UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
STYLES ON VIDEO, INC.
- ----------------------------------------------------
(Name of Issuer)
Common Stock, par value $.001 per share
- ----------------------------------------------------
(Title of Class of Securities)
86422210
- ----------------------------------------------------
(CUSIP Number)
Jeffrey A. Safchik
President
IDI Corp.
40304 Fisher Island Drive
Fisher Island, Florida 33109
(305) 534-1012
- ----------------------------------------------------
(Name, address and telephone number of person
authorized to receive notices and communications)
May 30, 1996
- --------------------------------------------------------
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box[].
Check the following box if a fee is being paid with the
statement[]. (A fee is not required only if the reporting person:
(1) has a previous statement on file reporting beneficial ownership
of more than five percent of the class of securities described in
Item 1; and (2) has filed no amendment subsequent thereto reporting
beneficial ownership of five percent or less of such class.) (See
Rule 13d-7.)
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
* 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 in the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18 of
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>
13D
CUSIP NO.86422210
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
International Digital Investors, L.P.
2 CHECK THE APPROPRIATE BOX IF A
MEMBER OF A GROUP* (a)[]
(b)[x]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) []
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER 7 SOLE VOTING POWER
OF 58,105,871
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 0
OWNED BY EACH 9 SOLE DISPOSITIVE POWER
REPORTING 58,105,871
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 58,105,871
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES* []
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 93.2%
14 TYPE OF REPORTING PERSON*
PN
<PAGE>
13D
CUSIP NO.86422210
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
Greenstreet Partners
2 CHECK THE APPROPRIATE BOX IF A
MEMBER OF A GROUP* (a)[]
(b)[x]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) []
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Florida
NUMBER 7 SOLE VOTING POWER
OF 132,000
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 0
OWNED BY EACH 9 SOLE DISPOSITIVE POWER
REPORTING 132,000
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 132,000
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES* []
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 3.1%
14 TYPE OF REPORTING PERSON*
PN
<PAGE>
This Amendment No. 1 to Schedule 13D (this "Amendment")
amends and restates the Schedule 13D filed by the Reporting
Persons on November 21, 1995 (the "Original Schedule 13D").
ITEM 1. SECURITY
This Amendment relates to the common stock, par value $.001
per share (the "Common Stock"), of Styles on Video, Inc., a
Delaware corporation (the "Issuer"), which has its principal
executive office at 667 Rancho Conejo Boulevard, Newbury Park,
California 91320.
ITEM 2. IDENTITY AND BACKGROUND
This Amendment is filed on behalf of International Digital
Investors, L.P., a Delaware limited partnership ("IDI") and
Greenstreet Partners, a Florida general partnership
("Greenstreet").
The shares to which this Amendment relates are subject to
acquisition by IDI, except that 132,000 shares were acquired by
Greenstreet, prior to commencement of discussions that led to the
IDI investment. Greenstreet disclaims beneficial ownership of
the shares of Common Stock beneficially owned by IDI, and IDI
disclaims beneficial ownership of the shares of Common Stock
beneficially owned by Greenstreet.
IDI was formed under the laws of the State of Delaware to
manage investments in the Issuer and related companies. Its
principal business address is 40304 Fisher Island Drive, Fisher
Island, Florida 33109, which is also the address of its principal
office.
The sole general partner of IDI is IDI Corp., a Delaware
corporation ("IDI Corp."), and its principal business is serving
in such capacity. Its principal business address is 40304 Fisher
Island Drive, Fisher Island, Florida 33109, which is also the
address of its principal office.
The sole stockholder and chairman of IDI Corp. is Steven J.
Green. Jeffrey A. Safchik is President and the only other
director of IDI Corp. At present, Steven J. Green is principally
occupied as an independent investor. The principal address at
which such activity is conducted is 40301 Fisher Island Drive,
Fisher Island, Florida 33109. The present principal occupation
of Jeffrey A. Safchik is serving as Managing Director of
Greenstreet. The principal address at which such employment is
conducted is 40304 Fisher Island Drive, Fisher Island, Florida
33109. Messrs. Green and Safchik are United States citizens.
Greenstreet is a partnership engaged in the business of
making investments. Its investments include 132,000 shares of
Common Stock owned by it prior to commencement of discussions
that led to the initial investment in the Issuer by IDI. Steven
J. Green is the sole managing general partner of Greenstreet.
Greenstreet's principal business address is 40304 Fisher Island
Drive, Fisher Island, Florida 33109, which is also the address of
its principal office.
IDI Corp., Steven I. Green and Jeffrey Safchik are
collectively referred to as the "Related Persons."
None of IDI, Greenstreet nor any of the Related Persons has,
during the last five years, been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors). None of IDI, Greenstreet nor any of the Related
Persons was, during the last five years, a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding 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 OF FUNDS OR OTHER CONSIDERATION
The purchase price for the Series B Preferred Stock
was $50,000. As more fully described in Item 4, the Series B
Warrants were issued to IDI in connection with its agreement to
purchase the Series B Preferred Stock and the Additional Notes
pursuant to the Additional Purchase Agreement. The source of
funds for the purchase of the Initial Note Tranche and the
Series B Preferred Stock was the limited partnership assets
of IDI, including capital contributions from the limited partners
of IDI. Capitalized terms used in this Item 3 and not previously
defined are defined in Item 4 below.
ITEM 4. PURPOSE OF TRANSACTION
On November 20, 1995, pursuant to a Note and Preferred
Stock Purchase Agreement, dated November 20, 1995 (the "Existing
Purchase Agreement"), among the Issuer, Forever Yours, Inc., a
Delaware corporation and an 80% owned subsidiary of the Issuer(1)
("FYI"), and IDI, IDI acquired (i) a 10% Senior Note due June 30,
1998 in the aggregate principal amount of $2,950,000 (the
"Existing Note") and (ii) 500 shares of 10% Senior Series A
Convertible Preferred Stock, $.001 par value per share, of the
Issuer (the "Series A Preferred Stock"). The Existing Purchase
Agreement was filed as Exhibit A to the Original Schedule 13D.
The Series A Preferred Stock was initially convertible
into 44,643 shares of Common Stock(2). In connection with its
purchase of the Existing Note and the Series A Preferred Stock,
IDI received a warrant to purchase 3,914,882 shares of Common
Stock (the "Series A Warrants") at a per share exercise price of
$1.12(3). The number of shares subject to the Series A Warrants
and the number of shares issuable upon conversion of the Series A
Preferred Stock are subject to adjustment pursuant to the anti-
dilution provisions set forth in the Series A Warrant Certificate
and the Certificate of Designation for the Series A Preferred
Stock (the "Series A Designation"), respectively. Pursuant to
the Series A Designation, IDI, as the holder of the Series A
Preferred Stock, has the power to elect four members of the
Issuer's seven-member Board of Directors. The Series A
Designation and the Series A Warrant Certificate were filed as
Exhibits B and C, respectively, to the Original Schedule 13D.
- --------------
(1) FYI subsequently became a wholly-owned subsidiary of the
Issuer as described in Item 4.
(2) Pursuant to the anti-dilution provisions of the Series A
Preferred Stock, the number of shares into which such stock is
convertible was increased to 238,095 upon the occurrence of the
transactions described in Item 4.
(3) The exercise price for the Series A Warrants was reduced to
$0.075 per share in connection with the transactions described in
Item 4.
- --------------
In April, 1996, IDI made interim loans to the Issuer
in the aggregate principal amount of $270,000 (the "Interim
Loans") to provide working capital for the Issuer. The Interim
Loans were funded on behalf of IDI by certain of its limited
partners and certain individuals who expect to become limited
partners of IDI in the future. The Interim Loans were repaid with
proceeds of the Additional Notes.
Barry Porter has indicated an interest in making an
investment in IDI. In view of his interest, Jeffrey Safchik,
President of IDI Corp., the general partner of IDI, requested that
he assist IDI Corp. in its evaluation of any additional investment
in the Issuer, including the transaction described in this Item 4,
and refer all information obtained to Mr. Safchik for his review
and approval.
On May 30, 1996, pursuant to a Note and Preferred Stock
Purchase Agreement, dated as of May 14, 1996 (the "Additional
Purchase Agreement"), as amended by a First Amendment to Additional
Note and Preferred Stock Purchase Agreement and Waiver, dated as of
May 15, 1996 (the "Additional Note Amendment"), each by and among
the Issuer, FYI and IDI, IDI acquired $371,712 aggregate
principal amount of 10% Senior Notes due June 30, 1998 (the
"Initial Note Tranche"), $271,712 of the proceeds of which were
used to repay the principal of and interest on the Interim Loans,
and agreed to acquire (i) up to an additional $828,288 aggregate
principal amount of 10% Senior Notes due June 30, 1998 (together
with the Initial Note Tranche, the "Additional Notes"), from time
to time, in accordance with the provisions of, and subject to the
conditions precedent set forth in, the Additional Purchase
Agreement, as amended, and (ii) 500 shares of 10% Senior Series B
Convertible Preferred Stock, $.001 par value per share, of the
Issuer (the "Series B Preferred Stock") on or before June 4,
1996, subject to the conditions precedent set forth in the
Additional Purchase Agreement, as amended. IDI purchased an
additional $150,000 of Additional Notes on May 30, 1996 and it
purchased the Series B Preferred Stock on June 4, 1996. The
Additional Purchase Agreement and the Additional Note Amendment
are included as Exhibits H and I, respectively, hereto.
The Series B Preferred Stock is convertible into
666,666 shares of Common Stock. In connection with its agreement
to purchase the Additional Notes and the Series B Preferred
Stock, IDI received a warrant to purchase 53,286,228 shares of
Common Stock (the "Series B Warrants") at a per share exercise
price of $0.075. The number of shares subject to the Series B
Warrants and the number of shares issuable upon conversion of
each share of Series B Preferred Stock are subject to adjustment
pursuant to the anti-dilution provisions set forth in the Series
B Warrant Certificate and the Amended Certificate of Designation
for the Series B Preferred Stock (the "Series B Designation"),
respectively. Pursuant to the Series B Designation, IDI, as the
holder of the Series B Preferred Stock, will have the power to
elect one member of the Issuer's seven-member Board of Directors
if, by October 31, 1996, the Issuer has not taken all corporate
and shareholder action necessary to authorize and reserve for
issuance a number of shares of the Issuer's Common Stock
sufficient to permit the holders of the Series A Preferred Stock
and the Series B Preferred Stock to convert such Preferred Stock
into Common Stock in accordance with the relevant Certificate of
Designation, and to permit the holders of the Series A Warrants,
the Series B Warrants and certain other warrants to exercise such
warrants in accordance with the terms of the relevant Warrant
Certificate. The Series B Warrants are exercisable, and the
Series B Preferred Stock is convertible into Common Stock, on or
after the earlier to occur of (i) October 31, 1996, (ii) the date
on which all corporate and shareholder action on the part of the
Issuer has been taken to authorize and reserve for issuance a
number of shares of Common Stock at least equal to the initial
number of shares of Common Stock issuable upon exercise of the
Series B Warrants or conversion of the Series B Preferred Stock,
as applicable, and (iii) the date on which certain other warrants
to purchase Common Stock become exercisable, in whole or in part
(the earlier of such dates being the "First Exercise Date"). In
addition, IDI has agreed that prior to the First Exercise Date it
will not exercise the Series A Warrants or convert the Series A
Preferred Stock into Common Stock to the extent that the
aggregate number of shares receivable upon all such conversions
or exercises would exceed 4,750,927 shares. The Series B
Designation and the Series B Warrant Certificate are included as
Exhibits J and L, respectively, hereto.
In connection with the closing of the transactions
contemplated by the Additional Purchase Agreement, as amended
(the "Closing"), the Existing Purchase Agreement and the
Series A Warrant Certificate were amended to conform to the
provisions of the Additional Purchase Agreement, as amended, and
the Series B Warrant Certificate, respectively, and to reduce the
per share exercise price of the Series A Warrants to $0.075. The
amendment to the Existing Purchase Agreement and the amended
and restated Series A Warrant Certificate are included as
Exhibits G and K, respectively, hereto. In addition, the
Registration Rights Agreement, dated November 20, 1995 (the
"Registration Rights Agreement"), by and between the Issuer and
IDI, executed in connection with the issuance of the Series A
Preferred Stock and the Series A Warrants, was amended and
restated (the "Amended and Restated Registration Rights
Agreement") to include the Series B Warrants and the shares of
Common Stock for which the Series B Warrants are exercisable and
into which the Series B Preferred Stock is convertible. The
Registration Rights Agreement was filed as Exhibit D to the
Original Schedule 13D; the Amended and Restated Registration
Rights Agreement is included as Exhibit M hereto.
The issuance by the Issuer of the Series B Warrants
and certain other warrants with an exercise price of $0.075 per
share and the reduction of the exercise price of the Series A
Warrants to $0.075 per share triggered the anti-dilution
provisions of the Series A Preferred Stock. As a result of such
event, the Series A Preferred Stock is convertible into 238,095
shares of Common Stock.
The Additional Purchase Agreement, as amended,
provides that the Issuer and FYI have until June 22, 1996 to
solicit offers (each a "Topping Offer") of investment or
financing, the terms of which are at least as favorable to the
Issuer and FYI as those offered by IDI. Any Topping Offer must
provide for (i) the repayment in full of all outstanding
principal of and accrued interest on the Existing Note and the
Additional Notes to the date of such repayment, (ii) the
redemption in full of the Series A Preferred Stock and the Series
B Preferred Stock in accordance with the applicable Certificate
of Designation, (ii) the payment to IDI of a $200,000 topping fee
and (iv) the payment to IDI of all out-of-pocket expenses in
connection with the purchase of the Additional Notes and related
transactions described in this Item 4. In addition, IDI has
agreed to the cancellation of a sufficient number of the Series A
Warrants and Series B Warrants upon the closing of any Topping
Offer, such that the warrants still held by IDI represent 18.75%
of the Common Stock of the Issuer on a fully diluted basis. The
Issuer and FYI have three days after receipt of any Topping Offer
to review such offer, a further three day period to solicit
additional bids, if any, from existing bidders and three days to
select a winning bidder and accept its bid. The closing of any
Topping Offer transaction must occur within seven days of
acceptance of the offer.
In the Additional Purchase Agreement, IDI agreed that
the Issuer could increase the number of shares of Common Stock
subject to its employee stock option plan to 6.5% of the
outstanding Common Stock on a fully diluted basis(4). Any increase
in the Issuer's employee stock option plan would need to be
approved by the shareholders of the Issuer.
IDI's purpose in entering into the Existing Purchase
Agreement and the Additional Purchase Agreement, as amended, was
to obtain the ability to control the Issuer, while providing
financing to enable the Issuer to develop the potential of its
operating subsidiaries, FYI and Dycam, Inc., a Delaware
corporation.
The terms of the Series A Preferred Stock (including
the right to designate a majority of the directors of the Issuer)
and the Series B Preferred Stock, together with the Series A
Warrants and the Series A Warrants (which collectively give IDI
the right to acquire a number of shares of Common Stock equal to
approximately 75% of the Issuer's Common Stock calculated on a
fully diluted basis(5)), may impede the acquisition of control of
the Issuer by third persons.
- ----------
(4) Assuming all outstanding warrants and options to purchase
Common Stock are fully exercised.
(5) Assuming all outstanding warrants and options to purchase
Common Stock are fully exercised and assuming that the number
of shares of Common Stock subject to the Issuer's employee stock
option plan is increased to 6.5% of the outstanding Common Stock
on a fully diluted basis and that all such shares are issued.
- ----------
The directors of the Issuer who are not affiliated
with IDI are Ms. Ann Graham Ehringer, Dana I. Arnold, chairman
and chief executive officer of FYI, and John Edling, chairman and
president of Dycam. The three directors previously elected by
IDI are Jeffrey Safchik, the chairman of the Issuer, Barry
Porter, a managing director of Pacific Capital Group, Inc., a Los
Angeles-based merchant banking group, and Marshall Geller, the
founder and managing partner of Geller & Friend Capital Partners,
Inc., a merchant banking group. It is anticipated that the final
Board position will be filled by IDI in the near future. IDI
anticipates that the presence on the Issuer's Board of Directors
of three directors who are appointed by IDI will enable it to
have a significant impact on the policies and direction of the
Issuer and its subsidiaries and, upon its appointment of the
final Board member, it will have control over the policies and
direction of the Issuer.
Prior to the Closing, the Issuer owned 80% of the
common stock of FYI and Dana I. Arnold, chairman and chief
executive officer of FYI, owned the remaining 20%. Concurrently
with the Closing, Mr. Arnold exchanged his minority interest in
FYI for warrants of the Issuer (the "Series C Warrants")
representing the right to purchase 7,747,449 shares(6) of Common
Stock of the Issuer at a per share exercise price of $0.075. The
Series C Warrants were 25% vested upon issuance and an additional
25% vests on each of November 10, 1996, May 10, 1997 and May 10,
1998. The Series C Warrants will become fully vested upon the
consummation of a Topping Offer transaction or in the event that
Mr. Arnold's employment with the Issuer is terminated by the
Issuer without cause. The unvested portion of the Series C
Warrants will terminate in the event that Mr. Arnold's employment
with the Issuer is terminated (A) by Mr. Arnold, (B) by the
Issuer for cause or (C) as a result of Mr. Arnold's death or
disability. The Series C Warrants are exercisable to the extent
vested on or after the earlier to occur of (i) October 31, 1996
or (ii) the date on which all corporate and shareholder action on
the part of the Issuer has been taken to authorize and reserve
for issuance a number of shares of Common Stock at least equal to
the initial number of shares of Common Stock issuable upon
exercise of the Series C Warrants. Pursuant to a registration
rights agreement, dated as of May 15, 1996, between the Issuer and
Dana Arnold, the Issuer granted registration rights to Mr. Arnold
with respect to the Series C Warrants and the Common Stock for
which they are exercisable.
- -----------
(6) The number of shares of Common Stock subject to the
Series C Warrants is subject to reduction upon the
consummation of a Topping Offer transaction.
- -----------
IDI has no present plans or intentions to sell the
Series A Preferred Stock, the Series B Preferred Stock, the
Series A Warrants or the Series B Warrants, or to convert the
Series A Preferred Stock or the Series B Preferred Stock into
Common Stock or to exercise the Series A Warrants or the Series B
Warrants.
The issuance and sale of the Series B Preferred Stock
and the Series B Warrants to IDI have not been submitted to the
shareholders of the Issuer for approval. The Investor has been
informed by the Issuer that the Common Stock has been scheduled
to be delisted from the American Stock Exchange for reasons
unrelated to the transactions described herein. If the Common
Stock were not delisted, shareholder approval of the issuance and
sale of the Series B Preferred Stock and the Series B Warrants to
IDI would have been required by the rules of the exchange and
failure to obtain such approval could have resulted in delisting
of the Common Stock.
In light of the difficulties facing the Issuer and in
connection with the foregoing transactions, the Issuer entered
into consulting agreements with Brymarc Management and K.
Eugene Shutler. The consulting agreements are included as
Exhibits N and O hereto.
Except as set forth in this Item 4, IDI and
Greenstreet have no present plans or proposals (and to the best
of their knowledge none of the Related Persons has any present
plans or proposals) that relate to or that would result in any of
the actions specified in clauses (a) through (j) of Item 4 of
Schedule 13D.
The foregoing description of the Existing Note, the
Series A Preferred Stock, the Series A Warrants, the Additional
Notes, the Series B Preferred Stock, the Series B Warrants and
the transactions contemplated thereby does not purport to be
complete and is qualified in its entirety by reference to the
Existing Purchase Agreement, as amended, the Series A
Designation, the Series A Warrant Certificate, as amended, the
Additional Purchase Agreement, as amended, the Series B
Designation and the Series B Warrant Certificate, each of which
has been filed as an exhibit to this Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
As of the close of business on June 4, 1996, IDI and
Greenstreet beneficially owned 58,237,871 shares of Common Stock,
constituting approximately 93.4% of the shares of Common Stock
outstanding (based on the latest financial statements and
information provided by the Issuer), as adjusted to reflect the
issuance of Common Stock upon conversion or exercise, as
applicable, of the Series A Preferred Stock, the Series B
Preferred Stock, the Series A Warrants and the Series B
Warrants. The following table sets forth the beneficial
ownership of IDI (representing, in the aggregate, 93.2% of the
outstanding shares of Common Stock):
Source of Shares Number of Shares
Shares issuable upon
conversion of the Series
A Preferred Stock 238,095(7)
Shares issuable upon
exercise of the Series
A Warrants 3,914,882
Shares issuable upon
conversion of the Series
B Preferred Stock 666,666
Shares issuable upon
exercise of the Series
B Warrants 53,286,228
Total 58,105,871
- -----------
(7) As adjusted to reflect the effect of the issuance of
the Series B preferred Stock, the Series B Warrants and
certain other warrants and the reduction in the per share
exercise price of the Series A Warrants, as described in
Item 4 of this Schedule 13D.
- -----------
IDI has sole voting and dispositive power with respect to all of
the foregoing shares. Greenstreet has beneficial ownership of
132,000 (3.1% of outstanding shares) shares of Common Stock, as
to which Greenstreet has sole voting and dispositive power.
Except as set forth above, none of IDI, Greenstreet or (to the
best knowledge of IDI and Greenstreet) the Related Persons
beneficially owns any shares of Common Stock.
Other than the acquisition of the Series B Preferred
Stock and the Series B Warrants by IDI pursuant to the Additional
Purchase Agreement, as amended, none of IDI, Greenstreet or (to
the best knowledge of IDI and Greenstreet) the Related Persons
has effected any transactions in the Common Stock during the past
60 days.
ITEM 6. CONTRACTS, ARRANGEMENT UNDERSTANDINGS OR
RELATIONSHIPS, WITH RESPECT TO SECURITIES OF THE
ISSUER
The relationship between IDI and IDI Corp. is set
forth in a Limited Partnership Agreement, dated as of
November 21, 1995 (the "Limited Partnership Agreement"). The
Limited Partnership Agreement describes the rights and
obligations of the partners of IDI with respect to the securities
of the Issuer held by IDI. The Limited Partnership Agreement is
included as Exhibit F hereto. As described in Item 4, it is
anticipated that additional individuals will become limited
partners of IDI and that certain individuals may make
an investment in IDI Corp. As a result of the expected and
proposed investments and the consequent adjustment in the rights
and obligations of the parties to the Limited Partnership
Agreement, it is anticipated that IDI may be restructured. The
terms of any such restructuring have not been agreed at this time.
Pursuant to the Amended and Restated Registration
Rights Agreement, IDI has been granted certain registration
rights with respect to the Series A Warrants, the Series B
Warrants and the Common Stock for which the Series A Warrants and
the Series B Warrants are exercisable and into which the Series A
Preferred Stock and the Series B Preferred Stock is convertible.
The foregoing description of the Limited Partnership
Agreement and the Amended and Restated Registration Rights
Agreement does not purport to be complete and is qualified in its
entirety by reference to such agreements, each of which has been
filed as an exhibit to this Schedule 13D.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits were filed with the Original Schedule
13D:
(A) Note and Preferred Stock Purchase Agreement,
dated November 20, 1996, between the Issuer, FYI and IDI.
(B) Certificate of Designation of the Series A
Preferred Stock of the Issuer.
(C) Series A Warrant Certificate for warrants
to purchase 3,914,882 shares of Common Stock of the Issuer.
(D) Registration Rights Agreement, dated November
20, 1995, by and between the Issuer and IDI.
(E) Minority Interest Adjustment Agreement, dated
November 20, 1995, by and between the Issuer and Dana I.
Arnold.
The following Exhibits are attached hereto:
(F) Limited Partnership Agreement, dated as of
November 21, 1995, by and among IDI Corp. and the limited
partners identified therein.
(G) Second Amendment to Note and Preferred Stock
Purchase Agreement and Waiver, dated as of May 15, 1996, by
and among the Issuer, FYI and IDI, relating to the Existing
Notes, the Series A Preferred Stock and the Series A
Warrants.
(H) Note and Preferred Stock Purchase Agreement, dated
as of May 14, 1996, by and among the Issuer, FYI and IDI,
relating to the Additional Notes, the Series B Preferred Stock
and the Series B Warrants.
(I) First Amendment to Additional Note and Preferred
Stock Purchase Agreement and Waiver, dated as of May 15,
1996, by and among the Issuer, FYI and IDI, relating to the
Existing Notes, the Series A Preferred Stock and the Series
A Warrants.
(J) Amended Certificate of Designation for the Series
B Preferred Stock of the Issuer.
(K) Amended and Restated Series A Warrant Certificate,
dated as of May 15, 1996, issued to IDI by the Issuer.
(L) Series B Warrant Certificate, dated as of May 15,
1996, issued to IDI by the Issuer.
(M) Amended and Restated Registration Rights
Agreement, dated as of May 15, 1996, by and among the Issuer
and IDI.
(N) Brymarc Consulting Agreement, dated as of May 15,
1996.
(O) Shutler Consulting Agreement, dated as of May 15,
1996.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
Dated: June 4, 1996
INTERNATIONAL DIGITAL INVESTORS, L.P.
By: IDI Corp., its general partner
By: __ Jeffrey Safchik__
Jeffrey Safchik
President
GREENSTREET PARTNERS
By: __ Jeffrey Safchik__
Jeffrey Safchik
Managing Director
<PAGE>
EXHIBIT F
AGREEMENT OF LIMITED PARTNERSHIP
OF
INTERNATIONAL DIGITAL INVESTORS, L.P.
DATED: NOVEMBER 21, 1995
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TABLE OF CONTENTS
ARTICLE 1
Defined Terms ................ 1
1.1 Definitions .......................... 1
ARTICLE 2
Formation .................. 9
2.1 Certificate ........................ 9
2.2 Partners ............................. 9
2.3 Name .................................... 10
2.4 Principal Office of Partnership . . ..... 10
ARTICLE 3
Purpose and Powers of the Partnership . 10
3.1 Purpose ..................................10
3.2 Powers ................................. 10
ARTICLE 4
Term .................... 10
4.1 Term of Partnership ................... 10
ARTICLE 5
Partners' Capital ........... 10
5.1 Capital Contributions and Redemptions .. 10
5.2 Computation of Capital Accounts ....... 11
5.3 Capital Accounts Generally ............ 12
ARTICLE 6
Allocation ................. 13
6.1 General Allocations .................. 13
6.2 Special Rules for Allocations ......... 14
6.3 Allocation of Certain Nondeductible
Expenses............................... 15
6.4 Tax Allocations: Code Section 704(c) .... 15
6.5 Minimum Allocation to General Partner .. 16
ARTICLE 7
Distributions ............ 16
7.1 Operating Distributions .............. 16
7.2 Liquidating Distributions ............ 17
7.3 Distributions of Property In-Kind ..... 17
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ARTICLE 8
Powers of General Partner ........ 18
8.1 Powers ............................... 18
8.2 Partnership Basis Elections ........... 19
8.3 Power of Attorney ................... 19
ARTICLE 9
Services and Indemnification of
General Partner .................... 21
9.1 Services .......... 21
9.2 Liabilities of General Partner;
Indemnification .................... 22
ARTICLE 10
Powers of Limited Partners .. 23
10.1 Limitations on Powers ................. 23
ARTICLE 11
Loan Transactions Between Partnership and
Affiliated Persons ............. 23
11.1 Loans from Partners to Partnership .... 23
11.2 Loans from Partnership to Partners
and Affiliated Persons ................ 24
ARTICLE 12
Transfer Of Partnership Interests ..24
12.1 General Restrictions ................. 24
12.2 Permitted Transfers ................ 25
12.3 Right of First Refusal ............... 26
12.4 Involuntary Sales of Partnership
Interests ............................ 28
12.5 Involuntary Transfers of Partnership
Interests ............................. 29
12.6 Transferees Bound ................... 31
12.7 Transfer of Partnership Interests on
Partnership's Books ................... 31
12.8 Status Transferees and Transferors of
Partnership Interests ................ 31
12.9 Rights and Privileges of an Interested
Nonpartner ............................ 32
12.10 Admission to Limited Partnership ..... 32
12.11 Allocations Upon Transfers of Partnership
Interests ............................. 33
ARTICLE 13
Dissolution; Cessation of General Partner . 33
13.1 Dissolution .......................... 33
13.2 Cessation of General Partner ......... 34
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ARTICLE 14
Accounting .......... 35
14.1 Fiscal Year ........................... 35
14.2 Method of Accounting .................. 35
14.3 Books and Records .................. 35
14.4 Income Tax Returns .................. 35
14.5 Tax Matters Partner ................ 35
14.6 Reports and Statements .............. 36
ARTICLE 15
Bank Accounts ........ 36
15.1 Opening and Maintenance ............... 36
ARTICLE 16
Notices ........... 36
16.1 Requirements for Giving Notice ......... 36
ARTICLE 17
Miscellaneous ........ 37
17.1 Entire Agreement; Amendment ........ 37
17.2 Remedies ............................ 37
17.3 Section Headings ..................... 38
17.4 Gender and Number .................... 38
17.5 Waiver of Default ................... 38
17.6 Severability ...................... 38
17.7 Benefits and Obligations .............. 38
17.8 Governing Law ...................... 38
17.9 Counterparts .......................... 39
SCHEDULE "A"
Initial Limited Partners ............A-1
SCHEDULE "B"
Initial Schedule of Contributed Assets
and Partnership Interests .......B-1
SCHEDULE "C"
Addresses of the Partners ....... C-1
EXHIBIT "X"
Nonrecourse Promissory Note ...... X-1
EXHIBIT "Y"
Security Agreement ........ Y-1
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
INTERNATIONAL DIGITAL INVESTORS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") is
made and entered into this 21st day of November, 1995 by and between
IDI CORP., a Delaware corporation, as General Partner, and the
Persons listed on Schedule "A" attached hereto, as Limited
Partners.
R E C I T A T I O N
The parties wish to join together as partners to form a
limited partnership and desire to set forth in full the terms and
conditions of their agreements and understandings in this
Agreement.
O P E R A T I V E P R O V I S I O N S
IN CONSIDERATION of the foregoing recitation, the mutual
promises of the parties set forth in this Agreement and other
good and valuable consideration, the receipt and sufficiency of
which are acknowledged hereby, the parties hereto, intending
legally to be bound, agree hereby to enter into a limited
partnership on the following terms and conditions:
ARTICLE 1
DEFINED TERMS
1.1 DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
(a) "Adjusted Capital Account Deficit" means with
respect to any Partner, the deficit balance, if any, in that
Partner's Capital Account as of the end of the relevant
Fiscal Year or other period, after giving effect to the
following adjustments:
(i) credit to the Capital Account any amounts
that the Partner is obligated to restore or is deemed
to be obligated to restore pursuant to Regulations
section 1.704-1(b)(2)(ii)(c), the penultimate sentence
of Regulations section 1.704-2(g)(l) or the penultimate
sentence of Regulations section 1.704-2(i)(5), as the
case may be;
(ii) debit to the Capital Account the items
described in Regulations section 1.704-1(b)(2)(ii)
(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)
(ii)(d)(6), taking into account for purposes of
Regulations section 1.704-1(b)(2)(ii)(d)(6) any
offsetting increase described in the proviso of that
Regulation; and
(iii) credit and debit to the Capital Account,
in the reasonable discretion of the General Partner,
any other items required or permitted under Code
section 704(b) and the Regulations promulgated
thereunder.
(b) "Bankruptcy" means, as to any individual,
corporation or partnership, the circumstance that exists
upon the entry of an order for relief under the United
States Bankruptcy Code, Title 11 of the United States Code,
whether arising in connection with voluntary or involuntary
bankruptcy proceedings.
(c) "Capital Account" means the account described in
Section 5.2 of this Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Current Cash Operating Expenditures" of the
Partnership shall be deemed to include the following:
(i) operating expenses paid by the Partnership,
including, without limitation, taxes, insurance and
assessments;
(ii) any cash set aside by the General Partner to
fund such reserves as the General Partner reasonably
may deem necessary for the satisfaction of contingent
or noncontingent liabilities and obligations of the
Partnership;
(iii) any cash paid or set aside by the Partnership
for the acquisition of any asset in furtherance of the
purpose of the Partnership;
(iv) any cash paid by the Partnership for the
funding of any loans made by the Partnership (including,
without limitation, loans made to holders of Direct or
Indirect Interests); and
(v) payments of principal and interest upon any
indebtedness of the Partnership, including indebtedness
owed to any holder of a Direct or Indirect Interest.
(f) "Depreciation" means, for each Fiscal Year or
other period, an amount equal to the depreciation,
amortization, or other cost recovery deduction allowable
with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation
shall be an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction
for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal
income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall
be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the General
Partner.
(g) "Direct or Indirect Interest" means any of the
following:
(i) Partnership Interest or any interest therein;
(ii) beneficial interest in any trust that holds
any Partnership Interest or any interest therein;
(iii) partnership interest in any partnership that
holds any Partnership Interest or any interest therein;
(iv) stock of any corporation that holds any
Partnership Interest or any interest therein; or
(v) legal or beneficial interest in any Person
that holds, directly or indirectly, any one or more of
the interests described above in this Subsection
1.1(g).
(h) "Fiscal Year" means the calendar year, unless
otherwise required by the Code.
(i) "General Partner" means the Person admitted into
the Partnership as the General Partner pursuant to
Subsection 2.2(a) of this Agreement.
(j) "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax
purposes, except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be
the fair market value of such asset, as set forth on
Schedule "B" attached hereto;
(ii) The Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective fair
market values, as determined by the General Partner, as
of the following times: (A) the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis
capital contribution; (B) the distribution by the
Partnership to a Partner of more than a de minimis
amount of Property as consideration for an interest in
the Partnership; and (C) the liquidation of the
Partnership within the meaning of Regulations section
1.704-l(b)(2)(ii)(g); provided, however, that
adjustments pursuant to Clauses (A) and (B) above shall
be made only if the General Partner reasonably
determines that such adjustments are necessary or
appropriate to reflect the relative economic interests
of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership
asset distributed to any Partner shall be the fair
market value of such asset on the date of distribution;
and
(iv) The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any
adjustment to the adjusted basis of such assets
pursuant to Code section 734(b) or Code section 743(b),
but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant
to Regulations section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted
pursuant to this Subsection 1.1(j)(iv) to the extent
that the General Partner determines that an adjustment
pursuant to Subsection 1.1(j)(iv) is necessary or
appropriate in connection with a transaction that
otherwise would result in an adjustment pursuant to
this Subsection 1.1(j)(iv).
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to Subsection 1.1(j)(i), 1.10(ii), or
1.1(j)(iv) hereof, such Gross Asset Value thereafter shall
be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing the net
income and net losses of the Partnership.
(k) "Gross Operating Cash Receipts" means all cash
received by the Partnership, including without limitation,
all receipts of the principal of and interest on loans, if
any, made by the Partnership (including loans to holders of
Direct or Indirect Interests) and all proceeds of loans
extended to the Partnership by any and all lenders
(including holders of Direct or Indirect Interests), but not
including capital contributions or proceeds derived from the
liquidation of the Partnership.
(l) "Immediate Family" means, as to any individual,
all other individuals who have any of the following
relationships to such individual, whether as a result of
birth or the legal adoption of any one or more individuals:
parent, parent's brother, parent's sister, child, child's
lineal descendant, brother, brother's child, sister,
sister's child, and first cousin.
(m) "Individual Holder" means any individual who
(i) is or a member of the Immediate Family of a Limited
Partner and (ii) owns any one or more Direct or Indirect
Interests.
(n) "Insolvency" means, as to any Person, the
circumstance that exists when such Person's current assets
are insufficient to pay his current liabilities, and he so
shall admit by written notice to the General Partner or so
shall be found by a court of competent jurisdiction.
(o) "Interested Nonpartner" means any Person owning
any Partnership Interest other than a Partner. For the
purposes of all provisions of this Agreement setting forth
the rights of Partners to receive distributions in respect
of their Partnership Interests and to be treated for purposes
of applicable law as owners of economic interests in the
Partnership, including without limitation Articles 6, 7 and
11, Sections 5.2 and 5.3 and Subsection 14.6(a), all
Interested Nonpartners shall have the same rights and
obligations as Limited Partners, and in all such provisions,
the terms "Partner" and "Limited Partner", but not "General
Partner", shall be deemed to apply equally to all Interested
Nonpartners. For the purposes of all other provisions of
this Agreement, including without limitation Articles 12 and
13, Section 14.3 and Subsection 14.6(b), Interested
Nonpartners shall have only the rights and obligations
specifically granted to them therein (and if no rights or
obligations are specifically granted to them therein, shall
have none of the rights or obligations applicable to such
provisions), except as otherwise required by applicable law,
and in all such provisions, the terms "Partner", "Limited
Partner" and "General Partner" shall be deemed to not apply
to any Interested Nonpartner.
(p) "Invested Capital" means the aggregate of all
capital contributions (Preferred and Initial) pursuant to
Section 5.1, less the aggregate distributions of Capital
pursuant to Section 7.1(b)(i) and Section 7.1(b)(ii).
(q) "Involuntary Sale" means any sale or other
disposition in exchange for consideration in money or
property by or in which any Partner or Interested Nonpartner
involuntarily shall be deprived or divested by action of law
of any right, title or interest in or to any Partnership
Interest, or portion thereof, without regard to whether any
part of such consideration is required directly or
indirectly by such Partner or Interested Nonpartner. The
term "Involuntary Sale" shall include, without limitation,
any sale in connection with execution of judgment pursuant
to court order, transfer or sale in connection with
Bankruptcy or transfer or sale by a receiver.
(r) "Involuntary Transfer" means any involuntary
transfer, encumbrance or other disposition, other than an
Involuntary Sale, by or in which any Partner or Interested
Nonpartner shall be deprived or divested of any right, title
or interest in or to any Partnership Interest, or portion
thereof, including, without limitation, (i) any transfer to
a judgment creditor pursuant to court order, (ii) any
transfer (other than an Involuntary Sale) in connection with
a reorganization, insolvency or similar proceedings, (iii)
any transfer to a public officer or agency pursuant to any
abandoned property or escheat law, or (iv) any transfer
(other than an Involuntary Sale) to the spouse or former
spouse of a Partner or Interested Nonpartner as a result of
or incident to any dissolution of marriage, marital
separation, or similar event.
(s) "Limited Partners" means the Persons admitted into
the Partnership as Limited Partners pursuant to Subsection
2.2(b) hereof and such Persons as shall become Limited
Partners pursuant to Section 12.10 hereof.
(t) "Majority in Interest of the Limited Partners"
means Limited Partners owning more than fifty percent (50%)
of the total of all of the Partnership Interests that are
owned by Limited Partners.
(u) "Nonrecourse Deduction" shall have the meaning set
forth in Regulations section 1.704-2(b)(1). The amount of
Nonrecourse Deductions for a Fiscal Year shall be determined
according to the provisions of Regulations section
1.704-2(c).
(v) "Nonrecourse Liability" shall have the meaning set
forth in Regulations section 1.704-2(b)(3).
(w) "Net Operating Cash Flow" means for any period
during which the Partnership is in existence, the Gross
Operating Cash Receipts of the Partnership for the applicable
period, less the Current Cash Operating Expenditures of the
Partnership reasonably allocated among such Gross Operating
Cash Receipts of the Partnership by the General Partner for
the same period.
(x) "Partner Nonrecourse Debt" shall have the meaning
set forth in Regulations section 1.704-2(b)(4).
(y) "Partner Nonrecourse Deductions" shall have the
meaning set forth in Regulations section 1.704-2(i)(1). The
amount of Partner Nonrecourse Deductions for a Partnership
Fiscal Year shall be determined according to the provisions
of Regulations section 1.704-2(i)(2).
(z) "Partner Nonrecourse Debt Minimum Gain" means an
amount, with respect to any Partner Nonrecourse Debt, equal
to the Partnership Minimum Gain that would result if that
Partner Nonrecourse Debt were treated as a "nonrecourse
liability" (as defined in Regulations section
1.704-2(b)(3)), determined in accordance with Regulations
section 1.704-2(i).
(aa) "Partnership Minimum Gain" means the amount of
"partnership minimum gain" of the Partnership that is
attributable to nonrecourse liabilities of the Partnership
(as defined under Regulations sections 1.704-2(b)(2) and
1.704-2(d)).
(ab) "Partners" means the General Partner and the
Limited Partners.
(ac) "Partnership" the limited partnership formed by
this Agreement.
(ad) "Partnership Interest" means all the right, title
and interest in the Property and in the Partnership, including
the right to the return of their capital contributions, return
of any advances and payment of any interest thereon,
distribution of the assets of the Partnership and all other
rights under and interest in this Agreement.
(ae) "Person" means any individual, corporation,
partnership, trust or other entity that has a legal
existence.
(af) "Preferred Return": a cumulative amount equal to
Twenty-Five percent (25%) per annum of the Initial Capital
(as above defined), compounded annually. The Preferred
Return shall accrue on December 31 of each year or any date
during the year on which all of a Partner's previously
unreturned capital contribution shall be returned to him or
her.
(ag) "Preferred Stock Purchase Agreement" means that
certain Note and Preferred Stock Purchase Agreement, entered
into by the Partnership with Styles on Video, Inc., a Delaware
corporation, and Forever Yours, Inc., a California
corporation, for the purchase by the Partnership of 500
shares of 10% Senior Series A Convertible Preferred Stock of
Styles on Video, Inc.
(ah) "Profits" and "Losses" means, for each Fiscal Year
or other period, an amount equal to the Partnership's
taxable income or loss for that year or period, determined
in accordance with Code section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be
stated separately pursuant to Code section 703(a)(l) shall
be included in taxable income or loss), with the following
adjustments:
(i) Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into
account in computing Profits or Losses shall be added
to taxable income or loss;
(ii) Any expenditures of the Partnership described
in Code section 705(a)(2)(B) or treated as Code section
705(a)(2)(B) expenditures pursuant to Regulations
section 1.704-l(b)(2)(iv)(i) and not otherwise taken
into account in computing Profits or Losses shall be
subtracted from taxable income or loss;
(iii) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to Clause (ii)
or Clause (iv) of the definition of Gross Asset Value,
the amount of that adjustment shall be taken into
account as gain or loss from the disposition of the
asset for purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any disposition
of Partnership property with respect to which gain or
loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the
adjusted tax basis of the property differs from its
Gross Asset Value;
(v) In lieu of the depreciation, amortization and
other cost recovery deductions taken into account in
computing taxable income or loss, there shall be taken
into account Depreciation for the Fiscal Year or other
period, computed in accordance with the definition
thereof; and
(vi) Notwithstanding any other provisions of this
definition, any items that are specially allocated
pursuant to Article 6 hereof shall not be taken into
account in computing Profits or Losses.
(ai) "Property" means all of the property owned by the
Partnership, whether contributed to the Partnership or
acquired by the Partnership subsequent to its formation.
(aj) "Regulations" means the Income Tax Regulations
promulgated by the United States Department of the Treasury
under the Code, as amended from time to time.
(ak) "Senior Secured Note" means the loan (including
any modification thereto or refinancing thereof) evidenced
by that certain Senior Secured Note due June 30, 1998, given
by Styles on Video, Inc., a Delaware corporation, in favor
of the Partnership, in the original principal amount of Two
Million Nine Hundred Fifty Thousand Dollars ($2,950,000),
bearing interest at the rate of ten percent (10%) per annum.
(al) "Transfer" means any voluntary or involuntary
sale, assignment, transfer, devise, encumbrance, gift,
pledge, hypothecation or other disposition, in trust or
otherwise. When used as a verb, to "Transfer" means to
make, as transferor, a Transfer.
(am) "Two-Thirds Majority in Interest of the Limited
Partners" mean Limited Partners owning more than sixty-six
and sixty-seven one hundredths percent (66.67%) of the total
of all of the Partnership Interests that are owned by
Limited Partners.
ARTICLE 2
FORMATION
2.1 CERTIFICATE. The General Partner shall cause to be
filed a Certificate of Limited Partnership pursuant to Section
17-201 of Delaware Revised Uniform Limited Partnership Act, as
amended, on behalf of the Partnership and shall do all and any
other acts and things requisite for the formation of the
Partnership as a limited partnership, as required under the laws
of the State of Delaware and in any other state in which such
filing may be required on account of the ownership of land or the
conduct of business by the Partnership.
2.2 PARTNERS.
(a) The following Person is admitted into the
Partnership as General Partner: IDI Corp., a Delaware
corporation.
(b) The Persons listed on Schedule "A" attached hereto
are admitted into the Partnership as Limited Partners.
(c) The addresses of the Partners shall be as shown on
Schedule "C" attached hereto.
2.3 NAME. Pursuant to the terms of this Agreement, the
Partners intend to join together to own and manage investment
property and/or carry on a business for profit as co-owners. The
Partners shall carry on the business of the Partnership under
the name "International Digital Investors, L.P." pursuant to the
relevant laws of the State of Delaware.
2.4 PRINCIPAL OFFICE OF PARTNERSHIP. The principal office
of the Partnership shall be located at 200 West 9th Street Plaza,
P.O. Box 2105, Wilmington, Delaware 19899, or at such other
location as the General Partner, in its discretion, may
determine. The General Partner shall notify the Limited Partners
of each change in location.
ARTICLE 3
PURPOSE AND POWERS OF THE PARTNERSHIP
3.1 PURPOSE. The business of the Partnership shall consist
of making loans and acquisitions in accordance with the Senior Secured
Note and the Note and Preferred Stock Purchase Agreement.
3.2 POWERS. The Partnership is authorized to purchase,
mortgage, sell, lease, manage, operate, improve, alter, transfer,
subdivide and exchange or otherwise convey and encumber the
Property, to substitute, add to or exchange any of the Property
for other property, at any time and from time to time, and to do
all other things necessary or appropriate to carry out the
purposes described in Section 3.1 above.
ARTICLE 4
TERM
4.1 TERM OF PARTNERSHIP. The term of this Partnership
shall begin on the date of this Agreement, as first set forth
hereinabove, and continue until dissolved as set forth in Section
13.1 of this Agreement.
ARTICLE 5
PARTNERS' CAPITAL
5.1 CAPITAL CONTRIBUTIONS AND REDEMPTIONS.
(a) At the formation of the Partnership, the Partners
shall contribute to the capital of the Partnership the
assets set forth on Schedule "B" attached hereto (the
"Initial Capital"), which assets shall be accepted by the
Partnership at their fair market values as set forth on such
Schedule. In consideration for his capital contribution,
each Partner shall receive the quantity of Partnership
Interest that has the same relationship to the quantity of
all of the Partnership Interests of the Partnership that the
fair market value of his capital contribution has to the
fair market value of all of the Property (with both the
Partner's capital contribution and the Property being valued
as of the date of the Partner's contribution to the
Partnership). The initial Partnership Interests of the
Partners are set forth on Schedule "B" attached hereto.
(b) During the term of the Partnership, the Partners
shall make additional capital contributions to the
Partnership to pay all costs and expenses of the Partnership
associated with (i) the exercise by the Partnership of any
of the warrants issued to it in accordance with the Senior
Secured Note, and (ii) the conversion by the Partnership of
any of the 10% Senior Series A Convertible Preferred Stock
Purchased by the Partnership into shares of Common Stock of
Styles on Video, Inc., in accordance with the Preferred
Stock Purchase Agreement. All such additional capital
contributions shall be referred to as "Preferred Capital"
and shall be made pro rata by the Partners, in proportion to
their then Partnership Interests. The General Partner shall
call upon the Partners for payment of such additional capital
contributions. Other than as specifically provided in this
Section 5.1(b), under no circumstances shall a Partner be
required to make additional capital contributions to or on
behalf of the Partnership. If a Partner (a "Defaulting
Partner") shall fail to make its additional capital
contribution under this Section 5.1(b) within fifteen (15)
days after the demand therefor by the General Partner, then
(i) the Partnership may seek to raise the amount of the default
as capital from the non-Defaulting Partners in proportion to
their respective Partnership Interests (or if any non-Defaulting
Partner does not elect to pay a proportionate share of such
amount of default, in proportion to the Partnership Interests of
the non-Defaulting Partners who do elect to pay all or part of
such amount in default, and (ii) all capital contributions
made by a non-Defaulting Partner on behalf of a Defaulting Partner
in accordance with the provisions of this Section 5.1(b) (a
"Contributing Partner") shall be deemed a contribution of
"Preferred Capital" to the Partnership by the Contributing
Partner.
5.2 COMPUTATION OF CAPITAL ACCOUNTS. The Partnership shall
maintain a separate Capital Account for each Partner in
accordance with federal income tax accounting principles and
Regulations section 1.704-1(b)(2)(iv), which account, as of any
given date, shall reflect the Capital Contributions of that
Partner actually paid to the Partnership (1) increased to reflect
his distributive share of Partnership Profits and (2) decreased
to reflect (y) his distributive share of Partnership Losses and
(z) the amount of cash or the fair market value of property
distributed by the Partnership to the Partner, net of any
liabilities that the Partner is considered to assume or take
subject to. The following rules shall apply in maintaining
Capital Accounts:
(a) For purposes of this Section 5.2, amounts
described in Code section 709 (other than amounts with
respect to which an election is in effect under Code section
709(b)) shall be treated as expenditures of the type
described in Code section 705(a)(2)(B).
(b) If property is distributed by the Partnership,
Capital Accounts shall be adjusted as though that property
had been sold on the date of the distribution for its then
fair market value and any gain or loss on that sale had been
allocated in accordance with Section 6.2.
(c) If property is contributed to the Partnership,
Capital Accounts shall be adjusted in accordance with
Regulations section 1.704-1(b)(2)(iv)(d)(3) and 1.704-
1(b)(2)(iv)(g).
(d) If, in any Fiscal Year, the Partnership has in
effect an election under Code section 754, Capital Accounts
shall be adjusted in accordance with Regulations section
1.704-1(b)(2)(iv)(m).
It is the intention of the Partners that Capital Accounts shall be
maintained in accordance with Code section 704(b), so that the
allocations of Profits or Losses (or items thereof) provided in
this Agreement will be respected for federal income tax purposes.
5.3 CAPITAL ACCOUNTS GENERALLY.
(a) Except as otherwise provided in this Agreement,
whenever it is necessary to determine the Capital Account of
any Partner for any purpose hereunder, the Capital Account
of the Partner shall be determined after giving effect to
the allocation for the Partnership's current year of net
income and net losses from operations, net gain and net
losses from sales of Partnership assets, and all
distributions for such year. Loans by any Partner to the
Partnership shall not be considered contributions to the
capital of the Partnership; nor shall payments of interest
or principal on such loans be considered reductions in the
Capital Account of any lending Partner. Furthermore, loans
by the Partnership to any Partner shall not be considered
withdrawals from the capital of the Partnership; nor shall
payments of interest or principal on such loans be
considered increases in the Capital Account of any borrowing
Partner.
(b) A Partner shall not be entitled to withdraw any
part of his Capital Account, or to receive any distribution
from the Partnership, except as specifically provided in
this Agreement, and no Partner shall be entitled or required
to make any additional capital contributions to the
Partnership other than as provided in this Agreement.
ARTICLE 6
ALLOCATIONS
6.1 GENERAL ALLOCATIONS.
(a) For any Fiscal Year, or part thereof, the Profits
of the Partnership associated with any payment of interest
of the Senior Secured Note (less any expenses reasonably
allocated thereto by the General Partner) shall be allocated
100% to the Partners in proportion to their Partnership
Interests.
(b) For any Fiscal Year, or part thereof, all Profits
of the Partnership (other than those described in Section
6.1(a) above), less any expenses reasonably allocated
thereto by the General Partner, shall be allocated:
(i) first, 100% to the Partners until the
cumulative amount allocated to the Partners pursuant to
this Section 6.1(b)(i) for all Fiscal Years equals the
aggregate amount of distributions made to the Partners
pursuant to Section 7.1(b)(iii);
(ii) second, the remaining amount, if any, 100% to
the Partners until the cumulative amount allocated to the
Partners pursuant to this Section 6.1(b)(ii) for all
Fiscal Years equals the cumulative distributions to all
Partners pursuant to Section 7.1(b)(iv), said amount to
be allocated among the Partners in the same proportion
as distributions are made pursuant to Section 7.1(b)(iv);
and
(iii) third, the remaining amount, if any, 100% to
the partners in proportion to their Partnership
Interests.
(c) Except as otherwise provided in this Article 6,
the Losses of the Partnership for any Fiscal Year or part
thereof, as determined for federal income tax purposes,
shall be allocated to all Partners in proportion to their
respective Partnership Interests.
6.2 SPECIAL RULES FOR ALLOCATIONS.
(a) Limitation on Loss Allocations. Partnership
Losses allocated to any Limited Partner pursuant to Section
6.1 shall not exceed the maximum amount of Losses that can
be so allocated without causing that Limited Partner to have
an Adjusted Capital Account Deficit.
(b) Partnership Minimum Gain Chargeback.
Notwithstanding any other provision of this Article 6, if
there is a net decrease in Partnership Minimum Gain for any
Partnership Fiscal Year, before any other allocation of any
item of income, gain, loss, deduction or credit is made for
that Fiscal Year, the Partners shall be allocated items of
income and gain in accordance with Regulations section
1.704-2(f) and related provisions of the Regulations. This
Section 6.2(b) is intended to comply with the minimum gain
chargeback requirement of Regulation section 1.704-2 and
shall be interpreted and applied in a manner consistent
therewith.
(c) Partner Minimum Gain Chargeback. Notwithstanding
any other provision of this Article 6 except Section 6.2(b),
if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Fixed Year, the Partners who have a
share of the Partner Nonrecourse Debt shall be allocated
items of income and gain in accordance with Regulations
section 1.704-2(i)(4) and related provisions of the
Regulations. This Section 6.2(c) is intended to comply with
the minimum gain chargeback requirement of Regulation
section 1.704-2(i) and shall be interpreted and applied in a
manner consistent therewith.
(d) Nonrecourse Deductions. Nonrecourse Deductions
for any Fiscal Year shall be specially allocated among the
Partners in proportion to their then existing Partnership
Interests.
(e) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year shall be
specially allocated to the Partners who bear the economic
risk of loss with respect to the Partner Nonrecourse Debt to
which those Partner Nonrecourse Deductions are attributable
in accordance with Regulations Action 1.704-2(i)(1).
(f) Qualified Income Offset. Notwithstanding any
other provision of this Agreement except Section 6.2(b) and
Section 6.2(c), if any Partner unexpectedly receives an
adjustment, allocation or distribution described in
Regulations section 1.704-l(b)(2)(ii)(d)(4), (5) or (6) that
results in that Partner having an Adjusted Capital Account
Deficit, that Partner shall be specially allocated items of
income and gain in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit in his Capital Account as
quickly as possible in accordance with the requirements of
Regulations section 1.704-1(b)(2)(ii)(d). Any special
allocation made under this Section 6.2(f) shall be taken
into account for purposes of determining subsequent
allocations of Profits and Losses, so that the total
allocations, to the extent possible, will equal the
allocations that would have been made if this Section 6.2(f)
had not applied previously.
6.3 ALLOCATION OF CERTAIN NONDEDUCTIBLE EXPENSES.
Expenses, costs and any other items (other than capital
expenditures) that are paid by the Partnership and that are
nondeductible and nonamortizable for Federal income tax purposes
shall be allocated in the manner provided in Section 6.1(c).
6.4 TAX ALLOCATIONS; CODE SECTION 704(c). In accordance
with Code section 704(c) and the Regulations thereunder, income,
gain, loss and deduction with respect to any property contributed
to the capital of the Partnership shall be allocated, solely for
tax purposes, among the Partners so as to take account of any
variation between the adjusted basis of that property to the
Partnership for federal income tax purposes and its initial Gross
Asset Value.
In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to clause (ii) of the definition of Gross
Asset Value, subsequent allocations of income, gain, loss and
deduction with respect to that asset shall take account of any
variation between the adjusted basis of that asset for federal
income tax purposes and its Gross Asset Value in the same manner
as under Code section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to those
allocations shall be made by the General Partner in any manner
that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this Section 6.4 are solely
for purposes of federal, state and local taxes and shall not
affect, or in any way be taken into account, in computing any
Person's Capital Account or share of Profits, Losses, other items
or distributions pursuant to any provision of this Agreement.
6.5 MINIMUM ALLOCATION TO GENERAL PARTNER. Notwithstanding
any other provision of this Agreement to the contrary, not less
than one percent (1%) of the net income, net losses and credits
from operation and net gains and net losses from the dissolution
and winding up of the Partnership shall, in all events, be
allocated to the General Partner for each Fiscal Year, or part
thereof, of the Partnership pursuant to this Article 6.
ARTICLE 7
DISTRIBUTIONS
7.1 OPERATING DISTRIBUTIONS. Within ninety (90) days
after the end of each Fiscal Year during the term of this
Partnership, the General Partner shall make distributions of Net
Operating Cash Flow to each Partner in accordance with the
following:
(a) All Net Operating Cash Flow associated with any
payment of the Senior Secured Note shall be distributed 100%
to the Partners in proportion to their Partnership Interests.
(b) All Net Operating Cash Flow (other than that
described in Section 7.1(a) above), shall be distributed in
accordance with the following:
(i) first, 100% to all Partners in an amount
equal to their aggregate contributions of Preferred
Capital less all previous distributions pursuant to
this Section 7.1(b)(i), in proportion to such Preferred
Capital balances;
(ii) second, 100% to all Partners in an amount
equal to their aggregate contributions of Initial
Capital less all previous distributions pursuant to
this Section 7.1(b)(ii), in proportion to such Initial
Capital balances;
(iii) third, 100% to the Partners until the
cumulative amount distributed to the Partners pursuant
to this Section 7.1(b)(iii) for all Fiscal Years equals
the Preferred Return provided, however, that such amounts
shall be allocated among the Partners in proportion to
their Partnership Interests, unless, and until, such time
as one or more of the partners fails to make an
additional capital contribution in accordance with Section
5.1(b), whereafter all such amounts allocated to the
Partners pursuant to this Section 7.1(b)(iii) shall be
allocable pro rata among the Partners in proportion to
their relative contributions of Preferred Capital (as
determined prior to any distribution made at any time in
accordance with Section 7.1(b)(i) above);
(iv) fourth, the remaining amount, if any, 20% to
the General Partner and 80% to all Partners in proportion
to their Partnership Interests.
7.2 LIQUIDATING DISTRIBUTIONS. Upon the liquidation of the
Partnership or sale or other disposition by the Partnership of
substantially all of the assets of the Partnership, after
providing for the satisfaction of all liabilities and obligations
of the Partnership, other than loans, if any, made by Partners to
the Partnership, and after making distributions of Net Operating
Cash Flow from operation in the year of dissolution in accordance
with Section 7.1 hereof, the Liquidating General Partners
(selected pursuant to Subsection 13.1(b) hereof), as
expeditiously as possible, shall distribute the assets of the
Partnership in the following order of priority:
(a) First, to the setting up of such reserves as the
Liquidating General Partners reasonably may deem necessary
for any contingent liabilities or obligations of the
Partnership; provided that (i) any such reserves shall be
held by the Liquidating General Partners or an agent
appointed by the Liquidating General Partners for such
period as the Liquidating General Partners or such agent
shall deem advisable for the purpose of applying such
reserves to the payment of such liabilities or obligations
as they become due and (ii) at the expiration of such
period, the balance of such reserves, if any, shall be
distributed as hereinafter provided in this Section 7.2; and
(b) Next, in accordance with the provisions set forth
in Section 7.1 above for the Net Operating Cash Flow
associated with such asset.
7.3 DISTRIBUTIONS OF PROPERTY IN-KIND. If any assets of
the Partnership shall be distributed in-kind, such assets shall be
distributed to the Partners as tenants-in-common in the same
proportions as they would have been enticed to cash distributions
if (i) such assets had been sold for cash by the Partnership at
their fair market value on the date of distribution; (ii) any
taxable gain that would be realized by the Partnership from such
sale was allocated to the Partners in accordance with Article 6
hereof, as applicable, and (iii) the cash proceeds were
distributed to the Partners in accordance with Section 7.2
hereof, as applicable.
ARTICLE 8
POWERS OF GENERAL PARTNER
8.1 POWERS. Except as otherwise specifically provided in
this Agreement, the General Partner shall possess all of the
powers and rights of a general partner under the Delaware Revised
Uniform Limited Partnership Act, as amended from time to time or
any successor statute thereto, and in the General Partner's
reasonable discretion, and on behalf of the Partnership, to:
(a) sell, assign, convey, or otherwise transfer title
to any portion of, or interest in, the Partnership's real
and personal property;
(b) lease, upon such terms as may be deemed proper,
all or any portion of the Partnership's real or personal
property, whether or not the leased space or facility to be
occupied by the lessee or subleased in whole or in part to
others;
(c) borrow money for the Partnership on the security
of all or any portion of the Partnership's real or personal
property, and in conjunction therewith, execute all
necessary papers and documents, including, but not limited
to, bonds, notes, mortgages, pledges, security agreements and
confessions of judgment for and on behalf of the Partnership;
(d) lend money or other property out of the assets of
the Partnership to any Person, without limitation; provided,
however, that any loan made by the Partnership to any
borrower described in Subsection 11.2(b) of this Agreement
shall be subject to the requirements of such subsection;
(e) prepay in whole or in part, refinance, recast,
increase, modify, consolidate, correlate, or extend, on such
terms as the General Partner may deem proper, any mortgages
affecting the Partnership's real or personal property;
(f) place record title to the Partnership's real or
personal property in the name or names of a nominee or
nominees for the purpose of mortgage financing or any other
convenience or benefit to the Partnership;
(g) engage from time to time, as employees,
independent contractors or both, on such terms and for such
compensation as are proper, Persons operate and manage the
Partnership's real personal and personal property;
(h) set aside Partnership capital or other funds for
payment of past, current and future liabilities of the
Partnership;
(i) in accordance with generally accepted principles
of accounting consistently applied, and unless otherwise
provided herein, determine whether items of income, gain,
loss, deduction or credit shall be treated either as capital
or extraordinary items, or, alternatively, profit or loss
items;
(j) select and open Partnership bank accounts pursuant
to Article 15 of this Agreement, with withdrawals therefrom
to be made upon signature(s) as designed by the General
Partner;
(k) keep books of account pursuant to Article 14 of
this Agreement, including such accounts as required to
reflect the Partners' profit or loss and capital
contributions as adjusted from time to time pursuant to the
terms of this Agreement;
(l) have the accountants for the Partnership prepare
annual financial reports and such other financial reports
and/or reports of operations as the General Partner may
request;
(m) change the name or address of the Partnership or
the General Partner; and
(n) execute, acknowledge and deliver any and all
instruments to effectuate any of the foregoing powers.
8.2 PARTNERSHIP BASIS ELECTIONS. In the event of the
distribution of property by the Partnership within the meaning of
Code section 734 or the transfer of an interest in the
Partnership within the meaning of Code section 743, the General
Partner, in its reasonable discretion, may elect to adjust the
basis of the Partnership property pursuant to Code sections 734,
743, and 754 (or corresponding provisions of any successor
statute). Partners affected by this election, if made, shall
supply to the Partnership the information that may be required to
make the election.
8.3 POWER OF ATTORNEY.
(a) Each Limited Partner irrevocably constitutes and
appoints the General Partner, with all power of
substitution, as his true and lawful attorney-in-fact with
power and authority in his name, place and stead for his use
or benefit to execute, sign, acknowledge, swear to, deliver,
file and record in the appropriate public offices as
necessary:
(i) this Agreement and all amendments to, and
restatements of, this Agreement;
(ii) all instruments, including without
limitation, certificates of limited partnership,
required in order to qualify the Partnership or cause
the Partnership to exist as a limited partnership under
the laws of the State of Delaware;
(iii) all instruments that my be required to effect
the continuation of the Partnership, the admission or
substitution of a Limited Partner, the admission of a
General Partner, any change in the name or address of
the Partnership or any Partner or Interested
Nonpartner, or the dissolution and termination of the
Partnership, provided such continuation, admission,
substitution or dissolution, change of name or address
and termination are in accordance with the terms of
this Agreement;
(iv) all written consents to transfers or
assignments of interests in the Partnership or to the
withdrawal, redemption or reduction of any Partner's
Partnership Interest in accordance win this Agreement;
and
(v) all other instruments that the Partnership is
required to file with any agency of the federal
government, or of any state or local government, or the
filing of which the General Partner deems necessary or
desirable to the conduct of the business of the
Partnership.
(b) The Limited Partners hereby irrevocably constitute
and appoint the General Partner, with full power of
substitution, as their true and lawful attorney-in-fact with
power and authority to execute and negotiate any and all
checks made payable to the Partnership.
(c) The power of attorney granted in Subsections
8.3(a) and 8.3(b) hereof by each Limited Partner to the
General Partner:
(i) is a special power of attorney coupled with
an interest, is irrevocable and shall survive the
death, incapacity, Insolvency, dissolution or
termination of the Limited Partner or any Interested
Nonpartner that is the successor in interest to such
Limited Partner;
(ii) may be exercised by the General Partner either
by signing separately as attorney-in-fact for each
Limited Partner or Interested Nonpartner, or, after
listing all of the Limited Partners and Interested
Nonpartners executing any instrument, acting as
attorney-in-fact for all of the Limited Partners and
Interested Nonpartners; and
(iii) shall survive the Transfer by a Limited
Partner or Interested Nonpartner of the whole or any
portion of his Partnership Interest.
(d) Notwithstanding the provisions of this Section
8.3, when acting in a representative capacity, the General
Partner shall not have the right, power or authority to
amend or modify the Agent, except to reflect one or more of
the following changes that shall have been authorized in
accordance with the terms of this Agreement, namely, a
change in the name or address of the Partnership or any
Partner or Interested Nonpartner.
(e) The powers of the General Partner set forth in
this Agreement shall survive the death, dissolution or legal
incapacity of any Limited Partner or Interested Nonpartner
as well as the delivery by a Limited Partner or Interested
Nonpartner of an assignment of the whole or any portion of
his, her or its Partnership Interest.
ARTICLE 9
SERVICES AND INDEMNIFICATION OF GENERAL PARTNER
9.1 SERVICES.
(a) The General Partner and its officers and directors
shall devote such time and effort to the business and affairs
of the Partnership as the General Partner, in its reasonable
discretion, shall determine to be necessary or appropriate.
Specifically, the General Partner shall perform for the
Partnership all management services in accordance with sound
management practices, including without limitation, the
furnishing of services in connection with advertising,
renting, maintenance, rent collection, bill paying,
bookkeeping, purchasing of goods and supplies and the
performance of such other duties as are required for the proper
management, maintenance and operation of the Partnership's
property. In addition, the General Partner shall be
responsible for the day-to-day management of the
Partnership, including all aspects of finance,
administration, accounting, purchasing and operations. It
also shall be responsible for negotiating and securing the
financial support required adequately to sustain the ongoing
operation of the Partnership, and to provide for expansion
and diversification to the extend deemed necessary or
desirable by the General Partner in reasonable discretion.
9.2 LIABILITIES OF GENERAL PARTNER; INDEMNIFICATION.
(a) The General Partner shall be liable to the other
Partners and the Partnership only for the gross negligence,
willful misconduct or fraud of itself and its stockholders,
directors, officers, employees and agents (such Persons
referred to hereinafter individually and collectively as
a"General Partner and Associated Persons"). The General
Partner shall not be liable for errors in judgment or for
acts or omissions that do not constitute the gross
negligence, willful misconduct or fraud of the General
Partner and Associated Persons. Any act or failure to act
by the General Partner and Associated Persons, the effect of
which may cause or result in loss or damage to the
Partnership, if done pursuant to the advice of legal counsel
employed by the General Partner on behalf of the
Partnership, shall be presumed conclusively not to
constitute gross negligence or fraud on the part of the
General Partner and Associated Persons unless such written
advice was induced by the gross negligence or fraud of the
General Partner and Associated Persons.
(b) The Partnership shall indemnity the General
Partner and Associated Persons to the fullest extent
permitted by law and save and hold them harmless from and in
respect of all (A) fees, costs and expenses, including
reasonable attorneys' fees and other legal expenses, incurred
in connection win or resulting from any claim, action or
demand against the General Partner and Associated Persons
and/or the Partnership that arise out of or in any way
relate to the Partnership, its properties, business or
affairs and (B) such claims, actions and demands, including
amounts paid in settlement or compromise of any such claim,
action or demand; provided, however, that this
indemnification shall apply only so long as and to the
extent that such claim, action or demand is not attributable
to any action or failure to act of the General Partner and
Associated Persons that constitutes gross negligence,
willful misconduct or fraud. The General Partner shall
indemnify the Partnership to the fullest extent permitted by
law and save and hold it harmless from and in respect of all
fees, costs and expenses, including reasonable attorneys'
fees and other legal expanses, incurred in connection with
or resulting from any claim, action or demand against any or
all of the General Partner and Associated Persons and/or the
Partnership that arise out of or in any way relate to the
Partnership, its properties, business or affairs and in such
claims, actions and demands, including amounts paid in
settlement or compromise of any such claim, action or
demand; provided, however, that this indemnification shall
apply only so long as and to the extent that such claim,
action or demand is attributable to one or more actions
and/or failures to act of the General Partner and Associated
Persons that constitutes gross negligence, willful
misconduct or fraud.
ARTICLE 10
POWERS OF LIMITED PARTNERS
10.1 LIMITATIONS ON POWERS. Except as otherwise expressly
provided for herein, no Limited Partner shall take any part in
the day-to-day conduct of the business of the Partnership; nor
shall any Limited Partner have any right or authority to act for
or bind the Partnership. A Limited Partner shall not be, or
become, liable as a general partner, nor shall he, she or it be
liable to creditors of the Partnership.
ARTICLE 11
LOAN TRANSACTIONS BETWEEN PARTNERSHIP AND AFFILIATED PERSONS
11.1 LOANS FROM PARTNER TO PARTNERSHIP.
(a) If any Partner shall make any loan or loans to the
Partnership, or advance money on in behalf, the amount of
any loan or advance shall not be deemed an increase in, or
contribution to, the Capital Account of the lending Partner
or entitle the lending Partner to any increase in his, her
or its share of the distributions of the Partnership. Interest
shall accrue on any such loan at an annual rate of one percent
(1%) in excess of the published base rate of interest as
announced by Citibank N.A. from time to time (but not in
excess of the maximum rate allowable under applicable usury
laws).
(b) No payment of principal or interest shall be made
with respect to any loan or advance described in Subsection
11.1(a) until the Partnership shall have paid or set aside
funds for the payment of all other current indebtedness and
obligations of the Partnership, including contingent
obligation that, if owned, would be currently due.
11.2 LOANS FROM PARTNERSHIP TO PARTNERS AND AFFILIATED
PERSONS.
(a) If the Partnership shall make any loan or loans to
any Partner, or advance money on such Partner's behalf, the
amount of any such loan or advance shall not be deemed a
decrease of, or withdrawal from, the Capital Account of the
borrowing Partner or subject the borrowing Partner to any
decrease in his, her or its share of the distributions of
the Partnership.
(b) The Partnership shall not lend or advance money or
other property to any holder of a Direct or Indirect Interest
or any member of the Immediate Family of or entity
controlled by any holder of Direct of Indirect Interest
unless such loan or advance shall be upon terms (including
interest rate and security) similar to those that would be
required for the making of a loan of similar amount,
duration and risk by an institution that is in the business
of making similar loans. The documentation for any such loan
or advance shall provide that the Partnership shall have the
right to set off any distributions otherwise payable to the
borrower (or the Partner(s) or Interested Nonpartner(s)
affiliated with the borrower) in the event that any amount
due to the Partnership pursuant to the terms of such loan or
advance is not timely paid.
ARTICLE 12
TRANSFER OF PARTNERSHIP INTERESTS
12.1 GENERAL RESTRICTIONS.
(a) Except as otherwise specifically permitted herein,
no owner of any Direct or Indirect Interest shall Transfer all
or any part of the Direct or Indirect Interest now or
hereafter owned by him.
(b) The effectiveness of any Transfer may be
conditioned, in the reasonable discretion of the General
Partner, upon receipt by the Partnership of an opinion (the
cost of which shall be borne by the transferor), reasonably
satisfactory in form and substance to the General Partner, to
the effect that such transaction will not violate the
Securities Act of 1933 (the "Securities Act") or any other
applicable securities laws.
(c) No Transfer shall be permitted if, in the
reasonable opinion of counsel to the Partnership (which may
be secured by the General Partner, in its reasonable
discretion, at the expense of the Partnership), the
Partnership's continued tax status as a partnership for
federal income tax purposes would be jeopardized by such a
Transfer.
(d) No Transfer shall be permitted if the Transfer
would result in the "termination" of the Partnership
pursuant to Section 708 of the Code.
(e) Except as otherwise expressly provided in this
Agreement, no Partner may voluntarily or involuntarily
withdraw or otherwise terminate his participation as a
Partner in this Partnership.
12.2 PERMITTED TRANSFERS. The prohibition set forth in
Subsection 12.1 hereof shall not (except as set forth in (f) below)
apply to the following:
(a) The Transfer of any Direct or Indirect Interest
to:
(i) any one or more members of the Immediate
Family of a Limited Partner;
(ii) any one or more trusts for the benefit of
any one or more members of the group consisting of the
Limited Partner, the Immediate Family of a Limited
Partner, provided that all of the remaindermen of such
trusts shall be members of the group consisting of the
Immediate Family of a Limited Partner;
(iii) with respect to the Direct or Indirect
Interest of an Individual Holder, any one or more
trusts for the benefit of such individual's spouse, all
of the assets of which constitute "terminable interest
property" for purposes of Code section 2056(b)(7) or
Code section 2523(f), provided that all of the
remaindermen of such trusts shall be members of the
group consisting of the Immediate Family of a Limited
Partner;
(iv) any entity of which all of the ownership
interests are owned by a Partner or members of the
Immediate Family of a Limited Partner;
(b) The Transfer by a Partner that is a trust to the
beneficiaries thereof in accordance with the terms of the
trust instrument, the Transfer by a Partner that is a
corporation to its shareholders upon the liquidation of the
corporation, or the Transfer by a Partner that is a
partnership to its partners upon the dissolution of the
partnership;
(c) Any Transfer of the Direct or Indirect Interest of
an incompetent Individual Holder to his guardians or legal
representatives, and any Transfer by such Persons that said
incompetent Individual Holder otherwise would have been
permitted to make, pursuant to this Article 12;
(d) Any Transfer of the Partnership Interest of a
Partner pursuant to Section 12.3 hereof;
(e) Any Involuntary Sale or Involuntary Transfer;
and
(f) With respect to the General Partner only, the
prohibition set forth in subsection 12.1 shall apply in
all cases, except for Transfers described in (a), above,
as to Indirect Interests, by devise or as a result of
applicable laws with respect to descent and distributions.
12.3 RIGHT OF FIRST REFUSAL.
(a) In the event that any Partner (the "Selling
Party") receives a "Bona Fide Offer, as defined below, to
purchase all or any portion of the Selling Party's
Partnership Interest and the Selling Party wishes to accept
such Bona Fide Offer, the Selling Party shall give written
notice (the "Seller's Notice") to the Partnership and all
Partners other than the Selling Party (the "Remaining
Partners"), which notice shall contain the terms of the Bona
Fide Offer, including the name(s) of the Person(s) who
propose(s) to purchase the Selling Party's Partnership
Interest (the "Proposed Purchaser"), and shall also include
a copy of the terms of such Bona Fide Offer. For purposes
of this Agreement, the term "Bona Fide Offer" shall mean an
offer in writing from an independent unaffiliated party (who
must be financially capable of carrying out the terms of the
Bona Fide Offer), in a form legally enforceable against the
Proposed Purchaser.
(b) The Partnership shall have the irrevocable first
right to purpose all or any portion of the Partnership
Interest of the Selling Party that is the subject of the
Bona Fide Offer (for purposes of this Section 12.3, the
"Subject Partnership Interest") on the same terms and
conditions as those set forth in the Bona Fide Offer (the
"Partnership's Right of First Refusal"); provided, however,
that, in the event that the Partnership purchases only a
portion of the Subject Partnership Interest, such election
shall be binding upon the Selling Party only if the
Remaining Partners elect to purchase the remaining portion
of the Subject Partnership Interest pursuant to Subsection
12.3(c) below. The Partnership's Right of First Refusal
shall extend for a period of sixty (60) days from the date
that the Seller's Notice is received (the "Exercise
Period"). If the Partnership elects to purchase any of the
Subject Partnership Interest, it shall send written notice
of such intention, setting forth the quantity of the Subject
Partnership Interest to be purchased, to the Selling Party
and the Remaining Partners before expiration of the Exercise
Period.
(c) To the extent that the Partnership elects not to
exercise the Partnership's Right of First Refusal, the
Remaining Partners shall have the irrevocable right to
purchase all (but not less than all) of the Subject
Partnership Interest that is not being purchased by the
Partnership pursuant to Subsection 12.3(b) above, in
proportion to their respective Partnership Interests (or if
any Remaining Partner does not elect to purchase his
proportionate share of the Subject Partnership Interest, in
proportion to the Partnership Interests of the Remaining
Partners that elect to purchase all or a potion of the
Subject Partnership Interest) on the same terms and
conditions as those set forth in the Bona Fide Offer (the
"Partners' Right of First Refusal"). The Partners' Right of
First Refusal shall extend for a period of thirty (30) days
after the expiration of the Exercise Period (the "Extended
Period"). If any Remaining Partner elects to purchase any
of the Subject Partnership Interest, it shall sent written
notice of such intention, setting forth the quantity of the
Subject Partnership Interest to be purchased, to the Selling
Party before the expiration of the Extended Period.
(d) In the event that the Partnership and/or one or
more of the Remaining Partners shall elect to purchase the
Subject Partnership Interest, a closing shall be held before
the latest to occur of: (A) the expiration of the forty-five
(45) day period following the receipt by the Selling Party
of notice that the Partnership has elected to exercise the
Partnership's Right of First Refusal, (B) the expiration of
the forty-five (45) day period following the receipt by the
Selling Party of notice that one or more Remaining Partners
has elected to exercise the Partners' Right of First Refusal
or (C) the date of closing specified in the Bona Fide Offer.
Such closing shall be on the basis of the terms and other
provisions of the Bona Fide Offer.
(e) In the event that the Partnership and/or the
Remaining Partners do not purchase all of the Subject
Partnership Interest pursuant to Subsections 12.3(b) and/or
12.3(c) above, then the Selling Party may sell to the Proposed
Purchase, on the terms specified in the Bone Fide Offer, all
(but not less than all) of the Subject Partnership Interest;
provided, however, that the Proposed Purchaser shall take
and hold all rights and interest in such Subject Partnership
Interest subject to the terms of this Agreement. If, however,
the sale to the Proposed Purchaser is not consummated pursuant
to the terms and conditions in the Bona Fide Offer within
the lesser of (A) one hundred eighty (180) days after the
date that the Seller's Notice is received or (B) the period
of time specified by the Bona Fide Offer, then the
Partnership's Right of First Refusal and the Partners' Right
of First Refusal as set forth this Section 12.3 shall again
be effective.
(f) The Selling Party agrees that, if so requested in
writing by the Partnership, he shall vote or cause a vote to
be made (as a Partner of the Partnership) in favor of the
exercise by the Partnership of the Partnership's Right of
First Refusal.
(g) All duties and requirements imposed upon the
Selling Party under this Section 12.3 also shall be duties
and requirements binding upon any Person acting as seller or
seller's agent.
12.4 INVOLUNTARY SALES OF PARTNERSHIP INTERESTS.
(a) In the event of any proposed Involuntary Sale of
all or any portion of any Partner's or Interested
Nonpartner's Partnership Interest, then such Partner or
Interested Nonpartner (for purposes of this Section 12.4,
the "Selling Party") shall give to the Partnership and all
Partners other than the Selling Party written notice (the
"Seller's Notice") stating the terms of the proposed sale
and the name(s) of the Person(s) who propose to purchase the
Selling Party's Partnership Interest (the "Proposed
Purchaser"), and shall include therein a copy of the terms
of such Involuntary Sale (the "Offer to Purchase"). The
Partnership shall have the first right to purchase all or
any part of the entire portion of the Partnership Interest
of the Selling Party that is the subject of the Offer to
Purchase (for purposes of this Section 12.4, the "Subject
Partnership Interest") on the same terms and conditions at
those set forth in the Offer to Purchase (the "Right of
First Refusal").
(b) The Right of First Refusal shall extend for a
period of sixty (60) days from the date that the Seller's
Notice is received (the "Exercise Period"). A closing shall be
held before the later to occur of (i) the expiration of the
forty-five (45) day period following the receipt by the Selling
Party of notice that the Partnership has elected to exercise
its Right of First Refusal, or (ii) the date of closing
specified in the Offer to Purchase. Such closing shall be
on the basis of the terms and other provisions of the Offer
to Purchase. If the Partnership elects to purchase any of
the Subject Partnership Interest, it shall send written
notice of such intention, setting forth the quantity of the
Subject Partnership Interest to be purchased, to the Selling
Party before expiration of the Exercise Period.
(c) The Selling Party may sell to the Proposed
Purchaser on the terms specified in the Offer to Purchase
any Subject Partnership Interest with respect to which the
Partnership shall not have exercised its Right of First
Refusal during the Exercise Period; provided, however, that
the Proposed Purchaser shall take and hold all rights and
interest in such Subject Partnership Interest subject to the
terms of this Agreement, including without limitation the
Partnership's option to purchase such Subject Partnership
Interest from the Proposed Purchaser pursuant to Subsection
12.4(d) hereof and the restrictions on transfer set forth in
Section 12.1 hereof. If, however, the sale to the Proposed
Purchaser is not consummated pursuant to the terms and
conditions contained in the Offer to Purchase within the
lesser of (A) one hundred eighty (180) days after the date
that the Seller's Notice is received or (B) the period of
time specified by the Offer to Purchase, then the right of
first refusal as set forth in this Section 12.4 shall again
be effective.
(d) Any transfer of any Subject Partnership Interest
to a Proposed Purchaser pursuant to Subsection 12.4(c)
hereof shall constitute an Involuntary Transfer, and all
rights and obligations of the parties set forth in Section
12.5 hereof shall apply to such transfer, including the
Partnership's option to purchase all or any portion of such
Partnership Interest as set forth therein.
(e) All duties and requirements imposed upon the
Selling Party under this Section 12.4 also shall be duties
and requirements binding upon any Person acting as seller or
seller's agent under authority of law in any Involuntary
Sale, including without limitation any sheriff or other
conductor of an execution sale, trustee in bankruptcy or
receiver.
(f) For purposes of this Section 12.4, the term
"Partner or Interested Nonpartner" shall include the
beneficiaries of a trust that is a Partner or Interested
Nonpartner and the term "Partnership Interest" shall include
the beneficiary interests of the beneficiaries of a trust
that is a Partner or Interested Nonpartner.
12.5 INVOLUNTARY TRANSFERS OF PARTNERSHIP INTERESTS. In the
event of any Involuntary Transfer by any Partner or Interested
Nonpartner of any Partnership Interest, the following procedures
shall apply:
(a) The Partner or Interested Nonpartner deprived or
divested of any Partnership Interest by the Involuntary
Transfer (the "Transferor") promptly shall give written notice
of such Transfer in reasonable detail to the Partnership and
all Partners other than the Transferor, and the Person or
Persons who take or propose to take any interest in such
Partnership Interest (for purposes of this Section 12.5,
such Person(s) referred to hereinafter as the "Transferee"
and such Partnership Interest referred to hereinafter as the
"Subject Partnership Interest") as a result of such
Involuntary Transfer shall hold such interest subject to the
rights of the Partnership as set forth below.
(b) Upon receipt of the notice referred to in
Subsection 12.5(a) above or upon discovery of such
Involuntary Transfer by the General Partner, the Partnership
shall have the irrevocable option, exercisable at the sole
discretion of the General Partner, but not the obligation,
for a period of sixty (60) days following receipt of such
notice or such discovery, to purchase all or any part of the
Subject Partnership Interest, subject to the terms set forth
herein. All exercises of such option shall be in writing,
shall specify the quantity of the Subject Partnership
Interest to be purchased and shall be effective upon receipt
thereof by the Transferee.
(c) The closing for any such sale of Subject
Partnership Interest to the Partnership shall be at the
offices of the Partnership not later than forty-five (45)
days after the receipt by the Transferee of the notice
exercising the option to purchase such Subject Partnership
Interest. The purchase price of any Subject Partnership
Interest purchased pursuant to this Section 12.5 shall be
the fair market value of the Subject Partnership Interest,
taking into account all discounts for lack of control, lack
of marketability ant other relevant valuation factors that
would be applicable to a sale of the Subject Partnership
Interest to a party unrelated to and unaffiliated with any
existing Partner or Interested Nonpartner.
(d) The purchase price for any such sale of Subject
Partnership Interest shall be paid by the Partnership by
making and delivering to the seller a nonrecourse promissory
note in the form shown on Exhibit "X" attached hereto,
secured by a pledge of the Subject Partnership Interest and
the execution and delivery of a Security Agreement in the
form shown on Exhibit "Y" attached hereto.
(e) In the event that the Partnership does not
purchase all of the Subject Partnership Interest involved in
an Involuntary Transfer pursuant to this Section 12.5, the
Transferee shall take and hold all rights and interests in
any portion of do Subject Partnership Interest not so
purchased, subject to the terms of this Agreement, including
Section 12.1 hereof.
(f) For purposes of this Section 12.5, the term
"Partner or Interested Nonpartner" shall include the
beneficiaries of a trust that is a Partner or Interested
Nonpartner and the term "Partnership Interest" shall include
the beneficial interests of the beneficiaries of a trust
that is a Partner or Interested Nonpartner.
12.6 TRANSFEREES BOUND. No Transfer of any Direct or
Indirect Interest shall be permitted or valid unless the transferee
of the Direct or Indirect Interest and each Person who will become
an owner of any Direct or Indirect Interest as a result of such
Transfer shall acknowledge individually in writing to the
Partnership his receipt of a copy of this Agreement and his
agreement to comply herewith and be bound hereby; provided,
however, that even absent such written acknowledgement, each such
transferee and owner shall be bound by this Agreement through his
acceptance or possession of any right, title or interest of any
kind, direct or indirect, in the Property, the Partnership or
both.
12.7 TRANSFER OF PARTNERSHIP INTERESTS ON PARTNERSHIP'S
BOOKS. No Transfer made by any owner of any Direct or Indirect
Interest, including without limitation any Partner, of all or
any part of the Direct or Indirect Interest now or hereafter held
by such Person shall be valid, and the Partnership shall not
transfer on its books any Partnership Interest nor issue any
documents of transfer, instruments to effect said Transfer, or
certificates to evidence said Transfer unless the provisions of
this Agreement with respect to the Transfer thereof shall have
been fully complied with.
12.8 STATUS OF TRANSFEREES AND TRANSFERORS OF PARTNERSHIP
INTERESTS.
(a) Notwithstanding the valid Transfer of all or any
part of any Partnership Interest pursuant to this Article 12,
the transferee of such transferred Partnership Interest shall
not be a Partner but shall be an Interested Nonpartner with
respect to such transferred Partnership Interest; provided,
however, that, in the case of a Transfer not prohibited
under this Article 12, if the transferee shall have complied
as to such Partnership Interest with the applicable
requirements set forth in Section 12.10 of this Agreement
prior to the effective date of the Transfer, then the
transferee shall be a Partner as to such Partnership
Interest as of the effective date of the Transfer.
(b) In the event that:
(i) any Partner, or
(ii) any Person who holds a Direct or Indirect
Interest in the Partnership Interest of any Partner,
shall be the transferor or the transferee as to any Transfer
that is prohibited by Section 12.1 hereof, then such Partner
immediately shall lose his status as a Partner and shall
become an Interested Nonpartner.
12.9 RIGHTS AND PRIVILEGES OF AN INTERESTED NONPARTNER.
(a) An Interested Nonpartner shall have only the
entitlements of an assignee described in Section 17-702(a)
of the Delaware Revised Uniform Limited Partnership Act, as
amended, or successor statute thereto.
(b) Without limiting the generality of Subsection
12.9(a) hereof, an Interested Nonpartner shall have no right
to require any information or account of the Partnership,
inspect the Partnership books or vote in any matter
requiring a vote of the Partners, General Partners (if there
shall be more than one General Partner) or Limited Partners.
(c) An Interest Nonpartner shall become a Limited
Partner only upon fulfillment of the applicable conditions
for admission as a Limited Partner set forth in Section
12.10 hereof.
12.10 ADMISSION TO LIMITED PARTNERSHIP. An Interested
Nonpartner shall become a Limited Partner if and only if:
(a) the General Partner has given its consent in
writing, which consent may be granted or withheld in the
sole and absolute discretion of the General Partner; and
(b) the Interested Nonpartner has:
(i) in form satisfactory to the General Partner,
accepted and agreed to be bound by all of the terms and
provisions of this Agreement and assumed all of the
obligations and responsibilities of a Limited Partner
under this Agreement;
(ii) provided, in the case of a corporate assignee,
a certified copy of a resolution of its Board of
Directors authorizing it to become a Limited Partner
under the terms and provisions of this Agreement;
(iii) executed a statement that it is holding its
Partnership Interest for investment and not for resale;
(iv) executed such other documents or instruments
as the General Partner may require in order to effect
the admission of the Interested Nonpartner as a Limited
Partner; and
(v) paid such reasonable expenses as may be
incurred by the Partnership in connection with the
admission of the Limited Partner; and
(c) in the case of an Interested Nonpartner who has
acquired his Partnership Interest from a Person other than
the Partnership in a Transfer not prohibited by Section 12.1
of this Agreement, either (A) the transferor of such
Partnership Interest has granted to the Interested
Nonpartner the right to became a Limited Partner in
accordance with this Agreement, or (B) all of the Limited
Partner have given their consents in writing, which consents
my be granted or withheld in each Limited Partner's sole and
absolute discretion; and
(d) in the case of an Interested Nonpartner who has
acquired any Partnership Interest in a Transfer prohibited
under Section 12.1 of this Agreement or who has lost his status
as a Partner pursuant to Subsection 12.8(b) of this Agreement,
all of the Limited Partners have given their consents in
writing, which consents may be granted or withheld in each
Limited Partner's sole and absolute discretion.
12.11 ALLOCATIONS UPON TRANSFERS OF PARTNERSHIP
INTERESTS.
(a) Upon an assignment or transfer of all or any part
of the Partnership Interest of a Partner or Interested
Nonpartner, unless otherwise agreed by the transferor and
transferee, the net income, losses, and gains attributable
to the Partnership Interest so assigned, shall be allocated
between the assignor and assignee as of the date set forth
in the written assignment. Such allocation shall be based
upon the number of days during the Fiscal Year of the
Partnership that such Partnership Interest was held by each
Partner and Interested Nonpartner, without regard to the
results of Partnership activities while each was the holder.
(b) Any distributions of cash or other property shall
be made to the holder of record of the Partnership Interest
on the date of distribution.
ARTICLE 13
DISSOLUTION: CESSATION GENERAL PARTNER
13.1 DISSOLUTION.
(a) The Partnership shall be dissolved and its
business wound up upon the earliest of the following events
(an "Event of Dissolution"):
(i) the date on which the General Partner ceases
to be a General Partner for any reason, including
without limitation the Insolvency, Bankruptcy,
resignation or removal of the General Partner, unless
the remaining General Partners, if any, or if not, a
Two-Thirds Majority in Interest of the Limited Partners,
agree to continue the Partnership's business and elect a
new General Partner;
(ii) December 31, 2044; or
(iii) the sale or other disposition by the
Partnership of substantially all of the assets of the
Partnership.
(b) Upon the occurrence of an Event of Dissolution,
the General Partner shall serve as the Liquidation General
Partner. If there shall be no General Partner, a Majority
in Interest of the Limited Partners shall elect one or more
Liquidating General Partners. The Liquidating General
Partners shall serve as the General Partners only for
purposes of winding up the Partnership. In the case of such
dissolution, all Partnership assets shall be sold and the
proceeds distributed, or if the Liquidating General Partners
so elect, the assets distributed in kind to the Partners
entitled to the assets, as tenants in common as provided in
Section 7.3 hereof.
(c) Notwithstanding the dissolution of the
Partnership, each party hereto shall not be released from
any obligation to the Partnership or any personal obligation
of such party relating to an obligation of the Partnership
until (i) such obligation of the party shall have been
satisfied or discharged or (ii) the business of the
Partnership shall have been wound up and all obligations of
the Partnership shall have been satisfied or discharged.
13.2 CESSATION OF GENERAL PARTNER.
(a) The General Partner shall cease to be a General
Partner upon the first to occur of the following events:
(i) the loss of the General Partner's status as a
Partner, pursuant to Subsection 12.8(b) hereof;
(ii) the reduction of the quantity of Partnership
Interest owned by the General Partner to a quantity that
is smaller than one percent (1%) of the aggregate of
all Partnership Interests;
(iii) the Insolvency or Bankruptcy of the General
Partner;
(iv) any event described in Section 17-402(a) of
Delaware Revised Uniform Limited Partnership Act, as
amended; or
(v) a Transfer of a Direct or Indirect Interest
of the General Partner, unless such Transfer is
permitted pursuant to Section 12.2(f).
(b) Except as provided otherwise in Subsection
13.2(c), a General Partner that ceases to be a General
Partner shall be a Limited Partner.
(c) A General Partner that ceases to be a General
Partner pursuant to Subsection 13.2(a)(i) hereof shall be
an Interested Nonpartner.
ARTICLE 14
ACCOUNTING
14.1 FISCAL YEAR. The Fiscal Year of the Partnership shall
be the calendar year.
14.2 METHOD OF ACCOUNTING. The General Partner shall keep,
or cause to be kept, full and accurate records of all
transactions of the Partnership in accordance with principles and
practices generally accepted for the method of accounting (either
cash or accrual) that shall be recommended to the General Partner
by the firm of independent certified public accountant engaged by
the Partnership.
14.3 BOOKS AND RECORDS. All books of account shall, at all
times, be maintained in the principal office of the Partnership,
and shall be open, upon not less than (10) business days written
notice dispatched by mail to the principal office of the
Partnership, during reasonable business hours for the reasonable
inspection and examination by any Limited Partner or his
authorized representatives at the expense of such Limited
Partner. Such reasonable inspection shall include the right to
make copies thereof, at the expense of the inspecting Limited
Partner.
14.4 INCOME TAX RETURNS. The General Partner shall prepare,
or cause to be prepared all applicable federal, state and local
tax and information returns for the Partnership, and, in
connection therewith, make any available or necessary elections,
including elections with respect to the useful lives and rates of
cost recovery of the properties of the Partnership.
14.5 TAX MATTERS PARTNER. The General Partner is hereby
designated as the Tax Matters Partner within the meaning of Code
section 6231(a)(7), for all purposes of the Code, and shall be
responsible for performing the duties of the Tax Matters on
behalf of the Partnership. By execution of this Agreement, each
of the Limited Partners specifically consents to such designation.
Additionally, each Limited Partner specifically agrees that the
General Partner shall have the exclusive and continuing right to
appoint a different Tax Matters Partner.
14.6 REPORTS AND STATEMENTS. On or before the 30th of March
of each calendar year of the Partnership, the General Partner
shall cause to be delivered to each of the Limited Partners:
(a) such information as shall be necessary for the
preparation by the Limited Partners of their federal, state
and local income and other tax returns; and
(b) financial statements of the Partnership for the
prior calendar year, prepared in accordance with the method
of accounting selected pursuant to Section 14.2 of this
Agreement and at the expense of the Partnership, which financial
statements shall set forth, as of the end of and for such
prior calendar year, the following: (i) a profit and loss
statement and a balance sheet of the Partnership, (ii) the
balance in the Capital Account of each Partner; and (iii)
such other information as, in the judgment of the General
Partner, reasonably shall be necessary for the Partners to
be advised of the financial status and results of operations
of the Partnership.
ARTICLE 15
BANK ACCOUNTS
15.1 OPENING AND MAINTENANCE. The General Partner shall
open and maintain (in the name of the Partnership) a special bank
account or accounts in which shall be deposited all funds of the
Partnership. Withdrawals from such account or accounts shall be
made upon the signature or signatures of such Person or Persons
as the General Partner shall designate.
ARTICLE 16
NOTICES
16.1 REQUIREMENTS FOR GIVING NOTICE. Except as otherwise
provided in this Agreement, all notices required or permitted by
this Agreement shall be in writing, signed by or on behalf of the
Person giving notice, and shall be deemed given (A) upon personal
delivery to the addressee, (B) five (5) days following the date
of deposit into United States certified mail, postage paid,
return receipt requested, addressed to the Provided Address (as
such term is hereinafter defined) of the addressee, or (C) on the
next business day following the date of deposit, shipping charges
paid, into United States Express Mail, Federal Express priority
service or other nationally recognized overnight delivery
service, addressed to the Provided Address of the addressee. The
term "Provided Address" shall refer to the address last provided
to the sending party by the addressee, using any of the above-
referenced methods of giving notice; provided, however, that if
no such notice of address shall have been given, the Provided
Address shall be as set forth on Exhibit "B" attached hereto.
ARTICLE 17
MISCELLANEOUS
17.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement
constitutes the entire agreement between the parties with respect
to the subject matter of this Agreement and cancels all prior
agreements with respect to such subject matter. Except as
otherwise provided in Subsection 8.3(d), this Agreement shall be
amended only in a writing executed by the General Partner and a
Two-Thirds Majority in Interest of the Limited Partners.
17.2 REMEDIES.
(a) Upon the request of any party involved in any
claim or controversy arising out of or relating to this
Agreement or a breach hereof, such claim or controversy
shall be submitted to nonbinding arbitration in accordance
with the rules then obtaining in the State of Delaware of
the American Arbitration Association (or any other form of
arbitration mutually acceptable to the parties so involved).
(b) Each party acknowledges and agrees that the remedy
at law for the breach of any of the terms of this Agreement
should be inadequate, and agrees and consents that temporary
and permanent injunctive and other equitable relief
including specific performance, may be granted in any
proceeding that may be brought to enforce any provision
hereof, without the necessity of proof of actual damage or
inadequacy of legal remedy.
(c) In addition to specific performance, either party
shall be entitled to any other remedy allowable under the
laws of the State of Delaware.
(d) In the event of any litigation between the
parties, the prevailing party shall be entitled to the
payment of reasonable attorney's fees, including appellate
attorney fees, and all court costs relating thereto.
(e) Each Partner waives the benefit of all provisions
of law now in effect or hereinafter enacted relating to
actions for partition, and each Partner agrees that he will
not resort to any actions of law or in equity to partition
the Property or seek administration in respect thereof.
(f) In order to secure the rights granted to the
Partnership in Sections 12.4 and 12.5 of this Agreement,
each Partner hereby pledges, assigns and grants to the
Partnership a security interest in said Partner's entire
Partnership Interest in the Partnership.
(g) The Partners hereby agree to execute and deliver
to the Partnership any and all financing statements or other
documents that the Partnership may be required to file under
applicable law in order to perfect the security interests
granted in this Section 17.2.
17.3 SECTION HEADINGS. The section and over headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of any
or all of the provisions of this Agreement.
17.4 GENDER AND NUMBER. Whenever the context may require,
any pronoun used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the
singular forms of nouns, pronouns and verbs shall include the
plural and vice versa.
17.5 WAIVER OF DEFAULT. The waiver of any breach or default
under any of the terms of this Agreement shall not be deemed to
be, nor shall the same constitute, a waiver of any subsequent
breach or default.
17.6 SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such
provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance
from this Agreement. Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.
17.7 BENEFITS AND OBLIGATIONS. The covenants and agreements
herein contained shall inure to the benefit of, and be binding
upon, the parties hereto and their respective legatees, heirs,
personal representatives, administrators, successors and assigns.
Any Person succeeding to the interest of a Partner shall succeed
to all of such Partner's rights, interests, and obligations under
this Agreement, subject to all the terms and conditions of this
Agreement, except as set forth herein.
17.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
17.9 COUNTERPARTS. This Agreement may be executed in
multiple counterparts and all such counterparts collectively
shall constitute an original Agreement, which may be evidenced by
any one counterpart.
IN WITNESS WHEREOF, the parties to this Agreement have
executed and certified this Agreement of Limited Partnership as
of the day and year first above written.
WITNESSES: GENERAL PARTNER:
IDI CORP., a Delaware corporation
________________ By: __ Jeffrey Safchik__
________________ Jeffrey Safchik, President
LIMITED PARTNERS:
GREEN FAMILY INVESTMENTS, L.P., a
Delaware limited partnership, as its
general partner
________________ By: __ Jeffrey Safchik__
________________ Jeffrey Safchik
________________ _Fredi Consolo__________________
FREDI CONSOLO
PACIFIC CAPITAL GROUP,INC., a
California corporation
__Linda M. McJia__ By: __ Abbott Brown____________
__Alice Fisher__ Abbott Brown, Chief Financial
Officer
__Michael Pocaterra__ __ Marshall Geller___________
_____________________ MARSHALL GELLER
BABY PIX PARTNERS, a California
general partnership
__Sherie M. Alread__ By: __ Gary Freedman___
__Deborah Koch__
LINCOLN MEADOWS ASSOCIATES, a
Colorado general partnership
BY: CHAD INVESTMENT TRUST,
as a general partner
___________________ __ Steven W. Farber__
___________________ Steven W. Farber
Trustee
<PAGE>
SCHEDULE "A"
INITIAL LIMITED PARTNERS
Green Family Investments, L.P.
200 West 9th Street Plaza
P.O. Box 2105
Wilmington, Delaware 19899
Fredi Consolo
11414 North Bayshore Drive
North Miami, Florida 33181
Pacific Capital Group, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Marshall Geller
c/o Geller and Friend Capital
1875 Century Park East, Suite 1770
Los Angeles, California 90067
Baby Pix Partners
23622 Calabasas Road
Suite 100
Calabasas, California 91302-1549
Lincoln Meadows Associates
c/o Brownstein Hyatt Farber & Strickland
410 Seventeenth Street, 22nd Floor
Denver, Colorado 80202
<PAGE>
SCHEDULE "B"
INITIAL SCHEDULE OF CONTRIBUTED ASSETS
AND PARTNERSHIP INTERESTS
GENERAL ASSETS PARTNERSHIP INITIAL CAPITAL
PARTNER CONTRIBUTED INTERESTS ACCOUNTS
IDI Corp. $30,000 1% $30,000
Limited Partners
Green $1,095,000 36.5% $1,095,000
Family
Investments, L.P.
Fredi Consolo $300,000 10% $300,000
Pacific $900,000 30% $900,000
Capital
Group, Inc.
Marshall $250,000 8.3% $250,000
Geller
Baby $350,000 11.7% $350,000
Pix Partners
Lincoln $75,000 2.5% $75,000
Meadows _____ _________
Associates
TOTAL 100% $3,000,000
<PAGE>
SCHEDULE "C"
ADDRESSES OF THE PARTNERS
GENERAL PARTNER:
IDI CORP.
200 West 9th Street Plaza
P.O. Box 2105
Wilmington, Delaware 19899
LIMITED PARTNERS:
Green Family Investments, L.P.
200 West 9th Street Plaza
P.O. Box 2105
Wilmington, Delaware 19899
Fredi Consolo
11414 North Bayshore Drive
North Miami, Florida 33181
Pacific Capital Group, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Marshall Geller
c/o Geller and Friend Capital
1875 Century Park East, Suite 1770
Los Angeles, California 90067
Baby Pix Partners
23622 Calabasas Road
Suite 100
Calabasas, California 91302-1549
Lincoln Meadows Associates
c/o Brownstein Hyatt Farber & Strickland
410 Seventeenth Street, 22nd Floor
Denver, Colorado 80202
<PAGE>
EXHIBIT "X"
NONRECOURSE PROMISSORY NOTE
Delaware
$________________ __________, 19__
FOR VALUE RECEIVED, INTERNATIONAL DIGITAL INVESTORS, L.P.
(the "Maker") does hereby promise to pay to _____________, or
order (the "Holder"), the principal sum of ____________________
Dollars ($__________), together with simple interest from and
after the date hereof until paid on the balance of principal
thereof remaining from time to time unpaid, at the rate of
________ percent (_____%) per annum, which rate is equal to the
Long-Term Applicable Federal Rate, with an Annual Period for
compounding, for purposes of Section 1274(d) of the Internal
Revenue Code of 1986, as amended, applicable for the date first
set forth above, as published by the Internal Revenue Service, or
the successor to such statutory rate. If the interest rate as
calculated in accordance with the foregoing provisions exceeds
the maximum rate of interest permitted by law during any period
of this Note, the interest rate shall be an amount equal to the
maximum interest rate permitted by law during such period of this
Note. For purposes of this Note, the maximum rate permitted by
law shall mean the maximum rate of interest that may be
contracted for, charged, taken reserved or received under the
laws of the State of Delaware or applicable federal law
(whichever permits the higher rate) after taking into account, to
the extent required by applicable law, any and all relevant
payments or charges. All sums payable hereunder shall be payable
at ______________________, Delaware, or at such other place or
places as the Holder may direct from time to time, in such coin
and currency as shall be at the time of payment legal tender for
the payment of public and private debts in the United States of
America.
All interest that shall have accrued from time to time under
this Note shall be paid in annual installments, commencing on the
first anniversary date of this Note. The principal amount of
this Note, together with all accrued but unpaid interest on the
unpaid principal balance, shall be payable on the fifteenth
anniversary date of this Note.
This Note is subject to prepayment at any time or from time
to time at the option of the Maker, either in whole or in part,
without premium or penalty, each such partial prepayment to be
applied first in payment of the interest accrued upon the
principal balance hereof at the time outstanding and then in
reduction of the principal balance hereof.
Payment of this Note is secured by a pledge of the following
described collateral:
HERE FOLLOWS A DESCRIPTION OF THE PARTNERSHIP INTEREST
PLEDGED AS SECURITY FOR THE NOTE.
This Note is a nonrecourse note. Notwithstanding any other
provision of this Note, the Holder shall look only to the
collateral for payment of all sums due hereunder, and shall have
no recourse against any funds, property or rights of the Maker.
All past due and delinquent sums hereunder, both principal
and interest, shall earn interest at the rate determined above
until such sums have been paid.
The entire unpaid principal balance of, and all accrued
interest on, this Note shall become due and payable immediately
upon the occurrence of both of the following: (A) default by the
Maker in the payment of any installment of principal and/or
accrued interest thereon as and when same becomes due and payable
in accordance with the terms hereof, or the occurrence of an
event of default as defined in any agreement entered into to
provide security for the payment of this Note, and (B) the
continuance of such default for a period of ten (10) days after
receipt by the Maker of written notice of such default from the
Holder.
This Note shall be construed in accordance with and governed
by the laws of the State of Delaware.
Executed this ______ day of __________, 19__.
MAKER:
INTERNATIONAL DIGITAL INVESTORS, L.P.
By: IDI CORP., GENERAL PARTNER
By: _____________________________
Jeffrey Safchik, President
Address of Maker:
200 West 9th Street Plaza
P.O. Box 2105
Wilmington, Delaware 19899
<PAGE>
EXHIBIT "Y"
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated this ___
day of __________, 19__, by and between INTERNATIONAL DIGITAL
INVESTORS, L.P. (hereinafter called "Debtor"), with its principal
offices at 200 West 9th Street Plaza, P.O. Box 2105, Wilmington,
Delaware, 19899, and ________________ (hereinafter called
"Secured Party") in his capacity as the holder of the Note (as
defined below).
1. Security Interest. For value received, Debtor hereby
grants to Secured Party, upon the terms and conditions of this
Agreement, a security interest in and to any and all present or
future rights of Debtor in and to all of the following rights,
interests and property (all of the following being herein
sometimes called the "Collateral"):
[DESCRIBE PARTNERSHIP INTEREST COLLATERAL]
2. Partnership Agreement. This Agreement is being
executed and delivered pursuant to the terms, conditions and
requirements of the Agreement of Limited Partnership of
International Digital Investors, L.P. (the "Partnership
Agreement"), dated November ___, 1995, pursuant to which
Secured Partner has sold certain Partnership Interest (as
defined in the Partnership Agreement) to Debtor. The security
interests herein granted ("Security Interests") shall secure
full payment and performance of: (a) that certain Nonrecourse
Promissory Note of even date herewith in the principal amount of
$_______________ made by Debtor and payable to the order of
Secured Party (such note and any notes given in modification,
renewal, extension or substitution thereof being herein sometimes
collectively referred to as the "Notes" and individually as the
"Note"); and (b) the due and punctual observance and performance
of each and every agreement, covenant and condition on Debtor's
part to be observed or performed under this Agreement and the
Note (all of which debts, duties, liabilities and obligations
hereinbefore described and covered by this Agreement and the Note
are hereinafter referred to as the "Obligation").
3. Priority. Debtor represents and warrants that the
Security Interests are first and prior security interests in and
to all of the Collateral, subject to the following liens thereon
or security interest therein in existence prior to the Debtor's
acquisition of the Collateral:
[DESCRIBE LIENS, AND IF THERE ARE NONE PUT "NONE"]
4. Title to Collateral and Reserved Partnership Rights.
Debtor represents and warrants to Secured Party that (a) Debtor
is the owner of the Collateral; (b) no dispute, right of offset,
counterclaim, or defense to the Security Interests exists with
respect to all or any part of the Collateral; and (c) Debtor will
defend the Collateral against the claims and demands of all
persons other than any subordinate claims or liens acknowledged
by Secured Party. Prior to the transfer of the Collateral
pursuant to foreclosure, the Secured Party shall have no rights
as an owner of partnership interest in the issuers of such
Collateral, including the right to vote, dispose of or receive
any distributions with respect to such Collateral. Following a
transfer of the Collateral pursuant to foreclosure, the Secured
Party shall have the rights of an assignee of partnership
interest in the issuer of such Collateral, as provided under the
Delaware Revised Uniform Limited Partnership Act, but shall not
be a partner of the issuer of such Collateral unless admitted to
partnership therein pursuant to the Agreement of Limited
Partnership of said issuer.
5. Debtor's Obligations. So long as the Note is
outstanding, Debtor covenants and agrees with Secured Party (a)
not to permit any material part of the Collateral to be levied
upon under any legal process; (b) not to dispose of any of the
Collateral without the prior written consent of Secured Party;
(c) to comply with all applicable federal, state and local
statutes, laws, rules and regulations, the noncompliance with
which could have a material and adverse effect on the value of
the Collateral; and (d) to pay all taxes accruing after the
Closing Date that constitute, or may constitute, a lien against
the Collateral, prior to the date when penalties or interest
would attach to such taxes; provided that Debtor may contest any
such tax claim if done diligently and in good faith.
6. Event of Default. As used herein, the term "Event of
Default" shall include any or all of the following if same exist
and remain uncorrected to the 10th day after written notice by
Secured Party to Debtor that certifies such default:
i. The assignment, voluntary or involuntary
conveyance of legal or beneficial interest, mortgage, pledge
or grant of a security interest in any of the Collateral; or
ii. The filing or issuance of a notice of any lien,
warrant for distraint or notice of levy for taxes or
assessment against the Collateral (except for those that are
being contested in good faith and for which adequate
reserves have been created); or
iii. Nonpayment of any installment of principal or
interest upon the date same shall be due and payable under
the terms of the Note; or
iv. The entry of an order for relief as to Debtor
under the United States Bankruptcy Code, Title 11 of the
United States Code, whether arising in connection with
voluntary or involuntary bankruptcy proceedings.
7. Remedies. Upon the occurrence and during the
continuation of an Event of Default as defined herein, Secured
Party may, Secured Party may, at his option, exercise any and all
rights and remedies that Secured Party may then have hereunder,
under the Note or under the Uniform Commercial Code of the State
of Delaware or of any other applicable jurisdiction (the "Code").
8. Application of Proceeds by Secured Party. Any and all
proceeds ever received by Secured Party from any sale or other
disposition of the Collateral, or any part thereof, or the
exercise of any other remedy pursuant hereto shall be applied by
Secured Party toward satisfaction of the Obligation; provided
that any proceeds received by Secured Party under this Agreement
in excess of those necessary to fully and completely satisfy the
Obligation shall be distributed to Debtor.
9. Acknowledgement of Nonrecourse Debt. Secured Party
acknowledges that the debt owed by Debtor under the Note is
nonrecourse in character and that exercise of Secured Party's
full rights and remedies under this Agreement will exhaust all of
Secured Party's rights arising from such debt and will discharge
any and all obligations of Debtor hereunder and under the Note.
10. Notice of Sale. Reasonable notification of the time and
place of any pubic sale of the Collateral, or reasonable
notification of the time after which any private sale or other
intended disposition of the Collateral is to be made, shall be
sent to Debtor and to any other persons entitled under the Code
to notice; provided that if any of the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party may sell, pledge, assign or
otherwise dispose of the Collateral without notification,
advertisement or other notice of any kind. It is agreed that
notice sent or given not less than ten (10) calendar days prior
to the taking of the action to which the notice relates is
reasonable notification and notice for the purpose of this
paragraph.
11. Delivery of Notices. Any notice or demand required to
be given hereunder shall be in writing and shall be deemed to
have been duly given and received, if given by hand, when a
writing containing such notice is received by the person to whom
addressed or, if given by mail, five (5) business days after a
certified or registered letter containing such notice, with
postage prepaid, is deposited in the United States mails,
addressed to:
If to Secured Party: ______________________________
______________________________
______________________________
If to Debtor: International Digital Investors, L.P.
200 West 9th Street Plaza
P.O. Box 2105
Wilmington, Delaware 19899
Any such address may be changed from time to time by serving
notice to the other party as above provided. A business day
shall mean a day of the week that is not a Saturday or Sunday or
a holiday recognized by national banking associations.
12. Binding Effect. This Agreement shall be binding upon
Debtor, its successors and assigns, and shall inure to the
benefit of Secured Party, his heirs, successors, assigns,
executors, administrators, and personal or legal representatives.
13. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of
Delaware.
14. Severability. In the event that any one or more of the
provisions contained in this Agreement are held to be invalid,
illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provision of this Agreement.
<PAGE>
EXECUTED as of the day and year first herein set forth.
SECURED PARTY:
ADDRESS:
DEBTOR:
INTERNATIONAL DIGITAL INVESTORS,
L.P.
By: IDI CORP., General Partner
By: _ Jeffrey Safchik, President_
Jeffrey Safchik, President
Address of Debtor:
200 West 9th Street Plaza
P.O. Box 2105
Wilmington, Delaware 19899
<PAGE>
EXHIBIT G
SECOND AMENDMENT TO
NOTE AND PREFERRED STOCK PURCHASE AGREEMENT AND WAIVER
This SECOND AMENDMENT TO NOTE AND PREFERRED STOCK
PURCHASE AGREEMENT AND WAIVER (this "AMENDMENT") is dated as
of May 15, 1996 and entered into by and among STYLES ON VIDEO,
INC., a Delaware corporation ("SOV"), FOREVER YOURS, INC., a
California corporation ("FYI", and, together with SOV, the
"Companies"), and INTERNATIONAL DIGITAL INVESTORS, L.P., a
Delaware limited partnership (the "Investor").
RECITALS
WHEREAS, the Companies and the Investor entered into
a Note and Preferred Stock Purchase Agreement, dated as of
November 20, 1995, as amended by that certain First Amendment
to Note and Preferred Stock Purchase Agreement and Waiver (as
so amended, the "Existing Note Agreement");
WHEREAS, the Companies and the Investor entered into
a second Note and Preferred Stock Purchase Agreement, dated as
of May 14, 1996 (the "Additional Note Agreement"), and the
Companies have requested that the Investor enter into this
amendment in connection therewith.
NOW, THEREFORE, in consideration of the premises and
the agreements, provisions and covenants herein contained, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS
All capitalized terms used in this Amendment, if not
defined in Section 6 hereof, shall have the meanings given
thereto in Exhibit A of the Existing Note Agreement, and, if
not defined therein, shall have the meanings given thereto in
Exhibit A to the Additional Note Agreement.
SECTION 2. AMENDMENTS TO SECTION 2: PAYMENT;
PREPAYMENT AND PURCHASE OF THE NOTES.
(a) Section 2.1 of the Existing Note Agreement is
hereby amended by adding at the end thereto the following
subsection (c):
"(c) Subject to the last sentence of this
paragraph, at the option of the Companies, payment of the
interest accruing on the outstanding Notes during each
month and due on each date on which interest is due and
payable (each an "Interest Payment Date") after May 30,
1996 and prior to December 31, 1996 may be deferred if
during such month the Combined Operating Cash Flow was
not positive. Such deferred interest will not bear
interest prior to December 31, 1996, but, to the extent
not theretofore paid, shall bear interest on and after
December 31, 1996 at the rate applicable to the Notes to
the extent permitted by applicable law. Prior to
December 31, 1996, all such deferred and current interest
will be paid on a cumulative basis on each Interest
Payment Date only to the extent that the Combined
Operating Cash Flow in the month to which such Interest
Payment Date corresponds was positive; provided that all
such deferred, accrued and unpaid interest shall be paid
in full on or before December 31, 1996. Interest due and
payable on or after December 31, 1996 on any outstanding
Notes shall not be deferred. If the Companies elect to
defer any portion of the interest due on any Interest
Payment Date as provided above, the Companies shall
provide the Investor at least 5 business days' written
notice of such election (other than for the months of
March, April and May of 1996 for which no notice shall be
required) and such notice shall set forth in reasonable
detail the Operating Cash Flow during each month for
which the Companies seek to defer interest and the amount
of interest the Companies wish to defer and otherwise be
satisfactory in form and substance to the Investor in its
reasonable discretion."
(b) Section 2.3 of the Existing Note Agreement is
hereby amended by deleting such section in its entirety and
substituting therefor the following:
"2.3. Mandatory Redemption. The Companies
hereby jointly and severally covenant and agree that:
(a) Upon the receipt of any proceeds from the
issuance of equity of SOV or FYI (other than equity
issued to management pursuant to a management incentive
plan approved by the holder or holders of more than 50%
of the outstanding principal amount of the Notes and
Additional Notes and other than equity issued to the
holders of the Notes and Additional Notes) they will
immediately apply 100% of such proceeds (net of
reasonable costs of issuance) (i) first to the redemption
of the Additional Notes in accordance with the terms of
the Additional Note Agreement, and then (ii) to the
redemption of the Notes then outstanding at a redemption
price equal to the principal amount of the Notes together
with all accrued and any deferred and unpaid interest
thereon through the date of redemption, without premium.
(b) Upon the receipt of any proceeds of sales
and other dispositions of assets by either of the
Companies (other than (i) sales of inventory in the
ordinary course of business , (ii) sales of obsolete or
worn out equipment in the aggregate amount of up to
$10,000 per fiscal year to the extent that the proceeds
of such sales are used to purchase replacement equipment,
or (iii) such other exceptions as may be approved from
time to time by the holder or holders of more than 50% of
the outstanding principal amount of the Notes and the
Additional Notes), they will immediately apply 100% of
such proceeds (net of reasonable out-of-pocket expenses)
(i) first to the redemption of the Additional Notes in
accordance with the terms of the Additional Note
Agreement, and then (ii) to the redemption of the Notes
then outstanding at a redemption price equal to the
principal amount of the Notes being redeemed, together
with all accrued and any deferred and unpaid interest
thereon through the date of redemption, without premium.
(c) Upon the receipt of any tax refunds from
any domestic or foreign taxing authority by either of the
Companies, the Companies shall immediately apply 100% of
the proceeds of such refunds (i) first to the redemption
of the Additional Notes in accordance with the terms of
the Additional Note Agreement, and then (ii) to the
redemption of the Notes then outstanding at a redemption
price equal to the principal amount of the Notes being
redeemed, together with all accrued and any deferred and
unpaid interest thereon through the date of redemption,
without premium.
(d) Upon release of the Gross Cash Proceeds of
the Accounting Claims from the Escrow Account, such
amounts will immediately be paid to the Investor and the
Investor shall (i) apply an amount in the aggregate equal
to 60% of the Net Cash Proceeds from the 1993 Claim and
75% of the Net Cash Proceeds from the 1994 Claim (A)
first to the redemption of the Additional Notes then
outstanding in accordance with the terms of the
Additional Note Agreement, and (B) second to the
redemption of the Notes at a redemption price equal to
the principal amount of the Notes being redeemed,
together with all accrued and any deferred and unpaid
interest thereon through the date of redemption, without
premium, (ii) retain an amount equal to all fees and
expenses for which the Companies are obligated pursuant
to clause (a) of Section 11.10 of the Additional Note
Agreement (including but not limited to the reasonable
fees and expenses of O'Melveny & Myers, counsel to the
Investor) for which the Companies shall have theretofore
received invoices and (iii) deliver to SOV an amount
equal to the Attorneys' Fees to be used by SOV to pay
such Attorneys' Fees. If no Event of Default has
occurred and is then continuing, any proceeds remaining
after such application shall be delivered to the
Companies to be used by the Companies first to pay the
reasonable fees and disbursements of their counsel,
Christensen, White, Miller, Fink, Jacobs, Glaser &
Shapiro L.L.P., as invoiced on or before such date, and
then for other authorized corporate purposes. If an
Event of Default has occurred and is then continuing, the
Investor shall apply the remaining proceeds in accordance
with the applicable security agreements (i) first to the
redemption of all Additional Notes, in accordance with
the terms of the Additional Note Agreement, and then (ii)
to the redemption of the Notes then due and payable as a
result of such Event of Default or otherwise become due,
at a redemption price equal to the principal amount
thereof, together with all accrued, deferred and unpaid
interest thereon to the date of redemption. Upon the
written request of the Companies, given within 30 days of
the date on which the Gross Cash Proceeds of the
Accounting Claims are released from the Escrow Account,
the Investor shall, within 5 business days of receipt of
such request, provide to the Companies a written
accounting of the application of such proceeds."
(c) Section 2.4 of the Existing Note Agreement is
hereby amended by deleting such subsection in its entirety and
substituting therefor the following:
"2.4 Right to Put.
(a) Granting of Put to Holders of Notes. The
Companies hereby give and grant to each holder of Notes
the option, right and privilege (such option, right and
privilege herein collectively referred to as the "Right
to Put") to require the Companies upon or after the
occurrence of a Put Event (unless such occurrence or
event shall receive prior approval by the holders of more
than 50% of the outstanding principal amount of the
Notes) to purchase from such holder on the terms and
conditions hereinafter set forth, and the Companies
jointly and severally agree so to purchase from such
holder, for an amount equal to the principal amount of
the Notes together with deferred and accrued and unpaid
interest thereon through the date of such purchase,
without premium, that amount of Notes specified by such
holder.
(b) Granting of Put to Holders of Series A
Preferred. SOV hereby gives and grants to each holder of
Series A Preferred the option, right and privilege (such
option, right and privilege herein collectively referred
to as the "Right to Put") to require SOV upon or after
the occurrence of a Put Event (unless such occurrence or
event shall receive prior approval by the holders of more
than 50% of the outstanding Series A Preferred) to
purchase from such holder on the terms and conditions
hereinafter set forth, and SOV agrees so to purchase from
such holder, for an amount equal to the liquidation
preference of the Series A Preferred together with
accrued and unpaid dividends through the date of such
purchase, without premium, that amount of Series A
Preferred specified by such holder.
(c) Exercise of Put. Within five days after
the occurrence of a Put Event (unless such occurrence
shall receive prior approval as contemplated in Section
2.4(a) and (b)), the Companies shall give each holder of
Notes and each holder of Series A Preferred written
notice thereof describing the Put Event, and the facts
and circumstances surrounding the occurrence thereof, in
reasonable detail. At any time prior to 30 days after
any holder of Notes or any holder of Series A Preferred
shall receive such notice, such holder may exercise its
Right to Put by delivering to the Companies a notice of
sale (a "Notice of Sale") substantially in the form of
Exhibit E hereto (with appropriate insertions based on
whether the Notice of Sale is delivered by a holder of
Notes or a holder of Series A Preferred). If a holder of
Notes shall deliver a Notice of Sale, the Companies shall
purchase the amount of Notes specified by such holder in
the Notice of Sale on the date specified in such notice
(which shall not be less than ten days after delivery of
such Notice of Sale), and such holder shall sell such
Notes to the Companies without recourse, representation
or warranty (other than as to such holder's full right,
title and interest to such Notes free of any adverse
claim therein) at a price, payable in immediately
available funds by wire transfer to the account specified
in such notice, equal to the principal amount of the
Notes together with all deferred and accrued and unpaid
interest thereon through the date of such purchase,
without premium. If a holder of Series A Preferred shall
deliver a Notice of Sale, SOV shall purchase the amount
of Series A Preferred specified by such holder in the
Notice of Sale on the date specified in such notice
(which shall not be less than ten days after delivery of
such Notice of Sale), and such holder shall sell such
Series A Preferred to SOV without recourse,
representation or warranty (other than as to such
holder's full right, title and interest to such shares of
Series A Preferred free of any adverse claim therein) at
a price, payable in immediately available funds by wire
transfer to the account specified in such notice, equal
to the liquidation preference of the Series A Preferred,
together with accrued and unpaid dividends through the
date of such purchase, without premium.
(d) Put Event. For the purposes of this
Section 2.4, a "Put Event" shall mean the occurrence or
continuation of any of the following events:
(i) a sale of either of the Companies to or a
consolidation or merger of either of the
Companies with any other Person (other
than a merger of FYI into SOV) or a sale,
lease, transfer or other disposition of
all or substantially all of either
Companies' properties or assets (whether
now owned or hereafter acquired) to any
other Person in one or a series of related
transactions; or
(ii) any transaction or series of transactions
(whether by purchase of existing shares of
common stock, issuance of shares of common
stock, merger, consolidation or otherwise,
except as a result of issuance or transfer
of the Warrants, the Arnold Warrants or
the Additional Warrants, exercise of the
Existing Warrants, the Arnold Warrants,
the Additional Warrants, the Settlement
Warrants, the Independent Committee
Warrants or the Shutler Warrants, options
previously issued pursuant to management
incentive plan as set forth on Schedule
3.2(d) and options issued pursuant to
management incentive plans which have been
approved in writing by holders of 50% or
more of the Notes and the Additional
Notes, or conversion of the Series A
Preferred or the Series B Preferred) the
result of which is that any Person or
group of Persons other than the Investor
(or the holders of 50% or more of the
outstanding Series A Preferred or the
Series B Preferred or 50% or more of the
outstanding principal amount of the Notes
or the Additional Notes) becomes the
beneficial owner (as such term is defined
in the federal securities laws), directly
or indirectly, of 10% or more of the
common stock of either of the Companies;
or
(iii) the closing of the offering by either
of the Companies of its securities for
sale to the investment public pursuant
to an effective registration
statement."
SECTION 3. AMENDMENTS TO SECTION 8: COVENANTS.
Section 8 of the Existing Note Agreement is hereby
amended by deleting such Section in its entirety and
substituting therefor the following:
"8. Covenants. The Companies covenant and
agree that from the date of this Agreement to the Closing
and thereafter so long as any Notes shall be outstanding:
8.1 Limitations on Liens. The Companies will
not, directly or indirectly, create, incur, assume,
permit to subsist or agree to provide any Lien upon any
of the property of the Companies, whether now owned or
hereafter acquired, except:
(a) Permitted Liens;
(b) Liens presently securing Existing Secured
Debt.
(c) Liens on furniture, fixtures and equipment
securing purchase money Debt in an aggregate amount
(including any Existing Secured Debt of this kind) as
shall not be greater than the corresponding amount on the
last day of the fiscal quarters set forth below:
June 30, 1996 $1,200,000
September 30, 1996 $1,450,000
December 31, 1996 $1,700,000
March 31, 1997 $1,900,000
June 30, 1997 $2,100,000
September 30, 1997 $2,250,000
December 31, 1997 $2,300,000
March 31, 1998 $2,800,000
June 30, 1998 $3,300,000
(d) Liens securing the Notes and the
Additional Notes.
8.2 Maintenance of Certain Financial
Conditions. The Companies will cause the following
financial conditions to exist at all times:
(a) Consolidated Net Worth shall equal or
exceed -$3,540,000 on December 31, 1996 and -$3,230,000
on December 31, 1997;
(b) Consolidated Net Worth shall not be less
than the corresponding amount on the last day of any two
consecutive fiscal quarters ending on the dates set forth
below:
Quarters ending Amount
---------------- -------------
June 30, 1996 -$3,950,000
September 30, 1996 -$4,490,000
December 31, 1996 -$4,720,000
March 31, 1997 -$4,850,000
June 30, 1997 -$4,870,000
September 30, 1997 -$4,700,000
December 31, 1997 -$4,300,000
March 31, 1998 -$3,800,000
June 30, 1998 -$3,300,000
(c) EBITDA of FYI shall equal or exceed
-$2,000,000 for the year ended December 31, 1996 and
$1,130,000 for the year ended December 31, 1997.
(d) EBITDA of FYI shall not be less than the
corresponding amount during any two consecutive fiscal
quarters ending on the dates set forth below:
Quarters ending Amount
---------------- -------------
June 30, 1996 -$811,000
September 30, 1996 -$340,000
December 31, 1996 $17,000
March 31, 1997 $93,000
June 30, 1997 $175,000
September 30, 1997 $286,000
December 31, 1997 $445,000
March 31, 1998 $615,000
June 30, 1998 $785,000
8.3 Limitations on Debt. Neither of the Companies
will incur, create, issue, assume or guarantee any Debt
except:
(a) Debt under the Notes and the Additional
Notes;
(b) Debt secured by a Lien permitted by
Section 8.1; and
(c) Debt existing on the date hereof and
listed on Schedule 8.3.
8.4 Consolidations Merger, Sale of Assets,
etc. Neither SOV nor FYI shall (or permit Dycam to)
voluntarily liquidate or dissolve, or (whether in a
single transaction or a series of transactions)
consolidate or merge with any other Person, or permit any
other Person to consolidate or merge with any of them, or
sell, lease, transfer or otherwise dispose of all or
substantially all of any of their properties or assets
(whether now owned or hereafter acquired) to any other
Person, except that each of SOV and FYI may consolidate
with or merge into, or sell its assets as an entirety or
substantially as an entirety to, any other Person if the
successor formed by such consolidation or the survivor of
such merger or the Person that acquires such assets is a
solvent corporation, partnership or limited liability
company which shall be organized under the laws of, any
state of the United States of America and, if SOV or FYI,
as the case may be, is not such corporation, partnership
or limited liability company, such corporation,
partnership or limited liability company (i) shall have
executed and delivered to each holder of any Notes and
Additional Notes its assumption of the due and punctual
payment of the principal of, and premium (if any) and
interest on the Notes and Additional Notes according to
their tenor, and the due and punctual performance and
observance of the obligations of the Companies under this
Agreement and under the Notes and Additional Notes, the
Series A Preferred and Series B Preferred and the
Warrants and Additional Warrants, and (ii) shall have
caused to be delivered to each holder of any such Notes
and Additional Notes a favorable opinion of counsel, such
opinion and counsel to be reasonably satisfactory to the
holders of at least 66-2/3% in unpaid principal amount of
the Notes and Additional Notes then outstanding, to the
effect that all agreements and instruments effecting such
assumption are enforceable in accordance with their terms
(subject to customary exceptions) and comply with the
terms hereof; provided, however, that at the time of and
immediately after giving effect to any such merger,
consolidation, sale, lease or other disposition, no Event
of Default or Default shall have occurred and be
continuing. No sale or other disposition permitted by
this Section 8.4 shall in any event release the Companies
or any successor corporation, partnership or limited
liability company that shall theretofore have become such
in the manner prescribed in this Section 8.4 from any of
its obligations and liabilities under this Agreement, the
Additional Note Agreement and the Additional Notes and
the Notes, except that a sale of all assets shall release
such Company or any successor corporation, partnership or
limited liability company that shall theretofore have
become such in the manner prescribed in this Section 8.4
from all of its obligations under this Agreement, the
Additional Note Agreement, the Additional Notes and the
Notes.
8.5 Nature of Business. Neither FYI nor SOV
will engage in any line of business in which it is not
currently engaged, cease engaging in a business in which
it is currently engaged or otherwise alter its manner of
conducting business from that existing as of the date of
the Letter of Intent, except that each of FYI and SOV may
engage in activities that are ancillary, incidental or
necessary to each of their ongoing businesses as
presently conducted or as conducted from time to time,
and except to the extent that SOV shall be permitted to
wind down its beauty imaging division.
8.6 Capital Expenditures. The Companies will
not permit Consolidated Capital Expenditures for any
fiscal year to exceed $4,000,000.
8.7 Limitation on Investments, Loans and
Advances. The Companies will not, and will not permit
any of their Subsidiaries to, make any advances or loans
to, or other Investments in, any other Person other than
ordinary advances for travel expenses and advances in
payment of salaries already earned and other than for
loans between the Companies in the ordinary course of
business in an aggregate amount not exceeding $10,000 in
any fiscal year.
8.8 Restricted Payments. The Companies will
not, directly or indirectly, declare or make any
Distribution, except that FYI may make Distributions to
SOV to meet its obligations under this Agreement, the
Additional Note Agreement, the Additional Notes and the
Notes.
8.9 Transactions with Affiliates. The
Companies will not, and will not permit any Subsidiary
to, directly or indirectly, engage in any transactions
with any Affiliate of the Companies (an "Affiliate
Transaction"), other than transactions entered into in
the ordinary course of business pursuant to the
reasonable requirements of the Companies' or such
Subsidiary's business and upon fair and reasonable terms
that are no less favorable to the Companies or such
Subsidiary, as the case may be, than would be obtainable
at the time on an arms-length basis from Persons that are
not Affiliates. Notwithstanding the foregoing, (i) any
Affiliate Transaction exceeding $100,000 in value must be
approved by a majority of the directors of SOV who are
not employed by SOV or any of its Affiliates, and (ii)
should such Affiliate Transaction exceed $1,000,000 in
value, the opinion of a recognized appraisal or valuation
firm that the transaction is fair to the Companies from a
financial point of view shall be obtained.
8.10 Charter and Bylaws. The Companies will
not amend or otherwise modify the charter or bylaws of
either Company without the prior written consent of the
holder or holders of more than 50% of the outstanding
principal amount of the Notes.
8.11 [Intentionally left blank.]
8.12 Information. The Companies will deliver
to the Investor:
(a) as soon as available and in any event within 90
days after the end of each fiscal year of SOV (or, in the
case of the 1995 fiscal year, 270 days after the end of
such fiscal year), an audited consolidated balance sheet
of SOV and its Subsidiaries as of the end of such fiscal
year and the related consolidated statements of
operations and cash flow, for such fiscal year, setting
forth in each case in comparative form the figures for
the previous fiscal year, and accompanied by a report
thereon of independent public accountants of nationally
recognized standing, together with consolidating
statements of FYI and Dycam;
(b) as soon as available and in any event within 45
days after the end of each of the first three quarterly
fiscal periods of each fiscal year of SOV, a consolidated
balance sheet of SOV and its subsidiaries as of the end
of such quarterly period and the related consolidated
statement of operations for such period and (in the case
of the second and third such quarterly periods) for the
portion of the fiscal year ended with the last day of
such quarterly period, setting forth in each case in
comparative form the figures for the corresponding
periods of the previous fiscal year, together with
consolidating statements of FYI and Dycam, all certified
(subject to normal year-end adjustments) as to fairness
of presentation, consistency and, except for the absence
of footnotes, generally accepted accounting principles by
the chief financial officer or the chief accounting
officer of SOV;
(c) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and
(b) above, a certificate of the chief financial officer
or the chief accounting officer of each of the companies
(i) setting forth in reasonable detail the calculations
required to establish whether the Companies were in
compliance with the requirements of Sections 8.1(c), 8.2
and 8.6, on the date of such financial statements and
(ii) stating whether any Default or Event of Default
exists on the date of such certificate and, if any
Default or Event of Default then exists, setting forth
the details thereof and the action which the Companies
are taking or propose to take to cure such Default or
Event of Default;
(d) within five business days after any officer of
either of the Companies obtains knowledge of any Default
or Event of Default, a certificate of the chief financial
officer or the chief accounting officer of the Companies
setting forth the details thereof and the action which
the Companies are taking or propose to take with respect
thereto;
(e) promptly upon the filing or receipt thereof,
copies of all registration statements (other than the
exhibits thereto and any registration statements on Form
S-8 or its equivalent), reports on Forms 10-K, 10-Q and
8-K (or their equivalents) and other reports which SOV or
Dycam shall have filed with the Securities and Exchange
Commission;
(f) promptly upon the release or receipt thereof,
copies of any press release issued by either of the
Companies or Dycam;
(g) within five business days after any officer of
either of the Companies becomes aware of the threat or
commencement of any litigation, or any material
development in any pending or future litigation, against
either of the Companies, Dycam or Styles, that includes
allegations of damages in excess of $100,000 or that
otherwise could have a material adverse effect on the
assets, operations, prospects or financial condition of
any of them, notice providing reasonable details about
the threat or commencement of such litigation or
providing reasonable details on such material
development;
(h) within five business day after any officer of
either of the Companies becomes aware of the threat or
commencement of any suspension of trading or delisting of
Common Stock (or any adverse position asserted by AMEX in
connection with pending efforts to terminate such
suspension), notice providing reasonable details about
such threat, commencement or adverse position; and
(i) such other financial and other information as
any holder of the Notes may reasonably request.
8.13 Inspection. Upon reasonable notice and at
the Investor's expense in the absence of an Event of
Default, the Companies shall permit any holder of the
Notes, the Series A Preferred or the Warrants, at such
reasonable times as may be requested by such holder, to
examine the Companies' books of account and records, to
inspect the Companies' properties and to discuss the
Companies' affairs, finances and accounts with its
officers and auditors.
8.14 Payment of Notes: Maintenance of Books
and Office. The Companies will duly and punctually pay
the principal of, premium (if any) and interest on the
Notes in accordance with the terms of the Notes and this
Agreement. The Companies will maintain a system of
accounting established and administered in accordance
with GAAP, keep proper books of record and account in
which full, true and correct entries are made of its
business transactions, and set aside appropriate
reserves, all in accordance with GAAP. The Companies
will each maintain a principal office at a location in
the United States of America where notice, presentations
and demands in respect of this Agreement and the Notes
may be made upon them and will notify, in writing, each
holder of a Note of any change of location of such
office; and such office shall be maintained at 667 Rancho
Conejo Boulevard, Newbury Park, California 91320, until
such time as the Companies shall so notify the holders of
the Notes of any such change.
8.15 Incentive Plan. Subject to the approval
of the holder or holders of at least 50% of the
outstanding Notes and Additional Notes, which approval
shall not be unreasonably withheld, SOV shall either
amend its existing incentive stock option plan or
implement a new incentive stock option plan or both for
the benefit of management and employees, which plan or
plans shall (together with the existing incentive stock
option plans) cover approximately 6 1/2% of SOV's fully
diluted equity, including all Common Stock and all
preferred stock, options or warrants which can be
exercised or converted to Common Stock. SOV's Board of
Directors shall, on or before October 31, 1996, authorize
such actions as are necessary to implement such plan or
plans.
8.16 Other Benefit Plans. The Companies agree
to use their best efforts to implement revised Employee
Benefit Plans and Benefit Arrangements, with approval by
the appropriate boards of directors after the Closing,
taking into consideration the present financial
condition, financial projections and business plans of
the Companies and Dycam, which revised Employee Benefit
Plans and Benefit Arrangements shall not be adopted
without the approval of the holder or holders of more
than 50% of the outstanding principal amount of the Notes
and Additional Notes, which approval shall not be
unreasonably withheld. As long any Notes and Additional
Notes remain outstanding, the Companies shall not take or
omit to take any action with respect to any Employee
Benefit Plans or Benefit Arrangements that would render
the representations and warranties set forth in Section
3.16(b) false or incorrect or breached in any material
respect if such representations and warranties were made
on a continuing basis after the Closing.
8.17. Reservation of Additional Shares. On
or prior to October 31, 1996, SOV shall take all
corporate action, and the shareholders of SOV shall have
taken all shareholder action, in each case, necessary to
authorize and reserve for issuance a number of shares of
Common Stock at least equal to the number of shares of
Common Stock into which the Series A Preferred and the
Series B Preferred may be converted and for which the
Existing Warrants, the Additional Warrants, the Shutler
Warrants, the Arnold Warrants and the Independent
Committee Warrants may be exercised."
SECTION 4. AMENDMENTS TO SECTION 9: EVENTS OF
DEFAULT; REMEDIES.
Section 9.1 of the Existing Note Agreement is hereby
amended by deleting such section in its entirety and
substituting therefor the following:
"9.1 Events of Default Defined: Acceleration of
Maturity: Rescission and Annulment. If any of the
following conditions or events (herein called "Events of
Default) shall occur and be continuing:
(a) default shall be made in the due and
punctual payment of all or any part of the principal of
any Note when and as the same shall become due and
payable, whether on a date fixed for required prepayment,
redemption or purchase, at stated maturity, by
acceleration or declaration, on a date fixed for an
optional prepayment by notice thereof or otherwise, and,
in the case of any required quarterly repayment pursuant
to Section 2.1 of this Agreement, such default shall have
continued for a period of one business day; or
(b) default shall be made in the due and
punctual payment of any interest on any Note when and as
such interest shall become due and payable, subject to
the deferrals permitted under Section 2.1(c), or in the
due and punctual payment of any other fees or amounts due
and payable hereunder (other than a default pursuant to
Section 9.1(a) hereof) and such default shall have
continued for a period of five days; or
(c) default shall be made in the performance
or observance of any covenant, agreement or condition
contained in Section 8.1 through 8.14, inclusive, and
8.16 and 8.17; or
(d) default shall be made in the performance
or observance of any other covenant, agreement or
condition contained in this Agreement and such default
shall have continued for a period of 30 days; or
(e) (i) default shall be made in the payment
of any part of the principal of, the premium (if any) or
the interest on, or any other payment of money due in
respect of, Debt of either of the Companies for money
borrowed in an aggregate principal amount of at least
$50,000 (other than with respect to (A) the Notes or (B)
any indebtedness among the Companies and their affiliates
if and to the extent all such defaults existing in
respect of such intercompany indebtedness are fully
waived by each party entitled to relief with respect
thereto and no such relief is sought), beyond any period
of grace provided with respect thereto, or (ii) default
shall be made in the performance or observance of any
other agreement, term or condition contained in any
document or documents evidencing or securing Debt, or in
any agreement or agreements under which Debt was issued
or created, in each case, if the effect of any one or
more such defaults is to cause the holders of Debt (or a
trustee on behalf of such holders) to cause any payment
or payments in respect of such Debt aggregating not less
than $50,000 (other than with respect to (A) the Notes or
(B) any indebtedness among the Companies and their
affiliates if and to the extent all such defaults
existing in respect of such intercompany indebtedness are
fully waived by each party entitled to relief with
respect thereto and no such relief is sought) to become
due prior to the scheduled due date or dates thereof or
(iii) as a consequence of the occurrence or continuation
of any event or condition (other than the passage of time
or the right of the holder or holders of any Debt to
convert such Debt into equity interests), (x) either of
the Companies has become obligated to purchase Debt
(other than the Notes) before its regular maturity or
before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least
$50,000 or (y) one or more Persons require either of the
Companies so to purchase any such Debt in an aggregate
principal amount of at least $50,000; or
(f) Either of the Companies or Dycam shall (i)
apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of
its property, (ii) be generally unable or admit in
writing its inability to pay its debt as such debts
become due, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case
under the Federal Bankruptcy Code (as now or hereafter in
effect), (v) file a petition seeking to take advantage of
any bankruptcy, insolvency, moratorium, reorganization or
other similar law of any jurisdiction, (vi) acquiesce in
writing to, or fail to controvert in a timely or
appropriate manner, any petition filed against it in an
involuntary case under such Bankruptcy Code, (vii) take
any action under the laws of any jurisdiction analogous
to any of the foregoing, (viii) be adjudicated as
insolvent or to be liquidated or (ix) take any corporate
action in furtherance of any of the foregoing; or
(g) a proceeding or case shall be commenced,
without the application or consent of SOV, FYI or Dycam,
as the case may be, in any court of competent
jurisdiction, seeking (i) the liquidation,
reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator
or the like of it or of all or any substantial part of
its assets, or (iii) similar relief in respect of it
under any law providing for the relief of debtors, and
such proceeding or case shall continue undismissed, or
unstated and in effect, for a period of 60 days; or
(h) final judgment for the payment of money
shall be rendered by a court of competent jurisdiction
against SOV, FYI or Dycam, and SOV, FYI or Dycam, as the
case may be, shall not discharge the same or provide for
its discharge in accordance with its terms, or agree to
terms for discharge satisfactory to the Investor (in its
sole discretion), or procure a stay of execution thereof
within 60 days from the date of entry thereof and within
said period of 60 days, or such longer period during
which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be
stayed during such appeal, and such judgment together
with all other such judgments not then discharged or then
subject to such a stay shall exceed in the aggregate
$50,000; or any creditor shall obtain a priority, by
attachment or otherwise, on any material asset or assets
of either of the Companies (except that (i) Dycam may
obtain priority on any camera equipment leased by Dycam
to FYI in the ordinary course of business and (ii) other
lessors may obtain priority on equipment leased by them
to the Companies in the ordinary course of business); or
(i) any representation or warranty made by or
on behalf of the Companies or Dycam or by an officer of
either of the Companies or Dycam in this Agreement or in
any certificate or other instrument delivered hereunder
or pursuant hereto or in connection with any provision
hereof shall prove to be false or incorrect or breached
in any material respect on the date as of which made; or
(j) there shall have occurred a material
adverse change in the assets, results of operations,
business prospects or financial condition of either of
the Companies or Dycam; or
(k) an Event of Default shall have occurred
under the Additional Note Agreement; or
(l) the Companies or either of them shall have
consummated a Topping Offer transaction other than in
accordance with Section 9 of the Additional Note
Agreement; or
(m) the funds on deposit in the Escrow Account
shall not have been released to the Investor on or prior
to August 10, 1996;
then (i) upon the occurrence of any such Event of Default
described in clause (f) or (g) of this Section 9.1, the
unpaid principal amount of all Notes shall automatically
become immediately due and payable, together with the
interest accrued or deferred and unpaid thereon (which
interest shall be deemed matured), and (ii) upon the
occurrence of any other Event of Default and declaration
by the holder or holders of more than 50% of the
outstanding principal amount of the Notes shall thereupon
become immediately due and payable, together with the
accrued interest thereon (which interest shall be deemed
matured), in each case without presentment, demand,
protest, notice of intention to accelerate, notice of
acceleration, or other requirements of any kind, all of
which are hereby expressly waived by the Companies.
The provisions of this Section are subject,
however, to the condition that if, at any time after any
Notes shall have so become due and payable and prior to
the entry of any judgment for the payment of any monies
due on the Notes or pursuant to this Agreement, the
Companies shall pay all arrears of interest on the Notes
and all payments on account of the principal of the Notes
which shall have become due otherwise than by
acceleration (with interest on such principal) and all
Events of Default (other than nonpayment of principal of
and accrued interest on the Notes due and payable solely
by virtue of acceleration) shall be remedied or waived
pursuant to Section 10.11, then, and in every such case,
the holder or holders of at least 66-2/3% in unpaid
principal amount of the Notes at the time outstanding by
written notice to the Companies, may rescind and annul
any such acceleration and its consequences, but no such
action shall affect any subsequent Default or Event of
Default or impair any right consequent thereon, and
furthermore, no such action shall affect, rescind or
annul the declaration by any holder, or the right of any
holder to declare, upon the occurrence and continuance of
any Event of Default declared in clause (a) or (b) of
this Section 9.1, the unpaid principal amount of its own
Notes to be due and payable, together with the interest
accrued thereon, pursuant to this Section 9.1.
SECTION 5. AMENDMENTS TO SECTION 11:
MISCELLANEOUS.
The first sentence of Section 11.5(a) of the Existing
Note Agreement is hereby amended by deleting such sentence in
its entirety and substituting therefor the following:
(a) The liability of each party (i.e., each of
SOV and FYI) hereunder and the Related Agreements are
independent of and not in consideration of or contingent
upon the liability of the other party or any other Person
and a separate action or actions may be brought and
prosecuted against each party, whether or not any action
is brought or prosecuted against the other party or any
other Person or whether the other Person is joined in any
such action or actions.
SECTION 6. AMENDMENTS TO EXHIBIT A.
Exhibit A to the Existing Note Agreement is hereby
amended by (i) deleting therefrom the definitions of
"Settlement Warrants" and "Net Cash Proceeds" in their
entirety and (ii) inserting thereto the following definitions
(including new definitions of "Settlement Warrants" and "Net
Cash Proceeds") in the appropriate alphabetical order:
""ACCOUNTING CLAIMS" shall mean any pending or
future claims of SOV against its former auditors and such
auditors' insurance carriers relating (i) to the
preparation, review and audit of SOV's annual and
periodic financial statements and SEC reports for each of
the fiscal years 1993 and 1994 or (ii) the duties of such
auditors to disclose adverse financial information or
financial reporting problems to the SOV management or
board of directors.
"ADDITIONAL NOTES" shall mean the 10% Senior
Notes due June 30, 1998 of the Companies issued from time
to time under the Additional Note Agreement, in the form
attached as Exhibit B thereto (together with any note or
notes issued in exchange, substitution or replacement
therefor).
"ADDITIONAL WARRANTS" shall mean the warrants
to purchase 53,848,131 shares of Common Stock issued by
SOV to the Investor pursuant to Section 1.1(c) of the
Additional Note Agreement.
"ARNOLD WARRANT" shall mean the warrants to
purchase 7,749,449 shares of Common Stock, subject to
adjustment in the event of the consummation of a Topping
Offer (as defined in the Additional Note Agreement)
transaction, issued by SOV to Dana I. Arnold pursuant to
the Additional Note Agreement.
"ATTORNEYS' FEES" shall mean the amount of the
Gross Cash Proceeds of the Accounting Claims required to
be paid to SOV's attorneys up to a maximum of $250,000
(under the existing agreement disclosed to the Investor
and any other agreement approved by the holder or holders
of more than 50% of the outstanding principal amount of
the Notes and Additional Notes).
"COMBINED OPERATING CASH FLOW" shall mean for
any period, the sum of (i) the Operating Cash Flow of SOV
and (ii) the Operating Cash Flow of FYI.
"ESCROW ACCOUNT" shall have the meaning given
thereto in Section 6.17 of the Additional Note Agreement.
"GROSS CASH PROCEEDS" shall mean the proceeds
from the settlement of any of the Accounting Claims (or
any trial, mediation, arbitration or other adjudication
thereof).
"INDEPENDENT COMMITTEE WARRANTS" shall mean the
warrants to purchase 80,000 shares of Common Stock of SOV
at an exercise price not less than $.07 to be issued by
SOV to the Chairman of the Independent Committee of SOV's
Board of Directors appointed April 18, 1996.
"NET CASH PROCEEDS" shall mean the Gross Cash
Proceeds of the Accounting Claims less the Attorneys'
Fees.
"OPERATING CASH FLOW" shall mean, with respect
to either SOV or FYI, the cash flow from operations of
SOV or FYI, as the context requires; provided that
Operating Cash Flow shall not include the Gross Cash
Proceeds of the Accounting Claims, tax refunds or amounts
received by the Companies in respect of the issuance by
the Companies of their respective securities.
"SERIES B PREFERRED" shall mean the 500 shares
of Senior Series B Convertible Preferred Stock, $.001 per
value per share, of SOV issued to the Investor pursuant
to Section 1.1(d) of the Additional Note Agreement.
"SETTLEMENT WARRANTS" shall mean the warrants
to purchase 1,750,000 shares of SOV's Common Stock that
SOV intends to issue pursuant to binding terms of
settlement of pending shareholder litigation.
"SHUTLER CONSULTING AGREEMENT" shall mean the
Consulting Agreement dated as of April 19, 1986, between
SOV and Eugene Shutler.
"SHUTLER WARRANTS" shall mean the warrants to
purchase Common Stock of SOV at an exercise price not
less than $.07 that SOV has agreed to issue to Eugene
Shutler under the Shutler Consulting Agreement."
SECTION 7. WAIVER
The Investor hereby agrees to waive through the date
hereof any and all Events of Default under the Existing Note
Agreement and the Related Agreements.
SECTION 8. COMPANIES' REPRESENTATIONS AND
WARRANTIES
In order to induce the Investor to enter into this
Amendment and to amend the Existing Note Agreement in the
manner provided herein, each of SOV and FYI represents and
warrants to the Investor that the following statements are
true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Each of SOV and
FYI has all requisite corporate power and authority to enter
into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, the
Existing Note Agreement as amended by this Amendment (the
"AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and
delivery of this Amendment and the performance of the Amended
Agreement have been duly authorized by all necessary corporate
action on the part of SOV and FYI.
C. NO CONFLICT. The execution and delivery by
each SOV and FYI of this Amendment and the performance by it
of the Amended Agreement do not and will not (i) violate any
provision of any law or any governmental rule or regulation
applicable to it or any of its Subsidiaries or any charter
document of its Subsidiaries or any order, judgment or decree
of any court or other agency of government binding on it or
any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or
both) a default under any material contract, agreement or
indenture to which it is bound or by which its properties are
subject, (iii) result in or require the creation or imposition
of any lien upon any of its properties or assets or those of
any of its Subsidiaries, or (iv) require any approval or
consent of any person or entity under any of its or any of its
Subsidiaries' contractual or other obligations.
D. GOVERNMENTAL CONSENTS. The execution and
delivery by each of SOV and FYI of this Amendment and the
performance by it of the Amended Agreement do not and will not
require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state
or other governmental authority or regulatory body in addition
to those required to execute, deliver and perform the Existing
Note Agreement.
E. BINDING OBLIGATION. This Amendment and the
Amended Agreement have been duly executed and delivered by
each of SOV and FYI and are the legally valid and binding
obligations of each of SOV and FYI enforceable against each of
SOV and FYI in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to
enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES
FROM ADDITIONAL NOTE AGREEMENT. The representations and
warranties contained in Section 3 of the Additional Note
Agreement are and will be true, correct and complete in all
material respects on and as of the effective date of this
Amendment ("SECOND AMENDMENT EFFECTIVE DATE") to the same
extent as though made on and as of that date, except to the
extent such representations and warranties specifically relate
to an earlier date, in which case they were true, correct and
complete in all material respects on and as of such earlier
date.
G. RESERVATION OF COMMON STOCK. Subject to the
last sentence of Section 12 of the First Amendment to
Additional Note and Preferred Stock Purchase Agreement and
Waiver, dated as of May 15, 1996, by and among the Companies
and the Investor, SOV has reserved sufficient shares of Common
Stock for issuance upon exercise of the Series A Warrants and
sufficient shares of Common Stock for issuance upon conversion
of the Series A Preferred, such reservation remains in effect
on the date hereof, and SOV will not take any action to revoke
such reservation or make such shares available for any other
purpose.
SECTION 9. ACKNOWLEDGEMENT AND CONSENT
SOV is a party to the SOV Security Agreement and the
SOV Pledge Agreement, pursuant to which SOV has created Liens
in favor of the Investor on certain collateral to secure the
obligations of SOV and FYI under the Existing Note Agreement
and the Related Agreements (the "OBLIGATIONS"). SOV is also a
party to the SOV Guaranty, pursuant to which SOV has
guarantied the Obligations of FYI. FYI is a party to
the FYI Security Agreement, pursuant to which FYI has created
Liens in favor of the Investor on certain collateral to secure
the Obligations. FYI is also a party to the FYI Guaranty,
pursuant to which FYI has guarantied the Obligations of SOV.
SOV and FYI are collectively referred to herein as the "CREDIT
SUPPORT PARTIES", and the SOV Security Agreement, SOV Pledge
Agreement, SOV Guaranty, FYI Security Agreement and FYI
Guaranty, are collectively referred to herein as the "CREDIT
SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that
it has reviewed the terms and provisions of the Existing Note
Agreement and this Amendment and consents to the amendment of
the Existing Note Agreement effected pursuant to this
Amendment. Each Credit Support Party hereby confirms that
each Credit Support Document to which it is a party or
otherwise bound and all collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the
fullest extent possible the payment and performance of all
"Obligations" and "Secured Obligations," as the case may be
(in each case as such terms are defined in the applicable
Credit Support Document), including without limitation the
payment and performance of all such "Obligations" and "Secured
Obligations," as the case may be, in respect of the
Obligations of SOV and FYI now or hereafter existing under or
in respect of the Amended Agreement and the Notes defined
therein.
Each Credit Support Party acknowledges and agrees
that any of the Credit Support Documents to which it is a
party or otherwise bound shall continue in full force and
effect and that all of its obligations thereunder shall be
valid and enforceable and shall not be impaired or limited by
the execution or effectiveness of this Amendment, subject to
Section 10.
SECTION 10. INTENT OF THE PARTIES
Notwithstanding anything herein to the contrary, in
entering into this Amendment, it is the intent of the parties
hereto that the Existing Note Agreement and the Related
Agreements shall be amended hereby such that the provisions of
the Existing Note Agreement shall not conflict with the
provisions of the Additional Note Agreement and the other
Additional Related Agreements. It is the intent of the
parties that an event that would be an Event of Default under
the Existing Note Agreement and the Related Agreements (other
than an Event of Default resulting from the failure to timely
pay principal of, or interest on, the Existing Notes after the
date hereof) be construed according to the Additional Note
Agreement or the Additional Related Agreements, as applicable,
except as otherwise set forth in the Additional Note Purchase
Agreement and the Additional Related Agreements.
SECTION 11. EFFECTIVENESS
This Amendment shall become effective on the date
hereof; provided that, notwithstanding anything herein to the
contrary, if the conditions set forth in Section 2 of the
First Amendment to Note and Preferred Stock Purchase Agreement
and Waiver, dated as of May 15, 1996, among the Companies and
the Investor, are not fully satisfied by respective dates set
forth therein, this Amendment (including without limitation
the waiver set forth in Section 7 hereof) shall become null
and void, and the parties hereto shall have their respective
positions as of the date hereof as if this Amendment
(including without limitation the waiver set forth in Section
7 hereof) had never been made.
SECTION 12. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE ADDITIONAL NOTE
AGREEMENT AND THE OTHER RELATED AGREEMENTS.
(i) On and after the Second Amendment Effective
Date, each reference in the Additional Note Agreement to
"this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Additional Note
Agreement, and each reference in the other Related
Agreements to the "Additional Note", "thereunder",
"thereof" or words of like import referring to the
Additional Note Agreement shall mean and be a reference
to the Amended Agreement.
(ii) Except as specifically amended by this
Amendment, the Additional Note Agreement and the other
Related Agreements shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of
this Amendment shall not, except as expressly provided
herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of the
Investor under the Additional Note Agreement or any of
the other Related Agreements.
B. FEES AND EXPENSES. Each of SOV and FYI agrees
that all reasonable costs, fees and expenses as described in
subsection 11.10 of the Additional Note Agreement incurred by
the Investor and its counsel with respect to this Amendment
and the documents and transactions contemplated hereby shall
be paid by SOV and FYI and shall be the obligation of each of
them jointly and severally.
C. HEADINGS. Section and subsection headings in
this Amendment are included herein for convenience of
reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive
effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so
that all signature pages are physically attached to the same
document. This Amendment shall become effective upon the
execution of a counterpart hereof by the Investor, each of the
other parties hereto and receipt by the Companies and the
Investor of written or telephonic notification of such
execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date
first written above.
STYLES ON VIDEO, INC.
By: __ Nancy H. Galgas__
Name: Nancy H. Galgas
Title: Chief Financial Officer
667 Rancho Conejo Blvd.
Newbury Park, CA 91320
FOREVER YOURS, INC.
By: __ Dana I. Arnold__
Name: Dana I. Arnold
Title: President
667 Rancho Conejo Blvd.
Newbury Park, CA 91320
INTERNATIONAL DIGITAL
INVESTORS, L.P.
By IDI Corp., a Delaware
corporation, its general
partner
By:__ Jeffrey Safchik__
Name: Jeffrey Safchik
Title: President
40304 Fisher Island Drive
Fisher Island, FL 33109
<PAGE>
EXHIBIT H
NOTE AND PREFERRED STOCK PURCHASE AGREEMENT
THIS NOTE and PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of the 14th day of May 1996, by and
between Styles on Video, Inc., a Delaware corporation ("SOV"),
Forever Yours, Inc., a California corporation ("FYI" and,
together with SOV, the "Companies," provided that the term
"Companies" shall not include Dycam, Inc.), and International
Digital Investors, L.P., a Delaware limited partnership (the
"Investor"). Unless otherwise indicated, defined terms in this
Agreement and in the Exhibits and Schedules to this Agreement
have the meanings assigned to them in Exhibit A.
RECITALS
WHEREAS, the Companies and the Investor entered into a
Note and Preferred Stock Purchase Agreement, dated as of
November 20, 1995 (the "Existing Note Agreement"), pursuant to
which, among other things, (i) the Investor purchased from the
Companies a $2,950,000 aggregate principal amount 10% Senior Note
due June 30, 1998 of the Companies (the "Existing Notes"), (ii)
the Investor purchased from SOV 500 shares of 10% Senior Series A
Convertible Preferred Stock, $.001 par value per share, of SOV
(the "Series A Preferred"), and (iii) the Investor received from
SOV a Warrant Certificate dated as of November 20, 1995 (the
"Existing Warrant Certificate") evidencing warrants (the
"Existing Warrants") to purchase 3,914,882 shares of common
stock, $.001 par value per share, of SOV (the "Common Stock");
WHEREAS, the voting powers, preferences, rights,
qualifications, limitations and restrictions applicable to the
Series A Preferred were set forth in a certificate of designation
dated as of November 9, 1995 (the "Series A Certificate of
Designation");
WHEREAS, the Series A Preferred and the Existing
Warrants are subject to, and entitled to the benefits of, a
Registration Rights Agreement, dated as of November 20, 1995 (the
"Existing Registration Rights Agreement"), between SOV and the
Investor;
WHEREAS, to secure their obligations under the Existing
Note Agreement, the Companies executed and delivered certain
collateral documents in favor of the Investor (collectively, the
"Existing Collateral Documents"), including the FYI Security
Agreement, the SOV Security Agreement and the SOV Pledge
Agreement (each as defined in the Existing Note Agreement);
WHEREAS, to guaranty the other's obligations under the
Existing Note Agreement, SOV executed and delivered the SOV
Guaranty and FYI executed and delivered the FYI Guaranty (each as
defined in the Existing Note Agreement, and collectively, the
"Existing Guaranties");
WHEREAS, the Companies and the Investor wish to provide
in this Agreement for additional investments by the Investor and
the Companies in an aggregate amount not to exceed the Total
Additional Investment Amount;
WHEREAS, in connection with the execution and delivery
of this Agreement, the Companies and the Investor wish to, among
other things, execute and deliver new collateral documents and
guaranties and enter into the other transactions set forth in
this Agreement and the other Additional Related Agreements.
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND
FOR GOOD AND VALUABLE CONSIDERATION, THE PARTIES HEREBY AGREE AS
FOLLOWS:
1. Purchase and Sale of the Securities.
1.1 Sale And Issuance of the Securities.
(a) Subject to the terms and conditions of this
Agreement (including, without limitation, Section 11.15), the
Investor agrees to purchase, and the Companies agree to sell and
issue to the Investor, on each Purchase Date, the principal
amount of Additional Notes set forth with respect to such
Purchase Date on Schedule 1.1 if (i) FYI shall have entered into
Contracts with hospitals that are in full force and effect on
such Purchase Date and that, in the aggregate, cover the minimum
number of Approved Births set forth with respect to such Purchase
Date on Schedule 1.1 and (ii) IDI shall have received evidence
satisfactory to it (in its sole discretion) that the Net Revenues
of the Companies for the month ending immediately prior to such
Purchase Date is at least equal to the minimum amount set forth
with respect to such Purchase Date on Schedule 1.1.
IDI's obligation to purchase Additional Notes on any
Purchase Date will be subject to the further conditions precedent
that:
(i) The representations and warranties contained
herein and in the other Additional Related Agreements shall
be true, correct and complete in all material respects on
and as of such date to the same extent as though made on and
as of such date, except to the extent such representations
and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have
been true, correct and complete in all material respects on
and as of such earlier date;
(ii) No event shall have occurred and be continuing, or
would result from the consummation of the purchase of
Additional Notes on such date, that would constitute a
Default or an Event of Default;
(iii) The Companies shall have performed in all
material respects all agreements and satisfied all
conditions which this Agreement provides shall be performed
or satisfied by it on or before such date;
(iv) No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin
or restrain the Investor from purchasing the Additional
Notes to be purchased by it on such date; and
(v) Each of the conditions precedent set forth in
Sections 6.3, 6.4 and 6.16 shall have been satisfied on such
date.
Each of IDI's commitments to purchase Additional Notes
on any Purchase Date is an independent and separate obligation
and no purchase of Additional Notes on any Purchase Date shall
imply or be construed to mean that IDI has any obligation to
purchase Additional Notes on any other Purchase Date except upon
satisfaction of the conditions precedent set forth in this
Agreement.
The aggregate amount of Additional Notes outstanding at
any time shall not exceed the Total Additional Investment Amount,
and the principal amount of Additional Notes required to be
purchased by IDI on any Purchase Date will be reduced by an
amount equal to the excess of (i) the aggregate amount of
Additional Notes that would be outstanding if all of the
Additional Notes otherwise required to be purchased on such date
were so purchased over (ii) the Total Additional Investment
Amount.
Notwithstanding anything to the contrary contained in
this Agreement, if all of the funds on deposit in the Escrow
Account have not been released therefrom and paid to the Investor
in accordance with Section 2.3(d) by August 10, 1996, then the
Investor shall have no further obligation to purchase any
Additional Notes on any subsequent Purchase Date.
If, on any Purchase Date, the conditions precedent to
the Investor's purchase of Additional Notes on such date are not
met (i) the Investor shall have no further obligation to purchase
the amount of Additional Notes scheduled for purchase and sale on
such Purchase Date, (ii) the Total Additional Investment Amount
shall be reduced by such amount of Additional Notes and (iii) the
remaining Additional Notes shall be purchased by IDI on the
remaining Purchase Dates subject to the respective conditions
precedent with respect thereto as set forth herein.
(b) Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Closing and SOV
agrees to sell and issue to the Investor at the Closing 500
shares of 10% Senior Series B Convertible Preferred Stock, $.001
par value per share, of SOV (the "Series B Preferred"), for a
purchase price equal to $50,000, such Series B Preferred being
convertible into shares of the Common Stock and having the voting
powers, preferences, rights, qualifications, limitations and
restrictions described in the certificate of designation attached
hereto as Exhibit C (the "Series B Certificate of Designation").
(c) Subject to the terms and conditions of this
Agreement, the Investor shall receive and SOV agrees to issue to
the Investor, in connection with the sale and issuance of the
Additional Notes and the Series B Preferred and in consideration
of the Investor's purchase thereof, a Warrant Certificate in the
form attached hereto as Exhibit D (the "Additional Warrant
Certificate") evidencing warrants to purchase 53,848,131 shares
of the Common Stock (the "Additional Warrants" and, together with
the Additional Notes, the Series B Preferred and the Common Stock
into which the Series B Preferred is convertible and the
Additional Warrants are exercisable, the "Securities").
(d) The management of the Companies shall have until
May 28, 1996 to inform the Investor in writing of their desire to
participate in the Management Participation Agreements on terms
mutually agreed between such individuals and the Investor.
1.2 Closing. The purchase, sale and issuance of the
Series B Preferred, the Additional Warrants and the initial
tranche of the Additional Notes, shall take place at the offices
of O'Melveny & Myers, 400 South Hope Street, Los Angeles,
California 90071, at 10:00 A.M., on or before May 21, 1996 upon
satisfaction of the conditions set forth in Sections 6 and 7, or
at such other time or place as the Companies and the Investor
mutually agree in writing (which time and place are designated as
the "Closing"). At the Closing, the Companies shall deliver to
the Investor (i) the Additional Notes being purchased by the
Investor on such Purchase Date against delivery to the Companies
by the Investor of bank checks, bank wires or personal checks
satisfactory to the Companies in the amount of the purchase price
therefor payable to the order of SOV and FYI, (ii) the Series B
Preferred the Investor is purchasing against delivery to SOV by
the Investor of bank checks, bank wires or personal checks
satisfactory to the Companies in the amount of the purchase price
therefor payable to the order of SOV, and (iii) the Additional
Warrant Certificate evidencing the Additional Warrants. On each
Purchase Date, if the conditions precedent to the Investor's
purchase on such date are satisfied, the Companies shall deliver
to the Investor the Additional Notes the Investor is purchasing
on such date against delivery to the Companies by the Investor of
bank checks, bank wires or personal checks satisfactory to the
Companies in the amount of the purchase price therefor payable to
the order of SOV and FYI.
1.3 Use of Proceeds. The Companies will apply the
proceeds from the sale of the Additional Notes (i) first to repay
or prepay, as the case may be, all Temporary Loans in full,
including all accrued and unpaid interest thereon, and (ii)
second to repay existing accounts payable and accrued expenses of
SOV (including amounts payable by SOV or FYI pursuant to Section
11.10), and for working capital of SOV, and to finance the
development and ongoing operations of FYI. SOV will apply the
proceeds from the sale of the Series B Preferred to finance
ongoing working capital requirements.
2. Payment, Prepayment and Purchase of the Notes.
2.1 Required Quarterly Repayments of the Notes.
(a) Required Repayments of the Note. On June 30,
September 30 and December 31, 1997 and March 31, 1998 (so long as
any Additional Notes shall remain outstanding), the Companies
jointly and severally shall repay, and there shall become due and
payable, an aggregate principal amount equal to the lesser of (i)
1/5 of the aggregate principal amount of Additional Notes
outstanding on June 30, 1997, and (ii) the aggregate principal
amount of the Additional Notes then outstanding. The last
principal installment of the Additional Notes in an amount equal
to the aggregate principal amount of the Additional Notes then
outstanding, together with all accrued and unpaid interest
thereon, shall become due and payable on June 30, 1998, the
maturity date of the Additional Notes.
(b) Interest on the Additional Notes shall be due and
payable on the last day of each month commencing May 31, 1996,
until the maturity of the Additional Notes (each an "Interest
Payment Date"). Subject to the last sentence of this paragraph,
however, at the option of the Companies, payment of the interest
accruing on the outstanding Additional Notes and the Existing
Notes during each month and due on each Interest Payment Date
prior to December 31, 1996 may be deferred if during such month
the Combined Operating Cash Flow was not positive. Such deferred
interest will not bear interest prior to December 31, 1996, but,
to the extent not theretofore paid, shall bear interest on and
after December 31, 1996 at the rate applicable to the Additional
Notes to the extent permitted by applicable law. Prior to
December 31, 1996, all such deferred and current interest will be
paid on a cumulative basis on each Interest Payment Date only to
the extent that the Combined Operating Cash Flow in the month to
which such Interest Payment Date corresponds was positive;
provided that all such deferred, accrued and unpaid interest
shall be paid in full on or before December 31, 1996. Interest
due and payable on or after December 31, 1996 on any outstanding
Additional Notes shall not be deferred. If the Companies elect
to defer any portion of the interest due on any Interest Payment
Date as provided above, the Companies shall provide the Investor
at least 5 business days' written notice of such election and
such notice shall set forth in reasonable detail the Operating
Cash Flow during each month for which the Companies seek to defer
interest and the amount of interest the Companies wish to defer
and otherwise be satisfactory in form and substance to the
Investor in its reasonable discretion.
(c) Obligation to Pay Full Amount. Each repayment
made pursuant to Section 2.1(a) shall be at 100% of the principal
amount so to be repaid, together with interest accrued thereon to
the date of such repayment, without premium. No prepayment or
redemption of less than all of the Additional Notes pursuant to
Section 2.2 or Section 2.3 shall relieve the Companies of their
obligation to make the repayments of principal on the Additional
Notes required by paragraph (a) of this Section 2.1.
(d) If the date on which a payment of principal and/or
interest on the Additional Notes pursuant to this Agreement and
such Additional Notes is not a business day, such payment shall
be made on the next succeeding business day and interest shall
accrue during such period of extension.
2.2 Optional Prepayments. The Companies may, at their
option, at any time upon not less than 10 days' and not more than
30 days' prior written notice to each holder, on the date and in
the amount specified in such notice, prepay the Additional Notes
in whole or from time to time in part, each such prepayment to be
made at the principal amount of the Additional Notes so to be
prepaid together with all interest deferred or accrued and unpaid
on such principal amount to the date of prepayment, without
premium.
2.3. Mandatory Redemption. The Companies hereby
jointly and severally covenant and agree that:
(a) Upon the receipt of any proceeds from the issuance
of equity of SOV or FYI (other than equity issued to management
pursuant to a management incentive plan approved by the holder or
holders of more than 50% of the outstanding principal amount of
the Existing Notes and Additional Notes and other than equity
issued to the holders of the Existing Notes and Additional Notes)
they will immediately apply 100% of such proceeds (net of
reasonable costs of issuance) (i) first to the redemption of the
Additional Notes then outstanding at a redemption price equal to
the principal amount of the Additional Notes together with all
accrued and any deferred and unpaid interest thereon through the
date of redemption, without premium, and then (ii) to the
redemption of the Existing Notes in accordance with the terms of
the Existing Note Agreement.
(b) Upon the receipt of any proceeds of sales and
other dispositions of assets by either of the Companies (other
than (i) sales of inventory in the ordinary course of business ,
(ii) sales of obsolete or worn out equipment in the aggregate
amount of up to $10,000 per fiscal year to the extent that the
proceeds of such sales are used to purchase replacement
equipment, or (iii) such other exceptions as may be approved from
time to time by the holder or holders of more than 50% of the
outstanding principal amount of the Existing Notes and the
Additional Notes), they will immediately apply 100% of such
proceeds (net of reasonable out-of-pocket expenses) (i) first to
the redemption of the Additional Notes then outstanding at a
redemption price equal to the principal amount of the Additional
Notes being redeemed together with all accrued and any deferred
and unpaid interest thereon through the date of redemption,
without premium, and then (ii) to the redemption of the Existing
Notes in accordance with the terms of the Existing Note
Agreement.
(c) Upon the receipt of any tax refunds from any
domestic or foreign taxing authority by either of the Companies,
the Companies shall immediately apply 100% of the proceeds of
such refunds (i) first to the redemption of the Additional Notes
then outstanding at a redemption price equal to the principal
amount of the Additional Notes being redeemed, together with all
accrued and any deferred and unpaid interest thereon through the
date of redemption, without premium, and then (ii) to the
redemption of the Existing Notes in accordance with the terms of
the Existing Note Agreement.
(d) Upon release of the Gross Cash Proceeds of the
Accounting Claims from the Escrow Account, such amounts will
immediately be paid to the Investor and the Investor shall (i)
apply an amount in the aggregate equal to 60% of the Net Cash
Proceeds from the 1993 Claim and 75% of the Net Cash Proceeds
from the 1994 Claim (such aggregate amount is hereinafter
referred to as the "Prepayment Amount") (A) first to the
redemption of the Additional Notes then outstanding at a
redemption price equal to the principal amount of the Additional
Notes being redeemed, together with all accrued and any deferred
and unpaid interest thereon through the date of redemption,
without premium, and (B) second to the redemption of the Existing
Notes in accordance with the terms of the Existing Note
Agreement, (ii) retain an amount equal to all fees and expenses
for which the Companies are obligated pursuant to clause (a) of
Section 11.10 (including but not limited to the reasonable fees
and expenses of O'Melveny & Myers, counsel to the Investor) for
which the Companies shall have theretofore received invoices and
(iii) deliver to SOV an amount equal to the Attorneys' Fees to be
used by SOV to pay such Attorneys' Fees. If no Event of Default
has occurred and is then continuing, any proceeds remaining after
such application shall be delivered to the Companies to be used
by the Companies first to pay the reasonable fees and
disbursements of their counsel, Christensen, White, Miller, Fink,
Jacobs, Glaser & Shapiro L.L.P. as invoiced on or before such
date, and then for other authorized corporate purposes. If an
Event of Default has occurred and is then continuing, the
Investor shall apply the remaining proceeds in accordance with
the applicable security agreements (i) first to the redemption of
all Additional Notes, if any, then due and payable as a result of
such Event of Default or otherwise become due, at a redemption
price equal to the principal amount thereof, together with all
accrued, deferred and unpaid interest thereon to the date of
redemption, and then (ii) to the redemption of the Existing Notes
in accordance with the terms of the Existing Note Agreement.
Upon the written request of the Companies, given within 30 days
of the date on which the Gross Cash Proceeds of the Accounting
Claims are released from the Escrow Account, the Investor shall,
within 5 business days of receipt of such request, provide to the
Companies a written accounting of the application of such
proceeds.
2.4 Right to Put.
(a) Granting of Put to Holders of Additional Notes.
The Companies hereby give and grant to each holder of Additional
Notes the option, right and privilege (such option, right and
privilege herein collectively referred to as the "Right to Put")
to require the Companies upon or after the occurrence of a Put
Event (unless such occurrence or event shall receive prior
approval by the holders of more than 50% of the outstanding
principal amount of the Additional Notes) to purchase from such
holder on the terms and conditions hereinafter set forth, and the
Companies jointly and severally agree so to purchase from such
holder, for an amount equal to the principal amount of the
Additional Notes together with deferred and accrued and unpaid
interest thereon through the date of such purchase, without
premium, that amount of Additional Notes specified by such
holder.
(b) Granting of Put to Holders of Series B Preferred.
SOV hereby gives and grants to each holder of Series B Preferred
the option, right and privilege (such option, right and privilege
herein collectively referred to as the "Right to Put") to require
SOV upon or after the occurrence of a Put Event (unless such
occurrence or event shall receive prior approval by the holders
of more than 50% of the outstanding Series B Preferred) to
purchase from such holder on the terms and conditions hereinafter
set forth, and SOV agrees so to purchase from such holder, for an
amount equal to the liquidation preference of the Series B
Preferred together with accrued and unpaid dividends through the
date of such purchase, without premium, that amount of Series B
Preferred specified by such holder.
(c) Exercise of Put. Within five days after the
occurrence of a Put Event (unless such occurrence shall receive
prior approval as contemplated in Section 2.4(a) and (b)), the
Companies shall give each holder of Additional Notes and each
holder of Series B Preferred written notice thereof describing
the Put Event, and the facts and circumstances surrounding the
occurrence thereof, in reasonable detail. At any time prior to
30 days after any holder of Additional Notes or any holder of
Series B Preferred shall receive such notice, such holder may
exercise its Right to Put by delivering to the Companies a notice
of sale (a "Notice of Sale") substantially in the form of Exhibit
E hereto (with appropriate insertions based on whether the Notice
of Sale is delivered by a holder of Additional Notes or a holder
of Series B Preferred). If a holder of Additional Notes shall
deliver a Notice of Sale, the Companies shall purchase the amount
of Additional Notes specified by such holder in the Notice of
Sale on the date specified in such notice (which shall not be
less than ten days after delivery of such Notice of Sale), and
such holder shall sell such Additional Notes to the Companies
without recourse, representation or warranty (other than as to
such holder's full right, title and interest to such Additional
Notes free of any adverse claim therein) at a price, payable in
immediately available funds by wire transfer to the account
specified in such notice, equal to the principal amount of the
Additional Notes together with all deferred and accrued and
unpaid interest thereon through the date of such purchase,
without premium. If a holder of Series B Preferred shall deliver
a Notice of Sale, SOV shall purchase the amount of Series B
Preferred specified by such holder in the Notice of Sale on the
date specified in such notice (which shall not be less than ten
days after delivery of such Notice of Sale), and such holder
shall sell such Series B Preferred to SOV without recourse,
representation or warranty (other than as to such holder's full
right, title and interest to such shares of Series B Preferred
free of any adverse claim therein) at a price, payable in
immediately available funds by wire transfer to the account
specified in such notice, equal to the liquidation preference of
the Series B Preferred, together with accrued and unpaid
dividends through the date of such purchase, without premium.
(d) Put Event. For the purposes of this Section 2.4,
a "Put Event" shall mean the occurrence or continuation of any of
the following events:
(i) a sale of either of the Companies to or a
consolidation or merger of either of the
Companies with any other Person (other than a
merger of FYI into SOV) or a sale, lease,
transfer or other disposition of all or
substantially all of either Companies'
properties or assets (whether now owned or
hereafter acquired) to any other Person in
one or a series of related transactions; or
(ii) any transaction or series of transactions
(whether by purchase of existing shares of
common stock, issuance of shares of common
stock, merger, consolidation or otherwise,
except as a result of issuance or transfer of
the Existing Warrants, the Arnold Warrants or
the Additional Warrants, exercise of the
Existing Warrants, the Arnold Warrants, the
Additional Warrants, the Settlement Warrants,
the Independent Committee Warrants or the
Shutler Warrants, options previously issued
pursuant to management incentive plan as set
forth on Schedule 3.2(d) and options issued
pursuant to management incentive plans which
have been approved in writing by holders of
50% or more of the Existing Notes and the
Additional Notes, or conversion of the Series
A Preferred or the Series B Preferred) the
result of which is that any Person or group
of Persons other than the Investor (or the
holders of 50% or more of the outstanding
Series A Preferred or the Series B Preferred
or 50% or more of the outstanding principal
amount of the Existing Notes or the
Additional Notes) becomes the beneficial
owner (as such term is defined in the federal
securities laws), directly or indirectly, of
10% or more of the common stock of either of
the Companies; or
(iii) the closing of the offering by either of
the Companies of its securities for sale
to the investment public pursuant to an
effective registration statement.
2.5 Allocation of Partial Repayments, Prepayments and
Redemptions. In the case of each partial repayment, prepayment
or redemption of the Additional Notes, the principal amount of
the Additional Notes to be repaid, prepaid or redeemed shall be
allocated among the Additional Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore repaid, prepaid or
redeemed.
3. Representations and Warranties of the Companies.
The Companies hereby represent and warrant, jointly and
severally, to the Investor that:
3.1 Organization, Good Standing and Qualification.
Each of SOV and Dycam, Inc., a Delaware corporation and
Subsidiary of SOV ("Dycam"), is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware (provided that Dycam's good standing status is
dependent upon payment of certain delinquent franchise taxes,
which the Companies are informed and believe Dycam has taken or
is taking action to pay or otherwise correct its tax status), FYI
is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and each of
the Companies and Dycam has all requisite corporate power and
authority to carry on its business as now conducted and as
proposed to be conducted. Each of SOV and Dycam is duly
qualified to transact business and is in good standing in
California and each of the Companies and Dycam is duly qualified
to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse
effect on its business or properties.
3.2 Capitalization.
(a) Capitalization of SOV. The authorized capital of
SOV consists, or will consist prior to the Closing, of:
(i) 1,000,000 shares of preferred stock, par
value $.001 per share (the "Preferred Stock"), of which 500
shares have been designated Series A Preferred (all of which are
issued and outstanding), and of which 500 shares have been
designated Series B Preferred (none of which are issued and
outstanding). No other shares of Preferred Stock have been
issued and are outstanding or have been authorized or reserved
for issuance
(ii) 10,000,000 shares of Common Stock, of which
4,505,332 shares are issued and outstanding.
(b) Capitalization of FYI. The authorized capital of
FYI consists, or will consist prior to the Closing, of 10,000,000
shares of common stock, no par value per share, of which 100,000
shares are issued and outstanding.
(c) Capitalization of Dycam. The authorized capital
of Dycam consists, or will consist prior to the Closing, of:
(i) 1,000,000 shares of preferred stock, par
value $.001 per share, none of which are issued and outstanding.
(ii) 19,000,000 shares of common stock, par value
$0.01 per share, of which 3,120,836 shares are issued and
outstanding.
(d) Agreements for the Purchase of Shares. Except for
(i) the conversion privileges of the Series A Preferred and the
Series B Preferred, (ii) the Existing Warrants, the Additional
Warrants, the Arnold Warrants, the Shutler Warrants, the
Independent Committee Warrants, and the Settlement Warrants and
(iii) the options issued pursuant to the SOV management incentive
plan and other SOV stock option plans, in each case, as set forth
on Schedule 3.2(d), there are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements
for the purchase or acquisition from any of SOV, FYI or Dycam of
any shares of any of their capital stock and, except for the
Existing Note Agreement, this Agreement, the Arnold Warrant, the
Shutler Warrants, the Independent Committee Warrants, and the
Settlement Warrants, none of SOV, FYI and (to the best knowledge
of the Companies) Dycam have made any commitment or incurred any
obligation to issue any such options, warrants, rights or
agreements. None of the options, warrants, rights or agreements
for the purchase or acquisition from any of SOV, FYI or Dycam of
any shares of any of their capital stock (other than the Series A
Preferred, the Series B Preferred, the Existing Warrant, the
Additional Warrants, the Shutler Warrants, the Independent
Committee Warrants and the Arnold Warrants) are entitled to, or
have the benefit of, anti-dilution rights.
3.3 Subsidiaries.
(a) SOV presently owns of record and beneficially (i)
80% of the issued and outstanding capital stock of FYI (with the
balance of such capital stock being owned of record by Dana
Arnold), (ii) 1,916,667 shares, representing approximately 61%,
of the issued and outstanding capital stock of Dycam and (iii)
100% of the issued and outstanding capital stock of Styles
Servicing, Inc., a California corporation ("Styles"). Other than
its interests in Styles, FYI and Dycam, SOV does not presently
own or control, directly or indirectly, any interest in any other
corporation, association, partnership or other business entity.
None of FYI, Dycam nor Styles presently owns or controls,
directly or indirectly, any interest in any other corporation,
association, partnership or other business entity.
(b) All of the outstanding shares of capital stock or
similar equity interests of each Subsidiary owned by SOV has been
validly issued and is owned by SOV free and clear of any Lien,
except for the Lien on the shares of FYI stock conveyed to the
Investor pursuant to the Existing Pledge Agreement, the Lien on
the shares of Dycam stock conveyed to Dycam and any Lien on the
Dycam common stock granted to the Investor.
(c) Styles has no material assets or business.
3.4 Authorization. All corporate action on the part
of the Companies necessary for the authorization, execution and
delivery of this Agreement, the Additional Notes and the
Additional Related Agreements and the performance of all of their
obligations hereunder and thereunder, the adoption of the Series
B Certificate of Designation and the authorization of the filing
of the Series B Certificate of Designation with the Delaware
Secretary of State, and the authorization, issuance and delivery
of the Additional Notes, the Additional Warrants and the Series B
Preferred being sold hereunder has been taken or will be taken on
or prior to the Closing. This Agreement and the Additional
Related Documents constitute, and the Additional Notes when
issued, sold and delivered pursuant to Section 1.1(a) will
constitute, the valid and legally binding obligations of the
Companies, enforceable jointly and severally against the
Companies in accordance with their terms. The Series B
Certificate of Designation will be duly filed and become
effective in the State of Delaware prior to the Closing. The
Series B Preferred and the Additional Warrants, when issued, sold
and delivered at the Closing, shall constitute the valid and
legally binding obligations of SOV, enforceable against SOV in
accordance with their terms.
3.5 Valid Issuance of Preferred and Common Stock.
(a) The outstanding shares of the Common Stock have
been duly authorized, issued and delivered and are validly
outstanding, fully paid and nonassessable.
(b) The Series B Preferred and the Additional
Warrants, when issued, sold and delivered at the Closing in
accordance with the terms of this Agreement, will be duly and
validly issued, fully paid and nonassessable.
(c) The Common Stock issuable upon conversion of the
Series A Preferred and the Series B Preferred and upon exercise
of the Existing Warrants and Additional Warrants, has been, or
will be prior to October 31, 1996 duly and validly reserved for
issuance, and, upon issuance in accordance with the applicable
conversion or exercise terms thereof, will be duly and validly
issued, fully paid and nonassessable. Based in part upon the
representations of the Investor in this Agreement, the Securities
will be issued in compliance with all applicable federal and
state securities laws. Neither the Companies nor anyone acting
on behalf of either of them has taken, or will take, any action
that would subject the issuance or sale of the Securities to the
registration requirements of Section 5 of the Securities Act.
3.6 Governmental and Regulatory Consents. No consent,
approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of
the Companies is required in connection with the consummation of
the transactions contemplated by this Agreement, the Additional
Related Agreements and the Series B Certificate of Designation,
except for the filings pursuant to applicable state and federal
securities laws, and filings necessary to perfect Liens in favor
of the Investor.
3.7 Litigation. There is no action, suit, proceeding
or investigation pending or, to the best knowledge of each of the
Companies, currently threatened against either of the Companies
or Dycam which (i) questions the validity of this Agreement or
the Additional Related Agreements or the right of either of the
Companies to enter into it or them, or to consummate the
transactions contemplated hereby or thereby, (ii) might result,
either individually or in the aggregate, in any material adverse
change in the assets, condition, affairs or prospects of either
of the Companies or Dycam, financially or otherwise, except as
set forth in Schedule 3.7A or (iii) might result in any change in
the current equity ownership of either of the Companies or Dycam
(except for the shares of Common Stock issuable upon exercise of
the Settlement Warrants), nor are the Companies aware of the
existence of any basis for any matter described in the foregoing
clauses (i), (ii) or (iii). Schedule 3.7A includes, without
limitation, any actions pending or threatened (or any basis
therefor known to either of the Companies) involving the prior
employment of any of the Companies' or Dycam's employees, their
use in connection with the businesses of the Companies or Dycam
of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements
with prior employers. Except as set forth on Schedule 3.7A,
neither of the Companies nor Dycam is a party or subject to the
provisions of any order (except as imposed by laws of general
application), writ, injunction, judgment or decree (except as
imposed by laws of general application) of any court or
government agency or instrumentality. Except as set forth in
Schedule 3.7B, there is no action, suit, proceeding or
investigation of either of the Companies or Dycam currently
pending or which either of the Companies or Dycam intends to
initiate, which would be material to either of the Companies or
Dycam or their businesses.
3.8 Patents and Trademarks. Except as set forth in
Schedule 3.8, to the best knowledge of each of the Companies, the
Companies and Dycam have sufficient title and ownership of all
Proprietary Rights material to their businesses as now conducted
and as proposed to be conducted and such Proprietary Rights do
not conflict with or infringe upon the rights of others. There
are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor are the Companies or Dycam bound
by or a party to any options, licenses or agreements of any kind
with respect to the Proprietary Rights of any other person or
entity that could be material to their businesses. Except as set
forth in Schedule 3.8, neither of the Companies nor Dycam has
received any communications alleging that either of the Companies
or Dycam has violated or, by conducting their businesses as
proposed, could violate any of the Proprietary Rights of any
other person or entity. Neither of the Companies nor Dycam is
aware that any of its employees are obligated under any contract
(including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree (except as
imposed by laws of general application) or order (except as
imposed by laws of general application) of any court or
administrative agency, that could interfere with the use of his
or her best efforts to promote the interests of the Companies and
Dycam or that could conflict with their businesses as proposed to
be and as currently conducted. To the best knowledge of each of
the Companies, there is no material violation by any Person of
any right of either of the Companies or Dycam with respect to any
Proprietary Rights owned or used by either of the Companies or
Dycam.
3.9 Compliance With Other Instruments. Except as set
forth on Schedule 3.9, neither of the Companies nor, to the best
knowledge of each of the Companies, Dycam is in violation or
default of (i) any provisions of their respective charters or
bylaws, or (ii) any instrument, judgment, order, writ or decree
by which any of them is bound. Neither of the Companies nor, to
the best knowledge of each of the Companies, Dycam is in
violation or default of any provisions of any contract to which
it is a party or by which it is bound (except for such violations
under the Existing Note Agreement previously disclosed to the
Investor in writing) or of any provision of any federal or state
statute, rule or regulation applicable to any of them, which
violation or default would be materially adverse to any of them
or any of their businesses. The execution, delivery and
performance of this Agreement, the Additional Notes and the
Additional Related Agreements and the consummation of the
transactions contemplated hereby and thereby, and the adoption
and filing with the Delaware Secretary of State of the Series B
Certificate of Designation, will not result in any such violation
or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such
provision, instrument, judgment, order, writ, decree, contract,
statute, rule or regulation or an event which results in the
creation of any material lien (except for liens securing the
Additional Notes), charge or encumbrance upon any assets of
either of the Companies or Dycam.
3.10 Agreements; Action.
(a) Except as set forth in Schedule 3.10A or the
Binders, there are no agreements, understandings, instruments or
contracts to which either of the Companies is a party or by which
either of them is bound which involve (i) obligations of, or
payments by either of the Companies in excess of $50,000, other
than obligations with respect to compensation under employment or
consulting agreements previously disclosed to the Investor in
writing, (ii) the license of any patent, copyright, trademark,
tradename, trade secret or other Proprietary Right of the
companies, (iii) material obligations to any of the companies'
officers, directors or affiliates or (iv) any other agreement
material to the business, operations or prospects of either of
the Companies.
(b) Except as set forth in Schedule 3.10B or the
Binders, since February 29, 1996, neither of the Companies nor
Dycam has (i) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess
of $10,000 or in excess of $100,000 in the aggregate, other than
obligations under the Existing Note Agreement, this Agreement or
the Temporary Loans or with respect to compensation under
employment or consulting agreements (including the Existing
Arnold Employment Agreement, the Amended and Restated Employment
Agreement and the Brymarc Consulting Agreement), (iii) made any
loans or advances to any person, other than ordinary advances for
travel expenses or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than (A) the sale of its
inventory in the ordinary course of business and (B) the sale of
worn-out or obsolete equipment in the ordinary course of business
in an aggregate amount not exceeding $5,000 to the date hereof.
(c) Neither of the Companies nor Dycam is a party to
or is bound by any contract, agreement or instrument, or subject
to any restriction under its charter or bylaws, that materially
and adversely affects its business as now conducted or as
proposed to be conducted, its properties or its financial
condition.
3.11 Disclosure. The Companies believe that they have
fully provided the Investor with all of the information which the
Investor has requested for deciding whether to purchase the
Additional Notes, the Series B Preferred and the Additional
Warrants.
3.12 Information. Neither this Agreement, the
Additional Related Agreements nor any other statements or
certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or,
when considered as a whole, omits to state a material fact
necessary to make the statements herein or therein not
misleading.
3.13 Registration Rights. Except as granted to the
Investor under the Amended and Restated Registration Rights
Agreement, to Eugene Shutler pursuant the Shutler Consulting
Agreement, to Ann Ehringer pursuant to the grant of the
Independent Committee Warrants and to Dana Arnold pursuant to the
Arnold Registration Rights Agreement, SOV has not granted or
agreed to grant any registration rights, including piggyback
rights, to any Person.
3.14 Corporate Documents. The charter and bylaws of
each of the Companies and Dycam, together with the Series B
Certificate of Designation, are in the form previously provided
to the Investor and to counsel to the Investor.
3.15 Title to the Property and Assets. Each of the
Companies and Dycam owns its property and assets free and clear
of all mortgages, liens, loans and encumbrances, except for liens
securing obligations under the Existing Note Agreement, this
Agreement and the Temporary Loans and such other encumbrances and
liens which are described on Schedule 3.15. With respect to the
property it leases, each of the Companies and Dycam is in
compliance with such leases and holds a valid leasehold interest
free of any material liens, claims or encumbrances.
3.16 Employee Benefit Plans.
(a) Schedule 3.16 sets forth all employee benefit
plans, as defined in Section 3(3) of ERISA, that are sponsored or
contributed to by either of the Companies or Dycam covering
employees or former employees of any of them ("Employee Benefit
Plans") and all material benefit arrangements, that are not
Employee Benefit Plans, including each arrangement providing for
insurance coverage, workers' compensation benefits, incentive
bonuses, deferred bonus arrangements and equity compensation
plans maintained by either of the Companies or Dycam covering
employees, or former employees ("Benefit Arrangements").
(b) Neither of the Companies nor Dycam sponsors,
maintains or contributes to, or has an obligation to contribute
to, or, within the five years prior to the Closing, maintained,
contributed to or was required to contribute to, any "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
that is subject to Title IV of ERISA. Neither of the Companies
nor Dycam sponsors, maintains or contributes to, or has incurred
an obligation to contribute to or, within the five years prior to
the Closing, maintained, contributed to or was required to
contribute to, any Multiemployer Plan. No employee benefit plan
has participated in, engaged in or been a party to any non-exempt
"prohibited transaction" (as defined in ERISA or the Code) and
neither of the Companies nor (to the best knowledge of the
companies) Dycam has incurred any liability for taxes under Code
Sections 4971, 4972,4975, 4976, 4977, 4979, 4980 or 49808, or for
penalties under ERISA Section 502(c)(i) or (1), with respect to
any Employee Benefit Plan. No officer, director or employee of
either Company or (to the best knowledge of the Companies) Dycam
has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA with
respect to any Employee Benefit Plan. There is no violation of
any reporting or disclosure requirement imposed by ERISA or the
Code with respect to any Employee Benefit Plan. Each Employee
Benefit Plan and Benefit Arrangement has at all times prior
hereto been maintained in all material respects, by its terms and
in operation, in accordance with its terms and all applicable
laws.
(c) With respect to each Employee Benefit Plan and
Benefit Arrangement, other than ordinary claims for benefits
pursuant to terms of any Employee Benefit Plan or Benefit
Arrangement, there is no claim pending or, to the best knowledge
of either of the Companies, threatened, against or involving any
Employment Benefit Plan or Benefit Arrangement by any Person or
any governmental authority.
3.17 Tax Returns and Payments. Except as set forth in
Schedule 3.17, (i) each of the Companies and Dycam has filed all
tax returns and reports as required by law, (ii) these returns
and reports are true and complete in all material respects and
(iii) each of the Companies and Dycam has paid all taxes and
other assessments due prior to the time penalties would accrue
thereon. The provision for taxes of each of the Companies and
Dycam reflected on their most recent financial statements is
adequate for taxes due or accrued as of the date thereof.
3.18 Insurance. Each of the Companies and Dycam has in
full force and effect fire and casualty insurance policies, with
extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow each of them to replace any of their
properties that might be damaged or destroyed.
3.19 Minute Books. Except as set forth in Schedule
3.19, the minute books of each of the Companies included in the
Binders, together with the certified resolutions delivered at the
Closing, contain an accurate and appropriate summary of all
meetings of directors, committees and stockholders since the time
of incorporation through the Closing and reflect all transactions
referred to in such minutes accurately in all material respects
or contain an accurate and complete summary of all material
decisions and actions.
3.20 Labor Agreements and Actions. Neither of the
Companies nor Dycam is bound by or subject to (and none of their
assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the
best knowledge of each of the Companies, has sought to represent
any of the employees of either of the Companies or Dycam. Except
as set forth on Schedule 3.20, there is no strike or other labor
dispute involving either of the Companies or Dycam pending, or to
the best knowledge of each of the Companies threatened, which
could have a material adverse effect on the assets, financial
condition, operating results, business or prospects of either of
the Companies or Dycam (as each such business is presently
conducted and as it is proposed to be conducted), nor are either
of the Companies aware of any labor organization activity
involving any of their or Dycam's employees. Neither of the
Companies is aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment
with either of the Companies or Dycam, nor do either of the
Companies have a present intention to terminate the employment of
any of the foregoing.
3.21 Financial Statements. The Companies have
delivered to the Investor the audited consolidated and
consolidating financial statements (balance sheet, statement of
operations and (consolidated only) statement of cash flows) of
SOV and its subsidiaries (including FYI and Dycam) at and for the
year ended December 31, 1994, the unaudited consolidated and
consolidating financial statements (balance sheet and statement
of operations) of SOV and its subsidiaries (including FYI and
Dycam) at and for the year ended December 31, 1995, and the
unaudited consolidated and consolidating financial statements
(balance sheet and statement of operations) of SOV and its
subsidiaries (including FYI and Dycam) at and for the two-month
period ended February 29, 1996 (the "Financial Statements). The
Financial Statements are complete and correct in all material
respects, subject to the absence of footnotes, the absence of a
statement of cash flows and normal year-end adjustments in the
case of the February 29, 1996 financial statements, and have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated and are consistent as between
audited and unaudited financial statements. The Financial
Statements accurately set out and describe the financial
condition and operating results of the Companies and Dycam as of
the dates, and for the periods, indicated therein, subject, in
the case of the February 29, 1996 financial statements, to the
absence of footnotes, the absence of a statement of cash flows
and normal year-end audit adjustments. Except as set forth in
the Financial Statements, the Companies and Dycam have no
liabilities, contingent or otherwise, other than (a) liabilities
incurred in the ordinary course of business subsequent to
February 29, 1996 and (b) obligations under contracts and
commitments incurred in the ordinary course of business, which,
individually or in the aggregate, are not material to the assets,
financial condition, operating results, business or prospects of
the Companies or Dycam.
3.22 Changes. Since February 29, 1996, other than as
disclosed in the Schedules hereto, including Schedule 3.22, and
in the Binders, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of either of the Companies or
Dycam from that reflected in the Financial Statements, except
changes in the ordinary course of business which have not been,
in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the
assets, financial condition, operating results, prospects or
businesses of either of the Companies or Dycam (as such
businesses are presently conducted and as they are proposed to be
conducted);
(c) any waiver by either of the Companies or Dycam of
a valuable right or of a material debt owed to it, except as set
forth in the Dycam Override Deferral Agreement;
(d) any change or amendment to a material contract or
agreement by which either of the Companies or Dycam or any of
their assets is bound or subject (except for the extension of the
Dycam Note and the amendments to the Existing Note Agreement and
Existing Related Agreements as expressly contemplated by this
Agreement);
(e) any material change in any compensation
arrangement or agreement with any employee (except as expressly
contemplated by this Agreement, including the Shutler Consulting
Agreement); or
(f) to the best knowledge of each of the Companies,
any other event or condition of any character which might
materially and adversely affect the assets, financial condition,
operating results, businesses or prospects of either of the
Companies or Dycam (as such businesses are presently conducted
and as they are proposed to be conducted).
3.23 Voting-Arrangements. To the best knowledge of
each of the Companies, there are no outstanding stockholder
agreements, voting trusts, proxies or other arrangements or
understandings among the stockholders of the Companies or Dycam
relating to the voting of their respective shares.
3.24 Status Under Certain Statutes. Neither of the
companies nor Dycam is subject to regulation under the Investment
Company Act of 1940, as amended, or any other statute that limits
the ability of the Companies or Dycam to incur indebtedness.
3.25 No Default. Except as set forth in Schedule 3.9,
no Default or Event of Default exists and neither of the
Companies has entered into any transaction since February 29,
1996 that would have been prohibited by Sections 8.1, 8.4, 8.5,
8.7. 8.8 and 8.9 of this Agreement had such Sections applied
since such date.
3.26 Margin Regulations. No part of the proceeds from
the sale of the Securities hereunder will be used, directly or
indirectly, for the purpose of buying or carrying any margin
stock within the meaning of Regulation G, Regulation X or
Regulation T of the Board of Governors of the Federal Reserve
System (the "Margin Regulations") or for the purpose of buying or
carrying or trading in any securities under such circumstances as
to involve either of the Companies or any broker or dealer in a
violation of the Margin Regulations. Margin stock does not
constitute more than 10% of the value of the consolidated assets
of SOV and its Subsidiaries and neither of the Companies has any
present intention that margin stock will constitute more than 10%
of the value of such assets.
4. Representations and Warranties of the Investor.
The Investor hereby represents and warrants to the Companies
that:
4.1 Authorization. The Investor represents that it
has full power and authority to enter into this Agreement. This
Agreement constitutes its valid and legally binding obligation,
enforceable in accordance with its terms.
4.2 Purchase Entirely for Own Account. Except as
contemplated in connection with the Management Participation
Agreements, the Securities will be acquired for investment for
the Investor's own account or for the account of one or more
limited partners of the Investor, not as a nominee or agent, and
not with a view to the resale or distribution of any part
thereof. By executing this Agreement, except for possible
transfers to limited partners of the Investor who have
acknowledged these representations and warranties as applied to
each of them (and which do not exceed ten), the Investor further
represents that other than as contemplated in connection with the
Management Participation Agreements the Investor does not have
any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person
or to any third person, with respect to any of the Securities.
4.3 Investment Experience. The Investor and each
limited partner of the Investor is an investor in securities of
companies in the development stage and acknowledges (and has been
advised by each limited partner of the Investor) that it is able
to fend for itself, can bear the economic risk and complete loss
of its investment and has such knowledge and experience in
financial or business matters such that it is capable of
evaluating the merits and risks of the investment in the
Securities.
4.4 Restricted Securities. The Investor understands
that the Securities it is acquiring are characterized as
"restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Companies in a
transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended
(the "Securities Act"), only in certain limited circumstances.
In this connection the Investor represents that it is familiar
with (and has been advised by each limited partner of the
Investor that it is familiar with) Securities and Exchange
Commission ("SEC") Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the
Securities Act.
4.5 Legends. It is understood that the certificates
evidencing the Securities may bear the legends set forth on the
respective Exhibits.
4.6 Accredited Investor. The Investor is (and has
been advised by each limited partner of the Investor that it is)
an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
5. State Securities Laws.
5.1 Corporate Securities Law.
(a) THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT
OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE.
(b) THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT
OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE DEPARTMENT OF
BANKING AND FINANCE, DIVISION OF SECURITIES AND INVESTOR
PROTECTION, OF THE STATE OF FLORIDA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTION 517.061 OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION
ACT.
6. Conditions of the Investor's Obligations at
Closing. The obligations of the Investor under subsection 1.1 of
this Agreement are subject to the fulfillment on or before the
Closing (and on each subsequent Purchase Date in the case of
Sections 6.3, 6.4 and 6.16) of the following conditions
(including, without limitation, the conditions set forth in
Section 6.25 with respect to the documents, certificates and
agreements required to be delivered pursuant to the other
conditions in this Section 6):
6.1 Representations and Warranties. The
representations and warranties of the Companies contained in this
Agreement shall be true on and as of the Closing with the same
effect as though such representations and warranties had been
made on and as of such date.
6.2 Performance. The Companies shall have performed
and complied with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or
complied with by them on or before such date.
6.3 Compliance Certificate. An authorized officer of
each of the Companies shall deliver to the Investor on each
Purchase Date a certificate certifying that the conditions
specified in Sections 6.1 and 6.2 have been fulfilled and stating
that there has been no adverse change in the business, affairs,
prospects, operations, assets or financial condition of the
Companies or (to their knowledge) Dycam since February 29, 1996
or the date of the last Compliance Certificate, whichever is
later.
6.4 Qualifications. Each of the Commissioner of
Corporations of the State of California and Department of Banking
and Finance, Division of Securities and Investor Protection,
shall have issued a permit qualifying the offer and sale of the
Securities to the Investor pursuant to this Agreement, or such
offer and sale shall be exempt from such qualification under each
of the California Corporate Securities Law of 1968, as amended,
and the Florida Securities and Investor Protection Act, as
amended.
6.5 Timeliness. The Closing shall have occurred by
May 21, 1996.
6.6 Proceedings and Documents. All corporate and
other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to the
Investor and the Investor's counsel, and the Investor shall have
received all such counterpart original and certified or other
copies of such documents as it may reasonably request.
6.7 Opinion of Companies' Counsel. The Investor shall
have received from Christensen, White, Miller, Fink, Jacobs,
Glaser & Shapiro LLP, counsel for the Companies, an opinion,
dated as of the Closing, in form and substance satisfactory to
the Investor (in its sole discretion).
6.8 Registration Rights. The parties hereto shall
have executed and delivered the Amended and Restated Registration
Rights Agreement substantially in the form attached hereto as
Exhibit G (the "Amended and Restated Registration Rights
Agreement").
6.9 Collateral and Other Documents. The Investor
shall have received (i) the Security Agreement (FYI) between FYI
and the Investor, substantially in the form attached hereto as
Exhibit H (the "Additional FYI Security Agreement"), executed by
FYI, (ii) the Security Agreement (SOV) between SOV and the
Investor, substantially in the form attached hereto as Exhibit I
(the "Additional SOV Security Agreement"), executed by SOV, (iii)
the Guaranty (FYI) of obligations of SOV, substantially in the
form attached hereto as Exhibit J (the "Additional FYI
Guaranty"), executed by FYI, (iv) the Guaranty (SOV) of
obligations of FYI, substantially in the form attached hereto as
Exhibit K (the "Additional SOV Guaranty"), executed by SOV, (v)
the Pledge Agreement in respect of stock of FYI and Styles,
substantially in the form attached hereto as Exhibit L (the
"Additional SOV Pledge Agreement"), executed by SOV, (vi) notices
of security interest in deposit accounts, in form satisfactory to
the Investor, addressed to each financial institution in respect
of each deposit account of SOV and FYI, executed by SOV and FYI,
respectively, (viii) notice of security interests in insurance
policies and rights thereunder, in form satisfactory to the
Investor, addressed to each insurance company in which SOV or FYI
has potential insurance claims, executed by SOV and FYI,
respectively, and (ix) notices of security interests in
trademarks and patents, in respect of any material trademarks or
patents of SOV or FYI, executed in appropriate form by SOV and
FYI for filing in the U.S. Trademark and Patent Offices. The
Investor shall also have such other agreements, documents and
certificates necessary in the judgment of the Investor to perfect
all Liens granted to the Investor pursuant to the Additional
Related Agreements and to consummate the transactions
contemplated by this Agreement and the Additional Related
Documents.
6.10 Cancellation of FYI Shares and Issuance of Arnold
Warrant; Satisfaction of Minority Interest Adjustment Agreement.
Dana I. Arnold ("Arnold"), the owner of 20% of the shares of FYI,
shall have surrendered to FYI for cancellation all of the shares
of common stock of FYI held by him in exchange for a warrant
certificate issued by SOV, substantially in the form attached
hereto as Exhibit M (the "Arnold Warrant"), evidencing warrants
to purchase 7,747,449 shares of the Common Stock, subject to
adjustments in the event of the consummation of a Topping Offer
transaction. Arnold shall have executed and delivered a receipt
for the Arnold Warrant which receipt shall acknowledge that the
requirements of the Minority Interest Adjustment Agreement, dated
as of November 20, 1995, among the Companies and Arnold have been
fully satisfied.
6.11 [Intentionally left blank].
6.12 Financial Statements; Information. The Companies
shall have delivered to the Investor such annual and quarterly
financial information and financial projections as shall be
satisfactory to the Investor.
6.13 Dycam Agreements. The Extension Agreement (as
defined in the Existing Note Agreement), pursuant to which Dycam
agreed to extend to a date on or after December 31, 1998
repayment of all outstanding indebtedness owed by SOV to Dycam
pursuant to the terms of that certain promissory note and pledge
agreement dated as of January 25, 1995 (collectively, the "Dycam
Note") and the related agreements shall be in full force and
effect. Dycam and SOV shall also have executed and delivered an
override deferral agreement substantially in the form attached as
Exhibit N (the "Dycam Override Deferral Agreement"). The
Investor shall also receive evidence satisfactory to it that the
Dycam Override Deferral Agreement was duly approved by all the
directors of Dycam not affiliated with the Investor.
6.14 Employment Agreement and Consulting Agreements.
Arnold shall have executed and delivered to FYI the Amended and
Restated Arnold Employment Agreement, dated the date of the
Closing, in the form attached hereto as Exhibit O (the "Amended
and Restated Arnold Employment Agreement"), and such Amended and
Restated Arnold Employment Agreement shall be in full force and
effect. Each of the Companies and Brymarc Management shall have
executed and delivered the Brymarc Management Consulting
Agreement in the form attached hereto as Exhibit P (the "Brymarc
Consulting Agreement"), and each of the Companies and Eugene
Shutler shall have executed and delivered the Shutler Consulting
Agreement in the form attached hereto as Exhibit Q (the "Shutler
Consulting Agreement").
6.15 Additional Securities. SOV shall have filed the
Series B Certificate of Designation in substantially the form
attached hereto as Exhibit D with the Delaware Secretary of
State. The Investor shall have been issued (i) 500 shares of the
Series B Preferred, with such rights, privileges and preferences
as shall be set forth in the Series B Certificate of Designation,
and (ii) the Additional Warrant Certificate evidencing the
Additional Warrants.
6.16 AMEX Status. Except as set forth on Schedule
6.16, the AMEX shall not have indicated, to the Investor or SOV,
that it intends to (or is likely to) disapprove the transactions
contemplated by this Agreement (including without limitation any
indication that the agreement to issue and the issuance of the
Additional Warrants and the Series B Preferred, and the Common
Stock issuable upon exercise of the Additional Warrants and the
conversion of the Series B Preferred, will violate any rule or
policy of the AMEX (including without limitation Section 713 and
Section 122)) or that it intends to (or is likely to) refuse to
permit or otherwise deny recommencement of trading of the
outstanding Common Stock on the American Stock Exchange.
6.17 Litigation Status. (a) The dispute relating to
the Accounting Claims shall have been settled pursuant to a
written agreement (the "Settlement Agreement") upon terms and
conditions satisfactory to the Investor (in its sole discretion),
the Gross Cash Proceeds of such Accounting Claims shall have been
deposited into an escrow account (the "Escrow Account")
established pursuant to an escrow agreement (the "Escrow
Agreement"), in form and substance satisfactory to the Investor
(in its sole discretion), with an escrow agent satisfactory to
the Investor (in its sole discretion) and to which agreement the
Investor shall be a party, and each of the Settlement Agreement
and the Escrow Agreement shall provide:
(i) that the Investor and CPA Mutual Insurance
Company of America Risk Retention Group, acting
jointly, shall have sole dominion and control over the
Escrow Account and the exclusive right to direct and
control the escrow agent on all matters related to the
Escrow Account (it being understood that the Companies
shall have no right to control or direct such escrow
agent except that the Investor shall consult with the
Companies with respect to the investment of amounts
held in the Escrow Account);
(ii) for the release of such funds and payment
thereof to the Investor in accordance with Section
2.3(d) immediately upon settlement of the pending
shareholder litigation; and
(iii) that the Investor shall have a first
priority lien (subject to the liens thereon previously
granted to the Investor and to Pacific Capital Group,
Inc. or as otherwise set forth on Schedule 6.17) in the
Escrow Account and all rights of the Companies therein,
which lien is hereby granted.
(b) The Investor shall be satisfied, in its sole
judgment, that the terms of the settlement of the pending
shareholder litigation are final and binding upon all
parties and that the final documentation of that settlement
will be promptly completed.
6.18 Freezing of Benefit Plans. Subject to Sections
8.15 and 8.16, the Companies shall have caused all Employee
Benefit Plans and Benefit Arrangements, except for the health
insurance plan and life insurance plan, to be frozen at their
current levels at both SOV and FYI.
6.19 [Intentionally Omitted]
6.20 Board Approvals. The Investor shall have received
evidence satisfactory to it that the transactions contemplated in
this Agreement and the other Additional Related Agreements have
been unanimously approved by the respective Boards of Directors
of SOV and FYI and, to the extent applicable, those members of
Dycam's Board of Directors who are not affiliated with the
Investor.
6.21 Business Plan. The Investor shall have received
the Business Plan which shall be in form and substance
satisfactory to the Investor.
6.22 Existing Note Agreement. The Existing Note
Agreement shall have been amended and restated in form and
substance satisfactory to the Investor (the "Amended and Restated
Note Purchase Agreement") such that the provisions therein shall
not conflict with the provisions set forth in this Agreement and
the other Additional Related Agreements.
6.23 Existing Warrant Certificate. The Existing
Warrant Certificate shall have been amended and restated
substantially in the form of the Amended and Restated Warrant
Certificate attached hereto as Exhibit R (the "Amended and
Restated Series A Warrant Certificate").
6.24 Incumbency and Officer's Certificates and Good
Standing Certificates. The Investor shall have received in form
and substance satisfactory to it such incumbency certificates,
officer's certificates and good standing certificates as are
reasonably requested by the Investor.
6.25 Changes to Forms of Documents. The agreements,
certificates, notices and other documents required to be executed
and delivered as a condition to the Closing shall, in each case,
contain such changes, modifications or language as shall be
mutually agreed upon by the Investor and the Companies from the
date of this Agreement and prior to the Closing (it being
understood that such agreements, certificates, notices and other
documents remain subject to negotiation prior to the Closing).
6.26 Schedules. All schedules to this Agreement and
the other Additional Related Agreements shall have been delivered
to the Investor and shall be in form and substance satisfactory
to the Investor (in its sole discretion).
7. Conditions of the Companies' Obligations at
Closing and at each Purchase Date. The obligations of the
Companies to the Investor under this Agreement are subject to the
fulfillment on or before each Purchase Date of the following
conditions:
7.1 Representations and Warranties. The
representations and warranties of the Investor contained in
Section 4 hereof shall be true on and as of such date with the
same effect as though such representations and warranties had
been made on and as of such date.
7.2 Payment of Purchase Price. The Investor shall
have delivered the purchase prices specified in Section 1.1(a)
for the Securities being purchased on such date.
7.3 Blue Sky Qualification. The Companies shall have
received a permit qualifying the offer and sale to the Investor
of the Additional Notes, the Series B Preferred, the Additional
Warrants and the underlying Common Stock or such offer and sale
shall be exempt from such qualification under each of the
California Corporate Securities Law of 1968, as amended, and the
Florida Securities and Investor Protection Act, as amended.
7.4 Waiver of Defaults. The Investor shall have
waived all Events of Default under the Existing Note Agreement
and the Temporary Loans through the Closing Date.
8. Covenants. The Companies covenant and agree that
from the date of this Agreement to the Closing and thereafter so
long as any Additional Notes shall be outstanding:
8.1 Limitations on Liens. The Companies will not,
directly or indirectly, create, incur, assume, permit to subsist
or agree to provide any Lien upon any of the property of the
Companies, whether now owned or hereafter acquired, except:
(a) Permitted Liens;
(b) Liens presently securing Existing Secured
Debt.
(c) Liens on furniture, fixtures and equipment
securing purchase money Debt in an aggregate amount
(including any Existing Secured Debt of this kind) as shall
not be greater than the corresponding amount on the last day
of the fiscal quarters set forth below:
June 30, 1996 $1,200,000
September 30, 1996 $1,450,000
December 31, 1996 $1,700,000
March 31, 1997 $1,900,000
June 30, 1997 $2,100,000
September 30, 1997 $2,250,000
December 31, 1997 $2,300,000
March 31, 1998 $2,800,000
June 30, 1998 $3,300,000
(d) Liens securing the Existing Notes and the
Additional Notes.
8.2 Maintenance of Certain Financial Conditions. The
Companies will cause the following financial conditions to exist
at all times:
(a) Consolidated Net Worth shall equal or exceed
-$3,540,000 on December 31, 1996 and -$3,230,000 on December
31, 1997;
(b) Consolidated Net Worth shall not be less than
the corresponding amount on the last day of any two
consecutive fiscal quarters ending on the dates set forth
below:
Quarters ending Amount
---------------- -------------
June 30, 1996 -$3,950,000
September 30, 1996 -$4,490,000
December 31, 1996 -$4,720,000
March 31, 1997 -$4,850,000
June 30, 1997 -$4,870,000
September 30, 1997 -$4,700,000
December 31, 1997 -$4,300,000
March 31, 1998 -$3,800,000
June 30, 1998 -$3,300,000
(c) EBITDA of FYI shall equal or exceed
-$2,000,000 for the year ended December 31, 1996 and
-$1,130,000 for the year ended December 31, 1997.
(d) EBITDA of FYI shall not be less than the
corresponding amount during any two consecutive fiscal
quarters ending on the dates set forth below:
Quarters ending Amount
---------------- -------------
June 30, 1996 -$740,000
September 30, 1996 -$410,000
December 31, 1996 $40,000
March 31, 1997 $93,000
June 30, 1997 $175,000
September 30, 1997 $286,000
December 31, 1997 $445,000
March 31, 1998 $615,000
June 30, 1998 $785,000
8.3 Limitations on Debt. Neither of the Companies
will incur, create, issue, assume or guarantee any Debt except:
(a) Debt under the Existing Notes and the
Additional Notes;
(b) Debt secured by a Lien permitted by Section
8.1; and
(c) Debt existing on the date hereof and listed
on Schedule 8.3.
8.4 Consolidations Merger, Sale of Assets, etc.
Neither SOV nor FYI shall (or permit Dycam to) voluntarily
liquidate or dissolve, or (whether in a single transaction or a
series of transactions) consolidate or merge with any other
Person, or permit any other Person to consolidate or merge with
any of them, or sell, lease, transfer or otherwise dispose of all
or substantially all of any of their properties or assets
(whether now owned or hereafter acquired) to any other Person,
except that each of SOV and FYI may consolidate with or merge
into, or sell its assets as an entirety or substantially as an
entirety to, any other Person if the successor formed by such
consolidation or the survivor of such merger or the Person that
acquires such assets is a solvent corporation, partnership or
limited liability company which shall be organized under the laws
of, any state of the United States of America and, if SOV or FYI,
as the case may be, is not such corporation, partnership or
limited liability company, such corporation, partnership or
limited liability company (i) shall have executed and delivered
to each holder of any Existing Notes and Additional Notes its
assumption of the due and punctual payment of the principal of,
and premium (if any) and interest on the Existing Notes and
Additional Notes according to their tenor, and the due and
punctual performance and observance of the obligations of the
Companies under this Agreement and under the Existing Notes and
Additional Notes, the Series A Preferred and Series B Preferred
and the Existing Warrants and Additional Warrants, and (ii) shall
have caused to be delivered to each holder of any such Existing
Notes and Additional Notes a favorable opinion of counsel, such
opinion and counsel to be reasonably satisfactory to the holders
of at least 66-2/3% in unpaid principal amount of the Existing
Notes and Additional Notes then outstanding, to the effect that
all agreements and instruments effecting such assumption are
enforceable in accordance with their terms (subject to customary
exceptions) and comply with the terms hereof; provided, however,
that at the time of and immediately after giving effect to any
such merger, consolidation, sale, lease or other disposition, no
Event of Default or Default shall have occurred and be
continuing. No sale or other disposition permitted by this
Section 8.4 shall in any event release the Companies or any
successor corporation, partnership or limited liability company
that shall theretofore have become such in the manner prescribed
in this Section 8.4 from any of its obligations and liabilities
under this Agreement, the Existing Note Agreement and the
Existing Notes and Additional Notes, except that a sale of all
assets shall release such Company or any successor corporation,
partnership or limited liability company that shall theretofore
have become such in the manner prescribed in this Section 8.4
from all of its obligations under this Agreement, the Existing
Note Agreement, the Existing Notes and Additional Notes.
8.5 Nature of Business. Neither FYI nor SOV will
engage in any line of business in which it is not currently
engaged, cease engaging in a business in which it is currently
engaged or otherwise alter its manner of conducting business from
that existing as of the date hereof, except that each of FYI and
SOV may engage in activities that are ancillary, incidental or
necessary to each of their ongoing businesses as presently
conducted or as conducted from time to time, and except to the
extent that SOV shall be permitted to wind down its beauty
imaging division.
8.6 Capital Expenditures. The Companies will not
permit Consolidated Capital Expenditures for any fiscal year to
exceed $4,000,000.
8.7 Limitation on Investments, Loans and Advances.
The Companies will not, and will not permit any of their
Subsidiaries to, make any advances or loans to, or other
Investments in, any other Person other than ordinary advances for
travel expenses and advances in payment of salaries already
earned and other than for loans between the Companies in the
ordinary course of business in an aggregate amount not exceeding
$10,000 in any fiscal year.
8.8 Restricted Payments. The Companies will not,
directly or indirectly, declare or make any Distribution, except
that FYI may make Distributions to SOV to meet its obligations
under this Agreement, the Existing Note Agreement, the Additional
Notes and the Existing Notes.
8.9 Transactions with Affiliates. The Companies will
not, and will not permit any Subsidiary to, directly or
indirectly, engage in any transactions with any Affiliate of the
Companies (an "Affiliate Transaction"), other than transactions
entered into in the ordinary course of business pursuant to the
reasonable requirements of the Companies' or such Subsidiary's
business and upon fair and reasonable terms that are no less
favorable to the Companies or such Subsidiary, as the case may
be, than would be obtainable at the time on an arms-length basis
from Persons that are not Affiliates. Notwithstanding the
foregoing, (i) any Affiliate Transaction exceeding $100,000 in
value must be approved by a majority of the directors of SOV who
are not employed by SOV or any of its Affiliates, and (ii) should
such Affiliate Transaction exceed $1,000,000 in value, the
opinion of a recognized appraisal or valuation firm that the
transaction is fair to the Companies from a financial point of
view shall be obtained.
8.10 Charter and Bylaws. The Companies will not amend
or otherwise modify the charter or bylaws of either Company
without the prior written consent of the holder or holders of
more than 50% of the outstanding principal amount of the
Additional Notes.
8.11 [Intentionally left blank.]
8.12 Information. The Companies will deliver to the
Investor:
(a) as soon as available and in any event within 90
days after the end of each fiscal year of SOV (or, in the
case of the 1995 fiscal year, 270 days after the end of such
fiscal year), an audited consolidated balance sheet of SOV
and its Subsidiaries as of the end of such fiscal year and
the related consolidated statements of operations and cash
flow, for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year,
and accompanied by a report thereon of independent public
accountants of nationally recognized standing, together with
consolidating statements of FYI and Dycam;
(b) as soon as available and in any event within 45
days after the end of each of the first three quarterly
fiscal periods of each fiscal year of SOV, a consolidated
balance sheet of SOV and its subsidiaries as of the end of
such quarterly period and the related consolidated statement
of operations for such period and (in the case of the second
and third such quarterly periods) for the portion of the
fiscal year ended with the last day of such quarterly
period, setting forth in each case in comparative form the
figures for the corresponding periods of the previous fiscal
year, together with consolidating statements of FYI and
Dycam, all certified (subject to normal year-end
adjustments) as to fairness of presentation, consistency
and, except for the absence of footnotes, generally accepted
accounting principles by the chief financial officer or the
chief accounting officer of SOV;
(c) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (b)
above, a certificate of the chief financial officer or the
chief accounting officer of each of the companies (i)
setting forth in reasonable detail the calculations required
to establish whether the Companies were in compliance with
the requirements of Sections 8.1(c), 8.2 and 8.6, on the
date of such financial statements and (ii) stating whether
any Default or Event of Default exists on the date of such
certificate and, if any Default or Event of Default then
exists, setting forth the details thereof and the action
which the Companies are taking or propose to take to cure
such Default or Event of Default;
(d) within five business days after any officer of
either of the Companies obtains knowledge of any Default or
Event of Default, a certificate of the chief financial
officer or the chief accounting officer of the Companies
setting forth the details thereof and the action which the
Companies are taking or propose to take with respect
thereto;
(e) promptly upon the filing or receipt thereof,
copies of all registration statements (other than the
exhibits thereto and any registration statements on Form S-8
or its equivalent), reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) and other reports which SOV or Dycam
shall have filed with the Securities and Exchange
Commission;
(f) promptly upon the release or receipt thereof,
copies of any press release issued by either of the
Companies or Dycam;
(g) within five business days after any officer of
either of the Companies becomes aware of the threat or
commencement of any litigation, or any material development
in any pending or future litigation, against either of the
Companies, Dycam or Styles, that includes allegations of
damages in excess of $100,000 or that otherwise could have a
material adverse effect on the assets, operations, prospects
or financial condition of any of them, notice providing
reasonable details about the threat or commencement of such
litigation or providing reasonable details on such material
development;
(h) within five business day after any officer of
either of the Companies becomes aware of the threat or
commencement of any suspension of trading or delisting of
Common Stock (or any adverse position asserted by AMEX in
connection with pending efforts to terminate such
suspension), notice providing reasonable details about such
threat, commencement or adverse position; and
(i) such other financial and other information as any
holder of the Additional Notes may reasonably request.
8.13 Inspection. Upon reasonable notice and at the
Investor's expense in the absence of an Event of Default, the
Companies shall permit any holder of the Additional Notes, the
Series B Preferred or the Additional Warrants, at such reasonable
times as may be requested by such holder, to examine the
Companies' books of account and records, to inspect the
Companies' properties and to discuss the Companies' affairs,
finances and accounts with its officers and auditors.
8.14 Payment of Notes: Maintenance of Books and
Office. The Companies will duly and punctually pay the principal
of, premium (if any) and interest on the Additional Notes in
accordance with the terms of the Additional Notes and this
Agreement. The Companies will maintain a system of accounting
established and administered in accordance with GAAP, keep proper
books of record and account in which full, true and correct
entries are made of its business transactions, and set aside
appropriate reserves, all in accordance with GAAP. The Companies
will each maintain a principal office at a location in the United
States of America where notice, presentations and demands in
respect of this Agreement and the Additional Notes may be made
upon them and will notify, in writing, each holder of an
Additional Note of any change of location of such office; and
such office shall be maintained at 667 Rancho Conejo Boulevard,
Newbury Park, California 91320, until such time as the Companies
shall so notify the holders of the Additional Notes of any such
change.
8.15 Incentive Plan. Subject to the approval of the
holder or holders of at least 50% of the outstanding Existing
Notes and Additional Notes, which approval shall not be
unreasonably withheld, SOV shall either amend its existing
incentive stock option plan or implement a new incentive stock
option plan or both for the benefit of management and employees,
which plan or plans shall (together with the existing incentive
stock option plans) cover approximately 6 1/2% of SOV's fully
diluted equity, including all Common Stock and all preferred
stock, options or warrants which can be exercised or converted to
Common Stock. SOV's Board of Directors shall, on or before
October 31, 1996, authorize such actions as are necessary to
implement such plan or plans.
8.16 Other Benefit Plans. The Companies agree to use
their best efforts to implement revised Employee Benefit Plans
and Benefit Arrangements, with approval by the appropriate boards
of directors after the Closing, taking into consideration the
present financial condition, financial projections and business
plans of the Companies and Dycam, which revised Employee Benefit
Plans and Benefit Arrangements shall not be adopted without the
approval of the holder or holders of more than 50% of the
outstanding principal amount of the Existing Notes and Additional
Notes, which approval shall not be unreasonably withheld. As
long any Existing Notes and Additional Notes remain outstanding,
the Companies shall not take or omit to take any action with
respect to any Employee Benefit Plans or Benefit Arrangements
that would render the representations and warranties set forth in
Section 3.16(b) false or incorrect or breached in any material
respect if such representations and warranties were made on a
continuing basis after the Closing.
8.17. Reservation of Additional Shares. On or
prior to October 31, 1996, SOV shall take all corporate action,
and the shareholders of SOV shall have taken all shareholder
action, in each case, necessary to authorize and reserve for
issuance a number of shares of Common Stock at least equal to the
number of shares of Common Stock into which the Series A
Preferred and the Series B Preferred may be converted and for
which the Existing Warrants, the Additional Warrants, the Shutler
Warrants, the Arnold Warrants and the Independent Committee
Warrants may be exercised.
9. Topping Transaction.
(a) The Companies shall have 39 days from May 14, 1996
to solicit offers (each a "TOPPING OFFER") of investment or
financing, the terms of which shall be equally as or more
favorable to the Companies than the terms of the investments in
the Companies being made by the Investor pursuant to this
Agreement and the Additional Related Documents. Each bidder
shall submit with its Topping Offer a $250,000 deposit (the "Bid
Deposit"), which shall be credited toward the consideration
offered in the case of the winning bid and returned, without
interest, in every instance of a losing bid; provided that the
Bid Deposit in the case of the Investor shall be in the form of a
credit against amounts owed by the Companies to the Investor.
Notwithstanding the foregoing, the Companies shall have the
following additional periods to consider and respond to any
Topping Offer submitted (along with the Bid Deposit) during such
initial 39 day period: 3 days to consider any Topping Offer; a
further 3 day period within which to solicit additional bids, if
any, from the existing bidders; and 3 days to choose a winning
bid and notify the winning bidder (the end of such 48 day period
being the "Topping Period Termination Date"). The approval of
one or more independent directors of the Companies' respective
boards of directors will be required to accept a Topping Offer.
If a Topping Offer is accepted on or before the Topping Period
Termination Date, the Companies may consummate the Topping Offer
transaction if such Topping Offer transaction provides for each
of the following, and each of the following shall have occurred
on or before the closing of such Topping Offer transaction:
(i) the repayment in full of all outstanding principal
of and deferred, accrued and unpaid interest on the Existing
Notes and Additional Notes to the date of such repayment;
(ii) the redemption in full of all the Series A
Preferred and the Series B Preferred in accordance with the
provisions of the Series A Certificate of Designation for
the Series A Preferred and the Series B Certificate of
Designation for the Series B Preferred;
(iii) the payment to the Investor by federal wire
transfer in immediately available funds or cashiers or
certified check of $200,000; and
(iv) the payment of all out-of-pocket expenses
incurred by the Investor (and not previously reimbursed by
the Companies) in connection with the negotiation,
preparation, execution, delivery, performance,
implementation or enforcement of the Existing Note Agreement
and the Existing Related Agreements and this Agreement and
the Additional Related Agreements, including but not limited
to reasonable travel and related expenses and reasonable
fees and expenses of legal counsel, promptly following
submission of an itemized list of such expenses; and
(v) the extinguishment and cancellation by the
Investor of that number of Existing Warrants and Additional
Warrants it then owns such that as of the closing of the
Topping Offer transaction and after such extinguishment and
cancellation, the Investor will own warrants of SOV to
purchase that number of shares of Common Stock of SOV equal
to 18.75% of all the Common Stock of SOV outstanding as of
such date after consummation of such Topping Offer
transaction on a fully diluted basis.
Additionally, the closing of any Topping Offer
must occur within 7 days of the Board of Director's notice
to the winning bidder. Failure of the winning bidder to
close the Topping Offer within such period of time shall
result in forfeiture of the Bid Deposit and the Topping
Offer shall be deemed rejected and of no further force and
effect.
(b) The consummation of a Topping Offer transaction
not satisfying the provisions set forth in this Section 10 shall
result in an immediate Event of Default under this Agreement.
10. Events Of Defaults; Remedies.
10.1 Events of Default Defined: Acceleration of
Maturity: Rescission and Annulment. If any of the following
conditions or events (herein called "Events of Default) shall
occur and be continuing:
(a) default shall be made in the due and punctual
payment of all or any part of the principal of any
Additional Note when and as the same shall become due and
payable, whether on a date fixed for required prepayment,
redemption or purchase, at stated maturity, by acceleration
or declaration, on a date fixed for an optional prepayment
by notice thereof or otherwise, and, in the case of any
required quarterly repayment pursuant to Section 2.1 of this
Agreement, such default shall have continued for a period of
one business day; or
(b) default shall be made in the due and punctual
payment of any interest on any Additional Note when and as
such interest shall become due and payable, subject to the
deferrals permitted under Section 1.1(b), or in the due and
punctual payment of any other fees or amounts due and
payable hereunder (other than a default pursuant to Section
10.1(a) hereof) and such default shall have continued for a
period of five days; or
(c) default shall be made in the performance or
observance of any covenant, agreement or condition contained
in Section 8.1 through 8.14, inclusive, and 8.16 and 8.17;
or
(d) default shall be made in the performance or
observance of any other covenant, agreement or condition
contained in this Agreement and such default shall have
continued for a period of 30 days (other than the covenants
and agreements made in Section 9); or
(e) (i) default shall be made in the payment of
any part of the principal of, the premium (if any) or the
interest on, or any other payment of money due in respect
of, Debt of either of the Companies for money borrowed in an
aggregate principal amount of at least $50,000 (other than
with respect to (A) the Additional Notes or (B) any
indebtedness among the Companies and their affiliates if and
to the extent all such defaults existing in respect of such
intercompany indebtedness are fully waived by each party
entitled to relief with respect thereto and no such relief
is sought), beyond any period of grace provided with respect
thereto, or (ii) default shall be made in the performance or
observance of any other agreement, term or condition
contained in any document or documents evidencing or
securing Debt, or in any agreement or agreements under which
Debt was issued or created, in each case, if the effect of
any one or more such defaults is to cause the holders of
Debt (or a trustee on behalf of such holders) to cause any
payment or payments in respect of such Debt aggregating not
less than $50,000 (other than with respect to (A) the
Additional Notes or (B) any indebtedness among the Companies
and their affiliates if and to the extent all such defaults
existing in respect of such intercompany indebtedness are
fully waived by each party entitled to relief with respect
thereto and no such relief is sought) to become due prior to
the scheduled due date or dates thereof or (iii) as a
consequence of the occurrence or continuation of any event
or condition (other than the passage of time or the right of
the holder or holders of any Debt to convert such Debt into
equity interests), (x) either of the Companies has become
obligated to purchase Debt (other than the Additional Notes)
before its regular maturity or before its regularly
scheduled dates of payment in an aggregate outstanding
principal amount of at least $50,000 or (y) one or more
Persons require either of the Companies so to purchase any
such Debt in an aggregate principal amount of at least
$50,000; or
(f) Either of the Companies or Dycam shall (i)
apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property,
(ii) be generally unable or admit in writing its inability
to pay its debt as such debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the Federal Bankruptcy Code
(as now or hereafter in effect), (v) file a petition seeking
to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law of any jurisdiction,
(vi) acquiesce in writing to, or fail to controvert in a
timely or appropriate manner, any petition filed against it
in an involuntary case under such Bankruptcy Code, (vii)
take any action under the laws of any jurisdiction analogous
to any of the foregoing, (viii) be adjudicated as insolvent
or to be liquidated or (ix) take any corporate action in
furtherance of any of the foregoing; or
(g) a proceeding or case shall be commenced,
without the application or consent of SOV, FYI or Dycam, as
the case may be, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in
respect of it under any law providing for the relief of
debtors, and such proceeding or case shall continue
undismissed, or unstated and in effect, for a period of 60
days; or
(h) final judgment for the payment of money shall
be rendered by a court of competent jurisdiction against
SOV, FYI or Dycam, and SOV, FYI or Dycam, as the case may
be, shall not discharge the same or provide for its
discharge in accordance with its terms, or agree to terms
for discharge satisfactory to the Investor (in its sole
discretion), or procure a stay of execution thereof within
60 days from the date of entry thereof and within said
period of 60 days, or such longer period during which
execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed
during such appeal, and such judgment together with all
other such judgments not then discharged or then subject to
such a stay shall exceed in the aggregate $50,000; or any
creditor shall obtain a priority, by attachment or
otherwise, on any material asset or assets of either of the
Companies; or
(i) any representation or warranty made by or on
behalf of the Companies or Dycam or by an officer of either
of the Companies or Dycam in this Agreement or in any
certificate or other instrument delivered hereunder or
pursuant hereto or in connection with any provision hereof
shall prove to be false or incorrect or breached in any
material respect on the date as of which made; or
(j) there shall have occurred a material adverse
change in the assets, results of operations, business
prospects or financial condition of either of the Companies
or Dycam; or
(k) an Event of Default shall have occurred under
the Existing Note Agreement; or
(l) the Companies or either of them shall have
consummated a Topping Offer transaction other than in
accordance with Section 9; or
(m) the funds on deposit in the Escrow Account
shall not have been released to the Investor on or prior to
August 10, 1996;
then (i) upon the occurrence of any such Event of Default
described in clause (f) or (g) of this Section 10.1, the unpaid
principal amount of all Additional Notes shall automatically
become immediately due and payable, together with the interest
accrued or deferred and unpaid thereon (which interest shall be
deemed matured), and (ii) upon the occurrence of any other Event
of Default and declaration by the holder or holders of more than
50% of the outstanding principal amount of the Additional Notes
shall thereupon become immediately due and payable, together with
the accrued interest thereon (which interest shall be deemed
matured), in each case without presentment, demand, protest,
notice of intention to accelerate, notice of acceleration, or
other requirements of any kind, all of which are hereby expressly
waived by the Companies.
The provisions of this Section are subject, however, to
the condition that if, at any time after any Additional Notes
shall have so become due and payable and prior to the entry of
any judgment for the payment of any monies due on the Additional
Notes or pursuant to this Agreement, the Companies shall pay all
arrears of interest on the Additional Notes and all payments on
account of the principal of the Additional Notes which shall have
become due otherwise than by acceleration (with interest on such
principal) and all Events of Default (other than nonpayment of
principal of and accrued interest on the Additional Notes due and
payable solely by virtue of acceleration) shall be remedied or
waived pursuant to Section 11.11, then, and in every such case,
the holder or holders of at least 66-2/3% in unpaid principal
amount of the Additional Notes at the time outstanding by written
notice to the Companies, may rescind and annul any such
acceleration and its consequences, but no such action shall
affect any subsequent Default or Event of Default or impair any
right consequent thereon, and furthermore, no such action shall
affect, rescind or annul the declaration by any holder, or the
right of any holder to declare, upon the occurrence and
continuance of any Event of Default declared in clause (a) or (b)
of this Section 10.1, the unpaid principal amount of its own
Additional Notes to be due and payable, together with the
interest accrued thereon, pursuant to this Section 10.1.
10.2 Suits for Enforcement. If any Event of Default
shall have occurred and be continuing and irrespective of whether
any Additional Notes have become or have been declared
immediately due and payable under Section 10.1, the holder of any
Additional Note may proceed to protect and enforce its rights,
either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant or agreement
contained in this Agreement or in any Additional Note or in aid
of the exercise of any power granted in this Agreement, or the
holder of any Additional Note may proceed to enforce the payment
of all sums due upon such Additional Note or under this Agreement
or to enforce any other legal or equitable right of the holder of
such Additional Note. The Companies jointly and severally
covenant that, if they shall default in the making of any payment
due under any Additional Note or in the performance or observance
of any agreement contained in this Agreement, they will pay to
the holder thereof such further amounts, to the extent lawful, as
shall be sufficient to pay the costs and expenses of collection
or of otherwise enforcing such holder's rights, including,
without limitation, reasonable fees and expenses of counsel.
10.3 Remedies Cumulative. No right, power or remedy
herein conferred upon the Investor or the holder of any
Additional Note is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or under the
Additional Notes or now or hereafter existing at law or in equity
or by statute or otherwise.
10.4 Remedies Not Waived. No course of dealing between
the Companies and the Investor or the holder of any Additional
Note and no delay or failure in exercising any right, power or
remedy hereunder or under any Additional Note in respect thereof
shall operate as a waiver of or otherwise prejudice any of the
Investor's rights, powers or remedies or the rights, powers or
remedies of any holder of any Additional Note.
11. Miscellaneous.
11.1 Survival of Warranties. The warranties,
representations and covenants of the Companies or the Investor
contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing
hereunder and shall in no way be affected by any investigation of
the subject matter thereof made by or on behalf of the Investor.
11.2 Successors and Assigns: Restriction on Transfer of
Series B Preferred. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties (including
without limitation any subsequent holder of an Additional Note),
except that in the case of a successor to either of the Companies
by consolidation or merger or a transfer of its assets, this
Agreement shall inure to the benefit of such successor or
transferee only if it becomes such in accordance with Section 8.4
of this Agreement, and this Agreement is not otherwise assignable
by the Companies. The Series B Preferred shall not be
transferred to any Person except a Person holding or acquiring
more than 50% of the outstanding principal amount of the
Additional Notes or more than 50% of the Additional Warrants (or
to an affiliate of such a Person or to management of the
Companies pursuant to the Management Participation Agreements);
provided that the Series B Preferred may be transferred to an
affiliate of the Investor at any time, to limited partners of the
Investor, in proportion to and concurrently with the transfer of
Additional Notes to such limited partners, and thereafter to an
affiliate of such a limited partner (provided in each case that
such transfer is permitted under the securities laws); and
provided further that transfer to any Person that is not an
affiliate of the Investor, a limited partner of the Investor or
an affiliate of such a limited partner shall, unless an Event of
Default has occurred and is continuing, be acceptable to SOV
(confirmation of such acceptability not to be unreasonably
withheld). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies,
Obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
11.3 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of California
irrespective of its choice of law principles.
11.4 SUBMISSION TO JURISDICTION. EACH OF THE COMPANIES
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA,
AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING
TO THIS AGREEMENT OR ANY OF THE SECURITIES MAY BE LITIGATED IN
SUCH COURTS, AND EACH OF THE COMPANIES WAIVES ANY OBJECTION WHICH
IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS
THAT ALL SUCH SERVICE OR PROCESS BE MADE BY MAIL OR MESSENGER
DIRECTED TO IT AT THE ADDRESS INDICATED ON THE SIGNATURE PAGE
HEREOF OR SUCH OTHER ADDRESS AS THE COMPANIES SHALL INDICATE TO
THE HOLDERS OF THE SECURITIES IN WRITING AND THAT SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT AND FIVE BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN
MAILED TO THE COMPANIES IN ACCORDANCE HEREWITH. NOTHING
CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY HOLDER OF
SECURITIES TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY
JURISDICTION AGAINST THE COMPANY OR TO ENFORCE A JUDGMENT
OBTAINED IN THE COURTS OF ANY OTHER JURISDICTION.
11.5 Waivers and Authorizations. SOV and FYI
acknowledge that their Obligations under the Additional Notes and
this Agreement are joint and several. In connection herewith,
SOV and FYI each agree and acknowledge that such joint and
several liability is irrevocable:
(a) The liability of each party (i.e., each of SOV and
FYI) hereunder and the Additional Related Agreements are
independent of and not in consideration of or contingent
upon the liability of the other party or any other Person
and a separate action or actions may be brought and
prosecuted against each party, whether or not any action is
brought or prosecuted against the other party or any other
Person or whether the other Person is joined in any such
action or actions. The joint and several obligations shall
be construed as continuing, absolute and unconditional,
without regard to:
(i) the legality, validity or enforceability
of this Agreement (as to the other party) or any other
Additional Related Agreement, any of the obligations
thereunder, any collateral or any guaranty;
(ii) any defense (other than indefeasible
payment), set-off or counterclaim that may at any time
be available to the other party or any other Person
against, and any right of setoff at any time held by,
the Investor or the holder of any Additional Notes; or
(iii) any other circumstance whatsoever
(with or without notice to or knowledge of the party or
any other Person), whether or not similar to any of the
foregoing, that constitutes, or might be construed to
constitute, an equitable or legal discharge of the
other party or any other Person, in bankruptcy or in
any other instance.
(b) Each party (i.e., each of SOV and FYI) authorizes
the holders of the Additional Notes, without notice to or
further assent by such party, and without affecting such
party's liability hereunder (regardless of whether any
subrogation or similar right that such party may have or any
other right or remedy of such party is extinguished or
impaired), from time to time to
(i) permit the other party to increase or
create obligations, or terminate, release, compromise,
subordinate, extend, accelerate or otherwise change the
amount or time, manner or place of payment of, or
rescind any demand for payment or acceleration of, the
obligations or any part thereof, or otherwise amend the
terms and conditions of this Agreement, the Additional
Notes, any other Additional Related Agreement or any
provision thereof (as may be permitted under the
provisions on amendments and waivers therein);
(ii) take and hold collateral from the other
party or any other Person, perfect or refrain from
perfecting a lien on such collateral, and exchange,
enforce, subordinate, release (whether intentionally or
unintentionally), or take or fail to take any other
action in respect of, any such collateral or lien or
any part thereof;
(iii) exercise in such manner and order
as it elects in its sole discretion, fail to exercise,
waive, suspend, terminate or suffer expiration of, any
of the remedies or rights of the holders of the
Additional Notes against the other party or any other
Person in respect of any obligations or any collateral;
(iv) release, add or settle with the other
party or any other Person in respect of this Agreement,
the Additional Notes, any Additional Related Agreement
or the obligations thereunder;
(v) accept partial payments on the
obligations and apply any and all payments or
recoveries from any Person or collateral to such of the
obligations as the holders of the Additional Notes may
elect in their sole discretion, whether or not such
obligations are secured, joint or guaranteed;
(vi) refund at any time, at the holders of
the Additional Notes sole discretion, any payments or
recoveries received by the holders in respect of any
obligations or collateral; and
(vii) otherwise deal with the other
party, any other Person and any collateral as the
holders of the Additional Notes may elect in their sole
discretion.
(c) Each party (i.e., each of SOV and FYI) waives:
(i) the right to require the holders of the
Additional Notes to proceed against the other party or
any other Person, to proceed against or exhaust any
collateral or to pursue any other remedy in the
holders' power whatsoever and the right to have the
property of the other party or any other person first
applied to the discharge of the obligations;
(ii) all rights and benefits under applicable
law purporting to reduce a surety's obligations in
proportion to the obligation of the principal or
providing that the obligation of a surety or guarantor
must neither be larger nor in other respects more
burdensome than that of the principal;
(iii) any requirement of marshalling or
any other principle of election of remedies and all
rights and defenses arising out of an election of
remedies by the holders of the Additional Notes, even
though that election of remedies, such as nonjudicial
foreclosure with respect to the security for a
guaranteed obligation, has destroyed the party's right
of subrogation and reimbursement against the other
party by the operation of Section 580d of the
California Code of Civil Procedure or otherwise;
(iv) any right to assert against the holders
of the Additional Notes any defense (legal or
equitable), set-off, counterclaim and other right that
the party may now or any time hereafter have against
the other party or any other Persons;
(v) presentment and demand for payment or
performance (including diligence in making demands
hereunder), notice of dishonor or nonperformance,
protest, acceptance and notice of acceptance, and all
other notices of any kind;
(vi) all defenses that at any time may be
available to the party by virtue of any valuation,
stay, moratorium or other law now or hereafter in
effect;
(vii) any rights, defenses and other
benefits the party may have by reason of any failure of
the holders of the Additional Notes to hold a
commercially reasonable public or private foreclosure
sale or otherwise to comply with applicable law in
connection with a disposition of collateral; and
(viii) without limiting the generality of
the foregoing or any other provision hereof, all rights
and benefits under California Civil Code Sections 2810,
2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433.
(d) Each party (i.e., each of SOV and FYI) waives any
and all rights of subrogation, indemnity, contribution or
reimbursement, and any and all benefits of and right to
enforce any power, right or remedy that the holders of the
Additional Notes may now or hereafter have in respect of the
obligations against the other party or any other Person, any
and all benefits of and rights to participate in any
collateral, whether real or personal property, now or
hereafter held by the holders, and any and all other rights
and claims (as defined in the U.S. Bankruptcy Code) the
party may have against the other party or any other Person,
under applicable law or otherwise, at law or in equity, by
reason of any payment hereunder, unless and until all
obligations hereunder and under the Additional Related
Agreements shall have been paid in full.
(e) The liability of each party (i.e., each of SOV and
FYI) shall not be discharged or otherwise affected by any
bankruptcy, reorganization or similar proceeding commenced
by or against the other party, including (i) any discharge
of, or bar or stay against collecting, all or any part of
the obligations in or as a result of any such proceeding,
whether or not assented to by the holders of the Additional
Notes and (ii) any disallowance of all or any portion of the
holders' rights of repayment of the obligations. The
liability of each party shall continue to be effective or be
reinstated, as the case may be, if at any time any payment,
or any part thereof, of any or all of the obligations is
rescinded, invalidated, declared to be fraudulent or
preferential or otherwise required to be restored or
returned by the holders of the Additional Notes in
connection with any bankruptcy, reorganization or similar
proceeding involving the other party, any other Person or
otherwise, if the proceeds of any collateral are required to
be returned by the holders of the Additional Notes under any
such circumstances, or if the holders elects to return any
such payment or proceeds or any part thereof in their sole
discretion, all as though such payment had not been made or
such proceeds not been received.
(f) Each party (i.e., each of SOV and FYI) hereby
absolutely subordinates, both in right of payment and in
time of payment, any and all present or future obligations
and liabilities of the other party (other than with respect
to a reasonably contemporaneous exchange of value in the
ordinary course of business) to the holders of the
Additional Notes, to the prior payment in full in cash of
the Obligations, whether or not such subordinated debt
constitutes or arises out of any subrogation, reimbursement,
contribution, indemnity or similar right attributable to
this joint and several liability.
11.6 Counterparts. This Agreement nay be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
11.7 Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
11.8 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon personal
delivery to the party to be notified or, if sent by telecopier,
upon receipt of the correct confirmation, or upon deposit with
the United States Post Office, by registered or certified mail,
or upon deposit with an overnight air courier, in each case
postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or
at such other address as such party may designate by 10 days'
advance written notice to the other parties.
11.9 Finders' Fee. Each party represents that it
neither is nor will be obligated for any finders' fee or
commission in connection with this transaction. The Investor
agrees to indemnify and hold harmless the Companies from any
liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Investor or
any of its officers, partners, employees or representatives is
responsible. The Companies agree to indemnify and hold harmless
the Investor from any liability or any, commission or
compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted
liability) for which the Companies or any of its officers,
employees or representatives is responsible.
11.10 Expenses and Indemnity. FYI and SOV jointly
and severally agree (a) to pay to the Investor, promptly
following presentation of invoices therefor, all reasonable fees
and expenses, including fees and expenses of counsel, incurred by
or on behalf of the Investor in connection with this Agreement
and the Additional Related Agreements, whether before or after
the date of this Agreement and (b) to indemnify the Investor, any
holder of any Additional Notes, any holder of Series B Preferred
and their respective employees, attorneys and agents and hold
them harmless for any claims, liabilities, damages or expenses
(including legal fees incurred in connection with investigation
or defense), which arise out of or relate to this Agreement, the
Additional Notes, the Series B Preferred, the Series B
Certificate of Designation, the other Additional Related
Agreements, any prior term sheet, letter of intent or interim
agreement or any transaction contemplated hereby or thereby,
except only those claims, liabilities, damages or expenses which
have been finally determined by a court of competent jurisdiction
to be the direct result of the willful misconduct or gross
negligence of the person otherwise to be indemnified hereunder.
11.11 Amendments and Waivers. Any term of this
Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with
the written consent of the Companies and the holders of more than
50% of the outstanding principal amount of the Additional Notes,
except that no such amendment or waiver shall change the rate,
extend the time of payment or change the method of computation of
interest on any of the Additional Notes, or change the time or
amount of any prepayment or payment of principal or otherwise
modify any of the provisions of this Agreement or the Additional
Notes with respect to the payment or prepayment or purchase
thereof, or release or terminate any of the guaranties, security
agreements or pledge agreements included in the Additional
Related Agreements, or change the percentage of holders of
Additional Notes required to approve any such amendment or
effectuate any such waiver, without the consent of the holders of
all the Additional Notes then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be
binding upon the holder of any Additional Notes at the time
outstanding (including securities into which such securities are
convertible), the future holder of all such securities and the
Companies.
11.12 Severability. If one or more provisions of
this Agreement are held to be unenforceable under applicable law,
such provision shall be excluded from this Agreement and the
balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance
with its terms.
11.13 Termination. This Agreement shall remain in
full force and effect until all of the principal and interest on
the Additional Notes, and other expenses and amounts payable
hereunder, is indefeasibly paid in full; provided, however, that
Sections 2.4, 8.12, 11.1 (as applied to Sections 3.2(a), 3.4,
3.5, 3.6, 3.9, 3.11, 3.12, 3.13, 3.14, 3.21, 3.23 and 3.26),
11.2, 11.4, 11.5, 11.8, 11.10 and 11.11) shall in any event
remain in full force and effect so long as any Series B Preferred
or Additional Warrants remain outstanding.
11.14 WAIVER OF JURY TRIAL. EACH OF THE COMPANIES
AND THE INVESTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.15 EFFECTIVENESS. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS AGREEMENT, NO PROVISION OF THIS
AGREEMENT (OTHER THAN SECTIONS 9 AND 11.10, WHICH SECTIONS SHALL
BECOME EFFECTIVE ON THE DATE HEREOF) SHALL BECOME EFFECTIVE, AND
THE PARTIES SHALL HAVE NO OBLIGATIONS UNDER THIS AGREEMENT (OTHER
THAN THOSE OBLIGATIONS ARISING UNDER SECTIONS 9 AND 11.10), UNTIL
THE CLOSING DATE; PROVIDED THAT IN NO EVENT SHALL THIS AGREEMENT
(OTHER THAN SECTIONS 9 AND 11.10) BECOME EFFECTIVE UNLESS THE
CLOSING DATE OCCURS ON OR PRIOR TO MAY 21, 1996.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
STYLES ON VIDEO, INC.
By: _ Ann Graham Ehringer_
Name: Ann Graham Ehringer
Title: Chairman Independent
Committee of the Board
667 Rancho Conejo Blvd.
Newbury Park, CA 91320
FOREVER YOURS, INC.
By: _ Dana I. Arnold_
Name: Dana I. Arnold
Title: President
667 Rancho Conejo Blvd.
Newbury Park, CA 91320
INTERNATIONAL DIGITAL
INVESTORS, L.P.
By IDI Corp., a Delaware
corporation, its general
partner
By:_ Jeffrey Safchik_
Name: Jeffrey Safchik
Title: President
40304 Fisher Island Drive
Fisher Island, FL 33109
<PAGE>
SCHEDULES TO NOTE AND PREFERRED STOCK PURCHASE AGREEMENT
[The schedules (other than Schedule 1.1) are
not filed herewith. IDI will furnish supplementally a copy of
any omitted schedule to the Commission upon request.]
1.1 Drawdown Schedule
3.2(d) Options
3.7A Litigation
3.7B Litigation
3.8 Title to Properties
3.9 Existing Defaults
3.10A Material Agreements
3.10B Distributions, Indebtedness, Loans, etc.
3.15 Liens on Properties
3.16 Employee Benefit Plans
3.17 Taxes
3.19 Corporate Actions
3.20 Labor Disputes and Actions
3.22 Changes
6.16 AMEX Status
6.17 Liens on Escrow Account
8.3 Existing Debt
<PAGE>
SCHEDULE 1.1
DRAWDOWN SCHEDULE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Minimum Aggregate
Number of Approved Minimum
Combined
Principal Amount Births Subject Net
Revenues
Purchase Date of Additional Notes(1) to Contracts of
Companies
Closing Date $270,000(2) N/A N/A
May 15, 1996 250,000 117,000
$150,000
or the
the Closing
Date, whichever
is later.
June 15, 1996 250,000 136,000
180,000
July 15, 1996 or
the date on
which all of
the funds on
deposit in the
Escrow Agreement
are released to
the Investor,
whichever is
later. 100,000 157,000
220,000
August 15, 1996 150,000 183,000
270,000
Sept. 15, 1996 180,000 210,000
320,000
- ------------
(1) Subject to the limitations set forth in the Agreement,
including but not limited to, the last three paragraphs of
Section 1.1(a).
(2) To be used to repay the Temporary Loans.
</TABLE>
<PAGE>
EXHIBITS TO NOTE AND PREFERRED STOCK PURCHASE AGREEMENT
EXHIBIT DOCUMENT
A Definitions
B Form of Additional Note
C Form of Warrant Certificate
D Form of Certificate of Designation
E Form of Notice of Sale Pursuant to Put
F Form of Opinion of Christensen, White,
Miller, Fink, Jacobs, Glaser and
Shapiro, L.P.
G Form of Amended and Restated
Registration Rights Agreement
H Form of FYI Security Agreement
I Form of SOV Security Agreement
J Form of FYI Guaranty
K Form of SOV Guaranty
L Form of SOV Pledge Agreement
M Form of Arnold Warrant
N Form of Dycam Override Deferral Agreement
O Form of Amended and Restated Arnold
Employment Agreement
P Form of Brymarc Management Consulting
Agreement
Q Form of Shutler Consulting Agreement
R Form of Amended and Restated Series A
Warrant Certificate
<PAGE>
EXHIBIT A
"ACCOUNTING CLAIMS" shall mean any pending or future claims
of SOV against its former auditors and such auditors' insurance
carriers relating (i) to the preparation, review and audit of
SOV's annual and periodic financial statements and SEC reports
for each of the fiscal years 1993 and 1994 or (ii) the duties of
such auditors to disclose adverse financial information or
financial reporting problems to the SOV management or board of
directors.
"ADDITIONAL FYI GUARANTY" shall have the meaning specified
in Section 6.9.
"ADDITIONAL FYI SECURITY AGREEMENT" shall have the meaning
specified In Section 6.9.
"ADDITIONAL NOTES" shall mean the 10% Senior Notes due June
30, 1998 of the Companies issued from time to time under the
Agreement, in the form attached as Exhibit B thereto (together
with any note or notes issued in exchange, substitution or
replacement therefor).
"ADDITIONAL RELATED AGREEMENTS" shall mean the Additional
Notes, the Additional Warrants, the Amended and Restated
Registration Rights Agreement, the Additional SOV Security
Agreement, the Additional FYI Security Agreement, the Additional
SOV Pledge Agreement, the Additional FYI Guaranty, the Additional
SOV Guaranty, the acknowledgements and notices set forth in
Section 6.9 and all other agreements and instruments executed and
delivered in connection therewith and in connection with the
transactions contemplated in this Agreement.
"ADDITIONAL SOV GUARANTY" shall have the meaning specified
in Section 6.9.
"ADDITIONAL SOV PLEDGE AGREEMENT" shall have the meaning
specified in Section 6.9.
"ADDITIONAL SOV SECURITY AGREEMENT" shall have the meaning
specified in Section 6.9.
"ADDITIONAL WARRANT CERTIFICATE" shall have the meaning
specified in Section 1.1(c).
"ADDITIONAL WARRANTS" shall have the meaning specified in
Section 1.1(c).
"AFFILIATE" of any specified Person shall mean any other
Person (a) directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person, (b) which beneficially owns or holds, directly or
indirectly, 5% or more of any class of voting or equity interests
of such Person or (c) 5% or more of any class of voting or equity
interests of which are beneficially owned or held by such Person.
For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing, and, furthermore, for the
purposes of this definition, the Investor (and the limited
partners of the Investor) shall not be deemed to be an Affiliate
of the Companies.
"AFFILIATE TRANSACTION" shall have the meaning specified in
Section 8.9.
"AGREEMENT" shall have the meaning specified in the
preamble.
"AMENDED AND RESTATED ARNOLD EMPLOYMENT AGREEMENT" shall
have the meaning specified in Section 6.14.
"AMENDED AND RESTATED NOTE PURCHASE AGREEMENT" shall have
the meaning given thereto in Section 6.22.
"AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT" shall
have the meaning specified in Section 6.8.
"AMENDED AND RESTATED SERIES A WARRANT CERTIFICATE" shall
have the meaning given thereto in Section 6.23.
"AMEX" shall mean the American Stock Exchange, Inc.
"APPROVED BIRTHS" shall mean the number of births occurring
in the previous calendar year in a particular hospital as set
forth in the American Hospital Association Guide.
"ARNOLD" shall have the meaning specified in Section 6.10.
"ARNOLD REGISTRATION RIGHTS AGREEMENT" means the
Registration Rights Agreement to be entered into by and between
SOV and Arnold in form and substance satisfactory to the Investor
(in its sole discretion), granting certain piggyback registration
rights to Arnold.
"ARNOLD WARRANT" shall have the meaning set forth in Section
6.10.
"ATTORNEYS' FEES" shall mean the amount of the Gross Cash
Proceeds of the Accounting Claims required to be paid to SOV's
attorneys up to a maximum of $250,000 (under the existing
agreement disclosed to the Investor and any other agreement
approved by the holder or holders of more than 50% of the
outstanding principal amount of the Existing Notes and Additional
Notes).
"BENEFIT ARRANGEMENT" shall have the meaning specified in
Section 3.16(a).
"BINDERS" shall mean the four binders of due diligence
materials provided by the Companies to the Investor in September
1995, and as supplemented by the public filings of SOV with the
Securities Exchange Commission and disclosed in writing to the
Investor, including, without limitation, the 10-K filed on March
29, 1996 for SOV for the fiscal year ended December 31, 1994, and
the 10-K filed for Dycam for the 1995 fiscal year.
"BRYMARC CONSULTING AGREEMENT" shall have the meaning given
thereto in Section 6.14.
"BUSINESS PLAN" shall mean projections for fiscal years 1996
and 1997 for the Companies as of April 19, 1996 as previously
provided to the Investor.
"CLOSING" shall have the meaning specified in Section 1.2.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMBINED OPERATING CASH FLOW" shall mean for any period,
the sum of (i) the Operating Cash Flow of SOV and (ii) the
Operating Cash Flow of FYI.
"COMMON STOCK" shall have the meaning specified in the
recitals.
"COMPANIES" shall have the meaning specified in the
preamble.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period,
(i) the aggregate capital expenditures (whether paid in cash or
accrued as liabilities) of SOV and its consolidated subsidiaries
(other than Dycam) for such period, as the same are required to
be set forth, in accordance with GAAP, in the consolidated
statement of cash flows of SOV and its consolidated subsidiaries
(other than Dycam) for such period plus, without duplication (ii)
capitalized lease obligations of SOV and its consolidated
Subsidiaries (other than Dycam) incurred during such period.
"CONSOLIDATED NET WORTH" shall mean, as at any date, the
consolidated stockholders' equity of FYI.
"CONTRACTS" shall mean contracts entered into by FYI with
hospitals, which contracts (i) provide for a term of at least one
year, (ii) contain terms substantially similar to the terms of
contracts previously entered into by FYI with hospitals, and
(iii) permit FYI to commence providing service thereunder within
six months from the date of purchase of Additional Notes on the
relevant Purchase Date under Section 1.1(a).
"DEBT" of a Person shall mean, without duplication, such
Person's (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar
instruments (as such term is defined in Article 9 of the Uniform
Commercial Code as from time to time in effect in the State of
California), (iii) obligations, whether or not assumed, secured
by any Lien or payable out of the proceeds or production from
property now or hereafter acquired by any such Person, (iv)
obligations to pay the deferred purchase price of property or
services (excluding trade accounts payable incurred in the
ordinary course of business and not overdue), (v) obligations as
lessee under capitalized lease obligations, (vi) guaranties and
other contingent obligations and (vii) equity securities of
subsidiaries owned by Persons other than either of the Companies
and its wholly-owned subsidiaries which have preferred rights to
distributions.
"DEFAULT" shall mean any default or other event which, with
notice or the lapse of time or both, would constitute an Event of
Default.
"DISTRIBUTION" shall mean (i) distributions or dividends on
or in respect of the capital stock of the Companies or any of
their Subsidiaries (except distributions solely in such interests
or stock of SOV and except to the extent made to the Companies or
any wholly-owned Subsidiary) and (ii) the repurchase, purchase,
redemption or acquisition of capital stock of the Companies or
any of their Subsidiaries (other than the exchange of FYI common
stock for Common Stock or the surrender of FYI common stock or
Common Stock, in each case pursuant to the Arnold Warrant), or of
warrants, rights or other options to purchase such interests or
stock (other than as otherwise provided pursuant to any stock
incentive plan adopted by the Companies after the Closing).
"DYCAM" shall have the meaning specified in Section 3.1.
"DYCAM NOTE" shall have the meaning specified in Section
6.13.
"DYCAM OVERRIDE DEFERRAL AGREEMENT" shall have the meaning
given thereto in Section 6.13.
"EBITDA" shall mean net profit before tax, plus interest
expense (net of capitalized interest expense), depreciation
expense and amortization expense.
"EMPLOYEE BENEFIT PLANS" shall have the meaning specified in
Section 3.16(a).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW ACCOUNT" shall have the meaning given thereto in
Section 6.17.
"ESCROW AGREEMENT" shall have the meaning given thereto in
Section 6.17.
"EVENTS OF DEFAULT" shall have the meaning specified in
Section 10.1.
"EXISTING ARNOLD EMPLOYMENT AGREEMENT" shall mean the
Employment Agreement dated April 15, 1995 between Arnold and FYI.
"EXISTING COLLATERAL DOCUMENTS" shall have the meaning given
thereto in the Recitals.
"EXISTING GUARANTIES" shall have the meaning given thereto
in the Recitals.
"EXISTING NOTES" shall have the meaning given thereto in the
Recitals.
"EXISTING PLEDGE AGREEMENT" shall mean the Pledge Agreement
dated as of November 20, 1995 between SOV and the Investor.
"EXISTING REGISTRATION RIGHTS AGREEMENT" shall have the
meaning given thereto in the Recitals.
"EXISTING SECURED DEBT" shall mean Debt secured by Liens
existing on the date of the Agreement and any extension, renewal
or refinancing thereof provided that the principal amount is not
increased and such Liens shall not be extended to or cover any
property of the Companies or any Subsidiary other than those
properties subject thereto (including after-acquired property) on
the date hereof.
"EXISTING WARRANT" shall have the meaning given thereto in
the Recitals.
"EXISTING WARRANT CERTIFICATE" shall have the meaning given
thereto in the Recitals.
"EXTENSION AGREEMENT" shall have the meaning specified in
Section 6.13.
"FEDERAL BANKRUPTCY CODE" shall mean the United States
Bankruptcy Code, Title 11, United States Code, as amended from
time to time.
"FINANCIAL STATEMENTS" shall have the meaning specified in
Section 3.21.
"FYI" shall have the meaning specified in the preamble.
"GAAP" shall mean generally accepted accounting principles
as in effect from time to time in the United States of America.
"GROSS CASH PROCEEDS" shall mean the proceeds from the
settlement of any of the Accounting Claims (or any trial,
mediation, arbitration or other adjudication thereof).
"INDEPENDENT COMMITTEE WARRANTS" shall mean the warrants to
purchase 80,000 shares of Common Stock of SOV at a per share
exercise price of not less than $.25 to be issued by SOV to the
Chairman of the Independent Committee of SOV's Board of Directors
appointed April 18, 1996.
"INVESTMENT" shall mean any investment in any Person,
whether by means of share purchase, capital contribution, loan,
time deposit or otherwise.
"INVESTOR" shall have the meaning specified in the preamble.
"LIEN" shall mean, as to any Person, any mortgage, lien,
pledge, adverse right, charge, security interest or other
encumbrance in favor of any vendor, lessor, lender or other
secured party in or on, or any interest or title of any such
vendor, lessor, lender or other secured party under any
conditional sale or other title retention agreement or capital
lease with respect to, any property or asset of any nature
whatsoever of such Person, or the signing or filing of a
financing statement which names such Person as debtor, or the
signing of any security agreement authorizing any other party as
the secured party thereunder to file any such financing
statement.
"MANAGEMENT PARTICIPATION AGREEMENTS" shall mean the
agreements referred to in Section 1.1(d) which may be entered
into between the Investor and certain numbers of the Companies'
management pursuant to which such individuals will purchase a
portion of the Additional Notes and receive a portion of the
Additional Warrants.
"MARGIN REGULATIONS" shall have the meaning specified in
Section 3.26.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined
in Sections 3(37) and 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" shall mean the Gross Cash Proceeds of
the Accounting Claims less the Attorneys' Fees.
"NET REVENUES" shall mean Revenues for SOV, and Revenues
minus sales returns and refunds (computed in accordance with
GAAP) for FYI.
"1993 CLAIM YEAR" shall mean any Accounting Claim of SOV
against its former auditors and such auditors' insurance carriers
attributable to the July l, 1994 - July l, 1995 claim year (or
otherwise described in clause (i) of the definition of Accounting
claim), including without limitation any claims against CPA
Mutual on whatever theories or based on whatever events or
conduct.
"1994 CLAIM YEAR" shall mean any Accounting Claim of SOV
against its former auditors and such auditors' insurance carriers
attributable to the July l, 1995 - July 1, 1996 claim year (or
otherwise described in clause (ii) of the definition of
Accounting Claim), including without limitation any claims
against CAMICO on whatever theories or based on whatever events
or conduct.
"NOTICE OF SALE" shall have the meaning specified in Section
2.4(b).
"OPERATING CASH FLOW" shall mean, with respect to either SOV
or FYI, the cash flow from operations of SOV or FYI, as the
context requires; provided that Operating Cash Flow shall not
include the Gross Cash Proceeds of the Accounting Claims, tax
refunds or amounts received by the Companies in respect of the
issuance by the Companies of their respective securities.
"PERMITTED LIENS" shall mean (i) Liens for taxes,
assessments or charges of any governmental body for claims not
yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with
the provisions of GAAP; (ii) statutory Liens of landlords and
Liens of carriers, warehousemen, mechanics, materialmen and other
Liens (other than any Lien imposed under ERISA) imposed by law
and created in the ordinary course of business and Liens on
deposits made to obtain the release of such Liens if (x) the
underlying obligations are not overdue for a period of more than
60 days or (y) such Liens are being contested in good faith by
appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in
accordance with the provisions of GAAP; (iii) Liens (other than
any Lien imposed under ERISA) incurred on deposits made in the
ordinary course of business (including, without limitation,
surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids,
leases, contracts (other than the repayment of Debt), statutory
obligations and other similar obligations or arising as a result
of progress payments under contracts; (iv) easements (including,
without limitation, reciprocal easement agreements and utility
agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere
materially with the ordinary conduct of the business of either of
the Companies or their Subsidiaries and which do not materially
detract from the value of the property to which they attach or
materially impair the use thereof to either of the Companies or
their Subsidiaries; (v) building restrictions, zoning laws and
other statutes, laws, rules, regulations, ordinances and
restrictions, and any amendments thereto, now or at any time
hereafter adopted by any governmental body having jurisdiction;
(vi) any attachment or judgment Lien unless it constitutes an
Event of Default; and (vii) other Liens incidental to the conduct
of the business or the ownership of the property of either of the
Companies or their subsidiaries which were not incurred in
connection with borrowed money and which do not in the aggregate
materially detract from the value of the property or materially
impair the use thereof in the operation of the business and
which, in any event, do not secure obligations aggregating in
excess of $25,000.
"PERSON" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a government,
foreign or domestic, and any agency or political subdivision
thereof, or any other entity.
"PREFERRED STOCK" shall have the meaning given thereto in
Section 3.2(a)(i).
"PREPAYMENT AMOUNT" shall have the meaning given thereto in
Section 2.3(d).
"PROPRIETARY RIGHTS" shall mean any and all patents,
trademarks, service marks, trade names, copyrights, trade
secrets, proprietary information and other proprietary rights and
processes.
"PURCHASE DATE" shall mean each date on which the Investor
has agreed, subject to the conditions precedent set forth in the
Agreement, to purchase Additional Notes, as set forth in Section
1.1 of the Agreement.
"PUT EVENT" shall have the meaning specified in Section
2.4(d).
"REVENUES" shall mean gross revenues computed in accordance
with GAAP.
"RIGHT TO PUT" shall have the meaning specified in Sections
2.4(a) and Section 2.4(b).
"SEC" shall have the meaning specified in Section 4.4.
"SECURITIES" shall have the meaning specified in Section
1.1(c).
"SECURITIES ACT" shall have the meaning specified n Section
4.4.
"SERIES A CERTIFICATE OF DESIGNATION" shall have the meaning
given thereto in the Recitals.
"SERIES A PREFERRED" shall have the meaning specified in the
Recitals.
"SERIES B CERTIFICATE OF DESIGNATION" shall have the meaning
specified in Section 1.1(b).
"SERIES B PREFERRED" shall have the meaning given thereto in
Section 1.1(b).
"SETTLEMENT AGREEMENT" shall have the meaning given thereto
in Section 6.17.
"SETTLEMENT WARRANTS" shall mean the warrants to purchase
1,750,000 shares of SOV's Common Stock that SOV intends to issue
pursuant to binding terms of settlement of pending shareholder
litigation.
"SHUTLER CONSULTING AGREEMENT" shall have the meaning given
thereto in Section 6.14.
"SHUTLER WARRANTS" shall mean the warrants to purchase
250,000 shares of Common Stock of SOV at a per share exercise
price of not less than $.25 to be issued to Eugene Shutler under
the Shutler Consulting Agreement.
"SOV" shall have the meaning specified in the preamble.
"STYLES" shall have the meaning specified in Section 3.3(a).
"SUBSIDIARY" shall mean any corporation or limited liability
company of which the Companies own or control, directly or
indirectly, more than 50% of the voting stock or any partnership,
joint venture or other entity in which the Companies own or
control, directly or indirectly, more than a 50% equity interest.
"TEMPORARY LOANS" shall mean the loans made by Pacific
Capital Group, Inc. on behalf of the Investor to the Companies of
$50,000, $75,000 and $145,000 on April 4, 1996, April 18, 1996
and April 30, 1996, respectively.
"TOPPING OFFER" shall have the meaning given thereto in
Section 9.
"TOPPING OFFER PERIOD TERMINATION DATE" shall have the
meaning given thereto in Section 9.
"TOTAL ADDITIONAL INVESTMENT AMOUNT" shall mean the lesser
of (i) $1,200,000 or (ii) the sum of any Prepayment Amount plus
$400,000, as such Total Additional Investment Amount may be
reduced from time to time pursuant to Section 1.1.
<PAGE>
EXHIBIT B
[FORM OF ADDITIONAL NOTE]
THIS SENIOR NOTE HAS BEEN ISSUED BY STYLES ON VIDEO,
INC. AND FOREVER YOURS, INC. WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO THE EXEMPTION PROVIDED BY
SECTION 4(2) OF THAT ACT AND CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SAID ACT OR AN EXEMPTION THEREFROM.
STYLES ON VIDEO, INC. AND FOREVER YOURS, INC.
10% SENIOR NOTE DUE JUNE 30, 1998
Note No. R-2 Los Angeles, California
$1,200,000 May 15, 1996
FOR VALUE RECEIVED, the undersigned, styles on Video,
Inc., a Delaware corporation ("SOV"), and Forever Yours, Inc., a
California corporation ("FYI" and, together with SOV, the
"Companies"), hereby jointly and severally promise to pay to
INTERNATIONAL DIGITAL INVESTORS, L.P. or its registered assigns
(the "Payee"), the principal amount of up to ONE MILLION TWO
HUNDRED THOUSAND DOLLARS ($1,200,000) (or so much thereof as
shall not have been prepaid) in installments in the amounts and
on the dates set forth in the Agreement (as defined below), with
interest (computed on the basis of a 360-day year of twelve 30-
day months) on the unpaid principal balance hereof at the rate of
10% per annum from the date hereof, payable monthly in arrears as
set forth in the Agreement, until said unpaid principal balance
shall have become due and payable (whether at maturity, at a date
fixed for prepayment, or by declaration, acceleration or
otherwise). Payment of interest on this Senior Note may be
deferred in accordance with the terms of the Agreement. Payments
of principal and interest on this Senior Note shall be made in
lawful money of the United States of America at International
Digital Investors, L.P., 40304 Fisher Island Drive, Fisher
Island, Florida 33109, or at such other place as may be provided
pursuant to the Agreement referred to below.
Payee hereby agrees, by its acceptance hereof, that
before disposing of this Senior Note or any part hereof it will
make a notation hereon of all principal payments previously made
hereunder and of the date to which interest hereon has been paid;
provided, however, that the failure to make a notation of any
payment made on this Senior Note shall not limit or otherwise
affect the obligations of the Companies hereunder with respect to
payments of principal of or interest on this Senior Note.
This Senior Note is issued pursuant to that certain
Note and Preferred Stock Purchase Agreement, dated as of May 14,
1996 (as amended from time to time, the "Agreement"), between the
Companies and the Payee, and is entitled to the benefits thereof.
As provided in said Agreement, this Senior Note is subject to
mandatory and optional prepayment and redemption in whole or in
part, all as specified in said Agreement.
The Companies jointly and severally agree to make
prepayments of the principal of this Senior Note on the dates
specified and in the amounts determined as provided in said
Agreement.
Upon surrender of this Senior Note for registration of
transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed by, the registered holder hereof or
such holder's attorney duly authorized in writing, a new Senior
Note or Notes aggregating a like outstanding principal amount
will be issued to, and, at the option of the holder, registered
in the name of, the transferee. The Companies may deem and treat
the Person (as defined in the Agreement) in whose name this
Senior Note is registered as the holder and owner hereof for the
purpose of receiving payments and for all other purposes
whatsoever, and the Companies shall not be affected by any notice
to the contrary.
In case an Event of Default (as defined in said
Agreement) shall occur and be continuing, the principal of this
Senior Note in certain circumstances shall become due and payable
and in other circumstances may be declared and become due and
payable in the manner and with the effect provided in said
Agreement.
[Remainder of page intentionally left blank.]
<PAGE>
This Senior Note is made and delivered in Los Angeles,
California, and shall be governed by the laws of the State of
California.
STYLES ON VIDEO, INC.
By:
Nancy Galgas
Chief Financial Officer
FOREVER YOURS, INC.
By:
Dana Arnold
President
<PAGE>
TRANSACTIONS
ON
SENIOR NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Outstanding
Principal
Balance
Amount of Amount of On Such Date
Senior Note Principal After Such
Purchased On Paid Purchase
Notation
Date Such Date On Such Date Or Payment Made
By
</TABLE>
<PAGE>
EXHIBIT C
The executed version of the Series B Warrant Certificate is
included as Exhibit L to this Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT D
The final version of the Certificate of Designation for the
Series B Preferred Stock is included as Exhibit J to this
Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT E
NOTICE OF SALE
DELIVERED PURSUANT TO SECTION 2.4(C)
Reference is made to that certain Note and Preferred
Stock Purchase Agreement dated as of May 14, 1996 (as it may be
amended, the "Agreement") by and among Styles on Video, Inc., a
Delaware corporation ("SOV") and Forever Yours, Inc., a California
corporation ("FYI" and, together with SOV, the "Companies.), and
International Digital Inventors, L.P., a Delaware limited
partnership (the "Investor"). All capitalized terms used but not
defined in this Notice shall have the respective meanings assigned
to them in, or pursuant to the provisions of, the Agreement.
The undersigned is the holder of Note No. R-2 (the
"Note") and/or shares of Series B Preferred (the "Shares"). The
undersigned acknowledges receipt on __________, 199__(1) of
notice of a Put Event and the undersigned, by delivering to
the Companies this Notice of Sale, hereby exercises its Right
to Put with respect to the amount of the Note and/or the
liquidation preference of the Shares specified below for
purchase by the Companies on the date specified below.
The undersigned hereby elects to have _______ (2)
purchased by the Companies pursuant to Section 2.4 of the
Agreement, without recourse, representation or warranty (other
than the undersigned's full right, title and interest to such
Note (or portion thereof) or Shares), at a price equal to
the principal amount of the Note and/or the liquidation
preference of the Shares to be purchased, together with
accrued and deferred interest and/or accrued and unpaid
dividends, as the case may be, through the date of such
purchase, in each case without premium (the "Agreed Put
Consideration").
The undersigned hereby designates ______________,
199__(3) as the date of such purchase by the Companies.
The Agreed Put Consideration shall be payable in
immediately available funds by wire transfer to _______(4).
Upon such purchase, the undersigned will surrender the Note
and/or the Shares, as the case may be, to the Companies at
their address listed on the signature page of the Agreement
or such other address as the Companies shall have indicated
to the undersigned in writing, accompanied (if so required
by the Companies) by an appropriate written instrument of
transfer duly executed by the registered holder of such Note
and/or Shares, as the case may be, or its attorney duly
authorized in writing(5).
_________
Footnotes need not be reproduced in Notice of Sale.
(1) Time of delivery to the Companies of this Notice of
Sale shall be prior to thirty days after holder
received written notice from the Companies
describing the Put Event and related facts
and circumstances. See Section 2.4 of the Agreement.
(2) Insert as the holder may elect: "all" or "$_______
of the Notes and/or "all" or "$______ liquidation
preference of the Shares."
(3) Insert date which is not less than 10 days after
delivery of this Notice of Sale to the Companies.
(4) Insert Account Name and Account Number and Name,
Address and ABA Number of the Bank at which such
account is located.
(5) Add if only a part of a Note is being purchased:
", and the Companies shall deliver to the
undersigned, in addition to the Agreed Put
Consideration, a new Note in a principal amount
equal to the remaining unpaid principal balance
of the Note being purchased, registered in the
name of _____________________."
Add if only a portion of the Shares are being
purchased: ", and the Companies shall deliver to
the undersigned, in addition to the Agreed Put
Consideration, a new Share certificate in a principal
amount equal to the remaining unpaid liquidation
preference of the Shares being purchased,
registered in the name of __________."
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Notice of Sale this day of __________, 199__.
[INSERT NAME OF REGISTERED OWNER OF
THE NOTE/SHARES]
___________________________________
<PAGE>
EXHIBIT F
[FORM OF OPINION OF CHRISTENSEN, WHITE,
MILLER, FINK, JACOBS, GLASER & SHAPIRO LLP]
[Subject to agreed upon assumptions, qualifications and
limitations.]
1. Each of the Companies has been duly incorporated
and is a validly existing corporation. Each of the Companies
is in good standing under the laws of the State in which it is
incorporated, and SOV is duly qualified as a foreign corporation
under the laws of California. Each of the Companies has all
requisite corporate power and authority to execute, deliver
and perform its obligations under the Documents to which it is
a party and to own its properties presently owned by it.
2. The execution and delivery by each of the Companies
of the Documents to which such Company is a party and the
performance of its obligations thereunder has been duly
authorized by all necessary corporate action of such Company;
provided, however, the Certificate of Incorporation of SOV
does not presently authorize a sufficient number of shares
of Common Stock to allow for the exercise of all of the
warrants and the conversion of all the preferred stock of
SOV into Common Stock of SOV as would be required upon the
consummation of the transactions contemplated by the Documents,
including without limitation the Additional Warrants and
the Series B Preferred.
3. The sale of the Series B Preferred and the
Additional Warrants under the circumstances contemplated
by the Purchase Agreement is exempt from the registration
requirements under the Securities Act of 1933, as amended.
4. Neither Company is an "investment company," within
the meaning of the Investment Company Act of 1940, as amended.
<PAGE>
EXHIBIT G
The executed version of the Amended and Restated Registration
Rights Agreement is included as Exhibit M to this Amendment #1
to Schedule 13D.
<PAGE>
EXHIBIT H
FYI SECURITY AGREEMENT
FYI SECURITY AGREEMENT, dated as of May 15, 1996 (as
amended from time to time, this "Agreement"), by FOREVER YOURS,
INC., a California corporation (the "Grantor") and INTERNATIONAL
DIGITAL INVESTORS, L.P., a Delaware limited partnership ("IDI"),
for itself and as collateral agent for the ratable benefit of the
purchasers (the "Purchasers") listed on the signature pages to
that certain Note and Preferred Stock Purchase Agreement (the
"Purchase Agreement"), of even date herewith, by and among the
Grantor, Styles on Video, Inc., a Delaware corporation and the
owner of 80% of the issued and outstanding capital stock of the
Grantor ("SOV"), and the Purchasers.
R E C I T A L S
A. The Purchasers have agreed to purchase and the
Grantor and SOV have agreed to issue and sell from time to time,
subject to the terms and conditions contained in the Purchase
Agreement, 10% Senior Notes due June 30, 1998 of the Grantor and
SOV (the "Notes") and 500 shares of 10% Senior Series B
Convertible Preferred Stock, $.001 par value per share, of the
Grantor (the "Series B Preferred Stock").
B. The Grantor has guarantied the obligations of SOV
under the Purchase Agreement, the Notes and the Additional
Related Agreements pursuant to that certain General Continuing
Guaranty, of even date herewith (the "FYI Guaranty") by the
Grantor in favor of the Purchasers, as beneficiaries.
C. In consideration of the purchase of the Notes and
the Series B Preferred Stock by the Purchasers and as security
for the obligations of the Grantor under the Purchase Agreement,
the Notes, the FYI Guaranty and the Additional Related
Agreements, the Grantor has agreed to grant to IDI, as collateral
agent for the ratable benefit of the Purchasers, a security
interest in the collateral described herein, as set forth herein.
AGREEMENT
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
<PAGE>
ARTICLE 1.
DEFINITIONS AND RELATED MATTERS
SECTION 1.1. DEFINITIONS. Terms with initial capital
letters not otherwise defined in this Agreement have the meanings
set forth in Exhibit A to the Purchase Agreement. In addition,
the following terms with initial capital letters have the
following meanings:
"ACCOUNT DEBTOR" means any Person who is or may become
obligated to Grantor on any Receivable.
"ACCOUNTS" is defined in Section 2.1.1.
"AGREEMENT" is defined in the Preamble.
"APPLICABLE LAW" means all applicable provisions of all
(i) constitutions, treaties, statutes, laws, rules, regulations
and ordinances of any Governmental Authority, (ii) Governmental
Approvals and (iii) orders, decisions, judgments and decrees of
any Governmental Authority.
"APPROVALS" is defined in Section 2.1.10.5.
"CHARGES" means all federal, state, county, city,
municipal or other taxes, liens, assessments or charges that, if
not paid when due, may result in a Lien of any Government
Authority.
"CHATTEL PAPER" is defined in Section 2.1.3.
"COLLATERAL" is defined in Section 2.1.
"CONTRACTUAL OBLIGATIONS" is defined in Section 4.6.1.
"DEFAULT" means any event that, after notice or lapse
of time, or both, would become an Event of Default.
"DOCUMENTS" is defined in Section 2.1.8.
"EQUIPMENT" is defined in Section 2.1.6.
"EVENT OF DEFAULT" is defined in Section 5.1.
"FIXTURES" is defined in Section 2.1.7.
"FYI GUARANTY" is defined in the Recitals.
"GENERAL INTANGIBLES" is defined in Section 2.1.10.
"GOVERNMENTAL AUTHORITY" means any nation, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of government.
"GRANTOR" is defined in the Preamble.
"IDI" is defined in the Preamble.
"INVENTORY" is defined in Section 2.1.5.
"NOTES RECEIVABLE" is defined in Section 2.1.2.
"NOTES" is defined in the Recitals.
"PATENTS, TRADEMARKS AND COPYRIGHTS" is defined in
Section 3.6.
"PLEDGED COLLATERAL" is defined in Section 4.8.
"PROCEEDS" is defined in Section 2.1.14.
"RECEIVABLES" means Accounts, Notes Receivable, Chattel
Paper and other rights to the payment of money.
"SECURED OBLIGATIONS" is defined in Section 2.2.
"SECURITIES" is defined in Section 2.1.9.
"SECURITY INTEREST" is defined in Section 2.1.
"SOV" is defined in the Recitals.
"SUPPLEMENTAL DOCUMENTATION" means financing
statements, continuation statements, warehouse receipts, bills of
lading, assignments of accounts, patents, trademarks or
copyrights, schedules of Collateral, mortgages and other
instruments or documents necessary or requested by IDI (i) to
create, perfect and maintain perfected the Security Interest in
any Collateral or (ii) to enable IDI to receive all interest,
dividends and distributions from time to time paid with respect
to, and all Proceeds of, all Collateral which IDI is entitled to
receive hereunder.
"UCC" means the Uniform Commercial Code (as amended
from time to time) of the State of California.
SECTION 1.2. RELATED MATTERS.
1.2.1. TERMS USED IN THE UCC. Unless the context
clearly otherwise requires, all lower-case terms used and not
otherwise defined herein that are used or defined in Article 9
(or any equivalent subpart) of the UCC have the same meanings
herein.
1.2.2. CONSTRUCTION. Unless the context of this
Agreement clearly requires otherwise, references to the plural
include the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting and "or" has
inclusive meaning represented by the phrase "and/or". The words
"hereof," "herein," "hereby," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole (including the
Preamble, the Recitals and all Schedules and Exhibits) and not to
any particular provision of this Agreement. Article, section,
subsection, exhibit, recital, preamble and schedule references in
this Agreement are to this Agreement unless otherwise specified.
References in this Agreement to any agreement, other document or
law "as amended" or "as amended from time to time," or to
amendments of any document or law, shall include any amendments,
supplements, replacements, renewals or other modifications not
prohibited by the Additional Related Agreements.
1.2.3. GOVERNING LAW. Except to the extent otherwise
required by Applicable Law, the UCC shall govern the attachment,
perfection, priority and enforcement of the Security Interest and
all other matters to which the UCC applies pursuant to the terms
thereof. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California (other than
choice of law rules that would require the application of the
laws of any other jurisdiction).
1.2.4. HEADINGS. The Article and Section headings used
in this Agreement are for convenience of reference only and shall
not affect the construction hereof.
1.2.5. SEVERABILITY. If any provision of this
Agreement or any Lien or other right hereunder shall be held to
be invalid, illegal or unenforceable under Applicable Law in any
jurisdiction, such provision, Lien or other right shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity,
legality or enforceability of such provision, Lien or right in
any other jurisdiction.
ARTICLE 2.
THE SECURITY INTEREST; SECURED OBLIGATIONS
SECTION 2.1. SECURITY INTEREST. To secure the payment
and performance of the Secured Obligations as and when due, the
Grantor hereby grants, conveys, pledges, assigns and transfers to
IDI for itself and for the ratable benefit of the Purchasers, a
security interest (the "Security Interest") in, all right, title,
claim, estate and interest of the Grantor in and to all property
and interests in property, whether now owned and existing or
hereafter acquired or arising, and wherever located (such
property and interests in property being, collectively, the
"Collateral"), including the following:
2.1.1. Any and all rights to payment for goods sold or
leased or for services rendered, including any such rights
evidenced by Chattel Paper, whether due or to become due and
whether or not earned by performance (excluding any such rights
evidenced by Notes Receivable, the "Accounts");
2.1.2. Any and all negotiable instruments, promissory
notes, acceptances, drafts, checks, certificates of deposit and
other writings that evidence a right to the payment of money by
any other Person, including the writings listed on Schedule 2.1.2
(the "Notes Receivable");
2.1.3. Any and all chattel paper, including writings
that evidence both a monetary obligation and a security interest
in or lease of specific goods (the "Chattel Paper");
2.1.4. Any and all rights to payment:
2.1.4.1. to the extent not included in Accounts, Notes
Receivable or Chattel Paper, receivables from any credit or
charge card company (such as Visa, Mastercard, American Express
and Diner's Club), whether arising out of or relating to the sale
of goods and services by the Grantor or otherwise; and
2.1.4.2. of money not listed above and any and all
rights, titles, interests, securities, Liens and guaranties
evidencing, securing, guaranteeing payment of or in any way
relating to any Receivables;
2.1.5. Any and all goods that may at any time be held
for sale or lease or to be furnished under any contract of
service, be so leased or furnished, or constitute raw materials,
work in process, parts, supplies or materials that are or might
be used or consumed in a business or in connection with the
manufacture, selling or leasing of such goods ("Inventory");
2.1.6. Any and all equipment and other goods (excluding
Inventory), including the following personal property, including
machinery, machine tools, office machinery (including computers,
typewriters and duplicating machines), motor vehicles, trailers,
rolling stock, motors, pumps, controls, tools, parts, works of
art, furniture, furnishings and trade fixtures, all athletic
equipment and supplies, and all molds, dies, drawings,
blueprints, reports, catalogs and computer programs related to
any of the above (together with all related property described in
Section 2.1.12, the "Equipment");
2.1.7. Any and all fixtures, including machinery,
equipment or appliances for generating, storing or distributing
air, water, heat, electricity, light, fuel or refrigeration, for
ventilating or sanitary purposes, elevators, safes, laundry,
kitchen and athletic-equipment, trade fixtures, and telephone,
television and other communications equipment (the "Fixtures");
2.1.8. Any and all documents, whether or not
negotiable, including bills of lading, warehouse receipts, trust
receipts and the like (the "Documents");
2.1.9. Any and all stocks, bonds, general and limited
partnership interests, joint venture interests and other
securities, subscription rights, options, warrants, puts, calls
and other rights with respect thereto, and investment and
brokerage accounts (the "Securities");
2.1.10. Any and all general intangibles, contract
rights and other property described below (together with any
property listed under Section 2.1.4 above, the "General
Intangibles"), including the following:
2.1.10.1. deposit and other accounts, including demand,
time savings, passbook and like accounts maintained with any
bank, savings and loan association, credit union, brokerage
or other institution (including the deposit accounts listed
in Schedule 2.1.10.1), and any and all money, instruments
and other property from time to time deposited therein or
credited thereto, or received, receivable or otherwise
distributed therefrom, in respect thereof or in exchange
therefor, including all interest accruing thereon;
2.1.10.2. insurance policies and all rights and claims
therein or thereunder (including prepaid and unearned
premiums), including insurance against casualty (including
by fire or earthquake) or liability (including against
environmental cleanup costs), title insurance, business
interruption insurance and builders risk insurance, whether
covering personal or real property;
2.1.10.3. (i) any rights, claims, judgments, awards,
orders or decrees arising out of or in connection with any
judicial action, litigation, arbitration, mediation or other
proceedings, including the matter captioned Styles on Video
v. Kellogg & Andelson and any matters related to the
malpractice claim of Grantor against Kellogg & Andelson
and/or their insurers, and including any proceeds generated
by any such action, whether through settlement or judgment
(including any claims or rights to payment or proceeds under
any insurance policy insuring Grantor, SOV, the defendant in
such action or any other Person) and (ii) any and all rights
in the escrow account established in connection with the
Collateral described in clause (i) above (including without
limitation any and all rights to any cash and/or securities
on deposit therein) (these provisions being intended to
create a Lien on such property under Sections 2881 and 2883
of the California Civil Code, in addition to any Liens under
the UCC.).
2.1.10.4. any and all leases of real or personal
property, licensing agreements and other contracts, and all
guarantees, warranties, royalties, license fees and rights
under such contracts;
2.1.10.5. any and all Governmental Approvals, including
permits, licenses, certificates of use and occupancy (or
their equivalents) and zoning and other approvals, and tax
and other refunds, compensation, awards, payments and relief
given or made by any Governmental Authority (including
condemnation awards) (the "Approvals");
2.1.10.6. deposits, surety and other bonds, choses and
things in action, goodwill, computer programs, computer
software (including all source and object codes, all media
of any type or nature on which such source or object codes
are reproduced, copied, stored or maintained), technology
processes, proprietary information, patents, patent
applications, copyrights, copyright applications,
trademarks, trademark applications, service marks, trade and
other names, trade secrets and customer lists, including the
intellectual property rights listed on Schedule 2.1.10.6;
2.1.10.7. any rights, claims, judgments, awards, orders
or decrees arising out of or in connection with any tax
refund or credit by the Internal Revenue Service or any
state taxing authority to the Grantor with respect to any
fiscal year of the Grantor or under any tax return that has
been or is filed with respect to any fiscal year of the
Grantor.
2.1.11. Any and all books and records (including
ledgers, correspondence, credit files, computer software,
computer storage media and electronically recorded data)
pertaining to the Grantor or any of the foregoing and all
equipment, receptacles, containers and cabinets therefor;
2.1.12. Any and all accessions, appurtenances,
components, repairs, repair parts, spare parts, renewals,
improvements, replacements, substitutions and additions to, of or
with respect to any of the foregoing;
2.1.13. Any and all rights, remedies, powers and
privileges of the Grantor with respect to any of the foregoing;
and
2.1.14. Any and all proceeds and products of any of the
foregoing, whether now held and existing or hereafter acquired or
arising, (collectively, the "Proceeds"). "Proceeds" shall
include (i) whatever is now or hereafter received by the Grantor
upon the sale, exchange, collection, other disposition or
operation of any item of Collateral, whether such proceeds
constitute accounts, general intangibles, instruments,
securities, documents, letters of credit, chattel paper, deposit
accounts, money, goods or other personal property, (ii) any items
that are now or hereafter acquired by the Grantor with any
Proceeds of Collateral, (iii) any amounts now or hereafter
payable under any insurance policy by reason of any loss of or
damage to any Collateral or the business of the Grantor including
the insurance Proceeds, (iv) all rights to payment for the sale
of services or products in connection with the business of the
Grantor and (v) the right to further transfer, including by
pledge, mortgage, license, assignment or sale, any of the
foregoing.
SECTION 2.2. SECURED OBLIGATIONS. The Security
Interest shall secure the due and punctual payment and
performance of any and all present and future obligations and
liabilities of the Grantor of every type or description to IDI,
the Purchasers or any Person entitled to indemnification under
the Purchase Agreement and any other Additional Related
Agreement:
2.2.1. arising under or in connection with the Purchase
Agreement, the Notes, or the FYI Guaranty, whether for principal
of or premium (if any) or interest on the Notes, expenses,
indemnities or other amounts (including attorneys' fees and
expenses); or
2.2.2. arising under or in connection with this
Agreement or any other Additional Related Agreement, including
for reimbursement of amounts permitted to be advanced or expended
by IDI (i) to satisfy amounts required to be paid by the Grantor
under this Agreement or any other Additional Related Agreement
for claims and Charges, together with interest thereon to the
extent provided or (ii) to maintain or preserve any Collateral or
to create, perfect, continue or protect any Collateral or the
Security Interest therein, or its priority;
in each case whether due or not due, direct or indirect, joint
and/or several, absolute or contingent, voluntary or involuntary,
liquidated or unliquidated, determined or undetermined, now or
hereafter existing, renewed or restructured, whether or not from
time to time decreased or extinguished and later increased,
created or incurred, whether or not arising after the
commencement of a proceeding under the Bankruptcy Code (including
post-petition interest) and whether or not recovery of any such
obligation or liability may be barred by a statute of limitations
or such obligation or liability may otherwise be unenforceable
(all obligations and liabilities described in this Section 2.2.
are collectively referred to as the "Secured Obligations").
ARTICLE 3.
WARRANTIES AND REPRESENTATIONS
The Grantor represents and warrants that all
representations and warranties made with respect to it, its
assets and its obligations in the Purchase Agreement are true and
correct and makes the following additional representations and
warranties, all of which shall survive until termination of this
Agreement pursuant to Section 6.7.
SECTION 3.1. FILINGS, ETC.
3.1.1. Duly executed financing statements containing a
correct description of the Collateral have been delivered to IDI
for filing in every governmental office in every state, county
and other jurisdiction in which the principal or any other place
of business or the chief executive office of the Grantor, or any
portion of the Collateral, is located and in each jurisdiction in
which such action is necessary to establish a valid and perfected
Lien in favor of IDI in all Collateral in which a Lien may be
perfected by filing, and no further or subsequent filing,
recording or registration is necessary in any such jurisdiction,
except as provided under Applicable Law with respect to the
filing of continuation statements.
3.1.2. Upon request of IDI and, in any event if the
insurer under any insurance policy is located outside of the
State of California, the Grantor will deliver to IDI the original
of such insurance policy in order to perfect the Security
Interest of IDI in such insurance policy.
3.1.3. All Pledged Collateral has been delivered to IDI
to the extent required hereby.
3.1.4. The Grantor has executed and delivered to IDI
for filing with the United States Patent and Trademark Office a
written notice in the form of Exhibit 3.1.4, duly completed and
executed, with respect to each Patents, Trademarks and Copyrights
in which the Grantor has an interest and all other Supplemental
Documentation necessary to perfect the Security Interest with
respect to all Patents, Trademarks and Copyrights has been
delivered to IDI for filing in the appropriate governmental
office.
3.1.5. The Grantor has executed and delivered to IDI
for transmittal to the insurers under each insurance policy a
written notice in the form of Exhibit 3.1.5 properly addressed
and duly completed and executed, with respect to each insurance
policy in which the Grantor has an interest.
3.1.6. The Grantor has executed and delivered to IDI
for filing with an appropriate officer of each financial
institution with which the Grantor maintains any deposit account
a written notice in the form of Exhibit 3.1.6 duly completed and
executed, with respect to each deposit account so maintained by
it.
SECTION 3.2. LOCATIONS OF COLLATERAL, OFFICES AND
NAMES. (i) The Grantor's chief executive office and principal
place of business is located at the address set forth on Schedule
3.2, (ii) all other places of business of the Grantor and all
other locations at which any tangible Collateral or books and
records related to any Collateral are (or during the past four
months were) located are set forth on Schedule 3.2, (iii) the
Grantor's federal tax identification number is set forth on
Schedule 3.2, and (iv) there are no prior or current trade or
legal names used to identify the Grantor in its business or in
the ownership of its properties other than those set forth on
Schedule 3.2.
SECTION 3.3. TITLE TO COLLATERAL; VALIDITY AND
PERFECTION OF SECURITY INTEREST; ABSENCE OF OTHER LIENS.
3.3.1. The Grantor has good and marketable title to, or
valid and subsisting leasehold interests in, all Collateral
reflected on its financial statements as being owned or leased by
it and "rights" in all other Collateral within the meaning of
Section 9-203 of the UCC.
3.3.2. The Security Interest constitutes a valid and,
upon the filing of financing statements covering the Collateral
and other documents referred to in Section 3.1 with the
appropriate Governmental Authorities or other Persons referred to
in such Section, perfected Lien in all of the Collateral and
secures payment and performance of the Secured Obligations. The
Collateral is free and clear of all Liens other than the Security
Interest and those permitted under the Purchase Agreement and the
Existing Note Agreement.
3.3.3. Except for financing statements in favor of IDI
and those permitted under the Purchase Agreement and the Existing
Note Agreement, the Grantor has filed no now-effective financing
statement covering the Collateral.
SECTION 3.4. INSURANCE CLAIMS AND JUDGMENTS. Except as
set forth on Schedule 3.4, there are no Liens on the Collateral
described in Section 2.1.10.3.
SECTION 3.5. NOTES RECEIVABLE. Schedule 2.1.2 lists
all Notes Receivable of the Grantor. There are no setoffs or
counterclaims or disputes existing or asserted with respect to
any such Notes Receivable.
SECTION 3.6. PATENTS, TRADEMARKS AND COPYRIGHTS.
Schedule 2.1.10.6 lists all patents, patent applications,
trademarks, trademark applications, service marks, service mark
applications, copyrights and copyright applications
(collectively, "Patents Trademarks and Copyrights") in which the
Grantor has an interest. Except as disclosed on Schedule
2.1.10.6, all Patents, Trademarks and Copyrights are valid and
enforceable and the relevant Grantor is the sole and exclusive
owner of each of the Patents, Trademarks and Copyrights, free and
clear of any Liens (including licenses, shop rights and covenants
not to sue listed on Schedule 2.1.10.6.)
ARTICLE 4.
COVENANTS AND AGREEMENTS
SECTION 4.1. FURTHER ASSURANCES. The Grantor shall, at
its own expense, perform such acts as may be necessary, or that
IDI may request at any time, to assure the attachment, perfection
and first priority of the Security Interest, to exercise the
rights and remedies of IDI hereunder or to carry out the intent
of this Agreement. Without limitation, the Grantor shall execute
and deliver (or cause any third party to execute and deliver) to
IDI, at any time and from time to time, all Supplemental
Documentation, in form and substance acceptable to IDI. Without
limiting the generality of the foregoing, the Grantor shall give
all notices to insurers under the insurance policies and do all
other things necessary to assure the attachment and first
priority (subject to the security interest granted pursuant to
the Existing Collateral Documents and pursuant to the security
agreement executed in connection with the Temporary Loan) of the
Security Interest in the insurance policies and any claims,
rights to payment or proceeds thereof.
SECTION 4.2. INSPECTION AND VERIFICATION. The Grantor
shall keep or cause to be kept accurate and complete records of
the Collateral at the Grantor's chief executive office. IDI and
its employees and agents shall have the right, at all times
during the Grantor's usual business hours upon reasonable notice,
to (i) inspect, and verify the quality, quantity, value and
condition of, or any other matter relating to, the Collateral,
(ii) inspect all records relating thereto and to make (or require
the Grantor to provide) copies of such records and (iii) enter
upon all premises upon which any of the Collateral is located.
Notwithstanding the foregoing, IDI shall not contact third
parties in making such inspection or verification unless an Event
of Default shall then exist.
SECTION 4.3. POWER OF ATTORNEY. The Grantor hereby
irrevocably appoints IDI and its employees and agents as the
Grantor's true and lawful attorneys-in-fact, with full power of
substitution, (i) to do all things required to be done by the
Grantor under this Agreement or the other Additional Related
Agreements and (ii) to do all things that IDI may deem necessary
or advisable to assure the attachment, perfection and priority of
the Security Interest or otherwise to exercise the rights and
remedies of IDI hereunder or carry out the intent of this
Agreement, in each case irrespective of whether an Event of
Default then exists (except as provided in Section 4.3.4, and at
the Grantor's expense.) Without limitation, IDI and its officers
and agents shall be entitled to do all of the following, as fully
as the Grantor might:
4.3.1. to sign the name of the Grantor on any
Supplemental Documentation and to deliver and file such
Supplemental Documentation to or with such Persons as IDI, in its
discretion, may elect;
4.3.2. to sign any certificate of ownership,
registration card, application therefor, affidavits or documents
necessary to transfer title to any of the Collateral, to receive
and receipt for all licenses, registration cards and certificates
of ownership;
4.3.3. to affix, by facsimile signature or otherwise,
the general or special endorsement of the Grantor, in such manner
as IDI shall deem advisable, to any Pledged Collateral that has
been delivered to or obtained by IDI without appropriate
endorsement or assignment; and
4.3.4. during the existence of an Event of Default,
without notice to the Grantor and at such time or times as IDI in
its discretion may determine, in the Grantor's or in IDI's name:
4.3.4.1. to collect any and all amounts due to the
Grantor from Account Debtors with respect to Receivables by
legal proceedings or otherwise;
4.3.4.2. to make, settle and adjust any claims under
insurance policies including, and to make any decisions with
respect thereto; and
4.3.4.3. to attend and vote at any and all meetings of
the holders of Securities and to execute any and all written
consents of such holders with the same effect as if the
Grantor had personally attended and voted at such meetings
or had personally signed such consents.
IDI shall be under no obligation whatsoever to take any
of the foregoing actions, and, absent bad faith or willful
misconduct, IDI and its Affiliates, shareholders, directors,
officers, employees and agents shall have no liability or
responsibility for any act taken or omitted with respect thereto.
A copy of this Agreement and, if applicable, a statement by IDI
that an Event of Default exists shall be conclusive evidence of
IDI's right to act under this Section 4.3 as against all third
parties.
SECTION 4.4. CHANGES OF LOCATIONS OF COLLATERAL,
OFFICES, NAME OR STRUCTURE. The Grantor shall not remove any
Collateral, books or records to, or keep any Collateral, books or
records or do business at, a location not set forth on Schedule
3.2, adopt a trade name or change its name, chief executive
office, principal place of business, identity or corporate
structure without the prior written consent of IDI.
SECTION 4.5. PAYMENT OF CHARGES AND CLAIMS. The
Grantor shall pay (i) all Charges imposed upon any Collateral and
(ii) all claims (including claims for labor, services and
materials) that have become due and payable and, under Applicable
Law, have or may become Liens upon any Collateral, in each case
before any penalty shall be incurred with respect thereto;
provided that, unless foreclosure, levy or similar proceedings
shall have commenced, the Grantor need not pay or discharge any
such Charges or claims so long as the validity or amount thereof
is being contested in good faith and by appropriate proceedings
and so long as adequate reserves therefor have been established
in accordance with GAAP. If the Grantor fails to pay or obtain
the discharge of any Charge, claim or Lien required to be paid or
discharged under this Section 4.5 and asserted against all or a
portion of the Collateral, IDI may, at any time and from time to
time, in its discretion and without waiving or releasing any
obligation of the Grantor under this Agreement or the other
Additional Related Agreements or waiving any Default or Event of
Default, make such payment, obtain such discharge or take such
other action with respect thereto as IDI deems advisable.
SECTION 4.6. CONTINUING OBLIGATIONS OF THE GRANTOR;
INDEMNITY.
4.6.1. The Grantor shall remain liable to observe and
perform all agreements and other obligations relating to or
included in the Collateral (the "Contractual Obligations") in
accordance with their respective terms. IDI shall not have any
duty, obligation or liability under or with respect to any such
Contractual Obligations, whether by reason of or arising out of
this Agreement, the receipt by IDI of any payment relating to any
such Contractual Obligation or otherwise, and the Grantor agrees
to indemnify and hold harmless IDI from any and all such
obligations and liabilities.
4.6.2. IDI shall not have any duty of care with respect
to the Collateral, other than an obligation to exercise
reasonable care with respect to Collateral in its possession;
provided that (i) IDI shall be deemed to have exercised
reasonable care if Collateral in its possession is accorded
treatment substantially comparable to that which such IDI accords
its own property, and (ii) IDI shall have no obligation to take
any actions to preserve rights against other parties or property
with respect to any Collateral. Without limitation, IDI shall
(A) bear no risk or expense with respect to any Collateral and
(B) have no duty with respect to calls, conversions,
presentments, maturities, notices or other matters relating to
Pledged Collateral, or to maximize interest or other returns with
respect thereto.
4.6.3. IDI may at any time deliver or redeliver the
Collateral or any part thereof to the Grantor and the receipt of
any of the same by the Grantor shall be complete and full
acquittance for the Collateral so delivered, and IDI thereafter
shall be discharged from any liability or responsibility
therefor.
4.6.4. The Grantor hereby agrees to indemnify and hold
harmless IDI and its Affiliates, shareholders, directors,
officers, employees and agents against any and all claims,
actions, liabilities, costs and expenses of any kind or nature
whatsoever (including fees and disbursements of counsel) that may
be imposed on, incurred by, or asserted against any of them, in
any way relating to or arising out of this Agreement or any
action taken or omitted by them hereunder, except to the extent a
court holds in a final and nonappealable judgment that they
resulted from the gross negligence or willful misconduct of such
Persons.
SECTION 4.7. SALE OF COLLATERAL; FURTHER ENCUMBRANCES.
The Grantor shall not (i) except for dispositions of Inventory in
the ordinary course of the Grantor's business (collectively,
"Permitted Sales") sell, lease or otherwise dispose of any
Collateral, or any interest therein, or (ii) except for Liens
permitted under the Purchase Agreement and the Existing Note
Agreement, grant or suffer to exist any Lien in or on any
Collateral or sign or authorize the filing of any financing
statement with respect to any of the Collateral. Concurrently
with any Permitted Sale, the Security Interest shall
automatically be released from the Collateral so disposed of;
provided, however, that the Security Interest shall continue in
the Proceeds thereof. If any Collateral, or any interest
therein, is disposed of in violation of these provisions, the
Security Interest shall continue in such Collateral or interest
notwithstanding such disposition, the Person to which the
Collateral or interest is being transferred shall be bound by
this Agreement, and the Grantor shall deliver all Proceeds
thereof to IDI to be held as Collateral hereunder.
SECTION 4.8. DELIVERY OF PLEDGED COLLATERAL. The
Grantor shall deliver to IDI, together with appropriate
endorsements or documentation of assignment thereof acceptable to
IDI, any and all Notes Receivable or Chattel Paper having a face
amount, negotiable Documents evidencing title to any Collateral
having a fair market value, and all certificated Securities
having a fair market value, individually or in the aggregate,
equal to or greater than $10,000 (collectively, the "Pledged
Collateral").
SECTION 4.9. PROTECTION OF SECURITY; NOTICE OF LEVY.
The Grantor shall, at its own cost and expense, take any and all
actions necessary to defend title to the Collateral against all
Persons and against all claims and demands and to preserve,
protect and defend the Security Interest and the priority
thereof, against any adverse Liens. The Grantor will promptly
notify IDI of any attachment or other legal process levied
against any Collateral.
SECTION 4.10. EQUIPMENT AND FIXTURES. The Grantor, at
its expense, shall cause the Equipment and Fixtures to be
maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted. In
the case of any loss or damage to any of the Equipment or
Fixtures, the Grantor shall, as promptly as practicable after the
occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith that
are necessary or desirable to such end and promptly furnish to
IDI a written report with respect to any loss or damage in excess
of $10,000 to any Equipment or Fixtures.
ARTICLE 5.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
SECTION 5.1. EVENT OF DEFAULT. The occurrence of one
or more "Events of Default" (as defined in the Purchase Agreement
or the Notes) shall constitute an "Event of Default."
SECTION 5.2. REMEDIES. If an Event of Default occurs,
then, whether or not all the Secured Obligations shall have
become immediately due and payable:
5.2.1. In addition to all its other rights, powers and
remedies under this Agreement and Applicable Law, IDI shall have,
and may exercise, any and all of the rights, powers and remedies
of a secured party under the UCC, all of which rights, powers and
remedies shall be cumulative and not exclusive, to the extent
permitted by Applicable Law.
5.2.2. IDI shall have the right, all at IDI's sole
option and as IDI in its discretion may deem necessary or
advisable, to do any or all of the following:
5.2.2.1. to foreclose the Security Interest by any
available judicial procedure or without judicial process;
5.2.2.2. to enter upon the premises of the Grantor or
any other place or places where Collateral is located
through self-help and without judicial process; without
giving the Grantor notice and opportunity for a hearing on
the validity of IDI's claim and without any obligation to
pay rent;
5.2.2.3. to inspect and appraise the Collateral and to
prepare, repair, assemble or process the Collateral for
sale, lease or other disposition;
5.2.2.4. to remove Collateral to the premises of IDI or
any other location selected by IDI, for such time as IDI may
desire, for any purpose not prohibited hereby;
5.2.2.5. to apply any Collateral or any other assets of
the Grantor in the possession of IDI to the Secured
Obligations;
5.2.2.6. to notify Account Debtors and other obligers
on the Collateral that the Collateral has been assigned to
IDI and that all payments thereon are to be made directly
and exclusively to or as specified by IDI;
5.2.2.7. to collect by legal proceedings or otherwise
all dividends, distributions, interest, principal or other
sums now or hereafter payable upon or on account of the
Collateral;
5.2.2.8. to enter into any extension or reorganization
agreement or any other agreement relating to or affecting
the Collateral and, in connection therewith, deposit or
surrender control of any Collateral or accept other property
in exchange therefor;
5.2.2.9. to settle, compromise or release, on terms
acceptable to IDI, in whole or in part, any amounts owing on
the Collateral or any insurance thereof or relating thereto
or any disputes with respect thereto or such insurance;
5.2.2.10. to receive, open and dispose of all mail
addressed to the Grantor and notify postal authorities to
change the address for delivery thereof to such address as
IDI may designate, provided that IDI agrees that it will
promptly deliver over to the Grantor any such opened mail as
does not relate to the Collateral;
5.2.2.11. to exercise all rights and powers under
Contractual Obligations included in the Collateral,
including any right of termination; and
5.2.2.12. to exercise any and all other rights, powers,
privileges and remedies of an owner of the Collateral.
5.2.3. The Grantor shall, at IDI's request, assemble
the Collateral and make it available to IDI at a place to be
designated by IDI. The Grantor shall make available to IDI all
computer and other equipment of the Grantor containing books and
records pertaining to the Collateral (and the assistance of the
employees of the Grantor having responsibility for such
equipment) and to use such computer and other equipment at no
charge for the purpose of obtaining information pertaining to the
Collateral, including by making copies of computer and other
files and records.
5.2.4. Until IDI is able to effect a sale, lease or
other disposition of Collateral or any part thereof, IDI shall
have the right to use, process or operate the Collateral or any
part thereof to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other
purpose deemed appropriate by IDI. IDI shall have the right,
without notice or demand, either in person or by agent, and
without regard to the adequacy of any security for the Secured
Obligations, to take possession of the Collateral or any part
thereof and to collect and receive the rents, issues, profits,
income and proceeds thereof. Taking possession of the Collateral
shall not cure, waive or affect an Event of Default or notice
thereof or invalidate any act done pursuant to such notice.
5.2.5. IDI may, if it so elects, as a matter of strict
right and without regard to the then value of the Collateral,
seek the appointment of a receiver or keeper to take possession
of Collateral and to enforce any of IDI's remedies with respect
to such appointment without prior notice or hearing. The rights,
remedies and powers of any receiver appointed by a court shall be
as ordered by the court.
5.2.6. IDI shall have the right to sell, lease, or
otherwise dispose of all or any Collateral in its then existing
condition, or after any further assembly, manufacturing or
processing thereof, at public or private sale or sales, with such
notice as may be required by Section 5.4, in lots or in bulk, for
cash or on credit, with or without representations or warranties,
all as IDI, in its discretion, may deem advisable. IDI shall not
be obligated to make any sale of the Collateral regardless of
notice of sale having been given. If sale of all or any part of
the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by IDI until the sale price is
paid by the purchaser or purchasers thereof, but IDI shall not
incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon
like notice. IDI shall have the right to conduct such sales on
the Grantor's premises or elsewhere and shall have the right to
use the Grantor's premises without charge for such sales for such
duration as IDI deems necessary or advisable. The Collateral
need not be present at any such sales. To the extent necessary
or desirable, in the judgment of IDI, to enable IDI to dispose of
Collateral following an Event of Default, IDI is authorized,
without any obligation for rent, license fees or other charge, to
use the supplies, equipment, facilities and space at the
Grantor's place of business and is hereby granted a license or
other right to use, without charge, the Patents, Trademarks and
Copyrights, trade secrets, names, trade names, customer lists,
labels, advertising matter, and all property of a similar nature
that the Grantor owns or is entitled to use, as it pertains to
any Collateral, in preparing, repairing, assembling, processing,
advertising for sale or lease or otherwise in connection with the
disposition of any Collateral, and the Grantor's rights under all
licenses and all franchise agreements shall to such extent and
for such purpose inure to IDI's benefit. IDI may purchase all or
any part of the Collateral at public or, if permitted by
Applicable Law, private sale, and in lieu of actual payment of
the purchase price, IDI may apply against such purchase price any
amount of the Secured Obligations. The Grantor agrees that any
sale of Collateral conducted by IDI in accordance with the
foregoing provisions of this Section and Section 5.3 shall be
deemed to be a commercially reasonable sale under Section 9-504
of the UCC.
SECTION 5.3. APPLICATION OF PROCEEDS.
5.3.1. Any cash proceeds received by IDI in respect of
any sale of, collection from, or other realization upon, all or
any part of the Collateral following the occurrence of an Event
of Default (including any insurance proceeds) may be held by IDI
as Collateral and/or then or at any time thereafter applied as
follows:
5.3.1.1. first, to IDI to pay all advances, charges,
costs and expenses payable to IDI pursuant to Section 6.1;
and
5.3.1.2. second, to pay the Secured Obligations in the
order determined by IDI.
5.3.2. The Grantor and any other Person then obligated
therefor shall pay to IDI on demand any deficiency with regard to
the Secured Obligations that may remain after such sale,
collection or realization of, from or upon the Collateral.
5.3.3. Payments received from any third party on
account of any Collateral shall not reduce the Secured
Obligations until paid in cash to IDI. The application of
proceeds by IDI shall be without prejudice to IDI's rights as
against the Grantor or other Persons with respect to any Secured
Obligations that may then be or remain unpaid.
5.3.4. If at any time after an Event of Default the
Grantor receives any collections upon or other Proceeds of any
Collateral, whether in the form of cash, Notes Receivable or
otherwise, such Proceeds shall be received in trust for IDI and
the Grantor shall keep all such Proceeds separate and apart from
all other funds and property so as to be capable of
identification as the property of IDI and promptly deliver such
Proceeds to IDI in the identical form received.
SECTION 5.4. NOTICE OF SALE.
Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, IDI will send or otherwise make available to
the Grantor reasonable notice of the time and place of any public
sale or of the time on or after which any private sale of any
Collateral is to be made. The Grantor agrees that any notice
required to be given by IDI of a sale or other disposition of
Collateral, or any other intended action by IDI, that is received
in accordance with the provisions set forth in Section 6.4 five
days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to the Grantor. IDI may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor and such sale
may, without further notice, be made at the time and place to
which it was so adjourned. The Grantor hereby waives any right
to receive notice of any public or private sale of any Collateral
or other security for the Secured Obligations except as expressly
provided for in this Section 5.4.
ARTICLE 6.
GENERAL
SECTION 6.1. IDI'S EXPENSES, INCLUDING ATTORNEYS' FEES.
Regardless of the occurrence of an Event of Default, the Grantor
agrees to pay to IDI any and all advances, charges, costs and
expenses, including the reasonable fees and expenses of counsel
and any experts or agents, that IDI may reasonably incur in
connection with (i) the administration of this Agreement,
including any amendment hereto, (ii) the creation, perfection or
continuation of the Security Interest or protection of its
priority or the Collateral, including the discharging of any
prior or junior Lien or adverse claim against the Collateral or
any part thereof, (iii) the custody, preservation or sale of,
collection from, or other realization upon, any of the
Collateral, (iv) the exercise or enforcement of any of the
rights, powers or remedies of IDI under this Agreement or under
Applicable Law (including attorneys' fees and expenses incurred
by IDI in the collection of Collateral deposited with IDI and
amounts incurred in connection with the operation, maintenance or
foreclosure of the Security Interest) or any bankruptcy
proceeding or (v) the failure by the Grantor to perform or
observe any of the provisions hereof. All such amounts and all
other amounts payable hereunder shall be payable on demand,
together with interest for the period from the date of demand at
a rate of interest equal to the lesser of (i) 10% per annum
(based on a year of 365 or 366 days, as the case may be) or
(ii) the maximum rate allowed by Applicable Law, from and
including the due date to and excluding the date of payment.
SECTION 6.2. AMENDMENTS AND OTHER MODIFICATIONS. No
amendment of any provision of this Agreement (including a waiver
thereof or consent relating thereto) shall be effective unless
the same shall be in writing and signed by the Grantor and IDI.
Any waiver or consent relating to any provision of this Agreement
shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the
Grantor in any case shall entitle the Grantor to any other or
further notice or demand in similar or other circumstances.
SECTION 6.3. CUMULATIVE REMEDIES; FAILURE OR DELAY.
The rights and remedies provided for under this Agreement are
cumulative and are not exclusive of any rights and remedies that
may be available to IDI under Applicable Law, the Purchase
Agreement and the other Additional Related Agreements or
otherwise. No failure or delay on the part of IDI in the
exercise of any power, right or remedy under this Agreement shall
impair such power, right or remedy or shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power, right or remedy preclude other or further exercise of such
or any other power, right or remedy.
SECTION 6.4. NOTICES, ETC. All notices and other
communications under this Agreement shall be in writing and shall
be personally delivered or sent by prepaid courier, by overnight,
registered or certified mail (postage prepaid) or by prepaid
telecopy, and shall be deemed given when received by the intended
recipient thereof. Unless otherwise specified in a notice given
in accordance with the foregoing provisions of this Section 6.4,
notices and other communications shall be given to the parties
hereto at their respective addresses (or to their respective
telecopier numbers) indicated on the signature pages of the
Purchase Agreement.
SECTION 6.5. SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and, subject to the next sentence, inure to
the benefit of the Grantor and IDI and their respective
successors and assigns. The Grantor shall not assign or transfer
any of its rights or obligations hereunder without the prior
written consent of IDI. The benefits of this Agreement shall
pass automatically with any assignment of the Secured Obligations
(or any portion thereof), to the extent of such assignment.
SECTION 6.6. PAYMENTS SET ASIDE. Notwithstanding
anything to the contrary herein contained, this Agreement, the
Secured Obligations and the Security Interest shall continue to
be effective or be reinstated, as the case may be, if at any time
any payment, or any part thereof, of any or all of the Secured
Obligations is rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be restored or returned
by IDI in connection with any bankruptcy, reorganization or
similar proceeding involving the Grantor, any other party liable
with respect to the Secured Obligations or otherwise, if the
proceeds of any Collateral are required to be returned by IDI
under any such circumstances, or if IDI elects to return any such
payment or proceeds or any part thereof in its discretion, all as
though such payment had not been made or such proceeds not been
received. Without limiting the generality of the foregoing, if
prior to any such rescission, invalidation, declaration,
restoration or return, this Agreement shall have been canceled or
surrendered or the Security Interest or any Collateral shall have
been released or terminated in connection with such cancellation
or surrender, this Agreement and the Security Interest and such
Collateral shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, discharge or
otherwise affect the obligations of the Grantor in respect of the
amount of the affected payment or application of proceeds, the
Security Interest or such Collateral.
SECTION 6.7. CONTINUING SECURITY INTEREST; TERMINATION.
Except as otherwise provided in Section 4.7 with respect to the
release of Collateral under certain circumstances, this Agreement
shall create a continuing security interest in the Collateral
and, except as provided below, the Security Interest and all
agreements, representations and warranties made herein shall
survive until, and this Agreement shall terminate only upon, the
indefeasible payment and performance in full of the Secured
Obligations. Any investigation at any time made by or on behalf
of IDI shall not diminish the right of IDI to rely on any such
agreements, representations or warranties herein.
Notwithstanding anything in this Agreement or
Applicable Law to the contrary, the agreements of the Grantor set
forth in Sections 4.6.1, 4.6.4 and 6.1 shall survive the payment
of all other Secured Obligations and the termination of this
Agreement.
SECTION 6.8. CHOICE OF FORUM.
6.8.1. Subject to Section 6.8.2, all actions or
proceedings arising in connection with this Agreement shall be
tried and litigated in state or Federal courts located in Los
Angeles, County of Los Angeles, State of California, unless such
actions or proceedings are required to be brought in another
court to obtain subject matter jurisdiction over the matter in
controversy. THE GRANTOR WAIVES ANY RIGHT IT MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS NOT
SUBJECT TO THE JURISDICTION OF SUCH COURTS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 6.8.1.
6.8.2. Nothing contained in Section 6.8.1 shall
preclude IDI from bringing any action or proceeding arising out
of or relating to this Agreement in the courts of any place where
Grantor or any of Grantor's assets may be found or located. TO
THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH
JURISDICTION, THE GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT
OF ANY SUCH ACTION OR PROCEEDING, THE JURISDICTION OF ANY OTHER
COURT OR COURTS THAT NOW OR HEREAFTER, BY REASON OF SUCH PARTY'S
PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT.
SECTION 6.9. WAIVER AND ESTOPPEL. Except as otherwise
provided in this Agreement, the Grantor hereby waives:
(i) presentment, protest, notice of dishonor, release,
compromise, settlement, extension or renewal and any other notice
of or with respect to the Secured Obligations and hereby ratifies
and confirms whatever IDI may do in this regard; (ii) notice
prior to taking possession or control of any Collateral or any
bond or security that might be required by any court prior to
allowing IDI to exercise any of their rights, powers or remedies;
(iii) the benefit of all valuation, appraisement, redemption and
exemption laws; (iv) any rights to require marshaling of the
Collateral upon any sale or otherwise to direct the order in
which the Collateral shall be sold; (v) any set-off and (vi) any
rights to require IDI to proceed against any Person, proceed
against or exhaust any Collateral or any other security interests
or guaranties or pursue any other remedy in IDI's power, or to
pursue any of such rights in any particular order or manner, and
any defenses arising by reason of any disability or defense of
any Person.
SECTION 6.10. EXECUTION IN COUNTERPARTS. This
Agreement may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be
deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
SECTION 6.11. COMPLETE AGREEMENT. This Agreement,
together with the exhibits and schedules hereto and the other
Additional Related Agreements, is intended by the parties as a
final expression of their agreement regarding the subject matter
hereof and as a complete and exclusive statement of the terms and
conditions of such agreement.
SECTION 6.12. LIMITATION LIABILITY. No claim shall be
made by the Grantor against IDI or the Affiliates, shareholders,
directors, officers, employees or agents of IDI for any special,
indirect, consequential or punitive damages in respect of any
claim for breach of contract or under any other theory of
liability arising out of or related to the transactions
contemplated by this Agreement, the Purchase Agreement and the
other Additional Related Agreements, or any act, omission or
event occurring in connection therewith; and the Grantor hereby
waives, releases and agrees not to sue upon any claim for any
such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
SECTION 6.12. WAIVER OF TRIAL BY JURY. THE GRANTOR AND
IDI WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS
AGREEMENT OR ANY OTHER RELATED AGREEMENT OR ANY ACTION ARISING
OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first set
forth above.
GRANTOR
FOREVER YOURS, INC., a California
corporation
By:
Name:
Title:
IDI
International Digital Investors,
L.P., a Delaware limited partnership
By: IDI Corp., a Delaware
corporation, its general
partner
By:
Name:
Title:
<PAGE>
FOREVER YOURS, INC.
SECURITY AGREEMENT SCHEDULE 2.1.10.1
LIST OF DEPOSIT ACCOUNTS
<PAGE>
SCHEDULE 2.1.2
NOTES RECEIVABLE
<PAGE>
FOREVER YOURS, INC.
SCHEDULE 2.1.10.6
LIST OF INTELLECTUAL PROPERTY
SCHEDULE A
LIST OF PATENTS
LIST OF APPLICATIONS FOR REGISTRATION OF PATENTS
SCHEDULE B
LIST OF TRADEMARKS
LIST OF SERVICE MARKS
LIST OF TRADEMARK OR SERVICE MARK APPLICATIONS
<PAGE>
FOREVER YOURS, INC.
SCHEDULE 3.2
BUSINESS ADDRESSES WHERE FOREVER YOURS, INC HAS PROPERTY
OTHER THAN CAMERA SYSTEMS
<PAGE>
SCHEDULE 3.2
LIST OF ADDRESSES WHERE
FOREVER YOURS, INC. HAS CAMERA SYSTEMS
<PAGE>
FOREVER YOURS, INC.
SECURITY AGREEMENT 3.2
FEDERAL TAX ID #
CURRENT OR PRIOR TRADE NAMES:
<PAGE>
SCHEDULE 3.4
LIST OF INSURANCE CLAIMS
<PAGE>
EXHIBIT 3.1.4.
FORM OF
NOTICE OF SECURITY INTEREST IN PATENTS AND
TRADEMARKS
NOTICE IS HEREBY GIVEN that FOREVER YOURS, INC., a
California corporation (the "Grantor") with an office located at
667 Rancho Conejo, Newbury Park, California 91320, and
INTERNATIONAL DIGITAL INVESTORS, L.P., a Delaware limited
partnership ("IDI"), with an office located at 40304 Fisher
Island Drive, Fisher Island, Florida 33109, have entered into a
Security Agreement dated as of May 15, 1996 (as amended from time
to time, the "Security Agreement").
Pursuant to the Security Agreement, the Grantor has
granted, conveyed, pledged, assigned and transferred to IDI, for
itself and for the ratable benefit of the purchasers (the
"Purchasers") listed on the signature pages of the Note and
Preferred Stock Purchase Agreement, dated as of May 14, 1996, by
and between Grantor and the Purchasers, a security interest in,
(a) the registered patents, applications for registration of
patents, and licenses of registered patents listed in Schedule A
hereto, and (b) the registered trademarks and service marks,
applications for registration of trademarks and service marks,
and licenses of registered trademarks and service marks listed in
Schedule B hereto, together with the goodwill of the business
symbolized thereby, to secure the payment, performance and
observance of the Secured Obligations as defined in the Security
Agreement.
The Commissioner of Patents and Trademarks is requested
to record this notice in its records.
Dated: May 15, 1996
FOREVER YOURS, INC., A CALIFORNIA
CORPORATION
By:
Name: Dana Arnold
Title: President
<PAGE>
SCHEDULE A
TO
NOTICE OF SECURITY INTEREST IN PATENTS AND TRADEMARKS
FROM
FOREVER YOURS, INC.
1. Patents.
Patent Registration No. Registration Date
2. Applications for Federal Registration of Patents.
Patent Serial No. Filing Date
<PAGE>
SCHEDULE B
TO
NOTICE OF SECURITY INTEREST IN PATENTS AND TRADEMARKS
FROM
FOREVER YOURS, INC.
1. Federal Trademark and Service Mark Registrations.
Trademark/Service Mark Registration No. Registration Date
2. Trademark and Service Mark Applications for Federal
Registration.
Trademark/Service Mark Serial No. Filing Date
<PAGE>
State of _______________ )
)
County of ______________ )
On DATE before me, NAME, TITLE OF OFFICER ,
personally appeared NAME(S) OF SIGNERS ,
[] personally known to me - OR [] proved to me on the
basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
__________________________________
SIGNATURE OF NOTARY
<PAGE>
EXHIBIT 3.1.5.
FORM OF
INSURANCE POLICY NOTICE
[Addressee]
Re: Name of Insured:_______________
Policy No._____________
NOTICE IS HEREBY GIVEN, in accordance with Section
9302(1)(h) of the California Commercial Code, that FOREVER YOURS,
INC., a California corporation (the "Grantor"), with an office
located at 667 Rancho Conejo, Newbury Park, California 91320, and
INTERNATIONAL DIGITAL INVESTORS, L.P., a Delaware limited
partnership ("IDI"), with an office located at 40304 Fisher
Island Drive, Fisher Island, Florida 33109, have entered into a
Security Agreement dated as of May 15, 1996 (as amended from time
to time, the "Security Agreement").
Pursuant to the Security Agreement, the Grantor has
granted, conveyed, pledged, assigned and transferred to IDI, for
itself and for the ratable benefit of the purchasers (the
"Purchasers") listed on the signature pages of the Note and
Preferred Stock Purchase Agreement, dated as of May 14, 1996, by
and between the Grantor and the Purchasers, a security interest
in insurance policies, including the above reference insurance
policy, and all rights and claims therein and thereunder
(including prepaid and unearned premiums) to secure the payment,
performance and observance of the Secured Obligations as defined
in the Security Agreement.
Dated: May __, 1996
FOREVER YOURS, INC., A CALIFORNIA
CORPORATION
By:
Name: Dana Arnold
Title: President
<PAGE>
EXHIBIT 3.1.6.
FORM OF
NOTICE OF SECURITY INTEREST IN DEPOSIT ACCOUNT
[Addressee]
Re: Notice of Security Interest in Deposit Accounts of
FOREVER YOURS, INC.
NOTICE IS HEREBY GIVEN, in accordance with Section 9302
of the California Uniform Commercial Code, that FOREVER YOURS,
INC., a California corporation (the "Grantor"), with an office
located at 667 Rancho Conejo, Newbury Park, California 91320, and
INTERNATIONAL DIGITAL INVESTORS, L.P., a Delaware limited
partnership ("IDI"), with an office located at 40304 Fisher
Island Drive, Fisher Island, Florida 33109, have entered into a
Security Agreement dated as of May 15, 1996 (as amended from time
to time, the "Security Agreement").
Pursuant to the Security Agreement, the Grantor has
granted, conveyed, pledged, assigned and transferred to IDI, for
itself and for the ratable benefit of the purchasers (the
"Purchasers") listed on the signature pages of the Note and
Preferred Stock Purchase Agreement, dated as of May 14,
1996, by and between the Grantor and the Purchasers, a security
interest in all of its deposit accounts, wherever located,
including the accounts listed on the attached schedule (all
deposit accounts from time to time maintained with the bank or
other financial institution to which this notice is addressed
(the "Depositary") being the "Accounts").
By its signature below, the Depositary confirms that it
has not received any notice of a security interest in the
Accounts from any person or entity and agrees as follows:
1. It will notify IDI by telecopier at the following
address and number of any levy upon any deposit account of the
Grantor maintained with you:
International Digital Investors, L.P.
40304 Fisher Island Drive
Fisher Island, Florida 33109
Attn: Jeff Safchik, Vice President
Telecopier: 305-534-1129
2. It will provide IDI, upon request, with copies of
all statements sent by the Depositary to the Grantor with respect
to and all checks written by the Grantor on the Accounts.
3. It waives and agrees not to assert, claim or
exercise any right of set-off, banker's lien or similar right
with respect to the Accounts or the funds from time to time
contained therein.
4. The agreements of the Depositary set forth in this
Notice may not be revoked by the Depositary at any time while any
Accounts are maintained by the Grantor with the Depositary.
This Notice may be executed in one or more
counterparts, all of which shall constitute but one document.
Dated: May 15, 1996
INTERNATIONAL DIGITAL
INVESTORS, L.P., A DELAWARE LIMITED
PARTNERSHIP
By: IDI Corp., a Delaware
corporation, its general
partner
By:______________________
Name: Jeff Safchik
Title: Vice President
FOREVER YOURS, INC., A CALIFORNIA
CORPORATION
By:_________________________
Name: Dana Arnold
Title: President
AGREED AND ACCEPTED:
[DEPOSITARY BANK]
By: _______________________
Name: _____________________
Title: ____________________
<PAGE>
EXHIBIT I
SOV SECURITY AGREEMENT
SOV SECURITY AGREEMENT, dated as of May 15, 1996 (as
amended from time to time, this "Agreement"), by STYLES ON VIDEO,
INC., a Delaware corporation (the "Grantor"), and INTERNATIONAL
DIGITAL INVESTORS, L.P., a Delaware limited partnership ("IDI"),
for itself and as collateral agent for the ratable benefit of the
purchasers (the "Purchasers") listed on the signature pages to
that certain Note and Preferred Stock Purchase Agreement (the
"Purchase Agreement"), of even date herewith, by and among the
Grantor, Forever Yours, Inc., a California corporation and an
80%-owned subsidiary of the Grantor ("FYI"), and the Purchasers.
R E C I T A L S
A. The Purchasers have agreed to purchase and the
Grantor and FYI have agreed to issue and sell from time to time,
subject to the terms and conditions contained in the Purchase
Agreement, 10% Senior Notes due June 30, 1998 of the Grantor and
FYI (the "Notes"), and 500 shares of 10% Senior Series B
Convertible Preferred Stock, $.001 par value per share, of the
Grantor (the "Series B Preferred Stock").
B. The Grantor has guarantied the obligations of FYI
under the Purchase Agreement, the Notes and the Additional
Related Agreements pursuant to that certain General Continuing
Guaranty, of even date herewith (the "SOV Guaranty") by the
Grantor in favor of the Purchasers, as beneficiaries.
C. In consideration of the purchase of the Notes and
the Series B Preferred Stock by the Purchasers and as security
for the obligations of the Grantor under the Purchase Agreement,
the Notes, the SOV Guaranty and the Additional Related
Agreements, the Grantor has agreed to grant to IDI, as collateral
agent for the ratable benefit of the Purchasers, a security
interest in the collateral described herein, as set forth herein.
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE 1.
DEFINITIONS AND RELATED MATTERS
SECTION 1.1. DEFINITIONS. Terms with initial capital
letters not otherwise defined in this Agreement have the
meanings set forth in Exhibit A to the Purchase Agreement.
In addition, the following terms with initial capital
letters have the following meanings:
"ACCOUNT DEBTOR" means any Person who is or may become
obligated to Grantor on any Receivable.
"ACCOUNTS" is defined in Section 2.1.1.
"AGREEMENT" is defined in the Preamble.
"APPLICABLE LAW" means all applicable provisions of all
(i) constitutions, treaties, statutes, laws, rules, regulations
and ordinances of any Governmental Authority, (ii) Governmental
Approvals and (iii) orders, decisions, judgments and decrees of
any Governmental Authority.
"APPROVALS" is defined in Section 2.1.10.5.
"CHARGES" means all federal, state, county, city,
municipal or other taxes, liens, assessments or charges that, if
not paid when due, may result in a Lien of any Government
Authority.
"CHATTEL PAPER" is defined in Section 2.1.3.
"COLLATERAL" is defined in Section 2.1.
"CONTRACTUAL OBLIGATIONS" is defined in Section 4.6.1.
"DEFAULT" means any event that, after notice or lapse
of time, or both, would become an Event of Default.
"DOCUMENTS" is defined in Section 2.1.8.
"EQUIPMENT" is defined in Section 2.1.6.
"EVENT OF DEFAULT" is defined in Section 5.1.
"FIXTURES" is defined in Section 2.1.7.
"FYI" is defined in the Recitals.
"GENERAL INTANGIBLES" is defined in Section 2.1.10.
"GOVERNMENTAL AUTHORITY" means any nation, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of government.
"GRANTOR" is defined in the Preamble.
"IDI" is defined in the Preamble.
"INVENTORY" is defined in Section 2.1.5.
"NOTES RECEIVABLE" is defined in Section 2.1.2.
"NOTES" is defined in the Recitals
"PATENTS, TRADEMARKS AND COPYRIGHTS" is defined in
Section 3.6.
"PLEDGED COLLATERAL" is defined in Section 4.8.
"PROCEEDS" is defined in Section 2.1.14.
"RECEIVABLES" means Accounts, Notes Receivable, Chattel
Paper and other rights to the payment of money.
"SECURED OBLIGATIONS" is defined in Section 2.2.
"SECURITIES" is defined in Section 2.1.9.
"SECURITY INTEREST" is defined in Section 2.1.
"SOV GUARANTY" is defined in the Recitals.
"SUPPLEMENTAL DOCUMENTATION" means financing
statements, continuation statements, warehouse receipts, bills of
lading, assignments of accounts, patents, trademarks or
copyrights, schedules of Collateral, mortgages and other
instruments or documents necessary or requested by IDI (i) to
create, perfect and maintain perfected the Security Interest in
any Collateral or (ii) to enable IDI to receive all interest,
dividends and distributions from time to time paid with respect
to, and all Proceeds of, all Collateral which IDI is entitled to
receive hereunder.
"UCC" means the Uniform Commercial Code (as amended
from time to time) of the State of California.
SECTION 1.2. RELATED MATTERS.
1.2.1. TERMS USED IN THE UCC. Unless the context
clearly otherwise requires, all lower-case terms used and not
otherwise defined herein that are used or defined in Article 9
(or any equivalent subpart) of the UCC have the same meanings
herein.
1.2.2. CONSTRUCTION. Unless the context of this
Agreement clearly requires otherwise, references to the plural
include the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting and "or" has
inclusive meaning represented by the phrase "and/or". The words
"hereof," "herein," "hereby," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole (including the
Preamble, the Recitals and all Schedules and Exhibits) and not to
any particular provision of this Agreement. Article, section,
subsection, exhibit, recital, preamble and schedule references in
this Agreement are to this Agreement unless otherwise specified.
References in this Agreement to any agreement, other document or
law "as amended" or "as amended from time to time," or to
amendments of any document or law, shall include any amendments,
supplements, replacements, renewals or other modifications not
prohibited by the Additional Related Agreements.
1.2.3. GOVERNING LAW. Except to the extent otherwise
required by Applicable Law, the UCC shall govern the attachment,
perfection, priority and enforcement of the Security Interest and
all other matters to which the UCC applies pursuant to the terms
thereof. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California (other than
choice of law rules that would require the application of the
laws of any other jurisdiction).
1.2.4. HEADINGS. The Article and Section headings used
in this Agreement are for convenience of reference only and shall
not affect the construction hereof.
1.2.5. SEVERABILITY. If any provision of this Agreement
or any Lien or other right hereunder shall be held to be invalid,
illegal or unenforceable under Applicable Law in any
jurisdiction, such provision, Lien or other right shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity,
legality or enforceability of such provision, Lien or right in
any other jurisdiction.
ARTICLE 2.
THE SECURITY INTEREST; SECURED OBLIGATIONS
SECTION 2.1. SECURITY INTEREST. To secure the payment
and performance of the Secured Obligations as and when due, the
Grantor hereby grants, conveys, pledges, assigns and transfers to
IDI for itself and for the ratable benefit of the Purchasers, a
security interest (the "Security Interest") in, all right, title,
claim, estate and interest of the Grantor in and to all property
and interests in property, whether now owned and existing or
hereafter acquired or arising, and wherever located (such
property and interests in property being, collectively, the
"Collateral"), including the following:
2.1.1. Any and all rights to payment for goods sold or
leased or for services rendered, including any such rights
evidenced by Chattel Paper, whether due or to become due and
whether or not earned by performance (excluding any such rights
evidenced by Notes Receivable, the "Accounts");
2.1.2. Any and all negotiable instruments, promissory
notes, acceptances, drafts, checks, certificates of deposit and
other writings that evidence a right to the payment of money by
any other Person, including the writings listed on Schedule 2.1.2
(the "Notes Receivable");
2.1.3. Any and all chattel paper, including writings
that evidence both a monetary obligation and a security interest
in or lease of specific goods (the "Chattel Paper");
2.1.4. Any and all rights to payment;
2.1.4.1. to the extent not included in Accounts, Notes
Receivable or Chattel Paper, receivables from any credit or
charge card company (such as Visa, Mastercard, American
Express and Diner's Club), whether arising out of or
relating to the sale of goods and services by the Grantor or
otherwise; and
2.1.4.2. of money not listed above and any and all
rights, titles, interests, securities, Liens and guaranties
evidencing, securing, guaranteeing payment of or in any way
relating to any Receivables;
2.1.5. Any and all goods that may at any time be held
for sale or lease or to be furnished under any contract of
service, be so leased or furnished, or constitute raw materials,
work in process, parts, supplies or materials that are or might
be used or consumed in a business or in connection with the
manufacture, selling or leasing of such goods ("Inventory");
2.1.6. Any and all equipment and other goods (excluding
Inventory), including the following personal property, including
machinery, machine tools, office machinery (including computers,
typewriters and duplicating machines), motor vehicles, trailers,
rolling stock, motors, pumps, controls, tools, parts, works of
art, furniture, furnishings and trade fixtures, all athletic
equipment and supplies, and all molds, dies, drawings,
blueprints, reports, catalogs and computer programs related to
any of the above (together with all related property described in
Section 2.1.12, the "Equipment");
2.1.7. Any and all fixtures, including machinery,
equipment or appliances for generating, storing or distributing
air, water, heat, electricity, light, fuel or refrigeration, for
ventilating or sanitary purposes, elevators, safes, laundry,
kitchen and athletic equipment, trade fixtures, and telephone,
television and other communications equipment (the "Fixtures");
2.1.8. Any and all documents, whether or not
negotiable, including bills of lading, warehouse receipts, trust
receipts and the like (the "Documents");
2.1.9. Any and all stocks, bonds, general and limited
partnership interests, joint venture interests and other
securities, subscription rights, options, warrants, puts, calls
and other rights with respect thereto, and investment and
brokerage accounts (the "Securities");
2.1.10. Any and all general intangibles, contract
rights and other property described below (together with any
property listed under Section 2.1.4 above, the "General
Intangibles"), including the following:
2.1.10.1. deposit and other accounts, including demand,
time savings, passbook and like accounts maintained with any
bank, savings and loan association, credit union, brokerage
or other institution (including the deposit accounts listed
on Schedule 2.1.10.1), and any and all money, instruments
and other property from time to time deposited therein or
credited thereto, or received, receivable or otherwise
distributed therefrom, in respect thereof or in exchange
therefor, including all interest accruing thereon;
2.1.10.2. insurance policies and all rights and claims
therein or thereunder (including prepaid and unearned
premiums), including insurance against casualty (including
by fire or earthquake) or liability (including against
environmental cleanup costs), title insurance, business
interruption insurance and builders risk insurance, whether
covering personal or real property;
2.1.10.3. (i) any rights, claims, judgments, awards,
orders or decrees arising out of or in connection with any
judicial action, litigation, arbitration, mediation or other
proceedings, including the matter captioned Styles on Video
v. Kellogg & Andelson and any matters related to the
malpractice claim of Grantor against Kellogg & Andelson
and/or their insurers, and including any proceeds generated
by any such action, whether through settlement or judgment
(including any claims or rights to payment or proceeds under
any insurance policy insuring Grantor, FYI, the defendant in
such action or any other Person) and (ii) any and all rights
in the escrow account established in connection with the
Collateral described in clause (i) above (including without
limitation any and all rights to any cash and/or securities
on deposit therein) (these provisions being intended to
create a Lien on such property under Sections 2881 and 2883
of the California Civil Code, in addition to any Liens under
the UCC.)
2.1.10.4. any and all leases of real or personal
property, licensing agreements and other contracts, and all
guarantees, warranties, royalties, license fees and rights
under such contracts;
2.1.10.5. any and all Governmental Approvals, including
permits, licenses, certificates of use and occupancy (or
their equivalents) and zoning and other approvals, and tax
and other refunds, compensation, awards, payments and relief
given or made by any Governmental Authority (including
condemnation awards) (the "Approvals");
2.1.10.6. deposits, surety and other bonds, choses and
things in action, goodwill, computer programs, computer
software (including all source and object codes, all media
of any type or nature on which such source or object codes
are reproduced, copied, stored or maintained), technology
processes, proprietary information, patents, patent
applications, copyrights, copyright applications,
trademarks, trademark applications, service marks, trade and
other names, trade secrets and customer lists, including the
intellectual property rights listed on Schedule 2.1.10.6;
2.1.10.7. Any rights, claims, judgements, awards,
orders or decrees arising out of or in connection with any
tax refund or credit by the Internal Revenue Service or any
state taxing authority to the Grantor with respect to any
fiscal year of the Grantor or under any tax return that has
been or is filed with respect to any fiscal year of the
Grantor.
2.1.11. Any and all books and records (including
ledgers, correspondence, credit files, computer software,
computer storage media and electronically recorded data)
pertaining to the Grantor or any of the foregoing and all
equipment, receptacles, containers and cabinets therefor;
2.1.12. Any and all accessions, appurtenances,
components, repairs, repair parts, spare parts, renewals,
improvements, replacements, substitutions and additions to, of or
with respect to any of the foregoing;
2.1.13. Any and all rights, remedies, powers and
privileges of the Grantor with respect to any of the foregoing;
and
2.1.14. Any and all proceeds and products of any of the
foregoing, whether now held and existing or hereafter acquired or
arising, (collectively, the "Proceeds"). "Proceeds" shall
include (i) whatever is now or hereafter received by the Grantor
upon the sale, exchange, collection, other disposition or
operation of any item of Collateral, whether such proceeds
constitute accounts, general intangibles, instruments,
securities, documents, letters of credit, chattel paper, deposit
accounts, money, goods or other personal property, (ii) any items
that are now or hereafter acquired by the Grantor with any
Proceeds of Collateral, (iii) any amounts now or hereafter
payable under any insurance policy by reason of any loss of or
damage to any Collateral or the business of the Grantor including
the insurance Proceeds, (iv) all rights to payment for the sale
of services or products in connection with the business of the
Grantor and (v) the right to further transfer, including by
pledge, mortgage, license, or assignment or sale, any of the
foregoing.
SECTION 2.2. SECURED OBLIGATIONS. The Security Interest
shall secure the due and punctual payment and performance of any
and all present and future obligations and liabilities of the
Grantor of every type or description to IDI, the Purchasers or
any Person entitled to indemnification under the Purchase
Agreement and any other Additional Related Agreement:
2.2.1. arising under or in connection with the Purchase
Agreement, the Notes or the SOV Guaranty whether for principal of
or premium (if any) or interest on the Notes, expenses,
indemnities or other amounts (including attorneys' fees and
expenses); or
2.2.2. arising under or in connection with this
Agreement or any other Additional Related Agreement, including
for reimbursement of amounts permitted to be advanced or expended
by IDI (i) to satisfy amounts required to be paid by the Grantor
under this Agreement or any other Additional Related Agreement
for claims and Charges, together with interest thereon to the
extent provided or (ii) to maintain or preserve any Collateral or
to create, perfect, continue or protect any Collateral or the
Security Interest therein, or its priority;
in each case whether due or not due, direct or indirect, joint
and/or several, absolute or contingent, voluntary or involuntary,
liquidated or unliquidated, determined or undetermined, now or
hereafter existing, renewed or restructured, whether or not from
time to time decreased or extinguished and later increased,
created or incurred, whether or not arising after the
commencement of a proceeding under the Bankruptcy Code (including
post-petition interest) and whether or not recovery of any such
obligation or liability may be barred by a statute of limitations
or such obligation or liability may otherwise be unenforceable
(all obligations and liabilities described in this Section 2.2.
are collectively referred to as the "Secured Obligations").
ARTICLE 3.
WARRANTIES AND REPRESENTATIONS
The Grantor represents and warrants that all
representations and warranties made with respect to it, its
assets and its obligations in the Purchase Agreement are true and
correct and makes the following additional representations and
warranties, all of which shall survive until termination of this
Agreement pursuant to Section 6.7.
SECTION 3.1. FILINGS. ETC.
3.1.1. Duly executed financing statements containing a
correct description of the Collateral have been delivered to IDI
for filing in every governmental office in every state, county
and other jurisdiction in which the principal or any other place
of business or the chief executive office of the Grantor, or any
portion of the Collateral, is located and in each jurisdiction in
which such action is necessary to establish a valid and perfected
Lien in favor of IDI in all Collateral in which a Lien may be
perfected by filing, and no further or subsequent filing,
recording or registration is necessary in any such jurisdiction,
except as provided under Applicable Law with respect to the
filing of continuation statements.
3.1.2. Upon request of IDI and, in any event if the
insurer under any insurance policy is located outside of the
State of California, the Grantor will deliver to IDI the original
of such insurance policy in order to perfect the Security
Interest of IDI in such insurance policy.
3.1.3. All Pledged Collateral has been delivered to IDI
to the extent required hereby.
3.1.4. The Grantor has executed and delivered to IDI
for filing with the United States Patent and Trademark Office a
written notice in the form of Exhibit 3.1.4, duly completed and
executed, with respect to each of the Patents, Trademarks and
Copyrights in which the Grantor has an interest and all other
Supplemental Documentation necessary to perfect the Security
Interest with respect to all Patents, Trademarks and Copyrights
has been delivered to IDI for filing in the appropriate
governmental office.
3.1.5. The Grantor has executed and delivered to IDI
for transmittal to the insurers under each insurance policy a
written notice in the form of Exhibit 3.1.5 properly addressed
and duly completed and executed, with respect to each insurance
policy in which the Grantor has an interest.
3.1.6. The Grantor has executed and delivered to IDI
for filing with an appropriate officer of each financial
institution with which the Grantor maintains any deposit account
a written notice in the form of Exhibit 3.1.6 duly completed and
executed, with respect to each deposit account so maintained by
it.
SECTION 3.2. LOCATIONS OF COLLATERAL. OFFICES AND
NAMES. (i) The Grantor's chief executive office and principal
place of business is located at the address set forth on Schedule
3.2, (ii) all other places of business of the Grantor and all
other locations at which any tangible Collateral or books and
records related to any Collateral are (or during the past four
months were) located are set forth on Schedule 3.2, (iii) the
Grantor's federal tax identification number is set forth on
Schedule 3.2, and (iv) there are no prior or current trade or
legal names used to identify the Grantor in its business or in
the ownership of its properties other than those set forth on
Schedule 3.2.
SECTION 3.3. TITLE TO COLLATERAL: VALIDITY AND
PERFECTION OF SECURITY INTEREST: ABSENCE OF OTHER LIENS.
3.3.1. The Grantor has good and marketable title to, or
valid and subsisting leasehold interests in, all Collateral
reflected on its financial statements as being owned or leased by
it and "rights" in all other Collateral within the meaning of
Section 9-203 of the UCC.
3.3.2. The Security Interest constitutes a valid and,
upon the filing of financing statements covering the Collateral
and other documents referred to in Section 3.1 with the
appropriate Governmental Authorities or other Persons referred to
in such Section, perfected Lien in all of the Collateral and
secures payment and performance of the Secured Obligations. The
Collateral is free and clear of all Liens other than the Security
Interest and those permitted under the Purchase Agreement and the
Existing Note Agreement.
3.3.3. Except for financing statements in favor of IDI
and those permitted under the Purchase Agreement and the Existing
Note Agreement, the Grantor has filed no now-effective financing
statement covering the Collateral.
SECTION 3.4. INSURANCE CLAIMS AND JUDGMENTS. Except as
set forth on Schedule 3.4, there are no Liens on the Collateral
described in Section 2.1.10.3.
SECTION 3.5. NOTES RECEIVABLE. Schedule 2.1.2 lists all
Notes Receivable of the Grantor. There are no setoffs or
counterclaims or disputes existing or asserted with respect to
any such Notes Receivable.
SECTION 3.6. PATENTS, TRADEMARKS AND COPYRIGHTS.
Schedule 2.1.10.6 lists all patents, patent applications,
trademarks, trademark applications, service marks, service mark
applications, copyrights and copyright applications
(collectively, "Patents Trademarks and Copyrights") in which the
Grantor has an interest. Except as disclosed on Schedule
2.1.10.6, all Patents, Trademarks and Copyrights are valid and
enforceable and the relevant Grantor is the sole and exclusive
owner of each of the Patents, Trademarks and Copyrights, free and
clear of any Liens (including licenses, shop rights and covenants
not to sue listed on Schedule 2.1.10 6.)
ARTICLE 4.
COVENANTS AND AGREEMENTS
SECTION 4.1. FURTHER ASSURANCES. The Grantor shall, at
its own expense, perform such acts as may be necessary, or that
IDI may request at any time, to assure the attachment, perfection
and first priority of the Security Interest, to exercise the
rights and remedies of IDI hereunder or to carry out the intent
of this Agreement. Without limitation, the Grantor shall execute
and deliver (or cause any third party to execute and deliver) to
IDI, at any time and from time to time, all Supplemental
Documentation, in form and substance acceptable to IDI. Without
limiting the generality of the foregoing, the Grantor shall give
all notices to insurers under the insurance policies and to do
all other things necessary to assure the attachment and first
priority (subject to the security interest granted herein
pursuant to the Existing Collateral Documents and pursuant to the
security agreement executed to secure the Temporary Loan) of the
Security Interest in the insurance policies and any claims,
rights to payment or proceeds thereof.
SECTION 4.2. INSPECTION AND VERIFICATION. The Grantor
shall keep or cause to be kept accurate and complete records of
the Collateral at the Grantor's chief executive office. IDI and
its employees and agents shall have the right, at all times
during the Grantor's usual business hours upon reasonable notice,
to (i) inspect, and verify the quality, quantity, value and
condition of, or any other matter relating to, the Collateral,
(ii) inspect all records relating thereto and to make (or require
the Grantor to provide) copies of such records and (iii) enter
upon all premises upon which any of the Collateral is located.
Notwithstanding the foregoing, IDI shall not contact third
parties in making such inspection or verification unless an Event
of Default shall then exist.
SECTION 4.3. POWER OF ATTORNEY. Grantor hereby
irrevocably appoints IDI and its employees and agents as the
Grantor's true and lawful attorneys-in-fact, with full power of
substitution, (i) to do all things required to be done by the
Grantor under this Agreement or the other Additional Related
Agreements and (ii) to do all things that IDI may deem necessary
or advisable to assure the attachment, perfection and priority of
the Security Interest or otherwise to exercise the rights and
remedies of IDI hereunder or carry out the intent of this
Agreement, in each case irrespective of whether an Event of
Default then exists (except as provided in Section 4.3.4, and at
the Grantor's expense.) Without limitation, IDI and its officers
and agents shall be entitled to do all of the following, as fully
as the Grantor might:
4.3.1. to sign the name of the Grantor on any
Supplemental Documentation and to deliver and file such
Supplemental Documentation to or with such Persons as IDI, in its
discretion, may elect;
4.3.2. to sign any certificate of ownership,
registration card, application therefor, affidavits or documents
necessary to transfer title to any of the Collateral, to receive
and receipt for all licenses, registration cards and certificates
of ownership;
4.3.3. to affix, by facsimile signature or otherwise,
the general or special endorsement of the Grantor, in such manner
as IDI shall deem advisable, to any Pledged Collateral that has
been delivered to or obtained by IDI without appropriate
endorsement or assignment; and
4.3.4. during the existence of an Event of Default,
without notice to the Grantor and at such time or times as IDI in
its discretion may determine, in the Grantor's or in IDI's name
4.3.4.1. to collect any and all amounts due to the
Grantor from Account Debtors with respect to Receivables by
legal proceedings or otherwise;
4.3.4.2. to make, settle and adjust any claims under
insurance policies, and to make any decisions with respect
thereto; and
4.3.4.3. to attend and vote at any and all meetings of
the holders of Securities and to execute any and all written
consents of such holders with the same effect as if the
Grantor had personally attended and voted at such meetings
or had personally signed such consents.
IDI shall be under no obligation whatsoever to take any
of the foregoing actions, and, absent bad faith or willful
misconduct, IDI and its Affiliates, shareholders, directors,
officers, employees and agents shall have no liability or
responsibility for any act taken or omitted with respect thereto.
A copy of this Agreement and, if applicable, a statement by IDI
that an Event of Default exists shall be conclusive evidence of
IDI's right to act under this Section 4.3 as against all third
parties.
SECTION 4.4. CHANGES OF LOCATIONS OF COLLATERAL,
OFFICES, NAME OR STRUCTURE. The Grantor shall not remove any
Collateral, books or records to, or keep any Collateral, books or
records or do business at, a location not set forth on Schedule
3.2, adopt a trade name or change its name, chief executive
office, principal place of business, identity or corporate
structure without the prior written consent of IDI.
SECTION 4.5. PAYMENT OF CHARGES AND CLAIMS. The Grantor
shall pay (i) all Charges imposed upon any Collateral and (ii)
all claims (including claims for labor, services and materials)
that have become due and payable and, under Applicable Law, have
or may become Liens upon any Collateral, in each case before any
penalty shall be incurred with respect thereto; provided that,
unless foreclosure, levy or similar proceedings shall have
commenced, the Grantor need not pay or discharge any such Charges
or claims so long as the validity or amount thereof is being
contested in good faith and by appropriate proceedings and so
long as adequate reserves therefor have been established in
accordance with GAAP. If the Grantor fails to pay or obtain the
discharge of any Charge, claim or Lien required to be paid or
discharged under this Section 4.5 and asserted against all or a
portion of the Collateral, IDI may, at any time and from time to
time, in its discretion and without waiving or releasing any
obligation of the Grantor under this Agreement or the other
Additional Related Agreements or waiving any Default or Event of
Default, make such payment, obtain such discharge or take such
other action with respect thereto as IDI deems advisable.
SECTION 4.6. CONTINUING OBLIGATIONS OF THE GRANTOR;
INDEMNITY.
4.6.1. The Grantor shall remain liable to observe and
perform all agreements and other obligations relating to or
included in the Collateral (the "Contractual Obligations") in
accordance with their respective terms. IDI shall not have any
duty, obligation or liability under or with respect to any such
Contractual Obligations, whether by reason of or arising out of
this Agreement, the receipt by IDI of any payment relating to any
such Contractual Obligation or otherwise, and the Grantor agrees
to indemnify and hold harmless IDI from any and all such
obligations and liabilities.
4.6.2. IDI shall not have any duty of care with respect
to the Collateral, other than an obligation to exercise
reasonable care with respect to Collateral in its possession;
provided that (i) IDI shall be deemed to have exercised
reasonable care if Collateral in its possession is accorded
treatment substantially comparable to that which such IDI accords
its own property, and (ii) IDI shall have no obligation to take
any actions to preserve rights against other parties or property
with respect to any Collateral. Without limitation, IDI shall (A)
bear no risk or expense with respect to any Collateral and (B)
have no duty with respect to calls, conversions, presentments,
maturities, notices or other makers relating to Pledged
Collateral, or to maximize interest or other returns with respect
thereto.
4.6.3. IDI may at any time deliver or redeliver the
Collateral or any part thereof to the Grantor and the receipt of
any of the same by the Grantor shall be complete and full
acquittance for the Collateral so delivered, and IDI thereafter
shall be discharged from any liability or responsibility
therefor.
4.6.4. The Grantor hereby agrees to indemnify and hold
harmless IDI and its Affiliates, shareholders, directors,
officers, employees and agents against any and all claims,
actions, liabilities, costs and expenses of any kind or nature
whatsoever (including fees and disbursements of counsel) that may
be imposed on, incurred by, or asserted against any of them, in
any way relating to or arising out of this Agreement or any
action taken or omitted by them hereunder, except to the extent a
court holds in a final and nonappealable judgment that they
resulted from the gross negligence or willful misconduct of such
Persons.
SECTION 4.7. SALE OF COLLATERAL; FURTHER ENCUMBRANCES.
The Grantor shall not (i) except for dispositions of Inventory in
the ordinary course of the Grantor's business (collectively,
"Permitted Sales") sell, lease or otherwise dispose of any
Collateral, or any interest therein, or (ii) except for Liens
permitted under the Purchase Agreement and the Existing Note
Agreement, grant or suffer to exist any Lien in or on any
Collateral or sign or authorize the filing of any financing
statement with respect to any of the Collateral. Concurrently
with any Permitted Sale, the Security Interest shall
automatically be released from the Collateral so disposed of;
provided, however, that the Security Interest shall continue in
the Proceeds thereof. If any Collateral, or any interest therein,
is disposed of in violation of these provisions, the Security
Interest shall continue in such Collateral or interest
notwithstanding such disposition, the Person to which the
Collateral or interest is being transferred shall be bound by
this Agreement, and the Grantor shall deliver all Proceeds
thereof to IDI to be held as Collateral hereunder.
SECTION 4.8. DELIVERY OF PLEDGED COLLATERAL. The
Grantor shall deliver to IDI, together with appropriate
endorsements or documentation of assignment thereof acceptable to
IDI, any and all Notes Receivable or Chattel Paper having a face
amount, negotiable Documents evidencing title to any Collateral
having a fair market value, and all certificated Securities
having a fair market value, individually or in the aggregate,
equal to or greater than $10,000 (collectively, the "Pledged
Collateral".
SECTION 4.9. PROTECTION OF SECURITY; NOTICE OF LEVY.
The Grantor shall, at its own cost and expense, take any and all
actions necessary to defend title to the Collateral against all
Persons and against all claims and demands and to preserve,
protect and defend the Security Interest and the priority
thereof, against any adverse Liens. The Grantor will promptly
notify IDI of any attachment or other legal process levied
against any Collateral.
SECTION 4.10. EQUIPMENT AND FIXTURES. The Grantor, at
its expense, shall cause the Equipment and Fixtures to be
maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted. In
the case of any loss or damage to any of the Equipment or
Fixtures, the Grantor shall, as promptly as practicable after the
occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith that
are necessary or desirable to such end and promptly furnish to
IDI a written report with respect to any loss or damage in excess
of $10,000 to any Equipment or Fixtures.
ARTICLE 5.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
SECTION 5.1. EVENT OF DEFAULT. The occurrence of one or
more "Events of Default" (as defined in the Purchase Agreement or
the Notes) shall constitute an "Event of Default. "
SECTION 5.2. REMEDIES. If an Event of Default occurs,
then, whether or not all the Secured Obligations shall have
become immediately due and payable:
5.2.1. In addition to all its other rights, powers and
remedies under this Agreement and Applicable Law, IDI shall have,
and may exercise, any and all of the rights, powers and remedies
of a secured party under the UCC, all of which rights, powers and
remedies shall be cumulative and not exclusive, to the extent
permitted by Applicable Law.
5.2.2. IDI shall have the right, all at IDI's sole
option and as IDI in its discretion may deem necessary or
advisable, to do any or all of the following:
5.2.2.1. to foreclose the Security Interest by any
available judicial procedure or without judicial process;
5.2.2.2. to enter upon the premises of the Grantor or
any other place or places where Collateral is located
through self-help and without judicial process, without
giving the Grantor notice and opportunity for a hearing on
the validity of IDI's claim and without any obligation to
pay rent;
5.2.2.3. to inspect and appraise the Collateral and to
prepare, repair, assemble or process the Collateral for
sale, lease or other disposition;
5.2.2.4. to remove Collateral to the premises of IDI or
any other location selected by IDI, for such time as IDI may
desire, for any purpose not prohibited hereby;
5.2.2.5. to apply any Collateral or any other assets of
the Grantor in the possession of IDI to the Secured
Obligations;
5.2.2.6. to notify Account Debtors and other obligers
on the Collateral that the Collateral has been assigned to
IDI and that all payments thereon are to be made directly
and exclusively to or as specified by IDI;
5.2.2.7. to collect by legal proceedings or otherwise
all dividends, distributions, interest, principal or other
sums now or hereafter payable upon or on account of the
Collateral;
5.2.2.8. to enter into any extension or reorganization
agreement or any other agreement relating to or affecting
the Collateral and, in connection therewith, deposit or
surrender control of any Collateral or accept other property
in exchange therefor;
5.2.2.9. to settle, compromise or release, on terms
acceptable to IDI, in whole or in part, any amounts owing on
the Collateral or any insurance thereof or relating thereto
or any disputes with respect thereto or such insurance;
5.2.2.10. to receive, open and dispose of all mail
addressed to the Grantor and notify postal authorities to
change the address for delivery thereof to such address as
IDI may designate, provided that IDI agrees that it will
promptly deliver over to the Grantor any such opened mail as
does not relate to the Collateral;
5.2.2.11. to exercise all rights and powers under
Contractual Obligations included in the Collateral,
including any right of termination; and
5.2.2.12. to exercise any and all other rights, powers,
privileges and remedies of an owner of the Collateral.
5.2.3. The Grantor shall, at IDI's request, assemble
the Collateral and make it available to IDI at a place to be
designated by IDI. The Grantor shall make available to IDI all
computer and other equipment of the Grantor containing books and
records pertaining to the Collateral (and the assistance of the
employees of the Grantor having responsibility for such
equipment) and to use such computer and other equipment at no
charge for the purpose of obtaining information pertaining to the
Collateral, including by making copies of computer and other
files and records.
5.2.4. Until IDI is able to effect a sale, lease or
other disposition of Collateral or any part thereof, IDI shall
have the right to use, process or operate the Collateral or any
part thereof to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other
purpose deemed appropriate by IDI. IDI shall have the right,
without notice or demand, either in person or by agent, and
without regard to the adequacy of any security for the Secured
Obligations, to take possession of the Collateral or any part
thereof and to collect and receive the rents, issues, profits,
income and proceeds thereof. Taking possession of the Collateral
shall not cure, waive or affect an Event of Default or notice
thereof or invalidate any act done pursuant to such notice.
5.2.5. IDI may, if it so elects, as a matter of strict
right and without regard to the then value of the Collateral,
seek the appointment of a receiver or keeper to take possession
of Collateral and to enforce any of IDI's remedies with respect
to such appointment without prior notice or hearing. The rights,
remedies and powers of any receiver appointed by a court shall be
as ordered by the court.
5.2.6. IDI shall have the right to sell, lease, or
otherwise dispose of all or any Collateral in its then existing
condition, or after any further assembly, manufacturing or
processing thereof, at public or private sale or sales, with such
notice as may be required by Section 5.4, in lots or in bulk, for
cash or on credit, with or without representations or warranties,
all as IDI, in its discretion, may deem advisable. IDI shall not
be obligated to make any sale of the Collateral regardless of
notice of sale having been given. If sale of all or any part of
the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by IDI until the sale price is
paid by the purchaser or purchasers thereof, but IDI shall not
incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon
like notice. IDI shall have the right to conduct such sales on
the Grantor's premises or elsewhere and shall have the right to
use the Grantor's premises without charge for such sales for such
duration as IDI deems necessary or advisable. The Collateral need
not be present at any such sales. To the extent necessary or
desirable, in the judgment of IDI, to enable IDI to dispose of
Collateral following an Event of Default, IDI is authorized,
without any obligation for rent, license fees or other charge, to
use the supplies, equipment, facilities and space at the
Grantor's place of business and is hereby granted a license or
other right to use, without charge, the Patents, Trademarks and
Copyrights, trade secrets, names, trade names, customer lists,
labels, advertising matter, and all property of a similar nature
that the Grantor owns or is entitled to use, as it pertains to
any Collateral, in preparing, repairing, assembling, processing,
advertising for sale or lease or otherwise in connection with the
disposition of any Collateral, and the Grantor's rights under all
licenses and all franchise agreements shall to such extent and
for such purpose inure to IDI's benefit. IDI may purchase all or
any part of the Collateral at public or, if permitted by
Applicable Law, private sale, and in lieu of actual payment of
the purchase price, IDI may apply against such purchase price any
amount of the Secured Obligations. The Grantor agrees that any
sale of Collateral conducted by IDI in accordance with the
foregoing provisions of this Section and Section 5.3 shall be
deemed to be a commercially reasonable sale under Section 9-504
of the UCC.
SECTION 5.3. APPLICATION OF PROCEEDS.
5.3.1. Any cash proceeds received by IDI in respect of
any sale of, collection from, or other realization upon, all or
any part of the Collateral following the occurrence of an Event
of Default (including any insurance proceeds) may be held by IDI
as Collateral and/or then or at any time thereafter applied as
follows:
5.3.1.1. first, to IDI to pay all advances, charges,
costs and expenses payable to IDI pursuant to Section 6.1;
and
5.3.1.2. second, to pay the Secured Obligations in the
order determined by IDI.
5.3.2. The Grantor and any other Person then obligated
therefor shall pay to IDI on demand any deficiency with regard to
the Secured Obligations that may remain after such sale,
collection or realization of, from or upon the Collateral.
5.3.3. Payments received from any third party on
account of any Collateral shall not reduce the Secured
Obligations until paid in cash to IDI. The application of
proceeds by IDI shall be without prejudice to IDI's rights as
against the Grantor or other Persons with respect to any Secured
Obligations that may then be or remain unpaid.
5.3.4. If at any time after an Event of Default the
Grantor receives any collections upon or other Proceeds of any
Collateral, whether in the form of cash, Notes Receivable or
otherwise, such Proceeds shall be received in trust for IDI and
the Grantor shall keep all such Proceeds separate and apart from
all other funds and property so as to be capable of
identification as the property of IDI and promptly deliver such
Proceeds to IDI in the identical form received.
SECTION 5.4. NOTICE OF SALE.
Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, IDI will send or otherwise make available to
the Grantor reasonable notice of the time and place of any public
sale or of the time on or after which any private sale of any
Collateral is to be made. The Grantor agrees that any notice
required to be given by IDI of a sale or other disposition of
Collateral, or any other intended action by IDI, that is received
in accordance with the provisions set forth in Section 6.4 five
days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to the Grantor. IDI may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor and such sale
may, without further notice, be made at the time and place to
which it was so adjourned. The Grantor hereby waives any right to
receive notice of any public or private sale of any Collateral or
other security for the Secured Obligations except as expressly
provided for in this Section 5.4.
ARTICLE 6.
GENERAL
SECTION 6.1. IDI'S EXPENSES, INCLUDING ATTORNEYS' FEES.
Regardless of the occurrence of an Event of Default, the Grantor
agrees to pay to IDI any and all advances, charges, costs and
expenses, including the reasonable fees and expenses of counsel
and any experts or agents, that IDI may reasonably incur in
connection with (i) the administration of this Agreement,
including any amendment hereto, (ii) the creation, perfection or
continuation of the Security Interest or protection of its
priority or the Collateral, including the discharging of any
prior or junior Lien or adverse claim against the Collateral or
any part thereof, (iii) the custody, preservation or sale of,
collection from, or other realization upon, any of the
Collateral, (iv) the exercise or enforcement of any of the
rights, powers or remedies of IDI under this Agreement or under
Applicable Law (including attorneys' fees and expenses incurred
by IDI in the collection of Collateral deposited with IDI and
amounts incurred in connection with the operation, maintenance or
foreclosure of the Security Interest) or any bankruptcy
proceeding or (v) the failure by the Grantor to perform or
observe any of the provisions hereof. All such amounts and all
other amounts payable hereunder shall be payable on demand,
together with interest for the period from the date of demand at
a rate of interest equal to the lesser of (i) 10% per annum
(based on a year of 365 or 366 days, as the case may be) or (ii)
the maximum rate allowed by Applicable Law, from and including
the due date to and excluding the date of payment.
SECTION 6.2. AMENDMENTS AND OTHER MODIFICATIONS. No
amendment of any provision of this Agreement (including a waiver
thereof or consent relating thereto) shall be effective unless
the same shall be in writing and signed by the Grantor and IDI.
Any waiver or consent relating to any provision of this Agreement
shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the
Grantor in any case shall entitle the Grantor to any other or
further notice or demand in similar or other circumstances.
SECTION 6.3. CUMULATIVE REMEDIES; FAILURE OR DELAY. The
rights and remedies provided for under this Agreement are
cumulative and are not exclusive of any rights and remedies that
may be available to IDI under Applicable Law, the Purchase
Agreement and the other Additional Related Agreements or
otherwise. No failure or delay on the part of IDI in the exercise
of any power, right or remedy under this Agreement shall impair
such power, right or remedy or shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right
or remedy preclude other or further exercise of such or any other
power, right or remedy.
SECTION 6.4. NOTICES. ETC. All notices and other
communications under this Agreement shall be in writing and shall
be personally delivered or sent by prepaid courier, by overnight,
registered or certified mail (postage prepaid) or by prepaid
telecopy, and shall be deemed given when received by the intended
recipient thereof. Unless otherwise specified in a notice given
in accordance with the foregoing provisions of this Section 6.4,
notices and other communications shall be given to the parties
hereto at their respective addresses (or to their respective
telecopier numbers) indicated on the signature pages of the
Purchase Agreement.
SECTION 6.5. SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and, subject to the next sentence, inure to
the benefit of the Grantor and IDI and their respective
successors and assigns. The Grantor shall not assign or transfer
any of its rights or obligations hereunder without the prior
written consent of IDI. The benefits of this Agreement shall pass
automatically with any assignment of the Secured Obligations (or
any portion thereof), to the extent of such assignment.
SECTION 6.6. PAYMENTS SET ASIDE. Notwithstanding
anything to the contrary herein contained, this Agreement, the
Secured Obligations and the Security Interest shall continue to
be effective or be reinstated, as the case may be, if at any time
any payment, or any part thereof, of any or all of the Secured
Obligations is rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be restored or returned
by IDI in connection with any bankruptcy, reorganization or
similar proceeding involving the Grantor, any other party liable
with respect to the Secured Obligations or otherwise, if the
proceeds of any Collateral are required to be returned by IDI
under any such circumstances, or if IDI elects to return any such
payment or proceeds or any part thereof in its discretion, all as
though such payment had not been made or such proceeds not been
received. Without limiting the generality of the foregoing, if
prior to any such rescission, invalidation, declaration,
restoration or return, this Agreement shall have been canceled or
surrendered or the Security Interest or any Collateral shall have
been released or terminated in connection with such cancellation
or surrender, this Agreement and the Security Interest and such
Collateral shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, discharge or
otherwise affect the obligations of the Grantor in respect of the
amount of the affected payment or application of proceeds, the
Security Interest or such Collateral.
SECTION 6.7. CONTINUING SECURITY INTEREST; TERMINATION.
Except as otherwise provided in Section 4.7 with respect to the
release of Collateral under certain circumstances, this Agreement
shall create a continuing security interest in the Collateral
and, except as provided below, the Security Interest and all
agreements, representations and warranties made herein shall
survive until, and this Agreement shall terminate only upon, the
indefeasible payment and performance in full of the Secured
Obligations. Any investigation at any time made by or on behalf
of IDI shall not diminish the right of IDI to rely on any such
agreements, representations or warranties herein.
Notwithstanding anything in this Agreement or
Applicable Law to the contrary, the agreements of the Grantor set
forth in Sections 4.6.1, 4.6.4 and 6.1 shall survive the payment
of all other Secured Obligations and the termination of this
Agreement.
SECTION 6.8. CHOICE OF FORUM.
6.8.1. Subject to Section 6.8.2, all actions or
proceedings arising in connection with this Agreement shall be
tried and litigated in state or Federal courts located in Los
Angeles, County of Los Angeles, State of California, unless such
actions or proceedings are required to be brought in another
court to obtain subject matter jurisdiction over the matter in
controversy. THE GRANTOR WAIVES ANY RIGHT IT MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS NOT
SUBJECT TO THE JURISDICTION OF SUCH COURTS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 6.8.1.
6.8.2. Nothing contained in Section 6.8.1 shall
preclude IDI from bringing any action or proceeding arising out
of or relating to this Agreement in the courts of any place where
Grantor or any of Grantor's assets may be found or located. TO
THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH
JURISDICTION, THE GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT
OF ANY SUCH ACTION OR PROCEEDING, THE JURISDICTION OF ANY OTHER
COURT OR COURTS THAT NOW OR HEREAFTER, BY REASON OF SUCH PARTY'S
PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT.
SECTION 6.9. WAIVER AND ESTOPPEL. Except as otherwise
provided in this Agreement, the Grantor hereby waives: (i)
presentment, protest, notice of dishonor, release, compromise,
settlement, extension or renewal and any other notice of or with
respect to the Secured Obligations and hereby ratifies and
confirms whatever IDI may do in this regard; (ii) notice prior to
taking possession or control of any Collateral or any bond or
security that might be required by any court prior to allowing
IDI to exercise any of their rights, powers or remedies; (iii)
the benefit of all valuation, appraisement, redemption and
exemption laws; (iv) any rights to require marshaling of the
Collateral upon any sale or otherwise to direct the order in
which the Collateral shall be sold; (v) any set-off and (vi) any
rights to require IDI to proceed against any Person, proceed
against or exhaust any Collateral or any other security interests
or guaranties or pursue any other remedy in IDI's power, or to
pursue any of such rights in any particular order or manner, and
any defenses arising by reason of any disability or defense of
any Person.
SECTION 6.10. EXECUTION IN COUNTERPARTS. This Agreement
may be executed in any number of counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together,
shall constitute but one and the same Agreement.
SECTION 6.11. COMPLETE AGREEMENT. This Agreement,
together with the exhibits and schedules hereto and the other
Additional Related Agreements, is intended by the parties as a
final expression of their agreement regarding the subject matter
hereof and as a complete and exclusive statement of the terms and
conditions of such agreement.
SECTION 6.12. LIMITATION OF LIABILITY. No claim shall
be made by the Grantor against IDI or the Affiliates,
shareholders, directors, officers, employees or agents of IDI for
any special, indirect, consequential or punitive damages in
respect of any claim for breach of contract or under any other
theory of liability arising out of or related to the transactions
contemplated by this Agreement, the Purchase Agreement and the
other Additional Related Agreements, or any act, omission or
event occurring in connection therewith; and the Grantor hereby
waives, releases and agrees not to sue upon any claim for any
such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
SECTION 6.13. WAIVER OF TRIAL BY JURY. THE GRANTOR AND
IDI WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS
AGREEMENT OR ANY OTHER ADDITIONAL RELATED AGREEMENT OR ANY ACTION
ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first set
forth above.
GRANTOR
STYLES ON VIDEO, INC., a Delaware
corporation
By:
Name:
Title:
IDI
International Digital
Investors, L.P., a Delaware
limited partnership
By: IDI Corp., a Delaware
corporation, its general
partner
By:
Name:
Title:
<PAGE>
SCHEDULE 2.1.2
NOTES RECEIVABLE
<PAGE>
STYLES ON VIDEO, INC.
SECURITY AGREEMENT SCHEDULE 2.1.10.1
LIST OF DEPOSIT ACCOUNTS
<PAGE>
STYLES ON VIDEO, INC.
SECURITY AGREEMENT
SCHEDULE 2.1.10.6
INTELLECTUAL PROPERTY
<PAGE>
STYLES ON VIDEO, INC.
SCHEDULE 3.1.4
PART A
LIST OF PATENTS
LIST OF APPLICATIONS FOR REGISTRATION OF PATENTS
PART B
LIST OF TRADEMARKS
LIST OF SERVICE MARKS
LIST OF TRADEMARK OR SERVICE MARK APPLICATIONS
<PAGE>
STYLES ON VIDEO, INC.
SECURITY AGREEMENT
SCHEDULE 3.2
BUSINESS ADDRESSES WHERE STYLES ON VIDEO, INC. HAS PROPERTY
<PAGE>
STYLES ON VIDEO INC.
SECURITY AGREEMENT 3.2
FEDERAL TAX ID #
CURRENT OR PRIOR TRADE NAMES:
<PAGE>
SCHEDULE 3.4
LIST OF INSURANCE CLAIMS
<PAGE>
EXHIBIT 3.1.4.
FORM OF
NOTICE OF SECURITY INTEREST IN PATENTS AND
TRADEMARKS
NOTICE IS HEREBY GIVEN that Styles on Video, Inc., a
Delaware corporation (the "Grantor") with an office located at
667 Rancho Conejo, Newbury Park, California 91320, and
International Digital Investors, L.P., a Delaware limited
partnership ("IDI"), with an office located at 40304 Fisher
Island Drive, Fisher Island, Florida 33109, have entered into a
Security Agreement dated as of May 15, 1996 (as amended from time
to time, the "Security Agreement").
Pursuant to the Security Agreement, the Grantor has granted,
conveyed, pledged, assigned and transferred to IDI, for itself
and for the ratable benefit of the purchasers (the "Purchasers")
listed on the signature pages of the Note and Preferred Stock
Purchase Agreement, dated as of May 14, 1996, by and between the
Grantor and the Purchasers, a security interest in, (a) the
registered patents, applications for registration of patents, and
licenses of registered patents listed in Schedule A hereto, and
(b) the registered trademarks and service marks, applications for
registration of trademarks and service marks, and licenses of
registered trademarks and service marks listed in Schedule B
hereto, together with the goodwill of the business symbolized
thereby, to secure the payment, performance and observance of the
Secured Obligations as defined in the Security Agreement.
The Commissioner of Patents and Trademarks is requested
to record this notice in its records.
Dated: May 15, 1996
STYLES ON VIDEO, INC., a Delaware
corporation
By: ___________________________
Name: Nancy Galgas
Title: Chief Financial Officer
<PAGE>
SCHEDULE A
TO
NOTICE OF SECURITY INTEREST IN PATENTS AND TRADEMARKS
FROM
STYLES ON VIDEO, INC.
1. Patents.
PATENT REGISTRATION NO. REGISTRATION DATE
2. Applications for Federal Registration of Patents
PATENT SERIAL NO. FILING DATE
<PAGE>
SCHEDULE B
TO
NOTICE OF SECURITY INTEREST IN PATENTS AND TRADEMARKS
FROM
STYLES ON VIDEO, INC.
1. Federal Trademark and Service Mark Registrations
TRADEMARK/SERVICE MARK REGISTRATION NO. REGISTRATION DATE
2. Trademark and Service Mark Applications for Federal
Registration.
TRADEMARK/SERVICE MARK REGISTRATION NO. REGISTRATION DATE
<PAGE>
State of_________________
County of _______________
On DATE before me, NAME, TITLE OF OFFICER, personally appeared
NAME(S)OF SIGNERS.
[] personally known to me - OR- [] proved to me on the basis
of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
______________________________
SIGNATURE OF NOTARY
<PAGE>
EXHIBIT 3.1.5.
FORM OF
INSURANCE POLICY NOTICE
[Addressee]
Re: Name of Insured:_______________
Policy No. ____________________
NOTICE IS HEREBY GIVEN, in accordance with Section
9302(1)(h) of the California Commercial Code, that Styles on
Video, Inc., a Delaware corporation (the "Grantors), with an
office located at 667 Rancho Conejo, Newbury Park, California
91320, and International Digital Investors, L.P., a Delaware
limited partnership ("IDI"), with an office located at 40304
Fisher Island Drive Fisher Island, Florida 33109, have entered
into a Security Agreement dated as of May 15, 1996 (as amended
from time to time, the "Security Agreement").
Pursuant to the Security Agreement, the Grantor has granted,
conveyed, pledged, assigned and transferred to IDI, for itself
and for the ratable benefit of the purchasers (the "Purchasers")
listed on the signature pages of the Note and Preferred Stock
Purchase Agreement, dated as of May 14, 1996, by and between the
Grantor and the Purchasers, a security interest in insurance
policies, including the above reference insurance policy, and all
rights and claims therein and thereunder (including prepaid and
unearned premiums) to secure the payment, performance and
observance of the Secured Obligations as defined in the Security
Agreement.
Dated: May __, 1996
STYLES ON VIDEO, INC., a Delaware
corporation
By:
Name: Nancy Galgas
Title: Chief Financial Officer
<PAGE>
EXHIBIT 3.1.6.
FORM OF
NOTICE OF SECURITY INTEREST IN DEPOSIT ACCOUNT
[Addressee]
Re: Notice of Security Interest in Deposit Accounts of
Styles on Video, Inc.
NOTICE IS HEREBY GIVEN, in accordance with Section 9302 of
the California Uniform Commercial Code, that Styles on Video,
Inc., a Delaware corporation (the "Grantor"), with an office
located at 667 Rancho Conejo, Newbury Park, California 91320, and
International Digital Investors., a Delaware limited partnership
("IDI"), with an office located at 40304 Fisher Island Drive,
Fisher Island, Florida 33109, have entered into a Security
Agreement dated as of May 15, 1996 (as amended from time to time,
the "Security Agreement").
Pursuant to the Security Agreement, the Grantor has granted,
conveyed, pledged, assigned and transferred to IDI, for itself
and for the ratable benefit of the purchasers (the "Purchasers")
listed on the signature pages of the Note and Preferred Stock
Purchase Agreement, dated as of May 14, 1996, by and between the
Grantor and the Purchasers, a security interest in all of its
deposit accounts, wherever located, including the accounts listed
on the attached schedule (all deposit accounts from time to time
maintained with the bank or other financial institution to which
this notice is addressed (the "Depositary") being the
"Accounts").
By its signature below, the Depositary confirms that it has
not received any notice of a security interest in the Accounts
from any person or entity and agrees as follows:
1. It will notify IDI by telecopier at the following address
and number of any levy upon any deposit account of the Grantor
maintained with you:
International Digital Investors, L.P.
40304 Fisher Island Drive
Fisher Island, Florida 33109
Attn: Jeff Safchik, Vice President
Telecopier: 305-534-1129
2. It will provide IDI, upon request, with copies of all
statements sent by the Depositary to the Grantor with respect to
and all checks written by the Grantor on the Accounts.
3. It waives and agrees not to assert, claim or exercise any
right of set-off, banker's lien or similar right with respect to
the Accounts or the funds from time to time contained therein.
4. The agreements of the Depositary set forth in this Notice
may not be revoked by the Depositary at any time while any
Accounts are maintained by the Grantor with the Depositary.
This Notice may be executed in one or more counterparts, all
of which shall constitute but one document.
Dated: May __, 1996
INTERNATIONAL DIGITAL INVESTORS, L.P., A
DELAWARE LIMITED PARTNERSHIP
By: IDI Corp., a Delaware
corporation, its general partner
By:
Name: Jeff Safchik
Title: Vice President
STYLES ON VIDEO, INC., A DELAWARE
CORPORATION
By:
Name: Nancy Galgas
Title: Chief Financial Officer
AGREED AND ACCEPTED:
[DEPOSITARY BANK]
By: _________________
Name: _______________
Title: ______________
<PAGE>
EXHIBIT J
GENERAL CONTINUING GUARANTY
OF FOREVER YOURS. INC.
GENERAL CONTINUING GUARANTY, dated as of May 15, 1996
(as amended from time to time, the "Guaranty"), by FOREVER YOURS,
INC., a Delaware corporation (the "Guarantor"), in favor of the
purchasers (the "Beneficiaries") listed on the signature pages to
that certain Notes and Preferred Stock Purchase Agreement (the
"Purchase Agreement"), of even date herewith, by and among the
Guarantor, Styles on Video, Inc., a Delaware corporation and the
owner of 80% of the issued and outstanding capital stock of the
Guarantor ("SOV"), and the Beneficiaries, as purchasers..
R E C I T A L S
A. The Beneficiaries have agreed to purchase and the
Guarantor and SOV have agreed to issue and sell from time to
time, subject to the terms and conditions contained in the
Purchase Agreement, 10% Senior Notes due June 30, 1998 of the
Guarantor and SOV (the "Notes") and 500 shares of 10% Senior
Series B Convertible Preferred Stock, $.001 par value per share,
of SOV (the "Series B Preferred Stock").
B. SOV's obligations under the Purchase Agreement and
the Notes are secured by that certain SOV Security Agreement, of
even date herewith (the "SOV Security Agreement"), by and among
SOV and the Beneficiaries, as secured parties, and by that
certain SOV Pledge Agreement, of even date herewith (the "SOV
Pledge Agreement"), by and between SOV and International Digital
Investors, L.P., a Delaware limited partnership, as collateral
agent for the Beneficiaries.
C. In consideration of the purchase of the Notes and
the Series B Preferred Stock by the Beneficiaries, the Guarantor
has agreed, at the request of SOV, to guaranty unconditionally
any and all obligations of SOV to the Beneficiaries under the
Notes, the SOV Security Agreement, the SOV Pledge Agreement and
the other Additional Related Agreements as provided herein.
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Guarantor
agrees as follows:
ARTICLE 1.
DEFINITIONS AND RELATED MATTERS
SECTION 1.1. DEFINITIONS. Terms with initial capital
letters not otherwise defined in this Guaranty have the meanings
set forth in Exhibit A to the Purchase Agreement. In addition, the
following terms with initial capital letters have the following
meanings:
"APPLICABLE LAW" means all applicable provisions of all
(i) constitutions, treaties, statutes, laws, rules, regulations and
ordinances of any Governmental Authority, (ii) Governmental
Approvals and (iii) orders, decisions, judgments and decrees of any
Governmental Authority.
"BENEFICIARIES" is defined in the Preamble.
"COLLATERAL" is defined in Section 2.2.
"GOVERNMENTAL APPROVAL" means any authorization,
approval, permit or license of or by or filing with any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any nation, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of government.
"GUARANTOR" is defined in the Preamble.
"GUARANTY" is defined in the Preamble.
"INVESTMENT" means, as applied to any Person, (i) any
direct or indirect purchase or other acquisition by that Person of
stock or securities of any other Person, any partnership interest
in any other Person, or all or any substantial part of the business
or assets of any other Person, and (ii) any loan, advance or
capital contribution by that Person to any other Person.
"NOTES" is defined in the Recitals.
"OBLIGATIONS" is defined in Section 2.1.
"OBLIGOR" is defined in Section 2.2.
"OTHER GUARANTOR" is defined in Section 2.2.
"OTHER GUARANTY" is defined in Section 2.2.
"PERSON" means an individual, a corporation, a
partnership, a trust, an unincorporated organization or any other
entity or organization, including a Governmental Authority.
"PURCHASE AGREEMENT" is defined in the Preamble.
"SERIES B PREFERRED STOCK" is defined in the Recitals.
"SOV" is defined in the Recitals.
"SOV SECURITY AGREEMENT" is defined in the Recitals.
"SOV PLEDGE AGREEMENT" is defined in the Recitals.
SECTION 1.2. RELATED MATTERS.
1.2.1. CONSTRUCTION. Unless the context of this Guaranty
clearly requires otherwise, references to the plural include the
singular, the singular includes the plural, the part includes the
whole, "including" is not limiting, and "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder" and similar terms in this Guaranty
refer to this Guaranty as a whole (including the Preamble, the
Recitals, the Schedules and the Exhibits) and not to any particular
provision of this Guaranty. Article, section, subsection, exhibit,
schedule, recital and preamble references in this Guaranty are to
this Guaranty unless otherwise specified. References in this
Guaranty to any agreement, other document or law "as amended" or
"as amended from time to time," or to amendments of any document or
law, shall include any amendments, supplements, replacements,
renewals, waivers or other modifications not prohibited by the
Additional Related Agreements.
1.2.2. GOVERNING LAW. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of
California (other than choice of-law rules that would require the
application of the laws of any other jurisdiction).
1.2.3. HEADINGS. The Article and Section headings used in
this Guaranty are for convenience of reference only and shall not
affect the construction hereof.
1.2.4. SEVERABILITY. If any provision of this Guaranty
shall be held to be invalid, illegal or unenforceable under
Applicable Law in any jurisdiction, such provision shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions
hereof or the validity, legality or enforceability of such
provision in any other jurisdiction.
ARTICLE 2.
GUARANTY
SECTION 2.1. GUARANTY. The Guarantor unconditionally and
irrevocably guaranties and promises to pay to the order of the
Beneficiaries, on demand when due and payable, in lawful money of
the United States of America, any and all Obligations of SOV from
time to time owed to the Beneficiaries. The term "Obligations" is
used herein in its most comprehensive sense and includes any and
all present and future obligations and liabilities of SOV of every
type and description to the Beneficiaries, or any of its successors
or assigns or any Person entitled to indemnification under the
Additional Related Agreements, whether for principal, interest,
reimbursement obligations, fees, expenses, indemnities or other
amounts (including attorneys' fees and expenses) under the Purchase
Agreement, the Notes and the other Additional Related Agreements,
in each case whether due or not due, direct or indirect, joint
and/or several, absolute or contingent, voluntary or involuntary,
liquidated or unliquidated, determined or undetermined, renewed or
restructured, whether or not from time to time decreased or
extinguished and later increased, created or incurred, whether or
not arising after the commencement of a proceeding under the
Bankruptcy Code (including post-petition interest) and whether or
not allowed or allowable as a claim in any such proceeding. All
Obligations shall be conclusively presumed to have been created in
reliance on this Guaranty. All payments hereunder shall be made
free and clear of any and all deductions, withholdings and setoffs.
SECTION 2.2. CONTINUING AND IRREVOCABLE GUARANTY. This is
a continuing guaranty of the Obligations and may not be revoked and
shall not otherwise terminate unless and until the-Obligations have
been indefeasibly paid and performed in full. If notwithstanding
the foregoing the Guarantor shall have any right under Applicable
Law to terminate this Guaranty prior to indefeasible payment in
full of the Obligations, no such termination shall be effective
until noon the next Business Day after the Beneficiaries shall
receive written notice thereof, signed by the Guarantor. Any such
termination shall not affect this Guaranty in relation to (a) any
Obligation that was incurred or arose prior to the effective time
of such notice, (b) any Obligation incurred or arising after such
effective time where such Obligation is incurred or arises either
pursuant to commitments existing at such effective time or incurred
for the purpose of protecting or enforcing rights against SOV, the
Guarantor or other guarantor of or other Person directly or
indirectly liable on the Obligations or any portion thereof (an
"Other Guarantor"; each of SOV, the Guarantor and the Other
Guarantors is referred to herein as an "Obligor") or any security
("Collateral") given for the Obligations or any other guaranties of
the Obligations or any portion thereof (an "Other Guaranty") or (c)
any renewals, extensions, readvances, modifications or
rearrangements of any of the foregoing.
SECTION 2.3. NATURE OF GUARANTY. The liability of the
Guarantor hereunder is independent of and not in consideration of
or contingent upon the liability of SOV or any other Obligor and a
separate action or actions may be brought and prosecuted against
the Guarantor, whether or not any action is brought or prosecuted
against SOV or any other Obligor or whether SOV or any other
Obligor is joined in any such action or actions. This Guaranty
shall be construed as a continuing, absolute and unconditional
guaranty of payment (and not merely of collection) without regard
to:
2.3.1. the legality, validity or enforceability of the
Purchase Agreement, the Notes or any other Additional Related
Agreement, any of the Obligations, any Collateral or any Other
Guaranty;
2.3.2. any defense (other than indefeasible payment),
set-off or counterclaim that may at any time be available to SOV or
any other Obligor against, and any right of setoff at any time held
by, the Beneficiaries; or
2.3.3. any other circumstance whatsoever (with or without
notice to or knowledge of the Guarantor or any other Obligor),
whether or not similar to any of the foregoing, that constitutes,
or might be construed to constitute, an equitable or legal
discharge of SOV or any other Obligor, in bankruptcy or in any
other instance.
SECTION 2.4. LIMITATION ON GUARANTY. The obligations of
the Guarantor hereunder shall be limited to an aggregate amount
equal to the largest amount that would not render its obligations
hereunder subject to avoidance under Section 548 of the Bankruptcy
Code or any applicable provisions of comparable state law.
SECTION 2.5. AUTHORIZATION. The Guarantor authorizes the
Beneficiaries, without notice to or further assent by the
Guarantor, and without affecting the Guarantor's liability
hereunder (regardless of whether any subrogation or similar right
that the Guarantor may have or any other right or remedy of the
Guarantor is extinguished or impaired), from time to time to:
2.5.1. permit SOV to increase or create Obligations, or
terminate, release, compromise, subordinate, extend, accelerate or
otherwise change the amount or time, manner or place of payment of,
or rescind any demand for payment or acceleration of, the
Obligations or any part thereof, or otherwise amend the terms and
conditions of the Purchase Agreement, the Notes, any other
Additional Related Agreement or any provision thereof;
2.5.2. take and hold Collateral from SOV or any other
Person, perfect or refrain from perfecting a lien on such
Collateral, and exchange, enforce, subordinate, release (whether
intentionally or unintentionally), or take or fail to take any
other action in respect of, any such Collateral or lien or any part
thereof;
2.5.3. exercise in such manner and order as it elects in
its sole discretion or fail to exercise, waive, suspend, terminate
or suffer expiration of, any of the remedies or rights of the
Beneficiaries against SOV or any other Obligor in respect of any
Obligations or any Collateral;
2.5.4. release, add or settle with any Obligor in respect
of this Guaranty, any Other Guaranty or the Obligations;
2.5.5. accept partial payments on the Obligations and
apply any and all payments or recoveries from any Obligor or
Collateral to such of the Obligations as the Beneficiaries may
elect in its sole discretion, whether or not such Obligations are
secured or guaranteed;
2.5.6. refund at any time, at the Beneficiaries' sole
discretion, any payments or recoveries received by the
Beneficiaries in respect of any Obligations or
2.5.7. otherwise deal with SOV, any other Obligor and any
Collateral as the Beneficiaries may elect in their sole discretion.
SECTION 2.6. CERTAIN WAIVERS. The Guarantor waives:
2.6.1. the right to require the Beneficiaries to proceed
against SOV or any other Obligor, to proceed against or exhaust any
Collateral or to pursue any other remedy in the Beneficiaries'
power whatsoever and the right to have the property of SOV or any
other Obligor first applied to the discharge of the Obligations;
2.6.2. all rights and benefits under Applicable Law
purporting to reduce a guarantor's obligations in proportion to the
obligation of the principal or providing that the obligation of a
surety or guarantor must neither be larger nor in other respects
more burdensome than that of the principal;
2.6.3. any requirement of marshalling or any other
principle of election of remedies and all rights and defenses
arising out of an election of remedies by the Beneficiaries, even
though that election of remedies, such as nonjudicial foreclosure
with respect to the security for a guaranteed obligation, has
destroyed the Guarantor's rights of subrogation and reimbursement
against SOV by the operation of Section 580d of the California Code
of Civil Procedure or otherwise;
2.6.4. any right to assert against the Beneficiaries any
defense (legal or equitable), set-off, counterclaim and other right
that the Guarantor may now or any time hereafter have against SOV
or any other Obligor;
2.6.5. presentment, demand for payment or performance
(including diligence in making demands hereunder), notice of
dishonor or nonperformance, protest, acceptance and notice of
acceptance of this Guaranty, and all other notices of any kind;
2.6.6. all defenses that at any time may be available to
the Guarantor by virtue of any valuation, stay, moratorium or other
law now or hereafter in effect;
2.6.7. any rights, defenses and other benefits the
Guarantor may have by reason of any failure of the Beneficiaries to
hold a commercially reasonable public or private foreclosure sale
or otherwise to comply with Applicable Law in connection with a
disposition of Collateral; and
2.6.8. without limiting the generality of the foregoing
or any other provision hereof, all rights and benefits under
California Civil Code Sections 2810, 2819, 2839, 2845, 2848, 2849,
2850, 2899, and 3433
SECTION 2.7. SUBROGATION; CERTAIN AGREEMENTS.
2.7.1. THE GUARANTOR WAIVES ANY AND ALL RIGHTS OF
SUBROGATION, INDEMNITY, CONTRIBUTION OR REIMBURSEMENT, AND ALL
BENEFITS OF AND RIGHTS TO ENFORCE ANY POWER, RIGHT OR REMEDY THAT
THE BENEFICIARIES MAY NOW OR HEREAFTER HAVE IN RESPECT OF THE
OBLIGATIONS AGAINST SOV OR ANY OTHER OBLIGOR, ANY AND ALL BENEFITS
OF AND RIGHTS TO PARTICIPATE IN ANY COLLATERAL, WHETHER REAL OR
PERSONAL PROPERTY, NOW OR HEREAFTER HELD BY THE BENEFICIARIES, AND
ANY AND ALL OTHER RIGHTS AND CLAIMS (AS DEFINED IN THE BANKRUPTCY
CODE) THE GUARANTOR MAY HAVE AGAINST SOV OR ANY OTHER OBLIGOR,
UNDER APPLICABLE LAW OR OTHERWISE, AT LAW OR IN EQUITY, BY REASON
OF ANY PAYMENT HEREUNDER, UNLESS AND UNTIL THE OBLIGATIONS SHALL
HAVE BEEN PAID IN FULL.
2.7.2. The Guarantor assumes the responsibility for being
and keeping itself informed of the financial condition of SOV and
each other Obligor and of all other circumstances bearing upon the
risk of nonpayment of the Obligations that diligent inquiry would
reveal, and agrees that the Beneficiaries shall have no duty to
advise the Guarantor of information regarding such condition or any
such circumstances.
SECTION 2.8. BANKRUPTCY NO DISCHARGE.
2.8.1. Without limiting Section 2.3, this Guaranty shall
not be discharged or otherwise affected by any bankruptcy,
reorganization or similar proceeding commenced by or against SOV or
any other Obligor, including (i) any discharge of, or bar or stay
against collecting, all or any part of the Obligations in or as a
result of any such proceeding, whether or not assented to by the
Beneficiaries and (ii) any disallowance of all or any portion of
the Beneficiaries' claim for repayment of the Obligations. The
Guarantor understands and acknowledges that by virtue of this
Guaranty, it has specifically assumed any and all risks of any such
proceeding with respect to SOV and each other Obligor.
2.8.2. Any Event of Default under clauses 10.1(f) or (g)
of the Purchase Agreement shall render all Obligations
automatically due and payable for purposes of this Guaranty.
2.8.3. Notwithstanding anything to the contrary herein
contained, this Guaranty (and any lien on the Collateral securing
this Guaranty or the Obligations) shall continue to be effective or
be reinstated, as the case may be, if at any time any payment, or
any part thereof, of any or all of the Obligations is rescinded,
invalidated, declared to be fraudulent or preferential or otherwise
required to be restored or returned by-the Beneficiaries in
connection with any bankruptcy, reorganization or similar
proceeding involving SOV, any other Obligor or otherwise, if the
proceeds of any Collateral are required to be returned by the
Beneficiaries under any such circumstances, or if the Beneficiaries
elect to return any such payment or proceeds or any part thereof in
their sole discretion, all as though such payment had not been made
or such proceeds not been received.
SECTION 2.9. SUBORDINATION. The Guarantor hereby
absolutely subordinates, both in right of payment and in time of
payment, any and all present or future obligations and liabilities
of SOV and each other Obligor (other than with respect to a
reasonably contemporaneous exchange of value in the ordinary course
of business) to the Guarantor ("Subordinated Debt"), to the prior
payment in full in cash of the Obligations, whether or not such
Subordinated Debt constitutes or arises out of any subrogation,
reimbursement, contribution, indemnity or similar right
attributable to this Guaranty. If, whether or not at the
Beneficiaries' request, the Guarantor shall receive, prior to
payment in full in cash of all Obligations, payment of any sum from
SOV or any other Obligor upon any Subordinated Debt, any such sum
shall be received by the Guarantor as trustee for the Beneficiaries
and shall forthwith be paid over to the Beneficiaries on account of
the Obligations, without reducing or affecting in any manner the
liability of the Guarantor under this Guaranty.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
The Guarantor makes the following representations and
warranties, all of which shall survive until termination of this
Guaranty pursuant to Section 2.2.
SECTION 3.1. FINANCIAL BENEFIT. The Guarantor hereby
acknowledges and warrants it has derived or expects to derive a
financial advantage from each loan, Investment or other extension
of credit and each renewal, extension, release of Collateral, or
other relinquishment of legal rights, made or granted or to be made
or granted by the Beneficiaries in connection with the Obligations.
SECTION 3.2. REVIEW OF DOCUMENTS; UNDERSTANDING WITH
RESPECT TO WAIVERS. The Guarantor hereby acknowledges that it has
copies of and is fully familiar with the Purchase Agreement, the
Notes and each other Additional Related Agreement executed and
delivered by SOV, the Guarantor or any other Obligor. The Guarantor
warrants and agrees that each waiver set forth in this Guaranty is
made with the Guarantor's full knowledge of its significance and
consequences and after opportunity to consult with counsel of its
own choosing.
ARTICLE 4.
MISCELLANEOUS
SECTION 4.1. EXPENSES. The Guarantor shall pay to the
Beneficiaries any and all costs and expenses, (including reasonable
attorneys' fees and expenses), that the Beneficiaries may incur in
connection with (a) the collection of all sums guarantied hereunder
or (b) the exercise or enforcement of any of the rights, powers or
remedies of the Beneficiaries under this Guaranty or Applicable
Law. All such amounts and all other amounts payable hereunder shall
be payable on demand, together with interest at a rate equal to the
lesser of (i) 10% per annum (based on a year of 365 or 366 days, as
the case may be), or (ii) the maximum rate allowed by Applicable
Law, from and including the due date to and excluding the date of
payment.
SECTION 4.2. AMENDMENTS AND OTHER MODIFICATIONS. No
amendment of any provision of this Guaranty (including a waiver
thereof or consent relating thereto) shall be effective unless the
same shall be in writing and signed by the Beneficiaries. Any
waiver or consent relating to any provision of this Guaranty shall
be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Guarantor in
any case shall entitle the Guarantor to any other or further notice
or demand in similar or other circumstances.
SECTION 4.3. CUMULATIVE REMEDIES; FAILURE OR DELAY. The
rights and remedies provided for under this Guaranty are cumulative
and are not exclusive of any rights and remedies that may be
available to the Beneficiaries under Applicable Law or otherwise.
No failure or delay on the part of the Beneficiaries in the
exercise of any power, right or remedy under this Guaranty shall
impair such power, right or remedy or shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power, right or remedy preclude other or further exercise of such
or any other power, right or remedy.
SECTION 4.4. NOTICES. ETC. All notices and other
communications under this Guaranty shall be in writing and shall be
personally delivered or sent by prepaid courier, by overnight,
registered or certified mail (postage prepaid), or by prepaid
telecopy, and shall be deemed given when received by the intended
recipient thereof. Unless otherwise specified in a notice given in
accordance with the foregoing provisions of this Section, all
notices and other communications shall be given to the parties
hereto at their respective addresses (or to their respective
telecopier numbers) indicated on the signature pages of the
Purchase Agreement.
SECTION 4.5. SUCCESSORS AND ASSIGNS. This Guaranty and
each amendment hereof shall be binding upon and, subject to the
next sentence, inure to the benefit of the Guarantor, the
Beneficiaries and their respective successors and assigns. The
Guarantor shall not assign any of its rights or obligations
hereunder without the prior written consent of all of the
Beneficiaries. The benefit of this Guaranty shall automatically
pass with any assignment of the Obligations (or any portion
thereof), to the extent of such assignment.
SECTION 4.6. CHOICE OF FORUM. All actions or proceedings
arising in connection with this Agreement shall be tried and
litigated in state or Federal courts located in Los Angeles, County
of Los Angeles, State of California, unless such actions or
proceedings are required to be brought in another court to obtain
subject matter jurisdiction over the matter in controversy. EACH OF
THE GUARANTOR AND THE BENEFICIARIES WAIVES ANY RIGHT IT MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS
NOT SUBJECT TO THE JURISDICTION OF SUCH COURTS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION.
SECTION 4.7. COMPLETE AGREEMENT. This Guaranty, together
with the exhibits and schedules hereto and the other Additional
Related Agreements, is intended by the parties as the final
expression of their agreement regarding the subject matter hereof
and as a complete and exclusive statement of the terms and
conditions of such agreement.
SECTION 4.8. LIMITATION OF LIABILITY. No claim shall be
made by the Guarantor against the Beneficiaries or the affiliates,
directors, officers, employees or agents of the Beneficiaries for
any special, indirect, consequential or punitive damages in respect
of any claim for breach of contract or under any other theory of
liability arising out of or related to the transactions
contemplated by this Guaranty, or any act, omission or event
occurring in connection therewith; and the Guarantor waives,
releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to
exist in its favor.
SECTION 4.9. WAIVER OF TRIAL BY JURY. THE GUARANTOR AND
THE BENEFICIARIES (BY ACCEPTANCE HEREOF) WAIVE THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION UNDER THIS GUARANTY OR ANY ACTION ARISING OUT
OF THE TRANSACTIONS CONTEMPLATED HEREBY, REGARDLESS OF WHICH PARTY
INITIATES SUCH ACTION OR ACTIONS.
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed
this Guaranty as of the date set forth above.
GUARANTOR
FOREVER YOURS, INC.
By:________________________
Name:
Title:
<PAGE>
EXHIBIT K
GENERAL CONTINUING GUARANTY
OF STYLES ON VIDEO, INC.
GENERAL CONTINUING GUARANTY, dated as of May 15, 1996
(as amended from time to time, the "GUARANTY"), by STYLES ON VIDEO,
INC., a Delaware corporation (the "GUARANTOR"), in favor of the
purchasers (the "BENEFICIARIES") listed on the signature pages to
that certain Note and Preferred Stock Purchase Agreement (the
"PURCHASE AGREEMENT"), of even date herewith, by and among the
Guarantor, Forever Yours, Inc., a California corporation and an
80%-owned subsidiary of the Guarantor ("FYI"), and the
Beneficiaries, as purchasers.
R E C I T A L S
A. The Beneficiaries have agreed to purchase and the
Guarantor and FYI have agreed to issue and sell from time to time,
subject to the terms and conditions contained in the Purchase
Agreement, 10% Senior Notes due June 30, 1998 of the Guarantor and
FYI (the "NOTES") and 500 shares of 10% Senior Series B Convertible
Preferred Stock, $.001 par value per share, of the Guarantor (the
"SERIES B PREFERRED STOCK").
B. FYI's obligations under the Purchase Agreement and
the Notes are secured by that certain FYI Security Agreement, of
even date herewith (the "FYI SECURITY AGREEMENT"), by and among FYI
and International Digital Investors, L.P., a Delaware limited
partnership, as the collateral agent.
C. In consideration of the purchase of the Notes and
the Series B Preferred Stock by the Beneficiaries, the Guarantor
has agreed, at the request of FYI, to guaranty unconditionally any
and all obligations of FYI to the Beneficiaries under the Notes,
the FYI Security Agreement and the other Additional Related
Agreements as provided herein.
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Guarantor
agrees as follows:
ARTICLE 1.
DEFINITIONS AND RELATED MATTERS
SECTION 1.1. DEFINITIONS. Terms with initial capital
letters not otherwise defined in this Guaranty have the meanings
set forth in Exhibit A to the Purchase Agreement. In addition, the
following terms with initial capital letters have the following
meanings:
"APPLICABLE LAW" means all applicable provisions of all
(i) constitutions, treaties, statutes, laws, rules, regulations and
ordinances of any Governmental Authority,
(ii) Governmental Approvals and (iii) orders, decisions, judgments
and decrees of any Governmental Authority.
"BENEFICIARIES" is defined in the Preamble.
"COLLATERAL" is defined in Section 2.2.
"FYI SECURITY AGREEMENT" is defined in the Recitals.
"FYI" is defined in the Recitals.
"GOVERNMENTAL APPROVAL" means any authorization,
approval, permit or license of or by or filing with any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any nation, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of government.
"GUARANTOR" is defined in the Preamble.
"GUARANTY" is defined in the Preamble.
"INVESTMENT" means, as applied to any Person, (i) any
direct or indirect purchase or other acquisition by that Person of
stock or securities of any other Person, any partnership interest
in any other Person, or all or any substantial part of the business
or assets of any other Person, and (ii) any loan, advance or
capital contribution by that Person to any other Person.
"NOTES" is defined in the Recitals.
"OBLIGATIONS" is defined in Section 2.1.
"OBLIGOR" is defined in Section 2.2.
"OTHER GUARANTOR" is defined in Section 2.2.
"OTHER GUARANTY" is defined in Section 2.2.
"PURCHASE AGREEMENT" is defined in the Preamble.
"SERIES B PREFERRED STOCK" is defined in the Recitals.
SECTION 1.2. RELATED MATTERS.
1.2.1. CONSTRUCTION. Unless the context of this Guaranty
clearly requires otherwise, references to the plural include the
singular, the singular includes the plural, the part includes the
whole, "including" is not limiting, and "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder" and similar terms in this Guaranty
refer to this Guaranty as a whole (including the Preamble, the
Recitals, the Schedules and the Exhibits) and not to any particular
provision of this Guaranty. Article, section, subsection, exhibit,
schedule, recital and preamble references in this Guaranty are to
this Guaranty unless otherwise specified. References in this
Guaranty to any agreement, other document or law "as amended" or
"as amended from time to time," or to amendments of any document or
law, shall include any amendments, supplements, replacements,
renewals, waivers or other modifications not prohibited by the
Additional Related Agreements.
1.2.2. GOVERNING LAW. This Guaranty shall be governed
by, and construed in accordance with, the laws of the State of
California (other than choice of law rules that would require the
application of the laws of any other jurisdiction).
1.2.3. HEADINGS. The Article and Section headings used
in this Guaranty are for convenience of reference only and shall
not affect the construction hereof.
1.2.4. SEVERABILITY. If any provision of this Guaranty
shall be held to be invalid, illegal or unenforceable under
Applicable Law in any jurisdiction, such provision shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions
hereof or the validity, legality or enforceability of such
provision in any other jurisdiction.
ARTICLE 2
GUARANTY
SECTION 2.1. GUARANTY. The Guarantor unconditionally and
irrevocably guaranties and promises to pay to the order of the
Beneficiaries, on demand when due and payable, in lawful money of
the United States of America, any and all Obligations of FYI from
time to time owed to the Beneficiaries. The term "OBLIGATIONS" is
used herein in its most comprehensive sense and includes any and
all present and future obligations and liabilities of FYI of every
type and description to the Beneficiaries, or any of its successors
or assigns or any Person entitled to indemnification under the
Additional Related Agreements, whether for principal, interest,
reimbursement obligations, fees, expenses, indemnities or other
amounts (including attorneys' fees and expenses) under the Purchase
Agreement, the Notes and the other Additional Related Agreements,
in each case whether due or not due, direct or indirect, joint
and/or several, absolute or contingent, voluntary or involuntary,
liquidated or unliquidated, determined or undetermined, renewed or
restructured, whether or not from time to time decreased or
extinguished and later increased, created or incurred, whether or
not arising after the commencement of a proceeding under the
Bankruptcy Code (including post-petition interest) and whether or
not allowed or allowable as a claim in any such proceeding. All
Obligations shall be conclusively presumed to have been created in
reliance on this Guaranty. All payments hereunder shall be made
free and clear of any and all deductions, withholdings and setoffs.
SECTION 2.2. CONTINUING AND IRREVOCABLE GUARANTY. This
is a continuing guaranty of the Obligations and may not be revoked
and shall not otherwise terminate unless and until the Obligations
have been indefeasibly paid and performed in full. If
notwithstanding the foregoing the Guarantor shall have any right
under Applicable Law to terminate this Guaranty prior to
indefeasible payment in full of the Obligations, no such
termination shall be effective until noon the next Business Day
after the Beneficiaries shall receive written notice thereof,
signed by the Guarantor. Any such termination shall not affect this
Guaranty in relation to (a) any Obligation that was incurred or
arose prior to the effective time of such notice, (b) any
Obligation incurred or arising after such effective time where such
Obligation is incurred or arises either pursuant to commitments
existing at such effective time or incurred for the purpose of
protecting or enforcing rights against FYI, the Guarantor or other
guarantor of or other Person directly or indirectly liable on the
Obligations or any portion thereof (an "OTHER GUARANTOR"; each of
FYI, the Guarantor and the Other Guarantors is referred to herein
as an "OBLIGOR") or any security ("COLLATERAL") given for the
Obligations or any other guaranties of the Obligations or any
portion thereof (an "OTHER GUARANTY") or (c) any renewals,
extensions, readvances, modifications or rearrangements of any of
the foregoing.
SECTION 2.3. NATURE OF GUARANTY. The liability of the
Guarantor hereunder is independent of and not in consideration of
or contingent upon the liability of FYI or any other Obligor and a
separate action or actions may be brought and prosecuted against
the Guarantor, whether or not any action is brought or prosecuted
against FYI or any other Obligor or whether FYI or any other
Obligor is joined in any such action or actions. This Guaranty
shall be construed as a continuing, absolute and unconditional
guaranty of payment (and not merely of collection) without regard
to:
2.3.1. the legality, validity or enforceability of the
Purchase Agreement, the Notes or any other Additional Related
Agreement, any of the Obligations, any Collateral or any Other
Guaranty;
2.3.2. any defense (other than indefeasible payment),
set-off or counterclaim that may at any time be available to FYI or
any other Obligor against, and any right of setoff at any time held
by, the Beneficiaries; or
2.3.3. any other circumstance whatsoever (with or without
notice to or knowledge of the Guarantor or any other Obligor),
whether or not similar to any of the foregoing, that constitutes,
or might be construed to constitute, an equitable or legal
discharge of FYI or any other Obligor, in bankruptcy or in any
other instance.
SECTION 2.4. AUTHORIZATION. The Guarantor authorizes the
Beneficiaries, without notice to or further assent by the
Guarantor, and without affecting the Guarantor's liability
hereunder (regardless of whether any subrogation or similar right
that the Guarantor may have or any other right or remedy of the
Guarantor is extinguished or impaired), from time to time to:
2.4.1. permit FYI to increase or create Obligations, or
terminate, release, compromise, subordinate, extend, accelerate or
otherwise change the amount or time, manner or place of payment of,
or rescind any demand for payment or acceleration of, the
Obligations or any part thereof, or otherwise amend the terms and
conditions of the Purchase Agreement, the Notes, any other
Additional Related Agreement or any provision thereof;
2.4.2. take and hold Collateral from FYI or any other
Person, perfect or refrain from perfecting a lien on such
Collateral, and exchange, enforce, subordinate, release (whether
intentionally or unintentionally), or take or fail to take any
other action in respect of, any such Collateral or lien or any part
thereof;
2.4.3. exercise in such manner and order as it elects in
its sole discretion, or fail to exercise, waive, suspend, terminate
or suffer expiration of, any of the remedies or rights of the
Beneficiaries against FYI or any other Obligor in respect of any
Obligations or any Collateral;
2.4.4. release, add or settle with any Obligor in respect
of this Guaranty, any Other Guaranty or the Obligations;
2.4.5. accept partial payments on the Obligations and
apply any and all payments or recoveries from any Obligor or
Collateral to such of the Obligations as the Beneficiaries may
elect in its sole discretion, whether or not such Obligations are
secured or guaranteed;
2.4.6. refund at any time, at the Beneficiaries' sole
discretion, any payments or recoveries received by the
Beneficiaries in respect of any Obligations or Collateral; and
2.4.7. otherwise deal with FYI, any other Obligor and any
Collateral as the Beneficiaries may elect in their sole discretion.
SECTION 2.5. CERTAIN WAIVERS. The Guarantor waives:
2.5.1. the right to require the Beneficiaries to proceed
against FYI or any other Obligor, to proceed against or exhaust any
Collateral or to pursue any other remedy in the Beneficiaries'
power whatsoever and the right to have the property of FYI or any
other Obligor first applied to the discharge of the Obligations;
2.5.2. all rights and benefits under Applicable Law
purporting to reduce a guarantor's obligations in proportion to the
obligation of the principal or providing that the obligation of a
surety or guarantor must neither be larger nor in other respects
more burdensome than that of the principal;
2.5.3. any requirement of marshalling or any other
principle of election of remedies and all rights and defenses
arising out of an election of remedies by the Beneficiaries, even
though that election of remedies, such as nonjudicial foreclosure
with respect to the security for a guaranteed obligation, has
destroyed the Guarantor's rights of subrogation and reimbursement
against FYI by the operation of Section 580d of the California Code
of Civil Procedure or otherwise;
2.5.4. any right to assert against the Beneficiaries any
defense (legal or equitable), set-off, counterclaim and other right
that the Guarantor may now or any time hereafter have against FYI
or any other Obligor;
2.5.5. presentment, demand for payment or performance
(including diligence in making demands hereunder), notice of
dishonor or nonperformance, protest, acceptance and notice of
acceptance of this Guaranty, and all other notices of any kind;
2.5.6. all defenses that at any time may be available to
the Guarantor by virtue of any valuation, stay, moratorium or other
law now or hereafter in effect;
2.5.7. any rights, defenses and other benefits the
Guarantor may have by reason of any failure of the Beneficiaries to
hold a commercially reasonable public or private foreclosure sale
or otherwise to comply with Applicable Law in connection with a
disposition of Collateral; and
2.5.8. without limiting the generality of the foregoing
or any other provision hereof, all rights and benefits under
California Civil Code Sections 2810, 2819, 2839, 2845, 2848, 2849,
2850, 2899, and 3433
SECTION 2.6. SUBROGATION; CERTAIN AGREEMENTS.
2.6.1. THE GUARANTOR WAIVES ANY AND ALL RIGHTS OF
SUBROGATION, INDEMNITY, CONTRIBUTION OR REIMBURSEMENT, AND ANY AND
ALL BENEFITS OF AND RIGHTS TO ENFORCE ANY POWER, RIGHT OR REMEDY
THAT THE BENEFICIARIES MAY NOW OR HEREAFTER HAVE IN RESPECT OF THE
OBLIGATIONS AGAINST FYI OR ANY OTHER OBLIGOR, ANY AND ALL BENEFITS
OF AND RIGHTS TO PARTICIPATE IN ANY COLLATERAL, WHETHER REAL OR
PERSONAL PROPERTY, NOW OR HEREAFTER HELD BY THE BENEFICIARIES, AND
ANY AND ALL OTHER RIGHTS AND CLAIMS (AS DEFINED IN THE BANKRUPTCY
CODE) THE GUARANTOR MAY HAVE AGAINST FYI OR ANY OTHER OBLIGOR,
UNDER APPLICABLE LAW OR OTHERWISE, AT LAW OR IN EQUITY, BY REASON
OF ANY PAYMENT HEREUNDER, UNLESS AND UNTIL THE OBLIGATIONS SHALL
HAVE BEEN PAID IN FULL.
2.6.2. The Guarantor assumes the responsibility for
being and keeping itself informed of the financial condition of FYI
and each other Obligor and of all other circumstances bearing upon
the risk of nonpayment of the Obligations that diligent inquiry
would reveal, and agrees that the Beneficiaries shall have no duty
to advise the Guarantor of information regarding such condition or
any such circumstances.
SECTION 2.7. BANKRUPTCY NO DISCHARGE.
2.7.1. Without limiting Section 2.3, this Guaranty shall
not be discharged or otherwise affected by any bankruptcy,
reorganization or similar proceeding commenced by or against FYI or
any other Obligor, including (i) any discharge of, or bar or stay
against collecting, all or any part of the Obligations in or as a
result of any such proceeding, whether or not assented to by the
Beneficiaries and (ii) any disallowance of all or any portion of
the Beneficiaries' claim for repayment of the Obligations. The
Guarantor understands and acknowledges that by virtue of this
Guaranty, it has specifically assumed any and all risks of any such
proceeding with respect to FYI and each other Obligor.
2.7.2. Any Event of Default under clauses 10.1(f) or (g)
of the Purchase Agreement shall render all Obligations
automatically due and payable for purposes of this Guaranty.
2.7.3. Notwithstanding anything to the contrary herein
contained, this Guaranty (and any lien on the Collateral securing
this Guaranty or the Obligations) shall continue to be effective or
be reinstated, as the case may be, if at any time any payment, or
any part thereof, of any or all of the Obligations is rescinded,
invalidated, declared to be fraudulent or preferential or otherwise
required to be restored or returned by the Beneficiaries in
connection with any bankruptcy, reorganization or similar
proceeding involving FYI, any other Obligor or otherwise, if the
proceeds of any Collateral are required to be returned by the
Beneficiaries under any such circumstances, or if the Beneficiaries
elect to return any such payment or proceeds or any part thereof in
their sole discretion, all as though such payment had not been made
or such proceeds not been received.
SECTION 2.8. SUBORDINATION. The Guarantor hereby
absolutely subordinates, both in right of payment and in time of
payment, any and all present or future obligations and liabilities
of FYI and each other Obligor (other than with respect to a
reasonably contemporaneous exchange of value in the ordinary course
of business) to the Guarantor ("SUBORDINATED DEBT"), to the prior
payment in full in cash of the Obligations, whether or not such
Subordinated Debt constitutes or arises out of any subrogation,
reimbursement, contribution, indemnity or similar right
attributable to this Guaranty. If, whether or not at the
Beneficiaries' request, the Guarantor shall receive, prior to
payment in full in cash of all Obligations, payment of any sum from
FYI or any other Obligor upon any Subordinated Debt, any such sum
shall be received by the Guarantor as trustee for the Beneficiaries
and shall forthwith be paid over to the Beneficiaries on account of
the Obligations, without reducing or affecting in any manner the
liability of the Guarantor under this Guaranty.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Guarantor makes the following representations and
warranties, all of which shall survive until termination of this
Guaranty pursuant to Section 2.2.
SECTION 3.1. FINANCIAL BENEFIT. The Guarantor hereby
acknowledges and warrants it has derived or expects to derive a
financial advantage from each loan, Investment or other extension
of credit and each renewal, extension, release of Collateral, or
other relinquishment of legal rights, made or granted or to be made
or granted by the Beneficiaries in connection with the Obligations.
SECTION 3.2. REVIEW OF DOCUMENTS: UNDERSTANDING WITH
RESPECT TO WAIVERS. The Guarantor hereby acknowledges that it has
copies of and is fully familiar with the Purchase Agreement, the
Notes and each other Additional Related Agreement executed and
delivered by FYI, the Guarantor or any other Obligor. The Guarantor
warrants and agrees that each waiver set forth in this Guaranty is
made with the Guarantor's full knowledge of its significance and
consequences and after opportunity to consult with counsel of its
own choosing.
ARTICLE 4
MISCELLANEOUS
SECTION 4.1. EXPENSES. The Guarantor shall pay to the
Beneficiaries any and all costs and expenses, (including reasonable
attorneys' fees and expenses), that the Beneficiaries may incur in
connection with (a) the collection of all sums guarantied hereunder
or (b) the exercise or enforcement of any of the rights, powers or
remedies of the Beneficiaries under this Guaranty or Applicable
Law. All such amounts and all other amounts payable hereunder shall
be payable on demand, together with interest at a rate equal to the
lesser of (i) 10% per annum (based on a year of 365 or 366 days, as
the case may be), or (ii) the maximum rate allowed by Applicable
Law, from and including the due date to and excluding the date of
payment.
SECTION 4.2. AMENDMENTS AND OTHER MODIFICATIONS. No
amendment of any provision of this Guaranty (including a waiver
thereof or consent relating thereto) shall be effective unless the
same shall be in writing and signed by the Beneficiaries. Any
waiver or consent relating to any provision of this Guaranty shall
be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Guarantor in
any case shall entitle the Guarantor to any other or further notice
or demand in similar or other circumstances.
SECTION 4.3. CUMULATIVE REMEDIES; FAILURE OR DELAY. The
rights and remedies provided for under this Guaranty are cumulative
and are not exclusive of any rights and remedies that may be
available to the Beneficiaries under Applicable Law or otherwise.
No failure or delay on the part of the Beneficiaries in the
exercise of any power, right or remedy under this Guaranty shall
impair such power, right or remedy or shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power, right or remedy preclude other or further exercise of such
or any other power, right or remedy.
SECTION 4.4. NOTICES, ETC. All notices and other
communications under this Guaranty shall be in writing and shall be
personally delivered or sent by prepaid courier, by overnight,
registered or certified mail (postage prepaid), or by prepaid
telecopy, and shall be deemed given when received by the intended
recipient thereof. Unless otherwise specified in a notice given in
accordance with the foregoing provisions of this Section, all
notices and other communications shall be given to the parties
hereto at their respective addresses (or to their respective
telecopier numbers) indicated on the signature pages of the
Purchase Agreement.
SECTION 4.5. SUCCESSORS AND ASSIGNS. This Guaranty and
each amendment hereof shall be binding upon and, subject to the
next sentence, inure to the benefit of the Guarantor, the
Beneficiaries and their respective successors and assigns. The
Guarantor shall not assign any of its rights or obligations
hereunder without the prior written consent of all of the
Beneficiaries. The benefit of this Guaranty shall automatically
pass with any assignment of the Obligations (or any portion
thereof), to the extent of such assignment.
SECTION 4.6. CHOICE OF FORUM. All actions or proceedings
arising in connection with this Agreement shall be tried and
litigated in state or Federal courts located in Los Angeles, County
of Los Angeles, State of California, unless such actions or
proceedings are required to be brought in another court to obtain
subject matter jurisdiction over the matter in controversy. EACH OF
THE GUARANTOR AND THE BENEFICIARIES WAIVES ANY RIGHT IT MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS
NOT SUBJECT TO THE JURISDICTION OF SUCH COURTS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION.
SECTION 4.7. COMPLETE AGREEMENT. This Guaranty, together
with the exhibits and schedules hereto and the other Additional
Related Agreements, is intended by the parties as the final
expression of their agreement regarding the subject matter hereof
and as a complete and exclusive statement of the terms and
conditions of such agreement.
SECTION 4.8. LIMITATION OF LIABILITY. No claim shall be
made by the Guarantor against the Beneficiaries or the affiliates,
directors, officers, employees or agents of the Beneficiaries for
any special, indirect, consequential or punitive damages in respect
of any claim for breach of contract or under any other theory of
liability arising out of or related to the transactions
contemplated by this Guaranty, or any act, omission or event
occurring in connection therewith; and the Guarantor waives,
releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to
exist in its favor.
SECTION 4.9. WAIVER OF TRIAL BY JURY. THE GUARANTOR AND
THE BENEFICIARIES (BY ACCEPTANCE HEREOF) WAIVE THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION UNDER THIS GUARANTY OR ANY ACTION ARISING OUT
OF THE TRANSACTIONS CONTEMPLATED HEREBY, REGARDLESS OF WHICH PARTY
INITIATES SUCH ACTION OR ACTIONS.
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed
this Guaranty as of the date set forth above.
GUARANTOR
STYLES ON VIDEO, INC.
By: _________________________
Name: _______________________
Title: ______________________
<PAGE>
EXHIBIT L
SOV PLEDGE AGREEMENT
SOV PLEDGE AGREEMENT dated as of May 15, 1996 (as
amended from time to time, this "Agreement") between Styles on
Video, Inc., a Delaware corporation (the "Pledgor"), and
International Digital Investors, L.P.., a Delaware limited
partnership ("IDI"), for itself and as collateral agent for the
ratable benefit of the purchasers (the "Purchasers") listed on
the signature pages to that certain Note and Stock Purchase
Agreement, of even date herewith (the "Purchase Agreement"),
between the Pledgor, Forever Yours, Inc., a California
corporation and an 80% owned subsidiary of the Pledgor ("FYI"),
and the Purchasers.
R E C I T A L S
A. The Purchasers have agreed to purchase and the
Pledgor and FYI have agreed to issue and sell from time to time,
subject to the terms and conditions contained in the Purchase
Agreement, 10% Senior Notes due June 30, 1998 of the Pledgor and
FYI (the "Notes") and 500 shares of 10% Senior Series B
Convertible Preferred Stock, $.001 par value per share, of the
Pledgor (the "Series B Preferred Stock").
B. The Pledgor has guarantied the obligations of FYI
under the Purchase Agreement, the Notes and the Additional
Related Agreements pursuant to that certain General Continuing
Guaranty, of even date herewith (the "SOV Guaranty") by the
Pledgor in favor of the Purchasers, as beneficiaries
C. In connection with the Purchase Agreement, Dana I.
Arnold surrendered to FYI for cancellation, and FYI cancelled,
20,000 shares of the common stock of FYI representing 20% of the
issues and outstanding share of common stock of FYI, (the "Arnold
Shares").
D. After cancellation of the Arnold Shares, the
Pledgor is the owner of 100% of the issued and outstanding
capital stock of FYI as described in Schedule C (together with
any additional stock of FYI hereafter acquired by Pledgor, the
"Pledged Stock").
E. In consideration of the purchase of the Notes and
the Series B Preferred Stock by the Purchasers and as security
for the obligations of the Pledgor under the Purchase Agreement,
the Notes, the SOV Guaranty and the Additional Related
Agreements, the Pledgor has agreed to grant to IDI, as collateral
agent for the ratable benefit of the Purchasers, a security
interest in the collateral described herein, as set forth herein.
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE 1.
DEFINITIONS AND RELATED MATTERS
SECTION 1.1. DEFINITIONS. Terms with initial capital
letters not otherwise defined in this Agreement have the meanings
set forth in Exhibit A to the Purchase Agreement. In addition,
the following terms with initial capital letters have the
following meanings:
"AGREEMENT" is defined in the Preamble.
"APPLICABLE LAW" means all applicable provisions of all
(i) constitutions, treaties, statutes, laws, rules, regulations
and ordinances of any Governmental Authority, (ii) Governmental
Approvals and (iii) orders, decisions, judgments, awards and
decrees of any Governmental Authority.
"CHARGES" means all federal, state, county, city,
municipal or other taxes, levies, assessments or charges that, if
not paid when due, may result in a Lien of any Governmental
Authority against Collateral.
"COLLATERAL" is defined in Section 2.1
"CONTRACTUAL OBLIGATION" means, as applied to any
Person, any provision of any security issued by that Person or of
any indenture, mortgage, deed of trust, contract, undertaking,
agreement, or other instrument to which that Person is a party or
by which it or any of its owned properties is bound or to which
it or any of its owned properties is subject.
"DEFAULT" means any event that, after notice or lapse
of time or both, would become an Event of Default.
"EVENT OF DEFAULT" is defined in Section 5.1.
"FYI" is defined in the Recitals.
"GOVERNMENT APPROVAL" means an authorization, consent,
approval, permit, license, registration or filing with any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" with respect to any Person,
means any nation, any state or other political subdivision
thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of government.
"IDI" is defined in the Preamble.
"NOTES" is defined in the Recitals.
"PLEDGED STOCK" is defined in the Recitals.
"PLEDGOR" is defined in the Preamble.
"PROCEEDS" is defined in Section 2.1.5.
"PURCHASE AGREEMENT" is defined in the Preamble.
"PURCHASERS" is defined in the Preamble.
"SECURED OBLIGATIONS" is defined in Section 2.2
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITY INTEREST" is defined in Section 2.1
"SERIES B PREFERRED STOCK" is defined in the Recitals.
"SOV GUARANTY" is defined in the Recitals.
"SUPPLEMENTAL DOCUMENTATION" means financing
statements, continuation statements, consents, acknowledgments,
assignments, schedules of Collateral and any other instruments or
documents necessary or requested by IDI (i) to perfect and
maintain perfected the Security Interest in any Collateral or
(ii) to enable IDI to receive all interest, dividends and
distributions from time to time paid with respect to, and all
Proceeds of, all Collateral which the Collateral Agent is
entitled to receive hereunder.
"UCC" means the Uniform Commercial Code (as amended
from time to time) of the State of California.
SECTION 1.2. RELATED MATTERS.
1.2.1. TERMS USED IN THE UCC. Unless the context
clearly otherwise requires, all terms used and not otherwise
defined herein that are used or defined in Articles 9 or 8 (or
any equivalent subpart) of the UCC have the same meanings herein.
1.2.2. CONSTRUCTION. Unless the context of this
Agreement clearly requires otherwise, references to the plural
include the singular, the singular includes the plural, the part
includes the whole, and "including" is not limiting. The words
"hereof", "herein", "hereby", "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole (including the
Preamble, the Recitals and all Schedules and Exhibits) and not to
any particular provision of this Agreement. Article, section,
subsection, exhibit, recital, preamble and schedule references in
this Agreement are to this Agreement unless otherwise specified.
References in this Agreement to any agreement, other document or
law "as amended" or "as may be amended from time to time," or to
amendments of any document or law, shall include any amendments,
supplements, replacements, renewals or other modifications not
prohibited by the Additional Related Agreements.
1.2.3. GOVERNING LAW. Except to the extent otherwise
required under Applicable Law, the UCC shall govern the
attachment, perfection, priority and enforcement of the Security
Interest and all other matters to which the UCC applies pursuant
to the terms thereof. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California
(other than choice of law rules that would require the
application of the laws of any other jurisdiction).
1.2.4. HEADINGS. The Article and Section headings
used in this Agreement are for convenience of reference only and
shall not affect the construction hereof.
1.2.5. SEVERABILITY. If any provision of this
Agreement or any Lien or other right hereunder shall be held to
be invalid, illegal or unenforceable under Applicable Law in any
jurisdiction, such provision, Lien or other right shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity,
legality or enforceability of such provision, Lien or right in
any other jurisdiction.
ARTICLE 2.
THE SECURITY INTEREST; SECURED OBLIGATIONS
SECTION 2.1. SECURITY INTEREST. To secure the payment
and performance of the Secured Obligations as and when due, the
Pledgor hereby grants, conveys, pledges, assigns and transfers to
IDI, for itself and for the ratable benefit of the Purchasers, a
security interest (the "Security Interest") in, all right, title,
claim and interest of the Pledgor in and to the following
property, whether now owned and existing or hereafter acquired or
arising, and wherever located (such property being, collectively,
the "Collateral"):
2.1.1. The Pledged Stock and all certificates and
instruments representing or evidencing the Pledged Stock;
2.1.2. Any and all securities issued by any issuer of
the Pledged Stock, or any successor thereto, that the Pledgor
acquires or has the right to acquire from time to time in any
manner in substitution for or in addition to any of the foregoing
and any and all certificates and instruments representing or
evidencing such securities;
2.1.3. Any and all additions to or replacements of the
foregoing;
2.1.4. Any and all rights, powers, remedies and
privileges of the Pledgor under or with respect to any of the
foregoing; and
2.1.5. Any and all proceeds and products of any of the
foregoing, whether now held and existing or hereafter acquired or
arising, including any and all cash, securities, instruments and
other property from time to time paid, payable or otherwise
distributed in respect of or in exchange for any or all of the
foregoing (collectively, the "Proceeds"). "Proceeds" shall
include (i) any options, warrants, securities or other property
issued and delivered by the issuer of or obliger on any
Collateral as a stock dividend or distribution in connection with
any reclassification, increase or reduction of capital or issued
or delivered in connection with any merger or other
reorganization and (ii) any property received upon liquidation or
dissolution of any issuer of or obliger on any Collateral or upon
or in respect of any distribution of capital.
SECTION 2.2. SECURED OBLIGATIONS. The Security
Interest shall secure the due and punctual payment and
performance of any and all present and future obligations and
liabilities of the Pledgor of every type or description to IDI,
the Purchasers or any Person entitled to indemnification under
the Purchase Agreement, the Notes, the SOV Guaranty and any other
Additional Related Agreement:
2.2.1. arising under or in connection with the
Purchase Agreement, the Notes, or the SOV Guaranty, whether for
principal of or premium (if any) or interest on the Notes,
expenses, indemnities or other amounts (including attorneys' fees
and expenses); or
2.2.2. arising under or in connection with this
Agreement or any other Additional Related Agreement, including
for reimbursement of amounts permitted to be advanced or expended
by IDI or the Purchasers (i) to satisfy amounts required to be
paid by the Pledgor under this Agreement or any other Additional
Related Agreement for claims and Charges, together with interest
thereon to the extent provided or (ii) to maintain or preserve
any Collateral or to create, perfect, continue or protect any
Collateral or the Security Interest therein, or its priority; in
each case whether due or not due, direct or indirect, joint
and/or several, absolute or contingent, voluntary or involuntary,
liquidated or unliquidated, determined or undetermined, now or
hereafter existing, renewed or restructured, whether or not from
time to time decreased or extinguished and later increased,
created or incurred, whether or not arising after the
commencement of a proceeding under the Bankruptcy Code (including
post-petition interest) and whether or not recovery of any such
obligation or liability may be barred by a statute of limitations
or such obligation or liability may otherwise be unenforceable
(all obligations and liabilities described in this Section 2.2
are collectively referred to as the "Secured Obligations").
ARTICLE 3.
WARRANTIES AND REPRESENTATIONS
The Pledgor represents and warrants that all
representations and warranties made with respect to it, its
assets and its obligations in the Guaranty are true and correct
and makes the following additional representations and
warranties, all of which shall survive until termination of this
Agreement pursuant to Section 6.7.
SECTION 3.1. TITLE TO COLLATERAL: VALIDITY AND
PERFECTION OF SECURITY INTEREST; ABSENCE OF OTHER LIENS.
3.1.1. The Pledgor has good and marketable title to
all Collateral. The Security Interest constitutes a valid and,
upon delivery of all Pledged Stock to IDI pursuant to Section 4.1
and filing of financing statements covering the Collateral with
the appropriate Governmental Authorities, perfected Lien in all
of the Collateral that secures payment and performance of the
Secured Obligations.
3.1.2. Except as permitted under the Purchase
Agreement and the Existing Note Agreement (including the pledge
of the Pledged Stock made by Pledgor in connection therewith),
the Collateral is free and clear of all Liens other than the
Security Interest.
SECTION 3.2. REGARDING THE PLEDGED STOCK. Schedule C
sets forth the number of authorized and the number of issued
shares of each class of capital stock of the issuer of the
Pledged Stock. The Pledged Stock includes 80% of all issued and
outstanding shares of capital stock of FYI. All outstanding
capital stock of FYI has been duly authorized, validly issued and
is fully paid and non-assessable. There are no outstanding
options, warrants, convertible securities or other rights,
contingent or absolute, to acquire any capital stock of the
issuer, except as set forth on Schedule C and in Section 3.2(d)
of the Purchase Agreement.
ARTICLE 4.
COVENANTS AND AGREEMENTS
SECTION 4.1. DELIVERY OF PLEDGED STOCK. ETC.
4.1.1. The Pledgor has previously delivered to IDI in
connection with the Existing Note Agreement certificates or
instruments in respect of all Pledged Stock that existed on such
date, the physical possession of which is necessary in order for
the Security Interest to be perfected or delivery of which was
requested by IDI to assure the priority of the Security Interest
therein, and since such date of delivery to the date hereof,
Pledgor has not acquired any additional Pledged Stock. No other
Pledged Stock exists on the date hereof. The Pledgor shall
deliver to IDI promptly after acquisition thereof all Pledged
Stock acquired after the date hereof. All Pledged Stock
previously delivered is, and all Pledged Stock delivered in the
future shall be, in suitable form for transfer by delivery, or be
duly endorsed to the order of IDI or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and
substance satisfactory to IDI. Subject only to the revocable
right specified in Section 4.6, IDI shall have the right, at any
time in its discretion and without notice to the Pledgor, to
transfer to or to register in the name of IDI or its nominee any
or all the Collateral. It is expressly acknowledged that such
registration of the Collateral in the name of IDI or its nominee
is solely for the purpose of assuring that IDI receives all cash
and stock dividends and other property from time to time
distributed with respect to the Collateral and shall not be
deemed to constitute IDI the owner (beneficial or otherwise) of
any Collateral for any other purpose, except to the extent
contemplated by Section 4.6 or Article 5. Without limitation,
IDI shall not be deemed to "control" the Collateral or the issuer
thereof for purposes of any Applicable Laws (including
securities, environmental, tax, bankruptcy or other laws but
excluding the UCC) as a result of the Collateral being registered
in the name of IDI. In addition, IDI shall have the right at any
time to exchange certificates or instruments representing or
evidencing Pledged Stock for certificates or instruments of
smaller or larger denominations.
4.1.2. Without limiting Section 4.1.1, but subject to
Section 4.6.1.2, if the Pledgor receives or becomes entitled to
receive any securities issued by FYI, or any successor thereto,
in any manner in substitution for or in addition to the Pledged
Stock, or if the Pledgor shall become entitled to receive or
shall receive any securities or other property in addition to, in
substitution of, as a conversion of, or in exchange for, any of
the Pledged Stock or any other Collateral, the Pledgor shall
receive the same as the agent for IDI, and shall hold the same in
trust for and deliver the same promptly to IDI in the exact form
in which received, together with appropriate instruments of
transfer or assignments in blank, to be held by IDI as Collateral
hereunder.
SECTION 4.2. FURTHER ASSURANCES. The Pledgor shall,
at its own expense, perform such acts as may be necessary, or
that IDI may request at any time, to assure the attachment,
perfection and priority of the Security Interest, to exercise the
rights and remedies of IDI hereunder or to carry out the intent
of this Agreement. Without limitation, the Pledgor shall execute
and deliver (or cause any third party to execute and deliver) to
IDI, at any time and from time to time, all Supplemental
Documentation, in form and substance acceptable to IDI.
SECTION 4.3. POWER OF ATTORNEY. The Pledgor hereby
irrevocably appoints IDI and its employees and agents as the
Pledgor's true and lawful attorneys-in-fact, with full power of
substitution, to do all things (i) required to be done by the
Pledgor under this Agreement or the other Additional Related
Agreements and (ii) that IDI may reasonably deem necessary or
advisable to assure the attachment, perfection and first priority
(subject to the security interest granted to IDI in connection
with the Existing Note Agreement) of the Security Interest or
otherwise to exercise the rights and remedies of IDI hereunder or
carry out the intent of this Agreement (including by voting any
Collateral as contemplated by Section 4.6), in each case
irrespective of whether an Event of Default then exists (except
as otherwise provided herein) and at the Pledgor's expense.
Without limitation, IDI and its officers and agents shall be
entitled to do all of the following, as fully as the Pledgor
might:
4.3.1. to sign the name of the Pledgor on any
Supplemental Documentation and to deliver and file such
Supplemental Documentation to or with such Persons as IDI, in its
discretion, may elect; and
4.3.2. to affix, by facsimile signature or otherwise,
the general or special endorsement of the Pledgor, in such manner
as IDI shall deem advisable, to any Pledged Stock that has been
delivered to or obtained by IDI without appropriate endorsement
or assignment.
IDI shall be under no obligation whatsoever to take any
of the foregoing actions. Absent bad faith or willful
misconduct, IDI and its Affiliates, shareholders, directors,
officers, employees and agents shall have no liability or
responsibility for any act taken with respect thereto. A copy of
this Agreement and, if applicable, a statement by IDI that an
Event of Default exists shall be conclusive evidence of IDI's
right to act under this Section 4.3 as against all third parties.
SECTION 4.4. PAYMENT OF CHARGES AND CLAIMS. The
Pledgor shall pay (i) all Charges imposed upon any Collateral and
(ii) all claims that have become due and payable and, under
Applicable Law, have or may become Liens upon any Collateral, in
each case before any penalty shall be incurred with respect
thereto. If the Pledgor fails to pay or obtain the discharge of
any Charge, claim or Lien required to be paid or discharged under
this Section 4.4 and asserted against any Collateral, the Pledgor
shall so notify IDI and, regardless of whether such notice is
given, IDI may, at any time and from time to time, in its
discretion and without waiving or releasing any obligation of the
Pledgor under this Agreement, the Purchase Agreement or the other
Additional Related Agreements or waiving any Default or Event of
Default, make such payment, obtain such discharge or take such
other action with respect thereto as IDI deems advisable
SECTION 4.5. DUTY OF CARE; INDEMNIFICATION.
4.5.1. IDI shall not have any duty of care with
respect to the Collateral, other than an obligation to exercise
reasonable care with respect to Collateral in its possession;
provided that (i) IDI shall be deemed to have exercised
reasonable care if Collateral in its possession is accorded
treatment substantially comparable to that which IDI accords its
own property and (ii) IDI shall have no obligation to take any
actions to preserve rights against other parties with respect to
any Collateral. Without limitation, IDI shall (A) bear no risk
or expense with respect to any Collateral and (B) have no duty
with respect to calls, conversions, presentments, maturities,
notices or other matters relating to Collateral, or to maximize
interest or other returns with respect thereto.
4.5.2. The Pledgor hereby agrees to indemnify and hold
harmless IDI and its Affiliates, shareholders, directors,
officers, employees and agents against any and all claims,
actions, liabilities, costs and expenses of any kind or nature
whatsoever (including fees and disbursements of counsel) that may
be imposed on, incurred by, or asserted against any of them, in
any way relating to or arising out of this Agreement or any
action taken or omitted by them hereunder, except to the extent a
court holds in a final and nonappealable judgment that they
resulted from the gross negligence or willful misconduct of such
Persons against and from all such obligations and liabilities.
4.5.3. IDI may at any time deliver or redeliver the
Collateral or any part thereof to the Pledgor and the receipt of
any of the same by the Pledgor shall be complete and full
acquittance for the Collateral so delivered, and IDI thereafter
shall be discharged from any liability or responsibility
therefor.
SECTION 4.6. VOTING AND OTHER CONSENSUAL RIGHTS;
DISTRIBUTIONS.
4.6.1. So long as no Default shall exist:
4.6.1.1. The Pledgor shall be entitled to
exercise any and all voting rights pertaining to any Collateral,
for any purpose not inconsistent with the terms of this
Agreement, the Purchase Agreement and the other Additional
Related Agreements; provided, however, that the Pledgor shall not
exercise any such right if it would result in an Event of Default
or have a material adverse effect on any one or more of the
following: (i) the business, assets, prospects, results of
operations or financial condition of the Pledgor and FYI or (ii)
the ability of the Pledgor to perform its obligations hereunder
or under any other Additional Related Agreement to which it is a
party.
4.6.1.2. Except as otherwise provided herein and
subject to the terms of the Purchase Agreement and the SOV
Guaranty, the Pledgor shall be entitled to receive and retain and
use free of the Security Interest any and all cash and other
property paid or otherwise distributed in respect of the
Collateral; provided, however, that any and all (i) dividends and
other distributions paid or payable other than in cash or in the
form of Pledged Stock and (ii) cash paid upon or in respect of
any of the Pledged Stock upon or in respect of the liquidation or
dissolution of any issuer thereof or upon or in respect of any
distribution of capital or redemption or exchange of any Pledged
Stock, shall be delivered to IDI, in the exact form received, to
be held as Collateral hereunder.
4.6.2. So long as a Default shall exist, at the sole
option of IDI, any or all rights of the Pledgor to exercise
voting and other consensual rights and to receive cash and other
property distributed in respect of Collateral as permitted by
Sections 4.6.1.1 and 4.6.1.2 above, shall cease, and IDI, if and
when it notifies the Pledgor of the exercise of such option,
shall have the sole right to exercise any or all such voting
rights and receive and to hold as Collateral any or all such cash
and other property.
4.6.3. All cash and other property required to be
delivered to IDI hereunder shall, if received by the Pledgor, be
received in trust for the benefit of IDI, be segregated from the
other property of the Pledgor, and promptly be delivered to IDI
in the same form as so received (with any appropriate
endorsements or assignments).
SECTION 4.7. REGISTRATION RIGHTS.
4.7.1. The Pledgor agrees that, at any time following
the occurrence of an Event of Default, upon request of IDI and
without expense to IDI, it shall (or shall cause FYI to) at the
expense of Pledgor:
4.7.1.1. use its best efforts to obtain all
necessary Governmental Approvals for the sale by IDI of the
Collateral or any part thereof;
4.7.1.2. prepare, cause to be filed and use its
best efforts to cause to become effective with respect to the
Collateral, or any part thereof, one or more registration
statements under the Securities Act on Form S-1 (or such other
form for which the issuer of the Collateral then qualifies and
which is available for the sale of the Collateral in accordance
with the intended method of disposition thereof) or one or more
qualifications for exemption from registration or similar
documents under the Securities Act relating to any offering or
sale by IDI of such Collateral;
4.7.1.3. prepare, cause to be filed and use its
best efforts to cause to become effective with respect to the
Collateral, or any part thereof, such qualification statements or
similar documents (including any offering circular) as may be
necessary to have such Collateral qualified or registered under
the securities laws of such other jurisdictions (including the
applicable state securities or "Blue Sky" law), and to obtain
such Governmental Approvals for the sale of such Collateral, as
IDI may reasonably request in connection with any such offering
or sale;
4.7.1.4. include in any such registration
statement, qualification statement or similar document all
appropriate information relating to the transaction or
transactions in which IDI proposes to offer or sell such
Collateral;
4.7.1.5. cause to be filed such pre-effective and
post-effective amendments to each such registration statement,
qualification statement or similar document as may be necessary
to prevent any statement therein contained from being untrue or
misleading, and such filing, qualification or registration to be
kept effective for such period, up to a maximum of nine months,
as IDI may deem appropriate to facilitate the sale or other
disposition of such Collateral;
4.7.1.6. furnish IDI with such number of copies
of each such registration statement, qualification statement or
similar document, and any amendments thereto as IDI may request;
4.7.1.7. furnish to IDI a legal opinion from
counsel acceptable to IDI as to such matters regarding such
offering or sale as IDI may reasonably request; and
4.7.1.8. do such further acts and things as IDI
may deem necessary or advisable to effectuate the offering and
sale by IDI of such Collateral in compliance with Applicable Law.
4.7.2. The obligations of the Pledgor under this
Section 4.7 exist notwithstanding that the Pledgor thereby may be
obligated to prepare audited financial statements other than in
the ordinary course or otherwise to incur inconvenience and
expense. The costs and expenses of all registrations and
qualifications provided for hereunder shall be paid by the
Pledgor, including underwriting discounts and commissions, stock
transfer taxes, registration fees, filing fees, printing
expenses, reasonable costs of special audits incident to or
required as a result of any such registration, and reasonable
fees and disbursements of legal counsel for IDI selected by IDI.
4.7.3. The Pledgor shall notify IDI promptly after the
Pledgor shall receive notice that any registration statement,
qualification statement or similar document or any amendment
thereto requires amendment or has become the subject of a stop
order.
4.7.4. So long as any Secured Obligation remains
outstanding, the Pledgor's obligations hereunder are continuing
obligations of the Pledgor, and IDI shall be entitled to demand
registration of the Collateral, or any part thereof, (but only
once if such registration is effected), at any time while an
Event of Default shall exist and successively upon the occurrence
of an Event of Default following the curing or waiver of an
earlier Event of Default.
4.7.5. The Pledgor agrees to indemnify and hold
harmless IDI and each underwriter (within the meaning of the
Securities Act) acting in the transaction, and each Person
controlling (within the meaning of the Securities Act) IDI or
such underwriter, from and against any and all claims, actions,
liabilities, costs and expenses (including reasonable legal fees
and expenses) based upon or arising out of any actual or alleged
untrue statement of a material fact contained in any such
registration statement, qualification statement or similar
document, or part thereof, or any actual or alleged omission to
state a material fact required to be stated in any such document,
or part thereof, or necessary to make the statements contained
therein not misleading; provided, however, that the Pledgor shall
not have any liability to any Person under the foregoing
indemnity on account of any actual or alleged untrue or
misleading statement contained in, or any actual or alleged
omission from, any information furnished in writing to the
Pledgor by such Person specifically for use in such document and
included thereon in reliance therein.
4.7.6. If the indemnification provided for in Section
4.7.5 is unavailable to or otherwise insufficient to hold
harmless an indemnified party hereunder in respect of any claims,
actions, liabilities, costs or expenses referred to herein, then
the Pledgor, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such
indemnified party as a result of such claims, actions,
liabilities, costs or expenses in such proportion as is
appropriate to reflect the relative fault of the Pledgor, IDI and
each underwriter in connection with the statements or omissions
that resulted in such claims, actions, liabilities, costs or
expenses, as well as any other relevant equitable considerations.
4.7.7. The Pledgor agrees that (i) exercise of
registration and other rights provided in this Section 4.7 is not
required in connection with any exercise of remedies under
Article 5 of this Agreement, (ii) such rights may be exercised or
not exercised in the discretion of IDI and (iii) any request for
exercise of such rights may be withdrawn in whole or in part at
any time by IDI in its discretion. The registration and other
rights provided in this Section 4.7 may be transferred to any
purchaser of the Collateral, or any portion thereof, at any sale
described in Article 5. IDI may exercise its rights and powers
under this Section 4.7.7 prior to any sale pursuant to Article 5
or, alternatively, IDI may assign such rights to the purchaser at
any such sale, who shall then have the registration and other
rights specified herein.
ARTICLE 5.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
SECTION 5.1. EVENT OF DEFAULT. The occurrence of one
or more "Events of Default" (as defined in the Purchase Agreement
or the Notes) shall constitute an "Event of Default" hereunder
SECTION 5.2. REMEDIES. If there occurs an Event of
Default, whether or not all the Secured Obligations shall have
become immediately due and payable:
5.2.1. In addition to all its other rights, powers and
remedies under this Agreement and Applicable Law, IDI shall have,
and may exercise, any and all of the rights, powers and remedies
of a secured party under the UCC, all of which rights, powers and
remedies shall be cumulative and not exclusive, to the extent
permitted by Applicable Law.
5.2.2. IDI shall have the right, all at IDI's sole
option and as IDI in its discretion may deem necessary or
advisable, to do any or all of the following:
5.2.2.1. to foreclose the Security Interest by
any available judicial procedure or without judicial process;
5.2.2.2. to notify obligers on the Collateral
that the Collateral has been assigned to IDI and that all
payments thereon are to be made directly and exclusively to or as
specified by IDI;
5.2.2.3. to collect by legal proceedings or
otherwise all dividends, distributions, interest, principal or
other sums now or hereafter payable upon or on account of the
Collateral;
5.2.2.4. to enter into any extension or
reorganization agreement or any other agreement relating to or
affecting the Collateral and, in connection therewith, deposit or
surrender control of any Collateral or accept other property in
exchange therefor;
5.2.2.5. to settle, compromise or release, on
terms acceptable to IDI, in whole or in part, any amounts owing
on the Collateral or any disputes with respect thereto;
5.2.2.6. to receive, open and dispose of all mail
addressed to the Pledgor and notify postal authorities to change
the address for delivery thereof to such address as IDI may
designate, provided that IDI agrees that it will promptly deliver
over to the Pledgor any such opened mail as does not relate to
the Collateral; and
5.2.2.7. to exercise any and all other rights,
powers, privileges and remedies of an owner of the Collateral,
including rights of conversion, exchange or subscription or other
rights or upon the exercise by the Pledgor or IDI of any right,
power or privilege pertaining to the Collateral, the right to
deposit and deliver any and all of the Collateral to any
committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as IDI may
determine to be appropriate, all without liability except to
account for property actually received by it, but IDI shall have
no duty to the Pledgor to exercise any such right, power or
privilege and shall not be responsible for any failure so to do
or delay in so doing.
5.2.3. IDI shall have the right to sell or otherwise
dispose of all or any Collateral at public or private sale or
sales, with such notice as may be required by Section 5.4, in
lots or in bulk, at any exchange, over the counter or at any of
IDI's offices or elsewhere, for cash or on credit, with or
without representations or warranties, all as IDI, in its
discretion, may deem advisable. The Collateral need not be
present at any such sales. If sale of all or any part of the
Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by IDI until the sale price is
paid by the purchaser thereof, but IDI shall not incur any
liability in case any such purchaser shall fail to take up and
pay for the Collateral so sold and, in case of any such failure,
such Collateral may be sold again upon like notice. IDI shall
not be obligated to make any sale of the Collateral regardless of
notice of sale having been given. IDI may purchase all or any
part of the Collateral at public or, if permitted by Applicable
Law, private sale, and in lieu of actual payment of the purchase
price, IDI may apply against such purchase price any amount of
the Secured Obligations. The Pledgor agrees that any sale of
Collateral conducted by IDI in accordance with the foregoing
provisions of this Section shall be deemed to be a commercially
reasonable sale under Section 9-504 of the UCC.
5.2.4. IDI shall not be required to register or
qualify any of the Collateral that constitutes securities under
applicable state or federal securities laws in connection with
any sale or other disposition thereof if such disposition is
effected in a manner that complies with all applicable federal
and state securities laws. IDI shall be authorized, with respect
to any disposition that is not so registered or qualified, to
restrict (if it deems it advisable to do so) the prospective
bidders or purchasers to persons who will represent and agree
that they are "accredited investors" or "qualified institutional
buyers" under Applicable Law and/or purchasing the Collateral for
their own account for investment and not with a view to the
distribution or sale thereof. If any such Collateral is sold at
private sale, the Pledgor agrees that if such Collateral is sold
in a manner that IDI in good faith believes to be reasonable
under the circumstances then existing, then (i) the sale shall be
deemed to be commercially reasonable in all respects, (ii) the
Pledgor shall not be entitled to a credit against the Secured
Obligations in an amount in excess of the purchase price, and
(iii) IDI shall not incur any liability or responsibility to the
Pledgor in connection therewith, notwithstanding the possibility
that a substantially higher price might have been realized at a
public sale. The Pledgor recognizes that a ready market may not
exist for such Collateral if it is not regularly traded on a
recognized securities exchange, and that a sale by IDI of any
such Collateral for an amount substantially less than the price
that might have been achieved had the Collateral been so traded
may be commercially reasonable in view of the difficulties that
may be encountered in attempting to sell Collateral that is
privately traded.
SECTION 5.3. APPLICATION OF PROCEEDS.
5.3.1. Subject to the Lien thereon granted pursuant to
the Existing Collateral Documents, any cash proceeds received by
IDI in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral following the
occurrence of an Event of Default may be held by IDI as
Collateral and/or then or at any time thereafter applied as
follows:
5.3.1.1. first, to IDI to pay all advances,
charges, costs and expenses payable to IDI pursuant to Section
6.1; and
5.3.1.2. second, to pay the Secured Obligations
in the order determined by IDI.
5.3.2. The Pledgor and any other Person then obligated
therefor shall pay to IDI on demand any deficiency with regard to
the Secured Obligations that may remain after such sale,
collection or realization of, from or upon the Collateral.
5.3.3. Payments received from any third party on
account of any Collateral shall not reduce the Secured
Obligations until paid in cash to IDI. The application of
proceeds by IDI shall be without prejudice to IDI' rights as
against the Pledgor or other Persons with respect to any Secured
Obligations that may then be or remain unpaid.
5.3.4. If at any time after an Event of Default the
Pledgor receives any collections upon or other Proceeds of any
Collateral, whether in the form of cash, notes or otherwise, such
Proceeds shall be received in trust for IDI and the Pledgor shall
keep all such Proceeds separate and apart from all other funds
and property so as to be capable of identification as the
property of IDI and promptly deliver such Proceeds to IDI in the
identical form received.
SECTION 5.4. NOTICE OF SALE. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, IDI will send or
otherwise make available to the Pledgor reasonable notice of the
time and place of any public sale or of the time on or after
which any private sale of any Collateral is to be made. The
Pledgor agrees that any notice required to be given by IDI of a
sale or other disposition of Collateral, or any other intended
action by IDI, that is received in accordance with the provisions
set forth in Section 6.4 five days prior to such proposed action
shall constitute commercially reasonable and fair notice thereof
to the Pledgor. IDI may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor
and such sale may, without further notice, be made at the time
and place to which it was so adjourned. The Pledgor hereby
waives any right to receive notice of any public or private sale
of any Collateral except as expressly provided for in this
Section 5.4.
ARTICLE 6.
GENERAL
SECTION 6.1. IDI'S EXPENSES, INCLUDING ATTORNEYS'
FEES. Regardless of the occurrence of an Event of Default, the
Pledgor agrees to pay to IDI any and all advances, charges, costs
and expenses, including the reasonable fees and expenses of
counsel and any experts or agents, that IDI may reasonably incur
in connection with (i) the administration of this Agreement,
including any amendment hereto, or any workout or restructuring,
(ii) the creation, perfection or continuation of the Security
Interest or protection of its priority or the Collateral,
including the discharging of any prior or junior Lien or adverse
claim against the Collateral or any part thereof, (iii) the
custody, preservation or sale of, collection from, or other
realization upon, any of the Collateral, (iv) the exercise or
enforcement of any of the rights, powers or remedies of IDI under
this Agreement or under Applicable Law (including attorneys' fees
and expenses incurred by IDI in the collection of Collateral
deposited with IDI and amounts incurred in connection with the
operation, maintenance or foreclosure of the Security Interest)
or any bankruptcy proceeding or (v) the failure by the Pledgor to
perform or observe any of the provisions hereof. All such
amounts and all other amounts payable hereunder shall be payable
on demand, together with interest for the period following such
demand at a rate of interest equal to the lesser of (i) 10% per
annum (based on a year of 365 or 366 days, as the case may be),
or (ii) the maximum rate of allowed by Applicable Law, from and
including the due date to and excluding the date of payment.
SECTION 6.2. AMENDMENTS AND OTHER MODIFICATIONS. No
amendment of any provision of this Agreement (including a waiver
thereof or consent relating thereto) shall be effective unless
the same shall be in writing and signed by IDI. Any waiver or
consent relating to any provision of this Agreement shall be
effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Pledgor
in any case shall entitle the Pledgor to any other or further
notice or demand in similar or other circumstances.
SECTION 6.3. CUMULATIVE REMEDIES; FAILURE OR DELAY.
The rights and remedies provided for under this Agreement are
cumulative and are not exclusive of any rights and remedies that
may be available to IDI under Applicable Law, the other
Additional Related Agreements or otherwise. No failure or delay
on the part of IDI in the exercise of any power, right or remedy
under this Agreement shall impair such power, right or remedy or
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or remedy preclude
other or further exercise of such or any other power, right or
remedy.
SECTION 6.4. NOTICES. All notices and other
communications under this Agreement shall be in writing and shall
be personally delivered or sent by prepaid courier, by overnight,
registered or certified mail (postage prepaid) or by prepaid
telex, telecopy or telegram, and shall be deemed given when
received by the intended recipient thereof. Unless otherwise
specified in a notice given in accordance with the foregoing
provisions of this Section 6.4, notices and other communications
shall be given to the parties hereto at their respective
addresses (or to their respective telex or telecopier numbers)
set forth on the signature pages to the Purchase Agreement.
SECTION 6.5. SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and, subject to the next sentence, inure to
the benefit of the Pledgor and IDI and their respective
successors and assigns. The Pledgor shall not assign or transfer
any of its rights or obligations hereunder without the prior
written consent of IDI. The benefits of this Agreement shall
pass automatically with any assignment of the Secured Obligations
(or any portion thereof), to the extent of such assignment.
SECTION 6.6. PAYMENTS SET ASIDE. Notwithstanding
anything to the contrary herein contained, this Agreement, the
Secured Obligations and the Security Interest shall continue to
be effective or be reinstated, as the case may be, if at any time
any payment, or any part thereof, of any or all of the Secured
Obligations is rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be restored or returned
by IDI in connection with any bankruptcy, reorganization or
similar proceeding involving the Pledgor, any other party liable
with respect to the Secured Obligations or otherwise, if the
proceeds of any Collateral are required to be returned by IDI
under any such circumstances or if IDI reasonably elects to
return any such payment or proceeds or any part thereof in its
discretion, all as though such payment had not been made or such
proceeds not been received. Without limiting the generality of
the foregoing, if prior to any such rescission, invalidation,
declaration, restoration or return, this Agreement shall have
been canceled or surrendered or the Security Interest or any
Collateral shall have been released or terminated in connection
with such cancellation or surrender, this Agreement and the
Security Interest and such Collateral shall be reinstated in full
force and effect, and such prior cancellation or surrender shall
not diminish, discharge or otherwise affect the obligations of
the Pledgor in respect of the amount of the affected payment or
application of proceeds, the Security Interest or such
Collateral.
SECTION 6.7. CONTINUING SECURITY INTEREST;
TERMINATION. This Agreement shall create a continuing security
interest in the Collateral and, except as provided below, the
Security Interest and all agreements, representations and
warranties made herein shall survive until, and this Agreement
shall terminate, the Pledged Stock shall be released from the
Security Interest, and the certificates representing the Pledged
Stock shall be returned to the Pledgor only upon, the
indefeasible payment in full of the Secured Obligations. Any
investigation at any time made by or on behalf of IDI shall not
diminish the right of IDI to rely on any such agreements,
representations or warranties herein.
Notwithstanding anything in this Agreement or
Applicable Law to the contrary, the agreements of the Pledgor set
forth in Sections 4.5.2 and 6.1 shall survive the payment of all
other Secured Obligations and the termination of this Agreement.
SECTION 6.8. CHOICE OF FORUM.
6.8.1. All actions or proceedings arising in
connection with this Agreement shall be tried and litigated in
state or Federal courts located in the County of Los Angeles,
City of Los Angeles, State of California, unless such actions or
proceedings are required to be brought in another court to obtain
subject matter jurisdiction over the matter in controversy. EACH
OF THE PLEDGOR AND IDI WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS NOT
SUBJECT TO THE JURISDICTION OF SUCH COURTS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 6.8.1.
6.8.2. Nothing contained in this Section 6.8 shall
preclude IDI from bringing any action or proceeding arising out
of or relating to this Agreement in the courts of any place where
the Pledgor or any of its assets may be found or located. TO THE
EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION,
THE PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR COURTS THAT
NOW OR HEREAFTER, BY REASON OF SUCH PARTY'S PRESENT OR FUTURE
DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT.
SECTION 6.9. WAIVER AND ESTOPPEL. Except as otherwise
provided in this Agreement, the Pledgor hereby waives: (i)
presentment, protest, notice of dishonor, release, compromise,
settlement, extension or renewal and any other notice of or with
respect to the Secured Obligations and hereby ratifies and
confirms whatever IDI may do in this regard; (ii) notice prior to
taking possession or control of any Collateral or any bond or
security that might be required by any court prior to allowing
IDI to exercise any of their rights, powers or remedies; (iii)
the benefit of all valuation, appraisement, redemption and
exemption laws; (iv) any rights to require marshaling of the
Collateral upon any sale or otherwise to direct the order in
which the Collateral shall be sold; (v) any set-off; and (vi) any
rights to require IDI to proceed against any Person, proceed
against or exhaust any Collateral or any other security interests
or guaranties or pursue any other remedy in IDI's power, or to
pursue any of such rights in any particular order or manner, and
any defenses arising by reason of any disability or defense of
any Person.
SECTION 6.10. EXECUTION IN COUNTERPARTS. This
Agreement may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be
deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
SECTION 6.11. COMPLETE AGREEMENT. This Agreement,
together with the exhibits and schedules hereto and the other
Additional Related Agreements, is intended by the parties as a
final expression of their agreement regarding the subject matter
hereof and as a complete and exclusive statement of the terms and
conditions of such agreement.
SECTION 6.12. LIMITATION OF LIABILITY. No claim shall
be made by the Pledgor against IDI or the Affiliates,
shareholders, directors, officers, employees or agents of IDI for
any special, indirect, consequential or punitive damages in
respect of any claim for breach of contract or under any other
theory of liability arising out of or related to the transactions
contemplated by this Agreement, the Purchase Agreement, the SOV
Guaranty and the other Additional Related Agreements, or any act,
omission or event occurring in connection therewith; and the
Pledgor hereby waives, releases and agrees not to sue upon any
claim for any such damages, whether or not accrued and whether or
not known or suspected to exist in its favor.
SECTION 6.13. WAIVER OF TRIAL BY JURY. THE PLEDGOR
AND IDI WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER
THIS AGREEMENT OR ANY OTHER ADDITIONAL RELATED AGREEMENT OR ANY
ACTION ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR
ACTIONS.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed asked delivered as of the date
first set forth above.
PLEDGOR
Styles On Video, Inc.,
a Delaware corporation
By:
Name:
Title:
PLEDGOR
International Digital
Investors, L.P., a Delaware
limited partnership
By: IDI Corp., a Delaware
corporation, its general
partner
By:
Name:
Title:
<PAGE>
SCHEDULE C
PLEDGED STOCK
80,000 shares of common stock of Forever Yours Inc. evidenced by
stock certificate number 2.
<TABLE>
<CAPTION>
CAPITALIZATION OF THE ISSUER
<S> <C> <C>
Class of Stock Number of Authorized Shares Number of Issued
Shares
Common 10,000,000 80,000
</TABLE>
<PAGE>
EXHIBIT M
The final version of the Series C Warrant Certificate
(the Arnold Warrant) is included as Exhibit C to the
First Amendment to Additional Note and Preferred Stock
Purchase Agreement, which is included as Exhibit I to
this Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT N
DYCAM OVERRIDE DEFERRAL AGREEMENT
THIS DYCAM OVERRIDE DEFERRAL AGREEMENT (this
"Agreement"), dated as of May 15, 1996, is entered into by and
among Dycam, Inc., a Delaware corporation ("Dycam"), Forever
Yours, Inc., a California corporation ("FYI"), Styles on Video,
Inc., a Delaware corporation ("SOV"; and, together with FYI, the
"Companies"), and International Digital Investors, L.P. ("IDI")
with reference to the following facts:
WITNESSETH:
WHEREAS, Dycam and FYI are parties to a letter
agreement dated April 12, 1995 (the "Original Letter Agreement"),
as modified by a subsequent letter agreement, dated as of May 10,
1995 (as so modified, the "Letter Agreement"), a copy of which is
attached hereto as Appendix A;
WHEREAS, Section 6 of the Original Letter Agreement
provides that "FYI will pay to Dycam 7.5% (Camera Technology
License and Maintenance Fee "CTLMF") of the Gross Commissionable
Revenues (Net sales as defined for commissions to hospitals on
the FYI program) for all U.S. hospitals installed with the FYI
Digital Camera System built by Dycam," (the "U.S. CTLMF Fee"),
which U.S. CTLMF Fee "shall be issued concurrent with commission
payments issued to FYI hospitals for similar periods, but in no
case later than 45 days after the close of the month in which
commissionable sales occurred.";
WHEREAS, Section 7 of the Original Letter Agreement
provides that "FYI will pay to Dycam each month a sum equal to
7.5% (Camera Technology License and Maintenance Fee "CTLMF") of
the gross revenues for all non U.S. hospitals served by FYI with
the FYI Digital Camera System built by Dycam," (the "Non-U.S.
CTLMF Fee"), which Non-U.S. CTLMF Fee "shall be issued no later
than 45 days after receipt of good funds by FYI for such foreign
activities.";
WHEREAS, the Companies and IDI have entered into a Note
and Preferred Stock Purchase Agreement dated as of November 20,
1995 (as amended, the "Existing Note Purchase Agreement");
WHEREAS, the Companies and IDI have entered into a Note
and Preferred Stock Purchase Agreement dated as of May 14, 1996
(as amended, the "Additional Note Purchase Agreement";
capitalized terms used herein without definition having the
meanings given thereto in the Additional Note Purchase Agreement
unless the context requires otherwise);
WHEREAS, it is a condition to the closing of the Note
Purchase Agreement that this Agreement be entered into in order
to, among other things, modify Sections 6 and 7 of the Letter
Agreement;
WHEREAS, the respective Boards of Directors of Dycam,
FYI and SOV have independently determined that it will be in the
best interest of Dycam, FYI and SOV, respectively, to enter into
this Agreement on the terms set forth herein.
NOW, THEREFORE, in consideration of the conditions and
covenants contained herein and for other good and valuable
consideration, the parties hereto do hereby agree as follows:
1. Override Deferral. (a) Subject to the
satisfaction or waiver of the conditions set forth in Section 2
below, Dycam and FYI hereby agree that from May 1, 1996 until the
earlier of (i) the end of the first month after the date hereof
in which FYI has positive Operating Cash Flow (as defined in the
Note Purchase Agreement) (the amount of such positive Operating
Cash Flow, if any, is hereinafter referred to as the "Available
Amount") and (ii) April 30, 1997 (the earlier of such dates being
the "Final Deferral Date"), payment by FYI of the U.S. CTLMF Fee
otherwise due and payable in any month pursuant to Section 6 of
the Original Letter Agreement shall be deferred (such deferred
amounts, the "U.S. Deferred Override Amounts"). The U.S.
Deferred Override Amounts shall not bear interest. Subject to
Sections 3 and 4, all U.S. Deferred Override Amounts shall be
paid on a cumulative basis at the end of each month after the
Final Deferral Date to the extent and only to the extent of the
Available Amount, if any, for such month.
(b) Subject to the satisfaction or waiver of the
conditions set forth in Section 2 below, Dycam and FYI hereby
agree that from the date hereof until the Final Deferral Date,
payment by FYI of the Non-U.S. CTLMF Fee otherwise due and
payable in any month pursuant to Section 7 of the Original Letter
Agreement shall be deferred (such deferred amounts, the "Non-U.S.
Deferred Override Amounts" and, together with the U.S. Deferred
Override Amounts, the "Deferred Amounts"). The Non-U.S. Deferred
Override Amounts shall not bear interest. Subject to Sections 3
and 4, all Non-U.S. Deferred Override Amounts shall be paid on a
cumulative basis at the end of each month after the Final
Deferral Date to the extent and only to the extent of the
Available Amount, if any, for such month.
(c) Until all Deferred Amounts shall have been paid,
FYI shall provide Dycam a monthly report setting forth in
reasonable detail the Operating Cash Flow of FYI during such
month.
2. Conditions Precedent. Dycam's obligations set
forth in Section 1 above shall be subject to the satisfaction or
waiver of the following condition:
(i) All accrued and unpaid interest and late
payment penalties on outstanding indebtedness owing
from SOV to Dycam as of the date hereof, shall have
been paid in full pursuant to the terms of that certain
Promissory Note in favor of Dycam dated June 25, 1995,
as amended November 9, 1995.
3. Repair of Cameras. FYI and Dycam hereby agree
that from the date hereof until the Final Deferral Date, Dycam
shall provide to FYI at the end of each month an invoice of all
Qualified Fees (as defined below) incurred during such month and
FYI shall pay such invoices in accordance with its customary
payment practices; provided that FYI shall not pay any such
amounts in excess of the Deferred Amounts then outstanding, and
any such excess shall be included in the invoice submitted by
Dycam for the following month. Upon payment of such Qualified
Fees, the outstanding amount of the Deferred Amounts shall be
reduced by the amount so paid. For purposes of this Section
"Qualified Fees" shall mean fees approved pursuant to a purchase
order from FYI to Dycam and shall equal direct costs of
materials, labor and other expenses directly related to all sales
of cameras, engineering services and maintenance services on
cameras pursuant to the Letter Agreement.
4. Intercreditor Agreement. The Companies, IDI and
Dycam hereby agree that (i) notwithstanding any agreement to the
contrary entered into through the date hereof, or time of
granting or of perfection of any security interest or lien or the
time of filing of any financing statement, Dycam shall have a
first priority security interest in all installed camera systems,
and the proceeds thereof including insurance proceeds ("Dycam
Collateral"), leased or sold on installment terms by Dycam to FYI
through the date hereof and (ii) if the Available Amount for any
month is not sufficient to pay (a) all interest then due and
payable or previously deferred on the Existing Notes and the
Additional Notes and (b) the Deferred Amounts, then the Available
Amount shall be paid to IDI and Dycam on a pro rata basis based
on the relative amounts described in clauses (a) and (b) above.
IDI agrees that it will not interfere in any manner with Dycam's
security interests in and liens upon the Dycam Collateral, and
IDI agrees to not enforce its junior security interest in the
Dycam Collateral so long as any obligations owing by FYI to Dycam
with respect thereto remain outstanding and unpaid. The
subordination herein provided is solely for the benefit of Dycam
and there are no other parties (including FYI) who are intended
to be benefited hereby. The subordination herein provided shall
be binding upon the successors and assigns of IDI, and shall
inure to the benefit of the successors and assigns of Dycam.
Concurrently herewith IDI shall execute and deliver to Dycam any
such Uniform Commercial Code Financing Statement Amendments as
Dycam shall reasonably require, reflecting the subordination
herein provided, and IDI irrevocably authorizes Dycam to file the
same in the appropriate filing office(s).
5. Prism Project. The Companies, IDI and Dycam
hereby agree that the development of the Prism project shall be
funded by the Companies and IDI on terms and conditions to be
negotiated in good faith among the Companies, IDI and Dycam;
provided, however, that in no event shall such amounts be funded
prior to the date on which the Gross Cash Proceeds of the
Accounting Claims shall have been released from the Escrow
Account and applied in accordance with Section 2.3(d) of the
Additional Note Agreement (the "Escrow Release Date").
6. Payment of Accrued Amounts. All accounts payable
owing from FYI to Dycam as of the date hereof, including all
license fees accrued through the first quarter of 1996, shall be
paid in full as follows:
(i) $10,000 of such amounts shall be paid on the
date on which all of the conditions set forth in
Section 2 of the First Amendment to Additional Note
Purchase Agreement dated as of May 15, 1996, have been
satisfied and IDI shall have purchased the second
tranche of Additional Notes on such date;
(ii) $15,000 of such amounts shall be paid on June
15, 1996 if the Investor purchases Additional Notes
pursuant to Schedule 1.1 of the Additional Note
Purchase Agreement on such date; and
(iii) any remaining amounts shall be paid on
the Escrow Release Date if funds shall have been
released from the Escrow Account to the Companies in
accordance with the Additional Note Purchase Agreement,
or, if no such funds have been released to the
Companies, within 15 days of the Escrow Release Date.
For purposes of this Section 6, any payment made within
two Business Days from the date on which such payment is
otherwise due pursuant to this Section 6 shall be deemed to have
been made on the date such payment is due.
7. Effect of Modification. The modifications made to
the Letter Agreement pursuant to this Agreement shall not affect
the remaining provisions of the Letter Agreement and such
remaining provisions shall continue in full force and effect.
8. Representations. Each of SOV, FYI and Dycam
hereby represents and warrants that the execution, delivery and
performance by it of this Agreement and the consummation by it of
the transactions contemplated herein, have been duly authorized
by all necessary corporate action. Dycam hereby represents and
warrants that this Agreement and the consummation by it of the
transactions contemplated herein have been approved by a
unanimous vote of all directors who are not affiliated with
either FYI or SOV.
9. Third Party Beneficiary. Dycam and FYI hereby
expressly acknowledge and agree that IDI shall be, and have all
the rights of, a third party beneficiary of this Agreement,
including, without limitation, the right to enforce this
Agreement either in law or in equity for its benefit.
10. Choice of Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California applicable to contracts made and performed in such
State and without regard to conflicts of law doctrines.
11. Section Headings. Section and other headings
contained in this Agreement are for convenience of reference only
and shall not affect in any way the meaning or interpretation of
this Agreement.
12. Counterparts. This Agreement and any amendment
hereto may be executed in one or more counterparts. All of such
counterparts shall constitute one and the same agreement and
shall become effective when a copy signed by each party has been
delivered to the other party.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
DYCAM, INC.
By:
Name:
Title:
FOREVER YOURS, INC.
By:
Name:
Title:
STYLES ON VIDEO, INC.
By:
Name:
Title:
INTERNATIONAL DIGITAL INVESTORS,
L.P.
By: IDI Corp.
By:
Name:
Title:
<PAGE>
EXHIBIT O
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into as of the 15th day of May,
1996, by and between Forever Yours, Inc., a California
corporation (the "Company") and Dana I. Arnold ("Officer").
RECITALS
A. The Company owns all of the assets of and operates a
hospital newborn baby digital imaging business. Officer has
significant experience in the newborn baby photo business.
B. The Company and Officer previously entered into an
Employment Agreement dated as of April 5, 1994 (the "Existing
Employment Agreement").
C. The Company, Styles on Video, Inc., a Delaware
corporation and the owner of 100% of the capital stock of the
Company ("SOV") and International Digital Investors, L.P., a
Delaware limited partnership ("IDI"), entered into a Note and
Preferred Stock Purchase Agreement, dated as of May 14, 1996 (the
"Note Purchase Agreement"; all capitalized terms used herein
without definition having the meanings given thereto in the Note
Purchase Agreement").
D. One of the conditions to the closing of the Note
Purchase Agreement is the execution and delivery of this
Agreement.
E. Pursuant to the Note Purchase Agreement, the Company
and Officer desire to amend and restate the Existing Employment
Agreement in its entirety pursuant to this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals
and the terms, covenants and conditions contained herein, the
Company and Officer agree as follows:
1. EMPLOYMENT.
Company hereby employs Officer, and Officer hereby accepts
such employment, as Chairman of the Board, Chief Executive
Officer, President and Secretary of the Company, on the terms and
subject to the conditions set forth herein.
2. CAPACITY AND DUTIES.
2.1 Officer shall be employed as and shall serve the
Company as its Chairman of the Board, Chief Executive Officer,
President and Secretary and shall report directly to the Board of
Directors of the Company (the "Board of Directors").
2.2 Subject to the direction and control of the Board of
Directors, Officer shall have the full authority and
responsibility to operate and manage, on a day to day basis, the
business and affairs of the Company, and shall perform such other
duties and responsibilities as are currently prescribed by the
Bylaws of the Company and which are customarily vested in the
office of chief executive officer and president of a corporation,
including the accomplishment or performance of all services,
acts, or things necessary or advisable to manage and conduct the
day-to-day business of the Company, including the hiring and
firing of all employees other than officers, subject at all times
to the limitations set forth in this Agreement and to policies
set by the Board of Directors. So long as Officer serves as a
member of the Board of Directors of the Company and should he
agree to serve as a member of the Board of Directors of any
affiliate of the Company, Officer will serve in such capacities
without any additional compensation.
2.3 Officer shall cause to be kept and maintained complete
and accurate books and records of all the business transactions,
test marketing results and other business conducted or services
performed by the Company, and shall cause to be prepared and
filed any reports with appropriate agencies as required by
applicable law.
2.4 Officer shall prepare, or cause to be prepared, an
annual operating and capital budget for each calendar year in
such form and detail as may be required by the Board of
Directors. Officer shall operate the business of the Company
within the parameters of the budget which is prepared for each
year and approved by the Company's Board of Directors (the
"Approved Budget"), subject, however to any revisions or changes
as may thereafter be made to the Approved Budget by the Board of
Directors. Officer shall first obtain the approval of the Board
for any deviations from the Approved Budget (as revised or
changed from time to time) and this Agreement.
2.5 Officer shall cause to be prepared and filed any
reports with appropriate agencies as required by applicable law.
2.6 Officer shall devote his business time, energy and
efforts faithfully and diligently to promote the Company's
interests.
2.7 The terms of this Section 2 shall not prevent the
Officer from investing or otherwise managing his assets and other
businesses not in direct or indirect competition with the Company
as determined by the Board of Directors in such form or manner as
he chooses and spending such time, whether or not during business
hours, as he deems necessary to manage his businesses, so long as
he is able to fulfill his duties pursuant to Section 2 above.
2.8 Except for routine travel incident to the business of
the Company, Officer shall perform his duties and obligations
under this Agreement principally from an office provided by the
Company in Los Angeles, California or the surrounding area.
3. TERM.
This Agreement shall be effective as of May 15, 1996 (the
"Effective Date") and shall terminate, unless sooner terminated
as provided in this Agreement, on May 15, 1998 (the "Term").
4. COMPENSATION.
4.1 Base Salary.
4.1.1 As compensation for services rendered under
this Agreement, the Company shall pay to Officer a base salary
(the "Base Salary") as set forth in Section 4.1.2 below during
the term of this Agreement, payable in accordance with the normal
payroll procedures of the Company.
4.1.2 During the term of this Agreement, Officer's
Base Salary shall be as follows:
Officer's Base Salary shall initially be a monthly salary at
an annual rate of $100,000. At the end of any two
consecutive month period in which the Combined Operating
Cash Flow for each such month (after payment of (i) all
current and deferred Override amounts owed to Dycam, Inc.
("Dycam"), (ii) all current, accrued and deferred interest
with respect to the Additional Notes and the Existing Notes
and (iii) all amounts due under the Brymarc Consulting
Agreement) is positive, Officer's monthly salary shall be
increased to an annual rate of $175,000, provided that the
annual rate shall be reduced to $100,000 at the end of any
two consecutive month period in which the Combined Operating
Cash Flow for each such month (after payment of (i) all
current and deferred Override amounts owed to Dycam,
(ii) all current, accrued and deferred interest with respect
to the Additional Notes and the Existing Notes and (iii) all
amounts due under the Brymarc Consulting Agreement) is not
positive. Officer's Base Salary shall be increased or
reduced, as appropriate, each time the conditions to such
increase or reduction, as set forth in this paragraph, are
met.
4.1.3 The Company may deduct from the Base Salary
amounts sufficient to cover applicable federal, state and/or
local income tax withholdings and any other amounts which the
Company is required to withhold by applicable law.
4.2 Benefits.
4.2.1 Vacation. Officer shall be entitled to two
weeks paid vacation for each calendar year during Officer's
employment; provided, however, that vacation shall only be taken
at such times as not to interfere with the necessary performance
of Officer's duties and obligations under this Agreement.
4.2.2 Other Benefits; Insurance. During the term
of Officer's employment under this Agreement, if and to the
extent eligible, Officer shall be entitled to participate in all
operative employee benefit and welfare plans of the Company then
in effect ("Company Officer Benefit Plans"), including, to the
extent then in effect, group life, medical, disability and other
insurance plans, all on the same basis generally applicable to
the executives of the Company; provided, however, that nothing
contained in this Section 4.2.2 shall, in any manner whatsoever,
directly or indirectly, require or otherwise prohibit the Company
from amending, modifying, curtailing, discontinuing or otherwise
terminating, any Company Officer Benefit Plan at any time.
4.2.3 Reimbursement. Officer shall be entitled to
reimbursement from the Company for the reasonable costs and
expenses incurred in connection with the performance of the
duties and obligations provided for in this Agreement.
Reimbursement shall be paid upon prompt presentation of expense
statements or vouchers and such other supporting information as
the Company may from time to time require.
5. TRADE SECRETS; NON-SOLICITATION.
5.1 Trade Secrets. Officer will not at any time
during the Term hereof and for the three year period thereafter,
in any fashion, form, or manner, unless specifically consented to
in writing by the Company, either directly or indirectly use or
divulge, disclose or communicate to any person, firm or
corporation, any confidential information of any kind, nature or
description concerning any matters affecting or relating to the
business of the Company not available generally and not known to
competitors of the Company or other third parties unaffiliated
with the Company (collectively, the "Trade Secrets"), except in
the ordinary course of the Company's business. All equipment,
notebooks, documents, memoranda, report, files, samples, books,
correspondence, lists, other written and graphic records, and the
like, affecting or relating to the business of the Company, which
Officer shall prepare, use, construct, observe, possess or
control, shall be and remain the Company's sole property.
Officer's obligation under the preceding sentences shall continue
in effect after the end of Officer's employment with the Company
and the obligations shall be binding on Officer's assigns, heirs,
executors, administrators, and other legal representatives.
5.2 Anti-Solicitation. Officer promises and agrees
that he will not, following termination of his employment or the
expiration of the term of this Agreement, directly or indirectly
solicit any of the employees of the Company to work for any
business, individual, partnership, firm, corporation, or other
entity then in direct or indirect competition with the business
of the Company or any subsidiary or affiliate of the Company.
6. RETURN OF CORPORATE PROPERTY AND TRADE SECRETS.
Upon termination of this Agreement for any reason, Officer,
or his estate in the event of his death, shall turn over to the
Company all correspondence, property, writings or documents then
in his or its possession or custody belonging to or relating to
the affairs of the Company or any of its subsidiaries or
affiliates or comprising or relating to the Trade Secrets.
7. TERMINATION OF EMPLOYMENT.
7.1 Termination in Case of Death or Disability or by the
Officer.
7.1.1 This Agreement shall terminate immediately
upon the death of Officer and upon delivery to Officer of written
notice of termination by the Company if Officer suffers a
physical or mental disability which renders Officer, in the good
faith judgment of a qualified physician mutually acceptable to
the Board of Directors and Officer, unable to perform his duties
for a period in excess of six months in any one year period or
any continuous period of 3 months or more.
In addition, this Agreement shall terminate immediately
upon delivery to the Company of written notice of termination by
the Officer.
7.1.2 Upon termination of this Agreement pursuant
to this Section 7.1, the Company shall pay to the Officer or the
Officer's estate, as applicable, on the Termination Date (as
defined in Section 7.5 below), a lump sum payment of an amount
equal to all accrued and unpaid salary and other compensation
payable to the Officer by the Company and all accrued and unused
vacation pay payable to the Officer by the Company with respect
to services rendered by the Officer to the Company through the
Termination Date. In addition to the foregoing, and
notwithstanding the provisions of any other agreement to the
contrary, in the case of any termination of this Agreement
pursuant to this Section 7.1, all options and warrants (including
but not limited to the Arnold Warrant) to purchase Common Stock
of the Company which have been granted to Officer by the Company
but have not fully vested prior to the Termination Date shall, to
the extent not vested, thereupon immediately cease vesting and
terminate.
7.2 Termination by the Company for Cause.
7.2.1 This Agreement shall terminate immediately
upon delivery to Officer of written notice of termination by the
Company for "cause" based upon the occurrence of any of the
below-described events if Officer has not, within 10 days
following the receipt of the notice, ceased the activity causing
the default.
7.2.1.1 Officer's conviction of any felony
involving the embezzlement, theft or misappropriation of monies
or other property or moral turpitude, or his commission of any
fraud or embezzlement against the Company or any of its
subsidiaries; or
7.2.1.2 The material failure by Officer to
perform his duties hereunder, but only if such failure continues
for 30 days following receipt by Officer of notice from the
Company specifying such failure and demanding that Officer cure
such failure.
7.2.1.3 The failure by Officer to follow or
comply with the written directives or policies of the Company,
which are not inconsistent with the terms of this Agreement and
the Note Purchase Agreement.
7.2.2 The written notice of termination required by
this Section 7.2 shall specify the grounds for the termination
and shall be supported by a statement of the relevant facts.
7.2.3 Upon termination of this Agreement pursuant
to this Section 7.2 the Company shall pay to the Officer, on the
Termination Date, a lump sum payment of an amount equal to all
accrued and unpaid salary and other compensation payable to the
Officer by the Company and all accrued and unused vacation pay
payable to the Officer by the Company with respect to services
rendered by the Officer to the Company through the Termination
Date. In addition to the foregoing, and notwithstanding the
provisions of any other agreement to the contrary, in the case of
any termination of this Agreement pursuant to this Section 7.2,
all options and warrants (including but not limited to the Arnold
Warrant) to purchase Common Stock of the Company which have been
granted to Officer by the Company but have not fully vested prior
to the Termination Date shall, to the extent not vested,
thereupon immediately cease vesting and terminate.
7.3 Termination By the Company Without Cause.
7.3.1 This Agreement shall terminate immediately
upon delivery to Officer of written notice of termination by the
Company, which shall be deemed to be "without cause" unless
termination is expressly stated to be pursuant to Sections 7.1 or
7.2.
7.3.2 Upon termination of this Agreement pursuant
to this Section 7.3, the Company shall pay to the Officer, on the
Termination Date, a lump sum payment of an amount equal to
(x) all accrued and unpaid salary and other compensation payable
to the Officer by the Company and all accrued and unused vacation
pay payable to the Officer by the Company with respect to
services rendered by the Officer to the Company through the
Termination Date, and (y) the amount Officer would have earned as
Base Salary for the period of time existing between the
Termination Date and the scheduled expiration of this Agreement
pursuant to Section 3 above; provided that for purposes of this
Section 7.3.2(y), Officer's Base Salary shall be deemed to be
fixed at $100,000. In addition to the foregoing, and
notwithstanding the provisions of any other agreement to the
contrary, in the case of any termination of this Agreement
pursuant to this Section 7.3: (a) all options and warrants,
including but not limited to the Arnold Warrant, to purchase the
Common Stock of the Company which have been granted to Officer by
the Company but have not fully vested prior to the Termination
Date shall, to the extent not vested, thereupon immediately vest,
and (b) the Company shall continue to provide Officer and his
family, if applicable, with any medical benefits being provided
Officer and his family pursuant to Section 4.3.2, for the period
of time existing between the Termination Date and the scheduled
expiration of this Agreement pursuant to Section 3 above.
7.4 Topping Offer Transactions.
7.4.1 Upon the consummation of a Topping Offer
transaction in accordance with the Note Purchase Agreement,
Officer shall take any and all actions necessary or reasonably
requested by the Company to evidence or effectuate the reduction
of the number of warrants evidenced by the Arnold Warrant from
7,747,449 to 1,631,042, as contemplated by the Note Purchase
Agreement and the Warrant Certificate evidencing such warrants.
7.4.2 If a Topping Offer transaction shall be
consummated in accordance with the Note Purchase Agreement, the
Company shall give notice to Officer (which notice may be oral)
that a Topping Offer transaction has occurred (the "Topping Offer
Notice"). Officer may, within two months after first receiving
the Topping Offer Notice, elect (by written notice to the
Company) to retire from full-time service to Company. In the
event of such election by Officer, the compensation and all of
the other benefits to which Officer is entitled under Section 4
hereof shall be discontinued as of the date of such election,
except that Officer shall be entitled to receive $100,000 payable
within 5 business days of the later to occur of (a) the
consummation of the Topping Offer transaction and (b) the date on
which the Company receives written notice of such election.
7.5 Termination Date. For purposes of this Section 7, the
term, "Termination Date", shall mean that date on which the
Officer's employment is terminated pursuant to this Section 7.
8. INJUNCTIVE RELIEF.
Each of Officer and the Company hereby recognizes,
acknowledges and agrees that in the event of any breach by either
party of any of their respective covenants, agreements, duties or
obligations hereunder, the other party would suffer great and
irreparable harm, injury and damage, would encounter extreme
difficulty in attempting to prove the actual amount of damages
suffered by it or him as a result of such breach, and the
non-breaching party would not be reasonably or adequately
compensated in damages in any action at law. Each of the parties
therefore agrees that, in addition to any other remedy it or he
may have at law, in equity, by statute or otherwise, in the event
of any breach by the other party of any of the covenants,
agreements, duties or obligations hereunder, the non-breaching
party shall be entitled to seek and receive temporary,
preliminary and permanent injunctive and other equitable relief
from any court of competent jurisdiction to enforce any of the
rights of the non-breaching party or any of the covenants,
agreements, duties or obligations of it or him hereunder, or
otherwise to prevent the violation of any of the terms or
provisions hereof, all without the necessity of proving the
amount of any actual damage to the nonbreaching party resulting
therefrom; provided, however, that nothing contained in this
Section 8 shall be deemed or construed in any manner whatsoever
as a waiver by either party of any of the rights which either of
them may have against the other at law, in equity, by statute or
otherwise arising out of, in connection with or resulting from
the breach by the breaching party of any of their respective
covenants, agreements, duties or obligations hereunder.
9. MISCELLANEOUS.
9.1 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject
matter hereof and cannot be changed or terminated except in
writing signed by both Officer and the Company.
9.2 Limited Liabilities. All liabilities incurred by
Officer in his capacity as an officer hereunder except for such
liabilities incurred as a result of Officer's gross negligence or
willful misconduct shall be incurred for the account of the
Company, and Officer shall not be personally liable therefor.
Officer shall not be liable to the Company, or any of its
respective subsidiaries, affiliates, employees, officers,
directors, agents, representatives, successors, assigns,
stockholders, and their respective subsidiaries and affiliates,
and the Company shall, and hereby agrees to, indemnify, defend
and hold Officer harmless from and against any and all damages
and/or loss or liability (including, without limitation, all
costs of defense thereof), for any acts or omissions in the
performance of service under and within the scope of this
Agreement on the part of Officer (other than, in each case,
resulting from Officer's gross negligence or willful misconduct).
9.3 Notices. All notices, requests and other
communications (collectively, "Notices") given pursuant to this
Agreement shall be in writing, and shall be delivered by
facsimile transmission with a copy delivered by personal service
or by United States first class, registered or certified mail
(return receipt requested), postage prepaid, addressed to the
party at the address set forth below:
If the Company: Forever Yours, Inc.
667 Rancho Conejo Drive
Newbury Park, California 91320
Attention: Board of Directors
FAX No.: (805) 376-8364
If to Officer: Dana I. Arnold
29416 Bertrand Drive
Agoura Hills, California 91301
Any Notice shall be deemed duly given when received by the
addressee thereof, provided that any Notice sent by registered or
certified mail shall be deemed to have been duly given three days
from date of deposit in the United States mails, unless sooner
received. Either party may from time to time change its address
for further Notices hereunder by giving notice to the other party
in the manner prescribed in this Section 9.3.
9.4 Governing Law. This Agreement has been made and
entered into in the state of California and shall be construed in
accordance with the laws of the State of California without
regard to the conflict of laws principles thereof.
9.5 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
9.6 Severable Provisions. The provisions of this Agreement
are severable, and if any one or more provisions are determined
to be judicially unenforceable, in whole or in part, the
remaining provisions shall nevertheless be binding and
enforceable.
9.7 Successors and Assigns. This Agreement and all
obligations and benefits of Officer and the Company hereunder
shall bind and inure to the benefit of Officer and the Company,
their respective affiliates, and their respective successors and
assigns.
9.8 Amendments and Waivers. No amendment or waiver of any
term or provision of this Agreement shall be effective unless
made in writing. Any written amendment or waiver shall be
effective only in the instance given and then only with respect
to the specific term or provision (or portion thereof) of this
Agreement to which it expressly relates, and shall not be deemed
or construed to constitute a waiver of any other term or
provision (or portion thereof) waived in any other instance.
9.9 Title and Headings. The titles and headings contained
in this Agreement are included for convenience only and form no
part of the agreement between the parties.
IN WITNESS WHEREOF, this Agreement has been executed as of
the date first set forth above.
FOREVER YOURS, INC.
By:
Its:
_________________________________
Dana Arnold
<PAGE>
EXHIBIT P
The executed version of the Brymarc Consulting Agreement
is included as Exhibit N to this Amendment #1 to Schedule
13D.
<PAGE>
EXHIBIT Q
The executed version of the Shutler Consulting
Agreement is included as Exhibit O to this Amendment #1 to
Schedule 13D.
<PAGE>
EXHIBIT R
The executed version of the Amended and Restated Series A
Warrant Certificate is included as Exhibit K to this
Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT I
FIRST AMENDMENT TO ADDITIONAL
NOTE AND PREFERRED STOCK PURCHASE AGREEMENT AND WAIVER
This FIRST AMENDMENT TO ADDITIONAL NOTE AND PREFERRED
STOCK PURCHASE AGREEMENT AND WAIVER (this "AMENDMENT") is
dated as of May 15, 1996 and entered into by and among STYLES
ON VIDEO, INC., a Delaware corporation ("SOV"), FOREVER YOURS,
INC., a California corporation ("FYI", and, together with SOV,
the "COMPANIES"), and INTERNATIONAL DIGITAL INVESTORS, L.P., a
Delaware limited partnership (the "INVESTOR").
RECITALS
WHEREAS, the Companies and the Investor entered into
a Note and Preferred Stock Purchase Agreement, dated as of May
14, 1996 (the "AGREEMENT"); all terms used herein and not
otherwise defined shall have the meanings given to such terms
in the Agreement;
WHEREAS, it is a condition precedent to the Closing
at Section 6.5 that the Closing shall have occurred by May 21,
1996;
WHEREAS, Section 11.15 of the Agreement states that
the Agreement shall in no event become effective unless the
Closing occurs on or prior to May 21, 1996;
WHEREAS, the Closing did not occur on or prior to May
21, 1996;
WHEREAS, the failure of the Closing to occur on or
prior to May 21, 1996 would otherwise make the Agreement
ineffective, notwithstanding the fact that the parties thereto
wish to make the Agreement effective;
WHEREAS, the failure of the Closing to occur on or
before May 21, 1996 might place in doubt the effectiveness of
Sections 9 and 11.10 of the Agreement, regardless of the fact
that the parties desire that such sections shall have remained
and do remain in full force and effect notwithstanding that
the Closing did not occur on or prior to May 21, 1996;
WHEREAS, the parties to the Agreement wish to have
the Agreement become effective according to the terms of the
Agreement as modified by this Amendment;
WHEREAS, the authorized share capital of SOV is
insufficient, as of the date hereof, to allow the exercise or
conversion, as the case may be, of all of the Existing
Warrants, the Series A Preferred and the Series B Preferred
into Common Stock of SOV;
WHEREAS, it was the intention of the parties in
entering into the Agreement that the number of shares subject
to the Series B Warrant Certificate and the per share exercise
price for the Additional Warrants and the Existing Warrants,
and the conversion price for the Series B Preferred, be
calculated such that the Investor had the right to purchase
shares of Common Stock of SOV (upon exercise of all of the
Series A Warrants and the Series B Warrants and upon
conversion of all of the Series A Preferred and the Series B
Preferred) equal to 75% of the outstanding shares of Common
Stock of SOV on a fully diluted basis for an aggregate
purchase price of approximately $4.3 million;
WHEREAS, it is necessary to amend the relevant
documents in order to effectuate the intent of the parties as
set forth in the immediately preceding paragraph;
WHEREAS, the Companies and the Investor wish to enter
into this amendment in connection therewith; and
WHEREAS, in anticipation of entering into this
Amendment, and in order to permit the Companies to meet their
cash flow requirements, the Investor funded the initial
tranche of the Additional Notes on May 15, 1996.
NOW, THEREFORE, in consideration of the premises and
the agreements, provisions and covenants herein contained, the
parties hereto agree as follows:
SECTION 1. AMENDMENT TO SCHEDULE 1.1
Schedule 1.1 to the Agreement is hereby amended and
restated in its entirety as set forth in Schedule 1.1 hereto.
SECTION 2. WAIVER
The parties hereby agree that the Closing shall be
deemed to have occurred on May 15, 1996 and, in connection
therewith, the Investor hereby waives the following conditions
to Closing:
(a) the requirement under Section 6.5 that the
Closing occur on or before May 21, 1996;
(b) the requirements set forth in Section 6.15 (but
only with respect to the Series B Preferred) and the last
sentence of Section 6.13; provided that all such
requirements shall be fully satisfied, and SOV shall have
filed the Restated Series B Certificate of Designation in
substantially the form attached hereto as Exhibit D with
the Delaware Secretary of State, in each case on or
before June 4, 1996;
(c) the requirement under Section 6.17 that the
Gross Cash Proceeds of the Accounting Claims be deposited
in the Escrow Account; provided that such requirement
shall be fully satisfied on or before June 4, 1996; and
(d) the requirements set forth in Section 6.2 (but
only to the extent that particular conditions to Closing
are waived pursuant clauses (a), (b) and (c) of this
Section 2).
The Investor shall purchase the Series B Preferred on
the date on which the requirements set forth in clauses (b)
and (c) of this Section have been fully satisfied; provided
that if such requirements are not fully satisfied on or before
June 4, 1996, the Investor shall have no obligation to
purchase the Series B Preferred.
Notwithstanding anything herein or in the Agreement
to the contrary, the Investor shall have no further obligation
to purchase Additional Notes on any Purchase Date after the
Closing, unless each of the requirements set forth in clauses
(b) and (c) of this Section is fully satisfied on or before
June 4, 1996.
SECTION 3. AMENDMENT TO SECTION 1.1(A)(V)
Section 1.1(a)(v) is hereby amended and restated as
follows:
"(v) Each of the conditions precedent set forth
in Sections 6.3 and 6.4 shall have been satisfied on such
date."
SECTION 4. AMENDMENT TO SECTIONS 1.1(B) AND (C)
Sections 1.1(b) and (c) of the Agreement are hereby
amended and restated as follows:
"(b) Subject to the terms and conditions of
this Agreement, the Investor agrees to purchase at the
Second Closing (as defined below), and SOV agrees to sell
and issue to the Investor at the Second Closing, 500
shares of 10% Senior Series B Convertible Preferred
Stock, $.001 par value per share, of SOV (the 'Series B
Preferred'), for a purchase price equal to $50,000, such
Series B Preferred being convertible into shares of the
Common Stock and having the voting powers, preferences,
rights, qualifications, limitations and restrictions
described in the certificate of designation attached as
Exhibit D to the Amendment (the "Series B Certificate of
Designation"). For purposes of this Section 1.1(b),
'Second Closing' shall mean the date on which the
conditions set forth in Section 2 of the Amendment have
been fully satisfied.
(c) Subject to the terms and conditions of this
Agreement, the Investor shall receive and SOV agrees to
issue to the Investor, in connection with the sale and
issuance of the Additional Notes and the Series B
Preferred and in consideration of the Investor's purchase
thereof, a Warrant Certificate in the form attached as
Exhibit A to the Amendment (the "Additional Warrant
Certificate") evidencing warrants to purchase 53,286,228
shares of the Common Stock (the "Additional Warrants"
and, together with the Additional Notes, the Series B
Preferred and the Common Stock into which the Series B
Preferred is convertible and the Additional Warrants are
exercisable, the "Securities")."
SECTION 5. AMENDMENT TO SECTION 6
Section 6 of the Agreement is hereby amended and
restated as follows:
"6. Conditions of the Investor's Obligations at
Closing. The obligations of the Investor under
subsection 1.1 of this Agreement are subject to the
fulfillment on or before the Closing (and on each
subsequent Purchase Date in the case of Sections 6.3 and
6.4) of the following conditions (including, without
limitation, the conditions set forth in Section 6.25 with
respect to the documents, certificates and agreements
required to be delivered pursuant to the other conditions
in this Section 6):"
SECTION 6. AMENDMENT TO SECTION 6.10
Section 6.10 of the Agreement is hereby amended and
restated as follows:
"6.10 Cancellation of FYI Shares and
Issuance of Arnold Warrant; Satisfaction of Minority
Interest Adjustment Agreement. Dana I. Arnold
("Arnold"), the owner of 20% of the shares of FYI, shall
have surrendered to FYI for cancellation all of the
shares of common stock of FYI held by him in exchange for
a warrant certificate issued by SOV, in the form attached
as Exhibit C to the Amendment (the "Arnold Warrant"),
evidencing warrants to purchase 7,747,449 shares of the
Common Stock, subject to adjustments in the event of the
consummation of a Topping Offer transaction. Arnold
shall have executed and delivered a receipt for the
Arnold Warrant which receipt shall acknowledge that the
requirements of the Minority Interest Adjustment
Agreement, dated as of November 20, 1995, among the
Companies and Arnold have been fully satisfied."
SECTION 7. AMENDMENT TO SECTION 6.23
Section 6.23 of the Agreement is hereby amended and
restated as follows:
"6.23 Existing Warrant Certificate. The
Existing Warrant Certificate shall have been amended and
restated substantially in the form of the Amended and
Restated Warrant Certificate attached as Exhibit B to the
Amendment (the "Amended and Restated Series A Warrant
Certificate")."
SECTION 8. AMENDMENT TO SECTION 8.2
(a) Section 8.2 of the Agreement is hereby amended
by deleting subsection (c) therefrom in its entirety and
substituting therefor the following:
"(c) EBITDA of FYI shall equal or exceed -
$2,000,000 for the year ended December 31, 1996 and
$1,130,000 for the year ended December 31, 1997."
(b) Section 8.2 of the Agreement is hereby amended
by deleting subsection (d) therefrom in its entirety and
substituting therefor the following:
"(d) EBITDA of FYI shall not be less than
the corresponding amount during any two consecutive
fiscal quarters ending on the dates set forth below:
Quarters Ending Amount
---------------- -------------
June 30, 1996 -$811,000
September 30, 1996 -$340,000
December 31, 1996 $17,000
March 31, 1997 $93,000
June 30, 1997 $175,000
September 30, 1997 $286,000
December 31, 1997 $445,000
March 31, 1998 $615,000
June 30, 1998 $785,000
SECTION 9. AMENDMENT TO SECTION 10.1
(a) Section 10.1 of the Agreement is amended by
adding after the word "Companies" and prior to the symbol ";"
at the end of subsection (h) thereof the following:
"(except that (i) Dycam may obtain priority on
any camera equipment leased by Dycam to FYI in the
ordinary course of business and (ii) other lessors may
obtain priority on equipment leased by them to the
Companies in the ordinary course of business)".
(b) Section 10.1 of the Agreement is hereby amended
by restating subsection (m) and adding subsection (n) as
follows:
"(m) (i) the funds on deposit in the Escrow
Account shall not have been released to the Investor on
or prior to August 10, 1996, (ii) prior to such date,
such funds shall be released to any other party or (iii)
after such funds are released to the Investor, the
Investor is required to pay, and does pay, all or a
portion of the amounts that the Investor is otherwise
entitled to retain pursuant to this Agreement to a third
party as a result of a right or claim of that third party
against the Companies or either of them; and
(n) the conditions set forth in Section 2 of
the Amendment are not fully satisfied on or before June
4, 1996;"
SECTION 10. AMENDMENT TO SECTION 11.15
Section 11.15 of the Agreement is hereby amended and
restated as follows:
"11.15 Effectiveness. Notwithstanding anything to
the contrary contained in this Agreement, this Agreement
(other than Sections 9 and 11.10, which Sections shall
become effective on the date hereof) shall become
effective and the obligations of the parties hereto shall
attach as of May 15, 1996, provided that the obligation
of the Investor to purchase Additional Notes on any
Purchase Date as set forth on Schedule 1.1 hereto shall
be subject to the requirements of Section 2 of the
Amendment and the other requirements set forth herein."
SECTION 11. AMENDMENT TO EXHIBIT A
(a) The following definitions contained in Exhibit
A to the Agreement are hereby amended and restated as
follows:
"'INDEPENDENT COMMITTEE WARRANTS' shall mean the
warrants to purchase 80,000 shares of Common Stock of SOV
at an exercise price not less than $.075 per share to be
issued by SOV to the Chairman of the Independent
Committee of SOV's Board of Directors appointed April 18,
1996.
'SHUTLER WARRANTS' shall mean the warrants to
purchase Common Stock of SOV at an exercise price not
less than $.075 per share that SOV has agreed to issue to
Eugene Shutler under the Shutler Consulting Agreement."
(b) The following definition is hereby added to
Exhibit A to the Agreement:
"'AMENDMENT' shall mean the First Amendment to
Additional Note and Preferred Stock Purchase Agreement
and Waiver, dated as of May 15, 1996, by and among the
Companies and the Investor."
SECTION 12. EXERCISE OF WARRANTS AND CONVERSION OF
PREFERRED STOCK
The Investor agrees that prior to the First
Conversion Date (as defined below) it will not (i) exercise
the Existing Warrants or (ii) convert the Series A Preferred
into Common Stock of SOV, to the extent that the aggregate
number of shares of Common Stock of SOV receivable by the
Investor upon all such exercises or conversions would exceed
4,750,927 shares (the "Available Shares"). For purposes of
this Section, "First Conversion Date" means the earliest to
occur of (i) October 31, 1996, (ii) the date on which all
corporate and shareholder action on the part of SOV shall have
been taken to authorize and reserve for issuance a number of
shares of Common Stock at least equal to the aggregate number
of shares of Common Stock issuable upon exercise of the
Existing Warrants and conversion of the Series A Preferred and
(iii) the first date on which any of the Settlement Warrants,
the Arnold Warrant, the Shutler Warrant or the Independent
Committee Warrant becomes exerciseable, in whole or in part.
The Investor agrees that prior to the First Exercise Date it
will not transfer the Existing Warrants or the Series A
Preferred, except to transferees that agree to be bound by the
provisions contained in this paragraph. The Investor
acknowedges and agrees that neither (i) the limitation on its
ability to exercise the Existing Warrants and the Series A
Preferred set forth in this paragraph nor (ii) notwithstanding
any provision of the Existing Warrant Certificate or the
Series A Certificate of Designation to the contrary, the
failure by SOV prior to the First Conversion Date to reserve
Common Stock in excess of the Available Shares for issuance
upon exercise or conversion, as applicable, of the Existing
Warrants and the Series A Preferred, shall constitute an Event
of Default under the Agreement, the Existing Note Agreement,
the Existing Warrant Certificate or the Series A Certificate
of Designation.
SECTION 13. COMPANIES' REPRESENTATIONS AND
WARRANTIES
In order to induce the Investor to enter into this
Amendment and to amend the Agreement in the manner provided
herein, each of SOV and FYI represents and warrants to the
Investor that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Each of SOV and
FYI has all requisite corporate power and authority to enter
into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, the
Agreement as amended by this Amendment (the "AMENDED
AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and
delivery of this Amendment and the performance of the Amended
Agreement have been duly authorized by all necessary corporate
action on the part of SOV and FYI.
C. NO CONFLICT. The execution and delivery by
each SOV and FYI of this Amendment and the performance by it
of the Amended Agreement do not and will not (i) violate any
provision of any law or any governmental rule or regulation
applicable to it or any of its Subsidiaries or any charter
document of its Subsidiaries or any order, judgment or decree
of any court or other agency of government binding on it or
any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or
both) a default under any material contract, agreement or
indenture to which it is bound or by which its properties are
subject, (iii) result in or require the creation or imposition
of any lien upon any of its properties or assets or those of
any of its Subsidiaries, or (iv) require any approval or
consent of any person or entity under any of its or any of its
Subsidiaries' contractual or other obligations.
D. GOVERNMENTAL CONSENTS. The execution and
delivery by each of SOV and FYI of this Amendment and the
performance by it of the Amended Agreement do not and will not
require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state
or other governmental authority or regulatory body in addition
to those required to execute, deliver and perform the
Agreement.
E. BINDING OBLIGATION. This Amendment and the
Amended Agreement have been duly executed and delivered by
each of SOV and FYI and are the legally valid and binding
obligations of each of SOV and FYI enforceable against each of
SOV and FYI in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to
enforceability.
SECTION 14. NO WAIVER UNDER SETTLEMENT AGREEMENT
Notwithstanding anything to the contrary contained
in the Full Release and Settlement Agreement, effective May 30,
1996 (the "Settlement Agreement"), by and among the Companies,
Dycam, Styles Servicing, Inc. ("SSI"), the Investor, Kellogg &
Andelson ("K&A"), Thomas D. Leaper, James F. Walters, William
T. Wall, Fred S. Flax and CPA Mutual Insurance Company of
America Risk Retention Group (the "Insurer"), each of the
Companies and the Investor hereby (i) acknowledge that the
waivers, discharges and releases contained in Sections 16
through 20 of the Settlement Agreement, as they pertain to any
rights or claims of the Investor, were intended only as
waivers, discharges and releases with respect to K&A and the
Insurer and not with respect to any other party and (ii) that
such waivers, discharges and releases shall not constitute a
waiver, discharge or release of any right or claim that the
Investor may have against either of the Companies, Dycam or
SSI.
SECTION 15. MISCELLANEOUS
A. HEADINGS. Section and subsection headings in
this Amendment are included herein for convenience of
reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive
effect.
B. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
C. COUNTERPARTS; EFFECTIVENESS. This Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so
that all signature pages are physically attached to the same
document. This Amendment shall become effective upon the
execution of a counterpart hereof by the Investor, each of the
other parties hereto and receipt by the Companies and the
Investor of written or telephonic notification of such
execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date
first written above.
STYLES ON VIDEO, INC.
By: _ Nancy H. Galgas_
Name: Nancy H. Galgas
Title: Chief Financial Officer
667 Rancho Conejo Blvd.
Newbury Park, CA 91320
FOREVER YOURS, INC.
By: _ Dana I. Arnold_
Name: Dana I. Arnold
Title: President
667 Rancho Conejo Blvd.
Newbury Park, CA 91320
INTERNATIONAL DIGITAL
INVESTORS, L.P.
By IDI Corp., a Delaware
corporation, its general
partner
By: _ Jeffrey Safchik_
Name: Jeffrey Safchik
Title: President
40304 Fisher Island Drive
Fisher Island, FL 33109
<PAGE>
SCHEDULE 1.1
DRAWDOWN SCHEDULE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Minimum Aggregate
Number of Approved Minimum
Combined
Principal Amount Births Subject Net
Revenues
Purchase Date of Additional Notes(1) to Contracts of
Companies
May 15, 1996 $371,712(2) N/A N/A
May 30, 1996 150,000 N/A N/A
June 15, 1996 250,000 136,000 180,000
July 15, 1996
or the date
on which all
of the funds
on deposit in
the Escrow
Account are
released to
the Investor,
whichever is
later. 100,000 157,000 220,000
August 15, 1996 150,000 183,000 270,000
Sept. 15, 1996 178,288 210,000 320,000
__________________________
(1) Subject to the limitations set forth in the Agreement,
including but not limited to, the last three paragraphs
of Section 1.1(a), and Section 2 of the Amendment.
(2) $271,712 to be used to repay the $270,000 aggregate
principal amount of, and $1,712 aggregate interest on,
the Temporary Loans (which amount represents all interest
due and payable thereunder fully and finally).
</TABLE>
<PAGE>
EXHIBIT A
The executed version of the Series B Warrant Certificate
is included as Exhibit L to this Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT B
The executed version of the Amended and Restated
Series A Warrant Certificate is included as Exhibit K
to this Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT C
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT
ACT AND UNDER APPLICABLE STATE SECURITIES LAW OR REGISTRATION OF
SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED OR UNLESS THE
SALE OR TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 OR 144A
PROMULGATED UNDER SUCH ACT AND, IF REASONABLY
REQUESTED BY STYLES ON VIDEO, INC. (THE "COMPANY"), THE
COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL THAT THE
SECURITIES OR THE SALE OR TRANSFER ARE EXEMPT FROM
REGISTRATION.
STYLES ON VIDEO, INC.
WARRANT CERTIFICATE
Dated as of May 15, 1996
Series C Warrants to Purchase Common Stock
No. R-1 Certificate for 7,747,449(1) Warrants
STYLES ON VIDEO, INC., a Delaware corporation (the
"Company"), hereby certifies that in consideration for the return
and cancellation by Dana I. Arnold of 20,000 shares of common stock
of Forever Yours, Inc., a California corporation and subsidiary of
the Company ("FYI"), and for other value received, Dana I. Arnold,
an individual ("Initial Holder"), or registered assigns, is the
registered owner of the number of Series C Warrants of the Company
set forth above. This Warrant Certificate evidences 7,747,449
Series C Warrants (the "Warrants"); provided that upon the
consummation of a Topping Offer transaction (as defined in the Note
and Preferred Stock Purchase Agreement dated as of May 14, 1996
(the "Note Purchase Agreement") among the Company, Forever Yours,
Inc. and International Digital Investors, L.P. ("IDI"), the number
of Warrants evidenced hereby shall be reduced to 1,631,042
("Reduction").
- ----------
(1) Subject to reduction in accordance with the immediately
following paragraph.
- ----------
Each Warrant entitles the registered owner thereof to
purchase one share (each such share being referred to herein as a
"Warrant Share" and all such shares being referred to herein,
collectively, as the "Warrant Shares"), as adjusted from time to
time as provided in Section 7 hereof, of Common Stock, $.001 par
value per share, of the Company ("Common Stock"). Each Vested
Warrant (as defined below) may be exercised, from time to time, (a)
on or after the earlier to occur of (i) October 31, 1996 and (ii)
the date on which all corporate and shareholder action on the part
of the Company shall have been taken to authorize and reserve for
issuance a number of shares of Common Stock at least equal to the
product of the number of Warrants evidenced hereby times the
Adjusted Warrant Share Amount (as defined below), and (b) prior to
5:00 P.M. on November 20, 2005 (the "Expiration Date"), subject to
the following terms and conditions.
Section 1. Registration and Vesting.
(a) The Company shall register each Warrant, upon
records to be maintained by the Company for such purpose (such
records being referred to herein as the "Register"), in the
name of the record holder of such Warrant from time to time.
The Company may deem and treat the registered holder of each
Warrant as the absolute owner thereof for the purpose of any
exercise thereof or any distribution thereof, and for all
other purposes, and the Company shall not be affected by any
notice to the contrary.
(b) The holder's right to purchase shares of Common
Stock pursuant to this Warrant Certificate shall vest in
accordance with the following schedule: 1,936,862 (or 407,761
in the case of Reduction) of the Warrants (representing 25% of
the total number of Warrants) shall vest on the date hereof;
1,936,862 (or 407,761 in the case of Reduction) of the
Warrants shall vest on November 10, 1996; 1,936,862 (or
407,761 in the case of Reduction) of the Warrants shall vest
on May 10, 1997 and 1,936,862 (or 407,761 in the case of
Reduction) of the Warrants shall vest on May 10, 1998.
Warrants that have vested in accordance with the foregoing
provisions are hereafter referred to as "Vested Warrants."
Notwithstanding the foregoing, (i) all unvested Warrants shall
cease to vest and shall immediately terminate if the Initial
Holder's employment with FYI shall cease (A) due to the death
or disability of the Initial Holder pursuant to Section 7.1 of
that certain Amended and Restated Employment Agreement dated
as of the date hereof between FYI and the Initial Holder (the
"Employment Agreement"), (B) due to termination by FYI for
cause pursuant to Section 7.2 of the Employment Agreement or
(C) because Initial Holder shall quit his employment with FYI
pursuant to Section 7.1 of the Employment Agreement or
otherwise, (ii) all of the unvested Warrants shall vest
immediately upon (x) termination by FYI of Initial Holder's
employment with FYI without cause pursuant to Section 7.3 of
the Employment Agreement or (y) the consummation of a Topping
Offer transaction.
Section 2. Registration of Transfers and Exchanges.
(a) Registration, Issuance of New Warrant Certificates.
The Company shall register in the Register the transfer of any
Warrants upon the surrender of this Warrant Certificate, with the
Form of Assignment attached as Annex A hereto duly filled in and
signed (and with a signature guarantee for the transfer of any
Warrants by a registered holder which is not the initial registered
holder of this Warrant Certificate), to the Company at the office
of the Company set forth in Section 3(c) hereof. Upon any such
registration of transfer, a new Warrant Certificate, in
substantially the form of this Warrant Certificate, evidencing the
Warrants so transferred shall be issued to the transferee of such
Warrants and a new Warrant Certificate, in substantially the form
of this Warrant Certificate, evidencing the remaining Warrants, if
any, not so transferred, shall be issued to the then-registered
holder thereof. The Company shall at no time close the Register
against the permitted transfer of any Warrant or Warrant Share in
any manner which materially interferes with the timely exercise of
such Warrant.
(b) Warrants Exchangeable for Different Denominations.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the office of the Company set forth in
Section 3(c) hereof, for new Warrant Certificates, in substantially
the form of this Warrant Certificate, evidencing in the aggregate
the right to purchase the number of Warrant Shares which may then
be purchased under this Warrant Certificate. Each such new Warrant
Certificate shall be dated the date of such exchange and represent
the right to purchase such number of Warrant Shares as shall be
designated by the holder of this Warrant Certificate at the time of
such surrender.
Section 3. Duration, Termination and Exercise of
Warrants.
(a) Vested Warrants shall be exercisable by the
registered holder thereof from time to time on any business day
before, (a) on or after the earlier to occur of (i) October 31,
1996 and (ii) the date on which all corporate and shareholder
action on the part of the Company shall have been taken to
authorize and reserve for issuance a number of shares of Common
Stock at least equal to the product of the number of Warrants
evidenced hereby times the Adjusted Warrant Share Amount, and (b)
prior to 5:00 P.M., Los Angeles time, on the Expiration
Date. At 5:00 P.M. Los Angeles time, on the Expiration Date, each
Warrant not exercised prior thereto shall be and become void and of
no value.
(b) Subject to the provisions of this Warrant
Certificate, including adjustments to the Exercise Price and to the
number of Warrant Shares issuable upon the exercise of each Warrant
pursuant to Section 7 hereof, each holder of a Vested Warrant on or
prior to the Expiration Date shall have the right to purchase from
the Company (and the Company shall be obligated to issue and sell
to such holder of a Vested Warrant) at the Exercise Price one
fully-paid Warrant Share which is nonassessable.
(c) Subject to Sections 4, 10 and 11 hereof, upon (i)
surrender of this Warrant Certificate, with the Form of Election to
Purchase attached as Annex B hereto (the "Form of Election to
Purchase") duly filled in and signed, to the Company at its office
at 667 Rancho Conejo, Newbury Park, California 91320. Attention:
President, or at such other address as the Company may specify in
writing to the then-registered holder of the Vested Warrants, and
(ii) payment of the Exercise Price, multiplied by the number of
Warrant Shares then issuable upon exercise of the Vested Warrants
being so exercised, the Company shall promptly, but in any event
within three days of its receipt of the Form of Election to
Purchase, together with the Warrant Certificate and receipt of
payment of the Exercise Price, issue and cause to be delivered to
or upon the written order of the registered holder of the Vested
Warrants being so exercised, and in such name or names as such
registered holder may designate (subject to Section 4 hereof and to
the Note Purchase Agreement), a certificate for the Warrant Shares
issued upon such exercise of such Vested Warrants, provided that
any and all such certificates shall bear a legend regarding the
transferability of the Warrant Shares substantially similar to the
legend appearing on the first page of this Warrant Certificate.
Any person so designated to be named in such certificate for such
Warrant Shares shall be deemed to have become the holder of record
of such Warrant Shares as of the Date of Election to Purchase such
Vested Warrants. The "Date of Election to Purchase" any Vested
Warrant means the date on which the Company shall have received (1)
this Warrant Certificate, with the Form of Election to Purchase
duly filled in and signed, and (2) payment of the Exercise Price
for such Vested Warrant.
(d) In lieu of delivering the Exercise Price in cash, a
holder may, at its option, instruct the Company in the Form of
Election to Purchase to retain, in payment of the Exercise Price,
a number of Warrant Shares (the "Payment Shares") equal to the
quotient of the aggregate Exercise Price of the Vested Warrants
then being exercised divided by the Market Price of such shares as
of the date of exercise, and to deduct the number of Payment Shares
from the Warrant Shares to be delivered to such holder.
(e) The Warrants evidenced by this Warrant Certificate
shall be exercisable either as an entirety or, from time to time,
for part only of the number of Vested Warrants evidenced hereby.
If fewer than all of the Warrants evidenced by this Warrant
Certificate are exercised at any time, the Company, at its expense,
shall issue to the registered holder a new Warrant Certificate, in
substantially the form of this Warrant Certificate, for the
remaining number of Warrants evidenced by this Warrant Certificate.
Section 4. Payment of Taxes. The Company shall pay
all issuance and transfer taxes and charges that may be imposed on
the Company or on the Warrants or the Warrant Shares in respect of
the transfer of Warrants, or the issuance or delivery of the
Certificates for Warrant Shares or other securities in respect of
the Warrant Shares upon the exercise or conversion of Warrants;
provided, however, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of
Warrants, or the issuance or delivery of certificates for Warrant
Shares or other securities in respect of the Warrant Shares upon
the exercise of Warrants, to a person or entity other than a then-
existing registered holder of Warrants.
Section 5. Mutilated or Missing Warrant Certificate.
If this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, upon request by the registered holder of the Warrants,
the Company shall issue, in exchange for and upon cancellation of
the mutilated Warrant Certificate, or in substitution for the lost,
stolen or destroyed Warrant Certificate, a new Warrant Certificate,
in substantially the form of this Warrant Certificate, of like
tenor and representing the equivalent number of Warrants, but, in
the case of loss, theft or destruction of this Warrant Certificate
and, if requested by the Company, indemnity also satisfactory to
it.
Section 6. Reservation and Issuance of Warrant
Shares.
(a) The Company shall on or prior to October 31, 1996
and at all times thereafter have authorized, and reserve and keep
available, for the purpose of enabling it to satisfy any obligation
to issue Warrant Shares upon the exercise of the Warrants, the
number of Warrant Shares deliverable upon exercise of the Warrants.
The Company shall take any further corporate action which may be
necessary in order that the Company may validly and legally issue,
at the Exercise Price, Warrant Shares that are fully-paid and
nonassessable.
(b) The Company covenants that all Warrant Shares will,
upon issuance in accordance with the terms of this Warrant
Certificate, be (i) duly authorized, validly issued, fully-paid and
nonassessable and (ii) free from all taxes or other governmental
charges with respect to the issuance thereof (not including (y)
income taxes payable by the holders of Warrants being exercised in
respect of gains thereon, and (z) transfer taxes, in accordance
with the provisions of Section 4 above) and from all liens, charges
and security interests created by the Company.
(c) If the issuance of any Warrant Shares required to be
reserved pursuant to paragraph (a) of this Section 6 requires
registration with or approval of any governmental authority under
any Federal or state law (other than the Securities Act and state
securities laws), before such Warrant Shares may be issued upon the
exercise thereof, the Company shall, at its expense and as
expeditiously as possible, use its best efforts to cause such
Warrant Shares to be duly registered or approved, as the case may
be, provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it is
not then so qualified, to subject itself to taxation in any
jurisdiction where it is not then subject to taxation, or take any
action which would subject it to general service of process in any
jurisdiction where it is not then so subject.
(d) To the extent that any exercise of Warrants is
subject to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and related regulations (the "HSR Act"), the
Company shall promptly upon the request of the holder of this
Warrant Certificate, cooperate with such holder in complying with
the HSR Act, including providing copies of relevant information
regarding the Company and, if required under the HSR Act, preparing
and filing with the Federal Trade Commission and the Department of
Justice a Notification and Report Form pursuant to the HSR Act.
Section 7. Adjustments.
(a) Adjustments of Number of Warrant Shares. The number
of Warrant Shares issuable upon the exercise of each Warrant shall
be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment pursuant to any of paragraphs (b), (c), (d) or
(e) of this Section 7, each Warrant shall thereafter entitle the
holder thereof to purchase at the Exercise Price the number of
Warrant Shares resulting from such adjustment (the "Adjusted
Warrant Share Amount").
(b) Adjustment upon Issuance of Common Stock. If at any
time after the date hereof, the Company shall issue or sell any
shares of Common Stock for a consideration per share less than the
Market Price (as hereinafter defined) immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the
Adjusted Warrant Share Amount shall be equal to the product of the
Adjusted Warrant Share Amount in effect immediately prior to the
time of such issue or sale multiplied by a fraction, the numerator
of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issue or sale
multiplied by (y) the Market Price immediately prior to such issue
or sale, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the Market Price immediately prior
to such issue or sale plus (B) the aggregate consideration received
by the Company upon such issue or sale.
(c) Other Adjustment Events and Provisions. For the
purposes of this Section 7, the following clauses shall also be
applicable.
(i) Issuance of Rights, Warrant or Options. Except as
provided in clauses (iii) and (xii) of this Section 7(c)
hereof, in case at any time the Company shall grant, issue or
sell (whether directly or by assumption in a merger or
otherwise) any rights or warrants (other than the Warrants) to
subscribe for or to purchase, or any options for the purchase
of, Common Stock or any stock or securities convertible into
or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called
"Convertible Securities") whether or not such rights or
warrants or options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon
the exercise of such rights or warrants or options or upon
conversion or exchange of such Convertible Securities
(determined as provided below) shall be less than the Market
Price determined as of the date of granting such rights or
warrants or options, as the case may be, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights (other than rights issued pursuant to
a stockholders' rights plan adopted by the Company pursuant to
which the acquisition by any third party of a specified
percentage of shares of Common Stock triggers the
exercisability of such rights to purchase Common Stock for so
long as no event has occurred triggering such right to
exercise) or warrants or options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or
warrants or options shall (as of the date of granting of such
rights or warrants or options) be deemed to be outstanding and
to have been issued for such price per share. Except as
provided in clause (v) of this Section 7(c), no further
adjustment of the Adjusted Warrant Share Amount shall be made
upon the actual issue of such Common Stock or such Convertible
Securities upon exercise of such rights or warrants or options
or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities. For the purposes
of this clause (i), the price per share for which Common Stock
is issuable upon the exercise of any such rights or warrants
or options or upon conversion or exchange of any such
Convertible Securities shall be determined by dividing (A) the
total amount, if any, received or receivable by the Company as
consideration for the granting of such rights of warrants or
options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all
such rights or warrants or options, plus, in the case of such
rights or warrants or options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the exercise of such rights or warrants or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or warrants or options.
(ii) Issuance of Convertible Securities. In case the
Company shall issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities (other
than the Series B Preferred Stock or the Series B Warrants
being issued to IDI in conjunction with the Warrants), whether
or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which
Common Stock is issuable upon the conversion or exchange of
such Convertible Securities (determined as provided below)
shall be less than the Market Price determined as of the date
of such issue or sale of such Convertible Securities, then the
total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been
issued for such price per share, provided that (A) except as
provided in clause (v) of this Section 7(c), no further
adjustments of the Adjusted Warrant Share Amount shall be made
upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities and (B) if any such
issue or sale of such Convertible Securities is made upon
exercise of any rights or warrants to subscribe for or to
purchase or any option to purchase any such Convertible
Securities for which adjustments of the Adjusted Warrant Share
Amount have been or are to be made pursuant to clause (i) of
this Section 7(c), no further adjustment of the Adjusted
Warrant Share Amount shall be made by reason of such issue or
sale. For the purposes of this clause (ii), the price per
share for which Common Stock is issuable upon conversion or
exchange of Convertible Securities shall be determined by
dividing (1) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (2) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.
(iii) [Intentionally omitted].
(iv) Misstatement of Outstanding Common Stock. If the
number of shares of Common Stock issued and outstanding as of
the date on which the Company has given its representation
pursuant to Section 3.2(a) of the Note Purchase Agreement or
if the number of shares of Common Stock issuable pursuant to
outstanding warrants, options, or rights including conversion
or preemptive rights) or agreements for the purchase or
acquisition from the Company of any of its shares of capital
stock on which the Company has given its representation
pursuant to Section 3.2(d) of the Note Purchase Agreement is
greater than the respective number set forth in such
representations, the Adjusted Warrant Share Amount shall be
equal to the product of the Adjusted Warrant Share Amount
immediately prior to any adjustment hereunder, multiplied by
a fraction the numerator of which is the total number of
shares of Common Stock actually outstanding or issuable as of
the date of such representation and the denominator of which
is the total number of shares of Common Stock that the Company
represented were outstanding or issuable.
(v) Change in Option Price or Conversion Rate. If the
purchase price provided for in any rights or warrants or
options referred to in clause (i) above, or the additional
consideration, if any, payable upon the conversion or exchange
of Convertible Securities referred to in clause (i) or (ii)
above, or the date at which any Convertible Securities
referred to in clause (i) or (ii) above are convertible into
or exchangeable for Common Stock, shall change (other than
under or by reason of an event resulting in a change pursuant
to provisions set forth in the documents governing such
rights, warrants, options or Convertible Securities designed
to protect against dilution, to the extent such event also
results in an adjustment pursuant to this Section 7), then the
Adjusted Warrant Share Amount in effect at the time of such
event shall forthwith be readjusted to the Adjusted Warrant
Share Amount which would have been in effect at such time had
such rights, warrants, options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold. On the
expiration of any such option or warrant or right or the
termination of any such right to convert or exchange such
Convertible Securities, the Adjusted Warrant Share Amount then
in effect hereunder shall forthwith be decreased to the
Adjusted Warrant Share Amount which would have been in effect
at the time of such expiration or termination had such right,
warrant, option or Convertible Security, to the extent
outstanding immediately prior to such expiration or
termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If
the purchase price provided for in any such right or warrant
or option referred to in clause (ii) above or the rate at
which any Convertible Securities referred to in clause (i) or
(ii) above are convertible into or exchangeable for Common
Stock, shall change at any time under or by reason of
provisions set forth in the documents governing such rights,
warrants, options or Convertible Securities designed to
protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any right or warrant or
option or upon conversion or exchange of any such Convertible
Security, the Adjusted Warrant Share Amount then in effect
hereunder shall forthwith be adjusted to such respective
amount as would have obtained had such right, warrant, option
or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the
shares of Common Stock delivered as aforesaid, but only if as
a result of such adjustment the Adjusted Warrant Share Amount
then in effect hereunder is thereby increased.
(vi) Stock Dividends. In case the Company shall declare
a dividend or make any other distribution upon any stock of
the Company payable in Common Stock or Convertible Securities,
any Common Stock or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
(vii) Consideration for Stock. In case any shares of
Common Stock or Convertible Securities or any right or
warrants or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold
(A) for cash, the consideration received therefor
shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses
incurred or any underwriting commission or concessions
paid or allowed by the Company in connection therewith.
(B) for a consideration other than cash, the amount
of the consideration other than cash received by the
Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of
the Company, in good faith and in the exercise of
reasonable business judgment, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith, which determination shall be conclusive and
which determination of valuation shall be sent in writing
by the Boards of Directors to the registered holders of
Warrants; provided, however, that if the fair value of
the non-cash consideration the value of which is being
determined exceeds $1,000,000, the Board of Directors of
the Company shall provide written notice of its valuation
to the Warrantholders, and in the event that the holders
of at least thirty-three percent (33%) of the then-
outstanding Warrants disagree with such valuation, such
Warrantholders may provide written notice of such
disagreement (which notice shall include such
Warrantholder's valuation and the basis therefor) to the
Company within 15 days following such notice from the
Board of Directors. For a period of 15 days following
the delivery of the last timely delivered notice of
disagreement, the Company and such Warrantholders shall
in good faith seek to agree upon a valuation. If at the
end of such 15 day period the Company and such
Warrantholders have not agreed upon a valuation, then the
value of the non-cash consideration the value of which is
being determined shall be determined in an arbitration
conducted in the same manner as an arbitration conducted
to determine Market Price as provided in Section
7(c)(x)(B).
(C) in connection with any merger or consolidation
in which the Company is the surviving corporation (other
than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other
securities of another corporation), the amount of
consideration therefor shall be deemed to be the fair
value as determined reasonably and in good faith by the
board of directors of the Company of such portion of the
assets and business of the non-surviving corporation as
such board any determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be.
In the event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other securities of
another corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for stock or
securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value
on the date of such transaction of all such stock or securities or
other property of the other corporation, and if any such
calculation results in adjustment of the Adjusted Warrant Share
amount, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants immediately prior to the
merger, consolidation or sale, for purposes of paragraph (f) of
this Section 7, shall be made after giving effect to such
adjustment of the Adjusted Warrant Share Amount.
(viii) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities, or (B)
to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date
of the granting of such right or subscription or purchase, as
the case may be.
(ix) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, but the
disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this Section 7(c).
(x) Definition of Market Price. "Market Price" shall
mean the greater of:
(A) $0.075, and
(B) (I) if shares of the Common Stock are listed
or admitted to trading on any exchange or quoted through
NASDAQ or any similar organization, the average of the
daily closing prices per share of the Common Stock for
the 20 consecutive trading days immediately preceding the
date of public announcement of the event giving rise to
adjustment under this Section 7 or, if no such public
announcement is made with respect to such event, the
average of the daily closing prices per share of the
Common Stock for the 20 consecutive trading days
immediately preceding the day as of which "Market Price"
is being determined. The closing price of each day shall
be the last sale price regular way or, in case no such
sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case on the
New York Stock Exchange, or, if shares of the Common
Stock are not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to
trading, or if the shares are not so listed or admitted
to trading, the average of the highest reported bid and
lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or
through a similar organization if NASDAQ is no longer
reporting such information.
(II) if such shares of Common Stock are not
listed or admitted to trading on any exchange or quoted
through NASDAQ or any similar organization, such value
shall be determined by the Board of Directors of the
Company, in good faith and in the exercise of reasonable
business judgment, without taking into consideration any
premium for shares representing control of the Company,
any discount for any minority interest therein or any
restrictions on transfer under Federal and applicable
state securities laws or otherwise, which determination
shall be conclusive, and which determination of valuation
shall be sent in writing by the Board of Directors to the
registered holders of Warrants, provided, however, that
if the Market Price of the shares of Common Stock the
value of which is being determined exceeds $1,000,000,
the Board of Directors of the Company shall provide
written notice of its determination of Market Price, and
in the event that the holders of at least thirty-three
percent (33%) of the then-outstanding Warrants disagree
with such valuation, such Warrantholders may provide
written notice of such disagreement (which notice shall
include such Warrantholder's valuation and the basis
therefor) to the Company within 15 days following such
notice from the Board of Directors. For a period of 15
days following the delivery of the last timely delivered
notice of disagreement, the Company and such
Warrantholders shall in good faith seek to agree upon a
valuation. If at the end of such 15 day period the
Company and such Warrantholders have not agreed upon a
valuation, then, to the fullest extent permitted by law,
the value of the shares of Common Stock shall be
determined, at the request of any party, by arbitration
conducted in the English language in Los Angeles,
California in accordance with and to the extent permitted
by the Delaware Arbitration Act and, to the extent not
inconsistent therewith, the Rules for Large, Complex
Cases of the America Arbitration Association. The
parties to the arbitration shall attempt to select an
arbitrator from such members. If the parties to the
arbitration do not agree on the selection of an
arbitrator within twenty (20) days after the date demand
for the arbitration is filed, an arbitrator having such
experience shall be selected in accordance with such
Rules of the America Arbitration Association. The
arbitrator shall set forth his or her determination in
writing (which shall be sent to each party to such
arbitration) and shall enumerate in reasonable detail the
basis of his or her determination. No party to the
arbitration may seek, and the arbitrator shall not award,
punitive or exemplary damages. To the fullest extent
permitted by applicable law, any judgment or award
rendered by the arbitrator shall be final, conclusive and
binding. Judgment may be entered on any final,
unappealable arbitration award by any state or federal
court having jurisdiction thereof. To the fullest extent
permitted by applicable law, any controversy concerning
whether a dispute is an arbitrable dispute or as to the
interpretation or enforceability of this Section
7(c)(x)(B)(II) shall be determined by the arbitrator.
The arbitration proceedings as well as the fact such
proceedings occur, shall be kept confidential by the
parties hereto and may only be disclosed to their
personal representatives and advisors or as required by
law and insofar as is necessary to confirm, correct,
vacate or enforce the award. In the event of a breach of
this provision, the arbitrator is expressly authorized to
assess damages and each of the parties hereto consents to
the expansion of the scope of arbitration for such
purpose. The pendency of any arbitration under this
Section 7(c)(x)(B)(II) shall not relieve any party hereto
of its obligations under this Agreement. To the fullest
extent permitted by applicable law, if the Company or any
Warrantholder shall resort to legal proceedings for
injunctive or other similar relief pending the outcome of
any such arbitration proceeding or prior to the
initiation thereof, such party shall not be deemed to
have waived its rights to cause such matter or any other
mater to be referred to arbitration pursuant to this
Section 7(c)(x)(B)(II). The parties intend that this
agreement to arbitrate be valid, enforceable and
irrevocable. The designation of situs or a governing law
for this Warrant Certificate or the arbitration shall not
be deemed an election to preclude application of the
Federal Arbitration Act if it would be applicable. The
arbitrator shall have authority in his or her discretion
to grant injunctive relief, award specific performance
and impose sanctions upon any party to any such
arbitration. The fees, expenses and charges of any
arbitration pursuant to this Section 7(c)(x)(B)(II) shall
be borne (1) by the Company, if the arbitrator renders a
valuation of the shares of Common Stock that is higher
than the valuation rendered by the Board of Directors, or
(2) by the Warrantholders who have notified the Company
in writing of their objection to the valuation of the
Board of Directors, pro rata in proportion to the number
of shares of Common Stock issuable upon exercise of their
respective Warrants, if the arbitrator renders a
valuation of the shares of Common Stock that is equal to
or less than the valuation rendered by the Board of
Directors.
(xi) Determination of Market Price under Certain
Circumstances. Anything herein to the contrary
notwithstanding, in case the Company shall issue any shares of
Common Stock or Convertible Securities in connection with the
acquisition by the Company of the stock or assets of any other
corporation or the merger of any other corporation into the
Company, the Market Price shall be determined as of the date
the number of shares of Common Stock or Convertible Securities
(or in the case of Convertible Securities other than stock,
the aggregate principal amount of Convertible Securities) was
determined (as set forth in a written agreement between the
Company and the other party to the transaction) rather than on
the date of issuance of such shares of Common Stock or
Convertible Securities.
(xii) Certain Issues Excepted. Anything herein to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Adjusted Warrant Share
Amount whatsoever upon the issuance of
(A) (i) up to 593,741 shares of Common Stock, net
of repurchases, issuable to employees, directors,
consultants or advisors under options presently
outstanding which were issued prior to the date of the
Warrants pursuant to stock option and restricted stock
purchase agreements approved by the stockholders and
directors of this corporation (excluding the options for
150,000 shares to be surrendered by Guy de Vreese and
canceled in connection with settlement of pending
litigation), (ii) up to 1,750,000 shares of Common Stock
issued or issuable to present or former shareholders of
the corporation pursuant to warrants anticipated to be
issued in connection with settlement of pending
litigation, (iii) up to 80,000 shares of Common Stock
issued or issuable to Ann Ehringer in consideration for
her services on the Independent Committee established to
review the transactions contemplated by the Note Purchase
Agreement, (iv) up to 53,286,228 shares of Common Stock
issued or issuable to IDI pursuant to the Series B
Warrants issued on the date hereof, (v) the 200,000
shares of Common Stock issued or issuable to IDI upon
conversion of the Series B Preferred Stock issued on the
date hereof, (vi) 250,000 shares of Common Stock issued
or issuable to Eugene Shutler pursuant to warrants issued
under a Consulting Agreement, dated as of April 19, 1996,
entered into between the Corporation and Eugene Shutler
and (vii) such additional number of shares of Common
Stock as may be fixed by the Board of Directors of this
corporation issuable or issued to employees, directors,
consultants or advisors of this corporation pursuant to
stock option or restricted stock purchase plans approved
by the stockholders and directors of this corporation
provided that the aggregate number of shares of Common
Stock issuable upon the exercise of options or other
rights issued pursuant to such plans, exclusive of any
options or other rights that have been exercised, plus
the aggregate number of share of Common Stock issued upon
exercise of such options or rights or otherwise issued
pursuant to such plans, shall not exceed 400,000 (as such
number may be proportionally adjusted upon any stock
split or combination or upon a merger or other corporate
reorganization).
(B) Common Stock issued or issuable upon conversion
of the Series A Preferred Stock and Series B Preferred
Stock, or
(C) Common Stock issued or issuable upon exercise
of the Warrants, the Series A Warrants, or the Series B
Warrants or any other warrants outstanding on the date
hereof.
The Company shall not be required to make any such
adjustment upon the issuance of shares or the granting of any
options or Warrants or rights referred to in
Section 7(c)(xii)(A), (B) and (C) if and to the extent that
the issuance of the shares covered thereby is expected by this
clause.
(d) Certain Special Dividends. In case the Company
shall declare a dividend or make any other distribution (other than
a distribution referred to in paragraph (c) of this Section 7) upon
the Common Stock (other than regular periodic cash dividends), then
in each case the Adjusted Warrant Share Amount in effect
immediately prior to the declaration of such dividend or making of
such distribution shall be adjusted so that such Adjusted Warrant
Share Amount shall equal the number of Warrant Shares determined by
multiplying the Adjusted Warrant Share Amount in effect immediately
prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution by a fraction, the numerator of which shall be the
Market Price on the date fixed for such determination and the
denominator of which shall be the Market Price on the date fixed
for such determination less, in the case of a dividend or
distribution in cash, the amount per share of Common Stock so
declared or, in the case of any other dividend or distribution, the
then fair market value (as determined reasonably and in good faith
by the Board of Directors of the Company) of the portion of the
property so distributed applicable to one share of Common Stock,
such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such
distribution, provided, however, that for this purpose, Market
Price shall be determined as provided in Section 7(c)(x) without
regard to Section 7(c)(x)(A).
(e) Subdivision or Combination of Stock. In case the
Company shall at any time subdivide the outstanding shares of
Common Stock into a greater number of shares, the Adjusted Warrant
Share Amount in effect immediately prior to such subdivision shall
be proportionately increased,and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Adjusted Warrant Share Amount in effect
immediately prior to such combination shall be proportionately
reduced.
(f) Adjustment for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Company (i) consolidates
with or merges into any other corporation and is not the continuing
or surviving corporation of such consolidation or merger, or
(ii) permits any other corporation to consolidate with or merge
into the Company and the Company is the continuing or surviving
corporation but, in connection with such consolidation or merger,
the Common Stock is changed into or exchanged for stock or other
securities of any other corporation or cash or any other assets, or
(iii) transfers all or substantially all of its properties and
assets to any other corporation, or (iv) effects a capital
reorganization or reclassification of the capital stock of the
Company in such a way that holders of Common Stock shall be
entitled to receive stock, securities, cash or assets with respect
to or in exchange for Common Stock, then, and in each such case,
proper provision shall be made so that, upon the basis and upon the
terms and in the manner provided in this Section 7(f), the holder
of this Warrant Certificate, upon the exercise of each Warrant at
any time after the consummation of such consolidation, merger,
transfer, reorganization or reclassification, shall be entitled to
receive (at the aggregate Exercise Price in effect for all shares
of Common Stock issuable upon such exercise immediately prior to
such consummation as adjusted to the time of such transaction), in
lieu of the Adjusted Warrant Share Amount prior to such
consummation, the stock and other securities, cash and assets to
which a holder of a number of shares of Common Stock equal to the
Warrant Share Amount would have been entitled upon such
consummation (subject to adjustments subsequent to such corporate
action as nearly equivalent as possible to the adjustments provided
for in this Section 7).
(g) Notice of Adjustment. Whenever the Adjusted Warrant
Share Amount is adjusted, then and in each such case the Company
shall promptly, but in no event later than 20 days after the date
of occurrence of the event causing such adjustment, deliver a
certificate of an officer of the Company (the "Officer's
Certificate") to the registered holder of the Warrants, which
Officer's Certificate shall state the Adjusted Warrant Share Amount
resulting from such adjustment and or the increase or decrease, if
any, in the number of shares of Common Stock or other stock or
property issuable upon the exercise of each Warrant, setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based, including, if applicable, the
Market Price as determined in accordance with paragraph (c)(x) of
this Section 7. The Company shall keep at its office copies of all
certificates and cause the same to be available for inspection at
said office during normal business hours by any holder of a Warrant
or any prospective purchaser of a Warrant designated by a holder
thereof.
(h) Other Notices. In case at any time:
(i) the Company shall declare or pay any cash dividend
on the Common Stock (other than a regular periodic cash
dividend);
(ii) the Company shall declare or pay any dividend
payable in stock upon the Common Stock or make any
distribution (other than a regular periodic cash dividend) to
the holders of the Common Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares
of stock of any class or other rights;
(iv) the Company shall authorize the distribution to all
holders of the Common Stock of evidence of its indebtedness or
assets (other than a regular periodic cash dividend);
(v) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another
corporation (other than a subsidiary of the Company in which
the Company is the surviving or continuing corporation and no
change occurs in the Common Stock of the Company), or sale of
all or substantially all of the Company's assets to, another
corporation;
(vi) there shall be a voluntary or involuntary
dissolution, liquidation, bankruptcy, assignment for the
benefit of creditors or winding up of the Company, or
(vii) the Company proposes to take any other action
or an event occurs which would require an adjustment pursuant
to paragraph (i) of this Section 7, then, in any one or more
of such cases, the Company shall give written notice,
addressed to the holder of this Warrant Certificate at the
address of such holder as shown on the books of the Company,
of (A) the date on which the books of the Company shall close
or a record shall be taken for any such dividend, distribution
or subscription rights, as the case may be, or (B) the date
(or, if not then known, a reasonable approximation thereof by
the Company) on which any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, bankruptcy, assignment for the benefit of
creditors, winding up or other action, as the case may be,
shall take place. Such notice shall also specify (or, if not
then known, reasonably approximate) the date as of which the
holders of Common Stock of record shall participate in any
such dividend, distribution or subscription rights, as the
case may be, or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon any
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, bankruptcy, assignment for the
benefit of creditors, winding up, or other action, as the case
may be. Such written notice shall also state that the action
in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act or to a
favorable vote of security holders, if either is required.
Such written notice shall be given (1) at least 15 days prior
to any event specified in any of clauses (i), (ii) or (iv) of
this Section 7(h) and, with respect to any event specified in
clause (i) of this Section 7(h), at least five days prior to
the date on which the books of the Company shall close or a
record shall be taken for such event, (2) at least 20 days
prior to any event specified in clauses (iii), (v) and (vii)
of this Section 7(h) and (3) with respect to events specified
in clause (vi) of this Section 7(h), (x) at least 30 days
prior to a voluntary dissolution or liquidation of the Company
(y) at least three days prior to a voluntary bankruptcy,
assignment for the benefit of creditors or winding up of the
Company, or (z) promptly after an involuntary bankruptcy,
assignment for the benefit of creditors or winding up of the
Company. The failure to give such written notice required by
this Section 7(h) or any defect therein shall not affect any
vote upon, or the taking of, any such action.
(i) Certain Events. If any event occurs as to which in
the reasonable opinion of the Company or the holder of this Warrant
Certificate, in good faith, the other provisions of this Section 7
are not strictly applicable but the lack of any adjustment would
not in the opinion of the Company or such holder fairly protect the
purchase rights of the holder of this Warrant Certificate in
accordance with the basic intent and principles of such provisions,
or if strictly applicable would not fairly protect the purchase
rights of the holder of this Warrant Certificate in accordance with
the basic intent and principles of such provisions, then the
Company shall appoint a firm of independent certified public
accountants (which may be the regular auditors of the Company) of
recognized national standing, which shall give the opinion upon the
adjustment, if any, on a basis consistent with the basic intent and
principles established in the other provisions of this Section 7,
necessary to preserve, without dilution, the exercise rights of the
registered holder of this Warrant Certificate. Upon receipt of
such opinion, the Company shall forthwith make the adjustments
described therein.
(j) Prohibition of Certain Action. The Company shall
not, by amendment of its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant
Certificate by the Company, but shall at all times in good faith
assist in the carrying out of all the provisions of this Section 7.
Without limiting the generality of the foregoing, the Company
(a) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of the Warrants to an amount that is
greater than the Exercise Price then in effect, (b) shall take all
such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully-paid and nonassessable
shares of Common Stock upon the exercise of all Warrants from time
to time outstanding and (c) shall not take any action which results
in any adjustment of the Adjusted Warrant Share Amount if such
Adjusted Warrant Share Amount issuable after the action would
exceed the total number of shares of Common Stock then authorized
by the Company's certificate of incorporation and available for the
purpose of issue upon such exercise.
Section 8. Exercise Price. The Exercise Price of each
Warrant shall be $0.075.
Section 9. No Stock Rights. Except as may be provided
in the Stockholders Agreement, no holder of this Warrant
Certificate, as such, shall be entitled to vote or be deemed the
holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof, nor shall
anything contained herein be construed to confer upon the holder of
this Warrant Certificate, as such, the rights of a stockholder of
the Company or the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, to exercise
any preemptive right, to receive notice of meetings or other
actions affecting stockholders (except as provided herein), or to
receive dividends or subscription rights or otherwise, until the
Date of Election to Purchase Warrants shall have occurred.
Section 10. Fractional Warrant Shares. No fractional
Warrant Shares shall be issued upon exercise of the Warrants, and
the number of shares of Common Stock to be issued shall be rounded
to the nearest whole share. Whether or not fractional shares are
issuable upon such exercise shall be determined on the basis of the
total number of shares of the Warrant the holder is at that time
exercising and the number of shares of Common Stock issuable upon
such aggregate exercise.
Section 11. Absence of Registration. Neither the
Warrants nor the Warrant Shares have been registered under the
Securities Act. The holder of this Warrant Certificate, by
acceptance hereof, represents that such holder is acquiring the
warrants to be issued to such holder for such holder's own account
and not with a view to the distribution thereof, and agrees not to
sell, transfer, pledge or hypothecate any Warrants or any Warrant
Shares except in accordance with applicable law and the legend on
the first page of this Warrant Certificate to the extent that such
legend complies with applicable law.
Section 12. Notices. All notices, requests, demands and
other communications relating to this Warrant Certificate shall be
in writing, including by telecopier, addressed, if to the
registered owner hereof, to it at the address furnished by the
registered owner to the Company, and if to the Company, at its
office at 667 Rancho Conejo, Newbury Park, California 91320.
Attention President, Telecopier (805) 376-8364 or to such other
address as any party shall notify the other party in writing, and
shall be effective, upon receipt and, in the case of written notice
by mail, three days after placement into the mails (first class,
postage prepaid), and in the case of notice by telecopier on the
same day as sent if the transmission is confirmed at or before 5:00
P.M. local time in the place of receipt, otherwise on the next
business day.
Section 13. Binding Effect. This Warrant Certificate
shall be binding upon and inure to the sole and exclusive benefit
of the Company, its successors and assigns, and the registered
holder or holders from time to time of the Warrants and the Warrant
Shares.
Section 14. Survival of Rights and Duties. This Warrant
Certificate shall terminate and be of no further force and effect
on the earlier of 5:00 p.m., Los Angeles time, on the Expiration
Date or the date on which all of the Warrants have been exercised,
except that the provisions of Sections 6(b) and 11 of this Warrant
Certificate shall continue in full force and effect after such
termination date.
Section 15. Governing Law. This Warrant Certificate
shall be construed in accordance with and governed by the laws of
the State of California without regard to principles of conflicts
of laws.
Section 16. Modification and Waiver. This Warrant
Certificate and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or
termination is sought.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed under its corporate seal by its officers
thereunto duly authorized as of the date hereof.
STYLES ON VIDEO, INC.
By _____________________
Name: Nancy H. Galgas
Title Chief Financial Officer
<PAGE>
ANNEX A
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers to each assignee set forth below all
of the rights of the undersigned in and to the number of Warrants
(as defined in and evidenced by the foregoing Warrant Certificate)
set opposite the name of such assignee below and in and to the
foregoing Warrant Certificate with respect to such Warrants and the
Warrant Shares (as defined in the Warrant Certificate) issuable
upon exercisable of such Warrants.
Name of Assignee Address Number of Warrants
If the aggregate number of such Warrants shall not
constitute all the Warrants evidenced by the foregoing Warrant
Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so assigned be issued in
the name of and delivered to the undersigned.
Name of
Warrantholder (Print)________________
Dated _____________________ (By)________________________
[SIGNATURE GUARANTEE] ATTEST
(Not Required for Initial
Registered Warrantholder)
____________________________________
Secretary
<PAGE>
ANNEX B
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Warrantholder if the Warrantholder Desires
to Exercise ________ Warrants Evidenced by the foregoing Warrant
Certificate)
To Styles on Video, Inc.:
The undersigned hereby irrevocably elects to exercise
Warrants (as defined in and evidenced by the foregoing Warrant
Certificate) for, and to purchase thereunder, Warrant Shares
issuable upon exercise of such Warrants and payment by the
Warrantholder of the Exercise Price.
The Warrantholder hereby elects to pay the Exercise Price
by complying with clause ___ below.
A. the delivery of $__________ in cash and any
applicable taxes, subject to Section 4 of the Warrant Certificate,
payable by the undersigned pursuant to such Warrant Certificate, or
B. instructing Styles on Video, Inc. to retain a number
of Warrant Shares (the "Payment Shares") equal to the quotient of
the aggregate Exercise Price of the Warrants hereby exercised
divided by the Market Price of such shares as of the date of
exercise, and to deduct the number of Payment Shares from the
Warrant Shares to be delivered.
The undersigned requests that certificates for such
shares be issued in the name of the following:
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
________________________________
______________________________
(Please print name and address) ______________________________
- ------------------------------
If such number of Warrants shall not constitute all the
Warrants evidenced by the foregoing Warrant Certificate, the
undersigned requests that a new Warrant Certificate evidencing the
Warrants not so exercised be issued in the name of and delivered to
the following:
- ----------------------------------------------------------------
(Please print name and address)
Capitalized terms used herein but not otherwise defined shall have
the meanings ascribed to them in the Warrant Certificate.
Dated _________________________ Name of
Warrantholder (Print) ________________
[SIGNATURE GUARANTEE] (By)_______________________________
(Not Required for Initial
Registered Warrantholder) (Title)
<PAGE>
EXHIBIT D
The final version of the Certificate of Designation for
the Series B Preferred Stock is included as Exhibit J to
this Amendment #1 to Schedule 13D.
<PAGE>
EXHIBIT J
CORRECTED AMENDED CERTIFICATE OF THE VOTING POWERS,
DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET
FORTH IN THE CERTIFICATE OF INCORPORATION OR IN ANY
AMENDMENT THERETO, OF THE
SERIES B PREFERRED STOCK
OF
STYLES ON VIDEO, INC.
Pursuant to Sections 103 and 151 of the
General Corporation Law of the State of Delaware
We, the undersigned, Nancy Galgas and Dana Arnold, the Chief
Financial Officer and Assistant Secretary, respectively, of
STYLES ON VIDEO, INC., a Delaware corporation (hereinafter
called this "corporation"), DO HEREBY CERTIFY that the Amended
Certificate of Designation of the Series B Preferred Stock of
this corporation filed in the office of the Delaware Secretary
of State on May 28, 1996 contained inaccuracies in that (i)
Section 3(a)(ii) does not correctly identify the agreements
referenced therein, (ii) Section 4(a)(i) incorrectly states
the date of the conversion rights of the preferred stock and
the conversion price and (iii) Section 6(b) omits reference to
a warrant issued by this corporation. The document annexed
hereto as Exhibit A is a true and correct copy of the terms
of the Certificate of Designation. No shares of this stock
have been issued as of the date hereof.
IN WITNESS WHEREOF, said STYLES ON VIDEO, INC. has caused
its corporate seal to be hereunto and this certificate to be
signed by its Chief Financial Officer, Nancy Galgas, and its
Assistant Secretary, Dana Arnold, this 30th day of May, 1996.
STYLES ON VIDEO, INC.
By:__ Nancy Galgas_______
Nancy Galgas
Chief Financial Officer
ATTEST:
_ Dana Arnold________________
Dana Arnold, Assistant Secretary
<PAGE>
Exhibit A
RESOLVED that, pursuant to authority conferred upon the
Board of Directors by the Certificate of Incorporation of this
corporation, as amended (hereinafter called the "Certificate of
Incorporation"), the Board of Directors hereby provides for
the issuance of one series of Preferred Stock of this corporation
to consist of 500 shares, and the Board of Directors hereby
fixes the voting powers, designation, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of the
shares of such series, in addition to those set forth in the
Certificate of Incorporation, as follows:
(A) Series B Preferred Stock. The series of Preferred
Stock shall be designated the "Series B Preferred Stock", which
series shall consist of 500 shares, par value of $.001 per share;
provided, however, that the Board of Directors may increase or
decrease (but not below the number of shares then outstanding)
the number of shares of Series B Preferred Stock subsequent to
the issue of shares of such series.
(B) Rights, Preferences and Restrictions of Series B
Preferred Stock. The Series B Preferred Stock shall have the
voting power, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or
restrictions thereof, as follows:
1. Dividend Provisions. The holders of shares of Series B
Preferred Stock shall be entitled to receive dividends on a pari
passu basis with the Series A Preferred Stock, out of any assets
legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in
Common Stock of this corporation) on the Common Stock of this
corporation, at the rate of $10.00 per share of Series B
Preferred Stock per annum, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall accrue
on each share and accrue from day to day, whether or not earned
or declared, and shall be cumulative so that if such dividends
with respect to any previous quarterly dividend period at said
rate per share per annum shall not have been paid on or declared
and set apart for all shares of Series B Preferred Stock at the
time outstanding, the deficiency shall be fully paid on or
declared and set apart for such shares before this corporation
makes any distribution (as such term is hereinafter defined) to
the holders of Common Stock. If full cumulative dividends are
not so paid, the Series B Preferred Stock will share dividends
pro-rata with the Series A Preferred Stock according to the
amount of dividends owed and payable with respect to each. The
term "distribution" as used in this paragraph shall mean the
transfer of cash or property without consideration, whether by
way of dividend or otherwise (except a dividend paid in shares of
this corporation which are junior to the Series A Preferred Stock
and the Series B Preferred Stock as to dividends or assets and
except as contemplated by this Certificate of Designation) or
the purchase or redemption of shares of this corporation for cash
or property (except for the repurchase of shares of Common Stock
from employees, directors, consultants and advisers pursuant to
the terms of stock purchase agreements under which such shares
are issued), including any such transfer, purchase or redemption
by a subsidiary of, or any entity directly or indirectly
controlled by, this corporation. The time of any distribution by
way of dividend shall be the date of declaration thereof and the
time of any distribution by purchase or redemption of shares
shall be the day cash or property is transferred by this
corporation, whether or not pursuant to a contract of an earlier
date; provided that where a negotiable debt security is issued in
exchange for shares, the time of the distribution is the date
when this corporation acquires the shares in such exchange.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary,
the holders of Series B Preferred Stock shall be entitled to
receive on a pari passu basis with the Series A Preferred Stock,
prior and in preference to any distribution of any of the assets
of this corporation to the holders of Common Stock by reason of
their ownership thereof, an amount per share equal to the sum of
(i) $100.00 for each outstanding share of Series B Preferred
Stock (the "Original Series B Issue Price"), and (ii) an amount
equal to all declared but unpaid or cumulative dividends on each
such share. If upon the occurrence of such event the assets and
funds available for distribution among the holders of the Series
A Preferred Stock and the Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full
preferential amounts with respect to such shares, then the entire
assets and funds of this corporation legally available for
distribution shall be distributed ratably among the holders of
the Series A Preferred Stock and the Series B Preferred Stock in
proportion to the number of such shares owned by each such
holder.
(b) Upon the completion of the distribution required
by subsection (a), the remaining assets of this corporation
available for distribution to stockholders shall be distributed
among the holders of Series A Preferred Stock, Series B Preferred
Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each or into which the preferred stock held
by them is convertible.
3. Redemption.
(a) Optional Redemption. The Series B Preferred Stock
shall be redeemable at the option of this corporation as provided
in this Section 3(a).
(i) The Series B Redemption Price shall be equal
to $100.00 per share of Series B Preferred Stock to be redeemed
plus any declared but unpaid or cumulative dividends on such
shares to the Redemption Date (as such term is hereinafter
defined).
(ii) Upon the receipt by this corporation from the
holders of a majority of the then outstanding shares of Series B
Preferred Stock of their written consent to redemption hereunder
of their respective shares, this corporation may, at any time it
may lawfully do so, at the option of the Board of Directors,
redeem in whole or in part the Series B Preferred Stock by paying
in cash therefor a sum equal to the Series B Redemption Price.
Notwithstanding any other provision of this Section 3, the Series
B Preferred Stock shall be redeemable at the option of this
corporation upon the earlier of (i) November 13, 2005 and
(ii) the initial date on which both (x) all indebtedness
evidenced by this corporation's 10% Senior Notes dated
November 13, 1995 issued pursuant to the Note and Preferred Stock
Purchase Agreement dated as of November 20, 1995 among this
corporation, Forever Yours, Inc. ("FYI") and International
Digital Investors, L.P. ("IDI"), as amended, and the 10% Senior
Notes issued from time to time pursuant to the Note and Preferred
Stock Purchase Agreement dated as of May 14, 1996 among this
corporation, FYI and IDI (as amended, the "Additional Note
Agreement") (and, in each case, any extension, refinancing or
other modification thereof) has been repaid and (y) at least 75%
of the Series A Warrants dated November 13, 1995 and the Series B
Warrants dated May 15, 1996 (as they may be extended, replaced or
otherwise modified, the "Series A Warrants," and the "Series B
Warrants," respectively, and including in the denominator of such
calculation any Series A Warrants and the Series B Warrants that
have expired or terminated) issued by this corporation has been
exercised.
(iii) (A) In the event of any redemption of
only a part of the then outstanding Series B Preferred Stock,
this corporation shall effect such redemption pro rata among the
holders of outstanding shares of Series B Preferred Stock
according to the number of shares held by each such holder.
(B) At least 30, but no more than 120 days
prior to the date fixed for any redemption of the Series B
Preferred Stock (a "Redemption Date"), written notice shall be
mailed, first class postage prepaid, to each holder of record (at
the close of business on the business day next preceding the day
on which notice is given) of the Series B Preferred Stock to be
redeemed, at the address last shown on the records of this
corporation for such holder or given at the place where the
principal executive office of this corporation is located,
notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder,
the Redemption Date, the Series B Redemption Price, the place at
which payment may be obtained and the date on which such holder's
Conversion Rights (as hereinafter defined) as to such shares
terminate and calling upon such holder to surrender to this
corporation in the manner and at the place designated, his
certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Except as provided in
subsection 3(a)(iii)(C), on or after the Redemption date, each
holder of Series B Preferred Stock to be redeemed shall surrender
to this corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Series B Redemption Price of
such shares shall be payable to the order of the person whose
name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In
the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(C) From and after the Redemption Date, unless
there shall have been a default on payment of the applicable
redemption price, all rights of the holders of such shares as
holders of Series B Preferred Stock (except the right to receive
the Series B Redemption Price without interest upon surrender of
their certificate or certificates), shall cease with respect to
such shares, and such shares shall not thereafter be transferred
on the books of this corporation or be deemed to be outstanding
for any purpose whatsoever.
If the funds of this corporation legally
available for redemption of shares of Series B Preferred Stock on
any Redemption Date are insufficient to redeem the total number
of shares of Series B Preferred Stock to be redeemed on such
date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among
the holders of such shares to be redeemed. The shares of Series
B Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of this corporation are
legally available for the redemption of shares of Series B
Preferred Stock, such funds will immediately be used to redeem
the balance of the shares which this corporation has become
obligated to redeem on any Redemption Date but which it has not
redeemed.
(D) Three days prior to the Redemption Date, this
corporation shall deposit the Series B Redemption Price of all
outstanding shares of Series B Preferred Stock designated for
redemption in the Redemption Notice, and not yet redeemed or
converted, with a bank or trust company having an aggregate
capital and surplus in excess of $50,000,000, as a trust fund for
the benefit of the respective holders of the shares designated
for redemption and not yet redeemed. Simultaneously, this
corporation shall deposit irrevocable instruction and authority
to such bank or trust company to pay, on and after the date fixed
for redemption or prior thereto, the Series B Redemption Price of
the Series B Preferred Stock to the holders thereof upon
surrender of their certificates. Any monies deposited by this
corporation pursuant to this subsection 3(a)(iii)(D) for the
redemption of shares which are thereafter converted into shares
of Common Stock pursuant to Section 4 hereof no later than the
close of business on the Redemption Date shall be returned to
this corporation forthwith upon such conversion. The balance of
any monies deposited by this corporation pursuant to this
subsection 3(a)(iii)(D) remaining unclaimed at the expiration of
two years following the Redemption Date shall thereafter be
returned to this corporation, provided that the shareholder to
whom such monies would be payable hereunder shall be entitled,
upon proof of its ownership of the Series B Preferred Stock and
payment of any bond requested by this corporation, to receive
such monies but without interest from the Redemption Date.
(b) Mandatory Offer to Redeem. In the event of a
Change of Control (as such term is defined below), this
corporation shall offer to redeem all of the then outstanding
shares of Series B Preferred Stock at a price equal to the
Redemption Price.
(i) A Change of Control shall mean (A) a merger
or consolidation of this corporation into or with any other
corporation or other entity or person (regardless of whether this
corporation shall be the continuing or surviving corporation of
such consolidation or merger); (B) a sale or other disposition of
all or a significant portion of this corporation's properties and
assets to any other person; or (C) any transaction or series of
related transactions in which an excess of 10% of this
corporation's voting power is transferred (other than by
redemption of its Series A Preferred Stock as permitted under the
Series A Certificate of Designation and the Series B Preferred
Stock as set forth herein or by the exercise of the Series A
Warrants or the Series B Warrants) or the acquisition by any
person or group of persons of more than 10% of the Common Stock.
(ii) Within 30 days of the occurrence of a Change
of Control, notice shall be mailed, first class postage prepaid,
to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of
the Series B Preferred Stock, at the address last shown on the
records of this corporation for such holder or given by the
holder to this corporation for the purpose of notice or if no
such address appears or is given at the place where the principal
executive office of this corporation is located, of the holders'
right to have their shares of Series B Preferred Stock redeemed,
the date on which such redemption shall take place (which date
shall be not less than 30 nor more than 90 days after the date of
such notice) and of the manner in which and the place at which
any holders' electing to have their shares of Series B Preferred
Stock redeemed shall surrender their certificates representing
the shares to be redeemed.
(c) Status of Redeemed Shares. Shares of Series B
Preferred Stock which have been redeemed shall, after such
redemption, have the status of authorized but unissued shares of
Preferred Stock of this corporation, without designation as to
series, until such shares are once more designated as part of a
particular series by or on behalf of the Board of Directors.
4. Conversion. The holders of Series B Preferred Stock
shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert
(i) Subject to subsection (c), each share of
Series B Preferred Stock shall be convertible, at the option of
the holder thereof, at any time on or after the First Conversion
Date (as defined below) and prior to the close of business on any
Redemption Date as may have been fixed in any Redemption Notice
with respect to such share, at the office of this corporation or
any transfer agent for the Series B Preferred Stock, into such
number of fully paid and nonassessable shares of this
corporation's Common Stock as is determined by dividing the
Original Series B Issue Price (as defined in Section 2(a)) by the
Conversion Price (as defined below) at the time in effect for
such series. The First Conversion Date shall be the earliest to
occur of (i) October 31, 1996, (ii) the date on which all
corporate and shareholder action on the part of this corporation
shall have been taken to authorize and reserve for issuance a
number of shares of Common Stock at least equal to the number of
shares into which the Series B Preferred Stock is convertible on
the date hereof and (iii) the first date on which any of the
Settlement Warrants, the Arnold Warrant, the Shutler Warrants or
the Independent Committee Warrants (each as defined in the
Additional Note Agreement) become exercisable, in whole or in
part. The initial Conversion Price per share for shares of
Series B Preferred Stock shall be $0.075; provided, however, that
this Conversion Price for the Series B Preferred Stock shall be
subject to adjustment as set forth in subsection 4(c).
(ii) In the event of a call for redemption of any
shares of Series B Preferred Stock pursuant to Section 3 hereof,
the Conversion Rights shall terminate as to the shares designated
for redemption at the close of business on the Redemption Date,
unless default is made in payment of the Series B Redemption
Price.
(b) Mechanics of Conversion. Before any holder of
Series B Preferred Stock shall be entitled to convert the same
into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the
Series B Preferred Stock and shall give written notice by mail,
postage prepaid, to this corporation at its principal corporate
office, of the election to convert the same and shall state
therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B Preferred Stock
or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series
B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock as of such date. If
the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the
conversion may, at the option of any holder tendering Series B
Preferred Stock for conversion, be conditioned upon the closing
with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series B
Preferred Stock shall not be deemed to have converted such Series
B Preferred Stock until immediately prior to the closing of such
sale of securities.
(c) Conversion Price Adjustments of Series B Preferred
Stock. The Conversion Price of the Series B Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue any
Additional Stock (as defined below) without consideration or for
a consideration per share less than the Conversion Price for the
Series B Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for the
Series B Preferred Stock in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this
clause (i)) be adjusted to a price equal to the product of (A)
the Conversion Price for the Series B Preferred Stock immediately
prior to the issuance of the Additional Stock, multiplied by (B)
a fraction (x) the numerator of which is the sum of (I) the
number of shares of Common Stock outstanding immediately prior to
such issuance (determined in accordance with Section 4(c)(i)(E))
plus (II) the number of shares of Common Stock purchasable at the
Conversion Price in effect with respect to such share of Series B
Preferred Stock immediately prior to the issuance of the
Additional Stock for an aggregate purchase price equal to the
consideration (or conversion, exercise or other price determined
in accordance with Section 4(c)(i)(E)) of the Common Stock issued
pursuant to such issuance and (y) the denominator of which is the
number of shares of Common Stock outstanding immediately after
such issuance (determined in accordance with Section 4(c)(i)(E)).
(B) No adjustment of the Conversion Price of
the Series B Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent
adjustment made prior to three years from the date of the event
giving rise to the adjustment being carried forward, or shall be
made at the end of the three years from the date of the event
giving rise to the adjustment being carried forward. Except to
the limited extent provided for in subsections (E)(3) and (E)(4),
no adjustment of such Conversion Price for the Series B Preferred
Stock pursuant to this subsection 4(c)(i) shall have the effect
of increasing the Conversion Price for the Series B Preferred
Stock above the Conversion Price for that series in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or
incurred by this corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be the
fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(E) In the case of the issuance of options
to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock
or options to purchase or rights to subscribe for such
convertible or exchangeable securities (which are not excluded
from the definition of Additional Stock), the following
provisions shall apply:
1. The aggregate maximum number of shares
of Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the
consideration (determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)), if any, received by
this corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or
rights for the Common Stock covered thereby.
2. The aggregate maximum number of shares
of Common Stock delivered upon conversion of or in exchange
for any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or
such options or rights were issued and for a consideration
equal to the consideration, if any, received by this
corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by this corporation
upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)).
3. In the event of any change in the number
of shares of Common Stock deliverable or any increase in the
consideration payable to this corporation upon exercise of
such options or rights or upon conversion of or in exchange
for such convertible or exchangeable securities, including,
but not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the Series B
Preferred Stock obtained with respect to the adjustment
which was made upon the issuance of such options, rights or
securities, and any subsequent adjustments based thereon,
shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common
Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange
of such securities.
4. Upon the expiration of any such options
or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related
to such convertible or exchangeable securities, the
Conversion Price of the Series B Preferred Stock obtained
with respect to the adjustment which was made upon the
issuance of such options, rights or securities or options or
rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect
the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such
securities; provided however that this section shall not
have any effect on any conversion of Series B Preferred
Stock prior to such expiration or termination.
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to
subsection 4(c)(i)(E)) by this corporation after the purchase
date for Series B Preferred Stock other than
(A) Common Stock issued pursuant to a
transaction described in subsection 4(c)(iii) hereof,
(B) Common Stock issued or issuable upon
conversion of the Series A Preferred Stock or the Series B
Preferred Stock,
(C) Common Stock issued or issuable upon
exercise of the Series A Warrants or the Series B Warrants, or
(D) Common Stock issued or issuable upon
exercise of the stock options granted pursuant to employee stock
option plans approved in writing by holders of at least 50% of
Series B Preferred Stock.
(iii) In the event this corporation should at
any time or from time to time after a purchase date for the
Series B Preferred Stock fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such
dividend distribution, split or subdivision if no record date is
fixed), the Conversion Price of the Series B Preferred Stock
shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase of outstanding
shares determined in accordance with subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock
outstanding at any time after a purchase date for the Series B
Preferred Stock is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series B Preferred
Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of
such series shall be decreased in proportion to such decrease in
outstanding shares.
(v) If the Series B Warrants are issued
contemporaneously with the Series B Preferred Stock in May, 1996
with an initial exercise price per share that is different than
the initial Conversion Price per share, the initial Conversion
Price per share will be changed to equal the initial per share
exercise price of the Series B Warrants, and thereafter will be
subject to adjustment as otherwise set forth in this subsection
4(c).
(d) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of
other persons, evidences of indebtedness issued by this
corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(c)(iii),
then, in each such case for the purpose of this subsection 4(d),
the holders of Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of this
corporation into which their shares of Series B Preferred Stock
are convertible as of the record date fixed for the determination
of the holders of Common Stock of this corporation entitled to
receive such distribution.
(e) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other
than a subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 4 or Section
5), provision shall be made so that the holders of Series B
Preferred Stock shall thereafter be entitled to receive upon
conversion of their Series B Preferred Stock the number of shares
of stock or other securities or property of this corporation or
otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In
any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to
the rights of the holders of Series B Preferred Stock after the
recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price, if applicable,
then in effect and the number of shares purchasable upon
conversion of Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by
amendment of its Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in
good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series B Preferred Stock against
impairment.
(g) No Fractional Shares and Certificate as to
Adjustments
(i) No fractional shares shall be issued upon
conversion of the Series B Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of
the total number of shares of the Series B Preferred Stock the
holder is at the time converting into the Common Stock and the
number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series B Preferred Stock
pursuant to this Section 4, this corporation, at its expense,
shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any
holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price at
the time in effect and (C) the number of shares of Common Stock
and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series B Preferred
Stock.
(h) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any
class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series B Preferred
Stock, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or
right.
(i) Reservation of Stock Issuable Upon Conversion.
This corporation shall on or before October 31, 1996 and at all
times thereafter reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Series B Preferred
Stock such number of its 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; and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of Series B Preferred Stock, in addition to
such other remedies as shall be available to the holder of such
Series B Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes.
(j) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series B
Preferred Stock shall be deemed given if deposited in the United
States mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of this corporation.
5. Merger, Consolidation.
(a) If at any time there is a merger or consolidation
of this corporation with or into another corporation or other
entity or person, or any other corporate reorganization in which
this corporation shall not be the continuing or surviving entity
of such merger, consolidation or reorganization, or the sale of
all or substantially all of this corporation's properties and
assets to any other person, or any transaction or series of
related transactions by this corporation in which in excess of
50% of this corporation's voting power is transferred (other than
by redemption of its Series A Preferred Stock as permitted under
the Series A Certificate of Designation and/or the Series B
Preferred Stock as permitted hereunder or upon the exercise of
the Series A Warrants or the Series B Warrants), then, as a part
of such reorganization, merger, consolidation or sale, provision
shall be made so that the holders of the Series B Preferred Stock
shall be entitled to receive prior to any distribution to holders
of Common Stock, the number of shares of stock or other
securities or property to be issued to this corporation or its
stockholders resulting from, such reorganization, merger,
consolidation or sale in an amount per share equal to the
Original Series B Issue Price plus a further amount equal to any
dividends declared but unpaid or cumulative on such shares. The
holders of Common Stock shall thereafter be entitled to receive,
pro rata, the remainder of the number of shares of stock or other
securities or property to be issued to this corporation or its
stockholders resulting from such reorganization, merger,
consolidation or sale.
(b) Any securities to be delivered to the holders of
Series B Preferred Stock and Common Stock pursuant to subsection
5(a) above shall be valued as follows:
(i) Securities not subject to investment letter
or other similar restrictions on free marketability;
(A) If traded on a securities exchange, the
value shall be deemed to be the average of the closing prices of
the securities on such exchange over the 30-day period ending
three days prior to the closing;
(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices
over the 30-day period ending three days prior to the closing;
and
(C) If there is no active public market, the
value shall be the fair market value thereof, as mutually
determined by the corporation and the holders of not less than a
majority of the then outstanding shares of Series B Preferred
Stock.
(ii) The method of valuation of securities subject
to investment letter or other restrictions on free marketability
shall be to make an appropriate discount from the market value
determined as above in (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by
this corporation and the holders of a majority of the then
outstanding shares of Series B Preferred Stock.
(c) In the event the requirements of subsection 5(a)
are not complied with, this corporation shall forthwith either:
(i) cause such closing to be postponed until such
time as the requirements of this Section 5 have been complied
with, or
(ii) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series B
Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date
of the first notice referred to in subsection 5(d) hereof.
(d) This corporation shall give each holder of record
of Series B Preferred Stock written notice of such impending
transaction not later than 20 days prior to the stockholders
meeting called to approve such transaction, or 20 days prior to
the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and
the provisions of this Section 5, and this corporation shall
thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place earlier
than 20 days after the corporation has given the first notice
provided for herein or earlier than ten days after the
corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened
upon the written consent of the holders of a majority of the
shares of the Series B Preferred Stock then outstanding.
(e) The provisions of this Section 5 are in addition
to the protective provisions of Section 7 hereof.
6. Voting Rights
(a) No Vote Except as Provided. Except as otherwise
expressly provided herein or required by law, no holder of shares
of Series B Preferred Stock shall have or possess any right to
notice of stockholders' meetings or any vote (whether at such
meeting or in writing without a meeting) with respect to any
shares of Series B Preferred Stock held by such holder on any
matter.
(b) Voting Rights Upon Occurrence of Certain Events.
If, by October 31, 1996, the Board of Directors of this
corporation shall not have adopted a resolution or resolutions
and shall not have taken all other corporate action, and the
shareholders of this corporation shall not have taken all
shareholder action, in each case, necessary to authorize and
reserve for issuance a number of shares of Common Stock at least
equal to the number of shares into which the Series A Preferred
Stock and the Series B Preferred Stock may be converted and the
Series A Warrants, Series B Warrants, the Settlement Warrants,
the Independent Committee Warrants, the Shutler Warrants and the
Arnold Warrant may be exercised (collectively, the "Authorizing
Actions"), then, until such time as the Authorizing Actions have
been taken, the holders of the Series B Preferred Stock shall
have the following voting rights:
(i) Election of Directors. At any meeting of
stockholders for the election of directors of this corporation
(or, in lieu thereof, by written consent of the outstanding
shares of Series B Preferred Stock), the holders of Series B
Preferred Stock shall have the right, voting or consenting
separately as a series, to the exclusion of the holders of this
corporation's Common Stock or any other series of preferred stock
or any other class or series of capital stock of this
corporation, to elect the Applicable Number (as hereinafter
defined) of directors of this corporation (each a "Series B
Director"). Any Series B Director may be removed by, and (except
as provided elsewhere in this paragraph (b)) shall not be removed
without cause (or, except to the extent required by law, with
cause) except by the vote or consent of the holders of record of
a majority of the outstanding shares of Series B Preferred Stock
voting or consenting, separately as a series, at a meeting of the
stockholders or of the holders of the shares of Series B
Preferred Stock called for that purpose or pursuant to a written
consent of the Series B Preferred Stock, as the case may be. Any
vacancy in the office of a Series B Director may be filled only
by the vote of consent of the holders of record of a majority of
the outstanding shares of Series B Preferred Stock voting or
consenting, separately as a series, at a meeting of the
stockholders or of the holders of the shares of Series B
Preferred Stock called for that purpose or pursuant to a written
consent of the Series B Preferred Stock, as the case may be, or
in the case of a vacancy created by removal of a Series B
Director, as provided above, at the same meeting at which such
removal shall be voted or by written consent of a majority of the
outstanding shares of Series B Preferred Stock. In no instance
shall the Board of Directors of this corporation have the power
to fill any vacancy in the office of a Series B Director.
Whenever the holders of the Series B Preferred Stock shall cease
to be entitled to elect the then established Applicable Number of
directors, then and in any such case such Series B Directors or
Director as shall be designated by majority vote of the holders
of the Series B Preferred Stock shall, without any further
action, immediately cease to be a director of this corporation.
(ii) Applicable Number. The Applicable Number
shall be the smallest whole number that is greater than or equal
to the product of (i) 1/7 and (ii) the total number of directors
at such time (including the directors that the holders of Series
B Preferred Stock are entitled to elect at such time).
7. Protective Provisions. So long as shares of Series B
Preferred Stock are outstanding, this corporation shall not
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) sell, convey, or otherwise dispose of or encumber
all or substantially all of its property or business or merge
into or consolidate with any other corporation (other than a
wholly owned subsidiary corporation) or effect any transaction or
series of related transactions (other than a redemption of Series
B Preferred Stock permitted hereunder) in which more than 50% of
the voting power of this corporation is disposed of;
(b) alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock so as to
affect adversely the shares; or
(c) increase the authorized number of shares of Series
B Preferred Stock; or
(d) create any new class or series of stock (i) having
a preference over, or being on a parity with, the Series B
Preferred Stock under this Section 7; or
(e) do any act or thing which would result in taxation
of the holders of shares of Series B Preferred Stock under
Section 305(b) of the Internal Revenue Code of 1986 (or any
comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
8. Status of Converted or Redeemed Stock. In the event
any shares of Series B Preferred Stock shall be redeemed or
converted pursuant to Section 3 or Section 4 hereof, the shares
so converted or redeemed shall be canceled and shall not be
issuable by the corporation and the Certificate of Incorporation
of this corporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital
stock.
9. No Preemptive Rights. The holders of the Series B
Preferred Stock shall not have any preemptive rights.
<PAGE>
EXHIBIT K
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER
APPLICABLE STATE SECURITIES LAW OR REGISTRATION OF SUCH
SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED OR
UNLESS THE SALE OR TRANSFER IS MADE IN COMPLIANCE
WITH RULE 144 OR 144A PROMULGATED UNDER SUCH ACT AND,
IF REASONABLY REQUESTED BY STYLES ON VIDEO, INC. (THE
"COMPANY"), THE COMPANY HAS RECEIVED AN OPINION OF
ITS COUNSEL THAT THE SECURITIES OR THE SALE OR TRANSFER
ARE EXEMPT FROM REGISTRATION. THE SALE, TRANSFER OR OTHER
DISPOSITION OF THE SECURITIES IS ALSO SUBJECT TO COMPLIANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN NOTE
AND PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF
NOVEMBER 20, 1995, AS AMENDED AND RESTATED PURSUANT TO
THAT CERTAIN NOTE AND PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF
MAY 14, 1996, AND AS FURTHER SUPPLEMENTED,
MODIFIED AND AMENDED FROM TIME TO TIME, AMONG THE
COMPANY AND THE STOCKHOLDERS, NOTEHOLDERS
AND WARRANTHOLDERS SIGNATORY THERETO,
A COPY OF WHICH AGREEMENT IS AVAILABLE FOR
INSPECTION DURING REGULAR BUSINESS HOURS AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
STYLES ON VIDEO, INC.
AMENDED AND RESTATED WARRANT CERTIFICATE
May 15, 1996
Series A Warrants to Purchase Common Stock
No. R-1 Certificate for 3,914,882 Warrants
STYLES ON VIDEO, INC., a Delaware corporation (the
"Company"), hereby certifies that, for value received,
International Digital Investors, L.P., a Delaware limited
partnership ("Initial Holder"), or registered assigns, is the
registered owner of the number of Series A Warrants of the Company
set forth above. This Warrant Certificate (this "Warrant
Certificate") evidences 3,914,882 Series A Warrants (the
"Warrants") and amends and restates in its entirety that certain
Warrant Certificate dated as of November 20, 1995, issued by the
Company to the Initial Holder.
Each Warrant entitles the registered owner thereof to
purchase one share (each such share being referred to herein as a
"Warrant Share" and all such shares being referred to herein,
collectively, as the "Warrant Shares"), as adjusted from time to
time as provided in Section 7 hereof, of Common Stock, $.001 par
value per share, of the Company ("Common Stock"). Each Warrant may
be exercised, from time to time, prior to 5:00 P.M. on November 20,
2005 (the "Expiration Date"), subject to the following terms and
conditions.
Section 1. Registration. The Company shall register
each Warrant, upon records to be maintained by the Company for such
purpose (such records being referred to herein as the "Register"),
in the name of the record holder of such Warrant from time to time.
The Company may deem and treat the registered holder of each
Warrant as the absolute owner thereof, and for all other purposes,
and the Company shall not be affected by any notice to the
contrary.
Section 2. Registration of Transfers and Exchanges.
(a) Registration, Issuance of New Warrant Certificates.
The Company shall register in the Register the transfer of any
Warrants upon the surrender of this Warrant Certificate, with the
Form of Assignment attached as Annex A hereto duly filled in and
signed (and with a signature guarantee for the transfer of any
Warrants by a registered holder which is not the initial registered
holder of this Warrant Certificate), to the Company at the office
of the Company set forth in Section 3(c) hereof, provided, however,
that the Company shall not be required to register any transfer of
warrants that is not permitted under the terms of the Note and
Preferred Stock Purchase Agreement dated as of November 20, 1995
among the Company, Forever Yours, Inc. and the Initial Holder, as
amended and restated by the Amended and Restated Note and
Preferred Stock Purchase Agreement dated as of May 14, 1996 (as
further supplemented, modified and amended from time to time (the
"Note Purchase Agreement")), and no such purported transfer shall
be effective unless it is in accordance with the terms of the Note
Purchase Agreement. Upon any such registration of transfer, a new
Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the Warrants so transferred shall be issued
to the transferee of such Warrants and a new Warrant Certificate,
in substantially the form of this Warrant Certificate, evidencing
the remaining Warrants, if any, not so transferred, shall be issued
to the then-registered holder thereof. The Company shall at no
time close the Register against the permitted transfer of any
Warrant or Warrant Share in any manner which materially interferes
with the timely exercise of such Warrant.
(b) Warrants Exchangeable for Different Denominations.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the office of the Company set forth in
Section 3(c) hereof, for new Warrant Certificates, in substantially
the form of this Warrant Certificate, evidencing in the aggregate
the right to purchase the number of Warrant Shares which may then
be purchased under this Warrant Certificate. Each such new Warrant
Certificate shall be dated the date of such exchange and represent
the right to purchase such number of Warrant Shares as shall be
designated by the holder of this Warrant Certificate at the time of
such surrender.
Section 3. Duration, Termination and Exercise of
Warrants.
(a) Warrants shall be exercisable by the registered
holder thereof from time to time on any business day before 5:00
P.M., Los Angeles time, on the Expiration Date. At 5:00 P.M., Los
Angeles time, on the Expiration Date, each Warrant not exercised
prior thereto shall be and become void and of no value.
(b) Subject to the provisions of this Warrant
Certificate, including adjustments to the Exercise Price and to the
number of Warrant Shares issuable upon the exercise of each Warrant
pursuant to Section 7 hereof, each holder of a Warrant on or prior
to the Expiration Date shall have the right to purchase from the
Company (and the Company shall be obligated to issue and sell to
such holder of a Warrant) at the Exercise Price one fully-paid
Warrant Share which is nonassessable.
(c) Subject to Sections 4, 10 and 11 hereof, upon (i)
surrender of this Warrant Certificate, with the Form of Election to
Purchase attached as Annex B hereto (the "Form of Election to
Purchase") duly filled in and signed, to the Company at its office
at 667 Rancho Conejo, Newbury Park, California 91320. Attention:
President, or at such other address as the Company may specify in
writing to the then-registered holder of the Warrants, and (ii)
payment of the Exercise Price, multiplied by the number of Warrant
Shares then issuable upon exercise of the Warrants being so
exercised, the Company shall promptly, but in any event within
three days of its receipt of the Form of Election to Purchase,
together with the Warrant Certificate and receipt of payment of the
Exercise Price, issue and cause to be delivered to or upon the
written order of the registered holder of the Warrants being so
exercised, and in such name or names as such registered holder may
designate (subject to Section 4 hereof and to the Note Purchase
Agreement), a certificate for the Warrant Shares issued upon such
exercise of such Warrants, provided that any and all such
certificates shall bear a legend regarding the transferability of
the Warrant Shares as provided in the Note Purchase Agreement. Any
person so designated to be named in such certificate for such
Warrant Shares shall be deemed to have become the holder of record
of such Warrant Shares as of the Date of Election to Purchase such
Warrants. The "Date of Election to Purchase" any Warrant means the
date on which the Company shall have received (1) this Warrant
Certificate, with the Form of Election to Purchase duly filled in
and signed, and (2) payment of the Exercise Price for such Warrant.
(d) In lieu of delivering the Exercise Price in cash, a
holder may, at its option, instruct the Company in the Form of
Election to Purchase to retain, in payment of the Exercise Price,
a number of Warrant Shares (the "Payment Shares") equal to the
quotient of the aggregate Exercise Price of the Warrants then being
exercised divided by the Market Price of such shares as of the date
of exercise, and to deduct the number of Payment Shares from the
Warrant Shares to be delivered to such holder.
(e) The Warrants evidenced by this Warrant Certificate
shall be exercisable either as an entirety or, from time to time,
for part only of the number of Warrants evidenced hereby. If fewer
than all of the Warrants evidenced by this Warrant Certificate are
exercised at any time, the Company, at its expense, shall issue to
the registered holder a new Warrant Certificate, in substantially
the form of this Warrant Certificate, for the remaining number of
Warrants evidenced by this Warrant Certificate.
Section 4. Payment of Taxes. The Company shall pay
all issuance and transfer taxes and charges that may be imposed on
the Company or on the Warrants or the Warrant Shares in respect of
the transfer of Warrants, or the issuance or delivery of the
Certificates for Warrant Shares or other securities in respect of
the Warrant Shares upon the exercise or conversion of Warrants;
provided, however, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of
Warrants, or the issuance or delivery of certificates for Warrant
Shares or other securities in respect of the Warrant Shares upon
the exercise of Warrants, to a person or entity other than a then-
existing registered holder of Warrants.
Section 5. Mutilated or Missing Warrant Certificate.
If this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, upon request by the registered holder of the Warrants,
the Company shall issue, in exchange for and upon cancellation of
the mutilated Warrant Certificate, or in substitution for the lost,
stolen or destroyed Warrant Certificate, a new Warrant Certificate,
in substantially the form of this Warrant Certificate, of like
tenor and representing the equivalent number of Warrants, but, in
the case of loss, theft or destruction of this Warrant Certificate
and, if requested by the Company, indemnity also satisfactory to
it.
Section 6. Reservation and Issuance of Warrant
Shares.
(a) The Company shall at all times have authorized, and
reserve and keep available, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of
the Warrants, the number of Warrant Shares deliverable upon
exercise of the Warrants. The Company shall take any further
corporate action which may be necessary in order that the Company
may validly and legally issue, at the Exercise Price, Warrant
Shares that are fully-paid and nonassessable.
(b) The Company covenants that all Warrant Shares will,
upon issuance in accordance with the terms of this Warrant
Certificate, be (i) duly authorized, validly issued, fully-paid and
nonassessable and (ii) free from all taxes or other governmental
charges with respect to the issuance thereof (not including (y)
income taxes payable by the holders of Warrants being exercised in
respect of gains thereon, and (z) transfer taxes, in accordance
with the provisions of Section 4 above) and from all liens, charges
and security interests created by the Company.
(c) If the issuance of any Warrant Shares required to be
reserved pursuant to paragraph (a) of this Section 6 requires
registration with or approval of any governmental authority under
any Federal or state law (other than the Securities Act and state
securities laws, registration under which is governed by the Note
Purchase Agreement and the Amended and Restated Registration Rights
Agreement, dated as of May 15, 1996, between the Company and the
Initial Holder), before such Warrant Shares may be issued upon the
exercise thereof, the Company shall, at its expense and as
expeditiously as possible, use its best efforts to cause such
Warrant Shares to be duly registered or approved, as the case may
be, provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it is
not then so qualified, to subject itself to taxation in any
jurisdiction where it is not then subject to taxation, or take any
action which would subject it to general service of process in any
jurisdiction where it is not then so subject.
(d) To the extent that any exercise of Warrants is
subject to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and related regulations (the "HSR Act"), the
Company shall promptly upon the request of the holder of this
Warrant Certificate, cooperate with such holder in complying with
the HSR Act, including providing copies of relevant information
regarding the Company and, if required under the HSR Act, preparing
and filing with the Federal Trade Commission and the Department of
Justice a Notification and Report Form pursuant to the HSR Act.
Section 7. Adjustments.
(a) Adjustments of Number of Warrant Shares. The number
of Warrant Shares issuable upon the exercise of each Warrant shall
be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment pursuant to any of paragraphs (b), (c), (d) or
(e) of this Section 7, each Warrant shall thereafter entitle the
holder thereof to purchase at the Exercise Price the number of
Warrant Shares resulting from such adjustment (the "Adjusted
Warrant Share Amount").
(b) Adjustment upon Issuance of Common Stock. If at any
time after the date hereof, the Company shall issue or sell any
shares of Common Stock for a consideration per share less than the
Market Price (as hereinafter defined) immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the
Adjusted Warrant Share Amount shall be equal to the product of the
Adjusted Warrant Share Amount in effect immediately prior to the
time of such issue or sale multiplied by a fraction, the numerator
of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issue or sale
multiplied by (y) the Market Price immediately prior to such issue
or sale, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding prior to such issue or
sale multiplied by the Market Price immediately prior to such issue
or sale plus (b) the consideration received by the Company upon
such issue or sale.
(c) Other Adjustment Events and Provisions. For the
purposes of this Section 7, the following clauses shall also be
applicable.
(i) Issuance of Rights, Warrant or Options. Except as
provided in clauses (iii) and (xii) of this Section 7(c)
hereof, in case at any time the Company shall grant, issue or
sell (whether directly or by assumption in a merger or
otherwise) any rights or warrants (other than the Warrants) to
subscribe for or to purchase, or any options for the purchase
of, Common Stock or any stock or securities convertible into
or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called
"Convertible Securities") whether or not such rights or
warrants or options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon
the exercise of such rights or warrants or options or upon
conversion or exchange of such Convertible Securities
(determined as provided below) shall be less than the Market
Price determined as of the date of granting such rights or
warrants or options, as the case may be, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights (other than rights issued pursuant to
a stockholders' rights plan adopted by the Company pursuant to
which the acquisition by any third party of a specified
percentage of shares of Common Stock triggers the
exercisability of such rights to purchase Common Stock for so
long as no event has occurred triggering such right to
exercise) or warrants or options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or
warrants or options shall (as of the date of granting of such
rights or warrants or options) be deemed to be outstanding and
to have been issued for such price per share. Except as
provided in clause (v) of this Section 7(c), no further
adjustment of the Adjusted Warrant Share Amount shall be made
upon the actual issue of such Common Stock or such Convertible
Securities upon exercise of such rights or warrants or options
or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities. For the purposes
of this clause (i), the price per share for which Common Stock
is issuable upon the exercise of any such rights or warrants
or options or upon conversion or exchange of any such
Convertible Securities shall be determined by dividing (A) the
total amount, if any, received or receivable by the Company as
consideration for the granting of such rights of warrants or
options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all
such rights or warrants or options, plus, in the case of such
rights or warrants or options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the exercise of such rights or warrants or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or warrants or options.
(ii) Issuance of Convertible Securities. In case the
Company shall issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities (other
than the Series B Preferred Stock being issued on the date
hereof), whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion
or exchange of such Convertible Securities (determined as
provided below) shall be less than the Market Price determined
as of the date of such issue or sale of such Convertible
Securities, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or
sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share,
provided that (A) except as provided in clause (v) of this
Section 7(c), no further adjustments of the Adjusted Warrant
Share Amount shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and (B) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights or
warrants to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments
of the Adjusted Warrant Share Amount have been or are to be
made pursuant to clause (i) of this Section 7(c), no further
adjustment of the Adjusted Warrant Share Amount shall be made
by reason of such issue or sale. For the purposes of this
clause (ii), the price per share for which Common Stock is
issuable upon conversion or exchange of Convertible Securities
shall be determined by dividing (1) the total amount received
or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (2)
the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible
Securities.
(iii) Issuance of Additional Settlement Warrants. If
the number of shares of Common Stock issuable upon the
exercise of the Settlement Warrants (as defined in Section
7(c)(xii)(A)) shall be increased from 1,750,000 shares, then
upon the occurrence of such increase, the Adjusted Warrant
Share Amount shall be equal to the product of the Adjusted
Warrant Share Amount immediately prior to such increase
multiplied by a fraction the numerator of which is (i) the
total number of shares of Common Stock outstanding immediately
thereafter (assuming the issuance of all shares subject to the
Settlement Warrant) and the denominator of which is the total
number of shares of Common Stock outstanding immediately prior
to such increase.
(iv) Misstatement of Outstanding Common Stock. If the
number of shares of Common Stock issued and outstanding as of
the date on which the Company has given its representation
pursuant to Section 3.2(a) of the Note Purchase Agreement or
if the number of shares of Common Stock issuable pursuant to
outstanding warrants, options, or rights including conversion
or preemptive rights) or agreements for the purchase or
acquisition from the Company of any of its shares of capital
stock on which the Company has given its representation
pursuant to Section 3.2(d) of the Note Purchase Agreement is
greater than the respective number set forth in such
representations, the Adjusted Warrant Share Amount shall be
equal to the product of the Adjusted Warrant Share Amount
immediately prior to any adjustment hereunder, multiplied by
a fraction the numerator of which is the total number of
shares of Common Stock actually outstanding or issuable as of
the date of such representation and the denominator of which
is the total number of shares of Common Stock that the Company
represented were outstanding or issuable.
(v) Change in Option Price or Conversion Rate. If the
purchase price provided for in any rights or warrants or
options referred to in clause (i) above, or the additional
consideration, if any, payable upon the conversion or exchange
of Convertible Securities referred to in clause (i) or (ii)
above, or the date at which any Convertible Securities
referred to in clause (i) or (ii) above are convertible into
or exchangeable for Common Stock, shall change (other than
under or by reason of an event resulting in a change pursuant
to provisions set forth in the documents governing such
rights, warrants, options or Convertible Securities designed
to protect against dilution, to the extent such event also
results in an adjustment pursuant to this Section 7), then the
Adjusted Warrant Share Amount in effect at the time of such
event shall forthwith be readjusted to the Adjusted Warrant
Share Amount which would have been in effect at such time had
such rights, warrants, options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold. On the
expiration of any such option or warrant or right or the
termination of any such right to convert or exchange such
Convertible Securities, the Adjusted Warrant Share Amount then
in effect hereunder shall forthwith be decreased to the
Adjusted Warrant Share Amount which would have been in effect
at the time of such expiration or termination had such right,
warrant, option or Convertible Security, to the extent
outstanding immediately prior to such expiration or
termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If
the purchase price provided for in any such right or warrant
or option referred to in clause (ii) above or the rate at
which any Convertible Securities referred to in clause (i) or
(ii) above are convertible into or exchangeable for Common
Stock, shall change at any time under or by reason of
provisions set forth in the documents governing such rights,
warrants, options or Convertible Securities designed to
protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any right or warrant or
option or upon conversion or exchange of any such Convertible
Security, the Adjusted Warrant Share Amount then in effect
hereunder shall forthwith be adjusted to such respective
amount as would have obtained had such right, warrant, option
or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the
shares of Common Stock delivered as aforesaid, but only if as
a result of such adjustment the Adjusted Warrant Share Amount
then in effect hereunder is thereby increased.
(vi) Stock Dividends. In case the Company shall declare
a dividend or make any other distribution upon any stock of
the Company payable in Common Stock or Convertible Securities,
any Common Stock or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
(vii) Consideration for Stock. In case any shares of
Common Stock or Convertible Securities or any right or
warrants or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold
(A) for cash, the consideration received therefor
shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses
incurred or any underwriting commission or concessions
paid or allowed by the Company in connection therewith.
(B) for a consideration other than cash, the amount
of the consideration other than cash received by the
Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of
the Company, in good faith and in the exercise of
reasonable business judgment, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith, which determination shall be conclusive and
which determination of valuation shall be sent in writing
by the Boards of Directors to the registered holders of
Warrants; provided, however, that if the fair value of
the non-cash consideration the value of which is being
determined exceeds $1,000,000, the Board of Directors of
the Company shall provide written notice of its valuation
to the Warrantholders, and in the event that the holders
of at least thirty-three percent (33%) of the then-
outstanding Warrants disagree with such valuation, such
Warrantholders may provide written notice of such
disagreement (which notice shall include such
Warrrantholder's valuation and the basis therefor) to the
Company within 15 days following such notice from the
Board of Directors. For a period of 15 days following
the delivery of the last timely delivered notice of
disagreement, the Company and such Warrantholders shall
in good faith seek to agree upon a valuation. If at the
end of such 15 day period the Company and such
Warrantholders have not agreed upon a valuation, then the
value of the non-cash consideration the value of which is
being determined shall be determined in an arbitration
conducted in the same manner as an arbitration conducted
to determine Market Price as provided in Section
7(c)(x)(B).
(C) in connection with any merger or consolidation
in which the Company is the surviving corporation (other
than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other
securities of another corporation), the amount of
consideration therefor shall be deemed to be the fair
value as determined reasonably and in good faith by the
board of directors of the Company of such portion of the
assets and business of the non-surviving corporation as
such board any determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be.
In the event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other securities of
another corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for stock or
securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value
on the date of such transaction of all such stock or securities or
other property of the other corporation, and if any such
calculation results in adjustment of the Adjusted Warrant Share
amount, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants immediately prior to the
merger, consolidation or sale, for purposes of paragraph (f) of
this Section 7, shall be made after giving effect to such
adjustment of the Adjusted Warrant Share Amount.
(viii) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities, or (B)
to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date
of the granting of such right or subscription or purchase, as
the case may be.
(ix) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, but the
disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this Section 7(c).
(x) Definition of Market Price. "Market Price" shall
mean the greater of:
(A) $0.075, and
(B) (I) if shares of the Common Stock are listed
or admitted to trading on any exchange or quoted through
NASDAQ or any similar organization, the average of the
daily closing prices per share of the Common Stock for
the 20 consecutive trading days immediately preceding the
date of public announcement of the event giving rise to
adjustment under this Section 7 or, if no such public
announcement is made with respect to such event, the
average of the daily closing prices per share of the
Common Stock for the 20 consecutive trading days
immediately preceding the day as of which "Market Price"
is being determined. The closing price of each day shall
be the last sale price regular way or, in case no such
sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case on the
New York Stock Exchange, or, if shares of the Common
Stock are not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to
trading, or if the shares are not so listed or admitted
to trading, the average of the highest reported bid and
lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or
through a similar organization if NASDAQ is no longer
reporting such information.
(II) if such shares of Common Stock are not
listed or admitted to trading on any exchange or quoted
through NASDAQ or any similar organization, such value
shall be determined by the Board of Directors of the
Company, in good faith and in the exercise of reasonable
business judgment, without taking into consideration any
premium for shares representing control of the Company,
any discount for any minority interest therein or any
restrictions on transfer under Federal and applicable
state securities laws or otherwise, which determination
shall be conclusive, and which determination of valuation
shall be sent in writing by the Board of Directors to the
registered holders of Warrants, provided, however, that
if the Market Price of the shares of Common Stock the
value of which is being determined exceeds $1,000,000,
the Board of Directors of the Company shall provide
written notice of its determination of Market Price, and
in the event that the holders of at least thirty-three
percent (33%) of the then-outstanding Warrants disagree
with such valuation, such Warrantholders may provide
written notice of such disagreement (which notice shall
include such Warrantholder's valuation and the basis
therefor) to the Company within 15 days following such
notice from the Board of Directors. For a period of 15
days following the delivery of the last timely delivered
notice of disagreement, the Company and such
Warrantholders shall in good faith seek to agree upon a
valuation. If at the end of such 15 day period the
Company and such Warrantholders have not agreed upon a
valuation, then, to the fullest extent permitted by law,
the value of the shares of Common Stock shall be
determined, at the request of any party, by arbitration
conducted in the English language in Los Angeles,
California in accordance with and to the extent permitted
by the Delaware Arbitration Act and, to the extent not
inconsistent therewith, the Rules for Large, Complex
Cases of the American Arbitration Association. The
parties to the arbitration shall attempt to select an
arbitrator from such members. If the parties to the
arbitration do not agree on the selection of an
arbitrator within twenty (20) days after the date demand
for the arbitration is filed, an arbitrator having such
experience shall be selected in accordance with such
Rules of the America Arbitration Association. The
arbitrator shall set forth his or her determination in
writing (which shall be sent to each party to such
arbitration) and shall enumerate in reasonable detail the
basis of his or her determination. No party to the
arbitration may seek, and the arbitrator shall not award,
punitive or exemplary damages. To the fullest extent
permitted by applicable law, any judgment or award
rendered by the arbitrator shall be final, conclusive and
binding. Judgment may be entered on any final,
unappealable arbitration award by any state or federal
court having jurisdiction thereof. To the fullest extent
permitted by applicable law, any controversy concerning
whether a dispute is an arbitrable dispute or as to the
interpretation or enforceability of this Section
7(c)(x)(B)(II) shall be determined by the arbitrator.
The arbitration proceedings as well as the fact such
proceedings occur, shall be kept confidential by the
parties hereto and may only be disclosed to their
personal representatives and advisors or as required by
law and insofar as is necessary to confirm, correct,
vacate or enforce the award. In the event of a breach of
this provision, the arbitrator is expressly authorized to
assess damages and each of the parties hereto consents to
the expansion of the scope of arbitration for such
purpose. The pendency of any arbitration under this
Section 7(c)(x)(B)(II) shall not relieve any party hereto
of its obligations under this Agreement. To the fullest
extent permitted by applicable law, if the Company or any
Warrantholder shall resort to legal proceedings for
injunctive or other similar relief pending the outcome of
any such arbitration proceeding or prior to the
initiation thereof, such party shall not be deemed to
have waived its rights to cause such matter or any other
mater to be referred to arbitration pursuant to this
Section 7(c)(x)(B)(II). The parties intend that this
agreement to arbitrate be valid, enforceable and
irrevocable. The designation of situs or a governing law
for this Warrant Certificate or the arbitration shall not
be deemed an election to preclude application of the
Federal Arbitration Act if it would be applicable. The
arbitrator shall have authority in his or her discretion
to grant injunctive relief, award specific performance
and impose sanctions upon any party to any such
arbitration. The fees, expenses and charges of any
arbitration pursuant to this Section 7(c)(x)(B)(II) shall
be borne (1) by the Company, if the arbitrator renders a
valuation of the shares of Common Stock that is higher
than the valuation rendered by the Board of Directors, or
(2) by the Warrantholders who have notified the Company
in writing of their objection to the valuation of the
Board of Directors, pro rata in proportion to the number
of shares of Common Stock issuable upon exercise of their
respective Warrants, if the arbitrator renders a
valuation of the shares of Common Stock that is equal to
or less than the valuation rendered by the Board of
Directors.
(xi) Determination of Market Price under Certain
Circumstances. Anything herein to the contrary
notwithstanding, in case the Company shall issue any shares of
Common Stock or Convertible Securities in connection with the
acquisition by the Company of the stock or assets of any other
corporation or the merger of any other corporation into the
Company, the Market Price shall be determined as of the date
the number of shares of Common Stock or Convertible Securities
(or in the case of Convertible Securities other than stock,
the aggregate principal amount of Convertible Securities) was
determined (as set forth in a written agreement between the
Company and the other party to the transaction) rather than on
the date of issuance of such shares of Common Stock or
Convertible Securities.
(xii) Certain Issues Excepted. Anything herein to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Adjusted Warrant Share
Amount whatsoever upon the issuance of
(A) (i) up to 593,741 shares of Common Stock, net
of repurchases, issuable to employees, directors,
consultants or advisors under options presently
outstanding which were issued prior to the date of the
Warrants pursuant to stock option and restricted stock
purchase agreements approved by the stockholders and
directors of this corporation (excluding the options for
150,000 shares to be surrendered by Guy de Vreese and
canceled in connection with settlement of pending
litigation), (ii) up to 1,750,000 shares of Common Stock
issued or issuable to present or former shareholders of
the corporation pursuant to warrants anticipated to be
issued in connection with settlement of pending
litigation (the "Settlement Warrants") to the extent the
per share exercise price with respect thereto equals or
exceeds the per share exercise price hereunder, (iii) up
to 80,000 shares of Common Stock issued or issuable
pursuant to that certain warrant granted to Ann Ehringer
in consideration for her services on the Independent
Committee established to review the transactions
contemplated by the Note Purchase Agreement to the extent
the per share exercise price with respect thereto equals
or exceeds the per share exercise price hereunder, (iv)
up to 7,749,449 shares of Common Stock issued or issuable
to Dana Arnold pursuant to the Arnold Warrant to the
extent the per share exercise price with respect thereto
equals or exceeds the per share exercise price hereunder,
(v) 250,000 shares of Common Stock issued or issuable to
Eugene Shutler pursuant to warrants issued under a
Consulting Agreement, dated as of April 19, 1996, entered
into between the corporation and Eugene Shutler to the
extent the per share exercise price with respect thereto
equals or exceeds the per share exercise price hereunder
and (vi) such additional number of shares of Common Stock
as may be fixed by the Board of Directors of this
corporation issuable or issued to employees, directors,
consultants or advisors of this corporation pursuant to
stock option or restricted stock purchase plans approved
by the stockholders and directors of this corporation
provided that the aggregate number of shares of Common
Stock issuable upon the exercise of options or other
rights issued pursuant to such plans, exclusive of any
options or other rights that have been exercised, plus
the aggregate number of share of Common Stock issued upon
exercise of such options or rights or otherwise issued
pursuant to such plans, shall not exceed 400,000 (as such
number may be proportionally adjusted upon any stock
split or combination or upon a merger or other corporate
reorganization).
(B) Common Stock issued or issuable upon conversion
of the Series A Preferred Stock and the Series B
Preferred Stock, or
(C) Common Stock issued or issuable upon exercise
of the Warrants or any other warrants outstanding on the
date hereof.
The Company shall not be required to make any such
adjustment upon the issuance of shares or the granting of any
options or Warrants or rights referred to in
Section 7(c)(xii)(A), (B) and (C) if and to the extent that
the issuance of the shares covered thereby is expected by this
clause.
(d) Certain Special Dividends. In case the Company
shall declare a dividend or make any other distribution (other than
a distribution referred to in paragraph (c) of the Section 7) upon
the Common Stock (other than regular periodic cash dividends), then
in each case the Adjusted Warrant Share Amount in effect
immediately prior to the declaration of such dividend or making of
such distribution shall be adjusted so that such Adjusted Warrant
Share Amount shall equal the number of Warrant Shares determined by
multiplying the Adjusted Warrant Share Amount in effect immediately
prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution by a fraction, the numerator of which shall be the
Market Price on the date fixed for such determination and the
denominator of which shall be the Market Price on the date fixed
for such determination less, in the case of a dividend or
distribution in cash, the amount per share of Common Stock so
declared or, in the case of any other dividend or distribution, the
then fair market value (as determined reasonably and in good faith
by the Board of Directors of the Company) of the portion of the
property so distributed applicable to one share of Common Stock,
such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such
distribution, provided, however, that for this purpose, Market
Price shall be determined as provided in Section 7(c)(x) without
regard to Section 7(c)(x)(A).
(e) Subdivision or Combination of Stock. In case the
Company shall at any time subdivide the outstanding shares of
Common Stock into a greater number of shares, the Adjusted Warrant
Share Amount in effect immediately prior to such subdivision shall
be proportionately increased,and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Adjusted Warrant Share Amount in effect
immediately prior to such combination shall be proportionately
reduced.
(f) Adjustment for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Company (i) consolidates
with or merges into any other corporation and is not the continuing
or surviving corporation of such consolidation or merger, or
(ii) permits any other corporation to consolidate with or merge
into the Company and the Company is the continuing or surviving
corporation but, in connection with such consolidation or merger,
the Common Stock is changed into or exchanged for stock or other
securities of any other corporation or cash or any other assets, or
(iii) transfers all or substantially all of its properties and
assets to any other corporation, or (iv) effects a capital
reorganization or reclassification of the capital stock of the
Company in such a way that holders of Common Stock shall be
entitled to receive stock, securities, cash or assets with respect
to or in exchange for Common Stock, then, and in each such case,
proper provision shall be made so that, upon the basis and upon the
terms and in the manner provided in this Section 7(f), the holder
of this Warrant Certificate, upon the exercise of each Warrant at
any time after the consummation of such consolidation, merger,
transfer, reorganization or reclassification, shall be entitled to
receive (at the aggregate Exercise Price in effect for all shares
of Common Stock issuable upon such exercise immediately prior to
such consummation as adjusted to the time of such transaction), in
lieu of the Adjusted Warrant Share Amount prior to such
consummation, the stock and other securities, cash and assets to
which a holder of a number of shares of Common Stock equal to the
Warrant Share Amount would have been entitled upon such
consummation (subject to adjustments subsequent to such corporate
action as nearly equivalent as possible to the adjustments provided
for in this Section 7).
(g) Notice of Adjustment. Whenever the Adjusted Warrant
Share Amount is adjusted, then and in each such case the Company
shall promptly, but in no event later than 20 days after the date
of occurrence of the event causing such adjustment, deliver a
certificate of an officer of the Company (the "Officer's
Certificate") to the registered holder of the Warrants, which
Officer's Certificate shall state the Adjusted Warrant Share Amount
resulting from such adjustment and or the increase or decrease, if
any, in the number of shares of Common Stock or other stock or
property issuable upon the exercise of each Warrant, setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based, including, if applicable, the
Market Price as determined in accordance with paragraph (c)(x) of
this Section 7. The Company shall keep at its office copies of all
certificates and cause the same to be available for inspection at
said office during normal business hours by any holder of a Warrant
or any prospective purchaser of a Warrant designated by a holder
thereof.
(h) Other Notices. In case at any time:
(i) the Company shall declare or pay any cash dividend
on the Common Stock (other than a regular periodic cash
dividend);
(ii) the Company shall declare or pay any dividend
payable in stock upon the Common Stock or make any
distribution (other than a regular periodic cash dividend) to
the holders of the Common Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares
of stock of any class or other rights;
(iv) the Company shall authorize the distribution to all
holders of the Common Stock of evidence of its indebtedness or
assets (other than a regular periodic cash dividend);
(v) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another
corporation (other than a subsidiary of the Company in which
the Company is the surviving or continuing corporation and no
change occurs in the Common Stock of the Company), or sale of
all or substantially all of the Company's assets to, another
corporation;
(vi) there shall be a voluntary or involuntary
dissolution, liquidation, bankruptcy, assignment for the
benefit of creditors or winding up of the Company, or
(vii) the Company proposes to take any other action
or an event occurs which would require an adjustment pursuant
to paragraph (i) of this Section 7, then, in any one or more
of such cases, the Company shall give written notice,
addressed to the holder of this Warrant Certificate at the
address of such holder as shown on the books of the Company,
of (A) the date on which the books of the Company shall close
or a record shall be taken for any such dividend, distribution
or subscription rights, as the case may be, or (B) the date
(or, if not then known, a reasonable approximation thereof by
the Company) on which any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, bankruptcy, assignment for the benefit of
creditors, winding up or other action, as the case may be,
shall take place. Such notice shall also specify (or, if not
then known, reasonably approximate) the date as of which the
holders of Common Stock of record shall participate in any
such dividend, distribution or subscription rights, as the
case may be, or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon any
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, bankruptcy, assignment for the
benefit of creditors, winding up, or other action, as the case
may be. Such written notice shall also state that the action
in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act or to a
favorable vote of security holders, if either is required.
Such written notice shall be given (1) at least 15 days prior
to any event specified in any of clauses (i), (ii) or (iv) of
this Section 7(h) and, with respect to any event specified in
clause (i) of this Section 7(h), at least five days prior to
the date on which the books of the Company shall close or a
record shall be taken for such event, (2) at least 20 days
prior to any event specified in clauses (iii), (v) and (vii)
of this Section 7(h) and (3) with respect to events specified
in clause (vi) of this Section 7(h), (x) at least 30 days
prior to a voluntary dissolution or liquidation of the Company
(y) at least three days prior to a voluntary bankruptcy,
assignment for the benefit of creditors or winding up of the
Company, or (z) promptly after an involuntary bankruptcy,
assignment for the benefit of creditors or winding up of the
Company. The failure to give such written notice required by
this Section 7(h) or any defect therein shall not affect any
vote upon, or the taking of, any such action.
(i) Certain Events. If any event occurs as to which in
the reasonable opinion of the Company or the holder of this Warrant
Certificate, in good faith, the other provisions of this Section 7
are not strictly applicable but the lack of any adjustment would
not in the opinion of the Company or such holder fairly protect the
purchase rights of the holder of this Warrant Certificate in
accordance with the basic intent and principles of such provisions,
or if strictly applicable would not fairly protect the purchase
rights of the holder of this Warrant Certificate in accordance with
the basic intent and principles of such provisions, then the
Company shall appoint a firm of independent certified public
accountants (which may be the regular auditors of the Company) of
recognized national standing, which shall give the opinion upon the
adjustment, if any, on a basis consistent with the basic intent and
principles established in the other provisions of this Section 7,
necessary to preserve, without dilution, the exercise rights of the
registered holder of this Warrant Certificate. Upon receipt of
such opinion, the Company shall forthwith make the adjustments
described therein.
(j) Prohibition of Certain Action. The Company shall
not, by amendment of its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant
Certificate by the Company, but shall at all times in good faith
assist in the carrying out of all the provisions of this Section 7.
Without limiting the generality of the foregoing, the Company
(a) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of the Warrants to an amount that is
greater than the Exercise Price then in effect, (b) shall take all
such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully-paid and nonassessable
shares of Common Stock upon the exercise of all Warrants from time
to time outstanding and (c) shall not take any action which results
in any adjustment of the Adjusted Warrant Share Amount if such
Adjusted Warrant Share Amount issuable after the action would
exceed the total number of shares of Common Stock then authorized
by the Company's certificate of incorporation and available for the
purpose of issue upon such exercise.
Section 8. Exercise Price. The Exercise Price of each
Warrant shall be $0.075.
Section 9. No Stock Rights. Except as may be provided
in the Stockholders Agreement, no holder of this Warrant
Certificate, as such, shall be entitled to vote or be deemed the
holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof, nor shall
anything contained herein be construed to confer upon the holder of
this Warrant Certificate, as such, the rights of a stockholder of
the Company or the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, to exercise
any preemptive right, to receive notice of meetings or other
actions affecting stockholders (except as provided herein), or to
receive dividends or subscription rights or otherwise, until the
Date of Election to Purchase Warrants shall have occurred.
Section 10. Fractional Warrant Shares. No fractional
Warrant Shares shall be issued upon exercise of the Warrants, and
the number of shares of Common Stock to be issued shall be rounded
to the nearest whole share. Whether or not fractional shares are
issuable upon such exercise shall be determined on the basis of the
total number of shares of the Warrant the holder is at that time
exercising and the number of shares of Common Stock issuable upon
such aggregate exercise.
Section 11. Absence of Registration. Neither the
Warrants nor the Warrant Shares have been registered under the
Securities Act. The holder of this Warrant Certificate, by
acceptance hereof, represents that such holder is acquiring the
warrants to be issued to such holder for such holder's own account
and not with a view to the distribution thereof, and agrees not to
sell, transfer, pledge or hypothecate any Warrants or any Warrant
Shares except in accordance with applicable law and in accordance
with the legend on the first page of this Warrant Certificate to
the extent such legend complies with applicable law.
Section 12. Notices. All notices, requests, demands and
other communications relating to this Warrant Certificate shall be
in writing, including by telecopier, addressed, if to the
registered owner hereof, to it at the address furnished by the
registered owner to the Company, and if to the Company, at its
office at 667 Rancho Conejo, Newbury Park, California 91320.
Attention President, Telecopier (805) 376-8364 or to such other
address as any party shall notify the other party in writing, and
shall be effective, upon receipt and, in the case of written notice
by mail, three days after placement into the mails (first class,
postage prepaid), and in the case of notice by telecopier on the
same day as sent if the transmission is confirmed at or before 5:00
P.M. local time in the place of receipt, otherwise on the next
business day.
Section 13. Binding Effect. This Warrant Certificate
shall be binding upon and inure to the sole and exclusive benefit
of the Company, its successors and assigns, and the registered
holder or holders from time to time of the Warrants and the Warrant
Shares.
Section 14. Survival of Rights and Duties. This Warrant
Certificate shall terminate and be of no further force and effect
on the earlier of 5:00 p.m., Los Angeles time, on the Expiration
Date or the date on which all of the Warrants have been exercised,
except that the provisions of Sections 4.6(b) and 11 of this
Warrant Certificate shall continue in full force and effect after
such termination date.
Section 15. Governing Law. This Warrant Certificate
shall be construed in accordance with and governed by the laws of
the State of California without regard to principles of conflicts
of laws.
Section 16. Modification and Waiver. This Warrant
Certificate and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed under its corporate seal by its officers
thereunto duly authorized as of the date hereof.
STYLES ON VIDEO, INC.
By: _ Nancy H. Galgas_
Name: Nancy H. Galgas
Title: Chief Financial Officer
<PAGE>
ANNEX A
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers to each assignee set forth below all
of the rights of the undersigned in and to the number of Warrants
(as defined in and evidenced by the foregoing Warrant Certificate)
set opposite the name of such assignee below and in and to the
foregoing Warrant Certificate with respect to such Warrants and the
Warrant Shares (as defined in the Warrant Certificate) issuable
upon exercisable of such Warrants.
Name of Assignee Address Number of Warrants
If the aggregate number of such Warrants shall not
constitute all the Warrants evidenced by the foregoing Warrant
Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so assigned be issued in
the name of and delivered to the undersigned.
Name of
Warrantholder (Print) ____________
Dated (By)
(Title)
[SIGNATURE GUARANTEE] ATTEST
(Not Required for Initial
Registered Warrantholder) __________________________________
Secretary
<PAGE>
ANNEX B
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Warrantholder if the Warrantholder Desires
to Exercise ________ Warrants Evidenced by the foregoing Warrant
Certificate)
To Styles on Video, Inc.:
The undersigned hereby irrevocably elects to exercise
Warrants (as defined in and evidenced by the foregoing Warrant
Certificate) for, and to purchase thereunder, Warrant Shares
issuable upon exercise of such Warrants and payment by the
Warrantholder of the Exercise Price.
The Warrantholder hereby elects to pay the Exercise Price
by complying with clause ___ below.
A. the delivery of $__________ in cash and any
applicable taxes, subject to Section 4 of the Warrant Certificate,
payable by the undersigned pursuant to such Warrant Certificate, or
B. instructing Styles on Video, Inc. to retain a number
of Warrant Shares (the "Payment Shares") equal to the quotient of
the aggregate Exercise Price of the Warrants hereby exercised
divided by the Market Price of such shares as of the date of
exercise, and to deduct the number of Payment Shares from the
Warrant Shares to be delivered.
The undersigned requests that certificates for such
shares be issued in the name of the following:
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
________________________________
______________________________
(Please print name and address)
________________________________
- -------------------------------------------------------------------
If such number of Warrants shall not constitute all the
Warrants evidenced by the foregoing Warrant Certificate, the
undersigned requests that a new Warrant Certificate evidencing the
Warrants not so exercised be issued in the name of and delivered to
the following:
- -------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Capitalized terms used herein but not otherwise defined shall have
the meanings ascribed to them in the Warrant Certificate.
Dated _________________________ Name of
Warrantholder (Print)__________
[SIGNATURE GUARANTEE] (By) __________________________
(Not Required for Initial
Registered Warrantholder) (Title)
<PAGE>
EXHIBIT L
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER
APPLICABLE STATE SECURITIES LAW OR REGISTRATION OF SUCH SECURITIES
UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED OR UNLESS THE SALE OR TRANSFER IS
MADE IN COMPLIANCE WITH RULE 144 OR 144A PROMULGATED UNDER SUCH ACT
AND, IF REASONABLY REQUESTED BY STYLES ON VIDEO, INC. (THE
"COMPANY"), THE COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL THAT
THE SECURITIES OR THE SALE OR TRANSFER ARE EXEMPT FROM REGISTRATION.
THE SALE, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES IS ALSO
SUBJECT TO COMPLIANCE WITH THE TERMS AND CONDITIONS OF THAT CERTAIN
NOTE AND PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 14,
1996, AS SUPPLEMENTED, MODIFIED AND AMENDED FROM TIME TO TIME, AMONG
THE COMPANY AND THE STOCKHOLDERS, NOTEHOLDERS AND WARRANTHOLDERS
SIGNATORY THERETO, A COPY OF WHICH AGREEMENT IS AVAILABLE FOR
INSPECTION DURING REGULAR BUSINESS HOURS AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY.
STYLES ON VIDEO, INC.
WARRANT CERTIFICATE
Dated as of May 15, 1996
Series B Warrants to Purchase Common Stock
No. R-1 Certificate for 53,286,228 Warrants
STYLES ON VIDEO, INC., a Delaware corporation (the
"Company"), hereby certifies that, for value received,
International Digital Investors, L.P., a Delaware limited
partnership ("Initial Holder"), or registered assigns, is the
registered owner of the number of Series B Warrants of the Company
set forth above. This Warrant Certificate evidences 53,286,228
Series B Warrants (the "Warrants").
Each Warrant entitles the registered owner thereof to
purchase one share (each such share being referred to herein as a
"Warrant Share" and all such shares being referred to herein,
collectively, as the "Warrant Shares"), as adjusted from time to
time as provided in Section 7 hereof, of Common Stock, $.001 par
value per share, of the Company ("Common Stock"). Each Warrant may
be exercised, from time to time, (a) on or after the earlier to
occur of (i) October 31, 1996, (ii) the date on which all corporate
and shareholder action on the part of the Company shall have been
taken to authorize and reserve for issuance a number of shares of
Common Stock at least equal to the product of the number of
Warrants evidenced hereby times the Adjusted Warrant Share Amount
(as defined below) and (iii) the first date on which any of the
Settlement Warrants (as defined below), the Arnold Warrant (as
defined in the Note Purchase Agreement), the Shutler Warrant (as
defined below) or the Independent Committee Warrant (as defined
below) becomes exerciseable, in whole or in part, and (b) prior to
5:00 P.M. on November 20, 2005 (the "Expiration Date"), subject to
the following terms and conditions.
Section 1. Registration. The Company shall register
each Warrant, upon records to be maintained by the Company for such
purpose (such records being referred to herein as the "Register"),
in the name of the record holder of such Warrant from time to time.
The Company may deem and treat the registered holder of each
Warrant as the absolute owner thereof for the purpose of any
exercise thereof or any distribution to the holder thereof, and for
all other purposes, and the Company shall not be affected by any
notice to the contrary.
Section 2. Registration of Transfers and Exchanges.
(a) Registration, Issuance of New Warrant Certificates.
The Company shall register in the Register the transfer of any
Warrants upon the surrender of this Warrant Certificate, with the
Form of Assignment attached as Annex A hereto duly filled in and
signed (and with a signature guarantee for the transfer of any
Warrants by a registered holder which is not the initial registered
holder of this Warrant Certificate), to the Company at the office
of the Company set forth in Section 3(c) hereof, provided, however,
that the Company shall not be required to register any transfer of
warrants that is not permitted under the terms of the Note and
Preferred Stock Purchase Agreement dated as of May 14, 1996 among
the Company, Forever Yours, Inc. and International Digital
Investors, L.P. (as supplemented, modified and amended from time to
time (the "Note Purchase Agreement")), and no such purported
transfer shall be effective unless it is in accordance with the
terms of the Note Purchase Agreement. Upon any such registration
of transfer, a new Warrant Certificate, in substantially the form
of this Warrant Certificate, evidencing the Warrants so transferred
shall be issued to the transferee of such Warrants and a new
Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the remaining Warrants, if any, not so
transferred, shall be issued to the then-registered holder thereof.
The Company shall at no time close the Register against the
permitted transfer of any Warrant or Warrant Share in any manner
which materially interferes with the timely exercise of such
Warrant.
(b) Warrants Exchangeable for Different Denominations.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the office of the Company set forth in
Section 3(c) hereof, for new Warrant Certificates, in substantially
the form of this Warrant Certificate, evidencing in the aggregate
the right to purchase the number of Warrant Shares which may then
be purchased under this Warrant Certificate. Each such new Warrant
Certificate shall be dated the date of such exchange and represent
the right to purchase such number of Warrant Shares as shall be
designated by the holder of this Warrant Certificate at the time of
such surrender.
Section 3. Duration, Termination and Exercise of
Warrants.
(a) Warrants shall be exercisable by the registered
holder thereof from time to time on any business day, (a) on or
after the earlier to occur of (i) October 31, 1996, (ii) the date
on which all corporate and shareholder action on the part of the
Company shall have been taken to authorize and reserve for issuance
a number of shares of Common Stock at least equal to the product of
the number of Warrants evidenced hereby times the Adjusted Warrant
Share Amount and (iii) the first date on which any of the
Settlement Warrants, the Arnold Warrant, the Shutler Warrant or the
Independent Committee Warrant becomes exerciseable, in whole or in
part, and (b) prior to before 5:00 P.M., Los Angeles time, on the
Expiration Date. At 5:00 P.M., Los Angeles time, on the Expiration
Date, each Warrant not exercised prior thereto shall be and become
void and of no value.
(b) Subject to the provisions of this Warrant
Certificate, including adjustments to the Exercise Price and to the
number of Warrant Shares issuable upon the exercise of each Warrant
pursuant to Section 7 hereof, each holder of a Warrant on or prior
to the Expiration Date shall have the right to purchase from the
Company (and the Company shall be obligated to issue and sell to
such holder of a Warrant) at the Exercise Price one fully-paid
Warrant Share which is nonassessable.
(c) Subject to Sections 4, 10 and 11 hereof, upon (i)
surrender of this Warrant Certificate, with the Form of Election to
Purchase attached as Annex B hereto (the "Form of Election to
Purchase") duly filled in and signed, to the Company at its office
at 667 Rancho Conejo, Newbury Park, California 91320. Attention:
President, or at such other address as the Company may specify in
writing to the then-registered holder of the Warrants, and (ii)
payment of the Exercise Price, multiplied by the number of Warrant
Shares then issuable upon exercise of the Warrants being so
exercised, the Company shall promptly, but in any event within
three days of its receipt of the Form of Election to Purchase,
together with the Warrant Certificate and receipt of payment of the
Exercise Price, issue and cause to be delivered to or upon the
written order of the registered holder of the Warrants being so
exercised, and in such name or names as such registered holder may
designate (subject to Section 4 hereof and to the Note Purchase
Agreement), a certificate for the Warrant Shares issued upon such
exercise of such Warrants, provided that any and all such
certificates shall bear a legend regarding the transferability of
the Warrant Shares as provided in the Note Purchase Agreement. Any
person so designated to be named in such certificate for such
Warrant Shares shall be deemed to have become the holder of record
of such Warrant Shares as of the Date of Election to Purchase such
Warrants. The "Date of Election to Purchase" any Warrant means the
date on which the Company shall have received (1) this Warrant
Certificate, with the Form of Election to Purchase duly filled in
and signed, and (2) payment of the Exercise Price for such Warrant.
(d) In lieu of delivering the Exercise Price in cash, a
holder may, at its option, instruct the Company in the Form of
Election to Purchase to retain, in payment of the Exercise Price,
a number of Warrant Shares (the "Payment Shares") equal to the
quotient of the aggregate Exercise Price of the Warrants then being
exercised divided by the Market Price of such shares as of the date
of exercise, and to deduct the number of Payment Shares from the
Warrant Shares to be delivered to such holder.
(e) The Warrants evidenced by this Warrant Certificate
shall be exercisable either as an entirety or, from time to time,
for part only of the number of Warrants evidenced hereby. If fewer
than all of the Warrants evidenced by this Warrant Certificate are
exercised at any time, the Company, at its expense, shall issue to
the registered holder a new Warrant Certificate, in substantially
the form of this Warrant Certificate, for the remaining number of
Warrants evidenced by this Warrant Certificate.
Section 4. Payment of Taxes. The Company shall pay
all issuance and transfer taxes and charges that may be imposed on
the Company or on the Warrants or the Warrant Shares in respect of
the transfer of Warrants, or the issuance or delivery of the
Certificates for Warrant Shares or other securities in respect of
the Warrant Shares upon the exercise or conversion of Warrants;
provided, however, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of
Warrants, or the issuance or delivery of certificates for Warrant
Shares or other securities in respect of the Warrant Shares upon
the exercise of Warrants, to a person or entity other than a then-
existing registered holder of Warrants.
Section 5. Mutilated or Missing Warrant Certificate.
If this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, upon request by the registered holder of the Warrants,
the Company shall issue, in exchange for and upon cancellation of
the mutilated Warrant Certificate, or in substitution for the lost,
stolen or destroyed Warrant Certificate, a new Warrant Certificate,
in substantially the form of this Warrant Certificate, of like
tenor and representing the equivalent number of Warrants, but, in
the case of loss, theft or destruction of this Warrant Certificate
and, if requested by the Company, indemnity also satisfactory to
it.
Section 6. Reservation and Issuance of Warrant
Shares.
(a) The Company shall on or prior to October 31, 1996
and at all times thereafter have authorized, and reserve and keep
available, for the purpose of enabling it to satisfy any obligation
to issue Warrant Shares upon the exercise of the Warrants, the
number of Warrant Shares deliverable upon exercise of the Warrants.
The Company shall take any further corporate action which may be
necessary in order that the Company may validly and legally issue,
at the Exercise Price, Warrant Shares that are fully-paid and
nonassessable.
(b) The Company covenants that all Warrant Shares will,
upon issuance in accordance with the terms of this Warrant
Certificate, be (i) duly authorized, validly issued, fully-paid and
nonassessable and (ii) free from all taxes or other governmental
charges with respect to the issuance thereof (not including (y)
income taxes payable by the holders of Warrants being exercised in
respect of gains thereon, and (z) transfer taxes, in accordance
with the provisions of Section 4 above) and from all liens, charges
and security interests created by the Company.
(c) If the issuance of any Warrant Shares required to be
reserved pursuant to paragraph (a) of this Section 6 requires
registration with or approval of any governmental authority under
any Federal or state law (other than the Securities Act and state
securities laws, registration under which is governed by the Note
Purchase Agreement and the Amended and Restated Registration Rights
Agreement, dated as of May 15, 1996, between the Company and the
Initial Holder), before such Warrant Shares may be issued upon the
exercise thereof, the Company shall, at its expense and as
expeditiously as possible, use its best efforts to cause such
Warrant Shares to be duly registered or approved, as the case may
be, provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it is
not then so qualified, to subject itself to taxation in any
jurisdiction where it is not then subject to taxation, or take any
action which would subject it to general service of process in any
jurisdiction where it is not then so subject.
(d) To the extent that any exercise of Warrants is
subject to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and related regulations (the "HSR Act"), the
Company shall promptly upon the request of the holder of this
Warrant Certificate, cooperate with such holder in complying with
the HSR Act, including providing copies of relevant information
regarding the Company and, if required under the HSR Act, preparing
and filing with the Federal Trade Commission and the Department of
Justice a Notification and Report Form pursuant to the HSR Act.
Section 7. Adjustments.
(a) Adjustments of Number of Warrant Shares. The number
of Warrant Shares issuable upon the exercise of each Warrant shall
be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment pursuant to any of paragraphs (b), (c), (d) or
(e) of this Section 7, each Warrant shall thereafter entitle the
holder thereof to purchase at the Exercise Price the number of
Warrant Shares resulting from such adjustment (the "Adjusted
Warrant Share Amount").
(b) Adjustment upon Issuance of Common Stock. If at any
time after the date hereof, the Company shall issue or sell any
shares of Common Stock for a consideration per share less than the
Market Price (as hereinafter defined) immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the
Adjusted Warrant Share Amount shall be equal to the product of the
Adjusted Warrant Share Amount in effect immediately prior to the
time of such issue or sale multiplied by a fraction, the numerator
of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issue or sale
multiplied by (y) the Market Price immediately prior to such issue
or sale, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the Market Price immediately prior
to such issue or sale plus (B) the aggregate consideration received
by the Company upon such issue or sale.
(c) Other Adjustment Events and Provisions. For the
purposes of this Section 7, the following clauses shall also be
applicable.
(i) Issuance of Rights, Warrant or Options. Except as
provided in clauses (iii) and (xii) of this Section 7(c)
hereof, in case at any time the Company shall grant, issue or
sell (whether directly or by assumption in a merger or
otherwise) any rights or warrants (other than the Warrants) to
subscribe for or to purchase, or any options for the purchase
of, Common Stock or any stock or securities convertible into
or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called
"Convertible Securities") whether or not such rights or
warrants or options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon
the exercise of such rights or warrants or options or upon
conversion or exchange of such Convertible Securities
(determined as provided below) shall be less than the Market
Price determined as of the date of granting such rights or
warrants or options, as the case may be, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights (other than rights issued pursuant to
a stockholders' rights plan adopted by the Company pursuant to
which the acquisition by any third party of a specified
percentage of shares of Common Stock triggers the
exercisability of such rights to purchase Common Stock for so
long as no event has occurred triggering such right to
exercise) or warrants or options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or
warrants or options shall (as of the date of granting of such
rights or warrants or options) be deemed to be outstanding and
to have been issued for such price per share. Except as
provided in clause (v) of this Section 7(c), no further
adjustment of the Adjusted Warrant Share Amount shall be made
upon the actual issue of such Common Stock or such Convertible
Securities upon exercise of such rights or warrants or options
or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities. For the purposes
of this clause (i), the price per share for which Common Stock
is issuable upon the exercise of any such rights or warrants
or options or upon conversion or exchange of any such
Convertible Securities shall be determined by dividing (A) the
total amount, if any, received or receivable by the Company as
consideration for the granting of such rights of warrants or
options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all
such rights or warrants or options, plus, in the case of such
rights or warrants or options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the exercise of such rights or warrants or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or warrants or options.
(ii) Issuance of Convertible Securities. In case the
Company shall issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities (other
than the Series B Preferred being issued in conjunction with
the Warrants), whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price
per share for which Common Stock is issuable upon the
conversion or exchange of such Convertible Securities
(determined as provided below) shall be less than the Market
Price determined as of the date of such issue or sale of such
Convertible Securities, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share,
provided that (A) except as provided in clause (v) of this
Section 7(c), no further adjustments of the Adjusted Warrant
Share Amount shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and (B) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights or
warrants to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments
of the Adjusted Warrant Share Amount have been or are to be
made pursuant to clause (i) of this Section 7(c), no further
adjustment of the Adjusted Warrant Share Amount shall be made
by reason of such issue or sale. For the purposes of this
clause (ii), the price per share for which Common Stock is
issuable upon conversion or exchange of Convertible Securities
shall be determined by dividing (1) the total amount received
or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (2)
the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible
Securities.
(iii) Issuance of Additional Settlement Warrants. If
the number of shares of Common Stock issuable upon the
exercise of the Settlement Warrants (as defined in Section
7(c)(xii)(A)) shall be increased from 1,750,000 shares, then
upon the occurrence of such increase, the Adjusted Warrant
Share Amount shall be equal to the product of the Adjusted
Warrant Share Amount immediately prior to such increase
multiplied by a fraction the numerator of which is (i) the
total number of shares of Common Stock outstanding immediately
thereafter (assuming the issuance of all shares subject to the
Settlement Warrant) and the denominator of which is the total
number of shares of Common Stock outstanding immediately prior
to such increase.
(iv) Misstatement of Outstanding Common Stock. If the
number of shares of Common Stock issued and outstanding as of
the date on which the Company has given its representation
pursuant to Section 3.2(a) of the Note Purchase Agreement or
if the number of shares of Common Stock issuable pursuant to
outstanding warrants, options, or rights including conversion
or preemptive rights) or agreements for the purchase or
acquisition from the Company of any of its shares of capital
stock on which the Company has given its representation
pursuant to Section 3.2(d) of the Note Purchase Agreement is
greater than the respective number set forth in such
representations, the Adjusted Warrant Share Amount shall be
equal to the product of the Adjusted Warrant Share Amount
immediately prior to any adjustment hereunder, multiplied by
a fraction the numerator of which is the total number of
shares of Common Stock actually outstanding or issuable as of
the date of such representation and the denominator of which
is the total number of shares of Common Stock that the Company
represented were outstanding or issuable.
(v) Change in Option Price or Conversion Rate. If the
purchase price provided for in any rights or warrants or
options referred to in clause (i) above, or the additional
consideration, if any, payable upon the conversion or exchange
of Convertible Securities referred to in clause (i) or (ii)
above, or the date at which any Convertible Securities
referred to in clause (i) or (ii) above are convertible into
or exchangeable for Common Stock, shall change (other than
under or by reason of an event resulting in a change pursuant
to provisions set forth in the documents governing such
rights, warrants, options or Convertible Securities designed
to protect against dilution, to the extent such event also
results in an adjustment pursuant to this Section 7), then the
Adjusted Warrant Share Amount in effect at the time of such
event shall forthwith be readjusted to the Adjusted Warrant
Share Amount which would have been in effect at such time had
such rights, warrants, options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold. On the
expiration of any such option or warrant or right or the
termination of any such right to convert or exchange such
Convertible Securities, the Adjusted Warrant Share Amount then
in effect hereunder shall forthwith be decreased to the
Adjusted Warrant Share Amount which would have been in effect
at the time of such expiration or termination had such right,
warrant, option or Convertible Security, to the extent
outstanding immediately prior to such expiration or
termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If
the purchase price provided for in any such right or warrant
or option referred to in clause (ii) above or the rate at
which any Convertible Securities referred to in clause (i) or
(ii) above are convertible into or exchangeable for Common
Stock, shall change at any time under or by reason of
provisions set forth in the documents governing such rights,
warrants, options or Convertible Securities designed to
protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any right or warrant or
option or upon conversion or exchange of any such Convertible
Security, the Adjusted Warrant Share Amount then in effect
hereunder shall forthwith be adjusted to such respective
amount as would have obtained had such right, warrant, option
or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the
shares of Common Stock delivered as aforesaid, but only if as
a result of such adjustment the Adjusted Warrant Share Amount
then in effect hereunder is thereby increased.
(vi) Stock Dividends. In case the Company shall declare
a dividend or make any other distribution upon any stock of
the Company payable in Common Stock or Convertible Securities,
any Common Stock or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
(vii) Consideration for Stock. In case any shares of
Common Stock or Convertible Securities or any right or
warrants or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold
(A) for cash, the consideration received therefor
shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses
incurred or any underwriting commission or concessions
paid or allowed by the Company in connection therewith.
(B) for a consideration other than cash, the amount
of the consideration other than cash received by the
Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of
the Company, in good faith and in the exercise of
reasonable business judgment, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith, which determination shall be conclusive and
which determination of valuation shall be sent in writing
by the Boards of Directors to the registered holders of
Warrants; provided, however, that if the fair value of
the non-cash consideration the value of which is being
determined exceeds $1,000,000, the Board of Directors of
the Company shall provide written notice of its valuation
to the Warrantholders, and in the event that the holders
of at least thirty-three percent (33%) of the then-
outstanding Warrants disagree with such valuation, such
Warrantholders may provide written notice of such
disagreement (which notice shall include such
Warrrantholder's valuation and the basis therefor) to the
Company within 15 days following such notice from the
Board of Directors. For a period of 15 days following
the delivery of the last timely delivered notice of
disagreement, the Company and such Warrantholders shall
in good faith seek to agree upon a valuation. If at the
end of such 15 day period the Company and such
Warrantholders have not agreed upon a valuation, then the
value of the non-cash consideration the value of which is
being determined shall be determined in an arbitration
conducted in the same manner as an arbitration conducted
to determine Market Price as provided in Section
7(c)(x)(B).
(C) in connection with any merger or consolidation
in which the Company is the surviving corporation (other
than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other
securities of another corporation), the amount of
consideration therefor shall be deemed to be the fair
value as determined reasonably and in good faith by the
board of directors of the Company of such portion of the
assets and business of the non-surviving corporation as
such board any determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be.
In the event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other securities of
another corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for stock or
securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value
on the date of such transaction of all such stock or securities or
other property of the other corporation, and if any such
calculation results in adjustment of the Adjusted Warrant Share
amount, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants immediately prior to the
merger, consolidation or sale, for purposes of paragraph (f) of
this Section 7, shall be made after giving effect to such
adjustment of the Adjusted Warrant Share Amount.
(viii) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities, or (B)
to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date
of the granting of such right or subscription or purchase, as
the case may be.
(ix) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, but the
disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this Section 7(c).
(x) Definition of Market Price. "Market Price" shall
mean the greater of:
(A) $0.075, and
(B) (I) if shares of the Common Stock are listed
or admitted to trading on any exchange or quoted through
NASDAQ or any similar organization, the average of the
daily closing prices per share of the Common Stock for
the 20 consecutive trading days immediately preceding the
date of public announcement of the event giving rise to
adjustment under this Section 7 or, if no such public
announcement is made with respect to such event, the
average of the daily closing prices per share of the
Common Stock for the 20 consecutive trading days
immediately preceding the day as of which "Market Price"
is being determined. The closing price of each day shall
be the last sale price regular way or, in case no such
sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case on the
New York Stock Exchange, or, if shares of the Common
Stock are not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to
trading, or if the shares are not so listed or admitted
to trading, the average of the highest reported bid and
lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or
through a similar organization if NASDAQ is no longer
reporting such information.
(II) if such shares of Common Stock are not
listed or admitted to trading on any exchange or quoted
through NASDAQ or any similar organization, such value
shall be determined by the Board of Directors of the
Company, in good faith and in the exercise of reasonable
business judgment, without taking into consideration any
premium for shares representing control of the Company,
any discount for any minority interest therein or any
restrictions on transfer under Federal and applicable
state securities laws or otherwise, which determination
shall be conclusive, and which determination of valuation
shall be sent in writing by the Board of Directors to the
registered holders of Warrants, provided, however, that
if the Market Price of the shares of Common Stock the
value of which is being determined exceeds $1,000,000,
the Board of Directors of the Company shall provide
written notice of its determination of Market Price, and
in the event that the holders of at least thirty-three
percent (33%) of the then-outstanding Warrants disagree
with such valuation, such Warrantholders may provide
written notice of such disagreement (which notice shall
include such Warrantholder's valuation and the basis
therefor) to the Company within 15 days following such
notice from the Board of Directors. For a period of 15
days following the delivery of the last timely delivered
notice of disagreement, the Company and such
Warrantholders shall in good faith seek to agree upon a
valuation. If at the end of such 15 day period the
Company and such Warrantholders have not agreed upon a
valuation, then, to the fullest extent permitted by law,
the value of the shares of Common Stock shall be
determined, at the request of any party, by arbitration
conducted in the English language in Los Angeles,
California in accordance with and to the extent permitted
by the Delaware Arbitration Act and, to the extent not
inconsistent therewith, the Rules for Large, Complex
Cases of the America Arbitration Association. The
parties to the arbitration shall attempt to select an
arbitrator from such members. If the parties to the
arbitration do not agree on the selection of an
arbitrator within twenty (20) days after the date demand
for the arbitration is filed, an arbitrator having such
experience shall be selected in accordance with such
Rules of the America Arbitration Association. The
arbitrator shall set forth his or her determination in
writing (which shall be sent to each party to such
arbitration) and shall enumerate in reasonable detail the
basis of his or her determination. No party to the
arbitration may seek, and the arbitrator shall not award,
punitive or exemplary damages. To the fullest extent
permitted by applicable law, any judgment or award
rendered by the arbitrator shall be final, conclusive and
binding. Judgment may be entered on any final,
unappealable arbitration award by any state or federal
court having jurisdiction thereof. To the fullest extent
permitted by applicable law, any controversy concerning
whether a dispute is an arbitrable dispute or as to the
interpretation or enforceability of this Section
7(c)(x)(B)(II) shall be determined by the arbitrator.
The arbitration proceedings as well as the fact such
proceedings occur, shall be kept confidential by the
parties hereto and may only be disclosed to their
personal representatives and advisors or as required by
law and insofar as is necessary to confirm, correct,
vacate or enforce the award. In the event of a breach of
this provision, the arbitrator is expressly authorized to
assess damages and each of the parties hereto consents to
the expansion of the scope of arbitration for such
purpose. The pendency of any arbitration under this
Section 7(c)(x)(B)(II) shall not relieve any party hereto
of its obligations under this Agreement. To the fullest
extent permitted by applicable law, if the Company or any
Warrantholder shall resort to legal proceedings for
injunctive or other similar relief pending the outcome of
any such arbitration proceeding or prior to the
initiation thereof, such party shall not be deemed to
have waived its rights to cause such matter or any other
mater to be referred to arbitration pursuant to this
Section 7(c)(x)(B)(II). The parties intend that this
agreement to arbitrate be valid, enforceable and
irrevocable. The designation of situs or a governing law
for this Warrant Certificate or the arbitration shall not
be deemed an election to preclude application of the
Federal Arbitration Act if it would be applicable. The
arbitrator shall have authority in his or her discretion
to grant injunctive relief, award specific performance
and impose sanctions upon any party to any such
arbitration. The fees, expenses and charges of any
arbitration pursuant to this Section 7(c)(x)(B)(II) shall
be borne (1) by the Company, if the arbitrator renders a
valuation of the shares of Common Stock that is higher
than the valuation rendered by the Board of Directors, or
(2) by the Warrantholders who have notified the Company
in writing of their objection to the valuation of the
Board of Directors, pro rata in proportion to the number
of shares of Common Stock issuable upon exercise of their
respective Warrants, if the arbitrator renders a
valuation of the shares of Common Stock that is equal to
or less than the valuation rendered by the Board of
Directors.
(xi) Determination of Market Price under Certain
Circumstances. Anything herein to the contrary
notwithstanding, in case the Company shall issue any shares of
Common Stock or Convertible Securities in connection with the
acquisition by the Company of the stock or assets of any other
corporation or the merger of any other corporation into the
Company, the Market Price shall be determined as of the date
the number of shares of Common Stock or Convertible Securities
(or in the case of Convertible Securities other than stock,
the aggregate principal amount of Convertible Securities) was
determined (as set forth in a written agreement between the
Company and the other party to the transaction) rather than on
the date of issuance of such shares of Common Stock or
Convertible Securities.
(xii) Certain Issues Excepted. Anything herein to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Adjusted Warrant Share
Amount whatsoever upon the issuance of
(A) (i) up to 593,741 shares of Common Stock, net
of repurchases, issuable to employees, directors,
consultants or advisors under options presently
outstanding which were issued prior to the date of the
Warrants pursuant to stock option and restricted stock
purchase agreements approved by the stockholders and
directors of this corporation (excluding the options for
150,000 shares to be surrendered by Guy de Vreese and
canceled in connection with settlement of pending
litigation), (ii) up to 1,750,000 shares of Common Stock
issued or issuable to present or former shareholders of
the corporation pursuant to warrants anticipated to be
issued in connection with settlement of pending
litigation (the "Settlement Warrants") to the extent the
per share exercise price with respect thereto equals or
exceeds the per share exercise price hereunder, (iii) up
to 80,000 shares of Common Stock issued or issuable
pursuant to that certain warrant granted to Ann Ehringer
(the "Independent Committee Warrant") in consideration
for her services on the Independent Committee established
to review the transactions contemplated by the Note
Purchase Agreement to the extent the per share exercise
price with respect thereto equals or exceeds the per
share exercise price hereunder, (iv) up to 7,749,449
shares of Common Stock issued or issuable to Dana Arnold
pursuant to the Arnold Warrant to the extent the per
share exercise price with respect thereto equals or
exceeds the per share exercise price hereunder, (v)
250,000 shares of Common Stock issued or issuable to
Eugene Shutler pursuant to warrants issued under a
Consulting Agreement, dated as of April 19, 1996, entered
into between the corporation and Eugene Shutler to the
extent the per share exercise price with respect thereto
equals or exceeds the per share exercise price hereunder
(the "Shutler Warrant") and (vi) such additional number
of shares of Common Stock as may be fixed by the Board of
Directors of this corporation issuable or issued to
employees, directors, consultants or advisors of this
corporation pursuant to stock option or restricted stock
purchase plans approved by the stockholders and directors
of this corporation provided that the aggregate number of
shares of Common Stock issuable upon the exercise of
options or other rights issued pursuant to such plans,
exclusive of any options or other rights that have been
exercised, plus the aggregate number of share of Common
Stock issued upon exercise of such options or rights or
otherwise issued pursuant to such plans, shall not exceed
400,000 (as such number may be proportionally adjusted
upon any stock split or combination or upon a merger or
other corporate reorganization).
(B) Common Stock issued or issuable upon conversion
of the Series A Preferred Stock and Series B Preferred
Stock, or
(C) Common Stock issued or issuable upon exercise
of the Warrants or the Series A Warrants or any other
warrants outstanding on the date hereof.
The Company shall not be required to make any such
adjustment upon the issuance of shares or the granting of any
options or Warrants or rights referred to in
Section 7(c)(xii)(A), (B) and (C) if and to the extent that
the issuance of the shares covered thereby is expected by this
clause.
(d) Certain Special Dividends. In case the Company
shall declare a dividend or make any other distribution (other than
a distribution referred to in paragraph (c) of this Section 7) upon
the Common Stock (other than regular periodic cash dividends), then
in each case the Adjusted Warrant Share Amount in effect
immediately prior to the declaration of such dividend or making of
such distribution shall be adjusted so that such Adjusted Warrant
Share Amount shall equal the number of Warrant Shares determined by
multiplying the Adjusted Warrant Share Amount in effect immediately
prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution by a fraction, the numerator of which shall be the
Market Price on the date fixed for such determination and the
denominator of which shall be the Market Price on the date fixed
for such determination less, in the case of a dividend or
distribution in cash, the amount per share of Common Stock so
declared or, in the case of any other dividend or distribution, the
then fair market value (as determined reasonably and in good faith
by the Board of Directors of the Company) of the portion of the
property so distributed applicable to one share of Common Stock,
such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such
distribution, provided, however, that for this purpose, Market
Price shall be determined as provided in Section 7(c)(x) without
regard to Section 7(c)(x)(A).
(e) Subdivision or Combination of Stock. In case the
Company shall at any time subdivide the outstanding shares of
Common Stock into a greater number of shares, the Adjusted Warrant
Share Amount in effect immediately prior to such subdivision shall
be proportionately increased,and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Adjusted Warrant Share Amount in effect
immediately prior to such combination shall be proportionately
reduced.
(f) Adjustment for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Company (i) consolidates
with or merges into any other corporation and is not the continuing
or surviving corporation of such consolidation or merger, or
(ii) permits any other corporation to consolidate with or merge
into the Company and the Company is the continuing or surviving
corporation but, in connection with such consolidation or merger,
the Common Stock is changed into or exchanged for stock or other
securities of any other corporation or cash or any other assets, or
(iii) transfers all or substantially all of its properties and
assets to any other corporation, or (iv) effects a capital
reorganization or reclassification of the capital stock of the
Company in such a way that holders of Common Stock shall be
entitled to receive stock, securities, cash or assets with respect
to or in exchange for Common Stock, then, and in each such case,
proper provision shall be made so that, upon the basis and upon the
terms and in the manner provided in this Section 7(f), the holder
of this Warrant Certificate, upon the exercise of each Warrant at
any time after the consummation of such consolidation, merger,
transfer, reorganization or reclassification, shall be entitled to
receive (at the aggregate Exercise Price in effect for all shares
of Common Stock issuable upon such exercise immediately prior to
such consummation as adjusted to the time of such transaction), in
lieu of the Adjusted Warrant Share Amount prior to such
consummation, the stock and other securities, cash and assets to
which a holder of a number of shares of Common Stock equal to the
Warrant Share Amount would have been entitled upon such
consummation (subject to adjustments subsequent to such corporate
action as nearly equivalent as possible to the adjustments provided
for in this Section 7).
(g) Notice of Adjustment. Whenever the Adjusted Warrant
Share Amount is adjusted, then and in each such case the Company
shall promptly, but in no event later than 20 days after the date
of occurrence of the event causing such adjustment, deliver a
certificate of an officer of the Company (the "Officer's
Certificate") to the registered holder of the Warrants, which
Officer's Certificate shall state the Adjusted Warrant Share Amount
resulting from such adjustment and or the increase or decrease, if
any, in the number of shares of Common Stock or other stock or
property issuable upon the exercise of each Warrant, setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based, including, if applicable, the
Market Price as determined in accordance with paragraph (c)(x) of
this Section 7. The Company shall keep at its office copies of all
certificates and cause the same to be available for inspection at
said office during normal business hours by any holder of a Warrant
or any prospective purchaser of a Warrant designated by a holder
thereof.
(h) Other Notices. In case at any time:
(i) the Company shall declare or pay any cash dividend
on the Common Stock (other than a regular periodic cash
dividend);
(ii) the Company shall declare or pay any dividend
payable in stock upon the Common Stock or make any
distribution (other than a regular periodic cash dividend) to
the holders of the Common Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares
of stock of any class or other rights;
(iv) the Company shall authorize the distribution to all
holders of the Common Stock of evidence of its indebtedness or
assets (other than a regular periodic cash dividend);
(v) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another
corporation (other than a subsidiary of the Company in which
the Company is the surviving or continuing corporation and no
change occurs in the Common Stock of the Company), or sale of
all or substantially all of the Company's assets to, another
corporation;
(vi) there shall be a voluntary or involuntary
dissolution, liquidation, bankruptcy, assignment for the
benefit of creditors or winding up of the Company, or
(vii) the Company proposes to take any other action
or an event occurs which would require an adjustment pursuant
to paragraph (i) of this Section 7, then, in any one or more
of such cases, the Company shall give written notice,
addressed to the holder of this Warrant Certificate at the
address of such holder as shown on the books of the Company,
of (A) the date on which the books of the Company shall close
or a record shall be taken for any such dividend, distribution
or subscription rights, as the case may be, or (B) the date
(or, if not then known, a reasonable approximation thereof by
the Company) on which any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, bankruptcy, assignment for the benefit of
creditors, winding up or other action, as the case may be,
shall take place. Such notice shall also specify (or, if not
then known, reasonably approximate) the date as of which the
holders of Common Stock of record shall participate in any
such dividend, distribution or subscription rights, as the
case may be, or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon any
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, bankruptcy, assignment for the
benefit of creditors, winding up, or other action, as the case
may be. Such written notice shall also state that the action
in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act or to a
favorable vote of security holders, if either is required.
Such written notice shall be given (1) at least 15 days prior
to any event specified in any of clauses (i), (ii) or (iv) of
this Section 7(h) and, with respect to any event specified in
clause (i) of this Section 7(h), at least five days prior to
the date on which the books of the Company shall close or a
record shall be taken for such event, (2) at least 20 days
prior to any event specified in clauses (iii), (v) and (vii)
of this Section 7(h) and (3) with respect to events specified
in clause (vi) of this Section 7(h), (x) at least 30 days
prior to a voluntary dissolution or liquidation of the Company
(y) at least three days prior to a voluntary bankruptcy,
assignment for the benefit of creditors or winding up of the
Company, or (z) promptly after an involuntary bankruptcy,
assignment for the benefit of creditors or winding up of the
Company. The failure to give such written notice required by
this Section 7(h) or any defect therein shall not affect any
vote upon, or the taking of, any such action.
(i) Certain Events. If any event occurs as to which in
the reasonable opinion of the Company or the holder of this Warrant
Certificate, in good faith, the other provisions of this Section 7
are not strictly applicable but the lack of any adjustment would
not in the opinion of the Company or such holder fairly protect the
purchase rights of the holder of this Warrant Certificate in
accordance with the basic intent and principles of such provisions,
or if strictly applicable would not fairly protect the purchase
rights of the holder of this Warrant Certificate in accordance with
the basic intent and principles of such provisions, then the
Company shall appoint a firm of independent certified public
accountants (which may be the regular auditors of the Company) of
recognized national standing, which shall give the opinion upon the
adjustment, if any, on a basis consistent with the basic intent and
principles established in the other provisions of this Section 7,
necessary to preserve, without dilution, the exercise rights of the
registered holder of this Warrant Certificate. Upon receipt of
such opinion, the Company shall forthwith make the adjustments
described therein.
(j) Prohibition of Certain Action. The Company shall
not, by amendment of its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant
Certificate by the Company, but shall at all times in good faith
assist in the carrying out of all the provisions of this Section 7.
Without limiting the generality of the foregoing, the Company
(a) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of the Warrants to an amount that is
greater than the Exercise Price then in effect, (b) shall take all
such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully-paid and nonassessable
shares of Common Stock upon the exercise of all Warrants from time
to time outstanding and (c) shall not take any action which results
in any adjustment of the Adjusted Warrant Share Amount if such
Adjusted Warrant Share Amount issuable after the action would
exceed the total number of shares of Common Stock then authorized
by the Company's certificate of incorporation and available for the
purpose of issue upon such exercise.
Section 8. Exercise Price. The Exercise Price of each
Warrant shall be $0.075.
Section 9. No Stock Rights. Except as may be provided
in the Stockholders Agreement, no holder of this Warrant
Certificate, as such, shall be entitled to vote or be deemed the
holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof, nor shall
anything contained herein be construed to confer upon the holder of
this Warrant Certificate, as such, the rights of a stockholder of
the Company or the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, to exercise
any preemptive right, to receive notice of meetings or other
actions affecting stockholders (except as provided herein), or to
receive dividends or subscription rights or otherwise, until the
Date of Election to Purchase Warrants shall have occurred.
Section 10. Fractional Warrant Shares. No fractional
Warrant Shares shall be issued upon exercise of the Warrants, and
the number of shares of Common Stock to be issued shall be rounded
to the nearest whole share. Whether or not fractional shares are
issuable upon such exercise shall be determined on the basis of the
total number of shares of the Warrant the holder is at that time
exercising and the number of shares of Common Stock issuable upon
such aggregate exercise.
Section 11. Absence of Registration. Neither the
Warrants nor the Warrant Shares have been registered under the
Securities Act. The holder of this Warrant Certificate, by
acceptance hereof, represents that such holder is acquiring the
warrants to be issued to such holder for such holder's own account
and not with a view to the distribution thereof, and agrees not to
sell, transfer, pledge or hypothecate any Warrants or any Warrant
Shares except as contemplated in the Management Participation
Agreements (as defined in the Note Purchase Agreement) which may be
entered into (which Management Participation Agreements shall
contain restrictions on transfer consistent with the legend on page
one of this Warrant Certificate), or in accordance with applicable
law and in accordance with the legend on the first page of this
Warrant Certificate to the extent such legend complies with
applicable law.
Section 12. Notices. All notices, requests, demands and
other communications relating to this Warrant Certificate shall be
in writing, including by telecopier, addressed, if to the
registered owner hereof, to it at the address furnished by the
registered owner to the Company, and if to the Company, at its
office at 667 Rancho Conejo, Newbury Park, California 91320.
Attention President, Telecopier (805) 376-8364 or to such other
address as any party shall notify the other party in writing, and
shall be effective, upon receipt and, in the case of written notice
by mail, three days after placement into the mails (first class,
postage prepaid), and in the case of notice by telecopier on the
same day as sent if the transmission is confirmed at or before 5:00
P.M. local time in the place of receipt, otherwise on the next
business day.
Section 13. Binding Effect. This Warrant Certificate
shall be binding upon and inure to the sole and exclusive benefit
of the Company, its successors and assigns, and the registered
holder or holders from time to time of the Warrants and the Warrant
Shares.
Section 14. Survival of Rights and Duties. This Warrant
Certificate shall terminate and be of no further force and effect
on the earlier of 5:00 p.m., Los Angeles time, on the Expiration
Date or the date on which all of the Warrants have been exercised,
except that the provisions of Sections 6(b) and 11 of this Warrant
Certificate shall continue in full force and effect after such
termination date.
Section 15. Governing Law. This Warrant Certificate
shall be construed in accordance with and governed by the laws of
the State of California without regard to principles of conflicts
of laws.
Section 16. Modification and Waiver. This Warrant
Certificate and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or
termination is sought.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed under its corporate seal by its officers
thereunto duly authorized as of the date hereof.
STYLES ON VIDEO, INC.
By: _ Nancy H. Galgas_
Name: Nancy H. Galgas
Title Chief Financial Officer
<PAGE>
ANNEX A
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers to each assignee set forth below all
of the rights of the undersigned in and to the number of Warrants
(as defined in and evidenced by the foregoing Warrant Certificate)
set opposite the name of such assignee below and in and to the
foregoing Warrant Certificate with respect to such Warrants and the
Warrant Shares (as defined in the Warrant Certificate) issuable
upon exercisable of such Warrants.
Name of Assignee Address Number of Warrants
If the aggregate number of such Warrants shall not
constitute all the Warrants evidenced by the foregoing Warrant
Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so assigned be issued in
the name of and delivered to the undersigned.
Name of
Warrantholder (Print) ___________________
Dated _________________ (By) _______________________
[SIGNATURE GUARANTEE] ATTEST
(Not Required for Initial
Registered Warrantholder)
____________________________
Secretary
<PAGE>
ANNEX B
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Warrantholder if the Warrantholder Desires
to Exercise ________ Warrants Evidenced by the foregoing Warrant
Certificate)
To Styles on Video, Inc.:
The undersigned hereby irrevocably elects to exercise
Warrants (as defined in and evidenced by the foregoing Warrant
Certificate) for, and to purchase thereunder, Warrant Shares
issuable upon exercise of such Warrants and payment by the
Warrantholder of the Exercise Price.
The Warrantholder hereby elects to pay the Exercise Price
by complying with clause ___ below.
A. the delivery of $__________ in cash and any
applicable taxes, subject to Section 4 of the Warrant Certificate,
payable by the undersigned pursuant to such Warrant Certificate, or
B. instructing Styles on Video, Inc. to retain a number
of Warrant Shares (the "Payment Shares") equal to the quotient of
the aggregate Exercise Price of the Warrants hereby exercised
divided by the Market Price of such shares as of the date of
exercise, and to deduct the number of Payment Shares from the
Warrant Shares to be delivered.
The undersigned requests that certificates for such
shares be issued in the name of the following:
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
______________________________
______________________________
(Please print name and address)
_______________________________________
- ----------------------------------------------------------------
If such number of Warrants shall not constitute all the
Warrants evidenced by the foregoing Warrant Certificate, the
undersigned requests that a new Warrant Certificate evidencing the
Warrants not so exercised be issued in the name of and delivered to
the following:
- -----------------------------------------------------------------
(Please print name and address)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Capitalized terms used herein but not otherwise defined shall have
the meanings ascribed to them in the Warrant Certificate.
Dated _________________________ Name of
Warrantholder (Print)_____________
[SIGNATURE GUARANTEE] (By)______________________________
(Not Required for Initial
Registered Warrantholder) (Title)
<PAGE>
EXHIBIT M
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
is made as of the 15th day of May 1996 (this "Agreement"),
between Styles on Video, Inc., a Delaware corporation (the
"Company"), and International Digital Investors, L.P., a Delaware
limited partnership (the "Investor").
WITNESSETH:
WHEREAS, the Company has previously issued and sold,
and the Investor has previously purchased, pursuant to that
certain Note and Preferred Stock Purchase Agreement, dated
November 20, 1995 (the "Existing Purchase Agreement"), between
the Company, Forever Yours, Inc., a California corporation and
subsidiary of the Company ("FYI") and the Investor, the Series A
Preferred Shares and the Series A Warrants.
WHEREAS, in order to induce the Investor to enter into
the Existing Purchase Agreement, the Company granted to the
Investor pursuant to a Registration Rights Agreement, dated as of
November 20, 1995 (the "Existing Registration Rights Agreement"),
certain registration rights with respect to the Series A
Warrants, the shares of Common Stock issuable to the Investor
upon conversion of the Series A Preferred Shares and the shares
of Common Stock issuable to the Investor upon exercise of the
Series A Warrants (collectively, the "Existing Securities").
WHEREAS, the Company has agreed to issue and sell, and
the Investor has agreed to purchase, pursuant to the Note and
Preferred Stock Purchase Agreement, dated May 14, 1996 (the
"Additional Note Agreement"), between the Company, FYI and the
Investor, unregistered Series B Preferred Shares and the Series B
Warrants.
WHEREAS, in order to induce the Investor to enter into
the Additional Note Agreement, the Company desires to amend and
restate the Existing Registration Rights Agreement and grant to
the Investor, as provided herein, certain registration rights
with respect to the Series B Warrants, the shares of Common Stock
issuable to the Investor upon conversion of the Series B
Preferred Shares and the shares of Common Stock issuable to the
Investor upon exercise of the Series B Warrants, in addition to
the registration rights granted to the Investor with respect to
the Existing Securities.
NOW, THEREFORE, in consideration of the mutual
covenants and undertakings contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged. and subject to and on the terms and
conditions herein set forth, the parties hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Terms with initial capital letters not otherwise
defined in this Agreement have the meanings set forth in Exhibit
A to the Additional Note Agreement. In addition, the following
terms with initial capital letters have the following meanings:
1.1 "Business Day" means any day on which the American
Stock Exchange is open for trading.
1.2 "Closing Date" means the date of this Agreement.
1.3 "Common Stock" means the Common Stock, par value
$.001 per share of the Company, and any securities of the Company
or any successor which may be issued on or after the date hereof
in respect of, or in exchange for, shares of Common Stock
pursuant to merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise.
1.4 "Eligible Securities" means any and all of the
Series A Warrants, the Series B Warrants, any shares of Common
Stock issuable upon any conversion of Series A Preferred Shares
and the Series B Preferred Shares and any shares of Common Stock
issuable upon exercise of the Series A Warrants and the Series B
Warrants, in each case whether held by the Investor or any direct
or indirect transferee of the Investor.
As to any proposed offer or sale of Eligible
Securities, such securities shall cease to be Eligible Securities
with respect to such proposed offer or sale when (i) a
registration statement with respect to the sale of such
securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance
with such registration statement or (ii) all of such securities
are permitted to be distributed concurrently pursuant to Rule 144
(or any successor provision to such Rule) under the Securities
Act or are otherwise freely transferable to the public without
registration pursuant to Section 4(1) of the Securities Act. In
the event the Company prepares a registration statement pursuant
to Article 3 or 4 hereof which becomes effective and the Holder
fails to dispose of Eligible Securities included therein at the
request of such Holder, such securities shall remain Eligible
Securities but the Holder shall be responsible for assuming that
portion of the Registration Expenses in connection with such
registration as equals that portion of Eligible Securities
originally to be sold pursuant to such registration which were
included therein at the request of such Holder and were not so
sold.
1.5 "Holder" means the Investor and each of the
Investor's successive successors and assigns who acquires
Eligible Securities, directly or indirectly, from the Investor or
from any successive successor or assign of the Investor.
1.6 "Person" means an individual, a partnership
(general or limited), corporation, joint venture, business trust,
cooperative, association or other form of business organization,
whether or not regarded as a legal entity under applicable law, a
trust under vivos or testamentary), an estate of a deceased,
insane or incompetent person, a quasi-governmental entity, a
government or any agency, authority, political subdivision or
other instrumentality thereof, or any other entity.
1.7 "Registration Expenses" means all expenses
incident to the Company's performance of or compliance with the
registration requirements set forth in this Agreement including,
without limitation, the following: (a) the fees, disbursements
and expenses of the Company's counsel(s) and accountants in
connection with the registration of Eligible Securities to be
disposed of under the Securities Act, (b) all expenses in
connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and
supplements thereto and the mailing and delivering of copies
thereof to the underwriters and dealers, (c) the cost of printing
or producing any agreement(s) among underwriters, underwriting
agreement(s) and blue sky or legal investment memoranda, any
selling agreements and any other documents in connection with the
offering, sale or delivery of Eligible Securities to be disposed
of, (d) all expenses in connection with the qualification of
Eligible Securities to be disposed of for offering and sale under
state securities laws, including the fees and disbursements of
counsel for the underwriters in connection with such
qualifications and in connection with any blue sky and legal
investment surveys, (e) the filing fees incident to securing any
required review by the National Association of Securities
Dealers, Inc., of the terms of the sale of Eligible Securities to
be disposed of, and (f) fees and expenses incurred in connection
with the listing of Eligible Securities on each securities
exchange on which securities of the same class are then listed;
provided, however, that Registration Expenses with respect to any
registration pursuant to this Agreement shall not include (x)
underwriting discounts or commissions attributable to Eligible
Securities, (y) transfer taxes applicable to Eligible Securities
or (z) SEC filing fees with respect to Eligible Securities to be
sold by the Holder thereof.
1.8 "SEC" means the Securities and Exchange
Commission.
1.9 "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect at the
relevant time.
1.10 "Series A Preferred Shares" means all shares of
Series A Preferred Stock, stated value $100 per share, issued
pursuant to the Existing Purchase Agreement and having the
rights, preferences, privileges and restrictions set forth in the
form of Certificate of Designation attached to the Existing
Purchase Agreement as Exhibit C, and any securities of the
Company or any successor which may be issued on or after the date
thereof in respect of, or in exchange for, the Series A Preferred
Shares pursuant to a merger, consolidation, stock split, stock
dividend, recapitalization of the Company or otherwise.
1.11 "Series B Preferred Shares" means all shares of
Series B Preferred Stock, stated value $100 per share, issued
pursuant to the Additional Note Agreement and having the rights,
preferences, privileges and restrictions set forth in the form of
Certificate of Designation attached to the Additional Note
Agreement as Exhibit C, and any securities of the Company or any
successor which may be issued on or after the date thereof in
respect of, or in exchange for, the Series B Preferred Shares
pursuant to a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise.
1.12 "Series A Warrants" means the warrants, having the
terms set forth in the Warrant Certificate attached to the
Existing Purchase Agreement as Exhibit D, and any securities of
the Company or any successor which may be issued on or after the
date thereof in respect of, or in exchange for, the Series A
Warrants pursuant to a merger, consolidation, stock split, stock
dividend, recapitalization of the Company or otherwise.
1.13 "Series B Warrants" means the warrants, having the
terms set forth in the Warrant Certificate attached to the
Additional Note Agreement as Exhibit D, and any securities of the
Company or any successor which may be issued on or after the date
hereof in respect of, or in exchange for, the Series B Warrants
pursuant to a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise.
1.14 "Additional Registrable Securities" means any
securities of the Company, including the Arnold Securities, the
holders of which have been granted registration rights by the
Company.
1.15 "Arnold Securities" means "Eligible Securities" as
defined in the Registration Rights Agreement, dated as of May 15,
1996, between the Company and Dana I. Arnold.
ARTICLE 2
EFFECTIVENESS
2.1 Effectiveness of Registration Rights. This
Agreement amends and restates the Existing Registration Rights
Agreement in its entirety. The registration rights granted
pursuant to Articles 3 and 4 hereof shall become effective on the
Closing Date and terminate when there cease to be Eligible
Securities.
ARTICLE 3
DEMAND REGISTRATION
3.1 Notice. At any time or from time to time
following the Closing Date, upon written notice from any Holder
or Holders requesting that the Company effect the registration
under the Securities Act of all or part of the Eligible
Securities held by them, which notice shall specify the number
and class of Eligible Securities intended to be registered and
the intended method or methods of disposition of such Eligible
Securities, the Company will use reasonable efforts to effect (at
the earliest possible date) the registration, under the
Securities Act, of such Eligible Securities for disposition in
accordance with the intended method or methods of disposition
stated in such request, provided that
(a) the Company shall be obligated to register
the Eligible Securities upon receipt of a registration
request only if the Eligible Securities to be registered
have a fair market value at both the time of receipt of the
request and the filing of the Registration Statement, of at
least $100,000,
(b) if the registration request is not made by,
or on behalf of, all Holders, then the Company will give
prompt written notice thereof to all Holders not included
therein. Such notice shall specify, at a minimum, the
number and class of the Eligible Securities proposed to be
registered, the proposed date of filing of such registration
statement, and proposed means of distribution of such
Eligible Securities, any proposed managing underwriter or
underwriters of such Eligible Securities and a good faith
estimate by the Company of the proposed maximum offering
price thereof, as such price is proposed to appear on the
facing page of such registration statement. Upon the
written request of any Holder delivered to the Company
within 5 Business Days after the giving of any such notice
(which request shall specify the number of Eligible
Securities intended to be disposed of by such Holder and the
intended method of disposition thereof), the Company will
use reasonable efforts to effect, in connection with such
registration, the registration under the Securities Act of
all Eligible Securities which the Company has been so
requested to register by such Holder, to the extent required
to permit the disposition (in accordance with the intended
method or methods thereof as aforesaid) of Eligible
Securities so to be registered, provided that if any
managing underwriter of such Eligible Securities shall
advise the Company and the Holders whose Eligible Securities
are requested to be included in such registration in writing
that, in its opinion, the inclusion in the registration
statement of all of the Eligible Securities sought to be
registered by such Holders creates a substantial risk that
the price per unit that such Holders will derive from such
registration will be materially and adversely affected or
that the combined offering would otherwise be materially and
adversely affected, then the Company will include in such
registration statement such number of Eligible Securities of
each such Holder (pro rata in proportion to the number
sought to be registered by such Holder relative to the
number sought to be registered by all Holders) as the
Company and such Holders are so advised can be sold in such
offering without such an effect.
(c) if the Company shall have previously effected
a registration with respect to Eligible Securities pursuant
to Article 4 hereof, the Company shall not be required to
effect a registration pursuant to this Article 3 until a
period of one hundred and eighty (180) days shall have
elapsed from the effective date of the most recent such
previous registration, and
(d) the Company shall be obligated to register
Eligible Securities upon a notice pursuant to this Article
3, three times only during the term of this Agreement, and
(e) the intended method or methods of disposition
shall not include a "shelf registration" whereby shares of
Common Stock are sold from time to time in multiple
transactions.
3.2 Registration Expenses. With respect to the
registrations requested pursuant to this Article 3, the Company
shall pay all Registration Expenses.
ARTICLE 4
PIGGYBACK REGISTRATION
4.1 Notice and Registration. If the Company proposes
to register any of its securities under the Securities Act
(whether for its own account or for the account of any other
Person, or both) (the "Primary Securities") on a form and in a
manner which would permit registration of Eligible Securities for
sale to the public under the Securities Act, it will give prompt
written notice to all Holders of its intention to do so. Such
notice shall specify, at a minimum, the number and class of the
Primary Securities so proposed to be registered, the proposed
date of filing of such registration statement, and proposed means
of distribution of such Primary Securities, any proposed managing
underwriter or underwriters of such Primary Securities and a good
faith estimate by the Company of the proposed maximum offering
price thereof, as such price is proposed to appear on the facing
page of such registration statement. Upon the written request of
any Holder delivered to the Company within 5 Business Days after
the giving of any such notice (which request shall specify the
number of Eligible Securities intended to be disposed of by such
Holder and the intended method of disposition thereof), the
Company will use reasonable efforts to effect, in connection with
the registration of the Primary Securities, the registration
under the Securities Act of all Eligible Securities which the
Company has been so requested to register by such Holder (the
"Selling Stockholder"), to the extent required to permit the
disposition (in accordance with the intended method or methods
thereof as aforesaid) of Eligible Securities so to be registered,
provided that
(a) if, at any time after giving such written
notice of its intention to register any Primary Securities
and prior to the effective date of the registration
statement filed in connection with such registration, the
Company shall be unable to or shall determine for any reason
not to register such Primary Securities, the Company may, at
its election, give written notice of such determination to
such Holder and thereupon the Company shall be relieved of
its obligation to register such Eligible Securities in
connection with the registration of such Primary Securities
(but not from its obligation to pay Registration Expenses to
the extent incurred in connection therewith as provided in
Section 4.2), without prejudice, however, to the rights (if
any) of such Holder immediately to request that such
registration be effected as a registration under Article 3;
(b) In the event that any managing underwriter of
the Primary Securities shall advise the Company, any holders
for whose account any such Primary Securities are being
registered (the "Requesting Stockholders"), the Selling
Stockholders and any holders requesting to have Additional
Registrable Securities included in such registration (the
"Additional Stockholders") in writing that, in its opinion,
the inclusion in the registration statement of all of the
Primary Securities, Eligible Securities and Additional
Registrable Securities sought to be registered by the
respective holders thereof creates a substantial risk that
the price per unit that the Company and such holders will
derive from such registration will be materially and
adversely affected or that the offering would otherwise be
materially and adversely affected, then the Company will
include in such registration statement such number of
Primary Securities, Eligible Securities and Additional
Registrable Securities as the Company, the Requesting
Stockholders, the Selling Stockholders and the Additional
Stockholders are so advised can be sold in such offering
without such an effect (the "Maximum Number"), as follows
and in the following order of priority: (i) first, the
number of Primary Securities, if any, that the Company, in
its reasonable judgment and acting in good faith and in
accordance with sound financial practice, shall have
determined to include in such registration, (ii) second, if
and to the extent that the number of Primary Securities
sought to be registered under clause (i) is less than the
Maximum Number, the number of Primary Securities sought to
be registered by each Requesting Stockholder, if any, the
number of Eligible Securities sought to be registered by
each Selling Stockholder and the number of Arnold
Securities, if any, sought to be registered by each holder
thereof, pro rata, if necessary, in proportion to the number
sought to be registered by such Requesting Stockholder,
Selling Stockholder or holder of Arnold Securities, as
applicable, relative to the number sought to be registered
by all Requesting Stockholders, Selling Stockholders and
holders of Arnold Securities and (iii) third, if and to the
extent that the number of Primary Securities, Eligible
Securities and Arnold Securities sought to be registered
under clauses (i) and (ii) is less than the Maximum Number,
any Additional Registrable Securities sought to be
registered by the Additional Stockholders, if any.
(c) The Company shall not be required to effect
any registration of Eligible Securities under this Article 4
incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock
options or other employee benefit plans, and
(d) The Company shall not be required to register
any Eligible Securities if the intended method or methods of
distribution for the Eligible Securities is from time to
time in multiple transactions.
No registration of Eligible Securities effected under this
Article 4 shall relieve the Company of its obligation (if any) to
effect registrations of Eligible Securities pursuant to Article
3.
4.2 Registration Expenses. The Company (as between
the Company and any Holder) shall be responsible for the payment
of all Registration Expenses in connection with any registration
pursuant to this Article 4.
ARTICLE 5
REGISTRATION PROCEDURES
5.1 Registration and Qualification. If and whenever
the Company is required to use reasonable efforts to effect the
registration of any Eligible Securities under the Securities Act
as provided in Articles 3 and 4, the Company will as promptly as
is practicable:
(a) prepare, file and use reasonable efforts to
cause to become effective a registration statement under the
Securities Act regarding the Eligible Securities to be
offered.
(b) 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 and to comply
with the provisions of the Securities Act with respect to
the disposition of all Eligible Securities until the earlier
of such time as all of such Eligible Securities have been
disposed of in accordance with the intended methods of
disposition by the Holders set forth in such registration
statement or the expiration of six (6) months after such
registration statement becomes effective.
(c) furnish to all Holders and to any underwriter
(which term for purposes of this Agreement shall include a
person deemed to be an underwriter within the meaning of
Section 2(11) of the Securities Act and any placement agent
or sales agent of such Eligible Securities) one executed
copy each and such number of conformed copies of such
registration statement and of each such amendment and
supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such
registration statement (including each preliminary
prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or
prospectus, and such other documents as any Holder or such
underwriter may reasonably request.
(d) use reasonable efforts to register or qualify
all Eligible Securities covered by such registration
statement under such other securities or blue sky laws of
such jurisdictions as any Holder or any underwriter of such
Eligible Securities shall reasonably request, and do any and
all other acts and things which may be necessary or
advisable to enable any Holder or any underwriter to
consummate the disposition in such jurisdictions of the
Eligible Securities by such registration statement, except
the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such
jurisdiction.
(e) promptly notify the selling Holders of
Eligible Securities and the managing underwriters, if any,
thereof and confirm such advice in writing, (i) when such
registration statement or the prospectus included therein or
any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when
the same has become effective, (ii) of any comments by the
SEC and by the blue sky or securities commissioner or
regulator of any state with respect thereto or any request
by the SEC or such commissioner for amendments or
supplements to such registration statement or prospectus or
for additional information, (iii) of the issuance by the SEC
of any stop order suspending the effectiveness of such
registration statement or the initiation or threatening of
any proceedings for that purpose, (iv) if at any time the
representations and warranties by the Company contemplated
by Section 5.1(h) or Section 5.2(b) hereof cease to be true
and correct in all material respect, (v) of the receipt by
the Company of any notification with respect to the
suspension of the qualification of the Eligible Securities
for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (vi) at
any time when a prospectus is required to be delivered under
the Securities Act, that such registration statement,
prospectus, prospectus amendment or supplement or post-
effective amendment, or any document incorporated by
reference in any of the foregoing, 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 circum-
stances then existing (it being understood that the Company
shall file any necessary amendments or take any other action
necessary to correct such misleading information).
(f) use its reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement or any post-effective amendment
thereto at the earliest practicable date.
(g) use its reasonable efforts to obtain the
consent or approval of each governmental agency or
authority, whether federal, state or local, which may be
required to effect such registration or the offering or sale
in connection therewith or to enable the Holders to offer,
or to consummate the disposition of, the Eligible
Securities.
(h) whether or not an agreement of the type
referred to in Section 5.2 hereof is entered into and
whether or not any portion of the offerings contemplated by
such registration statement is an underwritten offering or
is made through a placement or sales agent or and other
entity, (i) make such representations and warranties to the
Holders and the underwriters, if any thereof in form,
substance and scope as are customarily made in connection
with an offering of common stock or other equity securities
pursuant to any appropriate agreement and/or a registration
statement filed on the form applicable to such registration,
(ii) obtain opinions of inside and outside counsel to the
Company in customary form and covering such matters, of the
type customarily covered be such opinions as the managing
underwriters, if any, and as the Holders may reasonably
request, (iii) obtain a "cold comfort" letter or letters
from the independent certified public accountants of the
Company addressed to the Holders and the underwriters, if
any, thereof dated (I) the effective date of such
registration statement and (II) the date of the closing
under the underwriting agreement relating thereto, such
letter or letters to be in customary form and covering such
matters of the type customarily covered, from time to time
by letters of such type and such other financial matters as
the managing underwriters, if any, and as the Holders may
reasonable request, (iv) deliver such documents and
certificates, including officers' certificates, as may be
reasonably requested by the Holders and the placement or
sales agent, if any, therefor and the managing underwriters,
if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (i)
above and the compliance with or satisfaction of any
agreements or conditions contained in the underwriting
agreement or other agreement entered into by the Company,
and (v) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are
provided Article 7 hereof.
(i) comply with all applicable rules and
regulations of the SEC, and make generally available to its
securityholders, as soon as practicable but in any event not
later than eighteen months after the effective date of such
registration statement, an earnings statement of the Company
and its subsidiaries complying with Section 11(a) of the
Securities Act (including, at the option of the Company,
Rule 158 thereunder), and
(j) use its best efforts to list prior to the
effective date of such registration statement, subject to
notice of issuance, the Eligible Securities covered by such
registration statement on any securities exchange on which
securities of the same class are then listed or if such
class is not then so listed, to have the Eligible Securities
accepted for quotation for trading on the Nasdaq National
Market (or a comparable interdealer quotation system then in
effect).
The Company may require any Holder to furnish the Company such
information regarding such Holder and the distribution of such
securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC
in connection with any registration.
5.2 Underwriting. (a) If requested by the
underwriters for any underwritten offering of Eligible Securities
pursuant to a registration requested hereunder, the Company will
enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and
warranties by the Company and such other terms and provisions as
are then customarily contained in underwriting agreements with
respect to secondary distributions, including, without
limitation, indemnities and contribution and the provision of
opinions of counsel and accountants' letters to the effect and to
the extent provided in Section 5.1(h). The Holders on whose
behalf Eligible Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement.
Such agreement shall contain such representations and warranties
by the Holders and such other terms and provisions as are then
customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation,
indemnities and contribution to the effect and to the extent
provided in Article 7. The representations and warranties by,
and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for
the benefit of such Holders of Eligible Securities.
(b) In the event that any registration pursuant to
Article 4 hereof shall involve, in whole or in part, an
underwritten offering, the Company may require Eligible
Securities requested to be registered pursuant to Article 4 to be
included in such underwriting on the same terms and conditions as
shall be applicable to the Primary Securities being sold through
underwriters under such registration. In such case, the Holders
of Eligible Securities on whose behalf Eligible Securities are to
be distributed by such underwriters shall be parties to any such
underwriting agreement. Such agreement shall contain such
representations and warranties by the Holders and such other
terms and provisions as are then customarily contained in
underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution to
the effect and to the extent provided in Article 7. The
representations and warranties in such underwriting agreement by,
and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for
the benefit of such holders of Eligible Securities.
5.3 Withdrawals. Any Holder having notified or
directed the Company to include any or all of its Eligible
Securities in a registration statement pursuant to Article 3 or 4
hereof shall have the right to withdraw such notice or direction
with respect to any or all of the Eligible Securities designated
for registration thereby by giving written notice to such effect
to the Company at least two Business Days prior to the
anticipated effective date of such registration statement. In
the event of any such withdrawal, the Company shall amend such
registration statement and take such other actions as may be
necessary so that such Eligible Securities are not included in
the applicable registration and not sold pursuant thereto, and
such Eligible Securities shall continue to be Eligible Securities
in accordance herewith. The withdrawing Holder shall be
responsible for assuming that portion of the Company's expenses
in connection with such registration as equals the portion of
Eligible Securities originally to be sold pursuant to such
registration which were to be sold by the withdrawing Holder. No
such withdrawal shall affect the obligations of the Company with
respect to Eligible Securities not so withdrawn, provided,
however, that in the case of a registration pursuant to Article 3
hereof, if such withdrawal shall reduce the total number of the
Eligible Securities to be registered so that the requirements set
forth in Section 3.1(a) are not satisfied, then the Company
shall, prior to the filing of such registration statement or, if
such registration statement (including any amendment thereto) has
theretofore been filed, prior to the filing of any further
amendment thereto, give each Holder of Eligible Securities so to
be registered notice, referring to this Agreement, of such fact
and, within ten Business Days following the giving of such
notice, either the Company or the Holders of a majority of such
Eligible Securities may, by written notice to each Holder of such
Eligible Securities or the Company, as the case may be, elect
that such registration statement not be filed or, if it has
theretofore been filed, that it be withdrawn; provided that such
withdrawal shall not count toward the three request maximum set
forth in Section 3(c).
ARTICLE 6
PREPARATION; REASONABLE INVESTIGATION
6.1 Preparation; Reasonable Investigation. In
connection with the preparation and filing of each registration
statement registering Eligible Securities under the Securities
Act, the Company will give all Holders and the underwriters, if
any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such
opportunities to discuss the business of the Company with its
directors, officers, employees, counsel and the independent
public accountants who have certified its financial statements as
shall be necessary, in the opinion of any Holder and such
underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
ARTICLE 7
INDEMNIFICATION AND CONTRIBUTION
7.1 Indemnification and Contribution. (a) In the
event of any registration of any Eligible Securities hereunder,
the Company will enter into customary indemnification
arrangements to indemnify and hold harmless all selling Holders,
their directors and officers, if any, each Person who
participates as an underwriter in the offering or sale of such
securities, each officer and director of each underwriter, and
each Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act against any
losses, claims, damages, and expenses joint or several, to which
such Person may be subject under the Securities Act or otherwise
insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration
statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, or any
document incorporated be reference therein, or (ii) 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, and the Company will periodically reimburse each such
Person for and legal or any other expenses reasonably incurred by
such Person in connection with investigating or defending and
such loss, claim, liability, action or proceeding, provided that
the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement,
and such preliminary prospectus or final prospectus, amendment or
supplement in reliance upon and in conformity with written
information furnished to the Company by any selling Holder or
such underwriter for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any Holder or any such
Person and shall survive the transfer of such securities by such
selling Holder. The Company also shall agree to make provision
for contribution as shall be reasonably requested be such selling
Holder or any underwriter in circumstances where such indemnity
is held unenforceable.
(b) All selling Holders, by virtue of exercising their
registration rights hereunder, agree and undertake to enter into
customary indemnification arrangements to indemnify and hold
harmless (in the same manner and to the same extent as set forth
in clause (a) of this Article 7) the Company, each director of
the Company, each officer of the Company who shall sign such
registration statement, each Person who participates as an
underwriter in the offering or sale of such securities, each
officer and director of each underwriter, each Person, if any,
who controls the Company or any such underwriter within the
meaning of the Securities Act, with respect to any statement in
or omission from such registration statement, any preliminary
prospectus or final prospectus included therein, or any amendment
or supplement thereto, if such statement or omission was made in
reliance upon and in conformity with written information
concerning such Holder furnished by it to the Company for use in
the preparation thereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or
controlling Person and shall survive the transfer of the
registered securities by any Holder. Holders also shall agree to
make provision for contribution as shall be reasonably requested
by the Company or any underwriters in circumstances where such
indemnity is held unenforceable. The indemnification and
contribution obligations of any Holder shall in every case be
limited to the aggregate proceeds received (net of any
underwriting fees and expenses and other transaction costs) by
such Holder in such registration.
ARTICLE 8
TRANSFER OF REGISTRATION RIGHTS
8.1 Transfer of Registration Rights. Any Holder may
transfer the registration rights granted hereunder to and other
Person but only in connection with a transfer permitted pursuant
to the Existing Purchase Agreement in the case of the Series A
Preferred Shares and the Existing Warrants, and the Additional
Note Agreement in the case of the Series B Preferred Shares and
the Additional Warrants to such Person of Eligible Securities
held by such Holder; provided that such Holder (or and such
permitted transferee) shall retain registration rights as to any
retained Eligible Securities.
ARTICLE 9
UNDERWRITTEN OFFERINGS
9.1 Selection of Underwriters. If any of the Eligible
Securities covered by any registration statement filed pursuant
to Article 3 hereof are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall,
in the case of any registration statement filed pursuant to
Article 3 hereof, be designated after consultation with the
Company by the Holder or Holders demanding registration, provided
that such designated managing underwriter or underwriters is or
are reasonably acceptable to the Company.
ARTICLE 10
RULE 144
10.1 Rule 144. The Company covenants to and with each
Holder of Eligible Securities that to the extent it shall be
required to do so under the Exchange Act, the Company shall use
its best efforts timely to file the reports required to be filed
by it under the Exchange Act or the Securities Act (including,
but not limited to, the reports under Section 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144
adopted by the SEC under the Securities Act) and the rules and
regulations adopted by the SEC thereunder, and shall use its best
efforts, to take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable
the Holders to sell Eligible Securities without registration
under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Holder of
Eligible Securities, the Company shall deliver to such Holder a
written statement as to whether it has complied with such
requirements.
ARTICLE 11
MISCELLANEOUS
11.1 Captions. The captions or headings in this
Agreement are for convenience and reference only, and in no way
define, describe, extend or limit the scope or intent of this
Agreement.
11.2 Severability. If any clause, provision or section
of this Agreement shall be invalid, illegal or unenforceable, the
invalidity, illegality or unenforceability of such clause,
provision or section shall not affect the enforceability or
validity of any of the remaining clauses, provisions or sections
hereof to the extent permitted by applicable law.
11.3. Governing Law. This Agreement shall be
governed by and be construed and enforced in accordance with the
laws of the State of California without giving effect to
conflicts of law principles.
11.4 Consent to Jurisdiction; Service of Process;
Waiver of Jury Trial. (a) The parties to this Agreement hereby
irrevocably submit to the exclusive jurisdiction of any Federal
court located in Los Angeles, California over any suit, action or
proceeding arising out of or relating to this Agreement. The
parties hereby irrevocably waive, to the fullest extent permitted
by applicable law any objection which they may now or hereafter
have to the laying of venue of any such suit, action or
proceeding brought in such court. The parties agree that, to the
fullest extent permitted by applicable law, a final and
nonappealable judgment in any such action or proceeding brought
in such court shall be conclusive and binding upon the parties.
(b) The parties hereby irrevocably waive any rights
they may have in any court, state or federal, to a trial by jury
in any case of any type that relates to or arises out of this
Agreement or the transactions contemplated herein.
11.5 Specific Performance. The Company acknowledges
that it would be impossible to determine the amount of damages
that would result from any breach by it of any of the provisions
of this Agreement and that the remedy at law for any breach, or
threatened breach, of any of such provisions would likely be
inadequate and, accordingly, agrees that each Holder shall, in
addition to and other debts or remedies which it may have, be
entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to compel
specific performance of, or restrain the Company from violating
any of such provisions. In connection with any action or
proceeding for injunctive relief the Company hereby waives the
claim or defense that a remedy at law alone is adequate and
agrees, to the maximum extent permitted by law, to have each
provision of this Agreement specifically enforced against it,
without the necessity of posting bond or other security against
it, and consents to the entry of injunctive relief against it
enjoining or restraining any breach or threatened breach of this
Agreement.
11.6 Modification of Amendment. This Agreement may not
be changed, modified, discharged or amended, except by an
instrument signed by all of the parties hereto.
11.7 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
11.8 Entire Agreement. This Agreement constitutes the
entire agreement and understanding among the parties and
supersedes any prior understandings and or written or oral
agreements (including without limitation, the Existing
Registration Rights Agreement) among them respecting the subject
matter herein.
11.9 Notices. All notices, requests, demands, consents
and other communications required or permitted to be given
pursuant to this Agreement shall be in writing and delivered by
hand, by telecopy, by overnight courier, delivery service or by
certified mail return receipt requested, postage prepaid.
Notices shall be deemed given when actually received, which shall
be deemed to be not later than the next Business Day if sent by
overnight courier or after five Business Days if sent by mail.
11.10 Successor to Company, Etc. This Agreement shall
be binding upon, and inure to the benefit of the Company's
successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement or caused this Agreement to be executed as of the
day and year first above written.
THE COMPANY
STYLES ON VIDEO, INC.
By: _ Nancy Galgas_
Name: Nancy Galgas
Title: Chief Financial Officer
THE INVESTOR
INTERNATIONAL DIGITAL INVESTORS, L.P., a
Delaware limited partnership
By: IDI Corp., general partner
By: _ Jeffrey Safchik_
Name: Jeffrey Safchik
Title: President
<PAGE>
EXHIBIT N
BRYMARC CONSULTING AGREEMENT
THIS BRYMARC CONSULTING AGREEMENT (this "Agreement"), is
dated as of May 15, 1996, and entered into by and among Forever
Yours, Inc., a California corporation ("FYI"), Styles on Video,
Inc., a Delaware corporation and owner of 100% of the capital stock
of FYI ("SOV"; and together with FYI, the "Companies"), and
Brymarc Management ("Consultant"), with reference to the
following facts:
A. The Companies and International Digital Investors,
L.P., a Delaware limited partnership ("IDI"), have entered into a
Note and Preferred Stock Purchase Agreement dated as of May 14,
1996, as amended (the "Note Purchase Agreement"; capitalized terms
used herein without definition having the meanings given thereto in
the Note Purchase Agreement unless the context requires otherwise).
B. A condition to the closing of the Note Purchase
Agreement is the execution and delivery of this Agreement.
C. The Companies desire to engage Consultant as a
consultant and Consultant desires to accept such consulting
arrangement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the conditions and
covenants contained herein, the parties hereto do hereby agree as
follows:
1. ENGAGEMENT. The Companies hereby jointly and
severally engage Consultant, and Consultant hereby accepts such
engagement with the Companies, under the terms and conditions
hereafter set forth.
2. DUTIES. Consultant shall consult with the Companies
by advising and consulting with its officers, directors and
employees with respect to various business, accounting and
financial matters, and in particular with respect to the
interpretation and implementation of the Business Plan.
3. TERM. The term of this Agreement shall commence on
the date hereof and shall terminate on the four month anniversary
of the date of this Agreement (or upon earlier termination of this
Agreement pursuant to Section 5).
4. MONTHLY FEE AND EXPENSES. The Companies shall pay
to Consultant as a monthly fee for services rendered by it pursuant
hereto a consulting fee (the "Consulting Fee") of Twelve Thousand
Five Hundred Dollars ($12,500.00), payable on the last day of each
month commencing May 30, 1996. The Companies may defer payment of
the Consulting Fee until the earlier of (i) December 31, 1996 or
(ii) the end of the second consecutive or non-consecutive month in
which the Combined Operating Cash Flow was positive (the earlier of
such dates being referred to herein as the "Deferral Termination
Date"); provided that all deferred Consulting Fees shall be paid on
a cumulative basis on the Deferral Termination Date. The Companies
will jointly and severally reimburse Consultant for its reasonable
out-of-pocket expenses incurred in the course of its engagement and
in connection with the performance of its duties hereunder, upon
presentation to the Companies in accordance with the Companies'
policy of satisfactory evidence of such expenses.
5. TERMINATION. This Agreement may be terminated by
the Companies prior to its expiration if Consultant willfully
fails, refuses, or neglects to perform its required services
hereunder for a period of 30 days after receipt of written notice
from the Companies of such failure to perform.
6. PROPRIETARY INFORMATION. Upon termination of this
Agreement, Consultant shall deliver to the Companies all books,
records, lists of customers and other property belonging to the
Companies or developed in connection with the business of the
Companies and all copies thereof. Consultant shall not utilize
confidential information of the Companies or their customers in
rendering services to any other person or employer during the term
of this Agreement and after the term of this Agreement shall not
use such confidential information for any purpose. As used in this
Agreement, "confidential information" shall mean any and all
matters of a technical or business nature, excluding only such
information Consultant proves was, at the time of disclosure,
public knowledge, disclosed by the Companies or otherwise disclosed
by Consultant in a manner not constituting a breach of this
Agreement.
7. INDEPENDENT CONTRACTOR. Consultant is an
independent contractor and not a partner, joint venturer, employee
or associate of the Companies or either of them and is not assuming
and is not liable for any obligation now or hereafter incurred by
the Companies or either of them. The Companies shall provide a
Form 1099 for amounts paid to Consultant during the tax year and
Consultant shall be solely responsible for the payment of all
federal and state taxes related thereto.
8. NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be deemed to have been
duly given only if done in the following ways: (i) on the day of
delivery if delivered personally during normal business hours on a
business day (or if not, the next business day after delivery),
(ii) two (2) days after the date of mailing if mailed by registered
or certified first class mail, postage prepaid, (iii) the next
business day following deposit with an overnight air courier
service which guarantees next day delivery, or (iv) when sent by
facsimile when received if during normal business hours on a
business day (or if not, the next business day after delivery)
provided that such facsimile is legible and that at the time such
facsimile is sent the sending party receives written confirmation
of receipt (with a copy simultaneously sent by registered or
certified mail return receipt requested), to the other party at the
following address (or to such person or persons or such other
address or addresses as a party may specify by notice pursuant to
this provision):
(a) If to Consultant to:
Brymarc Management
23622 Calabasas Road, Suite 100
Calabasas, California 91302
Attention: Brian Ezralow
Facsimile No.: (818) 223-3536
with a copy to:
O'Melveny & Myers
400 South Hope Street
Los Angeles, California 90071
Attention: Edward J. McAniff
Facsimile: (213) 669-6407
(b) If to the Companies to:
Styles on Video, Inc.
Forever Yours, Inc.
667 Rancho Conejo Boulevard
Newbury Park, California 91320
Attention: Board of Directors
With a copy to:
Christensen, White, Miller, Fink, Jacobs,
Glaser & Shapiro, LLP
2121 Avenue of the Stars
18th Floor
Los Angeles, California 90067
Attention: Gary Jacobs
Facsimile: (310) 556-2920
9. SEVERABILITY AND GOVERNING LAW. Should any
paragraph or subparagraph within this Agreement be rendered void,
invalid or unenforceable by any court of law for any reason, such
invalidity or unenforceability shall not void or render invalid or
unenforceable any other paragraph or subparagraph in this
Agreement. This Agreement is made and entered into in the State of
California and the laws of said state shall govern the validity and
interpretation hereof and the performance by the parties hereto of
their respective duties and obligations hereunder.
10. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument.
11. CAPTIONS AND SECTION HEADINGS. Paragraph titles or
captions contained in this Agreement are inserted as a matter of
convenience and for reference purposes only, and in no way define,
limit, extend or describe the scope of this Agreement or the intent
of any provision hereof.
12. AMENDMENTS AND WAIVERS. This Agreement may be
amended only by a written instrument signed by the Companies and by
Consultant. No failure to exercise and no delay in exercising, on
the part of any party, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law. The failure of any party to insist
upon a strict performance of any of the terms or provisions of this
Agreement, or to exercise any option, right or remedy herein
contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option,
right or remedy, but the same shall continue and remain in full
force and effect. No waiver by any party of any term or provision
of this Agreement shall be deemed to have been made unless
expressed in writing and signed by such party.
13. ASSIGNMENT, SUCCESSORS AND ASSIGNS. This Agreement
may not be assigned or transferred by either party without the
prior written consent of the other party. All rights, covenants
and agreements of the parties contained in this Agreement shall,
except as otherwise provided herein, be binding upon and inure to
the benefit of their respective successors and assigns.
14. ATTORNEYS' FEES. If any legal action, arbitration
or other proceeding is brought for the enforcement of this
Agreement, or because of any alleged dispute, breach, default or
misrepresentation in connection with this Agreement, the successful
or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be
entitled.
15. FURTHER ASSURANCES. Each party hereto agrees to do
all acts and to make, execute and deliver such written instruments
as shall from time to time be reasonably required to carry out the
terms and provisions of this Agreement.
16. COMPLETE AGREEMENT. This Agreement is intended by
the parties as a final expression of their agreement with respect
to the subject matter hereof and is intended as a complete
statement of the terms and conditions of their agreement and
supersedes any prior understandings, instruments or agreements of
the parties.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
STYLES ON VIDEO, INC.
By: Nancy Galgas
Title: Chief Financial Officer
FOREVER YOURS, INC.
By: Dana Arnold
Title: President
BRYMARC MANAGEMENT
By: Gary Freedman
Title: Principal and
Executive Vice President
<PAGE>
EXHIBIT O
EXECUTION COPY
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement") is entered into
as of April 19, 1996, between Styles on Video, Inc., a Delaware
corporation (the "Company"), and K. Eugene Shutler ("Consultants),
with reference to the following facts and circumstances:
WHEREAS, the Board of Directors of the Company has approved
a Term Sheet dated as of April 19, 1996 (the "Term Sheet"),
attached hereto as Exhibit A, setting forth a proposed investment
in the Company by International Digital Investors, L.P. ("IDI");
WHEREAS, the Company wishes to engage Consultant to perform
certain consulting services, and Consultant wishes to be engaged
by the Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and covenants contained herein, and for other
good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as
follows:
1. Term of Engagement.
The Company hereby engages Consultant as of April 19,
1996 to provide the consulting services as hereinafter set
forth, and Consultant hereby accepts such engagement upon the
terms and conditions set forth herein until such time as either
party hereto shall provide written notice to the other of such
party's desire to terminate this Agreement, which notice shall
be effective three days after delivery (the "Term").
2. Consulting, Services.
A. Consultant will render consulting services
for the Company relating to the business of the Company and
its subsidiaries (the "Consulting Services"). The Consulting
Services may include, but shall not be limited to,
participation in formulating strategy, advice concerning
management issues relating to the Company and its subsidiaries,
advice with respect to litigation, marketing, financial and
other Issues relating to the Company and participation in
meetings and presentations to third parties regarding the
foregoing.
B. During the Term, Consultant shall be
available on a full-time basis, and shall devote such of his
full working time and attention to the Consulting Services
as shall be required, provided, however, that Consultant shall
be permitted to conclude other consulting assignments under
which he is already obligated, and Consultant agrees to do
so in a manner which will not substantially interfere with
his providing the Consulting Services hereunder. Without
limiting the foregoing, Consultant shall be an independent
contractor. Consultant shall not be considered an officer
of the Company or its agent, except in his capacity as an
independent contractor.
C. Consultant shall report directly to, and
take instructions and directions from, the Board of Directors
of the Company, and shall have such authority as may be
delegated to him by the Board of Directors.
3. Compensation and Expenses.
A. The Company shall pay Consultant a
consulting fee, payable on a biweekly basis, at the rate
of twelve thousand five hundred dollars ($12,500) per
month as consideration for Consulting Services to be
provided by Consultant hereunder during the Term.
B. The Company shall provide or reimburse
Consultant for the following expenses:
(i) reasonable costs of a corporate
apartment located near the Company headquarters;
(ii) reasonable costs associated with
the use and maintenance of an automobile;
(iii) reasonable costs for telephone
and other documented business expenses, including
travel expenses, incurred in connection with the
Consulting Services.
4. Grant of Warrants. The Company shall grant
to the Consultant, upon the execution of this Agreement,
warrants (the "Warrants") to purchase 250,000 shares of
common stock of the Company. 100,000 Warrants shall be
vested and exercisable immediately upon execution of this
agreement. The remaining 150,000 Warrants shall be vest
and be exercisable pro rata over a twelve-month period of
the Term beginning upon the execution of this Agreement;
provided that if the Company consummates a transaction
pursuant to a Topping Offer (as defined in the Term Sheet),
all of the Warrants shall automatically be vested and
exercisable. The Warrants shall be exercisable on the
conditions applicable to the Additional Warrants (as
defined in the Term Sheet) as if they were Additional
Warrants. The terms of the Warrants shall be identical
to the terms of the Additional Warrants, except that they
shall not have demand registration rights.
5. Delivery of Property, Confidential Information.
Upon termination of this Agreement, Consultant shall deliver
to the Company all books, records, lists of customers and
other property belonging to the Company or developed in
connection with the business of the Company and all copies
thereof. Consultant shall not utilize confidential
information of the Company or its customers in rendering
services to any other person or employer during the Term,
and after the Term shall not use such confidential information
for any purpose. As used in this Agreement, "confidential
information" shall mean any and all matters of a technical
or business nature, excluding only such information
Consultant proves was, at the time of disclosure, public
knowledge, disclosed by the Company or otherwise disclosed
by Consultant in a manner not constituting a breach of this
Agreement.
6. Miscellaneous.
A. Succession. This Agreement shall inure
to the benefit of and be binding upon the Company, its
successors and assigns, and inure to the benefit of and
be binding upon Consultant and his heirs and personal
representatives. The Company shall have the right to assign
this Agreement and to delegate all rights, duties and
obligations hereunder, in whole or in part, to any subsidiary,
successor or parent company of the Company or to any other
persons, firm or corporation which acquires either the
Company or any subsidiary thereof, or a substantial part
of its or their assets, or into which the Company or any
subsidiary may merge. The obligations and duties of Consultant
hereunder are personal and not assignable.
B. California Law. This Agreement shall be
governed by, and construed in accordance with, the laws of
the state of California without regard to choice of law
provisions.
C. Waiver. No failure or delay on the part
of any party to this Agreement in exercising any right,
power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power
or remedy hereunder.
D. Notices. All notices and demands among
the parties shall be in writing and shall be served (i) in
person, (ii) by registered or certified mail, return
receipt requested, (iii) by overnight courier service,
or (iv) by fax. All notice and demands to the parties
hereto shall, if mailed, be addressed to the following
addresses:
To the Company: Styles on Video, Inc.
667 Rancho Conejo Boulevard
Newbury Park, CA 91320
Tel. (805) 375-0996
Fax (805) 376-8363
Attn: Board of Directors
To Consultant: Mr. K. Eugene Shutler
8229 Turtle Creek Circle
Las Vegas, NV 89113
Tel. (702) 252-5025
The parties may designate in writing from time to time
such other place or places that such notices and demands may
be given.
E. Entire Agreement. This Agreement sets forth
the entire understanding between the parties with respect to
the subject matter hereof, and there are no terms, conditions,
representations, warranties or covenants other than those
contained herein. This Agreement supersedes any previous
agreements or understandings between the parties with respect
to the subject matter hereof, whether written or oral.
F. Captions. The section captions inserted in
this Agreement are for convenience of reference and are not
intended to be part of this Agreement.
G. Severability. If any term or provision of
this Agreement or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable,
the remainder or this Agreement or the application of such
term or provision to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement
shall be valid and be enforced to the fullest extent permitted
by law.
H. Amendment and Modification. No term or
provision of this Agreement may be amended, waived, released,
discharged or modified in any respect except in writing signed
by the parties hereto.
I. Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together
shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any such
counterpart.
J. Costs of Enforcement. The prevailing party
in any proceeding brought to interpret or enforce any provision
of this Agreement or to recover for breach thereof shall be
entitled to recover the reasonable fees, expenses and costs of
his counsel, plus all other costs and expenses of such proceeding.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the late first above written.
STYLES ON VIDEO, INC.
a Delaware corporation
By: Ann Graham Ehringer
Name: Ann Graham Ehringer
Title: Chairman Independent
Committee of the Board
CONSULTANT:
_ K. Eugene Shutler_
K. Eugene Shutler
<PAGE>
EXHIBIT A
[The term sheet was superceded by the documents executed in
connection with this transaction, which documents are filed as
Exhibits to this Amendment #1 to Schedule 13D.]
