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EXHIBIT 10.40
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of March 27, 1997
among Dove Entertainment, Inc., a California corporation (the "COMPANY"), and
the persons listed on Appendix I hereto (each a "PURCHASER" and collectively
the "PURCHASERS")
WITNESSETH:
WHEREAS, the Company desires to sell, and Media Equities
International, LLC ("MEI") desires to purchase, subject to the terms and
conditions of this Agreement, shares of the newly designated Series B Preferred
Stock of the Company, par value $.01 per share (the "SERIES B PREFERRED
STOCK");
WHEREAS, the Company desires to sell, and Xxxxxxx Xxxxx and Xxxxxxx
Xxxxxx ("XXXXX/XXXXXX") desire to purchase, subject to the terms and conditions
of this Agreement, shares of the newly designated Series C Preferred Stock of
the Company, par value $.01 per share (the "SERIES C PREFERRED STOCK" and
together with the Series B Preferred Stock, the "PREFERRED STOCK"); and
WHEREAS, MEI will not purchase the Series B Preferred Stock unless
Viner/Xxxxxx purchase the Series C Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing and the covenants,
agreements, representations and warranties herein contained, and intending to
be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. SALE OF THE SECURITIES.
(a) Subject to the terms and conditions herein set forth,
the Company agrees to sell and issue to the Purchasers, and each Purchaser
agrees to purchase from the Company, securities of the Company as follows:
(i) on the Initial Closing Date (as hereinafter
defined), MEI shall purchase (A) that number of shares (the "INITIAL
SERIES B PREFERRED SHARES") of Series B Preferred Stock set forth on
Appendix I for a purchase price of $1,000 per share (the
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"PURCHASE PRICE") or an aggregate of $3,000,000, and (B) a warrant
(the "INITIAL MEI WARRANT") to purchase the number of shares of common
stock of the Company, par value $.01 per share (the "COMMON STOCK")
set forth on Appendix I (the "INITIAL MEI WARRANT SHARES"), which
warrant shall be in the form of Exhibit A-1 annexed hereto for a
purchase price of $.001 per Initial MEI Warrant Share subject to the
Warrant (the "WARRANT PURCHASE PRICE");
(ii) On the Initial Closing Date, Viner/Xxxxxx
will purchase (A) that number of shares (the "INITIAL SERIES C
PREFERRED SHARES") of Series C Preferred Stock set forth on Appendix 1
for the Purchase Price, or an aggregate of $920,000, and (B) a warrant
(the "INITIAL VINER/XXXXXX WARRANT") to purchase the number of shares
of Common Stock set forth on Appendix 1 (the "INITIAL VINER/XXXXXX
WARRANT SHARES"), which warrants shall be in the form of Exhibit A-2
annexed hereto for the Warrant Purchase Price;
(iii) on the Second Closing Date (as hereinafter
defined) MEI will purchase (A) that number of shares (the "SECOND
SERIES B PREFERRED SHARES") of Series B Preferred Stock set forth on
Appendix I for the Purchase Price or an aggregate of $1,000,000 and
(B) a warrant (the "SECOND MEI WARRANT") to purchase the number of
shares of Common Stock set forth on Appendix I for the Warrant
Purchase Price; and
(iv) On the Second Closing Date, Viner/Xxxxxx will
purchase (A) that number of shares (the "SECOND SERIES C PREFERRED
SHARES") of Series C Preferred Stock set forth on Appendix I for the
Purchase Price or an aggregate of $1,000,000, and (B) a warrant (the
"SECOND VINER/XXXXXX WARRANT") to purchase the number of shares of
common stock set forth on Appendix I (the "SECOND VINER/XXXXXX WARRANT
SHARES").
(b) The following additional defined terms have the
following meanings:
(i) "INITIAL PREFERRED SHARES" means the Initial
Series B Preferred Share or the Initial Series C Preferred
Shares, or any of them.
(ii) "INITIAL WARRANTS" means the Initial MEI
Warrant or the Initial Viner/Xxxxxx Warrant, or any of them.
(iii) "INITIAL WARRANT SHARES" means the Initial
MEI Warrant Shares or the Initial Viner/Xxxxxx Warrant Shares, or any
of them.
(iv) "PREFERRED SHARES" means the Initial
Preferred Shares or the Second Preferred shares, or any of them.
(v) "SECOND PREFERRED SHARES" means the Second
Series B Preferred Shares or the Second Series C Preferred Shares, or
any of them.
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(vi) "SECOND WARRANTS" means the Second MEI
Warrant or the Second Viner/Xxxxxx Warrant Shares, or any of them.
(vii) "SECOND WARRANT SHARES" means the Second MEI
Warrant Shares or the Second Viner/Xxxxxx Warrant, or any of them.
(viii) "WARRANTS" means the Initial Warrants or the
Second Warrants, or any of them.
(ix) "WARRANT SHARES" means the Initial Warrant
Shares or the Second Warrant Shares, or any of them.
(c) In connection with the purchase of the Preferred
Shares and Warrants, each of MEI and Viner/Xxxxxx shall each have the right to
assign, all or a portion of its rights (but not its obligation) to purchase
such securities from the Company under this Agreement to any person, provided,
such person submits to the Company at the Initial Closing or Second Closing, as
the case may be, a certificate setting forth the representations in Sections
3.2, 3.3 and 3.4 hereinbelow.
(d) In connection with the sale and issuance of the
Preferred Shares and Warrants the Company agrees to register the shares of
Common Stock issuable upon conversion of the Preferred Shares (the "COMMON
SHARES") and Warrant Shares as set forth in the form of Registration Rights
Agreement annexed hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT").
1.2. CLOSING. The closing of the issuance and sale of
the Initial Preferred Shares and Initial Warrants to the
Purchasers (the "INITIAL CLOSING") shall take place at the
offices of the Company on the date of this Agreement or on
such other date as shall be mutually agreed upon by the
parties to this Agreement (the date on which the Initial
Closing actually takes place being referred to as the "INITIAL
CLOSING DATE") and the closing of the issuance and sale of the
Second Preferred Shares and Second Warrants (the "SECOND
CLOSING") shall take place at the offices of the Company as
soon as practicable after the Initial Closing Date but in any
event not later than May 25, 1997 or on such other date as
shall be mutually agreed upon by the parties to this Agreement
(the date on which the Second Closing actually takes place
being referred to as the "SECOND CLOSING DATE").
1.3. DELIVERY.
(a) At the Initial Closing, the Company shall issue and
deliver to each Purchaser (i) a certificate or certificates, registered in the
name of the Purchaser, representing the Initial Preferred Shares being
purchased by such Purchaser, against delivery to the Company of the Purchase
Price therefor by wire transfer except as provided in Appendix I and (ii) the
Initial Warrant being purchased by such Purchaser against the delivery of the
Initial Warrant Purchase Price therefore by wire transfer and shall execute and
deliver the Registration Rights Agreement; and
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(b) At the Second Closing, the Company shall issue and
deliver to each Purchaser (i) a certificate or certificates registered in the
name of such Purchaser, representing the Second Preferred Shares being purchased
by such Purchaser against delivery to the Company of the Purchase Price therefor
by wire transfer except as provided in Appendix I and (ii) the Second Warrant
against the delivery of the Warrant Purchase Price by wire transfer.
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchasers the following
(provided, that the representations and warranties to the Purchasers who are
current members of management of the Company are limited to matters affecting
the authorization and validity of the Preferred Shares, Common Shares, Warrants
and Warrant Shares issuable to such Purchasers):
2.1. ORGANIZATION AND STANDING OF THE COMPANY. The
Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of
California, and has all requisite corporate power and
authority to own and lease its properties and assets and to
conduct its business as currently conducted. The Company is
duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property in the course of its
business requires such qualification, except where the failure
to so qualify would not have a material adverse effect on the
business, operations or financial condition of the Company and
its subsidiaries taken as a whole (a "MAE").
2.2. AUTHORIZATION.
(a) The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Warrants, the Registration
Rights Agreement, the Pledge Agreement and the Consulting Agreement (as
hereinafter defined), and to carry out the transactions contemplated hereby and
thereby. The terms and provisions of this Agreement, the Warrants and the
Registration Rights Agreement, the Pledge Agreement, the Certificate of
Determination of the Series B Preferred Stock, and the Certificate of
Determination of the Series C Preferred Stock have been reviewed by the
independent directors of the Company who have unanimously recommended to the
Board of Directors that they be approved and that this Agreement, the Warrants,
the Registration Rights Agreement, the Pledge Agreement and the Consulting
Agreement, be executed and delivered. The execution, delivery and performance
of this Agreement, the Warrants, the Registration Rights Agreement, the Pledge
Agreement and the Consulting Agreement by the Company have been duly authorized
by all requisite corporate action, and this Agreement, the Warrants, the
Registration Rights Agreement and the Pledge Agreement have been, and the
Consulting Agreement when executed and delivered by the Company will, be duly
executed and delivered by the Company and constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as
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enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
(b) The Company has reserved from its authorized but
unissued shares of Common Stock sufficient shares of Common Stock for issuance
upon the conversion of the Preferred Shares into Common Shares and Warrant
Shares issuable upon the date hereof, and the Consulting Shares issuable under
the Consulting Agreement
2.3. CAPITAL STOCK. The authorized shares of the Company
consist of 20,000,000 shares of Common Stock and 2,000,000
shares of preferred stock, $.01 par value per share, of which
400,000 shares have been designated Series A Preferred Stock,
5,000 shares have been designated Series B Preferred Stock,
and 5,000 shares have been designated Series C Preferred
Stock. The voting rights, preferences, limitations and
special rights of the Series B Preferred Stock are set forth
in the resolutions adopted by the Board of Directors of the
Company on March 27, 1997, a copy of which is annexed hereto
as Schedule 2.3(a). The voting rights, preferences,
limitations and special rights of the Series C Preferred Stock
are set forth in resolutions adopted by the Board of Directors
of the Company on March 27, 1997, a copy of which is annexed
hereto as Schedule 2.3(b). As of the date hereof, there are
5,313,240 shares of Common Stock and 214,113 shares of Series
A Preferred Stock of the Company outstanding and 2,819,120
shares of Common Stock issuable upon execution of currently
outstanding options and warrants and conversion of convertible
securities, as set forth in Schedule 2.3(c). Also set forth
on Schedule 2.3(c) is the number of shares of Common Stock
which will be issuable upon exercise of currently outstanding
options and warrants and conversion of convertible securities
after giving affect to the transactions contemplated by this
Agreement, including the issuance of the Warrant Shares.
Except as set forth in Schedule 2.3(c) or contemplated hereby,
there are no outstanding subscriptions, warrants, options or
other rights or commitments of any character to subscribe for
or purchase from the Company, or obligating the Company to
issue, any shares of any class of the Company's Common Stock
or any securities convertible into or exchangeable for such
shares of Common Stock. There are no voting trusts or other
agreements or understandings known to the Company with respect
to the voting of the capital stock of the Company.
2.4. ISSUANCE OF THE PREFERRED SHARES, THE COMMON SHARES,
THE WARRANTS AND THE WARRANT SHARES.
(a) The sale, issuance and delivery of the Preferred
Shares in accordance with the terms of this Agreement have been duly authorized
by all necessary corporate action, and the Preferred Shares, when so sold,
issued and delivered, against the full payment of the Purchase Price will be
duly and validly issued, fully paid and nonassessable.
(b) The issuance and delivery of the Common Shares have
been duly authorized by all necessary corporate action, and the Common Shares,
when so issued and delivered upon conversion of the Preferred Shares, will be
duly and validly issued, fully paid and nonassessable.
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(c) The issuance and delivery of the Warrant Shares have
been duly authorized by all necessary corporate action, and the Warrant Shares,
when so issued and delivered in accordance with the terms of the Warrants,
including payment of the purchase price therefor, will be duly and validly
issued, fully paid and nonassessable.
(d) The issuance and delivery of the shares issuable
pursuant to the Consulting Agreement (the "CONSULTING SHARES") have been duly
authorized by all necessary corporate action; and the Consulting Shares, when
so issued and delivered in accordance with the terms of the Consulting
Agreement, will be duly and validly issued, fully paid and nonassessable.
(e) Neither the sale, issuance and delivery of the
Preferred Shares nor the Common Shares nor the Warrants nor the Warrant Shares
nor the Consulting Shares are subject to any preemptive rights of stockholders
of the Company or to any right of first refusal or other similar right in favor
of any person.
2.5. CONSENTS AND APPROVALS. Except for filings under
Federal and applicable state securities laws and the filing of
the Certificates of Determination of the Preferred Stock with
the Secretary of State of the State of California which shall
be accomplished as required prior or subsequent to the
issuance of the Preferred Shares, no permit, consent, approval
or authorization of, or declaration to or filing with any
governmental or regulatory authority or other person, not made
or obtained, is required in connection with the execution or
delivery of this Agreement by the Company, the offer, sale,
issuance or delivery of the Preferred Shares, the Common
Shares, the Warrants or the Warrant Shares, or the carrying
out by the Company of the other transactions contemplated
hereby.
2.6. PRIVATE OFFERING.
(a) Neither the Company nor anyone acting on behalf of
the Company has offered the Preferred Shares, the Common Shares, the Warrants
or the Warrant Shares for sale to, or solicited offers to buy from, or
otherwise approached or negotiated with, any individual or entity in connection
with the sale of such securities other than a limited number of investors,
including the Purchasers. Assuming the accuracy of each Purchaser's
representations contained in Section 3 of this Agreement, the offer, issuance
and delivery of the Preferred Shares, the Common Shares, the Warrants and the
Warrant Shares are exempt from registration under the Securities Act of 1933,
as amended (the "1933 ACT"), and all action required to be taken prior to the
offer or sale of the Preferred Shares, the Common Shares, the Warrants and the
Warrant Shares has been taken under the applicable state securities laws.
(b) The Company represents and warrants to the Purchasers
that it has not since September 30, 1996 completed any financing, except as set
forth on Schedule 2.6.
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2.7. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) True, correct and complete copies of the Company's
Articles of Incorporation, including all amendments and restatements to the
date hereof (as amended, the "ARTICLES OF INCORPORATION"), as filed with the
Secretary of State of the State of California, have been delivered to the
Purchasers and remain true, correct, complete and in effect.
(b) True, correct and complete copies of the Company's
By-Laws, including all amendments and restatements to the date hereof (as
amended, the "BY-LAWS"), have been delivered to the Purchasers and remain true,
correct, complete and in effect.
2.8. NO CONFLICT WITH LAW OR DOCUMENTS. Except as set
forth on Schedule 2.8, the execution, delivery and performance
by the Company of this Agreement, the Warrants and the
Registration Rights Agreement, and the performance by the
Company of its obligations under such documents, and the sale,
issuance and delivery of the Preferred Shares, the Common
Shares, the Warrants and Warrant Shares, will not violate any
provision of law, any order of any court or other agency of
government, the Articles of Incorporation or By-Laws, or any
provision of any indenture, agreement or other instrument by
which the Company or any of its properties or assets is bound
or affected, or conflict with, result in a breach of, result
in or permit the termination of or acceleration of rights or
obligations under, or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company.
2.9. OPERATIONS. The Company has not carried on any
business except as set forth in its Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995, its Form
10-KSB/A for the fiscal year ended December 31, 1995, its
Quarterly Reports on Form 10-QSB for the quarters ended March
31, June 30 and September 30, 1996 and its Proxy Statement
relating to its Annual Meeting of Shareholders in November,
1996 (collectively, the "SEC DOCUMENTS"), true, correct and
complete copies of which have been delivered to the
Purchasers.
2.10. SUBSIDIARIES. Except set forth on Schedule 2.10, the
Company has no subsidiaries and does not own any interest,
directly or indirectly, in any other corporation, partnership,
joint venture or other enterprise or entity.
2.11. LITIGATION. Except as set forth in Schedule 2.11
hereof, there are no (a) actions, suits, customer claims
individually in excess of $50,000 or in the aggregate in
excess of $150,000, or any proceedings or investigations at
law or in equity or by or before any governmental
instrumentality or other agency now pending or to the
Company's knowledge, threatened against or adversely affecting
the Company, or (b) judgments, decrees, injunctions or orders
of any court, governmental department,
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commission, agency, instrumentality or arbitrator against or
affecting the Company, except as in all matters under (a) and
(b) which, are not reasonably expected to result in a MAE, or
are covered by appropriate amounts of insurance.
2.12. INTELLECTUAL PROPERTY.
(a) Set forth on Schedule 2.12 is a true and complete
list of the Company's library and audio titles, books, films and television
products as of December 31, 1996 (the "PRODUCTS"), except for Products
("NONMATERIAL PRODUCTS") which in the aggregate do not generate a material
amount of revenues for the Company or for which the Company is not obligated to
pay in the aggregate a material amount in connection with obtaining or
retaining the rights thereto. The Company owns, is licensed or otherwise has
the right to all intellectual property relating to the Products, and all rights
to use all patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and other rights (collectively including with respect to
the intellectual property relating to the Products, the "RIGHTS") being used to
conduct its business as now operated. The Company has provided, or made
available, the Purchasers with a complete set of all such agreements permitting
the Company to use the Rights of third parties or allowing third parties to use
the Rights of the Company except agreements which relate to Nonmaterial
Products. Set forth in Schedule 2.12 is a complete list of licenses or other
contracts relating to the Rights and of registration of patents, trademarks,
service marks and copyrights including any application therefor constituting
the Rights as of December 31, 1996 except for licenses or other contracts
relating to Nonmaterial Products.
(b) No Right or Product presently sold by or employed by
the Company, or which the Company contemplates selling or employing, infringes
upon the Rights that are owned by any third party except as would not result in
a MAE.
(c) No litigation is pending and no claim has been made
against the Company, or to the best of Company's knowledge, is threatened,
contesting the right of the Company to sell or use any Right or Product
presently sold or employed by the Company except as disclosed in Schedule 2.11.
(d) Except as set forth on Schedule 2.12, no employee,
officer or consultant of the Company has any proprietary, financial or other
interest in any Right owned or used by the Company which entitles such person
to the payment of an amount in excess of $10,000 with respect to any single
Right, or $25,000 with respect to all Rights in which such person has an
interest.
(e) The Company has taken reasonable measures to protect
and preserve the security, confidentiality and value of its Rights, including
trade secrets and other confidential information.
2.13. UNDISCLOSED LIABILITIES. Except for the agreements
and obligations listed in Schedule 2.13 or on the balance
sheet for the Company included in its Quarterly Report on Form
10-QSB for the three months ended September 30, 1996, the
Company does not have any outstanding liability except for
liabilities incurred in the ordinary course of business which
are either for amounts less than $50,000 or are cancelable on
not more than 30 days notice. The Company is not in default
in the performance, observance
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or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which
it is a party that could reasonably be expected to result in a
MAE.
2.14. FINANCIAL STATEMENTS. The Company has furnished to
the Purchasers the audited consolidated balance sheets of the
Company as of December 31, 1995 and the unaudited consolidated
balance sheets of the Company as of September 30, 1996 and the
related consolidated statements of operations, stockholders'
equity (net capital deficiency), and cash flows of the Company
for the fiscal year ended December 31, 1995 and the nine
months ended September 30, 1996 (unaudited) which audited
financial statements include the report of the Company's
independent auditors, KPMG Peat Marwick LLP. The financial
statements as of and for the nine months ended September 30,
1996 have been certified by the principal financial officer of
the Company. Such financial statements are complete and
correct, have been prepared in accordance with generally
accepted accounting principles ("GAAP"), consistently applied,
and present fairly the consolidated financial position of the
Company as of such respective dates, and the consolidated
results of its operations and cash flows for the respective
periods then ended, subject with respect to the nine month
financial statements to normal year end and audit adjustments.
2.15. EVENTS SUBSEQUENT TO SEPTEMBER 30, 1996. Except as
set forth in Schedule 2.15, since September 30, 1996, there
has not been any material adverse change in the assets,
liabilities, income, business, operations or prospects of the
Company. Since September 30, 1996, other than the disclosure
set forth in Schedule 2.15 hereto, the Company has not (i)
issued any stock, bonds or other securities, (ii) borrowed any
amount or incurred any liabilities (absolute or contingent),
except current liabilities incurred, and liabilities under
contracts entered into, in the ordinary course of business,
(iii) discharged or satisfied any lien or incurred or paid any
obligation or liability (absolute or contingent) other than
current liabilities shown on its balance sheet as of September
30, 1996, referred to in Section 2.13 hereof and current
liabilities incurred since that date in the ordinary course of
business, (iv) declared or made any payment or distribution to
stockholders as such or purchased or redeemed any shares of
its capital stock or other securities or interests, (v)
mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets, except in the ordinary
course of business, or canceled any debts or claims, (vii)
sold, assigned or transferred any patents, trademarks, trade
names, copyrights, trade secrets or other intangible assets
outside the ordinary course of business, (viii) made any
changes in officer compensation, or (ix) entered into any
transaction except in the ordinary course of business.
2.16. TITLE TO PROPERTIES. The Company has good and
marketable title to all of its owned properties and assets,
free and clear of all mortgages, pledges, security interests,
liens, charges and other encumbrances, except for Permitted
Encumbrances
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(as defined below). The Company enjoys peaceful and
undisturbed possession under all leases relating to real
property and all other leases (other than immaterial leases
which can be replaced on substantially the same terms)
necessary for the operation of the business; and all such
leases are valid and subsisting and in full force and effect.
As used herein, "PERMITTED ENCUMBRANCES" means any mortgages,
pledges, security interests, liens, charges and other
encumbrances (i) as described in Schedule 2.16 hereto, (ii)
liens for current taxes, assessments and other governmental
charges not overdue (other than liens, assessments or charges
being contested in good faith), (iii) mechanic's,
materialmen's and similar liens which may have arisen in the
ordinary course of business and which, in the aggregate, would
not be material to the financial condition of the Company,
(iv) security interests securing indebtedness not in default
for the purchase price of or lease rental payments on property
purchased or leased under capital lease arrangements in the
ordinary course of business, and (v) minor imperfections of
title, if any, not material in amount and not materially
detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed
operations of the Company.
2.17. REAL PROPERTY. Other than the premises containing the
Company's headquarters located at 0000 Xxxxxxx Xxxxxxxxx, Xxx
Xxxxxxx, Xxxxxxxxxx, the Company owns no real property.
2.18. TAXES.
(a) The Company has timely filed all federal, state and
local income tax returns and has timely filed with all appropriate governmental
agencies all sales, ad valorem, franchise and other tax, license, gross
receipts and other similar returns and reports required to be filed by the
Company. The Company has reported all taxable income and losses on those
returns on which such information is required to be reported, and paid or
provided for the payment of all taxes on said returns or taxes due pursuant to
any assessment received by it, including without limitation, any taxes by law
to be withheld and/or paid in connection with any officer's or employee's
compensation or due pursuant to any assessment received by it. There are no
agreements for the extension of time for the assessment or payment of any
amounts of tax. The Company has made available to the Purchasers for
inspection copies of income tax returns that are true and complete copies of
the federal and applicable state, local or other income tax returns filed by
the Company.
(b) The Company has paid all tax liabilities of the
Company arising through the end of the taxable year ended December 31, 1995.
All tax liabilities of the Company arising after December 31, 1995 have been
paid or adequately disclosed and properly reserved for on the books and records
and financial statements of the Company. No federal or applicable state, local
or other tax return of the Company for any period has been or is currently
under audit by the Internal Revenue Service or any state, local or other tax
authorities. Except for an intangible tax assessment by Florida for
approximately $11,000 (inclusive of accrued interest), no claim has been made
by federal, state, local or other authorities relating to such returns or any
audit. For purposes of this section, the word "timely" shall mean that such
returns were filed within the time prescribed by law
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for the filing thereof, including the time permitted under any applicable
extensions. The Company is not aware of any facts which it believes would
constitute the basis for the proposal of any material tax deficiencies for any
unexamined year. All taxes which the Company is required by law to withhold
and collect have been duly withheld and collected, and has been timely paid
over to the proper authorities to the extent due and payable.
2.19. ENVIRONMENTAL MATTERS. The Company has complied with
each and is not in violation of any, federal, state or local
law, regulation, permit, provision or ordinance relating to
the generation, storage, transportation, treatment or disposal
of hazardous, toxic or polluting substances, except where such
noncompliance or violation could not reasonably be expected to
result in a MAE. The Company has obtained and adhered to all
necessary permits and other approvals necessary to store,
dispose, and otherwise handle hazardous, toxic and polluting
substances, the failure of which to obtain or adhere to could
not reasonably be expected to result in a MAE. The Company
has reported, to the extent required by federal, state and
local law, all past and present sites where hazardous, toxic
or polluting substances, if any, from the Company have been
treated, stored or disposed. The Company has not transported
any hazardous, toxic or polluting substances or arranged for
the transportation of such substances to any location which is
the subject of federal, state or local enforcement actions or
other investigations which may lead to claims against the
Company for clean-up costs, remedial work, damages to natural
resources or for personal injury claims, including, but not
limited to, claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
which claims would result in a MAE.
2.20. USE OF PROCEEDS. The Company will apply the proceeds
of the issuance and sale of the Preferred Shares and Warrant
Shares for working capital purposes.
2.21. COMPLIANCE WITH LAW.
(a) The Company is not in default under any order of any
court, governmental authority or arbitration board or tribunal to which the
Company is or was subject or in violation of any laws, ordinances, governmental
rules or regulations (including, but not limited to, those relating to
environmental, safety, building, product safety or health standards or
employment matters) to which the Company is or was subject, in each case, that
could reasonably be expected to result in a MAE. The business is being
conducted in compliance with all applicable laws, ordinances, rules and
regulations applicable to the Company, the non-compliance with which could
reasonably be expected to have a MAE. The Company has not failed to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or to the conduct of its business, which
failure could have a MAE.
(b) The Company has filed all documents (the "FILINGS")
required to be filed with the Securities and Exchange Commission (the
"COMMISSION") pursuant to the 1933 Act and the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT") and true, correct and complete
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copies of the Filings have been made available to the Purchasers. The Filings
complied in all material respects with the requirements of the 1933 Act and the
Exchange Act, as applicable, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order the render the statement not misleading in light of the
circumstances in which they were made. Except as set forth on Schedule 2.21,
the Company has filed in a timely manner all reports required to be filed since
May 1, 1996.
2.22. EMPLOYEE BENEFIT PLANS.
(a) The Company has complied and currently is in
compliance, both as to form and operation, with the applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Internal Revenue Codes of 1954 and/or 1986, as amended, respectively (the
"CODE"), with respect to each "employee benefit plan" as defined under Section
3(3) of ERISA ("PLAN") which the Company (i) has ever adopted, maintained,
established or to which the Company has ever been required to contribute or to
which the Company has ever contributed or (ii) currently maintains or to which
the Company currently contributes or is required to contribute or (iii)
currently participates in or is required to participate in, except in each case
or all cases in the aggregate where such noncompliance would not result in a
MAE.
(b) Except as set forth on Schedule 2.22, the Company has
never maintained, adopted or established, contributed or been required to
contribute to, or otherwise participated in or been required to participate in,
a "multi-employer plan" (as defined in Section 3(37) of ERISA). No amount is
due or owing from the Company on account of a "multi-employer plan" (as defined
in Section 3(37) of ERISA) or on account of any withdrawal therefrom.
(c) Notwithstanding anything else set forth herein, the
Company has not incurred any material liability with respect to a Plan,
including, without limitation, under ERISA (including, without limitation,
Title I or Title IV of ERISA and other than liability for premiums due to the
Pension Benefit Guaranty Corporation), the Code or other applicable law, which
has not been satisfied or reserved in full, and no event has occurred, and
except as set forth on Schedule 2.22 there exists no condition or set of
circumstances which could result in the imposition of any material liability
with respect to the Plan, including, without limitation, under ERISA
(including, without limitation, Title I or Title IV of ERISA), the Code or
other applicable law with respect to the Plan.
(d) Except as set forth on Schedule 2.22, the Company has
not committed itself, orally or in writing, to (i) provide or cause to be
provided to any person now or at any time covered by any Plan any payments or
benefits, which are material either singly or in the aggregate, in addition to,
or in lieu of, those payments or benefits set forth under any Plan, or (ii)
continue the payment of, or accelerate the payment of, benefits, which are
material either singly or in the aggregate, under any Plan, except as expressly
set forth thereunder. Complete and correct copies of all written arrangements
described in the preceding sentence as in effect on the date hereof have been
delivered to the Purchasers.
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(e) Except as set forth on Schedule 2.22, the Company has
not committed itself, orally or in writing, to provide or cause to be provided
any severance or other post-employment benefit, salary continuation,
termination, disability, death, retirement, health or medical benefit, or
similar benefit to any person (including, without limitation, any former or
current employee) except as set forth under any Plan, except for such benefits
which individually or in the aggregate are not material. Complete and correct
copies of all written arrangements described in the preceding sentence as in
effect on the date hereof have been delivered to the Purchasers.
2.23. INSURANCE. All policies of liability, theft,
fidelity, business interruption, life, fire, product
liability, workmen's compensation, health and other forms of
insurance held by the Company are valid and enforceable
policies and are outstanding and duly in force and all
premiums with respect thereto are paid to date. To the best
of the Company's knowledge, the amounts of coverage under such
policies of insurance for the assets and properties of the
Company are adequate against risks usually insured against by
persons operating similar businesses and operating similar
properties.
2.24. REGISTRATION RIGHTS. Except as contemplated by or
described in the Registration Rights Agreement and other than
as set forth on Schedule 2.24, no person has any right to
cause the Company to effect the registration under the 1933
Act of any of the Company's debt or equity securities.
2.25. COMPENSATION ARRANGEMENTS. Except as contemplated by
this Agreement or as set forth in Schedule 2.25 hereto, (i)
the Company is not a party to any employment or deferred
compensation agreements that require payments by the Company
to any individual in excess of $100,000 in any year, (ii) the
Company does not have any bonus, incentive or profit-sharing
plans that would require payments by the Company to any
individual in an amount equal to or exceeding $10,000, and
(iii) there are no existing material arrangements or proposed
material transactions between the Company and any officer or
director or holder of more than 5% of the capital stock of the
Company. Complete and correct copies of all written
arrangements described in the preceding sentence as in effect
on the date hereof have been delivered to the Purchasers.
2.26. KEY EMPLOYEES. The persons listed on Schedule 2.26
hereto are all persons considered "key employees" by the Board
of Directors. All of such persons are parties to
confidentiality customary for employees of comparable
responsibility and value. All copies of key man life
insurance policies, if any, have been delivered to the
Purchasers.
2.27. LABOR MATTERS. Except as set forth on Schedule 2.27,
the Company is not a party to any collective bargaining
agreement with any labor union or association. There are no
discussions, negotiations, demands or proposals that are
pending or have been conducted or made with or by any labor
union or association, and there are no pending or threatened
labor disputes, strikes or work stoppages that may have a
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material adverse effect upon the continued business or
operation of the Company, other matters of an industry-wide
level. The Company is in compliance in all material respects
with all federal and state laws respecting employment and
employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor
practices.
2.28. DISCLOSURE. Neither this Agreement nor any other
document, certificate, instrument or statement furnished or
made to the Purchasers by or on behalf of the Company in
connection with the transactions contemplated hereby contain
any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
contained herein and therein not misleading in light of the
circumstances under which they were made.
SECTION 3
PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants to the Company the following:
3.1. AUTHORIZATION. Such Purchaser has all requisite
power and authority to execute this Agreement and the
Registration Rights Agreement and the Pledge Agreement, and to
carry out the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement by
such Purchaser have been duly authorized by all requisite
corporate action, and this Agreement has been duly executed
and delivered by such Purchaser and the Pledge Agreement when
duly executed and delivered by such Purchaser will constitutes
its valid and binding obligation, enforceable against such
Purchaser in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and general
equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Preferred Shares,
Common Shares, Warrants and the Warrant Shares are being
acquired by such Purchaser for its own account, not as a
nominee or agent, for investment and not with a view to resale
or distribution within the meaning of the 1933 Act, and the
rules and regulations thereunder, and such Purchaser will not
distribute the Preferred Shares, Common Shares, the Warrants
or the Warrant Shares in violation or contravention of the
1933 Act. Such Purchaser is not aware of any facts or
circumstances that contradict the representation in the first
sentence of Section 2.6(a).
3.3. RESTRICTIONS ON TRANSFER. The Purchaser acknowledges
that (a) the Preferred Shares, Common Shares, the Warrants and
the Warrant Shares are not registered under the 1933 Act as of
the Closing Date, (b) the Preferred Shares, Common Shares,
Warrants and Warrant Shares will not be transferable unless so
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registered or unless an exception for such registration is
applicable and (c) the certificates representing the Preferred
Shares and the Common Shares, the Warrants, and the
certificates representing the Warrant Shares will bear a
legend substantially in the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
3.4. SOPHISTICATION; ACCESS TO INFORMATION.
(a) Such Purchaser represents and warrants to the
Company, that such Purchaser and if such Purchaser is a corporation each
shareholder of Purchaser (i) is an "accredited investor" as defined in the
1933 Act and is financially able to purchase the Preferred Shares, the Common
Shares, the Warrants and the Warrant Shares issuable upon exercise of the
Warrant subscribed for hereunder, (ii) is fully capable of understanding the
type of investment being made pursuant to this Agreement and the risks involved
in connection therewith, (iii) believes that the nature of the Preferred
Shares, the Common Shares, the Warrants and the Warrant Shares are consistent
with their overall investment programs and financial position, (iv) recognizes
that there are substantial risks involved in their purchase of the Preferred
Shares, the Common Shares, the Warrants and the Warrant Shares, (v) is capable
of bearing the economic risk of its investment for an indefinite period of time
and can afford a complete loss of its investment, (vi) has adequate means of
providing for their current liquidity needs, (vii) has no need for liquidity of
their investment, (viii) is not expecting any short term income from their
investment and (ix) has no reason to anticipate any change in personal
circumstances, financial or otherwise, which may cause or require any sale of
the Preferred Shares, the Common Shares, the Warrants or the Warrant Shares.
(b) Such Purchaser acknowledges to the Company that it
has had the opportunity to ask questions of and receive answers from the
Company's officers and directors concerning the terms and conditions of the (i)
purchase and delivery of the Preferred Shares, the Common Shares, the Warrants
and Warrant Shares and (ii) business and financial conditions of the Company;
and such Purchaser has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Preferred Shares, the
Common Shares and the Warrants, as it has requested.
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SECTION 4
CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
A. The Purchasers' obligation to purchase the Initial Preferred Shares
and Initial Warrants on the Initial Closing Date is subject to the fulfillment
to their respective satisfaction of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES. On the Initial
Closing Date, the representations and warranties contained in
Section 2 hereof made to such Purchaser shall be true and
correct with the same effect as though made on and as of the
Closing Date (except for representations and warranties
limited to a specific time).
4.2. COMPLIANCE WITH THIS AGREEMENT. All the covenants,
agreements and conditions contained in this Agreement to be
performed or complied with by the Company on or prior to each
Closing Date shall have been performed or complied with or
waived to each Purchaser's satisfaction.
4.3. CLOSING CERTIFICATE. The Company shall have delivered
to the Purchasers a certificate, dated the Initial Closing
Date and the Second Closing Date, as the case may be, and
signed by the Company's Chief Executive Officer, President and
Chief Financial Officer, certifying that the Company has
satisfied the conditions set forth in this Agreement
applicable to such Purchaser, including by reference the
conditions specified in Sections 4.1 and 4.2.
4.4. SECRETARY'S CERTIFICATE. At the Initial Closing
Date, the Purchasers shall have received a certificate from
the Company, dated the Initial Closing Date and signed by the
Secretary of the Company, certifying (i) that the attached
copies of the Articles of Incorporation, By-Laws and
resolutions of the Board of Directors of the Company
authorizing the execution of this Agreement by the Company,
the sale, issuance and delivery by the Company to the
Purchasers of the Preferred Shares, the Common Shares, the
Warrants and the Warrant Shares and reserving for issuance the
Common Shares, the Warrant Shares and the Consulting Shares
are all true, correct and complete and remain unamended and in
full force and effect and (ii) as to the incumbency of all
officers of the Company executing any document signed on
behalf of the Company in connection with the transaction
contemplated hereby.
4.5. NO LITIGATION, MATERIAL JUDGMENTS OR ORDERS. On the
Initial Closing Date, there shall not be any pending or
threatened suit, action or litigation, or administrative,
arbitration or other proceeding or governmental inquiry or
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investigation questioning the validity of this Agreement or
the transactions contemplated hereby.
4.6. OPINION. At the Initial Closing, the Purchasers
shall have received an opinion of Xxxxx Xxxxxxx, general
counsel to the Company, substantially in the form of Exhibit C
hereto.
4.7. CONSENTS AND APPROVALS. All consents, waivers,
exemptions, authorizations or other actions by, or notices to,
or filings with governmental authorities or third parties
regarding applicable laws and contractual obligations related,
necessary or required in connection with the execution,
delivery or performance of this Agreement and the sale,
issuance and delivery of the Preferred Shares, Common Shares,
Warrants and the Warrant Shares by the Company to the
Purchasers, shall have been obtained and be in full force and
effect; and the Purchasers shall have been furnished with the
appropriate evidence thereof, and all waiting periods imposed
on the Company shall have lapsed without extension or the
imposition of any conditions or restrictions.
4.8. INVESTMENT BY OTHER PURCHASERS. Each Purchaser's
obligation to purchase the Initial Preferred Shares and
Initial Warrants subscribed for by such Purchaser hereunder on
the Initial Closing Date is subject to the fulfillment by each
other Purchaser of its obligation to purchase the Initial
Preferred Shares and Initial Warrants subscribed for by such
other Purchaser on the Initial Closing Date.
X. XXX'x obligation to purchase the Initial MEI Preferred Shares and the
Initial MEI Warrant on the Initial Closing Date is subject to the fulfillment
to its satisfaction of the following additional conditions:
4.9. SERIES A AMENDMENT. The voting rights, preferences,
limitations and special rights of the Series A Preferred Stock
of the Company shall have been amended to increase the number
of shares of preferred stock designated as Series A Preferred
Stock, to fix the conversion ratio at 1.20497 subject to
antidilution protection, to provide for the payment of
dividends at the Company's option in the form of Series A
Preferred Stock, to eliminate any prohibition on a series or
class of securities ranking equal to the Series A Preferred
Stock with respect to a liquidation preference or the issuance
of dividends, and to change the antidilution protection
relating to future sales of securities of the Company to be
consistent with such protections set forth in the Series B
Preferred Stock.
4.10. STOCK INCENTIVE PLAN. The Stock Option Committee or
the Board of Directors of the Company shall have taken all
action necessary under the 1994 Stock Incentive Plan (the
"PLAN") of the Company to assure that the transactions
contemplated by this Agreement, including without limitation,
the issuance of the Preferred Shares, Common Shares, Warrants,
Warrant Shares and Consulting Shares,
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and the election to the Board of Directors of representatives
of MEI, whether pursuant to the terms of the Series B
Preferred Stock or pursuant to this Agreement, including
pursuant to the terms of Section 7.2 hereinbelow, will not
constitute an "Event" under the terms of the Plan such that,
among other things, the vesting of all options issued
thereunder would be accelerated.
4.11. EMPLOYMENT AGREEMENTS. The Company shall have
received from each of Xxxxxxx Xxxxx, Xxxxxxx Xxxxxx, Xxxxxx
Xxxxxx, and Xxxxxx Xxxxxxx, his or her agreement under which
each such person shall agree that for purposes of their
respective employment agreement that (i) the acquisition by
MEI or its Principals or any of their affiliates in the
aggregate of not more than 40% of the outstanding shares of
Common Stock of the Company, including without limitation, by
way of open market purchases, or the issuance of the Preferred
Shares, Common Shares, Warrants, Warrant Shares or Consulting
Shares, pursuant to this Agreement, and (ii) the election to
the Board of Directors of representatives of MEI pursuant to
or as contemplated in this Agreement, whether pursuant to the
terms of the Series B Preferred Stock or Section 6.3 or
Section 7.2 hereinbelow, will not constitute an "Event"
triggering any rights under their respective employment
agreements, such waiver agreements to be in form and substance
acceptable to MEI. It is expressly acknowledged by MEI that
the foregoing waiver will not extend to the election to the
Board of Directors of representatives of MEI constituting more
than one third of the total number of directors constituting
the entire Board of Directors, except if elected pursuant to
Section 7.2 hereinbelow or otherwise nominated by the Board of
Directors, and in the event of such election, director
representatives of MEI will not constitute continuing
directors for purposes of determining whether an "Event" has
occurred under such employment agreement.
4.12. VOTING AGREEMENT. Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx
shall have executed and delivered the Voting Agreement
substantially in the form of Exhibit F.
C. The Purchasers' obligation to purchase the Second Preferred Shares and
the Second Warrants on the Second Closing Date is subject to the fulfilment to
their respective satisfaction of the following conditions:
4.13. INVESTMENT BY OTHER PURCHASERS. Each Purchaser's
obligation to purchase the Second Preferred Shares and Second
Warrants subscribed for by such Purchaser hereunder on the
Second Closing Date is subject to the fulfilment by each other
Purchaser of its obligation to purchase the Second Preferred
Shares and Second Warrants subscribed for by such other
Purchaser on the Second Closing Date.
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SECTION 5
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The Company's obligation to sell, issue and deliver the Initial Shares
and the Initial Warrants on the Initial Closing Date and the Second Shares and
Second Warrants on the Second Closing Date as specifically provided, is
subject to the fulfillment to its satisfaction of the following conditions:
5.1. REPRESENTATIONS AND WARRANTIES. On the Initial
Closing Date and the Second Closing Date, the representations
and warranties contained in Section 3 hereof shall be true and
correct with the same effect as though made on and as of the
Closing Date.
5.2. COMPLIANCE WITH THIS AGREEMENT. All the covenants,
agreements and conditions contained in this Agreement to be
performed or complied with by the Purchasers on or prior to
the Initial Closing Date shall have been complied with or
performed.
5.3. NO INJUNCTION. There shall not be any pending or
threatened suit, action or litigation, or administrative,
arbitration or other proceeding or governmental inquiry or
investigation questioning the validity of this Agreement or
the transactions contemplated hereby.
5.4. PLEDGE AGREEMENT. Each Purchaser shall have executed
and delivered to the Company a pledge agreement substantially
in the form of Exhibit E hereto (the "PLEDGE AGREEMENT").
SECTION 6
COVENANTS OF THE COMPANY
6.1. FINANCIAL STATEMENTS AND REPORTS. For so long as MEI
or its Principals (as hereinafter defined) continue to hold in
the aggregate at least 1% of the outstanding shares of Common
Stock (assuming for this purpose that the Preferred Shares are
converted in their entirety), the Company shall furnish to MEI
the following financial statements and reports:
(a) Within the period prescribed by the Securities and
Exchange Commission (the "COMMISSION"), an audited balance sheet, and related
audited statements of income, cash flows and shareholders' equity of the
Company as of and for such fiscal year prepared in accordance with GAAP,
consistently applied, and accompanied by the opinion of the Company's regularly
engaged firm of independent certified public accountants.
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(b) Within the period prescribed by the Commission, a
quarterly balance sheet and statements of income, cash flows and stockholders'
equity of the Company as of and for such quarter and the year to date and as of
and for the corresponding periods of the preceding fiscal year. The interim
statements described above shall be unaudited, but prepared in accordance with
GAAP, subject only to normal year-end audit adjustments and shall be certified
by the Chief Financial Officer of the Company; and
(c) Promptly upon their becoming available, the Company
shall deliver to the Purchasers copies of (i) all financial statements,
reports, notices and proxy statements sent or made available to shareholders by
the Company, (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by the Company with any securities
exchange or with the Commission or any governmental or private regulatory
authority, and (iii) all press releases and other statements made available by
the Company to the public concerning material developments in the business of
the Company.
6.2. ACCESS. The Company shall during usual business
hours and upon reasonable notice, permit the Purchasers' duly
authorized representatives to visit and inspect the properties
of the Company, to examine the stock register, books and
records of account and records of the proceedings of the
incorporators, stockholders and directors and to make copies
or extracts therefrom, and to discuss the Company's business
with its officers and directors.
6.3. APPOINTMENT TO THE BOARD OF DIRECTORS; BY-LAW
AMENDMENTS.
(a) The number of directors constituting the Board of
Directors shall be fixed at no more than nine, and the Company shall,
concurrently with the Closing or as soon as practicable thereafter, elect to
its Board of Directors nominees designated by MEI to constitute not less than
one third of the members of the entire Board of Directors, each of whom shall
be a principal of MEI as of the date hereof (each a "PRINCIPAL"), which
directors may be newly created vacancies, which directors shall constitute the
directors entitled to be elected by the holders of Series B Preferred Stock.
(b) So long as MEI or its Principals continue to hold not
less than an aggregate of 750,000 Common Shares (assuming for this purpose that
the Preferred Shares are converted then in their entirety to Common Shares and
subject to adjustment for stock splits or combinations), if the holders of
Series B Preferred Stock are for any reason not entitled to elect directors as
contemplated in the Certificate of Determination relating to the Series B
Preferred Stock or because no Series B Preferred Stock is at such time
outstanding, the Company shall continue to include as management nominees in
the slate of persons proposed to be elected directors with respect to all
future elections of directors, whether at an annual or special meeting or
otherwise, and use its reasonable best efforts to have elected to its Board of
Directors nominees designated by MEI to constitute not less than one third of
the members of the entire Board of Directors, each of whom shall be a
Principal, except to the extent necessary to comply with the provisions of
Subparagraph (e) below.
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(c) In the event that the Company fails for a period of
more than 30 days at any time to abide by the terms of this provision, the then
exercise price of the Initial MEI Warrants and the Second MEI Warrants,
including all tranches, shall be reduced by 5% for each full month of such
non-compliance until cured.
(d) The directors nominated by MEI shall receive such
standard compensation in accordance with the Company's regular policy for
directors.
(e) Concurrently with the Initial Closing, the Company's
Board of Directors shall establish an Audit Committee to the extent not already
established, and so long as MEI or its Principals continue to hold not less
than an aggregate of 750,000 Common Shares (assuming for this purpose that the
Preferred Shares are converted then in their entirety to Common Shares and
subject to adjustment for stock splits or combinations), at least one-half of
the designees thereof shall be directors designated by MEI of which at least
one director shall be required to qualify as an "independent" director for
purposes of meeting any requirements with respect to such committee imposed for
continued listing on NASDAQ or any national securities market on which the
Company's Common Stock is then listed. The By-laws of the Company shall be
amended to the extent necessary to establish the audit committee and to insure
the appointment of designees of MEI as members.
(f) The By-Laws of the Company shall be amended to the
extent necessary to provide that the Audit Committee shall be responsible for
approving, from time to time, the Chief Financial Officer of the Company.
6.4. OTHER FILINGS AND DISSEMINATION OF MATERIAL. For
so long as the Preferred Shares, Common Shares, Warrants or
Warrant Shares remain owned by MEI or its Principals:
(a) The Company shall make and keep public information
available as those terms are understood and defined in Rule 144 promulgated
under the 0000 Xxx.
(b) The Company shall file with the Commission in a
timely manner all reports and other documents as the Commission may prescribe
under the Exchange Act at any time.
(c) The Company shall furnish to MEI and its Principals a
written statement by the Company as to its compliance with the reporting
requirements of the Exchange Act as such holder may reasonably request to avail
itself of any rule or regulation of the Commission allowing such holder to sell
any such securities without registration.
6.5. ANNOUNCEMENTS. The Purchasers acknowledge that the
Company may be required by law to make certain announcements
regarding the transaction contemplated hereby. The content of
any such public announcement by either party will be subject
to review and approval of the other party, such delivery and
review
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of content constituting such public announcement shall be
timely and approval shall not be unreasonably withheld.
6.6. INDEMNIFICATION.
(a) The Company (together with its successors and
assigns, the "INDEMNIFYING PARTY") shall indemnify and hold harmless each
Purchaser, its principals, employees (each, an "INDEMNIFIED PARTY") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including, without limitation, reasonable fees,
disbursements and other charges of counsel incurred by an Indemnified Party in
any action or proceeding between an Indemnifying Party and Indemnified Party
(or Indemnified Parties) or between an Indemnified Party (or Indemnified
Parties) and any third party or otherwise, or other liabilities (collectively,
the "LIABILITIES") resulting from or arising out of any breach of any
representation or warranty, covenant or agreement of an Indemnifying Party to
such Indemnified Party in this Agreement, or any legal, administrative or other
actions (including actions brought by any equity holder of the Company) or
derivative actions brought by any third party claiming through or in
Indemnifying Party's name), proceedings or investigations (whether formal or
informal), or written threats thereof, based upon, relating to or arising out
of any breach of any representation or warranty, covenant or agreement of an
Indemnifying Party to such Indemnified Party in this Agreement.
(b) To the extent that such indemnification is
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of the Liabilities which shall be
permissible under applicable laws.
(c) In connection with the obligation of the Indemnifying
Party to indemnify for or contribute towards expenses as set forth above, the
Indemnifying Party further agrees, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including fees, disbursements and other charges of counsel incurred
by an Indemnified Party in any action or proceeding between the Indemnifying
Party and such Indemnified Party, or Parties, and any third party otherwise) as
they are incurred by such Indemnified Party subject to an undertaking to
reimburse such amounts if determined not entitled to it.
6.7. CONSULTING AGREEMENT. Not later than April 1, 1997,
the Company shall execute and deliver a consulting agreement
with MEI containing the terms and provisions set forth on
Exhibit D hereto (the "CONSULTING AGREEMENT").
6.8. MARKETING OF ASSETS. The Company shall use its
reasonable best efforts to sell or license the North American
distribution rights to the "Wilde feature film" for an amount
at least equal to that discussed between the Company and MEI
and to reduce its audiotape inventory through the sale thereof
by at least $500,000.
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SECTION 7
NEGATIVE COVENANTS
7.1. NEGATIVE COVENANTS.
(a) So long as MEI or its Principals continue to hold not
less than an aggregate of 750,000 Common Shares (assuming for this purpose that
the Preferred Shares are converted in their entirety to Common Shares and
subject to adjustment for stock splits and combinations), the Company hereby
covenants and agrees with MEI that without the consent of MEI, which right of
consent shall be exercised in good faith and in a commercially reasonable
manner,
(i) the Company will not:
A. adopt an annual budget;
B. incur any debt for borrowed
money or sell and issue and debt or
equity securities other than
compensation for employees,
directors and consultants or
pursuant to the options, warrants or
convertible securities listed on
Schedule 2.3(c);
C. change or alter its
principal business or enter into any
new business (it being understood
that exploiting ancillary rights
shall not be considered a new
business).
(ii) no executive officer of the Company, will
knowingly:
A. hire any executive that
earns in excess of $100,000 per year;
B. make any financial
commitment for personnel in excess
of the approved budget other than
minor salary adjustments or raises
within the budget year;
C. make any changes or
additions in the Company's auditors,
consultants or principal outside
counsel;
D. commence any litigation not
in the ordinary course of business
or settle any litigation not in the
ordinary course of business or where
the amount to be paid by the Company
is $25,000 or more;
E. acquire any assets where the
required payment by the Company is
in excess of $155,000 or sell or
license outside of
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the ordinary course of business
assets where the payment to the
Company is in excess of $155,000,
including film, audio or publishing
rights;
F. commence active
preproduction for (A) any television
movie-of-the-week, special or mini-
series, unless the license fee
payable (or previously paid) for
such program by the U.S. broadcast
or cable network together with
bankable foreign licenses is at
least equal to the budgeted negative
cost (including all normal and
customary production budget items
including for functions performed by
the Company and including customary
contingency of 10%), minus $250,000
and the Company reasonably believes
that additional revenues from
uncommitted territories is
reasonably likely to generate
revenues in excess of $250,000 in
the two years from the date of
commencement of such preproduction,
(B) any episodic television series
unless the budgeted negative cost
(including all normal and customary
production budget items including
for functions performed by the
Company and including customary
contingency of 10%) per episode is
less than $150,000 and at least 80%
of such budgeted negative cost will
be funded by a U.S. broadcast or
cable network and the Company
reasonably believes that additional
revenues from uncommitted
territories is reasonably likely to
generate revenues in excess of the
unfunded amount within two years
from the date of commencement of
such preproduction; or (C) engage in
the production of a theatrical
feature film, except to the extent
the Company's commitments are less
than $250,000 and the Company
reasonably believes that expected
revenue from such film will be in
excess of all costs relating
thereto, including the amount of the
Company's commitment;
G. issue any financial press
releases or publicly issue or
otherwise publicly discuss the
Company's projected financial
results (it being understood that
the foregoing is not intended to
restrict comments in general terms
as to the anticipated success of any
particular project).
(b) For purposes of this Section 7.1 only, MEI shall from
time to time designate a person (the "MEI REPRESENTATIVE") by notice to the
Company, who shall be appointed a member of the Executive Committee of the
Board of Directors, who shall have the authority as between the Company and MEI
to give or withhold MEI's consent as contemplated in this Section 7.1, which
MEI Representative shall, until further notice, be Xxxxxx Xxxxxxxxxx. The
person designated as the MEI Representative may be changed from time to time by
like notice.
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7.2. REMEDY. In the event that the Company breaches any
of the covenants set forth in Section 7.1., and such breach is
continuing uncured for a period of thirty (30) days after
notice thereof is given to the Company by MEI or any Principal
(with a copy thereof to Xxxxxxx Xxxxx), then the Company shall
immediately upon demand by MEI or any Principal take all steps
necessary or appropriate to elect to its Board of Directors
two additional directors nominated by MEI or its Principals,
including calling a special meeting for such purpose, which
directors shall continue to serve until the earlier of the
annual meeting of the shareholders of the Company next
following the cure of the breach which gave rise to the
exercise of rights under this Section 7.2, or until MEI and
its Principals no longer own at least 750,000 Common Shares
(assuming for this purpose that the Preferred Shares are
converted in their entirety to Common Shares and subject to
adjustment for stock splits and combinations). The rights
afforded to MEI hereunder shall arise each time there is a
breach of the covenants set forth in Section 7.1 and shall be
severable with respect thereto, provided in no event shall
this Section entitled MEI to have more than two additional
directors designated at any one time.
SECTION 8
MISCELLANEOUS
8.1. REGISTERED OWNER OF THE PREFERRED SHARES, THE COMMON
SHARES, THE WARRANTS AND THE WARRANT SHARES. The Company may
deem and treat the registered holder of the Preferred Shares
and the Warrants as the absolute owner thereof for all
purposes whatsoever, and the Company shall not be affected by
any notice to the contrary.
8.2. PAYMENT OF EXPENSES; COUNSEL. The Company and the
Purchasers shall pay their own expenses, including the fees
and expenses of their respective counsel (if any) incurred by
them in connection with the sale, issuance and delivery of the
Shares, the Warrants and the Warrant Shares and the execution,
delivery and performance of this Agreement. Xxxxxxx Xxxxx and
Xxxxxxx Xxxxxx acknowledge and understand that they have not
been personally represented by the Company's inside or outside
counsel in connection with this Agreement and the matters
contemplated hereby.
8.3. TRANSFER TAXES. The Company will pay, and hold the
Purchasers harmless against, liability for the payment of any
transfer or similar taxes payable in connection with the
initial sale, issuance and delivery of the Shares and the
Warrants.
8.4. BROKER OR FINDER. Except as expressly provided in
this Section, the Parties individually represent and warrant
that, to the best of their individual knowledge, no broker or
finder has acted for it in connection with this Agreement or
the transactions
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contemplated by this Agreement and that no broker or finder is
entitled to any broker's or finder's fee or other commission
in respect thereof based in any way on agreements,
arrangements or understandings made by such party. The
Company shall indemnify MEI, and the Purchasers shall
indemnify the Company against, and hold it harmless from, any
claim, liability, cost or expense (including reasonable
attorneys' fees and expenses) resulting from any agreement,
arrangement or understanding made by the Company or the
Purchasers, as the case may be. Notwithstanding the
foregoing, the parties acknowledge that Xxxxx Xxxx has made a
claim for compensation as a broker or finder in connection
with the transaction contemplated herein. Compensation which
shall consist of options to purchase 50,000 shares exercisable
at the market price thereof on the date granted to be paid to
Xx. Xxxx shall be paid by the Company. This provision is for
the benefit of the Purchasers and the Company in deciding
which party will pay any compensation if determined to be due
to Xx. Xxxx, and is not intended to, and shall not confer any
right on Xxxxx Xxxx.
8.5. GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without reference to conflict of law
provisions.
8.6. NOTICE. Any notice or other communication required
or permitted hereunder shall be sufficiently given only if
sent by facsimile transmission or by registered or certified
mail, postage prepaid, addressed as follows or to such other
address or addresses as may hereafter be furnished in writing
by notice similarly given by one party to the other:
To the Company: Dove Entertainment, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
The Purchasers: The addresses set forth on Appendix I.
With a required
copy if to MEI to: Xxxxxxxx Xxxxx Singer & Xxxxxxxxx, LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Xxxx Xxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
8.7. ENTIRE AGREEMENT. This Agreement, including the
Appendix, Schedules and Exhibits hereto, contains the entire
agreement and understanding among the Parties
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with respect to the subject matter hereof and supersedes the
letter agreement dated March 3, 1997 between MEI and the
Company, and shall not be modified or affected by any offer,
proposal, statement or representation, oral or written, made
by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall
specifically include, incorporate and refer to the Appendix,
Schedules and Exhibits attached hereto which are hereby made a
part hereof. There are no representations, promises,
warranties, covenants, undertakings or assurances (express or
implied) other than those expressly set forth or provided for
herein and in the other documents referred to herein. This
Agreement may not be modified or amended orally, but only by a
writing signed by the Parties.
8.8. SEVERABILITY. If any part of this Agreement is held
to be unenforceable or invalid under, or in conflict with, the
applicable law of any jurisdiction, the unenforceable, invalid
or conflicting part shall, to the extent permitted by
applicable law, by narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction
that effects the intent of the Parties regarding this
Agreement and such unenforceable, invalid or conflicting part.
To the extent permitted by applicable law, notwithstanding the
unenforceability, invalidity or conflict with applicable law
of any part of this Agreement, the remaining parts shall be
valid, enforceable and binding on the parties.
8.9. HEADINGS. The headings of the Sections of this
Agreement are inserted for convenience of reference only and
shall not be considered a part hereof.
8.10. COUNTERPARTS. This Agreement may be simultaneously
executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the
same instrument.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first set forth above.
THE COMPANY:
DOVE ENTERTAINMENT, INC.
By: /s/ XXXXXX XXXXXXX
--------------------------------
Name: Xxxxxx Xxxxxxx
Title: Executive Vice President
THE PURCHASERS:
MEDIA EQUITIES INTERNATIONAL LLC
By: /s/ XXX XXXXXXXXXX
--------------------------------
Name:
Title:
/s/ XXXXXXX XXXXX
------------------------------
Xxxxxxx Xxxxx
/s/ XXXXXXX XXXXXX
-------------------------------
Xxxxxxx Xxxxxx
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APPENDIX I
Number of Preferred Shares to be Number of Warrant Shares Subject to
-------------------------------- -----------------------------------
purchased at Warrant
------------ -------
Initial Closing Second Closing Initial Closing Second Closing
--------------- -------------- --------------- --------------
Media Equities International, LLC 3,000 1,000 1,500,000 500,000
a New York limited liability Series B Series B
company
0 Xxxxxxxx Xxxxx - 00xx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx 920 1,000 500,000 500,000
0000 Xxxxx Xxxxxxx Xxxxxxxxx Series C Series C
Beverly Hills, California _____
Telephone:
Telecopier:
Payment by Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx for the Initial Preferred
Shares shall consist of the following:
(a) The contribution to the Company of the $500,000 plus
accrued interest held in escrow or pledge to secure the payment for the "Wilde
feature film" and forgiveness of the excess 10% interest due thereon from
September 9, 1996 over the amount earned, aggregating approximately $526,375.
(b) The contribution of an aggregate of $75,000 due to
Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx for nonaccountable expenses for 1995 pursuant
to their respective employment agreements.
(c) The contribution of $75,000 by Xxxxxxx Xxxxx
constituting one-half of the guaranty fee and commission relating to the
"Wilde" feature film.
(d) The balance by wire transfer.
The Purchase Price for the Second Preferred Shares by Xxxxxxx Xxxxx
and Xxxxxxx Xxxxxx shall be paid by:
(a) The contribution of an aggregate of $100,000 due to
Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx for nonaccountable expenses for 1996 and
one-third of the amount due for 1997 pursuant to their respective employment
agreements.
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(b) The contribution of $75,000 by Xxxxxxx Xxxxx
constituting one-half of the guaranty fee and commission relating to the
"Wilde" feature film.
(c) The balance by wire transfer.
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EXHIBITS
Exhibit A-1 Form of MEI Warrant
Exhibit A-2 Form of Viner/Xxxxxx Warrant
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Opinion of Counsel
Exhibit D Consulting Agreement Terms
1. ________MEI will provide substantial general management consulting
advice including but not limited to financial (including
assisting in obtaining bank financing), television and film
distribution, and business affairs.
2. ________Term 3 years commencing April 1, 1997.
3. ________Compensation: Dove will pay $300,000 per year as follows:
$200,000 in cash payable quarterly in advance and $100,000 in
Common Stock of Dove valued at current market value on the
date of payment, payable quarterly in arrears.
Exhibit E Form of Pledge Agreement
Exhibit F Voting Agreement
