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Exhibit 3
ESCROW AND WARRANT AGREEMENT
This Escrow and Warrant Agreement (the "Agreement") is made and entered
into as of January 8, 1997 by and among Video City, Inc., a Delaware corporation
(formerly known as Prism Entertainment Corporation) (the "Company"); Xxxxxx X.
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 (collectively, with the
Trust, "Xxx" or "Grantor"); Xxxxxx Entertainment Inc., a Tennessee corporation
("Xxxxxx") and Xxxx & Xxxx LLP, a California limited liability partnership
("Escrow Agent") with reference to the following:
RECITALS
X. Xxx Video City, Inc. ("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 Amendment to Agreement and Plan of Reorganiza-
tion and Merger, dated December 20, 1996, and that certain Second Amendment to
Agreement and Plan of Reorganization and Merger, dated December 24, 1996, with
respect to the merger of VCI into the Company (the "Merger").
B. In connection with the Merger, the Grantor will be issued and own shares
of the Common Stock of the Company (the "Common Stock").
C. Pursuant to that certain Override Agreement dated as of November 19,
1996 (the "Override Agreement"), among the Company, VCI, Xxx and Xxxxxx, the
Grantor has agreed to grant to Xxxxxx a warrant to purchase the number of fully
paid and nonassessable shares ("Shares") of the Common Stock as hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom and the mutual agreements hereinafter set forth, the parties hereto
hereby agree as follows:
1. Deposit of Shares. Simultaneously with the consummation of the Merger,
the Company, on behalf of the Grantor, will deposit in escrow (the "Escrow")
with the Escrow Agent an aggregate of 404,403 Shares (the "Warrant Shares") of
Common Stock representing 8.5% of the aggregate number of shares of Common Stock
(net of 250,000 shares of Xxx that are subject to redemption pursuant to ss.
8.2(g) of the Merger Agreement) issued to the shareholders of VCI pursuant to
the Merger. Certificates representing the Warrant Shares shall be issued in the
names of the Grantor. Receipt of the Warrant Shares is hereby acknowledged by
the Escrow Agent. Escrow Agent shall hold the Warrant Shares as provided in this
Agreement. Xxxxxx, Xxx and the
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Grantor understand and agree that the Warrant Shares are "restricted securities"
as defined under Rule 144 of the Securities Act of 1933 as amended (the
"Securities Act") and the certificate(s) evidencing the Warrant Shares shall
bear a legend to the following effect:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
STATED SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
2. Grant of Warrant. Grantor hereby grants to Xxxxxx, subject to the terms
set forth below, a warrant (the "Warrant") to purchase the Warrant Shares from
the Grantor at any time and from time to time, in whole or in part, but not
before 12:01 a.m., Los Angeles, California time, on January 8, 1997 and not
after 5:00 p.m., Los Angeles, California time, on January 8, 2002, which date is
the expiration date of this Warrant (the "Expiration Date") at an exercise price
of $.6085 per share. This Warrant is being granted in substitution for, and in
cancellation of, a previous warrant which VCI had granted to Xxxxxx to purchase
8.5% of the aggregate fully diluted capital stock of VCI.
3. Number of Shares Issuable Upon Exercise of Warrant.
Upon exercise of this Warrant, the holder hereof shall receive, in addition
to the number of Warrant Shares which it is entitled to receive hereunder and to
the extent the following distributions are otherwise distributed to the Grantor,
such additional number of shares of capital stock or other securities or
property (other than cash) distributed by the Company from time to time after
the original date of this Agreement with respect to the Common Stock which the
holder of this Warrant would have received had the holder exercised the Warrant
immediately prior to distribution or issuance of any such shares, securities or
property by the Company with respect to the number of Warrant Shares. Grantor
shall deposit with the Escrow Agent upon receipt thereof all such additional
shares of capital stock or other securities or property.
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4. Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any capital reorganization or reclassification of the Common
Stock, or in case of any consolidation or merger of the Company with or into any
other corporation, or in case of any sale to another corporation of the
properties and assets of the Company as or substantially as an entirety, and,
with respect to all of the foregoing, to the extent the following right would
otherwise inure to the benefit of the Grantor, then, and in each such case, the
holder of this Warrant shall have the right to receive upon the exercise hereof,
at any time after the consummation of such reorganization, reclassification,
consolidation, merger or sale, the kind and amount of shares of stock or other
securities or property receivable upon such reorganization. reclassification,
consolidation, merger or sale by a holder of the number of shares issuable upon
exercise of this Warrant if such number of shares had been held by such holder
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of the holder of this
Warrant shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
receivable upon the exercise of this Warrant. The above provisions of this
Section 5 shall similarly apply to successive reclassifications and changes of
Common Stock and to successive consolidations, mergers, sales or conveyances.
Grantor shall deposit with the Escrow Agent upon receipt thereof all such
additional shares of capital stock or other securities or property.
5. Notice of Dividends, Subscriptions, Reclassifications, Consolidations,
Merger, Etc.
In case the Company shall pay any dividend or make any distribution
(including a cash dividend) to the holders of its Common Stock, or shall offer
for subscription to the holders of its Common Stock or any stock of any class of
the Company or any other securities, or in the case of any capital
reorganization or reclassification of the capital stock of the Company or a
consolidation or merger of the Company with another corporation, or the final
dissolution, liquidation or winding up of the Company, or a sale of all or
substantially all its assets (whether voluntary or involuntary), then in any one
or more of said cases, the Company shall mail (first class, postage prepaid) a
notice thereof to the holder of this Warrant at the address of said holder on
the records of the Company, at least ten days prior to the date on which the
books of the Company shall close (or a record shall be taken) for such dividend,
distribution or subscription rights, or such reorganization, reclassification,
consolidation, merger, dissolution, liquidation, winding up or sale shall take
place, as the case may be. Such notice shall also specify the date as of which
stockholders of record shall be entitled
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to participate in such dividend, distribution or subscription rights or to
exchange their Shares for other securities or property pursuant to such
reorganization, reclassification, consolidation or merger, or to receive their
respective distributive shares in the event of such dissolution, liquidation,
winding up or sale, as the case may be. Such notice shall also set forth a
statement of the effect of such action (to the extent then known), if any, on
the exercise price and on the kind and amount of shares of capital stock and
property receivable upon exercise of this Warrant.
6. Covenants of Grantor.
The Grantor covenants and agrees that he will at all times have deposited
in Escrow with the Escrow Agent the Warrant Shares, together with such duly
executed and endorsed stock powers and other instruments of assignment or
transfer relating thereto as the holder hereof may reasonably require to provide
for the exercise of the rights represented by this Warrant. Grantor will not
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant but will at all times in good faith carry out all such terms and take
all such action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant.
7. Warrant Holder Not Deemed a Stockholder.
No holder of this Warrant as such shall be entitled to vote or receive
dividends or be deemed the holder of the Warrant Shares for any purpose, nor
shall anything contained in this Warrant be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Warrant of the Warrant Shares which he is then entitled to
receive upon the due exercise of this Warrant.
8. Exercise of Warrant.
(a) Full Exercise. This Warrant may be exercised in accordance with Section
2 by the holder of this Warrant by delivering the form of subscription at the
end hereof duly executed by such holder, to the Escrow Agent at any time on or
prior to 5:00 p.m., Los Angeles, California time, on the Expiration Date, at the
principal office of the Escrow Agent accompanied by payment in cash or by
certified or official bank check, payable to the order of the Company, of the
sum called by Section 2. The Grantor agrees to notify the holder of this Warrant
as to any change in the address of the Escrow Agent's principal office.
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(b) Partial Exercise. This Warrant also may be exercised in part in the
manner specified in subsection (a) of this Section 8, except that the number of
shares of Common Stock or other securities or property receivable upon any
subsequent exercise of this Warrant as a whole shall be proportionately reduced.
(c) Delivery of Stock Certificates, Etc. As soon as practicable after any
exercise of this Warrant and payment of the sum payable upon such exercise, and
in any event within 10 days thereafter, the Escrow Agent at the Grantor's
expense (including the payment by it of any applicable issue taxes), will cause
to be issued in the name of and delivered to the holder hereof, a certificate or
certificates for the number of fully paid and non-assessable Warrant Shares or
other securities or property to which such holder shall be entitled upon such
exercise. No fractional shares will be issued hereunder to any holder hereof; if
the number of shares to be issued hereunder includes a fractional amount, such
amount shall be automatically rounded up to the next whole number, and the
resultant whole number of Warrant Shares shall be issued to the holder,
otherwise in accordance herewith.
9. Transfer of Warrants.
Subject to the provisions of Section 3 hereof, upon notice of assignment to
the Escrow Agent's principal office, the holder of this Warrant may transfer all
or part of its right to the Warrant.
10. Notices.
All communications hereunder shall be in writing and, if sent to Xxxxxx
Entertainment Inc., shall be mailed by registered or certified mail or delivered
or telegraphed and confirmed in writing to Two Xxxxxx Xxxxxxxxx, Xx Xxxxxx,
Xxxxxxxxx 00000, Attention: Chief Financial Officer, and if sent to the Grantor,
shall be mailed by registered or certified mail or delivered or telegraphed and
confirmed in writing to Xxxxxx X. Xxx, Xxx Video City, Inc., 0000 XxXxxxxx
Xxxxx, Xxxxx X, Xxxxxxxxxxx, Xxxxxxxxxx 00000, and if sent to the Escrow Agent,
addressed to the principal office of the Escrow Agent.
11. Provisions Regarding Escrow Agent. The following provisions shall
control with respect to the rights, duties and liabilities of the Escrow Agent:
(a) No Responsibility For Validating or Sufficiency. The Escrow Agent
shall have no duty to know or determine the performance or non-performance of
any provision of any agreement between the other parties hereto, including, but
not limited to, the Override Agreement, and the original or a copy of any
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such agreement deposited with the Escrow Agent shall not bind the Escrow Agent
in any manner. The Escrow Agent assumes no responsibility for the validity or
sufficiency of any documents or papers or payments deposited or called for
hereunder except as may be expressly and specifically set forth herein, and the
duties and responsibilities of the Escrow Agent hereunder are limited to those
expressly stated herein.
(b) Modification and Amendments. The provisions of this Agreement may be
supplemented, altered, amended modified or revoked only by a writing signed by
the Grantor and Xxxxxx and approved in writing by the Escrow Agent.
(c) Exculpation of Escrow Agent. The Escrow Agent shall not be personally
liable for any act it may do or omit to do hereunder as such agent while acting
in good faith and in the exercise of its own best judgment, and any act done or
omitted by it pursuant to the written advice of its own attorneys shall be
conclusive evidence of such good faith. The Escrow Agent shall have the right at
any time to consult with its counsel upon any question arising hereunder and
shall incur no liability for any delay reasonably required to obtain the advice
of counsel.
(d) Conflicting Notices. Other than those which are specifically referred
to in this Escrow Agreement, the Escrow Agent is hereby authorized to disregard
any and all notices or warnings given by the Grantor or Xxxxxx, or by any other
person, firm or corporation, except that the Escrow Agent is hereby expressly
authorized to comply with any and all final processes, orders, judgments or
decrees of any court. To the extent the Escrow Agent obeys or complies with any
process, order, judgment or decree of any court, it shall not be liable to any
other party hereto or to any other person, firm or corporation by reason of such
compliance.
(e) Fees and Expenses of Escrow Agent. In consideration of the acceptance
of this Escrow by the Escrow Agent (as evidenced by its signature below), the
Company shall, for itself and its successors and assigns, pay Escrow Agent its
reasonable charges, fees and expenses hereunder.
(f) Authority of Signing Parties. The Escrow Agent shall be under no duty
or obligation to ascertain the identity, authority or right of the Grantor,
Xxxxxx or the Company (or their agents) to execute or deliver this Agreement or
any documents, certificates, or payments deposited, delivered or given
hereunder.
(g) No Liability for Lapse of Rights. The Escrow Agent shall not be
liable for the lapse of any rights under any statute of limitations or by
reason of laches with respect to this Agreement or any funds, securities,
documents or papers deposited, delivered or given hereunder.
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(h) Duties in Event of Dispute. In the event of any dispute among the
parties hereto as to any fact or matter relating hereto or to the transactions
contemplated in the Override Agreement, the Escrow Agent is instructed that it
shall be under no obligation to act except under process or order of court, or
if there be no such process or order, until it has filed or caused to be filed
an appropriate action impleading the Grantor, Xxxxxx and the Company. The Escrow
Agent shall sustain no liability for its failure to act pending such process of
court, order or impleader action.
(i) Resignation. The Escrow Agent, or any successor Escrow Agent, may at
any time resign by giving notice in writing to the Grantor, the Company and
Xxxxxx and shall be discharged from its duties under this Escrow Agreement on
the first to occur of the appointment of a successor Escrow Agent as provided in
this Section, or the expiration of thirty (30) calendar days after such
resignation notice is given. In the event of any such resignation, a successor
Escrow Agent shall be appointed within thirty (30) days by the agreement of the
Grantor and Xxxxxx. Any successor Escrow Agent shall deliver to the Company, the
Grantor and Xxxxxx a written instrument accepting appointment under this
Agreement, and thereupon it shall succeed to all the rights and duties of the
Escrow Agent hereunder and shall be entitled to receive any funds, securities,
documents, instruments, certificates, checks, or agreements held by the
predecessor Escrow Agent.
(j) Replacement. At their option, the Grantor and Xxxxxx may terminate
the appointment of Escrow Agent hereunder and appoint another person as escrow
agent in its place. Upon any such appointment, the escrow agent so replaced
shall deliver to the successor escrow agent all of the Warrant Shares and such
other documents, certificates and agreements held by it hereunder and the
successor escrow agent shall assume all rights and duties of "Escrow Agent"
hereunder.
(k) Waiver of Right to Set-Off. Escrow Agent hereby waives the benefit
of, and any right to, any setoff or recoupment or any other claim it may have
now or hereafter have in or with respect to the Warrant Shares.
(l) Discharge. Escrow Agent, having delivered all of the funds,
securities, documents, instruments, checks, certificates or agreements pursuant
to the terms of this Agreement, shall be discharged from any further obligation
hereunder.
(m) Indemnity. In the event Escrow Agent becomes involved in litigation
in connection with this Escrow Agreement, or any transaction related in any way
hereto, the Company, the Grantor and Xxxxxx, jointly and severally, shall
indemnify and save the Escrow Agent harmless from all loss, cost, damage,
expense and attorneys' fees suffered or incurred by the Escrow Agent as a
result thereof, except for any loss,
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cost, damage, or expense resulting from the Escrow Agent's breach of this
Agreement or its willful misconduct or gross negligence.
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12. Return of Warrant Shares. The Escrow Agent shall return to the Grantor
or their designees all Warrant Shares remaining after the Expiration Date.
Dated: January 8, 1997
______________________________________________
Xxxxxx X. Xxx, individually
______________________________________________
Xxxxxx X. Xxx, Trustee of the Xxxxxx X. Xxx
Revocable Living Trust UDT 1/9/91
Escrow Agent
Loeb & Loeb LLP, a California limited liability
partnership
By:___________________________________________
Name:_________________________________________
Title:________________________________________
XXXXXX ENTERTAINMENT INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
VIDEO CITY, INC.
By:___________________________________________
Name:_________________________________________
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Title:________________________________________
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ASSIGNMENT
FOR VALUE RECEIVED [____________________________________] hereby sells,
assigns and transfers unto [______________________________________] the within
Warrant and does hereby irrevocably constitute and appoint
[_________________________________________], Attorney, to transfer the said
Warrant on the books of the within named corporation with full power of
substitution in the premises.
Dated: [_____________, ____]
[_____________________________]
Signature
NOTICE: The signature of this assignment must
correspond with the name as written upon the face of
the Certificate, in every particular, without
alteration or enlargement or any change whatever.
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SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THIS WARRANT
VIDEO CITY, INC.
To: [ESCROW AGENT]
The undersigned hereby exercises the right to purchase the shares of Common
Stock covered by this Warrant according to the conditions thereof and herewith
makes payment of the Exercise Price of such shares of Common Stock in full.
______________________________________
________
Signature
______________________________________
________
Address
______________________________________
________
Number of shares of Common Stock Being
Purchased
Dated: [_____________, ____]
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