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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _____________)*
Video City, Inc.
----------------
(Name of Issuer)
Common Stock
------------
(Title of Class of Securities)
92653W 10 6
-----------
(CUSIP Number)
F. Kim Cox, One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon
----------------------------------------------------------------------------
97220
-----
(503) 284-7581
--------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
March 25, 1998
--------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement. [X]
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- ----------------------- ---------------------
CUSIP NO. 13D PAGE 2 OF 6
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Mortco, Inc., a wholly-owned subsidiary of Rentrak Corporation.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCES OF FUNDS
4
WC, OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(E) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Oregon
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 1,196,572 shares
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,196,572 shares
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,196,572 shares
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.93%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
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SCHEDULE 13D
ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to the common stock, $.01 par value per share
(the "Common Stock"), of Video City, Inc., a Delaware corporation (the
"Issuer"). The Issuer's principal executive office is located at 6840
District Boulevard, Bakersfield, California 93313.
ITEM 2. IDENTITY AND BACKGROUND
Mortco, Inc. ("Mortco"), is an Oregon corporation and wholly-owned
subsidiary of Rentrak Corporation ("Rentrak"). Mortco is engaged in the
business of making loans to, and equity investments in, home video
specialty stores that participate in Rentrak's Pay-Per-Transaction
("PPT(R)") videocassette distribution system. Mortco's principal office is
located at One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon
97220. The information required with respect to the executive officers and
directors of Mortco and Rentrak is attached as Exhibit A.
During the last five years, neither Mortco nor, to the best of Mortco's
knowledge, any of the persons listed in Exhibit A have been (i) convicted
in a criminal proceeding (excluding traffic violations or similar
misdemeanors); or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding become subject to judgment, decree and final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or been found to have violated such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Mortco acquired an aggregate 665,112 shares of Common Stock pursuant to the
terms of that certain Restructured Debt Agreement, dated March 25, 1998,
whereby Rentrk (i) cancelled an aggregate of $940,324.31 of indebtedness
owing by Sulpizio One, Inc. ("Sulpizio") in exchange for the issuance of
470,162 shares of Common Stock to Mortco, and (ii) cancelled an aggregate
of $389,900.00 of indebtedness owing by Adventures in Video, Inc. ("AIV")
in exchange for the issuance of 194,950 shares of Common Stock to Mortco.
As a shareholder of Sulpizio, Mortco acquired an additional 9,900 shares of
Common Stock by tendering 20,795 shares of Sulpizio common stock to the
Issuer in connection with the Issuer's acquisition of Sulpizio. The shares
of Common Stock acquired pursuant to these transactions are referred to
herein as the "Shares."
As part of the same transaction, Rentrak assigned all of its right, title
and interest in two Warrant Certificates, previously issued to Rentrak by
Issuer, to Mortco for no consideration. Mortco tendered such Warrant
Certificates to the Issuer in exchange for two replacement warrants (the
"Warrants"). One Warrant entitles Mortco to purchase 131,483 shares of
Common Stock for an aggregate exercise price of $400,000.00. The second
Warrant entitles Mortco to purchase 65,077 shares of Common Stock for an
aggregate exercise price of $30,795.00. If Mortco exercises either Warrant
or both Warrants, it expects to obtain the necessary funds for such
exercise from its working
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capital. However, Mortco presently does not intend to exercise either
Warrant.
ITEM 4. PURPOSE OF TRANSACTION
Mortco acquired the Shares and the Warrants as an investment and to
facilitate the Issuer's continued growth and expansion by converting into
Common Stock the debt of two PPT(R) participants that the Issuer has
acquired. Mortco may sell the stock from time to time in the open market
or in privately negotiated transactions, all in compliance with federal and
state securities laws. Except as set forth in this Item 4, Mortco has no
present intentions or proposals that relate to or that would result in:
(a) The acquisition by any person of additional securities of the issuer,
or the disposition of securities of the issuer;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the issuer or any of its
subsidiaries;
(c) A sale or transfer of a material amount of assets of the issuer or any
of its subsidiaries;
(d) Any change in the present board of directors or management of the
issuer, including any plans or proposals to change the number of term
of directors or to fill any existing vacancies on the board;
(e) Any material change in the present capitalization or dividend policy
of the issuer;
(f) Any other material change in the issuer's business or corporate
structure including but not limited to, if the issuer is a registered
closed-end investment company, any plans or proposals to make any
changes in its investment policy for which a vote is required by
section 13 of the Investment Company Act of 1940;
(g) Changes in the issuer's charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control
of the issuer by any person;
(h) Causing a class of securities of the issuer to be delisted from a
national securities exchange or to cease to be authorized to be quoted
in an inter-dealer quotation system of a registered national
securities association;
(i) A class of equity securities of the issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Act;
or
(j) Any action similar to any of those enumerated above.
Mortco reserves the right to determine in the future whether to change the
purpose or purposes described above or whether to adopt plans or proposals
of the type described above.
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
Mortco beneficially owns 1,196,572 shares of Common Stock, which represents
approximately 9.93% of the issued and outstanding Common Stock (as
determined after the closing of all transactions contemplated by the
Restructured Debt Agreement). Mortco has sole voting power and sole
dispositive power over all of the Common Stock that it presently holds, and
upon the exercise of either Warrant or both Warrants would have sole voting
and dispositive power over all shares of Common Stock obtained upon such
exercise.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
Effective March 25, 1998, Rentrak Mortco and Issuer entered into the
Restructured Debt Agreement, wherein Rentrak agreed to convert an aggregate
of $1,330,224.31 of indebtedness owing by Issuer into 665,112 shares of
Common Stock issued to Mortco. Mortco also acquired the two Warrants, which
entitle Mortco to purchase 131,483 shares of Common Stock for an aggregate
exercise price of $400,000.00 and 65,077 shares of Common Stock for an
aggregate exercise price of $30,795.00, respectively.
Also effective March 25, 1998, the Issuer granted Mortco demand and
piggyback registration rights under that certain Registration Rights
Agreement, which covers all shares of Common Stock now or in the future
held by Mortco. These rights are in addition to the demand and piggyback
registration rights granted by the Issuer to Mortco under that certain
Registration Rights Agreement, dated January 7, 1997.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit A - Directors and Executive Officers of Mortco, Inc. and Rentrak
Corporation.
Exhibit B - Restructured Debt Agreement, dated as of March 25, 1998, by
and among Rentrak Corporation, Mortco, Inc., Video City,
Inc., Sulpizio One, Inc., and Adventures in Video, Inc.
Exhibit C - Warrant Certificate, dated March 25, 1998, executed by Video
City, Inc. in favor of Mortco, Inc.
Exhibit D - Warrant Certificate, dated March 25, 1998, executed by Video
City, Inc. in favor of Mortco, Inc.
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Exhibit E - Registration Rights Agreement, dated March 25, 1998, between
Video City, Inc. and Mortco, Inc.
Exhibit F - Registration Rights Agreement, dated January 7, 1997.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date
MORTCO, INC.
By: /s/ F. Kim Cox
------------------------------
F. Kim Cox, Vice President and
Secretary
<PAGE>
EXHIBIT A
DIRECTORS AND EXECUTIVE OFFICERS
OF
MORTCO, INC.
AND
RENTRAK CORPORATION
Each person listed below is a United States citizen with a business address
at One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon 97220.
NAME PRESENT PRINCIPAL OCCUPATION
Ron Berger Chairman of the Board of Directors and President of
Mortco, Inc. and Rentrak Corporation.
F. Kim Cox Vice President, Secretary, and Treasurer of Mortco, Inc.
and Executive Vice President, Secretary and Treasurer of
Rentrak Corporation
Michael Lightbourne Executive Vice President of Rentrak Corporation
Christopher Roberts Executive Vice President of Sales of Rentrak Corporation
Amir Yazdani Executive Vice President of Information Systems of Rentrak
Corporation
Marty Graham Executive Vice President of Product Development of Rentrak
Corporation
Edward Barnick Executive Vice President of Distribution of Rentrak
Corporation
Carolyn Pihl Executive Vice President of Finance of Rentrak Corporation
Stephen Roberts Director of Mortco, Inc. and Rentrak Corporation and
President of The S. Roberts Company
Bill LeVine Director of Mortco, Inc. and Rentrak Corporation and
President of LeVine Enterprises
Herbert M. Fischer Director of Mortco, Inc. and Rentrak Corporation and
President of MEDIACOPY
Skipper Baumgarten Director of Rentrak Corporation and CEO of American
Contractors
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Dr. Pradeep Batra Director of Rentrak Corporation and President of Unique
Business Systems
Peter Dal Bianco Director of Mortco, Inc. and Rentrak Corporation and
President of Famley Enterprises
James P. Jimirro Director of Mortco, Inc. and Rentrak Corporation and
President of J2 Communications
Muneaki Masuda Director of Mortco, Inc. and Rentrak Corporation and
Chairman of CCC
<PAGE>
EXHIBIT B
[RESTRUCTURED DEBT AGREEMENT]
<PAGE>
RESTRUCTURED DEBT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this 25th
day of March, 1998, by and between RENTRAK CORPORATION, an Oregon corporation,
having its principal place of business at One Airport Center, 7700 N.E.
Ambassador Place, Portland, Oregon 97220 ("Rentrak"), MORTCO, INC., an Oregon
corporation and a wholly-owned subsidiary of Rentrak, having its principal place
of business at One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon
97220 ("Mortco"), VIDEO CITY, INC., a Delaware corporation, having its principal
place of business at 6840 District Avenue, Bakersfield, California 93313
("VCI"), SULPIZIO ONE, INC., a California corporation, having its principal
place of business at 6840 District Avenue, Bakersfield, California 93313
("Sulpizio"), and ADVENTURES IN VIDEO, INC., a Minnesota corporation, having its
principal place of business at 1958 127th Lane, N.W., Coon Rapids, Minnesota
55448 ("AIV").
RECITALS
A. Rentrak distributes pre-recorded videocassettes pursuant to a lease
arrangement known as Pay-Per-Transaction/SM/ (the "PPT System");
B. VCI and Sulpizio are both engaged in the business of leasing, renting
and selling pre-recorded videocassettes and currently participate in the PPT
System pursuant to the following Rentrak National Account Agreements:
1. VCI participates in the PPT System pursuant to a Rentrak National
Account Agreement, which was originally entered into by Lee Video
City, Inc. on December 16, 1994, and was amended and supplemented
by a First Addendum, dated December 16, 1994, a Second Addendum,
dated August 24, 1995, and a Third Addendum, dated June 19, 1996,
which National Account Agreement was expressly assumed by VCI
pursuant to an Assumption Agreement, dated January 7, 1997, in
connection with the merger of Lee Video City, Inc. into VCI, and
was further amended and supplemented by a Fourth Addendum, dated
July 11, 1997 (collectively the "VCI PPT Agreement");
2. Sulpizio participates in the PPT System pursuant to a Rentrak
National Account Agreement entered into on December 16, 1994, as
amended and supplemented by a First Addendum, dated December 16,
1994, a Second Addendum, dated August 24, 1995, and a Third
Addendum, dated July 11, 1997 (collectively the "Sulpizio PPT
Agreement"); and
C. AIV previously participated in the PPT System pursuant to a Rentrak
National Account Agreement entered into on July 17, 1992, as amended and
supplemented by an
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Agreement, dated July 21, 1992, and a Letter Agreement, dated April 2, 1993
(collectively the "AIV PPT Agreement"), which Rentrak terminated by written
notice on June 14, 1996;
D. VCI desires to acquire Sulpizio, AIV and three other corporations,
namely KDDJ Investments, Inc., a Minnesota corporation ("KDDJ"), Leptis Magna,
Inc., dba Video Unlimited, a Colorado corporation, ("Leptis"), and Old Republic
Entertainment, Inc., a California corporation ("Old Republic");
E. VCI desires to structure the acquisitions of Sulpizio, AIV, KDDJ,
Leptis, and Old Republic (individually a "Subsidiary" and collectively the
"Subsidiaries") as reverse triangular mergers, whereby each of the Subsidiaries
would become a wholly-owned subsidiary of VCI;
F. VCI acknowledges and agrees that, as of March 6, 1998, it owed Rentrak
at least $587,368.36 under the VCI PPT Agreement, which sum was comprised of (i)
$464,234.10 in past due accounts receivable, based on accounts receivable
invoiced through February 28, 1998, including interest computed through March 6,
1998; (ii) $31,570.00 in lost late fee revenues; and (iii) $91,564.26 in
accounts receivable that were not then due and payable, based on accounts
receivable invoiced through February 28, 1998. VCI further acknowledges and
agrees that, as of March 23, 1998, it owes Rentrak an additional $514,692.26
under a Promissory Note executed by VCI in favor of Rentrak on February 28, 1997
(the "1997 VCI Note"), including interest and late fees computed through March
23, 1998.
G. Sulpizio acknowledges and agrees that, as of March 6, 1998, it owed
Rentrak at least $106,928.97 under the Sulpizio PPT Agreement, which sum was
comprised of (i) $77,024.72 in past due accounts receivable, based on accounts
receivable invoiced through February 28, 1998, including interest computed
through March 6, 1998; and (ii) $29,904.25 in accounts receivable that were not
then due and payable, based on accounts receivable invoiced through February 28,
1998. Sulpizio further acknowledges and agrees that, as of March 23, 1998, it
owes Rentrak an additional $1,273,505.57, which sum is comprised of (i) a
$4,155.92 PPT Deficiency (as defined in the Sulpizio PPT Agreement) for calendar
year 1996, including interest calculated through March 23, 1998; (ii)
$1,048,385.27 under a Revolving Credit Agreement, dated December 16, 1994, and a
Senior Secured Revolving Note executed by Sulpizio in connection therewith on
December 16, 1994 (the "1994 Sulpizio Note"), including interest computed
through March 23, 1998; and (iii) $220,964.38 under a Loan Agreement, dated July
11, 1997 (the "1997 Loan Agreement"), of which $215,964.38 is owing under the
1997 Loan Agreement and a Promissory Note executed by Sulpizio in connection
therewith on July 11, 1997 (the "1997 Sulpizio Note"), including interest
computed through March 23, 1998, and $5,000.00 is owing under Article III of the
1997 Loan Agreement for reimbursement of legal expenses;
H. VCI and Sulpizio acknowledge and agree that they both owe a PPT
Deficiency (as defined in their respective PPT Agreements) for calendar year
1997, the amount of which has not yet been calculated, and that they owe other
additional amounts to Rentrak under their respective
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PPT Agreements; that the enumeration of the foregoing amounts shall not be
construed or operate as a release of VCI's and Sulpizio's obligation to pay all
additional amounts determined to be due, including interest, late fees and
related charges; and that Rentrak is not waiving any of its rights and remedies
with respect to collecting any such additional amounts when due;
I. Rentrak has filed a lawsuit against AIV in the United States District
Court for District of Oregon (Case No. CV98-04-HA) seeking to recover certain
past due accounts receivable and other amounts owing by AIV under the AIV PPT
Agreement (the "AIV Lawsuit");
J. Rentrak and AIV have compromised, settled and resolved all matters at
issue in the AIV Lawsuit, subject to consummation of the transactions
contemplated herein, and AIV acknowledges and agrees that it owes Rentrak the
sum of $389,900.00 under the terms of such settlement;
K. VCI, Sulpizio and AIV desire to work out an arrangement with Rentrak
with respect to restructuring the above-identified indebtedness that they owe to
Rentrak, excluding the current accounts receivable not yet due and payable,
whereby (i) Rentrak would consent to VCI's acquisition of the Subsidiaries, (ii)
VCI would pay Rentrak the sum of $810,496.36 in cash, and issue a promissory
note in the principal sum of $200,000.00 upon closing such acquisitions, and
(iii) Rentrak would cancel certain indebtedness owing by Sulpizio and AIV in
exchange for certain shares of VCI stock being issued to Mortco, and a
promissory note being issued to Mortco; and
L. Rentrak is willing to restructure the above-identified indebtedness
owing by VCI, Sulpizio and AIV, excluding the current accounts receivable not
yet payable, based on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
in reliance on and subject to the terms, conditions, representations,
warranties, covenants and agreements contained herein, the parties agree as
follows:
1. RESTRUCTURING SPECIFIC INDEBTEDNESS OWING TO RENTRAK BY SULPIZIO AND AIV.
1.1 ISSUANCE OF VCI SHARES. At Closing VCI shall issue to Mortco and,
subject to and in reliance upon the representations, warranties, covenants,
terms and conditions of this Agreement, Mortco shall accept from VCI, a total of
665,112 shares of VCI's authorized and
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unissued voting common stock (the "VCI Shares") in consideration of Rentrak's
cancellation of the following indebtedness owing by Sulpizio and AIV:
1.1.1 CANCELLATION OF SPECIFIC INDEBTEDNESS OWING BY SULPIZIO. VCI
shall issue 470,162 shares of its authorized and unissued voting common stock to
Mortco in exchange for Rentrak's cancellation of an aggregate of $940,324.31 of
indebtedness owing by Sulpizio, which represents:
(a) $77,024.72 owed in past due accounts receivable as of March
6, 1998, based on accounts receivables invoiced through February 28, 1998,
including interest computed through March 6, 1998, and a $4,155.92 PPT
Deficiency for calendar year 1996, including interest computed through
March 23, 1998;
(b) $220,964.38 owing under the 1997 Sulpizio Note, including
interest computed through March 23, 1998, and an additional $5,000.00 owing
under the 1997 Loan Agreement for reimbursement of legal expenses; and
(c) $638,179.29 of the $1,048,385.27 balance owing under the
1994 Sulpizio Note, including interest calculated through March 23, 1998.
1.1.2 CANCELLATION OF SPECIFIC INDEBTEDNESS OWING BY AIV. VCI shall
issue 194,950 shares of its authorized and unissued voting common stock to
Mortco in exchange for Rentrak's cancellation of the $389,900.00 that AIV owes
to Rentrak under the terms of the settlement of the AIV Lawsuit.
1.2 PROMISSORY NOTE FROM SULPIZIO. At Closing Rentrak and Sulpizio shall
convert the remaining $410,205.98 of the balance owing under the 1994 Sulpizio
Note into a new Promissory Note in the form attached hereto as Exhibit A (the
"Sulpizio Note"), and Sulpizio shall pay such $410,205.98 in strict compliance
with the terms of such Sulpizio Note.
1.3 CASH AND PROMISSORY NOTE FROM VCI. At Closing VCI shall pay
$810,496.36 to Rentrak in readily available funds at Closing, which represents
(i) $264,234.10 of the $464,234.10 owed by VCI in past due accounts receivable
as of March 6, 1998, based on accounts receivable invoiced through February 28,
1998, including interest and late fees computed through March 6, 1998; (ii)
$31,570.00 owing by VCI in lost late fee revenues; and (iii) $514,692.26 owing
by VCI under the 1997 VCI Note, including interest and late fees computed
through March 23, 1998. At Closing VCI shall issue a Promissory Note to Mortco
in the principal sum of $200,000.00, in the form attached hereto as Exhibit B
(the "VCI Note"), which represents the balance owed by VCI in past due accounts
receivable as of March 6, 1998, based on accounts receivable invoiced through
February 28, 1998, including interest and late fees computed through March 6,
1998.
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1.4 CLOSING. The transactions contemplated by this Agreement, specifically
including without limitation the issuance of the VCI Shares to Rentrak as
contemplated by Section 1.1 above, shall be closed (the "Closing")
simultaneously with the closing of VCI's acquisition of the five Subsidiaries on
or about March 24, 1998, at the Law Offices of Troy & Gould, 1801 Century Park
East, 16th Floor, Los Angeles, California 90067, or at such other time, date and
place as the parties hereto shall mutually agree in writing. The date on which
the Closing shall occur is herein referred to as the "Closing Date."
1.5 ACTIONS TO BE TAKEN AT CLOSING. The parties agree to take the
following actions at Closing, each of which shall be conditional on completion
of all other actions and all of which shall be deemed to take place
simultaneously:
1.5.1 CLOSING OF VCI'S ACQUISITIONS OF SUBSIDIARIES. VCI shall close
on the acquisition of each Subsidiary in strict compliance with the terms and
conditions set forth in the Merger Agreements attached hereto as Exhibits C-1
through C-5.
1.5.2 DELIVERY OF CERTIFICATES REPRESENTING THE VCI SHARES. VCI shall
issue and deliver to Mortco a stock certificate evidencing the 665,112 shares of
voting common stock being issued to Mortco under Section 1.1, registered in
Mortco's name.
1.5.3 STOCK LEGEND. The stock certificate delivered to Mortco in
compliance with Section 1.5.2 shall bear a legend, prominently stamped or
printed thereon, reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS (THE "ACTS"), HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACTS IS IN
EFFECT WITH REGARD THERETO OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. AN OPINION OF COUNSEL SHALL, UPON REQUEST
BY VCI, BE FURNISHED OPINING AS TO THE AVAILABILITY OF AN EXEMPTION.
1.5.4 PAYMENT BY VCI TO RENTRAK. VCI shall pay the sum of $810,496.36
to Rentrak by wire transfer to an account designated by Rentrak.
1.5.5 OTHER AGREEMENTS. The parties shall, as applicable, execute and
deliver the following agreements at Closing:
(a) LOAN AGREEMENT, SULPIZIO PROMISSORY NOTE, AND VCI PROMISSORY
NOTE. Sulpizio shall execute the Sulpizio Note and the Loan Agreement
attached hereto as Exhibits A and D, respectively, and deliver th e
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same to Mortco at Closing. VCI shall execute the VCI Note and deliver
the same to Rentrak at Closing.
(b) SUBORDINATED SECURITY AGREEMENTS AND GUARANTY. VCI shall
grant to Rentrak and Mortco a security interest in all of its
properties and assets, as security for the timely payment and
performance of the Sulpizio Note, the VCI Note, and the Loan
Agreement, based on the terms and conditions set forth in the
Subordinated Security Agreement attached hereto as Exhibit E (the "VCI
Security Agreement"). Sulpizio shall grant to Rentrak and Mortco a
security interest in all of its property and assets, as security for
the timely payment and performance of the Sulpizio Note, the VCI Note,
the Sulpizio Loan Agreement, the Sulpizio PPT Agreement, the
VCI/Subsidiaries PPT Agreement, and certain other obligations owing
from Sulpizio to Rentrak and Mortco, based on the terms and conditions
set forth in the Subordinated Security Agreement attached hereto as
Exhibit F (the "Sulpizio Security Agreement"). VCI and Sulpizio shall
execute their respective Security Agreements and deliver the same to
Rentrak and Mortco at Closing. VCI shall unconditionally and
irrevocably guarantee payment of the Sulpizio Note, and certain other
obligations owing by the Subsidiaries to Rentrak and Mortco, in strict
compliance with the terms and conditions of the Guaranty attached
hereto as Exhibit G (the "Guaranty"), which VCI shall execute and
deliver to Mortco at Closing.
(c) VCI/SUBSIDIARIES PPT AGREEMENT. VCI and each Subsidiary
shall execute the new Rentrak Chain or Multiple Store Account
Agreement and First Addendum to Rentrak Chain or Multiple Store
Account Agreement attached hereto as Exhibit H (collectively the
"VCI/Subsidiaries PPT Agreement") and deliver the same to Rentrak at
Closing.
(d) REGISTRATION RIGHTS AGREEMENT. VCI shall grant to Mortco,
with respect to the VCI Shares being issued to Mortco under Section
1.1 above and the VCI shares being issued to Mortco in connection with
VCI's acquisition of Sulpizio, the registration rights set forth in
the Registration Rights Agreement attached hereto as Exhibit I (the
"Registration Rights Agreement"). VCI shall execute the Registration
Rights Agreement and deliver the same to Mortco at Closing.
(e) RESTATED WARRANTS. Lee Video City, Inc., which merged with
and into VCI on January 7, 1997, granted two separate warrants to
Rentrak to purchase certain shares of its common stock, the terms and
conditions of which are set forth in a Warrant Certificate, dated
August 24, 1995 (the "First Warrant"), and a Warrant Certificate,
dated June 19, 1996 (the "Second Warrant"). VCI assumed, as a result
of the merger, all obligations of Lee Video City, Inc. under the First
Warrant and the Second Warrant. Rentrak has assigned, as of the date
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hereof, all of its right, title and interest in the First Warrant and
the Second Warrant to Mortco. The terms and conditions of the First
Warrant are restated in a new Warrant Certificate attached hereto as
Exhibit J (the "First Restated Warrant") and the terms and conditions
of the Second Warrant are restated in a new Warrant Certificate
attached hereto as Exhibit K (the "Second Restated Warrant"), which
VCI shall execute and deliver to Rentrak at Closing.
(f) SETTLEMENT AGREEMENT. Rentrak, AIV, and David Ballstadt
shall execute the Settlement Agreement attached hereto as Exhibit L at
Closing.
1.5.6 ADDITIONAL DELIVERIES. The parties hereto shall execute and
deliver all other documents and certificates required to be delivered at Closing
pursuant to this Agreement.
1.6 CANCELLATION OF NOTES. Rentrak and Sulpizio shall, effective on the
satisfaction of all the conditions precedent set forth in Section 4.1 and the
Closing of the transactions contemplated by this Agreement, cancel the Revolving
Credit Agreement, dated December 16, 1994, and the 1994 Sulpizio Note executed
by Sulpizio on connection therewith; the Loan Agreement, dated July 11, 1997,
and the 1997 Sulpizio Note executed by Sulpizio in connection therewith; and the
1997 VCI Note, all which instruments shall thereafter be deemed null and void
and of no further binding force and effect.
1.7 CONSENT TO SALE OF VCI FILM LIBRARY. Effective on the satisfaction of
all the conditions precedent set forth in Section 4.1 and the Closing of the
transactions contemplated by this Agreement, Rentrak consents to the sale of
VCI's rights in the motion picture titles listed in Schedule 1.7, which consent
VCI must obtain pursuant to Section 6.1 of that certain Stock Purchase
Agreement, dated December 16, 1994, by and between Mortco and Lee Video City,
Inc., the terms of which VCI expressly assumed under that certain Assumption
Agreement, dated January 7, 1997, by and between Rentrak, Mortco, and Prism
Entertainment Corporation (nka VCI).
2. REPRESENTATIONS AND WARRANTIES OF VCI, SULPIZIO AND AIV. As a material
inducement to Rentrak and Mortco to enter into this Agreement, VCI, Sulpizio and
AIV, jointly and severally, make the following representations and warranties to
Rentrak and Mortco:
2.1 ORGANIZATION AND STANDING. VCI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
Sulpizio is a corporation duly organized, validly existing and in good standing
under the laws of the State of California; AIV is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota;
KDDJ is a corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota; Leptis is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado; and Old Republic is a corporation duly organized, validly existing and
in good standing under the laws of the State of California. VCI and each
Subsidiary have all requisite corporate power and authority for the ownership
and
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operation of their properties and for the carrying on of their business as now
conducted or as now proposed to be conducted. VCI and each Subsidiary is duly
licensed or qualified and in good standing as a foreign corporation authorized
to do business in all jurisdictions wherein the character of the property owned
or leased, or the nature of the activities conducted by it makes such licensing
or qualification necessary.
2.2 AUTHORIZATION; CORPORATE ACTION. VCI and each Subsidiary, as
applicable, have all necessary corporate power and authority, and have taken all
corporate action required, to enter into, execute and deliver this Agreement and
all other agreements and instruments contemplated herein, including all Exhibits
attached hereto (collectively the "Related Documents"), to fully perform their
obligations hereunder and thereunder, and to carry out and consummate the
transactions contemplated hereby and thereby. This Agreement and the Related
Documents have been duly executed and delivered by duly authorized officers of
VCI and each Subsidiary, as applicable, and are the legal, valid, and binding
obligations of VCI and each Subsidiary, as applicable, enforceable in accordance
with their terms. A sufficient number of authorized but unissued shares of
voting common stock of VCI have been reserved by appropriate corporate action in
connection with the prospective exercise of the Restated Warrant, and the
issuance of the VCI Shares is not, and the issuance of the shares upon exercise
of the First Restated Warrant and Second Restated Warrant will not, be subject
to preemptive rights or other preferential rights in any present or future
shareholders of VCI and will not conflict with any provision of any agreement or
instrument to which VCI is a party or by which it or its property is bound.
2.3 CAPITALIZATION; STATUS OF CAPITAL STOCK. The authorized capital stock
of VCI consists solely of 20,000,000 shares of voting common stock, $.01 par
value, of which an aggregate of 9,773,927 shares are presently issued and
outstanding. After giving effect to the transactions described herein, an
aggregate of 11,859,039 shares of VCI common stock will be issued and
outstanding. All of the outstanding shares of capital stock of VCI have been
duly authorized, are validly issued, and are fully paid and nonassessable. The
VCI Shares, when issued and delivered in accordance with the terms of this
Agreement, and the shares to be issued to Mortco upon exercise of the First
Restated Warrant and the Second Restated Warrant, when issued in accordance with
the terms of the First Restated Warrant and the Second Restated Warrant, will be
duly authorized, validly issued, fully paid and nonassessable, and free and
clear of all claims, pledges, liens, encumbrances and restrictions of every
kind. Except as otherwise set forth in Schedule 2.3, no options, warrants,
subscriptions or purchase rights of any nature to acquire from VCI or any
Subsidiary shares of capital stock or other securities are authorized, issued or
outstanding, nor is VCI or any Subsidiary obligated in any other manner to issue
shares of its capital stock or other securities except as contemplated by this
Agreement. Except as set forth in Schedule 2.3, there are no agreements,
understandings, trusts or other collaborative arrangements or understandings
concerning the voting of the capital stock of VCI or any Subsidiary. There are
no agreements, understandings, trusts or other understandings concerning
transfers of the capital stock of VCI or any Subsidiary, except as contemplated
by this Agreement. The offer and sale of all capital stock and other securities
of VCI and each Subsidiary issued before the Closing complied with or were
exempt from all applicable federal
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and state securities laws and no stockholder has a right of rescission with
respect thereto. VCI shall own, upon closing on the acquisition of each
Subsidiary in compliance with the Merger Agreements attached hereto as Exhibits
C-1 through C-5, all of the issued and outstanding capital stock of each
Subsidiary.
2.4 REGISTRATION RIGHTS. Except as set forth in Schedule 2.4, neither VCI
nor any Subsidiary has granted any registration rights of any kind or nature,
including but not limited to piggy-back registration rights, to any person or
entity and has not otherwise agreed to register any of its authorized or
outstanding securities under the Securities Act of 1933.
2.5 ARTICLES OF INCORPORATION, BYLAWS AND CORPORATE RECORDS. VCI has
delivered to Rentrak a true and complete copy of VCI's and each Subsidiary's
Articles of Incorporation, and a true and complete copy of VCI's and each
Subsidiary's Bylaws, as amended and in effect on the date hereof, certified by
the Secretary of VCI and each Subsidiary, as applicable. The corporate minute
book of VCI and each Subsidiary contains true and complete records of all
meetings of, and all corporate action taken by, their respective Board of
Directors (and any committees thereof) and shareholders since the date of their
incorporation, including all actions taken by written consents in lieu of
meetings. The stock books of VCI and each Subsidiary, including stock ledgers
and stock transfer records, are true, correct and complete.
2.6 SUBSIDIARIES. Neither VCI nor any Subsidiary own, directly or
indirectly, any capital stock or other equity, ownership or proprietary interest
in any corporation, limited liability company, partnership, association, trust,
joint venture or other entity, except as will result from the consummation of
the transactions contemplated herein.
2.7 FINANCIAL STATEMENTS. The books of account and records of VCI and each
Subsidiary are true, correct and complete in all material respects, fairly and
accurately reflect their income, expenses, assets and liabilities, and provide a
fair and accurate basis for the preparation of their financial statements and
tax returns. VCI's unaudited financial statements for the nine-month period
ending October 31, 1997, including without limitation VCI's balance sheet,
related statement of income and retained earnings for the nine-month period then
ended and statement of cash flow (collectively the "VCI Financial Statements");
Sulpizio's unaudited balance sheet and related statement of income for the year
ending December 31, 1997 (collectively the "Sulpizio Financial Statements");
AIV's unaudited balance sheet and related statement of income for the year
ending December 31, 1997 (collectively the "AIV Financial Statements"); KDDJ's
unaudited balance sheet and related statement of income for the year ending
December 31, 1997 (collectively the "KDDJ" Financial Statements"); Leptis'
unaudited balance sheet and related statement of income for the year ending
December 31, 1997 (collectively the "Leptis Financial Statements"); and Old
Republic's unaudited balance sheet and related statement of income for the six-
month period ending December 31, 1997 (collectively the "Old Republic Financial
Statements"), are set forth in Schedule 2.7. The VCI Financial Statements, the
Sulpizio Financial Statements, the AIV Financial Statements, the KDDJ Financial
Statements, the Leptis Financial Statements, and the Old Republic Financial
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Statements (including any related notes and schedules) are true, correct, and
complete; fairly present VCI's and each Subsidiary's financial condition at the
dates thereof and the results of its operations for the periods then ended; and
have been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior accounting periods. Since October 31,
1997, there has been no material adverse change in the business, assets or
condition, financial or otherwise, or in the operations or prospects, of VCI.
Since December 31, 1997, there has been no material adverse change in the
business, assets or condition, financial or otherwise, or in the operations or
prospects, of Sulpizio, AIV, KDDJ, Leptis, or Old Republic.
2.8 NO UNDISCLOSED LIABILITIES. VCI has no debts, liabilities or
obligations of any nature whatsoever, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise, other than (i) those
liabilities fully and adequately reflected or reserved against on the VCI
Financial Statements, or in the notes thereto, and (ii) those liabilities
incurred in the ordinary course of business consistent with past practices since
October 31, 1997. Each of Sulpizio, AIV, KDDJ, Leptis and Old Republic has no
debts, liabilities or obligations of any nature whatsoever, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise,
other than (i) those liabilities fully and adequately reflected or reserved
against on the Sulpizio Financial Statements, the AIV Financial Statements, the
KDDJ Financial Statements, the Leptis Financial Statements, and the Old Republic
Financial Statements, or in the notes thereto, and (ii) those liabilities
incurred in the ordinary course of business consistent with past practices since
December 31, 1997.
2.9 ACTIVITIES SINCE BALANCE SHEET DATE. Except as set forth in Schedule
2.9, since December 31, 1997, each of Sulpizio, AIV, KDDJ, Leptis and Old
Republic has not, and since October 31, 1997, VCI has not: (i) suffered any
material adverse change in its financial condition, liabilities, assets,
business or prospects; (ii) suffered any destruction, damage to, or loss of any
asset (whether or not covered by insurance) that materially and adversely
affects its financial condition, business or prospects; (iii) incurred any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise), except in the ordinary course of business consistent with past
practices; (iv) permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind;
(v) sold, transferred or otherwise disposed of any of its assets, tangible or
intangible, or any interest therein, except in the ordinary course of business
consistent with past practices; (vi) declared, set aside or paid any dividend or
made any other distribution in respect to its capital stock, or redeemed,
purchased or otherwise acquired any shares of its capital stock; (vii) issued or
sold any shares of its capital stock of any class; (viii) increased its
indebtedness for borrowed money, or made any loan, advance or guaranty to or for
the benefit of any person or entity; (ix) otherwise conducted its business or
entered into any agreement, contract, commitment or transaction, except in the
usual and ordinary manner and in the ordinary course of business; or (x) agreed,
whether or not in writing, to do any of the foregoing.
2.10 TITLE TO ASSETS. Except as set forth in Schedule 2.10, VCI and each
Subsidiary owns outright and holds good and marketable title to all of their
assets and properties, tangible
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and intangible, of every nature and description, free and clear of restrictions
on or conditions to transfer or assignment, and free and clear of all liens,
pledges, charges, and encumbrances of any nature whatsoever.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The execution and delivery of this
Agreement and the Related Documents, the consummation of the transactions
contemplated hereby and thereby, and the performance by VCI and each Subsidiary
of its obligations hereunder and thereunder will not (i) violate any provision
of VCI's or any Subsidiary's Articles of Incorporation or Bylaws; (ii) violate,
conflict with or result in the breach of any of the terms of, result in a
modification of the effect of, give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, any contract or other agreement to which VCI or any Subsidiary is
a party or by or to which VCI or any Subsidiary is bound or subject; (iii)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, VCI or
any Subsidiary or upon the securities, properties or business of VCI or any
Subsidiary; or (iv) violate any statute, law or regulation of any jurisdiction
as such statute, law or regulation relates to VCI or any Subsidiary or to the
securities, properties or business of VCI or any Subsidiary. VCI and each
Subsidiary is in full compliance in all respects with the terms and provisions
of its Articles of Incorporation and Bylaws, as amended and in effect as of the
date hereof, and in compliance in all material respects with the terms and
provisions of all leases, agreements and other instruments by which it is bound
or to which it or any of its respective properties or assets are subject.
2.12 BROKERS AND FINDERS. Neither VCI nor any Subsidiary has employed any
broker or finder in connection with the transactions contemplated by this
Agreement, or taken any action that would give rise to a valid claim against any
party for a brokerage commission, finder's fee, or other like payment
(collectively "Fees"), except for John Sheehy of Sphere Capital Corporation. VCI
and each Subsidiary, jointly and severally, agree to defend, indemnify and hold
Rentrak and Mortco harmless from any Fees to John Sheehy or Sphere Capital
Corporation, or any other person or entity claimed to be engaged by VCI or any
Subsidiary in connection with the transactions contemplated by this Agreement.
2.13 EMPLOYMENT AND LABOR RELATIONS MATTERS. VCI and each Subsidiary have
paid or made provision for the payment of all salaries and wages accrued through
the date hereof. VCI and each Subsidiary has complied with all labor and
employment laws, including all Federal, state and local laws and regulations
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes. Neither VCI nor any Subsidiary is a
party to, nor otherwise subject to, any collective bargaining or other agreement
covering wages, hours, and terms of employment of their respective employees.
2.14 CONTRACTS AND COMMITMENTS. Schedule 2.14 contains a true and complete
list and description of all contracts, agreements, commitments and undertakings
of any nature, written or oral, of VCI and each Subsidiary, each of which
involves future payments,
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performance of services, or delivery of goods or materials to or by VCI or any
Subsidiary of an aggregate amount of value in excess of $50,000, or which
otherwise is material to the respective operations, assets, business or
financial condition of VCI or any Subsidiary (collectively, the "Material
Contracts"). All of the Material Contracts listed on Schedule 2.14 are in full
force and effect and are binding upon VCI and each Subsidiary, as applicable,
and the other parties thereto; VCI and each Subsidiary, as applicable, have
fully performed all of their obligations thereunder; and there exists no default
or event of default or event, occurrence, condition or act which, with the
giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder.
2.15 COMPLIANCE WITH LAWS. VCI and each Subsidiary is now and has at all
times been in compliance in all material respects with all laws, rules,
regulations, codes, ordinances, requirements, decrees and orders applicable to
their respective businesses. Neither VCI nor any Subsidiary is under
investigation or charged with any violation or alleged violation of any federal,
state, local or other law or regulation which would have any material adverse
effect on its business, prospects, financial condition, operation, property, or
affairs.
2.16 THIRD-PARTY AND GOVERNMENTAL APPROVALS. All authorizations, consents,
and approvals of, and licenses, exemptions of or filings or registrations with,
all third-parties, courts or governmental departments, commissions, boards,
bureaus, agencies or instrumentalities, domestic or foreign, that are necessary
for the execution and delivery by VCI and each Subsidiary, as applicable, of
this Agreement and the Related Documents, for the offer, issue, sale and
delivery of VCI Shares, or for the performance by VCI and each Subsidiary, as
applicable, of their respective obligations under this Agreement and the Related
Documents, have been obtained.
2.17 LITIGATION. Except as set forth in Schedule 2.17, there is no
litigation or governmental proceeding or investigation pending or, to the best
knowledge of VCI and each Subsidiary, after due inquiry, threatened against VCI
or any Subsidiary, affecting any of their respective properties or assets, nor,
to the best knowledge of VCI and each Subsidiary, after due inquiry, has there
occurred any event or does there exist any condition on the basis of which any
such litigation, proceeding or investigation might properly be instituted.
Neither VCI nor any Subsidiary is in default with respect to any order, writ,
injunction, decree, ruling or decision of any court commission, board, or other
government agency.
2.18 TAXES. VCI and each Subsidiary have accurately prepared and timely
filed all federal, state, and other tax returns required by law to be filed by
it, has paid or made provision for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been made and are
reflected in their respective Financial Statements for all current taxes and
other charges to which they are subject and which are not currently due and
payable. After due inquiry, neither VCI nor any Subsidiary knows of any
additional assessments or adjustments pending or threatened against them for any
period, nor of any basis for any such assessments or adjustments.
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2.19 INTELLECTUAL PROPERTY RIGHTS. The conduct of VCI's and each
Subsidiary's business does not infringe or conflict with, and has not in the
past infringed or conflicted with, and neither VCI nor any Subsidiary is in
receipt of any notice or complaint of conflict with or infringement of, or
misappropriation of the asserted rights of others in, any patents, trademarks,
copyrights, trade secrets, or other intellectual property rights.
2.20 ERISA. Neither VCI nor any Subsidiary presently maintain or contribute
to, and have never in the past maintained or contributed to, any employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
thereunder ("ERISA"), whether or not such employee benefit plan is otherwise
exempt from the provisions of ERISA.
2.21 INSURANCE COVERAGE. VCI and each Subsidiary maintains insurance
policies, including fire and casualty insurance policies, worker's compensation
insurance policies, and public liability insurance policies, that are
customarily carried by comparable businesses that insure VCI and each
Subsidiary, and their respective properties and businesses against such losses
and risks, and in such amounts as in their best judgment are customary and
acceptable for the nature and extent of its business.
2.22 BOOKS AND RECORDS. VCI's and each Subsidiary's books of account,
ledgers, order books, records and documents accurately and completely reflect
all material information relating to their respective businesses, the location
and collection of their assets, and the nature of all transactions giving rise
to their obligations and accounts receivable.
2.23 CONFLICTS OF INTEREST. No officer, director or stockholder of VCI or
any Subsidiary, or any affiliate, as such term is defined in Rule 405 under the
Securities Act of 1933 ("Affiliates"), of any such entities, has any direct or
indirect interest (i) in any entity which does business with VCI or any
Subsidiary, (ii) in any property, asset or right which is used by VCI or any
Subsidiary in the conduct of its business, or (iii) in any contractual
relationship with VCI or any Subsidiary other than as an employee.
2.24 SECURITIES LAWS. VCI has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance and
sale of the VCI Shares and the shares to be issued upon exercise of the Restated
Warrant.
2.25 STORE LEASES. Schedule 2.25 sets forth all real property leased by VCI
and each Subsidiary, including the location of the leased property (the
"Leases"). Each of the Leases listed on Schedule 2.25 is in full force and
effect and is binding upon VCI and each Subsidiary, as applicable, and on the
other parties thereto; VCI and each Subsidiary, as applicable, have fully
performed all of their obligations thereunder, including paying all rents and
payments due to date thereunder in full; and there exists no default or event of
default or event, occurrence, condition
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or act which, with the giving of notice, the lapse of time or the happening of
any other event or condition, would become a default or event of default
thereunder.
2.26 DISCLOSURE. Neither this Agreement, the Related Documents, nor any
other agreement, document, certificate or written statement furnished to
Rentrak, Mortco, or their counsel, by or on behalf of VCI or any Subsidiary in
connection with the transactions contemplated hereby or thereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading.
There is no fact within the knowledge of VCI or any Subsidiary which has not
been disclosed herein or in writing by them to Rentrak and Mortco and which
materially adversely affects, or in the future in their opinion may, insofar as
they can now foresee, materially adversely affect the business, properties,
assets or condition, financial or otherwise, of VCI or any Subsidiary.
3. REPRESENTATIONS AND WARRANTIES OF MORTCO. As a material inducement to VCI,
Sulpizio, and AIV to enter into this Agreement, Mortco makes the following
representations and warranties:
3.1 INVESTMENT INTENT. Mortco is acquiring the VCI Shares for its own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933 (the "1933 Act"). Mortco acknowledges that VCI Shares have not been
registered under the 1933 Act or any state securities laws, and that such shares
may not be resold without registration under the 1933 Act or applicable state
securities laws or an exemption therefrom. Mortco is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the 1933
Act and has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the investment to be made by
it hereunder.
3.2 AUTHORIZATION. This Agreement and the Related Documents have been duly
authorized by all necessary corporate action on the part of Mortco and Rentrak,
as the case may be, and have been duly executed and delivered by Mortco and
Rentrak, and are valid and binding agreements, enforceable in accordance with
their terms.
3.3 NO BROKERS OR FINDERS. Neither Mortco nor Rentrak have employed any
broker or finder in connection with the transactions contemplated by this
Agreement, or taken any action that would give rise to a valid claim against any
party for a brokerage commission, finder's fee, or other like payment.
4. CONDITIONS OF CLOSING.
4.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF RENTRAK AND MORTCO. The
obligations of Rentrak and Mortco to consummate the transactions contemplated by
this Agreement, are subject, in Rentrak's and Mortco's sole discretion, to the
fulfillment of each of the following
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conditions precedent on or prior to the Closing Date, any of which may be waived
in whole or in part by Rentrak and Mortco:
4.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of VCI, Sulpizio and AIV under this Agreement shall be true and
correct in all respects at and as of the Closing Date with the same effect as
though made on and as of the Closing Date.
4.1.2 COMPLIANCE WITH AGREEMENT. VCI and each Subsidiary, as
applicable, shall have performed and complied with all agreements or conditions
required by this Agreement and the Related Documents to be performed and
complied with by them prior to or as of the Closing Date, specifically including
without limitation taking all actions required under Section 1.5 above.
4.1.3 SIMULTANEOUS CLOSING OF VCI'S ACQUISITIONS OF SUBSIDIARIES. VCI
shall have simultaneously closed on the acquisition of each Subsidiary in strict
compliance with the terms and conditions set forth in the Merger Agreements
attached hereto as Exhibits C-1 through C-5. VCI shall have issued and delivered
to Mortco, in connection with VCI's acquisition of Sulpizio, a stock certificate
evidencing 9,900 shares of VCI's authorized and unissued voting common stock,
fully paid and nonassessable.
4.1.4 NO EVENT OF DEFAULT. No condition or event which would
constitute an Event of Default (as such term is defined in Section 7.1), or
which, after notice or lapse of time or both, would constitute an Event of
Default, shall exist at the time of Closing.
4.1.5 CLOSING CERTIFICATE. VCI, Sulpizio and AIV shall have each
delivered to Rentrak and Mortco, a certificate, duly signed by their respective
Presidents or Chief Executive Officers, dated as of the Closing Date, certifying
that the conditions specified in Sections 4.1.1, 4.1.2, 4.1.3 and 4.1.4 have
been satisfied and fulfilled.
4.1.6 OPINION OF COUNSEL. VCI, Sulpizio and AIV shall have delivered
to Rentrak and Mortco an opinion of counsel for VCI, Sulpizio and AIV in form
and substance satisfactory to Rentrak and Mortco, dated as of the Closing Date.
4.1.7 EXECUTION AND DELIVERY OF DOCUMENTS. VCI, Sulpizio, AIV, KDDJ,
Leptis, Old Republic, and David Ballstadt, as applicable, shall have executed
and delivered to Rentrak and Mortco this Agreement and all other documents
required to be executed and delivered at Closing hereunder, specifically
including without limitation the Sulpizio Note, the VCI Note, the Loan
Agreement, the VCI Security Agreement, the Sulpizio Security Agreement, the
Guaranty, the VCI/Subsidiaries PPT Agreement, the Registration Rights Agreement,
the First Restated Warrant, the Second Restated Warrant, and the Settlement
Agreement, attached hereto as Exhibits A, B, D, E, F, G, H, I, J, K and L
respectively.
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4.1.8 QUALIFICATION UNDER STATE SECURITIES LAWS. All registrations,
qualifications, permits and approvals required under applicable state and
federal securities laws for the lawful execution and delivery of this Agreement
and the offer, sale, issuance and delivery of VCI Shares and shall have been
obtained.
4.1.9 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby and
all certificates, opinions, agreements, instruments and documents mentioned
herein or incident to any such transactions shall be satisfactory in form and
substance to Rentrak and Mortco. VCI shall have delivered to Mortco (i) a
certificate from the Secretary of the State of Delaware to the effect that VCI
is incorporated and in good standing in Delaware; (ii) a certificate from the
Secretary of State of the State of California to the effect that Sulpizio is
incorporated and in good standing in California; and (iii) a copy of the
resolutions of the Board of Directors of VCI, Sulpizio and AIV, respectively,
approving this Agreement and the Related Documents and the transactions
contemplated hereby and thereby, certified by their respective Secretaries as
being true and correct.
4.1.10 NO LITIGATION. No suit, action, governmental proceeding or
order shall have been instituted or threatened which makes the transactions
contemplated hereby illegal or otherwise prohibited or otherwise seeks to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
4.1.11 THIRD-PARTY CONSENTS. All consents and approvals from parties
to contracts or other agreements with VCI or any Subsidiary that may be required
in connection with the performance by VCI and each Subsidiary of their
obligations under this Agreement or the continuance of such contracts or other
agreements with VCI or any Subsidiary after the Closing shall have been
obtained.
4.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF VCI, SULPIZIO AND AIV. The
obligations of VCI, Sulpizio and AIV to consummate the transactions contemplated
by this Agreement are subject, in the discretion of VCI, Sulpizio and AIV, to
the fulfillment prior to or on the Closing Date of each of the following
conditions, any of which may be waived in whole or in part by VCI, Sulpizio and
AIV:
4.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Mortco under this Agreement shall be true and correct in all
respects at and as of the Closing Date with the same effect as though made on
and as of the Closing Date.
4.2.2 COMPLIANCE WITH AGREEMENT. Rentrak and Mortco shall have
performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with by it prior to or as of the Closing
Date.
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<PAGE>
4.2.3 SIMULTANEOUS CLOSING OF VCI'S ACQUISITIONS OF SUBSIDIARIES. VCI
shall have simultaneously closed on the acquisition of each Subsidiary in strict
compliance with the terms and conditions set forth in the Merger Agreements
attached hereto as Exhibits C-1 through C-5.
4.2.4 EXECUTION AND DELIVERY OF DOCUMENTS. Rentrak and Mortco, as the
case may be, shall have executed this Agreement and all other documents required
to be executed and delivered by them at Closing hereunder.
4.2.5 NO LITIGATION. No suit, action, governmental proceeding or order
shall have been instituted or threatened which makes the transactions
contemplated hereby illegal or otherwise prohibited or otherwise seeks to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
5. AFFIRMATIVE COVENANTS OF SULPIZIO. VCI and Sulpizio hereby jointly and
severally covenant and agree that, unless Mortco shall otherwise give its prior
written consent, which consent may be withheld in its sole discretion, Sulpizio
shall perform and VCI shall cause Sulpizio to perform, all of the following
covenants, which shall be deemed continuing covenants:
5.1 CORPORATE EXISTENCE. Sulpizio shall maintain and preserve its
corporate existence in good standing and all rights, franchises and other
authorizations adequate for the conduct of its business.
5.2 BOOKS OF ACCOUNT AND RESERVES. Sulpizio shall keep books of record and
account in which full, true and correct entries are made of all of its dealings,
business and affairs, in accordance with generally accepted accounting
principles, consistently applied. Sulpizio will employ a nationally recognized
accounting firm as its independent accountants. Sulpizio will have annual audits
made by such independent public accountants in the course of which such
accountants shall make such examinations, in accordance with generally accepted
auditing standards, as will enable them to give reports or opinions with respect
to the financial statements of Sulpizio.
5.3 FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION. Sulpizio shall
deliver to Mortco:
(a) Within five days of their availability, but in any event within
20 days after the close of each month starting March 1998, an unaudited
consolidated balance sheet of VCI as of the end of such month, together
with the related unaudited consolidated statement of the results of
operation (which shall also set forth by way of comparison the budgeted
figures), and statements of changes in financial position and stockholders'
equity for such month and for the period from the beginning of the fiscal
year to the end of such month and, in comparative form, figures for the
corresponding periods of the previous fiscal year, all in reasonable detail
and certified by an authorized accounting
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<PAGE>
officer of VCI to be accurate to the best of his knowledge and belief,
subject to year-end adjustments;
(b) Within five days of their availability, but in any event within
90 days after the end of each fiscal year, an audited consolidated balance
sheet of VCI, as of the end of such fiscal year, together with the related
consolidated statements of income and retained earnings and changes in
financial position for such fiscal year, setting forth in comparative form
figures for the previous fiscal year, all in reasonable detail and duly
certified by VCI's independent public accountants, which accountants shall
have given VCI an opinion, unqualified as to the scope of the audit,
regarding such statements;
(c) Within five days after Sulpizio learns of the commencement or
threatened commencement of any material suit, legal or equitable, or of any
material administrative, arbitration or other proceeding against Sulpizio
or its business, assets or properties, written notice of the nature and
extent of such suit or proceeding;
(d) Within ten days after Sulpizio learns of any material change in
Sulpizio's management, competition, financial condition or properties,
written notice of the nature and extent of such change;
(e) Promptly after the submission thereof to Sulpizio, copies of all
reports and recommendations submitted by independent public accountants in
connection with any annual or interim audit of the accounts of Sulpizio
made by such accountants; and
(f) With reasonable promptness, such other financial data relating to
the business, affairs and financial condition of Sulpizio as is available
to Sulpizio and as from time to time Mortco may reasonably request.
5.4 INSPECTION. Sulpizio shall (upon receipt of reasonable notice) permit
Mortco and any of its officers or employees, or any outside representatives
designated by it and reasonably satisfactory to Sulpizio, to visit and inspect
at Mortco's expense, any of the properties of Sulpizio including their books and
records (and to make extracts therefrom) and to discuss its affairs, finances
and accounts with its officers, except with respect to trade secrets and similar
confidential information, all to such reasonable extent and at such reasonable
times and intervals as Mortco may reasonably request without disruption of
Sulpizio's operations.
5.5 PAYMENT OF TAXES AND MAINTENANCE OF PROPERTIES. Sulpizio shall:
(a) pay and discharge promptly, or cause to be paid and discharged
promptly when due and payable, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or upon any of its
property, real, personal or mixed, or upon any part thereof, as well as all
material claims of any kind (including claims for labor, material and
supplies) which, if unpaid, might by law become a lien or charge upon
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<PAGE>
its property; provided, however, that Sulpizio shall not be required to pay
any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings and if Sulpizio shall have set aside on
its books, reserves (segregated to the extent required by generally
accepted accounting principles) deemed adequate by it with respect thereto;
and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to
time make, or cause to be made, all repairs and renewals and replacements
which in the opinion of Sulpizio are necessary and proper so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
5.6 INSURANCE. Sulpizio shall:
(a) keep or cause all of its insurable property or properties to be
kept insured against loss or damage against fire and other business risks
in such amounts as is customary for similar businesses of comparable size;
(b) maintain public liability insurance against claims for personal
injury, death or property damage suffered by others upon or in or about any
premises occupied by Sulpizio or occurring as a result of its maintenance
or operation of any automobiles, trucks or other vehicles or other
facilities; and
(c) maintain all such workers' compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which
Sulpizio may be engaged in business.
5.7 FILING OF REPORTS. Sulpizio will, from and after such time as it has
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "1934 Act") or has securities registered pursuant to the
Securities Act, make timely filing of such reports as are required to be filed
by it with the SEC so that Rule 144 under the Securities Act will be available
to the security holders of Sulpizio who are otherwise able to take advantage of
the provisions of such Rule.
5.8 PAYMENT OF INDEBTEDNESS AND DISCHARGE OF OBLIGATIONS. Sulpizio shall
pay or cause to be paid the principal of and interest and premium, if any, on
all Indebtedness for Borrowed Money heretofore or hereafter incurred or assumed
by it when and as the same shall become due and payable. Sulpizio shall
faithfully observe, perform and discharge all of the material covenants,
conditions and obligations which are imposed on it by any and all indentures and
other agreements securing or evidencing such Indebtedness for Borrowed Money or
pursuant to which such Indebtedness for Borrowed Money is issued, and will not
permit the continuance of any act or omission which is, or under the provisions
thereof may be declared to be, a default thereunder, unless such default is
waived pursuant to the provisions thereof. As used in this
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<PAGE>
Agreement, the term "Indebtedness" means all items, except items of capital
stock and surplus and reserves which are mere segregations of surplus, which
would be included on the liability side of the consolidated balance sheet of
Sulpizio in accordance with generally accepted accounting principles as of the
date on which Indebtedness is to be determined. As used in this Agreement the
term "Indebtedness for Borrowed Money" includes only indebtedness incurred as
the result of a direct borrowing of money and shall not include Indebtedness
incurred with respect to trade accounts.
6. NEGATIVE COVENANTS. VCI and Sulpizio hereby, jointly and severally,
covenant and agree that, unless Mortco otherwise gives its prior written
consent, which consent may be withheld in its sole discretion, Sulpizio shall
not permit, and VCI shall cause Sulpizio not to permit, any of the following to
be done:
6.1 SALE OF BUSINESS, MERGER, OR CONSOLIDATION, ETC. Sulpizio shall not
liquidate, dissolve or sell, lease or otherwise dispose of more than 10% of its
assets, or consolidate with, participate in a share exchange with, or merge into
any other corporation or entity, or permit any other corporation or entity to
consolidate or merge into it or commence any proceeding therefor.
6.2 DIVIDENDS ON OR REDEMPTION OF COMMON STOCK. Sulpizio shall not declare
or pay any dividend, either in cash or property, or make any other distribution
on any shares of its stock or purchase, redeem, retire or otherwise acquire for
any consideration, any shares of stock.
6.3 COMPENSATION TO CERTAIN EMPLOYEES. Sulpizio shall not pay any
compensation, whether by way of salaries, bonuses, fees, participation in
pension or profit sharing plans or otherwise, to its officers and directors in
excess of the respective amounts being paid on the date hereof, plus 20%.
6.4 ISSUANCE OF STOCK AND RIGHTS TO ACQUIRE STOCK. Sulpizio shall not
issue any shares of stock of Sulpizio of any class and shall not authorize,
issue or grant any options, warrants, conversion rights or other rights to
purchase or acquire any shares of stock of Sulpizio of any class.
6.5 OTHER RESTRICTIONS. Sulpizio shall not:
(a) make loans or advances to any third party or Affiliate, which
individually or in the aggregate, exceed $50,000 (including without
limitation to any officer, director, employee or stockholder of Sulpizio)
or become a guarantor or surety or pledge credit with respect to any
obligation, other than pursuant to Section 6.8 of this Agreement, that
exceeds $50,000 on any undertaking of a third party or Affiliate;
(b) purchase or invest in the stock or obligations of any other
person, firm or corporation whose principal business is unrelated to the
retail video business;
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<PAGE>
(c) purchase, acquire, lease or transfer any property to, or
otherwise deal with, in the ordinary course of business or otherwise, VCI
or any Affiliate of Sulpizio or VCI, except on an arm's length basis in
transactions which are on no less favorable terms to Sulpizio than would be
the case in a similar transaction with an unaffiliated Person; or
(d) fail to perform or breach any of Sulpizio's respective
obligations, agreements or representations and warranties under the
Sulpizio PPT Agreement, the VCI/Subsidiaries PPT Agreement, or any other
agreement with Mortco or Rentrak.
6.6 REGISTRATION RIGHTS. Sulpizio shall not give to any stockholder the
right to cause a registration with the Securities and Exchange Commission of the
sale of such stockholders' securities.
6.7 ARTICLES AND BYLAWS. Sulpizio shall not amend its Articles or Bylaws
or otherwise change or modify its capital structure.
6.8 BORROWED MONIES. Sulpizio shall not create, incur, assume, guarantee
or be or remain liable with respect to any Indebtedness for Borrowed Money,
other than Indebtedness that is subordinate pursuant to a Subordination
Agreement, in form and substance satisfactory to Mortco, to the Indebtedness
contemplated in the Related Documents, except for the Indebtedness described in
Schedule 6.9.
6.9 RESTRICTIONS ON ENCUMBRANCES. Sulpizio shall not create, make, incur,
assume or permit to exist any mortgage, pledge, lien, security interest,
encumbrance or charge of any kind upon any of its properties or assets, whether
now owned or hereafter acquired, except the following:
(a) mortgages, pledges, liens, security interests and other
encumbrances securing any Indebtedness owing to Mortco or Rentrak and the
Indebtedness described on Schedule 6.9;
(b) Personal Property Purchase Money Encumbrances;
(c) Workman's, materialmen's and similar liens imposed by operation
of law.
For purposes of this Agreement, the term "Personal Property Purchase Money
Encumbrances" means all mortgages, security interests, liens and other
encumbrances existing upon any personal property at the time of its acquisition
by Sulpizio or placed upon property being acquired by Sulpizio to secure a
portion of the purchase price thereof; provided, however, that no such mortgage,
security interest, lien, encumbrance, agreement or arrangement shall extend to
or cover any other property of Sulpizio; and provided further that that
aggregate principal amount of the Indebtedness secured by any such mortgage,
security interest, lien, encumbrance, agreement or arrangement shall at no time
exceed (i) the cost (including the principal amount of such
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<PAGE>
Indebtedness, whether or not assumed) to Sulpizio of the property subject
thereto, or (ii) the fair market value of such property at the time of purchase.
6.10 CONFIDENTIALITY. VCI, Sulpizio and AIV, and their respective agents
and representatives shall treat as strictly confidential and shall not, without
express written consent of Rentrak and Mortco, disclose to any third party any
of the specific terms and conditions concerning the transactions contemplated by
this Agreement, including, but not limited to, the identity of Rentrak or Mortco
with respect thereto, or in any other agreement or document referred to herein,
including, but not limited to, the Related Documents. Rentrak and Mortco may, in
the exercise of their sole discretion, disclose the existence of the
transactions consummated pursuant to this Agreement and the Related Documents
and upon the request of Rentrak or Mortco, VCI, Sulpizio and AIV shall confirm
the same. This restriction, however, shall not prevent VCI, Sulpizio or AIV from
disclosing the terms and conditions of this Agreement and the Related Documents
pursuant to Court order. In the event Sulpizio engages in an initial public
offering of its securities, Rentrak and Mortco agree not to unreasonably
withhold their consent with respect to disclosures that are required under
federal and state securities laws, provided that Sulpizio exercises its best
efforts to uphold and abide by its obligations with respect to confidentiality
as provided herein, including but not limited to, seeking confidential treatment
by the SEC with respect to disclosures concerning this Agreement, the Related
Documents, Rentrak or Mortco.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. For purposes of this Agreement, any one or more of
the following events shall constitute an event of default hereunder ("Event of
Default"):
7.1.1 If any representation or warranty made by or on behalf of VCI,
Sulpizio or AIV in this Agreement or the Related Documents, or in any
certificate, report or other instrument delivered under or pursuant to any term
thereof, shall prove to have been untrue or incorrect in any respect as of the
date of this Agreement or as of the Closing; or
7.1.2 Failure by VCI or any Subsidiary to strictly comply with any
term, condition or covenant of this Agreement, the Related Documents, or any
other agreement between VCI and Rentrak and/or Mortco, or between any Subsidiary
and Rentrak and/or Mortco; or
7.1.3 Dissolution, termination of existence, insolvency on a balance
sheet basis, or business failure of VCI or any Subsidiary, the commencement by
VCI or any Subsidiary of a voluntary case under the federal bankruptcy laws or
under other federal or state law relating to insolvency or debtor's relief; the
entry of a decree or order for relief against VCI or any Subsidiary in an
involuntary case under the federal bankruptcy laws or under any other applicable
federal or state law relating to debtor's relief; the appointment or the consent
by VCI or any Subsidiary to the appointment of receiver, trustee, or custodian
of VCI or any Subsidiary, or of any of VCI's or any Subsidiary's property; an
assignment for the benefit of creditors by
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<PAGE>
VCI or any Subsidiary, or VCI's or any Subsidiary's failure generally to pay its
debts as such debts become due.
7.2 REMEDIES UPON AN EVENT OF DEFAULT. Upon the occurrence of an Event of
Default as herein defined, Rentrak and Mortco shall be entitled to all remedies
available at law or equity and may protect and enforce its rights hereunder by
suit in equity or action at law. It is agreed that in the event of any such
action, the prevailing party shall be entitled to receive all reasonable fees,
costs and expenses incurred, including without limitation such reasonable fees
and expenses of attorneys at trial and on appeal.
7.3 REMEDIES CUMULATIVE. No right, power or remedy conferred upon Rentrak
and Mortco shall be exclusive, and each such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy, whether
conferred hereby or now or hereafter available at law or in equity or by statute
or otherwise.
7.4 REMEDIES NOT WAIVED. No course of dealing between VCI, any Subsidiary,
and Rentrak and/or Mortco, and no delay in exercising any right, power or remedy
conferred hereby, shall operate as a waiver of or otherwise prejudice any such
right, power or remedy.
8. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
8.1 SURVIVAL. Notwithstanding any right of Rentrak or Mortco to fully
investigate the affairs of VCI and each Subsidiary and notwithstanding any
knowledge of facts determined or determinable by Rentrak or Mortco pursuant to
such investigation or right of investigation, Rentrak and Mortco have the right
to rely fully upon the representations, warranties, covenants, indemnities and
agreements of VCI, Sulpizio, and AIV contained in or made pursuant to this
Agreement or the Related Documents (including all Exhibits and Schedules
thereto) or in any certificate, document or statement delivered pursuant thereto
(collectively the "Ancillary Documents"). All representations, warranties,
covenants, indemnities and agreements of the parties contained in or made
pursuant to this Agreement, the Related Documents or the Ancillary Documents
shall survive the Closing.
8.2 OBLIGATION TO INDEMNIFY. VCI, Sulpizio, and AIV, jointly and
severally, shall indemnify, defend and hold harmless Rentrak and Mortco, and
their respective directors, officers, employees, affiliates, successors and
assigns (collectively, the "Indemnitees") from and against any and all losses,
liabilities, damages, deficiencies, costs or expenses (including interest,
penalties and reasonable attorneys' fees and disbursements) ("Losses") that are
suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may become subject at any time (whether or not such Losses relate to
any third party claim) and which arise from or as a result of, or are directly
or indirectly connected with:
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<PAGE>
(a) any inaccuracy in or any breach of any representation or warranty
made by VCI or any Subsidiary in this Agreement, the Related Documents or
the Ancillary Documents; or
(b) any breach of any covenant or obligation of VCI or any Subsidiary
contained in this Agreement, the Related Documents or the Ancillary
Documents.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This document (including the Exhibits and Schedules
attached hereto) is the entire, final and complete Agreement and understanding
of the parties with respect to the transactions contemplated hereby, and
supersedes and replaces all written and oral agreements and understandings
heretofore made or existing by and between the parties or their representatives
with respect thereto.
9.2 WAIVER. No waiver of any provision of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
9.3 BINDING EFFECT. All rights, remedies and liabilities herein given to
or imposed upon the parties shall extend to, inure to the benefit of and bind,
as the circumstances may require, the parties and their respective heirs,
personal representatives, administrators, successors and permitted assigns.
9.4 NOTICES. Any notice of other communication required or permitted under
this Agreement shall be in writing and shall be deemed given on the date of
transmission when sent by telex or facsimile transmission, on the third business
day after the day of mailing when mailed by certified mail, postage prepaid,
return receipt requested, from within the United States, or on the date of
actual delivery, whichever is the earliest, and shall be sent to the parties at
the addresses shown on the first page of this Agreement, address, or at such
other address as the party may hereafter designate by written notice to the
others:
9.5 AMENDMENT. No supplement, modification or amendment of this Agreement
shall be valid, unless the same is in writing and signed by all parties hereto.
9.6 SEVERABILITY. In the event any provision or portion of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the remainder of this Agreement shall remain in full force and effect and shall
in no way be affected or invalidated thereby.
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<PAGE>
9.7 SURVIVAL OF COVENANTS. Any covenants the full performance of which are
not required before Closing shall survive the Closing and be fully enforceable
thereafter in accordance with their terms.
9.8 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. This Agreement and all
other agreements contemplated hereunder, including the Related Documents, and
the rights of the parties hereunder and thereunder shall be governed, construed
and enforced in accordance with by the laws of the State of Oregon, without
regard to its conflict of law principles. Any suit or action arising out of or
in connection with this Agreement or the Related Documents, or any breach hereof
or thereof, shall be brought and maintained exclusively in the federal or state
courts in Portland, Oregon. The parties hereby irrevocably submit to the
exclusive jurisdiction of such courts for the purpose of such suit or action and
hereby expressly and irrevocably waive, to the fullest extent permitted by law,
any objection it may now or hereafter have to the venue of any such suit or
action in any such court and any claim that any such suit or action has been
brought in an inconvenient forum. VCI, Sulpizio and AIV hereby irrevocably waive
their right to a jury trial in any claim or cause of action based upon or
arising out of this Agreement or the Related Documents or any dealings between
VCI, Sulpizio and AIV and Rentrak and/or Mortco relating to this Agreement or
the Related Documents.
9.9 SCHEDULES. All Schedules to this Agreement shall be deemed an integral
part of this Agreement and shall be incorporated herein by this reference as
though set forth in full.
9.10 SPECIFIC PERFORMANCE. Each party's obligations under this Agreement
are unique. If any party should default in its obligations under this Agreement,
the parties each acknowledge that it would be extremely impracticable to measure
the resulting damages and, accordingly, the nondefaulting party, in addition to
any other available rights or remedies, may sue in equity for specific
performance, and the parties each expressly waive the defense that a remedy in
damages will be adequate.
9.11 RECITALS. The "Recitals" set forth at the beginning of this Agreement
are true and accurate and are incorporated herein by this reference as though
set forth in full.
9.12 CAPTIONS. The caption headings of the sections and subsections of this
Agreement are for convenience of reference only and are not intended to be, and
should not be construed as, a part of this Agreement.
9.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute a single agreement.
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9.14 CROSS-REFERENCES. Unless expressly stated otherwise herein, all
references in this Agreement to sections, exhibits, and schedules refer to
sections, exhibits, and schedules of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate as of the day and year first above written.
VIDEO CITY, INC. RENTRAK CORPORATION
By: By:
Title: Ron Berger, President
SULPIZIO ONE INC. MORTCO, INC.
By: By:
Title: Ron Berger, President
ADVENTURES IN VIDEO, INC.
By:
Title:
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<PAGE>
EXHIBIT C
[FIRST RESTATED WARRANT]
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE BLUE SKY LAWS OF ANY JURISDICTION THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE BLUE SKY LAWS OF ANY JURISDICTION. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF,
BENEFICIALLY OR ON THE RECORDS OF THE COMPANY, UNLESS THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT AND APPLICABLE BLUE SKY LAWS OR THERE HAS BEEN DELIVERED TO
THE COMPANY AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.
THE TRANSFER OF THIS WARRANT IS RESTRICTED
AS PROVIDED IN SECTIONS 7 AND 8
- --------------------------------------------------------------------------------
GRANT DATE: August 24, 1995
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
VIDEO CITY, INC.
In connection with the transfer of the Warrant Certificate, dated August
24, 1995, from Rentrak Corporation, an Oregon corporation ("Rentrak") to Mortco,
Inc., an Oregon corporation and wholly-owned subsidiary of Rentrak ("Mortco"),
Video City, Inc., a Delaware corporation (the "Company"), grants to Mortco the
right, subject to the terms and conditions of this Warrant, to purchase at any
time during the period commencing on the date hereof and ending on September 30,
2005 (the "Expiration Date"), for an aggregate purchase price of $400,000 (the
"Aggregate Exercise Price"), 131,483 shares of the Company's Common Stock. The
number and character of shares that may be purchased upon exercise of this
Warrant and payment of the Aggregate Exercise Price are subject to adjustment
from time to time as hereinafter provided.
SECTION 1. DEFINITIONS. As used in this Warrant, unless the context
otherwise requires:
1.1 "AGGREGATE EXERCISE PRICE" is defined in the first paragraph of
this Warrant.
1.2 "COMMON STOCK" means all classes of common stock of the Company.
1.3 "COMPANY" is defined in the first paragraph of this Warrant.
Page 1 - WARRANT CERTIFICATE
<PAGE>
1.4 "EXERCISE DATE" means the date when this Warrant is exercised in
the manner indicated in Section 2.2.
1.5 "EXERCISE PERIOD" means the period commencing on the Grant Date
and ending on the Expiration Date.
1.6 "EXERCISE PRICE" means the price per Warrant Share, which is
determined by dividing the Aggregate Exercise Price by the number of shares of
Common Stock issuable upon the exercise of this Warrant.
1.7 "EXPIRATION DATE" is defined in the first paragraph of this
Warrant.
1.8 "GRANT DATE" is August 24, 1995.
1.9 "HOLDER" means initially Mortco and its subsequent transferees.
1.10 "MORTCO" is defined in the first paragraph of this Warrant.
1.11 "RELATED WARRANT" means any other Warrant executed and delivered
by the Company on terms identical with the terms of this Warrant (except as to
the identity of Holder, number of Warrant Shares or execution date) that is
granted pursuant to Section 6 of this Agreement.
1.12 "RELATED WARRANT SHARES" means any shares of Common Stock or
other securities issued or issuable upon exercise of any Related Warrant.
1.13 "RENTRAK" is defined in the first paragraph of this Warrant.
1.14 "SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and all rules and regulations promulgated thereunder, or any
act, rules or regulations that replace the Securities Act or any such rules and
regulations.
1.15 "WARRANT" means this Common Stock Warrant and each previously
executed and cancelled Common Stock Warrant, if any, for which this Warrant has
been exchanged.
1.16 "WARRANT SHARES" means any shares of Common Stock or other
securities issued or subject to issuance upon exercise of this Warrant or upon
exchange of a Warrant Share for Warrant Shares of different denominations.
SECTION 2. DURATION AND EXERCISE OF WARRANT; COMPUTATION OF SHARES.
2.1 VESTING. This Warrant shall vest in its entirety on the Grant
Date and expire on the Expiration Date.
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<PAGE>
2.2 EXERCISE OF WARRANT; ISSUANCE OF SHARES. This Warrant is
immediately exercisable by Holder, in whole or in part, at any time during the
Exercise Period. Holder may exercise this Warrant during the Exercise Period by
(i) surrendering this Warrant to the Company; (ii) tendering to the Company the
payment due with regard to the Aggregate Exercise Price; and (iii) executing and
delivering to the Company the attached Exercise Form.
Upon exercising this Warrant, the Company shall issue 131,483 shares
of Common Stock to Holder, together with 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 Grant Date of this Warrant with respect
to the Common Stock which Holder would have received had Holder exercised the
Warrant immediately prior to the 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.
2.3 CERTIFICATES. Within a reasonable time, but no more than fifteen
(15) days after exercise, the Company shall deliver certificates for all Warrant
Shares to Holder.
2.4 SECURITIES ACT COMPLIANCE. Unless the issuance or transfer of the
Warrant Shares shall have been registered under the Securities Act, as a
condition of its delivery of the certificates for the Warrant Shares, the
Company may require Holder (including any transferee of the Warrant Shares in
whose name the Warrant Shares are to be registered) to deliver to the Company,
in writing, representations regarding the purchaser's sophistication, investment
intent, acquisition for its own account and such other matters as are reasonable
and customary for purchasers of securities in an unregistered private offering,
and the Company may place conspicuously upon each certificate representing the
Warrant Shares a legend substantially in the following form, the terms of which
are agreed to by Holder (including such transferee):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE BLUE SKY LAWS OF ANY JURISDICTION. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF,
BENEFICIALLY OR ON THE RECORDS OF THE COMPANY, UNLESS THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT AND APPLICABLE BLUE SKY LAWS OR THERE HAS BEEN DELIVERED TO
THE COMPANY AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.
The Company need not register a transfer of this Warrant or the Warrant Shares
unless the conditions specified in this legend and in Section 8 are satisfied.
SECTION 3. VALIDITY AND RESERVATION OF WARRANT SHARES. The Company
covenants and warrants that this Warrant and any Warrant Shares will be validly
issued, fully paid, nonassessable and free of preemptive rights. The Company
agrees that so long as this Warrant
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<PAGE>
may be exercised, the Company will have authorized and reserved for issuance
upon the exercise of this Warrant a sufficient number of Warrant Shares to
provide for exercise in full.
SECTION 4. FRACTIONAL SHARES. No fractional Warrant Share shall be issued
upon the exercise of this Warrant. With respect to any fraction of a Warrant
Share otherwise issuable upon any such exercise, the Company shall pay to Holder
an amount in cash equal to such fraction multiplied by the Exercise Price.
SECTION 5. LIMITED RIGHTS OF THE WARRANT HOLDER. Holder shall not, solely
by virtue of being the holder of this Warrant, have any of the rights of a
holder of Common Stock of the Company, either at law or equity, until such
Warrant shall have been exercised and Holder shall have been issued certificates
representing the Warrant Shares and Holder shall be deemed to be the holder of
record of Warrant Shares as provided in this Warrant, at which time the person
or persons in whose name or names the certificate or certificates for Warrant
Shares being purchased are to be issued shall be deemed the holder or holders of
record of such shares for all purposes.
SECTION 6. ADJUSTMENTS UPON CERTAIN EVENTS.
(a) If this Warrant shall be exercised subsequent to any stock split,
stock dividend, recapitalization, combination of shares of the Company, or other
similar event, occurring after the date hereof, then the Holder exercising this
Warrant shall receive upon the exercise of this Warrant and payment of no
additional consideration other than the Aggregate Exercise Price, the aggregate
number and class of shares which such Holder would have received if this Warrant
had been exercised immediately prior to such stock split, stock dividend,
recapitalization, combination of shares, or other similar event. If any
adjustment under this Section 6(a), would create a fractional share of Common
Stock or a right to acquire a fractional share, such fractional share shall be
disregarded and the number of shares subject to this Warrant shall be the next
higher number of shares, rounding all fractions upward. Whenever there shall be
an adjustment pursuant to this Section 6(a), the Company shall forthwith notify
the Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
(b) If this Warrant shall be exercised subsequent to any merger,
consolidation, exchange of shares, separation, reorganization, sale of all or
substantially all of the Company's assets, liquidation of the Company, or other
similar event, occurring after the Grant Date, as a result of which shares of
Common Stock shall be changed into the same or a different number of shares of
the same or another class or classes of securities of the Company or another
entity or are otherwise entitled to receive shares of stock or other securities
or property, then the Holder exercising this Warrant shall receive, upon the
exercise of this Warrant and payment of no additional consideration other than
the Aggregate Exercise Price, the aggregate number and class of shares or other
property
Page 4 - WARRANT CERTIFICATE
<PAGE>
which such Holder would have received if this Warrant had been exercised
immediately prior to such merger, consolidation, exchange of shares, separation,
reorganization, sale of all or substantially all of the Company's assets, or
liquidation, or other similar event. If any adjustment under this Section 6(b)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares subject to this Warrant shall be the next higher number of
shares, rounding all fractions upward. Whenever there shall be an adjustment
pursuant to this Section 6(b), the Company shall forthwith notify the Holder or
Holders of this Warrant of such adjustment, setting forth in reasonable detail
the event requiring the adjustment and the method by which such adjustment was
calculated. The above provisions of this Section 6(b) shall apply to successive
events described above.
SECTION 7. EXCHANGE, TRANSFER OR LOSS OF WARRANT.
7.1 EXCHANGE. This Warrant is exchangeable, without expense to
Holder and upon surrender hereof to the Company, for Related Warrants of
different denominations entitling Holder to purchase Related Warrant Shares
equal in total number and identical in type to the Warrant Shares covered by
this Warrant.
7.2 TRANSFER. Subject to the provisions of Section 8, upon surrender
of this Warrant to the Company with the attached Assignment Form duly executed,
the Company shall, without charge, execute and deliver a Related Warrant to the
assignee named in such Assignment Form, and this Warrant shall promptly be
cancelled.
7.3 LOSS, THEFT, DESTRUCTION OR MUTILATION. Upon receipt by the
Company of satisfactory evidence of the loss, theft, destruction or mutilation
of this Warrant and either (in the case of loss, theft or destruction)
indemnification or bond in form and substance acceptable to the Company, or (in
the case of mutilation) the surrender of this Warrant for cancellation, the
Company will execute and deliver to Holder, without charge, a Related Warrant of
like denomination. Any such Related Warrant executed and delivered shall
constitute an additional obligation of the Company, whether or not this Warrant,
reportedly lost, stolen, destroyed or mutilated, shall be at any time presented
by anyone to the Company for exercise.
SECTION 8. TRANSFER RESTRICTION.
8.1 GENERAL. Anything contained hereto to the contrary
notwithstanding, this Warrant may not be assigned, transferred (by operation of
law or otherwise), hypothecated or sold (other than to Rentrak or a wholly-owned
subsidiary of Rentrak), except as set forth in Section 8.2. Any such assignment
or transfer shall be made by surrender of this Warrant to the Company or at the
office of its transfer agent, if any, with the Form of Assignment annexed hereto
duly executed and funds sufficient to pay any transfer tax, whereupon the
Company shall, without charge, execute and deliver a Related Warrant in the name
of the assignee and this Warrant shall promptly be cancelled.
Page 5 - WARRANT CERTIFICATE
<PAGE>
8.2 SECURITIES LAW COMPLIANCE. Except pursuant to the requirements of
Rule 144 of the Securities Act, the Warrant and Warrant Shares may not be sold,
transferred, assigned or otherwise disposed of except as follows:
(a) to a person who, in the opinion of counsel satisfactory to
the Company and in the opinion of the Company's counsel, is a person to whom the
Warrant or Warrant Shares may legally be transferred without registration under
the Securities Act and without the delivery of a current prospectus with respect
thereto; or
(b) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities (as to which a
registration statement under the Securities Act shall then be in effect) and the
offering thereof for such sale or disposition.
Holder agrees that it will not at any time offer to sell, sell, transfer,
pledge or otherwise dispose of this Warrant, or, upon receipt of the Warrant
Shares after exercise hereof, any of such Warrant Shares, except pursuant to
either (a) an effective registration statement under the Securities Act or (b)
an opinion of counsel satisfactory to the Company to the effect that such
registration is not required. Holder acknowledges that, in taking this
unregistered Warrant, or in taking unregistered Warrant Shares upon exercise
hereof, Holder must continue to bear the economic risk of such investments for
what may be an indefinite period of time. Holder further agrees hereby that,
prior to any transfer of this Warrant or any Warrant Shares received upon any
exercise hereof (if such Warrant and/or Warrant Shares are not registered under
the Securities Act), it will give written notice to the Company of its intention
to effect such transfer. Upon receipt of such notice, the Company will promptly
present it to counsel for the Company and counsel for Holder and if the Company
receives the opinion of such counsel, in form and substance satisfactory to the
Company, that the proposed transfer may be effected without registration under
the Securities Act and applicable state law, Holder shall be promptly notified
and shall be entitled to effect the transfer of this Warrant and/or the Warrant
Shares in accordance with the terms specified in the notice delivered to the
Company. The provisions of this Section 8.2 shall be binding upon all
subsequent Holders of this Warrant and upon all subsequent holders of the
certificates for the Common Stock bearing the legend specified in Section 2.5
hereof.
8.3 REPRESENTATIONS OF HOLDER. Holder represents that it has
acquired this Warrant for investment purposes only, for its own account, and not
with any present view to, or any offer to sell in connection with, the
distribution thereof. Holder represents that it is an "accredited investor" as
that term is defined under Regulation D of the Securities Act.
SECTION 9. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to Rentrak the following:
Page 6 - WARRANT CERTIFICATE
<PAGE>
9.1 AUTHORITY. The Company has full right, power and authority to
enter into this Agreement and to perform all of its obligations hereunder or
contemplated hereby; this Agreement has been duly authorized, executed and
delivered by the Company and is enforceable in accordance with its terms.
9.2 VALID AGREEMENT. This Warrant, and the issue and delivery
thereof has been duly and validly authorized, and this Warrant, when issued and
delivered as provided in this Agreement, will be duly and validly issued and
outstanding, and will constitute a valid and binding obligation of the Company.
SECTION 10. REGISTRATION RIGHTS. The Warrant Shares are hereby granted
and shall have all of the registration rights granted to Mortco under that
certain Registration Rights Agreement, dated as of the date hereof (the "Rights
Agreement"), by and between Mortco and the Company, the terms of which are
incorporated herein by this reference as if fully set forth herein; provided,
however, that (a) the term "Shares" used in the Rights Agreement shall mean the
Warrant Shares, (b) the term "Mortco" used in the Rights Agreement shall mean a
Holder as defined herein, and (c) the term "Agreement" used in the Rights
Agreement shall mean this Warrant.
SECTION 11. MISCELLANEOUS.
11.1 SUCCESSORS AND ASSIGNS. All the covenants and provisions of
this Warrant that are by or for the benefit of the Company shall bind and inure
to the benefit of its successors and assigns hereunder.
11.2 NOTICE. Notice or demand pursuant to this Warrant to be given
or made by Holder to or on the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed, until another address is
designated in writing by the Company, as follows:
Video City, Inc.
6840 District Boulevard
Bakersfield, CA 93313
Attention: Robert Y. Lee
Any notice or demand authorized by this Warrant to be given or made by the
Company to or on Holder shall be given to Holder by first-class mail, postage
prepaid, addressed, until another address is designated in writing by the
Company, as follows:
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<PAGE>
Rentrak Corporation
One Airport Center
7700 N.E. Ambassador Place
Portland, OR 97220
Attention: Ron Berger
and to any other Holder addressed at his last known address as it shall appear
on the books of the Company, until another address is designated in writing,
with a copy to Rentrak Corporation by like mail.
11.3 APPLICABLE LAW. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of Oregon. For any
action related to the judicial enforcement or interpretation of this Agreement,
the parties hereby expressly submit themselves to the exclusive jurisdiction of
the Circuit Court for the County of Multnomah, State of Oregon or the Federal
Court for the District of Oregon.
11.4 HEADINGS. The article headings herein are for convenience only
and are not part of this Warrant and shall not affect the interpretation
thereof.
This Warrant is executed as of March 25, 1998.
AGREED AND ACCEPTED:
COMPANY: MORTCO:
VIDEO CITY, INC. MORTCO, INC.
By:______________________ By:_____________________
Robert Y. Lee, CEO Ron Berger, President
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<PAGE>
EXERCISE FORM
(To Be Executed by the Warrant Holder if the Warrant is Exercised)
TO:VIDEO CITY, INC.
The undersigned _______________________________________________________________
(Please insert name and Social Security or other identifying
number of Subscriber)
hereby irrevocably elects to exercise the right of purchase represented by the
attached Warrant for, and to purchase thereunder, that number of shares of the
Company's Common Stock which, immediately following the exercise hereof, will
equal one percent (1%) of the total fully paid and nonassessable outstanding
Common Stock of the Company calculated on a fully diluted basis determined in
accordance with generally accepted accounting principles in effect on the date
hereof, and tenders payment herewith to the order of Video City, Inc., in the
amount of $___________.
The undersigned requests that certificates for such shares of Common Stock be
issued as follows:
Name: __________________________________________________________________________
Address:________________________________________________________________________
Deliver To: ____________________________________________________________________
Address:________________________________________________________________________
NOTE: SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Page 9 - WARRANT CERTIFICATE
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
[name] [address]
________________, of ______________________________, the right to purchase
__________ shares of Common Stock evidenced by the within Warrant, and
[name]
appoints __________________________ to transfer the same on the books of Video
City, Inc., with the full power of substitution in the premises.
Dated:_____________________ Signature:__________________________________________
NOTE: SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
WARRANT.
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<PAGE>
EXHIBIT D
[SECOND RESTATED WARRANT]
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE BLUE SKY LAWS OF ANY JURISDICTION. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF,
BENEFICIALLY OR ON THE RECORDS OF THE COMPANY, UNLESS THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT AND APPLICABLE BLUE SKY LAWS OR THERE HAS BEEN DELIVERED TO
THE COMPANY AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.
THE TRANSFER OF THIS WARRANT IS RESTRICTED
AS PROVIDED IN SECTIONS 7 AND 8
GRANT DATE: June 19, 1996
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
VIDEO CITY, INC.
In accordance with the transfer of the Warrant Certificate, dated June 19,
1996, from Rentrak corporation, an Oregon corporation ("Rentrak"), to Mortco,
Inc., an Oregon corporation and wholly-owned subsidiary of Rentrak ("Mortco"),
Video City, Inc., a Delaware corporation (the "Company"), grants to Mortco the
right, subject to the terms and conditions of this Warrant, to purchase at any
time during the period commencing the date hereof and ending on September 30,
2005 (the "Expiration Date"), for an aggregate purchase price of $30,795 (the
"Aggregate Exercise Price"), 65,077 shares of the Company's Common Stock. The
number and character of shares that may be purchased upon the exercise of this
Warrant and payment of the Aggregate Exercise Price are subject to adjustment
from time to time as hereinafter provided.
SECTION 1. DEFINITIONS. As used in this Warrant, unless the context
otherwise requires:
1.1 "AGGREGATE EXERCISE PRICE" is defined in the first paragraph of
this Warrant.
1.2 "COMMON STOCK" means all classes of common stock of the Company.
1.3 "COMPANY" is defined in the first paragraph of this Warrant.
1.4 "EXERCISE DATE" means the date when this Warrant is exercised in
the manner
Page 1 - WARRANT CERTIFICATE
<PAGE>
indicated in Section 2.2.
1.5 "EXERCISE PERIOD" means the period commencing on the Grant Date
and ending on the Expiration Date.
1.6 "EXERCISE PRICE" means the price per Warrant Share, which is
determined by dividing the Aggregate Exercise Price divided by the number of
shares of the Company's Common Stock issuable upon the exercise of this Warrant.
1.7 "EXPIRATION DATE" is defined in the first paragraph of this
Warrant.
1.8 "GRANT DATE" means June 19, 1996.
1.9 "HOLDER" means initially Mortco and its subsequent transferees.
1.10 "MORTCO" is defined in the first paragraph of this Warrant.
1.11 "RELATED WARRANT" means any other Warrant executed and delivered
by the Company on terms identical with the terms of this Warrant (except as to
the identity of Holder, number of Warrant Shares or execution date) that is
granted pursuant to Section 6 of this Agreement.
1.12 "RELATED WARRANT SHARES" means any shares of Common Stock or
other securities issued or issuable upon exercise of any Related Warrant.
1.13 "RENTRAK" is defined in the first paragraph of this Warrant.
1.14 "SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and all rules and regulations promulgated thereunder, or any
act, rules or regulations that replace the Securities Act or any such rules and
regulations.
1.15 "WARRANT" means this Common Stock Warrant and each previously
executed and cancelled Common Stock Warrant, if any, for which this Warrant has
been exchanged.
1.16 "WARRANT SHARES" means any shares of Common Stock or other
securities issued or subject to issuance upon exercise of this Warrant or upon
exchange of a Warrant Share for Warrant Shares of different denominations.
SECTION 2. DURATION AND EXERCISE OF WARRANT; COMPUTATION OF SHARES.
2.1 VESTING. This Warrant shall vest in its entirety on the Grant
Date and expire on the Expiration Date.
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<PAGE>
2.2 EXERCISE OF WARRANT; ISSUANCE OF SHARES. This Warrant is
immediately exercisable by Holder, in whole or in part, at any time during the
Exercise Period. Holder may exercise this Warrant during the Exercise Period by
(i) surrendering this Warrant to the Company; (ii) tendering to the Company the
payment due with regard to the Aggregate Exercise Price; and (iii) executing and
delivering to the Company the attached Exercise Form.
Upon exercising this Warrant, the Company shall issue 65,077 shares of
Common Stock to Holder, together with 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 Grant Date of this Warrant with respect
to the Common Stock which Holder would have received had Holder exercised the
Warrant immediately prior to the 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.
2.3 CERTIFICATES. Within a reasonable time but no more than fifteen
(15) days after exercise, the Company shall deliver certificates for such
Warrant Shares to Holder.
2.4 SECURITIES ACT COMPLIANCE. Unless the issuance or transfer of the
Warrant Shares shall have been registered under the Securities Act, as a
condition of its delivery of the certificates for the Warrant Shares, the
Company may require Holder (including any transferee of the Warrant Shares in
whose name the Warrant Shares are to be registered) to deliver to the Company,
in writing, representations regarding the purchaser's sophistication, investment
intent, acquisition for its own account and such other matters as are reasonable
and customary for purchasers of securities in an unregistered private offering,
and the Company may place conspicuously upon each certificate representing the
Warrant Shares a legend substantially in the following form, the terms of which
are agreed to by Holder (including such transferee):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE BLUE SKY LAWS OF ANY JURISDICTION. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF,
BENEFICIALLY OR ON THE RECORDS OF THE COMPANY, UNLESS THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT AND APPLICABLE BLUE SKY LAWS OR THERE HAS BEEN DELIVERED TO
THE COMPANY AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.
The Company need not register a transfer of this Warrant or the Warrant
Share unless the conditions specified in such legend and in Section 8 are
satisfied.
SECTION 3. VALIDITY AND RESERVATION OF WARRANT SHARES. The Company
covenants and warrants that this Warrant and any Warrant Shares will be validly
issued, fully paid, nonassessable and free of preemptive rights. The Company
agrees that so long as this Warrant may be exercised, the Company will have
authorized and reserved for issuance upon the exercise of this Warrant a
sufficient number of Warrant Shares to provide for exercise in full.
Page 3 - WARRANT CERTIFICATE
<PAGE>
SECTION 4. FRACTIONAL SHARES. No fractional Warrant Share shall be issued
upon the exercise of this Warrant. With respect to any fraction of a Warrant
Share otherwise issuable upon any such exercise, the Company shall pay to Holder
an amount in cash equal to such fraction multiplied by the Exercise Price.
SECTION 5. LIMITED RIGHTS OF THE WARRANT HOLDER. Holder shall not, solely
by virtue of being the holder of this Warrant, have any of the rights of a
holder of Common Stock of the Company, either at law or equity, until such
Warrant shall have been exercised and Holder shall have been issued certificates
representing the Warrant Shares and Holder shall be deemed to be the holder of
record of Warrant Shares as provided in this Warrant, at which time the person
or persons in whose name or names the certificate or certificates for Warrant
Shares being purchased are to be issued shall be deemed the holder or holders of
record of such shares for all purposes.
SECTION 6. ADJUSTMENTS UPON CERTAIN EVENTS.
(a) If this Warrant shall be exercised subsequent to any stock split,
stock dividend, recapitalization, combination of shares of the Company, or
other similar event, occurring after the date hereof, then the Holder
exercising this Warrant shall receive upon the exercise of this Warrant and
payment of no additional consideration other than the Aggregate Exercise
Price, the aggregate number and class of shares which such Holder would
have received if this Warrant had been exercised immediately prior to such
stock split, stock dividend, recapitalization, combination of shares, or
other similar event. If any adjustment under this Section 6(a), would
create a fractional share of Common Stock or a right to acquire a
fractional share, such fractional share shall be disregarded and the number
of shares subject to this Warrant shall be the next higher number of
shares, rounding all fractions upward. Whenever there shall be an
adjustment pursuant to this Section 6(a), the Company shall forthwith
notify the Holder or Holders of this Warrant of such adjustment, setting
forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
(b) If this Warrant shall be exercised subsequent to any merger,
consolidation, exchange of shares, separation, reorganization, sale of all
or substantially all of the Company's assets, liquidation of the Company,
or other similar event, occurring after the Grant Date, as a result of
which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of securities of
the Company or another entity or are otherwise entitled to receive shares
of stock or other securities or property, then the Holder exercising this
Warrant shall receive, upon the exercise of this Warrant and payment of no
additional consideration other than the Aggregate Exercise Price, the
aggregate number and class of shares or other property which such Holder
would have received if this Warrant had been exercised immediately prior to
such merger, consolidation, exchange of shares, separation, reorganization,
sale of all or substantially all of the Company's assets, or liquidation,
or other similar event. If
Page 4 - WARRANT CERTIFICATE
<PAGE>
any adjustment under this Section 6(b) would create a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares subject to
this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 6(b), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated. The above provisions of this Section 6(b) shall apply to
successive events described above.
SECTION 7. EXCHANGE, TRANSFER OR LOSS OF WARRANT.
7.1 EXCHANGE. This Warrant is exchangeable, without expense to
Holder and upon surrender hereof to the Company, for Related Warrants of
different denominations entitling Holder to purchase Related Warrant Shares
equal in total number and identical in type to the Warrant Shares covered by
this Warrant.
7.2 TRANSFER. Subject to the provisions of Section 8, upon surrender
of this Warrant to the Company with the attached Assignment Form duly executed,
the Company shall, without charge, execute and deliver a Related Warrant to the
assignee named in such Assignment Form, and this Warrant shall promptly be
cancelled.
7.3 LOSS, THEFT, DESTRUCTION OR MUTILATION. Upon receipt by the
Company of satisfactory evidence of the loss, theft, destruction or mutilation
of this Warrant and either (in the case of loss, theft or destruction)
indemnification or bond in form and substance acceptable to the Company, or (in
the case of mutilation) the surrender of this Warrant for cancellation, the
Company will execute and deliver to Holder, without charge, a Related Warrant of
like denomination. Any such Related Warrant executed and delivered shall
constitute an additional obligation of the Company, whether or not this Warrant,
reportedly lost, stolen, destroyed or mutilated, shall be at any time presented
by anyone to the Company for exercise.
SECTION 8. TRANSFER RESTRICTION.
8.1 GENERAL. Anything contained hereto to the contrary
notwithstanding, this Warrant may not be assigned, transferred (by operation of
law or otherwise), hypothecated or sold (other than to Rentrak or a wholly-owned
subsidiary of Rentrak), except as set forth in Section 8.2. Any such assignment
or transfer shall be made by surrender of this Warrant to the Company or at the
office of its transfer agent, if any, with the Form of Assignment annexed hereto
duly executed and funds sufficient to pay any transfer tax, whereupon the
Company shall, without charge, execute and deliver a Related Warrant in the name
of the assignee and this Warrant shall promptly be cancelled.
8.2 SECURITIES LAW COMPLIANCE. Except pursuant to the requirements
of Rule 144 of the Securities Act, the Warrant and Warrant Shares may not be
sold, transferred, assigned or otherwise disposed of except as follows:
Page 5 - WARRANT CERTIFICATE
<PAGE>
(a) to a person who, in the opinion of counsel satisfactory to the
Company and in the opinion of the Company's counsel, is a person to whom
the Warrant or Warrant Shares may legally be transferred without
registration under the Securities Act and without the delivery of a current
prospectus with respect thereto; or
(b) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities (as to which
a registration statement under the Securities Act shall then be in effect)
and the offering thereof for such sale or disposition.
Holder agrees that it will not at any time offer to sell, sell, transfer,
pledge or otherwise dispose of this Warrant, or, upon receipt of the Warrant
Shares after exercise hereof, any of such Warrant Shares, except pursuant to
either (a) an effective registration statement under the Securities Act or (b)
an opinion of counsel satisfactory to the Company to the effect that such
registration is not required. Holder acknowledges that, in taking this
unregistered Warrant, or in taking unregistered Warrant Shares upon exercise
hereof, Holder must continue to bear the economic risk of such investments for
what may be an indefinite period of time. Holder further agrees hereby that,
prior to any transfer of this Warrant or any Warrant Shares received upon any
exercise hereof (if such Warrant and/or Warrant Shares are not registered under
the Securities Act), it will give written notice to the Company of its intention
to effect such transfer. Upon receipt of such notice, the Company will promptly
present it to counsel for the Company and counsel for Holder and if the Company
receives the opinion of such counsel, in form and substance satisfactory to the
Company, that the proposed transfer may be effected without registration under
the Securities Act and applicable state law, Holder shall be promptly notified
and shall be entitled to effect the transfer of this Warrant and/or the Warrant
Shares in accordance with the terms specified in the notice delivered to the
Company. The provisions of this Section 8.2 shall be binding upon all subsequent
Holders of this Warrant and upon all subsequent holders of the certificates for
the Common Stock bearing the legend specified in Section 2.5 hereof.
8.3 REPRESENTATIONS OF HOLDER. Holder represents that it has
acquired this Warrant for investment purposes only, for its own account, and not
with any present view to, or any offer to sell in connection with, the
distribution thereof. Holder represents that it is a "accredited investor" as
that term is defined under Regulation D of the Securities Act.
SECTION 9. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to Rentrak the following:
9.1 AUTHORITY. The Company has full right, power and authority to
enter into this Agreement and to perform all of its obligations hereunder or
contemplated hereby; this Agreement has been duly authorized, executed and
delivered by the Company and is enforceable in accordance with its terms.
Page 6 - WARRANT CERTIFICATE
<PAGE>
9.2 VALID AGREEMENT. This Warrant, and the issue and delivery
thereof has been duly and validly authorized, and this Warrant, when issued and
delivered as provided in this Agreement, will be duly and validly issued and
outstanding, and will constitute a valid and binding obligation of the Company.
SECTION 10. REGISTRATION RIGHTS. The Warrant Shares are hereby granted
and shall have all of the registration rights granted to Mortco under that
certain Registration Rights Agreement, dated as of the date hereof (the "Rights
Agreement"), by and between Mortco and the Company, the terms of which are
incorporated herein by this reference as if fully set forth herein; provided,
---------
however, that (a) the term "Shares" used in the Rights Agreement shall mean the
- --------
Warrant Shares, (b) the term "Mortco" in the Rights Agreement shall mean Holder
as defined herein, and (c) the term "Agreement" used in the Rights Agreement
shall mean this Warrant.
SECTION 11. MISCELLANEOUS.
11.1 SUCCESSORS AND ASSIGNS. All the covenants and provisions of this
Warrant that are by or for the benefit of the Company shall bind and inure to
the benefit of its successors and assigns hereunder.
11.2 NOTICE. Notice or demand pursuant to this Warrant to be given or
made by Holder to or on the Company shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed, until another address is
designated in writing by the Company, as follows:
Video City, Inc.
6840 District Boulevard
Bakersfield, CA 93313
Attention: Robert Y. Lee
Any notice or demand authorized by this Warrant to be given or made by the
Company to or on Holder shall be given to Holder by first-class mail, postage
prepaid, addressed, until another address is designated in writing by the
Company, as follows:
Mortco, Inc.
One Airport Center
7700 N.E. Ambassador Place
Portland, OR 97220
Attention: Ron Berger
and to any other Holder addressed at his last known address as it shall appear
on the books of the Company, until another address is designated in writing,
with a copy to Rentrak Corporation by like mail.
11.3 APPLICABLE LAW. The validity, interpretation and performance of
this
Page 7 - WARRANT CERTIFICATE
<PAGE>
Warrant shall be governed by the laws of the State of Oregon. For any action
related to the judicial enforcement or interpretation of this Agreement, the
parties hereby expressly submit themselves to the jurisdiction of the Circuit
Court for the County of Multnomah, State of Oregon or the Federal Court for the
District of Oregon.
11.4 HEADINGS. The article headings herein are for convenience only
and are not part of this Warrant and shall not affect the interpretation
thereof.
This Warrant is executed as of March 25, 1998.
AGREED AND ACCEPTED:
COMPANY: MORTCO:
VIDEO CITY, INC. MORTCO, INC.
By: By:
------------------------------- -------------------------------------
Robert Y. Lee, CEO Ron Berger, President
Page 8 - WARRANT CERTIFICATE
<PAGE>
EXERCISE FORM
(To Be Executed by the Warrant Holder if the Warrant is Exercised)
TO: VIDEO CITY, INC.
The undersigned ________________________________________________________________
(Please insert name and Social Security or other identifying
number of Subscriber)
hereby irrevocably elects to exercise the right of purchase represented by the
attached Warrant for, and to purchase thereunder, that number of shares of the
Company's Common Stock which, immediately following the exercise hereof, will
equal one percent (1%) of the total fully paid and nonassessable outstanding
Common Stock of the Company calculated on a fully diluted basis determined in
accordance with generally accepted accounting principles in effect on the date
hereof, and tenders payment herewith to the order of Video City, Inc., in the
amount of $___________.
The undersigned requests that certificates for such shares of Common Stock be
issued as follows:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
Deliver To: ____________________________________________________________________
Address: _______________________________________________________________________
NOTE: Signature must correspond with the name as written upon the face of the
Warrant in every particular, without alteration or enlargement or any change
whatever.
Page 9 - WARRANT CERTIFICATE
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto [name] , of [address] , the right to purchase
------------------ --------------------
shares of Common Stock evidenced by the within Warrant, and appoints
- -----------
[name] to transfer the same on the books of Video City, Inc., with the
- ----------------
full power of substitution in the premises.
Dated:_____________________ Signature:________________________________________
NOTE: Signature must correspond with the name as written upon the face of the
Warrant.
Page 10 - WARRANT CERTIFICATE
<PAGE>
EXHIBIT E
[REGISTRATION RIGHTS AGREEMENT, DATED 3/25/98]
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of this
25th day of March, 1998, is entered into by and between VIDEO CITY, INC., a
Delaware corporation (the "Company"), and MORTCO, INC., an Oregon corporation
("Mortco") and wholly-owned subsidiary of Rentrak Corporation, an Oregon
corporation ("Rentrak").
RECITALS
WHEREAS, Mortco has acquired 675,012 shares of the Company's common stock
(collectively, the "Shares") pursuant to: (i) the terms and conditions of that
certain Restructured Debt Agreement, dated as of the date hereof (the
"Restructured Debt Agreement"), by and among the Company, Mortco, Rentrak,
Sulpizio One, Inc., a California corporation, and Adventures in Video, Inc., a
Minnesota corporation; and (ii) the Company's acquisition of Sulpizio One, Inc.;
and
WHEREAS, to induce Rentrak and Mortco to enter into the Restructured Debt
Agreement and acquire the Shares, the Company has agreed to grant to Mortco the
registration rights described herein.
AGREEMENT
NOW THEREFORE, in consideration of the recitals, mutual promises and
covenants hereinafter set forth, the Company and Mortco agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
(b) "Common Stock" shall mean the Common Stock, $.01 par value per
share, of the Company, as constituted on the date of this Agreement.
(c) "Company" shall have the meaning set forth in the first paragraph
of this Agreement.
(d) "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.
(e) "Ingram" shall mean Ingram Entertainment, Inc., a Tennessee
corporation.
PAGE 1
<PAGE>
(f) "Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated association,
or other entity of any nature whatsoever.
(g) "Registration Expenses" shall mean the expenses described in
Section 15 of this Agreement.
(h) "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 Mortco in accordance with the registration statement
covering them; or (b) which may be publicly sold by Mortco pursuant to Rule
144(k) of the Securities Act (without regard to any volume limitation).
(i) "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.
(j) "Selling Expenses" shall mean the expenses described in Section 5.
(k) "Shares" shall mean all shares of Common Stock now or hereafter
held by Mortco, including without limitation, shares of Common Stock issued
upon the exercise of any warrants held by Mortco.
(l) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration
or ordering of effectiveness of such registration statement or document.
2. REQUIRED REGISTRATIONS.
(a) At any time after the date hereof, provided that the Company is
eligible to use a Form S-3 registration statement, Mortco shall have the
right to demand, by written notice, that the Company cause a Form S-3
registration statement to be filed under the Securities Act registering all
or a portion of the Restricted Stock, provided that the closing sale price
(or if no sales have been reported for such date, the mean between the
closing bid and asked price) per share of Common Stock on the trading day
immediately preceding the date of such notice, multiplied by the number of
Shares as to which registration is requested, is at least $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 2(a) as soon as practicable, but in no event more than 45 days
following the receipt of Mortco's notice, and on an unlimited number of
occasions, subject to applicable law.
(b) If the Company is not qualified to use a Form S-3 Registration
Statement to register shares of Restricted Stock, then Mortco may at any
time demand, by written notice, that the Company register pursuant to a
Registration
PAGE 2
<PAGE>
Statement on Form S-1 or Form S-2, as applicable, the resale of no less
than 325,000 shares of Restricted Stock 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 2(b) as soon as practicable, but in no event more
than sixty (60) days following the receipt of Mortco'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 2 shall be shares
of Common Stock; (ii) no request may be made under this Section 2 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 effectiveness of any registration statement covering the
Restricted Stock that Mortco requests to be registered, 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 the any financing, acquisition, recapitalization,
reorganization, or other material transaction, or the Company is in
possession of material non-public information that, if publicly disclosed,
would result in a material disruption of a major corporate development or
transaction then pending or in progress or in other material consequences
to the Company.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 2, for sale in accordance with the
method of disposition specified in Mortco's notice 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 order specified in Section 3(d) of that certain Registration Rights
Agreement, dated as of January 7, 1997, between the Company and Ingram (the
"Ingram Registration Rights Agreement").
3. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 2 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 forty-five (45)
days following the receipt of Mortco's notice requesting such registration:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such
registration
PAGE 3
<PAGE>
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 3(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 Mortco and to each underwriter such number of copies of
the registration statement and the prospectus included therein (including
each preliminary prospectus) as such persons may reasonably request in
order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement;
(d) Use its best efforts to register and qualify the Restricted Stock
covered by such registration statement under the securities or "Blue Sky"
laws of such jurisdictions as Mortco or, in the case of an underwritten
public offering, the managing underwriter shall reasonably 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 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 Company's Common Stock is then listed or quoted;
(f) Promptly notify Mortco 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 an
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 material fact or omits to state a material
fact required to be state therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. Mortco
shall, upon the 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 state therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
PAGE 4
<PAGE>
For purposes of Section 3(a) and 3(b) and of Section 2(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 Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby or sixty (60)
days after the effective date thereof.
In connection with any registration hereunder, Mortco shall provide such
information and execute such documents as may reasonably be requested in
connection with such registration.
4. PIGGYBACK REGISTRATIONS. Each time that the Company proposes to file a
registration statement under the Securities Act with respect to an offering (in
connection with an offering of Common Stock either by the Company or by its
shareholders) on a form that would also permit the registration of the
Restricted Stock, the Company shall promptly give Mortco written notice of such
proposal; provided, however, that, if there is an effective registration
statement covering the Restricted Stock, no such notice pursuant to this Section
3 will be required. Mortco may, by written request within ten (10) business days
after the receipt of any such written 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 shares
that Mortco requests to be included in the registration 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; (iii) any
holder having contractual registration rights that are subordinate to Mortco's
or Ingram's registration rights. The Company and Mortco intend that the
registration rights granted under this Agreement be on a parity with those
previously granted to Ingram under the Ingram Registration Rights Agreement.
Accordingly, after excluding shares of Common Stock from such registration in
the order set forth above, the Company may exclude the Restricted Stock from
such registration only on a pro rata basis with shares of Common Stock held by
Ingram, based on the number of shares that Mortco and Ingram desire to include
in such registration statement. In connection with any registration pursuant to
this Section 4 covering an underwritten public offering, the Company and Mortco
shall 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, Mortco 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,
PAGE 5
<PAGE>
indemnities, underwriting agreements, and other documents required under the
terms of such underwriting arrangements, which arrangements shall not be
inconsistent herewith.
5. 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 Restricted Stock are called
"Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement filed in accordance with this Agreement. Mortco shall
pay all Selling Expenses in connection with the sale of Restricted Stock
pursuant to each registration statement filed in accordance with this Agreement.
6. 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 Mortco may reasonably request, all to the extent
required from time to time to enable Mortco to sell its 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.
7. 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 Mortco, each underwriter of such Restricted Stock thereunder
and each other person, if any, who controls Mortco or such underwriter
within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which Mortco, 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 Mortco, 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 to Mortco in any such case if
and to the extent that any such loss, claim, damage or
PAGE 6
<PAGE>
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 Mortco, 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) Mortco failed to send or deliver a copy of the final
prospectus or prospectus supplement with or prior to the delivery of
written confirmation of the sale of Restricted Stock and (2) the final
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, Mortco 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 Mortco will be liable hereunder in any such
case if any 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
Mortco 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 7 and
shall only relieve it from any liability that it may have to such
indemnified party under this Section 7 if and to the extent the
indemnifying party is prejudiced thereby. In case any such action shall be
PAGE 7
<PAGE>
brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereto, the indemnifying party shall be entitled
to participate in and, to the extent it shall wish, to assume and undertake
the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 7 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 reasonable 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 ore
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.
8. 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:
PAGE 8
<PAGE>
If to the Company:
Video City, Inc.
6840 District Boulevard
Bakersfield, California 93313
Attention: Robert Y. Lee
If to Mortco:
Mortco, Inc.
One Airport Center
7700 N.E. Ambassador Place
Portland, Oregon 97220
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 8(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 Mortco
whose rights or obligations would be affected thereby.
(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, Mortco 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 Mortco shall not
be required to so agree more than once during any twelve calendar months.
(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.
PAGE 9
<PAGE>
(h) The Company shall not grant any registration rights to any person
that will adversely affect Mortco's rights under this Agreement, except for
pro rata reduction of Mortco's piggyback registration rights as provided in
Section 4.
IN WITNESS WHEREOF, the Company and Mortco have entered into this Agreement
as of the day and year set forth above.:
VIDEO CITY, INC.
By: ________________________
Robert Y. Lee, Chief
Executive Officer
MORTCO, INC.
By: ________________________
Ron Berger, President
PAGE 10
<PAGE>
EXHIBIT F
[REGISTRATION RIGHTS AGREEMENT, DATED 1/7/97]
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
January 7, 1997, between Prism Entertainment Corporation, a Delaware corporation
(the "Company"), and the Persons listed on the signature pages hereof (including
Persons who hold options to purchase stock of the Company) (referred to herein
individually as a "Shareholder" and collectively as the "Shareholders"), with
reference to the following facts:
A. Lee Video City, Inc., a California corporation ("VCI"), has merged
with and into Prism Entertainment Corporation, a Delaware corporation ("Prism"),
pursuant to an Agreement and Plan of Reorganization and Merger (the "Merger
Agreement") dated as of October 25, 1996, as amended, by and between Prism and
VCI. Such merger is referred to herein as the "Merger." Prism is the survivor in
the Merger, its name has been changed in the Merger to "Video City, Inc.," and
it is referred to herein as the Company.
B. The Merger Agreement provides that the Shareholders will have certain
registration rights and it is a condition to the consummation of the Merger that
the Company enter into this Agreement with each of the Shareholders.
NOW, THEREFORE, in order to implement the foregoing and in consideration of
the mutual covenants and agreements contained herein, and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
--------------------
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value per share,
of the Company, as constituted as of the date of this Agreement.
"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 mean Ingram Entertainment Inc., a Tennessee
corporation.
<PAGE>
"Person" shall mean any individual, partnership, joint venture,
corporation. limited liability company, trust, unincorporated association, or
other entity of any nature whatsoever.
"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 a
Shareholder in accordance with the registration statement covering them; or (b)
which may be publicly sold by a Shareholder 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 owned, or purchasable
pursuant to the exercise of stock options held, by any of the Shareholders.
2. Restrictive Legend. Each certificate representing the Shares shall,
except in compliance with the following legend, be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING
SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION
FROM REGISTRATION THEREUNDER IS AVAILABLE.
2
<PAGE>
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,
one or more Shareholders may request the Company to register under the
Securities Act shares of Restricted Stock held by them for sale in the manner
specified in such notice, provided that the closing sale price (or if no sales
have been reported for such date, the mean between the closing bid and asked
price) per share of Common Stock on the trading day immediately preceding the
date of such notice, multiplied by the number of Shares as to which registration
is requested, is at least $500,000. The Company shall promptly give notice of
the proposed registration to all other Shareholders holding Restricted Stock,
and any such Shareholders may join in such request for registration by written
request received by the Company within 15 days after receipt of such written
notice from the Company. 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 such notice, and on an unlimited number of occasions,
subject to applicable law. The Company shall notify the Shareholders within 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, then at any time thereafter one or more
Shareholders 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
325,000 shares of Restricted Stock for sale in the manner specified in such
notice. The Company shall promptly give notice of the proposed registration to
all other Shareholders holding Restricted Stock, and any such Shareholders may
join in such request for registration by written request received by the Company
within 15 days after receipt of such written notice from the Company. 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 such
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
3
<PAGE>
(iii) the Company may postpone for a reasonable period of time, not to exceed 30
days, the filing or the effectiveness of any registration statement covering the
shares of Restricted Stock requested to be registered under this Section 3 if
the Board of Directors of the Company in good faith determines that such
registration would have a material adverse effect on any plan or proposal by the
Company with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or the Company is in possession of
material non-public information that, if publicly disclosed, would result in a
material disruption of a major corporate development or transaction then pending
or in progress or in other material adverse consequences to the Company.
(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 Shareholders 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, and if Ingram, or any transferee or assignee of Common Stock from
Ingram shall have requested inclusion of shares in such registration statement,
then the shares so excluded shall be excluded in the order specified in that
certain Registration Rights Agreement dated the date hereof between the Company
and Ingram (the "Ingram. Registration Agreement").
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 the notice from Shareholders requesting such
registration:
(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;
4
<PAGE>
(c) furnish to each Shareholder whose Shares are included
therein and to each underwriter such number of copies of the registration
statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate the
public sale or other disposition of the shares of Restricted Stock covered by
such registration statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as any Shareholder 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 Stock
Market on which the Common Stock of the Company is then listed or quoted;
(f) promptly notify each Shareholder whose Shares are included
in such registration statement, 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 the light of the
circumstances under which they were made. Each Shareholder 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 under which they were
made.
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 or three years after the effective date thereof.
5
<PAGE>
In connection with any registration hereunder, each Shareholder whose
Shares are included therein shall provide such information and execute such
documents as may reasonably be required in connection with such registration.
5. Piggyback Registrations. Each time that the Company proposes to
------------------------
file a registration statement under the Securities Act with respect to an
offering (in connection with an offering of Common Stock either 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 each
Shareholder; 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. Each Shareholder 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 the Shareholders may be
reduced or eliminated; provided, that if Ingram or any Transferee or assignee of
Common Stock from Ingram shall have requested registration of its shares in such
registration statement, then the shares so excluded shall be excluded in the
order specified in the Ingram Registration Agreement. In connection with any
registration pursuant to this Section 5 covering an underwritten public
offering, the Company and each Shareholder whose Shares are included therein
shall 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, each such Shareholder 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
6
<PAGE>
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of the shares of Restricted Stock are called "Selling
Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement filed in accordance with this Agreement. All Selling
Expenses in connection with the sale of shares of Restricted Stock pursuant to
each registration statement filed in accordance with this Agreement shall be
borne pro rata by the Shareholders.
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 any Share holder may reasonably request, all to the
extent required from time to time to enable Shareholders to sell their Shares
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 each Shareholder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such Shareholder or such
underwriter within the meaning of the Securities Act, against any losses,
claims. damages* or liabilities, joint or several, to which such Shareholder,
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-fait required to be stated therein or necessary to make the statements
therein not misleading, and will pay the legal fees and other expenses of such
Shareholder, 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 to
such Shareholder 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 such Shareholder, any such
underwriter or any such controlling person in writing, and, provided further,
however, that the Company will not be liable in any
7
<PAGE>
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) such Shareholder failed to send or deliver a copy of the final prospectus or
prospectus supplement with or prior to the delivery of written confirmation of
the sale of Restricted Stock and (2) the final 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, each selling Shareholder 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 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 a Shareholder 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 such Shareholder 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
8
<PAGE>
to the extent it shall wish, to assume and undertake the defense thereof with
counsel reasonably satisfactory to such party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof. the indemnifying party shall not be liable to
such indemnified party under this Section 8 for any legal expenses subsequently
incurred by such indemnified 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. Representations, Warranties and Agreements by Shareholders.
-----------------------------------------------------------
(a) Each Shareholder individually represents and wan-ants that
he has acquired or will acquire his Shares for investment solely for his own
account and not with a view to, or for resale in connection with, the
distribution or other disposition thereof. The Shareholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any Shares, or solicit any
offers to purchase or otherwise acquire or take a pledge of any Shares, unless
such offer, transfer, sale, assignment, pledge, hypothecation or other
disposition complies with the provisions of this Agreement and (i) such
transfer, sale, assignment, pledge or hypothecation or other disposition is
pursuant to an effective registration statement under the Securities Act and has
been registered under all applicable state securities or "blue sky" laws or (ii)
no such
9
<PAGE>
registration is required because of the availability of an exemption from
registration under the Securities Act and all applicable state securities or
"blue sky" laws.
(b) In addition, each Shareholder individually represents and
warrants that (i) he is an "accredited investor" (as such term is defined by
Rule 50l(a) of the Securities Act) or (ii) either alone or with his "purchase
representative(s)" (as such term is defined by Rule 501(h) of the Securities
Act) has such knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of his prospective investment in
the Shares.
(c) Each Shareholder further acknowledges and represents that he
has been advised by the Company that:
(i) the offer and sale of the Shares have not been
registered under the Securities Act;
(ii) the Shares must be held and the Shareholder must
continue to bear the economic risk of the investment in the Shares until (i) the
Shares are registered pursuant to an effective registration statement under the
Securities Act and all applicable state securities laws or (ii) an exemption
from such registration is available;
(iii) when and if Shares may be disposed of without
registration under the Securities Act in reliance on Rule 144, such disposition
can be made only in limited amounts in accordance with the terms and conditions
of such Rule;
(iv) if the Rule 144 exemption is not available, public
offer or sale of Shares without registration will require compliance with some
other exemption under the Securities Act;
(v) a restrictive legend in the form set forth in Section 2
above shall be placed on the certificates representing the Shares; and
(vi) a notation shall be made in the appropriate records of
the Company indicating that the Shares are subject to restrictions on transfer,
and appropriate stop-transfer instructions will be issued to the Company's
transfer agent with respect to the Shares.
10
<PAGE>
10. 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:
if to the Company:
Prism Entertainment Corporation
6851 McDivitt Drive, Suite A
Bakersfield, California 93313
Attention: Barry Collier
Telecopy: (805) 397-5982
if to a Shareholder:
To their respective addresses as shown on the stock ownership
register of the Company
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 10(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
each Shareholder whose rights or obligations would be affected thereby.
(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.
11
<PAGE>
(f) If requested in writing by the underwriters for an
underwritten public offering of securities of the Company, the Shareholders
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 the Shareholders shall not be
required to so agree, more than once during any twelve calendar months.
(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.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date and year first above written.
PRISM ENTERTANMENT
CORPORATION
By: /s/ Barry Collier
--------------------------
Name: Barry Collier
------------------------
Title: President
-----------------------
SHAREHOLDERS:
/s/ Robert Y. Lee
-----------------------------
Robert Y. Lee
/s/ Young C. Lee
-----------------------------
Young C. Lee
12
<PAGE>
/s/ Kay L. Lee
-----------------------------
Kay L. Lee
/s/ Dennis Rhoten
-----------------------------
Dennis Rhoton
/s/ Edward Rheinhardt
-----------------------------
Edward Rheinhardt
/s/ Douglas Frankel
-----------------------------
Douglas Frankel
MORTCO, INC.
By: /s/ Ron Berger, President
--------------------------
Ron Berger, President
/s/ Barry Collier
-----------------------------
Barry Collier
/s/ Craig Kelly
-----------------------------
Craig Kelly
/s/ Steven Antongiovanni
-----------------------------
Steven Antongiovanni
13
<PAGE>
-----------------------------
Andrew W. Couch
/s/ Theodore Coburn
-----------------------------
Theodore Coburn
14
