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EXHIBIT 5
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 26, 1997 (the "Agreement"),
between Xxxx Capital, Inc. ("Purchaser") and The Learning Company, Inc., a
Delaware corporation (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, affiliates of Purchaser are entering into a Securities Purchase
Agreement (the "Purchase Agreement") with the Company for the purchase of Series
A Convertible Participating Preferred Stock (the "Preferred Stock");
WHEREAS, in consideration of the willingness of such affiliates of
Purchaser to enter into the Purchase Agreement, Purchaser has requested that the
Company grant to Purchaser acting on behalf of its affiliates an option to
acquire from time to time up to 102,097 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), upon the terms and subject to the
conditions hereof; and
WHEREAS, in order to induce Purchaser to enter into the Purchase
Agreement, the Company has agreed to grant Purchaser the requested option;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. THE OPTION; EXERCISE; ADJUSTMENTS. The Company hereby grants to
Purchaser an irrevocable option (the "Option") to purchase up to 102,097 shares
of Common Stock (the "Option Shares") in the manner and at the purchase price
set forth below. Subject to Section 17 hereof, the Option may be exercised by
Purchaser in whole or in part and from time to time, at an exercise price of
$11.50 per Option Share (the "Exercise Price"), for a period of three years from
the earlier of (a) the second business day following the first meeting of the
Company stockholders at which such stockholders fail to approve the issuance of
the Preferred Stock or (b) six months from the execution of the Purchase
Agreement, if a meeting of the Company stockholders to consider and act upon
such issuance has not been held by such date. In the event of any change in the
number of issued and outstanding shares of Common Stock by reason of any stock
dividend, stock split, split-up, extraordinary dividend or distribution,
recapitalization, combination, merger or other change in the corporate or
capital structure of the Company, the
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type and number of Option Shares subject to the Option and the Exercise Price
per Option Share shall be appropriately adjusted and proper provision shall be
made in the agreements governing such transaction so that Purchaser shall
receive, upon exercise of the Option, the number and class of shares or other
securities or property that Purchaser would have received in respect of Common
Stock if the Option had been exercised immediately prior to such event, or the
record date therefor, as applicable.
2. MEANS OF EXERCISING OPTION. The Option shall be exercised by
giving written notice (the "Stock Exercise Notice") to the Company at the
address set forth in Section 10 hereof. Such notice shall specify the total
number of Option Shares the Purchaser wishes to purchase. Each closing of a
purchase of Option Shares shall occur at a date designated by Purchaser in the
Stock Exercise Notice, which date shall be not later than twenty business days
and not earlier than two business days from the date such notice is given. The
Stock Exercise Notice shall specify which of the payment methods described in
the first sentence of Section 3 that Purchaser intends to employ.
3. PURCHASE PRICE FOR SHARES. At the closing of a purchase of Option
Shares, Purchaser will make full payment of the purchase price therefor (a) by
wire transfer of immediately available funds or by certified check of an amount
equal to the product of the Exercise Price and the number of Option Shares being
purchased, (b) if the Company consents and consistent with applicable law,
through the delivery of an assignment to the Company of a sufficient amount of
the proceeds from the sale of the Option Shares being purchased at the Exercise
Price and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be at Purchaser's direction at the time of
exercise, or (c) if the Company consents and consistent with applicable law, by
requesting the Company to withhold a number of whole and/or fractional shares
(based on the closing sale price regular way of such shares on the New York
Stock Exchange, or, if such security is not listed or admitted to trading on
such Exchange, on the principal national security exchange or quotation system
on which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security on the over-the-counter market on the day in question as reported by
the National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner as furnished by any
New York Stock Exchange member firm selected from time to time by the Board of
Directors of the Company (the "Board of Directors") for
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that purpose, or a price determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of such
Board, on the date of closing specified in the Stock Exercise Notice (if no such
sale takes place on such day, then based on the average of the closing bid and
asked prices, regular way)) sufficient to pay the Exercise Price of such Option
Shares. After payment for the Option Shares covered by the Stock Exercise
Notice, the Option shall be deemed exercised to the extent of the Option Shares
specified in the Stock Exercise Notice as of the date such Stock Exercise Notice
is given to the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Purchaser that (a) the execution and delivery of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and this Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
similar laws affecting creditor's rights generally and by the general principles
of equity, regardless of whether enforcement is sought in a proceeding at law or
in equity; (b) the Company has taken all necessary corporate action to authorize
and reserve the Option Shares for transfer upon exercise of the Option, and the
Option Shares, when delivered by the Company to Purchaser upon exercise of this
Option, will be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights; (c) the execution and delivery of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby do not require the consent, approval or authorization of, or filing with,
any person or public authority and will not violate or conflict with, result in
the acceleration or termination of, or constitute a default under, any term or
provision of any charter or by-law, indenture, license, approval, agreement,
understanding or other instrument, or any statute, rule, regulation, judgment,
order or other restriction binding upon or applicable to the Company or any of
its subsidiaries or any of their respective properties or assets; and (d) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to the Company that (a) this
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Agreement has been duly executed and delivered by Purchaser and constitutes a
valid and binding agreement of Purchaser, enforceable against Purchaser in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and by the general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity; and (b) Purchaser is
acquiring the Option and the Option Shares issuable upon exercise of the Option
for its own account, and not with a view to any distribution thereof. Purchaser
understands that the Option and the Option Shares issuable upon conversion of
the Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), by reason of specific exemptions therefrom which depend
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Purchaser's representations as expressed herein. Purchaser's
financial condition and investments are such that it is in a position to hold
the Option and the Option Shares issuable upon exercise of the Option for an
indefinite period, bear the economic risks of the investment and to withstand
the complete loss of the investment. Purchaser has extensive knowledge and
experience in financial and business matters and has the capability to evaluate
the merits and risks of the Option and the Option Shares issuable upon exercise
thereof. Purchaser qualifies as an "accredited investor" as such term is defined
in Section 2(15) of the Securities Act and Regulation D promulgated thereunder.
6. THE CLOSING. Any closing hereunder shall take place on the date
(the "Closing Date") specified by Purchaser in its Stock Exercise Notice
pursuant to Section 2 at 10:00 A.M., local time at the offices of the Company,
or at such other time and place as the parties hereto may agree.
7. LISTING. The Company will use its best efforts promptly to list
the Common Stock underlying the Option on the New York Stock Exchange.
8. CONSENTS. Each of the parties hereto will use its reasonable
efforts to consummate and make effective the transactions contemplated by this
Agreement.
9. SPECIFIC PERFORMANCE. The Company acknowledges that Purchaser
will have no adequate remedy at law if the Company fails to perform any of its
obligations under this Agreement. In such event, the Company agrees that
Purchaser shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement and that it will not take any
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action to impede Purchaser's efforts to enforce such right of specific
performance.
10. NOTICE. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first class mail
(registered or certified, return receipt requested), telex, telecopier or
courier guaranteeing overnight delivery addressed:
(a) If to the Purchaser:
Xxxx Capital, Inc.
Xxx Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxx Xxxxxxxx
with a copy to:
Xxxxx X. Xxxxxxx
Skadden, Arps, Slate,
Xxxxxxx & Xxxx LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
(b) If to the Company:
Xxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xx. Xxxx X. Xxxxxx
with a copy to:
Xxxx X. Xxxxxx
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; when answered back if
telexed; when receipt is acknowledged, if telecopied; and on the next business
day, if timely delivered to a courier guaranteeing overnight delivery.
11. PARTIES IN INTEREST. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns. Nothing in this
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Agreement, expressed or implied, is intended to confer upon any Person other
than Purchaser or the Company, or their successors or assigns, any rights or
remedies under or by reason of this Agreement.
12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Purchase Agreement and the other documents referred to therein, contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
13. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. No assignment of this
Agreement may be made by either party at any time, whether or not by operation
of law, without the other party's prior written consent, except that Purchaser
may assign any of its rights hereunder to an affiliate of Purchaser or to the
Other Purchasers or any of their affiliates without the Company's consent;
provided that such affiliate expressly assumes in writing all of Purchaser's
obligations hereunder, and provided that such assignment shall not relieve the
assigning Purchaser of its obligations hereunder.
14. HEADINGS. The section headings herein are for convenience only
and shall not affect the construction of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
16. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the conflicts of laws principles thereof.
17. TERMINATION. The Option shall terminate upon the closing of the
purchase and sale of the Preferred Stock as contemplated by the Purchase
Agreement.
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18. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
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IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be duly executed and delivered under seal on the day and year first
above written.
XXXX CAPITAL, INC.
By: /s/ Xxxx X. Xxxxxxxx
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Name: Xxxx X. Xxxxxxxx
Title: Managing Director
THE LEARNING COMPANY, INC.
By: /s/ R. Xxxxx Xxxxxx
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Name: R. Xxxxx Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
