SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): January 15, 1997
Spice Entertainment Companies, Inc.
(Exact Name of Company as specified in its Charter)
Delaware 0-21150 11-2917462
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(State or other jurisdiction (Commission (IRS Employer of
of incorporation) File Number) Identification No.)
536 Broadway, New York, NY 10012
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Address of Principal Executive Offices (Zip Code)
Company's telephone number, including area code: (212) 941-1434
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Item 2. Acquisition or Disposition of Assets.
On February 7, 1997 and pursuant to a Settlement Agreement (the
Settlement Agreement") dated January 29, 1997, among Spice Entertainment
Companies, Inc. (the "Company"), Spector Entertainment Group, Inc. ("SEG"), the
Spector Family Revocable Trust, the Eric M. Spector Revocable Living Trust,
Edward M. Spector, Ilene H. Spector, Eric M. Spector, Evan M. Spector and Staci
M. Spector (collectively the "Spector Group"), the Company conveyed all of the
issued and outstanding shares of the common stock of SEG to certain members of
the Spector Group in exchange for the 700,000 shares of the Company's Common
Stock, $.01 par value ("Common Stock"), previously issued to certain members of
the Spector Group as part of the acquisitive merger transaction whereby SEG
became a wholly owned subsidiary of Company. The Settlement Agreement also
provides for mutual general releases and for each party to indemnify the other
in connection with certain matters relating to the transactions contemplated by
the Settlement Agreement.
Edward M. Spector, a director of the Company resigned from the
Company's Board of Directors and J. Roger Faherty, Dean Ericson and Rudy R.
Miller, who are members of the Company's Board of Directors, resigned from the
Board of Directors of SEG.
As provided for in the Settlement Agreement, the Company also entered
into a Transponder Services Agreement with SEG pursuant to which the Company
will provide transponder services to SEG for monthly payments of $80,000 for two
years. The Company and SEG are also entering into a Management Agreement
providing for the temporary management by SEG of certain FCC licenses which the
Comapny will transfer to SEG when the Federal Communications Commission approves
the transfer.
The Spector Family Revocable Trust, Eric M. Spector, Evan M. Spector
and Staci M. Spector, and the Company are parties to a Letter Agreement dated
August 14, 1995, as amended (the "August 14th Agreement"), under which the
Company was granted an option to acquire and the Spector Group signatories were
granted a put ("Put") to sell, all of the issued and outstanding shares of the
Spector Information Systems, Inc. (n/k/a United Transactive Systems, Inc.) in
exchange for a formula determined number of shares of the Company's common
stock. The parties to the August 14th Agreement are also entering into a
Termination Agreement dated as of February 7, 1997 terminating the August 14th
Agreement and suspending the Spector Group's prior exercise of the Put.
The description of the agreements referred to in this Item 2 are
qualified in their entirety by reference to the text of each such agreement
which has been filed as exhibits hereto and are incorporated herein by
reference.
Item 4. Changes In Company's Certifying Accountant.
On February 13, 1997, the Company engaged the firm of Grant Thornton
LLP as its independent auditors to audit its financial statements for the
fiscal period ended as of December 31, 1996.
Item 5. Other Events.
The Company and certain of its subsidiaries (referred to herein and in
the PNC Credit Agreement (as defined below) as "Obligors") and PNC Bank, N.A.,
as successor-in-interest to Midlantic Bank, N.A. ("PNC"), were parties to an
Amended and Restated Loan and Security Agreement, as amended (the "PNC Credit
Facility") pursuant to which PNC provided a credit facility to the Company. The
PNC Credit Facility had an outstanding principal amount of approximately $14.6
million at December 31, 1996. As part of the PNC Credit Agreement, the Company
issued a warrant to acquire 100,000 shares of the Common Stock of the Company.
Pursuant to a Settlement Agreement (the "PNC Settlement Agreement")
dated January 15, 1997 by and among PNC, the Company and the Obligors, the
Company paid PNC $9.6 million, issued a $400,000 two-year promissory note and
granted a warrant (the "PNC Warrant") to purchase 600,000 shares of Common Stock
in satisfaction of the PNC Credit Facility. PNC released its security interest
in the Company's assets.
The PNC Warrant supersedes the warrant previously issued to PNC. The
PNC Warrant has an exercise price is $2.0625 per share and is exericsable until
December 8, 2004. The Company granted PNC registration rights with respect to
the shares of Common Stock underlying the PNC Warrant pursuant to the terms of a
Registration Rights Agreement.
Pursuant to a Loan and Security Agreement dated January 15, 1997,
between Madeleine L.L.C. ("Madeleine") and the Company, Madeleine agreed to
provide a credit facility to the Company consisting of a $10.5 million term loan
and a revolving credit facility of up to $3.5 million. The term loan was used to
satisfy the $9.6 million cash payment provide for under the PNC Settlement
Agreement and to pay the loan commitment fee. The Credit Facility matures in 30
months with quarter-annual amortization totaling $2.5 million of the principal
in the last year of the loan. The loan bears interest at 5% over the Citibank
prime rate but not less than 13%. Three percent of the interest may be accrued
and added to the principal of the loan and will be forgiven if the Credit
Facility is paid in full within two years.
As part of this transaction, the Company issued 2,425 shares of $100
face value Convertible Preferred Stock Series 1997-A (the "Preferred Stock").
The terms of the Preferred Stock are set forth in a Certificate of Designation
of Preferences and Rights Convertible Preferred Stock Series 1997-A. The
Preferred Stock provides for an 8% coupon payable, at the Company's election,
with additional Preferred Stock. The Preferred Stock is convertible after two
years into Common Stock of the Company at a 10% discount from the then current
market price of the Company's Common Stock. The Company entered into a
Registration Rights Agreement with Madeliene providing for registration of the
shares of Common Stock underlying the Preferred Stock.
As part of the Loan Agreement, the Company entered into various
agreements with Madeleine pledging the stock of all of its domestic operating
subsidiaries and The Home Video Channel, Limited and granting Madeleine a
security interest in the Company's assets.
The description of the agreements referred to in this Item 5 are
qualified in their entirety by reference to the text of each such agreement
which have been filed as exhibits hereto and are incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information
Item Ref in 17
CFR 229.601(a)
(2) Pro forma financial information reflecting the disposition
of Spector Entertainment Group, Inc. will be filed as soon
as it is available and in any event no later than 60
days after the date this Current Report on Form 8-K is
required to be filed.
(c) Exhibits:
Item Ref in 17
CFR 229.601(b) Exhibit
Number
Exhibit
(2) Settlement Agreement dated January 29, 2.03
1997 among Spice Entertainment Companies,
Inc., Spector Entertainment Group, Inc.,
the Spector Family Revocable Trust, the
Eric M. Spector Revocable Living Trust,
Edward M. Spector, Ilene H. Spector,
Eric M. Spector, Evan M. Spector and
Staci M. Spector
(4) Termination Agreement dated as of February , 4.06
1997 by and among Spice Entertainment
Companies, Inc. and the Spector Family
Revocable Trust, Eric M. Spector, Evan M.
Spector and Staci M. Spector
(10) Transponder Services Agreement dated 10.72
February , 1997 by and between Spice
Entertainment Companies, Inc. and Spector
Entertainment Group, Inc.
(4) Settlement Agreement dated January 15, 4.07
1997 by and among PNC Bank, N.A. and Spice
Entertainment Companies, Inc. and the other
Obligors
(4) Warrant to Purchase 600,000 shares of 4.08
Common Stock of Spice Entertainment
Companies, Inc. issued to PNC Bank, N.A.
dated January 15, 1997
(4) Registration Rights Agreement dated as of 4.09
January 15, 1997 by and between Spice
Entertainment Companies, Inc. and PNC
Bank, N.A.
(4) Loan and Security Agreement dated as of 4.10
January 15, 1997 between Spice
Entertainment Companies, Inc. and
Madeleine L.L.C.
(4) Certificate of Designation of Preferences 4.11
and Rights Convertible Preferred Stock
Series 19997-A
(4) Registration Rights Agreement dated 4.12
January 15, 1997 by and between Spice
Entertainment Companies, Inc. and
Madeleine L.L.C.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPICE ENTERTAINMENT
COMPANIES, INC.
By: /s/ J. Roger Faherty
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J. Roger Faherty,
Chairman & Chief Executive Officer
Dated: February 13, 1997
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT (this "Agreement"), dated as of
January 29, 1997, among Spice Entertainment Companies, Inc. f/k/a Graff
Pay-Per-View, Inc., a Delaware corporation (the "Company"), Spector
Entertainment Group, Inc., a California corporation and a wholly owned
subsidiary of the Company ("SEG"), and the persons and entities listed on
Schedule 1 to this Agreement (collectively, the "Spector Group").
WITNESSETH:
WHEREAS, in connection with the settlement of certain claims
of the Company and the Spector Group, the parties hereto have proposed that,
among other things, certain members of the Spector Group would transfer shares
of Company Common Stock (as hereinafter defined) and surrender certain employee
stock options to the Company in exchange for the transfer to such members of the
Spector Group of all of the capital stock of SEG;
WHEREAS, the parties desire to enter into this Agreement in
order to evidence their agreement regarding the exchange of securities between
the parties and the other matters set forth herein; and
WHEREAS, the parties hereto desire to settle all claims,
actions and disputes existing among them as of the Closing Date on the terms and
conditions set forth below;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
EXCHANGE OF SECURITIES; ADDITIONAL AGREEMENTS
2.1 Exchange of Securities. (a) Subject to the terms and
conditions contained herein, (i) the Company agrees to sell, transfer and assign
to the members of the Spector Stockholder Group (as defined below) all of the
issued and outstanding shares of the capital stock of SEG (the "SEG Shares"),
which shares shall be allocated among the members of the Spector Stockholder
Group pro rata to the number of shares of Company Common Stock being transferred
to the Company herewith, and (ii) (x) the Spector Stockholder Group agrees to
sell, transfer, and assign to the Company 700,000 shares of Company Common Stock
(the "Transferred Shares") and (y) those members of the Spector Group which have
previously been granted employee stock options to purchase Company Common Stock
agree to sell, transfer, assign and surrender to the Company all such employee
stock options granted by the Company to such members of the Spector Group since
August 9, 1995 (the "Transferred Options", and together with the Transferred
Shares, the "Transferred Securities"). The exchange by the Company of the SEG
Shares for the Transferred Shares and the exchange by the Spector Group of the
Transferred Shares for the SEG Shares shall hereinafter be referred to as the
"Exchange".
(a) The closing of the transactions
referred to in subsection (a) (the "Closing"), shall be held at the
offices of Baker & Botts, L.L.P., 599 LexingtonAvenue, New York, New York
at 2:00 p.m. New York City time on the second business day after the date
on which the conditions set forth in Section 6.01 and Section 6.02 hereof
are satisfied or waived, or on such other day and at such other time as the
Parties (as hereinafter defined) shall otherwise agree. (The date on which
the Closing occurs is referred to herein as the "Closing Date".)
(b) At the Closing, in consideration of
(x) certain releases of the Company by the members of Spector Group (as set
forth in Article 4 hereof), the agreement of the members of the Spector
Group to obtain from Imperial Bank the release of the Company's guarantee of
certain indebtedness of SEG to Imperial Bank, the release of the Company's
guarantee of the employment contracts between SEG, on the one hand, and each
of Edward M. Spector, Eric M. Spector and Evan M. Spector, on the other
hand, and SEG entering into, and the Spector Individuals causing SEG to enter
into, the "Transponder Agreement" and the "Management Agreement" (each
as hereinafter defined), and other consideration pursuant hereto and
pursuant to the Additional Agreements, and (y) certain releases of the
members of the Spector Group and SEG by the Company, the Company entering
into the "Management Agreement" and the "Transponder Agreement", and
other consideration pursuant hereto and pursuant to the Additional Agreements,
the parties shall make to each other the following deliveries:
(i) the Company shall deliver to the
members of the Spector Stockholder Group certificates representing the SEG
Shares free and clear of all Liens (as hereinafter defined) and Restrictions
(as hereinafter defined) (other than any arising pursuant to this Agreement
or any Additional Agreement (as hereinafter defined) or under federal or state
securities laws or created by any member of the Spector Group (except as
created by any member of the Spector Group in his or her capacity as an
officer or director of the Company or any of its subsidiaries (other
than SEG))), registered in such names and amounts as set forth on Schedule
1 hereto;
(ii) the members of the Spector
Stockholder Group shall deliver to the Company one or more certificates
representing the Transferred Shares free and clear of all Liens and
Restrictions (other than any arising pursuant to this Agreement or any
Additional Agreement or under federal or state securities laws or created by
the Company its subsidiaries, officers, directors or Affiliates (other than
SEG or any member of the Spector Group));
(iii) each member of the Spector Group
shall deliver to the Company one or more certificates or agreements (as
the case may be) representing the Transferred Options held by such
member free and clear of all Liens and Restrictions (other than any
arising pursuant to this Agreement or any Additional Agreement or under
federal or state securities laws or created by the Company);
(iv) the Eric M. Spector Revocable
Living Trust shall have executed and delivered to the Company the Dismissal
Instrument (as hereinafter defined) which upon the filing thereof by the
Company shall effectively dismiss without prejudice the Delaware Action
(as hereinafter defined); and
(v) each of the Termination Agreement,
the Management Agreement, and the Transponder Agreement shall be executed and
delivered by each of the respective parties thereto.
2.2 Scope of Agreement Scope of AgreementScope of Agreement.
This Agreement is entered into solely to put to rest all controversy referred to
herein, to obtain a total and final settlement of all of the matters referred to
herein and to avoid the burden, expense, and hardship of protracted litigation
and dispute. Neither this Agreement, nor any of the terms hereof, nor any
negotiations or proceedings in connection herewith, shall constitute or be
construed as or be deemed to be evidence of an admission on the part of the
Company, any member of the Spector Group or any of their respective Affiliates
(as hereinafter defined), or their respective officers, directors, partners
(general or limited), trustees, employees, representatives or agents (including,
without limitation, financial advisors) of any liability whatsoever, or of the
truth of any claim, allegation, or argument, including without limitation those
made before any court, or of any lack of merit in any of the defenses or
responses thereto asserted; nor shall this Agreement, or any of the terms
hereof, or any negotiations or proceedings in connection herewith, be offered or
received in evidence or used in any proceeding against any of the parties
hereto, their Affiliates, or their respective officers, directors, partners
(general or limited), trustees, employees, representatives or agents (including,
without limitation, financial advisors), except with respect to the enforcement
of this Agreement and the Additional Agreements (as hereinafter defined), or in
defense of any claim on this Agreement or any Additional Agreement.
2.3 Effects of Rescission. The Parties acknowledge and agree
that it is the intent of the Parties that if any material transaction
constituting the Transactions (as hereinafter defined) is declared null, void or
otherwise is avoided, rescinded or set aside, the Parties be restored to their
respective positions as existed prior to entering into this Agreement.
Accordingly, if at any time prior to the third anniversary of the Closing, a
court of competent jurisdiction issues a final order (which is not subject to
appeal by any party or with respect to which the time to appeal shall have
expired) in any action, suit or proceeding brought by a third party declaring
that any of the material transactions contemplated by and to be consummated
pursuant to this Agreement and each of the Additional Agreements are null, void
or are otherwise avoided, rescinded or set aside, then the Transactions shall be
rescinded and each party shall be effectively restored to its position
immediately prior to the Closing Date. Without limiting the generality of the
foregoing, (a) each party's rights and obligations under this Agreement and each
Additional Agreement shall be terminated, (b) the securities transferred by such
party at the Closing shall be returned to it, together with any and all
distributions in cash, securities, assets or other property made upon or in
respect of such transferred securities from the Closing to the date of such
return; and (c) all claims released hereunder by any party hereto shall be
revived and any statute of limitations or contractual limitations applicable to
such claim shall be restarted irrespective of whether such statute of
limitations or contractual limitation would have otherwise caused such claim to
expire. No party shall be required to return amounts paid to it by the other
with respect to services rendered during the period from the Closing Date to the
date the Transactions are declared null and void or are otherwise void,
rescinded or set aside, including, but not limited to, payments made in
accordance with the Transponder Agreement.
REPRESENTATIONS AND WARRANTIES
2.4 Representations and Warranties of the Company. Except as
set forth in the Company Disclosure Schedule (as hereinafter defined), the
Company represents and warrants to the Spector Group as follows:
(a) (i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as
now conducted and to own its assets and is duly qualified to transact
business as a foreign corporation in each state where such qualification is
necessary except where the failure to qualify (individually or in the
aggregate) will not have a Material Adverse Effect (as hereinafter defined)
on the Company or on the Transactions.
(ii) The Company has all requisite
corporate power and authority to execute and deliver this Agreement and
each Additional Agreement which it has or is required to execute and
deliver pursuant hereto and to consummate the Transactions.
(b) The Board of Directors (as hereinafter
defined) has approved the execution and delivery of this Agreement and each
of the Additional Agreements to which the Company is or shall become a
party. This Agreement has been, and each Additional Agreement to be
executed by the Company will be when executed and delivered by the Company,
duly executed and delivered by the Company, and assuming the due
execution and delivery of this Agreement and each Additional Agreement to
which a member of the Spector Group is a party, this Agreement constitutes,
and each such Additional Agreement will constitute the legal, valid and binding
obligation of the Company enforceable in accordance with its terms.
(c) The execution and delivery by the Company
of this Agreement does not, and the execution and delivery of each Additional
Agreement to which it is a party will not, and the performance by the
Company of its obligations hereunder and thereunder and the consummation
of the Transactions will not:
(i) conflict with or violate the
Certificate of Incorporation or Bylaws of the Company;
(ii) require any consent, approval,
order or authorization of or other action by any Governmental Agency or
Authority (as hereinafter defined) or any registration, qualification,
declaration or filing with or notice to any Governmental Agency or
Authority in each case on the part of or with respect to such member, except
for filings under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), filings under the Securities Act of 1933, as amended
(the "Securities Act") and such approval of the FCC (as hereinafter
defined) (the "FCC Approval") as may be required under the Communications Act
of 1934, as amended (the "Communications Act"), as a result of the change
in control of the holder of the FCC licenses set forth on Schedule 2.02;
(iii) require, on the part of the
Company, any consent by or approval (including, without limitation, any
approval of the stockholders of the Company) or authorization of or notice
to any other Person (as hereinafter defined) (other than a Governmental
Agency or Authority), whether under any license or other Contract (as
hereinafter defined) or otherwise, which has not been obtained;
(iv) conflict with or result in any
violation or breach of or default (with or without notice or lapse of
time, or both) under, or create any rights of termination, cancellation or
acceleration in any Person under any material Contract to which the Company is
a party (any such conflict, violation, breach or default, a "Violation"); or
(v) result in a Violation of, under
or pursuant to any Law or Judgment (each as defined below) applicable to the
Company or by which it, or any of its material assets are bound or affected.
(d) As of the Closing Date, (i) the SEG Shares
delivered to the Spector Group will be duly and validly issued and fully
paid and non-assessable and will constitute all of the issued and
outstanding capital stock of SEG, and no options, warrants or other
rights to acquire (collectively, "Rights") any capital stock of SEG from
the Company will be issued or outstanding, and (ii) the SEG Shares will be
free and clear of any Liens or Restrictions whatsoever (other than any
arising pursuant to this Agreement or any Additional Agreement or under
federal or state securities laws or created by any member of the Spector
Group (except as created by any member of the Spector Group in his or
her capacity as an officer or director of the Company or any of its subsidiaries
(other than SEG)).
(e) There is no action, suit, investigation
or proceeding, governmental or otherwise, pending or, to the best knowledge of
the Company threatened, against the Company or any of its subsidiaries
(including, but only to the best of the Company's knowledge, SEG) specifically
relating to, or the adverse resolution of which could reasonably be expected
to have a Material Adverse Effect on, the Transactions.
(f) Neither the Company nor its subsidiaries
(other than SEG) has entered into any agreement, individually or on behalf
of SEG, which would bind or obligate SEG or its assets with respect to the
performance of any obligations to third parties subsequent to the
Closing; provided, however, that no such representations or warranties
are made with respect to actions taken or agreements entered into by
members of the Spector Group while they were employees of the Company.
(g) The Company has not, since September 25,
1996, entered into, and, to the best knowledge of the Company, its officers
and directors, the Company is not a party to, any material Contract which
binds SEG, any member of the Spector Group or any of their respective assets
or properties, other than this Agreement and the Additional Agreements.
(h) As of the Closing Date, after giving
effect to the consummation of the Transactions, the Company is solvent,
has sufficient capital to operate its business and to meet its debts and other
obligations as they mature.
2.5 Representations and Warranties of the Spector Group.
Except as set forth in the Spector Group Disclosure Schedule (as hereinafter
defined), each member of the Spector Group, severally and not jointly,
represents and warrants to the Company as follows:
(a) Such member, if applicable, is a trust duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite power and authority to
execute and deliver this Agreement and each Additional Agreement which it has
or is required to execute or deliver pursuant hereto and to consummate the
Transactions, and there are no proceedings present or contemplated relating
to the liquidation or dissolution of such entity.
(i) Such member, if an individual, has full legal
capacity, right, powerand authority to execute and deliver this
Agreement and each Additional Agreement which he or she has or is
required to execute and deliver pursuant hereto and to consummate the
Transactions, and in the case of any member that is (x) an individual, the
consent or other approval of such member's spouse, if any, is not required
in connection with any of the foregoing or has been obtained or (y) a
trust, the consent of the beneficiaries thereof is not required or has
been obtained.
(b) Such member of the Spector Group has
approved the execution and delivery of this Agreement and each of the
Additional Agreements to which such member is or shall become a party. This
Agreement constitutes, and each Additional Agreement to be executed by such
member of the Spector Group will constitute, when executed and delivered
by such member, and assuming the due execution and delivery of this
Agreement and each Additional Agreement to which the Company is a party, the
legal, valid and binding obligation of such member of the Spector Group,
enforceable in accordance with its terms.
(c) The execution and delivery by such member
of this Agreement does not, and the execution and delivery of each Additional
Agreement to which such member is a party will not, and the performance by such
member of its obligations hereunder and thereunder and the consummation
of the Transactions will not:
(i) if an entity, conflict with or
violate the trust agreement or other constituent document of such member;
(ii) require any consent, approval,
order or authorization of or other action by any Governmental Agency
or Authority or any registration, qualification, declaration or filing
with or notice to any Governmental Agency or Authority in each case on the
part of or with respect to such member, except for filings under the Exchange
Act, the Securities Act and such FCC Approval as may be required under the
Communications Act as a result of the change in control of the ownership of
the FCC licenses set forth on Schedule 2.02;
(iii) require, on the part of such member,
any consent by or approval (including, without limitation the approval of
the beneficiaries of any entity which is a trust) or authorization of or notice
to any other Person (other than a Governmental Agency or Authority), whether
under any license or other Contract or otherwise which has not been obtained;
(iv) create or result in any Violation
under any material Contract to which such member of the Spector Group is a
party; or
(v) result in a Violation of, under
or pursuant to any Law or Judgment applicable to such member or by which such
member's material assets are bound or affected.
(d) There is no action, suit, investigation
or proceeding, governmental or otherwise, pending or, to the best knowledge
of such member threatened, against such member or, to the best knowledge of
such member, any other member of the Spector Group or SEG specifically
relating to, or the adverse resolution of which could reasonably be expected
to have, a Material Adverse Effect on the Transactions.
(e) Such member has not (other than in such
member's capacity as a officer of the Company or any of its subsidiaries),
nor to the best knowledge of such member has SEG, entered into any agreement,
individually or on behalf of the Company or any of its subsidiaries (other
than SEG), which would bind or obligate the Company or its subsidiaries
(other than SEG) or their respective assets with respect to the performance
of any obligations to or for the benefit of any Affiliate of such member.
2.6 Representations and Warranties of the Spector Stockholder
Group. Without limiting in any way, the representations and warranties made by
the members of the Spector Group in Section 2.02, each member of the Spector
Stockholder Group, severally and not jointly, represents and warrants to the
Company that:
(a) Such member understands that the SEG
Shares it is acquiring pursuant to this Agreement have not been registered
under the Securities Act nor qualified under any state securities laws, and
that they are being offered and sold pursuant to an exemption from such
registration and qualification based in part upon the representations of
the members of the Spector Group contained herein.
(b) Such member is familiar with the business
and operations of the Company and SEG, has been furnished copies of such
materials regarding the Company or SEG as it has requested in writing, and has
been given the opportunity to obtain from the Company or SEG all information
that it has requested regarding the business of the Company and SEG.
(c) Such member has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment contemplated by this Agreement.
(d) Such member understands that it must bear
the economic risk of the investment contemplated hereby indefinitely unless
the SEG Shares are registered pursuant to the Securities Act or an exemption
from such registration is available, and unless the disposition of such
shares is qualified under applicable state securities laws or an exemption
from such qualification is available, and that neither the Company nor SEG
has any obligation to so register such securities, such member further
understands that there is no assurance that any exemption will allow it to
dispose of or otherwise transfer any or all of the SEG Shares in the amounts,
or at the times such member might propose; and such member is able to bear the
economic risk of his investment in SEG.
(e) Such member is acquiring the SEG Shares
solely for his own account for investment and not with a view toward resale,
transfer, or distribution thereof, nor with any present intention of
distributing the SEG Shares, no other Person has any Right with respect to
or interest in the Spector Securities to be acquired by such member, nor
has such member agreed to give any Person any such interest or Right in the
future.
2.7 Representations and Warranties Regarding Transferred
Securities. Each member of the Spector Stockholder Group and each other member
of the Spector Group to whom Transferred Options have been granted, severally
and not jointly, represents and warrants to the Company that as of the Closing
Date, (a) such member will be the sole record and beneficial owner of the number
of Transferred Shares and Transferred Options set forth opposite such member's
name on Schedule 1, free and clear of all Liens and Restrictions whatsoever
(other than any arising pursuant to this Agreement or any Additional Agreement
or under federal or state securities laws or created by the Company, or other
Liens or Restrictions of the Company), and (b) such member will have no legal
obligation, absolute or contingent, to any Person (other than the Company
pursuant to this Agreement) to sell, transfer, assign, pledge or otherwise
encumber, directly or indirectly, the Transferred Securities, and no other
Person will have any Rights to acquire the Transferred Securities of such
member.
2.8 Representations and Warranties of the Spector
Individuals. Each of the Spector Individuals, severally and not jointly,
represents and warrants to the Company that:
(a) To the best knowledge of such Person, no
assets or property of the Company or its subsidiaries (including SEG) have
been removed by or on behalf of the Spector Group or its Affiliates from
the offices or other facilities of SEG since November 20, 1996, other than
in the ordinary course of business.
(b) On January 2, 1997, SEG filed with the
FCC an application and all necessary supporting documentation in order to
obtain the FCC Approval (or provisional authority in lieu thereof), and have
heretofore delivered to the Company true and complete copies of such
application and all written communications related thereto.
(c) As of the Closing, this Agreement will
constitute, and each Additional Agreement executed by SEG will constitute,
assuming the due execution and delivery of this Agreement and each Additional
Agreement to which the Company is a party, the legal, valid and binding
obligation of SEG, enforceable in accordance with its terms.
COVENANTS
2.9 Conduct of SEG Business; Return of Property. Each of the
Spector Individuals covenants and agrees to conduct the business of SEG and its
subsidiaries prior to the Closing only in the ordinary course, and the Company
covenants and agrees that, subject to the foregoing, it will not interfere with
the management or business of SEG prior to the Closing.
(a) SEG will, and each of the Spector Individuals
covenants and agrees to cause SEG to return promptly after the date hereof
to the Company (at the Company's sole expense) all property of the Company in
its possession or control, if any. The Company covenants and agrees to
return to SEG (at the Company's sole expense) promptly following the
Closing Date all property of SEG in its possession or control, if any.
To the extent that following the Closing Date, SEG or the Spector Group
discover property of the Company in its or their possession which was not
so returned, or the Company discovers property of SEG in its possession which
was not so returned, SEG, the Spector Individuals or the Company, as the case
may be, shall return (at the Company's expense) such property promptly
following such discovery.
(b) Each of the Spector Individuals covenants
and agrees that none of the assets or property of SEG will be removed by or on
behalf of the Spector Individuals or their Affiliates from the offices or
facilities of SEG prior to the Closing, other than in the ordinary course of
business. The Company covenants and agrees that it will not remove any of the
assets or properties of SEG from the offices or facilities of SEG prior to the
Closing, other than in the ordinary course of business.
(c) The Company covenants and agree that
it will not resume or commence any physical or electronic surveillance
activities relating to the Spector Group and/or SEG.
2.10 Affiliate Transactions and Contracts between the Company
and SEG. During the period from the date hereof to the Closing Date, neither the
Company, on the one hand, nor the members of the Spector Group, on the other,
shall permit SEG or the Company, to enter into any Contract with any Person
which Contract would otherwise constitute an Affiliate Transaction (as
hereinafter defined), unless (a) the entering into of such Contract has been
approved by the Board of Directors of the Company and by the Spector
Representative or (b)(i) the effectiveness of such Contract is conditioned upon
the occurrence of the Closing or such Contract will be terminable at the option
of the Company in the event of the termination of this Agreement, and (ii) prior
to the Closing or in the event such Contract is terminated prior to the Closing,
such Contract will not obligate SEG or the Company to take or refrain from
taking any action or paying or expending any funds or otherwise performing any
obligations, other than in the ordinary course of business. All Contracts
between the Company and its subsidiaries (other than SEG), on the one hand, and
any member of the Spector Group, on the other, shall be terminated as of the
Closing Date and shall cease to be of any further force and effect; provided,
however, that the foregoing shall not be applicable to this Agreement or any
Additional Agreement or any other Contract referred to herein which specifically
states that the obligations thereunder are intended to survive the Closing.
2.11 Public Announcements. Except as otherwise required by
applicable Laws, rules or regulations, neither the Company, on the one hand, nor
any member of the Spector Group, on the other, will make any public statement or
announcement concerning this Agreement or the Transactions without the prior
written consent of the other. To the extent that either the Company or any
member of the Spector Group determines that any such statements or announcements
are required to be made by applicable Laws, rules or regulations, such
statements or announcements shall be subject to the prior approval (x) of the
Spector Representative in the case of statements proposed to be made by the
Company, and (y) of the Company, in the case of statements proposed to be made
by any member of the Spector Group, which approval shall not be unreasonably
delayed or withheld. Notwithstanding the foregoing, the Company and SEG shall
each be permitted (i) prior to the Closing to notify its customers with respect
to changes in operational matters (such as changes in transponder assignments)
which will be implemented prior to or immediately after the Closing and (ii)
following the Closing to notify its customers and suppliers of the change in
control resulting from the consummation of the Transactions; provided, that all
such notices shall not reference or include matters relating to the adverse
claims of the Parties.
2.12 Spector Group Schedule 13D. Promptly following the
Closing and subject to applicable Law, the Spector Group will amend its Report
on Schedule 13D in respect of the Company Common Stock, as amended, to reflect
the consummation of the Transactions.
2.13 Charter Indemnification and D&O Insurance. The Company
hereby reaffirms its obligations under all contracts and agreements relating to
indemnification, insurance and "hold harmless" obligations and those set forth
in its certificate of incorporation, by-laws and under Delaware law relating to
the indemnification of its and its subsidiaries' officers and directors,
including the Spector Covered Persons (as defined below); provided, however,
that such reaffirmation shall constitute only a statement of the Company's
current obligations and shall not be construed as creating any additional
obligation or responsibility on the part of the Company or to give any Person
any additional rights or benefits other than those currently existing.
(a) The Company agrees (i) that it will
continue to indemnify the members of the Spector Group who were officers or
directors of the Company or any of its subsidiaries ("Spector Covered
Persons") (but, with respect to SEG, such persons shall be indemnified only
with respect to actions taken during the period from August 31, 1995 to the
Closing Date)(and advance to such Spector Covered Persons their reasonable
expenses) in respect of actions taken while holding such positions in
accordance with the provisions set forth in the Certificate of
Incorporation and Bylaws of the Company, as in effect on the date hereof, and
(ii) to maintain in effect until the fifth anniversary of the Closing a policy
of Directors' and Officers' liability insurance ("D&O Insurance") providing
substantially the same coverage (other than as otherwise provided herein) as its
existing director and officer liability insurance policy (a copy of which has
been delivered to counsel for the Spector Group), which D&O Insurance shall not
provide for coverage which discriminates between (x) the Spector Covered
Persons, and (y) current or other former directors and officers of the Company.
Notwithstanding the foregoing, the Company's obligation to obtain and maintain
the D&O Insurance shall be subject to the following limitations:
(1) the coverage amount of the D&O Insurance
shall be not less than $5,000,000 during calendar years 1997 and 1998; and
(2) during calendar years 1999, 2000 and
during the year 2001 until the fifth anniversary of the Closing, the coverage
amount of the D&O Insurance shall be not less than the amount which is th
lesser of (x) $5,000,000 and (y) the coverage amount which can be purchased
by the Company for an annual premium which is equal to approximately $456,000.
The Company shall use its reasonable commercial efforts to cause the
provider of the D&O Insurance to provide a copy of all notices issued by such
provider in respect thereof directly to the Spector Representative.
In the event the Company materially breaches or fails to perform
in any material respect its obligations under this Section 3.05(b), then,
provided that such breach or failure to perform is not directly attributable
to the actions or omissions of any member of the Spector Group, then without
in any way limiting any right, power or remedy any member of the Spector Group
may have hereunder, under any Additional Agreement, at law or in equity, the
provisions of Article 5 hereof shall, except as provided below, terminate and
be of no further force or effect; provided, however, that the Spector Group's
obligations under Article 5 shall not be terminated in the event that within
ten (10) days of such breach, evidence of such cure reasonably satisfactory to
the Spector Representative has been provided it, and following such breach and
prior to such cure no claim has been asserted against any Spector Covered
Person which would have been covered by the indemnity to be provided or the
insurance to be purchased pursuant to this Section 3.05 had the Company not
breached its obligations hereunder.
(b) To the extent permitted under the D & O Insurance,
the Company agrees that it will permit Edward M. Spector ("EMS") to purchase
such additional or extended coverage as EMS shall request regarding periods
following his resignation from the Board of Directors of the Company, provided
that EMS pays to the Company any incremental premium payable under such policy
in respect of such additional or extended coverage; and provided, further,
that such purchase of additional coverage does not have an adverse effect upon
the Company's ability to purchase and maintain D&O insurance reasonably
acceptable to it.
2.14 Cooperation regarding Subchapter S. At the request of the
Spector Group, the Company shall use its reasonable commercial efforts to
cooperate so that SEG may reelect Subchapter S status under the Code (as
hereinafter defined).
2.15 Additional Obligations; Closing Documents. Each Party
agrees to use its commercially reasonable efforts to cause the Exchange to
qualify as a tax-free exchange under Section 355 of the Code. Each Party agrees
to cooperate fully with the Company's independent auditors in completing such
auditing firm's review of the financial statements of the Company and its
subsidiaries (including SEG) for the year ended December 31, 1996. SEG agrees to
keep accurate and complete records relating to the prior distribution, returns,
and current inventory of encoders and decoders on behalf of the Company and to
make such records available to the Company in connection with the return of such
encoders and decoders pursuant to Section 3.01. In addition, each Party agrees
to use its reasonable best efforts to provide the other Party with drafts of all
opinions, consents, waivers and releases as are to be obtained or provided by
such Party and delivered at the Closing no less than two (2) business days prior
to the proposed Closing Date. To the extent that a Party delivers to the other
Parties drafts of such opinions, consents, waivers or releases prior to Closing,
the receiving Party agrees to respond promptly with any comments or objections
thereto. To the extent that such Party does not so comment or object within two
(2) business days of receipt of any such opinion, consent, waiver or release,
such Party shall be deemed to have accepted such opinion, consent, waiver or
release in the form and substance so provided, and shall not be entitled to
assert a failure of a related condition to its obligation to close under Article
6 based upon such opinion, consent, waiver or release not being reasonably
acceptable to it so long as the opinion, consent, waiver or release delivered to
it at Closing is the same in form and substance as the draft previously
delivered to it.
2.16 Expenses. Except as provided herein, each Party shall
bear its own expenses in connection with the negotiation, execution and delivery
of this Agreement and the Additional Agreements and the consummation of the
Transactions contemplated hereby and thereby.
2.17 SIS Option. The members of the Spector Group which are
parties to the SIS Option Agreement (as defined below) agree that their prior
exercise of the "put" under the SIS Option Agreement is deemed suspended as of
the date hereof and that prior to the Closing no such party to such agreement
shall take any action with respect to the SIS Option Agreement (or the exercise
of rights thereunder). At the Closing, the Company and the members of the
Spector Group which are parties to the SIS Option Agreement agree to enter into
the Termination Agreement in the form of Exhibit A hereto conditionally
terminating the SIS Option Agreement (the "Termination Agreement").
2.18 Management Agreement and Transponder Agreement. At the
Closing, the Company and SEG agree to execute and deliver (a) the agreement
relating to the management of the FCC Licenses in the form of Exhibit B hereto
(or such other agreement as is customary under the circumstances and which is
reasonably acceptable to the parties) (the "Management Agreement") (to the
extent the FCC Approval has not been received by the Closing) and (b) the
transponder agreement in the form of Exhibit C hereto (the "Transponder
Agreement").
2.19 Termination of Employment Agreement and Guarantees. EMS,
Eric Spector, Evan Spector, and any other officers or employees of SEG who are
parties to this Agreement hereby agree (i) to the termination of any and all
guarantees by (or other obligations of) the Company of their respective
employment agreements with SEG, and each of such Persons and the Company agree
that all such guarantees or other obligations of the Company related to such
employment agreements will terminate and cease to be of any further force or
effect on and after the Closing (including any obligations of the Company
relating to severance or similar payments) and (ii) that prior to the Closing
such Person will not terminate such employment agreement or otherwise take any
action seeking to enforce the Company's guarantee of such employment agreement
or which would result in any liability of SEG or the Company for the payment of
any severance or other termination payments. The Company agrees that prior to
the Closing it will not take any action seeking to terminate or otherwise
enforce any rights it or SEG may have with respect to any of such employment
agreements, other than with respect to actions which would otherwise constitute
a breach of this Agreement or any Additional Agreement.
2.20 Certain Reimbursement Obligations. The Company covenants
and agrees to reimburse SEG for (i) the salary of Mr. Harlyn C. Enholm
("Enholm") at a rate of $16,187 per month from January 1, 1997 to the Closing
Date, (ii) rent on two New York City apartments currently leased by members of
the Spector Group (having an aggregate monthly lease payment of $8,875) for the
period from January 1, 1997 to the expiration of the term of such leases (both
of which leases expire on February 28, 1997), (iii) the associated monthly
expenses related to such apartments (including the reasonable costs and expenses
of removing and shipping to such member of the Spector Group the personal
property of such member remaining on such premises) and (iv) the reasonable
costs and expenses (including an appropriate apportionment of SEG employee
salary expenses) incurred by SEG on behalf of or for the benefit of the Company
since January 1, 1997, other than costs and expenses incurred in connection with
or related to the Transactions (including, but not limited to, expenses
(including salary expenses) related to the preparation of the Fairness Opinion
and the Solvency Opinion), in each case as deemed reasonable by Enholm and to
the extent that SEG or the Spector Group has actually made such payment (whether
by direct payment or as an apportionment of such an employee's salary based upon
the time spent on Company matters). For purposes of this Section 3.12(a), the
Company, SEG and the Spector Group each agree to be bound by the reasonable
determinations of Enholm with regard to any amounts owed. The amounts which the
Company is to pay to SEG in accordance with the foregoing reimbursement
obligation shall be offset against the amount which SEG is obligated to pay to
the Company in respect of its use of a transponder of the Company pursuant to
paragraph (c) of this Section 3.12.
(a) Except as provided in paragraph (a) of this Section
3.12, the Company shall not be obligated to pay, nor shall SEG be entitled
to charge against the intercompany amounts owed by it or its other
reimbursement obligations, any amounts in respect of salary, benefits,
severance obligations or other expenses relating to the employmentby the
Company or SEG of any member of the Spector Group.
(b) SEG agrees, and the Spector Individuals
hereby covenant and agree to cause SEG, to pay and reimburse the Company
for the use in SEG's business of one transponder (which is the subject of
the Transponder Agreement) (i) for the period from January 1, 1997 to the
earlier of January 31, 1997 or the Closing Date, at a rate of $40,000 per
month, and (ii) in the event that the Closing has not occurred by January 31,
1997, one transponder for the period from February 1, 1997 until the Closing
Date at a rate of $80,000 per month, all upon the terms and conditions set
forth in the Transponder Agreement.
2.21 Agreement to Cooperate; Consents; Further Assurances.
Subject to the terms and conditions of this Agreement, each of the Parties
hereto shall use its commercially reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable Laws and regulations to
consummate and make effective the Transactions, including, without limitation,
providing information and using reasonable efforts to obtain all necessary or
appropriate governmental and third party waivers, consents, approvals
(including, without limitation, the FCC Approval), and releases necessary for
the consummation of the Transactions, to effect all necessary registrations and
filings (including filings under federal and state securities law) and to lift
any injunctions or other legal bar to the Transactions (and, in such case, to
proceed with the Transactions as expeditiously as possible). The Spector Group
acknowledges and agrees that it shall have primary responsibility for seeking
and obtaining the required FCC Approval, and the Company agrees to pay the
reasonable costs and expenses of the Spector Group related to obtaining such FCC
Approval and to cooperate with the Spector Group in obtaining the FCC Approval.
2.22 SEC Filings. The Company covenants and agrees that from
and after the date hereof it will promptly deliver to the Spector Representative
copies of all periodic and other reports legally required to be filed by it
under the Exchange Act.
2.23 Guarantee of Imperial Bank Indebtedness. The Spector
Group agrees that one or more members thereof, as necessary, will personally
guarantee SEG's indebtedness to Imperial Bank to the extent necessary to obtain
the release of the Company's guarantee of such indebtedness.
2.24 Stay of Delaware Action. Immediately following the
execution of this Agreement but, in any event, prior to the commencement of any
trial or hearing relating to the matters which are the subject of the Delaware
Action, the Eric M. Spector Revocable Living Trust will, and the trustee of such
trust will cause it to, execute and deliver to the Company a written instrument
staying all proceedings (including, without limitation, hearings, motions,
discovery actions and depositions) in or related to the Delaware Action until
the first to occur of February 10, 1997 or the Closing Date (upon which date
such action shall be dismissed pursuant to the Dismissal Instrument), and the
Company agrees that it will execute and deliver a counterpart of such instrument
and will not take any action inconsistent therewith prior to the date of
termination of such stay. The Company and the Eric M. Spector Revocable Living
Trust agree that upon the termination of such stay (other than in connection
with the dismissal of the Delaware Action pursuant to the Dismissal Instrument)
no court hearing or appearance will be scheduled to occur prior to the third
business day following the termination of such stay. Neither this Agreement nor
the execution hereof by the Eric M. Spector Revocable Living Trust may be used
as evidence or as a basis in argument in the Delaware Action. In the event the
Closing does not occur and the stay contemplated by this Section 3.16 is
terminated (other than pursuant to the Dismissal Instrument), the execution of
this Agreement by the Eric M. Spector Revocable Living Trust shall be without
prejudice to the rights of such trust in the Delaware Action.
2.25 COBRA Obligations of SEG. In connection with the
termination of Enholm's employment with SEG, SEG agrees to, and the Spector
Individuals agree to cause SEG to, comply fully with its obligations to Enholm
pursuant to the health benefit continuation provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA").
SETTLEMENT OF CLAIMS AND OTHER MATTERS
2.26 Release of Potential Claims or Action. Subject
to Section 1.03 hereof and except as otherwise specifically provided herein,
effective at the Closing:
(a) Each member of the Spector Group and SEG, on
behalf of itself, its subsidiaries, officers, directors and employees, and
all of their respective agents, representatives, predecessors, successors,
assigns, heirs, trustees, executors and administrators (the "Spector Group
Releasors") hereby irrevocably and forever release, discharge, waive,
relinquish and covenant not to sue, directly or indirectly, derivatively or
otherwise, the Company or its subsidiaries or their irectors, officers,
partners (general or limited), employees, trustees, representatives or
agents (including, without limitation, financial advisors, lenders, counsel and
consultants)or any of their respective agents, representatives, predecessors,
successors, assigns, heirs, trustees, executors or administrators, and all
Persons acting in concert with any such Person (the "Company Releasees"),
with respect to any and all matters, proceedings, actions, causes of
action (including any that were actually asserted or which could have been
asserted), suits, debts, dues, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, extents, executions,
claims, charges and liabilities whatsoever, at law, equity or otherwise, which
the Spector Group Releasors ever had, now have or hereafter can, shall or may
have, whether known or unknown, against any or all of the Company Releasees
for, upon or by reason of any matter, cause or thing whatsoever, from
the beginning of time to the date hereof, arising out of, relating to, or in
connection with: (i) the Merger and the Merger Agreement (as hereinafter
defined); (ii) the matters which are the subject of the Delaware Action (as
hereinafter defined); (iii) matters relating to the business of the Company
(including the management thereof); (iv) resolution of any intercompany
accounts or any other accounts between the Company and SEG and/or the members of
the Spector Group; and (v) the employment by the Company or SEG of Enholm or any
members of the Spector Group (collectively, the "Released Matters"); provided,
however, that the releases set forth in this Section 4.01(a) shall not release,
discharge, waive, relinquish or be deemed a covenant not to sue, directly,
derivatively or otherwise, on the part of any Spector Group Releasor of any
Released Matters which are related to, based upon or arise from the breach by
any Company Released Party of any of its representations, warranties, covenants,
agreements or obligations set forth in this Agreement or in any Additional
Agreement.
(b) The Company, on behalf of itself, its
subsidiaries (other than SEG), officers, directors and employees, and all
of their respective agents, representatives, predecessors, successors,
assigns, heirs, trustees, executors and administrators (the "Company Releasors")
hereby release, discharge, waive, relinquish and covenant not to sue,
directly or indirectly, derivatively or otherwise, any member of the
Spector Group, SEG or any of their respective directors, officers, partners
(general or limited), employees, trustees, representatives or agents
(including, without limitation, financial advisors, counsel, lenders, and
consultants), or any of their respective agents, representatives,
predecessors, successors, assigns, heirs, trustees, executors and
administrators, and all Persons acting in concert with any such Person (the
"Spector Releasees"), with respect to any and all matters, actions, causes of
action (including any that were actually asserted or which could have been
asserted), suits, debts, dues, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, charges
and liabilities whatsoever, at law, equity or otherwise, which the Company
Releasors ever had, now have or hereafter can, shall or may have, whether known
or unknown, against any or all of the Spector Releasees for, upon or by reason
of any matter, cause or thing whatsoever, from the beginning of time to the date
hereof, arising out of, relating to, or in connection with the Released Matters;
provided, however, that the releases set forth in this Section 4.01(b) shall not
release, discharge, waive, relinquish or be deemed a covenant not to sue,
directly, derivatively or otherwise, on the part of any Company Releasor of any
Released Matters which are related to, based upon or arise from the breach by
any Spector Released Party of any of their respective representations,
warranties, covenants, agreements or obligations set forth in this Agreement or
in any Additional Agreement.
(c) The Company, on the one hand, and each
member of the Spector Group, on the other hand, hereby agree that from
and after the date hereof they will not encourage, solicit or voluntarily
assist any Person with respect to the institution, prosecution or
continuation of any lawsuits or claims, or encourage, solicit or
voluntarily assist any Governmental Agency or Authority with respect to the
institution, prosecution or continuation of any regulatory action or proceeding,
in which the other Party or its Affiliates or any of their respective officers
directors, partners (general or limited), trustees or agents, are
defendants that relate to or arise out of the Released Matters;
provided, however, that, any party hereto may respond to and cooperate with any
inquiry, action or proceeding from or by any Governmental Agency or Authority
(and such party shall not be required to take actions to contest any such
inquiry, action or proceeding, except as provided below); and provided, further,
that to the extent practicable, any party that is required to give information
in connection with any lawsuit or similar action, or which elects to respond or
cooperate as set forth in the previous proviso, shall, except to the extent
prohibited by Law, give the other parties prompt notice of any inquiry or action
relating to the foregoing (including, without limitation, copies of any
documents or letters relating to the foregoing) and an adequate opportunity to
seek appropriate protective relief.
(d) Notwithstanding anything in this Article
4 to the contrary, in the event that any claim, charge, action, cause of
action, suit, proceeding or demand of any type or description whatsoever is
brought by a third party (a "Third Party Claim") against any party hereto,
the releases set forth in Section 4.01(a) and Section 4.01(b) shall be deemed
to be waived, but only to the extent necessary, for the party subject to such
Third Party Claim to defend against it.
STANDSTILL PROVISIONS
2.27 Restrictions on Certain Actions by the Spector Group.
Each of the members of the Spector Group agrees that from the date hereof until
the second anniversary of the Closing such member will not, and such member will
cause each of its Affiliates, and the officers, directors, employees, partners
and trustees of such member or its Affiliates, not to, singly or as part of or
through a partnership, limited partnership or other "group" (as such term is
used in Section 13(d)(3) of the Exchange Act), directly or indirectly, through
one or more intermediaries or otherwise:
(a) purchase, in any way acquire or own, offer to
acquire, make any proposal to acquire or agree to acquire by purchase, or
become a pledgee of (any such act shall be encompassed by the term "Acquire"),
any Voting Securities (as defined below) or property of the Company (for
purposes of this Section 5.01, the foregoing shall be deemed to include the
direct or indirect acquisition of any Person or entity whose principal asset
consists, directly or indirectly, of Voting Securities or
other property of the Company), securities convertible into or exercisable or
exchangeable for Voting Securities or any securities granting the right to
acquire any securities convertible, exercisable or exchangeable for
Voting Securities (regardless of whether any such securities are then
convertible, exercisable or exchangeable), or any securities of the Company
representing a debt repayment obligation (including any non-recourse
obligations) of the Company (collectively, "Prohibited Securities"), except the
acquisition of products or services from the Company in the ordinary course of
business;
(b) participate in the formation, or encourage
the formation, of any Person which owns or seeks to Acquire Beneficial Ownership
of Prohibited Securities or seeks to Acquire any property of the Company,
except the acquisition of (i) products or services of the Company in the
ordinary course of business and (ii) any property (other than Prohibited
Securities) of the Company which the Company has publicly offered for sale;
(c) make, or in any way participate in,
directly or indirectly, any "solicitation" of "proxies" (as such terms are
defined or used in Regulation 14A under the Exchange Act) or become a
"participant" in any "election contest" (as such terms are defined or used
in Rule 14a-11 under the Exchange Act) with respect to the Company;
(d) initiate, propose or otherwise solicit
stockholders of the Company for the approval of one or more stockholder
proposals with respect to the Company or induce or attempt to induce any
other Person to initiate any stockholder proposal with respect to the Company;
(e) seek election to or seek to place a
representative on the Board of Directors of the Company or seek the removal
of any member of the Board of Directors of the Company;
(f) call or seek to have called any meeting of
the stockholders of the Company;
(g) otherwise act, directly or indirectly,
alone or in concert with others, to seek to control the management or Board
of Directors of the Company;
(h) (i) solicit, propose, seek to effect
or negotiate with the Company or any other Person with respect to (x) any
form of business combination transaction with the Company or any Affiliate
thereof, (y) any type of purchase, directly or indirectly, of any property of
the Company or any Affiliate thereof, except as provided in clauses (i) or
(ii) of paragraph (b) of this Section 5.01, or (z) any form of restructuring,
recapitalization or similar transaction with respect to the Company or any
Affiliate thereof, (ii) solicit, make or propose or negotiate with the
Company or any other Person with respect to, or announce an intent to make,
any tender offer or exchange offer for any Prohibited Securities, or
(iii) disclose an intent, purpose, plan or proposal with respect
to the Company or any Prohibited Securities inconsistent with the provisions of
this Section 5.01, including an intent, purpose, plan or proposal that is
conditioned on or would require the Company to waive the benefit of or amend any
provision of this Section 5.01; or
(ii) request the Company (or its
directors, officers, employees or agents), directly or indirectly, to
amend or waive any provision of this Section 5.01 (including this paragraph
(i)), otherwise seek any modification to or waiver of the agreements or
obligations of the members of the Spector Group on behalf of themselves or any
of their respective Affiliates, officers, directors, employees, partners or
trustees under this Section 5.01 or take any action which might require the
Company to make a pubic announcement (other than upon execution of this
Agreement) regarding any matters specified in this Section 5.01.
Except as specifically provided to the contrary
in this Section 5.01 and provided that their acquisition of such Voting
Securities has not been made in breach or violation of this Section 5.01,
nothing herein shall prohibit or restrict the members of the Spector Group,
their Affiliates and the officers, directors, employees, partners or trustees
of such member or its Affiliates from exercising the voting rights relating to
Voting Securities owned by any of them from time to time.
2.28 Termination of Standstill. (a) In the event (x) that a
Termination Event (as defined below) occurs and the default related thereto is
not effectively cured or waived within ten (10) business days of the date of
notice thereof or (y) of a Bankruptcy of the Company (as defined below), the
members of the Spector Group shall be released from their obligations under
Section 5.01 and the provisions of Section 5.01 shall terminate and be of no
further force or effect. A "Termination Event" shall be deemed to have occurred
in the event that (i) prior to the termination of the Transponder Agreement,
AT&T Corporation ("AT&T") or any successor thereto providing transponder
services to the Company under the AT&T Transponder Services Agreement dated
February 7, 1995 (the "AT&T Agreement"), delivers notice to the Company that the
Company is in default under the AT&T Agreement or that an event has occurred
which, with notice or lapse of time or both, would constitute a default of the
Company under the AT&T Agreement, in any case which default would give AT&T the
right to cancel or suspend the transponder services provided to the Company
under the AT&T Agreement (an "AT&T Transponder Default"), or the Company
notifies AT&T that such an AT&T Transponder Default has occurred, or the
Company, in any reports filed with the SEC under the Exchange Act or otherwise,
admits that such an AT&T Transponder Default has occurred and is continuing, or
(ii) the Company, in any quarterly compliance certificate or report or any
required interim notice, certificate or report, delivers notice to the holder
(the "Senior Lender") of its senior secured indebtedness that the Company is in
default under the loan agreement relating to such indebtedness, or that any
event has occurred which, with notice or lapse of time or both would constitute
a default under such instrument, or the Senior Lender notifies the Company of
any such default, in any case which default would permit the Senior Lender to
accelerate payment of all such indebtedness (other than any such default which
relates to the failure of the Company to meet or maintain a financial
performance ratio or other financial test which default is not cured or waived
within ninety (90) days thereof ) or the Company, in any report filed with the
SEC under the Exchange Act or otherwise, admits that such a default has occurred
and is continuing (provided, that such an admission by the Company relating to
any such financial performance ratio or other financial test will not constitute
a Termination Event until the period for cure or to obtain a waiver referred to
above has ended).
(b) The Company hereby covenants and agrees
that, until the termination of the standstill provisions pursuant to this
Section 5.02, it will promptly deliver to the Spector Representative any notice,
certificate or report received from AT&T or the Senior Lender and will send to
the Spector Representative, simultaneously with dispatch of a notice,
certificate or report to AT&T or the Senior Lender, any notice, certificate
or report sent to AT&T or the Senior Lender referred to in Section 5.02(a)
above; provided, however that with respect to notices, certificates or
reports received from or delivered to AT&T, the foregoing obligation
shall be terminated upon the termination of the Transponder Agreement.
2.29 Limitation of Liability. Notwithstanding anything to the
contrary set forth herein, (a) the members of the Spector Group, other than the
Spector Individuals, shall not be liable for damages at law with respect to a
breach or violation of Section 5.01, but shall be liable solely for equitable
remedies, including, but not limited to, injunctions and (b) the Spector
Individuals shall be liable for harm caused by themselves, in their individual
capacities, their Affiliates or other members of the Spector Group both for
damages at law and for equitable relief and remedies, for any breach or
violation of Section 5.01.
CLOSING CONDITIONS
2.30 Conditions Precedent to the Obligation of the Spector
Group. The obligation of SEG and the Spector Group to consummate the
Transactions shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, as determined by the Spector
Representative, any one or more of which may be waived by the Spector
Representative, on behalf of SEG and the Spector Group, in whole or in part, to
the extent permitted by applicable Law:
(a) The Company shall have performed and
complied in all material respects with the agreements, obligations and
covenants contained in this Agreement or in any other Additional Agreement
required to be performed and complied with by it at or prior to the Closing
Date, the representations and warranties of the Company set forth in this
Agreement or in any Additional Agreement to which it is a party shall if
specifically qualified by materiality, be true and correct and, if not so
qualified, be true and correct in all material respects, in each case,
as of the date of this Agreement or the date of such other Additional Agreements
(as the case may be) and as of the Closing Date, with the same force and effect
as though made at and as of the Closing Date (except as otherwise expressly
contemplated by this Agreement or such other Additional Agreements), and the
Spector Group shall have received a certificate to such effect signed on behalf
of the Company by an executive officer of the Company.
(b) On the Closing Date, there shall be no
(i) injunction, writ or temporary, preliminary or permanent restraining
order, (ii) order issued by a court of competent jurisdiction or other
Governmental Agency or Authority the effect of which is to prevent or prohibit
the consummation of the Transactions shall be in effect, nor shall any
proceeding brought by a Governmental Agency or Authority seeking any of the
foregoing be pending.
(c) All corporate actions on the part of the
Company necessary to authorize (i) the execution, delivery and performance
of this Agreement and the Additional Agreements to which it is a party and
(ii) the consummation of the Transactions, shall have been duly and validly
taken and shall be in full force and effect. All such actions and all other
actions, proceedings, instruments and documents required to carry out the
Transactions and all other related legal matters shall have been reasonably
satisfactory to and approved by counsel for the Spector Group and such
counsel shall have been furnished with such certified copies of
such corporate actions and proceedings (including copies or extracts from the
minutes of the Board of Directors relating to the Company's approval of the
execution and delivery of this Agreement and each of the Additional Agreements
to which the Company is or shall become a party (including the results of all
votes taken by the members of the Board on such matters), and such other
instruments and documents as it shall have reasonably requested.
(d) At the Closing, the Spector Group shall
have received a copy of the Solvency Opinion (as hereinafter defined)
addressed to it and reasonably acceptable to it.
(e) Enholm shall have resigned as an officer
of SEG and agreed with SEG to the termination of his employment agreement
with SEG, and delivered to SEG an instrument, in form and substance
reasonably acceptable to the Spector
Representative, releasing SEG from any liability under such employment
agreement.
(f) Effective as of the Closing, all
directors or executive officers of the Company (other than members of the
Spector Group) shall have resigned from the board of directors of SEG and its
subsidiaries.
(g) The Company shall have duly and validly
executed and delivered to the Spector Group each Additional Agreement to be
executed and delivered by the Company, each of which shall be in full force
and effect at the Closing.
(h) The receipt of the SEG Shares by the
members of the Spector Group will not result in the recognition of gain or
loss by the members of the Spector Group.
(i) The Company shall have delivered to the
Spector Representative a release or other evidence reasonably satisfactory
to it that the holder of the Company's senior indebtedness has released
any Lien or Restriction in its favor encumbering the SEG Shares.
(j) SEG or the members of the Spector Group,
as applicable, shall have received a release of its obligation as guarantor
or obligor under the Contracts listed on Schedule 6.01(j) hereto, each such
release to be reasonably acceptable to the Spector Representative.
(k) Either (i) SEG shall have received the
FCC Approval or a provisional approval of the FCC, in each case reasonably
acceptable to it or (ii) the Company and SEG shall have entered into the
Management Agreement.
(l) The Spector Representative shall have
received (i) a copy of the existing policy relating to D & O Insurance for
the calendar year 1997, and (ii) a copy of a letter from the Company to the
carrier issuing such policy instructing such carrier to provide to the Spector
Representative a copy of all notices issued by such carrier to the Company in
respect of such policy.
2.31 Conditions Precedent to the Obligation of the Company.
The obligation of the Company to consummate the Transactions shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, any one or more of which may be waived by the Company, in whole or
in part, to the extent permitted by applicable Law:
(a) SEG and each member of the Spector Group
shall have performed and complied in all material respects with their
respective agreements, obligations and covenants contained in this
Agreement or in any Additional Agreement required to be performed and complied
with by it or such member at or prior to the Closing Date, the respective
representations and warranties of SEG and the Spector Group set forth in this
Agreement or in any Additional Agreement to which it is a party shall, if
specifically qualified by materiality or knowledge, be true and correct and,
if not so qualified, be true and correct in all material respects
as of the date of this Agreement or such other Additional Agreement (as the case
may be) and as of the Closing Date, with the same force and effect as though
made at and as of the Closing Date (except as otherwise expressly contemplated
by this Agreement or such other Additional Agreements), and the Company shall
have received a certificate to that effect signed on behalf of SEG by its
President and on behalf of the Spector Group by the Spector Representative.
(b) On the Closing Date, there shall be no
(i) injunction, writ or temporary, preliminary or permanent restraining
order, (ii) order issued by a court of competent jurisdiction or other
Governmental Agency or Authority the effect of which is to prevent or prohibit
the consummation of the Transactions shall be in effect, nor shall any
proceeding brought by a Governmental Agency or Authority seeking any of the
foregoing be pending.
(c) All corporate, partnership, trust or
other actions on the part of each member of the Spector Group necessary to
authorize (i) the execution, delivery and performance of this Agreement and
the other Additional Agreements to which the members of the Spector Group
are parties and (ii) the consummation of the Transactions, shall have been
duly and validly taken and shall be in full force and effect. All such actions
and all other actions, proceedings, instruments and documents required to
carry out the Transactions and all other related legal matters shall have
been reasonably satisfactory to and approved by counsel for the Company and
such counsel shall have been furnished with such certified copies of such
actions and proceedings and such other instruments and documents as it shall
have reasonably requested (including but not limited to, evidence relating
to such approvals by each of the Spector Trusts and of the signing
authority of any trustee executing this Agreement or any Additional Agreement).
(d) The Termination Agreement shall have duly
and validly executed and delivered by each Person who is a party to the SIS
Option Agreement, and the Termination Agreement shall be in full force and
effect at the Closing.
(e) The Company shall have received a release
of its obligations as (i) guarantor under SEG's credit facilities with
Imperial Bank or any other financial institutions, (ii) guarantor or
obligor under the Contracts listed on Schedule 6.02(e) and (iii) guarantor
under any employment agreements relating to employees of SEG (including
any obligations relating to severance payments to SEG employees), each such
release to be reasonably acceptable to the Company.
(f) The Special Committee of the Company
Board of Directors shall have received an opinion (the "Fairness Opinion"),
reasonably acceptable to it, dated the Closing Date, from Thacher Vendig &
Company, Inc. (or another investment banking firm retained by the Company and
reasonably acceptable to the Special Committee and the Spector Group),
that the terms of the Transactions are fair, from a financial point of view,
to the Company's stockholders (other than the members of the Spector Group).
(g) The Company shall have received an
opinion (the "Solvency Opinion") reasonably acceptable to it, dated as
of the Closing addressed to both the Company and the Spector Group, from
Houlihan Lokey (or another investment banking or appraisal firm retained by
the Company and reasonably acceptable to the Spector Group) to the effect
that, as of the Closing Date, and assuming that the Refinancing is consummated
simultaneously with the Closing, the Company is solvent, and has sufficient
capital to conduct its business and to meet its debts and other obligations
as they mature.
(h) Effective as of the Closing, EMS shall
have resigned from the Board of Directors of the Company and each member
of the Spector Group shall have resigned from the board of directors of
each subsidiary of the Company (other than SEG) of which he or she is a
member and as an officer or employee of the Company and each such subsidiary.
(i) The receipt of the Transferred Shares by
the Company will not result in the recognition of gain or loss by the Company.
(j) At the Closing, counsel for the Eric
Spector Revocable Living Trust will deliver to the Company's Delaware
counsel a duly executed stipulation in the form of Exhibit D hereto (the
"Dismissal Instrument") dismissing without prejudice the action brought
by Eric Spector, as trustee of the Eric Spector Revocable Living Trust,
in the Delaware Chancery Court filed on November 14, 1996, bearing civil
action No. 15349NC (the "Delaware Action").
(k) Each member of the Spector Group shall
have duly and validly executed and delivered to the Company each
Additional Agreement to which such member is a party, each of which shall be
in full force and effect at the Closing.
(l) SEG shall have executed and delivered each
Additional Agreement to which it is a party.
(m) The Company shall have obtained a release
from the holder of the Company's senior indebtedness of any Lien or
Restriction encumbering the SEG Shares in favor of such holder.
(n) Either (i) the Company shall have received
the FCC Approval or a provisional approval of the FCC, in each case reasonably
acceptable to it or (ii) the Company and SEG shall have entered into the
Management Agreement.
2.32 Closing Documents. In the event that a draft of any
opinion, consent, waiver or release to be delivered at the Closing has been
supplied to a party in accordance with Section 3.07 and the receiving Party has
either (x) acknowledged that such document is acceptable to it or (y) failed to
comment upon or otherwise register an objection pursuant to Section 3.07, then
such party shall be deemed to have approved the form and substance of such
opinion, consent, waiver or release (an "Approved Closing Document") and,
subject to the delivery of the Approved Closing Document at the Closing, such
receiving Party's related condition to Closing in Section 6.01 or 6.02 above
shall be deemed satisfied.
INDEMNIFICATION
2.33 Indemnification by the Spector Group. Subject to written
notice of such claim for indemnification being delivered to the Spector
Representative within the appropriate survival period referred to in Section
9.04, the members of the Spector Group, severally and not jointly, and SEG, each
covenant and agree to indemnify, defend and hold harmless the Company and its
directors, officers, employees, agents, successors and assigns from and against
any and all losses, costs, liabilities, damages, and expenses (including
reasonable legal fees, expert fees and other expenses incident thereto) of every
kind, nature, and description (collectively "Losses"), that result from or arise
out of (a) the breach of any representation or warranty made by such member of
the Spector Group or, in the case of the Spector Individuals, SEG, set forth in
this Agreement, any Additional Agreement or in any certificate, schedule, or
other instrument delivered to the Company pursuant hereto or thereto in any
material respect or (b) the breach of or failure to perform any covenant or
agreement of such member of the Spector Group or, in the case of the Spector
Individuals, SEG, contained in this Agreement or in any Additional Agreement in
any material respect.
2.34 Indemnification by the Company. Subject to written notice
of such claim for indemnification being delivered to the Company within the
appropriate survival period set forth in Section 9.04, the Company agrees to
indemnify, defend and hold harmless SEG, each member of the Spector Group, and
their respective directors, officers, employees, agents, successors and assigns,
from and against (a) all Losses incurred by such member that result from or
arise out of any breach of any representation or warranty made by the Company
set forth in this Agreement, any Additional Agreement or in any certificate,
schedule, or other instrument delivered to the Spector Group or SEG pursuant
hereto or thereto in any material respect or (b) the breach of or failure to
perform any covenant or agreement of the Company contained in this Agreement or
in any Additional Agreement in any material respect.
2.35 Claims for Indemnification. Whenever any claim shall
arise for indemnification under Section 7.01, 7.02 or 7.05, the party entitled
to indemnification (the "Indemnified Party") shall promptly notify in writing
the party obligated to provide indemnification (the "Indemnifying Party") of the
claim and, when known, the facts constituting the basis for such claim; such
written notice shall be a condition precedent to any liability of the
Indemnifying Party hereunder. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the liability arising therefrom.
2.36 Claims Procedure. Except as provided in Section 7.05, in
connection with any claim giving rise to indemnity hereunder resulting from or
arising out of any claim or legal proceeding by a Person who is not a party to
this Agreement, the Indemnifying Party at its sole cost and expense and with
counsel reasonably satisfactory to the Indemnified Party may, upon written
notice to the Indemnified Party, assume the defense of any such claim or legal
proceeding if (a) the Indemnifying Party acknowledges to the Indemnified Party
in writing, within fifteen (15) days after receipt of notice from the
Indemnifying Party, its obligation to indemnify the Indemnified Party with
respect to all elements of such claim, (b) the Indemnifying Party will have the
financial resources to defend against such third-party claim and fulfill its
indemnification obligations hereunder, (c) the third-party claim involves only
money damages and does not seek an injunction or other equitable relief, or (d)
settlement or an adverse Judgment of the third-party claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a pattern or
practice adverse to the continuing business interests of the Indemnified Party.
The Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense; provided,
however, that if there are one or more legal defenses available to the
Indemnified Party that conflict with those available to the Indemnifying Party,
or if the Indemnifying Party fails to take reasonable steps necessary to defend
diligently the claim after receiving notice from the Indemnified Party that it
believes the Indemnifying Party has failed to do so, the Indemnified Party may
assume the defense of such claim; provided, further, that the Indemnified Party
may not settle such claim without the prior written consent of the Indemnifying
Party, which consent may not be unreasonably withheld. If the Indemnified Party
assumes the defense of the claim, the Indemnifying Party shall reimburse the
Indemnified Party for the reasonable fees and expenses of counsel retained by
the Indemnified Party and the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such claim, with its counsel and
at its own expense. The parties agree to render, without compensation, to each
other such assistance as they may reasonably require of each other in order to
insure the proper and adequate defense of any action, suit or proceeding,
whether or not subject to indemnification hereunder.
2.37 Special Indemnification Relating to Transactions. The
Company agrees to indemnify and hold SEG and the members of the Spector Group
harmless from any Losses incurred by them which result from or arise out of any
suits, actions or claims of the Company's shareholders or other third parties
based upon or arising out of the Transactions and, subject to the provisions of
paragraph (b) the Company shall reimburse each of the Spector Group and SEG for
their reasonable expenses (including, subject to Section 7.05(b), reasonable
attorneys' fees to the extent provided below) relating to the defense of such
action.
(a) If any action or proceeding shall be
brought or asserted against SEG or any member of the Spector Group for which
indemnity may be sought from the Company, such Person or Persons shall promptly
notify the Company in writing. If there is no conflict in the defense of such
action between the Spector Group, on the one hand, and other named parties
to such action, on the other hand, as more specifically provided for below,
the Company shall assume the defense of such action, including the employment
of counsel, which counsel shall be reasonably acceptable to the Spector Group.
The Spector Group shall have joint client status with the Company with respect
to the defense of such action, provided that the Spector Representative
shall be the only member of the Spector Group authorized to interface with the
counsel defending such action. If the Spector Group wishes to retain its own
outside counsel, it may do so at its own sole cost and expense. If there are
one or more legal defenses available to SEG and the members of the Spector
Group which are named parties to such action that conflict with those
available to the Company or the other Persons named in such action which the
Company is obligated to indemnify, SEG and the Spector Group may employ a
single separate counsel and the Company shall reimburse SEG and the Spector
Group for the reasonable fees and expenses of such counsel thereof. In
clarification of the foregoing, the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings arising out of the same general allegations or
circumstances be liable for the reasonable fees and expenses of more than one
separate firm of attorneys representing the Spector Group and SEG collectively.
In the event that the Company and the Spector Group shall in good faith disagree
as to the existence of such a conflict of interest, then the parties agree that
they shall cause such issues to be resolved by expedited arbitration in the
County of Los Angeles before a retired judge who is mutually acceptable to the
Company and the Spector Representative, in accordance with the Rules of the
American Arbitration Association for expedited commercial arbitration. The
determination of such arbitrator shall be binding upon the Parties with respect
to the existence of such conflict. Neither SEG nor the Spector Group shall
settle any action, suit or matter for which indemnification is claimed under
this Section 7.05 without the prior written consent of the Company which consent
may not be unreasonably withheld.
TERMINATION
2.38 Termination Prior to Closing.
(a) If the Closing has not occurred by February
10, 1997, either the Company or the Spector Representative may terminate
this Agreement at any time thereafter by giving written notice of termination
to the other; provided, however, that no Party may terminate this Agreement
if such Party has willfully or materially breached any of the terms and
conditions hereof.
(b) Prior to February 10, 1997:
(i) the Company may terminate this
Agreement (x) following the insolvency or bankruptcy of SEG, or (y) if any one
or more of the conditions to Closing set forth in Section 6.02 shall become
incapable of fulfillment by any member of the Spector Group or SEG or there
shall have occurred a material breach of this Agreement by any member of the
Spector Group or SEG and either such condition or breach shall not have been
waived by the Company or cured by SEG or such member of the Spector Group
within five (5) days after notice; and
(ii) the Spector Representative may
terminate this Agreement (x) following the insolvency or bankruptcy of the
Company or (y) if any one or more of the conditions to Closing set forth in
Section 6.01 shall become incapable of fulfillment by the Company or
there shall have occurred a material breach of this Agreement by the Company
and either such condition or breach shall not have been waived by the Spector
Representative, or cured within five (5) days after notice.
2.39 Consequences of Termination. Upon termination of this
Agreement pursuant to this Article 8 or any other express right of termination
prior to Closing provided elsewhere in this Agreement, the Parties shall be
relieved of any further obligation to the others pursuant to this Agreement;
provided, however, that no termination of this Agreement, pursuant to this
Article 8 hereof or under any other express right of termination provided
elsewhere in this Agreement, shall operate to release any party from any
liability to any other party incurred before the date of such termination or
from any liability resulting from any willful misrepresentation made in
connection with this Agreement or willful breach hereof.
MISCELLANEOUS
2.40 Entire Agreement. This Agreement and the Additional
Agreements, together with all Schedules and Exhibits hereto and thereto,
constitutes the entire understanding of the parties with respect to the
Transactions. The parties agree that any obligations or liabilities of the
parties under the Spector Letter (as hereinafter defined) are hereby terminated.
2.41 Amendment, etc. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. At
any time prior to the Closing, the parties hereto may, (a) extend the time for
the performance of any of the obligations or other acts or the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered by any of the other parties
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein which are for the benefit of such party. Any
agreement on the part of a Party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed by such Party (or in the
case of the Spector Group, the Spector Representative).
2.42 Expenses. Except as otherwise provided herein and
notwithstanding any contrary provision contained in the Spector Letter, the
Company and the Spector Group shall each pay its own expenses incident to the
negotiation, preparation, and carrying out of this Agreement and each of the
Additional Agreements, including all fees and expenses of its counsel and
accountants for all activities of such counsel and accounts undertaken pursuant
to this Agreement, irrespective of whether or not the Transactions are
consummated.
2.43 Survival of Representations and Warranties. All
statements contained in this Agreement, any Additional Agreement or in any
certificate delivered by or on behalf of the Company, SEG or any member of the
Spector Group pursuant hereto or thereto, or in connection with the Transactions
shall be deemed representations and warranties by the Company, SEG or such
member, as the case may be, hereunder or thereunder. All representations and
warranties made by the Company, SEG or any member of the Spector Group in this
Agreement, any Additional Agreement, or pursuant hereto or thereto, shall
survive the Closing of the Transactions, but shall terminate two years from the
Closing Date; provided, however, that (i) the representations and warranties in
Section 2.01(d) and Section 2.04 shall survive the Closing until the termination
of the applicable statute of limitations, and (ii) the representation and
warranty made by the Spector Individuals in Section 2.05(a) as to the assets or
property of SEG shall terminate upon the Closing.
2.44 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any manner the meaning or
interpretation of this Agreement.
2.45 Severability. If any provision of this Agreement is held
by a court of competent jurisdiction to be unenforceable, the remaining
provisions shall remain in full force and effect.
2.46 Counterparts. For the convenience of the parties, any
number of counterparts of this agreement may be executed by the parties, and
each such executed counterpart will be an original instrument.
2.47 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for in this Agreement and all legal
process in regard to this Agreement will be validly given, made or served, if in
writing and delivered personally, by telecopy (except for legal process) or sent
by registered mail postage paid, if to the Company at:
Spice Entertainment Companies, Inc.
536 Broadway
New York, New York 10012
Telecopier: (212) 226-6354
Attention: Chief Executive Officer
with a separate copy addressed to the General Counsel.
and to the Spector Group as indicated in Schedule 1, with a separate
copy to David Gersh, Esq., Paul, Hastings, Janofsky & Walker, LLP, 555 South
Flower Street, Los Angeles, California 90071, or to such other address or
telecopy number as any party, from time to time, designates in a written notice
given in a like manner. Notice by telecopy shall be deemed delivered on the day
telephone confirmation of receipt is given. Notice given by mail as set out
above shall be deemed delivered five business days after the date the same is
postmarked.
2.48 Successors and Assigns. This Agreement may not be
assigned (either voluntarily or involuntarily) by any party hereto without the
express written consent of the other party. Any attempted assignment in
violation of this Section shall be void and ineffective for all purposes. In the
event of an assignment permitted by this Section, this Agreement shall be
binding upon the heirs, successors and assigns of the parties hereto. There
shall be no third party beneficiaries of this Agreement (other than the Spector
Covered Persons and Persons entitled to indemnity pursuant to Article 7 of this
Agreement).
2.49 Governing Law. This Agreement will be governed
by and construed and enforced in accordance with the internal laws of the
State of Delaware, without giving effect to the conflict of law
principles thereof.
2.50 Specific Enforcement. The parties hereto agree that money
damages would not be a sufficient remedy for any breach of this Agreement
because of the difficulty of ascertaining the amount of damage that will be
suffered in connection therewith, that the non-breaching parties would be
irreparably damaged in the event any provision of this Agreement is not
performed in accordance with its specific terms or were otherwise breached and
that the non-breaching parties shall be entitled to equitable relief (including
injunction and specific performance) in any action instituted in any court of
the United States or any state thereof having subject matter jurisdiction, as a
remedy for any material breach or to prevent any material breach of this
Agreement. Such remedies shall not be deemed to be exclusive remedies for a
breach or anticipatory breach of this Agreement, but shall be in addition to all
other remedies available at law or equity.
2.51 Binding Effect. Notwithstanding the failure of certain
members of the Spector Group to execute and deliver this Agreement on the date
hereof, upon the execution and delivery of this Agreement by the Company, Edward
M. Spector and the Eric M. Spector Revocable Living Trust, the provisions of
Section 3.16 shall be binding upon such parties.
DEFINITIONS
2.52 Definitions For purposes of this Agreement, the following
terms shall have the meanings specified below unless the context otherwise
requires:
Acquire: As defined in Section 5.01(a).
Additional Agreements: The Dismissal Instrument,
the Termination Agreement, the Management Agreement, the Transponder
Agreement and the Enholm Agreement.
Affiliate: With respect to any Person, (i)
any other Person that directly or indirectly through one or more
intermediaries Controls, is Controlled by or is under common Control with
such Person and (ii) any other Person in which such Person holds directly
or indirectly, fifty percent or more of the equity economic interests.
Affiliate Transaction: shall mean any agreement,
arrangement or understanding between the Company, SEG or their respective
subsidiaries, on the one hand, and any member of the Spector Group or their
respective Affiliates, on the other.
Agreement: This Settlement Agreement and the
Schedules and Exhibits attached hereto.
AT&T: As defined in Section 5.02.
Bankruptcy of the Company: Shall, for purposes of Article 5 of this
Agreement, be deemed to have occurred upon the happening of any of the
following: (x) a court having appropriate jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company in an involuntary
case under Title 11 of the United States Code entitled "Bankruptcy" (as now or
hereafter in effect, or any successor thereto, the "Bankruptcy Code") or any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any other similar relief shall be granted under any applicable
federal or state law; or (y)(i) an involuntary case shall be commenced against
the Company under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect; (ii) a decree or order of a court having jurisdiction in
the premises shall be entered for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over the
Company or over all or substantially all of its property; or (iii) the
involuntary appointment shall occur of an interim receiver, trustee or other
custodian of the Company for all or substantially all of its property; and, in
the case of any event described in this clause (y), such event shall continue
for sixty (60) days unless dismissed, bonded or discharged; or (z)(i) an order
for relief shall be entered with respect to the Company in, or the Company shall
commence, a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or (ii)
the Company shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or substantially all of its
property, or (iii) the Company shall make a general assignment for the benefit
of creditors.
Beneficially Own and Beneficial Ownership: With
respect to any securities shall mean having beneficial ownership as determined
pursuant to Rule 13d-3 under the Exchange Act including pursuant to any
agreement, arrangement or understanding, whether or not in writing.
Board of Directors: The Board of Directors of the
Company.
Closing; Closing Date: As defined in Section
1.01(b).
COBRA: As defined in Section 3.17.
Code: The Internal Revenue Code of 1986, as
amended.
Communications Act: As defined in Section 2.01(c).
Company: As defined in the introductory paragraph
of this Agreement.
Company Common Stock: The common stock, par value
$.01 per share, of the Company.
Company Disclosure Schedule: As set forth on
Schedule 2.01 hereto.
Company Releasees: As defined in Section 4.01(a).
Company Releasors: As defined in Section 4.01(b).
Confidential Information: As defined in Section 9.12.
Contract: Any agreement, contract, license,
indenture, lease, mortgage, license, plan, arrangement, commitment or
instrument (whether written or oral).
D&O Insurance: As defined in Section 3.05.
Delaware Action: As defined in Section 6.02(j).
Dismissal Instrument: As defined in Section 6.02 (j).
EMS: As defined in Section 3.08.
Enholm: As defined in Section 3.12.
Exchange: As defined in Section 1.01(a).
Exchange Act: As defined in Section 2.01(c).
Fairness Opinion: As defined in Section 6.02(f).
FCC: The United States Federal Communications
Commission, or any successor United States governmental agency.
FCC Approval: As defined in Section 2.01(c).
Governmental Agency or Authority: Any nation or
government, any state, or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of government.
Indemnified Party: As defined in Section 7.03(a).
Indemnifying Party: As defined in Section 7.03(a).
Judgment: Any judgment, writ, order or decree of
or by any court, judge, justice or magistrate, including any bankruptcy
court or judge, and any order of or by any other Governmental Agency or
Authority.
Knowledge: With respect to a party's awareness
of the presence or absence of a fact, event or condition shall mean (i) actual
knowledge plus, if different, (ii) the knowledge that would be obtained if
such party conducted itself faithfully and exercised sound discretion in the
management of his own affairs.
Law: The common law and any statute, ordinance,
code or other law, rule, regulation, order, technical or other standard,
requirement or procedure enacted, adopted, applied or followed by any
Governmental Agency or Authority (including any court), including, without
limitation, any of the foregoing enacted or adopted prior to the Closing Date
with an effective date on or after the Closing Date.
Lien: Any mortgage, pledge, lien, encumbrance,
charge, adverse claim or restriction of any kind affecting title or resulting
in an encumbrance against property, real or personal, tangible or intangible,
or a security interest of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof, any third party
option or other agreement to sell and any filing of or agreement to give,
any financing statement under the Uniform Commercial Code (or equivalent
statute) of any jurisdiction).
Losses: As defined in Section 7.01.
Material Adverse Effect: With respect to a party
means an adverse change which would in the aggregate have a material adverse
effect on the assets, liabilities (whether absolute, accrued, contingent or
otherwise), condition (financial or otherwise), results of operations, or
business on a consolidated or combined basis of such party.
Merger: The merger of SEG with and into a wholly
owned subsidiary of the Company pursuant to the Merger Agreement.
Merger Agreement: The Merger Agreement and Plan
of Reorganization, dated August 9, 1995 by and among the SEG, EMS, the
Company and Newco SEG, Inc.
Party; Parties: As the context requires, either
or both of the Company or the Spector Group, collectively.
Person: Any individual, partnership, joint venture,
corporation, trust, incorporated organization, Governmental Agency or Authority
or any other entity that would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
Proceeding: Any political, legal or administrative
action, proceeding, investigation or controversy.
Prohibited Securities: As defined in Section
5.01(a).
Released Matters: As defined in Section 4.01(a).
Restrictions: With respect to any capital stock
or other security, any voting or other trust or agreement, option, warrant,
escrow arrangement, proxy, buy-sell agreement, power of attorney or other
Contract, arrangement or understanding, any Judgment or any Law (other than
the Securities Act and customary securities or "blue sky" laws of any
jurisdiction restricting the transfer of securities) which, conditionally or
unconditionally, (i) grants to any Person the right to purchase or otherwise
acquire, or obligates any Person to sell or otherwise dispose of or issue,
or otherwise results or, whether upon the occurrence of any event or with
notice or lapse of time or both or otherwise, may result in any Person
acquiring, (x) any of such capital stock or other security; (y) any of
the proceeds of, or any distributions paid or which are or may become payable
with respect to, any of such capital stock or other security; or (z) any
interest in such capital stock or other security or any such proceeds or
distributions; (ii) restricts or, whether upon the occurrence of any event or
with notice or lapse of time or both or otherwise, may restrict the transfer or
voting of, or the exercise of any rights or the enjoyment of any benefits
arising by reason of ownership of, any such capital stock or other security or
any such proceeds or distributions; or (iii) creates or, whether upon the
occurrence of any event or with notice or lapse of time or both or otherwise,
may create a Lien or purported Lien on such capital stock or other security,
proceeds or distributions.
Rights: As defined in Section 2.01(e).
SEC: The Securities and Exchange Commission.
Securities Act: As defined in Section 2.01(c).
SEG: As defined in the introductory paragraphs to
the Agreement.
SEG Shares: As defined in Section 1.01(a).
SIS: United Transactive Systems, Inc. (formerly
known as Spector Information Systems, Inc.)
SIS Option: As defined in Section 3.09.
SIS Option Agreement: The letter agreement
dated as of August 14, 1995, as amended August 30, 1995, by and among the
Company, The Spector Family Revocable Trust, Eric M. Spector, Evan M.
Spector and Staci M. Spector relating to the stock of SIS.
Solvency Opinion: As defined in Section 6.02(g).
Spector Group: As defined in the introductory
paragraph of the Agreement, which term shall be deemed to include each of
EMS and Ilene Spector, both individually and as trustee of the Spector
Family Revocable Trust, and Eric M. Spector, both individually and as
trustee of the Eric M. Spector Revocable Living Trust.
Spector Group Disclosure Schedules: As set forth
on Schedule 2.02 hereto.
Spector Group Releasees: As defined in Section 4.01(b).
Spector Group Releasors: As defined in Section 4.01(a).
Spector Individuals: Edward M. Spector and Eric
M. Spector.
Spector Letter: Letter dated January 12, 1997
executed by the Company and the Spector Representative.
Spector Representative: The member of the Spector
Group appointed by the Spector Group to represent such Group in connection
with the Transactions. Edward M. Spector shall be the initial Spector
Representative until notice to the contrary executed by the members of the
Spector Group shall be delivered to the Company as provided herein.
Spector Stockholder Group: The Spector Trusts,
Evan M. Spector and Staci M. Spector, collectively.
Spector Trusts: The Spector Family Revocable
Trust and the Eric M. Spector Revocable Living Trust.
Termination Agreement: As defined in Section 3.09.
Third Party Claim: As defined in Section 4.01(d).
Transactions: All of the transactions contemplated
by and to be consummated pursuant to this Agreement and each of the Additiona
Agreements.
Transferred Options: As defined in Section 1.01(a).
Transferred Securities: As defined in Section
1.01(a).
Transferred Shares: As defined in Section 1.01(a).
Transponder Agreement: As defined in Section 3.10.
Violation: As defined in Section 2.01(c).
Voting Securities: At any time shares of any
class of capital stock of the Company which are then entitled to vote
generally in the election of directors.
2.53 Terms Generally. The definitions in Sections 10.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The words "herein", "hereof" and "hereunder" and words of similar import refer
to this Agreement (including the Exhibits and Schedules) in its entirety and not
to any part hereof unless the context shall otherwise require. All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. The article and section headings
contained in this Agreement are solely for purposes of reference, are not part
of the agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. Unless the
context shall otherwise require, any references to any statute or regulation are
to it as amended and supplemented. Any reference in this Agreement to a "day" or
number of "days" (without the explicit qualification of "business") shall be
interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a business day, then such action or notice shall be
deferred until, or may be taken or given on, the next business day.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first referred to above.
SPICE ENTERTAINMENT COMPANIES, INC.
By:/s/ J. Roger Faherty
--------------------------------
J. Roger Faherty, Chairman and
Chief Executive Officer
SPECTOR ENTERTAINMENT GROUP, INC.
By:/s/Edward M. Spector
--------------------------------
Edward M. Spector, President
/s/Edward M. Spector
--------------------------------
Edward M. Spector
/s/Ilene H. Spector
--------------------------------
Ilene H. Spector
/s/Eric M. Spector
--------------------------------
Eric M. Spector
/s/ Evan M. Spector
--------------------------------
Evan M. Spector
/s/ Staci M. Spector
--------------------------------
Staci Spector
SPECTOR REVOCABLE FAMILY TRUST
By:/s/Edward M. Spector
-------------------------------
Edward. M. Spector, Trustee
By:/s/ Ilene H. Spector
--------------------------------
Ilene H. Spector, Trustee
ERIC M. SPECTOR REVOCABLE LIVING TRUST
By:/s/ Eric M. Spector
--------------------------------
Eric. M. Spector, Trustee
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Termination Agreement") is dated as
of February 7,1997, by and among Spice Entertainment
Companies, Inc. (f/k/a Graff Pay-Per-View, Inc.), a Delaware corporation
(the "Company"), and the Spector Family Revocable Trust, Eric M. Spector,
Evan M. Spector and Staci M. Spector (collectively, the "Spector Parties").
RECITALS:
WHEREAS, the Spector Parties own all of the outstanding shares of
United Transactive Systems, Inc.(f/k/a Spector Information Systems, Inc.),
a California corporation ("SIS");
WHEREAS, in conjunction with the merger of Spector Entertainment Group,
Inc. ("SEG") with and into a wholly owned subsidiary of the Company, the Company
and the Spector Parties entered into a letter agreement dated August 14, 1995,
as amended August 30, 1995 (the "Letter Agreement"), pursuant to which (i) the
Spector Parties granted to the Company an option (the "Option") to acquire all
of the capital stock of SIS in exchange for shares of the common stock, par
value $.01 per share, of the Company ("Company Common Stock"), and (ii) the
Company granted the Spector Parties the right to require the Company to acquire
such shares of SIS in exchange for shares of Company Common Stock (the "Put"),
all upon the terms and conditions set forth therein; and
WHEREAS, the Company and the Spector Parties have entered into a
settlement agreement, dated as of , 1997 (the "Settlement Agreement"),
pursuant to which, among other things, the Spector Parties have agreed
to suspend their prior exercise of the Put and the parties have agreed to
terminate conditionally the Letter Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. (a) Each of the Spector Parties hereby represents and warrants to
the Company that it has not assigned, transferred or otherwise disposed of any
of its rights under the Letter Agreement, such rights are not subject to any
Lien or Restriction (each as defined in the Settlement Agreement)(other than
under federal or state securities laws), and that it has full power and
authority to execute and deliver this Termination Agreement.
(b) The Company hereby represents and warrants to each of the
Spector Parties that it has not assigned, transferred, or otherwise disposed of
any of its rights under the Letter Agreement, such rights are not subject to any
Lien or Restriction (other than under federal or state securities law), and that
it has full power and authority to execute and deliver this Termination
Agreement.
2. Each of the Spector Parties hereby (a) suspends its prior exercise
of the Put, (b) agrees that prior to the reinstatement of the Put pursuant to
Section 3(b) of this Termination Agreement, it will not make any other or
further attempts to exercise the Put, and (c) acknowledges and agrees that the
Company shall have no obligation to honor such Put or any liability related
thereto, including any liability relating to the Company's failure to honor the
Put during the period from the date of the original exercise thereof, unless and
until such rights and obligations are reinstated pursuant to Section 3(b) of
this Termination Agreement.
3. (a) Subject to Section 1.03 of the Settlement Agreement ("Section
1.03"), effective upon the Closing (as defined in the Settlement Agreement),
the Letter Agreement is hereby terminated and all rights and obligations of the
parties thereunder are hereby extinguished.
(b) Notwithstanding anything in the foregoing paragraph 3(a)
or Section 1.03 to the contrary, if at any time prior to the third anniversary
of the Closing, a court of competent jurisdiction issues a final order (which is
not subject to appeal by any party or with respect to which the time to appeal
shall have expired) in any action, suit or proceeding brought by a third party
declaring that any of the material transactions contemplated by and to be
consummated pursuant to the Settlement Agreement and each of the "Additional
Agreements" (as defined in the Settlement Agreement) are null, void or are
otherwise avoided, rescinded or set aside, then the exercise of the Put deemed
suspended pursuant to the Settlement Agreement and this Termination Agreement
shall be deemed reinstated retroactive to the original date of such exercise.
4. This Termination Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to the conflict of laws rules thereof.
5. This Termination Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall be considered
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Termination
Agreement to be executed as of the date first referred to above.
SPICE ENTERTAINMENT COMPANIES, INC.
By: /s/ J. Roger Faherty
-------------------------------
J. Roger Faherty
Chairman and Chief Executive Officer
THE SPECTOR FAMILY REVOCABLE TRUST
By: /s/ Edward M. Spector
------------------------------
Edward M. Spector
Co-Trustee
By: /s/ Ilene H. Spector
------------------------------
Ilene H. Spector
Co-Trustee
By: /s/ Evan M. Spector
------------------------------
Evan M. Spector
By: /s/ Eric M. Spector
------------------------------
Eric M. Spector
By: /s/ Staci M. Spector
------------------------------
Staci M. Spector
TRANSPONDER SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made and entered into this
7th day of February, 1997, by and between Spice Entertainment Companies, Inc.,
formerly known as Graff Pay-Per-View Inc., a Delaware corporation with offices
at 536 Broadway, 7th Floor, New York, New York ("Spice"), and Spector
Entertainment Group, Inc. a California corporation with offices at 6349 Palomar
Oaks Court, Carlsbad, California ("SEG"), together herein referred to as the
"Parties".
WHEREAS, AT&T Corp. ("AT&T") currently operates a domestic satellite
system in accordance with FCC Tariff Number 7 (the "Tariff") in geostationary
orbit at 89 degrees west longitude and more commonly known as Telstar 402R
("Satellite") and which has a geographic footprint as set forth in the Tariff;
and
WHEREAS, AT&T currently provides transponder services on multiple
transponders on the Satellite to Spice and Spice currently has the rights
(subject to certain restrictions) for communication purposes for such
transponder services to the extent and as provided under the Agreement between
Spice and AT&T concerning Skynet Transponder Service dated February 7, 1995, as
such agreement has been amended from time to time (the "Service Agreement"); and
WHEREAS, under the Service Agreement, Spice has and wishes to make
available to SEG, "Bronze" transponder service (as such term is defined in
Section 10.0 of the Service Agreement) on one 36 MHz 12 watt C-band
non-protected pre-emptible transponder, which transponder is commonly known as
Transponder Number 15 (the "Transponder"); and
WHEREAS, SEG currently distributes via, satellite in an SCPC digitally
compressed format and in other formats as SEG may, from time to time utilize,
programming which currently consists of simulcasts of live pari-mutuel wagering
events, educational programming for the distance learning industry and other
special events (such programming and such other programming as SEG may, from
time to time, distribute in a digitally compressed, analog or such other format
as SEG may choose is collectively referred to herein as "SEG Programming"); and
WHEREAS, certain of the SEG Programming is currently distributed via
the Transponder; and
WHEREAS, in order to induce the parties to enter into this Agreement
and that certain Settlement Agreement dated as of January 29th, 1997 between
Spice, SEG and certain other parties, and certain other agreements contemplated
thereby, and to accept certain terms and conditions of such agreements, the
parties have agreed to enter into this Agreement; and
WHEREAS, Spice, desires to provide transponder services on the
Transponder to SEG, and SEG desires to acquire such services on the Transponder
on the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the Parties hereto agree as
follows:
1. Provision of Services and Operating Procedures.
1.1 In accordance with the terms and conditions hereinafter set forth,
the Spice hereby provides Bronze transponder service (which shall include the
protection provided to SEG as set forth in Section 4.1.1 below) to SEG, on the
Transponder from the hours of 11:00 A.M. to 3:00 A.M., Eastern Time, and grants
SEG an additional thirty (30) minute window ("approx out"), regarding start and
end broadcast times, seven (7) days per week (the "Assigned Transponder Time")
(such services on the Transponder during the Assigned Transponder Time are
referred to as the "Transponder Services"). Subject to all the terms and
conditions of this Agreement, SEG shall have the all rights to use the
Transponder Services during the Assigned Transponder Time as Spice has under the
Service Agreement. SEG acknowledges and agrees that they will be bound by the
Service Agreement which is attached hereto as Exhibit "C" with respect to the
Transponder and incorporated herein by reference, which agreement shall in no
way obligate SEG to pay service fees or any other amounts under the Service
Agreement. The Parties have agree to utilize the Transponder according to
specific operating procedures outlined in the Service Agreement.
1.2 Quiet Enjoyment.
Spice acknowledges, covenants and agrees that SEG's use of the
Transponder Services shall not be disturbed by Spice or any of its affiliates or
customers and that Spice further covenants that SEG's unqualified right to use
the Transponder Services and the Assigned Transponder Time shall be afforded
without interference or disturbance by Spice, its affiliates or customers and
that any breach of this covenant of quiet enjoyment shall constitute a default
of this Agreement and afford SEG the option to terminate this Agreement and such
other relief as is set forth in Section 18.4 herein.
2. Term.
This Agreement shall be effective as of January 1, 1997. Subject to
termination hereunder or a termination of the Service Agreement, the Agreement
term shall commence as of 12:01 A.M., U.S. Eastern Time, on January 1, 1997, and
shall continue up to and including the hour of 12:00 A.M., Eastern Standard Time
("EST"), on December 31, 1998 (the "Term"), unless terminated earlier as
provided herein.
<PAGE>
3. Service Fees, Payment Terms, Ancillary Costs.
3.1 SEG shall pay service fees to Spice during the Term for the
Transponder Services in the amount of Eighty Thousand Dollars ($80,000.00) per
month (the "Service Fee") in funds remitted via the federal funds wire transfer
system in accordance with the instructions for remittance attached as Exhibit A
to this Agreement. During the Term, SEG shall pay the Service Fees for the
Transponder Services monthly, in arrears within five (5) business days of the
end of each month. If the final month of the Term is a partial month, the
Service Fee for such month shall be prorated based on a thirty (30) day month
3.2 Spice shall be responsible for any and all sales, use, personal
property, or other similar taxes or impositions, fees, levies or expenses
imposed by any governmental or other entity or authority imposed on or against
the Service Fee or with respect to the use of the Transponder by Spice or
arising out of or in connection with this Agreement.
3.3 Spice shall also be responsible for any and all costs, fees, and/or
expenses of operation of the Transponder imposed by AT&T for access control,
telemetry, station keeping, or any other costs, fees, or expenses in addition to
the service fee paid by Spice to AT&T under the Service Agreement.
3.4 During the hours of 12:00 Midnight until 3:300 AM, EST (the
"Shoulder Time"), if SEG is not using the Transponder Services for SEG
Programming, SEG shall use its reasonable commercial efforts to sell the
Shoulder Time on Spice's behalf to third parties at prevailing market rates. SEG
shall sell the Shoulder Time as provided for in this Section 3.4 without any
charge or reduction to Spice. In clarification of the foregoing, SEG shall have
no liability for any nonpayment by any third party to whom SEG has sold Shoulder
Time on Spice's behalf in accordance with this Section 3.4. Within 10 business
days after each month in which SEG has sold Shoulder Time, SEG shall send Spice
a report concerning sales of the Shoulder Time which report shall include the
identity of the third party and the date, length of service and rate charged
such third party together with payment therefor.
4. Transponder Status.
4.1 SEG acknowledges that the Transponder Services using the
Transponder made available hereunder are for non-protected pre-emptible
transponder services, commonly referred to as "Bronze" service, which service
level is described in Sections 9.0 and 10.0 of the Service Agreement and in
Section 6.1.1.d. of the Tariff which are incorporated herein by this reference.
As such, SEG acknowledges that the Transponder is not protected and Spice may be
unable to provide the Transponder Services if the Transponder fails or is
preempted by AT&T.
4.1.1 Notwithstanding the foregoing or any provision herein to
the contrary, or any other agreement or contract to which Spice may be party,
and in consideration for SEG to consummate the transaction, Spice agrees to
provide to SEG "Priority Restoration Service" for the period from the date of
the execution hereof and for 60 days thereafter (the "Priority Period") in the
event the Transponder is pre-empted by AT&T under the terms and conditions of
the Service Agreement, or fails. If SEG use the Priority Restoration Service
during the Priority Period, the Service Fee shall be increased by $30,000 per
month, such increase to be prorated on a daily basis for partial months of
utilization of the Priority Restoration Service.
4.1.2 "Priority Restoration Service" shall be defined as a
service granted by Spice that entitles SEG during the Priority Period, to
immediate, priority restoration of the adversely affected service through the
use of transponder services on one of Spice's Platinum service (as defined in
Section 8.0 of the Service Agreement and in the Tariff) transponders as provide
for under the Service Agreement. However, in all events, such replacement
transponder shall meet the Performance Specifications.
4.1.3 If SEG uses the Priority Restoration Service, at the end
of the Priority Period, the Transponder Services shall revert to Bronze
transponder service as provided for in Section 1.1 and the Service Fee shall be
readjusted to that provided for in Section 3.1.
4.2 SEG acknowledges that it is currently using transponder services on
the Transponder and such services currently meet its technical and/or operating
specifications which require the ability to transmit the SEG Programming in an
SCPC digitally compressed format at a 5 to 1 compression ratio so that clear,
intelligible audio and video signal can be received by SEG downlink customers in
the "SEG Service Area" for at least 99.5% of the Assigned Transponder Time,
determined on a month by month basis (such specifications are referred to as the
"Performance Specifications"). For purposes of this Agreement, the SEG Service
Area is the Continental United States, Canada, all of the Caribbean south to
Trinidad and Tobago and Mexico.
4.3 The Service Fee for the Transponder will be prorated or abated (any
such amount is referred to as a "Rebate") to the extent provided for under
Section 16.0 of the Service Agreement and the Tariff. To the extent Spice
receives a Rebate with respect to service fees paid to AT&T for the Transponder
by Spice, Spice shall pay to SEG an amount equal to the Rebate multiplied by a
fraction with a numerator equal to $80,000, the monthly Service Fee and with a
denominator equal to $115,000.
5. Operation and Management of Telstar 402 and the Transponder.
Pursuant to the existing Service Agreement and the Tariff, AT&T or
their successors, is to operate and manage the Satellite until the retirement of
the Satellite. Spice shall make available to SEG any and all services and
resources from AT&T available to it under the Service Agreement and the Tariff
with respect to the Transponder (collectively, the "Resources"). Spice shall, at
any and all times use its best efforts to make available the Resources to SEG.
Spice covenants and agrees that it will refrain from any and all activities
which could adversely impact, diminish and/or extinguish SEG's access to and use
of the Resources.
6. Representations and Warranties.
6.1 Corporate Action.
Spice and SEG each represents and warrants to the other it has
taken all requisite corporate action, as appropriate, to approve the execution,
delivery, and performance of this Agreement, and that this Agreement constitutes
a legal, valid, and binding obligation of the Parties in accordance with its
terms.
6.2 SEG hereby represents and warrants that:
6.2.1 SEG is a corporation duly organized, validly existing
and in good standing under the laws of the State of California, United States of
America.
6.2.2 SEG has all necessary power and authority to enter
into this Agreement.
6.2.3 The execution and performance of this Agreement by SEG
does not violate any provision of its charter, By-laws, or any contract to which
it is a party or by which it may be bound.
6.2.4 The SEG Programming (i) is and will be made available
only to those persons and in those jurisdictions where the reception of the SEG
Programming complies with all applicable Rules and Regulations (as defined in
Section 16.1 ) and (ii) such programming will not violate any copyright, right
of privacy or publicity or literary or dramatic writing of any person.
6.3 Spice hereby represents and warrants that:
6.3.1 Spice is a corporation duly organized, validly existing
and in good standing under laws of the State of Delaware, United States of
America.
6.3.2 Spice has all necessary power and authority to enter
into this Agreement including all applicable federal, state, or local approvals.
6.3.3 The execution and performance of this Agreement by Spice
does not violate any provision of its charter, By-laws, or other agreement to
which it is a party or by which it may be bound, including, without limitation,
the Service Agreement.
6.3.4 The Service Agreement is in full force and effect and
that Spice has not received any notices from any third party to the contrary.
6.3.5 Spice is in full compliance with any and all terms of
the Service Agreement and that Spice has not received any notices from any third
party to the contrary.
6.3.6 To the best of Spice's knowledge Spice has not been
convicted or alleged to be involved in the criminal violation of, and has not
been found or alleged by the FCC or other federal, state, or local governmental
authority with appropriate jurisdiction (collectively, the "Governmental
Authority") to have violated, any federal, state, or local law or provided,
purveyed, alleged to be involved in by any Governmental Authority any obscene
program material or transmission thereof and to the best of Spice's knowledge,
Spice is not aware of any pending investigation (including, without limitation,
a grand jury investigation) involving Spice's programming of any pending
proceeding against Spice for the violation of any obscenity laws. Spice will
immediately notify SEG as soon as it receives notification of, or becomes aware
of, any pending investigation by any Governmental Authority, including the
Federal Communications Commission ("FCC"), or any pending criminal proceeding
against Spice.
6.3.7 The programming which Spice or any of its customers
transmits via the Transponder (i) is and will be made available only to those
persons and in those jurisdictions where the reception of such programming
complies with all applicable Rules and Regulations (as defined in Section 15.1 )
and (ii) such programming will not violate any copyright, right of privacy or
publicity or literary or dramatic writing of any person.
7. Limitation of Liability.
7.1 Neither Party to this Agreement shall be held liable or responsible
for the degradation or failure or any Services or signals, contracts,
obligations, or facilities if caused by an act of God, weather, fire, flood,
epidemic, earthquake, casualty, lockout, boycott, strike or other labor dispute,
riot, civil commotion, failure or technical difficulties, acts of public enemy,
enactment, order, rule, or action of any international, federal, state or local
government agency, or instrumentality, failure of electrical or telephone power
transmission lines or facilities, or any other cause beyond the reasonable
control of either Party. Upon the happening of any of the above-described
events, the Parties shall promptly notify each other of said event and shall
thereafter use their best efforts to perform their obligations pursuant to this
Agreement.
7.2 Except as otherwise provided for in 7.3, both Parties expressly
acknowledges and agrees that in no event shall a Party be liable to any third
party whatsoever in contract, tort, or any other theory at law, or in equity,
for any damages of any nature arising out of any breach or alleged breach by
such Party of its obligations under this Agreement, including but not limited
to, the use by SEG of the Transponder Service, as provided herein.
7.3 In connection with any interruption or other failure in the
Transponder Services, SEG shall have no recourse or remedy against Spice except
and to the extent provided for in Section 18. NEITHER PARTY SHALL, UNDER THE
FOREGOING OR ANY OTHER CIRCUMSTANCES, BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL OR
SPECIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR REVENUES,
DAMAGE TO OR LOSS OF PERSONAL PROPERTY OR CLAIM OF THE OTHER PARTY.
8. Indemnification.
8.1 Neither Party shall utilize the Transponder for any unlawful
purpose and shall indemnify and save the other party harmless from and against
any and all losses, liabilities, damages, or expenses including reasonable
attorney's fees resulting directly from the action of any governmental agency or
department, or any common carrier predicated upon an allegation that the other
Party's use thereof is, in whole or in part, for an unlawful purpose (whether or
not such allegation is ultimately proven before a court of agency having
jurisdiction over the issue).
8.2 Each Party hereby indemnifies and saves harmless, the other Party,
its parent corporation, subsidiaries, affiliated entities and their officers,
directors, shareholders, and employees, from and against any and all claims,
liabilities, losses, suits, damages, obligations, costs and/or expenses
(including, without limitation, reasonable legal fees and expenses) arising out
of, or in connection with, the undertakings or agreements provided herein,
including, but not limited to, all claims for personal injury, licensing,
royalties, and/or copyright infringement.
9. Notices.
9.1 General.
All notices and other communications, including payments
hereunder, from either party to the other hereunder shall be made in writing
and, shall be deemed received when first sent by certified mail or other secure
courier service or if sent by facsimile when sent upon receipt by the sender of
the "answerback" confirming the date and time of transmission to the receiving
party. A copy of any notice sent by facsimile shall be sent via secure overnight
air courier service.
TO SPICE:
If by mail: Spice Entertainment Companies, Inc.
536 Broadway, 7th Floor
New York, New York 10012
Attn: J. Roger Faherty
Chief Executive Officer
If by facsimile: Spice Entertainment Companies, Inc.
Attn: J. Roger Faherty
Fax: (212) 226-6354
TO SEG:
If by mail: Spector Entertainment Group, Inc.
6349 Palomar Oaks Court
Carlsbad, California 92009
Attn: Eric M. Spector
Executive Vice President
If by facsimile: Spector Entertainment Group, Inc.
Attn: Eric M. Spector
Fax: (619) 438-0968
The parties hereto may change their addresses by giving notice thereof
in conformity with this section.
9.2 Transponder Failure.
Notwithstanding any other Section herein, Spice shall, for the
purpose of receiving notices from SEG concerning failures of the Transponder to
meet the Performance Specification, interference or any other event concerning
SEG's use of the transponder, maintain telephone service at (800) GRAFF57
(outside California), which telephone numbers shall be continuously staffed by
Spice or its agent so as to enable Spice to receive such notices twenty-four
(24) hours per day, seven (7) days per week, and SEG shall give any such notice
to Spice by telephone at such telephone number promptly upon the occurrence of
such failure or any other event. All such telephonic notices shall be confirmed
in writing and delivered by SEG as per the Notice provisions herein. Spice shall
promptly notify SEG of any changes in such telephone numbers.
10. Assignment or Right to Use.
SEG shall not have the right to assign this Agreement or permit the
utilization of, a majority of the Transponder Services by an unaffiliated third
party without Spice's prior written approval, which approval shall not be
unreasonably withheld or delayed. Notwithstanding any assignment of the
Transponder Services to a third party or the utilization of the Transponder
Services by a third party under this Section 9, SEG shall remain responsible for
the Service Fees provided for hereunder.
11. Applicable Law.
The existence, validity, construction, operation and effect of this
Agreement shall be determined in accordance with and be governed by the laws of
the State of Delaware.
12. Entire Agreement.
This Agreement (including all Appendices, Schedule and/or Exhibits
hereto which are all hereby incorporated by reference) and the Management
Agreement between the Company and SEG constitutes the entire agreement between
the Parties concerning its subject matter, is intended as the complete and
exclusive statement of the terms of the agreement between the parties, and
supersedes all previous understandings, commitments, or representations whether
written or oral, concerning its subject matter. This Agreement may not be
amended or modified in any way, and none of its provisions may be waived, except
by a writing signed only when executed by each party hereto.
I3. Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, and all such counterparts together shall constitute
but one and all such counterparts together shall constitute but one and the same
instrument and shall become binding upon the parties only when executed by each
party hereto.
14. No Waiver.
No waiver of any provision of this Agreement by either party shall be
deemed to be a waiver of any other provision hereof, or of any subsequent
similar breach or default by the other. All remedies hereunder shall be
cumulative and not exclusive.
15. Approvals and Authorizations.
The obligation of the parties hereto shall be subject to obtaining and
maintaining all necessary regulatory and other governmental approvals and
authorizations. The parties agree to use their respective and, where applicable,
collective best reasonable efforts to obtain promptly and maintain such
approvals.
16. Legal Compliance.
16.1 The Parties hereto acknowledge and agree that this Agreement is
subject to all applicable treaties, laws, regulations, and orders of any
federal, state or local governmental authority in the United States of America
having jurisdiction therefor, including without limitation, if applicable, the
Federal Communications Act of 1934, as amended, and the rules, regulations, and
orders of the Federal Communications Commission, (FCC), promulgated hereunder
(collectively, "Rules and Regulations"). The performance of this Agreement by
the Parties hereto is expressly contingent upon, and subject to, the obtaining
an continuance of such approvals, consents, authorizations, licenses and permits
from the FCC or any other federal, state or local governmental authority in the
United States of America, as may be required or deemed necessary for the
purposes thereof, and such terms and conditions as may be imposed thereon,
including all applicable technical requirements of the common carrier owner of
the Satellite, and the terms and provisions or any Federal Communications
Commission Tariff that may become applicable during the Agreement term, an such
tariffs as may be amended from time to time. If either Party is not in
compliance with any applicable Rule or Regulations, (i) the other Party shall
have the right to, at is option, to terminate this Agreement upon proper notice
and an opportunity to cure, provided such non-compliance is capable of being
cured, and (ii) the non-complying Party shall indemnify and save harmless the
other Party from and against any liability, loss , damage or claim the other
Party may suffer or incur as a result of such non-compliance.
16.2 The Parties agree that the term of this Agreement shall suspend
and abate for that period of time during the term hereof, that there remains in
effect any determination or directive whatsoever by any international, federal,
state or local government agency or authority, to the effect that the
distribution of the signals or the utilization of the Transponder is in
violation of (or inconsistent with) any applicable international, federal, state
or local statute, law, regulation, rule, or directive. Either Party in its sole
discretion upon issuance of proper notification to the other Party, may
terminate this Agreement upon any such suspension and/or abatement.
17. Relationship of Parties.
It is expressly understood and agreed that the execution and
performance of this Agreement shall not be construed to create a relationship
between the Parties as partners, joint ventures, or as principal and agent.
Neither Party shall have any authority to bind the other in any fashion.
18. Termination.
Notwithstanding anything to the contrary contained herein, either Party
shall have the right to terminate this Agreement if:
18.1 A court having appropriate jurisdiction shall enter a decree or
order for relief in respect of the other Party in an involuntary case under
Title 11 under the United States Code entitled "Bankruptcy" (as now or hereafter
in effect, or any successor thereto, the "Bankruptcy Code"), or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against the other Party under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; a decree or order of a court having jurisdiction in the premises shall
be entered for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the other Party or over
all or substantially all of its property; the other Party shall make a general
assignment for the benefit of creditors; or the involuntary appointment shall
occur of an interim receiver, trustee or other custodian of the other Party for
all or substantially all of its property; and, in the case of any event
described in this clause (ii), such event shall continue for sixty (60) days
unless dismissed, bonded or discharged; or
18.2 An order for relief shall be entered with respect to the other
Party in, or the other Party shall commence, a voluntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
nor or hereafter in effect; or the other Party shall consent to the entry of an
order for relief in an involuntary case, or to the conversion of an involuntary
case to a voluntary case, under any such law, or shall consent to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or substantially all of its property; or the other Party shall make a
general assignment for the benefit of creditors.
18.3 The other Party materially breaches its obligations under this
Agreement, and such breach has not been cured within five (5) business days of
written notification.
18.4 If Spice (i) defaults in the payment of the fees under the Service
Agreement , (ii) materially breaches Spice's covenant of quiet enjoyment
outlined under Section 1.2 herein; or (iii) fails to provide the Priority
Restoration Service, SEG shall be entitled, among its other remedies, to
terminate this Agreement immediately and to receive liquidated damages of
$300,000.
18.5 SEG shall have the absolute right to terminate this Agreement and,
upon termination by SEG, neither SEG nor Spice will have any further liability
hereunder (i) if there is a termination or cancellation by AT&T of the services
provided under the Service Agreement for the Transponder or (ii) AT&T pre-empts
SEG's use or access to the Transponder; (iii) the Transponder Services do not
meet the Performance Specifications.
18.6 SEG shall have the right to terminate this Agreement, which
termination shall become effective on the 90th day following delivery of notice
of such termination to Spice or such earlier date as is mutually agreed to by
the Parties.
19. Specific Performance.
SEG, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Transponder Services Agreement. Spice agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
20. Time.
Time is of the essence of this Agreement.
21. Severability.
In the event any provision or portion of this Agreement shall be deemed
invalid, canceled, or unenforceable, the remaining rights and obligations of the
Parties under this Agreement shall remain in full force and effect and shall be
construed and enforced accordingly.
22. Confidentiality.
Each Party agrees that this Agreement and all information contained
herein shall be used only for the purposes of this Agreement , and, for a period
of one (1) year following the termination of this Agreement, shall not be
disclosed by such party, its agents or employees except as may be necessary by
reason of regulatory requirements beyond the reasonable control of the
disclosing party. The obligations set forth in this Section shall survive any
termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective duly authorized officers.
SPICE ENTERTAINMENT
COMPANIES, INC.
536 Broadway, 7th Floor
New York, New York 10012
United States of America
/s/ J. Roger Faherty February 7, 1997
By: ______________________________ ______________________________
J. Roger Faherty, Chairman, Date
Chief Executive Officer
and President /s/ Daniel J. Barsky
______________________________
Witness
SPECTOR ENTERTAINMENT
GROUP, INC.
6349 Palomar Oaks Court
Carlsbad, California 92009
United States of America
/s/Edward M. Spector February 7, 1997
By: ______________________________ ______________________________
Edward M. Spector, Chairman Date
and Chief Executive Officer
/s/ Isaura Pacheco
______________________________
Witness
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (this "Agreement") made as of the
15th day of January, 1997, by and among PNC BANK, N.A., successor in interest to
Midlantic Bank, N.A. (the "Bank") and SPICE ENTERTAINMENT COMPANIES, INC., a
Delaware corporation and successor by name change to Graff Pay-Per-View Inc.
(the "Borrower") and the other Obligors, as defined in the Credit Agreement (as
defined below) (collectively with the Borrower, the "Obligors"):
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank have entered into that
certain Amended and Restated Loan and Security Agreement dated as of December 9,
1994, as amended by the Amendatory Agreement dated as of August 14, 1995, the
Second Amendatory Agreement dated as of November 13, 1995 and the Third
Amendatory Agreement dated as of March 29, 1996 as the same may have been
heretofore amended, modified or supplemented from time to time (the "Credit
Agreement"); and
WHEREAS, undefined capitalized terms used in this Agreement
which are defined in the Credit Agreement shall have the meanings ascribed to
such terms in the Credit Agreement, unless the context clearly requires
otherwise; and
WHEREAS, the indebtedness of Borrower to Bank under the Credit
Agreement is evidenced by a Term Note executed and delivered by Borrower to Bank
dated as of October 21, 1994, in the original principal amount of $900,000, as
the same may have been amended, modified or supplemented from time to time,
including any extensions, renewals, refundings or refinancings thereof in whole
or in part (the "Term Note") and that certain Second Amended and Restated
Revolving Credit Note executed and delivered by Borrower to Bank in the maximum
aggregate principal amount of $15,000,000, dated as of August 14, 1995, as
amended by Amendment No. 1 to Second Amended and Restated Revolving Credit Note
dated as of March 29, 1996, as the same may have been further amended, modified
or supplemented from time to time, including any extensions, renewals,
refundings or refinancings thereof in whole or in part (the "Revolving Credit
Note" and collectively with the Term Note, the "Notes"); and
WHEREAS, the outstanding principal amount under the Notes as
of this date is $14,600,000; and
WHEREAS, the Notes are secured by, inter alia, the following:
a. Guaranty and Security Agreement of each of the non-Borrower Obligors
dated as of October 21, 1994, as the same may have been amended, modified or
supplemented from time to time (the "Guaranty");
b. Trademark Collateral Assignment of each of the Borrower, CPV
Productions, Inc., Guest Cinema, Inc., and Spice, Inc. each dated as of October
21, 1994, as the same may have been amended, modified or supplemented from time
to time (collectively, the "Trademark Assignments");
c. Patent Collateral Assignment of Guest Cinema, Inc. dated as of October
21, 1994, as the same may have been amended, modified or supplemented from time
to time (the "Patent Assignment");
d. Copyright Security Agreement of CPV Productions, Inc. dated as of
October 21, 1994, as the same may have been amended, modified or supplemented
from time to time (the "Copyright Assignment")
e. Second Amended and Restated Pledge and Security Agreement by and among
the Borrower, CPV Productions, Inc., Pay-Per-View International, Inc., Cable
Video Store, Inc. and the Bank dated as of August 14, 1995, as the same may have
been amended, modified or supplemented from time to time (the "Pledge
Agreement"); and
f. UCC-1 Financing Statements naming each of the Obligors as Debtor and
Bank as Secured Party, and filed in the appropriate state and county offices as
reflected on the Summary of Lien Search Results attached to this Agreement as
Exhibit A, as such list may be amended from time to time, as such UCC-1
Financing Statements may have been amended, modified or supplemented from time
to time (the "Financing Statements" and collectively with the Guaranty, the
Trademark Assignments, the Patent Assignment, the Copyright Assignment and the
Pledge Agreement, the "Security Documents", and further collectively with the
Credit Agreement and the Notes, the "Loan Documents"); and
WHEREAS, on August 22, 1996, the Bank and the Obligors entered into that
certain Reimbursement Agreement for Irrevocable Standby Letter of Credit (the
"Reimbursement Agreement"), pursuant to which the Bank issued Irrevocable
Standby Letter of Credit Number A-308356 (the "Letter of Credit") for the
account of the Borrower and for the benefit of Vendor Capital Group in the face
amount of $375,000 (the obligations evidenced by the Reimbursement Agreement are
referred to in this Agreement as the "Reimbursement Obligations"); and
WHEREAS, the maturity of the loans evidenced by the Notes has been extended
by letter agreements to January 15, 1997 (the "Maturity Date"); and
WHEREAS, Borrower does not have presently, or in prospect in the future,
sufficient funds with which to pay Bank in full in accordance with the terms of
the Notes on or before the Maturity Date; and
WHEREAS, pursuant to the rights, remedies and authority granted to the Bank
in the Credit Agreement, the Notes and the Security Documents, upon the
Borrower's failure to satisfy its obligations on the Notes on or before the
Maturity Date, the Bank would have the non-exclusive right, among others, to
call defaults under the Loan Documents and to exercise its rights with respect
to the collateral securing the Obligors' obligations; and
WHEREAS, Borrower has elected, and deems such to be in its best interest,
to refinance its obligations with the Bank with another lender, provided that
the Bank agrees to the terms and conditions of this Agreement, including
forgiveness of a portion of the principal obligations of the Borrower to the
Bank, as more particularly set forth in this Agreement; and
WHEREAS, Bank agrees, subject to the terms and conditions of this
Agreement, to accept terms of the proposed settlement; and
NOW THEREFORE, Bank and Borrower, in consideration of the mutual promises
contained herein and intending to be legally bound hereby, agree as follows:
1. Incorporation of Recitals. The parties affirm and acknowledge that the
recitals set forth above are incorporated into this Agreement by reference.
2. Borrower's Deliveries at Closing. On or before the Effective Date, as
defined below, the Borrower shall have caused to be delivered to the Bank the
following (collectively, the "Borrower's Deliveries"):
(a) Initial Payment. The sum of $9,600,000.00 in immediately available
funds, by wire transfer without claim, counterclaim, setoff or recoupment
according to the following wire instructions:
Federal Reserve Bank for Credit Account of PNC Bank, Pittsburgh, PA ABA
Number 043000096 - Attention Loan & Collateral Accounting Ref: Graff
Pay-Per-View Under Notification to E. Pendergast x 2380
(b) Payment for Certificate of Deposit. The sum of $375,000.00 in
immediately available funds, without claim, counterclaim, setoff or recoupment,
by wire transfer according to the preceding wire instructions, to be utilized
for the purchase of a certificate of deposit in the face amount of $375,000 and
maturing on August 1, 1999 (the "Certificate of Deposit").
(c) Original Letter of Credit. The Original Letter of Credit to be held by
the Bank's counsel, in escrow, until the issuance and delivery of the
Certificate of Deposit as provided in Section 11 of this Agreement.
(d) Term Loan Note. A Term Loan Note in the principal amount of $400,000.00
which shall mature on the second anniversary of the Effective Date and shall be
substantially in the form of Exhibit B, attached to this Agreement, with the
blanks appropriately filled. (e) Warrant. A Warrant for the purchase of 600,000
shares of common stock of the Borrower substantially in the form of Exhibit C,
attached to this Agreement, with the blanks appropriately filled.
(f) Registration Rights Agreement. A Registration Rights Agreement
substantially in the form of Exhibit D, attached to this Agreement, with the
blanks appropriately filled.
The Term Loan Note, the Warrant, the Registration Rights Agreement, the
Guaranty and this Agreement are sometimes referred to in this Agreement as the
"Surviving Documents" with the cumulative obligations of each of the Obligors
under such Surviving Documents being referred to as the "Surviving Obligations",
provided that with respect to the non-Borrower Obligors, their obligations under
the Guaranty is limited to their guaranty and suretyship of the Borrower's
obligations under the Surviving Documents, and provided further, that the Bank
acknowledges that the guaranty and suretyship of the non-Borrower Obligors is an
unsecured obligation and the Bank has no right of setoff against the Certificate
of Deposit.
3. Bank's Deliveries at Closing. Upon receipt of each of the Borrower's
deliveries, the Bank shall deliver to the Borrower or its counsel, each of the
following:
(a) The original Term Note marked cancelled;
(b) The original Revolving Credit Note marked cancelled;
(c) Each of the original Security Documents, other than the Guaranty,
marked cancelled, together with such original certificates of stock in such of
the Obligors as had been pledged to the Bank pursuant to the Pledge Agreement;
(d) UCC-3 Financing Statements terminating the security interests of the
Bank as reflected on the Financing Statements, in recordable form to be recorded
by the Borrower or its counsel at the Borrower's cost;
(e) Release of Trademark Collateral substantially in the form of Exhibit E,
attached to this Agreement, with the blanks appropriately filled.
(f) Release of Copyright Collateral substantially in the form of Exhibit F,
attached to this Agreement, with the blanks appropriately filled.
(g) Release of Patent Collateral substantially in the form of Exhibit G,
attached to this Agreement, with the blanks appropriately filled. (h) The old
warrant dated March 29, 1996, for the purchase of 100,000 shares of common stock
of the Borrower issued to the Bank marked cancelled.
4. Authority to Debit Accounts for Accrued Charges. As of January 13, 1997,
the accrued interest on the Loans will be $48,838.04 with interest accruing at
the rate of $3,756.77 per diem (such accrued interest through the Effective Date
shall be called the "Accrued Interest"). In addition, As of January 13, 1997,
the accrued fees related to the Letter of Credit will be $1,874.99 with such
charges accruing at the rate of $13.02 per diem (such accrued charges through
the Effective Date shall be called the "Accrued L/C Fees"). Each of the Obligors
hereby authorizes the Bank to debit any of such Obligor's accounts maintained at
the Bank for the Accrued Interest and Accrued L/C Fees through the Effective
Date.
5. Release of the Bank. Each of the Obligors forever releases and
discharges the Bank, its agents, servants, employees, directors, officers,
attorneys, branches, affiliates, subsidiaries, successors and assigns and all
persons, firms, corporations, and organizations acting on the Bank's behalf
(collectively referred to as the "Bank Entities") of and from any and all
losses, damages, claims, demands, liabilities, obligations, actions and causes
of action, of any nature whatsoever in law or in equity, including, without
limitation, any claims or joinders for sole liability, contribution or indemnity
(collectively, the "Obligor Claims"), which the Obligors, or one or more of
them, may have or claim to have against the Bank or any of the Bank Entities, as
of the Effective Date of this Agreement, whether presently known or unknown, and
of every nature and extent whatsoever, on account of or in any way touching,
concerning, arising out of, founded upon or relating to (i) the Loan Documents,
(ii) the Loans, (iii) this Agreement, (iv) enforcement or negotiation of any of
the foregoing Loan Documents or Loans, and (v) the dealings of the parties to
this Agreement with respect to the obligations of the Obligors to the Bank under
the Loan Documents or one or more of them (collectively, the "Obligations").
6. Effectuation of Bank Release. Obligors agree to execute all appropriate
and necessary documents to enable the Bank or any of the Bank Entities to plead
the effect of the release contained in Section 5 of this Agreement in any
lawsuit. Obligors also understand and agree that the covenants and consideration
referred to in this Agreement are in settlement of certain of the Obligations
owed by the Obligors to the Bank.
7. Partial and Limited Release of Obligors. Upon the Effective Date and
conditioned upon the indefeasible delivery of the items set forth in Section 2
of this Agreement, Bank forever releases and discharges the Obligors their
agents, servants, employees, directors, officers, attorneys, branches,
affiliates, subsidiaries, successors and assigns and all persons, firms,
corporations, and organizations acting on any one or more of the Obligors'
behalf (collectively referred to as the "Obligor Entities") of and from any and
all losses, damages, claims, demands, liabilities, obligations, actions and
causes of action, of any nature whatsoever in law or in equity (collectively,
the "Bank Claims"), which Bank may have or claim to have against the Obligors,
or one or more of them, or any of the Obligor Entities, as of the Effective
Date, whether presently known or unknown, and of every nature and extent
whatsoever, on account of or in any way touching, concerning, arising out of,
founded upon or relating to (i) the Loan Documents, (ii) the Loans, (iii)
enforcement or negotiation of any of the foregoing Loan Documents or Loans or
negotiation of this Agreement, (iv) the remaining $4,600,000 in principal
obligations of the Borrower under the Notes, and (v) the dealings of the parties
to this Agreement with respect to the Obligations; provided, however, that this
Agreement shall not and shall not be deemed to release or discharge (a) any
other obligations of the Obligors, including, without limitation, the Accrued
Interest and the Accrued L/C Fees to the Bank, or (b) obligations of the
Obligors to the Bank arising under the Surviving Documents and the Reimbursement
Agreement.
8. Effectuation of Obligor Release. The Bank agrees to execute all
appropriate and necessary documents to enable the Obligors or any of the Obligor
Entities to plead the effect of the release contained in Section 7 of this
Agreement in any lawsuit.
9. Binding Release. The releases contained in Sections 5 and 6 of this
Agreement shall be binding upon the Bank and each of the Obligors and shall
inure to the benefit of the Bank and the Bank Entities, the Obligors and the
Obligor Entities, and any of their respective successors and assigns.
10. Representations and Warranties of All Parties. Each party represents
and warrants to the other that: (a) it is duly incorporated, validly existing
and in good standing under the laws of its state of incorporation, and it is
duly qualified to do business as a foreign corporation and in good standing in
all jurisdictions in which the failure to do so would have a material adverse
effect on such party; (b) it has corporate power, and each has authority to
execute, deliver and perform the provisions of this Agreement and all such
action has been duly and validly authorized by all necessary corporate
proceedings on its part; (c) this Agreement has been duly and validly executed
by it and constitutes a legal, valid and binding obligation of it, enforceable
in accordance with the terms of this Agreement, and; (d) neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated in this Agreement nor the performance of or compliance with the
terms and conditions of this Agreement will violate any law or court order.
11. Certificate of Deposit. The Bank shall cause the Certificate of Deposit
to be delivered to Vendor Capital Group, and upon receipt of the Letter of
Credit shall cancel the Letter of Credit. The Bank's counsel is authorized to
deliver the Certificate of Deposit to Vendor Capital Group.
12. Severability. The provisions of this Agreement are intended to be
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
of such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
13. Limited and Cumulative Nature of Releases. Nothing contained in this
Agreement shall impair or be construed to impair the security of the Bank or any
of the Bank Entities under the Loan Documents or the Surviving Documents, nor
affect nor impair any rights or powers that the Bank or any of the Bank Entities
may have under the Loan Documents or the Surviving Documents for the recovery of
the indebtedness of the Borrower and the other Obligors to the Bank if and only
to the extent that a breach of the terms, provisions and releases contained in
this Agreement by any of the Obligors or a breach or nonfulfillment of the
terms, agreements and covenants set forth in the Surviving Documents by any of
the Obligors occurs. All rights, powers and remedies of the Bank or any of the
Bank Entities under any other agreement or release now or at any time in the
future in force between the Bank and any one or more of the Obligors with
respect to the Surviving Obligations shall be cumulative and not alternative and
shall be in addition to all rights, powers and remedies given to the Bank or any
of the Bank Entities by law.
14. Effect of Recovery of Payments Made to Bank. If any settlement,
discharge, payment, fees, grant of security or transfer of property relating to
discharging any duty or liability to the Bank created under this Agreement, the
Loan Documents or the Surviving Documents is rescinded or avoided by virtue of
any provision of any bankruptcy, insolvency, or other similar law affecting
creditors' rights, the Bank will be entitled to recover the value or amount of
any such settlement, discharge, payment, fees, grant of security or transfer of
property from the Obligors under their respective Loan Documents or this
Agreement, as if such settlement, discharge, payment, grant of security or
transfer of property had not occurred, and as if the release contained in this
Agreement had not been executed by the Bank, but only to the extent permitted by
applicable law.
15. Effective Date. The releases contained in Sections 5 and 6 of this
Agreement shall be effective upon the later to occur of (a) January 15, 1997 or
(b) the date that the Obligors have delivered all of the Borrower Deliveries
listed in Section 2 of this Agreement (such latter date, as evidenced by a
receipt, the "Effective Date").
16. Execution of Release. EACH OF THE PARTIES REPRESENTS AND WARRANTS TO
THE OTHER THAT IT HAS BEEN REPRESENTED BY COUNSEL OF ITS CHOICE IN THE
NEGOTIATION AND EXECUTION OF THIS AGREEMENT, IT HAS CAREFULLY READ THE FOREGOING
TERMS AND CONDITIONS OF THIS AGREEMENT, THAT IT KNOWS AND UNDERSTANDS THE
CONTENTS AND EFFECT OF THIS AGREEMENT, THAT THE LEGAL EFFECT OF THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION, THE RELEASES AND WAIVER OF JURY TRIAL PROVISIONS
CONTAINED IN THIS AGREEMENT, HAS BEEN FULLY EXPLAINED TO ITS SATISFACTION BY ITS
COUNSEL, AND EXECUTION OF THIS AGREEMENT IS A VOLUNTARY ACT.
17. Costs of Enforcement. If any legal action or other proceeding is
brought for the enforcement of this Settlement Agreement or any of the documents
signed by either party at the closing, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provisions of any of the
foregoing, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees, court costs and all expenses incurred in
that action or proceeding, in addition to any other relief to which such party
may be entitled.
18. CHOICE OF VENUE AND WAIVER OF JURY TRIAL. THE PARTIES AGREE THAT ALL
DISPUTES OF EVERY KIND AND NATURE ARISING UNDER OR IN CONNECTION WITH THIS
SETTLEMENT AGREEMENT SHALL BE RESOLVED EXCLUSIVELY IN THE COURT OF COMMON PLEAS
OF ALLEGHENY COUNTY, PENNSYLVANIA, OR IN THE FEDERAL DISTRICT COURT FOR THE
WESTERN DISTRICT OF PENNSYLVANIA. THE PARTIES EACH WAIVE THEIR RIGHTS TO A JURY
TRIAL WITH RESPECT TO ANY SUCH DISPUTE AND CONSENT TO THOSE COURTS EXERCISING
SUBJECT MATTER AND PERSONAL JURISDICTION WITH RESPECT TO ANY SUCH DISPUTE.
19. Interpretation. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, the singular includes
the plural, the part includes the whole, "including" is not limiting, and "or"
has the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
20. Merger. This Agreement is intended by the parties as a final expression
of their agreement and is intended as a complete statement of the terms and
conditions of their agreement.
21. No Waiver. No failure or delay on the part of any party in exercising
any right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof or of any other right, remedy, power or privilege of the such
party under this Agreement; nor shall any single or partial exercise of any such
right, remedy, power or privilege preclude any other right, remedy, power or
privilege or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges of the
parties under this Agreement are cumulative and not exclusive of any rights or
remedies which it may otherwise have.
22. Headings. The headings of the sections in this Agreement are for
purposes of reference only, and shall not limit or affect its meaning.
23. No Partnership or Joint Venture. It is understood by the parties that
this Agreement shall not in any way be construed as an agreement of partnership,
general or limited, or of creating a joint venture between the Bank and any of
the Obligors or any one or more of them, or of creating any relationship other
than that of debtor and creditor.
24. Further Assurances. The parties, at Borrower's cost and expense, will
cause to be promptly and duly taken, executed, acknowledged and delivered all
such further acts, documents and assurances as the Obligors or the Bank, or
their respective counsel, may reasonably request from time to time, in order
more effectively to carry out the intent and purposes of this Agreement and the
transactions contemplated by this Agreement, including without limitation,
executing such UCC-3 termination statements or other instruments necessary to
reflect the Bank's release of its security interests and liens on the assets of
the Obligors in effect as of the Effective Date.
25. Counterparts. This Settlement Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same Settlement Agreement.
26. Joint Preparation. The preparation of this Settlement Agreement has
been a joint effort of the parties and the resulting document shall not, solely
as a matter of judicial construction, be construed more severely against one of
the parties than the other.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed and delivered this Settlement Agreement as of the day and
year first above written.
ATTEST: SPICE ENTERTAINMENT COMPANIES,
INC., SUCCESSOR BY NAME CHANGE
TO GRAFF PAY-PER-VIEW INC., SPICE
NETWORKS, INC., SUCCESSOR BY
NAME CHANGE TO SPICE, INC.,
CABLE VIDEO STORE PARTNERS, INC.,
SPICE DIRECT, INC., SUCCESSOR BY
NAME CHANGE TO GRAFF MARKETING
CORPORATION, SPICE INTERNATIONAL,
INC., SUCCESSOR BY NAME CHANGE TO
PAY-PER-VIEW INTERNATIONAL, INC.,
GUEST CINEMA, INC., CPV PRODUCTIONS,
INC., SPICE PRODUCTIONS, INC., SUCCESSOR
BY NAME CHANGE TO MEDIA LICENSING,
INC., CYBERSPICE, INC., MAGIC HOUR
PICTURES, INC., AMERICAN GAMING
NETWORKS, INC., AMERICAN INTERACTIVE
GAMES, INC. AND THE HOME VIDEO
CHANNEL LIMITED
By: /s/ Daniel J. Barsky By: /s/ J. Roger Faherty
------------------------- -------------------------------
Daniel J. Barsky J. Roger Faherty
Secretary Chairman and Chief Executive Officer
An Authorized Officer of
each of the foregoing entities
PNC BANK, N.A., SUCCESSOR
IN INTEREST TO MIDLANTIC
BANK, N.A.
By: /s/ Thomas J. McCool
--------------------------
Thomas J. McCool
Sr. Vice President
600,000 SHARES
Except as permitted by Section 10 hereof, no transfer shall be
made at any time unless the Company shall have been supplied
with evidence reasonably satisfactory to it that such transfer
is not in violation of the Securities Act of 1933, as amended
(the "Act").
SPICE ENTERTAINMENT COMPANIES, INC.
PNC BANK, N.A. WARRANT
WARRANT TO PURCHASE
600,000 SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated: January 15, 1997
(Replaces the Warrants issued December 9, 1994 and April 15, 1996)
This certifies that, for value received
NAME: PNC Bank, N.A., as sucessor in interest
to Midlantic Bank, N.A.
ADDRESS: c/o PNC Bank, N.A.
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
or registered assigns (the "Holder") are entitled, subject to the terms set
forth herein, to purchase from SPICE ENTERTAINMENT COMPANIES, INC.(the
"Company"), a Delaware corporation, having its offices at 536 Broadway, New
York, New York 10012, Six Hundred Thousand (600,000) shares of the Company's
common stock subject to adjustment as set forth herein.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to
the Company's common stock including Underlying Securities, as more fully set
forth in Section 5 hereof.
(b) "Warrant Price" shall be $2.0625, the median between the
close bid and the ask price of the Company's common stock as reported on the
Nasdaq SmallCap market on the issue date hereof.
(c) "Underlying Securities" or "Underlying Shares" or
"Underlying Stock" shall refer to the Common Shares or other securities or
property issuable or issued upon exercise of this Warrant.
2. (a) The purchase rights represented by this Warrant may be exercised
by the Holder hereof, in whole or in part (but not as to less than a whole
Common Share), at any time, and from time to time, during the period commencing
on the date hereof and continuing until December 8, 2004 (the "Expiration
Date"), by the presentation of this Warrant, with the purchase form attached
duly executed, at the Company's office (or such office or agency of the Company
as it may designate in writing to the Holder hereof by notice pursuant to
Section 14 hereof), specifying the number of Common Shares as to which the
Warrant is being exercised, and upon payment by the Holder to the Company in
cash or by certified check or bank draft, in an amount equal to the Warrant
Price times the number of Common Shares then being purchased hereunder.
(b) The Company agrees that the Holder hereof shall be deemed
the record owner of such Underlying Securities as of the close of business on
the date on which this Warrant shall have been presented and payment made for
such Underlying Securities as aforesaid. Certificates for the Underlying
Securities so obtained shall be delivered to the Holder hereof within a
reasonable time, not exceeding seven (7) days, after the rights represented by
this Warrant shall have been so exercised. If this Warrant shall be exercised in
part only or transferred in part subject to the provisions herein, the Company
shall, upon surrender of this Warrant for cancellation or partial transfer,
deliver a new Warrant evidencing the rights of the Holder hereof to purchase the
balance of the Underlying Shares which such Holder is entitled to purchase
hereunder. Exercise in full of the rights represented by this Warrant shall not
extinguish the rights granted under Section 9 hereof.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of Common Shares as are purchasable
hereunder; and (ii) this Warrant may be divided or combined with other Warrants
which carry the same rights, in either case, upon presentation hereof at the
aforesaid office of the Company together with a written notice, signed by the
Holder hereof, specifying the names and denominations in which new Warrants are
to be issued, and the payment of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of this Section 4, the
Warrant Price and number of Common Shares subject to this Warrant shall be
subject to adjustment from time to time as set forth hereinafter in this Section
4.
(a) If the Company shall at any time subdivide its outstanding
Common Shares by recapitalization, reclassification, stock dividend, or split-up
thereof or other means, the number of Common Shares subject to this Warrant
immediately prior to such subdivision shall be proportionately increased and the
Warrant Price shall be proportionately decreased, and if the Company shall at
any time combine the outstanding Common Shares by recapitalization,
reclassification or combination thereof or other means, the number of Common
Shares subject to this Warrant immediately prior to such combination shall be
proportionately decreased and the Warrant Price shall be proportionately
increased. Any such adjustment and adjustment to the Warrant Price shall become
effective at the close of business on the record date for such subdivision or
combination.
(b) If the Company after the date hereof shall distribute to
all of the holders of its Common Shares any securities including, but not
limited to Common Shares, or other assets (other than a cash distribution made
as a dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdiction of incorporation of
the Company), the Board of Directors shall be required to make such equitable
adjustment in the Warrant Price and the type and/or number of Underlying
Securities in effect immediately prior to the record date of such distribution
as may be necessary to preserve to the Holder of this Warrant rights
substantially proportionate to and economically equivalent to those enjoyed
hereunder by such Holder immediately prior to the happening of such
distribution. Any such adjustment made reasonably and in good faith by the Board
of Directors shall be final and binding upon the Holders and shall become
effective as of the record date for such distribution.
(c) No adjustment in the number of Common Shares subject to
this Warrant or the Warrant Price shall be required under this Section 4 unless
such adjustment would require an increase or decrease in such number of shares
of at least 1% of the then adjusted number of Common Shares issuable upon
exercise of the Warrant, provided, however, that any adjustments which by reason
of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment. If the Company shall make a record of the Holders of its
Common Shares for the purpose of entitling them to receive any dividend or
distribution and legally abandon its plan to pay or deliver such dividend or
distribution then no adjustment in the number of Common Shares subject to the
Warrant shall be required by reason of the making of such record.
(d) In case of any capital reorganization or reclassification
or change of the outstanding Common Shares (exclusive of a change covered by
Section 4(a) hereof or which solely affects the par value of such Common Shares)
or in the case of any merger or consolidation of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
change, capital reorganization or change in the ownership of the outstanding
Common Shares), or in the case of any sale or conveyance or transfer of all or
substantially all of the property of the Company and in connection with which
the Company is dissolved, the Holder of this Warrant shall have the right
thereafter (until the expiration of the right of exercise of this Warrant) to
receive upon the exercise hereof, for the same aggregate Warrant Price payable
hereunder immediately prior to such event, the kind and amount of shares of
stock or other securities or property receivable upon such reclassification,
change, capital reorganization, merger or consolidation, or upon the dissolution
following any sale or other transfer, by a holder of the number of Common Shares
of the Company equal to the number of common shares obtainable upon exercise of
this Warrant immediately prior to such event; and if any reorganization,
reclassification, change, merger, consolidation, sale or transfer also results
in a change in Common Shares covered by Section 4(a), then such adjustment shall
be made pursuant to both this Section 4(d) and Section 4(a). The provisions of
this Section 4(d) shall similarly apply to successive reclassification, or
capital reorganizations, mergers or consolidations, changes, sales or other
transfers.
(e) The Company shall not be required to issue fractional
Common Shares upon any exercise of this Warrant. As to any final fraction of a
Common Share which the Holder of this Warrant would otherwise be entitled to
purchase upon such exercise, the Company shall 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 such stock on the business day preceding the day of exercise
or book value as determined by the Company's independent public accountants if
not publicly traded. The Holder of this Warrant, by his acceptance hereof,
expressly waives any right to receive any fractional shares of stock upon
exercise of this Warrant.
(f) As used herein, the current market price ("Market Price")
per share at any date shall be the price of Common Shares on the business day
immediately preceding the event requiring an adjustment hereunder and shall be
(A) if the principal trading market for such securities is an exchange, the
closing price on such exchange on such day provided if trading of such Common
Shares is listed on any consolidated tape, the price shall be the closing price
set forth on such consolidated tape or (B) if the principal market for such
securities is the over-the-counter market, the high bid price on such date as
set forth by NASDAQ or closing price if listed on NASDAQ NMS or, if the security
is not quoted on NASDAQ, the high bid price as set forth in the NATIONAL
QUOTATION BUREAU sheet listing such securities for such day. Notwithstanding the
foregoing, if there is no reported closing price or high bid price, as the case
may be, on a date prior to the event requiring an adjustment hereunder, then the
current market price shall be determined as of the latest date prior to such day
for which such closing price or high bid price is available.
(g) Irrespective of any adjustments pursuant to this Section 4
in the Warrant Price or in the number, or kind, or class of shares or other
securities or other property obtainable upon exercise of this Warrant, and
without impairing any such adjustment the certificate representing this Warrant
may continue to express the Warrant Price and the number of Common Shares
obtainable upon exercise at the same price and number of Common Shares as are
stated herein.
(h) Until this Warrant is exercised, the Underlying Shares,
and the Warrant Price shall be determined exclusively pursuant to the provisions
hereof.
(i) Upon any adjustment of this Warrant the Company shall give
written notice thereof to the Holder which notice shall include the number of
Underlying Securities purchasable and the price per share upon exercise of this
Warrant and shall set forth in reasonable detail the events which resulted in
such adjustment
5. For the purposes of this Warrant, the terms "Common Shares" or
"Common Stock" shall mean (i) the class of stock designated as the common stock
of the Company on the date set forth on the first page hereof or (ii) any other
class of stock resulting from successive changes or reclassification of such
Common Stock consisting solely of changes from par value to no par value, or
from no par value to par value or changes in par value. If at any time, as a
result of an adjustment made pursuant to Section 4, the securities or other
property obtainable upon exercise of this Warrant shall include shares or other
securities of another corporation or other property, then thereafter, the number
of such other shares or other securities or property so obtainable shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Shares
contained in Section 4, and all other provisions of this Warrant with respect to
Common Shares shall apply on like terms to any such other shares or other
securities or property. Subject to the foregoing, and unless the context
requires otherwise, all references herein to Common Shares shall, in the event
of an adjustment pursuant to Section 4, be deemed to refer also to any other
shares or other securities or property when obtainable as a result of such
adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by
this Warrant may be exercised, the Company shall, at all times, reserve and keep
available out of its authorized capital stock, solely for the purposes of
issuance upon exercise of this Warrant, such number of its Common Shares as
shall be issuable upon the exercise of this Warrant and at its expense will
obtain the listing thereof on all quotation systems or national securities
exchanges on which the Common Shares are then listed; and if at any time the
number of authorized Common Shares shall not be sufficient to effect the
exercise of this Warrant, the Company will take such corporate action as may be
necessary to increase its authorized but unissued Common Shares to such number
of shares as shall be sufficient for such purpose; the Company shall have
analogous obligations with respect to any other securities or property issuable
upon exercise of this Warrant;
(b) All Common Shares which may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof; and
(c) All original issue taxes payable in respect of the
issuance of Common Shares upon the exercise of the rights represented by this
Warrant shall be borne by the Company, but in no event shall the Company be
responsible or liable for income taxes or transfer taxes upon the transfer of
any Warrants.
7. Until exercised, this Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a shareholder of the Company, except that
the Holder of this Warrant shall be deemed to be a shareholder of the Company
for the purpose of bringing suit on the ground that the issuance of shares of
stock of the Company is improper under the Delaware General Corporation Law.
8. No transfer of all or a portion of the Warrant or Underlying
Securities shall be made at any time unless the Company shall have been supplied
with evidence reasonably satisfactory to it that such transfer is not in
violation of the Securities Act of 1933, as amended (the "Act"). Subject to the
satisfaction of the aforesaid condition and upon surrender of this Warrant or
certificates for any Underlying Securities at the office of the Company, the
Company shall deliver a new Warrant or Warrants or new certificate or
certificates for Underlying Securities to and in the name of the assignee or
assignees named therein. Any such certificate may bear a legend reflecting the
restrictions on transfer set forth herein.
9. The Holder shall have the right to have the Company file such
registration statements under the Securities Act of 1933, as amended, with
respect to this Warrant and the Underlying Securities as are set forth in the
Registration Rights Agreement dated January 15, 1997 between the Company and
initial Holder (the "Registration Rights Agreement"), which provisions of the
Registration Rights Agreement are incorporated herein by reference.
10. INTENTIONALLY OMITTED.
11. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such terms as to indemnity or otherwise as the Company may
reasonably impose, issue a new Warrant of like denomination, tenor and date. Any
such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
12. Any Warrant issued pursuant to the provisions of Section 11 hereof,
or upon transfer, exchange, division or partial exercise of this Warrant or
combination thereof with another Warrant or Warrants, shall set forth each
provision set forth in Sections 1 through 17, inclusive, of this Warrant as each
such provision is set forth herein, and shall be duly executed on behalf of the
Company by its chief executive officer.
13. Upon surrender of this Warrant for transfer or exchange or upon the
exercise hereof, this Warrant shall be canceled by the Company, and shall not be
reissued by the Company and, except as provided in Section 2 in case of a
partial exercise, Section 3 in case of an exchange or Section 8 in case of a
transfer, or Section 11 in case of mutilation. Any new Warrant certificate shall
be issued promptly but not later than seven (7) days after receipt of the old
Warrant certificate.
14. This Warrant shall inure to the benefit of and be binding upon the
Holder hereof, the Company and their respective successors, heirs, executors,
legal representatives and assigns.
15. All notices required hereunder shall be in writing and shall be
deemed given when telecopied, delivered personally or within two (2) days after
mailing when mailed by certified or registered mail, return receipt requested,
or sent by overnight courier service to the party to whom such notice is
intended, at the address of such other party as set forth on the first page
hereof, or at such other address of which the Company or Holder has been advised
by the notice hereunder.
16. The Company will not (i) merge or consolidate with or into any
other corporation or (ii) sell or otherwise transfer its property, assets and
business substantially as an entirety to another corporation, nor shall the
Company become a wholly-owned or majority-owned subsidiary of another
corporation unless the corporation resulting from such merger or consolidation
(if not the Company), or such transferee corporation, or parent corporation, as
the case may be, shall either (x) expressly assume, by supplemental agreement
satisfactory in form to the Holder, the due and punctual performance and
observance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and/or (y) exchange this warrant for a
warrant of such corporation containing substantially the same terms and
conditions as this Warrant.
17. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
18. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the Holder shall be
enforceable to the fullest extent permitted by law.
19. The validity, interpretation and performance of this Warrant and of
the terms and provisions hereof shall be governed by the laws of the State of
New York applicable to agreements entered into and performed entirely in such
state.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of January 15, 1997.
SPICE ENTERTAINMENT COMPANIES, INC.
By: /s/ J. Roger Faherty
-------------------------------
J.Roger Faherty, Chief
Executive Officer
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the right to purchase Common Shares evidenced by
the within Warrant, according to the terms and conditions thereof, and chase
price in full.
The undersigned requests that certificates for such shares and
warrants shall be issued in the name set forth below.
Dated: ________________, 19__
__________________________________
Signature
__________________________________
Print Name of Signatory
__________________________________(1)
Name to whom certificates
are to be issued if
different from above
__________________________________
Address
__________________________________
__________________________________
Social Security No. or
other identifying number
If said number of shares and warrants shall not be all the
shares purchasable under the within Warrant, the undersigned requests that a new
Warrant for the unexercised portion shall be registered in the name of:
__________________________________(1)
(Please Print)
__________________________________
Address
__________________________________
Social Security No. or
other identifying number
__________________________________
Signature
__________________________________
Print Name of Signatory
(1) If certificates for shares or unexercised portion of Warrant are in
name other than holder, Form of Assignment on reverse must be completed.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby sells, assigns and transfers to
(Social Security or I.D. No. )the within Warrant, or that portion of this
Warrant purchasable for _______ common shares together with all rights, title
and interest therein, and does hereby irrevocably constitute and appoint
attorney to transfer such Warrant on the register of the within named Company,
with full power of substitution.
__________________________________
(Signature)
Dated: _________________, 19__
Signature Guaranteed:
______________________________
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 15, 1997, by and
between SPICE ENTERTAINMENT COMPANIES, INC. a Delaware corporation (the
"Company") and PNC BANK, N.A., a national banking association, as successor in
interest to MIDLANTIC BANK, N.A., ("Warrantholder").
R E C I T A L:
This Agreement is made concurrently with the delivery of and as
contemplated by that certain Warrant to Purchase Shares of Common Stock dated as
of the date hereof (the "Warrant') issued by the Company to the Warrantholder.
The Company has agreed to provide the registration rights set forth in this
Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "Agreement" shall mean this Registration Rights Agreement,
including all amendments, modifications, supplements, exhibits and schedules
hereto, as the same may be in effect at the time such reference becomes
operative, which replaces that Registration Rights Agreement dated as of
December 9, 1994 by and between the Company and the Warrantholder.
1.2 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the federal securities laws.
1.3 "Demand Registration Request" shall have the meaning assigned
to it in subparagraph 2(a) hereof.
1.4 "Exchange Act" shall mean the federal Securities Exchange Act of
1934, as amended from time to time and the rules, regulations, decisions and
interpretations promulgated thereunder.
1.5 "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, bank, institution, government entity or government or any group
comprised of one or more of the foregoing.
1.6 "Prospectus" shall mean any preliminary prospectus and any final
prospectus (as such may be amended or supplemented) which constitutes Part I of
the Registration Statement filed with the Commission.
1.7 "Registration Statement" shall mean the form and documents required
to be filed by an issuer in connection with the registration and sale of
securities of such issuer under the Securities Act.
1.8 "Securities Act" shall mean the federal Securities Act of 1933, as
amended from time to time and the rules, regulations, decisions and
interpretations promulgated thereunder.
1.9 "Seller" shall mean each holder of Shares for whom Shares are
included or proposed to be included in a Registration Statement filed or
proposed to be filed by the Company.
1.10 "Shares" shall mean the voting common stock of the Company and
such other securities or rights in the Company or its successor as may be held
by a Warrantholder upon exercise of the Warrant.
1.11 "Warrantholder" shall mean the Person identified as the
Warrantholder in the first paragraph of this Agreement and any successor in
interest or assign of such Warrantholder's interest in any or all of the
Warrantholder Securities.
1.12 "Warrantholder Securities" means the Warrant or Shares held
by a Warrantholder.
2. DEMAND REGISTRATION
(a) Demand Registration Request. Prior to December 31, 2004,
the Warrantholder may deliver to the Company a notice to the effect that the
Warrantholder desires to have all, but not less than all, of the Shares issuable
upon exercise of the Warrant registered under the Securities Act (a "Demand
Registration Request"). Warrantholder shall only have the right to demand two
registrations hereunder.
(b) Registration. Upon receipt of a Demand Registration
Request, the Company shall thereupon, as expeditiously as is reasonable, effect
the registration under the Securities Act of the Shares which the Company has
been requested to register pursuant to the Demand Registration Request for
transfer by the Warrantholder to the extent required to permit the transfer by
the Warrantholder of the Shares sought to be registered. Notwithstanding the
foregoing, (i) the right of the Warrantholder to require registration under this
Paragraph 2 shall not be exercisable during the period commencing thirty (30)
days prior to the filing of, and ending six (6) months after the effectiveness
of, a previous Registration Statement issued in respect of an offering of
securities for cash for the account of the Company shall have become effective
and (ii) unless the Warrantholder shall notify the Company that the Shares to be
sold can only be sold in a manner not permitted by Rule 144, the Company shall
not be required to register any Shares on behalf of the Warrantholder to the
extent such Shares may then be sold without restrictive legend in compliance
with all of the terms of Rule 144 under the Securities Act and the Company takes
such steps (including the payment of fees to its legal counsel for the issuance
of all necessary opinions and the delivery of all necessary documentation) as
are necessary or appropriate to permit the transfer of such Shares under such
Rule. Notwithstanding anything to the contrary contained in this subparagraph
2(b), the Company shall be entitled, at its election, to join in any
registration under this paragraph 2 with respect to securities to be offered by
it; provided, however, that a registration shall not be deemed to have been made
pursuant to this Paragraph 2 if 51% or more of the stock included in such
registration is registered for the account of the Company or for the account of
others (other than the Warrantholder) at the Company's request.
(c) The Company shall select the lead underwriter for the
public offering, with the approval of the Warrantholder, such approval not to be
unreasonably withheld or delayed.
3. INCIDENTAL REGISTRATION
(a) Whenever the Company proposes to file a Registration
Statement (other than by a registration on Form S-4 or Form S-8 or pursuant to
Paragraph 2) at any time and from time to time, it will, prior to such filing,
give written notice to the Warrantholder, of its intention to do so and, upon
the written request of the Warrantholder given within 20 business days after the
Company provides such notice, the Company shall use its best efforts to cause
all Shares which the Company has been requested by the Warrantholder to register
to be registered under the Act. Notwithstanding the foregoing, the Company will
have no obligation to include the Shares in a Registration Statement at any time
when the Shares are transferable under a an effective Registration Statement
filed by the Company which includes the Shares.
(b) In connection with any offering under this Paragraph 3
involving an underwriting, the Company shall not be required to include any
Shares in such underwriting unless the Warrantholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If in the
opinion of the managing underwriter the registration of all, or part of, the
Shares which the Warrantholder has requested to be included would adversely
affect such public offering, then the Company shall be required to include in
the underwriting only that number of Shares, if any, which the managing
underwriter believes may be sold without causing such adverse effect. If the
number of Shares to be included in the underwriting in accordance with the
foregoing is less than the total number of shares which the Warrantholder has
requested to be included, then the Company may include all securities proposed
to be registered by the Company to be sold for its own account and the holders
of Shares who have requested registration shall participate in the underwriting
pro rata based upon their total ownership of shares of Common Stock of the
Company.
(c) All holders of Shares proposing to distribute their
securities in an offering under this Paragraph 3 involving an underwriting shall
(together with the Company and other shareholders of securities distributing
their shares through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for the
underwriting.
4. GENERAL
If and whenever the Company is required by the provisions of this
Agreement to effect the registration of any of the Shares under the Securities
Act, the Company shall, as expeditiously as reasonably possible:
(a) Filing of Registration Statement. Prepare and file with
the Commission a Registration Statement with respect to the Shares and use its
best efforts to cause such Registration Statement to become and remain effective
and prepare and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for the shorter of (i)
270 days or (ii) the completion of the distribution, and to comply with the
provisions of the Securities Act with respect to the disposition of all the
Shares covered by such Registration Statement in accordance with the intended
method of disposition of the Shares as set forth in such Registration Statement
for such period;
(b) Copies of Prospectus. Furnish to the Warrantholder such
number of copies of the Prospectus contained in such Registration Statement
(including each preliminary prospectus) in conformity with the requirements of
the Securities Act, and such other documents as the Warrantholder may reasonably
request in order to facilitate the disposition of the Shares;
(c) Blue Sky Registration. (i) Register or qualify the Shares
covered by such Registration Statement under the securities or blue sky laws as
the Warrantholder may reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable the
Warrantholder to consummate the disposition in such jurisdiction of the Shares
held by the Warrantholder during the period provided in subparagraph 4(a) above
at the Company's sole expense; provided, however, that the Company will not for
any such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not, but for the requirements
of this paragraph, be obligated to be qualified, to subject itself to taxation
in any such jurisdiction, or to execute a general consent to service of process
in any such jurisdiction; and
(d) Information Provided to Warrantholder. Notify the
Warrantholder of the happening of any event as a result of which the Prospectus
contained in such Registration Statement, as then in effect, includes any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and prepare and furnish to the
Warrantholder a reasonable number of copies of any supplement to or amendment of
such Prospectus that may be necessary so that, as thereafter delivered to the
purchasers of the Shares, such Prospectus shall not include any untrue
statements 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 in the
light of the circumstances then existing (provided that in no event shall the
Company be required to amend, though it shall be required to supplement, any
prospectus if the Warrantholder shall have sold 80% of the Shares offered
thereby by him or it, as the case may be, at the time of such event); and
(e) Opinion of Counsel. Furnish to the Warrantholder an
opinion of Company counsel satisfactory to the Warrantholder to the effect that
a registration statement under the Securities Act, as then in effect with
respect to the Shares and that the Prospectus included therein complies as to
form in all material respects, except as to financial statements, including
schedules, and other accounting and financial data, as to which counsel need
express no opinion, with the requirements of the Securities Act.
(f) Comfort Letter. Obtain a comfort letter from the Company's
independent public accountants who have certified the Company's financial
statements included in such Registration Statement in customary form and
covering such matters of the type customarily covered by comfort letters.
5. FURTHER TERMS AND CONDITIONS
The obligations of the Company and the rights of the Warrantholder
under this Agreement shall be subject to the following additional terms,
conditions and limitations:
(a) Information Provided by Sellers. The Warrantholder shall
be required to furnish to the Company and to its counsel in writing all relevant
information concerning the proposed method of sale or other distribution by the
Warrantholder of the Shares to be sold by the Warrantholder, and such other
information as the Company and its counsel reasonably may require to prepare and
file a Registration Statement in accordance with the applicable provisions of
the Securities Act and the rules and regulations promulgated by the Commission
thereunder.
(b) Suspension of Sales by Sellers. If, at any time when the
Company is required to maintain a Registration Statement effective and current
with respect to the Shares held by the Warrantholder included within the
coverage thereof, any event or events shall occur which would cause the
Prospectus contained therein, as then amended or supplemented, to be other than
in compliance with the requirements of Section 10 of the Securities Act, the
Company promptly will give notice thereof to the Warrantholder and, upon receipt
of such notice, the Warrantholder immediately shall cease and desist from
effecting any sales of the Shares until the Warrantholder shall have received
notice from the Company that such sales again may be effected together with
copies of a Prospectus which has been amended or supplemented so as to conform
to the requirements of said Section 10. Upon the occurrence of any such event,
the Company promptly shall use its best efforts to prepare and file with the
Commission a post-effective amendment to the Registration Statement, or a
post-effective amendment or supplement to the Prospectus, so that the
Prospectus, as so amended or supplemented, will comply with the requirements of
Section 10 of the Act. The time periods during which the Registration Statement
shall remain effective pursuant to the provisions of subparagraph 4(a) of this
Agreement shall be extended by a period of time equal to the period of time
during which the Warrantholder shall have ceased and desisted from selling
Shares in accordance with the terms of this subparagraph.
6. EXPENSES
If and whenever the Company includes the Shares in any offering or
files a Registration Statement on behalf of one or more Sellers, the Company
shall pay all expenses arising out of or related to the preparation, filing,
distribution, printing, amendment and supplementing of a Registration Statement
including, without limitation, all legal and accounting fees, the fees of other
experts. The Warrantholder shall pay its own expenses for its attorneys' and its
other fees and expenses, underwriting discounts, selling commissions and stock
transfer taxes incurred in connection with the sale of its Shares pursuant to a
Registration Statement.
7. INDEMNIFICATION
In the event of the registration of any Shares under the Securities Act
pursuant to this Agreement, the Company agrees to indemnify and hold harmless
the Warrantholder, each underwriter, if any, of the Shares, and each Person who
controls such underwriter or Warrantholder from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnitee may
become subject under the Securities Act or the common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement under which the
Shares were registered under the Securities Act, or any Prospectus or
preliminary prospectus contained therein, or any amendment or supplement
thereto, or arise out or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
statements therein not misleading; and will reimburse each such indemnitee for
any legal or any other expenses reasonably incurred by such indemnitee in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises solely out or is based solely upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
such Prospectus or preliminary prospectus or such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by the Warrantholder, underwriter or controlling Person specifically for
use in preparation thereof; and provided further, however, that this
indemnification with respect to any preliminary prospectus shall not inure to
the benefit of any such underwriter (or any person who so controls such
underwriter) for any such loss, claim, damage, liability or action asserted by a
Person who purchased any Shares from such underwriter if a copy of the final
Prospectus was not delivered or given to such Person by such underwriter at or
prior to the written confirmation of the sale to such Person.
In the event of the registration of any Shares under the Securities Act
pursuant to this Agreement, the Warrantholder agrees to indemnify and hold
harmless and to use its best efforts to cause each underwriter, if any, of such
Shares and each Person who controls the Warrantholder or any such underwriter to
indemnify and hold harmless the Company, each Person who controls the Company,
each of its officers who signs the Registration Statement, and each director and
officer of the Company from and against any and all losses, claims, damages,
liabilities, joint or several, to which such indemnitee may become subject under
the Securities Act or the common law or otherwise insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise solely out
of or are based solely upon any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement under which such
Shares were registered under the Securities Act, any Prospectus or preliminary
prospectus contained therein, or amendment or supplement thereto, or arise
solely out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, which untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with, written information furnished to the Company by the
Warrantholder specifically for use in connection with the preparation thereof;
and will reimburse each such indemnitee for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action. Notwithstanding any provision to the
contrary contained herein, the obligation of the Warrantholder hereunder shall
be limited to an amount equal to the proceeds to the Warrantholder of Shares
sold as contemplated herein.
Promptly after receipt by an indemnitee of notice of the commencement
of any action, such indemnitee will, if a claim in respect thereof is to be made
against an indemnitor, give written notice to such indemnitor of the
commencement thereof, but the omission so to notify the indemnitor will not
relieve such indemnitor from any liability which it may have to any indemnitee
other than pursuant to the provisions of this Paragraph 7. In case any such
action is brought against any indemnitee, and such indemnitee notifies any
indemnitor of the commencement thereof, such indemnitor will be entitled to
participate in, and to the extent that it may wish, jointly with any other
indemnitor similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnitee and after notice from the indemnitor to such
indemnitee of its election so to assume the defense thereof, the indemnitor will
not be liable to such indemnitee for any legal or other expenses subsequently
incurred by such indemnitee in connection with the defense thereof, other than
the reasonable cost of investigation.
The Company and the Warrantholder agree that , and the Warrantholder
agrees to use its best efforts to cause each underwriter, if any, of the Shares
and each Person who controls the Warrantholder or any such underwriter to agree
that if the indemnification to be provided above is unavailable or insufficient
to hold harmless an indemnified party as provided above, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of the losses, claims, damages or liabilities referred to above in
such proportion as is appropriate to reflect the relative fault of the Company,
the Warrantholder and the underwriters, if any, in connection with the
statements or omission which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Warrantholder or the underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this paragraph shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
paragraph. Notwithstanding the provisions of this paragraph, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
8. TRANSFEREES
In the event that all or any part of the Warrantholder Securities held
by the Warrantholder shall at any time be transferred by the Warrantholder, in a
transfer permissible under applicable securities laws, other than pursuant to an
effective Registration Statement or Rule 144 promulgated under the Securities
Act, the registration rights hereunder shall extend to the transferee of such
securities. In the even there shall be more than on transferee, the rights under
Paragraph 2 of this Agreement may be exercised by holders of a majority of the
Warrantholder Securities and if the remaining holders do not join in the
exercise of such rights they shall be forfeited.
9. GOVERNING LAW
In all respects, including all matters of construction, validity and
performance, this Agreement and the obligations arising hereunder shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and performed in such state, and any applicable
laws of the United States of America.
10. NOTICES
Except as otherwise provided herein, whenever it is provided herein
that any notice, demand, request, consent, approval or other communication shall
or may be given to or served upon any party by any other, or whenever any party
desires to give or serve upon another party communication with respect to this
Agreement, each such notice, demand, request, consent, approval, or other
communication shall be in writing and either shall be delivered in person with
receipt acknowledged or registered or certified mail, return receipt requested,
postage prepaid, by overnight express mail or by telecopy addressed as follows:
(a) If to the Warrantholder, at the address of such
Warrantholder appearing on the books and records of the Company.
(b) If to the Company, at
Spice Entertainment Companies, Inc.
536 Broadway, 7th Floor
New York, NY 10012
Attention: Chief Executive Officer
Telephone: (212) 941-1434
Telecopier: (212) 226-6354
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date of delivery in the case of a
notice delivery personally with receipt acknowledged, sent by registered or
certified mail or sent by telecopy, or two (2) days after the same shall have
been deposited in the United States mail for overnight delivery or delivered to
a courier service for overnight delivery. Failure or delay in delivering copies
of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
11. MISCELLANEOUS
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, the Warrantholder and its or his respective
successors, assigns, heirs, executors and personal representatives.
(b) None of the terms or provisions for this Agreement may be
waived, altered, modified or amended except in writing duly signed for and on
behalf of the parties hereto.
(c) The paragraph headings contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
(d) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective
to the extend of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the day and year first above written.
SPICE ENTERTAINMENT
COMPANIES, INC.
By:/s/ J. Roger Faherty
------------------------------
J. Roger Faherty
Chairman and Chief Executive Officer
PNC BANK, N.A., as successor in interest
to MIDLANTIC BANK, N.A.
By: /s/ Thomas J. McCool
------------------------------
Thomas J. McCool
Sr. Vice President
LOAN AND SECURITY AGREEMENT
by and between
SPICE ENTERTAINMRNT COMPANIES, INC.
and
MADELEINE L.L.C.
Dated as of January 15, 1997
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as
of January 15, 1997, between MADELEINE L.L.C., a New York limited liability
company ("Lender"), with a place of business located at 950 Third Avenue, 20th
Floor, New York, New York 10022 and SPICE ENTERTAINMENT COMPANIES, INC., a
Delaware corporation ("Borrower"), with its chief executive office located at
536 Broadway, 7th Floor, New York, New York 10012.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Adjusted EBITDA" means the consolidated net income of Borrower and its
Subsidiaries (excluding extraordinary gains and non-cash extraordinary losses)
for the applicable period (a) plus all cash Interest Expense, income tax
expense, depreciation and amortization (including amortization of any goodwill
or other intangibles) for the applicable period, (b) plus losses and, less
gains, attributable to any fixed asset sales in the period, minus (c) the cash
Interest Expense and depreciation attributable to Borrower's existing AT&T and
Vendor Capital lease agreements.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who directly
or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote 5% or more of
the securities having ordinary voting power for the election of directors or the
direct or indirect power to direct the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"American Gaming" means American Gaming Network, Inc., a Delaware
corporation.
"American Interactive" means American Interactive Games, Inc., a Delaware
corporation.
"Annual Fee" has the meaning set forth in Section 2.10(a)(ii).
"Asset Disposition" means any sale, exchange, or other disposition,
directly or indirectly (including any loss, destruction, or condemnation), of
any of the properties or assets of Borrower or one or more of the Guarantors.
"Authorized Person" means any officer or other employee of Borrower.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss. 101
et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower's Books" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties or
assets (including the Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close.
"Certificate of Designation" means Borrower's Certificate of Designation of
Preferences and Rights of Convertible Preferred Stock Series 1997-A, such
Certificate of Designation to be in the form of Exhibit C-1.
"CFC" means a "controlled foreign corporation" as that term is defined in
Section 957 of the IRC.
"Change of Control" shall be deemed to have occurred at such time as (i) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934; exclusive, however, of
Lender and its Affiliates), directly or indirectly, of more than 30% of the
total voting power of all classes of Stock then outstanding of Borrower entitled
to vote in the election of directors.
"Closing Date" means the date of the first to occur of the making of the
initial Advance or the funding of the Term Loan.
"Closing Date Projections" has the meaning set forth in Section 3.1(l).
"Closing Fee" has the meaning set forth in Section 2.10(a)(i).
"Code" means the New York Uniform Commercial Code.
"Collateral" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(h) any money, or other assets of Borrower that now or hereafter come into
the possession, custody, or control of Lender, and
(i) the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, real property, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver from the lessors of
Borrower's premises located in New York, New York, and the greater Los Angeles,
California area, in each case, in form and substance satisfactory to Lender.
"Collateral Assignments of Transponder Agreement" means a collateral
assignment in form and substance reasonably satisfactory to Lender, between
Borrower and Lender respecting the hypothecation of such Obligor's rights under
the Transponder Agreement.
"Collections" means all cash, checks, notes, instruments, and other items
of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C-2 and delivered by the chief accounting officer of Borrower to Lender.
"Concentration Accounts" means (a) account number 009-470-425 of CPV
maintained with City National Bank, and (b) account number 8102693334 of
Borrower maintained with PNC Bank, N.A.
"Concentration Account Bank" means (a) City National Bank, whose office is
located in Los Angeles, California, and whose ABA number is 122016066, and
Existing Lender, whose office is located in Pittsburgh, Pennsylvania and whose
ABA number is 031207607, or (b) any other domestic commercial bank or banks that
are reasonably acceptable to Lender and is designated in writing from time to
time by Borrower to Lender upon 30 days or more prior written notice.
"Concentration Account Agreements" means those certain Concentration
Account Agreement, in form and substance satisfactory to Lender, each of which
are among Borrower, Lender, and one of the Concentration Accounts Banks.
"Consolidated Current Assets" means, as of any date of determination, the
aggregate amount of all current assets of Borrower that would, in accordance
with GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of all current liabilities of Borrower that would, in
accordance with GAAP, be classified on a balance sheet as current liabilities.
For purposes of this definition, all Obligations outstanding under this
Agreement shall be deemed to be current liabilities without regard to whether
they would be deemed to be so under GAAP.
"Copyright Security Agreements" means a Copyright Security Agreement
executed and delivered by CPV in form and substance satisfactory to Lender.
"CPV" means CPV Productions, Inc., a Delaware corporation.
"CVS" means Cable Video Store, Inc., a Delaware corporation.
"Cyberspice" means Cyberspice, Inc., a Delaware corporation.
"deems itself insecure" means that the Person deems itself insecure in
accordance with the provisions of Section 1-208 of the Code.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 8102693334 of Borrower maintained
with Borrower's Designated Account Bank, or such other deposit account of
Borrower (located within the United States) which has been designated, in
writing and from time to time, by Borrower to Lender.
"Designated Account Bank" means Existing Lender, whose office is located at
Pittsburgh, Pennsylvania, and whose ABA number is 031207607.
"Direct" means Spice Direct, Inc., a Delaware corporation.
"Disbursement Letter" means an instructional letter executed and delivered
by Borrower to Lender regarding the extensions of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Lender.
"Dollars or $" means United States dollars.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan
or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Benefit Plan during a plan year in which it was a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Excess Cash Flow" for any fiscal year means Adjusted EBITDA for that year
minus (or plus) any increases (or decreases) in working capital (i.e., current
assets minus current liabilities -- which shall exclude the Advances and cash)
minus the sum of the following items for that year: (i) cash Interest Expense,
(ii) income taxes paid in cash, (iii) permitted principal payments on or
mandatory redemptions of Indebtedness (other than repayments of Advances which
do not permanently reduce the Maximum Revolving Amount), and (iv) capital
expenditures of Borrower (inclusive, however, of capital expenditures on account
of the purchase of films or libraries of films up to, but not in excess of the
applicable amount set forth in the Closing Date Projections) paid in cash or
paid from the proceeds of Advances.
"Excluded Assets" means (a) the Stock of SEG, (b) the properties or assets
of Borrower's CFC's, and (c) the partnership or other interest of Borrower in
CVS Partners and certain related trade names and trademarks.
"Existing Lender" means PNC Bank, N.A., formerly Midlantic Bank, N.A.
"FEIN" means Federal Employer Identification Number.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of incorporation,
by-laws, or other organizational or governing documents of any Person.
"Guaranty" means that certain General Continuing Guaranty to be executed
and delivered by each of the Guarantors such guaranty to be in form and
substance satisfactory to Lender.
"Guarantor Collateral" means the properties and assets of the Guarantors
that are hypothecated by them in favor of Lender pursuant to the Loan Documents.
"Guarantor Security Agreement" means that certain Security Agreement to be
executed and delivered by each of the Guarantors, such security agreement to be
in form and substance satisfactory to Lender.
"Guarantors" means CPV, CVS, Direct, Guest Cinema, International, Magic
Hour, Networks, and Productions.
"Guest Cinema" means Guest Cinema, Inc., a Delaware corporation.
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Home Video" means Home Video Channel, Ltd., a company formed under the
laws of England.
"Inactive Subsidiary" means any one or more of American Interactive,
American Gaming, or Cyberspice.
"Indebtedness" means, with respect to any Person: (a) all obligations for
borrowed money, (b) all monetary obligations evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other monetary
obligations in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all monetary obligations under capital
leases, (d) all obligations of others secured by a Lien on any property or asset
of such Person, irrespective of whether such obligation is assumed, and (e) any
obligation guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to such Person) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person. The
foregoing to the contrary notwithstanding, the term "Indebtedness" shall not
include any liability of a Person for the deferred purchase price of services or
property incurred in the ordinary course of business.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Interest Expense" means the consolidated expense of Borrower and its
Subsidiaries for interest on Indebtedness, including amortization of original
issue discount, incurrence fees (to the extent included in interest expense),
the interest portion of any deferred payment obligation, and the interest
component of any capital lease obligation.
"International" means Spice International, Inc., a Delaware corporation.
"Inventory" means all present and future inventory in which Borrower has
any interest, including goods held for sale or lease or to be furnished under a
contract of service and all of Borrower's present and future raw materials, work
in process, finished goods, and packing and shipping materials, wherever
located.
"Investment Property" means "investment property" as that term is defined
in Section 9-115 of the Official Text of the Uniform Commercial Code.
"Investments" means (a) the acquisition of securities (whether debt or
equity) of, or other ownership interests in, a Person, (b) loans, advances,
capital contributions, or transfers of property to a Person, or (c) the
acquisition of all or substantially all of the properties or assets of a Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lender" has the meaning set forth in the preamble to this Agreement.
"Lender Account" has the meaning set forth in Section 2.6.
"Lender Expenses" means all costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower or the Guarantors under any
of the Loan Documents that are paid or incurred by Lender; reasonable fees or
charges paid or incurred by Lender in connection with Lender's transactions with
Borrower or the Guarantors, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record searches
(including tax lien, litigation, and UCC searches and including searches with
the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
Collateral or Guarantor Collateral appraisals), real estate surveys, real estate
title policies and endorsements, and environmental audits; costs and expenses
incurred by Lender in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Lender resulting from the dishonor of
checks; reasonable costs and expenses paid or incurred by Lender to correct any
default or enforce any provision of the Loan Documents, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral or the Guarantor Collateral, or any
portion thereof, irrespective of whether a sale is consummated; reasonable costs
and expenses paid or incurred by Lender in examining Borrower's Books or the
books and records of the Guarantors; costs and expenses of third party claims or
any other suit paid or incurred by Lender in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Lender's relationship with Borrower or the Guarantors; and Lender's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or any
Guarantor), defending, or concerning the Loan Documents, irrespective of whether
suit is brought.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting real property.
"Loan Account" has the meaning set forth in Section 2.9.
"Loan Documents" means this Agreement, the Disbursement Letter, the Pay-Off
Letter, the Concentration Account Agreements, the Guaranty, the Guarantor
Security Agreement, the Copyright Security Agreement, the Patent Security
Agreement, the Trademark Security Agreements, the Collateral Assignments of
Transponder Agreement, any note or notes executed by Borrower and payable to
Lender, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"Magic Hour" means Magic Hour Pictures, Inc., a California corporation.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower and the Guarantors taken as a
whole, (b) the material impairment of Borrower's and Guarantors' ability to
perform their respective obligations under the Loan Documents taken as a whole
or of Lender to enforce the Obligations or realize upon the Collateral and the
Guarantor Collateral taken as a whole, (c) a material adverse effect on the
value of the Collateral or the Guarantor Collateral or the amount that Lender
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral and the Guarantor
Collateral taken as a whole, or (d) a material impairment of the priority of
Lender's Liens with respect to the Collateral and the Guarantor Collateral taken
as a whole.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means, as of any date of determination, the sum of (a) the
Maximum Revolving Amount, and (b) the then outstanding principal balance of the
Term Loan.
"Maximum Revolving Amount" means $3,500,000.
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
years.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit, notes, drafts, instruments, Investment Property, security
entitlements, securities (including the shares of Stock of Subsidiaries of
Borrower, but exclusive of the Excluded Assets), documents, personal property
leases (wherein Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the foregoing.
"Net Proceeds" means (a) the gross cash proceeds (including insurance
proceeds, condemnation awards, and payments received from time to time in
respect of installment obligations and other non-cash proceeds, if applicable)
received by or on behalf of Borrower or one of the Guarantors in respect of an
Asset Disposition, less (b) the sum of (i) the amount, if any, of all taxes
(other than income taxes) payable by Borrower or such Guarantor, as applicable,
in connection with such Asset Disposition plus Borrower's good faith best
estimate of the amount of all income taxes payable in connection with such Asset
Disposition, (ii) the amount of any reasonable reserve established in accordance
with GAAP against any liabilities associated with the properties or assets that
were the subject of such Asset Disposition, provided that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in
respect of any such liability) shall be deemed to be "Net Proceeds" of an Asset
Disposition occurring on the date of such reduction, (iii) the amount applied to
repay any Indebtedness secured by a Lien upon the properties or assets that were
the subject of the Asset Disposition, to the extent such Indebtedness is
required by its terms to be repaid as a result of such Asset Disposition, and
(iv) reasonable and customary fees, including legal fees, commissions, and
expenses and other costs paid by Borrower or the Guarantor, as applicable, in
connection with such Asset Disposition (other than those payable to any
Affiliate of Borrower), in each case only to the extent not already deducted in
arriving at the amount referred to in clause (a).
"Networks" means Spice Networks, Inc., a New York corporation.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Lender Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Lender of any kind and description (whether pursuant to or evidenced by the Loan
Documents or pursuant to any other agreement between Lender and Borrower,
including Borrower's obligations with respect to the Preferred Stock, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from Borrower to others
that Lender may have obtained by assignment or otherwise, and further including
all interest not paid when due and all Lender Expenses that Borrower is required
to pay or reimburse by the Loan Documents, by law, or otherwise.
"Obligor" means any Borrower or any Guarantor.
"Ordinary Course Dispositions" means Asset Dispositions of (a) Inventory in
the ordinary course of business, (b) Equipment that is substantially worn,
damaged, or obsolete in the ordinary course of business, (c) Equipment or
Inventory between Borrower and the Guarantors for reasonable and legitimate
business purposes, and (d) cash and cash equivalents consistent with the
provisions hereof.
"Overadvance" has the meaning set forth in Section 2.4.
"Participant" means any Person to which Lender has sold a participation
interest in its rights under the Loan Documents.
"Patent Security Agreement" means a Patent Security Agreement executed and
delivered by Guest Cinema, to be in form and substance satisfactory to Lender.
"Pay-Off Letter" means a letter, in form and substance satisfactory to
Lender, from Existing Lender respecting the amount necessary to repay a portion
of the obligations of Borrower owing to Existing Lender and obtain a release of
Borrower's obligations with respect to the balance thereof and obtain a
termination or release of all of the Liens existing in favor of Existing Lender
in and to the properties or assets of Borrower and the Guarantors.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"Permitted Disposition" means (a) Ordinary Course Dispositions, (b) subject
to the prior or concurrent satisfaction of the applicable Release Condition
therefor, Asset Dispositions by Borrower or the Guarantors, free and clear of
Lender's Lien (other than its Lien in the proceeds of such Asset Disposition),
of their equipment or inventory (expressly excluding their accounts, general
intangibles, negotiable collateral, and real property), so long as the aggregate
Net Proceeds from all such Asset Dispositions does not exceed $200,000, and (c)
subject to the prior or concurrent satisfaction of the applicable Release
Condition therefor, Asset Disposition by Borrower of the Excluded Assets free
and clear of Lender's Lien (other than its Lien in the proceeds of such Asset
Disposition).
"Permitted Investment" means (a) Permitted Ordinary Course Investments, (b)
Investments existing on the Closing Date, and (c) Investments received in
consideration of Permitted Dispositions.
"Permitted Ordinary Course Investment" means (a) direct obligations of, or
obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America with a maturity not exceeding one
year, (b) certificates of deposit, time deposits, banker's acceptances or other
instruments of a bank having a combined capital and surplus of not less than
$500,000,000 with a maturity not exceeding one year, (c) investments in
commercial paper rated at least A-1 or P-1 maturing within one year after the
date of acquisition thereof, (d) money market accounts maintained at a bank
having combined capital and surplus of no less than $500,000,000 or at another
financial institution reasonably satisfactory to Lender, (e) loans and advances
to officers and employees of Borrower in the ordinary course of business
(including in connection with the purchase of Stock of Borrower) in an aggregate
amount at any one time outstanding not to exceed $2,000,000, (f) investments in
negotiable instruments for collection, (g) advances in connection with
purchasesof goods or services in the ordinary course of business, (h) deposits
required i n connection with leases, (i) loans between Borrower and the
Guarantors, and (j) Investments by Borrower or any of the Guarantors in Borrower
or any of the Guarantors.
"Permitted Liens" means: (a) Liens granted to Lender, (b) Liens for unpaid
taxes, assessments, and government charges that either (i) are not yet due and
payable or (ii) are the subject of Permitted Protests, (c) Liens set forth on
Schedule P-1, (d) the interests of lessors under operating leases and subleases,
(e) the interests of secured parties or lessors under purchase money Liens or
capital leases to the extent that the purchase money Indebtedness or capital
lease is permitted under Section 7.1(d) and so long as the Lien only attaches to
the asset purchased or acquired and only secures the purchase price of the
subject asset, (f) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business of Borrower and the Guarantors and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests, (g)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (h) Liens or deposits to secure
performance of bids, tenders, contracts or leases (to the extent permitted under
this Agreement), incurred in the ordinary course of business of Borrower and the
Guarantors and not in connection with the borrowing of money, (i) Liens arising
by reason of security for surety or appeal bonds, (j) Liens of or resulting from
any judgment or award that does not constitute an Event of Default hereunder,
(k) with respect to any real property, easements, rights of way, zoning and
similar covenants and restrictions, and similar encumbrances that do not
materially interfere with or impair the use or operation thereof by Borrower or
the Guarantors, (m) other Liens imposed by operation of law that do not
materially affect Borrower's or the Guarantors' ability to perform their
respective obligations hereunder or under the other Loan Documents, and (n)
replacement or continued Liens granted to a Person who provides refinancing or
continuation of Indebtedness pursuant to Section 7.1(f) hereof; provided, that
the replacement or continued Lien is limited to all or part of the properties or
assets that secured the refinanced or continued Indebtedness.
"Permitted Protest" means the right of Borrower or a Guarantor to protest
any Lien (other than any such Lien that secures the Obligations), tax (other
than taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the books of Borrower or the Guarantor, as applicable, in an
amount that is reasonably satisfactory to Lender, (b) any such protest is
instituted and diligently prosecuted by Borrower or the Guarantor, as
applicable, in good faith, and (c) Lender is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Liens of Lender in and to the Collateral or the
Guarantor Collateral.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement maintained
or contributed to by Borrower or with respect to which it may incur liability.
"PNC Note" means that certain Promissory Note, dated as of January 15,
1997, in the original principal amount of $400,000, executed by Borrower to the
order of PNC Bank, N.A.
"Preferred Stock" means the 8% cumulative pay-in-kind convertible,
preferred Stock of Borrower, having the powers, preferences, and rights and the
qualifications, limitations, or restrictions set forth in the Certificate of
Designation.
"Productions" means Spice Productions, Inc., a Nevada corporation.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Citibank, N.A., or any successor thereto, as its "prime
rate" or "reference rate," as the case may be, irrespective of whether such
announced rate is the best rate available from such financial institution.
"Release Condition" means that (a) no Default or Event of Default has
occurred and is continuing or would result therefrom, (b) Borrower or the
Guarantor, as applicable, is receiving at least fair value for the property or
assets that are the subject of the Asset Disposition, (c) in the case of the
disposition of Borrower's partnership or other interest in CVS Partners and the
provisions of certain services (past and future), Borrower is receiving Net
Proceeds of not less than $800,000, (d) in the case of the sale of the
disposition of the Stock of SEG, Borrower is receiving the promissory note
described in Schedule 7.1, (e) following such Asset Disposition, the subject
property or assets are not to be the subject of a lease by Borrower or the
Guarantors, and (f) the subject property or assets are not being sold to,
exchanged with, or disposed of to, any Affiliate of Borrower.
"Reportable Event" means any of the events described in Section 4043(c) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Request For Advance" means an irrevocable written notice from Borrower to
Lender of Borrower's request for an Advance, which notice shall be substantially
in the form of Exhibit R-1 attached hereto.
"Retiree Health Plan" means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"SEG" means Spector Entertainment Group, Inc., a California corporation.
"Stock" means all shares, options, warrants, interests, participations, or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or nonvoting, including common stock,
preferred stock, or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the SEC under the
Securities Exchange Act of 1934, as amended).
"Stock Pledge Agreements" means (a) a Stock Pledge Agreement executed and
delivered by Borrower with respect to the shares of Stock that it owns with
respect to each of its direct Subsidiaries, and (b) a Stock Pledge Agreement
executed and delivered by the Guarantors with respect to the shares of Stock
that they own with respect to each of their direct Subsidiaries, each to be in
form and substance satisfactory to Lender.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the difference
of (a) Borrower's total stockholder's equity, minus (b) the sum of: (i) all
Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses, and
(iii) all amounts due to Borrower from Affiliates.
"Term Loan" has the meaning set forth in Section 2.3.
"Trademark Security Agreements" means (a) a Trademark Security Agreement
executed and delivered by Borrower, and (b) a Trademark Security Agreement
executed and delivered by the Guarantors each to be in form and substance
satisfactory to Lender.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 .Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 .Code Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 .Construction Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. An Event of Default shall "continue"
or be "continuing" until such Event of Default has been waived in writing by
Lender. Section, subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
the Loan Documents to this Agreement or any of the Loan Documents shall include
all alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 .Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. .LOAN AND TERMS OF PAYMENT.
2.1.Revolving Advances.
(a) Subject to the terms and conditions of this Agreement, Lender
agrees to make advances ("Advances") to Borrower in an amount outstanding not to
exceed at any one time the Maximum Revolving Amount; provided, however, that as
to any Advance Lender shall have received from Borrower a Request For Advance
not less than 2 Business Days prior to the date on which the requested Advance
is to be made. The amount of any requested Advance shall be in a minimum amount
of $500,000.
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
Lender may create reserves against the Maximum Revolving Amount without
declaring an Event of Default if it determines that there has occurred a
Material Adverse Change.
(c) Lender shall have no obligation to make Advances hereunder to the
extent they would cause the outstanding Obligations (other than under the Term
Loan) to exceed Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 .Term Loan Lender agrees to make a term loan (the "Term Loan") to
Borrower in the principal amount of (i) $9,600,000, plus (ii) the amount of the
Closing Fee, if Borrower elects to have such fee added to the principal balance
of the Term Loan in accordance with Section 2.10(a)(i), plus (iii) the amount of
the Annual Fees that Borrower elects to have added to the principal balance of
the Term Loan in accordance with the provisions of Section 2.10(a)(ii), plus
(iv) the amount of interest added to the balance of the Term Loan in accordance
with the provisions of Section 2.5. The Term Loan shall be repaid in
installments of principal in the following amounts on the following dates:
Date Installment Amount
July 1, 1998 $500,000
October 1, 1998 $500,000
January 1, 1999 $750,000
April 1, 1999 $750,000
July 1, 1999 the balance
The outstanding principal balance and all accrued and unpaid interest under the
Term Loan shall be due and payable upon the termination of this Agreement,
whether by its terms, by prepayment, by acceleration, or otherwise. The unpaid
principal balance of the Term Loan may be prepaid in whole or in part without
penalty or premium at any time during the term of this Agreement upon 20 days
prior written notice by Borrower to Lender, all such prepaid amounts to be
applied to the installments due on the Term Loan in the inverse order of their
maturity. All amounts outstanding under the Term Loan shall constitute
Obligations.
2.3 .Mandatory Prepayments.
(a) Prepayments from Excess Cash Flow. Within 100 days after the end of
each of its fiscal years, Borrower shall prepay the Obligations in an amount
equal to 65% of the Excess Cash Flow for such previous fiscal year. The
calculation of Excess Cash Flow shall be based on the audited financial
statements for the Borrower. The payments shall be applied in accordance with
Section 2.3(e). Concurrently with the making of any such payment, Borrower shall
deliver to Lender a certificate of Borrower's chief executive officer or chief
financial officer demonstrating its calculation of the amount required to be
paid. . (b) Prepayments from Asset Dispositions. Immediately upon receipt of the
Net Proceeds of any Asset Disposition other than a Permitted Disposition,
Borrower shall prepay the Obligations in an amount equal to the Net Proceeds of
such Asset Disposition. The payments shall be applied in accordance with Section
2.3(e). Concurrently with the making of any such payment, Borrower shall deliver
to Lender a certificate of Borrower's chief executive officer or chief financial
officer demonstrating its calculation of the amount required to be paid.
(c) Prepayment from Extraordinary Transactions. In the event that Borrower
or any of the Guarantors issues Stock or Indebtedness (other than the issuance
of the Preferred Stock to Lender), or enters into any merger, recapitalization,
combination, or joint venture transaction, then immediately upon receipt of the
net cash proceeds therefrom by Borrower or a Guarantor, as applicable (other
than (a) proceeds of purchase money Indebtedness or capital leases, (b)
proceeds, if any, from the issuance of Stock of Borrower to members of the
management of Borrower, (c) proceeds from the issuance of Stock to Borrower or
any Guarantor by any Person that was a Subsidiary of Borrower or such Guarantor
immediately prior to such issuance, (d) equity contributions to any Guarantor by
Borrower or any of the Guarantors), or (e) mergers, combinations, or joint
ventures occurring solely between or among Borrower or the Guarantors), Borrower
shall prepay the Obligations in an amount equal to the Net Proceeds of such
Asset Disposition. The payments shall be applied in accordance with Section
2.3(e). Concurrently with the making of any such payment, Borrower shall deliver
to Lender a certificate of Borrower's chief executive officer or chief financial
officer demonstrating its calculation of the amount required to be paid.
(d) Prepayment From Plan Reversions. In the Event that Borrower or any of
the Guarantors receives any surplus assets of any Plan, Borrower immediately
shall prepay the Obligations in an amount equal to such returned surplus assets
net of related transaction costs (including income, excise, or other taxes). The
payments shall be applied in accordance with Section 2.3(e). Concurrently with
the making of any such payment, Borrower shall deliver to Lender a certificate
of Borrower's chief executive officer or chief financial officer demonstrating
its calculation of the amount required to be paid.
(e) Application of Proceeds. With respect to the mandatory prepayments
described in subsections (a) through (d) above, such prepayments shall be
applied first, to the payment of any unpaid Lender Expenses, second, to any
accrued and unpaid fees due under this Agreement, third, to any accrued and
unpaid interest due under this Agreement, fourth, in payment of the scheduled
installments due under the Term Loan in the inverse order of their maturities,
fifth, to the payment of any and all interest that has been paid-in-kind by
being added to the balance of the Term Loan pursuant to Section 2.5(a) hereof,
and, sixth, to reduce the outstanding principal balance of the Advances and to
effect a commensurate permanent reduction of the Maximum Revolving Amount.
2.4 .Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Lender pursuant to Section 2.1 is greater than
the Dollar limitations set forth in Section 2.1 (an "Overadvance"), Borrower
immediately shall pay to Lender, in cash, the amount of such excess to be used
by Lender to repay Advances outstanding under Section 2.1.
2.5 .Interest: Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in clause (b) below, all Obligations
shall bear interest at a per annum rate of 5 percentage points above the
Reference Rate; provided, however, that, so long as no Event of Default has
occurred and is continuing, the interest accrued with respect to the Obligations
equal to 3.0% per annum shall be paid by adding the amount thereof to the
balance of the Term Loan.
(b) Default Rate. Upon the occurrence and during the continuation of an
Event of Default, all Obligations shall bear interest at a per annum rate equal
to 9 percentage points above the Reference Rate.
(c) Minimum Interest. In no event shall the rate of interest chargeable
hereunder for any day be less than 13% per annum. To the extent that interest
accrued hereunder at the rate set forth herein would be less than the foregoing
minimum daily rate, the interest rate chargeable hereunder for such day
automatically shall be deemed increased to the minimum rate.
(d) Payments. Interest payable hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Borrower hereby
authorizes Lender, at its option, without prior notice to Borrower, to charge
such interest, all Lender Expenses (as and when incurred), the fees and charges
provided for in Section 2.10 (as and when accrued or incurred), and all
installments or other payments due under the Term Loan or any Loan Document to
Borrower's Loan Account, which amounts thereafter shall accrue interest at the
rate then applicable to Advances hereunder. Any interest not paid when due and
all interest that is paid-in-kind and added to the principal of the Term Loan
shall be compounded and shall thereafter accrue interest at the rate then
applicable hereunder.
(e) Computation. The Reference Rate as of the date of this Agreement is
8.25% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Lender, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto as of the
date of this Agreement, Borrower is and shall be liable only for the payment of
such maximum as allowed by law, and payment received from Borrower in excess of
such legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.6 Collections. Borrower shall at all times maintain the Concentration
Accounts and agrees that all Collections of Borrower and the Guarantors shall be
deposited into such Concentration Accounts or into a deposit account the
proceeds of which are remitted no less frequently than has been Borrower's or
such Guarantor's past practice. Upon the occurrence and during the continuance
of an Event of Default, Lender may elect to notify any one or more of the
Concentration Account Banks to remit all amounts received in the Concentration
Accounts to an account of Lender (the "Lender Account") maintained by Lender at
a depositary selected by Lender. Further, Borrower acknowledges and agrees that
at any time the aggregate amount of Borrower's and the Guarantors' cash or cash
equivalents, including, cash or cash equivalents in the Concentration Accounts,
exceeds $1,000,000, Borrower shall remit to Lender the amount in excess of
$1,000,000, such amount to be applied to the then outstanding Advances and
thereafter, to the prepayment of the Term Loan in accordance with Section
2.3(e).
2.7 .Crediting Payments; Application of Collections. The receipt of any
Collections by Lender (whether from transfers to Lender by the Concentration
Account Bank or otherwise) immediately shall be applied provisionally to reduce
the Obligations outstanding under Section 2.1, but shall not be considered a
payment on account unless such Collection item is a wire transfer of immediately
available federal funds and is made to the Lender Account or unless and until
such Collection item is honored when presented for payment. Should any
Collection item not be honored when presented for payment, then Borrower shall
be deemed not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
Collection item shall be deemed received by Lender only if it is received into
the Lender Account on a Business Day on or before 11:00 a.m. New York time. If
any Collection item is received into the Lender Account on a non-Business Day or
after 11:00 a.m. New York time on a Business Day, it shall be deemed to have
been received by Lender as of the opening of business on the immediately
following Business Day.
2.8 .Designated Account. Lender is authorized to make the Advances and the
Term Loan under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Person, or without
instructions if pursuant to Section 2.5(e). Borrower agrees to establish and
maintain the Designated Account with the Designated Account Bank for the purpose
of receiving the proceeds of the Advances requested by Borrower and made by
Lender hereunder. Unless otherwise agreed by Lender and Borrower, any Advance
requested by Borrower and made by Lender hereunder shall be made to the
Designated Account.
2.9 .Maintenance of Loan Account; Statements of Obligations. Lender shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Advances and the Term Loan made by
Lender to Borrower or for Borrower's account, including, accrued interest,
Lender Expenses, and any other payment Obligations of Borrower. In accordance
with Section 2.7, the Loan Account will be credited with all payments received
by Lender from Borrower or for Borrower's account, including all amounts
received in the Lender Account from the Concentration Account Bank. Lender shall
render statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Lender unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Lender written objection thereto describing the error
or errors contained in any such statement.
2.10 .Fees Borrower shall pay to Lender the following:
(a) (i) Closing Fee. On the Closing Date, a closing fee (the "Closing Fee")
of $900,000; which fee is in addition to any fees previously paid by Borrower to
Lender; Borrower shall have the option (such option to be set forth in a written
notice sent by Borrower to Lender no less than 2 Business Days prior to the
Closing Date), to have the Closing Fee paid by adding the amount thereof to the
balance of the Term Loan; and (ii) Annual Fees. On each anniversary of the
Closing Date, an annual fee (each, an "Annual Fee") of $176,000; Borrower shall
have the option (such option to be set forth in a written notice sent by
Borrower to Lender no less than 10 Business Days prior to the date on which a
particular Annual Fee is due, to have the Annual Fee paid by adding the amount
thereof to the balance of the Term Loan; provided, however, that, from and after
the date on which Borrower makes any optional prepayment of the Term Loan,
Borrower no longer shall have the option to cause any subsequent Annual Fee to
be added to the principal balance of the Term Loan;
(b) Financial Examination, Documentation, and Appraisal Fees. Lender's
customary fee of $650 per day per examiner, plus out-of-pocket expenses for each
financial analysis and examination (i.e., audits) of Borrower performed by
personnel employed by Lender; Lender's customary appraisal fee of $1,500 per day
per appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
or the Guarantor Collateral performed by personnel employed by Lender; and, the
actual charges paid or incurred by Lender if it elects to employ the services of
one or more third Persons to perform such financial analyses and examinations
(i.e., audits) of Borrower or to appraise the Collateral or the Guarantor
Collateral; without limiting the foregoing, which is unrestricted, Borrower
acknowledges that Lender currently intends to have an appraisal conducted at
least once per year and will engage a third person appraisal firm to perform
such appraisal; and, on each anniversary of the Closing Date, Lender's customary
fee of $1,000 per year for its loan documentation review; and
(c) Servicing Fee. On the first day of each April, July, October, and
January during term of this Agreement, and thereafter so long as any Obligations
are outstanding, a servicing fee in an amount equal to $10,000.
3. .CONDITIONS PRECEDENT AND SUBSEQUENT; TERM OF AGREEMENT
3.1 .Conditions Precedent to the Initial Advance and the Term Loan. The
obligation of Lender to make the initial Advance or to make the Term Loan is
subject to the fulfillment, to the satisfaction of Lender and its counsel, of
each of the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before January 15, 1997;
(b) Lender shall have received searches reflecting the filing of its
financing statements and fixture filings;
(c) Lender shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
a. the Guaranty;
b. the Guarantor Security Agreement;
c. the Stock Pledge Agreements;
d. the Patent Security Agreement;
e. the Copyright Security Agreement;
f. the Trademark Security Agreements;
g. the Disbursement Letter;
h. the Pay-Off Letter, together with UCC termination statements and other
documentation evidencing the termination by Existing Lender of its Liens in and
to the properties and assets of Borrower;
i. $2,425,000 of Preferred Stock; and
j. the Collateral Assignments of Transponder Agreement;
(d) Lender shall have received a certificate from the Secretary of each
Obligor attesting to the resolutions of such Obligor's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which such Obligor is a party and authorizing specific
officers of such Obligor to execute the same;
(e) Lender shall have received copies of each Obligor's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Obligor;
(f) Lender shall have received certificates of status with respect to each
Obligor, each dated within 10 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdiction of organization of such
Obligor, which certificate shall indicate that such Obligor is in good standing
in such jurisdiction;
(g) Lender shall have received certificates of status with respect to each
Obligor, each dated within 15 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions in which its failure to
be duly qualified or licensed would have a Material Adverse Change, which
certificates shall indicate that such Obligor is in good standing in such
jurisdictions;
(h) Lender shall have received a certificate of insurance, together with
the endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Lender and its counsel;
(i) Lender shall have received an opinion of Borrower's counsel in form and
substance satisfactory to Lender in its sole discretion;
(j) Lender shall have received the Collateral Access Agreement with respect
to Borrower's location in New York;
(k) Lender shall have received an officer's certificate to the effect that
all tax returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
real property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest;
(l) Lender shall have received a set of projections, a copy of which shall
be attached hereto as Schedule 3.1(l) (the "Closing Date Projections"), as to
the projected consolidated financial performance of Borrower from the Closing
Date (after giving effect to the transactions contemplated by the Loan
Documents) through fiscal year ended December 31, 1997. The Closing Date
Projections shall be certified by the chief financial officer of Borrower as
being such officer's good faith best estimate of the future performance of
Borrower, based on historical financial information and reasonable assumptions
of management (it being acknowledged that Borrower is not representing or
warranting that it will achieve the projected results); and
(m) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Lender and its
counsel.
3.2 .Conditions Precedent to all Advances and the Term Loan. The following
shall be conditions precedent to all Advances and the Term Loan hereunder:
(a) the representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct in all respects on and as of the
date of such extension of credit, as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date);
(b) no Default or Event of Default shall have occurred and be continuing on
the date of such extension of credit, nor shall either result from the making
thereof; and
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any governmental authority against Borrower,
Lender, or any of their Affiliates.
3.3 .Conditions Subsequent As conditions subsequent to making all Advances
and the Term Loan hereunder on the Closing Date, Borrower shall perform or cause
to be performed the following (the failure by Borrower to so perform or cause to
be performed constituting an Event of Default hereunder):
(a) within 90 days of the Closing Date, Borrower shall have closed its
Concentration Account and Designated Account at PNC Bank, N.A., opened a new
Concentration Account and Designated Account at a financial institution approved
by Lender, transferred any funds in the Concentration Account at PNC Bank, N.A.,
into the new Concentration Account and delivered to Lender a Concentration
Account Agreement, executed and delivered by the new financial institution, such
agreement to be in form and substance satisfactory to Lender;
(b) on or before May 15, 1997, Borrower shall have obtained and delivered
to Lender a Collateral Access Agreement with respect to its location in the
greater Los Angeles, California area;
(c) within 30 days of the Closing Date, Borrower shall either (i) provide
Lender with a certificate that it has disposed of SEG, or (ii) cause SEG to
execute and deliver a joinder with respect to the Guaranty and Guarantor
Security Agreement; and
(d) within 2 days of the Closing Date, Borrower shall deliver to Lender a
fully executed and delivered Concentration Account Agreement regading the
Concentration Account of CPV maintained at City National Bank.
3.4 .Term This Agreement shall become effective upon the execution and
delivery hereof by Borrower and Lender and shall continue in full force and
effect for a term ending on July 15, 1999 (the "Maturity Date"). The foregoing
notwithstanding, Lender shall have the right to terminate its obligations under
this Agreement immediately and without notice upon the occurrence and during the
continuation of an Event of Default.
3.5 .Effect of Termination. On the date of termination of this Agreement,
all Obligations immediately shall become due and payable without notice or
demand. No termination of this Agreement, however, shall relieve or discharge
Borrower of Borrower's duties, Obligations, or covenants hereunder, and Lender's
continuing security interests in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and Lender's obligation to
provide additional credit hereunder is terminated.
3.6 .Early Termination by Borrower The provisions of Section 3.4
notwithstanding, Borrower has the option, at any time upon 20 days prior written
notice to Lender, to terminate this Agreement by paying to Lender, in cash, the
Obligations, in full without premium or penalty. In addition, in the event that
Borrower prepays the Obligations, in full, and terminates this Agreement on or
prior to January 15, 1999, Lender agrees to forgive any and all interest that
accrued on the Term Loan and was paid-in-kind by being added to the principal
balance of the Term Loan in accordance with the provisions of Section 2.5(a)
hereof.
4. .CREATION OF SECURITY INTEREST
4.1 .Grant of Security Interest. Borrower hereby grants to Lender a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Lender's security interests in
the Collateral shall attach to all Collateral without further act on the part of
Lender or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for Permitted Dispositions,
Borrower has no authority, express or implied, to dispose of any item or portion
of the Collateral.
4.2 .Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Lender, shall endorse and deliver physical
possession of such Negotiable Collateral to Lender.
4.3 .Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time following the occurrence and during the continuance of
an Event of Default or that Lender deems itself insecure, Lender or Lender's
designee may (a) notify customers or Account Debtors of Borrower that the
Accounts, General Intangibles, or Negotiable Collateral have been assigned to
Lender or that Lender has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for Lender, as Lender's trustee, any Collections that it receives
and immediately will deliver said Collections to Lender in their original form
as received by Borrower.
4.4 .Delivery of Additional Documentation Required. At any time upon the
request of Lender, Borrower shall execute and deliver to Lender all financing
statements, continuation financing statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Lender reasonably may
request, in form satisfactory to Lender, to perfect and continue perfected
Lender's security interests in the Collateral, and in order to fully consummate
all of the transactions contemplated hereby and under the other the Loan
Documents. Without limiting the generality of the foregoing, if Vendor Capital
releases its security interest in the $375,000 certificate of deposit issued by
Existing Lender and hypothecated by Borrower to Vendor Capital, Borrower agrees
immediately to deliver (or cause to be delivered) such certificate of deposit to
Lender and take any other step reasonably requested by Lender in order to
perfect its security interest therein.
4.5 .Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing or Lender deems itself insecure, sign Borrower's name on any
invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification of Accounts, (d)
endorse Borrower's name on any Collection item that may come into Lender's
possession, (e) at any time that an Event of Default has occurred and is
continuing or Lender deems itself insecure, notify the post office authorities
to change the address for delivery of Borrower's mail to an address designated
by Lender, to receive and open all mail addressed to Borrower, and to retain all
mail relating to the Collateral and forward all other mail to Borrower, (f) at
any time that an Event of Default has occurred and is continuing or Lender deems
itself insecure, make, settle, and adjust all claims under Borrower's policies
of insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has occurred
and is continuing or Lender deems itself insecure, settle and adjust disputes
and claims respecting the Accounts directly with Account Debtors, for amounts
and upon terms that Lender determines to be reasonable, and Lender may cause to
be executed and delivered any documents and releases that Lender determines to
be necessary. The appointment of Lender as Borrower's attorney, and each and
every one of Lender's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Lender's obligation to extend credit hereunder is terminated.
4.6 .Right to Inspect Lender (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter during normal business
hours to inspect Borrower's Books and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
4.7 .Quitclaim. Borrower shall cause each Inactive Subsidiary to transfer,
assign, and quitclaim to Borrower all of its right, title, and interest in and
to any personal and real property of any type or nature whatsoever.
5. .REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement, Borrower makes the
following representations and warranties which shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date, and at and as of the date of
the making of each Advance or Term Loan made thereafter, as though made on and
as of the date of such Advance or Term Loan, (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 .No Encumbrances. Borrower has good and marketable title to the
Collateral, free and clear of Liens except for Permitted Liens. Each Guarantor
has good and marketable title to its portion of the Guarantor Collateral, free
and clear of Liens except for Permitted Liens.
5.2 .Accounts. The Accounts are bona fide existing obligations created by
the sale and delivery of Inventory or the rendition of services to Account
Debtors in the ordinary course of Borrower's business, unconditionally owed to
Borrower without defenses, disputes, offsets, counterclaims, or rights of return
or cancellation. The property giving rise to such Accounts has been delivered to
the Account Debtor, or to the Account Debtor's agent for immediate shipment to
and unconditional acceptance by the Account Debtor. Borrower has not received
notice of actual or imminent bankruptcy, insolvency, or material impairment of
the financial condition of any Account Debtor regarding any Account.
5.3 .Inventory. All Inventory is of good and merchantable quality, free
from defects.
5.4 .Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes (ordinary wear and tear excepted).
5.5 .Location of Inventory and Equipment. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party and are located only at
the locations identified on Schedule 6.12 or otherwise permitted by Section
6.12.
5.6 .Inventory Records. Borrower keeps correct accurate records itemizing
and describing the kind, type, quality, and quantity of the Inventory, and
Borrower's cost therefor.
5.7 .Location of Chief Executive Office; FEIN. The chief executive office
of Borrower is located at the address indicated in the preamble to this
Agreement. Borrower's FEIN is 11- and 2914762, CPV's FEIN is 95-4481959, CVS's
FEIN is 13-3593522, Direct's FEIN is 13-3697513, Guest Cinema's FEIN is
13-3722677, International's FEIN is 13-3688041, Magic Hour's FEIN is 95-4408483,
Networks's FEIN is 13-3426694, and Productions' FEIN is 88-0326684.
5.8 .Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good standing under the
laws of the jurisdiction of its incorporation and qualified and licensed to do
business in, and in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to have a Material Adverse
Change.
(b) Each Guarantor is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(c) Set forth on Schedule 5.8, is a complete and accurate list of
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(d) Except as set forth on Schedule 5.8, no capital Stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital Stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
(e) As to each Inactive Subsidiary: It does not own any property or assets
of any consequential value (after giving effect to any transfers being made by
it on the Closing Date pursuant to Section 4.7), does not currently engage in
any business, and does not intend in the future to engage in any business.
5.9 .Due Authorization; No Conflict.
(a) Borrower:
(1) The execution, delivery, and performance by Borrower of this Agreement
and the Loan Documents to which it is a party have been duly authorized by all
necessary corporate action.
(2) The execution, delivery, and performance by Borrower of this Agreement
and the Loan Documents to which it is a party do not and will not (i) violate
any provision of federal, state, or local law or regulation (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower, (ii) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any material contractual obligation or material lease of
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of Borrower.
(3) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which Borrower is a party do not and
will not require any registration with, consent, or approval of, or notice to,
or other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(4) This Agreement and the Loan Documents to which Borrower is a party, and
all other documents contemplated hereby and thereby, when executed and delivered
by Borrower will be the legally valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
(5) The Liens granted by Borrower to Lender in and to its properties and
assets pursuant to this Agreement and the other Loan Documents are validly
created, perfected, and first priority Liens, subject only to Permitted Liens.
(b) Guarantors.
(1) The execution, delivery, and performance by each Guarantor of the Loan
Documents to which it is a party have been duly authorized by all necessary
corporate action.
(2) The execution, delivery, and performance by each Guarantor of the Loan
Documents to which it is a party do not and will not (i) violate, in any
material respect, any provision of federal, state, or local law or regulation
(including Regulations G, T, U, and X of the Federal Reserve Board) applicable
to such Guarantor, the Governing Documents of such Guarantor, or any order,
judgment, or decree of any court or other Governmental Authority binding on such
Guarantor, (ii) conflict with, result in a material breach of, or constitute
(with due notice or lapse of time or both) a material default under any material
contractual obligation or material lease of such Guarantor, (iii) result in or
require the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of such Guarantor, other than Permitted Liens, or (iv)
require any approval of stockholders or any approval or consent of any Person
under any material contractual obligation of such Guarantor.
(3) Other than the filing of appropriate financing statements, fixture
filings, and mortgages and related documents in respect of the Guarantor
Collateral, the execution, delivery, and performance by each Guarantor of the
Loan Documents to which it is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any federal, state, foreign, or other Governmental Authority or other
Person.
(4) The Loan Documents to which each Guarantor is a party, and all other
documents contemplated hereby and thereby, when executed and delivered by such
Guarantor will be the legally valid and binding obligations of such Guarantor,
enforceable against it in accordance with their respective terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
(5) The Liens granted by each Guarantor to Lender in and to its properties
and assets are validly created, perfected, and first priority Liens, subject
only to Permitted Liens.
5.10 .Litigation There are no actions or proceedings pending by or against
Borrower or a Guarantor before any court or administrative agency and Borrower
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or a Guarantor except for: (a) ongoing
collection matters in which Borrower or a Guarantor is the plaintiff; (b)
matters disclosed on Schedule 5.10; and (c) matters arising after the date
hereof that, if decided adversely to Borrower or the Guarantor, would not have a
Material Adverse Change.
5.11 .No Material Adverse Change. All financial statements relating to
Borrower or a Guarantor that have been delivered by Borrower to Lender have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present Borrower's (or such Guarantor's, as applicable)
financial condition as of the date thereof and its results of operations for the
period then ended. There has not been a Material Adverse Change with respect to
Borrower (or such Guarantor, as applicable) since the date of the latest
financial statements submitted to Lender on or before the Closing Date.
5.12 .Solvency. No transfer of property is being made by Borrower or a
Guarantor and no obligation is being incurred by Borrower or any of the
Guarantors in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrower or the Guarantors.
5.13 .Employee Benefits. None of Borrower, any of its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan, other
than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and each
ERISA Affiliate have satisfied the minimum funding standards of ERISA and the
IRC with respect to each Benefit Plan to which it is obligated to contribute. No
ERISA Event has occurred nor has any other event occurred that may result in an
ERISA Event that reasonably could be expected to result in a Material Adverse
Change. None of Borrower or its Subsidiaries, any ERISA Affiliate, or any
fiduciary of any Plan is subject to any direct or indirect liability with
respect to any Plan under any applicable law, treaty, rule, regulation, or
agreement. None of Borrower or its Subsidiaries or any ERISA Affiliate is
required to provide security to any Plan under Section 401(a)(29) of the IRC.
5.14 .Environmental Condition. None of Borrower's or the Guarantors'
properties or assets has ever been used by Borrower or the Guarantors or, to the
best of Borrower's knowledge, by previous owners or operators in the disposal
of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials. None of Borrower's or the Guarantors' properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute. No Lien arising under
any environmental protection statute has attached to any revenues or to any real
or personal property owned or operated by Borrower or a Guarantor. Neither
Borrower nor any of the Guarantors have received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower or the
Guarantors resulting in the releasing or disposing of Hazardous Materials into
the environment.
5.15 .Leases. Except as set forth on Schedule 5.15, no material default by
Borrower or the Guarantors exists under any lease to which it is a party and no
event has occurred or exists which, with notice or lapse of time or both, would
constitute a material default by Borrower or the Guarantors thereunder.
5.16 .Capitalization. As of the Closing Date and after giving effect to the
transactions contemplated hereby, the authorized capital stock of the Borrower
consists of (i) 25,000,000 shares of common stock, par value $.01 per share, of
which no more than 11,400,000 shares are issued and outstanding, and no shares
of which are held in treasury and (ii) 10,000,000 shares of preferred stock, of
which 50,000 shares are authorized as Convertible Preferred Stock Series 1997-A
(i.e., the Preferred Stock); 24,250 shares of the Preferred Stock are issued and
outstanding, of which the Lender is the record owner of 100% of such shares. All
such outstanding shares have been validly issued and, as of the Closing Date,
are fully paid, nonassessable shares free of preemptive rights. The issuance and
sale of all such shares has been made in compliance with all applicable federal
and state securities laws. Other than in connection with the Preferred Stock and
other than as set forth on Schedule 5.16, there are no subscriptions, options,
warrants, or calls relating to any shares of the Borrower's capital stock,
including any right of conversion or exchange under any outstanding security or
other instrument. Borrower is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any security convertible into or exchangeable for any of its
capital stock.
5.17 .Offering of Securities. Neither Borrower nor any agent acting on
behalf of Borrower has taken or will take any action that (a) would subject the
issuance of any of the Preferred Stock to the provisions of section 5 of the
Securities Act of 1933, as amended, or (b) violates the provisions of any
securities or blue sky law of any applicable jurisdiction.
6. .AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, and unless
Lender shall otherwise consent in writing, Borrower shall and shall cause each
of the Guarantors and the Inactive Subsidiaries to do (and each reference to
Borrower also shall be deemed to include the Guarantors and the Inactive
Subsidiaries) all of the following:
6.1 .Accounting System. Maintain a standard and modern system of accounting
that enables Borrower to produce financial statements in accordance with GAAP,
and maintain records pertaining to the Collateral that contain information as
from time to time may be requested by Lender. Borrower also shall keep a modern
inventory reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
6.2 .Collateral Reporting. Provide Lender with the following documents at
the following times in form satisfactory to Lender: (a) the items identified on
Schedule 6.2, and (b) such other reports as to the Collateral or the financial
condition of Borrower as Lender may request from time to time. Original sales
invoices evidencing daily sales shall be mailed by Borrower to each Account
Debtor and, at Lender's direction, the invoices shall indicate on their face
that the Account has been assigned to Lender and that all payments are to be
made directly to Lender.
6.3 .Financial Statements, Reports, Certificates. Deliver to Lender: (a) as
soon as available, but in any event within 45 days after the end of each month
during each of Borrower's fiscal years, a company prepared balance sheet, income
statement, and statement of cash flow covering Borrower's operations during such
period; and (b) as soon as available, but in any event within 90 days after the
end of each of Borrower's fiscal years, financial statements of Borrower for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Lender and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and statement of cash flow and, if prepared, such accountants' letter to
management. In addition to the financial statements referred to above, Borrower
agrees to deliver financial statements prepared on a consolidating basis so as
to present Borrower and each such related entity separately, and on a
consolidated basis.
Together with the above, Borrower also shall deliver to Lender Borrower's
Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Borrower with the Securities and Exchange
Commission, if any, as soon as the same are filed, or any other information that
is provided by Borrower to its shareholders, and any other report reasonably
requested by Lender relating to the financial condition of Borrower.
Each month, together with the financial statements provided pursuant to
Section 6.3(a), Borrower shall deliver to Lender a certificate signed by its
chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Lender hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in Sections 7.20
and 7.21 is to be tested, a Compliance Certificate demonstrating in reasonable
detail compliance at the end of such period with the applicable financial
covenants contained in Section 7.20 and 7.21, and (iv) on the date of delivery
of such certificate to Lender there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i), (ii),
or (iii), to the extent of any non-compliance, describing such non-compliance as
to which he or she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
In addition to the foregoing, the Borrower shall deliver to the Lender, as
soon as available, but in any event (a) within 30 days after the beginning of
each fiscal year of Borrower, a copy of the plan and forecast (including a
projected closing balance sheet and projected income statements and funds flow
statements) of Borrower for such fiscal year; and (b) within 30 days after the
end of the second fiscal quarter of the Borrower in each fiscal year, an update
of each plan and forecast delivered with respect to the fiscal year in which
such fiscal quarter occurs, reflecting changes in such plan resulting from
actual and then anticipated results and forecasts.
6.4 .Tax Returns Deliver to Lender copies of each of Borrower's future
federal income tax returns, and any amendments thereto, within 30 days of the
filing thereof with the Internal Revenue Service.
6.5 .[intentionally omitted].
6.6 .Returns. Cause returns and allowances, if any, as between Borrower and
its Account Debtors to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement.
6.7 .Title to Equipment. Upon Lender's request, Borrower immediately shall
deliver to Lender, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.8 .Maintenance of Equipment Maintain the Equipment in good operating
condition and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and such Equipment shall at all times remain personal property.
6.9 .Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
shall make due and timely payment or deposit of all such federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Lender, on demand, appropriate certificates attesting to
the payment thereof or deposit with respect thereto. Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower has
made such payments or deposits.
6.10 .Insurance.
(a) At its expense, keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as are ordinarily insured against by other owners in similar
businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Lender. All
insurance required herein shall be written by companies which are authorized to
do insurance business in the State of New York. All hazard insurance and such
other insurance as Lender shall specify, shall contain a Form 438BFU (NS)
mortgagee endorsement, or an equivalent endorsement satisfactory to Lender,
showing Lender as sole loss payee thereof, and shall contain a waiver of
warranties. Every policy of insurance referred to in this Section 6.10 shall
contain the insurer's standard form agreement by the insurer that it will not
cancel such policy except after 30 days prior written notice to Lender and that
any loss payable thereunder shall be payable notwithstanding any act or
negligence of Borrower or Lender which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment. Borrower shall deliver to
Lender certified copies of such policies of insurance and evidence of the
payment of all premiums therefor.
(c) Original policies or certificates thereof satisfactory to Lender
evidencing such insurance shall be delivered to Lender at least 30 days prior to
the expiration of the existing or preceding policies. Borrower shall give Lender
prompt notice of any loss covered by such insurance, and Lender shall have the
right to adjust any loss. Lender shall have the exclusive right to adjust all
losses payable under any such insurance policies without any liability to
Borrower whatsoever in respect of such adjustments. Any monies received as
payment for any loss under any insurance policy including the insurance policies
mentioned above, shall be paid over to Lender to be applied at the option of
Lender either to the prepayment of the Obligations without premium, in such
order or manner as Lender may elect, or shall be disbursed to Borrower under
stage payment terms satisfactory to Lender for application to the cost of
repairs, replacements, or restorations. All repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, Lender
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Lender shall determine.
(d) Borrower shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 6.10, unless Lender is included thereon as named insured with the loss
payable to Lender under a standard 438BFU endorsement, or its equivalent.
Borrower immediately shall notify Lender whenever such separate insurance is
taken out, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and originals of such policies immediately shall
be provided to Lender.
6.11 .No Setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents by or on behalf of Borrower without setoff or counterclaim
and free and clear of, and without deduction or withholding for or on account
of, any federal, state, or local taxes.
6.12 .Location of Inventory and Equipment. Other than the Equipment
described as "Excluded Equipment" on Schedule 6.12, keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
written notice to Lender not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Lender's security interests
in such assets.
6.13 . Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any governmental authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not have and could not reasonably be expected to have
a Material Adverse Change.
6.14 .Employee Benefits
(a) Promptly, and in any event within 10 Business Days after Borrower or
any of its Subsidiaries knows or has reason to know that an ERISA Event has
occurred that reasonably could be expected to result in a Material Adverse
Change, a written statement of the chief financial officer of Borrower
describing such ERISA Event and any action that is being taking with respect
thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any action
taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within 3 Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any Benefit
Plan and all communications received by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate with respect to such request, and
(iii) promptly, and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate, of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Lender, upon Lender's request, each of the
following: (i) a copy of each Plan (or, where any such plan is not in writing,
complete description thereof) (and if applicable, related trust agreements or
other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 .Leases Pay when due (or within applicable grace periods) all rents
and other amounts payable under any leases to which Borrower is a party or by
which Borrower's properties and assets are bound, unless such payments are the
subject of a Permitted Protest. To the extent that Borrower fails timely to make
payment of such rents and other amounts payable when due under its leases,
Lender shall be entitled, in its discretion, to reserve an amount equal to such
unpaid amounts against the Maximum Revolving Amount.
7. .NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not do and will not fail to cause each of the Guarantors and the Inactive
Subsidiaries to do (and each reference to Borrower also shall be deemed to
include the Guarantors and the Inactive Subsidiaries) any of the following
without Lender's prior written consent:
7.1 .Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness owed by one Obligor to another Obligor, so long as such
Indebtedness is unsecured and is the subject of a subordination agreement in
form and substance satisfactory to Lender;
(d) Indebtedness in respect of capital leases or purchase money financings
so long as the acquisition of the subject asset or assets was permitted by
Section 7.21;
(e) Indebtedness evidenced by the PNC Note; and
(f) refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b), (d), or (e) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by Borrower, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Lender as those applicable to the
refinanced Indebtedness.
7.2 .Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(f) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 .Restrictions on Fundamental Changes. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
Stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets. Without limiting the generality of the foregoing, no
Inactive Subsidiary shall acquire any property or asset or engage in business.
7.4 .Disposal of Assets. Except for Permitted Dispositions, sell, lease,
assign, transfer, or otherwise dispose of any of Borrower's properties or
assets.
7.5 .Change Name. Without at least 30 days prior written notice, change
Borrower's name, FEIN, corporate structure (within the meaning of Section
9-402(7) of the Code), or identity, or add any new fictitious name.
7.6 .Guarantee Guarantee or otherwise become in any way liable with respect
to the obligations of any Person which is not Borrower or a Guarantor except (i)
by endorsement of instruments or items of payment for deposit to the account of
Borrower or which are transmitted or turned over to Lender, and (ii)
indemnification obligations contained in the by-laws of Borrower or any
Subsidiary for its directors, officers, and employees.
7.7 .Nature of Business Make any change in the principal nature of
Borrower's business, with the exception of changes in the (i) media used to
distribute its products and services, and (ii) geographical distribution of its
products and services.
7.8 .Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section 7.1(f),
prepay, redeem, retire, defease, purchase, or otherwise acquire any Indebtedness
owing to any third Person, other than the Obligations in accordance with this
Agreement;
(b) Directly or indirectly, amend, modify, alter, increase, or change any
of the terms or conditions of any agreement, instrument, document, indenture, or
other writing evidencing or concerning Indebtedness permitted under Sections
7.1(b), (c), (d), (e), or (f); and
(c) Upon the occurrence and during the continuance of an Event of Default,
pay any obligation owing under the PNC Note.
7.9 .Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 .[intentionally omitted].
7.11 .Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than capital Stock) on, or purchase, acquire,
redeem, or retire any of Borrower's capital Stock, of any class, whether now or
hereafter outstanding, except that any Subsidiary of Borrower may declare and
pay dividends or other distributions in cash to such Subsidiary's immediate
parent.
7.12 .Accounting Methods. Other than as may be required by changes in GAAP,
modify or change its method of accounting or enter into, modify, or terminate
any agreement currently existing, or at any time hereafter entered into with any
third party service bureau for the preparation or storage of Borrower's
accounting records without said service bureau agreeing to provide Lender
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Lender pursuant to or in accordance with this Agreement, and agrees
that Lender may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 .Investments. Directly or indirectly make any Investments except for
(i) Permitted Investments (other than of the type described in clause (ii)), and
(ii) loans or other advances of money (other than salary) to its officers,
directors and employees at any one time outstanding in an aggregate amount not
to exceed $375,000.
7.14 .Transactions with Affiliates. Except as permitted by Section 7.13,
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower's business, upon fair and reasonable terms, that are fully
disclosed to Lender, and that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-Affiliate.
7.15 .Suspension. Suspend or go out of a substantial portion of its
business.
7.16 .[intentionally omitted].
7.17 .Use of Proceeds Use the proceeds of the Advances and the Term Loan
made hereunder for any purpose other than (a) on the Closing Date, (i) to retire
the outstanding principal, accrued interest, and accrued fees and expenses owing
to Existing Lender in accordance with the Pay-Off Letter; provided, however,
that not more than $1,000,000 of Advances under Section 2.1 may be used to
complete such payment, and (ii) to pay transactional costs and expenses incurred
in connection with this Agreement, and (b) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.18 .Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Lender and so long as,
at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Lender's security interests. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent.
7.19 .No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan where such event would result in any liability of Borrower, any of
its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any required
installment or any other payment required under Section 412 of the IRC on or
before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan resulting
in an increase in current liability for the plan year such that either of
Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
7. withdraw, or permit any Subsidiary of Borrower to withdraw, from any
Multiemployer Plan where such withdrawal is reasonably likely to result in any
liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $1.00.
<PAGE>
7.20 .Financial Covenants. Fail to maintain:
Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities of at least .25: 1.0, measured on a fiscal
quarter-end basis;
Tangible Net Worth. Tangible Net Worth of at least ($9,000,000), measured
on a fiscal quarter-end basis;
Adjusted EBITDA. Adjusted EBITDA for the applicable quarter of not less
than the relevant amount for the applicable quarter set forth in the following
table, measured on a fiscal quarter-end basis:
.Period Ending Minimum Adjusted EBITDA
------------- -----------------------
3/31/97 $ 600,000
6/30/97 $1,800,000
9/30/97 $2,400,000
12/31/97 $2,400,000
03/31/98 $2,400,000
06/30/98 $2,500,000
09/30/98 $2,600,000
12/31/98 $2,600,000
03/31/99 $3,200,000
(a) Revenues. Revenues of not less than the relevant amount for the
applicable quarter set forth in the following table, measured on a fiscal
quarter-end basis:
.Period Ending Minimum Revenues
03/31/97 $ 7,700,000
06/30/97 $ 8,800,000
09/30/97 $ 9,400,000
12/31/97 $ 10,100,000
03/31/98 $ 10,300,000
06/30/98 $ 10,600,000
09/30/98 $ 10,900,000
12/31/98 $ 11,200,000
03/31/99 $ 11,800,000
7.21 .Capital Expenditures. Make capital expenditures (other than on
account of films or film libraries) in excess of the following amounts for the
applicable 6-month period (each, a "Period") then-ended: (a) 6/30/97 --
$500,000, (b) 12/31/97 -- $500,000, (c) 6/30/98 -- $750,000, (d) 12/31/98 --
$750,000, and (e) 6/30/97 -- $1,000,000. To the extent that all or any portion
of any such amount is not used in any Period, such unused amount may be carried
forward to the immediately following Period to be used for capital expenditures;
provided that (x) any amount carried forward from the immediately preceding
Period shall not be utilized during Period to make capital expenditures unless
and until the amount available for such Period shall have been utilized in full
for capital expenditures during such Period, and (y) no amounts once carried
forward to the next Period may be carried forward to any Period thereafter.
` 8. .EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If any Obligor fails to pay when due and payable or when declared due
and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Lender, reimbursement
of Lender Expenses, or other amounts constituting Obligations);
8.2 (a) If any Obligor fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in Sections 6.2
(Collateral Reports) or 6.3 (Financial Statements) of this Agreement and such
failure continues for a period of five (5) days from the date Lender sends such
Obligor telephonic or written notice of such failure or neglect; (b) If any
Obligor fails or neglects to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in Sections 6.4 (Tax Returns), 6.7
(Title to Equipment), 6.12 (Locations of Inventory and Equipment), 6.13
(Compliance with Laws), 6.14 (Employee Benefits), or 6.15 (Leases) of this
Agreement and such failure continues for a period of fifteen (15) days from the
date of such failure or neglect; (c) If any Obligor fails or neglects to
perform, keep, or observe any term, provision, condition, covenant, or agreement
contained in Sections 6.1 (Accounting System), 6.6 (Returns), or 6.8
(Maintenance of Equipment) of this Agreement and such failure continues for a
period of fifteen (15) days from the date Lender sends such Obligor telephonic
or written notice of such failure or neglect; or (d) If any Obligor fails or
neglects to perform, keep, or observe any other term, provision, condition
(whether precedent or subsequent), covenant, or agreement contained in this
Agreement, in any of the other Loan Documents, or in any other present or future
agreement between one or more of the Obligors and Lender (other than any such
term, provision, condition, covenant, or agreement that is the subject of
another provision of this Section 8);
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's or any Guarantor's properties or
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower or any Guarantor;
8.6 If an Insolvency Proceeding is commenced against Borrower and any of
the following events occur: (a) Borrower or any Guarantor consents to the
institution of the Insolvency Proceeding against it; (b) the petition commencing
the Insolvency Proceeding is not timely controverted; (c) the petition
commencing the Insolvency Proceeding is not dismissed within 45 calendar days of
the date of the filing thereof; provided, however, that, during the pendency of
such period, Lender shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, Borrower or any Guarantor; or (e) an
order for relief shall have been issued or entered therein;
8.7 If Borrower or any Guarantor is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any Guarantor's properties or assets by the
United States Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, or if any taxes or
debts owing at any time hereafter to any one or more of such entities becomes a
Lien, whether choate or otherwise, upon any of Borrower's or any Guarantor's
properties or assets and the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's or any Guarantor's properties or assets;
8.10 If there is a default in any material agreement to which Borrower or
any Guarantor is a party with one or more third Persons and such default (a)
occurs at the final maturity of the obligations thereunder, or (b) results in a
right by such third Person(s), irrespective of whether exercised, to accelerate
the maturity of Borrower's or such Guarantor's obligations thereunder;
8.11 If Borrower or any Guarantor makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Lender
by Borrower or a Guarantor or any officer, employee, agent, or director of
Borrower or a Guarantor, or if any such warranty or representation is withdrawn;
or
8.13 If the obligation of any Guarantor under the Guaranty or of any other
third Person under any Loan Document is limited or terminated by operation of
law or by the Guarantor or other third Person thereunder, or any Guarantor or
other third Person becomes the subject of an Insolvency Proceeding.
9. .LENDER'S RIGHTS AND REMEDIES
9.1 .Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default Lender may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and Lender;
(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of Lender, but without affecting Lender's rights
and security interests in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Lender considers advisable, and in such cases,
Lender will credit Borrower's Loan Account with only the net amounts received by
Lender in payment of such disputed Accounts after deducting all Lender Expenses
incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for Lender,
segregate all returned Inventory from all other property of Borrower or in
Borrower's possession and conspicuously label said returned Inventory as the
property of Lender;
(f) Without notice to or demand upon Borrower or any Guarantor, make such
payments and do such acts as Lender considers necessary or reasonable to protect
its security interests in the Collateral. Borrower agrees to assemble the
Collateral if Lender so requires, and to make the Collateral available to Lender
as Lender may designate. Borrower authorizes Lender to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Lender's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned or leased premises, Borrower hereby
grants Lender a license to enter into possession of such premises and to occupy
the same, without charge, for up to 120 days in order to exercise any of
Lender's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived), and
without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9-505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Lender, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Lender;
(h) Hold, as cash collateral, any and all balances and deposits of Borrower
held by Lender to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit;
(j) Sell the Collateral at either a public or private sale, or both, by way
of one or more contracts or transactions, for cash or on terms, in such manner
and at such places (including Borrower's premises) as Lender determines is
commercially reasonable. It is not necessary that the Collateral be present at
any such sale;
(k) Lender shall give notice of the disposition of the Collateral as
follows:
(1) Lender shall give Borrower and each holder of a security interest in
the Collateral who has filed with Lender a written request for notice, a notice
in writing of the time and place of public sale, or, if the sale is a private
sale or some other disposition other than a public sale is to be made of the
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage prepaid, to
Borrower as provided in Section 12, at least 5 days before the date fixed for
the sale, or at least 5 days before the date on or after which the private sale
or other disposition is to be made; no notice needs to be given prior to the
disposition of any portion of the Collateral that is perishable or threatens to
decline speedily in value or that is of a type customarily sold on a recognized
market. Notice to Persons other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as they have furnished to Lender;
(3) If the sale is to be a public sale, Lender also shall give notice of
the time and place by publishing a notice one time at least 5 days before the
date of the sale in a newspaper of general circulation in the county in which
the sale is to be held;
(l) Lender may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by Lender
to Borrower.
9.2 .Remedies Cumulative. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default shall be deemed a continuing waiver. No delay by Lender shall
constitute a waiver, election, or acquiescence by it.
10. .TAXES AND EXPENSES.
If Borrower or a Guarantor fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Lender
determines that such failure by Borrower or such Guarantor could result in a
Material Adverse Change, in its discretion and without prior notice to Borrower,
Lender may do any or all of the following: (a) make payment of the same or any
part thereof; (b) set up such reserves in Borrower's Loan Account as Lender
deems necessary to protect Lender from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type described in Section
6.10, and take any action with respect to such policies as Lender deems prudent.
Any such amounts paid by Lender shall constitute Lender Expenses. Any such
payments made by Lender shall not constitute an agreement by Lender to make
similar payments in the future or a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
11. .WAIVERS; INDEMNIFICATION
11.1 .Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Lender on which Borrower may in any way be liable.
11.2 .Lender's Liability for Collateral. So long as Lender complies with
its obligations, if any, under Section 9-207 of the Code, Lender shall not in
any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 .Indemnification. Borrower shall pay, indemnify, defend, and hold
Lender, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. .NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, or telefacsimile to Borrower or to Lender, as the
case may be, at its address set forth below:
If to Borrower: SPICE ENTERTAINMENT COMPANIES, INC. 536 Broadway, 7th Floor
New York, New York 10012 Attn: Mr. Roger Faherty Fax No. 212.226.6354
with copies to: STRADLEY RONON STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attn: Alan R. Gedrich, Esq.
Fax No. 215.564.8120
If to Lender: MADELEINE L.L.C.
950 Third Avenue
20th Floor
New York, New York 10022
Attn: Mr. Kevin P. Genda
Fax No. 212.758.5305
with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Lender in connection with Sections 9-504 or 9-505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Lender in connection with Sections 9-504 or 9-505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
13. .CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY
PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, OR, AT THE
SOLE OPTION OF LENDER, IN ANY OTHER COURT LOCATED IN A JURISDICTION IN WHICH ALL
OR ANY PORTION OF THE COLLATERAL IS LOCATED AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND LENDER WAIVES,
TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND LENDER
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF
BORROWER AND LENDER REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. .DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers delivered to
Lender may be destroyed or otherwise disposed of by Lender 4 months after they
are delivered to or received by Lender, unless Borrower requests, in writing,
the return of said documents, schedules, or other papers and makes arrangements,
at Borrower's expense, for their return.
15. .GENERAL PROVISIONS.
15.1 .Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and Lender.
15.2 .Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Lender's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Lender shall
release Borrower from its Obligations. Lender may assign this Agreement and its
rights and duties hereunder and no consent or approval by Borrower is required
in connection with any such assignment. Lender reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Lender's rights and benefits hereunder. In connection with any
such assignment or participation, Lender may disclose all documents and
information which Lender now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Lender assigns its rights and
obligations hereunder to a third Person, Lender thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 .Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
15.4 .Interpretation Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Lender or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 .Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 .Amendments in Writing. This Agreement can only be amended by a
writing signed by both Lender and Borrower.
15.7 .Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 .Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any Guarantor of the Obligations or
the transfer by either or both of such parties to Lender of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Lender is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Lender is required or elects
to repay or restore, and as to all reasonable costs, expenses, and attorneys
fees of Lender related thereto, the liability of Borrower or such Guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 .Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
15.10 .Issuance of Preferred Stock.
(a) Borrower has authorized the issuance and delivery to the Lender of
24,250 shares of the Preferred Stock, having the powers, preferences, and
rights, and the qualifications, limitations, or restrictions thereof set forth
in the Certificate of Designation.
(b) Borrower hereby agrees to issue to the Lender and, subject to the terms
and conditions herein set forth, Lender agrees to acquire from the Borrower
24,250 shares of Preferred Stock, in the form of one or more instruments issued
in the name of the Lender or that of its nominee, as the Lender shall request,
in consideration for the execution and delivery of this Agreement by Lender and
the making of the Term Loan and the Advances.
(c) Lender represents, and in entering into this Agreement Borrower
understands, that Lender is an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended, that Lender is
acquiring the Preferred Stock for the purpose of investment and not with a view
to the distribution thereof, and that Lender has no present intention of
selling, negotiating, or otherwise disposing of the Preferred Stock; provided,
however, that the disposition of Lender's property shall at all times be and
remain within its control.
(d) Subject to the conditions precedent set forth in Section 3 and in
reliance upon the representations and warranties set forth in Section 5, the
sale and delivery of the Preferred Stock to be acquired by Lender shall take
place at the offices of Brobeck, Phleger & Harrison LLP, located in New York,
New York, at a closing (the "Closing") on the Closing Date. At the Closing,
Borrower will deliver to Lender the Preferred Stock to be acquired by it.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in New York, New York.
SPICE ENTERTAINMENT COMPANIES, INC.,
a Delaware corporation
By: /s/ J. Roger Faherty
-------------------------------
J. Roger Faherty
Chairman and Chief Executive Officer
MADELEINE L.L.C.,
a New York limited liability company
By: /s/ Kevin Genda
--------------------------------
Kevin Genda
Attorney in Fact
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
CONVERTIBLE PREFERRED STOCK SERIES 1997-A
------------------------------------
SPICE ENTERTAINMENT COMPANIES, INC.
(Pursuant to Section 151 of the General
Corporation Law of the State of Delaware)
------------------------------------
Spice Entertainment Companies, Inc., a Delaware corporation
(the "Company"), acting pursuant to Section 151 of the Delaware General
Corporation Law, as amended, does hereby submit the following certificate of
Designation of Preferences and Rights.
FIRST: The name of the Company is Spice Entertainment Companies, Inc.
SECOND: By unanimous consent of the Board of Directors of the Company as of
January 10, 1997 the following resolutions were adopted, which resolutions are
still in full force and effect and are not in conflict with any provisions of
the Certificate of Incorporation or By-Laws of the Company:
WHEREAS, the Certificate of Incorporation of the Company, as
amended, authorizes preferred stock consisting of 10,000,000 shares,
par value $.01 per share (the "Preferred Stock"), issuable from time to
time in one or more series:
WHEREAS, the Board of Directors of the Company is authorized,
subject to limitations prescribed by law and by the provisions of
Article FOURTH of the Company's Certificate of Incorporation, as
amended, to establish and fix the number of shares to be included in
any series of Preferred Stock and the designation, rights, preferences,
powers, restrictions and limitations of the shares of such series; and
WHEREAS, it is the desire of the Board of Directors to
establish and fix the number of shares to be included in a new series
of Preferred Stock and the designation, rights, preferences and
limitations of the shares of such new series;
NOW, THEREFORE BE IT
RESOLVED, that pursuant to Article FOURTH of the Company's
Certificate of Incorporation, as amended, there is hereby established a
new series of 50,000 shares of Preferred Stock of the Company to be
known as the Convertible Preferred Stock Series 1997-A. The voting
powers, rights, preferences, privileges and restrictions granted to and
imposed upon the Convertible Preferred Stock Series 1997-A are as
follows:
Convertible Preferred Stock Series 1997-A. A class of
Preferred Stock of the Company is hereby created to be limited in amount to
50,000 shares of the authorized but unissued Preferred stock of the Company. The
designations, powers, preferences, rights, qualifications, limitations, and
restrictions of this class ,are as follows:
(1) Designation of Class.
(a) The designation of the class of Preferred Stock created hereby shall be
Convertible Preferred Stock Series 1997-A, par value $.01 per share (the "1997-A
Preferred Stock").
(b) The number of shares of 1997-A Preferred Stock may be decreased (but
not below the number of shares then outstanding) or increased by a certificate
executed, acknowledged, filed and recorded in accordance with the Delaware
General Corporation Law, as amended ("DGCL"), setting forth a statement that a
specified decrease or increase, as the case may be, thereof had been authorized
and directed by a resolution or resolutions adopted by the Board of Directors
pursuant to authority expressly vested in it by the provisions of the
Certificate of Incorporation of the Company.
(2) Dividends.
(a) Amount of Dividends. The record holders of the shares of 1997-A
Preferred Stock (each a "Stockholder" and, collectively, the "Stockholders")
shall be entitled to receive, out of funds legally available therefor,
cumulative dividends at the per annum rate of eight percent (8%) of the
Liquidation Value (as defined hereinafter) per share (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares), payable in quarterly
installments on the last day of each calendar quarter (each, a "Dividend Payment
Date"), in preference and priority to any payment of any cash dividend on the
Company's common stock, $.01 par value per share ("Common Stock"), or any other
shares of capital stock of the Company other than 1997-A Preferred Stock in
respect of dividends (such common stock and other inferior stock being
collectively referred to herein as "Junior Stock"), when, as and if declared by
t he Board of Directors of the Company.
(b) Accrual of Dividends. Such dividends shall accrue with respect to each
share of 1997-A Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day whether or
not earned or declared and whether or not there exists profits, surplus or other
funds legally available for the payment of dividends, and shall be cumulative so
that if such dividends on the 1997-A deficiency shall be fully paid or declared
and set apart for payment before any purchase or acquisition of Junior Stock is
made by the Company, except the repurchase of Junior stock from employees of the
Company upon termination of employment.
(c) Payment of Dividends. Each dividend shall be paid either in additional
shares of 1997-A Preferred Stock ("PIK Dividends") or in cash, as may be elected
by the Company, If the Company fails to pay cash dividends on any Dividend
Payment PIK Dividends shall be paid in full shares only (based on the then
Liquidation Value per share), with a cash payment (based on the then Liquidation
Value per share) equal to the 1997-A Preferred Stock as their names and
addresses appear on the share register of the Company or at the office of the
transfer agent, if any, on the corresponding Dividend Payment Date. Stockholders
will receive written notification from the Company or transfer agent if a
dividend is paid in PIK Dividends, which notification will specify the number of
shares of 1997-A Preferred Stock paid as a dividend and the recipient's
aggregate holdings of 1997-A Preferred Stock as of that Dividend Payment date
and after giving effect to the dividend.
(3) Liquidation Preference.
(a) 1997-A Preferred Stock. In the event of any liquidation dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
1997-A Preferred Stock shall be entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the Company to the
holders of the Junior Stock by reason of their ownership thereof, the amount of
$100.00 (as adjusted for any stock dividend, stock split, combination or other
similar recapitalizaiton affecting such shares) (the "Liquidation Value"), plus
all accrued or declared but unpaid dividends, to and including the date of such
liquidation dissolution and winding up of the Company, on such share for each
share of 1997-A Preferred stock then held by them. If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
1997-A Preferred stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount, then the entire assets and
funds of the Company legally available for distribution shall be distributed
ratably among the holders of the 1997-A Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Common Stock. After the completion of the distribution required by
subsection (a) above, subject to the rights of other series of preferred stock
which may from time to time come into existence, the entire remaining assets and
funds of the Company legally available for distribution, if any, shall be
distributed among the holders of the Common Stock in proportion to the shares of
Common Stock then held by them.
(4) Conversion.
(a) Conversion Right. Shares of 1997-A Preferred Stock shall be convertible
into shares of Common Stock on accordance with the procedure outlined in Section
(4) (b) below in the following instances:
(i) at the election of the record holder thereof (I) at any time after the
second anniversary date of the Closing Date (as defined in the Loan and Security
Agreement dated January 15, 1997 between the Company and Madeleine L.L.C. (the
"Loan Agreement")) or (II) at any time if (x) the average closing bid price (or
is not reported by the relevant reporting agency, then the average last daily
reported sale price) for one (1) share of the Company's Common Stock on any
securities exchange or over-the-counter market on which the Common Stock is then
traded for the thirty (30) trading days prior to the Conversion Date (as defined
hereinafter) is Five Dollars ($5.00) (subject to appropriate adjustments in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), or greater, or (y) an Event of Default
under the Loan Agreement has occurred and is continuing, or (z) the Company
shall have provided notice of redemption to the record holder thereof in
accordance with Section (7) below; or
(ii) at the election of the Company at any time if the average closing bid
price (or, if the closing bid price is not reported by the relevant reporting
agency, then the average last daily reported sale price) for the Company's
Common Stock on any securities exchange or over-the-counter market on which the
Common Stock is then traded for the thirty (30) trading days prior to the
Conversion Date is Six Dollars ($6.00) (subject to appropriate adjustments in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), or greater.
(b) Mechanics of Conversion.
(i) In order to convert shares of 1997-A Preferred Stock into shares of
common Stock, the Stockholder shall surrender the certificate or certificates
for such 1997-A Preferred Stock, duly endorsed, and written notice that such
Stockholder elects to convert all or any of the shares represented by such
certificate or certificates, at the office of the Company or the transfer agent
therefor, if any. Such notice shall state such Stockholder's name or the names
of the nominees in which such holder wishes the certificates and notice by the
Company or the transfer agent shall be the conversion date ("Conversion Date").
The Company shall, as soon as practicable after the Conversion Date, issue and
deliver to such Stockholder, or to his nominee or nominees, a certificate or
certificates for the number of full shares of common Stock to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share of
remaining and a replacement certificate for any shares of 1997-A Preferred Stock
which were not converted by the Stockholder.
(ii) Each share of 1997-A Preferred Stock shall be convertible into such
number of shares of Common stock as is determined by dividing (A) the
Liquidation Value of such share plus all accrued or declared but unpaid
dividends, to and including the Conversion Date, on such share by (B) an amount
equal to (I) the average closing bid price (or, if the closing bid price is not
reported by the relevant reporting agency, then the average last daily reported
sale price) for one (1) share of the Company's Common Stock on any securities
exchange or over-the-counter market on which the Common Stock is then traded for
the thirty (30) trading days prior to the conversion Date multiplied by (II)
0.90 (the "Conversion Price").
(iii) All shares of 1997-A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the right to
receive dividends, shall immediately cease and terminate on the Conversion Date,
except only the rights of the Stockholders thereof to receive shares of Common
Stock in exchange therefor. Any shares of 1997-A Preferred Stock so converted
shall be retired and canceled and shall not be reissued, and the Company may
from time to time take such appropriate action as may be necessary to reduce the
number of shares of authorized 1997-A Preferred stock accordingly.
(c) Reservation of Shares for Issuance upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon conversion of
the 1997-A Preferred Stock as herein provided, such number of shares of Common
Stock as hall then be issuable upon the conversion of all outstanding shares of
the 1997-A Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding shares of
the 1997-A Preferred Stock. The Company covenants that all shares of Common
Stock which shall be so issuable upon conversion of the 1997-A Preferred Stock
as herein provided shall, when issued, be duly authorized, validly issued and
fully paid and non-assessable, free of all liens and charges and not subject to
preemptive rights and that, upon conversion of the 1997-A Preferred Stock, the
appropriate capital stock accounts of the Company shall be duly credited.
(d) Payment of Taxes on Shares Issued Upon Conversion. The issuance of
certificates for shares of Common Stock upon the conversion of shares of the
1997-A Preferred Stock shall be made without charge to the converting holders
for any tax in respect of the issuance of such certificates and such
certificates shall be issued in the respective names of, or in such names as may
be directed by, the Stockholders of the 1997-A Preferred Stock converted;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the shares of the 1997-A
Preferred Stock converted, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(5) Anti-Dilution Rights.
(a) Subdivision or Combination of Shares. Any subdivision or combination of
shares, pursuant to a stock split, reverse stock split or otherwise, of the
Company's Common Stock ("Common Stock Adjustment") shall require, as a condition
precedent, an identical subdivision or combination of the shares of 1997. A
Preferred Stock in the same proportion as that of the Common Stock Adjustment
and as of the same date as the effective or payment date of the Common Stock
Adjustment. The record date for determination of which Stockholders are entitle
to the effect of the subdivision or combination of shares shall be the same date
as the record date for the Common Stock Adjustment.
(b) Stock Dividends. Any issuance of shares of Common Stock (or other
securities convertible into Common Stock) as a dividend or other distribution on
the common Stock ("Common Stock Dividend") shall require, as a condition
precedent, the Common Stock Dividend to record holders of the 1997-A Preferred
Stock on the record date for the Common Stock Dividend. The issuance of
additional shares of 1997-A Preferred Stock shall occur on the same date as the
payment date for the Common Stock Dividend.
(6) No Voting Rights. Stockholders of the 1997-A Preferred Stock shall have
no voting rights with respect thereto, except where specifically otherwise
required by the DGCL.
(7) Redemption.
(a) Right to Redeem. The Company may, at any time after the date hereof and
upon at least thirty (30)days' prior written notice as provided
below, redeem all but not less than all) of the outstanding shares of 1997-A
Preferred Stock as provided in this Section (7) shall be referred to as the
"Redemption Date."
(b) Mechanics of Redemption.
(i) The 1997-A Preferred Stock to be redeemed on the Redemption Date shall
be redeemed by paying for each share in cash the sum of the Liquidation Value of
such share plus an amount equal to all accrued but unpaid dividends, without
interest, prior to the Redemption Date on such share (the "Redemption Price").
(ii) Not less than thirty (30) nor more than ninety (90) days before any
Redemption Date, written notice shall be sent by first class certified mail,
postage prepaid and return receipt requested, by the Company to all Stockholders
of the shares of 1997-A preferred Stock to be redeemed at their respective
addresses as the same shall appear on the books of the Company, specifying the
number of shares to be redeemed, the Redemption Price and the place and date of
such redemption. If such notice of redemption shall have been duly given and if
on or before such Redemption Date the funds necessary for redemption shall have
been set aside so as to be continuously available therefor, then,
notwithstanding that any certificate for share of 1997-A Preferred Stock to be
redeemed shall not have been surrendered for cancellation, after the close of
business on such Redemption Date, the share so called for redemption shall no
longer be deemed outstanding and all rights with respect to such shares shall
forthwith after the close of business on the Redemption Date cease, except only
the right of the Stockholders to receive, upon presentation of a certificate
representing shares so called for redemption, the Redemption Price therefor,
without interest thereon.
(iii) Each Stockholder of outstanding shares of 1997-A Preferred Stock
called for redemption may convert those shares into Common Stock as provided for
herein at any time prior to the Redemption Date.
THIRD: This Certificate of Designation of Preferences and Rights constitutes an
agreement between the Company and all of the Stockholders of the 1997-A
Preferred stock. It may be amended by vote of the Board of Directors of the
Company and the holders of a majority of the outstanding shares of the 1997-A
Preferred Stock.
IN WITNESS WHEREOF, the undersigned have executed this Certificate in the
name and on behalf of Spice Entertainment Companies, Inc. on the 15th day of
January, 1997 and the statements contained herein are affirmed as true under
penalties of perjury.
ATTEST: SPICE ENTERTAINMENT COMPANIES, INC.
/s/ Daniel J. Barsky By: /s/ J. Roger Faherty
- ----------------------------- ------------------------------
Daniel J. Barsky, Secretary J. Roger Faherty, President
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of January
15, 1997, is between SPICE ENTERTAINMENT COMPANIES, INC., a Delaware
corporation (the "Company"), and MADELEINE L.L.C. (the "Initial Holder").
This Agreement is made in connection with a Loan and Security Agreement
of even date herewith (the "Loan Agreement") between the Company and the
Initial Holder. In order to induce Initial Holder to enter into the Loan
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement
The parties hereby agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized terms
shall have the following meanings:
Common Stock: The Common Stock, par value $.01 per share, of
the Company.
Company: See preamble.
Demand Registration: See Section 2(a).
Exchange Act: The Securities Exchange Act of 1934, as amended
from time to time.
Holder: The Initial Holder or such other Person to whom the
Initial Holder (or any subsequent Holder) shall have assigned or transferred
such Holder's Registrable Securities in accordance with this Agreement. A Person
is deemed to be a Holder whenever such Person owns Registrable Securities or
rights to acquire such Registrable Securities, whether or not such acquisition
has actually been effected and disregarding any legal restrictions upon the
exercise of such right.
Initiating Holders: See Section 2(a).
Loan Agreement: See preamble.
Net Proceeds: Offering price less any underwriting discounts
and commissions.
Offered Securities: The amount of Registrable Securities
proposed to be sold in connection with any Demand Registration.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
Piggyback Registration: See Section 3(a).
Preferred Stock: The Convertible Preferred Stock Series 1997-A
of the Company, having the rights and preferences set forth in the Certificate
of Designation of Preferences and Rights, filed with the Secretary of State of
the State of Delaware on January __, 1997.
Prospectus: The prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
Registrable Securities: All shares of Common Stock (including,
without limitation, any such shares into which the Preferred Stock may from time
to time be converted), until such time as (a) they have been effectively
registered under the Securities Act, (b) they are distributed to the public
pursuant to Rule 144 (or any similar provisions then in force) under the
Securities Act or (c) they have otherwise been transferred and a new certificate
or other evidence of ownership for them not bearing a legend that such shares
have not been registered under the Securities Act and not subject to any stop
transfer order has been delivered by or on behalf of the Company and no other
restriction on transfer exists.
Registration Expenses: See Section 7.
Registration Statement: Any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from
time to time.
Underwriters' Maximum Number: For any Demand Registration,
Piggyback Registration or other underwritten registration, that number of shares
of securities to which such registration should, in the opinion of the managing
underwriter or underwriters of such registration in light of market factors, be
limited.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Demand Registration.
(a) Right to Demand Registration.
(i) Subject to the limitations
contained in this Section 2(a)(i), the Holders, at any time and from time
to time, may make a written request for registration with the SEC (a
"Demand Registration") under and in accordance with the provisions of the
Securities Act of all or part of its Registrable Securities and the
Company shall effect such registration; provided, however, that the Company
need not effect a Demand Registration if the Company has effected three (3)
Demand Registrations pursuant to this Section 2(a)(i). If requested by the
Holders demanding registration (the "Initiating Holders"), any Demand
Registration shall be an underwritten offering.
(ii) Within ten days after receipt of any request by a
Holder under this Section 2(a), the Company will give written notice of such
registration request to all other Holders and, subject to Section 2(b),
shall include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein by
certified mail, return receipt requested, from the Holders thereof within
fifteen days after giving of notice by the Company.
(b) Priority on Underwritten Demand Registration. If any of
the Registrable Securities registered pursuant to a Demand Registration are
to be sold in one or more firm commitment underwritten offerings and the
managing underwriters advise in writing the Company and the Holders of such
Registrable Securities of an Underwriters Maximum Number: (i) the Company will
be obligated and required to include in such registration the Registrable
Securities requested to be included in such registration by the Initiating
Holders and the Registrable Securities which shall have been requested to be
included in such registration by Holders other than the Initiating Holders,
pro rata among the Initiating Holder and such other Holders on the basis of
the number of such Registrable Securities requested to be included therein by
the Initiating Holder and such other Holders; (ii) if the Underwriters' Maximum
Number exceeds the sum of the number of Registrable Securities the Company
is required to include in such Demand Registration pursuant to clause (i) of
this sentence, then the Company will be entitled to include in such
registration that number of securities which shall have been requested by the
Company to be included in such registration for the account of the Company and
which shall not be greater than such excess; and (iii) if the Underwriters'
Maximum Number exceeds the sum of the number of Registrable Securities which
the Company shall be required to include in such Demand Registration and
the number of securities which the Company proposes to offer and sell for its
own account in such registration, then the Company may include in such
registration that number of other securities which persons (other than the
Holders as such) shall have requested be included in such registration and
which shall not be greater than such excess. Neither the Company nor any of
its securityholders (other than Holders of Registrable Securities) shall be
entitled to include any securities in any underwritten Demand Registration
unless the Company or such securityholders (as the case may be) shall have
agreed in writing to sell such securities on the same terms and conditions
as shall apply to the Registrable Securities to be included in such Demand
Registration.
(c) Selection of Underwriters. In the event of an
underwritten offering pursuant to Section 2(a), the Initiating Holders shall
be entitled to select the managing underwriters and any additional investment
bankers and managers to be used in connection with the offering; provided,
however, that any Person so selected shall be of nationally recognized
standing and otherwise reasonably satisfactory to the Company.
3. Piggyback Registration.
(a) Right to Include Registrable
Securities. If the Company at any time or from time to time proposes to
register shares of its Common Stock under the Securities Act (other than in a
registration on Form S-4 or S-8 or any successor form to such forms or in
connection with an exchange offer or an offering of securities solely to the
existing stockholders or employees of the Company), whether or not for sale
for its own account, the Company shall deliver prompt written notice to all
Holders of Registrable Securities of its intention to undertake such
registration and of such Holders' rights under this Section 3 as hereinafter
provided. The Company shall use its best efforts to effect the
registration under the Securities Act of all Registrable Securities with respect
to which the Company receives a request for registration from the Holders
thereof by written notice to the Company within twenty days after the date of
the Company's notice to Holders of its intended registration (which notice by
Holders shall specify the amount of Registrable Securities to be registered and
the intended method of disposition thereof), to the extent necessary to permit
the disposition in accordance with the intended methods thereof of all such
Registrable Securities by including such Registrable Securities in the
registration statement pursuant to which the Company proposes to register the
shares of Common Stock (a "Piggyback Registration"); provided, however, that if
such registration involves an underwritten offering, all Holders requesting
inclusion in the registration shall be required to sell their Registrable
Securities to the underwriters selected by the Company at the same price and on
the same terms of underwriting applicable to the Company and any other persons
selling shares of Common Stock, so long as such terms are not inconsistent with
the terms of this Agreement, including, without limitation, the terms of the
Agreement regarding the indemnification and contribution obligations of the
Holders. Notwithstanding the foregoing, if, at any time after giving written
notice of its intention to register Common Stock and prior to the effectiveness
of the registration statement filed in connection with such registration, the
Company determines for any reason either not to effect such registration or to
delay such registration, the Company may, at its election, by the delivery of
written notice to each Holder, (i) in the case of a determination not to effect
registration, relieve itself of its obligation to register the Registrable
Securities in connection with such registration, or (ii) in the case of a
determination to delay the registration, delay the registration of such
Registrable Securities for a reasonable period of time. The Holders requesting
inclusion in a registration pursuant to this Section 3 may, at any time prior to
the effective date of the registration statement relating to such registration,
revoke such request by delivering written notice to the Company revoking such
requested inclusion (which notice shall be effective only upon receipt by the
Company notwithstanding the provisions of Section 11(d)).
(b) Priority in Piggyback Registration. If any of the
Registrable Securities registered pursuant to any Piggyback Registration are
to be sold in one or more firm commitment underwritten offerings and the
managing underwriters advise in writing the Company and the Holders of such
Registrable Securities of an Underwriters' Maximum Number, or, in the case of
a Piggyback Registration not being underwritten, the Company shall reasonably
determine (and notify the Holders of Registrable Securities of such
determination), after consultation with an investment banker of nationally
recognized standing, that the number of shares of Common Stock (including
Registrable Securities) proposed to be sold in such offering is sufficiently
large to materially and adversely affect the success of such offering, the
Company shall include in such registration only such number of shares of
Common Stock (including Registrable Securities) which in the opinion of such
underwriters or the Company, as the case may be, can be sold without
any such material adverse effect, selected in the following order of priority:
(i) first, (A) if the applicable offering is initiated by the Company, all
of the shares of Common Stock that the Company proposes to sell for its own
account, if any, or (B) if the applicable offering is initiated by any
holder(s) of Common Stock pursuant to registration rights granted by the
Company, all of the shares of Common Stock that such holder(s) propose to sell
and (ii) second, with regard to any other Common Stock (including, without
limitation, Registrable Securities) requested to be included in such
registration by holders thereof (including, without limitation, the Holders)
that have requested their Common Stock to be included therein, or in their sole
and absolute discretion, such of such shares as the managing underwriters shall
deem advisable, allocated pro rata among such holders based on the number of
shares of such Common Stock that each such holder shall have requested to be
included therein.
4. Hold-Back Agreements.
(a) Restrictions on Public Sale by
Holder of Registrable Securities. Each Holder whose Registrable Securities
are eligible for inclusion in a Registration Statement filed pursuant to
Section 2 or 3 agrees, if requested by the managing underwriter or underwriters
in an underwritten offering of any Registrable Securities, not to effect
any public sale or distribution of Registrable Securities, including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act (except as part of such underwritten registration), during
the 14-day period prior to, and during the 180-day period (or such shorter
period as may be agreed to by the parties hereto) beginning on, the
effective date of such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriter or underwriters.
The foregoing provisions shall not apply to any Holder if
such Holder is prevented by applicable statute or regulation from
entering into any such agreement; provided, however, that any such Holder
shall undertake, in its request to participate in any such underwritten
offering, not to effect any public sale or distribution of Registrable
Securities (except as part of such underwritten registration) during such
period unless it has provided 45 days' prior written notice of such sale or
distribution to the managing underwriter or underwriter.
(b) Restrictions on Public Sale by the Company and Others.
The Company agrees (i) not to effect any public sale or distribution of any
of its Common Stock for its own account during the 14-day period prior to,
and during the 90-day period beginning on, the effective date of a Registration
Statement filed pursuant to Section 2 or 3 (except as part of such underwritten
registration or pursuant to registrations on Form S-4 or S-8 or any successor
form to such forms or in connection with an exchange offer or an offering of
securities solely to the existing stockholders or employees of the Company),
and (ii) use reasonable efforts to cause each holder of Common Stock purchased
from the Company at any time after the date of this Agreement (other than
in a registered public offering) to agree not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration, if permitted).
5. Registration Procedures.
Subject to Section 6 and provided that nothing contained
herein shall prohibit the Company from abandoning a registration in which the
Holders have requested to participate pursuant to Section 3, once the Company
incurs registration obligations under Section 2 or 3, the Company will use its
best efforts to effect such registrations to permit the sale of such Registrable
Securities in accordance with the intended method or methods of distribution
thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC a Registration
Statement relating to such registration on any appropriate form under the
Securities Act, which form shall be available for the sale of the Registrable
Securities by the Holders thereof in accordance with the intended method or
methods of distribution thereof, and use its best efforts to cause such
Registration Statement to become effective; provided, however, that before
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial
filing of any Registration Statement, the Company will furnish to the
Holders of the Registrable Securities covered by such Registration
Statement, their counsel and the underwriters, if any, copies of all such
documents proposed to be filed sufficiently in advance of filing to
provide them with a reasonable opportunity to review such documents and
comment thereon;
(b) prepare and file with the SEC such amendments and
post-effective amendments to a Registration Statement as may be necessary to
keep such Registration Statement effective for a period of not less than 6
months (or such shorter period which shall terminate when all Registrable
Securities covered by such Registration Statement have been sold or withdrawn,
but not prior to the expiration of the 90-day period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if applicable); cause
the related Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the
Securities Act applicable to it with respect to the disposition of
all securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to such
Prospectus;
(c) notify each Holder of Registrable Securities
included in the Registration Statement, their counsel and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such notice in writing, (1) when a Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (2) of any request by the SEC for amendments or supplements
to a Registration Statement or related Prospectus or for additional
information, (3) of the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose, (4) if at any time the representations and warranties of the
Company contained in agreements contemplated by Section 5(n) cease to be
true and correct, (5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, (6) of the happening of any event as a
result of which the Prospectus included in the Registration Statement (as
then in effect) contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus or any preliminary
Prospectus, in light of the circumstances under which they were made) not
misleading and (7) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate or
that there exist circumstances not yet disclosed to the public which
make further sales under such Registration Statement inadvisable pending such
disclosure and post-effective amendment;
(d) upon the occurrence of any event contemplated by Section
5(c)(2)-(7), prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue statement of
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(e) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Registration Statement,
or the lifting of any suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment;
(f) if reasonably requested by a managing underwriter or any
Holder of Registrable Securities, immediately incorporate in a Prospectus
supplement or post-effective amendment such information concerning such Holder
of Registrable Securities, the managing underwriter or underwriters or the
intended method of distribution as the managing underwriter or underwriters
or the Holder of Registrable Securities reasonably requests to be included
therein and as is appropriate in the reasonable judgment of the Company,
including, without limitation, information with respect to the number of
shares of the Registrable Securities being sold to such underwriter or
underwriters, the purchase price being paid therefor by such underwriter or
underwriters and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be
sold in such offering; make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration
Statement if requested by a managing underwriter of such Registrable Securities;
(g) furnish to each Holder of Registrable Securities included
in such Registration Statement and each managing underwriter, if any, without
charge, one manually-signed copy of the Registration Statement and any post-
effective amendments thereto, including financial statements and schedules,
and, upon request, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference);
(h) deliver to each Holder of Registrable Securities included
in such Registration Statement, their counsel and the underwriters, if any,
without charge, as many copies of the Prospectus or Prospectuses (including
each preliminary prospectus) and any amendment or supplement thereto as such
Persons may reasonably request; the Company consents to the use of such
Prospectus or any amendment or supplement thereto by each Holder of
Registrable Securities included in the Registration Statement and the
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or
supplement thereto;
(i) prior to any public offering of Registrable
Securities, use its best efforts to register or qualify, or cooperate with
the Holders of Registrable Securities included in the Registration Statement,
the underwriters, if any, and their respective counsel in connection with
the registration or qualification of, such Registrable Securities for offer and
sale under the securities or blue sky laws of such jurisdictions as
any Holder or underwriter reasonably requests in writing; use its best
efforts to keep each such registration or qualification effective, including
through new filings or amendments or renewals, during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company will not be
required to qualify to do business or take any action that would subject
it to taxation or general service of process in any jurisdiction where it is
not then so qualified or subject;
(j) cooperate with the Holders of Registrable Securities
included in the Registration Statement and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be sold under the Registration Statement; and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or such Holders may
request at least two business days prior to any sale of Registrable Securities;
(k) use its best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof or the underwriter
or underwriters, if any, to consummate the disposition of such Registrable
Securities;
(l) use its best efforts to cause the Registrable Securities
covered by the Registration Statement to be listed, by the date of the first
sale of Registrable Securities pursuant to such Registration Statement,
on each securities exchange on which the Common Stock is then listed or proposed
to be listed, if any;
(m) provide a transfer agent and registrar for the
Registrable Securities not later than the effective date of such Registration
Statement;
(n) enter into such agreements and take all such other
reasonable actions in connection therewith in order to expedite or facilitate
the disposition of such Registrable Securities and in such connection,
in the case of an underwritten offering, (l) enter into an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings and use its best efforts to obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriter
or underwriters) addressed to each selling Holder and the underwriters,
if any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other related matters as may be reasonably
requested by such Holders and underwriters, (2) use its best efforts to obtain
a "cold comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to each Holder of Registrable Securities
included in the Registration Statement and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters given by accountants in connection with
underwritten offerings, (3) the underwriting agreement shall set forth in full
the indemnification and contribution provisions and procedures of Section 8
with respect to all parties to be indemnified pursuant to said Section, and (4)
the Company shall deliver such documents and certificates as may be reasonably
requested by the managing underwriter or underwriters, if any, to evidence
compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder;
(o) make available for inspection by a representative of the
Holders of Registrable Securities included in the Registration Statement,
any underwriter participating in any disposition pursuant to such Registration
Statement and any lawyer or accountant retained by such selling Holders or
underwriter, all pertinent financial and other records, pertinent corporate
documents and properties of the Company as they may reasonably request, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, lawyer or
accountant in connection with such Registration Statement; provided, however,
that any records, information or documents that are furnished by the Company
and that are non-public shall be used only in connection with such registration
and shall be kept confidential by such Persons except to the extent
disclosure of such records, information or documents is required by law; and
(p) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make generally available to its
securityholders earnings statements satisfying the provisions of Section
11(a) of the Securities Act, no later than 90 days after the end of any
12-month period (1) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm or best efforts
underwritten offering and (2) beginning with the first day of the Company's
first fiscal quarter next succeeding each sale of Registrable Securities after
the effective date of a Registration Statement, which statements shall cover
said 12-month periods.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish promptly to the
Company such information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5(c)(2)-(7), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus until such Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
5(d), or until it is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in such Prospectus,
and, if so directed by the Company, such Holder will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the time period mentioned in Section 5(b) during which a
Registration Statement is required to be kept effective shall be extended by the
number of days during the time period from and including the date of the giving
of such notice pursuant to Section 5(c) to and including the date when each
seller of Registrable Securities covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 5(d).
For purposes of Sections 2 and 3, the Holders who have
requested registration of Registrable Securities to be acquired upon the
conversion of shares of Preferred Stock not theretofore converted shall
furnish the Company with an undertaking that they or the underwriters or
other persons to whom such shares of Preferred Stock will be transferred have
undertaken to convert such shares and to sell, transfer or otherwise dispose
of the Registrable Securities received upon conversion of such shares in
such registration.
6. Delay of Registration.
The Company may delay the filing of a registration for a
reasonable period of time, not to exceed six (6) months, for the purpose of
permitting the Company to (i) effect disclosure or consummation of any
transaction or transactions requiring confidential treatment which are being
pursued at such time, (ii) negotiate, effect or complete any financing
transaction which the Company reasonably believes might be jeopardized, delayed
or made more costly to the Company by the filing of the registration, or (iii)
prepare or obtain such certified financial statements as may be required to be
included in the Registration Statement to the extent such certified financial
statements have not been prepared or are not otherwise available at the time.
7. Registration Expenses.
(a) All expenses incident to the
Company's performance of or compliance with this Agreement, including,
without limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees
and disbursements of counsel for the underwriters or selling Holders in
connection with blue sky qualifications of the Registrable Securities under
the laws of such jurisdictions as the managing underwriter or underwriters
or Holders of a majority of the shares of the Registrable Securities
being sold may designate), printing expenses, messenger, telephone and delivery
expenses, and fees and disbursements of counsel of the Company and for not more
than one counsel to the sellers of the Registrable Securities selected as
provided in paragraph (b) below and of all independent certified public
accountants of the Company (including the expenses of any special audit
and "cold comfort" letters required by or incident to such performance),
underwriters (including transfer taxes, discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
legal expenses of any Person other than the Company and the selling Holders),
securities acts liability insurance if the Company so desires and fees and
expenses of other Persons retained by the Company (all such expenses being
herein called "Regulation Expenses") will be borne by the Company whether or not
the Registration Statement becomes effective. The Company will, in any event,
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange
on which similar securities issued by the Company are then listed and the fees
and expenses of any Person, including special experts, retained by the Company.
(b) Notwithstanding the foregoing, in connection with each
registration hereunder, the Company will reimburse the Holders of Registrable
Securities included in the Registration Statement for the reasonable fees and
disbursements of not more than one counsel, which counsel shall be chosen by
the Holders of a majority of the Registrable Securities included in the
Registration Statement.
8. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each Holder
of Registrable Securities registered pursuant to any registration hereunder,
its officers, directors, partners and agents and each Person who controls
such Holder or agents (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary Prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a Prospectus or any
preliminary Prospectus, in the light of the circumstances under which they were
made) not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such Holder of its
representative expressly for use therein; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission in a
Prospectus, if such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in an amendment or supplement to the
Prospectus and the Holder of Registrable Securities thereafter had a duty but
failed to deliver such Prospectus as so amended or supplemented prior to or
concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the
Company had furnished such Holder with the number of copies of such amended or
supplemented Prospectus reasonably requested by such Holder. The Company will
also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the Securities Act) to the same extent as provided above with respect
to the indemnification of the Holders; provided, however, that if pursuant to an
underwritten public offering of Registrable Securities, the Company and any
underwriters enter into an underwriting or purchase agreement relating to such
offering which contains provisions relating to indemnification and contribution
between the Company and such underwriters, such provisions shall be deemed to
govern indemnification and contribution as between the Company and such
underwriters.
(b) Indemnification by Holders. In connection with any
registration hereunder, each Holder participating in such registration will
promptly furnish to the Company in writing such information and affidavits
with respect to such Holder as the Company reasonably requests for use in
connection with any Registration Statement or Prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers and agents and each Person who controls the Company (within the
meaning of the Securities Act) against any losses claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of a material
fact or any omission or alleged omission of a material fact to be stated in
any Registration Statement or Prospectus or Preliminary Prospectus or
necessary to make the statements therein (in the case of a Prospectus, in the
light of the circumstances under which they were made) not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information or affidavit with respect to such Holder so
furnished in writing by such Holder or its representatives to the Company
specifically for inclusion in such Registration Statement or Prospectus. In
no event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution to the same extent as
provided above with respect to information so furnished in writing by such
persons or their representatives to the Company specifically for inclusion in
any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt written notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party;
provided, however, that any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at
the expense of such Person unless (x) the indemnifying party has agreed in
writing to pay such fees or expenses, or (y) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such Person or (z) in the reasonable judgment of any such
Person and the indemnifying party, based on advice of their respective
counsel, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim
on behalf of such Person). If such defense is not assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld). No indemnifying party will be required to consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the indemnified party of
a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If the indemnification provided for in
this Section 8 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expense referred to therein, then the indemnifying party in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action; provided, however, that in
no event shall the liability of any selling Holder hereunder be greater in
amount than the difference between the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such contribution obligation and all amounts previously contributed by such
Holder with respect to such losses, claims, damages, liabilities and expenses.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
9. Rule 144.
If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder, and it
will take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such information and
requirements. Notwithstanding the foregoing, the Company may deregister any
class of its equity securities under Section 12 of the Exchange Act or suspend
its duty to file reports with respect to any class of its securities pursuant to
Section 15(d) of the Exchange Act if it is then permitted to do so pursuant to
the Exchange Act and the rules and regulations thereunder.
10. Underwritten Registration.
If any of the Registrable Securities covered by any Piggyback
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the Company; provided, however, that any Person so selected
shall be of nationally recognized standing.
Notwithstanding anything herein to the contrary, no Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwritten arrangements approved by the Persons entitled hereunder to approve
such arrangement and (b) accurately completes and executes all questionnaires,
powers of attorney, indemnities, custody agreements, underwriting agreements and
other documents required under the terms of such underwriting arrangements
(provided, however, that no Person will be obligated to provide indemnification
or contribution to such underwriter on a basis different than as set forth in
Section 8).
11. Miscellaneous.
(a) Remedies. In the event of a breach by the Company
of its obligations under this Agreement, each Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreement. Except as previously
disclosed to the Initial Holder in writing, the Company has not previously
entered into any agreement with respect to its Common Stock granting any
registration rights to any Person, and will not on or after the date of this
Agreement enter into any agreement with respect to its securities which grants
demand registration rights to anyone or which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written consent of
Holders owning at least a majority of the shares of the Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and which does not directly or
indirectly affect the rights of other Holders may be given by Holders owning
a majority of the shares of the Registrable Securities being sold by such
Holders; provided, however, that the provisions of this sentence may
not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence; provided further, that
in addition to satisfying the consent requirements set forth above, if any
amendment or waiver proposed hereunder would reasonably be expected to (A)
affect any Holder (an "Affected Holder") differently than any other Holder
with the result that (i) such Affected Holder's liabilities hereunder are
differentially increased; (ii) such Affected Holder's economic benefits
hereunder are differentially reduced; or (iii) any other Holder's benefits
are differentially increased, then such amendment or waiver shall be effective
only, in the case of (i) and (ii), with the consent of such Affected Holder,
and in the case of (iii), with the consent of each Affected Holder, or
(B) in the case of the Initial Holder, cause the Initial Holder to be deemed
the beneficial owner of a greater quantity of Securities of any class than is
permitted under any requirement of any governmental authority binding upon the
Initial Holder or cause the Initial Holder to be in violation of any other
requirement of any governmental authority, then such amendment or waiver shall
be effective only with the consent of the Initial Holder.
(d) Notices. All notices provided for or permitted hereunder
shall be made in writing by hand delivery, registered or certified first-class
mail, telex, telecopier or air courier guaranteeing overnight delivery:
(i) if to a Holder, at such Holder's
address on the stock transfer books
of the Company; and
(ii) if to the Company, to:
Spice Entertainment Companies, Inc.
536 Broadway, 7th Floor
New York, New York 10012
Attention: President
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 11(d).
All such notices shall be deemed to have been duly given: when
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of
the parties, including, without limitation, subsequent Holders of
Registrable Securities agreeing to be bound by all of the terms and conditions
of this Agreement.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all
of which taken together shall constitute one and the same instrument.
(g) Heading. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
(h) Governing Law. The validity, performance construction
and effect of this Agreement shall be governed by and construed in accordance
with the internal laws of the State of Delaware, without giving effect to
principles of conflicts of law.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred
to herein, with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and
any other available remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
SPICE ENTERTAINMENT COMPANIES, INC.
By: /s/ J. Roger Faherty
-------------------------------
J. Roger Faherty
Chairman and Chief Executive Officer
MADELEINE L.L.C.
By: /s/ Kevin Genda
-------------------------------
Kevin Genda
Managing Director
