<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. N/A)
Video City, Inc. (formerly Prism Entertainment Corporation)
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
- --------------------------------------------------------------------------------
(Title of Class of Securities)
92653W106
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(CUSIP Number)
John J. Fletcher
Ingram Entertainment Inc.
Two Ingram Boulevard
LaVergne, TN 37089
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 8, 1997
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(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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CUSIP No. 92653W106 SCHEDULE 13D
-----------------
(1) Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Ingram Entertainment Inc. (IRS #62-1515092)
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(2) Check the Appropriate Box if a Member of a Group* (a) [ ]
(b) [ ]
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(3) SEC Use Only
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(4) SOURCE OF FUNDS
OO,WC
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
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(6) Citizenship or Place of Organization
Tennessee
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(7) Sole Voting Power
Number of 2,711,053 (See Item 5)
Shares --------------------------------------------------------
Beneficially (8) Shared Voting Power
Owned by None
Each --------------------------------------------------------
Reporting (9) Sole Dispositive Power
Person With 2,711,053 (See Item 5)
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(10) Shared Dispositive Power
None
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
2,711,053 (See Item 5)
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(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares [ ]
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(13) Percent of Class Represented by Amount in Row (9)
25.7%
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(14) Type of Reporting Person
CO
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ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the common stock, par value $.01 per share
(the "Common Stock"), of Video City, Inc., a Delaware corporation formerly known
as Prism Entertainment Corporation (the "Company"). The principal executive
offices of the Company are located at 6851 McDivitt Drive, Suite A, Bakersfield,
California 93313.
ITEM 2. IDENTITY AND BACKGROUND.
(a) The reporting person is Ingram Entertainment Inc. ("Ingram
Entertainment"), a wholly owned subsidiary of Ingram Industries Inc.
("Ingram Industries"). The directors and executive officers of Ingram
Entertainment and Ingram Industries are set forth in Schedule A
attached hereto and incorporated herein by reference.
(b) The principal business address of Ingram Entertainment is Two Ingram
Boulevard, LaVergne, Tennessee 37089. The principal business address
of Ingram Industries is 4400 Harding Road, Nashville, Tennessee 37205.
The principal business address of each of the directors and executive
officers of Ingram Entertainment and Ingram Industries is as set forth
in Schedule A attached hereto and incorporated herein by reference.
(c) Ingram Entertainment's principal business is the distribution of
videocassettes to retail video stores for rental and resale. Ingram
Industries' principal business is consumer product distribution,
inland marine transportation, and insurance. The principal occupation
of each director and executive officer of Ingram Entertainment and
Ingram Industries, including the principal business and address of any
corporation or other organization in which such employment is
conducted, is as set forth in Schedule A attached hereto and
incorporated herein by reference.
(d) and (e) During the last five years, neither Ingram Entertainment,
Ingram Industries, nor, to Ingram Entertainment's knowledge, any
executive officer or director set forth in Schedule A has been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a
result of such proceeding was or is subject to a judgment, decree, or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
(f) Ingram Entertainment and Ingram Industries are corporations organized
under the laws of the State of Tennessee. Each of the executive
officers and directors of Ingram Entertainment and Ingram Industries
is a citizen of the United States.
3
<PAGE> 4
ITEM 3. SOURCE AND AMOUNT OF FUNDS.
Effective as of January 8, 1997, and pursuant to an Agreement and Plan of
Reorganization and Merger between the Company and Lee Video City, Inc. ("Lee
Video"), Lee Video was merged (the "Merger") with and into the Company.
Immediately prior to the Merger, Lee Video was indebted to Ingram Entertainment
in the approximate amount of $4,500,000. Pursuant to an Override Agreement
between Ingram Entertainment, the Company, Lee Video, and Robert Y. Lee, dated
as of November 16, 1996 (the "Override Agreement") (See Item 6), Ingram
Entertainment agreed to convert $3,000,000 of such indebtedness and certain
warrants to purchase Lee Video stock, such conversion to be effective as of the
Merger, into 1,500,000 shares (the "Ingram Shares") of Common Stock, a warrant
to purchase from the Company 852,750 shares of Common Stock (the "Company
Warrant"), and a warrant to purchase from certain shareholders of the Company,
who were former shareholders of Lee Video, 404,403 shares of Common Stock (the
"Lee Shareholder Warrant"). As of the date hereof, neither the Company Warrant
nor the Lee Shareholder Warrant has been exercised. Pursuant to the Override
Agreement, Ingram Entertainment was also issued a Company promissory note in the
original principal amount of $1,503,708.22.
ITEM 4. PURPOSE OF TRANSACTION.
The Common Stock presently beneficially owned by Ingram Entertainment was
acquired in the Merger and is being held for investment purposes. From time to
time, Ingram Entertainment may acquire additional shares of Common Stock.
Subject to certain transfer restrictions set forth under federal and state
securities laws, Ingram Entertainment may attempt to dispose of its shares of
Common Stock in the open market, in privately negotiated transactions, or
otherwise. Pursuant to a Stockholders Agreement entered into in connection with
the Merger, Ingram Entertainment agreed to certain contractual restrictions with
respect to the transfer of the Common Stock (See Item 6). Also pursuant to the
Stockholders Agreement, Ingram Entertainment has the contractual right to
designate two members of the board of directors of the Company and pursuant to
such right has caused Charles E. Cooke and Michael T. Anderson to be elected to
the Company's board of directors. Except as set forth herein, Ingram
Entertainment has no present plans or proposals that would result in or relate
to any of the transactions described in subparagraphs (a) through (j) of Item 4
of Schedule 13D.
ITEM 5. INTERESTS IN SECURITIES OF THE ISSUER.
(a) and (b) The shares beneficially owned by Ingram Entertainment are set
forth in the table below. Ingram Industries may, by virtue of being
the sole shareholder of Ingram Entertainment, be deemed to own
beneficially (as that term is defined in Rule 13d-3) the shares of
Common Stock with respect to which Ingram Entertainment has direct
beneficial ownership.
4
<PAGE> 5
<TABLE>
<CAPTION>
Shared
Sole Voting Voting
Power and Power and
% of Power to Power to
Total Shares Beneficially Owned(1) Class(2) Dispose Dispose
---------------------------------- -------- ------------ ---------
<S> <C> <C> <C>
2,711,053(3) 25.7% 2,711,053(3) 0
</TABLE>
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(1) Within the meaning of Rule 13d-3, as amended.
(2) As computed pursuant to Rule 13d-3(d)(1)(i) and based on
9,753,927 shares of Common Stock of the Company outstanding.
(3) Includes 806,650 shares Ingram Entertainment has the right to
acquire pursuant to the exercise of the Company Warrant and
404,403 shares Ingram Entertainment has the right to acquire
pursuant to the exercise of the Lee Shareholder Warrant. Does not
include 46,100 shares of Common Stock issuable pursuant to the
Company Warrant that Ingram Entertainment may not acquire within
60 days of the date hereof. Ingram Entertainment has no right to
vote shares subject to the Lee Shareholder Warrant until exercise
thereof (See Item 6).
(c) Except in connection with the Merger, neither Ingram Entertainment nor
Ingram Industries nor, to Ingram Entertainment's knowledge, any of
their respective executive officers or directors, has purchased or
sold any shares of Common Stock during the past 60 days.
Paragraphs (d) and (e) of Item 5 are inapplicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS, OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
In connection with the Merger, Ingram Entertainment entered into the
following agreements, each of which is filed as an exhibit hereto and
incorporated by reference herein.
Override Agreement, Company Warrant, and Lee Shareholder Warrant. Ingram
Entertainment, Robert Y. Lee ("Lee"), on behalf of himself and the Robert Y. Lee
Revocable Living Trust (the "Trust"), and the Company entered into an Override
Agreement pursuant to which Ingram Entertainment agreed to convert certain
indebtedness and a warrant of Lee Video into the Ingram Shares, the Company
Warrant, the Lee Shareholder Warrant, and a promissory note of the Company (See
Item 3). The 404,403 shares subject to the Lee Shareholder Warrant are held in
escrow, pursuant to an Escrow and Warrant Agreement between the Company, Ingram
Entertainment, Lee, and the Trust. Ingram Entertainment may exercise the Lee
Shareholder Warrant at any time prior to January 8, 2002, in whole or in part,
at a price of $.6085 per share. Ingram Entertainment does not have the right to
vote the shares subject to the Lee Shareholder Warrant prior to its exercise.
The 852,750 shares issuable by the Company (at exercise prices ranging
5
<PAGE> 6
from $.51 to $2.50 per share) pursuant to the Company Warrant are subject to the
Warrant Agreement between Ingram Entertainment and the Company.
Stockholders Agreement. Ingram Entertainment, the Company, Lee, the Trust,
and Barry Collier ("Collier") entered into a Stockholders Agreement which, among
other things, restricts the transferability of the shares of the Company owned
by the parties thereto, including Ingram Entertainment. The Stockholders
Agreement provides that the Company, Lee, the Trust, and Collier have the right
of first refusal should Ingram propose to transfer, in a private transaction,
its shares at a price that is equal to 120% of the price at which Ingram
proposes to sell its shares. The Stockholders Agreement also gives Ingram
Entertainment the right to participate in any sales of shares by the Company,
Lee, the Trust, or Collier. Additionally, Ingram Entertainment has the right to
participate on a pro rata basis in any issuance, sale, or distribution for cash
by the Company of certain of its securities. The Stockholders Agreement further
provides for an eight-member board of directors, comprised of two designees of
Ingram Entertainment, four designees of Lee, and two designees of Collier and
requires each of the parties thereto to vote their shares in favor of the other
parties' designees.
Lock-Up Agreement. Ingram Entertainment, Lee, the Trust, and Collier also
entered into a Lock-Up Agreement pursuant to which Lee, the Trust, and Collier
agreed, until Lee ceases to be a full time employee or consultant of the Company
or at least 80% of the Company's indebtedness to Ingram Entertainment (currently
$1,503,708.22) has been paid, whichever occurs first, not to sell or transfer
certain of their shares in any manner without the prior written consent of
Ingram Entertainment. The Lock-Up Agreement does not restrict the ability of
Ingram Entertainment to sell its shares.
Registration Rights Agreement. Ingram Entertainment and the Company are
parties to a Registration Rights Agreement pursuant to which Ingram received the
right to require the Company to register for public resale shares of Common
Stock owned by Ingram Entertainment, provided that certain minimum offering
price and share quantity criteria are met. In addition, Ingram Entertainment has
unlimited "piggyback" registration rights.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Override Agreement, dated November 19, 1996, between Lee Video City, Inc.,
Robert Y. Lee, on behalf of himself and as Trustee of the Robert Y. Lee
Revocable Living Trust, Video City Inc. (f/k/a Prism Entertainment
Corporation) and Ingram Entertainment Inc.
2. Warrant Agreement to Purchase Common Stock, dated January 8, 1997, between
Video City Inc. (f/k/a Prism Entertainment Corporation)and Ingram
Entertainment Inc.
3. Escrow and Warrant Agreement, dated January 8, 1997, between Video City,
Inc. (f/k/a Prism Entertainment Corporation), Robert Y. Lee, on behalf of
himself and as Trustee of the Robert Y. Lee Revocable Living Trust, and
Ingram Entertainment Inc.
4. Lock-Up Agreement, dated January 8, 1997, between Robert Y. Lee, Barry
Collier, and Ingram Entertainment Inc.
6
<PAGE> 7
5. Registration Rights Agreement, dated January 8, 1997, between Video City,
Inc. (f/k/a Prism Entertainment Corporation) and Ingram Entertainment Inc.
6. Stockholders Agreement, dated January 8, 1997, between Video City, Inc.
(f/k/a Prism Entertainment Corporation), Robert Y. Lee, on behalf of
himself and as Trustee of the Robert Y. Lee Revocable Living Trust, Barry
Collier, and Ingram Entertainment Inc.
7
<PAGE> 8
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
INGRAM ENTERTAINMENT INC.
Date: January 21, 1997 By: /s/ John J. Fletcher
---------------- -----------------------------------------------------
Title: Vice President, General Counsel, and Secretary
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8
<PAGE> 9
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF INGRAM ENTERTAINMENT INC.
The business address of each director and executive officer of Ingram
Entertainment Inc. is Two Ingram Boulevard, LaVergne, TN 37089, unless
otherwise indicated.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION
------------------------- --------------------
<S> <C>
A. DIRECTORS:
David B. Ingram Chairman and President
Ingram Entertainment Inc.
Thomas H. Lunn Vice Chairman and Treasurer
Ingram Entertainment Inc.
James E. Anderson, Jr. Senior Vice President and General Counsel
Ingram Micro Inc. Ingram Micro Inc. (a wholesale distributor of
1600 E. St. Andrew Place microcomputer products)
Santa Ana, CA 92705
Fred C. Goad, Jr. Chairman and Co-Chief Executive Officer
ENVOY Corporation ENVOY Corporation (a provider of
Two Lakeview Place electronic processing services)
15 Century Blvd., Ste. 600
Nashville, TN 37214
John R. Ingram Chairman of the Board
Ingram Book Group Ingram Book Group (the book distribution
One Ingram Blvd. division of Ingram Industries Inc.)
LaVergne, TN 37089
William B. King Chairman
Private Business Inc. Private Business Inc.
Box 1603 (a supplier of bank marketing and financial
Brentwood, TN 37024 systems)
Claire W. Tucker Executive Vice President
First American National Bank First American National Bank
First American Center
Nashville, TN 37237-0202
</TABLE>
9
<PAGE> 10
SCHEDULE A (continued)
<TABLE>
<S> <C>
B. EXECUTIVE OFFICERS:
David B. Ingram Chairman of the Board and President
Thomas H. Lunn Vice Chairman and Treasurer
LaVern K. Fross Senior Vice President -- Sales and Marketing
Robert W. Webb Senior Vice President -- Purchasing and
Operations
W. Donnie Daniel Vice President -- Finance and CFO
John J. Fletcher Vice President, General Counsel, and
Secretary
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF INGRAM INDUSTRIES INC.
The business address of each director and executive officer of Ingram
Industries Inc. is 4400 Harding Road, Nashville, TN 37205, unless otherwise
indicated.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION
------------------------- --------------------
<S> <C>
A. DIRECTORS:
Martha R. Ingram Chairman of the Board and
Chief Executive Officer
Ingram Industries
Orrin H. Ingram Co-President
Ingram Industries
John R. Ingram Co-President
Ingram Industries
Roy E. Claverie Senior Vice President
Ingram Industries
Lee Synnott Chief Executive Officer
Ingram Book Group Ingram Book Group
One Ingram Boulevard Senior Vice President
LaVergne, TN 37086 Ingram Industries
</TABLE>
10
<PAGE> 11
SCHEDULE A (continued)
<TABLE>
<S> <C>
Neil N. Diehl Retired
6 Castle Rising
Nashville, TN 37215
R. Clayton McWhorter Principal, Clayton Associates
Jack C. Massey Business Center (a venture capital company)
Belmont University
Nashville, TN 37212-3757
Dennis C. Bottorff President and Chief Executive Officer
First American Corporation First American Corporation (a bank holding
First American Center company)
Nashville, TN 37237
Linwood A. Lacy, Jr. President and Chief Executive Officer
Micro Warehouse, Inc. Micro Warehouse, Inc. (a seller of computer
535 Connecticut Avenue products)
Norwalk, CT 06854
B. EXECUTIVE OFFICERS:
Martha R. Ingram Chairman of the Board and Chief Executive
Officer
Orrin H. Ingram Co-President
John R. Ingram Co-President
Roy E. Claverie Senior Vice President
Lee Synnott Senior Vice President
Ingram Book Group
One Ingram Boulevard
LaVergne, TN 37086
William P. Morelli Vice President, General Counsel and
Secretary
Robert W. Mitchell Vice President and Treasurer
Mary K. Cavarra Vice President and Controller
William M. Head Vice President -- Human Resources
William S. Jones Vice President -- Tax
Donald E. Rickenbaugh Vice President -- Risk Management
</TABLE>
11
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1. Override Agreement, dated November 19, 1996, between Lee Video
City, Inc., Robert Y. Lee, on behalf of himself and as Trustee of the
Robert Y. Lee Revocable Living Trust, Video City Inc. (f/k/a Prism
Entertainment Corporation) and Ingram Entertainment Inc.
2. Warrant Agreement to Purchase Common Stock, dated January 8, 1997,
between Video City Inc. (f/k/a Prism Entertainment Corporation) and
Ingram Entertainment Inc.
3. Escrow and Warrant Agreement, dated January 8, 1997, between Video
City, Inc. (f/k/a Prism Entertainment Corporation), Robert Y. Lee, on
behalf of himself and as Trustee of the Robert Y. Lee Revocable
Living Trust, and Ingram Entertainment Inc.
4. Lock-Up Agreement, dated January 8, 1997, between Robert Y. Lee, Barry
Collier, and Ingram Entertainment Inc.
5. Registration Rights Agreement, dated January 8, 1997, between Video
City, Inc. (f/k/a Prism Entertainment Corporation) and Ingram
Entertainment Inc.
6. Stockholders Agreement, dated January 8, 1997, between Video City, Inc.
(f/k/a Prism Entertainment Corporation), Robert Y. Lee, on behalf of
himself and as Trustee of the Robert Y. Lee Revocable Living Trust,
Barry Collier, and Ingram Entertainment Inc.
12
<PAGE> 1
Exhibit 1
OVERRIDE AGREEMENT
This Override Agreement (the "Agreement") is made and entered into as of
November 19, 1996, by and among Lee Video City, Inc., a California corporation
("VCI"); Robert Y. Lee ("Lee"), an individual resident of California on behalf
of himself and as Trustee of the Robert Y. Lee Revocable Living Trust UDT 1/9/91
(the "Trust"); Prism Entertainment Corporation, a Delaware corporation
("Prism"); and Ingram Entertainment Inc., a Tennessee corporation ("Ingram"),
with reference to the following:
A. Prism is a public company which on December 1, 1995 filed for protection
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California (the "Bankruptcy
Court"), and is currently operating as debtor-in-possession.
B. Prism and VCI have entered into that certain Agreement and Plan of
Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Amendment, dated as of November 19, 1996 (as amended, the "Merger
Agreement") with respect to a merger (the "Merger") of VCI into Prism.
C. As of the date of this Agreement, VCI is indebted to Ingram in the
aggregate approximate amount of $4,500,000 (the "VCI Debt"). The obligations of
VCI to Ingram with respect to the VCI Debt are secured by (a) a security
interest in substantially all of the personal property of VCI (the "Old
Collateral") pursuant to an Amended and Restated Security Agreement dated as of
February 7, 1995, as amended (the "Prior Security Agreement"); (b) a pledge
agreement dated as of February 7, 1995, as amended (the "Stock Pledge
Agreement") issued by the Trust in favor of Ingram as to 5,500 shares of the
Common Stock of VCI (the "Pledged Shares"); (c) a Pledge Agreement dated
February 7, 1995, as amended (the "Note Pledge Agreement") issued by VCI in
favor of Ingram as to a promissory note in favor of VCI (the "Pledged Note");
and (d) a Payment Guaranty issued by Lee dated February 7, 1995 (the "Lee
Guaranty").
D. VCI, Lee and Ingram have entered into that certain Workout Agreement
dated as of February 7, 1995 (the "Workout Agreement") with respect to the
rescheduling and payment of the then outstanding debt owed by VCI to Ingram.
E. Ingram is the holder of warrants issued by VCI dated November 14, 1996
to acquire shares of the Common Stock of VCI equal to 8.5% of the outstanding
shares of VCI (the "Old Warrants").
F. Subject to the terms and conditions set forth in this Agreement and the
consummation of the Merger, the parties have agreed to restructure the VCI Debt.
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. In addition to the definitions set forth in the
Recitals, for purposes of this Agreement, the following capitalized terms shall
have the following meaning:
"Additional Warrants" means warrants to purchase an aggregate of
852,750 shares of the Common Stock of Reorganized Prism substantially in
the form of Exhibit A attached hereto.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled
by, such Person. As used in this definition, "control" (and its correlated
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person that owns, directly or
indirectly, 10% or more of the securities having ordinary voting power for
the election of directors or other governing body of a corporation (other
than securities having such power only by reason of the happening of a
contingency), or 10% or more of the partnership or other ownership interest
of any other Person (other than as a limited partner of such other Person),
will be deemed to control such corporation or other Person.
"Assumed Options" means options of VCI to be assumed by Reorganized
Prism upon the Merger to purchase an aggregate of 1,685,000 shares of
Reorganized Prism.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday on which Ingram is open for business at its address for notice
designated as provided herein.
"Closing" means the consummation of the transactions contemplated by
this Agreement, which shall be deemed to take place concurrently with the
effectiveness of the Merger.
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<PAGE> 3
"Closing Date" means the date of Closing.
"Collateral Documents" means the New Security Agreement and Copyright
Mortgages.
"Collier" means Barry Collier.
"Copyright Mortgage" means a mortgage agreement, in form and substance
satisfactory to Ingram, granting to Ingram a security interest and lien on
all right, title and interest of Reorganized Prism in and to the Film
Library and the Film Library Accounts Receivable, including, without
limitation, all copyrights with respect to the Film Library in form and
substance acceptable to Ingram.
"Debt Documents" means, collectively, this Agreement, the Note, the
Collateral Documents, the Supply Agreement, the New Warrants, the
Additional Warrants and any other certificates, documents or agreement of
any type or nature heretofore or hereafter executed or delivered by
Reorganized Prism or any other Party to Ingram in any way relating to or in
furtherance of this Agreement and/or the Note, and in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
"Disclosure Statement" means the Disclosure Statement for Prism's
Amended Plan of Reorganization dated September 23, 1996, as may be amended.
"Effective Time" means the consummation of the Merger.
"Escrow and Warrant Agreement" means, as to the New Warrants, the
Escrow and Warrant Agreement substantially in the form of Exhibit B
attached hereto.
"Event of Default" shall have the meaning provided in Section 7.1.
"Film Library" means the rights of Prism in the motion pictures listed
on Schedule 5.25 to the Merger Agreement.
"Film Library Accounts Receivable" means all present and future
accounts, accounts receivable, rights to payment, and all forms of
obligations owing to Reorganized Prism or in which Reorganized Prism may
have any interest, however created or arising, relating to the Film
Library.
"Governmental Agency" means (a) any international, foreign, federal,
state, county or municipal government, or political subdivision thereof,
(b) any
3
<PAGE> 4
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, or (c) any court,
administrative tribunal or public utility.
"Guaranty Release" means the release by Ingram of the Lee Guaranty,
the Stock Pledge Agreement and the Note Pledge Agreement to be executed and
delivered at the Closing substantially in the form of Exhibit C attached
hereto.
"Ingram Shares" means 1,500,000 shares of the Common Stock of
Reorganized Prism.
"Laws" means, collectively, all international, foreign, federal, state
and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, lien or charge of
any kind, whether voluntarily incurred or arising by operation of Law or
otherwise, affecting any property, including any agreement to grant any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of, or
agreement to, give any financing statement (other than a precautionary
financing statement with respect to a lease that is not in the nature of a
security interest) under the Uniform Commercial Code or comparable Law of
any jurisdiction with respect to any property.
"Lock-Up Agreement" means an agreement to be executed and delivered at
the Closing between Lee, Collier and Ingram pursuant to which Lee (on his
own behalf and on behalf of the Trust) and Collier agree to refrain from
selling, pledging or encumbering the Lock-Up Shares, substantially in the
form of Exhibit D attached hereto.
"Lock-Up Shares" means 1,026,983 shares of Common Stock of Reorganized
Prism, 721,983 shares of which will, upon the Closing, be held by Lee and
305,000 shares by Collier.
"New Collateral" means, collectively, a first lien on the property and
assets of Reorganized Prism described in Schedule A attached hereto (other
than the Film Library and the Film Library Accounts Receivable of
Reorganized Prism) and a second priority lien on the Film Library and the
Film Library Accounts Receivable of Reorganized Prism subject only to the
lien of Imperial Bank, all as more fully described in the New Security
Agreement.
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<PAGE> 5
"New Security Agreement" means the Security Agreement, dated as of the
Closing Date, executed by Reorganized Prism in favor of Ingram,
substantially in the form of Exhibit E attached hereto, either as
originally executed or as it may from time to time on or after the Closing
Date be supplemented, modified, amended, restated or extended.
"New Warrants" means warrants to purchase the New Warrant Shares to be
delivered to Ingram at the Closing pursuant to the Escrow and Warrant
Agreement.
"New Warrant Shares" means an aggregate of 8 1/2% of the number of
shares of the Common Stock of Reorganized Prism to be received by the VCI
Shareholders pursuant to the Merger, provided, however, that the aggregate
number of shares to be received by the VCI Shareholders will not be less
than 4,930,000. The number of New Warrant Shares is currently estimated to
be 410,444.
"Note" means the promissory note of Reorganized Prism to be delivered
to Ingram at the Closing evidencing the Remaining Debt, substantially in
the form of Exhibit F attached hereto.
"Party" means any Person (including Reorganized Prism and/or any
Affiliate of Reorganized Prism), other than Ingram, which now or hereafter
is party to any of the Debt Documents.
"Person" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, joint stock company,
trust, unincorporated organization, bank, business association, firm, joint
venture, governmental agency, or otherwise.
"Plan" means the Plan of Reorganization of Prism and its subsidiaries,
as may be amended.
"Registrable Securities" means the Ingram Shares, the New Warrant
Shares and any securities issuable upon exercise of the Additional
Warrants.
"Registration Rights Agreement" means an agreement between Prism and
Ingram regarding the registration of the Registrable Securities
substantially in the form of Exhibit G attached hereto.
"Remaining Debt" means the difference between the VCI Debt and
$3,000,000.
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"Reorganized Prism" means the surviving entity upon the consummation
of the Merger.
"Reorganized Prism Securities" means the Ingram Shares, the New
Warrants, the New Warrant Shares, the Additional Warrants and any
securities issuable upon exercise of the Additional Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders Agreement" means an agreement to be executed and
delivered at Closing among Reorganized Prism, Lee, Collier and Ingram
substantially in the form of Exhibit H attached hereto.
"Supply Agreement" means the Supply Agreement between Reorganized
Prism and Ingram to be executed and delivered at the Closing substantially
in the form of Exhibit I attached hereto.
"VCI Shareholders" means the shareholders of VCI immediately prior to
the Effective Time.
ARTICLE 2
RESTRUCTURING OF DEBT
2.1 Conversion of Debt; Release of Lee Guaranty and Old Collateral.
At the Closing, Ingram shall convert $3,000,000 of principal amount of the VCI
Debt into the Ingram Shares. In connection therewith, at the Closing, Ingram
shall release the Stock Pledge Agreement, the Note Pledge Agreement and the Lee
Guaranty pursuant to the Guaranty Release, redeliver and reassign to Lee the
Pledged Shares and to VCI the Pledged Note, and execute and deliver to
Reorganized Prism UCC-2 termination statements with respect to the Old
Collateral; and Reorganized Prism shall execute and deliver to Ingram the Note,
the New Security Agreement and UCC-1 financing statements covering the New
Collateral pursuant to which Reorganized Prism shall grant to Ingram first
priority liens and security interests in and to the New Collateral except that
the lien and security interest in the Film Library and the Film Library Accounts
Receivable shall be subject to and subordinate to the lien therein of Imperial
Bank.
2.2 Termination of Workout Agreement; Payment of Remaining Debt. The
Workout Agreement shall be terminated effective at the Closing, and Ingram shall
thereupon release all of its future claims thereunder. The Remaining Debt shall
be evidenced by the Note and payable as follows:
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(a) Interest shall be payable on the outstanding daily unpaid principal
amount of the Remaining Debt from the Closing until payment in full is made,
shall accrue and be payable at the rate of 10% per annum and shall be payable
monthly. Any accrued interest not paid on a date scheduled for the payment of
interest shall be added to the principal of the Remaining Debt and all of such
principal, as so increased shall thereafter bear interest at the lesser of 4% in
excess of the existing rate or the maximum rate permitted by applicable law. All
proceeds from the exercise of all options or warrants to purchase capital stock
of Reorganized Prism shall be applied to the reduction of the Remaining Debt,
first to any accrued unpaid interest and then to principal.
(b) If not sooner paid, the Remaining Debt and all accrued interest
thereon shall be payable on the third anniversary of the Closing.
(c) The Remaining Debt may, at any time and from time to time, be
paid or prepaid in whole or in part without premium or penalty, provided that
each prepayment of principal shall be accompanied by payment of interest accrued
through the date of payment on the amount of principal paid.
(d) Should any installment of principal or interest not be paid when
due, a late charge equal to 5% of the payment then due, payable on demand,
shall be charged with respect to such payment.
(e) All computations of interest shall be calculated on the basis of
a year of 360 days and the actual number of days elapsed.
(f) If any payment to be made by Reorganized Prism shall become due on
a day other than a Business Day, payment shall be made on the next succeeding
Business Day and the extension of time shall be reflected in computing interest.
(g) Each payment hereunder shall be made by Reorganized Prism by wire
transfer to Ingram or to such other account as Ingram may direct in writing. All
payments shall be made in lawful money of the United States of America and shall
be deemed made when verified by the receiving bank.
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ARTICLE 3
ISSUANCE OF NEW WARRANTS
At the Closing, certain of the VCI shareholders shall issue to Ingram the
New Warrants to purchase the New Warrant Shares pursuant to the Escrow and
Warrant Agreement. It is understood that certificates representing the New
Warrant Shares shall be issued at the Closing in the names of the VCI
Shareholders, but shall be delivered to an escrow agent acceptable to the
parties to be held pending exercise of the New Warrants by Ingram or the
expiration of the Warrant Period. For such time as the New Warrant Shares are
held in escrow, the VCI Shareholders shall be entitled to vote the New Warrant
Shares. Upon expiration of the Warrant Period, the escrow agent will be
authorized and instructed to deliver to the VCI Shareholders all New Warrant
Shares to the extent that the New Warrants have not been exercised therefor. Any
exercise by Ingram of the New Warrants shall be done on a ratable basis with
respect to the New Warrant Shares with the exercise price(s) therefor to be paid
to Reorganized Prism.
ARTICLE 4
ADDITIONAL WARRANTS
At the Closing, Reorganized Prism shall issue to Ingram the Additional
Warrants.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of VCI. VCI hereby represents and
warrants to the other parties hereto as follows:
(a) VCI has the full right, power and authority to enter into, execute
and deliver this Agreement and all the other Debt Documents to which VCI is a
party.
(b) VCI is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and has the corporate power
to own and operate its properties and to carry on its business as now conducted.
VCI is duly qualified to do business and in good standing in each state in which
a failure to be so
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qualified would have a material adverse effect on VCI's financial position
or its ability to conduct its business in the manner now conducted.
(c) VCI has taken all action necessary to authorize the entering into
and performance of its obligations under this Agreement and all other related
documents to which VCI is a party. This Agreement and all the other agreements,
documents, and instruments contemplated hereby to which VCI is a party, are,
and as of the Closing will be, the legal, valid and binding obligation of VCI,
enforceable in accordance with their respective terms.
(d) The representations and warranties of VCI set forth in the Merger
Agreement are true and correct as of the date hereof.
(e) The execution, delivery and performance by VCI of this Agreement
and the other Debt Documents does not and will not (i) contravene or conflict
with the Articles of Incorporation or bylaws of VCI, (ii) contravene or
conflict with or constitute a violation of any provision of any law, statute,
rule, regulation, judgment, injunction, order, writ or decree binding upon or
applicable to VCI or any part of its business, or (iii) contravene or conflict
with or constitute a violation, breach, or default under any agreement to which
VCI is bound.
5.2 Representations and Warrants of Prism. Prism hereby represents and
warrants to the other parties as follows:
(a) Prism is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and has the corporate power
to own and operate its properties and to carry on its business as now conducted.
Prism is duly qualified to do business and in good standing in each state in
which a failure to be so qualified would have a material adverse effect on
Prism's financial position or its ability to conduct its business in the manner
now conducted.
(b) Prism has the full right, power and authority to enter into,
execute and deliver this Agreement and all other related documents to which
Prism is a party.
(c) Prism has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
related documents to which Prism is a party. This Agreement and all other
agreements, documents, and instruments contemplated hereby are, and as of the
Closing will be, the legal, valid and binding obligation of Prism, enforceable
in accordance with their respective terms.
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(d) The representations and warranties of Prism set forth in the Merger
Agreement are true and correct as of the date hereof.
(e) The Reorganized Prism Securities, when issued, shall be duly
authorized, validly issued, fully paid and non-assessable.
(f) The execution, delivery and performance by Prism of this Agreement
and the Debt Documents to which Prism is a party does not and will not (i)
contravene or conflict with the Certificate of Incorporation or bylaws of
Prism, (ii) contravene or conflict with or constitute a violation of any
provision of any law, statute, rule, regulation, judgment, injunction, order,
writ or decree binding upon or applicable to Prism or any part of its business,
except that the consummation of the transactions contemplated herein is subject
to the confirmation of the Plan, or (iii) contravene or conflict with or
constitute a violation, breach, or default under any agreement to which Prism
is bound.
(g) The Plan provides for sufficient number of shares of Common Stock
of Reorganized Prism in connection with the issuance of the New Warrant Shares,
the Ingram Shares and any securities issuable upon exercise of the Additional
Warrants.
(h) Place of Business. The records with respect to all intangible
personal property constituting a part of the New Collateral are and will be
maintained at Reorganized Prism's chief place of business and chief executive
office, which has the address of 6851 McDivitt Drive, Suite A, Bakersfield,
California 93313. All tangible personal property constituting a part of the New
Collateral is or will be located at Reorganized Prism's chief place of business
and chief executive office and/or at any specific store locations.
(i) Imperial Bank. As of the date hereof, the total outstanding
principal amount of the indebtedness of Prism to Imperial Bank (the "Imperial
Indebtedness"), is no more than $3,100,000.
5.3 Representations and Warranties of Ingram. Ingram hereby represents and
warrants as follows:
(a) Ingram has the full right, power and authority to enter into,
execute and deliver this Agreement and all other related documents to which
Ingram is a party.
(b) Ingram has taken all action necessary to authorize the entering
into and performance of its obligations under this Agreement and all other
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related documents to which Ingram is a party. This Agreement and such related
documents are, and as of the Closing will be, the legal, valid and binding
obligation of Ingram, enforceable in accordance with their respective terms.
(c) Ingram understands and agrees that (subject to the Registration
Rights Agreement):
(i) The Reorganized Prism Securities shall not have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
or the securities laws of any state, based upon an exemption from such
registration requirements under the Securities Act and applicable state
securities law;
(ii) The Reorganized Prism Securities are and will be "restricted
securities" as said term is defined in Rule 144 of the Rules and Regulations
promulgated under the Securities Act;
(iii) The Reorganized Prism Securities may not be sold or otherwise
transferred unless they have been first registered under the Securities Act and
applicable state securities laws, or unless exemption from such registration
provisions are available with respect to said resale or transfer;
(iv) Prism is relying on the representation by Ingram that Ingram
has such knowledge and experience in financial or business matters that Ingram
is capable of evaluating the merits and risks involved in the investment in the
Reorganized Prism Securities;
(v) The Reorganized Prism Securities are and will be acquired by
Ingram for Ingram's own account and not with a view to, or for resale in
connection with, any distribution other than resales made in compliance with
the Securities Act and applicable state securities laws.
(vi) Ingram acknowledges that it has received the Disclosure
Statement, together with a copy of the Plan. Ingram has been, or will be prior
to Closing, furnished with such information and documents pertaining to
Reorganized Prism as Ingram has requested, and has been, or will be prior to
Closing, given the opportunity to meet with officials of Prism and VCI and to
have such persons answer questions regarding Reorganized Prism's affairs and
conditions.
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ARTICLE 6
COVENANTS BY PRISM
Unless Ingram otherwise consents in writing, which consent may be exercised
or withheld in Ingram's sole discretion, so long as Reorganized Prism is
indebted to Ingram under this Agreement, and until the payment in full of the
Remaining Debt (as to all covenants in this Article) and until the later to
occur of the termination of the Stockholders Agreement or the payment in full of
the Remaining Debt (as to Sections 6.11, 6.12, 6.14, 6.16, 6.17 and 6.18), Prism
covenants as follows:
6.1 Punctual Payment. Reorganized Prism shall punctually pay the interest
and principal of the Remaining Debt at the times and place and in the manner
specified herein and in the Note.
6.2 Accounting Records. Reorganized Prism shall maintain full and
complete books and accounts and other records reflecting all of its properties
and the results of its business in accordance with generally accepted
accounting principles consistently applied.
6.3 Financial Information. Reorganized Prism shall deliver, or cause to
be delivered, to Ingram, in form and detail satisfactory to Ingram:
(a) As soon as available, but in any event not later than 105 days
after the end of each fiscal year, an audited balance sheet of Reorganized
Prism as at the end of such fiscal year, and statements of income and cash flow
for such fiscal year, together with the equivalent information for the prior
fiscal year, all in detail reasonably satisfactory to Ingram. Such balance
sheet and statements shall be prepared in accordance with generally accepted
accounting principles applied on a basis consistently maintained throughout the
periods involved and accompanied by a report of a certified public accountant
of recognized national standing reasonably satisfactory to Ingram.
(b) As soon as available, but in any event not later than 50 days
after the end of each fiscal quarter (except for the fourth quarter), an
unaudited balance sheet of Reorganized Prism as at the end of such fiscal
quarter (except for the fourth quarter) and a statement of income for such
fiscal quarter (except for the fourth quarter) and the year to date, together
with the equivalent information for the same period in the prior fiscal year,
all in accordance with generally accepted accounting principles consistently
maintained throughout the period involved, except for the absence of footnotes.
Such financial statements shall be certified by the chief financial officer of
Reorganized Prism as fairly presenting the financial condition and results of
operations of Reorganized Prism in accordance with generally accepted
accounting principles,
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consistently applied, as at such date and for such periods, except for the
absence of footnotes. The foregoing may be satisfied by delivery of the
applicable Form 10-Q Report.
6.4 Existence. Reorganized Prism shall (a) preserve and maintain its
existence and all of its material rights, licenses, privileges and franchises,
(b) continue to operate in substantially the same line of business as VCI
presently engages in, namely, the business of renting and selling prerecorded
video entertainment for consumer use, (c) comply with the requirements of all
applicable Laws of any Governmental Agency, and (d) use its best efforts to
conduct its business in an orderly, efficient, and regular manner.
6.5 Maintenance of Properties. Reorganized Prism shall maintain, preserve
and protect all of its properties and equipment in good order and condition,
subject to wear and tear in the ordinary course of business, and not permit any
waste of its properties, except that the failure to maintain, preserve and
protect a particular item of property or equipment that is not of significant
value, including property not of significant value due to its technological
obsolescence, either intrinsically or due to the operation of Reorganized Prism,
shall not constitute a violation of this covenant.
6.6 Taxes and Other Liabilities. Reorganized Prism shall pay and
discharge when due any and all indebtedness, obligations, assessments and taxes
including without limitation federal and state income taxes, and all such
obligations imposed by any Governmental Agency which are or may become a Lien
affecting Reorganized Prism's properties or any part thereof, except such as
Reorganized Prism may in good faith contest by appropriate proceedings, so long
as Reorganized Prism has established and maintains reserves adequate to pay any
such contested liabilities in accordance with generally accepted accounting
principles and, by reason of non-payment, none of Reorganized Prism's property
or the Liens of Ingram thereon are in danger of being lost or forfeited.
6.7 Reporting Requirements. Reorganized Prism shall cause to be delivered
to Ingram, in form and detail satisfactory to Ingram:
(a) promptly upon Reorganized Prism's learning thereof, notice of:
(i) any material litigation affecting or relating to Reorganized
Prism, or any of its properties;
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(ii) any dispute between Reorganized Prism and any Governmental
Agency relating to Reorganized Prism's property, the adverse
determination of which might materially adversely affect such
property;
(iii) any change in senior management of Reorganized Prism;
(iv) any Default or Event of Default.
(b) written notice of any change in the location of Reorganized
Prism's principal place of business or any other place in which it
maintains any of the New Collateral or its books and records at least 30
days prior to the date of such change;
(c) such other information relating to Reorganized Prism, and/or its
properties as Ingram may reasonably request from time to time.
6.8 Insurance. Reorganized Prism shall provide or cause to be provided
the following policies of insurance:
(a) public liability insurance in an amount deemed reasonably
necessary from time to time by Ingram;
(b) property damage and casualty insurance in an amount deemed
reasonably necessary from time to time by Ingram; and
(c) such other policies of insurance as Ingram may reasonably require
from time to time.
All insurance policies (i) shall be maintained throughout the term of the
Remaining Debt at Reorganized Prism's sole expense, (ii) shall be issued by
insurers of recognized responsibility which are reasonably satisfactory to
Ingram, (iii) shall be in form and substance reasonably satisfactory to Ingram,
and (iv) with respect to insurance coverage damage to the New Collateral, (A)
shall name Ingram as an additional insured and/or loss payee, as appropriate,
and (B) shall contain a "lender's loss payable" endorsement in form and
substance reasonably satisfactory to Ingram. Reorganized Prism shall deliver or
cause to be delivered to Ingram, from time to time at Ingram's reasonable
request, originals or copies of such policies or certificates in form reasonably
satisfactory to Ingram, evidencing the same. Such certifications shall provide
that such insurance coverage shall not be reduced, cancelled or terminated
without 30 days prior written notice to Ingram.
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6.9 Inspection Rights. At any time during regular business hours and as
often as reasonably requested, Reorganized Prism shall permit Ingram, or any
employee, agent or representative of Ingram, to examine, audit and make copies
and abstracts from the records and books of account of, and to visit and inspect
the Properties of, Reorganized Prism and to discuss the affairs, finances and
accounts of Reorganized Prism with any of its officers and key employees, and,
upon request, furnish promptly to Ingram true copies of all financial
information and internal management reports made available to the management of
Reorganized Prism. As used herein, "key employees" means all employees at least
of Regional Manager or department head rank.
6.10 Compliance with Agreements, Duties and Obligations. Reorganized
Prism shall promptly and fully comply with all of its agreements, duties and
obligations under the Debt Documents and, in all material respects, under any
other material agreements, indentures, leases and/or instruments to which it
and Ingram are each a party. Reorganized Prism shall use its best efforts to
promptly and fully comply with all of its agreements, duties and obligations
under any material agreements, indentures, leases and/or instruments to which
it and another Person (other than Ingram) are each a party.
6.11 Mergers, Consolidations and Acquisitions. Reorganized Prism shall
not (a) enter into any transaction of merger or consolidation or contemplating
the sale or transfer of all or substantially all of its assets; or (c) make any
material change in the nature of its business as conducted and presently
proposed to be conducted; or (d) change the form of organization of its
business; provided, however, that nothing herein shall prevent Reorganized
Prism from selling the Film Library (subject, however, to the conditions set
forth in Section 6 of the Security Agreement), or from entering into a
transaction of merger where (i) Reorganized Prism is the surviving party; (ii)
upon the consummation of such merger, 50% or more in interest of the
stockholders of Reorganized Prism own and control 50% or more of the voting
equity of the combined company; (iii) a majority of the board of directors of
the combined company consist of directors of Reorganized Prism immediately
prior to such merger; and (iv) the terms of the Supply Agreement will continue
to apply.
6.12 Redemption, Dividends, Distributions. Reorganized Prism shall not
redeem or repurchase stock or other ownership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in cash or other property.
6.13 Application of Exercise Prices. Reorganized Prism shall apply all
proceeds from the exercise of any options or warrants to purchase capital stock
of Reorganized Prism to the reduction of the Remaining Debt, first to any
accrued, unpaid interest and then to principal.
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6.14 Restriction on Employee Stock Options. Except for the Assumed
Options and the option in favor of Collier to purchase 175,000 shares (the
"Collier Option"), Reorganized Prism shall not issue any employee stock options
or warrants (a) at exercise prices below the greater of the book value per
share or the fair market value per share on the date of grant or (b) to the
extent that the total amount of shares issuable pursuant to the exercise of
such new stock options plus 461,000 shares exceeds 10% of the then issued and
outstanding shares of Reorganized Prism's Common Stock and Common Stock
equivalents. No options or warrants (including the Assumed Options and Collier
Option) will be repriced at an exercise price below the greater of the book
value per share or the fair market value on the date of original grant (subject
to adjustments for any stock splits, combinations, etc.) and provisions of
vesting and forfeiture of any such options shall not be amended or modified.
6.15 Imperial Indebtedness. In no event shall Reorganized Prism allow the
aggregate principal amount of Imperial Indebtedness to exceed the amount
outstanding as of the date hereof except as to accrued interest and for costs
and expenses incurred by Imperial Bank from the date hereof. Reorganized Prism
shall promptly provide and deliver to Ingram any and all notices received from
the holder(s) of the Imperial Indebtedness of any default or Event of Default
under the documents, instruments and agreements evidencing, securing or
otherwise relating to the Imperial Indebtedness or of the exercise of remedies
with respect to any collateral therefor.
6.16 Employee Matters. Reorganized Prism shall not amend or modify the
employment agreements with Collier, Lee and Craig Kelly attached as exhibits to
the Merger Agreement. Reorganized Prism shall not extinguish, forgive or reduce
(except for payment made) any debt owed to Reorganized Prism from any employee.
6.17 Reservation of Shares. Reorganized Prism shall reserve a sufficient
number of shares of its Common Stock issuable upon exercise of any Additional
Warrants.
6.18 Board Approval. Without the unanimous approval of the Board of
Directors of Reorganized Prism, Reorganized Prism shall not enter into any line
of business other than (i) the sale and rental of video product and related
goods and accessories, (ii) completion of the sole film Prism currently has
under way expected to be titled "When the Bough Breaks II," and (iii) the
exploitation of the Film Library.
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ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of any one or more of the following,
whatever the reason therefor, shall constitute an "Event of Default" hereunder
in addition to any event of default described in any other document relating to
other transactions between the parties thereto:
(a) Reorganized Prism shall fail to pay any installment of principal or
interest on the Note when due, or any other amount owing under this Agreement,
the Note or the other Debt Documents when due; provided, however, Reorganized
Prism shall be allowed two times in any 12 month period to pay an installment of
principal or interest due under the Note not more than five days after the due
date for such payment provided that the late charge imposed by Section 2.2 is
paid; or
(b) Reorganized Prism shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement or in any of the Debt
Documents on its part to be performed or observed, within 30 days after the date
the same was to have been performed or observed; provided, however, that if the
failure to perform is capable of being cured, but cannot reasonably be cured
within 30 days after the date the same was to have been performed or observed,
no Event of Default shall be deemed to have occurred if Reorganized Prism shall
have commenced to perform the same within 30 days after the date the same was to
have been performed or observed and shall diligently continue to complete the
performance or observance; or
(c) any representation or warranty in any of the Debt Documents or in any
certificate, agreement, instrument or other document made or delivered pursuant
to or in connection with any of the Debt Documents proves to have been incorrect
when made in any material respect; or
(d) Reorganized Prism (i) shall fail to pay the principal, or any
principal installment, of any present or future indebtedness for borrowed money
of $100,000 or more, or to fulfill its obligations under any guaranty of
present or future indebtedness for borrowed money of $100,000 or more, on its
part to be paid, when due (or within any stated grace period), whether at the
stated maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) shall fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed in connection with any
present or future indebtedness for borrowed money of $100,000 or more, or of
any guaranty of present or future indebtedness for borrowed money of $100,000
or more, if as a result of such failure any holder or holders thereof (or an
agent or trustee on its or
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their behalf) has the right to declare such indebtednessdue before the date on
which it otherwise would become due, or has commenced judicial or nonjudicial
action to collect such indebtedness or to foreclose or otherwise realize upon
security held therefor, or has taken or is taking such other actions as might
materially adversely affect the Collateral, the interests of Ingram under the
Debt Documents or the ability of Reorganized Prism to perform its obligations
under the Debt Documents; or
(e) Any Debt Document, at any time after its execution and delivery and
for any reason other than the agreement of Ingram or satisfaction in full of
all the obligations of Reorganized Prism thereunder, ceases to be in full force
and effect or is declared by a court of competent jurisdiction to be null and
void, invalid or unenforceable in any respect; or any Party thereto denies that
it has any or further liability or obligation under any Debt Document, or
purports to revoke, terminate or rescind same; or
(f) A final judgment against Reorganized Prism is entered for the payment
of money in excess of $250,000 and such judgment remains unsatisfied without
procurement of a stay of execution for 30 calendar days after the date of entry
of judgment; or
(g) All or a substantial portion of Reorganized Prism's property is
seized or appropriated by any Governmental Agency; or
(h) Reorganized Prism is dissolved or liquidated or all or substantially
all of the property of Reorganized Prism is sold or otherwise transferred
without Ingram's written consent; or
(i) Reorganized Prism is the subject of an order for relief by a
bankruptcy court that is not stayed within 30 days, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors; or Reorganized Prism applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any part of its property;
or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of Reorganized
Prism and the appointment continues undischarged or unstayed for 60 calendar
days; or Reorganized Prism institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
custodianship, conservatorship, liquidation, rehabilitation or similar
proceedings relating to it or to all or any part of its property under the Laws
of any jurisdiction; or any similar proceeding is instituted without the
consent of Reorganized Prism and continues undismissed or unstayed for 60
calendar days; or any judgment, writ, attachment, execution or similar process
is issued or levied against all or any part of the property of Reorganized
Prism
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and is not released, vacated or fully bonded within 30 calendar days after its
issue or levy; or Reorganized Prism voluntarily ceases to transact business for
more than five consecutive days; or
(j) Reorganized Prism shall claim that any Debt Document is ineffective
or unenforceable, in whole or in part, for any reason.
ARTICLES 8
RIGHTS AND REMEDIES UPON DEFAULT
8.1 Remedies Generally. If an Event of Default shall occur, Ingram may, at
its option and without demand or notice to Reorganized Prism, which notice is
expressly waived, do any one or more of the following:
(a) accelerate and declare the principal of all amounts owing under this
Agreement, the Note and the other Debt Documents, including without limitation
all obligations secured by the Collateral Documents, together with interest
thereon, to be immediately due and payable, regardless of any other specified
maturity or due date, without presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character, and without the necessity of prior recourse to any security;
(b) to the extent permitted by applicable Laws, proceed to protect,
exercise and enforce any or all of its rights and remedies under any or all of
the Debt Documents, including without limitation the right to notify any account
debtor of Ingram's security interest in all of Reorganized Prism's accounts and
effect collection of any account directly from such debtor, the right to take
possession of and protect, enforce and exercise its rights with respect to the
New Collateral, and such other rights and remedies as are provided by Law or
equity, all in such order and manner as Ingram in its sole discretion may
determine; and/or
(c) to the extent permitted by applicable Laws, exercise any and all
legal or equitable remedies afforded to Ingram as provided in any Collateral
Documents heretofore or hereafter entered into between Ingram, Reorganized
Prism, or as provided for under the Uniform Commercial Code, or under any other
applicable law.
8.2 Cumulative Remedies. The rights and remedies granted to Ingram are
cumulative, and Ingram shall have the right to exercise any one or more of such
rights and remedies alternatively, successively or concurrently as Ingram may,
in its sole discretion, deem advisable.
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ARTICLE 9
CONDITIONS PRECEDENT TO INGRAM'S OBLIGATIONS
The obligations of Ingram to consummate the transactions contemplated
herein on the Closing Date shall be subject to the performance by Reorganized
Prism of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Ingram's satisfaction, on or before the Closing Date, of each of the following
conditions, unless waived by Ingram, in its sole discretion, in writing:
(a) Delivery to Ingram of an executed original of this Agreement, of
each of the following documents and of each of the exhibits, documents, and
ancillary agreements contemplated therein:
(i) the Note;
(ii) the New Security Agreement;
(iii) the Copyright Mortgages;
(iv) the Escrow and Warrant Agreement;
(v) the Additional Warrants;
(vi) the Lock-Up Agreement;
(vii) the Supply Agreement;
(viii) the Stockholders Agreement;
(ix) the Registration Rights Agreement;
(x) UCC-1 financing statements covering the New Collateral;
(xi) any other filings deemed necessary by Ingram to perfect its
lien and security interest in the Film Library and Film Library
Accounts Receivable;
20
<PAGE> 21
(xii) opinion of counsel to Prism as to matters, and in such
form, as reasonably requested by Ingram;
(xiii) evidence satisfactory to Ingram as to insurance coverage;
(xiv) incumbency certificate as to the officers of Reorganized
Prism;
(xv) certified copy of the Certificate of Incorporation and
Bylaws of Reorganized Prism and resolutions of Reorganized Prism, good
standing certificates of Reorganized Prism, authorizing the
transactions contemplated herein;
(xvi) any other instruments or documents reasonably requested by
Ingram in connection with the transactions contemplated hereby.
(b) The representations and warranties of VCI and Prism contained in
Sections 5.1 and 5.2 and in the Merger Agreement shall be true on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on the Closing Date.
(c) All corporate and other proceedings, including adoption by the
Board of Directors of Prism and VCI of resolutions authorizing the
consummation of the transactions contemplated herein and authorizing the
performance by Prism and VCI of the covenants hereunder, and all actions
required to be taken in connection with the transactions contemplated
herein, and all documents incident thereto, shall be satisfactory in form
and substance to Ingram and its counsel and Ingram shall have received
certified copies of the same.
(d) All legal matters with respect to and all legal documents executed
in connection with the transactions contemplated by this Agreement and the
other Debt Documents shall be reasonably satisfactory to counsel for
Ingram.
(e) The entry of an order or orders of the Bankruptcy Court confirming
the Plan on terms reasonably acceptable to Ingram.
(f) The effectiveness of the Merger, pursuant to a Merger Agreement in
form and substance satisfactory to Ingram.
21
<PAGE> 22
(g) No provision of any applicable law or regulation, and no judgment,
injunction, order or decree shall prohibit the consummation of the
transactions contemplated herein.
(h) Immediately after the Closing, the Board of Directors of
Reorganized Prism shall consist of eight members, two of which shall be
designees of Ingram.
(i) Ingram shall have received satisfactory evidence that, upon
execution of the Debt Documents, Reorganized Prism will be the owner of the
New Collateral and that Ingram has a second priority lien (subject only to
the first lien of Imperial Bank) on the Film Library and the Film Library
Accounts Receivable and a first priority lien as to all other collateral.
(j) Ingram shall have been given a full and complete opportunity to
review the books, records, and operations of Prism and to review the
collateral security that will be the subject of the Collateral Documents
and shall be satisfied, in its reasonable discretion, with such review and
investigation.
ARTICLE 10
CONDITIONS PRECEDENT TO PRISM'S AND VCI'S OBLIGATIONS
The obligations of Prism and VCI to consummate the transactions
contemplated herein on the Closing Date shall be subject to the performance by
Ingram of all of its covenants to be performed hereunder, to the accuracy of the
representations and warranties herein contained, and to the fulfillment to
Prism's and VCI's satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived by Prism and VCI, in their sole discretion,
in writing:
(a) Delivery by Ingram of an executed original of this Agreement and
of each of the following documents and of each of the exhibits, documents
and ancillary agreements contemplated therein:
(i) the Stockholders Agreement;
(ii) UCC-2 Termination Statements with respect to the Old
Collateral; and
(iii) the Guaranty Release.
22
<PAGE> 23
(b) Delivery and reassignment by Ingram to Lee of the Pledged Shares
and to VCI of the Pledged Note.
(c) The representations and warranties of Ingram contained in Section
5.3 shall be true on and as of the Closing Date with the same effect as
though such representations and warranties had been made on the Closing
Date.
(d) All corporate and other proceedings, including adoption by the
Board of Directors of Ingram of resolutions authorizing the consummation of
the transactions contemplated herein and authorizing the performance by
Ingram of the covenants hereunder, and all actions required to be taken in
connection with the transactions contemplated herein, and all documents
incident thereto, shall be satisfactory in form and substance to
Reorganized Prism and its counsel and Ingram shall have delivered certified
copies of the same to Reorganized Prism.
(e) All legal matters with respect to and all legal documents executed
in connection with the transactions contemplated by this Agreement and the
other Debt Documents shall be reasonably satisfactory to counsel for
Reorganized Prism.
(f) The entry of an order or orders of the Bankruptcy Court confirming
the Plan.
(g) The effectiveness of the Merger.
(h) No provision of any applicable law or regulation, and no judgment,
injunction, order or decree shall prohibit the consummation of the
transactions contemplated herein.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing and shall be given to such party at its address or
telecopier number set forth below, or such other address or telecopier number as
such party may hereinafter specify by notice to each other party hereto:
23
<PAGE> 24
if to Prism, to:
Prism Entertainment Corporation
1888 Century Park East, Suite 350
Los Angeles, California 90067
Attention: Barry L. Collier
Telecopy: (310) 203-8036
with a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard, Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Telecopy: (213) 688-3460
if to VCI:
(prior to the Effective Time)
Lee Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robbie Lee
Telecopy: (805) 397-7955
with a copy to:
Troy & Gould
1801 Century Park East, 16th Fl.
Los Angeles, California 90067
Attention: William J. Feis, Esq.
Telecopy: (310) 201-4746
if to Ingram:
Ingram Entertainment, Inc.
Two Ingram Boulevard
La Vergne, Tennessee 37089
Attention: John Fletcher, Esq., General Counsel
Telecopy: (615) 287-4465
24
<PAGE> 25
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
11.2 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by each party hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
11.4 Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of California, without giving effect to
the conflict of laws principles thereof.
11.5 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original and all of which
shall be deemed to be one and the same instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
11.6 Entire Agreement. This Agreement (and all attached Exhibits and
Schedules, which are hereby incorporated herein) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including without limitation, the Letter of Intent dated September
16, 1996 the Workout Agreement, the Stock Pledge Agreement, the Note Pledge
Agreement, the prior Supply Agreement, the Old Warrants and the Old Security
Agreements. No representation, inducement, promise, understanding, condition or
warranty not set forth herein, or in the Merger Agreement, or in any
25
<PAGE> 26
other Debt Document has been made or relied upon by any party hereto.
Neither this Agreement nor any provision hereof is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
11.7 Severability. If any one or more provisions of this Agreement shall,
for any reasons, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unen- forceable provision had never been contained herein.
11.8 Captions and Section References. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. All references to "Sections" without further citation
refer to sections of this Agreement.
11.9 Interpretation. Where the context or construction requires, all words
applied in the plural shall be deemed to have been used in the singular, and
vice versa; the masculine shall include the feminine and neuter, and vice versa;
and the present tense shall include the past and future tense, and vice versa.
11.10 Attorneys' Fees. In the event of any litigation or legal proceedings
(including arbitration) between the parties hereto, the nonprevailing party
shall pay the expenses, including reasonable attorneys' fees and court costs, of
the prevailing party in connection therewith. Reorganized Prism shall pay the
attorneys' fees (up to $15,000) and expenses for Ingram's outside counsel in
connection with this Agreement and the other Debt Documents.
11.11 No Third-Party Rights. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the parties to it and their respective
26
<PAGE> 27
successors and assigns, nor is anything in this Agreement intended to relieve
or discharge the obligation or liability of any third Persons to any party to
this Agreement, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
Lee Video City, Inc., a California
corporation
By________________________________
Its______________________________
__________________________________
Robert Y. Lee
Prism Entertainment Corporation, a
Delaware corporation
By________________________________
Its______________________________
Ingram Entertainment Inc., a Tennessee
corporation
By________________________________
Its______________________________
27
<PAGE> 28
SCHEDULE A
All present and future right, title and interest of Reorganized Prism in or
to any property or assets whatsoever, and all rights and powers of Reorganized
Prism to transfer any interest in or to any property or assets whatsoever,
including, without limitation, any and all of the following property, whether in
existence, owned or held, or hereafter acquired, entered into, created or
arising, and wherever located:
(a) The Film Library;
(b) The Film Library Accounts Receivable and all other accounts
receivable, including, all present and future accounts, accounts
receivable, agreements, contracts, leases, contract rights, rights to
payment, instruments, documents, chattel paper, security agreements,
guaranties, undertakings, surety bonds, insurance policies, notes and
drafts, and all forms of obligations owing to Reorganized Prism or in which
Reorganized Prism may have any interest, however created or arising;
(c) All present and future accounts, accounts receivable, contract
rights, chattel paper, instruments, general intangibles, all tax refunds of
every kind and nature to which Reorganized Prism now or hereafter may
become entitled, however arising, all other refunds, and all deposits,
goodwill, choses in action, trade secrets, computer programs, software,
customer lists, trademarks, trade names, patents, licenses, copyrights,
technology, processes, proprietary information and insurance proceeds;
(d) All present and future deposit accounts of Reorganized Prism,
including, without limitation, any demand, time, savings, passbook or like
account maintained by Reorganized Prism with any bank, savings and loan
association, credit union or like organization, and all money, cash and
cash equivalents of Reorganized Prism, whether or not deposited in any such
deposit account;
(e) All present and future books and records, including without
limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to Reorganized Prism or the business
thereof, all receptacles and containers for such records, and all files and
correspondence;
28
<PAGE> 29
(f) All present and future goods, including, without limitation,
all consumer goods, farm products, inventory, equipment, machinery,
tools, molds, dies, furniture, furnishings, fixtures, trade fixtures,
motor vehicles and all other goods used in connection with or in the
conduct of Reorganized Prism's business, including without limitation,
all goods as defined in the Uniform Commercial Code;
(g) All present and future inventory and merchandise including,
without limitation, all present and future goods held for sale or
lease or to be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing materials,
supplies and containers relating to or used in connection with any of
the foregoing, and all bills of lading, warehouse receipts or
documents of title relating to any of the foregoing;
(h) All present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions,
additions, issue and/or improvements to or of or with respect to any
of the foregoing;
(i) All other tangible and intangible property of Reorganized
Prism;
(j) All rights, remedies, powers and/or privileges of Reorganized
Prism with respect to any of the foregoing; and
(k) Any and all proceeds and products of any of the foregoing,
including, without limitation, all money, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper,
goods, insurance proceeds, and any other tangible or intangible
property received upon the sale or disposition of any of the
foregoing;
provided that the term "New Collateral" shall not include the interest of
Reorganized Prism in real property or real property leases ("real property" for
the purposes hereof having the same meaning as such term is used in California
Code of Civil Procedure Section 726).
29
<PAGE> 1
Exhibit 2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
Void after 5:00 p.m., Los Angeles, California Time,
on January 8, 2004
VIDEO CITY, INC.
Warrant to Purchase Common Stock
Video City, Inc., a Delaware corporation (formerly known as Prism
Entertainment Corporation) (the "Company"), hereby certifies that Ingram
Entertainment Inc., a Tennessee corporation ("Ingram"), and its successors and
assigns, is entitled, subject to the terms set forth below and provided that
this Warrant has not become void pursuant to the provisions of Section 6 below,
to purchase from the Company upon surrender of this Warrant, at any time or
times but not before 12:01 a.m., Los Angeles, California time, on January 8,
1997 and not after 5:00 p.m., Los Angeles, California time, on January 8, 2004,
which date is the expiration date of this Warrant, the number of fully paid and
nonassessable shares (the "Shares") of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") as hereinafter provided.
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder, and the term
"Common Stock" includes all stock of any class or classes (however designated)
of the Company, the holders of which shall have the right (without limitation as
to amount) either to all or to a share of the balance of current dividends and
liquidating distributions after the payment of dividends and distributions on
any shares entitled to preference.
1. Compliance with the Securities Act of 1933.
The holder of this Warrant agrees that the Company will authorize transfers
of this Warrant and all Shares purchased upon exercise hereof only when the
securities which the holder desires to transfer have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
state or other jurisdiction's securities laws or when the request for transfer
is accompanied by an
<PAGE> 2
opinion of counsel (which opinion and the counsel rendering such opinion
shall be reasonably acceptable to the Company) to the effect that the sale or
proposed transfer does not require registration under the Securities Act or any
state or other jurisdiction's securities laws, and the holder agrees that the
following legend to such effect, if the Company so desires, may be placed on the
certificate or certificates representing any of the Shares purchased upon
exercise of this Warrant and a stop transfer order may be placed with respect
thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
2. Number of Shares Issuable Upon Exercise of Warrant; Price.
This Warrant may be exercised from time to time, in whole or in part, for
up to an aggregate of 852,750 shares of Common Stock at any time, prior to or on
such dates, and in such amounts and at such prices, as set forth below:
<TABLE>
<CAPTION>
A. Number of Shares Latest Exercise Date Exercise Price
---------------- -------------------- --------------
<S> <C> <C>
200,000 January 8, 2002 $2.00
200,000 January 8, 2003 $2.25
200,000 January 8, 2004 $2.50
</TABLE>
B. With regard to the Warrant to purchase the remaining 252,750 shares, the
holder of the Warrant may exercise this Warrant in whole or in part, in its sole
discretion in any order, as follows:
2
<PAGE> 3
<TABLE>
<CAPTION>
Number of Shares Vesting Schedule Exercise Price
---------------- ---------------- --------------
<S> <C> <C>
114,240 fully vested $ .51
54,360 fully vested $1.03
15,000 fully vested $1.00
69,150 - one third on $2.00
the date hereof
- one third on
the first anniversary
of the date hereof
- one third on
the second anniversary
of the date hereof
</TABLE>
Subject to the vesting schedule set forth above, all of the Warrants
referred to in this subparagraph B shall be exercisable at any time and from
time to time for a five year period from the date hereof.
Upon exercise of this Warrant, the holder hereof shall receive, in addition
to the number of shares of Common Stock which it is entitled to receive
hereunder, such additional number of shares of capital stock or other securities
or property (other than cash) distributed by the Company from time to time after
the original issue date of this Warrant with respect to the Common Stock which
the holder of this Warrant would have received had the holder exercised the
Warrant immediately prior to distribution or issuance of any such shares,
securities or property by the Company with respect to the number of shares of
Common Stock received upon exercise of this Warrant.
3. Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any capital reorganization or reclassification of the Common
Stock of the Company, or in case of any consolidation or merger of the Company
with or into any other corporation, or in case of any sale to another
corporation of the properties and assets of the Company as or substantially as
an entirety, then, and in each such case, the holder of this Warrant shall have
the right to receive upon the exercise hereof as provided in Section 9 hereof,
at any time after the consummation of such reorganization, reclassification,
consolidation, merger or sale, the kind and amount of shares of stock or other
securities or property receivable upon such reorganization. reclassification,
consolidation, merger or sale by a holder of the number of Shares issuable upon
exercise of this Warrant if such number of Shares had been held by such holder
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests
3
<PAGE> 4
thereafter of the holder of this Warrant shall be appropriately adjusted so as
to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter receivable upon the exercise of this
Warrant. The above provisions of this Section 3 shall similarly apply to
successive reclassifications and changes of Common Stock and to successive
consolidations, mergers, sales or conveyances.
4. Notice of Dividends, Subscriptions, Reclassifications,
Consolidations, Merger, Etc.
In case the Company shall pay any dividend or make any distribution
(including a cash dividend) to the holders of its Common Stock, or shall offer
for subscription to the holders of its Common Stock or any stock of any class of
the Company or any other securities, or in the case of any capital
reorganization or reclassification of the capital stock of the Company or a
consolidation or merger of the Company with another corporation, or the final
dissolution, liquidation or winding up of the Company, or a sale of all or
substantially all its assets (whether voluntary or involuntary), then in any one
or more of said cases, the Company shall mail (first class, postage prepaid) a
notice thereof to the holder of this Warrant at the address of said holder on
the records of the Company, at least ten days prior to the date on which the
books of the Company shall close (or a record shall be taken) for such dividend,
distribution or subscription rights, or such reorganization, reclassification,
consolidation, merger, dissolution, liquidation, winding up or sale shall take
place, as the case may be. Such notice shall also specify the date as of which
stockholders of record shall be entitled to participate in such dividend,
distribution or subscription rights or to exchange their Shares for other
securities or property pursuant to such reorganization, reclassification,
consolidation or merger, or to receive their respective distributive shares in
the event of such dissolution, liquidation, winding up or sale, as the case may
be. Such notice shall also set forth a statement of the effect of such action
(to the extent then known), if any, on the exercise price and on the kind and
amount of shares of capital stock and property receivable upon exercise of this
Warrant.
5. Covenants of the Company.
The Company covenants and agrees that all Shares which may be issued upon
the exercise of this Warrant shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and free from all preemptive rights of any
stockholder and all taxes, liens and charges with respect to the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue). The Company further covenants and agrees that it will at all times
have authorized and reserved, a sufficient number of shares of its Common Stock
to provide for the exercise of the rights represented by this Warrant. The
Company will not, by amendment to its Charter or through any reorganization,
reclassification, consolidation, merger, sale of assets, dissolution. issue or
sale of securities or other voluntary action, avoid or seek to avoid the
4
<PAGE> 5
observance or performance of any of the terms of this Warrant, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant.
6. Expiration.
This Warrant shall be void after 5:00 p.m., Los Angeles, California time,
on January 8, 2004, and no rights herein given to the holder of this Warrant
shall exist thereafter.
7. Warrant Holder Not Deemed a Stockholder.
No holder of this Warrant as such, shall be entitled to vote or receive
dividends or be deemed the holder of shares of Common Stock of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, as such, any of the rights of a shareholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance of
record to the holder of this Warrant of the Shares which he is then entitled to
receive upon the due exercise of this Warrant.
8. No Limitation on Corporate Action.
No provisions of this Warrant and no right or option granted or conferred
hereunder shall in any way limit, affect or abridge the exercise by the Company
of any of its corporate rights or powers to recapitalize, amend its Charter,
reorganize, consolidate or merge with or into another corporation, or to
transfer all or any part of its property or assets, or the exercise of any other
of its corporate rights and powers.
9. Exercise of Warrant.
(a) Full Exercise. This Warrant may be exercised in accordance with
Section 2 by the holder of this Warrant by surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at any time on or prior to 5:00 p.m., Los Angeles, California time, on
January 8, 2004, at the principal office of the Company's transfer agent (the
"Transfer Agent") accompanied by payment either (i) in cash or by certified or
official bank check, payable to the order of the Company, or (ii) by the whole
or partial tender of that certain Promissory Note of the Company, dated as of
January 8, 1997, in the original principal amount of $1,503,708.22 (the "Note"),
valued at the then outstanding principal balance thereof, plus accrued and
unpaid interest thereon, or (iii) any combination of (i) and (ii) above, in any
case in the amount of the sum called for by Section 2. Partial tenders of the
5
<PAGE> 6
Note shall be first applied against outstanding accrued interest. The Company
agrees to notify the holder of this Warrant as to the address of the Transfer
Agent's principal office.
(b) Partial Exercise. This Warrant also may be exercised in part by
surrendering this Warrant in the manner specified in subsection (a) of this
Section 9, except that the number of shares of Common Stock or other securities
or property receivable upon the exercise of this Warrant as a whole shall be
proportionately reduced. On any such partial exercise, the Company, at its
expense, will forthwith issue to the holder hereof a new Warrant or Warrants of
like tenor calling in the aggregate for the number of shares of Common Stock for
which this Warrant shall not have been exercised, issued in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes and subject to the provisions of Section 1 hereof) may direct.
(c) Delivery of Stock Certificates, Etc. As soon as practicable after
any exercise of this Warrant and payment of the sum payable upon such exercise,
and in any event within 10 days thereafter, the Company, at its expense
(including the payment by it of any applicable issue taxes), will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and nonassessable
Shares or other securities or property to which such holder shall be entitled
upon such exercise. No fractional Shares will be issued hereunder to any holder
hereof; if the number of Shares to be issued hereunder includes a fractional
amount, such amount shall be automatically rounded up to the next whole number,
and the resultant whole number of Shares shall be issued to the holder,
otherwise in accordance herewith.
10. Exchange and Transfer of Warrants.
Subject to the provisions of Section 1 hereof, upon surrender for exchange
of this Warrant (in negotiable form, if not surrendered by the holder named on
the face thereof) to the Company or its Transfer Agent's principal office, the
Company, at its expense, will issue and deliver new Warrants of like tenor,
calling in the aggregate for the same number of shares of Common Stock in the
denomination or denominations requested, to or on the order of such holder and
in the name of such holder or as such holder (upon payment to such holder of any
applicable transfer taxes) may direct. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder of this
Warrant as absolute owner for all purposes without being affected by any notice
to the contrary.
6
<PAGE> 7
11. Notices.
All communications hereunder shall be in writing and, if sent to Ingram
Entertainment Inc., shall be mailed by registered or certified mail or delivered
or telegraphed and confirmed in writing to Two Ingram Boulevard, La Vergne,
Tennessee 37086, Attention: Chief Financial Officer, and if sent to the Company,
shall be mailed by registered or certified mail or delivered or telegraphed and
confirmed in writing to the Company at Video City, Inc., 6851 McDivitt Drive,
Suite A, Bakersfield, California 93313.
12. Registration Rights.
The shares of Common Stock issuable upon exercise of this Warrant
constitute "Restricted Stock" as defined in that certain Registration Rights
Agreement between the Company and Ingram and the holder of this Warrant is
entitled to the registration rights provided by such agreement.
Dated: January 8, 1997
VIDEO CITY, INC.
By:_________________________________
______
Name:_______________________________
______
Title:______________________________
______
7
<PAGE> 8
ASSIGNMENT
FOR VALUE RECEIVED ____________________________________ hereby
sells, assigns and transfers unto ______________________________________ the
within Warrant and does hereby irrevocably constitute and appoint
_________________________________________, Attorney, to transfer the said
Warrant on the books of the within named corporation with full power of
substitution in the premises.
Dated: _____________, ____
________________________________________
Signature
NOTICE: The signature of this assignment must
correspond with the name as written upon the face of
the Certificate, in every particular, without
alteration or enlargement or any change whatever.
8
<PAGE> 9
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THIS WARRANT
VIDEO CITY, INC.
The undersigned hereby exercises the right to purchase ___ shares of Common
Stock covered by this Warrant according to the conditions thereof and herewith
makes payment of the Purchase Price of such shares of Common Stock in full.
___________________________________
_______
Signature
___________________________________
_______
Address
Dated: _____________, ____
9
<PAGE> 1
Exhibit 3
ESCROW AND WARRANT AGREEMENT
This Escrow and Warrant Agreement (the "Agreement") is made and entered
into as of January 8, 1997 by and among Video City, Inc., a Delaware corporation
(formerly known as Prism Entertainment Corporation) (the "Company"); Robert Y.
Lee, an individual resident of California, on behalf of himself and as Trustee
of the Robert Y. Lee Revocable Living Trust UDT 1/9/91 (collectively, with the
Trust, "Lee" or "Grantor"); Ingram Entertainment Inc., a Tennessee corporation
("Ingram") and Loeb & Loeb LLP, a California limited liability partnership
("Escrow Agent") with reference to the following:
RECITALS
A. Lee Video City, Inc. ("VCI") and the Company have entered into that
certain Agreement and Plan of Reorganization and Merger dated as of October 25,
1996, as amended by that certain Amendment to Agreement and Plan of Reorganiza-
tion and Merger, dated December 20, 1996, and that certain Second Amendment to
Agreement and Plan of Reorganization and Merger, dated December 24, 1996, with
respect to the merger of VCI into the Company (the "Merger").
B. In connection with the Merger, the Grantor will be issued and own shares
of the Common Stock of the Company (the "Common Stock").
C. Pursuant to that certain Override Agreement dated as of November 19,
1996 (the "Override Agreement"), among the Company, VCI, Lee and Ingram, the
Grantor has agreed to grant to Ingram a warrant to purchase the number of fully
paid and nonassessable shares ("Shares") of the Common Stock as hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom and the mutual agreements hereinafter set forth, the parties hereto
hereby agree as follows:
1. Deposit of Shares. Simultaneously with the consummation of the Merger,
the Company, on behalf of the Grantor, will deposit in escrow (the "Escrow")
with the Escrow Agent an aggregate of 404,403 Shares (the "Warrant Shares") of
Common Stock representing 8.5% of the aggregate number of shares of Common Stock
(net of 250,000 shares of Lee that are subject to redemption pursuant to ss.
8.2(g) of the Merger Agreement) issued to the shareholders of VCI pursuant to
the Merger. Certificates representing the Warrant Shares shall be issued in the
names of the Grantor. Receipt of the Warrant Shares is hereby acknowledged by
the Escrow Agent. Escrow Agent shall hold the Warrant Shares as provided in this
Agreement. Ingram, Lee and the
<PAGE> 2
Grantor understand and agree that the Warrant Shares are "restricted securities"
as defined under Rule 144 of the Securities Act of 1933 as amended (the
"Securities Act") and the certificate(s) evidencing the Warrant Shares shall
bear a legend to the following effect:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
STATED SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
2. Grant of Warrant. Grantor hereby grants to Ingram, subject to the terms
set forth below, a warrant (the "Warrant") to purchase the Warrant Shares from
the Grantor at any time and from time to time, in whole or in part, but not
before 12:01 a.m., Los Angeles, California time, on January 8, 1997 and not
after 5:00 p.m., Los Angeles, California time, on January 8, 2002, which date is
the expiration date of this Warrant (the "Expiration Date") at an exercise price
of $.6085 per share. This Warrant is being granted in substitution for, and in
cancellation of, a previous warrant which VCI had granted to Ingram to purchase
8.5% of the aggregate fully diluted capital stock of VCI.
3. Number of Shares Issuable Upon Exercise of Warrant.
Upon exercise of this Warrant, the holder hereof shall receive, in addition
to the number of Warrant Shares which it is entitled to receive hereunder and to
the extent the following distributions are otherwise distributed to the Grantor,
such additional number of shares of capital stock or other securities or
property (other than cash) distributed by the Company from time to time after
the original date of this Agreement with respect to the Common Stock which the
holder of this Warrant would have received had the holder exercised the Warrant
immediately prior to distribution or issuance of any such shares, securities or
property by the Company with respect to the number of Warrant Shares. Grantor
shall deposit with the Escrow Agent upon receipt thereof all such additional
shares of capital stock or other securities or property.
2
<PAGE> 3
4. Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any capital reorganization or reclassification of the Common
Stock, or in case of any consolidation or merger of the Company with or into any
other corporation, or in case of any sale to another corporation of the
properties and assets of the Company as or substantially as an entirety, and,
with respect to all of the foregoing, to the extent the following right would
otherwise inure to the benefit of the Grantor, then, and in each such case, the
holder of this Warrant shall have the right to receive upon the exercise hereof,
at any time after the consummation of such reorganization, reclassification,
consolidation, merger or sale, the kind and amount of shares of stock or other
securities or property receivable upon such reorganization. reclassification,
consolidation, merger or sale by a holder of the number of shares issuable upon
exercise of this Warrant if such number of shares had been held by such holder
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of the holder of this
Warrant shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
receivable upon the exercise of this Warrant. The above provisions of this
Section 5 shall similarly apply to successive reclassifications and changes of
Common Stock and to successive consolidations, mergers, sales or conveyances.
Grantor shall deposit with the Escrow Agent upon receipt thereof all such
additional shares of capital stock or other securities or property.
5. Notice of Dividends, Subscriptions, Reclassifications, Consolidations,
Merger, Etc.
In case the Company shall pay any dividend or make any distribution
(including a cash dividend) to the holders of its Common Stock, or shall offer
for subscription to the holders of its Common Stock or any stock of any class of
the Company or any other securities, or in the case of any capital
reorganization or reclassification of the capital stock of the Company or a
consolidation or merger of the Company with another corporation, or the final
dissolution, liquidation or winding up of the Company, or a sale of all or
substantially all its assets (whether voluntary or involuntary), then in any one
or more of said cases, the Company shall mail (first class, postage prepaid) a
notice thereof to the holder of this Warrant at the address of said holder on
the records of the Company, at least ten days prior to the date on which the
books of the Company shall close (or a record shall be taken) for such dividend,
distribution or subscription rights, or such reorganization, reclassification,
consolidation, merger, dissolution, liquidation, winding up or sale shall take
place, as the case may be. Such notice shall also specify the date as of which
stockholders of record shall be entitled
3
<PAGE> 4
to participate in such dividend, distribution or subscription rights or to
exchange their Shares for other securities or property pursuant to such
reorganization, reclassification, consolidation or merger, or to receive their
respective distributive shares in the event of such dissolution, liquidation,
winding up or sale, as the case may be. Such notice shall also set forth a
statement of the effect of such action (to the extent then known), if any, on
the exercise price and on the kind and amount of shares of capital stock and
property receivable upon exercise of this Warrant.
6. Covenants of Grantor.
The Grantor covenants and agrees that he will at all times have deposited
in Escrow with the Escrow Agent the Warrant Shares, together with such duly
executed and endorsed stock powers and other instruments of assignment or
transfer relating thereto as the holder hereof may reasonably require to provide
for the exercise of the rights represented by this Warrant. Grantor will not
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant but will at all times in good faith carry out all such terms and take
all such action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant.
7. Warrant Holder Not Deemed a Stockholder.
No holder of this Warrant as such shall be entitled to vote or receive
dividends or be deemed the holder of the Warrant Shares for any purpose, nor
shall anything contained in this Warrant be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Warrant of the Warrant Shares which he is then entitled to
receive upon the due exercise of this Warrant.
8. Exercise of Warrant.
(a) Full Exercise. This Warrant may be exercised in accordance with Section
2 by the holder of this Warrant by delivering the form of subscription at the
end hereof duly executed by such holder, to the Escrow Agent at any time on or
prior to 5:00 p.m., Los Angeles, California time, on the Expiration Date, at the
principal office of the Escrow Agent accompanied by payment in cash or by
certified or official bank check, payable to the order of the Company, of the
sum called by Section 2. The Grantor agrees to notify the holder of this Warrant
as to any change in the address of the Escrow Agent's principal office.
4
<PAGE> 5
(b) Partial Exercise. This Warrant also may be exercised in part in the
manner specified in subsection (a) of this Section 8, except that the number of
shares of Common Stock or other securities or property receivable upon any
subsequent exercise of this Warrant as a whole shall be proportionately reduced.
(c) Delivery of Stock Certificates, Etc. As soon as practicable after any
exercise of this Warrant and payment of the sum payable upon such exercise, and
in any event within 10 days thereafter, the Escrow Agent at the Grantor's
expense (including the payment by it of any applicable issue taxes), will cause
to be issued in the name of and delivered to the holder hereof, a certificate or
certificates for the number of fully paid and non-assessable Warrant Shares or
other securities or property to which such holder shall be entitled upon such
exercise. No fractional shares will be issued hereunder to any holder hereof; if
the number of shares to be issued hereunder includes a fractional amount, such
amount shall be automatically rounded up to the next whole number, and the
resultant whole number of Warrant Shares shall be issued to the holder,
otherwise in accordance herewith.
9. Transfer of Warrants.
Subject to the provisions of Section 3 hereof, upon notice of assignment to
the Escrow Agent's principal office, the holder of this Warrant may transfer all
or part of its right to the Warrant.
10. Notices.
All communications hereunder shall be in writing and, if sent to Ingram
Entertainment Inc., shall be mailed by registered or certified mail or delivered
or telegraphed and confirmed in writing to Two Ingram Boulevard, La Vergne,
Tennessee 37089, Attention: Chief Financial Officer, and if sent to the Grantor,
shall be mailed by registered or certified mail or delivered or telegraphed and
confirmed in writing to Robert Y. Lee, Lee Video City, Inc., 6851 McDivitt
Drive, Suite A, Bakersfield, California 93313, and if sent to the Escrow Agent,
addressed to the principal office of the Escrow Agent.
11. Provisions Regarding Escrow Agent. The following provisions shall
control with respect to the rights, duties and liabilities of the Escrow Agent:
(a) No Responsibility For Validating or Sufficiency. The Escrow Agent
shall have no duty to know or determine the performance or non-performance of
any provision of any agreement between the other parties hereto, including, but
not limited to, the Override Agreement, and the original or a copy of any
5
<PAGE> 6
such agreement deposited with the Escrow Agent shall not bind the Escrow Agent
in any manner. The Escrow Agent assumes no responsibility for the validity or
sufficiency of any documents or papers or payments deposited or called for
hereunder except as may be expressly and specifically set forth herein, and the
duties and responsibilities of the Escrow Agent hereunder are limited to those
expressly stated herein.
(b) Modification and Amendments. The provisions of this Agreement may be
supplemented, altered, amended modified or revoked only by a writing signed by
the Grantor and Ingram and approved in writing by the Escrow Agent.
(c) Exculpation of Escrow Agent. The Escrow Agent shall not be personally
liable for any act it may do or omit to do hereunder as such agent while acting
in good faith and in the exercise of its own best judgment, and any act done or
omitted by it pursuant to the written advice of its own attorneys shall be
conclusive evidence of such good faith. The Escrow Agent shall have the right at
any time to consult with its counsel upon any question arising hereunder and
shall incur no liability for any delay reasonably required to obtain the advice
of counsel.
(d) Conflicting Notices. Other than those which are specifically referred
to in this Escrow Agreement, the Escrow Agent is hereby authorized to disregard
any and all notices or warnings given by the Grantor or Ingram, or by any other
person, firm or corporation, except that the Escrow Agent is hereby expressly
authorized to comply with any and all final processes, orders, judgments or
decrees of any court. To the extent the Escrow Agent obeys or complies with any
process, order, judgment or decree of any court, it shall not be liable to any
other party hereto or to any other person, firm or corporation by reason of such
compliance.
(e) Fees and Expenses of Escrow Agent. In consideration of the acceptance
of this Escrow by the Escrow Agent (as evidenced by its signature below), the
Company shall, for itself and its successors and assigns, pay Escrow Agent its
reasonable charges, fees and expenses hereunder.
(f) Authority of Signing Parties. The Escrow Agent shall be under no duty
or obligation to ascertain the identity, authority or right of the Grantor,
Ingram or the Company (or their agents) to execute or deliver this Agreement or
any documents, certificates, or payments deposited, delivered or given
hereunder.
(g) No Liability for Lapse of Rights. The Escrow Agent shall not be
liable for the lapse of any rights under any statute of limitations or by
reason of laches with respect to this Agreement or any funds, securities,
documents or papers deposited, delivered or given hereunder.
6
<PAGE> 7
(h) Duties in Event of Dispute. In the event of any dispute among the
parties hereto as to any fact or matter relating hereto or to the transactions
contemplated in the Override Agreement, the Escrow Agent is instructed that it
shall be under no obligation to act except under process or order of court, or
if there be no such process or order, until it has filed or caused to be filed
an appropriate action impleading the Grantor, Ingram and the Company. The Escrow
Agent shall sustain no liability for its failure to act pending such process of
court, order or impleader action.
(i) Resignation. The Escrow Agent, or any successor Escrow Agent, may at
any time resign by giving notice in writing to the Grantor, the Company and
Ingram and shall be discharged from its duties under this Escrow Agreement on
the first to occur of the appointment of a successor Escrow Agent as provided in
this Section, or the expiration of thirty (30) calendar days after such
resignation notice is given. In the event of any such resignation, a successor
Escrow Agent shall be appointed within thirty (30) days by the agreement of the
Grantor and Ingram. Any successor Escrow Agent shall deliver to the Company, the
Grantor and Ingram a written instrument accepting appointment under this
Agreement, and thereupon it shall succeed to all the rights and duties of the
Escrow Agent hereunder and shall be entitled to receive any funds, securities,
documents, instruments, certificates, checks, or agreements held by the
predecessor Escrow Agent.
(j) Replacement. At their option, the Grantor and Ingram may terminate
the appointment of Escrow Agent hereunder and appoint another person as escrow
agent in its place. Upon any such appointment, the escrow agent so replaced
shall deliver to the successor escrow agent all of the Warrant Shares and such
other documents, certificates and agreements held by it hereunder and the
successor escrow agent shall assume all rights and duties of "Escrow Agent"
hereunder.
(k) Waiver of Right to Set-Off. Escrow Agent hereby waives the benefit
of, and any right to, any setoff or recoupment or any other claim it may have
now or hereafter have in or with respect to the Warrant Shares.
(l) Discharge. Escrow Agent, having delivered all of the funds,
securities, documents, instruments, checks, certificates or agreements pursuant
to the terms of this Agreement, shall be discharged from any further obligation
hereunder.
(m) Indemnity. In the event Escrow Agent becomes involved in litigation
in connection with this Escrow Agreement, or any transaction related in any way
hereto, the Company, the Grantor and Ingram, jointly and severally, shall
indemnify and save the Escrow Agent harmless from all loss, cost, damage,
expense and attorneys' fees suffered or incurred by the Escrow Agent as a
result thereof, except for any loss,
7
<PAGE> 8
cost, damage, or expense resulting from the Escrow Agent's breach of this
Agreement or its willful misconduct or gross negligence.
8
<PAGE> 9
12. Return of Warrant Shares. The Escrow Agent shall return to the Grantor
or their designees all Warrant Shares remaining after the Expiration Date.
Dated: January 8, 1997
______________________________________________
Robert Y. Lee, individually
______________________________________________
Robert Y. Lee, Trustee of the Robert Y. Lee
Revocable Living Trust UDT 1/9/91
Escrow Agent
Loeb & Loeb LLP, a California limited liability
partnership
By:___________________________________________
Name:_________________________________________
Title:________________________________________
INGRAM ENTERTAINMENT INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
VIDEO CITY, INC.
By:___________________________________________
Name:_________________________________________
9
<PAGE> 10
Title:________________________________________
10
<PAGE> 11
ASSIGNMENT
FOR VALUE RECEIVED [____________________________________] hereby sells,
assigns and transfers unto [______________________________________] the within
Warrant and does hereby irrevocably constitute and appoint
[_________________________________________], Attorney, to transfer the said
Warrant on the books of the within named corporation with full power of
substitution in the premises.
Dated: [_____________, ____]
[_____________________________]
Signature
NOTICE: The signature of this assignment must
correspond with the name as written upon the face of
the Certificate, in every particular, without
alteration or enlargement or any change whatever.
11
<PAGE> 12
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THIS WARRANT
VIDEO CITY, INC.
To: [ESCROW AGENT]
The undersigned hereby exercises the right to purchase the shares of Common
Stock covered by this Warrant according to the conditions thereof and herewith
makes payment of the Exercise Price of such shares of Common Stock in full.
______________________________________
________
Signature
______________________________________
________
Address
______________________________________
________
Number of shares of Common Stock Being
Purchased
Dated: [_____________, ____]
12
<PAGE> 1
Exhibit 4
LOCK-UP AGREEMENT
This Lock-Up Agreement ("Agreement") is entered into as of January 8, 1997,
by and between Robert Y. Lee ("Lee"), an individual and a resident of
California, Barry Collier ("Collier"), an individual and a resident of
California, and Ingram Entertainment Inc., a Tennessee corporation ("Ingram"),
with respect to the following facts:
RECITALS
A. Unless otherwise defined, all capitalized terms used in this Agreement
shall have the meanings ascribed to them in that certain override agreement (the
"Override Agreement") dated as of November 19, 1996, by and among Lee Video
City, Inc., a California corporation ("VCI"), Lee on behalf of himself and as
trustee of the Robert Y. Lee Revocable Living Trust UDT 1/9/91 (the "Trust"),
Prism Entertainment Corporation, a Delaware corporation ("Prism"), and Ingram.
B. VCI and Prism have entered into that certain Agreement and Plan of
Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Agreement and Plan of Reorganization and Merger, dated December 20,
1996, and that certain Second Amended Agreement and Plan of Reorganization and
Merger, dated December 24, 1996 (the "Merger Agreement"), with respect to the
merger (the "Merger") of VCI into Prism.
C. In connection with the Merger, VCI, Lee, Prism and Ingram have entered
into the Override Agreement which sets forth the terms and conditions upon which
such parties have agreed to, among other things, restructure the VCI Debt.
D. This Agreement is being delivered pursuant to Article 9 of the Override
Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
obligations set forth in the Override Agreement and in this Agreement, Lee,
Collier and Ingram hereby agree as follows:
1. Lock-Up.
1.1 Except as expressly provided for in this Agreement, Lee
(including the Trust) and Collier shall not, without the prior written consent
of Ingram, directly or indirectly, issue, offer to sell, sell, grant an option
for the purchase of, assign, transfer, pledge, hypothecate or otherwise encumber
or dispose (pursuant to
<PAGE> 2
Rule 144 of the regulations under the Securities Act, or otherwise) of any of
their respective Lock-Up Shares, or dispose of any beneficial interest therein.
1.2 This Agreement, and all of the restrictions relating to the
Lock-Up Shares contained herein, shall terminate on that date which is the
earlier of (i) ninety days after Lee ceases to be an employee or consultant on a
substantially full time basis with the Company or (ii) that date upon which 80%
of the Remaining Debt has been paid to Ingram. Immediately after any termination
of this Agreement pursuant to this Section, the legend imposed pursuant to
Section 1.3 below shall, upon request of Lee or Collier, as applicable, be
removed from any stock certificates representing the Lock-Up Shares.
1.3 Lee and Collier understand and agree that the following
legend, or such other legend as shall be in a form and substance satisfactory to
Ingram, shall be set forth on each certificate representing the respective
Lock-Up Shares registered in the name of, or beneficially owned by, as
applicable, Lee or Collier.
THE HOLDER OF THIS CERTIFICATE HAS AGREED, NOT TO DIRECTLY OR
INDIRECTLY OFFER TO SELL, GRANT AN OPTION FOR THE SALE OF, ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE ENCUMBER OR DISPOSE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, OR TO DISPOSE OF ANY
BENEFICIAL INTEREST THEREIN, PURSUANT TO RULE 144 OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR OTHERWISE, EXCEPT (A) WITH THE PRIOR
WRITTEN CONSENT OF INGRAM ENTERTAINMENT INC. OR (B) AS PERMITTED BY
THAT CERTAIN LOCK-UP AGREEMENT DATED JANUARY 8, 1996, ENTERED INTO BY
THE HOLDER HEREOF AND INGRAM ENTERTAINMENT INC.
2. Escrow Agent. At all times during the term of this Agreement,
the Lock-Up Shares subject to this Agreement will be held by Loeb & Loeb LLP, a
California limited liability partnership, or such other escrow agent that is
mutually acceptable to Lee, Collier and Ingram, pursuant to the terms and
conditions of an escrow agreement substantially in the form, and containing the
substance, of Exhibit A, which is attached hereto and incorporated herein by
this reference.
2
<PAGE> 3
3. Miscellaneous.
3.1 Notices. All notices, requests and other communications
to any party hereunder shall be in writing and shall be given to such party at
its address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
if to Lee:
Robbie Lee
Lee Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Telecopy: (805) 397-5982
with a copy to:
Troy & Gould
1801 Century Park East, 16th Fl.
Los Angeles, California 90067
Attention: William I. Feis, Esq.
Telecopy: (310) 201-4746
if to Collier:
Barry Collier
Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Telecopy: (805) 397-5982
if to Ingram:
Ingram Entertainment Inc.
Two Ingram Boulevard
La Vergne, Tennessee 37089
Attention: John Fletcher, Esq., General Counsel
Telecopy: (615) 287-4465
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and
3
<PAGE> 4
the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
3.2 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by each party hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
3.3 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
3.4 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of California, without
giving effect to the conflict of laws principles thereof.
3.5 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original and all of which
shall be deemed to be one and the same instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
3.6 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement, including without limitation, the Letter of
Intent dated September 16, 1996, the Workout Agreement, the Stock Pledge
Agreement, the Note Pledge Agreement, the Prior Supply Agreement, the Old
Warrants and the Old Security Agreements. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto.
4
<PAGE> 5
3.7 Severability. If any one or more provisions of this Agreement
shall, for any reasons, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.
3.8 Captions and Section References. The captions herein are
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. All references to "Sections" without
further citation refer to sections of this Agreement.
3.9 Interpretation. Where the context or construction
requires, all words applied in the plural shall be deemed to have been used in
the singular, and vice versa; the masculine shall include the feminine and
neuter, and vice versa; and the present tense shall include the past and future
tense, and vice versa.
3.10 Attorneys' Fees. In the event of any litigation or legal
proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith.
3.11 No Third-Party Rights. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any Persons other than the parties to it and
their respective successors and assigns, nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of any third
Persons to any party to this Agreement, nor shall any provision give any third
Persons any right of subrogation or action over against any party to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
_____________________________________
_______
Robert Y. Lee
_____________________________________
_______
Barry Collier
5
<PAGE> 6
Ingram Entertainment Inc., a Tennessee
corporation
By:___________________________________
______
Name:_________________________________
______
Title:________________________________
______
6
<PAGE> 7
EXHIBIT A
ESCROW AGREEMENT
<PAGE> 8
ESCROW AGREEMENT - LOCK-UP SHARES
This Escrow Agreement ("Escrow Agreement") is made and entered into as of
this 8th day of January 1997, by and among Loeb & Loeb LLP ("Escrow Agent"), a
California limited liability partnership, Robert Y. Lee ("Lee"), an individual
and resident of California, Barry Collier ("Collier"), an individual and a
resident of California, and Ingram Entertainment Inc., a Tennessee corporation
("Ingram") with respect to the following facts:
RECITALS
A. Unless otherwise defined, all capitalized terms used in this Agreement
shall have the meanings ascribed to them in that certain Override Agreement (the
"Override Agreement") dated as of November 19, 1996, by and among Lee Video
City, Inc., a California corporation ("VCI"), Lee on behalf of himself and as
trustee of the Robert Y. Lee Revocable Living Trust UDT 1/9/91, Prism
Entertainment Corporation, a Delaware corporation, and Ingram.
B. Pursuant to the Override Agreement, Lee, Collier and Ingram have entered
into that certain Lock-Up Agreement dated as of the date hereof (the "Lock-Up
Agreement") pursuant to which, among other things, Collier and Lee have agreed
to deposit with the Escrow Agent the Lock-Up Shares to be held pursuant to the
terms and conditions of this Agreement.
C. The Escrow Agent is willing to serve in the capacity as escrow agent
upon the terms and conditions set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Agreement to Act. The Escrow Agent agrees to act as escrow agent
pursuant to the terms of this Agreement.
2. Receipt of Lock-Up Shares. Upon issuance thereof, Collier and
Lee agree to promptly deposit the Lock-Up Shares with the Escrow Agent to be
held by the Escrow Agent in accordance with the provisions of the Lock-Up
Agreement and this Agreement. Upon receipt of written notice from all parties
hereto of the termination of the Lock-Up Agreement pursuant to Section 1.2
thereof, the Escrow Agent shall return the Lock-Up Shares to Collier and Lee, as
the case may be, or their respective designees.
3. Provisions Regarding Escrow Agent. The following provisions
shall control with respect to the rights, duties and liabilities of the Escrow
Agent:
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a. No Responsibility For Validating or Sufficiency. The Escrow Agent
shall have no duty to know or determine the performance or non- performance of
any provision of any agreement between the other parties hereto, including, but
not limited to, the Override Agreement and the Lock-Up Agreement, and the
original or a copy of any such agreement deposited with the Escrow Agent shall
not bind the Escrow Agent in any manner. The Escrow Agent assumes no
responsibility for the validity or sufficiency of any documents or papers or
payments deposited or called for hereunder except as may be expressly and
specifically set forth herein, and the duties and responsibilities of the Escrow
Agent hereunder are limited to those expressly stated herein.
b. Modification and Amendments. The provisions of this Agreement may
be supplemented, altered, amended modified or revoked only by a writing signed
by Collier, Lee and Ingram and approved in writing by the Escrow Agent.
c. Exculpation of Escrow Agent. The Escrow Agent shall not be
personally liable for any act it may do or omit to do hereunder as such agent
while acting in good faith and in the exercise of its own best judgment, and any
act done or omitted by it pursuant to the written advice of its own attorneys
shall be conclusive evidence of such good faith. The Escrow Agent shall have the
right at any time to consult with its counsel upon any question arising
hereunder and shall incur no liability for any delay reasonably required to
obtain the advice of counsel.
d. Conflicting Notices. Other than those which are specifically
referred to in this Escrow Agreement, the Escrow Agent is hereby authorized to
disregard any and all notices or warnings given by Collier, Lee or Ingram, or by
any other person, firm or corporation, except that the Escrow Agent is hereby
expressly authorized to comply with any and all final processes, orders,
judgments or decrees of any court. To the extent the Escrow Agent obeys or
complies with any process, order, judgment or decree of any court, it shall not
be liable to any other party hereto or to any other person, firm or corporation
by reason of such compliance.
e. Fees and Expenses of Escrow Agent. In consideration of the
acceptance of this Escrow by the Escrow Agent (as evidenced by its signature
below), the Company shall, for itself and its successors and assigns, pay Escrow
Agent its reasonable charges, fees and expenses hereunder.
f. Authority of Signing Parties. The Escrow Agent shall be
under no duty or obligation to ascertain the identity, authority or right of
Collier, Lee or Ingram, (or their agents) to execute or deliver this Agreement
or any documents, certificates, or payments deposited, delivered or given
hereunder.
g. No Liability for Lapse of Rights. The Escrow Agent shall not be
liable for the lapse of any rights under any statute of limitations or by
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reason of laches with respect to this Agreement or any funds, securities,
documents or papers deposited, delivered or given hereunder.
h. Duties in Event of Dispute. In the event of any dispute
among the parties hereto as to any fact or matter relating hereto or to the
transactions contemplated in the Override Agreement or the Lock-Up Agreement,
the Escrow Agent is instructed that it shall be under no obligation to act
except under process or order of court, or if there be no such process or order,
until it has filed or caused to be filed an appropriate action impleading
Collier, Lee and Ingram. The Escrow Agent shall sustain no liability for its
failure to act pending such process of court, order or impleader action.
i. Resignation. The Escrow Agent, or any successor Escrow Agent,
may at any time resign by giving notice in writing to Collier, Lee and Ingram,
and shall be discharged from its duties under this Escrow Agreement on the first
to occur of the appointment of a successor Escrow Agent as provided in this
Section, or the expiration of thirty (30) calendar days after such resignation
notice is given. In the event of any such resignation, a successor Escrow Agent
shall be appointed within thirty (30) days by the agreement of Collier, Lee and
Ingram. Any successor Escrow Agent shall deliver to Collier, Lee and Ingram a
written instrument accepting appointment under this Agreement, and thereupon it
shall succeed to all the rights and duties of the Escrow Agent hereunder and
shall be entitled to receive any funds, securities, documents, instruments,
certificates, checks, or agreements held by the predecessor Escrow Agent.
j. Replacement. At their option, Collier, Lee and Ingram may
terminate the appointment of Escrow Agent hereunder and appoint another
person as escrow agent in its place. Upon any such appointment, the escrow agent
so replaced shall deliver to the successor escrow agent all of the Lock-Up
Shares and such other documents, certificates and agreements held by it
hereunder and the successor escrow agent shall assume all rights and duties of
"Escrow Agent" hereunder.
k. Waiver of Right to Set-Off. Escrow Agent hereby waives the
benefit of, and any right to, any setoff or recoupment or any other claim it
may have now or hereafter have in or with respect to the Lock-Up Shares.
l. Discharge. Escrow Agent, having delivered all of the funds,
securities, documents, instruments, checks, certificates or agreements
pursuant to the terms of this Agreement, shall be discharged from any further
obligation hereunder.
m. Indemnity. In the event Escrow Agent becomes involved in
litigation in connection with this Escrow Agreement, or any transaction
related in any way hereto, Collier, Lee and Ingram, jointly and severally, shall
indemnify and save the Escrow Agent harmless from all loss, cost, damage,
expense and attorneys' fees suffered or incurred by the Escrow Agent as a result
thereof, except for any loss,
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cost, damage, or expense resulting from the Escrow Agent's
breach of this Agreement or its willful misconduct or gross negligence.
4. Notices. All communications hereunder shall be in writing and, if sent
to Ingram, shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing to Two Ingram Boulevard, La Vergne,
Tennessee 37089, Attention: Chief Financial Officer; if sent to Lee, shall be
mailed by registered or certified mail or delivered or telegraphed and confirmed
in writing to Robert Y. Lee, Video City, Inc., 6851 McDivitt Drive, Suite A,
Bakersfield, California 93313; if sent to Collier, shall be mailed by registered
or certified mail or delivered or telegraphed and confirmed in writing to Barry
Collier, Video City, Inc., 6851 McDivitt Drive, Suite A, Bakersfield, California
93313; and if sent to the Escrow Agent, shall be mailed by registered or
certified mail or delivered or telegraphed and confirmed in writing to Loeb &
Loeb LLP, 1000 Wilshire Boulevard, Suite 1800, Los Angeles, California 90017,
Attention: David L. Ficksman, Esq.
Loeb & Loeb LLP, a California limited
liability partnership
By:_____________________________________
David L. Ficksman, a Partner of the
Firm
________________________________________
Robert Y. Lee
________________________________________
Barry Collier
Ingram Entertainment Inc., a Tennessee
corporation
By:_____________________________________
Its:____________________________________
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Exhibit 5
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated January 8, 1997,
between Video City, Inc., a Delaware corporation (formerly known as Prism
Entertainment Corporation) (the "Company"), and Ingram Entertainment Inc., a
Tennessee corporation ("Ingram").
A. The Company, Ingram, Lee Video City, Inc., a California corporation
("VCI"); and Robert Y. Lee, an individual resident of California on behalf of
himself and as Trustee of the Robert Y. Lee Revocable Living Trust UDT 1/9/91
(the "Trust") have entered into an Override Agreement, dated as of November 19,
1996 (the "Override Agreement"), providing for the restructuring of indebtedness
of VCI to Ingram. Capitalized terms used herein but not defined herein shall
have the meanings given to them in the Override Agreement.
B. As contemplated by the Override Agreement, VCI has merged into the
Company, with the Company being the survivor (the "Merger").
C. Concurrently with the effective time of the Merger, the Company issued
to Ingram the Additional Warrants and 1,500,000 shares of its Common Stock, and
certain shareholders of the Company issued to Ingram the New Warrants.
D. As an inducement to Ingram to enter into the Override Agreement, the
Company has agreed to grant Ingram certain registration rights with respect to
the Shares (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value per share, of
the Company, as constituted as of the date of this Agreement.
"Company" shall have the meaning provided therefor in the first paragraph
of this Agreement.
<PAGE> 2
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Ingram" shall have the meaning provided therefor in the first paragraph
of this Agreement.
"Registration Expenses" shall mean the expenses so described in
Section 6.
"Restricted Stock" shall mean the Shares, but excluding shares of Common
Stock (a) which have been registered under the Securities Act pursuant to an
effective registration statement filed thereunder and disposed of by Ingram in
accordance with the registration statement covering them; or (b) which may be
publicly sold by Ingram pursuant to Rule 144(k) under the Securities Act
(without regard to any volume limitation).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 6.
"Shares" shall mean the shares of Common Stock purchased or purchasable
pursuant to the exercise of the Additional Warrants and the New Warrants and the
1,500,000 shares of Common Stock issued by the Company to Ingram at the Closing.
2. Restrictive Legend. Each certificate representing the Shares shall,
except in compliance with the following legend, be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
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3. Required Registration.
(a) Immediately upon the Company's qualification to use a Form S-3
Registration Statement to register the resale of shares of Restricted Stock by
Ingram, Ingram may request the Company to register under the Securities Act
shares of Restricted Stock held by Ingram for sale in the manner specified in
such notice, provided that the reasonably anticipated aggregate price to the
public of such public offering would exceed One Million Five Hundred Thousand
Dollars ($1,500,000). The Company shall be obligated to use its best efforts to
cause the registration for resale of the shares of Restricted Stock pursuant to
this Section 3(a) as soon as practicable, but in no event more than 45 days
following the receipt of Ingram's notice, and on an unlimited number of
occasions, subject to applicable law. The Company shall notify Ingram within
thirty (30) days after it has become eligible to use Form S-3.
(b) In the event that on or prior to December 31, 1997, the Company has
not become qualified to use a Form S-3 Registration Statement to register
shares of Restricted Stock by Ingram, then at any time thereafter Ingram may
request that the Company register pursuant to a Registration Statement on Form
S-1 or Form S-2, as applicable, the resale of no less than 500,000 shares of
Restricted Stock held by Ingram for sale in the manner specified in such
notice. The Company shall be obligated to use its best efforts to cause the
registration for resale of the shares of Restricted Stock pursuant to this
Section 3(b) as soon as practicable, but in no event more than 45 days
following the receipt of Ingram's notice, and on one occasion only, provided,
however, that such obligation shall be deemed satisfied only when a
registration statement covering the Restricted Stock, for sale in accordance
with the method of disposition specified in the notice, shall have become
effective.
(c) Notwithstanding the foregoing and anything to the contrary contained
herein, (i) the only securities that the Company shall be required to register
for resale pursuant to this Section 3 shall be shares of Common Stock, (ii) no
request may be made under this Section 3 within 90 days after the effective date
of a registration statement filed by the Company covering a firm commitment
underwritten public offering of Common Stock by the Company under the Securities
Act and (iii) the Company may postpone for a reasonable period of time, not to
exceed thirty (30) days, the filing or the effectiveness of any registration
statement covering the shares of Restricted Stock requested to be registered by
Ingram, if the Board of Directors of the Company in good faith determines that
such registration would have a material adverse effect on any plan or proposal
by the Company with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or the Company is in possession of
material non-public information that, if publicly disclosed, would result in a
material disruption of a major corporate development or transaction then pending
or in progress or in other material adverse consequences to the Company.
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(d) The Company shall be entitled to include in any registration
statement referred to in this Section 3, for sale in accordance with the method
of disposition specified in the notice from Ingram referred to above, shares of
Common Stock to be sold by the Company for its own account and or by other
holders of Common Stock, provided, however, that if the registration covers an
underwritten public offering, if the managing underwriter or underwriters, if
any, of such offering advise the Company that the number of shares requested to
be included in the registration should be reduced or eliminated, the shares so
excluded shall be excluded in the following order: (i) first to any director,
officer, or employee of the Company; (ii) any holder of Common Stock not having
contractual registration rights; (iii) any other holder have contractual
registration rights; (iv) the Company; and (v) Ingram or any transferee or
assignee as to the Restricted Stock.
4. Registration Procedures. If and whenever the Company is required by the
provisions of Section 3 to use its best efforts to effect the registration of
any shares of Restricted Stock under the Securities Act, the Company will, as
expeditiously as reasonably possible but in no event more than 45 days following
the receipt of Ingram's notice:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the
period specified in Section 4(a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement;
(c) furnish to Ingram and to each underwriter such number of copies of
the registration statement and the prospectus included therein (including each
preliminary prospectus), as such persons reasonably may request in order to
facilitate the public sale or other disposition of the shares of Restricted
Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as Ingram or, in the case of an underwritten public
offering, the managing underwriter reasonably shall request, provided, however,
that the Company shall not for any such purpose be required to qualify generally
to transact business as a
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foreign corporation in any jurisdiction where it is not so qualified, subject
itself to taxation in any jurisdiction wherein it is not so subject, or to
consent to general service of process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange or the NASDAQ National
Market System on which the Common Stock of the Company is then listed;
(f) promptly notify Ingram and each underwriter under such registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event of which the
Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. Ingram agrees upon receipt of such notice forthwith
to cease making offers and sales of Restricted Stock pursuant to such
registration statement or deliveries of the prospectus contained therein for any
purpose until the Company has prepared and furnished such amendment or
supplement to the prospectus as may be necessary so that, as thereafter
delivered to purchasers of such Restricted Stock, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
For purposes of Section 4(a) and 4(b) and of Section 3(c), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of the shares of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all the shares of Restricted Stock
covered thereby and 60 days after the effective date thereof.
In connection with any registration hereunder, Ingram shall provide such
information and execute such documents as may reasonably be required in
connection with such registration.
5. Piggyback Registrations. Each time that the Company proposes to file a
registration statement under the Securities Act with respect to an offering (in
connection with either an offering of Common Stock by the Company or by its
shareholders) on a form that would also permit the registration of the
Restricted Stock, the Company will give written notice of such proposal to
Ingram; provided, however, that, if there is an effective registration statement
covering the Restricted
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Stock, no such notice pursuant to this Section 5 shall be required. Ingram may,
by written request given within ten business days after receipt of any such
notice, require the Company to use its best efforts to cause all or part of the
Restricted Stock to be included in such registration statement. Notwithstanding
the foregoing, if the managing underwriter or underwriters, if any, of such
offering advise the Company in writing that inclusion of the Restricted Stock
would (a) make it impracticable to conduct an underwritten offering of the
Common Stock being registered at the price at which such Common Stock could be
sold without such inclusion, or (b) materially and adversely interfere with the
offering, then the number of the shares requested to be included in the
registration by Ingram may be reduced or eliminated; provided, that, the Company
shall exclude first from such registration, in the following order, shares of
Common Stock sought to be included therein by (i) any director, officer, or
employee of the Company, (ii) any holder of Common Stock not having contractual
registration rights, and (iii) any holder having contractual registration rights
that are subordinate to the holders of the Restricted Stock; provided, however,
that with regard to any holder of registration rights on a parity with Ingram's,
such holder's shares to be included in the registration statement shall be
reduced with Ingram's pro rata in accordance with the number of shares desired
to be included. In connection with any registration pursuant to this Section 5
covering an underwritten public offering, the Company and Ingram agree to enter
into a written agreement with a managing underwriter containing such provisions
as are customary in the securities business for such an arrangement between such
underwriters and companies of the Company's size and investment stature. In
connection with any such registration, Ingram shall (a) provide such information
and execute such documents as may be reasonably required in connection with such
registration, (b) agree to sell the shares of Restricted Stock on the basis
provided in any underwriting arrangements and (c) complete and execute all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements,
which arrangements shall not be inconsistent herewith.
6. Expenses. All expenses of registration and offerings in connection with
this Agreement including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with federal and state securities laws, fees of the
NASD and of transfer agents and registrar but excluding any Selling Expenses,
are called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of the shares of Restricted Stock are called
"Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement filed in accordance with this Agreement. All Selling
Expenses in
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connection with the sale of shares of Restricted Stock by Ingram pursuant to
each registration statement filed in accordance with this Agreement shall be
borne by Ingram.
7. Rule 144. During any period that the Company has any securities
registered under the Exchange Act, the Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and it will
take such further action as Ingram may reasonably request, all to the extent
required from time to time to enable Ingram to sell Common Stock without
registration under the Securities Act within the limitation of the exemption
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Commission.
8. Indemnification and Contribution.
(a) In the event of a registration of any Restricted Stock under the
Securities Act pursuant to this Agreement, the Company will indemnify and hold
harmless Ingram, each underwriter of such Restricted Stock thereunder and each
other person, if any, who controls Ingram or such underwriter within the meaning
of the Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which Ingram, such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of any material fact contained in any registration
statement under which such Restricted Stock were registered under the Securities
Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will pay the legal fees and
other expenses of Ingram, each such underwriter and each such controlling person
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in reliance
upon and in conformity with information furnished by Ingram, any such
underwriter or any such controlling person in writing, and, provided further,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of or is based upon
an untrue or alleged untrue statement or omission or an alleged omission made in
any preliminary prospectus or final prospectus if (1) Ingram failed to send or
deliver a copy of the final prospectus or prospectus supplement with or prior to
the delivery of written confirmation of the sale of Restricted Stock and (2) the
final
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prospectus or prospectus supplement would have corrected such untrue statement
or omission.
(b) In the event of a registration of any Restricted Stock
under the Securities Act pursuant to this Agreement, Ingram will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which Restricted Stock was
registered under the Securities Act pursuant to this Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will pay the legal fees and other
expenses of the Company and each such officer, director, underwriter and
controlling person incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that Ingram will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information furnished in writing to
the Company by Ingram for use in such registration statement or prospectus.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the failure to so notify
the indemnifying party shall not relieve it from any liability that it may have
to such indemnified party other than under this Section 8 and shall only relieve
it from any liability that it may have to such indemnified party under this
Section 8 if and to the extent the indemnifying party is prejudiced thereby. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 8 for any legal expenses subsequently incurred by such
indemnified
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party in connection with the defense thereof; provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
(based on the advice of counsel) that there may be reasonable defenses available
to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assert such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred, it being understood, however, that the indemnifying party shall not,
in connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel as
required by the local rules of such jurisdiction) at any time for all such
indemnified parties.
(d) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
9. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including, without
limitation, transferees of any shares of Restricted Stock), whether so expressed
or not.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or sent by Federal Express or
other recognized overnight courier service, addressed as follows:
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if to the Company:
Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Barry L. Collier
Telecopy: (805) 397-5982
if to Ingram:
Ingram Entertainment Inc.
Two Ingram Boulevard
La Vergne, Tennessee 37087
Attention: John Fletcher, Esq., General Counsel
Telecopy: (615) 287-4465
or, in any case, at such other address or addresses as shall have been furnished
in writing by one party to the other in accordance with the provisions of this
Section 9(b).
(c) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California without giving
effect to the conflict of laws provisions.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and Ingram.
(e) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In proving this Agreement it shall not be necessary
to produce or account for more than one such counterpart executed by the party
against whom enforcement is sought.
(f) If requested in writing by the underwriters for an underwritten
public offering of securities of the Company, Ingram shall agree not to sell
publicly any Restricted Stock or any other shares of Common Stock (other than
shares of Restricted Stock or other shares of Common Stock being registered in
such offering), without the consent of such underwriters, for a period, not to
exceed ninety days, following the effective date of the registration statement
relating to such offering to be reasonably determined by the underwriters,
except that Ingram shall not be required to so agree more than once during any
twelve calendar months.
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(g) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(h) The Company shall not grant any registration rights to any person
that will adversely affect Ingram's rights under this Agreement, except for pro
rata reduction of Ingram's piggyback registration rights as provided in
Section 5.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date and year first above written.
VIDEO CITY, INC.
By:______________________________
Name:____________________________
Title:___________________________
INGRAM ENTERTAINMENT INC.
By:______________________________
Name:____________________________
Title:___________________________
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<PAGE> 1
Exhibit 6
STOCKHOLDERS AGREEMENT
This Stockholders Agreement ("Agreement") is made and entered into as of
January 8, 1997, by and among Video City, Inc., a Delaware corporation (formerly
Prism Entertainment Corporation) (the "Company"), Robert Y. Lee ("Lee"), an
individual and a resident of California, on behalf of himself and as Trustee of
the Robert Y. Lee Revocable Living Trust UDT 1/9/91 (the "Trust"), Barry Collier
("Collier"), an individual and a resident of California, and Ingram
Entertainment Inc., a Tennessee corporation ("Ingram") (such parties other than
the Company being collectively referred to herein as the "Stockholders," as
further defined in Article I) with respect to the following facts:
RECITALS
A. VCI and the Company have entered into that certain Agreement and Plan of
Reorganization and Merger dated as of October 25, 1996, as amended by that
certain Agreement and Plan of Reorganization and Merger, dated December 20,
1996, and that certain Second Amended Agreement and Plan of Reorganization and
Merger, dated December 24, 1996, with respect to the merger (the "Merger") of
VCI into the Company.
B. As a result of the Merger, each of the Stockholders will own the
following number of issued and outstanding "Shares" (as further defined in
Article I) of Common Stock of the Company:
<TABLE>
<CAPTION>
Stockholder Number of Shares
----------- ----------------
<S> <C>
Collier 818,050
Lee and the Trust 2,719,024
Ingram 1,500,000
</TABLE>
C. In order to provide for the stability of the Company and to promote the
continuity of its management and policies, the Company and the Stockholders
desire to, among other things, restrict the manner and means by which the Shares
may be sold, assigned or otherwise transferred.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom and of the mutual agreements hereinafter set forth, the parties hereto
hereby agree as follows:
<PAGE> 2
ARTICLE I
Definitions
Affiliate. An "Affiliate" of a Person shall mean (i) a Person directly or
indirectly Controlling, Controlled by or under common Control with such Person;
(ii) a Person owning or Controlling 10% or more of the outstanding voting
securities of such Person; or (iii) an officer, director, or partner, or member
of the immediate family of an officer, director, or partner, of such Person.
When the Affiliate is an officer, director, or partner or member of the
immediate family of an officer, director, or partner, of such Person, any other
Person for which the Affiliate acts in that capacity shall also be considered an
Affiliate.
Agreement. The "Agreement" shall mean this Stockholders Agreement, as it
may be amended from time to time hereafter.
Bona Fide Offer. A "Bona Fide Offer" shall mean an offer in writing to a
Stockholder, offering to purchase all or any part of the Shares owned by such
Stockholder or any interest of the Stockholder therein, and setting forth all
the relevant terms and conditions of the proposed purchase, from an offeror who
is ready, willing and able to consummate the purchase and who is neither the
Company nor an Affiliate of such Stockholder; provided, however, that a Bona
Fide Offer shall not include (a) the sale of Shares sold in a brokers'
transaction ("Brokers' Transaction") as such term is contemplated by Section
4(4) of the Securities Act of 1933, as amended, or to an underwriter pursuant to
an effective registration statement (an "Underwriter Transaction"); (b) the
surrender for cancellation of up to 250,000 shares as referred to in Section
8.2(g) of the Merger Agreement (a "Section 8.2(g) Surrender"); and (c) up to
410,444 shares to be delivered to Ingram by Lee pursuant to the exercise of
warrants in favor of Ingram (an "Ingram Warrant Exercise").
Common Stock. "Common Stock" shall mean the common stock of the Company.
Control. "Control" of a Person shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
Person. A "Person" shall mean any entity, corporation, company,
association, joint venture, joint stock company, partnership, trust,
organization, individual (including personal representatives, executors and
heirs of a deceased individual), nation,
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<PAGE> 3
state, government (including agencies, departments, bureaus, boards, divisions
and instrumentalities thereof), trustee, receiver or liquidator.
Stockholder. A "Stockholder" shall mean each of the persons specified in
the first paragraph of this Agreement and each other Person who succeeds to the
interest of such named Person in and to any Shares in a manner permitted by the
provisions of this Agreement.
Shares. The "Shares" shall mean the shares of the Common Stock specified in
Recital B above (exclusive of 208,050 shares owed by Collier or an affiliate of
Collier based on his pre-Merger interest in Prism Entertainment Corporation (the
"Old Collier Shares")), together with any other shares of the capital stock of
the Company hereafter acquired by any Stockholder and any other shares or
securities thereafter issued in respect of such shares in any reorganization,
recapitalization, reclassification, stock dividend, readjustment or other change
in a capital structure of the Company.
Transfer. A "Transfer" of Shares or any interest of a Stockholder therein
shall mean any sale (other than pursuant to a Brokers' Transaction, an
Underwriter Transaction, a Section 8.2(g) Surrender, or an Ingram Warrant
Exercise), assignment, transfer, disposition, pledge, hypothecation or
encumbrance, whether direct or indirect, voluntary, involuntary or by operation
of law, and whether or not for value, of such Shares or such interest of a
Stockholder therein; except, the term Transfer shall not include (a) any pledge
of Common Stock made by a Stockholder pursuant to a bona fide loan transaction
which creates a mere security interest, (b) any transfer of Common Stock to the
Company pursuant to a written agreement between the Company and a Stockholder
providing for the right of the Company to repurchase shares of its Common Stock,
(c) any transfer to a Stockholder's ancestors or descendants or spouse or to a
trustee for their benefit, (d) any bona fide gift of Common Stock or (e) any
transfer by Ingram to an Ingram Affiliate; provided, that (i) the transferring
Stockholder shall inform the other Stockholders of such pledge, transfer or gift
prior to effecting it and (ii) the pledgee, transferee or donee shall furnish
the other Stockholders and the Company with a written agreement to be bound by
and comply with all provisions of this Agreement applicable to the transferring
Stockholder. In each of the foregoing cases (a) through (e), such Transferred
Shares shall remain Shares subject to this Agreement and the permitted
transferees shall be treated as "Stockholders" for purposes of this Agreement.
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<PAGE> 4
ARTICLE II
Restriction on Transfer of Shares
No Shares and no interest of a Stockholder in any Shares may be Transferred
except in accordance with the terms of this Agreement. Any such attempted
Transfer in violation of this Agreement shall be null and void ab initio, and
neither the Company nor any transfer agent of the Company shall give effect to
any such attempted Transfer in its stock records or for any other purpose
whatsoever.
ARTICLE III
Right of First Refusal of Lee and Collier
3.1 Option to Purchase Shares. In the event Ingram proposes to Transfer all
or any part of its Shares or any interest therein ("Offered Shares"), the
following provisions shall apply:
3.1.1 Stockholder Sale Notice. In the event that Ingram negotiates
a Bona Fide Offer, Ingram shall give to the other Stockholders a written notice
(the "Stockholder Sale Notice") setting forth as to each Person to whom the sale
is proposed to be made: (a) the name and address of that Person and, if that
Person is a corporation or other entity, the owners of 10% or more thereof; (b)
the number of Offered Shares proposed to be sold to that Person; (c) the manner
in which the sale is proposed to be made; and (d) the price at which and the
material terms upon which the sale is proposed to be made.
3.1.2 Purchase Option - Other Stockholders. If the conditions
prescribed in Section 3.1.1 hereof have been met in connection with the proposed
sale of the Offered Shares by Ingram, the remaining Stockholders, pro rata in
accordance with their respective ownership interests in the total number of
Shares owned by such Stockholders (as of the day immediately preceding the
receipt of the Stockholder Sale Notice) shall then have a purchase option (the
"Purchase Option"), for a period of ten (10) calendar days thereafter, to elect
to purchase all, or any part, of the Offered Shares at a purchase price that is
equal to 120% of the purchase price and otherwise substantially upon the terms
specified in the Stockholder Sale Notice. If all remaining Stockholders do not
exercise their Purchase Option as to the entire part of the Offered Shares to
which they are entitled, then the Stockholder electing to purchase shall have
the right to elect to purchase the remaining part of the Offered Shares
available for purchase. If the Stockholders so exercising their Purchase Option
shall, within the ten (10) calendar day period, deliver to Ingram an exercise
notice (the "Exercise Notice") so informing Ingram, then, at the time the
Exercise Notice is received by Ingram a binding agreement
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<PAGE> 5
shall arise between Ingram and the electing Stockholders concerning the sale of
such Shares in accordance with this Article.
Notwithstanding the foregoing, however, if the remaining Stockholders do
not elect to purchase all of the Offered Shares subject to the right of first
refusal pursuant to this Article III, Ingram may sell or dispose of all of the
Offered Shares to the Person described in the Stockholder Sale Notice and upon
the terms set forth in the Stockholder Sale Notice, which Shares shall be free
from any claim or restriction under this Agreement. Any such sale of the Offered
Shares must be effected within thirty (30) calendar days after the termination
of the Stockholders' Purchase Option. If no such sale is effected within said
thirty (30) calendar day period, or if the identity of the proposed purchaser or
the terms of the Bona Fide Offer change materially from those specified in the
Stockholder Sale Notice, or if a sale of the Offered Shares is effected upon
terms materially different from those set forth in the Stockholder Sale Notice,
the Offered Shares shall once again be subject to the provisions of this
Article III.
3.2 Closing of Purchase Option. The closing of any purchase of the Offered
Shares pursuant to the Purchase Option shall take place at the principal offices
of the Company on the 10th calendar day following the delivery of the last
Exercise Notice. At the closing, Ingram shall deliver to the Stockholders
certificates representing the Offered Shares, duly endorsed for transfer or
accompanied by duly executed stock powers, and the purchasing Stockholders shall
deliver to Ingram the purchase price to be paid as herein provided.
ARTICLE IV
Co-Sale Rights of Ingram
4.1 Notice of Purchase Offers. Should any Stockholder other than Ingram
propose to accept a Bona Fide Offer from any Person to purchase Shares owned by
such Stockholder (exclusive of any of the Old Collier Shares), then such
Stockholder (the "Selling Stockholder"), shall promptly give written notice to
Ingram of the terms and conditions of such Bona Fide Offer.
4.2 Right to Participate. Ingram shall have the right, exercisable upon
written notice to the Selling Stockholder within ten (10) calendar days after
receipt of the notice of the Bona Fide Offer, to participate in the Selling
Stockholder's sale of Shares on the same terms and conditions contained in the
Bona Fide Offer. To the extent Ingram exercises such right of participation, the
number of Shares which the Selling Stockholder may sell pursuant to this Article
shall be correspondingly reduced. The right of participation of Ingram shall be
subject to the following terms and conditions:
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<PAGE> 6
(a) Ingram may sell all or any part of that number of Shares equal to
(as of the day immediately preceding the receipt of the written notice described
above) the aggregate number of Shares covered by the Bona Fide Offer multiplied
by that fraction, the numerator of which is the total number of Shares owned by
Ingram on a fully-diluted basis (including any Shares issuable in connection
with the exercise of any option, warrant or similar right), and the denominator
of which is all of such Ingram Shares plus the total number of Shares owned by
the Selling Stockholder on a fully-diluted basis (including any Shares issuable
in connection with the exercise of any option, warrant or similar right).
(b) Ingram may participate in the sale by delivering to the
Selling Stockholder for transfer to the purchase offeror one or more
certificates, properly endorsed for transfer, which represent the number of
Shares which Ingram elects to sell pursuant to this Section 4.2.
4.3 Consummation of Sale. The stock certificate or certificates which
Ingram delivers to the Selling Stockholder pursuant to Section 4.2 shall be
delivered by the Selling Stockholder to the purchase offeror in consummation of
the sale of the Shares pursuant to the terms and conditions specified in the
written notice to Ingram, and the Selling Stockholder shall cause the purchase
offeror to pay to Ingram that portion of the sale proceeds to which Ingram is
entitled by reason of its participation in such sale.
4.4 Ongoing Rights. The exercise or non-exercise of the rights of Ingram
hereunder to participate in one or more sales of Shares made by a Selling
Stockholder shall not adversely affect its right to participate in subsequent
sales of Shares by a Selling Stockholder pursuant to Section 4.1 hereof.
ARTICLE V
Preemptive Rights of Ingram
In the event of the issuance, sale or distribution for cash by the Company
of any voting or other security of the Company or security convertible into or
exercisable for such security commenced or declared subsequent to the date
hereof, other than Shares or rights to Shares issued pursuant to an employee
benefit plan or otherwise for property (other than cash equivalents or evidences
of indebtedness) or services, Ingram shall be entitled to participate in such
issuance, sale or distribution on a pro rata basis in respect of the Shares
owned by Ingram so that following such issuance, sale or distribution Ingram
will, if it has elected to purchase the new securities to be issued, sold or
distributed, have the same percentage of the equity ownership of the Company as
Ingram had by reason of its ownership of Shares prior to such issuance, sale or
distribution.
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<PAGE> 7
ARTICLE VI
Board of Directors
During the term of this Agreement, each Stockholder shall use its or his
best efforts to cause the number of directors of the Company to be eight and
shall vote, or cause to be voted, at each election of members of the Board of
Directors of the Company, all of his or its Shares in favor of two designees of
Ingram, four designees of Lee and two designees of Collier. Notwithstanding the
foregoing, Ingram shall have no right to so designate a member of the Board of
Directors upon and after Ingram's beneficial ownership interest (assuming, for
purposes of this calculation, the exercise or conversion of all options,
warrants, rights, or convertible securities held by Ingram) in the Company
Common Stock (together with that of any Affiliate of Ingram) is 4% or less of
the outstanding Common Stock. Additionally, subject to the exercise of their
fiduciary duties, Lee and Collier shall use their best efforts to appoint a
designee of Ingram to the Compensation Committee of the Company.
ARTICLE VII
Amendment of Employment Agreements
Except for that certain Amendment to Agreement and Plan of Reorganization
and Merger, dated as of December 20, 1996, neither Collier nor Lee nor the
Company shall enter into any amendment, modification or waiver of their
Employment Agreements with the Company nor shall the Company extinguish, forgive
or reduce (except for payment made) any debt owed to the Company from any
employee without the prior written consent of Ingram.
ARTICLE VIII
Termination of Agreement
This Agreement shall terminate, and the certificates representing the
Shares shall be released from the terms of this Agreement upon the first to
occur of the following events:
8.1 By Agreement. The written agreement of the Company and all of the
Stockholders bound by the terms of this Agreement;
8.2 One Stockholder. At such time as there is only one remaining
Stockholder of the Company;
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<PAGE> 8
8.3 Liquidation. The liquidation and dissolution of the Company; or
8.4 Ingram's Ownership Interest in the Company. Ingram's beneficial
ownership interest (assuming, for purposes of this calculation, the exercise or
conversion of all options, rights, warrants or convertible securities held by
Ingram or an Affiliate) in the Company's Common Stock is 4% or less.
Upon the termination of this Agreement for any of the above reasons, the
certificates of stock held by each Stockholder shall be surrendered to the
Company, and the Company shall issue new certificates for the same number of
Shares but without the legend required by this Agreement.
ARTICLE IX
Legend On Share Certificates
Each of the certificates representing the Shares shall bear the following
legend:
"None of the Shares represented by this certificate may be sold, assigned,
transferred, pledged, hypothecated or in any other way disposed of or
encumbered, voluntarily or involuntarily, by gift, bankruptcy, operation of
law, winding up of a corporation or otherwise, except in accordance with
the provisions of a Stockholders Agreement, dated January 8, 1997, which is
also a voting agreement, a copy of which may be inspected at the principal
office of this Company. All of the provisions of such Stockholders'
Agreement are incorporated herein by this reference."
A copy of this Agreement shall be delivered to the Secretary of the Company and
shall be shown by him to any person making inquiry concerning it.
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<PAGE> 9
ARTICLE X
General Provisions
10.1 Waiver. No waiver of any provision of this Agreement in any instance
shall be or for any purpose be deemed to be a waiver of the right of any party
hereto to enforce strict compliance with the provisions hereof in any subsequent
instance.
10.2 Agreement to Perform Necessary Acts. Each party hereto and the heirs,
executors or administrators of the Stockholders shall perform any further acts
and execute and deliver any documents or procure any court orders which may
reasonably be necessary to carry out the provisions of this Agreement.
10.3 Litigation and Attorneys' Fees. In the event of any litigation between
the parties hereto to enforce any provision or right hereunder, the unsuccessful
party to such litigation shall pay to the prevailing party therein all costs and
expenses actually incurred therein, including, but not limited to, reasonable
attorneys' fees actually incurred and court costs.
10.4 Modification. This Agreement may not be modified or amended except by
a writing signed by all of the Stockholders and by an officer duly authorized to
act on behalf of the Company. In the event of the amendment or modification of
this Agreement in accordance with its terms, the Stockholders shall cause the
Board of Directors to meet within 30 days following such amendment or
modification or as soon thereafter as is practicable for the purpose of adopting
any amendment to the Certificate of Incorporation and By-Laws of the Company
that may be required as a result of such amendment or modification to this
Agreement, and, if required, proposing such amendments to the Stockholders
entitled to vote thereon.
10.5 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered by
courier or other means of personal service, or if sent by telex or telecopy or
mailed first class, postage prepaid, by certified mail, return receipt
requested, addressed to:
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<PAGE> 10
The Company:
Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Barry L. Collier
Telecopy No.: (805) 397-5982
With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Telecopy No.: (213) 688-3460
Ingram:
Ingram Entertainment Inc.
Two Ingram Boulevard
La Vergne, Tennessee 37089
Attention: John Fletcher, Esq., General Counsel
Telecopy No.: (615) 287-4465
Lee:
Robert Y. Lee
Lee Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Telecopy No.: (805) 397-5982
Collier:
Barry Collier
4033 Ocean Avenue
Oxnard, California 93035
Telecopy No.: (805) 985-1855
All notices, requests and other communications shall be deemed received on the
date of actual receipt as evidenced by written receipt, acknowledgement or other
evidence of
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<PAGE> 11
actual receipt. Any party may change its address for notices by notice to the
other parties as provided in this Article.
10.6 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original of the party
or parties who executed such counterpart but all of which together shall
constitute one and the same instrument.
10.7 Severability. Each provision and part thereof of this Agreement is
intended to be severable and if any term or all or part of any provision hereof
is held by judicial decision to be invalid, such invalidity shall not affect the
validity of the remainder of this Agreement.
10.8 Entire Agreement. This Agreement is intended by the parties hereto as
a final expression of their agreement and understanding with respect to the
subject matter hereof and as a complete and exclusive statement of the terms
thereof and supersedes any and all prior and contemporaneous agreements and
understandings, written or oral, express or implied.
10.9 Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of California.
10.10 Injunctive Relief. The parties acknowledge and agree that a violation
of any of the terms of this Agreement will cause the parties irreparable injury
for which adequate remedy at law is not available. Therefore, the parties agree
that each party shall be entitled to an injunction, restraining order or other
equitable relief from any court of competent jurisdiction, restraining any party
from committing any violations of the provisions of this Agreement.
10.11 Section Headings. The headings of the several sections of this
Agreement are inserted solely for convenience of reference and are not a part of
and are not intended to govern, limit or aid in the construction of any term or
provision hereof.
10.12 Construction. When necessary, the masculine shall include the
feminine or neuter and the singular shall include the plural and vice versa.
10.13 Binding Effect. Subject to the restrictions on Transfer contained
herein, this Agreement shall be binding on and shall inure to the benefit of,
the
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parties hereto and their respective heirs, legal representatives, successors
and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first hereinabove written.
THE COMPANY:
Video City, Inc., a
Delaware corporation
By:____________________________________
______
Name:__________________________________
______
Its:___________________________________
______
STOCKHOLDERS:
Ingram Entertainment Inc., a Tennessee
corporation
By:____________________________________
______
Name:__________________________________
______
Its:___________________________________
______
_______________________________________
______
Robert Y. Lee
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<PAGE> 13
_______________________________________
______
Robert Y. Lee, Trustee of the Robert Y.
Lee Revocable Living Trust UDT 1/9/91
_______________________________________
______
Barry Collier
13
