STOCKHOLDERS AGREEMENT
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This Stockholders Agreement ("Agreement") is made and entered into as of
January 8, 1997, by and among Video City, Inc., a Delaware corporation (formerly
Prism Entertainment Corporation) (the "Company"), Xxxxxx X. Xxx ("Xxx"), an
individual and a resident of California, on behalf of himself and as Trustee of
the Xxxxxx X. Xxx Revocable Living Trust UDT 1/9/91 (the "Trust"), Xxxxx Xxxxxxx
("Xxxxxxx"), an individual and a resident of California, and Xxxxxx
Entertainment Inc., a Tennessee corporation ("Xxxxxx") (such parties other than
the Company being collectively referred to herein as the "Stockholders," as
further defined in Article I) with respect to the following facts:
RECITALS
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A. VCI and the Company have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Agreement and Plan of Reorganization and Merger, dated December 20,
1996, and that certain Second Amended Agreement and Plan of Reorganization and
Merger, dated December 24, 1996, with respect to the merger (the "Merger") of
VCI into the Company.
B. As a result of the Merger, each of the Stockholders will own the
following number of issued and outstanding "Shares" (as further defined in
Article I) of Common Stock of the Company:
Stockholder Number of Shares
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Xxxxxxx 818,050
Xxx and the Trust 2,719,024
Xxxxxx 1,500,000
C. In order to provide for the stability of the Company and to promote the
continuity of its management and policies, the Company and the Stockholders
desire to, among other things, restrict the manner and means by which the Shares
may be sold, assigned or otherwise transferred.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom and of the mutual agreements hereinafter set forth, the parties hereto
hereby agree as follows:
ARTICLE I
Definitions
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Affiliate. An "Affiliate" of a Person shall mean (i) a Person
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directly or indirectly Controlling, Controlled by or under common Control with
such Person; (ii) a Person owning or Controlling 10% or more of the outstanding
voting securities of such Person; or (iii) an officer, director, or partner, or
member of the immediate family of an officer, director, or partner, of such
Person. When the Affiliate is an officer, director, or partner or member of the
immediate family of an officer, director, or partner, of such Person, any other
Person for which the Affiliate acts in that capacity shall also be considered an
Affiliate.
Agreement. The "Agreement" shall mean this Stockholders Agreement, as
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it may be amended from time to time hereafter.
Bona Fide Offer. A "Bona Fide Offer" shall mean an offer in writing
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to a Stockholder, offering to purchase all or any part of the Shares owned by
such Stockholder or any interest of the Stockholder therein, and setting forth
all the relevant terms and conditions of the proposed purchase, from an offeror
who is ready, willing and able to consummate the purchase and who is neither the
Company nor an Affiliate of such Stockholder; provided, however, that a Bona
Fide Offer shall not include (a) the sale of Shares sold in a brokers'
transaction ("Brokers' Transaction") as such term is contemplated by Section
4(4) of the Securities Act of 1933, as amended, or to an underwriter pursuant to
an effective registration statement (an "Underwriter Transaction"); (b) the
surrender for cancellation of up to 250,000 shares as referred to in Section
8.2(g) of the Merger Agreement (a "Section 8.2(g) Surrender"); and (c) up to
410,444 shares to be delivered to Xxxxxx by Xxx pursuant to the exercise of
warrants in favor of Xxxxxx (an "Xxxxxx Warrant Exercise").
Common Stock. "Common Stock" shall mean the common stock of the
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Company.
Control. "Control" of a Person shall mean the possession, direct or
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indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
Person. A "Person" shall mean any entity, corporation, company,
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association, joint venture, joint stock company, partnership, trust,
organization, individual (including personal representatives, executors and
heirs of a deceased individual), nation, state, government (including agencies,
departments, bureaus, boards, divisions and instrumentalities thereof), trustee,
receiver or liquidator.
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Stockholder. A "Stockholder" shall mean each of the persons specified
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in the first paragraph of this Agreement and each other Person who succeeds to
the interest of such named Person in and to any Shares in a manner permitted by
the provisions of this Agreement.
Shares. The "Shares" shall mean the shares of the Common Stock
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specified in Recital B above (exclusive of 208,050 shares owed by Xxxxxxx or an
affiliate of Xxxxxxx based on his pre-Merger interest in Prism Entertainment
Corporation (the "Old Xxxxxxx Shares")), together with any other shares of the
capital stock of the Company hereafter acquired by any Stockholder and any other
shares or securities thereafter issued in respect of such shares in any
reorganization, recapitalization, reclassification, stock dividend, readjustment
or other change in a capital structure of the Company.
Transfer. A "Transfer" of Shares or any interest of a Stockholder
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therein shall mean any sale (other than pursuant to a Brokers' Transaction, an
Underwriter Transaction, a Section 8.2(g) Surrender, or an Xxxxxx Warrant
Exercise), assignment, transfer, disposition, pledge, hypothecation or
encumbrance, whether direct or indirect, voluntary, involuntary or by operation
of law, and whether or not for value, of such Shares or such interest of a
Stockholder therein; except, the term Transfer shall not include (a) any pledge
of Common Stock made by a Stockholder pursuant to a bona fide loan transaction
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which creates a mere security interest, (b) any transfer of Common Stock to the
Company pursuant to a written agreement between the Company and a Stockholder
providing for the right of the Company to repurchase shares of its Common Stock,
(c) any transfer to a Stockholder's ancestors or descendants or spouse or to a
trustee for their benefit, (d) any bona fide gift of Common Stock or (e) any
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transfer by Xxxxxx to an Xxxxxx Affiliate; provided, that (i) the transferring
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Stockholder shall inform the other Stockholders of such pledge, transfer or gift
prior to effecting it and (ii) the pledgee, transferee or donee shall furnish
the other Stockholders and the Company with a written agreement to be bound by
and comply with all provisions of this Agreement applicable to the transferring
Stockholder. In each of the foregoing cases (a) through (e), such Transferred
Shares shall remain Shares subject to this Agreement and the permitted
transferees shall be treated as "Stockholders" for purposes of this Agreement.
ARTICLE II
Restriction on Transfer of Shares
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No Shares and no interest of a Stockholder in any Shares may be
Transferred except in accordance with the terms of this Agreement. Any such
attempted Transfer in violation of this Agreement shall be null and void ab
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initio, and
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neither the Company nor any transfer agent of the Company shall give effect to
any such attempted Transfer in its stock records or for any other purpose
whatsoever.
ARTICLE III
Right of First Refusal of Xxx and Xxxxxxx
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3.1 Option to Purchase Shares. In the event Xxxxxx proposes to
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Transfer all or any part of its Shares or any interest therein ("Offered
Shares"), the following provisions shall apply:
3.1.1 Stockholder Sale Notice. In the event that Xxxxxx
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negotiates a Bona Fide Offer, Xxxxxx shall give to the other Stockholders a
written notice (the "Stockholder Sale Notice") setting forth as to each Person
to whom the sale is proposed to be made: (a) the name and address of that Person
and, if that Person is a corporation or other entity, the owners of 10% or more
thereof; (b) the number of Offered Shares proposed to be sold to that Person;
(c) the manner in which the sale is proposed to be made; and (d) the price at
which and the material terms upon which the sale is proposed to be made.
3.1.2 Purchase Option - Other Stockholders. If the
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conditions prescribed in Section 3.1.1 hereof have been met in connection with
the proposed sale of the Offered Shares by Xxxxxx, the remaining Stockholders,
pro rata in accordance with their respective ownership interests in the total
number of Shares owned by such Stockholders (as of the day immediately preceding
the receipt of the Stockholder Sale Notice) shall then have a purchase option
(the "Purchase Option"), for a period of ten (10) calendar days thereafter, to
elect to purchase all, or any part, of the Offered Shares at a purchase price
that is equal to 120% of the purchase price and otherwise substantially upon the
terms specified in the Stockholder Sale Notice. If all remaining Stockholders
do not exercise their Purchase Option as to the entire part of the Offered
Shares to which they are entitled, then the Stockholder electing to purchase
shall have the right to elect to purchase the remaining part of the Offered
Shares available for purchase. If the Stockholders so exercising their Purchase
Option shall, within the ten (10) calendar day period, deliver to Xxxxxx an
exercise notice (the "Exercise Notice") so informing Xxxxxx, then, at the time
the Exercise Notice is received by Xxxxxx a binding agreement shall arise
between Xxxxxx and the electing Stockholders concerning the sale of such Shares
in accordance with this Article.
Notwithstanding the foregoing, however, if the remaining Stockholders
do not elect to purchase all of the Offered Shares subject to the right of first
refusal pursuant to this Article III, Xxxxxx may sell or dispose of all of the
Offered Shares to the Person described in the Stockholder Sale Notice and upon
the terms set forth in the Stockholder Sale Notice, which Shares shall be free
from any claim or restriction
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under this Agreement. Any such sale of the Offered Shares must be effected
within thirty (30) calendar days after the termination of the Stockholders'
Purchase Option. If no such sale is effected within said thirty (30) calendar
day period, or if the identity of the proposed purchaser or the terms of the
Bona Fide Offer change materially from those specified in the Stockholder Sale
Notice, or if a sale of the Offered Shares is effected upon terms materially
different from those set forth in the Stockholder Sale Notice, the Offered
Shares shall once again be subject to the provisions of this Article III.
3.2 Closing of Purchase Option. The closing of any purchase of
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the Offered Shares pursuant to the Purchase Option shall take place at the
principal offices of the Company on the 10th calendar day following the delivery
of the last Exercise Notice. At the closing, Xxxxxx shall deliver to the
Stockholders certificates representing the Offered Shares, duly endorsed for
transfer or accompanied by duly executed stock powers, and the purchasing
Stockholders shall deliver to Xxxxxx the purchase price to be paid as herein
provided.
ARTICLE IV
Co-Sale Rights of Xxxxxx
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4.1 Notice of Purchase Offers. Should any Stockholder other
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than Xxxxxx propose to accept a Bona Fide Offer from any Person to purchase
Shares owned by such Stockholder (exclusive of any of the Old Xxxxxxx Shares),
then such Stockholder (the "Selling Stockholder"), shall promptly give written
notice to Xxxxxx of the terms and conditions of such Bona Fide Offer.
4.2 Right to Participate. Xxxxxx shall have the right,
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exercisable upon written notice to the Selling Stockholder within ten (10)
calendar days after receipt of the notice of the Bona Fide Offer, to participate
in the Selling Stockholder's sale of Shares on the same terms and conditions
contained in the Bona Fide Offer. To the extent Xxxxxx exercises such right of
participation, the number of Shares which the Selling Stockholder may sell
pursuant to this Article shall be correspondingly reduced. The right of
participation of Xxxxxx shall be subject to the following terms and conditions:
(a) Xxxxxx may sell all or any part of that number of
Shares equal to (as of the day immediately preceding the receipt of the written
notice described above) the aggregate number of Shares covered by the Bona Fide
Offer multiplied by that fraction, the numerator of which is the total number of
Shares owned by Xxxxxx on a fully-diluted basis (including any Shares issuable
in connection with the exercise of any option, warrant or similar right), and
the denominator of which is all of such Xxxxxx Shares plus the total number of
Shares owned by the
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Selling Stockholder on a fully-diluted basis (including any Shares issuable in
connection with the exercise of any option, warrant or similar right).
(b) Xxxxxx may participate in the sale by delivering to
the Selling Stockholder for transfer to the purchase offeror one or more
certificates, properly endorsed for transfer, which represent the number of
Shares which Xxxxxx elects to sell pursuant to this Section 4.2.
4.3 Consummation of Sale. The stock certificate or certificates
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which Xxxxxx delivers to the Selling Stockholder pursuant to Section 4.2 shall
be delivered by the Selling Stockholder to the purchase offeror in consummation
of the sale of the Shares pursuant to the terms and conditions specified in the
written notice to Xxxxxx, and the Selling Stockholder shall cause the purchase
offeror to pay to Xxxxxx that portion of the sale proceeds to which Xxxxxx is
entitled by reason of its participation in such sale.
4.4 Ongoing Rights. The exercise or non-exercise of the rights
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of Xxxxxx hereunder to participate in one or more sales of Shares made by a
Selling Stockholder shall not adversely affect its right to participate in
subsequent sales of Shares by a Selling Stockholder pursuant to Section 4.1
hereof.
ARTICLE V
Preemptive Rights of Xxxxxx
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In the event of the issuance, sale or distribution for cash by the
Company of any voting or other security of the Company or security convertible
into or exercisable for such security commenced or declared subsequent to the
date hereof, other than Shares or rights to Shares issued pursuant to an
employee benefit plan or otherwise for property (other than cash equivalents or
evidences of indebtedness) or services, Xxxxxx shall be entitled to participate
in such issuance, sale or distribution on a pro rata basis in respect of the
Shares owned by Xxxxxx so that following such issuance, sale or distribution
Xxxxxx will, if it has elected to purchase the new securities to be issued, sold
or distributed, have the same percentage of the equity ownership of the Company
as Xxxxxx had by reason of its ownership of Shares prior to such issuance, sale
or distribution.
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ARTICLE VI
Board of Directors
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During the term of this Agreement, each Stockholder shall use its or his
best efforts to cause the number of directors of the Company to be eight and
shall vote, or cause to be voted, at each election of members of the Board of
Directors of the Company, all of his or its Shares in favor of two designees of
Xxxxxx, four designees of Xxx and two designees of Xxxxxxx. Notwithstanding the
foregoing, Xxxxxx shall have no right to so designate a member of the Board of
Directors upon and after Xxxxxx'x beneficial ownership interest (assuming, for
purposes of this calculation, the exercise or conversion of all options,
warrants, rights, or convertible securities held by Xxxxxx) in the Company
Common Stock (together with that of any Affiliate of Xxxxxx) is 4% or less of
the outstanding Common Stock. Additionally, subject to the exercise of their
fiduciary duties, Xxx and Xxxxxxx shall use their best efforts to appoint a
designee of Xxxxxx to the Compensation Committee of the Company.
ARTICLE VII
Amendment of Employment Agreements
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Except for that certain Amendment to Agreement and Plan of Reorganization
and Merger, dated as of December 20, 1996, neither Xxxxxxx nor Xxx nor the
Company shall enter into any amendment, modification or waiver of their
Employment Agreements with the Company nor shall the Company extinguish, forgive
or reduce (except for payment made) any debt owed to the Company from any
employee without the prior written consent of Xxxxxx.
ARTICLE VIII
Termination of Agreement
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This Agreement shall terminate, and the certificates representing the
Shares shall be released from the terms of this Agreement upon the first to
occur of the following events:
8.1 By Agreement. The written agreement of the Company and all of
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the Stockholders bound by the terms of this Agreement;
8.2 One Stockholder. At such time as there is only one remaining
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Stockholder of the Company;
8.3 Liquidation. The liquidation and dissolution of the Company; or
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8.4 Xxxxxx'x Ownership Interest in the Company. Xxxxxx'x beneficial
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ownership interest (assuming, for purposes of this calculation, the exercise or
conversion of all options, rights, warrants or convertible securities held by
Xxxxxx or an Affiliate) in the Company's Common Stock is 4% or less.
Upon the termination of this Agreement for any of the above reasons,
the certificates of stock held by each Stockholder shall be surrendered to the
Company, and the Company shall issue new certificates for the same number of
Shares but without the legend required by this Agreement.
ARTICLE IX
Legend On Share Certificates
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Each of the certificates representing the Shares shall bear the
following legend:
"None of the Shares represented by this certificate may be sold,
assigned, transferred, pledged, hypothecated or in any other way
disposed of or encumbered, voluntarily or involuntarily, by gift,
bankruptcy, operation of law, winding up of a corporation or
otherwise, except in accordance with the provisions of a Stockholders
Agreement, dated January 8, 1997, which is also a voting agreement, a
copy of which may be inspected at the principal office of this
Company. All of the provisions of such Stockholders' Agreement are
incorporated herein by this reference."
A copy of this Agreement shall be delivered to the Secretary of the Company and
shall be shown by him to any person making inquiry concerning it.
ARTICLE X
General Provisions
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10.1 Waiver. No waiver of any provision of this Agreement in any
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instance shall be or for any purpose be deemed to be a waiver of the right of
any party hereto to enforce strict compliance with the provisions hereof in any
subsequent instance.
10.2 Agreement to Perform Necessary Acts. Each party hereto and
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the heirs, executors or administrators of the Stockholders shall perform any
further acts
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and execute and deliver any documents or procure any court orders which may
reasonably be necessary to carry out the provisions of this Agreement.
10.3 Litigation and Attorneys' Fees. In the event of any
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litigation between the parties hereto to enforce any provision or right
hereunder, the unsuccessful party to such litigation shall pay to the prevailing
party therein all costs and expenses actually incurred therein, including, but
not limited to, reasonable attorneys' fees actually incurred and court costs.
10.4 Modification. This Agreement may not be modified or amended
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except by a writing signed by all of the Stockholders and by an officer duly
authorized to act on behalf of the Company. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Stockholders
shall cause the Board of Directors to meet within 30 days following such
amendment or modification or as soon thereafter as is practicable for the
purpose of adopting any amendment to the Certificate of Incorporation and By-
Laws of the Company that may be required as a result of such amendment or
modification to this Agreement, and, if required, proposing such amendments to
the Stockholders entitled to vote thereon.
10.5 Notices. All notices, requests and other communications
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hereunder shall be in writing and shall be deemed to have been given if
delivered by courier or other means of personal service, or if sent by telex or
telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, addressed to:
The Company:
Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telecopy No.: (000) 000-0000
With a copy to:
Loeb & Loeb LLP
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
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Xxxxxx:
Xxxxxx Entertainment Inc.
Xxx Xxxxxx Xxxxxxxxx
Xx Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq., General Counsel
Telecopy No.: (000) 000-0000
Xxx:
Xxxxxx X. Xxx
Xxx Video City, Inc.
0000 XxXxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
Xxxxxxx:
Xxxxx Xxxxxxx
0000 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
All notices, requests and other communications shall be deemed received on the
date of actual receipt as evidenced by written receipt, acknowledgement or other
evidence of actual receipt. Any party may change its address for notices by
notice to the other parties as provided in this Article.
10.6 Counterparts. This Agreement may be executed simultaneously
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in any number of counterparts, each of which shall be deemed an original of the
party or parties who executed such counterpart but all of which together shall
constitute one and the same instrument.
10.7 Severability. Each provision and part thereof of this
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Agreement is intended to be severable and if any term or all or part of any
provision hereof is held by judicial decision to be invalid, such invalidity
shall not affect the validity of the remainder of this Agreement.
10.8 Entire Agreement. This Agreement is intended by the parties
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hereto as a final expression of their agreement and understanding with respect
to the subject matter hereof and as a complete and exclusive statement of the
terms thereof and supersedes any and all prior and contemporaneous agreements
and understandings, written or oral, express or implied.
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10.9 Governing Law. This Agreement shall be construed and
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interpreted in accordance with the laws of the State of California.
10.10 Injunctive Relief. The parties acknowledge and agree that a
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violation of any of the terms of this Agreement will cause the parties
irreparable injury for which adequate remedy at law is not available.
Therefore, the parties agree that each party shall be entitled to an injunction,
restraining order or other equitable relief from any court of competent
jurisdiction, restraining any party from committing any violations of the
provisions of this Agreement.
10.11 Section Headings. The headings of the several sections of this
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Agreement are inserted solely for convenience of reference and are not a part of
and are not intended to govern, limit or aid in the construction of any term or
provision hereof.
10.12 Construction. When necessary, the masculine shall include the
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feminine or neuter and the singular shall include the plural and vice versa.
10.13 Binding Effect. Subject to the restrictions on Transfer
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contained herein, this Agreement shall be binding on and shall inure to the
benefit of, the parties
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hereto and their respective heirs, legal representatives, successors and
permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first hereinabove written.
THE COMPANY:
Video City, Inc., a
Delaware corporation
By: /s/ XXXXXX XXX
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Name: Xxxxxx Xxx
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Its: CEO
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STOCKHOLDERS:
Xxxxxx Entertainment Inc.,
a Tennessee corporation
By: /s/ XXXXXX X. XXXX
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Name: Xxxxxx X. Xxxx
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Its: Vice Chairman
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/s/ XXXXXX X. XXX
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Xxxxxx X. Xxx
/s/ XXXXXX X. XXX
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Xxxxxx X. Xxx, Trustee
of the Xxxxxx X. Xxx
Revocable Living Trust XXX
0/0/00
/x/ XXXXX XXXXXXX
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Xxxxx Xxxxxxx
00
