EXHIBIT 2.2
AGREEMENT AND PLAN
OF
REORGANIZATION AND MERGER
dated as of
October 25, 1996
By and Between
Prism Entertainment Corporation,
a Delaware corporation,
and
Xxx Video City, Inc.,
a California corporation,
TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS...................................... 1
1.1 Definitions...................................... 1
ARTICLE II THE MERGER....................................... 6
2.1 The Merger....................................... 6
2.2 Exchange of Certificates......................... 8
2.3 Closing.......................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VCI............ 9
3.1 Corporate Existence and Power.................... 9
3.2 Corporate Authorization.......................... 10
3.3 Governmental Authorization....................... 10
3.4 Non-Contravention................................ 10
3.5 VCI Capitalization............................... 10
3.6 Subsidiaries..................................... 11
3.7 Consents......................................... 11
3.8 Financial Statements............................. 11
3.9 Absence of Certain Changes....................... 12
3.10 Title to Assets.................................. 13
3.11 Real Property.................................... 13
3.12 Litigation....................................... 13
3.13 Contracts........................................ 13
3.14 Licenses and Permits............................. 13
3.15 Compliance with Laws............................. 14
3.16 Intangible Property.............................. 14
3.17 Employees........................................ 14
3.18 Prepaids......................................... 15
3.19 Taxes............................................ 15
3.20 Environmental Compliance......................... 16
3.21 Labor and Employment Matters..................... 16
3.22 Pension and Benefit Plans........................ 18
3.23 Insurance........................................ 21
3.24 Books and Records................................ 21
3.25 Inventory........................................ 22
3.26 Accuracy and Provision of Information............ 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PRISM.......... 23
4.1 Corporate Existence and Power.................... 23
4.2 Corporate Authorization.......................... 23
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4.3 Governmental Authorization....................... 23
4.4 Non-Contravention................................ 23
4.5 Prism Capitalization............................. 24
4.6 Finders' Fees.................................... 24
4.7 Subsidiaries..................................... 24
4.8 Litigation....................................... 24
4.9 Consents......................................... 25
4.10 Financial Statements............................. 25
4.11 Absence of Certain Changes....................... 26
4.12 Title to Assets.................................. 26
4.13 Real Property.................................... 26
4.14 Intangible Property.............................. 27
4.15 Contracts........................................ 27
4.16 Licenses and Permits............................. 27
4.17 Compliance with Laws............................. 28
4.18 Employees........................................ 28
4.19 Taxes............................................ 28
4.20 Environmental Compliance......................... 29
4.21 Labor and Employment Matters..................... 30
4.22 Pension and Benefit Plans........................ 31
4.23 Insurance........................................ 34
4.24 Books and Records................................ 35
4.25 Film Library..................................... 35
4.26 Accounts Receivable.............................. 38
4.27 Accuracy and Provision of Information............ 38
ARTICLE V COVENANTS OF VCI................................. 38
5.1 Conduct of the Business.......................... 38
5.2 Insurance........................................ 39
5.3 No Defaults...................................... 39
5.4 Reporting and Compliance With Law................ 40
5.5 Access to Information............................ 40
5.6 Notices of Certain Events........................ 40
5.7 Other Offers..................................... 40
ARTICLE VI COVENANTS OF PRISM............................... 41
6.1 Conduct of the Business.......................... 41
6.2 Insurance........................................ 42
6.3 No Defaults...................................... 42
6.4 Reporting and Compliance With Law................ 42
6.5 Access to Information............................ 42
6.6 Notices of Certain Events........................ 42
6.7 Xxxxxxx Stock Option Agreement................... 43
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6.8 Xxx Agreement.................................... 43
6.9 Other Offers..................................... 43
ARTICLE VII COVENANTS OF ALL PARTIES HERETO.................. 44
7.1 Best Efforts; Further Assurances................. 44
7.2 Public Announcements............................. 44
7.3 Best Efforts to Obtain Consents.................. 44
7.4 Confidentiality.................................. 44
ARTICLE VIII CONDITIONS TO CLOSING............................ 45
8.1 Conditions to the Obligations of Prism and VCI... 45
8.2 Conditions to the Obligations of Prism........... 46
8.3 Conditions to Obligation of VCI.................. 48
ARTICLE IX SURVIVAL; INDEMNIFICATION; TERMINATION........... 49
9.1 Survival......................................... 49
9.2 Indemnification.................................. 50
9.3 Procedures....................................... 51
9.4 Grounds for Termination.......................... 51
ARTICLE X MISCELLANEOUS.................................... 52
10.1 Notices.......................................... 52
10.2 Amendments; No Waivers........................... 53
10.3 Expenses......................................... 53
10.4 Successors and Assigns........................... 53
10.5 Governing Law.................................... 53
10.6 Counterparts; Effectiveness...................... 54
10.7 Entire Agreement................................. 54
10.8 Severability..................................... 54
10.9 Captions and Section References.................. 54
10.10 Interpretation................................... 54
10.11 Attorneys' Fees.................................. 54
10.12 Ambiguities...................................... 54
10.13 No Third-Party Rights............................ 54
10.14 Knowledge of VCI................................. 55
10.15 Schedules........................................ 55
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EXHIBITS
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Exhibit A Agreement of Merger
Exhibit B Certificate of Merger
Exhibit C Overide Agreement
Exhibit D Form of Employment Agreements
Exhibit E Form of Non-Competition Agreement
Exhibit F Form of Non-Competition Agreement
Exhibit G Form of Proxy
VCI SCHEDULES
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Schedule 3.1 Foreign Jurisdictions
Schedule 3.5 Capitalization
Schedule 3.7 VCI Consents
Schedule 3.8 Undisclosed Liabilities
Schedule 3.9 Absence of Certain Changes
Schedule 3.10 Title to Assets
Schedule 3.11 Real Property
Schedule 3.12 Litigation
Schedule 3.13 Contracts
Schedule 3.14 Licenses and Permits
Schedule 3.16 Intangible Property
Schedule 3.17 Employees
Schedule 3.18 Prepaids
Schedule 3.19 Taxes
Schedule 3.21 Labor and Employment Matters
Schedule 3.22 Pension and Benefit Plans
Schedule 3.23 Insurance
Prism SCHEDULES
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Schedule 2.1 Distribution of Prism Stock and Prism Warrants
Schedule 4.1 Foreign Jurisdictions
Schedule 4.5 Capitalization
Schedule 4.7 Subsidiaries
Schedule 4.9 Prism Consents
Schedule 4.10 Undisclosed Liabilities
Schedule 4.11 Absence of Certain Changes
Schedule 4.12 Title to Assets
Schedule 4.13 Real Property
Schedule 4.14 Intangible Property
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Schedule 4.15 Contracts
Schedule 4.16 Licenses and Permits
Schedule 4.18 Employees
Schedule 4.19 Taxes
Schedule 4.21 Labor and Employment Matters
Schedule 4.22 Pension and Benefit Plans
Schedule 4.23 Insurance
Schedule 4.25 Film Library
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"),
dated as of October 25, 1996, by and between Prism Entertainment Corporation, a
Delaware corporation ("Prism"), and Xxx Video City, Inc., a California
corporation ("VCI").
R E C I T A L S:
A. Prism is a public company that filed for protection under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Central District of California on December 1, 1995. Prism is
currently operating as a debtor-in-possession.
B. VCI owns and operates a chain of retail video sales and rental
stores.
C. Prism and VCI desire to merge VCI with and into Prism (the
"Merger") in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and the
representations, warranties, covenants and agreements contained in this
Agreement, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used in this
-----------
Agreement, have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Agreement of Merger" means the Agreement of Merger to be filed with
the Secretary of State of the State of California, substantially in the form of
Exhibit A, subject to any changes that may be necessary to conform to any
require ments of any governmental entity having authority over the Merger.
"Books and Records" shall mean all books and records, stock transfer
books, minute books, copies of outstanding stock certificates, ledgers, employee
records, customer lists, files, correspondence, and other written records of
every kind.
"Case" means that certain jointly administered bankruptcy case,
numbered Bk. No. 95-41355 TD, Chapter 11, currently before the Court.
"Certificate of Merger" means the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware substantially in the form
of Exhibit B hereto, subject to any changes that may be necessary to conform to
any requirements of any governmental entity having authority over the Merger.
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as the same may be
amended from time to time. Any reference to a specific section of the Code
shall refer to the cited provision as the same may be amended from time to time.
"Xxxxxxx" means Xxxxx Xxxxxxx, an individual and a resident of
California.
"Xxxxxxx Stock Option Agreement" has the meaning set forth in Section
6.7.
"Confirmation Order" has the meaning set forth in the Plan.
"Contracts" means all contracts, agreements, warranties, guaranties,
indentures, bonds, options, leases, subleases, easements, mortgages, plans,
collective bargaining agreements, licenses, commitments or binding arrangements
of any nature whatsoever, express or implied, written or unwritten, and all
amendments thereto, entered into or binding upon the relevant party or to which
the property of such party may be subject.
"Court" means the United States Bankruptcy Court for the Central
District of California, or such other court that exercises jurisdiction over the
Case.
"DGCL" means the Delaware General Corporation Law.
"Effective Time" has the meaning set forth in Section 2.1.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any entity that is a member of a group of
which VCI is a member and which is under common control with VCI, within the
meaning of the regulations promulgated under Section 414 of the Code.
"ERISA Plans" shall mean, collectively, all Pension Plans and all
Welfare Plans required to be disclosed on Schedule 3.22.
"Final Order" has the meaning set forth in the Plan.
"Indemnified Party" has the meaning set forth in Section 9.3.
"Indemnifying Party" has the meaning set forth in Section 9.3.
"Xxxxxx" means Xxxxxx Entertainment, Inc.
"IRS" means the Internal Revenue Service.
"Xxx" means Xxxxxx X. Xxx, an individual and a resident of California.
"Letter of Intent" means that certain letter agreement dated August 6,
1996, between Prism and VCI.
"Lien" means, with respect to any asset: any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
including, without limitation, any agreement to give any of the foregoing and
any conditional sale.
"Management Stock Option Agreement" has the meaning set forth in
Section 8.2(g).
"Marks" means all registered and unregistered trademarks, service
marks, trade names, and slogans, all applications therefor, and all goodwill
associated therewith.
"Material Adverse Change" means a material adverse change in the
business, assets, financial condition or results of operations of, as
applicable, Prism's or VCI's business, which involves a minimum loss or exposure
of One Hundred Thousand Dollars ($100,000).
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"Material Adverse Effect" means a material adverse effect on the
business, assets, financial condition or results of operations of, as
applicable, Prism's or VCI's business, which involves a minimum loss or exposure
of One Hundred Thousand Dollars ($100,000).
"Merger" has the meaning set forth in the recitals of this Agreement.
"Override Agreement" means that certain Agreement made and entered
into as of October 25, 1996, by and among VCI, Xxx (on behalf of himself and as
Trustee of the Xxxxxx X. Xxx Revocable Living Trust UDT 1/9/91), Prism and
Xxxxxx, a copy of which is attached hereto as Exhibit C.
"Pension Plan" shall mean any employee pension benefit plan within the
meaning of Section 3(2) of ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government,
domestic or foreign, or political subdivision or an agency or instrumentality
thereof.
"Plan" shall mean that certain Plan of Reorganization dated October
25, 1996, as amended, submitted to and approved by the Court in connection with
the Case.
"Prism" has the meaning set forth in the introductory paragraph of
this Agreement.
"Prism Consents" means the consents, waivers and amendments to be
obtained by Prism and its Affiliates from other Persons with respect to the
execution, delivery and performance by Prism of this Agreement and all related
matters between Prism and VCI, including, but not limited to, the entering by
the Court of the Final Order.
"Prism Documents" means this Agreement, the Certificate of Merger, the
Agreement of Merger and any other documents, instruments and certificates which
are to be delivered by Prism pursuant to this Agreement.
"Prism Financial Statements" has the meaning set forth in Section
4.10(a).
"Prism Intangible Property" means all intangible property owned by
Prism or in which Prism has any interest (including the right to use) or owned
by any Prism shareholder and used in Prism's business (other than intangible
property owned by third parties and available generally for commercial license
from others), including without limitation, (i) Prism's name and all Marks; (ii)
all statutory, common law and
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registered copyrights and mask work rights, and all applications for the
registration thereof; (iii) all patents and applications therefor; (iv) all
software; (v) all other inventions, discoveries, improvements, processes,
formulas (secret or otherwise), trade secrets, information, know-how and ideas
(including those in the possession of third parties, but that are the property
of Prism); and (vi) all technical documentation relating thereto.
"Prism Permits" has the meaning set forth in Section 4.16.
"Prism Stock" has the meaning set forth in Section 2.1(d)(1).
"Stockholders' Agreement" means that certain Stockholders' Agreement
made and entered into by and among Prism, Xxx, Xxxxxxx and Xxxxxx pursuant to
the Override Agreement.
"Tax" or "Taxes" mean any federal, state, local or foreign income,
alternative minimum, gross receipts, transfer, sales, use, ad valorem,
franchise, license, withholding, excise, FICA, unemployment compensation,
disability, import, property, or other tax, fee or like assessment or charge,
together with any interest or any penalty or addition, imposed by any
governmental authority.
"VCI" has the meaning set forth in the introductory paragraph of this
Agreement.
"VCI 1996 Balance Sheet" has the meaning set forth in Section 3.8(a).
"VCI Certificates" has the meaning set forth in Section 2.2(a).
"VCI Consents" has the meaning set forth in Section 3.7.
"VCI Disclosure Schedules" means all of the schedules delivered by VCI
pursuant to this Agreement.
"VCI Documents" means this Agreement, the Certificate of Merger,
Agreement of Merger and any other documents, instruments or certificates to be
delivered by VCI in connection with this Agreement.
"VCI Financial Statements" has the meaning set forth in Section
3.8(a).
"VCI Intangible Property" means all intangible property owned by VCI
or in which VCI has any interest (including the right to use) or owned by any
VCI shareholder and used in VCI's business (other than intangible property owned
by third parties and available generally for commercial license from others),
including without
5
limitation, (i) VCI's name and all Marks; (ii) all statutory, common law and
registered copyrights and mask work rights, and all applications for the
registration thereof; (iii) all patents and applications therefor; (iv) all
software; (v) all other inventions, discoveries, improvements, processes,
formulas (secret or otherwise), trade secrets, information, know-how and ideas
(including those in the possession of third parties, but that are the property
of VCI); and (vi) all technical documentation relating thereto.
"VCI Permits" has the meaning set forth in Section 3.14.
"VCI Shareholders" has the meaning set forth in Section 3.5.
"VCI Stock" has the meaning set forth in Section 2.1(d)(2).
"Welfare Plan" shall mean any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA.
ARTICLE II
THE MERGER
2.1 The Merger.
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The Merger shall become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the provisions of the DGCL (the "Effective Time"). Immediately subsequent
to such filing, the Agreement of Merger shall be filed with the Secretary of
State of the State of California. At the Effective Time, the following
transactions will be deemed to have occurred simultaneously:
(a) The Surviving Entity. VCI shall be merged with
--------------------
and into Prism, with Prism being the surviving entity, and the separate
corporate existence of VCI shall cease. Prism shall possess all the rights,
privileges, powers and franchises and be subject to all of the duties,
liabilities and obligations of both Prism and VCI, as provided under the DGCL.
(b) Certificate of Incorporation and Bylaws. The
---------------------------------------
Certificate of Incorporation and Bylaws of Prism in effect immediately prior to
the Effective Time shall be amended to reflect the change of Prism's name to
"Video City, Inc." and provide for the authorization and issuance of the Prism
Stock.
6
(c) Directors and Officers. Immediately following
----------------------
the Effective Time (i) the directors of Prism shall be the persons designated by
Xxxxxx, Xxx and Xxxxxxx, in accordance with the terms and conditions of the
Stockholders' Agreement, and (ii) Xxx shall serve as Chairman of the Board and
Chief Executive Officer, Xxxxxxx shall serve as President, and such other
persons may serve in such offices as duly elected or appointed from time to time
by the Board of Directors of Prism, until such persons are succeeded in
accordance with applicable law.
(d) Conversion of Shares. Automatically and without
--------------------
any action on the part of any holder thereof:
(1) All of the issued and outstanding shares of
the Common Stock of Prism, $.01 par value per share ("Prism Stock"), issued and
outstanding immediately prior to the Effective Time shall either (i) remain
issued and outstanding, subject to a reverse stock split the result of which
will be 693,500 shares of the Common Stock of Prism or (ii) be converted into
the right to receive 693,500 newly issued shares of the Common Stock of Prism.
(2) All of the shares of the Common Stock of VCI
("VCI Stock") issued and outstanding immediately prior to the Effective Time,
shall be converted into the right to receive an aggregate of 5,078,750 shares of
Prism Stock, such Prism Stock to be distributed to the VCI Shareholders in
accordance with Schedule 3.5.
(e) Conversion of VCI Options and Warrants.
--------------------------------------
Automatically and without any action on the part of any holder thereof, the
holder of each option or warrant to purchase the Common Stock of VCI
(respectively, an "Option" or "Warrant") which is outstanding and unexercised at
the Effective Time shall be entitled, upon exercise of such Option or Warrant
from and after the Effective Time, to receive that number of shares of the
Common Stock of Prism that the holder would have received had such holder
exercised the Option or Warrant immediately prior to Effective Time and been
issued shares of the Common Stock of VCI therefor, and such shares of Common
Stock of VCI were converted into shares of the Common Stock of Prism pursuant to
Section 2.1(d)(2) of this Agreement. Prism shall issue shares of its Common
Stock upon the exercise of an Option or Warrant only upon payment to Prism of
the adjusted exercise price per share as provided for in the relevant Option or
Warrant agreement relating to the same, until such time as such Option or
Warrant would have expired under the terms of such agreement. Following the
Effective Time, Prism shall deliver to each holder of an Option or Warrant an
amendment to the Option or Warrant agreement to evidence the substitution of the
Common Stock of Prism for the Common Stock of VCI therein.
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(f) Issuance of Prism Stock to "Allowed Claims".
-------------------------------------------
Each share of the Prism Stock, not to exceed 2,552,750 shares in the aggregate,
to be issued in accordance with the terms of the Plan to the holders of "Allowed
Claims" (as such term is defined in the Plan) shall be so issued.
(g) Issuance of Prism Stock to Xxxxxx. The 1,500,000
---------------------------------
shares of the Common Stock of Prism to be issued to Xxxxxx pursuant to the
Override Agreement shall be so issued.
(h) Grant of Prism Stock Option to Xxxxxxx. The
--------------------------------------
option to purchase 175,000 shares of the Common Stock of Prism to be granted by
Prism to Xxxxxxx or his designee pursuant to the Xxxxxxx Stock Option Agreement
shall be so granted in accordance with Section 6.7.
(i) Fractional Shares. No fractional shares of Prism
-----------------
Stock shall be distributed pursuant to the Merger, and any fractional share
interests under Section 2.1(d) shall be disregarded.
2.2 Exchange of Certificates.
------------------------
(a) Upon surrender to Prism of certificates representing
the VCI Shares (collectively, the "VCI Certificates"), the holders of such VCI
Certificates shall each be entitled to receive in exchange therefor one or more
certificates representing the number of shares of Prism Stock to which such
holder is entitled pursuant to the provisions of Section 2.1(d). Upon receipt of
evidence reasonably satisfactory to VCI of the loss, theft, destruction or
mutilation of any VCI Certificate, and (if lost, stolen or destroyed) of
indemnity reasonably satisfactory to Prism, and (if mutilated) upon surrender
and cancellation of the VCI Certificate, each such holder shall be entitled to
receive in exchange therefor one certificate representing the number of shares
of Prism Stock to which such holder shall have become entitled pursuant to the
provisions of Section 2.1(d).
(b) Each VCI Certificate converted into Prism Stock
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be cancelled and retired and cease to exist.
In the event of a transfer of ownership of VCI Certificates which has not been
registered in the transfer records of VCI, Prism Stock may be delivered to a
transferee if the VCI Certificate is presented to Prism and accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid in full. Until surrendered as
contemplated by this Section 2.2(b), each holder of shares of VCI Stock shall
thereafter cease to possess any rights with respect to such shares, except the
right to receive upon such surrender number of shares of Prism Stock as provided
by Section 2.1(d).
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(c) No dividends on the Prism Stock shall be paid to the
holder of any unsurrendered VCI Certificate until such VCI Certificate is
surrendered; provided, however, that upon surrender of an VCI Certificate,
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there shall be paid to such holder the amount of dividends, if any, which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of shares of Prism Stock issued upon such surrender.
Subject to the effect, if any, of applicable escheat and other laws, following
surrender of any VCI Certificate, there shall be delivered to the Person
entitled thereto, without interest, the amount of dividends so withheld as of
any date subsequent to the Effective Date and prior to such date of delivery.
(d) All Prism Stock delivered in exchange for the VCI
Stock in accordance with the terms of this Agreement shall be deemed to have
been delivered in full satisfaction of all rights pertaining to such VCI Stock.
If, after the Effective Time, VCI Certificates are presented for any reason,
they shall be cancelled and exchanged as provided in this Section 2.2.
(e) The shares of Prism Stock issued pursuant to the
Plan to holders of "Allowed Claims" and "Allowed Equity Interests" (as such
terms are defined in the Plan), shall be issued pursuant to the exemptions
contained in Section 1145 of the Bankruptcy Code from the requirements of
Section 5 of the Securities Act of 1933, as amended, and any other federal,
state or local law otherwise requiring registration or qualification of such
Prism Stock.
2.3 Closing. The closing of the Merger (the "Closing") shall
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occur at the offices of Loeb & Loeb LLP, 0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000,
Xxx Xxxxxxx, Xxxxxxxxxx 00000 at 9:00 a.m. on the earliest practicable date
after all of the conditions of Article VIII have been satisfied.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VCI
Subject to the exceptions set forth in the VCI Disclosure Schedules,
VCI hereby represents and warrants to Prism that:
3.1 Corporate Existence and Power. VCI is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
California, and has all corporate power and authority, and all governmental
licenses, authorizations, consents and approvals required to carry on its
business of operations as now conducted. Schedule 3.1 sets forth those
jurisdictions in which VCI is required to be, and is, qualified to do business
as a foreign corporation because of the character of the property owned or
leased by VCI or the nature of its activities.
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3.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by VCI of this Agreement and all of the other VCI Documents and the
consummation by VCI of the transactions contemplated hereby and thereby are
within the corporate powers of VCI and have been duly authorized by all
necessary corporate action on the part of VCI. This Agreement is, and as of the
Closing Date, the other VCI Documents shall be, the legal, valid and binding
obligations of VCI, enforceable against VCI in accordance with their respective
terms.
3.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by VCI of this Agreement and the other VCI Documents require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than the filing of the Certificate of Merger with
the Secretary of State of Delaware and the filing of the Agreement of Merger
with the Secretary of State of the State of California as contemplated by
Section 2.1.
3.4 Non-Contravention. The execution, delivery and
-----------------
performance by VCI of this Agreement and the other VCI Documents does not and
will not (i) contravene or conflict with the articles of incorporation or bylaws
of VCI, (ii) contravene or conflict with or constitute a violation of any
provision of any law, statute, rule, regulation, judgment, injunction, order,
writ or decree binding upon or applicable to VCI or any part of its business,
(iii) assuming the obtaining of all VCI Consents, constitute a default under or
breach of, or violate or give rise to any right of termination, cancellation or
acceleration of any right or obligation of VCI, or to a loss of any benefit
relating to its business or operations to which VCI is entitled under any
provision of any Contract to which VCI is a party or by which any of its assets
is or may be bound or (iv) result in the creation or imposition of any Lien on
any of VCI's assets.
3.5 VCI Capitalization. The authorized capital stock of VCI
------------------
consists solely of 20,000,000 shares of VCI Stock, of which 1,495,408 shares are
issued and outstanding. All such outstanding shares are duly authorized,
validly issued and outstanding, fully paid and non-assessable and, except for
such outstanding shares, there are no shares of capital stock of VCI
outstanding. Schedule 3.5 sets forth a true a complete list of all of the
shareholders of VCI (the "VCI Shareholders") and the number of shares of VCI
Stock owned by each of the VCI Shareholders as of the date of this Agreement.
All issued and outstanding shares of VCI Stock have been validly issued in full
compliance with all federal and state securities laws and are not subject to any
rights or obligations that require the registration of such shares. Except as
set forth on Schedule 3.5, there are no outstanding options, warrants or other
rights in or with respect to the unissued shares of VCI Stock nor any securities
convertible into such stock, and VCI is not obligated to issue any additional
shares of VCI Stock or any options, warrants or other rights in or with respect
to the unissued shares of such stock or any other securities convertible into
such stock. VCI hereby
10
acknowledges and agrees that as a condition precedent to the consummation of the
Merger, certain VCI shareholders, including Xxx, xxxx enter into an agreement
with Xxxxxx to exchange the warrants held by Xxxxxx as set forth on Schedule 3.5
for certain warrants to acquire shares of post-Merger Prism Stock, and that
Prism will grant additional warrants to Xxxxxx to acquire shares of post-Merger
Prism Stock, substantially as described in the Override Agreement.
3.6 Subsidiaries. VCI does not own, directly or indirectly,
------------
securities or other ownership interests in any other entity, nor is VCI a party
to any agreement relating to the formation of any other entity or joint venture.
3.7 Consents. Schedule 3.7 sets forth each Contract of VCI
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and each of the VCI Permits that requires a consent, approval, authorization,
order or other action of or filing with any Person as a result of the execution,
delivery and performance of this Agreement or any of the other VCI Documents or
the consummation of the transactions contemplated hereby or thereby (each of the
foregoing, a "VCI Consent").
3.8 Financial Statements.
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(a) VCI has delivered to Prism true and correct copies
of the unaudited financial statements of VCI consisting of a statement of
operations for the eight-month period ended August 31, 1996, and a balance sheet
as of August 31, 1996 (the "VCI 1996 Balance Sheet"), together with audited
financial statements consisting of statements of operations and statements of
cash flows for the years ended December 31, 1994 and 1995, and balance sheets as
of December 31, 1994 and 1995 (collectively, the "VCI Financial Statements").
The VCI Financial Statements fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis, the financial
position of VCI as of the dates thereof and the results of operations of VCI for
the periods then ended.
(b) Except for (i) those liabilities specifically
reflected or reserved against on the VCI 1996 Balance Sheet, (ii) those current
liabilities for trade or business obligations incurred since August 31, 1996 in
connection with the purchase of goods or services in the ordinary course of
VCI's business and consistent with past practices (none of which is,
individually or in the aggregate, material and none of which is for breach of
contract, breach of warranty, tort or infringement), (iii) those liabilities
arising under any Contract (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement) or (iv) those matters otherwise
disclosed on Schedule 3.8 (none of which liabilities, except as stated in a
Schedule hereto, is for breach of contract, breach of warranty, tort or
infringement), VCI does not have, as of the date hereof, any direct or indirect
indebtedness, liabilities, claims, losses, damages, deficiencies, obligations
(including, without limitation, the obligation
11
to indemnify any other Person for any liabilities or expenses which have been or
may in the future be incurred by or asserted against such other Person, or
responsibilities, known or unknown, liquidated or unliquidated, accrued,
absolute, contingent or otherwise, and whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement), which individually or in the aggregate are material to the condition
(financial or otherwise), assets, liabilities, business or operations of VCI.
To the best knowledge of VCI, there are no circumstances, conditions, events or
arrangements which may hereafter give rise to any liabilities of VCI except in
the ordinary course of business or as otherwise set forth in this Section 3.8 or
in a Schedule to this Agreement.
3.9 Absence of Certain Changes. Except as set forth on
--------------------------
Schedule 3.9, since August 31, 1996, VCI has conducted its business in the
ordinary course consistent with past practices, and there has not been:
(a) any Material Adverse Change or any event,
occurrence, development or state of circumstances or facts which could
reasonably be expected to result in a Material Adverse Change;
(b) any dividend or other distribution declared or paid
with respect to any of the VCI Stock;
(c) any loan or forgiveness of indebtedness to any
holder of VCI Stock or any Affiliate thereof;
(d) any bonus, salary or other compensation paid or
agreed to be paid to any employee except in accordance with Schedule 3.17
hereto;
(e) any incurrence of indebtedness for borrowed money;
(f) any creation or other incurrence of any Lien on any
of its assets;
(g) any transaction, Contract entered into, or
commitment made, by VCI relating to its business, operations or any of its
assets (including the acquisition or disposition of any assets) or any
relinquishment by VCI of any contract or other right, in either case other than
transactions and commitments in the ordinary course of business consistent with
past practices and those contemplated by this Agreement (other than payments of
compensation); or
(h) any transfer of any assets of VCI to any Person who
is a shareholder or other Affiliate of VCI.
12
3.10 Title to Assets. VCI has good and marketable title to
---------------
its material properties and assets owned or stated to be owned by VCI, free and
clear of all Liens except: (i) as set forth in the VCI Financial Statements,
(ii) Liens for current taxes not yet due, (iii) Liens incurred in the ordinary
course of business, (iv) Liens that are not substantial in character, amount or
extent (individually or collectively) and that do not (individually or
collectively) materially detract from the value, or interfere with present use,
of the property subject thereto or affected thereby, or otherwise materially
impair the conduct of business of VCI, or (v) as set forth on Schedule 3.10.
All of the material properties and assets used by VCI or held by VCI, other than
any leased assets listed on Schedule 3.10, are owned by VCI, free and clear of
all Liens except as set forth on Schedule 3.10.
3.11 Real Property. Schedule 3.10 sets forth a true and
-------------
complete list of real property, including leaseholds and all other interests in
real property, owned by VCI. VCI has good and marketable title to such real
property and valid leasehold interest in such leaseholds, free and clear of all
Liens, except: (i) for rights of lessors, co-lessees or sublessees and such
matters that are reflected in the relevant lease, (ii) current Taxes not yet due
and payable, (iii) Liens of public record, (iv) Liens, if any, as do not
materially detract from the value of or materially interfere with the present
use of such property, and (v) as set forth on Schedule 3.10.
3.12 Litigation. Other than as set forth on Schedule 3.12,
----------
there is no action, suit, investigation, hearing or proceeding pending against
or, to the best knowledge of VCI, threatened against or affecting, VCI, any of
its officers, directors, or shareholders, its business or any assets or any
Contract before any court or arbitrator or any governmental body, agency
official, which would have a Material Adverse Effect, or in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement. There are no outstanding judgments against VCI.
3.13 Contracts. Each Contract of VCI is a valid and binding
---------
agreement of VCI, and is in full force and effect, and VCI is not in default
(whether with or without the passage of time or the giving of notice or both)
under the terms of any such Contract. VCI has not assigned, delegated, or
otherwise transferred any of its rights or obligations with respect to any
Contracts, or granted any power of attorney with respect thereto. Schedule 3.13
is a true and correct list of all Contracts involving an outstanding monetary
obligation greater than Twenty-Five Thousand Dollars ($25,000), or with a
remaining term greater than one year.
3.14 Licenses and Permits. Schedule 3.14 correctly lists
--------------------
each material license, franchise, permit or other similar authorization
affecting, or relating in any way to VCI's business, together with the name of
the government agency or entity issuing such license or permit (the "VCI
Permits"). The VCI Permits are valid
13
and in full force and effect and, assuming the related VCI Consents have been
obtained prior to the Closing Date, are transferable by VCI, and none of the VCI
Permits will, assuming the related VCI Consents have been obtained prior to the
Closing Date, be terminated or impaired or become terminable as a result of the
transactions contemplated by this Agreement.
3.15 Compliance with Laws. VCI is not in material violation
--------------------
of, has not violated, and is neither under investigation with respect to nor has
been threatened to be charged with or given notice of any violation of, any law,
rule, statute, ordinance or regulation, or judgment, order or decree entered by
any court, arbitrator or governmental authority, domestic or foreign, materially
applicable to VCI's assets or the conduct of its business.
3.16 Intangible Property.
-------------------
(a) Schedule 3.16 sets forth all material VCI
Intangible Property and identifies each material contract to which VCI is a
party relating to any item of VCI Intangible Property. No Contracts require VCI
to (or will require Prism to) pay, or entitles it to receive any material
royalty, license fee, or other compensation with respect to the VCI Intangible
Property. Except as set forth on Schedule 3.16, no VCI Intangible Property
development was funded by a third Person (other than any shareholder of VCI) or
was conducted by or as a joint venture, in partnership, or otherwise in
collaboration, with any other Person (except an employee solely in his or her
capacity as such). The transactions contemplated hereby will not adversely
affect in any manner any item or part of the VCI Intangible Property or the
nature or usefulness thereof in the hands of Prism.
(b) All VCI Intangible Property and all federal, state
and foreign registrations with respect thereto, and all applications therefor
are valid and in full force and effect and are not subject to any taxes,
maintenance fees or actions.
(c) None of the VCI Intangible Property which is
purportedly an asset of VCI was developed or conceived by any VCI employee,
officer or director while employed by any other Person and no VCI shareholder
has violated any agreement with any former employer which pertains to any of
such property.
3.17 Employees.
---------
(a) Schedule 3.17 sets forth a true and complete list
of the names, titles, annual salaries or wage rates and other compensation and
office location of all employees of VCI, indicating part-time and full-time
employment, and all changes in salaries and wage rates per employee since
January 1, 1996.
14
(b) Except as set forth on Schedule 3.17, VCI is not a
party to or subject to any employment contract, consulting agreement, collective
bargaining agreement, confidentiality agreement restricting the activities of
VCI, non-competition agreement restricting the activities of VCI, or any similar
agreement.
3.18 Prepaids. Except as set forth on Schedule 3.18, VCI
--------
has not received any material payments with respect to any services to be
rendered or goods to be provided after the Closing.
3.19 Taxes.
-----
(a) VCI has filed all federal and foreign income tax
returns, all state and local franchise and income tax, real and personal
property tax, sales and use tax, premium tax, excise tax, employment tax and
other tax returns of every character required to be filed by it and has paid in
full all Taxes (including, without limitation, all tax deposits), together with
any interest and penalties owing in connection therewith, shown on such returns
to be due in respect of the periods covered by such returns, other than taxes
which are being contested in good faith and for which adequate reserves have
been established. Adequate provision has been made in the Books and Records of
VCI and, to the extent required by generally accepted accounting principals,
reflected in the VCI Financial Statements, for all Tax liabilities, including
interest or penalties, whether or not due and payable and whether or not
disputed, with respect to any and all Taxes for the periods covered by the VCI
Financial Statements and for all prior periods. Schedule 3.19 sets forth the
date or dates through which the IRS has examined the federal income taxes of VCI
and the date or dates through which any foreign, state, local or other taxing
authority has examined any other tax returns of VCI. Schedule 3.19 also contains
a complete list of each year for which any federal, state, local or foreign tax
authority has obtained or has requested an extension of the statute of
limitations from VCI and lists each tax case of VCI currently pending in audit,
at the administrative appeals level or in litigation. Schedule 3.19 further
lists the date and issuing authority of each statutory notice of deficiency,
notice or proposal assessment and revenue agent's report issued to VCI within
the last twelve (12) months. Except as set forth on Schedule 3.19, to VCI's best
knowledge, neither the IRS nor any foreign, state, local or other taxing
authority has, during the past three years, examined or is in the process of
examining any federal, foreign, state, local or other tax returns of VCI.
Neither the IRS nor any foreign, state, local or other taxing authority is now
asserting or threatening to assert any deficiency or claim for additional taxes
(or interest thereon or penalties in connection therewith) except as set forth
on Schedule 3.19.
(b) VCI has not made any requests for rulings, and VCI
has not received any subpoenas or requests for information, or notices of
proposed reassessment of any property owned or leased by VCI. There are no Liens
for Taxes
15
upon any property or assets of VCI (other than for real property taxes, not yet
due, on premises leased by VCI for which VCI will be liable under the terms of
the applicable leases).
(c) VCI has delivered to Prism true and complete copies
of all federal, state and foreign income tax returns (together with any Revenue
Agent's Reports) filed by VCI relating to its operations for taxable years ended
1994 and 1995.
(d) VCI has not filed a consent pursuant to Section
341(f) of the Code, and has not filed, and would not be deemed to have filed,
any election under Section 338 of the Code.
(e) VCI has never been, nor is VCI currently, bound by
or subject to any obligation under any agreement relating to the sharing of any
liability for, or payment of, Taxes with any other Person.
(f) VCI has withheld or will withhold, and has paid over
or will pay over to applicable taxing authorities amounts from its employees and
has filed or will file all federal, foreign, state, and local returns and
reports with respect to employee income tax withholding and social security and
unemployment Taxes for all periods (or portions thereof) ending on or before the
Effective Date, in compliance with the provisions of the Code and other
applicable federal, foreign, state and local laws.
3.20 Environmental Compliance. VCI has not received any
------------------------
notice that it or any of its properties have not been or are not now in complete
compliance with all applicable environmental law.
3.21 Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 3.21, as of the date
hereof:
(1) The employment of each employee of VCI may be
terminated immediately by VCI, except as otherwise provided by statute or
decisional authority;
(2) To VCI's best knowledge, no key executive
employee of VCI and no group of employees of VCI has plans to terminate his, her
or its employment at or prior to the Closing, whether or not as a result of the
transactions contemplated herein; and
16
(3) VCI has not had any material labor relations
problems.
(4) VCI has complied in all material respects with
all collective bargaining agreements and all applicable laws and orders relating
to the employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of Taxes and other sums as required
by appropriate governmental authorities and has withheld and paid to the
appropriate governmental authorities, or is holding for payment not yet due to
such governmental authorities, all amounts required to be withheld from such
employees of VCI and is not liable for any arrears of wages, Taxes, penalties or
other sums for failure to comply with any of the foregoing. No present or former
employee, officer or director of VCI has notified VCI that he or she has or will
have at the Effective Time, any claim against VCI for any matter, including but
not limited to (i) overtime pay for work done through the Effective Time; (ii)
wages or salary for the work done through the Effective Time; (iii) vacation
time off or pay in lieu of vacation time off for the period through the
Effective Time; (iv) any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours or work-place conditions; or (v)
injuries or other damages which are not fully covered by VCI's insurance
policies; except, in the case of clauses (i) and (ii), for amounts accrued in
the current pay period that are not yet due and payable, and in the case of
clause (iii), for vacation accrued in accordance with VCI's policies, which its
employees have not yet taken.
(b) Except as disclosed on Schedule 3.21, as of the date
hereof, VCI has not received any notice of any:
(1) unfair labor practice complaint against VCI
pending before the National Labor Relations Board or any state or local agency;
(2) pending labor strike or other material labor
trouble affecting VCI;
(3) material labor grievance pending against VCI;
(4) pending representation question respecting the
employees of VCI; or
(5) pending arbitration proceedings arising out of
or under any collective bargaining agreement to which VCI is a party.
(c) In addition: (i) none of the matters specified in
clauses (1) through (5) is threatened against VCI; (ii) no union organizing
activities
17
have taken place with respect to VCI; and (iii) no basis exists for which a
claim may be made under any collective bargaining agreement to which VCI is a
party.
3.22 Pension and Benefit Plans.
-------------------------
(a) All accrued obligations of VCI applicable to its
employees, whether arising by operation of law, by contract, by past custom or
otherwise, for payments by VCI to trusts or other funds or to any governmental
agency, with respect to unemployment compensation benefits, social security
benefits or any other benefits for its employees with respect to the employment
of said employees through the date hereof have been paid or adequate accruals
therefor have been made on, as applicable, the Books and Records of VCI and the
VCI Financial Statements.
(b) Except as disclosed on Schedule 3.22, as of the date
hereof:
(1) Neither VCI nor any of its ERISA Affiliates
maintains or has any obligations to contribute to, or has in effect or has
committed to adopt, any Pension Plan or any Welfare Plan;
(2) Each ERISA Plan conforms in all material
respects to all applicable laws and orders, including ERISA and the applicable
provisions of the Code. All notices, reports, returns, applications and
disclosures have been timely made which are required to be made to the Internal
Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty
Corporation, any participants in the ERISA Plans, any trustee, or any insurer
with respect to the ERISA Plans;
(3) VCI and its ERISA Affiliates have made or
provided for (with fully-funded reserves) all contributions heretofore required
to have been made under all of the ERISA Plans, and will, by the Closing Date,
have made or provided for (with fully-funded reserves) all contributions
required to be made on or before the Closing Date under all such plans;
(4) No ERISA Plan nor any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction which may
subject any of such ERISA Plans, any such trust, or any party dealing with such
ERISA Plans or any such trust, to the Tax or penalty on prohibited transactions
imposed by Section 4975 of the Code or to a civil penalty imposed by Section 502
of ERISA;
18
(5) There are no material actions, claims or
lawsuits which have been asserted or instituted against the assets of any of the
trusts under the ERISA Plans, and no basis for such action, claim or lawsuit
exists, and no such action, claim or lawsuit has been threatened;
(6) VCI has not agreed to indemnify any other party
for any liabilities or expenses which have been or may in the future be incurred
by or asserted against such other party in respect of any ERISA Plan;
(7) Each Pension Plan constituting one of the ERISA
Plans is qualified under Section 401 of the Code, each of the trusts maintained
with respect thereto is exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred which would cause the loss of such
qualification or exemption or the imposition of any penalty under Section 4971
of the Code;
(8) The assets of each Pension Plan constituting
one of the ERISA Plans (including Pension Plans maintained by an ERISA
Affiliate) are sufficient to pay all liabilities of the plan, including, without
limitation, all liabilities to pay benefits to any past or present participant
or beneficiary in such plan, any expense incurred in administering the plan, and
any liabilities for Taxes which may be imposed on the plan or on any trust
maintained in connection with the plan;
(9) The value of all accrued benefits under each
Pension Plan constituting one of the ERISA Plans (including Pension Plans
maintained by an ERISA Affiliate) which is a "defined benefit plan" within the
meaning of Section 3(35) of ERISA, including each "multi-employer plan" within
the meaning of Section 3(37) of ERISA, does not exceed, on an accrual basis, the
aggregate value of the assets of each such plan;
(10) There has been no "reportable event," within
the meaning of Section 4043(b) of ERISA, with respect to any Pension Plan which
constitutes one of the ERISA Plans since the effective date of Section 4043(b)
of ERISA;
(11) The transaction contemplated by this Agreement
will not result in a reportable event, within the meaning of ERISA Section 4043,
other than a reportable event with respect to which (i) the ERISA Section 4043
reportable event notice requirement has been waived or (ii) the Pension Benefit
Guaranty Corporation will not apply a penalty for failure to satisfy the
reportable event notice requirement;
(12) Neither VCI nor any of its ERISA Affiliates has
any liability to the Pension Benefit Guaranty Corporation pursuant to Title IV
of
19
ERISA in respect of any Pension Plan constituting one of the ERISA Plans
(including Pension Plans maintained, or formerly maintained, by an ERISA
Affiliate);
(13) Neither VCI nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any multi-employer plan;
(14) Neither VCI nor any of its ERISA Affiliates has
terminated a defined benefit plan or multi-employer plan or suffered or
otherwise caused a "complete withdrawal" or "partial withdrawal" as such terms
are respectively defined in Sections 4203 and 4205 of ERISA from any multi-
employer plan. Since April 1, 1979, neither VCI nor any of its ERISA Affiliates
has complied with Section 4204 of ERISA in order to avoid any such "complete
withdrawal" or "partial withdrawal;"
(15) The transaction contemplated by this Agreement
will not result in a VCI liability for severance or termination pay or result in
increased employee benefits becoming payable to any employees of VCI;
(16) Neither VCI nor any of its ERISA Affiliates has
any unpaid liability in respect of any employee for any contributions and/ or
premiums due under any Welfare Plan constituting one of the ERISA Plans;
(17) Neither VCI nor its ERISA Affiliates has any
liability as to any benefits to which any employee may be entitled under any
Welfare Plan constituting one of the ERISA Plans, whether for benefits due or
claims filed; and
(18) VCI does not maintain any health or life
insurance plan that provides for continuing benefits or coverage for any
participant or any spouse, dependent or beneficiary under such plan after
termination of employment, other than as may be required under Section 4980B of
the Code and regulations thereunder ("COBRA"). VCI is in compliance with the
COBRA notice and continuation coverage requirements with respect to Plans
maintained by VCI.
(c) True, correct and complete copies of the following
documents, with respect to the each of the ERISA Plans, have been delivered to
Prism:
(1) Each ERISA Plan document, employment contract,
policy, procedure or other governing instrument relating to a ERISA Plan,
including all amendments, supplements, collective bargaining agreements,
letters, memoranda, understandings and any other document reasonably necessary
to reflect the terms and conditions of each ERISA Plan.
20
(2) The most recent summary plan description of
each ERISA Plan for which a summary plan description is required under ERISA,
and summaries of material modification thereto.
(3) All instruments under which the assets of any
ERISA Plan are held or managed and benefits provided, including, but not limited
to, insurance contracts, trust agreements, custodial contracts and investment
management agreements.
(4) The two most recent Forms 5500, 5500-C or 5500-
R for each ERISA Plan for which such filing is required, with all attachments
and schedules thereto.
(5) The two most recent annual financial statements
for each ERISA Plan, if not included with such Form 5500 (5500-C or 5500-R).
(6) The most recent actuarial valuation report for
each ERISA Plan (as applicable).
(7) With respect to each ERISA Plan that has
received a determination letter under Section 401(a) of the Code, and any
voluntary employee benefit association trust that has received a determination
letter under Section 501(c) of the Code, the most recent Internal Revenue
Service determination letter (including any letter concerning the tax-exempt
status of any trust under Sec tion 501(a) of the Code), the application
submitted when requesting such determination letter, and any subsequently filed
determination letter request.
(d) All Pension Plans shall be terminated by VCI prior
to the Effective Time.
3.23 Insurance. Schedule 3.23 sets forth a true and correct
---------
list of all policies or binders of fire, liability, workers' compensation,
vehicular or other insurance held by or on behalf of VCI specifying the insurer,
the policy number or covering note number with respect to binders, and
describing each pending claim thereunder of more than Five Thousand Dollars
($5,000). Such policies and binders are in full force and effect. No such policy
is terminable or cancelable by the insurer by virtue of the consummation of the
transactions contemplated herein.
3.24 Books and Records. VCI has heretofore furnished or made
-----------------
available to Prism for its examination the following, each of which is, and will
be maintained as to remain until the Closing, accurate and complete in all
material respects:
21
(a) copies of the Articles of Incorporation and bylaws,
as in effect on the date of this Agreement;
(b) the minute books of VCI containing all proceedings,
consents, actions and meetings of its shareholders and Boards of Directors;
(c) copies of all VCI Permits, orders and consents with
respect to VCI's securities issued by any administrative agency or governmental
body regulating the issuance or transfer of such securities and all applications
for such permits, orders and consents;
(d) the stock transfer books of VCI setting forth all
transfers of its securities;
(e) copies of all agreements and documents referred to
in any VCI Disclosure Schedule;
(f) all other Books and Records of VCI; and
(g) an accurate list of all of the incumbent officers
and directors of VCI.
3.25 Inventory. The inventory of VCI reflected on the VCI
---------
1996 Balance Sheet, as well as other inventory items acquired since the date of
the VCI 1996 Balance Sheet that are now the property of VCI, are of such quality
and held in such quantities as are being used and will be useable, are being
sold and will be saleable, or are rented or will be rentable, in the ordinary
course of the business of VCI. The inventory excludes slow-moving items and
obsolete items, and are recorded at cost and amortized over their estimated life
with no provision for salvage value. Videocassettes which are considered base
stock are amortized over 36 months on a straight-line basis. Purchases of new
release videocassettes and video games are amortized whereby the tenth and any
succeeding copies of each title per store are amortized over nine months on an
accelerated basis, the fourth through ninth copies of each title per store are
amortized on an accelerated basis; and copies one through three of each title
per store are amortized as base stock. Since the date of the VCI 1996 Balance
Sheet, VCI has continued to replenish its inventories in a normal and customary
manner consistent with practice prevailing in the retail video sales and rental
industry.
3.26 Accuracy and Provision of Information. None of the
-------------------------------------
documents or other information made available to Prism or its Affiliates,
attorneys, accountants, agents or representatives in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material
22
fact necessary in order to make the statements contained therein not misleading.
VCI has provided Prism all material information regarding its business and
operations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PRISM
Prism represents and warrants to VCI that:
4.1 Corporate Existence and Power. Prism is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. Schedule 4.1 sets forth those jurisdictions in which
Prism is required to be, and is, qualified to do business as a foreign
corporation because of the character of the property owned or leased by Prism or
the nature of its activities.
4.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by Prism of this Agreement and the other Prism Documents and the
consummation by Prism of the transactions contemplated hereby and thereby are
within its respective corporate powers and as of the Closing will have been duly
authorized by all necessary corporate action. Subject to obtaining all
requisite corporate approvals and upon the Confirmation Order becoming a Final
Order, this Agreement is, and the other Prism Documents shall be, as of the
Closing Date, the legal, valid and binding obligations of Prism, enforceable
against Prism in accordance with their respective terms.
4.3 Governmental Authorization. Other than the entry by the
--------------------------
Court of the Confirmation Order, and the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and the Agreement of Merger
with the Secretary of State of the State of California as contemplated by
Section 2.1, the execution, delivery and performance by Prism of this Agreement
and the other Prism Documents require no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
4.4 Non-Contravention. At the Effective Time, the execution,
-----------------
delivery and performance by the Prism of this Agreement and other Prism
Documents will not (i) contravene or conflict with its certificates of
incorporation or bylaws, (ii) contravene or conflict with any provision of any
law, statute, rule, regulation, judgment, injunction, order, writ, or decree
binding upon them, (iii) assuming the obtaining of all Prism Consents and the
Confirmation Order becoming a Final Order, constitute a default under or breach
of any Contract to which Prism is a party or by
23
which any of its assets is or may be bound, or result in the creation or
imposition of any Lien on any of Prism's assets.
4.5 Prism Capitalization. At the Effective Time: (i) the
--------------------
authorized capital stock of Prism will consist solely of 20,000,000 shares of
common stock, $.01 par value, 10,000,000 of which will be issued and
outstanding, after giving effect to the Merger, (ii) such issued and outstanding
shares will be duly authorized, validly issued, fully paid and nonassessable,
(iii) except for such issued and outstanding shares, there will be no shares of
capital stock or other securities or other equity interests of Prism issued and
outstanding and (iv) except as set forth on Schedule 4.5, there will be no
outstanding options, warrants or other rights in or with respect to the unissued
shares of Prism Stock nor any securities convertible into such stock, and Prism
will not be obligated to issue any additional shares of Prism Stock or any
options, warrants or other rights in or with respect to the unissued shares of
such stock or any other securities convertible into such stock. All issued and
outstanding shares of Prism Stock have been validly issued in full compliance
with all federal and state securities law, and are not subject to any rights or
obligations that require the registration of such shares.
4.6 Finders' Fees. Except for Xxxxxx and Company, whose fees
-------------
will be paid or accrued by Prism prior to the consummation of the Merger, there
is no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of Prism or any of its respective
Affiliates who might be entitled to any fee or commission from Prism or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
4.7 Subsidiaries. Except as set forth on Schedule 4.7, Prism
------------
does not own, directly or indirectly, securities or other ownership interests in
any other entity, nor is Prism a party to any agreement relating to the
formation of any other entity or joint venture.
4.8 Litigation. Other than the Case, except as set forth on
----------
Schedule 4.8, there is no action, suit, investigation, hearing or proceeding
pending against or, to the best knowledge of Prism, threatened against or
affecting, Prism, any of its officers, directors, or shareholders, its business
or any assets or any Contract, before any court or arbitrator or any
governmental body, agency official, or which would have a material adverse
effect or in any manner challenges or seeks to prevent, enjoin, alter or delay
the transactions contemplated hereby.
24
4.9 Consents. Schedule 4.9 sets forth each Contract and
--------
Permit of Prism that requires a consent, approval, authorization, order or other
action of or filing with any Person as a result of the execution, delivery and
performance of this Agreement or any of the other Prism Documents or the
consummation of the transactions contemplated hereby or thereby.
4.10 Financial Statements.
--------------------
(a) Prism has delivered to VCI true and correct copies
of the audited financial statements of Prism consisting of a statement of
operations and statement of cash flows for the six-month period ended July 31,
1996, and a balance sheet as of July 31, 1996, together with audited statements
of operations and statements of cash flows for the fiscal years ended January
31, 1996, 1995 and 1994, and audited balance sheets as of January 31, 1996, 1995
and 1994 (collectively, the Prism Financial Statements"). The Prism Financial
Statements fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis, the financial position of Prism as of
the dates thereof and the results of operations of Prism for the period or years
then ended.
(b) At the Effective Time, provided that the
Confirmation Order has become a Final Order, and except for (i) those
liabilities specifically reflected or reserved against under the Plan, (ii)
those current liabilities for trade or business obligations incurred since July
31, 1996 in connection with the purchase of goods or services in the ordinary
course of Prism's business and consistent with past practices, (none of which
is, individually or in the aggregate, material and none of which is for breach
of contract, breach of warranty, tort or infringement), (iii) those liabilities
arising under any Contract (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement) or (iv) those liabilities otherwise
disclosed on Schedule 4.10 (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement), Prism does not have, as of the date
hereof, any direct or indirect indebtedness, liabilities, claims, losses,
damages, deficiencies, obligations (including, without limitation, the
obligation to indemnify any other Person for any liabilities or expenses which
have been or may in the future be incurred by or asserted against such other
Person, or responsibilities, known or unknown, liquidated or unliquidated,
accrued, absolute, contingent or otherwise, and whether or not of a kind
required by generally accepted accounting principles to be set forth on a
financial statement), which individually or in the aggregate are material to the
condition (financial or otherwise), assets, liabilities, business, operations or
prospects of Prism. To the best knowledge of Prism and except as provided for by
the Plan or which relates to the Case, there are no circumstances, conditions,
events or arrangements which may hereafter give rise to any liabilities of Prism
except in the ordinary course of business or as otherwise set forth in this
Section 4.10.
25
4.11 Absence of Certain Changes. Except as set forth on
--------------------------
Schedule 4.11, or as provided for by the Plan, since July 31, 1996, there has
not been:
(a) any dividend or other distribution declared or paid
with respect to any of the Prism Stock;
(b) any loan or forgiveness of indebtedness to any
holder of Prism Stock or any Affiliate thereof;
(c) any bonus, salary or other compensation paid or
agreed to be paid to any employee except in accordance with Schedule 4.18
hereto;
(d) any incurrence of indebtedness for borrowed money;
(e) any creation or other incurrence of any Lien on any
of its assets;
(f) any transaction, Contract entered into, or
commitment made, by Prism relating to its business, operations or any of its
assets (including the acquisition or disposition of any assets) or any
relinquishment by Prism of any Contract or other right, in either case other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement or in accordance
with the Plan; or
(g) any transfer of any assets of Prism to any Person
who is a shareholder or other Affiliate of Prism.
4.12 Title to Assets. At the Effective Time, provided that
---------------
the Confirmation Order has become a Final Order, and except as set forth on
Schedule 4.12, Prism will have good and marketable title to its material
properties and assets owned or stated to be owned by Prism, free and clear of
all Liens except the Liens specified on Schedule 4.12 which survive pursuant to
the terms of the Plan.
4.13 Real Property. Schedule 4.13 sets forth a true and
-------------
complete list of real property, including leaseholds and all other interests in
real property, owned by Prism. Prism has good and marketable title to such real
property and valid leasehold interest in such leaseholds, free and clear of all
Liens, except: (i) for rights of lessors, co-lessees or sublessees and such
matters that are reflected in the relevant lease, (ii) current Taxes not yet due
and payable, (iii) Liens of public record, (iv) Liens, if any, as do not
materially detract from the value of or materially interfere with the present
use of such property, and (v) set forth on Schedule 4.13.
26
4.14 Intangible Property.
-------------------
(a) Schedule 4.14 sets forth all material Prism
Intangible Property and identifies each material contract to which Prism is a
party relating to any item of Prism Intangible Property. Except as set forth on
Schedule 4.14 (and other than Contracts that exclusively relate to current
accounts receivable of Prism), (i) no Contracts require Prism to pay, or entitle
Prism to receive, any royalty, license fee, or other compensation with respect
to the Prism Intangible Property, (ii) no Prism Intangible Property development
was funded by a third Person (other than any shareholder of Prism) or was
conducted by or as a joint venture, in partnership, or otherwise in
collaboration, with any other Person (except an employee solely in his or her
capacity as such) and (iii) the transactions contemplated hereby will not
adversely affect in any manner any item or part of the Prism Intangible Property
or the nature or usefulness thereof in the hands of VCI.
(b) All Prism Intangible Property and all federal, state
and foreign registrations with respect thereto, and all applications therefor
are valid and in full force and effect and are not subject to any taxes,
maintenance fees or actions.
(c) None of the Prism Intangible Property which is pur
portedly an asset of Prism was developed or conceived by any Prism employee,
officer or director while employed by any other Person and no Prism shareholder
has violated any agreement with any former employer which pertains to any of
such property.
4.15 Contracts. At the Effective Time, after giving effect to
---------
the Final Order and the Merger, each Contract of Prism that will exist as of the
Effective Time will be a valid and binding agreement of Prism and in full force
and effect, and Prism will not be in default (whether with or without the
passage of time or the giving of notice or both) under the terms of any such
Contract. Schedule 4.15 is a true and correct list of all Contracts of Prism
(other than Contracts that exclusively relate to current accounts receivable of
Prism) that will exist at the Effective Time involving an outstanding monetary
obligation greater than Twenty-Five Thousand Dollars ($25,000) or with a
remaining term greater than one year.
4.16 Licenses and Permits. Schedule 4.16 correctly lists each
--------------------
material license, franchise, permit or other similar authorization affecting, or
relating in any way to Prism's business, together with the name of the
government agency or entity issuing such license or permit (the "Prism
Permits"). The Prism Permits are valid and in full force and effect and,
assuming the related Prism Consents have been obtained prior to the Closing
Date, none of the Prism Permits will, be terminated or impaired or become
terminable as a result of the transactions contemplated by this Agreement.
27
4.17 Compliance with Laws. Prism is not in material
--------------------
violation of, have not violated, and is neither under investigation with respect
to nor have been threatened to be charged with or given notice of any violation
of, any law, rule, statute, ordinance or regulation, or judgment, order or
decree entered by any court, arbitrator or governmental authority, domestic or
foreign, applicable to Prism's assets or the conduct of its business.
4.18 Employees.
---------
(a) Schedule 4.18 sets forth a true and complete list of
the names, titles, annual salaries or wage rates and other compensation and
office location of all employees of Prism, indicating part-time and full-time
employment, and all changes in salaries and wage rates per employee since
January 1, 1996.
(b) Prism is not a party to or subject to any employment
contract, consulting agreement, collective bargaining agreement, confidentiality
agreement restricting the activities of Prism, non-competition agreement
restricting the activities of Prism, or any similar agreement.
4.19 Taxes.
-----
(a) Except as set forth on Schedule 4.19, Prism has
filed all federal and foreign income tax returns, all state and local franchise
and income tax, real and personal property tax, sales and use tax, premium tax,
excise tax, employment tax and other tax returns of every character required to
be filed by it and has paid in full all Taxes (including, without limitation,
all tax deposits), together with any interest and penalties owing in connection
therewith, shown on such returns to be due in respect of the periods covered by
such returns, other than taxes which are being contested in good faith and for
which adequate reserves have been established. The tax and audit positions taken
by Prism in connection with the tax returns described in the preceding sentence
were reasonable and asserted in good faith. Adequate provision has been made in
the Books and Records of Prism and, to the extent required by generally accepted
accounting principals, reflected in the Prism Financial Statements, for all Tax
liabilities, including interest or penalties, whether or not due and payable and
whether or not disputed, with respect to any and all Taxes for the periods
covered by the Prism Financial Statements and for all prior periods. Schedule
4.19 sets forth the date or dates through which the IRS has examined the federal
income taxes of Prism and the date or dates through which any foreign, state,
local or other taxing authority has examined any other tax returns of Prism.
Schedule 4.19 also contains a complete list of each year for which any federal,
state, local or foreign tax authority has obtained or has requested an extension
of the statute of limitations from Prism and lists each tax case of Prism
currently pending in audit, at the administrative appeals level or in
litigation. Schedule 4.19 further lists the date
28
and issuing authority of each statutory notice of deficiency, notice or proposal
assessment and revenue agent's report issued to Prism within the last twelve
(12) months. Except as set forth on Schedule 4.19, to Prism's best knowledge,
neither the IRS nor any foreign, state, local or other taxing authority has,
during the past three years, examined or is in the process of examining any
federal, foreign, state, local or other tax returns of Prism. Neither the IRS
nor any foreign, state, local or other taxing authority is now asserting or
threatening to assert any deficiency or claim for additional taxes (or interest
thereon or penalties in connection therewith) except as set forth on Schedule
4.19.
(b) Except as set forth on Schedule 4.19, Prism has not
made any requests for rulings, and Prism has not received any subpoenas or
requests for information, notices of proposed reassessment of any property owned
or leased by Prism, and there are no Liens for Taxes upon any property or assets
of Prism (other than any real property taxes, not yet due, on premises leased by
Prism for which Prism will be liable under the terms of the applicable leases.
(c) Prism has delivered to VCI true and complete copies
of all federal, state and foreign income tax returns (together with any Revenue
Agent's Reports) filed by Prism relating to its operations for taxable years
ended 1993, 1994 and 1995.
(d) Prism has not filed a consent pursuant to Section
341(f) of the Code, and has not filed, and would not be deemed to have filed,
any election under Section 338 of the Code.
(e) Prism has never been, nor is Prism currently, bound
by or subject to any obligation under any agreement relating to the sharing of
any liability for, or payment of, Taxes with any other Person.
(f) Except as set forth on Schedule 4.19, Prism has
withheld or will withhold, and has paid over or will pay over to applicable
taxing authorities amounts from its employees and has filed or will file all
federal, foreign, state, and local returns and reports with respect to employee
income tax withholding and social security and unemployment Taxes for all
periods (or portions thereof) ending on or before the Effective Date, in
compliance with the provisions of the Code and other applicable federal,
foreign, state and local laws.
4.20 Environmental Compliance. Prism has not received any
------------------------
notice that it or any of its properties have not been or are not now in complete
compliance with all applicable environmental law.
29
4.21 Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 4.21, as of the date
hereof:
(1) The employment of each employee of Prism may be
terminated immediately by Prism, except as otherwise provided by statute or
decisional authority;
(2) No key executive employee of Prism and no group
of employees of Prism has plans to terminate his, her or its employment at or
prior to the Closing, whether or not as a result of the transactions
contemplated herein; and
(3) Prism has not had any material labor relations
problems.
(4) Prism has complied in all material respects
with any collective bargaining agreements and all applicable laws and orders
relating to the employment of labor, including those related to wages, hours,
collective bargaining and the payment and withholding of Taxes and other sums as
required by appropriate governmental authorities and has withheld and paid to
the appropriate governmental authorities, or is holding for payment not yet due
to such governmental authorities, all amounts required to be withheld from such
employees of Prism and is not liable for any arrears of wages, Taxes, penalties
or other sums for failure to comply with any of the foregoing. Other than as
provided for under the Plan, at the Effective Time, no present or former
employee, officer or director of Prism will have notified Prism that he or she
has any claim against Prism for any matter, including but not limited to (i)
overtime pay for work done through the Effective Time; (ii) wages or salary for
the work done through the Effective Time; (iii) vacation time off or pay in lieu
of vacation time off for the period through the Effective Time; (iv) any
violation of any statute, ordinance or regulation relating to minimum wages or
maximum hours or work-place conditions; or (v) injuries or other damages which
are not fully covered by Prism's insurance policies; except, in the case of
clauses (i) and (ii), for amounts accrued in the current pay period that are not
yet due and payable, and in the case of clause (iii), for vacation accrued in
accordance with Prism's policies, which its employees have not yet taken.
(b) Except as disclosed on Schedule 4.21, as of the date
hereof, Prism has not received any notice of any:
(1) unfair labor practice complaint against Prism
pending before the National Labor Relations Board or any state or local agency;
30
(2) pending labor strike or other material labor
trouble affecting Prism;
(3) material labor grievance pending against Prism;
(4) pending representation question respecting the
employees of Prism; or
(5) pending arbitration proceedings arising out of
or under any collective bargaining agreement to which Prism is a party.
(c) In addition: (i) none of the matters specified in
clauses (1) through (5) of Section 4.21(b) has been threatened against Prism;
(ii) no union organizing activities have taken place with respect to Prism; and
(iii) no basis exists for which a claim may be made under any collective
bargaining agreement to which Prism is a party.
4.22 Pension and Benefit Plans.
-------------------------
(a) Except as disclosed on Schedule 4.22, all accrued
obligations of Prism applicable to its employees, whether arising by operation
of law, by contract, by past custom or otherwise, for payments by Prism to
trusts or other funds or to any governmental agency, with respect to
unemployment compensation benefits, social security benefits or any other
benefits for its employees with respect to the employment of said employees
through the date hereof have been paid or adequate accruals therefor have been
made on, as applicable, the Books and Records of Prism and the Prism Financial
Statements.
(b) Except as disclosed on Schedule 4.22, as of the date
hereof:
(1) Neither Prism nor any of its ERISA Affiliates
maintains or has any obligations to contribute to, or has in effect or has
committed to adopt, any Pension Plan or any Welfare Plan;
(2) Each ERISA Plan conforms in all material
respects to all applicable laws and orders, including ERISA and the applicable
provisions of the Code. All notices, reports, returns, applications and
disclosures have been timely made which are required to be made to the Internal
Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty
Corporation, any participants in the ERISA Plans, any trustee, or any insurer
with respect to the ERISA Plans;
31
(3) Prism and its ERISA Affiliates have made or
provided for (with fully-funded reserves) all contributions heretofore required
to have been made under all of the ERISA Plans, and will, by the Closing Date,
have made or provided for (with fully-funded reserves) all contributions
required to be made on or before the Closing Date under all such plans;
(4) No ERISA Plan nor any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction which may
subject any of such ERISA Plans, any such trust, or any party dealing with such
ERISA Plans or any such trust, to the Tax or penalty on prohibited transactions
imposed by Section 4975 of the Code or to a civil penalty imposed by Section 502
of ERISA;
(5) There are no material actions, claims or
lawsuits which have been asserted or instituted against the assets of any of the
trusts under the ERISA Plans, and no basis for such action, claim or lawsuit
exists, and no such action, claim or lawsuit has been threatened;
(6) Prism has not agreed to indemnify any other
party for any liabilities or expenses which have been or may in the future be
incurred by or asserted against such other party in respect of any ERISA Plan;
(7) Each Pension Plan constituting one of the ERISA
Plans is qualified under Section 401 of the Code, each of the trusts maintained
with respect thereto is exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred which would cause the loss of such
qualification or exemption or the imposition of any penalty under Section 4971
of the Code;
(8) The assets of each Pension Plan constituting
one of the ERISA Plans (including Pension Plans maintained by an ERISA
Affiliate) are sufficient to pay all liabilities of the plan, including, without
limitation, all liabilities to pay benefits to any past or present participant
or beneficiary in such plan, any expense incurred in administering the plan, and
any liabilities for Taxes which may be imposed on the plan or on any trust
maintained in connection with the plan;
(9) The value of all accrued benefits under each
Pension Plan constituting one of the ERISA Plans (including Pension Plans
maintained by an ERISA Affiliate) which is a "defined benefit plan" within the
meaning of Section 3(35) of ERISA, including each "multi-employer plan" within
the meaning of Section 3(37) of ERISA, does not exceed, on an accrual basis, the
aggregate value of the assets of each such plan;
32
(10) There has been no "reportable event," within
the meaning of Section 4043(b) of ERISA, with respect to any Pension Plan which
constitutes one of the ERISA Plans since the effective date of Section 4043(b)
of ERISA;
(11) The transaction contemplated by this Agreement
will not result in a reportable event, within the meaning of ERISA Section 4043,
other than a reportable event with respect to which (i) the ERISA Section 4043
reportable event notice requirement has been waived or (ii) the Pension Benefit
Guaranty Corporation will not apply a penalty for failure to satisfy the
reportable event notice requirement;
(12) Neither Prism nor any of its ERISA Affiliates
has any liability to the Pension Benefit Guaranty Corporation pursuant to Title
IV of ERISA in respect of any Pension Plan constituting one of the ERISA Plans
(including Pension Plans maintained, or formerly maintained, by an ERISA
Affiliate);
(13) Neither Prism nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any multi-employer plan;
(14) Neither Prism nor any of its ERISA Affiliates
has terminated a defined benefit plan or multi-employer plan or suffered or
otherwise caused a "complete withdrawal" or "partial withdrawal" as such terms
are respectively defined in Sections 4203 and 4205 of ERISA from any multi-
employer plan. Since April 1, 1979, neither Prism nor any of its ERISA
Affiliates has complied with Section 4204 of ERISA in order to avoid any such
"complete withdrawal" or "partial withdrawal;"
(15) The transaction contemplated by this Agreement
will not result in a Prism liability for severance or termination pay or result
in increased employee benefits becoming payable to any employees of Prism;
(16) Neither Prism nor any of its ERISA Affiliates
has any unpaid liability in respect of any employee for any contributions and/
or premiums due under any Welfare Plan constituting one of the ERISA Plans;
(17) Neither Prism nor its ERISA Affiliates has any
liability as to any benefits to which any employee may be entitled under any
Welfare Plan constituting one of the ERISA Plans, whether for benefits due or
claims filed; and
(18) Prism does not maintain any health or life
insurance plan that provides for continuing benefits or coverage for any
participant or
33
any spouse, dependent or beneficiary under such plan after termination of
employment, other than as may be required under Section 4980B of the Code and
regulations thereunder ("COBRA"). Prism is in compliance with the COBRA notice
and continuation coverage requirements with respect to Plans maintained by
Prism.
(c) True, correct and complete copies of the following
documents, with respect to the each of the ERISA Plans, have been delivered to
VCI:
(1) Each ERISA Plan document, employment contract,
policy, procedure or other governing instrument relating to a ERISA Plan,
including all amendments, supplements, collective bargaining agreements,
letters, memoranda, understandings and any other document reasonably necessary
to reflect the terms and conditions of each ERISA Plan.
(2) The most recent summary plan description of
each ERISA Plan for which a summary plan description is required under ERISA,
and summaries of material modification thereto.
(3) All instruments under which the assets of any
ERISA Plan are held or managed and benefits provided, including, but not limited
to, insurance contracts, trust agreements, custodial contracts and investment
management agreements.
(4) The two most recent Forms 5500, 5500-C or 5500-
R for each ERISA Plan for which such filing is required, with all attachments
and schedules thereto.
(5) The two most recent annual financial statements
for each ERISA Plan, if not included with such Form 5500 (5500-C or 5500-R).
(6) The most recent actuarial valuation report for
each ERISA Plan (as applicable).
(7) With respect to each ERISA Plan that has
received a determination letter under Section 401(a) of the Code, and any
voluntary employee benefit association trust that has received a determination
letter under Section 501(c) of the Code, the most recent Internal Revenue
Service determination letter (including any letter concerning the tax-exempt
status of any trust under Section 501(a) of the Code), the application
submitted when requesting such determination letter, and any subsequently filed
determination letter request.
4.23 Insurance. Schedule 4.23 sets forth a true and correct
---------
list of all policies or binders of fire, liability, workers' compensation,
vehicular or other
34
insurance held by or on behalf of Prism specifying the insurer, the policy
number or covering note number with respect to binders, and describing each
pending claim thereunder of more than Five Thousand Dollars ($5,000). Such
policies and binders are in full force and effect. No such policy is terminable
or cancelable by the insurer by virtue of the consummation of the transactions
contemplated herein.
4.24 Books and Records. Prism has heretofore furnished or
-----------------
will furnish upon request or made or will make available to VCI and the VCI
Shareholders for their examination the following, each of which is, and will be
maintained as to remain until the Closing, accurate and complete in all material
respects:
(a) copies of the Articles of Incorporation and bylaws,
as in effect on the date of this Agreement;
(b) the minute books of Prism containing all
proceedings, consents, actions and meetings of its shareholders and Boards of
Directors;
(c) copies of all Prism Permits, orders and consents
with respect to Prism's securities issued by any administrative agency or
governmental body regulating the issuance or transfer of such securities and all
applications for such permits, orders and consents;
(d) the stock transfer books of Prism setting forth all
transfers of its securities;
(e) copies of all agreements and documents referred to
in any Prism Disclosure Schedule;
(f) all other Books and Records of Prism; and
(g) an accurate list of all of the incumbent officers
and directors of Prism.
4.25 Film Library.
------------
(a) Schedule 4.25 hereto accurately lists each of the
motion pictures (collectively, the "Pictures"; each, individually, a "Picture")
in which Prism has any ownership interest or which Prism is licensed to
distribute or exploit in any territory in any media for any duration whatsoever.
As to each Picture, Schedule 4.25 also identifies the rights of Prism thereto,
including availability dates, broken down by territory and media.
35
(b) Except as specifically indicated on Schedule 4.25,
Prism is the sole owner of all right, title and interest, in each Underlying
Property and each Picture, including the sole and exclusive right to distribute
and exhibit, and to authorize others to distribute and exhibit, each Picture.
(c) Except as set forth on Schedule 4.25, Prism holds
for each Picture rights which include:
(1) The right to cut and edit the Picture to the
extent necessary to comply with the regulations of any governmental agency or
department, to conform to time requirements or continuity acceptance standards
of any television exhibitor or to avoid litigation, and the right to intercut
commercial advertising and other announcements during (or before or after) the
telecasting of segments of the Picture, and to authorize others to do so;
(2) The right to synchronize all music contained in
the Picture in connection with the exhibition, broadcast, distribution and other
exploitation (including the duplication and distribution of videogram and other
copies) of the Picture in all media, now known or hereafter devised;
(3) The right to publicize and advertise the
Picture in any manner in any media, and including the right to publish,
broadcast and otherwise use the names, likenesses and voices of performers
appearing in the Picture, the directors and all other parties who rendered
services in connection with the Picture in such advertising and publicity; and
(4) The right to grant licenses and other
authorizations to one or more third parties to exercise any or all of Prism's
rights, licenses and privileges with respect to the Picture without the consent
of any third party.
(d) Except as set forth on Schedule 4.25, there are no
agreements, contracts or commitments with or to any person or entity, other than
producer participation agreements with respect to future revenues, which would
require Prism or its licensees to pay any royalty, compensation or other sum
whatsoever by reason of any exploitation, distribution, exhibition, broadcast or
other exploitation of any Picture in any media, now known or hereafter devised,
in any territory or the exercise of any of Prism's rights in or pertaining to
any Picture or Underlying Property.
(e) Music performance rights in each Picture for all
media are (i) available to Prism through performing rights societies such as
ASCAP, BMI or
36
SESAC, or their affiliated performing rights societies, (ii) in the public
domain throughout the world, or (iii) owned by Prism.
(f) Except as set forth on Schedule 4.25, there are no
claims, liens, encumbrances, or other rights or charges of any kind of any
person or entity existing or threatened in, to or on any Picture, or any
Underlying Property or other literary, musical or other material contained
therein, or any of Prism's rights in any Picture or Underlying Property. There
is no litigation pending or threatened with respect to, or which might affect
any of Prism's rights in, any Picture or Underlying Property, and no basis is
known to Prism which could or might result in any such litigation.
(g) No element of any Picture or Underlying Property,
nor any Picture or Underlying Property itself, nor the exercise of any of
Prism's rights in any Picture, does or will infringe or violate any copyright,
trademark, right of ideas, patent, right of privacy or publicity, or any other
right of any person or entity, or constitute a defamation or libel of any person
or entity; and Prism has not been challenged by others alleging any such
infringement or violation of any rights of others.
(h) All of the pictures have been produced in compliance
with applicable federal, state and local laws, statutes, ordinances, rules,
regulation and other requirements applicable thereto, and Prism has not received
notice from any person or entity to the contrary.
(i) Except as set forth on Schedule 4.25, all of the
Picture Contracts are and will be fully enforceable in accordance with their
terms subject, as to enforcement of remedies, to any applicable bankruptcy,
insolvency or other similar law affecting creditor's rights generally; Prism is
not, and to the best knowledge of Prism, no other party to any Picture Contract
is, in breach or default of any Picture Contract; no fact, circumstance, event
or condition has occurred or exists which could result in a material default by
any party under any Picture Contract (or any right thereunder) or the imposition
of any lien or other charge upon any Picture or Underlying Property or right
therein; there are no notices of any alleged default under, or notices of
termination of any Picture Contract currently outstanding; and neither the
execution and delivery of this Agreement nor the consummation of any of the
transactions covered and contemplated hereby, will adversely affect, or will
result in the abrogation, impairment, cancellation or termination of, any
Picture Contract or cause or result in the loss of any right or benefit of Prism
thereunder.
(j) Prism owns, possesses and controls reproduction
materials of sufficient technical quality to produce all prints and/or tapes of
each
37
Picture of a technical quality adequate for exploitation in commercial
television, video and other media by Prism and its licensees in the ordinary
course of business.
(k) The original negative of each Picture and all copies
of each Picture publicly distributed bear (and have borne) a legally sufficient
copyright notice.
4.26 Accounts Receivable. All notes receivable and accounts
-------------------
receivable of Prism are reflected properly on Prism's books and records and will
be reflected properly on its books and records at the Effective Time, are valid
receivables subject to no setoffs or counterclaims, are collectible, and will be
collected within 60 days (in the case of domestic receivables) and 120 days (in
the case of foreign receivables) of their due date at their recorded amounts,
subject to a reserve of 5% of gross domestic receivables applied to domestic
receivables and 15% of gross foreign receivables applied to foreign receivables,
and subject to a possible offset from Xxxxxx Home Entertainment Inc. of up to
Two Hundred Fifty Thousand Dollars ($250,000).
4.27 Accuracy and Provision of Information. None of the
-------------------------------------
documents or other information made available to VCI, the VCI Shareholders or
their Affiliates, attorneys, accountants, agents or representatives in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein not misleading. Prism has
provided VCI and the VCI Shareholders all material information regarding its
business and operations.
ARTICLE V
COVENANTS OF VCI
VCI agrees that:
5.1 Conduct of the Business. From the date of this
-----------------------
Agreement until the Effective Time, VCI shall conduct its business in the
ordinary course consistent with past practice and shall use its best efforts to
preserve intact the business relationships with third parties. Without limiting
the generality of the foregoing, VCI shall not:
(a) materially amend, waive any provision of, terminate
prior to its scheduled expiration date, or otherwise compromise in any way, any
material Contract (including contracts described in clause (b) below), or any
other right or asset of VCI, without Prism's prior written consent;
38
(b) enter into any material contract, agreement, lease,
license or commitment (including without limitation any leases of real property,
capital leases, employment or severance agreements, or agreements with respect
to the borrowing of money) not to be fully performed prior to the Closing and
not in the ordinary course of VCI's business without Prism's prior written
consent;
(c) sell, lease, license or otherwise dispose of any of
its assets except (i) pursuant to existing contracts or commitments disclosed
herein and (ii) in the ordinary course consistent with past practice;
(d) pay, declare or promise to pay any dividends,
distributions or other payments to VCI's shareholders, other than salaries
consistent with Schedule 3.19;
(e) grant any options, warrants or other rights to
acquire any securities of VCI;
(f) pay any bonuses or other compensation not in the
ordinary course of business;
(g) adopt any employee benefit plans;
(h) take any action that would make any representation
or warranty of VCI hereunder inaccurate in any respect at, or as of any time
prior to, the Closing Date;
(i) omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any respect at any such
time; or
(j) agree to do any of the foregoing.
5.2 Insurance. From the date hereof through the Effective
---------
Time, VCI shall maintain in force (including necessary renewals thereof) the
insurance policies listed on Schedule 3.23, except to the extent that they may
be replaced with equivalent policies appropriate to insure its respective
assets, properties and business to the same extent as currently insured at the
same rates or at different rates approved by Prism.
5.3 No Defaults. From the date hereof through the Effective
-----------
Time, VCI shall not commit a material default under any term or provision of, or
suffer or permit to exist any condition or event which, with notice or lapse of
time or both, would constitute a material default by VCI under, any material
Contract or under any of the VCI Permits.
39
5.4 Reporting and Compliance With Law. From the date hereof
---------------------------------
through the Effective Time, VCI shall duly and timely file all tax returns
required to be filed with governmental authorities and duly observe and conform
in all material respects to all applicable laws and orders.
5.5 Access to Information. From the date hereof until and
---------------------
including the Closing Date, VCI (i) will continue to give Prism and its counsel
and other representatives full access to the offices, properties, books and
records of VCI relating to VCI's business, (ii) will furnish to Prism, and its
counsel and other representatives such information relating to its business as
such Persons may reasonably request and (iii) will instruct the employees,
counsel and representatives of VCI to cooperate with Prism in its investigation
of VCI's business; provided that no investigation pursuant to this Section (or
--------
any investigation prior to the date hereof) shall affect any representation or
warranty given by VCI; and provided further that any investigation pursuant to
----------------
this Section shall be conducted in such manner as not to interfere unreasonably
with the conduct of the business of VCI.
5.6 Notices of Certain Events. VCI shall promptly notify
-------------------------
Prism of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting VCI or its business that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
3.12 or that relate to the consummation of the transactions contemplated by this
Agreement.
5.7 Other Offers. Neither VCI, the VCI Shareholders, their
------------
Affiliates, nor anyone on their behalf, shall, directly or indirectly, solicit,
initiate or participate in any way in discussions or negotiations or enter into
any agreement with, or provide any information or assistance to any Person other
than Prism concerning any acquisition, merger, consolidation, joint venture,
partnership, disposition of all or substantially all of the assets of, or
similar transaction with, or concerning any direct or indirect equity interest
in, Prism or VCI.
40
ARTICLE VI
COVENANTS OF PRISM
Prism agrees that:
6.1 Conduct of the Business. From the date of this Agreement
-----------------------
until the Effective Time, and other than as required pursuant to the Plan or any
order of the Court or as provided for or referenced in this Agreement, Prism
shall conduct its business in the ordinary course consistent with past practice
and shall use its best efforts to preserve intact the business relationships
with third parties. Without limiting the generality of the foregoing, Prism
shall not:
(a) materially amend, waive any provision of, terminate
prior to its scheduled expiration date, or otherwise compromise in any way, any
material Contract (including contracts described in clause (b) below), or any
other right or asset of Prism, without VCI's prior written consent;
(b) enter into any material contract, agreement, lease,
license or commitment (including without limitation any leases of real property,
capital leases, employment or severance agreements, or agreements with respect
to the borrowing of money) not to be fully performed prior to the Closing
without VCI's prior written consent;
(c) sell, lease, license or otherwise dispose of any of
its assets except (i) pursuant to existing contracts or commitments disclosed
herein and (ii) in the ordinary course consistent with past practice;
(d) pay, declare or promise to pay any dividends,
distributions or other payments to Prism's shareholders, other than salaries
consistent with Schedule 4.18;
(e) grant any options, warrants or other rights to
acquire any securities of Prism;
(f) pay any bonuses or other compensation not in the
ordinary course of business;
(g) adopt any employee benefit plans;
(h) take any action that would make any representation
or warranty of Prism hereunder inaccurate in any respect at, or as of any time
prior to, the Closing Date;
41
(i) omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any respect at any such
time; or
(j) agree to do any of the foregoing.
6.2 Insurance. From the date hereof through the Effective
---------
Time, Prism shall maintain in force (including necessary renewals thereof) the
insurance policies listed on Schedule 4.23, except to the extent that they may
be replaced with equivalent policies appropriate to insure its respective
assets, properties and business to the same extent as currently insured at the
same rates or at different rates approved by VCI.
6.3 No Defaults. From the date hereof through the Effective
-----------
Time, Prism shall not commit a material default under any term or provision of,
or suffer or permit to exist any condition or event which, with notice or lapse
of time or both, would constitute a material default by Prism under any material
Contract or under any of the Prism Permits.
6.4 Reporting and Compliance With Law. From the date hereof
---------------------------------
through the Effective Time, Prism except as set forth on Schedule 4.19, Prism
shall duly and timely file all tax returns required to be filed with
governmental authorities and duly observe and conform in all material respects
to all applicable laws and orders.
6.5 Access to Information. From the date hereof until and
---------------------
including the Closing Date, Prism (i) will continue to give VCI and its counsel
and other representatives full access to the offices, properties, books and
records of Prism relating to Prism's business, (ii) will furnish to VCI, and its
counsel and other representatives such information relating to its business as
such Persons may reasonably request and (iii) will instruct the employees,
counsel and representatives of Prism to cooperate with VCI in its investigation
of Prism's business; provided that no investigation pursuant to this Section (or
--------
any investigation prior to the date hereof) shall affect any representation or
warranty given by Prism; and provided further that any investigation pursuant to
----------------
this Section shall be conducted in such manner as not to interfere unreasonably
with the conduct of the business of Prism.
6.6 Notices of Certain Events. Prism shall promptly notify
-------------------------
VCI of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
42
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to the knowledge of Prism, threatened against,
relating to or involving or otherwise affecting Prism or its business that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 4.18 or that relate to the consummation of the
transactions contemplated by this Agreement.
6.7 Xxxxxxx Stock Option Agreement. Prism shall, prior to
------------------------------
or at the Effective Time, pursuant to a stock option agreement between Prism and
Xxxxxxx (the "Xxxxxxx Stock Option Agreement") and upon the approval of the
"Creditors Committee" (as such term is defined in the Plan), grant to Xxxxxxx
the option to purchase 175,000 shares of the Common Stock of Prism at the
exercise price of Ten Cents ($.10) per share. The Xxxxxxx Stock Option
Agreement shall have a ten-year term, and shall contain a "cashless" exercise
provision, pursuant to which Xxxxxxx will be relieved from the obligation to pay
the exercise price by choosing to receive from Prism, upon the exercise of all
or part of the option, that number of shares of the Common Stock of Prism equal
to (i) the number of shares that would otherwise be issuable to Xxxxxxx less
(ii) that number of shares equal to the dollar amount of the aggregate exercise
price for the portion of the option exercised, divided by the fair market value
per share of the Common Stock of Prism at the time of the exercise of the
option. In addition, the Xxxxxxx Stock Option Agreement shall contain a "gross-
up" feature, pursuant to which Xxxxxxx, upon the exercise of all or part of the
option, shall be granted by Prism an additional option to purchase that number
of shares of the Common Stock of Prism at an exercise of $2.00 per share equal
to (i) 17,500, divided by (ii) that number that is equal to the fair market
value per share of the Common Stock of Prism at the time of the exercise of the
option less Two Dollars ($2.00).
6.8 Xxx Agreement. Xxx and Prism shall, prior to or at the
-------------
Effective Time, execute the Xxx Agreement referred to in Section 8.2(g).
6.9 Other Offers. Neither Prism, its Affiliates, nor
------------
anyone on their behalf, shall, directly or indirectly, solicit, initiate or
participate in any way in discussions or negotiations or enter into any
agreement with, or provide any information or assistance to any Person other
than VCI concerning any acquisition, merger, consolidation, joint venture,
partnership, disposition of all or substantially all of the assets of, or
similar transaction with, or concerning any direct or indirect equity interest
in, Prism or VCI.
43
ARTICLE VII
COVENANTS OF ALL PARTIES HERETO
The parties hereto agree that:
7.1 Best Efforts; Further Assurances. Subject to the terms
--------------------------------
and conditions of this Agreement, each party shall use its best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement, including, but not limited to, all
actions and things relating to all agreements between the parties and Xxxxxx.
The parties hereto each agree to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement.
7.2 Public Announcements. The parties agree that any press
--------------------
release or other public statement with respect to this Agreement or the
transactions contemplated hereby shall be approved in advance thereof by Prism
and VCI, except where such release or statement is required by law.
7.3 Best Efforts to Obtain Consents. VCI hereby agrees to
-------------------------------
use its best efforts to obtain each VCI Consent, and Prism hereby agrees to use
its best efforts to obtain each Prism Consent, in each case as promptly as
practicable after the date of this Agreement.
7.4 Confidentiality. Subject to any obligation to comply
---------------
with any applicable law, rule or regulation of the Court or any other
governmental authority or securities exchange, any subpoena or other legal
process to make information available to the Persons entitled thereto, and the
reasonable need to provide information to any of the parties involved in or
related to the Case, all information obtained by any party about any other and
such other party's Affiliates, and all of the terms and conditions of this
Agreement, shall be kept in confidence by each party, and each party shall cause
its shareholders, directors, officers, employees, agents and attorneys to hold
such information confidential. Such confidentiality shall be maintained to the
same degree as such party maintains its own confidential information and shall
be maintained until such time, if any, as any such data or information either
is, or becomes, published or a matter of public knowledge. Notwithstanding the
foregoing, the obligation of confidentiality created in this Section shall not
apply to any information received by any party from a third party not under any
obligation to keep such information confidential, nor to any information
obtained by any party which is generally known to others engaged in the trade or
business of the other party. From and after the Closing, Prism shall be under no
obligation to
44
maintain confidential any such information concerning VCI. If this Agreement
shall be terminated for any reason, each party shall return or cause to be
returned to the other all written data, information, files, records and copies
of documents, worksheets and other materials obtained by such party in
connection with the transactions contemplated herein.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of Prism and VCI. The
----------------------------------------------
obligations of Prism and VCI to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) Final Order. The Confirmation Order shall become
-----------
a Final Order (i) approving the Merger, the transactions described in this
Agreement to which Xxxxxx is a party and the other transactions contemplated by
this Agreement and (ii) containing such other terms and conditions that are
acceptable to Prism and VCI.
(b) Court Orders. No provision of any applicable law or
------------
regulation, and no judgment, injunction, order or decree shall prohibit the
consummation of the Merger.
(c) Third Party Proceedings. There shall not be
-----------------------
pending any proceeding brought by a third-party non-Affiliate to enjoin or
otherwise restrict the consummation of the Closing.
(d) Merger of Prism Subsidiaries Into Prism. Prism
---------------------------------------
Pictures Corporation and Prism Pictures International, Ltd. shall each be merged
with and into Prism, in accordance with applicable law.
(e) Xxxxxx. Xxxxxx shall have taken and completed the
------
actions that are described in the Override Agreement or, as applicable, entered
into written agreements with the appropriate parties to take and complete such
actions.
(f) Stockholders' Agreement. Prism, Xxx, Xxxxxxx and
-----------------------
Xxxxxx shall have entered into the Stockholders' Agreement in form and substance
satisfactory to the parties.
(g) Prism Consents. Prism shall have received all
--------------
Prism Consents, in form and substance reasonably satisfactory to it, and no such
Prism
45
Consent shall have been revoked, and Prism shall have received all necessary
corporate approvals of Prism and its Affiliates.
(h) Employment Agreements. Each of Xxx, Xxxxxxx and
---------------------
Xxxxx Xxxxx ("Xxxxx") shall have executed and delivered to Prism an Employment
Agreement substantially as set forth on Exhibits X-0, X-0 and D-3.
(i) VCI Consents. Prism shall have received all VCI
------------
Consents, in form and substance reasonably satisfactory to Prism, and no such
VCI Consent shall have been revoked, and VCI shall have received all necessary
corporate approvals of VCI.
8.2 Conditions to the Obligations of Prism. The obligation
--------------------------------------
of Prism to consummate the Merger is subject to the satisfaction of the
following further conditions:
(a) Performance of Obligations. (i) VCI shall have
--------------------------
performed in all material respects all of its obligations hereunder required to
be performed by it at or prior to the Closing Date, (ii) the representations and
warranties of VCI contained in this Agreement and in any certificate or other
writing delivered by VCI pursuant hereto shall be true at and as of the Closing
Date, as if made at and as of such date with only such exceptions as would not
in the aggregate reasonably be expected to have a Material Adverse Effect, (iii)
no Material Adverse Change shall have occurred since the date of this Agreement,
(iv) no material changes in the manner in which VCI conducts business shall have
occurred since the date of this Agreement, and (v) Prism shall have received a
certificate signed by the President of VCI to the effect set forth in clauses
(i) through (iv) of this Section 8.2(a).
(b) Existence and Authorization. Prism shall have
---------------------------
received all documents it may reasonably request relating to the existence of
VCI and the authority of VCI for this Agreement, all in form and substance
reasonably satisfactory to Prism, including, without limitation, (i) a copy of
the Articles of Incorporation of VCI certified as of a recent date by the
Secretary of State of its jurisdiction of organization, (ii) copies of VCI's
bylaws as effective on the date hereof; (iii) copies of resolutions duly adopted
by the Board of Directors of VCI authorizing this Agreement, the Certificate of
Merger and the Agreement of Merger and the other VCI Documents and the
transactions contemplated hereby and thereby, (iv) copies of resolutions duly
adopted by the shareholders of VCI approving this Agreement and the transactions
contemplated hereby, (v) a certificate of the Secretary of VCI certifying as to
signatures of the officer(s) executing this Agreement and any certificate or
document to be delivered pursuant hereto, together with evidence of the
incumbency of such Secretary, and (vi) a recent good standing certificate
regarding VCI from the office of the Secretary of State of the State of
California.
46
(c) Loans to Related Parties. Except for normal
------------------------
travel and expense advances to employees not exceeding Ten Thousand Dollars
($10,000) in the aggregate, all loans and advances by VCI to officers,
shareholders and employees, and their Affiliates shall have been repaid in full,
with the exception of loans that are to be forgiven as set forth on Schedule
3.9.
(d) Employee Benefit Plans. Prism shall have received
----------------------
satisfactory evidence that (i) all of VCI's Pension Plans, programs and
arrangements have been terminated on terms and conditions reasonably
satisfactory to Prism, and (ii) all benefits payable under such plans, programs
and arrangements have been paid.
(e) Non-Competition Agreement. Xxx shall have executed
-------------------------
and delivered to Prism a Non-Competition Agreement in form substantially as set
forth on Exhibit E attached hereto.
(f) Transfer of Shares to Xxxxxxx. Xxx and Xxxxxxx
-----------------------------
shall have entered into an agreement pursuant to which, prior to the Effective
Time, Xxx conveys to Xxxxxxx or his designee that number of shares of the Common
Stock of VCI that, pursuant to Section 2.1(d)(2) of this Agreement and at the
Effective Time, will convert into 610,000 of the shares of the Common Stock of
Prism. The purchase price per share of the Common Stock of VCI to be paid by
Xxxxxxx to Xxx shall be Five Cents ($.05), which may be paid, at the sole option
of Xxxxxxx, in the form of a non-recourse promissory note. The promissory note
may be paid, if not paid earlier, at the sole option of Xxxxxxx, with the
proceeds of the last sale of any of the 610,000 shares of Common Stock of Prism
issued to Xxxxxxx in the Merger. In addition, if the Merger is not consummated,
Xxxxxxx shall have the right to "put" such 610,000 shares of the Common Stock of
VCI to Xxx, and Xxx shall have the right to "call" such shares from Xxxxxxx, and
in either case, the promissory note described in this Section shall be forgiven.
(g) Xxx Agreement. Xxx shall have entered into an
-------------
agreement with Prism pursuant to which Xxx agrees to surrender for cancellation
at no cost to post-Merger Prism, up to 250,000 shares of Common Stock upon the
exercise from time to time of the options referred to in Schedule 3.5 Section E2
(or replacements thereof).
(h) Legal Opinion. Prism shall have received an
-------------
opinion of Xxxx & Xxxxx, counsel to VCI, in such form and substance satisfactory
to Prism.
(i) Fairness Opinion. If Prism so desires, Prism shall
----------------
have received an opinion from Xxxxxx and Company, or such other investment
banking firm that Prism chooses at sole discretion, that confirms that the terms
and conditions of the Merger are fair to Prism from a financial point of view.
47
8.3 Conditions to Obligation of VCI.
-------------------------------
(a) Performance of Obligations. The obligation of VCI
--------------------------
to consummate the Closing is subject to the satisfaction of the following
further conditions: (i) Prism shall have performed in all material respects all
of its respective obligations hereunder required to be performed by them at or
prior to the Closing Date, (ii) the representations and warranties of Prism
contained in this Agreement and in any certificate or other writing delivered by
Prism pursuant hereto shall be true in all material respects at and as of the
Closing Date, as if made at and as of such date and (iii) VCI shall have
received a certificate signed by an officer of Prism to the foregoing effect.
(b) Certified Resolutions. Prism shall have provided
---------------------
VCI with certified copies of resolutions duly adopted by the board of directors
of Prism approving the execution and delivery of this agreement and authorizing
the consummation of the transactions contemplated hereby.
(c) Non-Competition Agreement. Xxxxxxx shall have
-------------------------
executed and delivered to Prism a Non-Competition Agreement substantially in the
form of Exhibit F attached hereto satisfactory to the parties.
(d) Registration Rights Agreement. Prism shall have
-----------------------------
executed and delivered to Xxx, for the benefit of Xxx and all other VCI
Shareholders, the Registration Rights Agreement in form and substance
satisfactory to the parties.
(e) Legal Opinion. VCI shall have received an opinion
-------------
of Loeb & Loeb LLP, counsel to Prism, in such form and substance satisfactory to
VCI.
(f) Financial Position of Prism. At the Effective
---------------------------
Time, after giving effect to payment of all expenses of the Prism bankruptcy
proceedings and the Merger (including but not limited to expenses of
administration, legal, accounting, investment banking, consulting, advisory and
other professional fees and expenses), and before taking into account the assets
and liabilities of VCI immediately prior to the Merger, (i) Prism shall have
cash on hand lien free of not less than Seven Hundred Eighty-Five Thousand
Dollars ($785,000); (ii) the accounts receivable of Prism, net of reserves,
calculated in accordance with generally accepted accounting principles shall be
at least equal to all indebtedness then owed to Imperial Bank less One Hundred
Twenty-Five Thousand Dollars ($125,000); (iii) sales tax liability, including
interest and penalties, owed to the State of California Board of Equalization
shall not exceed Eight Hundred Thousand Dollars ($800,000) and shall be due in
installments of not greater than $133,000 per year until paid; (iv) all other
accrued liabilities of Prism (excluding indebtedness owed to Imperial Bank other
than for the
48
Bank's legal fees and expenses, and excluding the pre-petition tax liability
owed to the State of California Board of Equalization), including for legal fees
and expenses of Imperial Bank, shall not exceed Three Hundred Thousand Dollars
($300,000) in the aggregate; and (v) no lease agreements shall exist between
Prism and any other parties.
(g) Net Operating Loss Carryforwards. At the Effective
--------------------------------
Time, prior to giving effect to Prism's anticipated losses subsequent to October
31, 1996, and the administrative expenses of Prism's bankruptcy proceeding, and
the cancellation of debt resulting from the issuance of Prism stock to holders
of Allowed Claims referred to in Section 2.1(f) of this Agreement, immediately
prior to the Merger, Prism shall have federal net operating loss carryforwards
of at least Ten Million Dollars ($10,000,000).
(h) Imperial Bank Debt. Through December 31, 1997,
------------------
Prism's outstanding indebtedness to Imperial Bank at the Effective Time shall be
payable only out of collections of accounts receivable in which Imperial Bank
has a security interest and out of any proceeds from a sale of Prism's Film
Library. Thereafter, such indebtedness shall be payable in quarterly payments
over a period of not less than three years. The indebtedness owed to Imperial
Bank shall bear interest at the rate of prime plus 1.5% per annum, as of the
Effective Time. Imperial Bank's legal fees and expenses referred to in clause
(iv) of Section 8.3(f) shall be payable on the same terms.
(i) Proxy from Xxxxxxx. Xxxxxxx shall have executed
------------------
and delivered to Xxx an irrevocable proxy substantially as set forth on Exhibit
G.
(j) Fairness Opinion. If VCI so desires, VCI shall
----------------
have received an opinion that confirms that the terms and conditions of the
Merger are fair to VCI from a financial point of view.
ARTICLE IX
SURVIVAL; INDEMNIFICATION; TERMINATION
9.1 Survival.
--------
(a) Each representation, warranty, covenant and
agreement of Prism and VCI contained in this Agreement or in any of the Prism
Documents and the VCI Documents shall survive the execution and delivery of this
Agreement and the Closing and shall thereafter terminate and expire on the
second anniversary of the Closing Date. Notwithstanding anything else contained
in this Section, the representations and warranties referenced in this Section
shall not terminate and
49
expire if, on or before the termination and expiration date provided for
therein, Prism or any of its Affiliates, or VCI or any of its Affiliates, as
applicable, has delivered to the other a written notice of a claim with respect
to such representations and warranties.
9.2 Indemnification.
---------------
(a) The sole and exclusive remedy of any party to this
Agreement with respect to any breach of any other party's representations,
warranties or covenants contained in this Agreement or in any Schedule,
certificate or affidavit delivered by such other party pursuant to this
Agreement shall be the assertion of a claim for indemnification therefor
pursuant to this Section 9.2.
(b) After the Effective Time, Prism shall indemnify and
hold harmless the Prism shareholders (for purposes of this Article only, the
phrase "Prism shareholders" means the shareholders of record of Prism
immediately prior to the Effective Time, after giving effect to the issuance of
shares pursuant to the Confirmation Order, but before giving effect to any
shares issuable to the VCI Shareholders in the Merger) and each of their
Affiliates (each of which is in such capacity a "Prism Indemnified Party") from
and against any and all claims, losses, damages, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all amounts paid in
investigation, defense or settlement of any of the foregoing) (collectively,
"Loss" or "Losses") asserted against, imposed upon or incurred by the Prism
Indemnified Party in connection with or as a result of any breach of a
representation, warranty or covenant of VCI contained in this Agreement.
(c) Prism shall indemnify and hold harmless the VCI
Shareholders and each of their Affiliates (each of which is in such capacity a
"VCI Indemnified Party") from and against any and all Losses asserted against,
imposed upon or incurred by the VCI Indemnified Party in connection with or as a
result of any breach of a representation, warranty or covenant of Prism
contained in this Agreement.
(d) Notwithstanding the foregoing, such indemnification
under this Section 9.2 shall be required only if, on a cumulative and aggregate
basis, the amount of the Losses sustained by the Prism Indemnified Parties or
the VCI Indemnified Parties, as the case may be, exceeds One Hundred Thousand
Dollars ($100,000). If the cumulative and aggregate amount of such Losses exceed
One Hundred Thousand Dollars ($100,000), all of such Losses sustained by the
Prism Indemnified Parties or the VCI Indemnified Parties, as the case may be,
shall be subject to indemnification hereunder by Prism.
50
(e) If indemnification is required under this Section
9.2, the sole method of paying such indemnification shall consist of the
issuance by Prism, pro rata to the appropriate Indemnified Parties, of that
number of shares of Prism Stock which is equal to the Loss divided by Two
Dollars ($2.00).
9.3 Procedures. The party seeking indemnification under
----------
Section 9.2 (the "Indemnified Party") agrees to give prompt notice to the party
against whom indemnity is sought (the "Indemnifying Party") of the assertion of
any claim, or the commencement of any suit, action or proceeding in respect of
which indemnity may be sought under such Section 9.2; provided that the failure
to give such notice shall not limit the Indemnified Party's right to
indemnification hereunder except to the extent that the Indemnifying Party is
materially prejudiced thereby. The Indemnifying Party may, and at the request of
the Indemnified Party shall, participate in and control the defense of any such
suit, action or proceeding at its own expense. The Indemnifying Party shall not
be liable under Section 9.2 for any settlement effected without its consent of
any claim, litigation or proceeding in respect of which indemnity may be sought
hereunder; provided, however, that consent to settlement shall not be
unreasonably withheld. In any such suit, action or proceeding, the Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense of such suit, action or
proceeding or to employ counsel reasonably satisfactory to the Indemnified
Party, or (iii) in the reasonable judgment of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, in any which case, if the
Indemnified Party notifies the Indemnifying Party in writing that the
Indemnified Party elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such suit, action or proceeding on behalf of the Indemnified
Party. The Indemnifying Party shall not be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all the Indemnified Parties. Nothing contained in this Section 9.3
shall relieve either party of any of its obligations under Section 9.2.
9.4 Grounds for Termination. This Agreement may be
-----------------------
terminated at any time prior to the Closing, without waiving or diminishing any
remedies that may be available under this Agreement, at law or in equity:
(a) by mutual written agreement of the parties hereto;
(b) by either VCI or Prism if the Closing shall not have
been consummated on or before 5:00 p.m. in Los Angeles, California on January
15, 1997 (unless any failure to consummate the Closing by such date is caused by
a Court
51
calendaring delay but in no event later than January 31, 1997) or such other
time and/or date as the parties shall mutually agree to (except that no such
right of termination shall be available to a party whose own breach of warranty
or covenant hereunder prevents consummation of the Closing on or before such
date); or
(c) by either party if there has been a material
misrepresentation or a material breach of warranty by the other party with
respect to this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and shall be given to such party at
its address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
if to Prism, to:
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Loeb & Loeb LLP
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telecopy: (000) 000-0000
if to VCI:
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxx
Telecopy: (000) 000-0000
52
with a copy to:
Xxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx Xx.
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telecopy: (000) 000-0000
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
10.2 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by each party hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
10.3 Expenses. All costs and expenses incurred by VCI and the
--------
VCI Shareholders in connection with this Agreement shall be paid by VCI and all
costs and expenses incurred by Prism in connection with this Agreement shall be
paid by Prism.
10.4 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that neither party may assign,
--------
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party.
10.5 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of California, without
giving effect to the conflict of laws principles thereof.
53
10.6 Counterparts; Effectiveness. This Agreement may be
---------------------------
signed in any number of counterparts, each of which shall be an original and all
of which shall be deemed to be one and the same instrument, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
10.7 Entire Agreement. This Agreement (and all attached
----------------
Exhibits and Schedules, which are hereby incorporated herein) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, understandings and negotiations, both
written and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation, the Letter of Intent. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by any party hereto. Neither this
Agreement nor any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
10.8 Severability. If any one or more provisions of this
------------
Agreement shall, for any reasons, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
10.9 Captions and Section References. The captions herein are
-------------------------------
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. All references to "Sections" without
further citation refer to sections of this Agreement.
10.10 Interpretation. Where the context or construction
--------------
requires, all words applied in the plural shall be deemed to have been used in
the singular, and vice versa; the masculine shall include the feminine and
neuter, and vice versa; and the present tense shall include the past and future
tense, and vice versa.
10.11 Attorneys' Fees. In the event of any litigation or
---------------
legal proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith.
10.12 Ambiguities. The parties acknowledge that each party
-----------
and its counsel has materially participated in the drafting of this Agreement
and consequently the rule of contract interpretation that ambiguities, if any,
in the writing be construed against the drafter, shall not apply.
10.13 No Third-Party Rights. Nothing in this Agreement,
---------------------
whether express or implied, is intended to confer any rights or remedies under
or by reason of
54
this Agreement on any Persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third Persons to any party to this
Agreement, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
10.14 Knowledge of VCI. For purposes of this Agreement, the
----------------
phrase "to VCI's best knowledge" or the like shall refer to the actual knowledge
of Xxx, Xxxxx Xxxxx and/or Xxxxxx Xxxxxxxxxxxxx. VCI shall not be deemed to
have knowledge of a matter solely by reason of the actual knowledge of any other
employee, agent or representative of VCI.
10.15 Schedules. All disclosures and limitations set forth on
---------
Schedules to this Agreement shall be deemed disclosed and/or limiting with
respect to every Schedule hereto, to the extent applicable, regardless of
whether any information is disclosed with respect to any particular Schedule or
whether any cross-reference to another Schedule appears therein.
IN WITNESS WHEREOF, Prism and VCI have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Xxxxx Xxxxxxx
--------------------------------
Name: Xxxxx Xxxxxxx
------------------------------
Title: President
-----------------------------
XXX VIDEO CITY, INC.,
a California corporation
By: /s/ Xxxxxx X. Xxx
--------------------------------
Name: Xxxxxx X. Xxx
------------------------------
Title: President
-----------------------------
55
CERTIFICATE OF MERGER
MERGING
XXX VIDEO CITY, INC.
(a California corporation)
INTO
PRISM ENTERTAINMENT CORPORATION
(a Delaware corporation)
Pursuant to Section 252 of the
Delaware General Corporation Law
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
-----
constituent corporations in the merger is as follows:
State of
Name Incorporation
---- -------------
Xxx Video City, Inc. California
Prism Entertainment Corporation Delaware
SECOND: That an Agreement and Plan of Reorganization and Merger
------
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the laws under which each constituent corporation was formed.
THIRD: That Prism Entertainment Corporation, a Delaware corporation,
-----
shall be the surviving corporation.
FOURTH: That the Restated Certificate of Incorporation of Prism
------
Entertainment Corporation, a Delaware corporation, is hereby amended as follows:
A. Paragraph 1 is amended in full to read as follows:
EXHIBIT B
"The name of this corporation is Video City, Inc."; and
B. A new Paragraph 8 is added as follows:
"8. This corporation is prohibited from issuing nonvoting securities."
FIFTH: That the executed Agreement and Plan of Reorganization and
-----
Merger is on file at the principal place of business of the surviving
corporation. The address of the principal place of business of the surviving
corporation is 0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
SIXTH: That a copy of the Agreement and Plan of Reorganization and
-----
Merger will be furnished by the surviving corporation, on request and without
cost, to any stockholder of any constituent corporation.
SEVENTH: That Xxx Video City, Inc., a California corporation, is
-------
authorized to issue only one class of shares of capital stock; and the total
number of shares which Xxx Video City, Inc., a California corporation, is
authorized to issue is twenty million (20,000,000).
IN WITNESS WHEREOF, Prism Entertainment Corporation, a Delaware
corporation, has caused this Certificate of Merger to be executed by its duly
authorized officer this 27th day of December, 1996.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By:
-----------------------------
Xxxxx Xxxxxxx, President
2
OVERRIDE AGREEMENT
This Override Agreement (the "Agreement") is made and entered into as
of November 19, 1996, by and among Xxx Video City, Inc., a California
corporation ("VCI"); Xxxxxx X. Xxx ("Xxx"), an individual resident of California
on behalf of himself and as Trustee of the Xxxxxx X. Xxx Revocable Living Trust
UDT 1/9/91 (the "Trust"); Prism Entertainment Corporation, a Delaware
corporation ("Prism"); and Xxxxxx Entertainment Inc., a Tennessee corporation
("Xxxxxx"), with reference to the following:
A. Prism is a public company which on December 1, 1995 filed for
protection under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California (the "Bankruptcy
Court"), and is currently operating as debtor-in-possession.
B. Prism and VCI have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Amendment, dated as of November 19, 1996 (as amended, the "Merger
Agreement") with respect to a merger (the "Merger") of VCI into Prism.
C. As of the date of this Agreement, VCI is indebted to Xxxxxx in
the aggregate approximate amount of $4,500,000 (the "VCI Debt"). The obligations
of VCI to Xxxxxx with respect to the VCI Debt are secured by (a) a security
interest in substantially all of the personal property of VCI (the "Old
Collateral") pursuant to an Amended and Restated Security Agreement dated as of
February 7, 1995, as amended (the "Prior Security Agreement"); (b) a pledge
agreement dated as of February 7, 1995, as amended (the "Stock Pledge
Agreement") issued by the Trust in favor of Xxxxxx as to 5,500 shares of the
Common Stock of VCI (the "Pledged Shares"); (c) a Pledge Agreement dated
February 7, 1995, as amended (the "Note Pledge Agreement") issued by VCI in
favor of Xxxxxx as to a promissory note in favor of VCI (the "Pledged Note");
and (d) a Payment Guaranty issued by Xxx dated February 7, 1995 (the "Xxx
Guaranty").
D. VCI, Xxx and Xxxxxx have entered into that certain Workout
Agreement dated as of February 7, 1995 (the "Workout Agreement") with respect to
the rescheduling and payment of the then outstanding debt owed by VCI to Xxxxxx.
X. Xxxxxx is the holder of warrants issued by VCI dated November
14, 1996 to acquire shares of the Common Stock of VCI equal to 8.5% of the
outstanding shares of VCI (the "Old Warrants").
F. Subject to the terms and conditions set forth in this Agreement
and the consummation of the Merger, the parties have agreed to restructure the
VCI Debt.
EXHIBIT C
NOW, THEREFORE, in consideration of the foregoing and the terms
and conditions hereof, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. In addition to the definitions set forth
-------------
in the Recitals, for purposes of this Agreement, the following capitalized terms
shall have the following meaning:
"Additional Warrants" means warrants to purchase an aggregate of
-------------------
852,750 shares of the Common Stock of Reorganized Prism substantially in
the form of Exhibit A attached hereto.
---------
"Affiliate" means, as to any Person, any other Person which
---------
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and its
correlated meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person that owns, directly or
--------
indirectly, 10% or more of the securities having ordinary voting power for
the election of directors or other governing body of a corporation (other
than securities having such power only by reason of the happening of a
contingency), or 10% or more of the partnership or other ownership interest
of any other Person (other than as a limited partner of such other Person),
will be deemed to control such corporation or other Person.
"Assumed Options" means options of VCI to be assumed by
---------------
Reorganized Prism upon the Merger to purchase an aggregate of 1,685,000
shares of Reorganized Prism.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
------------
Friday on which Xxxxxx is open for business at its address for notice
designated as provided herein.
"Closing" means the consummation of the transactions
-------
contemplated by this Agreement, which shall be deemed to take place
concurrently with the effectiveness of the Merger.
"Closing Date" means the date of Closing.
------------
2
"Collateral Documents" means the New Security Agreement and
--------------------
Copyright Mortgages.
"Xxxxxxx" means Xxxxx Xxxxxxx.
-------
"Copyright Mortgage" means a mortgage agreement, in form and
------------------
substance satisfactory to Xxxxxx, granting to Xxxxxx a security interest
and lien on all right, title and interest of Reorganized Prism in and to
the Film Library and the Film Library Accounts Receivable, including,
without limitation, all copyrights with respect to the Film Library in form
and substance acceptable to Xxxxxx.
"Debt Documents" means, collectively, this Agreement, the Note,
--------------
the Collateral Documents, the Supply Agreement, the New Warrants, the
Additional Warrants and any other certificates, documents or agreement of
any type or nature heretofore or hereafter executed or delivered by
Reorganized Prism or any other Party to Xxxxxx in any way relating to or in
furtherance of this Agreement and/or the Note, and in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
"Disclosure Statement" means the Disclosure Statement for Prism's
--------------------
Amended Plan of Reorganization dated September 23, 1996, as may be amended.
"Effective Time" means the consummation of the Merger.
--------------
"Escrow and Warrant Agreement" means, as to the New Warrants, the
----------------------------
Escrow and Warrant Agreement substantially in the form of Exhibit B
attached hereto.
"Event of Default" shall have the meaning provided in Section
----------------
7.1.
"Film Library" means the rights of Prism in the motion pictures
------------
listed on Schedule 5.25 to the Merger Agreement.
"Film Library Accounts Receivable" means all present and future
--------------------------------
accounts, accounts receivable, rights to payment, and all forms of
obligations owing to Reorganized Prism or in which Reorganized Prism may
have any interest, however created or arising, relating to the Film
Library.
"Governmental Agency" means (a) any international, foreign,
-------------------
federal, state, county or municipal government, or political subdivision
thereof, (b) any
3
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, or (c) any court,
administrative tribunal or public utility.
"Guaranty Release" means the release by Xxxxxx of the Xxx
----------------
Guaranty, the Stock Pledge Agreement and the Note Pledge Agreement to be
executed and delivered at the Closing substantially in the form of
Exhibit C attached hereto.
---------
"Xxxxxx Shares" means 1,500,000 shares of the Common Stock of
-------------
Reorganized Prism.
"Laws" means, collectively, all international, foreign, federal,
----
state and local statutes, treaties, rules, regulations, ordinances, codes
and administrative or judicial precedents.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment for security, security interest, encumbrance, lien or charge of
any kind, whether voluntarily incurred or arising by operation of Law or
otherwise, affecting any property, including any agreement to grant any of
---------
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of, or
agreement to, give any financing statement (other than a precautionary
----------
financing statement with respect to a lease that is not in the nature of a
security interest) under the Uniform Commercial Code or comparable Law of
any jurisdiction with respect to any property.
"Lock-Up Agreement" means an agreement to be executed and
-----------------
delivered at the Closing between Xxx, Xxxxxxx and Xxxxxx pursuant to which
Xxx (on his own behalf and on behalf of the Trust) and Xxxxxxx agree to
refrain from selling, pledging or encumbering the Lock-Up Shares,
substantially in the form of Exhibit D attached hereto.
---------
"Lock-Up Shares" means 1,026,983 shares of Common Stock of
--------------
Reorganized Prism, 721,983 shares of which will, upon the Closing, be held
by Xxx and 305,000 shares by Xxxxxxx.
"New Collateral" means, collectively, a first lien on the
--------------
property and assets of Reorganized Prism described in Schedule A attached
hereto (other than the Film Library and the Film Library Accounts
Receivable of Reorganized Prism) and a second priority lien on the Film
Library and the Film Library Accounts Receivable of Reorganized Prism
subject only to the lien of Imperial Bank, all as more fully described in
the New Security Agreement.
4
"New Security Agreement" means the Security Agreement, dated as of the
----------------------
Closing Date, executed by Reorganized Prism in favor of Xxxxxx,
substantially in the form of Exhibit E attached hereto, either as
---------
originally executed or as it may from time to time on or after the Closing
Date be supplemented, modified, amended, restated or extended.
"New Warrants" means warrants to purchase the New Warrant Shares to be
------------
delivered to Xxxxxx at the Closing pursuant to the Escrow and Warrant
Agreement.
"New Warrant Shares" means an aggregate of 8 1/2% of the number of
------------------
shares of the Common Stock of Reorganized Prism to be received by the VCI
Shareholders pursuant to the Merger, provided, however, that the aggregate
number of shares to be received by the VCI Shareholders will not be less
than 4,930,000. The number of New Warrant Shares is currently estimated to
be 410,444.
"Note" means the promissory note of Reorganized Prism to be delivered
----
to Xxxxxx at the Closing evidencing the Remaining Debt, substantially in
the form of Exhibit F attached hereto.
---------
"Party" means any Person (including Reorganized Prism and/or any
-----
Affiliate of Reorganized Prism), other than Xxxxxx, which now or hereafter
is party to any of the Debt Documents.
"Person" means any entity, whether an individual, trustee,
------
corporation, general partnership, limited partnership, joint stock company,
trust, unincorporated organization, bank, business association, firm, joint
venture, governmental agency, or otherwise.
"Plan" means the Plan of Reorganization of Prism and its subsidiaries,
----
as may be amended.
"Registrable Securities" means the Xxxxxx Shares, the New Warrant
----------------------
Shares and any securities issuable upon exercise of the Additional
Warrants.
"Registration Rights Agreement" means an agreement between Prism and
-----------------------------
Xxxxxx regarding the registration of the Registrable Securities
substantially in the form of Exhibit G attached hereto.
"Remaining Debt" means the difference between the VCI Debt and
--------------
$3,000,000.
5
"Reorganized Prism" means the surviving entity upon the consummation
-----------------
of the Merger.
"Reorganized Prism Securities" means the Xxxxxx Shares, the New
----------------------------
Warrants, the New Warrant Shares, the Additional Warrants and any
securities issuable upon exercise of the Additional Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Stockholders Agreement" means an agreement to be executed and
----------------------
delivered at Closing among Reorganized Prism, Xxx, Xxxxxxx and Xxxxxx
substantially in the form of Exhibit H attached hereto.
---------
"Supply Agreement" means the Supply Agreement between Reorganized
----------------
Prism and Xxxxxx to be executed and delivered at the Closing substantially
in the form of Exhibit I attached hereto.
---------
"VCI Shareholders" means the shareholders of VCI immediately prior to
----------------
the Effective Time.
ARTICLE 2
RESTRUCTURING OF DEBT
2.1 Conversion of Debt; Release of Xxx Guaranty and Old
---------------------------------------------------
Collateral. At the Closing, Xxxxxx shall convert $3,000,000 of principal amount
----------
of the VCI Debt into the Xxxxxx Shares. In connection therewith, at the
Closing, Xxxxxx shall release the Stock Pledge Agreement, the Note Pledge
Agreement and the Xxx Guaranty pursuant to the Guaranty Release, redeliver and
reassign to Xxx the Pledged Shares and to VCI the Pledged Note, and execute and
deliver to Reorganized Prism UCC-2 termination statements with respect to the
Old Collateral; and Reorganized Prism shall execute and deliver to Xxxxxx the
Note, the New Security Agreement and UCC-1 financing statements covering the New
Collateral pursuant to which Reorganized Prism shall grant to Xxxxxx first
priority liens and security interests in and to the New Collateral except that
the lien and security interest in the Film Library and the Film Library Accounts
Receivable shall be subject to and subordinate to the lien therein of Imperial
Bank.
2.2 Termination of Workout Agreement; Payment of Remaining Debt.
-----------------------------------------------------------
The Workout Agreement shall be terminated effective at the Closing, and Xxxxxx
shall thereupon release all of its future claims thereunder. The Remaining Debt
shall be evidenced by the Note and payable as follows:
6
(a) Interest shall be payable on the outstanding daily
unpaid principal amount of the Remaining Debt from the Closing until payment in
full is made, shall accrue and be payable at the rate of 10% per annum and shall
be payable monthly. Any accrued interest not paid on a date scheduled for the
payment of interest shall be added to the principal of the Remaining Debt and
all of such principal, as so increased shall thereafter bear interest at the
lesser of 4% in excess of the existing rate or the maximum rate permitted by
applicable law. All proceeds from the exercise of all options or warrants to
purchase capital stock of Reorganized Prism shall be applied to the reduction of
the Remaining Debt, first to any accrued unpaid interest and then to principal.
(b) If not sooner paid, the Remaining Debt and all accrued
interest thereon shall be payable on the third anniversary of the Closing.
(c) The Remaining Debt may, at any time and from time to
time, be paid or prepaid in whole or in part without premium or penalty,
provided that each prepayment of principal shall be accompanied by payment of
interest accrued through the date of payment on the amount of principal paid.
(d) Should any installment of principal or interest not be
paid when due, a late charge equal to 5% of the payment then due, payable on
demand, shall be charged with respect to such payment.
(e) All computations of interest shall be calculated on the
basis of a year of 360 days and the actual number of days elapsed.
(f) If any payment to be made by Reorganized Prism shall
become due on a day other than a Business Day, payment shall be made on the next
succeeding Business Day and the extension of time shall be reflected in
computing interest.
(g) Each payment hereunder shall be made by Reorganized
Prism by wire transfer to Xxxxxx or to such other account as Xxxxxx may direct
in writing. All payments shall be made in lawful money of the United States of
America and shall be deemed made when verified by the receiving bank.
7
ARTICLE 3
ISSUANCE OF NEW WARRANTS
At the Closing, certain of the VCI shareholders shall issue to Xxxxxx
the New Warrants to purchase the New Warrant Shares pursuant to the Escrow and
Warrant Agreement. It is understood that certificates representing the New
Warrant Shares shall be issued at the Closing in the names of the VCI
Shareholders, but shall be delivered to an escrow agent acceptable to the
parties to be held pending exercise of the New Warrants by Xxxxxx or the
expiration of the Warrant Period. For such time as the New Warrant Shares are
held in escrow, the VCI Shareholders shall be entitled to vote the New Warrant
Shares. Upon expiration of the Warrant Period, the escrow agent will be
authorized and instructed to deliver to the VCI Shareholders all New Warrant
Shares to the extent that the New Warrants have not been exercised therefor.
Any exercise by Xxxxxx of the New Warrants shall be done on a ratable basis with
respect to the New Warrant Shares with the exercise price(s) therefor to be paid
to Reorganized Prism.
ARTICLE 4
ADDITIONAL WARRANTS
At the Closing, Reorganized Prism shall issue to Xxxxxx the Additional
Warrants.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of VCI. VCI hereby
-------------------------------------
represents and warrants to the other parties hereto as follows:
(a) VCI has the full right, power and authority to enter
into, execute and deliver this Agreement and all the other Debt Documents to
which VCI is a party.
(b) VCI is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and has
the corporate power to own and operate its properties and to carry on its
business as now conducted. VCI is duly qualified to do business and in good
standing in each state in which a failure to
8
be so qualified would have a material adverse effect on VCI's financial position
or its ability to conduct its business in the manner now conducted.
(c) VCI has taken all action necessary to authorize the
entering into and performance of its obligations under this Agreement and all
other related documents to which VCI is a party. This Agreement and all the
other agreements, documents, and instruments contemplated hereby to which VCI is
a party, are, and as of the Closing will be, the legal, valid and binding
obligation of VCI, enforceable in accordance with their respective terms.
(d) The representations and warranties of VCI set forth
in the Merger Agreement are true and correct as of the date hereof.
(e) The execution, delivery and performance by VCI of
this Agreement and the other Debt Documents does not and will not (i) contravene
or conflict with the Articles of Incorporation or bylaws of VCI, (ii) contravene
or conflict with or constitute a violation of any provision of any law, statute,
rule, regulation, judgment, injunction, order, writ or decree binding upon or
applicable to VCI or any part of its business, or (iii) contravene or conflict
with or constitute a violation, breach, or default under any agreement to which
VCI is bound.
5.2 Representations and Warrants of Prism. Prism hereby
-------------------------------------
represents and warrants to the other parties as follows:
(a) Prism is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and has
the corporate power to own and operate its properties and to carry on its
business as now conducted. Prism is duly qualified to do business and in good
standing in each state in which a failure to be so qualified would have a
material adverse effect on Prism's financial position or its ability to conduct
its business in the manner now conducted.
(b) Prism has the full right, power and authority to
enter into, execute and deliver this Agreement and all other related documents
to which Prism is a party.
(c) Prism has taken all action necessary to authorize
the entering into and performance of its obligations under this Agreement and
all other related documents to which Prism is a party. This Agreement and all
other agreements, documents, and instruments contemplated hereby are, and as of
the Closing will be, the legal, valid and binding obligation of Prism,
enforceable in accordance with their respective terms.
9
(d) The representations and warranties of Prism set
forth in the Merger Agreement are true and correct as of the date hereof.
(e) The Reorganized Prism Securities, when issued, shall
be duly authorized, validly issued, fully paid and non-assessable.
(f) The execution, delivery and performance by Prism of
this Agreement and the Debt Documents to which Prism is a party does not and
will not (i) contravene or conflict with the Certificate of Incorporation or
bylaws of Prism, (ii) contravene or conflict with or constitute a violation of
any provision of any law, statute, rule, regulation, judgment, injunction,
order, writ or decree binding upon or applicable to Prism or any part of its
business, except that the consummation of the transactions contemplated herein
is subject to the confirmation of the Plan, or (iii) contravene or conflict with
or constitute a violation, breach, or default under any agreement to which Prism
is bound.
(g) The Plan provides for sufficient number of shares of
Common Stock of Reorganized Prism in connection with the issuance of the New
Warrant Shares, the Xxxxxx Shares and any securities issuable upon exercise of
the Additional Warrants.
(h) Place of Business. The records with respect to all
-----------------
intangible personal property constituting a part of the New Collateral are and
will be maintained at Reorganized Prism's chief place of business and chief
executive office, which has the address of 0000 XxXxxxxx Xxxxx, Xxxxx X,
Xxxxxxxxxxx, Xxxxxxxxxx 00000. All tangible personal property constituting a
part of the New Collateral is or will be located at Reorganized Prism's chief
place of business and chief executive office and/or at any specific store
locations.
(i) Imperial Bank. As of the date hereof, the total
-------------
outstanding principal amount of the indebtedness of Prism to Imperial Bank (the
"Imperial Indebtedness"), is no more than $3,100,000.
5.3 Representations and Warranties of Xxxxxx. Xxxxxx hereby
----------------------------------------
represents and warrants as follows:
(a) Xxxxxx has the full right, power and authority to
enter into, execute and deliver this Agreement and all other related documents
to which Xxxxxx is a party.
(b) Xxxxxx has taken all action necessary to authorize
the entering into and performance of its obligations under this Agreement and
all other related documents to which Xxxxxx is a party. This Agreement and such
related
10
documents are, and as of the Closing will be, the legal, valid and binding
obligation of Xxxxxx, enforceable in accordance with their respective terms.
(c) Xxxxxx understands and agrees that (subject to the
Registration Rights Agreement):
(i) The Reorganized Prism Securities shall not have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or the securities laws of any state, based upon an exemption from such
registration requirements under the Securities Act and applicable state
securities law;
(ii) The Reorganized Prism Securities are and will
be "restricted securities" as said term is defined in Rule 144 of the Rules and
Regulations promulgated under the Securities Act;
(iii) The Reorganized Prism Securities may not be
sold or otherwise transferred unless they have been first registered under the
Securities Act and applicable state securities laws, or unless exemption from
such registration provisions are available with respect to said resale or
transfer;
(iv) Prism is relying on the representation by
Xxxxxx that Xxxxxx has such knowledge and experience in financial or business
matters that Xxxxxx is capable of evaluating the merits and risks involved in
the investment in the Reorganized Prism Securities;
(v) The Reorganized Prism Securities are and will
be acquired by Xxxxxx for Xxxxxx'x own account and not with a view to, or for
resale in connection with, any distribution other than resales made in
compliance with the Securities Act and applicable state securities laws.
(vi) Xxxxxx acknowledges that it has received the
Disclosure Statement, together with a copy of the Plan. Xxxxxx has been, or will
be prior to Closing, furnished with such information and documents pertaining to
Reorganized Prism as Xxxxxx has requested, and has been, or will be prior to
Closing, given the opportunity to meet with officials of Prism and VCI and to
have such persons answer questions regarding Reorganized Prism's affairs and
conditions.
11
ARTICLE 6
COVENANTS BY PRISM
Unless Xxxxxx otherwise consents in writing, which consent may be
exercised or withheld in Xxxxxx'x sole discretion, so long as Reorganized Prism
is indebted to Xxxxxx under this Agreement, and until the payment in full of the
Remaining Debt (as to all covenants in this Article) and until the later to
occur of the termination of the Stockholders Agreement or the payment in full of
the Remaining Debt (as to Sections 6.11, 6.12, 6.14, 6.16, 6.17 and 6.18), Prism
covenants as follows:
6.1 Punctual Payment. Reorganized Prism shall punctually pay
----------------
the interest and principal of the Remaining Debt at the times and place and in
the manner specified herein and in the Note.
6.2 Accounting Records. Reorganized Prism shall maintain full
------------------
and complete books and accounts and other records reflecting all of its
properties and the results of its business in accordance with generally accepted
accounting principles consistently applied.
6.3 Financial Information. Reorganized Prism shall deliver, or
---------------------
cause to be delivered, to Xxxxxx, in form and detail satisfactory to Xxxxxx:
(a) As soon as available, but in any event not later than
105 days after the end of each fiscal year, an audited balance sheet of
Reorganized Prism as at the end of such fiscal year, and statements of income
and cash flow for such fiscal year, together with the equivalent information for
the prior fiscal year, all in detail reasonably satisfactory to Xxxxxx. Such
balance sheet and statements shall be prepared in accordance with generally
accepted accounting principles applied on a basis consistently maintained
throughout the periods involved and accompanied by a report of a certified
public accountant of recognized national standing reasonably satisfactory to
Xxxxxx.
(b) As soon as available, but in any event not later than
50 days after the end of each fiscal quarter (except for the fourth quarter), an
unaudited balance sheet of Reorganized Prism as at the end of such fiscal
quarter (except for the fourth quarter) and a statement of income for such
fiscal quarter (except for the fourth quarter) and the year to date, together
with the equivalent information for the same period in the prior fiscal year,
all in accordance with generally accepted accounting principles consistently
maintained throughout the period involved, except for the absence of footnotes.
Such financial statements shall be certified by the chief financial officer of
Reorganized Prism as fairly presenting the financial condition and results of
12
operations of Reorganized Prism in accordance with generally accepted accounting
principles, consistently applied, as at such date and for such periods, except
for the absence of footnotes. The foregoing may be satisfied by delivery of the
applicable Form 10-Q Report.
6.4 Existence. Reorganized Prism shall (a) preserve and
---------
maintain its existence and all of its material rights, licenses, privileges and
franchises, (b) continue to operate in substantially the same line of business
as VCI presently engages in, namely, the business of renting and selling
prerecorded video entertainment for consumer use, (c) comply with the
requirements of all applicable Laws of any Governmental Agency, and (d) use its
best efforts to conduct its business in an orderly, efficient, and regular
manner.
6.5 Maintenance of Properties. Reorganized Prism shall
-------------------------
maintain, preserve and protect all of its properties and equipment in good order
and condition, subject to wear and tear in the ordinary course of business, and
not permit any waste of its properties, except that the failure to maintain,
------
preserve and protect a particular item of property or equipment that is not of
significant value, including property not of significant value due to its
technological obsolescence, either intrinsically or due to the operation of
Reorganized Prism, shall not constitute a violation of this covenant.
6.6 Taxes and Other Liabilities. Reorganized Prism shall pay
---------------------------
and discharge when due any and all indebtedness, obligations, assessments and
taxes including without limitation federal and state income taxes, and all such
obligations imposed by any Governmental Agency which are or may become a Lien
affecting Reorganized Prism's properties or any part thereof, except such as
------
Reorganized Prism may in good faith contest by appropriate proceedings, so long
as Reorganized Prism has established and maintains reserves adequate to pay any
such contested liabilities in accordance with generally accepted accounting
principles and, by reason of non-payment, none of Reorganized Prism's property
or the Liens of Xxxxxx thereon are in danger of being lost or forfeited.
6.7 Reporting Requirements. Reorganized Prism shall cause to be
----------------------
delivered to Xxxxxx, in form and detail satisfactory to Xxxxxx:
(a) promptly upon Reorganized Prism's learning thereof,
notice of:
(i) any material litigation affecting or relating to
Reorganized Prism, or any of its properties;
(ii) any dispute between Reorganized Prism and any
Governmental Agency relating to Reorganized Prism's property, the
13
adverse determination of which might materially adversely affect such
property;
(iii) any change in senior management of Reorganized
Prism;
(iv) any Default or Event of Default.
(b) written notice of any change in the location of
Reorganized Prism's principal place of business or any other place in which
it maintains any of the New Collateral or its books and records at least 30
days prior to the date of such change;
(c) such other information relating to Reorganized Prism,
and/or its properties as Xxxxxx may reasonably request from time to time.
6.8 Insurance. Reorganized Prism shall provide or cause to be
---------
provided the following policies of insurance:
(a) public liability insurance in an amount deemed reasonably
necessary from time to time by Xxxxxx;
(b) property damage and casualty insurance in an amount deemed
reasonably necessary from time to time by Xxxxxx; and
(c) such other policies of insurance as Xxxxxx may reasonably
require from time to time.
All insurance policies (i) shall be maintained throughout the term of the
Remaining Debt at Reorganized Prism's sole expense, (ii) shall be issued by
insurers of recognized responsibility which are reasonably satisfactory to
Xxxxxx, (iii) shall be in form and substance reasonably satisfactory to Xxxxxx,
and (iv) with respect to insurance coverage damage to the New Collateral, (A)
shall name Xxxxxx as an additional insured and/or loss payee, as appropriate,
and (B) shall contain a "lender's loss payable" endorsement in form and
substance reasonably satisfactory to Xxxxxx. Reorganized Prism shall deliver or
cause to be delivered to Xxxxxx, from time to time at Xxxxxx'x reasonable
request, originals or copies of such policies or certificates in form reasonably
satisfactory to Xxxxxx, evidencing the same. Such certifications shall provide
that such insurance coverage shall not be reduced, cancelled or terminated
without 30 days prior written notice to Xxxxxx.
6.9 Inspection Rights. At any time during regular business
-----------------
hours and as often as reasonably requested, Reorganized Prism shall permit
Xxxxxx, or any
14
employee, agent or representative of Xxxxxx, to examine, audit and make copies
and abstracts from the records and books of account of, and to visit and inspect
the Properties of, Reorganized Prism and to discuss the affairs, finances and
accounts of Reorganized Prism with any of its officers and key employees, and,
upon request, furnish promptly to Xxxxxx true copies of all financial
information and internal management reports made available to the management of
Reorganized Prism. As used herein, "key employees" means all employees at least
of Regional Manager or department head rank.
6.10 Compliance with Agreements, Duties and Obligations.
--------------------------------------------------
Reorganized Prism shall promptly and fully comply with all of its agreements,
duties and obligations under the Debt Documents and, in all material respects,
under any other material agreements, indentures, leases and/or instruments to
which it and Xxxxxx are each a party. Reorganized Prism shall use its best
efforts to promptly and fully comply with all of its agreements, duties and
obligations under any material agreements, indentures, leases and/or instruments
to which it and another Person (other than Xxxxxx) are each a party.
6.11 Mergers, Consolidations and Acquisitions. Reorganized Prism
----------------------------------------
shall not (a) enter into any transaction of merger or consolidation or
contemplating the sale or transfer of all or substantially all of its assets; or
(c) make any material change in the nature of its business as conducted and
presently proposed to be conducted; or (d) change the form of organization of
its business; provided, however, that nothing herein shall prevent Reorganized
Prism from selling the Film Library (subject, however, to the conditions set
forth in Section 6 of the Security Agreement), or from entering into a
transaction of merger where (i) Reorganized Prism is the surviving party; (ii)
upon the consummation of such merger, 50% or more in interest of the
stockholders of Reorganized Prism own and control 50% or more of the voting
equity of the combined company; (iii) a majority of the board of directors of
the combined company consist of directors of Reorganized Prism immediately prior
to such merger; and (iv) the terms of the Supply Agreement will continue to
apply.
6.12 Redemption, Dividends, Distributions. Reorganized Prism
------------------------------------
shall not redeem or repurchase stock or other ownership interests, declare or
pay any dividends or make any other distribution, whether of capital, income or
otherwise, and whether in cash or other property.
6.13 Application of Exercise Prices. Reorganized Prism shall
------------------------------
apply all proceeds from the exercise of any options or warrants to purchase
capital stock of Reorganized Prism to the reduction of the Remaining Debt, first
to any accrued, unpaid interest and then to principal.
15
6.14 Restriction on Employee Stock Options. Except for the
-------------------------------------
Assumed Options and the option in favor of Xxxxxxx to purchase 175,000 shares
(the "Xxxxxxx Option"), Reorganized Prism shall not issue any employee stock
options or warrants (a) at exercise prices below the greater of the book value
per share or the fair market value per share on the date of grant or (b) to the
extent that the total amount of shares issuable pursuant to the exercise of such
new stock options plus 461,000 shares exceeds 10% of the then issued and
outstanding shares of Reorganized Prism's Common Stock and Common Stock
equivalents. No options or warrants (including the Assumed Options and Xxxxxxx
Option) will be repriced at an exercise price below the greater of the book
value per share or the fair market value on the date of original grant (subject
to adjustments for any stock splits, combinations, etc.) and provisions of
vesting and forfeiture of any such options shall not be amended or modified.
6.15 Imperial Indebtedness. In no event shall Reorganized Prism
---------------------
allow the aggregate principal amount of Imperial Indebtedness to exceed the
amount outstanding as of the date hereof except as to accrued interest and for
costs and expenses incurred by Imperial Bank from the date hereof. Reorganized
Prism shall promptly provide and deliver to Xxxxxx any and all notices received
from the holder(s) of the Imperial Indebtedness of any default or Event of
Default under the documents, instruments and agreements evidencing, securing or
otherwise relating to the Imperial Indebtedness or of the exercise of remedies
with respect to any collateral therefor.
6.16 Employee Matters. Reorganized Prism shall not amend or
----------------
modify the employment agreements with Xxxxxxx, Xxx and Xxxxx Xxxxx attached as
exhibits to the Merger Agreement. Reorganized Prism shall not extinguish,
forgive or reduce (except for payment made) any debt owed to Reorganized Prism
from any employee.
6.17 Reservation of Shares. Reorganized Prism shall reserve a
---------------------
sufficient number of shares of its Common Stock issuable upon exercise of any
Additional Warrants.
6.18 Board Approval. Without the unanimous approval of the Board
--------------
of Directors of Reorganized Prism, Reorganized Prism shall not enter into any
line of business other than (i) the sale and rental of video product and related
goods and accessories, (ii) completion of the sole film Prism currently has
under way expected to be titled "When the Bough Breaks II," and (iii) the
exploitation of the Film Library.
16
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following, whatever the reason therefor, shall constitute an "Event of Default"
hereunder in addition to any event of default described in any other document
relating to other transactions between the parties thereto:
(a) Reorganized Prism shall fail to pay any installment of
principal or interest on the Note when due, or any other amount owing under this
Agreement, the Note or the other Debt Documents when due; provided, however,
-------- -------
Reorganized Prism shall be allowed two times in any 12 month period to pay an
installment of principal or interest due under the Note not more than five days
after the due date for such payment provided that the late charge imposed by
Section 2.2 is paid; or
(b) Reorganized Prism shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement or in any of the
Debt Documents on its part to be performed or observed, within 30 days after the
date the same was to have been performed or observed; provided, however, that
-------- -------
if the failure to perform is capable of being cured, but cannot reasonably be
cured within 30 days after the date the same was to have been performed or
observed, no Event of Default shall be deemed to have occurred if Reorganized
Prism shall have commenced to perform the same within 30 days after the date the
same was to have been performed or observed and shall diligently continue to
complete the performance or observance; or
(c) any representation or warranty in any of the Debt
Documents or in any certificate, agreement, instrument or other document made or
delivered pursuant to or in connection with any of the Debt Documents proves to
have been incorrect when made in any material respect; or
(d) Reorganized Prism (i) shall fail to pay the principal,
or any principal installment, of any present or future indebtedness for borrowed
money of $100,000 or more, or to fulfill its obligations under any guaranty of
present or future indebtedness for borrowed money of $100,000 or more, on its
part to be paid, when due (or within any stated grace period), whether at the
stated maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) shall fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed in connection with any present
or future indebtedness for borrowed money of $100,000 or more, or of any
guaranty of present or future indebtedness for borrowed money of $100,000 or
more, if as a result of such failure any holder or holders thereof (or an agent
or trustee on its or their behalf) has the right to declare such indebtedness
17
due before the date on which it otherwise would become due, or has commenced
judicial or nonjudicial action to collect such indebtedness or to foreclose or
otherwise realize upon security held therefor, or has taken or is taking such
other actions as might materially adversely affect the Collateral, the interests
of Xxxxxx under the Debt Documents or the ability of Reorganized Prism to
perform its obligations under the Debt Documents; or
(e) Any Debt Document, at any time after its execution and
delivery and for any reason other than the agreement of Xxxxxx or satisfaction
in full of all the obligations of Reorganized Prism thereunder, ceases to be in
full force and effect or is declared by a court of competent jurisdiction to be
null and void, invalid or unenforceable in any respect; or any Party thereto
denies that it has any or further liability or obligation under any Debt
Document, or purports to revoke, terminate or rescind same; or
(f) A final judgment against Reorganized Prism is entered
for the payment of money in excess of $250,000 and such judgment remains
unsatisfied without procurement of a stay of execution for 30 calendar days
after the date of entry of judgment; or
(g) All or a substantial portion of Reorganized Prism's
property is seized or appropriated by any Governmental Agency; or
(h) Reorganized Prism is dissolved or liquidated or all or
substantially all of the property of Reorganized Prism is sold or otherwise
transferred without Xxxxxx'x written consent; or
(i) Reorganized Prism is the subject of an order for relief
by a bankruptcy court that is not stayed within 30 days, or is unable or admits
in writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors; or Reorganized Prism applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any part of its property;
or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of Reorganized
Prism and the appointment continues undischarged or unstayed for 60 calendar
days; or Reorganized Prism institutes or consents to any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, custodianship,
conservatorship, liquidation, rehabilitation or similar proceedings relating to
it or to all or any part of its property under the Laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Reorganized Prism
and continues undismissed or unstayed for 60 calendar days; or any judgment,
writ, attachment, execution or similar process is issued or levied against all
or any part of the property of Reorganized Prism and is not released, vacated or
fully bonded within
18
30 calendar days after its issue or levy; or Reorganized Prism voluntarily
ceases to transact business for more than five consecutive days; or
(j) Reorganized Prism shall claim that any Debt Document is
ineffective or unenforceable, in whole or in part, for any reason.
ARTICLES 8
RIGHTS AND REMEDIES UPON DEFAULT
8.1 Remedies Generally. If an Event of Default shall occur,
------------------
Xxxxxx may, at its option and without demand or notice to Reorganized Prism,
which notice is expressly waived, do any one or more of the following:
(a) accelerate and declare the principal of all amounts
owing under this Agreement, the Note and the other Debt Documents, including
without limitation all obligations secured by the Collateral Documents, together
with interest thereon, to be immediately due and payable, regardless of any
other specified maturity or due date, without presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or demands of any
kind or character, and without the necessity of prior recourse to any security;
(b) to the extent permitted by applicable Laws, proceed to
protect, exercise and enforce any or all of its rights and remedies under any or
all of the Debt Documents, including without limitation the right to notify any
account debtor of Xxxxxx'x security interest in all of Reorganized Prism's
accounts and effect collection of any account directly from such debtor, the
right to take possession of and protect, enforce and exercise its rights with
respect to the New Collateral, and such other rights and remedies as are
provided by Law or equity, all in such order and manner as Xxxxxx in its sole
discretion may determine; and/or
(c) to the extent permitted by applicable Laws, exercise
any and all legal or equitable remedies afforded to Xxxxxx as provided in any
Collateral Documents heretofore or hereafter entered into between Xxxxxx,
Reorganized Prism, or as provided for under the Uniform Commercial Code, or
under any other applicable law.
8.2 Cumulative Remedies. The rights and remedies granted to
-------------------
Xxxxxx are cumulative, and Xxxxxx shall have the right to exercise any one or
more of such rights and remedies alternatively, successively or concurrently as
Xxxxxx may, in its sole discretion, deem advisable.
19
ARTICLE 9
CONDITIONS PRECEDENT TO XXXXXX'X OBLIGATIONS
The obligations of Xxxxxx to consummate the transactions contemplated
herein on the Closing Date shall be subject to the performance by Reorganized
Prism of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Xxxxxx'x satisfaction, on or before the Closing Date, of each of the following
conditions, unless waived by Xxxxxx, in its sole discretion, in writing:
(a) Delivery to Xxxxxx of an executed original of this
Agreement, of each of the following documents and of each of the exhibits,
documents, and ancillary agreements contemplated therein:
(i) the Note;
(ii) the New Security Agreement;
(iii) the Copyright Mortgages;
(iv) the Escrow and Warrant Agreement;
(v) the Additional Warrants;
(vi) the Lock-Up Agreement;
(vii) the Supply Agreement;
(viii) the Stockholders Agreement;
(ix) the Registration Rights Agreement;
(x) UCC-1 financing statements covering the New
Collateral;
(xi) any other filings deemed necessary by Xxxxxx to
perfect its lien and security interest in the Film Library and Film
Library Accounts Receivable;
(xii) opinion of counsel to Prism as to matters, and
in such form, as reasonably requested by Xxxxxx;
20
(xiii) evidence satisfactory to Xxxxxx as to insurance
coverage;
(xiv) incumbency certificate as to the officers of
Reorganized Prism;
(xv) certified copy of the Certificate of
Incorporation and Bylaws of Reorganized Prism and resolutions of
Reorganized Prism, good standing certificates of Reorganized Prism,
authorizing the transactions contemplated herein;
(xvi) any other instruments or documents reasonably
requested by Xxxxxx in connection with the transactions contemplated
hereby.
(b) The representations and warranties of VCI and Prism
contained in Sections 5.1 and 5.2 and in the Merger Agreement shall be true
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on the Closing Date.
(c) All corporate and other proceedings, including adoption by
the Board of Directors of Prism and VCI of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Prism and VCI of the covenants hereunder, and all actions
required to be taken in connection with the transactions contemplated
herein, and all documents incident thereto, shall be satisfactory in form
and substance to Xxxxxx and its counsel and Xxxxxx shall have received
certified copies of the same.
(d) All legal matters with respect to and all legal documents
executed in connection with the transactions contemplated by this Agreement
and the other Debt Documents shall be reasonably satisfactory to counsel
for Xxxxxx.
(e) The entry of an order or orders of the Bankruptcy Court
confirming the Plan on terms reasonably acceptable to Xxxxxx.
(f) The effectiveness of the Merger, pursuant to a Merger
Agreement in form and substance satisfactory to Xxxxxx.
(g) No provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of
the transactions contemplated herein.
21
(h) Immediately after the Closing, the Board of Directors of
Reorganized Prism shall consist of eight members, two of which shall be
designees of Xxxxxx.
(i) Xxxxxx shall have received satisfactory evidence that,
upon execution of the Debt Documents, Reorganized Prism will be the owner
of the New Collateral and that Xxxxxx has a second priority lien (subject
only to the first lien of Imperial Bank) on the Film Library and the Film
Library Accounts Receivable and a first priority lien as to all other
collateral.
(j) Xxxxxx shall have been given a full and complete
opportunity to review the books, records, and operations of Prism and to
review the collateral security that will be the subject of the Collateral
Documents and shall be satisfied, in its reasonable discretion, with such
review and investigation.
ARTICLE 10
CONDITIONS PRECEDENT TO PRISM'S AND VCI'S OBLIGATIONS
The obligations of Prism and VCI to consummate the transactions
contemplated herein on the Closing Date shall be subject to the performance by
Xxxxxx of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Prism's and VCI's satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived by Prism and VCI, in their sole discretion,
in writing:
(a) Delivery by Xxxxxx of an executed original of this
Agreement and of each of the following documents and of each of the
exhibits, documents and ancillary agreements contemplated therein:
(i) the Stockholders Agreement;
(ii) UCC-2 Termination Statements with respect to
the Old Collateral; and
(iii) the Guaranty Release.
(b) Delivery and reassignment by Xxxxxx to Xxx of the Pledged
Shares and to VCI of the Pledged Note.
22
(c) The representations and warranties of Xxxxxx contained in
Section 5.3 shall be true on and as of the Closing Date with the same
effect as though such representations and warranties had been made on the
Closing Date.
(d) All corporate and other proceedings, including adoption by
the Board of Directors of Xxxxxx of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Xxxxxx of the covenants hereunder, and all actions required
to be taken in connection with the transactions contemplated herein, and
all documents incident thereto, shall be satisfactory in form and substance
to Reorganized Prism and its counsel and Xxxxxx shall have delivered
certified copies of the same to Reorganized Prism.
(e) All legal matters with respect to and all legal documents
executed in connection with the transactions contemplated by this Agreement
and the other Debt Documents shall be reasonably satisfactory to counsel
for Reorganized Prism.
(f) The entry of an order or orders of the Bankruptcy Court
confirming the Plan.
(g) The effectiveness of the Merger.
(h) No provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of
the transactions contemplated herein.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and shall be given to such party at its
address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
23
if to Prism, to:
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Loeb & Loeb LLP
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telecopy: (000) 000-0000
if to VCI:
(prior to the Effective Time)
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxx
Telecopy: (000) 000-0000
with a copy to:
Xxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx Xx.
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telecopy: (000) 000-0000
if to Xxxxxx:
Xxxxxx Entertainment, Inc.
Two Xxxxxx Xxxxxxxxx
Xx Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq., General Counsel
Telecopy: (000) 000-0000
24
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
11.2 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by each party hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
11.3 Successors and Assigns. The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
11.4 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of California, without
giving effect to the conflict of laws principles thereof.
11.5 Counterparts; Effectiveness. This Agreement may be
---------------------------
signed in any number of counterparts, each of which shall be an original and all
of which shall be deemed to be one and the same instrument, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
11.6 Entire Agreement. This Agreement (and all attached
----------------
Exhibits and Schedules, which are hereby incorporated herein) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, understandings and negotiations, both
written and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation, the Letter of Intent dated September
16, 1996 the Workout Agreement, the Stock Pledge Agreement, the Note Pledge
Agreement, the prior Supply Agreement, the Old Warrants and the Old Security
Agreements. No representation, inducement, promise, understanding, condition or
warranty not set forth herein, or in the Merger Agreement,
25
or in any other Debt Document has been made or relied upon by any party hereto.
Neither this Agreement nor any provision hereof is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
11.7 Severability. If any one or more provisions of this
------------
Agreement shall, for any reasons, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
11.8 Captions and Section References. The captions herein are
-------------------------------
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. All references to "Sections" without
further citation refer to sections of this Agreement.
11.9 Interpretation. Where the context or construction requires,
--------------
all words applied in the plural shall be deemed to have been used in the
singular, and vice versa; the masculine shall include the feminine and neuter,
and vice versa; and the present tense shall include the past and future tense,
and vice versa.
11.10 Attorneys' Fees. In the event of any litigation or legal
---------------
proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith. Reorganized
Prism shall pay the attorneys' fees (up to $15,000) and expenses for Xxxxxx'x
outside counsel in connection with this Agreement and the other Debt Documents.
11.11 No Third-Party Rights. Nothing in this Agreement, whether
---------------------
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any Persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or
26
discharge the obligation or liability of any third Persons to any party to this
Agreement, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
Xxx Video City, Inc., a California
corporation
By
--------------------------------
Its
------------------------------
----------------------------------
Xxxxxx X. Xxx
Prism Entertainment Corporation, a
Delaware corporation
By
--------------------------------
Its
------------------------------
Xxxxxx Entertainment Inc., a Tennessee
corporation
By
--------------------------------
Its
------------------------------
27
SCHEDULE A
All present and future right, title and interest of Reorganized Prism
in or to any property or assets whatsoever, and all rights and powers of
Reorganized Prism to transfer any interest in or to any property or assets
whatsoever, including, without limitation, any and all of the following
---------
property, whether in existence, owned or held, or hereafter acquired, entered
into, created or arising, and wherever located:
(a) The Film Library;
(b) The Film Library Accounts Receivable and all other
accounts receivable, including, all present and future accounts,
accounts receivable, agreements, contracts, leases, contract rights,
rights to payment, instruments, documents, chattel paper, security
agreements, guaranties, undertakings, surety bonds, insurance
policies, notes and drafts, and all forms of obligations owing to
Reorganized Prism or in which Reorganized Prism may have any interest,
however created or arising;
(c) All present and future accounts, accounts receivable,
contract rights, chattel paper, instruments, general intangibles, all
tax refunds of every kind and nature to which Reorganized Prism now or
hereafter may become entitled, however arising, all other refunds, and
all deposits, goodwill, choses in action, trade secrets, computer
programs, software, customer lists, trademarks, trade names, patents,
licenses, copyrights, technology, processes, proprietary information
and insurance proceeds;
(d) All present and future deposit accounts of
Reorganized Prism, including, without limitation, any demand, time,
---------
savings, passbook or like account maintained by Reorganized Prism with
any bank, savings and loan association, credit union or like
organization, and all money, cash and cash equivalents of Reorganized
Prism, whether or not deposited in any such deposit account;
(e) All present and future books and records, including
---------
without limitation, books of account and ledgers of every kind and
nature, all electronically recorded data relating to Reorganized Prism
or the business thereof, all receptacles and containers for such
records, and all files and correspondence;
(f) All present and future goods, including, without
---------
limitation, all consumer goods, farm products, inventory, equipment,
28
machinery, tools, molds, dies, furniture, furnishings, fixtures, trade
fixtures, motor vehicles and all other goods used in connection with
or in the conduct of Reorganized Prism's business, including without
---------
limitation, all goods as defined in the Uniform Commercial Code;
(g) All present and future inventory and merchandise
including, without limitation, all present and future goods held for
---------
sale or lease or to be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing materials,
supplies and containers relating to or used in connection with any of
the foregoing, and all bills of lading, warehouse receipts or
documents of title relating to any of the foregoing;
(h) All present and future accessions, appurtenances,
components, repairs, repair parts, spare parts, replacements,
substitutions, additions, issue and/or improvements to or of or with
respect to any of the foregoing;
(i) All other tangible and intangible property of
Reorganized Prism;
(j) All rights, remedies, powers and/or privileges of
Reorganized Prism with respect to any of the foregoing; and
(k) Any and all proceeds and products of any of the
foregoing, including, without limitation, all money, accounts, general
---------
intangibles, deposit accounts, documents, instruments, chattel paper,
goods, insurance proceeds, and any other tangible or intangible
property received upon the sale or disposition of any of the
foregoing;
provided that the term "New Collateral" shall not include the interest of
-----------------
Reorganized Prism in real property or real property leases ("real property" for
the purposes hereof having the same meaning as such term is used in California
Code of Civil Procedure Section 726).
29
EMPLOYMENT AGREEMENT
(Xxxxxx X. Xxx)
THIS EMPLOYMENT AGREEMENT is made and entered into as of the ____ day
of _____________, 1996, by and between Prism Entertainment Corporation, a
Delaware corporation (the "Company"), and Xxxxxx X. Xxx ("Xxx").
1. Term of Employment. The Company hereby employs Xxx, and Xxx
------------------
hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Chairman of the Board and Chief Executive
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board") may from time to time
designate, provided such assignment is consistent with Xxx'x level of experience
and expertise. In the performance of his duties and the exercise of his
discretion, Xxx shall be under the supervision and control of, and shall report
only to, the Board of Directors. Xxx'x duties shall be designated by the Board
of Directors and shall be subject to such policies and directions as may be
established or given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Xxx shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Xxx shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Xxx'x duties to the Company.
3. Compensation. For all services rendered by Xxx under this
------------
Agreement, the Company shall pay Xxx the following amounts:
3.1 Base Salary. A base salary ("Base Salary"), payable
-----------
semi-monthly, at the rate of $200,000 per year, subject to increase thereof at
the discretion of the Board.
3.2 Bonus. In addition to the Base Salary, the Company may
-----
pay Xxx a bonus ("Bonus") as determined by the Board.
4. Benefits. (a) In addition to the Base Salary and the Bonus, if
--------
any, Xxx will be entitled to participate in all benefits of employment available
to other members of the Company's management, on a commensurate basis as they
may be offered from time to time by the Board of Directors to the Company's
other management employees. Such benefits include, but are not limited to, full
medical, dental and long term disability insurance for Xxx and his immediate
Exhibit D-1
family, participation in group life insurance and retirement plans, and term
life insurance of $1,000,000 payable to Xxx'x designees. During the period of
his employment hereunder, Xxx will be reimbursed for reasonable business, travel
and entertainment expenses incurred in accordance with Company policy on behalf
of the Company in connection with his employment, and will be required to submit
appropriate expense reports for approval by signature of the Chief Financial
Officer as a condition of reimbursement of such expenses.
(b) The Company will pay for Xxx to have the use of one Company
provided automobile (or an equivalent expense allowance for an automobile owned
by Xxx) and all maintenance and operating expenses relating thereto.
(c) If the Company's headquarters is moved from Bakersfield,
California, such that Xxx must relocate, the Company shall pay his reasonable
relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Xxx serves as Chief Executive Officer of
---------
the Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors,
6. Termination. This Agreement shall terminate in advance of the
-----------
time specified in Section 1 above (and except as provided in Sections 6(c) and
6(d) below, Xxx shall have no right to receive any compensation not due and
payable to him or to his estate at the time of such termination) under any of
the following circumstances:
(a) Upon the death of Xxx.
(b) In the event that Xxx shall become either physically or
mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively, the Company may, at its option, terminate this Agreement
by written notice to Xxx at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section 6(b) or under
Section 6(a), Xxx or his estate shall be entitled to receive Base Salary or any
other compensation accrued or earned as of or to the date of termination for six
months following such termination, or until the expiration of the term of this
Agreement, whichever is earlier.
(c) By Xxx, if the Company shall have materially breached any of
the provisions of this Agreement, and such termination shall have the same
effect on the payment of Xxx'x Base Salary and Bonus as a termination by the
Company under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in this
Section 6(e) means Xxx, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions
2
of Sections 1 or 2 of this Agreement, or (iii) commits or engages in a felony or
any intentionally dishonest or fraudulent act which materially damages the
Company's reputation. If the Company terminates Xxx for Cause, no payments or
benefits under this Agreement shall become payable after the date of Xxx'x
termination. The Company may terminate Xxx'x employment under this Section
6(e)(i) or (ii) only if written notice of the facts constituting the basis for
such termination has been given to Xxx and Xxx shall have been afforded 30 days
opportunity to take such action as may be reasonable under the circumstances to
furnish assurance to the Board of Directors that such basis for termination has
been corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause; provided, that
--------
the Company shall pay Xxx his Base Salary and any Bonus which would otherwise
have become payable under Section 3.2 above through the remaining term of this
Agreement.
7. Attorney Fees. The successful party in any litigation relating
-------------
to matters covered by this Agreement shall be entitled to an award of reasonable
attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Xxx or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
3
If to the Company, to:
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Fax:
If to Xxx, to:
Xxxxxx X. Xxx
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for authorization,
------------------
approval, decision, determination or other action of the Board of Directors
under the provisions of this Agreement, Xxx'x vote as a director shall not be
counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Xxx indemnifying him against personal liability
to the fullest extent permissible under California corporation law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
-----------------------------
-------------------------------
Xxxxxx X. Xxx
4
EMPLOYMENT AGREEMENT
(XXXXX XXXXX)
THIS EMPLOYMENT AGREEMENT is made and entered into as of the ___ day
of _________, 1996, by and between Prism Entertainment Corporation, a Delaware
corporation (the "Company"), and Xxxxx Xxxxx ("Xxxxx").
1. Term of Employment. The Company hereby employs Xxxxx, and
------------------
Xxxxx hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Senior Vice President and Chief Operating
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board of Directors") may from
time to time designate, provided such assignment is consistent with Kelly's
level of experience and expertise. In the performance of his duties and the
exercise of his discretion, Xxxxx shall be under the supervision and control of,
and shall report only to, the Chairman of the Board. Kelly's duties shall be
designated by the Chairman of the Board and shall be subject to such policies
and directions as may be established or given by the Board of Directors from
time to time.
2. Devotion of Time to Company Business. Xxxxx shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Xxxxx shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Kelly's duties to the Company.
3. Compensation. For all services rendered by Xxxxx under this
------------
Agreement, the Company shall pay Xxxxx the following amounts:
3.1 Base Salary. A base salary ("Base Salary"), payable
-----------
semi-monthly, at the rate of $120,000 for the first year, with a 7% increase as
of each anniversary date, subject to increases thereof at the discretion of the
Board of Directors.
3.2 Bonus. In addition to the Base Salary, the Company
-----
shall pay Xxxxx a bonus ("Bonus") upon determination of year end financial
results equal to
Exhibit D-2
3% of all pretax profits (as determined in accordance with the usual and
customary accounting practices of the Company and consistent with generally
accepted accounting principles) in excess of $1,000,000, $1,100,000 and
$1,200,000, if any, for the fiscal years ending January 31, 1998, January 31,
1999 and January 31, 2000, respectively, subject, in any case, to a maximum
Bonus in any one year of 50% of his Base Salary.
4. Benefits. (a) In addition to the Base Salary and the
--------
Bonus, if any, Xxxxx will be entitled to participate in all benefits of
employment available to other members of the Company's management, on a
commensurate basis as they may be offered from time to time by the Board of
Directors to the Company's other management employees. Such benefits include,
but are not limited to, full medical, dental and long term disability insurance
for Xxxxx and his immediate family, participation in group life insurance and
retirement plans, and term life insurance of $500,000 payable to Kelly's
designees. During the period of his employment hereunder, Xxxxx will be
reimbursed for reasonable business, travel and entertainment expenses incurred
in accordance with Company policy on behalf of the Company in connection with
his employment, and will be required to submit appropriate expense reports for
approval by signature of the Chairman of the Board as a condition of
reimbursement of such expenses.
(b) The Company will pay for Xxxxx to have the use of one
Company-provided automobile (or an equivalent expense allowance for an
automobile owned by Xxxxx) and all maintenance and operating expenses relating
thereto.
(c) If the Company's headquarters is moved from
Bakersfield, California, such that Xxxxx must relocate, the Company shall pay
his reasonable relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Xxxxx serves as Chief Operating
---------
Officer of the Company under this Agreement, he shall have the authority
specified in the Bylaws of the Company, except that he shall not proceed with
any matters, or permit the Company to take any actions, which are prohibited by,
or are in conflict with, resolutions or guidelines adopted by the Board of
Directors,
6. Termination. This Agreement shall terminate in advance of
-----------
the time specified in Section 1 above (and except as provided in Sections 6(c)
and 6(d) below, Xxxxx shall have no right to receive any compensation not due
and payable to him or to his estate at the time of such termination) under any
of the following circumstances:
(a) Upon the death of Xxxxx.
(b) In the event that Xxxxx shall become either physically
or mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively,
2
the Company may, at its option, terminate this Agreement by written notice to
Xxxxx at that time or at any time thereafter while such incapacity continues.
In case of termination under this Section 6(b) or under Section 6(a), Xxxxx or
his estate shall be entitled to receive Base Salary or any other compensation
accrued or earned as of or to the date of any termination for six months
following such termination, or until the expiration of the term of this
Agreement, whichever is earlier.
(c) By Xxxxx, if the Company shall have materially breached
any of the provisions of this Agreement, and such termination shall have the
same effect on the payment of Kelly's Base Salary and Bonus as a termination by
the Company under Section 6(e).
(d) By the Company for Cause. The term "Cause" used in this
Section 6(e) means Xxxxx, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Xxxxx for Cause, no payments or benefits under this
Agreement shall become payable after the date of Kelly's termination. The
Company may terminate Kelly's employment under this Section 6(e)(i) or (ii) only
if written notice of the facts constituting the basis for such termination has
been given to Xxxxx and Xxxxx shall have been afforded 30 days opportunity to
take such action as may be reasonable under the circumstances to furnish
assurance to the Board of Directors that such basis for termination has been
corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause; provided,
--------
that the Company shall pay Xxxxx his Base Salary and any Bonus which would
otherwise have become payable under Section 3.2 above through the remaining term
of this Agreement.
7. Attorney Fees. The successful party in any litigation
-------------
relating to matters covered by this Agreement shall be entitled to an award of
reasonable attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Xxxxx or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
3
9. Binding Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
If to the Company, to:
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Fax:
If to Xxxxx, to:
Xxxxx X. Xxxxx
--------------------------
--------------------------
--------------------------
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for
------------------
authorization, approval, decision, determination or other action of the Board of
Directors under the provisions of this Agreement, Kelly's vote as a director
shall not be counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Xxxxx indemnifying him against personal liability
to the fullest extent permissible under California corporation law.
4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
------------------------------
--------------------------------
Xxxxx Xxxxx
5
EMPLOYMENT AGREEMENT
(Xxxxx Xxxxxxx)
THIS EMPLOYMENT AGREEMENT is made and entered into as of the day of
_____________________, 1996, by and between Prism Entertainment Corporation, a
Delaware corporation (the "Company"), and Xxxxx Xxxxxxx ("Xxxxxxx").
1. Term of Employment. The Company hereby employs Xxxxxxx, and
------------------
Xxxxxxx hereby agrees to serve the Company, under and subject to all of the
terms, conditions and provisions of this Agreement for a period of two (2) years
from the date hereof, in the capacity of President of the Company, or to serve
in such other executive capacity with the Company as the Company's board of
directors (the "Board") may from time to time designate, provided such
assignment is consistent with Xxxxxxx'x level of experience and expertise. In
the performance of his duties and the exercise of his discretion, Xxxxxxx shall
be under the supervision and control of, and shall report only to, the Chairman
of the Board. Xxxxxxx'x duties shall be designated by the Chairman of the Board
and shall be subject to such policies and directions as may be established or
given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Xxxxxxx shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Xxxxxxx shall not, without
the prior written consent of the Board of Directors, directly or indirectly
render any services of a business, commercial or professional nature to any
other person or organization, whether for compensation or otherwise, which may
compete or conflict with the Company's business or with Xxxxxxx'x duties to the
Company.
3. Compensation.
------------
3.1 Base Salary. For all services rendered by Xxxxxxx
-----------
under this Agreement, the Company shall pay Xxxxxxx a salary ("Base Salary"),
payable semi-monthly, at the rate of $200,000 per year, subject to increase
thereof at the discretion of the Board.
3.2 Bonus. In addition to the Base Salary, the Company
-----
may pay Xxxxxxx a bonus at the discretion of the Board.
4. Benefits. (a) In addition to the Salary, Xxxxxxx will be
--------
entitled to medical insurance coverage by the Company and participation in any
group disability and life insurance and retirement plans. During the period of
his employment
Exhibit D-3
hereunder, Xxxxxxx will be reimbursed for reasonable business, travel and
entertainment expenses incurred in accordance with Company policy on behalf of
the Company in connection with his employment, and will be required to submit
appropriate expense reports for approval by signature of the Chairman of the
Board as a condition of reimbursement of such expenses. The Company shall pay on
behalf of Xxxxxxx, the final premium installment owing on the life insurance
policy on Xxxxxxx'x life owned by Xxxxxxx in the amount of approximately
$28,000.
(b) The Company will pay for Xxxxxxx to have the use of one
Company provided automobile (or an equivalent expense allowance for an
automobile owned by Xxxxxxx) and all maintenance and operating expenses relating
thereto.
5. Authority. So long as Xxxxxxx serves as an officer of the
---------
Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors.
6. Termination. This Agreement shall terminate in advance of
-----------
the time specified in Section I above (and except as provided in Sections 6(c)
and 6(d) below, Xxxxxxx shall have no right to receive any compensation not due
and payable to him or to his estate at the time of such termination) under any
of the following circumstances:
(a) Upon the death of Xxxxxxx.
(b) In the event that Xxxxxxx shall become either physically
or mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively, the Company may, at its option, terminate this Agreement
by written notice to Xxxxxxx at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section 6(b) or under
Section 6(a), Xxxxxxx or his estate shall be entitled to receive Base Salary or
any other compensation accrued or earned as of or to the date of termination for
six months following such termination, or until the expiration of the term of
this Agreement, whichever is earlier.
(c) By Xxxxxxx, if the Company shall have materially breached
any of the provisions of this Agreement, and such termination shall have the
same effect on the payment of Xxxxxxx'x Salary as a termination by the Company
under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in this
Section 6(e) means Xxxxxxx, (i) after repeated notices and warnings, fails to
2
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Xxxxxxx for Cause, no payments or benefits under this
Agreement shall become payable after the date of Xxxxxxx'x termination. The
Company may terminate Xxxxxxx'x employment under this Section 6(e)(i) or (ii)
only if written notice of the facts constituting the basis for such termination
has been given to Xxxxxxx and Xxxxxxx shall have been afforded 30 days
opportunity to take such action as may be reasonable under the circumstances to
furnish assurance to the Board of Directors that such basis for termination has
been corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause; provided, that
--------
the Company shall pay Xxxxxxx his Salary through the remaining term of this
Agreement.
7. Attorney Fees. The successful party in any litigation
-------------
relating to matters covered by this Agreement shall be entitled to an award of
reasonable attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Xxxxxxx or
the Company, except that this Agreement shall be assignable by the Company to
and shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding-Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed
3
to such party as respectively indicated below or as otherwise designated by such
party in writing.
If to the Company, to:
Prism Entertainment Corporation
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Fax:
If to Xxxxxxx, to:
Xxxxx Xxxxxxx
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for
------------------
authorization, approval, decision, determination or other action of the Board of
Directors under the provisions of this Agreement, Xxxxxxx'x vote as a director
shall not be counted.
14. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation the employment agreement, bonus
arrangement and termination arrangement referred to in Schedules 5.18 and 5.21
to the Agreement and Plan of Reorganization and Merger dated as of October 29,
1996 by and between the Company and Xxx Video City, Inc.
4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
-----------------------------
-------------------------------
Xxxxx Xxxxxxx
5
EXHIBIT E
NON-COMPETITION AGREEMENT
(XXXXXX X. XXX)
This Non-Competition Agreement is made as of October 29, 1996 (this
"Agreement"), by and among Prism Entertainment Corporation, Inc., a Delaware
corporation ("Prism"), and Xxxxxx X. Xxx (the "Shareholder"), with respect to
the following facts:
WHEREAS, Prism is a public company that filed for protection under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Central District of California on December 1, 1995 and is currently
operating as a debtor in possession.
WHEREAS, pursuant to the terms and provisions of that certain Agreement and
Plan of Reorganization and Merger (the "Merger Agreement") of even date herewith
by and between Prism and Xxx Video City, Inc., a California corporation ("VCI"),
VCI is merging with and into Prism, with Prism being the surviving entity.
WHEREAS, the Merger Agreement is being entered into simultaneously with the
execution of this Agreement; and
WHEREAS, Prism's acquisition of VCI on the terms and conditions set forth
in the Merger Agreement is expressly conditioned upon the execution of this
Agreement by the Shareholder; and
WHEREAS, the parties hereto desire by this Agreement to provide for the
protection of the business, goodwill, trade secrets, customer lists, licenses
and other proprietary rights (collectively, the "Business") of VCI that will be
acquired by Prism in the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, as an inducement to Prism to consummate the acquisition of
the VCI Stock, and for other good and valuable consideration herein, the parties
hereto agree as follows:
1. Non-Competition. For a period of three years commencing on the
---------------
effective date of the Merger (the "Effective Date"), the Shareholder shall not
directly or indirectly engage or participate (as an owner, partner, shareholder,
joint venturer, agent, representative or independent contractor, or in any other
capacity calling for the making of any investment or the rendition of any
services or any acts of management, operation or control) in the retail sales
and rental segments of the consumer videotape industry, within five miles of any
store of VCI existing on the Effective Date, in any county in the State of
California; provided, however, that (a) the
--------
Shareholder may own up to one percent of any class of securities of a
corporation engaged in such a competitive business if such securities are listed
on a national securities exchange or registered under the Securities and
Exchange Act of 1934, and (b) nothing herein shall prevent the Shareholder from
being a stockholder, officer or director of Prism or any affiliate thereof.
2. Non-Disclosure. The Shareholder recognizes and acknowledges that
--------------
he has had access to certain confidential information of VCI, including but not
limited to trade secrets, customer lists, mailing lists, sales records, and
other proprietary commercial information, and that such information constitutes
valuable, special, and unique property of VCI which is being acquired by Prism
in the Merger. The Shareholder agrees that he shall not disclose for any reason
or purpose whatsoever, any of such confidential information to any party without
the express written authorization of Prism.
3. Non-Solicitation. For a period of three years after the
----------------
Effective Date, the Shareholder shall not, without the prior written consent of
Prism, solicit any employee of Prism to leave Prism's employ for the employ of
Shareholder, or of any other individual, company or entity.
4. Remedies. The Shareholder acknowledges that his strict
--------
compliance with the terms of this Agreement is necessary to protect the
goodwill, trade secrets, and other proprietary interests related to the Business
of VCI being acquired by Prism pursuant to the Merger Agreement. The
Shareholder further acknowledges that a breach of Section 1 or 2 hereof will
result in irreparable and continuing damage to Prism and the acquired Business
of VCI, for which there will be no adequate remedy at law; and hereby agrees
that in the event of any breach of this Agreement, Prism and its successors and
assigns shall be entitled to injunctive relief and to such other and further
relief as may be deemed appropriate by a court of competent jurisdiction.
5. Enforceability. The parties intend that the covenants contained
--------------
in Section 1 shall be construed as a series of separate covenants, one for each
county or like jurisdiction within the state specified. Except for geographic
coverage, these separate covenants shall be deemed identical in terms to the
covenants contained in Section 1. If, in any judicial proceeding, a court
refuses to enforce any of the separate covenants deemed included in this
Agreement, then this unenforceable covenant shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced. Without limiting the
generality of the foregoing, if any provisions of this Agreement shall be held
invalid or unenforceable, in whole or in part, then such provision shall be
deemed to be modified or restricted to the extent and in the manner necessary to
render the same valid and enforceable, or shall be deemed excised from this
Agreement as the
2
case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had not been originally
incorporated herein, as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
6. Governing Law. The validity and effect of this Agreement shall
-------------
be governed by and construed in accordance with the laws of the State of
California.
7. Assignment. The rights of Prism under this Agreement shall inure
----------
to the benefit of the successors and assigns of Prism. This Agreement and the
obligations created hereunder shall not be assigned or delegated by the
Shareholder.
8. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be deemed to have been given when personally
delivered or mailed, by certified or registered mail, return receipt requested,
address to the intended recipient as follows:
To the Shareholder:
Xxxxxx X. Xxx
0000 XxXxxxxx, Xxxxx X
Xxxxxxxxxxx, XX 00000
To Prism at:
___________________________
___________________________
___________________________
___________________________
Any party may from time to time change its address for the purposes of notices
to that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
9. Waiver. No claim or right arising out of a breach or default
------
under this Agreement can be discharged in whole or in part by a waiver of that
claim or right unless the waiver is supported by consideration and is in writing
and executed by the aggrieved party hereto or its duly authorized agent. A
waiver by any party
3
hereto of breach or default by the other party hereto of any provision of this
Agreement shall not be deemed a waiver of any prior or subsequent compliance
therewith, and such provision shall remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date first above written.
PRISM ENTERTAINMENT CORPORATION
By:________________________________
SHAREHOLDER:
___________________________________
Xxxxxx X. Xxx
4
EXHIBIT F
NON-COMPETITION AGREEMENT
(XXXXX XXXXXXX)
This Non-Competition Agreement is made as of October 29, 1996 (this
"Agreement"), by and among Prism Entertainment Corporation, Inc., a Delaware
corporation ("Prism"), and Xxxxx Xxxxxxx (the "Shareholder"), with reference to
the following facts:
A. Prism is a public company that filed for protection under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for
the Central District of California on December 1, 1995 and is currently
operating as a debtor in possession. Xxxxxxx has been the Chief Executive
Officer and a principal shareholder of Prism for more than ten years.
B. Pursuant to the terms and provisions of that certain Agreement and
Plan of Reorganization and Merger (the "Merger Agreement") of even date herewith
by and between Prism and Xxx Video City, Inc., a California corporation ("VCI"),
VCI is merging with Prism (such transaction referred to herein as the "Merger"),
with Prism being the surviving entity.
C. Although the Merger is structured as a merger of VCI into Prism, the
economic and business reality and effect of the transaction is that VCI and
Prism are both transferring their business and assets to the reorganized Prism,
which, upon the confirmation of the Plan of Reorganization by the Bankruptcy
Court and the consummation of the Merger, will in essence be a new entity.
X. Xxxxxxx acknowledges and agrees that the purpose and effect of the
Merger is that, for purposes of California Business and Professions Code Section
16601, he is disposing of his shares of the existing Prism Entertainment
Corporation in exchange for shares of the reorganized Prism, and that
accordingly he intends that his covenants contained in this Agreement shall
constitute a disposition of all of his shares in the existing Prism within the
meaning and scope of sand Section 16601.
E. VCI's willingness to enter into the Merger on the terms and conditions
set forth in the Merger Agreement is expressly conditioned upon the execution of
this Agreement by the Shareholder.
F. The parties hereto desire by this Agreement to provide for the
protection of the business, goodwill, trade secrets, customer lists, licenses
and other proprietary rights (collectively, the "Business") of the existing
Prism Entertainment Corporation that will be part of the reorganized Prism in
the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, as an inducement to VCI to consummate the Merger, and for
other good and valuable consideration herein, the parties hereto agree as
follows:
1. Non-Competition. For a period of three years commencing on the
---------------
effective date of the Merger (the "Effective Date"), the Shareholder shall not
directly or indirectly engage or participate (as an owner, partner, shareholder,
joint venturer, agent, representative or independent contractor, or in any other
capacity calling for the making of any investment or the rendition of any
services or any acts of management, operation or control) in any transactions
involving any of the films, titles or properties comprising Prism's film
library, including but not limited to the films listed in Schedule 5.25 to the
Merger Agreement, anywhere in the United States of America or elsewhere in the
world, without the express prior written consent of the Board of Directors of
Prism; provided, however, that (a) the Shareholder may own up to one percent of
--------
any class of securities of a corporation engaged in such a competitive business
if such securities are listed on a national securities exchange or registered
under the Securities and Exchange Act of 1934, (b) nothing herein shall prevent
the Shareholder from being a stockholder, officer or director of Prism or any
affiliate thereof.
2. Non-Disclosure. The Shareholder recognizes and acknowledges that
--------------
he has had access to certain confidential information of VCI, including but not
limited to trade secrets, customer lists, mailing lists, sales records, and
other proprietary commercial information, and that such information constitutes
valuable, special, and unique property of VCI which is being acquired by Prism
in the Merger. The Shareholder agrees that he shall not disclose for any reason
or purpose whatsoever, any of such confidential information to any party without
the express written authorization of Prism.
3. Non-Solicitation. For a period of three years after the
----------------
Effective Date, the Shareholder shall not, without the prior written consent of
Prism, solicit any employee of Prism to leave Prism's employ for the employ of
Shareholder, or of any other individual, company or entity.
4. Remedies. The Shareholder acknowledges that his strict
--------
compliance with the terms of this Agreement is necessary to protect the
goodwill, trade secrets, and other proprietary interests related to the Business
of VCI being acquired by Prism pursuant to the Merger Agreement. The
Shareholder further acknowledges that a breach of Section 1 or 2 hereof will
result in irreparable and continuing damage to Prism and the acquired Business
of VCI, for which there will be no adequate remedy at law; and hereby agrees
that in the event of any breach of this Agreement, Prism and its successors and
assigns shall be entitled to injunctive relief and to such other and further
relief as may be deemed appropriate by a court of competent jurisdiction.
2
5. Enforceability. The parties intend that the covenants contained
--------------
in Section 1 shall be construed as a series of separate covenants, one for each
county or like jurisdiction within the state specified. Except for geographic
coverage, these separate covenants shall be deemed identical in terms to the
covenants contained in Section 1. If, in any judicial proceeding, a court
refuses to enforce any of the separate covenants deemed included in this
Agreement, then this unenforceable covenant shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced. Without limiting the
generality of the foregoing, if any provisions of this Agreement shall be held
invalid or unenforceable, in whole or in part, then such provision shall be
deemed to be modified or restricted to the extent and in the manner necessary to
render the same valid and enforceable, or shall be deemed excised from this
Agreement as the case may require, and this Agreement shall be construed and
enforced to the maximum extent permitted by law, as if such provision had not
been originally incorporated herein, as so modified or restricted, or as if such
provision had not been originally incorporated herein, as the case may be.
6. Governing Law. The validity and effect of this Agreement shall
-------------
be governed by and construed in accordance with the laws of the State of
California.
7. Assignment. The rights of Prism under this Agreement shall inure
----------
to the benefit of the successors and assigns of Prism. This Agreement and the
obligations created hereunder shall not be assigned or delegated by the
Shareholder.
8. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be deemed to have been given when personally
delivered or mailed, by certified or registered mail, return receipt requested,
address to the intended recipient as follows:
To the Shareholder:
Xxxxx Xxxxxxx
_____________________
_____________________
_____________________
To Prism at:
___________________________
___________________________
___________________________
___________________________
3
Any party may from time to time change its address for the purposes of notices
to that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
9. Waiver. No claim or right arising out of a breach or default
------
under this Agreement can be discharged in whole or in part by a waiver of that
claim or right unless the waiver is supported by consideration and is in writing
and executed by the aggrieved party hereto or its duly authorized agent. A
waiver by any party hereto of breach or default by the other party hereto of any
provision of this Agreement shall not be deemed a waiver of any prior or
subsequent compliance therewith, and such provision shall remain in full force
and effect.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date first above written.
PRISM ENTERTAINMENT CORPORATION
By:________________________________
SHAREHOLDER:
___________________________________
Xxxxx Xxxxxxx
4
IRREVOCABLE PROXY
The undersigned, for himself and as Trustee of the ___________ [FAMILY
TRUST], as record owner of ___________ shares of Common Stock of Prism
Entertainment Corporation, a Delaware corporation (the "Corporation"), in his
individual capacity and as record owner of __________ shares of such stock in
his capacity as Trustee of said Trust, hereby revokes any previous proxies and
appoints Xxxxxx X. Xxx and his nominee, if any, as the proxy of the undersigned
to attend any and all meetings of the stockholders of the Corporation and to
represent, vote, execute consents and waivers, and otherwise to act for the
undersigned on all matters in such proxy's sole and absolute discretion, in the
same manner and with the same effect as if the undersigned were personally
present at any such meeting and voting said shares or personally acting on any
matters submitted to stockholders for approval or consent. Such proxy, in
voting on the election of directors of the Corporation and on any other matter
expressly dealt with in the Shareholders Agreement dated ___________, 1996 by
and among the undersigned, Xxxxxx X. Xxx, Xxxxxx Entertainment Corporation and
the other stockholders of the Corporation who are parties thereto, shall vote
the shares of the undersigned in compliance with said Voting Agreement.
The undersigned authorizes such proxy to appoint or substitute any
other person to act hereunder, to revoke any such appointment or substitution,
and to file this proxy and any appointment, substitution or revocation with the
Secretary of the Corporation.
This proxy is irrevocable until the earlier to occur of December 31,
2006, or at such time as the aggregate number of shares beneficially owned by
Xxxxxx X. Xxx and his affiliates is less than 3% of the then outstanding shares
of the Common Stock of the Corporation, and is given in connection with (i) the
merger with and into the Corporation of Xxx Video City, Inc., a California
corporation controlled by Xxxxxx X. Xxx, and (ii) the transfer and assignment by
Xxxxxx X. Xxx to the undersigned and to the undersigned's family trust of an
aggregate of 610,000 shares of Common Stock of the Corporation. This proxy
shall not be revoked by the death or incapacity of the undersigned.
Notwithstanding anything herein to the contrary, this Proxy shall not apply to
any shares of the Corporation's Common Stock which are sold or otherwise
transferred by the undersigned or the Trust to an unrelated third party.
Dated: _______________, 1996 ___________________________________
XXXXX XXXXXXX, in his individual
capacity and as Trustee of the
______________ Family Trust U/D/T/
dated ______________
Exhibit G
SCHEDULE 3.1
CORPORATE EXISTENCE AND POWER
VCI is qualified to transact business as a foreign corporation in the states of:
Arizona
Idaho
Iowa
Missouri
South Dakota
SUPERSEDED BY SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION AND
--------------------------------------------------------------------------
MERGER DATED DECEMBER 24, 1996
------------------------------
Schedule 3.5
Allocation of VCI Stock
A. VCI Shares outstanding as of 10/29/96
Xxxxxx X. Xxx 1,215,306
Young X. Xxx and Xxx X. Xxx 159,695
Mortco, Inc. 95,408
Xxxx Xxxxx 25,000
---------
Total 1,495,408
B. Convertible Promissory Notes:
VCI Shares to be issued
Name Amount In Exchange for Note
------ ------ -----------------------
Xxxxxx Xxxxxx $464,000 principal 134,659
Xxxxxx Xxxxxxxxxx 145,000 principal 41,972
Xxxxxxx Xxxxxxx 210,000 principal 92,450
Xxxxxx Xxxxx 40,000 principal --
-------
Total 269,081
The notes of Xxxxxx and Xxxxxxxxxx (principal only) and Xxxxxxx
(principal plus accrued interest) are to be cancelled in exchange for shares of
VCI stock prior to Closing of the Merger. The noteholders will do so at a price
which will result in their receiving Prism Stock in the Merger at an effective
price of $1.20 per share. Rider's note is to be paid off prior to the closing.
Accrued interest on the Xxxxxx and Xxxxxxxxxx notes is to be paid by Prism over
a 12-month period following the Merger.
C. Allocation of Prism Shares in the Merger:
VCI Shares Total Reserved for
Prior to Prism Shares Unrestricted Xxxxxx
Name Closing in Merger Delivery Warrant
---- ------- --------- -------- -------
Xxxxxx X. Xxx 1,215,306 3,417,952 2,993,967* 423,985
Young X. Xxx and
Xxx X. Xxx 159,694 500,000 500,000 --
Mortco, Inc. 95,408 325,000 325,000 --
Xxxx Xxxxx 25,000 62,145 54,436 7,709
Xxxxxx Xxxxxx 134,659 386,667 386,667 --
Xxxxxx Xxxxxxxxxx 41,972 120,833 120,833 --
Xxxxxxx Xxxxxxx 92,450 266,153 266,153
--------- --------- --------- -------
Total 1,764,489 5,078,750 4,647,056 431,694
* Xxxxxx X. Xxx'x shares of Prism will be allocated as set forth in Part D of
this Schedule.
D. Allocation of Xxxxxx X. Xxx'x Shares of Prism:
Shares reserved for Xxxxxx Warrant 423,985
Shares transferred to Xxxxxxx ((S)8.2(f)] 610,000
Shares transferred at Closing to Xxxxxxx Xxxxxx (40,000) and
Xxxxx Xxxxxx (40,000) 80,000
Shares reserved for cancellation upon exercise of options
listed in Part B(2) of this Schedule 250,000
Shares retained by Xxx (of which 900,000 shares are subject
to Xxxxxx lock-up) 2,053,967
---------
Total 3,417,952
2
E. Options and Warrants to be assumed in Merger (all figures are adjusted for
Merger):
i. Original group (fully vested):
Options for Total Exercise Approximate
Prism Shares Price Price per Share
------------ -------------- ---------------
Xxxxx Xxxxx 761,600 $391,821 $ .51
Xxxxxx Xxxxxxxxxxxxx 181,200 186,446 1.03
Xxxxxx X. Xxxxx 181,200 186,446 1.03
Xxxxxxxx Xxxxxx 100,000 100,000 1.00
ii. Other key employees and consultants - 5 year term, vesting one-third
prior to Closing, one-third at first anniversary and one-third at
second anniversary (except as otherwise stated). Exercise price $2.00
per share:
Xxx Xxxx 105,000
Xxx Xxxxx (fully vested) 42,000
Xxxxx Xxxxxx 25,000
Xxx Xxxxxx 17,000
Xxxx Xxxxx 17,000
Xxxxx Xxxxxx 21,000
Xxx Xxxxxxxxx 21,000
Xxxxxx Xxxxxxxx 6,000
Xxxx Xxxxxx (fully vested) 42,000
Xxxxx Xxxxx 42,000
Xxxx Xxxxxxxx 30,000
Xxxxxx Xxxxxx 3,000
Xxxxx Xxxxxxxx (fully vested) 37,000
Xxxxxxx Xxxxxxxxx 15,000
Xxxxxxx XxXxxxxxxx 15,000
Xxxx Xxxxxx 4,000
Xxxx Xxxxxxxxx 4,000
-------
461,000
F. Warrants and Other Rights.
x. Xxxxxx Entertainment, Inc. ("Xxxxxx") holds a warrant for VCI Stock
which, upon the Merger, will be exchanged for a new warrant to
purchase 431,694 shares of Prism Stock from Messrs. Xxx and Xxxxx at
$.6085 per share. See Item C of this Schedule.
3
ii. At the Closing of the Merger, Xxxxxx will receive a warrant to
purchase 600,000 Prism Shares from Prism. This warrant is exercisable
at $2.00 per share for 200,000 shares for a five year period, $2.25
per share for 200,000 shares for a six year period, and $2.50 per
share for 200,000 shares for a seven year period; all figures are
subject to antidilution adjustment.
iii. Mortco, Inc. has a right to purchase additional shares pursuant to the
Right of First Refusal and Co-Sale Agreement dated as of December 16,
1994 among Mortco, Inc., VCI and Xxxxxx X. Xxx.
iv. Rentrak Corporation has a warrant dated June 19, 1996 to purchase up
to 5% of the fully diluted VCI Stock.
v. Rentrack Corporation has a warrant dated August 24, 1995 to purchase
up to 2% of the fully diluted VCI Stock.
4
SCHEDULE 3.7
CONSENTS
1) Xxxxxx Entertainment
2) Mortco, Inc.
3) Several store leases require consent of the landlord.
Superseded by Second Amendment to Agreement and Plan of
-------------------------------------------------------
Reorganization and Merger Dated December 24, 1996
-------------------------------------------------
SCHEDULE 3.8
LIABILITIES NOT DISCLOSED ON JUNE 30, 1996 BALANCE SHEET
White and Stine Settlement 284,054.17
Xxxxxx X. Xxxxx - Store 28 67,086.27 Total Rent and CAM due
Bullhead Square - Store 20 12,041.40 Total Rent and CAM due
(net of $6,000 security
deposit)
East Town Properties - Store 22 177,625.00 Total Rent and CAM due
Xxxxx, Xxxxxx & Co. 200,000.00 Potential disputed
commission on sale of 11
stores
SCHEDULE 3.9
ABSENCE OF CERTAIN CHANGES
(a). Exception for decline of up to 8% in same store sales in 1996 compared
to same period in 1995.
(c). Exception for the forgiveness of debt of Xxxxx Xxxxx (employee,
$55,166) and Xxx Xxxx (employee, $47,234) by VCI.
(e). VCI and Xxxxxx Entertainment agreed to reclassify $600,000 of VCI
trade payables to long term debt as reflected in letter dated August
9, 1996.
Except for Rentrak Corporation which has orally agreed to reclassify
up to $500,000 of VCI existing trade payables (thru 2/28/97) and VCI
existing note payable (remaining payments thru 2/28/97) to a new note
payable. Preliminary terms, subject to final documentation, call for
maximum $500,000; three year amortization; principal and interest
payments beginning 3/1/97; interest rate = prime + 2.00%
AS OF THIS WRITING (10/15/96), VCI IS WAITING FOR FINAL NOTE AGREEMENT
AND DOCUMENTATION FROM RENTRAK.
SCHEDULE 3.10
TITLE TO ASSETS
STORE # LOCATION LANDLORD COMMENCEMENT EXPIRATION
------- -------- -------- ------------ ----------
STORE LEASES
------------
#1 0000 Xxxx Xxxxxx Laurelglen Associates 06/01/94 05/31/99
Xxxxxxxxxxx, Xx 00000
#2 0000 Xxxxx Xx., Xxx X & X Xxxx Properties 11/01/96 09/30/00
Xxxxxxxxxxx, Xx 00000
#3 0000 Xxx Xxxxx Xx. Xxxxxxxxx Pad Partners 12/16/94 12/15/99
Xxxxxxxxxxx, Xx 00000
#4 0000 Xxxxxxxx Xxxx Xxxxxxxx Square 12/02/91 03/31/97
Xxxxxxxxxxx, Xx 00000
#5 2697 Mt. Xxxxxx Ste A & B Mt Xxxxxx Partners, LTD 04/06/92 04/30/02
Xxxxxxxxxxx, Xx 00000
#6 0000 Xxxxx Xxxx XXXX Xxxx Xxxxxx LP 03/31/92 04/14/97
Xxxxxxxxxxx, Xx 00000
#7 0000 Xxxxx Xxxx PSD White Lane Associates 02/15/96 02/14/06
Xxxxxxxxxxx, Xx 00000
#8 0000 Xxxxxxxx, Xxxxx 0X Xxxxxxxxx Xxxxxx 12/01/96 11/30/01
Xxxxxxxxxxx, Xx 00000
#9 0000 Xxxxx Xxxxxx Xxxxxx Shoe Corp. 07/01/93 06/30/98
Xxxxxxxxxxx, Xx 00000
#10 0000 X. Xxxx Xxxxxx Taft Investors 12/01/96 11/30/99
Xxxx, Xx 00000
#11 0000 Xxxxx Xxxxxx Jaco Oil Company, Inc. 06/01/93 05/30/98
Xxxxxx, Xx 00000
#00 0000 Xxxxxx X, Xxx X0-X0 Xxxxxxxxxx Ventures 05/27/94 05/26/99
Xxxxxxxx, Xx 00000
#29 0000 X. Xxxxxx Xxxx, Ste B& PAS 1 07/01/94 08/31/99
Xxxxxxxxx, Xx 00000
#33 000 X. Xxxxxx Xxxx & Xxxxx Xxxxxxxxx 06/03/94 06/02/97
Xxxxxxx, Xx 00000
#39 1493 So. Broadway Downtown Management Co. 10/25/95 10/31/00
Xxxxx Xxxxx, Xx 00000
#40 4785 E. Kings Canyon Northern Automotive Corp. 08/01/96 01/31/03
Xxxxxx, Xx 00000
#42 0000 X. Xxxxxxx Xxx Xxxxxxx Xxxxx 08/14/96 08/13/01
Xxxxxx, Xx 00000
SCHEDULE 3.10
TITLE TO ASSETS
STORE # LOCATION LANDLORD COMMENCEMENT EXPIRATION
------- -------- -------- ------------ ----------
#00 0000 Xx. Xxxx Xxx Xxxxxxxx Properties 09/01/96 08/30/01
Xxxxxx, Xx 00000
Corp 0000 XxXxxxxx Xx. Xxx X Xxx Xxxxxxx Month to Month
Xxxxxxxxxxx, Xx 00000
UNOCCUPIED STORE LEASES
-----------------------
#20 0000 Xxx 00 #000 Xxxxxxxx Shopping Center 11/16/93 11/15/96
Xxxxxxxx Xxxx, Xx 00000
#22 0000 X. 00xx Xxxxxx Xxxx Xxxx Properties 07/05/94 03/31/01
Xxx Xxxxxx, Xx 00000
#28 0000 Xxxx Xxxxxxxx Xxxx Xxxxxx X. Xxxxx 07/27/94 07/31/97
Xxxxxxxx, Xx 00000
2
LEASE LEASE # DESCRIPTION
----- ------- -----------
CAPITAL LEASES
--------------
AT & T Capital 33718 Computer Equipment
Avco 97097/93-062 Computer Equipment
Xxxx Atlantic 7130498 E.A.S. System
Xxxx Atlantic 7137773/74 E.A.S. System
Xxxx Atlantic 7134770 E.A.S. System
Xxxx Atlantic 7139151 E.A.S. System
Xxxx Atlantic 7143535 E.A.S. System
Xxxx Atlantic 7143534 E.A.S. System
Xxxx Atlantic 7152220/21 E.A.S. System
Charter Equipment 200432 Fixtures/Computer Equipment
Charter Equipment 200522 Fixtures/Computer Equipment
Charter Equipment 200618 Fixtures/Computer Equipment
Charter Equipment 200619 Fixtures/Computer Equipment
Charter Equipment 200617 Fixtures/Computer Equipment
OPERATING LEASES
----------------
GE Capital 6518375 Postage Meter
TAIS Credit 7170476 Corp. copy machine
Union Bank Auto 5161 1996 Jeep Cherokee
Union Bank Auto 30629 1995 Dodge Van
Lytle Signs Signage
LIENS
-----
Xxxxxx Entertainment, Inc. Substantially all assets of the Company
Major Video Concepts Video cassette tapes
Havasu Entertainment, Inc. Tapes, fixtures, and Equipment
MCK Corporation Tapes, fixtures, and Equipment
3
SCHEDULE 3.12
LITIGATION
1. XXXXXX X. XXXXX - SEE SCHEDULE 3.8
Video City is in the process of relocating Xxxxx #00, Xxxxxxxx, Xxxxxxxxxx
to Fresno, California. Video City has not made its September 1996 and
October 1996 rent payments to the landlord. The landlord is threatening to
xxx Video City if they do not honor their obligation on this lease. The
lease expires in May 1997 and the total lease liability is approximately
$67,000. Video City is trying to negotiate a payment schedule for this
remaining liability and thus avoid any litigation.
2. XXXXX, XXXXXX & CO. - SEE SCHEDULE 3.8
SCHEDULE 3.13
CONTRACTS
1. Purchase Agreement with Xxxxxx Entertainment dated April, 1996.
2. Purchase Agreement with Rentrak Corporation dated December, 1994.
3. Service Agreement with Securitylink for alarm systems in our 18 stores and
corporate office, dated March, 1996.
4. Service Agreement with TCI Cablevision for DMX Business Music system dated
February, 1995. We no longer own the store where this is installed, and
are currently trying to negotiate an early termination of the contract.
Contract ends February, 2000 and the total liability is $2,362.85.
5. Service Agreement with TCI Cablevision for DMX Business Music system dated
April, 1996. We no longer own the store where this is installed, and are
currently trying to negotiate an early termination of the contract.
Contract ends April, 2000 and the total liability is $3,190.00.
6. Management Agreement held by Video City managing Xxxxxxxx One, Inc.'s four
video retail stores.
7. Management Agreement held by Video City managing Game City, Inc.'s one
video retail store.
SCHEDULE 3.14
LICENSES AND PERMITS
VCI has business licenses for all locations.
VCI has a Seller's permit for Sale and Use Tax.
SCHEDULE 3.16
INTANGIBLE PROPERTY
VCI has a federal service xxxx registration for the name Video City.
SCHEDULE 3.17
EMPLOYEE LIST AS OF 10/05/96
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
Store # 1 - 0000 Xxxx Xxxxxx, Xxxxxxxxxxx, XX 00000
Xxxxxxx, Xxxxxx Clerk 10,400.00 Full-Time
Xxxxx, Xxxx Supervisor 13,520.00 Part-Time
Xxxxxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Xxxxxx, Xxxx Store Manager 25,999.92 Full-Time
Xxxxx, Xxxxxxxx Clerk 11,440.00 Full-Time
Xxxxx, Xxxxxx Manager Trainee 24,000.00 Full-Time
Xxxxxx, Xxxxxx Clerk 10,400.00 Part-Time
Xxxxx, Xxxx Clerk 11,440.00 Full-Time
Xxxxxxxx, Xxxx Clerk 10,400.00 Full-Time
Xxxxxxxx, Xxxxx Clerk 11,960.00 Full-Time
Store # 2 - 0000 Xxxxx Xxxxx, Xxxxxxxxxxx XX 00000
Xxxxx, Xxxxxxx Clerk 11,440.00 Full-Time
Xxxxxx, Xxxxxxx Store Manager 23,400.00 Full-Time
Xxxxxxxx Xxxx Supervisor 15,080.00 Full-Time
Xxxxxxxxx, Xxx Supervisor 15,080.00 Full-Time
Xxxxxxxxxx, Xxxxxxx Supervisor 13,000.00 Full-Time
Xxxxxx, Xxxxxxxxxxx Clerk 10,400.00 Full-Time
Xxxxxx, Xxxx Clerk 10,400.00 Part-Time
Wedding, Xxxxx Clerk 11,440.00 Full-Time
Xxxxxxx, Xxxx Clerk 9,880.00 Part-Time
Store # 3 - 0000 Xxx Xxxxx Xxxx, Xxxxxxxxxxx XX 00000
Xxxxxxx, Xxxx Supervisor 11,960.00 Full-Time
Xxxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxxx, Xxxxx Clerk 9,880.00 Part-Time
Xxxxxx, Xxxxxx Supervisor 13,520.00 Full-Time
Xxxxx, Xxxxxxxx Clerk 10,920.00 Full-Time
Xxxxxx, Xxxx Clerk 10,400.00 Full-Time
Xxxx, Xxxxxx Asst. Manager 14,560.00 Full-Time 6/1/96 1,040.00
Xxxxxxx, Xxxxx Clerk 11,440.00 Full-Time
Xxxxxx, Xxxxx Clerk 13,000.00 Full-Time
Store # 4 - 0000 Xxxxxxxx Xxxx, Xxxxxxxxxxx XX 00000
Xx Xxxx, Xxxxxxx Clerk 10,400.00 Part-Time
Xxxxxxxxxx, Xxxxx Clerk 9,880.00 Part-Time
Xxxxxxx, Xxxxxxx Supervisor 12,480.00 Full-Time
Xxxxx, Xxxxxxxx Clerk 9,880.00 Full-Time
Xxxxx, Xxxxxx Store Manager 36,400.08 Full-Time
Xxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxx, Xxxxxx Clerk 9,880.00 Full-Time
Xxx Xxxxx, Xxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxxxxx Clerk 14,040.00 Full-Time
Witcher, Noble Asst. Manager 14,560.00 Full-Time 5/1/96 520.00
SCHEDULE 3.17
Employee List as of 10/05/96
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
Store # 5 - 0000 Xx. Xxxxxx Xxxxxx, Xxxxxxxxxxx XX 00000
Xxxxxx, Xxx Clerk 9,880.00 Full-Time
Xxxx, Xxxxxxx Supervisor 16,120.00 Full-Time
Xxxxxxx, Xxxx Clerk 10,920.00 Part-Time
Xxxxx, Xxxx Clerk 9,880.00 Part-Time
Xxxxxx, Xxxxxxxx Clerk 9,880.00 Full-Time
Xxxx, Xxxxxxxx Clerk 10,920.00 Part-Time
Xxxxxx, Xxxxxxxx Clerk 10,400.00 Part-Time
XxXxxxx, Xxxxx Clerk 10,400.00 Full-Time
X'Xxxx, Xxxxx Clerk 9,880.00 Part-Time
Xxxxx, Xxxxxxx Clerk 9,880.00 Full-Time
Xxxxxxx, Xxxx Clerk 9,880.00 Part-Time
Xxxxxxx, Xxxxxx Supervisor 13,000.00 Full-Time
Xxxxxx, Xxxxx Store Manager 40,000.08 Full-Time
Xxxxxx, Xxxxxx Supervisor 14,560.00 Full-Time
Xxxxxx, Xxxxxxx Clerk 11,440.00 Full-Time
Store # 6 - 0000 Xxxxx Xxxx, Xxxxxxxxxxx XX 00000
Xxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxxxx Supervisor 10,920.00 Full-Time
Xxxxx, Xxxxx Store Manager 20,800.08 Full-Time 7/31/96 5,200.00
Xxxxxxxx, Xxxxxx Clerk 10,400.00 Full-Time
Xxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Xxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Xxxxx, Xxxxxxxx Clerk 9,880.00 Full-Time
Store # 7 - 0000 Xxxxx Xxxx, Xxxxxxxxxxx XX 00000
Xxxxxxx, Xxxx Supervisor 14,040.00 Full-Time
Xxxxxxx, Xxxx Store Manager 27,300.00 Full-Time
Xxxxx, Xxxxx Clerk 9,980.00 Full-Time
Xxxxxx Xxxxxxx Clerk 9,880.00 Full-Time
Xxxxxxx, Xxxx Clerk 9,880.00 Full-Time
Xxxx, Xxxx Supervisor 13,000.00 Full-Time
Xxxxx, Xxxxx Clerk 11,440.00 Full-Time
Little, Samantha Clerk 9,880.00 Part-Time
Pasquing, Hayden Supervisor 10,920.00 Full-Time
Xxxxx, Xxxx Supervisor 13,000.00 Full-Time
White, Xxxx Xxxxx 9,880.00 Part-Time
Store # 8 - 0000 Xxxxxxxx, Xxxxxxxxxxx XX 00000
Xxxxx, Xxxx Clerk 10,400.00 Full-Time
Xxxxx, Xxxxxxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxxxx Clerk 10,400.00 Full-Time
Xxxxx, Xxxx Supervisor 13,000.00 Full-Time
Xxxxxxx, Xxxxxx Clerk 14,040.00 Full-Time
Xxxxxxx, Xxxx Clerk 11,440.00 Full-Time
XxXxxxx, Xxxxxx Store Manager 27,300.00 Full-Time 2/16/96 1.300.00
Xxxxxx, Xxxxx Clerk 9,380.00 Full-Time
Xxxxxxx, Xxxxx Supervisor 13,000.00 Full-Time
Xxxxxx, Xxxxx Clerk 11,440.00 Part-Time
Xxxx, Xxxxxxxx Clerk 9,880.00 Full-Time
2
SCHEDULE 3.17
Employee List as of 10/05/96
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
Store # 9 - 0000 Xxxxx Xxxxxx, Xxxxxxxxxxxx XX 00000
Xxxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxxxx, Xxxxx Xxxxx 11,440.00 Part-Time
Xxxxxxxx, Xxxxxxx Clerk 11,960.00 Full-Time
Xxxxxxx, Xxxxx Store Manager 24,700.08 Full-Time
Xxxxxxx, Xxxxxx Clerk 10,920.00 Full-Time
XxXxxxxx, Xxxxx clerk 10,400.00 Part-Time
Xxxxx, Xxxxxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxxxxxx Supervisor 12,480.00 Full-Time
Xxxxxxx, Xxxxxxx Clerk 9,880.00 Full-Time
Xxxx, Xxxxxxxxx Clerk 9,880.00 Part-Time
Store # 10 - 0000 X. Xxxx Xxxxxx, Xxxx XX 00000
Bench, Xxxxx Supervisor 9,880.00 Full-Time
XxXxXxxx, Xxxxxx Clerk 9,880.00 Full-Time
Xxxxxxxxx, Xxxxxxx Clerk 9,880.00 Part-Time
Xxxx, Xxxx Supervisor 12,480.00 Full-Time
Xxxxxx, Xxxxxxx Clerk 9,880.00 Part-Time
Xxxxxxx, Xxxxx Supervisor 10,920.00 Full-Time
Xxxxxx, Xxxxxx Supervisor 11,440.00 Full-Time
Self, Xxxxxxx Xxxxx 9,880.00 Full-Time
Xxxxx, Xxxxxxxx Store Manager 20,800.08 Full-Time 9/18/96 2,600.00
Xxxxx, Xxxxxx Clerk 9,980.00 Part-Time
Xxxxx, Xxxx Clerk 10,400.00 Full-Time
Store # 11 - 0000 Xxxxx Xxxxxx, Xxxx XX 00000
Xxxxxxxxx, Xxxxxx Clerk 9,980.00 Part-Time
Xxxxxxx, Xxxxxxxx Clerk 10,400.00 Full-Time
Xxxxxxxxx, Xxxxx Supervisor 13,520.00 Full-Time
Xxxxxxx, Xxxxx Supervisor 14,040.00 Full-Time
Xxxxxxx, Xxxxx Clerk 9,980.00 Full-Time
Xxxxx, Xxxxx Supervisor 11,960.00 Full-Time
Ilegan, Mariesol Clerk 9,980.00 Part-Time
Xxxxx, Xxxxxxxxx Store Manager 25,999.92 Full-Time 3/16/96 1,300.00
Xxxxxxxxxx, Xxxxxx Clerk 9,980.00 Full-Time
Xxxxxx, Xxxxxxxxx Clerk 11,440.00 Full-Time
Store # 27 - 0000 Xxxxxx "X", Xxxxxxxx XX 00000
Xxxxxxx, Xxxxx Clerk 10,400.00 Full-Time
Banner, Xxxx Supervisor 10,920.00 Full-Time
Xxxxxx, Xxxxxxxxx Clerk 9,880.00 Part-Time
XxXxXxxx, Xxxxxxxx Supervisor 13,000.00 Full-Time
Xxxxx, Xxxxxxx Clerk 10,400.00 Full-Time
Xxxxxxxxx, Xxx Clerk 13,000.00 Full-Time
Xxxxxxx, Xxxxx Clerk 11,960.00 Full-Time
Xxxxxx, Xxxxx Clerk 10,400.00 Full-Time
Stalklsworth, Xxxxxx Store Manager 18,200.00 Full-Time 9/18/96 7,280.00
Xxxxxxxx, Xxxxxx Xxxxx 9,880.00 Full-Time
Xxxxxxxx, Xxxxxx Clerk 9,880.00 Part-Time
3
SCHEDULE 3.17
Employee List as of 10/05/96
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
Store # 29 - 0000 X. Xxxxxxxxx Xxxx., Xxxxxxxxx XX 00000
Xxxxxxx, Xxxxxxx Supervisor 10,920.00 Full-Time
Xxxxxxx, Xxxxxxx Store Manager 24,700.08 Full-Time 8/16/96 1,300.00
Xxxxx, Xxxxx Supervisor 13,000.00 Full-Time
Xxxxxxx, Xxxxxx Supervisor 12,480.00 Full-Time
Xxxxxxxx, Xxxxxx Clerk 11,440.00 Full-Time
Xxxx, Xxxxx Supervisor 11,440.00 Part-Time
Pay, Xxx Clerk 9,880.00 Full-Time
Xxxxxxxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Xxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Store # 33 - 000 X. Xxxxxx, Xxxxxxx XX 00000
Xxxx, Xxxxxxxxx Xxxxx 9,880.00 Part-Time
Xxxxxx, Xxxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxxxxxxx Clerk 9,880.00 Full-Time
Xxxxxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Xxxxxxxxx, Xxxxxxxx Supervisor 10,920.00 Full-Time
Xxxxxxx, Xxxxx Supervisor 11,440.00 Full-Time
Xxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxxxx, Xxxxx Supervisor 11,440.00 Full-Time
Xxxxx-Xxxxxx, Xxxxxxxxx Store Manager 25,999.92 Full-Time 7/l/96 1,300.00
Xxxxxxx, Xxxxxxx Clerk 9,880.00 Part-Time
Xxxxxxxx, Xxxx Supervisor 10,920.00 Full-Time
Xxxxx, Xxxxxx Clerk 9,880.00 Full-Time
Store # 39 - 0000 Xx. Xxxxxxxx, Xxxxx Xxxxx XX 00000
Xxxxx, Xxxxx Clerk 16,640.00 Full-Time
Xxxxx, Xxxxxxxx Clerk 13,520.00 Part-Time
Xxxx, Xxxxxxx Clerk 12,480.00 Full-Time
Xxxxxxx, Xxxxxxx Clerk 9,880.00 Full-Time
Xxxxxxx, Xxxxxx Clerk 9,880.00 Part-Time
Xxxxxx, Xxxxxxxx Store Manager 25,000.08 Full-Time
Xxxxxxxx, Xxxxxxxx Clerk 11,440.00 Full-Time
Xxxxxxxx, Xxxxx Supervisor 15,600.00 Full-Time
Xxxxxxx, Xxxxx Clerk 10,400.00 Full-Time
Xxxxxxxx, Xxxxxxxxx Clerk 10,400.00 Full-Time
Store #40 - 0000 Xxxxx Xxxxxx, Xxxxxx, XX 00000
Xxxxxx, Xxxxx Clerk 10,400.00
Xxxxxxx, Xxxxx Clerk 10,400.00
Xxxxxx, Xxxx Store Manager 23,400.00 Full-Time 7/16/96 3,900.00
Xxxxxxxx, Xxxxxx Clerk 10,400.00
Xxxx, Xxxxxxxx Clerk 10,400.00
Xxxxxx, Audgey Clerk 110,400.00
Xxxxx, Xxxxx Clerk 10,400.00
Xxxxxx, Xxxxxxxxx Clerk 9,880.00
Xxxx, Xxxxxxxxx Supervisor 10,400.00
Xxxxxxx, Xxxx` Clerk 9,880.00
Xxxxxxx, Xxxxxxxx Supervisor 10,920.00
4
SCHEDULE 3.17
Employee List as of 10/05/96
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
Store #42 - 0000 X. Xxxxxxx Xxxxxx, Xxxxxx XX 00000
Xxxxxxx, Xxxxx Supervisor 10,400.00
Xxxx, Xxxx Supervisor 10,400.00 Full-Time
Xxxxxx, Xxxxxxx 1Store Manager 24,700.08 Full-Time 7/17/96 3,900.00
Xxxxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxxx, Xxxx Clerk 9,880.00 Full-Time
Xxxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxx, Xxx Clerk 9,880.00 Part-Time
Xxxxxxx, Xxxxx Clerk 9,880.00 Part-Time
Xxxxxxx, Xxxxxxxx Supervisor 10,400.00 Full-Time
Xxxxxxx, Xxxxxxx Clerk 9,880.00 Full-Time
Store #48 - 0000 X. Xxxx Xxxxxx, Xxxxxx XX 00000
Xxxxxxx, Xxxxxxx Clerk 9,880.00 Part-Time
Xxxxxx, Xxxxxx Clerk 9,880.00 Full-Time
Xxxxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Xxxxxx, Xxx Supervisor 11.440.00 Full-Time
Xxxxxxxx, Type Store Manager 18,199.92 Full-Time
Phengsiri, Boutsaba Supervisor 10,920.00 Full-Time
Xxxxxxxxx, Xxxx Clerk 10,400.00 Full-Time
Xxxxxxx, Alexa Clerk 9,880.00 Full-Time
Xxxxx, Xxxx Clerk 9,880.00 Part-Time
Xxxxxxxxx, Xxxxx Clerk 9,880.00 Full-Time
Operations Area Management
Xxxx, Xxx VP Product/Merchandising 66,000.00 Full-Time
Xxxxxx, Xxxxxx Area Manager 49,999.92 Full-Time 2/1/96 10,000.00
Xxxxxx, Xxxx Area Manager 42,000.00 Full-Time
Xxxxx, Xxxxxxxxx Courier 18,200.00 Full-Time 2/1/96 1,040.00
Corporate Office - 0000 XxXxxxxx Xx., Xxx. X, Xxxxxxxxxxx XX 00000
Xxxxxxxxxxxxx, Xxxxxx Chief Financial Officer 90,000.00 Full-Time
Xxxxxx, Xxxx Accounts payable 22,796.80 Full-Time 9/11/96 3,600.00
Xxxxxxxxx, Xxxxxxx Staff Accountant 30,000.00 Full-Time
XxXxxxxxxx, Xxxxxx HR/Payroll Manager 40,500.00 Full-Time
Xxxxxx, Xxxxx Staff Accountant 39,499.92 Full-Time
Xxxxx, Xxxxx Chief Operations Officer 99,999.84 Full-Time
Xxxxxxxx, Xxxxxx Administrative Assistant 24,003.20 Full-Time 1/10/96 1,800.00
Dauterivas, Don MIS Assistant 14,850.00 Part-Time
Xxxxx, Xxxxx MIS Director 48,000.00 Full-Time
Xxxxxxxxx, Xxxx MIS Assistant 27,600.00 Full-Time 5/1/96 3,600.00
Xxx, Xxxxxx President & CEO 170,280.00 Full-Time
*Note: This report reflects 1996 increases to the management level only.
Estimated Annual Salaries are calculated on hourly rate multiplied by
23,080 hours.
(b.) None
5
SCHEDULE 3.18
PREPAIDS
None
SCHEDULE 3.19
TAXES
3:19(a.) All federal, state, local and income tax, real and personal
property tax, sales and use tax., and employment taxes have been
filed and paid in full through the periods covered by each
return. All liabilities, including interest and penalties have
been booked in Video City's financial statements for all prior
periods.
The Internal Revenue Service has not examined the federal income
taxes of Video City. Video City has not been audited by any State
agencies as of yet either. There are no known claims or audits
pending.
3.19(b) *Proposed Escape Assessments
(Unsecured Personal Property Taxes)
Xxxx County Stores
-----------------------------------------------------------------------
STORE OLD NEW VALUE ESTIMATED ESCAPE
# YEAR VALUE VALUE DIFFERENCE ASSESSMENT AMT
-----------------------------------------------------------------------
1 1993 - 43,093 43,093 489.19
1995 109,876 126,212 16,336 185.45
3 1993 - 44,548 44,548 505.71
1995 113,206 171,215 58,009 658.52
4 1993 - 31,844 31,844 361.49
1994 56,667 80,007 23,340 264.96
1995 56,667 83,772 27,105 307.70
5 1993 - 32,331 32,331 367.02
1994 57,677 60,905 3,228 36.64
1995 57,677 68,597 10,920 123.96
6 1993 - 17,605 17,605 199.85
7 1994 - 5,127 5,127 58.20
1995 19,245 27,950 8,705 98.82
8 1994 - 6,317 6,jl7 71.71
1995 56,764 67,043 10,279 116.69
9 1994 - 65,948 65,948 748.64
1995 - 70,853 70,853 804.32
10 1994 - 17,673 17,673 200.62
1995 - 20,960 20,960 237.94
11 1994 - 44,649 44,649 506.86
1995 - 54,640 54,640 620.27
29 1995 - 103,261 103,261 1,172.22
---------------------------------------------------
527,779 1,244,550 716,771 8,136.78
* Note: Only notices of proposed assessments have been received. No xxxxxxxx
have been issued to date.
SCHEDULE 3.21
LABOR AND EMPLOYMENT MATTERS
(a.) (4) Video City has been assessed $900.00 from the Department of Labor
for working two (2) minor employees for hours exceeding the law.
We are requesting a hearing and appealing the matter based on the
number of employees we employed at the time.
(b.) (3) Video City has a pending grievance in the state of Iowa for an
employee who claims she was released from employment due to her
mental state. Video City is appealing this case, as the reasons
for termination had nothing to do with the employees mental
state.
SCHEDULE 3.22
PENSION AND BENEFITS PLANS
Incentive Plan
--------------
1.) Management Bonus plan for Area and Store Management based on
controllable operating variables. Store Managers are paid
quarterly and Area Managers are paid annually.
Employee Welfare Benefit Plans
------------------------------
1.) Blue Shield - Preferred Provider Medical Insurance Plan
2.) CPIC Life Insurance Plan
3.) American Western Dental Plan dated 10-01-96
Other Agreements, Policies and Plans
------------------------------------
1.) Holiday, Sick and Vacation Policies dated November 28, 1995.
2.) Video City handbook covering Absences, Medical/Pregnancy, Family,
and Personal Leave.
SCHEDULE 3.23
INSURANCE POLICIES
POLICY EFFECTIVE ANNUAL
INSURANCE TYPE CARRIER COVERS NUMBER DATE PREMIUM AMOUNTS OF COVERAGE
-------------------------------------------------------------------------------------------------------------------------------
Property/Liability Fireman's Fund All Stores A A9 AZC 80505405 1/1/96 $62,926.00 Real & Personal
Property Replacement
Costs $200,000 per
location
Business Auto Fireman's Fund All Stores A A9 AZC 80505405 1/1/96 Included Above Bodily Injury &
Property Damage
Liability $1,000,000
each accident
Workers Compensation Fireman's Fund All Stores A A9 AZC 80505405 1/1/96 Included Above Bodily Injury &
Property Damage
Liability $1,000,000
each accident
Excess Liability Fireman's Fund All Stores XXK-000-8264-3297 1/1/96 Included Above $3,000,000 each
occurrence
Key-Man Life State Farm LCF-1350-8001 6/8/94 $11,436.00 $5,000,000
Schedule 4.1
CORPORATE EXISTENCE AND POWER
Prism Entertainment Corporation is qualified to transact business as a foreign
corporation in the State of California.
SCHEDULE 4.5
PRISM CAPITALIZATION
Imperial bank warrants per loan agreements.
SCHEDULE 4.7
SUBSIDIARIES
The following are wholly-owned subsidiaries of Prism Entertainment Corporation.
1) Prism Pictures Corporation, a Delaware corporation
2) Prism Pictures International, LTD., a California corporation
SCHEDULE 4.8
LITIGATION
PENDING XXXXXXX CLAIM
Xxx Xxxxxxx v. Prism Entertainment Corporation, Los Angeles Superior Court Case
No. WEC 129295 (consolidated with C748210); Xxxx Xx. 0 Xxxxx X00000 in the
Second Appellate District, California Court of Appeals.
Xxx Xxxxxxx, the former principal shareholder and executive officer of Atlantic
Entertainment Corporation ("Atlantic"), has sued Prism, its President Xxxxx
Xxxxxxx, and its former director, Xxxx Xxxxxxxx, in Los Angeles Superior Court
alleging that he is a third party beneficiary of a purported 1988 agreement
providing for the merger of Atlantic and Prism. In that alleged capacity,
Xxxxxxx sued for breach of the alleged merger and for various alleged acts in
the performance or making of the alleged merger agreement. On April 26, 1995,
the Los Angeles Superior Court ruled in favor of defendants on their motion for
summary judgement and ordered Xxxxxxx'x case dismissed in its entirety, ruling
that Xxxxxxx was not a third part beneficiary of the alleged merger agreement.
On May 3, 1995, the Los Angeles Superior Court entered a judgement in favor of
all defendants. Xxxxxxx filed a motion for reconsideration of the Superior
Court's ruling dismissing his case. The Court denied that motion on July 31,
1995. On August 4, 1996, Xxxxxxx appealed. That appeal was stayed as against
Prism because of its bankruptcy. Thereafter, in early June, 1996, Prism
Entertainment Corporation and appellant Xxx Xxxxxxx entered into a stipulation
to lift the automatic bankruptcy stay with respect to Xxxxxxx'x appeal against
Prism Entertainment Corporation in this case. Pursuant to that stipulation, the
United States Bankruptcy Court issued an order lifting the stay with respect to
this appeal. Accordingly, Prism Entertainment Corporation's bankruptcy is no
longer an obstacle to the determination of this appeal.
SCREEN ACTORS GUILD
SAG Agreement: see attached proposed draft of terms resolving the dispute with
SAG.
SCHEDULE 4.10
FINANCIAL STATEMENTS
SCREEN ACTORS GUILD
SAG Agreement: see attached proposed draft of terms resolving the dispute with
SAG.
SCHEDULE 4.11
ABSENCE OF CERTAIN CHANGES
None.
SCHEDULE 4.12
TITLE TO ASSETS
1) Pursuant to the loan agreement, Imperial Bank is secured by substantially
all of the assets of Prism Entertainment Corporation and its subsidiaries.
SCHEDULE 4.13
REAL PROPERTY
None.
SCHEDULE 4.14
INTANGIBLE PROPERTY
Following is a list of each film in which Prism has rights, including the name
and address of each producer to whom a royalty is or may be owed:
COMPANY ADDRESS FILM ACCEPT/REJECT
Xxxx International Film and 0000 Xxxxxxx Xxxx Xxx. Xxxxxxxx
Xxxxxxxxxx Xxxxx #000
Xxxxxxx X. Xxxxxxxxxx Xxx Xxxxxxx, XX 00000
Fine Xxxx, Inc. 1900 Avenue of the Stars Backstreet Justice
Xxx Xxxx Xxxxx #0000
Xxx Xxxxxxx, XX 00000
Curb Esquire Films 0000 X. Xxxxxxx Xxx. Bikini Island
Xxxxx Curb Second Floor
Burbank, CA
North American Releasing 808 Xxxxxx Street Silhouette aka
Melanie Kilgor Suite 2105 Ultimate Desires
Vancouver, BC V8Z 2H2
CANADA
Rich International Communications 1440 S. Sepulveda Blvd. Club Fed
Heidi Cohen Suite #3118
Los Angeles, CA 90025
Wolf, Rifkin & Shapiro 11400 W. Olympic Blvd. The Willies
Michael Wolf Ninth Floor
Los Angeles, CA 90064
Crown International Pictures 8701 Wilshire Blvd. Lena's Holiday
Lynette Prucha Los Angeles, CA
Omega Entertainment 8760 Shoreham Drive Lauderdale
Amanda Martin Los Angeles, CA 90069
Nu Image (Radiance Films) 110 North Doheny Drive Jump aka
Joanna Plafsky Beverly Hills, CA 90211 One Last Run
World Entertainment & Business 8837 Sunset Blvd., #203 Baby on Board
Network Los Angeles, CA 90069
Sandy Howard
Circle Releasing Corporation One Westin Circle Dark Obsession
Ted Pedas 2445 N. Street W
Washington, D.C. 90037
P.G. Entertainment, Inc. 8733 Sunset Blvd., #202 Sleepstalker
Lulgi Ciongolani Los Angeles, CA 90069
International Media Investments 16 Transvaal Street Fleshtone
David Stanford Shelton Paardenelland 7405
South Africa
P.O. box 17115, Regent
Sea Point 8061
South Africa
Osmosis Productions 10900 Ventura Boulevard When the Bough Breaks
Pat Peach Studio City, CA 91604
Amritraj Entertainment 3831 Sepulveda Blvd. Scorned
Ashok Amritraj Sherman Oaks, CA 91403
Crystal Sky Communications 1800 Century Park East Ava's Magical
Joseph Inga 6th Floor Adventure
Los Angeles, CA 90067
Crystal Sky Communications 1800 Century Park East A Million to Juan
Gary Binkow 6th Floor
Los Angeles, CA 90067
Velvet Star Company 129 Yorkville Avenue Strangers
David Perimutter Toronto, Ontario M6R 1C4
CANADA
Farano, Green Barristers & Solictors 22 St. Clair Avenue East Still Life
Edmund Glinert Suite #1100
Toronto, Ontario M4T 2Z6
CANADA
International Television 11766 Wilshire Blvd. Monkey Boy
Joseph Kennedy 10th Floor
Los Angeles
Skyhawk Films 1780 East Bert Koon, #817 Enemy Gold
Arlene Sidaris Shreveport, LA 71106
Central Television Enterprises 11145 N.W. 1st Place Worst Witch
Claire Alter Coral Springs, FL 33071
Filmtrust Motion Picture Licensing 10490 Santa Monica Blvd. Deadly Embrace
Marco Columbo Los Angeles, CA 90025
Telso International 84 Buckingham Gate The Endless Game
Cresside Ward London SW1E 6PD
ENGLAND
Pentafilm Spa/Chechi Gori Group Via Aurelia Antia 422 The Gambia
Claudio Tinari 00165 Rome
ITALY
Freemantie International Inc. 660 Madison Avenue A Fight For Jenny
Blanca Oca New York, NY 10021 We Are the Children
Mark I. Funding 16911 Bellflower Blvd. L.A. Goddess
David Blake Bellflower, CA 90706
October Films 65 Bleecker Street Chain of Desire
Patrick C. Gunn New York, NY 10012 Hold Me. Thrill me
Hemdale Releasing 7966 Beverly Blvd. A Killing Affair aka
Rene Rousselt Los Angeles, CA 90048 My Sisters Keeper
York Pictures, Inc. 6753 Hollywood Blvd. The Divine Enforcer
Tanya York Suite #600
Los Angeles, CA 90028
Hearst Entertainment 236 East 45th Street Naked Lie
Tom Devlin New York, NY 10017
The Landsburg Company 11811 West Olympic Blvd. Diamond Fleece
Victor Paddock Los Angeles, CA 90064
Manley Productions, Inc. 111 West 57th Street Magdalene
Pat Hart New York, NY 10019
AFAA 15250 Ventura Blvd. AFAA Workout Series
Linda Pfeffer Sherman Oaks, CA 91430
The Freemantie Corporation 70 East 55th Street Manhunt for Claude
Blanca Oca New York, NY 10022 Dallas
3
Independent Network, Inc. 11150 Olympic Blvd. Phantom Empire
Michael R. Ricci Los Angeles, CA 90064 Criminal Act
Overseas Film Group 8800 Sunset Blvd. Sacrilege aka
Robbie Little Los Angeles, CA 90069 Devils of Monza
Nu Image (Radiance) 110 N. Doheny Drive The Shrieldgn aka Hex
Joanna Plafsky Beverly Hills, CA 90211
Beyond Films Limited 53-55 Brisbane Street Body Melt
Gary Hamilton Surry Hills, NSW 2010
AUSTRALIA
Fox/Lorber Associates, Inc. 419 Park Avenue South A Matter of Degrees
Sheri Levine New York, NY 10022
Canadian Broadcasting System 350 5th Avenue Love and Hate
Empire State Building
New York, NY 10118
Curb Escquire Films 3907 W. Alameda Avenue Last Dance
Carol Curb 2nd Floor
Burbank, CA 91506
Home Box Office 1100 Avenue of the Prison Stories
Miriam Santiago Americas
New York, NY 10036
Forefront Films, Inc. 507 17th Street The Unearthing aka
Harold Warren Brooklyn, NY 11215 Aswang
Rick Sloan Productions 8661 Allenwood Road Vice Academy II
Rick Sloan Los Angeles, CA 90046
Overseas Film Group 8800 Sunset Blvd. Aftershock
Robbie Little Los Angeles, CA 90069 Out of Sight, Out of
Mind
GaGa America 9595 Wilshire Blvd. Jitters
Los Angeles, CA 90212
Radiance Films International as Agent 9606 Santa Monica Blvd. Trained to Kill
for Payam Asharian Beverly Hills, CA 90310
Rick Sloan Productions 8661 Allenwood Vice Academy 3
Rick Sloan Los Angeles, CA 90046
Chala Limited 21320 Pouilly en Auxious Demon Wind
Les Roches FRANCE
Amritraj/Baldwin Entertainment 3831 Sepulveda Blvd. Night Eyes
Ashok Amritraj Sherman Oaks, CA 91403
Broadstar Entertainment, Inc. 6464 Sunset Blvd. The 13th Floor
June Hatch #116
Los Angeles, CA 90028
Viacom International Inc. Paramount Pictures Shame
Steve Madoff 5555 Melrose Avenue
Hollywood, CA 90038
ITEL 420 Lexington Avenue Tales of the
Frank Miller New York, NY 10017 Unexpected
Shadowchaser Ltd. 11111 Santa Monica Blvd. Shadowchaser
John Eyres Los Angeles, CA 90025
Shapiro Glickenhaus Entertainment 12001 Ventura Place Phantom of the Ritz
Frank Isaac 4th Floor
Studio City, CA 91604
4
Danning, Gill, Diamond & Kollitz 2029 Century Park East Riverbend
(Intercontinental) Suite #1900
Barry Lurie Los Angeles, CA 90067
Hemdale Releasing 7966 Beverly Blvd. My Little Girl
Rene Rousselt Los Angeles, CA 90048
Enchantment Pictures 1930 S. Beverly Glenn All American Murder
Bill Novodor Unit #204
Los Angeles, CA 90025
Viacom Enterprises 1515 Broadway Memories of Murder
Peter Newman New York, NY 10036
Manley Productions 111 West 57th Street Serpent of Death
Walter Manley Suite #1401
New York, NY 10019
Richard Gabai d/b/a Check 834 1/2 North Alta Drive Assault of the Party
Entertainment Hollywood, CA 90046 Nerds
Home Box Office 1100 Avenue of the Fellow Traveler
Miriam Santiago Americas
New York, NY 10036
Amazing Movies 7471 Melrose Avenue Time Trooper, aka
Douglas C. Witkins Los Angeles, CA 90046 Morning Terror,
Alienator, Le Petit
Amour aka Kung Fu
Avengers
Film Concept Group 5080 Spectrum Drive Blood Rage
John Chambliss Suite #609E
Dallas, TX 75248
Manley Productions 111 West 57th Street Running Away aka
Walter Manley Suite #1401 Two Women
New York, NY 10019
Castle Hill Productions 1414 Avenue of the Hell High
Mel Maron Americas
New York, NY 10019
Curb Esquire Films 3901 W. Alameda Avenue Exiled in America
Carol Curb Burbank, CA 91505
West Side Studios 10726 McCune Avenue Mardi Gras for the
Dianna Daou Los Angeles, CA 90034 Devil
Yankee Classic Pictures 127 Mitchell Avenue The Unnameable II
John Paul Ouellette #1
Los Angeles, CA 90066
Overseas Film Group 8800 Sunset Blvd. Night Screams
Robbie Little Los Angeles, CA 90069 Dial Help
Crown International Pictures 8701 Wilshire Blvd. My Mom's a Werewolf
Lynette Prucha Los Angeles, CA 90211
Hearst Entertainment 235 East 45th Street Midnight's Child,
Tom Devlin New York, NY 10017 Good Fight, and Getting
Up and Going Home
Secret Castle Productions 502 Park Avenue The Room and The
Mathew Seig New York, NY 10022 Dumbwaiter
Curb Esquire Films 3097 W. Alameda Avenue Evil Toons
Carol Curb Second Floor
Burbank, CA 91506
5
London Weekend Television South Bank Television Blade on the Feather
Colin Jarvis Centre Deep Cover
London SE1 9LT
ENGLAND
Curb Entertainment 3907 W. Alameda Avenue Dark Universe
Carol Curb Burbank, CA 91505
Cori Films 2049 Century Park East Club Extinction
Helen R. Krauss Suite #780
Los Angeles, CA 90067
Tatum Communications 2920 W. Olive Street Billy Kidd
Tom Tatum #102
Burbank, CA 91506
American Cinema Marketing 3855 Lankershim Blvd. Lords of Magick
George G. Murphy Suite #120
N. Hollywood, CA 90067
Falcon Arts and Entertainment 121900 Ventura Blvd. Double Exposure
Joanne Watkins Suite #2200
Los Angeles, CA 91604
Penta Film Via Aurelia Antica 422 Millions
00165 Rome
ITALY
Alchemy Entertainment 152 West 20th Street Sally Struthers
Oren Klaber Suite #1A Walking Video
New York, NY 10019
There's Nothing Out There 1605 Broadway There's Nothing Out
Victor Kanefsky #1001 There
New York, NY 10019
The Landsburg Company 11811 West Olympic Blvd. The George McKenna
Victor Paddock Los Angeles, CA 90064 Story
Entertainment Movies, Inc. 9903 Santa Monica Blvd. Double O Kidd
Stephen Paul Los Angeles, CA 90212
INI Entertainment Group, Inc. 11150 Olympic Blvd. Any Man's Death
Michael R. Ricci Los Angeles, CA 90064
Brightstar Films 100 Yonge Street Ghostwriter (Canadian
Orval Fruitman #1005
Toronto, Ontario M5C 2W1
CANADA
Mark Polan 14501 Calvert Ghostwriter (US)
Van Nuys, CA 91401
NOTE: The Rights in "Ghostwriter" are divided between two Licensors.
Nu Image (Radiance) 110 North Doheny Drive Mutator
Joanna Plafsky Beverly Drive, CA 90211
Crystal Sky Communications 9903 Santa Monica Blvd. Huck and The King of
Stephen Paul Los Angeles, CA 90212 Hears and Hail Ceaser
Film Export Group Via Polonia 9 Body Moves aka
Michael Freudenstein 00196 Rome Hot Steps
ITALY
Rick Sloan Productions 8661 Allenwood Road Vice Academy
Rick Sloan Los Angeles, CA 90046
6
Home Box Office 1100 Avenue of the Tailspin/KAL 007
Miriam Santiago Americas
New York, NY 10036
Producer's Network Associates 55 Heward Avenue Replikator
Margaret Mellor #216
Building B, Cinnevillage
Toronto, Ontario M4M 2T5
CANADA
The Phoenix Group 2150 East Tahquitz Abraxas
Bud Schaffer #5
Palm Springs, CA 92282
First Entertainment Inc. 1380 Lawrence Street Mind Killer, Lone
A.B. Goldberg Suite #400 Wolf and Night Vision
Denver, CO 80204
Crystal Sky Communications 9903 Santa Monica Blvd. Forever
Joseph Inga Los Angeles, CA 90212
Blue Ridge Entertainment 1640 S. Sepulveda Blvd. Ghetto Blaster
Carole Beazer Suite #308
Los Angeles, CA 90025
Crystal Sky Communications 9903 Santa Monica Blvd. Illusions
Stephen Paul Suite #333
Los Angeles, CA 90212
Grand Am Limited 6649 Odessa Avenue Evil Spirits
Van Nuys, CA 91406
Greenwich Films 12100 N.E. 16th Avenue South Beach
Steve Adelstein Miami, FL 33161
SC Entertainment 434 Queen Street East Red Blooded American
Kamal Dureja Toronto, Ontario M5A 1T5 Girl
CANADA
Crystal Sky Communications 1901 Avenue of the Stars Charlie's Ghost Story
Suite #680
Los Angeles, CA 90067
Velvet Star Productions 129 Yorkville Avenue Soft Deceit
Suite #200
Toronto, Ontario M5R 1C1
CANADA
Phoenix International Films, Inc. 5625 Cedarpine Drive Hidden Fears
Orlando, FL 32819
Blue Ridge Entertainment 10490 Santa Monica Blvd. Metalbeast
Los Angeles, CA 90025
Brilliant Disguise Productions 144 S. Doheny Drive A Brilliant Disguise
Penthouse
Beverly Hills, CA 90212
Cinevu Films, Inc. 120 Powell Street Power of Attorney
#32
Vancouver, BC V6A 161
CANADA
Heartstar Productions, Inc. 345 Carlaw Avenue Dominion
Third Floor
Toronto, Ontario M4M 2TW
CANADA
H.D. Productions 13801 Ventura Blvd. Snapdragon
c/o Amritraj Entertainment Sherman Oaks, CA 91423
7
ML Management 500 S. Buena Vista St. Afros & Bellbottoms
Burbank, CA 91521-7285
Saban Entertainment 10960 Wilshire Blvd. Black Ice
Los Angeles, CA 90024
Films Around The World 342 Madison Avenue Deadmate
New York, NY 10173
Tribune Entertainment 435 N. Michigan Avenue Final Shot: The Hank
Chicago, IL 60611 Gathers Story
Crystal Sky Communications 1901 Avenue of the Stars Hail Ceaser
Suite #680
Los Angeles, CA 90067
Playboy Entertainment 9242 Beverly Blvd. Hunkercise
Beverly Hills, CA 90210
Amritraj Entertainment 13801 Ventura Blvd. Illicit Behavior
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Invasion of Privacy
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Last Call
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Legal Tender
Sherman Oaks, CA 91423
Monument Pictures 1604 N. Cahuenga Blvd. Little Noteses
Suite #107
Los Angeles, CA 90022
Amritraj Entertainment 13801 Ventura Blvd. Night Eyes 2
Sherman Oaks, CA 91423
Sequel Productions c/o 13801 Ventura Blvd. Night Eyes 3
Amritraj Entertainment Sherman Oaks, CA 91423
Fourth Night Productions c/o 13801 Ventura Blvd. Night Eyes 4...Fatal
Amritraj Entertainment Sherman Oaks, CA 91423 Passion
Films Around The World 342 Madison Avenue Night Friend
New York, NY 10173
Saban Entertainment 10960 Wilshire Blvd. Prey of the Chameleon
Los Angeles, CA 90024
Saban Entertainment 10960 Wilshire Blvd. Round Trip to Heaven
Los Angeles, CA 90024
Home Box Office, Inc. 1100 Avenue of the KAL 007 aka Tailspin
Americas
New York, NY 10036
Amritraj Entertainment 13801 Ventura Blvd. Tropical Heat
Sherman Oaks, CA 91423
Bitter Harvest Films 1901 Avenue of the Stars Bitter Harvest
Crystal Sky Communications Suite #680
Los Angeles, CA 90067
Tribune Entertainment 435 N. Michigan Avenue Voyage of Terror:
Chicago, IL 60611 Achille Lauro Affair
Amazing Movies 6223 Salma Avenue Alientator
#125
Hollywood, CA 90028
8
Morphosis Productions, Inc. 154 1/2 La Brea Avenue Terminal Force
dba Interlught Pictures Los Angeles, CA 90036 aka Galaxis
Catalyst Films International 836 Regal Crescent Virtual Assassin aka
North Vancouver, B.C. Cyberjack
CANADA V7K 2X8
9
SCHEDULE 4.15
CONTRACTS
None.
SCHEDULE 4.16
LICENSES AND PERMITS
1) Los Angeles City Business License.
SCHEDULE 4.18
EMPLOYEES
EMPLOYEE NAME TITLE ANNUAL SALARY STATUS DATE OF LAST AMOUNT
Increased (decreased)
Corporate Offices - 1888 Century Park East, Suite 350
Los Angeles, CA 90067
Barry L. Collier President $250,000 F/T 6/1/96 ($82,750)
Rudy Patino CAO 96,000 F/T 7/1/96 $26,000
Kelly Nelson VP/CA 52,000 F/T
Hiede Marie Cantor Admin Ast. 51,000 F/T 7/1/96 $13,000
LaWanna May Staff Acct. 43,185 F/T 7/1/96 $13,000
b) The Company has an employment agreement with Barry Collier, the Company's
President and Chairman of the Board, which provides for base compensation
of $250,000 adjusted for inflation. In addition, Mr. Collier will receive
an annual bonus equal to five percent of the Company's pre-tax profits, as
defined in the employment agreement, up to an aggregate annual compensation
(salary and bonus) of $750,000. In the event Mr. Collier's employment is
terminated prior to the July 31, 1998 expiration, for any reason other than
"justifiable cause" as defined in the employment agreement, the Company
will pay Mr. Collier $440,000 for each year remaining in the term, plus an
additional sum of $440,00.
SCHEDULE 4.19
TAXES
a) All federal, state, and local income taxes, real and personal property
taxes, sales and use taxes and employment taxes have been filed and paid in
full through the periods covered by each return. All liabilities including
interest and penalties have been booked in Prism Entertainment Corporations
books and records.
The Internal Revenue Service has examined Prism Entertainment Corporation
tax returns through the year ended 1/31/92.
The California State Board of Equalization has examined Prism Entertainment
Corporation sales tax returns through 12/11/95.
The California State Board of Equalization has assessed taxes due,
including penalties and interest of $827,928.77 as of 8/1/96. Various
interest and penalties are post-petition and will be deducted from the
balance due.
The California State Board of Equalization has requested and Prism has
granted them an extension through 4/30/97 to audit the periods 1/l/93 to
12/31/95. As of 10/21/96, the Board has completed the audit for the period
under extension.
b) The Employment Development Department has sent an "Inquiry Regarding
Records" letter on and has requested to audit the period 7/l/93 to 6/30/97.
The purpose of the audit is to insure that all worker and wag" that are
subject to the employment tax provisions of the California Unemployment
Insurance Code have been property reported by employers.
f) None.
SCHEDULE 4.21
LABOR AND EMPLOYMENT MATTERS
a)
1) Yes, except for Barry Collier employment agreement noted in Schedule
5.18.
2) None.
3) None.
4) None.
b)
1) None.
2) None.
3)
5) Screen Actors Guild
-------------------
SAG Agreement: see attached proposed draft of terms resolving the
dispute with SAG.
Schedule 4.22
Pension and Benefit Plans
-------------------------
1) Premium payment due in December of 1997 in connection with the life
insurance policy on the life of Barry Collier, after which such policy will be
paid in full.
SCHEDULE 4.23
INSURANCE
AMOUNT OF
INSURANCE COVERAGE CARRIER/AGENT NAME COVERAGE
-----------------------------------------------------------------------------------------------------------------------------------
Worker's Compensation National Fire Insurance Co. / Vansa Insurance Services - Tom Putnam $1,000,000
General Liability Transcontinental Insurance / Vansa Insurance Services - Tom Putnam $2,000,000
Fire and Extended Coverage Transcontinental Insurance / Vansa Insurance Services - Tom Putnam $2,000,000
Business - Personal Property Transcontinental Casualty / Vansa Insurance Services - Tom Putnam $1,100,000
Theft Transcontinental Casualty / Vansa Insurance Services - Tom Putnam $1,100,000
Vehicle American Casualty Co. / Vansa Insurance Services - Tom Putnam $1,000,000
Umbrella Liability General Star National Ins. / Vansa Insurance Services - Tom Putnam $4,000,000
Distributors Errors and Omissions (1) American Casualty Co. / Vansa Insurance Services - Tom Putnam $3,000,000
Accidental Death & Dismemberment Federal Insurance Co. / Vansa Insurance Services - Tom Putnam $1,500,000
Directors and Officers Liability (2) National Union Fire Insurance Co. / Vansa Insurance Services - Tom Putnam $1,500,000
POLICY PREMIUM PAID
EXPIRATION DATE THROUGH DATE
-----------------------------------
Worker's Compensation 04/10/97 04/10/97
General Liability 04/10/97 04/10/97
Fire and Extended Coverage 04/10/97 04/10/97
Business - Personal Property 04/10/97 04/10/97
Theft 04/10/97 04/10/97
Vehicle 04/10/97 04/10/97
Umbrella Liability 04/10/97 04/10/97
Distributors Errors and Omissions (1) 01/01/97 Monthly
Accidental Death & Dismemberment 06/07/97 06/07/97
Directors and Officers Liability (2) 12/29/96 Monthly
(1) This policy has been renewed through 01/01/00.
(2) This policy has been renewed through 01/29/97.
There are no pending claims under any of the above policies.
SCHEDULE 4.25
FILM LIBRARY
a. See attached documentation.
b. None.
c. None.
d. SAG Residual Agreements.
AMENDMENT
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment to Agreement and Plan of Reorganization and Merger
("Amendment") is made and entered into as of December 20, 1996 by and between
Prism Entertainment Corporation, a Delaware corporation ("Prism"), and Lee Video
City, Inc., a California corporation ("VCI"), with respect to the facts set
forth below. Unless otherwise defined, all capitalized terms used in this
Amendment have the meanings ascribed to them in that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, by and between Prism
and VCI (the "Merger Agreement").
RECITALS
--------
A. Prism and VCI made and entered into the Merger Agreement,
pursuant to which Prism and VCI agreed to merge VCI with and into Prism in
accordance with the terms and conditions set forth therein.
B. Schedule 3.9 to the Merger Agreement lists the exceptions to the
representations and warranties made in Section 3.9 of the Merger Agreement. The
exceptions include the forgiveness by VCI of certain outstanding indebtedness
owed to VCI by Kelly, in the amount of $55,166, and by Tim Ford, in the amount
of $47,234.
C. Prism and VCI desire to amend ARTICLE V and ARTICLE VIII of the
Merger Agreement to reflect, respectively, the covenant of VCI to extend and
restructure such indebtedness on such terms and conditions as are reasonably
acceptable to Prism, and that such extension and restructuring will be a
condition precedent to the obligation of Prism to consummate the Merger.
D. Pursuant to Section 8.1(h) of the Agreement, Prism and VCI agreed
that as a condition precedent to the obligation of each of Prism and VCI to
consummate the Merger, each of Lee, Collier and Kelly shall have executed and
delivered to Prism an Employment Agreement substantially as set forth on
Exhibits D-1, D-2 and D-3 to the Agreement.
E. Prism and VCI desire to amend and restate each of such Exhibits.
F. Prism and VCI have agreed to amend ARTICLE V and ARTICLE VIII,
and to amend and restate Exhibits D-1, D-2 and D-3, upon the terms and
conditions set forth in this Amendment.
NOW, THEREFORE in consideration of the premises and mutual promises
set forth herein, the parties hereto hereby agree as follows:
1. Amendment of ARTICLE V and ARTICLE VIII.
---------------------------------------
1.1 ARTICLE V of the Agreement is hereby amended by the
addition of the following Section 5.8:
"5.8 Extension and Restructuring of Indebtedness. VCI
-------------------------------------------
shall, on such terms and conditions as are reasonably acceptable to
Prism, extend and restructure the entire indebtedness owed to VCI by
each of Kelly and Tim Ford, which indebtedness is more fully described
on Schedule 3.9."
1.2 ARTICLE VIII is hereby amended by the addition of the
following Section 8.2(j):
"8.2(j) Extension and Restructuring of Indebtedness. In
-------------------------------------------
accordance with Section 5.8, VCI shall have extended and restructured
the entire indebtedness owed to VCI by each of Kelly and Tim Ford."
2. Amendment and Restatement of Employment Agreements.
--------------------------------------------------
2.1 Exhibit D-1 (Lee's Employment Agreement) is hereby amended
and restated in its entirety to read in full as set forth on Exhibit A.
2.2 Exhibit D-2 (Kelly's Employment Agreement) is hereby
amended and restated in its entirety to read in full as set forth on Exhibit B .
2.3 Exhibit D-3 (Collier's Employment Agreement) is hereby
amended and restated in its entirety to read in full as set forth on Exhibit C.
3. Modification of Schedules.
-------------------------
(a) Schedule 3.9 to the Merger Agreement shall be amended to
delete (c) therefrom.
(b) Schedule 4.22 to the Merger Agreement shall be amended to
state "None" in lieu of the disclosure therein.
4. Effect of this Amendment. Except as expressly provided for in
------------------------
this Amendment, this Amendment shall not, in any way or manner, rescind or
modify any existing term or provision of the Merger Agreement. All of the
amendments set forth in this Amendment shall be effective as of November 14,
1996.
2
5. Integration. This Amendment (and Exhibits A, B and C, which are
-----------
hereby incorporated herein by this reference), together with the unamended terms
and conditions of the Merger Agreement, constitute the entire agreement between
the parties hereto and supersede all prior and contemporaneous agreements, oral
or written, between the parties concerning the subject matter hereof. No term of
this Amendment shall be amended, supplemented or waived except by a writing
signed by both parties.
IN WITNESS WHEREOF, Prism and VCI have caused this Amendment to be
duly executed by their respective authorized officers.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Barry Collier
------------------------------
Name: Barry Collier
----------------------------
Title: President
---------------------------
LEE VIDEO CITY, INC.,
a California corporation
By: /s/ Robert Y. Lee
-------------------------------
Name: Robert Y. Lee
-----------------------------
Title: President
----------------------------
3
EXHIBIT A
LEE'S AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------------
EXHIBIT D-1
EMPLOYMENT AGREEMENT
(ROBERT Y. LEE)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the ____ day of _____________, 1996, by and between Prism Entertainment
Corporation, a Delaware corporation (the "Company"), and Robert Y. Lee ("Lee").
1. Term of Employment. The Company hereby employs Lee, and Lee
------------------
hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Chairman of the Board and Chief Executive
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board") may from time to time
designate, provided such assignment is consistent with Lee's level of experience
and expertise. In the performance of his duties and the exercise of his
discretion, Lee shall be under the supervision and control of, and shall report
only to, the Board of Directors. Lee's duties shall be designated by the Board
of Directors and shall be subject to such policies and directions as may be
established or given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Lee shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Lee shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Lee's duties to the Company.
3. Compensation. For all services rendered by Lee under this
------------
Agreement, the Company shall pay Lee the following amounts:
3.1 Base Salary. A base salary ("Base Salary"), payable semi-
-----------
monthly, at the rate of $178,000 per year.
3.2 Bonus. In addition to the Base Salary, the Company shall
-----
pay Lee an annual bonus ("Bonus") with respect to any pretax profit generated by
the Company (any such pretax profit to be determined in accordance with the
usual and customary accounting practices of the Company and consistent with
generally accepted accounting principles except that all bonuses paid to any
employee based on pretax profits shall be deducted in determining pretax profit
for this purpose) as follows:
(a) an amount equal to 3% of any pretax profit of the
Company in excess of $1,100,000 with respect to the fiscal year commencing in
1997;
(b) an amount equal to 3% of any pretax profit of the
Company in excess of $1,200,000 with respect to the fiscal year commencing in
1998; and
(c) an amount equal to 3% of any pretax profit of the
Company in excess of $1,300,000 with respect to the fiscal year commencing in
1999.
4. Benefits.
--------
(a) In addition to the Base Salary and the Bonus, if
any, Lee will be entitled to participate in all benefits of employment available
to other members of the Company's management, on a commensurate basis as they
may be offered from time to time by the Board of Directors to the Company's
other management employees. Such benefits include, but are not limited to, full
medical, dental and long term disability insurance for Lee and his immediate
family, participation in group life insurance and retirement plans, [AND TERM
LIFE INSURANCE OF $1,000,000 PAYABLE TO LEE'S DESIGNEES]. During the period of
his employment hereunder, Lee will be reimbursed for reasonable business, travel
and entertainment expenses incurred in accordance with Company policy on behalf
of the Company in connection with his employment, and will be required to submit
appropriate expense reports for approval by signature of the Chief Financial
Officer as a condition of reimbursement of such expenses.
(b) The Company will pay up to $500 per month (including
all maintenance and operating expenses) for Lee to have the use of one Company
provided automobile (or an equivalent expense allowance for an automobile owned
by Lee).
(c) If the Company's headquarters is moved from
Bakersfield, California, such that Lee must relocate, the Company shall pay his
reasonable relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Lee serves as Chief Executive Officer of
---------
the Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors,
6. Termination. This Agreement shall terminate in advance of the
-----------
time specified in Section 1 above (and except as provided in Sections 6(c) and
6(d) below, Lee shall have no right to receive any compensation not due and
payable to him or to his estate at the time of such termination) under any of
the following circumstances:
(a) Upon the death of Lee.
(b) In the event that Lee shall become either physically
or mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively, the Company may, at its option, terminate this Agreement
by written notice to Lee at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section 6(b) or under
Section 6(a), Lee or his estate shall be entitled to receive Base Salary or any
other compensation accrued or earned as of or to the date of termination for six
months following such termination, or until the expiration of the term of this
Agreement, whichever is earlier.
2
(c) By Lee, if the Company shall have materially
breached any of the provisions of this Agreement, and such termination shall
have the same effect on the payment of Lee's Base Salary and Bonus as a
termination by the Company under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in
this Section 6(e) means Lee, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Lee for Cause, no payments or benefits under this
Agreement shall become payable after the date of Lee's termination. The Company
may terminate Lee's employment under this Section 6(e)(i) or (ii) only if
written notice of the facts constituting the basis for such termination has been
given to Lee and Lee shall have been afforded 30 days opportunity to take such
action as may be reasonable under the circumstances to furnish assurance to the
Board of Directors that such basis for termination has been corrected or cured
(to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause;
provided, that the Company shall pay Lee his Base Salary and any Bonus which
--------
would otherwise have become payable under Section 3.2 above through the
remaining term of this Agreement.
7. Attorney Fees. The successful party in any litigation relating
-------------
to matters covered by this Agreement shall be entitled to an award of reasonable
attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Lee or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding Effect. The terms, conditions, covenants and agreements
--------------
set forth herein shall inure to the benefit of, and be binding upon, the heirs,
administrators, successors and assigns of each of the parties hereto, and upon
any corporation, entity or person with which the Company may become merged,
consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified except
---------
by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
3
If to the Company, to:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Barry Collier, President
Fax: (805) 397-5982
If to Lee, to:
Robert Y. Lee
--------------------------------------
--------------------------------------
--------------------------------------
12. California Law. This Agreement is being executed and delivered
--------------
and is intended to be performed and shall be governed by and construed in
accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for authorization,
------------------
approval, decision, determination or other action of the Board of Directors
under the provisions of this Agreement, Lee's vote as a director shall not be
counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Lee indemnifying him against personal liability
to the fullest extent permissible under applicable corporate law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
---------------------------------------
-----------------------------------------
Robert Y. Lee
4
EXHIBIT B
KELLY'S RESTATED AND AMENDED EMPLOYMENT AGREEMENT
-------------------------------------------------
EXHIBIT D-2
EMPLOYMENT AGREEMENT
(JAMES CRAIG KELLY)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the ___ day of _________, 1996, by and between Prism Entertainment Corporation,
a Delaware corporation (the "Company"), and James Craig Kelly ("Kelly").
14.1 Term of Employment. The Company hereby employs Kelly, and
------------------
Kelly hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Senior Vice President and Chief Operating
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board of Directors") may from
time to time designate, provided such assignment is consistent with Kelly's
level of experience and expertise. In the performance of his duties and the
exercise of his discretion, Kelly shall be under the supervision and control of,
and shall report only to, the Chairman of the Board. Kelly's duties shall be
designated by the Chairman of the Board and shall be subject to such policies
and directions as may be established or given by the Board of Directors from
time to time.
14.2 Devotion of Time to Company Business. Kelly shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Kelly shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Kelly's duties to the Company.
14.3 Compensation.
------------
3.1 Base Salary. For all services rendered by Kelly under this
-----------
Agreement, the Company shall pay Kelly a base salary ("Base Salary"), payable
semi-monthly, at the rate of $120,000.
3.2 Bonus. In addition to the Base Salary, the Company shall
-----
pay Kelly an annual bonus ("Bonus") with respect to any pretax profit of
the Company (any such pretax profit to be determined in accordance with the
usual and customary accounting practices of the Company and consistent with
generally accepted accounting principles) as follows:
(a) an amount equal to 3% of any pretax profit of the
Company in excess of $1,100,000 with respect to the fiscal year commencing in
1997;
(b) an amount equal to 3% of any pretax profit of the
Company in excess of $1,200,000 with respect to the fiscal year commencing in
1998; and
(c) an amount equal to 3% of any pretax profit of the
Company in excess of $1,300,000 with respect to the fiscal year commencing in
1999.
4. Benefits.
--------
(a) In addition to the Base Salary and the Bonus, if
any, Kelly will be entitled to participate in all benefits of employment
available to other members of the Company's management, on a commensurate basis
as they may be offered from time to time by the Board of Directors to the
Company's other management employees. Such benefits include, but are not limited
to, full medical, dental and long term disability insurance for Kelly and his
immediate family, participation in group life insurance and retirement plans,
and term life insurance of $500,000 payable to Kelly's designees. During the
period of his employment hereunder, Kelly will be reimbursed for reasonable
business, travel and entertainment expenses incurred in accordance with Company
policy on behalf of the Company in connection with his employment, and will be
required to submit appropriate expense reports for approval by signature of the
Chairman of the Board as a condition of reimbursement of such expenses.
(b) The Company will pay up to $500 per month
(including all maintenance and operating expenses) for Kelly to have the use of
one Company-provided automobile (or an equivalent expense allowance for an
automobile owned by Kelly).
(c) If the Company's headquarters is moved from
Bakersfield, California, such that Kelly must relocate, the Company shall pay
his reasonable relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Kelly serves as Chief Operating
---------
Officer of the Company under this Agreement, he shall have the authority
specified in the Bylaws of the Company, except that he shall not proceed with
any matters, or permit the Company to take any actions, which are prohibited by,
or are in conflict with, resolutions or guidelines adopted by the Board of
Directors,
6. Termination. This Agreement shall terminate in advance of
-----------
the time specified in Section 1 above (and except as provided in Sections 6(c)
and 6(d) below,
2
Kelly shall have no right to receive any compensation not due and payable to him
or to his estate at the time of such termination) under any of the following
circumstances:
(a) Upon the death of Kelly.
(b) In the event that Kelly shall become either
physically or mentally incapacitated so as to not be capable of performing his
duties as required hereunder, and if such incapacity shall continue for a period
of six months consecutively, the Company may, at its option, terminate this
Agreement by written notice to Kelly at that time or at any time thereafter
while such incapacity continues. In case of termination under this Section 6(b)
or under Section 6(a), Kelly or his estate shall be entitled to receive Base
Salary or any other compensation accrued or earned as of or to the date of any
termination for six months following such termination, or until the expiration
of the term of this Agreement, whichever is earlier.
(c) By Kelly, if the Company shall have materially
breached any of the provisions of this Agreement, and such termination shall
have the same effect on the payment of Kelly's Base Salary and Bonus as a
termination by the Company under Section 6(e).
(d) By the Company for Cause. The term "Cause" used in
this Section 6(e) means Kelly, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Kelly for Cause, no payments or benefits under this
Agreement shall become payable after the date of Kelly's termination. The
Company may terminate Kelly's employment under this Section 6(e)(i) or (ii) only
if written notice of the facts constituting the basis for such termination has
been given to Kelly and Kelly shall have been afforded 30 days opportunity to
take such action as may be reasonable under the circumstances to furnish
assurance to the Board of Directors that such basis for termination has been
corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause;
provided, that the Company shall pay Kelly his Base Salary and any Bonus which
--------
would otherwise have become payable under Section 3.2 above through the
remaining term of this Agreement.
7. Attorney Fees. The successful party in any litigation
-------------
relating to matters covered by this Agreement shall be entitled to an award of
reasonable attorneys' fees in such action.
3
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Kelly or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
If to the Company, to:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
Fax: (805) 397-5982
If to Kelly, to:
Craig Y. Kelly
-------------------------------
-------------------------------
-------------------------------
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
4
13. Board of Directors. On any matter calling for
------------------
authorization, approval, decision, determination or other action of the Board of
Directors under the provisions of this Agreement, Kelly's vote as a director
shall not be counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Kelly indemnifying him against personal liability
to the fullest extent permissible under applicable corporate law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
---------------------------------------
-----------------------------------------
James Craig Kelly
5
EXHIBIT C
COLLIER'S RESTATED AND EMPLOYMENT AGREEMENT
-------------------------------------------
EXHIBIT D-3
EMPLOYMENT AGREEMENT
(BARRY COLLIER)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the ____ day of _____________________, 1996, by and between Prism Entertainment
Corporation, a Delaware corporation (the "Company"), and Barry Collier
("Collier").
1. Term of Employment. The Company hereby employs Collier, and
------------------
Collier hereby agrees to serve the Company, under and subject to all of the
terms, conditions and provisions of this Agreement for a period of two (2) years
from the date hereof, in the capacity of President of the Company, or to serve
in such other executive capacity with the Company as the Company's board of
directors (the "Board") may from time to time designate, provided such
assignment is consistent with Collier's level of experience and expertise. In
the performance of his duties and the exercise of his discretion, Collier shall
be under the supervision and control of, and shall report only to, the Chairman
of the Board. Collier's duties shall be designated by the Chairman of the Board
and shall be subject to such policies and directions as may be established or
given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Collier shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Collier shall not, without
the prior written consent of the Board of Directors, directly or indirectly
render any services of a business, commercial or professional nature to any
other person or organization, whether for compensation or otherwise, which may
compete or conflict with the Company's business or with Collier's duties to the
Company.
3. Compensation.
------------
3.1 Base Salary. For all services rendered by Collier under
-----------
this Agreement, the Company shall pay Collier a salary ("Base Salary"), payable
semi-monthly, at the rate of $178,000 per year.
3.2 Bonus. In addition to the Base Salary, the Company shall
-----
pay Collier the following bonuses ("Bonuses"):
(a) an annual bonus equal to 12% of all revenues (net of
commissions and expenses related thereto) recorded in excess of $625,000 from
the licensing of and/or transfer of rights to the Film Library accrued for each
fiscal year during the term hereof;
(b) an annual bonus equal to 5% of any (MDF) marketing
development funds from any source in excess of $350,000 received by or credited
to the Company for each fiscal year during the term hereof; and
(c) a bonus equal to 20% of proceeds in excess of
$3,700,000 (net of commissions and expenses of sale) received by the Company
generated by the sale of the Film Library in its entirety.
As used herein, Film Library means the rights of the Company in the
motion pictures listed on Schedule 5.25 to the Merger Agreement dated as of
October 25, 1996 between the Company and Lee Video City, Inc.
4. Benefits.
--------
(a) In addition to the Base Salary and the Bonus, if
any, Collier will be entitled to participate in all benefits of employment
available to other members of the Company's management, on a commensurate basis
as they may be offered from time to time by the Board of Directors to the
Company's other management employees. Such benefits include, but are not limited
to, full medical, dental and long term disability insurance for Collier and his
immediate family and participation in group life insurance and retirement plans.
During the period of his employment hereunder, Collier will be reimbursed for
reasonable business, travel and entertainment expenses incurred in accordance
with Company policy on behalf of the Company in connection with his employment,
and will be required to submit appropriate expense reports for approval by
signature of the Chairman of the Board as a condition of reimbursement of such
expenses.
(b) The Company will pay up to $500 per month
(including all maintenance and operating expenses) for Collier to have the use
of one Company provided automobile (or an equivalent expense allowance for an
automobile owned by Collier).
5. Authority. So long as Collier serves as an officer of the
---------
Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors.
6. Termination. This Agreement shall terminate in advance of the
-----------
time specified in Section I above (and except as provided in Sections 6(c) and
6(d) below, Collier shall have no right to receive any compensation not due and
payable to him or to his estate at the time of such termination) under any of
the following circumstances:
2
(a) Upon the death of Collier.
(b) In the event that Collier shall become either
physically or mentally incapacitated so as to not be capable of performing his
duties as required hereunder, and if such incapacity shall continue for a period
of six months consecutively, the Company may, at its option, terminate this
Agreement by written notice to Collier at that time or at any time thereafter
while such incapacity continues. In case of termination under this Section 6(b)
or under Section 6(a), Collier or his estate shall be entitled to receive Base
Salary or any other compensation accrued or earned as of or to the date of
termination for six months following such termination, or until the expiration
of the term of this Agreement, whichever is earlier.
(c) By Collier, if the Company shall have materially
breached any of the provisions of this Agreement, and such termination shall
have the same effect on the payment of Collier's Salary as a termination by the
Company under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in
this Section 6(e) means Collier, (i) after repeated notices and warnings, fails
to perform his reasonably assigned duties as reasonably determined by the
Company, (ii) materially breaches any of the terms or conditions of Sections 1
or 2 of this Agreement, or (iii) commits or engages in a felony or any
intentionally dishonest or fraudulent act which materially damages the Company's
reputation. If the Company terminates Collier for Cause, no payments or benefits
under this Agreement shall become payable after the date of Collier's
termination. The Company may terminate Collier's employment under this Section
6(e)(i) or (ii) only if written notice of the facts constituting the basis for
such termination has been given to Collier and Collier shall have been afforded
30 days opportunity to take such action as may be reasonable under the
circumstances to furnish assurance to the Board of Directors that such basis for
termination has been corrected or cured (to the extent susceptible to cure) and
will not recur.
(e) By the Company at any time, without Cause; provided,
--------
that the Company shall pay Collier his Salary through the remaining term of this
Agreement.
7. Attorney Fees. The successful party in any litigation relating
-------------
to matters covered by this Agreement shall be entitled to an award of reasonable
attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Collier or
the Company, except that this Agreement shall be assignable by the Company to
and shall
3
inure to the benefit of and be binding upon (i) any successor of the Company by
way of merger, consolidation or transfer of all or substantially all of the
assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding-Effect. The terms, conditions, covenants and agreements
--------------
set forth herein shall inure to the benefit of, and be binding upon, the heirs,
administrators, successors and assigns of each of the parties hereto, and upon
any corporation, entity or person with which the Company may become merged,
consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified except
---------
by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
If to the Company, to:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
Fax: (805) 397-5982
If to Collier, to:
Barry Collier
4033 Ocean Drive
Oxnard, California 93035
12. California Law. This Agreement is being executed and delivered
--------------
and is intended to be performed and shall be governed by and construed in
accordance with the laws of the State of California.
4
13. Board of Directors. On any matter calling for authorization,
------------------
approval, decision, determination or other action of the Board of Directors
under the provisions of this Agreement, Collier's vote as a director shall not
be counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Collier indemnifying him against personal
liability to the fullest extent permissible under applicable corporate law.
15. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation the employment agreement, bonus
arrangement and termination arrangement referred to in Schedules 5.18 and 5.21
to the Agreement and Plan of Reorganization and Merger dated as of October 29,
1996 by and between the Company and Lee Video City, Inc.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
---------------------------------------
-----------------------------------------
Barry Collier
5
SECOND AMENDMENT
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Second Amendment to Agreement and Plan of Reorganization and
Merger ("Second Amendment") is made and entered into as of December 24, 1996, by
and between Prism Entertainment Corporation, a Delaware corporation ("Prism"),
and Lee Video City, Inc., a California corporation ("VCI"), with respect to the
facts set forth below. Unless otherwise defined, all capitalized terms used in
this Second Amendment have the meanings ascribed to them in that certain
Agreement and Plan of Reorganization and Merger dated as of October 25, 1996, as
amended by that certain Amendment to Agreement and Plan of Reorganization and
Merger, dated December 20, 1996 (the "Merger Agreement").
RECITALS
--------
A. Prism and VCI made and entered into the Merger Agreement, pursuant
to which Prism and VCI agreed to merge VCI with and into Prism in accordance
with the terms and conditions set forth therein.
B. Prism and VCI have amended the Merger Agreement pursuant to that
certain Amendment to Agreement and Plan of Reorganization and Merger, dated
December 20, 1996.
C. Prism and VCI desire to further amend the Merger Agreement.
NOW, THEREFORE in consideration of the premises and mutual promises
set forth herein, the parties hereto hereby agree as follows:
1. Deletion of Exhibit A. Exhibit A to the Merger Agreement
---------------------
("Agreement of Merger") is hereby deemed deleted, and all references to the
"Agreement of Merger" contained in the Merger Agreement and the Exhibits and
Schedules thereto shall be deemed to be amended so that such references are to
the "Certificate of Merger."
2. Deletion of References to Schedules 2.1, 3.11 and 3.26. All
------------------------------------------------------
references to Schedule 2.1 "Distribution of Prism Stock and Prism Warrants,"
Schedule 3.11 "Real Property," and Schedule 3.26 "Accuracy and Provision of
Information" in the Merger Agreement are hereby deemed deleted.
3. Amendment and Restatement of Schedule 3.5 "Allocation of
--------------------------------------------------------
Stock." Schedule 3.5 "Allocation of VCI Stock" is hereby amended and restated
-------
in its entirety to read in full as set forth on the attached Exhibit A.
4. Amendment of Section 4.5. The number "10,000,000" on line
------------------------
3 of Section 4.5 is hereby amended to "9,753,927."
5. Amendment and Restatement of Schedule 4.5. Schedule 4.5 is
-----------------------------------------
hereby amended and restated in its entirety to read in full as set forth on the
attached Exhibit B.
6. Amendment of Schedule. Schedule 3.8 to the Merger Agreement
---------------------
is hereby amended to reflect that the dollar amount with respect to the
liability to Brown, Coburn & Co. by VCI has been reduced to $40,000, to be
repaid by post-Merger Prism within 30 days of the Closing.
7. Deletion of Section 8.2(d) "Employee Benefit Plans".
---------------------------------------------------
Section 8.2(d) "Employee Benefit Plans" is hereby deleted in its entirety. The
parties hereto hereby agree that Prism shall assume such employee benefit plans
of VCI in such manner as they shall mutually agree upon.
8. Addition of Exhibit B, Exhibit C and Schedule 4.23.
--------------------------------------------------
8.1 The form of "Certificate of Merger" attached hereto as
Exhibit C is hereby added to the Merger Agreement as "Exhibit B."
8.2 The form of "Override Agreement" attached hereto as Exhibit
D is hereby added to the Merger Agreement as "Exhibit C."
8.3 The Schedule attached hereto as Exhibit E is hereby added to
the Merger Agreement as "Schedule 4.23 - Insurance."
9. Effect of this Second Amendment. Except as expressly provided
-------------------------------
for in this Second Amendment, this Second Amendment shall not, in any way or
manner, rescind or modify any existing term or provision of the Merger
Agreement. All of the amendments set forth in this Second Amendment shall be
effective as of December 24, 1996.
10. Integration. This Second Amendment and Exhibits A, B, C, D and E
-----------
attached hereto together with the unamended terms and conditions of the Merger
Agreement, constitute the entire agreement between the parties hereto and
supersede all prior and contemporaneous agreements, oral or written, between the
parties concerning
2
the subject matter hereof. No term of this Second Amendment shall be amended,
supplemented or waived except by a writing signed by both parties.
IN WITNESS WHEREOF, Prism and VCI have caused this Second Amendment to
be duly executed by their respective authorized officers.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Barry Collier
-------------------------------
Barry Collier, President
LEE VIDEO CITY, INC.,
a California corporation
By: /s/ Robert Y. Lee
-------------------------------
Robert Y. Lee, President
3
EXHIBIT A
SCHEDULE 3.5 "ALLOCATION OF VCI STOCK"
--------------------------------------
(Revised as of 12/27/96)
------------------------
Schedule 3.5
Allocation of VCI Stock
A. VCI Shares outstanding as of 10/29/96
Robert Y. Lee 199,125
Young C. Lee and Kay L. Lee 175,875
Mortco, Inc. 95,408
Haig Brown 25,000
-------
Total 1,495,408
B. Convertible Promissory Notes:
VCI Shares to be issued
Name Amount In Exchange for Note
---- ------ -----------------------
Dennis Rhoton $464,000 principal 136,010
Edward Rheinhardt 145,000 principal 42,503
Douglas Frankel 210,000 principal 93,619
Thomas Rider 40,000 principal --
-------
Total 272,132
The notes of Rhoton and Rheinhardt (principal only) and Frankel
(principal plus accrued interest) are to be cancelled in exchange for shares of
VCI stock prior to Closing of the Merger. The noteholders will do so at a price
which will result in their receiving Prism Stock in the Merger at an effective
price of $1.20 per share. Rider's note is to be paid off prior to the closing.
Accrued interest on the Rhoton and Rheinhardt notes is to be paid by Prism over
a 12-month period following the Merger.
C. Allocation of Prism Shares in the Merger:
VCI Shares Total Reserved for
Prior to Prism Shares Unrestricted Ingram
Name Closing in Merger Delivery Warrant
---- ---------- ------------ ------------ ------------
Robert Y. Lee 1,119,125 3,409,024 3,004,621(1) 404,403
Young C. Lee and
Kay L. Lee 175,875 500,000 500,000 --
Mortco, Inc. 95,408 325,000 325,000 --
Haig Brown 25,000(2) -- -- --
Dennis Rhoton 136,010 386,667 386,667 --
Edward Rheinhardt 42,503 120,833 120,833 --
Douglas Frankel 93,619 266,153 266,153
--------- --------- --------- -------
Total 1,767,540 5,007,677 4,603,274 404,403
(1) Robert Y. Lee's shares of Prism will be allocated as set forth in Part D of
this Schedule.
(2) Mr. Brown has exercised his dissenters rights and has agreed to accept
$62,500 ($2.50 per share) in full payment for his 25,000 shares of VCI.
D. Allocation of Robert Y. Lee's Shares of Prism:
Shares reserved for Ingram Warrant 404,403
Shares transferred to Collier ((S)8.2(f)] 610,000
Shares transferred at Closing to Stephen Lehman (40,000) and
Brian Murphy (40,000) 80,000
Shares reserved for cancellation upon exercise of options
listed in Part E(2) of this Schedule 250,000
Shares retained by Lee (of which 721,983 shares are subject
to Ingram lock-up) 2,064,621
---------
Total 3,409,024
2
E. Options and Warrants to be assumed in Merger (all figures are adjusted for
Merger):
1. Original group (fully vested):
Options for Total Exercise Approximate
Prism Shares Price Price per Share
------------ -------------- ---------------
Craig Kelly 761,600 $391,821 $ .51
Steven Antongiovanni 181,200 186,446 1.03
Andrew W. Couch 181,200 186,446 1.03
Theodore Coburn 100,000 100,000 1.00
2. Other key employees and consultants - 5 year term, vesting one-third
prior to Closing, one-third at first anniversary and one-third at
second anniversary (except as otherwise stated). Exercise price $2.00
per share:
Tim Ford 105,000
Tom Rider (fully vested) 42,000
Brett Nelson 25,000
Joe Muller 17,000
Josh Pence 17,000
James Thomas 21,000
Don Dauterive 21,000
Shauna Rockwell 6,000
Mark Stoner (fully vested) 42,000
Kathy Digoy 42,000
Greg Schaffer 30,000
Valeri Turner 3,000
Duane Keathley (fully vested) 37,000
Tiffani Fernandez 15,000
Theresa McKiearnan 15,000
Katie Milan 15,000
Hope Arnold 4,000
John Ledbetter 4,000
-------
461,000
F. Warrants and Other Rights.
1. Ingram Entertainment, Inc. ("Ingram") holds a warrant for VCI Stock
which, upon the Merger, will be exchanged for a new warrant to
purchase 404,403 shares of Prism Stock from Messrs. Lee and Brown at
$.6085 per share. See Item C of this Schedule.
3
2. At the Closing of the Merger, Ingram will receive a warrant to
purchase 852,750 Prism Shares from Prism. This warrant is exercisable
at $2.00 per share for 200,000 shares for a five year period, $2.25
per share for 200,000 shares for a six year period, and $2.50 per
share for 200,000 shares for a seven year period, and prices ranging
from $.51 to $2.00 per share for 252,750 shares for a five year
period. All figures are subject to antidilution adjustment.
3. Mortco, Inc. has a right to purchase additional shares pursuant to the
Right of First Refusal and Co-Sale Agreement dated as of December 16,
1994 among Mortco, Inc., VCI and Robert Y. Lee.
4. Rentrak Corporation has a warrant dated June 19, 1996 to purchase up
to 5% of the fully diluted VCI Stock.
5. Rentrack Corporation has a warrant dated August 24, 1995 to purchase
up to 2% of the fully diluted VCI Stock.
4
EXHIBIT B
AMENDED AND RESTATED SCHEDULE 4.5
---------------------------------
Schedule 4.5 is hereby amended and restated in its entirety to read as
follows:
"SCHEDULE 4.5 "OTHER SECURITIES OR EQUITY INTERESTS OF PRISM"
------------------------------------------------------------
1. All securities of VCI assumed by Prism as set forth in
Schedule 3.5 hereto.
2. All options to Purchase stock of Prism issued to Ingram
pursuant to the Override Agreement.
3. All securities issued to Barry Collier pursuant to the
Merger Agreement."
EXHIBIT C
CERTIFICATE OF MERGER
---------------------
CERTIFICATE OF MERGER
MERGING
LEE VIDEO CITY, INC.
(a California corporation)
INTO
PRISM ENTERTAINMENT CORPORATION
(a Delaware corporation)
Pursuant to Section 252 of the
Delaware General Corporation Law
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
-----
constituent corporations in the merger is as follows:
State of
Name Incorporation
---- -------------
Lee Video City, Inc. California
Prism Entertainment Corporation Delaware
SECOND: That an Agreement and Plan of Reorganization and Merger
------
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the laws under which each constituent corporation was formed.
THIRD: That Prism Entertainment Corporation, a Delaware corporation,
-----
shall be the surviving corporation.
FOURTH: That the Restated Certificate of Incorporation of Prism
------
Entertainment Corporation, a Delaware corporation, is hereby amended as follows:
A. Paragraph 1 is amended in full to read as follows:
"The name of this corporation is Video City, Inc."; and
B. A new Paragraph 8 is added as follows:
"8. This corporation is prohibited from issuing nonvoting
securities."
FIFTH: That the executed Agreement and Plan of Reorganization and
-----
Merger is on file at the principal place of business of the surviving
corporation. The address of the principal place of business of the surviving
corporation is 1888 Century Park East, Suite 350, Los Angeles, California 90067.
SIXTH: That a copy of the Agreement and Plan of Reorganization and
-----
Merger will be furnished by the surviving corporation, on request and without
cost, to any stockholder of any constituent corporation.
SEVENTH: That Lee Video City, Inc., a California corporation, is
-------
authorized to issue only one class of shares of capital stock; and the total
number of shares which Lee Video City, Inc., a California corporation, is
authorized to issue is twenty million (20,000,000).
IN WITNESS WHEREOF, Prism Entertainment Corporation, a Delaware
corporation, has caused this Certificate of Merger to be executed by its duly
authorized officer this 27th day of December, 1996.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By:
-----------------------------
Barry Collier, President
EXHIBIT D
OVERRIDE AGREEMENT
------------------
OVERRIDE AGREEMENT
This Override Agreement (the "Agreement") is made and entered into as
of November 19, 1996, by and among Lee Video City, Inc., a California
corporation ("VCI"); Robert Y. Lee ("Lee"), an individual resident of California
on behalf of himself and as Trustee of the Robert Y. Lee Revocable Living Trust
UDT 1/9/91 (the "Trust"); Prism Entertainment Corporation, a Delaware
corporation ("Prism"); and Ingram Entertainment Inc., a Tennessee corporation
("Ingram"), with reference to the following:
Prism is a public company which on December 1, 1995 filed for
protection under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California (the "Bankruptcy
Court"), and is currently operating as debtor-in-possession.
Prism and VCI have entered into that certain Agreement and Plan of
Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Amendment, dated as of November 19, 1996 (as amended, the "Merger
Agreement") with respect to a merger (the "Merger") of VCI into Prism.
As of the date of this Agreement, VCI is indebted to Ingram in the
aggregate approximate amount of $4,500,000 (the "VCI Debt"). The obligations of
VCI to Ingram with respect to the VCI Debt are secured by (a) a security
interest in substantially all of the personal property of VCI (the "Old
Collateral") pursuant to an Amended and Restated Security Agreement dated as of
February 7, 1995, as amended (the "Prior Security Agreement"); (b) a pledge
agreement dated as of February 7, 1995, as amended (the "Stock Pledge
Agreement") issued by the Trust in favor of Ingram as to 5,500 shares of the
Common Stock of VCI (the "Pledged Shares"); (c) a Pledge Agreement dated
February 7, 1995, as amended (the "Note Pledge Agreement") issued by VCI in
favor of Ingram as to a promissory note in favor of VCI (the "Pledged Note");
and (d) a Payment Guaranty issued by Lee dated February 7, 1995 (the "Lee
Guaranty").
VCI, Lee and Ingram have entered into that certain Workout Agreement
dated as of February 7, 1995 (the "Workout Agreement") with respect to the
rescheduling and payment of the then outstanding debt owed by VCI to Ingram.
Ingram is the holder of warrants issued by VCI dated November 14, 1996
to acquire shares of the Common Stock of VCI equal to 8.5% of the outstanding
shares of VCI (the "Old Warrants").
Subject to the terms and conditions set forth in this Agreement and
the consummation of the Merger, the parties have agreed to restructure the VCI
Debt.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. In addition to the definitions set forth in
-------------
the Recitals, for purposes of this Agreement, the following capitalized
terms shall have the following meaning:
"Additional Warrants" means warrants to purchase an aggregate of
-------------------
852,750 shares of the Common Stock of Reorganized Prism substantially in
the form of Exhibit A attached hereto.
---------
"Affiliate" means, as to any Person, any other Person which directly
---------
or indirectly controls, or is under common control with, or is controlled
by, such Person. As used in this definition, "control" (and its correlated
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person that owns, directly or
--------
indirectly, 10% or more of the securities having ordinary voting power for
the election of directors or other governing body of a corporation (other
than securities having such power only by reason of the happening of a
contingency), or 10% or more of the partnership or other ownership interest
of any other Person (other than as a limited partner of such other Person),
will be deemed to control such corporation or other Person.
"Assumed Options" means options of VCI to be assumed by Reorganized
---------------
Prism upon the Merger to purchase an aggregate of 1,685,000 shares of
Reorganized Prism.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
------------
Friday on which Ingram is open for business at its address for notice
designated as provided herein.
"Closing" means the consummation of the transactions contemplated by
-------
this Agreement, which shall be deemed to take place concurrently with the
effectiveness of the Merger.
"Closing Date" means the date of Closing.
------------
"Collateral Documents" means the New Security Agreement and Copyright
--------------------
Mortgages.
"Collier" means Barry Collier.
-------
"Copyright Mortgage" means a mortgage agreement, in form and substance
------------------
satisfactory to Ingram, granting to Ingram a security interest and lien on
all right, title and interest of Reorganized Prism in and to the Film
Library and the Film Library Accounts Receivable, including, without
limitation, all copyrights with respect to the Film Library in form and
substance acceptable to Ingram.
"Debt Documents" means, collectively, this Agreement, the Note, the
--------------
Collateral Documents, the Supply Agreement, the New Warrants, the
Additional Warrants and any other certificates, documents or agreement of
any type or nature heretofore or hereafter executed or delivered by
Reorganized Prism or any other Party to Ingram in any way relating to or in
furtherance of this Agreement and/or the Note, and in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
"Disclosure Statement" means the Disclosure Statement for Prism's
--------------------
Amended Plan of Reorganization dated September 23, 1996, as may be amended.
"Effective Time" means the consummation of the Merger.
--------------
"Escrow and Warrant Agreement" means, as to the New Warrants, the
----------------------------
Escrow and Warrant Agreement substantially in the form of Exhibit B
attached hereto.
"Event of Default" shall have the meaning provided in Section 7.1.
----------------
"Film Library" means the rights of Prism in the motion pictures listed
------------
on Schedule 5.25 to the Merger Agreement.
"Film Library Accounts Receivable" means all present and future
--------------------------------
accounts, accounts receivable, rights to payment, and all forms of
obligations owing to Reorganized Prism or in which Reorganized Prism may
have any interest, however created or arising, relating to the Film
Library.
"Governmental Agency" means (a) any international, foreign, federal,
-------------------
state, county or municipal government, or political subdivision thereof,
(b) any
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, or (c) any court,
administrative tribunal or public utility.
"Guaranty Release" means the release by Ingram of the Lee Guaranty,
----------------
the Stock Pledge Agreement and the Note Pledge Agreement to be executed and
delivered at the Closing substantially in the form of Exhibit C attached
---------
hereto.
"Ingram Shares" means 1,500,000 shares of the Common Stock of
-------------
Reorganized Prism.
"Laws" means, collectively, all international, foreign, federal, state
----
and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment for security, security interest, encumbrance, lien or charge of
any kind, whether voluntarily incurred or arising by operation of Law or
otherwise, affecting any property, including any agreement to grant any of
---------
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of, or
agreement to, give any financing statement (other than a precautionary
----------
financing statement with respect to a lease that is not in the nature of a
security interest) under the Uniform Commercial Code or comparable Law of
any jurisdiction with respect to any property.
"Lock-Up Agreement" means an agreement to be executed and delivered at
-----------------
the Closing between Lee, Collier and Ingram pursuant to which Lee (on his
own behalf and on behalf of the Trust) and Collier agree to refrain from
selling, pledging or encumbering the Lock-Up Shares, substantially in the
form of Exhibit D attached hereto.
---------
"Lock-Up Shares" means 1,026,983 shares of Common Stock of Reorganized
--------------
Prism, 721,983 shares of which will, upon the Closing, be held by Lee and
305,000 shares by Collier.
"New Collateral" means, collectively, a first lien on the property and
--------------
assets of Reorganized Prism described in Schedule A attached hereto (other
than the Film Library and the Film Library Accounts Receivable of
Reorganized Prism) and a second priority lien on the Film Library and the
Film Library Accounts Receivable of Reorganized Prism subject only to the
lien of Imperial Bank, all as more fully described in the New Security
Agreement.
4
"New Security Agreement" means the Security Agreement, dated as of the
----------------------
Closing Date, executed by Reorganized Prism in favor of Ingram,
substantially in the form of Exhibit E attached hereto, either as
---------
originally executed or as it may from time to time on or after the Closing
Date be supplemented, modified, amended, restated or extended.
"New Warrants" means warrants to purchase the New Warrant Shares to be
------------
delivered to Ingram at the Closing pursuant to the Escrow and Warrant
Agreement.
"New Warrant Shares" means an aggregate of 8 1/2% of the number of
------------------
shares of the Common Stock of Reorganized Prism to be received by the VCI
Shareholders pursuant to the Merger, provided, however, that the aggregate
number of shares to be received by the VCI Shareholders will not be less
than 4,930,000. The number of New Warrant Shares is currently estimated to
be 410,444.
"Note" means the promissory note of Reorganized Prism to be delivered
----
to Ingram at the Closing evidencing the Remaining Debt, substantially in
the form of Exhibit F attached hereto.
---------
"Party" means any Person (including Reorganized Prism and/or any
-----
Affiliate of Reorganized Prism), other than Ingram, which now or hereafter
is party to any of the Debt Documents.
"Person" means any entity, whether an individual, trustee,
------
corporation, general partnership, limited partnership, joint stock company,
trust, unincorporated organization, bank, business association, firm, joint
venture, governmental agency, or otherwise.
"Plan" means the Plan of Reorganization of Prism and its subsidiaries,
----
as may be amended.
"Registrable Securities" means the Ingram Shares, the New Warrant
----------------------
Shares and any securities issuable upon exercise of the Additional
Warrants.
"Registration Rights Agreement" means an agreement between Prism and
-----------------------------
Ingram regarding the registration of the Registrable Securities
substantially in the form of Exhibit G attached hereto.
"Remaining Debt" means the difference between the VCI Debt and
--------------
$3,000,000.
5
"Reorganized Prism" means the surviving entity upon the consummation
-----------------
of the Merger.
"Reorganized Prism Securities" means the Ingram Shares, the New
----------------------------
Warrants, the New Warrant Shares, the Additional Warrants and any
securities issuable upon exercise of the Additional Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Stockholders Agreement" means an agreement to be executed and
----------------------
delivered at Closing among Reorganized Prism, Lee, Collier and Ingram
substantially in the form of Exhibit H attached hereto.
---------
"Supply Agreement" means the Supply Agreement between Reorganized
----------------
Prism and Ingram to be executed and delivered at the Closing substantially
in the form of Exhibit I attached hereto.
---------
"VCI Shareholders" means the shareholders of VCI immediately prior to
----------------
the Effective Time.
ARTICLE 2
RESTRUCTURING OF DEBT
2.1 Conversion of Debt; Release of Lee Guaranty and Old
---------------------------------------------------
Collateral. At the Closing, Ingram shall convert $3,000,000 of principal amount
----------
of the VCI Debt into the Ingram Shares. In connection therewith, at the
Closing, Ingram shall release the Stock Pledge Agreement, the Note Pledge
Agreement and the Lee Guaranty pursuant to the Guaranty Release, redeliver and
reassign to Lee the Pledged Shares and to VCI the Pledged Note, and execute and
deliver to Reorganized Prism UCC-2 termination statements with respect to the
Old Collateral; and Reorganized Prism shall execute and deliver to Ingram the
Note, the New Security Agreement and UCC-1 financing statements covering the New
Collateral pursuant to which Reorganized Prism shall grant to Ingram first
priority liens and security interests in and to the New Collateral except that
the lien and security interest in the Film Library and the Film Library Accounts
Receivable shall be subject to and subordinate to the lien therein of Imperial
Bank.
2.2 Termination of Workout Agreement; Payment of Remaining Debt.
-----------------------------------------------------------
The Workout Agreement shall be terminated effective at the Closing, and Ingram
shall thereupon release all of its future claims thereunder. The Remaining Debt
shall be evidenced by the Note and payable as follows:
(a) Interest shall be payable on the outstanding daily unpaid
principal amount of the Remaining Debt from the Closing until payment in full is
made, shall accrue and be payable at the rate of 10% per annum and shall be
payable monthly. Any accrued interest not paid on a date scheduled for the
payment of interest shall be added to the principal of the Remaining Debt and
all of such principal, as so increased shall thereafter bear interest at the
lesser of 4% in excess of the existing rate or the maximum rate permitted by
applicable law. All proceeds from the exercise of all options or warrants to
purchase capital stock of Reorganized Prism shall be applied to the reduction of
the Remaining Debt, first to any accrued unpaid interest and then to principal.
(b) If not sooner paid, the Remaining Debt and all accrued interest
thereon shall be payable on the third anniversary of the Closing.
(c) The Remaining Debt may, at any time and from time to time, be
paid or prepaid in whole or in part without premium or penalty, provided that
each prepayment of principal shall be accompanied by payment of interest accrued
through the date of payment on the amount of principal paid.
(d) Should any installment of principal or interest not be paid
when due, a late charge equal to 5% of the payment then due, payable on demand,
shall be charged with respect to such payment.
(e) All computations of interest shall be calculated on the basis
of a year of 360 days and the actual number of days elapsed.
(f) If any payment to be made by Reorganized Prism shall become due
on a day other than a Business Day, payment shall be made on the next succeeding
Business Day and the extension of time shall be reflected in computing interest.
(g) Each payment hereunder shall be made by Reorganized Prism by
wire transfer to Ingram or to such other account as Ingram may direct in
writing. All payments shall be made in lawful money of the United States of
America and shall be deemed made when verified by the receiving bank.
7
ARTICLE 3
ISSUANCE OF NEW WARRANTS
At the Closing, certain of the VCI shareholders shall issue to Ingram
the New Warrants to purchase the New Warrant Shares pursuant to the Escrow and
Warrant Agreement. It is understood that certificates representing the New
Warrant Shares shall be issued at the Closing in the names of the VCI
Shareholders, but shall be delivered to an escrow agent acceptable to the
parties to be held pending exercise of the New Warrants by Ingram or the
expiration of the Warrant Period. For such time as the New Warrant Shares are
held in escrow, the VCI Shareholders shall be entitled to vote the New Warrant
Shares. Upon expiration of the Warrant Period, the escrow agent will be
authorized and instructed to deliver to the VCI Shareholders all New Warrant
Shares to the extent that the New Warrants have not been exercised therefor.
Any exercise by Ingram of the New Warrants shall be done on a ratable basis with
respect to the New Warrant Shares with the exercise price(s) therefor to be paid
to Reorganized Prism.
ARTICLE 4
ADDITIONAL WARRANTS
At the Closing, Reorganized Prism shall issue to Ingram the Additional
Warrants.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of VCI. VCI hereby
-------------------------------------
represents and warrants to the other parties hereto as follows:
(a) VCI has the full right, power and authority to enter into,
execute and deliver this Agreement and all the other Debt Documents to which VCI
is a party.
(b) VCI is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has the corporate
power to own and operate its properties and to carry on its business as now
conducted. VCI is duly qualified to do business and in good standing in each
state in which a failure to
8
be so qualified would have a material adverse effect on VCI's financial position
or its ability to conduct its business in the manner now conducted.
(c) VCI has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which VCI is a party. This Agreement and all the other
agreements, documents, and instruments contemplated hereby to which VCI is a
party, are, and as of the Closing will be, the legal, valid and binding
obligation of VCI, enforceable in accordance with their respective terms.
(d) The representations and warranties of VCI set forth in the
Merger Agreement are true and correct as of the date hereof.
(e) The execution, delivery and performance by VCI of this
Agreement and the other Debt Documents does not and will not (i) contravene or
conflict with the Articles of Incorporation or bylaws of VCI, (ii) contravene or
conflict with or constitute a violation of any provision of any law, statute,
rule, regulation, judgment, injunction, order, writ or decree binding upon or
applicable to VCI or any part of its business, or (iii) contravene or conflict
with or constitute a violation, breach, or default under any agreement to which
VCI is bound.
5.2 Representations and Warrants of Prism. Prism hereby
-------------------------------------
represents and warrants to the other parties as follows:
(a) Prism is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has the corporate
power to own and operate its properties and to carry on its business as now
conducted. Prism is duly qualified to do business and in good standing in each
state in which a failure to be so qualified would have a material adverse effect
on Prism's financial position or its ability to conduct its business in the
manner now conducted.
(b) Prism has the full right, power and authority to enter into,
execute and deliver this Agreement and all other related documents to which
Prism is a party.
(c) Prism has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which Prism is a party. This Agreement and all other
agreements, documents, and instruments contemplated hereby are, and as of the
Closing will be, the legal, valid and binding obligation of Prism, enforceable
in accordance with their respective terms.
9
(d) The representations and warranties of Prism set forth in the
Merger Agreement are true and correct as of the date hereof.
(e) The Reorganized Prism Securities, when issued, shall be duly
authorized, validly issued, fully paid and non-assessable.
(f) The execution, delivery and performance by Prism of this
Agreement and the Debt Documents to which Prism is a party does not and will not
(i) contravene or conflict with the Certificate of Incorporation or bylaws of
Prism, (ii) contravene or conflict with or constitute a violation of any
provision of any law, statute, rule, regulation, judgment, injunction, order,
writ or decree binding upon or applicable to Prism or any part of its business,
except that the consummation of the transactions contemplated herein is subject
to the confirmation of the Plan, or (iii) contravene or conflict with or
constitute a violation, breach, or default under any agreement to which Prism is
bound.
(g) The Plan provides for sufficient number of shares of Common
Stock of Reorganized Prism in connection with the issuance of the New Warrant
Shares, the Ingram Shares and any securities issuable upon exercise of the
Additional Warrants.
(h) Place of Business. The records with respect to all intangible
-----------------
personal property constituting a part of the New Collateral are and will be
maintained at Reorganized Prism's chief place of business and chief executive
office, which has the address of 6851 McDivitt Drive, Suite A, Bakersfield,
California 93313. All tangible personal property constituting a part of the New
Collateral is or will be located at Reorganized Prism's chief place of business
and chief executive office and/or at any specific store locations.
(i) Imperial Bank. As of the date hereof, the total outstanding
-------------
principal amount of the indebtedness of Prism to Imperial Bank (the "Imperial
Indebtedness"), is no more than $3,100,000.
5.3 Representations and Warranties of Ingram. Ingram hereby
----------------------------------------
represents and warrants as follows:
(a) Ingram has the full right, power and authority to enter into,
execute and deliver this Agreement and all other related documents to which
Ingram is a party.
(b) Ingram has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which Ingram is a party. This Agreement and such related
10
documents are, and as of the Closing will be, the legal, valid and binding
obligation of Ingram, enforceable in accordance with their respective terms.
(c) Ingram understands and agrees that (subject to the Registration
Rights Agreement):
(i) The Reorganized Prism Securities shall not have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
or the securities laws of any state, based upon an exemption from such
registration requirements under the Securities Act and applicable state
securities law;
(ii) The Reorganized Prism Securities are and will be
"restricted securities" as said term is defined in Rule 144 of the Rules and
Regulations promulgated under the Securities Act;
(iii) The Reorganized Prism Securities may not be sold or
otherwise transferred unless they have been first registered under the
Securities Act and applicable state securities laws, or unless exemption from
such registration provisions are available with respect to said resale or
transfer;
(iv) Prism is relying on the representation by Ingram that
Ingram has such knowledge and experience in financial or business matters that
Ingram is capable of evaluating the merits and risks involved in the investment
in the Reorganized Prism Securities;
(v) The Reorganized Prism Securities are and will be acquired
by Ingram for Ingram's own account and not with a view to, or for resale in
connection with, any distribution other than resales made in compliance with the
Securities Act and applicable state securities laws.
(vi) Ingram acknowledges that it has received the Disclosure
Statement, together with a copy of the Plan. Ingram has been, or will be prior
to Closing, furnished with such information and documents pertaining to
Reorganized Prism as Ingram has requested, and has been, or will be prior to
Closing, given the opportunity to meet with officials of Prism and VCI and to
have such persons answer questions regarding Reorganized Prism's affairs and
conditions.
11
ARTICLE 6
COVENANTS BY PRISM
Unless Ingram otherwise consents in writing, which consent may be
exercised or withheld in Ingram's sole discretion, so long as Reorganized Prism
is indebted to Ingram under this Agreement, and until the payment in full of the
Remaining Debt (as to all covenants in this Article) and until the later to
occur of the termination of the Stockholders Agreement or the payment in full of
the Remaining Debt (as to Sections 6.11, 6.12, 6.14, 6.16, 6.17 and 6.18), Prism
covenants as follows:
6.1 Punctual Payment. Reorganized Prism shall punctually pay
----------------
the interest and principal of the Remaining Debt at the times and place and in
the manner specified herein and in the Note.
6.2 Accounting Records. Reorganized Prism shall maintain full
------------------
and complete books and accounts and other records reflecting all of its
properties and the results of its business in accordance with generally accepted
accounting principles consistently applied.
6.3 Financial Information. Reorganized Prism shall deliver, or
---------------------
cause to be delivered, to Ingram, in form and detail satisfactory to Ingram:
(a) As soon as available, but in any event not later than 105 days
after the end of each fiscal year, an audited balance sheet of Reorganized Prism
as at the end of such fiscal year, and statements of income and cash flow for
such fiscal year, together with the equivalent information for the prior fiscal
year, all in detail reasonably satisfactory to Ingram. Such balance sheet and
statements shall be prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the periods
involved and accompanied by a report of a certified public accountant of
recognized national standing reasonably satisfactory to Ingram.
(b) As soon as available, but in any event not later than 50 days
after the end of each fiscal quarter (except for the fourth quarter), an
unaudited balance sheet of Reorganized Prism as at the end of such fiscal
quarter (except for the fourth quarter) and a statement of income for such
fiscal quarter (except for the fourth quarter) and the year to date, together
with the equivalent information for the same period in the prior fiscal year,
all in accordance with generally accepted accounting principles consistently
maintained throughout the period involved, except for the absence of footnotes.
Such financial statements shall be certified by the chief financial officer of
Reorganized Prism as fairly presenting the financial condition and results of
12
operations of Reorganized Prism in accordance with generally accepted accounting
principles, consistently applied, as at such date and for such periods, except
for the absence of footnotes. The foregoing may be satisfied by delivery of the
applicable Form 10-Q Report.
6.4 Existence. Reorganized Prism shall (a) preserve and
---------
maintain its existence and all of its material rights, licenses, privileges and
franchises, (b) continue to operate in substantially the same line of business
as VCI presently engages in, namely, the business of renting and selling
prerecorded video entertainment for consumer use, (c) comply with the
requirements of all applicable Laws of any Governmental Agency, and (d) use its
best efforts to conduct its business in an orderly, efficient, and regular
manner.
6.5 Maintenance of Properties. Reorganized Prism shall
-------------------------
maintain, preserve and protect all of its properties and equipment in good order
and condition, subject to wear and tear in the ordinary course of business, and
not permit any waste of its properties, except that the failure to maintain,
------
preserve and protect a particular item of property or equipment that is not of
significant value, including property not of significant value due to its
technological obsolescence, either intrinsically or due to the operation of
Reorganized Prism, shall not constitute a violation of this covenant.
6.6 Taxes and Other Liabilities. Reorganized Prism shall pay
---------------------------
and discharge when due any and all indebtedness, obligations, assessments and
taxes including without limitation federal and state income taxes, and all such
obligations imposed by any Governmental Agency which are or may become a Lien
affecting Reorganized Prism's properties or any part thereof, except such as
------
Reorganized Prism may in good faith contest by appropriate proceedings, so long
as Reorganized Prism has established and maintains reserves adequate to pay any
such contested liabilities in accordance with generally accepted accounting
principles and, by reason of non-payment, none of Reorganized Prism's property
or the Liens of Ingram thereon are in danger of being lost or forfeited.
6.7 Reporting Requirements. Reorganized Prism shall cause to be
----------------------
delivered to Ingram, in form and detail satisfactory to Ingram:
(a) promptly upon Reorganized Prism's learning thereof,
notice of:
(i) any material litigation affecting or relating to
Reorganized Prism, or any of its properties;
(ii) any dispute between Reorganized Prism and any
Governmental Agency relating to Reorganized Prism's property, the
13
adverse determination of which might materially adversely affect such
property;
(iii) any change in senior management of Reorganized
Prism;
(iv) any Default or Event of Default.
(b) written notice of any change in the location of
Reorganized Prism's principal place of business or any other place in which
it maintains any of the New Collateral or its books and records at least 30
days prior to the date of such change;
(c) such other information relating to Reorganized Prism,
and/or its properties as Ingram may reasonably request from time to time.
6.8 Insurance. Reorganized Prism shall provide or cause to
---------
be provided the following policies of insurance:
(a) public liability insurance in an amount deemed reasonably
necessary from time to time by Ingram;
(b) property damage and casualty insurance in an amount deemed
reasonably necessary from time to time by Ingram; and
(c) such other policies of insurance as Ingram may reasonably
require from time to time.
All insurance policies (i) shall be maintained throughout the term of the
Remaining Debt at Reorganized Prism's sole expense, (ii) shall be issued by
insurers of recognized responsibility which are reasonably satisfactory to
Ingram, (iii) shall be in form and substance reasonably satisfactory to Ingram,
and (iv) with respect to insurance coverage damage to the New Collateral, (A)
shall name Ingram as an additional insured and/or loss payee, as appropriate,
and (B) shall contain a "lender's loss payable" endorsement in form and
substance reasonably satisfactory to Ingram. Reorganized Prism shall deliver or
cause to be delivered to Ingram, from time to time at Ingram's reasonable
request, originals or copies of such policies or certificates in form reasonably
satisfactory to Ingram, evidencing the same. Such certifications shall provide
that such insurance coverage shall not be reduced, cancelled or terminated
without 30 days prior written notice to Ingram.
6.9 Inspection Rights. At any time during regular business
-----------------
hours and as often as reasonably requested, Reorganized Prism shall permit
Ingram, or any
14
employee, agent or representative of Ingram, to examine, audit and make copies
and abstracts from the records and books of account of, and to visit and inspect
the Properties of, Reorganized Prism and to discuss the affairs, finances and
accounts of Reorganized Prism with any of its officers and key employees, and,
upon request, furnish promptly to Ingram true copies of all financial
information and internal management reports made available to the management of
Reorganized Prism. As used herein, "key employees" means all employees at least
of Regional Manager or department head rank.
6.10 Compliance with Agreements, Duties and Obligations.
--------------------------------------------------
Reorganized Prism shall promptly and fully comply with all of its agreements,
duties and obligations under the Debt Documents and, in all material respects,
under any other material agreements, indentures, leases and/or instruments to
which it and Ingram are each a party. Reorganized Prism shall use its best
efforts to promptly and fully comply with all of its agreements, duties and
obligations under any material agreements, indentures, leases and/or instruments
to which it and another Person (other than Ingram) are each a party.
6.11 Mergers, Consolidations and Acquisitions. Reorganized Prism
----------------------------------------
shall not (a) enter into any transaction of merger or consolidation or
contemplating the sale or transfer of all or substantially all of its assets; or
(c) make any material change in the nature of its business as conducted and
presently proposed to be conducted; or (d) change the form of organization of
its business; provided, however, that nothing herein shall prevent Reorganized
Prism from selling the Film Library (subject, however, to the conditions set
forth in Section 6 of the Security Agreement), or from entering into a
transaction of merger where (i) Reorganized Prism is the surviving party; (ii)
upon the consummation of such merger, 50% or more in interest of the
stockholders of Reorganized Prism own and control 50% or more of the voting
equity of the combined company; (iii) a majority of the board of directors of
the combined company consist of directors of Reorganized Prism immediately prior
to such merger; and (iv) the terms of the Supply Agreement will continue to
apply.
6.12 Redemption, Dividends, Distributions. Reorganized Prism
------------------------------------
shall not redeem or repurchase stock or other ownership interests, declare or
pay any dividends or make any other distribution, whether of capital, income or
otherwise, and whether in cash or other property.
6.13 Application of Exercise Prices. Reorganized Prism shall
------------------------------
apply all proceeds from the exercise of any options or warrants to purchase
capital stock of Reorganized Prism to the reduction of the Remaining Debt, first
to any accrued, unpaid interest and then to principal.
15
6.14 Restriction on Employee Stock Options. Except for the
-------------------------------------
Assumed Options and the option in favor of Collier to purchase 175,000 shares
(the "Collier Option"), Reorganized Prism shall not issue any employee stock
options or warrants (a) at exercise prices below the greater of the book value
per share or the fair market value per share on the date of grant or (b) to the
extent that the total amount of shares issuable pursuant to the exercise of such
new stock options plus 461,000 shares exceeds 10% of the then issued and
outstanding shares of Reorganized Prism's Common Stock and Common Stock
equivalents. No options or warrants (including the Assumed Options and Collier
Option) will be repriced at an exercise price below the greater of the book
value per share or the fair market value on the date of original grant (subject
to adjustments for any stock splits, combinations, etc.) and provisions of
vesting and forfeiture of any such options shall not be amended or modified.
6.15 Imperial Indebtedness. In no event shall Reorganized Prism
---------------------
allow the aggregate principal amount of Imperial Indebtedness to exceed the
amount outstanding as of the date hereof except as to accrued interest and for
costs and expenses incurred by Imperial Bank from the date hereof. Reorganized
Prism shall promptly provide and deliver to Ingram any and all notices received
from the holder(s) of the Imperial Indebtedness of any default or Event of
Default under the documents, instruments and agreements evidencing, securing or
otherwise relating to the Imperial Indebtedness or of the exercise of remedies
with respect to any collateral therefor.
6.16 Employee Matters. Reorganized Prism shall not amend or
----------------
modify the employment agreements with Collier, Lee and Craig Kelly attached as
exhibits to the Merger Agreement. Reorganized Prism shall not extinguish,
forgive or reduce (except for payment made) any debt owed to Reorganized Prism
from any employee.
6.17 Reservation of Shares. Reorganized Prism shall reserve a
---------------------
sufficient number of shares of its Common Stock issuable upon exercise of any
Additional Warrants.
6.18 Board Approval. Without the unanimous approval of the Board
--------------
of Directors of Reorganized Prism, Reorganized Prism shall not enter into any
line of business other than (i) the sale and rental of video product and related
goods and accessories, (ii) completion of the sole film Prism currently has
under way expected to be titled "When the Bough Breaks II," and (iii) the
exploitation of the Film Library.
16
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following, whatever the reason therefor, shall constitute an "Event of Default"
hereunder in addition to any event of default described in any other document
relating to other transactions between the parties thereto:
(a) Reorganized Prism shall fail to pay any installment of
principal or interest on the Note when due, or any other amount owing under this
Agreement, the Note or the other Debt Documents when due; provided, however,
-------- -------
Reorganized Prism shall be allowed two times in any 12 month period to pay an
installment of principal or interest due under the Note not more than five days
after the due date for such payment provided that the late charge imposed by
Section 2.2 is paid; or
(b) Reorganized Prism shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement or in any of the
Debt Documents on its part to be performed or observed, within 30 days after the
date the same was to have been performed or observed; provided, however, that if
-------- -------
the failure to perform is capable of being cured, but cannot reasonably be cured
within 30 days after the date the same was to have been performed or observed,
no Event of Default shall be deemed to have occurred if Reorganized Prism shall
have commenced to perform the same within 30 days after the date the same was to
have been performed or observed and shall diligently continue to complete the
performance or observance; or
(c) any representation or warranty in any of the Debt Documents
or in any certificate, agreement, instrument or other document made or delivered
pursuant to or in connection with any of the Debt Documents proves to have been
incorrect when made in any material respect; or
(d) Reorganized Prism (i) shall fail to pay the principal, or
any principal installment, of any present or future indebtedness for borrowed
money of $100,000 or more, or to fulfill its obligations under any guaranty of
present or future indebtedness for borrowed money of $100,000 or more, on its
part to be paid, when due (or within any stated grace period), whether at the
stated maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) shall fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed in connection with any present
or future indebtedness for borrowed money of $100,000 or more, or of any
guaranty of present or future indebtedness for borrowed money of $100,000 or
more, if as a result of such failure any holder or holders thereof (or an agent
or trustee on its or their behalf) has the right to declare such indebtedness
17
due before the date on which it otherwise would become due, or has commenced
judicial or nonjudicial action to collect such indebtedness or to foreclose or
otherwise realize upon security held therefor, or has taken or is taking such
other actions as might materially adversely affect the Collateral, the interests
of Ingram under the Debt Documents or the ability of Reorganized Prism to
perform its obligations under the Debt Documents; or
(e) Any Debt Document, at any time after its execution and delivery
and for any reason other than the agreement of Ingram or satisfaction in full of
all the obligations of Reorganized Prism thereunder, ceases to be in full force
and effect or is declared by a court of competent jurisdiction to be null and
void, invalid or unenforceable in any respect; or any Party thereto denies that
it has any or further liability or obligation under any Debt Document, or
purports to revoke, terminate or rescind same; or
(f) A final judgment against Reorganized Prism is entered for the
payment of money in excess of $250,000 and such judgment remains unsatisfied
without procurement of a stay of execution for 30 calendar days after the date
of entry of judgment; or
(g) All or a substantial portion of Reorganized Prism's property is
seized or appropriated by any Governmental Agency; or
(h) Reorganized Prism is dissolved or liquidated or all or
substantially all of the property of Reorganized Prism is sold or otherwise
transferred without Ingram's written consent; or
(i) Reorganized Prism is the subject of an order for relief by a
bankruptcy court that is not stayed within 30 days, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors; or Reorganized Prism applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any part of its property;
or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of Reorganized
Prism and the appointment continues undischarged or unstayed for 60 calendar
days; or Reorganized Prism institutes or consents to any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, custodianship,
conservatorship, liquidation, rehabilitation or similar proceedings relating to
it or to all or any part of its property under the Laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Reorganized Prism
and continues undismissed or unstayed for 60 calendar days; or any judgment,
writ, attachment, execution or similar process is issued or levied against all
or any part of the property of Reorganized Prism and is not released, vacated or
fully bonded within
18
30 calendar days after its issue or levy; or Reorganized Prism voluntarily
ceases to transact business for more than five consecutive days; or
(j) Reorganized Prism shall claim that any Debt Document is
ineffective or unenforceable, in whole or in part, for any reason.
ARTICLES 8
RIGHTS AND REMEDIES UPON DEFAULT
8.1 Remedies Generally. If an Event of Default shall occur,
------------------
Ingram may, at its option and without demand or notice to Reorganized Prism,
which notice is expressly waived, do any one or more of the following:
(a) accelerate and declare the principal of all amounts owing under
this Agreement, the Note and the other Debt Documents, including without
limitation all obligations secured by the Collateral Documents, together with
interest thereon, to be immediately due and payable, regardless of any other
specified maturity or due date, without presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or demands of any
kind or character, and without the necessity of prior recourse to any security;
(b) to the extent permitted by applicable Laws, proceed to protect,
exercise and enforce any or all of its rights and remedies under any or all of
the Debt Documents, including without limitation the right to notify any account
debtor of Ingram's security interest in all of Reorganized Prism's accounts and
effect collection of any account directly from such debtor, the right to take
possession of and protect, enforce and exercise its rights with respect to the
New Collateral, and such other rights and remedies as are provided by Law or
equity, all in such order and manner as Ingram in its sole discretion may
determine; and/or
(c) to the extent permitted by applicable Laws, exercise any and
all legal or equitable remedies afforded to Ingram as provided in any Collateral
Documents heretofore or hereafter entered into between Ingram, Reorganized
Prism, or as provided for under the Uniform Commercial Code, or under any other
applicable law.
8.2 Cumulative Remedies. The rights and remedies granted to
-------------------
Ingram are cumulative, and Ingram shall have the right to exercise any one or
more of such rights and remedies alternatively, successively or concurrently as
Ingram may, in its sole discretion, deem advisable.
19
ARTICLE 9
CONDITIONS PRECEDENT TO INGRAM'S OBLIGATIONS
The obligations of Ingram to consummate the transactions contemplated
herein on the Closing Date shall be subject to the performance by Reorganized
Prism of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Ingram's satisfaction, on or before the Closing Date, of each of the following
conditions, unless waived by Ingram, in its sole discretion, in writing:
(a) Delivery to Ingram of an executed original of this
Agreement, of each of the following documents and of each of the exhibits,
documents, and ancillary agreements contemplated therein:
(i) the Note;
(ii) the New Security Agreement;
(iii) the Copyright Mortgages;
(iv) the Escrow and Warrant Agreement;
(v) the Additional Warrants;
(vi) the Lock-Up Agreement;
(vii) the Supply Agreement;
(viii) the Stockholders Agreement;
(ix) the Registration Rights Agreement;
(x) UCC-1 financing statements covering the New
Collateral;
(xi) any other filings deemed necessary by Ingram to
perfect its lien and security interest in the Film Library and Film
Library Accounts Receivable;
(xii) opinion of counsel to Prism as to matters, and in
such form, as reasonably requested by Ingram;
20
(xiii) evidence satisfactory to Ingram as to insurance
coverage;
(xiv) incumbency certificate as to the officers of
Reorganized Prism;
(xv) certified copy of the Certificate of Incorporation
and Bylaws of Reorganized Prism and resolutions of Reorganized Prism,
good standing certificates of Reorganized Prism, authorizing the
transactions contemplated herein;
(xvi) any other instruments or documents reasonably
requested by Ingram in connection with the transactions contemplated
hereby.
(b) The representations and warranties of VCI and Prism
contained in Sections 5.1 and 5.2 and in the Merger Agreement shall be true
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on the Closing Date.
(c) All corporate and other proceedings, including adoption by
the Board of Directors of Prism and VCI of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Prism and VCI of the covenants hereunder, and all actions
required to be taken in connection with the transactions contemplated
herein, and all documents incident thereto, shall be satisfactory in form
and substance to Ingram and its counsel and Ingram shall have received
certified copies of the same.
(d) All legal matters with respect to and all legal documents
executed in connection with the transactions contemplated by this Agreement
and the other Debt Documents shall be reasonably satisfactory to counsel
for Ingram.
(e) The entry of an order or orders of the Bankruptcy Court
confirming the Plan on terms reasonably acceptable to Ingram.
(f) The effectiveness of the Merger, pursuant to a Merger
Agreement in form and substance satisfactory to Ingram.
(g) No provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of
the transactions contemplated herein.
21
(h) Immediately after the Closing, the Board of Directors of
Reorganized Prism shall consist of eight members, two of which shall be
designees of Ingram.
(i) Ingram shall have received satisfactory evidence that,
upon execution of the Debt Documents, Reorganized Prism will be the owner
of the New Collateral and that Ingram has a second priority lien (subject
only to the first lien of Imperial Bank) on the Film Library and the Film
Library Accounts Receivable and a first priority lien as to all other
collateral.
(j) Ingram shall have been given a full and complete
opportunity to review the books, records, and operations of Prism and to
review the collateral security that will be the subject of the Collateral
Documents and shall be satisfied, in its reasonable discretion, with such
review and investigation.
ARTICLE 10
CONDITIONS PRECEDENT TO PRISM'S AND VCI'S OBLIGATIONS
The obligations of Prism and VCI to consummate the transactions
contemplated herein on the Closing Date shall be subject to the performance by
Ingram of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Prism's and VCI's satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived by Prism and VCI, in their sole discretion,
in writing:
(a) Delivery by Ingram of an executed original of this
Agreement and of each of the following documents and of each of the
exhibits, documents and ancillary agreements contemplated therein:
(i) the Stockholders Agreement;
(ii) UCC-2 Termination Statements with respect to
the Old Collateral; and
(iii) the Guaranty Release.
(b) Delivery and reassignment by Ingram to Lee of the Pledged
Shares and to VCI of the Pledged Note.
22
(c) The representations and warranties of Ingram contained in
Section 5.3 shall be true on and as of the Closing Date with the same
effect as though such representations and warranties had been made on the
Closing Date.
(d) All corporate and other proceedings, including adoption by
the Board of Directors of Ingram of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Ingram of the covenants hereunder, and all actions required
to be taken in connection with the transactions contemplated herein, and
all documents incident thereto, shall be satisfactory in form and substance
to Reorganized Prism and its counsel and Ingram shall have delivered
certified copies of the same to Reorganized Prism.
(e) All legal matters with respect to and all legal documents
executed in connection with the transactions contemplated by this Agreement
and the other Debt Documents shall be reasonably satisfactory to counsel
for Reorganized Prism.
(f) The entry of an order or orders of the Bankruptcy Court
confirming the Plan.
(g) The effectiveness of the Merger.
(h) No provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of
the transactions contemplated herein.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and shall be given to such party at its
address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
23
if to Prism, to:
Prism Entertainment Corporation
1888 Century Park East, Suite 350
Los Angeles, California 90067
Attention: Barry L. Collier
Telecopy: (310) 203-8036
with a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard, Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Telecopy: (213) 688-3460
if to VCI:
(prior to the Effective Time)
Lee Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robbie Lee
Telecopy: (805) 397-7955
with a copy to:
Troy & Gould
1801 Century Park East, 16th Fl.
Los Angeles, California 90067
Attention: William J. Feis, Esq.
Telecopy: (310) 201-4746
if to Ingram:
Ingram Entertainment, Inc.
Two Ingram Boulevard
La Vergne, Tennessee 37089
Attention: John Fletcher, Esq., General Counsel
Telecopy: (615) 287-4465
24
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answer back is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
11.2 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by each party hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11.3 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
11.4 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of California, without
giving effect to the conflict of laws principles thereof.
11.5 Counterparts; Effectiveness. This Agreement may be signed
---------------------------
in any number of counterparts, each of which shall be an original and all of
which shall be deemed to be one and the same instrument, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
11.6 Entire Agreement. This Agreement (and all attached Exhibits
----------------
and Schedules, which are hereby incorporated herein) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation, the Letter of Intent dated September
16, 1996 the Workout Agreement, the Stock Pledge Agreement, the Note Pledge
Agreement, the prior Supply Agreement, the Old Warrants and the Old Security
Agreements. No representation, inducement, promise, understanding, condition or
warranty not set forth herein, or in the Merger Agreement,
25
or in any other Debt Document has been made or relied upon by any party hereto.
Neither this Agreement nor any provision hereof is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
11.7 Severability. If any one or more provisions of this
------------
Agreement shall, for any reasons, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
11.8 Captions and Section References. The captions herein are
-------------------------------
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. All references to "Sections" without
further citation refer to sections of this Agreement.
11.9 Interpretation. Where the context or construction requires,
--------------
all words applied in the plural shall be deemed to have been used in the
singular, and vice versa; the masculine shall include the feminine and neuter,
and vice versa; and the present tense shall include the past and future tense,
and vice versa.
11.10 Attorneys' Fees. In the event of any litigation or
---------------
legal proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith. Reorganized
Prism shall pay the attorneys' fees (up to $15,000) and expenses for Ingram's
outside counsel in connection with this Agreement and the other Debt Documents.
11.11 No Third-Party Rights. Nothing in this Agreement,
---------------------
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any Persons other than the parties to it and
their respective successors and assigns, nor is anything in this Agreement
intended to relieve or
discharge the obligation or liability of any third Persons to any party to this
Agreement, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
Lee Video City, Inc., a
California corporation
By
-------------------------------------
Its
----------------------------------
---------------------------------------
Xxxxxx X. Xxx
Prism Entertainment Corporation, a
Delaware corporation
By
-------------------------------------
Its
----------------------------------
Xxxxxx Entertainment Inc., a
Tennessee corporation
By
-------------------------------------
Its
----------------------------------
27
SCHEDULE A
All present and future right, title and interest of Reorganized Prism
in or to any property or assets whatsoever, and all rights and powers of
Reorganized Prism to transfer any interest in or to any property or assets
whatsoever, including, without limitation, any and all of the following
---------
property, whether in existence, owned or held, or hereafter acquired, entered
into, created or arising, and wherever located:
(a) The Film Library;
(b) The Film Library Accounts Receivable and all other
accounts receivable, including, all present and future accounts,
accounts receivable, agreements, contracts, leases, contract rights,
rights to payment, instruments, documents, chattel paper, security
agreements, guaranties, undertakings, surety bonds, insurance
policies, notes and drafts, and all forms of obligations owing to
Reorganized Prism or in which Reorganized Prism may have any interest,
however created or arising;
(c) All present and future accounts, accounts receivable,
contract rights, chattel paper, instruments, general intangibles, all
tax refunds of every kind and nature to which Reorganized Prism now or
hereafter may become entitled, however arising, all other refunds, and
all deposits, goodwill, choses in action, trade secrets, computer
programs, software, customer lists, trademarks, trade names, patents,
licenses, copyrights, technology, processes, proprietary information
and insurance proceeds;
(d) All present and future deposit accounts of
Reorganized Prism, including, without limitation, any demand, time,
---------
savings, passbook or like account maintained by Reorganized Prism with
any bank, savings and loan association, credit union or like
organization, and all money, cash and cash equivalents of Reorganized
Prism, whether or not deposited in any such deposit account;
(e) All present and future books and records, including
---------
without limitation, books of account and ledgers of every kind and
nature, all electronically recorded data relating to Reorganized Prism
or the business thereof, all receptacles and containers for such
records, and all files and correspondence;
(f) All present and future goods, including, without
---------
limitation, all consumer goods, farm products, inventory, equipment,
28
machinery, tools, molds, dies, furniture, furnishings, fixtures, trade
fixtures, motor vehicles and all other goods used in connection with
or in the conduct of Reorganized Prism's business, including without
---------
limitation, all goods as defined in the Uniform Commercial Code;
(g) All present and future inventory and merchandise
including, without limitation, all present and future goods held for
---------
sale or lease or to be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing materials,
supplies and containers relating to or used in connection with any of
the foregoing, and all bills of lading, warehouse receipts or
documents of title relating to any of the foregoing;
(h) All present and future accessions, appurtenances,
components, repairs, repair parts, spare parts, replacements,
substitutions, additions, issue and/or improvements to or of or with
respect to any of the foregoing;
(i) All other tangible and intangible property of
Reorganized Prism;
(j) All rights, remedies, powers and/or privileges of
Reorganized Prism with respect to any of the foregoing; and
(k) Any and all proceeds and products of any of the
foregoing, including, without limitation, all money, accounts, general
---------
intangibles, deposit accounts, documents, instruments, chattel paper,
goods, insurance proceeds, and any other tangible or intangible
property received upon the sale or disposition of any of the
foregoing;
provided that the term "New Collateral" shall not include the interest of
-----------------
Reorganized Prism in real property or real property leases ("real property" for
the purposes hereof having the same meaning as such term is used in California
Code of Civil Procedure Section 726).
29
EXHIBIT E
SCHEDULE 4.23 "INSURANCE"
-------------------------
SCHEDULE 4.23
INSURANCE
AMOUNT OF POLICY PREMIUM PAID
INSURANCE COVERAGE CARRIER/AGENT NAME COVERAGE EXPIRATION DATE THROUGH DATE
-----------------------------------------------------------------------------------------------------------------------------------
Worker's Compensation National Fire Insurance Co. / Vansa Insurance Services
- Xxx Xxxxxx $1,000,000 04/10/97 04/10/97
General Liability Transcontinental Insurance / Vansa Insurance Services
- Xxx Xxxxxx $2,000,000 04/10/97 04/10/97
Fire and Extended Insurance / Vansa Insurance Services
Coverage - Xxx Xxxxxx $2,000,000 04/10/97 04/10/97
Business - Personal Transcontinental Casualty / Vansa Insurance Services
Property - Xxx Xxxxxx $1,100,000 04/10/97 04/10/97
Theft Transcontinental Casualty / Vansa Insurance Services
- Xxx Xxxxxx $1,100,000 04/10/97 04/10/97
Vehicle American Casualty Co. / Vansa Insurance Services
- Xxx Xxxxxx $1,000,000 04/10/97 04/10/97
Umbrella Liability General Star National Ins. / Vansa Insurance Services
- Xxx Xxxxxx $4,000,000 04/10/97 04/10/97
Distributors Errors American Casualty Co. / Vansa Insurance Services
and Omissions (1) - Xxx Xxxxxx $3,000,000 01/01/97 Monthly
Accidental Death & Federal Insurance Co. / Vansa Insurance Services
Dismemberment - Xxx Xxxxxx $1,500,000 06/07/97 06/07/97
Directors and National Union Fire Insurance Co. / Vansa Insurance
Offiers Services - Xxx Xxxxxx $1,500,000 12/29/96 Monthly
Liability (2)
(1) This policy has been renewed through 01/01/00.
(2) This policy has been renewed through 01/29/97.
There are no pending claims under any of the above policies.
