EXHIBIT 10.1
OVERRIDE AGREEMENT
This Override Agreement (the "Agreement") is made and entered into as
of November 19, 1996, by and among Xxx Video City, Inc., a California
corporation ("VCI"); Xxxxxx X. Xxx ("Xxx"), an individual resident of California
on behalf of himself and as Trustee of the Xxxxxx X. Xxx Revocable Living Trust
UDT 1/9/91 (the "Trust"); Prism Entertainment Corporation, a Delaware
corporation ("Prism"); and Xxxxxx Entertainment Inc., a Tennessee corporation
("Xxxxxx"), with reference to the following:
A. Prism is a public company which on December 1, 1995 filed for
protection under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California (the "Bankruptcy
Court"), and is currently operating as debtor-in-possession.
B. Prism and VCI have entered into that certain Agreement and Plan of
Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Amendment, dated as of November 19, 1996 (as amended, the "Merger
Agreement") with respect to a merger (the "Merger") of VCI into Prism.
C. As of the date of this Agreement, VCI is indebted to Xxxxxx in the
aggregate approximate amount of $4,500,000 (the "VCI Debt"). The obligations of
VCI to Xxxxxx with respect to the VCI Debt are secured by (a) a security
interest in substantially all of the personal property of VCI (the "Old
Collateral") pursuant to an Amended and Restated Security Agreement dated as of
February 7, 1995, as amended (the "Prior Security Agreement"); (b) a pledge
agreement dated as of February 7, 1995, as amended (the "Stock Pledge
Agreement") issued by the Trust in favor of Xxxxxx as to 5,500 shares of the
Common Stock of VCI (the "Pledged Shares"); (c) a Pledge Agreement dated
February 7, 1995, as amended (the "Note Pledge Agreement") issued by VCI in
favor of Xxxxxx as to a promissory note in favor of VCI (the "Pledged Note");
and (d) a Payment Guaranty issued by Xxx dated February 7, 1995 (the "Xxx
Guaranty").
D. VCI, Xxx and Xxxxxx have entered into that certain Workout
Agreement dated as of February 7, 1995 (the "Workout Agreement") with respect to
the rescheduling and payment of the then outstanding debt owed by VCI to Xxxxxx.
X. Xxxxxx is the holder of warrants issued by VCI dated November 14,
1996 to acquire shares of the Common Stock of VCI equal to 8.5% of the
outstanding shares of VCI (the "Old Warrants").
F. Subject to the terms and conditions set forth in this Agreement
and the consummation of the Merger, the parties have agreed to restructure the
VCI Debt.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. In addition to the definitions set forth in the
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Recitals, for purposes of this Agreement, the following capitalized terms shall
have the following meaning:
"Additional Warrants" means warrants to purchase an aggregate of
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852,750 shares of the Common Stock of Reorganized Prism substantially in
the form of Exhibit A attached hereto.
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"Affiliate" means, as to any Person, any other Person which directly
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or indirectly controls, or is under common control with, or is controlled
by, such Person. As used in this definition, "control" (and its correlated
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person that owns, directly or
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indirectly, 10% or more of the securities having ordinary voting power for
the election of directors or other governing body of a corporation (other
than securities having such power only by reason of the happening of a
contingency), or 10% or more of the partnership or other ownership interest
of any other Person (other than as a limited partner of such other Person),
will be deemed to control such corporation or other Person.
"Assumed Options" means options of VCI to be assumed by Reorganized
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Prism upon the Merger to purchase an aggregate of 1,685,000 shares of
Reorganized Prism.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
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Friday on which Xxxxxx is open for business at its address for notice
designated as provided herein.
"Closing" means the consummation of the transactions contemplated by
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this Agreement, which shall be deemed to take place concurrently with the
effectiveness of the Merger.
"Closing Date" means the date of Closing.
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"Collateral Documents" means the New Security Agreement and Copyright
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Mortgages.
"Xxxxxxx" means Xxxxx Xxxxxxx.
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"Copyright Mortgage" means a mortgage agreement, in form and substance
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satisfactory to Xxxxxx, granting to Xxxxxx a security interest and lien on
all right, title and interest of Reorganized Prism in and to the Film
Library and the Film Library Accounts Receivable, including, without
limitation, all copyrights with respect to the Film Library in form and
substance acceptable to Xxxxxx.
"Debt Documents" means, collectively, this Agreement, the Note, the
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Collateral Documents, the Supply Agreement, the New Warrants, the
Additional Warrants and any other certificates, documents or agreement of
any type or nature heretofore or hereafter executed or delivered by
Reorganized Prism or any other Party to Xxxxxx in any way relating to or in
furtherance of this Agreement and/or the Note, and in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
"Disclosure Statement" means the Disclosure Statement for Prism's
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Amended Plan of Reorganization dated September 23, 1996, as may be amended.
"Effective Time" means the consummation of the Merger.
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"Escrow and Warrant Agreement" means, as to the New Warrants, the
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Escrow and Warrant Agreement substantially in the form of Exhibit B
attached hereto.
"Event of Default" shall have the meaning provided in Section 7.1.
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"Film Library" means the rights of Prism in the motion pictures listed
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on Schedule 5.25 to the Merger Agreement.
"Film Library Accounts Receivable" means all present and future
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accounts, accounts receivable, rights to payment, and all forms of
obligations owing to Reorganized Prism or in which Reorganized Prism may
have any interest, however created or arising, relating to the Film
Library.
"Governmental Agency" means (a) any international, foreign, federal,
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state, county or municipal government, or political subdivision thereof,
(b) any
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governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, or (c) any court,
administrative tribunal or public utility.
"Guaranty Release" means the release by Xxxxxx of the Xxx Guaranty,
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the Stock Pledge Agreement and the Note Pledge Agreement to be executed and
delivered at the Closing substantially in the form of Exhibit C attached
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hereto.
"Xxxxxx Shares" means 1,500,000 shares of the Common Stock of
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Reorganized Prism.
"Laws" means, collectively, all international, foreign, federal, state
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and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
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assignment for security, security interest, encumbrance, lien or charge of
any kind, whether voluntarily incurred or arising by operation of Law or
otherwise, affecting any property, including any agreement to grant any of
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the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of, or
agreement to, give any financing statement (other than a precautionary
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financing statement with respect to a lease that is not in the nature of a
security interest) under the Uniform Commercial Code or comparable Law of
any jurisdiction with respect to any property.
"Lock-Up Agreement" means an agreement to be executed and delivered at
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the Closing between Xxx, Xxxxxxx and Xxxxxx pursuant to which Xxx (on his
own behalf and on behalf of the Trust) and Xxxxxxx agree to refrain from
selling, pledging or encumbering the Lock-Up Shares, substantially in the
form of Exhibit D attached hereto.
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"Lock-Up Shares" means 1,026,983 shares of Common Stock of Reorganized
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Prism, 721,983 shares of which will, upon the Closing, be held by Xxx and
305,000 shares by Xxxxxxx.
"New Collateral" means, collectively, a first lien on the property and
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assets of Reorganized Prism described in Schedule A attached hereto (other
than the Film Library and the Film Library Accounts Receivable of
Reorganized Prism) and a second priority lien on the Film Library and the
Film Library Accounts Receivable of Reorganized Prism subject only to the
lien of Imperial Bank, all as more fully described in the New Security
Agreement.
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"New Security Agreement" means the Security Agreement, dated as of the
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Closing Date, executed by Reorganized Prism in favor of Xxxxxx,
substantially in the form of Exhibit E attached hereto, either as
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originally executed or as it may from time to time on or after the Closing
Date be supplemented, modified, amended, restated or extended.
"New Warrants" means warrants to purchase the New Warrant Shares to be
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delivered to Xxxxxx at the Closing pursuant to the Escrow and Warrant
Agreement.
"New Warrant Shares" means an aggregate of 8 1/2% of the number of
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shares of the Common Stock of Reorganized Prism to be received by the VCI
Shareholders pursuant to the Merger, provided, however, that the aggregate
number of shares to be received by the VCI Shareholders will not be less
than 4,930,000. The number of New Warrant Shares is currently estimated to
be 410,444.
"Note" means the promissory note of Reorganized Prism to be delivered
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to Xxxxxx at the Closing evidencing the Remaining Debt, substantially in
the form of Exhibit F attached hereto.
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"Party" means any Person (including Reorganized Prism and/or any
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Affiliate of Reorganized Prism), other than Xxxxxx, which now or hereafter
is party to any of the Debt Documents.
"Person" means any entity, whether an individual, trustee,
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corporation, general partnership, limited partnership, joint stock company,
trust, unincorporated organization, bank, business association, firm, joint
venture, governmental agency, or otherwise.
"Plan" means the Plan of Reorganization of Prism and its subsidiaries,
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as may be amended.
"Registrable Securities" means the Xxxxxx Shares, the New Warrant
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Shares and any securities issuable upon exercise of the Additional
Warrants.
"Registration Rights Agreement" means an agreement between Prism and
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Xxxxxx regarding the registration of the Registrable Securities
substantially in the form of Exhibit G attached hereto.
"Remaining Debt" means the difference between the VCI Debt and
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$3,000,000.
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"Reorganized Prism" means the surviving entity upon the consummation
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of the Merger.
"Reorganized Prism Securities" means the Xxxxxx Shares, the New
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Warrants, the New Warrant Shares, the Additional Warrants and any
securities issuable upon exercise of the Additional Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
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"Stockholders Agreement" means an agreement to be executed and
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delivered at Closing among Reorganized Prism, Xxx, Xxxxxxx and Xxxxxx
substantially in the form of Exhibit H attached hereto.
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"Supply Agreement" means the Supply Agreement between Reorganized
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Prism and Xxxxxx to be executed and delivered at the Closing substantially
in the form of Exhibit I attached hereto.
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"VCI Shareholders" means the shareholders of VCI immediately prior to
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the Effective Time.
ARTICLE 2
RESTRUCTURING OF DEBT
2.1 Conversion of Debt; Release of Xxx Guaranty and Old Collateral.
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At the Closing, Xxxxxx shall convert $3,000,000 of principal amount of the VCI
Debt into the Xxxxxx Shares. In connection therewith, at the Closing, Xxxxxx
shall release the Stock Pledge Agreement, the Note Pledge Agreement and the Xxx
Guaranty pursuant to the Guaranty Release, redeliver and reassign to Xxx the
Pledged Shares and to VCI the Pledged Note, and execute and deliver to
Reorganized Prism UCC-2 termination statements with respect to the Old
Collateral; and Reorganized Prism shall execute and deliver to Xxxxxx the Note,
the New Security Agreement and UCC-1 financing statements covering the New
Collateral pursuant to which Reorganized Prism shall grant to Xxxxxx first
priority liens and security interests in and to the New Collateral except that
the lien and security interest in the Film Library and the Film Library Accounts
Receivable shall be subject to and subordinate to the lien therein of Imperial
Bank.
2.2 Termination of Workout Agreement; Payment of Remaining Debt.
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The Workout Agreement shall be terminated effective at the Closing, and Xxxxxx
shall thereupon release all of its future claims thereunder. The Remaining Debt
shall be evidenced by the Note and payable as follows:
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(a) Interest shall be payable on the outstanding daily unpaid
principal amount of the Remaining Debt from the Closing until payment in full is
made, shall accrue and be payable at the rate of 10% per annum and shall be
payable monthly. Any accrued interest not paid on a date scheduled for the
payment of interest shall be added to the principal of the Remaining Debt and
all of such principal, as so increased shall thereafter bear interest at the
lesser of 4% in excess of the existing rate or the maximum rate permitted by
applicable law. All proceeds from the exercise of all options or warrants to
purchase capital stock of Reorganized Prism shall be applied to the reduction of
the Remaining Debt, first to any accrued unpaid interest and then to principal.
(b) If not sooner paid, the Remaining Debt and all accrued interest
thereon shall be payable on the third anniversary of the Closing.
(c) The Remaining Debt may, at any time and from time to time, be
paid or prepaid in whole or in part without premium or penalty, provided that
each prepayment of principal shall be accompanied by payment of interest accrued
through the date of payment on the amount of principal paid.
(d) Should any installment of principal or interest not be paid
when due, a late charge equal to 5% of the payment then due, payable on demand,
shall be charged with respect to such payment.
(e) All computations of interest shall be calculated on the basis
of a year of 360 days and the actual number of days elapsed.
(f) If any payment to be made by Reorganized Prism shall become due
on a day other than a Business Day, payment shall be made on the next succeeding
Business Day and the extension of time shall be reflected in computing interest.
(g) Each payment hereunder shall be made by Reorganized Prism by
wire transfer to Xxxxxx or to such other account as Xxxxxx may direct in
writing. All payments shall be made in lawful money of the United States of
America and shall be deemed made when verified by the receiving bank.
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ARTICLE 3
ISSUANCE OF NEW WARRANTS
At the Closing, certain of the VCI shareholders shall issue to Xxxxxx
the New Warrants to purchase the New Warrant Shares pursuant to the Escrow and
Warrant Agreement. It is understood that certificates representing the New
Warrant Shares shall be issued at the Closing in the names of the VCI
Shareholders, but shall be delivered to an escrow agent acceptable to the
parties to be held pending exercise of the New Warrants by Xxxxxx or the
expiration of the Warrant Period. For such time as the New Warrant Shares are
held in escrow, the VCI Shareholders shall be entitled to vote the New Warrant
Shares. Upon expiration of the Warrant Period, the escrow agent will be
authorized and instructed to deliver to the VCI Shareholders all New Warrant
Shares to the extent that the New Warrants have not been exercised therefor.
Any exercise by Xxxxxx of the New Warrants shall be done on a ratable basis with
respect to the New Warrant Shares with the exercise price(s) therefor to be paid
to Reorganized Prism.
ARTICLE 4
ADDITIONAL WARRANTS
At the Closing, Reorganized Prism shall issue to Xxxxxx the Additional
Warrants.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of VCI. VCI hereby represents and
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warrants to the other parties hereto as follows:
(a) VCI has the full right, power and authority to enter into,
execute and deliver this Agreement and all the other Debt Documents to which VCI
is a party.
(b) VCI is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has the corporate
power to own and operate its properties and to carry on its business as now
conducted. VCI is duly qualified to do business and in good standing in each
state in which a failure to
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be so qualified would have a material adverse effect on VCI's financial position
or its ability to conduct its business in the manner now conducted.
(c) VCI has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which VCI is a party. This Agreement and all the other
agreements, documents, and instruments contemplated hereby to which VCI is a
party, are, and as of the Closing will be, the legal, valid and binding
obligation of VCI, enforceable in accordance with their respective terms.
(d) The representations and warranties of VCI set forth in the
Merger Agreement are true and correct as of the date hereof.
(e) The execution, delivery and performance by VCI of this
Agreement and the other Debt Documents does not and will not (i) contravene or
conflict with the Articles of Incorporation or bylaws of VCI, (ii) contravene or
conflict with or constitute a violation of any provision of any law, statute,
rule, regulation, judgment, injunction, order, writ or decree binding upon or
applicable to VCI or any part of its business, or (iii) contravene or conflict
with or constitute a violation, breach, or default under any agreement to which
VCI is bound.
5.2 Representations and Warrants of Prism. Prism hereby represents
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and warrants to the other parties as follows:
(a) Prism is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has the corporate
power to own and operate its properties and to carry on its business as now
conducted. Prism is duly qualified to do business and in good standing in each
state in which a failure to be so qualified would have a material adverse effect
on Prism's financial position or its ability to conduct its business in the
manner now conducted.
(b) Prism has the full right, power and authority to enter into,
execute and deliver this Agreement and all other related documents to which
Prism is a party.
(c) Prism has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which Prism is a party. This Agreement and all other
agreements, documents, and instruments contemplated hereby are, and as of the
Closing will be, the legal, valid and binding obligation of Prism, enforceable
in accordance with their respective terms.
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(d) The representations and warranties of Prism set forth in the
Merger Agreement are true and correct as of the date hereof.
(e) The Reorganized Prism Securities, when issued, shall be duly
authorized, validly issued, fully paid and non-assessable.
(f) The execution, delivery and performance by Prism of this
Agreement and the Debt Documents to which Prism is a party does not and will not
(i) contravene or conflict with the Certificate of Incorporation or bylaws of
Prism, (ii) contravene or conflict with or constitute a violation of any
provision of any law, statute, rule, regulation, judgment, injunction, order,
writ or decree binding upon or applicable to Prism or any part of its business,
except that the consummation of the transactions contemplated herein is subject
to the confirmation of the Plan, or (iii) contravene or conflict with or
constitute a violation, breach, or default under any agreement to which Prism is
bound.
(g) The Plan provides for sufficient number of shares of Common
Stock of Reorganized Prism in connection with the issuance of the New Warrant
Shares, the Xxxxxx Shares and any securities issuable upon exercise of the
Additional Warrants.
(h) Place of Business. The records with respect to all intangible
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personal property constituting a part of the New Collateral are and will be
maintained at Reorganized Prism's chief place of business and chief executive
office, which has the address of 0000 XxXxxxxx Xxxxx, Xxxxx X, Xxxxxxxxxxx,
Xxxxxxxxxx 00000. All tangible personal property constituting a part of the New
Collateral is or will be located at Reorganized Prism's chief place of business
and chief executive office and/or at any specific store locations.
(i) Imperial Bank. As of the date hereof, the total outstanding
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principal amount of the indebtedness of Prism to Imperial Bank (the "Imperial
Indebtedness"), is no more than $3,100,000.
5.3 Representations and Warranties of Xxxxxx. Xxxxxx hereby
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represents and warrants as follows:
(a) Xxxxxx has the full right, power and authority to enter into,
execute and deliver this Agreement and all other related documents to which
Xxxxxx is a party.
(b) Xxxxxx has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which Xxxxxx is a party. This Agreement and such related
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documents are, and as of the Closing will be, the legal, valid and binding
obligation of Xxxxxx, enforceable in accordance with their respective terms.
(c) Xxxxxx understands and agrees that (subject to the Registration
Rights Agreement):
(i) The Reorganized Prism Securities shall not have been registered
under the Securities Act of 1933, as amended (the "Securities Act") or the
securities laws of any state, based upon an exemption from such registration
requirements under the Securities Act and applicable state securities law;
(ii) The Reorganized Prism Securities are and will be "restricted
securities" as said term is defined in Rule 144 of the Rules and Regulations
promulgated under the Securities Act;
(iii) The Reorganized Prism Securities may not be sold or otherwise
transferred unless they have been first registered under the Securities Act and
applicable state securities laws, or unless exemption from such registration
provisions are available with respect to said resale or transfer;
(iv) Prism is relying on the representation by Xxxxxx that Xxxxxx
has such knowledge and experience in financial or business matters that Xxxxxx
is capable of evaluating the merits and risks involved in the investment in the
Reorganized Prism Securities;
(v) The Reorganized Prism Securities are and will be acquired by
Xxxxxx for Xxxxxx'x own account and not with a view to, or for resale in
connection with, any distribution other than resales made in compliance with the
Securities Act and applicable state securities laws.
(vi) Xxxxxx acknowledges that it has received the Disclosure
Statement, together with a copy of the Plan. Xxxxxx has been, or will be prior
to Closing, furnished with such information and documents pertaining to
Reorganized Prism as Xxxxxx has requested, and has been, or will be prior to
Closing, given the opportunity to meet with officials of Prism and VCI and to
have such persons answer questions regarding Reorganized Prism's affairs and
conditions.
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ARTICLE 6
COVENANTS BY PRISM
Unless Xxxxxx otherwise consents in writing, which consent may be
exercised or withheld in Xxxxxx'x sole discretion, so long as Reorganized Prism
is indebted to Xxxxxx under this Agreement, and until the payment in full of the
Remaining Debt (as to all covenants in this Article) and until the later to
occur of the termination of the Stockholders Agreement or the payment in full of
the Remaining Debt (as to Sections 6.11, 6.12, 6.14, 6.16, 6.17 and 6.18), Prism
covenants as follows:
6.1 Punctual Payment. Reorganized Prism shall punctually pay the
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interest and principal of the Remaining Debt at the times and place and in the
manner specified herein and in the Note.
6.2 Accounting Records. Reorganized Prism shall maintain full and
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complete books and accounts and other records reflecting all of its properties
and the results of its business in accordance with generally accepted accounting
principles consistently applied.
6.3 Financial Information. Reorganized Prism shall deliver, or cause
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to be delivered, to Xxxxxx, in form and detail satisfactory to Xxxxxx:
(a) As soon as available, but in any event not later than 105 days
after the end of each fiscal year, an audited balance sheet of Reorganized Prism
as at the end of such fiscal year, and statements of income and cash flow for
such fiscal year, together with the equivalent information for the prior fiscal
year, all in detail reasonably satisfactory to Xxxxxx. Such balance sheet and
statements shall be prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the periods
involved and accompanied by a report of a certified public accountant of
recognized national standing reasonably satisfactory to Xxxxxx.
(b) As soon as available, but in any event not later than 50 days
after the end of each fiscal quarter (except for the fourth quarter), an
unaudited balance sheet of Reorganized Prism as at the end of such fiscal
quarter (except for the fourth quarter) and a statement of income for such
fiscal quarter (except for the fourth quarter) and the year to date, together
with the equivalent information for the same period in the prior fiscal year,
all in accordance with generally accepted accounting principles consistently
maintained throughout the period involved, except for the absence of footnotes.
Such financial statements shall be certified by the chief financial officer of
Reorganized Prism as fairly presenting the financial condition and results of
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operations of Reorganized Prism in accordance with generally accepted accounting
principles, consistently applied, as at such date and for such periods, except
for the absence of footnotes. The foregoing may be satisfied by delivery of the
applicable Form 10-Q Report.
6.4 Existence. Reorganized Prism shall (a) preserve and maintain its
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existence and all of its material rights, licenses, privileges and franchises,
(b) continue to operate in substantially the same line of business as VCI
presently engages in, namely, the business of renting and selling prerecorded
video entertainment for consumer use, (c) comply with the requirements of all
applicable Laws of any Governmental Agency, and (d) use its best efforts to
conduct its business in an orderly, efficient, and regular manner.
6.5 Maintenance of Properties. Reorganized Prism shall maintain,
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preserve and protect all of its properties and equipment in good order and
condition, subject to wear and tear in the ordinary course of business, and not
permit any waste of its properties, except that the failure to maintain,
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preserve and protect a particular item of property or equipment that is not of
significant value, including property not of significant value due to its
technological obsolescence, either intrinsically or due to the operation of
Reorganized Prism, shall not constitute a violation of this covenant.
6.6 Taxes and Other Liabilities. Reorganized Prism shall pay and
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discharge when due any and all indebtedness, obligations, assessments and taxes
including without limitation federal and state income taxes, and all such
obligations imposed by any Governmental Agency which are or may become a Lien
affecting Reorganized Prism's properties or any part thereof, except such as
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Reorganized Prism may in good faith contest by appropriate proceedings, so long
as Reorganized Prism has established and maintains reserves adequate to pay any
such contested liabilities in accordance with generally accepted accounting
principles and, by reason of non-payment, none of Reorganized Prism's property
or the Liens of Xxxxxx thereon are in danger of being lost or forfeited.
6.7 Reporting Requirements. Reorganized Prism shall cause to be
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delivered to Xxxxxx, in form and detail satisfactory to Xxxxxx:
(a) promptly upon Reorganized Prism's learning thereof, notice
of:
(i) any material litigation affecting or relating to
Reorganized Prism, or any of its properties;
(ii) any dispute between Reorganized Prism and any
Governmental Agency relating to Reorganized Prism's property, the
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adverse determination of which might materially adversely affect such
property;
(iii) any change in senior management of Reorganized
Prism;
(iv) any Default or Event of Default.
(b) written notice of any change in the location of
Reorganized Prism's principal place of business or any other place in which
it maintains any of the New Collateral or its books and records at least 30
days prior to the date of such change;
(c) such other information relating to Reorganized Prism, and/or
its properties as Xxxxxx may reasonably request from time to time.
6.8 Insurance. Reorganized Prism shall provide or cause to be
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provided the following policies of insurance:
(a) public liability insurance in an amount deemed reasonably
necessary from time to time by Xxxxxx;
(b) property damage and casualty insurance in an amount deemed
reasonably necessary from time to time by Xxxxxx; and
(c) such other policies of insurance as Xxxxxx may reasonably
require from time to time.
All insurance policies (i) shall be maintained throughout the term of the
Remaining Debt at Reorganized Prism's sole expense, (ii) shall be issued by
insurers of recognized responsibility which are reasonably satisfactory to
Xxxxxx, (iii) shall be in form and substance reasonably satisfactory to Xxxxxx,
and (iv) with respect to insurance coverage damage to the New Collateral, (A)
shall name Xxxxxx as an additional insured and/or loss payee, as appropriate,
and (B) shall contain a "lender's loss payable" endorsement in form and
substance reasonably satisfactory to Xxxxxx. Reorganized Prism shall deliver or
cause to be delivered to Xxxxxx, from time to time at Xxxxxx'x reasonable
request, originals or copies of such policies or certificates in form reasonably
satisfactory to Xxxxxx, evidencing the same. Such certifications shall provide
that such insurance coverage shall not be reduced, cancelled or terminated
without 30 days prior written notice to Xxxxxx.
6.9 Inspection Rights. At any time during regular business hours and
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as often as reasonably requested, Reorganized Prism shall permit Xxxxxx, or any
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employee, agent or representative of Xxxxxx, to examine, audit and make copies
and abstracts from the records and books of account of, and to visit and inspect
the Properties of, Reorganized Prism and to discuss the affairs, finances and
accounts of Reorganized Prism with any of its officers and key employees, and,
upon request, furnish promptly to Xxxxxx true copies of all financial
information and internal management reports made available to the management of
Reorganized Prism. As used herein, "key employees" means all employees at least
of Regional Manager or department head rank.
6.10 Compliance with Agreements, Duties and Obligations. Reorganized
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Prism shall promptly and fully comply with all of its agreements, duties and
obligations under the Debt Documents and, in all material respects, under any
other material agreements, indentures, leases and/or instruments to which it and
Xxxxxx are each a party. Reorganized Prism shall use its best efforts to
promptly and fully comply with all of its agreements, duties and obligations
under any material agreements, indentures, leases and/or instruments to which it
and another Person (other than Xxxxxx) are each a party.
6.11 Mergers, Consolidations and Acquisitions. Reorganized Prism
----------------------------------------
shall not (a) enter into any transaction of merger or consolidation or
contemplating the sale or transfer of all or substantially all of its assets; or
(c) make any material change in the nature of its business as conducted and
presently proposed to be conducted; or (d) change the form of organization of
its business; provided, however, that nothing herein shall prevent Reorganized
Prism from selling the Film Library (subject, however, to the conditions set
forth in Section 6 of the Security Agreement), or from entering into a
transaction of merger where (i) Reorganized Prism is the surviving party; (ii)
upon the consummation of such merger, 50% or more in interest of the
stockholders of Reorganized Prism own and control 50% or more of the voting
equity of the combined company; (iii) a majority of the board of directors of
the combined company consist of directors of Reorganized Prism immediately prior
to such merger; and (iv) the terms of the Supply Agreement will continue to
apply.
6.12 Redemption, Dividends, Distributions. Reorganized Prism shall
------------------------------------
not redeem or repurchase stock or other ownership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in cash or other property.
6.13 Application of Exercise Prices. Reorganized Prism shall apply
------------------------------
all proceeds from the exercise of any options or warrants to purchase capital
stock of Reorganized Prism to the reduction of the Remaining Debt, first to any
accrued, unpaid interest and then to principal.
15
6.14 Restriction on Employee Stock Options. Except for the
-------------------------------------
Assumed Options and the option in favor of Xxxxxxx to purchase 175,000 shares
(the "Xxxxxxx Option"), Reorganized Prism shall not issue any employee stock
options or warrants (a) at exercise prices below the greater of the book value
per share or the fair market value per share on the date of grant or (b) to the
extent that the total amount of shares issuable pursuant to the exercise of such
new stock options plus 461,000 shares exceeds 10% of the then issued and
outstanding shares of Reorganized Prism's Common Stock and Common Stock
equivalents. No options or warrants (including the Assumed Options and Xxxxxxx
Option) will be repriced at an exercise price below the greater of the book
value per share or the fair market value on the date of original grant (subject
to adjustments for any stock splits, combinations, etc.) and provisions of
vesting and forfeiture of any such options shall not be amended or modified.
6.15 Imperial Indebtedness. In no event shall Reorganized Prism
---------------------
allow the aggregate principal amount of Imperial Indebtedness to exceed the
amount outstanding as of the date hereof except as to accrued interest and for
costs and expenses incurred by Imperial Bank from the date hereof. Reorganized
Prism shall promptly provide and deliver to Xxxxxx any and all notices received
from the holder(s) of the Imperial Indebtedness of any default or Event of
Default under the documents, instruments and agreements evidencing, securing or
otherwise relating to the Imperial Indebtedness or of the exercise of remedies
with respect to any collateral therefor.
6.16 Employee Matters. Reorganized Prism shall not amend or
----------------
modify the employment agreements with Xxxxxxx, Xxx and Xxxxx Xxxxx attached as
exhibits to the Merger Agreement. Reorganized Prism shall not extinguish,
forgive or reduce (except for payment made) any debt owed to Reorganized Prism
from any employee.
6.17 Reservation of Shares. Reorganized Prism shall reserve a
---------------------
sufficient number of shares of its Common Stock issuable upon exercise of any
Additional Warrants.
6.18 Board Approval. Without the unanimous approval of the Board
--------------
of Directors of Reorganized Prism, Reorganized Prism shall not enter into any
line of business other than (i) the sale and rental of video product and related
goods and accessories, (ii) completion of the sole film Prism currently has
under way expected to be titled "When the Bough Breaks II," and (iii) the
exploitation of the Film Library.
16
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following, whatever the reason therefor, shall constitute an "Event of Default"
hereunder in addition to any event of default described in any other document
relating to other transactions between the parties thereto:
(a) Reorganized Prism shall fail to pay any installment of principal
or interest on the Note when due, or any other amount owing under this
Agreement, the Note or the other Debt Documents when due; provided, however,
-------- -------
Reorganized Prism shall be allowed two times in any 12 month period to pay an
installment of principal or interest due under the Note not more than five days
after the due date for such payment provided that the late charge imposed by
Section 2.2 is paid; or
(b) Reorganized Prism shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement or in any of the Debt
Documents on its part to be performed or observed, within 30 days after the date
the same was to have been performed or observed; provided, however, that if the
-------- -------
failure to perform is capable of being cured, but cannot reasonably be cured
within 30 days after the date the same was to have been performed or observed,
no Event of Default shall be deemed to have occurred if Reorganized Prism shall
have commenced to perform the same within 30 days after the date the same was to
have been performed or observed and shall diligently continue to complete the
performance or observance; or
(c) any representation or warranty in any of the Debt Documents or in
any certificate, agreement, instrument or other document made or delivered
pursuant to or in connection with any of the Debt Documents proves to have been
incorrect when made in any material respect; or
(d) Reorganized Prism (i) shall fail to pay the principal, or any
principal installment, of any present or future indebtedness for borrowed money
of $100,000 or more, or to fulfill its obligations under any guaranty of present
or future indebtedness for borrowed money of $100,000 or more, on its part to be
paid, when due (or within any stated grace period), whether at the stated
maturity, upon acceleration, by reason of required prepayment or otherwise or
(ii) shall fail to perform or observe any other term, covenant or agreement on
its part to be performed or observed in connection with any present or future
indebtedness for borrowed money of $100,000 or more, or of any guaranty of
present or future indebtedness for borrowed money of $100,000 or more, if as a
result of such failure any holder or holders thereof (or an agent or trustee on
its or their behalf) has the right to declare such indebtedness
17
due before the date on which it otherwise would become due, or has commenced
judicial or nonjudicial action to collect such indebtedness or to foreclose or
otherwise realize upon security held therefor, or has taken or is taking such
other actions as might materially adversely affect the Collateral, the interests
of Xxxxxx under the Debt Documents or the ability of Reorganized Prism to
perform its obligations under the Debt Documents; or
(e) Any Debt Document, at any time after its execution and delivery
and for any reason other than the agreement of Xxxxxx or satisfaction in full of
all the obligations of Reorganized Prism thereunder, ceases to be in full force
and effect or is declared by a court of competent jurisdiction to be null and
void, invalid or unenforceable in any respect; or any Party thereto denies that
it has any or further liability or obligation under any Debt Document, or
purports to revoke, terminate or rescind same; or
(f) A final judgment against Reorganized Prism is entered for the
payment of money in excess of $250,000 and such judgment remains unsatisfied
without procurement of a stay of execution for 30 calendar days after the date
of entry of judgment; or
(g) All or a substantial portion of Reorganized Prism's property is
seized or appropriated by any Governmental Agency; or
(h) Reorganized Prism is dissolved or liquidated or all or
substantially all of the property of Reorganized Prism is sold or otherwise
transferred without Xxxxxx'x written consent; or
(i) Reorganized Prism is the subject of an order for relief by a
bankruptcy court that is not stayed within 30 days, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors; or Reorganized Prism applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any part of its property;
or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of Reorganized
Prism and the appointment continues undischarged or unstayed for 60 calendar
days; or Reorganized Prism institutes or consents to any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, custodianship,
conservatorship, liquidation, rehabilitation or similar proceedings relating to
it or to all or any part of its property under the Laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Reorganized Prism
and continues undismissed or unstayed for 60 calendar days; or any judgment,
writ, attachment, execution or similar process is issued or levied against all
or any part of the property of Reorganized Prism and is not released, vacated or
fully bonded within
18
30 calendar days after its issue or levy; or Reorganized Prism voluntarily
ceases to transact business for more than five consecutive days; or
(j) Reorganized Prism shall claim that any Debt Document is
ineffective or unenforceable, in whole or in part, for any reason.
ARTICLES 8
RIGHTS AND REMEDIES UPON DEFAULT
8.1 Remedies Generally. If an Event of Default shall occur, Xxxxxx
------------------
may, at its option and without demand or notice to Reorganized Prism, which
notice is expressly waived, do any one or more of the following:
(a) accelerate and declare the principal of all amounts owing under
this Agreement, the Note and the other Debt Documents, including without
limitation all obligations secured by the Collateral Documents, together with
interest thereon, to be immediately due and payable, regardless of any other
specified maturity or due date, without presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or demands of any
kind or character, and without the necessity of prior recourse to any security;
(b) to the extent permitted by applicable Laws, proceed to protect,
exercise and enforce any or all of its rights and remedies under any or all of
the Debt Documents, including without limitation the right to notify any account
debtor of Xxxxxx'x security interest in all of Reorganized Prism's accounts and
effect collection of any account directly from such debtor, the right to take
possession of and protect, enforce and exercise its rights with respect to the
New Collateral, and such other rights and remedies as are provided by Law or
equity, all in such order and manner as Xxxxxx in its sole discretion may
determine; and/or
(c) to the extent permitted by applicable Laws, exercise any and all
legal or equitable remedies afforded to Xxxxxx as provided in any Collateral
Documents heretofore or hereafter entered into between Xxxxxx, Reorganized
Prism, or as provided for under the Uniform Commercial Code, or under any other
applicable law.
8.2 Cumulative Remedies. The rights and remedies granted to Xxxxxx
-------------------
are cumulative, and Xxxxxx shall have the right to exercise any one or more of
such rights and remedies alternatively, successively or concurrently as Xxxxxx
may, in its sole discretion, deem advisable.
19
ARTICLE 9
CONDITIONS PRECEDENT TO XXXXXX'X OBLIGATIONS
The obligations of Xxxxxx to consummate the transactions contemplated
herein on the Closing Date shall be subject to the performance by Reorganized
Prism of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Xxxxxx'x satisfaction, on or before the Closing Date, of each of the following
conditions, unless waived by Xxxxxx, in its sole discretion, in writing:
(a) Delivery to Xxxxxx of an executed original of this
Agreement, of each of the following documents and of each of the exhibits,
documents, and ancillary agreements contemplated therein:
(i) the Note;
(ii) the New Security Agreement;
(iii) the Copyright Mortgages;
(iv) the Escrow and Warrant Agreement;
(v) the Additional Warrants;
(vi) the Lock-Up Agreement;
(vii) the Supply Agreement;
(viii) the Stockholders Agreement;
(ix) the Registration Rights Agreement;
(x) UCC-1 financing statements covering the New
Collateral;
(xi) any other filings deemed necessary by Xxxxxx to
perfect its lien and security interest in the Film Library and Film
Library Accounts Receivable;
(xii) opinion of counsel to Prism as to matters, and
in such form, as reasonably requested by Xxxxxx;
20
(xiii) evidence satisfactory to Xxxxxx as to insurance
coverage;
(xiv) incumbency certificate as to the officers of
Reorganized Prism;
(xv) certified copy of the Certificate of
Incorporation and Bylaws of Reorganized Prism and resolutions of
Reorganized Prism, good standing certificates of Reorganized Prism,
authorizing the transactions contemplated herein;
(xvi) any other instruments or documents reasonably
requested by Xxxxxx in connection with the transactions contemplated
hereby.
(b) The representations and warranties of VCI and Prism
contained in Sections 5.1 and 5.2 and in the Merger Agreement shall be true
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on the Closing Date.
(c) All corporate and other proceedings, including adoption by
the Board of Directors of Prism and VCI of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Prism and VCI of the covenants hereunder, and all actions
required to be taken in connection with the transactions contemplated
herein, and all documents incident thereto, shall be satisfactory in form
and substance to Xxxxxx and its counsel and Xxxxxx shall have received
certified copies of the same.
(d) All legal matters with respect to and all legal documents
executed in connection with the transactions contemplated by this Agreement
and the other Debt Documents shall be reasonably satisfactory to counsel
for Xxxxxx.
(e) The entry of an order or orders of the Bankruptcy Court
confirming the Plan on terms reasonably acceptable to Xxxxxx.
(f) The effectiveness of the Merger, pursuant to a Merger
Agreement in form and substance satisfactory to Xxxxxx.
(g) No provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of
the transactions contemplated herein.
21
(h) Immediately after the Closing, the Board of Directors of
Reorganized Prism shall consist of eight members, two of which shall be
designees of Xxxxxx.
(i) Xxxxxx shall have received satisfactory evidence that,
upon execution of the Debt Documents, Reorganized Prism will be the owner
of the New Collateral and that Xxxxxx has a second priority lien (subject
only to the first lien of Imperial Bank) on the Film Library and the Film
Library Accounts Receivable and a first priority lien as to all other
collateral.
(j) Xxxxxx shall have been given a full and complete
opportunity to review the books, records, and operations of Prism and to
review the collateral security that will be the subject of the Collateral
Documents and shall be satisfied, in its reasonable discretion, with such
review and investigation.
ARTICLE 10
CONDITIONS PRECEDENT TO PRISM'S AND VCI'S OBLIGATIONS
The obligations of Prism and VCI to consummate the transactions
contemplated herein on the Closing Date shall be subject to the performance by
Xxxxxx of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Prism's and VCI's satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived by Prism and VCI, in their sole discretion,
in writing:
(a) Delivery by Xxxxxx of an executed original of this
Agreement and of each of the following documents and of each of the
exhibits, documents and ancillary agreements contemplated therein:
(i) the Stockholders Agreement;
(ii) UCC-2 Termination Statements with respect to
the Old Collateral; and
(iii) the Guaranty Release.
(b) Delivery and reassignment by Xxxxxx to Xxx of the Pledged
Shares and to VCI of the Pledged Note.
22
(c) The representations and warranties of Xxxxxx contained in
Section 5.3 shall be true on and as of the Closing Date with the same
effect as though such representations and warranties had been made on the
Closing Date.
(d) All corporate and other proceedings, including adoption by
the Board of Directors of Xxxxxx of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Xxxxxx of the covenants hereunder, and all actions required
to be taken in connection with the transactions contemplated herein, and
all documents incident thereto, shall be satisfactory in form and substance
to Reorganized Prism and its counsel and Xxxxxx shall have delivered
certified copies of the same to Reorganized Prism.
(e) All legal matters with respect to and all legal documents
executed in connection with the transactions contemplated by this Agreement
and the other Debt Documents shall be reasonably satisfactory to counsel
for Reorganized Prism.
(f) The entry of an order or orders of the Bankruptcy Court
confirming the Plan.
(g) The effectiveness of the Merger.
(h) No provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of
the transactions contemplated herein.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing and shall be given to such party at its
address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
23
if to Prism, to:
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Loeb & Loeb LLP
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telecopy: (000) 000-0000
if to VCI:
(prior to the Effective Time)
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxx
Telecopy: (000) 000-0000
with a copy to:
Xxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx Xx.
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telecopy: (000) 000-0000
if to Xxxxxx:
Xxxxxx Entertainment, Inc.
Two Xxxxxx Xxxxxxxxx
Xx Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq., General Counsel
Telecopy: (000) 000-0000
24
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
11.2 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by each party hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11.3 Successors and Assigns. The provisions of this Agreement shall
----------------------
be binding upon and inure to the benefit of the parties hereto and their
respective suc cessors and assigns.
11.4 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of California, without giving effect
to the conflict of laws principles thereof.
11.5 Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original and all of which
shall be deemed to be one and the same instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
11.6 Entire Agreement. This Agreement (and all attached Exhibits and
----------------
Schedules, which are hereby incorporated herein) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation, the Letter of Intent dated September
16, 1996 the Workout Agreement, the Stock Pledge Agreement, the Note Pledge
Agreement, the prior Supply Agreement, the Old Warrants and the Old Security
Agreements. No representation, inducement, promise, understanding, condition or
warranty not set forth herein, or in the Merger Agreement,
25
or in any other Debt Document has been made or relied upon by any party hereto.
Neither this Agreement nor any provision hereof is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
11.7 Severability. If any one or more provisions of this Agreement
------------
shall, for any reasons, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be construed as if
such invalid, illegal or unen forceable provision had never been contained
herein.
11.8 Captions and Section References. The captions herein are
-------------------------------
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. All references to "Sections" without
further citation refer to sections of this Agreement.
11.9 Interpretation. Where the context or construction requires, all
--------------
words applied in the plural shall be deemed to have been used in the singular,
and vice versa; the masculine shall include the feminine and neuter, and vice
versa; and the present tense shall include the past and future tense, and vice
versa.
11.10 Attorneys' Fees. In the event of any litigation or legal
---------------
proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith. Reorganized
Prism shall pay the attorneys' fees (up to $15,000) and expenses for Xxxxxx'x
outside counsel in connection with this Agreement and the other Debt Documents.
11.11 No Third-Party Rights. 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
26
discharge the obligation or liability of any third Persons to any party to this
Agree ment, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
Xxx Video City, Inc., a California
corporation
By Xxxxxx X. Xxx
---------------------------------------
Its President
------------------------------------
/s/ Xxxxxx X. Xxx
-----------------------------------------
Xxxxxx X. Xxx
Prism Entertainment Corporation, a
Delaware corporation
By /s/ Xxxxx Xxxxxxx
---------------------------------------
Its President
------------------------------------
Xxxxxx Entertainment Inc., a Tennessee
corporation
By /s/ Xxxxxx X. Xxxx
---------------------------------------
Its Vice Chairman
------------------------------------
27
SCHEDULE A
All present and future right, title and interest of Reorganized Prism
in or to any property or assets whatsoever, and all rights and powers of
Reorganized Prism to transfer any interest in or to any property or assets
whatsoever, including, without limitation, any and all of the following
---------
property, whether in existence, owned or held, or hereafter acquired, entered
into, created or arising, and wherever located:
(a) The Film Library;
(b) The Film Library Accounts Receivable and all other
accounts receivable, including, all present and future accounts,
accounts receivable, agreements, contracts, leases, contract rights,
rights to payment, instruments, documents, chattel paper, security
agreements, guaranties, undertakings, surety bonds, insurance
policies, notes and drafts, and all forms of obligations owing to
Reorganized Prism or in which Reorganized Prism may have any interest,
however created or arising;
(c) All present and future accounts, accounts receivable,
contract rights, chattel paper, instruments, general intangibles, all
tax refunds of every kind and nature to which Reorganized Prism now or
hereafter may become entitled, however arising, all other refunds, and
all deposits, goodwill, choses in action, trade secrets, computer
programs, software, customer lists, trademarks, trade names, patents,
licenses, copyrights, technology, processes, proprietary information
and insurance proceeds;
(d) All present and future deposit accounts of
Reorganized Prism, including, without limitation, any demand, time,
---------
savings, passbook or like account maintained by Reorganized Prism with
any bank, savings and loan association, credit union or like
organization, and all money, cash and cash equivalents of Reorganized
Prism, whether or not deposited in any such deposit account;
(e) All present and future books and records, including
---------
without limitation, books of account and ledgers of every kind and
nature, all electronically recorded data relating to Reorganized Prism
or the business thereof, all receptacles and containers for such
records, and all files and correspondence;
(f) All present and future goods, including, without
---------
limitation, all consumer goods, farm products, inventory, equipment,
28
machinery, tools, molds, dies, furniture, furnishings, fixtures, trade
fixtures, motor vehicles and all other goods used in connection with
or in the conduct of Reorganized Prism's business, including without
---------
limitation, all goods as defined in the Uniform Commercial Code;
(g) All present and future inventory and merchandise
including, without limitation, all present and future goods held for
---------
sale or lease or to be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing materials,
supplies and containers relating to or used in connection with any of
the foregoing, and all bills of lading, warehouse receipts or
documents of title relating to any of the foregoing;
(h) All present and future accessions, appurtenances,
components, repairs, repair parts, spare parts, replacements,
substitutions, additions, issue and/or improvements to or of or with
respect to any of the foregoing;
(i) All other tangible and intangible property of
Reorganized Prism;
(j) All rights, remedies, powers and/or privileges of
Reorganized Prism with respect to any of the foregoing; and
(k) Any and all proceeds and products of any of the
foregoing, including, without limitation, all money, accounts, general
---------
intangibles, deposit accounts, documents, instruments, chattel paper,
goods, insurance proceeds, and any other tangible or intangible
property received upon the sale or disposition of any of the
foregoing;
provided that the term "New Collateral" shall not include the interest of
-----------------
Reorganized Prism in real property or real property leases ("real property" for
the purposes hereof having the same meaning as such term is used in California
Code of Civil Procedure Section 726).
29
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
Void after 5:00 p.m., Los Angeles, California Time,
on [______________], 2003
PRISM ENTERTAINMENT CORPORATION
Warrant to Purchase Common Stock
--------------------------------
Prism Entertainment Corporation, a Delaware corporation (the
"Company"), hereby certifies that Xxxxxx Entertainment Inc., a Tennessee
corporation ("Xxxxxx"), and its successors and assigns, is entitled, subject to
the terms set forth below and provided that this Warrant has not become void
pursuant to the provisions of Section 6 below, to purchase from the Company upon
surrender of this Warrant, at any time or times but not before 12:01 a.m., Los
Angeles, California time, on [______________], 1996 and not after 5:00 p.m., Los
Angeles, California time, on [______________], 2003, which date is the
expiration date of this Warrant, the number of fully paid and nonassessable
shares (the "Shares") of the Common Stock, par value [$_____] per share, of the
Company (the "Common Stock") as hereinafter provided.
As used herein, the term "Company" includes any corporation which
shall succeed to or assume the obligations of the Company hereunder, and the
term "Common Stock" includes all stock of any class or classes (however
designated) of the Company, the holders of which shall have the right (without
limitation as to amount) either to all or to a share of the balance of current
dividends and liquidating distributions after the payment of dividends and
distributions on any shares entitled to preference.
1. Compliance with the Securities Act of 1933.
------------------------------------------
The holder of this Warrant agrees that the Company will authorize
transfers of this Warrant and all Shares purchased upon exercise hereof only
when the securities which the holder desires to transfer have been registered
under the Securities
Exhibit A
Act of 1933, as amended (the "Securities Act"), and any applicable state or
other jurisdiction's securities laws or when the request for transfer is
accompanied by an opinion of counsel (which opinion and the counsel rendering
such opinion shall be reasonably acceptable to the Company) to the effect that
the sale or proposed transfer does not require registration under the Securities
Act or any state or other jurisdiction's securities laws, and the holder agrees
that the following legend to such effect, if the Company so desires, may be
placed on the certificate or certificates representing any of the Shares
purchased upon exercise of this Warrant and a stop transfer order may be placed
with respect thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
UNTIL (i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
2. Number of Shares Issuable Upon Exercise of Warrant; Price.
---------------------------------------------------------
This Warrant may be exercised from time to time, in whole or in part,
for up to an aggregate of 852,750 shares of Common Stock at any time, prior to
or on such dates, and in such amounts and at such prices, as set forth below:
A. Number of Shares Latest Exercise Date Exercise Price
---------------- -------------------- --------------
200,000 [______________], 2001 $2.00
200,000 [______________], 2002 $2.25
200,000 [______________], 2003 $2.50
B. With regard to the Warrant to purchase the remaining 252,750 shares, the
holder of the Warrant may exercise this Warrant in whole or in part, in its sole
discretion in any order, as follows:
2
Number of Shares Vesting Schedule Exercise Price
---------------- ---------------- --------------
114,240 fully vested $ .51
54,360 fully vested $1.03
15,000 fully vested $1.00
69,150 - one third on $2.00
the date hereof
- one third on
the first anniversary
of the date hereof
- one third on
the second anniversary
of the date hereof
Subject to the vesting schedule set forth above, all of the Warrants
referred to in this subparagraph B shall be exercisable at any time and from
time to time for a five year period from the date hereof.
Upon exercise of this Warrant, the holder hereof shall receive, in
addition to the number of shares of Common Stock which it is entitled to receive
hereunder, such additional number of shares of capital stock or other securities
or property (other than cash) distributed by the Company from time to time after
the original issue date of this Warrant with respect to the Common Stock which
the holder of this Warrant would have received had the holder exercised the
Warrant immediately prior to distribution or issuance of any such shares,
securities or property by the Company with respect to the number of shares of
Common Stock received upon exercise of this Warrant.
3. Adjustment for Reorganization, Consolidation, Merger, Etc.
----------------------------------------------------------
In case of any capital reorganization or reclassification of the
Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into any other corporation, or in case of any sale to another
corporation of the properties and assets of the Company as or substantially as
an entirety, then, and in each such case, the holder of this Warrant shall have
the right to receive upon the exercise hereof as provided in Section 9 hereof,
at any time after the consummation of such reorganization, reclassification,
consolidation, merger or sale, the kind and amount of shares of stock or other
securities or property receivable upon such reorganization. reclassification,
consolidation, merger or sale by a holder of the number of Shares issuable upon
exercise of this Warrant if such number of Shares had been held by such holder
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of the holder of this
3
Warrant shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
receivable upon the exercise of this Warrant. The above provisions of this
Section 3 shall similarly apply to successive reclassifications and changes of
Common Stock and to successive consolidations, mergers, sales or conveyances.
4. Notice of Dividends, Subscriptions, Reclassifications,
------------------------------------------------------
Consolidations, Merger, Etc.
----------------------------
In case the Company shall pay any dividend or make any distribution
(including a cash dividend) to the holders of its Common Stock, or shall offer
for subscription to the holders of its Common Stock or any stock of any class of
the Company or any other securities, or in the case of any capital
reorganization or reclassification of the capital stock of the Company or a
consolidation or merger of the Company with another corporation, or the final
dissolution, liquidation or winding up of the Company, or a sale of all or
substantially all its assets (whether voluntary or involuntary), then in any one
or more of said cases, the Company shall mail (first class, postage prepaid) a
notice thereof to the holder of this Warrant at the address of said holder on
the records of the Company, at least ten days prior to the date on which the
books of the Company shall close (or a record shall be taken) for such dividend,
distribution or subscription rights, or such reorganization, reclassification,
consolidation, merger, dissolution, liquidation, winding up or sale shall take
place, as the case may be. Such notice shall also specify the date as of which
stockholders of record shall be entitled to participate in such dividend,
distribution or subscription rights or to exchange their Shares for other
securities or property pursuant to such reorganization, reclassification,
consolidation or merger, or to receive their respective distributive shares in
the event of such dissolution, liquidation, winding up or sale, as the case may
be. Such notice shall also set forth a statement of the effect of such action
(to the extent then known), if any, on the exercise price and on the kind and
amount of shares of capital stock and property receivable upon exercise of this
Warrant.
5. Covenants of the Company.
------------------------
The Company covenants and agrees that all Shares which may be issued
upon the exercise of this Warrant shall, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all preemptive rights
of any stockholder and all taxes, liens and charges with respect to the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue). The Company further covenants and agrees that it will at all
times have authorized and reserved, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant.
The Company will not, by amendment to its Charter or through any reorganization,
reclassification, consolidation, merger, sale of assets, dissolution. issue or
sale of securities or other voluntary action,
4
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith carry out all such terms and take
all such action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant.
6. Expiration.
----------
This Warrant shall be void after 5:00 p.m., Los Angeles, California
time, on [______________], 2003, and no rights herein given to the holder of
this Warrant shall exist thereafter.
7. Warrant Holder Not Deemed a Stockholder.
---------------------------------------
No holder of this Warrant as such, shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance of record to the holder of this Warrant of the Shares which he is then
entitled to receive upon the due exercise of this Warrant.
8. No Limitation on Corporate Action.
---------------------------------
No provisions of this Warrant and no right or option granted or
conferred hereunder shall in any way limit, affect or abridge the exercise by
the Company of any of its corporate rights or powers to recapitalize, amend its
Charter, reorganize, consolidate or merge with or into another corporation, or
to transfer all or any part of its property or assets, or the exercise of any
other of its corporate rights and powers.
9. Exercise of Warrant.
-------------------
(a) Full Exercise. This Warrant may be exercised in accordance
-------------
with Section 2 by the holder of this Warrant by surrendering this Warrant, with
the form of subscription at the end hereof duly executed by such holder, to the
Company at any time on or prior to 5:00 p.m., Los Angeles, California time, on
[______________], 2003, at the principal office of the Company's transfer agent
(the "Transfer Agent") accompanied by payment either (i) in cash or by certified
or official bank check, payable to the order of the Company, or (ii) by the
whole or partial tender of that certain Promissory Note of the Company, dated as
of ____________, 1996, in the original principal amount of [$1,500,000] (the
"Note"), valued at the then outstanding principal balance thereof, plus accrued
and unpaid interest thereon, or (iii)
5
any combination of (i) and (ii) above, in any case in the amount of the sum
called for by Section 2. Partial tenders of the Note shall be first applied
against outstanding accrued interest. The Company agrees to notify the holder
of this Warrant as to the address of the Transfer Agent's principal office.
(b) Partial Exercise. This Warrant also may be exercised in part
----------------
by surrendering this Warrant in the manner specified in subsection (a) of this
Section 9, except that the number of shares of Common Stock or other securities
or property receivable upon the exercise of this Warrant as a whole shall be
propor tionately reduced. On any such partial exercise, the Company, at its
expense, will forthwith issue to the holder hereof a new Warrant or Warrants of
like tenor calling in the aggregate for the number of shares of Common Stock for
which this Warrant shall not have been exercised, issued in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes and subject to the provisions of Section 1 hereof) may direct.
(c) Delivery of Stock Certificates, Etc. As soon as practicable
------------------------------------
after any exercise of this Warrant and payment of the sum payable upon such
exercise, and in any event within 10 days thereafter, the Company, at its
expense (including the payment by it of any applicable issue taxes), will cause
to be issued in the name of and delivered to the holder hereof, or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
nonassessable Shares or other securities or property to which such holder shall
be entitled upon such exercise. No fractional Shares will be issued hereunder
to any holder hereof; if the number of Shares to be issued hereunder includes a
fractional amount, such amount shall be automatically rounded up to the next
whole number, and the resultant whole number of Shares shall be issued to the
holder, otherwise in accordance herewith.
10. Exchange and Transfer of Warrants.
---------------------------------
Subject to the provisions of Section 1 hereof, upon surrender for
exchange of this Warrant (in negotiable form, if not surrendered by the holder
named on the face thereof) to the Company or its Transfer Agent's principal
office, the Company, at its expense, will issue and deliver new Warrants of like
tenor, calling in the aggregate for the same number of shares of Common Stock in
the denomination or denominations requested, to or on the order of such holder
and in the name of such holder or as such holder (upon payment to such holder of
any applicable transfer taxes) may direct. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder of this
Warrant as absolute owner for all purposes without being affected by any notice
to the contrary.
6
11. Notices.
-------
All communications hereunder shall be in writing and, if sent to
Xxxxxx Entertainment Inc., shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to Two Xxxxxx Xxxxxxxxx, Xx
Xxxxxx, Xxxxxxxxx 00000, Attention: Chief Financial Officer, and if sent to the
Company, shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing to the Company at Prism Entertainment
Corporation, 0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
12. Registration Rights.
-------------------
The shares of Common Stock issuable upon exercise of this Warrant
constitute "Restricted Stock" as defined in that certain Registration Rights
Agreement between the Company and Xxxxxx and the holder of this Warrant is
entitled to the registration rights provided by such agreement.
Dated: [______________], 1996
PRISM ENTERTAINMENT CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
Seal:
Attest:
By:_________________________________
Secretary
7
ASSIGNMENT
FOR VALUE RECEIVED [____________________________________] hereby
sells, assigns and transfers unto [______________________________________] the
within Warrant and does hereby irrevocably constitute and appoint
[_________________________________________], Attorney, to transfer the said
Warrant on the books of the within named corporation with full power of
substitution in the premises.
Dated: [_____________, ____]
[_______________________________________]
Signature
NOTICE: The signature of this assignment must correspond with
the name as written upon the face of the Certificate, in every
particular, without alteration or enlargement or any change
whatever.
8
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THIS WARRANT
PRISM ENTERTAINMENT CORPORATION
The undersigned hereby exercises the right to purchase ____ shares of Common
Stock covered by this Warrant according to the conditions thereof and herewith
makes payment of the Purchase Price of such shares of Common Stock in full.
_________________________________________
Signature
_________________________________________
Address
Dated: [_____________, ____]
9
ESCROW AND WARRANT AGREEMENT
This Escrow and Warrant Agreement (the "Agreement") is made and
entered into as of ________________, 1996, by and among Prism Entertainment
Corporation, a Delaware corporation (the "Company"); Xxxxxx X. Xxx, an
individual resident of California, on behalf of himself and as Trustee of the
Xxxxxx X. Xxx Revocable Living Trust UDT 1/9/91 (collectively, with the Trust,
"Xxx") and ___________________ (collectively, the "Grantors"); Xxxxxx
Entertainment, Inc., a Tennessee corporation ("Xxxxxx") and
_____________________ a _____________ ("Escrow Agent") with reference to the
following:
RECITALS
X. Xxx Video City, Inc. ("VCI") and the Company have entered into
that certain Agreement and Plan of Reorganization and Merger dated as of October
25, 1996, as amended, with respect to the merger of VCI into the Company (the
"Merger").
B. In connection with the Merger, the Grantors will be issued and
own shares of the Common Stock of the Company (the "Common Stock").
C. Pursuant to that certain Override Agreement dated as of
November 19, 1996 (the "Override Agreement"), among the Company, VCI, Xxx and
Xxxxxx, the Grantors have agreed to grant to Xxxxxx a warrant to purchase the
number of fully paid and nonassessable shares ("Shares") of the Common Stock as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom and the mutual agreements hereinafter set forth, the parties hereto
hereby agree as follows:
1. Deposit of Shares. Simultaneously with the consummation of the
-----------------
Merger, the Company, on behalf of the Grantors, will deposit in escrow (the
"Escrow") with the Escrow Agent an aggregate of 410,444 Shares (the "Warrant
Shares") of Common Stock representing 8.5% of the aggregate number of shares of
Common Stock (net of 250,000 shares of Xxx that are subject to redemption
pursuant to (S) 8.2(g) of the Merger Agreement) issued to the shareholders of
VCI pursuant to the Merger. The allocation of the Warrant Shares (the
"Allocation") among the Grantors is set forth on Schedule A attached hereto, and
certificates representing the Warrant Shares shall be issued in the names of the
Grantors in accordance with Schedule A. Receipt of the Warrant Shares is hereby
acknowledged by the Escrow
Exhibit B
Agent. Escrow Agent shall hold the Warrant Shares as provided in this
Agreement. Xxxxxx, Xxx and the Grantors understand and agree that the Warrant
Shares are "restricted securities" as defined under Rule 144 of the Securities
Act of 1933 as amended (the "Securities Act") and the certificate(s) evidencing
the Warrant Shares shall bear a legend to the following effect:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
UNTIL (i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
STATED SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
2. Grant of Warrant. Grantors hereby grant to Xxxxxx, subject to the
----------------
terms set forth below, a warrant (the "Warrant") to purchase the Warrant Shares
from the Grantors at any time and from time to time, in whole or in part, but
not before 12:01 a.m., Los Angeles, California time, on [______________], 1996
and not after 5:00 p.m., Los Angeles, California time, on [______________],
2001, which date is the expiration date of this Warrant (the "Expiration Date")
at an exercise price of $.6085 per share. This Warrant is being granted in
substitution for, and in cancellation of, a previous warrant which VCI had
granted to Xxxxxx to purchase 8.5% of the aggregate fully diluted capital stock
of VCI.
3. Number of Shares Issuable Upon Exercise of Warrant.
--------------------------------------------------
Upon exercise of this Warrant, the holder hereof shall receive, in
addition to the number of Warrant Shares which it is entitled to receive
hereunder and to the extent the following distributions are otherwise
distributed to the Grantors, such additional number of shares of capital stock
or other securities or property (other than cash) distributed by the Company
from time to time after the original date of this Agreement with respect to the
Common Stock which the holder of this Warrant would have received had the holder
exercised the Warrant immediately prior to distribution or issuance of any such
shares, securities or property by the Company with respect to the number of
Warrant Shares. Grantor shall deposit with the Escrow Agent upon receipt
thereof all such additional shares of capital stock or other securities or
property.
2
4. Adjustment for Reorganization, Consolidation, Merger, Etc.
----------------------------------------------------------
In case of any capital reorganization or reclassification of the
Common Stock, or in case of any consolidation or merger of the Company with or
into any other corporation, or in case of any sale to another corporation of the
properties and assets of the Company as or substantially as an entirety, and,
with respect to all of the foregoing, to the extent the following right would
otherwise inure to the benefit of the Grantors, then, and in each such case, the
holder of this Warrant shall have the right to receive upon the exercise hereof,
at any time after the consummation of such reorganization, reclassification,
consolidation, merger or sale, the kind and amount of shares of stock or other
securities or property receivable upon such reorganization, reclassification,
consolidation, merger or sale by a holder of the number of shares issuable upon
exercise of this Warrant if such number of shares had been held by such holder
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of the holder of this
Warrant shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
receivable upon the exercise of this Warrant. The above provisions of this
Section 5 shall similarly apply to successive reclassifications and changes of
Common Stock and to successive consolidations, mergers, sales or conveyances.
Grantor shall deposit with the Escrow Agent upon receipt thereof all such
additional shares of capital stock or other securities or property.
5. Notice of Dividends, Subscriptions, Reclassifications,
------------------------------------------------------
Consolidations, Merger, Etc.
----------------------------
In case the Company shall pay any dividend or make any distribution
(including a cash dividend) to the holders of its Common Stock, or shall offer
for subscription to the holders of its Common Stock or any stock of any class of
the Company or any other securities, or in the case of any capital
reorganization or reclassification of the capital stock of the Company or a
consolidation or merger of the Company with another corporation, or the final
dissolution, liquidation or winding up of the Company, or a sale of all or
substantially all its assets (whether voluntary or involuntary), then in any one
or more of said cases, the Company shall mail (first class, postage prepaid) a
notice thereof to the holder of this Warrant at the address of said holder on
the records of the Company, at least ten days prior to the date on which the
books of the Company shall close (or a record shall be taken) for such dividend,
distribution or subscription rights, or such reorganization, reclassification,
consolidation, merger, dissolution, liquidation, winding up or sale shall take
place, as the case may be. Such notice shall also specify the date as of which
stockholders of record shall be entitled to participate in such dividend,
distribution or subscription rights or to exchange their Shares for other
securities or property pursuant to such
3
reorganization, reclassification, consolidation or merger, or to receive their
respective distributive shares in the event of such dissolution, liquidation,
winding up or sale, as the case may be. Such notice shall also set forth a
statement of the effect of such action (to the extent then known), if any, on
the exercise price and on the kind and amount of shares of capital stock and
property receivable upon exercise of this Warrant.
6. Covenants of Grantors.
---------------------
The Grantors covenant and agree that they will at all times have
deposited in Escrow with the Escrow Agent the Warrant Shares, together with such
duly executed and endorsed stock powers and other instruments of assignment or
transfer relating thereto as the holder hereof may reasonably require to provide
for the exercise of the rights represented by this Warrant. Grantors will not
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant but will at all times in good faith carry out all such terms and take
all such action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant.
7. Warrant Holder Not Deemed a Stockholder.
---------------------------------------
No holder of this Warrant as such shall be entitled to vote or receive
dividends or be deemed the holder of the Warrant Shares for any purpose, nor
shall anything contained in this Warrant be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Warrant of the Warrant Shares which he is then entitled to
receive upon the due exercise of this Warrant.
8. Exercise of Warrant.
-------------------
(a) Full Exercise. This Warrant may be exercised in accordance with
-------------
Section 2 by the holder of this Warrant by delivering the form of subscription
at the end hereof duly executed by such holder, to the Escrow Agent at any time
on or prior to 5:00 p.m., Los Angeles, California time, on the Expiration Date,
at the principal office of the Escrow Agent accompanied by payment in cash or by
certified or official bank check, payable to the order of the Company, of the
sum called by Section 2. The Grantors agree to notify the holder of this Warrant
as to any change in the address of the Escrow Agent's principal office.
(b) Partial Exercise. This Warrant also may be exercised in part in
----------------
the manner specified in subsection (a) of this Section 8, except that the number
4
of shares of Common Stock or other securities or property receivable upon any
subsequent exercise of this Warrant as a whole shall be proportionately reduced.
(c) Pro-Rata Exercise. This Warrant shall be deemed to be
-----------------
exercised against each of the Grantors on a pro-rata basis in accordance with
the Allocation.
(d) Delivery of Stock Certificates, Etc. As soon as practicable
------------------------------------
after any exercise of this Warrant and payment of the sum payable upon such
exercise, and in any event within 10 days thereafter, the Escrow Agent at the
Grantors' expense (including the payment by it of any applicable issue taxes),
will cause to be issued in the name of and delivered to the holder hereof, a
certificate or certificates for the number of fully paid and non-assessable
Warrant Shares or other securities or property to which such holder shall be
entitled upon such exercise. No fractional shares will be issued hereunder to
any holder hereof; if the number of shares to be issued hereunder includes a
fractional amount, such amount shall be automatically rounded up to the next
whole number, and the resultant whole number of Warrant Shares shall be issued
to the holder, otherwise in accordance herewith.
9. Transfer of Warrants.
--------------------
Subject to the provisions of Section 3 hereof, upon notice of
assignment to the Escrow Agent's principal office, the holder of this Warrant
may transfer all or part of its right to the Warrant.
10. Notices.
-------
All communications hereunder shall be in writing and, if sent to
Xxxxxx Entertainment Inc., shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to Two Xxxxxx Xxxxxxxxx, Xx
Xxxxxx, Xxxxxxxxx 00000, Attention: Chief Financial Officer, and if sent to the
Grantors, shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing to the Grantors to Xxxxxx X. Xxx, as agent
for the Grantors addressed as follows: _________________________________________
_______________________________ and to the Escrow Agent, addressed to the
principal office of the Escrow Agent.
11. Provisions Regarding Escrow Agent. The following provisions
---------------------------------
shall control with respect to the rights, duties and liabilities of the Escrow
Agent:
(a) No Responsibility for Validating or Sufficiency. The Escrow
-----------------------------------------------
Agent shall have no duty to know or determine the performance or non-performance
of any provision of any agreement between the other parties hereto,
5
including, but not limited to, the Override Agreement, and the original or a
copy of any such agreement deposited with the Escrow Agent shall not bind the
Escrow Agent in any manner. The Escrow Agent assumes no responsibility for the
validity or sufficiency of any documents or papers or payments deposited or
called for hereunder except as may be expressly and specifically set forth
herein, and the duties and responsibilities of the Escrow Agent hereunder are
limited to those expressly stated herein.
(b) Modification and Amendments. The provisions of this Agreement
---------------------------
may be supplemented, altered, amended modified or revoked only by a writing
signed by the Grantors and Xxxxxx and approved in writing by the Escrow Agent.
(c) Exculpation of Escrow Agent. The Escrow Agent shall not be
---------------------------
personally liable for any act it may do or omit to do hereunder as such agent
while acting in good faith and in the exercise of its own best judgment, and any
act done or omitted by it pursuant to the written advice of its own attorneys
shall be conclusive evidence of such good faith. The Escrow Agent shall have
the right at any time to consult with its counsel upon any question arising
hereunder and shall incur no liability for any delay reasonably required to
obtain the advice of counsel.
(d) Conflicting Notices. Other than those which are specifically
-------------------
referred to in this Escrow Agreement, the Escrow Agent is hereby authorized to
disregard any and all notices or warnings given by the Grantors or Xxxxxx, or by
any other person, firm or corporation, except that the Escrow Agent is hereby
expressly authorized to comply with any and all final processes, orders,
judgments or decrees of any court. To the extent the Escrow Agent obeys or
complies with any process, order, judgment or decree of any court, it shall not
be liable to any other party hereto or to any other person, firm or corporation
by reason of such compliance.
(e) Fees and Expenses of Escrow Agent. In consideration of the
---------------------------------
acceptance of this Escrow by the Escrow Agent (as evidenced by its signature
below), the Company shall, for itself and its successors and assigns, pay Escrow
Agent its reasonable charges, fees and expenses hereunder.
(f) Authority of Signing Parties. The Escrow Agent shall be under
----------------------------
no duty or obligation to ascertain the identity, authority or right of the
Grantors, Xxxxxx or the Company (or their agents) to execute or deliver this
Agreement or any documents, certificates, or payments deposited, delivered or
given hereunder.
(g) No Liability for Lapse of Rights. The Escrow Agent shall not be
--------------------------------
liable for the lapse of any rights under any statute of limitations or by
6
reason of laches with respect to this Agreement or any funds, securities,
documents or papers deposited, delivered or given hereunder.
(h) Duties in Event of Dispute. In the event of any dispute among
--------------------------
the parties hereto as to any fact or matter relating hereto or to the
transactions contemplated in the Override Agreement, the Escrow Agent is
instructed that it shall be under no obligation to act except under process or
order of court, or if there be no such process or order, until it has filed or
caused to be filed an appropriate action impleading the Grantors, Xxxxxx and the
Company. The Escrow Agent shall sustain no liability for its failure to act
pending such process of court, order or impleader action.
(i) Resignation. The Escrow Agent, or any successor Escrow Agent,
-----------
may at any time resign by giving notice in writing to the Grantors, the Company
and Xxxxxx and shall be discharged from its duties under this Escrow Agreement
on the first to occur of the appointment of a successor Escrow Agent as provided
in this Section, or the expiration of thirty (30) calendar days after such
resignation notice is given. In the event of any such resignation, a successor
Escrow Agent shall be appointed within thirty (30) days by the agreement of the
Grantors and Xxxxxx. Any successor Escrow Agent shall deliver to the Company,
the Grantors and Xxxxxx a written instrument accepting appointment under this
Agreement, and thereupon it shall succeed to all the rights and duties of the
Escrow Agent hereunder and shall be entitled to receive any funds, securities,
documents, instruments, certificates, checks, or agreements held by the
predecessor Escrow Agent.
(j) Replacement. At their option, the Grantors and Xxxxxx may
-----------
terminate the appointment of Escrow Agent hereunder and appoint another person
as escrow agent in its place. Upon any such appointment, the escrow agent so
replaced shall deliver to the successor escrow agent all of the Warrant Shares
and such other documents, certificates and agreements held by it hereunder and
the successor escrow agent shall assume all rights and duties of "Escrow Agent"
hereunder.
(k) Waiver of Right to Set-Off. Escrow Agent hereby waives the
--------------------------
benefit of, and any right to, any setoff or recoupment or any other claim it may
have now or hereafter have in or with respect to the Warrant Shares.
(l) Discharge. Escrow Agent, having delivered all of the funds,
---------
securities, documents, instruments, checks, certificates or agreements pursuant
to the terms of this Agreement, shall be discharged from any further obligation
hereunder.
(m) Indemnity. In the event Escrow Agent becomes involved in
---------
litigation in connection with this Escrow Agreement, or any transaction related
in
7
any way hereto, the Company, the Grantors and Xxxxxx, jointly and severally,
shall indemnify and save the Escrow Agent harmless from all loss, cost, damage,
expense and attorneys' fees suffered or incurred by the Escrow Agent as a result
thereof, except for any loss, cost, damage, or expense resulting from the Escrow
Agent's breach of this Agreement or its willful misconduct or gross negligence.
12. Return of Warrant Shares. The Escrow Agent shall return to the
------------------------
Grantors or their designees all Warrant Shares remaining after the Expiration
Date.
Dated: [________________], 1996
_________________________________________
Xxxxxx X. Xxx
_________________________________________
Escrow Agent
By:______________________________________
XXXXXX ENTERTAINMENT INC.
By:______________________________________
PRISM ENTERTAINMENT CORPORATION
By:______________________________________
8
ASSIGNMENT
FOR VALUE RECEIVED [____________________________________] hereby
sells, assigns and transfers unto [______________________________________] the
within Warrant and does hereby irrevocably constitute and appoint
[_________________________________________], Attorney, to transfer the said
Warrant on the books of the within named corporation with full power of
substitution in the premises.
Dated: [_____________, ____]
[________________________________]
Signature
NOTICE: The signature of this assignment must correspond with
the name as written upon the face of the Certificate, in every
particular, without alteration or enlargement or any change
whatever.
9
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THIS WARRANT
PRISM ENTERTAINMENT CORPORATION
To: [ESCROW AGENT]
The undersigned hereby exercises the right to purchase the shares of Common
Stock covered by this Warrant according to the conditions thereof and herewith
makes payment of the Exercise Price of such shares of Common Stock in full.
_________________________________________
Signature
_________________________________________
Address
_________________________________________
Number of shares of Common Stock Being
Purchased
Dated: [_____________, ____]
10
GUARANTY RELEASE AGREEMENT
--------------------------
This Guaranty Release Agreement ("Agreement") is entered into as of
[______________], 1996, by and between Xxxxxx Entertainment Inc., a Tennessee
corporation ("Xxxxxx"), Xxxxxx X. Xxx ("Xxx"), an individual and a resident of
California, on behalf of himself and as Trustee of the Xxxxxx X. Xxx Revocable
Living Trust UDT 1/9/91 (the "Trust"), and Xxx Video City, Inc., a California
corporation ("VCI"), with respect to the following:
RECITALS
--------
A. Unless otherwise defined, all capitalized terms used in this
Agreement shall have the meanings ascribed to them in that certain Override
Agreement (the "Override Agreement") dated as of November 19, 1996, by and among
VCI, Xxx (on behalf of himself and as trustee of the Trust), Prism Entertainment
Corporation, a Delaware corporation ("Prism"), and Xxxxxx.
B. VCI and Prism have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996 with respect to the
merger (the "Merger") of VCI into Prism.
C. In connection with the Merger, VCI, Xxx, Prism and Xxxxxx have
entered into the Override Agreement which sets forth the terms and conditions
upon which such parties have agreed to, among other things, the restructuring of
the VCI Debt.
D. Pursuant to Section 2.1 of the Override Agreement, Xxx and Xxxxxx
have agreed to enter into this Agreement, to more fully set forth the terms and
conditions relating to the termination of the Workout Agreement, the Stock
Pledge Agreement, the Note Pledge Agreement and Xxx Guaranty (collectively, the
"Old Debt Agreements"), and the release of Xxx, the Trust and VCI from all
obligations thereunder.
NOW, THEREFORE, in consideration of the foregoing premises and the
promises contained in the Override Agreement and this Agreement, and in
consideration of other good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the parties hereto hereby agree,
covenant and consent as follows:
Exhibit C
1. As of the date hereof, the Workout Agreement, the Stock Pledge
Agreement, the Note Pledge Agreement and the Xxx Guaranty are hereby terminated
and cancelled, and shall be of no further force or effect.
2. Xxxxxx, for itself and on behalf of (as applicable) its respective
officers, directors, shareholders, representatives, agents, attorneys,
administrators, executors, heirs, assigns, predecessors and successors in
interest, hereby releases and forever discharges Xxx, the Trust and VCI and (as
applicable) each of their respective past, present, and future officers,
directors, shareholders, agents, representatives, administrators, executors,
predecessors in interest, successors in interest, heirs and assigns, and all
other persons, firms or corporations with whom any of the latter have been, are
now, or may hereafter be affiliated, from all past, present and future claims,
demands, obligations, and causes of action of any nature whatsoever, whether in
tort (including, without limitation, acts of active negligence), contract or any
other theory of recovery in law, admiralty or equity, whether for compensatory
or punitive damages, equitable relief or otherwise, and whether now known or
unknown, suspected or unsuspected, that are based upon or arise out of or in
connection with any of the Old Debt Agreements; provided, however, that the
-------- -------
foregoing shall not constitute a release of any party from any liability or any
other obligation imposed under, or otherwise arising with respect to, the
Override Agreement, the Note or the other Debt Documents.
3. Xxx, the Trust and VCI, for themselves and on behalf of (as
applicable) their respective officers, directors, shareholders, representatives,
agents, attorneys, administrators, executors, heirs, assigns, predecessors and
successors in interest, hereby release and forever discharge Xxxxxx and (as
applicable) each of Xxxxxx'x respective past, present, and future officers,
directors, shareholders, agents, representatives, administrators, executors,
predecessors in interest, successors in interest, heirs and assigns, and all
other persons, firms or corporations with whom any of the latter have been, are
now, or may hereafter be affiliated, from all past, present and future claims,
demands, obligations, and causes of action of any nature whatsoever, whether in
tort (including, without limitation, acts of active negligence), contract or any
other theory of recovery in law, admiralty or equity, whether for compensatory
or punitive damages, equitable relief or otherwise, and whether now known or
unknown, suspected or unsuspected, which are based upon or arise out of or in
connection with the Workout Agreement or any of the other Old Debt Agreements.
(All of the released matters set forth in Section 2 above and in this Section 3
are collectively referred to herein as the "Released Matters.")
4. The filing or bringing by any party to this Agreement of any
claim, demand, obligation or cause of action against any person released
hereunder in connection with any Released Matter shall constitute a breach of
this Agreement.
2
5. The parties hereto represent, warrant and agree that in
entering into this Agreement, they are not relying and have not relied upon any
representation, promise or statement made by anyone which is not recited,
contained, or embodied in this Agreement or the Override Agreement, the Note or
the other Debt Documents. The parties hereto understand and expressly assume
the risk that any fact not recited, contained or embodied herein or therein may
turn out hereafter to be other than, different from or contrary to the facts now
known to them or believed by them to be true. Nevertheless, the parties intend
by this Agreement, and with the advice of their own independently selected
counsel, to release fully, finally and forever all Released Matters and agree
that this Agreement shall be effective in all respects notwithstanding any such
difference in facts and shall not be subject to termination, modification or
rescission by reason of any such difference in facts.
6. The parties hereto hereby represent and warrant that they have not
heretofore assigned or transferred or purported to assign or transfer to any
person or entity all or any part of or any interest in any claim, contention,
demand or cause of action relating to any Released Matters. Each party agrees to
indemnify and to hold harmless each other party against any claim, contention,
demand, cause of action, obligation and liability of any nature, character or
description whatsoever, including the payment of attorneys' fees and costs
actually incurred, whether or not litigation is commenced, which may be based
upon or which may arise out of or in connection with any such assignment or
transfer or purported assignment or transfer.
7. Miscellaneous Provisions:
------------------------
(a) This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective partners, officers, directors,
shareholders, employees, agents, independent contractors and the successors,
assigns, heirs, executors, administrators and representatives of each of the
foregoing.
(b) In the event of any action, suit or other proceeding concerning
the negotiation, interpretation, validity, performance or breach of this
Agreement, the prevailing party or parties shall be entitled to recover all of
such party's attorneys' fees, expenses and costs, not limited to costs of suit,
incurred in each and every such action, suit or other proceeding, including any
and all appeals or petitions relating thereto.
(c) This Agreement and the Override Agreement and Debt Documents
constitute and are intended to constitute the entire agreement of the parties
hereto concerning the subject matter hereof. No covenants, agreements,
representations or warranties of any kind whatsoever have been made by any
party, except as specifically set forth herein or therein. All prior
discussions and negotiations
3
with respect to the subject matter hereof are superseded by this Agreement and
the Override Agreement and Debt Documents.
(d) If any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable, in whole or in part, the
remaining provisions, and any partially invalid or unenforceable provisions, to
the extent valid and enforceable, shall nevertheless be binding, valid and
enforceable. Notwithstanding the foregoing severability provision, the parties
hereto reserve the right to rescind this Agreement in the event that a court of
competent jurisdiction holds that a provision of this Agreement is
unenforceable, in whole or in part; provided that such unenforceability
constitutes a material failure of consideration for the parties hereto entering
into this Agreement.
(e) The parties shall, from time to time, promptly execute and
deliver such further instruments, documents and papers and perform such further
acts as may be necessary or proper to carry out and effect the terms of this
Agreement.
(f) This Agreement may not be modified or terminated orally and no
modification, termination or waiver shall be valid unless in writing and signed
by all of the parties.
(g) When necessary herein, all terms used in the singular shall apply
to the plural, and vice versa, and all terms used in the masculine shall apply
to the neuter and feminine genders, and vice versa.
4
(h) This Agreement shall be construed according to and governed by
the laws of the State of [CALIFORNIA].
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
Xxx Video City, Inc.,
a California corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
_________________________________________
Xxxxxx X. Xxx
Xxxxxx X. Xxx Revocable Living Trust
UDT 1/9/91
By:______________________________________
Xxxxxx X. Xxx, Trustee
Xxxxxx Entertainment Inc.,
a Tennessee corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
5
LOCK-UP AGREEMENT
This Lock-Up Agreement ("Agreement") is entered into as of _______ __,
1996, by and between Xxxxxx X. Xxx ("Xxx"), an individual and a resident of
California, Xxxxx Xxxxxxx ("Xxxxxxx"), an individual and a resident of
California, and Xxxxxx Entertainment Inc., a Tennessee corporation ("Xxxxxx"),
with respect to the following facts:
RECITALS
--------
A. Unless otherwise defined, all capitalized terms used in this
Agreement shall have the meanings ascribed to them in that certain override
agreement (the "Override Agreement") dated as of November 19, 1996, by and among
Xxx Video City, Inc., a California corporation ("VCI"), Xxx on behalf of himself
and as trustee of the Xxxxxx X. Xxx Revocable Living Trust UDT 1/9/91 (the
"Trust"), Prism Entertainment Corporation, a Delaware corporation ("Prism"), and
Xxxxxx.
B. VCI and Prism have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Amendment, dated as of November 19, 1996 (as amended, the "Merger
Agreement") with respect to the merger (the "Merger") of VCI into Prism.
C. In connection with the Merger, VCI, Xxx, Prism and Xxxxxx have
entered into the Override Agreement which sets forth the terms and conditions
upon which such parties have agreed to, among other things, restructure the VCI
Debt.
D. This Agreement is being delivered pursuant to Article 9 of the
Override Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and obligations set forth in the Override Agreement and in this Agreement, Xxx,
Xxxxxxx and Xxxxxx hereby agree as follows:
1. Lock-Up.
-------
1.1 Except as expressly provided for in this Agreement, Xxx
(including the Trust) and Xxxxxxx shall not, without the prior written consent
of Xxxxxx, directly or indirectly, issue, offer to sell, sell, grant an option
for the purchase of, assign, transfer, pledge, hypothecate or otherwise encumber
or dispose (pursuant to Rule 144 of the regulations under the Securities Act, or
otherwise) of any of their respective Lock-Up Shares, or dispose of any
beneficial interest therein.
Exhibit D
1.2 This Agreement, and all of the restrictions relating to the
Lock-Up Shares contained herein, shall terminate on that date which is the
earlier of (i) ninety days after Xxx ceases to be an employee or consultant on a
substantially full time basis with the Company or (ii) that date upon which 80%
of the Remaining Debt has been paid to Xxxxxx. Immediately after any termination
of this Agreement pursuant to this Section, the legend imposed pursuant to
Section 1.3 below shall, upon request of Xxx or Xxxxxxx, as applicable, be
removed from any stock certificates representing the Lock-Up Shares.
1.3 Xxx and Xxxxxxx understand and agree that the following
legend, or such other legend as shall be in a form and substance satisfactory to
Xxxxxx, shall be set forth on each certificate representing the respective Lock-
Up Shares registered in the name of, or beneficially owned by, as applicable,
Xxx or Xxxxxxx.
THE HOLDER OF THIS CERTIFICATE HAS AGREED, NOT TO DIRECTLY OR
INDIRECTLY OFFER TO SELL, GRANT AN OPTION FOR THE SALE OF, ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE ENCUMBER OR DISPOSE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, OR TO DISPOSE OF ANY
BENEFICIAL INTEREST THEREIN, PURSUANT TO RULE 144 OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR OTHERWISE, EXCEPT (A) WITH THE PRIOR
WRITTEN CONSENT OF XXXXXX ENTERTAINMENT INC. OR (B) AS PERMITTED BY
THAT CERTAIN LOCK-UP AGREEMENT DATED ____________ [__], 1996, ENTERED
INTO BY THE HOLDER HEREOF AND XXXXXX ENTERTAINMENT INC.
2. Escrow Agent. At all times during the term of this Agreement, the
------------
Lock-Up Shares subject to this Agreement will be held by [___________________
___________________________________] or such other escrow agent that is mutually
acceptable to Xxx, Xxxxxxx and Xxxxxx, pursuant to the terms and conditions of
an escrow agreement substantially in the form, and containing the substance, of
Exhibit A, which is attached hereto and incorporated herein by this reference.
3. Miscellaneous.
-------------
3.1 Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and shall be given to such party at its
address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
2
if to Xxx:
Xxxxxx Xxx
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
with a copy to:
Xxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx Xx.
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telecopy: (000) 000-0000
if to Xxxxxxx:
Xxxxx Xxxxxxx
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
if to Xxxxxx:
Xxxxxx Entertainment Inc.
Two Xxxxxx Xxxxxxxxx
Xx Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq., General Counsel
Telecopy: (000) 000-0000
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
3
3.2 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by each party hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
3.3 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
3.4 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of California, without
giving effect to the conflict of laws principles thereof.
3.5 Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original and all of which
shall be deemed to be one and the same instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
3.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement, including without limitation, the Letter of
Intent dated September 16, 1996, the Workout Agreement, the Stock Pledge
Agreement, the Note Pledge Agreement, the Prior Supply Agreement, the Old
Warrants and the Old Security Agreements. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto.
3.7 Severability. If any one or more provisions of this
------------
Agreement shall, for any reasons, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
4
3.8 Captions and Section References. The captions herein are
-------------------------------
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. All references to "Sections" without
further citation refer to sections of this Agreement.
3.9 Interpretation. Where the context or construction requires,
--------------
all words applied in the plural shall be deemed to have been used in the
singular, and vice versa; the masculine shall include the feminine and neuter,
and vice versa; and the present tense shall include the past and future tense,
and vice versa.
3.10 Attorneys' Fees. In the event of any litigation or legal
---------------
proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith.
3.11 No Third-Party Rights. 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
respec tive successors and assigns, nor is anything in this Agreement intended
to relieve or
5
discharge the obligation or liability of any third Persons to any party to this
Agree ment, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
_________________________________________
Xxxxxx X. Xxx
_________________________________________
Xxxxx Xxxxxxx
Xxxxxx Entertainment Inc., a Tennessee
corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
6
SECURITY AGREEMENT
------------------
This SECURITY AGREEMENT, dated as of [______________], 1996, is made
by [REORGANIZED PRISM], a Delaware corporation ("Debtor"), in favor of Xxxxxx
Entertainment Inc., a Tennessee corporation ("Secured Party"), with reference to
the following facts:
RECITALS
--------
A. Unless otherwise defined, all capitalized terms used in this
Agreement shall have the meanings ascribed to them in that certain Override
Agreement (the "Override Agreement") dated as of November 19, 1996, by and among
Xxx Video City, Inc., a California corporation ("VCI"), Xxxxxx X. Xxx ("Xxx") on
behalf of himself and as Trustee of the Xxxxxx X. Xxx Revocable Living Trust XXX
0/0/00, Xxxxxx and Secured Party.
B. VCI and Debtor have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, as amended, with
respect to the merger (the "Merger") of VCI into Debtor.
C. In connection with the Merger, VCI, Xxx, Debtor and Secured Party
have entered into the Override Agreement which sets forth the terms and
conditions upon which such parties have agreed to, among other things,
restructure the VCI Debt.
D. Under Section 2.1 of the Override Agreement, Debtor and Secured
Party have agreed to enter into this Agreement, to more fully set forth the
terms and conditions relating to the grant of a security interest by Debtor to
Secured Party, in connection with the making of the Note which evidences the
Remaining Debt.
NOW, THEREFORE, in order to induce Secured Party to enter into the
Override Agreement and make the loan evidenced by the Note, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby represents, warrants, covenants, agrees, assigns and
grants as follows:
1. Definitions. Terms not otherwise defined in this Agreement or the
-----------
Override Agreement shall have the meanings given such terms in the Uniform
Commercial Code. The following terms shall have the meanings respectively set
forth below:
Exhibit E
"Agreement" means this Security Agreement and any extensions,
---------
modifications, renewals, restatements, supplements or amendments hereof.
"Collateral" means all of Debtor's right, title and interest in and to
----------
the property and interests in property described on Schedule I attached hereto.
"Copyright Mortgage" means a mortgage in respect of the Film Library
------------------
and the Film Library Accounts Receivable in such form as is acceptable to
Xxxxxx.
"Imperial Bank" means Imperial Bank and any person or entity that
-------------
obtains any rights of Imperial Bank relating to the Collateral.
"Obligation" means the obligation of Debtor to pay the indebtedness
----------
evidenced by the Note and to perform all other obligations under the Debt
Documents.
"Security Interest" means the lien on, and security interest in, the
-----------------
Collateral that has been granted to Secured Party pursuant to this Agreement.
2. Grant of Security Interest. For valuable consideration, as
--------------------------
security for the timely performance of the Obligation, Debtor hereby assigns and
grants to Secured Party, a security interest in, and a lien on the Collateral,
subject only to the existing lien of Imperial Bank in the Film Library and the
Film Library Accounts Receivable. Secured Party shall release its Security
Interest in the Collateral other than in the Film Library and the Film Library
Accounts Receivable if, and at such time as, the Remaining Debt is reduced by at
least 80% within twelve months from the date hereof.
3. Further Assurances. At any time and from time to time at the
------------------
request of Secured Party, Debtor shall execute and deliver to Secured Party all
such financing statements and other instruments and documents in form and
substance reasonably satisfactory to Secured Party, as shall be necessary or
reasonably desirable to perfect to the fullest extent possible the Security
Interest. At any time and from time to time, Secured Party shall be entitled to
file and/or record any or all such financing statements, instruments and
documents held by it, and any or all such further financing statements,
documents and instruments, and to take all such other actions, as Secured Party
may deem appropriate to perfect and to maintain perfected the Security Interest
to the fullest extent possible. Before and after the occurrence of any Event of
Default, at Secured Party's request, Debtor shall execute all such further
financing statements, instruments and documents, including, but not limited to,
the Copyright Mortgage, and shall do all such further acts and things, as may be
deemed necessary or reasonably desirable by Secured Party to create and perfect,
and to continue and preserve, the Security Interest. With respect to any
Collateral consisting of instruments, documents, certificates of title or the
like, as to which the Security
2
Interest are required to be perfected by, or the priorities thereof are required
to be assured by, possession of or notation on the certificate of title
pertaining to such Collateral, Debtor will upon demand of Secured Party and
subject to the rights of Imperial Bank, deliver possession of same in pledge to
Secured Party, or note the lien of Secured Party evidenced hereunder on such
certificate of title in favor of Secured Party for the benefit of Secured Party.
4. Debtor's Representations, Warranties and Agreements. Except as
---------------------------------------------------
otherwise disclosed to Secured Party in writing concurrently herewith, Debtor
represents, warrants and agrees that: (a) the Security Interest granted in the
Collateral is a security indefeasible by any third party except Imperial Bank
(as to the Film Library and Film Library Accounts Receivable only); (b) except
for financing statements in favor of Secured Party or Imperial Bank (as to the
Film Library and Film Library Accounts Receivable only), no financing statement
covering any of the Collateral or the proceeds thereof is on file in any public
office or held by any Person or entity; (c) Debtor has and will continue to
have, except for security interests granted in favor of Secured Party and
Imperial Bank (as to the Film Library and Film Library Accounts Receivable
only), full title to the Collateral, free from any lien, security interest,
encumbrance or claim, and full power and authority to grant to Secured Party the
Security Interest, and will, at its sole cost and expense, defend any action
which might materially affect the Collateral or the Security Interest; (d)
Debtor will pay, prior to delinquency, all taxes, charges, liens and assessments
against the Collateral, and upon its failure to pay or so contest such taxes,
charges, liens and assessments, Secured Party at its option may pay any of them,
and Secured Party shall be the sole judge of the legality or validity thereof
and the amount necessary to discharge the same; (e) the Collateral will not be
used for any unlawful purpose or in violation of any law, regulation or
ordinance, nor used in any way that will void or impair any insurance required
to be carried in connection therewith; (f) Debtor will, to the extent consistent
with good business practice, keep the Collateral in reasonably good repair,
working order and condition and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto and, as
appropriate and applicable, will otherwise deal with such portion of the
Collateral in all such ways as are considered good practice by owners of like
property; (g) Debtor will take all reasonable steps to preserve and protect the
Collateral; (h) Debtor will maintain, with responsible insurance companies,
insurance covering the Collateral against insurable losses and, to the extent
possible, will cause Secured Party to be designated as loss payee with respect
to such insurance, will obtain the written agreement of the insurers that such
insurance shall not be cancelled without at least 30 days prior written notice
to Secured Party, and will furnish copies of such insurance policies or
certificates to Secured Party promptly upon request therefor; (i) Debtor will
promptly notify Secured Party in writing in the event of any substantial or
material damage to the Collateral from any source whatsoever, and, except for
the disposition of collections and other proceeds of the Collateral permitted by
Section 7 hereof, Debtor will not remove or
3
permit to be removed any part of the Collateral from its existing places of
business without the prior written consent of Secured Party, except for such
items of the Collateral as are removed in the ordinary course of business; and
(j) Debtor will not move its principal place of business without giving at least
30 days notice to Secured Party; and (k) the address(es) set forth on Schedule A
to this Agreement are Debtor's only places of business and the locations of all
tangible Collateral and the places where the records concerning all intangible
Collateral are kept and/or maintained.
5. Secured Party's Rights Regarding Collateral. At any time
-------------------------------------------
(whether or not an Event of Default has occurred, except as provided in clause
(b) below), without notice or demand and at the expense of Debtor, and subject
to the rights of Imperial Bank, Secured Party may, to the extent it may be
necessary or reasonably desirable to protect the Security Interest, but Secured
Party shall not be obligated to: (a) enter upon any premises on which any
Collateral is situated and examine the same or (b) after an Event of Default has
occurred and is continuing, perform any obligation of Debtor under this
Agreement. At any time and from time to time (except as provided in clause
(iii) below), at the expense of Debtor and subject to the rights of Imperial
Bank, Secured Party may to the extent it may be necessary or reasonably
desirable to protect the Security Interest, but Secured Party shall not be
obligated to: (i) notify obligors on the Collateral that the Collateral has been
assigned to Secured Party; (ii) at any time and from time to time request from
obligors on the Collateral, in the name of Debtor or in the name of Secured
Party, information concerning the Collateral and the amounts owing thereon; and
(iii) after an Event of Default has occurred and is continuing, cause the
Collateral to be registered in the name of Secured Party, as legal owner.
Debtor shall maintain books and records pertaining to the Collateral in such
detail, form and scope as Secured Party shall reasonably require consistent with
Secured Party's interests hereunder. Debtor will at any time at Secured Party's
request xxxx the Collateral and/or Debtor's ledger cards, books of account, and
other records relating to the Collateral with appropriate notations satisfactory
to Secured Party disclosing that they are subject to the Security Interest.
Secured Party shall at all times on notice have full access to and the right to
audit any and all of Debtor's books and records pertaining to the Collateral,
and to confirm and verify the value of the Collateral and to do whatever else
Secured Party may deem necessary or desirable to protect its interests. Secured
Party shall be under no duty or obligation whatsoever to take any action to
preserve any rights of or against any prior or other parties in connection with
the Collateral, or make or give any presentments, demands for performance,
notices of non-performance, protests, notices of protests, notices of dishonor,
or notices of any other nature whatsoever in connection with the Collateral or
the Obligation. Secured Party shall be under no duty or obligation whatsoever
to take any action to protect or preserve the Collateral or any rights of Debtor
therein, or to make collections or enforce payment thereon, or to participate in
any foreclosure or other proceeding in connection therewith.
4
6. Debtor's Right to Sell the Film Library. Notwithstanding any
---------------------------------------
right of Secured Party or obligation of Debtor to the contrary, whether
contained in this Agreement or in any of the other Debt Documents, so long as
the Imperial Indebtedness remains outstanding to a party other than an Affiliate
of Debtor, Debtor shall at all times and from time to time have the right, in
its sole discretion, to sell all or part of the Film Library to an unrelated
third party in an arms-length transaction provided Debtor delivers written
notice thereof to Secured Party not less than 30 days prior to the closing of
such sale, which notice shall set forth the purchase price, closing date,
identity of the purchaser and other significant terms of the sale and provided
that the indebtedness to Imperial Bank is reduced only to the extent of cash
received by Debtor as a result of the sale of the Film Library. Debtor hereby
covenants that all proceeds received by Debtor with respect to any such sale
shall first be applied to the payment of any debt owed to Imperial Bank then
outstanding, with any proceeds received in excess of the amount of such
outstanding debt to be immediately delivered to Secured Party for the payment of
any debt owed to Secured Party under any of the Debt Documents.
7. Collections on Collateral. Debtor shall have the right to use and
-------------------------
to continue to make collections on and receive other proceeds of all of the
Collateral in the ordinary course of business so long as no Event of Default
shall have occurred and be continuing. Upon the occurrence and during the
continuance of an Event of Default, and subject to the rights of Imperial Bank,
at the option of Secured Party, Debtor's right to make collections on and
receive proceeds of the Collateral and to use or dispose of such collections and
proceeds shall terminate, and any and all proceeds and collections, including
all partial or total prepayments, then held or thereafter received on or on
account of the Collateral will be held or received by Debtor in trust for
Secured Party and immediately delivered to same. Upon the occurrence and during
the continuance of an Event of Default, Secured Party shall have the right at
all times to receive, receipt for, endorse, assign, deposit and deliver, in the
name of Secured Party or in the name of Debtor, any and all checks, notes,
drafts and other instruments for the payment of money constituting proceeds of
or otherwise relating to the Collateral; and Debtor hereby authorizes Secured
Party to affix, by facsimile signature or otherwise, the general or special
endorsement of it, in such manner as Secured Party shall deem advisable, to any
such instrument in the event the same has been delivered to or obtained by
Secured Party without appropriate endorsement, and Secured Party and any
collecting bank are hereby authorized to consider such endorsement to be a
sufficient, valid and effective endorsement by Debtor, to the same extent as
though it were manually executed by the duly authorized officer of Debtor,
regardless of by whom or under what circumstances or by what authority such
facsimile signature or other endorsement actually is affixed, without duty of
inquiry or responsibility as to such matters, and Debtor hereby expressly waives
demand, presentment, protest and notice of protest or dishonor and all other
notices of every kind and nature with respect to any such instrument.
5
8. Possession of Collateral by Secured Party. Subject to Imperial
-----------------------------------------
Bank's rights as to the Film Library and the Film Library Accounts Receivable,
all the Collateral now, heretofore or hereafter delivered to Secured Party shall
be held by Secured Party in its possession, custody and control. Any or all of
the Collateral consisting of money delivered to Secured Party shall be held in
an interest bearing account, and prior to an Event of Default, interest thereon
shall accrue to Debtor; however, Debtor shall not be entitled to any other
compensation thereon or by reason of Secured Party's possession and/or use
thereof. Upon the occurrence and during the continuance of an Event of Default,
whenever any of the Collateral is in Secured Party's possession, Secured Party
may use, operate and consume the Collateral, whether for the purpose of
preserving and/or protecting the Collateral, or for the purpose of performing
any of Debtor's obligations with respect thereto, or otherwise. Secured Party
may at any time deliver or redeliver the Collateral or any part thereof to
Debtor, and the receipt of any of the same by Debtor shall be complete and full
acquittance for the Collateral so delivered, and Secured Party thereafter shall
be discharged from any liability or responsibility therefor. So long as Secured
Party exercises reasonable care with respect to any Collateral in its
possession, custody or control, Secured Party shall have no liability for any
loss of or damage to such Collateral, and in no event shall Secured Party have
liability for any diminution in value of Collateral occasioned by economic or
market conditions or events. Secured Party shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Collateral
in the possession, custody or control of Secured Party is accorded treatment
substantially equal to that which Secured Party accords its own similar
property, it being understood that Secured Party shall not have any
responsibility for taking any necessary steps to preserve rights against any
Person with respect to any Collateral.
9. Remedies.
--------
9.1 Rights Upon Event of Default. Subject to Imperial Bank's
----------------------------
rights as to the Film Library and the Film Library Accounts Receivable, upon the
occurrence and during the continuance of an Event of Default, Secured Party
shall have in any jurisdiction where enforcement hereof is sought, in addition
to all other rights and remedies which Secured Party may have under applicable
law or in equity or under this Agreement (including, without limitation, all
rights set forth in Section 7 hereof), all of its rights and remedies as a
secured party under the Uniform Commercial Code as enacted in any jurisdiction,
and in addition the following rights and remedies, all of which may be exercised
to the maximum extent permitted by law with or without further notice to Debtor
and without affecting the liability of Debtor hereunder or the enforceability of
the Security Interest created hereby: (a) to foreclose the liens and Security
Interest created hereunder or under any other agreement relating to any
Collateral by any available judicial procedure or without judicial process; (b)
to enter any premises where any Collateral may be located for the purpose of
taking
6
possession of or removing the same; (c) to sell, assign, lease or otherwise
dispose of any Collateral or any part thereof, either at public or private sale
or at any broker's board, in lot or in bulk, for cash, on credit or otherwise,
with or without representations or warranties and upon such terms as shall be
acceptable to Secured Party; (d) to notify obligors on the Collateral that the
Collateral has been assigned to Secured Party and that all payments thereon are
to be made directly and exclusively to Secured Party; (e) to collect by legal
proceedings or otherwise all interest, principal or other sums now or hereafter
payable upon or on account of the Collateral; (f) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral, and in connection therewith,
Secured Party may deposit or surrender control of the Collateral and/or accept
other property in exchange for the Collateral; (g) to settle, compromise or
release, on terms acceptable to Secured Party, in whole or in part, any amounts
owing on the Collateral; (h) to extend the time of payment, make allowances and
adjustments and issue credits in connection with the Collateral in the name of
Secured Party or in the name of Debtor; (i) to enforce payment and prosecute any
action or proceeding with respect to any or all of the Collateral and take or
bring, in the name of Secured Party or in the name of Debtor, steps, actions,
suits or proceedings deemed by Secured Party necessary or desirable to effect
collection of or to realize upon the Collateral, including any judicial or
nonjudicial foreclosure thereof or thereon, and Debtor specifically consents to
any nonjudicial foreclosure of any or all of the Collateral or any other action
taken by Secured Party which may release any obligor from personal liability on
any of the Collateral, and Debtor waives any right not expressly provided for in
this Agreement to receive notice of any public or private judiciary or
nonjudicial sale or foreclosure of any security or any of the Collateral; and
any money or other property received by Secured Party in exchange for or on
account of the Collateral, whether representing collections or proceeds of
Collateral, and whether resulting from voluntary payments or foreclosure
proceedings or other legal action taken by Secured Party or Debtor shall be
applied by Secured Party, in such order and manner as Secured Party in its sole
discretion shall determine; (j) to insure, process and preserve the Collateral;
(k) to exercise all rights under the Note; (l) to remove from any premises where
the same may be located, the Collateral and any and all documents, instruments,
files and records, and any receptacles and cabinets containing the same,
relating to the Collateral, and Secured Party may, at the cost and expense of
Debtor, use such of its supplies and space at its places of business as may be
necessary to properly administer and control the portion of the Collateral owned
by it or the handling of collections and realizations thereon; (m) to receive,
open and dispose of all mail addressed to Debtor and notify postal authorities
to change the address for delivery thereof to such address as Secured Party may
designate; provided that Secured Party agrees that it will promptly deliver over
to Debtor such opened mail as does not relate to the Collateral; and (n) to
exercise all other rights, powers and remedies of an owner of the Collateral;
all at Secured Party's sole option and as Secured Party in its sole discretion
may deem advisable. After an Event of Default, Debtor will, at
7
Secured Party's request, assemble all Collateral and make it available to
Secured Party at places which Secured Party may designate, whether at the
premises of Debtor or elsewhere, and will make available to Secured Party all
premises and facilities of Debtor for the purpose of Secured Party's taking
possession of the Collateral or removing or putting the Collateral in salable
form.
9.2 Possession by Secured Party. Subject to Imperial Bank's rights
---------------------------
as to the Film Library and the Film Library Accounts Receivable, upon the
occurrence and during the continuance of an Event of Default, Secured Party also
shall have the right, without notice or demand, either in person, by agent or by
a receiver to be appointed by a court (and Debtor hereby expressly consents to
the appointment of such a receiver), and without regard to the adequacy of any
security for the Obligation, to take possession of the Collateral or any part
thereof and to collect and receive the rents, issues, profits, income and
proceeds thereof. Taking possession of the Collateral shall not cure or waive
any Event of Default or notice thereof or invalidate any act done pursuant to
such notice. The rights, remedies and powers of any receiver appointed by a
court shall be as ordered by said court.
9.3 Sale of Collateral. Subject to Imperial Bank's rights as to the
------------------
Film Library and the Film Library Accounts Receivable, any public or private
sale or other disposition of the Collateral may be held at any office of Secured
Party, or at Debtor's places of business, or at any other place permitted by
applicable law, and without the necessity of the Collateral being within the
view of prospective purchasers. Secured Party may direct the order and manner of
sale of the Collateral, or portions thereof, as it in its sole and absolute
discretion may determine. Secured Party or any Person on Secured Party's behalf
may bid and purchase at any such sale or other disposition.
9.4 Notice of Sale. Subject to Imperial Bank's rights as to the Film
--------------
Library and the Film Library Accounts Receivable, unless the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Secured Party will send or otherwise make available
to Debtor reasonable notice of the time and place of any public sale thereof or
of the time on or after which any private sale or other disposition thereof is
to be made. The requirement of sending reasonable notice conclusively shall be
met if such notice is mailed, first class mail, postage prepaid, to Debtor at
least five days before the time of the sale or disposition. Debtor expressly
waives any right to receive notice of any public or private sale of any
Collateral or other security for the Obligation) except as expressly provided
for in the preceding sentence.
9.5 Purchasers. Subject to Imperial Bank's rights as to the Film
----------
Library and the Film Library Accounts Receivable, upon consummation of any sale
of Collateral hereunder, Secured Party shall have the right to assign, transfer
and
8
deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the Collateral so sold absolutely
free from any claim or right upon the part of Debtor or any other Person
claiming through Debtor, and Debtor hereby waives (to the extent permitted by
laws) all rights of redemption, stay and appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. If the sale of all or any part of the Collateral is made on
credit or for future delivery, Secured Party shall not be required to apply any
portion of the sale price to the Obligation until such amount is actually
received by Secured Party, and any Collateral so sold may be retained by Secured
Party until the sale price is paid in full by the purchaser or purchasers
thereof. Secured Party shall not incur any liability in case any such purchaser
or purchasers shall fail to pay for the Collateral so sold, and, in case of any
such failure, the Collateral may be sold again.
10. Secured Party Appointed Attorney-in-Fact. Subject to Imperial
----------------------------------------
Bank's rights as to the Film Library and the Film Library Accounts Receivable,
Debtor hereby irrevocably nominates and appoints Secured Party as its attorney-
in-fact for the following purposes: (a) to do all acts and things which Secured
Party may deem necessary or reasonably advisable to perfect and continue
perfected the Security Interest created by this Agreement and, upon the
occurrence and during the continuance of an Event of Default, to preserve,
process, develop, maintain and protect the Collateral; (b) to prepare, sign,
file and/or record, for Debtor in the name of Debtor, any financing statement,
application for registration, and like papers and to take any other action
deemed by Secured Party necessary or reasonably desirable in order to perfect
the Security Interest granted hereby; (c) to execute any and all papers and
instruments and do all other things necessary or desirable to preserve and
protect the Collateral and to protect Secured Party's Security Interest therein;
and (d) upon the occurrence and during the continuance of a Default or Event of
Default, to do any and every act which Debtor is obligated to do under this
Agreement, at the expense of Debtor; provided, however, that Secured Party shall
-------- -------
be under no obligation whatsoever to take any of the foregoing actions, and
absent bad faith or actual malice, Secured Party shall have no liability or
responsibility for any act or omission taken with respect thereto.
11. Costs and Expenses. Debtor agrees to pay to Secured Party all
------------------
costs and expenses (including without limitation reasonable attorneys' fees and
disbursements, including the allocated costs of in-house counsel) incurred by
Secured Party in the enforcement of this Agreement with regard to the Collateral
owned by it, whether or not an action is filed in connection therewith, and in
connection with any waiver or amendment of any term or provision hereof. All
advances, charges, costs and expenses, including reasonable attorneys, fees,
incurred or paid by Secured Party in exercising any right, power or remedy
conferred by this Agreement (including without limitation the right to perform
any obligation of Debtor under the Note), or in
9
the enforcement thereof, shall be secured hereby and shall become a part of the
Obligation and shall be paid to Secured Party by Debtor, immediately upon
demand, together with interest thereon at the rate(s) provided for under the
Note.
12. Statute of Limitations and Other Laws. Until the Obligation
-------------------------------------
shall have been paid and performed in full, the power of sale and all other
rights, powers and remedies granted to Secured Party hereunder shall continue to
exist and may be exercised by Secured Party at any time and from time to time
irrespective of the fact that the Obligation may have become barred by any
statute of limitations. Debtor expressly waives the benefit of any and all
statutes of limitation, laws providing for exemption of property from execution
or for valuation and appraisal upon foreclosure to the maximum extent permitted
by applicable law.
13. Other Agreements. Nothing herein shall in any way modify or
----------------
limit the effect of terms or conditions set forth in any other security or other
agreement executed by Debtor or in connection with the Obligation, but each and
every term and condition hereof shall be in addition thereto. All
representations, warranties, affirmative and negative covenants, terms,
conditions, and other provisions contained in the Note are fully applicable to
this Agreement and are incorporated herein by this reference as though set forth
in full.
14. Understandings With Respect to Waivers and Consents. Debtor
---------------------------------------------------
warrants and agrees that each of the waivers and consents set forth herein are
made with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtor otherwise
may have against Secured Party or others, or against any Collateral. If any of
the waivers or consents herein are determined to be unenforceable under
applicable law, such waivers and consents shall be effective to the maximum
extent permitted by law.
10
15. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, Debtor has executed this Agreement by its duly
authorized officers as of the date first written above.
"Debtor"
[REORGANIZED PRISM], a Delaware
corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
11
PROMISSORY NOTE
[$1,500,000] [______________], 1996
Maturity Date: [______________], 1999
1. FOR VALUE RECEIVED, [REORGANIZED PRISM], a Delaware corporation
("Debtor"), promises to pay to the order of Xxxxxx Entertainment Inc.
("Creditor") at Creditor's office located at Two Xxxxxx Xxxxxxxxx, Xx Xxxxxx,
Xxxxxxxxx 00000, or at such other place as Creditor from time to time may
designate, the principal sum of [ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000)], plus interest as specified in this Note.
2. This Note is delivered pursuant to that certain Override
Agreement dated as of November 19, 1996 (the "Override Agreement") among Xxx
Video City Inc., Xxxxxx X. Xxx, Prism Entertainment Corporation and Creditor.
Unless otherwise defined, all capitalized terms used in this Note shall have the
meanings ascribed to them in the Override Agreement. This note is further
evidenced or secured by (i) the Copyright Mortgages, and (2) the New Security
Agreement, dated as of ___________ __, 1996, made by Debtor in favor of
Creditor, as amended from time to time, covering certain personal property as
more particularly therein described (the "Property").
3. The principal sum outstanding from time to time under this Note
shall bear interest, to the fullest extent permitted by applicable law, at the
rate (the "Interest Rate") of ten percent (10%) per annum prior to any Event of
Default (as defined in Section 10 of this Note) and, after any Event of Default,
at the rate (the "Default Rate") equal to the lesser of the maximum rate of
interest allowed by applicable law or four percent (4%) in excess of the Prime
Rate (as hereinafter defined), which Default Rate shall be adjusted on each date
that said Prime Rate changes. Interest shall be calculated on the basis of a
360-day year and actual days elapsed, which results in more interest than when a
365-day year is used. If any payment to be made by Debtor shall become due on a
day other than a Business Day, payments shall be made on the next succeeding
Business Day and the extension of time shall be reflected in computing interest.
As used herein, the "Prime Rate" shall mean the Prime Rate, as published from
time to time in the Wall Street Journal, or if such is no longer available for
any reason, as determined by Creditor with reference to such other publication
as Creditor may reasonably elect.
Exhibit F
4. Interest (as provided for in Section 3 above) on the outstanding
daily unpaid principal amount of the indebtedness evidenced hereby shall be due
and payable in monthly installments, with the first such installment being due
on January __, 1997, and subsequent installments being due on the last day of
each succeeding month thereafter until December __, 1999, at which time the
entire unpaid principal balance hereof, and all accrued and unpaid interest
thereon, shall immediately become due and payable in full. If any such accrued
interest is not paid when due, the same shall be added to the principal balance
of this Note and the entire sum, as so increased, shall thereafter bear interest
at the rates provided herein.
5. Debtor may prepay part or all of the principal under this Note at
any time or times without premium or penalty, provided that each prepayment of
principal shall be accompanied by payment of interest accrued through the date
of payment on the amount of principal so paid. All proceeds from the exercise of
all options or warrants to purchase capital stock of Debtor shall be immediately
delivered to Creditor and applied to the reduction of all amounts due hereunder,
first to any accrued unpaid interest and then to principal.
6. If Debtor fails to make any payment when due, Debtor agrees to pay
a late charge equal to five percent (5%) of the payment then due, payable upon
demand, with respect to each such payment.
7. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
8. Unless otherwise directed by Creditor in writing, all payments
made hereunder shall be made by wire transfer to [INSERT BANK], in lawful money
of the United States of America, and shall be deemed made when verified by
[INSERT BANK].
9. If any "Event of Default" occurs at the holder's option,
exercisable in its sole discretion, all sums of principal and interest under
this Note shall become immediately due and payable without notice of default,
presentment or demand for payment, protest or notice of nonpayment of dishonor,
or other notices or demands of any kind or character, all of which are hereby
expressly waived by Debtor.
10. Debtor agrees that, upon prior written notice to Debtor, the
holder of this Note may accept additional or substitute security for this Note,
or release any security or any party liable for this Note, or extend or renew
this Note, all without notice to Debtor and without affecting the liability of
Debtor.
2
11. If any lawsuit, reference or arbitration is commenced which
arises out of or relates to this Note, the Security Agreement or the
indebtedness evidenced hereby, the prevailing party shall be entitled to recover
from each other party such sums as the court, referee or arbitrator may adjudge
to be reasonable attorneys' fees in the action, reference or arbitration, in
addition to costs and expenses otherwise allowed by law. In all other
situations, including any matter arising out of or relating to any insolvency
proceeding, Debtor agrees to pay all of Creditor's costs and expenses, including
reasonable attorneys' fees (including the allocated costs of in-house counsel),
which may be incurred in enforcing or protecting Creditor's rights or interests.
From the time(s) incurred until paid in full to Creditor, all such sums shall
bear interest at the Default Rate.
12. Whenever Debtor is obligated to pay or reimburse Creditor for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
13. This Note is governed by the laws of the State of California,
without regard to the choice of law rules of that State.
14. If Creditor delays in exercising or fails to exercise any of its
rights under this Note, that delay or failure shall not constitute a waiver of
any of Creditor's rights, or of any breach, default or failure of condition of
or under this Note. No waiver by Creditor of any of its rights, or of any such
breach, default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Creditor. All of Creditor's remedies in
connection with this Note or under applicable law shall be cumulative, and
Creditor's exercise of any one or more of those remedies shall not constitute an
election of remedies.
15. This Note inures to and binds the heirs, legal representatives,
successors and assigns of Debtor and Creditor; provided, however, that Debtor
may not assign this Note, or assign or delegate any of its rights or
obligations, without the prior written consent of Creditor in each instance.
Creditor in its sole discretion may, upon prior written notice to Debtor,
transfer this Note, and may sell or assign participations or other interests in
all or part of the indebtedness evidenced hereby, on the terms and subject to
the conditions of the Security Agreement and this Agreement, all without notice
to or the consent of Debtor. Also without the consent of Debtor, Creditor may
disclose to any actual or prospective purchaser of any securities issued or to
be issued by Creditor, and to any actual or prospective purchaser or assignee of
any participation or other interest in this Note, the indebtedness evidenced
hereby or any other loans made by Creditor to Debtor (whether evidenced by this
Note or otherwise), any financial or other information, data or material in
Creditor's possession relating to Debtor, the indebtedness evidenced hereby. If
Creditor so requests, Debtor shall sign and deliver a new note to be issued in
exchange for this Note.
3
16. As used in this Note, the terms "Creditor," "holder" and "holder
of this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation" and the word "including" means
"including, but not limited to."
17. Debtor has caused this Note to be executed by its officer, who is
duly authorized and directed to do so by a resolution of its Board of Directors
which was duly passed and adopted by the requisite number of members of the
Board at a meeting which was duly called, noticed and held.
[REORGANIZED PRISM]
By:______________________________________
Mail Address:
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxx
Telecopier: (000) 000-0000
4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
_______________, 1996, between Prism Entertainment Corporation, a Delaware
corporation (the "Company"), and Xxxxxx Entertainment Inc., a Tennessee
corporation ("Xxxxxx").
The Company, Xxxxxx, Xxx Video City, Inc., a California corporation
("VCI"); and Xxxxxx X. Xxx, an individual resident of California on behalf of
himself and as Trustee of the Xxxxxx X. Xxx Revocable Living Trust UDT 1/9/91
(the "Trust") have entered into an Agreement, dated as of November 19, 1996 (the
"Override Agreement"), providing for the restructuring of indebtedness of VCI to
Xxxxxx. Capitalized terms used herein but not defined herein shall have the
meanings given to them in the Override Agreement.
As contemplated by the Override Agreement, VCI has merged into
Prism, with Prism being the survivor (the "Merger").
Concurrently with the effective time of the Merger, Prism issued to
Xxxxxx the Additional Warrants and 1,500,000 shares of its Common Stock, and
certain shareholders of Prism issued to Xxxxxx the New Warrants.
As an inducement to Xxxxxx to enter into the Override Agreement, the
Company has agreed to xxxxx Xxxxxx certain registration rights with respect to
the Shares (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $____ par value per share,
------------
of the Company, as constituted as of the date of this Agreement.
Exhibit G
"Company" shall have the meaning provided therefor in the first
-------
paragraph of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Xxxxxx" shall have the meaning provided therefor in the first
------
paragraph of this Agreement.
"Registration Expenses" shall mean the expenses so described in
---------------------
Section 6.
"Restricted Stock" shall mean the Shares, but excluding shares of
----------------
Common Stock (a) which have been registered under the Securities Act pursuant to
an effective registration statement filed thereunder and disposed of by Xxxxxx
in accordance with the registration statement covering them; or (b) which may be
publicly sold by Xxxxxx pursuant to Rule 144(k) under the Securities Act
(without regard to any volume limitation).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 6.
----------------
"Shares" shall mean the shares of Common Stock purchased or
------
purchasable pursuant to the exercise of the Additional Warrants and the New
Warrants and the 1,500,000 shares of Common Stock issued by Prism to Xxxxxx at
the Closing.
2. Restrictive Legend. Each certificate representing the Shares
------------------
shall, except in compliance with the following legend, be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING
SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS, IN THE OPINION OF COUNSEL
2
SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS
AVAILABLE.
3. Required Registration.
---------------------
(a) Immediately upon the Company's qualification to use a Form S-
3 Registration Statement to register the resale of shares of Restricted Stock by
Xxxxxx, Xxxxxx may request the Company to register under the Securities Act
shares of Restricted Stock held by Xxxxxx for sale in the manner specified in
such notice, provided that the reasonably anticipated aggregate price to the
public of such public offering would exceed One Million Five Hundred Thousand
Dollars ($1,500,000). The Company shall be obligated to use its best efforts to
cause the registration for resale of the shares of Restricted Stock pursuant to
this Section 3(a) as soon as practicable, but in no event more than 45 days
following the receipt of Xxxxxx'x notice, and on an unlimited number of
occasions, subject to applicable law. The Company shall notify Xxxxxx within
thirty (30) days after it has become eligible to use Form S-3.
(b) In the event that on or prior to December 31, 1997, the
Company has not become qualified to use a Form S-3 Registration Statement to
register shares of Restricted Stock by Xxxxxx, then at any time thereafter
Xxxxxx may request that the Company register pursuant to a Registration
Statement on Form S-1 or Form S-2, as applicable, the resale of no less than
500,000 shares of Restricted Stock held by Xxxxxx for sale in the manner
specified in such notice. The Company shall be obligated to use its best efforts
to cause the registration for resale of the shares of Restricted Stock pursuant
to this Section 3(b) as soon as practicable, but in no event more than 45 days
following the receipt of Xxxxxx'x notice, and on one occasion only, provided,
--------
however, that such obligation shall be deemed satisfied only when a registration
-------
statement covering the Restricted Stock, for sale in accordance with the method
of disposition specified in the notice, shall have become effective.
(c) Notwithstanding the foregoing and anything to the contrary
contained herein, (i) the only securities that the Company shall be required to
register for resale pursuant to this Section 3 shall be shares of Common Stock,
(ii) no request may be made under this Section 3 within 90 days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering of Common Stock by the Company under the
Securities Act and (iii) the Company may postpone for a reasonable period of
time, not to exceed thirty (30) days, the filing or the effectiveness of any
registration statement covering the shares of Restricted Stock requested to be
registered by Xxxxxx, if the Board of Directors of the Company in good faith
determines that such registration would have a material adverse effect on any
plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or
3
the Company is in possession of material non-public information that, if
publicly disclosed, would result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 3, for sale in accordance with the method
of disposition specified in the notice from Xxxxxx referred to above, shares of
Common Stock to be sold by the Company for its own account and or by other
holders of Common Stock, provided, however, that if the registration covers an
underwritten public offering, if the managing underwriter or underwriters, if
any, of such offering advise the Company that the number of shares requested to
be included in the registration should be reduced or eliminated, the shares so
excluded shall be excluded in the following order: (i) first to any director,
officer, or employee of the Company; (ii) any holder of Common Stock not having
contractual registration rights; (iii) any other holder have contractual
registration rights; (iv) the Company; and (v) Xxxxxx or any transferee or
assignee as to the Restricted Stock.
4. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Section 3 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as reasonably possible but in no event more than
45 days following the receipt of Xxxxxx'x notice:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 4(a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement;
(c) furnish to Xxxxxx and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus), as such persons reasonably may request
in order to facilitate the public sale or other disposition of the shares of
Restricted Stock covered by such registration statement;
4
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as Xxxxxx or, in the case of an underwritten public
offering, the managing underwriter reasonably shall request, provided, however,
-------- -------
that the Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where it is
not so qualified, subject itself to taxation in any jurisdiction wherein it is
not so subject, or to consent to general service of process in any such
jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by
such registration statement with any securities exchange or the NASDAQ National
Market System on which the Common Stock of the Company is then listed;
(f) promptly notify Xxxxxx and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing. Xxxxxx agrees upon receipt of such notice
forthwith to cease making offers and sales of Restricted Stock pursuant to such
registration statement or deliveries of the prospectus contained therein for any
purpose until the Company has prepared and furnished such amendment or
supplement to the prospectus as may be necessary so that, as thereafter
delivered to purchasers of such Restricted Stock, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
For purposes of Section 4(a) and 4(b) and of Section 3(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of the shares of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all the shares of Restricted Stock
covered thereby and 60 days after the effective date thereof.
In connection with any registration hereunder, Xxxxxx shall provide
such information and execute such documents as may reasonably be required in
connection with such registration.
5. Piggyback Registrations. Each time that the Company proposes to
-----------------------
file a registration statement under the Securities Act with respect to an
offering (in
5
connection with either an offering of Common Stock by the Company or by its
shareholders) on a form that would also permit the registration of the
Restricted Stock, the Company will give written notice of such proposal to
Xxxxxx; provided, however, that, if there is an effective registration statement
covering the Restricted Stock, no such notice pursuant to this Section 5 shall
---------
be required. Xxxxxx may, by written request given within ten business days
after receipt of any such notice, require the Company to use its best efforts to
cause all or part of the Restricted Stock to be included in such registration
statement. Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering advise the Company in writing that
inclusion of the Restricted Stock would (a) make it impracticable to conduct an
underwritten offering of the Common Stock being registered at the price at which
such Common Stock could be sold without such inclusion, or (b) materially and
adversely interfere with the offering, then the number of the shares requested
to be included in the registration by Xxxxxx may be reduced or eliminated;
provided, that, the Company shall exclude first from such registration, in the
following order, shares of Common Stock sought to be included therein by (i) any
director, officer, or employee of the Company, (ii) any holder of Common Stock
not having contractual registration rights, and (iii) any holder having
contractual registration rights that are subordinate to the holders of the
Restricted Stock; provided, however, that with regard to any holder of
registration rights on a parity with Xxxxxx'x, such holder's shares to be
included in the registration statement shall be reduced with Xxxxxx'x pro rata
in accordance with the number of shares desired to be included. In connection
with any registration pursuant to this Section 5 covering an underwritten public
offering, the Company and Xxxxxx agree to enter into a written agreement with a
managing underwriter containing such provisions as are customary in the
securities business for such an arrangement between such underwriters and
companies of the Company's size and investment stature. In connection with any
such registration, Xxxxxx shall (a) provide such information and execute such
documents as may be reasonably required in connection with such registration,
(b) agree to sell the shares of Restricted Stock on the basis provided in any
underwriting arrangements and (c) complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements, which arrangements
shall not be inconsistent herewith.
6. Expenses. All expenses of registration and offerings in
--------
connection with this Agreement including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with federal and state
securities laws, fees of the NASD and of transfer agents and registrar but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of the
shares of Restricted Stock are called "Selling Expenses".
6
The Company will pay all Registration Expenses in connection with each
registration statement filed in accordance with this Agreement. All Selling
Expenses in connection with the sale of shares of Restricted Stock by Xxxxxx
pursuant to each registration statement filed in accordance with this Agreement
shall be borne by Xxxxxx.
7. Rule 144. During any period that the Company has any securities
--------
registered under the Exchange Act, the Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and it will
take such further action as Xxxxxx may reasonably request, all to the extent
required from time to time to enable Xxxxxx to sell Common Stock without
registration under the Securities Act within the limitation of the exemption
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Commission.
8. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any Restricted Stock under
the Securities Act pursuant to this Agreement, the Company will indemnify and
hold harmless Xxxxxx, each underwriter of such Restricted Stock thereunder and
each other person, if any, who controls Xxxxxx or such underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Xxxxxx, such underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement of any material fact contained in any
registration statement under which such Restricted Stock were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will pay the
legal fees and other expenses of Xxxxxx, each such underwriter and each such
controlling person incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
-------- -------
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in reliance upon and in conformity with information furnished by Xxxxxx,
any such underwriter or any such controlling person in writing, and, provided
--------
further, however, that the Company will not be liable in any such case to the
------- -------
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue or alleged untrue statement or omission or an alleged
omission made in any preliminary prospectus or final prospectus if (1) Xxxxxx
failed to send or deliver a copy of the final prospectus or
7
prospectus supplement with or prior to the delivery of written confirmation of
the sale of Restricted Stock and (2) the final prospectus or prospectus
supplement would have corrected such untrue statement or omission.
(b) In the event of a registration of any Restricted Stock under
the Securities Act pursuant to this Agreement, Xxxxxx will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which Restricted Stock was
registered under the Securities Act pursuant to this Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will pay the legal fees and other
expenses of the Company and each such officer, director, underwriter and
controlling person incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
-------- -------
that Xxxxxx will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information furnished in writing to
the Company by Xxxxxx for use in such registration statement or prospectus.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the failure to so notify
the indemnifying party shall not relieve it from any liability that it may have
to such indemnified party other than under this Section 8 and shall only relieve
it from any liability that it may have to such indemnified party under this
Section 8 if and to the extent the indemnifying party is prejudiced thereby. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such
8
indemnified party under this Section 8 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof;
provided, however, that, if the defendants in any such action include both the
-------- -------
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded (based on the advice of counsel) that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assert such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with appropriate
local counsel as required by the local rules of such jurisdiction) at any time
for all such indemnified parties.
(d) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
9. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including, without
limitation, transferees of any shares of Restricted Stock), whether so expressed
or not.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or sent by Federal Express or
other recognized overnight courier service, addressed as follows:
9
if to the Company:
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxx
Telecopy: (000) 000-0000
if to Xxxxxx:
Xxxxxx Entertainment Inc.
Two Xxxxxx Xxxxxxxxx
Xx Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq., General Counsel
Telecopy: (000) 000-0000
or, in any case, at such other address or addresses as shall have been furnished
in writing by one party to the other in accordance with the provisions of this
Section 9(b).
(c) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California without giving
effect to the conflict of laws provisions.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
Xxxxxx.
(e) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. In proving this Agreement it shall not
be necessary to produce or account for more than one such counterpart executed
by the party against whom enforcement is sought.
(f) If requested in writing by the underwriters for an
underwritten public offering of securities of the Company, Xxxxxx shall agree
not to sell publicly any Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period, not to exceed ninety days, following the effective date of the
registration statement relating to such offering to be reasonably determined by
the underwriters, except that Xxxxxx shall not be required to so agree more than
once during any twelve calendar months.
10
(g) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
(h) Reorganized Prism shall not grant any registration rights to
any person that will adversely affect Xxxxxx'x rights under this Agreement,
except for pro rata reduction of Xxxxxx'x piggyback registration rights as
provided in Section 5.
11
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By:______________________________________
Name:
Title:
XXXXXX ENTERTAINMENT INC.
By:______________________________________
Name:
Title:
12
STOCKHOLDERS AGREEMENT
----------------------
This Stockholders Agreement ("Agreement") is made and entered into as
of [______________], 1996, by and among Prism Entertainment Corporation, a
Delaware corporation (the "Company"), Xxxxxx X. Xxx ("Xxx"), an individual and a
resident of California, on behalf of himself and as Trustee of the Xxxxxx X. Xxx
Revocable Living Trust UDT 1/9/91 (the "Trust"), Xxxxx Xxxxxxx ("Xxxxxxx"), an
individual and a resident of California, and Xxxxxx Entertainment Inc., a
Tennessee corporation ("Xxxxxx") (such parties other than the Company being
collectively referred to herein as the "Stockholders," as further defined in
Article I) with respect to the following facts:
RECITALS
--------
VCI and the Company have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Amendment, dated as of November __, 1996, with respect to the merger
(the "Merger") of VCI into the Company.
As a result of the Merger, each of the Stockholders will own the
following number of issued and outstanding "Shares" (as further defined in
Article I) of Common Stock of the Company:
Stockholder Number of Shares
----------- ----------------
Xxxxxxx 818,050
Xxx and the Trust 2,727,952
Xxxxxx 1,500,000
In order to provide for the stability of the Company and to promote
the continuity of its management and policies, the Company and the Stockholders
desire to, among other things, restrict the manner and means by which the Shares
may be sold, assigned or otherwise transferred.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom and of the mutual agreements hereinafter set forth, the parties hereto
hereby agree as follows:
Exhibit H
ARTICLE I
Definitions
-----------
Affiliate. An "Affiliate" of a Person shall mean (i) a Person
---------
directly or indirectly Controlling, Controlled by or under common Control with
such Person; (ii) a Person owning or Controlling 10% or more of the outstanding
voting securities of such Person; or (iii) an officer, director, or partner, or
member of the immediate family of an officer, director, or partner, of such
Person. When the Affiliate is an officer, director, or partner or member of the
immediate family of an officer, director, or partner, of such Person, any other
Person for which the Affiliate acts in that capacity shall also be considered an
Affiliate.
Agreement. The "Agreement" shall mean this Stockholders Agreement, as
---------
it may be amended from time to time hereafter.
Bona Fide Offer. A "Bona Fide Offer" shall mean an offer in writing
---------------
to a Stockholder, offering to purchase all or any part of the Shares owned by
such Stockholder or any interest of the Stockholder therein, and setting forth
all the relevant terms and conditions of the proposed purchase, from an offeror
who is ready, willing and able to consummate the purchase and who is neither the
Company nor an Affiliate of such Stockholder; provided, however, that a Bona
Fide Offer shall not include (a) the sale of Shares sold in a brokers'
transaction ("Brokers' Transaction") as such term is contemplated by Section
4(4) of the Securities Act of 1933, as amended, or to an underwriter pursuant to
an effective registration statement (an "Underwriter Transaction"); (b) the
surrender for cancellation of up to 250,000 shares as referred to in Section
8.2(g) of the Merger Agreement (a "Section 8.2(g) Surrender"); and (c) up to
410,444 shares to be delivered to Xxxxxx by Xxx pursuant to the exercise of
warrants in favor of Xxxxxx (an "Xxxxxx Warrant Exercise").
Common Stock. "Common Stock" shall mean the common stock of the
------------
Company.
Control. "Control" of a Person shall mean the possession, direct or
-------
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
Person. A "Person" shall mean any entity, corporation, company,
------
association, joint venture, joint stock company, partnership, trust,
organization, individual (including personal representatives, executors and
heirs of a deceased individual), nation, state, government (including agencies,
departments, bureaus, boards, divisions and instrumentalities thereof), trustee,
receiver or liquidator.
2
Stockholder. A "Stockholder" shall mean each of the persons specified
-----------
in the first paragraph of this Agreement and each other Person who succeeds to
the interest of such named Person in and to any Shares in a manner permitted by
the provisions of this Agreement.
Shares. The "Shares" shall mean the shares of the Common Stock
------
specified in Recital B above (exclusive of 208,050 shares owed by Xxxxxxx or an
affiliate of Xxxxxxx based on his pre-Merger interest in Prism (the "Old Xxxxxxx
Shares")), together with any other shares of the capital stock of the Company
hereafter acquired by any Stockholder and any other shares or securities
thereafter issued in respect of such shares in any reorganization,
recapitalization, reclassification, stock dividend, readjustment or other change
in a capital structure of the Company.
Transfer. A "Transfer" of Shares or any interest of a Stockholder
--------
therein shall mean any sale (other than pursuant to a Brokers' Transaction, an
Underwriter Transaction, a Section 8.2(g) Surrender, or an Xxxxxx Warrant
Exercise), assignment, transfer, disposition, pledge, hypothecation or
encumbrance, whether direct or indirect, voluntary, involuntary or by operation
of law, and whether or not for value, of such Shares or such interest of a
Stockholder therein; except, the term Transfer shall not include (a) any pledge
of Common Stock made by a Stockholder pursuant to a bona fide loan transaction
---- ----
which creates a mere security interest, (b) any transfer of Common Stock to the
Company pursuant to a written agreement between the Company and a Stockholder
providing for the right of the Company to repurchase shares of its Common Stock,
(c) any transfer to a Stockholder's ancestors or descendants or spouse or to a
trustee for their benefit, (d) any bona fide gift of Common Stock or (e) any
---- ----
transfer by Xxxxxx to an Xxxxxx Affiliate; provided, that (i) the transferring
--------
Stockholder shall inform the other Stockholders of such pledge, transfer or gift
prior to effecting it and (ii) the pledgee, transferee or donee shall furnish
the other Stockholders and the Company with a written agreement to be bound by
and comply with all provisions of this Agreement applicable to the transferring
Stockholder. In each of the foregoing cases (a) through (e), such Transferred
Shares shall remain Shares subject to this Agreement and the permitted
transferees shall be treated as "Stockholders" for purposes of this Agreement.
ARTICLE II
Restriction on Transfer of Shares
---------------------------------
No Shares and no interest of a Stockholder in any Shares may be
Transferred except in accordance with the terms of this Agreement. Any such
attempted Transfer in violation of this Agreement shall be null and void ab
--
initio, and neither the Company nor any transfer agent of the Company shall give
------
effect to any such attempted Transfer in its stock records or for any other
purpose whatsoever.
3
ARTICLE III
Right of First Refusal of Xxx and Xxxxxxx
-----------------------------------------
3.1 Option to Purchase Shares. In the event Xxxxxx proposes to
-------------------------
Transfer all or any part of its Shares or any interest therein ("Offered
Shares"), the following provisions shall apply:
3.1.1 Stockholder Sale Notice. In the event that Xxxxxx
-----------------------
negotiates a Bona Fide Offer, Xxxxxx shall give to the other Stockholders a
written notice (the "Stockholder Sale Notice") setting forth as to each Person
to whom the sale is proposed to be made: (a) the name and address of that Person
and, if that Person is a corporation or other entity, the owners of 10% or more
thereof; (b) the number of Offered Shares proposed to be sold to that Person;
(c) the manner in which the sale is proposed to be made; and (d) the price at
which and the material terms upon which the sale is proposed to be made.
3.1.2 Purchase Option - Other Stockholders. If the conditions
------------------------------------
prescribed in Section 3.1.1 hereof have been met in connection with the proposed
sale of the Offered Shares by Xxxxxx, the remaining Stockholders, pro rata in
accordance with their respective ownership interests in the total number of
Shares owned by such Stockholders (as of the day immediately preceding the
receipt of the Stockholder Sale Notice) shall then have a purchase option (the
"Purchase Option"), for a period of ten (10) calendar days thereafter, to elect
to purchase all, or any part, of the Offered Shares at a purchase price that is
equal to 120% of the purchase price and otherwise substantially upon the terms
specified in the Stockholder Sale Notice. If all remaining Stockholders do not
exercise their Purchase Option as to the entire part of the Offered Shares to
which they are entitled, then the Stockholder electing to purchase shall have
the right to elect to purchase the remaining part of the Offered Shares
available for purchase. If the Stockholders so exercising their Purchase Option
shall, within the ten (10) calendar day period, deliver to Xxxxxx an exercise
notice (the "Exercise Notice") so informing Xxxxxx, then, at the time the
Exercise Notice is received by Xxxxxx a binding agreement shall arise between
Xxxxxx and the electing Stockholders concerning the sale of such Shares in
accordance with this Article.
Notwithstanding the foregoing, however, if the remaining Stockholders
do not elect to purchase all of the Offered Shares subject to the right of first
refusal pursuant to this Article III, Xxxxxx may sell or dispose of all of the
Offered Shares to the Person described in the Stockholder Sale Notice and upon
the terms set forth in the Stockholder Sale Notice, which Shares shall be free
from any claim or restriction under this Agreement. Any such sale of the
Offered Shares must be effected within thirty (30) calendar days after the
termination of the Stockholders' Purchase Option. If no such sale is effected
within said thirty (30) calendar day period, or if the identity
4
of the proposed purchaser or the terms of the Bona Fide Offer change materially
from those specified in the Stockholder Sale Notice, or if a sale of the Offered
Shares is effected upon terms materially different from those set forth in the
Stockholder Sale Notice, the Offered Shares shall once again be subject to the
provisions of this Article III.
3.2 Closing of Purchase Option. The closing of any purchase of the
--------------------------
Offered Shares pursuant to the Purchase Option shall take place at the principal
offices of the Company on the 10th calendar day following the delivery of the
last Exercise Notice. At the closing, Xxxxxx shall deliver to the Stockholders
certificates representing the Offered Shares, duly endorsed for transfer or
accompanied by duly executed stock powers, and the purchasing Stockholders shall
deliver to Xxxxxx the purchase price to be paid as herein provided.
ARTICLE IV
Co-Sale Rights of Xxxxxx
------------------------
4.1 Notice of Purchase Offers. Should any Stockholder other than
-------------------------
Xxxxxx propose to accept a Bona Fide Offer from any Person to purchase Shares
owned by such Stockholder (exclusive of any of the Old Xxxxxxx Shares), then
such Stockholder (the "Selling Stockholder"), shall promptly give written notice
to Xxxxxx of the terms and conditions of such Bona Fide Offer.
4.2 Right to Participate. Xxxxxx shall have the right,
--------------------
exercisable upon written notice to the Selling Stockholder within ten (10)
calendar days after receipt of the notice of the Bona Fide Offer, to participate
in the Selling Stockholder's sale of Shares on the same terms and conditions
contained in the Bona Fide Offer. To the extent Xxxxxx exercises such right of
participation, the number of Shares which the Selling Stockholder may sell
pursuant to this Article shall be correspondingly reduced. The right of
participation of Xxxxxx shall be subject to the following terms and conditions:
(a) Xxxxxx may sell all or any part of that number of Shares
equal to (as of the day immediately preceding the receipt of the written notice
described above) the aggregate number of Shares covered by the Bona Fide Offer
multiplied by that fraction, the numerator of which is the total number of
Shares owned by Xxxxxx on a fully-diluted basis (including any Shares issuable
in connection with the exercise of any option, warrant or similar right), and
the denominator of which is all of such Xxxxxx Shares plus the total number of
Shares owned by the Selling Stockholder on a fully-diluted basis (including any
Shares issuable in connection with the exercise of any option, warrant or
similar right).
5
(b) Xxxxxx may participate in the sale by delivering to the
Selling Stockholder for transfer to the purchase offeror one or more
certificates, properly endorsed for transfer, which represent the number of
Shares which Xxxxxx elects to sell pursuant to this Section 4.2.
4.3 Consummation of Sale. The stock certificate or certificates
--------------------
which Xxxxxx delivers to the Selling Stockholder pursuant to Section 4.2 shall
be delivered by the Selling Stockholder to the purchase offeror in consummation
of the sale of the Shares pursuant to the terms and conditions specified in the
written notice to Xxxxxx, and the Selling Stockholder shall cause the purchase
offeror to pay to Xxxxxx that portion of the sale proceeds to which Xxxxxx is
entitled by reason of its participation in such sale.
4.4 Ongoing Rights. The exercise or non-exercise of the rights of
--------------
Xxxxxx hereunder to participate in one or more sales of Shares made by a Selling
Stockholder shall not adversely affect its right to participate in subsequent
sales of Shares by a Selling Stockholder pursuant to Section 4.1 hereof.
ARTICLE V
Preemptive Rights of Xxxxxx
---------------------------
In the event of the issuance, sale or distribution for cash by the
Company of any voting or other security of the Company or security convertible
into or exercisable for such security commenced or declared subsequent to the
date hereof, other than Shares or rights to Shares issued pursuant to an
employee benefit plan or otherwise for property (other than cash equivalents or
evidences of indebtedness) or services, Xxxxxx shall be entitled to participate
in such issuance, sale or distribution on a pro rata basis in respect of the
Shares owned by Xxxxxx so that following such issuance, sale or distribution
Xxxxxx will, if it has elected to purchase the new securities to be issued, sold
or distributed, have the same percentage of the equity ownership of the Company
as Xxxxxx had by reason of its ownership of Shares prior to such issuance, sale
or distribution.
ARTICLE VI
Board of Directors
------------------
During the term of this Agreement, each Stockholder shall use its or
his best efforts to cause the number of directors of the Company to be eight and
shall vote, or cause to be voted, at each election of members of the Board of
Directors of the Company, all of his or its Shares in favor of two designees of
Xxxxxx, four designees of Xxx and two designees of Xxxxxxx. Notwithstanding the
foregoing, Xxxxxx
6
shall have no right to so designate a member of the Board of Directors upon and
after Xxxxxx'x beneficial ownership interest (assuming, for purposes of this
calculation, the exercise or conversion of all options, warrants, rights, or
convertible securities held by Xxxxxx) in the Company Common Stock (together
with that of any Affiliate of Xxxxxx) is 4% or less of the outstanding Common
Stock. Additionally, subject to the exercise of their fiduciary duties, Xxx and
Xxxxxxx shall use their best efforts to appoint a designee of Xxxxxx to the
Compensation Committee of Reorganized Prism.
ARTICLE VII
Amendment of Employment Agreements
----------------------------------
Neither Xxxxxxx nor Xxx nor Reorganized Prism shall enter into any
amendment, modification or waiver of their Employment Agreements with
Reorganized Prism nor shall Reorganized Prism extinguish, forgive or reduce
(except for payment made) any debt owed to Reorganized Prism from any employee
without the prior written consent of Xxxxxx.
ARTICLE VIII
Termination of Agreement
------------------------
This Agreement shall terminate, and the certificates representing the
Shares shall be released from the terms of this Agreement upon the first to
occur of the following events:
8.1 By Agreement. The written agreement of the Company and all of
------------
the Stockholders bound by the terms of this Agreement;
8.2 One Stockholder. At such time as there is only one remaining
---------------
Stockholder of the Company;
8.3 Liquidation. The liquidation and dissolution of the Company; or
-----------
8.4 Xxxxxx'x Ownership Interest in the Company. Xxxxxx'x beneficial
------------------------------------------
ownership interest (assuming, for purposes of this calculation, the exercise or
conversion of all options, rights, warrants or convertible securities held by
Xxxxxx or an Affiliate) in the Company's Common Stock is 4% or less.
Upon the termination of this Agreement for any of the above reasons,
the certificates of stock held by each Stockholder shall be surrendered to the
Company,
7
and the Company shall issue new certificates for the same number of Shares but
without the legend required by this Agreement.
ARTICLE IX
Legend On Share Certificates
----------------------------
Each of the certificates representing the Shares shall bear the
following legend:
"None of the Shares represented by this certificate may be sold,
assigned, transferred, pledged, hypothecated or in any other way
disposed of or encumbered, voluntarily or involuntarily, by gift,
bankruptcy, operation of law, winding up of a corporation or
otherwise, except in accordance with the provisions of a Stockholders
Agreement, dated ____________________, which is also a voting
agreement, a copy of which may be inspected at the principal office of
this Company. All of the provisions of such Stockholders' Agreement
are incorporated herein by this reference."
A copy of this Agreement shall be delivered to the Secretary of the Company and
shall be shown by him to any person making inquiry concerning it.
ARTICLE X
General Provisions
------------------
10.1 Waiver. No waiver of any provision of this Agreement in any
------
instance shall be or for any purpose be deemed to be a waiver of the right of
any party hereto to enforce strict compliance with the provisions hereof in any
subsequent instance.
10.2 Agreement to Perform Necessary Acts. Each party hereto and the
-----------------------------------
heirs, executors or administrators of the Stockholders shall perform any further
acts and execute and deliver any documents or procure any court orders which may
reasonably be necessary to carry out the provisions of this Agreement.
10.3 Litigation and Attorneys' Fees. In the event of any litigation
------------------------------
between the parties hereto to enforce any provision or right hereunder, the
unsuccessful party to such litigation shall pay to the prevailing party therein
all costs
8
and expenses actually incurred therein, including, but not limited to,
reasonable attorneys' fees actually incurred and court costs.
10.4 Modification. This Agreement may not be modified or amended
------------
except by a writing signed by all of the Stockholders and by an officer duly
authorized to act on behalf of the Company. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Stockholders
shall cause the Board of Directors to meet within 30 days following such
amendment or modification or as soon thereafter as is practicable for the
purpose of adopting any amendment to the Certificate of Incorporation and By-
Laws of the Company that may be required as a result of such amendment or
modification to this Agreement, and, if required, proposing such amendments to
the Stockholders entitled to vote thereon.
10.5 Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be deemed to have been given if
delivered by courier or other means of personal service, or if sent by telex or
telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, addressed to:
The Company:
Prism Entertainment Corporation
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxx
Telecopy No.: (000) 000-0000
With a copy to:
Loeb & Loeb LLP
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
9
Xxxxxx:
Xxxxxx Entertainment Inc.
Xxx Xxxxxx Xxxxxxxxx
Xx Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq., General Counsel
Telecopy No.: (000) 000-0000
Xxx:
Xxxxxx X. Xxx
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
Xxxxxxx:
Xxxxx Xxxxxxx
0000 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
All notices, requests and other communications shall be deemed received on the
date of actual receipt as evidenced by written receipt, acknowledgement or other
evidence of actual receipt. Any party may change its address for notices by
notice to the other parties as provided in this Article.
10.6 Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which shall be deemed an original of the
party or parties who executed such counterpart but all of which together shall
constitute one and the same instrument.
10.7 Severability. Each provision and part thereof of this
------------
Agreement is intended to be severable and if any term or all or part of any
provision hereof is held by judicial decision to be invalid, such invalidity
shall not affect the validity of the remainder of this Agreement.
10.8 Entire Agreement. This Agreement is intended by the parties
----------------
hereto as a final expression of their agreement and understanding with respect
to the subject matter hereof and as a complete and exclusive statement of the
terms thereof and supersedes any and all prior and contemporaneous agreements
and understandings, written or oral, express or implied.
10
10.9 Governing Law. This Agreement shall be construed and
-------------
interpreted in accordance with the laws of the State of California.
10.10 Injunctive Relief. The parties acknowledge and agree that a
-----------------
violation of any of the terms of this Agreement will cause the parties
irreparable injury for which adequate remedy at law is not available. Therefore,
the parties agree that each party shall be entitled to an injunction,
restraining order or other equitable relief from any court of competent
jurisdiction, restraining any party from committing any violations of the
provisions of this Agreement.
10.11 Section Headings. The headings of the several sections of this
----------------
Agreement are inserted solely for convenience of reference and are not a part of
and are not intended to govern, limit or aid in the construction of any term or
provision hereof.
10.12 Construction. When necessary, the masculine shall include the
------------
feminine or neuter and the singular shall include the plural and vice versa.
10.13 Binding Effect. Subject to the restrictions on Transfer
--------------
contained herein, this Agreement shall be binding on and shall inure to the
benefit of, the parties
11
hereto and their respective heirs, legal representatives, successors and
permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first hereinabove written.
THE COMPANY:
Prism Entertainment Corporation, a
Delaware corporation
By:______________________________________
Name:____________________________________
Its:_____________________________________
STOCKHOLDERS:
Xxxxxx Entertainment Inc., a Tennessee
corporation
By:______________________________________
Name:____________________________________
Its:_____________________________________
_________________________________________
Xxxxxx X. Xxx
_________________________________________
Xxxxxx X. Xxx, Trustee of the Xxxxxx X.
Xxx Revocable Living Trust UDT 1/9/91
_________________________________________
Xxxxx Xxxxxxx
12
EXHIBIT I
---------
[IEI LETTERHEAD]
December __, 1996
Xx. Xxxxxx X. Xxx
Prism Entertainment Corporation
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, XX 00000
Re: Supply Agreement
Dear Xxxxxx:
The following is the supply agreement (the "Agreement") between Prism
Entertainment Corporation ("Prism") and Xxxxxx Entertainment Inc. ("Xxxxxx"):
1. RENTAL PRICING:
Prism will receive a 34.5% discount off suggested retail price on all
rental product ($30 and higher). Prism will receive multi-pack pricing and
discounts on single purchases of multi-pack titles.
2. SELL-THROUGH PRICING:
Prism will receive a 35% discount off suggested retail price on catalog
sell-through product ($29.99 and lower), subject to Paragraph 9 below.
Feature sell-through titles (i.e. titles released for the first time to the
----
home video market at $29.99 and lower having grossed $50 million or more at
the box office) will be offered at specially discounted prices based on
quantities ordered. Prism may purchase feature sell-through titles from a
source other than Xxxxxx provided Prism offers Xxxxxx the right of first
refusal to match the price offered to Prism from the other source.
3. RETURNS:
Prism will receive a 50% return allowance on all unopened sell-through
product in mint, resalable condition, provided Xxxxxx and Prism mutually
agree on purchase quantities eligible for returns. Returns of undamaged
product must be received by Xxxxxx within three months after initial street
date. Prism will also receive return allowances for
1
Xx. Xxxxxx X. Xxx
Page 2
December _, 1996
damaged product. Damaged return product must be received by Xxxxxx within
60 days of initial street date. Xxxxxx will issue call tags for store
damaged returns based on each store up to a maximum of two damaged returns
shipments per store per month. For all returned product, credits will be
applied to Prism's account within 15 business days of receipt by Xxxxxx.
4. VIDEO GAMES:
Prism will receive Xxxxxx xxxxx cost plus 7% pricing on all video game
rental and sell-through titles. Prism will receive a 100% return allowance
on all unopened video game sell-through product in mint, resalable
condition, provided Xxxxxx and Prism mutually agree on purchase quantities
eligible for returns. Returns must be received by Xxxxxx within 60 days
after initial street date.
5. LASER:
Prism will receive a 25% discount off suggested retail price on laser
purchases and a 50% return allowance on all unopened laser product in mint,
resalable condition. Returns must be received by Xxxxxx within three
months after initial street date.
6. AUDIO BOOKS:
Prism will receive a 40% discount off suggested retail price on audio book
rental product purchases (rental ready or non-rental ready). Prism will
receive a 20% return allowance on all unopened non-rental ready product in
mint, resalable condition. Returns must be received by Xxxxxx within three
months after initial street date.
7. MULTIMEDIA:
Prism will receive a 35% discount off suggested retail price on CD ROM
product and net pricing on CDI, 3DO, and Jaguar product. Prism will
receive a 20% return allowance on all unopened product in mint, resalable
condition. Returns must be received by Xxxxxx within 90 days after invoice
date.
8. ACCESSORIES:
Prism will receive "end-lot" pricing on all accessories.
9. TERMS:
Payment terms will be net 60 days from invoice for all rental and sell-
through product purchases; provided, however, that for (i) catalog sell-
-------- -------
through product intended for new store openings; (ii) Christmas catalog
sell-through product; and (iii) catalog sell-through product intended for
new sell-through departments in exiting stores, Prism will have a one time
right to elect either (a) payment terms of net 90 days from invoice or (b)
payment
2
Xx. Xxxxxx X. Xxx
Page 3
December _, 1996
terms of net 120 days from invoice; provided, further, that pricing for
-------- -------
catalog sell-through product in the event of alternative (b) shall be a
36.5% discount off suggested retail price. Prism understands that its
credit line with Xxxxxx will be as established or modified from time-to-
time based upon Xxxxxx'x credit review and credit policies. Any amounts
not paid when due will bear interest at the rate of 1 1/2% per month (18%
per annum) on the overdue balance (or, if less, at the maximum rate
permitted by applicable law, with any payments in excess of such maximum
treated as principal payments on the past due amount). Payments received
from Prism will be credited first to unpaid interest as set out above.
10. ADVERTISING:
Co-op rental video titles will be handled "in-house" and will be paid at a
rate of 3% for titles that accrue co-op, following studio guidelines. For
sell-through titles, Prism will receive "pass-through" co-op and MDF
advertising funds, also following studio guidelines. Rental titles will
also receive "pass through" of MDF advertising funds, following studio
guidelines.
11. RENTAL READY PROCESSING:
Rental ready processing is available and will be billed as a separate
invoice line item. If rental ready processing is desired, pricing will be
determined after an analysis of the specific requirements is made. Prism
will be entitled to Xxxxxx'x most favored customer pricing for this
service.
12. FREIGHT:
Freight for all product will be prepaid to Prism locations, without
limitations as to the size or dollar amount of orders. Special orders may
be "piggybacked" by Xxxxxx on new release shipments as long "available/on-
hand" special order titles are delivered within one week of the order.
13. PROGRAMS AND SERVICES:
Xxxxxx will, when possible, extend terms on special programs such as
holiday promotions and new store start-up packages. Xxxxxx will provide
home office services such as marketing, creative services and help with
management information systems requests whenever possible. Prism will
receive free monthly in-store "video guides" (average 1,200 per store).
Prism understands that it may not have an exclusive representative, but
Xxxxxx intends that Prism will receive the same high level of hands-on
involvement and assistance that Xxx Video City, Inc. ("VCI") has received
from Ingram representatives in the past. Xxxxxx also intends to maintain
the same high level of representative service to Prism as Prism encounters
rapid growth and to consider appointment of an exclusive
3
Xx. Xxxxxx X. Xxx
Page 4
December _, 1996
representative as may be warranted by that growth. Prism will be eligible
to participate in any advertised programs offered by Xxxxxx.
14. QUANTITY:
Prism agrees to purchase from Xxxxxx 100% of its yearly requirements for
the video rental, video sell-through, game, and other products covered by
this Agreement, except in the following circumstances:
(a) The product is not carried by Xxxxxx (such as adult product);
(b) Prism is required to purchase product from Rentrak Corporation or
its affiliates ("Rentrak") under the present terms of its
agreement with Rentrak by which Prism is bound due to the merger
of VCI into Prism, but only to the extent of minimum purchases
required under that agreement;
(c) Purchases of used product;
(d) Purchases of non-prerecorded product;
(e) Orders which Xxxxxx is unable to fill in a reasonably timely
manner;
(f) Orders in excess of the credit limit extended to Prism by Xxxxxx,
provided that Prism is within its credit terms with Xxxxxx; or
--------
(g) Purchases of feature sell-through titles from a source other than
Xxxxxx following Xxxxxx'x failure to exercise its right of first
refusal, as permitted by Paragraph 2.
15. PAYMENT IN CERTAIN EVENTS:
An "Extraordinary Transaction" for purposes of this Paragraph shall be
deemed to occur upon consummation of one of the following events:
(a) a sale or other disposition of retail locations by Prism other than in
the ordinary course of business, 90% of the proceeds from which are not
redeployed in a similar video business within 90 days of such transaction
(an "Asset Sale"); provided, however, that a sale or other disposition of
-------- -------
retail locations in a transaction or series of transactions, which
locations in the aggregate accounted for less than 20% of purchases under
this Agreement over the 12 months preceding such disposition, shall not
constitute an Asset Sale; or
4
Xx. Xxxxxx X. Xxx
Page 5
December _, 1996
(b) a merger or consolidation of, into, or involving Prism, in which Prism
is not the surviving corporation.
Upon the consummation of an Extraordinary Transaction, Prism shall
immediately pay Xxxxxx in cash the following amounts (the "Termination
Payment"):
EXTRAORDINARY TRANSACTION
ON OR BEFORE THE FOLLOWING
ANNIVERSARY OF THIS AGREEMENT TERMINATION PAYMENT DUE
----------------------------- -----------------------
First $1,300,000
Second 1,300,000
Third 1,200,000
Fourth 1,200,000
Fifth 1,000,000
Sixth 900,000
Seventh 800,000
Eighth 700,000
Ninth 600,000
Tenth 400,000
The parties have agreed to the above payments in lieu of a formula designed
to calculate the discounted present value of anticipated annual future
payments under this Agreement, due to the uncertainty inherent in any such
formula calculation.
The following shall apply notwithstanding the above:
(x) in the event of an Asset Sale of less than 100% of the retail
locations of Prism, the payment set out above shall be prorated based upon
the required payments made to Xxxxxx under this Agreement by Prism, with
respect to the locations so sold, during the 12 months preceding the
Extraordinary Transaction, prorated for any partial year of the unexpired
term of this Agreement; and
(y) in the event of an Extraordinary Transaction in which this Agreement
is assigned to and assumed by a third party of credit quality at least
equal to that of Prism on terms and conditions reasonably acceptable to
Xxxxxx, Prism will not be required to make any payment pursuant to this
Paragraph unless and until subsequent annual payments by the assignee to
Xxxxxx under this Agreement in each 12 month period after the Extraordinary
Transaction ("Subsequent Annual Payments") fail to equal or exceed required
payments
5
Xx. Xxxxxx X. Xxx
Page 6
December _, 1996
made to Xxxxxx under this Agreement during the 12 months preceding the
Extraordinary Transaction ("Prior Annual Payments"). If in any such 12
month period Subsequent Annual Payments are less than the Prior Annual
Payments (a "Shortage Period"), Prism shall pay to Xxxxxx a pro rata
portion of the Termination Payment determined by multiplying the
Termination Payment due as if the Extraordinary Transaction had occurred at
the beginning of the Shortage Period by a fraction, the numerator of which
is the amount of Subsequent Annual Payments and the denominator of which is
the amount of Prior Annual Payments.
16. TERM OF AGREEMENT:
The term of this Agreement will commence on the date the merger of VCI with
and into Prism becomes effective, and shall terminate on the tenth
anniversary of that effective date. This Agreement may, however, be
terminated by Xxxxxx at any time for any reason upon prior written notice
to Prism. Upon the commencement of this Agreement, the existing purchasing
contract, dated effective as of July 1, 1996, between Xxxxxx and VCI, shall
be terminated.
17. ASSIGNMENT:
Prism may not assign this Agreement without the express written consent of
Xxxxxx.
XXXXXX ENTERTAINMENT, INC. PRISM ENTERTAINMENT CORPORATION
___________________________ _______________________________
Xxxxx X. Xxxxxx _______________________________
Chairman and President President
6
