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EXHIBIT 10.1
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STOCK PURCHASE AGREEMENT
BY AND AMONG
THE XXXXXX ENTERTAINMENT COMPANY,
XXXXXXX X. XXXXX, XXXXX X. XXXXXXX, XXX XXXXXXX
AND
THE XXXXXXX-XXXXX COMPANY
DATED AS OF APRIL 7, 1999
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TABLE OF CONTENTS
Page
SECTION I. AUTHORIZATION; SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING...........................1
1.1 Authorization of Securities.....................................................................1
1.2 Sale and Purchase of Series A Preferred Stock; Issuance of Warrants; Good Faith Deposit.........1
1.3 Closing.........................................................................................2
1.4 Delivery; Payment...............................................................................2
1.5 Registration Rights.............................................................................3
1.6 First Quarter Balance Sheet.....................................................................3
SECTION II. THE COMPANY'S REPRESENTATIONS AND WARRANTIES....................................................3
2.1 Organization and Qualification; Subsidiaries....................................................3
2.2 Articles of Incorporation and Bylaws............................................................4
2.3 Capitalization..................................................................................4
2.4 Authority Relative to the Transaction Agreements................................................5
2.5 Material Contracts; No Conflict; Required Filings and Consents..................................5
2.6 SEC Filings; Financial Statements...............................................................7
2.7 Absence of Certain Changes or Events............................................................8
2.8 Intellectual Property...........................................................................8
2.9 Tax Matters.....................................................................................9
2.10 Litigation.....................................................................................10
2.11 Brokers........................................................................................10
2.12 Shares Fully Paid, Etc.........................................................................10
2.13 Shares of Common Stock.........................................................................10
2.14 No Preemptive Rights...........................................................................10
2.15 Employee Benefit Plan..........................................................................10
2.16 Insurance......................................................................................10
2.17 Registration Rights............................................................................11
2.18 Fairness Opinion...............................................................................11
2.19 Investment Intent..............................................................................11
2.20 Location of Principal Office...................................................................12
2.21 Accredited Investor............................................................................12
SECTION III. REPRESENTATIONS OF THE INVESTORS. .............................................................12
A. Each investor represents for itself that:......................................................12
3.1 Investment Intent..............................................................................12
3.2 Location of Principal Office, Qualification, Etc...............................................13
3.3 Acts and Proceedings...........................................................................13
3.4 No Brokers or Finders..........................................................................13
3.5 Accredited Investor............................................................................13
3.6 Xxxxxxx Employment Agreement...................................................................14
3.7 Distribution Agreement.........................................................................14
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3.8 Shareholders Agreement.........................................................................14
X. Xxxxxxx-Xxxxx..................................................................................14
3.9 Organization and Qualification.................................................................14
3.10 KL Stock.......................................................................................14
3.11 Capitalization.................................................................................14
3.12 Material Contracts; No Conflict; Required Filings and Consents.................................14
3.13 SEC Filings; Financial Statements..............................................................16
3.14 Absence of Certain Changes or Events...........................................................17
3.15 Litigation.....................................................................................17
SECTION IV. CONDITIONS OF EACH INVESTOR'S OBLIGATION............................................................17
4.1 Representations and Warranties.................................................................17
4.2 Compliance with Agreement......................................................................17
4.3 Certificate of Officers........................................................................17
4.4 Board of Directors.............................................................................17
4.5 Legal Opinion..................................................................................18
4.6 Necessary Consents.............................................................................18
4.7 Certificate of Determination...................................................................18
4.8 Injunctions, Restraining Order or Adverse Litigation...........................................18
4.9 Warrant Agreement..............................................................................18
4.10 Company Registration Rights Agreement..........................................................18
SECTION V. CONDITIONS TO COMPANY'S OBLIGATIONS............................................................18
5.1 Representations and Warranties.................................................................18
5.2 Compliance with Agreement......................................................................18
5.3 Legal Opinion..................................................................................19
5.4 Necessary Consents.............................................................................19
5.5 Employment Agreement...........................................................................19
5.6 KL Registration Rights Agreement...............................................................19
5.7 All Shares of Series A Preferred Stock Purchased...............................................19
5.8 Injunctions, Restraining Order or Adverse Litigation...........................................19
5.9 NASDAQ Waiver of Any Shareholder Approval Requirements.........................................19
5.10 Distribution Agreement Term Sheet..............................................................19
SECTION VI. CERTAIN COVENANTS OF THE INVESTORS AND THE COMPANY...................................................19
6.1 Right of First Refusal.........................................................................19
6.2 Exclusive Dealing..............................................................................20
6.3 Conducting Business of the Company.............................................................21
6.4 Approvals, etc.................................................................................21
6.5 Access.........................................................................................22
6.6 NMS Waiver.....................................................................................22
6.7 KL Stock.......................................................................................22
6.8 Distribution Arrangements with Xxxxxxx Xxxxx...................................................22
SECTION VII. TERMINATION........................................................................................23
7.1 Termination by Mutual Consent..................................................................23
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7.2 Termination by Either Investors or the Company.................................................23
7.3 Termination by Investors.......................................................................23
7.4 Termination by the Company.....................................................................23
7.5 Termination Fee................................................................................24
SECTION VIII. MISCELLANEOUS.....................................................................................24
8.1 No Waivers; Cumulative Remedies................................................................24
8.2 Amendments; Waiver and Consents................................................................25
8.3 Changes, Waivers, Etc..........................................................................25
8.4 Expenses.......................................................................................25
8.5 Notices........................................................................................25
8.6 Assignment.....................................................................................25
8.7 Severability...................................................................................26
8.8 Entire Agreement...............................................................................26
8.9 Governing Law..................................................................................26
8.10 Counterparts...................................................................................26
SCHEDULES:
Schedule 1 - Investments
Schedule 2 - Waivers and Consents
EXHIBITS:
Exhibit A Certificate of Determination
Exhibit B Warrant Agreement
Exhibit C-1 Registration Rights Agreement
Exhibit C-2 Registration Rights Agreement
Exhibit D Company Disclosure Schedule
Exhibit E Xxxxxxx Employment Agreement
Exhibit F Legal Opinion of Counsel to Company
Exhibit G Legal Opinion of Counsel to Investors
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STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of April 7, 1999
(the "Agreement"), among The Xxxxxx Entertainment Company, a California
corporation (the "Company"), The Xxxxxxx-Xxxxx Company, a California corporation
("Xxxxxxx-Xxxxx"), Xxxxxxx X. Xxxxx, Xxxxx X. Xxxxxxx and Xxx Xxxxxxx (each an
"Investor," and collectively, along with any Designated Investors (as
hereinafter defined), the "Investors").
WHEREAS, the Company desires to sell, and each of the Investors desires
to purchase, subject to the terms and conditions of this Agreement, shares of
the newly designated Series A Convertible Preferred Stock of the Company (the
"Series A Preferred Stock");
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
SECTION I. AUTHORIZATION; SALE AND PURCHASE OF THE COMPANY'S SECURITIES;
CLOSING.
1.1 AUTHORIZATION OF SECURITIES. The Company shall
authorize, issue and sell an aggregate of 170,000
shares of Series A Preferred Stock which shall be
issued pursuant to and shall be entitled to such
preferences, rights and benefits as are set forth in
the Company's Certificate of Determination, which
shall be in the form attached hereto as Exhibit A. On
or before the Closing Date (as defined in Section
1.3), the Company shall cause the Certificate of
Determination to be filed in the office of the
Secretary of State of California. The Company shall
authorize and issue warrants (the "Warrants") to
purchase 2,400,000 shares of the Company's common
stock, no par value ("Common Stock") at the exercise
prices and upon the terms and conditions set forth in
the Warrant Agreement in the form attached hereto as
Exhibit B (the "Warrant Agreement"). In addition, the
Company shall authorize and reserve for issuance such
number of shares of Common Stock as is issuable from
time to time upon conversion of the Series A Preferred
Stock (the "Conversion Shares") and the exercise of
the Warrants (the "Warrant Shares").
1.2 SALE AND PURCHASE OF SERIES A PREFERRED STOCK;
ISSUANCE OF WARRANTS; GOOD FAITH DEPOSIT.
(a) Subject to the terms and conditions hereof,
the Company agrees to sell to each Investor and
each Investor severally agrees to purchase from
the Company on the Closing Date, the number of
shares of Series A
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Preferred Stock set forth opposite its name on
Schedule 1 hereto (i) in the case of all Investors
other than Xxxxxxx-Xxxxx, for a cash purchase
price of One Hundred Dollars ($100.00) per share
and (ii) in the case of Xxxxxxx-Xxxxx, in exchange
for a number of shares of its common stock, no par
value (the "KL Stock"), determined by dividing
$5,500,000 by 80% of the Average Market Price (as
hereinafter defined) of the KL Stock for the
twenty consecutive trading days ending two trading
days prior to the Closing Date. "Average Market
Price" of the KL Stock shall mean the average of
the daily closing prices of the KL Stock. The
closing price for each day shall be the last
reported sale price regular way of the KL Stock
or, in case no such reported sale takes place on
such day, the average of the reported closing bid
and asked prices regular way of the KL Stock, as
reported by the National Association of Securities
Dealers Automated Quotation System. The KL Stock
shall be registered for public resale pursuant to
the KL Registration Rights Agreement referenced
below. All such number of shares of KL Stock shall
be subject to adjustment for stock splits,
combinations, stock dividends and similar events
effected by Xxxxxxx-Xxxxx after the date hereof.
(b) In partial consideration for the Investors'
purchase of the Series A Preferred Stock, the
Company shall issue Warrants to each Investor to
purchase the number of shares of the Common Stock
set forth opposite such Investor's name on
Schedule 1 hereto.
(c) The Investors agree to make a "good faith
deposit" of $750,000 upon the signing of this
Agreement into the escrow account established
pursuant to the terms of the escrow agreement
being executed by the parties hereto on the date
hereof (the "Escrow Agreement"). In the event that
the Closing occurs, the deposit shall be credited
toward the $11,500,000 cash portion of the
purchase price for the Series A Preferred Stock to
be sold hereunder. In the event that this
Agreement is terminated in accordance with Section
7.1, 7.2 (other than a termination by the Company
under Section 7.2(a) based on a material breach of
this Agreement by the Investors), 7.3 or 7.4(b),
such deposit shall be returned to the Investors in
accordance with the terms of the Escrow Agreement.
In the event that this Agreement is terminated by
the Company in accordance with Section 7.2(a)
based on a material breach of this Agreement by
the Investors or 7.4(a) or (c), the Company shall
be entitled to receive such deposit as liquidated
damages in accordance with the terms of the Escrow
Agreement.
1.3 CLOSING. The closing of the transactions (the
"Transactions") contemplated by this Agreement (the
"Closing"), shall take place at the offices of Xxxx,
Scholer, Fierman, Xxxx & Handler, LLP, 1999 Avenue of
the Stars, Xxxxx 0000, Xxx Xxxxxxx,
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XX 00000 at 10:00 a.m., Pacific Standard time, on the
second business day following satisfaction (or waiver)
of all of the conditions set forth in Sections IV and
V hereof (but no sooner than April 19, 1999) (the
"Closing Date") or at such other place or day as may
be mutually acceptable to the Investors and the
Company.
1.4 DELIVERY; PAYMENT. At the Closing, the Company
will deliver to each Investor a certificate, dated the
Closing Date, representing the shares of Series A
Preferred Stock purchased by such Investor, registered
in its name as stated on Schedule 1 (or in the name of
its nominee if it so specifies to the Company at least
48 hours prior to the Closing Date) against payment to
the Company of the purchase price of shares of Series
A Preferred Stock being purchased by such Investor,
which payment shall be made (i) if in cash, by wire
transfer of immediately available funds, or (ii) if in
KL Stock, by delivery of certificates representing
such stock registered in the name of the Company (or
in the name of its nominee if the Company so specifies
at least 48 hours prior to the Closing Date). At the
Closing, the Company will also deliver the Warrants to
the Investors.
1.5 REGISTRATION RIGHTS.
(a) In connection with the issuance and sale of
the Series A Preferred Stock and the issuance of
the Warrants to the Investors, the Company agrees
that the Investors shall have the registration
rights set forth in the Registration Rights
Agreement in substantially the form attached
hereto as Exhibit C-1 (the "Company Registration
Rights Agreement").
(b) In connection with the issuance of the KL
Stock to the Company, Xxxxxxx-Xxxxx agrees that
the Company shall have the registration rights set
forth in the Registration Rights Agreement in
substantially the form attached hereto as Exhibit
C-2 (The "KL Registration Rights Agreement").
1.6 FIRST QUARTER BALANCE SHEET. Within 30 days after
the Closing, the Company, represented by its current
Interim Chief Financial Officer under the direction of
the current members of the Board of Directors, shall
in good faith prepare and deliver to the Investors a
consolidated balance sheet of the Company as of March
31, 1999 (the "First Quarter Balance Sheet") prepared
in a manner consistent with the consolidated balance
sheet contained in the 1998 Financials (as hereinafter
defined), but subject to the principles set forth in
Annex A. If the First Quarter Balance Sheet shows
total stockholders' equity of less than $11.0 million,
the
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Company and the Investors shall negotiate in good
faith with respect to the issuance of additional
warrants to purchase Common Stock so that the
Investors are made-whole as to their proportionate
investment in the Company.
SECTION II. THE COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce each Investor to enter into this Agreement and to
purchase the number of shares of Series A Preferred Stock and Warrants set forth
opposite its name on Schedule 1, the Company hereby represents and warrants to
each Investor, except as disclosed in the Company Disclosure Schedule delivered
to the Investors on the date hereof, as follows. The matters referred to in the
Company Disclosure Letter shall be deemed to qualify (i) the specific
representations and warranties which are referred to therein, and (ii) such
other representations and warranties where the substance of the disclosure made
with respect to such matter includes sufficient information and detail to make
clear the nature of such qualification.
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The
Company and each of its Subsidiaries (as hereinafter
defined) is a corporation duly incorporated, validly
existing and in good standing under the laws of the
jurisdiction of its incorporation and has the
requisite power and authority and all necessary
governmental approvals to own, lease and operate its
properties and to carry on its business as it is now
being conducted, except where the failure to be so
incorporated, existing or in good standing or to have
such power, authority and governmental approvals would
not, individually or in the aggregate, have a Company
Material Adverse Effect (as defined below). The
Company is and each of its Subsidiaries is duly
qualified or licensed as a foreign corporation to do
business, and is in good standing, in each
jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its
business makes such qualification or licensing
necessary, except for such failure to be so qualified
or licensed and in good standing that would not,
individually or in the aggregate, have a Company
Material Adverse Effect. The term "Company Material
Adverse Effect" means any change, effect or
circumstance that individually or when taken together
with all other such changes, effects or circumstances
that have occurred prior to the date of determination
of the occurrence of the Company Material Adverse
Effect, (x) will be materially adverse to the
business, operations, properties, assets, financial
condition or results of operations of the Company and
all of its Subsidiaries taken as a whole, or (y) will
impair in any material respect the Company's ability
to perform any of its obligations or agreements
hereunder or under the other Transaction Documents,
provided that none of the following shall constitute a
Company
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Material Adverse Effect: (i) general changes in the
economy or changes affecting the entertainment
industry in general, (ii) the filing, initiation and
subsequent prosecution, or results of litigation that
challenges or otherwise seeks damages with respect to
the Transactions or that is disclosed on the Company
Disclosure Schedule, (iii) changes arising directly or
indirectly from the execution or announcement of this
Agreement or (iv) matters disclosed to the Investors
by the Company prior to the date hereof on the Company
Disclosure Schedule. For purposes of this Agreement,
the term "Subsidiary" shall mean a subsidiary of the
Company that is identified as such in Section 2.1 of
the Company Disclosure Schedule. Section 2.1 of the
Company Disclosure Schedule sets forth a complete list
of all subsidiaries of the Company. Except as set
forth in Section 2.1 of the Company Disclosure
Schedule, the Company owns directly or indirectly all
of the issued and outstanding shares of capital stock
of each of its Subsidiaries. Other than as set forth
in Section 2.1 of the Company Disclosure Schedule, as
of the date of this Agreement the Company has no other
equity interest in any other entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company
has heretofore furnished to Investors a complete and
correct copy of the Articles of Incorporation and
bylaws of the Company and each of its Subsidiaries as
most recently restated and subsequently amended to
date. The Articles of Incorporation and bylaws of the
Company and each of the Subsidiaries are in full force
and effect. As of the date of this Agreement, neither
the Company nor any of its Subsidiaries is in
violation of any of the provisions of its respective
Articles of Incorporation or bylaws.
2.3 CAPITALIZATION. The authorized capital stock of
the Company consists of (i) 10,000,000 shares of
Common Stock, (ii) 299,600 shares of Class B Common
Stock (the "Class B Common Stock"), and (iii)
3,000,000 shares of Series Preferred Stock (the
"Series Preferred Stock"). As of March 26, 1999, (i)
approximately 4,186,941 shares of Common Stock were
issued and outstanding, all of which were validly
issued, fully paid and nonassessable, (ii) no shares
of Common Stock were held in the treasury or by its
Subsidiaries and (iii) approximately 677,650 shares of
Common Stock were reserved for future issuance upon
exercise of Company Option Securities. As of March 26,
1999, (i) no shares of Class B Common Stock were
issued and outstanding or held in treasury or by the
Subsidiaries and (ii) no shares of Class B Common
Stock were reserved for future issuance. As of March
26, 1999, (i) no shares of Series Preferred Stock were
issued and
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outstanding or held in treasury or by its Subsidiaries
and (ii) no shares of Series Preferred Stock were
reserved for future issuance. Except as described
above and except as described in Section 2.3 of the
Company Disclosure Schedule or contemplated hereby,
there are no options, warrants or other rights,
agreements, arrangements or commitments of any
character relating to the issued or unissued capital
stock of the Company or obligating the Company to
issue or sell any shares of capital stock of, or other
equity interests in, the Company. All shares of the
Company's capital stock subject to issuance, upon
issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will
be duly authorized, validly issued, fully paid and
nonassessable. To the best of the Company's knowledge,
there are no shareholder agreements, voting trusts or
other agreements relating to voting or disposition of
any shares of the Company's capital stock or granting
to any person or group of persons the right to elect,
or to designate or nominate for election, a director
to the Company's board of directors.
2.4 AUTHORITY RELATIVE TO THE TRANSACTION AGREEMENTS.
The Company has all necessary corporate power and
authority to execute and deliver this Agreement, the
Warrant Agreement, the Warrants, the Company
Registration Rights Agreements and the Certificate of
Determination (collectively, the "Transaction
Documents"), to perform its obligations hereunder and
thereunder and to consummate the Transactions. The
execution and delivery of the Transaction Documents,
the filing of the Certificate of Determination and the
consummation by the Company of the Transactions have
been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on
the part of the Company are necessary to authorize the
Transaction Documents or to consummate the
Transactions. The Transaction Documents have been duly
and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery
by each Investor a party thereto, constitute legal,
valid and binding obligations of the Company,
enforceable against the Company in accordance with
their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights
generally and to general principles of equity.
2.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS
AND CONSENTS.
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(a) The exhibit indexes to the Company's most
recently filed Annual Report on Form 10-K and Form
10-Qs filed since the date of such Form 10-K, as
supplemented by Section 2.5(a) of the Company
Disclosure Schedule, include each agreement,
contract or other instrument (including all
amendments thereto) to which the Company or its
Subsidiaries is a party or by which any of them is
bound which would be required as of the date of
such reports and as of the date hereof pursuant to
the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations
thereunder to be filed as an exhibit to an Annual
Report on Form 10-K, a Quarterly Report on Form
10-Q or a Current Report on Form 8-K
(collectively, the "Material Contracts"). The
Company has made available to the Investors on or
prior to the date hereof true, correct and
complete copies of each such Material Contract.
(b) Except as disclosed in Section 2.5(b) of the
Disclosure Schedule, neither the Company nor any
of its Subsidiaries nor, to the knowledge of the
Company, any party other than the Company or any
of its Subsidiaries, is in default in the
performance, observance or fulfillment of any of
the material obligations, covenants or conditions
contained in any Material Contract to which the
Company or any of its Subsidiaries is a party,
except for any such default which could not
reasonably be expected to result in a Company
Material Adverse Effect.
(c) The execution and delivery of this Agreement
by the Company does not, and the performance of
this Agreement by the Company will not (i)
conflict with or violate the Articles of
Incorporation or bylaws of the Company or
materially conflict with or materially violate the
Articles of Incorporation or bylaws or equivalent
organizational documents of any of its
Subsidiaries, (ii) assuming that all consents,
approvals, authorizations and other actions
described in subsection (d) have been obtained and
all filings and obligations described in
subsection (d) have been made or complied with,
conflict with or violate any foreign or domestic
(federal, state or local) law, statute, ordinance,
rule, regulation, permit, injunction, writ,
judgment, decree or order ("Law") applicable to
the Company or any of its Subsidiaries or by which
any asset of the Company or any of its
Subsidiaries is bound or affected, or (iii)
conflict with, result in any breach of or
constitute a default (or an event that with notice
or lapse of time or both would become a default)
under, or give to others any right of termination,
amendment, acceleration or cancellation of, or
require any payment under, or result in the
creation of a lien, claim, security interest or
other charge or encumbrance on any asset of the
Company or any of its Subsidiaries pursuant to,
any Material Contract except, with respect to
clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults, or other
occurrences that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
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(d) The execution and delivery of this Agreement
by the Company do not, and the performance of this
Agreement by the Company will not, require any
consent, approval, authorization or permit of, or
filing with or notification to, any United States
(federal, state or local) or foreign government or
governmental, regulatory or administrative
authority, agency, commission, board, bureau,
court or instrumentality or arbitrator of any kind
("Governmental Authority"), except (i) for
applicable requirements, if any, of the Securities
Act of 1933, as amended (the "Securities Act"),
the Exchange Act, National Association of
Securities Dealers, Inc. Automated
Quotation/National Market System ("NASDAQ/NMS")
and state securities laws, and (ii) where failure
to obtain such consents, approvals, authorizations
or permits, or to make such filings or
notifications, would not prevent consummation of
the Transactions or otherwise prevent the Company
from performing its obligations under this
Agreement, and would not, individually or in the
aggregate, have a Company Material Adverse Effect.
2.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Since January 1, 1997, and prior to the
execution and delivery of this Agreement, the
Company has filed all forms, reports, statements
and other documents required to be filed with the
Securities and Exchange Commission (the "SEC"),
including, without limitation, (A) all Annual
Reports on Form 10-K, (B) all Quarterly Reports on
Form 10- Q, (C) all proxy statements relating to
meetings of shareholders (whether annual or
special), (D) all Reports on Form 8-K, (E) all
other reports or registration statements and (F)
all amendments and supplements to all such reports
and registration statements filed from January 1,
1997 to the date hereof (collectively, the "SEC
Reports"). The SEC Reports (i) were prepared in
all material respects in accordance with the
requirements of the Securities Act and the
Exchange Act and the rules and regulations of the
SEC thereunder applicable to such SEC Reports and
(ii) did not at the time they were filed and, with
respect to registration statements as of their
effective dates, contain any untrue statement of a
material fact or omit to state a material fact
required to be stated therein or necessary in
order to make the statements therein, in the light
of the circumstances under which they were made,
not misleading.
(b) The Company has heretofore delivered to
Investors a true and complete copy of the draft
consolidated financial statements (including the
notes thereto) of the Company as of and for the
year ended December 31, 1998 which the Company
intends to finalize substantially in the form of
the draft, except as set forth in item 7 of
Schedule 2.7, promptly after the date hereof (as
modified by such item 7 to Schedule 2.7 the "1998
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Financials"). Each of the 1998 Financials and
consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC
Reports has been prepared in all material respects
in accordance with the published rules and
regulations of the SEC and generally accepted
accounting principles applied on a consistent
basis throughout the periods indicated (except as
may be indicated in the notes thereto) and each
fairly presents, in all material respects, the
consolidated financial position, results of
operations and cash flows of the Company and its
consolidated subsidiaries as at the respective
dates thereof and for the respective periods
indicated therein, except as otherwise indicated
in the notes thereto (subject, in the case of
unaudited statements, to normal and recurring
year-end adjustments which were not and are not
expected, individually or in the aggregate, to
have a Company Material Adverse Effect).
(c) Except as and to the extent set forth on, or
reserved against on, the consolidated balance
sheet of the Company and its consolidated
subsidiaries as of December 31, 1998 contained in
the 1998 Financials, including the notes thereto,
neither the Company nor any of its Subsidiaries
has any liability or obligation of any nature
(whether accrued, absolute, contingent, fixed,
liquidated, unliquidated or otherwise) as of the
date of execution and delivery of this Agreement
that would be required to be reflected on, or
reserved against in, a balance sheet of the
Company, or in the notes thereto, prepared in
accordance with the published rules and
regulations of the SEC and generally accepted
accounting principles, except for liabilities or
obligations (i) incurred pursuant to the Revolving
Loan and Security Agreement, dated as of October
27, 1993, as amended, between the Company and City
National Bank (the "Amended Loan Agreement"), (ii)
disclosed in any SEC Report or in Section 2.7 of
the Company Disclosure Schedule or (iii) incurred
in the ordinary course of business since December
31, 1998.
(d) Except in each case as disclosed in the SEC
Reports or the 1998 Financials, neither the
Company nor any of its Subsidiaries is indebted to
any director or executive officer of the Company
or any of its Subsidiaries (except for amounts due
as normal salaries and bonuses, in reimbursement
of ordinary expenses and directors' fees) and no
such person is indebted to the Company or any of
its Subsidiaries, and since January 1, 1998 there
have been no other transactions of the type
required to be disclosed pursuant to Item 404 of
Regulation S-K under the Exchange Act.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
December 31, 1998, except as contemplated by this
Agreement, Section 2.7 of the Company Disclosure
Schedule or as disclosed in any SEC Report filed since
December 31, 1998 and prior to the execution and
delivery of this Agreement, the Company and its
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Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with
past practice and, since such date to the date hereof,
there has not been (a) any material change by the
Company in its accounting methods, principles or
practices, (b) any revaluation by the Company of any
material asset (including, without limitation, any
writing down of the value of inventory or writing off
of notes or accounts receivable), other than in the
ordinary course of business consistent with past
practice, (c) entry by the Company or any of its
Subsidiaries into any commitment or transaction
material to the Company and any of its Subsidiaries
taken as a whole, except in the ordinary course of
business and consistent with past practice and except
for the Amended Loan Agreement, (d) any agreement by
the Company or any of its Subsidiaries to take any of
the actions described in this Section 2.7 except as
expressly contemplated by this Agreement, other than
for such events that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
2.8 INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 2.8 of the
Company Disclosure Schedule, and except when it
would not, individually or in the aggregate, have,
or give rise to, a Company Material Adverse
Effect, and subject to the Licenses referenced in
Section 2.8(b)(ii) below and the Company's filed
statements from time to time with the Securities
Exchange Commission, to the Company's best
knowledge: (i) the Company and its Subsidiaries
own good and marketable title to, or hold fully
valid, enforceable, and exclusive licenses of all
rights under all copyrights, trademarks, service
marks, trade secrets, and other intellectual
property used or otherwise exploited by the
Company or its Subsidiaries, including without
limitation the exclusive rights to use, duplicate,
distribute, merchandise, create derivative works
based upon, publicly perform, and publicly
display, in any media and by any means, any
character (including without limitation Casper the
Friendly Ghost, Xxxxxx Xxxx, Xxxxx the Good Witch
and Xxxx Xxxx), motion picture, or other work of
authorship or artistic work exploited by the
Company or its Subsidiaries, and the exclusive
right to use any confidential or proprietary
know-how, system, procedure or software used by
the Company or its Subsidiaries, (collectively,
the "Intellectual Property"); and (ii) all of the
Intellectual Property is fully valid and
enforceable, and none of the Intellectual Property
is subject to any claim, encumbrance, or material
restriction, including without limitation any
limitation of the Company's or its Subsidiaries'
right to use, assign or license (except as may
occur by operation of statute, including pursuant
to Section 304 of the Copyright Act of 1976, as
amended). The exploitation of the Intellectual
Property by
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any means in connection with the business and
operations of the Company or its Subsidiaries does
not infringe or misappropriate the rights of any
person(s), including without limitation any rights
relating to defamation, contract, trademark,
unfair competition, copyright, trade secret,
privacy or publicity, except when it would not,
individually or in the aggregate, have or give
rise to a Company Material Adverse Effect.
(b) Except as set forth in Section 2.8 of the
Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries has received any
notice of infringement or misappropriation or
other notice or claim relating to any Intellectual
Property. Further, to the Company's best
knowledge, and except when it would not,
individually or in the aggregate, have or give
rise to a Company Material Adverse Effect: (i) no
presently existing assignment, license or other
transfer to the Company or any of its Subsidiaries
of any Intellectual Property or of any rights
thereunder is now or will in the future become
subject to rescission, cancellation or termination
(except as may occur by operation of statute,
pursuant to Section 304 of the Copyright Act of
1976, as amended); and (ii) Section 2.8 of the
Company Disclosure Schedule identifies by
reference all current material licenses and other
rights agreements with respect to the Intellectual
Property entered into by the Company or any of its
Subsidiaries or any of its predecessors in
interest (collectively, the "Licenses"). The
Company has made available to the Investors true
and correct copies of all material agreements
pertaining to the Intellectual Property, and has
identified all such agreements in the data room
indexes of April 2, 1999 and/or in Section 2.5(a)
of the Company Disclosure Schedule.
2.9 TAX MATTERS. Except as set forth in Section 2.9
of the Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries has
filed all Federal income tax returns and all other
material tax returns and reports required to be
filed by it prior to the date hereof. Each of the
Company and its Subsidiaries has paid (or the
Company has paid on its Subsidiaries' behalf) all
taxes shown as due on such returns, and the most
recent financial statements contained in the SEC
Reports filed prior to the date of this Agreement
reflect an adequate reserve for all taxes payable
by the Company and its Subsidiaries for all
taxable periods and portions thereof through the
date of such financial statements.
(b) As of the date of this Agreement, except as
set forth in the Company Disclosure Schedule: (i)
no material tax return of the Company or and of
its Subsidiaries is under audit or examination by
any taxing authority, and no written notice of
such an audit or examination has been
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received by the Company or any of its
Subsidiaries; (ii) each material deficiency
resulting from any audit or examination relating
to taxes by any taxing authority has been paid,
except for deficiencies being contested in good
faith; and (iii) no material issues relating to
taxes were raised in writing by the relevant
taxing authority during any presently pending
audit or examination, and no material issues
relating to taxes were raised in writing by the
relevant taxing authority in any completed audit
or examination that can reasonably be expected to
recur in a later taxable period.
2.10 LITIGATION. As of the date of this Agreement,
except as set forth in Section 2.10 of the Company
Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending, or, to the
Company's best knowledge, threatened against the
Company or any of its Subsidiaries that could
reasonably be expected to have a Company Material
Adverse Effect or prevent or materially delay the
consummation of the Transactions.
2.11 BROKERS. Except as set forth in Schedule 2.11 of
the Company Disclosure Schedule, no broker, finder or
investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with
the Transactions based upon arrangements made by or on
behalf of the Company.
2.12 SHARES FULLY PAID, ETC. The shares of Series A
Preferred Stock, when issued and paid for pursuant to
the terms of this Agreement, and any additional shares
of Series A Preferred Stock issued as dividends
pursuant to the terms and conditions of the
Certificate of Determination, will be duly authorized,
validly issued and outstanding, fully paid,
nonassessable shares and shall have all rights,
privileges and preferences specified in the
Certificate of Determination and shall be free and
clear of all pledges, liens, encumbrances and
restrictions. The Conversion Shares and the Warrant
Shares have been reserved for issuance and when issued
upon conversion or exercise, as the case may be, will
be duly authorized, validly issued and outstanding,
fully paid, nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions.
2.13 SHARES OF COMMON STOCK. The outstanding shares of
Common Stock of the Company are duly authorized,
validly issued, fully paid and non-assessable, and
have been issued in full compliance with the
Securities Act and applicable blue sky laws.
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2.14 NO PREEMPTIVE RIGHTS. The issuance, sale and
delivery of the Series A Preferred Stock, Warrants,
Conversion Shares and Warrant Shares are not subject
to any preemptive right of shareholders of the Company
arising under law or the Articles of Incorporation or
Bylaws or to any contractual right of first refusal or
other contractual right in favor of any Person.
2.15 EMPLOYEE BENEFIT PLAN. The Company does not
maintain any pension plan. Each employee benefit plan
which covers employees of the Company has been
maintained in compliance with all applicable laws,
except for any such failure to comply that would not
have a Company Material Adverse Effect.
2.16 INSURANCE. The Company and its Subsidiaries are
insured with reputable insurers against such risks and
in such amounts as are prudent in accordance with
industry practices. All of the insurance policies,
binders or bonds maintained by the Company or its
Subsidiaries (the "Policies") have been maintained in
accordance with their respective terms and will remain
in full force and effect after the Closing. Neither
the Company nor any of its Subsidiaries has received
any notice of default with respect to any provision of
any such Policies. With respect to its directors' and
officers' liability insurance Policies, neither the
Company nor any of its Subsidiaries has failed to give
any notice or present any claim thereunder in due and
timely fashion or as required by such Policies so as
to jeopardize full recovery under such Policies.
2.17 REGISTRATION RIGHTS. Other than as set forth in
Section 2.17 of the Company Disclosure Schedule, the
Company has not granted or agreed to grant any
registration rights, including piggyback rights, to
any Person.
2.18 FAIRNESS OPINION. The Company has received an
opinion from Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities
Corporation that the consideration to be received by
the Company pursuant hereto is fair from a financial
point of view to the Company.
The Company hereby makes the following additional representations to
Xxxxxxx-Xxxxx only:
2.19 INVESTMENT INTENT.
(a) The shares of KL Stock being acquired by the
Company are being acquired for investment for the
Company's own account and not with the view to, or
for resale in connection with, any distribution or
public
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offering thereof. The Company understands that the
shares of KL Stock have not been registered under
the Securities Act or any state securities laws by
reason of their contemplated issuance in
transactions exempt from the registration
requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state
securities laws, and that the reliance of
Xxxxxxx-Xxxxx on these exemptions is predicated in
part upon this representation by the Company. The
Company further understands that the shares of KL
Stock may not be transferred or resold without (i)
registration under the Securities Act and any
applicable state securities laws, or (ii) an
exemption from the requirements of the Securities
Act and applicable state securities laws.
(b) Each certificate representing shares of KL
Stock shall be endorsed with the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN A TRANSACTION EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE SECURITIES LAWS (IF REQUESTED BY THE COMPANY,
UPON PROVISION OF AN OPINION OF COUNSEL IN FORM SATISFACTORY TO THE
COMPANY).
2.20 LOCATION OF PRINCIPAL OFFICE. The state in which
the Company's principal office is located is the state
set forth in the Company's address in Section 8.5(b)
hereof. The Company acknowledges that Xxxxxxx-Xxxxx
has made available to the Company at a reasonable time
prior to the execution of this Agreement the
opportunity to ask questions and receive answers
concerning the terms and conditions of the KL Stock
contemplated by this Agreement and to obtain any
additional information (which Xxxxxxx-Xxxxx possesses
or can acquire without unreasonable effort or expense)
as may be necessary to verify the accuracy of
information furnished to the Company. The Company has
such knowledge and experience in financial and
business matters that it is capable of evaluating the
merits and risks of the investment to be made by it
pursuant to this Agreement.
2.21 ACCREDITED INVESTOR. The Company is an "accredited
investor" within the meaning of Rule 501 promulgated
under the Securities Act.
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SECTION III. REPRESENTATIONS OF THE INVESTORS.
A. EACH INVESTOR REPRESENTS FOR ITSELF THAT:
3.1 INVESTMENT INTENT.
(a) The shares of Series A Preferred Stock and
Warrants being acquired by such Investor are being
acquired and, when acquired, the Conversion Shares
and Warrant Shares will be acquired for investment
for such Investor's own account and not with the
view to, or for resale in connection with, any
distribution or public offering thereof. Such
Investor understands that the shares of Series A
Preferred Stock, the Conversion Shares, the
Warrants and the Warrant Shares have not been
registered under the Securities Act or any state
securities laws by reason of their contemplated
issuance in transactions exempt from the
registration requirements of the Securities Act
pursuant to Section 4(2) thereof and applicable
state securities laws, and that the reliance of
the Company and others upon these exemptions is
predicated in part upon this representation by
each Investor. Such Investor further understands
that the shares of Series A Preferred Stock, the
Conversion Shares, the Warrants and the Warrant
Shares may not be transferred or resold without
(i) registration under the Securities Act and any
applicable state securities laws, or (ii) an
exemption from the requirements of the Securities
Act and applicable state securities laws.
(b) The shares of Series A Preferred Stock,
Conversion Shares, Warrants and Warrant Shares are
only transferable pursuant to (a) a public
offering registered under the Securities Act, (b)
pursuant to an exemption from the registration
requirements of the Securities Act and applicable
state securities or blue sky laws, (c) a transfer
not involving a change in beneficial ownership or
(d) in the case of a partnership, distribution of
such securities to its partners or a partner's
estate.
(c) Each certificate representing shares of Series
A Preferred Stock, Conversion Shares, Warrants and
Warrant Shares shall be endorsed with the
following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN A TRANSACTION EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE SECURITIES
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LAWS (IF REQUESTED BY THE COMPANY, UPON PROVISION OF AN OPINION OF
COUNSEL IN FORM SATISFACTORY TO THE COMPANY).
3.2 LOCATION OF PRINCIPAL OFFICE, QUALIFICATION, ETC.
The state in which such Investor's principal office
(or domicile, if such Investor is an individual) is
located is the state set forth in such Investor's
address on Schedule 1 hereto. Such Investor
acknowledges that the Company has made available to
such Investor at a reasonable time prior to the
execution of this Agreement the opportunity to ask
questions and receive answers concerning the terms and
conditions of the sale of securities contemplated by
this Agreement and to obtain any additional
information (which the Company possesses or can
acquire without unreasonable effort or expense) as may
be necessary to verify the accuracy of information
furnished to such Investor. Such Investor (a) is able
to bear the loss of its entire investment in the
shares of Series A Preferred Stock without any
material adverse effect on its business, operations or
prospects, and (b) has such knowledge and experience
in financial and business matters that it is capable
of evaluating the merits and risks of the investment
to be made by it pursuant to this Agreement.
3.3 ACTS AND PROCEEDINGS. This Agreement has been duly
authorized by all necessary action on the part of such
Investor, has been duty executed and delivered by such
Investor, and is a valid and binding agreement of such
Investor.
3.4 NO BROKERS OR FINDERS. Other than as previously
disclosed to the Company in writing, no person, firm
or corporation has or will have, as a result of any
act or omission by such Investor, any right, interest
or valid claim against the Company for any commission,
fee or other compensation as a finder or broker, or in
any similar capacity, in connection with the
Transactions. Such Investor will indemnify and hold
the Company harmless against any and all liability
with respect to any such commission, fee or other
compensation which may be payable or determined to be
payable as a result of the actions of such Investor in
connection with the Transactions.
3.5 ACCREDITED INVESTOR. Such Investor is an
"accredited investor" within the meaning of Rule 501
promulgated under the Securities Act.
3.6 XXXXXXX EMPLOYMENT AGREEMENT. Xxxxx Xxxxxxx has
entered into an employment agreement with the Company
in
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substantially the form attached hereto as Exhibit E
(the "Xxxxxxx Employment Agreement"), which agreement
shall be effective as of the Closing Date subject only
to the Closing.
3.7 DISTRIBUTION AGREEMENT. Universal Studios Home
Video has delivered a term sheet (a copy of which has
been delivered to the Company and each of the
Investors) with respect to a domestic video
distribution agreement for the Company's
direct-to-video feature films (the "Distribution
Agreement Term Sheet").
3.8 SHAREHOLDERS AGREEMENT. True and correct copies
of all agreements among any or all of the Investors
relating to the transactions contemplated hereby or
the voting of their shares of Series A Preferred
Stock, Conversion Shares or Warrant Shares, as in
effect on the date hereof and on the Closing Date,
have heretofore been provided to the Company.
X. XXXXXXX-XXXXX ADDITIONALLY REPRESENTS FOR ITSELF THAT:
3.9 ORGANIZATION AND QUALIFICATION. Xxxxxxx-Xxxxx is a
corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of
its incorporation and has the requisite power and
authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on
its business as it is now being conducted, except
where the failure to be so incorporated, existing or
in good standing or to have such power, authority and
governmental approvals would not, individually or in
the aggregate, have a material adverse effect on
Xxxxxxx-Xxxxx'x business, operations, properties,
assets, financial condition or results of operations.
3.10 KL STOCK. The shares of KL Stock, when issued to
the Company and upon receipt of the consideration
therefor pursuant to the terms of this Agreement, will
be duly authorized, validly issued and outstanding,
fully paid and nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions, except
as otherwise created by the Company and other than
restrictions arising under applicable securities laws.
3.11 CAPITALIZATION. The authorized capital stock of
Xxxxxxx-Xxxxxx consists of 50,000,000 shares of common
stock. As of March 31, 1999, (i) approximately
11,624,606 shares of Xxxxxxx-Xxxxx common stock were
issued and outstanding, all of which were duly
authorized, validly issued and outstanding, fully paid
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and nonassessable and (ii) no shares of Xxxxxxx-Xxxxx
common stock were held in treasury.
3.12 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS
AND CONSENTS.
(a) The exhibit indexes to the Xxxxxxx-Xxxxx'x
most recently filed Annual Report on Form 10-K and
any Form 10-Qs filed since the date of such Form
10-K, include each agreement, contract or other
instrument (including all amendments thereto) to
which Xxxxxxx-Xxxxx or any Xxxxxxx-Xxxxx
Subsidiary is a party or by which it is bound
which would be required pursuant to the Exchange
Act and the rules and regulations thereunder to be
filed as an exhibit to an Annual Report on Form
10-K, a Quarterly Report on Form 10-Q or a Current
Report on Form 8-K (collectively, the "KL Material
Contracts").
(b) Neither Xxxxxxx-Xxxxx nor any Xxxxxxx-Xxxxx
Subsidiary is, nor to the knowledge of
Xxxxxxx-Xxxxx is any party other than
Xxxxxxx-Xxxxx or any Xxxxxxx-Xxxxx Subsidiary, in
default in the performance, observance or
fulfillment of any of the material obligations,
covenants or conditions contained in any KL
Material Contract to which Xxxxxxx-Xxxxx or any
Xxxxxxx-Xxxxx Subsidiary is a party, except for
any such default which could not reasonably be
expected to result in a material adverse effect on
the business, operations, properties or assets of
Xxxxxxx-Xxxxx and the Xxxxxxx-Xxxxx Subsidiaries
taken as a whole.
(c) The execution and delivery of this Agreement
by Xxxxxxx-Xxxxx does not, and the performance of
this Agreement by Xxxxxxx-Xxxxx will not (i)
conflict with or violate the Articles of
Incorporation or bylaws of Xxxxxxx-Xxxxx, (ii)
assuming that all consents, approvals,
authorizations and other actions described in
subsection (d) have been obtained and all filings
and obligations described in subsection (d) have
been made or complied with, conflict with or
violate any foreign or domestic (federal, state or
local) law, statute, ordinance, rule, regulation,
permit, injunction, writ, judgment, decree or
order applicable to Xxxxxxx-Xxxxx or any
Xxxxxxx-Xxxxx Subsidiary or by which any asset of
Xxxxxxx-Xxxxx or any Xxxxxxx-Xxxxx Subsidiary is
bound or affected, or (iii) except as set forth in
the next succeeding sentence, conflict with,
result in any breach of or constitute a default
(or an event that with notice or lapse of time or
both would become a default) under, or give to
others any right of termination, amendment,
acceleration or cancellation of, or require any
payment under, or result in the creation of a
lien, claim, security interest or other charge or
encumbrance on any asset of Xxxxxxx-Xxxxx or any
Xxxxxxx-Xxxxx Subsidiary pursuant to any KL
Material Contract except, with respect to clauses
(ii) and (iii), for any such conflicts,
violations, breaches, defaults,
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or other occurrences that would not, individually
or in the aggregate, have a material adverse
effect on the business, operations, properties or
assets of Xxxxxxx-Xxxxx and the Xxxxxxx-Xxxxx
Subsidiaries taken as a whole. The issuance of the
KL Stock hereunder requires consent of the lenders
pursuant to that certain Credit, Security,
Guaranty and Pledge Agreement, dated as of June
19, 1996 among The Xxxxxxx-Xxxxx Company, the
Guarantors named therein, the lenders named
therein and the Chase Manhattan Bank, N.A.
(formerly Chemical Bank) as Agent, and as Fronting
Bank for the lenders, as heretofore amended, which
consent has been obtained orally from the Agent on
or prior to the date hereof.
(d) The execution and delivery of this Agreement
by Xxxxxxx-Xxxxx do not, and the performance of
this Agreement by Xxxxxxx-Xxxxx will not, require
any consent, approval, authorization or permit of,
or filing with or notification to, any
Governmental Authority, except (i) for applicable
requirements, if any, of the Securities Act, the
Exchange Act, NASDAQ/NMS and state securities
laws, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or
to make such filings or notifications, would not
prevent consummation of the Transactions or
otherwise prevent Xxxxxxx-Xxxxx from performing
its obligations under this Agreement, and would
not, individually or in the aggregate, have a
material adverse effect on the business,
operations, properties or assets of Xxxxxxx-Xxxxx
and the Xxxxxxx-Xxxxx Subsidiaries taken as a
whole.
3.13 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Since October 1, 1997, and prior to the
execution and delivery of this Agreement,
Xxxxxxx-Xxxxx has filed all forms, reports,
statements and other documents required to be
filed with the SEC, including, without limitation,
(A) all Annual Reports on Form 10-K, (B) all
Quarterly Reports on Form 10-Q, (C) all proxy
statements relating to meetings of shareholders
(whether annual or special), (D) all Reports on
Form 8-K, (E) all other reports or registration
statements and (F) all amendments and supplements
to all such reports and registration statements
filed from October 1, 1997 to the date hereof
(collectively, the "KL SEC Reports"). The KL SEC
Reports (i) were prepared in all material respects
in accordance with the requirements of the
Securities Act and the Exchange Act and the rules
and regulations of the SEC thereunder applicable
to such KL SEC Reports and (ii) did not at the
time they were filed contain any untrue statement
of a material fact or omit to state a material
fact required to be stated therein or necessary in
order to make the statements therein, in the light
of the circumstances under which they were made,
not misleading.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto)
contained in the KL SEC Reports has been prepared
in all material respects in accordance with the
published rules and regulations of the SEC and
generally accepted accounting principles applied
on a consistent basis throughout the periods
indicated
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(except as may be indicated in the notes thereto,
and in the case of quarterly financial statements,
as permitted by Form 10-Q) and each fairly
presents, in all material respects, the
consolidated financial position, results of
operations and cash flows of Xxxxxxx-Xxxxx as at
the respective dates thereof and for the
respective periods indicated therein, except as
otherwise indicated in the notes thereto (subject,
in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and
are not expected, individually or in the
aggregate, to have a material adverse effect on
the business, operations, properties or assets of
Xxxxxxx-Xxxxx).
(c) Except as and to the extent set forth on, or
reserved against on, the balance sheet of
Xxxxxxx-Xxxxx as of September 30, 1998, including
the notes thereto, neither Xxxxxxx-Xxxxx nor any
Xxxxxxx-Xxxxx Subsidiary has any liability or
obligation of any nature (whether accrued,
absolute, contingent, fixed, liquidated,
unliquidated or otherwise) as of the date of
execution and delivery of this Agreement that
would be required to be reflected on, or reserved
against in, a balance sheet of Xxxxxxx-Xxxxx, or
in the notes thereto, prepared in accordance with
the published rules and regulations of the SEC and
generally accepted accounting principles, except
for liabilities or obligations (i) disclosed in
any KL SEC Report filed since September 30, 1998
and prior to the execution and delivery of this
Agreement, or (ii) incurred in the ordinary course
of business since September 30, 1998, that would
not, individually or in the aggregate, have a
material adverse effect on the business,
operations, properties or assets of Xxxxxxx-Xxxxx.
3.14 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
September 30, 1998, except as contemplated by this
Agreement or as disclosed in any KL SEC Report filed
since September 30, 1998 and prior to the execution
and delivery of this Agreement, Xxxxxxx-Xxxxx and its
subsidiaries have conducted their business only in the
ordinary course and in a manner consistent with past
practice and, since such date, to the date hereof no
event has occurred that would, individually or in the
aggregate, have a material adverse effect on the
business, operations, properties or assets of
Xxxxxxx-Xxxxx and its subsidiaries taken as a whole
nor has there occurred any event that could reasonably
be foreseen by Xxxxxxx-Xxxxx to result in such a
material adverse effect.
3.15 LITIGATION. As of the date of this Agreement,
there is no suit, claim, action, proceeding or
investigation pending, or, to Xxxxxxx-Xxxxx'x best
knowledge, threatened against Xxxxxxx-Xxxxx or any
Xxxxxxx-Xxxxx Subsidiary that could reasonably be
expected to have a material adverse effect on the
business, operations, properties or assets of
Xxxxxxx-Xxxxx and the Xxxxxxx-Xxxxx Subsidiaries taken
as a whole or prevent or materially delay the
consummation of the Transactions.
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SECTION IV. CONDITIONS OF EACH INVESTOR'S OBLIGATION
The obligation to purchase and pay for the shares of Series A Preferred
Stock which each Investor has agreed to purchase on the Closing Date is subject
to the fulfillment prior to or on the Closing Date, of the conditions set forth
in this Section 4.
4.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company under
this Agreement which are qualified as to materiality
or a Company Material Adverse Effect shall have been
true and correct (as so qualified) when made and shall
be true and correct (as so qualified) at and as of the
Closing Date, as if made on and as of such date. The
representations and warranties of the Company under
this Agreement which are not qualified as to
materiality or a Company Material Adverse Effect shall
have been true and correct in all material respects
when made and shall be true and correct in all
material respects at and as of the Closing Date, as if
made on and as of such date.
4.2 COMPLIANCE WITH AGREEMENT. The Company shall have
performed and complied with all agreements or
covenants required by this Agreement to be performed
and complied with by it prior to or as of the Closing
Date.
4.3 CERTIFICATE OF OFFICERS. The Company shall have
delivered to the Investors a certificate, dated the
Closing Date, executed by the Chief Executive Officer
of the Company and certifying to the satisfaction of
the conditions specified in Sections 4.1 and 4.2.
4.4 BOARD OF DIRECTORS. Upon the Closing, the number
of directors comprising the Company's Board of
Directors shall be five, two of whom (Xxxxx X. Xxxxxxx
and Xxxxxx Xxxxxxx (or any designee of Xxxxxx Xxxxxxx,
provided that no disclosure under Item 401(f) of
Regulation S-K would be required to be made with
respect to such designee if he were a director of the
Company)) shall be selected by the Investors, two of
whom shall be the existing members of the Board of
Directors, and the fifth of whom shall be selected by
the foregoing members of the Board of Directors
subsequent to the Closing.
4.5 LEGAL OPINION. The Investors shall have received
an originally executed opinion of Xxxx, Scholer,
Fierman, Xxxx & Handler, LLP, counsel for the Company,
dated as of the Closing Date, in substantially the
form attached hereto as Exhibit F.
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4.6 NECESSARY CONSENTS. On or before the Closing Date,
the Company shall have obtained any consents or
waivers of any person or governmental authority
necessary for the consummation by the Company of the
Transactions contemplated under this Agreement or
referred to in Schedule 2 and the Investors shall have
received satisfactory evidence of such consents.
4.7 CERTIFICATE OF DETERMINATION. On or prior to the
Closing Date, the Company shall have filed with the
Secretary of State of California, the Certificate of
Determination in the form attached hereto as Exhibit A
and the Certificate of Determination shall have become
effective.
4.8 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE
LITIGATION. No order, judgment or decree of any court,
arbitral tribunal, administrative agency or other
governmental or regulatory authority or agency shall
purport to enjoin or restrain the Investors from
acquiring the shares of Series A Preferred Stock on
the Closing Date.
4.9 WARRANT AGREEMENTS. The Company shall have
executed and delivered the Warrant Agreements and the
Warrant Agreements shall be in full force and effect.
4.10 COMPANY REGISTRATION RIGHTS AGREEMENT. The Company
has executed and delivered the Company Registration
Rights Agreement and the Company Registration Rights
Agreement shall be in full force and effect.
4.11 EMPLOYMENT AGREEMENT. The Xxxxxxx Employment
Agreement shall be in full force and effect.
SECTION V. CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation to sell the shares of Series A Preferred Stock which the
Company has agreed to sell on the Closing Date is subject to the fulfillment
prior to or on the Closing Date of the conditions set forth in this Section 5.
5.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investors under
this Agreement shall be true and correct in all
material respects as of the Closing Date with the same
effect as though made on and as of the Closing Date.
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5.2 COMPLIANCE WITH AGREEMENT. The Investors shall
have performed and complied with all agreements or
covenants required by this Agreement to be performed
and complied with by them prior to or as of the
Closing Date.
5.3 LEGAL OPINION. The Company shall have received
originally executed opinions of Troop Xxxxxxx Pasich
Reddick & Xxxxx, LLP, counsel for the Investors (other
than Xxxxxxx-Xxxxx), and Paul, Hastings, Xxxxxxxx &
Xxxxxx LLP, counsel for Xxxxxxx-Xxxxx, dated as of the
Closing Date, in substantially the forms attached
hereto as Exhibits G-1 and G-2.
5.4 NECESSARY CONSENTS. On or before the Closing Date,
the Investors shall have obtained any consents of any
person or governmental authority necessary for the
consummation of the transactions by the Investors and
the Company shall have received satisfactory evidence
of such consents.
5.5 EMPLOYMENT AGREEMENT. The Xxxxxxx Employment
Agreement shall be in full force and effect.
5.6 KL REGISTRATION RIGHTS AGREEMENT. Xxxxxxx-Xxxxx
shall have executed and delivered the KL Registration
Rights Agreement and the KL Registration Rights
Agreement shall be in full force and effect.
5.7 ALL SHARES OF SERIES A PREFERRED STOCK PURCHASED.
Each of the Investors shall have purchased and paid
for all of the shares of Series A Preferred Stock
listed opposite such Investor's name on Schedule 1.
5.8 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE
LITIGATION. No order, judgment or decree of any court,
arbitral tribunal, administrative agency or other
governmental or regulatory authority or agency shall
purport to enjoin or restrain the Investors from
acquiring the shares of Series A Preferred Stock on
the Closing Date.
5.9 NASDAQ WAIVER OF ANY SHAREHOLDER APPROVAL
REQUIREMENTS. The Company shall have received either
confirmation from NASDAQ that approval of the
shareholders of the Company is not required with
respect to the transactions pursuant to NASDAQ/NMS
rules otherwise applicable to the Transactions or a
waiver from NASDAQ of any such shareholder approval
requirements, and at least ten days have elapsed since
the
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date on which the Company has mailed a letter to its
shareholders alerting them to the omission to seek
shareholder approval of the transactions contemplated
hereby.
5.10 DISTRIBUTION AGREEMENT TERM SHEET. The
Distribution Agreement Term Sheet shall not have been
withdrawn or rescinded.
SECTION VI. CERTAIN COVENANTS OF THE INVESTORS AND THE COMPANY.
6.1 RIGHT OF FIRST REFUSAL. In the event (and on each
occasion) that prior to the conversion of the Series A
Preferred Stock, any Investor shall seek to sell its
shares of Series A Preferred Stock to any person or
entity (other than (i) an affiliate of such Investor
or another Investor or an affiliate of another
Investor, or (ii) any family member of an Investor or
in connection with estate planning matters), such
Investor shall obtain a bona fide written offer from
such person or entity and give the Company written
notice (a "Sale Notice") describing the material terms
of such offer, including the identity of such person
or entity and the proposed closing date. The Company
shall have ten (10) business days from the date on
which the Investor shall give the written Sale Notice
to agree to purchase all or any portion of such shares
of Series A Preferred Stock, upon the terms (other
than the closing date) specified in the Sale Notice,
by giving written notice (the "Purchase Notice") to
the Investor. If the Company agrees to purchase all or
any portion of such shares in accordance with the
foregoing, the closing of such purchase shall occur on
a date chosen by the Company which is no later than
the later of (x) the closing date specified in the
Sale Notice and (y) ten (10) business days from the
date of the Purchase Notice. If the Company does not
agree to purchase such shares, such Investor may sell
such shares to such person or entity on or prior to
the closing date set forth in the Sale Notice on terms
and conditions no less favorable to such Investor than
those set forth in the Sale Notice. If any Investor
fails to timely provide the Company with a Sale Notice
prior to selling shares of Series A Preferred Stock,
the Company may, in its sole discretion, refuse to
permit the transfer of such shares of Series A
Preferred Stock on its stock transfer ledger. The
provisions of this Section 6.1 shall terminate with
respect to any shares of Series A Preferred Stock
which are converted into shares of Common Stock of the
Company (or other securities or assets) pursuant to
the terms of the Certificate of Determination.
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6.2 EXCLUSIVE DEALING.
(a) Until the earlier of the Closing Date or the
termination of this Agreement, the Company will
not, and will instruct its representatives not to,
initiate, solicit or encourage (including by way
of furnishing information or assistance) any
Competing Transaction (as defined below), or enter
into or maintain discussions or negotiate with any
person in furtherance of or relating to or to
obtain a Competing Transaction, or agree to or
endorse any Competing Transaction, or authorize or
permit any representative of the Company or its
Subsidiaries to take any such action; provided,
however, that nothing contained in this Section
6.2 shall prohibit the Board of Directors of the
Company from (i) furnishing information to or
entering into discussions or negotiations with,
any person that makes an unsolicited, bona fide
written proposal regarding a Competing
Transaction, or agreeing to or endorsing any such
Competing Transaction (but only if the Company
first terminates this Agreement in accordance with
the provisions of Section VII) if the Board of
Directors of the Company, after consultation with
independent legal counsel with respect to legal
matters and a nationally recognized investment
banking firm with respect to business matters,
determines in good faith that the Competing
Transaction represents a more favorable
alternative to the Company's shareholders, and
that such action is required for the Company's
Board of Directors to comply with its fiduciary
duties to shareholders under applicable law or
(ii) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to a Competing
Transaction. The Company shall not be deemed to
have violated this Section 6.2(a) as a result of
its furnishing information to, or entering into
discussions or negotiations with , any person
regarding a Competing Transaction on or prior to
the date hereof.
(b) For purposes of this Agreement "Competing
Transaction" shall mean any of the following
involving the Company or its Subsidiaries: (a) any
merger, consolidation, business combination, or
other similar transaction as a result of which any
"person" becomes the "beneficial owner" (as each
such term is defined in Rule 13d-3 and Rule 3d-5
under the Exchange Act) of more than 50% of the
Company's outstanding voting securities; (b) any
sale or other disposition outside the ordinary
course of business of 50% or more of the fair
market value of the assets of the Company and its
Subsidiaries, taken as a whole, in a single
transaction or series of transactions; or (c) any
tender offer or exchange offer for more than 50%
of the Company's outstanding voting securities, or
(d) any other recapitalization transaction in
which investors (other than the Investors) provide
at least $5,000,000 in equity or subordinated debt
to the Company.
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6.3 CONDUCTING BUSINESS OF THE COMPANY. Except as set
forth in the Company Disclosure Schedule, from the
date of this Agreement until the Closing Date, unless
the prior written consent of Investors who would hold
more than a majority of the shares of Series A
Preferred Stock if the Closing had occurred shall have
been obtained, and except as otherwise is contemplated
by this Agreement, the Company will conduct, and will
cause each of its Subsidiaries to conduct, its
operations according to its ordinary and usual course
of business consistent with past practice and shall
use all reasonable efforts to preserve intact its
current business organizations, maintain its material
permits and contracts and preserve its relationships
with its customers, suppliers and others having
material business dealings with it. Without limiting
the generality of the foregoing, from the date of this
Agreement to the Closing Date, the Company shall not,
and shall cause each of its Subsidiaries not to (a)
issue, sell, grant, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale,
disposition or pledge or other encumbrance of (i) any
additional shares of capital stock of any class, or
any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe
for any shares of capital stock, or any rights,
warrants, options, calls, commitments or any other
agreements of any character to purchase or acquire any
shares of capital stock or any securities or rights to
subscribe for, any shares of capital stock, other than
shares of Common Stock issuable pursuant to options,
warrants or other rights, agreements, arrangements or
commitments described in Section 2.3 of the Company
Disclosure Schedule or (ii) any other securities in
respect of, in lieu of, or in substitution for shares
of Common Stock outstanding on the date hereof; (b)
redeem, repurchase or otherwise acquire, or propose to
redeem, repurchase or otherwise acquire, any of its
outstanding shares of capital stock; or (c) split,
combine, subdivide or reclassify any shares of Common
Stock or declare, set aside for payment or pay any
dividend, or make any other actual, constructive or
deemed distribution in respect of any capital stock of
the Company or otherwise make any payments to
stockholders in their capacity as such, except for
dividends by a direct or indirect wholly owned
subsidiary of the Company.
6.4 APPROVALS, ETC. Subject to the terms and
conditions provided herein, each of the parties hereto
agrees to (i) use all reasonable efforts to take all
action and to do all other things necessary, proper or
advisable to consummate and make effective as promptly
as practicable the transactions contemplated by this
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Agreement; and (ii) use all reasonable efforts to
obtain all necessary or appropriate waivers
contemplated by this Agreement.
6.5 ACCESS. The Company hereby agrees that, from the
date hereof until the earlier to occur of the
termination of this Agreement and the Closing Date,
the Company will grant the Investors and its (or
their) representatives such access during normal
business hours as may be reasonably requested to the
personnel, advisors, properties, books, accounts,
records, contracts and documentation of, or relating
to, the business and operations of the Company and its
Subsidiaries.
6.6 NMS WAIVER.
(a) The Company shall within two business days of
the date hereof submit to Nasdaq an application
seeking a written waiver of the shareholder
approval requirements of Rule 4310 of the Nasdaq
Stock Market Rules with respect to the issuance
and sale of the Series A Preferred Stock and
Warrants pursuant to this Agreement, and within
two business days of the date hereof mail a letter
to its shareholders alerting them to the omission
to seek shareholder approval of the Transactions
contemplated hereby. The application referred to
in this section has been approved by the Board of
Directors of the Company in accordance with Nasdaq
requirements. The Company and the Investors will
cooperate in making all filings and taking all
other actions which are reasonably required in
order to obtain such waiver from Nasdaq.
(b) The Company will provide the Investors with
drafts of written correspondence from the Company
to Nasdaq and shall obtain the approval of the
Investors (which approval shall not be
unreasonably withheld) prior to its delivery to
Nasdaq, and a copy of all correspondence received
from Nasdaq with respect to the matters discussed
in this Section 6.6, as soon as practicable after
the receipt thereof from Nasdaq. The Company
agrees to use all reasonable efforts to include
the Investors in all conference calls with
representatives of Nasdaq with respect to the
matters discussed in this Section 6.6
6.7 KL STOCK. During the period of 90 days beginning
with the Closing Date, the Company shall not sell,
transfer or otherwise dispose of in any public
transaction (collectively, "Transfer") any of the
shares of KL Stock delivered to the Company hereunder.
During the period of 9 months beginning with the day
immediately following the expiration of the 90-day
period referred to in the immediately preceding
sentence, the Company shall not Transfer more than
100,000 shares of KL Stock (subject to adjustment for
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stock splits, combinations, stock dividends and
similar events effected by KL after the date hereof)
during any 30 day period. Thereafter, the Company
shall be free to sell any of the KL Stock without
restriction, subject to compliance with any applicable
securities laws. Nothing herein should prohibit the
Company from engaging in any hedging activities (other
than short sales) with respect to the KL Stock.
6.8 DISTRIBUTION ARRANGEMENTS WITH XXXXXXX XXXXX.
Xxxxxxx-Xxxxx and the Company recognize and will try
to take advantage of the synergies between them
including discussing using Xxxxxxx-Xxxxx'x
international distribution system, production
capabilities, off balance sheet financing and the
branding of Xxxxxxx-Xxxxx'x family product and its
planned cartoon channel in Latin America.
SECTION VII. TERMINATION
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may
be terminated and the Transactions may be abandoned at
any time prior to the Closing Date by mutual consent
of the Company and Investors who would hold more than
a majority of the shares of Series A Preferred Stock
if the Closing had occurred.
7.2 TERMINATION BY EITHER INVESTORS OR THE COMPANY.
This Agreement may be terminated and the Transactions
may be abandoned by either the Company or the
Investors who would hold more than a majority of the
Series A Preferred Stock if the Closing had occurred
if:
(a) the Transactions shall not have been consummated
on or before May 28, 1999 (unless the Transactions
have not have been consummated solely due to: a
governmental authority having enacted, issued,
promulgated, enforced or entered any law, rule,
regulation, executive order or order that is then
in effect and has the effect of prohibiting the
consummation of the Transactions, in which case
either the Company or the Investors who would hold
more than a majority of the Series A Preferred
Stock if the Closing had occurred may terminate
this Agreement and abandon the Transactions on and
after the date three months after the date of this
Agreement), unless the failure to consummate the
Transactions is the result of a material breach of
this Agreement by the party seeking to terminate
this Agreement; or
(b) there shall be any law that makes consummation of
the Transactions, or any part thereof, illegal or
otherwise prohibited or any
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order that is final and nonappealable preventing
the consummation of the Transactions.
7.3 TERMINATION BY INVESTORS. This Agreement may be
terminated and the Transactions may be abandoned at
any time prior to the Closing Date, by Investors who
would hold more than a majority of the shares of the
Series A Preferred Stock if the Closing had occurred
if, prior to the Closing Date:
(a) there has been a breach of any material
representation, warranty, covenant or agreement on
the part of the Company set forth in this
Agreement (a "Terminating Company Breach");
provided, however, that, if such Terminating
Company Breach is curable by the Company through
the exercise of its reasonable best efforts and
for so long as the Company continues to exercise
such reasonable best efforts (but in no event
longer than thirty business days after the
Investors' notification to the Company of the
occurrence of such Terminating Company Breach),
the Investors may not terminate this Agreement
under this Section 7.3(a); or
(b) the Company or any of its representatives takes
any action referred to in Section 7.4(b) or enters
into an agreement to effect a Competing
Transaction.
7.4 TERMINATION BY THE COMPANY. This Agreement may be
terminated and the Transactions may be abandoned at
any time prior to the Closing Date by the Company:
(a) if there has been a breach of any material
representation, warranty, covenant or agreement on
the part of any Investor set forth in this
Agreement (a "Terminating Investor Breach");
provided, however, that, if such Terminating
Investor Breach is curable by such Investor
through the exercise of its reasonable best
efforts and for so long as such Investor continues
to exercise such reasonable best efforts (but in
no event longer than thirty business days after
the Company's notification to such Investor of the
occurrence of such Terminating Investor Breach),
the Company may not terminate this Agreement under
this Section 7.4(a);
(b) if prior to the Closing Date (i) the Board of
Directors of the Company withdraws, modifies or
changes its recommendation of this Agreement or
the Transactions or (ii) the Board of Directors of
the Company shall have recommended to the
shareholders of the Company any Competing
Transaction, or resolved to do either of the
foregoing; or
(c) if at least one business day has elapsed since all
of the conditions set forth in Section IV have
been fulfilled, the Company may terminate
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this Agreement at any time after April 19, 1999,
in the event that the Investors have not purchased
and paid for all of the shares of Series A
Preferred Stock to be purchased by them hereunder
at a closing date noticed by the Company.
7.5 TERMINATION FEE. If the Investors terminate this
Agreement pursuant to Section 7.3(a) or (b) or the
Company terminates this Agreement pursuant to Section
7.4(b), the Company shall pay to the Investors a
termination fee in the amount of $750,000, plus an
amount equal to documented fees and expenses incurred
by or on behalf of the Investors in connection with
the Transactions up to an aggregate maximum amount of
$250,000. The liability of the Company to pay the
termination fee in accordance with the preceding
sentence shall accrue as of the date the Investors
terminate this Agreement pursuant to Section 7.3(a) or
(b) or the Company terminates this Agreement pursuant
to Section 7.4(b); provided, however, that the Company
may delay payment of such fee until the earlier of (i)
six months following termination of this Agreement or
(ii) concurrently with the consummation of a Competing
Transaction in immediately available funds to an
account designated by the Investors in writing. The
obligation of the Company to pay any fees and expenses
in accordance with this Section 7.5 shall survive
termination of this Agreement by the Investors
pursuant to Section 7.3(a) or (b) or by the Company
pursuant to Section 7.4(b).
SECTION VIII. MISCELLANEOUS.
8.1 NO WAIVERS; CUMULATIVE REMEDIES. No failure or
delay on the part of the Investors, or any other
holder of any shares of Series A Preferred Stock in
exercising any right, power or remedy hereunder or
thereunder shall operate as waiver thereof; nor shall
any single or partial exercise of any such right,
power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein
provided are cumulative and not exclusive of any
remedies provided by law.
8.2 AMENDMENTS; WAIVER AND CONSENTS. This Agreement
may be amended or modified, and the obligations of the
Company and the Investors, with respect to the
Company's and each individual Investor's rights
hereunder, respectively, may be waived only by the
Company or an Investor, acting only for itself or
himself. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any
waiver or consent
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shall be effective only in the specific instance and
for the specific purpose for which given. Following
the Closing and the election to the Company's Board of
Directors of two directors selected by the Investors
as set forth in Section 4.4 hereof, any amendment,
modification or waiver of any of the Company's rights
under the Transaction Documents or the Certificate of
Determination shall require the approval of a majority
of the Company's directors who were not so elected.
8.3 CHANGES, WAIVERS, ETC. Neither this Agreement nor
any provision hereof may be changed, waived,
discharged or terminated orally, but only by a
statement in writing signed by the party against which
enforcement of the change, waiver, discharge or
termination is sought.
8.4 EXPENSES. If the Transactions are consummated, the
Company agrees to pay at the Closing the out-of-pocket
documented fees and expenses incurred by or on behalf
of the Investors which arise in connection with the
negotiation, preparation, execution and delivery of
this Agreement, the Certificate of Determination and
the Transactions contemplated hereby and thereby up to
but not in excess of $800,000. If this Agreement is
terminated pursuant to Section 7.3(a), the Company
agrees to pay upon demand the out-of-pocket documented
fees and expenses incurred by or on behalf of the
Investors which arise in connection with the
negotiation, preparation, execution and/or delivery of
this Agreement, the Certificate of Determination and
the Transactions contemplated hereby and thereby up to
but not in excess of $250,000.
8.5 NOTICES. All notices, requests, consents and
other communications required or permitted hereunder
shall be in writing and shall be delivered, or mailed
first-class postage prepaid, registered or certified
mail.
(a) if to any Investor addressed to such Investor at
its address as shown on the books of the Company,
or at such other address as such holder may
specify by written notice to the Company; or
(b) if to the Company at 0000 Xxxxxx xx xxx Xxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
Attention: President; or at such other address as
the Company may specify by written notice to the
Investors.
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8.6 ASSIGNMENT.
(a) This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of
the parties hereto and their respective successors
and permitted assigns.
(b) An Investor may only assign its rights under this
Agreement to purchase all or a portion of the
Series A Preferred Stock and/or Warrants which
such Investor has agreed to purchase to another
person or entity if such assignee assumes in
writing all of the obligations of such Investor
under this Agreement with respect to the Series A
Preferred Stock and/or Warrants so assigned and,
in the case of any such assignee that would after
such assignment hold Series A Preferred Stock
and/or Warrants convertible or exercisable into or
for more than 4.9% of the outstanding shares of
Common Stock (on a fully diluted basis), if such
assignee is specified on Schedule 1 hereto as a
permitted Designated Investor or has been approved
in writing by the Company in advance of such
assignment (a "Designated Investor").
8.7 SEVERABILITY. Whenever possible, each provision
of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but
if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining
provisions of this Agreement.
8.8 ENTIRE AGREEMENT. This Agreement and exhibits and
schedules hereto the other Transaction Documents
contain the entire agreement between the parties and
supersede any prior understandings, agreements or
representations by or between the parties, written or
oral, which may have related to the subject matter
hereof in any way.
8.9 GOVERNING LAW. The internal law, without regard
to conflicts of laws principles, of the State of
California shall govern all questions concerning the
construction, validity and interpretation of this
Agreement and the performance of the obligations
imposed by this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed
concurrently in two or more counterparts, each of
which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company and each of the Investors has caused
this Agreement to be executed by its duly authorized representative.
THE XXXXXX ENTERTAINMENT COMPANY
By: /s/ XXXXXXX XXXX
-------------------------------------
Name: Xxxxxxx Xxxx
Title: Interim Chief Financial
Officer
INVESTORS:
THE XXXXXXX-XXXXX COMPANY
By: /s/ XXXXXX XXXXXXX
-------------------------------------
Name: Xxxxxx Xxxxxxx
Title: Co-Chief Executive Officer
/s/ XXXXX X. XXXXXXX
----------------------------------------
Xxxxx X. Xxxxxxx
/s/ XXXXXXX X. XXXXX
---------------------------------------
Xxxxxxx X. Xxxxx
/s/ XXX XXXXXXX
---------------------------------------
Xxx Xxxxxxx
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SCHEDULE 1
INVESTORS
SHARES OF SERIES
A PREFERRED PURCHASE MANAGEMENT INVESTOR
NAME STOCK PRICE WARRANTS WARRANTS
---- ---------------- -------- ---------- --------
The Kushner- 55,000 $5,500,000 ------ 388,235
Xxxxx (payable in
Company shares of KL
Stock)
Xxxxx X. 10,000(1) $1,000,000 400,000 70,588
Xxxxxxx
Management, 0 $0 800,000 (up to ------
directors or 200,000 of which
consultants to can be allocated
the Company to Xxxxx X.
Xxxxxxx)
Xxxxxxx X. 95,000(1) $9,500,000 ----- 670,589
Xxxxx
Xxx Xxxxxxx 10,000 $1,000,000 ----- 70,588
Total: 170,000 $17,000,000 1,200,000 1,200,000
(1) Includes shares purchased by certain of the designated investors listed
below.
List of Permitted Designated Investors
Xxxxxxx Dallas
X. X. Xxxxxxxx
Xxx Xxxxxx
Xxxx Xxxx
Xxxxxx Xxxx
The Aries Fund
The Pennsylvania Merchant Fund
Xxx Xxxxxx
Xxxxxx Xxxxxxxx Xxxxx
Xxx Xxxxxxxx
Xxxxxx Pearl
Xxx Xxxxxx
Xxxx Xxxxxxx
Xxxxx Xxxxxxx
Sterling Capital
Xxx Xxxxx
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Xxxxx Pettise
Xxxx Xxxxxxxxx
Xxxxx Xxxxxxx
Xxxxxxxxxxx Xxxxxx
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ANNEX A
Principles to be Applied
All accounts shall be valued as of March 31, 1999 based upon consistent
application of generally accepted accounting principles and in accordance with
past practices as reflected in the 1998 Financials, except as noted on this
Annex A (which Annex A shall take precedence over the 1998 Financials).
No adjustment shall be made to the carrying value of the Company's film
assets, except for additions to film costs and amortization of film costs,
consistent with historical ultimate values, relating to revenue recognized
during the first quarter.
No accruals, reserves or similar amounts shall be reflected for
commitments and contingencies.
No adjustments shall be made for bad debt, goodwill (other than normal
amortization consistent with past practices) or in trademarks and copyrights.
No adjustments shall be made for events occurring on or after March 31,
1999, including but not limited to events relating to or arising from the
execution or consummation of the Stock Purchase Agreement and the transactions
contemplated thereby.
All deal costs through April 7, 1999 relating to the proposed sale or
recapitalization of the Company consisting of legal fees and costs and
investment banking fees and costs shall be added back to total stockholders'
equity (to the extent subtracted therefrom). Such deal costs consist of an
$800,000 fee (plus reasonable out-of-pocket expenses) to be paid to DLJ, a
$50,000 fee (plus reasonable out-of-pocket expenses) to be paid to Media
Finance, Inc. and an estimated $250,000 (plus reasonable out-of-pocket expenses)
to be paid to Xxxx Xxxxxxx Xxxxxxx Xxxx & Handler LLP.
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