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INSTRUMENT OF EVIDENCE OF INDEBTEDNESS
THIS INSTRUMENT OF EVIDENCE OF INDEBTEDNESS dated as of the 26th day of
August, 1996, is by and between West Coast Entertainment Corporation, a Delaware
corporation (the "Buyer"), and the entities named on SCHEDULE A attached hereto
(collectively, the "Seller"), in connection with the transactions contemplated
by that certain Asset Purchase Agreement dated as of August 23, 1996, by and
among the Buyer, the Seller and Xxxxxxx Xxxxxxx, Jr. (the "Purchase Agreement").
Capitalized terms used herein, and not otherwise defined herein, shall have the
respective meanings ascribed to them in the Purchase Agreement.
WHEREAS, the Buyer has acquired substantially all of the assets and
business of the Seller pursuant to the Purchase Agreement; and
WHEREAS, in partial consideration for such assets and business, the Buyer
has agreed to issue this Instrument, pursuant to which it will deliver to the
Seller cash or shares of its Common Stock, at the times and on the terms
described herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and the Seller hereby agree as follows:
1. Payment of Indebtedness.
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(a) Unless the Seller makes the election described in Section l(b)
below, in accordance with the terms thereof, the Buyer shall deliver to the
Seller, on the first anniversary date hereof, an unsecured promissory note of
the Buyer, in the principal amount of $840,000 (the "Note"). Amounts outstanding
under the Note shall bear interest at the rate of 2% per annum, noncompounded.
The Note shall mature on the fourth anniversary of the date hereof (but shall be
prepayable, without premium or penalty, at any time in the Buyer's sole
discretion), and shall provide for no payments (of principal or interest) during
the term thereof, but for payment of the entire principal amount due thereunder,
and accrued and unpaid interest thereon, at maturity.
(b) In lieu of delivery of the Note, as provided in Section l(a)
above, if the Seller so elects, the Buyer may deliver to the Seller on the first
anniversary date hereof, that number of shares of Common Stock, $.01 par value
per share, of the Buyer ("Common Stock") as is determined by dividing (x)
$840,000 by (y) the Market Value. The "Market Value" shall equal the average of
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the bid and asked prices per share of Buyer's Common Stock as reported on the
Nasdaq Stock Exchange for each of the fifteen trading days ending on the
business day preceding the date on which the Closing of the transaction
contemplated by the Purchase Agreement occurred. Such shares of Buyer Common
Stock shall be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC") . The
Seller shall make the election contemplated by this clause (b) only following
delivery to the Seller of a then current prospectus relating to shares of
Buyer's Common Stock, which prospectus is included in a then effective
Registration Statement (provided such prospectus may include supplements
thereto). Buyer may deliver any such prospectus at any time during the one-year
period following the date hereof. If, within 10 business days following delivery
of such a prospectus, the Seller notifies the Buyer that it has made such
election, such election shall be irrevocable unless the Buyer and the Seller
mutually agree otherwise.
(c) If the Seller has made the election contemplated by Section
l(b) above, and prior to the issuance of shares of Buyer Common Stock pursuant
to Section l(b) above, the Buyer shall:
(x) declare a dividend of Common Stock on its Common Stock,
(y) subdivide outstanding Common Stock into a larger number
of shares of Common Stock by reclassification, stock split or
otherwise, or
(z) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise,
then the number of shares of Buyer Common Stock issuable pursuant to Section
l(b) shall be adjusted proportionately so that thereafter the Seller shall be
entitled to receive the number of shares of Common Stock which the Seller would
have been entitled to receive after the happening of any of the events described
above had the shares to be issued been issued immediately prior to the happening
of such events. An adjustment made pursuant to this Section l(c) shall become
effective immediately after the record date in the case of a dividend and shall
become effective immediately after the effective date in the case of a
subdivision or combination.
(d) Amounts deliverable to the entities listed on SCHEDULE A
hereto shall be allocated among them in proportion to
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the percentages set forth opposite their respective names on SCHEDULE A.
2. RIGHT OF SET-OFF. The Buyer shall be permitted to set off, against the
cash or the number of shares deliverable to the Seller hereunder, amounts or
obligations owed by the Principal or the Seller to the Buyer pursuant to the
Purchase Agreement. In order to calculate the reduction in the number of shares
which may be issuable by the Buyer hereunder for this purpose, each share shall
be deemed to have a value equal to the Market Value.
3. ALLOCATION OF SHARES DELIVERABLE TO THE ASSETS. The Buyer and the
Seller hereby agree and acknowledge that the value of the consideration issuable
pursuant to this Instrument shall be allocated for tax purposes solely to
goodwill of the Sellers being acquired by the Buyer pursuant to the Purchase
Agreement, and not to any of the Sellers other Assets.
4. General.
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(a) SUCCESSORS AND ASSIQNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, except that the Buyer and the Seller may not assign their
respective rights and obligations hereunder without the prior written consent of
the other party. Any assignment in contravention of this provision shall be
void. The Seller may not transfer to any other person the right to receive cash
or shares of Buyer Common Stock hereunder without the prior consent of the
Buyer.
(b) NOTICES. Any notices or other communications required or
permitted hereunder shall be sufficiently given if delivered personally or sent
by federal express or other reputable nationwide overnight courier service,
registered or certified mail, postage prepaid, addressed as follows or to such
other address of which the parties may have given notice:
To the Seller: c/o Mr. Xxxxxxx Xxxxxxx, Jr.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to: Xxxxxx Xxxx, Esq.
000 Xxxx Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxxxxx 00000
To the Buyer: West Coast Entertainment Corporation
0000 Xxxxxx Xxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: President
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With a copy to: Xxxx and Xxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (1) on the date delivered, if delivered personally; (2) on the
business day following delivery to an overnight courier; (3) three business days
after being sent, if sent by registered or certified mail; or (4) on the date of
actual delivery, if sent by any other method.
(c) Arbitration.
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(i) Any dispute, controversy or claim between the parties
arising out of or relating to this Agreement, a breach hereof or the
transactions contemplated hereby, shall be settled by arbitration in accordance
with the provisions of this Section 4(c). Any arbitration pursuant to this
Section 4 (c) shall be conducted by a single arbitrator appointed by the
Philadelphia, Pennsylvania office of the American Arbitration Association upon
the request of any party. The arbitrator shall have a minimum of five years of
experience in the area of business relevant to the particular dispute. Each of
the two parties to the dispute shall be permitted to submit only one proposal to
the arbitrator, and the arbitrator shall be required to choose one of such two
proposals as the resolution of the dispute. The arbitrator may proceed to a
resolution notwithstanding the failure of a party to participate in the
proceedings. Each of the parties shall pay its own costs and expenses in
connection with any such arbitration, and the parties shall share equally in the
fees and expenses of the arbitrator.
(ii) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
(d) ENTIRE AGREEMENT; AMENDMENTS; ATTACHMENTS. The Buyer and the
Sellers may amend or modify this Agreement, in such manner as may be agreed
upon, only by a written instrument executed by the Buyer and the Seller.
(e) SECTION HEADINGS. The section headings contained in this
Instrument are for the convenience of the parties and in no way alter, modify,
amend, limit, or restrict the contractual obligations of the parties.
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(f) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(g) COUNTERPARTS. This Instrument and any amendment hereto may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which shall be one and the same document.
(h) GOVERNING LAW. This Instrument shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of Delaware.
(end of page)
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IN WITNESS WHEREOF, this Instrument has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Buyer.
WEST COAST ENTERTAINMENT CORPORATION
By /s/ Xxxxx X. Xxxxxxxx III
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Chairman
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
EACH OF THE ENTITIES IDENTIFIED ON
SCHEDULE A HERETO
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BY /s/ Xxxxxxx Xxxxxxx, Jr.
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Title President
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Schedule A
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Seller Names and Allocation of
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Amounts Deliverable Hereunder
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Entity Percentage
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J.J. Video Inc. - 16.8%
Film Festival
Picture Show Video -
Gardenside, Inc. 15.0%
Picture Show Video - 14.5%
Winchester, Inc.
Picture Show 35.8%
Video No. 4, Inc.
Picture Show 17.9%
Video, Inc.
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