HOLLYWOOD ENTERTAINMENT CORPORATION
SHARE OWNERSHIP, VOTING AND CO-SALE AGREEMENT
This SHARE OWNERSHIP, VOTING AND CO-SALE AGREEMENT (the "Agreement") is
entered into as of January ____, 1998 by and between Hollywood Entertainment
Corporation, an Oregon corporation (the "Company"), and Xxxx X. Xxxxxxx
("Xxxxxxx")."
RECITALS
A. The Company proposes to acquire, pursuant to a self-tender offer (the
"Tender Offer"), outstanding shares of the Company's Common Stock (the "Common
Stock").
B. To facilitate the Company's ability to complete the Tender Offer,
Wattles agrees to limitations on his ownership, transfer and voting of shares of
Common Stock on the terms set forth herein.
AGREEMENT
The parties agree as follows:
1. Definitions. The following terms and phrases used in this Agreement
shall have the meanings given in this Section 1:
"Affiliate" of Wattles means any other person or entity, directly or
indirectly, controlled by or under direct or indirect common control with
Wattles or any member of Wattles' immediate family. For the purposes of this
definition, "control" means the power to direct the management and policies of
such person or entity, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"Acquisition" shall have the meaning given in Section 5 of this
Agreement;
"beneficial owner" of Shares means a person who has or shares (1)
voting power, which includes the power to vote, or to direct the voting of, such
Shares or (2) investment power, which includes the power to dispose, or to
direct the disposition of, such Shares. "Beneficial ownership" shall be
determined in accordance with the foregoing definition.
"business day" shall have the meaning given in Rule 14d-1(c) under the
Exchange Act;
"Closing" means the closing of the purchase of Shares pursuant to the
Tender Offer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended;
"group" shall have the meaning given in Rule 13d-5(b) under the
Exchange Act;
"Lien" shall have the meaning given in Section 2 of this Agreement;
"Outsider Shares" means outstanding Shares other than Shares
beneficially owned by Wattles;
"outstanding Shares on a fully diluted basis" as of any date shall
mean (i) Shares issued and outstanding and (ii) Shares issuable by the Company
pursuant to the exercise of any outstanding options or other rights to subscribe
for or purchase Shares or pursuant to the conversion or exchange of any
outstanding instrument convertible into or exchangeable for Shares, whether or
not then exercisable, convertible or exchangeable;
"Proposed Transferee" shall have the meaning given in Section 6 of
this Agreement;
"Securities Act" shall mean the Securities Act of 1933, as amended;
"Shares" shall mean issued and outstanding shares of Common Stock of
the Company and any other class or series of capital stock that at any time
gives the holder the right to vote on the election of directors;
"the Company" shall have the meaning given in the preamble of this
Agreement;
"Threshold Amount" shall have the meaning given in Section 3 of this
Agreement;
"transfer" shall mean any sale, contract to sell, exchange,
assignment, gift or other disposition (other than a pledge or encumbrance to
secure a loan), whether voluntary or involuntary, because of any act or
occurrence;
"Warrants" shall mean the warrants issued by the Company in connection
with financing the Tender Offer.
"Wattles" shall have the meaning given in the preamble of this
Agreement;
2
"Wattles Shares" shall have the meaning given in Section 2 of this
Agreement.
2. Representations of Wattles. Wattles represents and warrants that as of
the date of this Agreement (a) he beneficially owns 11,124,600 Shares and is the
holder of options to purchase 520,000 Shares (collectively, "Wattles Shares");
(b) except as permitted by this Agreement, Wattles Shares are not subject to any
lien, charge, pledge, security interest, adverse claim, obligation to sell or
otherwise dispose or other encumbrance of any kind or nature whatsoever and
however arising ("Lien"); and (c) neither the execution and delivery of this
Agreement nor the observance or performance of its terms by Wattles violates, or
creates any Lien with respect to Wattles Shares, pursuant to any statute,
ordinance, regulation, order, judgment or decree applicable to Wattles or the
Wattles Shares or any agreements to which Wattles or the Wattles Shares are
bound.
3. Voting of Shares Generally.
3.1 Shares Below Threshold Amount. Any Shares beneficially owned by
Wattles that constitute up to 31.2 percent of the then outstanding Shares (the
"Threshold Amount") may be voted by Wattles in his discretion without
restriction except as set forth in Section 3.4.
3.2 Shares Above Threshold Amount. With respect to all matters
submitted to shareholders of the Company for a vote, all Shares beneficially
owned by Wattles in excess of the Threshold Amount shall be voted in proportion
to the votes of all Outsider Shares actually cast, not including abstentions.
3.3 Affiliates. Wattles agrees that the voting provisions set forth in
this Agreement shall apply to Wattles Shares transferred by him to his
Affiliates and that prior to any such transfer such Affiliates shall have agreed
in writing to be bound by the provisions of this Section 3.
3.4 Director Elections. Wattles shall vote all of his Shares below the
Threshold Amount to elect independent director-nominees who are nominated in
accordance with the provisions of Section 3.5(3) of the Company's Bylaws;
provided, however, that Wattles may vote his Shares below the Threshold Amount
against any such director-nominee if, within 21 days of receiving notice of the
nomination, he reasonably and in good faith determines that the director-nominee
is not qualified to be a director of the Company and provides a notification to
the Company of this determination.
3
4. Lock-Up.
4.1 General. Wattles may transfer or encumber any Shares except as
otherwise provided in Section 4.2 and Section 6 of this Agreement.
4.2 Restrictions on Transfers and Pledges. Subject to the provisions
of Section 6, Wattles shall not (a) transfer any Shares or pledge Shares to
secure loans in an aggregate principal amount in excess of $35 million prior to
180 days after the Closing or (b) transfer more than 2,775,000 Shares or pledge
Shares to secure loans in an aggregate principal amount in excess of $40 million
between the date which is 180 days after the Closing and the second anniversary
of the Closing. Notwithstanding the foregoing restrictions, Wattles Shares may
be transferred by will or otherwise pursuant to the applicable laws of descent
and distribution; provided, however, that with respect to a transfer of any
Shares permitted pursuant to this sentence, the obligations set forth in this
Agreement shall continue to be applicable to the transferee of such Shares and
provided further that the transferee of such Shares shall have agreed in writing
to be bound by the provisions of this Agreement affecting the transferred
Shares. Subject to the provisions in Section 6, Wattles may transfer or pledge
all of his Shares, without restriction, after the second anniversary of the
Closing.
4.3 No Restrictions on Pledgees. Nothing in this Agreement shall
restrict a pledgee of Wattles Shares from transferring such Shares.
5. Limitation on Acquisition of New Shares. Unless approved by the
Company's Board of Directors, Wattles shall not acquire beneficial ownership
from any person other than the Company, whether by purchase or otherwise, of any
Shares (an "Acquisition") if, as a result of such Acquisition, the number of
Shares beneficially owned by Wattles shall exceed 11,124,600.
6. Tag-Along Rights.
6.1 Proposed Transfers. If Wattles proposes to sell any Wattles Shares
to any person or group in one or a series of related transactions (a "Proposed
Transferee"), no such sale shall be completed unless the Proposed Transferee
offers to purchase a ratable number of Shares from the other holders of Shares
and from the holders of Warrants upon substantially the same terms and
conditions offered to Wattles. All holders of Shares and Warrants other than
Wattles shall be permitted only to sell to the Proposed Transferee a ratable
number of Shares based on their percentage ownership of all outstanding Shares
plus Shares issuable upon exercise of the Warrants at the time of the offer.
Subject to the provisions of the foregoing sentence, Wattles may sell any number
of Shares to a Proposed Transferee. The other holders of Shares and Warrants
must respond to an offer from a Proposed Transferee within 20 business days
after receipt of the offer to purchase Shares or such longer period as is
required by law. Failure to respond within such period shall be considered
rejection of such offer.
4
6.2 Receipt of Offer. For the purposes of this Agreement, if an offer
is made by a Proposed Transferee pursuant to a tender offer, holders of Shares
and Warrants shall be deemed to have received the offer on the date of the
commencement of the tender offer pursuant to Rule 14d-2 under the Exchange Act.
6.3 Transfers Not Subject to Tag-Along Rights. This Section 6 shall
not apply to any transfer (i) to a person or a group of up to a number of Shares
equal to 5% percent of the then outstanding Shares plus Shares issuable upon
exercise of the Warrants, provided that upon completion of such transfer, the
transferee does not beneficially own in excess of 20% of the then outstanding
Shares, (ii) pursuant to a broadly distributed public offering registered under
the Securities Act, (iii) to a purchaser who acquires the Shares in the ordinary
course of business and not with the purpose or effect of changing or influencing
the control of the Company and who, after such sale, is a person described in
Rule 13d-1(b)(1) under the Exchange Act, or (iv) that is approved by the
Company's Board of Directors including a majority of the independent directors.
7. Term and Termination. This Agreement shall become effective upon
execution and shall continue in full force and effect until the earlier of (i)
such time as Wattles no longer beneficially owns any Shares or (ii) the eighth
anniversary of the Closing. Except as otherwise expressly provided in this
Agreement, the obligations and restrictions set forth in this Agreement shall
not apply to any person who acquires beneficial ownership of Shares pursuant to
a transfer permitted by this Agreement.
8. Specific Performance. The parties to this Agreement acknowledge and
agree that it is impossible to measure in money the damages that will accrue to
a party or to their successors, heirs, personal representatives or assigns by
reason of a failure to perform any of the obligations under this Agreement and
agree that the terms of this Agreement shall be specifically enforceable, and
appropriate injunctive relief may be applied for and granted in connection with
the enforcement of this Agreement. If any party to this Agreement or his or its
successors, heirs, personal representatives or assigns institutes any action or
proceeding to enforce specifically any provision of this Agreement, any person
against whom such action or proceeding is brought waives the claim or defense
that such party has an adequate remedy at law, and such person shall not offer
in any such action or proceeding the claim or defense that such remedy at law
exists. Such equitable remedies shall, however, be cumulative and not exclusive
and shall be in addition to any other remedies that any party may have under
this Agreement or otherwise.
9. Further Assurances. Each party to this Agreement shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as any other party may reasonably request from time to time in order
to carry out the intent and purposes of this Agreement. No party to this
Agreement shall voluntarily undertake any course of action inconsistent with
satisfaction of the requirements applicable to them set
5
forth in such instruments and documents, and each party shall promptly do
all such acts and take all such measures as may be appropriate to enable him or
it to perform as early as practicable the obligations herein and therein
required to be performed by them.
10. Governing Law. This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the laws of the state of
Oregon.
11. Amendment. This Agreement may be amended, or its terms waived, only by
an instrument in writing signed by Wattles and the Company and approved by the
Company's Board of Directors, including approval by a majority of the
independent directors of the Company.
12. Severability. If any provision of this Agreement is held to be invalid
or unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
13. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors,
assigns, administrators, executors and other legal representatives.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
15. No Third Party Beneficiaries. This Agreement is entered into solely for
the benefit of the Company and Wattles and nothing in this Agreement shall
confer rights or benefits on any third party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
HOLLYWOOD ENTERTAINMENT CORPORATION
--------------------------------------------
By:
Its:
--------------------------------------------
Xxxx X. Xxxxxxx
6
