UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
PLATINUM ENTERTAINMENT, INC.
----------------------------
(Name of Issuer)
Common Stock, par value $.001 per share
---------------------------------------
(Title of Class of Securities)
727909103
------------------------------------
(CUSIP Number)
MARK J. SCHWARTZ
1285 Avenue of the Americas, 21st Floor
New York, New York 10019
(212) 641-5001
------------------------------------
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
with a copy to
BRUCE A. GUTENPLAN, ESQ. JERRY SHULMAN, ESQ.
Paul, Weiss, Rifkind, Wharton & Garrison Williams & Connolly
1285 Avenue of the Americas 725 12th Street, N.W.
New York, New York 10019-6064 Washington, D.C. 20005
December 12, 1997
---------------------------------------
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject to this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purposes of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes.)
<PAGE>
2
CUSIP No. 727909103
1 NAME OF REPORTING PERSON
SK-Palladin Partners, LP
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
DELAWARE
7 SOLE VOTING POWER
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 1,800,000
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH
REPORTING 10 SHARED DISPOSITIVE POWER
PERSON 1,800,000
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,800,000
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
25.4%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
3
CUSIP No. 727909103
1 NAME OF REPORTING PERSON
SK-Palladin Holdings, LP
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
DELAWARE
7 SOLE VOTING POWER
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 1,800,000
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH
REPORTING 10 SHARED DISPOSITIVE POWER
PERSON 1,800,000
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,800,000
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
25.4%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
4
CUSIP No. 727909103
1 NAME OF REPORTING PERSON
SK-Palladin Gen Par, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
DELAWARE
7 SOLE VOTING POWER
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 1,800,000
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH
REPORTING 10 SHARED DISPOSITIVE POWER
PERSON 1,800,000
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,800,000
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
25.4%
14 TYPE OF REPORTING PERSON
CO
<PAGE>
5
CUSIP No. 727909103
1 NAME OF REPORTING PERSON
Mark J. Schwartz
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
PF, AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 1,800,000
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH
REPORTING 10 SHARED DISPOSITIVE POWER
PERSON 1,800,000
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,800,000
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
25.4%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
6
Item 1. Security and Issuer.
-------------------
This Statement on Schedule 13D relates to the Common Stock, par
value $.001 (the "Common Stock"), of Platinum Entertainment, Inc., a Delaware
corporation (the "Company"), whose principal executive office is located at 2001
Butterfield Road, Suite 1400, Downers Grove, Illinois 60515.
Item 2. Identity and Background.
-----------------------
(a), (b), (c) and (f). This Statement on Schedule 13D is being filed
on behalf of each of the following persons (collectively, the "Reporting
Persons"):
(i) SK-Palladin Partners, LP, a Delaware limited partnership
("Palladin");
(ii) SK-Palladin Holdings, LP, a Delaware limited partnership
("Palladin Holdings");
(iii) SK-Palladin Gen Par, Inc., a Delaware corporation ("Palladin
Gen Par"); and
(iv) Mark J. Schwartz ("Schwartz").
Palladin was formed in order to engage in the acquiring, holding and
disposing of investments in various companies for investment purposes. Palladin
Holdings is the general partner of Palladin and was formed to act as the general
partner of Palladin. Palladin Gen Par is the general partner of Palladin
Holdings and was formed to act as the general partner of Palladin Holdings.
<PAGE>
7
Schwartz is the sole executive officer of Palladin Gen Par in his
capacity as Chief Executive Officer, President, Secretary and Treasurer. The
directors of Palladin Gen Par are Schwartz and Sidney Kimmel ("Kimmel").
Schwartz, in his capacity as the sole executive officer and controlling
stockholder of Palladin Gen Par has discretion to direct the investment and
voting decisions of Palladin Gen Par and as such Schwartz may be deemed to have
shared investment and voting discretion with respect to securities beneficially
owned by Palladin Gen Par through Palladin Holdings and Palladin.
Accordingly, pursuant to the regulations promulgated under Section
13(d) of the Securities Exchange Act of 1934, Palladin Holdings, Palladin Gen
Par and Schwartz, in his capacity as the executive officer and controlling
stockholder of Palladin Gen Par, each may be deemed a beneficial owner of the
Common Stock owned by Palladin.
The address of the principal business and principal offices of
Palladin, Palladin Holdings, Palladin Gen Par and Schwartz is 1285 Avenue of the
Americas, 21st floor, New York, New York 10019. The present principal occupation
or employment of Schwartz is as President and Chief Executive Officer of
Palladin Capital Group, Inc. ("Palladin Capital"), an affiliate of Palladin. The
address of the principal business and principal offices of Palladin Capital is
1285 Avenue of the Americas, 21st Floor, New York, New York, 10019. Schwartz is
a United States citizen.
Kimmel's business address is c/o Jones Apparel Group, Inc. ("Jones
Apparel"), 250 Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania 19007.
<PAGE>
8
Kimmel's present principal occupation or employment is as the Chairman of Jones
Apparel. Kimmel is a United States citizen.
(d) and (e). During the past five years, neither any Reporting
Person nor, to the best knowledge of each Reporting Person, any individual
otherwise identified in response to Item 2, has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of which any such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
Pursuant to an Investment Agreement, dated as of October 12, 1997,
as amended by letter amendments dated October 28, 1997, October 30, 1997 and
November 26, 1997 (the "Investment Agreement"), among the Company, Palladin and
MAC Music LLC ("MAC" and, together with Palladin, the "Purchasers"), on December
12, 1997, the Company issued, and Palladin acquired from the Company, 10,000
shares of the Company's Series B Convertible Preferred Stock, par value $.001
per share (the "Series B Preferred Stock"), and a warrant (the "Warrant") to
purchase 1,800,000 shares of Common Stock for an aggregate purchase price of
$10,000,000 (the "Purchase Price"). A copy of the Investment Agreement is
attached hereto as Exhibit 1.
<PAGE>
9
Simultaneously with the acquisition by Palladin of the Series B
Preferred Stock and the Warrant, and pursuant to the Investment Agreement, the
Company issued, and MAC acquired from the Company, 10,000 shares of the
Company's Series B Preferred Stock and a warrant to purchase 1,800,000 shares of
Common Stock for an aggregate purchase price of $10,000,000 paid by MAC. The
warrants issued to the Purchasers pursuant to the Investment Agreement are
collectively referred to herein as the "Purchaser Warrants."
To the extent that the Purchasers are acting together in acquiring
the Purchaser Warrants and Series B Preferred Stock from the Company, they may
be deemed under Rules of the Securities and Exchange Commission to be a group
for purposes of filing Statements on Schedule 13D to report such acquisitions.
The Reporting Persons have no agreements, arrangements or understandings with
MAC (and disclaim that they are a group with MAC) with respect to the holding,
voting or disposing of any shares of Common Stock or the acquisition of any
additional shares of Common Stock.
The Reporting Persons disclaim beneficial ownership of any of the
shares of Common Stock beneficially owned by MAC and understand that MAC also
disclaims beneficial ownership of any shares of Common Stock deemed to be
beneficially owned by any Reporting Person. The Reporting Persons understand
that MAC has satisfied any obligations it may have to file a Statement on
Schedule 13D by reason of entering into the Investment Agreement with the
Company by making a separate filing on Schedule 13D.
<PAGE>
10
The funds used by Palladin to pay the Purchase Price were obtained
by Palladin from capital contributions made by its general and limited partners
pursuant to preexisting capital commitments. To the extent that Palladin
Holdings, as general partner of Palladin, contributed any funds to Palladin,
such funds were obtained by Palladin Holdings from capital contributions made by
its general and limited partners pursuant to prexisting commitments. To the
extent that Palladin Gen Par, as general partner of Palladin Holdings,
contributed any funds to Palladin Holdings, such funds were obtained by Palladin
Gen Par from capital contributions made by its shareholders.
Item 4. Purpose of Transaction.
----------------------
The Reporting Persons have acquired the shares of Series B Preferred
Stock and the Warrant for investment purposes.
A copy of the Investment Agreement is attached hereto as Exhibit 1
and incorporated by reference herein, a copy of the Certificate of Designation
for the Series B Preferred Stock (the "Series B Certificate") is attached hereto
as Exhibit 2 and incorporated herein by reference and a copy of the Warrant is
attached hereto as Exhibit 3 and incorporated herein by reference. Set forth
below is a summary of the material terms of the Investment Agreement, Series B
Certificate and the Warrant. The following summary is qualified in its entirety
by reference to the Investment Agreement, the Series B Certificate and the
Warrant.
<PAGE>
11
TERMS OF THE INVESTMENT AGREEMENT
REGISTRATION RIGHTS. Pursuant to the Investment Agreement, the Company
granted the Purchasers certain demand and piggyback registration rights as
described more fully in the Investment Agreement in connection with shares of
Common Stock issued or issuable upon conversion of the Series B Preferred Stock
or exercise of the Warrant ("Registrable Securities"). The purpose of such
registration rights is to facilitate Palladin's ability to dispose of its
Registrable Securities in a public sale and the grant of such registration
rights to Palladin under the Investment Agreement does not represent any present
intention on behalf of Palladin to dispose of any Registrable Securities to be
covered by such a registration statement, although such rights may be exercised
by Palladin in the future.
BOARD REPRESENTATION. Pursuant to the Investment Agreement, for so long as
the Purchasers (and their affiliates) hold in the aggregate not less than 35% of
the Warrant Shares (as hereinafter defined), the Company's Board of Directors
will consist of not more than eleven members, four of which will be designated
by the Purchasers (the "Purchaser Directors") and two of which shall be
individuals who are neither Purchaser Directors nor officers or employees of the
Company or its affiliates ("Unaffiliated Directors"). During such time as the
Purchasers (and their affiliates) hold in the aggregate at least 15% but less
than 35% of the Warrant Shares, the Purchasers shall be entitled to designate
two Purchaser Directors. If (a) the Company defaults on its obligation to
purchase the Purchaser Warrants in accordance with the terms of the Purchaser
Warrants or (b) an event of default occurs under the Company's senior
<PAGE>
12
loan facility and (1) such default continues for at least 30 days after any
applicable notice or grace period or (2) the senior indebtedness is accelerated,
the Purchasers shall be entitled to designate additional directors such that
Purchaser Directors constitute a majority of the Board. "Warrant Shares" means
shares of Common Stock underlying the Purchaser Warrants and shares of Common
Stock that were received upon exercise of such warrants. Subsequent to the
issuance of the Purchaser Warrants to each of Palladin and MAC pursuant to the
Investment Agreement, Palladin designated Schwartz and Christopher M. Unrath as
Purchaser Directors and MAC designated Lisa A. Hook and Robert J. Morgado as
Purchaser Directors.
COMMITTEES. Pursuant to the Investment Agreement, for so long as the
Purchasers (and their affiliates) hold in the aggregate not less than 35% of the
Warrant Shares, any Committees of the Board of Directors, including the
executive, audit and compensation committees, will have a majority of Purchaser
Directors and Unaffiliated Directors. Two members of each committee shall be
Purchaser Directors. If the Purchasers (and their affiliates) hold at least 15%
but less than 35% of the Warrant Shares, one member of each committee shall be a
Purchaser Director.
MAJOR DECISIONS. Pursuant to the Investment Agreement, for so long as the
Purchasers (and their affiliates) hold in the aggregate not less than 35% of the
Warrant Shares, certain major decisions, as set forth in the Investment
Agreement, must be approved by two-thirds of the Board of Directors. Each of the
Board members will be allowed to vote with respect to the major decisions
described in the Investment Agreement regardless of such director's interest in
any decision. For so long as any Purchaser Warrants or Warrant Shares remain
outstanding, any
<PAGE>
13
transactions between the Company and an affiliate (other than transactions
between or among the Company and its subsidiaries in the ordinary course)
including payments, property or assets in excess of $200,000 must be approved by
members of the Board of Directors who constitute a majority of those directors
who are either Unaffiliated Directors or Purchaser Directors.
TERMS OF THE SERIES B PREFERRED STOCK
DIVIDENDS. The Series B Preferred Stock accrues dividends compounded
quarterly at an annual rate of 12% for the first year, 14% for the second year,
16% for the third year, 18% for the fourth and fifth years and 20% at all times
thereafter, of the $1,000 per share liquidation value (the "Liquidation Value")
in preference to any dividend on any other class of capital stock.
OPTIONAL REDEMPTION. The Series B Preferred Stock is redeemable, in whole
or part, at the option of the Company, at any time, on at least 60 days' notice,
at a redemption price equal to the Liquidation Value plus accrued and unpaid
dividends (the "Redemption Value").
CONVERSION. A Series B Preferred stockholder has the right to convert each
share of Series B Preferred Stock, at the option of the holder, at any time or
times, commencing two years from the date of issuance, into shares of Common
Stock at the Conversion Price. The "Conversion Price" will be the lesser of (i)
$5.9375 per share of Common Stock and (ii) 100% of the average of the daily
closing price per share of Common Stock for 30 consecutive trading days
following the public release by the Company of its consolidated earnings
statement for the 1998 fiscal year; provided that
<PAGE>
14
if shares of Common Stock are not then traded on any national securities
exchange or quoted on the Nasdaq Stock Market or a similar service, the closing
price for the foregoing purpose shall be deemed to be the fair market value of a
share of Common Stock as determined in good faith by the Board of Directors. If
the Board of Directors is unable to determine fair market value or if the
holders of a majority of the outstanding shares of the Series B Preferred Stock
disagree with the Board's determination, then fair market value will be
determined by an independent financial expert. The number of shares of Common
Stock issuable upon conversion of a share of the Series B Preferred Stock will
be such number as is equal to the quotient obtained by dividing the then
applicable Redemption Value of such share by the Conversion Price. The
Conversion Price and the number of shares issuable upon conversion of the Series
B Preferred Stock will be subject to adjustment upon the occurrence of certain
events as set forth in the Series B Certificate.
CHANGE OF CONTROL. In the event that there is a Change of Control of the
Company (as defined below), the Company will be obligated to offer to purchase
all of the outstanding shares of the Series B Preferred Stock at a price equal
to a premium over the then applicable Redemption Value (the "Repurchase Price").
The Company is obligated to make such offer as soon as practicable and if
possible not less than 60 days prior to the effective date of the Change of
Control (the "Trigger Date"). Payment for the Series B Preferred Stock tendered
pursuant to such offer will be made on the Trigger Date. "Change of Control"
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any person or entity or
group of persons or entities acting in
<PAGE>
15
concert as a partnership or other group (a "Group of Persons"), (ii) the merger
or consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 50% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors, (iii) the replacement of a
majority of the Board of Directors, over a two-year period, from the directors
who constituted the Board of Directors at the beginning of such period, and such
replacement shall not have been approved by the Board of Directors (or its
replacements approved by the Board of Directors) as constituted at the beginning
of such period, or (iv) a person or Group of Persons (other than the Purchasers
and their affiliates) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of the Company representing 49% or more of the
combined voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors.
The Repurchase Price will be payable (A) in cash, in the case of
Change of Control pursuant to clauses (i) through (iii) of the definition of
Change of Control set forth above and (B) at the Company's election, either in
cash or in Common Stock, in the case of a Change of Control pursuant to clause
(iv) of the
<PAGE>
16
definition of Change of Control set forth above. If paid in cash, the Repurchase
Price shall be 110% of the then applicable Redemption Value. If paid in Common
Stock, the Repurchase Price shall be 125% of the then applicable Redemption
Value, and the shares issued will be registered under the Securities Act of
1933, as amended, and the securities or blue sky laws of any jurisdiction
designated by any holder of Series B Preferred Stock which accepts the Change of
Control offer.
LIQUIDATION PREFERENCES. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Series B Preferred
stockholders will be entitled to receive, after payment or provision for payment
of the Company's debts and other obligations, in preference to the holders of
any class of stock junior to the Series B Preferred Stock, an aggregate amount
equal to the Liquidation Value plus accrued and unpaid dividends.
VOTING RIGHTS. Approval by holders of a majority of the outstanding shares
of Series B Preferred Stock, voting as a separate class, will be required for
any action which (a) alters or changes the rights, preferences or privileges of
the Series B Preferred Stock, (b) creates or issues any new class of shares
having, or reclassifies any junior class or series of shares to have, a
preference over or parity with the Series B Preferred Stock, (c) effects any
redemption or repurchase of any capital stock or options of the Company (other
than upon the repurchase by the Company of Common Stock or options issued to
employees or others providing services to the Company up to an aggregate amount
of $1 million), or (d) declares or pays any dividends with respect to any class
of stock junior to or on a parity with the Preferred Stock.
<PAGE>
17
In addition, if any shares of Series B Preferred Stock remain
outstanding on the fifth anniversary of the issuance date, then the number of
directors on the Company's Board of Directors will be increased by four and the
holders of the shares of Series B Preferred Stock, voting separately as a class,
will be entitled to elect eight directors.
TERMS OF THE WARRANT
EXERCISE RIGHTS. The Common Stock underlying the Warrant may be purchased
at a price (the "Exercise Price") equal to the lesser of (i) $6.25 per share of
Common Stock (the "Initial Exercise Price") and (ii) 82.5% of the average of the
daily closing price per share of Common Stock for the 30 consecutive trading
days following the public release by the Company of its consolidated earnings
statement for the 1998 fiscal year ("Thirty Day Period"); provided that if
shares of Common Stock are not then traded on any national securities exchange
or quoted on the Nasdaq Stock Market or a similar service, the closing price for
the foregoing purpose shall be deemed to be the fair market value of a share of
Common Stock as determined in good faith by the Board of Directors. If the Board
of Directors is unable to determine the fair market value, or if the holders of
a majority in interest of the shares issuable upon exercise of the Purchaser
Warrants disagree with the Board's determination of fair market value, then fair
market value will be determined by an independent financial expert.
Notwithstanding the foregoing, if at any time prior to the expiration of the
Thirty Day Period, no shares of the Series B Preferred Stock remain outstanding,
the Exercise Price will be the Initial Exercise Price. The
<PAGE>
18
Exercise Price may be paid in cash or equivalent shares. The Exercise Price and
the number of shares issuable upon exercise of the Purchaser Warrants will be
subject to adjustment upon the occurrence of certain events as set forth in the
Warrant. The number of shares which may be received upon exercise of the Warrant
will be increased by an amount equal to 12% of the shares initially underlying
the Warrant on each anniversary of the original date of issuance of the Series B
Preferred Stock, so long as any Series B Preferred Stock remains outstanding.
EXERCISE PERIOD. The Warrant is exercisable at any time, or from time to
time, from the date of issuance until October 31, 2007.
PUT OPTIONS. At any time on or after the fifth anniversary of the issue
date, any holder of a Warrant may require the Company to repurchase all of its
Warrant and shares of Common Stock issued in connection with the exercise of its
Warrant ("Five Year Put Option") at a price equal to the current market price of
the Common Stock less any applicable exercise price for the Warrant. At or any
time after a Change of Control, any holder of a Warrant may require the Company
to repurchase its Warrant ("Change of Control Put Option") at Fair Market Value
(as defined in the Warrant). Change of Control under the Warrant is defined in
the same manner as such term is defined in the Series B Certificate.
The Reporting Persons may from time to time acquire additional
shares of Common Stock in the open market or in privately negotiated
transactions, subject to availability of Common Stock at prices deemed
favorable, the Company's business or financial condition and other factors and
conditions the Reporting Persons deem appropriate. Alternatively, the Reporting
Persons may sell all or a portion of the
<PAGE>
19
Series B Preferred Stock, Warrant, or Common Stock issued upon exercise of the
Warrant or conversion of the Series B Preferred Stock in privately negotiated
transactions or in the open market pursuant to the exercise of certain
registration rights granted pursuant to the Investment Agreement as described
above, in each case subject to the factors and conditions referred to above and
to the terms of the Investment Agreement, Series B Preferred Stock and the
Warrant, as the case may be.
Except as described in the Investment Agreement, the Warrant or the
Series B Certificate, and as otherwise set forth in this Schedule 13D, no
Reporting Person or any individual otherwise identified in Item 2 has any
present plans or proposals which relate to or would result in: (a) the
acquisition by any person of additional securities of the Company, or the
disposition of securities of the Company; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; (c) a sale or transfer or a material amount
of assets of the Company or of any of its subsidiaries; (d) any change in the
present board of directors or management of the Company, including any plans or
proposals to change the number or term of directors or to fill any existing
vacancies on the board; (e) any material change in the present capitalization or
dividend policy of the Company; (f) any other material change in the Company's
business or corporate structure; (g) changes in the Company's charter, bylaws or
instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any person; (h) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer quotation system of a
registered national
<PAGE>
20
securities association; (i) a class of equity securities of the Company becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934; or (j) any action similar to any of those
enumerated above.
Item 5. Interest in Securities of the Issuer.
------------------------------------
(a) As set forth above, on December 12, 1997, the Company issued to
Palladin, and Palladin acquired, the Warrant and the Series B Preferred Stock.
Shares of Series B Preferred Stock are not convertible into shares of Common
Stock until December 12, 1999. Accordingly, pursuant to Rule 13d-3(d) of the
Securities Exchange Act of 1934, each of the Reporting Persons is deemed to
beneficially own zero (0) shares of Common Stock in connection with the
conversion of Series B Preferred Stock. As of the date hereof, the Warrant may
be exercised at any time and from time to time on or after December 12, 1997
(but no later than October 31, 2007) to purchase an aggregate of One Million
Eight Hundred Thousand (1,800,000) shares of Common Stock, subject to adjustment
under certain circumstances. Accordingly, each of the Reporting Persons may be
deemed to beneficially own an aggregate of 1,800,000 shares of Common Stock
which, based on calculations made in accordance with Rule 13d-3(d) and there
being 5,274,403 shares of Common Stock outstanding on December 1, 1997 as
disclosed by the Company in its Proxy Statement filed with the Commission on
December 2, 1997, represents approximately 25.4% of the outstanding shares of
Common Stock on a diluted basis in accordance with Rule 13d-3(d).
<PAGE>
21
(b) By virtue of the relationships between and among the Reporting
Persons described in Item 2 of this Statement on Schedule 13D, each of the
Reporting Persons may be deemed to share the power to direct the voting and
disposition of the 1,800,000 shares of Common Stock beneficially owned by
Palladin.
(c) Except as set forth above, no Reporting Person nor, to the best
knowledge of each Reporting Person, any other person identified in Item 2
hereof, beneficially owns any shares of Common Stock or has effected any
transaction in shares of Common Stock during the preceding 60 days.
Paragraphs (d) and (e) of Item 5 of Schedule 13D are not applicable
to this filing.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to the Common
Stock of the Issuer.
------------------------------------------
Pursuant to Section 9 of the Investment Agreement, which is attached
hereto as Exhibit 1 and incorporated herein by reference, the Company has
granted the Purchasers, among other things, the right, on the terms and
conditions set forth therein, to require the Company to register for sale to the
public the shares of Common Stock issuable upon (i) exercise of the Warrant or
(ii) the conversion of Series B Preferred Stock.
In order to avoid a possible conflict between the Purchasers in
connection with the designation of Purchaser Directors pursuant to the
Investment Agreement or the election of directors pursuant to the Series B
Certificate, the Purchasers have entered into an agreement dated as of December
18, 1997 (the
<PAGE>
22
"Purchasers' Agreement"), which is attached hereto as Exhibit 4 and is
incorporated herein by reference, which, as set forth in the Purchasers'
Agreement, provides a mechanism for determining the allocation of Purchaser
Director designees as between the Purchasers to the extent the Purchasers have
such designation rights pursuant to the Investment Agreement and which provides
for a voting agreement in the event that holders of shares of Series B Preferred
Stock are entitled to elect directors to the Company.
Except as described elsewhere in this Schedule 13D and as set forth
in the Investment Agreement, the Series B Certificate, the Warrant and the
Purchasers' Agreement, copies of which are attached hereto as Exhibits 1, 2, 3
and 4 respectively, and are incorporated herein by reference, to the best
knowledge of the Reporting Persons, there exist no contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons named in
Item 2 and between such persons and any person with respect to any securities of
the Company, including but not limited to transfer or voting of any securities
of the Company, finder's fees, joint ventures, loan or option arrangements, puts
or calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies.
Item 7. Material To Be Filed as Exhibits.
--------------------------------
1. Investment Agreement, dated as of October 12, 1997, and letter
amendments dated October 28, 1997, October 30, 1997 and November 26, 1997 among
Platinum Entertainment, Inc., MAC Music LLC and SK-Palladin Partners, LP.
<PAGE>
23
2. Certificate of Designation, dated December 12, 1997, governing
Platinum Entertainment, Inc.'s Series B Convertible Preferred Stock, par value
$.001 per share.
3. Warrant, dated December 12, 1997, for 1,800,000 shares of common
stock, par value $.001 per share, of Platinum Entertainment, Inc. issued to MAC
Music LLC.
4. Purchasers' Agreement, dated as of December 18, 1997, by and
between MAC Music LLC and SK-Palladin Partners, LP.
5. Joint Filing Agreement, dated December 19, 1997, among SK-
Palladin Partners, LP, SK-Palladin Holdings, LP, SK-Palladin Gen Par, Inc. and
Mark J. Schwartz.
<PAGE>
24
SIGNATURE
After reasonable inquiry and to the best of its knowledge and
belief, each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: December 22, 1997
SK-Palladin Partners, LP
By: SK-Palladin Holdings, LP,
its general partner
By: SK-Palladin Gen Par, Inc.
By: /s/ Mark J. Schwartz
------------------------------
Name: Mark J. Schwartz
Title: President and Chief
Executive Officer
SK-Palladin Holdings, LP,
By: SK-Palladin Gen Par, Inc.
By: /s/ Mark J. Schwartz
------------------------------
Name: Mark J. Schwartz
Title: President and Chief
Executive Officer
SK-Palladin Gen Par, Inc.
By: /s/ Mark J. Schwartz
------------------------------
Name: Mark J. Schwartz
Title: President and Chief
Executive Officer
/s/ Mark J. Schwartz
--------------------------------------
Mark J. Schwartz
<PAGE>
25
EXHIBIT INDEX
Page No.
1. Investment Agreement, dated as of October 12, 1997, and letter
amendments dated October 28, 1997, October 30, 1997 and
November 26, 1997 among Platinum Entertainment, Inc., MAC
Music LLC and SK-Palladin Partners, LP .............................
2. Certificate of Designation, dated December 12, 1997, governing
Platinum Entertainment, Inc.'s Series B Convertible Preferred
Stock, par value $.001 per share ...................................
3. Warrant, dated December 12, 1997, for 1,800,000 shares of
common stock, par value $.001 per share, of Platinum
Entertainment, Inc. issued to MAC Music LLC ........................
4. Purchasers' Agreement, dated as of December 18, 1997, by and between
MAC Music LLC and SK-Palladin Partners, LP .........................
5. Joint Filing Agreement, dated December 19, 1997, among SK-
Palladin Partners, LP, SK-Palladin Holdings, LP, SK-Palladin
Gen Par, Inc. and Mark J. Schwartz .................................
Exhibit 1
================================================================================
INVESTMENT AGREEMENT
AMONG
PLATINUM ENTERTAINMENT, INC.,
MAC MUSIC LLC
AND
SK-PALLADIN PARTNERS, LP
---------------------------------------------------------------
Dated as of October 12, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS......................................................1
2. CLOSING..........................................................7
2.1 Time and Place of the Closing............................7
2.2 Transactions at the Closing..............................8
2.3 Transaction Fee; Transaction Expenses....................8
3. CONDITIONS TO THE CLOSING........................................8
3.1 Conditions Precedent to the Obligations of the
Purchasers...............................................8
3.1.1 Compliance by the Company.........................8
3.1.2 Stockholder Approval..............................9
3.1.4 Board of Directors................................9
3.1.5 Absence of Material Adverse Effect................9
3.1.6 Credit Agreement..................................9
3.1.7 Purchase Permitted by Applicable Laws; Legal
Investment........................................9
3.1.8 Opinion of Counsel...............................10
3.1.9 Approval of Counsel to the Purchasers............10
3.1.10 Consents........................................10
3.1.11 Due Diligence...................................10
3.1.12 Market Conditions...............................10
3.1.13 No Litigation...................................11
3.1.14 No Default or Breach............................11
3.1.15 Officer's Certificate...........................11
3.1.16 Secretary's Certificate.........................11
3.1.17 No Injunction...................................11
3.2 Conditions Precedent to Obligations of the Company......12
3.2.1 Compliance by the Purchasers.....................12
3.2.2 Stockholder Approval.............................12
3.2.3 Consents.........................................12
3.2.4 Purchaser's Certificate..........................12
3.2.5 No Injunction....................................12
3.2.6 Issuance Permitted by Law........................13
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................13
4.1 Corporate Existence and Power...........................13
4.2 Power and Authority.....................................13
4.3 Affiliate Transactions..................................14
4.4 No Contravention, Conflict, Breach, Etc.................14
4.5 Consents................................................14
4.6 Capitalization..........................................15
4.7 No Rights Plan..........................................15
i
<PAGE>
PAGE
4.8 Registration Rights.....................................15
4.9 Subsidiaries............................................15
4.10 SEC Documents...........................................16
4.11 Financial Statements....................................17
4.12 No Existing Violation, Default, Etc.....................17
4.13 Licenses and Permits....................................18
4.14 Title to Properties.....................................18
4.15 Rights to Catalogue.....................................19
4.16 Intellectual Property...................................21
4.17 Environmental Matters...................................22
4.18 Taxes...................................................23
4.19 Litigation..............................................24
4.20 Labor Relations.........................................24
4.21 Employee Benefits.......................................24
4.22 Contracts...............................................26
4.23 Contingent Liabilities..................................26
4.24 No Material Adverse Change..............................26
4.25 Broker's Fees...........................................26
4.26 Investment Company......................................27
4.27 Exemption from Registration; Restrictions on Offer
and Sale of Same or Similar Securities..................27
4.28 Loan Documents..........................................27
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................27
5.1 Existence and Power.....................................27
5.2 Power and Authority.....................................27
5.3 No Contravention, Conflict, Breach, Etc.................28
5.4 Consents................................................28
5.5 Acquisition for Own Account.............................28
5.6 Available Funds.........................................28
5.7 Interested Stockholder..................................29
6. CERTAIN COVENANTS AND AGREEMENTS................................29
6.1 Pre-Closing Covenants...................................29
6.1.1 Stockholder Meeting; Proxy Material..............29
6.1.2 Delivery of Schedules............................29
6.1.3 Conduct of Business..............................29
6.1.4 Inspection.......................................31
6.1.5 Publicity........................................32
6.2 Post-Closing Covenants..................................32
6.2.1 Use of Proceeds..................................32
6.2.2 Financial Statements.............................32
ii
<PAGE>
PAGE
6.2.3 Inspections......................................33
6.2.4 Restrictions on Transfer; Legends................34
6.2.5 Board of Directors...............................34
6.2.6 Series A Preferred Stock.........................37
6.3 Principal Shareholders Agreement........................37
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND COVENANTS...................................................38
8. INDEMNIFICATION.................................................38
9. REGISTRATION RIGHTS.............................................39
9.1 Securities Subject to this Agreement....................39
9.2 Demand Registration.....................................39
9.3 Piggy-Back Registration.................................41
9.4 Holdback Agreements.....................................42
9.5 Registration Procedures.................................43
9.6 Registration Expenses...................................46
9.7 Indemnification; Contribution...........................47
9.8 Rule 144................................................49
10. TERMINATION.....................................................50
10.1 Termination............................................50
10.2 Effect of Termination..................................51
11. MISCELLANEOUS...................................................51
11.1 Performance; Waiver....................................51
11.2 Successors and Assigns..................................51
11.3 Notices.................................................51
11.4 Transaction Expenses....................................53
11.5 Governing Law...........................................53
11.6 Severability............................................53
11.7 Headings; Interpretation................................53
11.8 Entire Agreement........................................53
11.9 No Third Party Rights...................................54
11.10 Remedies for Breach.....................................54
11.11 Counterparts............................................55
iii
<PAGE>
PAGE
EXHIBITS
A. Form of Certificate of Designation
B. Form of Warrant Certificate
C. Form of By-law Amendment
D. Form of Consulting Agreement
E. Form of Right of First Refusal
SCHEDULES
2.2 Purchase of Securities
4.3 Affiliate Transactions
4.6 Capitalization
4.8 Registration Rights
4.9 Subsidiaries
4.13 Licenses and Permits
4.15(a) Masters
4.15(c) Rights - Masters
4.15(d) Licensees
4.15(e) Significant Compositions and Recordings
4.15(f) Music Contracts
4.15(g) Encumbrances
4.16 Intellectual Property
4.18 Closed Tax Year
4.20 Labor Relations
4.21 Benefit Plans
iv
<PAGE>
1
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT ("AGREEMENT"), dated as of
October 12, 1997, among Platinum Entertainment, Inc., a Delaware corporation
(the "Company"), MAC Music LLC, a Delaware limited liability company ("MAC"),
and SK-Palladin Partners, LP, a Delaware limited partnership ("Palladin" and,
together with MAC, the "Purchasers").
WHEREAS, the Company desires to sell to the Purchasers, and the
Purchasers desire to purchase from the Company, (i) an aggregate of 20,000
shares (the "Shares") of the Company's Series B Convertible Preferred Stock, par
value $.001 per share, having the terms and conditions set forth in a
Certificate of Designation substantially in the form attached hereto as Exhibit
A (the "Preferred Stock"), and (ii) warrants to purchase an aggregate of
3,600,000 shares of the Company's Common Stock, at the prices per share set
forth in the form of Warrant Certificate attached hereto as Exhibit B (the
"Warrants" and together with the shares of Preferred Stock, the "Securities"),
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, each of the Company and the Purchasers agrees as follows:
1. DEFINITIONS.
The terms defined in this Section 1 shall have the following
meanings for all purposes of this Agreement:
"Act" means the Securities Act of 1933, as amended, or any
superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect from time to time. References to
a particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such superseding Federal
statute.
An "Affiliate" of, or a person "affiliated" with, a specified
Person, means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified. The term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise. No member of MAC and no owner of a limited partnership
interest of Palladin shall be deemed an affiliate of, or a Person "affiliated"
with, such Purchaser solely by reason of such membership or ownership.
<PAGE>
2
"Annual Reports" means the Company's Annual Reports on Form 10-K for
the years ended May 31, 1997 and 1996, each as filed with the SEC (including, in
each case, all amendments thereto filed with the SEC prior to the date of this
Agreement, all exhibits and schedules thereto and documents incorporated by
reference therein, but excluding any amendments thereto made subsequent to the
date hereof).
"Artist" means (i) any artist or producer who participated in the
recording of any Master (or any portion thereof) or (ii) any author or writer of
any Musical Composition.
"Benefit Plans" has the meaning set forth in Section 4.21.
"Board of Directors" means the Board of Directors of the Company, as
constituted from time to time.
"By-laws" means the By-laws of the Company, as amended through the
date hereof.
"By-law Amendment" means an amendment to the By-laws giving effect
to the requirements of Section 6.2.5, in substantially the form of Exhibit C
hereto.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company, as amended through the date hereof.
"Certificate of Designation" means the Certificate of The Powers
Designations, Preferences and Rights of the Preferred Stock substantially in the
form of Exhibit A hereto.
"Change of Control" means (i) the direct or indirect sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or group of Persons acting in concert as a partnership or
other group within the meaning of Rule 13d-5 under the Exchange Act (a "GROUP OF
PERSONS"), (ii) the merger or consolidation of the Company with or into another
corporation with the effect that the then existing stockholders of the Company
hold less than 50% of the combined voting power of the then outstanding
securities of the surviving corporation of such merger or the corporation
resulting from such consolidation ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors, (iii) the replacement of a majority of the Board of Directors, over a
two-year period, from the directors who constituted the Board of Directors at
the beginning of such period, and such replacement shall not have been approved
by the Board of Directors (or its replacements approved by the Board of
Directors) as constituted at the beginning of such period, or (iv) a Person or
<PAGE>
3
Group of Persons (other than the Purchasers and their Affiliates) shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
representing 49% or more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors.
"Closing" has the meaning set forth in Section 2.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Closing Date" has the meaning set forth in Section 2.1.
"Common Stock" means a share of the Company's Common Stock, par
value $.001 per share.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Credit Agreement" means the credit agreement to be entered into
prior to the Closing, among the Company, Intersound, Inc., Bank of Montreal as
Administrative Agent and as Syndication Agent, and the several lenders from time
to time parties thereto.
"Disclosure Schedules" has the meaning set forth in Section 6.1.2.
"Encumbrance" means any mortgage, pledge, lien, security interest,
restriction upon voting or transfer, claim or other encumbrance of any kind.
"Environmental Laws" means all federal, state, local and foreign
laws, principles of common law, regulations, codes and ordinances, as well as
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder relating to pollution, protection of the environment, or
health and safety, as in effect on the date hereof.
"ERISA" has the meaning set forth in Section 4.21.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any superseding Federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of such
superseding Federal statute.
<PAGE>
4
"Existing Credit Agreement" shall mean the Amended and Restated
Credit Agreement, dated as of January 31, 1997, among the Company, Bank of
Montreal and the several lenders from time to time party thereto, as amended
through the date hereof.
"Governmental Authority" means the government of any nation or
state, or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Intellectual Property" has the meaning set forth in Section
4.16(a).
"IP Licenses" has the meaning set forth in Section 4.16(b).
"Knowledge of the Company" means the knowledge, after due inquiry,
of any of the following officers of the Company: Steven Devick, Doug Laux,
Thomas Levens, Michael Olsen, Lynne Hoffman-Engle, Bryan Hadley, Jena Finley,
William Gilbert, George Collier, Leighton Singelton, Edward A. Mascolo, Juan
Contreas and Angel Sanchez.
"Law" means any law, treaty, rule or regulation of a Governmental
Authority or judgment, order, writ, injunction or determination of an arbitrator
or a court or other Governmental Authority as in effect on the date hereof.
"Litigation Claims" has the meaning set forth in Section 4.19.
"Licenses" means any certificates, permits, licenses, franchises,
consents, approvals, orders, authorizations and clearances from appropriate
Governmental Authorities.
"Loan Documents" has the meaning set forth in Section 4.28.
"Losses" has the meaning set forth in Section 8.
"Master" means any Master Recording in or to which the Company or
any of its Subsidiaries shall have any Rights.
"Master Recording" means every form of recording (whether now known
or unknown), embodying sound alone, which may be used in the recording,
production or manufacture of Records.
<PAGE>
5
"Material Adverse Effect" means a material adverse effect on the
assets, results of operations, business or condition (financial or otherwise) of
the Company and its Subsidiaries, taken as a whole.
"Musical Composition" means any musical composition in or to which
the Company or any of its Subsidiaries have any Rights.
"Music Contracts" shall mean all contracts relating to the Company's
and its Subsidiaries compositions and Masters, including without limitation,
contracts relating to mechanical rights, synchronization rights, broadcasting
rights, television rights, film rights, small performing rights, grand
performing rights, printing and publication rights, administration rights,
foreign rights of whatsoever kind and nature, audio-visual rights and rights for
all use in all media and to all royalties and other payments with respect
thereto, or relating to the services of any Person or group of Persons that
performs compositions on Masters and/or composes words and/or music and/or
receives credit for doing so.
"1997 Audited Financial Statements" has the meaning set forth in
Section 4.11.
"NYSE" means the New York Stock Exchange, Inc.
"Options" has the meaning set forth in Section 4.6.
"Person" means any individual, firm, corporation, partnership,
limited liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the first recital of
this Agreement.
"Proposal" has the meaning set forth in Section 6.1.1.
"Proxy Statement" means the proxy statement of the Company on
Schedule 14A to be filed with the SEC in connection with the Stockholder
Meeting, as amended or supplemented (including all exhibits and schedules
thereto and documents incorporated by reference therein).
"Purchaser Director" means any person nominated for election to the
Board of Directors or serving as a member of the Board of Directors who has been
designated by the Purchasers in accordance with this Agreement.
<PAGE>
6
"Purchasers" has the meaning set forth in the preamble to this
Agreement.
"Quarterly Reports" means the Company's Quarterly Reports on Form
10-Q for the quarters ended February 28, 1997, November 30, 1996 and August 31,
1996, each as filed with the SEC and, when filed, the Company's Quarterly Report
on Form 10-Q for the quarter ended August 31, 1997.
"Record" means every form of reproduction (whether now known or
unknown), embodying sound alone, or sound accompanied by visual images,
including, without limitation, discs of any speed or size, reel-to-reel tapes,
cartridges, cassettes, other pre-recorded tapes, compact discs, digital audio
tapes, digital compact cassettes or any other digital device.
"Representatives" shall mean the officers and partners of the
Purchasers and the employees, counsel, accountants and other authorized
representatives of the Purchasers or any of their respective Affiliates.
"Rights" shall mean any rights, title, interest or benefit of
whatever kind and nature.
"Registrable Securities" shall mean the shares of Common Stock
issued or issuable upon conversion or exercise of the Securities.
"Restricted Securities" shall mean the Securities and shares of
Common Stock issued or issuable upon conversion or exercise of the Securities.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means the Annual Reports, the Quarterly Reports and
all other documents filed by the Company with the SEC pursuant to Sections 13 or
15(d) of the Exchange Act (including all exhibits and schedules thereto and
documents incorporated by reference therein) since June 1, 1996, but shall not
include any portion of any document which is not deemed to be filed under
applicable SEC rules and regulations.
"Securities" has the meaning set forth in the first recital of this
Agreement.
"Significant Compositions" shall mean the 300 highest earning
compositions of the Company and its Subsidiaries as measured by the net revenues
for the year ended May 31, 1997 (giving pro forma effect to the Company's
acquisition of Intersound, Inc.).
<PAGE>
7
"Stockholder Meeting" has the meaning set forth in Section 6.1.
"Subsidiary" means, with respect to any Person, any corporation,
limited or general partnership, joint venture, association, limited liability
company or partnership, joint stock company, trust, unincorporated organization,
or other entity analogous to any of the foregoing of which 50% or more of the
equity ownership is, at the time, owned, directly or indirectly by such Person.
"Tax" or "Taxes" has the meaning set forth in Section 4.18.
"Transaction Documents" has the meaning set forth in Section 4.29.
"Transaction Expenses" means, with respect to the Company or the
Purchasers and their Affiliates, the expenses of such Person or Persons (whether
or not incurred prior to the date hereof) arising out of, relating to or
incidental to the discussion, evaluation, negotiation, documentation and closing
or potential closing of the transactions contemplated hereby (including, without
limitation, the reasonable fees, disbursements and other expenses of lawyers,
accountants, actuaries, investment bankers and any other advisors thereto) and
any filing fees incurred in connection with such transactions.
"Transfer" means, with respect to any Securities, any sale,
assignment, transfer or disposition by gift or otherwise, including without
limitation, any distribution in liquidation or otherwise by a corporation or
partnership or other Person.
"Unaffiliated Director" means a director who is not a Purchaser
Director and who is not an officer or employee of the Company or of any
Affiliate of the Company.
2. CLOSING.
2.1 TIME AND PLACE OF THE CLOSING. Subject to the terms and
conditions of this Agreement, the closing of the sale and purchase of the
Securities contemplated hereby (the "Closing") shall take place at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, New York 10019-6064, at 10:00 A.M., New York time, on a date to be
mutually agreed upon by the parties, which date shall be no later than the later
of (i) October 28, 1997, (ii) the first business day following the tenth day
after the date on which the Company delivers the last of the Disclosure
Schedules to each Purchaser, and (iii) the first business day after the
satisfaction of the condition set forth in Section 3.1.2, assuming that all of
the other conditions to Closing in Section 3 shall have been satisfied or
waived. The "Closing Date" shall be the date the Closing occurs.
<PAGE>
8
2.2 TRANSACTIONS AT THE CLOSING. At the Closing, subject to
the terms and conditions of this Agreement, the Company shall issue and sell to
each of the Purchasers, and each of the Purchasers severally (and not jointly)
shall purchase, such number of shares of Preferred Stock and the number of
Warrants as are set forth opposite such Purchaser's name on Schedule 2.2 for an
aggregate purchase price of $20,000,000 (the "Purchase Price"). At the Closing,
the Company shall deliver to each of the Purchasers certificates representing
such number of shares of Preferred Stock and a Warrant Certificate representing
the number of Warrants as are set forth opposite such Purchaser's name on
Schedule 2.2, each registered in the name of such Purchaser or its nominees,
against payment by each Purchaser of the portion of the Purchase Price payable
by such Purchaser in respect thereof as set forth beside such Purchaser's name
on Schedule 2.2 by wire transfer of immediately available funds to an account or
accounts previously designated by the Company. The portion of the Purchase Price
payable by each Purchaser shall be allocated to the Securities purchased by such
Purchaser as set forth on Schedule 2.2.
2.3 TRANSACTION FEE; TRANSACTION EXPENSES. At the Closing,
subject to the terms and provisions of this Agreement, the Company shall pay (i)
to each Purchaser or its designee a transaction fee in an amount equal to 2% of
the amount paid by such Purchaser for the Securities purchased pursuant hereto,
and (ii) to the Purchasers or their designee an amount equal to the Transaction
Expenses of the Purchasers and their Affiliates, in each case, by wire transfer
of immediately available funds to an account or accounts designated by the
Persons entitled to receive such payment.
3. CONDITIONS TO THE CLOSING.
3.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASERS.
The obligations of each of the Purchasers to purchase its Securities, pay its
portion of the Purchase Price therefor at the Closing and perform any of its
obligation hereunder are subject to satisfaction of the following conditions at
or prior to the Closing (unless expressly waived in writing by each of the
Purchasers at or prior to the Closing):
3.1.1 COMPLIANCE BY THE COMPANY. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Company at or prior to the Closing shall have been complied with and
performed by it in all material respects, and the representations and warranties
made by the Company in this Agreement shall be true and correct in all material
respects at and as of the Closing, with the same force and effect as though such
representations and warranties had been made at and as of the Closing, except
for (i) changes expressly contemplated by this Agreement and (ii)
representations and warranties that are made as of a specific time, which shall
be true and correct only as of such time.
<PAGE>
9
3.1.2 STOCKHOLDER APPROVAL. The sale of the Securities
to the Purchasers pursuant to this Agreement shall have been duly approved by
the holders of the Common Stock at the Stockholder Meeting.
3.1.3 BY-LAW AMENDMENT. The By-law Amendment shall have
been duly adopted and approved by the Board of Directors and shall be in full
force and effect on the Closing Date.
3.1.4 BOARD OF DIRECTORS. The Board of Directors shall
consist of eleven members, four of whom shall be the Purchaser Designees and not
less than two of whom shall be Unaffiliated Directors.
3.1.5 ABSENCE OF MATERIAL ADVERSE EFFECT. No event or
events shall have occurred after May 31, 1997 that individually or in the
aggregate has had or would reasonably be expected to have a material adverse
effect on the assets, results of operations, business, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
other than events affecting the record industry generally.
3.1.6 CREDIT AGREEMENT. The Company and the other
parties thereto shall have entered into the Credit Agreement, which shall be in
a form reasonably satisfactory to the Purchasers. The Company shall have
satisfied all (and the lenders shall not have waived any) conditions to the
obligation of the lenders under the Credit Agreement to make the initial loans
thereunder (other than the condition that the Company has completed the sale of
the Securities contemplated by this Agreement) and no event shall have occurred
and be continuing, the occurrence or continuance of which would relieve the
lenders under the Credit Agreement of their obligations to advance funds, or
would preclude them from advancing funds, to the Company; and the lenders under
the Credit Agreement shall simultaneously with the purchase of the Securities
hereunder advance funds under the Credit Agreement in the amount which, when
combined with the proceeds from the sale of the Securities pursuant hereto will
permit the Company to repay all indebtedness under the Existing Credit
Agreement, pay all Transaction Expenses and pay all Company broker fees and
expenses. The Company shall have provided to the Purchasers true and complete
copies of the Credit Agreement and all closing documents delivered to the
parties to the Credit Agreement.
3.1.7 PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL
INVESTMENT. The acquisition of and payment for the Securities and the
consummation of the transactions contemplated hereby (a) shall not be prohibited
by any applicable law or governmental regulation, (b) shall not subject any
Purchaser to any penalty or, in the reasonable judgment of any Purchaser, other
onerous condition under or pursuant to any applicable law or governmental
regulation and (c) shall be permitted by the laws and regulations of the
jurisdictions to which it is subject.
<PAGE>
10
3.1.8 OPINION OF COUNSEL. Each Purchaser shall have
received the opinion of Katten, Muchin & Zavis, counsel to the Company, dated
the Closing Date, addressing the due authorization, execution and delivery by
the Company of this Agreement, and such other matters as the Purchasers may
reasonably request, in form and substance reasonably acceptable to the
Purchasers.
3.1.9 APPROVAL OF COUNSEL TO THE PURCHASERS. All actions
and proceedings hereunder and all documents required to be delivered by the
Company hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Purchasers, as to their form and substance.
3.1.10 CONSENTS. All material consents, approvals,
authorizations, orders, registrations, filings and qualifications of or with any
Governmental Authority and other Persons (whether acting in an individual,
fiduciary or other capacity) necessary or required to be made or obtained by the
Company for the consummation of the transactions contemplated by this Agreement,
shall have been made or obtained, as the case may be, and shall be in full force
and effect, and each of the Purchasers shall have been furnished with
appropriate evidence thereof.
3.1.11 DUE DILIGENCE. Each Purchaser shall have
completed and be reasonably satisfied with the results of its due diligence
review of the assets, business, properties and financial and other condition of
the Company and its Subsidiaries. This condition shall be deemed satisfied
unless prior to 5:00 p.m. on the later of (i) October 27, 1997 and (ii) the
tenth day after the day on which the Company delivers to each Purchaser the last
of the Disclosure Schedules, a Purchaser provides written notice to the Company
that it has not been satisfied.
3.1.12 MARKET CONDITIONS. Prior to the Closing Date, (a)
trading in securities generally on the NYSE shall not have been suspended or
limited or minimum or maximum prices shall not have been generally established
on such exchange, or additional material governmental restrictions, not in force
on the date of this Agreement, shall not have been imposed upon trading in
securities generally by such exchange or by order of the SEC or any court or
other Governmental Authority, (b) a general banking moratorium shall not have
been declared by either federal or New York State authorities or (c) any
material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall not have
occurred.
3.1.13 NO LITIGATION. No action, suit, proceeding, claim
or dispute shall have been brought or otherwise arisen at law, in equity, in
<PAGE>
11
arbitration or before any Governmental Authority against the Company or any of
its Subsidiaries which would, if adversely determined, in the reasonable
judgment of the Purchasers, (a) after giving effect to the transactions
contemplated hereby, have a material adverse effect on the assets, results of
operations, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or (b) materially adversely
effect the ability of the Company to perform its obligations under this
Agreement.
3.1.14 NO DEFAULT OR BREACH. The Company shall not have
been in default under or with respect to this Agreement and, after giving effect
to the transactions contemplated hereby and thereby, the Company will not be in
default under any of its obligations or any covenant contained in this
Agreement, the Warrant or the Credit Agreement.
3.1.15 OFFICER'S CERTIFICATE. The Purchasers shall have
received a certificate, dated the Closing Date and signed by the Chairman of the
Board of Directors or the President of the Company on behalf of the Company,
certifying that the conditions set forth in Sections 3.1.1 through 3.1.6,
3.1.10, 3.1.14 and 3.1.17 have been satisfied on and as of such date.
3.1.16 SECRETARY'S CERTIFICATE. The Purchasers shall
have received a certificate, dated the Closing Date and signed by the secretary
or an assistant secretary of the Company on behalf of the Company, certifying
the truth and correctness of attached copies of the Certificate of Incorporation
(including amendments thereto), the By-laws (including amendments thereto), and
resolutions of the Board of Directors and the holders of the Common Stock
approving the sale of the Securities to the Purchasers and the other
transactions contemplated hereby.
3.1.17 NO INJUNCTION. There shall be no judgment,
injunction, order or decree enjoining the Company or the Purchasers from
consummating the transactions contemplated by this Agreement to be consummated
at or before the Closing.
3.1.18 CONSULTING AGREEMENT. The Company shall have
executed and delivered to each of the Purchasers (or their respective designees)
a Consulting Agreement substantially in the form of Exhibit D hereto.
3.1.19 RIGHT OF FIRST REFUSAL. The Company shall have
executed and delivered to MAC an agreement substantially in the form of Exhibit
E.
3.1.20 DISCLOSURE SCHEDULES. The Disclosure Schedules
shall have been delivered to each of the Purchasers and shall be in form and
substance satisfactory to each Purchaser. This condition shall be deemed
satisfied unless prior to 5:00 p.m. on the tenth day after the day on which the
Company delivers to each of
<PAGE>
12
the Purchasers the last of the Disclosure Schedules, a Purchaser provides
written notice to the Company that this condition has not been satisfied.
3.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to be discharged under this Agreement on or prior to
the Closing are subject to satisfaction of the following conditions at or prior
to the Closing (unless expressly waived in writing by the Company at or prior to
the Closing):
3.2.1 COMPLIANCE BY THE PURCHASERS. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchasers in all material respects at or prior to the Closing, shall have
been complied with and performed in all material respects by the Purchasers and
the representations and warranties made by the Purchasers in this Agreement,
shall be true and correct in all material respects at and as of the Closing,
with the same force and effect as though such representations and warranties had
been made at and as of the Closing, except for changes contemplated by this
Agreement.
3.2.2 STOCKHOLDER APPROVAL. The sale of the Securities
to the Purchasers shall have been duly approved by the holders of the Common
Stock at the Stockholder Meeting.
3.2.3 CONSENTS. All material consents, approvals,
authorizations, orders, registrations, filings and qualifications of or with any
Governmental Authority and other Persons (whether acting in an individual,
fiduciary or other capacity) necessary or required to be made or obtained by the
Purchasers for the consummation of the transactions contemplated by this
Agreement, shall have been made or obtained, as the case may be, and shall be in
full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
3.2.4 PURCHASER'S CERTIFICATE. The Company shall have
received from each Purchaser a certificate of such Purchaser, dated the Closing
Date and signed by such Purchaser's general partner or managing member as the
case may be, certifying that the conditions set forth in Sections 3.2.1 and
3.2.3, insofar as they relate to such Purchaser, have been satisfied on and as
of such date.
3.2.5 NO INJUNCTION. There shall be no judgment,
injunction, order or decree enjoining the Company or the Purchasers from
consummating the transactions contemplated by this Agreement to be consummated
at or before the Closing.
3.2.6 ISSUANCE PERMITTED BY LAW. The issuance and
sale by the Company to the Purchasers pursuant hereto of the Securities shall
not be prohibited by applicable law or governmental regulation.
<PAGE>
13
4. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.
The Company hereby represents and warrants to each Purchaser as
follows:
4.1 CORPORATE EXISTENCE AND POWER. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the SEC Documents filed with the SEC prior to the date of this Agreement and
as currently conducted. The Company is duly qualified to transact business as a
foreign corporation and is in good standing (if applicable) in each jurisdiction
in which the conduct of its business or its ownership, leasing or operation of
property requires such qualification, other than any failure to be so qualified
or in good standing as would not singly or in the aggregate with all such other
failures reasonably be expected to have a Material Adverse Effect.
(b) True and complete copies of the Certificate of
Incorporation and the By-Laws as in effect on the date hereof have been provided
by the Company to the Purchasers. The minute books of the Company contain in all
material respects true and complete records of all meetings and consents in lieu
of meetings of the Board of Directors (and any committees thereof) and of the
stockholders of the Company.
4.2 POWER AND AUTHORITY. The Company has the full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance by the
Company of this Agreement and each of the Transaction Documents and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized and approved by the Board of Directors and no further corporate
action on the part of the Company (other than the actions described in Sections
3.1.2 and 3.1.4 and the filing of the Certificate of Designation under the
Delaware General Corporation Law) is necessary to authorize the execution,
delivery and performance by the Company of this Agreement or the consummation by
the Company of the transactions contemplated hereby. Subject to stockholder
approval of the Proposal, the Board of Directors shall have duly adopted the
Certificate of Designation and the Certificate Amendment. The Board of Directors
has approved the By-law Amendment and effective upon the Closing the By-laws
will contain the By-law Amendment. By approving the issue of the Securities the
foregoing authorization and approval by the Board of Directors constitutes prior
approval by the Board of Directors of the transaction which resulted in the
Purchasers becoming "interested stockholders" within the meaning of Section 203
of the Delaware General Corporation Law if the Purchasers, or any one of them,
become "interested stockholders" within
<PAGE>
14
the meaning of paragraph (a)(1) of Section 203 of the Delaware General
Corporation Law as a result of the conversion of the Preferred Shares into
shares of Common Stock in accordance with the terms of the Certificate of
Designation and/or as a result of the exercise of the Warrants. This Agreement
has been duly executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
4.3 AFFILIATE TRANSACTIONS. Except as disclosed in the Proxy
Statement in the form first mailed to the Company's stockholders or in Schedule
4.3, since June 1, 1996, the Company and its Subsidiaries have not entered into
or continued any material transaction or material series of transactions with
any stockholder, officer, director, employee or Affiliate of the Company, other
than transactions between or among the Company and its Subsidiaries in the
ordinary course of business of the Company and its Subsidiaries.
4.4 NO CONTRAVENTION, CONFLICT, BREACH, ETC. The execution,
delivery and performance of this Agreement and each Transaction Document to
which it is a party by the Company and the consummation of the transactions
contemplated hereby and thereby will not conflict with, contravene or result in
a breach or violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any Encumbrance upon
any assets or properties of the Company or any of its Subsidiaries or cause the
Company or any of its Subsidiaries to be required to redeem, repurchase or offer
to repurchase any of their respective indebtedness under (i) the certificate of
incorporation, the by-laws or other organizational document of the Company or
any of its Subsidiaries, (ii) any material Law of any Governmental Authority
having jurisdiction over the Company or any of its Subsidiaries or any of their
respective assets, properties or operations or (iii) any indenture, mortgage,
loan agreement, note or other agreement or instrument for borrowed money, any
guarantee of any agreement or instrument for borrowed money or any material
lease, permit, license or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the assets, properties or operations of
the Company or any of its Subsidiaries is subject.
4.5 CONSENTS. No consent, approval, authorization, order,
registration, filing or qualification of or with any (i) Governmental Authority,
(ii) stock exchange on which the securities of the Company are traded or (iii)
other Person (whether acting in an individual, fiduciary or other capacity) is
required to be made or obtained by the Company or any of its Subsidiaries for
the execution, delivery and performance by the Company of this Agreement and
each Transaction Document to which it is a party and the consummation of the
transactions contemplated hereby and thereby, except the actions described in
Section 3.1.2 and such approvals as may be required under the Act and state
securities laws in connection with the performance by the Company of its
obligations under Section 9
<PAGE>
15
hereof and except consents which are not material to the business or operations
of the Company and its Subsidiaries, taken as a whole.
4.6 CAPITALIZATION. Set forth on Schedule 4.6 is a true and
complete description of (i) the authorized capital stock of the Company, (ii)
the issued and outstanding capital stock of the Company and (iii) all
outstanding options, warrants, conversion privileges or other rights to purchase
or otherwise acquire any authorized but unissued or treasury shares of capital
stock (collectively, "Options") of the Company. No shares of the Company's
Series A-1 Preferred Stock, par value $.001 per share (the "Series A-1 Preferred
Stock), or Series A-2 Preferred Stock, par value $.001 per share (the "Series
A-2 Preferred Stock") are issued and outstanding, and no Options to acquire any
such shares are outstanding. Schedule 4.6 sets forth the number of shares of
Common Stock reserved for (a) issuance upon exercise of all outstanding Options,
(b) issuance upon conversion of the Preferred Stock, and (c) issuance upon
exercise of the Warrants. No other shares of the Company's capital stock are
reserved for future issuance. The shares of Preferred Stock and the shares of
Common Stock issuable upon conversion of the shares of Preferred Stock, and the
Warrants and the shares of Common Stock issuable upon exercise of the Warrants,
when issued and paid for in compliance with the provisions of this Agreement,
the Certificate of Designation, the Warrants and the Certificate of
Incorporation, will be duly authorized, validly issued, fully paid and
nonassessable. The issued and outstanding shares of capital stock of the Company
are duly authorized, validly issued, fully paid and nonassessable, and were
issued in compliance with the registration and qualification requirements of all
applicable federal securities laws or an exemption therefrom.
4.7 NO RIGHTS PLAN. The Company has not adopted a stock
holders rights plan, poison pill or similar arrangement.
4.8 REGISTRATION RIGHTS. Except as set forth on Schedule 4.8,
neither the Company nor any of its Subsidiaries has previously entered into any
agreement granting any registration rights to any Person, whether consistent or
inconsistent with the rights to be granted to the Purchasers in this Agreement.
4.9 SUBSIDIARIES. Schedule 4.9 sets forth a complete and
accurate list of all of the Subsidiaries of the Company together with their
respective jurisdictions of incorporation or organization. Except for its
Subsidiaries, the Company holds no equity, partnership, joint venture or other
interest in any Person. True and complete copies of the certificate of
incorporation, by-laws and other organizational documents of the Subsidiaries of
the Company as in effect on the date hereof have been provided by the Company to
the Purchasers. Each Subsidiary of the Company has been duly incorporated or
organized and is validly existing as a corporation or other legal entity in good
standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or other organizational power and
<PAGE>
16
authority to own, lease and operate its properties and to conduct its business
as currently conducted and is duly qualified to transact business as a foreign
corporation or other legal entity and is in good standing (if applicable) in
each jurisdiction in which the conduct of its business or its ownership, leasing
or operation of property requires such qualification, other than any failure to
be so qualified or in good standing as would not singly or in the aggregate with
all such other failures reasonably be expected to have a Material Adverse
Effect. All of the outstanding capital stock of each Subsidiary of the Company
has been duly authorized and validly issued, is fully paid and nonassessable and
is owned by the Company, directly or through other Subsidiaries of the Company
(other than directors' qualifying shares), free and clear of any Encumbrance
(other than the pledge of capital stock of Subsidiaries of the Company under the
Existing Credit Agreement or the Credit Agreement and such transfer restrictions
as may exist under federal and state securities laws or any Encumbrances between
or among the Company and/or any Subsidiary of the Company), and there are no
rights granted to or in favor of any third party (whether acting in an
individual, fiduciary or other capacity), other than the Company or any
Subsidiary of the Company, to acquire any such capital stock, any additional
capital stock or any other securities of any such Subsidiary. There exists no
restriction, other than those pursuant to applicable law or regulation, on the
payment of cash dividends by any Subsidiary.
4.10 SEC DOCUMENTS.
(a) The Company has delivered true and complete
copies of all SEC Documents to the Purchasers.
(b) As of its filing date, each SEC Document filed,
and each SEC Document that will be filed by the Company prior to the Closing
Date, as amended or supplemented prior to the Closing Date, if applicable,
pursuant to the Exchange Act (i) complied or will comply in all material
respects with the applicable requirements of the Exchange Act and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(c) Each final registration statement filed with the
SEC, and each final registration statement that will be filed with the SEC by
the Company prior to the Closing Date, as amended or supplemented prior to the
Closing Date, if applicable, pursuant to the Act, as of the date such statement
or amendment became or will become effective (i) complied or will comply in all
material respects with the applicable requirements of the Act and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of any prospectus, in light of the
circumstances under which they were made).
<PAGE>
17
(d) At the time the Proxy Statement is first mailed
to the stockholders of the Company, and at the time such stockholders vote on
approval of the transactions contemplated hereby, the Proxy Statement, as then
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of circumstances under which they were made, not
misleading; provided that the Company makes no representation or warranty with
respect to (i) any statement or omissions included in the Proxy Statement based
upon information furnished in writing to the Company by the Purchasers
specifically for use therein or (ii) any portion thereof which is not deemed to
be filed under applicable SEC rules and regulations.
4.11 FINANCIAL STATEMENTS. The audited consolidated financial
statements and related schedules and notes included in the SEC Documents comply
in all material respects with the requirements of the Exchange Act and the Act
and the rules and regulations of the SEC thereunder, were prepared in accordance
with generally accepted accounting principles consistently applied throughout
the period involved except as noted therein, and fairly present in all material
respects the financial condition, results of operations, cash flows and changes
in stockholders' equity of the Company and its Subsidiaries at the dates and for
the periods presented. The Company previously delivered true and complete copies
of the audited consolidated financial statements and related schedules and notes
of the Company as of May 31, 1997 and May 31, 1996, and for each of the three
years in the period ended May 31, 1997 (the "1997 Audited Financial
Statements"). The unaudited quarterly consolidated financial statements and the
related notes included in the SEC Documents, and the unaudited quarterly
consolidated financial statements and related notes for the three month period
ended August 31, 1997 previously delivered by the Company to the Purchasers,
fairly present in all material respects the financial condition, results of
operations and cash flows of the Company and its Subsidiaries at the dates and
for the periods to which they relate, subject to normal year-end adjust ments,
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis except as otherwise stated therein and
have been prepared on a basis consistent with that of the audited financial
statements referred to above except as otherwise stated therein.
4.12 NO EXISTING VIOLATION, DEFAULT, ETC. None of the Company
or any of its Subsidiaries is (i) in violation of any provision of its
certificate of incorporation, by-laws or other organizational documents or (ii)
in violation of any applicable Law, stock exchange rule or regulation, which
violation has or would reasonably be expected to have a Material Adverse Effect.
No breach, event of default or event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default exists under any
indenture, mortgage, loan agreement, note or other agreement or instrument for
borrowed money, any guarantee of any agreement or instrument for borrowed money
or any lease, permit, license or other
<PAGE>
18
agreement to which the Company or any of its Subsidiaries is a party or by which
the Company or any such Subsidiary is bound or to which any of the properties,
assets or operations of the Company or any such Subsidiary is subject, which
breach, event of default, or event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default, has or would
reasonably be expected to have a Material Adverse Effect. Without giving effect
to any waiver previously granted, (1) no event of default, (2) no event that,
but for the giving of notice or the lapse of time or both, would constitute an
event of default and (3) no event that would require the Company to prepay,
redeem, repurchase or offer to repurchase any of its indebtedness exists under
the Existing Credit Agreement.
4.13 LICENSES AND PERMITS. The Company and its Subsidiaries
have such Licenses as are necessary to own, lease or operate their properties
and to conduct their businesses in the manner described in the SEC Documents and
as currently owned or leased and conducted and all such Licenses are valid and
in full force and effect except such Licenses that the failure to have or to be
in full force and effect individually or in the aggregate has not had, and would
not reasonably be expected to have, a Material Adverse Effect. None of the
Company or any of its Subsidiaries has received any written notice that any
violations are being or have been alleged in respect of any such License and no
proceeding is pending or, to the Knowledge of the Company, threatened, to
suspend, revoke or limit any such License the effect of which would reasonably
be expected to have a Material Adverse Effect. The Company and its Subsidiaries
are in compliance with their respective obligations under such Licenses, with
such exceptions as individually or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would allow, revocation,
suspension, limitation or termination of such Licenses, except such events as
have not had, or would not reasonably be expected to have, a Material Adverse
Effect. Without limiting the foregoing, except as set forth on Schedule 4.13,
the Company and its Subsidiaries have all Licenses that are necessary to allow
the Company and its Subsidiaries to release substantially on schedule each
recording scheduled to be released by the Company or any of its Subsidiaries as
shown on the Release Schedule previously delivered by the Company to the
Purchasers.
4.14 TITLE TO PROPERTIES. The Company and its Subsidiaries
have sufficient title to all material properties (real and personal) owned by
the Company and any such Subsidiary that are necessary for the conduct of the
business of the Company and any such Subsidiary as described in the SEC
Documents filed with the SEC prior to the date of this Agreement and as
currently conducted, free and clear of any Encumbrance that may materially
interfere with the conduct of its business, and all material properties held
under lease by the Company and the Subsidiaries are held under valid, subsisting
and enforceable leases except for such leases the loss of which would not
reasonably be expected to have a Material Adverse Effect.
<PAGE>
19
4.15 RIGHTS TO CATALOGUE. (a) Schedule 4.15(a) sets forth all
of the Masters. Except as set forth on Schedule 4.15(a), neither the Company nor
any Subsidiary of the Company has received any written notice of (i) any
asserted present or past failure of the Masters to comply with all applicable
laws and regulations or (ii) any asserted present or past violation, breach or
infringement relating to the Masters of any contractual Right, common law Right
or statutory Right of any living or deceased Person whatsoever, including,
without limitation, Rights with respect to patents, trademark, trade names,
copyrights, defamation, and rights of privacy and publicity. To the Knowledge of
the Company, all costs of recording the Masters which have become due and
payable in the ordinary course of business consistent with past practice have
been paid in full. To the Knowledge of the Company, all costs of manufacturing
all Records embodying any Master which have become due and payable in the
ordinary course of business consistent with past practice have been paid in
full. All of the performers, Artists and other Persons whose services were
furnished in connection with recording the Masters (and each selection thereon)
were free to furnish such services, without violation of any contract,
contractual restriction or duty owed to any Person. With respect to each and all
Records (in all configurations) embodying any Master, the Company has all Rights
and licenses necessary to reproduce mechanically all compositions embodied in
such Records, including all copyrighted compositions.
(b) To the Knowledge of the Company, all AFTRA
members whose performances are embodied on Masters have been paid not less than
the minimum rates specified in the applicable AFTRA collective bargaining
agreements and all payments due to the AFTRA pension and welfare funds have been
made. To the Knowledge of the Company, the Masters have been recorded in
accordance with the rules and regulations of all unions having jurisdiction over
the recording thereof.
(c) Except as set forth on Schedule 4.15(c), with
respect to each Master, the Company or a Subsidiary of the Company is the sole
owner throughout the universe of: (i) such Master, (ii) all performances
embodies in such Master, (iii) the right to make and distribute records derived
from such Master and (iv) all applicable sound recording copyrights in such
Master. The Company has the exclusive and perpetual Right to use, solely in
connection with the packaging, advertising, distribution or sale of Records
embodying any Master, all artwork and other graphic materials heretofore used by
the Company for such purposes. Except as set forth on Schedule 4.15(c), the
Company and its Subsidiaries have complete ownership of the copyrights in and to
the Masters and control, directly or indirectly, all Rights relative to the
exploitation of the Masters.
(d) The Artists, music publishing licensors and the
other royalty participants or Persons listed on Schedule 4.15(d) hereto are the
only parties to whom royalties may be payable by the Company or any of its
Subsidiaries
<PAGE>
20
in connection with the exploitation of the Masters. To the Knowledge of the
Company, no Persons other than the Persons identified on Schedule 4.15(d) as
licensees under the license agreements now have, or hereafter shall have in
accordance with the terms and provisions of such license agreements, any
licensee rights in or to any Master.
(e) Schedule 4.15(e) sets forth a complete list of all
Significant Compositions, indicating with respect to each, the title, the
writer, the nature and extent of any share controlled, the extent and territory
of the Rights controlled by the Company or any Subsidiary of the Company, the
original copyright date, the copyright expiration date, the status of all
applicable renewal and/or extended renewal periods.
(f) Schedule 4.15(f) sets forth, as of May 31, 1997, a
complete list of (i) all Music Contracts pursuant to which future payments of
advances are required to be made to writers of compositions, joint owners of
Rights, co-publishers or subpublishers, indicating, with respect to each, the
date, the parties, the compositions covered, the acquisition term, the retention
term, any required annual payment and the extent of any unrecouped capitalized
advances and provisions relating thereto as at May 31, 1997; and (ii) all Music
Contracts with any licensee, administrator or subpublisher where any Rights
thereunder may revert to the Company or any Subsidiary of the Company,
indicating, with respect to each, the date, the parties, the compositions
covered, the territory covered, the acquisition term and the retention term
(specifying the date on which all Rights of such licensor, administrator or
subpublisher in the compositions covered thereby shall revert to the Company or
any Subsidiary of the Company.)
(g) Except as disclosed on Schedule 4.15(g), (i) the
Company and each of its Subsidiaries owns the Rights in the compositions
purported to be granted to the Company or such Subsidiary under the terms of the
Music Contracts that relate thereto; (ii) the Company's and its Subsidiaries'
interest in such composition is not subject to any Encumbrance, adverse claim,
royalty or other audit claim, suit, action, proceeding, or to the Knowledge the
Company, any written threat thereof, and (iii) no written notice of any
infringement or conflict with the asserted rights of others, or of any royalty
or other audit sought to be commenced by any Person has been received. Each
Music Contract relating to a Significant Composition or a Significant Recording
is a valid and binding agreement and in full force and effect. Neither the
Company nor any of its Subsidiaries is in default in any material respect under
any Music Contract relating to a Significant Composition or a Master, nor does
any condition exist that with notice or lapse of time or both would constitute a
default thereunder, and to the Knowledge of the Company, no other party thereto
is in default in any material respect under any such Music Contract nor does any
condition exist that with notice or lapse of time or both would constitute a
material default by such party thereunder. Without limiting the generality of
the foregoing
<PAGE>
21
sentence, the Company and each of its Subsidiaries have in all material respects
complied with and fulfilled all of its obligations under each Music Contract,
including, without limitation, its obligation to make payment of all royalties
or other amounts due pursuant thereto in respect of all periods of time to the
date hereof, and the Company and each Subsidiary will continue in all material
respects to comply with and fulfill its obligations under each such Music
Contract in respect of the period from the date hereof to the Closing Date.
Neither the Company nor any of its Subsidiaries has received any written notice
of termination pursuant to copyright Law.
4.16 INTELLECTUAL PROPERTY. (a) The Company and each of its
Subsidiaries owns or is licensed to use all (i) patents, trademarks, trade
names, service marks, copyrights and any applications therefor and (ii) trade
secrets, know-how, computer software programs and proprietary information, in
each case, that are material to the conduct of the business of the Company and
the Subsidiaries as described in the SEC Documents and as currently conducted,
free and clear of any Encumbrance that may materially interfere with the conduct
of their business ("Intellectual Property").
(b) Schedule 4.16 lists (a) all registered trademark,
registered copyrights and patents owned by the Company or any of its
Subsidiaries, specifying as to each item, as applicable: (1) the category of
Intellectual Property, (2) the owner of the item; (3) the jurisdictions in which
the item is recognized or registered, or in which any application for
registration has been filed, including the registration or application number;
(4) the issue date and expiration date of the item, and (5) with respect to any
trademarks or service marks, the type of goods or services on which such mark is
or is intended to be used; and (b) all material licenses, sublicenses and other
agreements ("IP Licenses") under which the Company or any of its Subsidiaries is
either a licensor or licensee of any Intellectual Property. True and complete
copies of all material documents evidencing Intellectual Property as in effect
on the date hereof have been delivered by the Company to the Purchasers.
(c) None of the Company or any of its Subsidiaries
nor, to the Knowledge of the Company, any other party is in breach of or default
under any IP License. Each IP License is now, and immediately following the
consummation of the transactions herein contemplated will be, valid and in full
force and effect.
(d) Except as set forth in the SEC Documents filed
by the Company with the SEC prior to the date of this Agreement, no Litigation
Claim is pending or, to the Knowledge of the Company, threatened, that
challenges the validity, enforceability or ownership of, or right to use or
license, any Intellectual Property that could reasonably be expected to have a
Material Adverse Effect, nor to the knowledge of the Company do any valid
grounds for any such claim exist.
<PAGE>
22
(e) No item of Intellectual Property is subject to any
outstanding order, ruling, judgment, decree or agreement restricting the use
thereof by the Company or Subsidiaries except for agreements made in the
ordinary course of business of the Company or its Subsidiaries. None of the
Company or any Subsidiary has agreed to indemnify any person against any charge
of infringement or other violation with respect to any Intellectual Property
owned or used by the Company or any Subsidiary except in the ordinary course of
business.
(f) To the Knowledge of the Company, none of the Company
or its Subsidiaries has infringed upon or otherwise violated the intellectual
property rights of third parties which would reasonably be expected to have a
Material Adverse Effect. None of the Company or any of its Subsidiaries has
received any written complaint or notice alleging any such infringement or other
violation.
(g) To the Company's knowledge, no third party is
infringing upon or otherwise violating the Intellectual Property rights of the
Company or any Subsidiary.
(h) All material patents and registered trademarks and
copyrights held by the Company or any Subsidiary are valid and subsisting. The
Company and its Subsidiaries have taken all necessary action to maintain and
protect the Intellectual Property that they own or use other than as would not
reasonably be expected to have a Material Adverse Effect.
(i) To the Knowledge of the Company, all material trade
secrets of the Company and its Subsidiaries are protected against the use of
such trade secrets by other persons to an extent and in a manner customary in
the industry in which the Company and its Subsidiaries operate.
4.17 ENVIRONMENTAL MATTERS. Subject to such disclosures as are
contained in SEC Documents filed prior to the date of this Agreement:
(a) the Company and its Subsidiaries and their
respective operations and properties, are and have been in compliance with all
applicable Environmental Laws except for such failures which, individually and
in the aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect.
(b) There is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to the Knowledge
of the Company, threatened against the Company or any of its Subsidiaries
pursuant to Environmental Laws which could reasonably be expected to result in a
fine, penalty or other
<PAGE>
23
obligation, cost or expense, except such obligations, costs or expenses which,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect.
(c) There are no past or present events, conditions,
circumstances, activities, practices, incidents, agreements, actions or plans
which may prevent compliance by the Company or its Subsidiaries with, or which
have given rise to, or will give rise to, material liability to the Company or
any of its Subsidiaries under Environmental Laws, except any such events,
conditions, circumstances, activities, practices, incidents, agreements, actions
or plans which, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
4.18 TAXES. The Company and its Subsidiaries have filed or
caused to be filed, or have properly filed extensions for, all material Tax
returns that are required to be filed and have paid or caused to be paid all
material Taxes as shown on said returns and on all material assessments received
by it to the extent that such Taxes have become due, except Taxes the validity
or amount of which is being contested in good faith by appropriate proceedings
and with respect to which adequate reserves, in accordance with generally
accepted accounting principles, have been set aside. The Company and its
Subsidiaries have paid or caused to be paid, or have established reserves that
the Company or such Subsidiaries reasonably believe to be adequate in all
material respects, for all Tax liabilities applicable to the Company and its
Subsidiaries for all fiscal years that have not been examined and reported on by
the taxing authorities (or closed by applicable statutes). Schedule 4.18 sets
forth the tax year through which United States Federal income tax returns of the
Company and its Subsidiaries have been examined and closed. For purposes of this
Section 4.18, "Tax" or "Taxes" means any federal, state, county, local, foreign
and other taxes (including, without limitation, income, profits, premium,
estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with contesting any proposed adjustments related to any of the foregoing.
4.19 LITIGATION. Except as set forth in SEC Documents filed
with the SEC prior to the date of this Agreement, there are no pending actions,
suits, proceedings, arbitrations or investigations, royalty or other audits,
complaints, against or affecting the Company or any of its Subsidiaries or any
of their respective properties, assets or operations, or with respect to which
the Company or any such Subsidiary is responsible by way of indemnity or
otherwise (together "Litigation Claims"), that are required under the Exchange
Act to be described in such SEC
<PAGE>
24
Documents or that could singly, or in the aggregate, with all such other
Litigation Claims, reasonably be expected to have, a Material Adverse Effect
and, to the Knowledge of the Company, no such Litigation Claims are threatened.
4.20 LABOR RELATIONS. Neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice. Except as disclosed in the
SEC Documents filed with the SEC prior to the date of this Agreement or as set
forth on Schedule 4.20, (a) no grievance or arbitration proceeding arising out
of or under collective bargaining agreements is pending or, to the Knowledge of
the Company, threatened against the Company or any of its Subsidiaries; (b) no
strike, labor dispute, slowdown or stoppage has occurred within the past 36
months or is pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries; (c) neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or contract; and
(d) to the Knowledge of the Company, no union organizing activities are taking
place that affect the employees of the Company or any Subsidiary.
4.21 EMPLOYEE BENEFITS. (a) Except for the plans described in
the SEC Documents filed with the SEC prior to the date of this Agreement, or on
Schedule 4.21 (the "Benefit Plans"), there are no employee benefit plans or
arrangements of any type (including, without limitation, plans described in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
and the regulations thereunder ("ERISA")), under which the Company or any of its
Subsidiaries has or in the future could have directly, or indirectly through a
Commonly Controlled Entity (within the meaning of Sections 414(b), (c), (m) and
(o) of the Code), any material liability with respect to any current or former
employee of the Company or any of its Subsidiaries or any Commonly Controlled
Entity. No such Benefit Plan is a "multiemployer plan" (within the meaning of
ERISA Section 4001(a)(3)) or subject to Title IV of ERISA.
(b) With respect to each Benefit Plan, the Company
has delivered or made available to the Purchasers complete and accurate copies
of (i) all plan texts and agreements (as amended or modified to date), (ii) all
summary plan descriptions and similar material employee communications, (iii)
the most recent annual report (Form 5500 including, if applicable, Schedule B
thereto), (iv) the most recent annual and periodic accounting of plan assets,
(v) the most recent determination letter received from the Internal Revenue
Service and (vi) the most recent actuarial valuation.
(c) With respect to each Benefit Plan: (i) such
Benefit Plan has been maintained and administered at all times in material
compliance with its terms and applicable law and regulation; (ii) to the
Knowledge of the Company, no event has occurred and there exists no circumstance
under which the Company or any of its Subsidiaries could directly, or indirectly
through a Commonly
<PAGE>
25
Controlled Entity, incur any material liability under ERISA, the Code or
otherwise (other than routine claims for benefits); (iii) there are no actions,
suits or claims (other than routine claims for benefits) pending or, to the
Knowledge of the Company, threatened, with respect to any Benefit Plan or
against the assets of any Benefit Plan with respect to which suits the Company
or any of its Subsidiaries could incur any material liability; (iv) all
contributions and premiums due and owing to any Benefit Plan have been made or
paid on a timely basis and no "accumulated funding deficiency", as defined in
Code Section 412, has been incurred, whether or not waived; and (v) if such
Benefit Plan is intended to be qualified under Section 401(a) of the Code, such
Benefit Plan has been determined to be so qualified and each trust created under
such Benefit Plan has been determined to be exempt from tax under Section 501(a)
of the Code and no event has occurred since the date of such determinations,
including effective changes in laws or regulations or modifications to the
Benefit Plans, that would adversely affect such qualification or tax exempt
status.
(d) The Company has no Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of post-retirement health and medical benefits for current and former
employees of the Company and its Subsidiaries. No condition exists that would
prevent the Company or any of its Subsidiaries from amending or terminating any
plan providing health or medical benefits in respect of current or former
employees of the Company or its Subsidiaries.
(e) There is no contract, plan or arrangement (written
or otherwise) covering any employee or former employee of the Company or its
Subsidiaries that, individually or collectively, could give rise to the payment
by the Company or its Subsidiaries of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(f) No employee or former employee of the
Company or its Subsidiaries will become entitled to any bonus, retirement,
severance, job security or similar benefit or enhanced such benefit (including
acceleration of vesting or exercise of an incentive award) as a result of the
transactions contemplated hereby.
4.22 CONTRACTS. All of the material contracts of the Company
or any of its Subsidiaries that are required to be described in the SEC
Documents or to be filed as exhibits thereto are described in SEC Documents
filed with the SEC prior to the date of this Agreement or filed as exhibits
thereto and are in full force and effect. True and complete copies of all such
material contracts have been delivered by the Company to the Purchasers. Neither
the Company nor any of its Subsidiaries nor, to the Knowledge of the Company,
any other party is in breach of or in default under any such contract except for
such breaches and defaults as in the
<PAGE>
26
aggregate have not had, and would not reasonably be expected to, have a Material
Adverse Effect.
4.23 CONTINGENT LIABILITIES. Except as fully reflected or
reserved against in the 1997 Audited Financial Statements for the year ended May
31, 1997 or disclosed in the footnotes contained in such financial statements,
the Company and its Subsidiaries had no liabilities (including tax liabilities)
at the date of such financial statements, absolute or contingent, that were
required to be reflected or disclosed in such financial statement in accordance
with generally accepted accounting principles.
4.24 NO MATERIAL ADVERSE CHANGE. Since May 31, 1997: (a) the
Company and its Subsidiaries have not incurred any material liability or
obligation (indirect, direct or contingent), or entered into any material oral
or written agreement or other transaction, that is not in the ordinary course of
business or that would reasonably be expected to result in a Material Adverse
Effect; (b) the Company and its Subsidiaries have not sustained any loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had or
that would reasonably be expected to have a Material Adverse Effect; (c) there
has been no material change in the indebtedness of the Company and its
Subsidiaries (except as contemplated by Section 3.1.6 and except for changes
relating to intercompany indebtedness of the Company and/or its Subsidiaries);
(d) there has been no dividend or distribution of any kind declared, paid or
made by the Company or any of its Subsidiaries on any class of its capital
stock; (e) neither the Company nor any of its Subsidiaries has made (nor does it
propose to make) (i) any material change in its accounting methods or practices
or (ii) any material change in the depreciation or amortization policies or
rates adopted by it, in either case, except as may be required by law or
applicable accounting standards; and (f) there has been no event causing a
Material Adverse Effect, nor any development that would, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
4.25 BROKER'S FEES. Except for Donaldson, Lufkin & Jenrette
Securities Corporation, and except for fees payable to the Purchasers, no
broker, finder or other party is entitled to receive from the Company or any of
its Subsidiaries any brokerage or finder's fee for the transactions contemplated
by this Agreement as a result of the actions of the Company, any of its
Subsidiaries, or any of its Affiliates.
4.26 INVESTMENT COMPANY. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
<PAGE>
27
4.27 EXEMPTION FROM REGISTRATION; RESTRICTIONS ON OFFER AND
SALE OF SAME OR SIMILAR SECURITIES. Assuming the representations and warranties
of the Purchasers set forth in Section 5.5 hereof are true and correct in all
material respects, the offer and sale of the Securities made pursuant to this
Agreement will be exempt from the registration requirements of the Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Securities engaged in (a) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Act), (b) any action involving a public offering within the meaning of
Section 4(2) of the Act, or (c) any action that would require the registration
under the Act of the offering and sale of the Securities pursuant to this
Agreement or that would violate applicable state securities or "blue sky" laws.
The Company has not made and will not prior to the Closing make, directly or
indirectly, any offer or sale of shares of its capital stock, or any Options, if
as a result the offer and sale of the Securities contemplated hereby, or any of
them, could fail to be entitled to exemption from the registration requirements
of the Act. As used herein, the terms "offer" and "sale" have the meanings
specified in Section 2(3) of the Act.
4.28 LOAN DOCUMENTS. Each representation and warranty of the
Company or any Subsidiary of the Company made in the Credit Agreement or in any
other agreement or document executed and delivered by the Company or any of its
Subsidiaries in connection with the Credit Agreement (the "Loan Documents"),
will be true and correct in all respects when made and are hereby incorporated
into this Agreement as if set forth in full herein.
5. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS.
Each Purchaser, solely as to itself, hereby represents and warrants
to the Company that:
5.1 EXISTENCE AND POWER. Such Purchaser is a limited
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority to own, lease and operate its properties and to conduct its
business as currently conducted.
5.2 POWER AND AUTHORITY. Such Purchaser has the full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance by such Purchaser of this
Agreement and the consummation by such Purchaser of the transactions
contemplated hereby have been duly authorized by such Purchaser. This Agreement
has been duly executed and delivered by such Purchaser and is a valid and
binding agreement of such Purchaser, enforceable against such Purchaser in
accordance with its terms.
<PAGE>
28
5.3 NO CONTRAVENTION, CONFLICT, BREACH, ETC. The execution,
delivery and performance of this Agreement by such Purchaser and the
consummation of the transactions contemplated hereby will not conflict with,
contravene or result in a breach or violation of any of the terms and provisions
of, or constitute a default under, (i) the partnership agreement, limited
liability company agreement, or other organizational documents of such
Purchaser, (ii) any Law of any Governmental Authority having jurisdiction over
such Purchaser, or (iii) any material agreement to which such Purchaser is a
party.
5.4 CONSENTS. No consent, approval, authorization, order,
registration, filing, or qualification of or with any Governmental Authority or
other Person (whether acting in an individual, fiduciary or other capacity) is
required to be made or obtained by such Purchaser for the consummation of the
transactions contemplated hereby.
5.5 ACQUISITION FOR OWN ACCOUNT. The Securities to be acquired
by such Purchaser pursuant to this Agreement are being acquired by such
Purchaser for its own account and with no intention of distributing or reselling
the Securities in any transaction that would be in violation of the Act or the
securities laws of any state, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of the
Securities under an effective registration statement under the Act, under an
exemption from such registration available under the Act, and subject,
nevertheless, to the disposition of the Purchaser's property being at all times
within its control. Such Purchaser (a) is an "accredited investor," as defined
in Regulation D promulgated by the SEC under the Act, (b) has such knowledge,
sophistication and experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Securities,
and (c) can bear the economic risk of an investment in the Securities and can
afford a complete loss of such investment. Such Purchaser acknowledges that it
has been afforded the opportunity to ask such questions as it deemed necessary,
and to receive answers from, representatives of the Company concerning the
merits and risks of investing in the Securities. Notwithstanding the foregoing,
nothing contained in this Section 5.5 shall affect or be deemed to modify any
representation or warranty made by the Company.
5.6 AVAILABLE FUNDS. Such Purchaser has committed capital that
is sufficient to purchase the Securities pursuant to this Agreement.
5.7 INTERESTED STOCKHOLDER. Prior to the consummation of the
Transactions contemplated hereby, such Purchaser was not an "interested
Stockholder" of the Company within the meaning of Section 203 of the Delaware
General Corporation Law.
<PAGE>
29
6. CERTAIN COVENANTS AND AGREEMENTS.
6.1 PRE-CLOSING COVENANTS.
6.1.1 STOCKHOLDER MEETING; PROXY MATERIAL. The
Company shall cause a meeting of its stockholders to be duly called and held as
soon as reasonably practicable, for the purpose of voting on a proposal for the
approval of sale of the Securities as contemplated by this Agreement (the
"Proposal") and transacting such other business as may properly come before the
meeting or any adjournment thereof (the "Stockholder Meeting"). The Board of
Directors shall recommend approval and adoption of the Proposal. In connection
with the Stockholder Meeting, the Company: (a) shall promptly prepare and file
with the SEC in accordance with the Exchange Act the Proxy Statement, shall use
all reasonable efforts to have the Proxy Statement and/or any amendment or
supplement thereto cleared by the SEC and shall thereafter mail to its
stockholders as promptly as practicable the Proxy Statement; (b) shall use all
reasonable efforts to obtain the necessary approvals by its stockholders of the
Proposal; and (c) shall otherwise comply with all legal requirements applicable
to such meeting. The Company shall make available to the Purchasers prior to the
filing thereof with the SEC copies of the preliminary Proxy Statement and any
amendments or supplements thereto and shall make any changes therein reasonably
requested by the Purchasers insofar as such changes relate to any matters
relating to the Purchasers or the description of the transactions contemplated
by this Agreement.
6.1.2 DELIVERY OF SCHEDULES. Not later than ten days
following the date of this Agreement, the Company shall deliver to each
Purchaser a copy of Schedules 4.3, 4.6, 4.8, 4.9, 4.13, 4.15(a), 4.15(c),
4.15(d), 4.15(e), 4.15(f), 4.15(g), 4.16, 4.18, 4.20 and 4.21 (the "Disclosure
Schedules").
6.1.3 CONDUCT OF BUSINESS. From and after the date of
this Agreement until the Closing, each of the Company and the Purchasers shall
act with good faith towards, and shall use its reasonable efforts to consummate,
the transactions contemplated by this Agreement, and neither the Company nor the
Purchasers will take any action that would prohibit or impair its ability to
consummate the transactions contemplated by this Agreement. From the date hereof
until the Closing, the Company shall conduct the business of it and its
Subsidiaries in the ordinary course and shall use all reasonable efforts to
preserve intact its business organizations and relationships with third parties
and to keep available the services of the present directors, officers and key
employees. Without limiting the generality of the foregoing, from the date
hereof until the Closing, except as contemplated by this Agreement, without the
Purchasers' prior written consent:
<PAGE>
30
(a) the Company shall not adopt or propose (or agree to
commit to) any change in the Certificate of Incorporation or its By-Laws,
except for the By-law Amendment;
(b) except as contemplated by Section 3.1.6, the Company
shall not, and shall cause each of its Subsidiaries not to, (i) enter into
any loan agreement or other agreement pursuant to which the Company or
such Subsidiary incurs indebtedness for borrowed money (other than any
such agreement among the Company and its wholly owned Subsidiaries or
among the Company's wholly owned Subsidiaries) or (ii) amend any such
existing agreement;
(c) other than in the ordinary course of business of the
Company or any Subsidiary consistent with past practice, the Company shall
not, and shall cause each of its Subsidiaries not to, sell any of the
assets of the Company or such Subsidiaries (or the securities of entities
holding the same) in one transaction or a series of related transactions;
(d) other than in the ordinary course of business of the
Company consistent with past practice, the Company shall not, and shall
cause each of its Subsidiaries not to, acquire any assets of any other
Person or Persons or acquire any equity, partnership or other interests in
any other Person or Persons, in one transaction or series of related
transactions;
(e) except as contemplated by Section 3.1.6 and repayments of
the Existing Creditor Agreement, the Company shall not, and shall cause
each of its Subsidiaries not to, repay, redeem or repurchase any
indebtedness of the Company or any of the Subsidiaries or any shares of
capital stock of the Company;
(f) the Company shall not, and shall cause each of its
Subsidiaries not to, enter into any transaction with any director,
executive officer or Affiliate (other than any transaction among the
Company and its wholly-owned Subsidiaries or among any wholly-owned
Subsidiaries of the Company) of the Company out of the ordinary course of
its business consistent with past practice;
(g) the Company shall not, and shall cause each of its
Subsidiaries not to, (i) grant to any employee any increase in salary or
other remuneration not consistent with past practices or any increase in
severance or termination pay; (ii) grant or approve any general increase
in salaries of all or a substantial portion of its employees not
consistent with past practice; (iii) pay or award any bonus, incentive,
compensation, service award or other like benefit for or to the credit of
any employee except in accordance with written
<PAGE>
31
policy or consistent with past practice; or (iv) enter into any employment
contract or severance arrangement with any employee except in accordance
with written policy or consistent with past practice or adopt or amend in
any material respect any of its employee benefit plans except as required
by law;
(h) the Company shall, and shall cause each of its
Subsidiaries to, not take or agree to commit to take any action that would
make any representation or warranty of the Company hereunder required to
be true at and as of the Closing as a condition to the Purchasers'
obligations to consummate the transactions contemplated hereby, inaccurate
at the Closing;
(i) the Company shall not, and shall cause its Subsidiaries
not to, agree to expend, commit or otherwise obligate itself to make any
capital expenditures except in the ordinary course of business, consistent
with past practice; and
(j) the Company shall not, and shall cause each of its
Subsidiaries not to, agree or commit to do any of the foregoing.
6.1.4 INSPECTION.
(a) The Company will permit, and will cause each of its
Subsidiaries to permit, the Purchasers and their respective Representatives to
visit and inspect any of its properties, to examine its corporate, financial and
operating records and make copies thereof or abstracts therefrom, and to discuss
its affairs, business practices, finances and accounts with their respective
directors, officers and independent public accountants, as often as may be
reasonably requested, upon reasonable advance notice to the Company.
(b) Each Purchaser will utilize reasonable good faith efforts
to maintain, and cause its Representatives to maintain, as confidential any
information obtained from the Company pursuant to Section 6.1.4(a) (other than
information which (i) at the time of disclosure or thereafter is generally
available to and known by the public (other than as a result of a disclosure
directly or indirectly by such Purchaser or any of its representatives), (ii) is
available to such Purchaser on a non-confidential basis from a source other than
the Company or its Subsidiaries, provided that such source was not known by such
Purchaser to be bound by a confidentiality agreement with the Company or any of
its Subsidiaries, or (iii) has been independently developed by such Purchaser),
and shall not disclose any information obtained from the Company pursuant to
Section 6.1.4(a) and required to be maintained as confidential pursuant hereto,
except (1) to the respective Representatives, agents, partners and employees of
such Purchaser, (2) to any bona fide prospective transferee of any of the
Securities or the shares of Common Stock issued upon the exercise of the
Warrants or of an interest in such Purchaser or in a
<PAGE>
32
successor fund sponsored by such Purchaser or its Affiliates, (3) as may be
required by law (including a court order, subpoena or other administrative order
or process) or applicable regulations to which such Purchaser is or becomes
subject, (4) in connection with any litigation arising out of or related to this
Agreement, (5) to the executive officers of the Company or any of its
Subsidiaries, or (6) with the written consent of the Company. Each Purchaser
shall be responsible for breaches of this Section 6.1.4(b) by such Purchaser's
Representatives.
6.1.5 PUBLICITY. Except as required by law, regulation
or stock exchange requirements, neither (a) the Company or any of its Affiliates
nor (b) the Purchasers or any of their respective Affiliates shall, without the
consent of the other, make any public announcement or issue any press release
with respect to the transactions contemplated by this Agreement. In no event
will either (i) the Company or any of its Affiliates or (ii) the Purchasers or
any of their respective Affiliates make any public announcement or issue any
press release without consulting with the other party, to the extent feasible,
as to the content of such public announcement or press release.
6.2 POST-CLOSING COVENANTS.
6.2.1 USE OF PROCEEDS. The proceeds of from the sale
of Securities, together with the Company's initial borrowings under the Credit
Agreement, shall be used by the Company to repay the Existing Credit Agreement,
to pay Transaction Expenses and for general corporate purposes.
6.2.2 FINANCIAL STATEMENTS. So long as any Purchaser
or its Affiliate continues to hold any Securities or any shares of Common Stock,
the Company shall deliver to such Purchaser:
(a) as soon as available, but not later than 90
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of income and cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous year, all in reasonable detail and accompanied by a management
summary and analysis of the operations of the Company and its Subsidiaries for
such fiscal year and by the opinion of a nationally recognized independent
public accounting firm which report shall state that such consolidated financial
statements present fairly the financial position for the periods indicated in
conformity with generally accepted accounting principles applied on a basis
consistent with prior years;
(b) as soon as available, but not later than 45
days after the end of each of the first three fiscal quarters of each fiscal
year of the Company commencing with the fiscal quarter ended November 30, 1997,
the
<PAGE>
33
unaudited consolidated balance sheet of the Company and its Subsidiaries, and
the related consolidated statements of income and cash flow for such quarter and
for the period commencing on the first day of the fiscal year and ending on the
last day of such quarter, all certified by an appropriate officer of the
Company;
(c) as soon as available, but not later than 30
days after the end of each month commencing with the month of November, 1997,
monthly financial information in a form reasonably acceptable to the Purchasers,
certified by an appropriate officer of the Company;
(d) simultaneously with the delivery thereof to
any of the Company's lenders (including but not limited to the lenders under the
Credit Agreement) or other holders of the Company's indebtedness, such other
financial and operating data of the Company and its Subsidiaries as the Company
is required to deliver to such lenders or other debt holders (any such
information to be subject to the provisions of Section 6.1.4(b));
(e) promptly after the same are filed with the
SEC, copies of all reports, statements and other documents filed with the SEC
pursuant to the Act or the Exchange Act; and
(f) promptly following receipt thereof, a copy of
any communication received by the Company from any holder of the Company's
outstanding indebtedness notifying the Company that a default or event of
default exists under the terms of the instruments governing such indebtedness.
6.2.3 INSPECTIONS. So long as any Purchaser or its
Affiliates, employees, partners or members, holds any shares of Preferred Stock,
or such Purchaser or its Affiliates, employees, partners or members hold any
Warrant Shares (as defined in Section 6.2.5 hereof), and all Purchasers,
together with their Affiliates, employees, partners or members, hold, in the
aggregate not less than 25% of the Warrant Shares (as defined in Section
6.2.5(a) hereof) represented immediately after the Closing by the Warrants sold
pursuant hereto (with appropriate adjustment made for any stock dividend,
split-up or subdivision or any combination or reclassification made or effected,
subsequent to the Closing Date), such Purchaser shall continue to have the
inspection rights set forth in Section 6.1.4(a); PROVIDED, HOWEVER, that the
provisions of Section 6.1.4(b) shall be applicable with respect to any
information obtained as a result of the exercise by such Purchaser of its
inspection rights hereunder.
6.2.4 RESTRICTIONS ON TRANSFER; LEGENDS. (a) Each of
the Purchasers agrees that it will not Transfer, pledge, mortgage, hypothecate
or grant a security interest in any of the Restricted Securities, except
pursuant to an effective
<PAGE>
34
registration statement under the Act or an applicable exemption from
registration under the Act.
(b) So long as the Restricted Securities are not
sold pursuant to an effective registration statement under the Act or pursuant
to Rule 144 under the Act, the Restricted Securities shall be subject to a
stop-transfer order and the certificates therefor shall bear the following
legend by which each holder thereof shall be bound:
"THE [WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE/SHARES
REPRESENTED BY THIS CERTIFICATE] MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER
AS EVIDENCED BY AN OPINION OF COUNSEL DELIVERED AND REASONABLY
ACCEPTABLE TO THE COMPANY."
(c) After the termination of the legend
requirements of Section 6.2.4(b), the Company shall, upon the written request of
the holder of the Restricted Securities and receipt by the Company of evidence
reasonably satisfactory to it that such requirement has terminated (including,
with respect to the legend required by the Section 6.2.4(b), a written opinion
of outside counsel), issue certificates for such Restricted Securities that do
not bear all or part of the legend described in Section 6.2.4(b).
6.2.5 BOARD OF DIRECTORS.
(a) For purposes of this Section 6.2.5,
"Warrant Shares" shall mean shares of Common Stock underlying the Warrants and
shares of Common Stock which were received upon exercise of a Warrant.
(b) So long as the Purchasers, or the
Affiliates, employees, partners or members of any Purchaser, hold, in the
aggregate, not less than 35% of the Warrants Shares represented immediately
following the Closing by the Warrants being sold pursuant hereto (with
appropriate adjustment made for any stock dividend, split-up or subdivision or
any combination or reclassification made or effected subsequent to the Closing
Date): (i) the Company's Board of Directors shall consist of not more than
eleven (11) member, four (4) of which shall be Purchaser Directors and two (2)
of which shall be Unaffiliated Directors, (ii) not less than two (2) members of
each Committee of the Company's Board of Directors (including, without
limitation, the executive, audit and compensation committees) shall be Purchaser
Directors and the Purchasers Directors and Unaffiliated Directors who are
members of such Committee shall together
<PAGE>
35
constitute not less than a majority of the members thereof, and (iii) each of
the following corporate actions shall be required to be approved by not less
than two-thirds of the directors then in office (unless the Purchaser Directors
constitute a majority of the members of the Board of Directors, in which event,
such action shall be required to be approved by a majority of the directors then
in office):
(1) any incurrence of indebtedness by
the Company or any Subsidiary in excess of $1,000,000, other than
draw-downs under the revolving credit facility contained in the Credit
Agreement or in another loan agreement approved in the manner set forth in
this Section 6.2.5(b)(iii); any refinancing of the Company's or any
Subsidiary's indebtedness; any amendment to the terms of any instrument
evidencing or governing any indebtedness of the Company or a Subsidiary;
any issuance of debt or equity securities by the Company or any Subsidiary
(other than securities issued by a Subsidiary to the Company); and the
grant of any Options by the Company; PROVIDED, HOWEVER, that the
provisions of this Section 6.2.5(b)(iii) shall not apply to (x) any
issuance by the Company of debt or equity securities having financial
terms which are more favorable to the Company than the financial terms of
the Preferred Stock where the proceeds from the issuance of such debt or
equity securities are to be used by the Company solely to redeem the
Preferred Stock or prepay the subordinated notes issued in connection with
the acquisition by the Company of Intersound, Inc., (y) borrowing funds
under the Credit Agreement for the purpose of prepaying the subordinated
notes issued in connection with the acquisition by the Company of
Intersound, Inc. or (z) the grant of any employee stock options issued
pursuant to any plan or arrangement which has been approved by a majority
of the Unaffiliated Directors;
(2) any acquisition or disposition of
material assets of the Company or any Subsidiary; entering into any joint
business venture or material licensing arrangement involving the Company
or any Subsidiary, or any licensing arrangement involving the Company or
its Subsidiaries outside the ordinary course of business; or entering into
any transaction which will result in a Change of Control;
(3) approval or amendment of or
changes to the Company's annual budget; and
(4) the hiring, dismissal, election or
removal of any members of the senior management team of the Company
(including, without limitation, the chief executive officer, chief
operating officer, chief financial officer and President of any Subsidiary
of the Company) or any material change to the terms and conditions of
employment of any such Person.
<PAGE>
36
(c) So long as the Purchasers, or the
Affiliates, employees, partners or members of any Purchaser, hold, in the
aggregate, not less than 15% of the Warrants Shares represented immediately
following the Closing by the Warrants being sold pursuant hereto (with
appropriate adjustment made for any stock dividend, split-up or subdivision or
any combination or reclassification made or effected subsequent to the Closing
Date): (i) two (2) member of the Company's Board of Directors shall be Purchaser
Directors, and (ii) not less than one member of each Committee shall be a
Purchaser Director.
(d) In the event that either (i) the Company
defaults in its obligation to purchase the Warrants in accordance with Section 7
of the Warrants, or (ii) an Event of Default exists and is continuing (and has
not been waived) under the Credit Agreement (as the same may be amended from
time to time subsequent to the date hereof) or any successor debt instrument
thereto and such Event of Default has either (1) continued for a period of not
less than 30 days following expiration of any applicable notice and cure period
under such Credit Agreement or successor debt instrument or (2) resulted in the
acceleration of the indebtedness outstanding thereunder, the Purchasers shall be
entitled to designate, and the Company shall cause to be elected, an additional
number of Purchaser Directors which, when added to the number of Purchaser
Directors then serving on the Board of Directors of the Company, shall
constitute a majority of the members of the Board of Directors of the Company.
If the size of the Board of Directors cannot be expanded in order to accomplish
the result set forth in the first sentence of this Subsection (d), the Company
shall cause such number of directors who are not Purchaser Directors to be
removed and replaced by Purchaser Directors as may be necessary to accomplish
such result.
(e) So long as any Warrants or Warrant
Shares remain outstanding, the Company shall not enter into any transaction with
an Affiliate of the Company (other than transactions between or among the
Company and its Subsidiaries in the ordinary course) involving the payment or
receipt of amounts in excess of $200,000, or the transfer of any property or
assets having a fair market value in excess of $200,000, unless such transaction
has been approved by members of the Board of Directors who constitute a majority
of the Purchaser Directors and the Unaffiliated Directors.
(f) Notwithstanding anything to the contrary
set forth in this Section 6.2.5:
(1) the provisions of
Sections 6.2.5(b)(i), 6.2.5(b)(ii), 6.2.5(c) and 6.2.5(d) shall be
suspended during any period in which the holders of the Preferred Stock
are entitled pursuant to Section 5.10 the Certificate of Designation to
elect eight directors to the Company's Board of Directors, and during such
period the directors
<PAGE>
37
elected by the holders of the Preferred Stock shall be deemed to be
"Purchaser Directors" for purposes of Sections 6.2.5(b)(iii) and 6.2.5(e);
and
(2) the provisions of Sections
6.25(b)(ii), 6.2.5(b)(iii) and 6.2.5(e) shall terminate on the later of
(x) 66 months from the Closing Date and (y) the date on which all
outstanding shares of Preferred Stock are redeemed by the Company pursuant
to Section 3 of the Certificate of Designation.
(g) The Company shall cause provisions of
Section this Section 6.2.5 to be incorporated into the By-laws by adoption of
the Bylaw Amendment and once adopted, such By-law provisions may not be amended
except by unanimous action of the Company's Board of Directors.
6.2.6 SERIES A PREFERRED STOCK. So long as the
Purchasers, or any Affiliate, employee, partner or member of any Purchaser,
holds any shares of Preferred Stock or any Warrants, the Company shall not issue
any shares of its Series A-1 Preferred Stock or its Series A-2 Preferred Stock.
6.3 PRINCIPAL SHAREHOLDERS AGREEMENT. Each of Steven Devick,
Frontenac VI Limited Partnership, Andrew J, Filipowski and Craig Duchossois
hereby agree with the Purchasers that they shall vote all shares Common Stock
held by them for the Proposal, that they shall not grant any proxy to vote any
such shares of Common Stock or preferred stock in a manner inconsistent with
their agreement set forth herein, and that so long as they retain record and
beneficial ownership of their shares of Company capital stock they shall take
such action as shall be necessary to permit the Company to comply with its
obligations under Section 6.2.5 hereof.
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS.
The representations and warranties, covenants and agreements
contained herein shall survive the execution and delivery of this Agreement and
the Closing hereunder. The foregoing notwithstanding, the Company's liability to
the Purchasers for breaches of, or inaccuracies in, any of the Company's
representations and warranties contained in Section 4 (other than Sections 4.2,
4.6, 4.17, 4.18 and 4.21), shall expire 18 months following the Closing Date
(unless any Purchaser shall have given notice to the Company claiming a breach
thereof prior to such date); liability for any breach of or inaccuracy or
misrepresentation in Section 4.17 shall expire following the fifth anniversary
of the Closing Date (unless any Purchaser shall have given notice to the Company
claiming a breach thereof prior to such date), liability in respect of the
breach of or inaccuracy or misrepresentation in Sections 4.18 and 4.21 shall
expire following the expiration of the statute of limitation (after
<PAGE>
38
giving effect to any extensions granted thereof) for any governmental authority
or beneficiary to make any claim with respect to the matters set forth in such
Sections (unless any Purchaser shall have given notice to the Company claiming a
breach thereof prior to such time); and there shall be no expiration of the time
when a claim may be made by Purchasers for breach of or any inaccuracy or
misrepresentation in Sections 4.2 and 4.6.
8. INDEMNIFICATION.
Except as otherwise provided in this Section 8, the Company
agrees to indemnify, defend and hold harmless each Purchaser and its Affiliates
and their respective officers, directors, agents, employees, subsidiaries,
partners, members and controlling persons to the fullest extent permitted by law
from and against any and all claims, losses, liabilities, damages, deficiencies,
judgements, assessments, fines, settlements, costs or expenses (including
interest, penalties and reasonable fees, disbursements and other charges of
counsel) (collectively, "Losses") (a) based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement or any other
Transaction Document, or (b) resulting from any legal, administrative or other
actions brought by any Person or entity (including actions brought by the
Company or any equity or debt holders of the Company or derivative actions
brought by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, the
transactions contemplated hereby, or any indemnified party's role therein or in
the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall
not be liable under this Section 8 to an indemnified party to the extent that it
is finally judicially determined that such Losses resulted primarily from the
gross negligence or willful malfeasance of such indemnified party. In connection
with the obligation of the Company to indemnify for Liabilities as set forth
above, the Company further agrees to reimburse each indemnified party for all
such expenses (including reasonable fees, disbursements and other charges of
counsel) as they are incurred by such indemnified party.
Notwithstanding anything to the contrary in this Section 8, the
indemnification and contribution provisions of Section 9 shall govern any claim
made with respect to registration statements filed pursuant thereto or sales
made thereunder.
9. REGISTRATION RIGHTS.
The Company hereby agrees to provide registration rights with
respect to the Registrable Securities as set forth below.
<PAGE>
39
9.1 SECURITIES SUBJECT TO THIS AGREEMENT.
(a) REGISTRABLE SECURITIES. For the purposes of this
Section 9, Registrable Securities will cease to be Registrable Securities when
such Registrable Securities are sold pursuant to Rule 144 under the Act or a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and such Registrable Securities
have been disposed of pursuant to such effective registration statement.
(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is
deemed to be a holder of Registrable Securities whenever such Person owns of
record Registrable Securities, or holds a warrant to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives conflicting instructions, notices or elections from two or more
persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Section 9.
9.2 DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION. At any time
after the date that is 270 days after the Closing Date, the holders of 25% of
the outstanding Registrable Securities may make a written request for
registration of Registrable Securities under the Act, and under the securities
or blue sky laws of any jurisdiction designated by such holder or holders (a
"Demand Registration"); provided, that the Company will not be required to
effect more than six Demand Registrations in the aggregate at the request of the
holders of Registrable Securities pursuant to this Section 9.2(a) and provided,
further, that the Company will not be required to effect more than four Demand
Registrations pursuant to this Section 9.2(a) using a registration form other
than a Form S-3 Registration Statement; and provided, further, that the Company
shall not be required to complete any Demand Registration after the fourth
Demand Registration unless the anticipated aggregate proceeds to the selling
shareholders would exceed $2,500,000. Each such request for a Demand
Registration shall specify the amount of the Registrable Securities proposed to
be sold, the intended method of disposition thereof and the jurisdictions in
which registration is desired. Upon a request for a Demand Registration, the
Company shall promptly take such steps as are necessary or appropriate to
prepare for the registration of the Registrable Securities to be registered.
Within fifteen (15) days after the receipt of such request, the Company shall
give written notice thereof to all holders holding Registrable Securities and
include in such registration all Registrable Securities held by a holder thereof
with respect to which the Company has received
<PAGE>
40
written requests for inclusion therein at least ten (10) days prior to the
filing of the registration statement. Each such request will also specify the
number of Registrable Securities to be registered, the intended method of
disposition thereof and the jurisdictions in which registration is desired.
Except with respect to Persons who as of the date of this Agreement have the
contractual right to piggy-back on a Demand Registration pursuant to
registration rights agreements identified on Schedule 4.8, unless holders of a
majority of the Registrable Securities to be included in the Demand Registration
consent in writing, no other Person (other than the Company and any other holder
of Registrable Securities), shall be permitted to offer securities under any
such Demand Registration. Subsequent to the date hereof, the Company shall not
grant to any Person who does not presently have such right, the right to
piggy-back on a Demand Registration.
(b) EFFECTIVE DEMAND REGISTRATION. A registration
shall not constitute a Demand Registration until it has become effective under
the Act and remains effective until the earlier of the completion of any
offering of securities thereunder and the expiration of 135 days from date on
which it first became effective under the Act (unless withdrawn upon request of
the holders). The Company shall use reasonable efforts to cause any such Demand
Registration to become effective under the Act not later than ninety (90) days
after it receives a request under Section 9.2(a) hereof.
(c) EXPENSES. In any registration initiated as a
Demand Registration, the Company shall pay all Registration Expenses (as defined
in Section 9.6) in connection therewith, whether or not such Demand Registration
becomes effective.
(d) UNDERWRITING PROCEDURES. If holders of a
majority of the Registrable Securities included in the Demand Registration so
elect, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter selected in accordance with Section 9.2(e). In such event,
if the Approved Underwriter advises the Company in writing that in its opinion
the aggregate amount of such Registrable Securities requested to be included in
such offering is sufficiently large to have a material adverse effect on the
success of such offering, the Company shall include in such registration only
the aggregate amount of Registrable Securities that in the opinion of the
Approved Underwriter may be sold without any such material adverse effect and
shall first reduce (to zero, if necessary) the amount of Securities sought to be
included therein by the Company and any other Person who wishes to participate
through the exercise of piggy-back registration rights and, if such reduction is
not sufficient, reduce, pro rata based on the amounts included in the request
for Demand Registration, the amount of Registrable Securities to be included by
each holder. To the extent Registrable Securities so requested to be
<PAGE>
41
registered are excluded from the offering, then the holders of such Registrable
Securities shall have the right to one additional Demand Registration under this
Section 9.2 with respect to such Registrable Securities.
(e) SELECTION OF UNDERWRITERS. If any Demand
Registration of Registrable Securities is in the form of an underwritten
offering, the holders holding a majority of the Registrable Securities to which
the Demand Registration relates shall select and obtain an investment banking
firm of national reputation to act as the managing underwriter of the offering
(the "Approved Underwriter"); provided, that the Approved Underwriter shall, in
any case, be acceptable to the Company in its reasonable judgment.
9.3 PIGGY-BACK REGISTRATION.
(a) PIGGY-BACK RIGHTS. If the Company proposes to
file a registration statement under the Act with respect to an offering by the
Company for its own account or for the account of any other holder of
registration rights exercising demand registration rights (such other holder or
registration rights being "Demand Holder") of any class of equity securities
(other than a registration statement on Form S-4 or S-8 or any successor or
other forms not available for registering equity securities for sale to the
public), then the Company shall give written notice of such proposed filing to
each holder of Registrable Securities at least thirty (30) days before the
anticipated filing date, and such notice shall describe in detail the proposed
registration and distribution (including those jurisdictions where registration
under the securities or blue sky laws is intended) and offer such holders the
opportunity to register such number of Registrable Securities as each such
holder may request. The Company shall use its best efforts (within ten (10) days
of the notice provided for in the preceding sentence) to cause the managing
underwriter or underwriters of a proposed underwritten offering (the
"Underwriter") to permit the holders of Registrable Securities that have
requested to participate in the registration for such offering to include such
Registrable Securities in such offering on the same terms and conditions as the
securities of the Company or the Demand Holder, as the case may be, included
therein. Notwithstanding the foregoing, if in the opinion of the Underwriter the
total amount or kind of securities which the holders of Registrable Securities,
the Company and any other persons or entities intend to include in such offering
(the "Total Securities") is sufficiently large so as to have a material adverse
effect on the distribution of the Total Securities, then the amount or kind of
securities to be offered for the account of such holders of Registrable
Securities and such other persons or entities other than (i) the Company, if
such registration is being filed for the Company's own account, or (ii) the
Demand Holders, if such registration is being made at the demand of a Demand
Holder, shall be reduced pro rata (to zero, if necessary) to the extent
necessary to reduce the Total Securities to the amount recom mended by the
Underwriter.
<PAGE>
42
(b) EXPENSES. The Company shall bear all
Registration Expenses in connection with any registration pursuant to this
Section 9.3.
9.4 HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF
REGISTRABLE SECURITIES. To the extent not inconsistent with applicable law, each
holder of Registrable Securities participating in such registration agrees not
to effect any public sale or distribution of any Registrable Securities being
registered or of any securities convertible into or exchangeable or exercisable
for such Registrable Securities, including a sale pursuant to Rule 144 under the
Securities Act, during the ten (10) Business Days prior to, and during the
ninety (90) days beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested by the
Company in the case of a non-underwritten public offering or if and to the
extent requested by the Underwriter in the case of an underwritten public
offering.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The
Company agrees not to effect any public sale or distribution of any of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such equity securities (except pursuant to registrations on Form
S-4 or S-8 or any successor or other forms not available for registering equity
securities for sale to the public) during the ten (10) Business Days prior to,
and during the ninety (90) day period beginning on, the later of (i) the
effective date of any registration statement in which the holders of Registrable
Securities are participating and (ii) the commencement of a public distribution
of the Registrable Securities pursuant to such registration statement.
9.5 REGISTRATION PROCEDURES.
(a) OBLIGATIONS OF THE COMPANY. Whenever
registration of Registrable Securities has been requested pursuant to Section
9.2 or 9.3 of this Agreement, the Company shall use reasonable efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof, and in connection with any such
request, the Company shall, as soon as reasonably practicable:
(i) prepare and file with the SEC (in any event
not later than thirty (30) business days after receipt of a request to
file a registration statement with respect to Registrable Securities) a
registration statement on any form for which the Company then qualifies
which counsel for the Company shall deem appropriate and which form shall
be available for the sale of such Registrable Securities in accordance
with the intended method of distribution thereof, and use its best efforts
to cause such registration statement
<PAGE>
43
to become effective under the Act; provided, however, that before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company shall (A) provide counsel selected by the holders of
a majority of the Registrable Securities being registered in such
registration ("Holders' Counsel") with an opportunity to participate in
the preparation of such registration statement and each prospectus
included therein (and each amendment or supplement thereto) to be filed
with the SEC, which documents shall be subject to the review of Holders'
Counsel, and (B) notify the Holders' Counsel and each seller of
Registrable Securities of any stop order issued or threatened by the SEC
and take all reasonable action required to prevent the entry of such stop
order or to remove it if entered;
(ii) prepare and file with the SEC 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 a period which will terminate when all Registrable
Securities covered by such registration statement have been sold (but not
before the expiration of the ninety (90) day period referred to in Section
4(3) of the Act and Rule 174 thereunder, if applicable), and comply with
the provisions of the Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement;
(iii) furnish to each seller of Registrable
Securities, prior to filing a registration statement, copies of such
registration statement as is proposed to be filed, and thereafter such
number of copies of such regis tration statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) use reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws
of such jurisdictions as any seller of Registrable Securities requests,
and to continue such qualification in effect in such jurisdiction for as
long as is permissible pursuant to the laws of such jurisdiction, or for
as long as any such seller requests or until all of such Registrable
Securities are sold, whichever is shortest, and do any and all other acts
and things which may be reasonably necessary or advisable to enable any
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the
Company shall not be required to (A) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but
for this Section 9.5(a)(iv), (B) subject itself to taxation
<PAGE>
44
in any such jurisdiction or (C) consent to general service of process in
any such jurisdiction;
(v) use reasonable efforts to cause the Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to
enable the seller or sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at
any time when a prospectus relating thereto is required to be delivered
under the Act, upon discovery that, or upon the happening of any event as
a result of which, the prospectus included in such registration statement
contains an 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 light of the circumstances under
which they were made, and the Company shall promptly prepare a supplement
or amendment to such prospectus and furnish to each seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, after delivery to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Underwriter, if any, selected as provided in Sections 9.2
or 9.3) and take such other actions as are reasonably required in order to
facilitate the disposition of such Registrable Securities;
(viii) make available for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
managing underwriter (each, an "Inspector" and collectively, the "Inspec
tors"), all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent
public accountants of the Company, to supply all information reasonably
requested by any such Inspector in connection with such registration
statement;
<PAGE>
45
(ix) if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters as Holders' Counsel or the
managing underwriter reasonably requests;
(x) furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities
are not being sold through underwriters, on the date the registration
statement with respect to such securities becomes effective, an opinion,
dated such date, of counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the
seller making such request, covering such legal matters with respect to
the registration in respect of which such opinion is being given as such
seller may reasonably request and are customarily included in such
opinions;
(xi) otherwise use reasonable efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable but no later than
fifteen (15) months after the effective date of the registration
statement, an earnings statement covering a period of twelve (12) months
beginning after the effective date of the registration statement, in a
manner which satisfies the provisions of Section 11(a) of the Act;
(xii) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by
the Company are then listed (including NASDAQ), provided, that the
applicable listing requirements are satisfied;
(xiii) provide officers' certificates and other
customary closing documents;
(xiv) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD"); and
(xv) use reasonable efforts to take all other steps
necessary to effect the registration of the Registrable Securities
contemplated hereby.
<PAGE>
46
(b) NOTICE TO DISCONTINUE. Each holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 9.5(a)(vi), such
holder shall forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Sec tion 9.5(a)(vi) and, if so directed by the
Company, such holder shall 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 which is current at the time
of receipt of such notice. If the Company shall give any such notice, the
Company shall extend the period during which such registration statement shall
be maintained effective pursuant to this Agreement (including without limitation
the period referred to in Section 9.5(a)(ii)) by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 9.5(a)(vi) to and including the date when the holder shall have received
the copies of the supplemented or amended prospectus contemplated by and meeting
the requirements of Section 9.5(a)(vi).
9.6 REGISTRATION EXPENSES. The Company shall pay all expenses
(other than underwriting discounts and commissions) arising from or incident to
the performance of, or compliance with, Section 9 of this Agreement, including
without limitation, (i) SEC, stock exchange, NASDAQ and NASD registration and
filing fees, (ii) all fees and expenses incurred in complying with secu rities
or blue sky laws (including reasonable fees, charges and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses, (iv) the fees,
charges and disbursements of counsel to the Company and of its independent
public accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including without limitation any expenses arising from
any special audits incident to or required by any registration or
qualification), and (v) any liability insurance or other premiums for insurance
obtained by the Company and the reasonable fees, charges and expenses of any
special experts retained by the Company in connection with any Demand
Registration or piggy-back registration pursuant to the terms of this Agreement,
regardless of whether such registration statement is declared effective. In
connection with each registration hereunder, the Company shall reimburse the
holders of Registrable Securities being registered in such registration for the
reasonable fees, charges and disbursements of not more than one counsel chosen
by the holders of a majority of Registrable Securities being registered in such
registration. All of the expenses described in this Section 9.6 are referred to
herein as "Registration Expenses."
<PAGE>
47
9.7 INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company
agrees to indemnify, to the fullest extent permitted by law, each holder of
Registrable Securities, its officers, directors, partners, employees, advisors
and agents and each Person who controls (within the meaning of the Act or the
Exchange Act) such holder from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue, or alleged untrue, statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein and provided further that the Company will not be liable to any holder
of Registrable Securities or any person controlling such holder with respect to
any loss, claim, liability, expense, charge or damage arising out of or based on
any untrue statement or alleged untrue statement or omission or alleged omission
to state a material fact in any preliminary prospectus which is corrected in the
prospectus. The Company shall also indemnify any underwriters of the Registrable
Securities, their officers, directors and employees and each Person who controls
such underwriters (within the meaning of the Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities.
(b) INDEMNIFICATION BY HOLDERS. In connection with
any registration statement in which a holder of Registrable Securities is
participating pursuant to Section 9.2 or 9.3 hereof, each such holder shall
furnish to the Company in writing such information with respect to such holder
as the Company may reason ably request or as may be required by law for use in
connection with any such registration statement or prospectus and each holder,
by its participation in such registration, agrees to indemnify, to the extent
permitted by law, the Company, any underwriter retained by the Company and their
respective directors, officers, employees and each Person who controls the
Company or such underwriter (within the meaning of the Act and the Exchange Act)
to the same extent as the foregoing indemnity from the Company to the holders of
Registrable Securities, but only with respect to any such information furnished
in writing by or on behalf of such holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any
Person entitled to indemnification hereunder (the "Registration Rights
Indemnified Party") agrees to give prompt written notice to the indemnifying
party (the "Registration Rights Indemnifying Party") after the receipt by the
Registration Rights Indemnified Party of any written notice of the commencement
of any action, suit,
<PAGE>
48
proceeding or investigation or threat thereof made in writing for which the
Registration Rights Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; provided, that the failure so to notify
the Registration Rights Indemnifying Party shall not relieve the Registration
Rights Indemnifying Party of any liability that it may have to the Registration
Rights Indemnified Party hereunder unless, and only to the extent that, such
failure results in the Registration Rights Indemnifying Party's forfeiture of
substantial rights or defenses. If notice of commencement of any such action is
given to the Registration Rights Indemnifying Party as above provided, the
Registration Rights Indemnifying Party shall be entitled to participate in and,
to the extent it may wish, jointly with any other Registration Rights
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and satisfactory to such Registration
Rights Indemnified Party. The Registration Rights Indemnified Party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Registration Rights
Indemnified Party unless (i) the Registration Rights Indemnifying Party agrees
to pay the same, (ii) the Registration Rights Indemnifying Party fails to assume
the defense of such action with counsel satisfactory to the Registration Rights
Indemnified Party in its reasonable judgment, (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that either (A) representation of such Registration Rights Indemnified Party and
the Registration Rights Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (B) there
may be one or more legal defenses available to the Registration Rights
Indemnified Party which are different from or additional to those available to
the Registration Rights Indemnifying Party. No Registration Rights Indemnifying
Party shall, without the prior written consent of each Registration Rights
Indemnified Party, settle, compromise or consent to the entry of any judgment
unless such settlement, compromise or consent includes an unconditional release
of the Registration Rights Indemnified Party from all liability relating
thereto. In either of such cases the Registration Rights Indemnifying Party
shall not have the right to assume the defense of such action on behalf of such
Registration Rights Indemnified Party. No Registration Rights Indemnifying Party
shall be liable for any settlement entered into without its written consent,
which consent shall not be unreasonably withheld, conditioned or delayed.
(d) CONTRIBUTION. If the indemnification provided for
in this Section 9.7 from the Indemnifying Party is unavailable to a Registration
Rights Indemnified Party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Registration Rights Indemnified Party, shall
contribute to the amount paid or payable by such Registration Rights 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
Registration Rights Indemnifying Party and Registration
<PAGE>
49
Rights Indemnified Party 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 faults of such Registration Rights
Indemnifying Party and Registration Rights Indemnified Party 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 Registration Rights Indemnifying Party or Registration Rights
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. 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, subject to the
limitations set forth in Sections 9.7(a), 9.7(b) and 9.7(c), any legal or other
fees, charges 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 9.7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
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 Act) shall be entitled to contribution from any person.
9.8 RULE 144. The Company covenants that it shall
file any reports required to be filed by it under the Exchange Act and the rules
and regulations adopted by the Commission thereunder; and that it shall take
such further action as each holder of Registrable Securities may reasonably
request (including providing any information necessary to comply with Rules 144
and 144A under the Securities Act), all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Act within the limitation of the exemptions provided by (a) Rule 144 or Rule
144A under the Act, as such rules may be amended from time to time, or (b) any
similar rules or regulations hereafter adopted by the SEC. The Company shall,
upon the request of any holder of Registrable Securities, deliver to such holder
a written statement as to whether it has complied with such requirements.
10. TERMINATION.
10.1 TERMINATION. Subject to Section 10.2, this Agreement may
be terminated at any time prior to the Closing:
(a) by the Purchasers or the Company if the Stockholder
Meeting is held to consider the transactions contemplated hereby and the
stockholders fail to approve the Proposal;
<PAGE>
50
(b) by the Purchasers if there has been a material
breach of any representation, warranty, covenant or agreement of the Company
contained in this Agreement, which breach is incurable or has not been cured by
the Company within 10 days after written notice from the Purchasers; PROVIDED,
HOWEVER, that no pending or threatened action, suit, proceeding or investigation
questioning the validity of this Agreement or any action to be taken pursuant
hereto or thereto or seeking to enjoin consummation of any of the transactions
contemplated hereby or thereby, shall give the Purchasers any right to terminate
this Agreement under this Section 10.1(a) except as set forth in paragraph (f)
below;
(c) by the Company if there has been a material breach
of any representation, warranty, covenant or agreement of the Purchasers
contained in this Agreement, which breach is incurable or has not been cured by
the Purchasers within 10 days after written notice from the Company;
(d) by the Purchasers if the Disclosure Schedules are
not in form and substance satisfactory to the Purchasers;
(e) by the Company or the Purchasers, if the Closing
shall not have occurred on or before December 31, 1997; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 10.1(e) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date;
(f) by the Company or the Purchasers, if any judgment,
injunction, order or decree enjoining the Company or the Purchasers from
consummating the transactions contemplated by this Agreement is entered and such
judgment, injunction, order or decree becomes final and nonappealable; PROVIDED,
HOWEVER, that the party seeking to terminate this Agreement must use all
reasonable efforts to remove such judgment, injunction, order or decree; or
(g) by mutual written consent of the Company and the
Purchasers.
10.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the representation
contained in Section 4.25 and the covenants and agreements contained in Sections
6.1.4(b), 6.1.5, 8, 10.2 and 11 shall survive the termination hereof.
11. MISCELLANEOUS.
11.1 PERFORMANCE; WAIVER. The provisions of this
Agreement may be modified or amended, and waivers and consents to the
<PAGE>
51
performance and observance of the terms hereof may be given (i) prior to the
Closing, by written instrument executed and delivered by the Company and the
Purchasers, and (ii) subsequent to the Closing, by written instrument executed
and delivered by the Company and the holders of (x) 662/3% of the outstanding
shares of Preferred Stock, if any, and (y) 662/3% of the Warrant Shares (as
defined in Section 6.2.4(a)). The failure at any time to require performance of
any provision hereof shall in no way affect the full right to require such
performance at any time thereafter (unless performance thereof has been waived
in accordance with the terms hereof for all purposes and at all times by the
parties to whom the benefit of such performance is to be rendered). The waiver
by any party to this Agreement of a breach of any provision hereof shall not be
taken or held to be a waiver of any succeeding breach of such provision of any
other provision or as a waiver of the provision itself.
11.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to applicable securities laws and the applicable
provisions of this Agreement, the Purchasers may assign any of their rights
under any of this Agreement to any of their Affiliates, employees, members or
partners. The Company may not assign any of its rights under this Agreement,
except to a successor-in-interest to the Company, without the written consent of
the Purchasers. No Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
11.3 NOTICES. All notices or other communications given or
made hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
If to the Company:
Platinum Entertainment, Inc.
20001 Butterfield Road, Suite 1400
Downers Grove, Illinois 60515
Telecopy: (630) 769-0049
Attention: Chief Executive Officer
with a copies to:
Katten, Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois
Telecopy: (312) 902-1061
Attention: Matthew S. Brown, Esq.
<PAGE>
52
If to the Purchasers:
SK-Palladin Partners, LP
c/o Palladin Capital, Inc.
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 641-5065
Attention: Mark J. Schwartz
and
MAC Music LLC
c/o Alpine Equity Partners, L.P.
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 641-5148
Attention: Lorraine E. Jackson, Esq.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Bruce A. Gutenplan, Esq.
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
11.4 TRANSACTION EXPENSES. The Company shall pay all
Transaction Expenses incurred by the Purchaser, regardless of whether or not the
Closing occurs unless this Agreement has been terminated by the Company pursuant
to Section 10.1(c) hereof.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS IN
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
11.6 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid,
<PAGE>
53
void or unenforceable, each of the Company and the Purchasers directs that such
court interpret and apply the remainder of this Agreement in the manner that it
determines most closely effectuates their intent in entering into this
Agreement, and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
11.7 HEADINGS; INTERPRETATION. The index and section headings
herein are for convenience only and shall not affect the construction hereof.
References to sections means sections of this Agreement unless the context
otherwise requires. References to herein or hereof mean this Agreement.
11.8 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement between the parties relating to the subject matter hereof and
supersedes any and all prior oral or written agreements, representations or
warranties, contracts, understandings, correspondence, conversations, and
memoranda, whether written or oral, between the Company and the Purchasers, or
between or among any agents, representatives, parents, Subsidiaries, Affiliates,
predecessors in interest or successors in interest, with respect to the subject
matter hereof.
11.9 NO THIRD PARTY RIGHTS. Except for the indemnified
parties, this Agreement is intended solely for the benefit of the parties hereto
and is not intended to confer any benefits upon, or create any rights in favor
of, any Person (including, without limitation, any stockholder or debtholder of
the Company) other than the parties hereto.
11.10 REMEDIES FOR BREACH. The parties agree that in addition
to any other rights or remedies which may be available at law or equity, the
parties shall be entitled to seek specific performance of any post-Closing duty
or obligation of any party hereto.
<PAGE>
54
11.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and both of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PLATINUM ENTERTAINMENT, INC.
By: /s/ STEVEN DEVICK
-------------------------------
Name: Steven Devick
Title: Chief Executive Officer
MAC MUSIC LLC
By: Alpine Equity Partners, L.P.,
Managing Member
By: Alpine Equity Partners, LLC
General Partner
By: /s/ LISA A. HOOK
-------------------------
Name: Lisa A. Hook
Title: Managing Director
By: Maroley Media Group LLC,
Managing Member
By: /s/ ANDREW B. LIPSHER
-------------------------
Name: Andrew B. Lipsher
Title: Executive Vice President
SK-PALLADIN PARTNERS, LP
By: SK-Palladin Gen Par, LP,
General Partner
By: SK-Palladin Gen Par, Inc.
General Partner
By: /s/ MARK J. SCHWARTZ
--------------------------
Name: Mark J. Schwartz
Title: President and CEO
<PAGE>
55
EACH OF THE UNDERSIGNED, by execution hereof and delivery of a
counterpart hereof hereby join and becomes a party to the foregoing Securities
Purchase Agreement but only for purposes of Sections 6.3 and 11 thereof.
FRONTENAC VI LIMITED PARTNERSHIP
By: /s/ RODNEY L. GOLDSTEIN
-------------------------
Name: Rodney L Goldstein
Title:
/s/ STEVEN DEVICK
----------------------------
Steven Devick
/s/ ANDREW J. FILIPOWSKI
----------------------------
Andrew J. Filipowski
/s/ CRAIG DUCHOSSOIS
-----------------------------
Craig Duchossois
<PAGE>
SCHEDULE 2.2
NUMBER OF SHARES PORTION OF
PURCHASER OF PREFERRED STOCK WARRANTS PURCHASE PRICE
- --------------------------------------------------------------------------------
MAC Music LLC 10,000 1,800,000 $10,000,000.00
- --------------------------------------------------------------------------------
SK-Palladin Partners, LP 10,000 1,800,000 $10,000,000.00
ALLOCATION OF PURCHASE PRICE: The portion of the Purchase Price paid by each
Purchaser shall be allocated ____% to the shares of Preferred Stock purchased by
such Purchaser and ___% to the Warrants purchased by such Purchaser.*/
- ----------
*/ As soon as practicable, but no later than 15 days after the Closing Date
(unless the parties agree to an extension beyond such date) the parties
will in good faith attempt to reach agreement with respect to an
allocation. If the parties are unable to agree, then the allocation shall
be determined by an "Independent Financial Expert" within the meaning of,
and chosen in the manner set forth in, the definition of "Current Market
Price" in Section 1.12 of the Certificate of Designation.
<PAGE>
Exhibit 1 -- continued
MAC MUSIC LLC
SK-PALLADIN PARTNERS, LP
1285 Avenue of the Americas, 21st Floor
New York, New York 10019-6064
October 28, 1997
Platinum Entertainment, Inc.
2001 Butterfield Road, Suite 1400
Downers Grove, Illinois 60515
Attention: Steven Devick, Chief Executive Officer
Dear Sirs:
Reference is made to the Investment Agreement (the "Investment
Agreement), dated as of October 12, 1997, among Platinum Entertainment, Inc.
(the "Company"), MAC Music LLC and SK-Palladin Partners, LP (collectively, the
"Purchasers"). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Investment Agreement.
For good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Company and the Purchasers, pursuant to
Section 11.1 of the Investment Agreement, hereby amend the Investment Agreement,
effective as of the date hereof, as follows:
A. Section 3.1, entitled "Conditions Precedent to the Obligations of the
Purchasers," is hereby amended to add the following additional conditions:
3.1.21 INVESTMENT BY STEVEN DEVICK. Steven Devick ("Devick") or, at
his election, Platinum Venture Partners I, L.P. ("PV Partners") or officers and
directors of the Company, or, with the prior consent of the Purchasers in their
sole discretion, any other Person designated by Devick, shall have purchased
from the Company, at the Closing, 2,500 shares in the aggregate of a new series
of convertible preferred stock of the Company (the "New Preferred Stock") and a
warrant exercisable into 450,000 shares of Common Stock (the "Devick Warrant"),
for an aggregate cash purchase price of $2,500,000 (the "Purchase Price").
(a) The New Preferred Stock will be on a parity with, and have
the same rights, preferences and limitations as the Series B Convertible
Preferred Stock, par value $.001 per share (the "Series B Preferred Stock"),
which Certificate of the Powers, Designation, Preferences and Rights for the
Series B Preferred Stock (the "Series B Certificate") is attached as Exhibit A
to the Investment Agreement, as
<PAGE>
2
amended hereby, except that: (i) the New Preferred Stock will not be issued
pursuant to the Investment Agreement and the holders of the New Preferred Stock
will not be entitled to any of the rights of the Purchasers under the Investment
Agreement, (ii) the Certificate of the Powers, Designations, Preferences and
Rights governing the New Preferred Stock (the "New Certificate") will not
contain voting rights (as set forth in Section 5 of the Series B Certificate),
except as may be required by law, (iii) the New Certificate will not contain any
rights upon a Change of Control (as set forth in Section 7 of the Series B
Certificate) solely to the extent that any such rights would be triggered or
otherwise exercisable (a) upon the acquisition of any shares of Common Stock of
the Company pursuant to the exercise of any Warrant issued by the Company under
the Investment Agreement, (b) upon the exercise of any of the rights and
privileges granted to each of the Purchasers pursuant to Section 6.2.5 of the
Investment Agreement, (c) upon the exercise of any of the rights and privileges
granted to each of the Purchasers pursuant to Section 5.1 of the Series B
Certificate or (d) otherwise as a result of the equity ownership or designation
of directors by the Purchasers or their Affiliates, employees, partners or
members, and (iv) the New Certificate will not contain any rights with respect
to transactions with affiliates (as set forth in Section 8 of the Series B
Certificate). In all respects, the New Certificate will be in a form and contain
such terms (consistent with the foregoing sentence) as are reasonably acceptable
to the Purchasers.
In addition, as a covenant which shall survive the Closing Date, the
Company agrees that it shall not enter at any time into any investment or other
agreement, except with the prior consent of the holders of a majority of shares
of Series B Preferred Stock, granting Devick, PV Partners or any other holders
of the New Preferred Stock any additional rights or entitlements with respect to
the New Preferred Stock which are otherwise not set forth in the New
Certificate.
(b) The Devick Warrant shall contain the same terms as are set
forth in the form of Warrant attached as Exhibit B to the Investment Agreement,
as amended hereby; except that: (i) the Devick Warrant will not be issued
pursuant to the Investment Agreement and the holders of the Devick Warrant will
not be entitled to any of the rights of the Purchasers under the Investment
Agreement, (ii) the Devick Warrant shall not provide for a conditional annual
increase adjustment in warrant shares (as set forth in Section 6.1(f) of the
Warrant) and (iii) the holders of the Devick Warrant will not have the Five Year
Put (as set forth in Section 7 of the Warrant)), unless a majority in interest
of the holders of Warrant Shares (issued or underlying the Warrants issued
pursuant to the Investment Agreement) have exercised the Five Year Put, and (iv)
the holders of the Devick Warrant shall have the Change of Control Put (as set
forth in Section 7 of the Warrant), PROVIDED THAT, the Change of Control Put
will not become triggered or otherwise exercisable (a) upon the acquisition of
any shares of Common Stock of the Company pursuant to the exercise of any
Warrant issued by the Company under the Investment Agreement, (b) upon the
exercise of any of the rights and privileges granted to each of the Purchasers
pursuant to Section 6.2.5 of the Investment Agreement, (c) upon the exercise of
any of the
<PAGE>
3
rights and privileges granted to each of the Purchasers pursuant to Section 5.1
of the Series B Certificate or (d) otherwise as a result of the equity ownership
or designation of directors by the Purchasers or their Affiliates, employees,
partners or members. In all respects, the Devick Warrant will be in a form and
contain such terms (consistent with the foregoing sentence) as are reasonably
acceptable to the Purchasers.
In addition, as a covenant which shall survive the Closing Date, the
Company agrees that it shall not enter at any time into any investment or other
agreement, except with the prior consent of the holders of a majority in
interest of the Warrant Shares (issued or represented by the Warrants issued
pursuant to the Investment Agreement), granting Devick, PV Partners or any other
holders of the Devick Warrant any additional rights or entitlements with respect
to the Devick Warrant which are otherwise not set forth in the Devick Warrant.
3.1.22 AMENDMENT OF SERIES B CERTIFICATE. The Series B Certificate
shall be amended to provide that the definition of "Conversion Price" in Section
1.11 therein shall mean the lesser of (1) $6.60 per share of Common Stock and
(2) 82.5 % of the average of the daily Closing Price per share of Common Stock
for the 30 consecutive trading days following the public release by the Company
of its consolidated earnings statement for the 1998 Fiscal Year; provided that
if shares of Common Stock are not then traded on any national securities
exchange or quoted by NASDAQ or a similar service, the Closing Price for the
foregoing purposes shall be deemed to be the fair market value of a share of
Common Stock as shall be determined in good faith by the Board of Directors of
the Company. If the Board of Directors is unable to determine the fair market
value, or if the holders of a majority of the outstanding shares of Series B
Preferred Stock disagree with the Board's determination of fair market value,
then fair market value will be determined by an Independent Financial Expert (as
defined in the Series B Certificate) in accordance with the provisions set forth
in the definition of Current Market Price in the Series B Certificate.
3.1.23 AMENDMENT OF PURCHASER WARRANTS. The form of Warrant
Certificate to be delivered to each of the Purchasers at the Closing, which form
is attached to the Investment Agreement as Exhibit B, shall be amended to
provide that the definition of "Exercise Price" shall mean the lesser of (1)
$6.60 per share of Common Stock and (2) 82.5% of the average of the daily
Closing Price per share of Common Stock for the 30 consecutive trading days
following the public release by the Company of its consolidated earnings
statement for the 1998 Fiscal Year (the "Thirty Day Period"); provided that if
shares of Common Stock are not then traded on any national securities exchange
or quoted by NASDAQ or a similar service, the Closing Price for the foregoing
purposes shall be deemed to be the fair market value of a share of Common Stock
as shall be determined in good faith by the Board of Directors of the Company.
If the Board of Directors is unable to determine the fair market value, or if
the holders of a majority in interest of the Warrant Shares issuable upon
exercise of the Warrants disagree with the Board's determination of fair market
<PAGE>
4
value, then fair market value will be determined by an Independent Financial
Expert (as defined in the Warrant) in accordance with the provisions set forth
in the definition of Current Market Price in the Warrant. Notwithstanding the
foregoing, if at any time prior to the expiration of the Thirty Day Period, no
shares of the Series B Preferred Stock remain outstanding, the definition of
"Exercise Price" shall mean $6.60 per share of common stock.
3.1.24 DEVICK'S WAIVER OF CERTAIN REGISTRATION RIGHTS. Devick shall
have delivered to the Purchasers an executed letter of forbearance addressed to
each of the Purchasers and for the benefit of the holders of the Registrable
Securities, in a form reasonably acceptable to the Purchasers, pursuant to which
he agrees to waive his rights under section 3 (Piggyback Registrations) of that
certain Amended and Restated Registration Rights Agreement, dated as of June 30,
1994, among the Company, Steven Devick and other holders of registrable
securities thereunder, as amended, and to waive any other registration rights he
may have from time to time, in each case, solely to the extent any such rights
would permit him to register securities on a registration statement filed at the
request of the holders of Registrable Securities under the Investment Agreement;
PROVIDED that Devick may exercise such rights upon the written consent of at
least 51% of the holders of Registrable Securities under the Investment
Agreement.
3.1.25 AMENDMENT OF EMPLOYMENT AGREEMENTS. The Company shall have
delivered to the Purchasers an amendment to the Company's employment agreements
with each of Devick, Douglas Laux ("Laux") and Thomas Leavens ("Leavens"), each
such agreement dated as of June 1, 1997 (the "Employment Agreements"), duly
executed by the Company and the respective employee, in a form reasonably
acceptable to the Purchasers, providing that a "change of control", as that term
is used in the Employment Agreements, shall not be deemed to have occurred: (i)
upon the acquisition of any shares of Common Stock of the Company pursuant to
the exercise of any Warrant issued by the Company under the Investment
Agreement, (ii) upon the exercise of any of the rights and privileges granted to
each of the Purchasers pursuant to Section 6.2.5 of the Investment Agreement,
(iii) upon the exercise of any of the rights and privileges granted to each of
the Purchasers pursuant to Section 5.1 of the Series B Certificate or (iv)
otherwise as a result of the equity ownership or designation of directors by the
Purchasers or their Affiliates, employees, partners or members.
3.1.26 AMENDMENT OF EMPLOYEE INCENTIVE PLANS. The Company shall have
delivered to the Purchasers amendments to the Platinum Entertainment, Inc. 1995
Employee Incentive Compensation Plan (the "Incentive Plan"), the Platinum
Entertainment, Inc. 1997 Stock Purchase Plan (the "Repurchase Plan",
collectively, the "Plans") and any award or awards outstanding (which are not
yet vested and exercisable) under the Plans to each of Devick, Laux and Leavens
(the "Awards"), by action of the Board of Directors in accordance with the terms
of the Plans, which provides that none of (i) the acquisition of any shares of
Common Stock of the
<PAGE>
5
Company pursuant to the exercise of any Warrant issued by the Company under the
Investment Agreement, (ii) the exercise of any of the rights and privileges
granted to each of the Purchasers pursuant to Section 6.2.5 of the Investment
Agreement, (iii) the exercise of any of the rights and privileges granted to
each of the Purchasers pursuant to Section 5.1 of the Series B Certificate or
(iv) the equity ownership or designation of directors by the Purchasers or their
Affiliates, employees, partners or members, shall constitute a "Change of
Control" as that term is defined in either the Incentive Plan or the Repurchase
Plan and as that term applies to the Awards. The Company shall have delivered to
the Purchasers on or before the Closing Date, in such form and containing such
terms (consistent with the foregoing sentence) as are reasonably acceptable to
the Purchasers, (a) duly authorized and executed amendments to the Plans and the
Awards, and (b) consents to such amendment by each of Devick, Laux and Leavens
in accordance with the terms of the Plans and the Awards.
3.1.27 FISCAL 1998 BUDGET. The Company shall have delivered to the
Purchasers a copy of the operating budget, by quarter, for the last nine months
of the Company's fiscal year which began June 1, 1997 and ends May 31, 1998
(each such June to May period, a "Fiscal Year"), which operating budget,
including, without limitation, the budget for promotion costs and artist
advances, (i) shall contain substantially the same budgetary information
communicated to the Purchasers by the Company through October 28, 1997 and (ii)
shall be in a form reasonably acceptable to the Purchasers.
B. Section 4 of the Investment Agreement, entitled, "Representation and
Warranties of the Company," is hereby amended to add the following provision:
4.29 CHANGE OF CONTROL PROVISIONS. Except for the employment
agreements referenced in Section 3.1.25, the Incentive Plan and Repurchase Plan
referenced in Section 3.1.26 and any outstanding awards granted thereunder, and
the Credit Agreement, dated January 31, 1997, as amended, between the Company
and the Bank of Montreal (and the ancillary loan documents thereto), the Company
is not a party to any agreement or arrangement which would (x) permit the other
party or parties thereto to accelerate such party's rights thereunder,
unilaterally terminate such agreement or arrangement, or become entitled to any
payments thereunder, (y) result in an event of default under such agreement or
arrangement or (z) otherwise trigger any rights under a "change of control" or
similar provision in any such agreement or arrangement as a result of (i) the
acquisition of any shares of Common Stock of the Company pursuant to the
exercise of any Warrant issued by the Company under the Investment Agreement,
(ii) the exercise of any of the rights and privileges granted to each of the
Purchasers pursuant to Section 6.2.5 of the Investment Agreement, (iii) the
exercise of any of the rights and privileges granted to each of the Purchasers
pursuant to Section 5.1 of the Series B Certificate or (iv) the equity ownership
or designation of directors by the Purchasers or their Affiliates, employees,
partners or members.
<PAGE>
6
C. Section 6.2 of the Investment Agreement, entitled "Post-Closing
Covenants" is hereby amended to add the following provisions:
6.2.7 BOARD MEETINGS. Subsequent to the Closing Date, the Company
shall hold a meeting of the full board of directors of the Company no less than
once per quarter during the remainder of the current Fiscal Year and during each
successive Fiscal Year.
6.2.8 ANNUAL BUDGETS. Subsequent to the Closing Date, as soon as
available, but no later than 60 days prior to each successive Fiscal Year, the
Company shall deliver to the Board of Directors of the Company, for the approval
contemplated by Section 6.2.5(b)(3) hereof, the annual operating budget for such
Fiscal Year in the form of the budget delivered to the Purchasers pursuant to
Section 3.1.27 hereof or in such other form reasonably acceptable to the
Purchasers.
D. Section 9 of the Investment Agreement, entitled "Registration Rights"
is hereby amended to add the following provision:
9.9 RESTRICTIONS ON THE COMPANY. Following the date hereof, the
Company shall not enter into any agreements granting registrations rights to any
third party, or amend the provisions of any agreement in effect as of the date
hereof granting registration rights to any third party, without the prior
written consent of at least 51% of the holders of Registrable Securities.
<PAGE>
7
This amendment to the Investment Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
Very Truly Yours,
MAC MUSIC LLC SK-PALLADIN PARTNERS, LP
By: Alpine Equity Partners, L.P., By: SK-Palladin Gen Par, LP,
Managing Member General Partner
By: Alpine Equity Partners, LLC By: SK-Palladin Gen Par, Inc.
General Partner General Partner
By: /s/ LISA A. HOOK By: /s/ MARK J. SCHWARTZ
------------------------- -------------------------
Name: Lisa A. Hook Name: Mark J. Schwartz
Title: Managing Director Title: President and
Chief Executive Officer
By: Maroley Media Group LLC,
Managing Member
By: /s/ ANDREW B. LIPSHER
-----------------------
Name: Andrew B. Lipsher
Title: Executive Vice President
Accepted and Agreed to as
of the date first written above:
PLATINUM ENTERTAINMENT, INC.
/s/ STEVEN DEVICK
- ------------------------------
Name: Steven Devick
Title: Chief Executive Officer
THE UNDERSIGNED, by execution hereof and delivery of a counterpart hereof, joins
and becomes a party to the foregoing amendments to the Investment Agreement, but
only with respect to the undersigned's agreement to take the actions, in the
undersigned's individual capacity, which are contemplated in Sections 3.1.21,
3.1.24, 3.1.25, and 3.1.26 hereof.
/s/ STEVEN DEVICK
- ------------------------------
Steven Devick
<PAGE>
Exhibit 1 -- continued
MAC MUSIC LLC
SK-PALLADIN PARTNERS, LP
1285 Avenue of the Americas, 21st Floor
New York, New York 10019-6064
October 30, 1997
Platinum Entertainment, Inc.
2001 Butterfield Road, Suite 1400
Downers Grove, Illinois 60515
Attention: Steven Devick, Chief Executive Officer
Dear Sirs:
Reference is made to the Investment Agreement, dated as of October
12, 1997, among Platinum Entertainment, Inc. (the "Company"), MAC Music LLC and
SK-Palladin Partners, LP (collectively, the "Purchasers"), as amended by the
Letter Amendment between the parties dated October 28, 1997 (the "Amended
Investment Agreement"). Capitalized terms used but not defined herein shall have
the respective meanings ascribed to them in the Amended Investment Agreement.
For good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Company and the Purchasers, pursuant to
Section 11.1 of the Amended Investment Agreement, hereby amend the Amended
Investment Agreement, effective as of the date hereof, as follows:
A. Section 3.1.22 in the Amended Investment Agreement, entitled "Amendment
of Series B Certificate," is hereby amended and restated as follows:
3.1.22 AMENDMENT OF SERIES B CERTIFICATE.
(a) The Series B Certificate shall be amended to provide that
the definition of "Conversion Price" in Section 1.11 therein shall mean the
lesser of (1) $6.60 per share of Common Stock and (2) 82.5 % of the average of
the daily Closing Price per share of Common Stock for the 30 consecutive trading
days following the public release by the Company of its consolidated earnings
statement for the 1998 Fiscal Year; provided that if shares of Common Stock are
not then traded on any national securities exchange or quoted by NASDAQ or a
similar service, the Closing Price for the foregoing purposes shall be deemed to
be the fair market value of a share of Common Stock as shall be determined in
good faith by the Board of Directors of the Company. If the Board of Directors
is unable to determine the fair market value, or if the holders of a majority of
the outstanding shares of Series B Preferred Stock disagree with the Board's
determination of fair market value, then
<PAGE>
2
fair market value will be determined by an Independent Financial Expert (as
defined in the Series B Certificate) in accordance with the provisions set forth
in the definition of Current Market Price in the Series B Certificate.
(b) Section 7.1 of Series B Certificate shall be
amended to add, immediately following the first sentence therein, the following:
"The Repurchase Price will be payable (x) in cash, in the case of a Change of
Control pursuant to clause (i) through (iii) of the definition of a Change of
Control and (y), at the Company's election, either in cash or in Common Stock,
in the case of a Change of Control pursuant to clause (iv) of the definition of
a Change of Control. In the event that the Company elects to pay the Repurchase
Price in Common Stock, such Common Stock shall be concurrently registered under
the Act and under the securities or blue sky laws of any jurisdiction designated
by any holder of Series B Preferred Stock which accepts the Change of Control
Offer."
Section 7.1 shall be further amended to provide
that the definition of "Repurchase Price" shall mean, with respect to each share
of Series B Preferred Stock, (x) if paid in cash, 110% of the sum of the
Liquidation Value thereof and any accrued and unpaid dividends thereon to the
date of such purchase, or (y) if paid in Common Stock, 125% of the sum of the
Liquidation Value thereof and any accrued and unpaid dividends thereon to the
date of such purchase.
(c) The second sentence of Section 7.2 of the Series
B Certificate shall be amended to strike the word "and" immediately prior to
"(v)" therein, and to insert, immediately prior to the period in the second
sentence thereof the following: "and (vi) in the event of a Change of Control
pursuant to clause (iv) of the definition of a Change of Control, the terms,
amount and kind of consideration paid or to be paid and the identity, if known
by the Company, of the Person or Group of Persons triggering such Change of
Control and whether the Company is electing to pay the Repurchase Price in cash
or Common Stock."
B. The terms of the New Preferred Stock shall include each of the
amendments to the Series B Preferred Stock made hereby.
<PAGE>
3
This amendment to the Amended Investment Agreement may be executed
in counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one and the same instrument.
Very Truly Yours,
MAC MUSIC LLC SK-PALLADIN PARTNERS, LP
By: Alpine Equity Partners, L.P., By: SK-Palladin Gen Par, LP,
Managing Member General Partner
By: Alpine Equity Partners, LLC By: SK-Palladin Gen Par, Inc.
General Partner General Partner
By: /s/ LISA A. HOOK By: /s/ MARK J. SCHWARTZ
---------------------------- -------------------------------
Name: Lisa A. Hook Name: Mark J. Schwartz
Title: Managing Director Title: President and
Chief Executive Officer
By: Maroley Media Group LLC,
Managing Member
By: /s/ ANDREW B. LIPSHER
---------------------------
Name: Andrew B. Lipsher
Title: Executive Vice President
Accepted and Agreed to as
of the date first written above:
PLATINUM ENTERTAINMENT, INC.
/s/ STEVEN DEVICK
- -------------------------------------
Name: Steven Devick
Title: Chief Executive Officer
<PAGE>
Exhibit 1 -- continued
MAC MUSIC LLC
SK-PALLADIN PARTNERS, LP
1285 Avenue of the Americas, 21st Floor
New York, New York 10019-6064
November 26, 1997
Platinum Entertainment, Inc.
2001 Butterfield Road, Suite 1400
Downers Grove, Illinois 60515
Attention: Steven Devick, Chief Executive Officer
Dear Sirs:
Reference is made to the Investment Agreement, dated as of October
12, 1997, among Platinum Entertainment, Inc. (the "Company"), MAC Music LLC and
SK-Palladin Partners, LP (collectively, the "Purchasers"), as amended by the
Letter Amendment between the parties dated October 28, 1997 and the Letter
Amendment between the parties dated October 30, 1997 (the "Investment
Agreement"). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Amended Investment Agreement.
For good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Company and the Purchasers, pursuant to
Section 11.1 of the Investment Agreement, hereby amend the Investment Agreement,
effective as of the date hereof, as follows:
A. Section 3.1.22(a) in the Investment Agreement, entitled "Amendment of
Series B Certificate," is hereby amended and restated as follows:
(a) The Series B Certificate shall be amended to provide that
the definition of "Conversion Price" in Section 1.11 therein shall mean (x)
prior to the expiration of the Thirty Day Period (as defined below), the average
of the closing bid and closing ask price per share of Common Stock as quoted by
NASDAQ or a similar service on the date of the Stockholder Meeting, subject to
adjustment pursuant to Section 4 of the Series B Certificate (the "Initial
Conversion Price"), or (y) after the expiration of the Thirty Day Period, the
lesser of (1) the Initial Conversion Price and (2) 100% of the average of the
daily Closing Price per share of Common Stock for the 30 consecutive trading
days following the public release by the Company of its consolidated earnings
statement for the 1998 Fiscal Year (the "Thirty Day Period"), subject to
appropriate adjustment for the events described in Section 4.5(a) of the Series
B Certificate if any such event occurs during the Thirty Day Period; provided
<PAGE>
2
that if shares of Common Stock are not then traded on any national securities
exchange or quoted by NASDAQ or a similar service, the Closing Price for the
foregoing purposes shall be deemed to be the fair market value of a share of
Common Stock as shall be determined in good faith by the Board of Directors of
the Company. If the Board of Directors is unable to determine the fair market
value, or if the holders of a majority of the outstanding shares of Series B
Preferred Stock disagree with the Board's determination of fair market value,
then fair market value will be determined by an Independent Financial Expert (as
defined in the Series B Certificate) in accordance with the provisions set forth
in the definition of Current Market Price in the Series B Certificate. The
Conversion Price as determined in accordance with the foregoing shall be
adjusted from time to time in accordance with the provisions of Section 4 of the
Series B Certificate.
B. The terms of the New Certificate shall be amended to conform to the
amendments to the terms of the Series B Preferred Stock made hereby, provided
that the New Certificate, including such amendments, be in a form reasonably
acceptable to the Purchasers.
C. Section 3.1.23 of the Investment Agreement, entitled "Amendment of
Purchaser Warrants," is hereby amended and restated as follows:
3.1.23 AMENDMENT OF PURCHASER WARRANTS. The form of Warrant
Certificate to be delivered to each of the Purchasers at the Closing, which form
is attached to the Investment Agreement as Exhibit B, shall be amended to
provide that the definition of "Exercise Price" shall mean (x) prior to the
expiration of the Thirty Day Period (as defined below), the Initial Exercise
Price (as defined below), subject to adjustment pursuant to Section 6 of the
Warrant, or (y) after the expiration of the Thirty Day Period, the lesser of (1)
the Initial Exercise Price and (2) 82.5% of the average of the daily Closing
Price per share of Common Stock for the 30 consecutive trading days following
the public release by the Company of its consolidated earnings statement for the
fiscal year ending May 31, 1998 (the "Thirty Day Period"), subject to
appropriate adjustment for the events described in Section 6.1(a) of the Warrant
if any such event occurs during the Thirty Day Period; provided that if shares
of Common Stock are not then traded on any national securities exchange or
quoted by NASDAQ or a similar service, the Closing Price for the foregoing
purposes shall be deemed to be the fair market value of a share of Common Stock
as shall be determined in good faith by the Board of Directors of the Company.
If the Board of Directors is unable to determine the fair market value, or if
the holders of a majority in interest of the Warrant Shares issuable upon
exercise of the Warrants disagree with the Board's determination of fair market
value, then fair market value will be determined by an Independent Financial
Expert (as defined in the Warrant) in accordance with the provisions set forth
in the definition of Current Market Price in the Warrant. Notwithstanding the
foregoing, if at any time prior to the expiration of the Thirty Day Period, no
shares of Series B Preferred Stock remain
<PAGE>
3
outstanding, the definition of "Exercise Price" shall mean the Initial Exercise
Price. The Exercise Price as determined in accordance with the foregoing shall
be adjusted from time to time in accordance with the provisions of Section 6 of
the Warrant.
The "Initial Exercise Price" shall mean $6.25 per share of Common
Stock; provided that if the average of the closing bid and closing ask price per
share of Common Stock as quoted by NASDAQ or a similar service on the date of
the Stockholder Meeting (the "Bid-Ask Price") is greater than $6.60, then the
Initial Exercise Price shall be:
[ (22,500,000/Bid-Ask Price) x (Bid-Ask Price - 6.60) ]
$6.25 - [ [ ----------------------------------------------------- ] x .50 ]
4,050,000
D. The terms of the Devick Warrant shall be amended to conform to the
amendments to the terms of the Warrants to be issued to the Purchasers pursuant
to the Investment Agreement made hereby, provided that the form of the Devick
Warrant, including such amendments, is reasonably acceptable to the Purchasers.
<PAGE>
4
This third amendment to the Investment Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
Very Truly Yours,
MAC MUSIC LLC SK-PALLADIN PARTNERS, LP
By: Alpine Equity Partners, L.P., By: SK-Palladin Holdings, LP,
Managing Member General Partner
By: Alpine Equity Partners, LLC By: SK-Palladin Gen Par, Inc.
General Partner General Partner
By: /s/ LISA A. HOOK By: /s/ MARK J. SCHWARTZ
----------------------------- ---------------------------
Name: Lisa A. Hook Name: Mark J. Schwartz
Title: Managing Director Title: President and
Chief Executive Officer
By: Maroley Media Group LLC,
Managing Member
By: /s/ ANDREW B. LIPSHER
-----------------------------
Name: Andrew B. Lipsher
Title: Executive Vice President
Accepted and Agreed to as
of the date first written above:
PLATINUM ENTERTAINMENT, INC.
/s/ STEVEN DEVICK
- --------------------------
Name: Steven Devick
Title: Chief Executive Officer
Exhibit 2
PLATINUM ENTERTAINMENT, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES B CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The following resolution was duly adopted by the Board of Directors
of Platinum Entertainment Inc., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, on December 12, 1997, by vote at a meeting of the Board of
Directors:
RESOLVED that, pursuant to the authority expressly granted to the
Board of Directors of the Corporation by the Certificate of Incorporation of the
Corporation, and pursuant to Section 151(g) of the General Corporation Law of
the State of Delaware, there be created from the 10,000,000 shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock"), of the Corporation
authorized to be issued pursuant to the Certificate of Incorporation, a series
of Preferred Stock consisting of 20,000 shares of Series B Convertible Preferred
Stock (the "Series B Preferred Stock"), the voting powers, designations,
preferences and relative, participating, optional or other special rights of
which, and qualifications, limitations or restrictions thereof, shall be as
follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
1.1 "Affiliate" shall mean, with respect to any Person, any
other Person that, directly or indirectly, controls, is controlled by, or is
under common control with, such first Person. For the purpose of this
definition, "control" shall mean, as to any Person, the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
1.2 "Affiliate Warrants" shall mean the warrant for an
aggregate of 135,000 shares of Common Stock to be issued to Platinum Venture
Partners I, L.P., and the warrant for an aggregate of 315,000 shares of Common
<PAGE>
2
Stock to be issued to Platinum Venture Partners II, L.P., each such warrant to
be issued on the Closing Date (as defined in the Investment Agreement).
1.3 "Board of Directors" shall mean the Board of Directors of
the Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.4 "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law or executive order to close.
1.5 "Certificate of Incorporation" shall mean the Certificate
of Incorporation of the Corporation, as amended from time to time.
1.6 "Change of Control" shall mean (i) the direct or indirect
sale, lease, exchange or other transfer of all or substantially all of the
assets of the Corporation to any Person or group of Persons acting in concert as
a partnership or other group within the meaning of Rule 13d-5 under the Exchange
Act (a "GROUP OF PERSONS"), (ii) the merger or consolidation of the Corporation
with or into another corporation with the effect that the then existing
stockholders of the Corporation hold less than 50% of the combined voting power
of the then outstanding securities of the surviving corporation of such merger
or the corporation resulting from such consoli dation ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors, (iii) the replacement of a majority of the Board of
Directors, over a two-year period, from the directors who constituted the Board
of Directors at the beginning of such period, and such replacement shall not
have been approved by the Board of Directors (or its replacements approved by
the Board of Directors) as constituted at the beginning of such period, or (iv)
a Person or Group of Persons (other than the Investors and their Affiliates)
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the
Corporation representing 49% or more of the combined voting power of the then
outstanding securities of the Corporation ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors.
1.7 "Class A Common Stock" shall mean the class of Class A
Common Stock, par value $.001 per share, of the Corporation or any other class
of stock resulting from successive changes or reclassifications of such Class A
Common Stock consisting solely of changes in par value, or from par value to no
par value, or as a result of a subdivision or combination.
1.8 "Class B Common Stock" shall mean the class of Class B
Common Stock, par value $.001 per share, of the Corporation or any other class
of
<PAGE>
3
stock resulting from successive changes or reclassifications of such Class B
Common Stock consisting solely of changes in par value, or from par value to no
par value, or as a result of a subdivision or combination.
1.9 "Closing Price" of the Common Stock, as of any day, shall
mean (a) the last reported sale price of such stock (regular way), or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, in either case as reported on the principal national securities exchange
on which such stock is listed or admitted to trading or (b) if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
last reported sale price, or in case no such sale takes place on such day, the
average of the highest reported bid and the lowest reported asked quotation for
the Common Stock, in either case reported on NASDAQ, or a similar service if
NASDAQ is no longer reporting such information.
1.10 "Common Stock" shall mean the class of Common Stock, par
value $.001 per share, of the Corporation or any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or as a
result of a subdivision or combination.
1.11 "Common Stock Conversion Rate" shall mean, as of any
date, a rate for each share of Series B Preferred Stock equal to (i) the
Liquidation Value thereof plus all accrued and unpaid dividends thereon (whether
or not declared), divided by (ii) the Conversion Price in effect as of such
date.
1.12 "Conversion Price" shall mean (x) prior to the expiration
of the Thirty Day Period (as defined below), $5.9375 per share of Common Stock,
as adjusted hereunder (the "Initial Conversion Price"), or (y) after the
expiration of the Thirty Day Period, the lesser of (1) the Initial Conversion
Price, as adjusted hereunder, and (2) 100% of the average of the daily Closing
Price per share of Common Stock for the 30 consecutive trading days following
the release by the Corporation of its consolidated earnings statement for the
fiscal year ending May 31, 1998 (the "Thirty Day Period"), subject to
appropriate adjustment for the events described in Section 4.5(a) herein if any
such event occurs during the Thirty Day Period; provided that if the shares of
Common Stock are not then traded on any national securities exchange or quoted
by NASDAQ or a similar service, the Closing Price for the foregoing purposes
shall be deemed to be the fair market value of the shares of Common Stock as
determined in good faith by the Board of Directors of the Corporation. If the
Board of Directors is unable to determine the fair market value, or if the
holders of a majority of the outstanding shares of Series B Preferred Stock
disagree with the Board's determination of fair market value then the fair
market value will be determined by an Independent Financial Expert in accordance
with the provisions set forth in the definition of Current Market Price herein.
The Conversion
<PAGE>
4
Price as determined in accordance with the foregoing shall be adjusted from time
to time in accordance with the provisions of Section 4.
1.13 "Current Market Price" shall mean, with respect to each
share of Common Stock as of any date, the average of the daily Closing Prices
per share of Common Stock for the 10 consecutive Trading Days commencing 15
Trading Days prior to such date; provided that if on any such date the shares of
Common Stock are not listed or admitted for trading on any national securities
exchange or quoted by NASDAQ or a similar service, the Current Market Price for
a share of Common Stock shall be the fair market value of such share as
determined in good faith by the Board of Directors. If the Board of Directors is
unable to determine the fair market value, or if the holders of a
majority-in-interest of the shares of Series B Preferred Stock disagree with the
Board's determination of fair market value by written notice delivered to the
Corporation within five (5) business days after the Board's determination
thereof is communicated in writing to holders of the Series B Preferred Stock
affected thereby, which notice specifies a majority-in-interest of such holders'
determination of fair market value, then the Corporation and a
majority-in-interest of such holders shall select an Independent Financial
Expert which shall determine such fair market value. If the Corporation and such
holders are unable to agree upon an Independent Financial Expert within fifteen
(15) days after the request of such holders, each of the Corporation and such
holders shall select an Independent Financial Expert within five (5) days
following the expiration of such fifteen (15) day period, and these Independent
Financial Experts shall select a third Independent Financial Expert. The
determination of fair market value by such Independent Financial Expert shall be
final, binding and conclusive on the Corporation and all holders of the Series B
Preferred Stock. All costs and fees of any of the Independent Financial Experts
retained in accordance with the foregoing shall be borne by the Corporation.
1.14 "Dividend Amount" shall mean an amount per share of
Series B Preferred Stock (rounded to the nearest $ .01) equal to (1) $30 per
$1,000 Liquidation Value of Series B Preferred Stock during the first year after
the Issue Date, (2) $35 per $1,000 Liquidation Value of Series B Preferred Stock
during the second year after the Issue Date, (3) $40 per $1,000 Liquidation
Value of Series B Preferred Stock during the third year after the Issue Date,
(4) $45 per $1,000 Liquidation Value of Series B Preferred Stock during the
fourth and fifth years after the Issue Date and (5) $50 per $1,000 Liquidation
Value of Series B Preferred Stock at all times after the fifth anniversary of
the Issue Date.
1.15 "Dividend Rate" shall mean (1) 3% per quarter during the
first year after the Issue Date, (2) 3.5% per quarter during the second year
after the Issue Date, (3) 4% per quarter during the third year after the Issue
Date, (4) 4.5% per quarter during the fourth and fifth years after the Issue
Date and (5) 5% per quarter at all times after the fifth anniversary of the
Issue Date.
<PAGE>
5
1.16 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.17 "Excluded Securities" means (a) shares of Common Stock
issued upon conversion or exercise of convertible securities, warrants and
options of the Corporation outstanding on the Issue Date, (b) shares of Common
Stock, and options to purchase such shares, issued to officers, directors,
employees or former employees of, or consultants to, the Corporation or any of
its subsidiaries pursuant to any equity incentive plan, agreement or other
arrangement which has been approved by a vote of at least two-thirds (2/3rds) of
the Board of Directors, (c) shares of Common Stock issued upon conversion of the
shares of Series B Preferred Stock, (d) shares of Common Stock issued upon
exercise of the warrants issued to the purchasers of the shares of Series B
Preferred Stock pursuant to the Investment Agreement, (e) shares of Common Stock
issued upon the conversion of the Series C Preferred Stock, (f) shares of Common
Stock issued upon exercise of the Affiliate Warrants and (g) shares of Common
Stock issued upon exercise of the Harnick Warrant.
1.18 "Harnick Warrant" means the warrant to purchase 50,000
shares of Common Stock to be issued to Carl D. Harnick on the Closing Date (as
defined in the Investment Agreement).
1.19 "Issue Date" shall mean the Closing Date (as defined in
the Investment Agreement).
1.20 "Investment Agreement" shall mean the Investment
Agreement, dated as of October 12, 1997, as amended, between the Corporation,
the Investors and certain other parties thereto, as hereafter amended from time
to time.
1.21 "Investors" shall mean MAC Music LLC, a Delaware limited
liability company, and SK-Palladin Partners, LP, a Delaware limited partnership.
1.22 "Junior Stock" shall mean the Common Stock, the Class A
Common Stock, the Class B Common Stock, the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock and the shares of any other class or series of stock
of the Corporation which, by the terms of the Certificate of Incorporation or of
the instrument by which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be junior to the Series B Preferred
Stock in respect of the right to receive dividends and to participate in any
distribution of assets other than by way of dividends.
1.23 "Liquidation Value" shall have the meaning assigned to
such term in Section 6.1 hereof.
<PAGE>
6
1.24 "NASDAQ" shall mean the National Association of
Securities Dealers, Inc. Automated Quotation System.
1.25 "Parity Stock" shall mean the shares of Series C
Preferred Stock and shares of any other class or series of stock of the
Corporation which, by the terms of the Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in the Certificate of Incorporation, shall fix the relative rights, preferences
and limitations thereof, shall, in the event that the stated dividends thereon
are not paid in full, be entitled to share ratably with the Series B Preferred
Stock in the payment of dividends, including accumulations, if any, in
accordance with the sums which would be payable on such shares if all dividends
were declared and paid in full, and shall, in the event that the amounts payable
thereon on liquidation are not paid in full, be entitled to share ratably with
the Series B Preferred Stock in any distribution of assets other than by way of
dividends in accordance with the sums which would be payable in such
distribution if all sums payable were discharged in full; PROVIDED, HOWEVER,
that the term "Parity Stock" shall be deemed to refer (i) in Section 2.2 hereof,
to any stock which is Parity Stock in respect of the right to receive dividends
and (ii) in Section 6 hereof, to any stock which is Parity Stock in respect of
any distribution of assets other than by way of dividends.
1.26 "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization, estate, other entity or
government or any agency or political subdivision thereof.
1.27 "Pro Rata Repurchase" shall mean any purchase of shares
of Common Stock by the Corporation or by any of its subsidiaries whether for
cash, shares of capital stock of the Corporation, other securities of the
Corporation, evidences of indebtedness of the Corporation or any other Person or
any other property (including, without limitation, shares of capital stock,
other securities or evidences of indebtedness of a subsidiary of the
Corporation), or any combination thereof, effected while any of the shares of
Series B Preferred Stock are outstanding, which purchase is subject to Section
13(e) of the Exchange Act or is made pursuant to an offer made available to all
holders of Common Stock.
1.28 "Senior Stock" shall mean the shares of any class or
series of stock of the Corporation which, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series B Preferred Stock in respect of the right to receive dividends or to
participate in any distribution of assets other than by way of dividends.
<PAGE>
7
1.29 "Series A-1 Preferred Stock" shall mean the class of
Series A-1 Non Convertible Preferred Stock, par value $.001 per share, of the
Corporation or any other class of stock resulting from successive changes or
reclassifications of such Series A-1 Non Convertible Preferred Stock consisting
solely of changes in par value, or from par value to no par value, or as a
result of a subdivision or combination.
1.30 "Series A-2 Preferred Stock" shall mean the class of
Series A-2 Convertible Preferred Stock, par value $.001 per share, of the
Corporation or any other class of stock resulting from successive changes or
reclassifications of such Series A-2 Convertible Preferred Stock consisting
solely of changes in par value, or from par value to no par value, or as a
result of a subdivision or combination.
1.31 "Series C Preferred Stock" shall mean the class of Series
C Convertible Preferred Stock, par value $.001 per share, of the Corporation or
any other class of stock resulting from successive changes or reclassifications
of such Series C Convertible Preferred Stock consisting solely of changes in par
value, or from par value to no par value, or as a result of a subdivision or
combination.
1.32 "Series C Certificate of Designation" shall mean the
Certificate of the Powers, Designations, Preferences and Rights of the Series C
Preferred Stock, in the form filed by the Corporation with the Secretary of
State of Delaware, as the same may be amended from time to time.
1.33 "Trading Day" shall mean, so long as the Common Stock is
listed or admitted to trading on a national securities exchange, a day on which
the principal national securities exchange on which the Common Stock is listed
is open for the transaction of business, or, if the Common Stock is not so
listed or admitted for trading on any national securities exchange, a day on
which NASDAQ is open for the transaction of business.
2. DIVIDENDS.
2.1 The holders of the outstanding shares of Series B
Preferred Stock shall be entitled to receive quarterly dividends, when, as and
if declared by the Board of Directors out of funds legally available therefor.
Each quarterly dividend shall be an amount per share (rounded to the nearest
$.01) equal to the Dividend Amount and shall be payable on the last Business Day
of August, November, February and May in each year (each a "Dividend Payment
Date"), to the holders of record of Series B Preferred Stock at the close of
business on the preceding Business Day, or such other dates as are fixed by the
Board Directors within ten (10) days prior to the Dividend Payment Date (each a
"Record Date"). Such dividends shall become payable beginning on the first
Dividend Payment Date for which the Record Date is subsequent to the Issue Date.
Dividends on each share of Series B Preferred Stock shall be cumulative and
shall accrue on a day-to-day basis,
<PAGE>
8
whether or not earned, from and after the day immediately succeeding the date on
which such share was issued, and shall be payable in cash (except upon
conversion). Dividends on the Series B Preferred Stock that are not declared and
paid when due will compound quarterly on each Dividend Payment Date at the
Dividend Rate. Dividends payable for any partial dividend period shall be
computed on the basis of actual days elapsed over a 360 day year.
2.2 Except as hereinafter provided in this Section 2.2, unless
(a) full cumulative dividends on the outstanding shares of Series B Preferred
Stock and any Parity Stock that shall have accrued and become payable as of any
date shall have been paid, or declared and funds shall have been set apart for
payment thereof, and (b) all applicable redemption, exchange and repurchase
obligations with respect to the outstanding shares of Series B Preferred Stock
and any Parity Stock shall have been satisfied, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series B Preferred
Stock, Parity Stock or Junior Stock shall be purchased or redeemed by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for, or out of the net cash proceeds from the concurrent sale of, Junior Stock),
nor shall any monies be paid or made available for a sinking fund for the
purchase or redemption of any Series B Preferred Stock, Junior Stock or Parity
Stock. When dividends are not paid in full upon the shares of Series B Preferred
Stock and any Parity Stock, all dividends declared upon shares of Series B
Preferred Stock and all Parity Stock shall be declared pro rata so that the
amount of dividends declared per share on Series B Preferred Stock and all such
Parity Stock shall in all cases bear to each other the same ratio that accrued
cumulative dividends per share on the shares of Series B Preferred Stock and all
such Parity Stock bear to each other. Holders of shares of Series B Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full cumulative dividends, as herein provided, on Series
B Preferred Stock.
3. REDEMPTION.
3.1 The Corporation may, at its sole option, subject to the
provisions of Section 2.2, redeem at any time after the Issue Date, out of funds
legally available therefor, all (or, in accordance with Section 3.2, less than
all) of the outstanding shares of Series B Preferred Stock at a redemption price
for each share of Series B Preferred Stock called for redemption pursuant to
this Section 3.1 equal to the Redemption Price (as hereinafter defined). The
term "Redemption Price" shall mean, with respect to each share of Series B
Preferred Stock, an amount equal to the Liquidation Value thereof and all
accrued and unpaid dividends thereon to the redemption date. With respect to
each share of Series B Preferred Stock properly tendered for redemption, if the
Corporation fails to pay the redemption price upon such tender, the Corporation
shall also pay an amount equal to interest on the amount determined in the above
sentence at 12% per annum, compounded on a quarterly
<PAGE>
9
basis, from the date fixed for redemption to the date the Redemption Price is
actually paid.
3.2 The Corporation may not redeem outstanding shares of
Series B Preferred Stock pursuant to Section 3.1 above unless it concurrently
redeems shares of Series C Preferred Stock pursuant to Section 3.1 of the Series
C Certificate of Designations. In the event that fewer than all the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock are to be
redeemed pursuant to Section 3.1 above and pursuant to Section 3.1 of the Series
C Certificate of Designation, the number of shares of Series B Preferred Stock
and Series C Preferred Stock to be redeemed shall be redeemed on a pro rata
basis based on the number of shares held by each holder thereof.
3.3 In the event the Corporation shall elect to redeem shares
of Series B Preferred Stock pursuant to Section 3.1, it shall provide notice of
such redemption by first class mail, postage prepaid, mailed not less than sixty
(60) nor more than ninety (90) days prior to the redemption date, to each record
holder of the shares to be redeemed, at such holder's address as the same
appears on the books of the Corporation. Each such notice shall state: (i) the
time and date as of which the redemption shall occur; (ii) the total number of
shares of Series B Preferred Stock to be redeemed and, if fewer than all the
shares held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (iii) the Redemption Price; (iv) that shares of
Series B Preferred Stock called for redemption may be converted at any time
prior to the time and date fixed for redemption (unless (x) the Corporation
shall default in the payment of the Redemption Price, in which case such right
shall not terminate at such time and date or (y) the holders of such shares do
not yet have the right to convert such shares under Section 4 below); (v) the
Common Stock Conversion Rate; (vi) the place or places where certificates for
such shares are to be surrendered for payment of the Redemption Price; and (vii)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date.
3.4 If notice of redemption shall have been given by the
Corporation as provided in Section 3.3, dividends on the shares of Series B
Preferred Stock so called for redemption shall cease to accrue, such shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Corporation with respect to shares so called for
redemption (except the right to receive from the Corporation the Redemption
Price without interest and except the right to convert such shares in accordance
with Section 4) shall cease (including any right to receive dividends otherwise
payable on any Dividend Payment Date that would have occurred after the time and
date of redemption) from and after the time and date fixed in the notice of
redemption as the time and date of redemption (unless the Corporation shall
default in the payment of the Redemption Price, in which case such rights shall
not terminate at such time and date). Upon surrender (in accordance with the
notice of redemption) of the certificate or certificates for any shares to be so
redeemed (properly endorsed or assigned for transfer, if the Corporation shall
so require and the notice of redemption shall so state), such shares shall be
redeemed by
<PAGE>
10
the Corporation at the Redemption Price. In case fewer than all the shares
represented by any such certificate are to be redeemed, a new certificate shall
be issued representing the unredeemed shares, without cost to the holder
thereof, together with the amount of cash, if any, in lieu of fractional shares.
Subject to applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of one year from the redemption date shall revert to
the general funds of the Corporation, after which reversion the holders of such
shares so called for redemption shall look only to the general funds of the
Corporation for the payment of the redemption price without interest. Any
interest accrued on funds so deposited shall be paid to the Corporation from
time to time.
4. CONVERSION RIGHTS.
4.1 Each holder of a share of Series B Preferred Stock shall
have the right, at any time after the second anniversary of the Issue Date, or,
as to any share of Series B Preferred Stock called for redemption with a date
fixed for redemption which is after the second anniversary of the Issue Date, at
any time prior to the time and date fixed for such redemption (unless the
Corporation defaults in the payment of the Redemption Price, in which case such
right shall not terminate at such time and date), to convert such share into
fully paid and nonassessable shares of Common Stock at the Common Stock
Conversion Rate as of the date of conversion.
4.2 No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of Series B Preferred
Stock. Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Series B Preferred
Stock, the Corporation shall, subject to Section 4.5(e), make a cash payment
(calculated to the nearest $.01) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the date of
conversion.
4.3 Any holder of shares of Series B Preferred Stock electing
to convert such shares into Common Stock shall surrender the certificate or
certificates for such shares at the offices of the Corporation (or at such other
place as the Corporation may designate by notice to the holders of shares of
Series B Preferred Stock) during regular business hours, duly endorsed to the
Corporation or in blank, or accompanied by instruments of transfer to the
Corporation or in blank, in form reasonably satisfactory to the Corporation, and
shall give written notice to the Corporation at such offices that such holder
elects to convert such shares of Series B Preferred Stock. As soon as
practicable after any holder deposits certificates for shares of Series B
Preferred Stock, accompanied by the written notice above prescribed, the
Corporation shall issue and deliver at such office to the holder for whose
account such shares were surrendered, or to his nominee, certificates
representing the number of shares of Common Stock and the cash in lieu of
fractional shares, if any, to which such holder is entitled upon such
conversion.
<PAGE>
11
4.4 Conversion shall be deemed to have been made as of the
date that certificates for the shares of Series B Preferred Stock to be
converted and the written notice, are received by the Corporation; and the
Person entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder of such Common Stock on such
date. The Corporation shall not be required to deliver certificates for shares
of Common Stock while the stock transfer books for such stock or for Series B
Preferred Stock are duly closed for any purpose, but certificates for shares of
Common Stock shall be issued and delivered as soon as practicable after the
opening of such books.
4.5 The Common Stock Conversion Rate shall be adjusted from
time to time as follows:
(a) If the Corporation shall, at any time or from time
to time while any shares of the Series B Preferred Stock are outstanding, (i)
pay a dividend on its Common Stock in shares of its capital stock, (ii) combine
its outstanding shares of Common Stock into a smaller number of shares, (iii)
subdivide its outstanding shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Corporation, then the Common Stock Conversion Rate in effect immediately
before such action shall be adjusted so that the holders of the Series B
Preferred Stock, upon conversion of shares thereof immediately following such
action, shall be entitled to receive the kind and amount of shares of capital
stock of the Corporation which they would have owned or been entitled to receive
upon or by reason of such event if such shares of Series B Preferred Stock had
been converted immediately before the record date or effective date for such
action.
(b) If the Corporation shall, at any time or from time
to time while any of the Series B Preferred Stock is outstanding, issue or sell,
or fix a record date for the issuance of, (A) Common Stock (or securities
convertible or exchangeable into or exercisable for Common Stock) (other than
Excluded Securities) or (B) rights, options or warrants entitling the holders
thereof to subscribe for or purchase Common Stock (or securities convertible
into or exchangeable or exercisable for shares of Common Stock) (other than
Excluded Securities), in any such case, at a price per share (treating the price
per share of securities convertible into or exchangeable or exercisable for
Common Stock as equal to (x) the sum of (i) the price for a unit of the security
convertible into or exchangeable or exercisable for Common Stock plus (ii) any
additional consideration initially payable upon the conversion of such security
into or the exchange or exercise of such security for Common Stock, divided by
(y) the number of shares of Common Stock initially underlying such exercisable,
convertible or exchangeable security) that is less than the greater of the
Current Market Price of the Common Stock and the Conversion Price on the date of
such issuance or such record date (the "Measuring Price"), then the Common Stock
Conversion Rate shall be adjusted so that it shall equal the rate determined by
multiplying the Common Stock Conversion Rate in effect immediately prior to
giving
<PAGE>
12
effect to this Section 4.5 by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding (calculated to include the shares
of Common Stock underlying the Warrants issued under the Investment Agreement,
the shares of Common Stock underlying the Affiliate Warrants, the shares of
Common Stock underlying the Harnick Warrant and all then currently exerciseable,
convertible and exchangeable securities that are "in-the-money") on the date of
issuance of such rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase (or into or for
which the exercisable, convertible or exchangeable securities so offered are
initially exercisable, convertible or exchangeable), and the denominator of
which shall be the number of shares of Common Stock outstanding (calculated to
include the shares of Common Stock underlying the Warrants issued under the
Investment Agreement, the shares of Common Stock underlying the Affiliate
Warrants, the shares of Common Stock underlying the Harnick Warrant and all then
currently exerciseable, convertible and exchangeable securities that are
"in-the-money") on the date of issuance of such rights, options or warrants plus
the number of shares which the aggregate offering price of the total number of
shares so offered for subscription or purchase (or the aggregate purchase price
of the exercisable, convertible or exchangeable securities so offered plus the
aggregate amount of any additional consideration initially payable upon
exercise, conversion or exchange for or into Common Stock) would purchase at
such Measuring Price.
(c) If the Corporation shall, at any time or from time
to time while any of the Series B Preferred Stock is outstanding, distribute to
all holders of shares of its Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Corporation is the
continuing or surviving corporation and the Common Stock is not changed or
exchanged) cash, evidences of indebtedness, securities or other assets
(excluding (i) ordinary course cash dividends to the extent such dividends do
not exceed the Corporation's retained earnings and (ii) dividends payable in
shares of Common Stock for which adjustment is made under Section 4.5(a)) or
rights, options or warrants to subscribe for or purchase securities of the
Corporation (excluding those for which adjustment is made under Section 4.5(b)),
then in each such case the Common Stock Conversion Rate shall be adjusted so
that it shall equal the rate determined by multiplying the Common Stock
Conversion Rate in effect immediately prior to the date of such distribution by
a fraction, the numerator of which shall be the Current Market Price of the
Common Stock on the record date referred to below, and the denominator of which
shall be such Current Market Price of the Common Stock less the then fair market
value (as determined by the Board of Directors in good faith or, if requested by
the holders of a majority of the Series B Preferred Stock, by an Independent
Financial Expert selected in the manner described in the definition of the term
"Current Market Price") of the portion of the cash, evidences of indebtedness,
securities or other assets so distributed or of such rights, options or warrants
applicable to one share of Common Stock (provided that such denominator shall
never be less than $.01).
<PAGE>
13
(d) If the Corporation or any subsidiary thereof shall,
at any time or from time to time while any of the Series B Preferred Stock is
outstanding, make a Pro Rata Repurchase, the Common Stock Conversion Rate shall
be adjusted by multiplying the Common Stock Conversion Rate in effect
immediately prior to such action by a fraction (which in no event shall be less
than one (1)), the numerator of which shall be the product of (i) the number of
shares of Common Stock outstanding immediately before such Pro Rata Repurchase
minus the number of shares of Common Stock repurchased in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common Stock as of the day
immediately preceding the first public announcement by the Corporation of the
intent to effect such Pro Rata Repur chase, and the denominator of which shall
be (i) the product of (x) the number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase and (y) the Current Market Price of
the Common Stock as of the day immediately preceding the first public
announcement by the Corporation of the intent to effect such Pro Rata Repurchase
minus (ii) the aggregate purchase price of the Pro Rata Repurchase (provided
that such denominator shall never be less than $.01).
(e) All calculations under this Section 4.5 shall be
made to the nearest $.01 (with $.005 being rounded upward), one-hundredth of a
share (with .005 being rounded upward) or, in the case of a conversion rate, one
ten-thousandth (with .00005 being rounded upward). Notwithstanding any other
provision of this Section 4.5, the Corporation shall not be required to make any
adjustment of the Common Stock Conversion Rate unless such adjustment would
require an increase or decrease of at least 0.05% of such rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to an increase or decrease of at
least 0.05% in such rate. Any adjustments under this Section 4.5 shall be made
successively whenever an event requiring such an adjustment occurs.
(f) Whenever an adjustment in the Common Stock
Conversion Rate is required, the Corporation shall promptly cause to be mailed
(but in any event not later than five (5) days after the date of the event
giving rise to such adjustment) first-class postage prepaid, to the holders of
record of the outstanding shares of Series B Preferred Stock, notice of such
adjustment and a certificate of a firm of independent public accountants of
recognized national standing selected by the Board of Directors (who shall be
appointed at the Corporation's expense and who may be the independent public
accountants regularly employed by the Corporation) setting forth the adjusted
Common Stock Conversion Rate in effect as of such date determined as provided
herein. Such notice and certificate shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of computing
such adjustment.
(g) In the event that at any time as a result of an
adjustment made pursuant to this Section 4.5, the holder of any share of Series
B
<PAGE>
14
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive any shares of stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable upon conversion of
any such share of Series B Preferred Stock 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 Common Stock contained in subparagraphs (a) through
(f) and (h) of this Section 4.5, and the provisions of this Section 4 with
respect to the Common Stock shall apply on like or similar terms to any such
other shares and the determination of the Board of Directors as to any such
adjustment shall be conclusive.
(h) No adjustment shall be made pursuant to this
Section if the effect thereof would be to reduce the Conversion Price below the
par value of the Common Stock.
4.6 In case (a) any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation in which the
Corporation is the surviving or continuing corporation and which does not result
in any reclassification of, or change (other than a change in par value or from
par value to no par value or from no par value to par value, or as a result of a
subdivision or combination) in, outstanding shares of Common Stock or (b) any
sale or conveyance of all or substantially all of the property and assets of the
Corporation is effected in such a way that the holders of Common Stock shall be
entitled to receive stock or other securities or assets with respect to or in
exchange for Common Stock, then upon conversion of each share of Series B
Preferred Stock the holder thereof shall be entitled to receive the kind and
amount of shares of stock or other securities and property receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock into which such shares of Series B Preferred Stock could have been
converted immediately prior to such consolidation, merger, sale or conveyance,
subject to adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 4. The Corporation shall not
enter into any of the transactions referred to in clause (a) or (b) of the
preceding sentence unless provision shall be made so as to give effect to the
provisions set forth in this Section 4.6. The provisions of this Section 4.6
shall apply similarly to successive consolidations, mergers, sales or
conveyances.
4.7 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of Series B
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock into such Common Stock at any
time (assuming that, at the time of the computation of such number of shares,
all such Common Stock would be held by a single holder). The Corporation shall
from time to time, in accordance with the laws of the State of Delaware, use its
best efforts to cause the authorized amount of Common Stock to be increased if
the aggregate of the authorized amount of the Common Stock remaining
<PAGE>
15
unissued and the issued shares of such Common Stock in its treasury (other than
any shares of such Common Stock reserved for issuance in any other connection)
shall not be sufficient to permit the conversion of the shares of Series B
Preferred Stock into the Common Stock. The Corporation covenants that any shares
of Common Stock issued upon conversions of the Series B Preferred Stock shall be
validly issued, fully paid and nonassessable.
4.8 If any shares of Common Stock which would be issuable upon
conversion of shares of Series B Preferred Stock hereunder require registration
with or approval of any governmental authority before such shares may be issued
upon conversion, the Corporation will in good faith and as expeditiously as
possible cause such shares to be duly registered or approved, as the case may
be.
4.9 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of shares of Series B Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which is payable in
respect of any transfer involved in the issue or delivery of Common Stock in a
name other than that in which the shares of Series B Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation the
amount of such tax, or has established, to the satisfaction of the Corporation,
that such tax has been paid.
4.10 For purposes of this Section 4, the number of shares of
Common Stock at any time outstanding shall not include any shares of Common
Stock then owned or held by or for the account of the Corporation or any
subsidiary. The Corporation shall not pay a dividend or make any distribution on
shares of Common Stock held in the treasury of the Corporation.
4.11 If any action or transaction would require adjustment of
the Common Stock Conversion Rate pursuant to more than one paragraph of this
Section 4, only one adjustment shall be made and each such adjustment shall be
the amount of adjustment that has the highest absolute value.
4.12 In case:
(a) of a consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of the
Corporation is required; or
(b) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
(c) of any Pro Rata Repurchase;
<PAGE>
16
then, in each case, the Corporation shall cause to be mailed, first-class
postage prepaid, to the holders of record of the outstanding shares of Series B
Preferred Stock, at least twenty (20) days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of any distribution or grant of rights or warrants
triggering an adjustment to the Common Stock Conversion Rate pursuant to this
Section 4, or, if a record is not to be taken, the date as of which the holders
of record of Common Stock entitled to such distribution, rights or warrants are
to be determined, or (y) the date on which any reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation, winding up or Pro Rata
Repurchase is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation, winding up or Pro Rata Repurchase. Failure to give the notice
specified hereunder shall have no effect on the status or effectiveness of the
action to which the required notice relates.
5. VOTING.
5.1 The shares of Series B Preferred Stock shall have no
voting rights except as required by law or as set forth below:
(a) If on the fifth anniversary of the Issue Date any
shares of Series B Preferred Stock remain outstanding, then the number of
directors constituting the Board of Directors shall be increased by four (4) (in
addition to any such increase in directorships required by any similar provision
of the Certificate of Incorporation or the certificate of designation in respect
of any other class or series of preferred stock of the Corporation) and the
holders of shares of Series B Preferred Stock (in addition to all other rights)
shall have the exclusive right, voting separately as a class, to elect eight (8)
directors of the Corporation.
(b) Such voting rights may be exercised initially either
by written consent or at a special meeting of the holders of the shares of
Series B Preferred Stock having such voting rights, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at each such annual meeting until such time
as shares of Series B Preferred Stock are no longer outstanding, at which time
or times such voting rights and the term of the directors elected pursuant to
Section 5.1(a) shall terminate.
(c) At any time when such voting rights shall have
vested in holders of shares of Series B Preferred Stock described in Section
5.1(a), and if such rights shall not already have been exercised by written
consent, a proper officer of the Corporation may call, and, upon the written
request, addressed to the Secretary of the Corporation, of the record holders of
shares representing twenty-five percent (25%) of the voting power of the shares
then outstanding of Series B
<PAGE>
17
Preferred Stock, shall call, a special meeting of the holders of shares of
Series B Preferred Stock. Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of stockholders at the place
for holding annual meetings of stockholders of the Corporation, or, if none, at
a place designated by the Board of Directors. Notwithstanding the provisions of
this Section 5.1(c), no such special meeting shall be called during a period
within 60 days immediately preceding the date fixed for the next annual meeting
of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of shares of Series B Preferred Stock shall have
the right to elect directors as provided herein, the presence in person or by
proxy of the holders of shares representing more than fifty percent (50%) in
voting power of the then outstanding shares of Series B Preferred Stock having
such right shall be required and shall be sufficient to constitute a quorum of
such class for the election of directors by such class.
(e) Any director elected by holders of shares of
Series B Preferred Stock pursuant to the voting right created under this Section
5.1 shall hold office until the next annual meeting of stockholders (unless such
term has previously terminated pursuant to Section 5.1(b)) and any vacancy in
respect of any such director shall be filled only by vote of the remaining
director[s] so elected, or if there be no such remaining director, by the
holders of shares of Series B Preferred Stock by written consent or at a special
meeting called in accordance with the procedures set forth in Section 5.1(c),
or, if no such special meeting is called or written consent executed, at the
next annual meeting of stockholders. Upon any termination of such voting right,
subject to applicable law, the term of office of all directors elected by
holders of shares of Series B Preferred Stock voting separately as a class
pursuant to this Section 5.1 shall terminate.
(f) So long as any shares of Series B Preferred Stock
remain outstanding, unless a greater percentage shall then be required by law,
the Corporation shall not, without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of shares of Series B
Preferred Stock representing at least a majority of the aggregate voting power
on the matters set forth in this Section 5.1(f) of shares of Series B Preferred
Stock, voting as a separate class, (i) authorize or issue any Senior Stock or
Parity Stock or reclassify any Junior Stock as Parity Stock or Senior Stock or
reclassify any Parity Stock as Senior Stock, (ii) amend, alter or repeal any of
the provisions of the Certificate of Incorporation, so as in any such case to
materially and adversely affect the preferences, special rights, powers or
privileges of the shares of Series B Preferred Stock, (iii) redeem, repurchase,
retire or otherwise acquire any capital stock or options to purchase capital
stock of the Corporation (other than purchases of capital stock or options from
employees of the Corporation or any of its subsidiaries in connection with
termination of employment or from other Persons providing services to the
Corporation or any of its subsidiaries in an amount not to exceed $1,000,000 in
the aggregate for all such
<PAGE>
18
purchases after the Issue Date) or (iv) declare or pay any dividends or other
distributions with respect to Junior Stock or Parity Stock.
(g) In addition to the foregoing, the holders of the
Series B Preferred Stock shall have such other voting, consent and approval
rights as are specified in the Investment Agreement.
(h) In exercising the voting rights set forth in this
Section 5.1, each share of Series B Preferred Stock shall have a number of votes
equal to its Liquidation Value.
5.2 No consent of holders of shares of Series B Preferred
Stock shall be required for (i) the creation of any indebtedness of any kind of
the Corporation or (ii) the authorization or issuance of any class of Junior
Stock.
6. LIQUIDATION RIGHTS.
6.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series B Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, in preference to the
holders of, and before any payment or distribution shall be made on, Junior
Stock, the amount of $1,000 per share (the "Liquidation Value"), plus an amount
equal to all accrued and unpaid dividends to the date of final distribution
(whether or not declared).
6.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 6.
6.3 After the payment to the holders of the shares of Series B
Preferred Stock of full preferential amounts provided for in this Section 6, the
holders of Series B Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Corporation.
6.4 In the event the assets of the Corporation available for
distribution to the holders of shares of Series B Preferred Stock upon any
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Section 6.1, no such distribution shall be made
on account of any shares of any Parity Stock upon such dissolution, liquidation
or winding up unless proportionate distributive amounts shall be paid on account
of the shares of Series B Preferred
<PAGE>
19
Stock, ratably, in proportion to the full distributable amounts for which
holders of all Parity Stock are entitled upon such dissolution, liquidation or
winding up.
7. CHANGE OF CONTROL
7.1 In the event that the Corporation becomes aware of a
Change of Control or pending Change of Control, the Corporation shall make an
offer (the "Change of Control Offer") to purchase all of the outstanding shares
of Series B Preferred Stock at a purchase price for each share of Series B
Preferred Stock equal to the Repurchase Price (as hereinafter defined) on the
effective date of such Change of Control (the "Trigger Date"). The Repurchase
Price will be payable (x) in cash, in the case of a Change of Control pursuant
to clause (i) through (iii) of the definition of a Change of Control and (y), at
the Corporation's election, either in cash or in Common Stock, in the case of a
Change of Control pursuant to clause (iv) of the definition of a Change of
Control. In the event that the Corporation elects to pay the Repurchase Price in
Common Stock, such Common Stock shall be concurrently registered under the Act
and under the securities or blue sky laws of any jurisdiction designated by any
holder of Series B Preferred Stock which accepts the Change of Control Offer.
The term "Repurchase Price" shall mean, with respect to each share of Series B
Preferred Stock, (x) if paid in cash, 110% of the sum of the Liquidation Value
thereof and any accrued and unpaid dividends thereon to the date of such
purchase, or (y) if paid in Common Stock, 125% of the sum of the Liquidation
Value thereof and any accrued and unpaid dividends thereon to the date of such
purchase. With respect to each share of Series B Preferred Stock properly
tendered for repurchase, if the Corporation fails to pay the Repurchase Price
upon such tender, the Corporation shall also pay an amount equal to interest on
the amount determined in the above sentence at 12% per annum, compounded on a
quarterly basis, from the date fixed for repurchase to the date the Repurchase
Price is actually paid. The Change of Control Offer must be made as soon as
practicable and if possible not less than sixty (60) days prior to the Trigger
Date, shall remain open for at least forty (40) and not more than fifty (50)
days (or such longer time as may be required by applicable law or regulation)
and shall comply, to the extent required, with the applicable requirements of
Rule 14e-1 under the Exchange Act and any other applicable securities laws and
regulations.
7.2 In the event the Corporation is required to make a Change
of Control Offer pursuant to Section 7.1, it shall provide notice of such Change
of Control Offer (the "Notice of Offer") by first class mail, postage prepaid,
to each record holder of the shares of Series B Preferred Stock, at such
holder's address as the same appears on the books of the Corporation. Each such
Notice of Offer shall state: (i) that the Corporation is offering to purchase
all outstanding shares of Series B Preferred Stock and that such offer is
irrevocable; (ii) the Trigger Date, which will be the date on which any such
purchase will be consummated; (iii) the total number of shares of Series B
Preferred Stock which the Corporation is offering to purchase from such holder;
(iv) the Repurchase Price; (v) the last day on which the
<PAGE>
20
Change of Control Offer may be accepted (the "Expiration Date"), (vi) the place
or places where certificates for shares of Series B Preferred Stock are to be
surrendered for payment of the Repurchase Price and (vii) in the event of a
Change of Control pursuant to clause (iv) of the definition of a Change of
Control, the terms, amount and kind of consideration paid or to be paid and the
identity, if known by the Corporation, of the Person or Group of Persons
triggering such Change of Control and whether the Corporation is electing to pay
the Repurchase Price in cash or Common Stock.
7.3 Any holder of outstanding shares of Series B Preferred
Stock may, at its sole option, elect to accept the Change of Control Offer with
respect to all or less than all of such holder's outstanding Series B Preferred
Stock by delivering written notice of such acceptance to the Corporation on or
before the Expiration Date. On the Trigger Date, the Corporation will pay to
each holder that has accepted the Change of Control Offer the Repurchase Price
for the shares of Series B Preferred Stock which such holder has elected to sell
to the Corporation against delivery (in accordance with the Notice of Offer) of
the certificate or certificates for any shares to so purchased (properly
endorsed or assigned for transfer, if the Corporation shall so require and the
Notice of Offer shall so state). In case fewer than all the shares represented
by any such certificate are to be repurchased, a new certificate shall be issued
representing the shares which are not purchased, without cost of the holder
thereof, together with the amount of cash, if any, in lieu of fractional shares.
8. TRANSACTIONS WITH AFFILIATES. As long as any shares of Series B
Preferred Stock remain outstanding, the Corporation shall not, and shall not
permit any of its subsidiaries to, enter into any transaction with any Affiliate
of the Corporation or such subsidiary (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of any
services, with or to any Affiliate and investments, loans or advances by or to
any Affiliate) except for transactions entered into in good faith pursuant to
the reasonable requirements of the business of the Corporation or such
subsidiary and on terms substantially no less favorable to the Corporation or
such subsidiary than those that the Corporation or such subsidiary would obtain
in a comparable arm's-length transaction with a Person not an Affiliate of the
Corporation or such subsidiary.
9. OTHER PROVISIONS.
9.1 Shares of Series B Preferred Stock issued and reacquired
will, upon compliance with the applicable requirements of Delaware law, have the
status of authorized but unissued shares of Preferred Stock of the Corporation
undesignated as to series and may with any and all other authorized but unissued
shares of Preferred Stock of the Corporation be designated or redesignated and
issued or reissued, as the case may be, as part of any series of Preferred Stock
of the
<PAGE>
21
Corporation, except that any issuance or reissuance of shares of Series B
Preferred Stock must be in compliance with this certificate of designation.
9.2 The Corporation shall be entitled to recognize the
exclusive right of a Person registered on its records as the holder of shares of
Series B Preferred Stock, and such record holder shall be deemed the holder of
such shares for all purposes.
9.3 All notice periods referred to herein shall commence on
the date of the mailing of the applicable notice.
IN WITNESS WHEREOF, Platinum Entertainment, Inc. has caused this
certificate to be signed and attested this 12th day of December, 1997.
PLATINUM ENTERTAINMENT, INC.
By: /s/ STEVEN DEVICK
--------------------
Name: Steven Devick
Title: Chief Executive Officer
Exhibit 3
NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS AS
EVIDENCED BY AN OPINION OF COUNSEL DELIVERED AND REASONABLY ACCEPTABLE TO THE
COMPANY.
----------------------------------------------
PLATINUM ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
-----------------------------------------------
This certifies that, for good and valuable consideration, Platinum
Entertainment, Inc., a Delaware corporation (the "Company"), grants to
SK-Palladin Partners, LP, its successors and assigns (the "Warrantholder"), the
right to subscribe for and purchase from the Company One Million Eight Hundred
Thousand (1,800,000) validly issued, fully paid and nonassessable shares (the
"Warrant Shares") of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), at the Exercise Price, as defined herein, at any time prior to
5:00 p.m., New York City time, on October 31, 2007 (the "Expiration Date"),
subject to the terms, conditions and adjustments herein set forth.
This Warrant is being issued in connection with the issue and sale
by the Company of shares of its Series B Convertible Preferred Stock, par value
$.001 per share (the "Series B Preferred Stock"), pursuant to the terms of an
Investment Agreement, dated as of October 12, 1997, as amended and as hereafter
amended (the "Investment Agreement"), among the Company, the Warrantholder and
certain other parties, and is subject to the terms thereof. This Warrant is one
of the "Warrants" referred to in the Investment Agreement, and the Warrantholder
is entitled to the rights and subject to the obligations contained in the
Investment Agreement.
The "Exercise Price" shall mean (x) prior to the expiration of the
Thirty Day Period (as defined below), $6.25 per share of Common Stock, as
adjusted hereunder (the "Initial Exercise Price") or (y) after the expiration of
the Thirty Day Period, the lesser of (1) the Initial Exercise Price and (2)
82.5% of the average of the daily Closing Price per share of Common Stock for
the 30 consecutive trading days
<PAGE>
2
following the public release by the Company of its consolidated earnings
statement for the fiscal year ending May 31, 1998 (the "Thirty Day Period"),
subject to appropriate adjustment for the events described in Section 6.1(a)
herein if any such event occurs during the Thirty Day Period; provided that if
shares of Common Stock are not then traded on any national securities exchange
or quoted by NASDAQ or a similar service, the Closing Price for the foregoing
purposes shall be deemed to be the fair market value of a share of Common Stock
as shall be determined in good faith by the Board of Directors of the Company.
If the Board of Directors is unable to determine the fair market value, or if
the holders of a majority in interest of the Warrant Shares issuable upon
exercise of the Warrants disagree with the Board's determination of fair market
value, then fair market value will be determined by an Independent Financial
Expert in accordance with the provisions set forth in the definition of Current
Market Price herein. Notwithstanding the foregoing, if at any time prior to the
expiration of the Thirty Day Period, no shares of the Series B Preferred Stock
remain outstanding, the definition of "Exercise Price" shall mean the Initial
Exercise Price, as adjusted hereunder. The Exercise Price as determined in
accordance with the foregoing shall be adjusted from time to time in accordance
with the provisions of Section 6.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed thereto in the Investment Agreement.
1. EXERCISE OF WARRANTS.
1.1 EXERCISE OF WARRANT. This Warrant may be exercised, in
whole or in part, at any time or from time to time prior to the Expiration Date,
by surrendering to the Company at its principal office this Warrant, with an
Exercise Form (as defined herein) duly executed by the Warrantholder and
accompanied by payment of the Exercise Price for the number of shares of Common
Stock specified in such Exercise Form.
1.2 CASHLESS EXERCISE. In lieu of the payment of the Exercise
Price, the Warrantholder shall have the right (but not the obligation) to
require the Company to convert this Warrant, in whole or in part, into shares of
Common Stock (the "Conversion Right") as provided for in this Section 1.2. Upon
exercise of the Conversion Right, the Company shall deliver to the Warrantholder
(without payment by the Warrantholder of any of the Exercise Price) that number
of shares of Common Stock equal to the quotient obtained by dividing (x) the
value of the Warrant or portion thereof being exercised at the time the
Conversion Right is exercised (determined by subtracting the aggregate Exercise
Price in effect immediately prior to the exercise of the Conversion Right for
the number of shares for which the Warrant is being exercised from the aggregate
Current Market Price (as defined herein) of the shares of Common Stock issuable
upon exercise of the Warrant for the number of shares for which the Warrant is
being exercised immediately prior to the exercise of the Conversion Right) by
(y) the Current Market Price of one share of Common Stock immediately prior to
the exercise of the Conversion Right. The
<PAGE>
3
Conversion Right may be exercised at any time or from time to time prior to the
Expiration Date by surrendering to the Company at its principal office this
Warrant, with an Exercise Form duly executed by the Warrantholder and indicating
that the Warrantholder wishes to exercise the Conversion Right and specifying
the total number of shares of Common Stock for which the Warrant is being
exercised.
1.3 DELIVERY OF WARRANT SHARES; EFFECTIVENESS OF EXERCISE.
(a) DELIVERY OF WARRANT SHARES. A stock certificate
or certificates for the Warrant Shares specified in the Exercise Form along with
a check for the amount of cash to be paid in lieu of fractional shares, if any,
shall be delivered to the Warrantholder within 10 Business Days after the
Exercise Date (as defined herein); PROVIDED, HOWEVER, that if the Conversion
Right is exercised in accordance with Section 1.2 and a determination by the
Board of Directors or an Independent Financial Expert is required to determine
the Current Market Price of the Common Stock, such delivery shall be made
promptly after such determination is made. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates and cash in lieu of fractional shares, if any,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant.
(b) EFFECTIVENESS OF EXERCISE. The exercise of this
Warrant shall be deemed to have been effective immediately prior to the close of
business on the Business Day on which this Warrant is exercised in accordance
with Section 1.1 or 1.2 (the "Exercise Date"). The Person in whose name any
certificate for shares of Common Stock shall be issuable upon such exercise
shall be deemed to be the record holder of such shares of Common Stock for all
purposes on the Exercise Date.
1.4 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereof; PROVIDED, HOWEVER, that the
Warrantholder shall be required to pay any and all taxes that may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Warrantholder as reflected upon the books
of the Company.
2. RESTRICTIVE LEGENDS.
2.1 WARRANTS. Except as otherwise permitted by this Section 2,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 4) shall be stamped or otherwise imprinted with a legend in substan
tially the following form:
<PAGE>
4
NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND SUCH LAWS AS EVIDENCED BY AN OPINION OF
COUNSEL DELIVERED AND REASONABLY ACCEPTABLE TO THE COMPANY.
2.2 WARRANT SHARES. Except as otherwise permitted by this
Section 2, each stock certificate for Warrant Shares issued upon the exercise of
any Warrant and each stock certificate issued upon the direct or indirect
transfer of any such Warrant Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT AND SUCH LAWS AS EVIDENCED BY AN OPINION OF COUNSEL
DELIVERED AND REASONABLY ACCEPTABLE TO THE COMPANY.
2.3 REMOVAL OF LEGENDS. Notwithstanding the foregoing, the
Warrantholder may require the Company to issue a Warrant or a stock certificate
for Warrant Shares, in each case without a legend, if either (i) such Warrant or
such Warrant Shares, as the case may be, have been registered for resale under
the Securities Act and sold pursuant to such registration or (ii) if reasonably
requested by the Company, the Warrantholder has delivered to the Company an
opinion of legal counsel (from a firm reasonably satisfactory to the Company)
which opinion shall be addressed to the Company and be reasonably satisfactory
in form and substance to the Company's counsel, to the effect that such
registration is not required with respect to such Warrant or such Warrant
Shares, as the case may be.
<PAGE>
5
3. RESERVATION AND REGISTRATION OF SHARES, ETC.
The Company covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the
exercise of this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue.
(b) During the period within which this Warrant may
be exercised, the Company will at all times have authorized and reserved, and
keep available free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. LOSS OR DESTRUCTION OF WARRANT.
Subject to the terms and conditions hereof, upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company will execute and deliver a new Warrant of like tenor.
5. OWNERSHIP OF WARRANT.
The Company may deem and treat the Person in whose name this Warrant
is registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
(a) STOCK DIVIDENDS, SUBDIVISION, COMBINATION OR
RECLASSIFICATION OF COMMON STOCK. If at any time after the date of the issuance
of this Warrant the Company shall (i) declare a stock dividend on the Common
Stock payable in shares of its capital stock (including Common Stock), (ii)
increase the number of shares of Common Stock outstanding by a subdivision or
split-up of shares
<PAGE>
6
of Common Stock, (iii) decrease the number of shares of Common Stock outstanding
by a combination of shares of Common Stock or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then, on the record
date for such dividend or the effective date of such subdivision or split-up,
combination or reclassification, as the case may be, the number and kind of
shares to be delivered upon exercise of this Warrant will be adjusted so that
the Warrantholder will be entitled to receive the number and kind of shares of
capital stock that such Warrantholder would have owned or been entitled to
receive upon or by reason of such event had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as provided
below in paragraph (i).
(b) REORGANIZATION, ETC. If at any time after the date
of issuance of this Warrant any consolidation of the Company with or merger of
the Company with or into any other Person (other than a merger or consolidation
in which the Company is the surviving or continuing corporation and which does
not result in any reclassification of, or change (other than a change in par
value or from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of Common
Stock) or any sale, lease or other transfer of all or substantially all of the
assets of the Company to any other person (each, a "Reorganization Event"),
shall be effected in such a way that the holders of Common Stock shall be
entitled to receive cash, stock, other securities or assets (whether such cash,
stock, other securities or assets are issued or distributed by the Company or
another Person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of cash, stock, other securities or assets receivable upon such
Reorganization Event by a holder of the number of shares of Common Stock that
such Warrantholder would have been entitled to receive upon exercise of this
Warrant had this Warrant been exercised immediately before such Reorganization
Event, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.1. Notwithstanding
the foregoing, if more than 20% in aggregate value of the cash, stock, other
securities or assets deliverable to such holder in accordance with the foregoing
provisions of this Section 6(b) would consist of cash or debt securities, then
the Warrantholder shall have the right (the "Special Reorganization Right") at
its election, exercisable by giving written notice to the Company prior to 120
days following the consummation of such Reorganization Event to receive from the
Company, and the Company shall pay to the Warrantholder promptly after the
exercise by the Warrantholder of the Special Reorganization Right, instead of
the cash, stock, other securities or assets otherwise deliverable to such
holder, an amount of cash equal to the fair market value of this Warrant
immediately prior to the announcement of such Reorganization Event, to be
determined by an Independent Financial Expert selected by the parties in
accordance with the procedure set forth in the definition of Current Market
Price herein, giving due consideration to such factors as the financial
condition and prospects of the Company, the remaining unexpired term of the
Warrant and the market price of the Common Stock of the Company after
announcement of such Reorganization Event. The Company shall not
<PAGE>
7
enter into any of the transactions referred to in this Section 6.1(b) unless
effective provision shall be made so as to give effect to the provisions set
forth in this Section 6.1(b).
(c) CERTAIN ISSUANCES OF COMMON STOCK. If at any time
after the date of issuance of this Warrant the Company shall issue or sell, or
fix a record date for the issuance of, (A) Common Stock (or securities
convertible into or exchangeable or exercisable for Common Stock) (other than
Excluded Securities) or (B) rights, options or warrants entitling the holders
thereof to subscribe for or purchase Common Stock (or securities convertible
into or exchangeable or exercisable for Common Stock) (other than Excluded
Securities), in any such case, at a price per share (treating the price per
share of the securities convertible into or exchangeable or exercisable for
Common Stock as equal to (x) the sum of (i) the price for a unit of the security
convertible into or exchangeable or exercisable for Common Stock plus (ii) any
additional consideration initially payable upon the conversion of such security
into Common Stock or the exchange or exercise of such security for Common Stock
divided by (y) the number of shares of Common Stock initially underlying such
convertible, exchangeable or exercisable security) that is less than the greater
of the Current Market Price of the Common Stock and the Exercise Price on the
date of such issuance or such record date (the "Measuring Price") then,
immediately after the date of such issuance or sale or on such record date, the
number of shares of Common Stock to be delivered upon exercise of this Warrant
shall be increased so that the Warrantholder thereafter shall be entitled to
receive the number of shares of Common Stock determined by multiplying the
number of shares of Common Stock such Warrantholder would have been entitled to
receive immediately before the date of such issuance or sale or such record date
by a fraction, the denominator of which shall be the number of shares of Common
Stock outstanding (calculated to include the shares of Common Stock underlying
the Warrants, shares of Common Stock underlying the Affiliate Warrants, shares
of Common Stock underlying the Harnick Warrant and all then currently
exerciseable, convertible and exchangeable securities that are "in the money")
on such date plus the number of shares of Common Stock that the aggregate
offering price of the total number of shares so offered for subscription or
purchase (or the aggregate purchase price of the convertible, exchangeable or
exerciseable securities so offered plus the aggregate of amount of any
additional consideration initially payable upon conversion into Common Stock or
exchange or exercise for Common Stock) would purchase at the Measuring Price and
the numerator of which shall be the number of shares of Common Stock outstanding
(calculated to include the shares of Common Stock underlying the Warrants,
shares of Common Stock underlying the Affiliate Warrants, shares of Common Stock
underlying the Harnick Warrant and all then currently exerciseable, convertible
and exchangeable securities that are "in the money") on such date plus the
number of additional shares of Common Stock offered for subscription or purchase
(or into or for which the convertible or exchangeable securities or rights,
options or warrants so offered are initially convertible or exchangeable or
exercisable, as the case may be), and the Exercise Price shall be adjusted as
provided below in paragraph (i). "Excluded Securities" means (A) shares
<PAGE>
8
of Common Stock issued upon conversion or exercise of convertible securities,
warrants and options of the Company, outstanding on the date this Warrant is
originally issued, (B) shares of Common Stock, and options to purchase such
shares, issued to officers, directors, employees or former employees of, or
consultants to, the Company or any of its subsidiaries pursuant to any equity
incentive plan, agreement or other arrangement which has been approved by a vote
of at least two-thirds (2/3) of the Board of Directors of the Company, (C)
shares of Common Stock issued upon conversion of shares of the Series B
Preferred Stock, (D) shares of Common Stock issued upon exercise of the
Affiliate Warrants, (E) shares of Common Stock issued upon conversion of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per share
("Series C Preferred Stock"), (F) shares of Common Stock issued upon exercise of
the Harnick Warrant and (G) shares of Common Stock issued upon exercise of any
Warrant.
(d) EXTRAORDINARY DISTRIBUTIONS. If at any time after
the date of issuance of this Warrant the Company shall distribute to all holders
of its Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation and the Common Stock is not changed or exchanged) cash, evidences of
indebtedness, securities or other assets (excluding (i) ordinary course cash
dividends to the extent such dividends do not exceed the Company's retained
earnings and (ii) dividends payable in shares of capital stock for which
adjustment is made under Section 6.1(a)) or rights, options or warrants to
subscribe for or purchase securities of the Company (excluding those for which
adjustment is made under Section 6.1(c)), then the number of shares of Common
Stock to be delivered to such Warrantholder upon exercise of this Warrant shall
be increased so that the Warrantholder thereafter shall be entitled to receive
the number of shares of Common Stock determined by multiplying the number of
shares such Warrantholder would have been entitled to receive immediately before
such record date by a fraction, the denominator of which shall be the Current
Market Price per share of Common Stock on such record date minus the then fair
market value (as reasonably determined by the Board of Directors of the Company
in good faith) of the portion of the cash, evidences of indebtedness, securities
or other assets so distributed or of such rights or warrants applicable to one
share of Common Stock (provided that such denominator shall in no event be less
than $.01) and the numerator of which shall be the Current Market Price per
share of the Common Stock, and the Exercise Price shall be adjusted as provided
below in paragraph (i).
(e) PRO RATA REPURCHASES. If at any time after the date
of issuance of this Warrant, the Company or any subsidiary thereof shall make a
Pro Rata Repurchase, then the number of shares of Common Stock to be delivered
to such Warrantholder upon exercise of this Warrant shall be increased so that
the Warrantholder thereafter shall be entitled to receive the number of shares
of Common Stock determined by multiplying the number of shares of Common Stock
such Warrantholder would have been entitled to receive immediately before such
Pro Rata
<PAGE>
9
Repurchase by a fraction (which in no event shall be less than one) the
denominator of which shall be (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the
Current Market Price of the Common Stock as of the day immediately preceding the
first public announcement by the Company of the intent to effect such Pro Rata
Repurchase minus (ii) the aggregate purchase price of the Pro Rata Repurchase
(provided that such denominator shall never be less than $.01), and the
numerator of which shall be the product of (i) the number of shares of Common
Stock outstanding immediately before such Pro Rata Repurchase minus the number
of shares of Common Stock repurchased in such Pro Rata Repurchase and (ii) the
Current Market Price of the Common Stock as of the day immediately preceding the
first public announcement by the Company of the intent to effect such Pro Rata
Repurchase.
(f) OTHER ADJUSTMENTS (CONDITIONAL ANNUAL INCREASE IN
WARRANT SHARES). On each anniversary of the date of the issuance of this
Warrant, if any shares of Series B Preferred Stock remain outstanding, then as
of each such anniversary the number of shares of Common Stock to be delivered
upon exercise of the Warrant shall be increased by an amount equal to 12% of the
Warrant Shares issuable upon the exercise of this Warrant (calculated without
giving effect to any prior adjustment pursuant to this section 6(f)).
(g) FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip shall be issued to any Warrantholder in connection with
the exercise of this Warrant. Instead of any fractional shares of Common Stock
that would otherwise be issuable to such Warrantholder, the Company will pay to
such Warrantholder a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the then Current Market Price per
share of Common Stock.
(h) CARRYOVER. Notwithstanding any other provision of
this Section 6.1, no adjustment shall be made to the number of shares of Common
Stock to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(i) EXERCISE PRICE ADJUSTMENT. Whenever the number
of Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 6.1 (other than any adjustment made pursuant
to Section 6.1(f) hereunder), the Exercise Price per share payable upon the
exercise of this Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Warrant Shares purchasable upon the exercise of the Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Warrant Shares
<PAGE>
10
purchasable immediately thereafter; PROVIDED, HOWEVER, that the Exercise Price
for each Warrant Share shall in no event be less than the par value of such
Warrant Share.
(j) MULTIPLE ADJUSTMENTS. If any action or transaction
would require adjustment of the number of shares of Common Stock to be delivered
to the Warrantholder upon exercise of this Warrant pursuant to more than one
paragraph of this Section 6.1, only one adjustment shall be made and each such
adjustment shall be the amount of adjustment that has the highest absolute
value.
6.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares is adjusted, as herein
provided, the Company shall promptly mail by first class mail, postage prepaid,
to the Warrantholder, notice of such adjustment or adjustments and a certificate
of a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company (who shall be appointed at the
Company's expense and who may be the independent public accountants regularly
employed by the Company) setting forth the number of Warrant Shares and the
Exercise Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
7. PUT RIGHTS. The Warrantholder shall have the following Put
Rights:
(a) At the earlier of (i) the fifth anniversary of the
date hereof and (ii) a Change of Control, the Warrantholder may notify the
Company in writing (the "PUT NOTICE") of the Warrantholder's desire to cause the
Company to repurchase, in the case of clause (i) above, all (but not less than
all) of the Warrant Shares (issued or represented by the Warrant) at a price per
share equal to the Repurchase Price (the "Five-Year Put"), or, in the case of
clause (ii) above, the Warrant at the Change of Control Repurchase Price (the
"Change of Control Put").
(b) If the Company receives a Put Notice pursuant to
Section 7(a), it shall deliver to the Warrantholder, by first class mail,
postage prepaid, mailed as soon as practicable and if possible within thirty
(30) days of the receipt by the Company of the Put Notice, a notice stating: (i)
the date as of which such repurchase shall occur (which date (the "Put Closing")
shall be not less than ten (10) nor more than thirty (30) days following the
date of such notice, but in any event prior to the Expiration Date); (ii) in the
case of a Five-Year Put, the number of Warrant Shares (issued or represented by
this Warrant) to be purchased from the Warrantholder and the Repurchase Price
(which shall be calculated as of the date of the Put Notice) or, in the case of
a Change of Control Put, the Change of Control Repurchase Price; and (iii) the
place or places where certificate or certificates representing this Warrant or
Warrant Shares are to be surrendered for payment.
<PAGE>
11
(c) With respect to Warrants and Warrant Shares
properly tendered for repurchase, if the Company fails to pay the Repurchase
Price or the Change of Control Repurchase Price on the date fixed for
repurchase, the Corporation shall also pay interest thereon at the rate of 12%
per annum, compounded on a quarterly basis, until such time as such satisfaction
shall have occurred. In addition, the Warrantholder shall be entitled to the
rights and remedies provided in Section 6.2 of the Investment Agreement.
(d) At the Put Closing, the Warrantholder shall deliver
to the Company the certificate or certificates representing the Warrantholder's
Warrant or Warrant Shares and the Company shall deliver to the Warrantholder an
amount equal to, in the case of a Five-Year Put, the product obtained by
multiplying (i) the number of such Warrant Shares (issued or represented by this
Warrant) by (ii) the Repurchase Price or, in the case of a Change of Control
Put, the Change of Control Repurchase Price, by cashier's or certified check
payable to the Warrantholder or by wire transfer of immediately available funds
to an account designated by the Warrantholder.
(e) The Company shall not (and shall not permit any
Affiliate of the Company to) enter into any contract or other consensual
arrangement that by its terms restricts the Company's ability to honor the Put.
8. AMENDMENTS. Any provision of this Warrant may be amended and the
observance thereof waived only with the written consent of the Company and the
Warrantholder.
9. NOTICES OF CORPORATE ACTION. So long as this Warrant has not been
exercised in full, in the event of:
(a) any consolidation or merger involving the Company
and any other party or any transfer of all or substantially all the assets of
the Company to any other party, or
(b) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail, by first class mail, postage prepaid, to the
Warrantholder a notice specifying (i) the date or expected date on which any
such record is to be taken for the purpose of a dividend, distribution or right
and the amount and character of any such dividend, distribution or right and
(ii) the date or expected date on which a reorganization, reclassification,
recapitalization, consolidation, merger, transfer, disso lution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for the
securities or other property deliverable upon such reorganization,
reclassification,
<PAGE>
12
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be delivered as soon as practicable and if
possible at least 20 days prior to the date therein specified in the case of any
date referred to in the foregoing subdivisions (i) and (ii). Failure to give the
notice specified hereunder shall have no effect on the status or effectiveness
of the action to which the required notice relates.
10. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by, or is under common
control with such first Person. For the purpose of this definition, "control"
shall mean, as to any Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Warrants" mean the warrants issued in connection with the
issue and sale by the Company of shares of its Series C Preferred Stock on the
Closing Date (as defined in the Investment Agreement).
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day
on which national banks are authorized by law or executive order to close in the
State of New York.
"CHANGE OF CONTROL" shall mean (i) the direct or indirect sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group within the meaning of Rule 13d-5 under
the Exchange Act (a "GROUP OF PERSONS"), (ii) the merger or consolidation of the
Company with or into another corporation with the effect that the then existing
stockholders of the Company hold less than 50% of the combined voting power of
the then outstanding securities of the surviving corporation of such merger or
the corporation resulting from such consoli dation ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors, (iii) the replacement of a majority of the Board of
Directors of the Company, over a two-year period, from the directors who
constituted the Board of Directors at the beginning of such period, and such
replacement shall not have been approved by the Board of Directors of the
Company (or its replacements approved by the Board of Directors of the Company)
as constituted at the beginning of such period, (iv) a Person or Group of
Persons (other than the Investors and their Affiliates) shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases
or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of securities of the Company representing 49% or more of
the combined voting power of
<PAGE>
13
the then outstanding securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors.
"CHANGE OF CONTROL REPURCHASE PRICE" means an amount of cash equal
to the fair market value of this Warrant immediately prior to the announcement
of a Change of Control, to be determined by an Independent Financial Expert
selected by the Company and a majority in interest of the Warrant Shares in
accordance with the procedure set forth in the definition of Current Market
Price herein, giving due consideration to such factors as the financial
condition and prospects of the Company, the remaining unexpired term of this
Warrant and the market price of the Common Stock of the Company after
announcement of such Change of Control.
"CLOSING PRICE" of the Common Stock as of any day, means (a) the
last reported sale price of such stock (regular way) or, in case no such sale
takes place on such day, the average of the closing bid and asked prices, in
either case as reported on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or (b) if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
reported sale price or, in case no such sale takes place on such day, the
average of the highest reported bid and lowest reported asked quotation for the
Common Stock, in either case reported on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), or a similar service if
NASDAQ is no longer reporting such information.
"COMMON STOCK" has the meaning specified on the cover of this
Warrant.
"COMPANY" has the meaning specified on the cover of this Warrant.
"CURRENT MARKET PRICE" means, with respect to each share of Common
Stock as of any date, the average of the daily Closing Prices per share of
Common Stock for the 10 consecutive trading days commencing 15 trading days
prior to such date; provided that if on any such date the shares of Common Stock
are not listed or admitted for trading on any national securities exchange or
quoted by NASDAQ or a similar service, the Current Market Price for a share of
Common Stock shall be the fair market value of such share as determined in good
faith by the Board of Directors of the Company. If the Board of Directors is
unable to determine the fair market value, or if the holders of a majority in
interest of the Warrant Shares issued or issuable upon conversion of the
Warrants issued pursuant to the Investment Agreement disagree with the Board's
determination of fair market value by written notice delivered to the Company
within five (5) business days after the Board's determination thereof is
communicated in writing to such holders, which notice specifies a
majority-in-interest of such holders' determination of fair market value, then
the Company and a majority-in-interest of such holders shall select an
Independent Financial Expert which shall determine such fair market value. If
the Company and such holders are unable to
<PAGE>
14
agree upon an Independent Financial Expert within fifteen (15) days after the
request by such holders, each of the Company and such holders shall select an
Independent Financial Expert within five (5) days following the expiration of
such fifteen (15) day period, and these Independent Financial Experts shall
select a third Independent Financial Expert. The determination of fair market
value by such Independent Financial Expert shall be final, binding and
conclusive on the Company and all holders of the Warrants and Warrant Shares.
All costs and fees of any of this Independent Financial Experts retained in
accordance with the foregoing shall be borne by the Company.
"EXERCISE FORM" means an Exercise Form in the form annexed hereto as
Exhibit A.
"EXERCISE PRICE" has the meaning specified on the cover of this
Warrant.
"EXPIRATION DATE" has the meaning specified on the cover of this
Warrant.
"HARNICK WARRANT" means the warrant to purchase 50,000 shares of
Common Stock to be issued to Carl D. Harnick at the closing of the Investment
Agreement.
"INDEPENDENT FINANCIAL EXPERT" means an independent nationally
recognized investment banking firm.
"INVESTORS" means MAC Music LLC, a Delaware limited liability
company, and SK-Palladin Partners, LP, a Delaware limited partnership.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, estate, other entity or government or any agency or
political subdivision thereof.
"PRO RATA REPURCHASE" means any purchase of shares of Common Stock
by the Company or by any of its subsidiaries whether for cash, shares of capital
stock of the Company, other securities of the Company, evidences of indebtedness
of the Company or any other Person or any other property (including, without
limitation, shares of capital stock, other securities or evidences of
indebtedness of a subsidiary of the Company), or any combination thereof, which
purchase is subject to Section 13(e) of the Securities Exchange Act of 1934, as
amended, or is made pursuant to an offer made available to all holders of Common
Stock.
"REPURCHASE PRICE" means, on any date, the Current Market Price per
share of Common Stock as of such date, less the per share Exercise Price;
PROVIDED, that if at the time of determination of the Repurchase Price, the
Warrantholder shall be
<PAGE>
15
entitled to receive any securities or property other than Common Stock, the
Repurchase Price shall include a cash amount per Warrant Share equal to that
portion of the fair value of such securities or property allocable to each
Warrant Share.
"SECURITIES ACT" has the meaning specified on the cover of this
Warrant.
"WARRANTHOLDER" has the meaning specified on the cover of this
Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this
Warrant; provided, however, that Warrant Shares shall not include shares sold to
the public pursuant to Rule 144 under the Securities Act of 1933, as amended, or
pursuant to an effective registration statement under the Securities Act.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Warrant together with the
Investment Agreement constitute the entire agreement between the Company and the
Warrantholder with respect to this Warrant.
11.2 BINDING EFFECT; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
11.4 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally, telecopied
or sent by certified, registered or express mail, as follows:
(a) if to the Company, addressed to:
Platinum Entertainment, Inc.
2001 Butterfield Road
Downers Grove, Illinois 60515
Telecopy: (630) 769-0049
Attention: Chief Executive Officer
<PAGE>
16
with a copy to:
Katten, Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Telecopy: (312) 902-1061
Attention: Matthew S. Brown, Esq.
(b) if to the Warrantholder, addressed to:
SK-Palladin Partners, LP
1285 Avenue of the Americas, 21st Floor
New York, New York 10019
Attention: MARK J. SCHWARTZ
----------------
Telecopy: (212) 641-5065
----------------
Any party may by notice given in accordance with this Section 11.4 designate
another address or person for receipt of notices hereunder.
11.5 SEVERABILITY. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11.6 GOVERNING LAW. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to such agreements made and to be performed entirely within such
State.
11.7 CERTAIN REMEDIES. The Warrantholder shall be entitled to
an injunction or injunctions to prevent breaches of the provisions of this
Warrant and to enforce specifically the terms and provisions of this Warrant in
any court of the United States or any court of any state having jurisdiction,
this being in addition to any other remedy to which the Warrantholder may be
entitled at law or in equity.
11.8 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
contained in this Warrant shall be deemed to confer upon the Warrantholder any
rights as a stockholder of the Company or as imposing any liabilities on the
Warrantholder to
<PAGE>
17
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
PLATINUM ENTERTAINMENT, INC.
By: /s/ STEVEN DEVICK
----------------------
Name: Steven Devick
Title: Chief Executive Officer
Dated: December 12, 1997
<PAGE>
18
EXHIBIT A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase __________ of the Warrant Shares and
[herewith tenders payment for such Warrant Shares to the order of Platinum
Entertainment, Inc. in the amount of $__________] [hereby exercises its
Conversion Right] in accordance with the terms of this Warrant. The undersigned
requests that a certificate for [such Warrant Shares] [that number of Warrant
Shares to which the undersigned is entitled as calculated pursuant to Section
1.2] be registered in the name of the undersigned and that such certificates be
delivered to the undersigned's address below.
Dated:__________________________
Signature____________________________
____________________________
(Print Name)
____________________________
(Street Address)
____________________________
(City) (State) (Zip Code)
Exhibit 4
PURCHASERS' AGREEMENT
PURCHASERS' AGREEMENT (this "Agreement"), dated as of December 18,
1997, between MAC Music LLC ("MAC") and SK-Palladin Partners, LP ("Palladin").
Each of MAC and Palladin is sometimes referred to herein as a "Purchaser" or,
collectively, "Purchasers".
WHEREAS, MAC and Palladin are parties to that certain Investment
Agreement, dated as of October 12, 1997, among Platinum Entertainment, Inc. (the
"Company"), MAC and Palladin, as amended by the Letter Amendments between the
parties dated October 28, 1997, October 30, 1997 and November 26, 1997, and as
hereafter further amended from time to time (the "Investment Agreement").
Capitalized terms used but not defined herein shall have the respective meanings
ascribed to them in the Investment Agreement;
WHEREAS, pursuant to Section 6.2.5(b) of the Investment Agreement,
so long as the Purchasers, or their Affiliates, employees, partners or members
hold, in the aggregate, not less than 35% of the Warrant Shares represented
immediately following the Closing by the Warrants being sold to each of MAC and
Palladin pursuant to the Investment Agreement, the Purchasers shall be entitled
to designate (i) four Purchaser Directors to the Board of Directors of the
Company and (ii) two Purchaser Directors to each Committee of the Company's
Board of Directors (including, without limitation, the executive, audit and
compensation committees) ("Committee Members");
WHEREAS, pursuant to Section 6.2.5(c) of the Investment Agreement,
so long as the Purchasers, or their Affiliates, employees, partners or members
hold, in the aggregate, not less than 15% of the Warrant Shares represented
immediately following the Closing by the Warrants being sold to each of MAC and
Palladin pursuant to the Investment Agreement, the Purchasers shall be entitled
to designate (i) two Purchaser Directors to the Board of Directors of the
Company and (ii) one Committee Member to each Committee;
WHEREAS, pursuant to Section 6.2.5(d) of the Investment Agreement,
under certain enumerated circumstances, the Purchasers shall be entitled to
designate additional Purchaser Directors so that the total number of Purchaser
Directors constitutes a majority of the Board of Directors of the Company;
WHEREAS, pursuant to Section 5.1 of the Certificate of Designation
for the Series B Preferred Stock (the "Series B Certificate"), if on the fifth
anniversary of the Issue Date any shares of Series B Preferred Stock remain
outstanding, the holders of shares of Series B Preferred Stock shall have the
right, voting separately as a class, to elect eight (8) directors of the
Corporation;
<PAGE>
2
WHEREAS, in order to avoid possible conflict between the Purchasers
in connection with the designation of Purchaser Directors pursuant to the
Investment Agreement or the election of directors pursuant to the Series B
Certificate, the parties hereto wish to provide for a mechanism for determining
the allocation of Purchaser Director designees as between the Purchasers to the
extent the Purchasers have such designation rights pursuant to the Investment
Agreement and to agree to vote together in the event that holders of shares of
Series B Preferred Stock are entitled to elect directors to the Corporation.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. As long as the Purchasers are entitled to designate four
Purchaser Directors and two Committee Members pursuant to Section 6.2.5(b) of
the Investment Agreement, each Purchaser will be entitled to designate two
Purchaser Directors and one Committee Member to each Committee; provided that:
(a) If a Purchaser has sold in the aggregate, pursuant to a
registration statement which has been declared effective under the Act or
pursuant to Rule 144 or Rule 144A of the Act (each such sale, a "Public Sale"),
in excess of 50% of the number of such Purchaser's Warrant Shares, as such
number may be adjusted from time to time under Section 6.1 of the Warrant (the
"Adjusted Warrant Shares"), then the selling Purchaser shall be entitled to
designate only one Purchaser Director (and the other Purchaser shall be entitled
to designate three Purchaser Directors) for so long as the ratio of the other
Purchaser's Adjusted Warrant Shares not sold in any Public Sale to the selling
Purchaser's Adjusted Warrant Shares not sold in any Public Sale is equal to or
exceeds two to one (2:1); and
(b) If a Purchaser has sold in the aggregate, in one or more
Public Sales, in excess of 95% of such Purchaser's Adjusted Warrant Shares, then
the selling Purchaser shall not be entitled to designate any Purchaser Director
or Committee Member (and the other Purchaser shall be entitled to designate all
four Purchaser Directors and both Committee Members) for so long as the ratio of
the other Purchaser's Adjusted Warrant Shares not sold in any Public Sale to the
selling Purchaser's Adjusted Warrant Shares not sold in any Public Sale is equal
to or exceeds two to one (2:1).
2. As long as the Purchasers are entitled to designate two Purchaser
Directors and one Committee Member pursuant to Section 6.2.5(c) of the
Investment Agreement, each Purchaser will be entitled to designate one Purchaser
Director, and the single Committee Member shall be designated by the Purchaser
with the greater number of Adjusted Warrant Shares not sold in any Public Sale;
provided that, if a Purchaser has sold in the aggregate, in one or more Public
Sales, in excess of 95% of such Purchaser's Adjusted Warrant Shares, then the
selling Purchaser shall
<PAGE>
3
not be entitled to designate any Purchaser Director (and the other Purchaser
shall be entitled to designate both Purchaser Directors) for so long as the
ratio of the other Purchaser's Adjusted Warrant Shares not sold in any Public
Sale to the selling Purchaser's Adjusted Warrant Shares not sold in any Public
Sale is equal to or exceeds two to one (2:1).
3. As long as the Purchasers are entitled to designate a majority of
directors to the Board of Directors of the Company pursuant to Section 6.2.5(d)
of the Investment Agreement, each Purchaser will be entitled to designate such
number of directors, rounded to the nearest whole number, in direct proportion
to the ratio of such Purchaser's number of Adjusted Warrant Shares not sold in
any Public Sale to the total number of both Purchasers' Adjusted Warrant Shares
not sold in any Public Sale; provided that, notwithstanding anything in this
paragraph 3 to the contrary, each Purchaser will be entitled to designate at
least one of the directors which the Purchasers are entitled to designate
pursuant to Section 6.2.5(d) for so long as such Purchaser has not sold in the
aggregate, in one or more Public Sales, in excess of 95% of such Purchaser's
Adjusted Warrant Shares.
4. As long as the holders of the Series B Preferred Stock are
entitled to elect eight directors to the Board of Directors of the Company (the
"Series B Directors") pursuant to Section 5.1 of the Series B Certificate, each
Purchaser agrees to vote all shares of Series B Preferred Stock owned at the
time by such Purchaser (and cause to be voted all shares of Series B Stock
controlled at the time by such Purchaser) at any meeting of stockholders called
for electing directors pursuant to Section 5.1 of the Series B Certificate, or
in any written consent executed for such purpose, in favor of the election to
the Board of Directors of the Corporation of the Series B Directors designated
by each Purchaser in accordance with the following sentence.
Each Purchaser will be entitled to designate such number of Series B
Directors, rounded to the nearest whole number, in direct proportion to the
ratio of such Purchaser's number of shares of Series B Preferred Stock ("Series
B Shares") not sold in any Public Sale to the total number of both Purchasers'
Series B Shares not sold in a Public Sale; PROVIDED THAT, notwithstanding
anything in this paragraph 4 to the contrary, each Purchaser will be entitled to
designate at least one of the Series B Directors for which the Purchasers are
entitled to vote pursuant to Section 5.1 of the Series B Certificate so long as
such Purchaser has not sold in the aggregate, in one or more Public Sales, in
excess of 95% of such Purchaser's Series B Shares.
5. This Agreement embodies the entire agreement between the parties
relating to the subject matter hereof and supersedes any and all prior oral or
written agreements, contracts, understandings, correspondence, conversations and
memoranda, whether written or oral, between MAC and Palladin, or between their
respective agents, representatives, parents, Subsidiaries or Affiliates, with
respect to the subject matter hereof.
<PAGE>
4
6. Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party hereto from the terms of any provision of
this Agreement, shall be effective only if (i) it is made or given in writing
and (ii) only in the specific instance and for the specific purpose for which
made or given.
7. This agreement shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto.
8. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to Agreements made and
performed entirely within such State. Each of the parties hereto agrees to
submit to the jurisdiction of the State and Federal Courts in the State of New
York in any action or proceeding arising out of or relating to this Agreement.
<PAGE>
5
9. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
MAC MUSIC LLC
By: Alpine Equity Partners L.P.,
Managing Member
By: Alpine Equity Partners L.L.C.,
General Partner
By: /s/ Lisa A. Hook
------------------------
Name: Lisa A. Hook
Title: Managing Director
By: Maroley Media Group LLC,
Managing Member
By: /s/ Andrew B. Lipsher
------------------------
Name: Andrew B. Lipsher
Title: Executive Vice President
SK-PALLADIN PARTNERS, LP
By: SK-Palladin Holdings, LP,
General Partner
By: SK-Palladin Gen Par, Inc.
General Partner
By: /s/ Mark J. Schwartz
------------------------------
Name: Mark J. Schwartz
Title: President and
Chief Executive Officer
Exhibit 5
JOINT FILING AGREEMENT
The undersigned hereby agree that the statement on Schedule 13D with
respect to the Common Stock of Platinum Entertainment, Inc., dated December 22,
1997, is, and any amendments thereto signed by each of the undersigned shall be,
filed on behalf of each of us pursuant to and in accordance with the provisions
of Rule 13d-1(f) under the Securities Exchange Act of 1934. This Joint Filing
Agreement shall br included as an Exhibit to such joint filing.
Dated: December 22, 1997
SK-Palladin Partners, LP
By: SK-Palladin Holdings, LP,
its general partner
By: SK-Palladin Gen Par, Inc.
By: /s/ Mark J. Schwartz
----------------------------
Name: Mark J. Schwartz
Title: President and Chief
Executive Officer
SK-Palladin Holdings, LP,
By: SK-Palladin Gen Par, Inc.
By: /s/ Mark J. Schwartz
----------------------------
Name: Mark J. Schwartz
Title: President and Chief
Executive Officer
SK-Palladin Gen Par, Inc.
By: /s/ Mark J. Schwartz
----------------------------
Name: Mark J. Schwartz
Title: President and Chief
Executive Officer
/s/ Mark J. Schwartz
----------------------------------------
Mark J. Schwartz
