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INSTRUMENT OF EVIDENCE OF INDEBTEDNESS
THIS INSTRUMENT OF EVIDENCE OF INDEBTEDNESS dated as of the
30th day of September, 1996, is by and among West Coast
Entertainment Corporation, a Delaware corporation (the "Buyer"),
and the Sellers identified on SCHEDULE A attached hereto
(individually, a "Seller" and collectively, the "Sellers"), in
connection with the consummation of the transactions contemplated
by that certain Asset Purchase Agreement dated as of September 30,
1996, by and among the Buyer, the Sellers and the other parties
thereto (the "Purchase Agreement"). Capitalized terms used
herein, and not otherwise defined herein, shall have the
respective meanings ascribed to them in the Purchase Agreement.
WHEREAS, the Buyer has acquired substantially all of the
assets and business of each of the Sellers pursuant to the
Purchase Agreement; and
WHEREAS, in partial consideration for such assets and
business, the Buyer has agreed to issue this Instrument, pursuant
to which it will deliver to the Sellers shares of its Common
Stock, at the times and on the terms described herein.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Buyer and the Sellers hereby
agree as follows:
1. ISSUANCE OF SHARES. (a) The Buyer shall issue to the
Sellers, at the times and on the terms provided herein, the number
of shares of the Buyer's Common Stock, $.01 par value per share
("Common Stock"), as is determined by dividing $3,919,000 by the
Market Value (as defined in Section 1(d) below). Except to the
extent provided in Section 2 hereof, the shares shall be issued on
the following dates:
(1) One-third of the total number of shares issuable
pursuant to this Section 1(a) shall be issued on March 30,
1997 (the "First Issue Date");
(2) One-third of the total number of shares issuable
pursuant to this Section 1(a) shall be issued on September
30, 1997 (the "Second Issue Date"); and
(3) The balance of the shares issuable pursuant to this
Section 1(a) shall be issued on March 30, 1998 (the "Third
Issue Date");
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each of such dates being sometimes hereinafter referred to as an
"Issue Date." The excess of (i) the total number of shares to be
issued by the Buyer hereunder over (ii) the amount of shares
actually issued pursuant to this Section 1(a) at any point in time
is hereinafter referred to as the "Unissued Shares."
(b) The Buyer shall issue additional shares of its
registered Common Stock (the "Additional Shares") or pay
additional cash consideration to the Sellers pursuant to this
Instrument on the terms described in this Section 1(b). If, on
the First Issue Date, the closing price of a share of Buyer Common
Stock as reported on The Nasdaq Stock Exchange (the "First Issue
Date Price"), is less than the Market Value, the Buyer shall
deliver, within three business days following the First Issue
Date, (1) cash or (2) Additional Shares, valued at the First Issue
Date Price, which stock shall not be subject to any restrictions
whatsoever, or (3) some combination of items (1) and (2), in any
event, with an aggregate value equal to (A) the number of shares
of Buyer Common Stock issued on the First Issue Date multiplied by
(B) the excess of the Market Value over the First Issue Date
Price.
If, on the Second Issue Date, the closing price of a
share of Buyer Common Stock as reported on the Nasdaq Stock
Exchange (the "Second Issue Date Price"), is less than the Market
Value, the Buyer shall deliver, within three business days
following the Second Issue Date, (1) cash or (2) Additional
Shares, valued at the Second Issue Date Price, which stock shall
not be subject to any restrictions whatsoever, or (3) some
combination of items (1) and (2), in any event, with an aggregate
value equal to 50% of (A) the number of shares of Buyer Common
Stock issued on the Second Issue Date multiplied by (B) the excess
of the Market Value over the Second Issue Date Price.
(c) All shares of Buyer Common Stock to be issued
pursuant to this Instrument shall be registered under the
Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"SEC").
(d) The Market Value shall be equal to the average of
the bid and asked prices per share of Buyer's Common Stock as
reported on the Nasdaq Stock Exchange for each of the fifteen
trading days ending on the business day preceding the Closing
Date.
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2. Acceleration.
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(a) In the event that the Buyer fails to deliver the
shares on any Issue Date as provided in Section 1 above (or any
Additional Shares issuable or cash consideration payable pursuant
to Section 1(b) above on the date specified therein), or fails to
register any of the shares to be delivered pursuant hereto, and,
within 30 days following written notice of such failure from the
Sellers to the Buyer, the Buyer has not delivered all such
registered shares or cash, the Buyer shall immediately and without
further action on the part of the Sellers, be obligated to issue
all Unissued Shares and Additional Shares (or cash in lieu of such
Additional Shares). For purposes of determining the number of
Additional Shares with respect to any Issue Date which has not yet
occurred (e.g., the Buyer fails to deliver shares on the First
Issue Date, and the Second Issue Date has not yet occurred for
purposes of calculating the number of Additional Shares which are
deliverable pursuant to this Section 2(a) in respect of the Second
Issue Date), the applicable Issue Date Price shall be the closing
price of a share of Buyer Common Stock as reported on the Nasdaq
Stock Exchange on the date on which the Buyer shall have failed to
deliver the shares or Additional Shares or cash (as applicable)
(and not the last day of the 30-day notice period described
above).
(b) At the option of the Sellers, the Buyer shall
immediately be obligated to issue all Unissued Shares and
Additional Shares (or cash) pursuant to Section 1(b) above (to the
extent not previously issued or paid) upon the occurrence of any
of the following events (a "Bankruptcy Event"):
(i) If the Buyer (i) makes a composition or an
assignment for the benefit of creditors or trust mortgage,
(ii) applies for, consents to, acquiesces in, files a
petition seeking or admits (by answer, default or otherwise)
the material allegations of a petition filed against it
seeking the appointment of a trustee, receiver or liquidator,
in bankruptcy or otherwise, of itself or of all or
substantially all of its assets, or a reorganization,
arrangement with creditors or other remedy, relief or
adjudication available to or against a bankrupt, insolvent or
debtor under any bankruptcy or insolvency law or any law
affecting the rights of creditors generally, or (iii) admits
in writing its inability to pay its debts generally as they
become due; or
(ii) If an order for relief shall have been entered
by a bankruptcy court or if a decree, order or judgment shall
have been entered adjudging the Buyer insolvent, or
appointing a receiver, liquidator, custodian or trustee, in
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bankruptcy or otherwise, for it or for all or a substantial
portion of its assets, or approving the winding-up or
liquidation of its affairs on the grounds of insolvency or
nonpayment of debts, and such order for relief, decree, order
or judgment shall remain undischarged or unstayed for a
period of ninety (90) days; or if any substantial part of the
property of the Buyer is sequestered or attached and shall
not be returned to the possession of the Buyer or such subsi-
diary or released from such attachment within ninety (90)
days.
The option to accelerate the delivery of Unissued Shares and
Additional Shares or cash (to the extent not previously delivered)
pursuant to Section 1(b) upon the occurrence of a Bankruptcy Event
shall be exercisable only by delivery of written notice to the
Buyer within 30 days following notice to Sellers of the occurrence
of any of such events. For purposes of determining the number of
Additional Shares issuable or cash payable pursuant to this
Section 2(b) in respect of any Issue Date which has not yet
occurred, the applicable Issue Date Price shall be the closing
price of a share of Buyer Common Stock as reported on the Nasdaq
Stock Exchange on the date on which the Bankruptcy Event shall
have occurred.
(c) If the Buyer's obligation to deliver Unissued
Shares and Additional Shares (or cash) is accelerated pursuant to
Section 2(a) or (b) above, the Sellers shall also have the option
to elect to have the Buyer pay to the Sellers cash in lieu of
delivery of the Unissued Shares or any Additional Shares, such
cash to be in an amount equal to (x) the number of Unissued Shares
multiplied by (y) the Market Value, together with the amounts
payable pursuant to Section 1(b) above (to the extent not
previously paid). Any such option must be exercised, if at all,
(i) in writing in the same notice pursuant to which the Sellers
elect to accelerate the delivery of the Unissued Shares and
Additional Shares (or cash) pursuant to this Section 2(b), if
applicable, or (ii) in writing in a notice to the Buyer delivered
PRIOR to the date on which the Buyer delivers the Unissued Shares
and Additional Shares (or cash) pursuant to Section 2(a), and in
any event within 30 days following the last day of the 30-day
period specified in Section 2(a).
3. RIGHT OF SET-OFF. The Buyer shall be permitted to set
off, against the number of shares (or other amounts) deliverable
to the Sellers hereunder, amounts or obligations owed by the
Principals or the Sellers to the Buyer pursuant to the Purchase
Agreement. In order to calculate the reduction in the number of
shares issuable by the Buyer hereunder for this purpose, each
share shall have a value equal to the Market Value.
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4. EARLIER ISSUANCE. If, prior to the date of issuance of
all of the shares to be issued pursuant to Section 1, the Buyer
intends to register shares of Buyer Common Stock owned by Xxxxx X.
Xxxxxxxx, III or T. Xxxx Xxxxxxxx for the account of Xxxxx X.
Xxxxxxxx, III or T. Xxxx Xxxxxxxx (the "Standleys") pursuant to a
Registration Statement to be filed with the SEC, the Buyer shall
so notify the Sellers in writing. The Sellers shall have the
option, exercisable in writing within 15 days following receipt of
any such notice, to make an irrevocable election to cause the
Buyer to issue all Unissued Shares together with any Additional
Shares (or cash) pursuant to Section 1(b) as soon as practicable
following the first date on which the Standleys' shares are sold
pursuant to such Registration Statement. If the Sellers make such
an election and shares of the Standleys' Buyer Common Stock are so
registered and sold, and the effectiveness of such Registration
Statement, or the closing of the sale of shares for the account of
the Standleys thereunder is delayed past the date on which the
Unissued Shares or Additional Shares, if any, would have been
issued pursuant to this Instrument, the Sellers shall have no
claim for damages or equitable relief associated with any such
delay.
If the Sellers make such an election, and the Standleys
thereafter determine not to register or sell shares of their Buyer
Common Stock, the Sellers and the Buyer shall cause the Unissued
Shares and Additional Shares (or cash), if any, to be issued
hereunder on such dates as shall be as close as reasonably
practicable to the Issue Dates originally provided for in Section
1.
For purposes of determining the number of Additional Shares
issuable or cash payable pursuant to this Section 4 in respect of
any Issue Date which has not yet occurred, the applicable Issue
Date Price shall be the closing price of a share of Buyer Common
Stock as reported on the Nasdaq Stock Exchange on the date on
which the Standleys notify the Sellers in writing that they intend
to file a Registration Statement with the SEC.
5. ALLOCATION OF SHARES DELIVERABLE TO THE ASSETS. The
Buyer and the Seller hereby agree and acknowledge that the value
of the consideration issuable pursuant to this Instrument shall be
allocated for tax purposes solely to goodwill of the Sellers being
acquired by the Buyer pursuant to the Purchase Agreement, and not
to any of the Sellers other Assets.
6. General.
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(a) SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that the Buyer and
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the Sellers may not assign their respective rights and obligations
hereunder without the prior written consent of the other party;
provided that, any Seller may, without the consent of the Buyer,
assign its rights hereunder to its respective shareholders
pursuant to and in connection with a plan of liquidation adopted
by such Seller. Any assignment in contravention of this provision
shall be void. Except as provided in this Section 6(a), the
Sellers may not transfer to any other person the right to receive
shares of Buyer Common Stock hereunder without the prior consent
of the Buyer.
(b) NOTICES. Any notices or other communications
required or permitted hereunder shall be sufficiently given if
delivered personally or sent by federal express or other reputable
nationwide overnight courier service, registered or certified
mail, postage prepaid, addressed as follows or to such other
address of which the parties may have given notice:
To any Seller: To Each of:
Xx. Xxxxxx Xxxxxxxx
000 Xxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Xx. Xxx Xxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Mr. Xxxxx Xxxxxx
X.X. Xxx 00
Xxxx-Xxxxx, XX 00000
With a copy to: Xxxxx Xxxxx, Esq.
Xxxxx & Xxxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxxxx, XX 00000
To the Buyer: West Coast Entertainment Corporation
0000 Xxxxxx Xxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: President
With a copy to: Xxxx and Xxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, Esq.
Unless otherwise specified herein, such notices or other
communications shall be deemed received (1) on the date delivered,
if delivered personally; (2) on the business day following
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delivery to an overnight courier; (3) three business days after
being sent, if sent by registered or certified mail; or (4) on the
date of actual delivery, if sent by any other method.
(c) Arbitration.
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(i) Except as provided in this Section 6(c), any
dispute, controversy or claim between the parties arising out of
or relating to this Instrument, a breach hereof or the
transactions contemplated hereby, shall be settled by arbitration
in accordance with the provisions of this Section 6(c). Any
arbitration pursuant to this Section 6(c) shall be conducted by a
single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of
any party. The arbitrator shall have a minimum of five years of
experience in the area of business relevant to the particular
dispute. Each of the two parties to the dispute (all Sellers
being treated as one party for this purpose) shall be permitted to
submit only one proposal to the arbitrator, and the arbitrator
shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a
resolution notwithstanding the failure of a party to participate
in the proceedings. Each of the parties shall pay its own costs
and expenses in connection with any such arbitration, and the
parties shall share equally in the fees and expenses of the
arbitrator.
Notwithstanding the foregoing, any dispute as to the failure
of Buyer to deliver cash or stock at the times and in the amounts
specified in this Instrument shall be presented in a court of law
or equity, and shall not be submitted to arbitration hereunder.
(ii) The parties agree that any such arbitration
will occur in Philadelphia, Pennsylvania, any such arbitration
award shall be final and binding upon the parties, may be entered
in any court having jurisdiction and shall not be appealable by
either party in any court.
(d) ENTIRE AGREEMENT; AMENDMENTS; ATTACHMENTS. The
Buyer and the Sellers may amend or modify this Agreement, in such
manner as may be agreed upon, only by a written instrument
executed by the Buyer and the Sellers.
(e) SECTION HEADINGS. The section headings contained
in this Instrument are for the convenience of the parties and in
no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
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(f) SEVERABILITY. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement.
(g) COUNTERPARTS. This Instrument and any amendment
hereto may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one
and the same document.
(h) SATURDAYS, SUNDAYS, HOLIDAYS. If any date that may
at any time be specified in this Instrument as an Issue Date shall
fall on Saturday, Sunday or on a day which in the Philadelphia,
Pennsylvania shall be a legal holiday, then the date for the
making of that payment shall be the next subsequent day which is
not a Saturday, Sunday or legal holiday.
(i) GOVERNING LAW. This Instrument shall be construed
and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of Delaware.
[Remainder of page left intentionally blank.]
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IN WITNESS WHEREOF, this Instrument has been executed and
delivered as a sealed instrument on the date first above written
by the duly authorized representative of the Buyer.
WEST COAST ENTERTAINMENT
CORPORATION
By /s/ T. Xxxx Xxxxxxxx
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President
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
Large Corporation
Lyndhurst Video Inc.
Kearny Video Inc.
New Milford Video Inc.
Hillsdale Video Inc.
Hack Video Inc.
Xxxx Video Inc.
Bergen Video Inc.
Xxxxxx Video Inc.
Rahway Video Inc.
Wall Video Inc.
Mont Video Inc.
Super Video of Park Ridge, Inc.
Xxxxxxx Video LLC
Super Video Management Co., Inc.
By /s/ Xxxxxx Xxxxxxxx
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The duly authorized and
acting representative
of each Seller
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Schedule A
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Sellers
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Large Corporation
Lyndhurst Video Inc.
Kearny Video Inc.
New Milford Video Inc.
Hillsdale Video Inc.
Hack Video Inc.
Xxxx Video Inc.
Bergen Video Inc.
Xxxxxx Video Inc.
Rahway Video Inc.
Wall Video Inc.
Mont Video Inc.
Super Video of Park Ridge, Inc.
Xxxxxxx Video LLC
Super Video Management Co., Inc.
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