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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IWERKS ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 95-4439361
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
4540 WEST VALERIO STREET
BURBANK, CALIFORNIA 91505-1046
(818) 841-7766
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
ROY A. WRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IWERKS ENTERTAINMENT, INC.
4540 WEST VALERIO STREET
BURBANK, CALIFORNIA 91505-1046
(818) 841-7766
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPIES TO:
Douglas D. Smith, Esq.
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
(415) 442-0900
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list of Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value............. 500,000 $8.78 $4,390,000 $1,513.79
</TABLE>
(1) Estimated solely for purposes of computing the amount of the registration
fee pursuant to Rule 457(g) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED JUNE 12, 1996
PROSPECTUS
500,000 SHARES
IWERKS ENTERTAINMENT, INC.
[IWERKS LOGO]
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
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This Prospectus relates to the public offering of 500,000 shares of Common
Stock (the "Shares") of IWERKS ENTERTAINMENT, INC. ("IWERKS" or the "Company")
by the Company upon exercise of warrants (the "Warrants") to be issued on or
about June 20, 1996 in connection with the settlement of a securities class
action lawsuit previously pending against the Company in the United States
District Court for the Central District of California and pursuant to a
Stipulation of Settlement dated November 27, 1995 between the Company and the
holders of the warrants (collectively, the "Warrantholders"). The Warrants may
be exercised in whole or in part to purchase an aggregate of up to 500,000
shares, at an exercise price of $8.78 per share. See "Description of Capital
Stock." The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "IWRK." The last sale price of the Company's Common Stock as reported
on the Nasdaq National Market on June 11, 1996 was $9 3/4 per share.
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THE COMMON STOCK OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1996
<PAGE>
AVAILABLE INFORMATION
IWERKS ENTERTAINMENT, INC. ("IWERKS" or the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy and
information statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can also be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
The Company has filed with the Commission a registration statement (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Shares
offered hereby, reference is hereby made to the Registration Statement.
Statements contained in this Prospectus concerning the provisions of any
documents referred to are not necessarily complete, and each such statement is
qualified in its entirety by reference to the copy of such document filed with
the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the 1934 Act, are incorporated by reference into this Prospectus:
(1) Registrant's Report on Form 10-K for the year ended June 30, 1995;
(2) Registrant's Report on Form 10-Q for the quarter ended September 30,
1995;
(3) Registrant's Report on Form 10-Q for the quarter ended December 31,
1995;
(4) Registrant's Current Reports on Form 8-K dated April 5, 1996 and
June 11, 1996;
(5) Registrant's Report on Form 10-Q for the quarter ended March 31,
1996;
(6) Registrant's Report on Form 10-Q/A for the quarter ended March 31,
1996; and
(7) The description of the Registrant's Common Stock contained in the
Registrant's Registration Statement on Form 8-A filed with the Commission
for the purpose of registering the Common Stock under Section 12(g) of the
Exchange Act, together with any amendments thereto.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities covered by this Prospectus shall
be deemed to be incorporated by reference herein and to be part hereof from the
date of filing of such documents. Any statement contained herein or in a
document, all or a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the oral or written
request of any such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are expressly incorporated by reference into such documents). Written requests
for such copies should be directed to Guy Heyl, Acting Chief Financial Officer,
IWERKS Entertainment, Inc., 4540 West Valerio Street, Burbank, California
91505-1046. Telephone inquiries may be directed to IWERKS Entertainment, Inc.,
at (818) 841-7766.
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"REACTOR," "IWERKS," "CINETROPOLIS" AND "TURBO TOUR" ARE TRADEMARKS OF THE
COMPANY. "ROBOCOP" IS A TRADEMARK OF ORION PICTURES CORP.
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THE COMPANY
The Company is a provider of high-resolution, proprietary motion picture
theater attractions. The Company's products combine advanced theater systems
with entertainment or educational software to create high-impact "attractions"
which draw audiences into the action. The Company's products include ride
simulation, giant screen, 360 degree, 3-D, and various other special
attractions. In addition, the Company owns and operates a fleet of touring ride
simulation theatres.
The Company is a Delaware corporation. Its principal executive offices
located at 4540 West Valerio Street, Burbank, California 91505, telephone number
(818) 841-7766.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY.
DEPENDENCE ON PRODUCTION OF FILM SOFTWARE
The Company's ability to implement its business strategy is dependent in
large part upon its ability to successfully create, produce and market
entertainment and educational film software for exhibition in its theater
systems. The size and quality of the Company's library of film software titles
is a material factor in competing for sales of the Company's attractions and
developing the Company's base of recurring revenue and the Company has invested
$2.0 million, $5.0 million, $2.6 million and $350,000 in film software during
fiscal 1993, 1994 and 1995 and the nine months ended December 31, 1995,
respectively. The Company generally produces and develops specialty films and
videos for its library with production budgets in a range of approximately
$100,000 to $2.0 million and, while the Company may enter into participation,
licensing or other financing arrangements with third parties in order to
minimize its financial involvement in production, the Company is generally
subject to substantial financial risks relating to the production and
development of new entertainment and educational software. The Company typically
is required to pay for the production of software during the production period
prior to release and typically is unable to recoup these costs from revenues
from exhibition licenses prior to 24 to 36 months following release. There can
be no assurance that the Company will be able to create and produce additional
software for its library which will be perceived by its customers to be of high
quality or high entertainment value.
In fiscal 1995, the Company reduced its film inventory by $3.4 million. At
March 31, 1995, the Company had recorded on its balance sheet film inventory
with a net value of $3.4 million, and, while the current carrying value of the
Company's film inventory reflects management's belief that the Company will
realize the net value recorded on the Company's balance sheet, there can be no
assurance that the Company will be able to do so. A determination by the Company
to write down any material portion of its film inventory will have a material
adverse effect on the Company's financial condition and results of operations.
DEPENDENCE OF OWNED AND OPERATED OPERATIONS UPON SPONSORSHIP REVENUES
The Company derived $3.7 million and approximately $4.2 million of revenues
for the fiscal year ended June 30, 1995 and the nine months ended March 31,
1996, respectively, from sponsorship of its fleet of touring motion simulators.
Sponsorship revenues prior to January 1996 were primarily derived from a single
contract with a major telecommunications company that has sponsored the
Company's touring motion simulators since March 1994. In January 1996, the
Company entered into a sponsorship contract with a foreign sponsor which is
scheduled to expire in August 1996. There can be no assurance that the Company
will be able to extend or replace its existing sponsorship arrangements when
they expire. If the Company is unable to maintain sponsorship revenues in the
future at levels commensurate with that experienced in the past, it could have a
material adverse effect on the
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revenues and gross profit margins derived by the Company from its Owned and
Operated attractions which would be mitigated, in part, by any additional
revenues derived by the Company from deployment of the touring units at other
venues.
INTENSE COMPETITION; UNPREDICTABILITY OF CONSUMER TASTES
Competition in each of the markets in which the Company competes is intense.
IWERKS' principal direct competition for customers comes from manufacturers of
competing movie-based attractions, and in the case of amusement and theme parks,
manufacturers of traditional amusement park attractions. In addition to its
direct competitors, IWERKS also faces competition from systems integrators and
some amusement and theme parks developing and constructing their own
attractions. Many of the Company's competitors have better name recognition, and
substantially greater financial and other resources than IWERKS.
Additionally, the out-of-home entertainment industry in general is
undergoing significant changes, primarily due to technological developments as
well as changing consumer tastes. Numerous companies are developing and are
expected to develop new entertainment products for the out-of-home entertainment
industry in response to these developments that are or may be directly
competitive with the Company's products. There is intense competition for
financial, creative and technological resources in the Company's industry and
there can be no assurance that the Company's existing products will continue to
compete effectively or that its products under development will ever be
competitive. Further, the commercial success of the Company's products is
ultimately dependent upon audience reaction. The Company believes that audience
reaction will to a large extent be influenced by the audience's perception of
how the Company's products compare with other available entertainment options
out of the home. There can be no assurance that new developments in out-of-home
entertainment will not result in changes in consumer tastes that will make the
Company's products less competitive.
HISTORY OF OPERATING LOSSES; FLUCTUATING PERIODIC OPERATING RESULTS AND CASH
FLOW
The Company has sustained substantial operating losses in three of its last
five fiscal years. As of March 31, 1996, the Company's accumulated deficit was
$20.7 million. Although the Company reported profits for the nine months ended
March 31, 1996, there can be no assurance that the Company will be consistently
profitable on either a quarterly or an annual basis or that it will be able to
sustain revenue growth in the future.
The Company has experienced quarterly fluctuations in operating results and
anticipates that these fluctuations will continue in future periods. The
Company's operating results and cash flow can fluctuate substantially from
quarter to quarter and periodically as a result of the timing of theater system
deliveries, contract signings, the mix of theater systems shipped, the
completion of custom film contracts and the amount of revenues from portable
simulation theater and film licensing agreements. In particular, fluctuations in
theater system deliveries from quarter to quarter can materially affect
quarterly and periodic operating results, and theater system contract signings
can materially affect quarterly or periodic cash flow. While a significant
portion of the Company's expense levels are relatively fixed, and the timing of
increases in expense levels is based in large part on the Company's forecasts of
future sales. If net sales are below expectations in any given period, the
adverse impact on results of operations may be magnified by the Company's
inability to adjust spending quickly enough to compensate for the sales
shortfall. The Company may also choose to reduce prices or increase spending in
response to market conditions, which may have a material adverse effect on the
Company's results of operations.
Over the last eight quarters, certain events have contributed to
fluctuations in the Company's results of operations and financial condition. In
the fourth quarter of fiscal 1994, the Company experienced certain cost overruns
on two of its new products, along with some accelerated research and development
costs associated with those products. In the third quarter of fiscal 1995, the
Company's cost of sales increased dramatically as a percent of sales as a result
of a one-time $4.5 million write-down of certain assets, primarily film costs,
and third and fourth quarter selling and general
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administration expenses increased as a result of restructuring charges related
to the closure of the Company's Sarasota, Florida facility, its consolidation of
its operations and litigation costs associated with the settlement of a
securities class action lawsuit, pursuant to which certain warrants are being
issued.
INTERNATIONAL OPERATIONS
A significant portion of the Company's sales are made to customers located
outside of the United States, primarily in the Far East, Europe and Canada.
During fiscal 1993, 1994 and 1995, 53%, 43%, and 55% of the Company's revenues,
respectively, were derived from sales outside the United States. Except for
sales made to the Japanese market, which accounted for 14% of the Company's
revenues for fiscal 1995, during fiscal 1995 no sales to any single foreign
market accounted for 10% or more of the Company's revenues. The Company expects
that international operations will continue to account for a substantial portion
of its revenues in the near future and maintains an office in Hong Kong to
support sales to Asia and one office in Holland to support sales in Europe.
International operations and sales may be subject to political and economic
risks, including political instability, currency controls, exchange rate
fluctuations, and changes in import/export regulations, tariff and freight
rates. In addition, various forms of protectionist trade legislation have been
proposed in the United States and certain other countries. Any resulting changes
in current tariff structures or other trade and monetary policies could
adversely affect the Company's international operations and thus adversly affect
the Company's overall financial condition and results of operations. Political
and economic factors have been identified by the Company with respect to certain
of the markets in which it competes, and, there can be no assurance that these
factors will not result in customers of the Company defaulting on payments due
to the Company, or in the reduction of potential purchases of the Company's
products.
CURRENT TRENDS IN THE GLOBAL ECONOMY
The Company's revenues and profitability are dependent on the strength of
the national and international economies. In a recessionary environment, sales
of the Company's products and products of other entertainment companies may be
adversely affected. Theme parks and other out-of-home entertainment venues may
also experience a downturn in sales which could reduce the funds available for
capital improvements resulting in price and other concessions and discounts by
the Company in order to maintain sales activity. Although the Company has not
experienced a reduction in unit sales of its products to date, certain of its
competitors have reported that the recent recession in the United States has had
an adverse impact on their sales activity. Consequently, the Company is unable
to predict to what extent, or for what period, a recessionary climate would
adversely affect sales of the Company's products.
RECENT CHANGES IN KEY PERSONNEL; DEPENDENCE ON SENIOR MANAGEMENT
Since January 1995, all of the Company's executive officers have changed
and, on June 7, 1996, the Company announced the resignation of its Chief
Financial Officer, Mr. Francis T. Phalen. Mr. Phalen was also a member of the
Company's Board of Directors. He has resigned to pursue personal business
interests. The recruitment, retention and motivation of skilled executives,
sales, technical and creative personnel and other employees are important to the
Company's operations. The Company's recent history has placed, and could
continue to place, a significant strain on the Company's management and other
resources. In addition, there is competition for management and creative
personnel in the Company's industries. Although the Company has not experienced
significant problems in recruiting retaining qualified personnel, there can be
no assurance that it will not encounter such problems in the future. Should any
key executive officer cease to be affiliated with the Company before a qualified
replacement is found, the Company's business could be materially adversely
affected.
VOLATILITY OF STOCK PRICE
The Company's stock price has been, and is likely to continue to be, highly
volatile. The market price of the Common Stock has fluctuated substantially in
recent periods. During the 12 months prior
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to the date of the filing of this Registration Statement, the Company's closing
market price has ranged from a low of $3.00 per share to a high of $11.75 per
share. Future announcements concerning the Company or its competitors, quarterly
variations in operating results, introduction of new products or changes in
product pricing policies by the Company or its competitors and acquisition or
loss of significant customers may affect or be perceived to affect the Company's
operations, or changes in earnings estimates by analysts, among other factors,
could cause the market price of the Common Stock to fluctuate substantially. In
addition, stock markets have experienced extreme price and volume volatility in
recent years. This volatility has had a substantial effect on the market prices
of securities of many smaller public companies for reasons frequently unrelated
to the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of the Common Stock. There
can be no assurance that the market price of the Common Stock will not decline
below the public offering price.
LITIGATION
IWERKS was named as a defendant in two actions entitled KRAVITS V. IWERKS
ENTERTAINMENT, INC., ET AL., U.S. District Court, Central District of
California, Case No. 95-2541-AWT and SOBEL V. IWERKS ENTERTAINMENT, INC., ET
AL., U.S. District Court, Central District of California, Case No. 95-4159-DT.
By order dated July 31, 1995, these actions were consolidated, and a Second
Amended Consolidated Complaint (the "Second Amended Complaint") was filed on
August 30, 1995.
The Second Amended Complaint, purporting to be a class action filed by
persons claiming to have been stockholders of the Company, named as defendants
the Company and certain of its current and former officers and directors. The
Second Amended Complaint alleged that the defendants made public statements, in
connection with the October 1993 initial public offering and thereafter, which
were false and misleading. The complaint asserted claims under Section 11 of the
Securities Act of 1933 (the "1933 Act") and Section 10(b) of the Securities
Exchange Act of 1934 (the "1934 Act") and controlling person claims under
Section 15 of the 1933 Act and Section 20 of the 1934 Act) on behalf of a
purported class of persons who purchased or otherwise acquired the Company's
common stock during the period October 18, 1993 through May 16, 1995. The Second
Amended Complaint seeks unspecified damages.
On November 27, 1995, the Company entered into a Stipulation of Settlement
providing for the creation of a settlement fund to be made available to satisfy
claims of class members, and providing for the dismissal with prejudice of the
Second Amended Complaint and the release of all claims that were or potentially
could have been set forth therein. The Company did not admit liability as part
of this proposed settlement. The settlement fund is to include $1,750,000 in
cash (funded by the Company's insurance carrier), 250,000 shares of the
Company's Common Stock, and 500,000 warrants to purchase the Company's Common
Stock. The distribution of the settlement fund is subject to a Plan of
Allocation, which provides, among other things, that certain portions of the
settlement fund not claimed by class members or used to pay certain costs
related to the settlement will be returned to the Company or its insurer. The
settlement is subject to Court approval. On November 30, 1995, the Court issued
an order preliminarily approving the settlement and set a hearing for February
26, 1996 to determine whether the settlement is fair and reasonable to the
Company and the class. Such hearing took place and the Court determined that the
settlement was fair and reasonable.
IWERKS has also been named as a defendant in an action filed on April 15,
1996, entitled HOLLINGSWORTH V. IWERKS ENTERTAINMENT, INC., ET AL., Circuit
Court of the 12th Judicial District for Sarasota, Florida, Case No. CA-01
96-1930. Hollingsworth, a former director of the Company and former chief
executive officer and founder of Omni Films International, Inc. ("Omni"), seeks
unspecified damages arising from alleged misstatements in connection with the
acquisition by the Company of Omni in May 1994. Among other things, Mr.
Hollingsworth alleges that IWERKS misrepresented its financial condition,
prospects and projected results of operation. The Company has not yet filed an
answer to the complaint. The Company, however, intends to vigorously defend
against this action.
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The Company is also a party to various other actions arising in the ordinary
course of business which, in the opinion of management, will not have a material
adverse effect on the Company's financial condition; however, there can be no
assurance that the Company will not become a party to other lawsuits in the
future, and such lawsuits could potentially have a material adverse effect on
the Company's financial condition and results of operations.
ENVIRONMENTAL MATTERS AND OTHER GOVERNMENTAL REGULATIONS
Under various federal, state and local environmental laws and regulations, a
current or previous owner or occupant of real property may become liable for the
costs of removal or remediation of hazardous substances at such real property.
Such laws and regulations often impose liability without regard to fault. The
Company leases its corporate headquarters and manufacturing facilities and the
Company could be held liable for the costs of remedial actions with respect to
hazardous substances on such properties under the terms of the governing lease
and/or governing law. Although the Company has not been notified of, and is not
otherwise aware of, any current environmental liability, claim or
non-compliance, there can be no assurance that the Company will not be required
to incur remediation or other costs in the future in connection with its leased
properties. In addition, the Company's subcontractors and other third parties
which it has contractual relations with are similarly subject to such laws.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of Preferred Stock.
While the Company has no present intention to issue shares of Preferred Stock,
such issuance, while providing desirable flexibility in connection with the
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company and
entrenching existing management. In addition, such Preferred Stock may have
other rights, including economic rights senior to the Common Stock, and, as a
result, the issuance thereof could have a material adverse effect on the market
value of the Common Stock.
A number of provisions of the Company's Certificate of Incorporation and
By-Laws and certain Delaware laws and regulations relating to matters of
corporate governance, certain rights of Directors and the issuance of preferred
stock without stockholder approval, may be deemed to have and may have the
effect of making more difficult, and thereby discouraging, a merger, tender
offer, proxy contest or assumption of control and change of incumbent
management, even when stockholders other than the Company's principal
stockholders consider such a transaction to be in their best interest.
In addition, the Company has adopted a Stockholder Rights Plan (the
"Agreement"). Pursuant to the Agreement each outstanding share of the Company's
Common Stock has received one Right as a dividend that becomes exercisable upon
certain triggering events related to an unsolicited takeover attempt of the
Company.
USE OF PROCEEDS
To the extent that the Warrants are exercised for cash, the proceeds from
their exercise will be used by the Company for working capital and general
corporate purposes.
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DESCRIPTION OF CAPITAL STOCK
The total number of shares that the Company is authorized to issue is
21,000,000, consisting of 20,000,000 shares of Common Stock, par value $0.001
per share, and 1,000,000 shares of Preferred Stock, par value $0.001 per share
and 500,000 shares issuable upon exercise of the Warrants. The following
statements are brief summaries of certain provisions relating to the Company's
capital stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders. Subject to any
restrictions contained in Preferred Stock issued by the Company, if any, the
holders of Common Stock are entitled to receive ratably dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled, subject to the rights of holders of
Preferred Stock issued by the Company, if any, to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision is made for each class of stock, if any, having preference over
the Common Stock.
The holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered by the Company hereby, when issued
against the consideration set forth in this Prospectus, will be, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the Preferred Stock could be utilized under certain circumstances, as a method
of discouraging, delaying or preventing an acquisition or change in control of
the Company. The Company currently does not have any shares of its Preferred
Stock Outstanding and the Company does not currently intend to issued any shares
of its Preferred Stock.
WARRANTS
IWERKS has issued the Warrants, which are exercisable for up to 500,000
shares of the Company's Common Stock that are being registered herein, in
connection with the settlement of a securities class action lawsuit previously
pending against the Company in the United States District Court for the Central
District of California pursuant to a Stipulation of Settlement dated November
27, 1996 between the Company and the Warrantholders. The Warrants are
immediately exercisable. The Warrants may be exercised in whole or in part to
purchase an aggregate of up to 500,000 shares, at an exercise price of $8.78 per
share, and have an exercise price of $8.78 per share, which is subject to
adjustment in the event that the Company (i) declares a dividend payable in
stock or makes some other distribution on the outstanding shares of its Common
Stock in shares of its Common Stock, (ii) subdivides or reclassifies its
outstanding shares of its Common Stock into a greater number of shares or (iii)
combines or reclassifies its outstanding shares of its Common Stock into a
smaller number of shares. The exercise price, in the event that one of these
events occur, will be adjusted as follows: the exercise price, in effect
immediately after the record date for such dividend or distribution or the
effective date of such division, reclassification or combination shall be
proportionately adjusted by multiplying the then exercise price by a fraction,
the numerator or which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and the Product
so obtained is thereafter the exercise price then in effect. Such adjustments,
if any, will be made successively whenever any event specified above shall
occur. The Warrants will expire on or about
8
<PAGE>
June 20, 1999; however, in the event of certain capital reorganizations,
consolidation or mergers, the Warrants must be exercised within twenty (20)
days. The Warrants are redeemable by the Company if and when the market price
per share of Common Stock exceeds 150% of the average trading price of the
Company's Common Stock of the Nasdaq National Market during the thirty (30) day
period following the last day for filing a proof of claim pursuant to the
Stipulation of Settlement. The redemption price per share of Common Stock for
which the Warrant is exercisable is $2.01.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws include a number of
provisions which may have the effect of discouraging persons from pursuing
non-negotiated takeover attempts. These provisions include a classified Board of
Directors, the inability of stockholders to take action by written consent
without a meeting, the inability of stockholders to call for a special meeting
of stockholders and the inability of stockholders to remove directors without
cause and a Stockholder Rights Plan. Pursuant to the Stockholder Rights Plan,
each outstanding share of the Company's Common Stock has received a dividend of
one Right which entitles the holder thereof, upon the happening of certain
triggering events related to an unsolicited attempt to take over the Company, to
purchase 1/100 of a share of the Company's Preferred Stock. No such triggering
events have occurred.
SECTION 203 OF THE DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware Law. In general, Section 203 prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (as defined) with a
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The provisions of Section 203 requiring a
supermajority vote to approve certain corporation transactions could enable a
minority of the Company's stockholders to exercise veto power over such
transactions.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is U.S.
Stock Transfer Corporation.
9
<PAGE>
PLAN OF DISTRIBUTION
IWERKS has issued the Warrants, which are exercisable to purchase in whole
or in part, up to 500,000 shares of the Company's Common Stock being registered
herein, in connection with the settlement of a securities class action lawsuit
previously pending against the Company in the United States District Court for
the Central District of California pursuant to a Stipulation of Settlement dated
November 27, 1996 between the Company and the Warrantholders. See "Description
of Capital Stock -- Warrants."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company has adopted provisions in its Certificate of Incorporation which
limit the liability of its directors. As permitted by applicable provisions of
the Delaware General Corporation Law (the "Delaware Law"), directors will not be
liable to the Company for monetary damages arising from a breach of their
fiduciary duty as directors in certain circumstances. Such limitation does not
affect liability for any breach of a director's duty to the Company or its
stockholders (i) with respect to any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) with respect to approval by the director
of any transaction from which he derives an improper personal benefit, (iii)
with respect to acts or omissions involving an absence of good faith, that he
believes to be contrary to the best interests of the Company or its
stockholders, that involve intentional misconduct or a knowing and culpable
violation of law, that constitute an unexcused pattern or inattention that
amounts to an abdication of his duty to the Company or its stockholders, or that
show a reckless disregard for his duty to the Company or its stockholders in
circumstances in which he was, or should have been aware, in the ordinary course
of performing his duties, or a risk of serious injury to the Company or its
stockholders, or (iv) based on transactions between the Company and its
directors or another corporation with interrelated directors or on improper
distributions, loans or guarantees under applicable sections of Delaware Law.
Such limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company must indemnify its directors
and officers to the full extent permitted by Delaware Law, including
circumstances in which indemnification is otherwise discretionary under Delaware
Law, and the Company has entered into indemnification agreements (the
"Indemnification Agreements") with its directors providing such indemnity. The
Indemnification Agreements constitute binding agreements between the Company and
each of the other parties thereto, thus preventing the Company from modifying
its indemnification policy in a way that is adverse to any person who is a party
to an Indemnification Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Company pursuant to the above statutory provisions or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison, LLP, San Francisco, California.
EXPERTS
The consolidated financial statements and schedule of IWERKS Entertainment,
Inc. appearing in IWERKS Entertainment, Inc.'s Annual Report (Form 10-K) for the
year ended June 30, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
10
<PAGE>
500,000 SHARES
IWERKS ENTERTAINMENT, INC.
COMMON STOCK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information...................................................................................... 2
Incorporation of Certain Documents......................................................................... 2
The Company................................................................................................ 3
Risk Factors............................................................................................... 3
Use of Proceeds............................................................................................ 7
Description of Capital Stock............................................................................... 8
Plan of Distribution....................................................................................... 10
Legal Matters.............................................................................................. 10
Experts.................................................................................................... 10
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
Registration Fee Under Securities Act of 1933.................................. $ 1,513.79
NASD Filing Fee................................................................ *
Blue Sky Fees and Expenses..................................................... 5,000.00
Printing and Engraving Certificates............................................ *
Legal Fees and Expenses........................................................ 20,000.00
Accounting Fees and Expenses................................................... 5,000.00
Registrar and Transfer Agent and Warrant Agent Fees............................ 5,000.00
Miscellaneous Expenses......................................................... *
-------------
TOTAL...................................................................... $ 35,513.79
-------------
-------------
</TABLE>
- ------------------------
* Not applicable or none.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has adopted provisions in its Certificate of Incorporation which
limit the liability of its directors. As permitted by applicable provisions of
the Delaware General Corporation Law (the "Delaware Law"), directors will not be
liable to the Company for monetary damages arising from a breach of their
fiduciary duty as directors in certain circumstances. Such limitation does not
affect liability for any breach of a director's duty to the Company or its
stockholders (i) with respect to any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) with respect to approval by the director
of any transaction from which he derives an improper personal benefit, (iii)
with respect to acts or omissions involving an absence of good faith, that he
believes to be contrary to the best interests of the Company or its
stockholders, that involve intentional misconduct or a knowing and culpable
violation of law, that constitute an unexcused pattern or inattention that
amounts to an abdication of his duty to the Company or its stockholders, or that
show a reckless disregard for his duty to the Company or its stockholders in
circumstances in which he was, or should have been aware, in the ordinary course
of performing his duties, or a risk of serious injury to the Company or its
stockholders, or (iv) based on transactions between the Company and its
directors or another corporation with interrelated directors or on improper
distributions, loans or guarantees under applicable sections of Delaware Law.
Such limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company must indemnify its directors
and officers to the full extent permitted by Delaware Law, including
circumstances in which indemnification is otherwise discretionary under Delaware
Law, and the Company has entered into indemnification agreements (the
"Indemnification Agreements") with its directors providing such indemnity. The
Indemnification Agreements constitute binding agreements between the Company and
each of the other parties thereto, thus preventing the Company from modifying
its indemnification policy in a way that is adverse to any person who is a party
to an Indemnification Agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index of this Registration Statement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the
II-1
<PAGE>
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
discussed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Burbank, and the State of California on the 12th
day of June, 1996.
IWERKS ENTERTAINMENT, INC.
By: /s/ ROY A. WRIGHT
----------------------------------
Roy A. Wright
CO-CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of IWERKS ENTERTAINMENT, INC., a
Delaware corporation, do hereby constitute and appoint Roy A. Wright and Guy
Heyl, or any one of them, as his or her lawful attorney and agent, with power
and authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms all that said attorney and agent shall
do or cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------------ ----------------
<C> <S> <C>
By: /s/ ROY A. WRIGHT Co-Chairman of the Board, Chief Executive
----------------------------------- Officer and President (Principal Executive June 12, 1996
Roy A. Wright Officer)
By: /s/ GUY HEYL Acting Chief Financial Officer (Principal
----------------------------------- Financial and Accounting Officer, June 12, 1996
Guy Heyl Vice President, Finance)
By: /s/ PAULA DOUGLASS
----------------------------------- Co-Chairman of the Board June 12, 1996
Paula Douglass
By: /s/ DONALD W. IWERKS
----------------------------------- Director June 12, 1996
Donald W. Iwerks
By: /s/ DAG TELLEFSEN
----------------------------------- Director June 12, 1996
Dag Tellefsen
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM PAGE
- ----------- ---------------------------------------------------------------------------------------------- -----
<S> <C> <C>
4.6 Form of Warrant Agreement by and between the Company and U.S. Stock Transfer Corporation......
5.1 Opinion of Brobeck, Phleger & Harrison LLP....................................................
23.1 Consent of Ernst & Young LLP..................................................................
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)..........................
</TABLE>
<PAGE>
--------------------------------------------------
IWERKS ENTERTAINMENT, INC.
and
U.S. STOCK TRANSFER CORPORATION
Warrant Agent
WARRANT AGREEMENT
Dated as of June __, 1996
--------------------------------------------------
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of June __, 1996, between IWERKS
ENTERTAINMENT, INC., a Delaware corporation (the "Company"), and U.S. STOCK
TRANSFER CORPORATION (the "Warrant Agent").
WHEREAS, the Company proposes to issue 500,000 common stock purchase
warrants (the "Warrants"), each to purchase one share of its common stock, par
value $.001 per share (the "Common Stock") (the shares of Common Stock issuable
on exercise of the Warrants being referred to herein as the "Warrant Shares"),
in connection with the settlement of a class action lawsuit (the "Action")
previously pending against the Company in the United States District Court for
the Central District of California (the "District Court") in accordance with a
Stipulation of Settlement dated November 27, 1995 (the "Stipulation") between
the Company and the participants in such settlement, pursuant to an exemption
from registration under Section 3(a)(10) of the Securities Act of 1933, as
amended (the "Securities Act"), following the entry of a Final Judgment (as that
term is defined in the Stipulation) approving the Stipulation;
WHEREAS, the Company proposes to issue certificates evidencing the
Warrants (the "Warrant Certificates");
WHEREAS, the Company desires that the Warrant Agent act on behalf of
the Company in connection with the issuance, division, transfer, exchange,
replacement and surrender of the Warrants and the Warrant Agent desires to do
so;
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Warrant Agreement, among other things, the form and provisions of the Warrant
Certificates and the terms and conditions under which they may be issued,
divided, transferred, exchanged, replaced and surrendered; and
WHEREAS, a registration statement covering the Warrant Shares has been
filed with the United States Securities and Exchange Commission;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Company and the Warrant Agent hereby agree as
follows:
ARTICLE I
DISTRIBUTION OF WARRANT CERTIFICATES
Section 1.1 APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act on behalf of the Company in accordance with
the instructions hereinafter set forth, and the Warrant Agent hereby accepts
such appointment.
1.
<PAGE>
Section 1.2 FORM OF WARRANT CERTIFICATES. The Warrant Certificates
shall be issued in registered form only and, together with the forms of election
to purchase Warrant Shares and of assignment to be printed on the reverse
thereof, shall be substantially in the form of EXHIBIT A attached hereto and, in
addition, may have such letters, numbers or other marks of identification or
designation and such legends, summaries, or endorsements stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as, in any particular
case, may be required in the opinion of counsel for the Company, to comply with
any law or with any rule or regulation of any securities exchange, regulatory
authority or agency, or to conform to customary usage.
Section 1.3 EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be executed on behalf of the Company by its Chairman or
President or any Executive Vice President attested to by its Secretary or
Assistant Secretary, either manually or by facsimile signature printed thereon.
The Warrant Certificates shall be manually countersigned and (except as set
forth in Sections 1.4 and 2.2 hereof) dated the date of countersignature by the
Warrant Agent and shall not be valid for any purpose unless so countersigned and
dated. In case any authorized officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer of the Company either
before or after delivery thereof by the Company to the Warrant Agent, the
signature of such person on such Warrant Certificates, nevertheless, shall be
valid and such Warrant Certificates may be countersigned by the Warrant Agent,
and issued and delivered to those persons entitled to receive the Warrants
represented thereby with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
Section 1.4 REGISTRATION. Immediately following the entry of Final
Judgment by the District Court approving the Stipulation, the Company shall
deliver to the Warrant Agent an adequate supply of Warrant Certificates executed
on behalf of the Company as described in Section 1.3 hereof. These Warrant
Certificates, representing 500,000 Warrants, shall initially be registered in
the names of those persons who are entitled under the plan of allocation
pursuant to the Stipulation to receive Warrant Certificates (the "Authorized
Warrant Holders"). Each such Warrant Certificate shall have imprinted on its
face the date of June ___, 1996 (the "Effective Date"). After receipt of
information identifying the Authorized Warrant Holders, the Warrant Agent shall
have mailed or caused to have been mailed such Warrant Certificates to the
Authorized Warrant Holders.
The Warrant Agent shall maintain books for the transfer and
registration of the Warrant Certificates. The Warrant Certificates shall be
numbered and shall be registered in a Warrant Register as they are issued. The
Company and the Warrant Agent shall be entitled to treat the registered owner(s)
of the Warrant Certificates (the "Holder(s)") as the owner(s) in fact thereof
(notwithstanding any notation of ownership or other writing on the Warrant
Certificates made by anyone other than the Company or the Warrant Agent), for
the purpose of any exercise thereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
2.
<PAGE>
Section 1.5 TRANSFER OF WARRANTS. The Warrant Certificates shall be
transferable only on the books of the Company maintained at the office of the
Warrant Agent designated for such purpose upon delivery thereof duly endorsed by
the Holder or by his duly authorized attorney or representative, or accompanied
by proper evidence of succession, assignment or authority to transfer, which
endorsement shall be guaranteed by a member firm of a national securities
exchange, a commercial bank (not a savings bank or a savings and loan
association) or trust company located in the United States or a member of the
National Association of Securities Dealers, Inc. (hereafter, "Signatures
Guaranteed"). In all cases of transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly certified, shall be deposited
and remain with the Warrant Agent. In case of transfer by executor,
administrators, guardians or other legal representatives. duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Warrant Agent in its discretion.
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 EXERCISE PRICE. Each Warrant Certificate shall, when
signed and countersigned as provided in Section 1.3, entitle the Holder thereof
to purchase from the Company one share of Common Stock for each Warrant
evidenced thereby, at the purchase price (the "Exercise Price") of two dollars
($2) below the average trading price of the Company's Common Stock on the Nasdaq
National Stock Market during the thirty (30) day period following the last date
for filing a Proof of Claim form pursuant to the Stipulation (the "Base Price"),
or such adjusted number of shares at such adjusted purchase price as may be
established from time to time pursuant to the provisions of Article III hereof,
payable in full at the time of exercise of the Warrant. Except as the context
otherwise requires, the term "Exercise Price" as used in this Agreement shall
mean the purchase price of one share of Common Stock, reflecting all appropriate
adjustments made in accordance with the provisions of Article III hereof.
Section 2.2 EXERCISABILITY OF WARRANTS AND REGISTRATION OF WARRANT
SHARES. Each Warrant may be exercised at any time after the Effective Date and
after the Warrant Shares have been effectively registered under the Securities
Act pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission (the "Registration Statement") and such
other action as may be required by Federal or state law relating to the issuance
or distribution of securities shall have been taken, until 5:00 p.m., New York
City time, on June ___, 1999 (the "Exercise Deadline") unless extended in
accordance with Section ___. After the Exercise Deadline, any unexercised
Warrants will be void and all rights of Holders shall cease. Each Warrant
Certificate shall have the Exercise Deadline imprinted on its face. The Company
has filed a Registration Statement covering the Warrant Shares with the United
States Securities and Exchange Commission. The Company shall use reasonable
good faith efforts to have the Registration Statement declared effective and to
maintain it in effect under the Securities Act and to keep available for
delivery upon the exercise of Warrants a prospectus that meets the requirements
of Section 10 of the Securities Act, until the earlier of the date by which all
Warrants are exercised or the Exercise Deadline, unless
3.
<PAGE>
the Company determines that, by virtue of an amendment of the Securities Act or
otherwise, the effectiveness of such registration or the delivery of such
prospectus is not required at the time Warrant Shares are to be issued.
In the event that, in the judgment of the Company, it is advisable to
suspend use of the prospectus described in this Section 2.2, due to (i) any
request by the SEC or any other federal or state governmental authority for
amendments or supplements to a Registration Statement or related prospectus or
for additional information; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threat of any proceedings for that
purpose; (iii) the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Common Stock for sale in any jurisdiction or the initiation or threat of any
proceeding for such purpose; (iv) the existence of any fact or the happening of
any event which makes any statement of a material fact in such Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue or which would require the making of
any changes in the Registration Statement or prospectus in order that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; (v) the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate, or (vi) pending material corporate developments
or similar material events that have not yet been publicly disclosed and as to
which the Company believes public disclosure will be prejudicial to the Company,
the Company shall give written notice to the Warrant Agent to the effect of the
foregoing and to the effect that the Warrants may not be exercised in during
such time period (the "Blackout Period"). In the event that a Holder seeks to
exercise a Warrant during the Blackout Period, the Warrant Agent will notify the
Holder, in accordance with Section 6.15 hereof, that a Blackout Period is in
effect. In no event shall the Company call more than two (2) sixty (60) day
Blackout Periods in any calendar year. Nor may it call a Blackout Period sixty
(60) days prior to the Exercise Deadline.
Section 2.3 PROCEDURE FOR EXERCISE OF WARRANTS. During the period
specified in and subject to the provisions and limitations set forth in
Section 2.2 hereof, Warrants may be exercised by surrendering the Warrant
Certificates representing such Warrants to the Warrant Agent at
U.S. Stock Transfer Corporation, Attention: Iwerks Entertainment, Inc. Warrant
Agency (the "Principal Office") or at such other location as the Warrant Agent
may specify in writing to the Holders with the election to purchase form set
forth on the reverse side of the Warrant Certificate duly completed and
executed, with Signature Guaranteed, accompanied by payment in full to the
Warrant Agent for the account of the Company of the Exercise Price in effect at
the time of such exercise, together with such taxes as are specified in Section
7.1 hereof, for each share of Common Stock with respect to which such Warrants
are being exercised. Such Exercise
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Price and taxes shall be paid in full by certified or official bank check, or by
United States Postal Service money order, payable in United States currency to
the order of the Warrant Agent or the Company. The date on which a Warrant is
exercised in accordance with this Section 2.3 is sometimes referred to herein as
the Date of Exercise of such Warrant. In the event that a Blackout Period, as
described in Section 2.2 hereof is in effect, the Warrant Agent will notify the
Holder, in accordance with Section 7.15 hereof, that a Blackout Period is in
effect and that the Warrants surrendered may not be exercised during the
Blackout Period. In this event, the date that the Company notifies the Warrant
Agent that the Blackout Period has ended will be the Date of Exercise.
Section 2.4 ISSUANCE OF WARRANT SHARES. As soon as practicable after
the Date of Exercise of any Warrant, the Company shall issue a certificate or
certificates for the number of full Warrant Shares to which the Holder thereof
is entitled, registered in accordance with the instructions set forth in the
election to purchase. All Warrant Shares shall be validly authorized and
issued, fully paid and nonassessable, and free from all taxes, liens and charges
created by the Company in respect of the issue thereof. Certificates
representing such Warrant Shares shall be delivered by the Warrant Agent in such
names and denominations as are required for delivery to, or in accordance with
the instructions of, the Holder. Each person in whose name any such certificate
for Warrant Shares issued shall for all purposes be deemed to have become the
holder of record of the Warrant Shares represented thereby on the Date of
Exercise of the Warrants resulting in the issuance of such Warrant Shares,
irrespective of the date of issuance or delivery of such certificate for Warrant
Shares; PROVIDED, HOWEVER, that if, at the date of the surrender of such
Warrants and payment of the Warrant Price, the transfer books for the Warrant
Shares purchasable upon the exercise of such Warrants shall be closed, the
certificates for the Warrant Shares in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened (whether before or after the Exercise Deadline) and until such date the
Company shall be under no duty to deliver any certificate for such Warrant
Shares; PROVIDED, FURTHER, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than
twenty (20) days.
Section 2.5 CERTIFICATES FOR UNEXERCISED WARRANTS. If less than all
of the Warrants represented by Warrant Certificate are exercised, the Warrant
Agent shall execute and mail, by first-class mail, within thirty (30) days of
the Date of Exercise, to the Holder of such Warrant Certificate, or such other
person as shall be designated in the election to purchase, a new Warrant
Certificate representing the number of Warrants not exercised. In no event
shall a fraction of a Warrant be exercised, and the Warrant Agent shall
distribute no Warrant Certificates representing fractions of Warrants under this
or any other Section of this Agreement.
Section 2.6 RESERVATION OF SHARES. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants a number
of its authorized but unissued shares or treasury shares, or both, of Common
Stock that will be sufficient to permit the exercise in full of all outstanding
Warrants. The transfer agent for the Company's Common Stock and every
subsequent transfer agent for the Company's capital stock issuable upon the
exercise of Warrants, will be irrevocably authorized and
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directed at all times to reserve a number of authorized shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the transfer agent for the Company's Common Stock and with every
subsequent transfer agent for any shares of the Company's capital stock issuable
upon the exercise of the Warrants. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time from such transfer agent the stock
certificates required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company will supply such
transfer agent with duly executed stock certificates for such purposes and will
provide or otherwise make available any cash which may be payable as provided in
Section 3.9 hereof. All Warrant Certificates surrendered in the exercise of the
rights thereby evidenced shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company.
Section 2.7 DISPOSITION OF PROCEEDS. Upon the exercise of any
Warrant, the Warrant Agent shall promptly deposit all funds received by it for
the purchase of Warrant Shares into an interest-bearing escrow account as
directed in writing by the Company. All funds deposited in the escrow account
and any interest thereon shall be disbursed on a weekly basis to the Company. A
detailed accounting statement relating to the number of Warrants exercised,
names of Holders of such exercised Warrants and the net amount of funds remitted
will be given to the Company with each such disbursement.
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS
Section 3.1 ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions
of this Article III, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend payable in stock
or make some other distribution on the outstanding shares of its Common
Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of shares or
(iii) combine or reclassify the outstanding shares of its Common Stock into
a smaller number of shares, the Exercise Price, in effect immediately after
the record date for such dividend or distribution or the effective date of
such division, reclassification or combination shall be proportionately
adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after
such event, and the Product so obtained shall thereafter be the Exercise
Price then in effect. Such adjustment shall be made successively whenever
any event specified above shall occur.
(b) All calculations under this Section 3.1 shall be made to the
nearest thousandth of a cent.
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Section 3.2 NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the
Exercise Price in accordance with the provisions of paragraph (a) of Section 3.1
hereof need be made if such adjustment would amount to a change in such Exercise
Price of less than ten cents; PROVIDED, HOWEVER, that the amount by which any
adjustment is not made by reason of the provision of this Section 3.2 shall be
carried forward and taken into account at the time of any subsequent adjustment
in the Exercise Price.
Section 3.3 ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to Paragraph (a) of Section 3.1, each Warrant shall
thereupon evidence the right to purchase that number of shares of Common Stock
(calculated to the nearest hundredth of a share) obtained by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment upon exercise of the Warrant by the Exercise Price in effect
immediately prior to such adjustment and dividing the product so obtained by the
Exercise Price in effect immediately after such adjustment.
Section 3.4 REORGANIZATIONS. In case of any capital reorganization,
consolidation or merger of the Company (other than in the cases referred to in
Section 3.1 hereof or the consolidation or merger of the Company with or into
another corporation in which the Company is the continuing corporation and which
does not result in any reclassification of the outstanding shares of Common
Stock or the conversion of such outstanding shares of Common Stock into shares
of other stock or other securities or property), or the sale of all or
substantially all of the Company's stock or property (a "Reorganization"), all
outstanding Warrants must be fully exercised within forty (40) days after the
Company gives written notice in the manner specified in section 7.15 hereof to
each Holder of a Reorganization. After that time, all rights to exercise any
Warrant will terminate. Additionally, in the event of sale or conveyance or
other transfer of all or substantially all of the assets of the Company as a
part of a plan for liquidation of the Company, all rights to exercise any
Warrant shall terminate thirty (30) days after the Company gives written notice
to each Holder that such sale or conveyance or other transfer has been
consummated in the manner specified in section 7.15 hereof.
Section 3.5 EXERCISE PRICE NOT LESS THAN PAR VALUE. In no event
shall the Exercise Price be adjusted below the par value per share of the Common
Stock.
Section 3.6 NOTICE OF CERTAIN ACTION. In the event the Company
shall:
(a) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other than cash to
the holders of its Common Stock; or
(b) offer to the holders of its Common Stock as such rights to
subscribe for or purchase any shares of any class of stock or any other
rights or opinions; or
(c) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or combination of
outstanding
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shares of Common Stock), Reorganization or the liquidation, dissolution or
winding up of the Company;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the Warrant Agent. Such notice shall specify the date on which
the books of the Company shall close, or a record be taken, for determining
holders of Common Stock entitled to receive such stock dividend or other
distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution or winding up shall take place or
commence, as the case may be, and the date as of which it is expected that
holders shall be entitled to receive securities or other property deliverable
upon such action, if any such date has been fixed. The Company shall also cause
copies of such notice to be mailed to each Holder of a Warrant Certificate in
the manner specified in section 6.15 hereof. Such notice shall be mailed, in
the case of any action covered by Subsection 3.6(a) or 3.6(b) above, at least
ten (10) days prior to the record date for determining holders of the Common
Stock for purposes of receiving such payment or offer, and in the case of any
action covered by Subsection 3.6(c) above, at least ten (10) days prior to the
earlier of the date upon which such action is to take place or any record date
to determine holders of Common Stock entitled to receive such securities or
other property.
Section 3.7 NOTICE OF ADJUSTMENTS. Whenever any adjustment is made
pursuant to this Article III, the Company shall cause notice of such adjustment
to be mailed to the Warrant Agent within fifteen (15) days thereafter, such
notice to include in reasonable detail (i) the events precipitating the
adjustment, (ii) the computation of any adjustments, and (iii) the Exercise
Price, the number of shares or the securities or other property purchasable upon
exercise of each Warrant after giving effect to such adjustment. The Warrant
Agent shall be entitled to rely on such notice and any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such notice. The Warrant Agent shall
within fifteen (15) days after receipt of such notice from the Company cause a
similar notice to be mailed to each Holder.
Section 3.8 WARRANT CERTIFICATE AMENDMENTS. Irrespective of any
adjustments pursuant to this Article III, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments.
Section 3.9 FRACTIONAL SHARES. The Company shall not be required
upon the exercise of any Warrant to issue fractional shares of Common Stock
which may result from adjustments in accordance with this Article III to the
Exercise Price or number of shares of Common Stock purchasable under each
Warrant. If more than one Warrant is exercised at one time by the same Holder,
the number of full shares of Common Stock which shall be deliverable shall be
computed based on the number of shares deliverable in exchange for the aggregate
number of Warrants exercised. With respect to any final fraction of a share
called for upon the exercise of any Warrant or Warrants, the Company, at its
option, shall either (i) issue a full share of Common Stock to the Holder
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in respect of such fraction or (ii) pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the market value of a
share of Common Stock, as determined by the Warrant Agent on the basis of the
market price per share of Common Stock on the business day next preceding the
date of such exercise. For the purposes of this Section 3.9, the market price
per share of Common Stock shall mean (i) the average of the high and low bid and
ask prices of the Common Stock on the Nasdaq National Stock Market; or (ii) if
the Common Stock is not then traded on such exchange, then the last known price
paid per share by a purchaser of such stock in an arm's-length transaction.
ARTICLE IV
REDEMPTION
Section 4.1 RIGHT OF COMPANY TO REDEEM. The Company may redeem all
or any part of the Warrants on or after the date (the "Trigger Date") the market
price per share of Common Stock (as defined in Section 3.9) exceeds 150% of the
Base Price (a "Redemption").
Section 4.2 REDEMPTION PRICE. The redemption price per share of
Common Stock for which the Warrant is exercisable will be $2.01 (the "Redemption
Price").
Section 4.3 NOTICE OF REDEMPTION. If the Company shall desire to
exercise the right to redeem all, or, as the case may be, any part of the
Warrants, it shall fix a date for redemption and the Company shall mail or cause
to be mailed a notice of such redemption to all Holders in accordance with the
provisions of Section 7.15. Each notice shall state the aggregate number of
Warrants to be redeemed, the Redemption Date (as defined in Section 4.4) and
that the right of a Holder to exercise a Warrant shall expire two (2) days prior
to the Redemption Date, the Redemption Price and the place or places of payment.
It shall also state that payment will be made upon presentation and surrender of
the Warrants. If fewer than all Warrants are to be redeemed, then (i) the
Warrant Agent shall select the Warrants to be redeemed on a pro rata basis and
(ii) the notice of redemption shall identify to each Holder the Warrants to be
redeemed by Warrant number. There will be no fractional redemptions. In the
event that less than an entire number of Holder's Warrants are redeemed, a new
Warrant representing the number of unredeemed Warrants will be issued and
provided to the Holder within thirty (30) days of the Redemption.
Section 4.4 REDEMPTION DATE. The Company shall, in its discretion,
fix a date for redemption which must be at least forty (40) days after the
Company has mailed notice pursuant to Section 4.3. The redemption date shall be
any day, within the forty days following the Trigger Date that the Company
selects (the "Redemption Date"). The right of a Holder to exercise a Warrant
shall expire two (2) days prior to the Redemption Date.
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Section 4.5 DEPOSIT OF FUNDS. On or prior to the Redemption Date
the Company will deposit with the Warrant Agent an amount of money sufficient to
redeem on the Redemption Date all of the Warrants called for redemption (other
than those theretofore surrendered for exercise) at the appropriate Redemption
Price.
Section 4.6 CONVERSION ARRANGEMENT AT REDEMPTION. In connection
with a Redemption, the Company may arrange for the purchase of the Warrants by
an agreement with one or more investment bankers or other purchases to purchase
such Warrants by paying to the Warrant Agent, on or before the date fixed for
redemption, an amount not less than the applicable Redemption Price.
ARTICLE V
OTHER PROVISIONS RELATING TO RIGHTS
OF HOLDERS OF WARRANT CERTIFICATES
Section 5.1 RIGHTS OF WARRANT HOLDERS. No Warrant Certificate shall
entitle the registered holder thereof, as such, to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company.
Section 5.2 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT
CERTIFICATES. If any Warrant Certificate shall be mutilated, apparently lost,
stolen or destroyed, the Company in its discretion may direct the Warrant Agent
to execute and deliver, in exchange and substitution for and upon cancellation
of a mutilated Warrant Certificate, or in lieu of or in substitution for an
apparently lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate for the number of Warrants represented by the Warrant Certificate so
mutilated, apparently lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Warrant Certificate, and of
the ownership thereof, and indemnity, if requested, all satisfactory to the
Company and the Warrant Agent. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges incidental thereto as the Company or Warrant Agent
may prescribe. Any such new Warrant Certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly mutilated,
lost or stolen or destroyed Warrant Certificate shall be at any time enforceable
by anyone.
ARTICLE VI
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER
AND CANCELLATION OF WARRANT CERTIFICATES
Section 6.1 SPLIT UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANT
CERTIFICATES. Prior to the Exercise Deadline, Warrant Certificates, subject to
the provisions of Section 6.2, may be split up, combined or exchanged for other
Warrant
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Certificates representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any Holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Warrant Agent at its Principal Office and shall
surrender the Warrant Certificate or Warrant Certificates so to be split up,
combined or exchanged at said office. Subject to any applicable laws, rules or
regulations restricting transferability, any restriction on transferability that
may appear on a Warrant Certificate in accordance with the terms hereof, or any
"stop-transfer" instructions the Company may give to the Warrant Agent to
implement any such restriction (which instructions the Company is expressly
authorized to give), transfer of outstanding Warrant Certificates may be
effected by the Warrant Agent from time to time upon the books of the Company to
be maintained by the Warrant Agent for that purpose, upon a surrender of the
Warrant Certificate to the Warrant Agent at its Principal Office, with the
assignment form set forth in the Warrant Certificate duly executed and with
Signature Guaranteed. Upon any such surrender for split up, combination,
exchange or transfer, the Warrant Agent shall execute and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Warrant Agent shall not be required to effect any
split up, combination, exchange or transfer which will result in the issuance of
a Warrant Certificate evidencing a fraction of a Warrant. The Warrant Agent may
require the holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split up, combination,
exchange or transfer of Warrant Certificates prior to the issuance of any new
Warrant Certificate.
Section 6.2 CANCELLATION OF WARRANT CERTIFICATES. Any Warrant
Certificate surrendered upon the exercise of Warrants or for split up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be canceled and shall not be reissued by the Company; and, except
as provided in Section 2.5 in case of the exercise of less than all of the
Warrants evidenced by a Warrant Certificate or in Section 6.1 in case of a split
up, combination, exchange or transfer, no Warrant Certificate shall be issued
hereunder in lieu of such canceled Warrant Certificates. Any Warrant
Certificate so canceled shall be destroyed by the Warrant Agent unless otherwise
directed by the Company. The Warrant Agent shall furnish to the Company written
confirmation of the destruction of the Warrant Certificates so canceled.
ARTICLE VII
PROVISIONS CONCERNING THE
AGENT AND OTHER MATTERS
Section 7.1 PAYMENT OF TAXES AND CHARGES. The Company will from time
to time promptly pay to the Warrant Agent, or make provisions satisfactory to
the Warrant Agent for the payment of, all taxes and charges that may be imposed
by the United States or any state upon the Company or the Warrant Agent in
connection with the issuance or delivery of any Warrant Shares, but any transfer
taxes in connection with the issuance of Warrant Certificates or certificates
for Warrant Shares in any name other than that of the Holder of the Warrant
Certificates surrendered shall be paid by such Holder; and, in such case, the
Company shall not be required to issue or deliver any
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Warrant Certificate or certificate for Warrant Shares until such taxes shall
have been paid or it has been established to the Company's satisfaction that no
tax is due.
Section RESIGNATION OR REMOVAL OF WARRANT AGENT. The Warrant
Agent may resign its duties and be discharged from all further duties and
liabilities hereunder after giving at least thirty (30) days' notice in writing
to the Company, except that such shorter notice may be given as the Company
shall, in writing, accept as sufficient. Upon comparable notice to the Warrant
Agent, the Company may remove the Warrant Agent; PROVIDED, HOWEVER, that in such
event the Company shall appoint a new Warrant Agent, as hereinafter provided,
and the removal of the Warrant Agent shall not be effective until a new Warrant
Agent has been appointed and has accepted such appointment. If the office of
Warrant Agent becomes vacant by resignation or incapacity to act or otherwise,
the Company shall appoint in writing a new Warrant Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by the Holder of any Warrant Certificate, then
the Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. Any new Warrant Agent,
whether appointed by the Company or by such a court, shall be a bank which is a
member of the Federal Reserve System. Any new Warrant Agent appointed hereunder
shall execute, acknowledge and deliver to the former Warrant Agent last in
office, and to the Company, an instrument accepting such appointment under
substantially the same terms and conditions as are contained herein, and
thereupon such new Warrant Agent without any further act or deed shall become
vested with the rights, powers, duties and responsibilities of the Warrant Agent
and the former Warrant Agent shall cease to be the Warrant Agent; but if for any
reason it becomes necessary or expedient to have the former Warrant Agent
execute and deliver any further assurance, conveyance, act or deed, the same
shall be done at the expense of the Company and shall be legally and validly
executed and delivered by the former Warrant Agent.
Section 7.3 NOTICE OF APPOINTMENT. Not later than the effective date
of the appointment of a new Warrant Agent the Company shall cause notice thereof
to be mailed to the former Warrant Agent and the transfer agent for the
Company's Common Stock, and shall forthwith cause a copy of such notice to be
mailed to each Holder of a Warrant Certificate. Failure to mail such notice, or
any defect contained therein, shall not affect the legality or validity of the
appointment of the successor Warrant Agent.
Section 7.4 MERGER OF WARRANT AGENT. Any company into which the
Warrant Agent may be merged or with which it may be consolidated or any company
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, or any company to which the Warrant Agent may transfer its stockholder
services business, shall be the successor Warrant Agent under this Agreement
without further act, provided that such company would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 7.2
hereof. Any such successor Warrant Agent may adopt the prior countersignature
of any predecessor Warrant Agent and distribute Warrant Certificates
countersigned but not distributed by such predecessor Warrant Agent, or may
countersign the Warrant Certificates in its own name.
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Section 7.5 COMPANY RESPONSIBILITIES. The Company agrees that it
shall (i) pay the Warrant Agent the agreed upon remuneration for its services as
Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all
expenses, advances, and expenditures that the Warrant Agent may reasonably incur
in the execution of its duties hereunder (including reasonable fees and expenses
of its counsel); (ii) provide the Warrant Agent, upon request, with sufficient
funds to pay any cash due pursuant to Section 3.9 upon exercise of Warrants; and
(iii) perform, execute, acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all further and other acts, instruments and
assurances as may reasonably be required by the Warrant Agent for the carrying
out or performing by the Warrant Agent of the provisions of this Agreement.
Section 7.6 PURCHASE OF WARRANTS BY THE COMPANY. The Company shall
have the right, except as limited by law, other agreement or herein, to purchase
or otherwise acquire Warrants at such times, in such manner and for such
consideration as it may deem appropriate.
Section 7.7 CERTIFICATION FOR THE BENEFIT OF WARRANT AGENT. Whenever
in the performance of its duties under this Agreement the Warrant Agent shall
deem it necessary or desirable that any matter be proved or established or that
any instructions with respect to the performance of its duties hereunder be
given by the Company prior to taking or suffering any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established, or such
instructions may be given, by a certificate or instrument signed by the Chairman
of the Board, the President, an Executive Vice President, the Secretary or the
Treasurer of the Company and delivered to the Warrant Agent. Such certificate
or instrument may be relied upon by the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement; but in its
discretion the Warrant Agent may in lieu thereof accept other evidence of such
matter or may require such further or additional evidence as it may deem
reasonable.
Section 7.8 LIABILITY OF WARRANT AGENT. The Warrant Agent shall be
liable hereunder solely for its own negligence or misconduct. The Warrant Agent
shall act hereunder solely as an agent for the Company and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not be
liable for or by reason of any of the statements of fact or recitals contained
in this Agreement or in the Warrant Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only. The Warrant
Agent will not incur any liability or responsibility to the Company or to any
Holder of any Warrant Certificate for any action taken, or any failure to take
action, in reliance on any paper, document or instrument reasonably believed by
the Warrant Agent to be genuine and to have been signed, sent or presented by
the proper party or parties. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof by the Company or in respect of the validity or execution of any
Warrant Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Warrant Certificate or
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the Stipulation; nor shall it be responsible for the making of any adjustment
required under the provisions of Article III hereof or responsible for the
manner, method or amount of any such adjustment or the facts that would require
any such adjustment; nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock or other securities to be issued pursuant to this Agreement or
any Warrant Certificate or as to whether any shares of Common Stock or other
securities will when issued be validly authorized and issued and fully paid and
nonassessable.
Section 7.9 USE OF ATTORNEYS, AGENTS AND EMPLOYEES. The Warrant
Agent may execute and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself or by or through its attorneys,
agents or employees.
Section 7.10 INDEMNIFICATION. The Company agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses or
liabilities, including judgments, costs and reasonable counsel fees arising out
of or in connection with its acceptance of its position hereunder and in
carrying out the terms hereof, except as a result of the negligence or willful
misconduct of the Warrant Agent.
Section 7.11 ACCEPTANCE OF AGENCY. The Warrant Agent hereby accepts
the agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth.
Section 7.12 INSTRUCTIONS FROM THE COMPANY. The Warrant Agent is
hereby authorized and directed to accept instructions with respect to the
performance of its duties hereunder from the Chairman of the Board, the
President, an Executive Vice President, the Secretary or the Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and shall not be liable for any action taken or suffered to be
taken by it in good faith in accordance with instructions of any such officer or
officers.
Section 7.13 CHANGES TO AGREEMENT. The Warrant Agent may, without
the consent or concurrence of any Holder, by supplemental agreement or
otherwise, join with the Company in making any changes or corrections in this
Agreement that shall in the judgment of the Company (i) be required to cure any
ambiguity or to correct any defective or inconsistent provision or clerical
omission or mistake or manifest error herein contained, (ii) add to the
covenants and agreements of the Company or the Warrant Agent in this Agreement
such further covenants and agreements thereafter to be observed, or (iii) result
in the surrender of any right or power reserved to or conferred upon the Company
or the Warrant Agent in this Agreement, but which changes or corrections do not
or will not adversely affect, alter or change the rights, privileges or
immunities of the Holders of Warrant Certificates. The Warrant Agent shall be
entitled to rely on such Company counsel's written advice. Otherwise the
Agreement may be amended by the written consent of the Company and the
affirmative vote or written consent of Holders holding not less than two-thirds
of the then outstanding Warrants.
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Section 7.14 ASSIGNMENT. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns.
Section 7.15 NOTICES. Any notice or demand required by this
Agreement to be given or made by the Warrant Agent or by the Holder to or on the
Company shall be sufficiently given or made if sent by first-class or registered
mail, postage prepaid, addressed (until another address is filed in writing by
the Company with the Warrant Agent) as follows:
Iwerks Entertainment, Inc.
4540 West Valerio Street
Burbank, California 91505
Attention: Chief Financial Officer
Any notice or demand required by this Agreement, to be given or made by the
registered Holder of any Warrant Certificate or by the Company to or on the
Warrant Agent shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing with the Company by the Warrant Agent), as follows:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attention: Warrant Agent (Iwerks Entertainment, Inc.)
Any notice or demand required by this Agreement to be given or made by the
Company or the Warrant Agent to or on the Holder of any Warrant Certificate
shall be sufficiently given or made, whether or not such Holder receives the
notice, if sent by first-class or registered mail, postage prepaid, addressed to
such Holder at his or her last address as shown on the books of the Company
maintained by the Warrant Agent or to his or her broker if the Holder's shares
are registered in street name.
Section 7.16 DEFECTS IN NOTICE. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement shall not affect in any way the rights of any Holder
or the legality or validity of any adjustment made pursuant to Section 3.1
hereof, or any transaction giving rise to any such adjustment, or the legality
or validity of any action taken or to be taken by the Company.
Section 7.17 GOVERNING LAW. The validity, interpretation and
performance of this Agreement, of each Warrant Certificate issued hereunder and
of the respective terms and provisions thereof shall be governed by the internal
laws of the State of Delaware.
15.
<PAGE>
Section 7.18 STANDING. Nothing in this Agreement expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company, the Warrant Agent, and the Holders any right, remedy or claim
under or by reason of this Agreement or of any covenant, condition, stipulation,
promise or agreement contained herein; and all covenants, conditions,
stipulations, promises and agreements contained in this Agreement shall be for
the sole and exclusive benefit of the Company and the Warrant Agent and their
successors, and the Holders.
Section 7.19 HEADINGS. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 7.20 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
Section 7.21 CONFLICT OF INTEREST. The Warrant Agent and any
stockholder, director, officer or employee of the Warrant Agent may buy, sell or
deal in any of the Warrant Certificates or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
Section 7.22 AVAILABILITY OF THE AGREEMENT. The Warrant Agent shall
keep copies of this Agreement available for inspection by holders of Warrants
during normal business hours at its stock transfer department. Copies of this
Agreement may be obtained upon written request addressed to the Company.
16.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, and their corporate seals affixed and attested, all as of the
day and year first above written.
IWERKS ENTERTAINMENT, INC.
By:
------------------------------------
Title:
[Corporate Seal]
Attests:
- -----------------------------------
Title:
U.S. STOCK TRANSFER CORPORATION
By:
------------------------------------
Title:
[Corporate Seal]
Attest:
- ------------------------------
Title:
<PAGE>
[FORM OF WARRANT CERTIFICATE]
EXERCISABLE ON OR AFTER June ___, 1996
VOID AFTER 5:00 P.M., NEW YORK CITY TIME
ON June ___, 1999
W________________ ____________ Warrants
IWERKS ENTERTAINMENT, INC.
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED CUSIP __________
_______________________, or his, her or its registered assigns, is the
registered holder of the number of Warrants (the "Warrants") set forth above.
Each Warrant entitles the holder thereof to purchase from Iwerks Entertainment,
Inc., a corporation incorporated under the laws of the State of Delaware (the
"Company"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid and nonassessable
share of Common Stock, $.001 par value per share, of the Company (the "Common
Stock"). The Warrants may be exercised at any time or from time to time on or
after June ___, 1996 (the "Effective Date") and must be exercised before 5:00
P.M., New York City time, on June ___, 1999 (the "Exercise Deadline"). Upon the
Exercise Deadline, all rights evidenced by the Warrants shall cease and the
Warrants shall become void. Subject to the provisions of the Warrant Agreement,
the holder of each Warrant shall have the right to purchase from the Company
until the Exercise Deadline (and the Company shall issue and sell to such holder
of a Warrant) one fully paid and nonassessable share of Common Stock (a "Warrant
Share") at an exercise price (the "Exercise Price") of $8.78 upon surrender of
this Warrant Certificate to the Company at the office of the Warrant Agent (as
defined in the Warrant Agreement) designated by the Warrant Agent for such
purpose with the form of election to purchase appearing on this Warrant
Certificate duly completed and signed, together with payment of the Exercise
Price in cash or certified or official bank check payable to the order of the
Warrant Agent or the Company.
The Exercise Price or number of Warrant Shares for which the Warrants are
exercisable are subject to change or adjustment upon the occurrence of certain
events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH
ON THE REVERSE SIDE HEREOF, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the laws
of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officers.
Dated: IWERKS ENTERTAINMENT, INC.
By:
-----------------------------------
Its
------------------------------
ATTEST:
By:
-------------------------
Countersigned:
U.S. STOCK TRANSFER CORPORATION
AS WARRANT AGENT
By:
--------------------------
[Reverse Side]
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions of
the Warrant Agreement, dated as of June ___, 1996 (the "Warrant Agreement"),
between the Company and the Warrant Agent, to all of which terms and conditions
the registered holder of the Warrant consents by acceptance hereof. The Warrant
Agreement is incorporated herein by reference and made a part hereof and
reference is made to the Warrant Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Warrant Agent,
the Company and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the principal office of the
Warrant Agent or may be obtained upon written request addressed to the Warrant
Agent at its principal stockholder services office in 1745 Gardena Avenue, Suite
200, Glendale, California 91204.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
This Warrant Certificate may be exchanged or transferred, at the option of
the holder, upon presentation and surrender hereof to the Warrant Agent, for
other Warrant Certificates of different denominations, entitling the holder
hereof to purchase in the aggregate the same number of Warrant Shares. If the
Warrants evidenced by this Warrant Certificate shall be exercised in part, the
holder hereof shall be entitled to receive upon surrender hereof another Warrant
Certificate or Certificates evidencing the number of Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Company, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock are closed
for any purpose, the Company shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same, consents
and agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of
the Warrant Agent only upon the terms and conditions set forth in the
Warrant Agreement and
(b) the Company and the Warrant Agent may deem and treat the person
in whose name this Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or the Warrant Agent) for all
purposes whatever and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
This Warrant Certificate shall not be valid or enforceable for any purpose
until it shall have been countersigned by the Warrant Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM = as tenants in common UNIF GIFT MIN ACT =________ Custodian______
TEN ENT = as tenants by the entireties (Custodian) (Minor)
JT TEN = as joint tenants with right under Uniform Gifts to
of survivorship and not as Minors Act
tenants in common
COM PROP = as community property -------------------------
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
PURCHASE FORM
Dated: ________________, 19___
The undersigned hereby irrevocably exercises this Warrant to purchase
__________ shares of Common Stock and herewith makes payment of $__________ in
payment of the Exercise Price thereof on the terms and conditions specified in
this Warrant Certificate, surrenders this Warrant Certificate and all right,
title and interest herein to the Company and directs that the Warrant Shares
deliverable upon the exercise of such Warrants be registered in the name and at
the address specified below and delivered thereto.
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
Signature
-----------------------------------------
If such number of Warrant Shares is less than the aggregate number of Warrant
Shares purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the balance of such Warrant Shares to be registered in
the name and at the address specified below and delivered thereto.
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
Signature
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. If the
certificate representing the Warrant Shares or any Warrant Certificate
representing Warrants not exercised is to be registered in a name
other than that in which this Warrant Certificate is registered, the
signature of the holder hereof must be guaranteed.
Signature Guaranteed:
--------------------------------------------------
<PAGE>
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED _________________________________________________ hereby
sells, assigns and transfers to:
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
the right to purchase up to _____________________ Warrant Shares represented by
this Warrant and does hereby irrevocably constitute and appoint
___________________________________________________________ to transfer said
Warrant on the behalf of the Company, with full power of substitution in the
premises.
Dated:
--------------------------- ----------------------------------------
Signature of registered holder
NOTE: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature Guaranteed:
----------------------------------------
<PAGE>
EXHIBIT 5.1
June 12, 1996
IWERKS Entertainment, Inc.
4540 West Valerio Street
Burbank, CA 91505-1046
Re: IWERKS Entertainment, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for IWERKS Entertainment, Inc. (the
"Company"), a Delaware corporation, in connection with the authorization,
issuance, and sale of 500,000 shares of common stock of the Company, par value
$0.01. (the "Shares"), as described in the above-referenced Registration
Statement (the "Registration Statement"), and the preparation of the
Registration Statement under the Securities Act of 1933, as amended.
In this regard, we are familiar with the corporate proceedings
taken by the Company in connection with the issuance and sale of the Shares. We
have also reviewed the Registration Statement and the exhibits thereto, and we
have made such other examinations of law and fact as we considered necessary in
order to form a basis for the opinion hereafter expressed.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized, and upon effectiveness of the Registration Statement and
sale of the Shares as contemplated by the Registration Statement, the Shares
will be legally issued, fully paid, and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is part of the Registration Statement.
Very truly yours,
/S/ BROBECK, PHLEGER & HARRISON
BROBECK, PHLEGER & HARRISON
<PAGE>
[ERNST & YOUNG LETTERHEAD]
June 12, 1996
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts"
in the Registration Statement (Form S-3 No. ) of Iwerks
Entertainment, Inc. for the registration of 500,000 shares of its
common stock and to the incorporation by reference therein of our
report dated August 18, 1995, with respect to the consolidated
financial statements and schedule of Iwerks Entertainment, Inc.
included in its Annual Report (Form 10-K) for the year ended
June 30, 1995, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
