<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
January 8, 1997
---------------
Date of Report (date of earliest event reported)
Video City, Inc.
----------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-14023 95-3897052
------------------ ---------------- --------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
Incorporation) Number)
6851 McDivitt Drive, Suite A, Bakersfield, California 93313
-----------------------------------------------------------
(Address of principal executive offices)
(805) 397-7955
--------------
(Registrant's telephone number, including area code)
Prism Entertainment Corporation
-------------------------------
(Former Name)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
A. General.
-------
On December 1, 1995, Prism Entertainment Corporation (now known as
Video City, Inc.) (the "Company") and its subsidiaries filed a voluntary Chapter
11 petition and commenced a case (the "Bankruptcy Proceedings") under Chapter 11
of the United States Bankruptcy Code. Throughout the course of the Bankruptcy
Proceedings, the Company operated as debtor-in-possession. On November 1, 1996,
the United States Bankruptcy Court for the Central District of California (the
"Bankruptcy Court") entered an Order approving the Amended Disclosure Statement
for Debtors' Amended Plan of Reorganization, dated October 25, 1996. On
December 17, 1996, the Bankruptcy Court entered an Order confirming the Plan of
Reorganization of the Company (the "Plan").
B. The Merger.
----------
Pursuant to that certain Agreement and Plan of Reorganization and
Merger, dated as of October 25, 1996, as amended (the "Reorganization
Agreement") by and among the Company and Lee Video City, Inc. ("VCI"), on
January 8, 1997 (the "Effective Date"), VCI merged with and into the Company
(the "Merger"). The Merger was authorized by the Plan and was a condition
precedent to the effectiveness of the Plan. Upon the consummation of the
Merger, the name of the Company was changed from Prism Entertainment Corporation
to Video City, Inc.
Pursuant to the Plan and the Reorganization Agreement, on the
Effective Date, the then existing shareholders of VCI received 5,078,750 shares
of the Common Stock (or approximately 51.7% of the Company's Common Stock on the
Effective Date); 1,500,000 shares of Common Stock were issued to Ingram
Entertainment Inc. ("Ingram"), a creditor of VCI, pursuant to that certain
Override Agreement, dated as of November 19, 1996 by and among VCI, Robert Y.
Lee ("Lee"), the Company and Ingram; 2,552,750 shares of Common Stock were
deemed issued to holders of "Allowed Claims" (as such term was defined in Plan);
and 693,500 shares of Common Stock were retained by the stockholders of the
Company as of a record date immediately prior to the Effective Date. An option
to purchase 175,000 shares of Common Stock was granted to Barry Collier
("Collier"), the Company's President, and the Company assumed obligations under
certain stock options which had been issued by VCI and were originally
exercisable into VCI stock. Upon the Effective Date, these options became
options to purchase an aggregate of 1,685,000 shares of the Common Stock of the
Company. Additionally, the Company assumed warrants previously issued by VCI in
favor of Rentrak Corporation to purchase an aggregate of 473,420 shares of the
Company's Common Stock.
2
<PAGE>
C. Transaction with Ingram.
-----------------------
Prior to the Effective Date, VCI was indebted to Ingram, its largest
supplier, in the approximate amount of $4,500,000. Pursuant to the Override
Agreement, on the Effective Date, Ingram converted $3,000,000 of the existing
debt of VCI into 1,500,000 shares of the Common Stock of the Company. The
remaining debt (the "Remaining Debt") became an obligation of the Company.
Also, on the Effective Date, the Company issued to Ingram warrants to purchase
up to an aggregate of 852,750 shares, and Ingram acquired from Lee warrants to
acquire an additional 404,403 shares of the Company's Common Stock.
D. Change of Board of Directors.
----------------------------
Pursuant to the terms of the Stockholders Agreement dated as of
January 8, 1997, among the Company, Lee, Collier and Ingram, Collier, Lee and
Ingram agreed to use their best efforts to cause the number of directors of the
Company to be eight and to vote in each election of members of the Board of
Directors all of such stockholder's shares in favor of two designees of Ingram,
four designees of Lee and two designees of Collier. In this connection, Lee has
designated the following individuals in addition to himself: Steven
Antongiovanni, James Craig Kelly and Stephen C. Lehman; Ingram has designated
Charles Cook and Michael Anderson; and Collier has designated Gerald W.B. Weber
in addition to himself.
E. Change of Control.
-----------------
The following table sets forth the number of shares and the percentage
of the Company's Common Stock beneficially owned as of the Effective Date by the
person who acquired control of the Company pursuant to the Merger.
<TABLE>
<CAPTION>
Name of Beneficial Owner No. of Shares Percent of Class
- ------------------------ ------------- ----------------
<S> <C> <C>
Robert Y. Lee 3,319,024 33.8/(1)/
</TABLE>
________
(1) Based on 9,825,000 shares outstanding on the Effective Date after giving
effect to the issuance of the Common Stock of the Company as described
above pursuant to the Merger. Mr. Lee owns 2,709,024 shares and, in
addition, holds an irrevocable proxy to vote 610,000 shares of the Common
Stock of the Company owned by Barry Collier. Pursuant to a Lock Up
Agreement between Mr. Lee, Mr. Collier and Ingram, Ingram has required
that, until at least 80% of the Remaining Debt (currently approximately
$1,500,000) has been paid, 721,983 shares owned by Mr. Lee are to be held
in an escrow which prohibits
3
<PAGE>
the sale, assignment, transfer, pledge or other disposition of any of such
shares. In addition, Mr. Lee has granted to Ingram the right to purchase
404,403 shares owned by Mr. Lee, which are held in another escrow, at an
exercise price of $.6085 per share at any time through January 7, 2002.
Also, 250,000 shares of the shares owned by Mr. Lee are subject to
cancellation, if and as a corresponding number of shares are issued upon
exercise of existing options granted to certain key employees and
consultants of the Company.
The Company is unaware of any arrangements, the operation of which may
at a subsequent date result in a change of control of the Company.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
A. Acquisition of VCI.
------------------
As described in Item 1 above, pursuant to the Reorganization Agreement
and as authorized by the Plan, VCI merged with and into the Company, and the
Company issued to the shareholders of VCI an aggregate of 5,078,750 shares. As
a result, by operation of law, the Company acquired all of the assets and
assumed all of the liabilities of VCI.
B. Video Store Business.
--------------------
VCI was formed in 1990 by Mr. Lee, with two stores in Bakersfield,
California. Through acquisitions and store openings, the number increased to
its present size of 18 stores. Prior to June 1996, VCI had owned an additional
11 stores located outside California. In order to consolidate its operations
and promote efficiencies by focusing its energies on one geographical region,
VCI sold these stores in June 1996.
As a result of the acquisition of VCI, the Company now owns and
operates 18 video retail/rental superstores in the State of California and
operates on behalf of others six additional video stores, all using the Video
City name. These stores are devoted exclusively to the rental and sale to the
public of pre-recorded movies on videocassettes, the rental of video game
cartridges to the public and the sale of accessories and other related products.
A typical store operated by the Company encompasses at least 4,500 sq. ft. of
floor area and has more than 10,000 videocassettes for sale or rental.
The Company's video stores are located primarily in areas with a
population of less than 500,000 people. As a general matter, the Company
selects
4
<PAGE>
secondary markets that have not been dominated by the larger video chains. The
Company seeks to maximize revenues, minimize costs and achieve higher
profitability by focusing on these secondary markets. In this connection, the
Company believes that in secondary markets there is less competition from other
forms of entertainment and the opportunity to achieve a larger market share
through superior selection, marketing and better customer service. At the same
time, management believes that stores in secondary markets should have lower
operating costs than stores in major metropolitan areas.
The Company believes that its merchandising, service and store design
are distinctive and set it apart from its competitors. Additionally, the
Company has concentrated on customer service, which is a significant factor in
store manager compensation. One of the key elements of customer service is
product availability, and management believes that the Company generally has an
excellent selection of new releases and catalog titles in its stores. The
Company uses a decentralized ordering system with field and store management
participation and input. The approach enables it to cater to the market tastes
of the neighborhoods in which it operates.
The Company intends to explore acquisition opportunities on a
selective basis. The Company believes that the videocassette sale and retail
industry is consolidating, thus causing many operators of small chains to sell
to larger chains. The Company anticipates that once the Company's shares are
traded on a national securities exchange or on the NASDAQ Stock Market, it may
be able to use its equity in whole or in part in acquiring other video stores
and chains.
Management also intends to take steps aimed at increasing revenues
from its existing stores by adding additional products for sale and rental to
the public. This will include actively promoting at its stores the "sell
through" market for previously viewed and new videocassettes and accessories and
concessions.
The videocassette sale and rental industry is highly competitive and
is also affected by seasonal fluctuations, weather, and the availability of new
hit movies. These and other factors may adversely affect the operating results
of the Company.
C. Film Library.
------------
During the course of the Bankruptcy Proceedings, in view of its cash
position, the Company was engaged in only limited business activities consisting
of the sale of its existing film products to domestic ancillary markets as well
as the sale/licensing of foreign rights to its existing film library. After the
commencement of the Bankruptcy Proceedings, the Company ceased engaging in any
film production activity. The Company expects to continue to exploit its
existing film library and
5
<PAGE>
license distribution rights in territories and media previously unexploited, and
the Company will continue to collect the accounts receivable generated from its
past videocassette distribution business. In the alternative, the Company may
sell all or a part of its film library. The Company has no current plans to
recommence its film production business or to acquire new license rights for
video or other media.
D. Capital Resources.
-----------------
The Company's plans to expand its business by acquiring additional
video store outlets will depend in part on its ability to raise additional
capital in the form of debt or equity or a combination thereof. The Company
intends to actively seek sources of capital, although no assurance can be given
that such capital will be available on terms acceptable to the Company.
As indicated in Item 1, Paragraph C above, the Remaining Debt owed to
Ingram after conversion of $3,000,000 of debt became an obligation of the
Company as of the Effective Date. The Remaining Debt is evidenced by a new
note, with interest only payable at the rate of 10% per annum on a monthly basis
with all principal amount and accrued interest due and payable on January 8,
2000. In this connection, the Company granted to Ingram a first priority lien
on the store inventory and a second lien on the film library and accounts
receivable relating to the film library.
The Company's existing obligations to Imperial Bank as of the
Effective Date in the amount of $2,742,430 were restructured pursuant to an
Amended and Restated Credit Loan and Security Agreement (the "Credit Agreement")
between the Company and Imperial Bank. Pursuant to the Credit Agreement, the
Company has agreed to pay such outstanding amount plus all fees and costs of
Imperial Bank allowed by the Bankruptcy Court (up to $450,000) with interest
only payable through June 30, 1998 at Imperial Bank's prime rate plus 3%. All
principal outstanding as of July 1, 1998 will be amortized over 12 equal monthly
payments. In addition, collections from license agreements and 50% of the
producer's fee, if any, from one film are to be applied through June 30, 1998 to
reduce principal and thereafter to be applied to the next monthly payment of
principal and interest then due. Pursuant to the Credit Agreement, the Company
granted to Imperial Bank a first priority security interest in its film library
and accounts receivable existing as of the Effective Date and a second priority
lien on the store inventory of the Company.
E. Management.
----------
As indicated in Item 1, Paragraph D above, the Board of Directors of
the Company now consists of Robert Lee, Barry Collier, Steven Antongiovanni,
James Kelly, Stephen Lehman, Charles Cook, Michael Anderson and Gerald W.B.
Weber.
6
<PAGE>
As of the Effective Date, Mr. Lee was elected the Company's Chief Executive
Officer and Chairman of the Board, Mr. Collier remained as President, Mr. Kelly
was elected Senior Vice President and Chief Operating Officer, Mr. Antongiovanni
was elected Chief Financial Officer and Rudy Patino continued as Chief
Accounting Officer.
Set forth below is information on the background of each of the
directors and executive officers:
Mr. Lee is one of the pioneers of the video retail industry. He
purchased his first video store in 1983, and during the 1980s opened and
acquired more than 20 video stores in Southern California. Mr. Lee was elected
Orange County Entrepreneur of the Year in 1989 by Inc. Magazine and Ernst &
-------------
Young. In 1990, Mr. Lee moved to Bakersfield, California and founded VCI to
exploit his secondary market growth strategy. Since 1990, he was the President,
Chief Executive Officer and Chairman of the Board of VCI.
Mr Collier was a director, President and Chief Operating Officer of
the Company from its inception and served as its Secretary from its inception
until June 12, 1985, when he became Chief Executive Officer. Mr. Collier served
as Chairman of the Board from 1990 to 1994. Upon the Effective Date, Mr.
Collier resigned as Chairman of the Board and Chief Executive Officer and was
elected the President of the Company.
Mr. Kelly joined VCI in 1992, after 15 years with Wherehouse
Entertainment, a $500 million in revenue retailer of music and video products.
From 1982 to 1984, Mr. Kelly was Director of Loss Prevention for Wherehouse.
From 1984 to 1991, Mr. Kelly was Vice President and Regional Manager for
Wherehouse, where he oversaw approximately 100 stores with annual revenues of
$150 million and approximately 2,000 employees.
Mr. Antongiovanni was previously the Chief Financial Officer of VCI.
From 1980 to 1994, Mr. Antongiovanni was employed by Sun World International,
Inc., an agribusiness with annual revenues in excess of $250 million, where he
rose from Staff Accountant to Vice President and Controller. Mr. Antongiovanni
joined VCI in 1994.
Mr. Lehman has been President, Chief Executive Officer and Chairman of
the Board of Premier Radio Networks, Inc., a producer of radio programming,
since its formation in January 1987. From 1984 to 1987, Mr. Lehman was
President of Stephen Lehman Productions, a syndicated radio program company,
while also serving as an on-air personality at KIIS-AM and FM/Los Angeles. From
1982 to 1984, he specialized in building radio networks for independent radio
syndication.
7
<PAGE>
Mr. Weber is Senior Vice President of Retail Operations of AutoNation
USA responsible for all AutoNation USA retail operations, including sales,
training, planning, hiring, and loss prevention. Prior to joining AutoNation
USA, he was with Blockbuster Entertainment Corporation where he served most
recently as President of Blockbuster Music. Prior to that, Mr. Weber served in
a number of management roles at Blockbuster Video, including Zone Vice President
of the East and Southeast regions; as well as Vice President of Operations and
Senior Vice President of Domestic Retail.
Since 1994, Mr. Cook has been a principal of Cook & Grace Properties
which owns, manages, sells and leases commercial real property. From 1985 to
1994, Mr. Cook was affiliated with Dobson & Johnson, Inc., a commercial real
estate broker.
Since 1994, Mr. Anderson has been a principal at the law firm of Troop
Meisinger Steuber & Pasich LLP, Los Angeles, California, where he specializes in
commercial litigation. Prior to joining such firm, Mr. Anderson was associated
with the law firm of DeCastro, West, Chodorow & Burns, and was an associate at
the Boston Consulting Group, a management consulting firm.
Mr. Patino joined the Company on July 31, 1995 as Controller and
became the Chief Accounting Officer in June 1996. Prior to that date, he was
Chief Financial Officer of Avalon Attractions, Inc., Encino, California, a
concert production company.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
As indicated in Item 1, Bankruptcy Proceedings were filed on December
1, 1995 by the Company and its subsidiaries. On December 17, 1996, the
Bankruptcy Court entered an order confirming the Plan which provided for VCI to
merge with and into the Company. As provided for in the Plan and pursuant to
the Merger, on the Effective Date, the existing shareholders of VCI received
5,078,750 shares of Common Stock of the Company (or approximately 51.7% of the
Company's Common Stock on the Effective Date), 1,500,000 shares of Common Stock
were issued to Ingram pursuant to the Override Agreement, 2,552,750 shares were
issued to holders of Allowed Claims, with the then stockholders of the Company
retaining 693,500 shares.
Set forth below is a pro forma consolidated balance sheet of the
Company as of December 31, 1996 giving effect to the Merger and the Plan. The
information presented is unaudited and subject to change as a result of the
audit of the Company for the fiscal year ending January 31, 1997.
8
<PAGE>
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets
Cash $ 835,000
Accounts receivable 2,750,000
Notes receivable 110,000
Merchandise inventories 100,000
Other assets 175,000
-----------
Total current assets 3,970,000
Videocassette rental inventory, net 2,300,000
Film Library 3,700,000
Property and equipment 1,050,000
Note receivable 130,000
Other assets 275,000
-----------
Total Assets $11,425,000
===========
Liabilities and Shareholders Equity
Current Liabilities
Accounts Payable 950,000
Accrued Liabilities 883,000
Current portion of long term debt 2,110,000
-----------
Total current liabilities 3,943,000
Long term debt 2,886,000
Other liabilities 842,000
-----------
Total Liabilities 7,671,000
-----------
Stockholder's Equity 3,754,000
-----------
Total Liabilities and Stockholders Equity $11,425,000
===========
</TABLE>
9
<PAGE>
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS.
Not applicable.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
A. Financial Statements of Business Acquired.*
B. Pro Forma Financial Information.*
C. Exhibits
2.1 Debtors' Amended Plan of Reorganization dated October 25,
1996.
2.2 Agreement and Plan of Reorganization and Merger dated as of
October 25, 1996 with amendments between the Company and
VCI.
4.0 Certificate of Merger.
10.1 Override Agreement dated as of November 19, 1996 among VCI,
Lee, the Company and Ingram.
10.2 Amended and Restated Credit Loan and Security Agreement
dated as of January 8, 1997, between the Company and
Imperial Bank.
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
______________
10
<PAGE>
* It is impracticable at the present time to provide such documents. Such
documents will be filed as soon as practicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 22, 1997
VIDEO CITY, INC.
By: /s/ Robert Y. Lee
--------------------
Robert Y. Lee,
Chairman of the Board and
Chief Executive Officer
12
<PAGE>
EXHIBIT 2.1
MARTIN J. BRILL (State Bar No. 53220)
GARY E. KLAUSNER (State Bar No. 69077)
JEFFREY A. RESLER (State Bar No. 152674)
ROBINSON, DIAMANT, BRILL & KLAUSNER
A Professional Corporation
1888 Century Park East, Suite 1500
Los Angeles, California 90067
Telephone: (310) 277-7400
Telecopier: (310) 277-7584
Attorneys for Debtors in Possession
Debtors' Address
- ----------------
1888 Century Park East, Suite 350
Los Angeles, California 90067
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re Bk. No. 95-41355 TD
PRISM ENTERTAINMENT Chapter 11
CORPORATION, a Delaware
corporation, PRISM PICTURES (Administratively Consolidated
CORPORATION, a Delaware with Case Nos. LA 95-41356 TD
corporation; PRISM PICTURES and LA 95-41357 TD)
INTERNATIONAL, LTD., a
California corporation, (This Pleading Applies To All
Cases)
Debtors.
DEBTORS' SECOND AMENDED JOINT
PLAN OF REORGANIZATION DATED
OCTOBER 25, 1996
(Taxpayer Identification Nos. [Confirmation Hearing To Be
95-3897052; 95-2914356; Set]
95-4410397)
- -----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
TABLE OF AUTHORITIES................................................... iii
ARTICLE I DEFINITIONS............................................... 1
ARTICLE II TREATMENT OF UNCLASSIFIED CLAIMS.......................... 7
2.01 Administrative Claims..................................... 7
2.02 Tax Claims................................................ 8
2.03 Intercompany Claims....................................... 8
2.04 Joint Liability Duplicate Claims (including
Guarantee Claims)......................................... 8
ARTICLE III CLASSIFICATION OF CLAIMS AND INTERESTS.................... 8
3.01 Class 1 - Priority Claims................................. 8
3.02 Class 2 - Secured Claims.................................. 8
3.03 Class 3 - Imperial Claims................................. 8
3.04 Class 4 - Unsecured Claims................................ 9
3.05 Class 5 - Guild Claims.................................... 9
3.06 Class 6 - Common Stock.................................... 9
ARTICLE IV TREATMENT OF UNIMPAIRED CLAIMS............................ 9
4.01 Class 1 - Priority Claims................................. 9
4.02 Class 2 - Secured Claims.................................. 9
ARTICLE V TREATMENT OF IMPAIRED CLAIMS.............................. 10
5.01 Class 3 - Imperial Claims................................. 10
5.02 Class 4 - Unsecured Claims................................ 12
5.03 Class 5 - Guild Claims.................................... 12
5.04 Class 6A - Holders of Existing Entertainment Stock........ 13
5.05 Class 6B - Holder of Existing Pictures Stock.............. 13
5.06 Class 6C - Holder of Existing Pictures International
Stock..................................................... 14
ARTICLE VI MEANS OF IMPLEMENTATION OF THE PLAN....................... 14
6.01 Actions on or Prior to the Effective Date................. 14
6.02 Amendments to Certificates of Incorporation............... 15
6.03 Cancellation of Debentures and Existing Entertainment
Stock..................................................... 15
6.04 Funding of the Plan....................................... 15
6.05 Closing of Register for Debentures and Existing
Entertainment Stock....................................... 15
6.06 Cramdown.................................................. 15
6.07 Management................................................ 16
6.08 Exemption from Registration under Section 1145 of the
Bankruptcy Code........................................... 16
ARTICLE VII CONDITIONS PRECEDENT...................................... 16
7.01 Conditions to the Occurrence of the Effective Date........ 16
7.02 Waiver of Conditions...................................... 17
-i-
<PAGE>
TABLE OF CONTENTS (Continued)
-----------------------------
PAGE(S)
-------
ARTICLE VIII DISTRIBUTIONS UNDER THE PLAN............................. 17
8.01 Disbursing Agent......................................... 17
8.02 Undeliverable Distributions.............................. 17
8.03 Distributions To Only Allowed Claims Of Allowed
Equity Interests......................................... 18
8.04 Distributions............................................ 18
8.05 Fractional Shares........................................ 18
ARTICLE IX EFFECTS OF PLAN CONFIRMATION............................. 18
9.01 Discharge................................................ 18
9.02 Revesting................................................ 19
9.03 Retention of Causes of Action/Reservation of Rights...... 19
9.04 Objections to Claims and Equity Interests/
Distributions............................................ 20
9.05 Retention of Jurisdiction................................ 20
9.06 Post-Consummation Effect of Evidences of Claims or
Equity Interests......................................... 21
9.07 Failure of Court to Exercise Jurisdiction................ 21
9.08 Term of Injunctions or Stays............................. 21
9.09 Waiver of Subordination.................................. 21
9.10 Exculpation.............................................. 21
ARTICLE X EXECUTORY CONTRACTS...................................... 22
10.01 Executory Contracts and Unexpired Leases................. 22
10.02 Approval of Assumptions.................................. 22
10.03 Objections to Assumption of Executory Contracts and
Unexpired Leases......................................... 24
10.04 Objections to Proposed "Cure" Amounts.................... 23
10.05 Payments Related to Assumption of Executory Contracts
and Unexpired Leases..................................... 24
10.06 Executory Contracts and Unexpired Leases to be
Rejected................................................. 24
10.07 Bar Date for Rejection Damages........................... 24
10.08 Contracts Entered Into On Or After The Petition
Date..................................................... 25
ARTICLE XI MISCELLANEOUS............................................ 25
11.01 Surrender of Instruments................................. 25
11.02 Modification of Plan..................................... 25
11.03 Withdrawal of Plan....................................... 25
11.04 Post-Confirmation Committee.............................. 26
11.05 Tax Provisions........................................... 26
11.06 Payment Dates............................................ 26
11.07 Headings................................................. 26
11.08 Successors and Assigns................................... 26
11.09 Plan Terms Control....................................... 26
11.10 Provisions Severable..................................... 27
ARTICLE XII REQUEST FOR CONFIRMATION................................. 27
-ii-
<PAGE>
TABLE OF AUTHORITIES
--------------------
STATUTES PAGE(S)
- -------- -------
11 U.S.C. Section 101(10)................... 9
11 U.S.C. Section 101(12)................... 18
11 U.S.C. Section 101(16)................... 4
11 U.S.C. Section 105....................... 21
11 U.S.C. Section 1102...................... 3
11 U.S.C. Section 1111(b)................... 6
11 U.S.C. Section 1114(e)(2)................ 1
11 U.S.C. Section 1123...................... 22
11 U.S.C. Section 1123(a)(1)................ 3
11 U.S.C. Section 1123(a)(5)(l)............. 15
11 U.S.C. Section 1123(a)(6)................ 15
11 U.S.C. Section 1124...................... 9
11 U.S.C. Section 1127(b)................... 25
11 U.S.C. Section 1129...................... 3
11 U.S.C. Section 1129(a)................... 27
11 U.S.C. Section 1129(b)............... 15, 27
11 U.S.C. Section 1141(d)................... 8
11 U.S.C. Section 1145...................... 16
11 U.S.C. Section 1146(c)................... 26
11 U.S.C. Section 330(a).................... 1
11 U.S.C. Section 331....................... 1
11 U.S.C. Section 362....................... 21
11 U.S.C. Section 365.................. 22, 24
11 U.S.C. Section 365(b)(1)............ 23, 24
11 U.S.C. Section 502(g).................... 18
11 U.S.C. Section 503(b).................... 1
-iii-
<PAGE>
TABLE OF AUTHORITIES (Continued)
--------------------------------
PAGE(S)
-------
11 U.S.C. Section 506....................... 6
11 U.S.C. Section 507(a).................... 6
11 U.S.C. Section 507(a)(1)........... 1, 7, 20
11 U.S.C. Section 507(a)(8)................. 6
11 U.S.C. Section 507(b).................... 7
11 U.S.C. Section 541....................... 4
11 U.S.C. Section 546(c)(2)(A).............. 1
28 U.S.C. Section 1930...................... 7
28 U.S.C. Section 2075...................... 2
OTHER
- -----
Section 5, Securities Act of 1933........... 16
-iv-
<PAGE>
Prism Entertainment Corporation, Prism Pictures Corporation and Prism
Pictures International, Ltd., the Debtors and Debtors in Possession
(collectively, the "Debtors") in the above-captioned jointly administered cases
pending under chapter 11 of the United States Bankruptcy Code, hereby propose
this plan of reorganization (the "Plan") pursuant to the provisions of Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code"). If confirmed
by the Court, the Plan will bind the Debtors and all their respective creditors
and equity security holders. All creditors and equity security holders are
encouraged to read and review the Debtors' Disclosure Statement prior to voting
to accept or reject the Plan.
ARTICLE I
DEFINITIONS
-----------
Unless the context otherwise requires, the following terms shall have
the following meanings when used in initially capitalized form in the Plan.
Such meanings shall be equally applicable to both the singular and plural forms
of such terms. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan unless the context requires
otherwise. Whenever from the context it appears appropriate, each term stated
in either the singular or the plural includes the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender include the
masculine, feminine and the neuter. Any term used in initially capitalized form
in the Plan that is not defined herein but that is used in the Bankruptcy Code
or the Bankruptcy Rules shall have the meaning assigned to such term in the
Bankruptcy Code or the Bankruptcy Rules.
"ADMINISTRATIVE CLAIM" means a Claim against any of the Debtors for
payment of an administrative expense of a kind specified in section 503(b) of
the Bankruptcy Code and referred to in section 507(a)(1) of the Bankruptcy Code,
including, without limitation, the actual, necessary costs and expenses incurred
after the commencement of the Bankruptcy Cases of preserving the Estates and
operating the businesses of the Debtors, including wages, salaries or
commissions for services, compensation for legal and other services and
reimbursement of expenses awarded under section 330(a) or 331 of the Bankruptcy
Code, certain retiree benefits under section 1114(e)(2) of the Bankruptcy Code,
certain reclamation claims under section 546(c)(2)(A) of the Bankruptcy Code,
and all fees and charges assessed against the Estates under Chapter 123 of Title
28, United States Code.
"ALLOWED ADMINISTRATIVE CLAIM" means all or that portion of any
Administrative Claim which (a) has been allowed by a Final Order, (b) was
incurred by the Debtors in the ordinary course of business during the Bankruptcy
Cases and its amount is not disputed by the Debtors, or (c) relates to any
payment for
-1-
<PAGE>
retiree benefits required to be made before the Plan is confirmed pursuant to
section 1114(e)(2) of the Bankruptcy Code.
"ALLOWED CLAIM" means that portion of any Claim, other than an
Administrative Claim or a Disputed Claim, (a) as to which, on or prior to the
Bar Date, (i) no proof of claim has been filed with the Court and the liquidated
and non-contingent amount of which is scheduled by the Debtors pursuant to the
Bankruptcy Code as undisputed or (ii) a proof of claim has been filed in a
liquidated amount with the Court and (b) no objection to the allowance of such
Claim or motion to expunge or limit recovery of such Claim has been filed prior
to the deadline for filing such objections set forth in Section 9.04 of the Plan
or if such objection or motion has been filed, such objection or motion has been
overruled by a Final Order, or such Claim has been otherwise allowed by a Final
Order.
"ALLOWED EQUITY INTEREST" means that portion of any Equity Interest,
other than a Disputed Equity Interest, of record held prior to the Effective
Date, as of which (a) no objection to the allowance of such Equity Interest or
motion to expunge or limit recovery of such Equity Interest has been filed prior
to the deadline for filing such objection set forth in Section 9.04 of the Plan
or (b) if such objection or motion has been filed, such objection or motion has
been overruled by a Final Order, or such Equity Interest has been otherwise
allowed by a Final Order.
"ASSUMPTION AGREEMENTS" means those certain standard form Assumption
Agreements which will be executed, if not already executed, by New Entertainment
on the Effective Date and pursuant to which New Entertainment will assume the
obligations of producers for residual payments due SAG which result solely from
New Entertainment's exploitation of those films listed on Exhibit "1" after the
Effective Date.
"BANKRUPTCY CASES" means the Chapter 11 cases commenced by the Debtors
in the Court on December 1, 1995.
"BANKRUPTCY CODE" means Title 11 of the United States Code, 11 U.S.C.
(S) 101 et seq., as amended.
-- ---
"BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure, as
amended, promulgated under 28 U.S.C. (S) 2075 and the local rules of practice
and procedure of the Court, as applicable from time to time to the Bankruptcy
Case.
"BAR DATE" means June 7, 1996, the date set by the Court as the last
date for filing proofs of Claims against and Equity Interests in the Debtors.
"BUSINESS DAY" means any day except Saturday, Sunday or any other day
on which commercial banks in Los Angeles, California are authorized by law to be
closed for business.
-2-
<PAGE>
"CLAIM" means a claim against any of the Debtors, whether or not
asserted, as defined in section 101(5) of the Bankruptcy Code.
"CLASS" means a category of holders of Claims or Interests as
classified in Article III of the Plan pursuant to section 1123(a)(1) of the
Bankruptcy Code.
"COMMITTEE" means the Official Committee of Unsecured Creditors
appointed in these chapter 11 cases by the Office of the United States Trustee
pursuant to section 1102 of the Bankruptcy Code.
"CONFIRMATION DATE" means the date the Confirmation Order is entered
by the Court.
"CONFIRMATION ORDER" means the Order of the Court confirming the Plan
pursuant to section 1129 of the Bankruptcy Code.
"COURT" means the United States Bankruptcy Court for the Central
District of California, or such other court that exercises jurisdiction over the
Bankruptcy Case, including the United States District Court for the Central
District of California to the extent reference of the Bankruptcy Case is
withdrawn.
"CREDIT AGREEMENT" means that certain Revolving Credit Loan and
Security Agreement entered into between Entertainment, Pictures and Pictures
International and Imperial, dated as of February 24, 1995, and the other
documents, including collateral documents, executed in connection therewith.
"DEBTORS" means Entertainment, Pictures, and Pictures International.
"DEBENTURES" means the Convertible Senior Subordinated Debentures due
December 1, 1999 issued by Entertainment pursuant to the Indenture.
"DISBURSING AGENT" shall mean New Entertainment or any other entity
designated by New Entertainment.
"DISCLOSURE STATEMENT" means the Amended Disclosure Statement to
Accompany Debtors' Second Amended Joint Plan of Reorganization Dated October 25,
1996.
"DISPUTED CLAIM" or "DISPUTED EQUITY INTEREST" means any Claim or
Equity Interest against the Debtors which the Debtors, or any other party in
interest, have filed an objection to the allowance of such Claim or Equity
Interest or a motion to expunge or limit the recovery of such Claim or Equity
Interest and which objection or motion has not been withdrawn or overruled by a
Final Order.
-3-
<PAGE>
"EFFECTIVE DATE" means a date selected by the Debtors after all the
conditions set forth in Article VII are satisfied and which shall be no more
than ten (10) Business Days following the Confirmation Date.
"ENTERTAINMENT" means Prism Entertainment Corporation, a Delaware
corporation.
"EQUITY INTEREST" means any equity security as defined in section
101(16) of the Bankruptcy Code, including but not limited to any rights
associated therewith, and any Claims arising from or relating to such Equity
Interest, including but not limited to Claims for recession.
"ESTATE" means the estates of the Debtors created by section 541 of
the Bankruptcy Code upon the commencement of the Bankruptcy Case.
"EXCESS CASH AMOUNT" means an amount equal to the difference between
(i) the cash on deposit in the Master Collection Account on the Effective Date
and (ii) the sum of (a) $785,000, (b) the cash needed on the Effective Date by
the New Entertainment to pay all Allowed Administrative Claims, Allowed Class 1
and Class 2 Claims and any other sums required to be paid on the Effective Date,
(c) the cash needed to make cure payments with respect to assumed executory
contracts and (d) the amount of cash retained by the New Entertainment pursuant
to Section 6.01(d) of the Plan.
"EXISTING ENTERTAINMENT STOCK" means the common stock of Entertainment
issued and outstanding prior to the Effective Date, and any rights incident
thereto.
"EXISTING PICTURES STOCK" means the common stock of Pictures issued
and outstanding prior to the Effective Date, and any rights incident thereto.
"EXISTING PICTURES INTERNATIONAL STOCK" means the common stock of
Pictures International issued and outstanding prior to the Effective Date, and
any rights incident thereto.
"FILM LIBRARY" means each motion picture in which the Debtors' have
any ownership interest or which the Debtors' have the right to distribute or
exploit, both as of the Confirmation Date, and as more particularly described in
the Loan Documents.
"FINAL ORDER" means an order or judgment entered by the Court or any
other court exercising jurisdiction over the subject matter and the parties (i)
that has not been reversed, stayed, modified or amended, (ii) as to which no
appeal, certiorari proceeding, reargument, or other review or rehearing has been
requested or is still pending, and (iii) as to which the time for filing a
notice of appeal or petition for certiorari shall have expired.
-4-
<PAGE>
"FOX LORBER RECEIVABLES" means all remaining payments due to
Entertainment as of the Effective Date from Fox Lorber Associates, Inc. pursuant
to that certain Promissory Note dated July 15, 1994, in the original principal
amount of $340,000.
"GUILD CLAIMS" means all the Claims, whether Secured, Administrative,
Priority or Unsecured, of SAG against any of the Debtors.
"IMPERIAL" means Imperial Bank.
"IMPERIAL NOTE" has the meaning assigned to it in Article V, Section
5.01 of the Plan.
"INDENTURE" means that certain Indenture, dated as of December 1,
1989, between Entertainment and National City Bank, as trustee, pursuant to
which the Debentures were issued.
"INGRAM" means Ingram Entertainment, Inc.
"INGRAM WARRANTS" means the warrants given to Ingram to purchase up to
600,000 shares of New Entertainment Common Stock.
"LITIGATION CLAIMS" means all Claims against the Debtors asserted
under lawsuits or complaints which were pending as of the commencement of the
Bankruptcy Case in state or federal court.
"LOAN DOCUMENTS" has the meaning assigned to it in Article V, Section
5.01 of the Plan.
"MANAGEMENT BONUS PLAN" means that certain management bonus plan for
existing officers and/or directors of the Debtors which will include 175,000
shares of New Entertainment Common Stock and which will be subject to options
distributed on the Effective Date to such individuals for efforts in
successfully negotiating and consummating the Merger and reorganizing the
Debtors pursuant to a confirmed plan.
"MASTER COLLECTION ACCOUNT" means that certain deposit account
maintained at Imperial which was established, and cash deposited into, pursuant
to the terms and conditions of the Debtors' stipulated orders regarding the use
of cash collateral.
"MERGER" means the merger of VCI with and into Entertainment which is
to close on or prior to the Effective Date and which will result in former
shareholders of VCI owning approximately 51% of New Entertainment.
"MERGER DOCUMENTS" means the Agreement and Plan of Reorganization and
Merger dated as of October __, 1996, and the other documents executed in
connection therewith.
"NEW ENTERTAINMENT" means Entertainment on and after the Effective
Date.
-5-
<PAGE>
"NEW ENTERTAINMENT COMMON STOCK" means the common stock of New
Entertainment to be issued and distributed pursuant to the Plan.
"NON-DISTURBANCE AGREEMENTS" means those certain Non-Disturbance
Agreements, in form and substance satisfactory to New Entertainment, to be
executed by SAG on the Effective Date and pursuant to which SAG agrees that in
the event SAG forecloses on any of the Existing SAG-Covered Pictures (whether or
not owned by New Entertainment) which New Entertainment distributes or licenses,
that such foreclosure shall not interfere or affect New Entertainment's rights
and interests in such film and New Entertainment's ability to continue to
exploit and collect revenue with respect to such film. SAG's obligations under
any Non-Disturbance Agreement shall not apply if and to the extent that New
Entertainment is in default on any post-Effective Date obligation under any
Assumption Agreement applicable to the film covered by such Non-Disturbance
Agreement.
"PETITION DATE" means December 1, 1995.
"PLAN" means this joint plan of reorganization, together with any
exhibits or schedules attached hereto, as they may be amended, modified or
supplemented by the Debtors from time to time in accordance with the provisions
set forth herein, in the Bankruptcy Code and in the Bankruptcy Rules.
"PICTURES" means Prism Pictures Corporation, a Delaware corporation.
"PICTURES INTERNATIONAL" means Prism Pictures International, Ltd., a
California corporation.
"PRIORITY CLAIM" means a Claim against any of the Debtors for an
amount entitled to priority under section 507(a) of the Bankruptcy Code, other
than an Administrative Claim or a Tax Claim.
"SAG" means the Screen Actors Guild, Inc.
"SECURED CLAIM" means any Claim against any of the Debtors of a
creditor secured by a valid, perfected and enforceable lien on any property of
the Estates, but only to the extent such Claim constitutes a secured claim under
section 506 or 1111(b) of the Bankruptcy Code.
"TAX CLAIM" means a Claim against any of the Debtors for an amount
entitled to priority under section 507(a)(8) of the Bankruptcy Code.
"UNSECURED CLAIM" means a Claim against the Debtors that is not an
Administrative Claim, Priority Claim, or Secured Claim.
-6-
<PAGE>
"VCI" means Lee Video City, Inc., a California corporation.
ARTICLE II
TREATMENT OF UNCLASSIFIED CLAIMS
--------------------------------
2.01 ADMINISTRATIVE CLAIMS. (a) Unless otherwise agreed to by the
---------------------
parties or ordered by the Court, each holder of an Allowed Administrative Claim
shall receive cash equal to the unpaid portion of such Allowed Administrative
Claim on the later of (i) the Effective Date, and (ii) the date on which such
Claim becomes an Allowed Administrative Claim.
(b) On the Effective Date, New Entertainment shall withhold cash in an
amount sufficient to pay all Administrative Claims not paid on the Effective
Date, including the fees of professionals retained by the Debtors and the
Committee, to the extent such Claims become Allowed Administrative Claims.
(c) All applications for final compensation of professional persons
for services rendered and for reimbursement of expenses incurred before the
Effective Date (including, without limitation, any compensation requested by any
professional or other entity for making a substantial contribution to the
Bankruptcy Cases) and all other requests for payment of Administrative Claims
incurred before the Effective Date under sections 507(a)(1) or 507(b) of the
Bankruptcy Code (except only for Claims for trade debt incurred in the ordinary
course of business and Claims under 28 U.S.C. (S) 1930) shall be filed no later
than sixty (60) days after the Effective Date. Any such Claim not filed within
----- ----
this deadline shall be forever barred; and holders of Administrative Claims who
are required to file a request for payment of such Claims and who do not file
such requests by the applicable bar date shall be forever barred from asserting
such Claims against the Estate or its property.
(d) All Administrative Claims that represent liabilities incurred by
the Debtors in the ordinary course of their business after the Petition Date
shall be paid in the ordinary course of business and in accordance with any
terms and conditions of any agreements relating thereto.
(e) The Debtors have entered into Court approved agreements with
certain producers of films in the Debtors' film library which contain provisions
providing such producers with Allowed Administrative Claims. Pursuant to the
terms of such agreements, the Debtors were given the option of paying these
particular claims as soon as reasonably possible but in no event later than one
year after the Effective Date. The Debtors have not made a determination as to
when these claims will be paid, however, Confirmation of the Plan shall not
affect the payment provisions of the agreements.
-7-
<PAGE>
2.02 TAX CLAIMS. On the Effective Date, each holder of a Tax Claim
----------
that has not been paid prior to the Confirmation Date shall receive deferred
cash payments over a period not exceeding six (6) years from the date of
assessment of such Tax Claim, in an aggregate amount equal to the Allowed amount
of such Tax Claim, plus simple interest at the nondefault statutory rate on the
unpaid portion. Payments shall be made in equal quarterly installments, plus
accrued interest, commencing with the later of (i) the first Business Day
following the end of the first full fiscal quarter of New Entertainment
following the Effective Date, (ii) the first Business Day following the end of
the first full fiscal quarter of New Entertainment following the date on which
such Tax Claim becomes an Allowed Claim and (iii) such other time or times as
may be agreed to in writing between New Entertainment and the holders of such
Allowed Tax Claim. Payments shall be without penalty of any kind. New
Entertainment reserves the right to pay or to prepay any Allowed Tax Claim, or
any portion thereof, in full, at any time and from time to time on or after the
Effective Date, without any premium or penalty. Holders of Tax Claims shall not
be entitled to receive any payment on account of interest that accrues after the
Petition Date on, or penalties with respect to or arising in connection with,
such Tax Claims, except as provided above after the Effective Date or as allowed
by the Court. Any such Claim for interest or penalty shall be discharged by the
Confirmation Order and Section 1141(d) of the Bankruptcy Code.
2.03 INTERCOMPANY CLAIMS. Any Claims of one Debtor against any other
-------------------
Debtor shall be eliminated for all purposes and such Claims shall not be
considered Allowed Claims under the Plan for any purpose.
2.04 JOINT LIABILITY DUPLICATE CLAIMS (INCLUDING GUARANTEE CLAIMS).
-------------------------------------------------------------
Any creditor that asserts Claims against two or more Debtors based on their
joint liability (including any creditor who asserts Claims against one Debtor as
primary obligor and against another Debtor based on such Debtor's guarantee of
the primary obligation), will hold only one such Claim; and any duplicate claims
against any other Debtor based on that other Debtor's joint liability will be
disallowed.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
--------------------------------------
3.01 CLASS 1 - PRIORITY CLAIMS. Class 1 consists of all Priority
-------------------------
Claims.
3.02 CLASS 2 - SECURED CLAIMS. Class 2 consists of all Secured
------------------------
Claims, other than the Secured Claims of Imperial.
3.03 CLASS 3 - IMPERIAL CLAIMS. Class 3 consists of all Secured
-------------------------
Claims of Imperial arising under or in connection with the Credit Agreement.
-8-
<PAGE>
3.04 CLASS 4 - UNSECURED CLAIMS. Class 4 consists of all Allowed
--------------------------
Unsecured Claims of creditors (as such term is defined in section 101(10) of the
Bankruptcy Code) against the Debtors, however arising, and not included in any
other class in the Plan or otherwise provided for in the Plan, including,
without limitation, all Allowed Claims of trade creditors, all Allowed
Litigation Claims, all Allowed Claims of holders of the Debentures and all
Allowed Claims arising from the rejection of executory contracts or unexpired
leases to which any Debtor is a party.
3.05 CLASS 5 - GUILD CLAIMS. Class 5 consists of all Guild Claims.
----------------------
3.06 CLASS 6 - COMMON STOCK. Class 6 consists of the following
----------------------
subclasses:
CLASS 6A: All Equity Interests and rights related thereto consisting
--------
of, arising under, or relating to the Existing Entertainment Stock.
CLASS 6B: All Equity Interests and rights related thereto
--------
consisting of, arising under, or relating to the Existing Pictures Stock.
Entertainment owns 100% of the stock of Pictures.
CLASS 6C: All Equity Interests and rights related thereto consisting
--------
of, arising under, or relating to the Existing Pictures International Stock.
Entertainment owns 100% of the stock of Pictures International.
ARTICLE IV
TREATMENT OF UNIMPAIRED CLAIMS
------------------------------
4.01 CLASS 1 - PRIORITY CLAIMS. Class 1 Claims are not impaired.
-------------------------
Unless otherwise agreed to by the parties, each holder of an Allowed Class 1
Claim shall be paid the allowed amount of such Claim in full in cash on the
later of (a) the Effective Date and (b) the date such Claim becomes an Allowed
Claim.
4.02 CLASS 2 - SECURED CLAIMS. Class 2 Claims are not impaired.
------------------------
Unless otherwise agreed to by the parties, either
(a) the legal, equitable and contractual rights of each holder of an Allowed
Claim in Class 2 shall be unaltered by the Plan, or (b) at the option of the
Debtors, any Allowed Claim in Class 2 shall be treated in any other manner that
will result in such Allowed Claim being deemed unimpaired under section 1124 of
the Bankruptcy Code.
-9-
<PAGE>
ARTICLE V
TREATMENT OF IMPAIRED CLAIMS
----------------------------
5.01 CLASS 3 - IMPERIAL CLAIMS. Class 3 Claims are impaired under
-------------------------
the Plan. Imperial shall receive the following treatment in full and complete
satisfaction and discharge of all its Claims under or in connection with the
Credit Agreement:
(a) Imperial's Secured Claim shall be allowed in the principal amount
of approximately $2,975,000.00, computed as of November 1, 1996, excluding
any fees, costs or charges incurred by Imperial. Imperial's Secured Claim
shall be recalculated on the Effective Date to add interest accruing and
unpaid after November 1, 1996, if any, and to subtract any principal
payments made to Imperial on or after November 1, 1996. Imperial's Allowed
Secured Claim under this Plan shall be calculated using the nondefault
interest rate of prime + 1 1/2 percent. Imperial's Allowed Secured Claim
shall also include all fees, costs and charges incurred by it, unless
disallowed under section 506(b) of the Bankruptcy Code. All disbursements
to Imperial during the Bankruptcy Cases shall upon the Effective Date be
validated and deemed properly applied by Imperial and such disbursements
shall be indefeasible and not subject to any recovery by the Debtors or by
any third party claiming rights in or to the property of the Debtors;
(b) On the Effective Date, Imperial shall receive a cash distribution
equal to the Excess Cash Amount;
(c) On the Effective Date, the Credit Agreement shall be amended and
restated to reflect the treatment hereunder, and New Entertainment shall
execute a Restructured Note (the "Imperial Note") and related loan and
security agreements (the "Loan Documents") which contain normal and
customary commercial terms, and which are in a form and substance
reasonably acceptable to New Entertainment, Imperial, and their respective
counsel. The Imperial Note shall be in the amount of Imperial's Allowed
Secured Claim, after taking into account the payment referred to in
paragraph (b) above. The Loan Documents shall include the following
covenants:
i) Financial Performance Covenants to include: $100,000.00
minimum profit on a quarterly basis (pre-tax); and $750,000.00 minimum
profit for each fiscal year (pre-tax and before reduction for any
accelerated right downs of library value, or extraordinary reductions
relating to amortization of existing video cassette inventory).
ii) Affirmative Covenants to include: Minimum quarterly
receivable collections as follows:
1997 First Quarter - $400,000.00;
1997 Second Quarter - $400,000.00;
1997 Third Quarter - $800,000.00;
1997 Fourth Quarter - $ 75,000.00;
-10-
<PAGE>
1998 First Quarter - $160,000.00;
1998 Second Quarter - $200,000.00.
Imperial's share of the producer's fee for "When the Bough Breaks II" shall
not be counted against the minimum collections required above. Any
collections during a quarter which are in excess of the minimum amount
required above shall be credited against the minimum amount required for
the next quarter. New Entertainment shall have a sixty (60) day cure
period for any quarter in which it fails to satisfy the minimum required
collections.
iii) Reporting Covenants to include:
a. Internally prepared financial statements will be provided
within fifty-one (51) days of end of quarter.
b. Audited fiscal year statements to be provided within 105
days of year-end.
c. Monthly operating statements comparing actual versus
projections, to include variances, to be provided within thirty (30) days
of each month end;
(d) Payments under the Imperial Note shall be secured, pursuant
to the Loan Documents, by a continuing fully perfected first priority lien
on the Debtors' Film Library and all receivables related to the Film
Library, as owned by New Entertainment after the Merger. In addition,
Imperial shall receive a security interest in the videocassette inventory
of New Entertainment junior only to the security interest of Ingram;
(e) Imperial shall be entitled to receive after the Effective
Date, as principal pay downs on the outstanding indebtedness due under the
Imperial Note, net collections (as defined below) of all receivables
related to the Film Library. As to receivables arising from or related to
any distribution or similar agreement in existence on the Effective Date,
net collections shall mean the gross amount collected less only third party
participations or royalty claims. Imperial's receivables in existence as
of the Effective Date shall include fifty percent (50%) of the gross amount
of the producer's fee to be collected for the film "When the Bough Breaks
II" and 100% of the Fox Lorber Receivables. As to receivables arising from
or related to any distribution or similar agreement after the Effective
Date, net collections shall mean the gross amount collected less only third
party participations or royalties, sales commissions, and residuals. Up
through the end of June 1998, all collections of receivables shall be
applied to principal. Monthly interest through June 30, 1998 shall be paid
from sources other than collection of receivables. The principal amount
remaining on the Imperial Note as of July 1, 1998, shall be amortized over
twelve (12) equal monthly
-11-
<PAGE>
payments commencing on August 1, 1998. All collections of receivables after
July 1, 1998, shall be credited and applied to the next monthly payment of
principal and interest then due;
(f) Any indebtedness owing to Imperial under the Imperial Note
shall continue to accrue interest at prime plus three percent (3%)
(floating) and such interest shall continue to be paid monthly by New
Entertainment until such time as the indebtedness is paid in full; and
(g) Imperial's consent to the treatment of its Allowed Secured
Claim as set forth herein is conditioned upon the full and timely
satisfaction of each of the following, any of which may be waived or
modified only with the written consent of Imperial: (i) the Effective Date
of the Plan shall be no later than January 30, 1997; and (ii) the Debtors
shall have filed with the Court on or before the Confirmation Date the
proposed form of the Imperial Note and material Loan Documents, which have
been approved by Imperial, and which will be in form and substance
substantially similar to those executed and delivered on the Effective
Date; provided, that the Debtors shall have not failed to meet this
--------
condition if such failure is the result of delay or unreasonableness on
behalf of Imperial."
5.02 CLASS 4 - UNSECURED CLAIMS. Class 4 Claims are impaired under
--------------------------
the Plan. Each holder of an Allowed Claim in Class 4 will receive, in complete
satisfaction and discharge of all its Claims, its pro rata share of 2,352,750
--- ----
shares of New Entertainment Common Stock, representing approximately twenty-
three and one-half percent (23.5%) of the New Entertainment Common Stock to be
issued on the Effective Date.
5.03 CLASS 5 - GUILD CLAIMS. Class 5 Claims are impaired under the
----------------------
Plan. SAG shall receive, in complete satisfaction and discharge of all its
Claims against Debtors, but without prejudice to residual claims against
producers or other entities, as applicable, the following treatment:
(i) On the Effective Date, SAG shall receive a cash distribution equal to
$25,000 in satisfaction of an Allowed Administrative Claim in that
amount;
(ii) At the time the Interim Distribution (as such term is defined in
Section 8.04 hereof) is made, SAG shall receive 200,000 shares of New
Entertainment Common Stock;
(iii) On the Effective Date, New Entertainment shall execute an Assumption
Agreement for each film listed on Exhibit "1" attached hereto (the
"Existing SAG-Covered Pictures"), and New Entertainment shall also
agree not to sell the film library to any party unless such party
agrees to assume New Entertainment's obligations under all applicable
Assumption Agreements with respect
-12-
<PAGE>
to Existing SAG-Covered Pictures within the film rights purchased.
Concurrently with the execution of the Assumption Agreements, SAG
shall execute a Non-Disturbance Agreement for each film of the
existing SAG-Covered Pictures, which will provide that so long as
post-confirmation residual obligations pursuant to the Assumption
Agreements are not in default, SAG will not foreclose upon or
otherwise interfere with any of New Entertainment's rights in each of
the Existing SAG-Covered Pictures (or the rights of any other party
who acquires any of New Entertainment's films or film rights and
assumes New Entertainment's obligations under an Assumption
Agreement); SAG shall not attempt to enforce any security interest in
any film in which the Debtors or New Entertainment have any interest
as of the Effective Date without first giving the Debtors or New
Entertainment an opportunity to execute an Assumption Agreement with
regard to such film and, if such an Assumption Agreement is executed,
SAG will execute a Non-disturbance Agreement with regard to such
film;
(iv) All security interests and liens asserted by SAG will be left
unimpaired by the confirmation of the Plan. Debtors and New
Entertainment shall retain and reserve all rights to challenge and
contest such security interests and liens and SAG retains and
reserves all of its rights with regard to the enforcement of its
secured rights and remedies against third parties, and against
Debtors and New Entertainment in the event of a default in the
Assumption Agreements; and
(v) As between New Entertainment and SAG, the parties agree that with
respect to all revenues received by New Entertainment which are
generated by New Entertainment's exploitation of the Existing SAG-
Covered Pictures after the Effective Date, no portion of any such
revenues will be attributable by New Entertainment to theatrical
distribution.
5.04 CLASS 6A - HOLDERS OF EXISTING ENTERTAINMENT STOCK. Class 6A
--------------------------------------------------
Interests are impaired under the Plan. Each holder of an Allowed Class 6A Equity
Interest will receive, in complete satisfaction and discharge of its Equity
Interest, for each share of Existing Entertainment Stock, a pro rata share of
--- ----
693,500 shares of New Entertainment Common Stock, representing approximately
seven percent (7%) of the New Entertainment Common Stock to be issued on the
Effective Date.
5.05 CLASS 6B - HOLDER OF EXISTING PICTURES STOCK. Class 5B Equity
--------------------------------------------
Interests are impaired under the Plan. On or
-13-
<PAGE>
prior to the Effective Date, Pictures will be merged with and into Entertainment
and will cease to exist as a separate corporate entity. The shares of Existing
Pictures Stock will be canceled.
5.06 CLASS 6C - HOLDER OF EXISTING PICTURES INTERNATIONAL STOCK.
----------------------------------------------------------
Class 6C Equity Interests are unimpaired under the Plan. On or prior to the
Effective Date, Pictures International will be merged with and into
Entertainment and will cease to exist as a separate corporate entity. The
shares of existing Pictures International Stock will be canceled.
ARTICLE VI
MEANS OF IMPLEMENTATION OF THE PLAN
-----------------------------------
6.01 ACTIONS ON OR PRIOR TO THE EFFECTIVE DATE. On or prior to the
-----------------------------------------
Effective Date and in accordance with the terms of the Plan, the following shall
occur:
(a) Prior to the Merger, each of Pictures and Pictures
International shall have been merged into Entertainment.
(b) Entertainment shall be authorized to execute and deliver the
Merger Documents and to file the necessary documents with the Delaware
Secretary of State's Office to effectuate the Merger.
(c) On the Effective Date, New Entertainment shall make the
payments required by the Plan to the holders of Allowed Administrative
Claims, Class 1 and Class 2 Claims and to SAG;
(d) New Entertainment shall retain an amount of cash sufficient
to pay any Administrative Claims that become Allowed Administrative Claims
after the Effective Date, or are payable after the Effective Date, to pay
any Disputed Administrative, Tax, Class 1 or Class 2 Claims to the extent
such Claims become Allowed Claims and to make any cure payments with
respect to assumed executory contracts; provided that any funds which
remain after the payment in full of such Allowed Claims and any such cure
payments shall be distributed to Imperial as a principal pay down on the
Imperial Note.
(e) New Entertainment shall cause to be issued and deposited with
the stock transfer agent 3,246,250 shares of New Entertainment Common Stock
for distribution to the holders of Allowed Class 4 Claims, Allowed Class 5
Claims and Allowed Class 6A Equity Interests and shall be authorized,
without further corporate action, to issue (i) 5,078,750 shares to VCI
shareholders as part of the Merger consideration, (ii) 1,500,000 share to
Ingram, and (iii)
-14-
<PAGE>
such additional shares as are necessary for the Management Bonus Plan and
the Ingram Warrants.
(f) New Entertainment shall execute the Imperial Note, the
Imperial Security Documents and the Assumption Agreements.
6.02 AMENDMENTS TO CERTIFICATES OF INCORPORATION. New Entertainment
-------------------------------------------
shall amend its charter in conformance with applicable state law, including
section 303 of the Delaware General Corporation Law, and pursuant to section
1123(a)(5)(l) of the Bankruptcy Code to effectuate the terms of the Plan. The
amended charter or by-laws for New Entertainment shall provide for, among other
things, (i) the authorization and issuance of the necessary shares for
distribution pursuant to the Plan, (ii) the issuance of the Ingram Warrants and
(iii) a prohibition against the issuance of non-voting equity securities to the
extent required by the section 1123(a)(6) of the Bankruptcy Code. The amended
charter and bylaws will become effective upon the occurrence of the Effective
Date and the filing of the amended charters with the applicable Secretary of
State's office.
6.03 CANCELLATION OF DEBENTURES AND EXISTING ENTERTAINMENT STOCK. On
-----------------------------------------------------------
the Effective Date, (a) all Debentures shall be terminated and canceled, and the
Indenture shall be rendered void, and (b) all shares of the Existing
Entertainment Stock and any unexercised warrants or options to purchase any
shares of Existing Entertainment Stock shall be canceled.
6.04 FUNDING OF THE PLAN. Funds to make the cash payments required
-------------------
under the Plan shall be provided from the funds existing in the Debtors' Estates
from whatever source and which are existing in the Debtors' respective Debtor in
Possession bank accounts maintained at Imperial and in the Master Collection
Account.
6.05 CLOSING OF REGISTER FOR DEBENTURES AND EXISTING ENTERTAINMENT
-------------------------------------------------------------
STOCK. At the close of business on the second Business Day immediately
- -----
preceding the Effective Date, the security register for the Debentures and
Existing Entertainment Stock shall be closed, and thereafter there shall be no
further registrations of transfer or other changes in holders on the books of
the trustee under the Indenture, the stock transfer agent, or Entertainment, and
New Entertainment shall have no obligation to recognize any transfer of the
Debentures or Existing Entertainment Stock occurring thereafter (but shall be
entitled instead to recognize and deal with, for all purposes under the Plan,
except as otherwise provided herein, those holders reflected on the security
register immediately prior to the Effective Date).
6.06 CRAMDOWN. Notwithstanding anything to the contrary contained
--------
herein, the Debtors reserve the right to seek confirmation of the Plan pursuant
to section 1129(b) of the
-15-
<PAGE>
Bankruptcy Code in the event any impaired Class of Claims or Equity Interests
does not vote to accept the Plan.
6.07 MANAGEMENT. (a) On the Effective Date, the operation of New
----------
Entertainment shall become the general responsibility of its board of directors
which shall have the responsibility for the management, control and operation of
New Entertainment. The number of directors of New Entertainment shall be eight
(8) and their names shall be disclosed, if different from those disclosed in the
Disclosure Statement, at or prior to the hearing on confirmation of the Plan.
The initial officers of New Entertainment shall consist of the individuals who
are also disclosed in the Disclosure Statement. All such directors and officers
shall be deemed elected and authorized to assume their positions, effective on
the Effective Date, pursuant to the Confirmation Order, and shall continue to
serve in such capacities thereafter pending further action of the board of
directors or stockholders of the New Entertainment in accordance with applicable
state law and New Entertainment's bylaws and charter.
(b) Pursuant to the negotiated agreement between the Committee and the
Debtors, the Committee will be entitled to appoint a representative of the
Committee to attend all board meetings, including any sub-committee meetings of
the board. The representative will be an observer and will have no vote at any
of the meetings. The representative will report to the Post-Confirmation
Committee and will serve until the first election of directors.
6.08 EXEMPTION FROM REGISTRATION UNDER SECTION 1145 OF THE BANKRUPTCY
----------------------------------------------------------------
CODE. The shares of New Entertainment Common Stock issued pursuant to the Plan
- ----
to holders of Allowed Claims and Allowed Equity Interests shall be issued
pursuant to the exemption contained in section 1145 of the Bankruptcy Code from
the requirements of section 5 of the Securities Act of 1933, and any other
applicable federal, state or local law requiring registration.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
7.01 CONDITIONS TO THE OCCURRENCE OF THE EFFECTIVE DATE. It is a
--------------------------------------------------
condition to the occurrence of the Effective Date that the following shall have
occurred on or prior to the Effective Date:
(a) the Merger shall have occurred and the Merger Documents
executed and delivered by the parties thereto;
(b) the Confirmation Order, in form and substance satisfactory to
the Debtors, shall have been entered and shall have become a Final Order.
-16-
<PAGE>
7.02 WAIVER OF CONDITIONS. The Debtors may waive, with the consent
--------------------
of the Committee, any condition set forth in this Article VII at any time,
without notice, without leave of or order of the Court, and without any formal
action other than proceeding to consummate the Plan.
ARTICLE VIII
DISTRIBUTIONS UNDER THE PLAN
----------------------------
8.01 DISBURSING AGENT. New Entertainment may serve as or designate
----------------
an entity or entities to serve as Disbursing Agent, such as a stock transfer
agent for the New Entertainment Common Stock, for all property to be distributed
to or on behalf of the holders of Allowed Claims and Allowed Equity Interests
under the Plan. The Disbursing Agent may employ or contract with other entities
to assist in or perform the distribution of the property to be distributed. The
Disbursing Agent and such other entities may serve without bond. With respect
to any distributions to be made to Allowed Class 4 Claims, any Disbursing Agent
will be selected with the consent of the Committee on such conditions as the
Committee may reasonably require.
8.02 UNDELIVERABLE DISTRIBUTIONS. (a) All distributions under the
---------------------------
Plan to be made by New Entertainment or any Disbursing Agent shall be made, if
in the form of cash, by wire transfer or check mailed by first-class mail
through the United States mail, with postage fully prepaid, or, if in the form
of shares of New Entertainment Common Stock, by mailing such shares by first-
class mail through the United States mail, with postage fully prepaid.
Distributions are deemed made under the Plan on the date of the wire transfer or
upon mailing. Distributions returned by the Post Office or undelivered due to
lack of a current address or for any other reason shall be retained by New
Entertainment or a Disbursing Agent, as the case may be, for a period of one (1)
year following their return unless claimed by the claimant within that time
period upon presentation to New Entertainment or a Disbursing Agent of
satisfactory proof that such holder is entitled to such distribution. The
Disbursing Agent shall consult with the trustee under the Indenture with respect
to any returned distributions mailed to Debenture holders.
(b) After the expiration of one (1) year following the date a
distribution is made, holders of Allowed Claims and Allowed Equity Interests
entitled to returned distributions shall no longer be entitled thereto, and such
Allowed Claims or Allowed Equity Interests shall be deemed disallowed and the
holder thereof shall be forever barred from asserting any such entitlement
against the Disbursing Agent, the Debtors, New Entertainment or their respective
assets and property. Thereafter, any unclaimed distributions shall be (i) in the
case of cash, distributed to New Entertainment and (ii) in the case of shares of
New Entertainment Common Stock, such shares shall be canceled.
-17-
<PAGE>
(c) No provision contained in this Section 8.02 or in the Plan shall
be interpreted to require the Debtors, New Entertainment or any Disbursing
Agent, as the case may be, to attempt to locate any such person.
8.03 DISTRIBUTIONS TO ONLY ALLOWED CLAIMS OF ALLOWED EQUITY
------------------------------------------------------
INTERESTS. Notwithstanding any other provision of the Plan, no payments or
- ---------
distributions of New Entertainment Common Share shall be made to any holder of a
Claim or Equity Interest unless and until such Claim or Equity Interest becomes
an Allowed Claim or Allowed Equity Interest.
8.04 DISTRIBUTIONS. (a) As soon as is practicable after the
-------------
Effective Date, but in no event more than thirty days after the Effective Date,
an interim distribution (the "Interim Distribution") shall be made to the
holders of Allowed Class 4 Claim and Allowed Class 6A Equity Interests pursuant
to the terms of this Plan. An appropriate reserve shall be maintained for the
Disputed Claims and Disputed Class 6A Equity Interests (collectively, the
"Reserves").
(b) The final distribution ("Final Distribution") of the shares held
in the Reserves shall be made on the date on which all objections to Claims and
all objections to Equity Interests, respectively, have been settled, dismissed
or concluded by way of Final Orders. The Final Distribution of the shares held
in the Reserves shall be made pro rata pursuant to the terms of the Plan.
--- ----
8.05 FRACTIONAL SHARES. Notwithstanding any other provision in the
-----------------
Plan, only whole numbers of shares of New Entertainment Common Stock shall be
distributed. Holders of Allowed Claims or Allowed Equity Interests who would be
entitled to fractional shares but for this provision shall receive no
consideration therefor because such amount will be de minimis.
-- -------
ARTICLE IX
EFFECTS OF PLAN CONFIRMATION
----------------------------
9.01 DISCHARGE. Except as otherwise expressly provided in the Plan,
---------
the confirmation of the Plan shall (i) bind all holders of Claims and Equity
Interests, whether or not they accept the Plan, and (ii) discharge and release,
pursuant to section 1141(d)(1) of the Bankruptcy Code, the Debtors effective
immediately from any Claim, Equity Interest or any "debt" (as that term is
defined in section 101(12) of the Bankruptcy Code) that arose or was incurred
before the Confirmation Date, and completely extinguish the Debtors' and New
Entertainment's liability in respect thereof, including, without limitation, any
liability of a kind specified in section 502(g) of the Bankruptcy Code,
regardless of whether: (a) a proof of the Claim or Equity Interest was filed, or
the Equity Interest or Claim was scheduled by the Debtors, (b) the Claim or
Equity Interest is an Allowed Claim or Allowed Equity Interest, as the case may
be, or (c) the
-18-
<PAGE>
holder of such Claim or Equity Interest voted to accept or reject, or abstained
from voting on, the Plan. In addition, except as otherwise provided in the
Plan, confirmation of the Plan pursuant to the Confirmation Order acts as a
discharge and release, effective as of the Confirmation Date, as to each holder
of a Claim or Equity Interest receiving or entitled to receive any distribution
under the Plan in respect of any direct or indirect right, Claim or Equity
Interest such holder had or may have had against or in the Debtors. On and after
the Confirmation Date, as to every discharged Claim and Equity Interest, every
holder of a Claim and Equity Interest shall be precluded from asserting against
the Debtors or the Reorganized Debtors or their respective assets or properties
any further Claim or Equity Interest based on any document or instrument or act,
omission, transaction or other activity of any kind or nature that occurred
prior to the Confirmation Date.
9.02 REVESTING. On the Confirmation Date, except as otherwise
---------
expressly provided in the Plan, New Entertainment will be vested with all of the
property of each Debtor's respective Estates free and clear of all claims,
liens, encumbrances, charges and other Equity Interests of creditors and equity
security holders, and may operate its business free of any restrictions imposed
by the Bankruptcy Code or by the Court, including, without limitation, any
contracts or leases entered into or assumed by the Debtors after the Petition
Date; provided, however, that the New Entertainment shall continue as a debtor
-------- -------
in possession under the Bankruptcy Code until the Effective Date, and,
thereafter, New Entertainment may operate its business and use, acquire or
dispose of property, free of any restrictions imposed by the Bankruptcy Code and
without the approval or supervision of the Court. New Entertainment may pay,
without application to the Bankruptcy Court, the fees and charges that it
(rather than the Debtors) incurs on or after the Effective Date for
professionals' fees and expenses.
9.03 RETENTION OF CAUSES OF ACTION/RESERVATION OF RIGHTS. (a)
---------------------------------------------------
Nothing contained in the Plan or the Confirmation Order shall be deemed to be a
waiver or relinquishment of any rights or causes of action that the Debtors or
New Entertainment may have currently or which the New Entertainment may choose
to assert on behalf of the Estates under any provision of the Bankruptcy Code or
any similar applicable non-bankruptcy law, including, without limitation, (i)
the avoidance of any transfer by or obligation of the Debtors or (ii) the
turnover of any property to the Estates, all of which are expressly reserved by
the Plan.
(b) Nothing contained in the Plan or the Confirmation Order shall be
deemed to be a waiver or relinquishment of any claim, cause of action, right of
setoff, or other legal or equitable defense which the Debtors had immediately
prior to the Petition Date, against or with respect to any Claim left unaltered
or unimpaired by the Plan. New Entertainment shall have, retain, reserve and be
entitled to assert all such claims, causes of action, rights of setoff and other
legal or equitable
-19-
<PAGE>
defenses which it had immediately prior to the Petition Date fully as if the
Chapter 11 case had not been commenced; and all of New Entertainment's legal and
equitable rights respecting any Claim left unaltered or unimpaired by the Plan
may be asserted after the Confirmation Date to the same extent as if the Chapter
11 case had not been commenced.
9.04 OBJECTIONS TO CLAIMS AND EQUITY INTERESTS/DISTRIBUTIONS. (a)
-------------------------------------------------------
The Debtors may object to the allowance of Claims or Equity Interests filed with
the Bankruptcy Court. From and after the Effective Date, New Entertainment, or
any entity chosen by New Entertainment, shall have the exclusive responsibility
for reviewing and objecting to the allowance of Claims and Equity Interests.
Such objections shall be filed with the Court and served on the holders of such
Claims and Equity Interests no later than sixty (60) days after the Effective
Date. All objections shall be litigated to a Final Order; provided, however,
-------- -------
that the Debtors or New Entertainment, as the case may be, may compromise and
settle, with the advice and consent of the Committee, any objections to Claims
or Equity Interests, subject to the approval of the Court, and may seek Court
estimation of Disputed Claims or Disputed Equity Interests pursuant to section
502(c) of the Bankruptcy Code.
(b) At such time as a Disputed Claim or Disputed Equity Interest
becomes an Allowed Claim or Allowed Equity Interest, in whole or in part, the
holder of such Claim or Equity Interest shall receive the property that would
have been distributed to such holder under the Plan if such Allowed Claim or
Allowed Equity Interest was an Allowed Claim or Allowed Equity Interest on the
Effective Date. Such distributions shall be made as soon as practicable after
the date that the order or judgment of the Court allowing such Claim or Equity
Interest becomes a Final Order, but in no event later than sixty (60) days after
the date such order or judgment becomes a Final Order.
9.05 RETENTION OF JURISDICTION. Notwithstanding the entry of the
-------------------------
Confirmation Order or the Effective Date having occurred, the Court will retain
jurisdiction to (a) determine any Disputed Claims or Disputed Equity Interests,
(b) determine requests for payment of Claims entitled to priority under section
507(a)(1) of the Bankruptcy Code, including compensation of and reimbursement of
expenses of parties entitled thereto, (c) resolve controversies and disputes
regarding interpretation and implementation of the Plan, (d) enter orders in aid
of the Plan, including, without limitation, appropriate orders (which may
include contempt or other sanctions) to protect the Debtors and New
Entertainment, (e) modify the Plan pursuant to Section 11.02 of the Plan, (f)
determine any and all applications, adversary proceedings and contested or
litigated matters pending on the Effective Date, (g) allow, disallow, estimate,
liquidate or determine any Claim or Equity Interest and to enter or enforce any
order requiring the filing of any such Claim before a particular date, (h)
determine any and all pending applications for the rejection or disaffirmance of
executory contracts or leases, or for the assignment of assumed executory
-20-
<PAGE>
contracts and leases, and to hear and determine, and if need be to liquidate,
any and all Claims arising therefrom, (i) determine any actions or controversies
arising under the Plan, (j) hear and determine any actions related to avoidance
actions or turnover actions whether or not such actions are pending on the
Confirmation Date, and (k) enter a final decree closing the Reorganization Case.
9.06 POST-CONSUMMATION EFFECT OF EVIDENCES OF CLAIMS OR EQUITY
---------------------------------------------------------
INTERESTS. Debentures, stock certificates and other evidence of Claims against
- ---------
or Equity Interests in the Debtors shall, effective upon the Effective Date,
represent only the right to participate in the distributions contemplated by the
Plan.
9.07 FAILURE OF COURT TO EXERCISE JURISDICTION. If the Court
-----------------------------------------
abstains from exercising or declines to exercise jurisdiction, or is otherwise
without jurisdiction over any matter arising out of the Reorganization Cases,
including the matters set forth in this Article IX, this Article shall not
prohibit or limit the exercise of jurisdiction by any other court having
competent jurisdiction with respect to such matter.
9.08 TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided, all
----------------------------
injunctions or stays provided for in the Reorganization Cases pursuant to
section 105 or 362 of the Bankruptcy Code or otherwise in effect on the
Confirmation Date shall remain in full force and effect until the Effective
Date.
9.09 WAIVER OF SUBORDINATION. The classification of Claims and
-----------------------
Equity Interests and the distributions to be made under the Plan attempt to take
into account the relative priorities of the Claims and Equity Interests in each
Class in connection with any contractual subordination provisions relating
thereto and the distributions to be made pursuant to the Plan shall not be
subject to levy, garnishment, attachment or other legal process by any holder of
a Claim or Equity Interest by reason of claimed contractual subordination
rights. On the Effective Date, all holders of Claims and Equity Interests
receiving property under the Plan or who are in a Class which has accepted or is
deemed to have accepted the Plan shall be deemed to have waived any and all
contractual subordination rights which they might otherwise have with respect to
any distribution to be made pursuant to the Plan and all such holders shall be
permanently enjoined from enforcing, or attempting to enforce, such contractual
subordination rights with respect to any distributions made pursuant to the
Plan.
9.10 EXCULPATION. None of the Debtors, New Entertainment, the
-----------
Committee or any of their respective officers, directors, employees, advisors,
agents, representatives, attorneys or investment advisors shall have or incur
any liability to any person, including any holder of a Claim or Equity Interest,
for any act or omission in connection with, arising out of or related to the
postpetition administration of
-21-
<PAGE>
the Debtors' cases, their solicitation of votes on or their formulation,
implementation or administration of the Plan or the property to be distributed
under the Plan or any document or instrument executed in connection with the
Plan, and, in all respects, shall be entitled to rely upon the advice of counsel
with respect to their duties and responsibilities under the Plan.
ARTICLE X
EXECUTORY CONTRACTS
-------------------
10.01 EXECUTORY CONTRACTS AND UNEXPIRED LEASES. On the Effective
----------------------------------------
Date, and to the extent permitted by applicable law all executory contracts and
unexpired leases of the Debtors will be assumed in accordance with the
provisions of section 365 and section 1123 of the Bankruptcy Code, excluding (a)
any and all executory contracts or unexpired leases which are the subject of
separate motions filed pursuant to section 365 of the Bankruptcy Code by the
Debtors prior to the commencement of the hearing on confirmation of the Plan,
(b) such contracts or leases as are listed on any "Schedule of Rejected
Executory Contracts and Unexpired Leases" (Exhibit "3" hereto), all of which
contracts or leases shall be deemed rejected pursuant to the provisions of
section 365 and section 1123 of the Bankruptcy Code, and (c) any and all
executory contracts or unexpired leases rejected by order of this Court prior to
entry of the Confirmation Order.
10.02 APPROVAL OF ASSUMPTIONS. The Confirmation Order shall
-----------------------
constitute an order of the Bankruptcy Court approving the assumptions,
revestments and, to the extent not subject to dispute as set forth in Section
10.03 hereof, the "cure" amounts described in Section 10.04 and Exhibit "2"
pursuant to section 365 of the Bankruptcy Code effective as of the Effective
Date, except as otherwise provided therein. Exhibit "2" shall be filed with the
Court before the final hearing to determine the adequacy of Disclosure
Statement. Listing a contract or lease on Exhibit "2" is without prejudice to
the right of the Debtors or New Entertainment to contend that such contract or
lease is not an executory contract or unexpired lease and shall not be deemed an
admission by the Debtors that the Debtors are in default under such contract or
lease or that the other party has not breached the contract or lease.
10.03 OBJECTIONS TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
-------------------------------------------------------------
LEASES. (a) If any party has any objection to the Debtors' proposed assumption
- ------
of an executory contract or unexpired lease identified for assumption based on
adequate assurance of future performance or on any ground other than the
adequacy of the "cure" amount set forth in Exhibit "2", any such objection shall
be filed and served with the same deadline and in the same manner established
for filing objections to Confirmation of the Plan.
-22-
<PAGE>
(b) Failure to file an objection within the time period set forth
above shall constitute consent to the assumption and revestment of those
contracts and leases, including an acknowledgment that the proposed assumption
provides adequate assurance of future performance.
(c) If any party files an objection to assumption based upon any
ground other than the adequacy of the "cure" amount set forth in Exhibit "2",
and the Bankruptcy Court ultimately determines that the Debtors cannot assume
the executory contract or lease or that the Debtors cannot provide adequate
assurance of future performance as proposed or in any modified proposal
submitted by the Debtors or New Entertainment, then the unexpired lease or
executory contract shall automatically thereupon be deemed to have been included
on Exhibit "3" and shall be rejected pursuant to Section 10.06 hereof.
10.04 OBJECTIONS TO PROPOSED "CURE" AMOUNTS. If any party to an
-------------------------------------
executory contract or unexpired lease listed on Exhibit "2" (as it may be
modified) asserts arrearages or damages pursuant to section 365(b)(1) of the
Bankruptcy Code that exceeds the amount set forth in Exhibit "2", such party
must file and serve an objection to the proposed cure amount within the same
deadline and in the same manner established for filing objections to
Confirmation of the Plan. Failure to assert arrearages different from the
amount set forth on Exhibit "2" within the time period set forth above shall
constitute consent to the cure amount set forth in Exhibit "2" and an
acknowledgment that the amount identified for "cure" on Exhibit "2" is the
amount necessary to cover any and all outstanding defaults under the respective
executory contract or unexpired lease to be assumed and an acknowledgment that
no other defaults exist under said contract or lease.
To the extent that any objections to the amounts set forth in Exhibit
"2" are timely filed and served and such objections are not resolved between the
Debtors and the objecting parties, the Bankruptcy Court shall resolve such
disputes at a hearing to be held at a date to be determined by the Bankruptcy
Court at the Confirmation Hearing. The resolution of such disputes shall not
affect the Debtors' assumption of the contracts or leases that are subject of
such a dispute, but rather shall affect only the "cure" amount the Debtors must
pay in order to assume such contract or lease. Notwithstanding the prior
sentence, if the Debtors in their sole discretion determine that the amount
asserted to be the necessary "cure" amount would, if ordered by the Bankruptcy
Court, make the assumption of the contract or lease imprudent, then the Debtors
may, prior to or at the Confirmation Hearing, elect to (1) reject the contract
or lease pursuant to Section 10.06 hereof, or (2) request an expedited hearing
on the resolution of the "cure" dispute, exclude assumption or rejection of the
contract or lease from the scope of the Confirmation Order, and retain the right
to reject the contract or lease pursuant to Section 10.06 hereof pending
the outcome of such dispute.
-23-
<PAGE>
10.05 PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND
---------------------------------------------------------
UNEXPIRED LEASES. If not the subject of dispute pursuant to Section 10.04
- ----------------
hereof as of the Confirmation Date, any monetary defaults under each executory
contract and unexpired lease to be assumed under the Plan shall be satisfied by
the Debtors, pursuant to Section 365(b)(1) of the Bankruptcy Code, by payment of
the amount set forth in Exhibit "2" or such other amount as ordered by the
Bankruptcy Court or agreed upon by the Debtors, in cash within sixty (60) days
following the Effective Date or on such other terms as agreed to by the parties
to such executory contract or unexpired lease. In the event of a dispute
pursuant to Section 10.04, payment of the amount otherwise payable hereunder
shall be made following entry of a Final Order or agreement by the Debtors and
the party to the contract or lease.
10.06 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED.
-------------------------------------------------------
Effective as of the Effective Date, the executory contracts and unexpired leases
listed on the Schedule of Rejected Executory Contracts and Unexpired Leases
(Exhibit "3" hereto) which shall be filed with the Court before the final
hearing to determine the adequacy of the Disclosure Statement, shall be
rejected. The Debtors may amend Exhibit "3" at any time prior to ten (10) days
before the final Confirmation Hearing by filing such amendment with the
Bankruptcy Court and serving it on parties directly affected by the amendment.
Listing a contract or lease by category above or on Exhibit "3" shall not
constitute an admission by the Debtors or New Entertainment that such contract
or lease, including related agreements, is an executory contract or unexpired
lease or that the Debtors or New Entertainment has any liability thereunder.
The Confirmation Order shall constitute an order of the Bankruptcy
Court approving such rejections on the Confirmation Date, pursuant to section
365 of the Bankruptcy Code, effective as of the Effective Date. Any party to an
executory contract or unexpired lease identified for rejection as provided
herein may, within the same deadline and in the same manner established for
filing objections to Confirmation of the Plan, file any objection thereto.
Failure to file any such objection within the time period set forth above shall
constitute consent and agreement to the rejection.
10.07 BAR DATE FOR REJECTION DAMAGES. If the rejection of an
------------------------------
executory contract or unexpired lease pursuant to Section 10.06 above gives rise
to a Claim by the other party or parties to such contract or lease, such Claim,
to the extent that it is timely filed, shall be classified in Class 4; provided,
--------
however, that in either event any Claim arising from the rejection shall be
- -------
forever barred and shall not be enforceable against the Debtors, New
Entertainment, their affiliates, their successors, or their respective assets
or properties, unless a proof of claim is filed and served on the Debtors or New
Entertainment within thirty (30) days after the later of (a) the date of the
----------------
entry of the first order of the Bankruptcy Court
-24-
<PAGE>
rejecting the executory contract or unexpired lease, or (b) the Confirmation
Order.
10.08 CONTRACTS ENTERED INTO ON OR AFTER THE PETITION DATE. All
----------------------------------------------------
contracts, leases and other agreements entered into by the Debtors in Possession
on or after the Petition Date, which agreements have not been terminated in
accordance with their terms on or before the Confirmation Date shall revest and
remain in full force and effect and will be performed by New Entertainment in
the ordinary course of business.
ARTICLE XI
MISCELLANEOUS
-------------
11.01 SURRENDER OF INSTRUMENTS. As a condition to participation
------------------------
under the Plan, each holder of a share certificate, note, debenture or other
instrument evidencing a Claim or Equity Interest that desires to receive the
property to be distributed on account of an Allowed Claim or Allowed Equity
Interest based on such share certificate, note, debenture or other instrument
shall surrender such share certificate, note, debenture or other instrument to
New Entertainment, or the Disbursing Agent, and shall execute and deliver such
other documents as are necessary to effectuate the Plan. If such share
certificate, note, debenture or other instrument is not surrendered and the
claimant or Equity Interest holder does not provide an affidavit that such share
certificate, note, debenture or other instrument was lost, and any other
required documents (including indemnification or a bond), all in form and
substance satisfactory to New Entertainment, within one year of the Effective
Date, then no distribution will be made to such claimant or Equity Interest
holder whose Allowed Claim or Allowed Equity Interest, as the case may be, is
based on such share certificate, note, debenture or other instrument. Such
claimant or interest holder shall be deemed to forfeit all rights under the
Plan. New Entertainment shall make subsequent distributions only to the persons
who surrender the securities for exchange (or their assignees) and the record
holders of such securities shall be those holders of record as of the day
immediately prior to the Effective Date.
11.02 MODIFICATION OF PLAN. The Debtors reserve the right, in
--------------------
accordance with the Bankruptcy Code, and with consent of the Committee, to amend
or modify the Plan prior to the entry of the Confirmation Order. After the
entry of the Confirmation Order, New Entertainment may, upon order of the Court,
amend or modify the Plan in accordance with section 1127(b) of the Bankruptcy
Code, or remedy any defect or omission or reconcile any inconsistency in the
Plan in such manner as may be necessary to carry out the purpose and intent of
the Plan.
11.03 WITHDRAWAL OF PLAN. The Debtors reserve the right, at any time
------------------
prior to the entry of the Confirmation Order, to revoke and withdraw the Plan.
If the Debtors revoke or withdraw the Plan under this section, or if entry of
the
-25-
<PAGE>
Confirmation Order does not occur, then the Plan shall be deemed null and void.
In that event, nothing contained in the Plan shall be deemed to constitute a
waiver or release of any Claims by or against or any Equity Interests in the
Debtors or to prejudice in any manner the rights of the Debtors in any further
proceedings involving the Debtors.
11.04 POST-CONFIRMATION COMMITTEE. The Committee shall be discharged
---------------------------
from its duties and shall cease to exist as of the Effective Date. Prior to the
Effective Date, the Committee shall appoint its representative to the board of
directors and shall appoint a Post-Confirmation Committee consisting of not less
than three members. Following the Effective Date, the Post-Confirmation
Committee shall have all of the rights and obligations and shall perform all of
the duties, of the Committee as provided in the Plan. The Post-Confirmation
Committee shall serve until such time as the later of (i) the resolution of all
claims objections and avoidance actions, (ii) the first election of members of
the board of directors after the Effective Date and (iii) the Final Distribution
under the Plan. The Post-Confirmation Committee shall be entitled to consult
with existing Committee counsel in the performance of its duties under Plan.
11.05 TAX PROVISIONS. Pursuant to section 1146(c) of the Bankruptcy
--------------
Code, the issuance, transfer or other exchange of a security, or the making or
delivery of an instrument of transfer under the Plan, shall not be taxed under
any state or local law imposing a stamp tax or similar tax (including a real
estate transfer tax).
11.06 PAYMENT DATES. Whenever any payment to be made under the Plan
-------------
is due on a day other than a Business Day, such payment will instead be made,
without interest, on the next Business Day.
11.07 HEADINGS. The headings used in this Plan are inserted for
--------
convenience only and neither constitute a portion of the Plan nor in any manner
affect the provisions of the Plan.
11.08 SUCCESSORS AND ASSIGNS. The rights, benefits and obligations
----------------------
of any person or entity named or referred to in the Plan will be binding upon,
and will inure to the benefit of, the heir, executor, administrator, successor
or assign of such person.
11.09 PLAN TERMS CONTROL. In the event of any inconsistency or
------------------
conflict between the terms, conditions, definitions and provisions of the Plan
with the Disclosure Statement, the terms, conditions, definitions and provisions
of the Plan shall control.
-26-
<PAGE>
11.10 PROVISIONS SEVERABLE. Should any provision in this Plan be
--------------------
determined to be unenforceable, such determination shall in no way limit or
affect the enforceability and operative effect of any or all of the other
provisions of the Plan.
ARTICLE XII
REQUEST FOR CONFIRMATION
------------------------
The Debtors hereby jointly request that the Court confirm the Plan
pursuant to section 1129(a), or as may be necessary, pursuant to section
1129(b), of the Bankruptcy Code.
DATED: October 25, 1996 PRISM ENTERTAINMENT CORPORATION
By:______________________________
BARRY COLLIER, President
DATED: October 25, 1996 PRISM PICTURES CORPORATION
By:_________________________________
BARRY COLLIER, Chairman
DATED: October 25, 1996 PRISM PICTURES INTERNATIONAL, LTD.
By:_________________________________
BARRY COLLIER, President
SUBMITTED BY:
ROBINSON, DIAMANT, BRILL & KLAUSNER
A Professional Corporation
By:_________________________________
GARY E. KLAUSNER
Attorneys for Debtors and
Debtors in Possession
-27-
<PAGE>
EXHIBIT "1"
-----------
1. Betrayal of the Dove
2. Charlie's Ghost Story
3. The Double O Kid
4. Hail Caesar
5. Huck & The King of Hearts
6. Illusions
7. Invasion of Privacy
8. Last Call
9. Mardi Gras for the Devil (aka Night Trap)
10. A Million to Juan
11. Night Eyes 2
12. Night Eyes 3
13. Prey of the Chameleon
14. Project Metalbeast
15. Roundtrip to Heaven
16. Scorned
17. South Beach
18. The Unnamable II
19. Bitter Harvest
20. Brilliant Disguise
21. Dominion
22. Double Exposure
23. Galaxis
24. Hidden Fears
25. Illicit Behavior
26. Night Eyes 4
27. Sleepstalker
28. Snapdragon
29. When the Bough Breaks
- --------------------------------------------------------------------------------
* This list may be amended prior to the Confirmation Date to add additional SAG
covered films by agreement between the Debtors and SAG.
Exhibit "1" to the Plan
26
<PAGE>
EXHIBIT "2"
PROPOSED CURE AMOUNTS
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Cori International Film and 2049 Century Park East Boneyard $ -0-
Television Suite #780
Jeffrey T. Sanfilippo Los Angeles, CA 90067
Fine Wein, Inc. 1900 Avenue of the Stars Backstreet Justice $ -0-
Tom Kuhn Suite #1500
Los Angeles, CA 90067
Curb Esquire Films 3907 W. Alameda Ave. Bikini Island $ -0-
Carol Curb Second Floor
Burbank, CA 91505
North American Releasing 808 Nelson Street Silhouette aka $ -0-
Melanie Kilgor Suite #2105 Ultimate Desires
Vancouver, BC V6Z 2H2
CANADA
Rich International Communications 1440 S. Sepulveda Blvd. Club Fed $ -0-
Heidi Cohen Suite #3118
Los Angeles, CA 90025
Wolf, Rifkin & Shapiro 11400 W. Olympic Blvd. The Willies $ -0-
Michael Wolf Ninth Floor
Los Angeles, CA 90064
Crown International Pictures 8701 Wilshire Blvd. Lena's Holiday $ -0-
Lynette Prucha Los Angeles, CA 90211
Omega Entertainment 8760 Shoreham Drive Lauderdale $ -0-
Amanda Martin Los Angeles, CA 90069
Nu Image (Radiance Films) 110 North Doheny Drive Jump aka $ -0-
Joanna Plafsky Beverly Hills, CA 90211 One Last Run
World Entertainment & Business 8837 Sunset Blvd., #203 Baby on Board $ -0-
Network Los Angeles, CA 90069
Sandy Howard
</TABLE>
-1- Exhibit "2" to the Plan
27
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Circle Releasing Corporation One Westin Circle Dark Obsession $ -0-
Ted Pedas 2445 N. Street W
Washington, D.C. 90037
P.G. Entertainment Inc. 8733 Sunset Blvd., #202 Sleepstalker $ -0-
Luigi Cingolani Los Angeles, CA 90069
International Media Investments 16 Transvaal Street Fleshtone $ -0-
David Stanford Shelton Paardenelland 7405
South Africa
P.O. Boc 17115, Regent
Sea Point 8061
South Africa
Osmosis Productions 10900 Ventura Boulevard When The Bough $ -0-
Pat Peach Studio City, CA 91604 Breaks
Amritraj Entertainment 3831 Sepulveda Blvd. Scorned $ -0-
Ashok Amritraj Sherman Oaks, CA 91403
Crystal Sky Communications 1800 Century Park East Ava's Magical Adventure $ -0-
Joseph Inga 6th Floor
Los Angeles, CA 90067
Crystal Sky Communications 1800 Century Park East A Million to Juan $ -0-
Gary Binkow 6th Floor
Los Angeles, CA 90067
Velvet Star Company 129 Yorkville Avenue Strangers $ -0-
David Perlmutter Toronto, Ontario M5R 1C4
CANADA
Farano, Green 22 St. Clair Avenue East Still Life $ -0-
Barristers & Solicitors Suite #1100
Edmund Glinert Toronto, Ontario M4T 2Z6
CANADA
International Television 11766 Wilshire Blvd. Monkey Boy $ -0-
Joseph Kennedy 10th Floor
Los Angeles, CA 90025
</TABLE>
-2- Exhibit "2" to the Plan
28
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Skyhawk Films 1780 East Bert Koon, #817 Enemy Gold $ -0-
Arlene Sidaris Shreveport, LA 71105
Filmtrust Motion Picture Licensing 10490 Santa Monica Blvd. Deadly Embrace $ -0-
Marco Columbo Los Angeles, CA 90025
Telso International 84 Buckingham Gate The Endless Game $ -0-
Cresside Ward London SW1E 6PD
ENGLAND
Pentafilm Spa/Chechi Gori Group Via Aurelia Antia 422 The Gamble $ -0-
Claudio Tinari 00165 Rome
ITALY
Freemantle International Inc. 660 Madison Avenue A Fight For Jenny $ -0-
Blanca Oca New York, NY 10021 We Are the Children $ -0-
Mark I. Funding 16911 Bellflower Blvd. L.A. Goddess $ -0-
David Blake Bellflower, CA 90706
October Films 65 Bleecker Street Chain of Desire $16,000*
Patrick C. Gunn New York, NY 10012 Hold Me, Thrill me $ 0
Hemdale Releasing 7966 Beverly Blvd. A Killing Affair aka $ -0-
Rene Rousselt Los Angeles, CA 90048 My Sisters Keeper
York Pictures, Inc. 6753 Hollywood Blvd. The Divine Enforcer $ -0-
Tanya York Suite #600
Los Angeles, CA 90028
Hearst Entertainment 235 East 45th Street Naked Lie $ -0-
Tom Devlin New York, NY 10017
The Landsburg Company 11811 West Olympic Blvd. Diamond Fleece $ -0-
Victor Paddock Los Angeles, CA 90064
Manley Productions, Inc. 111 West 57th Street Magdalene $ -0-
Pat Hart New York, NY 10019
AFAA 15250 Ventura Blvd. AFAA Workout Series $ -0-
Linda Pfeffer Sherman Oaks, CA 91430
</TABLE>
-3- Exhibit "2" to the Plan
30
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
The Freemantle Corporation 70 East 55th Street Manhunt for Claude $ -0-
Blanca Oca New York, NY 10022 Dallas
Independent Network, Inc. 11150 Olympic Blvd. Phamtom Empire $ -0-
Michael R. Ricci Los Angeles, CA 90064 Criminal Act $ -0-
Overseas Film Group 8800 Sunset Blvd. Sacrilege aka
Robbie Little Los Angeles, CA 90069 Devils of Monza $ -0-
Nu Image (Radiance) 110 N. Doheny Drive The Shrieking aka $ -0-
Joanna Plafsky Beverly Hills, CA 90211 Hex
Beyond Films Limited 53 - 55 Brisbane Street Body Melt $ -0-
Gary Hamilton Surry Hills, NSW 2010
AUSTRALIA
Fox/Lorber Associates, Inc. 419 Park Avenue South A Matter of Degrees $ -0-
Sheri Levine New York, NY 10022
Canadian Broadcasting System 350 5th Avenue Love and Hate $ -0-
Empire State Building
New York, NY 10118
Curb Escquire Films 3907 W. Alameda Avenue Last Dance $ -0-
Carol Curb 2nd Floor
Burbank, CA 91505
Home Box Office 1100 Avenue of the Prison Stories $ -0-
Miriam Santiago Americas
New York, NY 10036
Forefront Films, Inc. 507 17th Street The Unearthing aka $ -0-
Harold Warren Brooklyn, NY 11215 Aswang
Rick Sloan Productions 8661 Allenwood Road Vice Academy II $ -0-
Rick Sloan Los Angeles, CA 90046
Overseas Film Group 8800 Sunset Blvd. Aftershock $ -0-
Robbie Little Los Angeles, CA 90069 Out of Sight, Out of Mind $ -0-
GaGa America 9595 Wilshire Blvd. Jitters $ -0-
Los Angeles, CA 90212
</TABLE>
-4- Exhibit "2" to the Plan
30
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Radiance Films International 9606 Santa Monica Blvd. Trained to Kill $ -0-
as Agent for Payam Asharian Beverly Hills, CA 90310
Rick Sloan Productions 8661 Allenwood Vice Academy 3 $ -0-
Rick Sloan Los Angeles, CA 90046
Chala Limited 21320 Pouilly en Auxious Demon Wind $ -0-
Les Roches FRANCE
Amritraj/Baldwin Entertainment 3831 Sepulveda Blvd. Night Eyes $ -0-
Ashok Amritraj Sherman Oaks, CA 91403
Broadstar Entertainment, Inc. 6464 Sunset Blvd., #116 The 13th Floor $ -0-
June Hatch Los Angeles, CA 90028
Viacom International Inc. Paramount Pictures Shame $ -0-
Steve Madoff 5555 Melrose Avenue Better Off Dead $ -0-
Hollywood, CA 90038
ITEL 420 Lexington Avenue Tales of the
Frank Miller New York, NY 10017 Unexpected $ -0-
Shadowchaser Ltd. 11111 Santa Monica Blvd. Shadowchaser $ -0-
John Eyres Los Angeles, CA 90025
Shapiro Glickenhaus Entertainment 12001 Ventura Place Phantom of the Ritz $ -0-
Frank Isaac 4th Floor
Studio City, CA 91604
Danning, Gill, Diamond & Kollitz 2029 Century Park East Riverbend $ -0-
(Intercontinental) Suite #1900
Barry Lurie Los Angeles, CA 90067
Hemdale Releasing 7966 Beverly Blvd. My Little Girl $ -0-
Rene Rousselt Los Angeles, CA 90048
Enchantment Pictures 1930 S. Beverly Glenn All American Murder $ -0-
Bill Novodor Unit #204
Los Angeles, CA 90025
Viacom Enterprises 1515 Broadway Memories of Murder $ -0-
Peter Newman New York, NY 10036
</TABLE>
-5- Exhibit "2" to the Plan
31
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Manley Productions 111 West 57th Street Serpent of Death $ -0-
Walter Manley Suite #1401
New York, NY 10019
Richard Gabai d/b/a Check 834 1/2 North Alta Drive Assault of the Party $ -0-
Entertainment Hollywood, CA 90046 Nerds
Home Box Office 1100 Avenue of the Fellow Traveler $ -0-
Miriam Santiago Americas
New York, NY 10036
Amazing Movies 7471 Melrose Avenue Time Trooper, aka $ -0-
Douglas C. Witkins Los Angeles, CA 90046 Morning Terror,
Alienator, Le Petit
Amour aka Kung Fu
Avengers
Film Concept Group 5080 Spectrum Drive Blood Rage $ -0-
John Chambliss Suite #609E
Dallas, TX 75248
Manley Productions 111 West 57th Street Running Away aka $ -0-
Walter Manley Suite #1401 Two Women
New York, NY 10019
Castle Hill Productions 1414 Avenue of the Hell High $ -0-
Mel Maron Americas
New York, NY 10019
Curb Esquire Films 3901 W. Alameda Avenue Exiled in America $ -0-
Carol Curb Burbank, CA 91505
West Side Studios 10726 McCune Avenue Mardi Gras for the Devil $ -0-
Dianne Daou Los Angeles, CA 90034
Yankee Classic Pictures 127 Mitchell Avenue, #1 The Unnameable II $ -0-
John Paul Ouellette Los Angeles, CA 90066
Overseas Film Group 8800 Sunset Blvd. Night Screams $ -0-
Robbie Little Los Angeles, CA 90069 Dial Help $ -0-
Crown International Pictures 8701 Wilshire Blvd. My Mom's a Werewolf $ -0-
Lynette Prucha Los Angeles, CA 90211
</TABLE>
-6- Exhibit "2" to the Plan
32
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Hearst Entertainment 235 East 45th Street Midnight's Child, Good $ -0-
Tom Devlin New York, NY 10017 Fight, and Getting Up
and Going Home
Secret Castle Productions 502 Park Avenue The Room and The $ -0-
Mathew Seig New York, NY 10022 Dumbwaiter $ -0-
Curb Esquire Films 3097 W. Alameda Avenue Evil Toons $ -0-
Carol Curb Second Floor
Burbank, CA 91505
London Weekend Television South Bank Television Blade on the Feather $ -0-
Colin Jarvis Cemtre aka 'Deep Cover
London SE1 9 LT
ENGLAND
Curb Entertainment 3907 W. Alameda Avenue Dark Universe $ -0-
Carol Curb Burbank, CA 91505
Cori Films 2049 Century Park East Club Extinction $ -0-
Helen R. Krauss Suite #780
Los Angeles, CA 90067
Tatum Communications 2920 W. Olive Street, #102 Billy Kidd $ -0-
Tom Tatum Burbank, CA 91505
American Cinema Marketing 3855 Lankershim Blvd. Lords of Magick $ -0-
George G. Murphy Suite #120
N. Hollywood, CA 90067
Falcon Arts and Entertainment 121900 Ventura Blvd. Double Exposure $ -0-
Joanne Watkins Suite #2200
Los Angeles, CA 91604
Penta Film Via Aurelia Antica 422 Millions $ -0-
00165 Rome ITALY
Alchemy Entertainment 152 West 20th Street Sally Struthers Walking $ -0-
Oren Klaber Suite #1A Video
New York, NY 10019
</TABLE>
-7- Exhibit "2" to the Plan
33
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
There's Nothing Out There 1605 Broadway, #1001 There's Nothing Out $ -0-
Victor Kanefsky New York, NY 10019 There
The Landsburg Company 11811 West Olympic Blvd. The George McKenna $ -0-
Victor Paddock Los Angeles, CA 90064 Story
Entertainment Movies, Inc. 9903 Santa Monica Blvd. Double O Kidd $ -0-
Stephen Paul Los Angeles, CA 90212
INI Entertainment Group, Inc. 11150 Olympic Blvd. Any Man's Death $ -0-
Michael R. Ricci Los Angeles, CA 90064
Brightstar Films 100 Yonge Street, #1005 Ghostwriter (Canadian) $ -0-
Orval Fruitman Toronto, Ontario M5C 2W1
CANADA
Mark Polan 14501 Calvert Ghostwriter (US) $ -0-
Van Nuys, CA 91401
Nu Image (Radiance) 110 North Doheny Drive Mutator $ -0-
Joanna Plafsky Beverly Drive, CA 90211
Crystal Sky Communications 9903 Santa Monica Blvd. Huck and The King of $ -0-
Stephen Paul Los Angeles, CA 90212 Hearts and Hail
Ceaser
Film Export Group Via Polonia 9 Body Moves aka $ -0-
Michael Freudenstein 00198 Rome ITALY Hot Steps
Rick Sloan Productions 8661 Allenwood Road Vice Academy $ -0-
Rick Sloan Los Angeles, CA 90046
Producer's Network Associates 65 Heward Avenue, #216 Replikator $ -0-
Margaret Mellor Building B, Cinnevillage
Toronto, Ontario M4M 2T5
CANADA
The Pheonix Group 2150 East Tahquitz, #5 Abraxas $ 6,000*
Bud Schaffer Palm Springs, CA 92262
First Entertainment Inc. 1380 Lawrence Street Mind Kiiller, Lone Wolf $ -0-
A.B. Goldberg Suite #400 and Night Vision
Denver, CO 80204
</TABLE>
-8- Exhibit "2" to the Plan
34
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Crystal Sky Communications 9903 Santa Monica Blvd. Forever $ -0-
Joseph Inga Los Angeles, CA 90212
Blue Ridge Entertainment 1640 S. Sepulveda Blvd. Ghetto Blaster $ -0-
Carole Beazer Suite #308
Los Angeles, CA 90025
Crystal Sky Communications 9903 Santa Monica Blvd. Illusions $ -0-
Stephen Paul Suite #333
Los Angeles, CA 90212
Grand Am Limited 6649 Odessa Avenue Evil Spirits $ -0-
Van Nuys, CA 91406
Greenwich Films 12100 N.E. 16th Avenue South Beach $ -0-
Steve Adelstein Miami, FL 33161
SC Entertainment 434 Queen Street East Red Blooded American $ -0-
Kamal Dureja Toronto, Ontario M5A 1T5 Girl
CANADA
Crystal Sky Communications 1901 Avenue of the Stars Charlie's Ghost Story $ -0-
Suite #680
Los Angeles, CA 90067
Velvet Star Productions 129 Yorkville Avenue Soft Deceit $57,000*
Suite #200
Toronto, Ontario M5R 1C4
CANADA
Phoenix International Films, Inc. 5625 Cedarpine Drive Hidden Fears $ -0-
Orlando, FL 32819
Blue Ridge Entertainment 10490 Santa Monica Blvd. Metalbeast $ -0-
Los Angeles, CA 90025
Brilliant Disguise Productions 144 S. Doheny Drive A Brilliant Disguise $ -0-
Penthouse
Beverly Hills, CA 90212
Cinevu Films, Inc. 120 Powell Street, #32 Power of Attorney $ -0-
Vancouver, BC V6A 161
CANADA
</TABLE>
-9- Exhibit "2" to the Plan
35
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Heartstar Productions, Inc. 345 Carlaw Avenue Dominion $ -0-
Third Floor
Toronto, Ontario M4M 2TW
CANADA
H.D. Productions 13801 Ventura Blvd. Snapdragon $ -0-
c/o Amritraj Entertainment Sherman Oaks, CA 91423
ML Management 500 S. Buena Vista St. Afros & Bellbottoms 20,000*
Burbank, CA 91521-7285
Saban Entertainment 10960 Wilshire Blvd. Black Ice $ -0-
Los Angeles, CA 90024
Films Around The World 342 Madison Avenue Deadmate $ -0-
New York, NY 10173
Tribune Entertainment 435 N. Michigan Avenue Final Shot: The Hank $ -0-
Chicago, IL 60611 Gathers Story
Crystal Sky Communications 1901 Avenue of the Stars Hail Ceaser $ -0-
Suite #680
Los Angeles, CA 90067
Playboy Entertainment 9242 Beverly Blvd. Hunkercise $ -0-
Beverly Hills, CA 90210
Amritraj Entertainment 13801 Ventura Blvd. Illicit Behavior $ -0-
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Invasion of Privacy $ -0-
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Last Call $ -0-
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Legal Tender $ -0-
Sherman Oaks, CA 91423
Monument Pictures 1604 N. Cahuenga Blvd. Little Noieses $ -0-
Suite #107
Los Angeles, CA 90022
</TABLE>
-10- Exhibit "2" to the Plan
36
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Amritraj Entertainment 13801 Ventura Blvd. Night Eyes 2 $ -0-
Sherman Oaks, CA 91423
Sequel Productions c/o 13801 Ventura Blvd. Night Eyes 3
Amritraj Entertainment Sherman Oaks, CA 91423 $ -0-
Fourth Night Productions c/o 13801 Ventura Blvd. Night Eyes 4...Fatal $ -0-
Amritraj Entertainment Sherman Oaks, CA 91423 Passion
Films Around The World 342 Madison Avenue Night Friend $ -0-
New York, NY 10173
Saban Entertainment 10960 Wilshire Blvd. Prey of the Chameleon $ -0-
Los Angeles, CA 90024
Saban Entertainment 10960 Wilshire Blvd. Round Trip to Heaven $ -0-
Los Angeles, CA 90024
Amritraj Entertainment 13801 Ventura Blvd. Tropical Heat $ -0-
Sherman Oaks, CA 91423
Bitter Harvest Films 1901 Avenue of the Stars Bitter Harvest $ -0-
Crystal Sky Communications Suite #680
Los Angeles, CA 90067
Tribune Entertainment 435 N. Michigan Avenue Voyage of Terror: $ -0-
Chicago, IL 60611 Achille Lauro Affair
Amazing Movies 6223 Selma Avenue, #125 Alientator $ -0-
Hollywood, CA 90028
Morphosis Productions, Inc. 154 1/2 La Brea Avenue Terminal Force $ -0-
dba Interlught Pictures Los Angeles, CA 90036 aka Galaxis
Catalyst Films International 836 Regal Crescent Virtual Assassin aka $ -0-
North Vancouver, BC Cyberjack
CANADA V7K 2X8
Curb Esquire Films 3907 W. Alameda Avenue Wishman $ -0-
Second Floor
Burbank, CA 91505
</TABLE>
-11- Exhibit "2" to the Plan
37
<PAGE>
<TABLE>
<CAPTION>
LICENSE AGREEMENT
COMPANY ADDRESS FILM PROPOSED CURE AMOUNT
<S> <C> <C> <C>
Orphan Pictures 6930 Sunset Blvd. Mirror, Mirror II $ -0-
Burbank, CA 91505
Tell Me Why, Inc. 1140 Kane Concourse #5 A Healthy Body $ 1,500*
Bay Harbor Island, FL 33154 Sports & Games $ -0-
Science, Sound, Energy $ -0-
Beginning: Civic Gov't. $ -0-
Turner Home Entertainment 1050 Techwood Drive Exclusive Distribution Undetermined*
Atlanta, GA 30318 Agreement
Attn: Stuart Snyder
Rentrak Corporation P.O. Box 1888 Exclusive Distribution Undetermined*
Portland, OR 97218 Agreement
Attn: Dana Campbell
C/FP Distribution Two Bloor Street West Exclusive Distribution Undetermined*
Toronto, Ontario M4W3E2 Agreement
CANADA
Attn: Jeff Sackman
- ----------------------------------------
</TABLE>
* With respect to these contracts, the Debtors intend to negotiate cure payments
or other terms of assumption with the affected parties which are consistent
with New Entertainment's cash reserves and future income. If the parties are
unable to mutually agree to such payments or terms, the Debtors reserve the
right to reject these agreements.
-12- Exhibit "2" to the Plan
38
<PAGE>
Exhibit "3"
-----------
Schedule of Rejected Executory Contracts and Unexpired Leases
-------------------------------------------------------------
Party Type of Contract
----- ----------------
1. Sprint Long distance telephone contract
Attn: Tyler Grisham
1025 W. 190th Street, #400
Gardena, CA 90248
Acct. No. 185612784
2. Orix USA Corporation Lease of copier machines
P.O. Box 30399
Los Angeles, CA 90030-0399
Acct. No. 31687
3. Pitney Bowes Credit Corp. Lease of mail postage machine
P.O. Box 5151
Norwalk, CT 06856-5151
Acct. No. 6817704
4. IBM Credit Lease of computer equipment
Bankruptcy Cordinator
P.O. Box 7820
19th Floor
San Francisco, CA 94120
Attn: Mark Fraze
5. Astro Office Products Copier service contract
110 W. Walnut Street
Gardena, CA 90248
Acct. No. CYB08704
6. Corporate Telecom Telephone maintence service
Attn: Barbara Higginson Contract
14558 Raymer Street
Van Nuys, CA 81405
Customer No. 0000889
-1- Exhibit "3" to the Plan
39
<PAGE>
7. Central Television Enterprises License Agreement re: "Worst
11145 N.W. 1st Place Witch"
Coral Springs, FL 33071
Attn: Claire Alter
8. Burnhill Productions License Agreement re: "Baby
7801 Hillside Avenue Doll Murders"
Los Angeles CA 90046
-2- Exhibit "3" to the Plan
40
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN
OF
REORGANIZATION AND MERGER
dated as of
October 25, 1996
By and Between
Prism Entertainment Corporation,
a Delaware corporation,
and
Lee Video City, Inc.,
a California corporation,
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS...................................... 1
1.1 Definitions...................................... 1
ARTICLE II THE MERGER....................................... 6
2.1 The Merger....................................... 6
2.2 Exchange of Certificates......................... 8
2.3 Closing.......................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VCI............ 9
3.1 Corporate Existence and Power.................... 9
3.2 Corporate Authorization.......................... 10
3.3 Governmental Authorization....................... 10
3.4 Non-Contravention................................ 10
3.5 VCI Capitalization............................... 10
3.6 Subsidiaries..................................... 11
3.7 Consents......................................... 11
3.8 Financial Statements............................. 11
3.9 Absence of Certain Changes....................... 12
3.10 Title to Assets.................................. 13
3.11 Real Property.................................... 13
3.12 Litigation....................................... 13
3.13 Contracts........................................ 13
3.14 Licenses and Permits............................. 13
3.15 Compliance with Laws............................. 14
3.16 Intangible Property.............................. 14
3.17 Employees........................................ 14
3.18 Prepaids......................................... 15
3.19 Taxes............................................ 15
3.20 Environmental Compliance......................... 16
3.21 Labor and Employment Matters..................... 16
3.22 Pension and Benefit Plans........................ 18
3.23 Insurance........................................ 21
3.24 Books and Records................................ 21
3.25 Inventory........................................ 22
3.26 Accuracy and Provision of Information............ 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PRISM.......... 23
4.1 Corporate Existence and Power.................... 23
4.2 Corporate Authorization.......................... 23
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
4.3 Governmental Authorization....................... 23
4.4 Non-Contravention................................ 23
4.5 Prism Capitalization............................. 24
4.6 Finders' Fees.................................... 24
4.7 Subsidiaries..................................... 24
4.8 Litigation....................................... 24
4.9 Consents......................................... 25
4.10 Financial Statements............................. 25
4.11 Absence of Certain Changes....................... 26
4.12 Title to Assets.................................. 26
4.13 Real Property.................................... 26
4.14 Intangible Property.............................. 27
4.15 Contracts........................................ 27
4.16 Licenses and Permits............................. 27
4.17 Compliance with Laws............................. 28
4.18 Employees........................................ 28
4.19 Taxes............................................ 28
4.20 Environmental Compliance......................... 29
4.21 Labor and Employment Matters..................... 30
4.22 Pension and Benefit Plans........................ 31
4.23 Insurance........................................ 34
4.24 Books and Records................................ 35
4.25 Film Library..................................... 35
4.26 Accounts Receivable.............................. 38
4.27 Accuracy and Provision of Information............ 38
ARTICLE V COVENANTS OF VCI................................. 38
5.1 Conduct of the Business.......................... 38
5.2 Insurance........................................ 39
5.3 No Defaults...................................... 39
5.4 Reporting and Compliance With Law................ 40
5.5 Access to Information............................ 40
5.6 Notices of Certain Events........................ 40
5.7 Other Offers..................................... 40
ARTICLE VI COVENANTS OF PRISM............................... 41
6.1 Conduct of the Business.......................... 41
6.2 Insurance........................................ 42
6.3 No Defaults...................................... 42
6.4 Reporting and Compliance With Law................ 42
6.5 Access to Information............................ 42
6.6 Notices of Certain Events........................ 42
6.7 Collier Stock Option Agreement................... 43
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
6.8 Lee Agreement.................................... 43
6.9 Other Offers..................................... 43
ARTICLE VII COVENANTS OF ALL PARTIES HERETO.................. 44
7.1 Best Efforts; Further Assurances................. 44
7.2 Public Announcements............................. 44
7.3 Best Efforts to Obtain Consents.................. 44
7.4 Confidentiality.................................. 44
ARTICLE VIII CONDITIONS TO CLOSING............................ 45
8.1 Conditions to the Obligations of Prism and VCI... 45
8.2 Conditions to the Obligations of Prism........... 46
8.3 Conditions to Obligation of VCI.................. 48
ARTICLE IX SURVIVAL; INDEMNIFICATION; TERMINATION........... 49
9.1 Survival......................................... 49
9.2 Indemnification.................................. 50
9.3 Procedures....................................... 51
9.4 Grounds for Termination.......................... 51
ARTICLE X MISCELLANEOUS.................................... 52
10.1 Notices.......................................... 52
10.2 Amendments; No Waivers........................... 53
10.3 Expenses......................................... 53
10.4 Successors and Assigns........................... 53
10.5 Governing Law.................................... 53
10.6 Counterparts; Effectiveness...................... 54
10.7 Entire Agreement................................. 54
10.8 Severability..................................... 54
10.9 Captions and Section References.................. 54
10.10 Interpretation................................... 54
10.11 Attorneys' Fees.................................. 54
10.12 Ambiguities...................................... 54
10.13 No Third-Party Rights............................ 54
10.14 Knowledge of VCI................................. 55
10.15 Schedules........................................ 55
</TABLE>
iii
<PAGE>
EXHIBITS
- --------
Exhibit A Agreement of Merger
Exhibit B Certificate of Merger
Exhibit C Overide Agreement
Exhibit D Form of Employment Agreements
Exhibit E Form of Non-Competition Agreement
Exhibit F Form of Non-Competition Agreement
Exhibit G Form of Proxy
VCI SCHEDULES
- -------------
Schedule 3.1 Foreign Jurisdictions
Schedule 3.5 Capitalization
Schedule 3.7 VCI Consents
Schedule 3.8 Undisclosed Liabilities
Schedule 3.9 Absence of Certain Changes
Schedule 3.10 Title to Assets
Schedule 3.11 Real Property
Schedule 3.12 Litigation
Schedule 3.13 Contracts
Schedule 3.14 Licenses and Permits
Schedule 3.16 Intangible Property
Schedule 3.17 Employees
Schedule 3.18 Prepaids
Schedule 3.19 Taxes
Schedule 3.21 Labor and Employment Matters
Schedule 3.22 Pension and Benefit Plans
Schedule 3.23 Insurance
Prism SCHEDULES
- ---------------
Schedule 2.1 Distribution of Prism Stock and Prism Warrants
Schedule 4.1 Foreign Jurisdictions
Schedule 4.5 Capitalization
Schedule 4.7 Subsidiaries
Schedule 4.9 Prism Consents
Schedule 4.10 Undisclosed Liabilities
Schedule 4.11 Absence of Certain Changes
Schedule 4.12 Title to Assets
Schedule 4.13 Real Property
Schedule 4.14 Intangible Property
iv
<PAGE>
Schedule 4.15 Contracts
Schedule 4.16 Licenses and Permits
Schedule 4.18 Employees
Schedule 4.19 Taxes
Schedule 4.21 Labor and Employment Matters
Schedule 4.22 Pension and Benefit Plans
Schedule 4.23 Insurance
Schedule 4.25 Film Library
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"),
dated as of October 25, 1996, by and between Prism Entertainment Corporation, a
Delaware corporation ("Prism"), and Lee Video City, Inc., a California
corporation ("VCI").
R E C I T A L S:
A. Prism is a public company that filed for protection under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Central District of California on December 1, 1995. Prism is
currently operating as a debtor-in-possession.
B. VCI owns and operates a chain of retail video sales and rental
stores.
C. Prism and VCI desire to merge VCI with and into Prism (the
"Merger") in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and the
representations, warranties, covenants and agreements contained in this
Agreement, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used in this
-----------
Agreement, have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Agreement of Merger" means the Agreement of Merger to be filed with
the Secretary of State of the State of California, substantially in the form of
Exhibit A, subject to any changes that may be necessary to conform to any
require ments of any governmental entity having authority over the Merger.
<PAGE>
"Books and Records" shall mean all books and records, stock transfer
books, minute books, copies of outstanding stock certificates, ledgers, employee
records, customer lists, files, correspondence, and other written records of
every kind.
"Case" means that certain jointly administered bankruptcy case,
numbered Bk. No. 95-41355 TD, Chapter 11, currently before the Court.
"Certificate of Merger" means the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware substantially in the form
of Exhibit B hereto, subject to any changes that may be necessary to conform to
any requirements of any governmental entity having authority over the Merger.
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as the same may be
amended from time to time. Any reference to a specific section of the Code
shall refer to the cited provision as the same may be amended from time to time.
"Collier" means Barry Collier, an individual and a resident of
California.
"Collier Stock Option Agreement" has the meaning set forth in Section
6.7.
"Confirmation Order" has the meaning set forth in the Plan.
"Contracts" means all contracts, agreements, warranties, guaranties,
indentures, bonds, options, leases, subleases, easements, mortgages, plans,
collective bargaining agreements, licenses, commitments or binding arrangements
of any nature whatsoever, express or implied, written or unwritten, and all
amendments thereto, entered into or binding upon the relevant party or to which
the property of such party may be subject.
"Court" means the United States Bankruptcy Court for the Central
District of California, or such other court that exercises jurisdiction over the
Case.
"DGCL" means the Delaware General Corporation Law.
"Effective Time" has the meaning set forth in Section 2.1.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any entity that is a member of a group of
which VCI is a member and which is under common control with VCI, within the
meaning of the regulations promulgated under Section 414 of the Code.
"ERISA Plans" shall mean, collectively, all Pension Plans and all
Welfare Plans required to be disclosed on Schedule 3.22.
"Final Order" has the meaning set forth in the Plan.
"Indemnified Party" has the meaning set forth in Section 9.3.
"Indemnifying Party" has the meaning set forth in Section 9.3.
"Ingram" means Ingram Entertainment, Inc.
"IRS" means the Internal Revenue Service.
"Lee" means Robert Y. Lee, an individual and a resident of California.
"Letter of Intent" means that certain letter agreement dated August 6,
1996, between Prism and VCI.
"Lien" means, with respect to any asset: any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
including, without limitation, any agreement to give any of the foregoing and
any conditional sale.
"Management Stock Option Agreement" has the meaning set forth in
Section 8.2(g).
"Marks" means all registered and unregistered trademarks, service
marks, trade names, and slogans, all applications therefor, and all goodwill
associated therewith.
"Material Adverse Change" means a material adverse change in the
business, assets, financial condition or results of operations of, as
applicable, Prism's or VCI's business, which involves a minimum loss or exposure
of One Hundred Thousand Dollars ($100,000).
3
<PAGE>
"Material Adverse Effect" means a material adverse effect on the
business, assets, financial condition or results of operations of, as
applicable, Prism's or VCI's business, which involves a minimum loss or exposure
of One Hundred Thousand Dollars ($100,000).
"Merger" has the meaning set forth in the recitals of this Agreement.
"Override Agreement" means that certain Agreement made and entered
into as of October 25, 1996, by and among VCI, Lee (on behalf of himself and as
Trustee of the Robert Y. Lee Revocable Living Trust UDT 1/9/91), Prism and
Ingram, a copy of which is attached hereto as Exhibit C.
"Pension Plan" shall mean any employee pension benefit plan within the
meaning of Section 3(2) of ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government,
domestic or foreign, or political subdivision or an agency or instrumentality
thereof.
"Plan" shall mean that certain Plan of Reorganization dated October
25, 1996, as amended, submitted to and approved by the Court in connection with
the Case.
"Prism" has the meaning set forth in the introductory paragraph of
this Agreement.
"Prism Consents" means the consents, waivers and amendments to be
obtained by Prism and its Affiliates from other Persons with respect to the
execution, delivery and performance by Prism of this Agreement and all related
matters between Prism and VCI, including, but not limited to, the entering by
the Court of the Final Order.
"Prism Documents" means this Agreement, the Certificate of Merger, the
Agreement of Merger and any other documents, instruments and certificates which
are to be delivered by Prism pursuant to this Agreement.
"Prism Financial Statements" has the meaning set forth in Section
4.10(a).
"Prism Intangible Property" means all intangible property owned by
Prism or in which Prism has any interest (including the right to use) or owned
by any Prism shareholder and used in Prism's business (other than intangible
property owned by third parties and available generally for commercial license
from others), including without limitation, (i) Prism's name and all Marks; (ii)
all statutory, common law and
4
<PAGE>
registered copyrights and mask work rights, and all applications for the
registration thereof; (iii) all patents and applications therefor; (iv) all
software; (v) all other inventions, discoveries, improvements, processes,
formulas (secret or otherwise), trade secrets, information, know-how and ideas
(including those in the possession of third parties, but that are the property
of Prism); and (vi) all technical documentation relating thereto.
"Prism Permits" has the meaning set forth in Section 4.16.
"Prism Stock" has the meaning set forth in Section 2.1(d)(1).
"Stockholders' Agreement" means that certain Stockholders' Agreement
made and entered into by and among Prism, Lee, Collier and Ingram pursuant to
the Override Agreement.
"Tax" or "Taxes" mean any federal, state, local or foreign income,
alternative minimum, gross receipts, transfer, sales, use, ad valorem,
franchise, license, withholding, excise, FICA, unemployment compensation,
disability, import, property, or other tax, fee or like assessment or charge,
together with any interest or any penalty or addition, imposed by any
governmental authority.
"VCI" has the meaning set forth in the introductory paragraph of this
Agreement.
"VCI 1996 Balance Sheet" has the meaning set forth in Section 3.8(a).
"VCI Certificates" has the meaning set forth in Section 2.2(a).
"VCI Consents" has the meaning set forth in Section 3.7.
"VCI Disclosure Schedules" means all of the schedules delivered by VCI
pursuant to this Agreement.
"VCI Documents" means this Agreement, the Certificate of Merger,
Agreement of Merger and any other documents, instruments or certificates to be
delivered by VCI in connection with this Agreement.
"VCI Financial Statements" has the meaning set forth in Section
3.8(a).
"VCI Intangible Property" means all intangible property owned by VCI
or in which VCI has any interest (including the right to use) or owned by any
VCI shareholder and used in VCI's business (other than intangible property owned
by third parties and available generally for commercial license from others),
including without
5
<PAGE>
limitation, (i) VCI's name and all Marks; (ii) all statutory, common law and
registered copyrights and mask work rights, and all applications for the
registration thereof; (iii) all patents and applications therefor; (iv) all
software; (v) all other inventions, discoveries, improvements, processes,
formulas (secret or otherwise), trade secrets, information, know-how and ideas
(including those in the possession of third parties, but that are the property
of VCI); and (vi) all technical documentation relating thereto.
"VCI Permits" has the meaning set forth in Section 3.14.
"VCI Shareholders" has the meaning set forth in Section 3.5.
"VCI Stock" has the meaning set forth in Section 2.1(d)(2).
"Welfare Plan" shall mean any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA.
ARTICLE II
THE MERGER
2.1 The Merger.
----------
The Merger shall become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the provisions of the DGCL (the "Effective Time"). Immediately subsequent
to such filing, the Agreement of Merger shall be filed with the Secretary of
State of the State of California. At the Effective Time, the following
transactions will be deemed to have occurred simultaneously:
(a) The Surviving Entity. VCI shall be merged with
--------------------
and into Prism, with Prism being the surviving entity, and the separate
corporate existence of VCI shall cease. Prism shall possess all the rights,
privileges, powers and franchises and be subject to all of the duties,
liabilities and obligations of both Prism and VCI, as provided under the DGCL.
(b) Certificate of Incorporation and Bylaws. The
---------------------------------------
Certificate of Incorporation and Bylaws of Prism in effect immediately prior to
the Effective Time shall be amended to reflect the change of Prism's name to
"Video City, Inc." and provide for the authorization and issuance of the Prism
Stock.
6
<PAGE>
(c) Directors and Officers. Immediately following
----------------------
the Effective Time (i) the directors of Prism shall be the persons designated by
Ingram, Lee and Collier, in accordance with the terms and conditions of the
Stockholders' Agreement, and (ii) Lee shall serve as Chairman of the Board and
Chief Executive Officer, Collier shall serve as President, and such other
persons may serve in such offices as duly elected or appointed from time to time
by the Board of Directors of Prism, until such persons are succeeded in
accordance with applicable law.
(d) Conversion of Shares. Automatically and without
--------------------
any action on the part of any holder thereof:
(1) All of the issued and outstanding shares of
the Common Stock of Prism, $.01 par value per share ("Prism Stock"), issued and
outstanding immediately prior to the Effective Time shall either (i) remain
issued and outstanding, subject to a reverse stock split the result of which
will be 693,500 shares of the Common Stock of Prism or (ii) be converted into
the right to receive 693,500 newly issued shares of the Common Stock of Prism.
(2) All of the shares of the Common Stock of VCI
("VCI Stock") issued and outstanding immediately prior to the Effective Time,
shall be converted into the right to receive an aggregate of 5,078,750 shares of
Prism Stock, such Prism Stock to be distributed to the VCI Shareholders in
accordance with Schedule 3.5.
(e) Conversion of VCI Options and Warrants.
--------------------------------------
Automatically and without any action on the part of any holder thereof, the
holder of each option or warrant to purchase the Common Stock of VCI
(respectively, an "Option" or "Warrant") which is outstanding and unexercised at
the Effective Time shall be entitled, upon exercise of such Option or Warrant
from and after the Effective Time, to receive that number of shares of the
Common Stock of Prism that the holder would have received had such holder
exercised the Option or Warrant immediately prior to Effective Time and been
issued shares of the Common Stock of VCI therefor, and such shares of Common
Stock of VCI were converted into shares of the Common Stock of Prism pursuant to
Section 2.1(d)(2) of this Agreement. Prism shall issue shares of its Common
Stock upon the exercise of an Option or Warrant only upon payment to Prism of
the adjusted exercise price per share as provided for in the relevant Option or
Warrant agreement relating to the same, until such time as such Option or
Warrant would have expired under the terms of such agreement. Following the
Effective Time, Prism shall deliver to each holder of an Option or Warrant an
amendment to the Option or Warrant agreement to evidence the substitution of the
Common Stock of Prism for the Common Stock of VCI therein.
7
<PAGE>
(f) Issuance of Prism Stock to "Allowed Claims".
-------------------------------------------
Each share of the Prism Stock, not to exceed 2,552,750 shares in the aggregate,
to be issued in accordance with the terms of the Plan to the holders of "Allowed
Claims" (as such term is defined in the Plan) shall be so issued.
(g) Issuance of Prism Stock to Ingram. The 1,500,000
---------------------------------
shares of the Common Stock of Prism to be issued to Ingram pursuant to the
Override Agreement shall be so issued.
(h) Grant of Prism Stock Option to Collier. The
--------------------------------------
option to purchase 175,000 shares of the Common Stock of Prism to be granted by
Prism to Collier or his designee pursuant to the Collier Stock Option Agreement
shall be so granted in accordance with Section 6.7.
(i) Fractional Shares. No fractional shares of Prism
-----------------
Stock shall be distributed pursuant to the Merger, and any fractional share
interests under Section 2.1(d) shall be disregarded.
2.2 Exchange of Certificates.
------------------------
(a) Upon surrender to Prism of certificates representing
the VCI Shares (collectively, the "VCI Certificates"), the holders of such VCI
Certificates shall each be entitled to receive in exchange therefor one or more
certificates representing the number of shares of Prism Stock to which such
holder is entitled pursuant to the provisions of Section 2.1(d). Upon receipt of
evidence reasonably satisfactory to VCI of the loss, theft, destruction or
mutilation of any VCI Certificate, and (if lost, stolen or destroyed) of
indemnity reasonably satisfactory to Prism, and (if mutilated) upon surrender
and cancellation of the VCI Certificate, each such holder shall be entitled to
receive in exchange therefor one certificate representing the number of shares
of Prism Stock to which such holder shall have become entitled pursuant to the
provisions of Section 2.1(d).
(b) Each VCI Certificate converted into Prism Stock
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be cancelled and retired and cease to exist.
In the event of a transfer of ownership of VCI Certificates which has not been
registered in the transfer records of VCI, Prism Stock may be delivered to a
transferee if the VCI Certificate is presented to Prism and accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid in full. Until surrendered as
contemplated by this Section 2.2(b), each holder of shares of VCI Stock shall
thereafter cease to possess any rights with respect to such shares, except the
right to receive upon such surrender number of shares of Prism Stock as provided
by Section 2.1(d).
8
<PAGE>
(c) No dividends on the Prism Stock shall be paid to the
holder of any unsurrendered VCI Certificate until such VCI Certificate is
surrendered; provided, however, that upon surrender of an VCI Certificate,
-------- -------
there shall be paid to such holder the amount of dividends, if any, which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of shares of Prism Stock issued upon such surrender.
Subject to the effect, if any, of applicable escheat and other laws, following
surrender of any VCI Certificate, there shall be delivered to the Person
entitled thereto, without interest, the amount of dividends so withheld as of
any date subsequent to the Effective Date and prior to such date of delivery.
(d) All Prism Stock delivered in exchange for the VCI
Stock in accordance with the terms of this Agreement shall be deemed to have
been delivered in full satisfaction of all rights pertaining to such VCI Stock.
If, after the Effective Time, VCI Certificates are presented for any reason,
they shall be cancelled and exchanged as provided in this Section 2.2.
(e) The shares of Prism Stock issued pursuant to the
Plan to holders of "Allowed Claims" and "Allowed Equity Interests" (as such
terms are defined in the Plan), shall be issued pursuant to the exemptions
contained in Section 1145 of the Bankruptcy Code from the requirements of
Section 5 of the Securities Act of 1933, as amended, and any other federal,
state or local law otherwise requiring registration or qualification of such
Prism Stock.
2.3 Closing. The closing of the Merger (the "Closing") shall
-------
occur at the offices of Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite 1800,
Los Angeles, California 90017 at 9:00 a.m. on the earliest practicable date
after all of the conditions of Article VIII have been satisfied.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VCI
Subject to the exceptions set forth in the VCI Disclosure Schedules,
VCI hereby represents and warrants to Prism that:
3.1 Corporate Existence and Power. VCI is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
California, and has all corporate power and authority, and all governmental
licenses, authorizations, consents and approvals required to carry on its
business of operations as now conducted. Schedule 3.1 sets forth those
jurisdictions in which VCI is required to be, and is, qualified to do business
as a foreign corporation because of the character of the property owned or
leased by VCI or the nature of its activities.
9
<PAGE>
3.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by VCI of this Agreement and all of the other VCI Documents and the
consummation by VCI of the transactions contemplated hereby and thereby are
within the corporate powers of VCI and have been duly authorized by all
necessary corporate action on the part of VCI. This Agreement is, and as of the
Closing Date, the other VCI Documents shall be, the legal, valid and binding
obligations of VCI, enforceable against VCI in accordance with their respective
terms.
3.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by VCI of this Agreement and the other VCI Documents require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than the filing of the Certificate of Merger with
the Secretary of State of Delaware and the filing of the Agreement of Merger
with the Secretary of State of the State of California as contemplated by
Section 2.1.
3.4 Non-Contravention. The execution, delivery and
-----------------
performance by VCI of this Agreement and the other VCI 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,
(iii) assuming the obtaining of all VCI Consents, constitute a default under or
breach of, or violate or give rise to any right of termination, cancellation or
acceleration of any right or obligation of VCI, or to a loss of any benefit
relating to its business or operations to which VCI is entitled under any
provision of any Contract to which VCI is a party or by which any of its assets
is or may be bound or (iv) result in the creation or imposition of any Lien on
any of VCI's assets.
3.5 VCI Capitalization. The authorized capital stock of VCI
------------------
consists solely of 20,000,000 shares of VCI Stock, of which 1,495,408 shares are
issued and outstanding. All such outstanding shares are duly authorized,
validly issued and outstanding, fully paid and non-assessable and, except for
such outstanding shares, there are no shares of capital stock of VCI
outstanding. Schedule 3.5 sets forth a true a complete list of all of the
shareholders of VCI (the "VCI Shareholders") and the number of shares of VCI
Stock owned by each of the VCI Shareholders as of the date of this Agreement.
All issued and outstanding shares of VCI Stock have been validly issued in full
compliance with all federal and state securities laws and are not subject to any
rights or obligations that require the registration of such shares. Except as
set forth on Schedule 3.5, there are no outstanding options, warrants or other
rights in or with respect to the unissued shares of VCI Stock nor any securities
convertible into such stock, and VCI is not obligated to issue any additional
shares of VCI Stock or any options, warrants or other rights in or with respect
to the unissued shares of such stock or any other securities convertible into
such stock. VCI hereby
10
<PAGE>
acknowledges and agrees that as a condition precedent to the consummation of the
Merger, certain VCI shareholders, including Lee, will enter into an agreement
with Ingram to exchange the warrants held by Ingram as set forth on Schedule 3.5
for certain warrants to acquire shares of post-Merger Prism Stock, and that
Prism will grant additional warrants to Ingram to acquire shares of post-Merger
Prism Stock, substantially as described in the Override Agreement.
3.6 Subsidiaries. VCI does not own, directly or indirectly,
------------
securities or other ownership interests in any other entity, nor is VCI a party
to any agreement relating to the formation of any other entity or joint venture.
3.7 Consents. Schedule 3.7 sets forth each Contract of VCI
--------
and each of the VCI Permits that requires a consent, approval, authorization,
order or other action of or filing with any Person as a result of the execution,
delivery and performance of this Agreement or any of the other VCI Documents or
the consummation of the transactions contemplated hereby or thereby (each of the
foregoing, a "VCI Consent").
3.8 Financial Statements.
--------------------
(a) VCI has delivered to Prism true and correct copies
of the unaudited financial statements of VCI consisting of a statement of
operations for the eight-month period ended August 31, 1996, and a balance sheet
as of August 31, 1996 (the "VCI 1996 Balance Sheet"), together with audited
financial statements consisting of statements of operations and statements of
cash flows for the years ended December 31, 1994 and 1995, and balance sheets as
of December 31, 1994 and 1995 (collectively, the "VCI Financial Statements").
The VCI Financial Statements fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis, the financial
position of VCI as of the dates thereof and the results of operations of VCI for
the periods then ended.
(b) Except for (i) those liabilities specifically
reflected or reserved against on the VCI 1996 Balance Sheet, (ii) those current
liabilities for trade or business obligations incurred since August 31, 1996 in
connection with the purchase of goods or services in the ordinary course of
VCI's business and consistent with past practices (none of which is,
individually or in the aggregate, material and none of which is for breach of
contract, breach of warranty, tort or infringement), (iii) those liabilities
arising under any Contract (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement) or (iv) those matters otherwise
disclosed on Schedule 3.8 (none of which liabilities, except as stated in a
Schedule hereto, is for breach of contract, breach of warranty, tort or
infringement), VCI does not have, as of the date hereof, any direct or indirect
indebtedness, liabilities, claims, losses, damages, deficiencies, obligations
(including, without limitation, the obligation
11
<PAGE>
to indemnify any other Person for any liabilities or expenses which have been or
may in the future be incurred by or asserted against such other Person, or
responsibilities, known or unknown, liquidated or unliquidated, accrued,
absolute, contingent or otherwise, and whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement), which individually or in the aggregate are material to the condition
(financial or otherwise), assets, liabilities, business or operations of VCI.
To the best knowledge of VCI, there are no circumstances, conditions, events or
arrangements which may hereafter give rise to any liabilities of VCI except in
the ordinary course of business or as otherwise set forth in this Section 3.8 or
in a Schedule to this Agreement.
3.9 Absence of Certain Changes. Except as set forth on
--------------------------
Schedule 3.9, since August 31, 1996, VCI has conducted its business in the
ordinary course consistent with past practices, and there has not been:
(a) any Material Adverse Change or any event,
occurrence, development or state of circumstances or facts which could
reasonably be expected to result in a Material Adverse Change;
(b) any dividend or other distribution declared or paid
with respect to any of the VCI Stock;
(c) any loan or forgiveness of indebtedness to any
holder of VCI Stock or any Affiliate thereof;
(d) any bonus, salary or other compensation paid or
agreed to be paid to any employee except in accordance with Schedule 3.17
hereto;
(e) any incurrence of indebtedness for borrowed money;
(f) any creation or other incurrence of any Lien on any
of its assets;
(g) any transaction, Contract entered into, or
commitment made, by VCI relating to its business, operations or any of its
assets (including the acquisition or disposition of any assets) or any
relinquishment by VCI of any contract or other right, in either case other than
transactions and commitments in the ordinary course of business consistent with
past practices and those contemplated by this Agreement (other than payments of
compensation); or
(h) any transfer of any assets of VCI to any Person who
is a shareholder or other Affiliate of VCI.
12
<PAGE>
3.10 Title to Assets. VCI has good and marketable title to
---------------
its material properties and assets owned or stated to be owned by VCI, free and
clear of all Liens except: (i) as set forth in the VCI Financial Statements,
(ii) Liens for current taxes not yet due, (iii) Liens incurred in the ordinary
course of business, (iv) Liens that are not substantial in character, amount or
extent (individually or collectively) and that do not (individually or
collectively) materially detract from the value, or interfere with present use,
of the property subject thereto or affected thereby, or otherwise materially
impair the conduct of business of VCI, or (v) as set forth on Schedule 3.10.
All of the material properties and assets used by VCI or held by VCI, other than
any leased assets listed on Schedule 3.10, are owned by VCI, free and clear of
all Liens except as set forth on Schedule 3.10.
3.11 Real Property. Schedule 3.10 sets forth a true and
-------------
complete list of real property, including leaseholds and all other interests in
real property, owned by VCI. VCI has good and marketable title to such real
property and valid leasehold interest in such leaseholds, free and clear of all
Liens, except: (i) for rights of lessors, co-lessees or sublessees and such
matters that are reflected in the relevant lease, (ii) current Taxes not yet due
and payable, (iii) Liens of public record, (iv) Liens, if any, as do not
materially detract from the value of or materially interfere with the present
use of such property, and (v) as set forth on Schedule 3.10.
3.12 Litigation. Other than as set forth on Schedule 3.12,
----------
there is no action, suit, investigation, hearing or proceeding pending against
or, to the best knowledge of VCI, threatened against or affecting, VCI, any of
its officers, directors, or shareholders, its business or any assets or any
Contract before any court or arbitrator or any governmental body, agency
official, which would have a Material Adverse Effect, or in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement. There are no outstanding judgments against VCI.
3.13 Contracts. Each Contract of VCI is a valid and binding
---------
agreement of VCI, and is in full force and effect, and VCI is not in default
(whether with or without the passage of time or the giving of notice or both)
under the terms of any such Contract. VCI has not assigned, delegated, or
otherwise transferred any of its rights or obligations with respect to any
Contracts, or granted any power of attorney with respect thereto. Schedule 3.13
is a true and correct list of all Contracts involving an outstanding monetary
obligation greater than Twenty-Five Thousand Dollars ($25,000), or with a
remaining term greater than one year.
3.14 Licenses and Permits. Schedule 3.14 correctly lists
--------------------
each material license, franchise, permit or other similar authorization
affecting, or relating in any way to VCI's business, together with the name of
the government agency or entity issuing such license or permit (the "VCI
Permits"). The VCI Permits are valid
13
<PAGE>
and in full force and effect and, assuming the related VCI Consents have been
obtained prior to the Closing Date, are transferable by VCI, and none of the VCI
Permits will, assuming the related VCI Consents have been obtained prior to the
Closing Date, be terminated or impaired or become terminable as a result of the
transactions contemplated by this Agreement.
3.15 Compliance with Laws. VCI is not in material violation
--------------------
of, has not violated, and is neither under investigation with respect to nor has
been threatened to be charged with or given notice of any violation of, any law,
rule, statute, ordinance or regulation, or judgment, order or decree entered by
any court, arbitrator or governmental authority, domestic or foreign, materially
applicable to VCI's assets or the conduct of its business.
3.16 Intangible Property.
-------------------
(a) Schedule 3.16 sets forth all material VCI
Intangible Property and identifies each material contract to which VCI is a
party relating to any item of VCI Intangible Property. No Contracts require VCI
to (or will require Prism to) pay, or entitles it to receive any material
royalty, license fee, or other compensation with respect to the VCI Intangible
Property. Except as set forth on Schedule 3.16, no VCI Intangible Property
development was funded by a third Person (other than any shareholder of VCI) or
was conducted by or as a joint venture, in partnership, or otherwise in
collaboration, with any other Person (except an employee solely in his or her
capacity as such). The transactions contemplated hereby will not adversely
affect in any manner any item or part of the VCI Intangible Property or the
nature or usefulness thereof in the hands of Prism.
(b) All VCI Intangible Property and all federal, state
and foreign registrations with respect thereto, and all applications therefor
are valid and in full force and effect and are not subject to any taxes,
maintenance fees or actions.
(c) None of the VCI Intangible Property which is
purportedly an asset of VCI was developed or conceived by any VCI employee,
officer or director while employed by any other Person and no VCI shareholder
has violated any agreement with any former employer which pertains to any of
such property.
3.17 Employees.
---------
(a) Schedule 3.17 sets forth a true and complete list
of the names, titles, annual salaries or wage rates and other compensation and
office location of all employees of VCI, indicating part-time and full-time
employment, and all changes in salaries and wage rates per employee since
January 1, 1996.
14
<PAGE>
(b) Except as set forth on Schedule 3.17, VCI is not a
party to or subject to any employment contract, consulting agreement, collective
bargaining agreement, confidentiality agreement restricting the activities of
VCI, non-competition agreement restricting the activities of VCI, or any similar
agreement.
3.18 Prepaids. Except as set forth on Schedule 3.18, VCI
--------
has not received any material payments with respect to any services to be
rendered or goods to be provided after the Closing.
3.19 Taxes.
-----
(a) VCI has filed all federal and foreign income tax
returns, all state and local franchise and income tax, real and personal
property tax, sales and use tax, premium tax, excise tax, employment tax and
other tax returns of every character required to be filed by it and has paid in
full all Taxes (including, without limitation, all tax deposits), together with
any interest and penalties owing in connection therewith, shown on such returns
to be due in respect of the periods covered by such returns, other than taxes
which are being contested in good faith and for which adequate reserves have
been established. Adequate provision has been made in the Books and Records of
VCI and, to the extent required by generally accepted accounting principals,
reflected in the VCI Financial Statements, for all Tax liabilities, including
interest or penalties, whether or not due and payable and whether or not
disputed, with respect to any and all Taxes for the periods covered by the VCI
Financial Statements and for all prior periods. Schedule 3.19 sets forth the
date or dates through which the IRS has examined the federal income taxes of VCI
and the date or dates through which any foreign, state, local or other taxing
authority has examined any other tax returns of VCI. Schedule 3.19 also contains
a complete list of each year for which any federal, state, local or foreign tax
authority has obtained or has requested an extension of the statute of
limitations from VCI and lists each tax case of VCI currently pending in audit,
at the administrative appeals level or in litigation. Schedule 3.19 further
lists the date and issuing authority of each statutory notice of deficiency,
notice or proposal assessment and revenue agent's report issued to VCI within
the last twelve (12) months. Except as set forth on Schedule 3.19, to VCI's best
knowledge, neither the IRS nor any foreign, state, local or other taxing
authority has, during the past three years, examined or is in the process of
examining any federal, foreign, state, local or other tax returns of VCI.
Neither the IRS nor any foreign, state, local or other taxing authority is now
asserting or threatening to assert any deficiency or claim for additional taxes
(or interest thereon or penalties in connection therewith) except as set forth
on Schedule 3.19.
(b) VCI has not made any requests for rulings, and VCI
has not received any subpoenas or requests for information, or notices of
proposed reassessment of any property owned or leased by VCI. There are no Liens
for Taxes
15
<PAGE>
upon any property or assets of VCI (other than for real property taxes, not yet
due, on premises leased by VCI for which VCI will be liable under the terms of
the applicable leases).
(c) VCI has delivered to Prism true and complete copies
of all federal, state and foreign income tax returns (together with any Revenue
Agent's Reports) filed by VCI relating to its operations for taxable years ended
1994 and 1995.
(d) VCI has not filed a consent pursuant to Section
341(f) of the Code, and has not filed, and would not be deemed to have filed,
any election under Section 338 of the Code.
(e) VCI has never been, nor is VCI currently, bound by
or subject to any obligation under any agreement relating to the sharing of any
liability for, or payment of, Taxes with any other Person.
(f) VCI has withheld or will withhold, and has paid over
or will pay over to applicable taxing authorities amounts from its employees and
has filed or will file all federal, foreign, state, and local returns and
reports with respect to employee income tax withholding and social security and
unemployment Taxes for all periods (or portions thereof) ending on or before the
Effective Date, in compliance with the provisions of the Code and other
applicable federal, foreign, state and local laws.
3.20 Environmental Compliance. VCI has not received any
------------------------
notice that it or any of its properties have not been or are not now in complete
compliance with all applicable environmental law.
3.21 Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 3.21, as of the date
hereof:
(1) The employment of each employee of VCI may be
terminated immediately by VCI, except as otherwise provided by statute or
decisional authority;
(2) To VCI's best knowledge, no key executive
employee of VCI and no group of employees of VCI has plans to terminate his, her
or its employment at or prior to the Closing, whether or not as a result of the
transactions contemplated herein; and
16
<PAGE>
(3) VCI has not had any material labor relations
problems.
(4) VCI has complied in all material respects with
all collective bargaining agreements and all applicable laws and orders relating
to the employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of Taxes and other sums as required
by appropriate governmental authorities and has withheld and paid to the
appropriate governmental authorities, or is holding for payment not yet due to
such governmental authorities, all amounts required to be withheld from such
employees of VCI and is not liable for any arrears of wages, Taxes, penalties or
other sums for failure to comply with any of the foregoing. No present or former
employee, officer or director of VCI has notified VCI that he or she has or will
have at the Effective Time, any claim against VCI for any matter, including but
not limited to (i) overtime pay for work done through the Effective Time; (ii)
wages or salary for the work done through the Effective Time; (iii) vacation
time off or pay in lieu of vacation time off for the period through the
Effective Time; (iv) any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours or work-place conditions; or (v)
injuries or other damages which are not fully covered by VCI's insurance
policies; except, in the case of clauses (i) and (ii), for amounts accrued in
the current pay period that are not yet due and payable, and in the case of
clause (iii), for vacation accrued in accordance with VCI's policies, which its
employees have not yet taken.
(b) Except as disclosed on Schedule 3.21, as of the date
hereof, VCI has not received any notice of any:
(1) unfair labor practice complaint against VCI
pending before the National Labor Relations Board or any state or local agency;
(2) pending labor strike or other material labor
trouble affecting VCI;
(3) material labor grievance pending against VCI;
(4) pending representation question respecting the
employees of VCI; or
(5) pending arbitration proceedings arising out of
or under any collective bargaining agreement to which VCI is a party.
(c) In addition: (i) none of the matters specified in
clauses (1) through (5) is threatened against VCI; (ii) no union organizing
activities
17
<PAGE>
have taken place with respect to VCI; and (iii) no basis exists for which a
claim may be made under any collective bargaining agreement to which VCI is a
party.
3.22 Pension and Benefit Plans.
-------------------------
(a) All accrued obligations of VCI applicable to its
employees, whether arising by operation of law, by contract, by past custom or
otherwise, for payments by VCI to trusts or other funds or to any governmental
agency, with respect to unemployment compensation benefits, social security
benefits or any other benefits for its employees with respect to the employment
of said employees through the date hereof have been paid or adequate accruals
therefor have been made on, as applicable, the Books and Records of VCI and the
VCI Financial Statements.
(b) Except as disclosed on Schedule 3.22, as of the date
hereof:
(1) Neither VCI nor any of its ERISA Affiliates
maintains or has any obligations to contribute to, or has in effect or has
committed to adopt, any Pension Plan or any Welfare Plan;
(2) Each ERISA Plan conforms in all material
respects to all applicable laws and orders, including ERISA and the applicable
provisions of the Code. All notices, reports, returns, applications and
disclosures have been timely made which are required to be made to the Internal
Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty
Corporation, any participants in the ERISA Plans, any trustee, or any insurer
with respect to the ERISA Plans;
(3) VCI and its ERISA Affiliates have made or
provided for (with fully-funded reserves) all contributions heretofore required
to have been made under all of the ERISA Plans, and will, by the Closing Date,
have made or provided for (with fully-funded reserves) all contributions
required to be made on or before the Closing Date under all such plans;
(4) No ERISA Plan nor any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction which may
subject any of such ERISA Plans, any such trust, or any party dealing with such
ERISA Plans or any such trust, to the Tax or penalty on prohibited transactions
imposed by Section 4975 of the Code or to a civil penalty imposed by Section 502
of ERISA;
18
<PAGE>
(5) There are no material actions, claims or
lawsuits which have been asserted or instituted against the assets of any of the
trusts under the ERISA Plans, and no basis for such action, claim or lawsuit
exists, and no such action, claim or lawsuit has been threatened;
(6) VCI has not agreed to indemnify any other party
for any liabilities or expenses which have been or may in the future be incurred
by or asserted against such other party in respect of any ERISA Plan;
(7) Each Pension Plan constituting one of the ERISA
Plans is qualified under Section 401 of the Code, each of the trusts maintained
with respect thereto is exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred which would cause the loss of such
qualification or exemption or the imposition of any penalty under Section 4971
of the Code;
(8) The assets of each Pension Plan constituting
one of the ERISA Plans (including Pension Plans maintained by an ERISA
Affiliate) are sufficient to pay all liabilities of the plan, including, without
limitation, all liabilities to pay benefits to any past or present participant
or beneficiary in such plan, any expense incurred in administering the plan, and
any liabilities for Taxes which may be imposed on the plan or on any trust
maintained in connection with the plan;
(9) The value of all accrued benefits under each
Pension Plan constituting one of the ERISA Plans (including Pension Plans
maintained by an ERISA Affiliate) which is a "defined benefit plan" within the
meaning of Section 3(35) of ERISA, including each "multi-employer plan" within
the meaning of Section 3(37) of ERISA, does not exceed, on an accrual basis, the
aggregate value of the assets of each such plan;
(10) There has been no "reportable event," within
the meaning of Section 4043(b) of ERISA, with respect to any Pension Plan which
constitutes one of the ERISA Plans since the effective date of Section 4043(b)
of ERISA;
(11) The transaction contemplated by this Agreement
will not result in a reportable event, within the meaning of ERISA Section 4043,
other than a reportable event with respect to which (i) the ERISA Section 4043
reportable event notice requirement has been waived or (ii) the Pension Benefit
Guaranty Corporation will not apply a penalty for failure to satisfy the
reportable event notice requirement;
(12) Neither VCI nor any of its ERISA Affiliates has
any liability to the Pension Benefit Guaranty Corporation pursuant to Title IV
of
19
<PAGE>
ERISA in respect of any Pension Plan constituting one of the ERISA Plans
(including Pension Plans maintained, or formerly maintained, by an ERISA
Affiliate);
(13) Neither VCI nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any multi-employer plan;
(14) Neither VCI nor any of its ERISA Affiliates has
terminated a defined benefit plan or multi-employer plan or suffered or
otherwise caused a "complete withdrawal" or "partial withdrawal" as such terms
are respectively defined in Sections 4203 and 4205 of ERISA from any multi-
employer plan. Since April 1, 1979, neither VCI nor any of its ERISA Affiliates
has complied with Section 4204 of ERISA in order to avoid any such "complete
withdrawal" or "partial withdrawal;"
(15) The transaction contemplated by this Agreement
will not result in a VCI liability for severance or termination pay or result in
increased employee benefits becoming payable to any employees of VCI;
(16) Neither VCI nor any of its ERISA Affiliates has
any unpaid liability in respect of any employee for any contributions and/ or
premiums due under any Welfare Plan constituting one of the ERISA Plans;
(17) Neither VCI nor its ERISA Affiliates has any
liability as to any benefits to which any employee may be entitled under any
Welfare Plan constituting one of the ERISA Plans, whether for benefits due or
claims filed; and
(18) VCI does not maintain any health or life
insurance plan that provides for continuing benefits or coverage for any
participant or any spouse, dependent or beneficiary under such plan after
termination of employment, other than as may be required under Section 4980B of
the Code and regulations thereunder ("COBRA"). VCI is in compliance with the
COBRA notice and continuation coverage requirements with respect to Plans
maintained by VCI.
(c) True, correct and complete copies of the following
documents, with respect to the each of the ERISA Plans, have been delivered to
Prism:
(1) Each ERISA Plan document, employment contract,
policy, procedure or other governing instrument relating to a ERISA Plan,
including all amendments, supplements, collective bargaining agreements,
letters, memoranda, understandings and any other document reasonably necessary
to reflect the terms and conditions of each ERISA Plan.
20
<PAGE>
(2) The most recent summary plan description of
each ERISA Plan for which a summary plan description is required under ERISA,
and summaries of material modification thereto.
(3) All instruments under which the assets of any
ERISA Plan are held or managed and benefits provided, including, but not limited
to, insurance contracts, trust agreements, custodial contracts and investment
management agreements.
(4) The two most recent Forms 5500, 5500-C or 5500-
R for each ERISA Plan for which such filing is required, with all attachments
and schedules thereto.
(5) The two most recent annual financial statements
for each ERISA Plan, if not included with such Form 5500 (5500-C or 5500-R).
(6) The most recent actuarial valuation report for
each ERISA Plan (as applicable).
(7) With respect to each ERISA Plan that has
received a determination letter under Section 401(a) of the Code, and any
voluntary employee benefit association trust that has received a determination
letter under Section 501(c) of the Code, the most recent Internal Revenue
Service determination letter (including any letter concerning the tax-exempt
status of any trust under Sec tion 501(a) of the Code), the application
submitted when requesting such determination letter, and any subsequently filed
determination letter request.
(d) All Pension Plans shall be terminated by VCI prior
to the Effective Time.
3.23 Insurance. Schedule 3.23 sets forth a true and correct
---------
list of all policies or binders of fire, liability, workers' compensation,
vehicular or other insurance held by or on behalf of VCI specifying the insurer,
the policy number or covering note number with respect to binders, and
describing each pending claim thereunder of more than Five Thousand Dollars
($5,000). Such policies and binders are in full force and effect. No such policy
is terminable or cancelable by the insurer by virtue of the consummation of the
transactions contemplated herein.
3.24 Books and Records. VCI has heretofore furnished or made
-----------------
available to Prism for its examination the following, each of which is, and will
be maintained as to remain until the Closing, accurate and complete in all
material respects:
21
<PAGE>
(a) copies of the Articles of Incorporation and bylaws,
as in effect on the date of this Agreement;
(b) the minute books of VCI containing all proceedings,
consents, actions and meetings of its shareholders and Boards of Directors;
(c) copies of all VCI Permits, orders and consents with
respect to VCI's securities issued by any administrative agency or governmental
body regulating the issuance or transfer of such securities and all applications
for such permits, orders and consents;
(d) the stock transfer books of VCI setting forth all
transfers of its securities;
(e) copies of all agreements and documents referred to
in any VCI Disclosure Schedule;
(f) all other Books and Records of VCI; and
(g) an accurate list of all of the incumbent officers
and directors of VCI.
3.25 Inventory. The inventory of VCI reflected on the VCI
---------
1996 Balance Sheet, as well as other inventory items acquired since the date of
the VCI 1996 Balance Sheet that are now the property of VCI, are of such quality
and held in such quantities as are being used and will be useable, are being
sold and will be saleable, or are rented or will be rentable, in the ordinary
course of the business of VCI. The inventory excludes slow-moving items and
obsolete items, and are recorded at cost and amortized over their estimated life
with no provision for salvage value. Videocassettes which are considered base
stock are amortized over 36 months on a straight-line basis. Purchases of new
release videocassettes and video games are amortized whereby the tenth and any
succeeding copies of each title per store are amortized over nine months on an
accelerated basis, the fourth through ninth copies of each title per store are
amortized on an accelerated basis; and copies one through three of each title
per store are amortized as base stock. Since the date of the VCI 1996 Balance
Sheet, VCI has continued to replenish its inventories in a normal and customary
manner consistent with practice prevailing in the retail video sales and rental
industry.
3.26 Accuracy and Provision of Information. None of the
-------------------------------------
documents or other information made available to Prism or its Affiliates,
attorneys, accountants, agents or representatives in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material
22
<PAGE>
fact necessary in order to make the statements contained therein not misleading.
VCI has provided Prism all material information regarding its business and
operations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PRISM
Prism represents and warrants to VCI that:
4.1 Corporate Existence and Power. Prism is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. Schedule 4.1 sets forth those jurisdictions in which
Prism is required to be, and is, qualified to do business as a foreign
corporation because of the character of the property owned or leased by Prism or
the nature of its activities.
4.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by Prism of this Agreement and the other Prism Documents and the
consummation by Prism of the transactions contemplated hereby and thereby are
within its respective corporate powers and as of the Closing will have been duly
authorized by all necessary corporate action. Subject to obtaining all
requisite corporate approvals and upon the Confirmation Order becoming a Final
Order, this Agreement is, and the other Prism Documents shall be, as of the
Closing Date, the legal, valid and binding obligations of Prism, enforceable
against Prism in accordance with their respective terms.
4.3 Governmental Authorization. Other than the entry by the
--------------------------
Court of the Confirmation Order, and the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and the Agreement of Merger
with the Secretary of State of the State of California as contemplated by
Section 2.1, the execution, delivery and performance by Prism of this Agreement
and the other Prism Documents require no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
4.4 Non-Contravention. At the Effective Time, the execution,
-----------------
delivery and performance by the Prism of this Agreement and other Prism
Documents will not (i) contravene or conflict with its certificates of
incorporation or bylaws, (ii) contravene or conflict with any provision of any
law, statute, rule, regulation, judgment, injunction, order, writ, or decree
binding upon them, (iii) assuming the obtaining of all Prism Consents and the
Confirmation Order becoming a Final Order, constitute a default under or breach
of any Contract to which Prism is a party or by
23
<PAGE>
which any of its assets is or may be bound, or result in the creation or
imposition of any Lien on any of Prism's assets.
4.5 Prism Capitalization. At the Effective Time: (i) the
--------------------
authorized capital stock of Prism will consist solely of 20,000,000 shares of
common stock, $.01 par value, 10,000,000 of which will be issued and
outstanding, after giving effect to the Merger, (ii) such issued and outstanding
shares will be duly authorized, validly issued, fully paid and nonassessable,
(iii) except for such issued and outstanding shares, there will be no shares of
capital stock or other securities or other equity interests of Prism issued and
outstanding and (iv) except as set forth on Schedule 4.5, there will be no
outstanding options, warrants or other rights in or with respect to the unissued
shares of Prism Stock nor any securities convertible into such stock, and Prism
will not be obligated to issue any additional shares of Prism Stock or any
options, warrants or other rights in or with respect to the unissued shares of
such stock or any other securities convertible into such stock. All issued and
outstanding shares of Prism Stock have been validly issued in full compliance
with all federal and state securities law, and are not subject to any rights or
obligations that require the registration of such shares.
4.6 Finders' Fees. Except for Chanin and Company, whose fees
-------------
will be paid or accrued by Prism prior to the consummation of the Merger, there
is no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of Prism or any of its respective
Affiliates who might be entitled to any fee or commission from Prism or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
4.7 Subsidiaries. Except as set forth on Schedule 4.7, Prism
------------
does not own, directly or indirectly, securities or other ownership interests in
any other entity, nor is Prism a party to any agreement relating to the
formation of any other entity or joint venture.
4.8 Litigation. Other than the Case, except as set forth on
----------
Schedule 4.8, there is no action, suit, investigation, hearing or proceeding
pending against or, to the best knowledge of Prism, threatened against or
affecting, Prism, any of its officers, directors, or shareholders, its business
or any assets or any Contract, before any court or arbitrator or any
governmental body, agency official, or which would have a material adverse
effect or in any manner challenges or seeks to prevent, enjoin, alter or delay
the transactions contemplated hereby.
24
<PAGE>
4.9 Consents. Schedule 4.9 sets forth each Contract and
--------
Permit of Prism that requires a consent, approval, authorization, order or other
action of or filing with any Person as a result of the execution, delivery and
performance of this Agreement or any of the other Prism Documents or the
consummation of the transactions contemplated hereby or thereby.
4.10 Financial Statements.
--------------------
(a) Prism has delivered to VCI true and correct copies
of the audited financial statements of Prism consisting of a statement of
operations and statement of cash flows for the six-month period ended July 31,
1996, and a balance sheet as of July 31, 1996, together with audited statements
of operations and statements of cash flows for the fiscal years ended January
31, 1996, 1995 and 1994, and audited balance sheets as of January 31, 1996, 1995
and 1994 (collectively, the Prism Financial Statements"). The Prism Financial
Statements fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis, the financial position of Prism as of
the dates thereof and the results of operations of Prism for the period or years
then ended.
(b) At the Effective Time, provided that the
Confirmation Order has become a Final Order, and except for (i) those
liabilities specifically reflected or reserved against under the Plan, (ii)
those current liabilities for trade or business obligations incurred since July
31, 1996 in connection with the purchase of goods or services in the ordinary
course of Prism's business and consistent with past practices, (none of which
is, individually or in the aggregate, material and none of which is for breach
of contract, breach of warranty, tort or infringement), (iii) those liabilities
arising under any Contract (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement) or (iv) those liabilities otherwise
disclosed on Schedule 4.10 (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement), Prism does not have, as of the date
hereof, any direct or indirect indebtedness, liabilities, claims, losses,
damages, deficiencies, obligations (including, without limitation, the
obligation to indemnify any other Person for any liabilities or expenses which
have been or may in the future be incurred by or asserted against such other
Person, or responsibilities, known or unknown, liquidated or unliquidated,
accrued, absolute, contingent or otherwise, and whether or not of a kind
required by generally accepted accounting principles to be set forth on a
financial statement), which individually or in the aggregate are material to the
condition (financial or otherwise), assets, liabilities, business, operations or
prospects of Prism. To the best knowledge of Prism and except as provided for by
the Plan or which relates to the Case, there are no circumstances, conditions,
events or arrangements which may hereafter give rise to any liabilities of Prism
except in the ordinary course of business or as otherwise set forth in this
Section 4.10.
25
<PAGE>
4.11 Absence of Certain Changes. Except as set forth on
--------------------------
Schedule 4.11, or as provided for by the Plan, since July 31, 1996, there has
not been:
(a) any dividend or other distribution declared or paid
with respect to any of the Prism Stock;
(b) any loan or forgiveness of indebtedness to any
holder of Prism Stock or any Affiliate thereof;
(c) any bonus, salary or other compensation paid or
agreed to be paid to any employee except in accordance with Schedule 4.18
hereto;
(d) any incurrence of indebtedness for borrowed money;
(e) any creation or other incurrence of any Lien on any
of its assets;
(f) any transaction, Contract entered into, or
commitment made, by Prism relating to its business, operations or any of its
assets (including the acquisition or disposition of any assets) or any
relinquishment by Prism of any Contract or other right, in either case other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement or in accordance
with the Plan; or
(g) any transfer of any assets of Prism to any Person
who is a shareholder or other Affiliate of Prism.
4.12 Title to Assets. At the Effective Time, provided that
---------------
the Confirmation Order has become a Final Order, and except as set forth on
Schedule 4.12, Prism will have good and marketable title to its material
properties and assets owned or stated to be owned by Prism, free and clear of
all Liens except the Liens specified on Schedule 4.12 which survive pursuant to
the terms of the Plan.
4.13 Real Property. Schedule 4.13 sets forth a true and
-------------
complete list of real property, including leaseholds and all other interests in
real property, owned by Prism. Prism has good and marketable title to such real
property and valid leasehold interest in such leaseholds, free and clear of all
Liens, except: (i) for rights of lessors, co-lessees or sublessees and such
matters that are reflected in the relevant lease, (ii) current Taxes not yet due
and payable, (iii) Liens of public record, (iv) Liens, if any, as do not
materially detract from the value of or materially interfere with the present
use of such property, and (v) set forth on Schedule 4.13.
26
<PAGE>
4.14 Intangible Property.
-------------------
(a) Schedule 4.14 sets forth all material Prism
Intangible Property and identifies each material contract to which Prism is a
party relating to any item of Prism Intangible Property. Except as set forth on
Schedule 4.14 (and other than Contracts that exclusively relate to current
accounts receivable of Prism), (i) no Contracts require Prism to pay, or entitle
Prism to receive, any royalty, license fee, or other compensation with respect
to the Prism Intangible Property, (ii) no Prism Intangible Property development
was funded by a third Person (other than any shareholder of Prism) or was
conducted by or as a joint venture, in partnership, or otherwise in
collaboration, with any other Person (except an employee solely in his or her
capacity as such) and (iii) the transactions contemplated hereby will not
adversely affect in any manner any item or part of the Prism Intangible Property
or the nature or usefulness thereof in the hands of VCI.
(b) All Prism Intangible Property and all federal, state
and foreign registrations with respect thereto, and all applications therefor
are valid and in full force and effect and are not subject to any taxes,
maintenance fees or actions.
(c) None of the Prism Intangible Property which is pur
portedly an asset of Prism was developed or conceived by any Prism employee,
officer or director while employed by any other Person and no Prism shareholder
has violated any agreement with any former employer which pertains to any of
such property.
4.15 Contracts. At the Effective Time, after giving effect to
---------
the Final Order and the Merger, each Contract of Prism that will exist as of the
Effective Time will be a valid and binding agreement of Prism and in full force
and effect, and Prism will not be in default (whether with or without the
passage of time or the giving of notice or both) under the terms of any such
Contract. Schedule 4.15 is a true and correct list of all Contracts of Prism
(other than Contracts that exclusively relate to current accounts receivable of
Prism) that will exist at the Effective Time involving an outstanding monetary
obligation greater than Twenty-Five Thousand Dollars ($25,000) or with a
remaining term greater than one year.
4.16 Licenses and Permits. Schedule 4.16 correctly lists each
--------------------
material license, franchise, permit or other similar authorization affecting, or
relating in any way to Prism's business, together with the name of the
government agency or entity issuing such license or permit (the "Prism
Permits"). The Prism Permits are valid and in full force and effect and,
assuming the related Prism Consents have been obtained prior to the Closing
Date, none of the Prism Permits will, be terminated or impaired or become
terminable as a result of the transactions contemplated by this Agreement.
27
<PAGE>
4.17 Compliance with Laws. Prism is not in material
--------------------
violation of, have not violated, and is neither under investigation with respect
to nor have been threatened to be charged with or given notice of any violation
of, any law, rule, statute, ordinance or regulation, or judgment, order or
decree entered by any court, arbitrator or governmental authority, domestic or
foreign, applicable to Prism's assets or the conduct of its business.
4.18 Employees.
---------
(a) Schedule 4.18 sets forth a true and complete list of
the names, titles, annual salaries or wage rates and other compensation and
office location of all employees of Prism, indicating part-time and full-time
employment, and all changes in salaries and wage rates per employee since
January 1, 1996.
(b) Prism is not a party to or subject to any employment
contract, consulting agreement, collective bargaining agreement, confidentiality
agreement restricting the activities of Prism, non-competition agreement
restricting the activities of Prism, or any similar agreement.
4.19 Taxes.
-----
(a) Except as set forth on Schedule 4.19, Prism has
filed all federal and foreign income tax returns, all state and local franchise
and income tax, real and personal property tax, sales and use tax, premium tax,
excise tax, employment tax and other tax returns of every character required to
be filed by it and has paid in full all Taxes (including, without limitation,
all tax deposits), together with any interest and penalties owing in connection
therewith, shown on such returns to be due in respect of the periods covered by
such returns, other than taxes which are being contested in good faith and for
which adequate reserves have been established. The tax and audit positions taken
by Prism in connection with the tax returns described in the preceding sentence
were reasonable and asserted in good faith. Adequate provision has been made in
the Books and Records of Prism and, to the extent required by generally accepted
accounting principals, reflected in the Prism Financial Statements, for all Tax
liabilities, including interest or penalties, whether or not due and payable and
whether or not disputed, with respect to any and all Taxes for the periods
covered by the Prism Financial Statements and for all prior periods. Schedule
4.19 sets forth the date or dates through which the IRS has examined the federal
income taxes of Prism and the date or dates through which any foreign, state,
local or other taxing authority has examined any other tax returns of Prism.
Schedule 4.19 also contains a complete list of each year for which any federal,
state, local or foreign tax authority has obtained or has requested an extension
of the statute of limitations from Prism and lists each tax case of Prism
currently pending in audit, at the administrative appeals level or in
litigation. Schedule 4.19 further lists the date
28
<PAGE>
and issuing authority of each statutory notice of deficiency, notice or proposal
assessment and revenue agent's report issued to Prism within the last twelve
(12) months. Except as set forth on Schedule 4.19, to Prism's best knowledge,
neither the IRS nor any foreign, state, local or other taxing authority has,
during the past three years, examined or is in the process of examining any
federal, foreign, state, local or other tax returns of Prism. Neither the IRS
nor any foreign, state, local or other taxing authority is now asserting or
threatening to assert any deficiency or claim for additional taxes (or interest
thereon or penalties in connection therewith) except as set forth on Schedule
4.19.
(b) Except as set forth on Schedule 4.19, Prism has not
made any requests for rulings, and Prism has not received any subpoenas or
requests for information, notices of proposed reassessment of any property owned
or leased by Prism, and there are no Liens for Taxes upon any property or assets
of Prism (other than any real property taxes, not yet due, on premises leased by
Prism for which Prism will be liable under the terms of the applicable leases.
(c) Prism has delivered to VCI true and complete copies
of all federal, state and foreign income tax returns (together with any Revenue
Agent's Reports) filed by Prism relating to its operations for taxable years
ended 1993, 1994 and 1995.
(d) Prism has not filed a consent pursuant to Section
341(f) of the Code, and has not filed, and would not be deemed to have filed,
any election under Section 338 of the Code.
(e) Prism has never been, nor is Prism currently, bound
by or subject to any obligation under any agreement relating to the sharing of
any liability for, or payment of, Taxes with any other Person.
(f) Except as set forth on Schedule 4.19, Prism has
withheld or will withhold, and has paid over or will pay over to applicable
taxing authorities amounts from its employees and has filed or will file all
federal, foreign, state, and local returns and reports with respect to employee
income tax withholding and social security and unemployment Taxes for all
periods (or portions thereof) ending on or before the Effective Date, in
compliance with the provisions of the Code and other applicable federal,
foreign, state and local laws.
4.20 Environmental Compliance. Prism has not received any
------------------------
notice that it or any of its properties have not been or are not now in complete
compliance with all applicable environmental law.
29
<PAGE>
4.21 Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 4.21, as of the date
hereof:
(1) The employment of each employee of Prism may be
terminated immediately by Prism, except as otherwise provided by statute or
decisional authority;
(2) No key executive employee of Prism and no group
of employees of Prism has plans to terminate his, her or its employment at or
prior to the Closing, whether or not as a result of the transactions
contemplated herein; and
(3) Prism has not had any material labor relations
problems.
(4) Prism has complied in all material respects
with any collective bargaining agreements and all applicable laws and orders
relating to the employment of labor, including those related to wages, hours,
collective bargaining and the payment and withholding of Taxes and other sums as
required by appropriate governmental authorities and has withheld and paid to
the appropriate governmental authorities, or is holding for payment not yet due
to such governmental authorities, all amounts required to be withheld from such
employees of Prism and is not liable for any arrears of wages, Taxes, penalties
or other sums for failure to comply with any of the foregoing. Other than as
provided for under the Plan, at the Effective Time, no present or former
employee, officer or director of Prism will have notified Prism that he or she
has any claim against Prism for any matter, including but not limited to (i)
overtime pay for work done through the Effective Time; (ii) wages or salary for
the work done through the Effective Time; (iii) vacation time off or pay in lieu
of vacation time off for the period through the Effective Time; (iv) any
violation of any statute, ordinance or regulation relating to minimum wages or
maximum hours or work-place conditions; or (v) injuries or other damages which
are not fully covered by Prism's insurance policies; except, in the case of
clauses (i) and (ii), for amounts accrued in the current pay period that are not
yet due and payable, and in the case of clause (iii), for vacation accrued in
accordance with Prism's policies, which its employees have not yet taken.
(b) Except as disclosed on Schedule 4.21, as of the date
hereof, Prism has not received any notice of any:
(1) unfair labor practice complaint against Prism
pending before the National Labor Relations Board or any state or local agency;
30
<PAGE>
(2) pending labor strike or other material labor
trouble affecting Prism;
(3) material labor grievance pending against Prism;
(4) pending representation question respecting the
employees of Prism; or
(5) pending arbitration proceedings arising out of
or under any collective bargaining agreement to which Prism is a party.
(c) In addition: (i) none of the matters specified in
clauses (1) through (5) of Section 4.21(b) has been threatened against Prism;
(ii) no union organizing activities have taken place with respect to Prism; and
(iii) no basis exists for which a claim may be made under any collective
bargaining agreement to which Prism is a party.
4.22 Pension and Benefit Plans.
-------------------------
(a) Except as disclosed on Schedule 4.22, all accrued
obligations of Prism applicable to its employees, whether arising by operation
of law, by contract, by past custom or otherwise, for payments by Prism to
trusts or other funds or to any governmental agency, with respect to
unemployment compensation benefits, social security benefits or any other
benefits for its employees with respect to the employment of said employees
through the date hereof have been paid or adequate accruals therefor have been
made on, as applicable, the Books and Records of Prism and the Prism Financial
Statements.
(b) Except as disclosed on Schedule 4.22, as of the date
hereof:
(1) Neither Prism nor any of its ERISA Affiliates
maintains or has any obligations to contribute to, or has in effect or has
committed to adopt, any Pension Plan or any Welfare Plan;
(2) Each ERISA Plan conforms in all material
respects to all applicable laws and orders, including ERISA and the applicable
provisions of the Code. All notices, reports, returns, applications and
disclosures have been timely made which are required to be made to the Internal
Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty
Corporation, any participants in the ERISA Plans, any trustee, or any insurer
with respect to the ERISA Plans;
31
<PAGE>
(3) Prism and its ERISA Affiliates have made or
provided for (with fully-funded reserves) all contributions heretofore required
to have been made under all of the ERISA Plans, and will, by the Closing Date,
have made or provided for (with fully-funded reserves) all contributions
required to be made on or before the Closing Date under all such plans;
(4) No ERISA Plan nor any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction which may
subject any of such ERISA Plans, any such trust, or any party dealing with such
ERISA Plans or any such trust, to the Tax or penalty on prohibited transactions
imposed by Section 4975 of the Code or to a civil penalty imposed by Section 502
of ERISA;
(5) There are no material actions, claims or
lawsuits which have been asserted or instituted against the assets of any of the
trusts under the ERISA Plans, and no basis for such action, claim or lawsuit
exists, and no such action, claim or lawsuit has been threatened;
(6) Prism has not agreed to indemnify any other
party for any liabilities or expenses which have been or may in the future be
incurred by or asserted against such other party in respect of any ERISA Plan;
(7) Each Pension Plan constituting one of the ERISA
Plans is qualified under Section 401 of the Code, each of the trusts maintained
with respect thereto is exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred which would cause the loss of such
qualification or exemption or the imposition of any penalty under Section 4971
of the Code;
(8) The assets of each Pension Plan constituting
one of the ERISA Plans (including Pension Plans maintained by an ERISA
Affiliate) are sufficient to pay all liabilities of the plan, including, without
limitation, all liabilities to pay benefits to any past or present participant
or beneficiary in such plan, any expense incurred in administering the plan, and
any liabilities for Taxes which may be imposed on the plan or on any trust
maintained in connection with the plan;
(9) The value of all accrued benefits under each
Pension Plan constituting one of the ERISA Plans (including Pension Plans
maintained by an ERISA Affiliate) which is a "defined benefit plan" within the
meaning of Section 3(35) of ERISA, including each "multi-employer plan" within
the meaning of Section 3(37) of ERISA, does not exceed, on an accrual basis, the
aggregate value of the assets of each such plan;
32
<PAGE>
(10) There has been no "reportable event," within
the meaning of Section 4043(b) of ERISA, with respect to any Pension Plan which
constitutes one of the ERISA Plans since the effective date of Section 4043(b)
of ERISA;
(11) The transaction contemplated by this Agreement
will not result in a reportable event, within the meaning of ERISA Section 4043,
other than a reportable event with respect to which (i) the ERISA Section 4043
reportable event notice requirement has been waived or (ii) the Pension Benefit
Guaranty Corporation will not apply a penalty for failure to satisfy the
reportable event notice requirement;
(12) Neither Prism nor any of its ERISA Affiliates
has any liability to the Pension Benefit Guaranty Corporation pursuant to Title
IV of ERISA in respect of any Pension Plan constituting one of the ERISA Plans
(including Pension Plans maintained, or formerly maintained, by an ERISA
Affiliate);
(13) Neither Prism nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any multi-employer plan;
(14) Neither Prism nor any of its ERISA Affiliates
has terminated a defined benefit plan or multi-employer plan or suffered or
otherwise caused a "complete withdrawal" or "partial withdrawal" as such terms
are respectively defined in Sections 4203 and 4205 of ERISA from any multi-
employer plan. Since April 1, 1979, neither Prism nor any of its ERISA
Affiliates has complied with Section 4204 of ERISA in order to avoid any such
"complete withdrawal" or "partial withdrawal;"
(15) The transaction contemplated by this Agreement
will not result in a Prism liability for severance or termination pay or result
in increased employee benefits becoming payable to any employees of Prism;
(16) Neither Prism nor any of its ERISA Affiliates
has any unpaid liability in respect of any employee for any contributions and/
or premiums due under any Welfare Plan constituting one of the ERISA Plans;
(17) Neither Prism nor its ERISA Affiliates has any
liability as to any benefits to which any employee may be entitled under any
Welfare Plan constituting one of the ERISA Plans, whether for benefits due or
claims filed; and
(18) Prism does not maintain any health or life
insurance plan that provides for continuing benefits or coverage for any
participant or
33
<PAGE>
any spouse, dependent or beneficiary under such plan after termination of
employment, other than as may be required under Section 4980B of the Code and
regulations thereunder ("COBRA"). Prism is in compliance with the COBRA notice
and continuation coverage requirements with respect to Plans maintained by
Prism.
(c) True, correct and complete copies of the following
documents, with respect to the each of the ERISA Plans, have been delivered to
VCI:
(1) Each ERISA Plan document, employment contract,
policy, procedure or other governing instrument relating to a ERISA Plan,
including all amendments, supplements, collective bargaining agreements,
letters, memoranda, understandings and any other document reasonably necessary
to reflect the terms and conditions of each ERISA Plan.
(2) The most recent summary plan description of
each ERISA Plan for which a summary plan description is required under ERISA,
and summaries of material modification thereto.
(3) All instruments under which the assets of any
ERISA Plan are held or managed and benefits provided, including, but not limited
to, insurance contracts, trust agreements, custodial contracts and investment
management agreements.
(4) The two most recent Forms 5500, 5500-C or 5500-
R for each ERISA Plan for which such filing is required, with all attachments
and schedules thereto.
(5) The two most recent annual financial statements
for each ERISA Plan, if not included with such Form 5500 (5500-C or 5500-R).
(6) The most recent actuarial valuation report for
each ERISA Plan (as applicable).
(7) With respect to each ERISA Plan that has
received a determination letter under Section 401(a) of the Code, and any
voluntary employee benefit association trust that has received a determination
letter under Section 501(c) of the Code, the most recent Internal Revenue
Service determination letter (including any letter concerning the tax-exempt
status of any trust under Section 501(a) of the Code), the application
submitted when requesting such determination letter, and any subsequently filed
determination letter request.
4.23 Insurance. Schedule 4.23 sets forth a true and correct
---------
list of all policies or binders of fire, liability, workers' compensation,
vehicular or other
34
<PAGE>
insurance held by or on behalf of Prism specifying the insurer, the policy
number or covering note number with respect to binders, and describing each
pending claim thereunder of more than Five Thousand Dollars ($5,000). Such
policies and binders are in full force and effect. No such policy is terminable
or cancelable by the insurer by virtue of the consummation of the transactions
contemplated herein.
4.24 Books and Records. Prism has heretofore furnished or
-----------------
will furnish upon request or made or will make available to VCI and the VCI
Shareholders for their examination the following, each of which is, and will be
maintained as to remain until the Closing, accurate and complete in all material
respects:
(a) copies of the Articles of Incorporation and bylaws,
as in effect on the date of this Agreement;
(b) the minute books of Prism containing all
proceedings, consents, actions and meetings of its shareholders and Boards of
Directors;
(c) copies of all Prism Permits, orders and consents
with respect to Prism's securities issued by any administrative agency or
governmental body regulating the issuance or transfer of such securities and all
applications for such permits, orders and consents;
(d) the stock transfer books of Prism setting forth all
transfers of its securities;
(e) copies of all agreements and documents referred to
in any Prism Disclosure Schedule;
(f) all other Books and Records of Prism; and
(g) an accurate list of all of the incumbent officers
and directors of Prism.
4.25 Film Library.
------------
(a) Schedule 4.25 hereto accurately lists each of the
motion pictures (collectively, the "Pictures"; each, individually, a "Picture")
in which Prism has any ownership interest or which Prism is licensed to
distribute or exploit in any territory in any media for any duration whatsoever.
As to each Picture, Schedule 4.25 also identifies the rights of Prism thereto,
including availability dates, broken down by territory and media.
35
<PAGE>
(b) Except as specifically indicated on Schedule 4.25,
Prism is the sole owner of all right, title and interest, in each Underlying
Property and each Picture, including the sole and exclusive right to distribute
and exhibit, and to authorize others to distribute and exhibit, each Picture.
(c) Except as set forth on Schedule 4.25, Prism holds
for each Picture rights which include:
(1) The right to cut and edit the Picture to the
extent necessary to comply with the regulations of any governmental agency or
department, to conform to time requirements or continuity acceptance standards
of any television exhibitor or to avoid litigation, and the right to intercut
commercial advertising and other announcements during (or before or after) the
telecasting of segments of the Picture, and to authorize others to do so;
(2) The right to synchronize all music contained in
the Picture in connection with the exhibition, broadcast, distribution and other
exploitation (including the duplication and distribution of videogram and other
copies) of the Picture in all media, now known or hereafter devised;
(3) The right to publicize and advertise the
Picture in any manner in any media, and including the right to publish,
broadcast and otherwise use the names, likenesses and voices of performers
appearing in the Picture, the directors and all other parties who rendered
services in connection with the Picture in such advertising and publicity; and
(4) The right to grant licenses and other
authorizations to one or more third parties to exercise any or all of Prism's
rights, licenses and privileges with respect to the Picture without the consent
of any third party.
(d) Except as set forth on Schedule 4.25, there are no
agreements, contracts or commitments with or to any person or entity, other than
producer participation agreements with respect to future revenues, which would
require Prism or its licensees to pay any royalty, compensation or other sum
whatsoever by reason of any exploitation, distribution, exhibition, broadcast or
other exploitation of any Picture in any media, now known or hereafter devised,
in any territory or the exercise of any of Prism's rights in or pertaining to
any Picture or Underlying Property.
(e) Music performance rights in each Picture for all
media are (i) available to Prism through performing rights societies such as
ASCAP, BMI or
36
<PAGE>
SESAC, or their affiliated performing rights societies, (ii) in the public
domain throughout the world, or (iii) owned by Prism.
(f) Except as set forth on Schedule 4.25, there are no
claims, liens, encumbrances, or other rights or charges of any kind of any
person or entity existing or threatened in, to or on any Picture, or any
Underlying Property or other literary, musical or other material contained
therein, or any of Prism's rights in any Picture or Underlying Property. There
is no litigation pending or threatened with respect to, or which might affect
any of Prism's rights in, any Picture or Underlying Property, and no basis is
known to Prism which could or might result in any such litigation.
(g) No element of any Picture or Underlying Property,
nor any Picture or Underlying Property itself, nor the exercise of any of
Prism's rights in any Picture, does or will infringe or violate any copyright,
trademark, right of ideas, patent, right of privacy or publicity, or any other
right of any person or entity, or constitute a defamation or libel of any person
or entity; and Prism has not been challenged by others alleging any such
infringement or violation of any rights of others.
(h) All of the pictures have been produced in compliance
with applicable federal, state and local laws, statutes, ordinances, rules,
regulation and other requirements applicable thereto, and Prism has not received
notice from any person or entity to the contrary.
(i) Except as set forth on Schedule 4.25, all of the
Picture Contracts are and will be fully enforceable in accordance with their
terms subject, as to enforcement of remedies, to any applicable bankruptcy,
insolvency or other similar law affecting creditor's rights generally; Prism is
not, and to the best knowledge of Prism, no other party to any Picture Contract
is, in breach or default of any Picture Contract; no fact, circumstance, event
or condition has occurred or exists which could result in a material default by
any party under any Picture Contract (or any right thereunder) or the imposition
of any lien or other charge upon any Picture or Underlying Property or right
therein; there are no notices of any alleged default under, or notices of
termination of any Picture Contract currently outstanding; and neither the
execution and delivery of this Agreement nor the consummation of any of the
transactions covered and contemplated hereby, will adversely affect, or will
result in the abrogation, impairment, cancellation or termination of, any
Picture Contract or cause or result in the loss of any right or benefit of Prism
thereunder.
(j) Prism owns, possesses and controls reproduction
materials of sufficient technical quality to produce all prints and/or tapes of
each
37
<PAGE>
Picture of a technical quality adequate for exploitation in commercial
television, video and other media by Prism and its licensees in the ordinary
course of business.
(k) The original negative of each Picture and all copies
of each Picture publicly distributed bear (and have borne) a legally sufficient
copyright notice.
4.26 Accounts Receivable. All notes receivable and accounts
-------------------
receivable of Prism are reflected properly on Prism's books and records and will
be reflected properly on its books and records at the Effective Time, are valid
receivables subject to no setoffs or counterclaims, are collectible, and will be
collected within 60 days (in the case of domestic receivables) and 120 days (in
the case of foreign receivables) of their due date at their recorded amounts,
subject to a reserve of 5% of gross domestic receivables applied to domestic
receivables and 15% of gross foreign receivables applied to foreign receivables,
and subject to a possible offset from Turner Home Entertainment Inc. of up to
Two Hundred Fifty Thousand Dollars ($250,000).
4.27 Accuracy and Provision of Information. None of the
-------------------------------------
documents or other information made available to VCI, the VCI Shareholders or
their Affiliates, attorneys, accountants, agents or representatives in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein not misleading. Prism has
provided VCI and the VCI Shareholders all material information regarding its
business and operations.
ARTICLE V
COVENANTS OF VCI
VCI agrees that:
5.1 Conduct of the Business. From the date of this
-----------------------
Agreement until the Effective Time, VCI shall conduct its business in the
ordinary course consistent with past practice and shall use its best efforts to
preserve intact the business relationships with third parties. Without limiting
the generality of the foregoing, VCI shall not:
(a) materially amend, waive any provision of, terminate
prior to its scheduled expiration date, or otherwise compromise in any way, any
material Contract (including contracts described in clause (b) below), or any
other right or asset of VCI, without Prism's prior written consent;
38
<PAGE>
(b) enter into any material contract, agreement, lease,
license or commitment (including without limitation any leases of real property,
capital leases, employment or severance agreements, or agreements with respect
to the borrowing of money) not to be fully performed prior to the Closing and
not in the ordinary course of VCI's business without Prism's prior written
consent;
(c) sell, lease, license or otherwise dispose of any of
its assets except (i) pursuant to existing contracts or commitments disclosed
herein and (ii) in the ordinary course consistent with past practice;
(d) pay, declare or promise to pay any dividends,
distributions or other payments to VCI's shareholders, other than salaries
consistent with Schedule 3.19;
(e) grant any options, warrants or other rights to
acquire any securities of VCI;
(f) pay any bonuses or other compensation not in the
ordinary course of business;
(g) adopt any employee benefit plans;
(h) take any action that would make any representation
or warranty of VCI hereunder inaccurate in any respect at, or as of any time
prior to, the Closing Date;
(i) omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any respect at any such
time; or
(j) agree to do any of the foregoing.
5.2 Insurance. From the date hereof through the Effective
---------
Time, VCI shall maintain in force (including necessary renewals thereof) the
insurance policies listed on Schedule 3.23, except to the extent that they may
be replaced with equivalent policies appropriate to insure its respective
assets, properties and business to the same extent as currently insured at the
same rates or at different rates approved by Prism.
5.3 No Defaults. From the date hereof through the Effective
-----------
Time, VCI shall not commit a material default under any term or provision of, or
suffer or permit to exist any condition or event which, with notice or lapse of
time or both, would constitute a material default by VCI under, any material
Contract or under any of the VCI Permits.
39
<PAGE>
5.4 Reporting and Compliance With Law. From the date hereof
---------------------------------
through the Effective Time, VCI shall duly and timely file all tax returns
required to be filed with governmental authorities and duly observe and conform
in all material respects to all applicable laws and orders.
5.5 Access to Information. From the date hereof until and
---------------------
including the Closing Date, VCI (i) will continue to give Prism and its counsel
and other representatives full access to the offices, properties, books and
records of VCI relating to VCI's business, (ii) will furnish to Prism, and its
counsel and other representatives such information relating to its business as
such Persons may reasonably request and (iii) will instruct the employees,
counsel and representatives of VCI to cooperate with Prism in its investigation
of VCI's business; provided that no investigation pursuant to this Section (or
--------
any investigation prior to the date hereof) shall affect any representation or
warranty given by VCI; and provided further that any investigation pursuant to
----------------
this Section shall be conducted in such manner as not to interfere unreasonably
with the conduct of the business of VCI.
5.6 Notices of Certain Events. VCI shall promptly notify
-------------------------
Prism of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting VCI or its business that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
3.12 or that relate to the consummation of the transactions contemplated by this
Agreement.
5.7 Other Offers. Neither VCI, the VCI Shareholders, their
------------
Affiliates, nor anyone on their behalf, shall, directly or indirectly, solicit,
initiate or participate in any way in discussions or negotiations or enter into
any agreement with, or provide any information or assistance to any Person other
than Prism concerning any acquisition, merger, consolidation, joint venture,
partnership, disposition of all or substantially all of the assets of, or
similar transaction with, or concerning any direct or indirect equity interest
in, Prism or VCI.
40
<PAGE>
ARTICLE VI
COVENANTS OF PRISM
Prism agrees that:
6.1 Conduct of the Business. From the date of this Agreement
-----------------------
until the Effective Time, and other than as required pursuant to the Plan or any
order of the Court or as provided for or referenced in this Agreement, Prism
shall conduct its business in the ordinary course consistent with past practice
and shall use its best efforts to preserve intact the business relationships
with third parties. Without limiting the generality of the foregoing, Prism
shall not:
(a) materially amend, waive any provision of, terminate
prior to its scheduled expiration date, or otherwise compromise in any way, any
material Contract (including contracts described in clause (b) below), or any
other right or asset of Prism, without VCI's prior written consent;
(b) enter into any material contract, agreement, lease,
license or commitment (including without limitation any leases of real property,
capital leases, employment or severance agreements, or agreements with respect
to the borrowing of money) not to be fully performed prior to the Closing
without VCI's prior written consent;
(c) sell, lease, license or otherwise dispose of any of
its assets except (i) pursuant to existing contracts or commitments disclosed
herein and (ii) in the ordinary course consistent with past practice;
(d) pay, declare or promise to pay any dividends,
distributions or other payments to Prism's shareholders, other than salaries
consistent with Schedule 4.18;
(e) grant any options, warrants or other rights to
acquire any securities of Prism;
(f) pay any bonuses or other compensation not in the
ordinary course of business;
(g) adopt any employee benefit plans;
(h) take any action that would make any representation
or warranty of Prism hereunder inaccurate in any respect at, or as of any time
prior to, the Closing Date;
41
<PAGE>
(i) omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any respect at any such
time; or
(j) agree to do any of the foregoing.
6.2 Insurance. From the date hereof through the Effective
---------
Time, Prism shall maintain in force (including necessary renewals thereof) the
insurance policies listed on Schedule 4.23, except to the extent that they may
be replaced with equivalent policies appropriate to insure its respective
assets, properties and business to the same extent as currently insured at the
same rates or at different rates approved by VCI.
6.3 No Defaults. From the date hereof through the Effective
-----------
Time, Prism shall not commit a material default under any term or provision of,
or suffer or permit to exist any condition or event which, with notice or lapse
of time or both, would constitute a material default by Prism under any material
Contract or under any of the Prism Permits.
6.4 Reporting and Compliance With Law. From the date hereof
---------------------------------
through the Effective Time, Prism except as set forth on Schedule 4.19, Prism
shall duly and timely file all tax returns required to be filed with
governmental authorities and duly observe and conform in all material respects
to all applicable laws and orders.
6.5 Access to Information. From the date hereof until and
---------------------
including the Closing Date, Prism (i) will continue to give VCI and its counsel
and other representatives full access to the offices, properties, books and
records of Prism relating to Prism's business, (ii) will furnish to VCI, and its
counsel and other representatives such information relating to its business as
such Persons may reasonably request and (iii) will instruct the employees,
counsel and representatives of Prism to cooperate with VCI in its investigation
of Prism's business; provided that no investigation pursuant to this Section (or
--------
any investigation prior to the date hereof) shall affect any representation or
warranty given by Prism; and provided further that any investigation pursuant to
----------------
this Section shall be conducted in such manner as not to interfere unreasonably
with the conduct of the business of Prism.
6.6 Notices of Certain Events. Prism shall promptly notify
-------------------------
VCI of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
42
<PAGE>
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to the knowledge of Prism, threatened against,
relating to or involving or otherwise affecting Prism or its business that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 4.18 or that relate to the consummation of the
transactions contemplated by this Agreement.
6.7 Collier Stock Option Agreement. Prism shall, prior to
------------------------------
or at the Effective Time, pursuant to a stock option agreement between Prism and
Collier (the "Collier Stock Option Agreement") and upon the approval of the
"Creditors Committee" (as such term is defined in the Plan), grant to Collier
the option to purchase 175,000 shares of the Common Stock of Prism at the
exercise price of Ten Cents ($.10) per share. The Collier Stock Option
Agreement shall have a ten-year term, and shall contain a "cashless" exercise
provision, pursuant to which Collier will be relieved from the obligation to pay
the exercise price by choosing to receive from Prism, upon the exercise of all
or part of the option, that number of shares of the Common Stock of Prism equal
to (i) the number of shares that would otherwise be issuable to Collier less
(ii) that number of shares equal to the dollar amount of the aggregate exercise
price for the portion of the option exercised, divided by the fair market value
per share of the Common Stock of Prism at the time of the exercise of the
option. In addition, the Collier Stock Option Agreement shall contain a "gross-
up" feature, pursuant to which Collier, upon the exercise of all or part of the
option, shall be granted by Prism an additional option to purchase that number
of shares of the Common Stock of Prism at an exercise of $2.00 per share equal
to (i) 17,500, divided by (ii) that number that is equal to the fair market
value per share of the Common Stock of Prism at the time of the exercise of the
option less Two Dollars ($2.00).
6.8 Lee Agreement. Lee and Prism shall, prior to or at the
-------------
Effective Time, execute the Lee Agreement referred to in Section 8.2(g).
6.9 Other Offers. Neither Prism, its Affiliates, nor
------------
anyone on their behalf, shall, directly or indirectly, solicit, initiate or
participate in any way in discussions or negotiations or enter into any
agreement with, or provide any information or assistance to any Person other
than VCI concerning any acquisition, merger, consolidation, joint venture,
partnership, disposition of all or substantially all of the assets of, or
similar transaction with, or concerning any direct or indirect equity interest
in, Prism or VCI.
43
<PAGE>
ARTICLE VII
COVENANTS OF ALL PARTIES HERETO
The parties hereto agree that:
7.1 Best Efforts; Further Assurances. Subject to the terms
--------------------------------
and conditions of this Agreement, each party shall use its best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement, including, but not limited to, all
actions and things relating to all agreements between the parties and Ingram.
The parties hereto each agree to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement.
7.2 Public Announcements. The parties agree that any press
--------------------
release or other public statement with respect to this Agreement or the
transactions contemplated hereby shall be approved in advance thereof by Prism
and VCI, except where such release or statement is required by law.
7.3 Best Efforts to Obtain Consents. VCI hereby agrees to
-------------------------------
use its best efforts to obtain each VCI Consent, and Prism hereby agrees to use
its best efforts to obtain each Prism Consent, in each case as promptly as
practicable after the date of this Agreement.
7.4 Confidentiality. Subject to any obligation to comply
---------------
with any applicable law, rule or regulation of the Court or any other
governmental authority or securities exchange, any subpoena or other legal
process to make information available to the Persons entitled thereto, and the
reasonable need to provide information to any of the parties involved in or
related to the Case, all information obtained by any party about any other and
such other party's Affiliates, and all of the terms and conditions of this
Agreement, shall be kept in confidence by each party, and each party shall cause
its shareholders, directors, officers, employees, agents and attorneys to hold
such information confidential. Such confidentiality shall be maintained to the
same degree as such party maintains its own confidential information and shall
be maintained until such time, if any, as any such data or information either
is, or becomes, published or a matter of public knowledge. Notwithstanding the
foregoing, the obligation of confidentiality created in this Section shall not
apply to any information received by any party from a third party not under any
obligation to keep such information confidential, nor to any information
obtained by any party which is generally known to others engaged in the trade or
business of the other party. From and after the Closing, Prism shall be under no
obligation to
44
<PAGE>
maintain confidential any such information concerning VCI. If this Agreement
shall be terminated for any reason, each party shall return or cause to be
returned to the other all written data, information, files, records and copies
of documents, worksheets and other materials obtained by such party in
connection with the transactions contemplated herein.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of Prism and VCI. The
----------------------------------------------
obligations of Prism and VCI to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) Final Order. The Confirmation Order shall become
-----------
a Final Order (i) approving the Merger, the transactions described in this
Agreement to which Ingram is a party and the other transactions contemplated by
this Agreement and (ii) containing such other terms and conditions that are
acceptable to Prism and VCI.
(b) Court Orders. No provision of any applicable law or
------------
regulation, and no judgment, injunction, order or decree shall prohibit the
consummation of the Merger.
(c) Third Party Proceedings. There shall not be
-----------------------
pending any proceeding brought by a third-party non-Affiliate to enjoin or
otherwise restrict the consummation of the Closing.
(d) Merger of Prism Subsidiaries Into Prism. Prism
---------------------------------------
Pictures Corporation and Prism Pictures International, Ltd. shall each be merged
with and into Prism, in accordance with applicable law.
(e) Ingram. Ingram shall have taken and completed the
------
actions that are described in the Override Agreement or, as applicable, entered
into written agreements with the appropriate parties to take and complete such
actions.
(f) Stockholders' Agreement. Prism, Lee, Collier and
-----------------------
Ingram shall have entered into the Stockholders' Agreement in form and substance
satisfactory to the parties.
(g) Prism Consents. Prism shall have received all
--------------
Prism Consents, in form and substance reasonably satisfactory to it, and no such
Prism
45
<PAGE>
Consent shall have been revoked, and Prism shall have received all necessary
corporate approvals of Prism and its Affiliates.
(h) Employment Agreements. Each of Lee, Collier and
---------------------
Craig Kelly ("Kelly") shall have executed and delivered to Prism an Employment
Agreement substantially as set forth on Exhibits D-1, D-2 and D-3.
(i) VCI Consents. Prism shall have received all VCI
------------
Consents, in form and substance reasonably satisfactory to Prism, and no such
VCI Consent shall have been revoked, and VCI shall have received all necessary
corporate approvals of VCI.
8.2 Conditions to the Obligations of Prism. The obligation
--------------------------------------
of Prism to consummate the Merger is subject to the satisfaction of the
following further conditions:
(a) Performance of Obligations. (i) VCI shall have
--------------------------
performed in all material respects all of its obligations hereunder required to
be performed by it at or prior to the Closing Date, (ii) the representations and
warranties of VCI contained in this Agreement and in any certificate or other
writing delivered by VCI pursuant hereto shall be true at and as of the Closing
Date, as if made at and as of such date with only such exceptions as would not
in the aggregate reasonably be expected to have a Material Adverse Effect, (iii)
no Material Adverse Change shall have occurred since the date of this Agreement,
(iv) no material changes in the manner in which VCI conducts business shall have
occurred since the date of this Agreement, and (v) Prism shall have received a
certificate signed by the President of VCI to the effect set forth in clauses
(i) through (iv) of this Section 8.2(a).
(b) Existence and Authorization. Prism shall have
---------------------------
received all documents it may reasonably request relating to the existence of
VCI and the authority of VCI for this Agreement, all in form and substance
reasonably satisfactory to Prism, including, without limitation, (i) a copy of
the Articles of Incorporation of VCI certified as of a recent date by the
Secretary of State of its jurisdiction of organization, (ii) copies of VCI's
bylaws as effective on the date hereof; (iii) copies of resolutions duly adopted
by the Board of Directors of VCI authorizing this Agreement, the Certificate of
Merger and the Agreement of Merger and the other VCI Documents and the
transactions contemplated hereby and thereby, (iv) copies of resolutions duly
adopted by the shareholders of VCI approving this Agreement and the transactions
contemplated hereby, (v) a certificate of the Secretary of VCI certifying as to
signatures of the officer(s) executing this Agreement and any certificate or
document to be delivered pursuant hereto, together with evidence of the
incumbency of such Secretary, and (vi) a recent good standing certificate
regarding VCI from the office of the Secretary of State of the State of
California.
46
<PAGE>
(c) Loans to Related Parties. Except for normal
------------------------
travel and expense advances to employees not exceeding Ten Thousand Dollars
($10,000) in the aggregate, all loans and advances by VCI to officers,
shareholders and employees, and their Affiliates shall have been repaid in full,
with the exception of loans that are to be forgiven as set forth on Schedule
3.9.
(d) Employee Benefit Plans. Prism shall have received
----------------------
satisfactory evidence that (i) all of VCI's Pension Plans, programs and
arrangements have been terminated on terms and conditions reasonably
satisfactory to Prism, and (ii) all benefits payable under such plans, programs
and arrangements have been paid.
(e) Non-Competition Agreement. Lee shall have executed
-------------------------
and delivered to Prism a Non-Competition Agreement in form substantially as set
forth on Exhibit E attached hereto.
(f) Transfer of Shares to Collier. Lee and Collier
-----------------------------
shall have entered into an agreement pursuant to which, prior to the Effective
Time, Lee conveys to Collier or his designee that number of shares of the Common
Stock of VCI that, pursuant to Section 2.1(d)(2) of this Agreement and at the
Effective Time, will convert into 610,000 of the shares of the Common Stock of
Prism. The purchase price per share of the Common Stock of VCI to be paid by
Collier to Lee shall be Five Cents ($.05), which may be paid, at the sole option
of Collier, in the form of a non-recourse promissory note. The promissory note
may be paid, if not paid earlier, at the sole option of Collier, with the
proceeds of the last sale of any of the 610,000 shares of Common Stock of Prism
issued to Collier in the Merger. In addition, if the Merger is not consummated,
Collier shall have the right to "put" such 610,000 shares of the Common Stock of
VCI to Lee, and Lee shall have the right to "call" such shares from Collier, and
in either case, the promissory note described in this Section shall be forgiven.
(g) Lee Agreement. Lee shall have entered into an
-------------
agreement with Prism pursuant to which Lee agrees to surrender for cancellation
at no cost to post-Merger Prism, up to 250,000 shares of Common Stock upon the
exercise from time to time of the options referred to in Schedule 3.5 Section E2
(or replacements thereof).
(h) Legal Opinion. Prism shall have received an
-------------
opinion of Troy & Gould, counsel to VCI, in such form and substance satisfactory
to Prism.
(i) Fairness Opinion. If Prism so desires, Prism shall
----------------
have received an opinion from Chanin and Company, or such other investment
banking firm that Prism chooses at sole discretion, that confirms that the terms
and conditions of the Merger are fair to Prism from a financial point of view.
47
<PAGE>
8.3 Conditions to Obligation of VCI.
-------------------------------
(a) Performance of Obligations. The obligation of VCI
--------------------------
to consummate the Closing is subject to the satisfaction of the following
further conditions: (i) Prism shall have performed in all material respects all
of its respective obligations hereunder required to be performed by them at or
prior to the Closing Date, (ii) the representations and warranties of Prism
contained in this Agreement and in any certificate or other writing delivered by
Prism pursuant hereto shall be true in all material respects at and as of the
Closing Date, as if made at and as of such date and (iii) VCI shall have
received a certificate signed by an officer of Prism to the foregoing effect.
(b) Certified Resolutions. Prism shall have provided
---------------------
VCI with certified copies of resolutions duly adopted by the board of directors
of Prism approving the execution and delivery of this agreement and authorizing
the consummation of the transactions contemplated hereby.
(c) Non-Competition Agreement. Collier shall have
-------------------------
executed and delivered to Prism a Non-Competition Agreement substantially in the
form of Exhibit F attached hereto satisfactory to the parties.
(d) Registration Rights Agreement. Prism shall have
-----------------------------
executed and delivered to Lee, for the benefit of Lee and all other VCI
Shareholders, the Registration Rights Agreement in form and substance
satisfactory to the parties.
(e) Legal Opinion. VCI shall have received an opinion
-------------
of Loeb & Loeb LLP, counsel to Prism, in such form and substance satisfactory to
VCI.
(f) Financial Position of Prism. At the Effective
---------------------------
Time, after giving effect to payment of all expenses of the Prism bankruptcy
proceedings and the Merger (including but not limited to expenses of
administration, legal, accounting, investment banking, consulting, advisory and
other professional fees and expenses), and before taking into account the assets
and liabilities of VCI immediately prior to the Merger, (i) Prism shall have
cash on hand lien free of not less than Seven Hundred Eighty-Five Thousand
Dollars ($785,000); (ii) the accounts receivable of Prism, net of reserves,
calculated in accordance with generally accepted accounting principles shall be
at least equal to all indebtedness then owed to Imperial Bank less One Hundred
Twenty-Five Thousand Dollars ($125,000); (iii) sales tax liability, including
interest and penalties, owed to the State of California Board of Equalization
shall not exceed Eight Hundred Thousand Dollars ($800,000) and shall be due in
installments of not greater than $133,000 per year until paid; (iv) all other
accrued liabilities of Prism (excluding indebtedness owed to Imperial Bank other
than for the
48
<PAGE>
Bank's legal fees and expenses, and excluding the pre-petition tax liability
owed to the State of California Board of Equalization), including for legal fees
and expenses of Imperial Bank, shall not exceed Three Hundred Thousand Dollars
($300,000) in the aggregate; and (v) no lease agreements shall exist between
Prism and any other parties.
(g) Net Operating Loss Carryforwards. At the Effective
--------------------------------
Time, prior to giving effect to Prism's anticipated losses subsequent to October
31, 1996, and the administrative expenses of Prism's bankruptcy proceeding, and
the cancellation of debt resulting from the issuance of Prism stock to holders
of Allowed Claims referred to in Section 2.1(f) of this Agreement, immediately
prior to the Merger, Prism shall have federal net operating loss carryforwards
of at least Ten Million Dollars ($10,000,000).
(h) Imperial Bank Debt. Through December 31, 1997,
------------------
Prism's outstanding indebtedness to Imperial Bank at the Effective Time shall be
payable only out of collections of accounts receivable in which Imperial Bank
has a security interest and out of any proceeds from a sale of Prism's Film
Library. Thereafter, such indebtedness shall be payable in quarterly payments
over a period of not less than three years. The indebtedness owed to Imperial
Bank shall bear interest at the rate of prime plus 1.5% per annum, as of the
Effective Time. Imperial Bank's legal fees and expenses referred to in clause
(iv) of Section 8.3(f) shall be payable on the same terms.
(i) Proxy from Collier. Collier shall have executed
------------------
and delivered to Lee an irrevocable proxy substantially as set forth on Exhibit
G.
(j) Fairness Opinion. If VCI so desires, VCI shall
----------------
have received an opinion that confirms that the terms and conditions of the
Merger are fair to VCI from a financial point of view.
ARTICLE IX
SURVIVAL; INDEMNIFICATION; TERMINATION
9.1 Survival.
--------
(a) Each representation, warranty, covenant and
agreement of Prism and VCI contained in this Agreement or in any of the Prism
Documents and the VCI Documents shall survive the execution and delivery of this
Agreement and the Closing and shall thereafter terminate and expire on the
second anniversary of the Closing Date. Notwithstanding anything else contained
in this Section, the representations and warranties referenced in this Section
shall not terminate and
49
<PAGE>
expire if, on or before the termination and expiration date provided for
therein, Prism or any of its Affiliates, or VCI or any of its Affiliates, as
applicable, has delivered to the other a written notice of a claim with respect
to such representations and warranties.
9.2 Indemnification.
---------------
(a) The sole and exclusive remedy of any party to this
Agreement with respect to any breach of any other party's representations,
warranties or covenants contained in this Agreement or in any Schedule,
certificate or affidavit delivered by such other party pursuant to this
Agreement shall be the assertion of a claim for indemnification therefor
pursuant to this Section 9.2.
(b) After the Effective Time, Prism shall indemnify and
hold harmless the Prism shareholders (for purposes of this Article only, the
phrase "Prism shareholders" means the shareholders of record of Prism
immediately prior to the Effective Time, after giving effect to the issuance of
shares pursuant to the Confirmation Order, but before giving effect to any
shares issuable to the VCI Shareholders in the Merger) and each of their
Affiliates (each of which is in such capacity a "Prism Indemnified Party") from
and against any and all claims, losses, damages, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all amounts paid in
investigation, defense or settlement of any of the foregoing) (collectively,
"Loss" or "Losses") asserted against, imposed upon or incurred by the Prism
Indemnified Party in connection with or as a result of any breach of a
representation, warranty or covenant of VCI contained in this Agreement.
(c) Prism shall indemnify and hold harmless the VCI
Shareholders and each of their Affiliates (each of which is in such capacity a
"VCI Indemnified Party") from and against any and all Losses asserted against,
imposed upon or incurred by the VCI Indemnified Party in connection with or as a
result of any breach of a representation, warranty or covenant of Prism
contained in this Agreement.
(d) Notwithstanding the foregoing, such indemnification
under this Section 9.2 shall be required only if, on a cumulative and aggregate
basis, the amount of the Losses sustained by the Prism Indemnified Parties or
the VCI Indemnified Parties, as the case may be, exceeds One Hundred Thousand
Dollars ($100,000). If the cumulative and aggregate amount of such Losses exceed
One Hundred Thousand Dollars ($100,000), all of such Losses sustained by the
Prism Indemnified Parties or the VCI Indemnified Parties, as the case may be,
shall be subject to indemnification hereunder by Prism.
50
<PAGE>
(e) If indemnification is required under this Section
9.2, the sole method of paying such indemnification shall consist of the
issuance by Prism, pro rata to the appropriate Indemnified Parties, of that
number of shares of Prism Stock which is equal to the Loss divided by Two
Dollars ($2.00).
9.3 Procedures. The party seeking indemnification under
----------
Section 9.2 (the "Indemnified Party") agrees to give prompt notice to the party
against whom indemnity is sought (the "Indemnifying Party") of the assertion of
any claim, or the commencement of any suit, action or proceeding in respect of
which indemnity may be sought under such Section 9.2; provided that the failure
to give such notice shall not limit the Indemnified Party's right to
indemnification hereunder except to the extent that the Indemnifying Party is
materially prejudiced thereby. The Indemnifying Party may, and at the request of
the Indemnified Party shall, participate in and control the defense of any such
suit, action or proceeding at its own expense. The Indemnifying Party shall not
be liable under Section 9.2 for any settlement effected without its consent of
any claim, litigation or proceeding in respect of which indemnity may be sought
hereunder; provided, however, that consent to settlement shall not be
unreasonably withheld. In any such suit, action or proceeding, the Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense of such suit, action or
proceeding or to employ counsel reasonably satisfactory to the Indemnified
Party, or (iii) in the reasonable judgment of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, in any which case, if the
Indemnified Party notifies the Indemnifying Party in writing that the
Indemnified Party elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such suit, action or proceeding on behalf of the Indemnified
Party. The Indemnifying Party shall not be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all the Indemnified Parties. Nothing contained in this Section 9.3
shall relieve either party of any of its obligations under Section 9.2.
9.4 Grounds for Termination. This Agreement may be
-----------------------
terminated at any time prior to the Closing, without waiving or diminishing any
remedies that may be available under this Agreement, at law or in equity:
(a) by mutual written agreement of the parties hereto;
(b) by either VCI or Prism if the Closing shall not have
been consummated on or before 5:00 p.m. in Los Angeles, California on January
15, 1997 (unless any failure to consummate the Closing by such date is caused by
a Court
51
<PAGE>
calendaring delay but in no event later than January 31, 1997) or such other
time and/or date as the parties shall mutually agree to (except that no such
right of termination shall be available to a party whose own breach of warranty
or covenant hereunder prevents consummation of the Closing on or before such
date); or
(c) by either party if there has been a material
misrepresentation or a material breach of warranty by the other party with
respect to this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 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 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:
Lee Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robbie Lee
Telecopy: (808) 397-5982
52
<PAGE>
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
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.
10.2 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.
10.3 Expenses. All costs and expenses incurred by VCI and the
--------
VCI Shareholders in connection with this Agreement shall be paid by VCI and all
costs and expenses incurred by Prism in connection with this Agreement shall be
paid by Prism.
10.4 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; provided that neither party may assign,
--------
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party.
10.5 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.
53
<PAGE>
10.6 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.
10.7 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. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 Ambiguities. The parties acknowledge that each party
-----------
and its counsel has materially participated in the drafting of this Agreement
and consequently the rule of contract interpretation that ambiguities, if any,
in the writing be construed against the drafter, shall not apply.
10.13 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
54
<PAGE>
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.
10.14 Knowledge of VCI. For purposes of this Agreement, the
----------------
phrase "to VCI's best knowledge" or the like shall refer to the actual knowledge
of Lee, Craig Kelly and/or Steven Antongiovanni. VCI shall not be deemed to
have knowledge of a matter solely by reason of the actual knowledge of any other
employee, agent or representative of VCI.
10.15 Schedules. All disclosures and limitations set forth on
---------
Schedules to this Agreement shall be deemed disclosed and/or limiting with
respect to every Schedule hereto, to the extent applicable, regardless of
whether any information is disclosed with respect to any particular Schedule or
whether any cross-reference to another Schedule appears therein.
IN WITNESS WHEREOF, Prism and VCI have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Barry Collier
--------------------------------
Name: Barry Collier
------------------------------
Title: President
-----------------------------
LEE VIDEO CITY, INC.,
a California corporation
By: /s/ Robert Y. Lee
--------------------------------
Name: Robert Y. Lee
------------------------------
Title: President
-----------------------------
55
<PAGE>
CERTIFICATE OF MERGER
MERGING
LEE VIDEO CITY, INC.
(a California corporation)
INTO
PRISM ENTERTAINMENT CORPORATION
(a Delaware corporation)
Pursuant to Section 252 of the
Delaware General Corporation Law
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
-----
constituent corporations in the merger is as follows:
<TABLE>
<CAPTION>
State of
Name Incorporation
---- -------------
<S> <C>
Lee Video City, Inc. California
Prism Entertainment Corporation Delaware
</TABLE>
SECOND: That an Agreement and Plan of Reorganization and Merger
------
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the laws under which each constituent corporation was formed.
THIRD: That Prism Entertainment Corporation, a Delaware corporation,
-----
shall be the surviving corporation.
FOURTH: That the Restated Certificate of Incorporation of Prism
------
Entertainment Corporation, a Delaware corporation, is hereby amended as follows:
A. Paragraph 1 is amended in full to read as follows:
EXHIBIT B
<PAGE>
"The name of this corporation is Video City, Inc."; and
B. A new Paragraph 8 is added as follows:
"8. This corporation is prohibited from issuing nonvoting securities."
FIFTH: That the executed Agreement and Plan of Reorganization and
-----
Merger is on file at the principal place of business of the surviving
corporation. The address of the principal place of business of the surviving
corporation is 1888 Century Park East, Suite 350, Los Angeles, California 90067.
SIXTH: That a copy of the Agreement and Plan of Reorganization and
-----
Merger will be furnished by the surviving corporation, on request and without
cost, to any stockholder of any constituent corporation.
SEVENTH: That Lee Video City, Inc., a California corporation, is
-------
authorized to issue only one class of shares of capital stock; and the total
number of shares which Lee Video City, Inc., a California corporation, is
authorized to issue is twenty million (20,000,000).
IN WITNESS WHEREOF, Prism Entertainment Corporation, a Delaware
corporation, has caused this Certificate of Merger to be executed by its duly
authorized officer this 27th day of December, 1996.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By:
-----------------------------
Barry Collier, President
2
<PAGE>
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.
EXHIBIT C
<PAGE>
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.
"Closing Date" means the date of Closing.
------------
2
<PAGE>
"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>
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.
4
<PAGE>
"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.
5
<PAGE>
"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:
6
<PAGE>
(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.
7
<PAGE>
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
8
<PAGE>
be so 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.
9
<PAGE>
(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 related documents to which Ingram is a party. This Agreement and such
related
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
operations of Reorganized Prism in accordance with generally accepted accounting
principles, 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;
(ii) any dispute between Reorganized Prism and any
Governmental Agency relating to Reorganized Prism's property, the
13
<PAGE>
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.
6.9 Inspection Rights. At any time during regular business
-----------------
hours and as often as reasonably requested, Reorganized Prism shall permit
Ingram, or any
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
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 their behalf) has the right to declare such indebtedness
17
<PAGE>
due 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 and is not released, vacated or
fully bonded within
18
<PAGE>
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.
19
<PAGE>
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;
(xii) opinion of counsel to Prism as to matters, and
in such form, as reasonably requested by Ingram;
20
<PAGE>
(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.
(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.
21
<PAGE>
(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.
(b) Delivery and reassignment by Ingram to Lee of the Pledged
Shares and to VCI of the Pledged Note.
22
<PAGE>
(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>
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>
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,
25
<PAGE>
or in any 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 unenforceable 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 successors and assigns, nor is anything in this Agreement intended to
relieve or
26
<PAGE>
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>
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;
(f) All present and future goods, including, without
---------
limitation, all consumer goods, farm products, inventory, equipment,
28
<PAGE>
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>
EMPLOYMENT AGREEMENT
(Robert Y. Lee)
THIS EMPLOYMENT AGREEMENT is made and entered into as of the ____ day
of _____________, 1996, by and between Prism Entertainment Corporation, a
Delaware corporation (the "Company"), and Robert Y. Lee ("Lee").
1. Term of Employment. The Company hereby employs Lee, and Lee
------------------
hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Chairman of the Board and Chief Executive
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board") may from time to time
designate, provided such assignment is consistent with Lee's level of experience
and expertise. In the performance of his duties and the exercise of his
discretion, Lee shall be under the supervision and control of, and shall report
only to, the Board of Directors. Lee's duties shall be designated by the Board
of Directors and shall be subject to such policies and directions as may be
established or given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Lee shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Lee shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Lee's duties to the Company.
3. Compensation. For all services rendered by Lee under this
------------
Agreement, the Company shall pay Lee the following amounts:
3.1 Base Salary. A base salary ("Base Salary"), payable
-----------
semi-monthly, at the rate of $200,000 per year, subject to increase thereof at
the discretion of the Board.
3.2 Bonus. In addition to the Base Salary, the Company may
-----
pay Lee a bonus ("Bonus") as determined by the Board.
4. Benefits. (a) In addition to the Base Salary and the Bonus, if
--------
any, Lee will be entitled to participate in all benefits of employment available
to other members of the Company's management, on a commensurate basis as they
may be offered from time to time by the Board of Directors to the Company's
other management employees. Such benefits include, but are not limited to, full
medical, dental and long term disability insurance for Lee and his immediate
Exhibit D-1
<PAGE>
family, participation in group life insurance and retirement plans, and term
life insurance of $1,000,000 payable to Lee's designees. During the period of
his employment hereunder, Lee will be reimbursed for reasonable business, travel
and entertainment expenses incurred in accordance with Company policy on behalf
of the Company in connection with his employment, and will be required to submit
appropriate expense reports for approval by signature of the Chief Financial
Officer as a condition of reimbursement of such expenses.
(b) The Company will pay for Lee to have the use of one Company
provided automobile (or an equivalent expense allowance for an automobile owned
by Lee) and all maintenance and operating expenses relating thereto.
(c) If the Company's headquarters is moved from Bakersfield,
California, such that Lee must relocate, the Company shall pay his reasonable
relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Lee serves as Chief Executive Officer of
---------
the Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors,
6. Termination. This Agreement shall terminate in advance of the
-----------
time specified in Section 1 above (and except as provided in Sections 6(c) and
6(d) below, Lee shall have no right to receive any compensation not due and
payable to him or to his estate at the time of such termination) under any of
the following circumstances:
(a) Upon the death of Lee.
(b) In the event that Lee shall become either physically or
mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively, the Company may, at its option, terminate this Agreement
by written notice to Lee at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section 6(b) or under
Section 6(a), Lee or his estate shall be entitled to receive Base Salary or any
other compensation accrued or earned as of or to the date of termination for six
months following such termination, or until the expiration of the term of this
Agreement, whichever is earlier.
(c) By Lee, if the Company shall have materially breached any of
the provisions of this Agreement, and such termination shall have the same
effect on the payment of Lee's Base Salary and Bonus as a termination by the
Company under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in this
Section 6(e) means Lee, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions
2
<PAGE>
of Sections 1 or 2 of this Agreement, or (iii) commits or engages in a felony or
any intentionally dishonest or fraudulent act which materially damages the
Company's reputation. If the Company terminates Lee for Cause, no payments or
benefits under this Agreement shall become payable after the date of Lee's
termination. The Company may terminate Lee's employment under this Section
6(e)(i) or (ii) only if written notice of the facts constituting the basis for
such termination has been given to Lee and Lee shall have been afforded 30 days
opportunity to take such action as may be reasonable under the circumstances to
furnish assurance to the Board of Directors that such basis for termination has
been corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause; provided, that
--------
the Company shall pay Lee his Base Salary and any Bonus which would otherwise
have become payable under Section 3.2 above through the remaining term of this
Agreement.
7. Attorney Fees. The successful party in any litigation relating
-------------
to matters covered by this Agreement shall be entitled to an award of reasonable
attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Lee or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
3
<PAGE>
If to the Company, to:
Prism Entertainment Corporation
1888 Century Park East, Suite 350
Los Angeles, California 90067
Attention:
Fax:
If to Lee, to:
Robert Y. Lee
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for authorization,
------------------
approval, decision, determination or other action of the Board of Directors
under the provisions of this Agreement, Lee's vote as a director shall not be
counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Lee indemnifying him against personal liability
to the fullest extent permissible under California corporation law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
-----------------------------
-------------------------------
Robert Y. Lee
4
<PAGE>
EMPLOYMENT AGREEMENT
(CRAIG KELLY)
THIS EMPLOYMENT AGREEMENT is made and entered into as of the ___ day
of _________, 1996, by and between Prism Entertainment Corporation, a Delaware
corporation (the "Company"), and Craig Kelly ("Kelly").
1. Term of Employment. The Company hereby employs Kelly, and
------------------
Kelly hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Senior Vice President and Chief Operating
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board of Directors") may from
time to time designate, provided such assignment is consistent with Kelly's
level of experience and expertise. In the performance of his duties and the
exercise of his discretion, Kelly shall be under the supervision and control of,
and shall report only to, the Chairman of the Board. Kelly's duties shall be
designated by the Chairman of the Board and shall be subject to such policies
and directions as may be established or given by the Board of Directors from
time to time.
2. Devotion of Time to Company Business. Kelly shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Kelly shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Kelly's duties to the Company.
3. Compensation. For all services rendered by Kelly under this
------------
Agreement, the Company shall pay Kelly the following amounts:
3.1 Base Salary. A base salary ("Base Salary"), payable
-----------
semi-monthly, at the rate of $120,000 for the first year, with a 7% increase as
of each anniversary date, subject to increases thereof at the discretion of the
Board of Directors.
3.2 Bonus. In addition to the Base Salary, the Company
-----
shall pay Kelly a bonus ("Bonus") upon determination of year end financial
results equal to
Exhibit D-2
<PAGE>
3% of all pretax profits (as determined in accordance with the usual and
customary accounting practices of the Company and consistent with generally
accepted accounting principles) in excess of $1,000,000, $1,100,000 and
$1,200,000, if any, for the fiscal years ending January 31, 1998, January 31,
1999 and January 31, 2000, respectively, subject, in any case, to a maximum
Bonus in any one year of 50% of his Base Salary.
4. Benefits. (a) In addition to the Base Salary and the
--------
Bonus, if any, Kelly will be entitled to participate in all benefits of
employment available to other members of the Company's management, on a
commensurate basis as they may be offered from time to time by the Board of
Directors to the Company's other management employees. Such benefits include,
but are not limited to, full medical, dental and long term disability insurance
for Kelly and his immediate family, participation in group life insurance and
retirement plans, and term life insurance of $500,000 payable to Kelly's
designees. During the period of his employment hereunder, Kelly will be
reimbursed for reasonable business, travel and entertainment expenses incurred
in accordance with Company policy on behalf of the Company in connection with
his employment, and will be required to submit appropriate expense reports for
approval by signature of the Chairman of the Board as a condition of
reimbursement of such expenses.
(b) The Company will pay for Kelly to have the use of one
Company-provided automobile (or an equivalent expense allowance for an
automobile owned by Kelly) and all maintenance and operating expenses relating
thereto.
(c) If the Company's headquarters is moved from
Bakersfield, California, such that Kelly must relocate, the Company shall pay
his reasonable relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Kelly serves as Chief Operating
---------
Officer of the Company under this Agreement, he shall have the authority
specified in the Bylaws of the Company, except that he shall not proceed with
any matters, or permit the Company to take any actions, which are prohibited by,
or are in conflict with, resolutions or guidelines adopted by the Board of
Directors,
6. Termination. This Agreement shall terminate in advance of
-----------
the time specified in Section 1 above (and except as provided in Sections 6(c)
and 6(d) below, Kelly shall have no right to receive any compensation not due
and payable to him or to his estate at the time of such termination) under any
of the following circumstances:
(a) Upon the death of Kelly.
(b) In the event that Kelly shall become either physically
or mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively,
2
<PAGE>
the Company may, at its option, terminate this Agreement by written notice to
Kelly at that time or at any time thereafter while such incapacity continues.
In case of termination under this Section 6(b) or under Section 6(a), Kelly or
his estate shall be entitled to receive Base Salary or any other compensation
accrued or earned as of or to the date of any termination for six months
following such termination, or until the expiration of the term of this
Agreement, whichever is earlier.
(c) By Kelly, if the Company shall have materially breached
any of the provisions of this Agreement, and such termination shall have the
same effect on the payment of Kelly's Base Salary and Bonus as a termination by
the Company under Section 6(e).
(d) By the Company for Cause. The term "Cause" used in this
Section 6(e) means Kelly, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Kelly for Cause, no payments or benefits under this
Agreement shall become payable after the date of Kelly's termination. The
Company may terminate Kelly's employment under this Section 6(e)(i) or (ii) only
if written notice of the facts constituting the basis for such termination has
been given to Kelly and Kelly shall have been afforded 30 days opportunity to
take such action as may be reasonable under the circumstances to furnish
assurance to the Board of Directors that such basis for termination has been
corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause; provided,
--------
that the Company shall pay Kelly his Base Salary and any Bonus which would
otherwise have become payable under Section 3.2 above through the remaining term
of this Agreement.
7. Attorney Fees. The successful party in any litigation
-------------
relating to matters covered by this Agreement shall be entitled to an award of
reasonable attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Kelly or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
3
<PAGE>
9. Binding Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
If to the Company, to:
Prism Entertainment Corporation
1888 Century Park East, Suite 350
Los Angeles, California 90067
Attention:
Fax:
If to Kelly, to:
Craig Y. Kelly
--------------------------
--------------------------
--------------------------
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for
------------------
authorization, approval, decision, determination or other action of the Board of
Directors under the provisions of this Agreement, Kelly's vote as a director
shall not be counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Kelly indemnifying him against personal liability
to the fullest extent permissible under California corporation law.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
------------------------------
--------------------------------
Craig Kelly
5
<PAGE>
EMPLOYMENT AGREEMENT
(Barry Collier)
THIS EMPLOYMENT AGREEMENT is made and entered into as of the day of
_____________________, 1996, by and between Prism Entertainment Corporation, a
Delaware corporation (the "Company"), and Barry Collier ("Collier").
1. Term of Employment. The Company hereby employs Collier, and
------------------
Collier hereby agrees to serve the Company, under and subject to all of the
terms, conditions and provisions of this Agreement for a period of two (2) years
from the date hereof, in the capacity of President of the Company, or to serve
in such other executive capacity with the Company as the Company's board of
directors (the "Board") may from time to time designate, provided such
assignment is consistent with Collier's level of experience and expertise. In
the performance of his duties and the exercise of his discretion, Collier shall
be under the supervision and control of, and shall report only to, the Chairman
of the Board. Collier's duties shall be designated by the Chairman of the Board
and shall be subject to such policies and directions as may be established or
given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Collier shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Collier shall not, without
the prior written consent of the Board of Directors, directly or indirectly
render any services of a business, commercial or professional nature to any
other person or organization, whether for compensation or otherwise, which may
compete or conflict with the Company's business or with Collier's duties to the
Company.
3. Compensation.
------------
3.1 Base Salary. For all services rendered by Collier
-----------
under this Agreement, the Company shall pay Collier a salary ("Base Salary"),
payable semi-monthly, at the rate of $200,000 per year, subject to increase
thereof at the discretion of the Board.
3.2 Bonus. In addition to the Base Salary, the Company
-----
may pay Collier a bonus at the discretion of the Board.
4. Benefits. (a) In addition to the Salary, Collier will be
--------
entitled to medical insurance coverage by the Company and participation in any
group disability and life insurance and retirement plans. During the period of
his employment
Exhibit D-3
<PAGE>
hereunder, Collier will be reimbursed for reasonable business, travel and
entertainment expenses incurred in accordance with Company policy on behalf of
the Company in connection with his employment, and will be required to submit
appropriate expense reports for approval by signature of the Chairman of the
Board as a condition of reimbursement of such expenses. The Company shall pay on
behalf of Collier, the final premium installment owing on the life insurance
policy on Collier's life owned by Collier in the amount of approximately
$28,000.
(b) The Company will pay for Collier to have the use of one
Company provided automobile (or an equivalent expense allowance for an
automobile owned by Collier) and all maintenance and operating expenses relating
thereto.
5. Authority. So long as Collier serves as an officer of the
---------
Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors.
6. Termination. This Agreement shall terminate in advance of
-----------
the time specified in Section I above (and except as provided in Sections 6(c)
and 6(d) below, Collier shall have no right to receive any compensation not due
and payable to him or to his estate at the time of such termination) under any
of the following circumstances:
(a) Upon the death of Collier.
(b) In the event that Collier shall become either physically
or mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively, the Company may, at its option, terminate this Agreement
by written notice to Collier at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section 6(b) or under
Section 6(a), Collier or his estate shall be entitled to receive Base Salary or
any other compensation accrued or earned as of or to the date of termination for
six months following such termination, or until the expiration of the term of
this Agreement, whichever is earlier.
(c) By Collier, if the Company shall have materially breached
any of the provisions of this Agreement, and such termination shall have the
same effect on the payment of Collier's Salary as a termination by the Company
under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in this
Section 6(e) means Collier, (i) after repeated notices and warnings, fails to
2
<PAGE>
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Collier for Cause, no payments or benefits under this
Agreement shall become payable after the date of Collier's termination. The
Company may terminate Collier's employment under this Section 6(e)(i) or (ii)
only if written notice of the facts constituting the basis for such termination
has been given to Collier and Collier shall have been afforded 30 days
opportunity to take such action as may be reasonable under the circumstances to
furnish assurance to the Board of Directors that such basis for termination has
been corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause; provided, that
--------
the Company shall pay Collier his Salary through the remaining term of this
Agreement.
7. Attorney Fees. The successful party in any litigation
-------------
relating to matters covered by this Agreement shall be entitled to an award of
reasonable attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Collier or
the Company, except that this Agreement shall be assignable by the Company to
and shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding-Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed
3
<PAGE>
to such party as respectively indicated below or as otherwise designated by such
party in writing.
If to the Company, to:
Prism Entertainment Corporation
1888 Century Park East, Suite 350
Los Angeles, California 90067
Attention:
Fax:
If to Collier, to:
Barry Collier
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for
------------------
authorization, approval, decision, determination or other action of the Board of
Directors under the provisions of this Agreement, Collier's vote as a director
shall not be counted.
14. Entire Agreement. This Agreement 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 employment agreement, bonus
arrangement and termination arrangement referred to in Schedules 5.18 and 5.21
to the Agreement and Plan of Reorganization and Merger dated as of October 29,
1996 by and between the Company and Lee Video City, Inc.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
-----------------------------
-------------------------------
Barry Collier
5
<PAGE>
EXHIBIT E
NON-COMPETITION AGREEMENT
(ROBERT Y. LEE)
This Non-Competition Agreement is made as of October 29, 1996 (this
"Agreement"), by and among Prism Entertainment Corporation, Inc., a Delaware
corporation ("Prism"), and Robert Y. Lee (the "Shareholder"), with respect to
the following facts:
WHEREAS, Prism is a public company that filed for protection under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Central District of California on December 1, 1995 and is currently
operating as a debtor in possession.
WHEREAS, pursuant to the terms and provisions of that certain Agreement and
Plan of Reorganization and Merger (the "Merger Agreement") of even date herewith
by and between Prism and Lee Video City, Inc., a California corporation ("VCI"),
VCI is merging with and into Prism, with Prism being the surviving entity.
WHEREAS, the Merger Agreement is being entered into simultaneously with the
execution of this Agreement; and
WHEREAS, Prism's acquisition of VCI on the terms and conditions set forth
in the Merger Agreement is expressly conditioned upon the execution of this
Agreement by the Shareholder; and
WHEREAS, the parties hereto desire by this Agreement to provide for the
protection of the business, goodwill, trade secrets, customer lists, licenses
and other proprietary rights (collectively, the "Business") of VCI that will be
acquired by Prism in the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, as an inducement to Prism to consummate the acquisition of
the VCI Stock, and for other good and valuable consideration herein, the parties
hereto agree as follows:
1. Non-Competition. For a period of three years commencing on the
---------------
effective date of the Merger (the "Effective Date"), the Shareholder shall not
directly or indirectly engage or participate (as an owner, partner, shareholder,
joint venturer, agent, representative or independent contractor, or in any other
capacity calling for the making of any investment or the rendition of any
services or any acts of management, operation or control) in the retail sales
and rental segments of the consumer videotape industry, within five miles of any
store of VCI existing on the Effective Date, in any county in the State of
California; provided, however, that (a) the
--------
<PAGE>
Shareholder may own up to one percent of any class of securities of a
corporation engaged in such a competitive business if such securities are listed
on a national securities exchange or registered under the Securities and
Exchange Act of 1934, and (b) nothing herein shall prevent the Shareholder from
being a stockholder, officer or director of Prism or any affiliate thereof.
2. Non-Disclosure. The Shareholder recognizes and acknowledges that
--------------
he has had access to certain confidential information of VCI, including but not
limited to trade secrets, customer lists, mailing lists, sales records, and
other proprietary commercial information, and that such information constitutes
valuable, special, and unique property of VCI which is being acquired by Prism
in the Merger. The Shareholder agrees that he shall not disclose for any reason
or purpose whatsoever, any of such confidential information to any party without
the express written authorization of Prism.
3. Non-Solicitation. For a period of three years after the
----------------
Effective Date, the Shareholder shall not, without the prior written consent of
Prism, solicit any employee of Prism to leave Prism's employ for the employ of
Shareholder, or of any other individual, company or entity.
4. Remedies. The Shareholder acknowledges that his strict
--------
compliance with the terms of this Agreement is necessary to protect the
goodwill, trade secrets, and other proprietary interests related to the Business
of VCI being acquired by Prism pursuant to the Merger Agreement. The
Shareholder further acknowledges that a breach of Section 1 or 2 hereof will
result in irreparable and continuing damage to Prism and the acquired Business
of VCI, for which there will be no adequate remedy at law; and hereby agrees
that in the event of any breach of this Agreement, Prism and its successors and
assigns shall be entitled to injunctive relief and to such other and further
relief as may be deemed appropriate by a court of competent jurisdiction.
5. Enforceability. The parties intend that the covenants contained
--------------
in Section 1 shall be construed as a series of separate covenants, one for each
county or like jurisdiction within the state specified. Except for geographic
coverage, these separate covenants shall be deemed identical in terms to the
covenants contained in Section 1. If, in any judicial proceeding, a court
refuses to enforce any of the separate covenants deemed included in this
Agreement, then this unenforceable covenant shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced. Without limiting the
generality of the foregoing, if any provisions of this Agreement shall be held
invalid or unenforceable, in whole or in part, then such provision shall be
deemed to be modified or restricted to the extent and in the manner necessary to
render the same valid and enforceable, or shall be deemed excised from this
Agreement as the
2
<PAGE>
case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had not been originally
incorporated herein, as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
6. Governing Law. The validity and effect of this Agreement shall
-------------
be governed by and construed in accordance with the laws of the State of
California.
7. Assignment. The rights of Prism under this Agreement shall inure
----------
to the benefit of the successors and assigns of Prism. This Agreement and the
obligations created hereunder shall not be assigned or delegated by the
Shareholder.
8. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be deemed to have been given when personally
delivered or mailed, by certified or registered mail, return receipt requested,
address to the intended recipient as follows:
To the Shareholder:
Robert Y. Lee
6851 McDivitt, Suite A
Bakersfield, CA 93313
To Prism at:
___________________________
___________________________
___________________________
___________________________
Any party may from time to time change its address for the purposes of notices
to that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
9. Waiver. No claim or right arising out of a breach or default
------
under this Agreement can be discharged in whole or in part by a waiver of that
claim or right unless the waiver is supported by consideration and is in writing
and executed by the aggrieved party hereto or its duly authorized agent. A
waiver by any party
3
<PAGE>
hereto of breach or default by the other party hereto of any provision of this
Agreement shall not be deemed a waiver of any prior or subsequent compliance
therewith, and such provision shall remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date first above written.
PRISM ENTERTAINMENT CORPORATION
By:________________________________
SHAREHOLDER:
___________________________________
Robert Y. Lee
4
<PAGE>
EXHIBIT F
NON-COMPETITION AGREEMENT
(BARRY COLLIER)
This Non-Competition Agreement is made as of October 29, 1996 (this
"Agreement"), by and among Prism Entertainment Corporation, Inc., a Delaware
corporation ("Prism"), and Barry Collier (the "Shareholder"), with reference to
the following facts:
A. Prism is a public company that filed for protection under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for
the Central District of California on December 1, 1995 and is currently
operating as a debtor in possession. Collier has been the Chief Executive
Officer and a principal shareholder of Prism for more than ten years.
B. Pursuant to the terms and provisions of that certain Agreement and
Plan of Reorganization and Merger (the "Merger Agreement") of even date herewith
by and between Prism and Lee Video City, Inc., a California corporation ("VCI"),
VCI is merging with Prism (such transaction referred to herein as the "Merger"),
with Prism being the surviving entity.
C. Although the Merger is structured as a merger of VCI into Prism, the
economic and business reality and effect of the transaction is that VCI and
Prism are both transferring their business and assets to the reorganized Prism,
which, upon the confirmation of the Plan of Reorganization by the Bankruptcy
Court and the consummation of the Merger, will in essence be a new entity.
D. Collier acknowledges and agrees that the purpose and effect of the
Merger is that, for purposes of California Business and Professions Code Section
16601, he is disposing of his shares of the existing Prism Entertainment
Corporation in exchange for shares of the reorganized Prism, and that
accordingly he intends that his covenants contained in this Agreement shall
constitute a disposition of all of his shares in the existing Prism within the
meaning and scope of sand Section 16601.
E. VCI's willingness to enter into the Merger on the terms and conditions
set forth in the Merger Agreement is expressly conditioned upon the execution of
this Agreement by the Shareholder.
F. The parties hereto desire by this Agreement to provide for the
protection of the business, goodwill, trade secrets, customer lists, licenses
and other proprietary rights (collectively, the "Business") of the existing
Prism Entertainment Corporation that will be part of the reorganized Prism in
the transactions contemplated by the Merger Agreement.
<PAGE>
NOW, THEREFORE, as an inducement to VCI to consummate the Merger, and for
other good and valuable consideration herein, the parties hereto agree as
follows:
1. Non-Competition. For a period of three years commencing on the
---------------
effective date of the Merger (the "Effective Date"), the Shareholder shall not
directly or indirectly engage or participate (as an owner, partner, shareholder,
joint venturer, agent, representative or independent contractor, or in any other
capacity calling for the making of any investment or the rendition of any
services or any acts of management, operation or control) in any transactions
involving any of the films, titles or properties comprising Prism's film
library, including but not limited to the films listed in Schedule 5.25 to the
Merger Agreement, anywhere in the United States of America or elsewhere in the
world, without the express prior written consent of the Board of Directors of
Prism; provided, however, that (a) the Shareholder may own up to one percent of
--------
any class of securities of a corporation engaged in such a competitive business
if such securities are listed on a national securities exchange or registered
under the Securities and Exchange Act of 1934, (b) nothing herein shall prevent
the Shareholder from being a stockholder, officer or director of Prism or any
affiliate thereof.
2. Non-Disclosure. The Shareholder recognizes and acknowledges that
--------------
he has had access to certain confidential information of VCI, including but not
limited to trade secrets, customer lists, mailing lists, sales records, and
other proprietary commercial information, and that such information constitutes
valuable, special, and unique property of VCI which is being acquired by Prism
in the Merger. The Shareholder agrees that he shall not disclose for any reason
or purpose whatsoever, any of such confidential information to any party without
the express written authorization of Prism.
3. Non-Solicitation. For a period of three years after the
----------------
Effective Date, the Shareholder shall not, without the prior written consent of
Prism, solicit any employee of Prism to leave Prism's employ for the employ of
Shareholder, or of any other individual, company or entity.
4. Remedies. The Shareholder acknowledges that his strict
--------
compliance with the terms of this Agreement is necessary to protect the
goodwill, trade secrets, and other proprietary interests related to the Business
of VCI being acquired by Prism pursuant to the Merger Agreement. The
Shareholder further acknowledges that a breach of Section 1 or 2 hereof will
result in irreparable and continuing damage to Prism and the acquired Business
of VCI, for which there will be no adequate remedy at law; and hereby agrees
that in the event of any breach of this Agreement, Prism and its successors and
assigns shall be entitled to injunctive relief and to such other and further
relief as may be deemed appropriate by a court of competent jurisdiction.
2
<PAGE>
5. Enforceability. The parties intend that the covenants contained
--------------
in Section 1 shall be construed as a series of separate covenants, one for each
county or like jurisdiction within the state specified. Except for geographic
coverage, these separate covenants shall be deemed identical in terms to the
covenants contained in Section 1. If, in any judicial proceeding, a court
refuses to enforce any of the separate covenants deemed included in this
Agreement, then this unenforceable covenant shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced. Without limiting the
generality of the foregoing, if any provisions of this Agreement shall be held
invalid or unenforceable, in whole or in part, then such provision shall be
deemed to be modified or restricted to the extent and in the manner necessary to
render the same valid and enforceable, or shall be deemed excised from this
Agreement as the case may require, and this Agreement shall be construed and
enforced to the maximum extent permitted by law, as if such provision had not
been originally incorporated herein, as so modified or restricted, or as if such
provision had not been originally incorporated herein, as the case may be.
6. Governing Law. The validity and effect of this Agreement shall
-------------
be governed by and construed in accordance with the laws of the State of
California.
7. Assignment. The rights of Prism under this Agreement shall inure
----------
to the benefit of the successors and assigns of Prism. This Agreement and the
obligations created hereunder shall not be assigned or delegated by the
Shareholder.
8. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be deemed to have been given when personally
delivered or mailed, by certified or registered mail, return receipt requested,
address to the intended recipient as follows:
To the Shareholder:
Barry Collier
_____________________
_____________________
_____________________
To Prism at:
___________________________
___________________________
___________________________
___________________________
3
<PAGE>
Any party may from time to time change its address for the purposes of notices
to that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
9. Waiver. No claim or right arising out of a breach or default
------
under this Agreement can be discharged in whole or in part by a waiver of that
claim or right unless the waiver is supported by consideration and is in writing
and executed by the aggrieved party hereto or its duly authorized agent. A
waiver by any party hereto of breach or default by the other party hereto of any
provision of this Agreement shall not be deemed a waiver of any prior or
subsequent compliance therewith, and such provision shall remain in full force
and effect.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date first above written.
PRISM ENTERTAINMENT CORPORATION
By:________________________________
SHAREHOLDER:
___________________________________
Barry Collier
4
<PAGE>
IRREVOCABLE PROXY
The undersigned, for himself and as Trustee of the ___________ [FAMILY
TRUST], as record owner of ___________ shares of Common Stock of Prism
Entertainment Corporation, a Delaware corporation (the "Corporation"), in his
individual capacity and as record owner of __________ shares of such stock in
his capacity as Trustee of said Trust, hereby revokes any previous proxies and
appoints Robert Y. Lee and his nominee, if any, as the proxy of the undersigned
to attend any and all meetings of the stockholders of the Corporation and to
represent, vote, execute consents and waivers, and otherwise to act for the
undersigned on all matters in such proxy's sole and absolute discretion, in the
same manner and with the same effect as if the undersigned were personally
present at any such meeting and voting said shares or personally acting on any
matters submitted to stockholders for approval or consent. Such proxy, in
voting on the election of directors of the Corporation and on any other matter
expressly dealt with in the Shareholders Agreement dated ___________, 1996 by
and among the undersigned, Robert Y. Lee, Ingram Entertainment Corporation and
the other stockholders of the Corporation who are parties thereto, shall vote
the shares of the undersigned in compliance with said Voting Agreement.
The undersigned authorizes such proxy to appoint or substitute any
other person to act hereunder, to revoke any such appointment or substitution,
and to file this proxy and any appointment, substitution or revocation with the
Secretary of the Corporation.
This proxy is irrevocable until the earlier to occur of December 31,
2006, or at such time as the aggregate number of shares beneficially owned by
Robert Y. Lee and his affiliates is less than 3% of the then outstanding shares
of the Common Stock of the Corporation, and is given in connection with (i) the
merger with and into the Corporation of Lee Video City, Inc., a California
corporation controlled by Robert Y. Lee, and (ii) the transfer and assignment by
Robert Y. Lee to the undersigned and to the undersigned's family trust of an
aggregate of 610,000 shares of Common Stock of the Corporation. This proxy
shall not be revoked by the death or incapacity of the undersigned.
Notwithstanding anything herein to the contrary, this Proxy shall not apply to
any shares of the Corporation's Common Stock which are sold or otherwise
transferred by the undersigned or the Trust to an unrelated third party.
Dated: _______________, 1996 ___________________________________
BARRY COLLIER, in his individual
capacity and as Trustee of the
______________ Family Trust U/D/T/
dated ______________
Exhibit G
<PAGE>
SCHEDULE 3.1
CORPORATE EXISTENCE AND POWER
VCI is qualified to transact business as a foreign corporation in the states of:
Arizona
Idaho
Iowa
Missouri
South Dakota
<PAGE>
SUPERSEDED BY SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION AND
- --------------------------------------------------------------------------
MERGER DATED DECEMBER 24, 1996
- ------------------------------
Schedule 3.5
Allocation of VCI Stock
A. VCI Shares outstanding as of 10/29/96
<TABLE>
<S> <C>
Robert Y. Lee 1,215,306
Young C. Lee and Kay L. Lee 159,695
Mortco, Inc. 95,408
Haig Brown 25,000
---------
Total 1,495,408
</TABLE>
B. Convertible Promissory Notes:
<TABLE>
<CAPTION>
VCI Shares to be issued
Name Amount In Exchange for Note
- ------ ------ -----------------------
<S> <C> <C>
Dennis Rhoton $464,000 principal 134,659
Edward Rheinhardt 145,000 principal 41,972
Douglas Frankel 210,000 principal 92,450
Thomas Rider 40,000 principal --
-------
Total 269,081
</TABLE>
The notes of Rhoton and Rheinhardt (principal only) and Frankel
(principal plus accrued interest) are to be cancelled in exchange for shares of
VCI stock prior to Closing of the Merger. The noteholders will do so at a price
which will result in their receiving Prism Stock in the Merger at an effective
price of $1.20 per share. Rider's note is to be paid off prior to the closing.
Accrued interest on the Rhoton and Rheinhardt notes is to be paid by Prism over
a 12-month period following the Merger.
<PAGE>
C. Allocation of Prism Shares in the Merger:
<TABLE>
<CAPTION>
VCI Shares Total Reserved for
Prior to Prism Shares Unrestricted Ingram
Name Closing in Merger Delivery Warrant
- ---- ------- --------- -------- -------
<S> <C> <C> <C> <C>
Robert Y. Lee 1,215,306 3,417,952 2,993,967* 423,985
Young C. Lee and
Kay L. Lee 159,694 500,000 500,000 --
Mortco, Inc. 95,408 325,000 325,000 --
Haig Brown 25,000 62,145 54,436 7,709
Dennis Rhoton 134,659 386,667 386,667 --
Edward Rheinhardt 41,972 120,833 120,833 --
Douglas Frankel 92,450 266,153 266,153
--------- --------- --------- -------
Total 1,764,489 5,078,750 4,647,056 431,694
</TABLE>
* Robert Y. Lee's shares of Prism will be allocated as set forth in Part D of
this Schedule.
D. Allocation of Robert Y. Lee's Shares of Prism:
<TABLE>
<S> <C>
Shares reserved for Ingram Warrant 423,985
Shares transferred to Collier ((S)8.2(f)] 610,000
Shares transferred at Closing to Stephen Lehman (40,000) and
Brian Murphy (40,000) 80,000
Shares reserved for cancellation upon exercise of options
listed in Part B(2) of this Schedule 250,000
Shares retained by Lee (of which 900,000 shares are subject
to Ingram lock-up) 2,053,967
---------
Total 3,417,952
</TABLE>
2
<PAGE>
E. Options and Warrants to be assumed in Merger (all figures are adjusted for
Merger):
i. Original group (fully vested):
<TABLE>
<CAPTION>
Options for Total Exercise Approximate
Prism Shares Price Price per Share
------------ -------------- ---------------
<S> <C> <C> <C>
Craig Kelly 761,600 $391,821 $ .51
Steven Antongiovanni 181,200 186,446 1.03
Andrew W. Couch 181,200 186,446 1.03
Theodore Coburn 100,000 100,000 1.00
</TABLE>
ii. Other key employees and consultants - 5 year term, vesting one-third
prior to Closing, one-third at first anniversary and one-third at
second anniversary (except as otherwise stated). Exercise price $2.00
per share:
<TABLE>
<S> <C>
Tim Ford 105,000
Tom Rider (fully vested) 42,000
Brett Nelson 25,000
Joe Muller 17,000
Josh Pence 17,000
James Thomas 21,000
Don Dauterive 21,000
Shauna Rockwell 6,000
Mark Stoner (fully vested) 42,000
Kathy Digoy 42,000
Greg Schaffer 30,000
Valeri Turner 3,000
Duane Keathley (fully vested) 37,000
Tiffani Fernandez 15,000
Theresa McKiearnan 15,000
Hope Arnold 4,000
John Ledbetter 4,000
-------
461,000
</TABLE>
F. Warrants and Other Rights.
i. Ingram Entertainment, Inc. ("Ingram") holds a warrant for VCI Stock
which, upon the Merger, will be exchanged for a new warrant to
purchase 431,694 shares of Prism Stock from Messrs. Lee and Brown at
$.6085 per share. See Item C of this Schedule.
3
<PAGE>
ii. At the Closing of the Merger, Ingram will receive a warrant to
purchase 600,000 Prism Shares from Prism. This warrant is exercisable
at $2.00 per share for 200,000 shares for a five year period, $2.25
per share for 200,000 shares for a six year period, and $2.50 per
share for 200,000 shares for a seven year period; all figures are
subject to antidilution adjustment.
iii. Mortco, Inc. has a right to purchase additional shares pursuant to the
Right of First Refusal and Co-Sale Agreement dated as of December 16,
1994 among Mortco, Inc., VCI and Robert Y. Lee.
iv. Rentrak Corporation has a warrant dated June 19, 1996 to purchase up
to 5% of the fully diluted VCI Stock.
v. Rentrack Corporation has a warrant dated August 24, 1995 to purchase
up to 2% of the fully diluted VCI Stock.
4
<PAGE>
SCHEDULE 3.7
CONSENTS
1) Ingram Entertainment
2) Mortco, Inc.
3) Several store leases require consent of the landlord.
<PAGE>
Superseded by Second Amendment to Agreement and Plan of
-------------------------------------------------------
Reorganization and Merger Dated December 24, 1996
-------------------------------------------------
SCHEDULE 3.8
LIABILITIES NOT DISCLOSED ON JUNE 30, 1996 BALANCE SHEET
<TABLE>
<S> <C> <C>
White and Stine Settlement 284,054.17
Donald G. Abbey - Store 28 67,086.27 Total Rent and CAM due
Bullhead Square - Store 20 12,041.40 Total Rent and CAM due
(net of $6,000 security
deposit)
East Town Properties - Store 22 177,625.00 Total Rent and CAM due
Brown, Coburn & Co. 200,000.00 Potential disputed
commission on sale of 11
stores
</TABLE>
<PAGE>
SCHEDULE 3.9
ABSENCE OF CERTAIN CHANGES
(a). Exception for decline of up to 8% in same store sales in 1996 compared
to same period in 1995.
(c). Exception for the forgiveness of debt of Craig Kelly (employee,
$55,166) and Tim Ford (employee, $47,234) by VCI.
(e). VCI and Ingram Entertainment agreed to reclassify $600,000 of VCI
trade payables to long term debt as reflected in letter dated August
9, 1996.
Except for Rentrak Corporation which has orally agreed to reclassify
up to $500,000 of VCI existing trade payables (thru 2/28/97) and VCI
existing note payable (remaining payments thru 2/28/97) to a new note
payable. Preliminary terms, subject to final documentation, call for
maximum $500,000; three year amortization; principal and interest
payments beginning 3/1/97; interest rate = prime + 2.00%
AS OF THIS WRITING (10/15/96), VCI IS WAITING FOR FINAL NOTE AGREEMENT
AND DOCUMENTATION FROM RENTRAK.
<PAGE>
SCHEDULE 3.10
TITLE TO ASSETS
<TABLE>
<CAPTION>
STORE # LOCATION LANDLORD COMMENCEMENT EXPIRATION
- ------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C>
STORE LEASES
- ------------
#1 6615 Ming Avenue Laurelglen Associates 06/01/94 05/31/99
Bakersfield, Ca 93309
#2 5530 Olive Dr., Ste D & E Wong Properties 11/01/96 09/30/00
Bakersfield, Ca 93308
#3 3450 New Stine Rd. Stockdale Pad Partners 12/16/94 12/15/99
Bakersfield, Ca 93309
#4 2333 Brundage Lane Brundage Square 12/02/91 03/31/97
Bakersfield, Ca 93304
#5 2697 Mt. Vernon Ste A & B Mt Vernon Partners, LTD 04/06/92 04/30/02
Bakersfield, Ca 93306
#6 1557 White Lane WHLN Real Estate LP 03/31/92 04/14/97
Bakersfield, Ca 93307
#7 7890 White Lane PSD White Lane Associates 02/15/96 02/14/06
Bakersfield, Ca 93309
#8 2665 Calloway, Suite 2A Alexander Haagen 12/01/96 11/30/01
Bakersfield, Ca 93312
#9 3318 Niles Street Kinney Shoe Corp. 07/01/93 06/30/98
Bakersfield, Ca 93306
#10 1032 W. Kern Street Taft Investors 12/01/96 11/30/99
Taft, Ca 93268
#11 1101 Cecil Avenue Jaco Oil Company, Inc. 06/01/93 05/30/98
Delano, Ca 93215
#27 2409 Avenue S, Ste B2-B3 Commercial Ventures 05/27/94 05/26/99
Palmdale, Ca 93550
#29 1121 W. Valley Blvd, Ste B& PAS 1 07/01/94 08/31/99
Tehachapi, Ca 93561
#33 730 E. Alisal Jose & Marie Villalobo 06/03/94 06/02/97
Salinas, Ca 93905
#39 1493 So. Broadway Downtown Management Co. 10/25/95 10/31/00
Santa Maria, Ca 93454
#40 4785 E. Kings Canyon Northern Automotive Corp. 08/01/96 01/31/03
Fresno, Ca 93702
#42 3285 E. Shields Ave Midtown Plaza 08/14/96 08/13/01
Fresno, Ca 93726
</TABLE>
<PAGE>
SCHEDULE 3.10
TITLE TO ASSETS
<TABLE>
<CAPTION>
STORE # LOCATION LANDLORD COMMENCEMENT EXPIRATION
- ------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C>
#48 3110 No. West Ave Westland Properties 09/01/96 08/30/01
Fresno, Ca 93726
Corp 6851 McDivitt Dr. Ste A Don Judkins Month to Month
Bakersfield, Ca 93313
UNOCCUPIED STORE LEASES
- -----------------------
#20 2250 Hwy 95 #566 Bullhead Shopping Center 11/16/93 11/15/96
Bullhead City, Az 86442
#22 1264 E. 14th Street East Town Properties 07/05/94 03/31/01
Des Moines, Ia 50316
#28 2247 East Palmdale Blvd Donald G. Abbey 07/27/94 07/31/97
Palmdale, Ca 93550
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
LEASE LEASE # DESCRIPTION
- ----- ------- -----------
<S> <C> <C>
CAPITAL LEASES
- --------------
AT & T Capital 33718 Computer Equipment
Avco 97097/93-062 Computer Equipment
Bell Atlantic 7130498 E.A.S. System
Bell Atlantic 7137773/74 E.A.S. System
Bell Atlantic 7134770 E.A.S. System
Bell Atlantic 7139151 E.A.S. System
Bell Atlantic 7143535 E.A.S. System
Bell Atlantic 7143534 E.A.S. System
Bell Atlantic 7152220/21 E.A.S. System
Charter Equipment 200432 Fixtures/Computer Equipment
Charter Equipment 200522 Fixtures/Computer Equipment
Charter Equipment 200618 Fixtures/Computer Equipment
Charter Equipment 200619 Fixtures/Computer Equipment
Charter Equipment 200617 Fixtures/Computer Equipment
OPERATING LEASES
- ----------------
GE Capital 6518375 Postage Meter
TAIS Credit 7170476 Corp. copy machine
Union Bank Auto 5161 1996 Jeep Cherokee
Union Bank Auto 30629 1995 Dodge Van
Lytle Signs Signage
LIENS
- -----
Ingram Entertainment, Inc. Substantially all assets of the Company
Major Video Concepts Video cassette tapes
Havasu Entertainment, Inc. Tapes, fixtures, and Equipment
MCK Corporation Tapes, fixtures, and Equipment
</TABLE>
3
<PAGE>
SCHEDULE 3.12
LITIGATION
1. DONALD G. ABBEY - SEE SCHEDULE 3.8
Video City is in the process of relocating Store #28, Palmdale, California
to Fresno, California. Video City has not made its September 1996 and
October 1996 rent payments to the landlord. The landlord is threatening to
sue Video City if they do not honor their obligation on this lease. The
lease expires in May 1997 and the total lease liability is approximately
$67,000. Video City is trying to negotiate a payment schedule for this
remaining liability and thus avoid any litigation.
2. BROWN, COBURN & CO. - SEE SCHEDULE 3.8
<PAGE>
SCHEDULE 3.13
CONTRACTS
1. Purchase Agreement with Ingram Entertainment dated April, 1996.
2. Purchase Agreement with Rentrak Corporation dated December, 1994.
3. Service Agreement with Securitylink for alarm systems in our 18 stores and
corporate office, dated March, 1996.
4. Service Agreement with TCI Cablevision for DMX Business Music system dated
February, 1995. We no longer own the store where this is installed, and
are currently trying to negotiate an early termination of the contract.
Contract ends February, 2000 and the total liability is $2,362.85.
5. Service Agreement with TCI Cablevision for DMX Business Music system dated
April, 1996. We no longer own the store where this is installed, and are
currently trying to negotiate an early termination of the contract.
Contract ends April, 2000 and the total liability is $3,190.00.
6. Management Agreement held by Video City managing Sulpizio One, Inc.'s four
video retail stores.
7. Management Agreement held by Video City managing Game City, Inc.'s one
video retail store.
<PAGE>
SCHEDULE 3.14
LICENSES AND PERMITS
VCI has business licenses for all locations.
VCI has a Seller's permit for Sale and Use Tax.
<PAGE>
SCHEDULE 3.16
INTANGIBLE PROPERTY
VCI has a federal service mark registration for the name Video City.
<PAGE>
SCHEDULE 3.17
EMPLOYEE LIST AS OF 10/05/96
<TABLE>
<CAPTION>
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Store # 1 - 6615 Ming Avenue, Bakersfield, CA 93309
Barnard, Brooke Clerk 10,400.00 Full-Time
Davis, Jeff Supervisor 13,520.00 Part-Time
Keesling, Kristy Clerk 9,880.00 Part-Time
Miller, Mark Store Manager 25,999.92 Full-Time
Owens, Samantha Clerk 11,440.00 Full-Time
Swick, Robert Manager Trainee 24,000.00 Full-Time
Torres, Camila Clerk 10,400.00 Part-Time
Warth, Suzy Clerk 11,440.00 Full-Time
Wickline, Lori Clerk 10,400.00 Full-Time
Wickline, Sarah Clerk 11,960.00 Full-Time
Store # 2 - 5330 Olive Drive, Bakersfield CA 93308
Black, Valerie Clerk 11,440.00 Full-Time
Dawson, Sabrina Store Manager 23,400.00 Full-Time
Lawrence Sean Supervisor 15,080.00 Full-Time
Robertson, Amy Supervisor 15,080.00 Full-Time
Stephenson, Crystal Supervisor 13,000.00 Full-Time
Stroub, Christopher Clerk 10,400.00 Full-Time
Takhar, Nick Clerk 10,400.00 Part-Time
Wedding, Casey Clerk 11,440.00 Full-Time
Witcher, Josh Clerk 9,880.00 Part-Time
Store # 3 - 3450 New Stine Road, Bakersfield CA 93309
Abshier, Dana Supervisor 11,960.00 Full-Time
Abshier, Jamie Clerk 9,880.00 Full-Time
Atkison, Diane Clerk 9,880.00 Part-Time
Dodson, Jarrod Supervisor 13,520.00 Full-Time
Handy, Michelle Clerk 10,920.00 Full-Time
Latham, Troy Clerk 10,400.00 Full-Time
Long, Tracee Asst. Manager 14,560.00 Full-Time 6/1/96 1,040.00
Salazar, Tanya Clerk 11,440.00 Full-Time
Weaver, Erica Clerk 13,000.00 Full-Time
Store # 4 - 2333 Brundage Lane, Bakersfield CA 93304
De Luca, Melanie Clerk 10,400.00 Part-Time
Funkhouser, Amber Clerk 9,880.00 Part-Time
Herrera, Christy Supervisor 12,480.00 Full-Time
Morse, Nicholas Clerk 9,880.00 Full-Time
Pence, Joshua Store Manager 36,400.08 Full-Time
Potter, Julie Clerk 9,880.00 Full-Time
Unruh, Angela Clerk 9,880.00 Full-Time
Van Dourn, Kim Clerk 9,880.00 Full-Time
Warren, Angela Clerk 14,040.00 Full-Time
Witcher, Noble Asst. Manager 14,560.00 Full-Time 5/1/96 520.00
</TABLE>
<PAGE>
SCHEDULE 3.17
Employee List as of 10/05/96
<TABLE>
<CAPTION>
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Store # 5 - 2697 Mt. Vernon Avenue, Bakersfield CA 93306
Aragon, Amy Clerk 9,880.00 Full-Time
Buck, Melissa Supervisor 16,120.00 Full-Time
Darling, Anna Clerk 10,920.00 Part-Time
Davis, Lisa Clerk 9,880.00 Part-Time
Franco, Jennifer Clerk 9,880.00 Full-Time
Harl, Jennifer Clerk 10,920.00 Part-Time
Leslie, Jennifer Clerk 10,400.00 Part-Time
McArdle, Scott Clerk 10,400.00 Full-Time
O'Neal, Laura Clerk 9,880.00 Part-Time
Saenz, Vanessa Clerk 9,880.00 Full-Time
Schlais, Joni Clerk 9,880.00 Part-Time
Streeks, Jeneen Supervisor 13,000.00 Full-Time
Thomas, James Store Manager 40,000.08 Full-Time
Vargas, Andres Supervisor 14,560.00 Full-Time
Weaver, Lynette Clerk 11,440.00 Full-Time
Store # 6 - 1557 White Lane, Bakersfield CA 93307
Baker, Patty Clerk 9,880.00 Full-Time
Brooks, James Supervisor 10,920.00 Full-Time
Gaona, Brian Store Manager 20,800.08 Full-Time 7/31/96 5,200.00
Gonzales, Debbie Clerk 10,400.00 Full-Time
Green, Misty Clerk 9,880.00 Full-Time
Romero, Amanda Clerk 9,880.00 Part-Time
Silva, Nicole Clerk 9,880.00 Part-Time
White, Michelle Clerk 9,880.00 Full-Time
Store # 7 - 7890 White Lane, Bakersfield CA 93309
Christy, Dawn Supervisor 14,040.00 Full-Time
Collins, Dori Store Manager 27,300.00 Full-Time
Craig, James Clerk 9,980.00 Full-Time
Duncan Brandon Clerk 9,880.00 Full-Time
Gildner, Joel Clerk 9,880.00 Full-Time
Hill, Kala Supervisor 13,000.00 Full-Time
Krumm, Jacob Clerk 11,440.00 Full-Time
Little, Samantha Clerk 9,880.00 Part-Time
Pasquing, Hayden Supervisor 10,920.00 Full-Time
Silva, Erin Supervisor 13,000.00 Full-Time
White, Jill Clark 9,880.00 Part-Time
Store # 8 - 2665 Calloway, Bakersfield CA 93312
Beaty, Jill Clerk 10,400.00 Full-Time
Brown, Nichole Clerk 9,880.00 Full-Time
Conrow, Robin Clerk 10,400.00 Full-Time
Davis, Dave Supervisor 13,000.00 Full-Time
Jenkins, Tamera Clerk 14,040.00 Full-Time
Kennedy, Cori Clerk 11,440.00 Full-Time
LaBauve, Leslie Store Manager 27,300.00 Full-Time 2/16/96 1.300.00
Martin, Jenny Clerk 9,380.00 Full-Time
Popejoy, Lacey Supervisor 13,000.00 Full-Time
Scoles, Terra Clerk 11,440.00 Part-Time
Ward, Jeremiah Clerk 9,880.00 Full-Time
</TABLE>
2
<PAGE>
SCHEDULE 3.17
Employee List as of 10/05/96
<TABLE>
<CAPTION>
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Store # 9 - 3318 Niles Street, Barkersfield CA 93309
Brandon, Brian Clerk 9,880.00 Full-Time
Buonauro, Kelly Clark 11,440.00 Part-Time
Calderon, Maritza Clerk 11,960.00 Full-Time
Casteel, Randy Store Manager 24,700.08 Full-Time
Delaney, Leslie Clerk 10,920.00 Full-Time
McDaneld, Laura clerk 10,400.00 Part-Time
Meyer, Graham Clerk 9,880.00 Full-Time
Parker, Alandra Supervisor 12,480.00 Full-Time
Sanders, Anthony Clerk 9,880.00 Full-Time
Zinn, Stephanie Clerk 9,880.00 Part-Time
Store # 10 - 1032 W. Kern Street, Taft CA 93268
Bench, Brian Supervisor 9,880.00 Full-Time
DeLaCruz, Amanda Clerk 9,880.00 Full-Time
Destrampe, Josheph Clerk 9,880.00 Part-Time
Dyer, Keli Supervisor 12,480.00 Full-Time
Hunter, Jessica Clerk 9,880.00 Part-Time
Manning, Mandy Supervisor 10,920.00 Full-Time
Norman, Kristi Supervisor 11,440.00 Full-Time
Self, Brandon Clark 9,880.00 Full-Time
Smith, Carolann Store Manager 20,800.08 Full-Time 9/18/96 2,600.00
Smith, Pamela Clerk 9,980.00 Part-Time
Watta, Anna Clerk 10,400.00 Full-Time
Store # 11 - 1101 Cecil Avenue, Ddow CA 93215
Bartolome, Aubrey Clerk 9,980.00 Part-Time
Briones, Veronica Clerk 10,400.00 Full-Time
Carvantes, Emily Supervisor 13,520.00 Full-Time
Estrada, Aaron Supervisor 14,040.00 Full-Time
Estrada, Felix Clerk 9,980.00 Full-Time
Ganir, Irene Supervisor 11,960.00 Full-Time
Ilegan, Mariesol Clerk 9,980.00 Part-Time
Lopez, Gabriella Store Manager 25,999.92 Full-Time 3/16/96 1,300.00
Mascarinas, Andrew Clerk 9,980.00 Full-Time
Quiles, Elizabeth Clerk 11,440.00 Full-Time
Store # 27 - 2409 Avenue "S", Palmdale CA 92550
Austero, Peter Clerk 10,400.00 Full-Time
Banner, Mary Supervisor 10,920.00 Full-Time
Cedena, Stephanie Clerk 9,880.00 Part-Time
DeLaVina, Kimberly Supervisor 13,000.00 Full-Time
Lopez, Yolanda Clerk 10,400.00 Full-Time
Mondragon, Ted Clerk 13,000.00 Full-Time
Nadonza, Kevin Clerk 11,960.00 Full-Time
Powell, Marie Clerk 10,400.00 Full-Time
Stalklsworth, Alisha Store Manager 18,200.00 Full-Time 9/18/96 7,280.00
Vanornum, Steven Clark 9,880.00 Full-Time
Zaragoza, Gisela Clerk 9,880.00 Part-Time
</TABLE>
3
<PAGE>
SCHEDULE 3.17
Employee List as of 10/05/96
<TABLE>
<CAPTION>
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Store # 29 - 1121 W. Tehachapi Blvd., Tehachapi CA 93561
Bradley, Rebecca Supervisor 10,920.00 Full-Time
Delaney, Michael Store Manager 24,700.08 Full-Time 8/16/96 1,300.00
Dugan, Karah Supervisor 13,000.00 Full-Time
Felsoci, Sherry Supervisor 12,480.00 Full-Time
Ferguson, Tristy Clerk 11,440.00 Full-Time
Lang, Terry Supervisor 11,440.00 Part-Time
Pay, Joe Clerk 9,880.00 Full-Time
Rutherford, Vergie Clerk 9,880.00 Part-Time
Silva, Dustin Clerk 9,880.00 Part-Time
Store # 33 - 730 E. Alisal, Salinas CA 93905
Ceja, Margarita Clark 9,880.00 Part-Time
Chavez, Aida Clerk 9,880.00 Full-Time
Garcia, Marcella Clerk 9,880.00 Full-Time
Gonzales, Carlos Clerk 9,880.00 Part-Time
Hernandez, Georgina Supervisor 10,920.00 Full-Time
Jimenez, Diana Supervisor 11,440.00 Full-Time
Lara, Aaron Clerk 9,880.00 Full-Time
Madewell, Danny Supervisor 11,440.00 Full-Time
Ochoa-Harder, Maricella Store Manager 25,999.92 Full-Time 7/l/96 1,300.00
Palacio, Felicia Clerk 9,880.00 Part-Time
Quintero, Alma Supervisor 10,920.00 Full-Time
Rubio, Bertha Clerk 9,880.00 Full-Time
Store # 39 - 1493 So. Broadway, Santa Maria CA 93454
Baird, Clint Clerk 16,640.00 Full-Time
Brown, Jennifer Clerk 13,520.00 Part-Time
Dyer, Patrick Clerk 12,480.00 Full-Time
Fennell, Melissa Clerk 9,880.00 Full-Time
Helgert, Rachel Clerk 9,880.00 Part-Time
Leckie, Lynneann Store Manager 25,000.08 Full-Time
Martinez, Rachelle Clerk 11,440.00 Full-Time
Martinez, Saray Supervisor 15,600.00 Full-Time
Vanquez, Ruben Clerk 10,400.00 Full-Time
Watanabe, Valentina Clerk 10,400.00 Full-Time
Store #40 - 4785 Kings Canyon, Fresno, CA 93702
Arroyo, Angel Clerk 10,400.00
Coleman, Jerry Clerk 10,400.00
Marlin, Gina Store Manager 23,400.00 Full-Time 7/16/96 3,900.00
Martinez, Angela Clerk 10,400.00
Mora, Baltazar Clerk 10,400.00
Rivera, Audgey Clerk 110,400.00
Scott, Bobby Clerk 10,400.00
Sepeda, Stephanie Clerk 9,880.00
Sosa, Marisella Supervisor 10,400.00
Vasquez, Gabe` Clerk 9,880.00
Vasquez, Machelle Supervisor 10,920.00
</TABLE>
4
<PAGE>
SCHEDULE 3.17
Employee List as of 10/05/96
<TABLE>
<CAPTION>
Estimated Date of Last Annual
(a.) Employee Name Title Annual Salary Status 1996 Increase Increase Amt
------------- ----- ------------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Store #42 - 3285 E. Shields Avenue, Fresno CA 93726
Calhoun, Jason Supervisor 10,400.00
Diaz, Elva Supervisor 10,400.00 Full-Time
Godson, Michael 1Store Manager 24,700.08 Full-Time 7/17/96 3,900.00
Grijalva, Aaron Clerk 9,880.00 Full-Time
Hawkins, Greg Clerk 9,880.00 Full-Time
Marquez, Erica Clerk 9,880.00 Full-Time
Mayo, Amy Clerk 9,880.00 Part-Time
Montoya, Angel Clerk 9,880.00 Part-Time
Serrano, Fransico Supervisor 10,400.00 Full-Time
Stewart, Rebecca Clerk 9,880.00 Full-Time
Store #48 - 3110 N. West Avenue, Fresno CA 93705
Alvarez, Diseree Clerk 9,880.00 Part-Time
Clason, Jeremy Clerk 9,880.00 Full-Time
Hachigan, Bryon Clerk 9,880.00 Full-Time
Januse, Ted Supervisor 11.440.00 Full-Time
Martinez, Type Store Manager 18,199.92 Full-Time
Phengsiri, Boutsaba Supervisor 10,920.00 Full-Time
Rodriguez, Rosa Clerk 10,400.00 Full-Time
William, Alexa Clerk 9,880.00 Full-Time
Xiong, Pang Clerk 9,880.00 Part-Time
Yarbrough, Isaac Clerk 9,880.00 Full-Time
Operations Area Management
Ford, Tim VP Product/Merchandising 66,000.00 Full-Time
Muller, Joseph Area Manager 49,999.92 Full-Time 2/1/96 10,000.00
Nelson, Bret Area Manager 42,000.00 Full-Time
Morse, Elizabeth Courier 18,200.00 Full-Time 2/1/96 1,040.00
Corporate Office - 6851 McDivitt Dr., Ste. A, Bakersfield CA 93313
Antongiovanni, Steven Chief Financial Officer 90,000.00 Full-Time
Arnold, Hope Accounts payable 22,796.80 Full-Time 9/11/96 3,600.00
Fernandez, Tiffani Staff Accountant 30,000.00 Full-Time
McKiearnan, Teresa HR/Payroll Manager 40,500.00 Full-Time
Milano, Katie Staff Accountant 39,499.92 Full-Time
Kelly, James Chief Operations Officer 99,999.84 Full-Time
Rockwell, Shauna Administrative Assistant 24,003.20 Full-Time 1/10/96 1,800.00
Dauterivas, Don MIS Assistant 14,850.00 Part-Time
Digoy, Kathy MIS Director 48,000.00 Full-Time
Ledbetter, John MIS Assistant 27,600.00 Full-Time 5/1/96 3,600.00
Lee, Robert President & CEO 170,280.00 Full-Time
</TABLE>
*Note: This report reflects 1996 increases to the management level only.
Estimated Annual Salaries are calculated on hourly rate multiplied by
23,080 hours.
(b.) None
5
<PAGE>
SCHEDULE 3.18
PREPAIDS
None
<PAGE>
SCHEDULE 3.19
TAXES
3:19(a.) All federal, state, local and income tax, real and personal
property tax, sales and use tax., and employment taxes have been
filed and paid in full through the periods covered by each
return. All liabilities, including interest and penalties have
been booked in Video City's financial statements for all prior
periods.
The Internal Revenue Service has not examined the federal income
taxes of Video City. Video City has not been audited by any State
agencies as of yet either. There are no known claims or audits
pending.
3.19(b) *Proposed Escape Assessments
(Unsecured Personal Property Taxes)
Kern County Stores
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
STORE OLD NEW VALUE ESTIMATED ESCAPE
# YEAR VALUE VALUE DIFFERENCE ASSESSMENT AMT
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1993 - 43,093 43,093 489.19
1995 109,876 126,212 16,336 185.45
3 1993 - 44,548 44,548 505.71
1995 113,206 171,215 58,009 658.52
4 1993 - 31,844 31,844 361.49
1994 56,667 80,007 23,340 264.96
1995 56,667 83,772 27,105 307.70
5 1993 - 32,331 32,331 367.02
1994 57,677 60,905 3,228 36.64
1995 57,677 68,597 10,920 123.96
6 1993 - 17,605 17,605 199.85
7 1994 - 5,127 5,127 58.20
1995 19,245 27,950 8,705 98.82
8 1994 - 6,317 6,jl7 71.71
1995 56,764 67,043 10,279 116.69
9 1994 - 65,948 65,948 748.64
1995 - 70,853 70,853 804.32
10 1994 - 17,673 17,673 200.62
1995 - 20,960 20,960 237.94
11 1994 - 44,649 44,649 506.86
1995 - 54,640 54,640 620.27
29 1995 - 103,261 103,261 1,172.22
---------------------------------------------------
527,779 1,244,550 716,771 8,136.78
</TABLE>
* Note: Only notices of proposed assessments have been received. No billings
have been issued to date.
<PAGE>
SCHEDULE 3.21
LABOR AND EMPLOYMENT MATTERS
(a.) (4) Video City has been assessed $900.00 from the Department of Labor
for working two (2) minor employees for hours exceeding the law.
We are requesting a hearing and appealing the matter based on the
number of employees we employed at the time.
(b.) (3) Video City has a pending grievance in the state of Iowa for an
employee who claims she was released from employment due to her
mental state. Video City is appealing this case, as the reasons
for termination had nothing to do with the employees mental
state.
<PAGE>
SCHEDULE 3.22
PENSION AND BENEFITS PLANS
Incentive Plan
- --------------
1.) Management Bonus plan for Area and Store Management based on
controllable operating variables. Store Managers are paid
quarterly and Area Managers are paid annually.
Employee Welfare Benefit Plans
- ------------------------------
1.) Blue Shield - Preferred Provider Medical Insurance Plan
2.) CPIC Life Insurance Plan
3.) American Western Dental Plan dated 10-01-96
Other Agreements, Policies and Plans
- ------------------------------------
1.) Holiday, Sick and Vacation Policies dated November 28, 1995.
2.) Video City handbook covering Absences, Medical/Pregnancy, Family,
and Personal Leave.
<PAGE>
SCHEDULE 3.23
INSURANCE POLICIES
<TABLE>
<CAPTION>
POLICY EFFECTIVE ANNUAL
INSURANCE TYPE CARRIER COVERS NUMBER DATE PREMIUM AMOUNTS OF COVERAGE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property/Liability Fireman's Fund All Stores A A9 AZC 80505405 1/1/96 $62,926.00 Real & Personal
Property Replacement
Costs $200,000 per
location
Business Auto Fireman's Fund All Stores A A9 AZC 80505405 1/1/96 Included Above Bodily Injury &
Property Damage
Liability $1,000,000
each accident
Workers Compensation Fireman's Fund All Stores A A9 AZC 80505405 1/1/96 Included Above Bodily Injury &
Property Damage
Liability $1,000,000
each accident
Excess Liability Fireman's Fund All Stores XXK-000-8264-3297 1/1/96 Included Above $3,000,000 each
occurrence
Key-Man Life State Farm LCF-1350-8001 6/8/94 $11,436.00 $5,000,000
</TABLE>
<PAGE>
Schedule 4.1
CORPORATE EXISTENCE AND POWER
Prism Entertainment Corporation is qualified to transact business as a foreign
corporation in the State of California.
<PAGE>
SCHEDULE 4.5
PRISM CAPITALIZATION
Imperial bank warrants per loan agreements.
<PAGE>
SCHEDULE 4.7
SUBSIDIARIES
The following are wholly-owned subsidiaries of Prism Entertainment Corporation.
1) Prism Pictures Corporation, a Delaware corporation
2) Prism Pictures International, LTD., a California corporation
<PAGE>
SCHEDULE 4.8
LITIGATION
PENDING COLEMAN CLAIM
Tom Coleman v. Prism Entertainment Corporation, Los Angeles Superior Court Case
No. WEC 129295 (consolidated with C748210); Case No. 2 Civil B09586 in the
Second Appellate District, California Court of Appeals.
Tom Coleman, the former principal shareholder and executive officer of Atlantic
Entertainment Corporation ("Atlantic"), has sued Prism, its President Barry
Collier, and its former director, Paul Levinson, in Los Angeles Superior Court
alleging that he is a third party beneficiary of a purported 1988 agreement
providing for the merger of Atlantic and Prism. In that alleged capacity,
Coleman sued for breach of the alleged merger and for various alleged acts in
the performance or making of the alleged merger agreement. On April 26, 1995,
the Los Angeles Superior Court ruled in favor of defendants on their motion for
summary judgement and ordered Coleman's case dismissed in its entirety, ruling
that Coleman was not a third part beneficiary of the alleged merger agreement.
On May 3, 1995, the Los Angeles Superior Court entered a judgement in favor of
all defendants. Coleman filed a motion for reconsideration of the Superior
Court's ruling dismissing his case. The Court denied that motion on July 31,
1995. On August 4, 1996, Coleman appealed. That appeal was stayed as against
Prism because of its bankruptcy. Thereafter, in early June, 1996, Prism
Entertainment Corporation and appellant Tom Coleman entered into a stipulation
to lift the automatic bankruptcy stay with respect to Coleman's appeal against
Prism Entertainment Corporation in this case. Pursuant to that stipulation, the
United States Bankruptcy Court issued an order lifting the stay with respect to
this appeal. Accordingly, Prism Entertainment Corporation's bankruptcy is no
longer an obstacle to the determination of this appeal.
SCREEN ACTORS GUILD
SAG Agreement: see attached proposed draft of terms resolving the dispute with
SAG.
<PAGE>
SCHEDULE 4.10
FINANCIAL STATEMENTS
SCREEN ACTORS GUILD
SAG Agreement: see attached proposed draft of terms resolving the dispute with
SAG.
<PAGE>
SCHEDULE 4.11
ABSENCE OF CERTAIN CHANGES
None.
<PAGE>
SCHEDULE 4.12
TITLE TO ASSETS
1) Pursuant to the loan agreement, Imperial Bank is secured by substantially
all of the assets of Prism Entertainment Corporation and its subsidiaries.
<PAGE>
SCHEDULE 4.13
REAL PROPERTY
None.
<PAGE>
SCHEDULE 4.14
INTANGIBLE PROPERTY
Following is a list of each film in which Prism has rights, including the name
and address of each producer to whom a royalty is or may be owed:
<TABLE>
<CAPTION>
COMPANY ADDRESS FILM ACCEPT/REJECT
<S> <C> <C> <C>
Cori International Film and 2049 Century Park Ave. Boneyard
Television Suite #780
Jeffrey T. Sanfilippo Los Angeles, CA 90067
Fine Wein, Inc. 1900 Avenue of the Stars Backstreet Justice
Tom Kuhn Suite #1500
Los Angeles, CA 90067
Curb Esquire Films 3907 W. Alameda Ave. Bikini Island
Carol Curb Second Floor
Burbank, CA
North American Releasing 808 Nelson Street Silhouette aka
Melanie Kilgor Suite 2105 Ultimate Desires
Vancouver, BC V8Z 2H2
CANADA
Rich International Communications 1440 S. Sepulveda Blvd. Club Fed
Heidi Cohen Suite #3118
Los Angeles, CA 90025
Wolf, Rifkin & Shapiro 11400 W. Olympic Blvd. The Willies
Michael Wolf Ninth Floor
Los Angeles, CA 90064
Crown International Pictures 8701 Wilshire Blvd. Lena's Holiday
Lynette Prucha Los Angeles, CA
Omega Entertainment 8760 Shoreham Drive Lauderdale
Amanda Martin Los Angeles, CA 90069
Nu Image (Radiance Films) 110 North Doheny Drive Jump aka
Joanna Plafsky Beverly Hills, CA 90211 One Last Run
World Entertainment & Business 8837 Sunset Blvd., #203 Baby on Board
Network Los Angeles, CA 90069
Sandy Howard
Circle Releasing Corporation One Westin Circle Dark Obsession
Ted Pedas 2445 N. Street W
Washington, D.C. 90037
P.G. Entertainment, Inc. 8733 Sunset Blvd., #202 Sleepstalker
Lulgi Ciongolani Los Angeles, CA 90069
International Media Investments 16 Transvaal Street Fleshtone
David Stanford Shelton Paardenelland 7405
South Africa
P.O. box 17115, Regent
Sea Point 8061
South Africa
Osmosis Productions 10900 Ventura Boulevard When the Bough Breaks
Pat Peach Studio City, CA 91604
Amritraj Entertainment 3831 Sepulveda Blvd. Scorned
Ashok Amritraj Sherman Oaks, CA 91403
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Crystal Sky Communications 1800 Century Park East Ava's Magical
Joseph Inga 6th Floor Adventure
Los Angeles, CA 90067
Crystal Sky Communications 1800 Century Park East A Million to Juan
Gary Binkow 6th Floor
Los Angeles, CA 90067
Velvet Star Company 129 Yorkville Avenue Strangers
David Perimutter Toronto, Ontario M6R 1C4
CANADA
Farano, Green Barristers & Solictors 22 St. Clair Avenue East Still Life
Edmund Glinert Suite #1100
Toronto, Ontario M4T 2Z6
CANADA
International Television 11766 Wilshire Blvd. Monkey Boy
Joseph Kennedy 10th Floor
Los Angeles
Skyhawk Films 1780 East Bert Koon, #817 Enemy Gold
Arlene Sidaris Shreveport, LA 71106
Central Television Enterprises 11145 N.W. 1st Place Worst Witch
Claire Alter Coral Springs, FL 33071
Filmtrust Motion Picture Licensing 10490 Santa Monica Blvd. Deadly Embrace
Marco Columbo Los Angeles, CA 90025
Telso International 84 Buckingham Gate The Endless Game
Cresside Ward London SW1E 6PD
ENGLAND
Pentafilm Spa/Chechi Gori Group Via Aurelia Antia 422 The Gambia
Claudio Tinari 00165 Rome
ITALY
Freemantie International Inc. 660 Madison Avenue A Fight For Jenny
Blanca Oca New York, NY 10021 We Are the Children
Mark I. Funding 16911 Bellflower Blvd. L.A. Goddess
David Blake Bellflower, CA 90706
October Films 65 Bleecker Street Chain of Desire
Patrick C. Gunn New York, NY 10012 Hold Me. Thrill me
Hemdale Releasing 7966 Beverly Blvd. A Killing Affair aka
Rene Rousselt Los Angeles, CA 90048 My Sisters Keeper
York Pictures, Inc. 6753 Hollywood Blvd. The Divine Enforcer
Tanya York Suite #600
Los Angeles, CA 90028
Hearst Entertainment 236 East 45th Street Naked Lie
Tom Devlin New York, NY 10017
The Landsburg Company 11811 West Olympic Blvd. Diamond Fleece
Victor Paddock Los Angeles, CA 90064
Manley Productions, Inc. 111 West 57th Street Magdalene
Pat Hart New York, NY 10019
AFAA 15250 Ventura Blvd. AFAA Workout Series
Linda Pfeffer Sherman Oaks, CA 91430
The Freemantie Corporation 70 East 55th Street Manhunt for Claude
Blanca Oca New York, NY 10022 Dallas
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Independent Network, Inc. 11150 Olympic Blvd. Phantom Empire
Michael R. Ricci Los Angeles, CA 90064 Criminal Act
Overseas Film Group 8800 Sunset Blvd. Sacrilege aka
Robbie Little Los Angeles, CA 90069 Devils of Monza
Nu Image (Radiance) 110 N. Doheny Drive The Shrieldgn aka Hex
Joanna Plafsky Beverly Hills, CA 90211
Beyond Films Limited 53-55 Brisbane Street Body Melt
Gary Hamilton Surry Hills, NSW 2010
AUSTRALIA
Fox/Lorber Associates, Inc. 419 Park Avenue South A Matter of Degrees
Sheri Levine New York, NY 10022
Canadian Broadcasting System 350 5th Avenue Love and Hate
Empire State Building
New York, NY 10118
Curb Escquire Films 3907 W. Alameda Avenue Last Dance
Carol Curb 2nd Floor
Burbank, CA 91506
Home Box Office 1100 Avenue of the Prison Stories
Miriam Santiago Americas
New York, NY 10036
Forefront Films, Inc. 507 17th Street The Unearthing aka
Harold Warren Brooklyn, NY 11215 Aswang
Rick Sloan Productions 8661 Allenwood Road Vice Academy II
Rick Sloan Los Angeles, CA 90046
Overseas Film Group 8800 Sunset Blvd. Aftershock
Robbie Little Los Angeles, CA 90069 Out of Sight, Out of
Mind
GaGa America 9595 Wilshire Blvd. Jitters
Los Angeles, CA 90212
Radiance Films International as Agent 9606 Santa Monica Blvd. Trained to Kill
for Payam Asharian Beverly Hills, CA 90310
Rick Sloan Productions 8661 Allenwood Vice Academy 3
Rick Sloan Los Angeles, CA 90046
Chala Limited 21320 Pouilly en Auxious Demon Wind
Les Roches FRANCE
Amritraj/Baldwin Entertainment 3831 Sepulveda Blvd. Night Eyes
Ashok Amritraj Sherman Oaks, CA 91403
Broadstar Entertainment, Inc. 6464 Sunset Blvd. The 13th Floor
June Hatch #116
Los Angeles, CA 90028
Viacom International Inc. Paramount Pictures Shame
Steve Madoff 5555 Melrose Avenue
Hollywood, CA 90038
ITEL 420 Lexington Avenue Tales of the
Frank Miller New York, NY 10017 Unexpected
Shadowchaser Ltd. 11111 Santa Monica Blvd. Shadowchaser
John Eyres Los Angeles, CA 90025
Shapiro Glickenhaus Entertainment 12001 Ventura Place Phantom of the Ritz
Frank Isaac 4th Floor
Studio City, CA 91604
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Danning, Gill, Diamond & Kollitz 2029 Century Park East Riverbend
(Intercontinental) Suite #1900
Barry Lurie Los Angeles, CA 90067
Hemdale Releasing 7966 Beverly Blvd. My Little Girl
Rene Rousselt Los Angeles, CA 90048
Enchantment Pictures 1930 S. Beverly Glenn All American Murder
Bill Novodor Unit #204
Los Angeles, CA 90025
Viacom Enterprises 1515 Broadway Memories of Murder
Peter Newman New York, NY 10036
Manley Productions 111 West 57th Street Serpent of Death
Walter Manley Suite #1401
New York, NY 10019
Richard Gabai d/b/a Check 834 1/2 North Alta Drive Assault of the Party
Entertainment Hollywood, CA 90046 Nerds
Home Box Office 1100 Avenue of the Fellow Traveler
Miriam Santiago Americas
New York, NY 10036
Amazing Movies 7471 Melrose Avenue Time Trooper, aka
Douglas C. Witkins Los Angeles, CA 90046 Morning Terror,
Alienator, Le Petit
Amour aka Kung Fu
Avengers
Film Concept Group 5080 Spectrum Drive Blood Rage
John Chambliss Suite #609E
Dallas, TX 75248
Manley Productions 111 West 57th Street Running Away aka
Walter Manley Suite #1401 Two Women
New York, NY 10019
Castle Hill Productions 1414 Avenue of the Hell High
Mel Maron Americas
New York, NY 10019
Curb Esquire Films 3901 W. Alameda Avenue Exiled in America
Carol Curb Burbank, CA 91505
West Side Studios 10726 McCune Avenue Mardi Gras for the
Dianna Daou Los Angeles, CA 90034 Devil
Yankee Classic Pictures 127 Mitchell Avenue The Unnameable II
John Paul Ouellette #1
Los Angeles, CA 90066
Overseas Film Group 8800 Sunset Blvd. Night Screams
Robbie Little Los Angeles, CA 90069 Dial Help
Crown International Pictures 8701 Wilshire Blvd. My Mom's a Werewolf
Lynette Prucha Los Angeles, CA 90211
Hearst Entertainment 235 East 45th Street Midnight's Child,
Tom Devlin New York, NY 10017 Good Fight, and Getting
Up and Going Home
Secret Castle Productions 502 Park Avenue The Room and The
Mathew Seig New York, NY 10022 Dumbwaiter
Curb Esquire Films 3097 W. Alameda Avenue Evil Toons
Carol Curb Second Floor
Burbank, CA 91506
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
London Weekend Television South Bank Television Blade on the Feather
Colin Jarvis Centre Deep Cover
London SE1 9LT
ENGLAND
Curb Entertainment 3907 W. Alameda Avenue Dark Universe
Carol Curb Burbank, CA 91505
Cori Films 2049 Century Park East Club Extinction
Helen R. Krauss Suite #780
Los Angeles, CA 90067
Tatum Communications 2920 W. Olive Street Billy Kidd
Tom Tatum #102
Burbank, CA 91506
American Cinema Marketing 3855 Lankershim Blvd. Lords of Magick
George G. Murphy Suite #120
N. Hollywood, CA 90067
Falcon Arts and Entertainment 121900 Ventura Blvd. Double Exposure
Joanne Watkins Suite #2200
Los Angeles, CA 91604
Penta Film Via Aurelia Antica 422 Millions
00165 Rome
ITALY
Alchemy Entertainment 152 West 20th Street Sally Struthers
Oren Klaber Suite #1A Walking Video
New York, NY 10019
There's Nothing Out There 1605 Broadway There's Nothing Out
Victor Kanefsky #1001 There
New York, NY 10019
The Landsburg Company 11811 West Olympic Blvd. The George McKenna
Victor Paddock Los Angeles, CA 90064 Story
Entertainment Movies, Inc. 9903 Santa Monica Blvd. Double O Kidd
Stephen Paul Los Angeles, CA 90212
INI Entertainment Group, Inc. 11150 Olympic Blvd. Any Man's Death
Michael R. Ricci Los Angeles, CA 90064
Brightstar Films 100 Yonge Street Ghostwriter (Canadian
Orval Fruitman #1005
Toronto, Ontario M5C 2W1
CANADA
Mark Polan 14501 Calvert Ghostwriter (US)
Van Nuys, CA 91401
NOTE: The Rights in "Ghostwriter" are divided between two Licensors.
Nu Image (Radiance) 110 North Doheny Drive Mutator
Joanna Plafsky Beverly Drive, CA 90211
Crystal Sky Communications 9903 Santa Monica Blvd. Huck and The King of
Stephen Paul Los Angeles, CA 90212 Hears and Hail Ceaser
Film Export Group Via Polonia 9 Body Moves aka
Michael Freudenstein 00196 Rome Hot Steps
ITALY
Rick Sloan Productions 8661 Allenwood Road Vice Academy
Rick Sloan Los Angeles, CA 90046
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
Home Box Office 1100 Avenue of the Tailspin/KAL 007
Miriam Santiago Americas
New York, NY 10036
Producer's Network Associates 55 Heward Avenue Replikator
Margaret Mellor #216
Building B, Cinnevillage
Toronto, Ontario M4M 2T5
CANADA
The Phoenix Group 2150 East Tahquitz Abraxas
Bud Schaffer #5
Palm Springs, CA 92282
First Entertainment Inc. 1380 Lawrence Street Mind Killer, Lone
A.B. Goldberg Suite #400 Wolf and Night Vision
Denver, CO 80204
Crystal Sky Communications 9903 Santa Monica Blvd. Forever
Joseph Inga Los Angeles, CA 90212
Blue Ridge Entertainment 1640 S. Sepulveda Blvd. Ghetto Blaster
Carole Beazer Suite #308
Los Angeles, CA 90025
Crystal Sky Communications 9903 Santa Monica Blvd. Illusions
Stephen Paul Suite #333
Los Angeles, CA 90212
Grand Am Limited 6649 Odessa Avenue Evil Spirits
Van Nuys, CA 91406
Greenwich Films 12100 N.E. 16th Avenue South Beach
Steve Adelstein Miami, FL 33161
SC Entertainment 434 Queen Street East Red Blooded American
Kamal Dureja Toronto, Ontario M5A 1T5 Girl
CANADA
Crystal Sky Communications 1901 Avenue of the Stars Charlie's Ghost Story
Suite #680
Los Angeles, CA 90067
Velvet Star Productions 129 Yorkville Avenue Soft Deceit
Suite #200
Toronto, Ontario M5R 1C1
CANADA
Phoenix International Films, Inc. 5625 Cedarpine Drive Hidden Fears
Orlando, FL 32819
Blue Ridge Entertainment 10490 Santa Monica Blvd. Metalbeast
Los Angeles, CA 90025
Brilliant Disguise Productions 144 S. Doheny Drive A Brilliant Disguise
Penthouse
Beverly Hills, CA 90212
Cinevu Films, Inc. 120 Powell Street Power of Attorney
#32
Vancouver, BC V6A 161
CANADA
Heartstar Productions, Inc. 345 Carlaw Avenue Dominion
Third Floor
Toronto, Ontario M4M 2TW
CANADA
H.D. Productions 13801 Ventura Blvd. Snapdragon
c/o Amritraj Entertainment Sherman Oaks, CA 91423
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C>
ML Management 500 S. Buena Vista St. Afros & Bellbottoms
Burbank, CA 91521-7285
Saban Entertainment 10960 Wilshire Blvd. Black Ice
Los Angeles, CA 90024
Films Around The World 342 Madison Avenue Deadmate
New York, NY 10173
Tribune Entertainment 435 N. Michigan Avenue Final Shot: The Hank
Chicago, IL 60611 Gathers Story
Crystal Sky Communications 1901 Avenue of the Stars Hail Ceaser
Suite #680
Los Angeles, CA 90067
Playboy Entertainment 9242 Beverly Blvd. Hunkercise
Beverly Hills, CA 90210
Amritraj Entertainment 13801 Ventura Blvd. Illicit Behavior
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Invasion of Privacy
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Last Call
Sherman Oaks, CA 91423
Amritraj Entertainment 13801 Ventura Blvd. Legal Tender
Sherman Oaks, CA 91423
Monument Pictures 1604 N. Cahuenga Blvd. Little Noteses
Suite #107
Los Angeles, CA 90022
Amritraj Entertainment 13801 Ventura Blvd. Night Eyes 2
Sherman Oaks, CA 91423
Sequel Productions c/o 13801 Ventura Blvd. Night Eyes 3
Amritraj Entertainment Sherman Oaks, CA 91423
Fourth Night Productions c/o 13801 Ventura Blvd. Night Eyes 4...Fatal
Amritraj Entertainment Sherman Oaks, CA 91423 Passion
Films Around The World 342 Madison Avenue Night Friend
New York, NY 10173
Saban Entertainment 10960 Wilshire Blvd. Prey of the Chameleon
Los Angeles, CA 90024
Saban Entertainment 10960 Wilshire Blvd. Round Trip to Heaven
Los Angeles, CA 90024
Home Box Office, Inc. 1100 Avenue of the KAL 007 aka Tailspin
Americas
New York, NY 10036
Amritraj Entertainment 13801 Ventura Blvd. Tropical Heat
Sherman Oaks, CA 91423
Bitter Harvest Films 1901 Avenue of the Stars Bitter Harvest
Crystal Sky Communications Suite #680
Los Angeles, CA 90067
Tribune Entertainment 435 N. Michigan Avenue Voyage of Terror:
Chicago, IL 60611 Achille Lauro Affair
Amazing Movies 6223 Salma Avenue Alientator
#125
Hollywood, CA 90028
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
Morphosis Productions, Inc. 154 1/2 La Brea Avenue Terminal Force
dba Interlught Pictures Los Angeles, CA 90036 aka Galaxis
Catalyst Films International 836 Regal Crescent Virtual Assassin aka
North Vancouver, B.C. Cyberjack
CANADA V7K 2X8
</TABLE>
9
<PAGE>
SCHEDULE 4.15
CONTRACTS
None.
<PAGE>
SCHEDULE 4.16
LICENSES AND PERMITS
1) Los Angeles City Business License.
<PAGE>
SCHEDULE 4.18
EMPLOYEES
<TABLE>
<CAPTION>
EMPLOYEE NAME TITLE ANNUAL SALARY STATUS DATE OF LAST AMOUNT
Increased (decreased)
<S> <C> <C> <C> <C>
Corporate Offices - 1888 Century Park East, Suite 350
Los Angeles, CA 90067
Barry L. Collier President $250,000 F/T 6/1/96 ($82,750)
Rudy Patino CAO 96,000 F/T 7/1/96 $26,000
Kelly Nelson VP/CA 52,000 F/T
Hiede Marie Cantor Admin Ast. 51,000 F/T 7/1/96 $13,000
LaWanna May Staff Acct. 43,185 F/T 7/1/96 $13,000
</TABLE>
b) The Company has an employment agreement with Barry Collier, the Company's
President and Chairman of the Board, which provides for base compensation
of $250,000 adjusted for inflation. In addition, Mr. Collier will receive
an annual bonus equal to five percent of the Company's pre-tax profits, as
defined in the employment agreement, up to an aggregate annual compensation
(salary and bonus) of $750,000. In the event Mr. Collier's employment is
terminated prior to the July 31, 1998 expiration, for any reason other than
"justifiable cause" as defined in the employment agreement, the Company
will pay Mr. Collier $440,000 for each year remaining in the term, plus an
additional sum of $440,00.
<PAGE>
SCHEDULE 4.19
TAXES
a) All federal, state, and local income taxes, real and personal property
taxes, sales and use taxes and employment taxes have been filed and paid in
full through the periods covered by each return. All liabilities including
interest and penalties have been booked in Prism Entertainment Corporations
books and records.
The Internal Revenue Service has examined Prism Entertainment Corporation
tax returns through the year ended 1/31/92.
The California State Board of Equalization has examined Prism Entertainment
Corporation sales tax returns through 12/11/95.
The California State Board of Equalization has assessed taxes due,
including penalties and interest of $827,928.77 as of 8/1/96. Various
interest and penalties are post-petition and will be deducted from the
balance due.
The California State Board of Equalization has requested and Prism has
granted them an extension through 4/30/97 to audit the periods 1/l/93 to
12/31/95. As of 10/21/96, the Board has completed the audit for the period
under extension.
b) The Employment Development Department has sent an "Inquiry Regarding
Records" letter on and has requested to audit the period 7/l/93 to 6/30/97.
The purpose of the audit is to insure that all worker and wag" that are
subject to the employment tax provisions of the California Unemployment
Insurance Code have been property reported by employers.
f) None.
<PAGE>
SCHEDULE 4.21
LABOR AND EMPLOYMENT MATTERS
a)
1) Yes, except for Barry Collier employment agreement noted in Schedule
5.18.
2) None.
3) None.
4) None.
b)
1) None.
2) None.
3)
5) Screen Actors Guild
-------------------
SAG Agreement: see attached proposed draft of terms resolving the
dispute with SAG.
<PAGE>
Schedule 4.22
Pension and Benefit Plans
-------------------------
1) Premium payment due in December of 1997 in connection with the life
insurance policy on the life of Barry Collier, after which such policy will be
paid in full.
<PAGE>
SCHEDULE 4.23
INSURANCE
<TABLE>
<CAPTION>
AMOUNT OF
INSURANCE COVERAGE CARRIER/AGENT NAME COVERAGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Worker's Compensation National Fire Insurance Co. / Vansa Insurance Services - Tom Putnam $1,000,000
General Liability Transcontinental Insurance / Vansa Insurance Services - Tom Putnam $2,000,000
Fire and Extended Coverage Transcontinental Insurance / Vansa Insurance Services - Tom Putnam $2,000,000
Business - Personal Property Transcontinental Casualty / Vansa Insurance Services - Tom Putnam $1,100,000
Theft Transcontinental Casualty / Vansa Insurance Services - Tom Putnam $1,100,000
Vehicle American Casualty Co. / Vansa Insurance Services - Tom Putnam $1,000,000
Umbrella Liability General Star National Ins. / Vansa Insurance Services - Tom Putnam $4,000,000
Distributors Errors and Omissions (1) American Casualty Co. / Vansa Insurance Services - Tom Putnam $3,000,000
Accidental Death & Dismemberment Federal Insurance Co. / Vansa Insurance Services - Tom Putnam $1,500,000
Directors and Officers Liability (2) National Union Fire Insurance Co. / Vansa Insurance Services - Tom Putnam $1,500,000
<CAPTION>
POLICY PREMIUM PAID
EXPIRATION DATE THROUGH DATE
-----------------------------------
<S> <C> <C>
Worker's Compensation 04/10/97 04/10/97
General Liability 04/10/97 04/10/97
Fire and Extended Coverage 04/10/97 04/10/97
Business - Personal Property 04/10/97 04/10/97
Theft 04/10/97 04/10/97
Vehicle 04/10/97 04/10/97
Umbrella Liability 04/10/97 04/10/97
Distributors Errors and Omissions (1) 01/01/97 Monthly
Accidental Death & Dismemberment 06/07/97 06/07/97
Directors and Officers Liability (2) 12/29/96 Monthly
</TABLE>
(1) This policy has been renewed through 01/01/00.
(2) This policy has been renewed through 01/29/97.
There are no pending claims under any of the above policies.
<PAGE>
SCHEDULE 4.25
FILM LIBRARY
a. See attached documentation.
b. None.
c. None.
d. SAG Residual Agreements.
<PAGE>
AMENDMENT
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment to Agreement and Plan of Reorganization and Merger
("Amendment") is made and entered into as of December 20, 1996 by and between
Prism Entertainment Corporation, a Delaware corporation ("Prism"), and Lee Video
City, Inc., a California corporation ("VCI"), with respect to the facts set
forth below. Unless otherwise defined, all capitalized terms used in this
Amendment have the meanings ascribed to them in that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, by and between Prism
and VCI (the "Merger Agreement").
RECITALS
--------
A. Prism and VCI made and entered into the Merger Agreement,
pursuant to which Prism and VCI agreed to merge VCI with and into Prism in
accordance with the terms and conditions set forth therein.
B. Schedule 3.9 to the Merger Agreement lists the exceptions to the
representations and warranties made in Section 3.9 of the Merger Agreement. The
exceptions include the forgiveness by VCI of certain outstanding indebtedness
owed to VCI by Kelly, in the amount of $55,166, and by Tim Ford, in the amount
of $47,234.
C. Prism and VCI desire to amend ARTICLE V and ARTICLE VIII of the
Merger Agreement to reflect, respectively, the covenant of VCI to extend and
restructure such indebtedness on such terms and conditions as are reasonably
acceptable to Prism, and that such extension and restructuring will be a
condition precedent to the obligation of Prism to consummate the Merger.
D. Pursuant to Section 8.1(h) of the Agreement, Prism and VCI agreed
that as a condition precedent to the obligation of each of Prism and VCI to
consummate the Merger, each of Lee, Collier and Kelly shall have executed and
delivered to Prism an Employment Agreement substantially as set forth on
Exhibits D-1, D-2 and D-3 to the Agreement.
E. Prism and VCI desire to amend and restate each of such Exhibits.
F. Prism and VCI have agreed to amend ARTICLE V and ARTICLE VIII,
and to amend and restate Exhibits D-1, D-2 and D-3, upon the terms and
conditions set forth in this Amendment.
NOW, THEREFORE in consideration of the premises and mutual promises
set forth herein, the parties hereto hereby agree as follows:
<PAGE>
1. Amendment of ARTICLE V and ARTICLE VIII.
---------------------------------------
1.1 ARTICLE V of the Agreement is hereby amended by the
addition of the following Section 5.8:
"5.8 Extension and Restructuring of Indebtedness. VCI
-------------------------------------------
shall, on such terms and conditions as are reasonably acceptable to
Prism, extend and restructure the entire indebtedness owed to VCI by
each of Kelly and Tim Ford, which indebtedness is more fully described
on Schedule 3.9."
1.2 ARTICLE VIII is hereby amended by the addition of the
following Section 8.2(j):
"8.2(j) Extension and Restructuring of Indebtedness. In
-------------------------------------------
accordance with Section 5.8, VCI shall have extended and restructured
the entire indebtedness owed to VCI by each of Kelly and Tim Ford."
2. Amendment and Restatement of Employment Agreements.
--------------------------------------------------
2.1 Exhibit D-1 (Lee's Employment Agreement) is hereby amended
and restated in its entirety to read in full as set forth on Exhibit A.
2.2 Exhibit D-2 (Kelly's Employment Agreement) is hereby
amended and restated in its entirety to read in full as set forth on Exhibit B .
2.3 Exhibit D-3 (Collier's Employment Agreement) is hereby
amended and restated in its entirety to read in full as set forth on Exhibit C.
3. Modification of Schedules.
-------------------------
(a) Schedule 3.9 to the Merger Agreement shall be amended to
delete (c) therefrom.
(b) Schedule 4.22 to the Merger Agreement shall be amended to
state "None" in lieu of the disclosure therein.
4. Effect of this Amendment. Except as expressly provided for in
------------------------
this Amendment, this Amendment shall not, in any way or manner, rescind or
modify any existing term or provision of the Merger Agreement. All of the
amendments set forth in this Amendment shall be effective as of November 14,
1996.
2
<PAGE>
5. Integration. This Amendment (and Exhibits A, B and C, which are
-----------
hereby incorporated herein by this reference), together with the unamended terms
and conditions of the Merger Agreement, constitute the entire agreement between
the parties hereto and supersede all prior and contemporaneous agreements, oral
or written, between the parties concerning the subject matter hereof. No term of
this Amendment shall be amended, supplemented or waived except by a writing
signed by both parties.
IN WITNESS WHEREOF, Prism and VCI have caused this Amendment to be
duly executed by their respective authorized officers.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Barry Collier
------------------------------
Name: Barry Collier
----------------------------
Title: President
---------------------------
LEE VIDEO CITY, INC.,
a California corporation
By: /s/ Robert Y. Lee
-------------------------------
Name: Robert Y. Lee
-----------------------------
Title: President
----------------------------
3
<PAGE>
EXHIBIT A
LEE'S AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------------
<PAGE>
EXHIBIT D-1
EMPLOYMENT AGREEMENT
(ROBERT Y. LEE)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the ____ day of _____________, 1996, by and between Prism Entertainment
Corporation, a Delaware corporation (the "Company"), and Robert Y. Lee ("Lee").
1. Term of Employment. The Company hereby employs Lee, and Lee
------------------
hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Chairman of the Board and Chief Executive
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board") may from time to time
designate, provided such assignment is consistent with Lee's level of experience
and expertise. In the performance of his duties and the exercise of his
discretion, Lee shall be under the supervision and control of, and shall report
only to, the Board of Directors. Lee's duties shall be designated by the Board
of Directors and shall be subject to such policies and directions as may be
established or given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Lee shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Lee shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Lee's duties to the Company.
3. Compensation. For all services rendered by Lee under this
------------
Agreement, the Company shall pay Lee the following amounts:
3.1 Base Salary. A base salary ("Base Salary"), payable semi-
-----------
monthly, at the rate of $178,000 per year.
3.2 Bonus. In addition to the Base Salary, the Company shall
-----
pay Lee an annual bonus ("Bonus") with respect to any pretax profit generated by
the Company (any such pretax profit to be determined in accordance with the
usual and customary accounting practices of the Company and consistent with
generally accepted accounting principles except that all bonuses paid to any
employee based on pretax profits shall be deducted in determining pretax profit
for this purpose) as follows:
(a) an amount equal to 3% of any pretax profit of the
Company in excess of $1,100,000 with respect to the fiscal year commencing in
1997;
(b) an amount equal to 3% of any pretax profit of the
Company in excess of $1,200,000 with respect to the fiscal year commencing in
1998; and
<PAGE>
(c) an amount equal to 3% of any pretax profit of the
Company in excess of $1,300,000 with respect to the fiscal year commencing in
1999.
4. Benefits.
--------
(a) In addition to the Base Salary and the Bonus, if
any, Lee will be entitled to participate in all benefits of employment available
to other members of the Company's management, on a commensurate basis as they
may be offered from time to time by the Board of Directors to the Company's
other management employees. Such benefits include, but are not limited to, full
medical, dental and long term disability insurance for Lee and his immediate
family, participation in group life insurance and retirement plans, [AND TERM
LIFE INSURANCE OF $1,000,000 PAYABLE TO LEE'S DESIGNEES]. During the period of
his employment hereunder, Lee will be reimbursed for reasonable business, travel
and entertainment expenses incurred in accordance with Company policy on behalf
of the Company in connection with his employment, and will be required to submit
appropriate expense reports for approval by signature of the Chief Financial
Officer as a condition of reimbursement of such expenses.
(b) The Company will pay up to $500 per month (including
all maintenance and operating expenses) for Lee to have the use of one Company
provided automobile (or an equivalent expense allowance for an automobile owned
by Lee).
(c) If the Company's headquarters is moved from
Bakersfield, California, such that Lee must relocate, the Company shall pay his
reasonable relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Lee serves as Chief Executive Officer of
---------
the Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors,
6. Termination. This Agreement shall terminate in advance of the
-----------
time specified in Section 1 above (and except as provided in Sections 6(c) and
6(d) below, Lee shall have no right to receive any compensation not due and
payable to him or to his estate at the time of such termination) under any of
the following circumstances:
(a) Upon the death of Lee.
(b) In the event that Lee shall become either physically
or mentally incapacitated so as to not be capable of performing his duties as
required hereunder, and if such incapacity shall continue for a period of six
months consecutively, the Company may, at its option, terminate this Agreement
by written notice to Lee at that time or at any time thereafter while such
incapacity continues. In case of termination under this Section 6(b) or under
Section 6(a), Lee or his estate shall be entitled to receive Base Salary or any
other compensation accrued or earned as of or to the date of termination for six
months following such termination, or until the expiration of the term of this
Agreement, whichever is earlier.
2
<PAGE>
(c) By Lee, if the Company shall have materially
breached any of the provisions of this Agreement, and such termination shall
have the same effect on the payment of Lee's Base Salary and Bonus as a
termination by the Company under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in
this Section 6(e) means Lee, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Lee for Cause, no payments or benefits under this
Agreement shall become payable after the date of Lee's termination. The Company
may terminate Lee's employment under this Section 6(e)(i) or (ii) only if
written notice of the facts constituting the basis for such termination has been
given to Lee and Lee shall have been afforded 30 days opportunity to take such
action as may be reasonable under the circumstances to furnish assurance to the
Board of Directors that such basis for termination has been corrected or cured
(to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause;
provided, that the Company shall pay Lee his Base Salary and any Bonus which
- --------
would otherwise have become payable under Section 3.2 above through the
remaining term of this Agreement.
7. Attorney Fees. The successful party in any litigation relating
-------------
to matters covered by this Agreement shall be entitled to an award of reasonable
attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Lee or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding Effect. The terms, conditions, covenants and agreements
--------------
set forth herein shall inure to the benefit of, and be binding upon, the heirs,
administrators, successors and assigns of each of the parties hereto, and upon
any corporation, entity or person with which the Company may become merged,
consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified except
---------
by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
3
<PAGE>
If to the Company, to:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Barry Collier, President
Fax: (805) 397-5982
If to Lee, to:
Robert Y. Lee
--------------------------------------
--------------------------------------
--------------------------------------
12. California Law. This Agreement is being executed and delivered
--------------
and is intended to be performed and shall be governed by and construed in
accordance with the laws of the State of California.
13. Board of Directors. On any matter calling for authorization,
------------------
approval, decision, determination or other action of the Board of Directors
under the provisions of this Agreement, Lee's vote as a director shall not be
counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Lee indemnifying him against personal liability
to the fullest extent permissible under applicable corporate law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
---------------------------------------
-----------------------------------------
Robert Y. Lee
4
<PAGE>
EXHIBIT B
KELLY'S RESTATED AND AMENDED EMPLOYMENT AGREEMENT
-------------------------------------------------
<PAGE>
EXHIBIT D-2
EMPLOYMENT AGREEMENT
(JAMES CRAIG KELLY)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the ___ day of _________, 1996, by and between Prism Entertainment Corporation,
a Delaware corporation (the "Company"), and James Craig Kelly ("Kelly").
14.1 Term of Employment. The Company hereby employs Kelly, and
------------------
Kelly hereby agrees to serve the Company, under and subject to all of the terms,
conditions and provisions of this Agreement for a period of three years from the
date hereof, in the capacity of Senior Vice President and Chief Operating
Officer of the Company, or to serve in such other executive capacity with the
Company as the Company's board of directors (the "Board of Directors") may from
time to time designate, provided such assignment is consistent with Kelly's
level of experience and expertise. In the performance of his duties and the
exercise of his discretion, Kelly shall be under the supervision and control of,
and shall report only to, the Chairman of the Board. Kelly's duties shall be
designated by the Chairman of the Board and shall be subject to such policies
and directions as may be established or given by the Board of Directors from
time to time.
14.2 Devotion of Time to Company Business. Kelly shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Kelly shall not, without the
prior written consent of the Board of Directors, directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, which may compete
or conflict with the Company's business or with Kelly's duties to the Company.
14.3 Compensation.
------------
3.1 Base Salary. For all services rendered by Kelly under this
-----------
Agreement, the Company shall pay Kelly a base salary ("Base Salary"), payable
semi-monthly, at the rate of $120,000.
3.2 Bonus. In addition to the Base Salary, the Company shall
-----
pay Kelly an annual bonus ("Bonus") with respect to any pretax profit of
the Company (any such pretax profit to be determined in accordance with the
usual and customary accounting practices of the Company and consistent with
generally accepted accounting principles) as follows:
<PAGE>
(a) an amount equal to 3% of any pretax profit of the
Company in excess of $1,100,000 with respect to the fiscal year commencing in
1997;
(b) an amount equal to 3% of any pretax profit of the
Company in excess of $1,200,000 with respect to the fiscal year commencing in
1998; and
(c) an amount equal to 3% of any pretax profit of the
Company in excess of $1,300,000 with respect to the fiscal year commencing in
1999.
4. Benefits.
--------
(a) In addition to the Base Salary and the Bonus, if
any, Kelly will be entitled to participate in all benefits of employment
available to other members of the Company's management, on a commensurate basis
as they may be offered from time to time by the Board of Directors to the
Company's other management employees. Such benefits include, but are not limited
to, full medical, dental and long term disability insurance for Kelly and his
immediate family, participation in group life insurance and retirement plans,
and term life insurance of $500,000 payable to Kelly's designees. During the
period of his employment hereunder, Kelly will be reimbursed for reasonable
business, travel and entertainment expenses incurred in accordance with Company
policy on behalf of the Company in connection with his employment, and will be
required to submit appropriate expense reports for approval by signature of the
Chairman of the Board as a condition of reimbursement of such expenses.
(b) The Company will pay up to $500 per month
(including all maintenance and operating expenses) for Kelly to have the use of
one Company-provided automobile (or an equivalent expense allowance for an
automobile owned by Kelly).
(c) If the Company's headquarters is moved from
Bakersfield, California, such that Kelly must relocate, the Company shall pay
his reasonable relocation costs, including, but not limited to, moving expenses.
5. Authority. So long as Kelly serves as Chief Operating
---------
Officer of the Company under this Agreement, he shall have the authority
specified in the Bylaws of the Company, except that he shall not proceed with
any matters, or permit the Company to take any actions, which are prohibited by,
or are in conflict with, resolutions or guidelines adopted by the Board of
Directors,
6. Termination. This Agreement shall terminate in advance of
-----------
the time specified in Section 1 above (and except as provided in Sections 6(c)
and 6(d) below,
2
<PAGE>
Kelly shall have no right to receive any compensation not due and payable to him
or to his estate at the time of such termination) under any of the following
circumstances:
(a) Upon the death of Kelly.
(b) In the event that Kelly shall become either
physically or mentally incapacitated so as to not be capable of performing his
duties as required hereunder, and if such incapacity shall continue for a period
of six months consecutively, the Company may, at its option, terminate this
Agreement by written notice to Kelly at that time or at any time thereafter
while such incapacity continues. In case of termination under this Section 6(b)
or under Section 6(a), Kelly or his estate shall be entitled to receive Base
Salary or any other compensation accrued or earned as of or to the date of any
termination for six months following such termination, or until the expiration
of the term of this Agreement, whichever is earlier.
(c) By Kelly, if the Company shall have materially
breached any of the provisions of this Agreement, and such termination shall
have the same effect on the payment of Kelly's Base Salary and Bonus as a
termination by the Company under Section 6(e).
(d) By the Company for Cause. The term "Cause" used in
this Section 6(e) means Kelly, (i) after repeated notices and warnings, fails to
perform his reasonably assigned duties as reasonably determined by the Company,
(ii) materially breaches any of the terms or conditions of Sections 1 or 2 of
this Agreement, or (iii) commits or engages in a felony or any intentionally
dishonest or fraudulent act which materially damages the Company's reputation.
If the Company terminates Kelly for Cause, no payments or benefits under this
Agreement shall become payable after the date of Kelly's termination. The
Company may terminate Kelly's employment under this Section 6(e)(i) or (ii) only
if written notice of the facts constituting the basis for such termination has
been given to Kelly and Kelly shall have been afforded 30 days opportunity to
take such action as may be reasonable under the circumstances to furnish
assurance to the Board of Directors that such basis for termination has been
corrected or cured (to the extent susceptible to cure) and will not recur.
(e) By the Company at any time, without Cause;
provided, that the Company shall pay Kelly his Base Salary and any Bonus which
- --------
would otherwise have become payable under Section 3.2 above through the
remaining term of this Agreement.
7. Attorney Fees. The successful party in any litigation
-------------
relating to matters covered by this Agreement shall be entitled to an award of
reasonable attorneys' fees in such action.
3
<PAGE>
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Kelly or the
Company, except that this Agreement shall be assignable by the Company to and
shall inure to the benefit of and be binding upon (i) any successor of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding Effect. The terms, conditions, covenants and
--------------
agreements set forth herein shall inure to the benefit of, and be binding upon,
the heirs, administrators, successors and assigns of each of the parties hereto,
and upon any corporation, entity or person with which the Company may become
merged, consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified
---------
except by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
If to the Company, to:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
Fax: (805) 397-5982
If to Kelly, to:
Craig Y. Kelly
-------------------------------
-------------------------------
-------------------------------
12. California Law. This Agreement is being executed and
--------------
delivered and is intended to be performed and shall be governed by and construed
in accordance with the laws of the State of California.
4
<PAGE>
13. Board of Directors. On any matter calling for
------------------
authorization, approval, decision, determination or other action of the Board of
Directors under the provisions of this Agreement, Kelly's vote as a director
shall not be counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Kelly indemnifying him against personal liability
to the fullest extent permissible under applicable corporate law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
---------------------------------------
-----------------------------------------
James Craig Kelly
5
<PAGE>
EXHIBIT C
COLLIER'S RESTATED AND EMPLOYMENT AGREEMENT
-------------------------------------------
<PAGE>
EXHIBIT D-3
EMPLOYMENT AGREEMENT
(BARRY COLLIER)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the ____ day of _____________________, 1996, by and between Prism Entertainment
Corporation, a Delaware corporation (the "Company"), and Barry Collier
("Collier").
1. Term of Employment. The Company hereby employs Collier, and
------------------
Collier hereby agrees to serve the Company, under and subject to all of the
terms, conditions and provisions of this Agreement for a period of two (2) years
from the date hereof, in the capacity of President of the Company, or to serve
in such other executive capacity with the Company as the Company's board of
directors (the "Board") may from time to time designate, provided such
assignment is consistent with Collier's level of experience and expertise. In
the performance of his duties and the exercise of his discretion, Collier shall
be under the supervision and control of, and shall report only to, the Chairman
of the Board. Collier's duties shall be designated by the Chairman of the Board
and shall be subject to such policies and directions as may be established or
given by the Board of Directors from time to time.
2. Devotion of Time to Company Business. Collier shall devote
------------------------------------
substantially all of his productive time, ability and attention to the business
of the Company during the term of this Agreement. Collier shall not, without
the prior written consent of the Board of Directors, directly or indirectly
render any services of a business, commercial or professional nature to any
other person or organization, whether for compensation or otherwise, which may
compete or conflict with the Company's business or with Collier's duties to the
Company.
3. Compensation.
------------
3.1 Base Salary. For all services rendered by Collier under
-----------
this Agreement, the Company shall pay Collier a salary ("Base Salary"), payable
semi-monthly, at the rate of $178,000 per year.
3.2 Bonus. In addition to the Base Salary, the Company shall
-----
pay Collier the following bonuses ("Bonuses"):
(a) an annual bonus equal to 12% of all revenues (net of
commissions and expenses related thereto) recorded in excess of $625,000 from
the licensing of and/or transfer of rights to the Film Library accrued for each
fiscal year during the term hereof;
<PAGE>
(b) an annual bonus equal to 5% of any (MDF) marketing
development funds from any source in excess of $350,000 received by or credited
to the Company for each fiscal year during the term hereof; and
(c) a bonus equal to 20% of proceeds in excess of
$3,700,000 (net of commissions and expenses of sale) received by the Company
generated by the sale of the Film Library in its entirety.
As used herein, Film Library means the rights of the Company in the
motion pictures listed on Schedule 5.25 to the Merger Agreement dated as of
October 25, 1996 between the Company and Lee Video City, Inc.
4. Benefits.
--------
(a) In addition to the Base Salary and the Bonus, if
any, Collier will be entitled to participate in all benefits of employment
available to other members of the Company's management, on a commensurate basis
as they may be offered from time to time by the Board of Directors to the
Company's other management employees. Such benefits include, but are not limited
to, full medical, dental and long term disability insurance for Collier and his
immediate family and participation in group life insurance and retirement plans.
During the period of his employment hereunder, Collier will be reimbursed for
reasonable business, travel and entertainment expenses incurred in accordance
with Company policy on behalf of the Company in connection with his employment,
and will be required to submit appropriate expense reports for approval by
signature of the Chairman of the Board as a condition of reimbursement of such
expenses.
(b) The Company will pay up to $500 per month
(including all maintenance and operating expenses) for Collier to have the use
of one Company provided automobile (or an equivalent expense allowance for an
automobile owned by Collier).
5. Authority. So long as Collier serves as an officer of the
---------
Company under this Agreement, he shall have the authority specified in the
Bylaws of the Company, except that he shall not proceed with any matters, or
permit the Company to take any actions, which are prohibited by, or are in
conflict with, resolutions or guidelines adopted by the Board of Directors.
6. Termination. This Agreement shall terminate in advance of the
-----------
time specified in Section I above (and except as provided in Sections 6(c) and
6(d) below, Collier shall have no right to receive any compensation not due and
payable to him or to his estate at the time of such termination) under any of
the following circumstances:
2
<PAGE>
(a) Upon the death of Collier.
(b) In the event that Collier shall become either
physically or mentally incapacitated so as to not be capable of performing his
duties as required hereunder, and if such incapacity shall continue for a period
of six months consecutively, the Company may, at its option, terminate this
Agreement by written notice to Collier at that time or at any time thereafter
while such incapacity continues. In case of termination under this Section 6(b)
or under Section 6(a), Collier or his estate shall be entitled to receive Base
Salary or any other compensation accrued or earned as of or to the date of
termination for six months following such termination, or until the expiration
of the term of this Agreement, whichever is earlier.
(c) By Collier, if the Company shall have materially
breached any of the provisions of this Agreement, and such termination shall
have the same effect on the payment of Collier's Salary as a termination by the
Company under Section 6(f).
(d) By the Company for Cause. The term "Cause" used in
this Section 6(e) means Collier, (i) after repeated notices and warnings, fails
to perform his reasonably assigned duties as reasonably determined by the
Company, (ii) materially breaches any of the terms or conditions of Sections 1
or 2 of this Agreement, or (iii) commits or engages in a felony or any
intentionally dishonest or fraudulent act which materially damages the Company's
reputation. If the Company terminates Collier for Cause, no payments or benefits
under this Agreement shall become payable after the date of Collier's
termination. The Company may terminate Collier's employment under this Section
6(e)(i) or (ii) only if written notice of the facts constituting the basis for
such termination has been given to Collier and Collier shall have been afforded
30 days opportunity to take such action as may be reasonable under the
circumstances to furnish assurance to the Board of Directors that such basis for
termination has been corrected or cured (to the extent susceptible to cure) and
will not recur.
(e) By the Company at any time, without Cause; provided,
--------
that the Company shall pay Collier his Salary through the remaining term of this
Agreement.
7. Attorney Fees. The successful party in any litigation relating
-------------
to matters covered by this Agreement shall be entitled to an award of reasonable
attorneys' fees in such action.
8. Assignment. Neither this Agreement nor any of the rights or
----------
obligations of either party hereunder shall be assignable by either Collier or
the Company, except that this Agreement shall be assignable by the Company to
and shall
3
<PAGE>
inure to the benefit of and be binding upon (i) any successor of the Company by
way of merger, consolidation or transfer of all or substantially all of the
assets of the Company to an entity other than any parent, subsidiary or
affiliate of the Company and (ii) any parent, subsidiary or affiliate of the
Company to which the Company may transfer its rights hereunder.
9. Binding-Effect. The terms, conditions, covenants and agreements
--------------
set forth herein shall inure to the benefit of, and be binding upon, the heirs,
administrators, successors and assigns of each of the parties hereto, and upon
any corporation, entity or person with which the Company may become merged,
consolidated, combined or otherwise affiliated.
10. Amendment. This Agreement may not be altered or modified except
---------
by further written agreement between the parties.
11. Notices. Any notice required or permitted to be given under
-------
this Agreement by one party to the other shall be sufficient if given or
confirmed in writing and delivered personally or mailed by first class mail,
registered or certified, return receipt requested (if mailed from the United
States), postage prepaid, addressed to such party as respectively indicated
below or as otherwise designated by such party in writing.
If to the Company, to:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
Fax: (805) 397-5982
If to Collier, to:
Barry Collier
4033 Ocean Drive
Oxnard, California 93035
12. California Law. This Agreement is being executed and delivered
--------------
and is intended to be performed and shall be governed by and construed in
accordance with the laws of the State of California.
4
<PAGE>
13. Board of Directors. On any matter calling for authorization,
------------------
approval, decision, determination or other action of the Board of Directors
under the provisions of this Agreement, Collier's vote as a director shall not
be counted.
14. Indemnification Agreement. The Company shall enter into an
-------------------------
Indemnification Agreement with Collier indemnifying him against personal
liability to the fullest extent permissible under applicable corporate law.
15. Entire Agreement. This Agreement 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 employment agreement, bonus
arrangement and termination arrangement referred to in Schedules 5.18 and 5.21
to the Agreement and Plan of Reorganization and Merger dated as of October 29,
1996 by and between the Company and Lee Video City, Inc.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By
---------------------------------------
-----------------------------------------
Barry Collier
5
<PAGE>
SECOND AMENDMENT
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Second Amendment to Agreement and Plan of Reorganization and
Merger ("Second Amendment") is made and entered into as of December 24, 1996, by
and between Prism Entertainment Corporation, a Delaware corporation ("Prism"),
and Lee Video City, Inc., a California corporation ("VCI"), with respect to the
facts set forth below. Unless otherwise defined, all capitalized terms used in
this Second Amendment have the meanings ascribed to them in 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 Reorganization and
Merger, dated December 20, 1996 (the "Merger Agreement").
RECITALS
--------
A. Prism and VCI made and entered into the Merger Agreement, pursuant
to which Prism and VCI agreed to merge VCI with and into Prism in accordance
with the terms and conditions set forth therein.
B. Prism and VCI have amended the Merger Agreement pursuant to that
certain Amendment to Agreement and Plan of Reorganization and Merger, dated
December 20, 1996.
C. Prism and VCI desire to further amend the Merger Agreement.
NOW, THEREFORE in consideration of the premises and mutual promises
set forth herein, the parties hereto hereby agree as follows:
1. Deletion of Exhibit A. Exhibit A to the Merger Agreement
---------------------
("Agreement of Merger") is hereby deemed deleted, and all references to the
"Agreement of Merger" contained in the Merger Agreement and the Exhibits and
Schedules thereto shall be deemed to be amended so that such references are to
the "Certificate of Merger."
2. Deletion of References to Schedules 2.1, 3.11 and 3.26. All
------------------------------------------------------
references to Schedule 2.1 "Distribution of Prism Stock and Prism Warrants,"
Schedule 3.11 "Real Property," and Schedule 3.26 "Accuracy and Provision of
Information" in the Merger Agreement are hereby deemed deleted.
3. Amendment and Restatement of Schedule 3.5 "Allocation of
--------------------------------------------------------
Stock." Schedule 3.5 "Allocation of VCI Stock" is hereby amended and restated
- -------
in its entirety to read in full as set forth on the attached Exhibit A.
<PAGE>
4. Amendment of Section 4.5. The number "10,000,000" on line
------------------------
3 of Section 4.5 is hereby amended to "9,753,927."
5. Amendment and Restatement of Schedule 4.5. Schedule 4.5 is
-----------------------------------------
hereby amended and restated in its entirety to read in full as set forth on the
attached Exhibit B.
6. Amendment of Schedule. Schedule 3.8 to the Merger Agreement
---------------------
is hereby amended to reflect that the dollar amount with respect to the
liability to Brown, Coburn & Co. by VCI has been reduced to $40,000, to be
repaid by post-Merger Prism within 30 days of the Closing.
7. Deletion of Section 8.2(d) "Employee Benefit Plans".
---------------------------------------------------
Section 8.2(d) "Employee Benefit Plans" is hereby deleted in its entirety. The
parties hereto hereby agree that Prism shall assume such employee benefit plans
of VCI in such manner as they shall mutually agree upon.
8. Addition of Exhibit B, Exhibit C and Schedule 4.23.
--------------------------------------------------
8.1 The form of "Certificate of Merger" attached hereto as
Exhibit C is hereby added to the Merger Agreement as "Exhibit B."
8.2 The form of "Override Agreement" attached hereto as Exhibit
D is hereby added to the Merger Agreement as "Exhibit C."
8.3 The Schedule attached hereto as Exhibit E is hereby added to
the Merger Agreement as "Schedule 4.23 - Insurance."
9. Effect of this Second Amendment. Except as expressly provided
-------------------------------
for in this Second Amendment, this Second Amendment shall not, in any way or
manner, rescind or modify any existing term or provision of the Merger
Agreement. All of the amendments set forth in this Second Amendment shall be
effective as of December 24, 1996.
10. Integration. This Second Amendment and Exhibits A, B, C, D and E
-----------
attached hereto together with the unamended terms and conditions of the Merger
Agreement, constitute the entire agreement between the parties hereto and
supersede all prior and contemporaneous agreements, oral or written, between the
parties concerning
2
<PAGE>
the subject matter hereof. No term of this Second Amendment shall be amended,
supplemented or waived except by a writing signed by both parties.
IN WITNESS WHEREOF, Prism and VCI have caused this Second Amendment to
be duly executed by their respective authorized officers.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Barry Collier
-------------------------------
Barry Collier, President
LEE VIDEO CITY, INC.,
a California corporation
By: /s/ Robert Y. Lee
-------------------------------
Robert Y. Lee, President
3
<PAGE>
EXHIBIT A
SCHEDULE 3.5 "ALLOCATION OF VCI STOCK"
--------------------------------------
<PAGE>
(Revised as of 12/27/96)
- ------------------------
Schedule 3.5
Allocation of VCI Stock
A. VCI Shares outstanding as of 10/29/96
<TABLE>
<S> <C>
Robert Y. Lee 199,125
Young C. Lee and Kay L. Lee 175,875
Mortco, Inc. 95,408
Haig Brown 25,000
-------
Total 1,495,408
</TABLE>
B. Convertible Promissory Notes:
<TABLE>
<CAPTION>
VCI Shares to be issued
Name Amount In Exchange for Note
---- ------ -----------------------
<S> <C> <C>
Dennis Rhoton $464,000 principal 136,010
Edward Rheinhardt 145,000 principal 42,503
Douglas Frankel 210,000 principal 93,619
Thomas Rider 40,000 principal --
-------
Total 272,132
</TABLE>
The notes of Rhoton and Rheinhardt (principal only) and Frankel
(principal plus accrued interest) are to be cancelled in exchange for shares of
VCI stock prior to Closing of the Merger. The noteholders will do so at a price
which will result in their receiving Prism Stock in the Merger at an effective
price of $1.20 per share. Rider's note is to be paid off prior to the closing.
Accrued interest on the Rhoton and Rheinhardt notes is to be paid by Prism over
a 12-month period following the Merger.
<PAGE>
C. Allocation of Prism Shares in the Merger:
<TABLE>
<CAPTION>
VCI Shares Total Reserved for
Prior to Prism Shares Unrestricted Ingram
Name Closing in Merger Delivery Warrant
- ---- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Robert Y. Lee 1,119,125 3,409,024 3,004,621(1) 404,403
Young C. Lee and
Kay L. Lee 175,875 500,000 500,000 --
Mortco, Inc. 95,408 325,000 325,000 --
Haig Brown 25,000(2) -- -- --
Dennis Rhoton 136,010 386,667 386,667 --
Edward Rheinhardt 42,503 120,833 120,833 --
Douglas Frankel 93,619 266,153 266,153
--------- --------- --------- -------
Total 1,767,540 5,007,677 4,603,274 404,403
</TABLE>
(1) Robert Y. Lee's shares of Prism will be allocated as set forth in Part D of
this Schedule.
(2) Mr. Brown has exercised his dissenters rights and has agreed to accept
$62,500 ($2.50 per share) in full payment for his 25,000 shares of VCI.
D. Allocation of Robert Y. Lee's Shares of Prism:
<TABLE>
<S> <C>
Shares reserved for Ingram Warrant 404,403
Shares transferred to Collier ((S)8.2(f)] 610,000
Shares transferred at Closing to Stephen Lehman (40,000) and
Brian Murphy (40,000) 80,000
Shares reserved for cancellation upon exercise of options
listed in Part E(2) of this Schedule 250,000
Shares retained by Lee (of which 721,983 shares are subject
to Ingram lock-up) 2,064,621
---------
Total 3,409,024
</TABLE>
2
<PAGE>
E. Options and Warrants to be assumed in Merger (all figures are adjusted for
Merger):
1. Original group (fully vested):
<TABLE>
<CAPTION>
Options for Total Exercise Approximate
Prism Shares Price Price per Share
------------ -------------- ---------------
<S> <C> <C> <C>
Craig Kelly 761,600 $391,821 $ .51
Steven Antongiovanni 181,200 186,446 1.03
Andrew W. Couch 181,200 186,446 1.03
Theodore Coburn 100,000 100,000 1.00
</TABLE>
2. Other key employees and consultants - 5 year term, vesting one-third
prior to Closing, one-third at first anniversary and one-third at
second anniversary (except as otherwise stated). Exercise price $2.00
per share:
<TABLE>
<S> <C>
Tim Ford 105,000
Tom Rider (fully vested) 42,000
Brett Nelson 25,000
Joe Muller 17,000
Josh Pence 17,000
James Thomas 21,000
Don Dauterive 21,000
Shauna Rockwell 6,000
Mark Stoner (fully vested) 42,000
Kathy Digoy 42,000
Greg Schaffer 30,000
Valeri Turner 3,000
Duane Keathley (fully vested) 37,000
Tiffani Fernandez 15,000
Theresa McKiearnan 15,000
Katie Milan 15,000
Hope Arnold 4,000
John Ledbetter 4,000
-------
461,000
</TABLE>
F. Warrants and Other Rights.
1. Ingram Entertainment, Inc. ("Ingram") holds a warrant for VCI Stock
which, upon the Merger, will be exchanged for a new warrant to
purchase 404,403 shares of Prism Stock from Messrs. Lee and Brown at
$.6085 per share. See Item C of this Schedule.
3
<PAGE>
2. At the Closing of the Merger, Ingram will receive a warrant to
purchase 852,750 Prism Shares from Prism. This warrant is exercisable
at $2.00 per share for 200,000 shares for a five year period, $2.25
per share for 200,000 shares for a six year period, and $2.50 per
share for 200,000 shares for a seven year period, and prices ranging
from $.51 to $2.00 per share for 252,750 shares for a five year
period. All figures are subject to antidilution adjustment.
3. Mortco, Inc. has a right to purchase additional shares pursuant to the
Right of First Refusal and Co-Sale Agreement dated as of December 16,
1994 among Mortco, Inc., VCI and Robert Y. Lee.
4. Rentrak Corporation has a warrant dated June 19, 1996 to purchase up
to 5% of the fully diluted VCI Stock.
5. Rentrack Corporation has a warrant dated August 24, 1995 to purchase
up to 2% of the fully diluted VCI Stock.
4
<PAGE>
EXHIBIT B
AMENDED AND RESTATED SCHEDULE 4.5
---------------------------------
Schedule 4.5 is hereby amended and restated in its entirety to read as
follows:
"SCHEDULE 4.5 "OTHER SECURITIES OR EQUITY INTERESTS OF PRISM"
------------------------------------------------------------
1. All securities of VCI assumed by Prism as set forth in
Schedule 3.5 hereto.
2. All options to Purchase stock of Prism issued to Ingram
pursuant to the Override Agreement.
3. All securities issued to Barry Collier pursuant to the
Merger Agreement."
<PAGE>
EXHIBIT C
CERTIFICATE OF MERGER
---------------------
<PAGE>
CERTIFICATE OF MERGER
MERGING
LEE VIDEO CITY, INC.
(a California corporation)
INTO
PRISM ENTERTAINMENT CORPORATION
(a Delaware corporation)
Pursuant to Section 252 of the
Delaware General Corporation Law
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
-----
constituent corporations in the merger is as follows:
State of
Name Incorporation
---- -------------
Lee Video City, Inc. California
Prism Entertainment Corporation Delaware
SECOND: That an Agreement and Plan of Reorganization and Merger
------
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the laws under which each constituent corporation was formed.
THIRD: That Prism Entertainment Corporation, a Delaware corporation,
-----
shall be the surviving corporation.
FOURTH: That the Restated Certificate of Incorporation of Prism
------
Entertainment Corporation, a Delaware corporation, is hereby amended as follows:
A. Paragraph 1 is amended in full to read as follows:
<PAGE>
"The name of this corporation is Video City, Inc."; and
B. A new Paragraph 8 is added as follows:
"8. This corporation is prohibited from issuing nonvoting
securities."
FIFTH: That the executed Agreement and Plan of Reorganization and
-----
Merger is on file at the principal place of business of the surviving
corporation. The address of the principal place of business of the surviving
corporation is 1888 Century Park East, Suite 350, Los Angeles, California 90067.
SIXTH: That a copy of the Agreement and Plan of Reorganization and
-----
Merger will be furnished by the surviving corporation, on request and without
cost, to any stockholder of any constituent corporation.
SEVENTH: That Lee Video City, Inc., a California corporation, is
-------
authorized to issue only one class of shares of capital stock; and the total
number of shares which Lee Video City, Inc., a California corporation, is
authorized to issue is twenty million (20,000,000).
IN WITNESS WHEREOF, Prism Entertainment Corporation, a Delaware
corporation, has caused this Certificate of Merger to be executed by its duly
authorized officer this 27th day of December, 1996.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By:
-----------------------------
Barry Collier, President
<PAGE>
EXHIBIT D
OVERRIDE AGREEMENT
------------------
<PAGE>
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:
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.
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.
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").
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.
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").
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>
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.
"Closing Date" means the date of Closing.
------------
<PAGE>
"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
<PAGE>
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.
4
<PAGE>
"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.
5
<PAGE>
"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:
<PAGE>
(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.
7
<PAGE>
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
8
<PAGE>
be so 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.
9
<PAGE>
(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
related documents to which Ingram is a party. This Agreement and such related
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
operations of Reorganized Prism in accordance with generally accepted accounting
principles, 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;
(ii) any dispute between Reorganized Prism and any
Governmental Agency relating to Reorganized Prism's property, the
13
<PAGE>
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.
6.9 Inspection Rights. At any time during regular business
-----------------
hours and as often as reasonably requested, Reorganized Prism shall permit
Ingram, or any
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
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 their behalf) has the right to declare such indebtedness
17
<PAGE>
due 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 and is not released, vacated or
fully bonded within
18
<PAGE>
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.
19
<PAGE>
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;
(xii) opinion of counsel to Prism as to matters, and in
such form, as reasonably requested by Ingram;
20
<PAGE>
(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.
(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.
21
<PAGE>
(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.
(b) Delivery and reassignment by Ingram to Lee of the Pledged
Shares and to VCI of the Pledged Note.
22
<PAGE>
(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>
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>
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 answer back 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,
25
<PAGE>
or in any 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 unenforceable 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 successors and assigns, nor is anything in this Agreement
intended to relieve or
<PAGE>
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>
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;
(f) All present and future goods, including, without
---------
limitation, all consumer goods, farm products, inventory, equipment,
28
<PAGE>
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>
EXHIBIT E
SCHEDULE 4.23 "INSURANCE"
-------------------------
<PAGE>
SCHEDULE 4.23
INSURANCE
<TABLE>
<CAPTION>
AMOUNT OF POLICY PREMIUM PAID
INSURANCE COVERAGE CARRIER/AGENT NAME COVERAGE EXPIRATION DATE THROUGH DATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Worker's Compensation National Fire Insurance Co. / Vansa Insurance Services
- Tom Putnam $1,000,000 04/10/97 04/10/97
General Liability Transcontinental Insurance / Vansa Insurance Services
- Tom Putnam $2,000,000 04/10/97 04/10/97
Fire and Extended Insurance / Vansa Insurance Services
Coverage - Tom Putnam $2,000,000 04/10/97 04/10/97
Business - Personal Transcontinental Casualty / Vansa Insurance Services
Property - Tom Putnam $1,100,000 04/10/97 04/10/97
Theft Transcontinental Casualty / Vansa Insurance Services
- Tom Putnam $1,100,000 04/10/97 04/10/97
Vehicle American Casualty Co. / Vansa Insurance Services
- Tom Putnam $1,000,000 04/10/97 04/10/97
Umbrella Liability General Star National Ins. / Vansa Insurance Services
- Tom Putnam $4,000,000 04/10/97 04/10/97
Distributors Errors American Casualty Co. / Vansa Insurance Services
and Omissions (1) - Tom Putnam $3,000,000 01/01/97 Monthly
Accidental Death & Federal Insurance Co. / Vansa Insurance Services
Dismemberment - Tom Putnam $1,500,000 06/07/97 06/07/97
Directors and National Union Fire Insurance Co. / Vansa Insurance
Offiers Services - Tom Putnam $1,500,000 12/29/96 Monthly
Liability (2)
</TABLE>
(1) This policy has been renewed through 01/01/00.
(2) This policy has been renewed through 01/29/97.
There are no pending claims under any of the above policies.
<PAGE>
EXHIBIT 4.0
CERTIFICATE OF MERGER
MERGING
LEE VIDEO CITY, INC.
(a California corporation)
INTO
PRISM ENTERTAINMENT CORPORATION
(a Delaware corporation)
Pursuant to Section 252 of the
Delaware General Corporation Law
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
-----
constituent corporations in the merger is as follows:
State of
Name Incorporation
---- -------------
Lee Video City, Inc. California
Prism Entertainment Corporation Delaware
SECOND: That an Agreement and Plan of Reorganization and Merger
------
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the laws under which each constituent corporation was formed.
THIRD: That Prism Entertainment Corporation, a Delaware corporation,
-----
shall be the surviving corporation.
FOURTH: That the Restated Certificate of Incorporation of Prism
------
Entertainment Corporation, a Delaware corporation, is hereby amended as follows:
A. Paragraph 1 is amended in full to read as follows:
<PAGE>
"The name of this corporation is Video City, Inc."; and
B. A new Paragraph 8 is added as follows:
"8. This corporation is prohibited from issuing nonvoting
securities."
FIFTH: That the executed Agreement and Plan of Reorganization and
-----
Merger is on file at the principal place of business of the surviving
corporation. The address of the principal place of business of the surviving
corporation is 1888 Century Park East, Suite 350, Los Angeles, California 90067.
SIXTH: That a copy of the Agreement and Plan of Reorganization and
-----
Merger will be furnished by the surviving corporation, on request and without
cost, to any stockholder of any constituent corporation.
SEVENTH: That Lee Video City, Inc., a California corporation, is
-------
authorized to issue only one class of shares of capital stock; and the total
number of shares which Lee Video City, Inc., a California corporation, is
authorized to issue is twenty million (20,000,000).
IN WITNESS WHEREOF, Prism Entertainment Corporation, a Delaware
corporation, has caused this Certificate of Merger to be executed by its duly
authorized officer this 27th day of December, 1996.
PRISM ENTERTAINMENT CORPORATION,
a Delaware corporation
By: /s/ Barry Collier
--------------------------------------
Barry Collier, President
2
<PAGE>
EXHIBIT 10.1
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>
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.
"Closing Date" means the date of Closing.
------------
2
<PAGE>
"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>
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.
4
<PAGE>
"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.
5
<PAGE>
"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:
6
<PAGE>
(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.
7
<PAGE>
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
8
<PAGE>
be so 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.
9
<PAGE>
(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
related documents to which Ingram is a party. This Agreement and such related
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
operations of Reorganized Prism in accordance with generally accepted accounting
principles, 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;
(ii) any dispute between Reorganized Prism and any
Governmental Agency relating to Reorganized Prism's property, the
13
<PAGE>
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.
6.9 Inspection Rights. At any time during regular business hours and
-----------------
as often as reasonably requested, Reorganized Prism shall permit Ingram, or any
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
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 their behalf) has the right to declare such indebtedness
17
<PAGE>
due 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 and is not released, vacated or
fully bonded within
18
<PAGE>
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.
19
<PAGE>
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;
(xii) opinion of counsel to Prism as to matters, and
in such form, as reasonably requested by Ingram;
20
<PAGE>
(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.
(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.
21
<PAGE>
(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.
(b) Delivery and reassignment by Ingram to Lee of the Pledged
Shares and to VCI of the Pledged Note.
22
<PAGE>
(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>
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>
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 suc cessors 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,
25
<PAGE>
or in any 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 successors and assigns, nor is anything in this Agreement intended to
relieve or
26
<PAGE>
discharge the obligation or liability of any third Persons to any party to this
Agree ment, 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 Robert Y. Lee
---------------------------------------
Its President
------------------------------------
/s/ Robert Y. Lee
-----------------------------------------
Robert Y. Lee
Prism Entertainment Corporation, a
Delaware corporation
By /s/ Barry Collier
---------------------------------------
Its President
------------------------------------
Ingram Entertainment Inc., a Tennessee
corporation
By /s/ Thomas H. Lunn
---------------------------------------
Its Vice Chairman
------------------------------------
27
<PAGE>
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;
(f) All present and future goods, including, without
---------
limitation, all consumer goods, farm products, inventory, equipment,
28
<PAGE>
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>
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 [______________], 2003
PRISM ENTERTAINMENT CORPORATION
Warrant to Purchase Common Stock
--------------------------------
Prism Entertainment Corporation, a Delaware 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 [______________], 1996 and not after 5:00 p.m., Los
Angeles, California time, on [______________], 2003, 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 [$_____] 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
Exhibit A
<PAGE>
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 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> <C>
200,000 [______________], 2001 $2.00
200,000 [______________], 2002 $2.25
200,000 [______________], 2003 $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>
<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 thereafter of the holder of this
3
<PAGE>
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,
4
<PAGE>
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.
6. Expiration.
----------
This Warrant shall be void after 5:00 p.m., Los Angeles, California
time, on [______________], 2003, 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
[______________], 2003, 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 ____________, 1996, in the original principal amount of [$1,500,000] (the
"Note"), valued at the then outstanding principal balance thereof, plus accrued
and unpaid interest thereon, or (iii)
5
<PAGE>
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 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
propor tionately 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>
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 Prism Entertainment
Corporation, 1888 Century Park East, Suite 350, Los Angeles, California 90067.
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: [______________], 1996
PRISM ENTERTAINMENT CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
Seal:
Attest:
By:_________________________________
Secretary
7
<PAGE>
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>
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THIS WARRANT
PRISM ENTERTAINMENT CORPORATION
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>
ESCROW AND WARRANT AGREEMENT
This Escrow and Warrant Agreement (the "Agreement") is made and
entered into as of ________________, 1996, by and among Prism Entertainment
Corporation, a Delaware 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") and ___________________ (collectively, the "Grantors"); Ingram
Entertainment, Inc., a Tennessee corporation ("Ingram") and
_____________________ a _____________ ("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, with respect to the merger of VCI into the Company (the
"Merger").
B. In connection with the Merger, the Grantors 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 Grantors have 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 Grantors, will deposit in escrow (the
"Escrow") with the Escrow Agent an aggregate of 410,444 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 (S) 8.2(g) of the Merger Agreement) issued to the shareholders of
VCI pursuant to the Merger. The allocation of the Warrant Shares (the
"Allocation") among the Grantors is set forth on Schedule A attached hereto, and
certificates representing the Warrant Shares shall be issued in the names of the
Grantors in accordance with Schedule A. Receipt of the Warrant Shares is hereby
acknowledged by the Escrow
Exhibit B
<PAGE>
Agent. Escrow Agent shall hold the Warrant Shares as provided in this
Agreement. Ingram, Lee and the Grantors 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. Grantors hereby grant to Ingram, subject to the
----------------
terms set forth below, a warrant (the "Warrant") to purchase the Warrant Shares
from the Grantors 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 [______________], 1996
and not after 5:00 p.m., Los Angeles, California time, on [______________],
2001, 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 Grantors, 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>
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 Grantors, 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 to participate in such dividend,
distribution or subscription rights or to exchange their Shares for other
securities or property pursuant to such
3
<PAGE>
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 Grantors.
---------------------
The Grantors covenant and agree that they 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. Grantors 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 Grantors agree to notify the holder of this Warrant
as to any change in the address of the Escrow Agent's principal office.
(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
4
<PAGE>
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) Pro-Rata Exercise. This Warrant shall be deemed to be
-----------------
exercised against each of the Grantors on a pro-rata basis in accordance with
the Allocation.
(d) 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
Grantors' 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
Grantors, shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing to the Grantors to Robert Y. Lee, as agent
for the Grantors addressed as follows: _________________________________________
_______________________________ and 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,
5
<PAGE>
including, but not limited to, the Override 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 the Grantors 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 Grantors 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
Grantors, 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
6
<PAGE>
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, 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 Grantors, 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 Grantors, 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
Grantors and Ingram. Any successor Escrow Agent shall deliver to the Company,
the Grantors 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 Grantors 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
7
<PAGE>
any way hereto, the Company, the Grantors 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, cost, damage, or expense resulting from the Escrow
Agent's breach of this Agreement or its willful misconduct or gross negligence.
12. Return of Warrant Shares. The Escrow Agent shall return to the
------------------------
Grantors or their designees all Warrant Shares remaining after the Expiration
Date.
Dated: [________________], 1996
_________________________________________
Robert Y. Lee
_________________________________________
Escrow Agent
By:______________________________________
INGRAM ENTERTAINMENT INC.
By:______________________________________
PRISM ENTERTAINMENT CORPORATION
By:______________________________________
8
<PAGE>
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.
9
<PAGE>
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THIS WARRANT
PRISM ENTERTAINMENT CORPORATION
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: [_____________, ____]
10
<PAGE>
GUARANTY RELEASE AGREEMENT
--------------------------
This Guaranty Release Agreement ("Agreement") is entered into as of
[______________], 1996, by and between Ingram Entertainment Inc., a Tennessee
corporation ("Ingram"), 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"), and Lee Video City, Inc., a California
corporation ("VCI"), with respect to the following:
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
VCI, Lee (on behalf of himself and as trustee of 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 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, the restructuring of
the VCI Debt.
D. Pursuant to Section 2.1 of the Override Agreement, Lee and Ingram
have agreed to enter into this Agreement, to more fully set forth the terms and
conditions relating to the termination of the Workout Agreement, the Stock
Pledge Agreement, the Note Pledge Agreement and Lee Guaranty (collectively, the
"Old Debt Agreements"), and the release of Lee, the Trust and VCI from all
obligations thereunder.
NOW, THEREFORE, in consideration of the foregoing premises and the
promises contained in the Override Agreement and this Agreement, and in
consideration of other good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the parties hereto hereby agree,
covenant and consent as follows:
Exhibit C
<PAGE>
1. As of the date hereof, the Workout Agreement, the Stock Pledge
Agreement, the Note Pledge Agreement and the Lee Guaranty are hereby terminated
and cancelled, and shall be of no further force or effect.
2. Ingram, for itself and on behalf of (as applicable) its respective
officers, directors, shareholders, representatives, agents, attorneys,
administrators, executors, heirs, assigns, predecessors and successors in
interest, hereby releases and forever discharges Lee, the Trust and VCI and (as
applicable) each of their respective past, present, and future officers,
directors, shareholders, agents, representatives, administrators, executors,
predecessors in interest, successors in interest, heirs and assigns, and all
other persons, firms or corporations with whom any of the latter have been, are
now, or may hereafter be affiliated, from all past, present and future claims,
demands, obligations, and causes of action of any nature whatsoever, whether in
tort (including, without limitation, acts of active negligence), contract or any
other theory of recovery in law, admiralty or equity, whether for compensatory
or punitive damages, equitable relief or otherwise, and whether now known or
unknown, suspected or unsuspected, that are based upon or arise out of or in
connection with any of the Old Debt Agreements; provided, however, that the
-------- -------
foregoing shall not constitute a release of any party from any liability or any
other obligation imposed under, or otherwise arising with respect to, the
Override Agreement, the Note or the other Debt Documents.
3. Lee, the Trust and VCI, for themselves and on behalf of (as
applicable) their respective officers, directors, shareholders, representatives,
agents, attorneys, administrators, executors, heirs, assigns, predecessors and
successors in interest, hereby release and forever discharge Ingram and (as
applicable) each of Ingram's respective past, present, and future officers,
directors, shareholders, agents, representatives, administrators, executors,
predecessors in interest, successors in interest, heirs and assigns, and all
other persons, firms or corporations with whom any of the latter have been, are
now, or may hereafter be affiliated, from all past, present and future claims,
demands, obligations, and causes of action of any nature whatsoever, whether in
tort (including, without limitation, acts of active negligence), contract or any
other theory of recovery in law, admiralty or equity, whether for compensatory
or punitive damages, equitable relief or otherwise, and whether now known or
unknown, suspected or unsuspected, which are based upon or arise out of or in
connection with the Workout Agreement or any of the other Old Debt Agreements.
(All of the released matters set forth in Section 2 above and in this Section 3
are collectively referred to herein as the "Released Matters.")
4. The filing or bringing by any party to this Agreement of any
claim, demand, obligation or cause of action against any person released
hereunder in connection with any Released Matter shall constitute a breach of
this Agreement.
2
<PAGE>
5. The parties hereto represent, warrant and agree that in
entering into this Agreement, they are not relying and have not relied upon any
representation, promise or statement made by anyone which is not recited,
contained, or embodied in this Agreement or the Override Agreement, the Note or
the other Debt Documents. The parties hereto understand and expressly assume
the risk that any fact not recited, contained or embodied herein or therein may
turn out hereafter to be other than, different from or contrary to the facts now
known to them or believed by them to be true. Nevertheless, the parties intend
by this Agreement, and with the advice of their own independently selected
counsel, to release fully, finally and forever all Released Matters and agree
that this Agreement shall be effective in all respects notwithstanding any such
difference in facts and shall not be subject to termination, modification or
rescission by reason of any such difference in facts.
6. The parties hereto hereby represent and warrant that they have not
heretofore assigned or transferred or purported to assign or transfer to any
person or entity all or any part of or any interest in any claim, contention,
demand or cause of action relating to any Released Matters. Each party agrees to
indemnify and to hold harmless each other party against any claim, contention,
demand, cause of action, obligation and liability of any nature, character or
description whatsoever, including the payment of attorneys' fees and costs
actually incurred, whether or not litigation is commenced, which may be based
upon or which may arise out of or in connection with any such assignment or
transfer or purported assignment or transfer.
7. Miscellaneous Provisions:
------------------------
(a) This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective partners, officers, directors,
shareholders, employees, agents, independent contractors and the successors,
assigns, heirs, executors, administrators and representatives of each of the
foregoing.
(b) In the event of any action, suit or other proceeding concerning
the negotiation, interpretation, validity, performance or breach of this
Agreement, the prevailing party or parties shall be entitled to recover all of
such party's attorneys' fees, expenses and costs, not limited to costs of suit,
incurred in each and every such action, suit or other proceeding, including any
and all appeals or petitions relating thereto.
(c) This Agreement and the Override Agreement and Debt Documents
constitute and are intended to constitute the entire agreement of the parties
hereto concerning the subject matter hereof. No covenants, agreements,
representations or warranties of any kind whatsoever have been made by any
party, except as specifically set forth herein or therein. All prior
discussions and negotiations
3
<PAGE>
with respect to the subject matter hereof are superseded by this Agreement and
the Override Agreement and Debt Documents.
(d) If any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable, in whole or in part, the
remaining provisions, and any partially invalid or unenforceable provisions, to
the extent valid and enforceable, shall nevertheless be binding, valid and
enforceable. Notwithstanding the foregoing severability provision, the parties
hereto reserve the right to rescind this Agreement in the event that a court of
competent jurisdiction holds that a provision of this Agreement is
unenforceable, in whole or in part; provided that such unenforceability
constitutes a material failure of consideration for the parties hereto entering
into this Agreement.
(e) The parties shall, from time to time, promptly execute and
deliver such further instruments, documents and papers and perform such further
acts as may be necessary or proper to carry out and effect the terms of this
Agreement.
(f) This Agreement may not be modified or terminated orally and no
modification, termination or waiver shall be valid unless in writing and signed
by all of the parties.
(g) When necessary herein, all terms used in the singular shall apply
to the plural, and vice versa, and all terms used in the masculine shall apply
to the neuter and feminine genders, and vice versa.
4
<PAGE>
(h) This Agreement shall be construed according to and governed by
the laws of the State of [CALIFORNIA].
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
Lee Video City, Inc.,
a California corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
_________________________________________
Robert Y. Lee
Robert Y. Lee Revocable Living Trust
UDT 1/9/91
By:______________________________________
Robert Y. Lee, Trustee
Ingram Entertainment Inc.,
a Tennessee corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
5
<PAGE>
LOCK-UP AGREEMENT
This Lock-Up Agreement ("Agreement") is entered into as of _______ __,
1996, 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 Amendment, dated as of November 19, 1996 (as amended, 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 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.
Exhibit D
<PAGE>
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 ____________ [__], 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 [___________________
___________________________________] 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.
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:
2
<PAGE>
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
Prism Entertainment Corporation
1888 Century Park East, Suite 350
Los Angeles, California 90067
Telecopy: (310) 203-8036
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 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
<PAGE>
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.
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.
4
<PAGE>
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
respec tive successors and assigns, nor is anything in this Agreement intended
to relieve or
5
<PAGE>
discharge the obligation or liability of any third Persons to any party to this
Agree ment, 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
Ingram Entertainment Inc., a Tennessee
corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
6
<PAGE>
SECURITY AGREEMENT
------------------
This SECURITY AGREEMENT, dated as of [______________], 1996, is made
by [REORGANIZED PRISM], a Delaware corporation ("Debtor"), in favor of Ingram
Entertainment Inc., a Tennessee corporation ("Secured Party"), with reference 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"), Robert Y. Lee ("Lee") on
behalf of himself and as Trustee of the Robert Y. Lee Revocable Living Trust UDT
1/9/91, Debtor and Secured Party.
B. VCI and Debtor have entered into that certain Agreement and Plan
of Reorganization and Merger dated as of October 25, 1996, as amended, with
respect to the merger (the "Merger") of VCI into Debtor.
C. In connection with the Merger, VCI, Lee, Debtor and Secured Party
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. Under Section 2.1 of the Override Agreement, Debtor and Secured
Party have agreed to enter into this Agreement, to more fully set forth the
terms and conditions relating to the grant of a security interest by Debtor to
Secured Party, in connection with the making of the Note which evidences the
Remaining Debt.
NOW, THEREFORE, in order to induce Secured Party to enter into the
Override Agreement and make the loan evidenced by the Note, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby represents, warrants, covenants, agrees, assigns and
grants as follows:
1. Definitions. Terms not otherwise defined in this Agreement or the
-----------
Override Agreement shall have the meanings given such terms in the Uniform
Commercial Code. The following terms shall have the meanings respectively set
forth below:
Exhibit E
<PAGE>
"Agreement" means this Security Agreement and any extensions,
---------
modifications, renewals, restatements, supplements or amendments hereof.
"Collateral" means all of Debtor's right, title and interest in and to
----------
the property and interests in property described on Schedule I attached hereto.
"Copyright Mortgage" means a mortgage in respect of the Film Library
------------------
and the Film Library Accounts Receivable in such form as is acceptable to
Ingram.
"Imperial Bank" means Imperial Bank and any person or entity that
-------------
obtains any rights of Imperial Bank relating to the Collateral.
"Obligation" means the obligation of Debtor to pay the indebtedness
----------
evidenced by the Note and to perform all other obligations under the Debt
Documents.
"Security Interest" means the lien on, and security interest in, the
-----------------
Collateral that has been granted to Secured Party pursuant to this Agreement.
2. Grant of Security Interest. For valuable consideration, as
--------------------------
security for the timely performance of the Obligation, Debtor hereby assigns and
grants to Secured Party, a security interest in, and a lien on the Collateral,
subject only to the existing lien of Imperial Bank in the Film Library and the
Film Library Accounts Receivable. Secured Party shall release its Security
Interest in the Collateral other than in the Film Library and the Film Library
Accounts Receivable if, and at such time as, the Remaining Debt is reduced by at
least 80% within twelve months from the date hereof.
3. Further Assurances. At any time and from time to time at the
------------------
request of Secured Party, Debtor shall execute and deliver to Secured Party all
such financing statements and other instruments and documents in form and
substance reasonably satisfactory to Secured Party, as shall be necessary or
reasonably desirable to perfect to the fullest extent possible the Security
Interest. At any time and from time to time, Secured Party shall be entitled to
file and/or record any or all such financing statements, instruments and
documents held by it, and any or all such further financing statements,
documents and instruments, and to take all such other actions, as Secured Party
may deem appropriate to perfect and to maintain perfected the Security Interest
to the fullest extent possible. Before and after the occurrence of any Event of
Default, at Secured Party's request, Debtor shall execute all such further
financing statements, instruments and documents, including, but not limited to,
the Copyright Mortgage, and shall do all such further acts and things, as may be
deemed necessary or reasonably desirable by Secured Party to create and perfect,
and to continue and preserve, the Security Interest. With respect to any
Collateral consisting of instruments, documents, certificates of title or the
like, as to which the Security
2
<PAGE>
Interest are required to be perfected by, or the priorities thereof are required
to be assured by, possession of or notation on the certificate of title
pertaining to such Collateral, Debtor will upon demand of Secured Party and
subject to the rights of Imperial Bank, deliver possession of same in pledge to
Secured Party, or note the lien of Secured Party evidenced hereunder on such
certificate of title in favor of Secured Party for the benefit of Secured Party.
4. Debtor's Representations, Warranties and Agreements. Except as
---------------------------------------------------
otherwise disclosed to Secured Party in writing concurrently herewith, Debtor
represents, warrants and agrees that: (a) the Security Interest granted in the
Collateral is a security indefeasible by any third party except Imperial Bank
(as to the Film Library and Film Library Accounts Receivable only); (b) except
for financing statements in favor of Secured Party or Imperial Bank (as to the
Film Library and Film Library Accounts Receivable only), no financing statement
covering any of the Collateral or the proceeds thereof is on file in any public
office or held by any Person or entity; (c) Debtor has and will continue to
have, except for security interests granted in favor of Secured Party and
Imperial Bank (as to the Film Library and Film Library Accounts Receivable
only), full title to the Collateral, free from any lien, security interest,
encumbrance or claim, and full power and authority to grant to Secured Party the
Security Interest, and will, at its sole cost and expense, defend any action
which might materially affect the Collateral or the Security Interest; (d)
Debtor will pay, prior to delinquency, all taxes, charges, liens and assessments
against the Collateral, and upon its failure to pay or so contest such taxes,
charges, liens and assessments, Secured Party at its option may pay any of them,
and Secured Party shall be the sole judge of the legality or validity thereof
and the amount necessary to discharge the same; (e) the Collateral will not be
used for any unlawful purpose or in violation of any law, regulation or
ordinance, nor used in any way that will void or impair any insurance required
to be carried in connection therewith; (f) Debtor will, to the extent consistent
with good business practice, keep the Collateral in reasonably good repair,
working order and condition and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto and, as
appropriate and applicable, will otherwise deal with such portion of the
Collateral in all such ways as are considered good practice by owners of like
property; (g) Debtor will take all reasonable steps to preserve and protect the
Collateral; (h) Debtor will maintain, with responsible insurance companies,
insurance covering the Collateral against insurable losses and, to the extent
possible, will cause Secured Party to be designated as loss payee with respect
to such insurance, will obtain the written agreement of the insurers that such
insurance shall not be cancelled without at least 30 days prior written notice
to Secured Party, and will furnish copies of such insurance policies or
certificates to Secured Party promptly upon request therefor; (i) Debtor will
promptly notify Secured Party in writing in the event of any substantial or
material damage to the Collateral from any source whatsoever, and, except for
the disposition of collections and other proceeds of the Collateral permitted by
Section 7 hereof, Debtor will not remove or
3
<PAGE>
permit to be removed any part of the Collateral from its existing places of
business without the prior written consent of Secured Party, except for such
items of the Collateral as are removed in the ordinary course of business; and
(j) Debtor will not move its principal place of business without giving at least
30 days notice to Secured Party; and (k) the address(es) set forth on Schedule A
to this Agreement are Debtor's only places of business and the locations of all
tangible Collateral and the places where the records concerning all intangible
Collateral are kept and/or maintained.
5. Secured Party's Rights Regarding Collateral. At any time
-------------------------------------------
(whether or not an Event of Default has occurred, except as provided in clause
(b) below), without notice or demand and at the expense of Debtor, and subject
to the rights of Imperial Bank, Secured Party may, to the extent it may be
necessary or reasonably desirable to protect the Security Interest, but Secured
Party shall not be obligated to: (a) enter upon any premises on which any
Collateral is situated and examine the same or (b) after an Event of Default has
occurred and is continuing, perform any obligation of Debtor under this
Agreement. At any time and from time to time (except as provided in clause
(iii) below), at the expense of Debtor and subject to the rights of Imperial
Bank, Secured Party may to the extent it may be necessary or reasonably
desirable to protect the Security Interest, but Secured Party shall not be
obligated to: (i) notify obligors on the Collateral that the Collateral has been
assigned to Secured Party; (ii) at any time and from time to time request from
obligors on the Collateral, in the name of Debtor or in the name of Secured
Party, information concerning the Collateral and the amounts owing thereon; and
(iii) after an Event of Default has occurred and is continuing, cause the
Collateral to be registered in the name of Secured Party, as legal owner.
Debtor shall maintain books and records pertaining to the Collateral in such
detail, form and scope as Secured Party shall reasonably require consistent with
Secured Party's interests hereunder. Debtor will at any time at Secured Party's
request mark the Collateral and/or Debtor's ledger cards, books of account, and
other records relating to the Collateral with appropriate notations satisfactory
to Secured Party disclosing that they are subject to the Security Interest.
Secured Party shall at all times on notice have full access to and the right to
audit any and all of Debtor's books and records pertaining to the Collateral,
and to confirm and verify the value of the Collateral and to do whatever else
Secured Party may deem necessary or desirable to protect its interests. Secured
Party shall be under no duty or obligation whatsoever to take any action to
preserve any rights of or against any prior or other parties in connection with
the Collateral, or make or give any presentments, demands for performance,
notices of non-performance, protests, notices of protests, notices of dishonor,
or notices of any other nature whatsoever in connection with the Collateral or
the Obligation. Secured Party shall be under no duty or obligation whatsoever
to take any action to protect or preserve the Collateral or any rights of Debtor
therein, or to make collections or enforce payment thereon, or to participate in
any foreclosure or other proceeding in connection therewith.
4
<PAGE>
6. Debtor's Right to Sell the Film Library. Notwithstanding any
---------------------------------------
right of Secured Party or obligation of Debtor to the contrary, whether
contained in this Agreement or in any of the other Debt Documents, so long as
the Imperial Indebtedness remains outstanding to a party other than an Affiliate
of Debtor, Debtor shall at all times and from time to time have the right, in
its sole discretion, to sell all or part of the Film Library to an unrelated
third party in an arms-length transaction provided Debtor delivers written
notice thereof to Secured Party not less than 30 days prior to the closing of
such sale, which notice shall set forth the purchase price, closing date,
identity of the purchaser and other significant terms of the sale and provided
that the indebtedness to Imperial Bank is reduced only to the extent of cash
received by Debtor as a result of the sale of the Film Library. Debtor hereby
covenants that all proceeds received by Debtor with respect to any such sale
shall first be applied to the payment of any debt owed to Imperial Bank then
outstanding, with any proceeds received in excess of the amount of such
outstanding debt to be immediately delivered to Secured Party for the payment of
any debt owed to Secured Party under any of the Debt Documents.
7. Collections on Collateral. Debtor shall have the right to use and
-------------------------
to continue to make collections on and receive other proceeds of all of the
Collateral in the ordinary course of business so long as no Event of Default
shall have occurred and be continuing. Upon the occurrence and during the
continuance of an Event of Default, and subject to the rights of Imperial Bank,
at the option of Secured Party, Debtor's right to make collections on and
receive proceeds of the Collateral and to use or dispose of such collections and
proceeds shall terminate, and any and all proceeds and collections, including
all partial or total prepayments, then held or thereafter received on or on
account of the Collateral will be held or received by Debtor in trust for
Secured Party and immediately delivered to same. Upon the occurrence and during
the continuance of an Event of Default, Secured Party shall have the right at
all times to receive, receipt for, endorse, assign, deposit and deliver, in the
name of Secured Party or in the name of Debtor, any and all checks, notes,
drafts and other instruments for the payment of money constituting proceeds of
or otherwise relating to the Collateral; and Debtor hereby authorizes Secured
Party to affix, by facsimile signature or otherwise, the general or special
endorsement of it, in such manner as Secured Party shall deem advisable, to any
such instrument in the event the same has been delivered to or obtained by
Secured Party without appropriate endorsement, and Secured Party and any
collecting bank are hereby authorized to consider such endorsement to be a
sufficient, valid and effective endorsement by Debtor, to the same extent as
though it were manually executed by the duly authorized officer of Debtor,
regardless of by whom or under what circumstances or by what authority such
facsimile signature or other endorsement actually is affixed, without duty of
inquiry or responsibility as to such matters, and Debtor hereby expressly waives
demand, presentment, protest and notice of protest or dishonor and all other
notices of every kind and nature with respect to any such instrument.
5
<PAGE>
8. Possession of Collateral by Secured Party. Subject to Imperial
-----------------------------------------
Bank's rights as to the Film Library and the Film Library Accounts Receivable,
all the Collateral now, heretofore or hereafter delivered to Secured Party shall
be held by Secured Party in its possession, custody and control. Any or all of
the Collateral consisting of money delivered to Secured Party shall be held in
an interest bearing account, and prior to an Event of Default, interest thereon
shall accrue to Debtor; however, Debtor shall not be entitled to any other
compensation thereon or by reason of Secured Party's possession and/or use
thereof. Upon the occurrence and during the continuance of an Event of Default,
whenever any of the Collateral is in Secured Party's possession, Secured Party
may use, operate and consume the Collateral, whether for the purpose of
preserving and/or protecting the Collateral, or for the purpose of performing
any of Debtor's obligations with respect thereto, or otherwise. Secured Party
may at any time deliver or redeliver the Collateral or any part thereof to
Debtor, and the receipt of any of the same by Debtor shall be complete and full
acquittance for the Collateral so delivered, and Secured Party thereafter shall
be discharged from any liability or responsibility therefor. So long as Secured
Party exercises reasonable care with respect to any Collateral in its
possession, custody or control, Secured Party shall have no liability for any
loss of or damage to such Collateral, and in no event shall Secured Party have
liability for any diminution in value of Collateral occasioned by economic or
market conditions or events. Secured Party shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Collateral
in the possession, custody or control of Secured Party is accorded treatment
substantially equal to that which Secured Party accords its own similar
property, it being understood that Secured Party shall not have any
responsibility for taking any necessary steps to preserve rights against any
Person with respect to any Collateral.
9. Remedies.
--------
9.1 Rights Upon Event of Default. Subject to Imperial Bank's
----------------------------
rights as to the Film Library and the Film Library Accounts Receivable, upon the
occurrence and during the continuance of an Event of Default, Secured Party
shall have in any jurisdiction where enforcement hereof is sought, in addition
to all other rights and remedies which Secured Party may have under applicable
law or in equity or under this Agreement (including, without limitation, all
rights set forth in Section 7 hereof), all of its rights and remedies as a
secured party under the Uniform Commercial Code as enacted in any jurisdiction,
and in addition the following rights and remedies, all of which may be exercised
to the maximum extent permitted by law with or without further notice to Debtor
and without affecting the liability of Debtor hereunder or the enforceability of
the Security Interest created hereby: (a) to foreclose the liens and Security
Interest created hereunder or under any other agreement relating to any
Collateral by any available judicial procedure or without judicial process; (b)
to enter any premises where any Collateral may be located for the purpose of
taking
6
<PAGE>
possession of or removing the same; (c) to sell, assign, lease or otherwise
dispose of any Collateral or any part thereof, either at public or private sale
or at any broker's board, in lot or in bulk, for cash, on credit or otherwise,
with or without representations or warranties and upon such terms as shall be
acceptable to Secured Party; (d) to notify obligors on the Collateral that the
Collateral has been assigned to Secured Party and that all payments thereon are
to be made directly and exclusively to Secured Party; (e) to collect by legal
proceedings or otherwise all interest, principal or other sums now or hereafter
payable upon or on account of the Collateral; (f) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral, and in connection therewith,
Secured Party may deposit or surrender control of the Collateral and/or accept
other property in exchange for the Collateral; (g) to settle, compromise or
release, on terms acceptable to Secured Party, in whole or in part, any amounts
owing on the Collateral; (h) to extend the time of payment, make allowances and
adjustments and issue credits in connection with the Collateral in the name of
Secured Party or in the name of Debtor; (i) to enforce payment and prosecute any
action or proceeding with respect to any or all of the Collateral and take or
bring, in the name of Secured Party or in the name of Debtor, steps, actions,
suits or proceedings deemed by Secured Party necessary or desirable to effect
collection of or to realize upon the Collateral, including any judicial or
nonjudicial foreclosure thereof or thereon, and Debtor specifically consents to
any nonjudicial foreclosure of any or all of the Collateral or any other action
taken by Secured Party which may release any obligor from personal liability on
any of the Collateral, and Debtor waives any right not expressly provided for in
this Agreement to receive notice of any public or private judiciary or
nonjudicial sale or foreclosure of any security or any of the Collateral; and
any money or other property received by Secured Party in exchange for or on
account of the Collateral, whether representing collections or proceeds of
Collateral, and whether resulting from voluntary payments or foreclosure
proceedings or other legal action taken by Secured Party or Debtor shall be
applied by Secured Party, in such order and manner as Secured Party in its sole
discretion shall determine; (j) to insure, process and preserve the Collateral;
(k) to exercise all rights under the Note; (l) to remove from any premises where
the same may be located, the Collateral and any and all documents, instruments,
files and records, and any receptacles and cabinets containing the same,
relating to the Collateral, and Secured Party may, at the cost and expense of
Debtor, use such of its supplies and space at its places of business as may be
necessary to properly administer and control the portion of the Collateral owned
by it or the handling of collections and realizations thereon; (m) to receive,
open and dispose of all mail addressed to Debtor and notify postal authorities
to change the address for delivery thereof to such address as Secured Party may
designate; provided that Secured Party agrees that it will promptly deliver over
to Debtor such opened mail as does not relate to the Collateral; and (n) to
exercise all other rights, powers and remedies of an owner of the Collateral;
all at Secured Party's sole option and as Secured Party in its sole discretion
may deem advisable. After an Event of Default, Debtor will, at
7
<PAGE>
Secured Party's request, assemble all Collateral and make it available to
Secured Party at places which Secured Party may designate, whether at the
premises of Debtor or elsewhere, and will make available to Secured Party all
premises and facilities of Debtor for the purpose of Secured Party's taking
possession of the Collateral or removing or putting the Collateral in salable
form.
9.2 Possession by Secured Party. Subject to Imperial Bank's rights
---------------------------
as to the Film Library and the Film Library Accounts Receivable, upon the
occurrence and during the continuance of an Event of Default, Secured Party also
shall have the right, without notice or demand, either in person, by agent or by
a receiver to be appointed by a court (and Debtor hereby expressly consents to
the appointment of such a receiver), and without regard to the adequacy of any
security for the Obligation, to take possession of the Collateral or any part
thereof and to collect and receive the rents, issues, profits, income and
proceeds thereof. Taking possession of the Collateral shall not cure or waive
any Event of Default or notice thereof or invalidate any act done pursuant to
such notice. The rights, remedies and powers of any receiver appointed by a
court shall be as ordered by said court.
9.3 Sale of Collateral. Subject to Imperial Bank's rights as to the
------------------
Film Library and the Film Library Accounts Receivable, any public or private
sale or other disposition of the Collateral may be held at any office of Secured
Party, or at Debtor's places of business, or at any other place permitted by
applicable law, and without the necessity of the Collateral being within the
view of prospective purchasers. Secured Party may direct the order and manner of
sale of the Collateral, or portions thereof, as it in its sole and absolute
discretion may determine. Secured Party or any Person on Secured Party's behalf
may bid and purchase at any such sale or other disposition.
9.4 Notice of Sale. Subject to Imperial Bank's rights as to the Film
--------------
Library and the Film Library Accounts Receivable, unless the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Secured Party will send or otherwise make available
to Debtor reasonable notice of the time and place of any public sale thereof or
of the time on or after which any private sale or other disposition thereof is
to be made. The requirement of sending reasonable notice conclusively shall be
met if such notice is mailed, first class mail, postage prepaid, to Debtor at
least five days before the time of the sale or disposition. Debtor expressly
waives any right to receive notice of any public or private sale of any
Collateral or other security for the Obligation) except as expressly provided
for in the preceding sentence.
9.5 Purchasers. Subject to Imperial Bank's rights as to the Film
----------
Library and the Film Library Accounts Receivable, upon consummation of any sale
of Collateral hereunder, Secured Party shall have the right to assign, transfer
and
8
<PAGE>
deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the Collateral so sold absolutely
free from any claim or right upon the part of Debtor or any other Person
claiming through Debtor, and Debtor hereby waives (to the extent permitted by
laws) all rights of redemption, stay and appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. If the sale of all or any part of the Collateral is made on
credit or for future delivery, Secured Party shall not be required to apply any
portion of the sale price to the Obligation until such amount is actually
received by Secured Party, and any Collateral so sold may be retained by Secured
Party until the sale price is paid in full by the purchaser or purchasers
thereof. Secured Party shall not incur any liability in case any such purchaser
or purchasers shall fail to pay for the Collateral so sold, and, in case of any
such failure, the Collateral may be sold again.
10. Secured Party Appointed Attorney-in-Fact. Subject to Imperial
----------------------------------------
Bank's rights as to the Film Library and the Film Library Accounts Receivable,
Debtor hereby irrevocably nominates and appoints Secured Party as its attorney-
in-fact for the following purposes: (a) to do all acts and things which Secured
Party may deem necessary or reasonably advisable to perfect and continue
perfected the Security Interest created by this Agreement and, upon the
occurrence and during the continuance of an Event of Default, to preserve,
process, develop, maintain and protect the Collateral; (b) to prepare, sign,
file and/or record, for Debtor in the name of Debtor, any financing statement,
application for registration, and like papers and to take any other action
deemed by Secured Party necessary or reasonably desirable in order to perfect
the Security Interest granted hereby; (c) to execute any and all papers and
instruments and do all other things necessary or desirable to preserve and
protect the Collateral and to protect Secured Party's Security Interest therein;
and (d) upon the occurrence and during the continuance of a Default or Event of
Default, to do any and every act which Debtor is obligated to do under this
Agreement, at the expense of Debtor; provided, however, that Secured Party shall
-------- -------
be under no obligation whatsoever to take any of the foregoing actions, and
absent bad faith or actual malice, Secured Party shall have no liability or
responsibility for any act or omission taken with respect thereto.
11. Costs and Expenses. Debtor agrees to pay to Secured Party all
------------------
costs and expenses (including without limitation reasonable attorneys' fees and
disbursements, including the allocated costs of in-house counsel) incurred by
Secured Party in the enforcement of this Agreement with regard to the Collateral
owned by it, whether or not an action is filed in connection therewith, and in
connection with any waiver or amendment of any term or provision hereof. All
advances, charges, costs and expenses, including reasonable attorneys, fees,
incurred or paid by Secured Party in exercising any right, power or remedy
conferred by this Agreement (including without limitation the right to perform
any obligation of Debtor under the Note), or in
9
<PAGE>
the enforcement thereof, shall be secured hereby and shall become a part of the
Obligation and shall be paid to Secured Party by Debtor, immediately upon
demand, together with interest thereon at the rate(s) provided for under the
Note.
12. Statute of Limitations and Other Laws. Until the Obligation
-------------------------------------
shall have been paid and performed in full, the power of sale and all other
rights, powers and remedies granted to Secured Party hereunder shall continue to
exist and may be exercised by Secured Party at any time and from time to time
irrespective of the fact that the Obligation may have become barred by any
statute of limitations. Debtor expressly waives the benefit of any and all
statutes of limitation, laws providing for exemption of property from execution
or for valuation and appraisal upon foreclosure to the maximum extent permitted
by applicable law.
13. Other Agreements. Nothing herein shall in any way modify or
----------------
limit the effect of terms or conditions set forth in any other security or other
agreement executed by Debtor or in connection with the Obligation, but each and
every term and condition hereof shall be in addition thereto. All
representations, warranties, affirmative and negative covenants, terms,
conditions, and other provisions contained in the Note are fully applicable to
this Agreement and are incorporated herein by this reference as though set forth
in full.
14. Understandings With Respect to Waivers and Consents. Debtor
---------------------------------------------------
warrants and agrees that each of the waivers and consents set forth herein are
made with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtor otherwise
may have against Secured Party or others, or against any Collateral. If any of
the waivers or consents herein are determined to be unenforceable under
applicable law, such waivers and consents shall be effective to the maximum
extent permitted by law.
10
<PAGE>
15. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, Debtor has executed this Agreement by its duly
authorized officers as of the date first written above.
"Debtor"
[REORGANIZED PRISM], a Delaware
corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
11
<PAGE>
PROMISSORY NOTE
[$1,500,000] [______________], 1996
Maturity Date: [______________], 1999
1. FOR VALUE RECEIVED, [REORGANIZED PRISM], a Delaware corporation
("Debtor"), promises to pay to the order of Ingram Entertainment Inc.
("Creditor") at Creditor's office located at Two Ingram Boulevard, La Vergne,
Tennessee 37086, or at such other place as Creditor from time to time may
designate, the principal sum of [ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000)], plus interest as specified in this Note.
2. This Note is delivered pursuant to that certain Override
Agreement dated as of November 19, 1996 (the "Override Agreement") among Lee
Video City Inc., Robert Y. Lee, Prism Entertainment Corporation and Creditor.
Unless otherwise defined, all capitalized terms used in this Note shall have the
meanings ascribed to them in the Override Agreement. This note is further
evidenced or secured by (i) the Copyright Mortgages, and (2) the New Security
Agreement, dated as of ___________ __, 1996, made by Debtor in favor of
Creditor, as amended from time to time, covering certain personal property as
more particularly therein described (the "Property").
3. The principal sum outstanding from time to time under this Note
shall bear interest, to the fullest extent permitted by applicable law, at the
rate (the "Interest Rate") of ten percent (10%) per annum prior to any Event of
Default (as defined in Section 10 of this Note) and, after any Event of Default,
at the rate (the "Default Rate") equal to the lesser of the maximum rate of
interest allowed by applicable law or four percent (4%) in excess of the Prime
Rate (as hereinafter defined), which Default Rate shall be adjusted on each date
that said Prime Rate changes. Interest shall be calculated on the basis of a
360-day year and actual days elapsed, which results in more interest than when a
365-day year is used. If any payment to be made by Debtor shall become due on a
day other than a Business Day, payments shall be made on the next succeeding
Business Day and the extension of time shall be reflected in computing interest.
As used herein, the "Prime Rate" shall mean the Prime Rate, as published from
time to time in the Wall Street Journal, or if such is no longer available for
any reason, as determined by Creditor with reference to such other publication
as Creditor may reasonably elect.
Exhibit F
<PAGE>
4. Interest (as provided for in Section 3 above) on the outstanding
daily unpaid principal amount of the indebtedness evidenced hereby shall be due
and payable in monthly installments, with the first such installment being due
on January __, 1997, and subsequent installments being due on the last day of
each succeeding month thereafter until December __, 1999, at which time the
entire unpaid principal balance hereof, and all accrued and unpaid interest
thereon, shall immediately become due and payable in full. If any such accrued
interest is not paid when due, the same shall be added to the principal balance
of this Note and the entire sum, as so increased, shall thereafter bear interest
at the rates provided herein.
5. Debtor may prepay part or all of the principal under this Note at
any time or times 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 so paid. All proceeds from the exercise of
all options or warrants to purchase capital stock of Debtor shall be immediately
delivered to Creditor and applied to the reduction of all amounts due hereunder,
first to any accrued unpaid interest and then to principal.
6. If Debtor fails to make any payment when due, Debtor agrees to pay
a late charge equal to five percent (5%) of the payment then due, payable upon
demand, with respect to each such payment.
7. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
8. Unless otherwise directed by Creditor in writing, all payments
made hereunder shall be made by wire transfer to [INSERT BANK], in lawful money
of the United States of America, and shall be deemed made when verified by
[INSERT BANK].
9. If any "Event of Default" occurs at the holder's option,
exercisable in its sole discretion, all sums of principal and interest under
this Note shall become immediately due and payable without notice of default,
presentment or demand for payment, protest or notice of nonpayment of dishonor,
or other notices or demands of any kind or character, all of which are hereby
expressly waived by Debtor.
10. Debtor agrees that, upon prior written notice to Debtor, the
holder of this Note may accept additional or substitute security for this Note,
or release any security or any party liable for this Note, or extend or renew
this Note, all without notice to Debtor and without affecting the liability of
Debtor.
2
<PAGE>
11. If any lawsuit, reference or arbitration is commenced which
arises out of or relates to this Note, the Security Agreement or the
indebtedness evidenced hereby, the prevailing party shall be entitled to recover
from each other party such sums as the court, referee or arbitrator may adjudge
to be reasonable attorneys' fees in the action, reference or arbitration, in
addition to costs and expenses otherwise allowed by law. In all other
situations, including any matter arising out of or relating to any insolvency
proceeding, Debtor agrees to pay all of Creditor's costs and expenses, including
reasonable attorneys' fees (including the allocated costs of in-house counsel),
which may be incurred in enforcing or protecting Creditor's rights or interests.
From the time(s) incurred until paid in full to Creditor, all such sums shall
bear interest at the Default Rate.
12. Whenever Debtor is obligated to pay or reimburse Creditor for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
13. This Note is governed by the laws of the State of California,
without regard to the choice of law rules of that State.
14. If Creditor delays in exercising or fails to exercise any of its
rights under this Note, that delay or failure shall not constitute a waiver of
any of Creditor's rights, or of any breach, default or failure of condition of
or under this Note. No waiver by Creditor of any of its rights, or of any such
breach, default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Creditor. All of Creditor's remedies in
connection with this Note or under applicable law shall be cumulative, and
Creditor's exercise of any one or more of those remedies shall not constitute an
election of remedies.
15. This Note inures to and binds the heirs, legal representatives,
successors and assigns of Debtor and Creditor; provided, however, that Debtor
may not assign this Note, or assign or delegate any of its rights or
obligations, without the prior written consent of Creditor in each instance.
Creditor in its sole discretion may, upon prior written notice to Debtor,
transfer this Note, and may sell or assign participations or other interests in
all or part of the indebtedness evidenced hereby, on the terms and subject to
the conditions of the Security Agreement and this Agreement, all without notice
to or the consent of Debtor. Also without the consent of Debtor, Creditor may
disclose to any actual or prospective purchaser of any securities issued or to
be issued by Creditor, and to any actual or prospective purchaser or assignee of
any participation or other interest in this Note, the indebtedness evidenced
hereby or any other loans made by Creditor to Debtor (whether evidenced by this
Note or otherwise), any financial or other information, data or material in
Creditor's possession relating to Debtor, the indebtedness evidenced hereby. If
Creditor so requests, Debtor shall sign and deliver a new note to be issued in
exchange for this Note.
3
<PAGE>
16. As used in this Note, the terms "Creditor," "holder" and "holder
of this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation" and the word "including" means
"including, but not limited to."
17. Debtor has caused this Note to be executed by its officer, who is
duly authorized and directed to do so by a resolution of its Board of Directors
which was duly passed and adopted by the requisite number of members of the
Board at a meeting which was duly called, noticed and held.
[REORGANIZED PRISM]
By:______________________________________
Mail Address:
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
Telecopier: (805) 397-5982
4
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
_______________, 1996, between Prism Entertainment Corporation, a Delaware
corporation (the "Company"), and Ingram Entertainment Inc., a Tennessee
corporation ("Ingram").
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 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.
As contemplated by the Override Agreement, VCI has merged into
Prism, with Prism being the survivor (the "Merger").
Concurrently with the effective time of the Merger, Prism issued to
Ingram the Additional Warrants and 1,500,000 shares of its Common Stock, and
certain shareholders of Prism issued to Ingram the New Warrants.
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, $____ par value per share,
------------
of the Company, as constituted as of the date of this Agreement.
Exhibit G
<PAGE>
"Company" shall have the meaning provided therefor in the first
-------
paragraph of this Agreement.
"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 Prism 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
2
<PAGE>
SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS
AVAILABLE.
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
3
<PAGE>
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.
(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;
4
<PAGE>
(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 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
5
<PAGE>
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 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".
6
<PAGE>
The Company will pay all Registration Expenses in connection with each
registration statement filed in accordance with this Agreement. All Selling
Expenses in 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
7
<PAGE>
prospectus supplement with or prior to the delivery of written confirmation of
the sale of Restricted Stock and (2) the final 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
8
<PAGE>
indemnified party under this Section 8 for any legal expenses subsequently
incurred by such indemnified 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:
9
<PAGE>
if to the Company:
Lee Video City, Inc.
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
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.
10
<PAGE>
(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) Reorganized Prism 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.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date and year first above written.
PRISM ENTERTAINMENT CORPORATION
By:______________________________________
Name:
Title:
INGRAM ENTERTAINMENT INC.
By:______________________________________
Name:
Title:
12
<PAGE>
STOCKHOLDERS AGREEMENT
----------------------
This Stockholders Agreement ("Agreement") is made and entered into as
of [______________], 1996, by and among Prism Entertainment Corporation, a
Delaware 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
--------
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, dated as of November __, 1996, with respect to the merger
(the "Merger") of VCI into the Company.
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 2,727,952
Ingram 1,500,000
</TABLE>
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:
Exhibit H
<PAGE>
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, state, government (including agencies,
departments, bureaus, boards, divisions and instrumentalities thereof), trustee,
receiver or liquidator.
2
<PAGE>
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 (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.
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.
3
<PAGE>
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 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
4
<PAGE>
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:
(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).
5
<PAGE>
(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.
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
6
<PAGE>
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 Reorganized Prism.
ARTICLE VII
Amendment of Employment Agreements
----------------------------------
Neither Collier nor Lee nor Reorganized Prism shall enter into any
amendment, modification or waiver of their Employment Agreements with
Reorganized Prism nor shall Reorganized Prism extinguish, forgive or reduce
(except for payment made) any debt owed to Reorganized Prism 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;
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,
7
<PAGE>
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 ____________________, 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.
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
8
<PAGE>
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:
The Company:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Robert Y. Lee
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
9
<PAGE>
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 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
<PAGE>
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 parties
11
<PAGE>
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:
Prism Entertainment Corporation, a
Delaware corporation
By:______________________________________
Name:____________________________________
Its:_____________________________________
STOCKHOLDERS:
Ingram Entertainment Inc., a Tennessee
corporation
By:______________________________________
Name:____________________________________
Its:_____________________________________
_________________________________________
Robert Y. Lee
_________________________________________
Robert Y. Lee, Trustee of the Robert Y.
Lee Revocable Living Trust UDT 1/9/91
_________________________________________
Barry Collier
12
<PAGE>
EXHIBIT I
---------
[IEI LETTERHEAD]
December __, 1996
Mr. Robert Y. Lee
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, CA 93313
Re: Supply Agreement
Dear Robbie:
The following is the supply agreement (the "Agreement") between Prism
Entertainment Corporation ("Prism") and Ingram Entertainment Inc. ("Ingram"):
1. RENTAL PRICING:
Prism will receive a 34.5% discount off suggested retail price on all
rental product ($30 and higher). Prism will receive multi-pack pricing and
discounts on single purchases of multi-pack titles.
2. SELL-THROUGH PRICING:
Prism will receive a 35% discount off suggested retail price on catalog
sell-through product ($29.99 and lower), subject to Paragraph 9 below.
Feature sell-through titles (i.e. titles released for the first time to the
----
home video market at $29.99 and lower having grossed $50 million or more at
the box office) will be offered at specially discounted prices based on
quantities ordered. Prism may purchase feature sell-through titles from a
source other than Ingram provided Prism offers Ingram the right of first
refusal to match the price offered to Prism from the other source.
3. RETURNS:
Prism will receive a 50% return allowance on all unopened sell-through
product in mint, resalable condition, provided Ingram and Prism mutually
agree on purchase quantities eligible for returns. Returns of undamaged
product must be received by Ingram within three months after initial street
date. Prism will also receive return allowances for
1
<PAGE>
Mr. Robert Y. Lee
Page 2
December _, 1996
damaged product. Damaged return product must be received by Ingram within
60 days of initial street date. Ingram will issue call tags for store
damaged returns based on each store up to a maximum of two damaged returns
shipments per store per month. For all returned product, credits will be
applied to Prism's account within 15 business days of receipt by Ingram.
4. VIDEO GAMES:
Prism will receive Ingram gross cost plus 7% pricing on all video game
rental and sell-through titles. Prism will receive a 100% return allowance
on all unopened video game sell-through product in mint, resalable
condition, provided Ingram and Prism mutually agree on purchase quantities
eligible for returns. Returns must be received by Ingram within 60 days
after initial street date.
5. LASER:
Prism will receive a 25% discount off suggested retail price on laser
purchases and a 50% return allowance on all unopened laser product in mint,
resalable condition. Returns must be received by Ingram within three
months after initial street date.
6. AUDIO BOOKS:
Prism will receive a 40% discount off suggested retail price on audio book
rental product purchases (rental ready or non-rental ready). Prism will
receive a 20% return allowance on all unopened non-rental ready product in
mint, resalable condition. Returns must be received by Ingram within three
months after initial street date.
7. MULTIMEDIA:
Prism will receive a 35% discount off suggested retail price on CD ROM
product and net pricing on CDI, 3DO, and Jaguar product. Prism will
receive a 20% return allowance on all unopened product in mint, resalable
condition. Returns must be received by Ingram within 90 days after invoice
date.
8. ACCESSORIES:
Prism will receive "end-lot" pricing on all accessories.
9. TERMS:
Payment terms will be net 60 days from invoice for all rental and sell-
through product purchases; provided, however, that for (i) catalog sell-
-------- -------
through product intended for new store openings; (ii) Christmas catalog
sell-through product; and (iii) catalog sell-through product intended for
new sell-through departments in exiting stores, Prism will have a one time
right to elect either (a) payment terms of net 90 days from invoice or (b)
payment
2
<PAGE>
Mr. Robert Y. Lee
Page 3
December _, 1996
terms of net 120 days from invoice; provided, further, that pricing for
-------- -------
catalog sell-through product in the event of alternative (b) shall be a
36.5% discount off suggested retail price. Prism understands that its
credit line with Ingram will be as established or modified from time-to-
time based upon Ingram's credit review and credit policies. Any amounts
not paid when due will bear interest at the rate of 1 1/2% per month (18%
per annum) on the overdue balance (or, if less, at the maximum rate
permitted by applicable law, with any payments in excess of such maximum
treated as principal payments on the past due amount). Payments received
from Prism will be credited first to unpaid interest as set out above.
10. ADVERTISING:
Co-op rental video titles will be handled "in-house" and will be paid at a
rate of 3% for titles that accrue co-op, following studio guidelines. For
sell-through titles, Prism will receive "pass-through" co-op and MDF
advertising funds, also following studio guidelines. Rental titles will
also receive "pass through" of MDF advertising funds, following studio
guidelines.
11. RENTAL READY PROCESSING:
Rental ready processing is available and will be billed as a separate
invoice line item. If rental ready processing is desired, pricing will be
determined after an analysis of the specific requirements is made. Prism
will be entitled to Ingram's most favored customer pricing for this
service.
12. FREIGHT:
Freight for all product will be prepaid to Prism locations, without
limitations as to the size or dollar amount of orders. Special orders may
be "piggybacked" by Ingram on new release shipments as long "available/on-
hand" special order titles are delivered within one week of the order.
13. PROGRAMS AND SERVICES:
Ingram will, when possible, extend terms on special programs such as
holiday promotions and new store start-up packages. Ingram will provide
home office services such as marketing, creative services and help with
management information systems requests whenever possible. Prism will
receive free monthly in-store "video guides" (average 1,200 per store).
Prism understands that it may not have an exclusive representative, but
Ingram intends that Prism will receive the same high level of hands-on
involvement and assistance that Lee Video City, Inc. ("VCI") has received
from Ingram representatives in the past. Ingram also intends to maintain
the same high level of representative service to Prism as Prism encounters
rapid growth and to consider appointment of an exclusive
3
<PAGE>
Mr. Robert Y. Lee
Page 4
December _, 1996
representative as may be warranted by that growth. Prism will be eligible
to participate in any advertised programs offered by Ingram.
14. QUANTITY:
Prism agrees to purchase from Ingram 100% of its yearly requirements for
the video rental, video sell-through, game, and other products covered by
this Agreement, except in the following circumstances:
(a) The product is not carried by Ingram (such as adult product);
(b) Prism is required to purchase product from Rentrak Corporation or
its affiliates ("Rentrak") under the present terms of its
agreement with Rentrak by which Prism is bound due to the merger
of VCI into Prism, but only to the extent of minimum purchases
required under that agreement;
(c) Purchases of used product;
(d) Purchases of non-prerecorded product;
(e) Orders which Ingram is unable to fill in a reasonably timely
manner;
(f) Orders in excess of the credit limit extended to Prism by Ingram,
provided that Prism is within its credit terms with Ingram; or
--------
(g) Purchases of feature sell-through titles from a source other than
Ingram following Ingram's failure to exercise its right of first
refusal, as permitted by Paragraph 2.
15. PAYMENT IN CERTAIN EVENTS:
An "Extraordinary Transaction" for purposes of this Paragraph shall be
deemed to occur upon consummation of one of the following events:
(a) a sale or other disposition of retail locations by Prism other than in
the ordinary course of business, 90% of the proceeds from which are not
redeployed in a similar video business within 90 days of such transaction
(an "Asset Sale"); provided, however, that a sale or other disposition of
-------- -------
retail locations in a transaction or series of transactions, which
locations in the aggregate accounted for less than 20% of purchases under
this Agreement over the 12 months preceding such disposition, shall not
constitute an Asset Sale; or
4
<PAGE>
Mr. Robert Y. Lee
Page 5
December _, 1996
(b) a merger or consolidation of, into, or involving Prism, in which Prism
is not the surviving corporation.
Upon the consummation of an Extraordinary Transaction, Prism shall
immediately pay Ingram in cash the following amounts (the "Termination
Payment"):
<TABLE>
<CAPTION>
EXTRAORDINARY TRANSACTION
ON OR BEFORE THE FOLLOWING
ANNIVERSARY OF THIS AGREEMENT TERMINATION PAYMENT DUE
----------------------------- -----------------------
<S> <C>
First $1,300,000
Second 1,300,000
Third 1,200,000
Fourth 1,200,000
Fifth 1,000,000
Sixth 900,000
Seventh 800,000
Eighth 700,000
Ninth 600,000
Tenth 400,000
</TABLE>
The parties have agreed to the above payments in lieu of a formula designed
to calculate the discounted present value of anticipated annual future
payments under this Agreement, due to the uncertainty inherent in any such
formula calculation.
The following shall apply notwithstanding the above:
(x) in the event of an Asset Sale of less than 100% of the retail
locations of Prism, the payment set out above shall be prorated based upon
the required payments made to Ingram under this Agreement by Prism, with
respect to the locations so sold, during the 12 months preceding the
Extraordinary Transaction, prorated for any partial year of the unexpired
term of this Agreement; and
(y) in the event of an Extraordinary Transaction in which this Agreement
is assigned to and assumed by a third party of credit quality at least
equal to that of Prism on terms and conditions reasonably acceptable to
Ingram, Prism will not be required to make any payment pursuant to this
Paragraph unless and until subsequent annual payments by the assignee to
Ingram under this Agreement in each 12 month period after the Extraordinary
Transaction ("Subsequent Annual Payments") fail to equal or exceed required
payments
5
<PAGE>
Mr. Robert Y. Lee
Page 6
December _, 1996
made to Ingram under this Agreement during the 12 months preceding the
Extraordinary Transaction ("Prior Annual Payments"). If in any such 12
month period Subsequent Annual Payments are less than the Prior Annual
Payments (a "Shortage Period"), Prism shall pay to Ingram a pro rata
portion of the Termination Payment determined by multiplying the
Termination Payment due as if the Extraordinary Transaction had occurred at
the beginning of the Shortage Period by a fraction, the numerator of which
is the amount of Subsequent Annual Payments and the denominator of which is
the amount of Prior Annual Payments.
16. TERM OF AGREEMENT:
The term of this Agreement will commence on the date the merger of VCI with
and into Prism becomes effective, and shall terminate on the tenth
anniversary of that effective date. This Agreement may, however, be
terminated by Ingram at any time for any reason upon prior written notice
to Prism. Upon the commencement of this Agreement, the existing purchasing
contract, dated effective as of July 1, 1996, between Ingram and VCI, shall
be terminated.
17. ASSIGNMENT:
Prism may not assign this Agreement without the express written consent of
Ingram.
INGRAM ENTERTAINMENT, INC. PRISM ENTERTAINMENT CORPORATION
___________________________ _______________________________
David B. Ingram _______________________________
Chairman and President President
6
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED CREDIT LOAN AND SECURITY AGREEMENT
-------------------------------------------------------
THIS AMENDED AND RESTATED CREDIT LOAN AND SECURITY AGREEMENT (the
"Agreement") is entered into as of the 8th day of January, 1997, by and between
VIDEO CITY, INC., formerly known as Prism Entertainment Corporation, a Delaware
Corporation (the "Borrower"), and IMPERIAL BANK, a California chartered bank
(the "Bank"), with reference to the following:
PREAMBLE
--------
A. Prism Entertainment Corporation ("Entertainment"), Prism Pictures
Corporation, and Prism Pictures International, Ltd. (collectively, "Prism") each
filed with United States Bankruptcy Court, Central District of California (the
"Court") a voluntary petition for relief under chapter 11 of the Bankruptcy Code
on December 1, 1995.
B. Prism has jointly filed that certain Amended Plan of
Reorganization Dated October 25, 1996, which, as modified, has been confirmed by
the Court (as modified and confirmed, the "Plan"), pursuant to which the three
Prism entities will be substantively consolidated into Entertainment, then merge
with Lee Video City, Inc. ("VCI"), with Entertainment as the surviving entity
(the "Merger"), which will then change its name to Video City, Inc.
C. As of the date of this Agreement, the Borrower is indebted to the
Bank in the aggregate approximate amount of $2,742,430.44 plus fees and expenses
(the "Bank Debt"). The Obligations of the Borrower to the Bank with respect to
the Bank Debt are evidenced by that certain Revolving Credit Loan and Security
Agreement dated as February 24, 1995 between Prism and the Bank (the "Original
Agreement") and certain other loan and security documents, including but not
limited to those listed on Exhibit "1" hereto (together with the Original
Agreement, the "Original Loan Documents").
D. The Borrower desires to restructure the Bank Debt in accordance
with the Plan, and, subject to the terms and conditions set forth in this
Agreement, the parties have agreed to such restructuring (the "Loan").
NOW, THEREFORE, in consideration of the above facts, the mutual
covenants, agreements, representations and warranties contained herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE>
TERMS
-----
1. CERTAIN DEFINITIONS.
-------------------
Unless elsewhere defined herein, each capitalized term used in this
Agreement shall have the following meanings. Unless the context otherwise
requires, any of the following capitalized terms may be used in the singular or
the plural, depending on the reference. Capitalized terms not defined in this
Agreement shall have the meaning ascribed to them in the Original Loan
Documents.
1. DEFINITIONS.
-----------
"ACKNOWLEDGEMENT" shall mean an acknowledgement of an Irrevocable Authority
-----------------
executed by the applicable account debtor in substantially the form of
Exhibit E attached to the Original Agreement or such other form as may be
acceptable to the Bank in its sole and absolute discretion.
"AFFILIATE" shall mean any Person who directly or indirectly through one or
-----------
more intermediaries, controls, is under common control with or is
controlled by, the applicable Person.
"AMENDED AND RESTATED COPYRIGHT MORTGAGE" shall mean the document in
-----------------------------------------
respect of the Products and substantially in the form of Exhibit "2"
attached hereto or such other form as may be acceptable to the Bank in its
sole and absolute discretion.
"AMENDED AND RESTATED NOTE" shall have the meaning set forth in Section
---------------------------
2.1.5 hereof.
"APPROVED LICENSE AGREEMENTS" shall have the meaning set forth in the
-----------------------------
Original Loan Agreement.
"BANK" shall have the meaning set forth in the opening paragraph of this
------
Agreement.
"BANK NOTICE LETTER" shall mean a notice, in the form of Exhibit H attached
--------------------
to the Original Agreement or such other form as may be acceptable to the
Bank in its sole and absolute discretion, notifying a third party bank or
other financial institution at which any Borrower maintains a bank account
of the Bank's security interest therein.
"BORROWER" shall have the meaning set forth in the opening paragraph of
----------
this Agreement.
"BOUGH BREAKS II" shall mean that certain Product entitled "When the Bough
-----------------
Breaks II".
-2-
<PAGE>
"BOUGH BREAKS II PRODUCTION AGREEMENT" shall mean that certain letter
--------------------------------------
agreement dated August 16, 1996, between Prism and Meeker/Greene
Entertainment regarding the production of Bough Breaks II.
"BUSINESS DAY" shall mean a day when banks are not authorized or required
--------------
to close in the State of California.
"CLOSING" shall mean the date, not later than January 31, 1997 (without the
---------
prior written consent of the Bank), upon which all conditions of this
Agreement and to the Merger have been satisfied and the Borrower is
prepared for the Plan to go effective and upon which date the transactions
contemplated by this Agreement shall be consummated, which consummation
shall be deemed to take place concurrently with the Effective Date of the
Plan.
"CODE" shall mean the Uniform Commercial Code in effect from time to time
------
in the relevant State or States.
"COLLATERAL" shall have the meaning set forth in Section 4.2 hereof.
------------
"CONFIRMATION ORDER" shall mean that certain order of the Court entered
--------------------
December 17, 1996 entitled "Order Confirming Debtors' Amended Joint Plan of
Reorganization Dated October 25, 1996, as Modified".
"COPYRIGHTS" shall have the meaning set forth in Section 4.2.1.1 hereof.
------------
"COSTS" shall mean, collectively, all sums (other than Principal and
-------
Interest) payable by the Borrower pursuant to this Agreement including,
without limitation, sums payable pursuant to Sections 11 and 13.7 hereof.
"COURT" shall have the meaning set forth in Paragraph A hereof.
-------
"EFFECTIVE DATE" shall have the meaning set forth in the Plan.
----------------
"ENCUMBRANCES" shall mean security interests, mortgages, pledges, equities,
--------------
encumbrances, conditional sales or other title retention agreements, leases
(excluding only operating leases for office equipment and real property),
rights, restrictions, reservations or charges or liens of any nature,
collectively.
"ENTERTAINMENT" shall have the meaning set forth in Paragraph A of this
---------------
Agreement.
-3-
<PAGE>
"ENVIRONMENTAL LAWS" shall mean any and all federal, state, provincial,
--------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of the United States, any State, foreign
country, state or province thereof or any municipality or other local
governmental division of any of the foregoing, or of any department,
commission, board, bureau, agency or instrumentality of the United States,
any State, foreign country, state or province thereof or municipality or
other local governmental division of any of the foregoing, regulating,
relating to or imposing liability or standards of conduct concerning any
Hazardous Material or environmental protection or health and safety, as now
or may at any time hereafter be in effect, including without limitation,
the Clean Water Act, also known as the Federal Water Pollution Control Act,
33 U.S.C. (S)(S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et
-- --- --
seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)
---
136, the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C.
(S)(S) 1201 et seq.; the Comprehensive Environmental Response, Compensation
-- ---
and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq.; the Superfund
-- ---
Amendments and Reauthorization Act of 1986, Pub.L.No. 99-499, 100 Stat.
1613; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
(S)(S) 11001 et seq.; the Resource Conservation and Recovery Act of 1976,
-- ---
42 U.S.C. (S)(S) 6901 et seq.; the Occupational Safety and Health Act of
-- ---
1970 as amended, 29 U.S.C. (S)(S) 655 and 657; the California Health &
Safety Code (S)(S) 25300 et seq., together, in each case, with any
-- ---
amendment thereto, and the regulations and rules adopted and the official
publications promulgated thereunder and all substitutions thereof.
"ENVIRONMENTAL LIABILITIES" shall mean any claims, obligations or
---------------------------
liabilities, known or unknown, matured or not matured, absolute or
contingent, assessed or unassessed, where such claims, obligations or
liabilities would reasonably be expected to have a materially adverse
effect on the business or condition (financial or otherwise) of the
Borrower which have been or are imposed by reason of or based upon any
provision of any Environmental Law, including, without limitation, any such
claims, obligations or liabilities relating to or arising out of or
attributable, in whole or in part, to the use, storage, treatment, release,
processing, distribution, transportation, manufacture, refinement,
handling, production or disposal of any Hazardous Materials by the Borrower
or any of its employees, agents, representatives or predecessors in
interest in connection with or in any way arising from or relating to the
Borrower or any of its properties, or relating to or arising from or
attributable, in whole or in part, to the use, storage, treatment, release,
processing, distribution, transportation,
-4-
<PAGE>
manufacture, refinement, handling, production or disposal of any such
Hazardous Materials, by any other Person on, under, at, from, or in any way
affecting, any of the properties owned or used by the Borrower or any other
location where such could have a materially adverse effect on the business
or condition (financial or otherwise) of the Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-------
heretofore and hereafter amended, and any regulations promulgated
thereunder.
"ERISA AFFILIATE" shall mean, with respect to the Borrower, all trades or
-----------------
businesses (whether or not incorporated) which, together with the Borrower,
are treated as a single employer under Section 414(b), (c), (m) or (o) of
the Internal Revenue Code.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8 hereof.
------------------
"EXCESS CASH AMOUNT" shall have the meaning set forth in the Plan.
--------------------
"EXISTING PRODUCTS" shall mean all Theatrical Pictures, Video Pictures,
-------------------
made-for-television motion pictures and mini-series, all television series
and programs, and all other feature and non-feature length motion pictures
produced for release in any other medium in which the Borrower currently
has any right, title or interest including, without limitation, the
Products listed on Schedule 5.1.15 hereto.
"EXISTING LICENSE AGREEMENTS" shall have the meaning set forth in Section
-----------------------------
5.1.11 hereof.
"FEDERAL RESERVE" shall have the meaning set forth in Section 2.4.1 hereof.
-----------------
"FEE ORDER" shall mean the order of the Court regarding the allowance or
-----------
disallowance of the Bank's fees and costs under the Original Loan
Documents.
"FOX LORBER" shall mean Fox Lorber Associates.
------------
"FOX LORBER NOTE" shall mean that certain Promissory Note dated July 15,
-----------------
1994, executed by Fox Lorber in favor of Prism in the original principal
amount of $340,000.
"GAAP" shall mean generally accepted accounting principles consistently
------
applied (except for accounting changes in response to Financial Accounting
Standards Board releases or other authoritative pronouncements).
-5-
<PAGE>
"HAZARDOUS MATERIALS" shall mean (i) any chemical, compound, material,
---------------------
mixture or substance that is now or hereafter defined or listed in, or
otherwise classified pursuant to, any Environmental Laws (as hereinafter
defined) as a "hazardous substance", "hazardous material", "hazardous
waste", "extremely hazardous waste", "infectious waste", "toxic substance",
"toxic pollutant" or any other formulation intended to define, list, or
classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, or "EP toxicity" and (ii) any petroleum, natural
gas, natural gas liquid, liquefied natural gas, synthetic gas usable for
fuel (or mixtures of natural gas and such synthetic gas), ash produced by a
resource recovery facility utilizing a municipal solid waste stream, and
drilling fluids, produced waters, and other wastes associated with the
exploration, development or production of crude oil, natural gas, or
geothermal resources. The term "Hazardous Waste" specifically includes,
but is not limited to, each and every substance and material which
constitutes (a) a "hazardous substance" within the meaning of 42 US.C. (S)
9601(14); (b) a "hazardous substance" within the meaning of California
Health & Safety Code (S) 25316; (c) a "hazardous waste" within the meaning
of California Health & Safety Code (S) 25117; (d) an "extremely hazardous
waste" within the meaning of California Health & Safety Code (S) 25115;
and/or (e) a "hazardous substance," "hazardous waste," or "extremely
hazardous waste " under any regulations promulgated pursuant to such
statutory provisions, including but not limited to all regulations adopted
by the State of California Department of Toxic Substances Control pursuant
to California Health & Safety Code (S) 25141.
"INDEBTEDNESS" shall mean, at any time and with respect to any Person, (i)
--------------
indebtedness of such Person for borrowed money (whether by loan or the
issuance and sale of debt instruments and/or securities) or for the
deferred purchase price of property or services purchased, (ii) obligations
of such Person in respect of letters of credit, acceptance facilities, or
drafts or similar instruments issued or accepted by banks and other
financial institutions for the account of such Person, (iii) obligations of
such Person under capitalized leases, and (iv) indebtedness of others of
the type described in clauses (i), (ii) and (iii) hereof which (a) such
Person has directly or indirectly assumed or guaranteed and/or (b) is
secured by a lien on assets of such Person, whether or not such Person
shall have assumed or guaranteed such indebtedness.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section 11
-------------------------
hereof.
-6-
<PAGE>
"INDEMNITEES" shall have the meaning set forth in Section 11 hereof.
-------------
"INGRAM" shall mean Ingram Entertainment Inc., a Tennessee Corporation.
--------
"INTEREST" shall mean all interest amounts required to be paid by the
----------
Borrower pursuant to this Agreement.
"INTEREST IMPOUND ACCOUNT" shall have the meaning set forth in Section
--------------------------
2.2.2 hereof.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986 and
-----------------------
the rules, regulations and notices issued thereunder, as now and hereafter
in effect, or any successor provision thereto.
"IRREVOCABLE AUTHORITY" shall mean an irrevocable authority executed by the
-----------------------
Borrower instructing the applicable account debtor to remit License
Payments to the Master Collection Account in substantially the form of
Exhibit D to the Original Agreement or such other form as may be acceptable
to the Bank in its sole and absolute discretion.
"LABORATORY AUTHORIZATION LETTER" shall mean an agreement for a particular
---------------------------------
Product or Products in substantially the form of Exhibit G to the Original
Agreement, or such other form as may be acceptable to the Bank in its sole
and absolute discretion.
"LABORATORY PLEDGEHOLDER AGREEMENT" shall mean an agreement for a
-----------------------------------
particular Product or Products in substantially the form of either of the
agreements attached to the Original Agreement as Exhibits F-1 and F-2, as
applicable, or such other form as may be acceptable to the Bank in its sole
and absolute discretion.
"LICENSE AGREEMENTS" shall mean any agreement, arrangement or understanding
--------------------
now existing or hereafter entered into (including, without limitation, so-
called "output" or other multi-Product agreements), to which the Borrower
(or any agent of the Borrower acting on behalf of the Borrower) is a party
and pursuant to which the Borrower (or any agent of the Borrower acting on
behalf of the Borrower) has granted, sold, conveyed, licensed, sublicensed,
leased, subleased or otherwise transferred rights to any Person with
respect to the distribution, subdistribution, sale, rental, lease,
sublease, licensing, sublicensing, exhibition, telecast, broadcast,
transmission (including, without limitation, by way of satellite or cable)
or other use, exploitation or disposition of any Product or any elements
thereof (including, but not limited to, all music and musical compositions;
negatives; soundtracks; and Literary
-7-
<PAGE>
Properties) and/or the Copyrights in any of the foregoing or any part
thereof in any media existing now or in the future and in any territory
(including, without limitation, motion picture, television, "home video"
and all other audio-visual device rights, merchandising and commercial tie-
ups, soundtrack album, music publishing, novelization and publishing
rights, trailer rights, and all other allied, incidental, ancillary and
subsidiary rights); such agreements shall include, without limitation, the
Existing License Agreements. License Agreements shall also include the
Turner License Agreement, the Fox Lorber Note, the Bough Breaks II
Production Agreement, and any and all instruments and notes payable to the
Borrower in connection with any License Agreement or Product.
"LICENSE PAYMENTS" shall mean all amounts (including, without limitation,
------------------
so-called "minimum guarantees" and "advances") payable to or for the
benefit of the Borrower pursuant to any License Agreement whether
characterized as accounts, accounts receivable, general intangibles or
otherwise; any and all sums, proceeds, money, products, profits or
increases payable to the Borrower pursuant to any License Agreement; all
chattel paper that may arise in connection with any License Agreement and
any and all amounts payable thereunder whether characterized as accounts,
accounts receivable, contracts receivable, general intangibles or
otherwise; and any and all proceeds of the foregoing payable to the
Borrower.
"LITERARY PROPERTIES" shall mean all literary and other properties which
---------------------
are or may form the basis of any Product or which are or may be
incorporated into any Product, including, without limitation, all scripts,
screenplays and/or photoplays based thereon in whole or in part; all
component parts of any Product consisting of such literary or other
properties; all motion picture, television, "home video" and other
audiovisual device rights in and to any story underlying any Product; all
treatments of said stories and other literary material, together with all
preliminary and final photoplays, treatments, scenarios, screenplays,
scripts, bibles and storybooks at every stage thereof used or to be used in
connection with any Product; and all other literary material upon which any
Product is or may be adapted or based in whole or in part; in each case
whether now in existence or hereafter made, produced, created or written
and whether or not in possession of the Borrower.
"LOAN" shall have the meaning set forth in Paragraph D hereof.
------
"LOAN AMOUNT" shall have the meaning set forth in Section 2.1.1 hereof.
-------------
-8-
<PAGE>
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Amended and
----------------
Restated Note, all Irrevocable Authorities, Acknowledgements, Laboratory
Pledgeholder Agreements, Laboratory Authorization Letters, Bank Notice
Letters, Trademark Mortgages, UCC financing statements, Copyright
Mortgages, and any other certificates, financial statements, schedules,
exhibits, documents or agreements of any type or nature heretofore or
hereafter executed and/or delivered by or on behalf of the Borrower to the
Bank in any way relating to or in furtherance of this Agreement or
evidencing and/or securing any of the Obligations in each case either as
originally executed or as the same may be Modified from time to time.
"MASTER COLLECTION ACCOUNT" shall mean that certain operating account of
---------------------------
the Borrower established at the offices of the Bank pursuant to the
Original Loan Documents and numbered 0060071241.
"MERGER" shall have the meaning set forth in paragraph B hereof.
--------
"MODIFICATIONS" shall mean amendments, alterations, supplements,
---------------
replacements, modifications or terminations, collectively.
"MODIFY" shall mean amend, alter, supplement, replace, modify or terminate,
--------
collectively.
"NET COLLECTIONS" shall mean (i) the gross amount collected under License
-----------------
Agreements in existence on the Effective Date, less only third party
participation claims and applicable royalties, if any, (ii) 50% of the
gross amount of the producer's fee due to the Borrower from Bough Breaks
II, and (iii) the gross amount collected under License Agreements entered
into by the Borrower after the Effective Date, less only third party
participations, applicable royalties, sales commissions, and residuals, if
any.
"NEW COLLATERAL" shall have the meaning set forth in Section 4.3 hereof.
----------------
"OBLIGATIONS" shall mean, collectively, the Principal, together with
-------------
accrued Interest and Costs.
"ORIGINAL AGREEMENT" shall have the meaning set forth in paragraph C
--------------------
hereof.
"ORIGINAL LOAN DOCUMENTS" shall have the meaning set forth in paragraph C
--------------------------
hereof.
"ORIGINAL NOTES" shall mean, collectively, that certain $5,000,000
----------------
Promissory Note dated February 24, 1995 and that
-9-
<PAGE>
certain $1,000,000 Promissory Note dated February 24, 1995 executed by
Prism in favor of the Bank.
"PERMITTED ENCUMBRANCES" shall mean the Encumbrances granted to the Bank
------------------------
herein, the junior lien of Ingram on the Collateral, the senior lien of
Ingram on the New Collateral, and those Encumbrances set forth on Schedule
1 attached to the Original Agreement.
"PERSON" shall mean an individual or a corporation, association, limited
--------
liability company, joint venture, partnership, trust or other private or
governmental entity.
"PHYSICAL MATERIALS" shall have the meaning set forth in Section 4.2.1.3
--------------------
hereof.
"PLAN" shall have the meaning set forth in Paragraph B hereof.
------
"POTENTIAL EVENT OF DEFAULT" shall mean any event, act or condition which
---------------------------
with notice or lapse of time, or both, would constitute an Event of
Default.
"PRIME RATE" shall mean the fluctuating per annum commercial rate of
------------
interest announced by the Bank from time to time at its principal office as
the Bank's "prime rate".
"PRINCIPAL" shall have the meaning set forth in Section 2.1.1 hereof.
-----------
"PRISM" shall have the meaning set forth in Paragraph A of this Agreement.
-------
"PRODUCER" shall mean any Person who has licensed or otherwise granted
----------
rights in a Product to the Borrower pursuant to a Rights-In Agreement.
"PRODUCTS" shall mean all Existing Products plus all of the Borrower's
----------
right, title or interest in Bough Breaks II.
"RELEVANT FOREIGN JURISDICTIONS" shall have the meaning set forth in
--------------------------------
Section 5.1.1 hereof.
"RESTRICTED PAYMENT" shall mean (i) any distribution, dividend or other
--------------------
direct or indirect payment in respect of any shares of any class of any
capital stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding; (ii) any purchase, redemption or other acquisition or
reacquisition by the Borrower of any share of any class of any of its own
capital stock or other capital stock or equity interest of the Borrower now
or hereafter outstanding, (iii) any payment made to retire, or obtain the
surrender of any outstanding warrants, puts or options or
-10-
<PAGE>
other rights to purchase or acquire any shares of any class of any capital
stock of the Borrower now or hereafter outstanding, (iv) any loan by the
Borrower to the holder of any shares of any class of any capital stock of
the Borrower, and/or (v) any payment of principal or other retirement of
indebtedness of the Borrower which is subordinated by its terms, by
agreement or by operation of law (or is required by any Loan Document to be
subordinated) to the Obligations.
"RIGHTS-IN AGREEMENTS" shall mean any agreement, arrangement or
----------------------
understanding now existing or hereafter entered into (including, without
limitation, so-called "output" or other multi-Product agreements), to which
the Borrower is a party and pursuant to which the Borrower has been
granted, sold, conveyed, licensed, sublicensed, leased, subleased or
otherwise transferred rights by any Person with respect to the
distribution, subdistribution, sale, rental, lease, sublease, licensing,
sublicensing, exhibition, telecast, broadcast, transmission (including,
without limitation, by way of satellite or cable) or other use,
exploitation or acquisition of any Product or any elements thereof
(including, but not limited to, all music and musical compositions;
negatives; soundtracks; and Literary Properties) and/or the Copyrights in
any of the foregoing or any part thereof in any media existing now or in
the future and in any territory (including, without limitation, motion
picture, television, "home video" and all other audio-visual device rights,
merchandising and commercial tie-ups, soundtrack album, music publishing,
novelization and publishing rights, trailer rights, and all other allied,
incidental, ancillary and subsidiary rights).
"STATE" shall mean any state of the United States.
-------
"SUBSIDIARY" shall mean any corporation, association, limited liability
------------
company, joint venture, partnership, trust or other entity which is
directly or indirectly through one or more intermediaries controlled by the
Person in question.
"THEATRICAL PICTURES" shall mean all feature and non-feature length motion
---------------------
pictures produced for theatrical release in which the Borrower now has any
right, title or interest. For avoidance of doubt, a Theatrical Picture may
also come within the definition of a Video Picture.
"TRADEMARK MORTGAGES" shall mean the documents in respect of each
---------------------
trademark, logo, tradename, service mark and/or service name of the
Borrower in substantially the form of Exhibit I attached to the Original
Agreement or in such other form as may be acceptable to the Bank in its
sole and absolute discretion.
-11-
<PAGE>
"TURNER" shall mean Turner Home Entertainment, Inc., a Georgia corporation.
--------
"TURNER LICENSE AGREEMENT" shall mean that certain license agreement, dated
--------------------------
as of November 8, 1994 by and between Prism Entertainment and Turner.
"TURNER PAYMENTS ASSIGNMENT AGREEMENT" shall mean that certain Assignment,
--------------------------------------
Notice and Acknowledgement of Assignment entered into as of March, 1995, by
and among Prism, the Bank, and Turner.
"UNITED STATES" AND "U.S." shall mean the United States of America and its
--------------------------
territories and possessions.
"VIDEO PICTURES" shall mean all feature and non-feature length motion
----------------
pictures produced for "home video" release on videotape, cassette,
cartridge, disc or other "home video" medium in which the Borrower now has
any right, title or interest. For the avoidance of doubt, a Video Picture
may also come within the definition of Theatrical Picture.
Unless the context otherwise requires, the following terms used in this
Agreement shall have the meanings ascribed to them in the Commercial Code of the
State of California: "account", "account debtor", "chattel paper", "general
intangibles", "goods", "instrument", inventory", "money", "proceeds", and
"products".
2. RESTRUCTURING OF DEBT.
---------------------
2.1 Terms of the Loan.
-----------------
2.1.1 Loan Amount. The aggregate principal amount of the Loan (the
-----------
"Loan Amount") will be the total amount of (i) two million seven hundred forty-
two thousand four hundred thirty dollars and forty-four cents ($2,742,430.44)
(the "Undisputed Principal"), plus (ii) all fees and costs of the Bank to which
no objections are timely filed pursuant to Section 2.3 hereof or which are
subsequently allowed by order of the Court (the "Supplemental Principal" and,
together with the Undisputed Principal, the "Principal"). The total amount of
Supplemental Principal asserted by the Bank is four hundred fifty thousand
dollars ($450,000).
2.1.2 Interest Rate. So long as no Event of Default is continuing,
-------------
the Loan will bear interest at a rate per annum equal to the Prime Rate plus
3.0% (the "Loan Rate").
2.1.3 Default Rate. In the event of an Event of Default, the Loan
------------
will bear interest at a rate per annum equal to the Loan Rate plus 5%.
-12-
<PAGE>
2.1.4 Term. If not sooner paid pursuant to the terms set forth
----
below, all Obligations shall be payable on July 1, 1999 (the "Term").
2.1.5 Amended and Restated Note. The Borrower shall execute and
-------------------------
deliver to the Bank an amended and restated promissory note (the "Amended and
Restated Note") payable to the Bank in the form of Exhibit "3" hereto to
evidence the Borrower's obligation to repay the Loan Amount.
2.2 Payments.
--------
2.2.1 Excess Cash Amount. At Closing, the Borrower shall pay to the
------------------
Bank the Excess Cash Amount, if any, calculated under the Plan. The Borrower
shall promptly pay to the Bank any additional sums due the Bank after the
Closing pursuant to Section 6.01(d) of the Plan.
2.2.2 Monthly Interest Payments. Commencing on the twentieth day of
-------------------------
the first month following the Closing, and continuing on the first day of each
subsequent month through June, 1998, the Borrower shall make monthly Interest
payments from sources other than License Payments and exploitation of the
Products. Interest on the Undisputed Principal shall be paid directly to the
Bank. Interest on the full amount of the fees and costs as asserted by the Bank
as of the Closing shall be paid into a separate account maintained at the Bank
and designated as the "Interest Impound Account" pending the determination of
the Supplemental Principal amount under section 2.3 hereof.
2.2.3 Amortization of Remaining Principal. All Principal outstanding
-----------------------------------
as of July 1, 1998 shall be amortized by twelve equal monthly payments on the
twentieth of each month for the balance of the Term. Interest shall be payable
monthly on the amount of the Principal then outstanding.
2.2.4 Payments from Net Collections. The Borrower shall pay to the
-----------------------------
Bank all Net Collections during the Term. Through June 30, 1998, Net
Collections shall be applied to reduce the Principal. From and after July 1,
1998, Net Collections shall be credited and applied to the next monthly payment
of Principal and Interest then due.
2.2.5 Payments from Sale of Collateral. The net proceeds of any sale
--------------------------------
of the Collateral or any portion thereof shall be paid to the Bank, and shall be
applied first to Costs, then to Interest, and then to Principal, until the
Obligations are fully satisfied.
2.2.6 Time and Place of Payments. The Borrower shall make each
--------------------------
payment hereunder (and under any instrument delivered hereunder) to the Bank at
the office of the Bank set forth in, or designated by the Bank pursuant to
Section 12 hereof, not later
-13-
<PAGE>
than 10:00 a.m. (Los Angeles time) on the day when due, in freely transferable
Dollars representing "same day" funds, and if necessary the Borrower shall
procure (from either the payor of such funds or from the Bank, at the election
of the Borrower) conversion of any payments from third parties into Dollars,
with the Borrower bearing all costs and risks of any and all such conversion.
Whenever any payment to be made hereunder or under any instrument delivered
hereunder shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day; and such extension of
time shall in each such case be included in the computation and payment of
Interest.
2.2.7 Application of Payments. Except as otherwise provided herein,
-----------------------
all payments made hereunder in respect of any of the Obligations (whether
optional or mandatory) shall be credited first to Costs to the extent that Costs
have not previously been paid, then to Interest to the extent that Interest on
all outstanding Principal under the Loan is accrued and unpaid, and then to
Principal.
2.2.8 No Offset by Borrower; Net Payments. All payments by the
-----------------------------------
Borrower under this Agreement shall be made without setoff or counterclaim and
in such amounts as may be necessary in order that all such payments (after
deduction or withholding for or on account of any present or future taxes of any
kind, imposts, levies, assessments, duties, fees, deductions or other charges,
restrictions, conditions of whatever nature now or hereafter imposed, levied,
collected or asserted to be due or payable by or for the account of the United
States or any foreign country, or any State or foreign state or province,
municipality or other political subdivision or taxing authority thereof, and
including any penalty or fine or similar liabilities for the non-payment
thereof) shall not be less than the amounts otherwise specified to be paid under
this Agreement. All payments under this Agreement shall be made under all
circumstances, irrespective of any restrictions then existing in any
jurisdiction and without regard to the nationality, residence or domicile of the
Bank or the Borrower, and without requiring any affidavit or the fulfillment or
any other formality except as otherwise expressly provided in this Agreement.
2.2.9 Prepayment Without Penalty. The Borrower may pay all or any part of
--------------------------
the outstanding Obligations at any time during the Term without penalty.
2.3 Objection to Fees. The Borrower may, within 60 days of the Effective
-----------------
Date, file an objection to the fees and costs of the Bank on the basis that such
fees and costs, or a portion thereof, should be disallowed pursuant to
Bankruptcy Code section 506(b). Such fees and costs as are allowed by the Fee
Order (or, if no timely objection is made, all of the Bank's fees and costs),
shall constitute the Supplemental Principal. Immediately
-14-
<PAGE>
upon the entry of the Fee Order, the Borrower shall pay to the Bank all Interest
accumulated on the Supplemental Principal. If no timely objection is made
pursuant to this section 2.3, the Borrower shall, on the 61st day after the
Effective Date, pay to the Bank all Interest accumulated on the Supplemental
Principal.
2.4 Capital Adequacy and Increased Cost of the Commitments.
------------------------------------------------------
2.4.1 If, after the Closing, the adoption or implementation of any
applicable rule, law or regulation regarding capital requirements for banks or
bank holding companies, or any change therein (including any change according to
a prescribed schedule of increasing requirements, whether or not currently
known) or any change in the interpretation or administration thereof by any
foreign or domestic court, central bank (including, without limitation, the
Federal Reserve System of the United States (the "Federal Reserve")), monetary
authority or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive of any such
Person regarding capital adequacy (whether or not having the force of law) has
the effect of reducing the return on the Bank's capital to a level below that
which the Bank could have achieved (taking into consideration the Bank's
policies with respect to capital adequacy immediately before such adoption,
implementation, change or compliance and assuming that the Bank's capital was
fully utilized prior to such adoption, implementation, change or compliance) but
for such adoption, implementation, change or compliance as a consequence of the
Loan or the Commitments by any amount, the Borrower shall pay to the Bank as an
additional fee from time to time on demand of the Bank such amount as shall be
necessary to compensate the Bank for such reduction. The determination by the
Bank of such amount, if done on the basis of any reasonable averaging and
attribution methods, shall in the absence of manifest error be conclusive, and,
at the Borrower's request, the Bank shall demonstrate the basis of such
determination.
2.4.2 If any present or future applicable law (which expression, as
used in this Section 2.4.2, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to the Bank by
any central bank or other fiscal, monetary or other authority (including,
without limitation, the Federal Reserve) (whether or not having the force of
law)) shall:
2.4.2.1 subject the Bank to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the Loan or the Amended and
-15-
<PAGE>
Restated Note (other than taxes based upon or measured by the income or profits
of the Bank); or
2.4.2.2 materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to the Bank of Principal or
Interest or any other amounts payable to the Bank under this Agreement; or
2.4.2.3 impose or increase or render applicable any special
deposit, reserve, assessment liquidity or other similar requirements (whether or
not having the force of law) against assets held by, or deposits in or for the
account of the Bank, or the Loan or the Amended and Restated Note; or
2.4.2.4 impose on the Bank any other conditions or
requirements with respect to this Agreement, the Loan, or the Note or any class
of loans or commitments of which the Loan forms a part;
and the result of any of the foregoing is:
(i) to increase the cost to the Bank of making,
funding, issuing, renewing, extending or maintaining the Loan; or
(ii) to reduce the amount of Principal, Interest or
other amount payable to the Bank hereunder on account of any of the Loan; or
(iii) to require the Bank to make any payment or to
forego any Interest or other sum payable hereunder, the amount of which payment
or foregone Interest or other sum is calculated by reference to the gross amount
of any sum receivable or deemed received by the Bank from the Borrower
hereunder;
then, and in each such case, the Borrower will, upon demand following receipt of
written notice from the Bank, which written notice shall include calculations of
the amounts payable, pay to the Bank such additional amounts as will be
sufficient to compensate the Bank for such additional cost, reduction, payment
or foregone Interest or other sum, but without duplication of any amount payable
by the Borrower pursuant to Section 2.4.1 hereof. The determination by the Bank
of any such amount shall, in the absence of manifest error, be conclusive, and
at the Borrower's request the Bank shall demonstrate the basis for such
determination.
3. MASTER COLLECTION ACCOUNT.
-------------------------
3.1.1 The Borrower shall maintain the Master Collection Account, and
shall cause all License Payments to be directly remitted by the applicable
account debtors into the Master Collection Account. Except as permitted in
this
-16-
<PAGE>
Section 3.1.1 and in Section 4.5 hereof, the Borrower shall not be
permitted to deposit any funds in the Master Collection Account without the
prior written consent of the Bank.
3.1.2 The Borrower shall be entitled to withdraw from the Master
Collection Account with respect to a License Payment which has been
deposited in full the amount of third party participations, sales
commissions, and applicable royalties and other costs which the Borrower
may deduct to arrive at Net Collections. The balance of any License
Payment shall be released forthwith from the Master Collection Account for
application to the Amended and Restated Note in accordance with the terms
hereof. Other than as expressly provided in this Section 3.1.2, the
Borrower shall not be entitled to withdraw any portion of the funds
deposited in the Master Collection Account, and such account shall be under
the exclusive control of the Bank, until such time, if ever, as all of the
Obligations and all other sums, liabilities and other obligations owing by
the Borrower to the Bank under the Loan Documents shall have been
indefeasibly paid in full.
4. SECURITY INTEREST.
-----------------
4.1 Continuation of First Priority Security Interest. As security for the
------------------------------------------------
full and timely payment and performance of all of the Obligations and any other
liabilities of or amounts owed by the Borrower to the Bank arising out of this
Agreement, or any of the other Loan Documents, whether now existing or hereafter
arising, the Borrower hereby acknowledges the validity and first priority of the
Bank's security interests in the "Collateral" and grants a continuing security
interest in and lien upon, and mortgages, pledges and assigns to the Bank for
security purposes, the "Collateral".
4.2 The Collateral. The term "Collateral" shall mean all of the
--------------
Borrower's now owned or hereafter acquired right, title and interest in and
relating to (i) the Master Collection Account, (ii) the Products, and (iii) the
License Agreements, and all proceeds of any and all of the foregoing property,
including, without limitation, all assets, accounts, accounts receivable,
contract receivables, goodwill, contract rights, general intangibles, inventory,
goods, documents, instruments, returned merchandise, chattel paper, cash,
deposit accounts, completion bonds, policies of insurance relating thereto or
arising therefrom and all products, replacements or substitutions for, and
accessions and additions to any and all of the foregoing property and interests
in property, and all payments under any indemnity, warranty or guarantee payable
by reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral, and all books and records relating to any of the foregoing
Collateral. Without in any way limiting the generality
-17-
<PAGE>
of the foregoing, the Collateral shall specifically include all of the
Borrower's right, title and interest, now owned or hereafter acquired,
throughout the entire universe, in and to each and all of the following:
4.2.1 All Products (whether such Products are in preproduction,
production, principal photography, post-production or completed) and
Literary Properties, including, without limitation, all of the Borrower's
right, title and interest in and to:
4.2.1.1 All common law and statutory copyrights and copyright
registrations, and applications for registration, now existing or
hereafter arising, United States and foreign, obtained or to be
obtained on or in connection with the Products, the Literary
Properties or any parts thereof or any underlying or component element
of any Product or Literary Property, including, but not limited to,
all copyrights on the property described in Sections 4.2.1.2 through
4.2.1.5 hereof together with the right to copyright and all rights to
renew or extend such copyrights and the right (but not the obligation)
of the Bank to sue in its own name and/or in the name of the Borrower
for past, present and future infringements of copyright (collectively,
the "Copyrights");
4.2.1.2 All rights in and to all music, musical compositions,
lyrics and recordings used and to be used in, or derived from, any of
the Products, including, without limitation, all rights to record, re-
record, produce, reproduce, license, synchronize or publish all or any
of said music and musical compositions;
4.2.1.3 All physical properties of every kind or nature of or
relating to any of the Products and all versions thereof, to the
extent now or hereafter in existence, including, without limitation,
exposed film, developed film, positives, negatives, prints, answer
prints, special effects, pre-print materials (including, without
limitation, negatives, positives, duplicate negatives, inter-
negatives, inter-positives, color reversals, intermediates, lavenders,
fine grain master prints and matrixes, master tapes, discs, cassettes
and cartridges, soundtracks, recordings, audio and video tapes, discs,
cassettes and cartridges, master magnetic tracks, other optical
soundtrack recordings and music cue sheets, and all other forms of
pre-print elements used in any way to produce prints or other copies
or additional pre-print elements, whether now known or hereafter
devised or created), audio and video tapes, cassettes and discs
(including, without limitation, 8mm, CD-I, CD-ROM and VHD) of all
types and
-18-
<PAGE>
gauges, cut-outs, trims and any and all other physical properties of
every kind and nature relating to any of the Products in whatever
state of completion, and all duplicates, drafts, versions, variations
and copies of each thereof (all of the foregoing collectively referred
to as the "Physical Materials"), and any and all rights of access to
removal and transfer of, and duplication and reproduction of, any and
all of the Physical Materials;
4.2.1.4 All production, distribution, subdistribution, leasing,
subleasing, license, sublicense, exhibition, telecasting,
broadcasting, transmission (including, without limitation, by way of
satellite or cable), ancillary, publishing, spin-off, collateral,
allied, subsidiary, merchandising and other exploitation rights
pertinent or related to the Products, including, without limitation,
the following: (i) all rights to produce remakes, sequels, pre-sequels
or serials based in whole or in part upon the Products, the Literary
Properties, the theme of the Products or the text or any part of the
Literary Properties; (ii) all rights throughout the world to exhibit
the Products in theaters; (iii) all rights throughout the world to
telecast, broadcast, distribute, transmit (including, without
limitation, by way of microwave, satellite or cable) or reproduce by
means of television, including commercially sponsored, sustaining and
subscription, satellite, cable or "pay" television, by means of video
cassettes, video cartridges (including, without limitation, 8mm, video
and laser discs (including, without limitation, CD-I, CD-ROM and
VHD)), tapes, cartridges, interactive video (whether such interactive
video is "pay-per-view," computer generated, computer received,
received via cable television, supplied via computer modem,
incorporated into software, supplied via direct satellite reception or
is incorporated into a computer game, arcade game or home video game)
or any other scientific, mechanical, audiovisual or electronic means,
methods, processes or devices, now known or hereafter created,
conceived or devised, the Products and any remake of, sequel or pre-
sequel to or serialization of the Products; (iv) all rights to produce
primarily for television or similar use a motion picture or series of
motion pictures, by use of film, video, tape, disc (including, without
limitation, CD-I, CD-ROM and VHD), cassette, cartridge or any other
audiovisual or mechanical recording device now known or hereafter
devised, based upon the Products, the Literary Properties or any part
thereof, including, without limitation, based upon any treatment,
script, scenario or the like used in the Products; (v) all rights to
reissue any of the Products by means of film,
-19-
<PAGE>
tape, disc (including, without limitation, CD-1, CD-ROM and VHD) or
any other devices now known or hereafter created, conceived or
devised; (vi) all merchandising rights, including, without limitation,
all rights to use, exploit and license others to use and exploit any
and all commercial tie-ups of any kind arising out of or connected
with the Literary Properties, the Products, the title or titles of the
Products and Literary Properties, and the characters of the Products
or of the Literary Properties; and (vii) the names or characteristics
of said characters in any of the Products or Literary Properties,
including, without limitation, any and all commercial tie-up,
sponsorships, publishing, merchandising and other exploitation in
connection with or related to the Products, any remake, prequel,
sequel or serialization thereof or the Literary Properties;
4.2.1.5 The dramatic, non-dramatic, stage, television, "home
video", radio and publishing rights in and to the Products, the
Literary Properties or any part thereof, and the right to obtain
Copyrights and renewals of Copyrights therein;
4.2.1.6 The titles of the Products and the Literary Properties
and all rights to the use thereof, including, without limitation,
rights protected by trademark and service mark laws against unfair
competition or any other applicable statutory or common law, or other
rule of principle of law; and all trademarks, tradenames, logos,
service marks and service names, at any time owned or used by any
Borrower in connection with any of the Products;
4.2.1.7 All accounts, accounts receivable, contracts receivable,
general intangibles, contract rights and other rights which may arise
or may have risen in connection with the creation, production,
delivery, distribution, exhibition of all or any part of the Products,
including, but not limited to, (i) all general intangibles and
contract rights for services or other performances by any third
parties, including Persons furnishing services or materials or both,
and actors, writers, directors, individual producers or any and all
other performing or non-performing artists in any way connected with
the Products or the Literary Properties, (ii) all general intangibles
and contract rights relating to licenses of sound or other equipment,
and licenses for photographic or other processes relating to the
Products, and (iii) any and all other such rights as the Borrower has,
the ownership or control of which is necessary or desirable, in the
opinion of the Bank, in order to
-20-
<PAGE>
complete production and distribution of the Products; with respect to
each agreement that is a part of the Collateral, the Collateral shall
include the right (but not the obligation) of the Bank and the
Borrower, to modify such agreement, to perform thereunder, to compel
performance thereunder and otherwise to exercise all remedies
thereunder;
4.2.1.8 All documents issued by any pledgeholder or bailee with
respect to the Products or any of the Physical Materials; and
4.2.1.9 All insurance policies and completion bonds on or
connected with the Products or the production or distribution thereof
or the Physical Materials, and all proceeds which may be derived
therefrom.
4.2.2 All License Agreements, including, without limitation:
4.2.2.1 All presently existing and hereafter arising License
Payments, accounts, and other accounts receivable and general
intangibles or sums payable to the Borrower in respect of the License
Agreements; and all proceeds of any of the foregoing, of every kind
and character;
4.2.2.2 All sums, proceeds, money, products, profits and
increases, including money, profits or increases, or other property
presently owned or hereafter obtained from, in connection with or
related to the License Agreements;
4.2.2.3 All instruments, notes or chattel paper which may arise
in connection with any and all of the License Agreements;
4.2.2.4 All security interests granted to the Borrower under any
License Agreements or any other agreements; and
4.2.2.5 The Fox Lorber Note, which shall be pledged to the Bank
as security for the Obligations in a form satisfactory to the Bank in
its sole discretion.
4.2.3 All inventions, processes, formulae, licenses, patents, patent
rights, trademarks, trademark rights, trademark registrations, service
marks, service mark rights, service mark registrations, tradenames,
tradename rights, tradename registrations, service names, service name
rights, service name registration, logos, indicia, corporate and company
names, business source or business identifiers
-21-
<PAGE>
and renewals and extensions thereof, United States and foreign, and the
related goodwill and other like business property rights relating to the
Products, and the right (but not the obligation) to register claim under
any trademark, tradename, service mark, service name or patent and to renew
and extend such trademarks, tradenames, service marks, service names or
patents and the right (but not the obligation) to sue in the name of the
Borrower or in the name of the Bank for past, present or future
infringement of trademarks, tradenames, service marks, service names or
patents;
4.2.4 All cash, cash equivalents and bank accounts of the Borrower
wherever located, including, without limitation, the Master Collection
Account, which represent or include funds obtained from, in connection with
or related to the Products, and all drafts checks, certificates of deposit,
notes, bills of exchange and other writings which evidence a right to the
payment of money and are not themselves security agreements or leases and
are of a type which in the ordinary course of business is transferred by
delivery with any necessary endorsement or assignment obtained from, in
connection with or related to the Products, whether now owned or hereafter
acquired;
4.2.5 All inventory of prints, video laser discs (including (without
limitation) CD-I, CD-ROM and VHD), video cassettes, video cartridges, video
tapes, advertising materials and all other items of inventory relating to
the Products;
4.2.6 All books and records relating to any and all of the foregoing
Collateral;
4.2.7 All Rights-In Agreements (including, without limitation, all
security interests granted to the Borrower pursuant thereto or in
accordance therewith); and
4.2.8 All proceeds of, products of or accessions or additions to, any
and all of the foregoing Collateral.
4.3 Granting of Security Interest in and Lien on Inventory. As additional
------------------------------------------------------
security for the full and timely payment and performance of all of the
Obligations and any other liabilities of or amounts owed by the Borrower to the
Bank arising out of this Agreement, or any of the other Loan Documents, whether
now existing or hereafter arising, the Borrower hereby grants a continuing
security interest in and lien upon 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 progress and finished goods, all packing materials, supplies and
containers relating to or used in connection with any of the
-22-
<PAGE>
foregoing, and all bills of lading, warehouse receipts or documents of title
relating to any of the foregoing, whether now owned or hereafter acquired by the
Borrower, wherever located, and all accessions or additions to, any and all of
the foregoing (the "New Collateral"). The lien on and security interest in the
New Collateral granted to the Bank shall be subject to and subordinate to the
lien therein of Ingram.
4.4 Security Documents. All currently existing documents and filings
------------------
which evidence and/or perfect the security interests and rights granted to the
Bank under the Original Loan Documents (the "Original Security Documents") shall
remain in full force and effect for purposes of evidencing and/or perfecting the
security interests and rights granted herein. For the purpose of further
evidencing or perfecting the security interests granted by the Borrower to the
Bank, the Borrower agrees, in the sole discretion of the Bank, to:
4.4.1 Execute and deliver, or cause to be executed and delivered, to
the Bank, Uniform Commercial Code financing statements and Bank Notice
Letters from all jurisdictions as may be, in the opinion of the Bank,
necessary to perfect and/or continue perfection of such security interests;
4.4.2 (i) Execute and deliver, or cause to be executed and delivered,
to the Bank, the Amended and Restated Copyright Mortgage, and (ii) cause to
be recorded in the United States Copyright Office and the United States
Patent and Trademark Office, as appropriate, an additional original copy of
such Amended and Restated Copyright Mortgage;
4.4.3 With respect to each License Payment, execute and deliver, and
cause all account debtors of each such License Payment to execute and
deliver, an Irrevocable Authority and Acknowledgment to the Bank pursuant
to which all such account debtors are instructed and agree to remit all
such License Payments directly to the Master Collection Account;and
4.4.4 Execute and deliver, or cause to be executed and delivered, to
the Bank, the Fox Lorber Note and such endorsement or other evidence of the
pledge thereof in favor of the Bank as the Bank deems necessary or
appropriate in its sole and absolute discretion, and any other instrument
or note evidencing a right to payment under any License Agreement.
4.4.5 Execute and deliver, or cause to be executed and delivered, to
the Bank, such other instruments and documents as the Bank may request to
carry out and fulfill
-23-
<PAGE>
the purposes of this Agreement, all in form and substance satisfactory to
the Bank.
4.5 Borrower to Deliver Funds to the Bank. In the event that the Borrower
-------------------------------------
receives any funds which should have been delivered directly to the Bank
pursuant to Section 3.1.1 or 4.4.3 hereof, the Borrower agrees that such funds
are being held in trust for the Bank, and the Borrower shall, promptly upon
receipt thereof, deliver the same to the Bank.
4.6 Filing and Recordation. The Borrower shall, in accordance with the
----------------------
Bank's instructions, execute and deliver all documents of whatever kind and
render such other assistance as may be necessary to cause all of the agreements,
instruments and documents executed pursuant to this Agreement to be duly
recorded and/or filed in all places necessary, in the opinion of the Bank, to
perfect and protect the security interests and liens of the Bank in the
Collateral and the New Collateral, and (without limiting the Borrower's
recording and/or filing obligations pursuant to Section 4.4 hereof or elsewhere
herein) the Bank is hereby authorized to file or record all of such agreements,
instruments and documents. In the event that any re-recording or re-filing
thereof (or the filing or recording of any additional agreements, instruments
and/or documents) required to protect and preserve any such lien or security
interest, the Borrower agrees that it shall again promptly execute and deliver
all documents of whatever kind and render such other assistance as may be
necessary to cause the same to be re-recorded and/or re-filed (or any additional
agreements, instruments and/or documents filed or recorded) at the time and in
the manner requested by the Bank. Notwithstanding the foregoing, the Borrower
hereby authorizes the Bank to execute (or re-execute) in the name of the
Borrower and/or to file or record (or re-file or re-record) any financing
statements, Copyright Mortgages, Trademark Mortgages or other documents or
instruments in respect of any security interests created pursuant to this
Agreement or any of the other Loan Documents which may at any time be required
in the opinion of the Bank, and the Borrower hereby irrevocably designates the
Bank, its agents, representatives and designees as agent and attorney-in-fact
for the Borrower for these purposes. Such appointment is coupled with an
interest and is therefore irrevocable.
4.7 Termination of Security Interest In All Collateral. Upon the full and
--------------------------------------------------
complete indefeasible satisfaction of all of the Obligations and any other
liabilities or obligations of or amounts owing by the Borrower to the Bank
pursuant to the Loan Documents, whether now existing or hereafter arising, and
submission by the Borrower to the Bank of appropriate termination statements or
other instruments reflecting the termination of the Bank's security interests in
the Collateral and the New Collateral, at the expense of the Borrower, the Bank
shall promptly execute and return such instruments, including, but not
-24-
<PAGE>
limited to, the Amended and Restated Note marked "paid", to the Borrower.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
5.1 For the purpose of inducing the Bank to enter into this Amendment, New
Entertainment hereby represents and warrants to the Bank as of the Closing as
follows:
5.1.1 Good Standing and Corporate Power. The Borrower is a
---------------------------------
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and is qualified to transact
business as a foreign corporation in good standing in (i) the State of
California and (ii) in each other jurisdiction where the failure to be so
qualified would have a material adverse effect on it, its assets or
properties, or the conduct of its business (which jurisdictions together
the State of California are hereinafter collectively referred to as the
"Relevant Foreign Jurisdictions"). The corporate charter or right to
conduct business of the Borrower in its jurisdiction of incorporation and
the Relevant Foreign Jurisdictions has never been suspended, revoked or
terminated. The Borrower has the right, power and authority to own its
properties and assets and to transact the business in which it is engaged
and proposes to engage including, without limitation, the power to
distribute and otherwise exploit the Products in accordance with each
License Agreement to which it is a party.
5.1.2 Binding Agreement. This Agreement and the other Loan Documents
-----------------
(to the extent such other Loan Documents are intended to be of a
contractual nature), when executed and delivered, will constitute the valid
and legally binding obligations of the Borrower and are enforceable in
accordance with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors rights generally.
5.1.3 Due Authorization; No conflicts or Violations. The execution,
---------------------------------------------
delivery and performance of this Agreement by the Borrower, the execution,
delivery and performance of each of the other Loan Documents to which the
Borrower is a party, and the grant of the security interests contemplated
by this Agreement and the other Loan Documents to which the Borrower is a
party, (i) have been duly authorized by all requisite actions by the board
of directors and stockholders of the Borrower and will not violate any
provision of any law, any order of any court or other agency of the United
States, any State or any foreign country, state or province having
jurisdiction, and (ii) will not violate any provision of the
certificate/articles
-25-
<PAGE>
of incorporation, by-laws or other formation, charter or corporate
governance document of the Borrower, or any provision of any agreement or
instrument to which the Borrower is a party or by which the Borrower or any
of its properties or assets may be bound, or be in conflict with, result in
a breach of or constitute a default under, any such agreement or other
instrument.
5.1.4 Authorizations. All authorizations, approvals, registrations
--------------
or filings from or with (i) any governmental or public regulatory body or
authority of the United States, any State or of any foreign country, state,
province or other jurisdiction, or (ii) any other Person, required for the
execution, delivery or performance by the Borrower of the Loan Documents to
which the Borrower is a party, have been obtained or made and are in full
force and effect.
5.1.5 Necessary Rights. The Borrower owns and controls and has good,
----------------
valid and marketable title to, and will continue to own and control and
have good, valid and marketable title to, all rights necessary for the
development, production, distribution, subdistribution, sale, lease,
sublease, rental, license, sublicense, telecast, broadcast, transmission
(including, without limitation, by way of satellite or cable) and other
exploitation of all Products in accordance with the requirements contained
in any agreement relating to any Product to which the Borrower is a party,
including this Agreement, the License Agreements (including, without
limitation, all rights necessary to perform all of the Borrower's
obligations, to perform and observe all conditions referred to herein or
therein and to be in compliance with and observe all of the Borrower's
representations and warranties made herein or therein); and owns and
controls and has good, valid and marketable title to all other Collateral.
5.1.6 The Security Interests. This Agreement and the other Loan
----------------------
Documents to be delivered to the Bank pursuant to Section 4.4 hereof, will
create and grant to the Bank valid security interests and charges in the
Collateral and New Collateral. The Bank shall have perfected first
priority security interests in and liens on the Collateral, and such
Collateral shall be subject only to the junior liens of the Permitted
Encumbrances. The Bank shall have a perfected second priority security
interest in and lien upon the New Collateral junior only to the security
interest therein and lien thereon of Ingram.
5.1.7 No Violation of Rights. As of the Closing, the Borrower is not
----------------------
aware of any violation or infringement by any of the Products or any of the
component parts thereof
-26-
<PAGE>
upon any copyright, trademark, service mark, patent, tradename, service
name, performing right or any literary, dramatic, musical, artistic,
personal, private, civil, contract or property right or any other right of
any Person, and is not aware of any material contained in any of the
Products that is libelous or slanderous or that would invade the rights of
privacy of any Person.
5.1.8 No Judgments, Litigation, Etc. Except as set forth on Schedule
-----------------------------
5.1.8 attached hereto, there are no judgments or orders or actions at law
or in equity and no proceedings (including, without limitation, tax audits)
by or before any court, arbitrator, arbitration panel, governmental
commission, bureau or other administrative agency pending (or, to the best
knowledge of the Borrower after due inquiry, threatened) against the
Borrower that could have a material adverse impact on the financial
condition of the Borrower or on the overall value of the Collateral.
5.1.9 No Defaults. There does not exist any Event of Default, and
-----------
the Borrower is not in default in any material respect in the payment or
performance of any of its obligations under any agreement, instrument or
undertaking to which the Borrower is a party or by which it or any of its
assets may be bound which may materially and adversely affect its ability
to fully and timely perform all of its obligations under any Loan Document,
any License Agreement or which would materially and adversely affect the
value, on an overall basis, of the Collateral or New Collateral or the
Bank's security interests therein.
5.1.10 Trade Names and Trade Styles. As of the Closing, Schedule
----------------------------
5.1.10 hereto completely and accurately sets forth all trade names and
trade styles of the Borrower.
5.1.11 Existing License Agreements. As of the Closing, Schedule
---------------------------
5.1.11 hereto completely and accurately sets forth (i) a description of all
currently existing License Agreements (collectively, the "Existing License
Agreements"), and (ii) identifies each Existing License Agreement for which
there exists (as of the date of execution of this Agreement) payment
instructions thereby instructing an account debtor to remit one or more
License Payments to any Person (other than the Bank or the Borrower).
5.1.12 Furnishing of Documents. The Borrower has furnished the Bank
-----------------------
with true and complete copies of (i) the Borrower's certificate of
incorporation, by-laws or other corporate formation, charter or governance
documents together with all amendments thereto, and (ii) all License
Agreements required to be furnished hereunder to the extent
-27-
<PAGE>
any such agreements are in existence on the date this representation and
warranty is deemed made. Each of the License Agreements is in full force
and effect and constitutes the binding obligations of all of the parties
thereto in accordance with their respective terms. There has been no
default or accrued right of termination under the License Agreements by the
Borrower or to the Borrower's knowledge, any other party under said
agreements.
5.1.13 Financial Statements. All financial statements provided to
--------------------
the Bank by the Borrower will be true, correct and complete except to the
extent expressly qualified therein.
5.1.14 ERISA Compliance. The Borrower and each ERISA Affiliate is in
----------------
compliance in all material respects with the provisions of ERISA which are
applicable to it. Neither the Borrower nor any of its ERISA Affiliates has
established (and does not maintain or contribute to) any employee benefit
plan or other plan covered by Title IV of ERISA, does not sponsor, maintain
or contribute to any "multi-employer plan", as such term is defined in
Section 414(f) of the Internal Revenue Code, and has not breached any
fiduciary duty imposed upon it under Title I of ERISA.
5.1.15 Existing Products. As of the Closing, Schedule 5.1.15 hereto
-----------------
completely and accurately sets forth all Products in which the Borrower has
any interest (collectively, the "Existing Products").
5.1.16 Location of Physical Materials. As of the Closing, Schedule
------------------------------
5.1.16 hereto completely and accurately sets forth the names and addresses
of all laboratories that have possession of any physical and/or sound
materials or elements related to or used in connection with any Product in
which the Borrower has any interest.
5.1.17 No Subsidiaries or Affiliates. As of the Closing, the
-----------------------------
Borrower has no Subsidiaries or Affiliates.
5.1.18 Disclosure Statement. As of the Closing, all financial
--------------------
information and projections contained in the disclosure statement for the
Plan and in the exhibits thereto are true and accurate.
5.1.19 Finality of Confirmation Order, etc. As of the Closing, the
------------------------------------
Plan has been duly confirmed by the Confirmation Order, which has been
entered by the Court and has become final and non-appealable. All of the
Loan Documents to be executed and delivered by the Borrower in connection
with this Agreement are within the scope of authority granted to the
Borrower under the Plan and Confirmation Order. No modifications,
supplements or
-28-
<PAGE>
corrections are required to the Plan or the Confirmation Order to grant the
Borrower authority to execute and deliver the Loan Documents.
5.1.20 Satisfaction of Conditions to Effective Date. All actions
--------------------------------------------
required to be taken and all conditions required to be satisfied for the
Effective Date to occur under the Plan have been taken and satisfied, with
the exception that the Merger will become effective contemporaneously with
the execution of this Agreement.
5.2 No Misrepresentations. No representation or warranty of the Borrower
---------------------
made herein or in any other Loan Documents, and none of such documents
themselves contains, or will contain, a misstatement by or on behalf of the
Borrower of a material fact or omits, or will omit to state a material fact
required to be stated herein or therein in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading in any respect.
5.3 Making of and Survival of Representations and Warranties. All
--------------------------------------------------------
representations and warranties of Borrower made herein and in the other Loan
Documents shall survive the execution and delivery of this Agreement.
6. AFFIRMATIVE COVENANTS.
---------------------
The Borrower hereby covenants to and agrees with the Bank that, until
indefeasible payment in full of all of the Obligations the Borrower will (unless
otherwise waived in writing by the Bank):
6.1 Existence. Do or cause to be done all things necessary to comply with
---------
all laws and regulations applicable the Borrower, and to preserve, renew and
keep in full force and effect (i) the corporate existence of the Borrower in its
place of incorporation and in all other jurisdictions where the Borrower
conducts business, and (ii) all rights, licenses, permits and franchises of the
Borrower.
6.2 Performance Covenants.
---------------------
6.2.1 Duly and timely comply with all the terms, conditions,
covenants and warranties set forth in this Agreement, the other Loan
Documents and the License Agreements, all at the times and places and in
the manner set forth herein and therein, and diligently protect the rights
of the Borrower and the Bank under such agreements where the failure to
protect such rights would have a material adverse effect on the Borrower's
or the Bank's interest therein;
-29-
<PAGE>
6.2.2 At all times maintain or cause to be maintained in favor of the
Bank the security interests provided for under or pursuant to the Loan
Documents as valid and perfected first priority security interests in the
Collateral, and valid and perfected security interests in the New
Collateral junior only to the senior lien therein of Ingram and purchase
money security interests, if any, therein.
6.2.3 Diligently and timely defend the Collateral and New Collateral
and the Bank's right therein against any and all Encumbrances (other than
Permitted Encumbrances).
6.3 Books, Records and Other Information. Maintain at all times true and
------------------------------------
complete books, records and accounts in which true and correct entries shall be
made of the Borrower's transactions in accordance with GAAP, including, without
limitation, books and records with respect to all costs and expenditures
incurred in connection with each Product. The Borrower shall allow any
representative of the Bank to (i) examine all books, records, documents
(including, without limitation, License Agreements and Rights-In Agreements) and
files of the Borrower relating to the Collateral and to make copies thereof, at
such reasonable times and on reasonable prior notice during business hours and
as often as the Bank may request, and (ii) confirm directly with account debtors
all accounts receivable of the Borrower relating to the Collateral (including
accounts and contracts receivable not reflected on the Borrower's consolidated
balance sheet in accordance with GAAP). The Borrower shall promptly furnish the
Bank with such information respecting the Products or any other Collateral or
New Collateral or other information as the Bank may from time to time reasonably
request.
6.4 Insurance.
---------
6.4.1 Procure, comply with all terms of, pay all premiums due on and
maintain in full force and effect so long as any sums shall remain owing
hereunder all insurance (with financially sound and reputable insurers
acceptable to the Bank) customary in the motion picture and television
industries for each Product, or necessary to adequately protect the
Collateral, including, without limitation, errors and omissions insurance,
negative and soundtrack insurance (except where such insurance is provided
by the laboratories at which Physical Materials are stored), other casualty
insurance, third party property damage insurance, third party liability
insurance, and all risk floaters.
6.4.2 Cause (i) all such above-described insurance to provide for the
benefit of the Bank that 30 days' prior written notice of suspension,
cancellation, termination, modification, non-renewal or lapse or material
change of coverage shall be given to the Bank; and (ii) all above-
-30-
<PAGE>
described insurance to name the Bank as the loss payee, an additional
insured or a named beneficiary (as the case may be);
6.4.3 Upon the request of the Bank, render a statement, in such
detail as the Bank may request, as to all such insurance coverage; and
6.4.4. If the Borrower fails to pay any premium required by such
insurance policies, the Bank may, in its sole discretion, pay the same and
an amount equal to such payment shall be deemed a Cost hereunder.
6.5 Notice of Events, Etc. Promptly give notice in writing to the Bank of
----------------------
(i) the occurrence of any Event of Default or Potential Event of Default; (ii)
any action or event of which the Borrower has knowledge which might materially
and adversely affect the condition (whether financial or otherwise) of the
Borrower and/or the performance by the Borrower of any of its obligations under
any Loan Document or the security interests granted under any Loan Document;
(iii) any change in the name, chief executive office or the location of the
accounts, books and records of the Borrower, and (iv) any proposed Modification
to any agreement for which the consent of the Bank is required.
6.6 Financial Information. Cause to be delivered to the Bank:
---------------------
6.6.1 As soon as practicable and in any event within 51 days after
the end of each fiscal quarter of each fiscal year of the Borrower an
unaudited balance sheet of the Borrower as at the end of such period and
the related statements of operations, stockholders' equity (deficiency) and
cash flow of the Borrower for such quarter setting forth in each case in
comparative form the figures for the corresponding periods of the previous
fiscal year, all in reasonable detail and certified by the Chief Financial
Officer of the Borrower that they fairly present the financial condition of
the Borrower as at the dates indicated and the results of its operations
for the periods indicated, subject to changes resulting from audit and
normal year-end adjustment;
6.6.2 As soon as practicable and in any event within 105 days after
the end of each fiscal year of the Borrower, balance sheets of the Borrower
as at the end of such year and the related statements of operations,
stockholders' equity (deficiency) and cash flow of the Borrower for such
fiscal year, setting forth in each case, in comparative form the figures
for the previous year, all in reasonable detail and (i) in the case of such
financial statements, accompanied by a report thereon of BDO Seidman or
other independent certified public accountants of recognized
-31-
<PAGE>
international standing selected by the Borrower which reports shall state
that such financial statements present fairly the financial position of the
Borrower as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years (except as otherwise stated therein) and
that the examination by such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and (ii) in the case of such financial statements, certified by
the chief financial or other senior officer of the Borrower, as applicable;
6.6.3 As soon as practicable and in any event within 30 days after
the end of each calendar month, a monthly statement comparing actual
collection of License Payments with projected collections.
6.7 Further Assurances. Duly execute and deliver, or cause to be duly
------------------
executed and delivered to the Bank such further agreements, documents,
instruments and information and do or cause to be done such further acts as may
be necessary or proper to evidence and/or perfect the security interests of the
Bank in the Collateral and New Collateral, to pursue rights or claims asserted
by the Bank against Turner relating to the Turner License Agreement or the
Turner Payments Assignment Agreement, or to otherwise carry out more effectively
the provisions and purposes of the Loan Documents as the Bank may from time to
time reasonably request.
6.8 Supporting Documents. Deliver to the Bank copies duly certified by
--------------------
representatives of the Borrower of any documents relating to the Products as the
Bank may reasonably request.
6.9 Payment of Obligations. Duly and punctually pay or cause to be paid
----------------------
all Obligations on the dates, at the places and in the manner set forth herein.
6.10 Rights in Products. As soon as any Product or any Literary Property
------------------
may be registered for copyright, take any and all actions as may be necessary to
register and/or cause to be registered all of the Borrower's rights in such
Product or Literary Property (subject to the Copyright Mortgages) including,
without limitation, the Borrower's rights in the copyrights thereof, all in
conformity with the laws of the United States and any and all relevant foreign
jurisdictions; and immediately deliver to the Bank written evidence of each such
filing for (and actual) registration of such rights, which rights shall
constitute part of the Collateral under the Loan Documents; and as soon as
practicable, execute and record or cause to be recorded all of the Copyright
Mortgages in conformity with the laws of the Untied States and any and all other
relevant jurisdictions, and immediately deliver to the Bank written
-32-
<PAGE>
evidence of the submission thereof for recording (and as soon as available, a
recorded copy of each such Copyright Mortgage).
6.11 Laboratories; No Removal. To the extent the Borrower has control over
------------------------
or rights to receive any of the physical elements of any Product, deliver or
cause to be delivered to a laboratory or laboratories all negative and preprint
material and all soundtrack material with respect thereto and prior to
requesting any such laboratory to deliver such negative or other preprint or
soundtrack material to another laboratory, the Borrower shall to the extent
necessary in the sole discretion of the Bank provide the bank with a Laboratory
Pledgeholder Agreement (and/or if applicable, Laboratory Authorization Letter)
executed by the Borrower and such other laboratory. The Borrower hereby agrees
that without the prior written consent of the Bank, the Borrower shall not
remove or cause the removal of any negative or preprint film material or sound
materials with respect to any Product (i) to a location outside the United
States or (ii) to any State where UCC-1 financing statements have not been filed
against the Borrower for the benefit of the Bank describing the Collateral.
6.12 Trademarks, Service Marks, Etc. Promptly notify the Bank upon each
-------------------------------
registration or application for registration of any intangible rights including,
but not limited to, all trademarks, tradenames, logos, service marks, patents
and service names relating to any Product.
6.13 Trade Names and Trade Styles. Promptly notify the Bank of any
----------------------------
addition or change to any of the Borrower's trade names or trade styles.
6.14 Compliance With Laws. At all times comply with the requirements of
--------------------
all applicable laws, rules, regulations and orders of all governmental
authorities of the United States, the States, foreign countries, states,
provinces thereof and their respective counties, municipalities and other
subdivisions and of any other jurisdictions (whether domestic or foreign)
applicable to the Borrower.
6.15 Taxes and Claims. Timely file all tax returns and reports required to
----------------
be filed by the Borrower; and duly pay and discharge (i) all taxes, assessments
and governmental charges upon or against the Borrower or the Collateral or New
Collateral or any portion thereof prior to the date on which penalties attach
thereto, unless and to the extent that the same are being diligently contested
in good faith by appropriate proceedings promptly instituted and appropriate
reserves therefor as required by GAAP have been established so long as by reason
of such non-payment and contest no material item or portion of the assets of the
Borrower is in jeopardy of being seized, levied upon or forfeited, and (ii) all
lawful claims, including but not limited to, those for labor, materials,
supplies, services or anything
-33-
<PAGE>
else which might or could if unpaid become an Encumbrance upon any portion of
the Collateral, unless and to the extent that the same are being diligently
contested in good faith by appropriate proceedings and appropriate reserves or
other appropriate provision promptly instituted as shall be required in
conformity with GAAP therefor have been established so long as by reason of such
non-payment and contest no material item or portion of the assets of the
Borrower is in jeopardy of being seized, levied upon or forfeited.
6.16 Notice of Litigation. Promptly give notice in writing to the Bank of
--------------------
all actual or threatened litigation to which the Borrower is (or may become) a
party, including any arbitration or other controversy, claim, suit or other
proceeding of which the Borrower has knowledge which may materially and
adversely affect the Borrower, the Collateral, the New Collateral, the
exploitation of any Product or the Bank's rights in the Collateral or New
Collateral and/or under any of the Loan Documents, and furnish to the Bank from
time to time all information reasonably requested by the Bank concerning the
status of any such litigation, arbitration or other proceeding.
6.17 Discharge of Liabilities. Do or cause to be done all things necessary
------------------------
to ensure that all costs, expenses, obligations and liabilities of the Borrower
including, without limitation, all costs of developing, producing and exploiting
the Products, shall be discharged as and when they fall due except costs being
diligently contested in good faith for which appropriate reserves and provisions
as required by GAAP have been made, so long as by reason of such non-payment and
contest no material item or portion of the assets of the Borrower is in jeopardy
of being seized, levied upon or forfeited.
6.18 Progress of Products. The Borrower shall (i) upon the request of the
--------------------
Bank, keep the Bank fully informed of the progress of the development,
production and distribution or other exploitation of each Product, (ii) deliver
to the Bank copies of all License Agreements and such other documents relating
to the development, production or exploitation of each Product or otherwise
relating to the Collateral as the Bank may request, and (iii) answer all
inquiries of, supply full details to, the Bank of financial and other matters
relating thereto as requested by the Bank.
6.19 Miscellaneous Collateral. Promptly (i) cause all License Payments to
------------------------
be paid by account debtors directly into the Master Collection Account, and (ii)
upon the occurrence and continuation of an Event of Default, deliver to the Bank
all cash and cash equivalents (including, without limitation, any and all
proceeds of License Payments), drafts, checks, certificates of deposit, notes,
bills of exchange or other writings which evidence a right of the Borrower to
the payment of any money
-34-
<PAGE>
arising out of or relating to the Master Collection Account, License Agreements,
and/or the Products.
6.20 SEC Filings. Promptly upon their becoming available, furnish the Bank
-----------
with copies of all financial statements, reports, notices and proxy statements
sent or made available generally by the Borrower to any of its security holders,
of all regular and periodic reports and all registration statements and
prospectuses, if any, filed by the Borrower with any national or regional
securities exchange, any inter-dealer quotation system (including, without
limitation, the National Association of Securities Dealers, Inc.) or with the
SEC or any governmental authority succeeding to any of its functions or similar
authority (whether governmental or otherwise) in any other jurisdiction and of
all press releases and other statements made available generally by the Borrower
to the public concerning material developments in the business of the Borrower.
6.21 Library Sales Agent. On or before January 31, 1997, the Borrower
-------------------
shall employ a sales agent reasonably satisfactory to the Bank on terms and
conditions reasonably satisfactory to the Bank to continue the exploitation of
the Products. The Bank has approved the retention of October Films as sales
agent for purposes of this Section 6.21, subject to the Borrower's providing the
Bank with a written agreement for such retention reasonably satisfactory to the
Bank.
6.22 Future Exploitation of the Products. All future sales or other
-----------------------------------
exploitation of the Products shall be pursuant to written agreements in the form
of the "Approved License Agreements" approved in the Original Agreement, or such
other written agreements as may be approved by the Bank, which approval shall
not be unreasonably withheld.
6.23 Collection of License Payments. The Borrower shall continue to
------------------------------
collect License Payments and make payments therefrom to the Bank in accordance
with section 2.2.4 hereof, and shall collect at least the following amounts of
License Payments during the following periods, calculated by deposits into the
Master Collection Account:
<TABLE>
<CAPTION>
Quarter Minimum Collections
------------------- -------------------
<S> <C>
First quarter 1997 $400,000
Second quarter 1997 $400,000
Third quarter 1997 $800,000
Fourth quarter 1997 $ 75,000
First quarter 1998 $160,000
Second quarter 1998 $200,000
</TABLE>
-35-
<PAGE>
The Bank's share of the Bough Breaks II Producer's Fee shall not be counted
against the minimum collections required above. Any collections during a
quarter in excess of the minimum requirement for such quarter shall be credited
against the minimum amount required for the following quarter. In the event of
a shortfall from the minimum in any quarter, the Borrower shall have 60 days
from the end of such quarter in which to cure such shortfall by application of
collections during such 60 days. Any collections applied to cure a shortfall
for a preceding quarter shall not be counted in the calculation of collections
for the quarter in which such collections were made.
6.24 Intercreditor Agreement With Ingram. The Borrower shall cooperate
-----------------------------------
fully with the Bank and provide such assistance to the Bank as the Bank may
reasonably request in connection with the negotiation of all intercreditor
agreements or other agreements with Ingram that the Bank deems necessary or
advisable.
7. NEGATIVE COVENANTS.
------------------
The Borrower hereby covenants to and agrees with the Bank that, until
indefeasible payment in full of all of the Obligations, the Borrower will not
directly or indirectly without the prior written consent of the Bank:
7.1 Encumbrances. Create, incur, assume or suffer to exist (i) any
------------
Encumbrance upon the Collateral except for Permitted Encumbrances, or (ii) any
Encumbrance upon the New Collateral that is senior to the lien of the Bank
therein except for (a) the senior lien of Ingram therein, or (b) purchase money
security interests.
7.2 Prohibition of Modifications. Modify or permit or suffer to occur any
----------------------------
Modification (i) to any License Agreement, or (ii) to any other agreement to
which the Borrower is a party or which requires the consent or approval of the
Borrower to Modify that would materially and adversely (a) affect the condition
(financial or otherwise) of the Borrower, (b) lessen the ability of the Borrower
to perform its obligations under any Loan Document, (c) lessen any of the rights
granted to the Bank under any Loan Document, (d) affect the Collateral or New
Collateral, and/or (e) affect the Bank's interest in the Collateral or New
Collateral.
7.3 Affiliated Transactions. During a continuing Event of Default, deal
-----------------------
with any Affiliate on terms that are less favorable to the Borrower than those
that might be obtained from unaffiliated third parties.
-36-
<PAGE>
7.4 Place of Business. Take any action with a view toward establishing,
-----------------
or in fact establish, a new place of business outside of the state of
California, or change the name (or conduct business other than under the current
name) of the Borrower, without in each case giving the Bank at least thirty (30)
days prior written notice of such action.
7.5 Title of Products. Change or permit a change of the title of any
-----------------
Product without first providing the Bank with at least thirty (30) days' prior
written notice of the proposed change of title.
7.6 License Agreements. Enter into or agree to be bound in any way by any
------------------
License Agreement with any distributor or licensee who will not execute and
deliver to the Bank an Acknowledgement covering all License Payments relating to
such License Agreement.
7.7 Financial Performance. Fail to reflect in any balance sheet,
---------------------
statement, report, accounting or analysis provided to the Bank under sections
6.6.1 or 6.6.2 hereof a minimum of $100,000 in profits on a quarterly basis
(pre-tax and calculated in accordance with generally accepted accounting
methods) or a minimum of $750,000 in profits for each fiscal year (pre-tax and
before reduction for any accelerated write-downs of the value of the Collateral,
or extraordinary reduction, relating to amortization of existing video cassette
inventory, calculated in accordance with generally accepted accounting methods).
7.8 Restricted Payments. Make any Restricted Payment during a continuing
-------------------
Event of Default.
8. EVENTS OF DEFAULT.
-----------------
An "Event of Default" shall mean the occurrence of any of the following
Events:
8.1 A default in the payment when due and in the manner prescribed herein
of any installment of Principal or Interest or any other Obligation and such
default shall continue for ten (10) calendar days.
8.2 The failure, refusal or neglect of the Borrower to observe or perform
for any reason any of the material covenants, conditions, agreements or
provisions contained in any Loan Document, or in any of the other agreements or
instruments referenced herein or contemplated hereby (other than the payment of
Obligation of which the failure to pay constitutes an Event of Default described
in Section 8.1 hereof) or to execute and deliver any documents, agreements or
instruments requested by the Bank hereunder or thereunder, provided that if such
failure, refusal or neglect is capable of remedy the Borrower shall be entitled
to cure the same within 30 days of the Borrower's
-37-
<PAGE>
receipt of written notice from the Bank of the occurrence of such failure,
refusal or neglect.
8.3 Any material representation or warranty made by the Borrower in any
Loan Document, or any report, certificate, financial statement or other
instrument furnished by or on behalf of the Borrower in connection with any Loan
Document shall prove to have been false or misleading in any material respect.
8.4 A default or breach (without regard to any notice or period of cure)
with respect to the payment of (i) any indebtedness of the Borrower to Ingram,
or (ii) any indebtedness for borrowed money of the Borrower to any third party
when due or in performance of any other obligation incurred in connection with
any such indebtedness for borrowed money by the Borrower which accelerates any
such indebtedness and would have a material adverse effect upon the Collateral
or New Collateral or the Borrower's ability to fully and timely perform all of
its Obligations under the Loan Documents.
8.5 The Bank shall cease to have valid and perfected first priority
security interests at any time for any reason in the Collateral or any portion
thereof, or shall cease to have a valid and perfected security interest (junior
only to the senior lien of Ingram and purchase money security interests, if any)
at any time for any reason in the New Collateral or any portion thereof.
8.6 If any judgment against the Borrower or any of its property or assets
which would or might materially and adversely affect (i) its ability to perform
its obligations or under any Loan Document, any License Agreement or any other
material agreement to which the Borrower is a party, and/or (ii) the overall
value of Collateral and the New Collateral and/or the Bank's rights therein,
remains unpaid, unstayed or undismissed for a period of more than 30 days.
8.7 The Borrower shall be dissolved or shall sustain the loss,
cancellation or forfeiture of its legal status or good standing by reason of any
judicial, extra-judicial or administrative proceedings or otherwise, or shall
(i) apply for or consent to the appointment of a receiver, trustee or liquidator
of the Borrower or of all or a substantial part of the Borrower's assets; (ii)
be unable to, or admit in writing its inability to, pay its debts as they
mature; (iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent; (v) file a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization or an arrangement for the
benefit of creditors or take advantage of any insolvency law in its capacity as
a debtor; (vi) interpose an answer admitting the material allegations of the
petition filed against the Borrower in any bankruptcy, reorganization or
insolvency proceedings; (vii) take any action which would have the effect of
dissolving the Borrower (or a stockholder thereof
-38-
<PAGE>
takes any such action); or (viii) take any action for the purpose of effecting
any of the foregoing.
8.8 Any (i) involuntary petition is filed against the Borrower seeking to
subject the Borrower to any bankruptcy, insolvency or similar laws and such
petition shall remain unstayed or not be withdrawn for a period of thirty (30)
days; or (ii) an order, judgment or decree shall be entered against the Borrower
by any court of competent jurisdiction approving a petition seeking its
reorganization or appointment of a receiver, trustee or liquidator of the
Borrower or of all or a substantial part of its assets and such order, judgment
or decree shall continue and stay in effect for a period of thirty (30) days.
8.9 A material adverse change in the business, assets, condition
(financial or otherwise, and whether progressive, sudden or otherwise) of the
Borrower which would or might materially and adversely affect (i) the ability of
the Borrower to perform its obligations under any Loan Document, any License
Agreement or any other material agreement to which the Borrower is a party,
and/or (ii) the overall value of the Collateral and the New Collateral and/or
the Bank's rights therein.
8.10 Any Loan Document, at any time after its execution in delivery and for
any reason other than the agreement of the Bank or satisfaction in full of all
the Obligations of the Borrower thereunder, ceases to be in full force in 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 Loan Document, or purports to revoke,
terminate or resend same.
8.11 The Borrower shall claim that any Loan Document is ineffective or
unenforceable, in whole or in part, for any reason.
9. REMEDIES; APPLICATION OF PROCEEDS.
---------------------------------
9.1 The Bank may, upon the occurrence of an Event of Default, exercise any
one or more of the following rights and remedies:
9.1.1 Declare the Amended and Restated Note and all Obligations to be
forthwith due and payable, whereupon all such Obligations shall be
accelerated and shall become immediately due and payable without
presentation, demand or notice of any kind to the Borrower (all of which
are hereby waived by the Borrower), except that if an Event of Default
specified in Sections 8.7 or 8.8 shall occur with respect to the Borrower,
such acceleration shall be automatic and no declaration or other act of any
of the Bank shall be necessary to effect such acceleration;
-39-
<PAGE>
9.1.2 Proceed to protect and enforce the rights of the Bank to
payment of Obligations and its rights to proceed against the Collateral and
the New Collateral and exercise it remedies whether by suit in equity or by
action at law, or both, whether for the specific performance of any
covenant, agreement or other provision of any of the Loan Documents or any
other legal or equitable right or remedy of the Bank;
9.1.3 In addition to those actions that may otherwise be permitted to
be taken by the Bank under any of the Loan Documents, with respect to the
Collateral and the New Collateral, take the following actions:
9.1.3.1 Collections, Etc. The Bank may demand, sue for,
-----------------
collect or receive, in the name of the Bank or in the name of the
Borrower, or otherwise, any money or property at any time payable or
receivable on account of or in exchange for, or make any compromise or
settlement deemed desirable with respect to, any of the Collateral and
the New Collateral (but the Bank shall be under no obligation to do
so), or extend the time of payment, arrange for payment in
installments, or otherwise modify the term of, or release, any of the
Collateral and the New Collateral, without thereby incurring
responsibility to discharge, or discharging, or otherwise affecting
any liability of the Borrower. The Bank shall not be required to take
any steps to preserve any rights against other parties to the
Collateral and the New Collateral. The Bank may (but is not obligated
to) make such payments and take all such actions as the Bank deems
necessary to protect the Bank's security interest in the Collateral
and the New Collateral and/or the value thereof, and the Bank is
hereby authorized (without limiting the general nature of the
authority hereinabove conferred) to pay, purchase, contest or
compromise any Encumbrance; and
9.1.3.2 Possession and Sale of Collateral, Etc. The Bank
---------------------------------------
may exercise in respect of the Collateral and the New Collateral, all
other rights and remedies hereunder and all the rights and remedies of
a secured party under the Code. In addition, the Bank may notify any
and all account debtors of the Borrower to make all further License
Payments to the Bank, and enter upon each premises of wherever the
Collateral and/or the New Collateral may be and take possession of the
Collateral and/or the New Collateral and demand and receive such
possession from any Person who has possession thereof; and take such
measures as it may deem necessary or proper for the care or protection
thereof, including the right to remove all or any portion of the
Collateral and the New Collateral (but
-40-
<PAGE>
the Bank shall not be obligated to do so). With or without taking
such possession, the Bank may sell or cause to be sold, whenever the
Bank shall decide, in one or more sales or parcels, and at such price
or prices and upon such other terms as the Bank may deem commercially
reasonable (irrespective of the impact of any such sales on the market
price of such assets), and for cash or on credit or for future
delivery, without assumption of any credit risk, all or any portion of
the Collateral and the New Collateral at any broker's board or at
public or private sale. The Bank may be the purchaser of any or all
of the Collateral and New Collateral so sold and shall be entitled,
for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of such assets sold at any such
public or private sale, to use and apply any or all of the Obligations
as a credit on account of the purchase price payable by the Bank at
such sale. Each purchaser (including the Bank) at any such sales
shall thereafter hold the Collateral and/or the New Collateral
purchased absolutely free from any claim or right of whatever kind,
including any equity of redemption of the Borrower, any such demand,
notice, claim, right and equity being hereby expressly waived and
released. The Borrower agrees that, to the extent notice of sale
shall be required by law, at least ten (10) Business Days' notice of
sale to the Borrower of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. The Bank shall not be obligated to make any
sale of the Collateral or the New Collateral regardless of notice of
sale having been given. The Bank may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice be made at the
time and place to which it has so adjourned. The Borrower hereby
waives any claims against the Bank arising by reason of the fact that
the price at which any Collateral or New Collateral may have been sold
at such a private sale was less than the price which might have been
obtained at a public sale, even if the Bank accepts the first offer
received and does not offer such Collateral or New Collateral to more
than one offeree; and
9.1.4 The Bank may exercise all other rights and remedies available
at law or in equity (or both) pursuant to any applicable law, statute, rule
or regulation.
9.2 Appointment of Laboratory as Pledgeholder. Any laboratory which has
-----------------------------------------
possession of any of the Collateral is hereby constituted and appointed by the
Borrower as pledgeholder for the Bank and upon the occurrence of any Event of
Default,
-41-
<PAGE>
each such pledgeholder is hereby authorized to sell all or any portion of the
Collateral upon the order and direction of the Bank and the Borrower hereby
waives any and all claims for damages or otherwise for any action taken by such
pledgeholder.
9.3 Appointment of a Receiver. Upon the occurrence of an Event of Default
-------------------------
the Bank shall be entitled to the appointment of a receiver, to take possession
of all or any portion of the Collateral and the New Collateral and to exercise
such powers as the court shall confer upon the receiver.
9.4 Power of Attorney. The Borrower does hereby irrevocable make,
-----------------
constitute, and appoint the Bank and its officers and designees as its true and
lawful attorney-in-fact, with full power in the name of the Bank and/or the
Borrower, to take the following actions upon the occurrence of an Event of
Default: to receive, open and dispose of all mail addressed to the Borrower;
and to endorse any notes, checks, drafts, money orders or other evidence of
payment relating to the Collateral and/or the New Collateral that may come into
the possession of the Bank with full power and right to cause the Borrower's
mail to be transferred to the Bank's own officers or otherwise; and to do any
and all other acts necessary or proper to carry out the intent of this
Agreement; to enforce all of the Borrower's rights under and pursuant to all
agreements with respect to the Collateral and/or the New Collateral, all for the
sole benefit of the Bank, and to enter into such other agreements as may be
necessary to complete the distribution, delivery and exploitation of the
Products, to enter into and perform such agreements as may be necessary in order
to carry out the terms, covenants, and conditions of this Agreement which are
required to be observed or performed by the Borrower, to execute such other and
further mortgages, pledges and assignments of the Collateral and/or the New
Collateral as the Bank may require for the purpose of protecting, maintaining,
or enforcing the security interests granted to the Bank by this Agreement and
the other Loan Documents, and to do any and all other things necessary or proper
to carry out the intention of this Agreement and the other Loan Documents; and
the Borrower hereby ratifies and confirms all that the Bank as such attorney-in-
fact or its substitutes shall properly do by virtue of this power of attorney.
Such powers of attorney are coupled with an interest and are therefore
irrevocable.
9.5 Rights and Remedies Cumulative; Limitation Regarding New Collateral.
-------------------------------------------------------------------
No right or remedy conferred upon the Bank herein or in any of the other Loan
Documents or otherwise available at law or in equity (or both) shall be
exclusive of any other right or remedy contained herein or therein or otherwise
made available. All such rights and remedies are cumulative and are not
exclusive of any right or remedy which the Bank may otherwise have. All such
rights and remedies shall be subject to the first priority lien of Ingram in the
New Collateral.
-42-
<PAGE>
9.6 Application of Proceeds After Event of Default. After the occurrence
----------------------------------------------
of an Event of Default, all Collateral and/or New Collateral in the form of
cash, all income on the Collateral and/or the New Collateral and all proceeds
from any sale or other disposition of the Collateral and/or the New Collateral
pursuant hereto shall be applied (in such order as the Bank shall in its sole
discretion determine) as follows:
9.6.1 To the payment of all Costs and to all other costs or expenses
incurred in connection with any sale of the Collateral and/or the New
Collateral, including, but not limited to, all court costs and the fees and
expenses of counsel for the Bank in connection therewith, to the extent
that such advances, costs, or expenses shall not have been paid previously
to the Bank;
9.6.2 To the payment of Interest;
9.6.3 To the repayment of Principal;
9.6.4 To the repayment of all other sums, liabilities and obligations
then owing by the Borrower to the Bank under any other agreements or
instruments.
Any amounts remaining after such applications shall be remitted to the
Borrower or as a court of competent jurisdiction may otherwise direct.
10. CONDITIONS PRECEDENT.
--------------------
The obligations of the Bank to consummate the transactions
contemplated herein on the Closing Date shall be subject to the performance of
the Borrower of all of its covenants to be performed hereunder, to the accuracy
of the representations and warranties herein contained, and to the fulfillment
to the satisfaction of the Bank in its sole and absolute discretion, on or
before the Closing Date, of each of the following conditions, unless waived in
writing by the Bank in its sole and absolute discretion:
10.1 Conditions to be Fulfilled by Borrower. Concurrently with the
--------------------------------------
execution of this Agreement, the Borrower shall have complied with each of the
following conditions precedent to the satisfaction of the Bank in its sole and
absolute discretion, unless otherwise waived in writing by the Bank in its sole
and absolute discretion:
10.1.1 Supporting Documents of the Borrower. The Bank shall have
------------------------------------
received certificates of a senior executive officer of the Borrower
acceptable to the Bank certifying: (i) that attached thereto is a true and
complete copy of resolutions of the board of directors of the Borrower
authorizing (x) the Borrower's performance of all of its
-43-
<PAGE>
obligations under the Loan documents, (y) the entering into by the Borrower
of all Loan Documents to which the Borrower is a party, and (z) the
execution and delivery by an officer of the Borrower of all of the Loan
Documents to which the Borrower is a party; (ii) that attached thereto are
true and complete copies of the certificate of incorporation, the by-laws
or other corporate formation, charter or governance documents of the
Borrower together with all amendments thereto; and (iii) that the
representations and warranties set forth in Section 5 hereof are true and
correct.
10.1.2 Good Standing Certificates. The Bank shall have received from
--------------------------
the Borrower good standing certificates, dated as of a recent date, issued
by the Office of the Secretary of State or other appropriate governmental
authority of (i) the jurisdiction of incorporation of the Borrower, and
(ii) all other jurisdictions where the Borrower is qualified to do
business, in each case indicating that the Borrower is in good standing.
Where applicable, such good standing certificates shall list the
certificate of incorporation or other corporate formation, charter or other
governance documents, all amendments thereto and all other certificates and
documents filed which relate to the Borrower.
10.1.3 The Amended and Restated Note. The Amended and Restated Note
-----------------------------
shall have been duly executed by the Borrower and delivered to the Bank.
10.1.4 Opinions of Counsel for the Borrower. The Bank shall have
------------------------------------
received the favorable written opinions, addressed to the Bank and
satisfactory in form, scope and substance to the Bank and its counsel, of
counsel to the Borrower.
10.1.5 Security Instruments. The Bank shall have received (i) the
--------------------
agreements and documents set forth in Section 4.4 hereof, and (ii) evidence
of the completion of all recordings and filings as may be necessary or, in
the opinion of the Bank, desirable to perfect and/or continue the
perfection of the security interests created by the Loan Documents
including, but not limited to, any copyright filings and financing
statement filings and no report shall have been obtained by the Bank
listing the Borrower (by its present name or any previous name) as a debtor
and evidencing an Encumbrance on any of the Collateral or the New
Collateral (other than Permitted Encumbrances).
10.1.6 Insurance. The Bank shall have received such policies,
---------
binders, endorsements and certificates as it may request in its sole and
absolute discretion, to evidence the Borrower's compliance with the
insurance requirements of Section 6.4 hereof.
-44-
<PAGE>
10.1.7 Approvals. The Borrower shall have procured the consents and
---------
approvals from all United States, State, provincial, municipal and foreign
governmental agencies and authorities as are necessary to consummate the
transactions contemplated by this Agreement, the Loan Documents and any
other agreements or documents referred to or contemplated herein or
therein.
10.1.8 Evidence of Merger and New Collateral Ownership; Lien Thereon.
-------------------------------------------------------------
The Borrower shall have provided the Bank with evidence satisfactory to the
Bank that, as of the Closing, (i) the merger contemplated by the Plan has
been or shall contemporaneously therewith be consummated, (ii) that the
Borrower is the owner of the New Collateral, and (iii) that the Bank has a
second priority lien (junior only to the first lien of Ingram) on the New
Collateral and a first priority lien on the Collateral.
10.1.9 The Borrower shall have provided to the Bank, prior to or at
the Closing, the schedules described in sections 5.1.8, 5.1.10, 5.1.11,
5.1.15, and 5.1.16 hereto.
10.1.10 Additional Documents. The Bank shall have received such
--------------------
additional documents, agreements and certificates as the Bank may request
in its sole and absolute discretion.
10.2 Representations and Warranties True. The representations and
-----------------------------------
warranties of the Borrower contained in Section 5 hereof shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on the Closing.
10.3 Effective Date Not Later Than January 31, 1997. The Effective Date of
----------------------------------------------
the Plan shall have occurred not later than January 31, 1997.
10.4 Entry of Necessary Court Orders. The Bank shall have received a
-------------------------------
conformed copy of the entered order confirming the Plan and a conformed copy of
the Plan as confirmed.
11. INDEMNIFICATION.
---------------
11.1 The Borrower agrees to, and hereby does, indemnify, pay and hold the
Bank and its officers, directors, employees and agents (collectively called the
"Indemnitees") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs (including,
without limitation, settlement costs and payments), expenses, fines and
disbursement of any kind or nature whatsoever, known or unknown, contingent or
otherwise (including, without limitation, the fees and disbursements of counsel
for such Indemnitees in
-45-
<PAGE>
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against that Indemnitee, arising out of,
or in any way related to, the Bank entering into this Agreement, or the Original
Loan Documents (including without limitation, any and all sums, losses and costs
incurred by the Bank pursuant to its indemnification obligations under the
Laboratory Pledgeholder Agreements)(the "Indemnified Liabilities"), except any
Indemnified Liabilities resulting solely from the gross negligence or willful
misconduct of the Bank. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in the preceding sentence may be unenforceable
because it violates any law or public policy, the Borrower shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them.
11.2 In the event that any suit, action, investigation, claim or proceeding
is begun, made or instituted as a result of which the Borrower may become
obligated to any Indemnitee hereunder, the Borrower agrees to defend, contest or
otherwise protect against any such suit, action, investigation, claim or
proceeding at their sole cost and expense, using counsel acceptable to the
Indemnitee. Each Indemnitee shall have the right, but not the obligation, to
participate, at its own expense, in the defense thereof by counsel of its
choice. In the event that the Borrowers fail timely to so defend, contest or
otherwise protect, the Indemnitee shall have to right to do so, including,
without limitation, the right to make any compromise or settlement thereof on
behalf of the Borrowers, and to recover all attorneys' fees, disbursements and
all amounts paid as a result thereof.
11.3 The indemnification contained in this Section 11 shall survive the
termination of the other provisions of this Agreement and the repayment of all
of the Obligations, and shall constitute separate and independent obligation of
the Borrower from its other obligations under this Agreement.
12. NOTICES.
-------
All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly give if telecopied or if delivered by messenger or courier delivery,
or sent by first class mail (or air mail where available), postage prepaid,
certified or registered, return receipt requested, as set forth below or at such
other address as may be furnished in writing:
-46-
<PAGE>
If to the Borrower:
------------------
Video City, Inc.
6851 McDivitt Drive
Suite A.
Bakersfield, California 93313
Attention: Robbie Lee, Chief Executive Officer
Barry Collier, President
Telecopier No.: (805) 397-5982
With a copy to:
--------------
Loeb & Loeb
1000 Wilshire Boulevard
18th Floor
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Telecopier No.: (213) 688-3460
If to the Bank:
--------------
Imperial Bank
9920 South La Cienega Boulevard
Suite 623
Inglewood, California 90301
Attention: Cyndee Herles, Vice President
Telecopier No.: (310) 338-6160
With a copy to:
--------------
Sidley & Austin
555 West Fifth Street
40th Floor
Los Angeles, California 90013
Attention: Richard W. Havel and Stanley J. Wallach
Telecopier No.: (213) 896-6600
Any notice given by messenger or courier delivery as provided in this Section 12
shall be deemed given when delivered if during normal business hours on a
Business Day (or if not, the next Business Day after delivery); any notice given
by telecopiers as provided herein shall be deemed given when sent if during
normal business hours on a Business Day (or, if not, the next Business Day after
it is sent), provided that at the time such telecopy is sent, the sending party
receives written confirmation of receipt and forwards a copy of the notice by
mail, messenger or courier delivery as provided herein; any notice given by
first class mail (or air mail where available), postage prepaid, certified or
registered, return receipt requested shall be deemed given five (5) Business
Days after the date of mailing. Any party may by notice to the other change the
address at which notices and demands may be given to it.
-47-
<PAGE>
13. MISCELLANEOUS.
-------------
13.1 No Waiver. No failure or delay on the part of the Bank in notifying
---------
the Borrower of an Event of Default or Potential Event of Default, or in
exercising, or partial exercise of, any right, power or privilege hereunder
shall operate as a wavier of any Event of Default, Potential Event of Default,
or privilege or right hereunder or otherwise or preclude any other or further
exercise of any other right power or privilege.
13.2 Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
subject to, construed and governed by, the laws of the State of California
without giving effect to such state's conflicts of law provisions. This
Agreement may not be assigned, pledged, hypothecated or otherwise encumbered by
the Borrower. Subject to the foregoing sentence, this Agreement shall inure to
the benefit of the Bank (and its successors and assigns) and the Borrower, and
shall be binding upon the successors and assigns of the parties hereto.
13.3 Submission to Jurisdiction and Waiver of Jury Trial Rights.
----------------------------------------------------------
13.3.1 THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS OF THE SUPERIOR COURT OF LOS ANGELES COUNTY, STATE OF
CALIFORNIA, AND THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT
OF CALIFORNIA (THE "CALIFORNIA COURTS"), FOR THE PURPOSES OF ANY SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR
THE SUBJECT MATTER HEREOF BROUGHT BY THE BANK. THE BORROWER TO THE EXTENT
PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY
WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF THE CALIFORNIA COURTS, THAT ITS PROPERTY
IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT
MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND (B) HEREBY
WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY
OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR
OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. THE BORROWER HEREBY CONSENTS
TO SERVICE OF PROCESS BY MAIL AT ITS ADDRESS TO WHICH NOTICES ARE TO BE
GIVEN PURSUANT TO SECTION 12 HEREOF. THE BORROWER AGREES THAT ITS
SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS
MADE FOR THE EXPRESS BENEFIT OF THE BANK. FINAL JUDGMENT AGAINST THE
BORROWER IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND
MAY BE ENFORCED IN THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTIONS (A)
BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF
-48-
<PAGE>
WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF
INDEBTEDNESS OR LIABILITY OF THE BORROWER THEREIN DESCRIBED OR (B) IN ANY
OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF THE STATE OF CALIFORNIA
OR SUCH OTHER JURISDICTIONS. NOTWITHSTANDING THE FOREGOING, THE BANK MAY
AT ITS OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST
THE BORROWER OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE
UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE BORROWER OR SUCH ASSETS
MAY BE FOUND.
13.3.2 TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE
WAIVED, THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE, AND COVENANT
THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE),
ANY RIGHT TO A TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHT, POWER OR REMEDY OR DEFEND AGAINST ANY ISSUE, CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION OR PROCEEDING UNDER, IN CONNECTION WITH, ARISING OUT OF
OR BASED UPON THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE BORROWER ACKNOWLEDGES
THAT IT HAS BEEN INFORMED BY THE BANK THAT THE PROVISIONS OF THIS SECTION
CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE BANK HAS RELIED, IS RELYING
AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER LOAN DOCUMENTS
AND HONORING ITS COMMITMENTS. THE BANK MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE BORROWER TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
13.4 Headings. Section headings are included for the sake of convenience
--------
only and shall not affect the interpretation of any provision of this Agreement.
13.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original Agreement, but all of
which together shall constitute one and the same instrument.
13.6 Entire Agreement. The Loan Documents and all other agreements and
----------------
documents referred to herein set forth the entire agreement and understanding of
the parties concerning the subject matter of this Agreement and supersede all
prior agreements, arrangements, and understandings regarding such subject matter
between the parties hereto, which agreements, arrangements and understandings
are merged herein.
13.7 Costs. Subject to Section 2.3 hereof, the Borrower agrees to pay all
-----
out-of-pocket costs and expenses incurred by the Bank in connection with the
transactions hereby contemplated
-49-
<PAGE>
and the preparation, negotiation, execution and delivery of this Agreement, the
other Loan Documents and any other documentation contemplated hereby or thereby.
After the Closing, the Borrower shall pay all out-of-pocket costs and expenses
incurred by the Bank in connection with any administration, waiver or
Modification of the Loan Documents and/or the enforcement or protection of the
rights of the Bank in connection therewith, including but not limited to, any
fees and disbursements of counsel for the Bank, fees and expenses of technical
or other consultants engaged by the Bank as well as all out-of-pocket costs and
expenses incurred by the Bank in connection with any action which may be
instituted by any Person against the Bank in respect of the foregoing. The
Borrower agrees that it shall indemnify the Bank from and hold it harmless
against any documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or any other
Loan Document. The obligation of the Borrower under this Section shall survive
the termination of this Agreement and/or the payment of the Obligations.
13.8 Release. The Borrower, for itself and on behalf of its predecessors,
-------
successors and assigns (collectively, the "Borrower Releasors"), does hereby
forever release, discharge, and acquit the Bank and its past and present
employees, agents, officers, directors, predecessors, successors and assigns,
(collectively, the "Bank Releasees") of and from any and all rights, claims,
causes of action, contracts, agreements, duties, demands, or liabilities
whatsoever of every kind and nature, including without limitation any so-called
"lender liability" claims or defenses, at law or in equity, known or unknown,
matured or unmatured, foreseeable or unforeseeable (collectively, "Claims"),
which the Borrower Releasors have, ever had, or may have had prior to the
Closing against the Bank Releasees by reason of any liability, act, omission,
matter, thing or circumstance arising out of or related to the execution,
administration and enforcement of the Original Loan Documents, and the assertion
and treatment of the Bank's claims in the chapter 11 cases. The Borrower
represents and warrants that there has been no assignment or other transfer of
any interest in any Claim which it may have against any of the Bank Releasees
and which was released by this Agreement, and the Borrower agrees to indemnify
and hold harmless the Bank Releasees, and each of them, from any Claims,
including attorneys' fees, incurred by the Bank Releasees, or any of them, as a
result of any person asserting any such assignment or transfer or any rights or
Claims under any such assignment or transfer. The Borrower acknowledges that
there is a risk that subsequent to the execution of this Agreement, the Borrower
will discover or suffer damage, loss or injury to persons or property which is
in some way caused by or connected with the Claims, but which is unknown or
unanticipated at the time of the execution of this Agreement. The Borrower does
hereby specifically assume such risk and agrees that this release shall and does
apply to all unknown or unanticipated
-50-
<PAGE>
Claims, as well as those currently known or anticipated. Accordingly, the
Borrower acknowledges that it has read the provisions of California Civil Code
section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
and knowingly and expressly waives, relinquishes and forfeits all rights and
benefits accorded by the provisions of California Civil Code section 1542, or
any similar federal or state statutes, and furthermore waives any rights that it
might have to invoke said provision now or in the future with respect to the
release contained herein.
13.9 Survival of Agreement, Representations and Warranties, Etc. All
-----------------------------------------------------------
warranties, representations, covenants and agreements made by the Borrower
herein or in any certificate or other instrument delivered by the Borrower or on
its behalf in connection with this Agreement or any other Loan Documents shall
be considered to have been relied upon by the Bank, shall survive the making of
the Loan herein contemplated and the execution and delivery to the Bank of the
Notes regardless of any investigation made by the Bank or on its behalf and
shall continue in full force and effect. All statements in any such
certificates or other instrument shall constitute joint and several
representations and warranties by the Borrower hereunder.
13.10 Severability. Any provision of this Agreement or any other Loan
------------
Document which is invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without invalidating the remaining provisions
hereof or thereof, and any such invalidity, illegality or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
13.11 Amendments. No Modification or waiver of any provision of this
----------
Agreement or any of the other Loan Documents, and no consent to any departure by
the Borrower herefrom or therefrom (including, without limitation, any
Modification to or deviation from any form of Loan Document required to be
delivered hereunder by the Borrower), shall in any event be effective unless the
same shall be in writing and signed by the Bank and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
13.12 Maximum Interest Fees, Charges and Reimbursement. Notwithstanding
------------------------------------------------
anything contained herein or in any other Loan Documents to the contrary, in no
event shall the Bank be entitled
-51-
<PAGE>
to receive Interest or fees, other charges and cost reimbursements with respect
to the Loan in amounts which, when added to all of the other Interest, fees,
other charges or cost reimbursements charged, paid to or received by the Bank on
the Loan, causes the Interest and the fees, other charges and cost
reimbursements with respect to the Loan to exceed the highest lawful amount
thereof. The Borrower and the Bank intend to comply with the applicable law
governing the highest lawful amount of interest, fees, charges and cost
reimbursements. If the applicable law is ever judicially interpreted so as to
render usurious or unlawful any amount called for under the Loan Documents, or
contracted for, charged, taken, reserved or received with respect to the Loan,
or if acceleration of the term of the Loan or if any prepayment by the Borrower
results in the Borrower having paid or demand having been made on the Borrower
to pay, any interest, fees or other charges in excess of the amount permitted by
applicable law, then all excess amounts theretofore collected by the Bank shall
be credited on the Principal (or, if the Loan has been or would thereby be paid
in full, such excess amounts shall be refunded to the Borrower), and the
provision of the Loan and all other Loan Documents and any demand on the
Borrower shall immediately be deemed reformed and the amounts thereafter
collectible thereunder and hereunder shall be reduced, without the necessity of
the execution of any new documents, so as to comply with the applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder and hereunder. The right to accelerate the Term of the Loan does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and the Bank does not intend to collect any
unearned interest in the event of acceleration. All sums paid or agreed to be
paid to the Bank for the use, forbearance or extension of the Loan shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
through the full term of the Loan until payment in full so that the rate or
amount of interest, fees and other charges on account of the Loan does not
exceed the applicable usury or other ceilings. By execution of this Agreement,
the Borrower acknowledges that it believes the Loan to be nonusurious and
otherwise lawful and agree that if, at any time, the Borrower should have reason
to believe that the Loan is in fact usurious or otherwise unlawful, it will give
the Bank written notice of its belief and the reasons why the Borrower believes
the Loan to be usurious or otherwise unlawful; and the Borrower agrees that the
Bank shall have ninety (90) days following its receipt of such written notice in
which to make appropriate refund or other adjustment in order to correct such
condition if it in fact exists.
13.13 Interpretation. Where the context or construction requires, all
--------------
words applied in the plural should begin to have been used in singular, and vice
versa; the masculine shall include the feminine and neuter, and vice versa; and
the present tenths shall include the past and future tenths; and vice versa.
-52-
<PAGE>
13.14 No Third-Party Rights. Nothing in this Agreement, whether expressed
---------------------
or implied is intended to confer any rights or remedies under or by reason of
this Agreement on any Person other than the parties to it and their respective
successors and assigns, where as anything in this Agreement intended to relieve
or discharge to application or liability of any third Persons to any party to
this Agreement nor shall any provisions give and third Persons any right of
segregation or action over against any party to this Agreement.
13.15 Amendment and Restatement. The Original Agreement and the Original
-------------------------
Notes are amended and restated in their entirety by this Agreement and the
Amended and Restated Note.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
VIDEO CITY, INC.,
a Delaware corporation
By: /s/ Barry Collier
-----------------------------
Its: President
----------------------------
IMPERIAL BANK
By: /s/ Cyndee Herles
-----------------------------
Its: Vice President
----------------------------
-53-
