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EXHIBIT 1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
this ___ day of April, 1999, by and among ___________________ (the "New
Investor"), Xxxxxxx X. Xxxxx ("Xxxxx") and Xxxxx X. Xxxxxxx ("Xxxxxxx" and,
together with Xxxxx, the "Existing Investors").
RECITALS
WHEREAS, the Existing Investors have agreed to purchase shares of
Series A Preferred Stock (the "Series A Stock") of The Xxxxxx Entertainment
Company, a California corporation (the "Company"), in accordance with the terms
of that certain Stock Purchase Agreement, dated as of April 7, 1999, by and
among the Company, the Existing Investors and Xxxxxxx X. Xxxxxxx (the "Purchase
Agreement"), a copy of which is attached hereto as Exhibit A;
WHEREAS, the Purchase Agreement provides that the Existing Investors
may designate certain other persons to participate in the purchase of Series A
Stock in accordance with the Purchase Agreement; and
WHEREAS, the New Investor desires to purchase, and the Existing
Investors desire to designate the New Investor to purchase that number of shares
of Series A Stock set forth on Schedule I (or such lesser amount as the Existing
Investors may determine in their sole discretion due to unavailability of shares
of Series A Stock).
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the New Investor and the Existing
Investors agree as follows:
SECTION I. PURCHASE OF SERIES A STOCK; CLOSING.
1.1 PURCHASE OF SERIES A STOCK; ISSUANCE OF WARRANTS.
(a) Subject to the terms and conditions hereof,
the New Investor agrees to purchase from the Company on the Closing Date, that
number of shares of Series A Stock set forth on Schedule I (or such lesser
amount as the Existing Investors may determine in their sole discretion due to
unavailability of shares of Series A Stock) for $100 per share (the "Purchase
Price"). The New Investor hereby acknowledges and agrees that the Existing
Investors may, in their sole discretion, determine to reduce the number of
shares allocated to the New Investor (a "Reduced Allocation"), and the New
Investor hereby agrees to purchase such Reduced Allocation, provided that the
aggregate Purchase Price shall be reduced and the Purchase Price per share shall
remain $100.
(b) In partial consideration for the New
Investor's purchase of the Series A Stock, the Existing Investors shall
designate the New Investor to receive a pro rata portion of the Warrants to
purchase 1,200,000 shares of the Common Stock set aside for
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Investors, such number to be set forth opposite such New Investor's name on
Schedule 1 hereto (the "Warrants").
(c) The New Investor shall pay the Purchase
Price, upon the signing of this Agreement, into the escrow account (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 Purchase Price (or such lesser amount as
the Existing Investors may determine in their sole discretion due to
unavailability of shares of Series A Stock) shall be paid to the Company for the
Series A Stock sold to the New Investor. In the event that this Agreement is
terminated, the Purchase Price shall be returned to the New Investor in
accordance with the terms of the Escrow Agreement. To the extent that the number
of shares of Series A Stock to be purchased by the New Investor is reduced in a
Reduced Allocation, as set forth in Section 1.1(a) above, the Existing Investors
shall give appropriate instructions to the Escrow Agent (as defined in the
Escrow Agreement) to refund any amounts paid by the New Investor to the Escrow
Account in excess of the Purchase Price determined after such Reduced
Allocation.
1.2 CLOSING. The closing of the transactions (the
"Transactions") contemplated by this Agreement and the Purchase Agreement (the
"Closing"), shall take place at the offices of Xxxx, Scholer, Fierman, Xxxx &
Handler, LLP, 0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000, Xxx Xxxxxxx, 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 determined by the Existing Investors in their sole
discretion.
1.3 DELIVERY; PAYMENT. At the Closing, the aggregate
Purchase Price shall be delivered to the Company in accordance with the terms of
the Escrow Agreement. At the Closing, the Existing Investors shall cause the
Company to deliver the shares of Series A Stock and the Warrants to the New
Investor.
SECTION II. REPRESENTATIONS OF THE NEW INVESTOR.
The New Investor represents to the Existing Investors that:
2.1 INVESTMENT INTENT.
(a) The shares of Series A Stock and Warrants
being acquired by the New Investor are being acquired and, when acquired, the
shares issuable upon conversion of the Series A Stock (the "Conversion Shares")
and the shares issuable upon exercise of the Warrants (the "Warrant Shares")
will be acquired for investment for such New Investor's own account and not with
the view to, or for resale in connection with, any distribution or public
offering thereof. Such New Investor understands that the shares of Series A
Stock, the Conversion Shares, the
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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 the New Investor. The New 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 Stock, Conversion
Shares, Warrants and Warrant Shares are only transferable pursuant to (a) a
public offering registered under the Securities Act, (b) 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 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 EXEMPT 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).
2.2 LOCATION OF PRINCIPAL OFFICE, QUALIFICATION, ETC. The
state in which the New Investor's principal office (or domicile, if such New
Investor is an individual) is located is the state set forth in the New
Investor's address on the signature page hereto. The New Investor acknowledges
that the Company has made available to such New 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 New
Investor. Such New Investor (a) is able to bear the loss of its entire
investment in the shares of Series A Stock without any material adverse effect
on its business, operations or prospects, and (b) has such knowledge and
experience in financial and business
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matters that it is capable of evaluating the merits and risks of the investment
to be made by it pursuant to this Agreement.
2.3 ACTS AND PROCEEDINGS. This Agreement has been duly
authorized by all necessary action on the part of the New Investor, has been
duly executed and delivered by such New Investor, and is a valid and binding
agreement of such New Investor.
2.4 NO BROKERS OR FINDERS. No person, firm or corporation
has or will have, as a result of any act or omission by the New 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 contemplated by the Purchase Agreement (the
"Transactions"). The New Investor will indemnify and hold the Existing Investors
and 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.
2.5 ACCREDITED INVESTOR. The New Investor is an
"accredited investor" within the meaning of Rule 501 promulgated under the
Securities Act.
2.6 RELIANCE BY THE COMPANY. The New Investor
acknowledges and agrees that the Company may rely upon the representations made
by it in this Section 2 in connection with its issuance to the New Investor of
the Series A Stock and the Warrants at the Closing.
2.7 PURCHASE AGREEMENT. The New Investor has read and
understands fully the terms of the Purchase Agreement, including exhibits.
SECTION III. CONDITIONS OF THE NEW INVESTOR'S OBLIGATION
In order for the Purchase Price to be released from Escrow, as set
forth in the Escrow Agreement, the following conditions must be fulfilled.
3.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company under the Purchase Agreement which are qualified
as to materiality or a Company Material Adverse Effect (as defined therein)
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 the
Purchase Agreement which are not qualified as to materiality or a Company
Material Adverse Effect (as defined therein) 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.
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3.2 COMPLIANCE WITH AGREEMENT. The Company shall have
performed and complied with all agreements or covenants required by the Purchase
Agreement to be performed and complied with by it prior to or as of the Closing
Date.
3.3 CERTIFICATE OF OFFICERS. The Company shall have
delivered to the Existing 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 3.1 and 3.2 hereof.
3.4 LEGAL OPINION. The Existing 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 as Exhibit F to the Purchase Agreement.
3.5 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 or referred to in Schedule 2 to the Purchase Agreement and the
Existing Investors shall have received satisfactory evidence of such consents.
3.6 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 to the Purchase Agreement, and such Certificate of Determination shall
have become effective.
3.7 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 New Investor or the Existing Investors from acquiring the
shares of Series A Stock on the Closing Date.
3.8 WARRANT AGREEMENT s. The Company shall have executed
and delivered the Warrant Agreements to the Existing Investors for themselves
and for the New Investor and the Warrant Agreements shall be in full force and
effect.
3.9 COMPANY REGISTRATION RIGHTS AGREEMENT. The Company
shall have executed and delivered the Company Registration Rights Agreement (as
defined in the Purchase Agreement) and the Company Registration Rights Agreement
shall be in full force and effect.
SECTION IV. CERTAIN COVENANTS OF THE NEW INVESTOR
4.1 RIGHT OF FIRST REFUSAL. In the event (and on each
occasion) that prior to the conversion of the Series A Stock, the New Investor
shall seek to sell its shares of Series A Stock to any person or entity (other
than (i) an affiliate of the New Investor or another Investor
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(as defined in the Purchase Agreement) or an affiliate of another Investor, or
(ii) any family member of a New Investor or in connection with estate planning
matters), such New 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 New Investor shall give the written
Sale Notice to agree to purchase all or any portion of such shares of Series A
Stock, upon the terms (other than the Closing Date) specified in the Sale
Notice, by giving written notice (the "Purchase Notice") to the New 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, the New 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 the
New Investor than those set forth in the Sale Notice. If the New Investor fails
to timely provide the Company with a Sale Notice prior to selling shares of
Series A Stock, the Company may, in its sole discretion, refuse to permit the
transfer of such shares of Series A Stock on its stock transfer ledger. The
provisions of this Section 4.1 shall terminate with respect to any shares of
Series A 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.
4.2 APPROVALS, ETC. Subject to the terms and conditions
provided herein and in the Purchase Agreement, 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 Agreement and by the Purchase
Agreement; and (ii) use all reasonable efforts to obtain all necessary or
appropriate waivers contemplated by this Agreement and by the Purchase
Agreement.
SECTION V. MISCELLANEOUS.
5.1 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.
5.2 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 the New Investor addressed to the New
Investor at its address as shown opposite its name on the signature page hereto;
or
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(b) if to the Existing Investors, to:
Xxxxxxx X. Xxxxx
c/o Prudential Securities
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
and to:
Xxxxx X. Xxxxxxx
c/x Xxxxxxx/Xxxxx Productions
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
With a copy (which shall not constitute
notice), to:
Troop Xxxxxxx Pasich Reddick & Xxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: C.N. Xxxxxxxx Xxxxxxx, III, Esq.
5.3 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) The New Investor shall not assign its rights
or delegate its duties hereunder without the prior written consent of the
Existing Investors.
5.4 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.
5.5 ENTIRE AGREEMENT. This Agreement and the exhibits and
schedules hereto and to the Purchase Agreement (and the documents referenced
therein) contain the entire agreement between the parties and supersede any
prior understandings, agreements or
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representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
5.6 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.
5.7 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.
5.8 NO THIRD PARTY BENEFICIARIES. This Agreement is
solely intended for the benefit of the parties hereto, and shall not create any
rights in any third parties, including without limitation the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by its duly authorized representative as of the date first set forth
above.
EXISTING INVESTORS:
-----------------------------------------
Xxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxx
NEW INVESTOR:
--------------------------------------
Signature
--------------------------------------
Print Name
Address:
---------------------------------
---------------------------------
---------------------------------
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SCHEDULE 1
CALCULATION NO. 1
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PURCHASE PRICE PER SHARE OF NUMBER OF SHARES OF SERIES A
AMOUNT OF INVESTMENT SERIES A PREFERRED STOCK PREFERRED STOCK TO BE PURCHASED**
("PURCHASE PRICE")
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$ _________________* divide by $100.00 = _______________
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CALCULATION NO.2
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AMOUNT OF INVESTMENT
("PURCHASE PRICE") WARRANT INDEX NUMBER OF WARRANTS***
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$ _________________* X 0.07058824 = _______________
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INSTRUCTIONS FOR NEW INVESTOR:
Calculation No. 1:
* Please fill in the dollar amount of investment desired by the New Investor.
** Please complete the calculation of the number of shares to be purchased.
Calculation No. 2:
* Please fill in the dollar amount of investment desired by the New Investor.
*** Please calculate the number of warrants using the "Warrant Index," which is
the (a) Purchase Price divided by $17 million, multiplied by (b) 1,200,000.
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EXHIBIT A
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
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3.7 Distribution Agreement 14
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
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
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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 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
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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, 0000
Xxxxxx xx xxx Xxxxx, Xxxxx 0000, Xxx Xxxxxxx, 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
16
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 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 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
17
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 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.
18
(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.
(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.
19
(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
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.
20
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 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 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
21
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 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.
22
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.
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 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:
23
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.
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:
24
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).
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 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:
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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 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
26
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, 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 (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,
27
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.
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
28
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.
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.
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
29
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 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.
30
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.
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
31
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 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
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
32
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
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:
33
(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 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 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
34
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.
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
35
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.
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:
Title:
INVESTORS:
THE XXXXXXX-XXXXX COMPANY
By: /s/ XXXXXX XXXXXXX
Name:
Title:
/s/ XXXXX XXXXXXX
Xxxxx X. Xxxxxxx
/s/ XXXXXXX XXXXX
Xxxxxxx X. Xxxxx
/s/ XXXXXXX X. XXXXXXX
Xxx Xxxxxxx
36
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 $1,000,000 400,000 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 $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
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
Xxxxx Pettise
Xxxx Xxxxxxxxx
Xxxxx Xxxxxxx
Xxxxxxxxxxx Xxxxxx
37
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
38
Exhibit F Legal Opinion of Counsel to Company
Exhibit G Legal Opinion of Counsel to Investors
