STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") made as of March 27, 1997 among
Dove Entertainment, Inc., a California corporation (the "Company"), and the
persons listed on Appendix I hereto (each a "Purchaser" and collectively the
"Purchasers")
WITNESSETH:
WHEREAS, the Company desires to sell, and Media Equities International, LLC
("MEI") desires to purchase, subject to the terms and conditions of this
Agreement, shares of the newly designated Series B Preferred Stock of the
Company, par value $.01 per share (the "Series B Preferred Stock");
WHEREAS, the Company desires to sell, and Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx
("Xxxxx/Xxxxxx") desire to purchase, subject to the terms and conditions of this
Agreement, shares of the newly designated Series C Preferred Stock of the
Company, par value $.01 per share (the "Series C Preferred Stock" and together
with the Series B Preferred Stock, the "Preferred Stock"); and
WHEREAS, MEI will not purchase the Series B Preferred Stock unless
Viner/Xxxxxx purchase the Series C Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing and the covenants,
agreements, representations and warranties herein contained, and intending to be
legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. Sale of the Securities.
(a) Subject to the terms and conditions herein set forth, the Company
agrees to sell and issue to the Purchasers, and each Purchaser agrees to
purchase from the Company, securities of the Company as follows:
(i) on the Initial Closing Date (as hereinafter defined), MEI
shall purchase (A) that number of shares (the "Initial Series B
Preferred Shares") of Series B
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Preferred Stock set forth on Appendix I for a purchase price of $1,000
per share (the "Purchase Price") or an aggregate of $3,000,000, and
(B) a warrant (the "Initial MEI Warrant") to purchase the number of
shares of common stock of the Company, par value $.01 per share (the
"Common Stock") set forth on Appendix I (the "Initial MEI Warrant
Shares"), which warrant shall be in the form of Exhibit A-1 annexed
hereto for a purchase price of $.001 per Initial MEI Warrant Share
subject to the Warrant (the "Warrant Purchase Price");
(ii) On the Initial Closing Date, Viner/Xxxxxx will purchase (A)
that number of shares (the "Initial Series C Preferred Shares") of
Series C Preferred Stock set forth on Appendix 1 for the Purchase
Price, or an aggregate of $920,000, and (B) a warrant (the "Initial
Viner/Xxxxxx Warrant") to purchase the number of shares of Common
Stock set forth on Appendix 1 (the "Initial Viner/Xxxxxx Warrant
Shares"), which warrants shall be in the form of Exhibit A-2 annexed
hereto for the Warrant Purchase Price;
(iii) on the Second Closing Date (as hereinafter defined) MEI
will purchase (A) that number of shares (the "Second Series B
Preferred Shares") of Series B Preferred Stock set forth on Appendix I
for the Purchase Price or an aggregate of $1,000,000 and (B) a warrant
(the "Second MEI Warrant") to purchase the number of shares of Common
Stock set forth on Appendix I for the Warrant Purchase Price; and
(iv) On the Second Closing Date, Viner/Xxxxxx will purchase (A)
that number of shares (the "Second Series C Preferred Shares") of
Series C Preferred Stock set forth on Appendix I for the Purchase
Price or an aggregate of $1,000,000, and (B) a warrant (the "Second
Viner/Xxxxxx Warrant") to purchase the number of shares of common
stock set forth on Appendix I (the "Second Viner/Xxxxxx Warrant
Shares").
(b) The following additional defined terms have the following meanings:
(i) "Initial Preferred Shares" means the Initial Series B
Preferred Share or the Initial Series C Preferred Shares, or any of
them.
(ii) "Initial Warrants" means the Initial MEI Warrant or the
Initial Viner/Xxxxxx Warrant, or any of them.
(iii) "Initial Warrant Shares" means the Initial MEI Warrant
Shares or the Initial Viner/Xxxxxx Warrant Shares, or any of them.
(iv) "Preferred Shares" means the Initial Preferred Shares or the
Second Preferred shares, or any of them.
(v) "Second Preferred Shares" means the Second Series B Preferred
Shares or the Second Series C Preferred Shares, or any of them.
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(vi) " Second Warrants" means the Second MEI Warrant or the
Second Viner/Xxxxxx Warrant Shares, or any of them.
(vii) "Second Warrant Shares" means the Second MEI Warrant Shares
or the Second Viner/Xxxxxx Warrant, or any of them.
(viii) "Warrants" means the Initial Warrants or the Second
Warrants, or any of them.
(ix) "Warrant Shares" means the Initial Warrant Shares or the
Second Warrant Shares, or any of them.
(c) In connection with the purchase of the Preferred Shares and Warrants,
each of MEI and Viner/Xxxxxx shall each have the right to assign, all or a
portion of its rights (but not its obligation) to purchase such securities from
the Company under this Agreement to any person, provided, such person submits to
the Company at the Initial Closing or Second Closing, as the case may be, a
certificate setting forth the representations in Sections 3.2, 3.3 and 3.4
hereinbelow.
(d) In connection with the sale and issuance of the Preferred Shares and
Warrants the Company agrees to register the shares of Common Stock issuable upon
conversion of the Preferred Shares (the "Common Shares") and Warrant Shares as
set forth in the form of Registration Rights Agreement annexed hereto as Exhibit
B (the "Registration Rights Agreement").l
1.2. Closing. The closing of the issuance and sale of the Initial Preferred
Shares and Initial Warrants to the Purchasers (the "Initial Closing")
shall take place at the offices of the Company on the date of this
Agreement or on such other date as shall be mutually agreed upon by
the parties to this Agreement (the date on which the Initial Closing
actually takes place being referred to as the "Initial Closing Date")
and the closing of the issuance and sale of the Second Preferred
Shares and Second Warrants (the "Second Closing") shall take place at
the offices of the Company as soon as practicable after the Initial
Closing Date but in any event not later than May 25, 1997 or on such
other date as shall be mutually agreed upon by the parties to this
Agreement (the date on which the Second Closing actually takes place
being referred to as the "Second Closing Date").
1.3. Delivery.
(a) At the Initial Closing, the Company shall issue and deliver to each
Purchaser (i) a certificate or certificates, registered in the name of the
Purchaser, representing the Initial Preferred Shares being purchased by such
Purchaser, against delivery to the Company of the Purchase Price therefor by
wire transfer except as provided in Appendix I and (ii) the Initial Warrant
being purchased by such Purchaser against the delivery of the Initial Warrant
Purchase Price therefore by wire transfer and shall execute and deliver the
Registration Rights Agreement; and
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(b) At the Second Closing, the Company shall issue and deliver to each
Purchaser (i) a certificate or certificates registered in the name of such
Purchaser, representing the Second Preferred Shares being purchased by such
Purchaser against delivery to the Company of the Purchase Price therefor by wire
transfer except as provided in Appendix I and (ii) the Second Warrant against
the delivery of the Warrant Purchase Price by wire transfer.
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchasers the following
(provided, that the representations and warranties to the Purchasers who are
current members of management of the Company are limited to matters affecting
the authorization and validity of the Preferred Shares, Common Shares, Warrants
and Warrant Shares issuable to such Purchasers):
2.1. Organization and Standing of the Company. The Company is a corporation
duly incorporated, validly existing and in good standing under the
laws of the State of California, and has all requisite corporate power
and authority to own and lease its properties and assets and to
conduct its business as currently conducted. The Company is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction where its ownership,
lease or operation of property in the course of its business requires
such qualification, except where the failure to so qualify would not
have a material adverse effect on the business, operations or
financial condition of the Company and its subsidiaries taken as a
whole (a "MAE").
2.2. Authorization.
(a) The Company has all requisite corporate power and authority to execute
and deliver this Agreement, the Warrants, the Registration Rights Agreement, the
Pledge Agreement and the Consulting Agreement (as hereinafter defined), and to
carry out the transactions contemplated hereby and thereby. The terms and
provisions of this Agreement, the Warrants and the Registration Rights
Agreement, the Pledge Agreement, the Certificate of Determination of the Series
B Preferred Stock, and the Certificate of Determination of the Series C
Preferred Stock have been reviewed by the independent directors of the Company
who have unanimously recommended to the Board of Directors that they be approved
and that this Agreement, the Warrants, the Registration Rights Agreement, the
Pledge Agreement and the Consulting Agreement, be executed and delivered. The
execution, delivery and performance of this Agreement, the Warrants, the
Registration Rights Agreement, the Pledge Agreement and the Consulting Agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement, the Warrants, the Registration Rights Agreement and the Pledge
Agreement have been, and the Consulting Agreement when executed and delivered by
the Company will, be duly executed and delivered by the Company and constitute
the valid and binding obligations of
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the Company, enforceable against the Company in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and general equitable principles.
(b) The Company has reserved from its authorized but unissued shares of
Common Stock sufficient shares of Common Stock for issuance upon the conversion
of the Preferred Shares into Common Shares and Warrant Shares issuable upon the
date hereof, and the Consulting Shares issuable under the Consulting Agreement
2.3. Capital Stock. The authorized shares of the Company consist of
20,000,000 shares of Common Stock and 2,000,000 shares of preferred
stock, $.01 par value per share, of which 400,000 shares have been
designated Series A Preferred Stock, 5,000 shares have been designated
Series B Preferred Stock, and 5,000 shares have been designated Series
C Preferred Stock. The voting rights, preferences, limitations and
special rights of the Series B Preferred Stock are set forth in the
resolutions adopted by the Board of Directors of the Company on March
27, 1997, a copy of which is annexed hereto as Schedule 2.3(a). The
voting rights, preferences, limitations and special rights of the
Series C Preferred Stock are set forth in resolutions adopted by the
Board of Directors of the Company on March 27, 1997, a copy of which
is annexed hereto as Schedule 2.3(b). As of the date hereof, there are
5,313,240 shares of Common Stock and 214,113 shares of Series A
Preferred Stock of the Company outstanding and 2,819,120 shares of
Common Stock issuable upon execution of currently outstanding options
and warrants and conversion of convertible securities, as set forth in
Schedule 2.3(c). Also set forth on Schedule 2.3(c) is the number of
shares of Common Stock which will be issuable upon exercise of
currently outstanding options and warrants and conversion of
convertible securities after giving affect to the transactions
contemplated by this Agreement, including the issuance of the Warrant
Shares. Except as set forth in Schedule 2.3(c) or contemplated hereby,
there are no outstanding subscriptions, warrants, options or other
rights or commitments of any character to subscribe for or purchase
from the Company, or obligating the Company to issue, any shares of
any class of the Company's Common Stock or any securities convertible
into or exchangeable for such shares of Common Stock. There are no
voting trusts or other agreements or understandings known to the
Company with respect to the voting of the capital stock of the
Company.
2.4. Issuance of the Preferred Shares, the Common Shares, the Warrants and
the Warrant Shares.
(a) The sale, issuance and delivery of the Preferred Shares in accordance
with the terms of this Agreement have been duly authorized by all necessary
corporate action, and the Preferred Shares, when so sold, issued and delivered,
against the full payment of the Purchase Price will be duly and validly issued,
fully paid and nonassessable.
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(b) The issuance and delivery of the Common Shares have been duly
authorized by all necessary corporate action, and the Common Shares, when so
issued and delivered upon conversion of the Preferred Shares, will be duly and
validly issued, fully paid and nonassessable.
(c) The issuance and delivery of the Warrant Shares have been duly
authorized by all necessary corporate action, and the Warrant Shares, when so
issued and delivered in accordance with the terms of the Warrants, including
payment of the purchase price therefor, will be duly and validly issued, fully
paid and nonassessable.
(d) The issuance and delivery of the shares issuable pursuant to the
Consulting Agreement (the "Consulting Shares") have been duly authorized by all
necessary corporate action; and the Consulting Shares, when so issued and
delivered in accordance with the terms of the Consulting Agreement, will be duly
and validly issued, fully paid and nonassessable.
(e) Neither the sale, issuance and delivery of the Preferred Shares nor the
Common Shares nor the Warrants nor the Warrant Shares nor the Consulting Shares
are subject to any preemptive rights of stockholders of the Company or to any
right of first refusal or other similar right in favor of any person.
2.5. Consents and Approvals. Except for filings under Federal and
applicable state securities laws and the filing of the Certificates of
Determination of the Preferred Stock with the Secretary of State of
the State of California which shall be accomplished as required prior
or subsequent to the issuance of the Preferred Shares, no permit,
consent, approval or authorization of, or declaration to or filing
with any governmental or regulatory authority or other person, not
made or obtained, is required in connection with the execution or
delivery of this Agreement by the Company, the offer, sale, issuance
or delivery of the Preferred Shares, the Common Shares, the Warrants
or the Warrant Shares, or the carrying out by the Company of the other
transactions contemplated hereby.
2.6. Private Offering.
(a) Neither the Company nor anyone acting on behalf of the Company has
offered the Preferred Shares, the Common Shares, the Warrants or the Warrant
Shares for sale to, or solicited offers to buy from, or otherwise approached or
negotiated with, any individual or entity in connection with the sale of such
securities other than a limited number of investors, including the Purchasers.
Assuming the accuracy of each Purchaser's representations contained in Section 3
of this Agreement, the offer, issuance and delivery of the Preferred Shares, the
Common Shares, the Warrants and the Warrant Shares are exempt from registration
under the Securities Act of 1933, as amended (the "1933 Act"), and all action
required to be taken prior to the offer or sale of the Preferred Shares, the
Common Shares, the Warrants and the Warrant Shares has been taken under the
applicable state securities laws.
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(b) The Company represents and warrants to the Purchasers that it has not
since September 30, 1996 completed any financing, except as set forth on
Schedule 2.6.
2.7. Articles of Incorporation and By-Laws.
(a) True, correct and complete copies of the Company's Articles of
Incorporation, including all amendments and restatements to the date hereof (as
amended, the "Articles of Incorporation"), as filed with the Secretary of State
of the State of California, have been delivered to the Purchasers and remain
true, correct, complete and in effect.
(b) True, correct and complete copies of the Company's By-Laws, including
all amendments and restatements to the date hereof (as amended, the "By-Laws"),
have been delivered to the Purchasers and remain true, correct, complete and in
effect.
2.8. No Conflict with Law or Documents. Except as set forth on Schedule
2.8, the execution, delivery and performance by the Company of this
Agreement, the Warrants and the Registration Rights Agreement, and the
performance by the Company of its obligations under such documents,
and the sale, issuance and delivery of the Preferred Shares, the
Common Shares, the Warrants and Warrant Shares, will not violate any
provision of law, any order of any court or other agency of
government, the Articles of Incorporation or By-Laws, or any provision
of any indenture, agreement or other instrument by which the Company
or any of its properties or assets is bound or affected, or conflict
with, result in a breach of, result in or permit the termination of or
acceleration of rights or obligations under, or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
2.9. Operations. The Company has not carried on any business except as set
forth in its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, its Form 10-KSB/A for the fiscal year ended
December 31, 1995, its Quarterly Reports on Form 10-QSB for the
quarters ended March 31, June 30 and September 30, 1996 and its Proxy
Statement relating to its Annual Meeting of Shareholders in November,
1996 (collectively, the "SEC Documents"), true, correct and complete
copies of which have been delivered to the Purchasers.
2.10. Subsidiaries. Except set forth on Schedule 2.10, the Company has no
subsidiaries and does not own any interest, directly or indirectly,
in any other corporation, partnership, joint venture or other
enterprise or entity.
2.11. Litigation. Except as set forth in Schedule 2.11 hereof, there are no
(a) actions, suits, customer claims individually in excess of $50,000
or in the aggregate
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in excess of $150,000, or any proceedings or investigations at law or
in equity or by or before any governmental instrumentality or other
agency now pending or to the Company's knowledge, threatened against
or adversely affecting the Company, or (b) judgments, decrees,
injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator against or
affecting the Company, except as in all matters under (a) and (b)
which, are not reasonably expected to result in a MAE, or are covered
by appropriate amounts of insurance.
2.12. Intellectual Property.
(a) Set forth on Schedule 2.12 is a true and complete list of the Company's
library and audio titles, books, films and television products as of December
31, 1996 (the "Products"), except for Products ("Nonmaterial Products") which in
the aggregate do not generate a material amount of revenues for the Company or
for which the Company is not obligated to pay in the aggregate a material amount
in connection with obtaining or retaining the rights thereto. The Company owns,
is licensed or otherwise has the right to all intellectual property relating to
the Products, and all rights to use all patents, trademarks, service marks,
trade names, copyrights, licenses, franchises and other rights (collectively
including with respect to the intellectual property relating to the Products,
the "Rights") being used to conduct its business as now operated. The Company
has provided, or made available, the Purchasers with a complete set of all such
agreements permitting the Company to use the Rights of third parties or allowing
third parties to use the Rights of the Company except agreements which relate to
Nonmaterial Products. Set forth in Schedule 2.12 is a complete list of licenses
or other contracts relating to the Rights and of registration of patents,
trademarks, service marks and copyrights including any application therefor
constituting the Rights as of December 31, 1996 except for licenses or other
contracts relating to Nonmaterial Products.
(b) No Right or Product presently sold by or employed by the Company, or
which the Company contemplates selling or employing, infringes upon the Rights
that are owned by any third party except as would not result in a MAE.
(c) No litigation is pending and no claim has been made against the
Company, or to the best of Company's knowledge, is threatened, contesting the
right of the Company to sell or use any Right or Product presently sold or
employed by the Company except as disclosed in Schedule 2.11.
(d) Except as set forth on Schedule 2.12, no employee, officer or
consultant of the Company has any proprietary, financial or other interest in
any Right owned or used by the Company which entitles such person to the payment
of an amount in excess of $10,000 with respect to any single Right, or $25,000
with respect to all Rights in which such person has an interest.
(e) The Company has taken reasonable measures to protect and preserve the
security, confidentiality and value of its Rights, including trade secrets and
other confidential information.
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2.13. Undisclosed Liabilities. Except for the agreements and obligations
listed in Schedule 2.13 or on the balance sheet for the Company
included in its Quarterly Report on Form 10-QSB for the three months
ended September 30, 1996, the Company does not have any outstanding
liability except for liabilities incurred in the ordinary course of
business which are either for amounts less than $50,000 or are
cancelable on not more than 30 days notice. The Company is not in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or
instrument to which it is a party that could reasonably be expected
to result in a MAE.
2.14. Financial Statements. The Company has furnished to the Purchasers the
audited consolidated balance sheets of the Company as of December 31,
1995 and the unaudited consolidated balance sheets of the Company as
of September 30, 1996 and the related consolidated statements of
operations, stockholders' equity (net capital deficiency), and cash
flows of the Company for the fiscal year ended December 31, 1995 and
the nine months ended September 30, 1996 (unaudited) which audited
financial statements include the report of the Company's independent
auditors, KPMG Peat Marwick LLP. The financial statements as of and
for the nine months ended September 30, 1996 have been certified by
the principal financial officer of the Company. Such financial
statements are complete and correct, have been prepared in accordance
with generally accepted accounting principles ("GAAP"), consistently
applied, and present fairly the consolidated financial position of
the Company as of such respective dates, and the consolidated results
of its operations and cash flows for the respective periods then
ended, subject with respect to the nine month financial statements to
normal year end and audit adjustments.
2.15. Events Subsequent to September 30, 1996. Except as set forth in
Schedule 2.15, since September 30, 1996, there has not been any
material adverse change in the assets, liabilities, income, business,
operations or prospects of the Company. Since September 30, 1996,
other than the disclosure set forth in Schedule 2.15 hereto, the
Company has not (i) issued any stock, bonds or other securities, (ii)
borrowed any amount or incurred any liabilities (absolute or
contingent), except current liabilities incurred, and liabilities
under contracts entered into, in the ordinary course of business,
(iii) discharged or satisfied any lien or incurred or paid any
obligation or liability (absolute or contingent) other than current
liabilities shown on its balance sheet as of September 30, 1996,
referred to in Section 2.13 hereof and current liabilities incurred
since that date in the ordinary course of business, (iv) declared or
made any payment or distribution to stockholders as such or purchased
or redeemed any shares of its capital stock or other securities or
interests, (v) mortgaged, pledged or subjected to lien any of its
assets, tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets, except in the ordinary course
of business, or canceled any debts or claims, (vii) sold, assigned or
transferred any patents, trademarks, trade names,
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copyrights, trade secrets or other intangible assets outside the
ordinary course of business, (viii) made any changes in officer
compensation, or (ix) entered into any transaction except in the
ordinary course of business.
2.16. Title to Properties. The Company has good and marketable title to all
of its owned properties and assets, free and clear of all mortgages,
pledges, security interests, liens, charges and other encumbrances,
except for Permitted Encumbrances (as defined below). The Company
enjoys peaceful and undisturbed possession under all leases relating
to real property and all other leases (other than immaterial leases
which can be replaced on substantially the same terms) necessary for
the operation of the business; and all such leases are valid and
subsisting and in full force and effect. As used herein, "Permitted
Encumbrances" means any mortgages, pledges, security interests,
liens, charges and other encumbrances (i) as described in Schedule
2.16 hereto, (ii) liens for current taxes, assessments and other
governmental charges not overdue (other than liens, assessments or
charges being contested in good faith), (iii) mechanic's,
materialmen's and similar liens which may have arisen in the ordinary
course of business and which, in the aggregate, would not be material
to the financial condition of the Company, (iv) security interests
securing indebtedness not in default for the purchase price of or
lease rental payments on property purchased or leased under capital
lease arrangements in the ordinary course of business, and (v) minor
imperfections of title, if any, not material in amount and not
materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed
operations of the Company.
2.17. Real Property. Other than the premises containing the Company's
headquarters located at 0000 Xxxxxxx Xxxxxxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx, the Company owns no real property.
2.18. Taxes.
(a) The Company has timely filed all federal, state and local income tax
returns and has timely filed with all appropriate governmental agencies all
sales, ad valorem, franchise and other tax, license, gross receipts and other
similar returns and reports required to be filed by the Company. The Company has
reported all taxable income and losses on those returns on which such
information is required to be reported, and paid or provided for the payment of
all taxes on said returns or taxes due pursuant to any assessment received by
it, including without limitation, any taxes by law to be withheld and/or paid in
connection with any officer's or employee's compensation or due pursuant to any
assessment received by it. There are no agreements for the extension of time for
the assessment or payment of any amounts of tax. The Company has made available
to the Purchasers for inspection copies of income tax returns that are true and
complete copies of the federal and applicable state, local or other income tax
returns filed by the Company.
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(b) The Company has paid all tax liabilities of the Company arising through
the end of the taxable year ended December 31, 1995. All tax liabilities of the
Company arising after December 31, 1995 have been paid or adequately disclosed
and properly reserved for on the books and records and financial statements of
the Company. No federal or applicable state, local or other tax return of the
Company for any period has been or is currently under audit by the Internal
Revenue Service or any state, local or other tax authorities. Except for an
intangible tax assessment by Florida for approximately $11,000 (inclusive of
accrued interest), no claim has been made by federal, state, local or other
authorities relating to such returns or any audit. For purposes of this section,
the word "timely" shall mean that such returns were filed within the time
prescribed by law for the filing thereof, including the time permitted under any
applicable extensions. The Company is not aware of any facts which it believes
would constitute the basis for the proposal of any material tax deficiencies for
any unexamined year. All taxes which the Company is required by law to withhold
and collect have been duly withheld and collected, and has been timely paid over
to the proper authorities to the extent due and payable.
2.19. Environmental Matters. The Company has complied with each and is not
in violation of any, federal, state or local law, regulation, permit,
provision or ordinance relating to the generation, storage,
transportation, treatment or disposal of hazardous, toxic or
polluting substances, except where such noncompliance or violation
could not reasonably be expected to result in a MAE. The Company has
obtained and adhered to all necessary permits and other approvals
necessary to store, dispose, and otherwise handle hazardous, toxic
and polluting substances, the failure of which to obtain or adhere to
could not reasonably be expected to result in a MAE. The Company has
reported, to the extent required by federal, state and local law, all
past and present sites where hazardous, toxic or polluting
substances, if any, from the Company have been treated, stored or
disposed. The Company has not transported any hazardous, toxic or
polluting substances or arranged for the transportation of such
substances to any location which is the subject of federal, state or
local enforcement actions or other investigations which may lead to
claims against the Company for clean-up costs, remedial work, damages
to natural resources or for personal injury claims, including, but
not limited to, claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended which
claims would result in a MAE.
2.20. Use of Proceeds. The Company will apply the proceeds of the issuance
and sale of the Preferred Shares and Warrant Shares for working
capital purposes.
2.21. Compliance with Law.
(a) The Company is not in default under any order of any court,
governmental authority or arbitration board or tribunal to which the Company is
or was subject or in violation of any laws, ordinances, governmental rules or
regulations (including, but not limited to, those relating to environmental,
safety, building, product safety or health standards or employment matters) to
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which the Company is or was subject, in each case, that could reasonably be
expected to result in a MAE. The business is being conducted in compliance with
all applicable laws, ordinances, rules and regulations applicable to the
Company, the non-compliance with which could reasonably be expected to have a
MAE. The Company has not failed to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its properties
or to the conduct of its business, which failure could have a MAE.
(b) The Company has filed all documents (the "Filings") required to be
filed with the Securities and Exchange Commission (the "Commission") pursuant to
the 1933 Act and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and true, correct and complete copies of the Filings have been made
available to the Purchasers. The Filings complied in all material respects with
the requirements of the 1933 Act and the Exchange Act, as applicable, and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order the render the
statement not misleading in light of the circumstances in which they were made.
Except as set forth on Schedule 2.21, the Company has filed in a timely manner
all reports required to be filed since May 1, 1996.
2.22. Employee Benefit Plans.
(a) The Company has complied and currently is in compliance, both as to
form and operation, with the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue
Codes of 1954 and/or 1986, as amended, respectively (the "Code"), with respect
to each "employee benefit plan" as defined under Section 3(3) of ERISA ("Plan")
which the Company (i) has ever adopted, maintained, established or to which the
Company has ever been required to contribute or to which the Company has ever
contributed or (ii) currently maintains or to which the Company currently
contributes or is required to contribute or (iii) currently participates in or
is required to participate in, except in each case or all cases in the aggregate
where such noncompliance would not result in a MAE.
(b) Except as set forth on Schedule 2.22, the Company has never maintained,
adopted or established, contributed or been required to contribute to, or
otherwise participated in or been required to participate in, a "multi-employer
plan" (as defined in Section 3(37) of ERISA). No amount is due or owing from the
Company on account of a "multi-employer plan" (as defined in Section 3(37) of
ERISA) or on account of any withdrawal therefrom.
(c) Notwithstanding anything else set forth herein, the Company has not
incurred any material liability with respect to a Plan, including, without
limitation, under ERISA (including, without limitation, Title I or Title IV of
ERISA and other than liability for premiums due to the Pension Benefit Guaranty
Corporation), the Code or other applicable law, which has not been satisfied or
reserved in full, and no event has occurred, and except as set forth on Schedule
2.22 there exists no condition or set of circumstances which could result in the
imposition of any material liability with respect to the Plan, including,
without limitation, under ERISA (including, without limitation, Title I or Title
IV of ERISA), the Code or other applicable law with respect to the Plan.
12
(d) Except as set forth on Schedule 2.22, the Company has not committed
itself, orally or in writing, to (i) provide or cause to be provided to any
person now or at any time covered by any Plan any payments or benefits, which
are material either singly or in the aggregate, in addition to, or in lieu of,
those payments or benefits set forth under any Plan, or (ii) continue the
payment of, or accelerate the payment of, benefits, which are material either
singly or in the aggregate, under any Plan, except as expressly set forth
thereunder. Complete and correct copies of all written arrangements described in
the preceding sentence as in effect on the date hereof have been delivered to
the Purchasers.
(e) Except as set forth on Schedule 2.22, the Company has not committed
itself, orally or in writing, to provide or cause to be provided any severance
or other post-employment benefit, salary continuation, termination, disability,
death, retirement, health or medical benefit, or similar benefit to any person
(including, without limitation, any former or current employee) except as set
forth under any Plan, except for such benefits which individually or in the
aggregate are not material. Complete and correct copies of all written
arrangements described in the preceding sentence as in effect on the date hereof
have been delivered to the Purchasers.
2.23. Insurance. All policies of liability, theft, fidelity, business
interruption, life, fire, product liability, workmen's compensation,
health and other forms of insurance held by the Company are valid and
enforceable policies and are outstanding and duly in force and all
premiums with respect thereto are paid to date. To the best of the
Company's knowledge, the amounts of coverage under such policies of
insurance for the assets and properties of the Company are adequate
against risks usually insured against by persons operating similar
businesses and operating similar properties.
2.24. Registration Rights. Except as contemplated by or described in the
Registration Rights Agreement and other than as set forth on Schedule
2.24, no person has any right to cause the Company to effect the
registration under the 1933 Act of any of the Company's debt or
equity securities.
2.25. Compensation Arrangements. Except as contemplated by this Agreement
or as set forth in Schedule 2.25 hereto, (i) the Company is not a
party to any employment or deferred compensation agreements that
require payments by the Company to any individual in excess of
$100,000 in any year, (ii) the Company does not have any bonus,
incentive or profit-sharing plans that would require payments by the
Company to any individual in an amount equal to or exceeding $10,000,
and (iii) there are no existing material arrangements or proposed
material transactions between the Company and any officer or director
or holder of more than 5% of the capital stock of the Company.
Complete and correct copies of all written arrangements described in
the preceding sentence as in effect on the date hereof have been
delivered to the Purchasers.
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2.26. Key Employees. The persons listed on Schedule 2.26 hereto are all
persons considered "key employees" by the Board of Directors. All of
such persons are parties to confidentiality customary for employees
of comparable responsibility and value. All copies of key man life
insurance policies, if any, have been delivered to the Purchasers.
2.27. Labor Matters. Except as set forth on Schedule 2.27, the Company is
not a party to any collective bargaining agreement with any labor
union or association. There are no discussions, negotiations, demands
or proposals that are pending or have been conducted or made with or
by any labor union or association, and there are no pending or
threatened labor disputes, strikes or work stoppages that may have a
material adverse effect upon the continued business or operation of
the Company, other matters of an industry-wide level. The Company is
in compliance in all material respects with all federal and state
laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in
any unfair labor practices.
2.28. Disclosure. Neither this Agreement nor any other document,
certificate, instrument or statement furnished or made to the
Purchasers by or on behalf of the Company in connection with the
transactions contemplated hereby contain any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements contained herein and therein not misleading in
light of the circumstances under which they were made.
SECTION 3
PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants to the Company the following:
3.1. Authorization. Such Purchaser has all requisite power and authority to
execute this Agreement and the Registration Rights Agreement and the
Pledge Agreement, and to carry out the transactions contemplated
hereby and thereby. The execution, delivery and performance of this
Agreement by such Purchaser have been duly authorized by all requisite
corporate action, and this Agreement has been duly executed and
delivered by such Purchaser and the Pledge Agreement when duly
executed and delivered by such Purchaser will constitutes its valid
and binding obligation, enforceable against such Purchaser in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights
generally and general equitable principles.
14
3.2. Purchase for Investment. The Preferred Shares, Common Shares, Warrants
and the Warrant Shares are being acquired by such Purchaser for its
own account, not as a nominee or agent, for investment and not with a
view to resale or distribution within the meaning of the 1933 Act, and
the rules and regulations thereunder, and such Purchaser will not
distribute the Preferred Shares, Common Shares, the Warrants or the
Warrant Shares in violation or contravention of the 1933 Act. Such
Purchaser is not aware of any facts or circumstances that contradict
the representation in the first sentence of Section 2.6(a).
3.3. Restrictions on Transfer. The Purchaser acknowledges that (a) the
Preferred Shares, Common Shares, the Warrants and the Warrant Shares
are not registered under the 1933 Act as of the Closing Date, (b) the
Preferred Shares, Common Shares, Warrants and Warrant Shares will not
be transferable unless so registered or unless an exception for such
registration is applicable and (c) the certificates representing the
Preferred Shares and the Common Shares, the Warrants, and the
certificates representing the Warrant Shares will bear a legend
substantially in the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE,
SOLD, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF
THE SECURITIES MAY BE MADE BY THE COMPANY OR ITS TRANSFER AGENT, IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM."
3.4. Sophistication; Access to Information.
(a) Such Purchaser represents and warrants to the Company, that such
Purchaser and if such Purchaser is a corporation each shareholder of Purchaser
(i) is an "accredited investor" as defined in the 1933 Act and is financially
able to purchase the Preferred Shares, the Common Shares, the Warrants and the
Warrant Shares issuable upon exercise of the Warrant subscribed for hereunder,
(ii) is fully capable of understanding the type of investment being made
pursuant to this Agreement and the risks involved in connection therewith, (iii)
believes that the nature of the Preferred Shares, the Common Shares, the
Warrants and the Warrant Shares are consistent with their overall investment
programs and financial position, (iv) recognizes that there are substantial
risks involved in their purchase of the Preferred Shares, the Common Shares, the
Warrants and the Warrant Shares, (v) is capable of bearing the economic risk of
its investment for an indefinite period of time and can afford a complete loss
of its investment, (vi) has adequate means of providing for their current
liquidity needs, (vii) has no need for liquidity of their investment, (viii) is
not expecting any short term income from their investment and (ix) has no reason
to anticipate any change in personal circumstances, financial or otherwise,
which may cause or require any sale of the Preferred Shares, the Common Shares,
the Warrants or the Warrant Shares.
15
(b) Such Purchaser acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Preferred Shares, the Common Shares, the Warrants and Warrant
Shares and (ii) business and financial conditions of the Company; and such
Purchaser has received to its satisfaction, such additional information about
the business and financial conditions of the Company and the terms and
conditions of the purchase and delivery of the Preferred Shares, the Common
Shares and the Warrants, as it has requested.
SECTION 4
CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
A. The Purchasers' obligation to purchase the Initial Preferred Shares and
Initial Warrants on the Initial Closing Date is subject to the fulfillment to
their respective satisfaction of the following conditions:
4.1. Representations and Warranties. On the Initial Closing Date, the
representations and warranties contained in Section 2 hereof made to
such Purchaser shall be true and correct with the same effect as
though made on and as of the Closing Date (except for representations
and warranties limited to a specific time).
4.2. Compliance with this Agreement. All the covenants, agreements and
conditions contained in this Agreement to be performed or complied
with by the Company on or prior to each Closing Date shall have been
performed or complied with or waived to each Purchaser's satisfaction.
4.3. Closing Certificate. The Company shall have delivered to the
Purchasers a certificate, dated the Initial Closing Date and the
Second Closing Date, as the case may be, and signed by the Company's
Chief Executive Officer, President and Chief Financial Officer,
certifying that the Company has satisfied the conditions set forth in
this Agreement applicable to such Purchaser, including by reference
the conditions specified in Sections 4.1 and 4.2.
4.4. Secretary's Certificate. At the Initial Closing Date, the Purchasers
shall have received a certificate from the Company, dated the Initial
Closing Date and signed by the Secretary of the Company, certifying
(i) that the attached copies of the Articles of Incorporation, By-Laws
and resolutions of the Board of Directors of the Company authorizing
the execution of this Agreement by the Company, the sale, issuance and
delivery by the Company to the Purchasers of the Preferred Shares, the
Common Shares, the Warrants and the Warrant Shares and reserving for
issuance the Common Shares, the Warrant Shares and the Consulting
Shares are all true, correct and complete and remain unamended and in
full force and effect and (ii) as to the
16
incumbency of all officers of the Company executing any document
signed on behalf of the Company in connection with the transaction
contemplated hereby.
4.5. No Litigation, Material Judgments or Orders. On the Initial Closing
Date, there shall not be any pending or threatened suit, action or
litigation, or administrative, arbitration or other proceeding or
governmental inquiry or investigation questioning the validity of this
Agreement or the transactions contemplated hereby.
4.6. Opinion. At the Initial Closing, the Purchasers shall have received an
opinion of Xxxxx Xxxxxxx, general counsel to the Company,
substantially in the form of Exhibit C hereto.
4.7. Consents and Approvals. All consents, waivers, exemptions,
authorizations or other actions by, or notices to, or filings with
governmental authorities or third parties regarding applicable laws
and contractual obligations related, necessary or required in
connection with the execution, delivery or performance of this
Agreement and the sale, issuance and delivery of the Preferred Shares,
Common Shares, Warrants and the Warrant Shares by the Company to the
Purchasers, shall have been obtained and be in full force and effect;
and the Purchasers shall have been furnished with the appropriate
evidence thereof, and all waiting periods imposed on the Company shall
have lapsed without extension or the imposition of any conditions or
restrictions.
4.8. Investment by Other Purchasers. Each Purchaser's obligation to
purchase the Initial Preferred Shares and Initial Warrants subscribed
for by such Purchaser hereunder on the Initial Closing Date is subject
to the fulfillment by each other Purchaser of its obligation to
purchase the Initial Preferred Shares and Initial Warrants subscribed
for by such other Purchaser on the Initial Closing Date.
X. XXX'x obligation to purchase the Initial MEI Preferred Shares and the Initial
MEI Warrant on the Initial Closing Date is subject to the fulfillment to its
satisfaction of the following additional conditions:
4.9. Series A Amendment. The voting rights, preferences, limitations and
special rights of the Series A Preferred Stock of the Company shall
have been amended to increase the number of shares of preferred stock
designated as Series A Preferred Stock, to fix the conversion ratio at
1.20497 subject to antidilution protection, to provide for the payment
of dividends at the Company's option in the form of Series A Preferred
Stock, to eliminate any prohibition on a series or class of securities
ranking equal to the Series A Preferred Stock with respect to a
liquidation preference or the issuance of dividends, and to change the
antidilution protection relating to
17
future sales of securities of the Company to be consistent with such
protections set forth in the Series B Preferred Stock.
4.10. Stock Incentive Plan. The Stock Option Committee or the Board of
Directors of the Company shall have taken all action necessary under
the 1994 Stock Incentive Plan (the "Plan") of the Company to assure
that the transactions contemplated by this Agreement, including
without limitation, the issuance of the Preferred Shares, Common
Shares, Warrants, Warrant Shares and Consulting Shares, and the
election to the Board of Directors of representatives of MEI, whether
pursuant to the terms of the Series B Preferred Stock or pursuant to
this Agreement, including pursuant to the terms of Section 7.2
hereinbelow, will not constitute an "Event" under the terms of the
Plan such that, among other things, the vesting of all options issued
thereunder would be accelerated.
4.11. Employment Agreements. The Company shall have received from each of
Xxxxxxx Xxxxx, Xxxxxxx Xxxxxx, Xxxxxx Xxxxxx, and Xxxxxx Xxxxxxx, his
or her agreement under which each such person shall agree that for
purposes of their respective employment agreement that (i) the
acquisition by MEI or its Principals or any of their affiliates in
the aggregate of not more than 40% of the outstanding shares of
Common Stock of the Company, including without limitation, by way of
open market purchases, or the issuance of the Preferred Shares,
Common Shares, Warrants, Warrant Shares or Consulting Shares,
pursuant to this Agreement, and (ii) the election to the Board of
Directors of representatives of MEI pursuant to or as contemplated in
this Agreement, whether pursuant to the terms of the Series B
Preferred Stock or Section 6.3 or Section 7.2 hereinbelow, will not
constitute an "Event" triggering any rights under their respective
employment agreements, such waiver agreements to be in form and
substance acceptable to MEI. It is expressly acknowledged by MEI that
the foregoing waiver will not extend to the election to the Board of
Directors of representatives of MEI constituting more than one third
of the total number of directors constituting the entire Board of
Directors, except if elected pursuant to Section 7.2 hereinbelow or
otherwise nominated by the Board of Directors, and in the event of
such election, director representatives of MEI will not constitute
continuing directors for purposes of determining whether an "Event"
has occurred under such employment agreement.
4.12. Voting Agreement. Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx shall have
executed and delivered the Voting Agreement substantially in the form
of Exhibit F.
C. The Purchasers' obligation to purchase the Second Preferred Shares and the
Second Warrants on the Second Closing Date is subject to the fulfilment to their
respective satisfaction of the following conditions:
18
4.13. Investment by Other Purchasers. Each Purchaser's obligation to
purchase the Second Preferred Shares and Second Warrants subscribed
for by such Purchaser hereunder on the Second Closing Date is subject
to the fulfilment by each other Purchaser of its obligation to
purchase the Second Preferred Shares and Second Warrants subscribed
for by such other Purchaser on the Second Closing Date.
SECTION 5
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The Company's obligation to sell, issue and deliver the Initial Shares and
the Initial Warrants on the Initial Closing Date and the Second Shares and
Second Warrants on the Second Closing Date as specifically provided, is subject
to the fulfillment to its satisfaction of the following conditions:
5.1. Representations and Warranties. On the Initial Closing Date and the
Second Closing Date, the representations and warranties contained in
Section 3 hereof shall be true and correct with the same effect as
though made on and as of the Closing Date.
5.2. Compliance with this Agreement. All the covenants, agreements and
conditions contained in this Agreement to be performed or complied
with by the Purchasers on or prior to the Initial Closing Date shall
have been complied with or performed.
5.3. No Injunction. There shall not be any pending or threatened suit,
action or litigation, or administrative, arbitration or other
proceeding or governmental inquiry or investigation questioning the
validity of this Agreement or the transactions contemplated hereby.
5.4. Pledge Agreement. Each Purchaser shall have executed and delivered to
the Company a pledge agreement substantially in the form of Exhibit E
hereto (the "Pledge Agreement").
SECTION 6
COVENANTS OF THE COMPANY
6.1. Financial Statements and Reports. For so long as MEI or its Principals
(as hereinafter defined) continue to hold in the aggregate at least 1%
of the outstanding shares of Common Stock (assuming for this purpose
that the Preferred Shares are converted in their entirety), the
Company shall furnish to MEI the following financial statements and
reports:
19
(a) Within the period prescribed by the Securities and Exchange Commission
(the "Commission"), an audited balance sheet, and related audited statements of
income, cash flows and shareholders' equity of the Company as of and for such
fiscal year prepared in accordance with GAAP, consistently applied, and
accompanied by the opinion of the Company's regularly engaged firm of
independent certified public accountants.
(b) Within the period prescribed by the Commission, a quarterly balance
sheet and statements of income, cash flows and stockholders' equity of the
Company as of and for such quarter and the year to date and as of and for the
corresponding periods of the preceding fiscal year. The interim statements
described above shall be unaudited, but prepared in accordance with GAAP,
subject only to normal year-end audit adjustments and shall be certified by the
Chief Financial Officer of the Company; and
(c) Promptly upon their becoming available, the Company shall deliver to
the Purchasers copies of (i) all financial statements, reports, notices and
proxy statements sent or made available to shareholders by the Company, (ii) all
regular and periodic reports and all registration statements and prospectuses,
if any, filed by the Company with any securities exchange or with the Commission
or any governmental or private regulatory authority, and (iii) all press
releases and other statements made available by the Company to the public
concerning material developments in the business of the Company.
6.2. Access. The Company shall during usual business hours and upon
reasonable notice, permit the Purchasers' duly authorized
representatives to visit and inspect the properties of the Company, to
examine the stock register, books and records of account and records
of the proceedings of the incorporators, stockholders and directors
and to make copies or extracts therefrom, and to discuss the Company's
business with its officers and directors.
6.3. Appointment to the Board of Directors; By-Law Amendments.
(a) The number of directors constituting the Board of Directors shall be
fixed at no more than nine, and the Company shall, concurrently with the Closing
or as soon as practicable thereafter, elect to its Board of Directors nominees
designated by MEI to constitute not less than one third of the members of the
entire Board of Directors, each of whom shall be a principal of MEI as of the
date hereof (each a "Principal"), which directors may be newly created
vacancies, which directors shall constitute the directors entitled to be elected
by the holders of Series B Preferred Stock.
(b) So long as MEI or its Principals continue to hold not less than an
aggregate of 750,000 Common Shares (assuming for this purpose that the Preferred
Shares are converted then in their entirety to Common Shares and subject to
adjustment for stock splits or combinations), if the holders of Series B
Preferred Stock are for any reason not entitled to elect directors as
contemplated in the Certificate of Determination relating to the Series B
Preferred Stock or because
20
no Series B Preferred Stock is at such time outstanding, the Company shall
continue to include as management nominees in the slate of persons proposed to
be elected directors with respect to all future elections of directors, whether
at an annual or special meeting or otherwise, and use its reasonable best
efforts to have elected to its Board of Directors nominees designated by MEI to
constitute not less than one third of the members of the entire Board of
Directors, each of whom shall be a Principal, except to the extent necessary to
comply with the provisions of Subparagraph (e) below.
(c) In the event that the Company fails for a period of more than 30 days
at any time to abide by the terms of this provision, the then exercise price of
the Initial MEI Warrants and the Second MEI Warrants, including all tranches,
shall be reduced by 5% for each full month of such non-compliance until cured.
(d) The directors nominated by MEI shall receive such standard compensation
in accordance with the Company's regular policy for directors.
(e) Concurrently with the Initial Closing, the Company's Board of Directors
shall establish an Audit Committee to the extent not already established, and so
long as MEI or its Principals continue to hold not less than an aggregate of
750,000 Common Shares (assuming for this purpose that the Preferred Shares are
converted then in their entirety to Common Shares and subject to adjustment for
stock splits or combinations), at least one-half of the designees thereof shall
be directors designated by MEI of which at least one director shall be required
to qualify as an "independent" director for purposes of meeting any requirements
with respect to such committee imposed for continued listing on NASDAQ or any
national securities market on which the Company's Common Stock is then listed.
The By-laws of the Company shall be amended to the extent necessary to establish
the audit committee and to insure the appointment of designees of MEI as
members.
(f) The By-Laws of the Company shall be amended to the extent necessary to
provide that the Audit Committee shall be responsible for approving, from time
to time, the Chief Financial Officer of the Company.
6.4. Other Filings and Dissemination of Material. For so long as the
Preferred Shares, Common Shares, Warrants or Warrant Shares remain
owned by MEI or its Principals:
(a) The Company shall make and keep public information available as those
terms are understood and defined in Rule 144 promulgated under the 0000 Xxx.
(b) The Company shall file with the Commission in a timely manner all
reports and other documents as the Commission may prescribe under the Exchange
Act at any time.
21
(c) The Company shall furnish to MEI and its Principals a written statement
by the Company as to its compliance with the reporting requirements of the
Exchange Act as such holder may reasonably request to avail itself of any rule
or regulation of the Commission allowing such holder to sell any such securities
without registration.
6.5. Announcements. The Purchasers acknowledge that the Company may be
required by law to make certain announcements regarding the
transaction contemplated hereby. The content of any such public
announcement by either party will be subject to review and approval of
the other party, such delivery and review of content constituting such
public announcement shall be timely and approval shall not be
unreasonably withheld.
6.6. Indemnification.
(a) The Company (together with its successors and assigns, the
"Indemnifying Party") shall indemnify and hold harmless each Purchaser, its
principals, employees (each, an "Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including, without limitation, reasonable fees, disbursements and other charges
of counsel incurred by an Indemnified Party in any action or proceeding between
an Indemnifying Party and Indemnified Party (or Indemnified Parties) or between
an Indemnified Party (or Indemnified Parties) and any third party or otherwise,
or other liabilities (collectively, the "Liabilities") resulting from or arising
out of any breach of any representation or warranty, covenant or agreement of an
Indemnifying Party to such Indemnified Party in this Agreement, or any legal,
administrative or other actions (including actions brought by any equity holder
of the Company) or derivative actions brought by any third party claiming
through or in Indemnifying Party's name), proceedings or investigations (whether
formal or informal), or written threats thereof, based upon, relating to or
arising out of any breach of any representation or warranty, covenant or
agreement of an Indemnifying Party to such Indemnified Party in this Agreement.
(b) To the extent that such indemnification is unenforceable for any
reason, the Indemnifying Party shall make the maximum contribution to the
payment and satisfaction of the Liabilities which shall be permissible under
applicable laws.
(c) In connection with the obligation of the Indemnifying Party to
indemnify for or contribute towards expenses as set forth above, the
Indemnifying Party further agrees, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including fees, disbursements and other charges of counsel incurred by
an Indemnified Party in any action or proceeding between the Indemnifying Party
and such Indemnified Party, or Parties, and any third party otherwise) as they
are incurred by such Indemnified Party subject to an undertaking to reimburse
such amounts if determined not entitled to it.
22
6.7. Consulting Agreement. Not later than April 1, 1997, the Company shall
execute and deliver a consulting agreement with MEI containing the
terms and provisions set forth on Exhibit D hereto (the "Consulting
Agreement").
6.8. Marketing of Assets. The Company shall use its reasonable best efforts
to sell or license the North American distribution rights to the
"Wilde feature film" for an amount at least equal to that discussed
between the Company and MEI and to reduce its audiotape inventory
through the sale thereof by at least $500,000.
SECTION 7
NEGATIVE COVENANTS
7.1. Negative Covenants.
(a) So long as MEI or its Principals continue to hold not less than an
aggregate of 750,000 Common Shares (assuming for this purpose that the Preferred
Shares are converted in their entirety to Common Shares and subject to
adjustment for stock splits and combinations), the Company hereby covenants and
agrees with MEI that without the consent of MEI, which right of consent shall be
exercised in good faith and in a commercially reasonable manner,
(i) the Company will not:
A. adopt an annual budget;
B. incur any debt for borrowed money or sell and issue and debt
or equity securities other than compensation for employees, directors
and consultants or pursuant to the options, warrants or convertible
securities listed on Schedule 2.3(c);
C. change or alter its principal business or enter into any new
business (it being understood that exploiting ancillary rights shall
not be considered a new business).
(ii) no executive officer of the Company, will knowingly:
A. hire any executive that earns in excess of $100,000 per year;
23
B. make any financial commitment for personnel in excess of the
approved budget other than minor salary adjustments or raises within
the budget year;
C. make any changes or additions in the Company's auditors,
consultants or principal outside counsel;
D. commence any litigation not in the ordinary course of
business or settle any litigation not in the ordinary course of
business or where the amount to be paid by the Company is $25,000 or
more;
E. acquire any assets where the required payment by the Company
is in excess of $155,000 or sell or license outside of the ordinary
course of business assets where the payment to the Company is in
excess of $155,000, including film, audio or publishing rights;
F. commence active preproduction for (A) any television
movie-of-the-week, special or mini-series, unless the license fee
payable (or previously paid) for such program by the U.S. broadcast or
cable network together with bankable foreign licenses is at least
equal to the budgeted negative cost (including all normal and
customary production budget items including for functions performed by
the Company and including customary contingency of 10%), minus
$250,000 and the Company reasonably believes that additional revenues
from uncommitted territories is reasonably likely to generate revenues
in excess of $250,000 in the two years from the date of commencement
of such preproduction, (B) any episodic television series unless the
budgeted negative cost (including all normal and customary production
budget items including for functions performed by the Company and
including customary contingency of 10%) per episode is less than
$150,000 and at least 80% of such budgeted negative cost will be
funded by a U.S. broadcast or cable network and the Company reasonably
believes that additional revenues from uncommitted territories is
reasonably likely to generate revenues in excess of the unfunded
amount within two years from the date of commencement of such
preproduction; or (C) engage in the production of a theatrical feature
film, except to the extent the Company's commitments are less than
$250,000 and the Company reasonably believes that expected
24
revenue from such film will be in excess of all costs relating
thereto, including the amount of the Company's commitment;
G. issue any financial press releases or publicly issue or
otherwise publicly discuss the Company's projected financial results
(it being understood that the foregoing is not intended to restrict
comments in general terms as to the anticipated success of any
particular project).
(b) For purposes of this Section 7.1 only, MEI shall from time to time
designate a person (the "MEI Representative") by notice to the Company, who
shall be appointed a member of the Executive Committee of the Board of
Directors, who shall have the authority as between the Company and MEI to give
or withhold MEI's consent as contemplated in this Section 7.1, which MEI
Representative shall, until further notice, be Xxxxxx Xxxxxxxxxx. The person
designated as the MEI Representative may be changed from time to time by like
notice.
7.2. Remedy. In the event that the Company breaches any of the covenants
set forth in Section 7.1., and such breach is continuing uncured for a
period of thirty (30) days after notice thereof is given to the
Company by MEI or any Principal (with a copy thereof to Xxxxxxx
Xxxxx), then the Company shall immediately upon demand by MEI or any
Principal take all steps necessary or appropriate to elect to its
Board of Directors two additional directors nominated by MEI or its
Principals, including calling a special meeting for such purpose,
which directors shall continue to serve until the earlier of the
annual meeting of the shareholders of the Company next following the
cure of the breach which gave rise to the exercise of rights under
this Section 7.2, or until MEI and its Principals no longer own at
least 750,000 Common Shares (assuming for this purpose that the
Preferred Shares are converted in their entirety to Common Shares and
subject to adjustment for stock splits and combinations). The rights
afforded to MEI hereunder shall arise each time there is a breach of
the covenants set forth in Section 7.1 and shall be severable with
respect thereto, provided in no event shall this Section entitled MEI
to have more than two additional directors designated at any one time.
SECTION 8
MISCELLANEOUS
8.1. Registered Owner of the Preferred Shares, The Common Shares, the
Warrants and the Warrant Shares. The Company may deem and treat the
registered holder of the Preferred Shares and the Warrants as the
absolute owner thereof for all purposes whatsoever, and the Company
shall not be affected by any notice to the contrary.
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8.2. Payment of Expenses; Counsel. The Company and the Purchasers shall pay
their own expenses, including the fees and expenses of their
respective counsel (if any) incurred by them in connection with the
sale, issuance and delivery of the Shares, the Warrants and the
Warrant Shares and the execution, delivery and performance of this
Agreement. Xxxxxxx Xxxxx and Xxxxxxx Xxxxxx acknowledge and understand
that they have not been personally represented by the Company's inside
or outside counsel in connection with this Agreement and the matters
contemplated hereby
8.3. Transfer Taxes. The Company will pay, and hold the Purchasers harmless
against, liability for the payment of any transfer or similar taxes
payable in connection with the initial sale, issuance and delivery of
the Shares and the Warrants.
8.4. Broker or Finder. Except as expressly provided in this Section, the
Parties individually represent and warrant that, to the best of their
individual knowledge, no broker or finder has acted for it in
connection with this Agreement or the transactions contemplated by
this Agreement and that no broker or finder is entitled to any
broker's or finder's fee or other commission in respect thereof based
in any way on agreements, arrangements or understandings made by such
party. The Company shall indemnify MEI, and the Purchasers shall
indemnify the Company against, and hold it harmless from, any claim,
liability, cost or expense (including reasonable attorneys' fees and
expenses) resulting from any agreement, arrangement or understanding
made by the Company or the Purchasers, as the case may be.
Notwithstanding the foregoing, the parties acknowledge that Xxxxx Xxxx
has made a claim for compensation as a broker or finder in connection
with the transaction contemplated herein. Compensation which shall
consist of options to purchase 50,000 shares exercisable at the market
price thereof on the date granted to be paid to Xx. Xxxx shall be paid
by the Company. This provision is for the benefit of the Purchasers
and the Company in deciding which party will pay any compensation if
determined to be due to Xx. Xxxx, and is not intended to, and shall
not confer any right on Xxxxx Xxxx.
8.5. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without
reference to conflict of law provisions.
8.6. Notice. Any notice or other communication required or permitted
hereunder shall be sufficiently given only if sent by facsimile
transmission or by registered or certified mail, postage prepaid,
addressed as follows or to such other address or addresses as may
hereafter be furnished in writing by notice similarly given by one
party to the other:
26
To the Company: Dove Entertainment, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
The Purchasers: The addresses set forth on Appendix I.
With a required
copy if to MEI to: Xxxxxxxx Xxxxx Singer & Xxxxxxxxx, LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Xxxx Xxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
8.7. Entire Agreement. This Agreement, including the Appendix, Schedules
and Exhibits hereto, contains the entire agreement and understanding
among the Parties with respect to the subject matter hereof and
supersedes the letter agreement dated March 3, 1997 between MEI and
the Company, and shall not be modified or affected by any offer,
proposal, statement or representation, oral or written, made by or for
any party in connection with the negotiation of the terms hereof. All
references herein to this Agreement shall specifically include,
incorporate and refer to the Appendix, Schedules and Exhibits attached
hereto which are hereby made a part hereof. There are no
representations, promises, warranties, covenants, undertakings or
assurances (express or implied) other than those expressly set forth
or provided for herein and in the other documents referred to herein.
This Agreement may not be modified or amended orally, but only by a
writing signed by the Parties.
8.8. Severability. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable
law of any jurisdiction, the unenforceable, invalid or conflicting
part shall, to the extent permitted by applicable law, by narrowed or
replaced, to the extent possible, with a judicial construction in such
jurisdiction that effects the intent of the Parties regarding this
Agreement and such unenforceable, invalid or conflicting part. To the
extent permitted by applicable law, notwithstanding the
unenforceability, invalidity or conflict with applicable law of any
part of this Agreement, the remaining parts shall be valid,
enforceable and binding on the parties.
8.9. Headings. The headings of the Sections of this Agreement are inserted
for convenience of reference only and shall not be considered a part
hereof.
27
8.10. Counterparts. This Agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
28
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first set forth above.
The Company:
DOVE ENTERTAINMENT, INC.
By:_______________________________
Name:
Title:
The Purchasers:
MEDIA EQUITIES INTERNATIONAL LLC
By:________________________________
Name:
Title:
________________________________________
Xxxxxxx Xxxxx
________________________________________
Xxxxxxx Xxxxxx
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