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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
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(AMENDMENT NO.1)*
THE HARVEY ENTERTAINMENT COMPANY
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(Name of Issuer)
Common Stock, no par value
(Title of Class of Securities)
0004176621
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(CUSIP Number)
Paul Guez
c/o Azteca Production International, Inc.
5804 E. Slauson Avenue
City of Commerce, California 90040, (213) 890-9660
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
June 30, 1999
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(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(e), Rule 13d-1(f) or Rule 13d-1(g), check the
following box .
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) 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 on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
CUSIP No. 0004176621 PAGE 2 OF 6 PAGES
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY)
PAUL GUEZ
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
PF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
TUNISIA
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7 SOLE VOTING POWER
645,537
NUMBER OF ----------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY -0-
OWNED BY ----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 645,537
PERSON ----------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
645,537
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.4%
(Based on 4,186,941 shares of the Issuer Common Stock outstanding as of
May 11, 1999, as disclosed in the Issuer's most recent Form 10-QSB filed
with the Securities and Exchange Commission, and treating as outstanding
437,214 shares (subject to adjustment) issuable upon conversion of 29,512
shares of the Series A Preferred Stock and 208,323 shares (subject to
adjustment) of the Issuer Common Stock issuable upon exercise of the
Warrants.)
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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ITEM 1. SECURITY AND ISSUER.
This Amendment No. 1 amends the Schedule 13D filed by the Reporting Person
on May 6, 1999 (the "Schedule 13D") relating to the common stock, no par value
(the "Issuer Common Stock"), of The Harvey Entertainment Company, a California
corporation (the "Issuer"). Unless otherwise indicated, all capitalized terms
used but not defined herein shall have the same meaning as set forth in the
Schedule 13D.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
Item 6 of the Schedule 13D is hereby amended by deleting the first
paragraph therein and replacing it with the following paragraphs:
On June 30, 1999, the Issuer issued a 7% Non-Negotiable Note Due 2000, in
the principal amount of $2,048,750, in favor of the Reporting Person (the
"Note"). The Note automatically converts into 20,488 shares of the Series A
Preferred Stock and Common Stock Purchase Warrants (Series A, B and C) to
purchase up to 144,618 shares of the Issuer Common Stock (the "June Warrants"),
subject to the conditions set forth in the Note, which include, among other
things, the approval of the holders of the Issuer Common Stock and the Series A
Preferred Stock to authorize additional shares and such conversion. The holders
of the Issuer Common Stock and the Series A Preferred Stock are expected to vote
on the foregoing matters at the next Annual Meeting of the Issuer.
If and when issued, the June Warrants shall be exercisable at any time
after December 30, 1999 until (i) in the case of the Series A June Warrants,
June 30, 2005, at a purchase price of $9.00 per share; (ii) in the case of the
Series B June Warrants, June 30, 2006, at a purchase price of $11.00 per share;
and (iii) in the case of the Series C June Warrants, June 30, 2007, at a
purchase price of $12.00 per share. Each June Warrant shall entitle the holder
thereof to purchase one share of the Issuer Common Stock.
The shares of the Issuer Common Stock underlying the Series A Preferred
Stock, the Warrants and the June Warrants are subject to certain demand and
piggy-back registration rights commencing eighteen months after April 26, 1999.
In addition, pursuant to the Stock Purchase Agreement and the Note, the Issuer
has a right of first refusal (with certain exceptions) with respect to the
transfer of shares of the Series A Preferred Stock held by the Reporting Person.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Item 7 of the Schedule 13D is hereby amended by adding the information set
forth in the Exhibit Index which is incorporated herein by reference.
Page 4 of 6
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SIGNATURES
After reasonable inquiry and to the best of the undersigned's knowledge
and belief, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: July 14, 1999
/s/ PAUL GUEZ
--------------------------------
Paul Guez
Page 5 of 6
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Exhibit Index
2. The Harvey Entertainment Company 7% Non-Negotiable Note Due 2000, dated as
of June 30, 1999, in the principal amount of $2,048,750, in favor of the
Reporting Person.
3. Warrant Agreement, dated as of June 30, 1999, between the Issuer and the
Reporting Person.
4. Registration Rights Agreement, dated as of June 30, 1999, between the
Issuer and the Reporting Person.
Page 6 of 6
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EXHIBIT 2
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT. IN ADDITION, THE TRANSFERABILITY OF THE
SECURITIES REPRESENTED HEREBY IS RESTRICTED AS SET FORTH IN SECTION 2 HEREOF.
THE HARVEY ENTERTAINMENT COMPANY
7% Non-Negotiable Note Due 2000
$2,048,750 June 30, 1999
SECTION 1. GENERAL.
(a) THE HARVEY ENTERTAINMENT COMPANY, a California
corporation (the "Company"), for value received, hereby promises to pay Mr. Paul
Guez ("Investor") (or such Persons' permitted transferees), the aggregate
principal amount of Two Million Forty-Eight Thousand Seven Hundred and Fifty
Dollars ($2,048,750) (the "Principal Amount"), together with accrued and unpaid
interest on the Principal Amount, on May 20, 2000 (the "Payment Date"), in such
coin or currency of the United States of America as at the time of payment shall
be legal tender therein for the payment of public and private debts.
(b) This Note shall accrue interest at a rate per annum of
7% with respect to the unpaid Principal Amount plus any accrued but unpaid
interest thereon (the "Interest"), such Interest to be paid in four equal
quarterly payments on the last day of each March, June, September and December,
commencing June 30, 1999. The Company agrees to pay additional interest at the
rate of 3% per annum on any overdue principal and (to the full extent permitted
by applicable law) on any overdue Interest, from the due date thereof until the
obligation of the Company with respect to the payment thereof shall be
discharged. Interest shall be calculated on the basis of a 365 (or 366, as
applicable)-day year and the actual number of days elapsed.
SECTION 2. NON-NEGOTIABILITY; NON-TRANSFERABILITY.
(a) This Note or any interest herein shall not be
negotiable, assignable or transferable other than pursuant to (i) an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities laws, or (ii) an exemption
from the requirements of the Securities Act and any applicable state securities
laws and, in addition, (A) in the case of a holder who is an individual,
pursuant to gifts, applicable laws of
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descent and distribution or by will among the Family Group (as such term is
defined below) of the individual holder to whom this Note (provided that if this
Note is a replacement Note, such reference shall be to the original Note from
which this Note was derived) was originally issued, (B) in the case of a holder
which is a trust, pursuant to gifts, applicable laws of descent and distribution
or by will among the Family Group of the direct beneficiaries of the trust to
whom this Note (provided that if this Note is a replacement Note, such reference
shall be to the original Note from which this Note was derived) was originally
issued (to the extent such beneficiaries were beneficiaries of the trust to
which this Note (provided that if this Note is a replacement Note, such
reference shall be to the original Note from which this Note was derived) was
issued at the time of the issuance of such Note), (C) in the case of any holder
which is a corporation, partnership or limited liability company, to any member
of the Group (as such term is defined below) of the holder to whom this Note is
originally issued (or of the holder which has acquired this Note in a
transaction described in either clause (A)(3) or (B)(2) of the definition of
"Group", or (D) in the case of any holder, to any other holder of a Note at the
time of such negotiation, transfer or assignment; provided that, any such
transferee shall be bound by the provisions of this Section 2 with respect to
future transfers.
(b) For purposes of this Note, the following terms shall
have the following meanings:
(i) "Family Group" means, with respect to any
natural Person, (A) such Person, (B) the spouse, former spouse and issue
(whether natural or adopted) of such Person, (C) the parents or
step-parents of such Person (whether natural or adopted), (D) the
siblings of such Person (whether natural or adopted), (E) assuming such
Person is deceased, the heirs or descendants of such Person (whether
natural or adopted), and (F) any one or more trusts solely for the
benefit of any one or more of the Persons described in clause (A)
through clause (E) above;
(ii) "Group" means:
(1) In the case of any holder which is a
partnership or limited liability company, (1) such partnership
and any of its limited or general partners, (2) such limited
liability company and any of its members, (3) any corporation or
other business organization to which such partnership or limited
liability company shall sell all or substantially all of its
assets or with which it shall be merged and (4) any Affiliate of
such partnership or limited liability company; and
(2) In the case of any holder which is a
corporation, (1) such corporation, (2) such corporation or other
business organization to which such corporation shall sell or
transfer all or substantially all of its assets or with which it
shall be merged and (3) any Affiliate of such corporation.
(iii) "Affiliate" means, with respect to any Person,
any other Person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control
with, another Person. For the purposes of this Note, the term "control"
including, with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with" as used with respect to
any Person means the possession directly or indirectly of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise.
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(iv) "Person" shall be construed broadly and shall
include, without limitation, an individual, a partnership, an investment
fund, a limited liability company, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization and a government entity or any department, agency or
political subdivision thereof.
SECTION 3. PREPAYMENTS.
If the conditions for conversion of this Note set forth in
subsections 6(a), (b), (c) and (d) hereof are not fulfilled at the Company's
meeting of shareholders next held following the date of this Note (the "Annual
Meeting"), then (A) the Company may, at its sole discretion, at any time
following the completion of the Annual Meeting prepay this Note without penalty
or premium, in whole or in part, together with all accrued and unpaid interest
on the principal amount so prepaid to the date of such prepayment (the
"Prepayment Date") and (B) the Investor may at any time following the completion
of the Annual Meeting accelerate the repayment of this Note, in whole or in
part, and if this Note is so accelerated, the Company shall prepay this Note and
all accrued and unpaid interest hereon through the date of such repayment.
SECTION 4. SUBORDINATION.
Intentionally Omitted.
SECTION 5. COMPANY REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants to the
Investor as follows:
(i) Organization and Qualification; Subsidiaries.
The Company and each of its Subsidiaries (as hereinafter defined) is a
corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the
requisite power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as
it is now being conducted, except where the failure to be so
incorporated, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Company Material Adverse Effect (as defined below).
The Company is and each of its Subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failure to be so
qualified or licensed and in good standing that would not, individually
or in the aggregate, have a Company Material Adverse Effect. The term
"Company Material Adverse Effect" means any change, effect or
circumstance that individually or when taken together with all other
such changes, effects or circumstances that have occurred prior to the
date of determination of the occurrence of the Company Material Adverse
Effect, (x) will be materially adverse to the business, operations,
properties, assets, financial condition or
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results of operations of the Company and all of its Subsidiaries taken
as a whole, or (y) will impair in any material respect the Company's
ability to perform any of its obligations or agreements hereunder,
provided that none of the following shall constitute a Company Material
Adverse Effect: (i) general changes in the economy or changes affecting
the entertainment industry in general, (ii) the filing, initiation and
subsequent prosecution, or results of litigation that challenges or
otherwise seeks damages with respect to the issuance of this Note, or
(iii) changes arising directly or indirectly from the execution or
issuance of this Note. For purposes of this Agreement, the term
"Subsidiary" shall includes the following: Harvey Comics, Inc., a New
York corporation, and Baby Huey Productions, Inc., a California
corporation. The Company owns directly or indirectly all of the issued
and outstanding shares of capital stock of each of its Subsidiaries.
(ii) Articles of Incorporation and Bylaws. The
Company has heretofore furnished to the Investor a complete and correct
copy of the Articles of Incorporation and bylaws of the Company and each
of its subsidiaries as most recently restated and subsequently amended
to date. The Articles of Incorporation and bylaws of the Company and
each of the Subsidiaries are in full force and effect. As of the date of
this Note, neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its respective Articles of
Incorporation or bylaws.
(iii) Capitalization. The authorized capital stock of
the Company consists of (i) 10,000,000 shares of Common Stock, (ii)
299,600 shares of Class B Common Stock (the "Class B Common Stock"),
(iii) 2,830,000 shares of Series Preferred Stock (the "Series Preferred
Stock") and (iv) 170,000 shares of Series A Preferred Stock ("Series A
Preferred Stock"). As of June 15, 1999, (i) approximately 4,186,941
shares of Common Stock were issued and outstanding, all of which were
validly issued, fully paid and nonassessable, (ii) no shares of Common
Stock were held in the treasury or by its subsidiaries and (iii)
approximately 3,169,560 shares of Common Stock were reserved for future
issuance upon exercise of outstanding options and warrants. As of June
15, 1999, (i) no shares of Class B Common Stock were issued and
outstanding or held in treasury or by the subsidiaries and (ii) no
shares of Class B Common Stock were reserved for future issuance. As of
June 15, 1999, 170,000 shares of Series A Preferred Stock were issued
and outstanding. As of June 15, 1999, (i) no shares of Series Preferred
Stock were issued and outstanding or held in treasury or by its
Subsidiaries other than the 170,000 shares of Series A Preferred Stock
mentioned in the previous sentence and (ii) no shares of Preferred Stock
were reserved for future issuance. Except as described above and except
as described in the attached disclosure schedule or contemplated hereby,
there are no options, warrants or other rights, agreements, arrangements
or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell
any shares of capital stock of, or other equity interests in, the
Company. All shares of the Company's capital stock subject to issuance,
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. To the best of the Company's
knowledge, there are no shareholder agreements, voting trusts or other
agreements relating to voting or disposition of any shares of the
Company's capital stock
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or, except as set forth in that certain Stock Purchase Agreement dated
as of April 26, 1999 by and among the Company, Michael R. Burns, Roger
A. Burlage, Ken Slutsky and The Kushner-Locke Company, a copy of which
has been provided to the Investor prior to the date hereof, granting to
any person or group of persons the right to elect, or to designate or
nominate for election, a director to the Company's board of directors.
(iv) Authority Relative to the Transaction
Agreements. The Company has all necessary corporate power and authority
to execute and deliver this Note, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution
and delivery of this Note and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on
the part of the Company are necessary to authorize this Note or to
consummate the transactions contemplated hereby. This Note has been duly
and validly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and to general
principles of equity.
(v) No Conflicts. This Note and the transactions
contemplated by this Note will not result in a default (either by
passage of time or otherwise) of any material contract to which the
Company is a party.
(vi) Litigation. As of the date of this Note, except
as set forth in the attached disclosure schedule, there is no suit,
claim, action, proceeding or investigation pending, or, to the Company's
best knowledge, threatened against the Company or any of its
Subsidiaries that could reasonably be expected to have a Company
Material Adverse Effect or prevent or materially delay the consummation
of the transactions contemplated hereby.
(vii) Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Company.
(viii) Shares Fully Paid, Etc. The shares of Series A
Preferred Stock, when issued and paid for pursuant to the terms of this
Note, and any additional shares of Series A Preferred Stock issued as
dividends pursuant to the terms and conditions of the Company's
certificate of determination for the Series A Preferred Stock as it is
proposed to be amended in accordance with the terms of this Note (and
assuming it is so amended) (the "Amended Certificate of Determination"),
will be duly authorized, validly issued and outstanding, fully paid,
nonassessable shares and shall have all rights, privileges and
preferences specified in the Amended Certificate of Determination and
shall be free and clear of all pledges, liens, encumbrances and
restrictions. Subject to receiving the approval of holders of Common
Stock and Series A Preferred Stock, the Company will reserve for
issuance the shares of Common Stock issuable upon conversion of Series A
Preferred Stock acquired upon conversion of this Note ("Conversion
Shares") and shares
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of Common Stock issuable upon exercise of the warrants issuable upon
conversion of this Note (the "Warrant Shares"), and when issued upon
conversion or exercise, as the case may be, such shares will be duly
authorized, validly issued and outstanding, fully paid, nonassessable
and free and clear of all pledges, liens, encumbrances and restrictions.
(ix) Shares of Common Stock. The outstanding shares
of Common Stock of the Company are duly authorized, validly issued,
fully paid and non-assessable, and have been issued in full compliance
with the Securities Act and applicable blue sky laws.
(x) No Preemptive Rights. The issuance, sale and
delivery of this Note and, assuming the conditions in Section 6 hereof
have been met, of the Series A Preferred Stock, Warrants, Conversion
Shares and Warrant Shares are not subject to any preemptive right of
shareholders of the Company arising under law or the Articles of
Incorporation or Bylaws or to any contractual right of first refusal or
other contractual right in favor of any Person.
(b) The Investor hereby represents and warrants to the
Company that:
(i) This Note being acquired by the Investor is
being acquired and, when acquired, the shares of Series A Preferred
Stock and the Warrants issuable upon conversion of this Note, and the
Conversion Shares and Warrant Shares, will be acquired for investment
for such Investor's own account and not with the view to, or for resale
in connection with, any distribution or public offering thereof. Such
Investor understands that this Note, the shares of Series A Preferred
Stock, the Conversion Shares, the Warrants and the Warrant Shares have
not been registered under the Securities Act or any state securities
laws by reason of their contemplated issuance in transactions exempt
from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state securities laws, and that the
reliance of the Company and others upon these exemptions is predicated
in part upon this representation by the Investor. The Investor further
understands that this Note, the shares of Series A Preferred Stock, the
Conversion Shares, the Warrants and the Warrant Shares may not be
transferred or resold without (i) registration under the Securities Act
and any applicable state securities laws, or (ii) an exemption from the
requirements of the Securities Act and applicable state securities laws.
(ii) This Note, the shares of Series A Preferred
Stock, Conversion Shares, Warrants and Warrant Shares are only
transferrable pursuant to (a) a public offering registered under the
Securities Act, (b) an exemption from the registration requirements of
the Securities Act and applicable state securities or blue sky laws, (c)
a transfer not involving a change in beneficial ownership or (d) in the
case of a partnership, distribution of such securities to its partners
or a partner's estate.
(iii) Each certificate representing shares of Series A
Preferred Stock, Conversion Shares, Warrants and Warrant Shares shall be
endorsed with the following legend:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS (IF
REQUESTED BY THE COMPANY, UPON PROVISION OF AN OPINION OF
COUNSEL IN FORM SATISFACTORY TO THE COMPANY).
(iv) Location of Principal Office, Qualification,
etc. The state in which the Investor's domicile is located is the state
set forth in the Investor's address in Section 14 of this Note. The
Investor acknowledges that the Company has made available to the
Investor at a reasonable time prior to the execution of this Note the
opportunity to ask questions and receive answers concerning the terms
and conditions of the sale of securities contemplated by this Note and
to obtain any additional information (which the Company possesses or can
acquire without unreasonable effort or expense) as may be necessary to
verify the accuracy of information furnished to the Investor. The
Investor (a) is able to bear the loss of its entire investment in the
shares of Series A Stock without any material adverse effect on its
business, operations or prospects, and (b) has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment to be made by it
pursuant to this Agreement.
(v) Acts and Proceedings. This Note has been duly
authorized by all necessary action on the part of the Investor, has been
duly executed and delivered by the Investor, and is a valid and binding
agreement of the Investor.
(vi) No Brokers or Finders. No person, firm or
corporation has or will have, as a result of any act or omission by the
Investor, any right, interest or valid claim against the Company for any
commission, fee or other compensation as a finder or broker, or in any
similar capacity, in connection with the transactions contemplated by
this Note. The Investor will indemnify and hold the Company harmless
against any and all liability with respect to any such commission, fee
or other compensation which may be payable or determined to be payable
as a result of the actions of the Investor in connection with the
transactions contemplated by this Note.
(vii) Accredited Investor. The Investor is an
"accredited investor" within the meaning of Rule 501 promulgated under
the Securities Act.
(viii) Reliance by the Company. The Investor
acknowledges and agrees that the Company may rely upon the
representations made by it in this Section 5(b) in
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connection with its issuance to the Investor of the Series A Preferred
Stock and the Warrants upon the conversion of this Note.
(ix) Note. The Investor has read and understands
fully the terms of this Note, including the exhibits hereto.
SECTION 6. CONVERSION INTO SHARES OF SERIES A PREFERRED STOCK; WARRANTS.
(a) Upon the satisfaction of the conditions specified below,
this Note shall automatically be converted into 20,488 shares of the Company's
Series A Preferred Stock and 144,618 warrants ("Warrants") to purchase the
Company's common stock, no par value ("Common Stock") and all accrued and unpaid
interest shall be paid in cash:
(i) the approval of a majority of the holders of the
Series A Preferred Stock and Common Stock voting together as a single
class to authorize additional shares of Common Stock sufficient to cover
the additional shares of Common Stock issuable upon the conversion of
Series A Preferred Stock and exercise of Warrants issuable upon
conversion of this Note;
(ii) the approval of a majority of the holders of the
Series A Preferred Stock to authorize additional shares of Series A
Preferred Stock and the issuance and sale of such shares;
(iii) the approval of a majority of the holders of the
Series A Preferred Stock and Common Stock, voting together as a single
class to authorize additional shares of Series A Preferred Stock and the
issuance and sale of such shares.
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(iv) the approval of the holders of the Series A
Preferred Stock and Common Stock voting together as a single class to
convert this Note into shares of Series A Preferred Stock and Warrants;
and
(v) the filing with the Secretary of State of
California and effectiveness thereof, of the Amended Certificate of
Determination for Series A Preferred Stock authorizing the issuance and
sale of additional shares of Series A Preferred Stock.
(b) The Warrants shall have the terms and conditions set
forth in the Form of Warrant Agreement attached hereto as Exhibit A.
SECTION 7. COVENANTS.
(a) The Company hereby agrees that:
(i) In connection with the Annual Meeting, the
Company will (A) prepare a proxy statement as required by the
regulations of the Securities Exchange Act of 1934, as amended, and will
include therein as part of the proposals to be voted upon by the
Company's shareholders at such Annual Meeting, the matters set forth in
Section 6 hereof (the "Proposals") and (B) make a good faith effort to
solicit proxies in favor of the Proposals.
(ii) The Company will hold the Annual Meeting as soon
as practicable, and in any event not later than September 30, 1999.
(iii) Upon approval by the requisite shareholders of
the matters set forth in Section 6 hereof at the Annual Meeting, the
Company will (A) promptly prepare and file with the Secretary of State
of California the Amended Certificate of Determination in substantially
the form attached hereto as Exhibit B and (B) reserve for issuance that
number of shares of Common Stock issuable upon conversion of the Series
A Preferred Stock and exercise of Warrants issuable upon conversion of
this Note.
(iv) In connection with the execution and delivery of
this Note, the Company will deliver the opinion of Kaye, Scholer,
Fierman, Hays & Handler, LLP in the form previously provided to the
Investor.
(b) Covenant of the Investor.
(i) In the event (and on each occasion) that prior
to the conversion of the Series A Preferred Stock, the Investor shall
seek to sell its shares of Series A Preferred Stock to any person or
entity (other than (i) an affiliate of the Investor or another
"Investor" (as defined in that certain Stock Purchase Agreement made and
entered into as of April 7, 1999 among the Company, The Kushner-Locke
Company, Michael R. Burns, Roger A. Burlage and Ken Slutsky) (each an
"Other Investor") or an affiliate of any Other Investor, or (ii) any
family member of the Investor or any Other Investor or in connection
with estate planning matters), the Investor shall obtain a bona fide
written
9
<PAGE> 10
offer from such person or entity and give the Company written notice (a
"Sale Notice") describing the material terms of such offer, including
the identity of such person or entity and the proposed closing date. The
Company shall have ten (10) business days from the date on which the
Investor shall give the written Sale Notice to agree to purchase all or
any portion of such shares of Series A Preferred Stock, upon the terms
(other than the proposed closing date) specified in the Sale Notice, by
giving written notice (the "Purchase Notice") to the Investor. If the
Company agrees to purchase all or any portion of such shares in
accordance with the foregoing, the closing of such purchase shall occur
on a date chosen by the Company which is no later than the later of (x)
the closing date specified in the Sale Notice and (y) ten (10) Business
Days (defined below) from the date of the Purchase Notice. If the
Company does not agree to purchase such shares, the Investor may sell
such shares to such person or entity on or prior to the closing date set
forth in the Sale Notice on terms and conditions no less favorable to
the Investor than those set forth in the Sale Notice. If the Investor
fails to timely provide the Company with a Sale Notice prior to selling
shares of Series A Preferred Stock, the Company may, in its sole
discretion, refuse to permit the transfer of such shares of Series A
Preferred Stock on its stock transfer ledger. The provisions of this
Section 7(b) shall terminate with respect to any shares of Series A
Preferred Stock which are converted into shares of Common Stock (or
other securities or assets) pursuant to the terms of the Amended
Certificate of Determination.
SECTION 8. REGISTRATION RIGHTS; WARRANTS.
In connection with the issuance and sale of the Series A
Preferred Stock and the Warrants to the Investor upon the satisfaction of the
conditions set forth in Section 6 hereof, the Company shall execute and deliver
to the Investor the Registration Rights Agreement, in substantially the form
attached hereto as Exhibit C and the Warrant Agreement, in substantially the
form attached hereto as Exhibit A.
SECTION 9. REPLACEMENT OF NOTE.
Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note and, in case of loss, theft
or destruction, of indemnity reasonably satisfactory to it, or, in the case of
mutilation or at the request of the Investor, upon surrender and cancellation of
this Note, and in all cases upon reimbursement to the Company of all reasonable
expenses incidental thereto, the Company will make and deliver a new Note of
like tenor in lieu of this Note. A holder, through the Investor, may also
request that this Note be exchanged for one or more Notes of like tenor in the
same aggregate principal amount as such Note being exchanged, subject to the
provisions of Section 2 hereof, and appropriate notation on any newly issued
Note to indicate which holders have an interest therein.
SECTION 10. AMENDMENTS AND WAIVERS.
No covenant, agreement or condition contained in this Note may
be amended or waived (either generally or in a particular instance and either
retroactively or prospectively) without the prior written consent of the
Investor (in its sole discretion) and the Company;
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<PAGE> 11
provided, however, that the provisions of Section 1, Section 3, Section 4 hereof
and this Section 10 may not be amended or modified without the prior written
consent of the holders of the Designated Senior Debt. Any such amendment or
waiver shall be binding upon each of the Investor, each future holder of this
Note and the Company. Upon the request of the Company, the Investor or any
holder of this Note shall submit this Note to the Company so that this Note may
be marked to indicate such amendment or waiver, and any Note issued thereafter
shall bear a similar notation referring to any such amendment or continuing
waiver.
SECTION 11. EVENT OF DEFAULT.
(a) In case of the occurrence of any of the following events
(an "Event of Default"):
(i) default shall be made in the payment of the
principal of or interest on this Note, when and as the same shall become
due and payable, whether at the due date thereof or by acceleration
thereof or otherwise and such default, (A) in the case of interest due,
shall continue unremedied for five (5) Business Days after written
notice from the holder of this Note to the Company of such default and
(B) in the case of principal due, shall continue unremedied for two (2)
Business Days after written notice from the holder of this Note to the
Company of such default (for the purpose of this Note "Business Day"
shall mean any day other than a Saturday, Sunday or other day or in
which commercial banks in the State of California are authorized or
required to be closed);
(ii) the Company shall (A) apply for or consent to
the appointment of a receiver, trustee or liquidator for itself or all
or a substantial part of its property, (B) admit in writing its
inability to pay its debts as they mature, (C) make a general assignment
for the benefit of creditors, (D) be adjudicated a bankrupt or
insolvent, (E) file a voluntary petition in bankruptcy or petition or
answer seeking a reorganization or an arrangement with its creditors,
(F) take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute or file
an answer admitting the material allegations of a petition filed against
it in any proceeding under any such law or (G) take any corporate action
for the purpose of effecting any of the foregoing;
(iii) an order, judgment or decree shall be entered,
without the application, approval or consent of the Company, by any
court of competent jurisdiction, approving a petition seeking
reorganization of the Company or all or a substantial part of the assets
of the Company, or appointing a receiver, trustee or liquidator of the
Company, and such order, judgment or decree shall continue unstayed and
in effect for any period of 90 days;
(iv) any material breach by the Company of: (A) any
provision of this Note (other than those described in subpart (i) of
this Section 11(a) and Section 7(a) hereof) and the failure to cure such
breach within ten (10) days after written notice from the Investor to
the Company of such default and (B) any provision of Subsection 7(a)(ii)
of this Note and the failure to cure such breach within twenty (20) days
after written
11
<PAGE> 12
notice from the Investor to the Company, in each case provided that such
breach is subject to cure; or
(v) a default occurs under the Primary Bank Facility
(as defined below), provided that, as a result of such default, the
maturity of any Senior Debt under the Primary Bank Facility (as defined
below) has been accelerated prior to its expressed maturity;
then the Investor may declare this Note to be forthwith due and payable,
whereupon this Note shall become forthwith due and payable, both as to principal
and interest, without presentment, demand, protest, or other notice of any kind,
all of which are hereby expressly waived. The term "Senior Debt" means (i) all
indebtedness (including any debt securities) of the Company and/or its
subsidiaries whether outstanding on the date hereof or hereafter created
(including all principal, interest, fees and expenses) owed to any person(s) or
entity for (A) money borrowed by, or purchase money obligations of, the Company
and/or its subsidiaries or (B) guarantees by the Company and/or its subsidiaries
of money borrowed or purchase money obligations, and (ii) all deferrals,
renewals, extensions, refinancings and refundings of, and amendments,
modifications and supplements to any such indebtedness, unless, by the terms of
the instrument creating or evidencing any such indebtedness, it is expressly
provided that such indebtedness is not superior in right of payment to this
Note. "Senior Debt" includes interest that accrues on any such indebtedness
after the commencement of any case or proceeding relating to the bankruptcy or
insolvency of the Company and/or its affiliates (whether or not such interest is
allowed or allowable as a claim in such case or proceeding. The term "Primary
Bank Facility" means all indebtedness under the Company's primary bank credit
facility existing from time to time, including as amended or restated from time
to time).
(b) In case any one or more of the Events of Default shall
have occurred and be continuing, the holder of this Note may proceed to protect
and enforce its rights either by suit in equity and/or by action at law, whether
for the specific performance of any covenant or agreement contained in this Note
or in aid of the exercise of any power granted in this Note, or proceed to
enforce the payment of this Note or to enforce any other legal or equitable
right of a holder of this Note.
(c) No remedy conferred hereunder 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 hereafter
existing at law or in equity or by statute or otherwise. No course of dealing
between the Company and the holder of this Note or any delay on the part of the
holder of this Note in exercising its rights hereunder shall operate as a waiver
of any rights of such holder.
(d) The Company hereby waives notice of protest, dishonor,
intent to accelerate, acceleration and all other notices of any type or
character, demand, presentment for payment, protest, diligence in collecting or
bringing suit and notice, other than required service, with respect to the
filing of suit for the purpose of fixing liability.
SECTION 12. EXTENSION OF MATURITY.
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<PAGE> 13
Should the principal of and interest on this Note become due and
payable on other than a Business Day, the maturity hereof shall be extended to
the next succeeding Business Day, and principal and interest shall be payable
thereon at the rate per annum herein specified during such extension.
SECTION 13. SUCCESSORS AND ASSIGNS.
The provisions of this Note shall be binding upon and inure to the benefit of
the Company and its successors and permitted assigns, and to the holder and its
successors and permitted assigns and their respective heirs, executors,
administrators and duly appointed legal representatives who shall succeed to the
holder's rights and obligations in, to and under this Note pursuant to Section 2
hereof.
SECTION 14. NOTICES.
All notices or other communications pursuant to this Agreement
shall be in writing and shall be deemed to be sufficient if delivered
personally, telecopied, sent by nationally-recognized, overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(i) if to the holder to:
Paul Guez
c/o Azteca Productions
5804 E. Slauson Avenue
Commerce, CA 90040
Attention: Paul Guez
Telecopier: 323-728-1641
(ii) with a copy to:
Paul, Hastings, Janofsky & Walker LLP
Seventeenth Floor
695 Town Center Drive
Costa Mesa, CA 92626-1924
Attention: Stephen D. Cooke, Esq.
Telecopier: 714-979-1921
(iii) if to the Company:
The Harvey Entertainment Company Inc.
1999 Avenue of the Stars
Suite 2050
Los Angeles, CA 90067
13
<PAGE> 14
Attention: Ronald B. Cushey
Chief Financial Officer
Telecopier: 310-789-1991
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, CA 90067
Attention: Barry L. Dastin, Esq.
Telecopier: 310-788-1200.
All such notices and other communications shall be deemed to have been given and
received (A) in the case of personal delivery, on the date of such delivery, (B)
in the case of delivery by telecopy, on the date of such delivery, (C) in the
case of delivery by nationally-recognized, overnight courier, on the Business
Day following dispatch, and (D) in the case of mailing, on the third Business
Day following such mailing.
Either party may change its address from time to time for
purposes of notice or other communication hereunder by giving notice to the
other party in accordance with this section.
SECTION 15. GOVERNING LAW.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF CALIFORNIA OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
SECTION 16. EXPENSES.
Each of the parties shall pay its own expenses incurred in
connection with the preparation, negotiation, execution and delivery of this
Note, including all Exhibits hereto. The Company agrees to pay or reimburse the
Investor for its reasonable costs and expenses (including reasonable legal fees
and costs) incurred by the Investor in connection with the enforcement of its
rights under this Note.
SECTION 17. INTEREST DEFICIT.
If the provisions of this Note would at any time require payment
by the Company to the holder of any amount of interest in excess of the maximum
amount then permitted by applicable law, the interest payments to the holder
shall be reduced but only to the extent necessary so that such holder shall not
receive interest in excess of such maximum amount. If, as a result of the
foregoing, a holder shall receive interest payments under the Note in an amount
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<PAGE> 15
less than the amount otherwise provided hereunder, such deficit (hereinafter
called the "Interest Deficit") will, to the fullest extent permitted by
applicable law, cumulate and will be carried forward (without interest) until
the payment in full of this Note or such earlier time as it may be paid.
Interest otherwise payable to the holder under the Note for any subsequent
period shall be increased by the maximum amount of the Interest Deficit that may
be so added without causing such holder to receive interest in excess of the
maximum amount then permitted by the law applicable thereto.
The amount of any Interest Deficit relating to a particular Note
(if any) shall be treated as a prepayment penalty and shall, to the fullest
extent permitted by applicable law, be paid in full at the time of any optional
prepayment by the Company to the holder of the Note. The amount of any Interest
Deficit relating to a particular Note at the time of any complete payment of the
Note (if any) (other than an optional prepayment thereof) shall, except to the
full extent then permitted to be paid under applicable law, be canceled and not
paid. The parties agree that if this Note did not have the conversion features
set forth herein, the interest rate would only be 1% more than the rate stated
on the face hereof.
IN WITNESS WHEREOF, each of the parties hereto has duly executed
and delivered this Note as of the date first written above.
THE HARVEY ENTERTAINMENT COMPANY
By: __________________________________________
Name:
Title:
Paul Guez
15
<PAGE> 1
EXHIBIT 3
- --------------------------------------------------------------------------------
WARRANT AGREEMENT OF
THE HARVEY ENTERTAINMENT COMPANY
144,618 SHARES
Dated as of June 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT
<PAGE> 2
WARRANT AGREEMENT (the "Agreement") dated as of June 30, 1999 between
The Harvey Entertainment Company, a California corporation (the "Company") and
Mr. Paul Guez (collectively with any permitted transferee hereunder the
"Holder").
The Company and the Holder hereby agree as follows:
SECTION 1. ISSUANCE OF THE WARRANTS; TRANSFERABILITY AND FORM OF THE
WARRANTS.
1.1 THE WARRANTS. Subject to satisfaction of the conditions
set forth in Schedule 6 of that certain Note dated as of June 30, 1999 made by
the Company in favor of the Holder, the Company hereby grants to the Holder, (i)
48,206 Common Stock Purchase Warrants (Series A) (the "Series A Warrants") each
to purchase one share of its common stock, no par value per share (the "Common
Stock"); (ii) 48,206 Common Stock Purchase Warrants (Series B) (the "Series B
Warrants"), each to purchase one share of the Common Stock; and (iii) 48,206
Common Stock Purchase Warrants (Series C) (the "Series C Warrants" and
collectively with the Series A Warrants and the Series B Warrants, the
"Warrants") each to purchase one share of the Common Stock. The shares of Common
Stock issuable upon exercise of the Warrant are referred herein as the "Warrant
Shares."
1.2 REGISTRATION. The Warrant Shares constitute "Shareholder
Common Stock" under that certain Registration Rights Agreement, dated as of June
30, 1999, between the Company and the Holder and, accordingly, have the benefit
of the registration rights pursuant to that agreement.
1.3 TRANSFER RESTRICTIONS. The Holder may not transfer any
Warrant without the prior written consent of the Company, which consent may be
granted or denied in the sole discretion of the Company, provided that all or a
portion of any Warrant may be transferred to any family member of the Holder or
in connection with estate planning matters (including by operation of law).
Should such consent be granted, the Warrants so transferred shall continue to be
bound by this restriction in the hands of a subsequent Holder, and the Company
shall not be required to recognize any attempted transfer of the Warrants in
violation of this Agreement.
1.4 TRANSFER - GENERAL. Subject to the terms hereof, the
Warrants shall be transferable only on the books of the Company maintained at
its principal office upon delivery thereof duly endorsed by the Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or a copy thereof, duly
certified, shall be deposited and remain with the Company. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and to remain with the Company in its discretion. Upon any
registration of transfer, the person to whom such transfer is made shall receive
a new Warrant or Warrants as to the portion of the Warrant transferred, and
<PAGE> 3
the Holder of such Warrant shall be entitled to receive a new Warrant or
Warrants from the Company as to the portion thereof retained. The Company may
require the payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any such transfer.
1.5 FORM OF THE WARRANTS. The form of the Warrants and of
the election to purchase Warrant Shares (the "Purchase Form") shall be
substantially as set forth respectively in Annex A and B attached hereto. Except
for the exercise price thereof, the Series A Warrants, the Series B Warrants and
the Series C Warrants shall be identical in all respects. The Warrants shall be
executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, President or one of its Vice Presidents.
The Warrants shall be dated as of the date of execution thereof
by the Company either upon initial issuance or upon transfer.
SECTION 2. TERM OF THE WARRANTS; EXERCISE OF THE WARRANTS; EXERCISE
PRICE, ETC.
2.1 TERM OF THE WARRANTS. Subject to the terms of this
Agreement, the Holder shall have the right, which right may be exercised in
whole or in part, from time to time, beginning on the date six months following
the Closing and ending on the date set forth in the respective Warrant (the
"Expiration Date"), to purchase from the Company the number of fully paid and
nonassessable Warrant Shares which the Holder may at the time be entitled to
purchase on exercise of such Warrant. If the last day for the exercise of the
Warrants shall not be a business day, then the Warrants may be exercised on the
next succeeding business day.
2.2 VESTING OF THE WARRANTS. The Warrants are vested in full
and, subject to Section 2.1 hereof, may be exercised on or after the date hereof
in accordance with the terms of this Agreement and the Warrants.
2.3 EXERCISE OF THE WARRANTS. The Warrants may be exercised
upon surrender to the Company, at its principal office, of the certificate
evidencing the Warrants to be exercised, together with the Purchase Form on the
reverse thereof completed and signed, and upon payment to the Company, of the
Exercise Price (as defined in and determined in accordance with the provisions
of Sections 2.5 and 6 hereof) for the number of Warrant Shares in respect of
which such Warrants are then being exercised (such surrender of Warrants,
delivery of the Purchase Form and payment of the Exercise Price hereinafter
called the "Exercise of the Warrants"). Upon partial exercise, a Warrant
certificate for the unexercised portion shall be delivered by the Company to the
Holder. Payment of the Exercise Price shall be by delivery of cash, or a
certified or official bank check in the amount of such Exercise Price.
Subject to Section 3 hereof, upon such surrender of a Warrant
and payment of the Exercise Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written order
of the Holder thereof and in such name or names as the Holder may designate, a
certificate or certificates for the number of Warrant Shares so
2
<PAGE> 4
purchased upon the exercise of such Warrant, together with cash, as provided in
Section 6.3 hereof, in lieu of any fractional Warrant Shares otherwise issuable
upon such surrender. Such certificate or certificates shall be deemed to have
been issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of the date of the
surrender of such Warrant and payment of the Exercise Price, as aforesaid.
2.4 COMPLIANCE WITH GOVERNMENT REGULATIONS. The Holder
acknowledges that none of the Warrants or Warrant Shares have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
therefore may be sold or disposed of in the absence of such registration only
pursuant to an exemption from such registration and in accordance with this
Agreement. The Warrant Shares will bear a legend to the following effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
ARE SUBJECT TO THE WARRANT AGREEMENT, DATED AS OF JUNE 30, 1999,
BETWEEN THE HARVEY ENTERTAINMENT COMPANY AND PAUL GUEZ (A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY).
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS (IF REQUESTED BY THE COMPANY, UPON PROVISION OF
AN OPINION OF COUNSEL IN FORM SATISFACTORY TO THE COMPANY)."
2.5 EXERCISE PRICE. The price per share at which Warrant
Shares shall be purchasable upon exercise of each Warrant (the "Exercise Price")
shall be (i) $9.00 per share of Common Stock in the case of the Series A
Warrants; (ii) $11.00 per share of Common Stock in the case of the Series B
Warrants; and (iii) $12.00 per share of Common Stock in the case of the Series C
Warrants, in each case subject to adjustment as provided in Section 6 hereof.
SECTION 3. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants and Warrant
Shares upon the exercise of Warrants. The Company shall not be required to pay
any income tax or taxes resulting from the issuance of the Warrants or any other
tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of the Warrants or certificates for Warrant Shares.
SECTION 4. MUTILATED OR MISSING WARRANT. In case any Warrant certificate
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and substitution for
3
<PAGE> 5
the Warrant lost, stolen or destroyed, a new Warrant certificate of like tenor
and representing an equivalent right or interest; but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant certificate and indemnity or bond, if requested,
also reasonably satisfactory to them. An applicant for such substitute Warrant
certificate shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES.
5.1 RESERVATION OF WARRANT SHARES. There have been reserved,
and the Company shall at all times keep reserved, out of its authorized and
unissued shares of Common Stock, that number of shares of Common Stock
sufficient to provide for the exercise of the outstanding Warrants. The transfer
agent for the Common Stock and every subsequent transfer agent ("Transfer
Agent") for any shares of the Company's capital stock issuable upon the exercise
of any of the Warrants will be and are hereby irrevocably authorized and
directed at all times until 5:00 p.m. Pacific Time on the Expiration Date
applicable to each Series of Warrants to reserve such number of authorized
shares as shall be requisite for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent for any shares of the Company's
capital stock issuable upon the exercise of the rights of purchase represented
by the Warrants. The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants will, upon payment in accordance with this
Agreement be validly issued, fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges, pledges, mortgages and security
interests with respect to the issue thereof. The Company will supply the
Transfer Agent with duly executed stock certificates for such purpose and will
itself provide or otherwise make available any cash which may be payable as
provided in Section 6.3 of this Agreement. The Company will furnish to such
Transfer Agent a copy of all notices of adjustments, and certificates related
thereto, transmitted to the Holder. Any Warrant surrendered in the exercise of
the rights thereby evidenced shall be canceled by the Company.
5.2 CANCELLATION OF WARRANTS. In the event the Company shall
purchase or otherwise acquire any Warrants, the same shall be canceled and
retired.
SECTION 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The number and kind of securities purchasable upon the exercise of the Warrants
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
6.1 MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of the Warrants and the Exercise Price shall be
subject to adjustment as follows:
(a) PROHIBITED ACTIONS. So long as any Warrants are
outstanding, then, the Company will not avoid or seek to avoid the
observance or performance of any of the terms of this Agreement or the
Warrants or impair the ability of the Holder to realize the full
intended economic value thereof, but will at all times in
4
<PAGE> 6
good faith assist in the carrying out of all such terms, and of the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of the Warrants against dilution or
other impairment.
(b) ADJUSTMENT OF NUMBER OF SHARES. Subject to any
applicable exceptions set forth in Section 6.1(g) below, if and whenever
after the date hereof the Company shall in any manner (i) issue or sell
any shares of its Common Stock for less than Fair Value (as defined in
Section 6.1 (k) below) as determined at the time of such issuance or
sale, or (ii) grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase any options,
warrants, convertible securities, securities and other rights to acquire
from the Company shares of Common Stock ( the "Common Stock
Equivalents"), or issue or sell (whether directly or by assumption in a
merger or otherwise) Common Stock Equivalents, and the price per share
for which Common Stock is issuable upon exercise, conversion or exchange
of such Common Stock Equivalents (determined by dividing (x) the
aggregate amount received or receivable by the Company as consideration
for the issue, sale or grant of such Common Stock Equivalents, plus the
minimum aggregate amount of additional consideration, if any, payable to
the Company upon the exercise, conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Common Stock Equivalents)
shall be less than the Fair Value (after taking into account any
consideration received or receivable by the Company with respect to the
exercise, exchange or conversion of any Common Stock Equivalents) on the
date of such issue, sale or grant, whether or not the rights to
exercise, exchange or convert thereunder are immediately exercisable or
(iii) declare a dividend or make any other distribution upon any stock
of the Company payable in Common Stock or Common Stock Equivalents, then
(A) the Exercise Price shall be reduced to a price determined by
multiplying the Exercise Price in effect prior to the adjustment
referred to in this Section 6.1 (b) by a fraction, the numerator of
which is an amount equal to the sum of (x) the number of shares of
Common Stock outstanding (including shares of Common Stock issuable upon
conversion of all outstanding shares of Series A Preferred Stock)
immediately prior to such issue, sale, grant, dividend or distribution,
plus (y) (A) the consideration, if any, received or receivable by the
Company upon any such issue or sale, plus, in the case of Common Stock
Equivalents, the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise, conversion or exchange
of Common Stock Equivalents divided by (B) the Fair Value as determined
at the time of such issue or sale, and the denominator of which is the
total number of shares of Common Stock outstanding (including shares of
Common Stock issuable upon conversion of all outstanding shares of
Series A Preferred Stock) immediately after such issue, sale, grant,
dividend or distribution, and (B) the number of shares of Common Stock,
taking into account all shares of Common Stock thereto issued upon
exercise of each Warrant, required to be issued by the Company to the
Holder (the "Exercise Quantity") shall be adjusted to equal the number
obtained by dividing (x) the Exercise Price in effect immediately prior
to such issue, sale, grant, dividend or distribution multiplied by the
Exercise Quantity immediately prior to such issue, sale, grant, dividend
5
<PAGE> 7
or distribution by (y) the Exercise Price resulting from the adjustment
made pursuant to clause (A) above.
(c) RECORD DATE. The record date for the holders of
the Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in shares of Common Stock or
Common Stock Equivalents, or (b) to subscribe for or purchase shares of
Common Stock or Common Stock Equivalents shall be the date determined by
the Board as the record date for such purposes or, if none is
established by the Board, then the record date shall be the effective
date for such action; provided, however, that if such shares are not
actually issued or sold on the applicable issuance or sale date, then
such shares of Common Stock or Common Stock Equivalents shall not be
deemed to have been sold or issued on such record date.
(d) CERTAIN DIVIDENDS. In case the Company shall pay
a dividend or make a distribution generally to the holders of its Common
Stock of shares of its capital stock (other than shares of Common
Stock), evidences of its indebtedness, assets or rights, warrants or
options (excluding (i) dividends or distributions payable in cash out of
the current year's or retained earnings of the Company, (ii)
distributions relating to subdivisions and combinations covered by
Section 6.1 (e), (iii) distributions relating to reclassifications,
changes, consolidations, mergers, sales or conveyances covered by
Section 6.1 (f) and (iv) rights, warrants or options to purchase or
subscribe for shares of Common Stock or Common Stock Equivalents or
other issuances covered by Section 6(b)), then in each such case (A) the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which
shall be (x) the total number of shares of Common Stock then outstanding
(including shares of Common Stock issuable upon conversion of all
outstanding shares of Series A Preferred Stock) multiplied by the Fair
Value per share of Common Stock on the record date mentioned below,
minus (y) the Fair Value as of such record date of said shares of stock,
evidences of indebtedness or assets so paid or distributed or of such
rights, warrants or options, plus (z) in the case of rights, warrants or
options, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise of such rights, warrants
or options, and the denominator of which shall be the total number of
shares of Common Stock then outstanding (including shares of Common
Stock issuable upon conversion of all outstanding shares of Series A
Preferred Stock) multiplied by the Fair Value per share of Common Stock
on the record date mentioned below, and (B) the Exercise Quantity shall
be adjusted to equal the number obtained by dividing (x) the Exercise
Price in effect immediately prior to such dividend or distribution
multiplied by the Exercise Quantity immediately prior to such dividend
or distribution by (y) the Exercise Price resulting from the adjustment
made pursuant to clause (A) above. Such adjustments shall be made
whenever any such dividend is paid or such distribution is made and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution.
6
<PAGE> 8
In the event of a distribution by the Company of stock
of a subsidiary or securities convertible into or exercisable for such
stock, then in lieu of an adjustment in the Exercise Price, the Holder
of this Warrant, upon the exercise thereof at any time after such
distribution, shall be entitled to receive from the Company, such
subsidiary or both, as the Company shall determine, the stock or other
securities to which the Holder would have been entitled if the Holder
had exercised such Warrant immediately prior thereto, all subject to
further adjustment as provided in this Section 6; provided, however,
that no adjustment in respect of dividends or interest on such stock or
other securities shall be made during the term of the Warrants or upon
the exercise of the Warrants.
(e) SUBDIVISION OR COMBINATION OF SHARES. In case
the Company shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionally reduced
and the number of Warrant Shares purchasable hereunder shall be
proportionately increased. In case the outstanding shares of the Common
Stock of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall
be proportionately increased, but in no event to greater than the
aggregate Exercise Price of all Warrant Shares in effect on the date
hereof, and the number of Warrant Shares purchasable hereunder shall be
proportionately reduced.
(f) REORGANIZATION, MERGER, ETC. In case of any
capital reorganization, reclassification or similar transaction
involving the capital stock of the Company (other than as provided in
Section 6.1 (e)), any consolidation, merger or business combination of
the Company with another corporation, or the sale or conveyance of all
or substantially all of its assets to another corporation, shall be
effected in such a way that holders of the Common Stock shall be
entitled to receive stock, securities, or assets (including cash) with
respect to or in exchange for shares of the Common Stock, then, prior to
and as a condition of such reorganization, reclassification,
consolidation, merger, business combination, sale or conveyance, lawful
and adequate provision shall be made whereby the Holder shall thereafter
have the right to receive upon exercise of the Warrants and in lieu of
the Warrant Shares immediately theretofore purchasable upon the exercise
of the Warrants, such shares of stock, securities or assets (including
cash) as may be issued or payable with respect to or in exchange for a
number of outstanding shares of Common Stock equal to the number of
shares of Common Stock immediately theretofore purchasable upon the
exercise of the Warrants had such reorganization, reclassification,
consolidation, merger, business combination, sale or conveyance not
taken place. In any such case, appropriate provision shall be made with
respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provisions for
adjustment of the Exercise Price and of the number of Warrant Shares
purchasable upon the exercise of the Warrants) shall thereafter be
applicable, as nearly as possible in relation to any stock, securities
or assets thereafter deliverable upon the exercise of the Warrants. The
Company shall not effect any such
7
<PAGE> 9
consolidation, merger, business combination, sale or conveyance unless
prior to or simultaneously with the consummation thereof the survivor or
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and sent to the Holder, the
obligation to deliver to the Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Holder may
be entitled to receive, and containing the express assumption by such
successor corporation of the due and punctual performance and observance
of every provision of this Agreement to be performed and observed by the
Company and of all liabilities and obligations of the Company hereunder.
(g) EXCEPTIONS TO ADJUSTMENT. No adjustment will be
made (i) upon the exercise or conversion of any Warrants, options,
subscriptions, convertible notes, convertible debentures, convertible
preferred stock or other convertible securities issued and outstanding
on the date hereof; (ii) upon the grant or exercise of any stock or
options which may hereinafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the
future, or upon grant or exercise of any stock or options to or by any
officer, director, employee, agent, consultant or other entity providing
services to the Company, whether or not under a plan; (iii) upon
conversion of any of the Series A Convertible Preferred Stock; (iv) upon
the issuance of securities in connection with any merger, acquisition or
consolidation, or purchase of assets or business from another person, so
long as the Company is the surviving corporation; (v) upon the issuance
of securities issued as the result of anti-dilution rights granted to a
third party; (vi) upon the issuance of securities in a private placement
made within six months of the original issuance date of the Series A
Preferred Stock at a discount below the market price thereof which does
not exceed 20%.
(h) TREASURY SHARES. The number of shares of the
Common Stock outstanding at any time shall not include shares owned or
held by or for the account of the Company or any of its subsidiaries,
and the disposition (but not the cancellation) of any such shares shall
be considered an issue or sale of the Common Stock for the purposes of
Section 6.
(i) ADJUSTMENT NOTICES TO HOLDER. Upon any increase
or decrease in the number of Warrant Shares purchasable upon the
exercise of the Warrants, or upon any adjustment in the Exercise Price,
then, and in each such case, the Company shall promptly deliver written
notice thereof to the Holder, which notice shall state the increased or
decreased number of Warrant Shares purchasable upon the exercise of the
Warrants, setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based. Such notice shall
also contain a certificate of the Company's independent public
accountants as to the correctness of such adjustments and calculations
and to the effect that such adjustments and calculations have been made
in accordance with the terms hereof.
8
<PAGE> 10
(j) EXERCISE PRICE DEFINED. As used in these
Warrants, the term "Exercise Price" shall mean the purchase price per
share specified in these Warrants until the occurrence of an event
specified in this Section 6 and thereafter shall mean said price, as
adjusted from time to time, in accordance with the provisions of said
subsection. No such adjustment shall be made unless such adjustment
would change the Exercise Price at the time by $.125 or more; provided,
however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the Exercise Price at the time
by $.125 or more.
(k) FAIR VALUE DEFINED. Fair Value as of a
particular date shall mean the average of the daily closing prices for
the preceding twenty trading days before the day in question. The
closing price for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in
either case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the average of
the closing bid and asked prices as reported by the National Association
of Securities Dealers Automated Quotation System. If such quotations are
unavailable, or with respect to other appropriate security, property,
assets, business or entity, "Fair Value" shall mean the fair value of
such item as determined by mutual agreement reached by the Company and
[the holders constituting a majority of the unexercised shares of Common
Stock issuable under the Warrants and the warrants issued under that
certain Warrant Agreement dated as of April 26, 1999 (the "April
Warrants") among the Company, Roger A. Burlage, Michael R. Burns, The
Kushner-Locke Company, Al Checchi and Ken Slutsky (collectively, the
"Majority of the Holders")] or, in the event the parties are unable to
agree, an opinion of an independent investment banking firm or firms in
accordance with the following procedure. In the case of any event which
gives rise to a requirement to determine "Fair Value" pursuant to this
Agreement, the Company shall be responsible for initiating the process
by which Fair Value shall be determined as promptly as practicable, but
in any event within sixty (60) days following such event and if the
procedures contemplated herein in connection with determining Fair Value
have not been complied with fully, then any such determination of Fair
Value for any purpose of this Agreement shall be deemed to be
preliminary and subject to adjustment pending full compliance with such
procedures. Upon the occurrence of an event requiring the determination
of Fair Value, the Company shall give the Holder and the holders of the
April Warrants notice of such event, and the Company, the Holder and the
holders of the April Warrants shall engage in direct good faith
discussions to arrive at a mutually agreeable determination of Fair
Value. In the event the Company and the Majority of the Holders are
unable to arrive at a mutually agreeable determination within thirty
(30) days of the notice, Deloitte & Touche LLP shall make such
determination and render such an opinion. The determination so made
shall be conclusive and binding on the Company and such holders. The
fees and expenses of the investment banking firm retained for such
purpose shall be equally shared by the Company and the holders.
9
<PAGE> 11
(l) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR
ASSETS. In the event that at any time, as a result of an adjustment made
pursuant to this Section 6, the Holder of these Warrants shall, upon
Exercise of these Warrants, become entitled to receive shares and/or
other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time in a manner
and upon terms as nearly equivalent as practicable to the provisions of
this Section 6.
(m) COMPUTATION OF ADJUSTMENT. If any adjustment to
the number of shares of Common Stock issuable upon the exercise of each
Warrant or any adjustment to the Exercise Price is required pursuant to
Section 6 hereof, the number of shares of Common Stock issuable upon
exercise of each Warrant or the Exercise Price shall be rounded up to
the nearest 1/10th cent or 1/100th Share, as appropriate.
6.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares purchasable upon the exercise of the Warrants or the Exercise Price of
such Warrant Shares is adjusted, as herein provided, the Company shall mail by
first class, postage prepaid, to the Holder notice of such adjustment or
adjustments and shall deliver to the Holder a copy of a certificate of either
the Board of Directors of the Company or of a firm of independent public
accountants selected by the Board of Directors of the Company (who may be the
regular accountants employed by the Company) setting forth the number of Warrant
Shares purchasable upon the exercise of the Warrants and the Exercise Price of
such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth the computation by which
such adjustment was made. Such certificate shall be conclusive evidence of the
correctness of such adjustment in the absence of manifest error.
6.3 FRACTIONAL INTERESTS. No fractional shares or scrip
representing fractional shares shall be issuable upon an Exercise of Warrants,
but on Exercise of Warrants, the Holder hereof may purchase only a whole number
of shares of Common Stock. The Company shall make a payment in cash in respect
of any fractional shares which might otherwise be issuable upon Exercise of
these Warrants, calculated by multiplying the fractional share amount by the
closing bid price of the Company's Common Stock on the Date of Exercise as
reported by the NASDAQ National Market or such other principal exchange or
trading market upon which the Common Stock is then traded; provided that the
Exercise of multiple Warrants shall be aggregated so that a cash payment in
respect of fractional shares pursuant to this Section 6.3 shall not be made as
to a total number greater than one for any single Exercise.
6.4 STATEMENT ON THE WARRANTS. Irrespective of any
adjustments in the Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, the Warrants theretofore or thereafter issued
may continue to express the same price and number and kind of shares as are
stated in the Warrants initially issuable pursuant to this Agreement.
10
<PAGE> 12
SECTION 7. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Holder or its permitted transferees the right to vote or to receive
dividends or to consent to or receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
SECTION 8. INSPECTION OF WARRANT AGREEMENT. The Company shall keep
copies of this Agreement and any notices given or received hereunder available
for inspection by the Holder during normal business hours at its principal
office.
SECTION 9. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of
any subsequent transfer agent for the Common Stock or any other shares of the
Company's capital stock issuable upon the exercise of the Warrants the Company
will notify the Holder of the name and address of such subsequent transfer
agent.
SECTION 10. NOTICES. Any notice pursuant to this Agreement by any Holder
to the Company, shall be in writing and shall be mailed first class, postage
prepaid, or delivered to the Company at its office at 1999 Avenue of the Stars,
Suite 2050, Los Angeles, California 90067, Attention: Chief Executive Officer.
Any notice mailed pursuant to this Agreement by the Company to
the Holder shall be in writing and shall be mailed first class, postage prepaid,
or delivered to the Holder at its address on the signature page hereto.
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in writing
to the other party.
SECTION 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to principles of conflict of laws. The parties hereto agree to submit to
the jurisdiction of the Courts of the State of California in any action or
proceeding arising out of or relating to this Agreement.
SECTION 12. SUPPLEMENTS AND AMENDMENTS. The Company and Majority of the
Holders may from time to time supplement or amend this Agreement in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Majority of the Holders may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the Holder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of its successors and assigns hereunder.
11
<PAGE> 13
SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY. So long as the
Warrant remains outstanding, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
SECTION 15. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to confer upon any person other than the Company and the Holder any
legal or equitable right, remedy or claim under this Agreement and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Holder.
SECTION 16. CAPTIONS. The captions of the Sections of this Agreement
have been inserted for convenience only and shall have no substantive effect.
SECTION 17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts each of which when so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
SECTION 18. LIMITATION OF LIABILITY. No provision hereof, in the absence
of affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder of a Warrant, shall
give rise to any liability of the Holder for the purchase price of any Common
Stock or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 19. WAIVER AND COURSE OF DEALING. No course of dealing or any
delay or failure to exercise any right hereunder on the part of any party
thereto shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of such party.
SECTION 20. WAVIER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR FOR ANY COUNTERCLAIM THEREIN.
12
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY:
THE HARVEY ENTERTAINMENT COMPANY
By:_____________________________________
Name:
Title:
PAUL GUEZ
Signature
Address:
13
<PAGE> 15
ANNEX A
Warrant Certificate
Warrant No. ______________ ______________ Shares
[SERIES A] [SERIES B] [SERIES C] COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Time on [June ___, 2005] [June ___, 2006] [June ____, 2007]
THIS CERTIFIES THAT, for value received, _______________, the registered
holder of this [Series A] [Series B] [Series C] Common Stock Purchase Warrant
(the "Warrant") or permitted assigns (the "Holder"), is entitled to purchase
from The Harvey Entertainment Company, a California corporation (the "Company"),
at any time until 5:00 p.m. Pacific Time on [June ___, 2005] [June ___, 2006]
[June ____, 2007] (the "Expiration Date"), ___________ shares of the common
stock of the Company, no par value per share (the "Common Stock") at a price per
share of [$9.00] [$11.00] [$12.00] (the "Purchase Price"). The number of shares
purchasable upon exercise of this Warrant and the Purchase Price per share shall
be subject to adjustment from time to time as set forth in the Warrant Agreement
referred to below.
This Warrant is issued under and in accordance with a Warrant Agreement,
dated as of June __, 1999, between the Company the Holder and is subject to the
terms and provisions contained in the Warrant Agreement, to all of which the
Holder of this Warrant by acceptance hereof consents. A copy of the Warrant
Agreement may be obtained for inspection by the Holder hereof upon written
request to the Company.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Exercise Price (subject to adjustment) at the
principal office of the Company in Los Angeles, California. Payment of such
price shall be payable at the option of the Holder hereof in cash or by
certified or official bank check or wire transfer. Terms relating to exercise of
Warrant is set forth more fully in the Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial
exercise, a Warrant Certificate for the unexercised portion shall be delivered
to the Holder. No fractional shares will be issued upon the exercise of this
Warrant but the Company shall pay the cash value of any fraction upon the
exercise of the Warrant. This Warrant is transferable only in limited
circumstances as described in this Warrant Agreement at the office of the
Company in Los Angeles, California, in the manner and subject to the limitations
set forth in the Warrant Agreement.
<PAGE> 16
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
ARE SUBJECT TO THE WARRANT AGREEMENT, DATED AS OF JUNE __, 1999,
BETWEEN THE HARVEY ENTERTAINMENT COMPANY AND PAUL GUEZ (A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY).
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS (IF REQUESTED BY THE COMPANY, UPON PROVISION OF
AN OPINION OF COUNSEL IN FORM SATISFACTORY TO THE COMPANY)."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of
a stockholder of the Company.
THE HARVEY ENTERTAINMENT COMPANY
By: ____________________________________
Name: Roger A. Burlage
Title: Chief Executive Officer
DATED: As of ____ ___, 1999
2
<PAGE> 17
ANNEX B
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
__________ shares of the stock provided for therein, and tenders herewith
payment of the purchase price in full in the form of cash or by cashier's check
in the amount of $_____________.
The undersigned requests that certificates for such shares be issued in
the name of:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print Name, Address and Social Security No.)
DATED: , ______
Name of Warrant Holder:
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
Signature: _____________________________________________________________________
<PAGE> 1
EXHIBIT 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS......................................................................1
1.1 Defined Terms.................................................................1
ARTICLE II TRANSFERS OF SHARES..............................................................2
2.1 Shareholder Common Stock Unregistered.........................................2
2.2 Rule 144 Reporting............................................................3
ARTICLE III REGISTRATION RIGHTS..............................................................3
3.1 Demand Registration...........................................................3
3.2 Right to Include Securities...................................................4
3.3 Priority in Incidental Registration...........................................5
3.4 Registration Procedures.......................................................5
3.5 Incidental Underwritten Offerings.............................................8
3.6 Preparation; Reasonable Investigation.........................................8
3.7 Limitations, Conditions and Qualifications to Obligations under Registration
Covenants.....................................................................8
3.8 Expenses......................................................................9
3.9 Indemnification..............................................................10
3.10 Participation in Underwritten Registrations..................................11
ARTICLE IV MISCELLANEOUS...................................................................12
4.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder Common Stock........12
4.2 Binding Effect...............................................................12
4.3 Amendment; Waiver............................................................12
4.4 Notices......................................................................12
4.5 Governing Law................................................................13
4.6 Counterparts.................................................................13
4.7 Invalidity...................................................................13
4.8 Cumulative Remedies..........................................................13
</TABLE>
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of June 30, 1999, by and between
The Harvey Entertainment Company, a California corporation (the "Company"), and
Paul Guez (the "Shareholder").
W I T N E S S E T H
WHEREAS, pursuant to the Note dated as of June 30, 1999, made by the
Company in favor of the Shareholder (the "Note"), upon satisfaction of the
conditions set forth in Section 6 of the Note, the Note will be converted into
20,488 shares of the Company's Series A Preferred Stock ("Series A Preferred
Stock") and Warrants (the "Warrants") to purchase 144,618 shares of the
Company's Common Stock, no par value (the "Common Stock");
WHEREAS, the Series A Preferred Stock and Warrants will, subject to the
respective terms thereof, be convertible into shares of Common Stock; and
WHEREAS, it is a condition to the Note and the transactions contemplated
thereby that the Shareholder and the Company enter into this Registration Rights
Agreement;
NOW, THEREFORE, in order to implement the foregoing and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
I.1 Defined Terms. Capitalized terms used herein but not otherwise
defined shall have the meaning given to such terms in the Note.
"Closing" shall mean the issuance of the Note.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder as the same may be
amended from time to time.
"Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, trust, joint stock company, business
trust, unincorporated association, joint venture, governmental authority or any
department or agency thereof or other entity of any nature whatsoever.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder as the same may be amended from
time to time.
<PAGE> 3
"Selling Securityholder" shall have the meaning given such term in
Section 3.4.
"Shareholder Common Stock" shall mean the shares of Common Stock
issuable to the Shareholder, holders of the Company's outstanding Series A
Preferred Stock, the Warrants and warrants issued pursuant to that certain
Warrant Agreement dated as of April 26, 1999 among the Company, Roger A.
Burlage, Michael R. Burns, The Kushner-Locke Company, a California corporation,
Al Checchi and Ken Slutsky (the "April Warrants") upon conversion of Series A
Preferred Stock and upon exercise of the Warrants and the April Warrants.
ARTICLE II
TRANSFERS OF SHARES
II.1 Shareholder Common Stock Unregistered. The Shareholder
acknowledges and represents that he has been advised by the Company that, with
respect to the Shareholder Common Stock issuable to or issued to the
Shareholder:
(a) the offer and sale of the Shareholder Common Stock have
not been registered under the Securities Act;
(b) the Shareholder Common Stock must be held and the
Shareholder must continue to bear (and is able to bear) the economic risk of the
investment in the Shareholder Common Stock, subject to the terms and conditions
of the Purchase Agreement until (i) the Shareholder Common Stock is registered
pursuant to an effective registration statement under the Securities Act and all
applicable state securities laws or (ii) an exemption from such registration is
available;
(c) when and if shares of the Shareholder Common Stock may
be disposed of without registration under the Securities Act in reliance on Rule
144 thereunder ("Rule 144"), such disposition can be made only in limited
amounts in accordance with the terms and conditions of such Rule;
(d) if the Rule 144 exemption is not available, public offer
or sale of Shareholder Common Stock without registration will require compliance
with some other exemption under the Securities Act;
(e) a restrictive legend in the form set forth in Section
5(b)(iii) of the Note shall be placed on the certificates representing the
Shareholder Common Stock; and
(f) a notation shall be made in the appropriate records of
the Company indicating that the Shareholder Common Stock is subject to
restrictions on transfer, and appropriate stop-transfer instructions will be
issued to the Company's transfer agent with respect to the Shareholder Common
Stock.
II.2 Rule 144 Reporting. The Company agrees that to the extent
reasonably necessary to permit the Shareholder to sell shares of the Shareholder
Common Stock in accordance with and in reliance on Rule 144, and for so long as
such shares are owned by the Shareholder and such shares
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are not registered for resale under the Securities Act, the Company will use its
reasonable best efforts to:
(a) Make and keep public information available within the
meaning of Rule 144 under the Securities Act, at all times from and after the
date of the Closing (the "Closing Date");
(b) File with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) So long as the Shareholder owns any Shareholder Common
Stock issued to the Shareholder pursuant to the Note and the transactions
contemplated thereby, inform such person upon request as to its compliance with
the reporting requirements of Rule 144 and of the Securities Act and the
Exchange Act, and provide a copy of the most recent annual or quarterly report
of the Company and such other reports and documents filed with the SEC and
available to the public as may reasonably be requested in availing the
Shareholder of any rule or regulation of the SEC allowing a sale of any such
securities without registration.
Anything to the contrary contained in this Section 2.2 notwithstanding, the
Company may deregister any of its securities under the Exchange Act if it is
then permitted to do so pursuant to the Exchange Act in which case the
provisions of this Section 2.2 insofar as they relate to obligations to make
filings under the Exchange Act that would no longer be required as a result of
such delisting shall be of no further force or effect. Nothing in this Section
shall be deemed to limit in any manner the restriction on sales of Shareholder
Common Stock contained in this Agreement.
ARTICLE III
REGISTRATION RIGHTS
III.1 Demand Registration. If at any time commencing 18 months from
April 26, 1999, the Company shall receive from holders of more than 50% of the
Shareholder Common Stock that has not been registered pursuant to Article III of
this Agreement and Article III of that certain Registration Rights Agreement
dated as of April 26, 1999 by and among the Company, The Kushner-Locke Company,
Roger A. Burlage, Michael R. Burns and Ken Slutsky (the "April Registration
Rights Agreement"), a written request that the Company effect any registration
of Shareholder Common Stock, the Company will:
(a) promptly give written notice of the proposed
registration to all other holders of Shareholder Common Stock; and
(b) file a registration statement on Form S-3 or any
successor form with the SEC within 45 days after the initiating shareholders'
request and use its best efforts to effect the registration for resale of the
Shareholder Common Stock (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as would permit the
sale and distribution by the Shareholder of such shares of Shareholder Common
Stock under applicable law, together with all Shareholder Common Stock of any
shareholders joining in such request as are specified in a written
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request received by the Company within 30 days after receipt of such written
notice from the Company provided, however that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 3.1:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) If, at such time as a request for registration
pursuant to this Section 3.1 is pending, the Company has already effected two
such registrations pursuant to this Section 3.1, and each such registration has
been declared or ordered effective;
(iii) With respect to any of the Shareholder Common
Stock which has been transferred to any holder other than the Shareholder or a
"Shareholder" as defined in the April Registration Rights Agreement, or a family
member of any such shareholder or a trust for the benefit of any such
shareholder or family member; or
(iv) During the period starting with the date 60 days
prior to the filing of, and ending on a date three months following the
effective date of, a registration statement (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Shareholder Common Stock).
III.2 Right to Include Securities. If at any time during the period
commencing 18 months from April 26, 1999 all of the shares of Shareholder Common
Stock are not then registered for resale under the Securities Act, and the
Company proposes to register any shares of its Common Stock under the Securities
Act on Forms S-1, S-2 or S-3 or any successor or similar forms (except for
registrations on such forms solely for registration of Common Stock in
connection with any warrant, option, employee benefit or dividend reinvestment
plan), whether or not for sale for its own account, it will each such time as
soon as practicable give written notice of its intention to do so to the
Shareholder. In such event, upon the written request (which request shall
specify the total number of shares of Shareholder Common Stock intended to be
disposed of by the Shareholder) of the Shareholder made within 15 days after the
receipt of any such notice (10 days if the Company gives telephonic notice with
written confirmation to follow promptly thereafter, stating that (i) such
registration will be on Form S-3 and (ii) such shorter period of time is
required because of a planned filing date), the Company will use all reasonable
efforts to effect the registration under the Securities Act in the manner
initially proposed by the Company of all Shareholder Common Stock held by the
Shareholder which the Company has been so requested to register for sale. If the
Company thereafter determines for any reason in its sole discretion not to
register or to delay registration of the Common Stock, the Company may, at its
election, give written notice of such determination to the Shareholder and (i)
in the case of a determination not to register, shall be relieved of the
obligation to register any Shareholder Common Stock in connection with such
registration and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Shareholder Common Stock of the
Shareholder for the same period as the delay in registration of such other
securities.
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III.3 Priority in Incidental Registration. In a registration pursuant
to Section 3.2 hereof, if the managing underwriter of any such underwritten
offering to which Section 3.2 pertains shall inform the Company by letter of its
belief that the number of shares of Shareholder Common Stock to be included in
such registration would adversely affect its ability to effect such offering,
then the Company will be required to include in such registration only that
number of shares of Shareholder Common Stock which it is so advised can be
included in such offering without so adversely affecting it. With respect to a
registration that is the subject of Section 3.2 hereof, shares of Common Stock
proposed by the Company to be registered for issuance by the Company or for sale
by third parties exercising "demand" registration rights shall have the first
priority and all other shares of Common Stock to be registered, including any
and all shares of Shareholder Common Stock shall be given second priority
without preference among the relevant holders. If less than all of the shares of
Shareholder Common Stock duly requested to be included in such registration are
to be registered therein, such shares of Shareholder Common Stock shall be
included in the registration pro rata based on the total number of such shares
sought to be registered other than for issuance by the Company or sale by third
parties exercising "demand" registration rights in accordance with the preceding
sentence.
III.4 Registration Procedures. In connection with the Company's
obligations to register the Shareholder Common Stock for resale pursuant to this
Article III, the Company will use its reasonable best efforts to effect such
registration in accordance herewith and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable
after request for registration hereunder the requisite registration statement to
effect such registration and use its reasonable best efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (x) 180 days following the date on which such
registration statement is declared effective (the "Effective Date") or (y) the
termination of the offering being made as set forth thereunder;
(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 as
set forth above and to comply with the provisions of the Securities Act with
respect to the disposition of all shares of Shareholder Common Stock covered by
such registration statement until such Shareholder Common Stock has been sold or
such lesser period of time as the Company, any seller of such Shareholder Common
Stock ("Selling Securityholder") or any underwriter is required under the
Securities Act to deliver a prospectus in accordance with the intended methods
of disposition by the Selling Securityholders set forth in such registration
statement or supplement to such prospectus;
(c) furnish to the managing underwriter, if any, and to the
Shareholder, at least one executed original of the registration statement and to
each of the Selling Securityholders 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
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity
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with the requirements of the Securities Act as may reasonably be requested by
such Selling Securityholder;
(d) use its reasonable best efforts (i) to register or
qualify, to the extent necessary, all shares of Common Stock covered by such
registration statement under the securities or "blue sky" laws of such
jurisdictions where an exemption is not available as the Selling Securityholders
shall reasonably request, (ii) to keep such registration or qualification in
effect for so long as such registration statement remains in effect and (iii) to
take any other action which may be reasonably necessary or advisable to enable
the Selling Securityholders to consummate the disposition in such jurisdictions
of such Common Stock, provided that the Company will not be required to qualify
generally to do business or as a dealer in any jurisdiction where it is not then
so qualified, subject itself to taxation in any such jurisdiction or take any
action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Securityholders and the managing
underwriter, if any, promptly, and confirm such advice in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a registration statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to a registration statement or related prospectus
or for additional information, (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of a registration statement or the initiation
of any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any of the
registered securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event or information becoming known which requires the making of any changes in
a registration statement or related prospectus so that such documents will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (vi) of the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification of any of the registered
securities for sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause
(e)(v) above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the securities being sold thereunder, such
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading;
(h) use its reasonable best efforts to furnish to the
Selling Securityholders a signed counterpart, addressed to the Selling
Securityholders and the underwriters, if any, of an opinion of counsel for the
Company as to the effectiveness of the registration statement registering the
resale of the Shareholder Common Stock under the Securities Act.
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(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with a registration
pursuant hereto;
(j) cooperate with the Selling Securityholders and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing shares of Shareholder Common Stock to be sold; and
enable such shares of Shareholder Common Stock to be in such denominations and
registered in such names as the Selling Securityholders or the managing
underwriters, if any, may request at least two business days prior to any sale
of shares of Shareholder Common Stock to the underwriters;
(k) cause all shares of Common Stock covered by the
registration statement to be listed on each securities exchange, if any, or
Nasdaq, on which securities of such class, series and form issued by the
Company, if any, are then listed or traded if requested by the managing
underwriters, if any, or the holders of a majority of the shares of Common Stock
covered by the registration statement and entitled hereunder to be so listed;
and
(l) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD") and in
the performance of any due diligence investigation by any underwriter (including
any qualified independent underwriter that is required to be retained in
accordance with the rules and regulations of the NASD).
The Company may require each Selling Securityholder to furnish to the
Company such information and documents regarding such Selling Securityholder and
the distribution of such securities as the Company may from time to time
reasonably request in writing in order to comply with the Securities Act.
Each of the Selling Securityholders agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3.4(e)(ii), (iii), (iv), (v) or (vi) hereof, it will forthwith
discontinue disposition pursuant to such registration statement of any shares of
Common Stock covered by such registration statement or prospectus until its
receipt of the copies of the supplemented or amended prospectus relating to such
registration statement or prospectus or until it is advised in writing by the
Company that the use of the applicable prospectus may be resumed (and the period
of such discontinuance shall be excluded from the calculation of the period
specified in clause (x) of Section 3.4(a)) and, if so directed by the Company,
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in their possession, of the prospectus covering such
securities in effect at the time of receipt of such notice. Each of the Selling
Securityholders agrees to furnish the Company a signed counterpart, addressed to
the Company and the underwriters, if any, of an opinion of counsel covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
selling stockholder's counsel delivered to the underwriters in underwritten
public offerings of securities (and dated the dates such opinions are
customarily dated) and such other legal matters as the Company or the
underwriters may reasonably request.
III.5 Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its common stock under the Securities Act as
contemplated by Section 3.2 and such
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shares are to be distributed by or through one or more underwriters, the Company
and, if the managing underwriter shall elect in writing to include the shares of
Shareholder Common Stock sought to be included in such registration, the Selling
Securityholders who hold Shareholder Common Stock to be distributed by such
underwriters in accordance with Section 3.2 hereof shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of 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 them and that any
or all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to their obligations. The
Company may, at its option, require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling
Securityholders to and for the benefit of such underwriters shall also be made
to and for the benefit of the Company.
III.6 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Securityholders,
the underwriters, if any, and their respective counsel and accountants the
opportunity (but such Persons shall not have the obligation except as set forth
herein) to participate (in the case of a registration pursuant to Section 3.2
hereof such participation shall be at their expense) in the preparation of such
registration statement, each prospectus included therein or filed with the SEC,
and, to the extent practicable, each amendment thereof or supplement thereto,
and will give each of them such access to its books and records (to the extent
customarily given to the underwriters of the Company's securities) and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of the Selling Securityholders, and the
underwriters' respective outside counsel to conduct a reasonable investigation
within the meaning of the Securities Act.
III.7 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause the Shareholder Common Stock to be registered under the
Securities Act are subject to each of the following limitations, conditions and
qualifications:
(a) The Company shall be entitled to postpone for a
reasonable period of time the filing or effectiveness of, or suspend the rights
of Selling Securityholders to make sales pursuant to, any registration statement
otherwise required to be prepared, filed and made and kept effective by it
hereunder (but the duration of such postponement or suspension may not exceed
the earlier to occur of (w) 30 days after the cessation of the circumstances
described in clauses (i) and (ii) below or (x) 120 days after the date of the
determination of the Board of Directors referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (x) of Section 3.4(a)) if the Board of Directors of
the Company determines in good faith that (i) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time would be adverse to the Company's interests or
(ii) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such
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registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as practicable, notify
the Selling Securityholders of such determination, and the Selling
Securityholders shall have the right (y) in the case of a postponement of the
filing or effectiveness of a registration statement to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (z) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company's obligations shall be subject to the
obligations of the Selling Securityholders, which the Shareholder hereby
acknowledges, to furnish all information and materials and to take any and all
actions as may be required under applicable federal and state securities laws
and regulations to permit the Company to comply with all applicable requirements
of the SEC and state securities regulations and to obtain any acceleration of
the effective date of such registration statement or maintain the effectiveness
or currency thereof.
(c) The Company shall not be obligated to cause any special
audit to be undertaken in connection with any registration pursuant hereto
unless such audit is requested by the underwriters with respect to such
registration.
(d) If requested by an underwriter in an underwritten
offering, the Shareholder agrees not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the Securities Act, of any Common
Stock (other than in accordance with Sections 3.1 or 3.2) within 30 days before
or 60 days after the effective date of a registration statement filed pursuant
to Sections 3.1 or 3.2.
III.8 Expenses. The Company will pay its own actual expenses
(including legal fees) incurred in connection with each demand and incidental
registration of Shareholder Common Stock pursuant to Sections 3.1 or 3.2 of this
Agreement, including, without limitation, any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges,
Nasdaq and the NASD, fees and expenses of compliance with state securities or
blue sky laws, printing expenses, fees and disbursements of counsel and
accountants of the Company, including costs associated with comfort letters, and
fees and expenses of other Persons retained by the Company, and, in the case of
a demand registration pursuant to Section 3.1 of this Agreement, all reasonable
costs, expenses and fees of one legal counsel for the Selling Securityholders
(which legal counsel shall be chosen by the majority-in-interest of the Selling
Securityholders in their discretion), but each Selling Securityholder shall pay
its own underwriters' expenses (such as but not limited to discounts,
commissions and fees of underwriters and expenses included therein of selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the securities being registered) and legal expenses
(except as set forth above). The Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), and the expense of securities
law liability insurance and rating agency fees, if any.
III.9 Indemnification.
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(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which Shareholder Common Stock is to be disposed
of, the Company shall indemnify and hold harmless, to the fullest extent
permitted by law, the Shareholder and, when applicable, its officers, directors,
agents and employees and each Person who controls (or is controlled by or under
common control with) the Shareholder (within the meaning of the Securities Act
or the Exchange Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
including, without limitation, any loss, claim, damage, liability or expense
resulting from the failure to keep a prospectus current as required hereunder,
except insofar as the same (i) are caused by or contained in any information
furnished in writing to the Company by or on behalf of the Shareholder expressly
for use therein or (ii) are caused by the Shareholder's failure to deliver a
copy of the current required prospectus after the Company has furnished the
Shareholder with a sufficient number of copies of such prospectus as requested
hereunder or (iii) arise in respect of any offers to sell or sales made during
any period when the Shareholder is required to discontinue sales under Section
3.4(e) or otherwise under applicable law. The Company shall also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals (if any), participating in the distribution of the Shareholder
Common Stock, their officers and directors and each person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent (and subject to the same exceptions) as provided above with respect
to the indemnification of the Shareholder and shall enter into an
indemnification agreement with such Persons containing such terms, if requested.
(b) Indemnification by the Shareholder. In connection with
each registration statement effected pursuant hereto in which Shareholder Common
Stock held by the Shareholder is to be disposed of, the Shareholder shall
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, each other Selling Securityholder and their respective directors,
officers, agents and employees and each Person who controls the Company and each
other Selling Securityholder (within the meaning of the Securities Act and the
Exchange Act) and the managing underwriter if any, and its directors, officers,
agents, and employees and each Person who controls such underwriter (within the
meaning of the Securities Act and Exchange Act), in each case against any
losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact or any omission of a material fact required to be
stated in such registration statement or prospectus or preliminary prospectus or
necessary to make the statements therein not misleading, to the extent but only
to the extent, that such untrue statement or omission is contained in any
information furnished in writing by the Shareholder to the Company expressly for
inclusion in such registration statement or prospectus. In no event shall the
liability of the Shareholder hereunder be greater in amount than the dollar
amount of the proceeds received or to be received by the Shareholder upon the
sale of the securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall give prompt notice to the
indemnifying party of any claim with respect to which it shall seek
indemnification and shall permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party;
provided, however, that any Person entitled to indemnification hereunder shall
have the right to employ
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separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
to employ counsel reasonably satisfactory to such Person or (iii) such
assumption would constitute an actual conflict of interest (in which case, if
the Person notifies the indemnifying party in writing that such Person elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such Person). If such defense is not assumed by the indemnifying
party, the indemnifying party shall not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). No indemnified party shall be required to consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a written release in form and substance reasonably satisfactory to such
indemnified party from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
firm of counsel (and, if necessary, local counsel) for all parties (including
all applicable holders of Shareholder Common Stock) indemnified by such
indemnifying party with respect to such claim, unless a conflict of interest as
to the subject matter exists between such indemnified party and another
indemnified party with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of additional counsel for
such indemnified party.
(d) Contribution. If for any reason the indemnification
provided for herein is unavailable to an indemnified party or is insufficient to
hold it harmless as contemplated hereby, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of the Shareholder for such
contribution and indemnification exceed, in the aggregate, the dollar amount of
the proceeds received or to be received by the Shareholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
III.10 Participation in Underwritten Registrations. The Shareholder may
not participate in any underwritten registration hereunder unless the
Shareholder (a) agrees to sell its Shareholder Common Stock on the basis
provided in and in compliance with any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and to comply with
Regulation M under the Exchange Act, and (b) completes and executes all
questionnaires, appropriate and limited powers-of-attorney, escrow agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements; provided that all such
documents shall be consistent with the provisions hereof.
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ARTICLE IV
MISCELLANEOUS
IV.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder Common
Stock. The provisions of this Agreement shall apply, to the fullest extent set
forth herein with respect to Shareholder Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution of the Shareholder Common Stock,
by reason of any stock dividend, stock split, stock issuance, reverse stock
split, combination recapitalization, reclassification, merger, consolidation or
otherwise; provided, however, that such provisions shall apply only to any class
or classes of stock which have the right, without limitation as to amount,
either to all or a share of the balance of current dividends and liquidating
dividends after payment of dividends and distributions on any shares entitled to
preference so issued or issuable upon the conversion, exchange or exercise, as
the case may be, of securities of the Company so issued.
IV.2 Binding Effect. The provisions of this Agreement shall be
binding upon and accrue to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. In the case of
a transferee permitted under this Agreement, such transferee shall be deemed the
Shareholder hereunder; provided, however, that no transferee shall derive any
rights under this Agreement unless and until such transferee has executed and
delivered to the Company a valid undertaking and becomes bound by the terms of
this Agreement.
IV.3 Amendment; Waiver. This Agreement may be amended only by a
written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
IV.4 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express) and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
(a) if to the Company, addressed to:
The Harvey Entertainment Company
1999 Avenue of the Stars, Suite 2050
Los Angeles, California 90067
Fax: (310) 789-1990
Attn: Secretary
(b) If to the Shareholder, at the address set forth on the
signature pages hereto.
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IV.5 Governing Law. This Agreement shall be governed by and
construed, interpreted and the rights of the parties determined in accordance
with the laws of the State of California without regard to choice of law
principles hereof.
IV.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
IV.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
IV.8 Cumulative Remedies. All rights and remedies of the party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
13
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE HARVEY ENTERTAINMENT COMPANY
By: __________________________________________
Name:
Title:
SHAREHOLDER:
______________________________________________
Name: Paul Guez
Address:
