------------- Van-Pires $ 1,944,007 $ 1,944,007 ================ ================ NOTE 4 - NOTES PAYABLE Notes payable consist of the following: Demand note payable to individual bearing interest at 9%. $ 200,000 $ 200,000 Loans payable to individuals. No stated maturity. 290,449 71,649 Demand note payable to individual bearing interest at 10%. Collateralized by certain Intellectual property rights from the purchase of East End and related entities and assets. 375,000 375,000 ---------------- ---------------- $ 865,449 $ 646,649 ================ ================ F-38 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 5 - STOCK OPTION PLANS AND WARRANTS The Company has stock option plans under which certain individuals may be granted options to purchase shares of Company common stock at the fair market value at the time of the grant. Options generally vest immediately and expire ten years from the date of the grant. A summary of information relative to the Company's stock option plans follows: Number Option Price of Shares Per Share Outstanding at December 31, 1997 3,750,000 .33 Granted - .33 Exercised - .33 Canceled - .33 ----------- ------- Outstanding at October 31, 1998 3,750,000 .33 Granted - .33 Exercised - .33 Canceled - .33 ----------- ------- Outstanding at October 31, 1998 3,750,000 .33 =========== ======= The Company accounts for stock options in accordance with the provisions of Statement No. 123, "Accounting for Stock-Based Compensation." As permitted by the Statement, the Company has chosen to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans. Had the fair value method of accounting been applied to the Company's stock option plans, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments, net loss would have been unchanged in 1999. The stock options granted in 1997 and 1996 under the minimum value method of accounting had no fair value due to the financial condition of the Company. The weighted-average remaining contractual life of options outstanding at October 31, 1999 is 88 months and the weighted-average exercise price is $.25. In addition, on November 4, 1996 the Company issued Intel Corporation a warrant to purchase 1,000,000 shares of common stock at the lower of $1.75 or 75% of the fair market value of common stock on the date of exercise. The warrant expired on November 4, 1998. Intel Corporation paid the Company a nonrefundable payment of $150,000 for this warrant. The payment has been reflected as additional paid-in capital in the accompanying consolidated statements of stockholders' deficit. The Company issued AGE a warrant to purchase 1,000,000 shares of common stock at the lower of $1.75 or 75% of the fair market value of the offering price to underwriters (net of underwriting discounts) of the common stock pursuant to the first underwritten public offering by the Company. The warrant expires on October 8, 2000. F-39 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 5 - STOCK OPTION PLANS AND WARRANTS (CONTINUED) UNGERLEIDER WARRANT In April 1998 the Company borrowed $167,000 from Dr. Bruce Ungerleider which was converted into 835,000 shares of MSH common stock. In June 1998, the Company borrowed $500,000 from Dr. Bruce Ungerleider in exchange for a convertible note and two warrants to purchase stock in the Company. The note bears interest at the annual rate of 20% and is convertible into MSH stock at a stock price of $.25 per share for one year from the date of issue. In addition, the note is secured by 20% of any gross revenue earned by the Company from its computer animation software generally referred to as "Jethro". In addition, as an inducement to make the loan, Dr. Ungerleider is to receive 1,000,000 shares of restricted stock in MSH, and 10% of the stock in Happy Zone Entertainment (a subsidiary of MSH). Dr. Ungerleider also received an additional warrant to purchase 1,300,000 shares of common stock exercisable on the same terms as the Intel warrant which expired in November 1998. Due to the expiration of the Intel warrant in November 1999, the warrant to Dr. Ungerleider was reissued for 1,000,000 shares for a period of seven years from the issuance at the price of $1.75 per share. The agreement provides for payment of the stock at the time of exercise to be in cash or a combination of cash and cancellation of any remaining balance of the debt. An alternative to the payment terms is to exercise the warrant for a reduced amount of shares of common stock for no payment based upon a formula. The formula takes the fair market value of stock at the time of exercise less the exercise price divided by the fair market value of the stock at the time of exercise multiplied times the 1,000,000 share warrant. The debt and warrant agreement also includes an antidilutive provision. If the Company's issued and outstanding shares of common stock exceed 30,000,000 shares, Dr. Ungerleider has the right to receive warrants to purchase additional shares to maintain his percentage of ownership in the company at a price of 15% less than the selling price for all shares sold by the Company after the time the total outstanding shares exceed 30,000,000. The percentage of ownership is to be determined by adding all shares owned and shares represented by warrants and convertible shares of Dr. Ungerlieder at the date of exercise divided by the total outstanding shares as of the date of the loan.. The percentage is anticipated to range from 10.5 % to 21.87%. The Company's number of common stock shares issued and outstanding reached the 30,000,000 threshold approximately in July 1998. At October 31, 1999, the amount of additional shares available under the antidilutive feature to the agreement is approximately 9,760,000. To date, no warrant has been issued for the antidilutive shares. F-40 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 6 - RELATED PARTY TRANSACTIONS DUE FROM STOCKHOLDER The Company's Chief Executive Officer has maintained an operating bank account for the purpose of depositing investor funds and making various expenditures on behalf of the Company. At October 31, 1999, the balance retained in that account was shown as an due from Stockholder. The balance was used to pay various Company expenses by the end of 1999. The Company also has recorded accrued compensation to the CEO in excess of that amount which may be offset against the funds retained in excess of expenses. ADVANCES TO SHAREHOLDERS OF AGE The Company is negotiating to purchase an interest in Abrams/Gentile Entertainment Inc., as described in Note 11. Pursuant to the negotiations, the Company has advanced approximately $2,300,000 in cash and $4,400,000 in stock to the stockholders of AGE. At the current time, the amount of interest in AGE that will be purchased by the Company is not determinable. Management is of the opinion that at least 20% of AGE will be obtained as a result of these negotiations. The amount of the advances that will be retained or applied to the acquisition price is not determinable. Therefore, the entire advance has been reflected as a non-current investment. DUE TO STOCKHOLDERS AND OFFICERS Due to stockholders consists of various loans from stockholders which are still outstanding at October 31, 1999. In addition, officers have loaned minor amounts to the Company during the year and have been repaid before October 31, 1999 without interest. NOTE 7 - INTEL AGREEMENT In November, 1996, the Company executed an agreement with Intel Corporation to cooperate in the development and distribution of a new animation management technology (JETHRO) that will be used in the management of production of episodic television shows. The system would update on a daily basis, workloads, actual versus budget, and track the project. It would combine the software technology developed by the Company with the microprocessor capability of Intel. No activity has occurred to date on this joint venture. F-41 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 8 - VAN-PIRES/AGE AGREEMENT In November, 1996, the Company entered into a strategic product development agreement with Abrams/Gentile Entertainment, Inc. (AGE). Under the agreement, the Company acquired the rights to produce a children's TV series entitled Van-Pires and potential revenue from related toys and merchandising. AGE received a warrant to purchase 1,000,000 shares of the Company's stock. The agreement provided for AGE and the Company to initially commit $1,300,000 and $650,000, respectively for the production of thirteen episodes of Van-Pires. After AGE recouped its initial investment from the revenues received by AGE from the broadcast of the series, video licenses and sales the Company will recoup its costs and then share revenue from the licensing activities related to the series as follows: - 5% of net advertising revenue - 1% of domestic net toy revenue - 2% of international net toy revenue - 2% of net merchandising revenue The first 13 episodes were aired during 1998 in primary markets in the United States. As of December 1999, the Company has not received any revenue as a result of this agreement, however, AGE has received approximately $2,000,000 which has been offset against the AGE share of expenditures under the agreement. In addition, the Company has received an advance of approximately $100,000 in 1998 toward the production of toys using the Van-Pires characters as a theme. NOTE 9 - EMPLOYMENT AGREEMENTS During 1996, the Company entered into employment agreements with three officers of the Company and the former president of East End. The employment agreements were revised effective January 1, 1999 and include all four officers of the Company. The employment agreements also provide for certain incentive compensation fringe benefits and expense reimbursements. NOTE 10 - BITSA AGREEMENT On March 3, 1997, the Company entered into an agreement with BITSA Talent, Inc. ("BITSA") to provide musical compositions and lyrics for thirteen episodes of the television series entitled "Van-Pires." Significant provisions of this agreement are as follows: - Payment of $100,000 to BITSA. - Royalty payments of 16% of the soundtrack album suggested retail list price of all copies sold. - Royalty payments of 50% of music video net revenues. - Royalty payments of 60% of home video net revenues. - Royalty payments of 60% of the Company's receipts of license fees, if any, from third parties. To date no revenues have been received under the BITSA contract. F-42 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 11 - INVESTMENT IN AGE AND FREEDOM MULTI MEDIA, INC. The Company is in the process of negotiating an agreement with Anthony and John Gentile whereby they will sell an amount (approximately 20%) of their ownership in Abrams/Gentile Entertainment Inc.(AGE) and become members of the Board of Directors of MSH and also become creative directors of MSH in exchange for 8,971,430 shares of MSH restricted stock. The allocation of the shares is approximately 75% for their shares in AGE, 12.5% for becoming a Director and 12.5% for becoming a creative director in MSH. The shares of MSH with a value of approximately $3,000,000 were issued in May 1999 to the Gentile's pending finalization of the agreement. The Company is also in the process of negotiating an agreement with Marty Abrams regarding acquisition of his majority ownership in AGE. As of December 31, 1999, the Company has paid Abrams approximately $2,300,000 in cash toward this agreement. In addition, through 1999, the Company has issued approximately 3,500,000 shares of MSH stock valued at approximately $1,200,000. The stock and payments total approximately $6,800,000 and are reflected as an investment as of October 31, 1999. In addition, the Company has agreed to purchase approximately 18% of Freedom Multimedia, LLC (Freedom) for approximately $750,000. The balance of Freedom is owned by AGE shareholders and will produce and manufacture the patented "Flex-sensor" used in the Power Glove Virtual Reality (VR) Technology. The Company currently has a joint venture agreement with AGE for the production of the animated TV show entitled Van-Pires (See Note 8). Freedom is in the process of negotiating with a third party to invest approximately $5,000,000 for 50% of Freedom's stock. The proposed transaction would reduce the ownership interest of MSH to approximately 9.375%. The invested funds would be used to further develop and exploit the Power Glove. AGE is a well-respected independent toy development and merchandising company. MSH and AGE have co-produced the Van-Pires animated television series and are working together on other creative projects in various joint venture arrangements. F-43 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 12 - MUSIC DIVISION In 1998, the Company created a music division that signed various contracts with artists and agents to develop several single records and albums such as Van-Pires (sound track), Cowboy Attitude (album), T. G. Sheppard Live (album) Nothing on But The Radio (album), and Freedom (album). The Company does not currently have a definite source of revenue for its music properties. All costs associated with the music division have been expensed. The Company has expended approximately $1,090,000 in the music division. NOTE 13 - AGREEMENT WITH ETC...GROUP The Company entered into a strategic alliance with "etc...group" (etc) dated November 19, 1998 whereby etc will provide video production services for jointly developed projects. The revenue from such jointly developed projects are to be split 60% for etc. and 40% for MSH with other arrangements for cost sharing depending on the particular project. NOTE 14 - CANNON RECORDS MASTER LICENSE AGREEMENT The Company signed a master license agreement on July 1, 1997 with Cannon Records whereby the Company obtained all rights to a list of approximately 106 Ike and Tina Turner recordings made prior to that date. The agreement called for a payment $37,500 plus a 6% royalty and is for a term of ten years. NOTE 15 - LAWSUITS AND LEGAL PROCEEDINGS OUTWEST ENTERTAINMENT In 1998 the Company settled a claim by Outwest Entertainment (Outwest) in the amount of $225,000 for services in connection with the development of various music albums. The settlement calls for monthly payments of approximately $45,000 plus interest at the rate of 10% over six months. In addition to the agreement to pay $225,000 the Company has transferred its rights in the albums produced by T.G Sheppard to Outwest. POZNER The Company is a defendant in an action filed by Robert Pozner alleging breach of contract seeking to recover $200,000 and the value of 500,000 shares of MSH common stock as valued at July 1997. The company has recorded a liability for $200,000 due to Mr. Pozner and the Company's legal counsel has determined that any additional amount potentially due is not quantifiable or probable at the current time. The Company's legal counsel is in the process of filing responses to the pleading and a counterclaim. F-44 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 16 - INCREASE IN AUTHORIZED COMMON SHARES In February 1999, the Company increased the number of authorized common shares from 50,000,000 to 150,000,000. NOTE 17 - FINANCING The Company has utilized various private placements, 504 offerings and convertible debt issues for financing. The Company has relied on exemptions provided by Regulation D and Section 4(2) under the Securities Act of 1933 for its offerings. NOTE 18 - INVESTMENT BANKING AGREEMENTS WALLSTREET M&A The Company signed a two-year investment banking agreement with Wallstreet M&A (Wallstreet) in June 1999 whereby Wallstreet is to obtain financing for various acquisitions including AGE and to assist the Company in being listed on the American Stock Exchange. The agreement provides for a monthly retainer of $5,000 and an initial payment of 100,000 shares of MSH restricted stock. In addition, Wallstreet will receive an additional 120,000 shares of stock if they are successful in achieving the listing on the American Exchange. To date, no financing has been obtained by Wallstreet for MSH. NOTE 19 - ION AGREEMENT In May 1998, the Company entered into a joint venture with AGE and ION Entertainment Inc. for the production, development and marketing of a TV series and related merchandise and toy line entitled "Warrior Woman". The revenues from the project are to be shared pari passu by the parties with a projected budget of $122,000 by ION and $133,000 by AGE/MSH. After the initial recoupment and revenue sharing, the future revenues are to be split between ION and AGE/MSH on the basis of 60% to ION and 40% to AGE/MSH for toys, merchandising and home video and 70% for ION and 30% for AGE/MSH for television. The funds for the project are to be deposited into a joint venture bank account maintained by MSH. As of December 31, 1998, no material activity has occurred regarding this project and the project is dormant. As of December 1999 ION has ceased operations and the rights to the project reverted to the Company. F-45 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 20 - THIS ONE N' THAT ONE The Company has a joint venture agreement with AGE and Film Roman Inc. (FRI) to develop, produce and distribute various TV, music, toy and merchandise projects based upon a concept and books created by JJK Publishing (JJK) entitled This One n' That One. The arrangement is to share in the costs and revenues of financing and developing animated TV episodes, merchandise and toys. The project has had early development activity with minimal cost expenditure as of December 1999. The future date for airing this show has not currently been set. NOTE 21 - ASTON ACQUISITION In October 1999, the Company agreed to purchase 20% of the common stock of Aston Entertainment for $430,000 in cash and 1,535,714 shares of MSH common stock. In addition, Aston has been granted an option to purchase 6,142,857 shares of MSH Common stock for $.14 per share. The payments are to begin on October 22, 1999 and conclude in March 2000. In addition, certain principals in the Aston Company have agreed to provide funding services directly to MSH and KIDS on a commission basis. The Company is currently negotiating to increase its ownership in Aston by an additional 15%. As of October 31, 1999, The Company had advanced $52,500 toward the Aston investment. NOTE 22 - LEASES During 1999, the Company signed a lease on approximately 6,000 square feet of office space in New York City for approximately $10,300 per month which it has remodeled and occupies approximately 2,000 square feet. The balance of the space is being rented to other companies in the entertainment business. The Company has moved its California operations from San Francisco to Sausalito, California, where it is renting approximately 400 square feet from a related company, Kids and Family, Inc. (KIDS) for $750 per month. NOTE 23 - KIDS AND FAMILY NETWORK, INC. Kids and Family Network, Inc. (KIDS) was formed in 1999 and is owned 83% by MSH and 17% by officers and directors. KIDS is a company formed to be an online entertainment network for kids via the Internet. NOTE 24 - SUBSEQUENT EVENTS PRITCHARD CONSULTING AGREEMENT The Company's subsidiary, KIDS has agreed to a consulting agreement with David Pritchard commencing on December 12, 1999 for a period of one year renewable at the discretion of the parties. The compensation is to be at the annual rate of $350,000 plus an initial payment of one million shares of restricted MSH common stock. Mr. Pritchard has also agreed to serve on the Board of Directors of MSH and as a consultant for MSH. F-46 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 24 - SUBSEQUENT EVENTS (CONTINUED) KING/FROMKIN AGREEMENT The Company has signed an agreement with King/Fromkin (King) as of November 17, 1999 whereby King will provide talent-packaging services to MSH. King is to receive 100,000 shares of restricted MSH stock for these services initially and an additional 100,000 shares one-year from the date of the agreement based upon performance as determined by MSH. King may also act as co-producer or co-executive producer for which he would receive additional compensation to be determined on a project by project basis. NOTE 25 - PROPERTY AND EQUIPMENT The major components of property and equipment consist of the following as of October 31: 1999 1998 ------------ ---------- Furniture and fixtures $ 16,407 $ 11,443 Office equipment 87,648 412,891 Computer equipment 404,788 - Leasehold improvements 219,300 5,821 ------------ ---------- 728,143 430,155 Less: Accumulated depreciation (262,380) (159,050) ------------ ---------- $ 465,763 $ 271,105 ============ ========== Depreciation expense charged to operations during 1999 and 1998 was $87,755 and $77,873, respectively. NOTE 26 - LEASE COMMITMENTS During 1998, the Company leased office space for its headquarters in San Francisco, California. The lease commenced on June 27, 1997 and expired on June 27, 1998. The lease required monthly payments of $8,468. The Company also leases production facilities in Santa Monica, California for $2,185 per month. The lease commenced on January 15, 1997, expires on January 14, 1999. A portion of the production facility was sublet at a rate of $1,000 per month. In addition, the Company leased various production equipment under a master lease agreement. This agreement terminates January 15, 1999. The monthly lease payment is $2,419 and is capitalized as part of Van-Pires project. F-47 MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 AND 1998 (UNAUDITED) NOTE 26 - LEASE COMMITMENTS (CONTINUED) Rent expense for the years ended October 1999 and 1998 was $165,887 and $120,723, respectively. In January 1999, the Company signed a five year lease for office space in New York. The lease requires monthly payments of $10,000 per month and will be adjusted annually for changes in the CPI. The Company has sublet some of the space and collects $10,400 in rent income per month under these subleases 30 percent of the income received under an 18 month sublease. The remaining rent income is received pursuant to a three year sublease. The Company also has a month to month agreement to rent office space in Sausalito, California for $750 per month. F-48 EX-2.1 2 RESTATED ARTICLES OF INCORPORATION OF MSH AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MSH ENTERTAINMENT CORPORATION Robert P. Maerz and Michael Welsh certify that: 1. They are the Chief Executive Officer and Secretary, respectively, of MSH Entertainment Corporation, a Utah corporation. 2. Pursuant to Section 16-l0a-1007 of the Utah Revised Business Corporation Act, the Articles of Incorporation of the corporation are hereby amended and restated in their entirety to read as follows: ARTICLE I NAME The name of the corporation is MSH Entertainment Corporation. ARTICLE II PURPOSES AND POWERS The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the Utah Revised Business Corporation Act and any amendments thereto. ARTICLE III AUTHORIZED SHARES The Corporation is authorized to issue two classes of shares, designated as "Common Stock" and "Preferred Stock". The number of shares of Common Stock the corporation is authorized to issue is One Hundred Fifty Million (150,000,000), and the number of shares of Preferred Stock the corporation is authorized to issue is Twenty-Five Million (25,000,000). The classes, par value, designations, preferences, voting rights, dividends, convertibility, redeemability, and the right to participate in the proceeds of liquidation shall be determined by the Board of Directors of the Corporation from time to time, prior to the issuance of shares of Preferred Stock. ARTICLE IV OFFICER AND DIRECTOR LIABILITY (a) Except as otherwise required by Utah law, the corporation shall indemnify and advance expenses to its directors, officers, employees, fiduciaries or agents and to any person who is or was serving at the corporation's request as a director, officer, partner, trustee, employee, fiduciary or agent of another domestic or foreign corporation or other person or of an employee benefit plan (and their respective estates or personal representatives) to the fullest extent as from time to time permitted by Utah law. (b) The personal liability of the directors and officers of the corporation to the corporation or its shareholders, or to any third person, shall be eliminated or limited to the fullest extent as from time to time permitted by Utah law. (c) Any repeal or modification of this Article IV by the shareholders of the Corporation shall not adversely affect any right or protection of any person existing at the time of such repeal or modification. 3. The foregoing amendment and restatement has been approved by the Board of Directors of the corporation. 4. The foregoing amendment and restatement has been duly approved by the required vote of shareholders of the corporation in accordance with Section 16-lOa-1003 of the Utah Revised Business Corporation Act. The only outstanding capital stock of the corporation is Common Stock. The total number of shares of Common Stock outstanding is 44,728,290. The number of shares entitled to be cast on the amendment is 44,728,290, and the total number of shares voted in favor of the amendment and restatement is 23,294,516, which was sufficient for the approval of the amendment and restatement. We further declare under penalty of perjury under the laws of the State of Utah that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: May 3, 1999 /s/ Robert P. Maerz -------------------------------------------- Robert P. Maerz, Chief Executive Officer /s/ Michael L. Welsh -------------------------------------------- Michael Welsh, Secretary EX-2.2 3 BYLAWS OF MSH BYLAWS OF MSH ENTERTAINMENT CORPORATION I. OFFICES The principal office of the corporation in the State of Utah shall be located in the City of Salt Lake, County of Salt Lake. The corporation may have such other offices, either within or without the State of Utah, as the Board of Directors may designate or as the business of the corporation may require from time to time. II. SHAREHOLDERS SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be held in January of each year, at such time on such day within such month as shall be fixed by the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. SECTION 2. Special Meetings. Special meetings of the shareholders, for any purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board of Directors, the President or by the Board of Directors, and shall be called by the President at the request of the holders of not less than 30% of all outstanding shares of the corporation entitled to vote at the meeting. SECTION 3. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Utah, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. SECTION 4. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purposes or purpose for which the meeting is called, shall, unless otherwise prescribed by statute, be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the officer or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. 1 SECTION 5. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period, not less than ten (10) days, but not to exceed, in any case, fifty (50) days. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty (50) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. SECTION 6. Voting Record. The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete record of the shareholders entitled to vote at each meeting of shareholders or any adjournment thereof. SECTION 7. Quorum. A majority of the outstanding shares of the corporation entitled to vote represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. SECTION 8. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. SECTION 9. Voting of Shares. Each outstanding share entitled to vote shall have the voting rights specified in the Articles of Incorporation of the corporation. SECTION 10. Informal Action by Shareholders. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof III. BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors. SECTION 2. Number, Tenure and Qualifications. The number of directors of the corporation shall be seven (7). Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. Directors need not be residents of the State of Utah or shareholders of the corporation. SECTION 3. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Utah, for the holding of additional regular meetings without other notice than such resolution. 2 SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board of Directors, the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Utah, as the place for holding any special meeting of the Board of Directors called by them. SECTION 5. Notice. Notice of any special meeting shall be given at least two (2) days previously thereto by written notice delivered personally or mailed to each director at his business address or at least one (1) day previously thereto by actual telephonic notice to each director. Such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid, if by mail, or at the time the call is completed, if by telephone. Any director may waive notice of any meeting. The attendance of a director of a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 6. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 8. Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. SECTION 9. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the Board of Directors for a term of office continuing only until the next election of directors by the shareholders. SECTION 10. Compensation. By resolution of the Board of Directors, each director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3 IV. OFFICERS SECTION 1. Number. The officers of the corporation shall be the Chairman of the Board of Directors, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person. SECTION 3. Removal. Any officer or agent may be removed by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and, subject to its direction, shall perform such acts on behalf of the corporation as he or she determines are appropriate. SECTION 6. Chief Executive Officer and President. The President and the Chief Executive Officer shall be the principal executive officers of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. The Chief Executive Officer shall, when present, preside at all meetings of the shareholders and shall also preside at meetings of the Board of Directors in the absence of the Chairman of the Board of Directors or at the request of the Chairman. The Chief Executive Officer, and the President, either acting alone, may sign any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 7. Vice President. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents, in the other designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may perform such other duties as from time to time may be assigned to him or her by the President or by the Board of Directors. SECTION 8. Secretary. The Secretary (and any Assistant Secretary) shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporation records and of the seal of the corporation; (d) keep a register of the address of each shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all of the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or by the Board of Directors. 4 SECTION 9. Treasurer. The Treasurer shall (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be determined by the Board of Directors; and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President or by the Board of Directors. SECTION 10. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or Treasurer or by the President or the Board of Directors. SECTION 11. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. SECTION 12. Signature of Checks. Payment for corporate debts made by check or check vouchers may be signed by any of the officers of the corporation, or otherwise as the Board of Directors may from time to time by resolution direct. V. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President or Vice President and by the Secretary or an Assistant Secretary and sealed with the corporate seal or facsimile thereof if such seal has been adopted by the Board of Directors. SECTION 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 5 VI. DIVIDENDS The Board of Directors may, from time to time, declare and the corporation may pay dividends on its outstanding shares in the manner, and upon the terms and conditions provided by law and its Articles of Incorporation. VII. CORPORATE SEAL The Board of Directors may provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, "Corporate Seal." VIII. WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Utah Business Corporation Act, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. IX. AMENDMENTS These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors or by the shareholders at any regular or special meeting. X. INDEMNIFICATION To the full extent permitted by its Articles of Incorporation and by the Utah Business Corporation Act, the Corporation shall indemnify (and advance expenses to) its directors, officers and employees in connection with any action, suit, or proceeding, civil or criminal, to which such persons are made party by reason of being or having been a director, officer or employee of the Corporation. Additionally, the Corporation shall provide such indemnification of, and advancement of expenses to, such of its agents as the Board of Directors of the Corporation shall, from time to time, deem necessary, required or appropriate. 6 CERTIFICATE OF ASSISTANT SECRETARY OF MSH ENTERTAINMENT CORPORATION a Utah Corporation The undersigned, Assistant Secretary of MSH Entertainment Corporation, a Utah corporation, hereby certifies that attached hereto are the Bylaws of MSH Entertainment Corporation, duly adopted by the Board of Directors of the corporation, and such Bylaws are now in effect and have not been amended or rescinded. IN WITNESS WHEREOF, I have hereunto set my hand this __ day of September, 1998. /s/ Michael L. Welsh ------------------------------------------ Michael L. Welsh, Assistant Secretary 7 EX-6.1 4 EMPLOYMENT AGREEMENT - ROBERT P. MAERZ EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of January, 1999, by and between MSH Entertainment Corporation, its affiliates and subsidiaries (collectively the "Company"), as employer, and Robert P. Maerz (the "Executive") as a key employee of the Company. Preliminary Statements: A. The Executive possesses intimate knowledge of the business and affairs of the Company, its policies, methods and personnel. B. The Board of Directors of the Company (the "Board") recognizes that the Executive has contributed to the growth and success of the Company and desires to assure the Company of the Executive's continued employment and to compensate him therefore. C. The Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company. D. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth. Agreements: NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein, the parties agree as follows: 1. Employment. 1.1 General. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and subject to the conditions set forth herein. 1.2 Duties of Executive. During the term of this Agreement, the Executive shall serve as the Chairman-of-the-Board of Directors and the Chief Executive Officer ("CEO") of the Company, and shall diligently perform all the services as may be assigned to him by the Board, and shall exercise such power and authority as may from time to time be delegated to him by the Board. Executive shall have full control over all aspects of Company and will be entitled to engage in all the activities of the Company's creative and business activities. The Executive agrees to devote a reasonable amount of his time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his best efforts to promote the interests of the Company. 2. Term. 2.1 Initial Term. The initial term of this Agreement and the employment of the Executive hereunder shall be for the three (3) year period commencing on the date of the execution of this Agreement (the "Initial Term"), unless sooner terminated in accordance with the terms and conditions hereof. 2.2 Renewal Terms. The Initial Term of this Agreement, and the employment of the Executive hereunder, may be renewed and extended for an additional two (2) years at the election of Executive and for such additional periods as may be mutually agreed to by the Company and the Executive in a written supplement to this Agreement signed by the Executive and the Company (the "Written Supplement"). 3. Compensation. 3.1 Base Salary. The Executive shall receive a base salary at the annual rate of One Hundred and Seventy-Five Thousand Dollars ($175,000.00) (the "Base Salary") during the Initial Term of this Agreement, with such Base Salary payable, in installments consistent with the Company's normal payroll schedule, subject to applicable withholding and other taxes. If the term of this Agreement shall be renewed and extended as provided in Section 2.2 hereof, then during such renewal term of his employment hereunder the Executive shall be paid an increased base salary as set forth in the Written Supplement. Such base salary shall be increased each year the amount of which shall be made as per mutual agreement of the Executive and Company, to account for cost of living increases and in no event will the increase be less than prevailing COLA Index (U.S. Government "Cost of Living Allowance" Index) to account for cost of living increases and shall be made regardless of any incentive compensation. 3.2 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation (the "Incentive Compensation") based on performance which shall be no less than that of any other key employee and shall be a percentage of the Company's adjusted gross profits at the end of each calendar year during the term of the Executive's employment hereunder. (b) For purposes of this Agreement, the amount of the Incentive Compensation payable with respect to any calendar year (net of any tax or other amount properly withheld therefrom) shall be paid by the Company to Executive upon completion of the year end audited financials which is not to exceed One Hundred and Twenty Days (120) after the end of the calendar year; provided, however, that any amount paid shall be subject to increase or decrease based upon the results of review of the financial statements with respect to such year. 4. Expense Reimbursement and Other Benefits. 4.1 Expense Reimbursement. The Executive shall be entitled to reimbursement by the Company for all reasonable business expenses incurred by him in connection with the performance of his duties hereunder, provided however, that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with Company policy and based on the guidelines currently set for the Company by either the Chief Operating Officer and/or the Chief Financial Officer of the Company. 4.2 Insurance. The Executive shall be entitled to participation in all medical, hospitalization, disability and group life insurance plans, and any and all other employee benefit plans, as are hereinafter provided by the Company to its executives. Additionally, Executive shall be provided with a "key man" insurance policy which shall an amount that is no less than any other key executive of the Company, effective within a reasonable time after receiving the results of a doctor's physical. 4.3 Vacation. The Executive shall be entitled to four (4) weeks paid vacation per year in accordance with the Company's prevailing policy for its executives; provided, however, that in no event may a vacation be taken when to do so could reasonably be expected to materially and adversely affect the Company's business. 4.4 Automobile. The Company shall lease, in the Company's name, an automobile ("Leased Vehicle") for the Executive's use during the term of this Agreement. The Leased Vehicle shall be comparable to and shall not exceed the monthly lease payment of Six Hundred and Twenty ($620) a month. Additionally, Company shall provide a gasoline credit card which shall be used for fuel related business expenses only, and shall not be used for any repairs to the Leased Vehicle, that responsibility of the Executive. One monthly parking space, estimated to be $283 per month, for the Executive shall be provided in an indoor garage within walking distance to the office, for the term of this Agreement. All business related tolls shall be reimbursed. In the event Executive elects not to utilize a "leased vehicle" as outlined above, Company shall pay Executive an amount equal to above to be utilized towards business expenses to be determined by the Executive's sole discretion. 4.5 Living Allowance. Executive shall receive a living allowance ("Living Allowance") commencing on the date of signing this Agreement in the amount of Fifty Thousand Dollars ($50,000) annually. Said Living Allowance shall be payable on the first day of each month thereafter in the amount of Four Thousand One Hundred and Sixty-Seven Hundred Dollars ($4,167.00) per month. 4.6 Corporate Credit Card. The Executive shall be provided with an American Express Corporate charge card which shall be utilized solely for Company business with full disclosure written on each customer's copy receipt as to the nature of the business expenditure. 4.7 Board Of Directors. The Executive shall maintain his position as the Chairman of the Board for the term of the Agreement and shall be elected to each committee of the Board of Directors. Additionally, Executive shall be considered key management, responsible for implementing and carrying out the policies of the Company. 4.8 Stock Options. Executive shall be granted stock options on the date hereof, the amount pursuant top the Option Agreement hereto and shall participate in the stock-option plan of the Company whereby additional stock options may be granted to Executive by the Board of Directors depending upon the performance of the Executive and the Executive shall be entitled to receive the maximum level of stock options granted any executive of the Company. 4.9 Retirement Fund. Company shall take part in the key man retirement fund of the Company, which has been instituted for the Executive and Company shall contribute to and maintain said fund for the duration of Executive's employment hereunder. 4.10 Directors Insurance. Company shall provide Executive with Director's and officer's insurance in the minimum amount of Two Million Dollars ($2,000,000) within ten (10) business days after executing this Agreement. 4.11 Right To Bind. Executive shall be granted signing rights and approval rights on any and all legal documents and contracts of the Company, it being agreed that any two (2) of the following individuals be the only corporate officers allowed to sign for and bind the Company, they being the Executive (Robert Maerz), Jonathan Stathakis, John Gentile, Anthony Gentile and/or Mike Welsh. 4.12 Check Signing. Executive shall be one (1) of five (5) executives granted check signing power, the others being Robert Maerz, Anthony Gentile, Mike Welsh and Fred Aurelio; however, it being agreed to that all checks over Ten Thousand Dollars ($10,000.00) have dual signatures, one of them being the Chief Financial Officer of the Company, unless agreed to otherwise. 4.13 Legal Fees. The Company shall pay the legal fees of the Executive, if any, incurred in connection with this Agreement, it being agreed by the parties hereto that said legal fees shall not exceed $10,000. 4.14. Producer. Executive shall be entitled to be a paid producer, supervising producer and/or executive producer and/or writer fees from any and all programs that the Executive's services are requested. Said fees shall be set by the budgetary guidelines for each production and shall not exceed industry standards and in many cases may be below industry standards. It is not the intent of the Company to have the Executive produce specific programs, but only those which the Executive may be requested to produce and/or executive producer by a broadcaster, distributor, buyer, production partner and/or joint venture partner. 4.15 Moving Expenses. Company shall pay the moving expenses of the Executive from Executive's current place of residency to the required place of residency in New York for the performance of the Executive's duties, said moving expenses are not to exceed the total sum of Six Thousand Dollars ($6,000.00). If Executive elects to maintain a residence in both New York and Los Angeles in conjunction with Executive's duties hereunder, Company shall only be obligated to move the Executive's belongings, or partial belongings, whatever the case may be, one time only and to one coast only. 4.16. Major Medical. Executive shall be provided with major medical insurance unless Executive elects to retain his current insurance whereby Company agrees to pay for same as long as the amount paid by Company does not exceed any sum paid for major medical insurance for any senior executive of the Company. Any amount over and above shall be borne by and be the responsibility of the Executive. 4.17. Other Benefits. Notwithstanding the foregoing, the Executive shall be entitled to any additional employee benefits which are no less favorable than those currently in operation in the Company. 5. Termination. 5.1 Termination For Cause. The Company shall at all times have the right, upon written notice with a reasonable opportunity to cure any such breach by the Executive, to terminate the Executive's employment hereunder for cause (as hereinafter defined). For purposes of this Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of any of the material terms or provisions of this Agreement; (b) the charging or indictment of the Executive in connection with a felony, (c) commission by the Executive of an act or acts involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or dishonesty against property or personnel of the Company; or (d) willful or reckless conduct by the Executive which the Board in good faith determines could reasonably be expected to have a material adverse effect on the business, assets, properties, results of operations, financial condition or prospects of the Company. Upon any termination pursuant to this Section 5.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability under this Agreement (other than for the reimbursement for reasonable pre-approved business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). 5.2 Disability. The Company shall at all times have the right, upon written notice to the Executive, to terminate the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability become unable to perform his duties hereunder for in excess of ninety (90) calendar days in any twelve (12) month period. Upon any termination pursuant to this Section 5.2, (a) the Company shall pay to the Executive (I) immediately any unpaid amounts of his Base Salary accrued through the effective date of termination plus 12 months base salary, (ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of the calendar year through the date of termination, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). 5.3 Death. In the event of the death of the Executive during the term of his employment hereunder, (a) the Company shall pay to the estate of the deceased Executive (I) immediately any unpaid amounts of his Base Salary accrued through the date of death, (ii) one year's living expenses, plus (ii) in accordance with Section 3.2(b), an amount equal to the Incentive Compensation, if any, payable to him in respect to the calendar year of the Company in which such death occurs, prorated for the period of service by the Executive from the beginning of such calendar year through the date of his death, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable pre-approved business expenses incurred prior to the date of the Executive's death, subject, however, to the provisions of Section 4.1). All stock ownership rights and stock-options vested at the time of death shall inure to the Estate of Executive. Heirs of Executive shall have the same time frame to exercise options as the Executive had, had he been still living. Said stock, stock-options and/or warrants shall not entitle the heirs of Executive to any management voting rights in the Company, but all beneficial and financial rights shall vest in the heirs accordingly. 5.4 Resignation By Executive. Executive is required, and agrees, to give the Company a two (2) month notice prior to such resignation or voluntary termination of his employment, the purpose of which is to allow the Company ample time to locate a senior management replacement for the Executive's vacant position. Executive shall have the right to terminate for "good cause," for example, an occurrence whereby there is a change of control within the Company and/or the Company defaults on any payment. Should the default not be remedied after a 14 day cure period, Executive shall receive 10% of the Company as liquidated damages. 6. Restrictive Covenants. 6.1 Non-competition. Except as provided in Section 1.2 and with the Company's knowledge and acceptance that Executive has an ownership in other projects previously created prior to the date of this Agreement between Executive and other third parties, Executive, while employed by the Company and during the Non-competition Period (as hereinafter defined), the Executive, except as previously indicated, shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, partnership, corporation or business or any other person or entity (whether as an employee, officer, director, partner, agent, security holder, creditor, consultant or otherwise) that directly or indirectly engages in any type of entertainment production, business, marketing, computer or cell animation, graphics, distribution, producing, writing, directing and/or manufacturing of any type of entertainment product including, but not limited to, toys, records, videos, CD-ROM and merchandising items anywhere throughout the universe. For purpose of this Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's employment is terminated pursuant to Section 5.4 above, the period beginning on the effective date of resignation and ending one (1) year thereafter. Because such mandatory restrictive covenants are being placed on the Executive, the Company shall pay the Executive's base salary hereunder for a period of twelve (12) months after termination of employment. 6.2 Nondisclosure. The Executive shall not divulge, communicate, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret information, confidential business information, proprietary technology, internal financial statements or any and all other sensitive data now known or hereafter acquired by the Executive with respect to the business of the Company (which shall include, but not be limited to, information concerning the Company's financial condition, prospects, customers, sources of leads, methods of doing business, and the manner of design, manufacture, financing, marketing and distribution of the Company's productions) shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company with respect to all such information. 6.3 Books and Records. All books, records and accounts relating in any manner to the business, customers, suppliers or clients of the Company and all other documents, disks, software or other items containing confidential information relating to the Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately, together with any copies, to the Company on the termination of the Executive's employment hereunder, or on the Company's request at any time. 6.5 Ownership of Inventions and Other Developments. Company shall be entitled to own and control all proprietary technology and all financial, operating and creative ideas, works, scripts, processes and materials, including works of expression and copyrights in such works, that are developed, written, or conceived by Executive during Executive's employment hereunder to the extent that they relate to Company's current or potential business. Accordingly, Executive will disclose, deliver, and assign to Company all such created works, inventions, discoveries, improvements, trade secrets and all works subject to copyright Executive agrees to execute all documents, patent applications, and arrangements necessary to further document such ownership such ownership and/or assignment and to take whatever other steps may be needed to give Company the full benefit of them. Executive agrees that all copyrightable materials generated or developed during the term of this Agreement shall be considered works made for hire under the copyright laws of the United States and that they shall, upon creation, be owned exclusively by the Company, and Company shall be entitled to register and hold in its own name all copyrights in respect to such materials. In regard to all properties conveyed or anticipated to be conveyed under this Agreement, in the event Company is dissolved or unable to meet its obligations under the stock purchase agreement, then all such works shall revert to Executive and Executive shall have first right of refusal to purchase all other works owned by Company. 7. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 6 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Executive recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 6 of this Agreement by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 8. Bankruptcy. In the event of bankruptcy of the Company, Executive shall have the first right of refusal, along with other key management, to purchase and acquire the key assets, underlying patents and copyrights owned and/or held by the Company at fair market value. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between and among the Executive, the Company and/or any of their affiliates with respect to the subject matter contained herein. Except for the obligation to pay any accrued but unpaid salary due the Executive, all such prior agreements, understandings and arrangements for the provision of services by the Executive to the Company and/or any of its affiliates and the compensation of the Executive in any form shall automatically terminate upon the consummation of the transactions contemplated by the Purchase Agreement, and each party shall thereupon and thereby, without any further action, release and forever discharge the other (and the other's affiliates) from any and all liabilities and obligations of any nature arising out of or in connection with any and all such prior agreements, understandings or arrangements. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive. 11. Notices. Any notice required or permitted to be given hereunder shall be deemed given when delivered by hand, by facsimile or three (3) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, (I) if to the Company, to the address of the Company's principal offices at 244 West 54th Street, 12th floor, New York, New York, 10019, (ii) to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other. 12. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise; provided, however, that under no circumstances may the Executive delegate his employment obligations hereunder or any portion thereof. 13. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 14. Waiver. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 15. Damages; Prevailing Party. Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. If there is any legal action or proceeding to enforce or interpret any provision of this Agreement or to protect or to establish any right or remedy of any party, the non-prevailing party to such action or proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorney's fees and costs, incurred by such prevailing party in such action or proceeding, in enforcing its judgment, and in connection with any appeal from such judgment Reasonable attorney's fees and costs incurred in enforcing any judgment or in connection with any appeal shall be recoverable separately from and in addition to any other amount included in such judgment. The prevailing party's rights under this Section 14 shall not merge into any judgment and shall survive until all such fees and costs have been paid. 16.Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 17. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 18. Subsidiaries. All reference to the "Company" in this Agreement, including but not limited to those in Section 6, shall be deemed to include any and all of the Company's direct and indirect subsidiaries to the extent the context may require. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. By: /S/ Jonathan Stathakis By: /S/ Robert P. Maerz -------------------------- ---------------------------- Company Executive It's: Jonathan Stathakis, Pres. Robert P. Maerz ----------------------- ---------------------------- Print Name Print Name 12020 Chandler Bl. 11205 3rd Ave. ----------------------------- ---------------------------- Address Address Ste. 300 Stone Harbor, NJ 08247 ----------------------------- ---------------------------- Address Address No. Hollywood, Ca 91607 Social Security # ###-##-#### ----------------------------- ---------------------------- EX-6.2 5 EMPLOYMENT AGREEMENT - JONATHAN STATHAKIS EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of January, 1999, by and between MSH Entertainment Corporation, its affiliates and subsidiaries (collectively the "Company"), as employer, and Jonathan G. Stathakis (the "Executive") as a key employee of the Company. Preliminary Statements: A. The Executive possesses intimate knowledge of the business and affairs of the Company, its policies, methods and personnel. B. The Board of Directors of the Company (the "Board") recognizes that the Executive has contributed to the growth and success of the Company and desires to assure the Company of the Executive's continued employment and to compensate him therefore. C. The Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company. D. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth. Agreements: NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein, the parties agree as follows: 1. Employment. 1.1 General. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and subject to the conditions set forth herein. 1.2 Duties of Executive. During the term of this Agreement, the Executive shall serve as the President, Managing Director and Chief Operating Officer ("COO") of the Company, and shall diligently perform all the services as may be assigned to him by the Board, and shall exercise such power and authority as may from time to time be delegated to him by the Board. Executive shall have full control over all aspects of Company and will be entitled to engage in all the activities of the Company's creative and business activities. The Executive agrees to devote a reasonable amount of his time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his best efforts to promote the interests of the Company. 2. Term. 2.1 Initial Term. The initial term of this Agreement and the employment of the Executive hereunder shall be for the three (3) year period commencing on the date of the execution of this Agreement (the "Initial Term"), unless sooner terminated in accordance with the terms and conditions hereof. 2.2 Renewal Terms. The Initial Term of this Agreement, and the employment of the Executive hereunder, may be renewed and extended for an additional two (2) years at the election of Executive and for such additional periods as may be mutually agreed to by the Company and the Executive in a written supplement to this Agreement signed by the Executive and the Company (the "Written Supplement"). Page 2 of 8 pages 3. Compensation. 3.1 Base Salary. The Executive shall receive a base salary at the annual rate of One Hundred and Seventy-Five Thousand Dollars ($175,000.00) (the "Base Salary") during the Initial Term of this Agreement, with such Base Salary payable, in installments consistent with the Company's normal payroll schedule, subject to applicable withholding and other taxes. If the term of this Agreement shall be renewed and extended as provided in Section 2.2 hereof, then during such renewal term of his employment hereunder the Executive shall be paid an increased base salary as set forth in the Written Supplement. Such base salary shall be increased each year the amount of which shall be made as per mutual agreement of the Executive and Company, to account for cost of living increases and in no event will the increase be less than prevailing COLA Index (U.S. Government "Cost of Living Allowance" Index) to account for cost of living increases and shall be made regardless of any incentive compensation. 3.2 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation (the "Incentive Compensation") based on performance which shall be no less than that of any other key employee and shall be a percentage of the Company's adjusted gross profits at the end of each calendar year during the term of the Executive's employment hereunder. (b) For purposes of this Agreement, the amount of the Incentive Compensation payable with respect to any calendar year (net of any tax or other amount properly withheld therefrom) shall be paid by the Company to Executive upon completion of the year end audited financials which is not to exceed One Hundred and Twenty Days (120) after the end of the calendar year provided, however, that any amount paid shall be subject to increase or decrease based upon the results of review of the financial statements with respect to such year. 4. Expense Reimbursement and Other Benefits. 4.1 Expense Reimbursement. The Executive shall be entitled to reimbursement by the Company for all reasonable business expenses incurred by him in connection with the performance of his duties hereunder, provided however, that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with Company policy and based on the guidelines currently set for the Company by the Chief Operating Officer and the Chief Financial Officer of the Company. 4.2 Insurance. The Executive shall be entitled to participation in all medical, hospitalization, disability and group life insurance plans, and any and all other employee benefit plans, as are hereinafter provided by the Company to its executives. Additionally, Executive shall be provided with a "key man" insurance policy which shall an amount that is no less than any other key executive of the Company, effective within a reasonable time after receiving the results of a doctor's physical. 4.3 Vacation. The Executive shall be entitled to four (4) weeks paid vacation per year in accordance with the Company's prevailing policy for its executives; provided, however, that in no event may a vacation be taken when to do so could reasonably be expected to materially and adversely affect the Company's business. Page 3 of 8 pages 4.4 Automobile. The Company shall lease, in the Company's name, an automobile ("Leased Vehicle") for the Executive's use during the term of this Agreement. The Leased Vehicle shall be comparable to and shall not exceed the monthly lease payment of Six Hundred and Twenty ($620) a month. Additionally, Company shall provide a gasoline credit card which shall be used for fuel related business expenses only, and shall not be used for any repairs to the Leased Vehicle, that responsibility of the Executive. One monthly parking space, estimated to be $283 per month, for the Executive shall be provided in an indoor garage within walking distance to the office, for the term of this Agreement. All business related tolls shall be reimbursed. In the event Executive elects not to utilize a "leased vehicle" as outlined above, Company shall pay Executive an amount equal to above to be utilized towards business expenses to be determined by the Executive's sole discretion. 4.5 Living Allowance. Executive shall receive a living allowance ("Living Allowance") commencing on the date of signing this Agreement in the amount of Sixty Thousand Dollars ($60,000) annually. Said Living Allowance shall be payable on the first day of each month thereafter in the amount of Five Thousand Dollars ($5,000.00) per month. 4.6 Corporate Credit Card. The Executive shall be provided with an American Express Corporate charge card which shall be utilized solely for Company business with full disclosure written on each customers copy receipt as to the nature of the business expenditure. 4.7 Board Of Directors. The Executive shall maintain his position as a member of the Board for the term of the Agreement and shall be elected to each committee of the Board of Directors. Additionally, Executive shall be considered key management, responsible for implementing and carrying out the policies of the Company. 4.8 Stock Options. Executive shall be granted stock options on the date hereof, the amount pursuant top the Option Agreement hereto and shall participate in the stock-option plan of the Company whereby additional stock options may be granted to Executive by the Board of Directors depending upon the performance of the Executive and the Executive shall be entitled to receive the maximum level of stock options granted any executive of the Company. Executive has and shall maintain an Eight Percent Equity (8%) interest in Company. Executive shall be granted additional options to, on a periodic basis, maintain this ownership level. 4.9 Liquidity Event. Executive shall be granted a "Liquidity Event" at least once per year to be able to sell stock as additional compensation. 4.10 Retirement Fund. Company shall take part in the key man retirement fund of the Company, which has been instituted for the Executive and Company shall contribute to and maintain said fund for the duration of Executive's employment hereunder. 4.11 Director's Insurance. Company shall provide Executive with Director's and officer's insurance in the minimum amount of Two Million Dollars ($2,000,000) within ten (10) business days after executing this Agreement 4.12 Right To Bind. Executive shall be granted signing rights and approval rights on any and all legal documents and contracts of the Company, it being agreed that any two (2) of the following individuals be the only corporate officers allowed to sign for and bind the Company, they being the Executive, Robert Maerz and Michael Welsh. Page 4 of 8 pages 4.12 Check Signing. Executive shall be one (1) of four (4) executives granted check signing power, the others being Robert Maerz, Mike Welsh and Fred Aurelio: however, it being agreed to that all checks over Ten Thousand Dollars ($10,000.00) have dual signatures, one of them being the Chief Financial Officer of the Company, unless agreed to otherwise. 4.13 Legal Fees. The Company shall pay the legal fees of the Executive, if any, incurred in connection with this Agreement, it being agreed by the parties hereto that said legal fees shall not exceed $l0.000. 4.14. Producer. Executive shall be entitled to be a paid producer, supervising producer and/or executive producer and/or writer fees from any and all programs that the Executive's services are requested. Said fees shall be set by the budgetary guidelines for each production and shall not exceed industry standards and in many cases may be below industry standards. It is not the intent of the Company to have the Executive produce specific programs, but only those which the Executive may be requested to produce and/or executive producer by a broadcaster, distributor, buyer, production partner and/or joint venture partner. 4.15 Moving Expenses. Company shall pay the moving expenses of the Executive from Executive's current place of residency to the required place of residency in New York for the performance of the Executive's duties, said moving expenses are not to exceed the total sum of Ten Thousand Dollars ($10,000.00). If Executive elects to maintain a residence in both New York and Los Angeles in conjunction with Executive's duties hereunder, Company shall only be obligated to move the Executive's belongings, or partial belongings, whatever the case may be, one time only and to one coast only. 4.16. Major Medical. Executive shall be provided with major medical insurance unless Executive elects to retain his current insurance whereby Company agrees to pay for same as long as the amount paid by Company does not exceed any sum paid for major medical insurance for any senior executive of the Company. Any amount over and above shall be borne by and be the responsibility of the Executive. 4.17. Other Benefits. Notwithstanding the foregoing, the Executive shall be entitled to any additional employee benefits which are no less favorable than those currently in operation in the Company. 5. Termination. 5.1 Termination For Cause. The Company shall at all times have the right, upon written notice with a reasonable opportunity to cure any such breach by the Executive, to terminate the Executive's employment hereunder for cause (as hereinafter defined). For purposes of this Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of any of the material terms or provisions of this Agreement; (b) the charging or indictment of the Executive in connection with a felony; (c) commission by the Executive of an act or acts involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or dishonesty against property or personnel of the Company; or (d) willful or reckless conduct by the Executive which the Board in good faith determines could reasonably be expected to have a material adverse effect on the business, assets, properties, results of operations, financial condition or prospects of the Company. Upon any termination pursuant to this Section 5.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability under this Agreement (other than for the reimbursement for reasonable pre-approved business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). Page 5 of 8 pages 5.2 Disability. The Company shall at all times have the right upon written notice to the Executive, to terminate the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability become unable to perform his duties hereunder for in excess of ninety (90) calendar days in any twelve (12) month period. Upon any termination pursuant to this Section 5.2, (a) the Company shall pay to the Executive (I) immediately any unpaid amounts of his Base Salary accrued through the effective date of termination plus 12 months base salary, (ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of the calendar year through the date of termination, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). 5.3 Death. In the event of the death of the Executive during the term of his employment hereunder, (a) the Company shall pay to the estate of the deceased Executive (I) immediately any unpaid amounts of his Base Salary accrued through the date of death, (ii) one year's living expenses, plus (ii) in accordance with Section 3.2(b), an amount equal to the Incentive Compensation, if any, payable to him in respect to the calendar year of the Company in which such death occurs, prorated for the period of service by the Executive from the beginning of such calendar year through the date of his death, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable pre-approved business expenses incurred prior to the date of the Executive's death, subject, however, to the provisions of Section 4.1). All stock ownership rights and stock-options vested at the time of death shall inure to the Estate of Executive. Heirs of Executive shall have the same time frame to exercise options as the Executive had, had he been still living. Said stock, stock-options and/or warrants shall not entitle the heirs of Executive to any management voting rights in the Company, but all beneficial and financial rights shall vest in the heirs accordingly. 5.4 Resignation By Executive. Executive is required, and agrees, to give the Company a two (2) month notice prior to such resignation or voluntary termination of his employment, the purpose of which is to allow the Company ample time to locate a senior management replacement for the Executive's vacant position. Executive shall have the right to terminate for "good cause," for example, an occurrence whereby there is a change of control within the Company and/or the Company defaults on any payment Should the default not be remedied after a 14 day cure period, Executive shall receive 10% of the Company as liquidated damages. 6. Restrictive Covenants. 6.1 Non-competition. Except as provided in Section 1.2 and with the Company's knowledge and acceptance that Executive has an ownership in other projects previously created prior to the date of this Agreement between Executive and other third parties, Executive, while employed by the Company and during the Non-competition Period (as hereinafter defined), the Executive, except as previously indicated, shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, partnership, corporation or business or any other person or entity (whether as an employee, officer, director, partner, agent, security holder, creditor, consultant or otherwise) that directly or indirectly engages in any type of entertainment production, business, marketing, computer or cell animation, graphics, distribution, producing, writing, directing and/or manufacturing of any type of entertainment product including, but not limited to, toys, records, videos, CD-ROM and merchandising items anywhere throughout the universe. For purpose of this Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's employment is terminated pursuant to Section 5.4 above, the period beginning on the effective date of resignation and ending one (1) year thereafter. Because such mandatory restrictive covenants are being placed on the Executive, the Company shall pay the Executive's base salary hereunder for a period of twelve (12) months after termination of employment. Page 6 of 8 pages 6.2 Nondisclosure. The Executive shall not divulge, communicate, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret information, confidential business information, proprietary technology, internal financial statements or any and all other sensitive data now known or hereafter acquired by the Executive with respect to the business of the Company (which shall include, but not be limited to, information concerning the Company's financial condition, prospects, customers, sources of leads, methods of doing business, and the manner of design, manufacture, financing marketing and distribution of the Company's productions) shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company with respect to all such information. 6.3 Books and Records. All books, records and accounts relating in any manner to the business, customers, suppliers or clients of the Company and all other documents, disks, software or other items containing confidential information relating to the Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately, together with any copies, to the Company on the termination of the Executive's employment hereunder, or on the Company's request at any time. 6.5 Ownership of Inventions and Other Developments. Company shall be entitled to own and control all proprietary technology and all financial, operating and creative ideas, works, scripts, processes and materials, including works of expression and copyrights in such works, that are developed, written, or conceived by Executive during Executive's employment hereunder to the extent that they relate to Company's current or potential business. Accordingly, Executive will disclose, deliver, and assign to Company all such created works, inventions, discoveries, improvements, trade secrets and all works subject to copyright. Executive agrees to execute all documents, patent applications, and arrangements necessary to further document such ownership such ownership and/or assignment and to take whatever other steps may be needed to give Company the full benefit of them. Executive agrees that all copyrightable materials generated or developed during the term of this Agreement shall be considered works made for hire under the copyright laws of the United States and that they shall, upon creation, be owned exclusively by the Company, and Company shall be entitled to register and hold in its own name all copyrights in respect to such materials. In regard to all properties conveyed or anticipated to be conveyed under this Agreement, in the event Company is dissolved or unable to meet its obligations under the stock purchase agreement, then all such works shall revert to Executive and Executive shall have first right of refusal to purchase all other works owned by Company. 7. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 6 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Executive recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 6 of this Agreement by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 8. Bankruptcy. In the event of bankruptcy of the Company, Executive shall have the first right of refusal, along with other key management, to purchase and acquire the key assets, underlying patents and copyrights owned and/or held by the Company at fair market value. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Page 7 of 8 pages 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between and among the Executive, the Company and/or any of their affiliates with respect to the subject matter contained herein. Except for the obligation to pay any accrued but unpaid salary due the Executive, all such prior agreements, understandings and arrangements for the provision of services by the Executive to the Company and/or any of its affiliates and the compensation of the Executive in any form shall automatically terminate upon the consummation of the transactions contemplated by the Purchase Agreement and each party shall thereupon and thereby, without any further action, release and forever discharge the other (and the other's affiliates) from any and all liabilities and obligations of any nature arising out of or in connection with any and all such prior agreements, understandings or arrangements. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive. 11. Notices. Any notice required or permitted to be given hereunder shall be deemed given when delivered by hand, by facsimile or three (3) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, (I) if to the Company, to the address of the Company's principal offices at 244 West 54th Street, 12th floor, New York, New York, 10019, (ii) to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other. 12. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise; provided, however, that under no circumstances may the Executive delegate his employment obligations hereunder or any portion thereof. 13. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 14. Waiver. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 15. Damages; Prevailing Party. Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. If there is any legal action or proceeding to enforce or interpret any provision of this Agreement or to protect or to establish any right or remedy of any party, the non-prevailing party to such action or proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorney's fees and costs, incurred by such prevailing party in such action or proceeding, in enforcing its judgment, and in connection with any appeal from such judgment. Reasonable attorney's fees and costs incurred in enforcing any judgment or in connection with any appeal shall be recoverable separately from and in addition to any other amount included in such judgment. The prevailing party's rights under this Section 14 shall not merge into any judgment and shall survive until all such fees and costs have been paid. 16. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. Page 8 of 8 pages 17. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 18. Subsidiaries. All reference to the "Company" in this Agreement, including but not limited to those in Section 6, shall be deemed to include any and all of the Company's direct and indirect subsidiaries to the extent the context may require. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. By:/S/ Robert P. Maerz By:/S/ Jonathan Stathakis ------------------------- ------------------------- Company Executive It's: Chief Executive Officer Jonathan Stathakis ------------------------ ------------------------- Print Name Print Name ____________________________ _________________________ Address Address ____________________________ _________________________ Address Address ____________________________ Social Security # _______ EX-6.3 6 EMPLOYMENT AGREEMENT - MICHAEL L. WELSH EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of January, 1999, by and between MSH Entertainment Corporation, its affiliates and subsidiaries (collectively the "Company") as employer, and Michael L. Welsh (the "Executive") as key employee of the company. PRELIMINARY STATEMENTS A. The Executive possesses intimate knowledge of the business and affairs of the company, its policies, methods and personnel B. The Board of Directors of the Company (the "Board") recognizes that the Executive has contributed to the growth and success to the company and desires to assure the Company of the Executives continued employment and to compensate him therefor. C. The board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company D. The Executive is willing to make his service, on the terms to serve the Company's available to the Company on the terms and conditions hereinafter set forth. AGREEMENTS NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein, the parties agree as follows: 1. Employment. 1.1 General. The company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and subject to the conditions set forth herein. 1.2 Duties of Executive. During the term of this Agreement, the Executive shall serve as the Chief Financial Officer ("CFO") and Treasurer and Secretary of the Company, and shall diligently perform all the services as may be assigned to him by the Board, and shall exercise such power and authority as may from time to time be delegated to him by the Board. The Executive shall have full control of the Company and will be entitled to engage in all the activities of the Company's business activities. The Executive agrees to devote a reasonable amount of his time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his best efforts to promote the interests of the Company. 2. Term. 2.1 Initial Term. The Initial Term of this Agreement and the employment of the Executive hereunder shall be for the Three (3) year period commencing on the date of the execution of this Agreement (the "Initial Term"), unless sooner terminated in accordance with the terms and conditions hereof. 2.2 Renewal Terms. The Initial Term of this Agreement, and the employment of the Executive hereunder, may be renewed and extended for an additional two (2) years at the election of the Executive and for such additional periods as may be mutually agreed to by the Company and the Executive in a written supplement to this Agreement signed by the Executive and the Company (the "Written Supplement"). 3. Compensation. 3.1 Base Salary. The Executive shall receive a base salary at the annual rate of One Hundred and Seventy Five Thousand Dollars ($175,000) (the "Base Salary") during the Initial Term of this Agreement, with such Base Salary payable, in installments consistent with the Company's normal payroll schedule, subject to applicable withholding and other taxes. If the term of this Agreement shall be renewed and extended as provided in Section 2.2 hereof, then during such renewal term of his employment hereunder the Executive shall be paid an increased base salary as set forth in the Written Supplement. Such base salary shall be increased each year the amount of which shall be made as per mutual agreement of the Executive and Company, to account for the cost of living increases and in no event will the increase be less than prevailing COLA Index (U.S. Government "Cost of Living Allowance" Index) to account for cost of living increases and shall be made regardless of any incentive compensation. 3.2 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation (the "Incentive Compensation") based on performance which shall be no less than that of any other key employee and shall be a percentage of the Company's adjusted gross profits at the end of each calendar year during the term of the Executive's employment hereunder. (b) For purposes of this Agreement, the amount of the Incentive Compensation payable with respect to any calendar year (net of any tax or other amount properly withheld therefrom) shall be paid by the company to the Executive upon completion of the year end audited financials which is not to exceed One Hundred and Twenty Days (120) days after the end of the calendar year; provided, however, that any amount paid shall be subject to increase or decrease based upon the results of review of the financial statements with respect to such year. (c) In the event that the Executive's employment is terminated upon the expiration of the Initial Term, the Executive shall be entitled to payment to a prorate share of the initial term Incentive Compensation, if any, that has been or will be paid by the company for the period beginning after the Initial Term to the date of termination. 4. Expense Reimbursement and Other Benefits. 4.1 Expense Reimbursement. The Executive shall be entitled to reimbursement by the Company for all reasonable business expenses incurred by him in connection with the performance of his duties hereunder, provided that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with company policy set by the Chief Financial Officer. 4.2 Insurance. The Executive shall be entitled to participation in all medical, hospitalization, disability and group life insurance plans, and any and all other benefit plans, as are presently and hereinafter provided by the Company to its executives. Additionally, Executive shall be at an amount that is no less than any other key executive of the Company. 4.3 Vacation. The Executive shall be entitled to four (4) weeks vacation paid per year in accordance with the Company's prevailing policy for its key executives; provided, however, that in no event may a vacation be taken when to do so could reasonably be expected to materially and adversely effect the company's business. 4.4 Corporate Credit Card. The Executive shall be provided with a Corporate charge card which shall be utilized solely for Company business with full disclosure of its business purpose in accordance with company policy. 4.5 Working Facilities. The Company shall furnish the Executive with an office, secretarial help and other facilities and services suitable to his position and adequate for his performance of his duties hereunder. 4.6 Board Of Directors. The Executive shall be appointed to full Board of Directors membership of the Company and where possible on any and all current or future MSHE subsidiary companies owned or formed by MSHE and/or those formed by the Executive either individually or with non-MSHE personnel. The Executive shall receive confirmation of the initial appointment to the full Board of Directors of the Company in the form of a Board resolution of no later than fourteen business days after the signing of this agreement. The Executive shall maintain a position on the Board and be Chairman of the Audit Committee for the term of the Agreement. Additionally, Executive shall be considered key management, responsible for implementing and carrying out the policies of the Company. 4.7 Stock Options. Executive shall be granted stock options on the date hereof, the amount pursuant to the Option Agreement hereto and shall participate in the stock -option plan of the Company whereby additional stock options may be granted to Executive by the Board of Directors depending upon the performance of the Executive and the Executive shall be entitled to receive the maximum level of stock options granted any executive of the company. In addition, Executive shall be entitled to shares and/or options of any and all new companies and/or corporations formed by the Company. Executive shall also be entitled to shares and/or options whereby Executive assisted in the implementation of the forming of new corporations in conjunction with others not associated with the company. Executive at the signing of this Agreement has a 1.6% Equity interest in Company. Executive shall be granted additional options on a periodic basis to maintain this ownership level minimum. 4.8 Retirement Fund. Company shall take part in the key man retirement fund of the Company, which has been instituted for the Executive and Company shall contribute to and maintain said fund for the duration of Executive's employment hereunder. 4.9 Liquidity Event. Executive shall be granted and "Liquidity Event" at least once per year, to sell stock as additional compensation. 4.10 Automobile. The Company shall lease, in the company's name, an automobile ("Leased Vehicle") for the Executive's use during the term of this Agreement. The Leased Vehicle shall be comparable to and shall not exceed the monthly lease payment of Six Hundred and twenty ($620) a month. Additionally, Company shall provide a gasoline credit card which shall be sued for fuel related business expenses only, and shall not be used for any repairs to the Leased Vehicle, that responsibility of the Executive. One monthly parking space estimated to be $283 per month, for the executive shall be provided in an indoor garage within walking distance to the office, for the term of this agreement. All business related tools shall be reimbursed. In the event Executive elects not to utilize a "Leased Vehicle" as outlined above, Company shall pay the Executive an amount equal to above to be utilized towards business expenses to be determined by the Executive's sold discretion. 4.11 Deleted and not applicable. 4.12 Retirement Fund. The Executive will participate in a Key Man split dollar retirement investment fund and will be maintained and funded quarterly for the duration of the Executive's employment hereunder. Executive shall be provided funding to this fund at an amount that is no less than any other key executive of the Company. 4.13 Director Insurance. Company shall provide Executive with Director's and Officer's insurance in the minimum of Two Million Dollars ($2,000,000) million coverage within ten (10) business days after executing this agreement. 4.14 Check Signing. Executive shall be one of the five executives granted check signing authority, the others being Robert P. Maerz, Anthony Gentile, John Gentile, and Fred Aurelio; However, it being agreed to that all checks over Ten Thousand Dollars ($10,000.00) have dual signatures and that one of them be the Executive. In addition all funds received and or disbursed by the company and/or subsidiaries be received and/or disbursed in the company's New York City office by the Executive. 4.15 Right to Bind. Executive shall be granted signing rights and approval rights on any and all legal documents and contracts of the Company, if being agreed that any two (2) of the following individuals be the only corporate officers allowed to sign for and bind the Company, they being the Executive (Michael L. Welsh), Robert P. Maerz, Jonathan Stathakis, John Gentile and/or Anthony Gentile. 4.17 Lodging and Travel. The Executive shall be entitled in the performance of his duties on behalf of the Company while working in New York City, New York to utilize the Warwick Hotel located at 65 West 54th Street, NY, N.Y. or equivalent, as a place of abode while away from his personal residence in Cherry Hill, New Jersey. The Company shall pay all reasonable business expenses incurred by him provided, however, that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with Company policy. The Executive shall receive a monthly travel allowance of $600.00 and shall be entitled to reimbursement by Company for all reasonable business expenses incurred by him in connection with any domestic and/or foreign trade and/or convention related or otherwise, which are in connection with his duties hereunder. Executive, at his option and with proper notice shall be granted permission to maintain an apartment in New York City. Said lease to be negotiated in good faith and be the responsibility of the company. 4.18 Personal Expenses. The Company shall not pay the Executive's personal expenses including, but not limited to, insurance (except as noted in this agreement), legal and accounting expenses. 4.19 Major Medical. Executive shall be provided with major medical insurance unless Executive elects to retain his current insurance whereby Company agrees to pay for same as long as the amount paid des not exceed any sum paid for major medical insurance for any senior Company executive. Any additional amount shall be paid by and be the responsibility of the Executive. 4.20 Legal Fees. The Company shall pay legal fees of the Executive, if any, incurred in connection with this Agreement, if being agreed by the parties hereto that said legal fees shall not exceed $10,000. 5. Termination. 5.1 Termination For Cause. The Company shall at all times have the right, upon written notice with a reasonable opportunity to cure any such breach by the Executive, to terminate the Executive's employment hereunder for cause (as hereinafter defined). For purposes of this Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of any of the material terms or provisions of this Agreement; (b) the charging or indictment of the Executive in connection with a felony; (c) commission by the Executive of an act or acts involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or dishonesty against property or personnel of the Company; or (d) willful or reckless conduct by the Executive which the Board in good faith determines could reasonably be expected to have a material adverse effect on the business, assets, properties, results of operations, financial condition or prospects of the Company. Upon any termination pursuant to this section 5.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability under this Agreement (other than for the reimbursement for reasonable pre-approved business expenses incurred prior to the date of termination, subject, however, to the provision of Section 4.1). 5.2 Disability. The Company shall at all times have the right, upon written notice to the Executive, to terminate the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability become unable to perform his duties hereunder for in excess of ninety (90) calendar days in any twelve (12) month period. Upon any termination pursuant to this section 5.2 (a) the Company shall pay to the Executive (i) immediately any unpaid amounts of his Base Salary accrued through the effective date of termination plus 12 months base salary, plus one year's living allowance plus (ii) in accordance with section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of the calendar year through the date of termination, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of section 4.1). 5.3 Death. I the event of the death of the Executive during the term of him employment hereunder, (a) the company shall pay to the estate of the deceased Executive (i) immediately any unpaid amounts of his Base Salary accrued through the date of the death, plus one years living, plus (ii) in accordance with section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect to the calendar year of the Company in which such death occurs, prorated for the period of service by the Executive from the beginning of such calendar year through the date of his death, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable pre-approved business expenses incurred prior to the date of the Executive's death, subject, however, to the provisions of Section 4.1). All stock ownership rights and stock options and/or warrants shall not entitle the heirs of Executive to any management voting rights in the Company, but all beneficial and financial rights shall vest in the heirs accordingly. 5.3 Resignation By Executive. Executive is required, and agrees, to give the Company a two (2) month notice prior to such resignation or voluntary termination of his employment, the purpose of which is to allow the Company ample time to locate a senior management replacement for the Executive's vacant position. Executive shall have the right to terminate for "good cause", for example, an occurrence whereby there is a change of control within the Company and/or the Company defaults on any payment. Should the default not be remedied after a 14 day cure period, Executive shall receive at a minimum 1.6% of the Company as liquidated damages. 6. Restrictive Covenants. 6.1 Non-competition. Except as provided in Section 1.2 and with the Company's knowledge and acceptance that Executive and other third parties, Executive, while employed by the Company and during the Non-competition Period (as hereinafter defined), the Executive, except as previously indicated, shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, partnership, corporation or business in any other person or entity (whether as an employee, officer, director, partner, agent, security holder, creditor, consultant, or otherwise) that directly or indirectly engages in any type of entertainment production, business, marketing, computer or cell animation, graphics, distribution, producing, writing, directing and/or manufacturing of any type of entertainment product including, but not limited to toys, records, videos, CD-ROM and merchandising items anywhere throughout the universe. For purpose of the Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's employment is terminated pursuant to Section 5.4 above, the period beginning on the effective date of resignation and ending one (1) year thereafter. Because such mandatory restrictive covenants are being placed on the Executive, the Company shall pay the Executive's base salary hereunder for a period of twelve (12) months after termination of employment. 6.2 Nondisclosure. The Executive shall not divulge, communication, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret information, confidential business information, proprietary technology, internal financial information or any and all other sensitive data now known or hereafter acquired by the Executive with respect to the business of the Company (which shall include, but not limited to, information concerning the Company's financial, marketing and distribution of the Company's productions) shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company with respect to all such information. 6.3 Books and Records. All books and records accounts relating in any manner to the business, customers, suppliers or clients of the Company and all other documents, disks, software or other items containing confidential information relating to the Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately, together with any copies, to the Company on the termination of the Executive's employment hereunder, or on the Company's request at any time. 6.4 Ownership of inventions and Other Development. Company shall be entitled to own and control all proprietary technology and all financial, operating and creative ideas, works, scripts, processes and materials, including works of expression and copyrights in such works, that are developed, written, or conceived by Executive during Executive's employment hereunder to the extent that they relate to Company's current or potential business. Accordingly, Executive will disclose, deliver, and assign to Company all such created works, inventions, discoveries, improvements, trade secrets and all works subject to copyright. Executive agrees to execute all documents, patent applications, and arrangements necessary to further document such ownership and/or assignment and to take whatever other steps may be needed to give Company the full benefit of them. Executive agrees that all copyrightable materials generated or developed during the term of this Agreement (Shall be considered works made for hire under the copyright laws of the United States and that they shall, upon creation, be owned exclusively by the Company, and Company shall be entitled to register and hold in its own name all copyrights in respect to such materials. In regard to all properties conveyed or anticipated to be conveyed under this Agreement, in the event Company is dissolved or unable to meet its obligations under the stock purchase agreement, then all such works shall revert to Executive and Executive shall have first right of refusal to purchase all other work owned by Company. 7. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 6 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Executive recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 6 of the agreement by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between and among the Executive, the Company and/or any of their affiliates with respect to the subject matter contained herein. Except for the obligation to pay any accrued but unpaid salary due the Executive all such prior agreements, understandings and arrangements for the provision of services by the Executive to the Company and/or any of its affiliates and the compensation of the Executive in any form shall automatically terminate upon the consummation of the transactions contemplated by the Purchase Agreement, and each party shall thereupon and thereby, without any further action, release and forever discharge the other (and the other's affiliates) from any and all liabilities and obligations of any nature arising out of or in connection with any and all such prior agreements, understandings or arrangements. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive. 11. Notices. Any notice required or permitted to be given hereunder shall be deemed given when delivered by hand, by facsimile or three (3) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, if to the Company, to the address of the Company's principal offices at 244 West 54th Street, 12th Floor, New York, Y 10019, (ii) to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other. 12. Benefits: Binding Effect. This agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise, provided, however, that under no circumstances may the Executive delegate his employment obligations hereunder or any portion thereof. 13. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which clauses or sections contained in this Agreement are inserted conditionally on their being valid in law, and, in the event that any one or more words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or are which would cure such invalidity. 14. Waiver. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 15. Damages, Prevailing Party. Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. If there is any legal action or proceeding to enforce or interpret any provision of this AGREEMENT or to protect or to establish any right or remedy of any party, the non-prevailing party to such action of proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorney's fees and costs, incurred by such prevailing party in such action or proceeding, in enforcing its judgment, and in connection with any appeal from such judgment. Reasonable attorney fees and costs incurred in enforcing any judgment or in connection with any appear shall be recoverable separately from and in addition to any other amount included in such judgment. The prevailing party's rights under section 14 shall not merge into any judgment and shall survive until all such fees and costs have been paid. 16. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 17. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 18. Subsidiaries. All references to the "Company" in this agreement, including but not limited to those in Section 6, shall be deemed to include any and all of the Company's direct and indirect subsidiaries to the extent the context may require. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. BY: /s/Robert P. Maerz BY: /s/Michael L. Welsh ----------------------------- ----------------------------- MSH Entertainment Corporation Michael L. Welsh Robert P. Maerz Chairman and CEO 244 W. 54th Street 303 Wexford Drive New York, NY 10019 Cherry Hill, NJ 08003 EX-6.4 7 EMPLOYMENT AGREEMENT - FRED AURELIO EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this first (1st) day of January, 1999, by and between MSH Entertainment Corporation, its affiliates and subsidiaries (collectively the "Company"), as employer, and Fred Aurelio (the "Executive") as a key employee of the Company. Preliminary Statements: A. The Executive possesses intimate knowledge of the business and affairs of the Company, its policies, methods and personnel. B. The Board of Directors of the Company (the "Board") recognizes that the Executive has contributed to the growth and success of the Company and desires to assure the Company of the Executive's continued employment and to compensate him therefore. C. The Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company. D. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth. Agreements: NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein, the parties agree as follows: 1. Employment. 1.1 General. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and subject to the conditions set forth herein. 1.2 Duties of Executive. During the term of this Agreement, the Executive shall serve as the Vice-President/General Manager of the Company, and shall diligently perform all the services as may be assigned to him by the Board, and shall exercise such power and authority as may from time to time be delegated to him by the Board. Executive shall have full control over all aspects of Company and will be entitled to engage in all the activities of the Company's creative and business activities. The Executive agrees to devote a reasonable amount of his time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his best efforts to promote the interests of the Company. 2. Term. 2.1 Initial Term. The initial term of this Agreement and the employment of the Executive hereunder shall be for the three (3) year period commencing on the date of the execution of this Agreement (the "Initial Term"), unless sooner terminated in accordance with the terms and conditions hereof. 2.2 Renewal Terms. The Initial Term of this Agreement, and the employment of the Executive hereunder, may be renewed and extended for an additional two (2) years at the election of Executive and for such additional periods as may be mutually agreed to by the Company and the Executive in a written supplement to this Agreement signed by the Executive and the Company (the "Written Supplement"). 3. Compensation. 3.1 Base Salary. The Executive shall receive a base salary at the annual rate of One Hundred Twenty-Five Thousand Dollars ($125,000.00) (the "Base Salary") during the Initial Term of this Agreement with such Base Salary payable, in installments consistent with the Company's normal payroll schedule, subject to applicable withholding and other taxes. If the term of this Agreement shall be renewed and extended as provided in Section 2.2 hereof, then during such renewal term of his employment hereunder the Executive shall be paid an increased base salary as set forth in the Written Supplement. Such base salary shall be increased each year the amount of which shall be made as per mutual agreement of the Executive and Company, to account for cost of living increases and in no event will the increase be less than prevailing COLA Index (U.S. Government "Cost of Living Allowance" Index) to account for cost of living increases and shall be made regardless of any incentive compensation. 3.2 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation (the "Incentive Compensation") based on performance which shall be no less than that of any other key employee and shall be a percentage of the Company's adjusted gross profits at the end of each calendar year during the term of the Executive's employment hereunder. (b) For purposes of this Agreement, the amount of the Incentive Compensation payable with respect to any calendar year (net of any tax or other amount properly withheld therefrom) shall be paid by the Company to Executive upon completion of the year end audited financials which is not to exceed One Hundred and Twenty Days (120) after the end of the calendar year; provided, however, that any amount paid shall be subject to increase or decrease based upon the results of review of the financial statements with respect to such year. 4. Expense Reimbursement and Other Benefits. 4.1 Expense Reimbursement. The Executive shall be entitled to reimbursement by the Company for all reasonable business expenses incurred by him in connection with the performance of his duties hereunder, provided however, that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with Company policy and based on the guidelines currently set for the Company by either the Chief Operating Officer and/or the Chief Financial Officer of the Company. 4.2 Insurance. The Executive shall be entitled to participation in all medical, hospitalization, disability and group life insurance plans, and any and all other employee benefit plans, as are hereinafter provided by the Company to its executives. 4.3 Vacation. The Executive shall be entitled to four (4) weeks paid vacation per year in accordance with the Company's prevailing policy for its executives; provided, however, that in no event may a vacation be taken when to do so could reasonably be expected to materially and adversely affect the Company's business. 4.4 Automobile. Company shall lease an automobile for the Executive's at a sum not to exceed of Six Hundred Dollars ($600). Additionally, all business related toils and fuel shall be reimbursed to the Executive upon presentation of verifiable receipts to the Company. 4.5 Corporate Credit Card. The Executive shall be provided with an American Express Corporate charge card which shall be utilized solely for Company business with full disclosure written on each customer's copy receipt as to the nature of the business expenditure. 4.6 Stock Options. Executive shall be granted stock options on the date hereof, the amount pursuant top the Option Agreement hereto and shall participate in the stock-option plan of the Company whereby additional stock options may be granted to Executive by the Board of Directors depending upon the performance of the Executive and the Executive shall be entitled to receive the maximum level of stock options granted any executive of the Company. 4.7 Director's and Officer's Insurance. Company shall provide Executive with Director's and officer's insurance in the minimum amount of Two Million Dollars ($2,000,000) within ten (10) business days after executing this Agreement. 4.8. Major Medical. Executive shall be provided with major medical insurance unless Executive elects to retain his current insurance whereby Company agrees to pay for same as long as the amount paid by Company does not exceed any sum paid for major medical insurance for any senior executive of the Company. Any amount over and above shall be borne by and be the responsibility of the Executive. 4.9. Other Benefits. Notwithstanding the foregoing, the Executive shall be entitled to any additional employee benefits which are no less favorable than those currently in operation in the Company. 5. Termination. 5.1 Termination For Cause. The Company shall at all times have the right, upon written notice with a reasonable opportunity to cure any such breach by the Executive, to terminate the Executive's employment hereunder for cause (as hereinafter defined). For purposes of this Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of any of the material terms or provisions of this Agreement; (b) the charging or indictment of the Executive in connection with a felony; (c) commission by the Executive of an act or acts involving fraud, embezzlement misappropriation, theft breach of fiduciary duty or dishonesty against property or personnel of the Company; or (d) willful or reckless conduct by the Executive which the Board in good faith determines could reasonably be expected to have a material adverse effect on the business, assets, properties, results of operations, financial condition or prospects of the Company. Upon any termination pursuant to this Section 5.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability under this Agreement. 5.2 Disability. The Company shall at all times have the right, upon written notice to the Executive, to terminate the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability become unable to perform his duties hereunder for in excess of ninety (90) calendar days in any twelve (12) month period. Upon any termination pursuant to this Section 5.2, (a) the Company shall pay to the Executive (I) immediately any unpaid amounts of his Base Salary accrued through the effective date of termination plus 12 months base salary, (ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of the calendar year through the date of termination, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). 5.3 Death. In the event of the death of the Executive during the term of his employment hereunder, (a) the Company shall pay to the estate of the deceased Executive (I) immediately any unpaid amounts of his Base Salary accrued through the date of death, (ii) one year's living expenses, plus (ii) in accordance with Section 3.2(b), an amount equal to the Incentive Compensation, if any, payable to him in respect to the calendar year of the Company in which such death occurs, prorated for the period of service by the Executive from the beginning of such calendar year through the date of his death, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable pre-approved business expenses incurred prior to the date of the Executive's death, subject, however, to the provisions of Section 4.1). All stock ownership rights and stock-options vested at the time of death shall inure to the Estate of Executive. Heirs of Executive shall have the same time frame to exercise options as the Executive had, had he been still living. Said stock, stock-options and/or warrants shall not entitle the heirs of Executive to any management voting rights in the Company, but all beneficial and financial rights shall vest in the heirs accordingly. 5.4 Resignation By Executive. Executive is required, and agrees, to give the Company a two (2) month notice prior to such resignation or voluntary termination of his employment, the purpose of which is to allow the Company ample time to locate a senior management replacement for the Executive's vacant position. Executive shall have the right to terminate for "good cause," for example, an occurrence whereby there is a change of control within the Company and/or the Company defaults on any payment. Should the default not be remedied after a 14 day cure period, Executive shall receive 10% of the Company as liquidated damages. 6. Restrictive Covenants. 6.1 Non-competition. Except as provided in Section 1.2 and with the Company's knowledge and acceptance that Executive has an ownership in other projects previously created prior to the date of this Agreement between Executive and other third parties, Executive, while employed by the Company and during the Non-competition Period (as hereinafter defined), the Executive, except as previously indicated, shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, partnership, corporation or business or any other person or entity (whether as an employee, officer, director, partner, agent, security holder, creditor, consultant or otherwise) that directly or indirectly engages in any type of entertainment production, business, marketing, computer or cell animation, graphics, distribution, producing, writing, directing and/or manufacturing of any type of entertainment product including, but not limited to, toys, records, videos, CD-ROM and merchandising items anywhere throughout the universe. For purpose of this Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's employment is terminated pursuant to Section 5.4 above, the period beginning on the effective date of resignation and ending one (1) year thereafter. Because such mandatory restrictive covenants are being placed on the Executive, the Company shall pay the Executive's base salary hereunder for a period of twelve (12) months after termination of employment. 6.2 Nondisclosure. The Executive shall not divulge, communicate, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret information, confidential business information, proprietary technology, internal financial statements or any and all other sensitive data now known or hereafter acquired by the Executive with respect to the business of the Company (which shall include, but not be limited to, information concerning the Company's financial condition, prospects, customers, sources of leads, methods of doing business, and the manner of design, manufacture, financing, marketing and distribution of the Company's productions) shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company with respect to all such information. 6.3 Books and Records. All books, records and accounts relating in any manner to the business, customers, suppliers or clients of the Company and all other documents, disks, software or other items containing confidential information relating to the Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately, together with any copies, to the Company on the termination of the Executive's employment hereunder, or on the Company's request at any time. 6.5 Ownership of Inventions and Other Developments. Company shall be entitled to own and control all proprietary technology and all financial, operating and creative ideas, works, scripts, processes and materials, including works of expression and copyrights in such works, that are developed, written, or conceived by Executive during Executive's employment hereunder to the extent that they relate to Company's current or potential business. Accordingly, Executive will disclose, deliver, and assign to Company all such created works, inventions, discoveries, improvements, trade secrets and all works subject to copyright. Executive agrees to execute all documents, patent applications, and arrangements necessary to further document such ownership such ownership and/or assignment and to take whatever other steps may be needed to give Company the full benefit of them. Executive agrees that all copyrightable materials generated or developed during the term of this Agreement shall be considered works made for hire under the copyright laws of the United States and that they shall, upon creation, be owned exclusively by the Company, and Company shall be entitled to register and hold in its own name all copyrights in respect to such materials. In regard to all properties conveyed or anticipated to be conveyed under this Agreement, in the event Company is dissolved or unable to meet its obligations under the stock purchase agreement, then all such works shall revert to Executive and Executive shall have first right of refusal to purchase all other works owned by Company. 7. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 6 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result the Executive recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 6 of this Agreement by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 8. Bankruptcy. In the event of bankruptcy of the Company, Executive shall have the first right of refusal, along with other key management to purchase and acquire the key assets, underlying patents and copyrights owned and/or held by the Company at fair market value. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between and among the Executive, the Company and/or any of their affiliates with respect to the subject matter contained herein. Except for the obligation to pay any accrued but unpaid salary due the Executive, all such prior agreements, understandings and arrangements for the provision of services by the Executive to the Company and/or any of its affiliates and the compensation of the Executive in any form shall automatically terminate upon the consummation of the transactions contemplated by the Purchase Agreement and each party shall thereupon and thereby, without any further action, release and forever discharge the other (and the other's affiliates) from any and all liabilities and obligations of any nature arising out of or in connection with any and all such prior agreements, understandings or arrangements. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive. 11. Notices. Any notice required or permitted to be given hereunder shall be deemed given when delivered by hand, by facsimile or three (3) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, (I) if to the Company, to the address of the Company's principal offices at 244 West 54th Street, 12th floor, New York, New York, 10019, (ii) to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other. 12. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise; provided, however, that under no circumstances may the Executive delegate his employment obligations hereunder or any portion thereof. 13. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 14. Waiver. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 15. Damages; Prevailing Party. Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. If there is any legal action or proceeding to enforce or interpret any provision of this Agreement or to protect or to establish any right or remedy of any party, the non-prevailing party to such action or proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorney's fees and costs, incurred by such prevailing party in such action or proceeding, in enforcing its judgment, and in connection with any appeal from such judgment. Reasonable attorney's fees and costs incurred in enforcing any judgment or in connection with any appeal shall be recoverable separately from and in addition to any other amount included in such judgment. The prevailing party's rights under this Section 14 shall not merge into any judgment and shall survive until all such fees and costs have been paid. 16. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 17. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 18. Subsidiaries. All reference to the "Company" in this Agreement, including but not limited to those in Section 6, shall be deemed to include any and all of the Company's direct and indirect subsidiaries to the extent the context may require. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. By: ____________________ By:___________________ Company Executive It's:___________________ ______________________ Print Name Print Name ________________________ ______________________ Address Address ________________________ ______________________ Address Address ________________________ Social Security #____________ EX-6.5 8 EMPLOYMENT AGREEMENT - ANDREW STEINER EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 17th day of December, 1999, by and between Kids And Family Network. Inc. its affiliates and subsidiaries ( collectively the "Company"), as employer, and Andrew Steiner (the "Executive") as a key employee of the Company. Preliminary Statements: A. The Executive possesses intimate knowledge of the business and affairs of the Company, its policies, methods and personnel. B. The Board of Directors of the Company (the "Board") recognizes that the Executive has contributed to the growth and success of the Company and desires to assure the Company of the Executive's continued employment and to compensate him therefore. C. The Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company. D. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth. Agreements: NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein, the parties agree as follows: 1. Employment. 1.1 General. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and subject to the conditions set forth herein. 1.2 Duties of Executive. During the term of this Agreement, the Executive shall serve as the Co-President of the Company, and shall diligently perform all the services as may be assigned to him by the Board, and shall exercise such power and authority as may from time to time be delegated to him by the Board. Executive shall have full control over all aspects of Company and will be entitled to engage in all the activities of the Company's creative and business activities. The Executive agrees to devote a reasonable amount of his time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his best efforts to promote the interests of the Company. 2. Term. 2.1 Initial Term. The initial term of this Agreement and the employment of the Executive hereunder shall be for the three (3) year period commencing on the date of the execution of this Agreement (the "Initial Term"), unless sooner terminated in accordance with the terms and conditions hereof. 2.2 Renewal Terms. The Initial Term of this Agreement, and the employment of the Executive hereunder, may be renewed and extended for an additional two (2) years at the election of Executive and for such additional periods as may be mutually agreed to by the Company and the Executive. Page 2 of 7 pages 3. Compensation. 3.1 Base Salary. The Executive shall receive a base salary payable no less than quarterly, at the annual rate of One Hundred and Fifty Thousand Dollars ($150,000.00) (the "Base Salary") during the Initial Term of this Agreement subject to applicable withholding and other taxes. If the term of this Agreement shall be renewed and extended as provided in Section 2.2 hereof, then during such renewal term of his employment hereunder the Executive shall be paid an increased base salary, such base salary shall be increased each year the amount of which shall be made as per mutual agreement of the Executive and Company, to account for cost of living increases and in no event will the increase be less than prevailing COLA Index (U.S. Government "Cost of Living Allowance" Index) to account for cost of living increases and shall be made regardless of any incentive compensation. 3.2 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation (the "Incentive Compensation") based on performance which shall be no less than that of any other key employee and shall be a percentage of the Company's adjusted gross profits at the end of each calendar year during the term of the Executive's employment hereunder. (b) For purposes of this Agreement the amount of the Incentive Compensation payable with respect to any calendar year (net of any tax or other amount properly withheld therefrom) shall be paid by the Company to Executive upon completion of the year end audited financials which is not to exceed One Hundred and Twenty Days (120) after the end of the calendar year; provided, however, that any amount paid shall be subject to increase or decrease based upon the results of review of the financial statements with respect to such year. 4. Expense Reimbursement and Other Benefits. 4.1 Expense Reimbursement. The Executive shall be entitled to reimbursement by the Company for all reasonable business expenses incurred by him in connection with the performance of his duties hereunder, provided however, that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with Company policy and based on the guidelines currently set for the Company by the Board. 4.2 Insurance. The Executive shall be entitled to participation in all medical, hospitalization, disability and group life insurance plans, and any and all other employee benefit plans, as are hereinafter provided by the Company to its executives. Additionally, Executive shall be provided with a "key man" insurance policy which shall an amount that is no less than any other key executive of the Company, effective within a reasonable time after receiving the results of a doctor's physical. 4.3 Vacation. The Executive shall be entitled to four (4) weeks paid vacation per year in accordance with the Company's prevailing policy for its executives; provided, however, that in no event may a vacation be taken when to do so could reasonably be expected to materially and adversely affect the Company's business. 4.4 Board Of Directors. The Executive shall serve as a member of the Board of Directors of the Company for the term of the Agreement and shall be elected to each committee of the Board of Directors. Additionally, Executive shall be considered key management, responsible for implementing and carrying out the policies of the Company. Page 3 of 7 pages 4.5 Stock Options. Executive shall be granted Five Hundred Thousand (500,000) shares of Kids And Family Network stock on the date hereof, and shall participate in the stock-option plan of the Company whereby additional stock options may be granted to Executive by the Board of Directors depending upon the performance of the Executive and the Executive shall be entitled to receive the maximum level of stock options granted any executive of the Company. 4.6 Liquidity Event. Executive shall be granted a "Liquidity Event" at least once per year to be able to sell stock as additional compensation. 4.7 Retirement Fund. Company shall take part in the key man retirement fund of the Company, which has been instituted for the Executive and Company shall contribute to and maintain said fund for the duration of Executive's employment hereunder. 4.8 Director's Insurance. Company shall provide Executive with Director's and officer's insurance in the minimum amount of Two Million Dollars ($2,000,000) within ten (10) business days after executing this Agreement. 4.9 Right To Bind. Executive shall be granted signing rights and approval rights on any and all legal documents and contracts of the Company, it being agreed that any two (2) key corporate offices be allowed to sign for and bind the Company, including the Executive, Robert Maerz and David Pritchard. 4.10. Major Medical. Executive shall be provided with major medical insurance unless Executive elects to retain his current insurance whereby Company agrees to pay for same as long as the amount paid by Company does not exceed any sum paid for major medical insurance for any senior executive of the Company. Any amount over and above shall be borne by and be the responsibility of the Executive. 4.11. Other Benefits. Notwithstanding the foregoing, the Executive shall be entitled to any additional employee benefits which are no less favorable than those currently in operation in the Company. 5. Termination. 5.1 Termination For Cause. The Company shall at all times have the right, upon written notice with a reasonable opportunity to cure any such breach by the Executive, to terminate the Executive's employment hereunder for cause (as hereinafter defined). For purposes of this Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of any of the material terms or provisions of this Agreement; (b) conviction of the Executive in connection with a felony; (c) commission by the Executive of an act or acts involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or dishonesty against property or personnel of the Company; or (d) willful or reckless conduct by the Executive which the Board in good faith determines could reasonably be expected to have a material adverse effect on the business, assets, properties, results of operations, financial condition or prospects of the Company. Upon any termination pursuant to this Section 5.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability under this Agreement (other than for the reimbursement for reasonable pre-approved business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). Page 4 of 7 pages 5.2 Disability. The Company shall at all times have the right, upon written notice to the Executive, to terminate the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability become unable to perform his duties hereunder for in excess of ninety (90) calendar days in any twelve (12) month period. Upon any termination pursuant to this Section 5.2, (a) the Company shall pay to the Executive (I) immediately any unpaid amounts of his Base Salary accrued through the effective date of termination plus 12 months base salary, (ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of the calendar year through the date of termination, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). 5.3 Death. In the event of the death of the Executive during the term of his employment hereunder, (a) the Company shall pay to the estate of the deceased Executive (I) immediately any unpaid amounts of his Base Salary accrued through the date of death, (ii) in accordance with Section 3.2(b), an amount equal to the Incentive Compensation, if any, payable to him in respect to the calendar year of the Company in which such death occurs, prorated for the period of service by the Executive from the beginning of such calendar year through the date of his death, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable pre-approved business expenses incurred prior to the date of the Executive's death, subject, however, to the provisions of Section 4.1). All stock ownership rights and stock-options vested at the time of death shall inure to the Estate of Executive. Heirs of Executive shall have the same time frame to exercise options as the Executive had, had he been still living. Said stock, stock-options and/or warrants shall not entitle the heirs of Executive to any management voting rights in the Company, but all beneficial and financial rights shall vest in the heirs accordingly. 5.4 Resignation By Executive. Executive is required, and agrees, to give the Company a two (2) month notice prior to such resignation or voluntary termination of his employment, the purpose of which is to allow the Company ample time to locate a senior management replacement for the Executive's vacant position. Executive shall have the right to terminate for "good cause," for example, an occurrence whereby there is a change of control within the Company and/or the Company defaults on any payment. Should the default not be remedied after a 14 day cure period, Executive shall receive 10% of the Company as liquidated damages. 6. Restrictive Covenants. 6.1 Non-competition. Except as provided in Section 1.2 and with the Company's knowledge and acceptance that Executive has an ownership in other projects previously created prior to the date of this Agreement between Executive and other third parties, Executive, while employed by the Company and during the non-competition period (as hereinafter defined), the Executive, except as previously indicated, shall not, directly engage in or have any interest in an entity that directly competes with the Company For purpose of this Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's employment is terminated pursuant to Section 5.4 above, the period beginning on the effective date of resignation and ending six (6) months thereafter. Because such mandatory restrictive covenants are being placed on the Executive, the Company shall pay the Executive's base salary hereunder for a period of six (6) months after termination of employment, except those endeavors permitted in 4.10 herein. Should the Company default on any payment, Executive is released from Non-competition. Executive hereby discloses for exclusion of non-compete the following business ventures in which he is presently involved. MSH Entertainment. Page 5 of 7 pages 6.2 Nondisclosure. The Executive shall not divulge, communicate, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret information, confidential business information, proprietary technology, internal financial statements or any and all other sensitive data now known or hereafter acquired by the Executive with respect to the business of the Company (which shall include, but not be limited to, information concerning the Company's financial condition, prospects, customers, sources of leads, methods of doing business, and the manner of design, manufacture, financing, marketing and distribution of the Company's productions) shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company with respect to all such information. 6.3 Books and Records. All books, records and accounts relating in any manner to the business, customers, suppliers or clients of the Company and all other documents, disks, software or other items containing confidential information relating to the Company, whether prepared by the Executive or otherwise coming into the Executives possession, shall be the exclusive property of the Company and shall be returned immediately, together with any copies, to the Company on the termination of the Executive's employment hereunder, or on the Company's request at any time. 6.5 Ownership of Inventions and Other Developments. Company shall be entitled to own and control all proprietary technology and all financial, operating and creative ideas, works, scripts, processes and materials, including works of expression and copyrights in such works, that are developed, written, or conceived by Executive during Executive's employment hereunder to the extent that they directly relate to Company's current business. Accordingly, Executive will disclose, deliver, and assign to Company all such created works, inventions, discoveries, improvements, trade secrets and all works subject to copyright. Executive agrees to execute all documents, patent applications, and arrangements necessary to further document such ownership such ownership and/or assignment and to take whatever other steps may be needed to give Company the full benefit of them. In regard to all properties conveyed or anticipated to be conveyed under this Agreement, in the event Company is dissolved or unable to meet its obligations under the stock purchase agreement, then all such works shall revert to Executive and Executive shall have first right of refusal to purchase all other works owned by Company. 7. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California 8. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between and among the Executive, the Company and/or any of their affiliates with respect to the subject matter contained herein. Except for the obligation to pay any accrued but unpaid salary due the Executive, all such prior agreements, understandings and arrangements for the provision of services by the Executive to the Company and/or any of its affiliates and the compensation of the Executive in any form shall automatically terminate upon the consummation of the transactions contemplated by the Purchase Agreement, and each party shall thereupon and thereby, without any further action, release and forever discharge the other (and the other's affiliates) from any and all liabilities and obligations of any nature arising out of or in connection with any and all such prior agreements, understandings or arrangements. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive. Page 6 of 7 pages 9. Notices. Any notice required or permitted to be given hereunder shall be deemed given when delivered by hand, by facsimile or three (3) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, (I) if to the Company, to the address of the Company's principal offices at 244 West 54th Street, 12th floor, New York, New York, 10019, (ii) to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other. 10. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise; provided, however, that under no circumstances may the Executive delegate his employment obligations hereunder or any portion thereof. 11. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 12. Waiver. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 13. Damages; Prevailing Party. Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. If there is any legal action or proceeding to enforce or interpret any provision of this Agreement or to protect or to establish any right or remedy of any party, the non-prevailing party to such action or proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorney's fees and costs, incurred by such prevailing party in such action or proceeding, in enforcing its judgment and in connection with any appeal from such judgment. Reasonable attorney's fees and costs incurred in enforcing any judgment or in connection with any appeal shall be recoverable separately from and in addition to any other amount included in such judgment. The prevailing party's rights under this Section 14 shall not merge into any judgment and shall survive until all such fees and costs have been paid. 14. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 15. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 16. Subsidiaries. All reference to the "Company" in this Agreement, including but not limited to those in Section 6, shall be deemed to include any and all of the Company's direct and indirect subsidiaries to the extent the context may require. Page 7 of 7 pages IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. By:________________________________ By:_____________________________ Company Executive It's:______________________________ ________________________________ Print Name Print Name ___________________________________ ________________________________ Address Address ___________________________________ ________________________________ Address Address Social Security #:______________ EX-6.6 9 EMPLOYMENT AGREEMENT - DAVID PRITCHARD EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 17th day of December, 1999, by and between Kids And Family Network, Inc. its affiliates and subsidiaries (collectively the "Company"), as employer, and David Pritchard (the "Executive") as a key employee of the Company. Preliminary Statements: A. The Executive possesses intimate knowledge of the business and affairs of the Company, its policies, methods and personnel. B. The Board of Directors of the Company (the "Board") recognizes that the Executive has contributed to the growth and success of the Company and desires to assure the Company of the Executive's continued employment and to compensate him therefore. C. The Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company. D. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth. Agreements: NOW, THEREFORE, in consideration of the promises and mutual covenants set forth herein, the parties agree as follows: 1. Employment. 1.1 General. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and subject to the conditions set forth herein. 1.2 Duties of Executive. During the term of this Agreement the Executive shall serve as the Co-Chairman-of-the-Board of the Company, and shall diligently perform all the services as may be assigned to him by the Board, and shall exercise such power and authority as may from time to time be delegated to him by the Board. Executive shall have full control over all aspects of Company and will be entitled to engage in all the activities of the Company's creative and business activities. The Executive agrees to devote a reasonable amount of his time until April, 2000, and thereafter Executive shall devote no less than 80% of his time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his best efforts to promote the interests of the Company. 2. Term. 2.1 Initial Term. The initial term of this Agreement and the employment of the Executive hereunder shall be for the two (2) year period commencing on the date of the execution of this Agreement (the "Initial Term"), unless sooner terminated in accordance with the terms and conditions hereof. 2.2 Renewal Terms. The Initial Term of this Agreement and the employment of the Executive hereunder, may be renewed and extended for an additional two (2) years at the election of Executive and for such additional periods as may be mutually agreed to by the Company and the Executive. Page 2 of 7 pages 3. Compensation. 3.1 Base Salary. The Executive shall receive a base salary at the annual rate of Three Hundred and Fifty Thousand Dollars ($350,000.00) (the "Base Salary") during the Initial Term of this Agreement, subject to applicable withholding and other taxes. If the term of this Agreement shall be renewed and extended as provided in Section 2.2 hereof, then during such renewal term of his employment hereunder the Executive shall be paid an increased base salary, such base salary shall be increased each year the amount of which shall be made as per mutual agreement of the Executive and Company, to account for cost of living increases and in no event will the increase be less than prevailing COLA Index (U.S. Government "Cost of Living Allowance" Index) to account for cost of living increases and shall be made regardless of any incentive compensation. 3.2 Incentive Compensation. (a) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation (the "Incentive Compensation") based on performance which shall be no less than that of any other key employee and shall be a percentage of the Company's adjusted gross profits at the end of each calendar year during the term of the Executive's employment hereunder. (b) For purposes of this Agreement, the amount of the Incentive Compensation payable with respect to any calendar year (net of any tax or other amount properly withheld therefrom) shall be paid by the Company to Executive upon completion of the year end audited financials which is not to exceed One Hundred and Twenty Days (120) after the end of the calendar year; provided, however, that any amount paid shall be subject to increase or decrease based upon the results of review of the financial statements with respect to such year. 4. Expense Reimbursement and Other Benefits. 4.1 Expense Reimbursement. The Executive shall be entitled to reimbursement by the Company for all reasonable business expenses incurred by him in connection with the performance of his duties hereunder, provided however, that such entitlement is conditioned upon the Executive providing the Company with appropriate documentation of such expenses in accordance with Company policy and based on the guidelines currently set for the Company by the Chief Operating Officer and the Chief Financial Officer of the Company. Company shall pre-pay $12,500 of expenses each quarter. 4.2 Insurance. The Executive shall be entitled to participation in all medical, hospitalization, disability and group life insurance plans, and any and all other employee benefit plans, as are hereinafter provided by the Company to its executives. Additionally, Executive shall be provided with a "key man" insurance policy which shall an amount that is no less than any other key executive of the Company, effective within a reasonable time after receiving the results of a doctors physical. 4.3 Vacation. The Executive shall be entitled to four (4) weeks paid vacation per year in accordance with the Company's prevailing policy for its executives; provided, however, that in no event may a vacation be taken when to do so could reasonably be expected to materially and adversely affect the Company's business. 4.4 Board Of Directors. The Executive shall maintain his position as the CO-Chairman of the Board for the term of the Agreement and shall be elected to each committee of the Board of Directors. Additionally, Executive shall be considered key management, responsible for implementing and carrying out the policies of the Company. Page 3 of 7 pages 4.5 Stock Options. Executive shall be granted One Million (1,000,000) shares of MSH Common Stock and Five Hundred Thousand (500,000) shares of KidsAndFamily Network stock on the date hereof and shall participate in the stock-option plan of the Company whereby additional stock options may be granted to Executive by the Board of Directors depending upon the performance of the Executive and the Executive shall be entitled to receive the maximum level of stock options granted any executive of the Company. 4.6 Liquidity Event. Executive shall be granted a "Liquidity Event" at least once per year to be able to sell stock as additional compensation. 4.7 Retirement Fund. Company shall take part in the key man retirement fund of the Company, which has been instituted for the Executive and Company shall contribute to and maintain said fund for the duration of Executive's employment hereunder. 4.8 Directors Insurance. Company shall provide Executive with Director's and officer's insurance in the minimum amount of Two Million Dollars ($2,000,000) within ten (10) business days after executing this Agreement. 4.9 Right To Bind. Executive shall be granted signing rights and approval rights on any and all legal documents and contracts of the Company, it being agreed that any two (2) of the following individuals be the only corporate officers allowed to sign for and bind the Company, they being the Executive (Robert Maerz), Jonathan Stathakis, John Gentile or Anthony Gentile. 4.10 Producer. Executive shall be entitled to be a paid producer, supervising producer and/or executive producer and/or writer fees from any and all programs that the Executive's services are requested. Said fees shall be set by the budgetary guidelines for each production and shall not exceed industry standards and in many cases may be below industry standards. It is not the intent of the Company to have the Executive produce specific programs, but only those which the Executive may be requested to produce and/or executive producer by a broadcaster, distributor, buyer, production partner and/or joint venture partner. 4.11. Major Medical. Executive shall be provided with major medical insurance unless Executive elects to retain his current insurance whereby Company agrees to pay for same as long as the amount paid by Company does not exceed any sum paid for major medical insurance for any senior executive of the Company. Any amount over and above shall be borne by and be the responsibility of the Executive. 4.12. Other Benefits. Notwithstanding the foregoing, the Executive shall be entitled to any additional employee benefits which are no less favorable than those currently in operation in the Company. 5. Termination. 5.1 Termination For Cause. The Company shall at all times have the right, upon written notice with a reasonable opportunity to cure any such breach by the Executive, to terminate the Executive's employment hereunder for cause (as hereinafter defined). For purposes of this Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of any of the material terms or provisions of this Agreement; (b) the charging or indictment of the Executive in connection with a felony; (c) commission by the Executive of an act or acts involving fraud, embezzlement, misappropriation, theft, breach of Page 4 of 7 pages fiduciary duty or dishonesty against property or personnel of the Company; or (d) willful or reckless conduct by the Executive which the Board in good faith determines could reasonably be expected to have a material adverse effect on the business, assets, properties, results of operations, financial condition or prospects of the Company. Upon any termination pursuant to this Section 5.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability under this Agreement (other than for the reimbursement for reasonable pre-approved business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 4.1). 5.2 Disability. The Company shall at all times have the right, upon written notice to the Executive, to terminate the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability become unable to perform his duties hereunder for in excess of ninety (90) calendar days in any twelve (12) month period. Upon any termination pursuant to this Section 5.2, (a) the Company shall pay to the Executive (I) immediately any unpaid amounts of his Base Salary accrued through the effective date of termination plus 12 months base salary, (ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b), an amount equal to the Incentive Compensation, if any, payable to him in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of the calendar year through the date of termination, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject however, to the provisions of Section 4.1). 5.3 Death. In the event of the death of the Executive during the term of his employment hereunder, (a) the Company shall pay to the estate of the deceased Executive (I) immediately any unpaid amounts of his Base Salary accrued through the date of death, (ii) in accordance with Section 3.2(b), an amount equal to the Incentive Compensation, if any, payable to him in respect to the calendar year of the Company in which such death occurs, prorated for the period of service by the Executive from the beginning of such calendar year through the date of his death, and (b) the Company shall have no further liability under this Agreement (other than for reimbursement for reasonable pre-approved business expenses incurred prior to the date of the Executive's death, subject, however, to the provisions of Section 4.1). All stock ownership rights and stock-options vested at the time of death shall inure to the Estate of Executive. Heirs of Executive shall have the same time frame to exercise options as the Executive had, had he been still living. Said stock, stock-options and/or warrants shall not entitle the heirs of Executive to any management voting rights in the Company, but all beneficial and financial rights shall vest in the heirs accordingly. 5.4 Resignation By Executive. Executive is required, and agrees, to give the Company a two (2) month notice prior to such resignation or voluntary termination of his employment, the purpose of which is to allow the Company ample time to locate a senior management replacement for the Executive's vacant position. Executive shall have the right to terminate for "good cause," for example, an occurrence whereby there is a change of control within the Company and/or the Company defaults on any payment. Should the default not be remedied after a 14 day cure period, Executive shall receive 10% of the Company as liquidated damages. Page 5 of 7 pages 6. Restrictive Covenants. 6.1 Non-competition. Except as provided in Section 1.2 and with the Company's knowledge and acceptance that Executive has an ownership in other projects previously created prior to the date of this Agreement between Executive and other third parties, Executive, while employed by the Company and during the Non-competition Period (as hereinafter defined), the Executive, except as previously indicated, shall not, directly engage in or have any interest in any entity that directly competes with the Company. For purpose of this Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's employment is terminated pursuant to Section 5.4 above, the period beginning on the effective date of resignation and ending six months thereafter. Because such mandatory restrictive covenants are being placed on the Executive, the Company shall pay the Executive's base salary hereunder for a period of twelve six months after termination of employment, except those endeavors permitted in 4.10 herein. Should the Company default on any payment, Executive is released from Non-Competition. Executive hereby discloses for exclusion of non-compete the following business ventures in which he is presently involved: Brilliant Digital, Beacon, MSH Entertainment, Alta Mira, Special Projects and Financing Venture. 6.2 Nondisclosure. The Executive shall not divulge, communicate, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret information, confidential business information, proprietary technology, internal financial statements or any and all other sensitive data now known or hereafter acquired by the Executive with respect to the business of the Company (which shall include, but not be limited to, information concerning the Company's financial condition, prospects, customers, sources of leads, methods of doing business, and the manner of design, manufacture, financing, marketing and distribution of the Company's productions) shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company with respect to all such information. 6.3 Books and Records. All books, records and accounts relating in any manner to the business, customers, suppliers or clients of the Company and all other documents, disks, software or other items containing confidential information relating to the Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately, together with any copies, to the Company on the termination of the Executive's employment hereunder, or on the Company's request at any time. 6.5 Ownership of Inventions and Other Developments. Company shall be entitled to own and control all proprietary technology and all financial, operating and creative ideas, works, scripts, processes and materials, including works of expression and copyrights in such works, that are developed, written, or conceived by Executive during Executive's employment hereunder to the extent that they relate to Company's current business. Accordingly, Executive will disclose, deliver, and assign to Company all such created works, inventions, discoveries, improvements, trade secrets and all works subject to copyright. Executive agrees to execute all documents, patent applications, and arrangements necessary to further document such ownership such ownership and/or assignment and to take whatever other steps may be needed to give Company the full benefit of them. In regard to all properties conveyed or anticipated to be conveyed under this Agreement, in the event Company is dissolved or unable to meet its obligations under the stock purchase agreement, then all such works shall revert to Executive and Executive shall have first right of refusal to purchase all other works owned by Company. Page 6 of 7 pages 7. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California. 8. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between and among the Executive, the Company and/or any of their affiliates with respect to the subject matter contained herein. Except for the obligation to pay any accrued but unpaid salary due the Executive, all such prior agreements, understandings and arrangements for the provision of services by the Executive to the Company and/or any of its affiliates and the compensation of the Executive in any form shall automatically terminate upon the consummation of the transactions contemplated by the Purchase Agreement, and each party shall thereupon and thereby, without any further action, release and forever discharge the other (and the others affiliates) from any and all liabilities and obligations of any nature arising out of or in connection with any and all such prior agreements, understandings or arrangements. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive. 9. Notices. Any notice required or permitted to be given hereunder shall be deemed given when delivered by hand, by facsimile or three (3) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, (I) if to the Company, to the address of the Company's principal offices at 244 West 54th Street, 12th floor, New York, New York, 10019, (ii) to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other. 10. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise; provided, however, that under no circumstances may the Executive delegate his employment obligations hereunder or any portion thereof. 11. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. Page 7 of 7 pages 12. Waiver. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 14. Damages; Prevailing Party. Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. If there is any legal action or proceeding to enforce or interpret any provision of this Agreement or to protect or to establish any right or remedy of any party, the non-prevailing party to such action or proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorney's fees and costs, incurred by such prevailing party in such action or proceeding in enforcing its judgment, and in connection with any appeal from such judgment. Reasonable attorney's fees and costs incurred in enforcing any judgment or in connection with any appeal shall be recoverable separately from and in addition to any other amount included in such judgment. The prevailing party's rights under this Section 14 shall not merge into any judgment and shall survive until all such fees and costs have been paid. 15. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 16. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 17. Subsidiaries. All reference to the "Company" in this Agreement including but not limited to those in Section 6, shall be deemed to include any and all of the Company's direct and indirect subsidiaries to the extent the context may require. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. By:/S/ Robert P. Maerz By:/S/ David Pritchard ---------------------- ------------------------ Company Executive It's: Chairman & CEO David Pritchard -------------------- --------------------------- Print Name Print Name 244 W. 54th St. 29230 Sea Lion Place - ------------------------- --------------------------- Address Address N.Y., N.Y. 10010 - ------------------------- --------------------------- Address Address Social Security #:____________ EX-6.7 10 LETTER AGREEMENT DATED DECEMBER 9, 1998 [LETTERHEAD] FILM ROMAN, INC. 12020 CHANDLER BLVD. SUITE 200 NORTH HOLLYWOOD, CALIFORNIA 91607 TELEPHONE 818 761 2544 FAX 818 985 2973 As of December 8, 1998 Ms. Jane Seymour Mr. James Keach JJK Publishing c/a Gregg Homer, Esq. Homer, Kirsch & Mitchell 2029 Century Park East, Suite #2750 Los Angeles, CA 90067 RE: "This One n' That One" ---------------------- Ladies and Gentlemen: We are pleased to confirm the agreement ("Agreement") between JJK Publishing ("Lender") f/s/o Jane Seymour and James Keach (collectively "Artists"),on the one hand, and Abrams/Gentile Entertainment Group, Inc. and MSH, Inc. (collectively "MSH") and Film Roman, Inc. ("FRI"), on the other hand, regarding the development and possible production, financing and distribution of one (1) or more Productions (as defined herein) entitled "This One n' That One" based upon the concept and books created and written by Artists as of the date hereof through the term of this Agreement (such concept and books collectively referred to herein as the "Property") and the exploitation of the Merchandising Rights (as defined herein) to all of the foregoing. For good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree to the following terms and conditions: 1. RIGHTS: A. GRANT OF RIGHTS: Lender hereby grants and Lender hereby causes Artists to respectively grant to FRI the exclusive right to develop and produce (x) one (1) motion picture intended for initial domestic release on Home Video (as defined herein) based on the Property with a total running time of not less than forty (40) minutes and not more than one hundred twenty (120) minutes including main and end titles (the "Picture") and (y) one (1) or more Series (as defined herein) together with all other rights respectively thereto of every kind and nature and to exploit the Picture, the Series and any other productions hereunder (collectively, the "Productions") subject to the Sequel Rights, Series Rights and Artists' Reserved Rights (each as defined below) together with a perpetual non-exclusive license to exploit any and all trademarks in and to the Property in connection therewith and to exploit any and all of the foregoing throughout the universe in perpetuity in any and all media, whether now known or hereafter devised, and to sublicense or otherwise authorize or permit third parties to do likewise (collectively the "Rights"). Without limiting the generality of the foregoing, FRI shall have the exclusive right to advertise, broadcast, exhibit and otherwise exploit the Productions or any part or parts thereof in perpetuity including, without limitation, any cels comprising the Productions, by and in each and every of the This One n' That One As of September 22, 1998 Page 2 following means and media: "Cinematic" (Theatrical, Non-Theatrical and Public Video), "Home Video" (Rental, Sellthru, and Video On Demand), "Television" (Free Television, Residential and Non-Residential Pay-Per-View, Terrestrial, Basic and Free Cable and Satellite Pay-TV, and Terrestrial, Cable and Satellite Free-TV) "Ancillary" (Airline, Ship, Hotel, and Radio) together with the exclusive right to produce or exploit Derivative Works based on or adapted or derived from or inspired by the Productions or the Property, including, without limitation, Remakes, Sequels, Spinoffs (subject to the terms herein); "Multimedia" (Internet, Interactive Multimedia and Interactive Networked Multimedia); Merchandising; (as more fully defined herein), Live Performances; Soundtrack; Music Publishing; and Theme Park Works and Location Based Entertainment Works; and Print Publishing to the extent not reserved (the "Reserved Publication Rights") pursuant to paragraph 1.E.1, below. MSH acknowledges and subject to Artists' Reserved Rights, Lender acknowledges and hereby causes Artists to acknowledge that the Productions hereunder and the respective results and proceeds thereto is/are a work specially ordered or commissioned for use as a motion picture and shall be, for copyright purposes, considered a work made for hire for the benefit of FRI and FRI shall be considered the sole author of the Productions and the respective results and proceeds thereto for all purposes. To the extent that such results and proceeds are not deemed works-for-hire, MSH and Lender hereby irrevocably and exclusively grant assign and transfer; and Lender hereby causes Artists to irrevocably and exclusively grant, assign and transfer to FRI, all right, title and interest in and to all results and proceeds of all the services provided by Lender, Artists and MSH respectively hereunder (including, without limitation, all copyrights and renewals and extensions to each of the Productions). Lender hereby causes Artist to Agree to promptly provide FRI (subject to FRI's reasonable approval) chain of title in and to the Property and receipt of a fully executed so-called Publisher's Release from the publishers signatory to the Putnam Agreement. B. SEQUEL. SPIN-OFF AND REMAKE RIGHTS ("SEQUEL RIGHTS"): Provided that the Picture ships at least two hundred thousand (200,000) Home Video units during the Production Window (as defined below) then FRI shall have the exclusive right to produce the first Sequel, Spin-off or Remake of the Picture or other motion picture intended for initial domestic Home Video release based upon the Property ("Second Production"), subject to the same terms and conditions outlined herein. For purposes herein, "Spin-Off' means one (1) or more additional motion pictures based upon, adapted or derived from, or inspired by an existing motion picture(s) or any part or parts therefrom or any element or elements thereof, and in which a character, event or locale depicted in such existing motion picture(s) is shown as a recurring subject of such additional motion pictures. Provided that the Second Production ships at least three hundred thousand (300,000) Home Video units during the Production Window, then FRI shall have the exclusive right to produce the second Sequel, Spin-off or Remake of the Picture or other motion picture intended for initial domestic Home Video release based upon the Property ("Third Production"), subject to the same terms and conditions outlined herein. The parties acknowledge and agree that the termination of FRI's Sequel Rights hereunder shall in no way affect FRI's perpetual, proprietary and exploitation rights to any of the This One n' That One As of September 22, 1998 Page 3 Productions theretofore produced pursuant to the terms herein or the parties respective right to participations therefrom. Notwithstanding the foregoing, if production commences on a Series during the Production Window, the foregoing conditions precedent to FRI's exploitation of the Sequel Rights necessary to for FRI to produce the Second Production and Third Production shall be deemed satisfied. C. TELEVISION SERIES: In addition to the foregoing, FRI shall have the exclusive right to produce one (1) or more Television series, Television series spin-offs, Television specials and/or Television pilots or presentations (except as otherwise indicated, the foregoing shall be defined herein as the terms are respectively understood in the television entertainment industry and are collectively herein the "Series") based on the Property if production of the Series commences between the date hereof but prior to the expiration of the Production Window as extended hereunder. The parties acknowledge and agree that the terms and conditions herein shall apply to any Series produced hereunder, including without limitation, the parties' respective participations herein. Notwithstanding the foregoing, the parties agree that the initial Series commitment from a broadcaster shall be for no less than six episodes (except for Television specials, pilots or presentations). D. MERCHANDISING RIGHTS: In addition to the foregoing, FRI shall have the exclusive right and license to manufacture merchandise items embodying the Property and/or Productions together with the trademarks and character names therewith or which otherwise relate thereto and to distribute, advertise, promote, and exploit same throughout the Universe, including without limitation, all merchandising, licensing and promotional activities, commercial tie-ins or tie-ups and to sublicense or otherwise authorize or permit third parties to do likewise in connection with the Property, Productions or any element thereof, (the "Merchandising Rights"). Notwithstanding the foregoing, Merchandising Rights shall not include print publication rights, which rights shall be reserved pursuant to paragraph 1.E.2., below. To the extent that Artists wish to exploit the Reserved Publication Rights (defined below) and such rights are not exploited through Putnam, whether through the existing Putnam Agreement or otherwise, Artists shall consider allowing such rights to be administered as part of Merchandising Rights; provided, however, that Artists decision concerning the disposition of such publishing rights shall be final. The exploitation of the Merchandising Rights shall include, but not be limited to, the following types of products/services: toys, games, board games, hardcover and softcover books, activity books, hand held video games, and apparel. The term of such rights shall be from the date hereof through the period ending one (1) year following the conclusion of the Production Window, at which time such rights shall revert to Lender. E. RESERVED RIGHTS: 1. LENDER'S RESERVED RIGHTS: FIRST NEGOTIATION/FIRST REFUSAL. All rights in and to the Property not expressly granted to FRI herein are reserved by Lender including, without limitation, all theatrical length motion pictures intended for initial domestic theatrical release based on the This One n' That One As of September 22, 1998 Page 4 Picture and/or Property ("Theatrical Rights"). Notwithstanding the foregoing, if Lender wishes to license or assign the Theatrical Rights to a third party distributor or financier during the Production Window, then prior to negotiating with said third party, Lender shall notify FRI of its desire to so license or assign the Theatrical Rights and FRI shall have a period of thirty (30) days following such notice within which to negotiate exclusively with Lender in order to reach agreement with regard therewith on terms no less favorable than the terms and conditions herein ("First Negotiation Right"). If no agreement is reached within such thirty (30) day period, then Lender shall be free to negotiate and conclude an agreement with a third party for said licensing or assignment on terms no more favorable to such other party than the terms presented to FRI. If Lender negotiates terms with another party that are more favorable to said other party than the terms presented to FRI then FRI shall have a period of fifteen (15) days to match such terms in writing. The First Negotiation Right provided hereunder shall apply each time that Lender wishes to so license or assign the Theatrical Rights on a continuing and rolling basis; provided however that in the event that Lender ever enters into an agreement with a third party hereunder, then FRI shall have no further rights with respect to the licensing or assignment of the Theatrical Rights. 2. ARTISTS' PRINT PUBLICATION RIGHTS. Reference is made to the Putnam agreement by and between Lender and Putnam Publishing, dated as of________ (the "Putnam Agreement"). Artists shall retain, and FRI and MSH shall not participate in, any print publication rights or revenues, whether derived from the Putnam Agreement or otherwise (collectively, "Reserved Publication Rights"). As set forth in paragraph 1.D., above, to the extent that Artists wish to exploit the Reserved Publication Rights and such rights are not exploited through Putnam, whether through the existing Putnam Agreement or otherwise, Artists shall consider allowing such rights to be administered as part of Merchandising Rights; provided, however, that Artists' decision concerning the disposition of such Reserved Publication Rights shall be final. Notwithstanding the foregoing, in order to facilitate the maximum exploitation of the Productions and the Series, Artists agree to use reasonable efforts to exercise any print publication rights arising from the Putnam Agreement and to request any publishers therein to do likewise in coordination with FRI's release schedule for the Productions and Series. FRI and MSH shall be entitled to purchase any books published therefrom for no more than the wholesale cost thereof Lender may use elements from materials created by FRI in connection with the Reserved Rights without any required payment to FRI; provided, however, if there are third party obligations of which FRI notifies Lender in writing (such as residual payments), then such use by Lender shall be subject to Lender assuming such obligations. F. REVERSION: The Rights granted hereunder are expressly conditioned upon FRI commencing the earlier of either commencement of production of the Picture or the Series (the "First Project") within nine (9) months from the date of Lender's and Artists' execution and delivery of this This One n' That One As of September 22, 1998 Page 5 Agreement to FRI; provided that in the event FRI commences production of the First Project but fails to release the First Project within three (3) years after commencement of production thereof then the Rights shall revert to Lender free and clear of any claim, lien or encumbrance except (i) FRI's continuing right to complete any substantially or completely finished productions and exploit same hereunder, and (ii) any accrued right to merchandising/licensing revenue streams by FRI and MSH, and (iii) if Lender elects to produce a Production utilizing materials developed (but never produced) by FRI, FRI's lien and security interest in such Production for all of its actual, direct, out-of-pocket development costs in said Production plus interest calculated as set forth in paragraph 4, below, which shall be payable to FRI no later than the commencement of principal photography, if ever, of such Production. As set forth above, Lender may use elements from materials created by FRI in connection with the Reserved Rights without any required payment to FRI; provided, however, if there are third party obligations of which FRI notifies Lender in writing (such as residual payments), then such use by Lender shall be subject to Lender assuming such obligations. 2. BUDGET OF THE PICTURE: The cash budget ("Budget") for the Picture shall be no less than six hundred thousand dollars (US$600,000) including all the individual items of cost and expense for the complete development, production and delivery of the Picture excluding financing costs, interest and interest reserve, completion guarantee fees, if any, and contingency. Except as otherwise expressly stated in this Agreement, the Budget shall not include any producer fees and no producer fees shall be payable to the parties hereto. 3. PRODUCTION WINDOW: The Production Window shall be the period during which FRI shall have the right to commence principal photography of the next Production hereunder and shall be calculated as commencing from the date hereof as continued and extended pursuant to the subparagraphs below subject to the terms and conditions herein and any period of suspension for force majeure; it being acknowledged that the duration of the Production Window shall be the longer of the Production Windows as extended and continued therefrom. Notwithstanding the foregoing, FRI may elect in writing to extend the Production Window an additional six (6) months ("Production Window Extension") above and beyond the extensions herein below provided however that if FRI fails to commence production of a Production during the Production Window Extension then FRI shall promptly pay Lender for Artists' benefit an amount equal to One Hundred Fifty Thousand Dollars (US$150,000) upon the expiration thereof. A. PRODUCTIONS: If FRI produces the Picture during the term of this Agreement, the Production Window shall continue for one (1) year from the initial exploitation (e.g. initial release, or "street date,") of the Picture (the "Initial Exploitation"). If production commences on the Second Production during the Production Window, the Production Window shall continue until the earlier of one (1) year from the Initial Exploitation of the Second Production or three (3) years from commencement of production of the Second Production. If production commences on the Third Production during the Production Window, the Production Window shall This One n' That One As of September 22, 1998 Page 6 continue until the earlier or additional one (1) year from the Initial Exploitation of the Third Production or three (3) years from commencement of production of the Third Production. B. SERIES: If production of a Series commences during the Production Window, and provided further that the first broadcast occurs within two (2) years after commencement of production, then the duration of the Production Window shall be determined as indicated below. For purposes herein, if the applicable Series episodes are ordered for a given broadcast season and actually produced, then production of said episodes shall be deemed commenced upon commencement of said broadcast season. 1. For thirteen (13) or fewer episodes in the aggregate produced, the Production Window shall continue and be extended until the earlier of one (1) year after the date of the first broadcast of the last episode of the Series or three (3) years from the commencement of production of episode number 1. 2. For fourteen (14) through twenty-five (25) episodes in the aggregate produced, the Production Window shall continue and be extended until the earlier of eighteen (18) months after the date of the first broadcast of the last episode of the Series or three and one half (3 1/2) years from the commencement of production of episode number 14. 3. For twenty-six (26) through thirty-eight(38) episodes in the aggregate produced, the Production Window shall continue and be extended until the earlier of thirty (30) months after the date of the first broadcast of the last episode of the Series or four and one half (4 1/2) years from the commencement of production of episode number 26. 4. For thirty-nine (39) through fifty-one (51) episodes in the aggregate produced, the Production Window shall continue and be extended until the earlier of three (3) years after the date of the first broadcast of the last episode of the Series or five (5) years from the commencement of production of episode number 39. 5. For fifty-two (52) or more episodes in the aggregate produced, the Production Window shall continue in perpetuity. C. TERMINATION: In the event that this Agreement is terminated as a result of the expiration of the Production Window as may be extended hereunder or otherwise, then the Rights hereunder shall immediately revert to Lender but shall in no way affect FRI's perpetual, proprietary and exploitation rights to any of the Productions theretofore or substantially produced (the "Vested Productions") and the right to exploit same pursuant to paragraph 1, nor shall such termination affect FRI's or MSH's right to participate in vested Merchandising Gross Receipts as set forth in paragraph 5.(D) (ie, agreements negotiated or substantially negotiated during the Production This One n' That One As of September 22, 1998 Page 7 Window); the representations warranties and indemnities of the respective parties hereto (which shall survive such termination); and the parties' respective participations hereunder in the Vested Productions subject to the terms herein. 4. ADJUSTED GROSS RECEIPTS: Provided that Lender and/or Artists are not in material default hereunder, FRI will make the following continuing payments and recoupments from the Gross Receipts it actually receives or is credited from the exploitation of the Rights on a non-cross collateralized basis (and excluding any Merchandising Revenues FRI receives or is credited pursuant to Paragraph 5. herein) in the following order of priority: a distribution fee of twenty-five percent (25%) (but only when FRI serves as the direct distributor of the Productions to a third party end-user (e.g., to a broadcaster, exhibitor, home video retailer); distribution costs with a ceiling of seven and one-half percent (7.5%); actual production costs of the Productions including FRI's overhead calculated at a rate often percent (10%); all royalties, clearances, residuals, mutually approved participations, payments or other sums, if any, that are payable to any third party which renders services or grants rights with respect to the Productions, or any of them; all costs of litigation, enforcement and perfection of the Rights, and accrued interest on all the foregoing at the rate charged to FRI by its bank for borrowing funds (irrespective of whether or not funds are actually borrowed hereunder) not to exceed prime plus two percent (2%). The remaining balance, if any, shall be "Adjusted Gross Receipts" herein and FRI will pay Lender for Artists' benefit, an amount equal to fifty percent (50%) of one hundred percent (100%) of the Adjusted Gross Receipts, if any, arising from FRI's exploitation of the Rights herein. The remaining fifty percent (50%) of one hundred percent (100%) of the Adjusted Gross Receipts shall be payable to FRI ("FRI's Share"). MSH and FRI agree to negotiate a "split" of FRI's Share in good faith with MSH receiving from zero percent (0%) to fifty percent 50% of FRI's Share, the prime factor in such negotiations being the extent, if any to which MSH provides financing for the respective Productions and/or Series, or any of them. 5. EXPLOITATION OF THE MERCHANDISING RIGHTS. A. AGENT OF MERCHANDISING RIGHTS. MSH hereby agrees to act as the exclusive agent for the exploitation of the Merchandising Rights on behalf of FRI and Lender. In its capacity as agent, MSH agrees to use best efforts to exploit the Merchandising Rights by engaging third party licensees and production partners who sell or manufacture products of good taste, quality and image. MSH agrees to act on behalf of the parties hereto in accordance with the terms of this Agreement in dealings with actual and potential licensees of the Merchandising Rights including the negotiation of license agreements and production agreements and the respective products and advertising in connection therewith. B. QUALITY AND OTHER CONTROLS. MSH agrees to review products, and the artwork, design, packaging and advertising related thereto, to ensure that the development, manufacture, appearance, quality and distribution of products exploiting the Merchandising Rights is consistent with the name and goodwill associated with the FRI, the Artists, the Property, the and the Productions hereunder. Furthermore, MSH agrees to monitor product quality levels with each licensee including This One n' That One As of September 22, 1998 Page 8 periodic samples of the products to ensure that the products adhere to the quality, and do not differ from the standards outlined or the products approved by FRI. C. STANDARD TERMS OF LICENSES. MSH hereby agrees to submit all proposed licensees to FRI and Lender for review and input as to industry, company, category and format (as such terms are generally understood in the merchandising industry) prior to entering into negotiations for a license with such proposed licensee. MSH agrees to consult with FRI and Lender during such negotiations and to provide copies of each such license agreement (drafts and execution copies) to FRI and Lender for their review and approval prior to execution thereof. In accordance with the foregoing, all licensing and merchandising agreements with third parties will be entered into and executed directly between such third parties and FRI. MSH will have the right during the term hereof to negotiate licensing agreements with such third parties for periods exceeding the term hereof (in accordance with merchandising industry practices), but all material terms and conditions of such licensing agreements including the foregoing, will be subject to FRI's and Lender's prior written approval. MSH will direct such third parties to pay FRI all revenues of any kind from such third parties in connection with the exploitation of the Merchandising Rights, including without limitation, fees or advances paid by such third parties. D. MERCHANDISING GROSS RECEIPTS: Subject to the applicable party not being in material breach of this Agreement and/or any agreements concerning the Picture, the Series or the Productions, then the following participations shall be paid to the parties hereto: Lender shall collectively be entitled to receive thirty three and one third percent (33.3%); and FRI shall be entitled to receive thirty three and one third percent (33.3%); and MSH shall be entitled to receive thirty three and one third percent (33.3%) of the Adjusted Gross Merchandising Revenues derived from the exploitation of the Merchandising Rights granted hereunder except for those receipts solely in connection with from the exploitation of the storybook rights arising from the Reserved Publication Rights for which FRI and MSH shall receive no participation. The parties participation in the exploitation of the Merchandising Rights shall be paid and accountable on a non- cross collateralized basis and shall be paid to the parties hereunder no later than thirty (30) days after FRI actually receives the Adjusted Gross Merchandising Revenues. "Adjusted Gross Merchandising Revenues" shall mean the gross proceeds received by or credited to parties hereto or their respective affiliated or related companies or individuals, in connection with any and all merchandising, licensing and promotional activities, including commercial tie-ins or tie-ups, of the Property, Productions or another production or any element thereof, after first deducting actual out of pocket distribution costs incurred in connection with the merchandising of the Property and the Productions (the "Costs"). Any third party licensing fees shall be borne by MSH. The Costs shall be subject to a ceiling of five percent (5%) commencing one (1) year after the first units of such merchandise are available to the general public (i.e., there shall be no cap on Costs the first year). The term of MSH and FRI's participation in the exploitation of the Merchandising Rights shall terminate one (1) year following the conclusion of the applicable Production Window as may be extended This One n' That One As of September 22. 1998 Page 9 hereunder (excluding the Production Window Extension). Notwithstanding the foregoing, MSH (or any agency which replaces MSH per paragraph 5.E., below) shall continue to receive the foregoing participations arising from any agreements negotiated or substantially negotiated during the Production Window (including any renewals thereof but excluding any substantive improvements thereto after the expiration of the Production Window). E. MSH'S TERMINATION. In the event that FRI reasonably determines on or before October 15, 1999, that MSH has failed to substantially exploit the Merchandising Rights or has otherwise defaulted on its obligations hereunder, then FRI may elect in its sole discretion to terminate MSH services hereunder. In such event, FRI, Lender and Artists shall have no further obligation to MSH. 6. AUDIT RIGHTS. MSH and Lender shall have separate and independent rights to examine, audit and copy all the books and records of FRI from time to time for the purpose of determining FRI's compliance with the terms and conditions of this Agreement. In connection therewith, FRI shall render accounting statements to the parties hereto no less frequently than quarterly within forty-five (45) days of the end of each quarter during the Production Window and for one year thereafter, and then semi-annually thereafter (on a calendar year or fiscal year basis as FRI may determine) which accounting statements shall set forth in reasonable detail the gross receipts actually collected during the period covered, any deductions therefrom and the computation of the participations hereunder, if any, payable with respect thereto. Notwithstanding the foregoing, in the event of a syndication or cable sale, FRI shall provide a special statement within 30 days of such sale. Losses shown on any accounting statements shall be carried forward and applied against such participations thereafter reflected on subsequent statements. FRI may retain reasonable reserves to cover anticipated losses or unforeseen expenses, provided that such reserves shall be released as of the next accounting statement (subject to FRI's rights to establish subsequent reasonable reserves). Any accounting statement rendered to the parties hereto which is not contested by the parties, or any of them, within twenty-four (24) months after rendition thereof shall be deemed final and incontestible; the foregoing incontestability shall include the parties' right to audit as well as such parties' right to commence any legal proceeding or other action based upon or arising out of such statement and the information contained therein. FRI and Lender shall also have the foregoing audit rights against MSH, to the extent, if at all, that MSH collects any revenues from the exploitation of the rights granted hereunder. 7. DEVELOPMENT ACTIVITIES: Lender hereby causes Artists to acknowledge that FRI may undertake development and pre-production activities in connection with the Rights, including, without limitation, the preparation and submission of treatments and/or screenplays based on the Property. FRI shall be deemed to be the copyright holder and owner of all right, title and interest in and to any materials, written, outlined, composed or otherwise which are prepared on behalf of FRI relating to the Property. MSH, Lender, and/or Artists shall not control, own or hold any right, title or interest of any kind whatsoever in or to any material written, outlined, composed, or otherwise created by or under the authority of FRI. In connection therewith, FRI may utilize the Property, may add to, subtract from, This One n' That One As of September 22, 1998 Page 10 amend, alter or otherwise deal with the same, it being understood that Artists and MSH waive any so-called "moral rights" with respect thereto. Notwithstanding the foregoing, nothing contained herein shall constitute any grant or transfer of Artists' Reserved Rights. 8. ARTISTS' DEVELOPMENT AND PRODUCTION SERVICES. Subject to professional availability, Lender shall cause Artists to render, on a meaningful and non-exclusive basis, all pre-production, production and post-production services customarily rendered by producers of first-class productions in the entertainment industry. The consideration payable to Lender for the benefit of Artist pursuant to terms of this Agreement shall be deemed to include the compensation for all development and production services rendered or to be rendered by Artists hereunder. 9. ARTISTS' VOICE-OVER SERVICES. Subject to third party broadcaster, distributor and/or financier approval and to Artists' availability, FRI will engage Lender for the services of Artists and Lender shall cause Artists to each render voice-over services on the Productions. In consideration of such voice-over services, Lender for the benefit of Artists, shall be paid the then applicable SAG scale plus ten percent (10%). 10. NAME AND LIKENESS: Subject to Artists' respective reasonable approval, Lender shall hereby causes Artists to grant to FRI the non-exclusive right to the use of Artists' respective names and approved likenesses (as well as the right to grant to others the right to use of Artists' respective names and approved likenesses) in any manner in connection with the exploitation of the Productions and Artists' respective services or the products thereof. 11. RESIDUALS, MUSIC AND OTHER CLEARANCES: Residuals, music and other clearances are all the responsibility of FRI subject to recoupment, if at all pursuant to paragraph 4 herein. Without limiting the generality of the foregoing, should FRI approve a SAG or ACTRA actor to voice a character in the Productions, FRI shall be responsible for SAG or ACTRA residuals resulting from and attributable to FRI's exploitation of the Productions. 12. KEY MAN: It is understood that Artists are relying on the fact that David Pritchard is an employee of FRI in their decision to bring the rights to FRI. As such, the parties agree that should David Pritchard cease to be a full-time employee of FRI, Lender shall have the right to terminate (i) FRI's right to produce any subsequent production beyond those which are already in production and (ii) FRI's and MSH's right to participate in revenues derived from merchandising agreements secured after such cessation date (as opposed to revenues derived from agreements pred-dating such cessation) by providing FRI with written notice to such effect within six (6) months of the cessation of Mr. Pritchard's full-time employment with FRI; provided, however, if FRI is an agreement whereby a third party has a right to order additional episodes of the Series, FRI shall continue to have the right to produce such additional episodes of such Series if so requested by such third party within the applicable Production Window. Notwithstanding the foregoing, if FRI's rights have vested per Paragraph 3, B. 5. herein, this Key Man provision (i.e., Paragraph 12 herein) shall have no force or effect. This One n' That One As of September 22, 1998 Page 11 13. APPROVALS: A. CREATIVE CONTROLS: Artists shall have the right to mutually approve with FRI, MSH and any applicable broadcaster and/or distributor of the Productions, all material development and pre-production items, including character designs, merchandise style guides and models, the title of the Productions, the initial press release regarding the subject matter of this Agreement, television pilot teleplay and motion picture screenplays, animation style, story boards, preliminary background designs and story premises and key personnel, including the writer, producer, director and composer (the "Production Approvals"). The parties hereby approve Susan Amerikaner as writer of the screenplay for the Picture. Lender/Artist shall also have the right to approve all proto-types for merchandising, tie-ins, and other items intended within the definition of Merchandising Rights. The foregoing approval includes approval over packaging, labels and tags, as well as advertising/publicity and promotional materials. All other creative decisions shall be made by FRI, with the understanding that MSH and Artists shall have meaningful consultation with respect to all other material creative items, including Series episodic scripts. The parties' approvals hereunder shall not be unreasonably withheld and such approvals shall be rendered as promptly as reasonably practicable but no later than ten (10) business days after the request for such approvals is received; provided however that in the event the FRI is in production on a Production hereunder, any Production Approvals related to said Production must be rendered within forty-eight (48) hours of such request. In the event that such approvals are not received within the applicable period, then the party shall be deemed to have affirmatively rendered such approvals. B. BUSINESS CONTROLS: Subject to the foregoing paragraph, FRI shall have final approval over business controls with the understanding that FRI will meaningfully consult with Artists with respect to all material business decisions. 14. CREDIT: The following credits shall appear in the main titles (if there are main titles, otherwise in the end titles), on a separate card (or its equivalent), and in a size of type no smaller or less prominent than that accorded to any other individual credit in connection with the Productions. Said credit shall also appear in all paid advertising issued by or under the control of FRI, subject to the standard exclusions and exceptions of FRI and any distributor(s) of the Productions; provided that said credit shall appear in all excluded and excepted ads in which any other credit appears (other than a purely award, congratulatory or nomination credit). Subject to the foregoing, FRI shall determine, in its sole discretion, the manner, form, size, style, nature and placement of any such credit. No casual or inadvertent failure of FRI, and no failure by any third party, to comply with the provisions of this paragraph shall be deemed to be a breach of this agreement. Upon receipt of Owner's written notice specifying any error or omission in any such credit obligations of FRI as set forth above, FRI shall use good faith efforts to remedy such error or omission on a prospective basis, it being understood in no event shall FRI be required to alter or recall any prints or advertising materials then in existence or to which FRI has irrevocably committed. This One n' That One As of September 22, 1998 Page 12 A. PRODUCTIONS: On any Productions produced hereunder Artists shall be accorded shared executive producer credits in first position to any other individual executive producer credits on the productions and a credit substantially in the form of "Based Upon A Book By" subject to applicable guild approvals. Lender shall also be entitled to a production company credit on all productions. Lender currently has designated "Catfish Productions" as the company name for such credit. Such credit shall be on a separate card, adjacent to all other production company credits. B. SERIES: If the Series is produced, Artists shall be accorded shared executive producer credits and "created by" credits and a credit substantially in the form of "Based Upon A Book By" on each episode of the Series including any television pilot(s) thereof, subject to applicable guild approvals. Lender shall also be entitled to a production company credit on all productions. Lender currently has designated "Catfish Productions" as the company name for such credit. Such credit shall be on a separate card, adjacent to all other production company credits. 15. PUBLICITY AND PROMOTION. Artists shall in good faith consider rendering reasonable promotional services in connection with the publicity and promotion of the Productions and the Merchandising Rights. Artists' decisions in connection with such activities shall be final. The consideration payable to Lender for the benefit of Artists pursuant to the terms of this Agreement shall be deemed to include any compensation for all Promotional Services rendered or to be rendered by Artists hereunder unless otherwise agreed or additional compensation is required pursuant to the applicable collective bargaining agreement in which case FRI shall be required to pay the minimum payment set forth therein for such services. MSH hereby agrees and Lender hereby causes Artists to agree not to issue (or cause to issue) any publicity containing any derogatory mention of FRI, the Productions, or the services of Artists or others in connection with the Productions. MSH agrees and Lender hereby causes Artists to agree not to disclose any confidential information with respect to FRI, MSH, or the Productions (including, without limitation, the budget thereof or the terms of any contracts for services of persons engaged in connection with the Productions) without FRI's prior written consent (excluding any such disclosure made by Artists to Artists' respective representatives in confidence, by operation of law or to legally enforce the terms of this Agreement). 16. REPRESENTATIONS AND WARRANTIES: Lender hereby causes Artists to respectively represent and warrant that the results and proceeds of Artists' services hereunder and the Property is or shall be original with Artists respectively; except to the extent that such results and proceeds are based upon material assigned or created by FRI, MSH or a third party; to be used as the basis therefor, or is in the public domain, and that to the best of their respective knowledge, such results and proceeds do not and shall not defame or disparage any person or entity or infringe upon or violate the rights of privacy, publicity, or any other rights of any kind or nature whatsoever of any person or entity, and is not the subject of any litigation or of any claim that might give rise to litigation. Artists also represent and warrant that Artists have taken all reasonable steps to protect any and all proprietary rights in and to the Property, including, without limitation, copyright and trademark registration thereof. Artists jointly and severally agree to indemnify and hold harmless FRI, MSH, and their respective employees, officers, agents, assigns and licensees This One n' That One As of September 22, 1998 Page 13 against any and all liability, claims, costs, damages, and expenses (including reasonable attorneys' fees arising out of or in connection with any breach of the foregoing covenants, warranties and representations. FRI shall indemnify Artists and MSH against any and all loss or damage (including reasonable attorneys' fees) arising out of any material added to the Productions by any of FRI's employees or assigns (other than Artists and MSH, as applicable), arising out of FRI's breach of its obligations under the Agreement or arising out of the development, production, distribution, or other exploitation of the Productions, other than claims for which the Artists and/or MSH are obligated to indemnify FRI. MSH shall indemnify Artists and FRI against any and all loss or damage (including reasonable attorneys' fees) arising out of any material added to the Productions by any of MSH's employees or assigns arising out of MSH's breach of its obligations under the Agreement or arising out of the development, production, distribution, or other exploitation of the Productions. 17. EXCLUSIVE ASSIGNMENT AND MORTGAGE OF COPYRIGHT: At FRI's request, MSH agrees and Lender hereby causes Artists to agree to promptly execute and deliver to FRI a short form assignment of rights consistent with the terms of this Agreement in FRI's customary form. 18. ADDITIONAL DOCUMENTS: MSH agrees and Lender hereby causes Artists to agree that they will, upon written request, execute all documents reasonably necessary to effectuate the grant of Rights under this Agreement including, without limitation, a Form PA copyright registration to be filed in the United States Copyright Office. If either MSH or Artists fail to properly execute any such document within ten (10) business days following its receipt of a written request therefor, then MSH hereby irrevocably appoints and Lender hereby causes Artists to irrevocably appoint FRI as its attorney-in-fact, coupled with an interest, and grants FRI full power and authority to do all acts, and to execute, acknowledge, deliver, file, register and record all documents in FRI's own name or the name and on behalf of MSH and Artists (as applicable), and to authorize local counsel or others to do any of the foregoing, as FRI believes reasonably necessary. MSH ratifies and Lender hereby causes Artists to ratify and confirm all actions taken by FRI pursuant to this grant of authority. 19. ARBITRATION: Any controversy or claim arising out of, or relating to, this agreement, the breach thereof, or the coverage of this arbitration provision shall be settled by arbitration before a retired judge (e.g., JAMS, Endispute or similar entity) pursuant to the provisions of Section 1280, et seq. of the California Code of Civil Procedure (or such substitute provisions therefor then in effect); provided, that any arbitrator(s) selected shall have experience in or knowledge of such industry in which the parties are engaged. In the vent the parties hereto are unable to agree on the selection of such arbitrator within thirty (30) days, then the presiding judge of the Los Angeles Superior Court shall appoint such arbitrator. Any such arbitration shall be conducted in Los Angeles, California. The arbitration of such issues, including the determination of the amount of any damages suffered by any party hereof by reason of the acts or omissions of another shall be to the exclusion of any court of law except as set forth below. The decision of the arbitrator shall be final and binding on all parties and their respective heirs, executors, administrators, successors and assigns. Any action to secure a judicial confirmation of the arbitration award may be brought in any state or federal court of competent jurisdiction. This One n' That One As of September 22, 1998 Page 14 20. ASSIGNMENT: This agreement and all provisions hereof shall be binding upon each of the parties and each of their successors, assigns, executors, administrators, heirs and next of kin, and FRI shall have the right to assign all or any rights granted to FRI hereunder to any third party; provided however that in the event that FRI assigns this Agreement to an entity other than a network, a major studio, a mini-major studio (i.e., New Line, Artisan, Miramax, Brillstein-Grey Entertainment and Castle Rock Entertainment) or an entity acquiring all or substantially all of FRI's assets, FRI shall remain secondarily liable hereunder. Artists, Lender and MSH may not assign this Agreement without the written consent of FRI. 21. MISCELLANEOUS: A. REMEDIES: In the event of breach or alleged breach of this agreement by FRI, MSH, Lender and Artists' respective rights herein shall be limited to those at law for damages. In no event shall the foregoing parties have the right to seek or obtain equitable relief. B. COUNTERPART SIGNATURE: This document may be executed in counterparts which, taken together, shall constitute the whole of the agreement as between the parties. C. ERRORS AND OMISSIONS: GENERAL LIABILITY. Artists shall be named as additional insureds on any errors and omissions coverage and/or general liability coverage respecting the Productions subject to the terms, conditions, and limitations of such coverage. Lender hereby causes Artists to respectively acknowledge that there shall be no obligation for FRI to obtain or maintain any such coverage(s) and that such coverage(s) shall not in any way limit or restrict Artists' respective representations and warranties hereunder. D. MEMORANDUM OF AGREEMENT: The foregoing Agreement constitutes a memorandum of agreement between the parties hereto concerning the subject matter set forth above. The parties hereto may at any time hereafter prepare and submit a more formal agreement incorporating the terms set forth in this Agreement as well as customary terms and conditions utilized by the entertainment industry located in Los Angeles, California for agreements of this type, including, without limitation, periods of force majeure, suspension and additional merchandising provisions which are incorporated herein by this reference (subject to modification by good faith negotiation within customary L.A. industry entertainment parameters,) but unless and until such more formal agreement is prepared and executed, this agreement will be legally binding upon the parties hereto. The parties hereto shall promptly review, negotiate and execute any such more formal agreement. This Agreement and any more formal agreements entered into by the parties hereto pursuant to the provisions hereof shall be governed by and construed in accordance with the laws of the State of California applicable to contracts fully to be performed therein. The foregoing constitutes the agreement between the parties hereto and may only be modified by a writing signed by both parties. This One n' That One As of September 22, 1998 Page 15 Please indicate your agreement with the foregoing by signing in the space provided below. Very truly yours, FILM ROMAN, INC. ("FRI") By: --------------------------- Its: --------------------------- // // REMAINING SIGNATURES ON NEXT PAGE This One n' That One As of September 22, 1998 Page 16 AGREED AND ACCEPTED: JJK PUBLISHING ("Lender") MSH INC. ("MSH") By: /s/ James Keach By: --------------------------- --------------------------- Its: President Its: President --------------------------- --------------------------- ABRAMS/GENTILE ENTERTAINMENT, INC. ("MSH") By: --------------------------- Its: President --------------------------- The undersigned hereby acknowledge that they have read and are familiar with each and every provision of this Agreement and hereby endorse and approve same and agree to be bound thereby and to perform all of the terms and conditions insofar as same are to be performed by them in the same manner as if they had executed this Agreement directly with FRI and MSH. Furthermore the undersigned acknowledge that FRI and MSH would not have entered into this Agreement without such endorsement and approval of the undersigned. /s/ Jane Seymour /s/ James Keach --------------------------- --------------------------- JANE SEYMOUR ("Artist") JAMES KEACH ("Owner") Date: Date: ---------------------- ---------------------- SS#: SS#: ---------------------- ---------------------- EX-6.8 11 LETTER AGREEMENT DATED NOVEMBER 19, 1998 LETTER OF AGREEMENT This Agreement dated this 19th day of November, 1998 by and between etc...group, inc ("etc...") a creative services company and MSH Entertainment Corporation ("MSHE") a multi-faceted, publicly traded, entertainment company (collectively the "Parties") concerning the formation of a strategic alliance between etc... and MSH with respect to corporate video and corporate television production; WHEREAS, etc... warrants and represents that it is a creative services company with ties to high tech Silicon Valley companies who need a boutique type approach to a variety of corporate communications issues; and WHEREAS, MSHE is desirous of entering the field of corporate video and corporate television production; NOW, THEREFORE, the Parties agree as follows: 1. The Parties shall form a strategic alliance (the "Alliance") for etc... to serve as the corporate video and corporate television production services company for the Alliance. 2. All corporate video production and commercial production for the Alliance shall be handled by etc... and MSHE agrees to turn over same to etc... 3. Any inquiries, bid request or jobs concerning any of the above that are presented to MSHE will be turned over to etc... 4. Any inquiries, bid request or jobs concerning the multi-faceted entertainment business as represented by MSHE (i.e., music library, animation, recording studio, voice over studio and video dubbing, film and theatrical entertainment) that come through etc... will be turned over to MSHE. 5. etc... and MSHE will include each other in their corporate collateral. 6. All jobs presented to etc... by MSHE (to be agreed upon and defined) shall be divided 60% etc..., 40% MSHE. 7. For all jobs procured by etc... whether through the use of MSHE's name or not, etc... agrees that when production budgets allow, etc... will utilize MSHE's music library, animation facilities, recording studio, voice over studio, voice talent and video dubbing facility, and MSHE will be compensated at the standard fee structure for these and all specialized services. 8. etc... shall have access to, and use of, MSHE's office facilities in New York and Los Angeles on an as available basis. 9. MSHE shall have access to, and use of, etc... offices in San Jose, California on an as available basis. 10. The term of this agreement shall be for twelve (12) months from the date above, and can be renewed by mutual agreement of the Parties for an additional eighteen (18) months, or longer. If the understanding between the Parties is correctly reflected above, the Parties agree to execute this letter of agreement and until such time a more formal agreement is drafted and executed, subject to good faith negotiation, this document shall serve as the agreement between the Parties. Agreed To and Accepted: Agreed To and Accepted: etc... group, inc MSH Entertainment Corporation BY: /s/ Stan Harris BY: /s/ Jonathan Stathakis ---------------------------- ---------------------------- Stan Harris, President Jonathan Stathakis, President EX-6.9 12 MASTER LICENSE AGREEMENT BETWEEN MSH AND CANNON MASTER LICENSE AGREEMENT As of July 1, 1997 THIS WILL CONFIRM the following agreement between CANNON RECORDS (hereinafter referred to as "Licensor") and MSH MUSIC GROUP, a division of MSH ENTERTAINMENT CORP. (hereinafter referred to as "Company") with respect to the manufacture, marketing and distribution of recordings made from Licensor's recorded masters identified in Schedule A attached hereto and incorporated herein by reference (hereinafter referred to as the "Masters") featuring Ike Turner (hereinafter individually referred to as "Turner") and the artist(s) identified in Schedule A (hereinafter referred to in this context as the "Artist(s)"). The following when accepted by Company will confirm the agreement as of this date as follows: 1. For the term hereof, Licensor hereby licenses, transfers and assigns to Company irrevocably all right, title and interest in and to the Masters, featuring the performance(s) of Turner and the Artist, including, without limitation, the copyrights in the Masters and the right to secure such copyrights and all renewals and extensions of such copyright, throughout the world. 2. Concurrently with the execution of this Agreement, Licensor shall deliver the Masters to Company. Upon delivery of the Masters to, and acceptance by, Company, Company shall pay to Licensor the sum of Thirty Seven Thousand Five Hundred ($37,500) Dollars as the license fee (hereinafter referred to as the "License Fee") for the Masters hereunder. The License Fee shall be deemed to be an advance hereunder and shall be recoupable from this Agreement between Licensor and Company. Licensor directs that the payment provided for in this Paragraph 2 shall be made to Joe Saraceno as agent for Licensor. 3. The term of this Agreement shall be for Ten (10) Years, commencing July 1, 1997 and running through June 30, 2007 (hereinafter referred to as the "Term"); provided, however, that Company may extend the Term hereof for additional Ten (10) Year periods by paying Licensor, on or before the expiration of the then current period of the Term, an additional License Fee equal to the sum set forth above. 4. Licensor hereby grants to Company, subject to the payments provided for herein and to due performance by Company of its other obligations hereunder, and Company hereby accepts, the exclusive right during the Term hereof in and to the Masters in the Territory, as defined below, to manufacture, exploit, market and sell copies of the recordings. 5. In addition to the License Fee and as additional consideration hereunder, for all the rights granted hereunder, Company agrees to pay Licensor a base royalty equal to Six (6%) Percent. (a) Any payment made pursuant to this Agreement (excluding royalties) shall be deemed to be a non-returnable advance. Without limiting the generality of the foregoing, and, notwithstanding the provision of Paragraph 14, below, included among payments which shall be advances hereunder shall be all amounts, if any, which may be paid by Company pursuant to the requirement of any collective bargaining agreement between Company and any union representing Turner and/or Artists, the musicians (including without limitation, instrumentalists, leader, arrangers, orchestrators, copyists and contractors), and vocalists for performances hereunder. Recording costs, if any, incurred in connection with the recording of masters hereunder shall be deemed to be non-returnable advances to Licensor and shall be charged against Licensor's royalties under this Agreement. 1 (b) The royalty rate indicated above is in respect to records manufactured and sold by Company (or by any subsidiary, affiliate or licensee), which contain only records manufactured from the Masters. Net sales of any record shall be determined cumulatively on the aggregate number of such records sold, for which Company has been paid, after deducting all returns, rebates, credits, cancellations, and exchanges. In computing the number of records manufactured and sold hereunder, Company shall have the right to deduct returns and credits of any nature, including, without limitation, those on account of a one hundred (100%) percent return privilege, defective merchandise, exchange privilege, promotional credits, records not paid for, errors in billing, usable overstock and errors in shipment. Company shall have the right to maintain reasonable reserves against returns hereunder. (c) As to records manufactured, sold or licensed for distribution or manufacture outside of the United States of America, the royalty rate payable to Licensor hereunder shall be one-half (1/2) of the otherwise applicable base royalty rate which would have been payable to Licensor therefor if such records had been manufactured or sold for distribution in the United States, or one-half (1/2) of the royalty received by Company, whichever is greater, on a territory to territory basis. The royalty for such records shall be computed in the national currency, at Company's election, of the country of manufacture, the country of sale, or the United States and shall be paid at the same rate of exchange as Company is paid; provided, however, that royalties on records sold for distribution outside of the United States shall not be due and payable until payment therefor has been received by Company in the United States and, provided, further, that if Company does not receive payment in United States dollars and elects to accept payment in a foreign currency, Company may deposit to Licensor's credit (and at Licensor's expense) in a depository selected by Company all payments so received as royalties applicable to this Agreement and shall notify Licensor thereof promptly. Such deposits as above stated shall fulfill Company's obligations hereunder as to the record sales to which such royalty payments are applicable. (d) With respect to net sales of digital records manufactured and sold under this Agreement, Licensor's royalty with respect to each such record sold shall be equal to the greater of: (i) the same dollars-and-cents (or other applicable currency) royalty amount payable with respect to the same record in the comparable analog configuration (e.g., single, EP, album, etc.) or (ii) Seventy-Five (75%) Percent of the otherwise applicable base royalty rate in the applicable country for the configuration and price category concerned. (e) As to records sold through any direct mail order operation or through any direct sales to consumer operation carried on by Company, its subsidiaries, affiliates or licensees, including, without limitation, any record clubs (herein collectively referred to as "record clubs") as well as to any sales operation of the type commonly known as "TV/Key-Outlet Merchandising" the royalty rate shall be one-half (1/2) of the otherwise applicable base royalty rate computed in the same manner as Company's royalty is computed. Notwithstanding anything set forth in this Agreement, no royalty shall be payable to Licensor with respect to (i) records which are received by members of any record club, either in an introductory offer in connection with joining such record club or upon recommending that another join such record club and/or as a result of the purchase of the required number of records including, without limitation, records distributed as "bonus" and/or "free" records or (ii) records for which the record club is not paid; provided, however, that Licensor shall be paid on the greater of actual sales or fifty (50%) percent of the total number of records manufactured from masters recorded hereunder distributed by such record club. Notwithstanding anything to the contrary contained herein, if the sum of the royalties so payable to Licensor under this Subparagraph 3.(e) shall exceed one-half (1/2) of the net royalty which Company shall receive from Company's licensee distributing such records, Licensor's royalty under this Subparagraph 3.(e) shall be proportionately reduced so that the sum thereof shall be equal to one-half (1/2) of said net royalty received by Company. (f) The royalty rate in respect of the sale of mid-priced records shall be three-fourths (3/4) of the otherwise applicable base royalty rate as calculated in accordance with the foregoing provisions and the royalty rate in respect of the sale of budget or low-priced records shall be one-half (1/2) of the otherwise applicable base royalty rate as calculated in accordance with the foregoing provisions, but in no event more than Fifty (50%) Percent of the net amount received by Company therefrom. 2 (g) Notwithstanding any other provision of this Agreement, with respect to compact disc singles, analog singles, cassette singles, EPs, twelve inch single records, or any so-called single record in any configuration, the royalty rate hereunder for such single records shall be three-fourths (3/4ths) the otherwise applicable base royalty rate. (h) With respect to sales of videos hereunder, Company shall pay Licensor a royalty which is the lesser of the royalty provided for above or Fifty (50%) Percent of Company's "net receipts". (i) With respect to so-called premium records, the royalty payable to Licensor shall be one-half (1/2) of the otherwise applicable base royalty based upon the price paid to Company, its subsidiaries, affiliates or licensees for such records. (j) With respect to all analog disc records and analog cassette records sold hereunder, royalties on records included in albums, jackets, cartridges, boxes or any other type of package or container (herein collectively referred to as "container's") shall be based solely on the applicable "royalty price" (as defined in Subparagraph (m) below) of such records and containers less all taxes and also less a container charge equal to twenty (20%) percent of the applicable royalty price; provided, however, that the container charges in respect of all other records shall be twenty-five (25%) percent of the applicable royalty price. In addition, if Company uses a so-called "PPD" basis for the calculation for foreign royalties in any foreign territory, then the foreign container deduction shall be used for such territory rather than the deductions set forth herein. (k) Royalties shall not be payable with respect to the following: (i) records given away, invoiced on a "no charge" basis, or furnished at a substantially reduced price to any customary recipient of free or discounted promotional records, including, but not limited to, Licensor, a disc jockey, a program director, a record reviewer, a radio or television station or network, a motion picture company, a music publisher, Company's employees, an individual producer, any performer on the record, an educational institution, a library, or for charitable purposes; (ii) records distributed under a sales program that are given away "free" or invoiced on a "no charge" basis as a bonus and/or as a sales inducement to a customary participant in such sales programs, including, but not limited to, a distributor, a sub-distributor, a dealer, or any other person, and regardless whether such records are sold by such participant or any other person; (iii) records cut out of Company's catalogue and sold as discontinued merchandise; (iv) records sold as scrap or at a price fifty (50%) percent or more below the regular price then in effect to subdistributors; (v) records sold below cost; (vi) so-called "sampler" records sold for one-half (1/2) of or less than one-half (1/2) of the then-current price normally charged by Company with respect to samplers; and (vii) records licensed or distributed or sold at a substantially reduced price for use by any transportation carrier or transportation facility or for in-store background music. (l) If Company sells or licenses third parties to sell records via electronic transmission, Licensor shall be paid royalties with respect thereto at the lesser of (i) the otherwise applicable base royalty rate payable in respect of net sales of the particular record, or (ii) Fifty (50%) Percent of net royalties actually received by Company from such third parties. (m) As used in this paragraph, the term "royalty price" shall be deemed to be the applicable suggested retail list price of records manufactured and sold pursuant to this Agreement. If Company should alter the basis of its royalty computation to the applicable wholesale price of records manufactured and sold pursuant to this Agreement, or if Company's assignee or licensee bases its royalty computation upon the applicable wholesale price of records instead of the applicable suggested retail list price, Company shall have the right to change its accounting to Licensor hereunder by increasing the applicable royalty rate by one hundred (100%) percent and basing said increased rate on the applicable wholesale price and such applicable wholesale price shall thereafter be deemed to be the "royalty price" as defined in this Subparagraph 5.(m). (n) In any instance when the "retail list price" or "list category" of records (less container deductions and any taxes) is to be utilized in computing any royalty hereunder, and, with respect to particular records sold, there exists no such "suggested retail list price" or "list category", and royalties are received by Company with respect to such particular 3 records on the basis of a "constructed price" (such as a price agreed upon, or based on a formula agreed upon, between the copyright society of the particular country involved and recording industry of such country, for the purpose of computing such royalty hereunder with respect to such particular records sold, such "constructed price" (less container deductions and any taxes) shall be utilized hereunder in lieu of the "suggested retail list price" or "list category" (less container deductions and any taxes). (o) Unless otherwise expressly provided for herein, Licensor's royalties hereunder with respect to the computation of any sales of records by third party licensees of Company shall be computed and paid upon the same percentage of sales of records as such licensee utilizes in computing any paying to Company Company's royalties with respect to such sales of records. (p) For the licensing of Masters hereunder for use on soundtracks (hereinafter referred to as a "master use"), Company shall pay Licensor twenty five (25%) percent of Company's net receipts. Notwithstanding the provisions to the contrary anywhere in this Agreement, Licensor agrees that such master use licenses may be for a period in excess of the Term hereof and that any such master use license shall be valid pursuant to the terms and conditions of this Agreement. (q) All monies, other than royalty payments hereunder, payable to Licensor (or on Licensor's behalf at Licensor's request or at the request of any party representing Licensor in any capacity whatsoever) shall constitute advances recoupable from any royalties earned by Licensor hereunder unless Company otherwise consents in writing. (r) Company will compute royalties payable hereunder within sixty (60) days after June 30 and after December 31 of each year for the preceding six (6) month period and will render accountings for and pay such royalties less any unrecouped advances against royalties due Licensor, within said sixty (60) days. Royalties for records sold hereunder will not be due and payable until payment therefor is received by Company. 6. During the Term hereof, Licensor grants to Company: (a) The results and proceeds of all endeavors under this Agreement, including the exclusive ownership in the Territory of all masters, positives or negatives thereof and records manufactured therefrom and the exclusive right to control and use the same and the performances embodied therein in the Territory; the exclusive right to manufacture, advertise, sell, lease, license or otherwise use or dispose of such records, whether based in whole or in part upon such results and proceeds or to refrain from so doing, in all fields of use throughout the Territory, upon such terms as Company may approve; the right to perform publicly such records and the exclusive right to permit public performances thereof in any medium and by any means whatsoever. (b) The right to use and publish and to permit others to use and publish Licensor's, Turner's and/or Artists' names, signatures, likenesses, voice and sound effects, and biographical material concerning Turner and Artists for advertising and trade purposes in connection with the recordings made hereunder or to refrain therefrom. (c) The right to release records recorded hereunder under any trade name or mark, which records may include performances with or of other artists, and to sell the records in albums, which albums may contain pictures, prose and verse and records embodying performances by such other artists. (d) The right to copyright the Masters in Company's name as the owner in the Territory and to secure any and all renewals of such copyright; provided, however, if, on any date, the performances borne on any master recording subject to this Agreement become property of the public domain through no fault of Company in any territory of the world so that persons may reproduce and/or exploit in such territory records of such performances without license from and payment to Company, then, notwithstanding anything herein to the contrary, no monies whatsoever shall accrue to Licensor hereunder in 4 connection with records recorded hereunder sold in such territory on and after said date insofar as such performances are concerned. 7. If the performance of Company's obligations hereunder is delayed or becomes impossible or impracticable by reason of any act of God, fire, earthquake, strike, labor disturbance, civil commotion, acts of government, its agencies or officers, any order, regulation, ruling or action of any labor union or association of artist musicians, composers or employees affecting Company or the industry in which it is engaged, or delays in the delivery of materials and supplies, Company may, upon notice to Licensor, suspend its obligations hereunder for the duration of such delay, impossibility or impracticability, as the case may be. 8. In consideration of the terms and conditions contained herein, neither Licensor nor Turner will produce or perform any selection contained in the Master for the purpose of making records (other than permitted recordings) for anyone other than Company (i) for seven (7) consecutive years after the date of this Agreement, or (ii) for five (5) consecutive years after the release of the recordings, whichever is the later, but in no event more than eight (8) years after the date of this Agreement. 9. Company agrees that on album jackets, liner notes, credits, etc., Licensor shall receive an appropriate credit in connection with the use of the Masters. Notwithstanding the foregoing, Company's inadvertent failure to give such credit shall not be deemed a breach, provided that Company cures such error or omission on all future runs of the affected product(s). 10. Licensor acknowledges that Turner's performances hereunder and the Masters are of a special, unique, unusual, extraordinary and intellectual character which gives them peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law, and that a breach by Licensor and/or the Turner of any of the provisions of this Agreement will cause Company irreparable injury. Licensor and the Turner expressly agree that Company is entitled to injunctive and other equitable relief to prevent a breach of this Agreement or any portions thereof, which relief shall be in addition to any other rights or remedies, for damages or otherwise, which Company may have. 11. In connection with the compositions contained in the Masters: (a) Except as provided for in Subparagraph 11.(b), below, Company agrees to obtain all copyright licenses from the music publishers for the compositions on the Masters. (b) If Licensor or the Turner owns or controls any composition included in the Masters, Licensor and/or the Turner will cause to be granted by the publisher of the composition a mechanical license fee for the use of the composition at a rate equal to three-quarters (3/4) of the minimum statutory compulsory license fee for each recording manufactured, sold and not returned. (c) Company shall pay all copyright fees to music publishers with respect to the compositions contained on the Masters which are distributed. Company shall indemnify and hold Licensor harmless with respect to all such fees charged or incurred as a result of Company's exploitation of the Masters. 12. No breach of this Agreement by Company shall be deemed to be material unless within three (3) months after Licensor learns of such breach, Licensor serves written notice thereof on Company by registered mail and Company does not remedy such breach within sixty (60) days after receipt of such notice. The provisions of this Paragraph 10 shall also apply with regard to the provisions of Subparagraph 5.(d), above. 13. Contemporaneously with the delivery of the Masters, Licensor shall furnish Company, in writing, with the following: (a) as appropriate, the label copy (including song titles and any subtitles), names of composers, any show or movie credits, complete publisher line, including the address and telephone number of each publisher, affiliate (BMI, ASCAP, etc.), serial number, timings, any arranger credits, any 5 (h) The word "master" with a lower case "m" means any recording which has been accepted by Company as satisfactory for the production of records and which embodies performances by Turner or Artist. (i) The word "Master" with a upper case "M" means the masters identified in Schedule A. (j) The words "master use" shall refer to the licensing of Masters for use in and on soundtracks. (k) The words "net receipts," "net royalties" and similar terms mean royalties or flat payments received by Company that are solely attributable to masters or videos hereunder, less all costs incurred by Company in connection with the exploitation concerned (including, without limitation, manufacturing and duplicating costs, advertising expenses, mechanical royalties and other copyright payments, union or guild payments, third party payments, etc.). (1) The words "net sales" mean one hundred (100%) percent of sales of records paid for and not returned, less returns and credits of any nature received or granted at any time and reserves against anticipated returns and credits. (m) The words "recording costs" mean all costs incurred by Company for and with respect to the production of masters, as distinguished from manufacturing and distribution costs, including, without limitation, the cost to Company of all instrumental musicians, vocalists, conductors, arrangers, orchestrators, copyists, etc., all studio, tape, editing mastering and other similar costs in connection with the production of the final master, and all other costs and expenses incurred by Company in producing masters hereunder, from time to time, and which are customarily recognized as recording costs in the recording industry. (n) The nouns "records" and "recordings" mean and include all forms of recording and reproductions, now known or which may hereafter become known, including, but not limited to CDs, cassettes and DATs, manufactured or sold primarily for home use and/or school use and/or juke box use and/or use on or in means of transportation whether embodying sound alone or sound synchronized with visual images. (o) The word "soundtracks" means the audio track on any motion picture, television program, video, laser disc, CD-ROM, or any other audio visual device, whether now known or hereafter devised. (p) The word "selection" means a single musical work (including a medley), story, poem, or similar work irrespective of length. (q) The words "term of this Agreement" or "period of this Agreement" or "term hereof" or "so long as this Agreement remains in force" or words of similar connotation shall include the period of all renewals, extensions, substitutions or replacements of this Agreement. (r) The word "Term" means the initial period of this Agreement and any extensions or renewals, extensions, substitutions or replacements for the period during which this Agreement remains in force. (s) The word "Territory" shall mean the entire universe. (t) The word "Turner" shall refer to Ike Turner. 15. With regard to the payment of royalties: 7 (a) The applicable percent royalty shall be applied against that portion (to the nearest cent) of the royalty computation price of a given record which the selection performed by Turner and/or Artist thereon bears to the aggregate of all selections on the said record. (b) Licensor shall be deemed to have consented to all royalty statements and all other accounts rendered by Company to Licensor and the same shall be binding upon Licensor and not subject to any objection by Licensor for any reasons whatsoever unless specific objection in writing stating the basis thereof is given to Company within two (2) years after the date rendered; and if Company gives Licensor notice in writing that Company denies the validity of the objection unless suit is instituted within one (1) year after Company gave Licensor such notice. (c) Royalties accruing to Licensor hereunder shall be less whatever taxes the laws of any jurisdiction require be withheld in connection with such royalties. (d) Company shall maintain books of account concerning the sale of records hereunder. A certified public accountant on Licensor's behalf may, at Licensor's sole expense, examine Company's books relating to the sale of records hereunder (but excluding any of Company's books or records relating to the manufacture of records hereunder) solely for the purpose of verifying the accuracy thereof, only during Company's normal business hours and upon reasonable written notice. Such audit (i) shall only be conducted after at least thirty (30) days written notice to Company, (ii) shall be commenced at a mutually convenient time, and (iii) shall be conducted at Licensor's sole cost and expense by an independent certified public accountant designated by Licensor. Such examination shall be made during Company's usual business hours at the place where Company maintains the books and records that relate to the royalties payable hereunder and that are necessary to verify the accuracy of the royalty statements specified in Licensor's notice to Company, and Licensor's examination shall be limited to the foregoing. Company's such books relating to any particular royalty statement may be examined as aforesaid only within six (6) months after the date due and Company shall have no obligation to permit Licensor to so examine Company's books relating to any particular royalty statement more than once. The rights herein above granted to Licensor shall constitute Licensor's sole and exclusive rights to examine Company's books and records. (e) If Licensor is two or more individuals, Company may issue payments hereunder in the name of all such individuals unless Licensor shall give Company written instructions to the contrary. 16. Licensor hereby warrants and represents that Licensor has the right to enter into this Agreement and to grant to Company all of the rights and licenses herein granted. Licensor hereby warrants and represents that Licensor owns the materials and rights in and to the Masters and that such materials and rights are free of liens and claims, except as otherwise expressly set forth herein. Licensor expressly warrants and represents that: (a) that Licensor is the sole and worldwide owner of the Masters as well as the sole and worldwide owner and holder of all right, title and interest, intangible and intangible therein; (b) that there are no liens or other encumbrances against the Masters or any part thereof; (c) that Licensor has the right, on behalf of Turner, Artist, Licensor and all other persons who participated in or in connection with the making of the Masters to sell same to Company and to grant Company the rights to use same for records and other purposes described in this Agreement; (d) that Turner, Artist and all other persons whose performances are embodied in the Masters have been paid in full by Licensor or the party granting the rights to Licensor and in amounts not less than applicable union scale for services rendered by them in connection with the Masters; (e) that all costs incurred in the creation and production of the Masters have been paid by Licensor or the party granting the rights to Licensor; 8 (f) that no records derived from the Masters have been heretofore made, distributed or sold in the Territory; (g) that, without limiting the generality of Subparagraph 14.(d), above, the scale wages were paid for all music contained on the Masters and the applicable contributions have been made to all applicable funds. This representation and warranty is included for the benefit of the AFM and AFTRA (among others) and may be enforced by the AFM or AFTRA or by such person or persons may be designated; (h) that Company's exercise of the rights granted herein will not infringe upon any common law or statutory rights of any third parties whatsoever, including, without limitation, any contractual rights, copyrights or rights of privacy of any kind or nature nor violate any applicable statute(s), law(s), order(s), rule(s) and/or regulations(s) whatsoever; (i) that all royalty or other financial obligations to Turner, Artists, producers or others for services performed in connection with the recording of the Masters, shall be the sole responsibility of Licensor; (j) that each person who rendered any service in connection with, or who otherwise contributed in any way to the making of the Masters, or who granted to Licensor the rights referred to in this Agreement, had the full right, power and authority to do so, and was not bound by any agreement which would restrict such person from rendering such services or granting such rights. (k) All recording costs and expenses with respect to the making of the Masters have been paid as of the date when the Masters are physically delivered to Company. (l) that Licensor, Turner and/or Artist are not currently a party to any agreement pursuant to which Licensor, Turner and/or Artist have granted to any third party any right in and to any of the Masters in the Territory; and (m) that, except as expressly specified herein, Company shall have no obligation whatsoever to, Turner, Artist, Licensor or any third party for or in connection with the creation of the Masters and Company's exercise of any rights therein. 17. Licensor represents and warrants that Licensor, Turner and/or Artist are not a party to any agreement which prevents Licensor's fulfilling all of Licensor's obligations hereunder or which impairs any rights granted to Company hereunder. (a) Licensor agrees to and does hereby indemnify, save and hold Company harmless from loss or damage, including reasonable attorney's fees, arising out of or connected with any claim by a third party which is inconsistent with any of the warranties or representations made by Licensor in this Agreement. (b) Licensor will reimburse Company on demand for any payment made by Company at any time after the date hereof in respect of any liability or claim to which the foregoing indemnity applies. 18. All payments or notices which Company may be required or permitted to make to Licensor may be made by depositing same, postage prepaid, (for notices: Certified or Registered, Return Receipt Requested), in any mail box, chute or other receptacle authorized by the United States Postal Service for mail addressed to Licensor at the address set forth below Licensor's signature or a such other single address as Licensor may designate by written notice mailed to Company at the address set forth below Company's signature. The date of service of any payment or notice so deposited shall be the date of deposit. Copies of all notices to Company shall also be sent to Richard A. Schulenberg, Esq., 2150 North Beverly Glen Boulevard, Los Angeles, California 90077-2404. 9 19. Promptly upon Company's request, Licensor will execute and deliver to Company any Instruments of Transfer and other documents necessary for Company to secure copyright protection in the Masters and Licensor hereby appoint Company as Licensor's agent and attorney-in-fact to sign any such Instruments or other documents in Licensor's name and to make appropriate disposition of them provided they are consistent with this Agreement. 20. Company shall have the irrevocable right to assign this Agreement to any parent, subsidiary or successor-in-interest. 21. This Agreement sets forth the entire agreement between the parties hereto with respect to the subject matter hereof, all prior negotiations and understandings being merged herein, and no modification, amendment, waiver, termination or discharge of this Agreement or any provisions hereof shall be binding unless confirmed by a written instrument executed both by Company and Licensor. 22. No waiver of any provision of or default under this Agreement shall affect the right of Company thereafter to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar. 23. This Agreement shall be deemed to have been made in the State of California and its validity, construction, performance, breach and operation shall be governed by the laws of California applicable to contracts to be performed in California. 24. Nothing contained in this Agreement shall be deemed to create a partnership or joint venture between the parties hereto, nor shall either party be deemed to be the agent or employee of the other. The parties hereto indicate their agreement and acceptance of this agreement by signing in the spaces provided for below. AGREED: AGREED: "COMPANY" "LICENSOR" MSH MUSIC GROUP, CANNON RECORDS a division of MSH ENTERTAINMENT CORP. By By /s/ Hy Mazrahi ------------------------------- ------------------------------- An Authorized Signer An Authorized Signer 3330 Ocean Park Boulevard c/o Hy Mazrahi Suite 115 126 N. Almont Drive Santa Monica, California 90405 Beverly Hill, California 90211 Soc. Sec. No. or Federal I.D. No.: 127307691 Fax: --------- 10 SCHEDULE A ---------- COMPOSITION(S) ARTIST - -------------- ------ ORIGINAL LIST IKE AND TINA TURNER - ------------- ------------------- JOE'S LIST: - ----------- Beauty Is Just Skin Deep Ain't Nobody's Business Living for the City Too Much Man for One Woman Sugar Sugar I've Got it Ready For You I Had a Notion I Want to Jump Need Some Understanding River Deep Mountain High I Idolize You Come Together Shake Rattle "N" Roll If you Can Hully Gully (I can Hully Gully too) Stagger Lee Something Take You Higher Twist "N" Shout I Wish it Would Rain I can't Believe What You Said I Got a Man Baby Baby Get it On O My My (Can You Boogie) I Wanna Take You Higher Never Been To Spain Please sign & date Keep on Using Me /s/ Hy Mizrahi Stand By Me ------------------------- Loco Motion Hy Mizrahi Philadelphia Freedom Shake July 18, 1997 Nut Bush City Limit ------------------------- I'm Blue Dated Took a Trip Player Piano /s/ HM 1 Ain't that a Shame Knock on Wood So Fine Baby Take a Walk with me I'm Ripe Fun, Fun, Fun Why I Sing the Blues Oh Pee Pee Dog Humpty Dumpty Stormy Weather Shame Shame Shame Shake a Hand Sweet Rhode Island Red I Don't Want Nobody Can't Have Your Cake and Eat it Too /s/ Hy Mizrahi Jo Jo Bootsie Whitclaw Somethings On My Mind Suffering the Blues Too Many Tears in my Eyes Why oh Why You are My Sunshine I'm Fed Up Make Em Wait You Got What You Want It Smell Trouble Rock Me Baby It Sho Ain't Me Mississippi Rollin Stone I'm Looking For My Mind Tina's Prayer You're Still My Baby Crazy Bout You Baby I'm Gonna Cut You Loose Pick Me Up Rockin "N" Rollin Please sign & date Fool For You /s/ Hy Mizrahi Ya Ya ------------------------- I'm Falling In Love Hy Mizrahi A Fool in Love A Fool For You July 18, 1997 This Man's Crazy ------------------------- Good Good Lovin Dated /s/ Hy 2 Turn You Loose Give Me a Chance Golden Empire Proud Mary Soulful Vibes The Wedding Vows (Live) There's Nothing I Wouldn't Do Take The Time Another Day Help Me Make It Through the Night Poor Fool You'll Always be my Baby Movin On Don't Fight it (feel it) I Keep Still Missing You All Over Now Put on Your Tight Pants (High Heel Sneakers) Don't Look Back It's Mojo Queen You can't Blame me Its Gonna Work Out Fine Kinda Strange Tra La La Please sign & date /s/ Hy Mizrahi ------------------------- Hy Mizrahi July 18, 1997 ------------------------- Dated /s/ Hy 3 EX-6.10 13 VAN-PIRES MASTER TOY LICENSE AGREEMENT VAN-PIRES MASTER TOY LICENSE AGREEMENT This AGREEMENT made and effective this September 21, 1998 by and between ABRAMS GENTILE ENTERTAINMENT, INC/MSH ENTERTAINMENT CORPORATION with its office at 244 West 54th Street, 9th Floor, New York, New York 10019 (known as "LICENSOR"), DeWilde Groups Inc. A Calif Corp having its principal office at 328 So. Atlantic Blvd, Suite 103, Monterey Park, Ca. 91754 ("LICENSEE"). WITNESSETH: WHEREAS, LICENSOR is the owner of rights to an item currently being named or referred to as VAN-PIRES and which is described in Exhibit A attached hereto and made a part hereof ("ITEM"). The term ITEM also includes all technology, know-how, trade secrets, patents, copyrights, and other tangible and intangible property rights to the ITEM and all tangible embodiments thereof (e.g., blueprints, drawings, prototypes): WHEREAS, LICENSEE is in the business of manufacturing and selling toys and toy products; and WHEREAS, LICENSEE is desirous of obtaining the sole and exclusive rights to manufacture and sell the ITEM on a worldwide basis. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration receipt of which is hereby acknowledged, it is hereby agreed as follows: 1. GRANT. Subject to the provisions of this Agreement, LICENSOR hereby grants to LICENSEE and its subsidiaries and affiliates, in the United States and the rest of the world (`Territory"), the sole and exclusive right privilege and license, in conjunction with any and all toy and toy-related products and services, to manufacture, have manufactured, use, promote, advertise, distribute, rent sublicense and/or sell the ITEM. This grant includes, but is not limited to, the sole and exclusive right to manufacture, have manufactured, use, promote, advertise, distribute, rent sublicense and/or sell the ITEM under any patents, copyrights or trademarks or applications therefor, whether issued, pending or hereafter filed, on the ITEM. LICENSEE shall have the right to sublicense the rights granted to LICENSEE herein, pursuant to Paragraph 8 hereof. 2. WARRANTY. LICENSOR warrants that it has independently conceived and developed the ITEM in the form submitted by LICENSOR to LICENSEE, (ii) it is the sole and exclusive owner of the ITEM and all rights pertaining thereto, (iii) it has the sole and exclusive right to grant the license in this Agreement, and (iv) to the best of its knowledge the ITEM will not infringe any patent copyright, trademark, trade secrets or other rights of any third party. LICENSOR further warrants that it is under no obligation, either express or implied, to any other person or entity that would result in any restriction of or interference with LICENSEE's rights hereunder and that it is not engaged in any litigation, dispute or conflict of any nature whatsoever nor has it received any claims involving the ITEM or any rights thereto. LICENSOR agrees that during the term of this Agreement it will not authorize or permit any other person or entity to manufacture. distribute or sell in the Territory any product or item identical or similar to the ITEM. 3. ROYALTY. LICENSEE shall pay LICENSOR a royalty at the rate of twelve percent (12%) of the "Net Sales Price" on all FOB HK (Hong Kong) sales of the ITEM by LICENSEE and its subsidiaries. "Net Sales Price" shall mean LICENSEE'S gross selling price on sales of the ITEM actually received by LICENSEE, less deductions for freight allowances, returns which are accepted and credited by LICENSEE, and trade discounts and other allowances, provided such discounts and allowances shall in no event exceed ten percent (10%). In the event of domestic pricing (FOB US), LICENSEE shall pay LICENSOR a royalty at the rate of six and one-half percent (6.5%) of the domestic "Net Sales Price" on all sales of the ITEM by LICENSEE, up until such time the series commences television broadcasting, then percentage shall revert to eight percent (8%) being paid after the completion of the airing of the first thirteen (13) episodes, of the domestic "Net Sales Price" on all sales of the ITEM by LICENSEE. 4. ADVANCE. LICENSEE agrees to pay LICENSOR the sum of $825,000 U.S. non-refundable as outlined below. Such sums being a recoupable advance against, and to be credited against, royalty payments under Paragraph 3. a. $100,000 upon the execution of this agreement. b. $240,000 payable on December 15, 1998. C. $360,000 payable on February 1, 1999. d. $125,000 payable on April 1, 1999 5. TRADE OFFER. If the ITEM is not offered to the trade by LICENSEE at or before the New York Toy Fair in February, 1999, this Agreement may be extended by mutual agreement upon written notice thereof to the other party hereto within 30 days following the last day of said Toy Fair, and all rights originally granted to LICENSEE hereunder shall remain with LICENSEE per a mutually agreed to term; subject, however, to the provisions of Paragraph 13 hereof. 6. DESIGN. A mutually agreed to design fee shall be payable in addition to the advance, for services requested by LICENSEE to be rendered by LICENSOR in regard to additional products not already designed. Such amount will be payable and due per a mutually agreed to amount and schedule. Any design fees payable under this paragraph shall not be deemed an advance against royalties and no deductions shall be applied to royalties due LICENSOR under Paragraph 3. In the event, LICENSEE handles all design work then no additional design fees would be due LICENSOR. LICENSOR agrees to supply at no additional fees, reasonable supervision upon request of LICENSEE. LICENSEE has the right to change the form, design, function arid performance of the ITEM and to produce and sell it in its changed form,, provided, however, that all the provisions of this Agreement shall apply to said changed form of the ITEM and LICENSOR shall give written approval to LICENSEE on any such change. 7. TRADEMARKS/COPYRIGHTS. LICENSEE may, in its discretion, apply to the ITEM any name(s) or trademarks that it selects. and the approved and appropriate patent notices and/or trademark and copyright notices. It is acknowledged that the name "VAN-PIRES" is the property of LICENSOR. 8. SUBLICENSE. (a) if LICENSEE so decides, LICENSEE may grant domestic sublicenses on the ITEM utilizing AGE's best efforts to facilitate such sublicense and/or distribution partners, if requested by LICENSEE, in the Territory upon any terms and conditions which it wishes to grant and establish; provided, however, that LICENSEE will not grant any rights to such sublicensee that are greater in scope or duration than those granted to LICENSEE hereunder and provided further, however, that in the event that LICENSEE does so grant sublicenses on the ITEM, then in lieu of the royalty set forth in Paragraph 3 above, LICENSEE shall pay to LICENSOR Fifty Percent (50%) of all royalties actually received by it from any such sublicensee for the ITEM (net of all expenses incurred by LICENSEE in connection therewith but such expenses will in no event exceed an amount equal to ten percent (10%) of said royalty). Upon LICENSEE's request AGE will also utilize best efforts in establishing any international sub-license or distribution partners for the ITEM. (b) LICENSOR retains the merchandising rights to the ITEM, and to the extent these rights are exploited, that will be done by LICENSOR through its licensing agent. If LICENSOR's licensing agent (or LICENSOR elects to merchandise through its own licensing group) grants merchandising rights to a third party based on trademarks, copyrights or characters directly related to and first introduced to the public in connection with the ITEM, then said licensing agent (or LICENSOR) shall pay LICENSEE two percent (2%) of the net royalty income actually received by said licensing agent (or LICENSOR) from said third party. 9. INDEMNITY. (a) LICENSOR agrees to indemnify and hold harmless LICENSEE and its subsidiaries, affiliates and sublicensees, and its and their officers, directors, employees and representatives, against any and all loss, damage, cost, attorneys' fees and expense (including any settlements) arising out of any claims, demands, actions or suits that may be instituted against LICENSEE or such other indemnified parties (1) resulting from a breach or alleged breach of a warranty or agreement hereunder by LICENSOR or (ii) alleging a superior right in and to the ITEM and/or infringement of patent, copyright, trade secret or other intellectual property or other rights, of any person or entity arising out of the use, manufacture, advertising, promotion, distribution, rent, sublicense and/or sale of the ITEM by LICENSEE. (b) LICENSEE agrees to indemnify and hold harmless LICENSOR and its officers, directors, employees and representatives, against any and all loss, damage, cost attorneys' fees and expense (including any settlements) arising out of any claims, demands, actions or suits that may be instituted against LICENSOR or such other Indemnified parties for injury or property damage based on the use of the ITEM as produced and sold by LICENSEE, its subsidiaries, affiliates and sublicences, except to the extent that the loss, damage or injury resulted from an inherent or latent feature of the ITEM as designed by LICENSOR and presented to the LICENSEE. 10. INFRINGEMENT. In the event of infringement by a third party of any patent that may be issued on the ITEM, or any other protectible rights In the ITEM, and upon notice thereof from LICENSEE, LICENSOR shall, within twenty (20) days, notify LICENSEE of its election to prosecute or not to prosecute a suit for infringement. If LICENSOR prosecutes said suit, it, may select legal counsel and shall pay all the legal fees and costs of prosecution, subject to being reimbursed therefor from any recovery in said suit. The balance of any recovery shall be paid to LICENSOR and shall be divided equally between LICENSOR and LICENSEE. If LICENSOR elects not to prosecute any infringement suit, LICENSEE may do so after notice to LICENSOR of that intention. LICENSEE may select legal counsel and shall bear all the legal fees and costs subject to reimbursement therefor from any recovery in said suit. The balance of any recovery shall be divided equally between LICENSOR and LICENSEE. The party who selects counsel and pays legal fees will control the prosecution of such suit including any settlement thereof, but the other party agrees to reasonably cooperate in connection therewith. 11. REPORTS. LICENSEE shall, within forty-five (45) days following the end of each calendar quarter, starting with the quarter in which sales of the ITEM commence, submit to LICENSOR a report covering the sales of the ITEM during the preceding quarter, and LICENSEE shall therewith transmit to LICENSOR payment of the amount due under Paragraph 3, 8(a) or 8(b) hereof. Each such report shall be deemed incontestable and binding upon LICENSOR upon the expiration of twenty-four (24) months after the date of such report. 12. RECORDS. LICENSEE agrees to keep for a minimum of two (2) years, full and accurate books of account, records and data concerning the manufacture and sales of the ITEM in sufficient detail to enable the payments hereunder to LICENSOR to be determined and verified. Subject to the last sentence of Paragraph 13 hereof, LICENSOR has the right, at its own expense, to examine said books and records as they pertain to the ITEM on prior written notice of at least ten (10) business days, but not more often than once in any calendar year, for the purpose of verifying the royalties paid pursuant to this Agreement. Any such examination by LICENSOR shall be conducted a manner so as to not interfere with the business of LICENSEE and shall not last longer than 30 days. LICENSOR's representatives shall not disclose to any other person, firm or corporation any information or data acquired as a result of any such examination; provided, however, that nothing herein contained shall be construed to prevent LICENSOR and/or its duly authorized representatives from testifying in any court of competent jurisdiction with respect to the information or data obtained as a result of such examination in connection with any action instituted to enforce the rights of LICENSOR under the terms of the Agreement. Upon LICENSOR'S undertaking an examination of the statements and records covering a given period of time, that period of time and the __________________________________ relating ________ will _________- to any subsequent for further questions, claims or examinations by LICENSOR hereunder. 13. DEFAULT. If LICENSEE shall at any time breach this Agreement by failing to make any material payment hereunder (including all such advance payments per Paragraph 4 hereunder), or by failing to make any quarterly report required under this Agreement, or by making an intentionally false quarterly report, LICENSEE shall remedy or cure such default within fourteen (14) business days after written notice thereof by LICENSOR. If such default is not cured within 14 business days then LICENSOR shall have the sole right to terminate this agreement and all rights hereunder shall revert to LICENSOR. A bonafide dispute over royalty or other payments hereunder shall not be or be deemed to be a breach or a material breach of this Agreement, and LICENSOR's rights in such event shall be limited to an action at law for money damages and shall not include any right of rescission, termination or equitable relief. 14. CEASE SALES. It is understood and agreed that any time after commencement of sales of the ITEM that if LICENSEE ceases the distribution and sale of the ITEM for a period of six (6) consecutive months, except as provided in Paragraph 15 hereof, either party may give written notice to the other of its desire to terminate this Agreement. If LICENSOR gives such notice and if LICENSEE does not within sixty (60) days resume the distribution and sale of the ITEM (or if the distribution and sale cannot be practicably resumed within such sixty (60) day period, then if LICENSEE does not, within such period, undertake reasonably satisfactory efforts toward commencing the resumption of such distribution and sale) this Agreement and the license granted herein shall terminate as of the end of that sixty (60) day period. However, nothing in this Agreement will be construed as creating any obligation on or by LICENSEE to manufacture, distribute or sell the ITEM during the term of this Agreement. 15. FORCE MAJEURE. In the event an act of government, war, civil unrest, fire, flood, an Act of God, or labor trouble in the factories utilized by LICENSEE, or labor trouble in the factory of those manufacturing parts for or manufacturing all of the ITEM, or any other force majeure or other event beyond LiCENSEE's control, prevents or delays the performance by LICENSEE of any of the provisions of this Agreement, then such nonperformance or delay by LICENSEE shall not be considered a breach of, or initiate any right to terminate, this Agreement and such nonperformance or delay shall be excused while, but no longer than, the conditions described herein prevail. 16. TERM/TERMINATION. (a) This Agreement shall continue for a period of five (5) years from the date hereof, unless sooner terminated under the provisions of this Agreement. LICENSEE agrees that when this Agreement expires or is terminated, all rights to the ITEM granted hereunder and to any patents or patent applications filed hereunder shall revert to LICENSOR. (b) LICENSEE may terminate this Agreement at any time and for any reason by providing sixty (60) days prior written notice thereof to LICENSOR. 17. SELL-OFF. Upon any termination or expiration of this Agreement, LICENSEE, its subsidiaries and affiliates and any of its or their sublicensees shall have the right to sell or otherwise dispose of its existing completed inventory of the ITEM, and to complete and sell or otherwise dispose of work-in-process ITEM inventory, for a period of six (6) months thereafter. Any such sales shall be subject to all of the provisions of this Agreement. 18. ASSIGNMENT. LICENSEE may assign this Agreement or the rights granted by LICENSOR hereunder with LICENSOR's prior written consent, which shall not be unreasonably withheld. In addition, LICENSOR agrees that LICENSEE may assign this Agreement, without such prior written consent to any subsidiary or affiliate corporation so long as such assignee shall thereafter agree to be bound by the provisions of this Agreement, or to a third party in the event of the transfer of substantially all of the assets or business of LICENSEE, a merger, reorganization or consolidation. No assignment pursuant to this paragraph shall create any additional advance or guaranteed royalty. 19. MISCELLANEOUS. a. NOTICES. All communications, notices and exchanges of information contemplated herein or required or permitted to be given hereunder shall be in writing and shall be deemed properly given when personally delivered or five (5) calendar days after one of the parties deposits the same in the United States mail, first class delivery, postage prepaid, or when one delivers it to an established courier service, with fees prepaid, or transmits it by facsimile (with hard copy to follow), addressed to the other party to the addresses set forth at the beginning of this Agreement (or such other address of which such party shall have given written notice). b. BINDING EFFECT. Subject to the provisions of Paragraph 18, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. c. GOVERNING LAW. This Agreement shall be governed by and interpreted under the laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. d. ENTIRE AGREEMENT. This Agreement shall supersede any agreement heretofore entered into by and between LICENSOR and LICENSEE on this ITEM, and shall be deemed and construed to be the entire agreement and understanding between the parties with respect to the subject matter hereof e. CONFIDENTIAL. LICENSOR agrees to keep the terms and conditions of this Agreement confidential and will not divulge such terms arid conditions to any other person or entity without the prior written consent of LICENSEE. f. AMENDMENT & WAIVER. This Agreement may only be amended, and any provision of this Agreement may only be waived, in a writing executed by both of the parties hereto, specifically setting forth such amendment or waiver, as the case may be. The failure of either party to enforce any provision of this Agreement shall not be construed to be a waiver of such a provision or the right of such party thereafter to enforce such provision or any other provision of his Agreement. g. RELATIONSHIP OF PARTIES. Except as specifically otherwise provided herein, neither party shall act or represent or hold itself out as having authority to act as an agent or partner of the other party hereto, or in anyway bind or commit the other party to any obligations or liabilities. Nothing contained in this Agreement shall be construed as creating any partnership, joint venture, agency, trust or other association of any kind between the parties hereto other than as licensor and licensee. h. SEVERABILITY. The illegality, invalidity or unenforceability of any part of this Agreement shall not affect the legality, validity or enforceability of the remainder of this Agreement if any part of this Agreement shall be found to be legal, invalid or unenforceable, this Agreement shall be given such meaning as would make this Agreement legal, valid and enforceable in order to give effect to the intent of the parties. i. COUNTERPARTS. This Agreement may be executed in counterparts, any one of which need not contain the signatures of more than one party, but all of which, taken together, shall constitute one and the same agreement. j. HEADINGS. Paragraph and other headings in this Agreement are for reference purposes only and do not affect the meaning of this Agreement. IN WITNESS THEREOF, the parties have executed this Agreement as of the data first above written. ABRAMS GENTILE, INC. (Licensor) DEWILDE GROUPS INC. By: /s/ John Gentile By: /s/ Nancy Luke ------------------------ ------------------------------ John Gentile Nancy Luke Title: President Title: President --------------------- ------------------- MSH ENTERTAINMENT, INC. BRANDON PENDER By: /s/ Jonathan Stathikis By: /s/ signature ----------------------- ------------------------------ Jonathan Stathikis DEWILDE GROUPS INC., CEO Title: President/ COO -------------------- EXHIBIT A VAN-PIRES The line of characters, vehicles and playsets as depicted in the television series known as "VAN-PIRES" which include vehicles and figures with wings that are designed to fly. The appearance of the wings are moveable vehicle panels or character arms. The wings are designed with the necessary angle to act a propellers when the toy is launched. The launcher appearance is that of a set or prop as depicted in the TV series that is open in the center where the character / vehicle stands and is launched from. The character / vehicle is placed into the hand-held launcher that has a retractable pull string on a constant force spring mechanism. The child activates the launcher by pulling a ring attached to the pull string. The toy body is molded in rigid material, an ABS or similar properties material. The wings are made from flexible material but maintain their shape to be able to fly. The overall character / vehicle is symmetrically balanced to fly. Non-flying characters and vehicles are also included as part of this license. The items currently produced for tooling turnover within is Van-pire introduction line include the following:
A. MotorvaterSKUs / Good Guys 1 Super Master Sculpt Axel 3 3/4" Flying Character with HotRod Launcher 1 Super Master Sculpt Snap 3 3/4" Flying Character with Van Launcher 1 Super Master Sculpt Nuke 3/34" Flying Character with TowTrunk Launcher 1 Super Master Sculpt Axel 6" Flying Spin Fig. with Slingshot Vanpire Launcher 1 Super Master Sculpt Snap 6" Flying Spin Fig. with Slingshot Vanpire Launcher 1 Master Mechanical of Motprvater Launcher for mechanism layout 1 Looks-like Mega Motorvater Van with Internet Launch Figure 6 Spray Op Masters Characters 5 Spray Op Masters Vehicles B. Van-pire SKUs / Bad Guys Super Master Sculpt Tracula 4" Flying Car Character with Engine Launcher A Super Master Sculpt Ambula 4" Flying Car Character with Engine Launcher B Super Master Sculpt Cardaver 4" Flying Character with Engine Launcher C Super Master Sculpt Automaniac 4" character with Engine Launcher D 1 Master Mechanical; Figure (Mechanism Layout) 1 Master Mechanical Launcher (Mechanism Layout) 4 Spray Op Masters Characters 4 Spray Op Masters Launchers
EX-6.11 14 CONSULTING AGREEMENT - KING/FROMKIN PRODUCTIONS Agreement/ Page 1 CONSULTING AGREEMENT This Memorandum of Agreement is made and entered into this 17th day of November, 1999 between MSH Entertainment Corporation, a public company incorporated in Utah ("Company") and King/Fromkin Productions, Inc. ("CONSULTANT"), a private company incorporated in New York, owned 50/50 by Archer King and David Fromkin (collectively the "EXECUTIVES"). WITNESSETH: WHEREAS, Consultant represents that he has expertise in the area of talent contacts, literary experience, evaluating and packaging of entertainment and literary properties, director, producer and writer relationships and the intricacies of the entertainment business and is ready, willing and able to provide consulting assistance to the Company on the terms and conditions set forth herein; and WHEREAS, Company, in reliance on Consultant's representations, is willing to engage Consultant as an independent contractor, and not as an employee, on the terms and conditions set forth herein with regards to motion films and videos of all sorts; NOW THEREFORE, in consideration of the obligations herein made and undertaken, the parties, intending to be legally bound, covenant and agree as follows: 1. SERVICES: Consultant agrees to render services on a non-exclusive basis as a Talent Packaging Consultant and Literary Consultant for Company and Consultant accepts such engagement to provide consultation to Company regarding the entertainment industry, relationships in The literary, theatrical, television and music industry, the development, packaging, production and distribution of motion pictures, Television movies and series. 2. TERMS: Consultant's services as a consultant shall commence The 17th day of November, 1999 and shall continue for a period of One (1) year unless The term is extended by both parties. 3. COMPENSATION: In consideration of the services rendered hereunder, Company agrees to compensate Consultant for serving as a Consultant to the Company as follows: a. Executives shall receive One Hundred Thousand (100,000) shares of Company common stock upon the execution of this Agreement. Said shares shall be restricted under SEC Rule 144 and shall be divided equally between the Executives. b. One year from the date of signing of this Agreement, based upon performance by Consultant, which shall be deemed to mean that Consultant was directly responsible for arranging for packaging to the Company's acceptance, two (2), or more of Company's projects and/or productions, Consultant shall receive an additional One Hundred Thousand (100,000) shares of Common stock, which shall be issued by Company to Consultant upon the date of renewal of this Agreement. Agreement/ Page 2 c. For each project Consultant packages to the Company's acceptance, Consultant shall also serve as the co-producer(s) or co-executive producer(s) of the project and receive a salary for same in accordance with the budget for the project, be it a theatrical motion picture and/or a made-for-television movie and/or made-for-home video project. d. "Packaging" shall be defined to mean identifying the literary property, attaching name stars and providing, if requested a director. e. For each project accepted by the Company hereunder, individual deal memos shall be negotiated with Consultant on a project-by-project basis outlining salaries, expenses, draws, etc. 4. OTHER SERVICES: Other services to be provided by Consultant, if any, shall be as mutually agreed upon by Company and Consultant and under a separate addendum to this Agreement. 5. INDEPENDENT CONTRACTOR: It is agreed and understood that Consultant's relationship to Company is that of an independent contractor. Accordingly, Consultant shall be responsible for payment of all taxes and insurance to its own employees applicable under existing laws, including but not limited to, social security taxes, and federal, state and city income taxes. Consultant warrants that Consultant will make all necessary payments due appropriate governmental agencies to comply with the foregoing and to indemnify Company against any claims, liabilities, costs or expenses that may arise out of breach of the foregoing. 6. PROFESSIONAL AND WORKMANLIKE MANNER: Consultant agrees to render all services generally and customarily performed in similar capacities in a professional and workmanlike manner in accordance with specifications furnished by Company. Consultant shall promptly comply with all instructions, directions, requests, rules and regulations of Company in connection with Consultant's services to be rendered under this Agreement. 7. OWNERSHIP AND COPYRIGHT: Unless Company and Consultant shall agree to the contrary in a written instrument as described in Paragraph 3. e. above, specifically a deal memo negotiated between the Parties on a project-by-project basis, all right, title and interest in any and all projects including all elements thereof will at all times belong solely and exclusively to Company for use in any manner or media it may make or authorize throughout the world in perpetuity. Similarly, any and all materials, ideas, or other creative or literary property and Consultant's adaptations and arrangements thereof furnished by Consultant hereunder will belong solely and completely to Company for any use it may thereafter see fit and Consultant's services shall be deemed those of an employee for hire for copyright purposes. 8. NON-USE BY COMPANY: Company shall not be obligated to use, develop, implement or act upon any consultation given to Company by Consultant. Agreement/ Page 3 9. DEATH OR DISABILITY OF CONSULTANT: a. In the event of Consultant's death or disability while in the employ of Company, this Agreement and the compensation due to Consultant pursuant to Paragraph 3 hereof shall terminate upon the date of said death or disability and Company shall thereafter be required to make payments only to Consultant or Consultant's estate, as the case may be, for all amounts due to Consultant as compensation for the services rendered hereunder through the date of death or disability to the extent such amounts have accrued but have not been theretofore paid. b. Consultant shall be deemed disabled if, Consultant in the opinion of Company, is unable to substantially perform the services required of Consultant hereunder for a period in excess of 21 consecutive days or 21 days during any 90-day period. In such event, Consultant shall be deemed disabled as of such 21st day. 10. CONFIDENTIALITY: Consultant hereby acknowledges that during the term thereof, Company may, from time to time, disclose to Contractor confidential information pertaining to the business and affairs of Company and its clients, including but not limited to, the customer lists and accounts and other similar items indicating the source of income of Company. It is understood that Consultant shall not, at any time during or after the term of this Agreement, disclose to any third party or directly or indirectly make use of any such confidential information, including but not limited to, the names, addresses and telephone numbers of customers of Company other than in connection with, and in furtherance of the business and affairs of Company. All documents and data (whether written, printed or otherwise reproduced or recorded) containing or relating to any such information, whether made or compiled by, or delivered or made available to, or otherwise obtained by Company, shall be returned by Consultant to Company at the time of the termination of this Agreement or upon any earlier request by Company without Consultant retaining any copies, notes or excerpts thereof. 11. ADDITIONAL INCENTIVE COMPENSATION: Company intends to implement an incentive compensation program for its employees. The incentive compensation program shall include the ability of Company's employees to receive additional shares of Company stock through an ESOP, as well as incentive and non-qualified stock options plans. To the degree possible Consultant may participate in these plans, which shall be over and above the compensation proposed in Paragraph 3(b) above, on the same basis as other employees is subject to the provisions contained in Paragraph 17 hereunder. 12. SERVICES UNIQUE: It is agreed that the services to be rendered by Consultant hereunder are of a special, unique, unusual, extraordinary and intellectual character which gives them a peculiar value, the loss of which cannot be reasonably adequately compensated in damages in an action at law and that a breach by Consultant of any of the provisions contained herein shall cause the Company irreparable injury and damage. Consultant expressly agrees that the Company shall be entitled to injunctive or other equitable relief to prevent a breach thereof. Resort to any such equitable relief shall not be construed as a waiver of any of the rights or remedies which the company may have against Consultant for damages or otherwise. Agreement/ Page 4 13. APPLICABLE LAW AND SEVERABILITY: This document shall, in all respects, be governed by the laws of the State wholly performed within the State of New York. Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision contained herein and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail but the provision of this document which is affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. 14. ATTORNEY'S FEES: In the event any action be instituted by a party to enforce any of the terms and provisions contained herein, the prevailing party in such action shall be entitled to such reasonable attorney's fees, costs and expenses as may be fixed by the Court. 15. MODIFICATIONS OF AMENDMENTS: No amendment, change or modification of this document shall be valid unless in writing and signed by all of the parties hereto. 16. SUCCESSORS AND ASSIGNS: All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. 17. ADDITIONAL PROVISIONS: As an independent contractor, Consultant may consult with Consultant's financial and legal experts concerning the tax ramifications of Consultant receiving stock and options. Company is not responsible for any tax consequences that may be created by Consultant receiving shares and exercising of options. If because of Consultant's status as an independent contractor, Executives cannot qualify for Company's incentive program, then other arrangements shall be instituted whereby Consultant shall be granted shares and options of equivalent value under a separate mutually agreed upon arrangement. 18. ENTIRE AGREEMENT: This document constitutes the entire understanding and agreement of the parties with respect to the subject matter of this Agreement, and any and all prior agreements, understandings or representatives are hereby terminated and canceled in their entirety and are of no further force or effect. Agreement/ Page 5 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. AGREED AND ACCEPTED By: /s/ -------------------------------- MSH Entertainment, Inc. Its: President/CEO -------------------------------- Today's Date: 11/30/99 ----------------------- AGREED AND ACCEPTED By: /s/ Archer King ----------------------------------------------------- Archer King, President King/Fromkin Productions, Inc. Archer King, Consultant Social Security Number 08 -1 -3914 ----------------------------------- Today's Date: 11/30/99 --------------------------------------------- AGREED AND ACCEPTED: By: /s/ David Fromkin --------------------------------------- David Fromkin, Executives Social Security Number ###-##-#### ---------------------- Today's Date: November 29, 1999 ------------------------------- EX-6.12 15 AGREEMENT - ABRAMS/GENTILE ENTERTAINMENT, INC. MSHE/AGE V.3 AGREEMENT --------- This AGREEMENT made this 1st day of November, 1996 between MSH Entertainment Corporation, Inc. (hereinafter referred to as "MSHE"), a Utah corporation whose address is 768 Brannan Street, San Francisco, California 94103 and Abrams/Gentile Entertainment, Inc. (referred to as "AGE"), whose address is 244 West 54th Street, 9th floor, New York, New York, 10019 (with MSHE and AGE being collectively called "Parties"). WITNESSETH ---------- WHEREAS AGE warrants and represents that AGE owns all the rights, title and interest, including all materials including, but not limited to, scripts, story ideas, treatments, adaptations, trademarks, toy designs, merchandising and the titles, characters, drawings, plots, themes and storylines for a proposed television series and merchandising and toy line entitled "Vanpires" (hereinafter the "Property"); and WHEREAS the Parties desire to enter into a co-production arrangement ("Co-Production Agreement") as outlined herein for the purpose of producing the Property; and WHEREAS the Parties desire to produce thirteen (13) episodes of the Property to be sold as a television series ("Series") and toy line and merchandising items (collectively "Merchandising"); and WHEREAS the Parties desire to establish each Party's rights in connection with the Property and the proceeds derived from any sales, production and/or distribution of the Property and share profits therefrom with each other as set forth herein: and WHEREAS, the Parties hereby agree as follows: NOW THEREFORE, in consideration of the mutual promises contained herein, the Parties agree as follows: 1. ADOPTION OF RECITALS: The Parties hereto adopt the above recitals as being true and correct. 2. CO-PRODUCTION: The Parties are undertaking a co-production ("Co-Production") for the production of the Series. 3. TERM: The term of this Agreement shall be in perpetuity unless sooner terminated by mutual agreement of the Parties and shall continue for: a. the duration of any and all copyrights shared and/or owned by the Co-Production; or 1 confidential 10/31/96 b. so long as the Parties shall be entitled to compensation with respect to any Agreements and/or licenses to third parties in connection with the Property and/or the Series, including all modifications, additions, options. extensions, renewals, substitutions for, and replacement of such agreements, directly or indirectly; and c. for purposes herein, any agreements made, entered into or resumed within six (6) months immediately following the termination of any particular prior agreements with the Parties, shall be deemed a substitution or replacement of such agreements; and d. as used herein, the term "Agreements" means any and every written agreement entered into, in existence, directly or indirectly relating to the Property and/or the Series. 4. TITLE TO ASSETS: Except as provided below, any and all assets and all forms of exploitation of the Property including, but not limited to, all ancillary and allied rights thereto, including but not limited to toys, games, merchandising, music rights, stage rights, television rights, radio broadcasting rights, book publishing, motion pictures and all other rights including the copyright (herein collectively referred to as the "Rights") shall be owned by and title held by AGE. 5. CONCEPT: It is acknowledged that the Property is the creation of AGE, and that the further creation of the Series shall be the contribution of AGE and MSHE. 6. OWNERSHIP: All ownership rights including the underlying rights of the Property and Series, rights of trademark and copyright and renewals thereof, shall, except as noted herein, be in the name of AGE. The care, custody and control of all master tapes produced hereunder shall remain with MSHE and at its facility in San Francisco, unless otherwise instructed by AGE. 7. CAPITAL AND OTHER CONTRIBUTIONS: Each of the Parties have agreed to contribute in cash and/or a combination of cash and services the following: a. AGE: (1). AGE shall provide cash and services of One Million Three Hundred Thousand Dollars ($1,300,OOO.OO) for the production of the thirteen (13) episodes of the Series, according to the schedule of payments as outlined in the attached addendum ("Addendum"). (2). AGE shall be the Producer of the Series; (3). AGE shall maintain creative control over the production of the Series but agrees to engage in active and meaningful consultation with MSHE; however, in the event of a dispute, the decision of AGE shall govern. 2 confidential 10/31/96 (4). AGE agrees to deliver to MSHE complete design work for the Property on or about October 21, 1996. (5). AGE agrees to the deliverables outlined in the attached Addendum. b. MSHE: (1). MSHE shall be the co-producer of the Series; (2). MSHE shall provide cash and services of Six Hundred and Fifty Thousand Dollars ($650,000) for the production of the thirteen (13) episodes of the Series, a schedule of payments as outlined in the attached Addendum; (3). MSHB shall provide the necessary amount, expected to be up to fifty (50) Intel computer work stations to properly implement the "Overlord" animation system in order to produce the Series. The system must be installed and functioning on a beta basis on or about November 21, 1996 and have produced a test program acceptable and satisfactory to AGE, in its sole descretion, of approximately two (2) minutes in duration, based on AGE storyboards, character and background design. MSHE agrees to the deliverables schedule outlined in the attached Addendum; (4). In order to meet the above mentioned threshold, AGE shall deliver to MSHE complete design work on or about October 21, 1996. (5). The use of MSHE Communications' production facility, (formally East End Communications) on a priority basis, at no additional cost, for both the production and post-production of the Series; (6). Arrangement of all necessary insurance for the production including E&O insurance, in a manner subject to AGE's approval. (7). All the necessary hardware and software to meet the creative criteria of AGE and deliver 13 half hour episodes of high broadcast quality CGI animation; (8). MSHE shall arrange to have Chris Haigh available to work on the episodes of the Series on a priority basis; (9). MSHE shall cause to be opened and each Party shall deposit its respective funds in a mutually agreed upon bank account solely for the purpose of producing the Series. Any and all expenditures related to the production of the Property shall be made from this account. Prior to the opening of the account, AGE and MSHE shall each designate a signatory on the account, subject to the approval of AGE. Additionally, MSHE will provide, if requested, from time to time, detailed explanations of how MSHE intends to finance its working capital needs both specifically related to the production contributions and working capital for general corporate needs. 3 confidential 10/31/96 8. CONTROL OF THE PROPERTY: All decisions relating to the activities of the Property, and any and all decisions with respect to third party contractual Agreements, creative, business, financial and legal matters in connection with the Property, and all subsidiary and ancillary rights thereto and all exploitation thereof, shall be remain with AGE. 9. WARRANTS: MSHE shall issue warrants to AGE, for nominal consideration, for the right to purchase up to one (1) million common shares of MSHE for a period up to four (4) years from the execution date of this Agreement. The warrants shall be covered in a separate agreement (the "Warrant Agreement"). 10. INTEL: MSHE will execute a cooperation agreement with Intel, as previously presented to AGE. Should MSHE be unable to complete such an agreement or should MSHE complete an agreement that contradicts the spirit of the role intended for Intel within this Agreement, AGE may in its own discretion automatically terminate this Co-Production Agreement with MSHE by seven (7) days written notice of same, and shall thereafter have no further obligation to MSHE. 11. PARTICIPATION: Subject to the production of the Series and to the performance of MSHE's obligations hereunder, it is agreed to by the Parties hereto that both AGE and MSHE shall be placed in first position to both fully recoup, pari passu, their initial investments in the production of the Series ($1.3 million to AGE, and $650,000 to MSHE) from 100% of revenues received by AGE from the domestic and foreign broadcast of the Series; video licenses and sales: and CD-ROM licenses and sales. Thereafter, once both Parties have fully recouped, MSHE shall receive an economic interest from the licensing activities relating to the Property as follows: a. Series - 5% of the net advertising sales revenue earned by AGE in the U.S. from the broadcast of the Series: Toys, domestic - 1% of the net Toy revenues earned by AGE in the U.S.: Toys, international - 2% of the net Toy revenues earned by AGE internationally; Merchandising - 2% of the net merchandising revenues earned by AGE including, but not limited to, Video, CD-ROM and Foreign Broadcast rights. b. "Net revenue" is defined as those revenues actually received by AGE after deduction of any fees paid to independent agents. c. From time to time, and with proper notice to AGE, MSHE shall have reasonable access to the books and records of AGE as they pertain to the Property only. 4 confidential 10/31/96 12. "VANPIRES" CREDITS: Subject to the Production of the Series, and subject to the performance of all obligations hereunder, MSHE shall be entitled to a mutually agreed upon co-production credit on a separate card, and those persons from MSHE who perform pre-approved, by AGE, services on the Series shall receive a credit related to the services which they provided. 13. WARRANTIES. Indemnification: a. AGE hereby warrants and represents that AGE: (1). has the right and capacity to enter into this Agreement and is not prevented by law or otherwise from so doing; (2). owns the rights and the underlying rights to the Property and is able by law to enter into this Agreement and can produce proof of same; (3). has not entered into any other agreement whatsoever with third parties which adversely effects the Parties' rights hereunder or is inconsistent in any manner with any term set forth hereunder, and (4). shall have authorized the signing party to execute this Agreement on behalf of AGE. b. AGE hereby indemnities and holds harmless MSHE from and against any and all claims, liabilities, damages, and costs including but not limited to reasonable attorney's fees and court costs arising from any breach by AGE of any representations, warranty or agreement made by AGE hereunder. c. MSHE hereby warrants and represents that MSHE: (1) owns all the necessary rights to the Overlord Animation System: (2) has the right and capacity to enter into this Agreement and is not prevented by law or otherwise from so doing; (3) has not entered into any other agreement whatsoever with third parties which adversely affects the Parties' rights hereunder or is inconsistent in any manner with any term set forth hereunder: and (4) shall have authorized the signing party to execute this Agreement on behalf of MSHE. 5 confidential 10/31/96 d. MSHE hereby indemnifies and holds harmless AGE from and against any and all claims, liabilities, damages and costs including, but not limited to, reasonable attorney's fees and court costs arising from any breach by MSHE of any representations, warranty or agreement made by MSHE hereunder. 15. BUDGET: The budget for the Series shall be prepared by MSHE and AGE, with AGE having final approval. 16. ADDITIONAL DOCUMENTS: Each Party hereto shall execute and deliver any and all additional papers, documents and other instruments and shall do any and all further acts and things reasonably necessary in connection with the performance of his obligations hereunder to carry out the intent of the Agreement. 17. MERCHANDISING: AGE shall have the exclusive right to merchandise the Property including all toys, merchandising and games and any ancillary products created or derived from the Property. 18. DEFAULT/TAKEOVER RIGHTS: MSHE acknowledges that AGE will be entering into binding commitments to deliver fully produce episodes of the Series to third parties and will incur substantial liability in the event of late-delivery or non-delivery of Series episodes. Accordingly, it is agreed that in the event that MSHE defaults in making delivery of technically satisfactory animation of the Series episodes on the schedule set forth on the Addendum annexed hereto, which default persists after seven (7) days written notice of default from AGE to MSHE, then if such event, and without limiting AGE's other rights or remedies under this Agreement or pursuant to law. AGE shall have immediate right to take over further production of the Series episodes. In the event of such uncured default, MSHE shall, upon AGE's written notice, deliver to AGE (or to any third party designee) any and all program materials including, without limitation, any computer programs and any pictorial or audio/visual works created, by computer or otherwise, in the course of MSHE's producing the animation for the Series episodes. Furthermore, in such event, MSHE shall make available to AGE (or AGE's designee) the Overlord Software and will provide such technical personnel as may be necessary to enable AGE (or its designee) to utilize such Overlord Software to complete production and delivery of the animation for the Series episodes uncompleted as of the time such default and takeover of production, if ever. 19. ENTIRE AGREEMENT: This Agreement and all the exhibits attached represents the entire and complete Agreement among the Parties hereto with respect to the subject matter hereof and supersedes all previous agreements, understandings or representations whether oral or written, between the Parties regarding the subject matter hereof. 20. NON-WAIVER: No delay or failure by a Party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein, and no waiver shall be effective unless made in writing. 6 confidential 10/31/96 21. CAPTIONS: The captions of the various paragraphs and sections of this Agreement are intended to be used solely for convenience of reference and are not intended and shall not be deemed for any purpose whatsoever to modify or explain or to be used as an aid in the construction of any provision. 22. COUNTERPARTS: This Agreement may be executed in counterparts with each original being deemed a whole and complete copy. 23. ASSIGNMENT: MSHE may not assign, sell, grant a security interest in, or otherwise dispose of their interest in the Property unless agreed to in writing by AGE. 24. AMENDMENTS: This Agreement cannot be amended, modified or changed in any way whatsoever except by a written instrument duly signed by the Parties hereto. 25. AUTHORITY: The corporations which are Parties hereto warrant and represent that they have the power and authority to enter into this Agreement. 26. VOID PROVISIONS: If any provision hereof as applied to any Party or to any circumstance Shall be adjudged by a Court to be void or unenforceable, the same shall in no way affect any other provisions hereof, the application of such provision in any other circumstances or the validity or enforceability hereof. 27. SUCCESSORS AND ASSIGNS: Except where provided to the contrary, this Agreement, and all provisions hereof, shall inure to the benefit of and be binding upon the Parties hereto, their successors in interest, assigns, administrators, executors, heirs and devisees. 28. GOVERNING LAW: This Agreement shall be construed in accordance with and governed by the laws of the State of New York and consent to jurisdiction of the Federal courts located in New York City with respect to resolution of any disputes arising hereunder. The Parties herein have fully read, understood and executed this Agreement freely and voluntarily. By signing In the spaces provided below, the Parties accept and agree to all the terms and conditions of this Agreement. In Witness Whereof the Parties hereto have caused this Agreement to be duly executed. /s/Abrams Gentile /s/Robert Maerz - ------------------------------------- -------------------------------- Abrams/Gentile Entertainment, Inc. MSH Entertainment Corporation 7 confidential 10/31/96 /s/ John Gentile /s/ Robert Maerz - ------------------------------ ------------------------------ Print Name Print Name Its President Its Chairman -------------------------- -------------------------- Title Title Date 11/1/96 Date 11/1/96 ------------------------- ------------------------- 8 confidential 10/31/96 9. AGE to deliver scripts, voice tracks, and storyboards on one per week weekly basis for episodes 3 beginning week through 13. of 5/15/97 10. AGE to deliver full music mixing AGE & MSHE to for episodes 3 through 13 to contribute $100M and MSHE one week prior to the $50M per week, delivery date of the broadcast one per week respectively, for nine master (full audio mix) of each beginning week weeks beginning July episode by MSHE to AGE. of 7/28/97 28, 1997. 11. MSHE to deliver broadcast for episodes 3 through 13 (assumes all spot production one per week activities completed by MSHE beginning week at its facilities). of 8/3/97 /s/ Robert P. Maerz /s/Abrams Gentile - ----------------------------------- ------------------------------------- MSH Entertainment Corporation, Inc. Abrams Gentile Entertainment, Inc. 19. COUNTERPARTS. For the convenience of the parties, any number of counterparts of this Warrant may be executed by the parties hereto and each such executed counterparts shall be, and shall be deemed to be, an original Instrument. 20. NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of this Warrant enter into any agreement with respect to its accuracies which is Inconsistent with the rights granted to the Holders of this Warrant or otherwise conflict with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not Inconsistent with the rights granted to holders of the Company's securities under any other agreements, except rights that have been waived. 21. SATURDAYS, SUNDAYS, AND HOLIDAYS. If the Expiration Date falls on a Saturday, Sunday or legal holiday, The Expiration Date shall automatically be extended until 5:00 p.m. the next business day. AGREED ABRAMS GENTILE ENTERTAINMENT INC. MSH ENTERTAINMENT CORPORATION /s/ John Gentile /s/ Robert Maerz --------------------------- ------------------------------ Signature Signature John Gentile Robert Maerz --------------------------- ------------------------------ Printed Name Printed Name President Chairman -------------------------- -------------------------- Title Title 11/1/96 11/1/96 ------------------------- ------------------------- Date Date 9 EX-6.13 16 NATIONAL DISTRIBUTION AND WAREHOUSING AGREEMENT NAVARRE CORPORATION NATIONAL DISTRIBUTION AND WAREHOUSING AGREEMENT This Agreement is entered into by the parties hereof as of the 1st day of October, 1997. NAVARRE CORPORATION ("NAVARRE") is an experienced wholesale distributor of musical, literary, and artistic recordings on various recording media. The company listed below ("LABEL") has released, and will release during the term of this Agreement, certain Recordings for sale and distribution in the United States through NAVARRE. MSH MUSIC GROUP - --------------- LABEL Name 3330 Ocean Park Boulevard. Suite 115 - ------------------------------------ Street Address Santa Monica. CA 90405 - ---------------------- City/State/Zip Code DEFINITIONS: - ------------ "Actual Price" shall mean the Base Price adjusted for Growth Incentive Rebates and the discounts and rebates described in Section 2.1 hereto. "Base Price" shall mean the price of the Recordings to NAVARRE, as set forth on Schedule A hereto. "Contract Year" shall mean each October 1 through September 30 during the term of this Agreement. "Recordings" means and includes all of LABEL's musical sound recordings on various recording media (including but not limited to compact disks, cassettes and DVD). A partial listing of the LABEL's catalog of Recordings is shown in Schedule B to this Agreement. 1 1. APPOINTMENT AND SCOPE. ---------------------- 1.1 This Agreement will be effective as of October 1, 1997. The initial term will be for approximately three years ending September 30. 2000. Therefore, this Agreement will automatically renew for successive one year periods unless terminated as provided in Section 11. 1.2 Except as described in Schedule 1.2 hereof, LABEL appoints NAVARRE as its exclusive distributor in the United States for sales and the distribution of all of LABEL's content or recordings, through all wholesale and retail sales channels. LABEL represents that all of its current labels are listed on Schedule A hereto. If LABEL markets its Recordings under more than one label, the current labels as shown in Schedule A, and all additional labels created during the term of this Agreement, are included under this appointment. This appointment includes, without limitation, sales to retail outlets, one stops, rack jobbers, military, wholesale clubs, and sales to subdistributors as provided by this Agreement. 2. PRICING: PAYMENT. ----------------- 2.1 In consideration of the rights granted hereunder and the obligations and covenants of the parties set forth herein, NAVARRE shall pay LABEL a variable cost for each recording calculated in accordance with Schedule 2.1 hereto. NAVARRE agrees that these prices will be no less favorable than the prices that NAVARRE offers to any other labels. 2.2 The current suggested retail prices charged by LABEL for Recordings are shown in Schedule 2.1. LABEL may change the suggested retail price on a prospective basis by issuing new pricing sheets to NAVARRE to reflect price changes and new releases. 2.3 NAVARRE will provide LABEL on a weekly basis with total shipments, by SKU, and also carrying inventory figures through the last business day of the week (normally Friday). This information will be transmitted in electronic form, by title and customer, on the following business day (normally Monday). If electronic link is not possible, hard copies of reports will be mailed each Monday. 2.4 During the period September 1 through December 25 of each year, NAVARRE shall be entitled to retain 20% of the Base Price of all copies of Christmas Recordings sold by NAVARRE during such period as a reserve for returns. This reserve will be reconciled and paid by NAVARRE to LABEL by April 30 of the following year. 2.5 Invoices will be issued weekly by LABEL to NAVARRE from the net total on the Weekly Invoice reports which correspond to each week ending Saturday. Payment terms to LABEL are two percent (2%), sixty (60). Payments will be sent to the LABEL at the end of each week, corresponding to the invoice which comes due on its sixtieth day during that week. 2 2.6 Within 30 days after the end of each Contract Year, any Growth Incentive Rebate fee payable to LABEL or Charge shall be calculated in accordance with Schedule 2.1 hereof. If additional money is owed to LABEL, NAVARRE shall pay it within 60 days. If actual amount paid to LABEL for the calendar year is in excess of the amount due LABEL hereunder, NAVARRE may, at its option, either (i) require LABEL to remit the overage to NAVARRE within 60 days or (ii) deduct the overpayment from the next distribution payment(s) that would otherwise be payable to LABEL. 2.7 LABEL also agrees to participate in the following discount programs and prices for such recordings shall be correspondingly reduced from the Base Price described on Schedule 2.1: (a) A minimum of two (2) of NAVARRE's three (3) scheduled sell in programs (February/Winter, May/Spring, Fall Buy In). This participation will be in the form of a discount passed on to NAVARRE for all of the LABEL's product sold during the program period. LABEL's participation in such programs shall be at a rate of up to six (6%) percent off of the Base Price at NAVARRE's discretion. Any such discount in excess of six (6%) percent off of the Base Price will have to be agreed to in advance by LABEL unless otherwise agreed in writing by LABEL. (b) Standard discounts for NAVARRE's sales to rack jobbers, which is currently in the amount of five (5%) percent off of the Base Price. (c) Standard discounts for NAVARRE's sales to military bases and installations, which is currently in the amount of ten (10%) percent off of the Base Price. 2.8 In the event that LABEL reduces the price of any product or offers the product at a lower price, including raising the discount offered, to any other party, LABEL shall promptly credit NAVARRE for the difference between the invoice price charged to NAVARRE and the reduced price for each unit of product held in inventory by NAVARRE on the date the reduced price is first offered. LABEL will also credit NAVARRE for the difference between the invoice price charged to NAVARRE and the reduced price for each unit of product held in inventory by NAVARRE's or its customers on the date the reduced price is first offered by LABEL if NAVARRE's customers request a credit resulting from LABEL's price reduction. Should any of NAVARRE's customers request a price adjustment as outlined in this section, NAVARRE shall provide for an independent third party audit of that customer's inventory upon LABEL's reasonable request and at LABEL's expense. NAVARRE will use commercially reasonable efforts to provide inventory reporting of its customer's inventory. Any such price reduction shall be taken into account in the calculation of amounts payable hereunder. 2.9 No payment or fees shall be payable to LABEL on copies of the Recordings furnished free of charge by LABEL or NAVARRE to third parties for non-resale purposes such as review, advertising, sample, publicity, promotion or like purposes, or copies destroyed by fire or water, or on copies sold at or below the cost of manufacture. 3 2.10 LABEL shall be responsible for payment directly to the copyright proprietors of any and all mechanical copyright royalties on any and all compositions incorporated into the Recordings at the applicable statutory rates. 2.11 NAVARRE shall provide LABEL with an accounting of all amounts payable to LABEL hereunder within thirty (30) days of the end of each Contract Year. All such accountings rendered by NAVARRE will become final and binding on LABEL and LABEL will neither have nor make any claim against NAVARRE with respect to such statement unless prior to 90 days after the rendering of such statement LABEL advises NAVARRE in writing of any objection to such statement, setting forth the specific basis for objection, in which case such statement shall be binding in all respects except those stated in such written objection. 2.12 LABEL shall have the right, at LABEL's expense, to engage an independent certified public accountant, not then conducting or participating in an audit of NAVARRE's books, to audit relevant portions of NAVARRE's books and records pertaining to monies payable to LABEL hereunder that have not been rendered incontestable, but not more than once in any twelve (12) month period, during normal business hours and upon reasonable notice, and provided that such audit will not be conducted on a contingent fee arrangement. 3. NAVARRE OBLIGATIONS. -------------------- 3.1 NAVARRE shall use its best efforts and time to promote and sell the Recordings in the ordinary course of its business. 3.2 NAVARRE shall maintain suitable offices, warehousing facilities and adequate staffing for the performance of its duties under this Agreement. NAVARRE shall conduct its business in its own name and shall pay all of its own costs and expenses. 3.3 NAVARRE shall respect the musical, dramatic, artistic and literary rights of LABEL and the property rights of the LABEL, the artists, producers and others in the Recordings, the trade names, trademarks, logos and other information supplied with or that is a part of the Recordings or promotional materials for the Recordings. 3.4 NAVARRE shall promptly pay LABEL according to the payment provisions of this Agreement. 3.5 NAVARRE shall make available to LABEL manufacturing of all forms of CD's, DVD and cassettes upon the pricing and terms established from time to time by separate agreement between the parties. 4 4. LABEL'S OBLIGATIONS. -------------------- 4.1 LABEL shall provide NAVARRE with a minimum of 30 releases during the term of this contract. 4.2 LABEL shall accept orders from NAVARRE for the consignment of recordings, and shall promptly deliver against those orders. Recordings will be supplied in industry acceptable packaging with the appropriate UPC sticker or labeling. 4.3 LABEL shall provide NAVARRE with reasonable quantities of no-charge promotional and advertising materials for the recordings, but in no event shall LABEL be required to provide promotional goods, at no charge, in excess of limitations on LABEL as provided in recording Agreements with Artists signed to LABEL. 4.4 LABEL shall consign an inventory of recordings to NAVARRE sufficient to allow both parties to comply with the terms of this Agreement. 4.5 If at any time, for any reason, LABEL has a debit balance with NAVARRE, LABEL will pay NAVARRE the debit balance within sixty (60 days). If all or any portion of the balance remains unpaid after 60 days, NAVARRE shall be entitled, at its option, to (i) withhold future payments due LABEL until such debit balance is paid, and/or (ii) liquidate any inventory of LABEL in the possession or control of NAVARRE and/or (iii) apply any proceeds received from such liquidation towards LABEL's debit balance and/or (iv) manufacture and sell additional Recordings at prices determined by NAVARRE, in its discretion, in quantities sufficient to fully repay all amounts owed by LABEL to NAVARRE and/or (v) immediately terminate this Agreement without further notice. 4.6 All new pressings covered under the terms of this contract shall include the statement "Distributed by Navarre Corporation, Minneapolis, MN 55428." 5. CONSIGNMENT OF INVENTORY. ------------------------- 5.1 LABEL will deliver on consignment to NAVARRE's warehousing facilities an inventory of recordings requested by NAVARRE in amounts determined by NAVARRE. LABEL and NAVARRE shall consult regarding the timing and size of manufacturing orders for purposes of coordinating availability of adequate inventory in accordance with the terms and conditions of this Agreement, but NAVARRE shall at all times have the sole authority to determine the amount of inventory stored at its premises, and any excess inventory shall be returned to LABEL or destroyed pursuant to Section 7.2 hereof. 5 5.2 NAVARRE assumes the risk of loss or damage to consigned recordings from the time of delivery to NAVARRE, until sold or returned to LABEL. If NAVARRE provides manufacturing services to LABEL pursuant to Section 2.7 of this Agreement, NAVARRE shall assume the risk of loss of consigned goods from the time that LABEL becomes liable to pay the cost of manufacturing such goods. 5.3 NAVARRE will pay all expenses incurred after delivery for the protection, sale, warehousing and shipment of recordings. 5.4 LABEL will be responsible for payment of shipping costs for delivery of the recordings to NAVARRE, and the LABEL shall pay for shipping costs for any authorized returns to LABEL (returns will be shipped freight collect). 5.5 NAVARRE will keep books and records showing the transactions made pursuant to this Agreement. NAVARRE's books and records supporting receipts of recordings, shipments of recordings, and all charges applicable to LABEL will be open to inspection upon reasonable advance notice by LABEL during NAVARRE's normal business hours. 5.6 NAVARRE will provide LABEL with a physical inventory, supervised by NAVARRE's CPA firm (currently Ernst & Young), every six months (January and July unless otherwise agreed). LABEL shall also have the right to make its own physical inspection of inventory, upon reasonable advance notice, during NAVARRE's normal business hours. 5.7 The consigned recordings will be safely stored at NAVARRE's warehousing facilities, and will not be removed except upon their sale or return. NAVARRE will keep the inventory adequately insured at its expense against loss or damage, and will have LABEL named as an additional insured. 5.8 Subject to Section 4.5 hereof, title to the consigned recordings shall be and remain in LABEL until sold. 5.9 Shipment discrepancies between the invoice/bill-of-lading provided by LABEL and any damage in transit will be promptly reported. 6. SALES BY NAVARRE. ----------------- 6.1 NAVARRE is authorized to sell the consigned inventory to its accounts in the United States. 6.2 NAVARRE shall be free to establish, with respect to its agents and distributors, the terms of sale, and cost prices at NAVARRE's discretion. 6 6.3 LABEL will reorder recordings for delivery to NAVARRE, as reasonably required to maintain adequate inventory, based on the shipping report issued each week and the order requests issued to LABEL by NAVARRE. 7. RETURNS. -------- 7.1 All defective recordings, either identified upon receipt from LABEL, or determined to be defective when returned from NAVARRE's customers or subdistributors, will be reported to LABEL and placed at its disposition. LABEL shall advise NAVARRE regarding the disposition of defective recordings within 14 days after receipt of notice of defects from NAVARRE. Otherwise, the defective product will be destroyed, at NAVARRE's option. LABEL shall bear all expenses regarding the destruction or other disposition of defective recordings. 7.2 Due to the nature of the consignment, NAVARRE may return for full credit up to 100% of all conforming sound Recordings received from LABEL. Such returns shall be limited to once per month, and shall be made with advance notice to LABEL as to estimated arrival date. Upon advance notice of returns, LABEL shall provide Return Authorization within seven (7) days of notice. NAVARRE shall bear expense and risk of loss of return shipment. LABEL shall issue payment to NAVARRE for such returned products if no balance is then outstanding. If at any time LABEL refuses to accept returns from NAVARRE, NAVARRE may, at its option, destroy the product or arrange for transportation and storage at another location. All costs relating to destruction, transportation and storage of such product shall be paid by LABEL. 7.3 LABEL shall issue an immediate credit for purchase price plus all return freight charges for defective product, and products returned as defective by NAVARRE customers. Upon LABEL recall of products due to defects, NAVARRE shall provide reasonable assistance, at LABEL's expense, in such recall. 7.4 NAVARRE's right to return products shall survive the term and termination of this Agreement. Should NAVARRE have a balance due upon reconciliation of the account for product returns, freight chargebacks, advertising credits, or other upon end of term or termination, LABEL shall issue payment therefor within thirty (30) days of such term or termination. NAVARRE shall use best efforts to return all unsold product within one hundred eighty (180) days of termination of the Agreement. 7.5 NAVARRE will provide LABEL with a weekly customer returns report identifying quantities and titles. All non-defective returns will be processed by NAVARRE, and placed in inventory for resale or returned to LABEL. 7 8. ADVERTISING AND MARKETING. -------------------------- 8.1 LABEL agrees to conduct marketing and promotional efforts supporting the sale of recordings at its expense. This may include, but is not limited to, advertising in trade and consumer publications, in-store or media promotions, and promotions for radio airplay. 8.2 LABEL shall provide suitable advertising allowances that can be claimed by NAVARRE or its customers. 8.3 LABEL shall provide to NAVARRE camera ready artwork, free of charge, to be used in advertisements, and other suitable promotional materials for NAVARRE and its customers. NAVARRE agrees to use its best efforts to safeguard these materials and return them to LABEL at their request. 8.4 NAVARRE or its customers may produce their own advertisements or promotional materials for LABEL's recordings, so long as such advertisements and promotional material, or the use thereof, have been approved in advance, in writing, by LABEL. Such approval will not be unreasonably withheld, with decisions being made within five workings days of receipt of written request by NAVARRE. 9. INTELLECTUAL PROPERTY. ---------------------- 9.1 LABEL grants to NAVARRE the right to use, in connection with sales of Recordings the trademarks and trade names listed in Schedule 9.1. NAVARRE shall have no right to remove or cover such marks on the products and the marks and names shall remain the exclusive property of LABEL. 9.2 LABEL warrants that the recordings, the sale of recordings and the intended use of recordings does not infringe the patent, copyright, trademark or trade name of any third party. LABEL will indemnify and defend NAVARRE against all damages and costs incurred by NAVARRE due to claims of infringement of any patents, copyrights, trademarks, trade secrets, or other proprietary rights in the manufacture or marketing of product. Upon claim of infringement, NAVARRE may, at its option, immediately cease manufacture, sale and distribution of the recordings. Also, LABEL may, at its expense and option, either procure the right to continue using any part of product, replace same with non-infringing product, or modify product to make it non-infringing; should LABEL be unable or unwilling to replace, modify, or procure right to continued use of product within thirty (30) days of claim notification, NAVARRE may, at its option, return product for a full cash refund of all amounts paid by NAVARRE to LABEL for such Recordings. 8 9.3 NAVARRE agrees to respect and abide by the terms and conditions of the licensed or transferred use of applicable patents, copyrights, trademarks and trade names for purposes of this Agreement. NAVARRE will indemnify and hold LABEL harmless against claims by third parties respecting breaches of this Agreement by NAVARRE. 10. REPRESENTATIONS AND WARRANTIES. ------------------------------- 10.1 As an inducement for NAVARRE to enter into this Agreement, LABEL hereby warrants and represents to NAVARRE as follows: (a) CORPORATE EXISTENCE. POWER AND AUTHORITY. LABEL is a corporation duly organized and validly existing in the State of ______________, and is fully qualified to do business and in good standing in the State of _____________, and in every other jurisdiction wherein the nature of its businesses or the character of its properties makes such qualification necessary, and has all requisite power and authority to carry on its businesses as now conducted and as presently proposed to be conducted. LABEL has full power and authority to execute and deliver this Agreement, the Note, the Security Agreement and all other documents contemplated herein and therein (collectively, the "Borrower Documents") and to incur and perform its obligations hereunder and thereunder. The Borrower Documents each constitute the legal, valid and binding obligations of LABEL enforceable in accordance with their respective terms. (b) LICENSES: ROYALTIES AND INFRINGEMENT. LABEL possesses adequate licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its respective business substantially as now conducted and as presently proposed to be conducted. There does not exist and there is no reason to anticipate that there may exist, any liability to LABEL with respect to any claim of infringement regarding any patent, copyright, trademark, trade name or other intellectual property right relating to the releases. LABEL is current on all license and royalty payments owned, including, without limitation, artist royalties and mechanicals. (c) DEFAULT. LABEL is not in default of a material provision under any material agreement, instrument, decree or order to which it is a party or by which it or its respective property is bound or affected. (d) CONSENTS. No consent, approval, order or authorization of any governmental authority or any third party is required in connection with the execution and delivery of LABEL Documents, or any of the agreements or instruments herein mentioned or the carrying out or performance of any of the transactions required or contemplated hereby or thereby or, if required, such consent, approval, order or authorization has been obtained by LABEL prior to the date hereof. 9 (e) OWNERSHIP. The shareholders, officers and directors of LABEL are listed on Schedule 10.1(e) hereto. Except as described on Schedule 10.1(e), none of the persons listed owns, controls, is employed by or affiliated with any recording company or label other than LABEL. 11. TERMINATION. ------------ 11.1 The initial term of this Agreement shall be three (3) years. Thereafter, the Agreement shall automatically renew for additional one (1) year periods. 11.2 LABEL may terminate this Agreement, without cause, if it has been in effect for a period of at least one year. LABEL must give NAVARRE at least ninety (90) days advance written notice of termination. Upon such notice, NAVARRE shall not be required to make further payments to LABEL for a period of one hundred eighty (180) days after the date the termination is effective. Upon termination by LABEL without cause, it shall pay to NAVARRE for the loss of the rights granted under this Agreement, as liquidated damages and not as a penalty, a dollar amount derived from the gross margins that would have been realized by NAVARRE during the remaining term of this Agreement. For this calculation, the "gross margin percentages" realized by NAVARRE from the shipment and sale of recordings over the six month period preceding the giving of notice will be used to determine the average gross margin dollars realized per month. This dollar amount will then be multiplied by the months remaining in the term of the Agreement. NAVARRE's invoice for this amount shall include documentation to support its calculation. Payment shall be made within 30 days. LABEL shall have the right to audit NAVARRE's books and recordings to confirm the accuracy of NAVARRE's calculation of a basis for this payment, provided that LABEL shall place the amount of such payment in an escrow account pending verification of the amount of the audit. As used herein, "gross margin percentage" is defined as the sell price NAVARRE charges its customers minus the Base Price NAVARRE pays LABEL (as defined in Schedule 2.1) divided by the sell price NAVARRE charges its customers. 11.3 After one year, NAVARRE may terminate this Agreement, without cause, by giving LABEL 90 days notice of its intent to terminate. Both parties agree to as smooth a transition as possible. 10 11.4 This Agreement may be terminated for cause upon the material breach by LABEL or NAVARRE of any obligation created hereunder. Except as otherwise provided in this Agreement, such termination shall be effected by the giving of 30 days written notice of the intent to terminate. The notice must give details of the claimed breach, and the party given the notice shall have the 30 day period to cure before the termination will be effective. If the breach by NAVARRE or LABEL is payment to the other party, the party given the notice shall have a 10-day period to cure before termination will be effective. 11.5 In the event either NAVARRE or LABEL files or becomes subject to a petition in bankruptcy, or other assignment for the benefit of creditors, such event may constitute a material breach and may be cause for termination of this Agreement under the standard termination clause contained herein. In such event, all consigned goods held by NAVARRE shall be delivered to LABEL, or held for LABEL's benefit at a location designated by LABEL. 11.6 At the end of term or termination of this Agreement for any reason, NAVARRE may return products in lieu of payment on account for one hundred eighty (180) days. At the end of the one hundred eighty (180) days, NAVARRE may keep products and pay LABEL therefor. Prices and payment schedule for such products shall be as mutually agreed at that time. If LABEL and NAVARRE are unable to agree upon such prices and payment schedule within ten (10) days following the expiration of said one hundred eighty (180) day period, NAVARRE will return all products for credit or if there is a balance owed to NAVARRE, LABEL shall pay NAVARRE within thirty (30) days. 12. RELATIONSHIP 0F THE PARTIES. ---------------------------- 12.1 Neither party to this Agreement is the employee, agent or legal representative of the other for any purpose whatsoever. 13. GENERAL PROVISIONS. ------------------- 13.1 This Agreement shall be governed by the laws of the state of Minnesota. Any dispute arising out of this Agreement shall be brought and prosecuted in a court within Hennepin County Minnesota. For this purpose, LABEL, appoints the Secretary of State of Minnesota as its agent for services of process in the event that NAVARRE is unable to serve process on LABEL at its last known business address. 13.2 This Agreement may be assigned by either party subject to the written consent of both parties and said consent will not be unreasonably withheld. Said assignment shall not unreasonably impair the rights of the non-assigning party and shall not be on terms less favorable than the terms set forth in this Agreement 11 13.3 This Agreement supersedes all prior oral or written proposals and communications between the parties related to this Agreement, and shall not be modified, rescinded, waived or otherwise changed except with the written consent of the parties. This contract sets forth the entire Agreement between the parties with respect to the subject matter hereof. 13.4 Each party confirms that no inducements, promises or representations, not written herein, caused it to enter into this Agreement. The parties, by the actions of their authorized representatives, have executed this Agreement, including the attached Schedules, as of the date first mentioned above. LABEL: NAVARRE: /s/ Richard Schulenberg /s/ Guy M. Marsala - -------------------------- ---------------------------- Signature Signature Richard Schulenberg Guy M. Marsala - -------------------------- ---------------------------- Typed/Printed Name Typed/Printed Name President COO - -------------------------- ---------------------------- Title Title 12 LIST OF SCHEDULES TO DISTRIBUTION AGREEMENT OF October 1, 1997 BETWEEN MSH MUSIC GROUP AND NAVARRE CORPORATION A Current Labels B LABEL's Catalog of Recordings 1.2 Scope of Exclusive Distribution 2.1 Actual Price 9.1 Trademark and Trade Names 10.1(e) Shareholders, Officers and Directors of LABEL 13 SCHEDULE 2.1 TO DISTRIBUTION AGREEMENT DATED OCTOBER 1, 1997 BETWEEN MSH AND NAVARRE CORPORATION Current Pricing: Suggested Base Price Suggested Base Price Retail $ to NAVARRE(1) Retail $ to NAVARRE(1) -------- ------------- -------- ------------- 3.49 1.46 16.98 8.84 4.98 2.08 17.98 9.15 5.98 2.39 18.98 9.72 6.98 3.12 19.98 10.19 7.98 3.74 23.98 11.96 8.98 4.26 25.98 12.69 9.98 4.89 27.98 13.94 10.98 5.30 29.98 14.98 11.98 6.34 30.98 15.44 12.98 6.81 31.98 15.96 13.98 7.38 32.98 16.43 14.98 7.80 33.98 16.95 15.98 8.37 39.98 19.97 (1) This pricing is based on an estimated Base Price before any discounts described in Section 2.6 and exclusive of Growth Incentive Rebates or Charges. Any discounts shall apply immediately but, with respect to Growth Incentive Rebates or Charges, the Actual Price to NAVARRE shall be calculated on an annual basis. NAVARRE's Annual Net Payments Growth to LABEL for Recordings Incentive Rebate ----------------------- ---------------- 0-$2,000,000 0 $2,000,000 - $4,000,000 2% $4,000,000 - $8,000,000 4% $8,000,000 - $12,000,000 5% $12,000,000 - $15,000,000 6% $15,000,000 and over 7% 14 SCHEDULE A CURRENT LABELS -------------- Current MSH Music Group Labels: MSH RECORDS MSH/OUTWEST RECORDS (a children's label to be designated) SCHEDULE B LABEL'S CATALOG OF RECORDINGS ----------------------------- Current MSH Music Group Recordings: Van-Pires Soundtrack John Entwistle and guests Nothin' On But The Radio T.G. Sheppard Cowboy Attitude Misti Pierson Freedom Sheena Easton (Licensed) 106 Ike and Tina Turner Masters SCHEDULE 1.2 SCOPE OF EXCLUSIVE DISTRIBUTION ------------------------------- Expressly excluded from this Distribution Agreement are distribution of video product oilier than music videos, record clubs, and electronic distribution of recorded product. All other distribution is as set forth in Paragraph 1.2 of this Distribution Agreement. SCHEDULE 9.1 TRADEMARK AND TRADE NAMES ------------------------- Label is currently using the following trademarks and trade names: MSH MUSIC GROUP MSH ENTERTAINMENT CORP. MSH RECORDS MSH/OUTWEST RECORDS SCHEDULE 10.1(e) SHAREHOLDERS. OFFICERS AND DIRECTORS OF LABEL --------------------------------------------- MSH Music Group is presently a division of MSH ENTERTAINMENT CORP., a publicly traded Utah Corporation (NASDAQ). Shortly, MSH Music Group will be incorporated separately as a wholly owned subsidiary of MSH ENTERTAINMENT CORP. MSH ENTERTAINMENT CORP. ----------------------- Chairman: Robert Maerz President: Jonathan Stathakis Executive Vice President: Andrew Steiner Executive Vice President: Richard Schulenberg MSH MUSIC GROUP (Pending) ------------------------- Director: Robert Maerz Director Jonathan Stathakis Director: Richard Schulenberg Chairman: Robert Maerz EX-6.14 17 AGREEMENT, DATED DECEMBER 15, 1999 MSH logo December 15, 1999 John & Anthony Gentile Marty Abrams Freedom Multimedia, LLC 244 West 54th Street New York, NY 10019 Lenox Capital Group, LLC 335 Central Avenue Lawrence, NY 11559 Gentlemen: As per the Transfer and Operating Agreements, you are hereby notified that MSH Entertainment expects to complete its acquisition of up to 18.75% of the membership interests of Freedom Multimedia. We understand that once Freedom is capitalized that this interest will be diluted to 9.375%. We expect to pay the balance of the $375,000, plus interest, in the following manner: 1. $50,000 upon acknowledgment of this agreement, 2. $50,000 on January 21, 2000; 3. $150,000 on Feb. 15th; 4. Balance due on March 15, 2000. All payments, in whole or in part, shall be credited towards the purchase of the membership interest on a pro rata basis (e.g., each one dollar is equal to .000025 of an interest). We are excited about the prospects for the Power Glove and look forward to working with you in the future. Thank you very much. Respectfully, /s/ Robert Maertz Robert Maertz Chairman/CEO 244 W. 54th Street, 12th Floor, New York, NY 10019 TEL: 212.977,9300 FAX: 212.977.1600 12020 Chandler Blvd, Suite 300, North Hollywood, CA 91607 TEL: 518.752.6263 FAX: 818.752.1318 85 Liberty Ship Way, Suite 105, Sausalito, CA 94965-3313 TEL: 415.331.6743 FAX: 415.331.6741
MSH ENTERTAINMENT CORPORATION 330 Ocean Park Boulevard Santa Monica, CA 90405 Freedom Multimedia, LLC 244 West 54th Street New York, NY 10019 Lenox Capital Group, LLC 335 Central Avenue Lawrence, NY 11559 Gentlemen: Reference is made to the Membership Interest Purchase Agreement, dated as of November 1, 1999 (the "Purchase Agreement), among Lenox Capital Group, LLC. a Delaware limited liability company, as purchaser ("Lenox" and, collectively with Lenox's members, employees, agents, representatives or affiliates, including, without limitation, Michael Alpert, the "Lenox Group"), Freedom Multimedia, LLC, a Delaware limited liability company, as seller ("Freedom"), and the members of the seller signatories thereto, including MSH Entertainment Corporation ("MSH"), as principals. MSH, for itself and on behalf of its agents, representatives, employees and affiliates successors or assigns, confirms to each of Freedom and Lenox., and to their respective members, managers, officers and affiliates, the following: 1. MSH hereby disclaims and relinquishes any interest it may hold in Freedom in any capacity whatsoever, whether as a member, manager, equity holder, creditor or otherwise, or pursuant to any agreement of any nature whatsoever, whether written or oral. 2. MSH hereby confirms that it has no claim of any nature whatsoever against or relating to Freedom and the Lenox Group which is outstanding on the date hereof, whether matured or unmatured, liquidated or unliquidated. fixed, contingent or otherwise and hereby releases, acquits, and forever discharges Freedom and the Lenox Group from any and all claims, expenses (including attorneys' fees), debts, demands, costs, contracts, liabilities, damages, including punitive damages, rights to payment, compensation, sums of money, obligations, actions, and causes of action of every nature (each individually a "Claim and collectively the "Claims"), under any theory under the law, whether common, constitutional, statutory or other, of any jurisdiction, foreign or domestic, whether known or unknown, whether in law or in equity, which they had or held, or have or hold or may claim to have or to hold by reason of any and all matters from the beginning of time to the present. whether brought or initiated by them on their behalf. whether or not in their own names, including but not limited to. those arising out of or relating to the Transfer, the Purchase Agreement or otherwise or in any way associated with any dealings between MSH and Freedom or the Lenox Group. For the purpose of implementing a full and complete release and discharge of Freedom and the Lenox Group, MSH expressly acknowledges that this agreement is intended to include in its effect, without limitation, Claims which they do not know of or suspect to exist in their favor, that this agreement is intended to extinguish all Claims, and that they hereby waive all such Claims. To the extent MSH may be deemed for any reason to have Claims against Freedom or Lenox on the date hereof, such Claims are hereby irrevocably and unconditionally released. 3. MSH has no Claim against Freedom or the Lenox Group, outstanding on the date hereof. MSH hereby agrees that it is no longer a party to such Purchase Agreement, and will delivery such further documentation as shall reasonably be requested by Freedom or Lenox including, without limitation, an amendment to the Purchase Agreement, to evidence the foregoing. 4. The execution and delivery of MSH of this letter agreement and the performance by MSH of its obligations hereunder have been duly authorized by all required corporate action on the part of MSH and do not and shall not conflict with, or result in the breach of or default under, the terms of the certificate of incorporation of MSH, any agreement to which MSH is a party or any statute, ordinance, judgment. order, decree, regulation or rule of any court or governmental body affecting or relating to MSH or its assets. 5. MSH shall indemnify and hold harmless each of Freedom and Lenox and their respective directors, officers, members, shareholders, representatives, agents and affiliates (collectively, "Indemnified Parties") from and against any and all loss, liability, obligation, damage, cost or expense (including, without limitation, reasonable attorneys' fees and disbursements and costs of investigation) directly or indirectly incurred or suffered by or asserted against any Indemnified Party as a result of the breach by MSH of any covenant, representation or warranty contained herein or any claims made by any person or entity against any Indemnified Party relating to or arising out of the transactions contemplated by the Purchase Agreement or any other contractual obligations of MSH, regardless of when a claim is made. 6. MSH reaffirms that it is familiar with, and acknowledges, the prior transfer of any and all rights relating to the "Power Glove": all intellectual property relating thereto ___, including, without limitation, the Bend Sensor Patent, the PowerGlove Trademark and the PC PowerGlove Trademark and the technology associated therewith (the "Transfer") from Abrams Gentile Entertainment, Inc. ("AGE") to Freedom. Notwithstanding anything to the contrary in any agreement to which MSH is a party or by which it is bound, as the same may be amended from time to time (an "MSH Agreement"), including, without limitation. Section 8.2.1 of the Stock Purchase Agreement, dated August 27, 1998, between MSH and Martin Abrams, as amended from time to time (as so amended, the "MSH/Abrams Stock Purchase Agreement"). MSH agrees that the Transfer is valid and enforceable and that MSH has no, and will not raise any, objection thereto. 7. Notwithstanding anything to the contrary in any MSH Agreement, including, without limitation, (i) the MSH/Abrams Stock Purchase Agreement, (ii) any other stock purchase agreements entered into between MSH and other stockholders of AGE, (iii) the Security Agreement. dated August __ [NO DAY INSERTED], 1998, among MSH, Martin Abrams and Up Up & Away America, Inc. ("UU&A"}, and (iv) the Hallmark Loan Indemnity Agreement, dated September ___ [NO DAY INSERTED], 1998, among MSH, Martin Abrams and UU&A, in the event of any conflict between an MSH Agreement (including, without limitation, Section 8.2.1 of the MSH/Abrams Stock Purchase Agreement) and the provisions of this letter agreement, any Transaction Document, the terms of this letter agreement shall govern. 8. The foregoing constitutes the entire agreement among the parties and may not be amended or terminated nor may any provision hereof be waived except in a writing signed by the parties hereto. In the event any provision contained herein shall be deemed overly broad as to be unenforceable, such provision shall be deemed limited to the maximum scope and duration as shall be enforceable. In the event any provision hereof shall be deemed wholly unenforceable, such provision shall be severed from the remainder of this agreement without affecting the enforceability of the remainder of this agreement. The parties agree that this agreement shall be governed by the laws of the state of New York with respect to contracts to be wholly performed within such states and that any dispute will be resolved by the parties by any court of competent jurisdiction located in the city of New York, New York County or if in Federal court, in the District Court for the Southern District of New York. Each of the parties submits to the jurisdiction of the courts located in New York State, waives the right of personal service (agreeing that service to the address listed above by first class registered mail shall constitute valid service for any action) and waive any claim of forum non conveniens. Very truly yours, MSH ENTERTAINMENT CORPORATION By: /s/ Robert P. Maerz ----------------------------- Name: Robert P. Maerz Title: Chairman & CEO 11/15/99 November 15, 1999 Lenox Capital Group, LLC 335 Central Avenue Lawrence, NY 11539 Re: Operating Agreement - Permitted Transfer to MSH ----------------------------------------------- Gentlemen: Reference is made to the Operating Agreement, of even date herewith, among the undersigned, you and Freedom Multimedia, LLC (the "Operating Agreement"). Capitalized terms used but not defined herein shall have meanings given to them in the Operating Agreement. This shall confirm our understanding as follows: For a period of sixty (60) days from the date hereof, the undersigned shall have the right, under undersigned's individual or collective sole discretion, to transfer up to 18.75% of their Interests (collectively representing 9.375% of all outstanding Interests in the date hereof) to MSH Entertainment Corporation, a Utah corporation ("MSH"), provided that, contemporaneously with any such transfer, the transferred Interests shall become non-voting. Solely for purposes of such transfer, MSH shall be deemed to be a Permitted Transferee under the Operating Agreement. Furthermore, any such transfer shall be subject in all respects to the provisions of the operative documents in effect at the time of such transfer, including but not limited to the Operating Agreement, as the same may be amended from time to time, and shall be conditioned upon MSH executing the foregoing documents and such other documentation relating to the management of Freedom Multimedia, LLC and/or the foregoing transfer as shall be requested by Freedom and you. Page 2 Please acknowledge your agreement to the foregoing by executing the enclosed copy of this letter and returning it to the undersigned. Very truly yours, /s/ Martin Abrams ----------------------------- Martin Abrams /s/ John Gentile ----------------------------- John Gentile /s/ Anthony Gentile ----------------------------- Anthony Gentile AGREED: LENOX CAPITAL GROUP, LLC By:________________________ Name:______________________ Title:_____________________ AGE logo ABRAMS/GENTILE ENTERTAINMENT, INC. November 15, 1999 Robert Maerz MSH Entertainment Corporation 244 West 54th Street New York, NY 10019 / Re: Freedom Multimedia / Power Glove Transfer ----------------------------------------- This shall confirm the fact that the Abrams and Gentile members of Freedom Multimedia, LLC have contracted with the Lenox partners of Freedom Multimedia LLC to pre approve the transfer up to 18.75% of the Abrams and Gentile Group Interest (collectively representing a total of 9.375% of all outstanding Interests) for a period of sixty (60) days from the date hereof. Notwithstanding the Lenox pre approval above, MSH must present to Freedom a plan outling a payment schedule of the amount of $375,000 plus interest no later then December 15th, 1999 as referenced in the fax of December 1st, 1999. Further, the Abrams and Gentile members of Freedom Multimedia are under no obligation to grant such right to MSH and such grant of any members Interest in Freedom Multimedia, LLC shall be at the collective or individual members sole discretion. Please acknowledge your agreement to the foregoing by execution below. Sincerely, /s/ Martin Abrams --------------------------- Martin Abrams /s/ John Gentile --------------------------- John Gentile /s/ Anthony Gentile --------------------------- Anthony Gentile AGREED: MSH Entertainment Corporation By /s/ Robert Maerz - ----------------------------- Robert Maerz 244 WEST 54TH STREET 9TH FLOOR, NEW YORK N.Y. 19019 TEL: (212) 757-0700 FAX: (212) 765-1987 EX-6.15 18 STRATEGIC ALLIANCE AGREEMENT DATED 12/30/99 STRATEGIC ALLIANCE AGREEMENT The following, entered into this 30th day of December, 1999 shall serve as the strategic alliance arrangement between Peter Pan, Inc. ("PPI") and MSH Entertainment Corporation ("MSH"). The parties hereto agree as follows: 1. PPI will present to MSH selected properties including audio and audio-visual works and performances, and/or other relevant projects in the entertainment industry, for which PPI controls merchandising and licensing rights. 2. These properties will be presented to MSH for the purpose of producing toys or other merchandising products and/or procuring the same. 3 PPI will select the property (ies) for presentation to MSH. Such selection process shall be done in PPI's sole discretion. 4. Upon presentation, PPI will inform MSH of the amount of time in which MSH must respond. In no event shall this time period be less than ten (10) days. 5. Each time PPI presents MSH with a property, and the parties agree to jointly develop said property, each parties rights and responsibilities will be memorialized in a deal memorandum. That deal memorandum will be the only source for determining the rights and obligations of the parties. The individual agreements will incorporate, but may not be limited to, development costs, production budgets, approvals, show bibles, design manuals, script re-writes, design merchandising licenses, the business contributions and creative materials incorporated into the audio visual productions from each of the Parties and the division for the adjusted gross profits and deficit financing. 6. The strategic alliance will be in force for some of the following purposes: i. PPI, may desire to have MSH re-conceptualize the property to make it more "toyetic" and possibly expand the marketplace for said Property; ii. MSH may serve as the production entity producing the property; iii. MSH may serve as the licensing agent for the property; iv. MSH may arrange for the television distribution of the Property, both domestically and foreign. 7. MSH will present to PPI selected properties for distribution which it owns and controls. This includes, but is not limited to the AGE library which is not previously or currently licensed. These properties will be mutually selected by PPI and MSH/AGE. 8. MSH will select the property(ies) for presentation to PPI. Such selection process shall be done in MSH's sole discretion. 9 Upon presentation MSH will inform PPI of the amount of time in which PPI must respond. In no event shall this time period be less than ten (10) days. 10. Each time MSH presents PPI with a property, and the parties agree to jointly develop said property, each parties rights and responsibilities will be memorialized in a deal memorandum. That deal memorandum will be the only source for determining the rights and obligations of the parties. The individual agreements will incorporate, but may not be limited to, development costs, production budgets, approvals, show bibles, design manuals, script re-writes, design merchandising licenses, the business contributions and creative materials incorporated into the audio visual productions from each of the Parties and the division for the adjusted gross profits and deficit financing. 11. The parties agree that in all cases where an agreement has been entered, both PPI and MSH shall use their best efforts to fulfill their obligations and duties thereunder. 12 Both parties agree that, upon being presented with a property, idea, or other proprietary information hereunder, they shall hold the same in confidence. The parties further agree that they will have a duty of confidentiality which will be binding whether or not an agreement is actually entered into. 13. This agreement represents the entire understanding of the strategic alliance between the parties. AGREED TO ON BEHALF OF PPI By: /s/ Date: 12/30/99 ---------------------------------- -------- AGREED TO ON BEHALF OF MSH By: /s/ Date: 12/30/99 ---------------------------------- -------- EX-6.16 19 STOCK PURCHASE AGREEMENT DATED 8/27/98 STOCK PURCHASE AGREEMENT BY AND BETWEEN MSH ENTERTAINMENT CORPORATION AND MARTIN ABRAMS August 27, 1998 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") dated August 27, 1998 is entered into by and between MSH Entertainment Corporation, a Utah corporation ("Buyer"), and Martin Abrams ("Seller"); RECITALS A. Seller owns 44.01 shares of the Common Stock (the "Purchased Shares") of Abrams\Gentile Entertainment, Inc., a New York corporation (the "Company"); B. Seller desires to sell the Purchased Shares to Buyer and Buyer desires to purchase the Purchased Shares from Seller, on the terms and conditions set forth herein; In consideration of the promises, representations, warranties and agreements contained herein, the parties agree as follows: 1. PURCHASE AND SALE OF SHARES 1.1 TRANSFER OF SHARES. At the Closing (as that term is defined herein), Seller agrees to sell, convey, assign, transfer and deliver the Purchased Shares to Buyer, and Buyer agrees to purchase, acquire and accept the Purchased Shares from Seller. 1.2 PURCHASE PRICE. As full consideration for the sale of the Purchased Shares to Buyer, at or before the Closing Buyer shall deliver to Seller $5,000,000 in cash and property (the "Purchase Price"), as follows: 1.2.1 $349,500 in cash, previously delivered to Seller (the "Earnest Money Deposit"); 1.2.2 $3,400,500 in cash, to be delivered at the Closing (the "Closing Cash Payment"); 1.2.3 300,000 newly issued shares of Common Stock of Buyer, with an agreed value of $120,000 (or $.40 per share), previously delivered to Seller (the "Pre-Closing Shares"); and 1 1.2.4 2,825,000 newly issued shares of Common Stock of Buyer, with an agreed value of $1,130,000 (or $.40 per share), to be delivered at the Closing (the "Closing Shares"); 1.3 PAYMENT OF PURCHASE PRICE. The Closing Cash Payment shall be paid by Buyer to Seller at the Closing, at Buyer's election, by means of a wire transfer or cashier's check. The obligation of Buyer with respect to issuance of the Closing Shares shall be satisfied by delivery to Seller of a certificate representing the Closing Shares, duly registered in the name of Seller and executed and countersigned by duly authorized representatives of Buyer. 2. CLOSING. 2.1 TIME AND PLACE. The consummation of the purchase and sale of the Shares (the "Closing") shall be held at 10:00 a.m. local time on September 4, 1998 at the offices of Rubin, Bailin, Ortoli, Mayer, Baker & Fry LLP, 405 Park Avenue, New York, N.Y. 10022. If the Closing does not occur by the Closing Date, and such failure is not a result of any material breach of this Agreement by Seller, then Seller may retain, as liquidated damages, the Earnest Money Deposit and the Pre-Closing Shares. In such event, Buyer and Seller shall each pay all of its own costs and expenses, and neither Buyer nor Seller shall thereafter have any further obligation to the other under this Agreement. 2.2 DELIVERIES AT THE CLOSING. At the Closing, the each of the parties hereto shall deliver the various certificates, consents, instruments and documents provided for in this Agreement, Seller shall deliver executed stock certificates representing the Closing Shares and such other instruments which, in the reasonable opinion of counsel to Buyer, are required for issuance of the Shares to Buyer, and Buyer shall deliver the consideration for the Shares to Seller. 3. REPRESENTATIONS AND WARRANTIES OF SELLER Except as disclosed in a disclosure schedule delivered concurrently herewith in which all exceptions are noted by specific reference to the Section for which the exception is being made (the "Disclosure Schedule") Seller hereby makes the following representations and warranties to Buyer, acknowledging that Buyer is relying on such representations and warranties in entering into the transactions contemplated by this Agreement. The representations and warranties set forth in Sections 3.5 through 3.25 of this Agreement are to the best knowledge of Seller after due inquiry: 2 3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify would likely have a material adverse effect upon it. Seller has delivered to Buyer complete and accurate copies of the Articles of Incorporation and Bylaws of the Company, each as amended to date. 3.2 SUBSIDIARIES. The Company does not own, directly or indirectly, any shares of capital stock, or any right to acquire any shares of capital stock, of, or any participation in, any corporation, partnership, joint venture or other entity. 3.3 CAPITALIZATION. The authorized capital stock of the Company consists of 200 shares of common stock. As of the date hereof, there are 88 shares of common stock of the Company issued and outstanding all of which are owned, beneficially and of record, free and clear of all liens, encumbrances, security agreements, equities, options, claims, charges and restrictions, as follows: PERCENTAGE NAME SHARES INTEREST --------------- --------------- --------------- Martin Abrams 44.01 50.01136 Anthony Gentile 20.64 23.45454 John Gentile 20.64 23.45454 Jenny Gentile 2.71 3.07954 Such Shares are duly and validly authorized and issued, are frilly paid and nonassessable and are not now in violation of or subject to any preemptive rights. As of the date hereof, there are no warrants, options, calls, commitments, or other rights to subscribe for or to purchase from the Company any capital stock of either or any securities convertible into or exchangeable for any shares of either, or any other securities or agreements pursuant to which the Company is or may become obligated to issue any shares of its capital stock, nor is there outstanding any commitment, obligation or agreement on the part of the Company to repurchase, redeem or otherwise acquire any of the outstanding shares of its capital stock. When purchased in accordance with the terms of this Agreement, the Purchased Shares will constitute 50.01136% of the outstanding capital stock and voting power of the Company immediately following the Closing. 3 3.4 TITLE TO SHARES; AUTHORIZATION. Seller has good and marketable title to the Purchased Shares, free and clear of any liens, restrictions, marital rights, options or encumbrances, and upon consummation of the purchase contemplated herein, Buyer will acquire from Seller good and marketable title to the Purchased Shares, free and clear of all liens, charges, options or other encumbrances, excepting only such restrictions upon transfer, if any, as may be imposed by Federal or state securities laws and restrictions imposed by the Shareholders' Agreement among the shareholders of The Company. Seller has full legal right, power and capacity to enter into, execute, deliver and perform this Agreement and all attendant documents and instruments contemplated hereby, without the consent of any person. This Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of Seller and is enforceable with respect to Seller in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, priority or other laws or court decisions relating to or affecting generally the enforcement of creditors' rights or affecting generally the availability of equitable remedies. The execution and delivery of this Agreement by Seller, and the consummation of the transactions contemplated hereby by Seller in accordance with the terms hereof shall not: (i) conflict with or result in a breach of, violation of, or default under, (or constitute an event that with notice, lapse of time, or both, would constitute a breach or default under) any of the terms, conditions or provisions of the Articles of Incorporation or Bylaws of the Company, or any note, bond, mortgage, indenture, license, lease, credit agreement or other agreement, document, instrument or obligation to which Seller or the Company is a party or by which any of their respective assets or properties are bound, (ii) violate any judgment, order, injunction, decree, statute, rule or regulation applicable to the Company or Seller, or any of their respective assets or properties, (iii) permit any party to terminate any agreement or accelerate the maturity of any debt or other obligation of the Company or Seller, (iv) create any lien, charge or encumbrance on any property of the Company or Seller, or (iv) result in a loss or adverse modification of any license, membership, franchise, permit or other authorization granted to or otherwise held by the Company. No consent, approval, authorization, order, registration, qualification or filing of or with any court or any regulatory authority or any other governmental body is required for the consummation by Seller of the transactions contemplated by this Agreement. 3.5 FINANCIAL STATEMENTS. Seller has previously delivered to Buyer (i) 4 the audited balance sheets of the Company as of December 31, 1997 and 1996 (the "Balance Sheets"), together with the related statements of income, retained earnings, and changes in cash flow for each of the two years then ended, certified by the Company's independent auditors, and (ii) the unaudited balance sheet prepared on a cash basis of the Company as of June 30, 1998 (the "Unaudited Balance Sheet"), together with the related statements of income and retained earnings. (collectively the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods indicated, except as otherwise set forth therein and the notes thereto; provided, however, that the unaudited portions of the Financial Statements are subject to normal recurring year-end audit adjustments, and they do not contain all footnotes required under generally accepted accounting principles. The Audited Financial Statements present fairly the financial condition and results of operations of the Company as of the dates thereof and for the periods covered thereby. 3.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the Closing Balance Sheet or set forth in the Disclosure Schedule, except for those that may have been incurred after the date of the Closing Balance Sheet. All debts, liabilities, and obligations incurred after the date of the Closing Balance Sheet were incurred in the ordinary course of business, and are usual and normal in amount both individually and in the aggregate. 3.7 ABSENCE OF SPECIFIED CHANGES. Since the date of the Closing Balance Sheet, there has not been any: (i) Transaction by the Company except in the ordinary course of business as conducted on that date; (ii) Capital expenditure by the Company exceeding $50,000; (iii) Destruction, damage to, or loss of any asset of the Company (whether or not covered by insurance) that materially and adversely affects the financial condition, business, or prospects of the Company; (iv) Labor trouble or other event or condition of any character materially and adversely affecting the financial condition, business, assets, or prospects of the Company; 5 (v) Change in accounting methods or practices (including without limitation, any change in depreciation or amortization policies or rates) by the Company; (vi) Revaluation by the Company of any of its assets; (vii) Declaration, setting aside, or payment of a dividend or other distribution in respect to the capital stock of the Company, or any direct or indirect redemption, purchase, or other acquisition by the Company of any of its shares of capital stock; (viii) Increase in the salary or other compensation payable or to become payable by the Company to any of its officers, directors, agents, or independent contractors, or the declaration, payment, commitment or obligation of any kind for the payment, by the Company, of a bonus or other additional salary or compensation to any such person except to employees who are not officers, in the ordinary course of business; (ix) Sale or transfer of any asset or cancellation of any claim of the Company, except in the ordinary course of business; (x) Amendment or termination of any contract, agreement or license to which the Company is a party; (xi) Loan by the Company to any person or entity; (xii) Mortgage, pledge, or other encumbrance of any asset of the Company, except liens for taxes not yet due; (xiii) Waiver, termination or release of any right or claim of the Company; (xiv) Material adverse change in the financial condition, business, assets, or prospects of the Company; (xv) Issuance or sale by the Company of any shares of is capital stock of any class, or of any other of its securities; or 6 (xvi) Any commitment by the Company to issue any shares of its capital stock or other equity securities, or any options, rights to purchase, or securities convertible into any capital stock or other equity securities of the Company; (xvii) Indebtedness incurred for borrowed money or commitment to borrow money, or any guaranty or commitment to guaranty the indebtedness of others entered into by the Company; (xviii) Agreement by the Company to do any of the things described in the preceding clauses (i) through (xvii). The Company has within the times and in the manner prescribed by law, including extensions, filed and will continue to file up through the Closing Date all federal, state, local and other governmental (both domestic and foreign) tax returns and similar reports required to be filed by it, and has paid and will continue to pay up through the Closing Date all taxes shown thereon which are due and payable including, without limitation, income tax. All taxes, assessments and levies which the Company is required by law to withhold, collect or pay, including, without limitation, federal and state employee income tax withholding, have been withheld or collected and paid over to the proper governmental authorities. The provisions for taxes reflected in the Financial Statements are adequate for any and all federal, state, county, local and foreign taxes for the periods ending on the date of the statements and for all prior periods, whether or not disputed. To Seller's best knowledge, there are not any present disputes as to taxes of any nature payable by the Company. 3.8 LEASE. The copy of the lease, dated November 13, 1996, between the Company and Ascot Properties Co. (the "Lease") is true and accurate, and has not been amended or modified.. The Company has received no notice that the landlord under the Lease intends to cancel or terminate the Lease or to exercise or not to exercise any option under the Lease. The Lease is in full force and effect as of the date hereof, and the Company has performed all of its obligations, and is not in default under, the Lease. All rent and other monies required to be paid under the Lease have been duly and timely paid. 3.9 TANGIBLE PERSONAL PROPERTY. Schedule 3.9 hereto sets forth a complete list of all items of tangible personal property owned or leased and used by the Company in the current conduct of its business, where the net book value as reflected in its Balance Sheet is $5,000 or more. The Company has good and marketable title to, or in the case of leased equipment a valid leasehold interest in, and is in possession of, all such items of personal property owned or leased by it, free and clear of all title defects, mortgages, pledges, 7 security interests conditional sales agreements, liens, restrictions or encumbrances whatsoever. Included in Schedule 3.9 is a list of all outstanding equipment leases and maintenance agreements to which the Company is party as lessee and which individually provide for future lease payments in excess of $1,000 per month, with the identities of the other parties to all such leases and agreements shown thereon. All leases of tangible personal property to which the Company is a party and which are material to the business of the Company are fully effective in accordance with their respective terms, and there exists no default on the part of the Company or any other party thereto. Each item of capital equipment reflected in the Closing Balance Sheet which is used in the current conduct of the Company's business is, and on the date of the Closing will be, in good operating and usable condition and repair, ordinary wear and tear excepted, and is and will be suitable for use in the ordinary course of the Company's business and fit for its intended purposes. 3.10 LICENSES. Schedule 3.10 lists all licenses and permits held by the Company. All such licenses and permits are fully in effect and constitute all of the approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state, local or foreign, required to permit the operation of the Company `s business as presently conducted and as proposed to be conducted. The Company is in compliance with the terms of all such licenses and permits. None of such licenses, permits and related approvals require the consent of any third party to the transactions provided for herein and all of such licenses, permits and approvals will be in full force and effect immediately after the Closing. Neither Seller nor the Company has received any notice by any party that has granted the Company any of the foregoing licenses or permits that it intends to restrict, cancel or otherwise modify such license or permit, nor are Seller or the Company aware of any facts which would indicate that any such party has any intention to take such action. 3.11 ACCOUNTS RECEIVABLE. Schedule 3.11 sets forth a complete and accurate report of all of the Company's accounts receivable outstanding as of a date not more than 15 days prior to the date hereof. All such accounts receivable arose from valid transactions, were recorded in the ordinary course of business, and are not subject to any set-off or counter claim. No accounts receivable are contingent upon the future performance of service or the future delivery of products. The Company has not assigned, factored or otherwise transferred any of its accounts receivable, or any interest therein, and holds all rights, title and interest in and to said accounts receivable. All of the accounts receivable reflected on Schedule 3. 11 are collectible in frill subject to the "allowance for doubtful accounts" shown on the Schedule which is sufficient to cover all doubtful accounts. 8 3.12 CUSTOMERS AND VENDORS. INTENTIONALLY OMITTED 3.13 CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto lists all contracts, agreements, obligations and commitments, written or oral, expressed or implied, to which the Company is a party or by which it is bound which involve a commitment or liability in excess of $50,000 or for a term of more than twelve months (other than obligations which are included in accounts payable), and any union contracts, employee or consulting contracts, financing agreements, debtor or creditor arrangements, licenses, franchises, leases other than those described in Section 3.9, or bonus, health or stock option plans. True and complete copies of all contracts and other agreements listed on Schedule 3.13 have been made available to Buyer prior to the execution hereof. As of the date hereof, there exist no circumstances which would affect the validity or enforceability of any of the Company's contracts and other agreements in accordance with their respective terms. The Company has performed and complied in all material respects with all obligations required to be performed by it to date under, and is not in default (without giving effect to any required notice or grace period) under, or in breach of, the terms, conditions or provisions of any of its contracts and other agreements. The validity and enforceability of any contract or other agreement of the Company has not been and shall not in any manner be affected by the execution and delivery of this Agreement without any further action. 3.14 PROPRIETARY RIGHTS. The Company does not have any patents, applications for patents, trademarks, applications for trademarks, trade names, copyrights, licenses or service marks relating to its business except as set forth in Schedule 3.14 hereto. The Company has the unrestricted right to use, free and clear of any claims or rights of others, all trade secrets, customer lists, computer programs, characters, likenesses, and processes reasonably necessary to conduct its business as presently conducted. The continued use thereof by the Company following the Closing will not conflict with, infringe upon, or otherwise violate any rights of others. The Company has not used nor is it making use of any confidential information or trade secrets of any present or past employee or shareholder. 3.15 NO PENDING MATERIAL LITIGATION OR PROCEEDINGS. Except as set forth on Schedule 3.15 hereto, there are no actions, suits or proceedings pending or threatened against or affecting the Company or Seller (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or 9 foreign, which might result in any material adverse change in the business, properties or assets, or in the condition (financial or otherwise) of the Company or Seller, or which question or challenge the sale of the Shares by Seller to Buyer. Neither Seller nor the Company is subject to any voluntary or involuntary proceeding under the United States Bankruptcy Code or has made an assignment for the benefit of creditors. 3.16 INSURANCE. The Company maintains insurance with reputable insurance companies on such of its equipment and properties as are usually insured by companies similarly situated and to the extent customarily insured, and maintains such other insurance against hazards, risks and liability to persons and property as is customary for companies similarly situated. All such insurance policies are in full force and effect. There are no outstanding unpaid claims under any such policies which have gone unpaid for more than 60 days or as to which the carrier has disclaimed liability. Neither Seller nor the Company has received notice of cancellation or non-renewal of any such policies and the transactions contemplated hereby will not permit any carrier to cancel any existing policy. Neither Seller nor the Company has received notice from any of the Company's carriers that any insurance premiums will be materially increased in the future or that the insurance coverage currently in effect will not be available in the future on substantially the same terms. 3.17 ARRANGEMENTS WITH PERSONNEL. No stockholder, director, officer or employee of the Company is presently a party to any transaction with the Company, including without limitation any contract, loan or other agreement or arrangement providing for the furnishing of services by, the rental of real or personal property from or to, or otherwise requiring loans or payments to, any such stockholder, director, officer or employee, or to any member of the family of any of the foregoing, or to any corporation, partnership, trust or other entity in which any stockholder, director, officer or employee or any member of the family of any of them has a substantial interest or is an officer, director, trustee, partner or employee. There is set forth on Schedule 3.17 hereto a list showing the name, title, date and amount of last compensation increase, and aggregate compensation, including amounts paid or accrued pursuant to any bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect as of the date of this Agreement, of each officer, employee, agent or contractor of the Company whose salary and other compensation, in the aggregate, received from the Company or accrued is at an annual rate (or aggregated for the most recently completed fiscal year) in excess of $100,000, as well as any employment agreements relating to any such persons. 10 3.18 LABOR RELATIONS. The Company has no obligations under any collective bargaining agreement or other contract with a labor union, under any employment contract or consulting agreement, or under any executive's compensation plan, agreement or arrangement, nor is any union, labor organization or group of employees of the Company presently seeking the right to enter into collective bargaining with the Company on behalf of any of its employees. Seller has furnished Buyer with a copy of all written personnel policies, including without limitation vacation, severance, bonus, pension, profit sharing and commissions policies, applicable to any employees of the Company. 3.19 COMPLIANCE WITH LAWS. The Company holds all licenses, franchises, permits and authorizations necessary for the lawful conduct of its business as presently conducted, has complied with all applicable statutes, laws, ordinances, rules and regulations of all governmental bodies, agencies and subdivisions having, asserting or claiming jurisdiction over it, with respect to any part of the conduct of its business and corporate affairs, where the failure to so comply might have consequences that could materially adversely affect the Company's condition (financial or otherwise), business, assets, properties or prospects. 3.20 BANK ACCOUNTS. Schedule 3.20 sets forth (i) the name of each bank, trust company, securities or other broker or other financial institution with which the Company has an account, credit line or safe deposit box or vault, or otherwise maintains relations; (ii) the account number of each account maintained thereat; (iii) the name of each person authorized by the Company to draw thereon or to have access to any safe deposit box or vault; (iii) the names of all persons authorized by proxy or otherwise to act on behalf of the Company; and (iv) all outstanding powers of attorney and proxies held by Seller. None of the foregoing proxies or powers of attorney are irrevocable. 3.21 EMPLOYEE BENEFIT PLANS. The plans described in Schedule 3.21 hereto are the only employee benefit plans (within the meaning of Section 3(1) of ERISA), and the plans, programs, policies, practices, arrangements or contracts (whether group or individual) providing for payments, benefits or reimbursements to employees of the Company ("Employees") former Employees, their beneficiaries and dependents under which such Employees, former Employees, their beneficiaries and dependents are covered through an employment relationship with the Company ("Benefit Plans"), and such Benefit Plans cover only those persons indicated on Schedule 3.21. The Company is in full compliance with ERISA with respect to the Benefit Plans and have performed all of its obligations under such plans. No actions against the Company 11 based on the Benefit Plans are pending or to the best of the Seller's knowledge threatened (other than routine claims for benefits). 3.22 ENVIRONMENTAL QUALITY. To the best knowledge of Seller, the Company has not used, generated, manufactured, installed, released, discharged, stored or disposed of any "Hazardous Materials," as defined below. The term "Hazardous Materials" shall mean any substance, material or waste which is regulated by any local government authority, the State of New York, or the United States Government, including, without limitation, any material or substance which is (a) defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste" under any provision of New York law, (b) petroleum, (c) asbestos, (d) designated as a "hazardous substance" pursuant to Section 311 of the Clean WaterAct, 33 U.S.C. ss. 1251 ET SEQ. (33 U.S.C. ss. 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (e) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 ET SEQ. (42 U.S.C. ss. 6903), or (f) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 ET SEQ. (42 U.S.C. ss.9601). All such real property at which the Company conducts its business, to the best of its and the Shareholder's knowledge after due and diligent inquiry and investigation, complies with all applicable Federal, state and local laws, ordinances and regulations pertaining to air and water quality, Hazardous Materials, waste, disposal or other environmental matters, including the Clean Water Act, the Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste Disposal Act, the Resource Conservation Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, and the rules, regulations and ordinances of the city and county in which such Real Property is located, the California Department of Health Services, the Regional Water Quality Control Board, the State Water Resource Control Board, the Environmental Protection Agency and all other applicable Federal, state, regional and local agencies and bureaus. 3.23 BROKERAGE. Neither Seller nor the Company has any obligation to any person or entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement, and each party shall indemnify and hold the other party harmless against any liability or expenses arising out of a breach of the foregoing representation. 3.24 ASSETS NECESSARY TO BUSINESS. The assets owned or leased by the Company (all of which after the Closing Date will continue to be owned or leased by the Company) are sufficient to carry on the business conducted by the Company. All such 12 assets are fit for the purposes for which they are being used and are in good operating condition and repair, reasonable wear and tear excepted. The transactions contemplated hereby will not deprive the Company of the benefits of any assets used, or available for use in its business. 3.25 DISCLOSURE. Neither this Agreement, nor any certificate, exhibit, or other written document or statement, furnished to Buyer by or on behalf of Seller in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omit to state a material fact necessary to be stated in order to make the statements contained herein or therein not misleading. Seller has no knowledge of any fact which has not been disclosed in writing to Buyer which may reasonably be expected to materially and adversely affect the business, properties, operations, and/or prospects of the Company or the ability of Seller to perform all of his obligations under this Agreement and/or any other agreement between Buyer and Seller to be entered into pursuant to any provision of this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller that: 4.1 AUTHORITY. Buyer has full legal right, power and capacity to enter into, execute, deliver and perform this Agreement and all attendant documents and instruments contemplated hereby. This Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of Buyer and is enforceable with respect to Buyer in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, priority or other laws or court decisions relating to or affecting generally the enforcement of creditors' rights or affecting generally the availability of equitable remedies. 4.2 NO VIOLATION OF AGREEMENTS. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereunder by Buyer will violate or conflict with any judgment, order, decree, statute, rule or regulation applicable to Buyer or its assets or properties. 4.3 BROKERAGE. Buyer has no obligation to any person or entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement, and shall indemnify and hold Seller harmless against any liability or expense arising out of such a claim asserted against Seller by any party. 4.4 MSH SHARES. The Pre-Closing Shares are, and the Closing Shares, when issued pursuant to this Agreement will be, duly authorized, fully-paid, validly issued shares of Common Stock of Buyer. 13 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to Closing of each of the conditions set forth below, any or all of which may be waived by Buyer in whole or in part without prior notice; provided, however, that no such waiver or a condition shall constitute a waiver by Buyer of any other condition or of any of its rights or remedies, at law or in equity, if Seller is in default or breach of any of his representations, warranties or agreements hereunder: 5.1 CONVEYANCE AND ASSIGNMENT. Seller shall have duly executed and delivered to Buyer the certificates for the Shares duly endorsed for transfer and such other instruments of transfer and conveyance as shall be necessary or desirable, in the reasonable opinion of Buyer's counsel, to transfer unencumbered and absolute ownership of the Shares to Buyer. 5.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller contained in this Agreement shall be accurate and complete on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date and Seller shall have delivered to Buyer a certificate to that effect executed by him and dated as of the Closing Date. 5.3 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent and agreements of Seller subject to satisfaction on or before the Closing Date pursuant to the terms of this Agreement shall have been performed or satisfied and Seller shall have delivered to Buyer a certificate to such effect executed by him and dated as of the Closing Date. 5.4 ACTIONS OR PROCEEDINGS. No action, suit or other proceeding before a court, tribunal or other governmental agency or body shall have been instituted or threatened to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain substantial damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction, or in connection with any material claim against any the Company or Seller not disclosed on the Schedules hereto. 14 5.5 NO ADVERSE CHANGE. There shall have been no event which has occurred or which has been disclosed to Buyer which has had or could be reasonably expected to have a material adverse effect on the business, book value, assets, properties, results of operations, financial condition or prospects of the Company. 5.6 COURT ORDERS. No preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a government, regulatory or administrative agency or commission nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority shall be in effect which would (a) make the acquisition or holding by Buyer of the Shares illegal or impose material limitations on its ability to exercise full rights of ownership with respect to such Shares or (b) otherwise prevent the consummation of the transactions contemplated hereby. 5.7 EMPLOYMENT AGREEMENTS. All written and oral employment, consulting and other agreements of any nature between Seller (or any parties related thereto) and the Company (or any parties related thereto) shall have been canceled without cost or charge to the Company, except as set forth in this Agreement. 5.8 ADDITIONAL DOCUMENTS. Seller shall have delivered to Buyer such documents and instruments as Buyer may reasonably request in connection with this Agreement and the consummation of the transactions contemplated hereby. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the conditions set forth below, any or all of which may be waived by Seller in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Seller of any other condition or of any of Seller's rights or remedies, at law or in equity, if Buyer shall be in default or breach of any of its representations, warranties or agreements under this Agreement: 6.1 PURCHASE PRICE. Buyer shall deliver the Purchase Price at the Closing as provided in Section 1.2. 6.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer contained in this Agreement shall be accurate and complete on and as of the Closing Date with the same effect as through such representations and warranties had been made on or as of such date and Buyer shall have delivered to Seller a certificate to that effect signed by Buyer's chief executive officer, and dated as of the Closing Date. 15 6.3 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent and agreements of Buyer subject to satisfaction on or before the Closing Date pursuant to the terms of this Agreement shall have been performed or satisfied and Buyer shall have delivered to Seller a certificate to that effect signed by Buyer's chief executive officer, and dated as of the Closing Date. 7. INDEMNIFICATION 7.1 SELLER'S OBLIGATION TO INDEMNIFY. Seller agrees to indemnify, defend and hold harmless Buyer, and its officers, directors, successor and agents from and against all claims, demands, losses, liabilities, costs, expenses, obligations, interest, penalties and damages, including, without limitation, reasonable attorneys' fees and other costs and expenses of investigating and defending any actions or threatened actions (collectively "Claims"), which arise out of, are based upon, or are related to (i) any material inaccuracy in or material breach of any representation, warranty or agreement of Seller contained herein or in any other document delivered pursuant hereto, or (ii) any claim by or through Linda Abrams or Howard Abrams relating to the ownership of the Purchased Shares or the assets or properties of the Company. 7.2 BUYER'S OBLIGATION TO INDEMNIFY. Buyer agrees to indemnify, defend and hold harmless Seller, and his heirs, successor and agents from and against all claims, demands, losses, liabilities, costs, expenses, obligations, interest, penalties and damages, including, without limitation, reasonable attorneys' fees and other costs and expenses of investigating and defending any actions or threatened actions (collectively "Claims"), which arise out of, are based upon, or are related to any material inaccuracy in or material breach of any representation, warranty or agreement of Seller contained herein or in any other document delivered pursuant hereto. 7.3 PROCEDURE. If any action or claim is brought or asserted against an indemnified party in respect of which indemnity may be sought pursuant to the preceding Section 7.1 or Section 7.2, the indemnified party shall promptly notify the indemnifying parties in writing, and the indemnifying parties shall assume the defense thereof, (including the employment of counsel reasonably acceptable to the indemnified party) and the payment of all fees and expenses on a current basis, including expenses incurred by the indemnified party in connection with investigating, preparing to defend, or defending any such action or claim prior to the tender of the 16 same to the indemnifying parties. Should the indemnified party fail to promptly notify the indemnifying parties of the claim or action, such failure shall not affect the parties obligations to indemnify hereunder unless such failure has materially prejudiced their ability to properly defend against the claim or action. The indemnified party shall have the right to employ separate counsel reasonably acceptable to the indemnifying parties in any proceeding concerning the action or claim and to participate in the defense thereof. The fees and expense of such counsel incurred by the indemnified party following acceptance of the defense of the action or claim shall be borne by such indemnified party unless (a) the employment has been specifically authorized by the indemnifying parties, (b) the indemnifying parties have failed to assume the defense and employ counsel, or (c) the named parties to any such action (including any impleaded parties) included both the indemnified party and the indemnifying parties and the indemnified party has been advised by counsel that the representation of the indemnified party and the indemnifying parties by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential conflicts of interest between them. The indemnified party shall not be liable for settlement of any action or claim entered into without its prior written consent. The indemnified party and the indemnifying parties shall cooperate with each other in the defense of any claim or action, making available to each other any books, records or other documents in their possession or control that are necessary or appropriate for such defense. 7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; LIMITATION ON INDEMNITY. The representations and warranties contained in or made pursuant to this Agreement shall survive the Closing and shall expire on the second anniversary of the Closing, except that the representations and warranties contained in Sections 3.1 through 3.4, and Sections 4.1 and 4.2 shall remain in full force and continue indefinitely. If a claim for indemnity under Sections 7.1 or 7.2 of this Agreement has been asserted in writing prior to such expiration, such representation or warranty shall continue indefinitely until the applicable claim is finally resolved. 8. TRANSACTIONS PENDING CLOSING; ADDITIONAL AGREEMENTS 8.1 CONDUCT OF BUSINESS PENDING CLOSING. Except as provided herein, Seller shall cause the Company to (i) conduct its business up to the Closing according to and conforming with all applicable laws and regulations, (ii) to operate and maintain 17 its business in the normal and customary manner, (iii) not violate the terms of any lease or contract connected with such its business, and (iv) not terminate any employees, contracts, licenses, permits or agreements without Buyer's prior written consent. 8.2 TRANSACTIONS PRIOR TO CLOSING; EXCLUDED ASSETS. It is contemplated that certain assets of the Company shall be distributed or otherwise transferred prior to, concurrently with or after the Closing, as follows: 8.2.1 POWER GLOVE. The Company shall transfer to Freedom Multimedia, LLC, a Delaware limited liability company, (the "Power Glove Company") all of its right title and interest in and to the Power Glove product line and associated technology, patents and trademarks (but excluding the television, video, music and similar entertainment rights, `which shall remain in the Company, or be licensed to the Company pursuant to an exclusive, worldwide, royalty-free license). The equity interests in the new entity shall be allocated 43.75% to Seller, 37.5% to Anthony Gentile, John Gentile and Jenny Gentile (collectively) and 1 8.7 5% to Buyer, it being understood that voting control over Buyer's interest will rest will Seller or Seller's designee. The parties acknowledge that the Company has borrowed $300,000 from its Chase Credit line for development of the Power Glove; upon organization of the Power Glove Company, all cash remaining from such borrowing shall be transferred to the Power Glove Company, and the Power Glove Company shall issue a promissory note to the Company for $300,000, payable upon such terms as the parties may mutually agree, but due in any event within two years of the Closing. In the event that the Power Glove Company shall cease operations or development for a period of more than six months, the members shall cause the Power Glove Company to use best efforts to sell its assets and the first $300,000 raised from such sale shall be utilized to repay its promissory note to the Company. The parties shall negotiate in good faith with respect to the terms of the organization of the Power Glove Company. The operating agreement for the Power Glove Company shall provide that the members shall have the option (exercisable within 10 days) to avoid dilution of their equity percentages in the Power Glove Company by investing additional capital on the same basis (at the same price per percentage interest) as is offered to new 18 third party investors. Furthermore, if the assets or business (or capital stock) of Up Up & Away America, Inc. are merged into or contributed to the Power Glove Company as part of the financing of such company, there will be an independent valuation made of such assets or stock, and the owners of the shares of Up Up & Away, Inc. shall receive additional percentage interests in the Power Glove Company based upon such valuation. 8.2.2 MICRONAUTS. The Company and Kaleidoscope Media Group ("KMG") are currently negotiating an agreement for the production and distribution of an animated series based on a Company property known as "Micronauts" (the "KMG Agreement"), which provides for organization of a new entity to exploit the property, and the Company and KMG are currently negotiating with Wynn Entertainment, Inc. to finance the series. It is anticipated that, if these arrangements are consummated, Giocchi Preziosi ("GP") will provide between $1.5 million and $2.4 million toward the production, as an advance against toy royalties. If GP provides such an advance, Seller will be entitled to receive 50% of all net proceeds received by the Company from exploitation of the Micronauts series (i.e. net after reimbursement to AGE of all amounts expended by it with respect to the series) as well as a 50% ownership of all series episodes retained by AGE. 8.2.3 OTHER PRODUCTS. The Company shall assign to Up Up & Away America, Inc. all of its right, title and interest in and to the License Agreement, dated February 4,1998, with Irwin Toys/Canada, relating to "Snoring Snoopy", and all of its right, title and interest to the product lines and associated intellectual property known as "Kindergarten", "Knitters", "Smunchies" and "POPS". 8.3 CONSULTING AGREEMENT. At the Closing, Seller shall execute and deliver a one-year Consulting Agreement with Buyer in the form of EXHIBIT A hereto. 8.4 REGISTRATION RIGHTS AGREEMENT. At the Closing, Buyer shall execute and deliver a Registration Rights Agreement with Seller in the form of EXHIBIT B hereto (the "Registration Rights Agreement"). 8.5 HALLMARK LOAN INDEMNITY AGREEMENT. At the Closing, Buyer shall execute and deliver a Hallmark Loan Indemnity Agreement with Seller in the form of EXHIBIT C hereto. 19 8.6 GAUMONT CLAIM. The parties acknowledge that Gaumont Multimedia has asserted claims against the Company arising out of certain co-production agreements between the Company and Gaumont Multimedia arising out of the production and distribution of the "Sky Dancers" and "Dragon Flyz" animated television series (the "Gaumont Claim"). If, on the Closing Date, the Gaumont Claim has not been settled or otherwise disposed of to the satisfaction of Buyer, then at the Closing Seller shall deposit with Buyer's counsel a certificate representing 400,000 shares of Buyer's Common Stock (the "Escrowed Shares") for the purpose of assisting in settlement of the Gaumont Claim. Buyer shall use its best efforts to settle the Gaumont Claim, utilizing the Escrowed Shares and its cash. If Buyer is able to settle the claim, it shall pay the full settlement amount and shall be entitled to retain a portion of the Escrowed Shares (valued at $.40 per share) equal in value to 50% of the settlement amount, including attorneys' fees. If the Gaumont Claim is settled for a lesser amount, then any remaining Escrowed Shares shall be promptly returned to Seller. If, despite Buyer's best efforts to cause a settlement of the Gaumont Claim, an action, arbitration or other proceeding is commenced by Gaumont Multimedia or its affiliates relating to the Gaumont Claim within 180 days of the Closing Date, then at the end of such 180 day period Buyer shall be entitled to retain the Escrowed Shares, in full satisfaction of Seller's obligations with respect to the Gaumont Claim. 8.7 ACCESS TO RECORDS. Between the date of this Agreement and the Closing Date and during regular business hours, Seller shall cause the Company to afford to Buyer and its employees, accountants, counsel and other authorized representatives free and full access to the properties, books, records (including tax returns filed and those in preparation), contracts, commitments and affairs of the Company and shall furnish Buyer with such additional financial and operating data and copies of all documents and other information concerning the business, affairs, assets and properties of the Company as Buyer may from time to time reasonably request. Notwithstanding the foregoing, any such investigation made by Buyer pursuant to this Section 8.7 shall not affect or otherwise diminish any of the representations and warranties of Seller hereunder. 8.8 INCORPORATION OF SCHEDULES AND EXHIBITS. All schedules, exhibits and other documents and written information required to be delivered pursuant to this Agreement are incorporated into this Agreement by this reference and are warranted by the party or parties which deliver the same to be accurate and complete in all material respects. In the event that any material changes shall occur with respect to any information disclosed in any schedule furnished by Seller hereunder following the date of the delivery thereof and prior to the Closing Date, Seller shall promptly notify Buyer thereof in writing. 20 8.9 GOVERNMENTAL DOCUMENTS. If, after the date of Closing, in order properly to prepare its tax returns or other documents or reports required to be filed with governmental authorities or its financial statements, it is necessary that a party to this Agreement be furnished with additional information relating to the Company or Seller and such information is in possession of the other party or any related party and can reasonably be furnished to the party in need of such information, then the other party will, promptly upon request, furnish such information to the party in need of such information. 8.10 COOPERATION. Each party will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on it with respect to the consummation of the transactions contemplated by this Agreement and will promptly cooperate with and furnish information to any other party in connection with any such requirements imposed upon any of them in connection with the consummation of the transactions contemplated by this Agreement. Each party will take all reasonable actions necessary to obtain (and will cooperate with any other party in obtaining) any consent, approval, order or authorization of, or any registration, declaration or filing with, any governmental entity, domestic or foreign, or other person, required to be obtained or made by such party (or by any other party) in connection with the taking of any action contemplated by this Agreement. 8.11 FULFILLMENT OF CONDITIONS TO CLOSING. Each party hereto shall use its best efforts to cause the conditions to Closing to be fulfilled by the Closing Date. 8.12 ASSISTANCE WITH AUDITS. Seller shall cause the Company, if requested by Buyer, to give Buyer and its independent accountants access to (and to cause access to be given by its independent public accountants) the work papers of the Company and its accountants pertaining to the conduct of the business of the Company in connection with the preparation of any financial statements, internal reports or audits by Buyer, and to assist Buyer and its independent accountants in understanding such work papers. 8.13 COLLECTION OF ACCOUNTS. After the date of Closing, Seller shall cooperate with Buyer to collect for the account of the Company all accounts and other collectible items reflected in the books and records of the Company. Seller agrees promptly to transfer or deliver to the Company any cash or other property received directly or indirectly by him in respect of any such accounts and other items, including any 21 amounts payable as interest. Seller agrees to cooperate fully in order to allow the maintenance of records necessary to conduct the Company's business and agrees to provide such reports and information to Buyer as are reasonably requested and reasonably related to the business of the Company. 8.14 CHASE LINE OF CREDIT. Seller shall cooperate with Buyer and AGE to maintain AGE's existing credit arrangements with Chase Manhattan Bank, and shall take no action (or omit to take any action) (other than the transactions contemplated hereunder) that would cause Chase Manhattan Bank to revoke, rescind or reduce such credit. 8.15 POSSIBLE CONTINGENT ISSUANCE OF SHARES. If, on the first anniversary of the date of the Closing, the aggregate Market Value (as defined herein) of the Pre-Closing Shares and the Closing Shares is less than $1,250,000, then within 30 days thereafter, Buyer shall issue to Seller such additional number of fully paid, non-assessable shares of Common Stock of Buyer as may be necessary to bring the aggregate Market Value (determined as of the date of such first anniversary) of the Pre-Closing Shares, the Closing Shares, and such additional shares, to $1,250,000. For the purposes of this Section, the Market Value of the Common Stock shall be the average closing price (or the average of the bid and asked price, if there is no reported closing price) of the Common Stock of Buyer for the twenty trading days preceding such first anniversary, as reported by any securities exchange on which Buyer's Common Stock is listed, or on NASDAQ or the OTC Bulletin Board, as the case may be, if not so listed. For the purposes of this calculation, Seller shall be deemed to own all of the Pre-Closing Shares and the Closing Shares (including the Escrowed Shares), adjusted for any stock splits, stock dividends or recapitalizations, on such first anniversary, irrespective of whether Seller has disposed of all or a portion thereof in the interim. This Section shall be of no further force or effect if, prior to such anniversary, Seller either (i) sells or disposes of some or all of the Pre-Closing Shares and/or Closing Shares for a net aggregate consideration in excess of $1,250,000, or (ii) Seller becomes entitled to sell the Pre-Closing Shares and the Closing Shares for a net aggregate consideration in excess of $1,250,000 pursuant to the Registration Rights Agreement. 9. MISCELLANEOUS 9.1 EXPENSES AND TAXES. Each party shall bear and pay his, her or its own expenses, including legal, accounting and other professional fees, and taxes incurred in connection with the transactions referred to in this Agreement. The party responsible under applicable law shall bear and pay in their entirety all other taxes and registration and transfer fees, if any, payable by reason of the sale and conveyance of the Shares. 22 Each party will cooperate to the extent practicable in minimizing all taxes and fees levied by reason of the sale or assignment of the Shares. 9.2 PUBLIC ANNOUNCEMENTS. Buyer will be responsible for the issuance of press releases or trade releases, and the making of such other public statements with respect to this Agreement and the transactions contemplated hereby as may, in Buyer's reasonable judgment, be necessary or appropriate, provided, however, that the initial such press release or public announcement shall also be subject to Sellers prior approval which shall be exercised in a reasonable manner, recognizing Buyer's obligations under the securities laws to make full and fair disclosure to the public. Prior to Closing, Seller shall not issue any press releases or trade releases or make any public statements with respect to the transactions contemplated hereby. 9.3 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement, together with the related agreements, Schedules referenced herein and Exhibits hereto, constitutes the final, exclusive and complete understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, understandings and discussions with respect thereto. No variation or modification of this Agreement and no waiver of any provision or condition hereof, or granting of any consent contemplated hereby, shall be valid unless in writing and signed by the party against whom enforcement of any such variation, modification, waiver or consent is sought. 9.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties hereunder shall not be affected or diminished by any investigation at any time by or on behalf of the party for whose benefit such representations and warranties were made. All statements contained herein or in any schedule, exhibit, certificate, list or other document delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties. 9.5 FURTHER ASSURANCES. The parties hereto shall use their best efforts, and shall cooperate with one another, to secure all necessary consents, approvals, authorizations, exemptions and waivers from third parties as shall be required in order to consummate the transactions contemplated hereby, and shall otherwise use their best efforts to cause such transactions to be consummated in accordance with the terms and conditions hereof. At any time or from time to time after the Closing Date, each party hereto, shall execute and deliver any further instruments or documents and take all such further action as such requesting party may reasonably request in order to consummate and document the transactions contemplated hereby. 9.6 CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the constructing or interpretation of any provision of this Agreement. 23 9.7 SECTION REFERENCES. Unless otherwise noted, all section references herein are to sections of this Agreement. 9.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall constitute an original copy hereof, but all of which together shall constitute one agreement. 9.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of Seller, his successors and any assigns to which Buyer consents in writing. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9.10 PARTIES IN INTEREST. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over against any party to this Agreement. 9.11 NOTICES. All notices, requests, demands and other communications hereunder ("Notices") shall be in writing and shall be deemed to have been duly given if delivered by hand, by facsimile, or by registered or certified mail, postage prepaid, return receipt requested, but only upon receipt of such return receipt, as follows: If to Buyer: MSH Entertainment Corporation 3330 Ocean Park Boulevard Suite 115A Santa Monica, CA 90405 Attn: Robert P. Maerz Fax No.: (310) 664-1190 With a copy to: Robert J. Zepfel, Esq. Haddan & Zepfel LLP 4675 MacArthur Court, Suite 710 Newport Beach, CA 92660 Fax No.: (949) 752-6161 24 If to Seller: Mr. Martin Abrams c/o Abrams/Gentile Entertainment, Inc. 244 West 54th Street New York, NY 10019 Fax No.: (212) 765-1987 With a copy to: Marc Bailin, Esq. Rubin, Bailin, Ortoli, Mayer, Baker & Fry LLP 405 Park Avenue New York, NY 10022-4405 Fax No.: (212) 826-9307 or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. All notices shall be deemed received on the date of delivery or, if mailed, on the date appearing on the return receipt therefor. 9.12 LAW GOVERNING; VENUE. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of New York, without regard to its choice-of-laws or conflicts-of-law rules. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of date first above written. MSH Entertainment Corporation By /s/ROBERT P. MAERZ ---------------------------------------- Robert P. Maerz, Chief Executive Officer /s/MARTIN ABRAMS ---------------------------------------- Martin Abrams 25 LIST OF SCHEDULES AND EXHIBITS SCHEDULES: 3.9 Tangible Personal Property and Equipment Leases 3.10 Licenses and Permits 3.11 Accounts Receivable 3.12 Customers/Vendors 3.13 Contracts 3.14 Proprietary Rights 3.15 Litigation 3.17 Executive Compensation 3.20 Bank Accounts 3.21 Employee Benefit Plans EXHIBITS: A Consulting Agreement B Registration Rights Agreement C Hallmark Loan Indemnity Agreement 26 ASSET LOCATION NOTE The following AGE materials are located in lab storage at the following facility: Bonded Service Ltd. P. (201) 944-3700 504 Jane Street F. (201) 592-0727 Fort Lee, NJ 07024 Customer #3138 Materials stored: 1. Visionaires - 13 Beta Masters 2. Bucky O'Hare - 13 Beta Master Episodes Audio Masters 3. Happy Ness - 13 D2 Masters Episodes Split Track Audio Masters 14 Dat Song Masters 4. Jelly Bean Jungle - 14 Digibeta Master Episodes Split Track Audio Masters 5. Sky Dancer* - 14 D2 Master Episodes Split Track Audio Masters 6. Dragon Flyz* - 13 D2 Master Episodes Split Track Masters 7. Vanpires - 13 Digibeta Master Episodes Split Track Masters CG 1 Output Reels 14 Dat Song Masters 8. Audio/Video Promo Masters and Commercial Reels (Dz, Digibeta & Beta Formats) 1 Guardian Angels 3 Bucky O'Hare 1 Micronauts 4 Visionaires 1 Hammer Storage Zone 2 Fazz 1 Radko Christmas 1 Suprize-a-Lots 1 Pappaazzi Samurai 1 Popcorn Pretties 1 Open Call 1 Men of Metal 1 Sci-Com City 1 NitroBat 1 Power Glove 1 Cave Man 1 Power Slam 1 Barbie Talk 8 Sky Dancers 2 Plastic Elastic 4 Dragon Flyz 3 Rambo 2 Jelly Bean Jungle 4 Happy Ness 1 Annie 1 Disney Bubble Camera *Upon Settlement of Gaumont each series will have a total of 26 episodes each for a total of 52 broadcast masters. 27 EX-6.17 20 LETTER AGREEMENTS, DATED SEPTEMBER 4, 1998 ABRAMS/GENTILE ENTERTAINMENT, INC. 244 West 54th street New York, New York 10019 Dated September 4, 1998 MSH ENTERTAINMENT CORPORATION 330 Ocean Park Boulevard Santa Monica, CA 90405 Attention: Robert Maerz, President Dear Mr. Maerz: Reference is made to that certain Stock Purchase Agreement (the "Agreement") between the undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams ("Seller"). We understand from you and Mike Welsh that you will not be able to close as required by the Agreement. This letter will serve as notice or your material breach of the Agreement. Notwithstanding your material breach, I am willing to extend the date of the Closing to 3:00 pm on Tuesday, September 8, 1998 on the condition that you confirm, by signing where indicated below, that your failure to close was solely due to your failure to secure financing, and that neither Abrams/Gentile Entertainment, Inc., John Gentile, Anthony Gentile, the undersigned nor any of their affiliates, by their act or ommission, caused you to be unable to close the transaction as required by Section 2.1 of the Agreement. Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams Agreed and Confirmed: MSH ENTERTAINMENT CORPORATION By: /s/ ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman - 1 - ABRAMS/GENTILE ENTERTAINMENT, INC. 244 West 54th Street New York, New York 10019 Dated September 4, 1998 MSH ENTERTAINMENT CORPORATION 330 Ocean Park Boulevard Santa Monica, CA 90405 Attention: Robert Maerz, Chairman Dear Mr. Maerz: Reference is made to that certain stock Purchase Agreement (the "Agreement") between the undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams ("Seller"). This agreement will modify the Agreement; however, except as expressly provided herein, the terms and conditions of the Agreement are hereby confirmed and ratified. I am willing to extend the date of the Closing until 10 am on September 17, 1998 on the condition that you confirm the following, by signing where indicated below: 1.) You, on behalf of yourself and ACE, hereby waive any claim against me for underfunding of the AGE pension funds. You agree that my pension shall be funded at $191,000, and I agree that funding for my pension will be limited to $191,000, and I waive any rights I may have to require further funding of my AGE pension. I will execute such other documents as you may request to confirm such waiver. You agree that I will not be responsible for any other underfunding of such pension funds for other employees. I agree that if you are required by law to provide fundinq in excess of the aforesaid $191,000 with respect to my pension in order to avoid reporting an underfunded pension, notwithstanding my waiver, I shall reimburse you for such excess funding upon your request. 2.) I will cause Up Up & Away, Inc. to pay AGE $100,000 of the $293,400 receivables claimed by you to be due, such payment to be made no later than five (5) business days following your notice to me that MSH has repaid the Hallmark Loan in accordance with the terms of the Hallmark Loan Indemnity Agreement delivered at the Closing. I hereby personally guarantee the payment of such amount by AGE. At the Closing, I shall pay ACE $8,000 to settle the remaining Up Up & Away, Inc. receivable, and you agree that neither I, Up Up & Away, Inc., nor any of our affiliates shall have further liability for the $293,400 receivables (other than as provided herein). 3.) You agree to provide me with 660,000 shares of free trading common stock of MSH. The 660,000 shares will be provided to me pursuant to a private transaction(s) under Rule 144, such shares to be provided by third party stockholders selected by you 1 at no expense to me. These 660,000 shares shall replace 660,000 of the 2,825,000 shares of the newly issued shares of restricted common stock of MSH which are to be delivered pursuant to subsection 1.2.4 of the Agreement. All such shares will be delivered to me no later than 10:00 am on October 19, 1998. If you are unable to deliver all of such shares on or before such date, after using your best efforts to do so, you shall pay me in cash for any undelivered shares, at the rate of 37.5 cents per share. Notwithstanding the foregoing, I may elect, at my discretion, at any time prior to the delivery of such shares to me, to require you to pay me $247,500 in lieu of delivery of such shares. 4.) You agree to provide me with 400,000 shares of newly issued shares of restricted common stock of MSH. These shares will be in addition to the shares issuable pursuant to subsection 1.2.4 of the Agreement (as modified by paragraph 3 above). 5.) You agree to pay us at the Closing, an additional cash payment equal to (a) $900 times (b) the number of days between September 4, 1998 and the date of Closing (including the day of Closing). 6.) You agree to pay me my salary for the full month of September. 7.) You agree to pay all costs payable under the lease on my AGE leased car for the full term of said lease (approximately December 31, 1999). 8.) You agree that if the transaction does not close on September 17, 1998, you will arrange for the payment to me on that date of $150,000 or the issuance by Berwind Financial to me of a letter of credit in the amount of $150,000. Upon such payment you shall have a 40 day extension of the Closing (until October 27, 1998). If the transaction is closed on or before October 27, 1998, such payment will not be deemed a part of the purchase price, but will be deemed a payment for the extension, and I will be entitled to keep such payment without limiting my claims for your failure to close pursuant to the terms of the Agreement, as amended by this Agreement. Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams Agreed and Confirmed: MSH ENTERTAINMENT CORPORATION By: /s/ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman 2 EX-6.18 21 LETTER AGREEMENT, DATED SEPTEMBER 24, 1998 ABRAMS/GENTILE ENTERTAINMENT, INC. 244 West 54th Street New York, New York 10019 Dated September 24, 1998 MSH ENTERTAINMENT CORPORATION 330 Ocean Park Boulevard Santa Monica, CA 90405 Attention: Robert Maerz, Chairman Dear Mr. Maerz: Reference is made to that certain Stock Purchase Agreement (the "Agreement"), as amended by the letter agreement dated September 4, 1998 (the "Amendment"), between the undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams ("Seller"). This agreement will modify the Agreement and the Amendment; however, except as expressly provided herein, the terms and conditions of the Agreement and the Amendment are hereby confirmed and ratified. I am willing to extend the date of the Closing until 3pm on September 30, 1998 on the condition that you confirm the following, by signing where indicated below: 1.) You agree to pay me $150,000, by wire transfer received by me no later than September 25, 1998. I agree that if you provide me with written confirmation, satisfactory to me in my sole discretion, that such wire transfer has been irrevocably initiated by 3 pm on September 25, 1998, I will deem payment received, subject to my confirmation of actual receipt of such wire transfer no later than September 28, 1998. You confirm that such payment is in lieu of the payment due me pursuant to paragraph 8 of the Amendment, and that such payment shall no longer be deemed a part of the purchase price for my shares pursuant to the Agreement. 2.) Promptly following the Closing, you agree to cause AGE to transfer and assign to Up, Up & Away, Inc. all of the rights held by AGE in the intellectual property known as "Softcity", including the copyrights, trade marks and trade dress rights in Softcity. I acknowledge that such assignment shall not include the AGE's rights to receive money pursuant to AGE's current agreement with Hasbro. I agree that, notwithstanding the transfer and assignment of Softcity to Up, Up & Away, I shall cause Up, Up & Away to pay AGE 40% of the net profits accruing to Up, Up & Away which arise from the exploitation of Softcity, the terms of calculation and payment of such net profits to be negotiated between us in good faith after the Closing. 1 3.) Promptly following the Closing, you agree to cause AGE to grant Up, Up & Away, Inc. an exclusive 2 year option to develop the intellectual property known as "Paparazzi/Samurai". You and I agree that the terms of my right to participate in the net proceeds of Paparazzi/Samurai shall be the same as are applicable to the Micronauts property referred to in subparagraph 8.2.2 of the Agreement. 4.) You agree to provide me with a producing credit on the AGE property "Open Call", the size and placement of such credit to be consistent with industry standards and subject to my reasonable approval. 5.) You agree that the personal guarantee granted by me to you pursuant to Paragraph 2 of the Amendment is hereby released, and that I shall have no further liability for such obligation of Up, Up & Away. 6.) Pursuant to our letter agreement to be executed as of the date of the Stock Purchase Agreement, I am to be issued a warrant to purchase 500,115 shares of MSH common stock. You agree that the expiration date for such warrant shall be November 30, 2000. 7.) You agree to increase the purchase price under the Agreement to include an additional 500,000 shares of free trading common stock of MSH. These 500,000 shares will be provided to me pursuant to a private transaction(s) under Rule 144, such shares to be provided by third party stockholders selected by you at no expense to me. You agree to provide such shares to me no later than April 30, 1999. 8.) For purposes of clarification only, you acknowledge that the total number of shares to be issued to me as part of the purchase price pursuant to the Agreement, the Amendment and this agreement is as follows: 1.) 300,000 newly issued shares, receipt of which is acknowledged (pursuant to the Agreement); 2.) 2,165,000 newly issued restricted shares, deliverable at the Closing (pursuant to the Agreement); 3.) 660,000 shares of free trading common stock, deliverable by no later than 10 am on October 19, 1998, and with respect to which I may elect to receive cash, in my sole discretion (pursuant to the Amendment); 2 4.) 400,000 shares of newly issued restricted shares, deliverable at the Closing (pursuant to the Amendment); and 5.) 500,000 shares of free trading common stock, deliverable on or after the Closing, but no later than April 30, 1998 (pursuant to this Agreement). Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams Agreed and Confirmed: MSH ENTERTAINMENT CORPORATION By: /s/ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman 3 EX-6.19 22 LETTER AGREEMENT, DATED OCTOBER 1, 1998 ABRAMS/GENTILE ENTERTAINMENT, INC. 244 West 54th Street New York, New York 10019 Dated: October 1, 1998 MSH ENTERTAINMENT CORPORATION 330 Ocean Park Boulevard Santa Monica, CA 90405 Attention: Robert Maerz, Chairman Dear Mr. Maerz: Reference is made to that certain Stock Purchase Agreement (the "Agreement"), as amended by the letter agreements dated September 4, 1998 and September 24, 1998 (the "Amendments"), between the undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams ("Seller"). This agreement will modify the Agreement and the Amendments; however, except as expressly provided herein, the terms and conditions of the Agreement and the Amendments are hereby confirmed and ratified. I am willing to extend the date of the Closing until 3 pm on November 5, 1998 on the condition that you confirm the following, by signing where indicated below: 1.) You agree to pay me $150,000, by wire transfer received by me no later than October 8, 1998. I agree that if you provide me with written confirmation, satisfactory to me in my sole discretion, that such wire transfer has been irrevocably initiated by 3 pm on October 8, 1998, I will deem payment received, subject to my confirmation of actual receipt of such wire transfer no later than October 9, 1998. You confirm that such payment is a deferral of the payment due me pursuant to paragraph 1 of the September 24, 1998 Amendment, and that such payment is not to be deemed a part of the purchase price for my shares pursuant to the Agreement. 2.) You agree to deliver to me, also on October 8, 1998, a Confession of Judgment, in form satisfactory to my counsel, pursuant to which you agree to pay me, in the event of your failure to close as required hereby, an amount equal to interest due pursuant to Paragraph 5 of the September 4, 1998 Amendment (the "Interest"), such interest to accrue through the date of execution of such Confession of Judgment. I agree that if you make the $150,000 payment described in Paragraph 1 above, but do not close on November 5, 1998, I will nonetheless release you from any claims I may have against you which arise from your failure to close, subject to the condition that you pay me the Interest due through November 5, 1998, by wire transfer received by me no later than 3 pm on November 5, 1998. If you do not make such payment as required, such interest shall continue to accrue as provided in the September 4, 1998 Amendment, and I shall not be required to release you from any claims I may have against you which arise from your failure to close. 1 3.) You acknowledge that I, or one of my affiliates, will be paying the next installment of the Hallmark Loan (defined in the Agreement), and you agree to reimburse me (or to reimburse my affiliate) for such payment at the Closing. 4.) You agree to deliver the 660,000 shares of free trading common stock of MSH referred to in Paragraph 3 of the September 4 Amendment on October 19, 1998 to Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, as escrow agent. At the November 5, 1998 closing, you agree to instruct Rubin, Bailin to release such shares to me. If you do not close, I agree to instruct Rubin, Bailin to return such shares to you. 5.) You acknowledge that, after you make the $150,000 payment referred to in Paragraph 1 above, I desire to be able to sell the shares of MSH I currently own, and which I am currently unable to sell due to my possession of insider information. You have agreed to release to the public the information regarding the status of our arrangements sufficient to release me from the restrictions imposed upon me as an insider. In that connection, you agree to provide me with your indemnity, in form satisfactory to my counsel, regarding any claims which may arise in connection with my sale of such shares, notwithstanding such press release. Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams Agreed and Confirmed: MSH ENTERTAINMENT CORPORATION By: /s/ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman 2 EX-6.20 23 LETTER AGREEMENT, DATED JANUARY 21, 1999 MARTIN ABRAMS c/o ABRAMS/GENTILE ENTERTAINMENT. INC. 244 WEST 54TH STREET NEW YORK, NY 10019 January 21, 1999 MSH Entertainment Corporation 330 Ocean Park Blvd. Santa Monica, CA 90405 Attn: Robert Maerz, Chairman Dear Mr. Maerz: Reference is made to that certain Stock Purchase Agreement (the "Agreement") as amended by Letter Agreements dated September 4, 1998, September 24, 1998 and October 1, 1998 (the "Amendments") between the undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams ("Seller"). This Agreement will modify the Agreement and the Amendments; however, except as expressly provided herein, the terms and conditions of the Agreement and the Amendments are hereby confirmed and ratified, Seller has agreed to extend the date of the Closing until 5 pm on January 27, 1999 on the condition that MSH confirm the following, by signing where indicated below: 1. It is agreed that for a period of two (2) years after the date of Closing in the transaction contemplated by the Agreement and the Amendments, Up Up & Away (America), Inc. and Parico Investments Ltd., d/b/a Up Up & Away (collectively referred to herein as "Up Up & Away") (or another entity, with the same shareholders, designated by Seller) shall act as the exclusive licensing/marketing agent for any and all toys created by Buyer or by Abrams/Gentile Entertainment, Inc. ("AGE"), but only to the extent such toys are related to properties in development with AGE prior to the date of Closing (including without limitation any toys or toy concepts created by John or Anthony Gentile), on the following basis: (a) In those instances where toys or toy concepts arise as an offshoot of a television, motion picture or other entertainment property, Up Up & Away will receive 35% of the gross advances and royalties derived from the sale or exploitation of any such toys or toy concepts, except that if advances subject to this sentence are needed to fund production of a theatrical or television show (live or animated), or video or electronic games, and any and all visual productions for any delivery system, Up Up & Away shall receive only 8% of such advances, such reduction to be applicable only to advances actually used for production expenses. In those instances where a toy or toy concept is created separate and apart from an entertainment property, Up Up & Away will receive 50% of the gross advances and royalties derived from such exploitation of such toy or toy concept. For purposes of clarification, the parties acknowledge that the exclusive arrangement described in this Paragraph 1 shall not be applicable to (A) any arrangement proposed by a third party for which there is already in place an arrangement for the licensing/marketing of toys or toy concepts and (B) any revenues arising from sales of toys if such sales are executed entirely in-house by MSH (e.g., internet, e-commerce or an internet network). 1 (b) With respect to all other merchandise licensing activities conducted by MSH or its affiliates, Up Up & Away shall act as the exclusive merchandise licensing agent with respect to any and all such properties and will receive a licensing agent fee of 30% (domestic) and 40% (foreign), it being understood that such fee shall include all fees payable to foreign agents. (c) The fees payable to Up Up & Away hereunder shall at all times be within the industry standard range of fees paid to licensing/marketing agents, and if it is established that such fees are in excess of the industry standard range, the parties agree that such fees shall be reduced so as to be within such range. (d) Up Up & Away agrees that if, in a change in control or purchase of MSH by a third party, Seller is offered the opportunity to participate in such purchase on the same terms as are applicable to the selling shareholders of MSH or if Seller is, at the time of such change in control, no longer a shareholder of MSH, MSH shall have the right to elect to terminate the exclusive arrangement described in this Paragraph 1, it being agreed that such termination shall not be applicable to current agreements or agreements for which material negotiations have begun and which are executed within 6 months following the change of control. (e) Up Up & Away shall have the right to terminate the exclusivity arrangement described in this subparagraph 1(a) upon 30 days prior written notice to MSH. Such termination shall not affect agreements in force or agreement fore which material negotiations have begun and which are executed within 6 months following such termination. (f) It is agreed that the fees payable to Up Up & Away hereunder shall be payable for the full term (including any renewals or extensions) of any applicable license, regardless of the termination of the exclusivity arrangement described in this Paragraph 1. 2. MSH acknowledges that, for a period of five (5) years from the date of Closing, neither it nor any affiliate will, enter into any co-production, licensing, distribution or other business arrangement with the Canadian production company known as Annex, or the production company known as Cambian if the arrangement relates to the property known as "Hammer Horror", without the prior written consent of Seller and without having first having negotiated and signed an agreement with Seller confirming his right to receive 25% of the advances, royalties or other compensation payable to MSH or any of its affiliates, or on its or any of its affiliates' behalf in connection with any such business arrangement, it being understood that Seller has been the procuring cause of any such business relationship by virtue of his having introduced those entities to MSH and AGE. 2 3. MSH agrees that Up Up & Away shall be entitled to partition and sublease, for a period of two (2) years, offices on the 9th floor which constitute the front part of the space on such floor, at a monthly rent of which is proportionate to the entire 9th Floor, payable on or before the 10th day of each month. MSH further agrees that Up Up & Away shall be entitled to subdivide such space so as to physically separate Up Up & Away's office space from the rest of the 9th Floor office space, although Up Up & Away shall, if MSH requests, subdivide so as to provide MSH with reasonable access to its space on the 9th Floor through the space occupied by Up Up & Away. If the applicable lease forbids such arrangement, Up Up & Away shall sublease MSH the back part of the space on the same terms. MSH further agrees that if MSH/AGE proposes to terminate its lease for the 9th Floor, MSH shall offer Up Up & Away the right to take over the part of the space Up Up & Away is then occupying, subject to any consent required by the Landlord. 4. MSH agrees that, commencing upon the closing of the transactions contemplated hereunder, MSH (or any of its affiliates) shall enter into a consulting arrangement with Ms. Jenny Gentile, pursuant to which MSH (or any of its affiliates) will pay Ms. Gentile an annual consulting fee in the amount of $120,000 per annum, (payable at the rate of $10,000 per month) for a period of three (3) years, in consideration of Ms. Gentile's rendering marketing and licensing consulting services to MSH and AGE and in further consideration of her serving as a liaison between MSH/AGE and Up Up & Away. and in addition to any consideration Ms. Gentile may receive for her shares of ACE. That consulting agreement will further provide that, in the event of MSH's (or AGE's) default in making any of the monthly payments due to Ms. Gentile thereunder, the balance of the consulting fees for the unexpired portion of the three year term will immediately accelerate and become due and payable. Finally, MSH agrees that Ms. Gentile shall report directly to John Gentile in connection with her consulting services. Seller agrees that if Ms. Gentile refuses to enter into such an agreement, or renegotiates the terms of such an agreement, MSH/AGE shall not be in breach of the Agreement. At Seller's request, MSH shall provide Seller with a copy of Ms. Gentile's agreement with MSH/AGE so as to confirm its satisfaction of the obligations hereunder. 5.) MSH agrees to provide Seller with 750,000 shares of newly issued shares of restricted common stock of MSH. These shares will be in addition to the shares issuable pursuant to subsection 1.2.4 of the Agreement (as modified by the Amendments). 6.) Seller agrees that the interest payment required by Paragraph 5 of the September 4, 1998 Amendment is hereby waived, and Seller agrees to return to MSH, at the Closing, the Confession of Judgment previously delivered to Seller. 7.) You agree that if the Closing does not occur by January 26, 1999 as provided herein, you authorize Rubin, Bailin, Ortoli, Mayer Baker & Fry, LLP, as escrow agent for 660,000 shares of freely trading common stock of MSH, to release to Seller such shares, and MSH agrees that such shares shall be Seller's without further obligation to MSH and in addition to Seller's obligations under the Agreement, as amended, and without limiting any of Seller's legal or equitable rights against MSH for its breach of the Agreement, as amended. MSH agrees that if the Closing does occur as provided herein, such shares shall be released to Seller as additional consideration. 3 8.) Unless and until the closing of MSH's acquisition of AGE, MSH will not issue any further press releases or disseminate any other information, over the Internet or otherwise, concerning Marty Abrams, AGE or the pending transactions, without Marty Abrams' prior written consent. 9.) You acknowledge that I, or one of my affiliates has made the September 30, 1998 and November 80, 1998 interest installments of the Hallmark Loan (defined in the Agreement), and you agree to reimburse me (or to reimburse my affiliate) for such payments at the Closing. In addition, you agree that you will, at the Closing, pay $100,000 to Rubin, Bailin, Ortoli, Mayer, Baker & Fry in escrow, such amount to be used to pay an additional payment of the Hallmark Loan prior to February 20, 1999. If you fail to do so, you shall negotiate in good faith with me so as to provide me with additional security acceptable to me for the repayment of the Hallmark Loan, and I shall not be obligated to close this transaction until such additional security is satisfactory to me. Notwithstanding the foregoing I agree that prior to any such payment of the Hallmark Loan. I will cooperate with you in your efforts to renegotiate the terms of the Hallmark Loan. If you are unable to accomplish such renegotiation by February 20, 1999, I am hereby authorized to instruct Rubin Bailin, et al. to make the required payment. 10.) You agree to modify the Security Agreement, pursuant to which you agreed that MSH's 18.75% membership interest in Freedom Multimedia LLC ("Freedom") was collateral for certain obligations, so as to provide that such membership interest shall not be diluted below 18.75% of the total membership interests in Freedom until such collateral is released as provided in the Security Agreement, except in the event of a mutually agreed financing pursuant to which all members of Freedom are diluted in proportion to their respective interests. I agree that you shall, after the Closing, be entitled to appoint one of the members of the Board of Managing Members of Freedom. 11.) You agree to modify the Security Agreement which governs the collateral of 26 shares of the shares of AGE purchased by MSH to provide that such collateral shall not be diluted below 29.54% of the total outstanding equity of AGE until such collateral is released as provided in the Security Agreement. 12.) MSH and Seller agree that instead of the escrow arrangement described in subparagraph 8.6 of the Agreement, Seller has agreed to reduce the number of newly issued restricted shares deliverable to Seller at the Closing by 400,000 shares, and MSH agrees that Seller shall have no obligation or liability regarding the Gaumont claim. 13.) In light of my continued employment by AGE through the end of the 1998, and to ensure the funding of my pension fund interests, including my $65,000 share of the $98,000 in aggregate underfunding of such pension funds, Paragraph 1 of the September 4, 1998 Amendment to the Agreement is hereby amended to read as follows: "1.) You, on behalf of yourself and AGE, hereby waive any claim against me for underfunding of the AGE pension funds. You agree that my pension shall be funded at $256,000, and I agree that funding for my pension will be limited to $256,000, and I waive any rights I may have to require further funding of my AGE pension. I will execute such other documents as you may request to confirm such waiver. You agree 4 that I will not be responsible for any other underfunding of such pension funds for other employees. I agree that if you are required by law to provide funding in excess of the aforesaid $256,000 with respect to my pension in order to avoid reporting an underfunded pension, notwithstanding try waiver. I shall reimburse you for such excess funding upon your request." You agree that you shall make all payments required to satisfy such obligations no later than the date such payments are required to be made by law (taking into effect any extensions permitted by law). 14. You, on behalf of yourself and AGE, acknowledge and agree that: (a) it has not been the intention of the intention of the parties for MSH to acquire any direct or indirect interest in the company Up Up & Away, Inc., and (b) if AGE owns any interest in the company Up Up & Away, Inc., all such interests shall be transferred, prior to the Closing, or expeditiously after the Closing, to the current shareholders of AGE, namely Martin Abrams, John Gentile, Anthony Gentile and Jenny Gentile, and that any such transfer shall not be subject to your approval or consent. 15. You and I agree that my right to participate in the net proceeds of Space Cowboys (licensed from Gene Kirkwood) shall be the same as are applicable to the Micronauts property referred to in subparagraph 8.2.2 of the Agreement. 16. You and I agree that all contracts entered into by you (or AGE) with respect to any properties in connection with which I have a right to net proceeds shall require that proceeds payable to you or on your behalf (or to AGE or on AGE's behalf) including, without limitation, Micronauts, Samurai/Paparazzi and Space Cowboys, shall be paid directly into an account held in our joint names, and that payments shall be made directly from such account to you and me immediately following credits thereof, upon authorization of both Mike Welsh (or MSH's designated representative) on your behalf and me. 17. You agree that producer fees payable to AGE on Micronauts shall be negotiated in good faith between Martin Abrams and John Gentile expeditiously following the Closing. 18. I agree that the 500,000 shares of free trading common stock of MSH deliverable pursuant to subparagraph 7 of the September 24, 1998 Amendment shall be delivered on or before May 6, 1999. 19. You further acknowledge that you shall cause AGE to pay me the sum of $175,000 at Closing, which sum represents my share of previously reported taxable profits which I voluntarily elected to leave in AGE. 20. It is agreed tat with respect to any fees, royalties or other payments due Seller pursuant to the Agreement shall be subject to Seller's right to examine, or retain an accountant to examine Buyer's, or Buyer's affiliate's books and records as same pertain to the applicable property. Seller shall notify you in writing of his election to conduct such an audit. Any such examination shall be for a reasonable duration, shall take place at Buyer's offices during normal business hours not less than thirty (30) days following Buyer's receipt of such notice from Seller. 5 21. It is agreed that I shall have a right to approve all production elements as well as the terms of all licensing or other agreements pertaining to the Micronauts property. 22. For purposes of clarification only, you acknowledge that the total number of shares to be issued to me as part of the purchase price pursuant to the Agreement is as follows: 1.) 300,000 newly issued shares, receipt of which is acknowledged (pursuant to 1.2.3 of the Agreement); 2.) 1,765,000 newly issued restricted shares, deliverable at the Closing (pursuant to 1.2.4 of the Agreement, as modified by Paragraph 3 of the 9/4/98 Amendment and Paragraph 12 above); 3.) 660,000 shares of free trading common stock, deliverable at the Closing (currently in escrow, pursuant to Paragraph 3 of the 9/4/98 Amendment); 4.) 400,000 shares of newly issued restricted shares, deliverable at the Closing (pursuant to Paragraph 4 of the 9/4/98 Amendment); 5.) 500,000 shares of free trading common stock, deliverable on or after the Closing, but no later than May 8, 1998 (pursuant to Paragraph. 7 of the 9/24/98 Amendment and Paragraph 18 of this agreement); and 6.) 750,000 shares of newly issued restricted shares, deliverable at the Closing (pursuant to Paragraph 5 of this agreement). Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams AGREED AND CONFIRMED: MSH ENTERTAINMENT CORPORATION By: /s/ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman 6 EX-6.21 24 LETTER AGREEMENT, DATED JANUARY 28, 1999 MARTIN ABRAMS c/o ABRAMS/GENTILE ENTERTAINMENT, INC. 244 WEST 54TH STREET NEW YORK, NY 10019 January 28, 1999 MSH Entertainment Corporation 330 Ocean Park Blvd. Santa Monica, CA 90405 Attn: Robert Maerz, Chairman Dear Mr. Maerz: Reference is made to that certain Stock Purchase Agreement (the "Agreement") as amended by Letter Agreements dated September 4, 1998, September 24, 1998, October 1, 1998 and January 21, 1999 (the "Amendments) between the undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams (`Seller"). This Agreement will modify the Agreement and the Amendments; however, except as expressly provided herein, the terms and conditions of the Agreement and the Amendments are hereby confirmed and ratified. Seller has agreed to extend the date of the Closing until 2 pm on February 26, 1999, on the condition that MSH confirm the following, by signing where indicated below: 1. Buyer shall immediately transfer and deliver to Seller the 2,915,000 shares of MSH that are deliverable at the Closing pursuant to the Agreement. If the Closing occurs on or before February 26, 1999, such shares shall be deemed delivered as part of the Closing. If the Closing does not occur on or before 2 pm on February 26, 1999, Seller shall be entitled to retain such shares, without limiting any of its legal or equitable rights against Buyer. Buyer further agrees that if the Closing does not occur as aforesaid, Buyer shall, on May 6, 1999, exchange 500,000 freely trading shares of MSH for 500,000 of the restricted shares delivered pursuant to this Paragraph. 2. If the Closing occurs as provided herein, Buyer agrees that, with respect to the AGE property currently known as "Open Call", Abrams shall receive 35% of the net proceeds becoming payable to MSH, AGE or any of their affiliates in connection with the exploitation of such property. For purposes of this agreement, Buyer agrees that net proceeds shall be defined to mean gross revenues less only out-of-pocket expenses paid to unrelated third parties which directly relate to such exploitation. Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams AGREED AND CONFIRMED: MSH ENTERTAINMENT CORPORATION By: /s/ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman 1 EX-6.22 25 LETTER AGREEMENT, DATED FEBRUARY 12, 1999 MARTIN ABRAMS c/o ABRAMS/GENTILE ENTERTAINMENT, INC. 244 WEST 54TH STREET NEW YORK, NY 10019 February 12, 1999 MSH Entertainment Corporation 330 Ocean Park Blvd. Santa Monica, CA 90405 Attn: Robert Maerz, Chairman Dear Mr. Maerz: Reference is made to that certain Stock Purchase Agreement (the "Agreement") as amended by Letter Agreements dated September 4, 1998, September 24, 1998, October 1, 1998, January 21, 1999 and January 28, l999 (the "Amendments") between MSH Entertainment Corporation (`Buyer") and Martin Abrams (`Seller"). This Agreement will modify the Agreement and the Amendments; however, except as expressly provided herein, the terms and conditions of the Agreement and the Amendments are hereby confirmed and ratified. Notwithstanding anything to the contrary contained in the Agreement and Amendments, the transaction contemplated shall be structured as a forward triangular merger under Internal Revenue Code Section 368(a)(2)(D) so that the issuance of shares of MSH to Seller shall be treated as a tax-free exchange of stock. Seller has agreed to Close as of Tuesday, February 16, 1999, on the condition that MSH confirm the following, by signing where indicated below: 1. Buyer hereby authorizes Rubin Bailin Ortoli Mayer Baker & Fry to release to Seller the 2,915,000 shares of MSH that are currently held in escrow pursuant to the Agreement. Buyer confirms that Seller continues to have the right to receive, on May 6, 1999, an additional 500,000 freely trading shares of MSH. 2. Buyer further hereby authorizes Rubin Bailin Ortoli Mayer Baker & Fry to release to Seller the $300,000 that is currently held in escrow, such amount to be deemed a partial payment of the purchase price pursuant to the Agreement. 3. (a) The Agreement is hereby amended to provide for the delivery of the remainder of the purchase price as described below. Buyer agrees that, notwithstanding the Closing, Buyer shall be deemed the beneficial owner of that portion of the Purchased Shares indicated below only upon payment of the amounts described below. GRACE PERCENTAGE AND AGGREGATE NUMBER PAYMENT DUE DUE DATE PERIOD OF PURCHASED SHARES OWNED ------------ -------- -------- ------------------------------- $ 300,000 2/12/99 0 days 6.90% ( 3.04 shares) $l,200,000* 3/02/99 3 days 34.60% (15.23 shares) $ 100,000 3/16/99 7 days 36.90% (16.24 shares) $ 100,000 4/16/99 7 days 39.20% (17.25 shares) $ 750,000** 4/29/99 7 days 56.54% (24.88 shares) $ 100,000 5/16/99 7 days 58.84% (25.90 shares) $ 100,000 6/16199 7 days 61.14% (26.91 shares) $ 100,000 7/16/99 7 days 63.44% (27.92 shares) $1,575,000 8/16/99 7 days 100% (44.01 shares) - ---------------- *Includes the $175,000 payment Buyer further confirms that it shall cause AGE to pay Seller as of the Due Date, which sum represents Seller's share of previously reported taxable profits which Seller voluntarily elected to leave in AGE. **Payment made to HC Crown Corp. pursuant to the Hallmark Loan. 1 (b) Seller agrees that if Seller has not received an amount by the end of business on or before a Due Date, Seller shall nonetheless have the indicated grace period during which to make payment. If Seller does not receive such payment by the end of business on the last day of the applicable grace period, Buyer agrees that Seller shall have the right, upon written notice to Buyer: (i) to require Buyer to sell back to Seller all of the Purchased Shares then owned by Buyer at a price equal to 14% of the aggregate purchase amount already paid to Seller pursuant to subparagraph 3(a) above, and (ii) to keep all consideration, including, without limitation, cash and shares, previously delivered by Buyer to Seller pursuant to the Agreement. Without limiting the foregoing, and by way of example, if Buyer fails to make the 3/16/99 payment by the end of the 7 day grace period, Seller shall have the right to repurchase the 15.23 shares then owned by Buyer at a price equal to $210,000. All payments shall be made by wire transfer, to the account described in Exhibit A, or as otherwise instructed by Seller, and shall not be deemed received until confirmation is received by Seller from Seller's bank. 4. Buyer agrees to contribute to AGE working capital of not less than $400,000 by no later than April 2, 1999. 5. Buyer agrees that until all of the payments described in subparagraph 3(a) have been received, Seller shall have the exclusive right to vote the Purchased Shares, notwithstanding Buyer's beneficial ownership in the percentage shares actually paid for in accordance with subparagraph 3(a). 6. Buyer further confirms that Buyer shall, no later than April 29, 1999, repay Up Up & Away for the interest payments Seller has caused to be theretofore made with respect to the Hallmark Loan since the execution of the Agreement. 7. Buyer acknowledges and agrees that the terms of the consulting agreements required to be entered into with Seller and Jenny Gentile pursuant to the Agreement shall commence as of the date of the final payment required pursuant to subparagraph 3(a) above. 8. Buyer hereby agrees to deliver to Seller, on or before August 16, 1999, 250,000 additional restricted shares of MSH, as additional consideration for the Purchased Shares. Delivery of such additional shares shall be subject to the grace period and default provisions described in subparagraph 3(b) above which are applicable to the payments to be made pursuant to subparagraph 3(a) above. 9. Buyer agrees to pay to Rubin Bailin Ortoli Mayer Baker & Fry, in partial consideration of the legal fees incurred by Seller in connection with the Agreement, an amount equal to $75,000, payable as follows: (a) $37,500 on or before March 2,1999, (b) $12,500 on or before March 16, 1999, (c) $12,500 on or before April 16, 1999 and (d) $12,500 on or before May 16, 1999. 10.) Buyer further agrees that Seller shall be entitled to receive 25% of all net proceeds received by AGE, or any of its affiliates, from exploitation of the "Blink" technology (i.e., the beeper technology that AGE showed at Toy Fair 1999). 2 11.) Buyer further agrees that until the final payments and deliveries required by the Agreement and this Agreement have been made and delivered, Buyer shall not issue any press releases regarding AGE, Seller or any of their affiliates or properties, without Seller's prior written approval, such agreement being a material term of this agreement. 12.) Annexed hereto as Exhibit B are copies of the Certificate of Merger and the Agreement and Plan of Merger between AGE and AGE Acquisition Corp. Buyer and Seller acknowledge and agree that it is their intention to cause such documents to be executed and filed with the applicable authorities, together with all other required documents, on or about the date of Closing, so as to effect the merger described therein. In that connection, Buyer and Seller further acknowledge and agree that references to the Purchased Shares shall be deemed references to the shares of the surviving corporation referred to in such merger documents, and Seller and Buyer shall have the same interests in such shares of the surviving corporation as they each have in the Purchased Shares referred to in the Agreement, the Amendments and the documents being executed and/or delivered pursuant thereto. Kindly indicate your confirmation below. /s/MARTIN ABRAMS ----------------------------------- Martin Abrams AGREED AND CONFIRMED: MSH ENTERTAINMENT CORPORATION By: /s/ROBERT MAERZ ----------------------------------- Robert Maerz, Chairman 3 EX-6.23 26 LETTER AGREEMENT, DATED OCTOBER 8, 1999 October 8, 1999 Fax: (212) 977-1600 Robert Maerz Chief Executive Officer MSH Entertainment Corporation 244 W. 54th Street New York, New York 10019 Re: Acquisition Agreement Dear Bob, Based on our discussions, the following shall serve as a Deal Memorandum incorporating the agreed upon deal points between Aston Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH), collectively the (Parties) pertaining to an acquisition agreement between the companies. 1. Stock Purchase: A. Aston has agreed to offer for sale 1,075,000 shares of common stock representing twenty percent (20%) of its issued and outstanding shares. B. MSH has agreed to accept such offer and purchase 1,075,000 shares of Aston's Common Stock for the agreed upon purchase price of $860,000.00. C. The parties have agreed that the $860,000.00 will be paid as follows: Fifty percent (50%) of the purchase price representing $430,000.00 shall be paid in US currency and the remaining fifty percent 50% of the purchase price representing $430,000.00 shall be paid with the transfer of 1,535,714 shares of MSH Common Stock to Aston. D. The parties have agreed that this transaction will be funded as follows: (1) The stock portion of this transaction shall commence on the closing date of October 22, 1999, whereby, the stock certificates shall be issued to the respective companies upon authorization from the Board of Directors and Shareholders, if necessary. (2) The monetary funding of this transaction shall commence on the closing date of October 22, 1999, whereby, MSH shall initially provide a down payment to Aston of $75,000 with the remaining $355,000 paid over the next sixty days as the funds become available. 2. Closing: A. The parties agree that the closing date of this transaction shall be October 22, 1999 or other such date as mutually agreed upon. B. The parties agree that the monetary funding portion of this transaction will commence on October 22, 1999 or other such date as mutually agreed upon with a down payment of $75,000, with the balance paid on/or before December 22, 1999. 3. Acknowledgments: A. Each party hereby acknowledges that they have been given adequate time to perform the proper due diligence pertaining to this transaction. B. MSH acknowledges that they have reviewed Aston's annual financial statements, and corporate records and are hereby satisfied with the examinations of such. 4. Additional Documents: A. Aston agrees to provide MSH with the following items on the closing date of this transaction: * A stock purchase agreement * A letter of good standing from Aston' s Attorney pertaining to the reorganization of the company * A letter of good standing from the NY State tax board * A statement showing the current status of payroll taxes * The approval of the Board of Directors B. MSH agrees to provide Aston with the following items on the closing date of this transaction: * A letter outlining the status pertaining to the filing of Form SB2 with the SEC. * A letter outlining the possibility of a restructure of MSH Entertainment and how it effects the shareholders. * A letter of assurance that MSH doesn't have any plans for a reverse split of common stock. * An anti-dilution agreement stating the following: if MSH issues additional shares of common stock, or in the event of a restructure of the company, or in the event of any reverse split of shares, then Aston will have the option to purchase additional shares of common stock at $.14 per share in order to maintain its percentage ownership of stock pursuant to this transaction. * Copies of audited financial statements and outside appraisals when available. 5. Entire Understanding: A. This document represents the entire and complete agreement between the parties hereto with respect to the subject matter hereof and supercedes all previous agreements, understandings or representations whether oral or written between the parties regarding the subject matter hereof and shall remain in effect as The Agreement and be binding on the parties until such time as a Stock Purchase Agreement is executed, if ever. 6. Captions: A. The captions of the various paragraphs and sections of this Agreement are intended to be used solely for convenience of reference and are not intended and shall not be deemed for any purpose whatsoever to modify or explain or to be used as an aid in the construction of any provision. 7. Amendments and Changes: A. This agreement cannot be amended, modified or changed in any way whatsoever except by a written instrument duly signed by the Parties hereto. 8. Authority: A. The parties hereto warrant and represent hat they have the power and authority to enter into this Agreement. 9. Governing Law: A. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida and the Parties hereto agree that in the event of any disputes under this Agreement, said disputes shall be subject to arbitration and be bound by the rules and regulations of the American Arbitration Association with respect to resolution of any disputes arising hereunder. The Parties herein have fully read, understand and executed this Agreement freely and voluntarily. By signing in the spaces provided below, the Parties accept and agree to all the terms and conditions of this Agreement. In Witness Whereof the Parties hereto have caused this Agreement to be duly executed. /s/ Anthony R. Asfur /s/ Robert P. Maerz - ------------------------------- ------------------------------- Aston Entertainment Group, Inc. MSH Entertainment Corporation /s/ 10/8/99 /s/ 10/8/99 - ------------------------------- ------------------------------- Today's Date Today's Date EX-6.24 27 LETTER AGREEMENT, DATED JANUARY 24, 2000 January 24, 2000 Fax: (212) 977-1600 Robert Maerz Chief Executive Officer MSH Entertainment Corporation 244 W. 54th Street New York, New York 10019 Re: Acquisition Agreement Dear Bob, Based on our discussions, the following shall serve as a Deal Memorandum incorporating the agreed upon deal points between the Principals or Aston Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH), collectively the (Parties) pertaining to an acquisition agreement between the companies. 1. Stock Purchase: A. Aston's principals have agreed to offer for sale 806,250 shares of common stock representing fifteen percent (15%) of its issued and outstanding shares. B. MSH has agreed to accept such offer and purchase 806,250 shares of Aston Common Stock from said principals for the agreed upon purchase price of $1,007,812.00. C. The parties have agreed that the $1,007,812.00 will be paid as follows: Twenty-five percent (25%) of the purchase price representing $251,953.00 shall be paid in US currency and the remaining seventy-five percent (75%) of the purchase price representing $755,859.00 shall be paid with the transfer to Aston's principals the amount of 2,099,608 shares of MSH Common Stock (valued at $503,906.00) and the transfer to Aston's principals of 125,976 shares of Kids&Family, Inc. common shares (valued at $251,953.00). If after one year from the principals investment in Kids & Family of $251,953.00, Kids & Family has not made a public offering for its common shares of stock, said Aston principal investor(s) shall have the right to convert all or a portion thereof of said investment, into MSHE common stock. Said conversion price of MSHB stock shall be at .24 per share. If after one year of the date herein, Kids & Family has not made a public offering for its common shares of stock, and said Aston principals investor(s) are satisfied with the investment in Kids & Family, they may keep their investment in Kids & Family and said investment will start to accrue interest immediately thereafter at 8% per annum. D. The parties have agreed that this transaction will be funded as follows. (1) The stock portion of this transaction shall commence an the closing dare of February 1, 2000, whereby, the stock certificates shall be issued to the respective companies upon authorization from the Board of Directors and Shareholders, if necessary. (2) The monetary funding of this transaction shall be paid to Aston over the next sixty days as the funds become available. 2. Closing: A. The parties agree that the closing date of this transaction shall be February 1, 2000 or other such date as mutually agreed upon. B. The parties agree that the monetary funding portion of this transaction shall be paid to Aston over the next sixty days as the funds become available. 3. Acknowledgments: A. Each party hereby acknowledges that they have been given adequate time to perform the proper due diligence pertaining to this transaction. B. MSH acknowledges that they have reviewed Aston's annual financial statements, and corporate records and are hereby satisfied with the examinations of such and MSH has requested that Aston provide audited financials fur the year ending 1999. 4. Additional Documents: A. Aston agrees to provide MSH with the following items pursuant to this transaction: * A stock purchase agreement * The approval of the Board of Directors * Audited financial statements for year end 1999 B. MSH agrees to provide Aston with the following items pursuant to this transaction: * A letter of assurance that MSH doesn't have any plans for a reverse split of common stock at this time * An anti-dilution agreement stating the following: if MSH issues additional shares of common stock1 or in the event of a restructure of the company, or in the event of any reverse split of shares, then Aston will have the option to purchase additional shares of common stock at .14 per share in order to maintain its percentage ownership of the stock pursuant to the date of this transaction. * Copies of audited financial statements and outside appraisals when available. 5. Entire Understanding: A. This document represents the entire and complete agreement between the parties hereto with respect to the subject matter hereof and supersedes all previous agreements, understandings or representations whether oral or written between the parties regarding the subject matter hereof and shall remain in effect as The Agreement and be binding on the parties until such time as a Stock Purchase Agreement is executed, if ever. 6. Captions: A. The captions of the various paragraphs and sections of this Agreement are intended to be used solely for convenience of reference and are not intended and shall not be deemed for any purpose whatsoever to modify or explain or to be used as an aid in the construction of any provision. 7. Amendments and Changes: A. This Agreement cannot be amended, modified or changed in any way whatsoever except by a written instrument duly signed by the Parties hereto. 8. Authority: A. The parties hereto warrant and represent that they have the power and authority to enter into this Agreement. 9. Governing Law: A. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida and the Parties hereto agree that in the event of any disputes under this Agreement, said disputes shall be subject to arbitration and be bound by the rules and regulations of the American Arbitration Association with respect to resolution of any disputes arising hereunder. The Parties herein have fully read, understood and executed this Agreement freely and voluntarily. By signing in the spaces provided below, the Parties accept and agree to all the tams and conditions of this Agreement. In Witness Whereof the Parties hereto have caused this Agreement to be duly executed. /s/ Robert P. Maerz /s/ 2/1/2000 - ------------------------------- ------------------------------- Robert P. Maerz - Chariman\CEO Today's Date MSH Entertainment Corporation /s/ Anthony R. Asfur /s/ 2/1/2000 - ------------------------------- ------------------------------- Anthony R. Asfur - Principal\CEO Today's Date Aston Entertainment Group, Inc. /s/ Dale J. Sexton /s/ 2/1/2000 - ------------------------------- ------------------------------- Dale J. Sexton - Principal\COO Today's Date Aston Entertainment Group, Inc. Addendum to Acquisition Agreement THIS ADDENDUM is made this 15th day of February, 2000 between Aston Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH). WHEREAS, it is agreed to by the parties that under section 1, Stock Purchase, item C pursuant to the Acquisition Letter of Agreement dated January 24th, 2000, and executed on February 1st, 2000, shall be revised as follows: The parties have agreed that the $1,007,812.00 will be paid as follows: Fifty percent (50%) of the purchase price representing $503,906.00 shall be paid in US currency and the remaining Fifty percent (50%) of the purchase price representing $503,906.00 shall be paid with the transfer to Aston's principals the amount of 2,099,608 shares of MSH Common Stock and the transfer to Aston's principals of 125,976 shares of Kids&Family, Inc. common stock. In Witness Whereof the Parties hereto have caused this Addendum to be duly executed. /s/ Anthony R. Asfur /s/ Robert P. Maerz - ------------------------------- ------------------------------- Anthony R. Asfur Robert P. Maerz Aston Entertainment Group, Inc. MSH Entertainment Corporation EX-6.25 28 STOCK OPTION AGREEMENT, DATED JANUARY 24, 2000 January 24, 2000 Fax: (212) 977-1600 Robert Maerz Chief Executive Officer MSH Entertainment Corporation 244 W 54th Street New York, New York 10019 Re: Stock Option Agreement Dear Bob, Based on our discussions the following shall serve as a Deal Memorandum incorporating the agreed upon deal points between the Principals of Aston Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH), collectively the (Parties) pertaining to a stock purchase option agreement between the parties. 1. Stock Purchase Option: A. MSH has agreed to provide Aston and/or its associates with the option to purchase up to 7,198,657 shares of MSH Common Stock @ $.14 per share. The parties understand that the purchase of said stock is subject to Rule 144 of the Securities and Exchange Commission and that these shares are restricted from sale until such time as the restrictions are lifted or become free trading under Rule 144. The parties hereby agree that within 60 days of the date MSH common stock becomes registered under the Securities Exchange Act of 1934, MSH shall prepare and file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended (the "Act"), to register the offer and sale to the public of all said shares pursuant to this stock purchase option that have been previously exercised. B. MSH shall pay all expenses incurred by MSH in connection with such registration, including without limitation (i) all registration and filing fees, (ii) all printing expenses, (iii) all fees and dispursements of counsel and independent public accountants for the company, (iv) all Blue Sky fees and expenses (including fees and expenses of company counsel in connection with Blue Sky surveys), and (v) the entire expense of any special audits incident to or required by any mach registration; provided, however, that all underwriting discounts and selling commissions applicable to the sales of Shares in connection with any such registration shall be borne by such Selling Shareholders. C. The parties agree that the stock purchase option shall expire 11 months from the execution date of this Deal Memorandum. 2. Entire Understanding: A. This document represents the entire and complete agreement between the parties hereto with respect to the subject matter hereof and supersedes all previous agreements, understandings or representations whether oral or written between the parties regarding the subject matter hereof and shall remain in effect as The Agreement and be binding on the parties until such time as a Stock Purchase Agreement is executed, if ever. 3. Amendments and Changes: A. This Agreement cannot be amended, modified or changed in any way whatsoever except by a written instrument duly signed by the Parties hereto. 4. Authority: A. The parties hereto warrant and represent that they have the power and authority to enter into this Agreement. 5. Governing Law: A. This Agreement shall be construed in accordance with and governed by tbe laws of the State of Florida and the Parties hereto agree that in the event of any disputes under this Agreement, said disputes shall be subject to arbitration and be bound by the rules and regulations of the American Arbitration Association with respect to resolution of any disputes arising hereunder. The Parties herein have fully read, understood and executed this Agreement freely and voluntarily. By signing in the spaces provided below, the Parties accept and agree to all the tams and conditions of this Agreement. In Witness Whereof the Parties hereto have caused this Agreement to be duly executed. /s/ Robert P. Maerz /s/ 2/1/2000 - ------------------------------- ------------------------------- Robert P. Maerz - Chariman\CEO Today's Date MSH Entertainment Corporation /s/ Anthony R. Asfur /s/ 2/1/2000 - ------------------------------- ------------------------------- Anthony R. Asfur - Principal\CEO Today's Date Aston Entertainment Group, Inc. /s/ Dale J. Sexton /s/ 2/1/2000 - ------------------------------- ------------------------------- Dale J. Sexton - Principal\COO Today's Date Aston Entertainment Group, Inc. Addendum to Stock Option Agreement THIS ADDENDUM is made this 15th day of February, 2000 between Aston Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH). WHEREAS, it is agreed to by the parties that under section 1, Stock Purchase Option, pursuant to the Stock Purchase Letter of Agreement dated January 24th, 2000, and executed on February 1st, 2000, the number of shares shall be increased an additional 1,788,714 shares for a total number of shares of 8,987,371. In Witness Whereof the Parties hereto have caused this Addendum to be duly executed. /s/ Anthony R. Asfur /s/ Robert P. Maerz - ------------------------------- ------------------------------- Anthony R. Asfur Robert P. Maerz Aston Entertainment Group, Inc. MSH Entertainment Corporation EX-27 29 FINANCIAL DATA SCHEDULE
5 1 10-MOS DEC-31-1999 JAN-01-1999 OCT-31-1999 31,970 0 15,985 0 0 1,991,962 465,763 0 9,794,707 3,979,505 0 0 0 90,170 5,750,032 9,794,707 0 0 0 2,599,884 0 0 26,778 (2,588,596) 0 (2,588,596) 0 0 0 (2,588,596) (.04) (.04)
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